-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A+ziVF8AAP+1Sr+EuGxRANO95bAZvCtiThRxSK4/ObGGh00+cIIEQqEO8Fu5qiDd uxygIyTsxgF647IzYIlfow== 0000950144-98-011706.txt : 19981028 0000950144-98-011706.hdr.sgml : 19981028 ACCESSION NUMBER: 0000950144-98-011706 CONFORMED SUBMISSION TYPE: SC 13E3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19981027 SROS: NASD GROUP MEMBERS: ADVENT ATLANTIC AND PACIFIC III LP GROUP MEMBERS: ADVENT NEW YORK LP GROUP MEMBERS: ADVENT VII LP GROUP MEMBERS: BRUCE A MITCHELL GROUP MEMBERS: COMPDENT CORP GROUP MEMBERS: DAVID R KLOCK GROUP MEMBERS: GOLDER THOMA CRESSEY RAUNER FUND V LP GROUP MEMBERS: GTCR ASSOCIATES V GROUP MEMBERS: KEITH J YODER GROUP MEMBERS: NMS CAPITAL LP GROUP MEMBERS: PHYLLIS A KLOCK GROUP MEMBERS: TA EXECUTIVES FUND LLC GROUP MEMBERS: TA INVESTORS LLC GROUP MEMBERS: TA/ADVENT VIII LLC GROUP MEMBERS: TAGTCR ACQUISITION INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: COMPDENT CORP CENTRAL INDEX KEY: 0000941553 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 043185995 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3 SEC ACT: SEC FILE NUMBER: 005-45579 FILM NUMBER: 98731508 BUSINESS ADDRESS: STREET 1: 100 MANSELL COURT EAST STREET 2: STE 400 CITY: ROSWELL STATE: GA ZIP: 30076 BUSINESS PHONE: 770998936 MAIL ADDRESS: STREET 1: 100 MANSELL CT E STREET 2: STE 400 CITY: ROSWELL STATE: GA ZIP: 30076 FORMER COMPANY: FORMER CONFORMED NAME: APPS DENTAL INC DATE OF NAME CHANGE: 19950315 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: COMPDENT CORP CENTRAL INDEX KEY: 0000941553 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 043185995 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3 BUSINESS ADDRESS: STREET 1: 100 MANSELL COURT EAST STREET 2: STE 400 CITY: ROSWELL STATE: GA ZIP: 30076 BUSINESS PHONE: 770998936 MAIL ADDRESS: STREET 1: 100 MANSELL CT E STREET 2: STE 400 CITY: ROSWELL STATE: GA ZIP: 30076 FORMER COMPANY: FORMER CONFORMED NAME: APPS DENTAL INC DATE OF NAME CHANGE: 19950315 SC 13E3 1 COMPDENT CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13E-3 RULE 13E-3 TRANSACTION STATEMENT (PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934) COMPDENT CORPORATION (Name of the Issuer) TAGTCR ACQUISITION, INC. TA/ADVENT VIII LLC ADVENT ATLANTIC AND PACIFIC III L.P. TA EXECUTIVES FUND LLC TA INVESTORS LLC ADVENT VII L.P. ADVENT NEW YORK L.P. GOLDER, THOMA, CRESSEY, RAUNER FUND V, L.P. GTCR ASSOCIATES V NMS CAPITAL, L.P. DAVID R. KLOCK PHYLLIS A. KLOCK BRUCE A. MITCHELL KEITH J. YODER COMPDENT CORPORATION (Name of Person(s) Filing Statement) COMMON STOCK, PAR VALUE $.01 PER SHARE (Title of Class of Securities) ------------- (CUSIP Number of Class of Securities) Golder, Thoma, Cressey, TA/Advent VIII LLC NMS Capital, L.P. Rauner, Fund V, L.P. Advent Atlantic and Pacific III L.P. c/o William B. Bunting GTCR Associates V TA Executives Fund LLC 600 Montgomery Street c/o Don Edwards TA Investors LLC San Francisco, CA 94111 6100 Sears Tower Advent VII L.P. (415) 627-2426 Chicago, IL 60606 Advent New York L.P. (312) 382-2200 c/o Roger B. Kafker 125 High Street, Suite 2500 Boston, MA 02110 (617) 574-6700 CompDent Corporation TAGTCR Acquisition, Inc. David R. Klock c/o David R. Klock c/o Roger B. Kafker Phyllis A. Klock 100 Mansell Court East 125 High Street, Suite 2500 Bruce A. Mitchell Suite 400 Boston, MA 02110 Keith J. Yoder Roswell, GA 28226 (617) 574-6700 100 Mansell Court East (770) 998-8936 Suite 400 Roswell, GA 28226 (770) 998-8936
2 WITH COPIES TO: John J. Kelley III Bruce A. Mitchell Sanford E. Perl King & Spalding CompDent Corporation Kirkland & Ellis 191 Peachtree Street 100 Mansell Court East, Ste. 400 200 East Randolph Drive Atlanta, Georgia 30303 Roswell, Georgia 30076 Chicago, Illinois 60601 (404) 572-4600 (770) 998-8936 (312) 861-2000
(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Person(s) Filing Statement) This statement is filed in connection with (check the appropriate box): a. 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. [X] 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 statement referred to in checking box (a) are preliminary copies: [X] CALCULATION OF FILING FEE
============================================================================== Transaction Value* Amount of Filing Fee $185,240,322 $37,048.06 ==============================================================================
* For purposes of calculating the fee only. Assumes purchase of 10,291,129 shares of Common Stock, par value $.01 per share, of CompDent Corporation at $18.00 per share and the purchase of underlying options to purchase Common Stock for an aggregate of $185,240,322. Check box if any 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. [X] Amount previously paid: $37,048.06 Form or registration no.: Preliminary Proxy Statement on Schedule 14A Filing party: CompDent Corporation Date filed: October 27, 1998 3 This Rule 13e-3 Transaction Statement (this "Statement") is being filed in connection with the filing by CompDent Corporation ("CompDent" or the "Company") with the Securities and Exchange Commission (the "Commission") on October 27, 1998 of a Preliminary Proxy Statement on Schedule 14A (the "Proxy Statement") in connection with a special meeting of the stockholders of CompDent to be held on _______, 1998. At such meeting, the stockholders of CompDent will vote upon, among other things, the adoption of an Agreement and Plan of Merger dated as of July 28, 1998 (the "Merger Agreement") by and among CompDent, TAGTCR Acquisition, Inc., NMS Capital, L.P., Golder, Thoma, Cressey, Rauner Fund V, L.P., and TA/Advent VIII, L.P. (collectively, the "Equity Investors") pursuant to which TAGTCR Acquisition, Inc. (the "Acquiror") will be merged with and into CompDent. David R. Klock and Phyllis A. Klock are collectively referred to herein as the "Management Sponsors." The following cross reference sheet is being supplied pursuant to General Instruction F to Schedule 13E-3 and shows the location in the Proxy Statement of the information required to be included in response to the items of this Statement. The information in the Schedule 14A which is attached hereto as Exhibit (d)(3), including all appendices thereto, is hereby expressly incorporated herein by reference and the responses to each item are qualified in their entirety by the provisions of the Proxy Statement. CROSS REFERENCE SHEET
CAPTION OR LOCATION IN THE ITEM IN SCHEDULE 13E-3 PROXY STATEMENT Item 1(a) Cover Page and "Summary--The Companies" Item 1(b) Cover Page, "Summary--Record Date; Voting Power" and "The Special Meeting--Record Date and Quorum Requirement" Item 1(c) - (e) "Summary--Historical Market Information" Item 1(f) "Purchase of Common Stock by Certain Persons" Item 2(a) - (d) and (g) "Summary--The Companies" and "Certain Information Concerning the Acquiror and the Investor Group" Item 2(e) - (f) * Item 3(a)(1) "Special Factors--Opinion of Financial Advisor--Analysis of Dental Health Development Corporation" Item 3(a)(2) "Special Factors--Background of the Merger," "--Conflicts of Interest" and "--Certain Effects of the Merger" Item 3(b) "Special Factors--Background of the Merger," "--Conflicts of Interest" and "--Certain Effects of the Merger" Item 4(a) "Questions and Answers about the Merger," "Summary--Terms of the Merger Agreement," "--Share Ownership of CompDent following the Merger," "--Appraisal Rights," "Special Factors--Certain Effects of the Merger" "The Special Meeting--Effective Time of the Merger and Payment for Shares," "The Merger," "Rights of Dissenting Stockholders" and Appendix A to the Proxy Statement
- ---------------- * Not applicable or answer is negative. 4
CAPTION OR LOCATION IN THE ITEM IN SCHEDULE 13E-3 PROXY STATEMENT Item 4(b) "Questions and Answers about the Merger," "Summary--Share Ownership of CompDent following the Merger," "--Conflicts of Interest," "--Appraisal Rights," "Special Factors--Purpose and Reasons of the Investor Group for the Merger," "--Conflicts of Interest," "--Certain Effects of the Merger," "The Merger" and "Rights of Dissenting Stockholders" Item 5(a) - (b) "Special Factors--Purpose and Reasons of the Investor Group for the Merger," "--Conflicts of Interest," "--Certain Effects of the Merger," "--Financing of the Merger" and "--Conduct of CompDent's Business After the Merger" Item 5(c) "Special Factors--Conflicts of Interest" "--Conduct of CompDent's Business After the Merger" Item 5(d) "Summary--Share Ownership of CompDent following the Merger," "--Conflicts of Interest," "--Historical Market Information," "Special Factors--Conflicts of Interest," "Financing of the Merger" and "The Merger-- Terms of the Merger Agreement--Covenants" Item 5(e) "Special Factors--Certain Effects of the Merger," "--Financing of the Merger" and "--Conduct of CompDent's Business After the Merger" Item 5(f) - (g) "Special Factors--Certain Effects of the Merger" Item 6(a) "Special Factors--Financing of the Merger" Item 6(b) "The Merger--Estimated Fees and Expenses of the Merger" Item 6(c) "Special Factors--Financing of the Merger"
- --------------- *Not applicable or answer is negative. -2- 5
CAPTION OR LOCATION IN THE ITEM IN SCHEDULE 13E-3 PROXY STATEMENT Item 6(d) * Item 7(a) - (c) "Questions and Answers about the Merger," "Summary," "Special Factors--Background of the Merger," "--The Special Committee's and the Board's Recommendation," "--Opinion of Financial Advisor," "--Purpose and Reasons of the Investor Group for the Merger" and "--Conflicts of Interest" Item 7 (d) "Questions and Answers about the Merger," "Summary," "Special Factors--Background of the Merger," "--Purpose and Reasons of the Investor Group for the Merger," "--Conflicts of Interest," "--Certain Effects of the Merger," "--Financing of the Merger," "--Conduct of CompDent's Business After the Merger," "Rights of Dissenting Stockholders," "Federal Income Tax Consequences" and "Principal Stockholders and Stock Ownership of Management and Others" Item 8(a) - (b) "Questions and Answers about the Merger," "Summary--Recommendations," "--Opinion of Financial Advisor," "--Conflicts of Interest," "--Appraisal Rights," "Special Factors--Background of the Merger," "--The Special Committee's and the Board's Recommendation," "--Opinion of Financial Advisor," "--Position of the Investor Group as to Fairness of the Merger," "--Conflicts of Interest" and "Rights of Dissenting Shareholders" Item 8(c) "Questions and Answers about the Merger," "Summary--Vote Required," "Special Factors--The Special Committee's and the Board's Recommendation," "The Special Meeting--Voting Procedures" and "The Merger--Conditions of the Merger"
- --------------- *Not applicable or answer is negative. -3- 6
CAPTION OR LOCATION IN THE ITEM IN SCHEDULE 13E-3 PROXY STATEMENT Item 8(d) "Questions and Answers about the Merger," "Summary--Recommendations," "--Opinion of Financial Advisor," "Special Factors--Background of the Merger," "--The Special Committee's and the Board's Recommendation" and "--Opinion of Financial Advisor" Item 8(e) "Questions and Answers about the Merger," "Summary--Recommendations" and "Special Factors--The Special Committee's and the Board's Recommendation" Item 8(f) "Special Factors--Background of the Merger" Item 9(a) - (c) "Summary--Recommendations," "--Opinion of Financial Advisor," "Special Factors-- Background of the Merger," "The Special Committee's and the Board's Recommendation," "--Opinion of Financial Advisors," "--Conflicts of Interest" and Appendix B to the Proxy Statement Item 10(a) "Principal Stockholders and Stock Ownership of Management and Others" Item 10(b) * Item 11 "Questions and Answers about the Merger," "Summary, " "--Terms of the Merger Agreement," "Special Factors--Background of the Merger," "--Conflicts of Interest," "--Financing of the Merger," "The Merger" and Appendix A to the Proxy Statement
- --------------- *Not applicable or answer is negative. -4- 7
CAPTION OR LOCATION IN THE ITEM IN SCHEDULE 13E-3 PROXY STATEMENT Item 12(a) - (b) "Summary--Recommendations," "--Share Ownership of CompDent following the Merger," "--Conflicts of Interest," "Special Factors--The Special Committee's and the Board's Recommendation," "--Purpose and Reasons of the Investor Group for the Merger" and "--Financing of the Merger" Item 13(a) "Summary--Appraisal Rights," "Rights of Dissenting Stockholders" and Appendix C to the Proxy Statement Item 13(b) * Item 13(c) * Item 14(a) "Summary--Selected Consolidated Financial Data, "Incorporation of Certain Documents by Reference" and "Experts" Item 14(b) * Item 15(a) - (b) "Special Factors--Conflicts of Interest," "The Special Meeting--Proxy Solicitation" "The Merger" Item 16 Proxy Statement Item 17(a) - (f) *
- --------------- *Not applicable or answer is negative. -5- 8 ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION. (a) The information set forth on the cover page to the Proxy Statement and in the section entitled "Summary--The Companies" of the Proxy Statement is incorporated herein by reference. (b) The information set forth on the cover page to the Proxy Statement and in the sections entitled "Summary--Record Date; Voting Power" and "The Special Meeting--Record Date and Quorum Requirement" of the Proxy Statement is incorporated herein by reference. (c)-(e) The information set forth in the section entitled "Summary--Historical Market Information" of the Proxy Statement is incorporated herein by reference. (f) The information set forth in the section entitled "Purchases of Common Stock by Certain Persons" of the Proxy Statement is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d), (g) This Statement is being filed by CompDent, the Acquiror, the Equity Investors and the Management Sponsors. The information set forth in the sections entitled "Summary--The Companies" and "Certain Information Concerning the Acquiror and the Investor Group" of the Proxy Statement is incorporated herein by reference. (e), (f) None of the Equity Investors, the Acquiror or any executive officer, director or person controlling the Acquiror or the Equity Investors or any Management Sponsor has during the last five years (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. -6- 9 ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS. (a)(1) The information set forth in the section entitled "Special Factors--Opinion of Financial Advisor--Analysis of Dental Health Development Corporation" of the Proxy Statement is incorporated herein by reference. (a)(2) The information set forth in the sections entitled "Special Factors--Background of the Merger," "--Conflicts of Interest" and "--Certain Effects of the Merger" of the Proxy Statement is incorporated herein by reference. (b) The information set forth in the sections entitled "Special Factors--Background of the Merger," "--Conflicts of Interest" and "--Certain Effects of the Merger" of the Proxy Statement is incorporated herein by reference. ITEM 4. TERMS OF THE TRANSACTION. (a) The information set forth in the sections entitled "Questions and Answers about the Merger," "Summary--Terms of the Merger Agreement," "--Share Ownership of CompDent following the Merger," "-- Appraisal Rights," "Special Factors--Certain Effects of the Merger," "The Special Meeting--Effective Time of the Merger and Payment for Shares," "The Merger" and "Rights of Dissenting Stockholders" of the Proxy Statement and Appendix A to the Proxy Statement is incorporated herein by reference. (b) The information set forth in the sections entitled "Questions and Answers about the Merger," "Summary--Share Ownership of CompDent following the Merger," "--Conflicts of Interest," "--Appraisal Rights," "Special Factors--Purpose and Reasons of the Investor Group for the Merger," "--Conflicts of Interest," "--Certain Effects of the Merger," "The Merger" and "Rights of Dissenting Stockholders" of the Proxy Statement is incorporated herein by reference. ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (a)-(b) The information set forth in the sections entitled "Special Factors--Purpose and Reasons of the Investor Group for the Merger," "--Conflicts of Interest," "--Certain Effects of the Merger," "--Financing of the Merger" and "--Conduct of CompDent's Business After the Merger" of the Proxy Statement is incorporated herein by reference. -6- 10 (c) The information set forth in the sections entitled "Special Factors--Conflicts of Interest" and "--Conduct of CompDent's Business After the Merger" of the Proxy Statement is incorporated herein by reference. (d) The information set forth in the sections entitled "Summary--Share Ownership of CompDent following the Merger," "--Conflicts of Interest," "--Historical Market Information," "Special Factors--Conflicts of Interest," "--Financing of the Merger" and "The Merger--Terms of the Merger Agreement--Covenants" of the Proxy Statement is incorporated herein by reference. (e) The information set forth in the sections entitled "Special Factors--Certain Effects of the Merger," "--Financing of the Merger" and "--Conduct of CompDent's Business After the Merger" of the Proxy Statement is incorporated herein by reference. (f)-(g) The information set forth in the section entitled "Special Factors--Certain Effects of the Merger" of the Proxy Statement is incorporated herein by reference. ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) The information set forth in the section entitled "Special Factors--Financing of the Merger" of the Proxy Statement is incorporated herein by reference. (b) The information set forth in the section entitled "The Merger--Estimated Fees and Expenses of the Merger" of the Proxy Statement is incorporated herein by reference. (c) The information set forth in the section entitled "Special Factors--Financing of the Merger" of the Proxy Statement is incorporated herein by reference. (d) Not applicable. ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS. (a)-(c) The information set forth in the sections entitled "Questions and Answers about the Merger," "Summary," "Special Factors--Background of the Merger," "--The Special Committee's and the Board's Recommendation," "--Opinion of Financial Advisor," "--Purpose and Reasons of the Investor Group for the Merger" and "--Conflicts of Interest" of the Proxy Statement is incorporated herein by reference. (d) The information set forth in the sections entitled "Questions and Answers about the Merger," "Summary," "Special Factors--Background of the Merger," "--Purpose and Reasons of the Investor Group for the Merger," "--Conflicts of Interest," "--Certain Effects of the Merger," "--Financing of the Merger," "--Conduct of CompDent's Business After the Merger," "Rights of Dissenting Stockholders," "Federal Income Tax Consequences" and "Principal -7- 11 Stockholders and Stock Ownership of Management and Others" of the Proxy Statement is incorporated herein by reference. ITEM 8. FAIRNESS OF THE TRANSACTION. (a)-(b) The information set forth in the sections entitled "Questions and Answers about the Merger," "Summary--Recommendations," "--Opinion of Financial Advisor," "--Conflicts of Interest," "--Appraisal Rights," "Special Factors--Background of the Merger," "--The Special Committee's and the Board's Recommendation," "--Opinion of Financial Advisor," "--Position of the Investor Group as to Fairness of the Merger," "--Conflicts of Interest" and "Rights of Dissenting Shareholders" of the Proxy Statement are incorporated herein by reference. (c) The information set forth in the sections entitled "Questions and Answers about the Merger," "Summary--Vote Required," "Special Factors--The Special Committee's and the Board's Recommendation," "The Special Meeting--Voting Procedures" and "The Merger-- Conditions of the Merger" of the Proxy Statement is incorporated herein by reference. (d) The information set forth in the sections entitled "Questions and Answers about the Merger," "Summary--Recommendations," "--Opinion of Financial Advisor," "Special Factors--Background of the Merger," "--The Special Committee's and the Board's Recommendation" and "--Opinion of Financial Advisor" of the Proxy Statement is incorporated herein by reference. (e) The information set forth in the sections entitled "Questions and Answers about the Merger," "Summary--Recommendations" and "Special Factors--The Special Committee's and the Board's Recommendation" of the Proxy Statement is incorporated herein by reference. (f) The information set forth in the section entitled "Special Factors--Background of the Merger" of the Proxy Statement is incorporated herein by reference. ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS. (a)-(c) The information set forth in the sections entitled "Summary--Recommendations," "--Opinion of Financial Advisor," "Special Factors--Background of the Merger," "The Special Committee's and the Board's Recommendation," "--Opinion of Financial Advisor" and "-- Conflicts of Interest" of the Proxy Statement and in Appendix B to the Proxy Statement is incorporated herein by reference. ITEM 10. INTEREST IN SECURITIES OF THE ISSUER. (a) The information set forth in the section entitled "Principal Stockholders and Stock Ownership of Management and Others" of the Proxy Statement is incorporated herein by reference. -8- 12 (b) None. ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S SECURITIES. The information set forth in the sections entitled "Questions and Answers about the Merger," "Summary," "--Terms of the Merger Agreement," "Special Factors--Background of the Merger," "--Conflicts of Interest," "--Financing of the Merger" and "The Merger" of the Proxy Statement and in Appendix A to the Proxy Statement is incorporated herein by reference. ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO THE TRANSACTION. (a)-(b) The information set forth in the sections entitled "Summary--Recommendations," "-- Share Ownership of CompDent following the Merger," "--Conflicts of Interest," "Special Factors--The Special Committee's and the Board's Recommendation," "--Purpose and Reasons of the Investor Group for the Merger" and "--Financing of the Merger" of the Proxy Statement is incorporated herein by reference. ITEM 13. OTHER PROVISIONS OF THE TRANSACTION. (a) The information set forth in the sections entitled "Summary--Appraisal Rights" and "Rights of Dissenting Stockholders" of the Proxy Statement and in Appendix C to the Proxy Statement is incorporated herein by reference. (b) Not applicable. (c) Not applicable. ITEM 14. FINANCIAL INFORMATION. (a) The relevant financial information set forth under the sections entitled "Summary--Selected Consolidated Financial Data of the Company," "Incorporation of Certain Documents by Reference" and "Experts" of the Proxy Statement is incorporated herein by reference. (b) Not applicable. -9- 13 ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED. (a)-(b) The information set forth in the sections entitled "Special Factors--Conflicts of Interest," "The Special Meeting--Proxy Solicitation" and "The Merger"of the Proxy Statement is incorporated herein by reference. ITEM 16. ADDITIONAL INFORMATION. The entirety of the Proxy Statement is incorporated herein by reference. ITEM 17. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) Recapitalization Financing Commitment Letter dated July 27, 1997 by and among, TA Advent VIII, L.P.; Golder, Thoma, Cressey, Rauner Fund V, L.P.; NMS Capital, L.P.; NationsBank, N.A.; and NationsBanc Montgomery Securities LLC. (a)(2) Recapitalization Financing Commitment Letter dated July 27, 1997 by and among, TA Advent VIII, L.P.; Golder, Thoma, Cressey, Rauner Fund V, L.P.; NMS Capital, L.P.; NationsBank, N.A.; and NationsBanc Montgomery Securities LLC. (b)(1) Opinion of The Robinson-Humphrey Company, LLC dated July 28, 1998 (included as Appendix B to the Preliminary Proxy Statement, which is filed herewith as Exhibit (d)(3)). (b)(2) Financial Analysis Presentation materials prepared by The Robinson-Humphrey Company, LLC in connection with providing its opinion to the Special Committee on July 21, 1998. (b)(3) Financial Analysis Presentation materials prepared by The Robinson-Humphrey Company, LLC in connection with providing its opinion to the Special Committee on July 27, 1998. (c)(1) Agreement and Plan of Merger dated as of July 28, 1998 by and among CompDent Corporation, TAGTCR Acquisition, Inc., NMS Capital, L.P., TA/Advent VIII, L.P. and Golder, Thoma, Cressey, Rauner Fund V, L.P. (included as Appendix A to the Preliminary Proxy Statement, which is filed herewith as Exhibit (d)(3)). -10- 14 (c)(2) Stockholders Agreement.* (d)(1) Letter to Stockholders (included in the Preliminary Proxy Statement, which is filed herewith as Exhibit (d)(3)). (d)(2) Notice of Special Meeting of Stockholders (included in the Preliminary Proxy Statement, which is filed herewith as Exhibit (d)(3)). (d)(3) Preliminary Proxy Statement, dated October 27, 1998. (d)(4) Form of Proxy (included in the Preliminary Proxy Statement, which is filed herewith as Exhibit (d)(3)). (d)(5) Press Release issued by CompDent Corporation dated as of July 28, 1998 (incorporated by reference to the Current Report on Form 8-K filed by CompDent on August 12, 1998). (e) Text of Section 262 of the Delaware General Corporation Law (included as Appendix C to the Preliminary Proxy Statement, which is filed herewith as Exhibit (d)(3)). (f) Not applicable. - ----------------- *To be filed by amendment. -11- 15 SIGNATURES After due inquiry and to the best of our knowledge and belief, each of the undersigned certifies that the information set forth in this Statement is true, complete and correct. COMPDENT CORPORATION By: /s/ David R. Klock --------------------------------- Name: Dated: October 27, 1998 Title: ---------------- TAGTCR ACQUISITION, INC. By: /s/ Donald J. Edwards --------------------------------- Name: Donald J. Edwards Dated: October 27, 1998 Title: ---------------- GOLDER, THOMA, CRESSEY, RAUNER FUND V, L.P. By: GTCR V, L.P. Sole General Partner By: GOLDER, THOMA, CRESSEY, RAUNER, INC. Sole General Partner Dated: October 27, 1998 By: /s/ Donald J. Edwards ---------------- ------------------------ Name: Donald J. Edwards Title: GTCR ASSOCIATES V By: GOLDER, THOMA, CRESSEY, RAUNER, INC. Managing General Partner Dated: October 27, 1998 By: /s/ Donald J. Edwards ---------------- -------------------------------- Name: Donald J. Edwards Title: 16 TA/ADVENT VIII L.P. By: TA Associates VIII LLC Sole General Partner By: TA ASSOCIATES, INC. Manager Dated: October 26, 1998 By: /s/ Roger B. Kafker ----------------- ---------------------------- Name: Roger B. Kafker Title: Managing Director ADVENT ATLANTIC AND PACIFIC III L.P. By: TA ASSOCIATES AAP III L.P. Sole General Partner By: TA ASSOCIATES, INC. Sole General Partner Dated: October 26, 1998 By: /s/ Roger B. Kafker ----------------- ---------------------------- Name: Roger B. Kafker Title: Managing Director 17 TA EXECUTIVES FUND LLC By: TA ASSOCIATES, INC. Manager Dated: October 26, 1998 By: /s/ Roger B. Kafker -------------------- ----------------------------- Name: Roger B. Kafker Title: Managing Director TA INVESTORS LLC By: TA ASSOCIATES, INC. Manager Dated: October 26, 1998 By: /s/ Roger B. Kafker -------------------- ----------------------------- Name: Roger B. Kafker Title: Managing Director ADVENT VII L.P. By: TA Associates VII L.P. By: TA Associates, Inc. Dated: October 26, 1998 By: /s/ Roger B. Kafker -------------------- ----------------------------- Name: Roger B. Kafker Title: Managing Director ADVENT NEW YORK L.P. By: TA Associates VI L.P. By: TA Associates, Inc. Dated: October 26, 1998 By: /s/ Roger B. Kafker -------------------- ----------------------------- Name: Roger B. Kafker Title: Managing Director NMS CAPITAL, L.P. By: NMS CAPITAL MANAGEMENT LLC General Partner Dated: October 26, 1998 By: /s/ Gerald Rosenfeld -------------------- ----------------------------- Name: Gerald Rosenfeld Title: Managing Member 18 DAVID R. KLOCK Dated: October 27, 1998 /s/ David R. Klock ---------------- ------------------------------------- PHYLLIS A. KLOCK Dated: October 27, 1998 /s/ Phyllis A. Klock ---------------- ------------------------------------- BRUCE A. MITCHELL Dated: October 27, 1998 /s/ Bruce A. Mitchell ---------------- ------------------------------------- KEITH J. YODER Dated: October 27, 1998 /s/ Keith J. Yoder ---------------- ------------------------------------- 19 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NUMBER - ----------- ----------- ----------- (a)(1) Recapitalization Financing Commitment Letter dated July 27, 1997 by and among, TA Advent VIII, L.P.; Golder, Thoma, Cressey, Rauner Fund V, L.P.; NMS Capital, L.P.; NationsBank, N.A.; and NationsBanc Montgomery Securities LLC. (a)(2) Recapitalization Financing Commitment Letter dated July 27, 1997 by and among, TA Advent VIII, L.P.; Golder, Thoma, Cressey, Rauner Fund V, L.P.; NMS Capital, L.P.; NationsBank, N.A.; and NationsBanc Montgomery Securities LLC. (b)(1) Opinion of The Robinson-Humphrey Company, LLC dated July 28, 1998 (included as Appendix B to the Preliminary Proxy Statement, which is filed herewith as Exhibit (d)(3)). (b)(2) Financial Analysis Presentation materials prepared by The Robinson-Humphrey Company, LLC in connection with providing its opinion to the Special Committee on July 21, 1998. (b)(3) Financial Analysis Presentation materials prepared by The Robinson-Humphrey Company, LLC in connection with providing its opinion to the Special Committee on July 27, 1998. (c)(1) Agreement and Plan of Merger dated as of July 28, 1998 by and among CompDent Corporation, TAGTCR Acquisition, Inc., NMS Capital, L.P., TA/Advent VIII, L.P. and Golder, Thoma, Cressey, Rauner Fund V, L.P. (included as Appendix A to the Preliminary Proxy Statement, which is filed herewith as Exhibit (d)(3)). (d)(1) Letter to Stockholders (included in the Preliminary Proxy Statement, which is filed herewith as Exhibit (d)(3)). (d)(2) Notice of Special Meeting of Stockholders (included in the Preliminary Proxy Statement, which is filed herewith as Exhibit (d)(3)). (d)(3) Preliminary Proxy Statement, dated October 27, 1998. (d)(4) Form of Proxy (included in the Preliminary Proxy Statement, which is filed herewith as Exhibit (d)(3)). (d)(5) Press Release issued by CompDent Corporation dated as of July 28, 1998 (incorporated by reference to the Current Report on Form 8-K filed by CompDent on August 12, 1998). (e) Text of Section 262 of the Delaware General Corporation Law (included as Appendix C to the Preliminary Proxy Statement, which is filed herewith as Exhibit (d)(3)).
EX-99.(A)(1) 2 RECAPITALIZATION FINANCING COMMITMENT LTR 7/27/97 1 July 27, 1998 TA/Advent VIII L.P. c/o TA Associates, Inc. High Street Tower, Suite 2500 125 High Street Boston, Massachusetts 02110 Attn.: Mr. Roger Kafker Golder, Thoma, Cressey, Rauner Fund V, L.P. 6100 Sears Tower Chicago, Illinois 60606 Attn.: Mr. Don Edwards NMS Capital, L.P. 600 Montgomery Street San Francisco, California 94111 Attn.: Mr. William B. Bunting Re: Recapitalization Financing Commitment Letter Ladies and Gentlemen: You have advised us that CompDent Corporation, a Delaware corporation ("HoldCo") intends to engage in a transaction in which it is proposed that, pursuant to the Merger Agreement (as defined below), TA/Advent VIII L.P. ("TA"), Golder, Thoma, Cressey, Rauner Fund V, L.P. ("GTCR") and NMS Capital, L.P. ("NMS Capital", and together with TA and GTCR, the "Sponsors") and certain affiliates of the Sponsors and other persons arranged by the Sponsors (collectively with the Sponsors, the "Investors") will effect the recapitalization (the "Recapitalization") of HoldCo. We understand that a portion of the financing with respect to the Recapitalization will include (i) (A) not less than $87.7 million (less any rollover shares in excess of $3.6 million, such that the total amount of rollover shares shall not exceed $15 million) to be provided through the issuance and sale to the Investors (as set forth in the Merger Agreement) of equity securities of HoldCo having terms and conditions reasonably acceptable to the Agent and NMS (each as defined below) and (B) approximately $3.6 million to be provided through the rollover of common stock of HoldCo; provided, that the amount of the cash equity investment shall be reduced by the value of any common stock of HoldCo that is not converted into cash pursuant to the Recapitalization in excess of $3.6 million; provided, further that such cash equity investment may not be reduced pursuant to the foregoing proviso by more than $11.4 million (collectively, the "HoldCo Equity Financing"), (ii) a newly formed, wholly owned subsidiary of HoldCo consisting of the dental HMO business of HoldCo (the "Borrower") receiving aggregate proceeds of approximately $100,000,000 aggregate principal amount through the issuance of subordinated notes (the "Subordinated Notes") pursuant to either (A) a public or Rule 144A offering or (B) a privately-placed bridge financing, (iii) the 2 Borrower borrowing up to $55,000,000 under the Credit Facilities described below and (iv) a newly formed, wholly owned subsidiary of HoldCo consisting of the dental practice management business of HoldCo, borrowing $20,000,000 under a senior secured credit facility (the "DentalCo Credit Facility"). Further, we understand that in connection with the Recapitalization, (i) all outstanding indebtedness of HoldCo will be refinanced and such indebtedness will be terminated and (ii) after consummation of the Recapitalization, the Investors will own at least 70% of the voting equity of HoldCo. You have advised us that $75,000,000 in senior debt financing (the "Credit Facilities") will be required in order to fund a portion of the Recapitalization, to pay the fees and expenses incurred in connection with the Recapitalization and to provide for working capital and general corporate purposes after completion of the Recapitalization. You have further advised us that no external financing, other than the Credit Facilities, the DentalCo Credit Facility, the HoldCo Equity Financing and the Subordinated Notes, will be required in connection with the Recapitalization. You have requested that NationsBank, N.A. ("NationsBank") commit to provide the full principal amount of the Credit Facilities and that NationsBanc Montgomery Securities LLC ("NMS") commit to arrange the Credit Facilities. We are pleased to advise you of (a) NationsBank's commitment to provide the full principal amount of the Credit Facilities described in the Summary of Principal Terms & Conditions attached hereto as Annex I (the "Term Sheet") and (b) NMS's commitment to form a syndicate of financial institutions (the "Lenders") reasonably acceptable to you for the Credit Facilities. All capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Term Sheet and the Fee Letter (as defined below). The commitments of NationsBank and NMS hereunder are subject to the satisfaction of each of the following conditions precedent, each of the other terms and conditions set forth herein, and each of the terms and conditions set forth in the Term Sheet in a manner acceptable to NationsBank and NMS: (a) execution by the Sponsors, HoldCo and the other appropriate parties of a definitive merger agreement relating to the Recapitalization, substantially similar to a draft thereof previously delivered to the Agents and NMS, and the other definitive documentation relating thereto being satisfactory 3 to NationsBank and NMS, in their reasonable discretion (the "Merger Agreement"); (b) execution of a fee letter agreement (the "Fee Letter") among the Sponsors, NationsBank and NMS prior to or concurrently with the acceptance by the Sponsors of this commitment letter agreement (this "Commitment Letter"); (c) the negotiation, execution and delivery of definitive documentation with respect to the Credit Facilities consistent with the Term Sheet, this Commitment Letter and otherwise reasonably satisfactory to NationsBank and NMS; and (d) there not having occurred since the date hereof and being continuing a material adverse change in the market for syndicated bank credit facilities or a material disruption of, or a material adverse change in, financial, banking or capital market conditions that would have a material adverse effect on such syndication markets, in each case as determined by NationsBank and NMS, in their sole discretion. NationsBank will act as Agent for the Credit Facilities and NMS will act as Arranger and Syndication Agent for the Credit Facilities. No additional agents will be appointed without the prior approval of NationsBank and NMS. You agree to cooperate with and actively assist NationsBank and NMS in achieving a syndication of the Credit Facilities that is satisfactory to NationsBank, NMS and you. In the event that such syndication cannot be achieved in a manner satisfactory to NationsBank and NMS under the structure outlined in the Term Sheet, you agree to cooperate with NationsBank and NMS in developing an alternative structure satisfactory to you that will permit a satisfactory syndication of the Credit Facilities, provided that the aggregate principal amount of the Credit Facilities remains unchanged. Syndication of the Credit Facilities will be accomplished by a variety of means, including direct contact during the syndication between senior management and advisors of HoldCo, the Borrower and the Sponsors, on the one hand, and the proposed Lenders, on the other hand. To assist NationsBank and NMS in the syndication efforts, you hereby agree to (a) provide and cause your advisors to provide NationsBank and NMS and the other Lenders upon request with all information reasonably deemed necessary by NationsBank and NMS to complete syndication, including but not limited to information and evaluations prepared by HoldCo, the Borrower, the Sponsors and their advisors, or on their behalf, relating to the Recapitalization, (b) assist NationsBank and NMS upon their reasonable request in the preparation of an Information Memorandum to be used in connection with the syndication of the Credit Facilities and (c) otherwise assist NationsBank and NMS in their syndication efforts, including by making available officers and advisors of HoldCo, the Borrower and the Sponsors from time to time to attend and make presentations regarding the business and prospects of HoldCo, the Borrower and their respective subsidiaries, as appropriate, at a meeting or meetings of prospective Lenders. You further agree to refrain, and to cause HoldCo and the Borrower to refrain, from engaging in any additional financings for HoldCo or the Borrower and its subsidiaries (except as described in this Commitment Letter and the Term Sheet) during such syndication process, unless otherwise agreed to by NationsBank and NMS. As consideration for the agreements of NationsBank and NMS hereunder, including, without 4 limitation, their respective agreements to underwrite, manage, structure and syndicate the Credit Facilities and to provide advisory services in connection with the syndication, you agree to pay, based upon your pro rata share, as set forth below, to NationsBank and NMS the fees set forth in the Term Sheet and in the Fee Letter. You agree that, once paid, such fees shall not be refundable under any circumstances. All such fees shall be paid in immediately available funds. It is understood and agreed that NationsBank and NMS, after consultation with you, will manage and control all aspects of the syndication, including decisions as to the selection of proposed Lenders and any titles offered to proposed Lenders, when commitments will be accepted and the final allocations of the commitments among the Lenders. It is understood and agreed that no Lender participating in the Credit Facilities will receive compensation from you outside the terms contained herein, in the Term Sheet and in the Fee Letter in order to obtain its commitment. It is also understood and agreed that the amount and distribution of the fees among the Lenders will be at the sole discretion of NationsBank and NMS and that any syndication prior to execution of definitive documentation will reduce the commitment of NationsBank. In connection with the due diligence investigation of HoldCo and the Borrower, you and your representatives have reviewed and analyzed certain information furnished or made available by HoldCo and the Borrower, although neither you nor your representatives have independently verified that all such information is complete and correct in all material respects or that such information does not contain material misstatements or that there are no material omissions therefrom. Based on such information and analysis and subject to the foregoing qualification, you hereby represent and warrant, to your knowledge that (i) all such information, other than Projections (as defined below), which has been or is hereafter made available to us or the other Lenders by you or any of your representatives in connection with the transactions contemplated hereby ("Information") has been or will be reviewed and analyzed by you in connection with your own due diligence investigation and is now and as of the Closing as supplemented by you prior to the Closing (as herein defined), will be complete and correct in all material respects and does not now and as of the Closing (as supplemented by you prior to the Closing), will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein not misleading and (ii) all financial projections that have been or are hereafter made available to us or the other Lenders by you or any of your representatives in connection with the Recapitalization (the "Projections") have been or will be prepared in good faith based upon assumptions believed to be reasonable (it being understood that the Projections are subject to uncertainties and contingencies, many of which are beyond the control of the Sponsors, HoldCo and the Borrower, and that no assurance can be given that such Projections will be realized). You agree to furnish, or cause HoldCo and the Borrower to furnish, us with such Information and Projections as we may reasonably request and to supplement such Information and such Projections from time to time until the initial funding of the Credit Facilities (the "Closing") so that the representation and warranty in the preceding sentence is correct on the date of the Closing. You hereby covenant that all Information that is hereafter made available to you by HoldCo and the Borrower or any of their respective representatives in connection with the Recapitalization and the Credit Facilities will be reviewed and analyzed by you in connection with performing your own due diligence investigation. In arranging and syndicating the Credit Facilities, we will be using and relying on the Information and the Projections without independent verification thereof. The representations and warranties contained in this paragraph shall remain effective until definitive 5 documentation for the Credit Facilities is executed, and, thereafter, the disclosure representations contained herein shall be superseded by those contained in such definitive documentation; provided, that in the event such definitive documentation is not executed, such representations and warranties will remain effective after the termination of commitments under this Commitment Letter. By executing this Commitment Letter, each of you agrees, on a several (and not a joint) basis, provided the Closing occurs as contemplated by this Commitment Letter, to reimburse NationsBank and NMS from time to time on demand, on and after the date of the Closing, for all reasonable out-of-pocket fees and expenses (including, but not limited to, the reasonable fees, disbursements and other charges of Fennebresque, Clark, Swindell & Hay, as counsel to NationsBank and NMS) incurred in connection with the Credit Facilities and the preparation of the definitive documentation for the Credit Facilities and the other transactions contemplated hereby. Notwithstanding the immediately preceding paragraph, in the event that NationsBank or NMS becomes involved in any capacity in any action, proceeding or investigation in connection with any matter contemplated by this Commitment Letter, each of you agrees, on a several (and not a joint) basis, to reimburse NationsBank and NMS for their reasonable legal and other out-of-pocket expenses (including the reasonable cost of any investigation and preparation) as they are incurred by NationsBank or NMS. Each of you also agrees, on a several (and not a joint) basis, to indemnify and hold harmless NationsBank, NMS and their affiliates and their respective directors, officers, employees and agents (the "Indemnified Parties") from and against any and all losses, claims, damages and liabilities, as the result of any actions of the Sponsors, HoldCo, the Borrower and their respective affiliates, or as a result of the Recapitalization or the Credit Facilities, any representation of either of the Sponsors contained in this Commitment Letter, the funding of the Credit Facilities or the use of proceeds under the Credit Facilities, unless and only to the extent that it shall be finally judicially determined that such losses, claims, damages or liabilities resulted from the gross negligence or willful misconduct of any Indemnified Party. The provisions of the immediately preceding two paragraphs shall remain in full force and effect until definitive financing documentation shall be executed and delivered and notwithstanding the termination of this Commitment Letter or the commitment of NationsBank and NMS hereunder, and each of you shall be deemed released of your obligations under the immediately preceding two paragraphs upon the execution of definitive financing documentation for the Credit Facilities with NationsBank. As described herein and in the Term Sheet, NMS will act as Arranger and Syndication Agent for the Credit Facilities. NationsBank reserves the right to allocate, in whole or in part, to NMS certain fees payable to NationsBank in such manner as NationsBank and NMS may determine. Each of you acknowledges and agrees that NationsBank may share with any of its affiliates (including specifically NMS) any information relating to the Credit Facilities, the Borrower, the Sponsors, the Investors, and their subsidiaries and affiliates. This Commitment Letter may not be assigned by you without the prior written consent of NationsBank and NMS (and any purported assignment in violation of the foregoing shall be void). 6 All obligations of the Sponsors hereunder shall be several and not joint obligations of each of them and shall be borne 48.235% by TA, 48.235% by GTCR and 3.530% by NMS Capital; provided that if an Alternate Transaction occurs which does not include NMS Capital or any of its affiliates as an Investor, such obligations shall be borne 50% by TA and 50% by GTCR. Except as required by applicable law, this Commitment Letter, the Term Sheet and the Fee Letter and the contents hereof and thereof shall not be disclosed by you to any third party, other than to your respective attorneys, financial advisors and accountants, in each case to the extent necessary in your reasonable judgment; provided, however, it is understood and agreed that after acceptance of this Commitment Letter by each of you by execution in the space provided below and by execution by each of you of the Fee Letter or with our prior consent you may disclose the terms of this Commitment Letter to HoldCo and the Borrower and their respective shareholders, attorneys, financial advisors and accountants in connection with your offer to engage in the Recapitalization. Without limiting the foregoing, in the event that either of you discloses the contents of this Commitment Letter in contravention of the preceding sentence, this Commitment Letter and the commitments set forth herein shall immediately terminate. This Commitment Letter may be executed in counterparts which, taken together, shall constitute an original. Delivery of an executed counterpart of a signature page of this Commitment Letter by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. This Commitment Letter, together with the Term Sheet and the Fee Letter, embodies the entire agreement and understanding among NationsBank, NMS and each of you with respect to the specific matters set forth herein and supersedes all prior agreements and understandings relating to the subject matter hereof. No party has been authorized by NationsBank or NMS to make any oral or written statements inconsistent with this Commitment Letter. THIS COMMITMENT LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW. If you are in agreement with the foregoing, please execute and return the enclosed copy of this Commitment Letter no later than 6:00 p.m. on July 28, 1998. This Commitment Letter will become effective upon your delivery to us of executed counterparts of this Commitment Letter and the Fee Letter and, without limiting the more specific terms hereof and of the Term Sheet, each of you agree upon acceptance of this commitment to pay, based upon your pro rata share, as set forth above, the fees set forth in the Term Sheet and in the Fee Letter. This Commitment Letter and the commitments set forth herein shall terminate if not so accepted by you prior to that time. Following acceptance by each of you, this Commitment Letter and the commitments set forth herein will terminate on January 31, 1999, unless the Closing has occurred by such date; provided, that, this Commitment Letter and the commitments set forth herein shall be extended until March 31, 1999 in the event that the failure to consummate the Recapitalization is due solely to the good faith failure to obtain all required state regulatory approvals, in the reasonable determination of the Agent. We look forward to working with you on this important transaction. 7 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 8 Very truly yours, NATIONSBANK, N.A. By: Title: NATIONSBANC MONTGOMERY SECURITIES LLC By: Title: 9 ACCEPTED AND AGREED TO on this ____ day of July, 1998: TA/ADVENT VIII L.P. By: , its General Partner By: Title: ACCEPTED AND AGREED TO on this ____ day of July, 1998: GOLDER, THOMA, CRESSEY, RAUNER FUND V, L.P. By: Title: ACCEPTED AND AGREED TO on this ____ day of July, 1998: NMS CAPITAL, L.P. By: NMS Capital Management LLC, its General Partner By: Title: 10 ANNEX I BENEFITCO, INC. $75,000,000 SENIOR SECURED CREDIT FACILITIES SUMMARY OF PRINCIPAL TERMS & CONDITIONS BORROWER: BenefitCo, Inc. (the "Borrower"), a newly formed, wholly owned subsidiary of HoldCo (as defined below) consisting of the dental HMO business of HoldCo. RECAPITALIZATION: CompDent Corporation, a Delaware corporation ("HoldCo") intends to engage in a transaction in which it is proposed that, pursuant to the Merger Agreement (as defined below), TA/Advent VIII L.P. ("TA"), Golder, Thoma, Cressey, Rauner Fund V, L.P. ("GTCR") and NMS Capital, L.P. ("NMS Capital", and together with TA and GTCR, the "Sponsors") and certain affiliates of the Sponsors and other persons arranged by the Sponsors (collectively with the Sponsors, the "Investors") will effect the recapitalization (the "Recapitalization") of HoldCo. A portion of the financing with respect to the Recapitalization will include (i) (A) not less than $87.7 million to be provided through the issuance and sale to the Investors (as set forth in the Merger Agreement) of equity securities of HoldCo having terms and conditions reasonably acceptable to the Agent and NMS (each as defined below) and (B) approximately $3.6 million to be provided through the rollover of common stock of HoldCo; provided, that the amount of the cash equity investment shall be reduced by the value of any common stock of HoldCo that is not converted into cash pursuant to the Recapitalization in excess of $3.6 million; provided, further that such cash equity investment may not be reduced pursuant to the foregoing proviso by more than $11.4 million (collectively, the "HoldCo Equity Financing"), (ii) the Borrower receiving aggregate proceeds of approximately $100,000,000 aggregate principal amount through the issuance of subordinated notes (the "Subordinated Notes") pursuant to either (A) a public or Rule 144A offering or (B) a privately-placed bridge financing, (the "Bridge Notes") on terms and conditions reasonably satisfactory to the Agent (it being understood that the terms and conditions set forth in the Bridge Commitment Letter dated July 27, 1998, including the exhibits thereto, are satisfactory to the Agent), (iii) the Borrower borrowing up to $55,000,000 under the Credit Facilities described below and (iv) a newly formed, wholly owned subsidiary of HoldCo consisting of the dental practice management business of HoldCo ("DentalCo") borrowing $20,000,000 under a senior secured credit facility. After consummation of the Recapitalization, the Investors will own at least 70% of the voting equity of HoldCo. 11 The Recapitalization will be consummated pursuant to a merger agreement substantially similar to a draft thereof previously delivered to the Agent and NMS, and the other the definitive documentation relating thereto being satisfactory to the Agent and NMS, in their reasonable discretion, (including all schedules thereto, exhibits thereto and related documentation, the "Merger Agreement") in such a manner as to qualify for recapitalization accounting treatment. The approximate sources and uses of the funds necessary to consummate the Recapitalization are set forth on Addendum I attached hereto. GUARANTORS: The Credit Facilities shall be irrevocably and unconditionally guaranteed by HoldCo and all domestic subsidiaries of the Borrower existing upon consummation of the Recapitalization or thereafter acquired, except to the extent that (i) issuing any such guarantee by any such subsidiary is subject to regulatory restriction and approval and (ii) such subsidiary is not required to guarantee the Bridge Notes (together, the "Guarantors"). All guarantees shall be guarantees of payment and not of collection. AGENT: NationsBank, N.A. (the "Agent" or "NationsBank") will act as sole and exclusive administrative and collateral agent. As such, NationsBank will negotiate with the Borrower, act as the primary contact for the Borrower and perform all other duties associated with the role of exclusive administrative agent. No other agents or co-agents may be appointed without the prior written consent of NationsBank and NMS. ARRANGER & SYNDICATION AGENT: NationsBanc Montgomery Securities LLC ("NMS"). LENDERS: A syndicate of financial institutions (including NationsBank) arranged by NMS, which institutions shall be reasonably acceptable to the Borrower (collectively, the "Lenders"). CREDIT FACILITIES: An aggregate principal amount of up to $75,000,000 will be available under the conditions herein set forth: Revolving Credit Facility: $20,000,000 revolving credit facility, all of which may be utilized for the issuance of standby and commercial letters of credit (each a "Letter of Credit"). Letters of Credit will be issued by NationsBank (in such capacity, the "Fronting Bank"), and each Lender will purchase an irrevocable and unconditional participation in each Letter of Credit. 12 Tranche A Term Loan Facility: $40,000,000 term loan facility. Tranche B Term Loan Facility: $15,000,000 term loan facility. The Tranche A Term Loan Facility and the Tranche B Term Loan Facility are referred to herein collectively as the "Term Loan Facilities." The Term Loan Facilities and the Revolving Credit Facility are referred to herein collectively as the "Credit Facilities." Notwithstanding the foregoing, prior to the Closing (as defined below) the Agent may adjust the principal amounts of the Term Loan Facilities by reducing the principal amount of either Term Loan Facility by up to $5,000,000 and increasing the principal amount of the other Term Loan Facility by the same amount (with corresponding changes to the amortization schedule set forth below), so long as such adjustments are reasonably satisfactory to the Sponsors. PURPOSE: The proceeds of the Credit Facilities shall be used: (i) to fund a portion of the Recapitalization, including, but not limited to, the refinancing of indebtedness of HoldCo outstanding on the Closing Date; (ii) to pay a portion of the fees and expenses incurred in connection with the Recapitalization up to an amount to be agreed upon; and (iii) to provide for working capital and general corporate purposes of the Borrower and its subsidiaries, including proceeds of the Revolving Credit Facility that may be used to fund acquisitions by the Borrower in the event that after giving effect to any such acquisitions, the Borrower is in pro forma compliance with (i) the financial covenants contained in the definitive documentation with respect to the Credit Facilities and (ii) a maximum Senior Debt to EBITDA Ratio of 3.0:1.0. INTEREST RATES: The Credit Facilities shall bear interest as set forth on Addendum II attached hereto. AVAILABILITY: Revolving Credit Facility: Loans under the Revolving Credit Facility ("Revolving Loans") may be made, and Letters of Credit may be issued, at any time prior to the Revolving Credit Maturity Date, provided that the outstanding principal amount of the Revolving Loans and the Letter of Credit Exposure shall not exceed the total commitments under the Revolving Credit Facility. Amounts repaid under the Revolving Credit Facility may be reborrowed. "Letter of Credit Exposure" means an amount equal to the sum of (i) the aggregate undrawn amount of all outstanding Letters of Credit 13 and (ii) the total amount of any unreimbursed drawings on Letters of Credit. Term Loan Facilities: Loans under the Tranche A Term Loan Facility ("Tranche A Term Loans" and loans under the Tranche B Term Loan Facility ("Tranche B Term Loans" and, together with the Tranche A Term Loans, the "Term Loans") will be available in a single borrowing at the closing of the Recapitalization (the "Closing"). Amounts repaid under the Term Loan Facilities may not be reborrowed. MATURITY/SCHEDULED AMORTIZATION: Revolving Credit Facility: The Revolving Credit Facility shall terminate and all amounts outstanding thereunder shall be due and payable in full five and one-half years from the Closing (the "Revolving Credit Maturity Date"). Term Loan Facilities: The Term Loan Facilities will be subject to quarterly amortization, commencing at the end of the third quarter after the Closing, of principal, based upon the annual amounts set forth below, with the final payment of all amounts outstanding being due and payable five and one-half years from Closing for the Tranche A Term Loan Facility and six and one-half years from Closing for the Tranche B Term Loan Facility:
===================================================== LOAN YEAR TERM LOAN A TERM LOAN B ===================================================== 1 $3,000,000 $150,000 ----------------------------------------------------- 2 5,000,000 150,000 ----------------------------------------------------- 3 7,000,000 150,000 ----------------------------------------------------- 4 9,000,000 150,000 ----------------------------------------------------- 5 11,000,000 150,000 ----------------------------------------------------- 6 5,000,000 7,125,000 ----------------------------------------------------- 7 N/A 7,125,000 =====================================================
SECURITY: Concurrently with the Recapitalization, the Agent (on behalf of the Lenders) shall receive a first priority perfected security interest in (i) 100% of the outstanding common stock of the Borrower and each of the existing or subsequently acquired or organized subsidiaries (direct or indirect) of the Borrower (which pledge, in the case of any foreign subsidiary, shall be limited to 65% of the capital stock of 14 such foreign subsidiary to the extent, and for so long as, the pledge of any greater percentage would have adverse tax consequences for the Borrower), and (ii) all present and future intercompany notes evidencing indebtedness between the Borrower and its subsidiaries. The foregoing pledges and security interests will be created on terms, and pursuant to customary documentation, satisfactory to the Agent, and none of the foregoing security (the "Collateral") will be subject to any other lien or encumbrance. The Collateral will ratably secure the Credit Facilities and any interest rate swap or similar agreements with a Lender under the Credit Facilities. MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS: In addition to the amortization set forth above, the Credit Facilities will be prepaid by an amount equal to: (a) 100% of the net cash proceeds, including insurance and condemnation proceeds, of all non-ordinary-course asset sales or other dispositions of property by the Borrower or any subsidiary (including stock of subsidiaries), subject to limited exceptions and reinvestment provisions to be agreed upon and net of selling expenses and taxes to the extent such taxes are paid; (b) 50% of Excess Cash Flow (to be defined) pursuant to an annual cash sweep arrangement; (c) 100% of the net cash proceeds from the issuance of any debt by the Borrower or any subsidiary, subject to limited exceptions to be agreed upon (which exceptions shall include the indebtedness of the Borrower issued to repay the Bridge Notes, if any); and (d) 50% of the net cash proceeds from the issuance of equity by the Borrower or any of its subsidiaries, subject to limited exceptions to be agreed upon; provided, that, after the Term Loans have been repaid to less than 50% of their original principal amount, the prepayments set forth in clauses (b) and (d) shall not be required. Mandatory prepayments shall be applied pro rata to reduce the Tranche A Term Loans and Tranche B Term Loans and within each such class pro rata with respect to each remaining installment of principal. In the event the Term Loan Facilities shall have been completely prepaid, the mandatory prepayments described in clauses (a) and (c) above shall be applied first, to prepay the outstanding principal amount of any Revolving Loans and second, to cash collateralize any outstanding Letter of Credit Exposure, and in each case to permanently reduce the amount available under the Revolving Credit Facility. If the outstanding principal amount of the Revolving Loans and Letter of Credit Exposure at any time exceeds the total commitments under the Revolving Credit Facility, the Borrower shall immediately make a prepayment in the amount of the excess. 15 OPTIONAL PREPAYMENTS AND COMMITMENT REDUCTIONS: The Borrower may prepay the Credit Facilities in whole or in part at any time without premium or penalty, subject to reimbursement of the Lenders' breakage and redeployment costs in the case of prepayment of LIBOR borrowings. All optional prepayments of the Term Loan Facilities shall be applied pro rata to reduce the Tranche A Term Loans and Tranche B Term Loans and within each such class shall be applied pro rata with respect to each remaining installment of principal (except for prepayments in an aggregate amount to be agreed upon, which may be applied within each such class in direct order of maturity). The Borrower may reduce the unused commitments under the Revolving Credit Facility in whole or in part at any time without penalty. CONDITIONS PRECEDENT TO CLOSING: The obligations of each Lender to make the initial funding of each of the Revolving Loans and the Term Loans (the "Closing") will be subject to usual and customary closing conditions for transactions of this type, including, without limitation, the following: (i) The negotiation, execution and delivery of definitive documentation with respect to the Credit Facilities satisfactory to NMS, the Agent and the Lenders. (ii) The HoldCo Equity Financing and the Subordinated Notes shall have been consummated and issued, respectively, on terms reasonably satisfactory to the Agent and all conditions precedent to the issuance thereof shall have been satisfied or, with the prior approval of the Agent (such approval not to be unreasonably withheld), waived; and the Recapitalization shall have been consummated pursuant to the Merger Agreement and on such other terms as are reasonably satisfactory to the Agent pursuant to the terms of the Merger Agreement, and all conditions precedent to the consummation of the Recapitalization shall have been satisfied or, with the prior approval of the Agent (such approval not to be unreasonably withheld), waived. (iii) The corporate, capital and ownership structure (including articles of incorporation and by-laws), shareholders' agreements and management of the Borrower and its subsidiaries (after giving effect 16 to the Recapitalization) shall be reasonably satisfactory to the Agent in all respects. (iv) The Agent shall have received and, in each case, be reasonably satisfied with all audited, unaudited and pro forma financial statements of the Borrower and its subsidiaries and all probable and pending acquisitions meeting the requirements of Regulation S-X under the Securities Act of 1933, as amended, applicable to a Registration Statement under such Act on Form S-1, which financial statements shall include the audited financial statements for the Borrower's most recently completed fiscal year. The Borrower's audited financial statement for the most recently completed twelve month period shall have evidenced to the Agent's reasonable satisfaction a ratio of total debt to EBITDA (determined on a pro forma basis after giving effect to the Recapitalization) not in excess of 6.0 to 1. (v) No material adverse change shall have occurred since December 31, 1997, in the business, assets, liabilities (actual or contingent), results of operations, cash flows, operations, condition (financial or otherwise) or prospects of HoldCo and its subsidiaries, taken as a whole, or the Borrower and its subsidiaries, taken as a whole (determined on a pro forma basis), and there shall exist no conditions, events or occurrences that, individually or in the aggregate, would reasonably be expected to result in such a material adverse change (any of the foregoing, a "Material Adverse Change"). (vi) The Agent shall have received certification as to the financial condition and solvency of HoldCo, the Borrower and their respective subsidiaries (after giving effect to the Recapitalization) from an independent firm acceptable to the Agent. (vii) The Agent shall have received (A) reasonably satisfactory opinions of counsel to HoldCo, the Borrower and the guarantors of the Credit Facilities (which shall cover, among other things, authority, legality, validity, binding effect and enforceability of the documents for the Credit Facilities) and such corporate resolutions, certificates and other documents as the Agent shall reasonably require and (B) satisfactory evidence that the Agent (on behalf of the Lenders) holds a perfected, first priority lien in all Collateral for the Credit Facilities, subject to no other liens except for permitted liens to be determined. (viii) HoldCo, the Borrower and their respective subsidiaries shall have received all governmental, shareholder and third-party consents 17 (including Hart-Scott-Rodino clearance) and approvals necessary or desirable in connection with the Recapitalization, the Credit Facilities and the pledge of the Collateral for the Credit Facilities and the other transactions contemplated hereby; all such consents and approvals shall be in full force and effect; all applicable waiting periods shall have expired without any action being taken by any authority that restrains, prevents or imposes any material adverse conditions on the Recapitalization or such other transactions or that could reasonably be expected to seek or threaten any of the foregoing; and no law or regulation or condition shall be applicable which in the reasonable judgment of the Agent could have such effect. (ix) There shall not exist (A) any order, decree, judgment, ruling or injunction which restrains the consummation of the Recapitalization in the manner contemplated by the Merger Agreement, or the related financings and (B) any pending or threatened action, suit, investigation or proceeding which, if adversely determined, could reasonably be expected to materially adversely affect the ability of HoldCo, the Borrower or any guarantors of the Credit Facilities to perform any of their respective obligations under the definitive documentation relating thereto or the ability of the Lenders to exercise their rights thereunder. (x) (A) Receipt of all fees and expenses payable to the Agent, NMS and/or the Lenders and (B) neither of the Sponsors shall be in breach or violation of any of its obligations under the Fee Letter or Commitment Letter, and each such letter shall be in full force and effect. CONDITIONS PRECEDENT TO ALL BORROWINGS: Usual and customary for transactions of this type, including without limitation, delivery of borrowing certificate, accuracy of representations and warranties and absence of defaults. REPRESENTATIONS & WARRANTIES: Usual and customary for transactions of this type, to include without limitation: (i) corporate status; (ii) corporate power and authority/enforceability; (iii) no violation of law or contracts or organizational documents; (iv) no material litigation, proceeding or investigation; (v) correctness of specified financial statements; (vi) no Material Adverse Change; (vii) absence of undisclosed liabilities, whether actual or contingent; (viii) receipt of all required governmental or third party approvals; (ix) use of proceeds/compliance with margin regulations; (x) status under 18 Investment Company Act; (xi) ERISA and labor matters; (xii) environmental matters; (xiii) perfected liens and security interests; (xiv) payment of taxes; (xv) status of material agreements, relationships and commercial arrangements; (xvi) title to assets, including intellectual property; (xvii) no infringement of third party intellectual property rights; (xviii) solvency; (xix) compliance with laws and regulations and (xx) consummation of the Recapitalization. COVENANTS: Usual and customary for transactions of this type, to include without limitation: (i) delivery of financial statements and other reports; (ii) delivery of compliance certificates and other information; (iii) notices of default, material litigation, material governmental and environmental proceedings and other material events; (iv) compliance with laws; (v) payment of taxes; (vi) maintenance of insurance and limitations on use of casualty and condemnation proceeds; (vii) environmental and ERISA covenants; (viii) limitation on liens; (ix) limitations on mergers, consolidations and dispositions of assets; (x) limitation on acquisitions, subject to permitted acquisition exceptions of $20,000,000 in the aggregate and $10,000,000 for any single acquisition; (xi) limitation on incurrence of debt; (xii) limitations on issuance of equity and equity equivalents, subject to mandatory prepayment requirements; (xiii) limitations on dividends, redemptions or other acquisition of capital stock or equivalents and the redemption and/or prepayment of other debt; (xiv) limitation on investments; (xv) limitations on transactions with and payments to affiliates; (xvi) limitations on amendments to material agreements and instruments; (xvii) limitation on nature of business conducted; and (xviii) limitation on capital expenditures. The loan documents shall require the Borrower, within 90 days after the Closing, to enter into interest rate protection agreements on terms acceptable to the Agent for a portion of the Credit Facilities to be agreed upon and to maintain such agreements in effect for a period to be agreed upon. Financial covenants to be: - Maintenance on a rolling four quarter basis of a Maximum Leverage Ratio (Total Debt/EBITDA); - Maintenance on a rolling four quarter basis of a Minimum Fixed Charge Coverage Ratio (EBITDA less Capital Expenditures/Interest Expense plus Scheduled Principal Repayments plus Cash Dividends plus Cash Taxes); - Maintenance on a rolling four quarter basis of an Interest 19 Coverage Ratio (EBITDA/Interest Expense); and - Maintenance on a rolling four quarter basis of a Senior Debt Ratio. The defined terms relating to the above-listed financial covenants are contained in Addendum III attached hereto. Projected levels and step-down dates for the above-described financial covenants are set forth in Addendum IV attached hereto. Such levels are based upon the financial information available to the Sponsors, the Agent and NMS on the date hereof and it is their intention that the definitive documentation for the Credit Facilities will contain such levels and step-down dates; provided, however, that such levels and step-down dates are subject to modification in the event additional financial information becomes available to the Sponsors, the Agent and NMS which in the reasonable business judgment of such parties may require the modification thereof, any such modifications to be agreed upon by the Sponsors, the Agent and NMS. EVENTS OF DEFAULT: Usual and customary in transactions of this nature, and to include, without limitation: (i) nonpayment of principal, interest, fees or other amounts; (ii) violation of covenants; (iii) inaccuracy of representations and warranties; (iv) cross-default to other material indebtedness and agreements; (v) bankruptcy events; (vi) material judgments; (vii) ERISA, intellectual property and environmental events; (viii) actual or asserted invalidity of any loan documents or security interests; (ix) change in material agreements, licenses, qualifications or relationships that, in light of all the then existing circumstances, could reasonably be expected to have a material adverse effect on HoldCo, the Borrower and their respective subsidiaries, taken as a whole; or (x) Change in Control (to be defined), in each case subject to appropriate grace periods, dollar thresholds and/or other exceptions, as applicable. ASSIGNMENTS/ PARTICIPATIONS: Each Lender will be permitted to make assignments in minimum principal amounts of $5,000,000 to other financial institutions approved by the Borrower and the Agent, which approval shall not be unreasonably withheld. Lenders will be permitted to sell participations with voting rights limited to significant matters such as changes in amount, rate and maturity date. WAIVERS & AMENDMENTS: Amendments and waivers of the provisions of the credit agreement and other definitive credit documentation will require the approval of Lenders holding Loans, Letter of Credit Exposure and unused 20 commitments representing at least a majority of the aggregate amount of Loans, Letter of Credit Exposure and unused commitments under the Credit Facilities, except that (a) the consent of all the Lenders affected thereby shall be required with respect to (i) reductions of principal, interest, or fees and (ii) extensions of scheduled maturities or times for payment, (b) the consent of all the Lenders shall be required with respect to (i) increases in commitment amounts, (ii) releases of all or substantially all collateral and (iii) releases of all or substantially all guarantors, (c) any amendment that changes the amount of, or allocation between, the Term Loan Facilities, any prepayment of Loans under the Term Loan Facilities (or the application of any such prepayment to the remaining amortization payments under the Term Loan Facilities) shall require the consent of Lenders holding at least a majority of the outstanding Loans under each tranche of the Term Loan Facilities and (d) any waiver of the conditions to funding any Loan or issuance of a Letter of Credit under the Revolving Credit Facility shall require the consent of Lenders holding at least a majority of the outstanding Loans and unused commitments under the Revolving Credit Facility. The Revolving Credit Facility may be increased by up to $10.0 million with the consent of only the Agent, provided that no Lender shall have any obligation to provide any portion of such increase. INDEMNIFICATION: HoldCo and the Borrower shall indemnify, jointly and severally, each Lender from and against all losses, liabilities, claims, damages or expenses relating to its Loans, the Borrower's use of Loan proceeds or the commitments, including but not limited to reasonable attorneys' fees and settlements costs, in each case to the extent not attributable to such person's gross negligence or willful misconduct. CLOSING: On or before January 31, 1999; provided, that the Closing shall be extended to March 31, 1999 in the event that the failure to consummate the Recapitalization is due solely to the good faith failure to obtain all required state regulatory approvals, in the reasonable determination of the Agent. GOVERNING LAW: New York. WAIVER OF JURY TRIAL: HoldCo, the Borrower, the Agent, NMS and the Lenders shall waive their right to a trial by jury. FEES/EXPENSES: As outlined in Addendum II attached hereto. 21 OTHER: This term sheet is intended as an outline only and does not purport to summarize all the conditions, covenants, representations, warranties and other provisions which would be contained in definitive legal documentation for the Credit Facilities contemplated hereby. 22 ADDENDUM I COMPDENT CORPORATION RECAPITALIZATION SOURCES AND USES OF FUNDS (IN MILLIONS OF DOLLARS) (ALL FIGURES ARE APPROXIMATE)
Uses of Funds Sources of Funds - ------------- ---------------- Purchase of Equity/Management DentalCo Credit Facility $ 20.000 Rollover $182.034 Term Loan A 40.000 Repayment of Net Debt 56.432 Term Loan B 15.000 Option Spread 1.930 Subordinated Notes 100.000 DHDC Liability 14.420 Convertible Preferred Stock Transaction Expenses 11.485 and/or Common Equity 87.700 -------- Management Equity Rollover 3.600 -------- TOTAL USES $266.300 TOTAL SOURCES $266.300 -------- --------
23 ADDENDUM II INTEREST RATES, FEES AND EXPENSES INTEREST RATES: The applicable interest rate margins for the Credit Facilities, for any fiscal quarter, will be the applicable interest rate per annum and Commitment Fee set forth in the table below opposite the ratio of Funded Debt to EBITDA determined as of the last day of the immediately preceding fiscal quarter on a rolling four quarter basis:
======================================================================================================================= Revolving Loans and Term A Loans Term B Loans Funded Debt Commitment to EBITDA Fee ------------------------------------------------------------------------- Alternate Alternate LIBOR Base Rate LIBOR Base Rate - ----------------------------------------------------------------------------------------------------------------------- 5.5 to 1.0 250 bps 150 bps 275 bps 175 bps 50 bps - ----------------------------------------------------------------------------------------------------------------------- < 5.5 to 1.0 225 bps 125 bps 275 bps 175 bps 50 bps but 4.5 to 1.0 - ----------------------------------------------------------------------------------------------------------------------- < 4.50 to 1.0 200 bps 100 bps 250 bps 150 bps 37.5 bps but 3.5 to 1.0 - ----------------------------------------------------------------------------------------------------------------------- < 3.50 to 1.0 175 bps 75 bps 225 bps 125 bps 37.5 bps =======================================================================================================================
The Borrower may select interest periods of 1, 2, 3 or 6 months for LIBOR Loans, subject to availability. Calculation of interest shall be on the basis of actual number of days elapsed in a year of 360 days (or 365 or 366 days, as the case may be, in the case of Alternate Base Rate Loans based on the Prime Rate) and interest shall be payable at the end of each interest period and, in any event, at least every 3 months. "LIBOR" means the London Interbank Offered Rate as determined by the Agent for the applicable interest period, at all times including statutory reserves. "Alternate Base Rate" is the higher of (i) the Federal Funds Effective Rate plus 0.50% and (ii) NationsBank's Prime Rate. A penalty rate shall apply on all Loans in the event of and during the continuance of an Event of Default relating to the payment of any 24 amount due in respect of the Credit Facilities at a rate per annum of 2% above the applicable interest rate. COMMITMENT FEE: 0.50%, per annum, and after the Closing, pursuant to the pricing grid set forth above, (calculated on the basis of actual number of days elapsed in a year of 360 days) on the unused portion of the commitments in respect of the Credit Facilities, commencing to accrue on the earlier to occur of 90 days after acceptance of the commitment letter to which this Summary of Principal Terms & Conditions is attached and the completion of syndication of the Credit Facilities and in each case payable upon the Closing and thereafter quarterly in arrears. COST AND YIELD PROTECTION: The usual for transactions and facilities of this type, including, without limitation, in respect of prepayments, changes in capital adequacy and capital requirements or their interpretation, illegality, unavailability and reserves without proration or offset (subject to the option of the Borrower to arrange the replacement (at par plus accrued interest) of a Lender seeking reimbursement for certain of such costs pursuant to a provision to be agreed upon). In addition to, and not in limitation of, the foregoing, if any breakage costs, charges or fees are incurred with respect to LIBOR Loans during the 180-day period following the Closing on account of the syndication of the Credit Facilities, the Borrower shall immediately reimburse the Agent for any such costs, charges or fees. LETTER OF CREDIT FEES: Letter of Credit fees will be due quarterly in arrears and will be equal to the interest rate spread on LIBOR Loans under the Revolving Credit Facility on a per annum basis. Of such Letter of Credit fees, a fronting fee of 0.125% per annum will be allocated to NationsBank, as Fronting Bank, for its own account and the balance will be shared proportionately by the Lenders, including NationsBank. Fees for commercial Letters of Credit will be calculated on the aggregate stated amount for each such Letter of Credit. Fees for standby Letters of Credit will be calculated on the aggregate average daily outstanding stated amount of all such Letters of Credit for the relevant period. EXPENSES: Borrower will pay all reasonable costs and expenses associated with the preparation, due diligence, administration, syndication and enforcement of all documents executed in connection with the Credit Facilities, including without limitation, the reasonable legal fees of the Agent's counsel regardless of whether or not the Credit Facilities are closed. 25 ADDENDUM III FINANCIAL DOCUMENTS DEFINED TERMS "Capital Lease" shall mean, as applied to any person, any lease of any Property (whether real, personal or mixed) by that person as lessee which, in accordance with GAAP, is or should be accounted for as a capital lease on the balance sheet of such person. "Capital Stock" shall mean (a) in the case of a corporation, capital stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (c) in the case of a partnership, partnership interests (whether general or limited), (d) in the case of a limited liability company, membership interests, (e) any other interest or participation that confers on a person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing person and (f) all rights to purchase, warrants, options and other securities exercisable for, exchangeable for or convertible into any of the foregoing. "Consolidated Capital Expenditures" shall mean, for any period, the sum of all amounts that would, in accordance with GAAP, be included as additions to property, plant and equipment and other capital expenditures on a consolidated statement of cash flows for the Borrower and its Consolidated Subsidiaries during such period (including the amount of assets leased under any Capital Lease). Notwithstanding the foregoing, the term "Consolidated Capital Expenditures" shall not include capital expenditures in respect of the reinvestment of insurance proceeds and condemnation awards received by the Borrower and its Subsidiaries to the extent that such reinvestment is permitted under the Credit Documents. "Consolidated Cash Dividends" shall mean, for any period, the aggregate amount of all dividends or distributions paid in cash in respect of Capital Stock by the Borrower during such period. "Consolidated Cash Interest Expense" shall mean, for any period, the gross amount of interest expense of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP, during such period, including (a) the portion of any payments or accruals with respect to Capital Leases that are allocable to interest expense in accordance with GAAP, (b) net costs under Interest Rate Protection Agreements during such period, (c) all fees, charges, discounts and other costs paid in respect of Indebtedness during such period; provided that (i) all non-cash interest expense shall be excluded and (ii) any interest on Indebtedness of another person that is guaranteed by the Borrower or any of its Consolidated Subsidiaries or secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien on, or payable out of the proceeds of the sale of or production from, assets of the Borrower or any of its Consolidated Subsidiaries (whether or not such guarantee or Lien is called upon) shall be included. "Consolidated Cash Taxes" shall mean, for any period, the aggregate amount of all taxes of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis in accordance 26 with GAAP, to the extent the same are paid in cash by the Borrower or any of its Consolidated Subsidiaries during such period directly or paid by the Borrower during such period indirectly through Permitted Tax Dividends. "Consolidated EBITDA" shall mean, for any period, the sum of (a) Consolidated Net Income for such period, plus (b) an amount which, in the determination of Consolidated Net Income for such period, has been deducted for (i) interest expense, (ii) total federal, state, local and foreign income, value added and similar taxes, (iii) depreciation and amortization expense and (iv) other non-cash charges or non-cash losses, minus (c) an amount which, in the determination of Consolidated Net Income for such period, has been added for (i) interest income (except for interest earned on funds required to be held on deposit by regulatory authorities) and (ii) any non-cash income or non-cash gains, all as determined in accordance with GAAP. "Consolidated Fixed Charges" shall mean, for any period, the sum of (a) Consolidated Cash Interest Expense for such period plus (b) Consolidated Scheduled Debt Payments for such period plus (c) Consolidated Cash Dividends for such period plus (d) Consolidated Cash Taxes for such period. "Consolidated Net Income" shall mean, for any period, net income (or loss) after taxes of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP, for such period. "Consolidated Scheduled Debt Payments" shall mean, for any period, with respect to the Borrower and its Consolidated Subsidiaries on a consolidated basis, the sum of all scheduled payments of principal on Funded Indebtedness for such period (including the principal component of payments due on Capital Leases during such period, but excluding payments due on Revolving Loans during such period); provided that Consolidated Scheduled Debt Payments shall not include voluntary prepayments of Funded Indebtedness, mandatory prepayments required pursuant to Section 3.3(b) or other mandatory prepayments of Funded Indebtedness; provided, further, that for purposes of calculating covenants for measurement periods including any of the first four fiscal quarters of the Borrower occurring immediately after the Closing, Consolidated Scheduled Debt Payments for such fiscal quarters shall be deemed to equal $750,000.00. "Consolidated Subsidiaries" of any person shall mean all subsidiaries of such person that should be consolidated with such person for financial reporting purposes in accordance with GAAP. "Disqualified Stock" of any person shall mean (a) any Capital Stock of such person which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable), upon the happening of any event or otherwise (i) matures or is mandatorily redeemable or subject to any mandatory repurchase requirement, pursuant to a sinking fund obligation or otherwise, (ii) is convertible into or exchangeable or exercisable for Indebtedness or Disqualified Stock or (iii) is redeemable or subject to any repurchase requirement arising at the option of the holder thereof, in whole or in part, in each case on or prior to the first anniversary of the Tranche B Maturity Date, (b) if such person is a Subsidiary of the Borrower, any Preferred Stock of such person [and (c) list any preferred stock of HoldCo or the Borrower 27 issued in connection with the Recapitalization]. "Fixed Charge Coverage Ratio" shall mean, as of any day, the ratio of (a) Consolidated EBITDA for the period of four consecutive fiscal quarters of the Borrower ending on, or most recently preceding, such day, minus Consolidated Capital Expenditures for such period (other than any thereof financed by Indebtedness) to (b) Consolidated Fixed Charges for such period. "Funded Indebtedness" shall mean, with respect to any person, without duplication, (a) all Indebtedness of such person, (b) all Indebtedness of another person of the type referred to in clause (a) above secured by (or for which the holder of such Funded Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, Property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (c) all Guaranty Obligations of such person with respect to Indebtedness of the type referred to in clause (a) above of another person and (d) Indebtedness of the type referred to in clause (a) above of any partnership or unincorporated joint venture in which such person is general partner or for which such person is otherwise legally obligated or has a reasonable expectation of being liable with respect thereto. "GAAP" shall mean generally accepted accounting principles in the United States applied on a consistent basis. "Guaranty Obligations" shall mean, with respect to any person, without duplication, any obligations of such person (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) guaranteeing or intended to guarantee any Indebtedness of any other person in any manner, whether direct or indirect, and including any obligation, whether or not contingent, (a) to purchase any such Indebtedness or any Property constituting security therefor, (b) to advance or provide funds or other support for the payment or purchase of any such Indebtedness or to maintain working capital, solvency or other balance sheet condition of such other person (including keep well agreements, maintenance agreements, comfort letters or similar agreements or arrangements) for the benefit of any holder of Indebtedness of such other person, (c) to lease or purchase Property, securities or services primarily for the purpose of assuring the holder of such Indebtedness against loss in respect thereof or (d) to otherwise assure or hold harmless the holder of such Indebtedness against loss in respect thereof. For purposes hereof, the amount of any Guaranty Obligation shall (subject to any limitations set forth therein) be deemed to be an amount equal to the outstanding principal amount (or maximum principal amount, if larger) of the Indebtedness in respect of which such Guaranty Obligation is made. "Indebtedness" of any person shall mean (a) all obligations of such person for borrowed money, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (c) all obligations of such person under conditional sale or other title retention agreements relating to Property purchased by such person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (d) all obligations of such person issued or assumed as the deferred purchase price of property or services purchased by such person (other than trade debt incurred in the ordinary course of business and due within six (6) months of the incurrence thereof) which would appear as liabilities on a balance sheet of such person, (e) all 28 obligations of such person under take-or-pay or similar arrangements or under commodities agreements, (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, Property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (g) all Guaranty Obligations of such person, (h) the principal portion of all obligations of such person under Capital Leases, (i) all obligations of such person under Interest Rate Protection Agreements or foreign currency exchange agreements, (j) the maximum amount of all standby letters of credit issued or bankers' acceptances facilities created for the account of such person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed), (k) all Disqualified Stock of such person, and [(l)] the Indebtedness of any partnership or unincorporated joint venture in which such person is a general partner or a joint venturer. "Interest Coverage Ratio" shall mean, as of any day, the ratio of (a) Consolidated EBITDA for the period of four consecutive fiscal quarters of the Borrower ending on, or most recently preceding, such last day to (b) Consolidated Cash Interest Expense for such period. "Interest Rate Protection Agreement" shall mean any interest rate swap, collar, cap or other arrangement requiring payments contingent upon interest rates. "Leverage Ratio" shall mean, as of any day, the ratio of (a) Total Debt as of such day to (b) Consolidated EBITDA for the period of four consecutive fiscal quarters of the Borrower ending on, or most recently preceding, such day. "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, easement, assignment, deposit arrangement, restriction, restrictive covenant, lease, sublease, option, security interest, encumbrance, lien (statutory or otherwise), preference, priority or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the Uniform Commercial Code as adopted and in effect in the relevant jurisdiction or other similar recording or notice statute, and any lease in the nature thereof). "Permitted Tax Dividends" shall mean any distribution made by the Borrower to HoldCo for purposes of HoldCo paying taxes on a consolidated basis, the amount of any such distribution to be equal to the tax liability of the Borrower as a single entity. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Senior Debt" shall mean the aggregate of all Indebtedness of the Borrower arising under the Credit Facilities. "Senior Debt Ratio" shall mean, as of any day, the ratio of (a) Senior Debt to (b) Consolidated EBITDA. "Subsidiary" shall mean, as to any person, (a) any corporation more than 50% of whose 29 Capital Stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time, any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such person directly or indirectly through Subsidiaries, and (b) any partnership, association, joint venture, limited liability company or other business entity in which such person directly or indirectly through Subsidiaries has more than 50% of the equity interests at any time. "Total Debt" shall mean, as of any day, the total amount of Funded Indebtedness of the Borrower and its Consolidated Subsidiaries on a consolidated basis as of such day. 30 ADDENDUM IV FINANCIAL COVENANT LEVELS
================================================================================================================================ Ratio From and Approximate Reset Date After Closing ----------------------------------------------------------------------- 1/1/00 1/1/01 1/1/02 - -------------------------------------------------------------------------------------------------------------------------------- Total Debt to EBITDA 6.5 5.75 5.25 5.25 - -------------------------------------------------------------------------------------------------------------------------------- Interest Coverage 1.5 1.6 1.7 1.8 - -------------------------------------------------------------------------------------------------------------------------------- Fixed Charge Coverage 1.0 1.1 1.1 1.1 ================================================================================================================================
EX-99.(A)(2) 3 RECAPITALIZATION FINANCING COMMITMENT LTR 7/27/97 1 July 27, 1998 TA/Advent VIII L.P. c/o TA Associates, Inc. High Street Tower, Suite 2500 125 High Street Boston, Massachusetts 02110 Attn.: Mr. Roger Kafker Golder, Thoma, Cressey, Rauner Fund V, L.P. 6100 Sears Tower Chicago, Illinois 60606 Attn.: Mr. Don Edwards NMS Capital, L.P. 600 Montgomery Street San Francisco, California 94111 Attn: Mr. William B. Bunting Re: Recapitalization Financing Commitment Letter Ladies and Gentlemen: You have advised us that CompDent Corporation, a Delaware corporation ("HoldCo") intends to engage in a transaction in which it is proposed that, pursuant to the Merger Agreement (as defined below), TA/Advent VIII L.P. ("TA"), Golder, Thoma, Cressey, Rauner Fund V, L.P. ("GTCR") and NMS Capital, L.P. ("NMS Capital", and together with TA and GTCR, the "Sponsors") and certain affiliates of the Sponsors and other persons arranged by the Sponsors (collectively with the Sponsors, the "Investors") will effect the recapitalization (the "Recapitalization") of HoldCo. We understand that a portion of the financing with respect to the Recapitalization will include (i) (A) not less than $87.7 million (less any rollover shares in excess of $3.6 million, such that the total amount of rollover shares shall not exceed $15 million) to be provided through the issuance and sale to the Investors (as set forth in the Merger Agreement) of equity securities of HoldCo having terms and conditions reasonably acceptable to the Agent and NMS (each as defined below) and (B) approximately $3.6 million to be provided through the rollover of common stock of HoldCo; provided, that the amount of the cash equity investment shall be reduced by the value of any common stock of HoldCo that is not converted into cash pursuant to the Recapitalization in excess of $3.6 million; provided, further that such cash equity investment may not be reduced pursuant to the foregoing proviso by more than $11.4 million (collectively, the "HoldCo Equity Financing"), (ii) a newly formed, wholly owned subsidiary of HoldCo consisting of the dental HMO business of HoldCo ("BenefitCo") receiving aggregate proceeds of approximately $100,000,000 aggregate principal amount through the issuance of subordinated notes (the "Subordinated Notes") pursuant to either (A) a public or Rule 144A offering or (B) a privately-placed bridge financing, (iii) 2 BenefitCo borrowing up to $55,000,000 under a senior secured credit facility (the "BenefitCo Credit Facility"), and (iv) HoldCo forming a new wholly owned subsidiary consisting of the dental practice management business of HoldCo (the "Borrower"), and the Borrower borrowing $20 million under the credit facilities described below. Further, we understand that in connection with the Recapitalization, (i) all outstanding indebtedness of HoldCo will be refinanced and such indebtedness will be terminated, and (ii) after consummation of the Recapitalization, the Investors will own at least 70% of the voting equity of HoldCo. You have advised us that $20,000,000 in senior debt financing (the "Credit Facility") will be required by the Borrower in order to fund a portion of the Recapitalization and to pay the fees and expenses incurred in connection with the Recapitalization. You have further advised us that no external financing, other than the Credit Facility, the BenefitCo Credit Facility, the HoldCo Equity Financing and the Subordinated Notes, will be required in connection with the Recapitalization. You have requested that NationsBank, N.A. ("NationsBank") commit to provide the full principal amount of the Credit Facility and that NationsBanc Montgomery Securities LLC ("NMS") commit to arrange the Credit Facility. We are pleased to advise you of NationsBank's commitment to provide the full principal amount of the Credit Facility described in the Summary of Principal Terms & Conditions attached hereto as Annex I (the "Term Sheet"). All capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Term Sheet and the Fee Letter (as defined below). The commitments of NationsBank and NMS hereunder are subject to the satisfaction of each of the following conditions precedent, each of the other terms and conditions set forth herein, and each of the terms and conditions set forth in the Term Sheet in a manner acceptable to NationsBank and NMS: (a) execution by the Sponsors, HoldCo and the other appropriate parties of a definitive merger agreement relating to the Recapitalization, substantially similar to a draft thereof previously delivered to the Agent and NMS, and the other definitive documentation relating thereto being satisfactory to NationsBank and NMS, in their reasonable discretion (the "Merger Agreement"); (b) execution of a fee letter agreement (the "Fee Letter") among the Sponsors, NationsBank and NMS prior to or concurrently with the acceptance by the Sponsors of this commitment letter agreement (this "Commitment Letter"); and (c) the negotiation, execution and delivery of definitive documentation with respect to the Credit Facility consistent with the Term Sheet, this Commitment Letter and otherwise reasonably satisfactory to NationsBank and NMS. NationsBank will act as Agent for the Credit Facility and NMS will act as Arranger for the Credit Facility. No additional agents will be appointed without the prior approval of NationsBank and NMS. As consideration for the agreements of NationsBank and NMS hereunder, including, without limitation, their respective agreements to underwrite, manage and structure the Credit Facility and 3 to provide advisory services in connection therewith, you agree to pay, based upon your pro rata share, as set forth below, to NationsBank and NMS the fees set forth in the Term Sheet and in the Fee Letter. You agree that, once paid, such fees shall not be refundable under any circumstances. All such fees shall be paid in immediately available funds. It is understood and agreed that no Lender other than NationsBank, if any, participating in the Credit Facility will receive compensation from you outside the terms contained herein, in the Term Sheet and in the Fee Letter in order to obtain its commitment. It is also understood and agreed that the amount and distribution of the fees among the Lenders other than NationsBank, if any, will be at the sole discretion of NationsBank and NMS and that any syndication prior to execution of definitive documentation will reduce the commitment of NationsBank. In connection with the due diligence investigation of HoldCo and the Borrower, you and your representatives have reviewed and analyzed certain information furnished or made available by HoldCo and the Borrower, although neither you nor your representatives have independently verified that all such information is complete and correct in all material respects or that such information does not contain material misstatements or that there are no material omissions therefrom. Based on such information and analysis and subject to the foregoing qualifications, you hereby represent and warrant, to your knowledge that (i) all such information, other than Projections (as defined below), which has been or is hereafter made available to us or the other Lenders by you or any of your representatives in connection with the transactions contemplated hereby ("Information") has been or will be reviewed and analyzed by you in connection with your own due diligence investigation and is now and as of the Closing as supplemented by you prior to the Closing (as herein defined), will be complete and correct in all material respects and does not now and as of the Closing (as supplemented by you prior to the Closing), will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein not misleading and (ii) all financial projections that have been or are hereafter made available to us or the other Lenders by you or any of your representatives in connection with the Recapitalization (the "Projections") have been or will be prepared in good faith based upon assumptions believed to be reasonable (it being understood that the Projections are subject to uncertainties and contingencies, many of which are beyond the control of the Sponsors, HoldCo and the Borrower, and that no assurance can be given that such Projections will be realized). You agree to furnish, or cause HoldCo and the Borrower to furnish, us with such Information and Projections as we may reasonably request and to supplement such Information and such Projections from time to time until the initial funding of the Credit Facility (the "Closing") so that the representation and warranty in the preceding sentence is correct on the date of the Closing. You hereby covenant that all Information that is hereafter made available to you by HoldCo and the Borrower or any of their respective representatives in connection with the Recapitalization and the Credit Facility will be reviewed and analyzed by you in connection with performing your own due diligence investigation. In arranging the Credit Facility, we will be using and relying on the Information and the Projections without independent verification thereof. The representations and warranties contained in this paragraph shall remain effective until definitive documentation for the Credit Facility is executed, and, thereafter, the disclosure representations and covenants contained herein shall be superseded by those contained in such definitive documentation; provided, that in the event such definitive documentation is not executed, such representations and warranties will remain in effect after the termination of commitments under this Commitment Letter. 4 By executing this Commitment Letter, each of you agrees, on a several (and not a joint) basis, provided the Closing occurs as contemplated by this Commitment Letter, to reimburse NationsBank and NMS from time to time on demand, on and after the date of the Closing, for all reasonable out-of-pocket fees and expenses (including, but not limited to, the reasonable fees, disbursements and other charges of Fennebresque, Clark, Swindell & Hay, as counsel to NationsBank and NMS) incurred in connection with the Credit Facility and the preparation of the definitive documentation for the Credit Facility and the other transactions contemplated hereby. Notwithstanding the immediately preceding paragraph, in the event that NationsBank or NMS becomes involved in any capacity in any action, proceeding or investigation in connection with any matter contemplated by this Commitment Letter, each of you agrees, on a several (and not a joint) basis, to reimburse NationsBank and NMS for their reasonable legal and other out-of-pocket expenses (including the reasonable cost of any investigation and preparation) as they are incurred by NationsBank or NMS. Each of you also agrees, on a several (and not a joint) basis, to indemnify and hold harmless NationsBank, NMS and their affiliates and their respective directors, officers, employees and agents (the "Indemnified Parties") from and against any and all losses, claims, damages and liabilities as the result of any actions of the Sponsors, HoldCo, the Borrower and their respective affiliates, or as a result of the Recapitalization or the Credit Facility, any representation of either of the Sponsors contained in this Commitment Letter, the funding of the Credit Facility or the use of proceeds under the Credit Facility, unless and only to the extent that it shall be finally judicially determined that such losses, claims, damages or liabilities resulted from the gross negligence or willful misconduct of any Indemnified Party. The provisions of the immediately preceding two paragraphs shall remain in full force and effect until definitive financing documentation shall be executed and delivered and notwithstanding the termination of this Commitment Letter or the commitment of NationsBank and NMS hereunder, and each of you shall be deemed released of your obligations under the immediately preceding two paragraphs upon the execution of definitive financing documentation for the Credit Facility with NationsBank. As described herein and in the Term Sheet, NMS will act as Arranger for the Credit Facility. NationsBank reserves the right to allocate, in whole or in part, to NMS certain fees payable to NationsBank in such manner as NationsBank and NMS may determine. Each of you acknowledges and agrees that NationsBank may share with any of its affiliates (including specifically NMS) any information relating to the Credit Facility, the Borrower, the Sponsors, the Investors, and their subsidiaries and affiliates. This Commitment Letter may not be assigned by you without the prior written consent of NationsBank and NMS (and any purported assignment in violation of the foregoing shall be void). All obligations of the Sponsors hereunder shall be several and not joint obligations of each of them and shall be borne 48.235% by TA, 48.235% by GTCR and 3.530% by NMS Capital; provided that if an Alternate Transaction occurs which does not include NMS Capital or any of its affiliates as an Investor, such obligations shall be borne 50% by TA and 50% by GTCR. 5 Except as required by applicable law, this Commitment Letter, the Term Sheet and the Fee Letter and the contents hereof and thereof shall not be disclosed by you to any third party, other than to your respective attorneys, financial advisors and accountants, in each case to the extent necessary in your reasonable judgment; provided, however, it is understood and agreed that after acceptance of this Commitment Letter by each of you by execution in the space provided below and by execution by each of you of the Fee Letter or with our prior consent you may disclose the terms of this Commitment Letter to HoldCo and the Borrower and their respective shareholders, attorneys, financial advisors and accountants in connection with your offer to engage in the Recapitalization. Without limiting the foregoing, in the event that either of you discloses the contents of this Commitment Letter in contravention of the preceding sentence, this Commitment Letter and the commitments set forth herein shall immediately terminate. This Commitment Letter may be executed in counterparts which, taken together, shall constitute an original. Delivery of an executed counterpart of a signature page of this Commitment Letter by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. This Commitment Letter, together with the Term Sheet and the Fee Letter, embodies the entire agreement and understanding among NationsBank, NMS and each of you with respect to the specific matters set forth herein and supersedes all prior agreements and understandings relating to the subject matter hereof. No party has been authorized by NationsBank or NMS to make any oral or written statements inconsistent with this Commitment Letter. THIS COMMITMENT LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW. If you are in agreement with the foregoing, please execute and return the enclosed copy of this Commitment Letter no later than 6:00 p.m. on July 28, 1998. This Commitment Letter will become effective upon your delivery to us of executed counterparts of this Commitment Letter and the Fee Letter and, without limiting the more specific terms hereof and of the Term Sheet, each of you agree upon acceptance of this commitment to pay, based upon your pro rata share, as set forth above, the fees set forth in the Term Sheet and in the Fee Letter. This Commitment Letter and the commitments set forth herein shall terminate if not so accepted by you prior to that time. Following acceptance by each of you, this Commitment Letter and the commitments set forth herein will terminate on January 31, 1999, unless the Closing has occurred by such date; provided, that, this Commitment Letter and the commitments set forth herein shall be extended to March 31, 1999 in the event that the failure to consummate the Recapitalization is due solely to the good faith failure to obtain all required state regulatory approvals, in the reasonable determination of the Agent. We look forward to working with you on this important transaction. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 6 Very truly yours, NATIONSBANK, N.A. By: Title: NATIONSBANC MONTGOMERY SECURITIES LLC By: Title: 7 ACCEPTED AND AGREED TO on this ____ day of ________, 1998: TA/ADVENT VIII L.P. By: , its General Partner By: Title: ACCEPTED AND AGREED TO on this ____ of _________, 1998: GOLDER, THOMA, CRESSEY, RAUNER FUND V, L.P. By: Title: ACCEPTED AND AGREED TO on this day of July, 1998: NMS CAPITAL, L.P. By: NMS Capital Management LLC, its General Partner By: Title: 8 ANNEX I DENTALCO, INC. $20,000,000 SENIOR CREDIT FACILITY SUMMARY OF PRINCIPAL TERMS & CONDITIONS BORROWER: DentalCo, Inc. (the "Borrower") a newly formed, wholly owned subsidiary of HoldCo (as defined below) consisting of the dental practice management business of HoldCo. RECAPITALIZATION: CompDent Corporation, a Delaware corporation ("HoldCo") intends to engage in a transaction in which it is proposed that, pursuant to the Merger Agreement (as defined below), TA/Advent VIII L.P. ("TA"), Golder, Thoma, Cressey, Rauner Fund V, L.P. ("GTCR") and NMS Capital, L.P. ("NMS Capital", and together with TA and GTCR, the "Sponsors") and certain affiliates of the Sponsors and other persons arranged by the Sponsors (collectively with the Sponsors, the "Investors") will effect the recapitalization (the "Recapitalization") of HoldCo. We understand that a portion of the financing with respect to the Recapitalization will include (i) (A) not less than $87.7 million (less any rollover shares in excess of $3.6 million, such that the total amount of rollover shares shall not exceed $15 million) to be provided through the issuance and sale to the Investors (as set forth in the Merger Agreement) of equity securities of HoldCo having terms and conditions reasonably acceptable to the Agent and NMS (each as defined below) and (B) approximately $3.6 million to be provided through the rollover of common stock of HoldCo; provided, that the amount of the cash equity investment shall be reduced by the value of any common stock of HoldCo that is not converted into cash pursuant to the Recapitalization in excess of $3.6 million; provided, further that such cash equity investment may not be reduced pursuant to the foregoing proviso by more than $11.4 million (collectively, the "HoldCo Equity Financing"), (ii) a newly formed, wholly owned subsidiary of HoldCo consisting of the dental HMO business of HoldCo ("BenefitCo") receiving aggregate proceeds of approximately $100,000,000 aggregate principal amount through the issuance of subordinated notes (the "Subordinated Notes") pursuant to either (A) a public or Rule 144A offering or (B) a privately-placed bridge financing, on terms and conditions reasonably satisfactory to the Agent (it being understood that the terms and conditions set forth in the Bridge Commitment Letter dated July 27, 1998, including the exhibits thereto, are satisfactory to the Agent), (iii) BenefitCo borrowing up to $55,000,000 under a senior secured credit facility (the "BenefitCo Credit Facility"), and (iv) the Borrower borrowing $20 million under the Credit Facility 9 described below. After the consummation of the Recapitalization, the Investors will own at least 70% of the voting equity of HoldCo. The Recapitalization will be consummated pursuant to a merger agreement substantially similar to a draft thereof previously delivered to the Agent and NMS, and the other the definitive documentation relating thereto being satisfactory to the Agent, in its reasonable discretion (including all schedules thereto, exhibits thereto and related documentation, the "Merger Agreement") in such a manner as to qualify for recapitalization accounting treatment. The approximate sources and uses of the funds necessary to consummate the Recapitalization are set forth on Addendum I attached hereto. GUARANTORS: The Credit Facility shall be irrevocably and unconditionally guaranteed by each of the Sponsors (together, the "Guarantors"). All guarantees shall be guarantees of payment and not of collection. AGENT: NationsBank, N.A. (the "Agent" or "NationsBank") will act as sole and exclusive administrative. As such, NationsBank will negotiate with the Borrower, act as the primary contact for the Borrower and perform all other duties associated with the role of exclusive administrative agent. No other agents or co-agents may be appointed without the prior written consent of NationsBank. LENDERS: NationsBank, together with its permitted successors and assigns (collectively, the "Lenders"). CREDIT FACILITY: $20,000,000 term loan facility. PURPOSE: The proceeds of the Credit Facility shall be used: (i) to fund a portion of the Recapitalization, including, but not limited to, the refinancing of indebtedness of HoldCo outstanding on the Closing; and (ii) to pay a portion of the fees and expenses incurred in connection with the Recapitalization up to an amount to be agreed upon. INTEREST RATES: The Credit Facility shall bear interest as set forth on Addendum II attached hereto. AVAILABILITY: Loans under the Credit Facility (the "Term Loans") will be available in a single borrowing at the closing of the Recapitalization (the "Closing"). Amounts repaid under the Credit Facility may not be reborrowed. 10 MATURITY/OPTIONAL PREPAYMENTS: The outstanding principal amount of the Term Loans shall be due and payable three (3) years from Closing, provided that the maturity of the Term Loans may, upon the request of the Borrower no less than 90 days prior to the then scheduled maturity date, be extended for three (3) additional 1 year periods upon the prior written consent of NationsBank. The Borrower may prepay the Credit Facility in whole or in part at any time without premium or penalty, subject to reimbursement of the Lenders' breakage and redeployment costs in the case of prepayment of LIBOR borrowings. All optional prepayments of the Credit Facility shall be applied pro rata with respect to each remaining installment of principal (except for prepayments in an aggregate amount to be agreed upon, which may be applied in direct order of maturity). MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS: In addition to the maturity described above, the Credit Facility will be prepaid by an amount equal to: (a) 100% of the net cash proceeds, including insurance and condemnation proceeds, of all non-ordinary-course asset sales or other dispositions of property by the Borrower or any subsidiary (including stock of subsidiaries), subject to limited exceptions and reinvestment provisions to be agreed upon and net of selling expenses and taxes to the extent such taxes are paid; (b) 100% of Excess Cash Flow (to be defined) pursuant to an annual cash sweep arrangement; (c) 100% of the net cash proceeds from the issuance of any debt by the Borrower or any subsidiary, subject to limited exceptions to be agreed upon; and (d) 100% of the net cash proceeds from the issuance of equity by the Borrower or any of its subsidiaries, subject to limited exceptions to be agreed upon. CONDITIONS PRECEDENT TO CLOSING: The obligations of each Lender to make the initial funding of each of the Term Loans (the "Closing") will be subject to usual and customary closing conditions for transactions of this type, including, without limitation, the following: (i) The negotiation, execution and delivery of definitive documentation with respect to the Credit Facility satisfactory to the Agent. (ii) The HoldCo Equity Financing and the Subordinated Notes shall have been consummated and issued, respectively, on terms 11 reasonably satisfactory to the Agent and all conditions precedent to the issuance thereof shall have been satisfied or, with the prior approval of the Agent (such approval not to be unreasonably withheld), waived; and the Recapitalization shall have been consummated pursuant to the Merger Agreement and on such other terms as are reasonably satisfactory to the Agent pursuant to the terms of the Merger Agreement, and all conditions precedent to the consummation of the Recapitalization shall have been satisfied or, with the prior approval of the Agent (such approval not to be unreasonably withheld), waived. (iii) The corporate, capital and ownership structure (including articles of incorporation and by-laws), shareholders' agreements and management of the Borrower and its subsidiaries (after giving effect to the Recapitalization) shall be reasonably satisfactory to the Agent in all respects. (iv) The Agent shall have received and, in each case, be reasonably satisfied with (a) all consolidated and consolidating audited, unaudited and pro forma financial statements of HoldCo and its subsidiaries and all probable and pending acquisitions meeting the requirements of Regulation S-X under the Securities Act of 1933, as amended, applicable to a Registration Statement under such Act on Form S-1, which financial statements shall include the audited financial statements for HoldCo's most recently completed twelve month period and (b) pro forma historical financial statements of the Borrower and its subsidiaries for the three fiscal years prior to the Closing, such historical financial statements to be subject to review by an independent accounting firm selected by the Agent. (v) No material adverse change shall have occurred since December 31, 1997, in the business, assets, liabilities (actual or contingent), results of operations, cash flows, operations, condition (financial or otherwise) or prospects of HoldCo and its subsidiaries, taken as a whole, or the Borrower and its subsidiaries, taken as a whole (determined on a pro forma basis), and there shall exist no conditions, events or occurrences that, individually or in the aggregate, would reasonably be expected to result in such a material adverse change (any of the foregoing, a "Material Adverse Change"). (vi) The Agent shall have received reasonably satisfactory opinions of counsel to HoldCo, the Borrower and the guarantors of the Credit Facility (which shall cover, among other things, authority, legality, validity, binding effect and enforceability of the documents for the Credit Facility) and such corporate resolutions, certificates and other 12 documents as the Agent shall reasonably require. (vii) HoldCo, the Borrower and their respective subsidiaries shall have received all governmental, shareholder and third-party consents (including Hart-Scott-Rodino clearance) and approvals necessary or desirable in connection with the Recapitalization, the Credit Facility and the other transactions contemplated hereby; all such consents and approvals shall be in full force and effect; all applicable waiting periods shall have expired without any action being taken by any authority that restrains, prevents or imposes any material adverse conditions on the Recapitalization or such other transactions or that could reasonably be expected to seek or threaten any of the foregoing; and no law or regulation or condition shall be applicable which in the reasonable judgment of the Agent could have such effect. (viii) There shall not exist (A) any order, decree, judgment, ruling or injunction which restrains the consummation of the Recapitalization in the manner contemplated by the Recapitalization Agreement, or the related financings and (B) any pending or threatened action, suit, investigation or proceeding which, if adversely determined, could reasonably be expected to materially adversely affect the ability of HoldCo, the Borrower or any guarantors of the Credit Facility to perform any of their respective obligations under the definitive documentation relating thereto or the ability of the Lenders to exercise their rights thereunder. (ix) (A) Receipt of all fees and expenses payable to the Agent and/or the Lenders and (B) neither of the Sponsors shall be in breach or violation of any of its obligations under the Fee Letter or Commitment Letter, and each such letter shall be in full force and effect. CONDITIONS PRECEDENT TO ALL BORROWINGS: Usual and customary for transactions of this type, including without limitation, delivery of borrowing certificate, accuracy of representations and warranties and absence of defaults. REPRESENTATIONS & WARRANTIES: Usual and customary for transactions of this type, to include without limitation: (i) corporate status; (ii) corporate power and authority/enforceability; (iii) no violation of law or contracts or organizational documents; (iv) no material litigation, proceeding or investigation; (v) correctness of specified financial statements; (vi) no Material Adverse Change; (vii) absence of undisclosed liabilities, 13 whether actual or contingent; (viii) receipt of all required governmental or third party approvals; (ix) use of proceeds/compliance with margin regulations; (x) status under Investment Company Act; (xi) ERISA and labor matters; (xii) environmental matters; (xiii) payment of taxes; (xiv) status of material agreements, relationships and commercial arrangements; (xv) title to assets, including intellectual property; (xvi) no infringement of third party intellectual property rights; (xvii) solvency; (xviii) compliance with laws and regulations and (xix) consummation of the Recapitalization. COVENANTS: Usual and customary for transactions of this type, to include without limitation: (i) delivery of financial statements and other reports; (ii) delivery of compliance certificates and other information; (iii) notices of default, material litigation, material governmental and environmental proceedings and other material events; (iv) compliance with laws; (v) payment of taxes; (vi) maintenance of insurance and limitations on use of casualty and condemnation proceeds; (vii) environmental and ERISA covenants; (viii) limitations on amendments to material agreements and instruments; (ix) limitation on nature of business conducted; and (x) incurrence of indebtedness, subject to baskets to be agreed upon. The loan documents shall require the Borrower, within 90 days after the Closing, to enter into interest rate protection agreements on terms acceptable to the Agent for a portion of the Credit Facility to be agreed upon and to maintain such agreements in effect for a period to be agreed upon. EVENTS OF DEFAULT: Usual and customary in transactions of this nature, and to include, without limitation: (i) nonpayment of principal, interest, fees or other amounts; (ii) violation of covenants of the Borrower or either of the Guarantors; (iii) inaccuracy of representations and warranties of the Borrower or either of the Guarantors; (iv) cross-default to other material indebtedness and agreements, including, without limitation, the BenefitCo credit facility; (v) bankruptcy events; (vi) material judgments; (vii) ERISA, intellectual property and environmental events; (viii) actual or asserted invalidity of any loan documents (including, but not limited to, agreements executed by the Guarantors); (ix) change in material agreements, licenses, qualifications or relationships that, in light of all the then existing circumstances, could reasonably be expected to have a material adverse effect on HoldCo, the Borrower and their respective subsidiaries, taken as a whole; and (x) Change in Control (to be defined), in each case subject to appropriate grace periods, dollar thresholds and/or other exceptions, as applicable. 14 ASSIGNMENTS/ PARTICIPATIONS: Each Lender will be permitted to make assignments in minimum principal amounts of $5,000,000 to other financial institutions approved by the Borrower and the Agent, which approval shall not be unreasonably withheld. Lenders will be permitted to sell participations with voting rights limited to significant matters such as changes in amount, rate and maturity date. WAIVERS & AMENDMENTS: Amendments and waivers of the provisions of the credit agreement and other definitive credit documentation will require the approval of Lenders holding Term Loans representing at least a majority of the aggregate amount of Term Loans under the Credit Facility, except that (a) the consent of all the Lenders affected thereby shall be required with respect to (i) reductions of principal, interest, or fees and (ii) extensions of scheduled maturities or times for payment, (b) the consent of all the Lenders shall be required with respect to (i) increases in commitment amounts and (ii) releases of all or substantially all guarantors and (c) any amendment that changes the amount of any prepayment of the Term Loans under the Credit Facility (or the application of any such prepayment to the remaining amortization payments under the Credit Facility) shall require the consent of Lenders holding at least a majority of the outstanding Term Loans under the Credit Facility. INDEMNIFICATION: HoldCo and the Borrower shall indemnify, jointly and severally, each Lender from and against all losses, liabilities, claims, damages or expenses relating to its Term Loans, the Borrower's use of Term Loan proceeds or the commitments, including but not limited to reasonable attorneys' fees and settlements costs, in each case to the extent not attributable to such person's gross negligence or willful misconduct. CLOSING: On or before January 31, 1999; provided, that, the Closing shall be extended to March 31, 1999 in the event that the failure to consummate the Recapitalization is due solely to the good faith failure to obtain all required state regulatory approvals, in the reasonable determination of the Agent. GOVERNING LAW: New York. WAIVER OF JURY TRIAL: HoldCo, the Borrower, the Agent and the Lenders shall waive their right to a trial by jury. 15 FEES/EXPENSES: As outlined in Addendum II attached hereto. OTHER: This term sheet is intended as an outline only and does not purport to summarize all the conditions, covenants, representations, warranties and other provisions which would be contained in definitive legal documentation for the Credit Facility contemplated hereby. 16 ADDENDUM I COMPDENT CORPORATION RECAPITALIZATION SOURCES AND USES OF FUNDS (IN MILLIONS OF DOLLARS) (ALL FIGURES ARE APPROXIMATE)
Uses of Funds Sources of Funds - ------------- ---------------- Purchase of Equity/ $182.034 BenefitCo Credit Facility $ 55.000 Management Rollover Credit Facility 20.000 Repayment of Net Debt 56.432 Subordinated Notes 100.000 Option Spread 1.930 Convertible Preferred Stock DHDC Liability 14.420 and/or Common Equity 87.700 Transaction Expenses 11.485 Management Equity Rollver 3.600 -------- --------- TOTAL USES $266.300 TOTAL SOURCES $ 266.300 -------- ---------
17 ADDENDUM II INTEREST RATES, FEES AND EXPENSES INTEREST RATES: The interest rates under the Credit Facility will be, at the option of the Borrower, LIBOR plus 0.75% or the Alternate Base Rate plus 0.25%. The Borrower may select interest periods of 1, 2, 3 or 6 months for LIBOR Loans, subject to availability. Calculation of interest shall be on the basis of actual number of days elapsed in a year of 360 days (or 365 or 366 days, as the case may be, in the case of Alternate Base Rate Loans based on the Prime Rate) and interest shall be payable at the end of each interest period and, in any event, at least every 3 months. "LIBOR" means the London Interbank Offered Rate as determined by the Agent for the applicable interest period, at all times including statutory reserves. "Alternate Base Rate" is the higher of (i) the Federal Funds Effective Rate plus 0.50% and (ii) NationsBank's Prime Rate. A penalty rate shall apply on the Credit Facility in the event of and during the continuance of an Event of Default relating to the payment of any amount due in respect of the Credit Facilities at a rate per annum of 2% above the applicable interest rate. COST AND YIELD PROTECTION: The usual for transactions and facilities of this type, including, without limitation, in respect of prepayments, changes in capital adequacy and capital requirements or their interpretation, illegality, unavailability and reserves without proration or offset (subject to the option of the Borrower to arrange the replacement (at par plus accrued interest) of a Lender seeking reimbursement for certain of such costs pursuant to a provision to be agreed upon). In addition to, and not in limitation of, the foregoing, if any breakage costs, charges or fees are incurred with respect to LIBOR Loans during the 180-day period following the Closing on account of the syndication of the Credit Facility, the Borrower shall immediately reimburse the Agent for any such costs, charges or fees. EXPENSES: Borrower will pay all reasonable costs and expenses associated with the preparation, due diligence, administration, syndication and enforcement of all documents executed in connection with the Credit 18 Facility, including without limitation, the reasonable legal fees of the Agent's counsel regardless of whether or not the Credit Facility is closed. EX-99.(B)(2) 4 FINANCIAL ANALYSIS PRESENTATION MATERIALS 7/21/98 1 - ------------------------------------------------------------------------------- PROJECT GOLDCAP Valuation Analysis JULY 21, 1998 THE ROBINSON-HUMPHREY COMPANY, LLC Atlanta Financial Center 3333 Peachtree Road, NE, 10th Floor Atlanta, Georgia 30326 (404) 266-6000 - ------------------------------------------------------------------------------- 2 - -------------------------------------------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- I. Analysis of Proposed Transaction II. Summary of Valuation Approaches III. Summary Historical Financial Information IV. Summary Projected Financial Information V. Stock Price and Volume History VI. Stock Ownership VII. Market Comparison Analysis VIII. Analysis of Recent M&A Transactions IX. Discounted Cash Flow Analysis X. Leveraged Buyout Analysis - -------------------------------------------------------------------------------- PROJECT GOLDCAP 3 PROJECT GOLDCAP ANALYSIS OF PROPOSED TRANSACTION - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
PURCHASE CURRENT NET VALUE OF TRANSACTION GOLDCAP PRESENT VALUE TOTAL PRICE PER SHARES EQUITY IN-THE-MONEY EQUITY NET OF DHDC CONTINGENT TRANSACTION SHARE OUTSTANDING [1] VALUE OPTIONS VALUE DEBT [2] LIABILITIES [3] VALUE - --------- -------------- -------- ------------ ----------- -------- ------------------ ----------- $17.50 x 10,113 = $176,971 + $933 = $177,904 + $39,534 + $26,042 = $243,480 - ------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------- TRANSACTION EQUITY VALUE AS A MULTIPLE OF: TOTAL TRANSACTION VALUE AS A MULTIPLE OF: - ----------------------------------------------------- ----------------------------------------------------- CALENDAR CALENDAR ------------------------------------------- ----------------------------------------- LTM [4] 1998(E)[5] 1999(E)[5] LTM 1998(E) 1999(E) ------- ---------- ---------- --- ------- ------- NET INCOME 16.4 x 16.5 x 14.6 x Revenues 1.49 x 1.37 x 1.25 x EBITDA[6] 8.9 x 8.9 x 8.0 x BOOK VALUE [2] 2.8 x EBIT[7] 11.3 x 11.3 x 10.1 x
AVERAGE STOCK PRICE FOR LAST IPO ALL-TIME ALL-TIME STOCK PRICE ---------------------------------------- PRICE HIGH CLOSING LOW CLOSING AS OF 7/17/98 5 DAYS 30 DAYS 60 DAYS 90 DAYS 5/24/95 PRICE (7/2/96) PRICE (1/27/98) ------------- ------ ------- ------- ------- ------- -------------- --------------- ACTUAL VALUE $13.50 $14.29 $14.26 $14.04 $14.45 $14.50 $51.69 $9.56 PREMIUM AT $17.50 PER SHARE 29.6% 22.5% 22.7% 24.7% 21.1% 20.7% (66.1%) 83.0%
STOCK PRICE BEFORE ANNOUNCEMENT ----------------------------------------- 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR ----------- ------------ ------------- ACTUAL VALUE $13.50 $15.00 $13.25 PREMIUM AT $17.50 PER SHARE 29.6% 16.7% 32.1%
Footnotes: [1] Most recent shares from 10-Q plus the common stock equivalent options in the money using the treasury stock method. [2] Net debt and book value as of March 31, 1998. [3] Consists of DentLease funding obligation and repurchase of Series A preferred stock. [4] Excludes goodwill impairment of $59.0 million and other one-time charges of $9.4 million. Assumed tax rate is 38.0%. [5] Projections provided by Robinson-Humphrey Research dated April 28, 1998. [6] Defined as earnings before interest, taxes, depreciation and amortization. [7] Defined as earnings before interest and taxes. 4 PROJECT GOLDCAP CURRENT VESTED OPTIONS SCHEDULE - --------------------------------------------------------------------------------
Cumulative Vested Vested Cumulative Options Exercise Aggregate Options Exercise Outstanding Price Exercise Price Outstanding Price - ----------- -------- -------------- ----------- -------------- 36,000 $ 0.49 $ 17,604.00 36,000 $ 17,604.00 6,750 $ 2.96 $ 19,986.75 42,750 $ 37,590.75 1,000 $ 5.89 $ 5,894.00 43,750 $ 43,484.75 10,000 $12.50 $ 125,000.00 53,750 $ 168,484.75 9,000 $14.50 $ 130,500.00 62,750 $ 298,984.75 80,000 $16.12 $ 1,289,600.00 142,750 $ 1,588,584.75 20,000 $16.34 $ 326,800.00 162,750 $ 1,915,384.75 80,000 $19.35 $ 1,548,000.00 242,750 $ 3,463,384.75 10,000 $20.50 $ 205,000.00 252,750 $ 3,668,384.75 20,000 $23.22 $ 464,400.00 272,750 $ 4,132,784.75 1,250 $26.00 $ 32,500.00 274,000 $ 4,165,284.75 20,000 $27.86 $ 557,200.00 294,000 $ 4,722,484.75 21,000 $29.00 $ 609,000.00 315,000 $ 5,331,484.75 150,750 $29.75 $ 4,484,812.50 465,750 $ 9,816,297.25 12,500 $30.25 $ 378,125.00 478,250 $10,194,422.25 57,000 $36.25 $ 2,066,250.00 535,250 $12,260,672.25 2,500 $39.50 $ 98,750.00 537,750 $12,359,422.25 2,000 $42.75 $ 85,500.00 539,750 $12,444,922.25 - ------- -------------- 539,750 $12,444,922.25
Cumulative Additional Deal Exercise In-the-Money Shares Fully Diluted Price[1] Price Options Outstanding Shares Out[2] - -------- ---------- ------------ ----------- ------------- $17.50 $1,915,385 162,750 53,299 10,165,928
Cumulative Net Value of Deal In-the-Money Value of Exercise In-the-Money Price[1] Options Options Price Options - -------- ------------ ---------- ---------- ------------ $17.50 162,750 $2,848,125 $1,915,385 $932,740
- ----------------------------------------------- [1] Assumes 10,112,629 pre-deal shares outstanding. [2] Uses the treasury stock method. 5 PROJECT GOLDCAP ANALYSIS OF DHDC CONTINGENT LIABILITIES - -------------------------------------------------------------------------------- (Dollars in Thousands)
Year Ending December 31, --------------------------------------------- 1997 1998 1999 2000 ---------- ---------- ---------- --------- DentLease Funding Obligation - - - $ 10,000 Present value[1] $ 7,533 DHDC Series A Preferred Stock $ 10,930 $ 14,318 $ 18,757 $ 24,572 -$10.0 million initial investment -Accrued dividends at 31% compounded annually Present value[1] $ 18,509 Present value of DHDC contingent liabilities $ 26,042 Per share $ 2.58
- ----------------------------------- [1] Discounted at 12.0% annually. [2] Issued September 12, 1997. Matures September 12, 2004. Purchase option begins February 28, 2001. 6 PROJECT GOLDCAP VALUATION SUMMARY - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) MARKET COMPARISON OF SELECTED PUBLIC COMPANIES
-------- -------- -------- HIGH LOW AVERAGE -------- -------- -------- DENTAL MANAGED CARE COMPANIES Aggregate Equity Value $205,200 $ 54,021 $136,077 Per Share Equity Value $ 20.29 $ 5.34 $ 13.46 MULTI-MARKET HMO COMPANIES Aggregate Equity Value $406,792 $ 17,547 $220,743 Per Share Equity Value $ 40.23 $ 1.74 $ 21.83 DENTAL MANAGED CARE AND DENTAL PRACTICE MANAGEMENT COMPANIES Aggregate Equity Value $191,877 $119,860 $152,424 Per Share Equity Value $ 18.98 $ 11.85 $ 15.07 -------- -------- -------- -------------------------------------------------------------------------------------- AVERAGE AGGREGATE EQUITY VALUE $267,956 $ 63,809 $169,748 PER SHARE EQUITY VALUE $ 26.50 $ 6.31 $ 16.79 MEDIAN AGGREGATE EQUITY VALUE $205,200 $ 54,021 $152,424 PER SHARE EQUITY VALUE $ 20.29 $ 5.34 $ 15.07 --------------------------------------------------------------------------------------
7 PROJECT GOLDCAP VALUATION SUMMARY - ------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) PURCHASE PRICE MULTIPLES ANALYSIS OF SELECTED M&A TRANSACTIONS
HIGH LOW AVERAGE ---- --- ------- PRE-PAID DENTAL PLAN ACQUISITIONS Aggregate Equity Value $362,958 $119,456 $189,081 Per Share Equity Value $ 35.89 $ 11.81 $ 18.70 UNITED DENTAL CARE ACQUISITIONS - HISTORICAL MULTIPLES Aggregate Equity Value $581,437 $ 89,255 $190,081 Per Share Equity Value $ 57.50 $ 8.83 $ 18.80 UNITED DENTAL CARE ACQUISITIONS - FORWARD MULTIPLES Aggregate Equity Value $236,636 $164,496 $210,715 Per Share Equity Value $ 23.40 $ 16.27 $ 20.84 HMO ACQUISITIONS - HISTORICAL MULTIPLES Aggregate Equity Value $305,727 $104,873 $250,551 Per Share Equity Value $ 30.23 $ 10.37 $ 24.78 HMO ACQUISITIONS - FORWARD MULTIPLES Aggregate Equity Value $222,867 $167,722 $190,424 Per Share Equity Value $ 22.04 $ 16.59 $ 18.83 MERGERSTAT REVIEW Aggregate Equity Value $284,263 $179,989 $219,180 Per Share Equity Value $ 28.11 $ 17.80 $ 21.67 PREMIUM ANALYSIS Aggregate Equity Value $196,164 $168,332 $182,642 Per Share Equity Value $ 19.40 $ 16.65 $ 18.06 ----------------------------------------------------------------------------------------------- AVERAGE Aggregate Equity Value $312,864 $142,018 $204,668 Per Share Equity Value $ 30.94 $ 14.04 $ 20.24 MEDIAN Aggregate Equity Value $284,263 $164,496 $190,424 Per Share Equity Value $ 28.11 $ 16.27 $ 18.83 -----------------------------------------------------------------------------------------------
8 PROJECT GOLDCAP VALUATION SUMMARY - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) DISCOUNTED CASH FLOW ANALYSIS - CONSOLIDATED COMPANY
HIGH LOW AVERAGE ----------- ----------- ----------- EBIT EXIT MULTIPLE Aggregate Equity Value $ 285,936 $ 122,384 $ 190,196 Per Share Equity Value $ 28.28 $ 12.10 $ 18.81 EBITDA EXIT MULTIPLE Aggregate Equity Value $ 237,301 $ 115,449 $ 175,365 Per Share Equity Value $ 23.47 $ 11.42 $ 17.34 AVERAGE AGGREGATE EQUITY VALUE $ 261,618 $ 118,917 $ 182,780 PER SHARE EQUITY VALUE $ 25.87 $ 11.76 $ 18.07
DISCOUNTED CASH FLOW ANALYSIS - BENEFITS COMPANY
HIGH LOW AVERAGE ---- --- ------- EBIT EXIT MULTIPLE Aggregate Equity Value $ 265,142 $ 120,321 $ 180,389 Per Share Equity Value $ 26.22 $ 11.90 $ 17.84 EBITDA EXIT MULTIPLE Aggregate Equity Value $ 220,822 $ 113,537 $ 166,307 Per Share Equity Value $ 21.84 $ 11.23 $ 16.45 AVERAGE AGGREGATE EQUITY VALUE $ 242,982 $ 116,929 $ 173,348 PER SHARE EQUITY VALUE $ 24.03 $ 11.56 $ 17.14
9 PROJECT GOLDCAP HISTORICAL INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, --------------------------------- ---------------------------- 1995 1996 1997 1997 1998 ---------- ---------- ---------- ---------- ---------- Revenues: Subscriber premiums $104,898 $135,807 $143,396 $35,636 $35,422 Affiliated practice revenue - - 7,113 - 5,292 Other revenue 1,763 5,262 8,217 2,199 1,728 ---------- ---------- ---------- ---------- ---------- Total revenue 106,661 141,069 158,726 37,835 42,442 Expenses: Dental care providers' fees and claim costs 62,218 73,431 81,690 [1] 19,544 19,428 Commissions 10,763 12,184 13,272 3,172 3,265 Premium taxes 1,392 1,018 1,047 265 261 DHMI operating expense - - - - 4,605 General and administrative 19,435 30,394 44,318 [2] 7,860 8,374 Depreciation and amortization 2,717 5,153 5,735 1,321 1,379 Goodwill impairment - - 58,953 - - ---------- ---------- ---------- ---------- ---------- Total expenses 96,525 122,180 205,015 32,162 37,312 ---------- ---------- ---------- ---------- ---------- Operating income (loss) 10,136 18,889 (46,289)[3] 5,673 5,130 Other expense (income): Interest income (735) (585) (725) (161) (254) Interest expense 1,970 1,935 3,239 708 1,013 Other, net (68) (219) 2 (45) - ---------- ---------- ---------- ---------- ---------- Total other expense 1,167 1,131 2,516 502 759 ---------- ---------- ---------- ---------- ---------- Income (loss) before provision for income taxes and extraordinary item 8,969 17,758 (48,805) 5,171 4,371 Income tax provision 3,765 7,866 4,900 2,332 1,878 ---------- ---------- ---------- ---------- ---------- Income (loss) before extraordinary item 5,204 9,892 (53,705) 2,839 2,493 Extraordinary loss on early extinguishment of debt, net of income tax benefit 498 - - - - ---------- ---------- ---------- ---------- ---------- Net income (loss) $4,706 $9,892 ($53,705)[3] $2,839 $2,493 ========== ========== ========== ========== ========== Income (loss) per common share - diluted $0.68 $0.97 ($5.32)[3] $0.28 $0.25 Extraordinary loss 0.07 - - - - ---------- ---------- ---------- ---------- ---------- Net income (loss) per common share $0.61 $0.97 ($5.32) $0.28 $0.25 ========== ========== ========== ========== ========== Diluted weighted average common shares 7,352 10,177 10,098 10,167 10,175 outstanding ========== ========== ========== ========== ========== EBITDA (excluding one-time charges) $12,853 $24,042 $27,799 $6,994 $6,509 EBITDA per share: $1.75 $2.36 $2.75 $0.69 $0.64 After-tax EBITDA per share: $1.01 $1.32 $1.56 $0.38 $0.36
- ------------------------------------ [1] Includes a $2.0 million one-time charge associated with terminating an indemnity relationship. [2] Includes $7.4 million in unusual and one-time charges. [3] Excluding goodwill impairment and one-time charges, Goldcap would have reported $22.1 million in operating income, $11.1 million in net income and $1.10 in net income per share. 10 PROJECT GOLDCAP COMMON-SIZED HISTORICAL INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, -------------------------------- ---------------------------- 1995 1996 1997 1997 1998 ----- ----- ----- ----- ----- Revenues: Subscriber premiums 98.3% 96.3% 90.3% 94.2% 83.5% Affiliated practice revenue 0.0% 0.0% 4.5% 0.0% 12.5% Other revenue 1.7% 3.7% 5.2% 5.8% 4.1% ----- ----- ----- ----- ----- Total revenue 100.0% 100.0% 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- Expenses: Dental care providers' fees and claim costs 58.3% 52.1% 51.5%[1] 51.7% 45.8% Commissions 10.1% 8.6% 8.4% 8.4% 7.7% Premium taxes 1.3% 0.7% 0.7% 0.7% 0.6% DHMI operating expense 0.0% 0.0% 0.0% 0.0% 10.9% General and administrative 18.2% 21.5% 27.9%[2] 20.8% 19.7% Depreciation and amortization 2.5% 3.7% 3.6% 3.5% 3.2% Goodwill impairment 0.0% 0.0% 37.1% 0.0% 0.0% ----- ----- ----- ----- ----- Total expenses 90.5% 86.6% 129.2% 85.0% 87.9% ----- ----- ----- ----- ----- Operating income (loss) 9.5% 13.4% (29.2%)[3] 15.0% 12.1% Other expense (income): Interest income (0.7%) (0.4%) (0.5%) (0.4%) (0.6%) Interest expense 1.8% 1.4% 2.0% 1.9% 2.4% Other, net (0.1%) (0.2%) 0.0% (0.1%) 0.0% ----- ----- ----- ----- ----- Total other expense 1.1% 0.8% 1.6% 1.3% 1.8% ----- ----- ----- ----- ----- Income (loss) before provision for income taxes and extraordinary item 8.4% 12.6% (30.7%) 13.7% 10.3% Income tax provision 3.5% 5.6% 3.1% 6.2% 4.4% ----- ----- ----- ----- ----- Income (loss) before extraordinary item 4.9% 7.0% (33.8%) 7.5% 5.9% Extraordinary loss on early extinguishment of debt, net of income tax benefit 0.5% 0.0% 0.0% 0.0% 0.0% ----- ----- ----- ----- ----- Net income (loss) 4.4% 7.0% (33.8%)[3] 7.5% 5.9% ===== ===== ===== ===== ===== EBITDA (excluding one-time charges) 12.1% 17.0% 17.5% 18.5% 15.3%
- ------------------------------------------ [1] Includes a $2.0 million one-time charge associated with terminating an indemnity relationship. [2] Includes $7.4 million in unusual and one-time charges. [3] Excluding goodwill impairment and one-time charges, Goldcap would have reported an operating income margin of 13.9% and a net income margin of 7.0%. 11 PROJECT GOLDCAP HISTORICAL BALANCE SHEET INFORMATION (DOLLARS IN THOUSANDS)
December 31, March 31, ------------------------------------------- --------- 1995 1996 1997 1998 --------- -------- -------- --------- ASSETS Current assets: Cash and cash equivalents $ 40,388 $ 26,959 $ 21,963 $ 15,568 Accrued interest receivable 84 48 -- -- Premiums receivable from subscribers 3,637 3,121 5,554 4,556 Patient accounts receivable -- -- 1,668 2,201 Income taxes receivable -- 247 175 -- Assets held for sale 532 -- -- -- Deferred income taxes 1,416 3,106 5,081 5,081 Other current assets 197 602 2,842 4,067 -------- -------- -------- --------- Total current assets 46,254 34,083 37,283 31,473 Restricted funds 1,463 2,070 2,321 2,234 Property and equipment, net 1,937 2,977 6,292 8,691 Excess of purchase price over net assets acquired 71,063 135,040 96,296 100,072 Noncompetition agreements 1,521 945 325 168 Investment in DHDC -- -- 1,500 1,500 Unamortized loan fees 172 189 -- -- Reinsurance receivable 6,332 5,388 5,417 5,467 Cash surrender value of officers' life insurance 155 140 -- -- Deferred income taxes 243 2,026 -- -- Other assets 256 1,309 1,437 1,849 -------- -------- -------- -------- Total assets $129,396 $184,167 $150,871 $151,454 ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Unearned revenue $ 10,300 $9,582 $ 9,538 $ 9,231 Accounts payable and accrued expenses 7,372 10,956 14,855 13,552 Income taxes payable 883 -- -- -- Accrued interest payable -- 390 109 152 Life policy and contract claims reserves 37 68 -- -- Dental claims reserves 2,437 1,421 1,502 1,839 Other current liabilities 12 1,856 63 63 -------- -------- -------- -------- Total current liabilities 21,041 24,273 26,067 24,837 Aggregate reserves for life policies and contracts 5,323 5,338 5,331 5,355 Aggregate reserves for dental contracts 172 -- -- -- Notes payable -- 41,663 56,595 55,102 Deferred tax liability -- -- 1,887 1,887 Deferred compensation expense 384 338 298 287 Other liabilities 299 372 417 1,217 -------- -------- -------- -------- Total liabilities 27,219 71,984 90,595 88,685 -------- -------- -------- -------- Commitments and contingencies Stockholders' equity: Preferred stock -- -- -- -- Common stock 100 101 101 101 Additional paid-in capital 95,707 95,820 97,618 97,618 Retained earnings 6,370 16,262 (37,443) (34,950) -------- -------- -------- -------- Total stockholders' equity 102,177 112,183 60,276 62,769 -------- -------- -------- -------- Total liabilities and stockholders' equity $129,396 $184,167 $150,871 $151,454 ======== ======== ======== ========
12 PROJECT GOLDCAP COMMON-SIZED HISTORICAL BALANCE SHEET INFORMATION (DOLLARS IN THOUSANDS)
December 31, March 31, --------------------------- --------- 1995 1996 1997 1998 ------- ------- ------- --------- ASSETS Current assets: Cash and cash equivalents 31.2% 14.6% 14.6% 10.3% Accrued interest receivable 0.1% 0.0% 0.0% 0.0% Premiums receivable from subscribers 2.8% 1.7% 3.7% 3.0% Patient accounts receivable 0.0% 0.0% 1.1% 1.5% Income taxes receivable 0.0% 0.1% 0.1% 0.0% Assets held for sale 0.4% 0.0% 0.0% 0.0% Deferred income taxes 1.1% 1.7% 3.4% 3.4% Other current assets 0.2% 0.3% 1.9% 2.7% ------- ------- ------- ------- Total current assets 35.7% 18.5% 24.7% 20.8% Restricted funds 1.1% 1.1% 1.5% 1.5% Property and equipment, net 1.5% 1.6% 4.2% 5.7% Excess of purchase price over net assets acquired 54.9% 73.3% 63.8% 66.1% Noncompetition agreements 1.2% 0.5% 0.2% 0.1% Investment in DHDC 0.0% 0.0% 1.0% 1.0% Unamortized loan fees 0.1% 0.1% 0.0% 0.0% Reinsurance receivable 4.9% 2.9% 3.6% 3.6% Cash surrender value of officers' life insurance 0.1% 0.1% 0.0% 0.0% Deferred income taxes 0.2% 1.1% 0.0% 0.0% Other assets 0.2% 0.7% 1.0% 1.2% ------- ------- ------- ------- Total assets 100.0% 100.0% 100.0% 100.0% ======= ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Unearned revenue 8.0% 5.2% 6.3% 6.1% Accounts payable and accrued expenses 5.7% 5.9% 9.8% 8.9% Income taxes payable 0.7% 0.0% 0.0% 0.0% Accrued interest payable 0.0% 0.2% 0.1% 0.1% Life policy and contract claims reserves 0.0% 0.0% 0.0% 0.0% Dental claims reserves 1.9% 0.8% 1.0% 1.2% Other current liabilities 0.0% 1.0% 0.0% 0.0% ------- ------- ------- ------- Total current liabilities 16.3% 13.2% 17.3% 16.4% Aggregate reserves for life policies and contracts 4.1% 2.9% 3.5% 3.5% Aggregate reserves for dental contracts 0.1% 0.0% 0.0% 0.0% Notes payable 0.0% 22.6% 37.5% 36.4% Deferred tax liability 0.0% 0.0% 1.3% 1.2% Deferred compensation expense 0.3% 0.2% 0.2% 0.2% Other liabilities 0.2% 0.2% 0.3% 0.8% ------- ------- ------- ------- Total liabilities 21.0% 39.1% 60.0% 58.6% ------- ------- ------- ------- Commitments and contingencies Stockholders' equity: Preferred stock 0.0% 0.0% 0.0% 0.0% Common stock 0.1% 0.1% 0.1% 0.1% Additional paid-in capital 74.0% 52.0% 64.7% 64.5% Retained earnings 4.9% 8.8% (24.8)% (23.1)% ------- ------- ------- ------- Total stockholders' equity 79.0% 60.9% 40.0% 41.4% ------- ------- ------- ------- Total liabilities and stockholders' equity 100.0% 100.0% 100.0% 100.0% ======= ======= ======= =======
13 PROJECT GOLDCAP HISTORICAL STATEMENT OF CASH FLOWS INFORMATION (DOLLARS IN THOUSANDS)
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, -------------------------------- --------------------- 1995 1996 1997 1997 1998 -------- -------- -------- -------- --------- Cash flows from operating activities: Net income (loss) $ 4,706 $ 9,892 ($53,705) $ 2,839 $ 2,493 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,855 5,248 5,735 1,348 1,379 Goodwill impairment -- -- 58,953 -- -- (Gain) loss on sale of assets held for sale 23 (174) -- -- -- Gain on sale of property and equipment -- (53) (12) (10) -- Loss on sale of property and equipment -- -- 65 -- -- Bad debt expense -- -- 183 -- -- Extraordinary loss on early extinguishment of debt 803 -- -- -- -- Deferred income tax expense (benefit) (255) 1,526 2,136 553 -- Changes in assets and liabilities: Premiums receivable from subscribers (203) 1,813 (2,433) (1,033) 465 Patient receivables -- -- (1,029) -- -- Income taxes receivable 213 (231) 71 856 1,313 Other assets (1,181) (73) (3,487) (662) (1,687) Unearned revenue 1,213 (1,445) (59) 201 (307) Accounts payable and accrued expenses (424) (3,200) (300) (1,393) (1,453) Income taxes payable 854 (903) -- -- -- Other liabilities (146) (2,895) (1,781) (1,242) (854) -------- -------- -------- -------- -------- Net cash provided by operating activities 8,458 9,505 4,337 1,457 1,349 -------- -------- -------- -------- -------- Cash flows from investing activities: Additions to property and equipment (1,076) (2,394) (3,985) (873) (2,838) Proceeds from sale of assets held for sale 1,323 694 -- -- -- Increase in restricted cash (106) (607) (175) (2) 87 Proceeds from sale of property and equipment -- 253 37 18 -- Cash surrender value of life insurance (28) 15 (28) -- -- Purchases of businesses, net of cash acquired (31,188) (62,462) (20,770) (715) (3,500) -------- -------- -------- -------- -------- Net cash used in investing activities (31,075) (64,501) (24,921) (1,572) (6,251) -------- -------- -------- -------- -------- Cash flows from financing activities: Repayment of notes payable (26,600) 57,697 59,456 -- -- Borrowings under credit agreement 25,000 (16,034) (44,525) -- -- Repayments under credit agreement (25,000) (112) -- (3,663) (1,493) Loan fees paid (240) -- -- -- -- Repayment of subordinated notes (7,947) -- -- -- -- Retirement of preferred stock (5,377) -- -- -- -- Proceeds from initial public offering, net of issuance cost 51,442 -- -- -- -- Proceeds from secondary public offering, net of issuance cost 42,047 -- -- -- -- Proceeds from exercise of stock options -- 66 21 -- -- Proceeds from employee stock purchase plan -- 48 53 -- -- Tax benefit realized from exercise of nonqualified stock options -- -- 583 583 -- Other -- (98) -- -- -- -------- -------- -------- -------- -------- Net cash provided by financing activities 53,325 41,567 15,588 (3,080) (1,493) -------- -------- -------- -------- -------- Decrease (increase) in cash and cash equivalents 30,708 (13,429) (4,996) (3,195) (6,395) Cash and equivalents, beginning of period 9,680 40,388 26,959 26,959 21,963 -------- -------- -------- -------- -------- Cash and equivalents, end of period $ 40,388 $ 26,959 $ 21,963 $ 23,764 $ 15,568 ======== ======== ======== ======== ========
14 PROJECT GOLDCAP HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED THREE MONTHS ENDED -------------------------------------------------- ------------ ------------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, MARCH 31, 1997 1997 1997 1997 1997 1998 --------- ---------- ------------- ------------ ------------ ---------- Revenues: Subscriber premiums $ 35,636 $ 35,852 $ 35,982 $ 35,926 $ 143,396 $ 35,422 Affiliated practice revenue -- -- 3,343 3,774 7,113 5,292 Other revenue 2,199 2,348 1,809 1,857 8,217 1,728 --------- --------- --------- --------- --------- --------- Total revenue 37,835 38,200 41,134 41,557 158,726 42,442 Expenses: Dental care providers' fees and claim costs 19,544 19,906 19,849 22,391 [1] 81,690 [1] 19,428 Commissions 3,172 3,192 3,552 3,356 13,272 3,265 Premium taxes 265 256 263 263 1,047 261 DHMI operating expenses -- -- -- -- -- 4,605 General and administrative 7,860 7,967 10,231 18,260 [2] 44,318 [2] 8,374 Goodwill impairment -- -- -- 58,953 58,953 -- Depreciation and amortization 1,321 1,355 1,553 1,506 5,735 1,379 --------- --------- --------- --------- --------- --------- Total operating expenses 32,162 32,676 35,448 104,729 205,015 37,312 --------- --------- --------- --------- --------- --------- Operating income (loss) 5,673 5,524 5,686 (63,172)[3] (46,289)[4] 5,130 Other (income)/ expense Interest (income) (161) (254) (79) (231) (725) (254) Interest expense 708 738 783 1,010 3,239 1,013 Other, net (45) (16) (5) 68 2 0 --------- --------- --------- --------- --------- --------- Total other (income) expense 502 468 699 847 2,516 759 --------- --------- --------- --------- --------- --------- Income before income taxes 5,171 5,056 4,987 (64,019) (48,805) 4,371 Provision for income taxes 2,332 2,172 2,055 (1,659) 4,900 1,878 --------- --------- --------- --------- --------- --------- % rate 45.1% 43.0% 41.2% NM (10.0%) 43.0% Net income before extraordinary item $ 2,839 $ 2,884 $ 2,932 $ (62,360)[3] $ (53,705)[4] $ 2,493 ========= ========= ========= ========= ========= ========= Diluted weighted average shares outstanding 10,167 10,179 10,238 10,110 10,098 10,175 Diluted earnings per share $ 0.28 $ 0.28 $ 0.29 $ ( 6.17)[3] $ ( 5.32)[4] $ 0.25 EBITDA (excluding one-time charges) 6,994 6,879 7,239 6,687 27,799 6,509 EBITDA per share $ 0.69 $ 0.68 $ 0.71 $ 0.66 $ 2.75 $ 0.64 After-tax EBITDA per share $ 0.38 $ 0.39 $ 0.42 $ 0.37 $ 1.56 $ 0.36
- ------------------------------------- [1] Includes a $2.0 million one-time charge associated with terminating an indemnity relationship. [2] Includes $7.4 million in unusual and one-time charges. [3] Excluding goodwill impairment and one-time charges, Goldcap would have reported $5.2 million in operating income, $2.4 million in net income and $0.24 in net income per share. [4] Excluding goodwill impairment and one-time charges, Goldcap would have reported $22.1 million in operating income, $11.1 million in net income and $1.10 in net income per share. 15 PROJECT GOLDCAP COMMON-SIZED HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS THREE MONTHS ENDED YEAR ENDED ENDED -------------------------------------------------- ------------ --------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, MARCH 31, 1997 1997 1997 1997 1997 1998 --------- -------- ------------- ------------ ------------ --------- Revenues: Subscriber premiums 94.2 % 93.9 % 87.5 % 86.4 % 90.3 % 83.5 % Affiliated practice revenue 0.0 % 0.0 % 8.1 % 9.1 % 4.5 % 12.5 % Other revenue 5.8 % 6.1 % 4.4 % 4.5 % 5.2 % 4.1 % ------ ------ ------ ------ ------ ------ Total revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Expenses: Dental care providers' fees and claim costs 51.7 % 52.1 % 48.3 % 53.9 %[1] 51.5 %[1] 45.8 % Commissions 8.4 % 8.4 % 8.6 % 8.1 % 8.4 % 7.7 % Premium taxes 0.7 % 0.7 % 0.6 % 0.6 % 0.7 % 0.6 % DHMI operating expenses 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 10.9 % General and administrative 20.8 % 20.9 % 24.9 % 43.9 %[2] 27.9 %[2] 19.7 % Goodwill impairment 0.0 % 0.0 % 0.0 % 141.9 % 37.1 % 0.0 % Depreciation and amortization 3.5 % 3.5 % 3.8 % 3.6 % 3.6 % 3.2 % ------ ------ ------ ------ ------ ------ Total operating expenses 85.0 % 85.5 % 86.2 % 252.0 % 129.2 % 87.9 % ------ ------ ------ ------ ------ ------ Operating income (loss) 15.0 % 14.5 % 13.8 % (152.0)%[3] (29.2)%[4] 12.1 % Other (income)/ expense Interest (income) (0.4)% (0.7)% (0.2)% (0.6)% (0.5)% (0.6)% Interest expense 1.9 % 1.9 % 1.9 % 2.4 % 2.0 % 2.4 % Other, net (0.1)% (0.0)% (0.0) % 0.2 % 0.0 % 0.0 % ------ ------ ------ ------ ------ ------ Total other (income) expense 1.3 % 1.2 % 1.7% 2.0 % 1.6 % 1.8 % ------ ------ ------ ------ ------ ------ Income before income taxes 13.7 % 13.2 % 12.1 % (154.1)% (30.7)% 10.3 % Provision for income taxes 6.2 % 5.7 % 5.0 % (4.0)% 3.1 % 4.4 % ------ ------ ------ ------ ------ ------ Net income 7.5 % 7.5 % 7.1 % (150.1)%[3] (33.8)%[4] 5.9 % ====== ====== ====== ====== ====== ====== EBITDA (excluding one-time charges) 18.5 % 18.0 % 17.6 % 16.1 % 17.5 % 15.3 %
- -------------------------------------- [1] Includes a $2.0 million one-time charge associated with terminating an indemnity relationship. [2] Includes $7.4 million in unusual and one-time charges. [3] Excluding goodwill impairment and one-time charges, Goldcap would have reported an operating income margin of 12.5% and a net income margin of 5.8%. [4] Excluding goodwill impairment and one-time charges, Goldcap would have reported an operating income margin of 13.9% and a net income margin of 7.0%. 16 PROJECT GOLDCAP HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED -------------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1996 1996 1996 1996 1996 --------- --------- ------------- ------------ ------------ Revenues: Subscriber premiums $ 30,831 $ 33,384 $ 35,443 $ 36,149 $ 135,807 Affiliated practice revenue -- -- -- -- -- Other revenue 554 1,377 1,704 1,627 5,262 --------- --------- --------- --------- --------- Total revenue 31,385 34,761 37,147 37,776 141,069 Expenses: Dental care providers' fees and claim costs 16,481 17,967 19,196 19,787 73,431 Commissions 3,013 3,091 2,949 3,131 12,184 Premium taxes 259 264 264 231 1,018 DHMI operating expenses -- -- -- -- -- General and administrative 6,771 7,831 7,964 7,828 30,394 Goodwill impairment -- -- -- -- -- Depreciation and amortization 1,047 1,287 1,389 1,430 5,153 --------- --------- --------- --------- --------- Total operating expenses 27,571 30,440 31,762 32,407 122,180 --------- --------- --------- --------- --------- Operating income (loss) 3,814 4,321 5,385 5,369 18,889 Other (income)/ expense Interest (income) (153) (145) (117) (170) (585) Interest expense 46 434 697 758 1,935 Other, net (10) (299) 96 (6) (219) --------- --------- --------- --------- --------- Total other (income) expense (117) (10) 676 582 1,131 --------- --------- --------- --------- --------- Income before income taxes 3,931 4,331 4,709 4,787 17,758 Provision for income taxes 1,694 1,924 2,103 2,145 7,866 --------- --------- --------- --------- --------- % rate 43.1% 44.4% 44.7% 44.8% 44.3% Net income before extraordinary item $ 2,237 $ 2,407 $ 2,606 $ 2,642 $ 9,892 ========= ========= ========= ========= ========= Diluted weighted average shares outstanding 10,156 10,185 10,163 10,172 10,177 Diluted earnings per share $ 0.22 $ 0.24 $ 0.26 $ 0.26 $ 0.97 EBITDA (excluding one-time charges) 4,861 5,608 6,774 6,799 24,042 EBITDA per share $ 0.48 $ 0.55 $ 0.67 $ 0.67 $ 2.36 After-tax EBITDA per share $ 0.27 $ 0.31 $ 0.37 $ 0.37 $ 1.32
17 PROJECT GOLDCAP COMMON-SIZED HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED --------------------------------------------------------- ------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1996 1996 1996 1996 1996 ------------ -------- ------------- ------------ ------------- Revenues: Subscriber premiums 98.2% 96.0% 95.4% 95.7% 96.3% Affiliated practice revenue 0.0% 0.0% 0.0% 0.0% 0.0% Other revenue 1.8% 4.0% 4.6% 4.3% 3.7% ------------ -------- ------------- ----------- ------------- Total revenue 100.0% 100.0% 100.0% 100.0% 100.0% Expenses: Dental care providers' fees and claim costs 52.5% 51.7% 51.7% 52.4% 52.1% Commissions 9.6% 8.9% 7.9% 8.3% 8.6% Premium taxes 0.8% 0.8% 0.7% 0.6% 0.7% DHMI operating expenses 0.0% 0.0% 0.0% 0.0% 0.0% General and administrative 21.6% 22.5% 21.4% 20.7% 21.5% Goodwill impairment 0.0% 0.0% 0.0% 0.0% 0.0% Depreciation and amortization 3.3% 3.7% 3.7% 3.8% 3.7% ------------ -------- ------------- ----------- ------------- Total operating expenses 87.8% 87.6% 85.5% 85.8% 86.6% ------------ -------- ------------- ----------- ------------- Operating income (loss) 12.2% 12.4% 14.5% 14.2% 13.4% Other (income)/ expense Interest (income) (0.5)% (0.4)% (0.3)% (0.5)% (0.4)% Interest expense 0.1% 1.2% 1.9% 2.0% 1.4% Other, net (0.0)% (0.9)% 0.3% (0.0)% (0.2)% ------------ -------- ------------- ----------- ------------- Total other (income) expense (0.4%) (0.0)% 1.8% 1.5% 0.8% ------------ -------- ------------- ----------- ------------- Income before income taxes 12.5% 12.5% 12.7% 12.7% 12.6% Provision for income taxes 5.4% 5.5% 5.7% 5.7% 5.6% ------------ -------- ------------- ----------- ------------- Net income 7.1% 6.9% 7.0% 7.0% 7.0% ============ ======== ============= =========== ============= EBITDA (excluding one-time charges) 15.5% 16.1% 18.2% 18.0% 17.0%
18 PROJECT GOLDCAP HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED ------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1995 1995 1995 1995 1995 --------- --------- ------------- ---------- ------------ Revenues: Subscriber premiums $ 22,790 $ 23,238 $ 31,463 $ 27,407 $ 104,898 Affiliated practice revenue -- -- -- -- -- Other revenue 240 238 409 875 1,763 --------- --------- --------- --------- --------- Total revenue 23,031 23,476 31,872 28,282 106,661 Expenses: Dental care providers' fees and claim costs 13,700 13,832 18,802 15,884 62,218 Commissions 2,592 2,674 3,115 2,382 10,763 Premium taxes 324 353 375 340 1,392 DHMI operating expenses -- -- -- -- -- General and administrative 3,740 3,896 5,721 6,078 19,435 Goodwill impairment -- -- -- -- -- Depreciation and amortization 565 533 818 800 2,717 --------- --------- --------- --------- --------- Total operating expenses 20,921 21,288 28,831 25,484 96,525 --------- --------- --------- --------- --------- Operating income (loss) 2,109 2,188 3,041 2,798 10,136 Other (income)/ expense Interest (income) (31) (96) (181) (427) (735) Interest expense 949 630 352 39 1,970 Other, net 12 (7) (23) (50) (68) --------- --------- --------- --------- --------- Total other (income) expense 929 527 148 (438) 1,167 --------- --------- --------- --------- --------- Income before income taxes 1,180 1,661 2,893 3,236 8,969 Provision for income taxes 523 709 1,246 1,288 3,765 --------- --------- --------- --------- --------- % rate 44.3% 42.7% 43.1% 39.8% 42.0% Net income before extraordinary item $ 658 $ 952 $ 1,647 $ 1,948 $ 5,204 ========= ========= ========= ========= ========= Diluted weighted average shares outstanding 5,500 6,500 9,041 10,150 7,352 Diluted earnings per share $ 0.12 $ 0.15 $ 0.18 $ 0.19 $ 0.68 EBITDA (excluding one-time charges) 2,674 2,721 3,859 3,598 12,853 EBITDA per share $ 0.49 $ 0.42 $ 0.43 $ 0.36 $ 1.75 After-tax EBITDA per share $ 0.27 $ 0.24 $ 0.24 $ 0.22 $ 1.01
19 PROJECT GOLDCAP COMMON-SIZED HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED -------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1995 1995 1995 1995 1995 --------- -------- ------------- ------------ ------------ Revenues: Subscriber premiums 99.0% 99.0% 98.7% 96.9% 98.3% Affiliated practice revenue 0.0% 0.0% 0.0% 0.0% 0.0% Other revenue 1.0% 1.0% 1.3% 3.1% 1.7% ----- ----- ----- ----- ----- Total revenue 100.0% 100.0% 100.0% 100.0% 100.0% Expenses: Dental care providers' fees and claim costs 59.5% 58.9% 59.0% 56.2% 58.3% Commissions 11.3% 11.4% 9.8% 8.4% 10.1% Premium taxes 1.4% 1.5% 1.2% 1.2% 1.3% DHMI operating expenses 0.0% 0.0% 0.0% 0.0% 0.0% General and administrative 16.2% 16.6% 17.9% 21.5% 18.2% Goodwill impairment 0.0% 0.0% 0.0% 0.0% 0.0% Depreciation and amortization 2.5% 2.3% 2.6% 2.8% 2.5% ----- ----- ----- ----- ----- Total operating expenses 90.8% 90.7% 90.5% 90.1% 90.5% ----- ----- ----- ----- ----- Operating income (loss) 9.2% 9.3% 9.5% 9.9% 9.5% Other (income)/ expense Interest (income) (0.1)% (0.4)% (0.6)% (1.5)% (0.7)% Interest expense 4.1% 2.7% 1.1% 0.1% 1.8% Other, net 0.1% (0.0)% (0.1)% (0.2)% (0.1)% ----- ----- ----- ----- ----- Total other (income) expense 4.0% 2.2% 0.5% (1.5)% 1.1% ----- ----- ----- ----- ----- Income before income taxes 5.1% 7.1% 9.1% 11.4% 8.4% Provision for income taxes 2.3% 3.0% 3.9% 4.6% 3.5% ----- ----- ----- ----- ----- Net income before extraordinary item 2.9% 4.1% 5.2% 6.9% 4.9% ===== ===== ===== ===== ===== EBITDA (excluding one-time charges) 11.6% 11.6% 12.1% 12.7% 12.1%
20 PROJECT GOLDCAP HISTORICAL EBITDA ANALYSIS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED ------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1995 1995 1995 1995 1995 ---------- -------- ------------- ------------ ------------ EBITDA $2,674 $2,721 $3,859 $3,598 $12,853 EBITDA margin 11.6% 11.6% 12.1% 12.7% 12.1% EBITDA per share $ 0.49 $ 0.42 $ 0.43 $ 0.36 $ 1.75 After-tax EBITDA per share $ 0.27 $ 0.24 $ 0.24 $ 0.22 $ 1.01 THREE MONTHS ENDED YEAR ENDED -------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1996 1996 1996 1996 1996 ----------- -------- ------------- ------------- ------------ EBITDA $4,861 $5,608 $6,774 $6,799 $24,042 EBITDA margin 15.5% 16.1% 18.2% 18.0% 17.0% EBITDA per share $ 0.48 $ 0.55 $ 0.67 $ 0.67 $ 2.36 After-tax EBITDA per share $ 0.27 $ 0.31 $ 0.37 $ 0.37 $ 1.32 THREE MONTHS ENDED YEAR ENDED ------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1997 1997 1997 1997 ---------- -------- ------------- ------------ ------------ EBITDA (excluding one-time charges) $6,994 $6,879 $7,239 $6,687 $27,799 EBITDA margin 18.5% 18.0% 17.6% 16.1% 17.5% EBITDA per share $ 0.69 $ 0.68 $ 0.71 $ 0.66 $ 2.75 After-tax EBITDA per share $ 0.38 $ 0.39 $ 0.42 $ 0.37 $ 1.56 THREE MONTHS ENDED ---------- MARCH 31, 1998 ---------- EBITDA $6,509 EBITDA margin 15.3% EBITDA per share $ 0.64 After-tax EBITDA per share $ 0.36
21 PROJECT GOLDCAP ROBINSON-HUMPHREY RESEARCH PROJECTED QUARTERLY INCOME STATEMENT INFORMATION [1] (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDING YEAR ENDING ------------------------------------------------------- ------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 (A) 1998 1998 1998 1998 --------- --------- --------- --------- --------- Revenues: Subscriber premiums $ 35,422 $ 35,627 $ 36,226 $ 36,837 $ 144,118 Affiliated practice revenue 5,292 6,250 7,250 8,250 27,042 Other revenue 1,728 1,800 1,825 1,850 7,202 --------- --------- --------- --------- --------- Total revenue 42,442 43,677 45,301 46,937 178,357 Expenses: Dental care providers' fees and claim costs 19,428 19,773 20,106 20,445 79,751 Commissions 3,265 3,278 3,333 3,389 13,265 Premium taxes 261 284 294 305 1,144 DHMI operating expenses 4,605 5,313 6,163 6,930 23,010 General and administrative 8,374 8,430 8,381 8,589 33,774 Depreciation and amortization 1,379 1,509 1,505 1,501 5,895 --------- --------- --------- --------- --------- Total operating expenses 37,312 38,587 39,782 41,159 156,839 --------- --------- --------- --------- --------- Operating income (loss) 5,130 5,091 5,520 5,777 21,518 Other (income) expense Interest (income) (254) (351) (389) (431) (1,424) Interest expense 1,013 1,014 1,014 1,014 4,056 Other, net -- -- -- -- -- --------- --------- --------- --------- --------- Total other (income) expense 759 663 625 583 2,632 --------- --------- --------- --------- --------- Income before income taxes 4,371 4,427 4,894 5,193 18,886 Provision for income taxes 1,878 1,904 2,105 2,233 8,121 --------- --------- --------- --------- --------- % rate 43% 43% 43% 43% 43% Net income $ 2,493 $ 2,524 $ 2,790 $ 2,960 $ 10,767 ========= ========= ========= ========= ========= Diluted weighted average shares outstanding 10,167 10,180 10,185 10,190 10,183 Diluted earnings per share $ 0.25 $ 0.25 $ 0.27 $ 0.29 $ 1.06 EBITDA 6,509 6,600 7,025 7,278 27,413 EBITDA per share $ 0.64 $ 0.65 $ 0.69 $ 0.71 $ 2.69 After-Tax EBITDA per share $ 0.37 $ 0.37 $ 0.39 $ 0.41 $ 1.53 THREE MONTHS ENDING YEAR ENDING ------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1999 1999 1999 1999 1999 --------- --------- --------- --------- --------- Revenues: Subscriber premiums $ 37,146 $ 37,140 $ 37,448 $ 38,084 $ 149,818 Affiliated practice revenue 8,750 9,250 9,750 10,250 38,000 Other revenue 1,873 1,895 1,932 1,975 7,674 --------- --------- --------- --------- --------- Total revenue 47,769 48,285 49,130 50,309 195,492 Expenses: Dental care providers' fees and claim costs 20,802 20,724 20,971 21,327 83,821 Commissions 3,492 3,491 3,520 3,580 14,083 Premium taxes 310 314 319 327 1,271 DHMI operating expenses 7,350 7,770 8,190 8,610 31,920 General and administrative 8,360 8,450 8,598 8,678 34,085 Depreciation and amortization 1,553 1,560 1,567 1,573 6,253 --------- --------- --------- --------- --------- Total operating expenses 41,867 42,309 43,165 44,095 171,433 --------- --------- --------- --------- --------- Operating income (loss) 5,902 5,976 5,965 6,213 24,056 Other (income) expense Interest (income) (420) (434) (463) (493) (1,810) Interest expense 1,014 1,014 1,014 1,014 4,058 Other, net -- -- -- -- -- --------- --------- --------- --------- --------- Total other (income) expense 594 580 551 521 2,248 --------- --------- --------- --------- --------- Income before income taxes 5,308 5,395 5,413 5,692 21,808 Provision for income taxes 2,282 2,320 2,328 2,448 9,378 --------- --------- --------- --------- --------- % rate 43% 43% 43% 43% 43% Net income $ 3,025 $ 3,075 $ 3,086 $ 3,244 $ 12,431 ========= ========= ========= ========= ========= Diluted weighted average shares outstanding 10,400 10,400 10,400 10,400 10,400 Diluted earnings per share $ 0.29 $ 0.30 $ 0.30 $ 0.31 $ 1.20 EBITDA 7,455 7,536 7,532 7,786 30,309 EBITDA per share $ 0.72 $ 0.72 $ 0.72 $ 0.75 $ 2.91 After-Tax EBITDA per share $ 0.41 $ 0.41 $ 0.41 $ 0.43 $ 1.66
- ----------------------------------- [1] Projections dated April 28, 1998. 22 PROJECT GOLDCAP COMMON-SIZED ROBINSON-HUMPHREY RESEARCH PROJECTED QUARTERLY INCOME STATEMENT INFORMATION [1] (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDING YEAR ENDING ----------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 (A) 1998 1998 1998 1998 ---------- ---------- ------------- ------------ ------------ Revenues: Subscriber premiums 83.5% 81.6% 80.0% 78.5% 80.8% Affiliated practice revenue 12.5% 14.3% 16.0% 17.6% 15.2% Other revenue 4.1% 4.1% 4.0% 3.9% 4.0% ---------- ---------- ---------- ---------- ---------- Total revenue 100.0% 100.0% 100.0% 100.0% 100.0% Expenses: Dental care providers' fees and claim costs 45.8% 45.3% 44.4% 43.6% 44.7% Commissions 7.7% 7.5% 7.4% 7.2% 7.4% Premium taxes 0.6% 0.7% 0.6% 0.6% 0.6% DHMI operating expenses 10.9% 12.2% 13.6% 14.8% 12.9% General and administrative 19.7% 19.3% 18.5% 18.3% 18.9% Depreciation and amortization 3.2% 3.5% 3.3% 3.2% 3.3% ---------- ---------- ---------- ---------- ---------- Total operating expenses 87.9% 88.3% 87.8% 87.7% 87.9% ---------- ---------- ---------- ---------- ---------- Operating income (loss) 12.1% 11.7% 12.2% 12.3% 12.1% Other (income)/expense Interest (income) (0.6)% (0.8)% (0.9)% (0.9)% (0.8)% Interest expense 2.4% 2.3% 2.2% 2.2% 2.3% Other, net 0.0% 0.0% 0.0% 0.0% 0.0% ---------- ---------- ---------- ---------- ---------- Total other (income) expense 1.8% 1.5% 1.4% 1.2% 1.5% ---------- ---------- ---------- ---------- ---------- Income before income taxes 10.3% 10.1% 10.8% 11.1% 10.6% Provision for income taxes 4.4% 4.4% 4.6% 4.8% 4.6% ---------- ---------- ---------- ---------- ---------- Net income 5.9% 5.8% 6.2% 6.3% 6.0% ========== ========== ========== ========== ========== EBITDA 15.3% 15.1% 15.5% 15.5% 15.4% THREE MONTHS ENDING YEAR ENDING ----------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1999 1999 1999 1999 1999 ---------- ---------- ------------- ------------ ------------ Revenues: Subscriber premiums 77.8% 76.9% 76.2% 75.7% 76.6% Affiliated practice revenue 18.3% 19.2% 19.8% 20.4% 19.4% Other revenue 3.9% 3.9% 3.9% 3.9% 3.9% ---------- ---------- ---------- ---------- ---------- Total revenue 100.0% 100.0% 100.0% 100.0% 100.0% Expenses: Dental care providers' fees and claim costs 43.5% 42.9% 42.7% 42.4% 42.9% Commissions 7.3% 7.2% 7.2% 7.1% 7.2% Premium taxes 0.6% 0.7% 0.6% 0.6% 0.7% DHMI operating expenses 15.4% 16.1% 16.7% 17.1% 16.3% General and administrative 17.5% 17.5% 17.5% 17.2% 17.4% Depreciation and amortization 3.3% 3.2% 3.2% 3.1% 3.2% ---------- ---------- ---------- ---------- ---------- Total operating expenses 87.6% 87.6% 87.9% 87.6% 87.7% ---------- ---------- ---------- ---------- ---------- Operating income (loss) 12.4% 12.4% 12.1% 12.3% 12.3% Other (income)/expense Interest (income) (0.9)% (0.9)% (0.9)% (1.0)% (0.9)% Interest expense 2.1% 2.1% 2.1% 2.0% 2.1% Other, net 0.0% 0.0% 0.0% 0.0% 0.0% ---------- ---------- ---------- ---------- ---------- Total other (income) expense 1.2% 1.2% 1.1% 1.0% 1.1% ---------- ---------- ---------- ---------- ---------- Income before income taxes 11.1% 11.2% 11.0% 11.3% 11.2% Provision for income taxes 4.8% 4.8% 4.7% 4.9% 4.8% ---------- ---------- ---------- ---------- ---------- Net income 6.3% 6.4% 6.3% 6.4% 6.4% ========== ========== ========== ========== ========== EBITDA 15.6% 15.6% 15.3% 15.5% 15.5%
- ------------------------------------- [1] Projections dated April 28, 1998. 23 PROJECT GOLDCAP CONSOLIDATED PROJECTED INCOME STATEMENT INFORMATION - ------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
PROJECTED YEAR ENDING DECEMBER 31, ------------------------------------------------------------------------------ 1998 1999 2000 2001 2002 2003 -------- -------- -------- -------- -------- -------- Revenues: Benefits revenues $150,496 $163,785 $176,888 $191,039 $202,501 $214,651 DHMI patient revenues 22,329 24,773 27,422 30,354 33,600 37,193 DHDC management fee 2,190 2,367 2,620 2,900 3,210 3,554 Dentlease rental fees 11 13 14 16 18 20 -------- -------- -------- -------- -------- -------- Total revenues 175,026 190,938 206,944 224,309 239,329 255,417 % Growth 10.3% 9.1% 8.4% 8.4% 6.7% 6.7% Expenses: Benefits expenses 126,007 136,336 146,105 156,617 165,506 174,912 DHMI expenses 23,320 23,505 26,018 28,801 31,880 35,289 Depreciation and amortization 5,865 4,213 4,560 4,992 5,095 5,213 -------- -------- -------- -------- -------- -------- Total expenses 155,192 164,054 176,683 190,410 202,481 215,414 -------- -------- -------- -------- -------- -------- Operating income 19,834 26,884 30,261 33,900 36,848 40,003 % Growth (10.1)% 35.5% 12.6% 12.0% 8.7% 8.6% Interest expense 3,384 4,100 4,100 4,100 4,100 4,100 -------- -------- -------- -------- -------- -------- Income before income taxes 16,450 22,784 26,161 29,800 32,748 35,903 Provision for income taxes 6,909 9,569 10,988 12,516 13,754 15,079 -------- -------- -------- -------- -------- -------- Net income $ 9,541 $ 13,215 $ 15,174 $ 17,284 $ 18,994 $ 20,824 ======== ======== ======== ======== ======== ======== % Growth (13.9)% 38.5% 14.8% 13.9% 9.9% 9.6% Diluted shares outstanding 10,183 10,400 10,600 10,800 11,000 11,200 Diluted earnings per share $ 0.94 $ 1.27 $ 1.43 $ 1.60 $ 1.73 $ 1.86 EBITDA $ 25,699 $ 31,097 $ 34,821 $ 38,892 $ 41,943 $ 45,216
- --------------------------------- [1] Projections provided by management. 24 PROJECT GOLDCAP CONSOLIDATED INCOME STATEMENT INFORMATION - -------------------------------------------------------------------------------
PROJECTED YEAR ENDING DECEMBER 31, ------------------------------------------------------------------------------ 1998 1999 2000 2001 2002 2003 -------- -------- -------- -------- -------- -------- Revenues: Benefits revenues 86.0% 85.8% 85.5% 85.2% 84.6% 84.0% DHMI patient revenues 12.8% 13.0% 13.3% 13.5% 14.0% 14.6% DHDC management fee 1.3% 1.2% 1.3% 1.3% 1.3% 1.4% Dentlease rental fees 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -------- -------- -------- -------- -------- -------- Total revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Expenses: Benefits expenses 72.0% 71.4% 70.6% 69.8% 69.2% 68.5% DHMI expenses 13.3% 12.3% 12.6% 12.8% 13.3% 13.8% Depreciation and amortization 3.4% 2.2% 2.2% 2.2% 2.1% 2.0% -------- -------- -------- -------- -------- -------- Total expenses 88.7% 85.9% 85.4% 84.9% 84.6% 84.3% Operating income 11.3% 14.1% 14.6% 15.1% 15.4% 15.7% Interest expense 1.9% 2.1% 2.0% 1.8% 1.7% 1.6% -------- -------- -------- -------- -------- -------- Income before income taxes 9.4% 11.9% 12.6% 13.3% 13.7% 14.1% Provision for income taxes 3.9% 5.0% 5.3% 5.6% 5.7% 5.9% -------- -------- -------- -------- -------- -------- Net income 5.5% 6.9% 7.3% 7.7% 7.9% 8.2% ======== ======== ======== ======== ======== ======== EBITDA 14.7% 16.3% 16.8% 17.3% 17.5% 17.7%
25 PROJECT GOLDCAP BENEFITS COMPANY PROJECTED INCOME STATEMENTS [1] - ------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
PROJECTED YEAR ENDING DECEMBER 31, ------------------------------------------------------------------------------ 1998 1999 2000 2001 2002 2003 -------- -------- -------- -------- -------- -------- Total revenues $150,496 $163,785 $176,888 $191,039 $202,501 $214,651 % Growth (0.7)% 8.8% 8.0% 8.0% 6.0% 6.0% Expenses Dental care providers' fees and claim costs 79,761 86,806 93,751 101,251 107,326 113,765 Commissions 13,479 15,396 16,804 18,340 19,643 21,036 Premium taxes 1,167 1,270 1,372 1,481 1,570 1,665 General and administrative 31,600 32,864 34,178 35,545 36,967 38,446 Depreciation and amortization 5,132 3,472 3,793 4,197 4,268 4,351 -------- -------- -------- -------- -------- -------- Total expenses 131,139 139,808 149,898 160,814 169,774 179,263 -------- -------- -------- -------- -------- -------- Operating income 19,357 23,977 26,990 30,225 32,727 35,388 % Growth NA 23.9% 12.6% 12.0% 8.3% 8.1% Interest expense 4,313 5,000 5,000 5,000 5,000 5,000 Less interest income 929 900 900 900 900 900 -------- -------- -------- -------- -------- -------- Income before income taxes 15,973 19,877 22,890 26,125 28,627 31,288 Provision for income taxes 6,709 8,348 9,614 10,973 12,023 13,141 -------- -------- -------- -------- -------- -------- Net income $ 9,264 $ 11,529 $ 13,276 $ 15,153 $ 16,604 $ 18,147 ======== ======== ======== ======== ======== ======== % Growth NA 24.4% 15.2% 14.1% 9.6% 9.3% EBITDA $ 24,489 $ 27,449 $ 30,783 $ 34,422 $ 36,995 $ 39,739 - --------------------------------------------------------------------------------------------------------------------------------- Goodwill $ 1,849 $ 1,849 $ 1,849 $ 1,849 $ 1,849 $ 1,849 Tax rate 42.0% 42.0% 42.0% 42.0% 42.0% 42.0% - ---------------------------------------------------------------------------------------------------------------------------------
[1] Projections provided by management. 26 PROJECT GOLDCAP BENEFITS COMPANY PROJECTED INCOME STATEMENTS - -------------------------------------------------------------------------------
PROJECTED YEAR ENDING DECEMBER 31, ----------------------------------------------------------------- 1998 1999 2000 2001 2002 2003 ----- ----- ----- ----- ----- ----- Total revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Expenses Dental care providers' fees and claim costs 53.0% 53.0% 53.0% 53.0% 53.0% 53.0% Commissions 9.0% 9.4% 9.5% 9.6% 9.7% 9.8% Premium taxes 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% General and administrative 21.0% 20.1% 19.3% 18.6% 18.3% 17.9% Depreciation and amortization 3.4% 2.1% 2.1% 2.2% 2.1% 2.0% ----- ----- ----- ----- ----- ----- Total expenses 87.1% 85.4% 84.7% 84.2% 83.8% 83.5% ----- ----- ----- ----- ----- ----- Operating income 12.9% 14.6% 15.3% 15.8% 16.2% 16.5% Interest expense 2.9% 3.1% 2.8% 2.6% 2.5% 2.3% Less Interest income 0.6% 0.5% 0.5% 0.5% 0.4% 0.4% ----- ----- ----- ----- ----- ----- Income before income taxes 10.6% 12.1% 12.9% 13.7% 14.1% 14.6% Provision for income taxes 4.5% 5.1% 5.4% 5.7% 5.9% 6.1% ----- ----- ----- ----- ----- ----- Net income 6.2% 7.0% 7.5% 7.9% 8.2% 8.5% ===== ===== ===== ===== ===== ===== EBITDA 16.3% 16.8% 17.4% 18.0% 18.3% 18.5%
27 PROJECT GOLDCAP DENTAL HEALTH MANAGEMENT, INC. PROJECTED INCOME STATEMENTS [1] SEC REPORTING FORMAT - ------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
PROJECTED YEAR ENDING DECEMBER 31, ---------------------------------------------------------------------------- 1998 1999 2000 2001 2002 2003 ------- ------- ------- ------- ------- ------- Patient revenues $22,329 $24,773 $27,422 $30,354 $33,600 $37,193 DHDC management fee 2,190 2,367 2,620 2,900 3,210 3,554 Dentlease rental fees 11 13 14 16 18 20 ------- ------- ------- ------- ------- ------- Total revenues 24,530 27,153 30,056 33,270 36,828 40,766 % Growth -- 10.7% 10.7% 10.7% 10.7% 10.7% Management fee expense 663 668 739 818 906 1,003 Operating expense 20,355 20,764 22,984 25,442 28,163 31,174 Unallocated corporate overhead 2,302 2,073 2,295 2,540 2,812 3,112 Depreciation expense 233 241 267 295 327 362 Amortization expense 500 500 500 500 500 500 ------- ------- ------- ------- ------- ------- Total expenses 24,053 24,246 26,785 29,596 32,707 36,151 ------- ------- ------- ------- ------- ------- Operating income 477 2,907 3,271 3,675 4,121 4,615 % Growth -- 509.4% 12.5% 12.3% 12.1% 12.0% Interest expense (income) -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- Income before income taxes 477 2,907 3,271 3,675 4,121 4,615 Income tax provision 200 1,221 1,374 1,543 1,731 1,938 ------- ------- ------- ------- ------- ------- Net income $ 277 $ 1,686 $ 1,897 $ 2,131 $ 2,390 $ 2,677 ======= ======= ======= ======= ======= ======= % Growth -- 509.4% 12.5% 12.3% 12.1% 12.0% EBITDA $ 1,210 $ 3,648 $ 4,038 $ 4,470 $ 4,948 $ 5,477
[1] Projections provided by management for the years ending December 31, 1998 and 1999. Projections for December 31, 2000 through 2003 estimated using constant growth rates and margin assumptions. 28 PROJECT GOLDCAP DENTAL HEALTH MANAGEMENT, INC. PROJECTED INCOME STATEMENTS SEC REPORTING FORMAT - --------------------------------------------------------------------------------
PROJECTED YEAR ENDING DECEMBER 31, ------------------------------------------------------------------ 1998 1999 2000 2001 2002 2003 ------ ------ ------ ------ ------ ------ Patient revenues 91.0% 91.2% 91.2% 91.2% 91.2% 91.2% DHDC management fee 8.9% 8.7% 8.7% 8.7% 8.7% 8.7% Dentlease rental fees 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ----- ----- ----- ----- ----- ----- Total revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Management fee expense 2.7% 2.5% 2.5% 2.5% 2.5% 2.5% Operating expense 83.0% 76.5% 76.5% 76.5% 76.5% 76.5% Unallocated corporate overhead 9.4% 7.6% 7.6% 7.6% 7.6% 7.6% Depreciation expense 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% Amortization expense 2.0% 1.8% 1.7% 1.5% 1.4% 1.2% ----- ----- ----- ----- ----- ----- Total expenses 98.1% 89.3% 89.1% 89.0% 88.8% 88.7% ----- ----- ----- ----- ----- ----- Operating income 1.9% 10.7% 10.7% 10.7% 10.7% 10.7% Interest expense (income) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ----- ----- ----- ----- ----- ----- Income before income taxes 1.9% 10.7% 10.7% 10.7% 10.7% 10.7% Income tax provision 0.8% 4.5% 4.5% 4.5% 4.5% 4.5% ----- ----- ----- ----- ----- ----- Net income 1.1% 6.2% 6.2% 6.2% 6.2% 6.2% ===== ===== ===== ===== ===== ===== EBITDA 4.9% 13.4% 13.4% 13.4% 13.4% 13.4%
29 PROJECT GOLDCAP COMPARISON OF PROJECTIONS (DOLLARS IN THOUSANDS)
YEAR ENDING DECEMBER 31, 1998 YEAR ENDING DECEMBER 31, 1999 ----------------------------------------------- ---------------------------------------------- ROBINSON-HUMPHREY GOLDCAP ROBINSON-HUMPHREY GOLDCAP RESEARCH MANAGEMENT VARIANCE RESEARCH MANAGEMENT VARIANCE ----------------- ---------- -------- ----------------- ---------- --------- CONSOLIDATED GOLDCAP Revenues $ 178,357 $ 175,026 $ 3,331 $ 195,492 $ 190,938 $ 4,554 % Growth 12.4 % 10.3 % 1.9 % 9.6% 9.1% 2.4 % EBITDA $ 27,413 $ 25,699 $ 1,714 $ 30,309 $ 31,097 $ (788) % Growth (1.4)% (7.6)% 6.7 % 10.6% 21.0% (2.5)% % Margin 15.4 % 14.7 % 15.5% 16.3% Operating income $ 21,518 $ 19,834 $ 1,684 $ 24,056 $ 26,884 $ (2,828) % Growth (2.5)% (10.1)% 8.5 % 11.8% 35.5% (10.5)% % Margin 12.1 % 11.3 % 12.3% 14.1% Net income $ 10,767 $ 9,541 $ 1,226 $ 12,431 $ 13,215 $ (784) % Growth (2.8)% (13.9)% 12.8 % 15.5% 38.5% (5.9)% % Margin 6.0 % 5.5 % 6.4% 6.9% BENEFITS COMPANY Revenues $ 151,315 $ 150,496 $ 819 $ 157,492 $ 163,785 $ (6,293) % Growth (0.2)% (0.7)% 0.5 % 4.1% 8.8% (3.8)% EBITDA $ 23,381 $ 24,489 $ (1,108) $ 24,229 $ 27,449 $ (3,220) % Growth NA NA (4.5)% 3.6% 12.1% (11.7)% % Margin 15.5 % 16.3% 15.4% 16.8% DHMI Revenues $ 27,042 $ 24,530 $ 2,512 $ 38,000 $ 27,153 $ 10,847 % Growth 280.2 % 244.9% 10.2% 40.5% 10.7% 39.9 % EBITDA $ 4,032 $ 1,210 $ 2,822 $ 6,080 $ 3,648 $ 2,432 % Growth NA NA 233.2 % 50.8% 201.5% 66.7 % % Margin 14.9 % 4.9 % 16.0% 13.4%
30 PROJECT GOLDCAP TRADING STATISTICS JULY 17, 1997 - JULY 17, 1998
AVERAGE CLOSING PRICE: AVERAGE DAILY VOLUME: - --------------------- -------------------- ONE YEAR $17.80 ONE YEAR 88,636 90 DAYS 14.45 90 DAYS 66,503 60 DAYS 14.03 60 DAYS 77,338 30 DAYS 14.25 30 DAYS 58,673 5 DAYS 14.19 5 DAYS 28,060 HIGH CLOSE (10/3/97) 27.63 HIGH VOLUME (1/27/98) 717,000 LOW CLOSE (1/27/98) 9.56 LOW VOLUME (9/24/97) 600
DATE HIGH LOW CLOSE VOLUME - ----------------- --------------- --------------- ----------------- ------------- 7/17/98 $14.13 $13.50 $13.50 50,500 7/16/98 14.44 13.81 14.00 38,000 7/15/98 14.63 14.13 14.19 19,500 7/14/98 14.88 14.50 14.50 11,300 7/13/98 15.06 14.63 14.75 21,000 7/10/98 15.00 14.63 15.00 7,000 7/09/98 15.06 14.63 14.75 17,400 7/08/98 15.44 14.75 14.81 39,100 7/07/98 15.63 15.31 15.31 31,300 7/06/98 15.75 15.44 15.63 27,600 7/03/98 16.00 15.13 15.75 110,000 7/02/98 16.00 15.13 15.75 110,000
31
DATE HIGH LOW CLOSE VOLUME - ----------------- --------------- --------------- ----------------- ------------- 7/01/98 16.00 15.13 15.13 129,800 6/30/98 15.66 14.63 15.63 221,000 6/29/98 14.88 14.50 14.75 19,100 6/26/98 15.25 14.50 14.56 102,100 6/25/98 15.38 13.88 15.38 74,800 6/24/98 13.75 13.56 13.69 73,200 6/23/98 13.88 13.25 13.75 45,600 6/22/98 13.50 13.00 13.13 65,300 6/19/98 13.50 13.00 13.25 23,800 6/18/98 13.50 13.00 13.25 47,300 6/17/98 13.13 12.94 13.13 62,300 6/16/98 13.13 12.75 13.00 106,500 6/15/98 13.09 12.75 12.75 14,300 6/12/98 13.25 13.13 13.19 13,400 6/11/98 13.56 12.88 13.38 223,100 6/10/98 14.06 13.50 13.50 25,400 6/09/98 14.13 14.00 14.00 12,300 6/08/98 14.13 14.00 14.06 18,200 6/05/98 14.38 14.00 14.13 117,300 6/04/98 14.50 14.00 14.13 179,100 6/03/98 15.00 14.38 14.50 170,400 6/02/98 15.00 14.50 14.75 44,700 6/01/98 15.00 14.31 14.38 25,100 5/29/98 15.00 14.00 14.75 38,900 5/28/98 14.13 13.38 14.06 72,100 5/27/98 13.63 13.38 13.44 25,000 5/26/98 14.75 13.38 13.44 34,300 5/22/98 15.00 14.56 14.75 27,700 5/21/98 15.38 14.38 14.50 26,000 5/20/98 15.13 14.25 15.13 72,900 5/19/98 15.13 14.50 14.63 46,700 5/18/98 15.50 13.75 15.13 277,100 5/15/98 13.63 13.38 13.63 23,400 5/14/98 13.50 13.00 13.00 71,400 5/13/98 13.25 13.00 13.25 35,500 5/12/98 13.13 12.88 13.00 70,900
32
DATE HIGH LOW CLOSE VOLUME - ----------------- --------------- --------------- ----------------- ------------- 5/11/98 13.13 12.88 12.88 89,300 5/08/98 13.13 12.75 13.00 304,400 5/07/98 12.88 12.63 12.81 156,000 5/06/98 13.00 12.63 12.81 207,100 5/05/98 13.38 12.88 12.88 54,000 5/04/98 13.38 13.09 13.25 16,200 5/01/98 13.38 13.13 13.38 108,900 4/30/98 13.75 13.06 13.13 100,800 4/29/98 13.75 13.25 13.25 143,300 4/28/98 14.88 12.50 13.13 273,200 4/27/98 15.00 14.00 14.38 46,900 4/24/98 14.88 14.50 14.78 21,500 4/23/98 15.25 14.63 14.72 48,100 4/22/98 15.13 14.94 15.06 63,800 4/21/98 15.13 14.75 14.75 15,500 4/20/98 15.00 14.75 15.00 27,300 4/17/98 15.13 14.75 15.00 16,000 4/16/98 15.25 14.38 15.25 51,700 4/15/98 16.00 14.00 15.13 136,200 4/14/98 17.63 16.13 16.13 141,000 4/13/98 17.88 15.13 17.50 173,100 4/09/98 15.56 14.94 15.38 50,800 4/08/98 15.25 15.00 15.06 22,200 4/07/98 15.56 15.00 15.19 19,300 4/06/98 15.50 15.25 15.50 14,100 4/03/98 15.31 15.00 15.00 9,000 4/02/98 15.38 15.19 15.25 17,300 4/01/98 15.38 15.19 15.38 38,300 3/31/98 15.44 14.75 15.38 70,500 3/30/98 15.56 14.56 14.63 38,600 3/27/98 15.56 14.75 15.56 43,900 3/26/98 14.69 14.38 14.69 33,100 3/25/98 14.75 14.38 14.38 22,900 3/24/98 14.75 14.50 14.50 73,600 3/23/98 15.38 14.75 14.88 20,700 3/20/98 15.88 15.25 15.25 32,500
33
DATE HIGH LOW CLOSE VOLUME - ----------------- --------------- --------------- ----------------- ------------- 3/19/98 15.88 15.50 15.63 20,300 3/18/98 15.75 15.50 15.63 10,000 3/17/98 15.88 15.50 15.63 30,100 3/16/98 15.88 15.50 15.63 17,800 3/13/98 16.13 15.63 15.63 24,300 3/12/98 16.63 15.75 16.00 63,000 3/11/98 16.50 15.44 16.25 168,100 3/10/98 15.38 14.81 15.38 93,700 3/09/98 15.00 14.50 14.88 136,900 3/06/98 14.88 13.50 14.75 289,500 3/05/98 13.38 13.00 13.25 31,500 3/04/98 13.63 12.94 13.44 523,000 3/03/98 13.88 13.50 13.63 62,400 3/02/98 13.94 13.50 13.88 43,400 2/27/98 14.75 13.88 13.88 104,100 2/26/98 14.75 14.13 14.75 52,100 2/25/98 14.75 14.25 14.75 65,900 2/24/98 15.00 14.38 14.75 83,700 2/23/98 15.06 14.75 14.75 314,900 2/20/98 15.06 14.63 14.94 258,600 2/19/98 15.06 14.63 14.88 389,800 2/18/98 15.25 14.00 14.75 534,000 2/17/98 13.88 13.00 13.88 439,400 2/13/98 12.88 12.00 12.88 276,200 2/12/98 12.13 11.75 12.00 193,500 2/11/98 12.25 11.75 11.88 252,100 2/10/98 11.88 10.13 11.75 186,600 2/09/98 12.00 10.63 10.63 106,600 2/06/98 11.75 11.63 11.63 10,200 2/05/98 11.75 11.63 11.69 100,900 2/04/98 11.88 11.63 11.63 63,200 2/03/98 12.00 11.75 11.81 69,600 2/02/98 12.25 11.75 11.75 96,500 1/30/98 12.25 11.50 11.63 287,600 1/29/98 11.75 10.75 11.75 261,400 1/28/98 10.81 9.88 10.50 414,300
34
DATE HIGH LOW CLOSE VOLUME - ----------------- --------------- --------------- ----------------- ------------- 1/27/98 10.63 9.00 9.56 717,000 1/26/98 11.00 10.63 10.63 54,800 1/23/98 11.50 10.88 11.00 49,800 1/22/98 11.75 11.19 11.19 72,300 1/21/98 11.88 11.38 11.63 67,600 1/20/98 12.50 11.50 11.88 63,500 1/16/98 12.50 12.00 12.31 29,800 1/15/98 12.38 12.13 12.14 36,000 1/14/98 12.50 12.00 12.13 223,000 1/13/98 12.88 11.88 11.88 419,500 1/12/98 14.13 11.81 12.50 404,100 1/09/98 19.06 18.00 18.00 104,500 1/08/98 20.25 19.00 19.00 23,500 1/07/98 20.25 19.75 20.25 6,100 1/06/98 20.00 19.75 19.75 4,200 1/05/98 20.25 19.75 20.06 9,800 1/02/98 20.25 19.63 19.88 44,400 12/31/97 20.88 20.25 20.28 21,100 12/30/97 20.75 20.38 20.50 34,400 12/29/97 20.38 19.25 20.25 101,900 12/26/97 19.00 18.88 19.00 5,900 12/24/97 19.25 18.63 19.00 21,500 12/23/97 19.25 18.88 19.13 15,700 12/22/97 19.50 18.25 19.00 64,200 12/19/97 18.88 18.13 18.63 48,300 12/18/97 19.75 19.00 19.00 113,800 12/17/97 20.00 19.56 19.75 37,500 12/16/97 20.00 19.56 19.56 6,700 12/15/97 21.13 19.88 19.94 42,900 12/12/97 21.25 20.63 20.63 27,000 12/11/97 21.13 19.50 21.13 51,300 12/10/97 21.25 19.00 20.25 146,600 12/9/97 21.75 21.13 21.75 7,800 12/8/97 22.13 21.25 21.50 37,400 12/5/97 21.75 21.25 21.31 8,400 12/4/97 21.63 21.25 21.50 14,300
35
DATE HIGH LOW CLOSE VOLUME - ----------------- --------------- --------------- ----------------- ------------- 12/3/97 21.75 21.00 21.06 15,000 12/2/97 22.00 21.25 21.38 41,600 12/1/97 22.25 20.56 21.25 114,300 11/28/97 21.00 19.50 20.38 40,900 11/26/97 19.88 19.50 19.81 7,100 11/25/97 19.63 19.38 19.38 3,000 11/24/97 19.94 19.50 19.63 17,100 11/21/97 20.25 19.63 20.00 5,800 11/20/97 20.38 20.00 20.19 16,900 11/19/97 20.69 19.63 19.63 48,300 11/18/97 20.13 19.38 19.75 31,200 11/17/97 19.63 19.00 19.63 83,600 11/14/97 19.00 18.63 18.63 56,700 11/13/97 19.38 18.75 18.81 5,200 11/12/97 19.25 18.75 19.00 37,000 11/11/97 20.13 19.75 19.81 1,700 11/10/97 21.00 20.00 20.00 118,600 11/7/97 20.63 20.00 20.19 24,300 11/6/97 21.00 20.00 20.75 75,600 11/5/97 21.38 20.50 20.50 54,900 11/4/97 21.19 20.88 21.00 1,400 11/3/97 21.25 20.50 21.13 123,100 10/31/97 20.88 20.38 20.69 49,900 10/30/97 20.56 20.00 20.31 115,200 10/29/97 22.75 20.50 20.56 168,900 10/28/97 22.00 19.63 22.00 246,000 10/27/97 24.50 22.50 22.50 154,600 10/24/97 25.00 24.63 24.63 51,700 10/23/97 25.13 24.50 24.81 26,700 10/22/97 25.75 24.75 24.75 35,100 10/21/97 24.88 24.50 24.63 107,500 10/20/97 24.88 24.50 24.63 112,100 10/17/97 25.13 24.63 25.00 86,300 10/16/97 25.63 25.25 25.25 49,100 10/15/97 25.75 25.25 25.25 28,300 10/14/97 25.75 25.50 25.75 25,800
36
DATE HIGH LOW CLOSE VOLUME - ----------------- --------------- --------------- ----------------- ------------- 10/13/97 25.69 25.63 25.63 28,300 10/10/97 25.75 25.25 25.63 75,600 10/9/97 26.00 25.38 25.88 68,700 10/8/97 26.00 25.63 25.88 21,100 10/7/97 26.50 25.75 26.00 30,300 10/6/97 27.75 26.63 26.63 46,300 10/3/97 27.63 25.38 27.63 146,100 10/2/97 25.38 24.75 25.38 85,100 10/1/97 24.75 24.63 24.75 27,700 9/30/97 25.00 24.63 25.00 26,600 9/29/97 25.13 24.69 24.88 24,900 9/26/97 24.75 24.50 24.75 19,400 9/25/97 24.75 24.50 24.75 2,400 9/24/97 24.88 24.75 24.75 600 9/23/97 24.88 24.00 24.88 83,200 9/22/97 25.00 24.63 24.75 35,500 9/19/97 24.63 24.13 24.63 61,100 9/18/97 25.38 24.13 24.13 609,400 9/17/97 26.38 25.50 25.50 104,300 9/16/97 26.38 25.63 26.13 83,800 9/15/97 26.00 24.88 25.56 78,400 9/12/97 25.25 24.50 24.75 103,400 9/11/97 24.75 24.38 24.50 56,800 9/10/97 24.75 24.44 24.75 51,700 9/09/97 24.69 24.38 24.63 58,700 9/08/97 24.63 24.38 24.56 58,600 9/05/97 24.63 24.25 24.63 63,400 9/04/97 25.00 24.25 24.50 70,700 9/03/97 25.00 24.25 24.63 74,500 9/02/97 24.50 24.13 24.31 73,100 8/29/97 24.75 23.63 24.25 218,400 8/28/97 24.50 22.13 24.50 442,900 8/27/97 22.13 20.94 22.13 113,500 8/26/97 21.25 20.75 21.03 63,400 8/25/97 21.38 20.44 21.00 132,400 8/22/97 20.75 20.25 20.75 57,200
37
DATE HIGH LOW CLOSE VOLUME - ----------------- --------------- --------------- ----------------- ------------- 8/21/97 20.81 20.50 20.75 87,600 8/20/97 20.75 20.38 20.56 19,200 8/19/97 20.63 20.38 20.44 15,800 8/18/97 20.50 20.38 20.50 12,700 8/15/97 20.50 20.38 20.50 48,400 8/14/97 20.63 20.38 20.50 58,200 8/13/97 20.56 20.38 20.50 59,100 8/12/97 20.63 20.50 20.56 11,000 8/11/97 20.50 20.00 20.50 73,700 8/08/97 21.25 20.00 20.00 92,400 8/07/97 21.25 21.00 21.06 300,600 8/06/97 21.38 20.63 21.13 176,500 8/05/97 20.75 20.50 20.63 12,700 8/04/97 20.75 20.25 20.50 54,800 8/01/97 21.50 20.50 20.50 27,700 7/31/97 22.00 21.50 21.69 29,000 7/30/97 22.00 21.63 22.00 143,400 7/29/97 22.50 21.38 21.75 258,100 7/28/97 21.75 20.38 21.38 178,100 7/25/97 20.25 19.56 20.06 35,900 7/24/97 19.75 19.38 19.38 26,500 7/23/97 19.75 19.25 19.56 46,800 7/22/97 19.88 19.25 19.50 58,200 7/21/97 21.25 20.00 20.00 100,900 7/18/97 21.25 21.13 21.25 31,200 7/17/97 21.50 21.13 21.25 45,500
- ---------------------------------------------------- Source: AT Financial 38 PROJECT GOLDCAP WEEKLY PRICE AND TRADING VOLUME - IPO THROUGH JULY 15, 1998 [GRAPH] 39 GOLDCAP Close Price Index Comparison Weekly: 5/26/95 to 07/15/98 [GRAPH DEPICTING WEEKLY CLOSE PRICE AS A PERCENT OF START PERIOD VALUE FROM 5/26/95 THROUGH 7/15/98 FOR COMPDENT, THE DJIA, NASDAQ AND THE S&P 500] 40 GOLDCAP VOLUME DISTRIBUTION BY PRICE RANGE WEEKLY: 5/26/95 TO 07/15/98 [GRAPH]
11 to 19 19 to 27 27 to 35 35 to 43 43 to 51 -------- -------- -------- -------- -------- PERCENT TRADED 27.03% 22.11% 17.84% 24.35% 8.67%
41 GOLDCAP CUMULATIVE VOLUME DISTRIBUTION BY PRICE RANGE WEEKLY: 5/26/95 TO 07/15/98 [GRAPH]
11 to 19 up to 27 up to 35 up to 43 up to 51 -------- -------- -------- -------- -------- PERCENT TRADED 27.03% 49.13% 66.97% 91.33% 100.00%
42 PROJECT GOLDCAP LAST TWELVE MONTHS DAILY PRICE AND TRADING VOLUME SINCE JULY 15, 1997 [GRAPH] 43 GOLDCAP CLOSE PRICE INDEX COMPARISON DAILY: 7/15/97 TO 07/15/98 [GRAPH DEPICTING DAILY CLOSE PRICE AS A PERCENT OF START PERIOD VALUE FROM 7/15/97 THROUGH 7/15/98 FOR COMPDENT, THE DJIA, NASDAQ AND THE S&P 500] 44 GOLDCAP VOLUME DISTRIBUTION BY PRICE RANGE WEEKLY: 7/15/97 TO 07/15/98 [GRAPH]
9 to 12.8 12.8 to 16.6 16.6 to 20.4 20.4 to 24.2 24.2 to 28 --------- ------------ ------------ ------------ ---------- PERCENT TRADED 18.77% 42.37% 8.80% 17.37% 12.68%
45 GOLDCAP CUMULATIVE VOLUME DISTRIBUTION BY PRICE RANGE WEEKLY: 7/15/97 TO 07/15/98 [GRAPH]
9 to 12.8 up to 16.6 up to 20.4 up to 24.2 up to 28 --------- ---------- ---------- ---------- -------- PERCENT TRADED 18.77% 61.15% 69.94% 87.32% 100.00%
46 PROJECT GOLDCAP DAILY PRICE AND TRADING VOLUME - JANUARY 2, 1998 THROUGH JULY 15, 1998 [GRAPH] [DESCRIPTION TO COME] 47 GOLDCAP CLOSE PRICE INDEX COMPARISON DAILY: 1/1/98 TO 07/15/98 [GRAPH] [DESCRIPTION TO COME] 48 GOLDCAP VOLUME DISTRIBUTION BY PRICE RANGE WEEKLY: 1/1/98 TO 07/15/98 [GRAPH]
9 to 11.4 11.4 to 13.8 13.8 to 16.2 16.2 to 18.6 18.6 to 21 --------- ------------ ------------ ------------ ---------- PERCENT TRADED 10.09% 43.29% 42.82% 3.18% 0.63%
49 GOLDCAP CUMULATIVE VOLUME DISTRIBUTION BY PRICE RANGE WEEKLY: 1/1/98 TO 07/15/98 [GRAPH]
9 to 11.4 up to 13.8 up to 16.2 up to 18.6 up to 21 --------- ---------- ---------- ---------- -------- PERCENT TRADED 10.09% 53.38% 96.20% 99.37% 100.00%
50 PROJECT GOLDCAP SHAREHOLDER OWNERSHIP ANALYSIS
NUMBER OF AS A PERCENT SHARES OF TOTAL ----------- ------------ Total Shares Outstanding as of April 30, 1998: 10,112,629 100.0% [DESCRIPTION TO COME] Date Institutional Ownership: ---- ------------------------ 3/31/98 AID ASSOC FOR LUTHERANS 4,600 0.05% 3/31/98 AMERICAN GENERAL CORP 2,500 0.02% 12/31/97 ANB INVESTMENT MGMT & TR 8,682 0.09% 3/31/98 BANC ONE CORPORATION 10,500 0.10% 3/31/98 BANK OF NEW YORK 5,400 0.05% 3/31/98 BANKERS TRUST N Y CORP 199,900 1.98% 3/31/98 BARCLAYS BANK PLC 193,420 1.91% 3/31/98 BEAR STEARNS & CO 16 0.00% 3/31/98 BRANDYWINE ASSET MGMT. 2,500 0.02% 3/31/98 CALIF STATE TEACHERS RET 32,800 0.32% 3/31/98 CAPSTONE ASSET MGMT. CO. 2,530 0.03% 3/31/98 COLLEGE RETIRE EQUITIES 9,100 0.09% 3/31/98 COLORADO PUBLIC EMPL RET 7,900 0.08% 3/31/98 DEERE & COMPANY 10,700 0.11% 3/31/98 DIMENSIONAL FUND ADVS. 699,600 6.92% 3/31/98 EATON VANCE MANAGEMENT 90,400 0.89% 3/31/98 EDGEMONT ASSET MGMT CORP 1,500,000 14.83% 3/31/98 EQUITABLE COMPANIES INC 2,200 0.02% 3/31/98 FIDELITY MGMT & RES CORP 750,400 7.42% 3/31/98 FLEET FINL GROUP INC 9,900 0.10% 3/31/98 GENERAL ELECTRIC COMPANY 446,300 4.41% 3/31/98 GW CAPITAL MGMT INC 22,900 0.23% 3/31/98 LASALLE NATIONAL BANK 436,300 4.31% 3/31/98 LOOMIS SAYLES & COMPANY 139,100 1.38% 3/31/98 MASSACHUSETTS FINL SVCS 288,800 2.86% 3/31/98 MELLON BANK CORPORATION 48,764 0.48% 3/31/98 MERRILL LYNCH & CO INC 89 0.00% 3/31/98 NATIONSBANK CORPORATION 11,250 0.11% 3/31/98 NATIONWIDE ADVISORY SVCS 19,000 0.19% 3/31/98 NEUBERGER&BERM INST ASST 84,500 0.84% 3/31/98 NEUBERGER&BERMAN MGMT 252,900 2.50% 3/31/98 NEW YORK ST TEACHERS RET 35,900 0.36% 3/31/98 NOMURA ASSET MGMT CO LTD 4,500 0.04% 3/31/98 NORTHERN TRUST CORP 10,500 0.10% 3/31/98 PRUDENTIAL INS CO/AMER 713,100 7.05% 3/31/98 PUTNAM INVESTMENT MGMT 756,910 7.48% 3/31/98 RENAISSANCE TECHNOLOGIES 12,400 0.12% 3/31/98 SELIGMAN J W & COMPANY 755,700 7.47% 3/31/98 STATE STREET CORP 37,914 0.37% 3/31/98 STRONG CAPITAL MGMT INC 214,200 2.12% 3/31/98 TEXAS TEACHER RETIRM SYS 35,000 0.35% 3/31/98 TRAVELERS INC 19,065 0.19% 3/31/98 USAA UNITED SVCS AUTO 150,000 1.48% 3/31/98 VANGUARD GROUP INC 39,600 0.39% 3/31/98 WEISS PECK & GREER 280 0.00% 3/31/98 WORLD ASSET MANAGEMENT 9,300 0.09% ----------- ------------ Total Institutional Holdings 8,087,320 80.0% Insider Ownership: INSIDER HOLDINGS 884,332 [1] 8.7% ----------- Total Insider Holdings 884,332 8.7% Total Retail Holdings 1,140,977 11.3%
- ----------------------------------------- [1] All Directors and Executive Officers as a group as reported in the Goldcap proxy dated March 30, 1998. Source: CDA Spectrum as of 7/16/98. 51 PROJECT GOLDCAP INSTITUTIONAL OWNERSHIP HISTORY QUARTERS ENDING SEPTEMBER 1995 THROUGH MARCH 1998 - --------------------------------------------------------------------------------
13F INSTITUTION 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96 9/30/96 6/30/96 - ------------------------- ---------- --------- --------- --------- --------- --------- --------- --------- EDGEMONT ASSET MGMT CORP 1,500,000 1,500,000 1,540,600 2,008,200 845,000 845,000 405,000 405,000 PUTNAM INVESTMENT MGMT 756,910 753,610 774,510 805,410 1,010,185 1,005,385 1,352,835 1,363,635 SELIGMAN J W & COMPANY 755,700 750,900 750,900 747,800 436,500 329,800 282,200 153,900 FIDELITY MGMT & RES CORP 750,400 618,400 463,400 355,900 PRUDENTIAL INS CO/AMER 713,100 575,800 497,000 542,500 7,600 7,100 DIMENSIONAL FUND ADVS. 699,600 354,900 317,600 280,600 GENERAL ELECTRIC COMPANY 446,300 446,300 295,800 0 11,000 12,300 12,300 12,300 LASALLE NATIONAL BANK 436,300 437,400 297,000 10,800 MASSACHUSETTS FINL SVCS 288,800 859,195 994,195 994,695 736,795 649,395 248,805 159,300 NEUBERGER&BERMAN MGMT 252,900 302,900 302,900 STRONG CAPITAL MGMT INC 214,200 1,200 114,700 7,700 63,700 0 44,750 7,725 BANKERS TRUST N Y CORP 199,900 214,500 212,100 165,200 164,200 165,700 167,050 114,050 BARCLAYS BANK PLC 193,420 209,563 211,934 200,134 170,434 171,214 176,798 178,228 USAA UNITED SVCS AUTO 150,000 110,000 110,000 45,000 45,000 45,000 45,000 45,000 LOOMIS SAYLES & COMPANY 139,100 358,500 295,400 47,300 EATON VANCE MANAGEMENT 90,400 NEUBERGER&BERM INST ASST 84,500 89,800 89,800 MELLON BANK CORPORATION 48,764 50,600 52,300 47,500 53,302 52,300 47,100 34,100 VANGUARD GROUP INC 39,600 37,100 37,100 37,100 37,100 STATE STREET CORP 37,914 37,614 29,200 27,000 27,400 33,800 11,500 27,100 NEW YORK ST TEACHERS RET 35,900 35,900 35,900 TEXAS TEACHER RETIRM SYS 35,000 35,000 35,000 20,000 CALIF STATE TEACHERS RET 32,800 32,800 32,800 32,800 32,700 32,700 32,700 GW CAPITAL MGMT INC 22,900 48,000 35,000 TRAVELERS INC 19,065 14,119 12,048 18,781 31,605 98,739 73,378 80,962 NATIONWIDE ADVISORY SVCS 19,000 19,000 19,000 RENAISSANCE TECHNOLOGIES 12,400 0 10,200 NATIONSBANK CORPORATION 11,250 0 16,200 DEERE & COMPANY 10,700 10,800 10,700 10,100 10,100 8,100 BANC ONE CORPORATION 10,500 0 10,000 106,522 106,522 NORTHERN TRUST CORP 10,500 FLEET FINL GROUP INC 9,900 9,900 9,900 WORLD ASSET MANAGEMENT 9,300 9,800 9,800 11,500 10,800 12,200 400 100 COLLEGE RETIRE EQUITIES 9,100 15,100 9,100 9,100 6,100 4,600 4,100 13F INSTITUTION 3/31/96 12/31/95 9/30/95 - ------------------------- --------- --------- -------- EDGEMONT ASSET MGMT CORP 405,000 505,000 635,000 PUTNAM INVESTMENT MGMT 1,272,435 408,585 481,885 SELIGMAN J W & COMPANY 200,000 FIDELITY MGMT & RES CORP 0 35,000 358,000 PRUDENTIAL INS CO/AMER DIMENSIONAL FUND ADVS. GENERAL ELECTRIC COMPANY LASALLE NATIONAL BANK MASSACHUSETTS FINL SVCS 175,400 199,100 199,100 NEUBERGER&BERMAN MGMT STRONG CAPITAL MGMT INC 116,475 30,500 13,700 BANKERS TRUST N Y CORP 43,450 360,850 309,250 BARCLAYS BANK PLC USAA UNITED SVCS AUTO 45,000 50,000 50,000 LOOMIS SAYLES & COMPANY EATON VANCE MANAGEMENT NEUBERGER&BERM INST ASST MELLON BANK CORPORATION 16,600 16,600 VANGUARD GROUP INC STATE STREET CORP NEW YORK ST TEACHERS RET TEXAS TEACHER RETIRM SYS CALIF STATE TEACHERS RET 0 32,100 21,100 GW CAPITAL MGMT INC TRAVELERS INC 86,414 12,999 13,039 NATIONWIDE ADVISORY SVCS RENAISSANCE TECHNOLOGIES NATIONSBANK CORPORATION DEERE & COMPANY BANC ONE CORPORATION NORTHERN TRUST CORP FLEET FINL GROUP INC WORLD ASSET MANAGEMENT 100 100 COLLEGE RETIRE EQUITIES
52
13F INSTITUTION 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96 9/30/96 6/30/96 - --------------------------- ------- -------- ------- -------- --------- ---------- --------- --------- COLORADO PUBLIC EMPL RET 7,900 0 6,400 BANK OF NEW YORK 5,400 2,400 2,400 2,300 2,200 2,200 AID ASSOC FOR LUTHERANS 4,600 NOMURA ASSET MGMT CO LTD 4,500 4,500 CAPSTONE ASSET MGMT. CO. 2,530 386 386 386 AMERICAN GENERAL CORP 2,500 2,500 2,500 2,000 2,000 2,000 2,000 1,100 BRANDYWINE ASSET MGMT. 2,500 EQUITABLE COMPANIES INC 2,200 15,900 15,900 16,200 192,600 168,600 134,700 119,400 WEISS PECK & GREER 280 200 200 MERRILL LYNCH & CO INC 89 1,400 167 0 100 2,700 BEAR STEARNS & CO 16 49 40 600 ARTISAN PARTNERS L P 0 442,000 368,800 245,600 CHARLES SCHWAB INVT MGMT 0 4,400 4,400 4,400 4,400 4,400 4,400 4,100 FIDUCIARY TRUST CO INTL. 0 26,100 87,600 48,300 FIRST INVESTORS MGMT CO 0 19,600 JACOBS LEVY EQUITY MGMT 0 14,100 14,100 MACKAY SHIELDS FINANCIAL 0 40,500 40,500 40,500 40,500 36,000 19,000 19,000 PELL RUDMAN TRUST CO NA 0 39,425 37,675 35,050 14,800 ROTHSCHILD/PELL RUDMAN 0 51,775 51,950 53,100 21,800 SCHRODER CAP MGMT INTL. 0 418,940 281,440 249,840 237,000 232,400 6,000 6,000 SEARS INVESTMENT MGMT 0 15,100 19,000 19,000 13,200 12,000 SUNTRUST BANKS INC 0 160,824 202,302 214,170 217,089 222,280 20,065 148,277 T ROWE PRICE ASSOCIATES 0 21,600 21,600 19,800 19,800 16,500 12,000 UNIVERSITY OF TEXAS INVT 0 46,600 41,300 28,700 0 14,500 ANB INVESTMENT MGMT & TR 0 8,682 9,600 9,800 9,800 10,400 1,500 AAL CAPITAL MGMT CORP AELTUS INVESTMENT MGMT 0 23,500 AETNA LIFE INS & ANNUITY 2,500 AIM MGMT GROUP INC 0 1,028,500 1,027,100 1,027,100 798,300 ALLIED IRISH BANKS PLC 0 152,700 AMERICAN CENTURY COS 0 250,000 250,000 APODACA INVT GROUP INC 0 157,400 BANK OF TOKYO LTD 0 BARON CAPITAL INC 0 30,000 25,000 17,500 BATTERYMARCH FINL MGMT 0 21,000 14,900 BENTLEY CAPITAL MGMT INC 0 25,000 BERGER ASSOCIATES INC 0 100,050 150,050 BERKELEY CAPITAL MGMT 0 153,100 BZW BARCLAYS GLBL INVTS COLUMBIA MANAGEMENT CO COMERICA INC 0 9,700 11,500 10,800 12,200 DE GARMO & KELLEHER 0 40,000 40,000 80,000 13F INSTITUTION 3/31/96 12/31/95 9/30/95 - ------------------------- -------- -------- -------- COLORADO PUBLIC EMPL RET BANK OF NEW YORK AID ASSOC FOR LUTHERANS NOMURA ASSET MGMT CO LTD CAPSTONE ASSET MGMT. CO. AMERICAN GENERAL CORP BRANDYWINE ASSET MGMT. EQUITABLE COMPANIES INC 143,200 93,800 108,300 WEISS PECK & GREER MERRILL LYNCH & CO INC BEAR STEARNS & CO ARTISAN PARTNERS L P CHARLES SCHWAB INVT MGMT 2,700 FIDUCIARY TRUST CO INTL. 0 10,000 FIRST INVESTORS MGMT CO JACOBS LEVY EQUITY MGMT MACKAY SHIELDS FINANCIAL 20,000 20,000 20,000 PELL RUDMAN TRUST CO NA ROTHSCHILD/PELL RUDMAN SCHRODER CAP MGMT INTL. 6,000 6,000 9,000 SEARS INVESTMENT MGMT SUNTRUST BANKS INC 89,794 62,376 62,376 T ROWE PRICE ASSOCIATES UNIVERSITY OF TEXAS INVT 0 16,400 ANB INVESTMENT MGMT & TR AAL CAPITAL MGMT CORP 0 58,100 AELTUS INVESTMENT MGMT AETNA LIFE INS & ANNUITY AIM MGMT GROUP INC 670,900 85,400 ALLIED IRISH BANKS PLC AMERICAN CENTURY COS 380,000 APODACA INVT GROUP INC BANK OF TOKYO LTD 2,500 BARON CAPITAL INC BATTERYMARCH FINL MGMT BENTLEY CAPITAL MGMT INC BERGER ASSOCIATES INC 150,000 195,500 195,500 BERKELEY CAPITAL MGMT 2,700 BZW BARCLAYS GLBL INVTS 173,000 143,600 100,700 COLUMBIA MANAGEMENT CO 0 220,000 COMERICA INC DE GARMO & KELLEHER
53
13F INSTITUTION 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96 9/30/96 6/30/96 - --------------------------- -------- -------- ------- -------- --------- ---------- --------- ---------- DRIEHAUS CAPITAL MGMT DUNCAN-HURST CAP MGMT 0 341,290 FIRST OF AMER INVT-S C I 0 184,750 185,050 FIRSTAR CORPORATION 0 31,500 FRANKLIN RESOURCES INC FRED ALGER MANAGEMENT 0 346,750 361,650 367,750 294,200 FRONTIER CAPITAL MGMT CO GARDNER LEWIS ASSET MGMT GE INVESTMENT CORP GEEWAX TERKER & COMPANY 0 29,900 GENERAL MOTORS INVT MGMT GRANAHAN INVT MGMT INC 0 205,000 321,100 HANCOCK JOHN ADVISERS 0 417,000 413,000 HILLIARD JJB, LYONS WL HINTZ HOLMAN & HECKSHER INVESTMENT ADVISERS INC 0 20,000 JANUS CAPITAL CORP 0 801,750 961,750 671,925 377,425 JMC CAPITAL MGMT INC 0 25,036 26,945 123,380 128,005 130,960 179,660 LGT ASSET MANAGEMENT INC LUTHER KING CAPITAL MGMT 0 35,000 MACKENZIE FINANCIAL CORP 0 90,100 90,100 90,100 83,100 23,600 23,600 MASS MUTUAL LIFE INSUR 0 8,500 190,000 279,700 MENTOR INVT ADVISORS LLC 0 45,370 83,770 76,220 74,220 METROPOLITAN LIFE INSUR 0 5,400 700 MITCHELL HUTCHINS ASSET MONETTA FINL SVCS INC 0 39,250 MORGAN J P & CO INC MORGAN STANLEY D WITTER 0 17,000 0 NEW USA RESEARCH & MGMT NEW YORK ST COMMON RET. 0 7,600 NICHOLAS CO 0 95,000 75,000 75,000 50,000 25,000 NICHOLAS-APPLEGATE CAP. NORTHERN TRUST CO/CONN 0 9,000 NORTHWESTERN MUTUAL INVT 0 186,600 NORTHWESTERN MUTUAL LIFE 0 143,100 350,500 344,100 284,100 OBERWEIS ASSET MGMT INC 0 15,000 15,000 15,000 15,000 ONE VALLEY BANK N A 0 2,100 2,300 PALISADE CAPITAL MGT LLC 0 69,800 304,800 219,800 0 PATTERSON J O & CO PHOENIX HOME LIFE MUTUAL 0 17,500 PILGRIM BAXTER & ASSOCS 0 574,075 987,100 1,004,900 998,200 PIMCO ADVISORS L P 13F INSTITUTION 3/31/96 12/31/95 9/30/95 - --------------------------- -------- --------- -------- DRIEHAUS CAPITAL MGMT 0 297,188 301,853 DUNCAN-HURST CAP MGMT 345,490 342,840 223,840 FIRST OF AMER INVT-S C I 109,150 107,850 102,050 FIRSTAR CORPORATION 0 54,400 FRANKLIN RESOURCES INC 0 12,000 FRED ALGER MANAGEMENT 289,200 235,700 174,000 FRONTIER CAPITAL MGMT CO 0 125,900 120,600 GARDNER LEWIS ASSET MGMT 0 GE INVESTMENT CORP 0 20,300 GEEWAX TERKER & COMPANY GENERAL MOTORS INVT MGMT 0 47,500 65,500 GRANAHAN INVT MGMT INC HANCOCK JOHN ADVISERS 410,000 400,000 HILLIARD JJB, LYONS WL 100 HINTZ HOLMAN & HECKSHER 0 10,000 INVESTMENT ADVISERS INC JANUS CAPITAL CORP 0 JMC CAPITAL MGMT INC 234,150 260,710 LGT ASSET MANAGEMENT INC 0 15,000 0 LUTHER KING CAPITAL MGMT MACKENZIE FINANCIAL CORP 30,000 MASS MUTUAL LIFE INSUR 218,800 194,000 212,700 MENTOR INVT ADVISORS LLC 77,870 133,520 135,470 METROPOLITAN LIFE INSUR MITCHELL HUTCHINS ASSET 0 137,900 MONETTA FINL SVCS INC 190,485 80,000 MORGAN J P & CO INC 0 185,700 MORGAN STANLEY D WITTER NEW USA RESEARCH & MGMT 0 10,000 NEW YORK ST COMMON RET. NICHOLAS CO NICHOLAS-APPLEGATE CAP. 0 239,000 NORTHERN TRUST CO/CONN NORTHWESTERN MUTUAL INVT NORTHWESTERN MUTUAL LIFE 323,000 328,900 328,900 OBERWEIS ASSET MGMT INC 15,000 15,000 15,000 ONE VALLEY BANK N A 2,300 2,900 PALISADE CAPITAL MGT LLC PATTERSON J O & CO 0 46,000 55,000 PHOENIX HOME LIFE MUTUAL PILGRIM BAXTER & ASSOCS 426,900 552,200 772,900 PIMCO ADVISORS L P 196,000 127,000
54
13F INSTITUTION 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96 9/30/96 6/30/96 - --------------------------------- --------- ---------- ---------- ----------- ----------- ----------- ----------- --------- PORTFOLIO ADVISORY SVCS 0 88,290 PROVIDENT INVT COUNSEL 0 354,243 427,900 389,600 353,200 R S INVESTMENT MGMT INC 0 6,900 6,100 56,700 REPUBLIC NATL BANK/N.Y. 0 6,020 ROBERT FLEMING(FLEM CAP) ROBERTSON STEPHENS L P 0 22,300 SAFECO CORPORATION 0 293,500 SBC WARBURG DILLON READ 0 50,500 0 SCUDDER KEMPER INVTS INC 0 293,900 288,900 286,200 259,800 266,600 SSI INVESTMENT MGMT INC 0 1,000 STACEY BRAUN ASSOC INC STANDISH AYER & WOOD INC 0 11,900 TCW GROUP INC THOMSON HORSTMANN&BRYANT TURNER INVT PARTNERS INC 0 94,750 66,750 UNITED STATES TR/BOSTON 0 1,700 VAN KAMPEN AMER CAPITAL 150,350 150,450 WALL STREET ASSOCIATES 0 102,150 95,100 WARBURG PINCUS ASSET MGT 0 36,000 WELLS FARGO BANK N A WILLIAM BLAIR & CO LLC 0 56,100 65,900 25,900 WILMINGTON TRUST COMPANY WISCONSIN INVESTMT BOARD ZWEIG-DIMENNA PARTNERS 0 --------- ---------- --------- --------- --------- --------- --------- --------- TOTAL HOLDINGS 8,078,638 9,275,296 9,069,283 8,866,011 9,335,064 9,189,510 9,127,228 9,390,312 TOTAL NUMBER OF OWNERS 58 58 66 69 60 59 63 64 SHARES OUTSTANDING (MILLIONS) 10.11 10.11 10.11 10.11 10.06 10.06 10.06 10.06 PERCENTAGE HELD BY INSTITUTIONS 79.9% 91.7% 89.7% 87.7% 92.8% 91.3% 90.7% 93.3% PRICE AT END OF PERIOD $15.38 $20.28 $25.00 $21.06 $28.00 $35.25 $37.75 $46.50 AVERAGE PRICE OF PERIOD $17.83 $22.64 $23.03 $24.53 $31.63 $36.50 $42.13 $41.25 TOP 15 HOLDERS PERCENTAGE 74.2% 13F INSTITUTION 3/31/96 12/31/95 9/30/95 - --------------------------------- ---------- ----------- ----------- PORTFOLIO ADVISORY SVCS 66,110 58,610 42,030 PROVIDENT INVT COUNSEL 337,500 286,100 261,800 R S INVESTMENT MGMT INC 60,700 64,000 REPUBLIC NATL BANK/N.Y. ROBERT FLEMING(FLEM CAP) 0 10,000 ROBERTSON STEPHENS L P SAFECO CORPORATION 0 SBC WARBURG DILLON READ 20,000 SCUDDER KEMPER INVTS INC 263,900 227,900 189,000 SSI INVESTMENT MGMT INC STACEY BRAUN ASSOC INC 0 17,700 17,700 STANDISH AYER & WOOD INC TCW GROUP INC 0 50,000 40,000 THOMSON HORSTMANN&BRYANT 0 72,700 TURNER INVT PARTNERS INC 50,050 42,110 51,460 UNITED STATES TR/BOSTON VAN KAMPEN AMER CAPITAL 151,000 62,700 57,800 WALL STREET ASSOCIATES 86,500 66,800 100,600 WARBURG PINCUS ASSET MGT WELLS FARGO BANK N A 0 12,000 WILLIAM BLAIR & CO LLC WILMINGTON TRUST COMPANY 0 5,300 5,300 WISCONSIN INVESTMT BOARD 0 175,700 ZWEIG-DIMENNA PARTNERS 57,000 32,000 25,000 --------- ---------- ---------- TOTAL HOLDINGS 7,962,873 7,026,438 6,576,153 TOTAL NUMBER OF OWNERS 60 63 52 SHARES OUTSTANDING (MILLIONS) 10.06 10.02 10.02 PERCENTAGE HELD BY INSTITUTIONS 79.2% 70.1% 65.6% PRICE AT END OF PERIOD $36.00 $41.50 $29.25 AVERAGE PRICE OF PERIOD $38.75 $35.38 $25.13 TOP 15 HOLDERS PERCENTAGE
Source: CDA Spectrum as of July 16, 1998. 55 PROJECT GOLDCAP MARKET COMPARISON OF SELECTED PUBLIC COMPANIES (Dollars in Millions, Except Per Share Amounts)
EARNINGS PER SHARE [1] 52 WEEK MARKET PRICE ---------------------- LATEST ------- PRICE AS % CAL. CAL. COMPANY TICKER EXCHANGE FYE QUARTER HIGH LOW 7/17/98 OF HIGH LTM 1998E 1999E - ------- ------ -------- --- ------- ---- --- ------- ------- --- ----- ----- Dental Managed Care Companies First Commonwealth, Inc. FCWI OTC DC 3/98 $19.75 $ 9.25 $14.88 75.3% $0.93 $1.05 $1.21 Safeguard Health Enterprises, Inc. SFGD OTC DC 3/98 14.87 6.00 6.75 45.4% 0.53 0.65 0.79 United Dental Care, Inc.[2] UDCI OTC DC 3/98 19.75 10.25 19.75 100.0% (0.02) 0.86 1.02 AVERAGE 73.6% MEDIAN 75.3% Multi-Market HMOs Foundation Health Systems, Inc. FHS NYSE DC 3/98 $33.93 $22.00 $24.75 72.9% $1.37 $1.42 $2.20 Humana, Inc. HUM NYSE DC 3/98 32.12 18.43 29.75 92.6% 1.11 1.31 1.59 Maxicare Health Plans, Inc. MAXI OTC DC 3/98 25.12 6.00 6.94 27.6% 0.15 (0.21) 0.63 Mid Atlantic Medical Services, Inc. MME NYSE DC 3/98 17.00 9.12 10.06 59.2% 0.43 0.67 0.89 Oxford Health Plans, Inc. OXHP OTC DC 3/98 89.00 13.75 14.06 15.8% (4.49) (1.25) (0.18) PacifiCare Health Systems, Inc. PHSYA OTC DC 3/98 88.87 46.75 86.69 97.5% 2.26 3.79 4.69 United HealthCare Corp. UNH NYSE DC 3/98 73.93 42.43 62.13 84.0% 2.35 2.75 3.38 AVERAGE 64.3% MEDIAN 72.9% Dental Practice Management Companies American Dental Partners [3] ADPI OTC DC 3/98 $19.37 $13.62 $15.00 77.4% $0.0 $0.54 $0.82 Birner Dental Management Services [4] BDMS OTC DC 3/98 8.37 5.31 6.13 73.2% 0.08 0.33 0.53 Castle Dental Centers, Inc. CASL OTC DC 3/98 14.75 6.62 10.50 71.2% 0.16 0.52 0.76 Coast Dental CDEN OTC DC 3/98 31.75 13.00 16.75 52.8% 0.60 0.74 1.08 Dental Care Alliance, Inc. DENT OTC DC 3/98 15.75 8.00 11.00 69.8% 0.18 0.50 0.71 Gentle Dental Service Corp. GNTL OTC DC 3/98 16.50 5.75 8.50 51.5% (0.21) 0.18 0.59 Monarch Dental Corporation MDDS OTC DC 3/98 23.87 11.00 16.50 69.1% 0.32 0.58 0.82 Pentegra Dental Group, Inc. [5] PEN AMEX DC 3/98 9.00 6.25 7.75 86.1% NA 0.50 0.68 AVERAGE 68.9% MEDIAN 70.5% Orthodontic Practice Management Companies Apple Orthodontix, Inc. AOI AMEX DC 3/98 $16.50 $ 4.12 $ 4.75 28.8% $0.26 $0.50 $0.69 Orthalliance ORAL OTC DC 3/98 17.25 8.50 12.88 74.6% 0.49 0.56 0.69 Orthodontic Centers of America OCA NYSE DC 3/98 24.06 15.00 18.50 76.9% 0.55 0.70 0.94 AVERAGE 60.1% MEDIAN 74.6% OVERALL AVERAGE 66.8% OVERALL MEDIAN 72.9% GOLDCAP OTC DC 3/98 $27.75 $ 9.00 $13.50 48.6% $1.07 $1.06 $1.20 PRICE/EARNINGS RATIO 5-YEAR ---------------------- 1999 P/E/ GROWTH CAL. CAL. 5-YEAR MARKET MARKET/ COMPANY RATE [1] LTM 1998E 1999E GROWTH CAP'N BOOK - ------- -------- --- ----- ----- ------ ----- ---- Dental Managed Care Companies First Commonwealth, Inc. 19.0% 16.0 x 14.2 x 12.3 x 0.65 x $ 54.1 2.2 x Safeguard Health Enterprises, Inc. 28.0% 12.7 10.4 8.5 0.31 32.0 1.0 United Dental Care, Inc.[2] 22.0% NM 23.0 * 19.4 * 0.88 177.4 1.4 AVERAGE 23.0% 14.4 x 12.3 x 10.4 x 0.61 x 1.5 x MEDIAN 22.0% 14.4 x 14.2 x 12.3 x 0.65 x 1.4 x Multi-Market HMOs Foundation Health Systems, Inc. 15.0% 18.1 x 17.4 x 11.3 x 0.75 x $ 3,021.0 3.3 x Humana, Inc. 19.0% 26.8 22.7 18.7 0.98 4,951.8 3.1 Maxicare Health Plans, Inc. 10.0% 46.3 * NM 11.0 1.10 124.4 1.6 Mid Atlantic Medical Services, Inc. 15.0% 23.4 15.0 11.3 0.75 547.5 2.5 Oxford Health Plans, Inc. 33.0% NM NM NM NM 1,129.7 3.7 PacifiCare Health Systems, Inc. 20.0% 38.4 * 22.9 18.5 0.92 3,617.6 1.7 United HealthCare Corp. 20.0% 26.4 22.6 18.4 0.92 11,971.8 2.6 AVERAGE 18.9% 23.7 x 20.1 x 14.9 x 0.91 x 2.6 x MEDIAN 19.0% 26.6 x 22.6 x 14.8 x 0.92 x 2.6 x Dental Practice Management Companies American Dental Partners [3] 37.0% 214.3 x* 27.8 x 18.3 x 0.49 x $ 111.2 2.5 x Birner Dental Management Services [4] NA 76.6 * 18.6 11.6 NA 40.8 2.2 Castle Dental Centers, Inc. 37.0% 65.6 20.2 13.8 0.37 65.7 1.8 Coast Dental 40.0% 27.9 22.6 15.5 0.39 127.7 2.0 Dental Care Alliance, Inc. 35.0% 61.1 22.0 15.5 0.44 76.8 3.0 Gentle Dental Service Corp. 40.0% NM 47.2 * 14.4 0.36 66.4 3.2 Monarch Dental Corporation 37.0% 51.6 28.4 20.1 0.54 170.4 3.9 Pentegra Dental Group, Inc. [5] 35.0% NA 15.5 11.4 0.33 49.9 7.1 * AVERAGE 37.3% 51.6 x 22.2 x 15.1 x 0.42 x 2.7 x MEDIAN 37.0% 63.4 x 22.3 x 14.9 x 0.39 x 2.8 x Orthodontic Practice Management Companies Apple Orthodontix, Inc. 15.0% 18.3 x 9.5 x 6.9 x 0.46 x $ 64.7 1.6 x Orthalliance NA 26.3 23.0 18.7 NA 163.8 3.6 Orthodontic Centers of America 35.0% 33.6 26.4 19.7 0.56 881.1 4.4 AVERAGE 25.0% 26.1 x 19.6 x 15.1 x 0.51 x 3.2 x MEDIAN 25.0% 26.3 x 23.0 x 18.7 x 0.51 x 3.6 x OVERALL AVERAGE 26.9% 31.4 x 20.0 x 14.5 x 0.62 x 2.6 x OVERALL MEDIAN 28.0% 26.4 x 22.0 x 14.4 x 0.55 x 2.5 x GOLDCAP 15.0% 12.6 x 12.7 x 11.3 x 0.75 x $ 136.5 2.2 x
- ---------------------------------- * Excluded from average. NA - Not Available NM - Not Meaningful F - Fiscal Year Estimate [1] Earnings Estimates are consensus estimates from the First Call Research Network as of July 15, 1998 except for Orthodontic Centers of America and Goldcap which are from Robinson-Humphrey Research. Excludes all nonrecurring charges and gains. [2] Reflects the Protective Life Acquisition and premiums paid therein. [3] Initial public offering priced on April 15, 1998 at $15.00 per share. [4] Initial public offering priced on February 11, 1998 at $7.00 per share. [5] Initial public offering priced on March 24, 1998 at $8.50 per share. 56 PROJECT GOLDCAP MARKET COMPARISON OF SELECTED PUBLIC COMPANIES (Dollars in Millions, Except Per Share Amounts)
DEBT / LTM SHARES TOTAL TOTAL TOTAL FIRM ------------------------------ COMPANY OUTSTANDING DEBT CAP. CASH VALUE [1] REVENUES EBIT EBITDA - ------- ----------- ---- ----- ----- --------- -------- ---- ------- (MM) ($MM) ($MM) ($MM) ($MM) ($MM) ($MM) Dental Managed Care Companies First Commonwealth, Inc. 3.640 $ 0.0 0.0% $ 11.3 $ 42.9 $ 58.7 $ 5.3 $ 6.2 Safeguard Health Enterprises, Inc. 4.747 45.8 58.0% 6.7 71.1 96.8 4.2 6.1 United Dental Care, Inc. 8.983 16.1 11.4% 21.2 172.3 172.4 6.1 11.4 AVERAGE MEDIAN Multi-Market HMOs Foundation Health Systems, Inc. 122.059 $1,356.9 59.4% $ 947.4 $ 3,430.4 $ 7,526.1 $227.5 $332.0 Humana, Inc. 166.447 847.0 34.8% 1,779.0 4,019.8 8,429.0 141.0 257.0 Maicare Health Plans, Inc. 17.925 0.0 0.0% 82.2 42.2 689.7 (32.1) (31.4) Mid Atlantic Medical Services, Inc. 54.415 2.7 1.2% 183.3 367.0 1,100.4 13.8 24.5 Oford Health Plans, Inc. 80.331 220.3 42.2% 696.3 653.6 4,424.7 (569.4) (505.4) PacifiCare Health Systems, Inc. 41.732 1,041.3 33.3% 1,162.3 3,496.6 9,521.0 199.9 [2] 328.6 [2] United HealthCare Corp. 192.704 520.0 10.0% 816.0 11,675.8 12,815.0 530.0 684.0 AVERAGE MEDIAN Dental Practice Management Companies American Dental Partners 7.417 $ 5.8 11.4% $ 11.8 $ 105.2 $ 60.2 $ 2.8 $ 5.5 Birner Dental Management Services 6.668 0.4 2.2% 6.2 35.1 15.1 1.5 2.2 Castle Dental Centers, Inc. 6.253 22.4 38.3% 1.8 86.3 34.2 3.6 5.9 Coast Dental 7.622 1.3 2.0% 44.2 84.8 23.8 5.1 6.3 Dental Care Alliance, Inc. 6.978 2.1 7.5% 11.2 67.6 11.6 1.3 1.6 Gentle Dental Service Corp. 7.809 25.7 55.3% 0.1 92.0 53.8 (0.3) 1.9 Monarch Dental Corporation 10.325 13.2 23.4% 3.9 179.7 52.8 6.3 9.7 Pentegra Dental Group, Inc. 6.442 1.1 13.3% 6.7 44.3 0.0 (3.1) (3.1) AVERAGE MEDIAN Orthodontic Practice Management Companies Apple Orthodontics, Inc. 13.615 $ 5.3 11.8% $ 2.5 $ 67.5 $ 30.4 $ 3.7 $ 5.1 Orthalliance 12.723 2.0 4.2% 3.9 161.9 32.7 6.0 6.8 Orthodontic Centers of America 47.627 13.2 6.2% 4.8 889.6 130.1 40.5 47.1 AVERAGE MEDIAN AVERAGE MEDIAN GOLDCAP 10.112 $ 55.1 46.7% $ 15.6 $ 176.1 $ 163.3 $ 21.5 $ 27.3 3 YEAR CAGR FIRM VALUE TO: ------------------- EBIT EBITDA ------------------------- NET COMPANY MARGIN MARGIN REVENUES EBIT EBITDA REVENUE INCOME - ------- ------ ------ -------- ---- ------ ------- ------ Dental Managed Care Companies First Commonwealth, Inc. 9.1 % 10.6 % 0.73 x 8.1 x 6.9 x 30.3% 28.8 % Safeguard Health Enterprises, Inc. 4.3 % 6.3 % 0.73 17.1 11.6 25.3% (5.7)% United Dental Care, Inc. 3.6 % 6.6 % 1.00 * 28.1 * 15.1 * 48.8% 21.6 % AVERAGE 5.6 % 7.8 % 0.73 x 12.6 x 9.2 x 34.8% 14.9 % MEDIAN 4.3 % 6.6 % 0.73 x 17.1 x 11.6 x 30.3% 21.6 % Multi-Market HMOs Foundation Health Systems, Inc. 3.0 % 4.4 % 0.46 x 15.1 x 10.3 x 18.8% 15.1 % Humana, Inc. 1.7 % 3.0 % 0.48 28.5 15.6 30.8% (22.4)% Maicare Health Plans, Inc. (4.7)% (4.5)% 0.06 * NM NM 17.9% NM Mid Atlantic Medical Services, Inc. 1.3 % 2.2 % 0.33 26.6 15.0 7.8% (68.2)% Oford Health Plans, Inc. (12.9)% (11.4)% 0.15 * NM NM 54.7% NM PacifiCare Health Systems, Inc. 2.1 % 3.5 % 0.37 17.5 10.6 55.2% 10.8 % United HealthCare Corp. 4.1 % 5.3 % 0.91 22.0 17.1 44.9% 30.1 % AVERAGE (0.8)% 0.4 % 0.51 x 21.9 x 13.7 x 32.9% (6.9)% MEDIAN 1.7 % 3.0 % 0.37 x 22.0 x 15.0 x 30.8% 10.8 % Dental Practice Management Companies American Dental Partners 4.7 % 9.1 % 1.75 x 37.3 * 19.2 x NA NA Birner Dental Management Services 9.7 % 14.7 % 2.33 24.1 15.9 NA NA Castle Dental Centers, Inc. 10.5 % 17.3 % 2.53 24.0 14.6 31.2% NM Coast Dental 21.6 % 26.5 % 3.56 16.5 13.4 145.5% 392.7 % Dental Care Alliance, Inc. 11.2 % 13.6 % 5.82 * 51.9 * 42.7 * 218.5% NM Gentle Dental Service Corp. (0.5)% 3.5 % 1.71 NM 48.5 * NA NA Monarch Dental Corporation 11.9 % 18.4 % 3.40 28.7 18.5 126.8% 16.2 % Pentegra Dental Group, Inc. NA NA NM NM NM NA NA AVERAGE 9.9 % 14.7 % 2.55 x 26.1 x 16.3 x 130.5% 204.4 % MEDIAN 10.5 % 14.7 % 2.53 x 26.4 x 18.5 x 136.1% 204.4 % Orthodontic Practice Management Companies Apple Orthodontics, Inc. 12.2 % 16.8 % 2.22 x 18.1 x 13.2 x NA NA Orthalliance 18.4 % 20.6 % 4.95 26.9 24.0 NA NA Orthodontic Centers of America 31.2 % 36.2 % 6.84 * 21.9 18.9 68.0% 58.3 % AVERAGE 20.6 % 24.5 % 3.58 x 22.3 x 18.7 x 68.0% 58.3 % MEDIAN 18.4 % 20.6 % 4.95 x 21.9 x 18.9 x 68.0% 58.3 % AVERAGE 7.1 % 10.1 % 1.76 x 22.2 x 15.0 x 61.6% 43.4 % MEDIAN 4.5 % 7.9 % 1.71 x 22.0 x 15.0 x 44.9% 16.2 % GOLDCAP 13.2 % 16.7 % 1.08 x 8.2 x 6.4 x 22.0% 46.1 %
- ---------------------------------- * Excluded from average. NA - Not Available NM - Not Meaningful [1] Firm value equals market capitalization plus total debt and preferred stock minus cash and short term investments. [2] Excludes approximately $154 million in one-time charges. 57 PROJECT GOLDCAP HISTORICAL GROWTH ANALYSIS OF SELECTED COMPARABLE PUBLIC COMPANIES REVENUES (DOLLARS IN MILLIONS)
1995 1996 1997 FIRST QUARTER 1998 --------- ------------------- ------------------- 3 YEAR -------------------- $ AMT $ AMT GROWTH $ AMT GROWTH CAGR $ AMT GROWTH ----- ----- ------ ----- ------ ------ ----- ------ Dental Managed Care Companies First Commonwealth, Inc. $ 33.3 $ 44.1 32.4% $ 56.6 28.3% 30.3% $ 15.6 16.0% Safeguard Health Enterprises, Inc. 60.7 72.7 19.7% 95.4 31.1% 25.3% 24.4 6.3% United Dental Care, Inc. 78.6 112.7 43.4% 174.0 54.3% 48.8% 43.3 (3.5%) Multi-Market HMOs Foundation Health Systems, Inc. $ 5,047.1 $ 6,620.8 31.2% $ 7,120.7 7.5% 18.8% $ 2,149.2 23.2% Humana, Inc. 4,605.0 6,677.0 45.0% 7,880.0 18.0% 30.8% 2,352.0 30.4% Maxicare Health Plans, Inc. 477.3 562.8 17.9% 663.8 18.0% 17.9% 180.4 16.8% Mid Atlantic Medical Services, Inc. 942.9 1,119.4 18.7% 1,096.6 (2.0%) 7.8% 285.8 1.3% Oxford Health Plans, Inc. 1,746.0 3,032.6 73.7% 4,179.8 37.8% 54.7% 1,218.1 25.2% PacifiCare Health Systems, Inc. 3,731.0 4,637.3 24.3% 8,982.7 93.7% 55.2% 2,382.0 29.2% United HealthCare Corp. 5,511.0 9,889.0 79.4% 11,563.0 16.9% 44.9% 4,053.0 44.7% GOLDCAP $ 106.7 $ 141.1 32.3% $ 158.7 12.5% 22.0% $ 42.4 12.2%
58 PROJECT GOLDCAP HISTORICAL GROWTH ANALYSIS OF SELECTED COMPARABLE PUBLIC COMPANIES EBITDA (DOLLARS IN MILLIONS)
1995 1996 1997 FIRST QUARTER 1998 -------------- -------------------- -------------------- 3 YEAR ---------------------- $ AMT MARGIN $ AMT MARGIN GROWTH $ AMT MARGIN GROWTH CAGR $ AMT MARGIN GROWTH ------ ------ ----- ------ ------ ----- ------ ------ ------ ----- ------ ------ Dental Managed Care Companies First Commonwealth, Inc. $ 3.6 10.7 % $ 4.6 10.4 % 29.3 % $ 6.0 10.6 % 29.8 % 29.6 % $ 1.6 10.4 % 16.6 % Safeguard Health Enterprises, Inc. 3.6 5.9 % 4.2 5.8 % 17.5 % 6.8 7.2 % 61.3 % 37.7 % 1.8 7.2 % (28.2)% United Dental Care, Inc. 7.5 9.5 % 13.9 12.3 % 86.5 % 11.2 6.4 % (19.5)% 22.5 % 4.2 9.8 % 17.3 % Multi-Market HMOs Foundation Health Systems, Inc. $390.0 7.7 % $167.0 2.5 % (57.2)% $354.3 5.0 % 112.2 % (4.7)% $69.8 3.2 % (24.2)% Humana, Inc. 272.0 5.9 % 112.0 1.7 % (58.8)% 242.0 3.1 % 116.1 % (5.7)% 73.0 3.1 % 25.9 % Maxicare Health Plans, Inc. 19.1 4.0 % 11.0 2.0 % (42.2)% (22.7) (3.4)% NM NM (4.1) (2.3)% NM Mid Atlantic Medical Services, Inc. 91.4 9.7 % (10.8) (1.0)% NM 17.1 1.6 % NM (56.7)% 10.0 3.5 % 280.6 % Oxford Health Plans, Inc. 98.7 5.7 % 176.9 5.8 % 79.3 % (413.3) (9.9)% NM NM (33.3) (2.7)% NM PacifiCare Health Systems, Inc. 176.9 4.7 % 211.6 4.6 % 19.6 % 315.4 3.5 % 49.1 % 33.5 % 103.8 4.4 % 14.6 % United HealthCare Corp. 549.0 10.0 % 544.0 5.5 % (0.9)% 657.0 5.7 % 20.8 % 9.4 % 189.0 4.7 % 16.7 % GOLDCAP $ 12.9 12.1 % $ 24.0 17.0 % 87.1 % 27.8 17.5 % 15.6 % 47.1 % $ 6.5 15.3 % (6.9)%
59 PROJECT GOLDCAP HISTORICAL GROWTH ANALYSIS OF SELECTED COMPARABLE PUBLIC COMPANIES EBIT (DOLLARS IN MILLIONS)
1995 1996 1997 --------------- ------------------------ ---------------------------- 3 YEAR $ AMT MARGIN $ AMT MARGIN GROWTH $ AMT MARGIN GROWTH CAGR ----- ------ ----- ------ ------ ----- ------ ------ ------ Dental Managed Care Companies First Commonwealth, Inc. $ 3.1 9.4% $ 4.0 9.0% 25.6% $ 5.1 9.0% 29.3% 27.5% Safeguard Health Enterprises, Inc. 2.0 3.3% 1.9 2.6% (5.9%) 4.5 4.8% 141.4% 50.7% United Dental Care, Inc. 6.3 8.0% 11.6 10.3% 85.7% 6.1 3.5% (47.3)% (1.1)% Multi-Market HMOs Foundation Health Systems, Inc. $300.6 6.0% 54.0 0.8% (82.0)% 255.9 3.6% 373.6% (7.7)% Humana, Inc. 202.0 4.4% 14.0 0.2% (93.1)% 134.0 1.7% 857.1% (18.6)% Maxicare Health Plans, Inc. 17.8 3.7% 9.7 1.7% (45.4)% (23.5) (3.5%) NM NM Mid Atlantic Medical Services, Inc. 85.3 9.1% (18.6) (1.7)% NM 6.9 0.6% NM (71.5%) Oxford Health Plans, Inc. 75.7 4.3% 134.0 4.4% 77.1% 474.4) (11.3)% NM NM PacifiCare Health Systems, Inc. 148.2 4.0% 179.5 3.9% 21.1% 198.5 2.2% 10.6% 15.7% United HealthCare Corp. 455.0 8.3% 411.0 4.2% (9.7)% 511.0 4.4% 24.3% 6.0% GOLDCAP $ 10.1 9.5% $18.9 13.4% 86.4% $22.1 13.9% 16.8% 47.5% FIRST QUARTER 1998 ------------------------ $ AMT MARGIN GROWTH ----- ------ ------ Dental Managed Care Companies First Commonwealth, Inc. $ 1.4 8.9% 17.8% Safeguard Health Enterprises, Inc. 1.1 4.6% (25.5)% United Dental Care, Inc. 2.9 6.7% 16.1% Multi-Market HMOs Foundation Health Systems, Inc. $39.0 1.8% (42.2)% Humana, Inc. 41.0 1.7% 20.6% Maxicare Health Plans, Inc. (4.3) (2.4)% NM Mid Atlantic Medical Services, Inc. 7.1 2.5% NM Oxford Health Plans, Inc. (49.4) (4.1)% NM PacifiCare Health Systems, Inc. 72.5 3.0% 1.9% United HealthCare Corp. 147.0 3.6% 14.8% GOLDCAP $ 5.1 12.1% (9.6)%
60 PROJECT GOLDCAP HISTORICAL GROWTH ANALYSIS OF SELECTED COMPARABLE PUBLIC COMPANIES DILUTED EARNINGS PER SHARE
1995 1996 1997 FIRST QUARTER 1998 ----- ------------------ ------------------ 3 YEAR ------------------ $ AMT $ AMT GROWTH $ AMT GROWTH CAGR $ AMT GROWTH ----- ----- ------ ----- ------ ------ ----- ------ Dental Managed Care Companies - ----------------------------- First Commonwealth, Inc. $0.67 $0.76 13.4 % $0.89 17.1 % 15.3 % $0.24 20.0 % Safeguard Health Enterprises, Inc. 0.45 0.30 (33.3)% 0.38 26.7 % (8.1)% 0.14 (12.5)% United Dental Care, Inc. 0.68 1.00 47.1 % (0.03) NM NM 0.17 6.3 % Multi-Market HMOs - ----------------- Foundation Health Systems, Inc. $1.54 $0.52 (66.2)% $1.37 163.5 % (5.7)% $0.22 (42.1)% Humana, Inc. 1.16 0.95 (18.1)% 1.05 10.5 % (4.9)% 0.30 25.0 % Maxicare Health Plans, Inc. 1.53 1.05 (31.4)% 0.63 (40.0)% (35.8)% (0.15) NM Mid Atlantic Medical Services, Inc. 1.28 (0.06) NM 0.31 NM (50.8)% 0.14 600.0 % Oxford Health Plans, Inc. 0.71 1.25 76.1 % (3.70) NM NM (0.37) NM PacifiCare Health Systems, Inc. 3.62 4.18 15.5 % 2.43 (41.9)% (18.1)% 0.90 (19.6)% United HealthCare Corp. 1.57 1.76 12.1 % 2.26 28.4 % 20.0 % 0.63 16.7 % GOLDCAP $0.68 $0.97 42.6 % $1.10 13.4 % 27.2 % $0.25 (10.7)%
61 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING PUBLIC DENTAL MANAGED CARE COMPANIES MULTIPLES (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES ------------------------------------------------------- Goldcap PRICE / PRICE / PRICE / PRICE / Valuation Parameter Value [1] LTM EPS CAL. 1998 EPS CAL. 1999 EPS BOOK - ------------------- --------- ------- ------------- ------------- ---- LTM EPS $ 1.07 [3] 14.4 x Est. 1998 EPS $ 1.06 12.3 x Est. 1999 EPS $ 1.20 10.4 x Book Value (as of 3/31/98) $ 62,769 1.5 x - --------------------------------------------------------------------------------------------------------------------------------- AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES LESS ----------------------------------------------- IMPLIED PV OF DHDC Goldcap FIRM VALUE / FIRM VALUE / FIRM VALUE / FIRM LESS CONTINGENT Valuation Parameter Value LTM REVENUES LTM EBIT LTM EBITDA VALUE NET DEBT LIABILITIES - ------------------- -------- ------------ -------- ---------- ----- -------- ----------- LTM Revenues $163,333 0.73 x $119,597 $39,534 $26,042 LTM Operating Income $ 21,521 [3] 12.6 x $270,776 $39,534 $26,042 LTM EBITDA $ 27,314 [3] 9.2 x $252,604 $39,534 $26,042 IMPLIED IMPLIED EQUITY EQUITY VALUE Valuation Parameter VALUE PER SHARE [2] - ------------------- ----- ------------- LTM EPS $155,430 $15.37 Est. 1998 EPS $131,579 $13.01 Est. 1999 EPS $126,426 $12.50 Book Value (as of 3/31/98) $ 96,617 $ 9.55 - ------------------------------------------------------------- Valuation Parameter - ------------------- LTM Revenues $ 54,021 $ 5.34 LTM Operating Income $205,200 $20.29 LTM EBITDA $187,028 $18.50 MEAN EQUITY VALUE $136,614 $13.51 MEDIAN EQUITY VALUE $131,579 $13.01
- -------------------------------------------------------- * - Excluded from mean. [1] Projections provided by Robinson-Humphrey research. [2] Assumes 10,112,629 Goldcap shares outstanding. [3] Excludes $58.9 million goodwill impairment and $9.4 million in one-time charges. 62 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING PUBLIC DENTAL MANAGED CARE COMPANIES MULTIPLES (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES ------------------------------------------------------- Goldcap PRICE / PRICE / PRICE / PRICE / Valuation Parameter Value [1] LTM EPS CAL. 1998 EPS CAL. 1999 EPS BOOK - ------------------- --------- ------- ------------- ------------- ---- LTM EPS $ 1.07 [3] 14.4 x Est. 1998 EPS $ 0.94 12.3 x Est. 1999 EPS $ 1.27 10.4 x Book Value (as of 3/31/98) $ 62,769 1.5 x - --------------------------------------------------------------------------------------------------------------------------------- AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES LESS ----------------------------------------------- IMPLIED PV OF DHDC Goldcap FIRM VALUE / FIRM VALUE / FIRM VALUE / FIRM LESS CONTINGENT Valuation Parameter Value LTM REVENUES LTM EBIT LTM EBITDA VALUE NET DEBT LIABILITIES - ------------------- -------- ------------ -------- ---------- ----- -------- ----------- LTM Revenues $163,333 0.73 x $119,597 $39,534 $26,042 LTM Operating Income $ 21,521 [3] 12.6 x $270,776 $39,534 $26,042 LTM EBITDA $ 27,314 [3] 9.2 x $252,604 $39,534 $26,042 IMPLIED IMPLIED EQUITY EQUITY VALUE Valuation Parameter VALUE PER SHARE [2] - ------------------- ----- ------------- LTM EPS $155,430 $15.37 Est. 1998 EPS $116,683 $11.54 Est. 1999 EPS $133,801 $13.23 Book Value (as of 3/31/98) $ 96,617 $ 9.55 - ------------------------------------------------------------- Valuation Parameter - ------------------- LTM Revenues $ 54,021 $ 5.34 LTM Operating Income $205,200 $20.29 LTM EBITDA $187,028 $18.50 MEAN EQUITY VALUE $135,540 $13.40 MEDIAN EQUITY VALUE $133,801 $13.23
- -------------------------------------------------------- * - Excluded from mean. [1] Projections provided by Goldcap management. [2] Assumes 10,112,629 Goldcap shares outstanding. [3] Excludes $58.9 million goodwill impairment and $9.4 million in one-time charges. 63 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING PUBLIC MULTI-MARKET HMO COMPANIES MULTIPLES (DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------------- AVERAGE MULTI-MARKET HMO COMPANIES MULTIPLES ------------------------------------------------------- Goldcap PRICE / PRICE / PRICE / PRICE / Valuation Parameter Value [1] LTM EPS CAL. 1998 EPS CAL. 1999 EPS BOOK - ------------------- --------- ------- ------------- ------------- ---- LTM EPS $ 1.07 [3] 23.7 x Est. 1998 EPS $ 1.06 20.1 x Est. 1999 EPS $ 1.20 14.9 x Book Value (as of 3/31/98) $ 62,769 2.6 x - ----------------------------------------------------------------------------------------------------------------------------------- AVERAGE MULTI-MARKET HMO COMPANIES MULTIPLES -------------------------------------------- IMPLIED PV OF DHDC Goldcap FIRM VALUE / FIRM VALUE / FIRM VALUE / FIRM LESS CONTINGENT Valuation Parameter Value LTM REVENUES LTM EBIT LTM EBITDA VALUE NET DEBT LIABILITIES - ------------------- -------- ------------ -------- ---------- ----- -------- ----------- LTM Revenues $163,333 0.51 x $ 83,123 $39,534 $26,042 LTM Operating Income $ 21,521 [3] 21.9 x $472,368 $39,534 $26,042 LTM EBITDA $ 27,314 [3] 13.7 x $375,230 $39,534 $26,042 IMPLIED IMPLIED EQUITY EQUITY VALUE Valuation Parameter VALUE PER SHARE [2] - ------------------- ----- ------------- LTM EPS $256,173 $25.33 Est. 1998 EPS $215,707 $21.33 Est. 1999 EPS $180,282 $17.83 Book Value (as of 3/31/98) $166,000 $16.42 - ------------------------------------------------------------- Valuation Parameter - ------------------- LTM Revenues $ 17,547 $ 1.74 LTM Operating Income $406,792 $40.23 LTM EBITDA $309,654 $30.62 MEAN EQUITY VALUE $221,736 $21.93 MEDIAN EQUITY VALUE $215,707 $21.33
- -------------------------------------------------------- * - Excluded from mean. [1] Projections provided by Robinson-Humphrey research. [2] Assumes 10,112,629 Goldcap shares outstanding. [3] Excludes $58.9 million goodwill impairment and $9.4 million in one-time charges. 64 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING PUBLIC MULTI-MARKET HMO COMPANIES MULTIPLES (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
AVERAGE DENTAL MULTI-MARKET HMO COMPANIES MULTIPLES ------------------------------------------------------- Goldcap PRICE / PRICE / PRICE / PRICE / Valuation Parameter Value [1] LTM EPS CAL. 1998 EPS CAL. 1999 EPS BOOK - ------------------- --------- ------- ------------- ------------- ---- LTM EPS $ 1.07 [3] 23.7 x Est. 1998 EPS $ 0.94 20.1 x Est. 1999 EPS $ 1.27 14.9 x Book Value (as of 3/31/98) $ 62,769 2.6 x - --------------------------------------------------------------------------------------------------------------------------------- AVERAGE MULTI-MARKET HMO COMPANIES MULTIPLES LESS ----------------------------------------------- IMPLIED PV OF DHDC Goldcap FIRM VALUE / FIRM VALUE / FIRM VALUE / FIRM LESS CONTINGENT Valuation Parameter Value LTM REVENUES LTM EBIT LTM EBITDA VALUE NET DEBT LIABILITIES - ------------------- -------- ------------ -------- ---------- ----- -------- ----------- LTM Revenues $163,333 0.51 x $ 83,123 $39,534 $26,042 LTM Operating Income $ 21,521 [3] 21.9 x $472,368 $39,534 $26,042 LTM EBITDA $ 27,314 [3] 13.7 x $375,230 $39,534 $26,042 IMPLIED IMPLIED EQUITY EQUITY VALUE Valuation Parameter VALUE PER SHARE [2] - ------------------- ----- ------------- LTM EPS $256,173 $25.33 Est. 1998 EPS $191,288 $18.92 Est. 1999 EPS $190,798 $18.87 Book Value (as of 3/31/98) $166,000 $16.42 - ------------------------------------------------------------- Valuation Parameter - ------------------- LTM Revenues $ 17,547 $ 1.74 LTM Operating Income $406,792 $40.23 LTM EBITDA $309,654 $30.62 MEAN EQUITY VALUE $219,750 $21.73 MEDIAN EQUITY VALUE $191,288 $18.92
- -------------------------------------------------------- * - Excluded from mean. [1] Projections provided by Goldcap management. [2] Assumes 10,112,629 Goldcap shares outstanding. [3] Excludes $58.9 million goodwill impairment and $9.4 million in one-time charges. 65 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING DENTAL MANAGED CARE AND DENTAL PRACTICE MANAGEMENT COMPANIES MULTIPLES (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
BENEFITS COMPANY - ---------------- AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES ----------------------------------------------- Benefits PRICE / PRICE / Valuation Parameter Value [1] CAL. 1998 EPS CAL. 1999 EPS - ------------------- --------- ------------- ------------- Est. 1998 Net Income $ 9,264 12.3 x Est. 1999 Net Income $11,529 10.4 x AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES LESS ----------------------------------------------- IMPLIED PV OF DHDC Benefits FIRM VALUE / FIRM LESS CONTINGENT Valuation Parameter Value LTM EBITDA VALUE NET DEBT LIABILITIES - ------------------- --------- ------------ ------- -------- ----------- LTM EBITDA $26,627 9.2 x $246,250 $39,534 $26,042 IMPLIED IMPLIED EQUITY EQUITY VALUE Valuation Parameter VALUE PER SHARE [2] - ------------------- ----- ------------- Est. 1998 Net Income $113,722 $11.25 Est. 1999 Net Income $120,119 $11.88 LTM EBITDA $180,674 $17.87 MEAN EQUITY VALUE $138,172 $13.66 MEDIAN EQUITY VALUE $120,119 $11.88 DHMI - ---- AVERAGE DENTAL PRACTICE MANAGEMENT COMPANIES MULTIPLES ------------------------------------------------------ DHMI PRICE / PRICE / Valuation Parameter Value [1] CAL. 1998 EPS CAL. 1999 EPS - ------------------- --------- ------------- ------------- Est. 1998 Net Income $ 277 22.2 x Est. 1999 Net Income $ 1,686 15.1 x AVERAGE DENTAL PRACTICE MANAGEMENT COMPANIES MULTIPLES LESS ------------------------------------------------------ IMPLIED PV OF DHDC DHMI FIRM VALUE / FIRM LESS CONTINGENT Valuation Parameter Value LTM EBITDA VALUE NET DEBT LIABILITIES - ------------------- --------- ------------ ------- -------- ----------- LTM EBITDA $ 687 16.3 x $ 11,203 $ 0 $ 0 IMPLIED IMPLIED EQUITY EQUITY VALUE Valuation Parameter VALUE PER SHARE [2] - ------------------- ----- ------------- Est. 1998 Net Income $ 6,138 $ 0.61 Est. 1999 Net Income $ 25,415 $ 2.51 LTM EBITDA $ 11,203 $ 1.11 MEAN EQUITY VALUE $ 14,252 $ 1.41 MEDIAN EQUITY VALUE $ 11,203 $ 1.11 SUM OF MEANS $152,424 $15.07 SUM OF MEDIANS $131,322 $12.99
- -------------------------------------------------------- * - Excluded from mean. [1] Projections provided by Goldcap management. [2] Assumes 10,112,629 Goldcap shares outstanding. 66 PROJECT GOLDCAP PRE-PAID DENTAL PLAN ACQUISITION MULTIPLES - ------------------------------------------------------------------------------- (DOLLARS IN MILLIONS)
Purchase Price as a Multiple of Equity ------------------------------- Date Purchase LTM Latest Date Acquiror Target Completed Price Net Income Book Value - -------- ------ --------- ----- ---------- ---------- CompDent Corporation DentiCare/UniLife 12/94 $17.6 NM x 5.9x CompDent Corporation CompDent 7/5/95 33.0 20.8 7.4 Protective Life Corp. National Health Care 3/21/95 38.3 19.2 NA Systems of Florida United Dental Care Int'l. Dental Health Inc. 9/1/94 14.3 23.0 3.8 United Dental Care U.S. Dental 11/27/95 12.2 19.2 7.5 CompDent Corporation Texas Dental Plans 1/8/96 23.0 15.1 87.5* United Dental Care Associated Health Plans 2/1/96 15.0 228.2* 19.6* Protective Life Dental Care of Oklahoma 3/19/96 4.5 17.0 6.9 CompDent Corporation Dental Care Plus 5/9/96 38.0 17.2 71.0* United Dental Care OraCare DPO 11/21/96 30.5 26.0 NM United Dental Care Kansas City Dental Care 11/21/96 12.5 60.0* 25.9* United Dental Care UICI Dental Companies 11/21/96 14.4 29.5 6.1 Safeguard Health Enterprises, Inc. Advantage Dental HealthPlans, Inc. 5/13/97 9.0 NM 7.2 Protective Life Corp. United Dental Care Pending 175.0 NM 1.4 AVERAGE 20.8 x 5.8 x MEDIAN 20.8 x 7.3 x Adjusted Purchase Price as a Multiple of ----------------------------------------- Adjusted LTM LTM Purchase LTM Op. Cash Flow Op. Income Acquiror Target Price [1] Revenues [2] (EBITDA) (EBIT) - -------- ------ --------- ------------ -------- ------ CompDent Corporation DentiCare/UniLife $15.8 0.57 x 7.9 x 9.6 x CompDent Corporation CompDent 28.6 0.89 9.6 11.4 Protective Life Corp. National Health Care 32.3 1.45 9.6 10.2 Systems of Florida United Dental Care Int'l. Dental Health Inc. 14.3 0.29* 10.8 13.7 United Dental Care U.S. Dental 11.4 0.84 7.8 8.4 CompDent Corporation Texas Dental Plans 22.4 2.52* 8.4 8.9 United Dental Care Associated Health Plans 14.6 1.03 27.9* 42.1* Protective Life Dental Care of Oklahoma 4.2 1.30 8.4 9.8 CompDent Corporation Dental Care Plus 36.9 1.59 9.0 9.8 United Dental Care OraCare DPO 32.4 2.82* 14.0 14.7 United Dental Care Kansas City Dental Care 11.9 1.33 30.2* 32.3* United Dental Care UICI Dental Companies 11.6 0.69 15.4 17.7 Safeguard Health Enterprises, Inc. Advantage Dental HealthPlans, Inc. 9.0 1.70 NA 15.3 Protective Life Corp. United Dental Care 184.4 1.06 16.5 30.1* AVERAGE 1.13 x 10.7 x 11.8 x MEDIAN 1.18 x 9.6 x 12.6 x
- ------------------------------------------------------ [1] Adjusted purchase price equals equity value plus assumed debt minus acquired cash. [2] Excludes investment income. 67 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING PRE-PAID DENTAL PLAN ACQUISITION MULTIPLES (DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------
Selected Relevant Transaction Multiples --------------------------------------- Price/ IMPLIED IMPLIED Goldcap LTM Price/ EQUITY EQUITY VALUE Valuation Parameter Value EPS Book VALUE PER SHARE [3] - ------------------- -------- --- ---- ----- ------------- LTM Income $ 10,735 [1,2] 20.8 x $223,007 $22.05 3/31/98 Book Value $ 62,769 5.8 x $362,958* $35.89* - ---------------------------------------------------------------------------------------------------------- Selected Relevant Transaction Multiples Less ---------------------------------------- Implied PV of DHDC Goldcap Firm Value / Firm Value / Firm Value / Firm Less Contingent Valuation Parameter Value Revenues EBIT EBITDA Value Net Debt Liabilities - ------------------- -------- -------- ---- ------ ------ -------- ----------- LTM Revenues $163,333 1.13 x $185,032 $39,534 $26,042 $119,456 $11.81 LTM Operating Income $ 21,521 [1] 11.8 x $253,399 $39,534 $26,042 $187,822 $18.57 LTM EBITDA $ 27,314 [1] 10.7 x $291,614 $39,534 $26,042 $226,038 $22.35 MEAN EQUITY VALUE $189,081 $18.70 MEDIAN EQUITY VALUE $223,007 $22.05
- --------------------------------------------------- * - Excluded from mean. [1] Excludes $58.9 million goodwill impairment and $9.4 million in one-time charges. [2] Assumes 38% tax rate on one-time charges. [3] Assumes 10,112,629 Goldcap shares outstanding. 68 PROJECT GOLDCAP PROTECTIVE LIFE/UNITED DENTAL CARE ACQUISITION MULTIPLES [1,2] - --------------------------------------------------------------------------------
ACQUISITION ACQUISITION FIRM EQUITY VALUE (MM) VALUE (MM) ----------- ----------- $184.4 $175.0
EQUITY VALUE/ 1997 NET INCOME: NM EQUITY VALUE/ PROJECTED 1998 NET INCOME: [3] 22.1 x EQUITY VALUE/ PROJECTED 1999 NET INCOME: [3] 18.3 x EQUITY VALUE/ BOOK VALUE: 1.42 x FIRM VALUE/ 1997 REVENUES: 1.06 x FIRM VALUE/ 1997 EBIT: [4] 30.1 x FIRM VALUE/ 1997 EBITDA: [4] 16.5 x FIRM VALUE/ 1997 MEMBERS: [5] $97.06 PREMIUMS: 1 DAY BEFORE ANNOUNCEMENT 20.5% 1 WEEK BEFORE ANNOUNCEMENT 49.2% 4 WEEKS BEFORE ANNOUNCEMENT 57.4%
- --------------------------------------------------- [1] Protective Life intends to pay $9.31 per share in cash and to swap 0.14465 of its shares for each United Dental share. [2] The proposed payment does not take into account Protective's recently efffected two-for-one stock split. [3] 1998 and 1999 estimates from the First Call Research Network as of 3/17/98. [4] Excludes $9.6 million in one time charges. [5] 1,900,000 members as of December 31, 1997. 69 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING PROTECTIVE LIFE/UNITED DENTAL CARE ACQUISITION MULTIPLES - -------------------------------------------------------------------------------- (DOLLARS AND MEMBERS IN THOUSANDS)
Selected Relevant Transaction Multiples --------------------------------------- Price/ IMPLIED IMPLIED Goldcap LTM Price/ EQUITY EQUITY VALUE Valuation Parameter Value EPS Book VALUE PER SHARE [3] - ------------------- -------- --- ---- ----- ------------- LTM Net Income $ 10,735 [1,2] NM NM NM 3/31/98 Book Value $ 62,769 1.4 x $ 89,255 $ 8.83 - ---------------------------------------------------------------------------------------------------------- Selected Relevant Transaction Multiples --------------------------------------- Less Firm Firm Firm Firm Implied PV of DHDC Goldcap Value / Value / Value / Value / Firm Less Contingent Valuation Parameter Value Revenues EBIT EBITDA Members Value Net Debt Liabilities - ------------------- -------- -------- ---- ------ ------- ------ -------- ----------- LTM Revenues $163,333 1.06 x $172,388 $39,534 $26,042 $106,812 $10.56 LTM Operating Income $ 21,521 [1] 30.1 x $647,013 $39,534 $26,042 $581,437* $57.50* LTM EBITDA $ 27,314 [1] 16.5 x $450,390 $39,534 $26,042 $384,814 $38.05 Members $ 2,200 97.06 x $213,532 $39,534 $26,042 $147,956 $14.63 TRANSACTION PREMIUMS ---------------------------- 1 DAY 1 WEEK 4 WEEKS PRIOR PRIOR PRIOR ----- ----- ----- Goldcap Stock Price 1 day prior to announcement $13.50 20.5% $164,496 $16.27 Goldcap Stock Price 1 week prior to announcement 15.00 49.2% $226,292 $22.38 Goldcap Stock Price 4 weeks prior to announcement 13.25 57.4% $210,940 $20.86 MEAN EQUITY VALUE $190,081 $18.80 MEDIAN EQUITY VALUE $187,718 $18.56
- --------------------------------------------------- * - Excluded from mean. [1] Excludes $58.9 million goodwill impairment and $9.4 million in one-time charges. [2] Assumes 38% tax rate on excluded one-time charges. [3] Assumes 10,112,629 Goldcap shares outstanding. 70 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING PROTECTIVE LIFE/ UNITED DENTAL CARE ACQUISITION MULTIPLES - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
---------------------------- IMPLIED IMPLIED GOLDCAP CURRENT YEAR FORWARD YEAR EQUITY EQUITY VALUE VALUATION PARAMETER VALUE [1] P/E MULTIPLE P/E MULTIPLE VALUE PER SHARE [2] - ------------------------- --------- ------------- --------------- -------- -------------- Projected Cal. 1998 Net Income Per Share $ 1.06 22.1 x $236,636 $23.40 Projected Cal. 1999 Net Income Per Share $ 1.20 18.3 x $222,399 $21.99 PREMIUM PRIOR TO ANNOUNCEMENT DATE GOLDCAP ---------------------------------------------- VALUATION PARAMETER VALUE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR - ------------------------- ------------ ----------- ------------- ------------- Stock Price 1 Day Prior [3] $ 13.50 20.5% $164,496 $16.27 Stock Price 1 Week Prior [3] 15.00 49.2% $226,292 $22.38 Stock Price 4 Weeks Prior [3] 13.25 57.4% $210,940 $20.86 ======================== ---------------------------------------------------------- MEAN EQUITY VALUE $212,153 $20.98 MEDIAN EQUITY VALUE $222,399 $21.99 ==========================================================
- ----------------------------------------------------------------- * - Excluded from mean. [1] Projections provided by Robinson-Humphrey Research. [2] Assumes 10,112,629 Goldcap shares outstanding. [3] Assumes announcement after the market close on July 17, 1998. 71 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING PROTECTIVE LIFE/ UNITED DENTAL CARE ACQUISITION MULTIPLES - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
----------------------------- IMPLIED IMPLIED GOLDCAP CURRENT YEAR CURRENT YEAR EQUITY EQUITY VALUE VALUATION PARAMETER VALUE [1] P/E MUTLIPLE P/E MUTLIPLE VALUE PER SHARE [2] - ------------------------- --------- ------------- ------------ -------- ------------- Projected Cal. 1998 Net Income Per Share $ 0.94 22.1 x $209,167 $20.68 Projected Cal. 1999 Net Income Per Share $ 1.27 18.3 x $235,492 $23.29 PREMIUM PRIOR TO ANNOUNCEMENT DATE GOLDCAP ---------------------------------------------- VALUATION PARAMETER VALUE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR - ------------------------- ------- ----------- ------------- ------------- Stock Price 1 Day Prior [3] $13.50 20.5% $164,496 $16.27 Stock Price 1 Week Prior [3] 15.00 49.2% $226,292 $22.38 Stock Price 4 Weeks Prior [3] 13.25 57.4% $210,940 $20.86 ======================== ---------------------------------------------------------- MEAN EQUITY VALUE $209,277 $20.69 MEDIAN EQUITY VALUE $210,940 $20.86 ==========================================================
- ----------------------------------------------------------------- * - Excluded from mean. [1] Projections provided by Goldcap management. [2] Assumes 10,112,629 Goldcap shares outstanding. [3] Assumes announcement after the market close on July 17, 1998. 72 PROJECT GOLDCAP SELECTED MERGER AND ACQUISITION TRANSACTIONS IN THE HMO INDUSTRY - -------------------------------------------------------------------------------- (DOLLARS IN MILLIONS)
Equity Value as Multiple of Equity --------------------------- Date Purchase LTM Latest Date Acquiror Target Completed Price Net Income Book Value - -------- ------ --------- -------- ---------- ----------- WellPoint Health Networks, Inc. Cerulean Companies, Inc. Pending $ 500.0 148.6 * 2.5 x United HealthCare Corp. Humana Inc. Pending 5,450.0 70.1 * 3.4 Foundation Health Corp. Physicians Health Services 01/02/98 166.2 NM 1.7 Humana, Inc. Physician Corp. of America 09/09/97 271.8 NM NM CRA Managed Care Occusystems 09/02/97 683.4 47.0 * 4.8 Humana, Inc. ChoiceCare Pending 250.0 NA NA CIGNA Corporation Healthsource Inc. 08/01/97 1,392.1 47.5 * 3.6 Foundation Health Corp. Health Systems International, Inc. 04/01/97 2,200.0 21.2 6.3 WellPoint Health Networks, Inc. GBO Operations of John Hancock 03/01/97 86.7 17.7 NM PacifiCare Health Systems Inc. FHP International Corp. 02/14/97 2,100.0 49.9 * 1.8 Forstmann Little & Co. Community Health Systems Inc. 07/23/96 1,078.2 28.4 4.3 Merck-Medco Managed Care Inc. SysteMed Inc. 07/22/96 67.0 40.4 * 1.8 Aetna Life & Casualty U.S. Healthcare, Inc. 07/19/96 8,900.0 23.4 9.2 * United HealthCare Corp. HealthWise of America, Inc. 04/12/96 290.0 33.6 8.3 United HealthCare Corp. Physicians Health Plan, Inc. [2] 04/01/96 139.0 19.7 5.3 Foundation Health Corp. Managed Health Network 03/08/96 45.0 NM 9.3 * Healthsource, Inc. Central Mass. Health Care 02/06/96 46.5 NA NA Humana, Inc. Emphesys Financial Group, Inc. 10/13/95 639.9 10.4 1.8 United HealthCare Corp. MetraHealth Companies [3] 10/03/95 1,650.0 NA NA Coventry Corp. HealthCare USA Inc. 08/01/95 45.2 37.8 14.5 * Value Health, Inc. Diagnostek, Inc. 07/28/95 450.0 37.0 2.3 Healthsource, Inc. Provident Life & Accident Ins. 06/01/95 231.0 27.7 1.2* United HealthCare Corp. Gencare Health systems 01/03/95 515.4 27.1 6.6 Humana, Inc. CareNetwork, Inc. 12/20/94 120.2 NM 8.4* Coventry Corp. Southern Health Management [4] 12/01/94 71.6 22.0 6.1 Foundation Health Corp. Intergroup Healthcare 11/01/94 255.7 12.2 2.9 FHP International Corp. TakeCare, Inc. 06/17/94 1,019.8 33.0 4.3 United HealthCare Corp. Complete Health Services, Inc. 05/31/94 242.4 69.0 * 24.2 * United HealthCare Corp. Ramsay-HMO, Inc. 05/31/94 537.9 33.7 4.1 Value Health, Inc. Preferred Health Care Ltd. 12/14/93 382.2 47.5 * 6.7 Physician Corp. of America Family Health Systems Inc. 12/10/93 44.0 27.5 5.7 TakeCare Inc. Comprecare Inc. 09/09/93 85.7 25.8 5.6 United HealthCare Corp. HMO America Inc. 08/31/93 388.9 31.1 5.7 Healthsource, Inc. Physician Health Systems, Inc. 03/31/93 34.9 9.7 * 3.3 -------------------------------------------------------------------------------------------- AVERAGE 27.1 X 4.3 X MEDIAN 31.1 X 4.8 X ============================================================================================ Firm Value as Multiple of ------------------------------- Firm LTM LTM LTM Acquiror Target Value [1] Revenues EBITDA EBIT - -------- ------ --------- -------- ------ ---- WellPoint Health Networks, Inc. Cerulean Companies, Inc. $ 500.0 0.31 * 46.0 * NM x United HealthCare Corp. Humana Inc. 6,300.0 0.75 25.3 44.7 * Foundation Health Corp. Physicians Health Services 166.2 0.30 * NM NM Humana, Inc. Physician Corp. of America 403.7 0.29 * NM NM CRA Managed Care Occusystems 782.5 4.17 * 22.8 29.9 Humana, Inc. ChoiceCare 250.0 0.84 NA NA CIGNA Corporation Healthsource Inc. 1,639.4 0.96 16.4 26.7 Foundation Health Corp. Health Systems International, Inc. 2,565.0 0.82 10.0 12.5 WellPoint Health Networks, Inc. GBO Operations of John Hancock 86.7 0.13 * NA 11.5 PacifiCare Health Systems Inc. FHP International Corp. 2,219.3 0.51 8.4 11.5 Forstmann Little & Co. Community Health Systems Inc. 1,276.3 1.48 11.2 16.3 Merck-Medco Managed Care Inc. SysteMed Inc. 73.3 0.50 14.4 25.0 Aetna Life & Casualty U.S. Healthcare, Inc. 8,900.0 2.37 13.4 14.2 United HealthCare Corp. HealthWise of America, Inc. 256.0 1.23 15.9 17.1 United HealthCare Corp. Physicians Health Plan, Inc. [2] 139.0 0.93 14.6 17.2 Foundation Health Corp. Managed Health Network 46.6 1.79 28.0 * 53.8 * Healthsource, Inc. Central Mass. Health Care 46.5 NA NA NA Humana, Inc. Emphesys Financial Group, Inc. 649.0 0.41 * 5.9 6.4 United HealthCare Corp. MetraHealth Companies [3] 1,650.0 0.42 * NA NA Coventry Corp. HealthCare USA Inc. 37.2 1.38 27.4* 32.1 * Value Health, Inc. Diagnostek, Inc. 455.7 0.66 19.3 25.9 Healthsource, Inc. Provident Life & Accident Ins. 225.5 0.95 7.6 17.7 United HealthCare Corp. Gencare Health systems 443.4 1.92 15.7 16.8 Humana, Inc. CareNetwork, Inc. 101.1 0.70 57.1 * NM Coventry Corp. Southern Health Management [4] 69.6 1.20 12.7 13.6 Foundation Health Corp. Intergroup Healthcare 244.5 0.52 6.4 7.1 FHP International Corp. TakeCare, Inc. 916.3 1.09 13.4 14.8 United HealthCare Corp. Complete Health Services, Inc. 183.8 0.63 19.9 22.8 United HealthCare Corp. Ramsay-HMO, Inc. 438.2 1.26 14.7 17.2 Value Health, Inc. Preferred Health Care Ltd. 374.0 4.76 * 27.5 * 36.3 * Physician Corp. of America Family Health Systems Inc. 44.0 0.59 14.7 17.2 TakeCare Inc. Comprecare Inc. 101.1 0.41 * 6.8 17.1 United HealthCare Corp. HMO America Inc. 331.4 0.94 16.8 16.8 Healthsource, Inc. Physician Health Systems, Inc. 35.0 1.06 6.5 6.9 ------------------------------------------------------------------------------------------- AVERAGE 1.04 X 13.6 X 16.6 X MEDIAN 0.84 X 14.7 X 17.1 X ===========================================================================================
- ----------------------------------------------- * Excluded from average. NA - Not Available NM - Not Meaningful [1] Firm value equals equity value plus debt less cash. [2] LTM financials for Physicians Health Plan reflect annualized third quarter numbers. [3] Does not include $525 million in potential earn-out payments. [4] Data for Coventry/Southern Health merger taken from Securities Data Company. [5] Enrollment statistics provided by Robinson-Humphrey Research where available. Target members represent fully insured members only. 73 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING HMO ACQUISITION MULTIPLES (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
Selected Relevant Transaction Multiples --------------------- Price/ Goldcap LTM Price/ Valuation Parameter Value EPS Book - ------------------- ------- ----- ------ LTM Income $ 10,735 [1,2] 26.1 x 3/31/98 Book Value $ 62,769 4.3 x --------------------- - ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------- Selected Relevant Transaction Multiples Less ------------------------------------------------------- Implied PV of DHDC Goldcap Firm Value/ Firm Value/ Firm Value/ Firm Value/ Firm Less Contingent Valuation Parameter Value Revenues Op. Income EBITDA EBITDA Value Net Debt Liabilities - ------------------- ------- ----------- ----------- ---------- ---------- ------- -------- ----------- LTM Revenues $163,333 1.04 x $170,449 $39,534 $26,042 LTM Operating Income $ 21,521 [1] 16.6 x $357,609 $39,534 $26,042 LTM EBITDA $ 27,314 [1] 13.6 x $371,303 $39,534 $26,042 ------------------------------------------------------ ----------------------------- IMPLIED IMPLIED EQUITY EQUITY VALUE Valuation Parameter VALUE PER SHARE [3] - ------------------- -------- ------------- LTM Income $279,778 $27.67 3/31/98 Book Value $ 70,343 $26.73 LTM Revenues $104,873 $10.37 LTM Operating Income $292,033 $28.88 LTM EBITDA $305,727 $30.23 ============================= - ---------------------------------------------------- MEAN EQUITY VALUE $250,551 $24.78 MEDIAN EQUITY VALUE $279,778 $27.67 ====================================================
- --------------------------------------------------------- * - Excluded from mean. [1] Excludes $58.9 million goodwill impairment and $9.4 million in one-time charges. [2] Assumes 38% tax rate on one-time charges. [3] Assumes 10,112,629 Goldcap shares outstanding. 74 PROJECT GOLDCAP SELECTED M&A TRANSACTION PREMIUMS FOR DEALS IN THE HMO INDUSTRY - --------------------------------------------------------------------------------
VALUE OF PRICE DATE DATE TRANSACTION PER ANNOUNCED EFFECTIVE TARGET ACQUIROR ($MM) SHARE - --------- --------- ------ -------- ----------- ----- 05/28/98 Pending Humana, Inc. United HealthCare Corp. $5,538.6 32.06 06/03/97 09/09/97 Physician Corp. of America Humana, Inc. 405.1 7.00 08/05/96 02/14/97 FHP International Corp. PacifiCare Health Systems, Inc. 2,000.1 33.27 06/10/96 07/22/96 SysteMed, Inc. Merck-Medco Managed Care, Inc. 64.8 3.00 06/11/96 07/23/96 Community Health Systems, Inc. Forstmann Little & Co. 1,080.0 52.00 02/01/96 04/12/96 HealthWise of America, Inc. United HealthCare Corp. 271.1 40.63 08/10/95 10/13/95 Emphesys Financial Group, Inc. Humana, Inc. 642.8 37.50 02/15/94 05/31/94 Ramsay-HMO, Inc. United HealthCare Corp. 564.9 74.66 PREMIUM PREMIUM PREMIUM 1 DAY 1 WEEK 4 WEEKS PRIOR TO PRIOR TO PRIOR TO DATE DATE CURRENT YEAR FORWARD YEAR ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT ANNOUNCED EFFECTIVE TARGET P/E RATIO P/E RATIO DATE DATE DATE - --------- --------- ------ ------------ ------------ ------------ ------------ ------------ 05/28/98 Pending Humana, Inc. 30.2 x 24.3 x 22.1 % 22.1 % 18.8 % 06/03/97 09/09/97 Physician Corp. of America 10.9 8.2 12.0 12.0 23.1 08/05/96 02/14/97 FHP International Corp. 17.4 23.3 19.4 27.4 19.1 06/10/96 07/22/96 SysteMed, Inc. 21.4 9.1 (4.0)* 4.3 * 9.1 * 06/11/96 07/23/96 Community Health Systems, Inc. 23.1 19.3 20.2 19.9 18.9 02/01/96 04/12/96 HealthWise of America, Inc. 31.7 26.0 37.5 37.3 34.3 08/10/95 10/13/95 Emphesys Financial Group, Inc. 10.7 9.5 33.0 39.0 37.0 02/15/94 05/31/94 Ramsay-HMO, Inc. 35.9 * 29.4 * 62.7 * 62.7 * 81.0 * ------------------------------------------------------------------------------------------------------ SELECT HMO TRANSACTIONS AVERAGE 20.8 X 17.1 X 24.0 % 26.3 % 25.2 % SELECT HMO TRANSACTIONS MEDIAN 22.3 X 21.3 X 21.2 % 24.8 % 21.1 % ======================================================================================================
* Excluded from average NA - Not Available NM - Not Meaningful - --------------------------------- Source: Securities Data Company, Inc. 75 PROJECT GOLDCAP IMPLIED VALUATION ANALYSIS UTILIZING MERGER & ACQUISITION MULTIPLES IN THE HMO INDUSTRY - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
CURRENT YEAR FORWARD YEAR ---------------------------- P/E MULTIPLE P/E MULTIPLE IMPLIED IMPLIED GOLDCAP -------------- ------------ EQUITY EQUITY VALUE VALUATION PARAMETER VALUE [1] VALUE PER SHARE[2] - ------------------------- ----------- ------- ------------ Projected Cal. 1998 Net Income Per Share $1.06 20.8 x $222,867 $22.04 Projected Cal. 1999 Net Income Per Share $1.20 17.1 x $207,472 $20.52 PREMIUM PRIOR TO ANNOUNCEMENT DATE GOLDCAP ---------------------------------------------- VALUATION PARAMETER VALUE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR - ----------------------------- --------- ----------- ------------ ------------- Stock Price 1 Day Prior [3] $13.50 24.0% $169,341 $16.75 Stock Price 1 Week Prior [3] 15.00 26.3% $191,545 $18.94 Stock Price 4 Weeks Prior [3] 13.25 25.2% $167,722 $16.59 ======================== ---------------------------------------------------------- MEAN EQUITY VALUE $191,789 $18.97 MEDIAN EQUITY VALUE $191,545 $18.94 ==========================================================
- ------------------------------------------------------------------ * - Excluded from mean. [1] Projections provided by Robinson-Humphrey Research. [2] Assumes 10,112,629 Goldcap shares outstanding. [3] Assumes announcement after the market close on July 17, 1998. 76 PROJECT GOLDCAP IMPLIED VALUATION ANALYSIS UTILIZING MERGER & ACQUISITION MULTIPLES IN THE HMO INDUSTRY - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
CURRENT YEAR FORWARD YEAR ----------------------------- P/E MULTIPLE P/E MULTIPLE IMPLIED IMPLIED GOLDCAP ------------ ------------ EQUITY EQUITY VALUE VALUATION PARAMETER VALUE [1] VALUE PER SHARE[2] - ------------------------- --------- ------- ------------- Projected Cal. 1998 Net Income Per Share $0.94 20.8 x $196,996 $19.48 Projected Cal. 1999 Net Income Per Share $1.27 17.1 x $219,687 $21.72 PREMIUM PRIOR TO ANNOUNCEMENT DATE GOLDCAP ------------------------------------------------ VALUATION PARAMETER VALUE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR - ---------------------------- ------- ----------- ------------ ------------- Stock Price 1 Day Prior [3] $13.50 24.0% $169,341 $16.75 Stock Price 1 Week Prior [3] 15.00 26.3% $191,545 $18.94 Stock Price 4 Weeks Prior [3] 13.25 25.2% $167,722 $16.59 ======================== ---------------------------------------------------------- MEAN EQUITY VALUE $189,058 $18.70 MEDIAN EQUITY VALUE $191,545 $18.94 ==========================================================
- ----------------------------------------------------------------- * - Excluded from mean. [1] Projections provided by Goldcap management. [2] Assumes 10,112,629 Goldcap shares outstanding. [3] Assumes announcement after the market close on July 17, 1998. 77 SUMMARY OF RECENT MERGER AND ACQUISITION ACTIVITY (DOLLARS IN MILLIONS)
1992 1993 1994 1995 1996 AVERAGE -------- -------- -------- -------- ------ --------- ALL INDUSTRIES: --------- Total Number of Net Acquisition Announcements 2,574 2,663 2,997 3,510 5,848 Total Dollar Value Paid [1] $96,688 $176,400 $226,671 $356,016 $494,962 Average Premium Paid Over Market 41.0% 38.7% 41.9% 44.7% 36.6% 40.6% Median Premium Paid Over Market 34.7% 33.0% 35.0% 29.2% 27.3% 31.8% Average Price/Earnings Ratio Paid 22.7 x 24.4 x 24.5 x 23.8 x 26.2 x 24.3 x Median Price/Earnings Ratio Paid 18.1 x 20.0 x 20.2 x 19.1 x 20.3 x 19.5 x ========= 1992 1993 1994 1995 1996 AVERAGE -------- -------- -------- -------- ------ --------- HEALTH SERVICES: --------- Total Number of Net Acquisition Announcements 205 156 129 179 325 Total Dollar Value Paid [1] $1,686 $12,608 $9,288 $7,333 $15,533 Average Premium Paid Over Market 37.0% 41.9% 46.5% 32.2% 31.2% 37.8% Average Price/Earnings Ratio Paid 20.4 x 31.5 x 28.7 x 24.7 x 27.1 x 26.5 x =========
- ----------------------------------------------- [1] Includes only transactions with a publicly disclosed purchase price. Source: Mergerstat Review 78 M&A PREMIUMS AND P/E RATIOS OFFERED BY DEAL SIZE 1992 - 1996 I. MEDIAN PERCENT PREMIUM OFFERED
PURCHASE PRICE: 1992 (BASE) 1993 (BASE) 1994 (BASE) 1995 (BASE) 1996 BASE) - --------------- -------------- --------------- --------------- --------------- --------------- $25.0 million or less 33.3% (35) 32.3% (38) 42.9% (45) 42.9% (53) 32.2% (39) $25.0 through $50.0 million 21.6% (30) 36.7% (28) 33.9% (36) 24.4% (53) 26.4% (56) $50.0 through $100.0 million 32.3% (22) 31.5% (31) 27.8% (53) 35.4% (44) 27.3% (68) $100.0 million or more 39.0% (55) 32.0% (76) 35.8% (126) 29.0% (174) 26.6% (218) Cash Consideration 29.6% (35) 32.5% (46) 36.8% (59) 28.4% (91) 26.7% (115)
II. MEDIAN P/E RATIO OFFERED
PURCHASE PRICE: 1992 (BASE) 1993 (BASE) 1994 (BASE) 1995 (BASE) 1996 (BASE) - --------------- -------------- --------------- --------------- --------------- --------------- $25.0 million or less 15.5 (29) 17.6 (17) 17.5 (23) 17.0 (31) 16.2 (64) $25.0 through $50.0 million 18.4 (22) 20.3 (18) 20.3 (27) 14.8 (33) 20.3 (53) $50.0 through $100.0 million 21.1 (17) 18.1 (26) 17.1 (42) 19.2 (38) 20.5 (54) $100.0 million or more 23.2 (36) 24.2 (66) 21.8 (110) 21.1 (153) 21.3 (186) Cash Consideration 17.4 (27) 19.9 (32) 23.3 (38) 18.0 (68) 21.1 (106) Public Companies 18.1 (89) 19.7 (113) 19.8 (184) 19.4 (239) 21.7 (288)
79 DISTRIBUTION OF M&A PREMIUMS OFFERED 1987 - 1996
OVER 20% OVER 40% OVER 60% YEAR UNDER 20% THROUGH 40% THROUGH 60% THROUGH 80% - ---- --------- ----------- ----------- ----------- 1987 76 32.1% 79 33.3% 49 20.7% 17 7.2% 1988 131 32.0% 124 30.2% 65 15.9% 48 11.7% 1989 109 36.0% 78 25.7% 63 20.8% 25 8.3% 1990 61 34.9% 44 25.1% 34 19.4% 14 8.0% 1991 50 36.5% 42 30.7% 28 20.4% 7 5.1% 1992 42 29.6% 42 29.6% 21 14.8% 19 13.4% 1993 47 27.2% 63 36.4% 34 19.7% 14 8.1% 1994 66 25.4% 89 34.2% 52 20.0% 28 10.8% 1995 106 32.7% 108 33.3% 55 17.0% 22 6.8% 1996 136 35.7% 117 30.7% 70 18.4% 34 8.9% OVER 80% YEAR THROUGH 100% OVER 100% TOTAL - ---- ------------ --------- ----- 1987 8 3.4% 8 3.4% 237 100.0% 1988 16 3.9% 26 6.3% 410 100.0% 1989 9 3.0% 19 6.3% 303 100.0% 1990 7 4.0% 15 8.6% 175 100.0% 1991 4 2.9% 6 4.4% 137 100.0% 1992 14 9.9% 4 2.8% 142 100.0% 1993 9 5.2% 6 3.5% 173 100.0% 1994 7 2.7% 18 6.9% 260 100.0% 1995 6 1.9% 27 8.3% 324 100.0% 1996 10 2.6% 14 3.7% 381 100.0%
DISTRIBUTION OF M&A P/E RATIOS OFFERED 1992 - 1996
OVER 8.5X OVER 10.5X OVER 13.0X OVER 17.0X YEAR UNDER 8.5X THROUGH 10.5X THROUGH 13.0X THROUGH 17.0X THROUGH 25.0X OVER 25.0X TOTAL - ---- ---------- ------------- ------------- ------------- ------------- ---------- ----- 1992 10 9.6% 2 1.9% 17 16.3% 16 15.4% 26 25.0% 33 31.7% 104 100.0% 1993 5 3.9% 5 3.9% 6 4.7% 27 21.3% 41 32.3% 43 33.9% 127 100.0% 1994 10 5.0% 12 5.9% 16 7.9% 39 19.3% 48 23.8% 77 38.1% 202 100.0% 1995 14 5.5% 14 5.5% 29 11.4% 45 17.6% 68 26.7% 85 33.3% 255 100.0% 1996 29 8.1% 16 4.5% 24 6.7% 60 16.8% 96 26.9% 132 37.0% 357 100.0%
80 PROJECT GOLDCAP IMPLIED VALUATION ANALYSIS UTILIZING SELECTED PREMIUMS FROM M&A TRANSACTIONS IN GENERAL - ------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS EXCEPT SHARE PRICE)
5-YR AVERAGE VALUE -------- ---------- ---------------------------------------- IMPLIED PREMIUM 1 IMPLIED EQUITY GOLDCAP DAY PRIOR PRICE / EARNINGS EQUITY VALUE PER VALUATION PARAMETER VALUE TO ANNOUNCEMENT RATIO PAID VALUE SHARE (1) - --------------------------------------------- ----------- ----------------- -------------------- -------- ---------- Stock Price 1 Day Prior to Announcement [2] $ 13.50 40.6% $191,921 $ 18.98 LTM Net Income [3,4] $10,735 24.3x 261,075 25,82 -------- ---------- ---------------------------------------------------- AVERAGE $226,498 $ 22.40 ---------------------------------------------------- 5-YR AVERAGE VALUE -------- ----------- ---------------------------------------- IMPLIED PREMIUM 1 IMPLIED EQUITY GOLDCAP DAY PRIOR PRICE / EARNINGS EQUITY VALUE PER VALUATION PARAMETER VALUE TO ANNOUNCEMENT RATIO PAID VALUE SHARE (1) - --------------------------------------------- ----------- ----------------- -------------------- -------- ----------- Stock Price 1 Day Prior to Announcement [2] $ 13.50 31.8% $179,989 $ 17.80 LTM Net Income [3,4] $10,735 19.5 x 209,762 20.74 -------- ----------- ------------------------------------------------------- AVERAGE $194,875 $ 19.27 -------------------------------------------------------
- ------------------------------------ * Excluded from the unweighted average. [1] Assumes 10,112,629 Goldcap shares outstanding. [2] Assumes announcement date of 7/17/98. [3] Excludes $58.9 million goodwill impairment and $9.4 million in one time charges. [4] Assumes 38.0% tax rate on excluded one-time charges. 81 PROJECT GOLDCAP IMPLIED VALUATION ANALYSIS UTILIZING SELECTED PREMIUMS FROM M&A TRANSACTIONS IN THE HEALTH SERVICES INDUSTRY - ------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS EXCEPT SHARE PRICE)
5-YR AVERAGE VALUE -------- ----------- ---------------------------------------- IMPLIED PREMIUM 1 IMPLIED EQUITY GOLDCAP DAY PRIOR PRICE/EARNINGS EQUITY VALUE PER VALUATION PARAMETER VALUE TO ANNOUNCEMENT RATIO PAID VALUE SHARE (1) - --------------------------------------------- ----------- ----------------- -------------------- -------- ----------- Stock Price 1 Day Prior to Announcement [1] $ 13.50 37.8% $188,071 $ 18.60 LTM Net Income [2,3] $10,735 26.5 x 284,263 28.11 ------------------------------------------------------- AVERAGE $236,167 $ 23.35 -------------------------------------------------------
- -------------------------------------------- * Excluded from the unweighted average. [1] Assumes announcement date of 7/17/98. [2] Excludes $58.9 million goodwill impairment and $9.4 million in one time charges. [3] Assumes 38.0% tax rate on excluded one-time charges. 82 Project Goldcap Premiums Analysis: Mergers and Acquisitions Between $100 and $300 Million July 15, 1997 through July 15, 1998 - -------------------------------------------------------------------------------
Date Date Effective Announced Target Name Target Business Description Acquiror Name - ----------- ---------- ------------------------------- ------------------------------- ---------------------------------- 11/12/97 10/03/96 Pittencrieff Communications Pvd radio telephone commun svcs Nextel Communications Inc 08/04/97 11/14/96 Indiana Federal, Valparaiso, IN Commercial bank; holding co Pinnacle Financial Svcs Inc, MI 08/29/97 02/13/97 Portsmouth Bank Shares, NH Bank holding company CFX Corp, Keene, New Hampshire 12/09/97 02/20/97 NHP Inc (Apartment Investment) Own, op apartment buildings Apartment Investment & Mgmt Co 08/01/97 03/07/97 Micro Bio-Medics Inc Whl, mnfr medical equip Henry Schein Inc 08/25/97 03/11/97 First Citizens Financial, MD Bank holding company Provident Bankshares, Maryland 08/29/97 03/24/97 Community Bankshares, NH Bank holding company CFX Corp, Keene, New Hampshire 08/05/97 03/24/97 OnTrak Systems Inc Mnfrs semiconductor cap equip Lam Research Corp 10/13/97 04/29/97 SC Bancorp,Anaheim,California Bank holding co Western Bancorp,California 01/05/98 05/06/97 Physicians Health Services Inc Own and operate HMO's Foundation Health Systems Inc 12/01/97 05/06/97 Virginia First Finl Corp, VA Bank holding co BB&T Corp, Winston-Salem, NC 06/03/98 05/07/97 Reliable Life Insurance Co Insurance company Unitrin Inc 10/16/97 05/12/97 Dynamics Corp of America Mnfr electrical appliances CTS Corp 08/26/97 05/13/97 Aurum Software Inc Dvlp sales, mktg info software Baan Co NV 08/08/97 05/27/97 Alamco Inc Oil & gas exploration, prod Columbia Natural Resources Inc 07/17/97 05/28/97 DAKA International Inc Own, operate restaurants Compass Group PLC 07/15/97 06/02/97 Acordia Inc (Anthem Inc) Pvd insurance brokerage svcs Anthem Inc 08/15/97 06/03/97 Alexander Haagen Properties Real estate investment trust Lazard Freres & Co 07/28/97 06/04/97 Maxis Inc Develop educational software Electronic Arts Inc 09/12/97 06/09/97 Amrion Inc Own, op food stores Whole Foods Market Inc 08/29/97 06/16/97 Core Industries Inc Manufacture electronic equip United Dominion Industries Ltd 09/25/97 06/17/97 Hechinger Co Own, op retail home centers Leonard Green & Partners LP 07/24/97 06/17/97 McFarland Energy Inc Oil and gas exploration, prodn Monterey Resources Inc 07/25/97 06/17/97 Seda Specialty Packaging Corp Mnfr specialty packaging prods CCL Industries Inc 08/15/97 06/19/97 Advanced Logic Research Inc Mnfr microcomputer systems Gateway 2000 Inc 03/05/98 06/19/97 American Greetings Corp Mnfr greeting cards American Greetings Corp 10/23/97 06/20/97 Convest Energy Corp Oil and gas exploration, prodn Forcenergy Inc 10/23/97 06/20/97 Edisto Resources Corp Oil and gas exploration, prodn Forcenergy Inc 10/14/97 06/24/97 American Exploration Co Oil and gas exploration, prodn Louis Dreyfus Natural Gas 09/23/97 07/02/97 American Filtrona Corp Mnfr bonded fiber Bunzl PLC 09/26/97 07/03/97 Krystal Co Own, op fast food restaurants Port Royal Holdings Inc 11/06/97 07/07/97 Cairn Energy USA Inc Oil and gas exploration, prodn Meridian Resource Corp 09/30/97 07/08/97 Delchamps Inc Own and operate supermarkets Jitney-Jungle Stores of Amer 09/23/97 07/09/97 Control Data Systems Inc Mnfr computers, peripherals CDSI Holding Corp 10/02/97 07/15/97 DH Technology Inc Mnfr, whl computer printers Axiohm SA 10/28/97 07/15/97 Intl Imaging Materials Mnfr thermal transfer ribbons Paxar Corp 02/01/98 07/16/97 ArgentBank,Thibodaux,Louisiana Commercial bank Hibernia Corp, New Orleans, LA 11/07/97 07/22/97 Elexsys International Inc Manufacture circuit boards Sanmina Corp 12/18/97 07/23/97 Alliance Imaging Inc Pvd diagnostic imaging svcs Newport Investment LLC 10/28/97 07/24/97 Astrotech International Corp Pvd storage tank maintenance ITEQ Inc 12/01/97 07/25/97 Homegate Hospitality Inc Own and operate hotels Prime Hospitality Corp 08/28/97 07/25/97 Imo Industries Inc Mnfr industrial controls, pumps Constellation Capital Partners 09/24/97 07/31/97 Bucyrus International Inc Mnfr surface mining machinery American Industrial Partners 01/27/98 07/31/97 Santa Monica Bank Commercial bank Western Bancorp, California 10/23/97 07/31/97 Sterling House Corp Own, op nursing homes Alternative Living Services 11/12/97 08/07/97 1st United Bancorp, FL Baank holding co Wachovia Corp, Winston-Salem, NC 12/22/97 08/08/97 Titan Holdings Inc Auto, property, casualty ins co USF&G Corp Value of Premium Date Date Acquiror Short Transaction 1 day prior to 1 week prior to 4 weeks prior to Effective Announced Business Description ($ mil) announcement date announcement date announcement date - ------------ --------- ------------------------------ ------------ ----------------- ----------------- ----------------- 11/12/97 10/03/97 Pvd cellular telephone svcs 158.4 9.0 14.4 30.7 08/04/97 11/14/97 Commercial bank; holding co 120.5 22.2 26.9 17.9 08/29/97 02/13/97 Savings and loan 102.2 33.2 38.4 38.4 12/09/97 02/20/97 Real estate investment trust 114.5 28.3 25.2 16.9 08/01/97 03/07/97 Whl med supplies 136.1 12.2 12.2 10.4 08/25/97 03/11/97 Bank holding company 107.8 26.5 42.3 47.3 08/29/97 03/24/97 Savings and loan 101.6 63.3 64.1 54.7 08/05/97 03/24/97 Mnfr equip to mnfr semiconduct 217.9 (0.9) 3.0 13.9 10/13/97 04/29/97 Bank holding co 105.0 20.0 31.0 37.3 01/05/98 05/06/97 Own, op HMO's; holding company 268.2 23.5 27.0 51.7 12/01/97 05/06/97 Bank holding company 145.3 77.3 77.3 74.1 06/03/98 05/07/97 Insurance company 261.1 51.1 51.1 52.1 10/16/97 05/12/97 Mnfr electronic components 244.6 91.3 94.2 112.7 08/26/97 05/13/97 Develop software 259.9 33.0 40.4 55.8 08/08/97 05/27/97 Operate natural gas pipeline 102.8 7.7 11.5 16.7 07/17/97 05/28/97 Provide catering and building 194.0 (33.3) (35.5) (7.7) 07/15/97 06/02/97 Insurance company 193.2 12.7 11.5 26.0 08/15/97 06/03/97 Investment bank 235.0 (0.4) 11.1 3.4 07/28/97 06/04/97 Develop, wholesale software 127.5 2.3 2.3 40.6 09/12/97 06/09/97 Own, op natural foods stores 152.6 8.1 19.2 47.0 08/29/97 06/16/97 Mnfr structural metal 275.2 26.6 37.9 49.3 09/25/97 06/17/97 Merchant banking firm 127.0 (14.3) (7.7) (11.1) 07/24/97 06/17/97 Oil and gas exploration, prodn 111.2 11.6 41.3 44.8 07/25/97 06/17/97 Mnfr, pvd specialty packaging 182.6 31.8 36.5 52.6 08/15/97 06/19/97 Mnfr personal computers 206.8 29.2 30.5 34.8 03/05/98 06/19/97 Mnfr greeting cards 158.1 0.0 (0.9) 1.8 10/23/97 06/20/97 Oil, gas exploration and prodn 102.0 11.1 11.1 18.9 10/23/97 06/20/97 Oil, gas exploration and prodn 147.7 (6.6) (6.6) (0.4) 10/14/97 06/24/97 Oil and gas exploration,prodn 275.5 13.0 15.0 21.6 09/23/97 07/02/97 Whl, mnfr paper, constn material 183.5 8.8 2.2 3.4 09/26/97 07/03/97 Investment company 145.4 132.0 169.8 176.2 11/06/97 07/07/97 Oil and gas exploration, prodn 233.6 22.3 29.0 26.7 09/30/97 07/08/97 Own and operate grocery stores 213.6 (2.4) (0.8) 6.7 09/23/97 07/09/97 Investment holding company 273.9 29.1 30.6 35.0 10/02/97 07/15/97 Mnfr, whl computer printers 169.5 57.5 56.3 57.5 10/28/97 07/15/97 Mnfr label systems 244.4 67.3 60.2 64.9 02/01/98 07/16/97 Bank holding co 171.2 29.8 31.2 39.0 11/07/97 07/22/97 Mnfr printed circuit boards 219.9 1.5 (8.6) 40.2 12/18/97 07/23/97 Investment company 114.2 7.3 3.5 14.3 10/28/97 07/24/97 Mnfr air purification equip 116.7 45.7 63.4 78.4 12/01/97 07/25/97 Own, operate, franchise hotels 133.2 30.3 33.8 28.6 08/28/97 07/25/97 Investment company 117.3 18.7 20.0 22.6 09/24/97 07/31/97 Pvd fund mgmt & fin adv svcs 193.3 33.3 46.9 71.4 01/27/98 07/31/97 Bank holding co 198.2 14.3 17.6 28.7 10/23/97 07/31/97 Pvd residential care svcs 170.0 30.4 29.5 40.5 11/12/97 08/07/97 Bank holding company 182.2 5.7 16.0 27.5 12/22/97 08/08/97 Insurance holding company 278.1 16.0 19.1 24.9
83
Date Date Effective Announced Target Name Target Business Description Acquiror Name - ------------- ----------- ------------------------------- --------------------------------- ------------------------------- 09/30/97 08/11/97 National Sanitary Supply Co Sanitary maintenance supplies Unisource Worldwide Inc 12/30/97 08/11/97 ProNet Inc Mnfr pagers;pager leasing svcs Metrocall Inc 12/22/97 08/11/97 Vacation Break USA Inc Real estate development firm Fairfield Communities Inc 09/17/97 08/12/97 Isomedix Inc Pvd contract sterilization svc Steris Corp 09/16/97 08/14/97 American Medserve Corp Wholesale pharmaceuticals Omnicare Inc 09/24/97 08/14/97 Talbert Medical Management Own,op medical,dental clinics MedPartners Inc 12/29/97 08/14/97 Tuesday Morning Corp Own, operate giftware stores Madison Dearborn Partners 12/05/97 08/14/97 Keystone Heritage Group Bank holding company Fulton Finl Corp,Lancaster, PA 04/23/98 08/18/97 CENFED Financial,Pasadena,CA Bank holding company Golden State Bancorp Inc, CA 10/21/97 08/25/97 ACC Consumer Finance Corp Pvd auto financing services Household International Inc 10/03/97 08/25/97 BioWhittaker Inc Mnfr,whl medical testing prods Cambrex Corp 01/23/98 08/25/97 PerSeptive Biosystems Inc Mnfr chromatography equipment Perkin-Elmer Corp 02/25/98 08/28/97 Value Property Trust Real estate investment trust Wellsford Real Properties Inc 10/10/97 08/28/97 Versa Technologies Inc Mnfr rubber components,molds Applied Power Inc 02/24/98 09/03/97 Norwich Financial Corp,CT Savings and loan; holding co Peoples Bk of Bridgeport, CT 01/16/98 09/05/97 Technology Modeling Assoc Inc Dvlp simulation software Avant! Corp 12/31/97 09/08/97 Fuqua Enterprises Inc Manufacture tanned leather Graham-Field Health Products 11/28/97 09/10/97 Data Documents Inc Manufacture tabulating cards Corporate Express Inc 04/01/98 09/11/97 George Mason Bankshares Inc Bank holding company United Bankshares Inc, WV 04/01/98 09/12/97 Coml Bancshares,Parkersburg,WV Bank holding company WesBanco Inc,Wheeling, WV 12/09/97 09/12/97 Unison Software Inc Develop network mgmt software Tivoli Systems Inc(IBM Corp) 01/16/98 09/12/97 WHG Resorts & Casino Inc Own,op resorts and casino Patriot Amer Hosp/Wyndham Intl 12/16/97 09/18/97 Guaranty National Corp Insurance company Orion Capital Corp 01/16/98 09/19/97 Sterling Electronics Corp Whl electronic components Marshall Industries 01/06/98 09/24/97 Vectra Banking Corp,Denver,CO Bank holding company Zions Bancorp, Utah 04/30/98 10/02/97 Kapson Senior Quarters Corp Provide residential care svcs Prometheus Senior Quarters 12/19/97 10/06/97 EndoVascular Technologies Inc Mnfr surgical instruments Guidant Corp 12/23/97 10/09/97 Melamine Chemicals Inc Manufacture melamine crystal Borden Chemical Inc (Borden) 01/22/98 10/13/97 Netcom On-Line Communication Internet service provider ICG Communications Inc 12/19/97 10/14/97 Physician Support Systems Inc Pvd business mgmt services National Data Corp 02/12/98 10/16/97 Omni Insurance Group Inc Insurance company Hartford Financial Services 02/27/98 10/17/97 ATC Group Services Inc Pvd engineering svcs Investor Group 12/29/97 10/17/97 Computational Systems Inc Manufacture measuring devices Emerson Electric Co 02/09/98 10/17/97 Tranzonic Cos Mnfr sanitary paper prod Linsalata Capital Partners II 04/24/98 10/23/97 Poughkeepsie Financial Corp Savings bank;bank holding co Hubco Inc, Mahwah, New Jersey 12/19/97 10/23/97 Premenos Technology Corp Develop EDI software Harbinger Corp 03/12/98 10/31/97 ILC Technology Inc Mnfr high intensity lamps BEC Group Inc 04/01/98 11/03/97 Advantage Bancorp,Kenosha,WI Savings & loan holding company Marshall & Ilsley, Milwaukee, WI 05/22/98 11/03/97 CoBancorp Inc Commercial bank FirstMerit Corp, Akron, OH 01/09/98 11/03/97 Sequana Therapeutics Mnfr diagnostic substances Arris Pharmaceuticals Corp 01/12/98 11/04/97 ComputerVision Corp Mnfr computers,peripherals Parametric Technology Corp 03/25/98 11/13/97 Chartwell Leisure Inc Own,op hotels and motels Investor Group 05/12/98 11/17/97 Century Finl Corp,Rochester,PA Commercial bank Citizens Bancshares Inc, OH 02/26/98 11/17/97 Granite Financial Inc Pvd business credit services Fidelity National Financial 03/02/98 11/17/97 Visigenic Software Inc Dvlp database access software Borland International Inc 01/20/98 11/21/97 New Jersey Steel(Von Roll) Mnfr steel reinforcing bars Co-Steel Inc 02/03/98 11/24/97 Communications Central Inc Pvd telecommunications svcs Davel Communications Group Inc 02/25/98 11/26/97 Universal Hospital Services Pvd med equip rental services Investor Group 07/13/98 11/28/97 RedFed Bancorp Inc,Redlands,CA Savings and loan Golden State Bancorp Inc, CA 02/19/98 12/01/97 Raptor Systems Inc Develop security mgmt software AXENT Technologies Inc 03/31/98 12/11/97 First State Corp,Albany,Ga Bank holding co; coml bank Regions Finl, Birmingham, AL 03/30/98 12/16/97 FFVA Financial Corp,VA Savings and loans One Valley Bancorp Inc, WV 07/02/98 12/16/97 Franklin Bancorp,Washington,DC Bank holding company BB&T Corp,Winston-Salem, NC 07/01/98 12/16/97 Progressive Bank,Pawling,NY Savings and loan holding co Hudson Chartered Bancorp, NY 01/23/98 12/17/97 Suburban Ostomy Supply Co Inc Whl medical and hospital equip InvaCare Corporation Premium Value of --------------------------------------------------------- Date Date Acquiror Short Transaction 1 day prior to 1 week prior to 4 weeks prior to Effective Announced Business Description ($ mil) announcement date announcement date announcement date - ----------- --------- ------------------------------ ------------- ----------------- ----------------- ----------------- 09/30/97 08/11/97 Wholesale printing paper 155.9 (6.7) 20.0 47.4 12/30/97 08/11/97 Pvd local paging services 239.3 (10.0) (0.7) 27.1 12/22/97 08/11/97 Construct vacation resorts 178.1 41.6 39.1 95.8 09/17/97 08/12/97 Mnfr sterile processing sys 139.8 5.8 15.5 13.9 09/16/97 08/14/97 Whl, retail pharmaceuticals 233.2 2.5 16.1 25.8 09/24/97 08/14/97 Pvd medical services to HMO's 189.0 10.5 18.9 37.0 12/29/97 08/14/97 Investors 298.6 22.7 25.8 11.1 12/05/97 08/14/97 Bank holding co 210.9 43.8 49.9 65.1 04/23/98 08/18/97 Bank holding company 208.4 1.3 0.5 3.5 10/21/97 08/25/97 Provide financical services 186.9 35.8 34.7 29.6 10/03/97 08/25/97 Mnfr specialty chemicals 130.5 17.8 38.9 47.7 01/23/98 08/25/97 Mnfr analytical instruments 288.1 16.8 24.9 50.4 02/25/98 08/28/97 Real estate investment trust 186.6 25.0 20.9 18.7 10/10/97 08/28/97 Mnfr tools, equip, consumables 141.9 36.8 33.1 31.3 02/24/98 09/03/97 Savings bank 164.0 (0.5) 15.4 30.4 01/16/98 09/05/97 Develop software 144.3 29.5 52.8 43.2 12/31/97 09/08/97 Mnfr medical supply, healthcare 231.0 42.3 52.8 78.8 11/28/97 09/10/97 Retail office supplies 159.4 10.9 14.9 26.1 04/01/98 09/11/97 Bank holding company 207.6 12.1 20.9 20.9 04/01/98 09/12/97 Bank holding company 126.7 47.9 46.8 66.8 12/09/97 09/12/97 Dvlp systems mgmt software 183.0 9.1 25.0 22.4 01/16/98 09/12/97 Real estate investment trust 266.0 35.1 72.3 78.5 12/16/97 09/18/97 Insurance company; holding co 117.2 10.8 23.9 27.7 01/16/98 09/19/97 Whl electronic components 217.6 16.3 30.2 57.0 01/06/98 09/24/97 Bank holding company 162.3 19.2 18.6 47.3 04/30/98 10/02/97 Pvd nursing care services 247.4 (0.9) 9.4 1.8 12/19/97 10/06/97 Mnfr cardiovascular equipment 187.8 22.1 22.1 73.9 12/23/97 10/09/97 Mnfr formaldehyde, resins 119.7 70.8 72.6 70.8 01/22/98 10/13/97 Pvd telecommunications svcs 269.4 49.8 70.9 78.5 12/19/97 10/14/97 Pvd info, transaction svcs 175.2 (1.0) (3.7) 4.8 02/12/98 10/16/97 Provide insurance services 184.7 78.9 75.8 130.9 02/27/98 10/17/97 Investor group 150.0 0.0 (8.1) 10.3 12/29/97 10/17/97 Mnfr appliance components 158.6 45.1 48.3 62.5 02/09/98 10/17/97 Investment firm 104.8 (1.5) (2.9) 4.5 04/24/98 10/23/97 Bank holding company 142.4 1.1 2.9 17.1 12/19/97 10/23/97 Dvle electn commerce software 234.7 55.2 49.1 27.8 03/12/98 10/31/97 Mnfr, whl eyeglass lenses, frame 130.8 108.7 107.6 108.7 04/01/98 11/03/97 Bank holding company 215.8 11.2 12.2 11.2 05/22/98 11/03/97 Commercial bank 157.3 10.6 30.9 52.1 01/09/98 11/03/97 Manufacture synthetic drugs 169.4 44.0 47.3 23.4 01/12/98 11/04/97 Develop, wholesale software 250.3 28.3 69.9 18.6 03/25/98 11/13/97 Investor group 240.8 11.3 4.5 11.3 05/12/98 11/17/97 Commercial bank 137.4 39.8 41.7 61.0 02/26/98 11/17/97 Title insurance company 132.4 89.8 89.8 87.6 03/02/98 11/17/97 Develop software 148.4 92.0 64.0 92.0 01/20/98 11/21/97 Mnfr steel and steel products 173.5 162.9 170.6 166.7 02/03/98 11/24/97 Pvd pay telephone commun svcs 102.4 30.2 25.4 12.0 02/25/98 11/26/97 Investor group 133.0 29.2 29.2 25.3 07/13/98 11/28/97 Bank holding company 159.5 1.8 1.8 7.1 02/19/98 12/01/97 Develop software 253.7 5.4 20.7 16.5 03/31/98 12/11/97 Bank holding company 161.2 18.4 23.9 16.9 03/30/98 12/16/97 Bank holding company 209.4 22.4 27.3 30.0 07/02/98 12/16/97 Bank holding company 160.2 21.4 32.1 54.8 07/01/98 12/16/97 National commercial bank 167.6 14.3 16.3 26.8 01/23/98 12/17/97 Mnfr surgical, medical supplies 130.8 8.0 13.3 13.3
84
DATE DATE EFFECTIVE ANNOUNCED TARGET NAME TARGET BUSINESS DESCRIPTION ACQUIROR NAME - ------------- ----------- ------------------------------- --------------------------------- ------------------------------ 12/18/97 12/18/97 Central Newspapers Inc Publish newspapers Central Newspapers Inc 03/30/98 12/19/97 ASR Investments Corp Real estate investment trust United Dominion Realty Tr Inc 05/01/98 12/19/97 IPC Information Systems Inc Mnfr telecommunications equip Cable Systems International 06/03/98 12/19/97 Eclipse Telecommunications Inc Pvd radiotelecommunication svc IXC Communications Inc 01/27/98 12/19/97 Software Artistry Inc Develop help-desk software Tivoli Systems Inc(IBM Corp) 03/17/98 12/29/97 Heartstream Inc Mnfr defibrillators Hewlett-Packard Co 02/09/98 12/29/97 Holmes Protection Group Inc Provide security systems svcs Tyco International Ltd 05/22/98 12/31/97 Red Lion Inns LP Own,op hotels Boykin Lodging Co 04/01/98 01/06/98 Schult Homes Corp Manufacture mobile homes Oakwood Homes Corp 06/30/98 01/12/98 CBT Corp,Paducah,Kentucky Bank holding co Mercantile Bancorp,St Louis,MO 05/06/98 01/26/98 TransAmerican Waste Industries Pvd waste management services USA Waste Services Inc 03/03/98 01/27/98 State of the Art Inc Develop financial software Sage Group PLC 02/02/98 02/02/98 Comdisco Inc Whl,lease computers Investor Group 06/09/98 02/04/98 TresCom International Inc Pvd communications svcs Primus Telecommunications 06/30/98 02/09/98 PonceBank Savings and loan Banco Bilbao Vizcaya SA 04/16/98 02/09/98 Summit Care Corp Provide nursing services Fountain View(Heritage) 03/11/98 02/10/98 Liberty Corp Life ins co;own,op TV stn Liberty Corp 06/10/98 02/11/98 MTL Inc Pvd tank truck carrier svcs Sombrero Acquisition Corp 06/02/98 02/19/98 California State Bank Bank holding company First Security Corp,Utah 04/21/98 02/19/98 Mastering Inc Provied computer training svcs PLATINUM Technology Inc 05/04/98 02/24/98 Somatogen Inc Dvlp human blood substitutes Baxter International Inc 04/30/98 03/02/98 First Alert Inc Mnfr fire and burglar alarms Sunbeam Corp 07/02/98 03/13/98 Beverly Bancorp,Tinley Park,IL Bank holding company St. Paul Bancorp,Chicago,IL 07/10/98 03/16/98 International Murex Tech Corp Mnfr in-vitro test systems Abbott Laboratories 05/28/98 03/16/98 Logic Works Inc Develop client/server software PLATINUM Technology Inc 05/27/98 03/17/98 ForeFront Group Inc Develop software CBT Group PLC 04/01/98 03/19/98 Lawter International Inc Mnfr printing ink and resins Lawter International Inc 03/23/98 03/23/98 BET Holdings Inc Own and operate TV stations Investor Group 06/24/98 03/24/98 Walsh International Inc Provide programming svcs Cognizant Corp 06/29/98 03/31/98 IBAH Inc Mnfr pharmaceutical products Omnicare Inc 04/04/98 04/04/98 America Online Inc Internet Service Provider Goldman Sachs & Co 07/10/98 04/06/98 MoneyGram Payment Systems Inc Pvd money wire transfer svcs Viad Corp 05/19/98 04/08/98 Blessings Corp Mnfr plastic film products Huntsman Packaging Corp 05/15/98 04/09/98 Dart Group Corp Own,operate auto part stores Richfood Holdings Inc 06/15/98 05/08/98 Authentic Specialty Foods Inc Whl,mnfr Mexican foods Agrobios(Desc SA de CV) 07/02/98 05/18/98 Graco Inc Mnfr fluid handling equipment Graco Inc 07/07/98 05/28/98 Donnelley Enterprise Solutions Pvd info management services Bowne & Co Inc 05/30/98 05/30/98 Panavision Inc Mnfr camera systems Mafco Holdings Inc 06/19/98 06/19/98 Tremont Corp Mnfr drilling lubricants Valhi Inc 07/01/98 07/01/98 Sotheby's Holdings Inc Provide auctioning, RE svcs Investor Group
PREMIUM VALUE OF -------------------------------------------------------- ACQUIROR SHORT TRANSACTION 1 DAY PRIOR TO 1 WEEK PRIOR TO 4 WEEKS PRIOR TO BUSINESS DESCRIPTION ($ MIL) ANNOUNCEMENT DATE ANNOUNCEMENT DATE ANNOUNCEMENT DATE ------------------------------ ------------ ----------------- ----------------- ------------------- Publish newspapers 100.0 (1.1) 0.6 (0.3) Real estate investment trust 277.0 4.4 1.1 2.6 Mnfr telecommun equip 201.7 14.3 31.3 14.3 Pvd long distance tele svcs 122.2 18.0 19.9 14.4 Dvlp systems mgmt software 201.9 0.0 62.0 57.4 Mnfr computers, testing equip 130.6 (6.7) 18.2 (8.6) Mnfr fire protection systems 117.1 (5.6) (5.6) (13.9) Real estate investment trust 276.0 (6.4) (5.5) (3.4) Mnfr,ret factory-built homes 101.4 1.1 10.4 19.2 Commercial bank holding co 275.8 3.3 1.8 19.5 Pvd waste disposal services 142.3 51.4 36.6 78.6 Dvlp,whl accounting software 245.2 33.3 35.4 35.4 Investor group 109.0 0.0 6.6 3.8 Pvd telecommunications svcs 134.7 25.2 30.9 51.5 Bank;insurance;holding co 164.5 12.6 14.1 25.8 Own,op healthcare facilities 275.1 14.3 31.3 37.7 Life ins co;own,op TV stn 124.8 11.2 15.2 11.5 Investment company 250.1 37.9 38.5 56.1 Bank holding co 276.9 11.4 14.0 18.8 Develop integrated software 198.7 31.6 25.0 33.3 Mnfr health care products 232.9 35.8 39.8 92.0 Mnfr,whl household appliances 129.2 68.0 90.9 110.0 Bank holding company 161.8 16.5 17.4 19.6 Mnfr pharmaceuticals,med equip 232.7 21.6 38.2 50.7 Develop integrated software 212.9 13.0 36.2 57.1 Dev educational software 147.5 17.3 29.4 48.5 Mnfr printing ink and resins 130.8 0.0 1.7 (2.7) Investor group 121.7 0.0 0.3 10.2 Pvd information services 176.8 0.0 36.8 53.3 Whl,retail pharmaceuticals 154.3 12.2 61.4 58.6 Investment bank 111.4 66.1 79.3 1.9 Provide food catering services 293.6 11.5 15.7 42.4 Prod printed,laminated films 269.7 18.7 18.3 34.9 Wholesale groceries 193.3 14.3 11.9 19.4 Mnfr,whl foods products 141.9 6.3 13.3 37.4 Mnfr fluid handling equipment 190.9 (6.5) (3.2) (9.1) Pvd printing svcs 105.2 60.8 61.5 83.6 Mnfr toilet preparations 154.4 1.2 1.4 1.7 Mnfr chemicals and pigments 165.1 6.0 5.2 0.2 Investor group 118.6 0.6 (1.1) 1.1 ----------------------------------------------------------------------- AVERAGE 23.3% 29.3% 36.9% MEDIAN 16.3% 25.0% 29.6% =======================================================================
- ------------------------------------- Source: Securities Data Corporation 85 PROJECT GOLDCAP PREMIUMS ANALYSIS: MERGERS AND ACQUISITIONS BETWEEN $100 AND $300 MILLION - ------------------------------------------------------------------------------ (DOLLARS IN THOUSANDS)
-------- ------------ AVERAGE PREMIUM AVERAGE PREMIUM AVERAGE PREMIUM IMPLIED IMPLIED 1 DAY PRIOR TO 1 WEEK PRIOR TO 4 WEEKS PRIOR TO EQUITY EQUITY VALUE ANNOUNCEMENT DATE [1] ANNOUNCEMENT DATE ANNOUNCEMENT DATE VALUE PER SHARE [2] --------------------- ----------------- ----------------- -------- ------------- Goldcap Stock Price 1 day prior to announcement date: $13.50 23.3% $168,332 $ 16.65 Goldcap Stock Price 1 week prior to announcement date: $15.00 29.3% 196,164 19.40 Goldcap Stock Price 4 weeks prior to announcement date: $13.25 36.9% 183,430 18.14 -------- ------- --------------------------------------------------------- AVERAGE $182,642 $18.06 --------------------------------------------------------- --------------------------------------------------------- MEDIAN $183,430 $18.14 ---------------------------------------------------------
- -------------------------------- [1] Announcement date assumed to be after the market close on July 17, 1998. [2] Assumes 10,112,629 Goldcap shares outstanding. 86 PROJECT GOLDCAP PROJECTED CASH FLOWS - CONSOLIDATED COMPANY (DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------
Dec. Dec. Dec. Dec. Dec. Projections Used In Valuation: 1998 1999(1) 2000 (1) 2001 (1) 2002 (1) --------- --------- --------- --------- --------- Revenues: Benefits Company $ 150,496 163,785 $ 176,888 $ 191,039 $ 202,501 DHMI 24,530 27,153 30,056 33,270 36,828 --------- --------- --------- --------- --------- Total Revenues 175,026 190,938 206,944 224,309 239,329 Expenses: Dental Care Providers' Fees and Claim Costs 79,761 86,806 93,751 101,251 107,326 Commisions 13,479 15,396 16,804 18,340 19,643 Premium Taxes 1,167 1,270 1,372 1,481 1,570 General and Administrative 31,600 32,864 34,178 35,545 36,967 DHMI Operating Expenses 23,320 23,505 26,018 28,801 31,880 Depreciation (2) 3,516 1,862 2,209 2,641 2,743 Goodwill Amortization 2,349 2,349 2,349 2,349 2,349 --------- --------- --------- --------- --------- Total Expenses 155,192 164,052 176,681 190,408 202,478 Operating Expenses 88.7% 85.9% 85.4% 84.9% 84.6% Operating Income (EBIT) 19,834 26,886 30,263 33,901 36,851 Inc. Taxes 9,317 12,279 13,697 15,225 16,464 --------- --------- --------- --------- --------- After Tax Operating Income $ 10,517 $ 14,607 $ 16,566 $ 18,676 $ 20,387 Operating Margin 7.0% 8.9% 9.4% 9.8% 10.1% CASH SOURCES After Tax Operating Income $ 10,517 $ 14,607 $ 16,566 $ 18,676 $ 20,387 Depreciation and Amortization 5,865 4,211 4,558 4,990 5,092 Other Cash Sources (123) 690 680 734 595 --------- --------- --------- --------- --------- TOTAL SOURCES $ 16,259 $ 19,508 $ 21,804 $ 24,400 $ 26,074 ========= ========= ========= ========= ========= CASH USES Capital Expenditures $ 2,000 $ 2,500 $ 3,000 $ 3,000 $ 3,000 Increase in Current Assets Except Cash (162) 1,420 1,416 1,534 1,291 Increase in Current Liabilities Except Debt (246) 2,257 2,218 2,397 1,956 Increase/(Decrease) in Net Working Capital 84 (837) (802) (863) (666) Other Cash Uses (127) 833 824 891 730 --------- --------- --------- --------- --------- TOTAL USES $ 1,957 $ 2,497 $ 3,023 $ 3,028 $ 3,064 ========= ========= ========= ========= ========= - ------------------------------------------------------------------------------------------------------------------ FREE CASH FLOW $ 17,011 $ 18,781 $ 21,373 $ 23,010 - ------------------------------------------------------------------------------------------------------------------
Dec. Terminal Projections Used In Valuation: 2003 (2) Value --------- --------- Revenues: Benefits Company $ 214,651 $ 214,651 DHMI 40,766 40,766 --------- --------- Total Revenues 255,417 255,417 Expenses: Dental Care Providers' Fees and Claim Costs 113,765 113,765 Commisions 21,036 21,036 Premium Taxes 1,665 1,665 General and Administrative 38,446 38,446 DHMI Operating Expenses 35,289 35,289 Depreciation (2) 2,862 2,862 Goodwill Amortization 2,349 2,349 --------- --------- Total Expenses 215,412 215,412 Operating Expenses 84.3% 84.3% Operating Income (EBIT) 40,005 40,005 Inc. Taxes 17,789 17,789 --------- --------- After Tax Operating Income $ 22,216 $ 22,216 Operating Margin 10.3% 10.3% CASH SOURCES After Tax Operating Income $ 22,216 $ 22,216 Depreciation and Amortization 5,211 5,211 Other Cash Sources 631 631 --------- --------- TOTAL SOURCES $ 28,058 $ 28,058 ========= ========= CASH USES Capital Expenditures $ 3,000 $ 3,000 Increase in Current Assets Except Cash 1,377 1,377 Increase in Current Liabilities Except Debt 2,077 2,077 Increase/(Decrease) in Net Working Capital (700) (700) Other Cash Uses 775 775 --------- --------- TOTAL USES $ 3,075 $ 3,075 ========= ========= - ------------------------------------------------------------------------ FREE CASH FLOW $ 24,983 $ 24,983 - ------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------ Discount Rate (WACC) Present Value of Cash Flows - ------------------------------------------------------------------------------------------------------------------------ 10.00% $78,272 11.00% $76,179 12.00% $74,172 13.00% $72,247 14.00% $70,398 15.00% $68,623 -----------------------------------------------------
(1) Projections provided by the Company as of July 10, 1998. (2) Depreciation excludes transaction cost amortization. 87 PROJECT GOLDCAP EBIT MULTIPLE METHODOLOGY FOR DISCOUNTED CASH FLOW ANALYSIS (DOLLARS IN THOUSANDS)
- ------------------------------------------------- -------------------------------------------------------------------- SUMMARY: Weighted Average Cost of Capital (WACC) 10.00% 11.00% - ------------------------------------------------- ----------------------------------------------------------------- WACC : 12.00% Multiple: 8.00 Present Value of Cash Flows: $ 78,272 $ 76,179 EBIT Terminal Value: $40,005 ----------------------------------------------------------------- Present Value of Cash Flows: $74,172 Present Value of Terminal Value: Present Value of Terminal Value: $181,599 6.0 x $149,040 $142,446 ---------- 7.0 $173,880 $166,187 Total Value: $255,772 Multiple 8.0 $198,720 $189,928 ========== 9.0 $223,560 $213,669 10.0 $248,400 $237,410 Plus: Cash (1) $15,568 11.0 $273,240 $261,151 Less: Debt (1) $81,144 ---------- Equity Value $190,196 =========== ----------------------------------------------------------------- Equity Value per share $18.81 - ------------------------------------------------ Total Value: 6.0 x $227,312 $218,625 (1) As of 3/31/98. Includes present value of 7.0 $252,152 $242,366 DentLease funding obligation and preferred Multiple 8.0 $276,992 $266,107 stock purchase obligation. 9.0 $301,832 $289,848 10.0 $326,672 $313,589 11.0 $351,512 $337,330 ----------------------------------------------------------------- Equity Value: 6.0 x $161,736 $153,049 7.0 $186,576 $176,790 Multiple 8.0 $211,416 $200,531 9.0 $236,256 $224,272 10.0 $261,096 $248,013 11.0 $285,936 $271,754 ----------------------------------------------------------------- Equity Value: 6.0 x $ 15.99 $ 15.13 7.0 $ 18.45 $ 17.48 Multiple 8.0 $ 20.91 $ 19.83 9.0 $ 23.36 $ 22.18 10.0 $ 25.82 $ 24.53 11.0 $ 28.28 $ 26.87 ----------------------------------------------------------------- Implied Total Value / Calendar 1998 EBIT Multiple: 6.0 x 8.5 x 8.1 x 7.0 9.4 9.0 Multiple 8.0 10.3 9.9 9.0 11.2 10.8 10.0 12.2 11.7 11.0 13.1 12.5 -----------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------- Weighted Average Cost of Capital (WACC) 12.00% 13.00% 14.00% 15.00% - ---------------------------------------------------------------------------------------------------- Present Value of Cash Flows: $ 74,172 $ 72,247 $ 70,398 $ 68,623 - ---------------------------------------------------------------------------------------------------- Present Value of Terminal Value: $136,199 $130,279 $124,664 $119,337 $158,899 $151,992 $145,441 $139,227 Multiple $181,599 $173,705 $166,219 $159,116 $204,299 $195,418 $186,996 $179,006 $226,999 $217,131 $207,773 $198,896 $249,699 $238,844 $228,551 $218,785 - ---------------------------------------------------------------------------------------------------- Total Value: $210,372 $202,525 $195,062 $187,960 $233,072 $224,238 $215,840 $207,850 Multiple $255,772 $245,952 $236,617 $227,740 $278,471 $267,665 $257,394 $247,629 $301,171 $289,378 $278,172 $267,519 $323,871 $311,091 $298,949 $287,408 - ---------------------------------------------------------------------------------------------------- Equity Value: $144,796 $136,949 $129,486 $122,384 $167,496 $158,662 $150,264 $142,274 Multiple $190,196 $180,376 $171,041 $162,164 $212,895 $202,089 $191,818 $182,053 $235,595 $223,802 $212,596 $201,943 $258,295 $245,515 $233,373 $221,832 - ---------------------------------------------------------------------------------------------------- Equity Value: $ 14.32 $ 13.54 $ 12.80 $ 12.10 $ 16.56 $ 15.69 $ 14.86 $ 14.07 Multiple $ 18.81 $ 17.84 $ 16.91 $ 16.04 $ 21.05 $ 19.98 $ 18.97 $ 18.00 $ 23.30 $ 22.13 $ 21.02 $ 19.97 $ 25.54 $ 24.28 $ 23.08 $ 21.94 - ---------------------------------------------------------------------------------------------------- Implied Total Value / Calendar 1998 EBIT Multiple: 7.8 x 7.5 x 7.3 x 7.0 x 8.7 8.3 8.0 7.7 Multiple 9.5 9.1 8.8 8.5 10.4 10.0 9.6 9.2 11.2 10.8 10.3 10.0 12.0 11.6 11.1 10.7 - ----------------------------------------------------------------------------------------------------
88 PROJECT GOLDCAP EBITDA MULTIPLE METHODOLOGY (DOLLARS IN THOUSANDS)
- ----------------------------------------------- -------------------------------------------------------------------- SUMMARY: Weighted Average Cost of Capital (WACC) 10.00% 11.00% - ----------------------------------------------- -------------------------------------------------------------------- WACC : 12.00% Multiple: 6.5 Present Value of Cash Flows: $ 78,272 $ 76,179 EBITDA Terminal Value: $45,216 -------------------------------------------------------------------- Present Value of Terminal Value: Present Value of Cash Flows: $74,172 5.0 x $140,378 $134,167 Present Value of Terminal Value: $166,769 5.5 $154,416 $147,584 --------- 6.0 $168,453 $161,001 Total Value: $240,941 Multiple 6.5 $182,491 $174,418 ========= 7.0 $196,529 $187,834 Plus: Cash (1) $15,568 7.5 $210,567 $201,251 Less: Debt (1) $81,144 8.0 $224,605 $214,668 --------- -------------------------------------------------------------------- Equity Value: $175,365 ========= Equity Value per Share $ 17.34 - ---------------------------------------------- Total Value: 5.O x $218,650 $210,347 (1) As of 3/31/98. Includes present value of 5.5 $232,688 $223,763 DentLease funding obligation and preferred 6.0 $246,726 $237,180 stock purchase obligation. 6.5 $260,763 $250,597 Multiple 7.0 $274,801 $264,014 7.5 $288,839 $277,430 8.0 $302,877 $290,847 -------------------------------------------------------------------- Equity Value: 5.0 x $153,074 $144,771 5.5 $167,112 $158,187 6.0 $181,150 $171,604 6.5 $195,187 $185,021 Multiple 7.0 $209,225 $198,438 7.5 $223,263 $211,854 8.0 $237,301 $225,271 -------------------------------------------------------------------- Equity Value: 5.0 x $15.14 $ 14.32 5.5 $16.53 $ 15.64 6.0 $17.91 $ 16.97 6.5 $19.30 $ 18.30 Multiple 7.0 $20.69 $ 19.62 7.5 $22.08 $ 20.95 8.0 $23.47 $ 22.28 -------------------------------------------------------------------- Implied Total Value / Calendar 1998 EBITDA Multiple: 5.0 x 7.0 x 6.0 x 5.5 7.5 7.2 6.0 7.9 7.6 6.5 8.4 8.1 Multiple 7.0 8.8 8.5 7.5 9.3 8.9 8.0 9.7 9.4 -------------------------------------------------------------------
PROJECT GOLDCAP EBITDA MULTIPLE METHODOLOGY (DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------- Weighted Average Cost of Capital (WACC) 12.00% 13.00% 14.00% 15.00% - ---------------------------------------------------------------------------------------------------------- Present Value of Cash Flows: $ 74,172 $ 72,247 $ 70,398 $ 68,623 - ---------------------------------------------------------------------------------------------------------- Present Value of Terminal Value: $128,284 $122,707 $117,419 $112,402 $141,112 $134,978 $129,161 $123,642 $153,941 $147,249 $140,903 $134,882 Multiple $166,769 $159,519 $152,645 $146,122 $179,597 $171,790 $164,386 $157,362 $192,426 $184,061 $176,128 $168,603 $205,254 $196,331 $187,870 $179,843 - ---------------------------------------------------------------------------------------------------------- Total Value: $202,456 $194,954 $187,817 $ 181,025 $215,285 $207,225 $199,559 $ 192,265 $228,113 $219,495 $211,301 $ 203,505 $240,941 $231,766 $223,043 $ 214,745 Multiple $253,770 $244,037 $234,785 $ 225,986 $266,598 $256,307 $246,527 $ 237,226 $279,426 $268,578 $258,268 $ 248,466 - ---------------------------------------------------------------------------------------------------------- Equity Value: $136,880 $129,378 $122,241 $ 115,449 $149,709 $141,649 $133,983 $ 126,689 $162,537 $153,919 $145,725 $ 137,929 $175,365 $166,190 $157,467 $ 149,169 Multiple $188,194 $178,461 $169,209 $ 160,410 $201,022 $190,731 $180,951 $ 171,650 $213,850 $203,002 $192,692 $ 182,890 - ----------------------------------------------------------------------------------------------------------- Equity Value: $ 13.54 $ 12.79 $ 12.09 $ 11.42 $ 14.80 $ 14.01 $ 13.25 $ 12.53 $ 16.07 $ 15.22 $ 14.41 $ 13.64 $ 17.34 $ 16.43 $ 15.57 $ 14.75 Multiple $ 18.61 $ 17.65 $ 16.73 $ 15.86 $ 19.88 $ 18.86 $ 17.89 $ 16.97 $ 21.15 $ 20.07 $ 19.05 $ 18.09 - ----------------------------------------------------------------------------------------------------------- 6.3 x 6.0 x 6.0 x 5.8 x 6.9 6.7 6.4 6.2 7.3 7.1 6.8 6.5 7.7 7.5 7.2 6.9 8.2 7.8 7.6 7.3 8.6 8.2 7.9 7.6 9.0 8.6 8.3 8.0 - -----------------------------------------------------------------------------------------------------------
89 PROJECT GOLDCAP BALANCE SHEET ASSUMPTIONS (DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------
DEC. DEC. DEC. DEC. DEC. BALANCE SHEET DATA [1] 1997 1998 1999 2000 2001 --------- --------- --------- --------- --------- Current Assets Less Cash and Equivalents Premiums Receivable $ 6,192 $ 6,394 $ 6,975 $ 7,560 $ 8,194 Patient Accounts Receivable 1,668 1,655 1,801 1,945 2,101 Income Taxes Receivable 175 226 246 266 287 Deferred Income Taxes 5,027 5,042 5,487 5,926 6,400 Other Current Assets 2,921 2,504 2,732 2,961 3,209 --------- --------- --------- --------- --------- 15,983 15,821 17,241 18,658 20,191 Current Liabilities Less Current Debt Unearned Revenue $ 9,538 $ 9,030 $ 9,827 $ 10,614 $ 11,463 Accounts Payable 12,016 12,040 13,103 14,151 15,284 Accrued Interest Payable 109 75 95 103 112 Dental Claims Reserves 1,502 1,505 1,638 1,769 1,910 Other Current Liabilities 2,407 2,676 2,919 3,164 3,429 --------- --------- --------- --------- --------- $ 25,572 25,326 27,583 29,801 32,198 Working Capital Less Cash and Equivalents and Current Debt ($ 9,589) ($ 9,505) ($ 10,342) ($ 11,143) ($ 12,006) -------------------------------------------------------------------------------------------------- CHANGE IN NET WORKING CAPITAL $84 ($837) ($802) ($863) --------------------------------------------------------------------------------------------------
Restricted Funds $ 2,321 $ 2,257 $ 2,456 $ 2,653 $ 2,865 Reinsurance Receivable 5,417 5,644 6,142 6,634 7,164 Other Assets 1,782 1,492 1,628 1,764 1,912 Aggregate Reserves for Life Policies 5,331 5,267 5,732 6,191 6,686 Deferred Tax Liability 1,887 1,866 2,031 2,193 2,369 Other Liabilities 715 677 737 796 859 Assumptions (Percentage of Revenues): Current Assets Less Cash and Equivalents Premiums Receivable 3.90% 3.65% 3.65% 3.65% 3.65% Patient Accounts Receivable-% of Benefits Revenues 1.10% 1.10% 1.10% 1.10% 1.10% Income Taxes Receivable-% of Benefits Revenues 0.12% 0.15% 0.15% 0.15% 0.15% Deferred Income Taxes-% of Benefits Revenues 3.32% 3.35% 3.35% 3.35% 3.35% Other Current Assets 1.84% 1.43% 1.43% 1.43% 1.43% Current Liabilities Less Current Debt Unearned Revenue-% of Benefits Revenues 6.29% 6.00% 6.00% 6.00% 6.00% Accounts Payable-% of Benefits Revenues 7.93% 8.00% 8.00% 8.00% 8.00% Accrued Interest Payable -% of Benefits Revenues 0.07% 0.05% 0.05% 0.05% 0.05% Dental Claims Reserves -% of Benefits Revenues 0.99% 1.00% 1.00% 1.00% 1.00% Other Current Liabilities 1.52% 1.53% 1.53% 1.53% 1.53% Restricted Funds-% of Benefits Revenues 1.53% 1.50% 1.50% 1.50% 1.50% Reinsurance Receivable-% of Benefits Revenues 3.57% 3.75% 3.75% 3.75% 3.75% Other Assets 1.12% 0.85% 0.85% 0.85% 0.85% Aggregate Reserves for Life Policies-% of Benefits Revenues 3.52% 3.50% 3.50% 3.50% 3.50% Deferred Tax Liability-% of Benefits Revenues 1.24% 1.24% 1.24% 1.24% 1.24% Other Liabilities-% of Benefits Revenues 0.47% 0.45% 0.45% 0.45% 0.45%
- --------------------- (1) Projections provided by the Company as of July 10, 1998.
DEC. DEC. BALANCE SHEET DATA [1] 2002 2003 --------- --------- Current Assets Less Cash and Equivalents Premiums Receivable $ 8,743 $ 9,331 Patient Accounts Receivable 2,227 2,361 Income Taxes Receivable 304 322 Deferred Income Taxes 6,784 7,191 Other Current Assets 3,424 3,654 --------- --------- 21,482 22,859 Current Liabilities Less Current Debt Unearned Revenue $ 12,150 $ 12,879 Accounts Payable 16,201 17,173 Accrued Interest Payable 119 127 Dental Claims Reserves 2,025 2,147 Other Current Liabilities 3,659 3,905 --------- --------- 34,154 36,231 Working Capital Less Cash and Equivalents ($ 12,672) ($ 13,372) ----------------------------------------------------------- CHANGE IN NET WORKING CAPITAL ($666) ($700) -----------------------------------------------------------
Restricted Funds $ 3,037 $ 3,219 Reinsurance Receivable 7,594 8,050 Other Assets 2,040 2,177 Aggregate Reserves for Life Policies 7,087 7,512 Deferred Tax Liability 2,511 2,661 Other Liabilities 911 966 Assumptions (Percentage of Revenues): Current Assets Less Cash and Equivalents Premiums Receivable 3.65% 3.65% Patient Accounts Receivable-% of Benefits Revenues 1.10% 1.10% Income Taxes Receivable-% of Benefits Revenues 0.15% 0.15% Deferred Income Taxes-% of Benefits Revenues 3.35% 3.35% Other Current Assets 1.43% 1.43% Current Liabilities Less Current Debt Unearned Revenue-% of Benefits Revenues 6.00% 6.00% Accounts Payable-% of Benefits Revenues 8.00% 8.00% Accrued Interest Payable-% of Benefits Revenues 0.05% 0.05% Dental Claims Reserves-% of Benefits Revenues 1.00% 1.00% Other Current Liabilities 1.53% 1.53% Restricted Funds-% of Benefits Revenues 1.50% 1.50% Reinsurance Receivable-% of Benefits Revenues 3.75% 3.75% Other Assets 0.85% 0.85% Aggregate Reserves for Life Policies-% of Benefits Revenues 3.50% 3.50% Deferred Tax Liability-% of Benefits Revenues 1.24% 1.24% Other Liabilities-% of Benefits Revenues 0.45% 0.45%
- --------------------- (1) Projections provided by the Company as of July 10, 1998. 90 PROJECT GOLDCAP PROJECTED CASH FLOWS - BENEFITS COMPANY (DOLLARS IN THOUSANDS)
DEC. DEC. DEC. DEC. DEC. DEC. TERMINAL PROJECTIONS USED IN VALUATION: 1998 1999 (1) 2000 (1) 2001 (1) 2002 (1) 2003 (2) VALUE -------- -------- -------- -------- -------- -------- -------- Revenues: Benefits Company $150,496 $163,785 $176,888 $191,039 $202,501 $214,651 $214,651 DHMI 0 0 0 0 0 0 0 -------- ------- -------- -------- -------- -------- -------- Total Revenues 150,496 163,785 176,888 191,039 202,501 214,651 214,651 Expenses: Dental Care Providers' Fees and Claim Costs 79,761 86,806 93,751 101,251 107,326 113,765 113,765 Commisions 13,479 15,396 16,804 18,340 19,643 21,036 21,036 Premium Taxes 1,167 1,270 1,372 1,481 1,570 1,665 1,665 General and Administrative 31,600 32,864 34,178 35,545 36,967 38,446 38,446 DHMI Operating Expenses 0 0 0 0 0 0 0 Depreciation (2) 3,283 1,621 1,942 2,346 2,416 2,500 2,500 Goodwill Amortization 1,849 1,849 1,849 1,849 1,849 1,849 1,849 -------- ------- -------- -------- -------- -------- -------- Total Expenses 131,139 139,806 149,896 160,812 169,771 179,261 179,261 Operating Expenses 87.1% 85.4% 84.7% 84.2% 83.8% 83.5% 83.5% Operating Income (EBIT) 19,357 23,979 26,992 30,227 32,730 35,390 35,390 Inc. Taxes 8,907 10,848 12,113 13,472 14,523 15,640 15,640 -------- ------- -------- -------- -------- -------- -------- After Tax Operating Income $ 10,450 $13,131 $ 14,879 $ 16,755 $ 18,207 $ 19,750 $ 19,750 Operating Margin 6.9% 8.0% 8.4% 8.8% 9.0% 9.2% 9.2% CASH SOURCES After Tax Operating Income $ 10,450 $13,131 $ 14,879 $ 16,755 $ 18,207 $ 19,750 $ 19,750 Depreciation and Amortization 5,132 3,470 3,791 4,195 4,265 4,349 4,349 Other Cash Sources (123) 690 680 734 595 631 631 -------- ------- -------- -------- -------- -------- -------- TOTAL SOURCES $ 15,459 $17,291 $ 19,350 $ 21,684 $ 23,067 $ 24,729 $ 24,729 ======== ======= ======== ======== ======== ======== ======== CASH USES Capital Expenditures $ 1,500 $ 2,000 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 Increase in Current Assets Except Cash (463) 1,160 1,144 1,235 1,001 1,061 1,061 Increase in Current Liabilities Except Debt (540) 2,066 2,038 2,200 1,782 1,889 1,889 Increase/(Decrease) in Net Working Capital 77 (906) (894) (965) (782) (829) (829) Other Cash Uses (162) 797 786 849 688 729 729 -------- ------- -------- -------- -------- -------- -------- TOTAL USES $ 1,415 $ 1,891 $ 2,393 $ 2,384 $ 2,406 $ 2,400 $ 2,400 ======== ======= ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------- FREE CASH FLOW $15,400 $ 16,957 $ 19,300 $ 20,661 $ 22,329 $ 22,329 ===================================================================================================================================
-------------------------------------------------------------------------------- DISCOUNT RATE (WACC) PRESENT VALUE OF CASH FLOWS -------------------------------------------------------------------------------- 10.00% $70,491 11.00% $68,610 12.00% $66,806 13.00% $65,075 14.00% $63,414 15.00% $61,818 --------------------------------------------------------------------------------
(1) Projections provided by the Company as of July 10, 1998. (2) Depreciation and amortization excludes transaction cost amortization. 91 PROJECT GOLDCAP EBIT MULTIPLE METHODOLOGY FOR DISCOUNTED CASH FLOW ANALYSIS (DOLLARS IN THOUSANDS)
- ---------------------------------------------------- SUMMARY: - ---------------------------------------------------- WACC : 12.00% Multiple: 8.00 EBIT Terminal Value: $ 35,390 Present Value of Cash Flows: $ 66,806 Present Value of Terminal Value: $ 160,650 --------- Total Value: $ 227,456 ========= Plus: Cash (1) $ 15,568 Less: Debt (1) $ 62,635 --------- Equity Value $ 180,389 ========= Equity Value per share $ 17.84 - ---------------------------------------------------
(1) As of 3/31/98. Includes present value of DentLease funding obligation.
----------------------------------------------------------------------------------------------------------------------------- Weighted Average Cost of Capital (WACC) 10.00% 11.00% 12.00% 13.00% 14.00% 15.00% ----------------------------------------------------------------------------------------------------------------------------- Present Value of Cash Flows: $70,491 $68,610 $66,806 $65,075 $63,414 $61,818 ----------------------------------------------------------------------------------------------------------------------------- Present Value of Terminal Value: 6.0x $131,846 $126,013 $120,487 $115,250 $110,283 $105,571 7.0 $153,821 $147,016 $140,569 $134,458 $128,663 $123,166 Multiple 8.0 $175,795 $168,018 $160,650 $153,666 $147,044 $140,761 9.0 $197,770 $189,020 $180,731 $172,874 $165,424 $158,356 10.0 $219,744 $210,022 $200,812 $192,083 $183,805 $175,951 11.0 $241,718 $231,025 $220,894 $211,291 $202,185 $193,546 ----------------------------------------------------------------------------------------------------------------------------- Total Value: 6.0x $202,337 $194,623 $187,293 $180,325 $173,696 $167,388 7.0 $224,312 $215,625 $207,375 $199,533 $192,077 $184,983 Multiple 8.0 $246,286 $236,628 $227,456 $218,741 $210,457 $202,578 9.0 $268,260 $257,630 $247,537 $237,950 $228,838 $220,174 10.0 $290,235 $278,632 $267,618 $257,158 $247,218 $237,769 11.0 $312,209 $299,634 $287,699 $276,366 $265,599 $255,364 ----------------------------------------------------------------------------------------------------------------------------- Equity Value: 6.0x $155,270 $147,556 $140,226 $133,258 $126,629 $120,321 7.0 $177,245 $168,558 $160,308 $152,466 $145,010 $137,916 Multiple 8.0 $199,219 $189,561 $180,389 $171,674 $163,390 $155,511 9.0 $221,193 $210,563 $200,470 $190,883 $181,771 $173,107 10.0 $243,168 $231,565 $220,551 $210,091 $200,151 $190,702 11.0 $265,142 $252,567 $240,632 $229,299 $218,532 $208,297 ----------------------------------------------------------------------------------------------------------------------------- Equity Value: 6.0x $15.35 $14.59 $13.87 $13.18 $12.52 $11.90 7.0 $17.53 $16.67 $15.85 $15.08 $14.34 $13.64 Multiple 8.0 $19.70 $18.74 $17.84 $16.98 $16.16 $15.38 9.0 $21.87 $20.82 $19.82 $18.88 $17.97 $17.12 10.0 $24.05 $22.90 $21.81 $20.78 $19.79 $18.86 11.0 $26.22 $24.98 $23.80 $22.67 $21.61 $20.60 ----------------------------------------------------------------------------------------------------------------------------- Implied Total Value / Calendar 1998 EBIT Multiple: 6.0x 8.4x 8.1x 7.8x 7.5x 7.2x 7.0x 7.0 9.4 9.0 8.6 8.3 8.0 7.7 Multiple 8.0 10.3 9.9 9.5 9.1 8.8 8.4 9.0 11.2 10.7 10.3 9.9 9.5 9.2 10.0 12.1 11.6 11.2 10.7 10.3 9.9 11.0 13.0 12.5 12.0 11.5 11.1 10.6 -----------------------------------------------------------------------------------------------------------------------------
92 PROJECT GOLDCAP EBITDA MULTIPLE METHODOLOGY (DOLLARS IN THOUSANDS)
- --------------------------------------------------------- SUMMARY: - --------------------------------------------------------- WACC: 12.00% Multiple: 6.5 EBITDA Terminal Value: $39,739 Present Value of Cash Flows: $ 66,806 Present Value of Terminal Value: $146,568 -------- Total Value: $213,374 ======== Plus: Cash (1) $ 15,568 Less: Debt (1) $ 62,635 -------- Equity Value: $166,307 ======== Equity Value per Share $ 16.45 - ---------------------------------------------------------
(1) As of 3/31/98. Includes present value of DentLease funding obligation.
- --------------------------------------------------------------------------------------------------------------------------------- Weighted Average Cost of Capital (WACC) 10.00% 11.00% 12.00% 13.00% 14.00% 15.00% - --------------------------------------------------------------------------------------------------------------------------------- Present Value of Cash Flows: $ 70,491 $ 68,610 $ 66,806 $ 65,075 $63,414 $ 61,818 - --------------------------------------------------------------------------------------------------------------------------------- Present Value of Terminal Value: 5.0x $123,374 $117,916 $112,745 $107,844 $103,196 $ 98,787 5.5 $135,711 $129,707 $124,019 $118,628 $113,516 $108,665 6.0 $148,049 $141,499 $135,294 $129,412 $123,835 $118,544 Multiple 6.5 $160,386 $153,291 $146,568 $140,197 $134,155 $128,422 7.0 $172,724 $165,082 $157,843 $150,981 $144,474 $138,301 7.5 $185,061 $176,874 $169,117 $161,766 $154,794 $148,180 8.0 $197,398 $188,665 $180,392 $172,550 $165,114 $158,058 - --------------------------------------------------------------------------------------------------------------------------------- Total Value: 5.0x $193,865 $186,526 $179,551 $172,919 $166,609 $160,604 5.5 $206,202 $198,317 $190,825 $183,703 $176,929 $170,483 6.0 $218,539 $210,109 $202,100 $194,487 $187,249 $180,362 6.5 $230,877 $221,900 $213,374 $205,272 $197,568 $190,240 Multiple 7.0 $243,214 $233,692 $224,649 $216,056 $207,888 $200,119 7.5 $255,552 $245,483 $235,923 $226,841 $218,207 $209,998 8.0 $267,889 $257,275 $247,198 $237,625 $228,527 $219,876 - --------------------------------------------------------------------------------------------------------------------------------- Equity Value: 5.0x $146,798 $139,459 $132,484 $125,852 $119,542 $113,537 5.5 $159,135 $151,250 $143,758 $136,636 $129,862 $123,416 6.0 $171,472 $163,042 $155,033 $147,420 $140,182 $133,295 6.5 $183,810 $174,833 $166,307 $158,205 $150,501 $143,173 Multiple 7.0 $196,147 $186,625 $177,582 $168,989 $160,821 $153,052 7.5 $208,485 $198,416 $188,856 $179,774 $171,140 $162,931 8.0 $220,822 $210,208 $200,131 $190,558 $181,460 $172,809 - --------------------------------------------------------------------------------------------------------------------------------- Equity Value: 5.0x $ 14.52 $ 13.79 $ 13.10 $ 12.45 $ 11.82 $ 11.23 5.5 $ 15.74 $ 14.96 $ 14.22 $ 13.51 $ 12.84 $ 12.20 6.0 $ 16.96 $ 16.12 $ 15.33 $ 14.58 $ 13.86 $ 13.18 6.5 $ 18.18 $ 17.29 $ 16.45 $ 15.64 $ 14.88 $ 14.16 Multiple 7.0 $ 19.40 $ 18.45 $ 17.56 $ 16.71 $ 15.90 $ 15.13 7.5 $ 20.62 $ 19.62 $ 18.68 $ 17.78 $ 16.92 $ 16.11 8.0 $ 21.84 $ 20.79 $ 19.79 $ 18.84 $ 17.94 $ 17.09 - --------------------------------------------------------------------------------------------------------------------------------- Implied Total Value / Calendar 1998 EBITDA Multiple: 5.0x 7.1x 6.8x 6.5X 6.3x 6.1x 5.9x 5.5 7.5 7.2 7.0 6.7 6.4 6.2 6.0 8.0 7.7 7.4 7.1 6.8 6.6 6.5 8.4 8.1 7.8 7.5 7.2 6.9 Multiple 7.0 8.9 8.5 8.2 7.9 7.6 7.3 7.5 9.3 8.9 8.6 8.3 7.9 7.7 8.0 9.8 9.4 9.0 8.7 8.3 8.0 - ---------------------------------------------------------------------------------------------------------------------------------
93 PROJECT GOLDCAP BALANCE SHEET ASSUMPTIONS (DOLLARS IN THOUSANDS)
DEC. DEC. DEC. DEC. DEC. DEC. DEC. BALANCE SHEET DATA [1] 1997 1998 1999 2000 2001 2002 2003 -------- -------- -------- -------- -------- -------- ---------- Current Assets Less Cash and Equivalents Premiums Receivable from Subscribers $ 3,991 $ 3,958 $ 4,307 $ 4,652 $ 5,024 $ 5,326 $ 5,645 Patient Accounts Receivable 1,668 1,655 1,801 1,945 2,101 2,227 2,361 Income Taxes Receivable 175 226 246 266 287 304 322 Deferred Income Taxes 5,069 5,042 5,487 5,926 6,400 6,784 7,191 Other Current Assets 2,698 2,257 2,456 2,653 2,865 3,037 3,219 -------- -------- -------- -------- -------- -------- ---------- 13,601 13,138 14,298 15,442 16,677 17,678 18,739 Current Liabilities Less Current Debt Unearned Revenue $ 9,538 $ 9,030 $ 9,827 $ 10,614 $ 11,463 $ 12,150 $ 12,879 Accounts Payable 12,124 12,040 13,103 14,151 15,284 16,201 17,173 Accrued Interest Payable 109 75 82 88 95 101 107 Dental Claims Reserves 1,502 1,505 1,638 1,769 1,910 2,025 2,147 Other Current Liabilities 669 752 818 884 955 1,012 1,073 -------- -------- -------- -------- -------- -------- ---------- 23,942 23,402 25,468 27,506 29,706 31,489 33,378 Working Capital Less Cash and Equivalents and Current $(10,341) $(10,264) $(11,170) $(12,064) $(13,029) $(13,811) $ (14,639) ------------------------------------------------------------------------------------------------------------------- CHANGE IN NET WORKING CAPITAL $ 77 $ (906) $ (894) $ (965) $ (782) $ (829) ------------------------------------------------------------------------------------------------------------------- Restricted Funds $ 2,321 $ 2,257 $ 2,456 $ 2,653 $ 2,865 $ 3,037 $ 3,219 Reinsurance Receivable 5,417 5,644 6,142 6,634 7,164 7,594 8,050 Other Assets 1,454 1,129 1,229 1,327 1,433 1,519 1,610 Aggregate Reserves for Life Policies 5,331 5,267 5,732 6,191 6,686 7,087 7,512 Deferred Tax Liability 1,887 1,866 2,031 2,193 2,369 2,511 2,661 Other Liabilities 715 677 737 796 859 911 966 Assumptions (Percentage of Revenues): Current Assets Less Cash and Equivalents Premiums Receivable from Subscribers 2.63% 2.63% 2.63% 2.63% 2.63% 2.63% 2.63% Patient Accounts Receivable 1.10% 1.10% 1.10% 1.10% 1.10% 1.10% 1.10% Income Taxes Receivable 0.12% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% Deferred Income Taxes 3.34% 3.35% 3.35% 3.35% 3.35% 3.35% 3.35% Other Current Assets 1.78% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% Current Liabilities Less Current Debt Unearned Revenue 6.29% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% Accounts Payable 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% Accrued Interest Payable 0.07% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% Dental Claims Reserves 0.99% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Other Current Liabilities 0.44% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% Restricted Funds 1.53% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% Reinsurance Receivable 3.57% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% Other Assets 0.96% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% Aggregate Reserves for Life Policies 3.52% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% Deferred Tax Liability 1.24% 1.24% 1.24% 1.24% 1.24% 1.24% 1.24% Other Liabilities 0.47% 0.45% 0.45% 0.45% 0.45% 0.45% 0.45%
(1) Projections provided by the Company as of July 10, 1998. 94 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING ASSUMING $178.748 MILLION ($17.50 PER SHARE) PURCHASE PRICE FOR 100.0% OF THE EQUITY BENEFITS COMPANY TABLE OF CONTENTS - --------------------------------------------------------------------------------
EXHIBIT PAGE - -------------------------- ------ Sources and Uses of Funds 1 Forecasting Assumptions 2 Income Statement 3 Cash Flow Statement 4 Balance Sheet 5 Balance Sheet - Adjustments 6 Coverage Ratios and Financial Analysis 7 Return Analysis at 6.50x EBITDA 8 Return Analysis at 7.50x EBITDA 9
95 Page 1 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING ASSUMING $178.748 MILION ($17.50 PER SHARE) PURCHASE PRICE FOR 100.0% OF THE EQUITY (DOLLARS IN THOUSANDS)
----------------------------------------------------------------------------------------------------------- SOURCES & USES OF FUNDS ----------------------------------------------------------------------------------------------------------- SOURCES OF ACQUISITION FUNDS: APPLICATIONS OF ACQUISITION FUNDS: ----------------------------- ---------------------------------- Cash From Balance Sheet $ 0.0 0.0% Cash to Purchase 100.0% Revolving Facility 2,886.8 1.2% of Equity $178,747.8 Senior Term Loan 50,000.0 20.4% Paydown of Existing Debt 52,854.0 Subordinated Debt 100,000.0 40.9% Cash Fees and Expenses 12,916.0 ---------- Redeemable Preferred Stock 86,568.8 35.4% Common Stock 4,556.3 1.9% Management Investment 506.0 0.2% ---------- TOTAL SOURCES $244,517.8 TOTAL APPLICATIONS $244,517.8 ========== ========== ------------------------------------------------------------------------------------------------------------
Projected Years Ending December 31, -------------------------------------------------------------------------- 1999 2000 2001 2002 2003 - ------------------------------------------------------------------------------------------------------------------------------------ INCOME STATEMENT ITEMS: Net Sales $ 163,785.0 $ 176,888.0 $ 191,039.0 $ 202,501.4 $ 214,651.5 EBIT 21,393.8 24,409.2 27,644.1 30,147.4 32,807.0 % of Net Sales 13.06% 13.80% 14.47% 14.89% 15.28% Pretax Income 6,997.8 10,672.1 15,517.0 19,238.3 23,309.0 % of Net Sales 4.3% 6.0% 8.1% 9.5% 10.9% ------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME $(5,286.3) $(3,984.1) $(2,077.9) $(929.8) $319.7 % OF NET SALES (3.23)% (2.25)% (1.09)% (0.46)% 0.15% - ----------------------------------------------------------------------------------------------------------------------------------- CASH FLOW ITEMS: Cash Flow From Operations $ 1,303.1 $ 2,916.3 $ 5,267.2 $ 6,378.4 $ 7,739.5 Cash Flow From Investing (1,734.7) (2,238.0) (2,217.0) (2,270.8) (2,257.0) Cash Flow From Financing 5,556.9 4,422.6 3,374.8 2,422.3 1,574.5 ------------------------------------------------------------------------- Cash Flow (Deficit) Available to Decrease (Increase) Revolver or Increase Cash $ 5,125.2 $ 5,100.9 $ 6,425.0 $ 6,529.9 $ 7,057.0 ========================================================================= Pro Forma BALANCE SHEET ITEMS: 1998 ---- Cash and Equivalents $ 13,000.0 $ 15,648.8 $ 20,339.3 $ 26,764.4 $ 33,294.2 $ 40,351.2 Revolving Facility 2,886.8 410.3 0.0 0.0 0.0 0.0 Senior Term Loan 50,000.0 46,900.0 41,800.0 34,700.0 25,600.0 14,500.0 Subordinated Debt 100,000.0 100,000.0 100,000.0 100,000.0 100,000.0 100,000.0 Preferred Stock 86,568.8 95,225.6 104,748.2 115,223.0 126,745.3 139,419.8 ---------------------------------------------------------------------------------------- Total Debt and Preferred Stock 239,455.5 242,535.9 246,548.2 249,923.0 252,345.3 253,919.8 Total Stockholders' Equity (149,116.5) (154,402.8) (158,386.9) (160,464.8) (161,394.6) (161,074.9) ---------------------------------------------------------------------------------------- Total Invested Capital $ 90,339.0 $ 88,133.1 $ 88,161.3 $ 89,458.2 $ 90,950.7 $ 92,844.9 ========================================================================================
96 Page 2 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS) FORECASTING ASSUMPTIONS
Projected Years Ending December 31, Proj. -------------------------------------------------------------- INCOME STATEMENT 1998 1999 2000 2001 2002 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Revenue Growth Subscriber Premiums 4.95% 8.83% 8.00% 8.00% 6.00% 6.00% Dental Health Management NM NM NM NM NM NM Other Revenue -100.00% NM NM NM NM NM ------------------------------------------------------------------------- Total Revenue Growth -5.19% 8.83% 8.00% 8.00% 6.00% 6.00% Provider Fees and Claim Costs as a % of Subscriber Premiums 53.00% 53.00% 53.00% 53.00% 53.00% 53.00% Commissions as a % of Subscriber Premiums 8.96% 9.40% 9.50% 9.60% 9.70% 9.80% Premium Taxes as a % of Subscriber Premiums 0.78% 0.78% 0.78% 0.78% 0.78% 0.78% Benefits Co. G&A Expense as a % of Subscriber Premiums 21.00% 20.07% 19.32% 18.61% 18.26% 17.91% DHMI G&A Expense as a % of DHMI Revenues NA 0.00% 0.00% 0.00% 0.00% 0.00% EBITDA Margin 16.27% 16.76% 17.40% 18.02% 18.27% 18.51% Depreciation $ 3,283.0 $1,623.0 $1,942.0 $1,799.0 $1,939.2 $1,829.4 Depreciation as a % of Net Sales 2.18% 0.99% 1.10% 0.94% 0.96% 0.85% Existing Amortization $ 1,849.0 $1,849.0 $1,849.0 $1,849.0 $1,849.0 $1,849.0 Existing Amortization as a % of Net Sales 1.23% 1.13% 1.05% 0.97% 0.91% 0.86% EBIT Margin 12.9% 13.1% 13.8% 14.5% 14.9% 15.3% Interest Expense: Revolving Facility NM 8.25% 8.25% 8.25% 8.25% 8.25% Senior Term Loan NM 8.45% 8.45% 8.45% 8.45% 8.45% Subordinated Debt NM 11.00% 11.00% 11.00% 11.00% 11.00% Interest Income as % of Average Cash Balance NM 5.00% 5.00% 5.00% 5.00% 5.00% Other Non-Operating Exp (Inc) as a % of Net Sales 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Income Taxes as a % of Pretax 37.64% 41.00% 41.00% 41.00% 41.00% 41.00% Total Capital Expenditures $ 1,500.0 $2,000.0 $2,500.0 $2,500.0 $2,500.0 $2,500.0 % Net Sales 1.00% 1.22% 1.41% 1.31% 1.23% 1.16% Acquisition Expenditures (At Beginning of Year) $13,832.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Less Fair Value of Assets Acquired 0.0 0.0 0.0 0.0 0.0 0.0 Plus Liabilities Assumed 0.0 0.0 0.0 0.0 0.0 0.0 ------------------------------------------------------------------------- Additional Goodwill $13,832.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Projected Years Ending December 31, Actual -------------------------------------------------------------- BALANCE SHEET 1998 1999 2000 2001 2002 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Premiums Receivable as a % of Revenues 3.73% 3.73% 3.73% 3.73% 3.73% 3.73% Days in Receivables 13.6 13.6 13.6 13.6 13.6 13.6 Other Current Assets as a % of Revenues 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% Restricted Funds as a % of Subscriber Premiums 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% Other Assets as a % of Subscriber Premiums 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% Transaction Costs, Net $12,916.0 $10,332.8 $7,749.6 $5,166.4 $2,583.2 $0.0 Goodwill, Net 0.0 0.0 0.0 0.0 0.0 0.0 Accts Payable as a % of Revenues 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% Days in Payables 29.2 29.2 29.2 29.2 29.2 29.2 Unearned Revenue as a % of Net Sales 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% Accrued Interest Payable as a % of Net Sales 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% Dental Claims Reserves as a % of Net Sales 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Other Current Liabilities as % Net Sales 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% - ---------------------------------------------------------------------------------------------------------------------------------- DEBT AS A PERCENTAGE OF ORIGINAL BALANCE: REVOLVING FACILITY 100.00% 14.21% 0.00% 0.00% 0.00% 0.00% SENIOR TERM LOAN 100.00% 93.80% 83.60% 69.40% 51.20% 29.00% SUBORDINATED DEBT 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% REDEEMABLE PREFERRED STOCK 100.00% 110.00% 121.00% 133.10% 146.41% 161.05% - ----------------------------------------------------------------------------------------------------------------------------------
97 Page 3 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS)
Projected Years Ending December 31, Actual Proj. --------------------------------------------------------------- INCOME STATEMENT 1997 1998 1999 2000 2001 2002 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Net Sales Subscriber Premiums $143,396.0 $150,496.0 $163,785.0 $176,888.0 $191,039.0 $202,501.4 $214,651.5 Dental Health Management 7,113.0 0.0 0.0 0.0 0.0 0.0 0.0 Other Revenue 8,217.0 0.0 0.0 0.0 0.0 0.0 0.0 --------------------------------------------------------------------------------------- TOTAL NET SALES 158,726.0 150,496.0 163,785.0 176,888.0 191,039.0 202,501.4 214,651.5 Expenses Provider Fees and Claim Costs 79,690.0 79,761.0 86,806.1 93,750.6 101,250.7 107,325.7 113,765.3 Commissions 13,272.0 13,479.0 15,396.0 16,804.0 18,340.0 19,643.0 21,036.0 Premium Taxes 1,047.0 1,167.0 1,270.0 1,372.0 1,481.0 1,570.0 1,665.0 Benefits Co. G&A Expense 36,918.0 31,600.0 32,864.0 34,178.0 35,545.0 36,967.0 38,446.0 DHMI G&A Expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 --------------------------------------------------------------------------------------- Total Expenses 130,927.0 126,007.0 136,336.1 146,104.6 156,616.7 165,505.7 174,912.3 EBITDA 27,799.0 24,489.0 27,449.0 30,783.4 34,422.3 36,995.6 39,739.2 Depreciation 5,735.0 3,283.0 1,623.0 1,942.0 2,346.0 2,416.0 2,500.0 Existing Amortization 0.0 1,849.0 1,849.0 1,849.0 1,849.0 1,849.0 1,849.0 Acquisition-Related Amortization (30 Years) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Goodwill Amortization (40 Years) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Amortization of Transaction Costs (5 Years) 0.0 0.0 2,583.2 2,583.2 2,583.2 2,583.2 2,583.2 --------------------------------------------------------------------------------------- EBIT 22,064.0 19,357.0 21,393.8 24,409.2 27,644.1 30,147.4 32,807.0 Interest Expense: Revolving Facility 0.0 0.0 136.0 16.9 0.0 0.0 0.0 Senior Term Loan 0.0 0.0 4,094.0 3,747.6 3,232.1 2,547.7 1,694.2 Subordinated Debt 0.0 0.0 11,000.0 11,000.0 11,000.0 11,000.0 11,000.0 Other Interest Expense/(Income) 2,514.0 3,384.0 (834.1) (1,027.5) (2,105.0) (2,638.5) (3,196.2) --------------------------------------------------------------------------------------- Net Cash Interest Expense 2,514.0 3,384.0 14,396.0 13,737.0 12,127.2 10,909.1 9,498.0 Other Non-Operating Expense (Inc.) 2.0 0.0 0.0 0.0 0.0 0.0 0.0 --------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 19,548.0 15,973.0 6,997.8 10,672.1 15,517.0 19,238.3 23,309.0 Income Taxes 8,466.0 6,709.0 3,627.2 5,133.7 7,120.1 8,645.8 10,314.8 Extraordinary Loss 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Preferred Dividend - 10% PIK 0.0 0.0 8,656.9 9,522.6 10,474.8 11,522.3 12,674.5 --------------------------------------------------------------------------------------- NET INCOME AVAIL. TO COMMON $ 11,082.0 $ 9,264.0 $ (5,286.3) $ (3,984.1) $ (2,077.9) $ (929.8) $ 319.7 =================================================================================================================================== INCOME RATIOS & ANALYSIS: EBITDA as a % of Net Sales 17.51% 16.27% 16.76 % 17.40 % 18.02 % 18.27 % 18.51% EBIT as a % of Net Sales 13.90% 12.86% 13.06 % 13.80 % 14.47 % 14.89 % 15.28% Pretax Profit as a % of Net Sales 12.32% 10.61% 4.27 % 6.03 % 8.12 % 9.50 % 10.86% Net Income as a % of Net Sales 6.98% 6.16% (3.23)% (2.25)% (1.09)% (0.46)% 0.15%
98 Page 4 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS)
Projected Years Ending December 31, ---------------------------------------------------------------- CASH FLOW STATEMENT 1999 2000 2001 2002 2003 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATIONS Net Income Available to Common $(5,286.3) $(3,984.1) $(2,077.9) $ (929.8) $319.7 Adjustments to Reconcile Net Income to Net Cash Provided by (Used for) Operating Activities: Depreciation and Existing Amortization 3,472.0 3,791.0 4,195.0 4,265.0 4,349.0 Acquisition-Related Amortization (30 Year Amortization) 0.0 0.0 0.0 0.0 0.0 Transaction Costs (5 Year Amortization) 2,583.2 2,583.2 2,583.2 2,583.2 2,583.2 Goodwill (40 Year Amortization) 0.0 0.0 0.0 0.0 0.0 -------------------------------------------------------------- RECONCILIATION SUB TOTAL 6,055.2 6,374.2 6,778.2 6,848.2 6,932.2 Change in Current Assets Except Cash (1,159.9) (1,143.2) (1,236.0) (1,000.4) (1,060.4) Change in Current Liabilities Except Debt 2,066.4 2,037.5 2,200.5 1,782.4 1,889.3 -------------------------------------------------------------- NET SOURCE (USE) OF CASH PROVIDED BY WORKING CAPITAL 906.5 894.3 964.5 782.0 829.0 -------------------------------------------------------------- Change in Deferred Tax Asset 0.0 0.0 0.0 0.0 0.0 Change in Other Assets (597.0) (589.6) (636.8) (515.8) (546.7) Change in Other Liabilities 224.6 221.5 239.2 193.8 205.4 -------------------------------------------------------------- NET CASH PROVIDED BY (USED FOR) OPERATIONS 1,303.1 2,916.3 5,267.2 6,378.4 7,739.5 ============================================================== CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of Property and Equipment (2,000.0) (2,500.0) (2,500.0) (2,500.0) (2,500.0) Acquisition of Businesses, Net of Cash Acquired 0.0 0.0 0.0 0.0 0.0 Change in Restricted Funds (199.8) (196.5) (212.3) (171.9) (182.3) Change in Aggregate Reserves for Life Policies and Contracts 465.1 458.6 495.3 401.2 425.2 -------------------------------------------------------------- NET CASH PROVIDED BY (USED FOR) INVESTMENTS (1,734.7) (2,238.0) (2,217.0) (2,270.8) (2,257.0) ============================================================== CASH FLOWS FROM FINANCING ACTIVITIES: Net Borrowings (Repayments) Under Senior Debt (3,100.0) (5,100.0) (7,100.0) (9,100.0) (11,100.0) Net Borrowings (Repayments) Under Subordinated Debt 0.0 0.0 0.0 0.0 0.0 Paydown of Assumed Liabilities 0.0 0.0 0.0 0.0 0.0 Payments of Dividends on Preferred Stock 8,656.9 9,522.6 10,474.8 11,522.3 12,674.5 -------------------------------------------------------------- NET CASH PROVIDED BY (USED FOR) FINANCING $ 5,556.9 $ 4,422.6 $ 3,374.8 $ 2,422.3 $ 1,574.5 ============================================================== AFFECT ON SENIOR REVOLVING FACILITY: Cash From Balance Sheet (previous year) $13,000.0 $15,648.8 $20,339.3 $26,764.4 $ 33,294.2 Minimum Cash Balance 15,648.8 16,740.7 17,919.9 18,875.1 19,887.6 -------------------------------------------------------------- Cash Available (Required) From Balance Sheet (2,648.8) (1,091.9) 2,419.4 7,889.2 13,406.6 Cash Flow (Deficit) Available to (Increase) Decrease Revolver 5,125.2 5,100.9 6,425.0 6,529.9 7,057.0 Total Cash Available (Required) 2,476.5 4,009.0 8,844.4 14,419.1 20,463.6 Beginning Balance of Senior Revolving Facility 2,886.8 410.3 0.0 0.0 0.0 -------------------------------------------------------------- Cash Used to Decrease (Increase) Senior Revolving Facility 2,476.5 410.3 0.0 0.0 0.0 -------------------------------------------------------------- Ending Balance of Senior Revolving Facility $ 410.3 $ 0.0 $ 0.0 $ 0.0 $ 0.0 ==============================================================
99 Page 5 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS)
Projected Years Ending December 31, Pro Forma ---------------------------------------------------------------- BALANCE SHEET 1998 1999 2000 2001 2002 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and Equivalents $ 13,000.0 $ 15,648.8 $ 20,339.3 $ 26,764.4 $ 33,294.2 $ 40,351.2 Receivable, Net 5,613.0 6,108.6 6,597.3 7,125.1 7,552.6 8,005.8 Income Tax Receivable 226.0 246.0 265.0 287.0 304.0 322.0 Deferred Tax Asset 5,042.0 5,487.0 5,926.0 6,400.0 6,784.0 7,191.0 Other Current Assets 2,257.0 2,456.3 2,652.8 2,865.0 3,036.9 3,219.1 ------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 26,138.0 29,946.7 35,780.5 43,441.5 50,971.8 59,089.1 Restricted Funds 2,257.0 2,456.8 2,653.3 2,865.6 3,037.5 3,219.8 Fixed Assets 2,696.0 4,696.0 7,196.0 9,696.0 12,196.0 14,696.0 Less: Accumulated Depreciation 0.0 1,623.0 3,565.0 5,911.0 8,327.0 10,827.0 ------------------------------------------------------------------------------ NET FIXED ASSETS 2,696.0 3,073.0 3,631.0 3,785.0 3,869.0 3,869.0 Transaction Costs (5 Year Amortization) 12,916.0 10,332.8 7,749.6 5,166.4 2,583.2 0.0 New Goodwill (40 Year Amortization) 0.0 0.0 0.0 0.0 0.0 0.0 Existing Goodwill (40 Year Amortization) 70,772.0 68,923.0 67,074.0 65,225.0 63,376.0 61,527.0 Acquisition Goodwill (30 Year Amortization) 0.0 0.0 0.0 0.0 0.0 0.0 Deferred Tax Asset 0.0 0.0 0.0 0.0 0.0 0.0 Other Assets 6,773.0 7,370.0 7,959.6 8,596.4 9,112.2 9,658.9 ------------------------------------------------------------------------------ TOTAL ASSETS $ 121,552.0 $ 122,102.3 $ 124,848.0 $ 129,079.9 $ 132,949.7 $ 137,363.8 ============================================================================== Accounts Payable and Accrued Expenses $ 12,040.0 $ 13,103.1 $ 14,151.4 $ 15,283.5 $ 16,200.5 $ 17,172.6 Unearned Revenue 9,030.0 9,827.4 10,613.6 11,462.6 12,150.4 12,879.4 Accrued Interest Payable 75.0 81.6 88.2 95.2 100.9 107.0 Dental Claims Reserves 1,505.0 1,637.9 1,768.9 1,910.4 2,025.1 2,146.6 Other Current Liabilities 752.0 818.4 883.9 954.6 1,011.9 1,072.6 ------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 23,402.0 25,468.4 27,505.9 29,706.4 31,488.8 33,378.1 Aggregate Reserves for Life Policies and Contracts 5,267.0 5,732.1 6,190.7 6,685.9 7,087.1 7,512.3 Long-Term Debt: Revolving Facility 2,886.8 410.3 0.0 0.0 0.0 0.0 Senior Term Loan 50,000.0 46,900.0 41,800.0 34,700.0 25,600.0 14,500.0 Subordinated Debt 100,000.0 100,000.0 100,000.0 100,000.0 100,000.0 100,000.0 Redeemable Preferred Stock 86,568.8 95,225.6 104,748.2 115,223.0 126,745.3 139,419.8 ------------------------------------------------------------------------------ Total Long-Term Debt and Preferred Stock 239,455.5 242,535.9 246,548.2 249,923.0 252,345.3 253,919.8 Other Long-Term Liabilities 2,544.0 2,768.6 2,990.1 3,229.3 3,423.1 3,628.5 Stockholders' Equity: Common Stock and Paid In Capital (99,562.5) (99,562.5) (99,562.5) (99,562.5) (99,562.5) (99,562.5) Retained Earnings (49,554.0) (54,840.3) (58,824.4) (60,902.3) (61,832.1) (61,512.4) ------------------------------------------------------------------------------ Total Stockholders' Equity (149,116.5) (154,402.8) (158,386.9) (160,464.8) (161,394.6) (161,074.9) ------------------------------------------------------------------------------ TOTAL LIABILITIES & EQUITY $ 121,552.0 $ 122,102.3 $ 124,848.0 $ 129,079.9 $ 132,949.7 $ 137,363.8 ==============================================================================
100 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS)
Proj. Goodwill Acquisition Pro Forma Valuation Pro Forma BALANCE SHEET ADJUSTMENTS 1998 Write-Down Adjustments Acquisition Adjustments Close - ----------------------------------------------------------------------------------------------------------------------------------- Cash and Equivalents $ 13,000.0 $ 13,000.0 $ 13,000.0 Receivable, Net 5,613.0 5,613.0 5,613.0 Income Tax Receivable 226.0 226.0 226.0 Deferred Tax Asset 5,042.0 5,042.0 5,042.0 Other Current Assets 2,257.0 2,257.0 2,257.0 ---------------------------------------------------------------------------- TOTAL CURRENT ASSETS 26,138.0 0.0 0.0 26,138.0 0.0 26,138.0 Restricted Funds 2,257.0 2,257.0 2,257.0 Fixed Assets 2,696.0 2,696.0 2,696.0 Less: Accumulated Depreciation 0.0 0.0 ---------------------------------------------------------------------------- NET FIXED ASSETS 2,696.0 0.0 0.0 2,696.0 0.0 2,696.0 Transaction Costs (5 Year Amortization) 0.0 12,916.0 12,916.0 12,916.0 New Goodwill (40 Year Amortization) 0.0 0.0 0.0 Existing Goodwill (40 Year Amortization) 70,772.0 70,772.0 70,772.0 Deferred Tax Asset 0.0 0.0 0.0 Other Assets 6,773.0 6,773.0 6,773.0 ---------------------------------------------------------------------------- TOTAL ASSETS $108,636.0 $ 0.0 $ 12,916.0 $ 121,552.0 $ 0.0 $ 121,552.0 ============================================================================= Current Maturities of Long-Term Debt $ 0.0 $ 0.0 $ 0.0 Line of Credit 0.0 0.0 0.0 Accounts Payable and Accrued Expenses 12,040.0 12,040.0 12,040.0 Unearned Revenue 9,030.0 9,030.0 9,030.0 Accrued Interest Payable 75.0 75.0 75.0 Dental Claims Reserves 1,505.0 1,505.0 1,505.0 Other Current Liabilities 752.0 752.0 752.0 ---------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 23,402.0 0.0 0.0 23,402.0 0.0 23,402.0 Aggregate Reserves for Life Policies and Contracts 5,267.0 5,267.0 5,267.0 Long-Term Debt: Existing Capital Leases and Notes Payable 52,854.0 (52,854.0) 0.0 0.0 Revolving Facility 0.0 2,886.8 2,886.8 2,886.8 Senior Term Loan 0.0 50,000.0 50,000.0 50,000.0 Subordinated Debt 0.0 100,000.0 100,000.0 100,000.0 Redeemable Preferred Stock 0.0 86,568.8 86,568.8 86,568.8 ----------------------------------------------------------------------------- Total Long-Term Debt and Preferred Stock 52,854.0 0.0 186,601.5 239,455.5 0.0 239,455.5 Other Long-Term Liabilities 2,544.0 2,544.0 2,544.0 Stockholders' Equity: Common Stock and Paid In Capital 74,123.0 (173,685.5) (99,562.5) (99,562.5) Retained Earnings (49,554.0) (49,554.0) (49,554.0) ----------------------------------------------------------------------------- Total Stockholders' Equity 24,569.0 0.0 (173,685.5) (149,116.5) 0.0 (149,116.5) ----------------------------------------------------------------------------- TOTAL LIABILITIES & EQUITY $108,636.0 $ 0.0 $ 12,916.0 $ 121,552.0 $ 0.0 $ 121,552.0 =============================================================================
101 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS)
Projected Years Ending December 31, ------------------------------------------------------------------ COVERAGE RATIOS & FINANCIAL ANALYSIS 1999 2000 2001 2002 2003 - ----------------------------------------------------------------------------------------------------------------------------------- COVERAGE RATIOS: - ---------------- SUBORDINATED INTEREST COVERAGE - ------------------------------ Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) $ 27,449.0 $ 30,783.4 $ 34,422.3 $ 36,995.6 $ 39,739.2 Subordinated Interest $ 11,000.0 $ 11,000.0 $ 11,000.0 $ 11,000.0 $ 11,000.0 Subordinated Interest Coverage 2.50 2.80 3.13 3.36 3.61 ADJUSTED SUBORDINATED INTEREST COVERAGE - --------------------------------------- EBITDA less Capital Expenditures $ 25,449.0 $ 28,283.4 $ 31,922.3 $ 34,495.6 $ 37,239.2 Subordinated Interest $ 11,000.0 $ 11,000.0 $ 11,000.0 $ 11,000.0 $ 11,000.0 Adjusted Subordinated Interest Coverage 2.31 2.57 2.90 3.14 3.39 TOTAL INTEREST COVERAGE - ----------------------- Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) $ 27,449.0 $ 30,783.4 $ 34,422.3 $ 36,995.6 $ 39,739.2 Total Net Interest $ 14,396.0 $ 13,737.0 $ 12,127.2 $ 10,909.1 $ 9,498.0 Total Interest Coverage 1.91 2.24 2.84 3.39 4.18 TOTAL FINANCING COVERAGE - ------------------------ Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) $ 27,449.0 $ 30,783.4 $ 34,422.3 $ 36,995.6 $ 39,739.2 Total Net Interest + Principal Repayment 17,496.0 18,837.0 19,227.2 20,009.1 20,598.0 Total Interest Coverage 1.57 1.63 1.79 1.85 1.93 TOTAL FIXED COVERAGE - -------------------- Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) $ 27,449.0 $ 30,783.4 $ 34,422.3 $ 36,995.6 $ 39,739.2 Total Net Interest + Principal Repayment + Cap. Ex. $ 19,496.0 $ 21,337.0 $ 21,727.2 $ 22,509.1 $ 23,098.0 Total Fixed Coverage 1.41 1.44 1.58 1.64 1.72 MAINTENANCE OF FUNDED DEBT - -------------------------- Total Debt / EBITDA 8.84 8.01 7.26 6.82 6.39 Total Debt / EBITDA less Capital Expenditures 9.53 8.72 7.83 7.32 6.82 Total Senior Debt / EBITDA 1.72 1.36 1.01 0.69 0.36 FINANCIAL ANALYSIS: - ------------------- INCOME STATEMENT: - ----------------- EBIT Margin 13.06% 13.80% 14.47% 14.89% 15.28% Pretax Margin 4.27% 6.03% 8.12% 9.50% 10.86% Net Margin (3.23)% (2.25)% (1.09)% (0.46)% 0.15% Asset Turnover 1.34 1.42 1.48 1.52 1.56 Return on Average Assets (4.34)% (3.23)% (1.64)% (0.71)% 0.24% Return on Average Equity 3.48% 2.55% 1.30% 0.58% (0.20)% BALANCE SHEET: - -------------- Total Debt $ 242,535.9 $ 246,548.2 $ 249,923.0 $ 252,345.3 $ 253,919.8 Total Stockholders' Equity (154,402.8) (158,386.9) (160,464.8) (161,394.6) (161,074.9) Total Capitalization 88,133.1 88,161.3 89,458.2 90,950.7 92,844.9 Tangible Equity (223,325.8) (225,460.9) (225,689.8) (224,770.6) (222,601.9) Total Debt / Total Capitalization 275.19% 279.66% 279.37% 277.45% 273.49% Total Debt / Total Stockholders' Equity -157.08% -155.66% -155.75% -156.35% -157.64% Current Ratio (x) 1.18 1.30 1.46 1.62 1.77 Accounts Receivable Turns (x) 26.81 26.81 26.81 26.81 26.81 Accounts Receivable Days Outstanding 13.61 13.61 13.61 13.61 13.61 Accounts Payable Days Outstanding 29.20 29.20 29.20 29.20 29.20
102 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS) RETURN ANALYSIS--TERMINAL VALUE BASED ON AN EBITDA MULTIPLE OF 6.50x. - -------------------------------------------------------------------------------
% of Current CAPITAL STRUCTURE Cap'n Return ----- ------- Revolving Facility $ 2,886.8 1.2% 8.25% Senior Term Loan 50,000.0 20.4% 8.45% Weighted Subordinated Debt 100,000.0 40.9% 11.00% Average Preferred Stock 86,568.8 35.4% 0.00% Initial Investor Common 4,556.3 1.9% 52.86% Cost of Management Common 506.0 0.2% 67.69% Capital - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL NEW CAPITAL $244,517.8 100.0% 7.45% - ----------------------------------------------------------------------------------------------------------------------------------
PURCHASE MULTIPLE ANALYSIS
-------------------------------------------------------------- Firm Value Purchase Price Analysis: Year EBITDA Multiple -------------------------------------------------------------- PRO FORMA EQUITY $178,747.8 1998A $24,489.0 8.93 x + Pro Forma Debt 52,854.0 1999E 27,449.0 7.96 x - - Pro Forma Cash (13,000.0) 2000E 30,783.4 7.10 x ------------------------ -------------------------------------------------------------- FIRM VALUE PAID $218,601.8
TERMINAL VALUE CALCULATION AT END OF: --------------------------------------------------------------- Firm Value Multiple: 6.50x 1999 2000 2001 2002 2003 --------------------------------------------------------------- EBITDA $ 27,449.0 $ 30,783.4 $ 34,422.3 $ 36,995.6 $ 39,739.2 Firm Value at a 6.50 Multiple = 178,418.2 200,091.8 223,745.3 240,471.7 258,304.7 - Total Debt and Preferred Stock 242,535.9 246,548.2 249,923.0 252,345.3 253,919.8 + Excess Cash 15,648.8 20,339.3 26,764.4 33,294.2 40,351.2 --------------------------------------------------------------- --------------------------------------------------------------------------------------------------- VALUE OF COMMON EQUITY $(48,469.0) $(26,117.0) $ 586.6 $ 21,420.7 $ 44,736.1 MULTIPLE OF NET INCOME NM NM NM NM 139.9 ---------------------------------------------------------------------------------------------------
FIVE YEAR RETURNS - -------------------------------------------------------------------------------
-------- 1998 1999 2000 2001 2002 2003 IRR Equity % Cash Out Cash In Cash In Cash In Cash In Cash In % ----------------------------------------------------------------------------------------- Revolving Facility - ------------------ Principal $ (2,886.8) $ 2,476.5 $ 410.3 $ 0.0 $ 0.0 $ 0.0 Interest 136.0 16.9 0.0 0.0 0.0 Equity Ownership 0.000% 0.0 ----------------------------------------------------------------------------------------- TOTAL $ (2,886.8) $ 2,612.5 $ 427.2 $ 0.0 $ 0.0 $ 0.0 8.250% Senior Term Loan - ------------------ Principal $ (50,000.0) $ 3,100.0 $ 5,100.0 $ 7,100.0 $ 9,100.0 $ 25,600.0 Interest 4,094.0 3,747.6 3,232.1 2,547.7 1,694.2 Equity Ownership 0.000% 0.0 ----------------------------------------------------------------------------------------- TOTAL $ (50,000.0) $ 7,194.0 $ 8,847.6 $10,332.1 $11,647.7 $ 27,294.2 8.450% Subordinated Debt - ------------------- Principal $(100,000.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $100,000.0 Interest 11,000.0 11,000.0 11,000.0 11,000.0 11,000.0 Equity Ownership 0.000% 0.0 ----------------------------------------------------------------------------------------- TOTAL $(100,000.0) $11,000.0 $11,000.0 $11,000.0 $11,000.0 $111,000.0 11.000% Preferred Stock - --------------- Principal $ (86,568.8) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $139,419.8 Interest 0.0 0.0 0.0 0.0 0.0 Equity Ownership 0.000% 0.0 ----------------------------------------------------------------------------------------- TOTAL $ (86,568.8) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $139,419.8 10.000% Outside Investor Common Equity 85.000% $ (4,556.3) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 38,025.7 52.860% Combined Preferred and Common 85.000% $ (91,125.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $177,445.5 14.258% Management Common Equity 15.000% $ (506.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 6,710.4 67.695%
103 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS) RETURN ANALYSIS--TERMINAL VALUE BASED ON AN EBITDA MULTIPLE OF 7.50x. - ---------------------------------------------------------------------
% of Current CAPITAL STRUCTURE Cap'n Return ----- ------- Revolving Facility $ 2,886.8 1.2% 8.25% Senior Term Loan 50,000.0 20.4% 8.45% Weighted Subordinated Debt 100,000.0 40.9% 11.00% Average Preferred Stock 86,568.8 35.4% 0.00% Initial Investor Common 4,556.3 1.9% 73.58% Cost of Management Common 506.0 0.2% 90.43% Capital - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL NEW CAPITAL $ 244,517.8 100.0% 7.88% - -----------------------------------------------------------------------------------------------------------------------------------
PURCHASE MULTIPLE ANALYSIS --------------------------------------------------------------- Firm Value Purchase Price Analysis: Year EBITDA Multiple --------------------------------------------------------------- PRO FORMA EQUITY $178,747.8 1998A $24,489.0 9.46 x + Pro Forma Debt 52,854.0 1999E 27,449.0 8.44 x - - Pro Forma Cash 0.0 2000E 30,783.4 7.52 x ------------------------- --------------------------------------------------------------- FIRM VALUE PAID $231,601.8
TERMINAL VALUE CALCULATION AT END OF: --------------------------------------------------------------- Firm Value Multiple: 7.50 x 1999 2000 2001 2002 2003 --------------------------------------------------------------- EBITDA $ 27,449.0 $ 30,783.4 $ 34,422.3 $ 36,995.6 $ 39,739.2 Firm Value at a 7.50 Multiple = 205,867.1 230,875.2 258,167.6 277,467.4 298,043.9 - Total Debt and Preferred Stock 242,535.9 246,548.2 249,923.0 252,345.3 253,919.8 + Excess Cash 15,648.8 20,339.3 26,764.4 33,294.2 40,351.2 --------------------------------------------------------------- -------------------------------------------------------------------------------------------------- VALUE OF COMMON EQUITY $(21,020.0) $ 4,666.3 $ 35,009.0 $ 58,416.3 $ 84,475.3 MULTIPLE OF NET INCOME NM NM NM NM 264.3 -------------------------------------------------------------------------------------------------
FIVE YEAR RETURNS - -------------------------------------------------------------------------------
-------- 1998 1999 2000 2001 2002 2003 IRR Equity % Cash Out Cash In Cash In Cash In Cash In Cash In % ---------------------------------------------------------------------------------------- Revolving Facility - ------------------ Principal $ (2,886.8) $ 2,476.5 $ 410.3 $ 0.0 $ 0.0 $ 0.0 Interest 136.0 16.9 0.0 0.0 0.0 Equity Ownership 0.000% 0.0 ---------------------------------------------------------------------------------------- TOTAL $ (2,886.8) $ 2,612.5 $ 427.2 $ 0.0 $ 0.0 $ 0.0 8.250% Senior Term Loan - ------------------ Principal $ (50,000.0) $ 3,100.0 $ 5,100.0 $ 7,100.0 $ 9,100.0 $ 25,600.0 Interest 4,094.0 3,747.6 3,232.1 2,547.7 1,694.2 Equity Ownership 0.000% 0.0 ---------------------------------------------------------------------------------------- TOTAL $ (50,000.0) $ 7,194.0 $ 8,847.6 $10,332.1 $11,647.7 $ 27,294.2 8.450% Subordinated Debt - ------------------- Principal $(100,000.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $100,000.0 Interest 11,000.0 11,000.0 11,000.0 11,000.0 11,000.0 Equity Ownership 0.000% 0.0 ---------------------------------------------------------------------------------------- TOTAL $(100,000.0) $11,000.0 $11,000.0 $11,000.0 $11,000.0 $111,000.0 11.000% Preferred Stock - --------------- Principal $ (86,568.8) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $139,419.8 Interest 0.0 0.0 0.0 0.0 0.0 Equity Ownership 0.000% 0.0 ---------------------------------------------------------------------------------------- TOTAL $ (86,568.8) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $139,419.8 10.000% Outside Investor Common Equity 85.000% $ (4,556.3) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 71,804.0 73.583% Combined Preferred and Common 85.000% $ (91,125.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $211,223.8 18.310% Management Common Equity 15.000% $ (506.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 12,671.3 90.429%
EX-99.(B)(3) 5 FINANCIAL ANALYSIS PRESENTATION MATERIALS 7/27/98 1 - -------------------------------------------------------------------------------- PROJECT GOLDCAP VALUATION ANALYSIS JULY 27, 1998 THE ROBINSON-HUMPHREY COMPANY, LLC ATLANTA FINANCIAL CENTER 3333 PEACHTREE ROAD, NE, 10TH FLOOR ATLANTA, GEORGIA 30326 (404) 266-6000 - -------------------------------------------------------------------------------- 2 - -------------------------------------------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- I. Analysis of Proposed Transaction II. Summary of Valuation Approaches III. Summary Historical Financial Information IV. Summary Projected Financial Information V. Stock Price and Volume History VI. Stock Ownership VII. Market Comparison Analysis VIII. Analysis of Recent Merger & Acquisition Transactions IX. Discounted Cash Flow Analysis X. Going Private Analysis - -------------------------------------------------------------------------------- PROJECT GOLDCAP 3 PROJECT GOLDCAP ANALYSIS OF PROPOSED TRANSACTION - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
PURCHASE CURRENT NET VALUE OF TRANSACTION GOLDCAP PRESENT VALUE TOTAL PRICE PER SHARES EQUITY IN-THE-MONEY EQUITY NET OF DHDC DEFERRED TRANSACTION SHARE OUTSTANDING[1] VALUE OPTIONS VALUE DEBT[2] LIABILITIES[3] VALUE - --------- -------------- -------- ------------ ----------- ------- ---------------- ----------- $18.00 x 10,113 = $182,027 + $1,014 = $183,041 + $44,507 + $21,049 = $248,598
TRANSACTION EQUITY VALUE AS A MULTIPLE OF: TOTAL TRANSACTION VALUE AS A MULTIPLE OF: - --------------------------------------------------- ------------------------------------------------- CALENDAR CALENDAR -------------------------------- ------------------------------- LTM[4] 1998(E)[5] 1999(E)[5] LTM 1998(E) 1999(E) ------ ---------- ---------- ------ ------- ------- NET INCOME 17.3 x 17.0 x 15.0 x REVENUES 1.47 x 1.39 x 1.27 x EBITDA[6] 9.1 x 9.1 x 8.2 x BOOK VALUE[2] 2.8 x EBIT[7] 11.6 x 11.6 x 10.3 x
AVERAGE STOCK PRICE FOR LAST IPO ALL-TIME ALL-TIME STOCK PRICE ------------------------------------ PRICE HIGH CLOSING LOW CLOSING AS OF 7/24/98 5 DAYS 30 DAYS 60 DAYS 90 DAYS 5/24/95 PRICE (7/2/96) PRICE (1/27/98) ------------- ------ ------- ------- ------- ------- -------------- --------------- ACTUAL VALUE $13.25 $13.40 $14.21 $14.00 $14.32 $14.50 $51.69 $9.56 PREMIUM AT $18.00 PER SHARE 35.8% 34.3% 26.7% 28.6% 25.7% 24.1% (65.2%) 88.2%
STOCK PRICE BEFORE ANNOUNCEMENT ------------------------------------------ 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR ----------- ------------ ------------- ACTUAL VALUE $13.25[9] $13.38 $14.75 PREMIUM AT $18.00 PER SHARE 35.8% 34.6% 22.0%
- --------------------------------------- [1] As of June 30, 1998. [2] Net debt and book value as of June 30, 1998. [3] Consists of remaining DentLease funding obligation and repurchase of Series A preferred stock. [4] Excludes goodwill impairment charge of $59.0 million and other one-time charges of $9.4 million. Assumed tax rate is 38.0%. [5] Projections provided by Robinson-Humphrey Research dated April 28, 1998. [6] Defined as earnings before interest, taxes, depreciation and amortization. [7] Defined as earnings before interest and taxes. [8] Assumes announcement after the market close on July 27, 1998. 4 PROJECT GOLDCAP CURRENT VESTED OPTIONS SCHEDULE - --------------------------------------------------------------------------------
Cumulative Vested Vested Cumulative Options Exercise Aggregate Options Exercise Outstanding Price Exercise Price Outstanding Price - ---------------- ------------ -------------------- --------------- ------------------- 36,000 $ 0.49 $ 17,604.00 36,000 $ 17,604.00 6,750 $ 2.96 $ 19,986.75 42,750 $ 37,590.75 1,000 $ 5.89 $ 5,894.00 43,750 $ 43,484.75 10,000 $12.50 $ 125,000.00 53,750 $ 168,484.75 9,000 $14.50 $ 130,500.00 62,750 $ 298,984.75 80,000 $16.12 $ 1,289,600.00 142,750 $ 1,588,584.75 20,000 $16.34 $ 326,800.00 162,750 $ 1,915,384.75 80,000 $19.35 $ 1,548,000.00 242,750 $ 3,463,384.75 10,000 $20.50 $ 205,000.00 252,750 $ 3,668,384.75 20,000 $23.22 $ 464,400.00 272,750 $ 4,132,784.75 1,250 $26.00 $ 32,500.00 274,000 $ 4,165,284.75 20,000 $27.86 $ 557,200.00 294,000 $ 4,722,484.75 21,000 $29.00 $ 609,000.00 315,000 $ 5,331,484.75 150,750 $29.75 $ 4,484,812.50 465,750 $ 9,816,297.25 12,500 $30.25 $ 378,125.00 478,250 $10,194,422.25 57,000 $36.25 $ 2,066,250.00 535,250 $12,260,672.25 2,500 $39.50 $ 98,750.00 537,750 $12,359,422.25 2,000 $42.75 $ 85,500.00 539,750 $12,444,922.25 ---------- ------------- 539,750 $12,444,922.25
Cumulative Additional Deal Exercise In-the-Money Shares Fully Diluted Price [1] Price Options Outstanding Shares Out [2] - ------------- -------------- ---------------- --------------- ------------------ $18.00 $1,915,385 162,750 56,340 10,168,969
Cumulative Net Value of Deal In-the-Money Value of Exercise In-the-Money Price [1] Options Options Price Options - ------------- -------------- ---------------- --------------- ------------------ $18.00 162,750 $2,929,500 $1,915,385 $1,014,115
- ------------------------------------------------------ [1] Assumes 10,112,629 pre-deal shares outstanding. [2] Uses the treasury stock method. 5 PROJECT GOLDCAP ANALYSIS OF DHDC DEFERRED LIABILITIES - -------------------------------------------------------------------------------- (Dollars in Thousands)
Year Ending December 31, --------------------------------------------- 1997 1998 1999 2000 ---------- ---------- ---------- --------- Remaining Dent Lease Funding Obligation - - - $ 4,000 Present value [1] $2,947 DHDC Series A Preferred Stock $ 10,930 $ 14,318 $ 18,757 $ 24,572 -$10.0 million initial investment -Accrued dividends at 31% compounded annually Present value [1] $18,102 Present value of DHDC deferred liabilities $21,049 Per share $2.08
- ----------------------------------- [1] Discounted at 13.0% annually. [2] Issued September 12, 1997. Matures September 12, 2004. Purchase option begins February 28, 2001. 6 PROJECT GOLDCAP VALUATION SUMMARY - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARKET COMPARISON OF SELECTED PUBLIC COMPANIES - ---------------------------------------------- AVERAGE ------- DENTAL MANAGED CARE COMPANIES Aggregate Equity Value $135,718 Per Share Equity Value $ 13.42 DENTAL MANAGED CARE AND DENTAL PRACTICE MANAGEMENT COMPANIES Aggregate Equity Value $150,084 Per Share Equity Value $ 14.84 MULTI-MARKET HMO COMPANIES Aggregate Equity Value $198,826 Per Share Equity Value $ 19.66
7 PROJECT GOLDCAP VALUATION SUMMARY - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PURCHASE PRICE MULTIPLES ANALYSIS OF SELECTED M&A TRANSACTIONS - -------------------------------------------------------------- AVERAGE AVERAGE ------- ------- DENTAL MANAGED CARE ACQUISITIONS - HISTORICAL MULTPLES HMO ACQUISITIONS - HISTORICAL MULTIPLES Aggregate Equity Value $189,382 Aggregate Equity Value $252,678 Per Share Equity Value $ 18.73 Per Share Equity Value $ 24.99 DENTAL MANAGED CARE ACQUISITIONS - FORWARD MULTIPLES HMO ACQUISITIONS - FORWARD MULTIPLES Aggregate Equity Value $113,126 Aggregate Equity Value $189,497 Per Share Equity Value $ 11.19 Per Share Equity Value $ 18.74 UNITED DENTAL CARE ACQUISITIONS - HISTORICAL MULTIPLES MERGERSTAT REVIEW Aggregate Equity Value $205,628 Aggregate Equity Value $214,415 Per Share Equity Value $ 20.33 Per Share Equity Value $ 21.20 UNITED DENTAL CARE ACQUISITIONS - FORWARD MULTIPLES PREMIUMS ANALYSIS Aggregate Equity Value $205,745 Aggregate Equity Value $182,114 Per Share Equity Value $ 20.35 Per Share Equity Value $ 18.01 DENTAL MANAGED CARE AND DENTAL PRACTICE MANAGEMENT COMPANIES Aggregate Equity Value $173,724 Per Share Equity Value $ 17.18
8 PROJECT GOLDCAP VALUATION SUMMARY - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DISCOUNTED CASH FLOW ANALYSIS - ----------------------------- HIGH LOW AVERAGE ---- --- ------- EBIT EXIT MULTIPLE Aggregate Equity Value $295,516 $115,643 $180,396 Per Share Equity Value $ 29.22 $ 11.44 $ 17.84 EBITDA EXIT MULTIPLE Aggregate Equity Value $252,125 $109,001 $166,210 Per Share Equity Value $ 24.93 $ 10.78 $ 16.44 AVERAGE AGGREGATE EQUITY VALUE $173,303 PER SHARE EQUITY VALUE $ 17.14
9 PROJECT GOLDCAP HISTORICAL INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS SIX MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ENDED JUNE 30, ----------------------------- ------------------- ------------------- 1995 1996 1997 1997 1998 1997 1998 -------- -------- -------- -------- -------- -------- -------- Revenues: Subscriber premiums $104,898 $135,807 $143,396 $ 35,636 $ 35,422 $ 71,488 $ 71,404 Affiliated practice revenue -- -- 7,113 -- 5,292 -- 11,115 Other revenue 1,763 5,262 8,217 2,199 1,728 4,547 3,486 -------- -------- -------- -------- -------- -------- -------- Total revenue 106,661 141,069 158,726 37,835 42,442 76,035 86,005 Expenses: Dental care providers' fees and claim costs 62,218 73,431 81,690 [1] 19,544 19,428 [1] 39,450 38,934 Commissions 10,763 12,184 13,272 3,172 3,265 6,364 6,612 Premium taxes 1,392 1,018 1,047 265 261 521 455 DHMI operating expense -- -- -- -- 4,605 -- 9,867 General and administrative 19,435 30,394 44,318 [2] 7,860 8,374 [2] 15,827 16,667 Depreciation and amortization 2,717 5,153 5,735 1,321 1,379 2,676 2,854 Goodwill impairment -- -- 58,953 -- -- -- -- -------- -------- -------- -------- -------- -------- -------- Total expenses 96,525 122,180 205,015 32,162 37,312 64,838 75,388 -------- -------- -------- -------- -------- -------- -------- Operating income (loss) 10,136 18,889 (46,289)[3] 5,673 5,130 [3] 11,197 10,617 Other expense (income): Interest income (735) (585) (725) (161) (254) (415) (499) Interest expense 1,970 1,935 3,239 708 1,013 1,446 2,172 Other, net (68) (219) 2 (45) -- (61) (3) -------- -------- -------- -------- -------- -------- -------- Total other expense 1,167 1,131 2,516 502 759 970 1,669 -------- -------- -------- -------- -------- -------- -------- Income (loss) before provision for income taxes and extraordinary item 8,969 17,758 (48,805) 5,171 4,371 10,227 8,948 Income tax provision 3,765 7,866 4,900 2,332 1,878 4,504 3,850 -------- -------- -------- -------- -------- -------- -------- Income (loss) before extraordinary item 5,204 9,892 (53,705) 2,839 2,493 5,723 5,098 Extraordinary loss on early extinguishment of debt, net of income tax benefit 498 -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- Net income (loss) $ 4,706 $ 9,892 $(53,705)[3] $ 2,839 $ 2,493 [3]$ 5,723 $ 5,098 ======== ======== ======== ======== ======== ======== ======== Income (loss) per common share - diluted $ 0.68 $ 0.97 $( 5.32)[3] $ 0.28 $ 0.25 [3]$ 0.56 $ 0.50 Extraordinary loss 0.07 -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- Net income (loss) per common share $ 0.61 $ 0.97 $( 5.32) $ 0.28 $ 0.25 $ 0.56 $ 0.50 ======== ======== ======== ======== ======== ======== ======== Diluted weighted average common shares outstanding 7,352 10,177 10,098 10,167 10,175 10,173 10,178 ======== ======== ======== ======== ======== ======== ======== EBITDA (excluding one-time charges) $ 12,853 $ 24,042 $ 27,799 $ 6,994 $ 6,509 $ 13,873 $ 13,471 EBITDA per share: $ 1.75 $ 2.36 $ 2.75 $ 0.69 $ 0.64 $ 1.36 $ 1.32 After-tax EBITDA per share: $ 1.01 $ 1.32 $ 1.56 $ 0.38 $ 0.36 $ 0.76 $ 0.75
- ------------------------------------------- [1] Includes a $2.0 million one-time charge associated with terminating an indemnity relationship. [2] Includes $7.4 million in unusual and one-time charges. [3] Excluding goodwill impairment charge and one-time charges, Goldcap would have reported $22.1 million in operating income, $11.1 million in net income and $1.10 in net income per share. 10 PROJECT GOLDCAP COMMON-SIZED HISTORICAL INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, ---------------------------------- ----------------------------- 1995 1996 1997 1997 1998 --------- -------- -------- ---------- ------------- Revenues: Subscriber premiums 98.3% 96.3% 90.3% 94.2% 83.5% Affiliated practice revenue 0.0% 0.0% 4.5% 0.0% 12.5% Other revenue 1.7% 3.7% 5.2% 5.8% 4.1% ----- ----- ----- ----- ----- Total revenue 100.0% 100.0% 100.0% 100.0% 100.0% Expenses: Dental care providers' fees and claim costs 58.3% 52.1% 51.5% [1] 51.7% 45.8% Commissions 10.1% 8.6% 8.4% 8.4% 7.7% Premium taxes 1.3% 0.7% 0.7% 0.7% 0.6% DHMI operating expense 0.0% 0.0% 0.0% 0.0% 10.9% General and administrative 18.2% 21.5% 27.9% [2] 20.8% 19.7% Depreciation and amortization 2.5% 3.7% 3.6% 3.5% 3.2% Goodwill impairment 0.0% 0.0% 37.1% 0.0% 0.0% ----- ----- ----- ----- ----- Total expenses 90.5% 86.6% 129.2% 85.0% 87.9% ----- ----- ----- ----- ----- Operating income (loss) 9.5% 13.4% (29.2%)[3] 15.0% 12.1% Other expense (income): Interest income (0.7%) (0.4%) (0.5%) (0.4%) (0.6%) Interest expense 1.8% 1.4% 2.0% 1.9% 2.4% Other, net (0.1%) (0.2%) 0.0% (0.1%) 0.0% ----- ----- ----- ----- ----- Total other expense 1.1% 0.8% 1.6% 1.3% 1.8% ----- ----- ----- ----- ----- Income (loss) before provision for income taxes and extraordinary item 8.4% 12.6% (30.7%) 13.7% 10.3% Income tax provision 3.5% 5.6% 3.1% 6.2% 4.4% ----- ----- ----- ----- ----- Income (loss) before extraordinary item 4.9% 7.0% (33.8%) 7.5% 5.9% Extraordinary loss on early extinguishment of debt, net of income tax benefit 0.5% 0.0% 0.0% 0.0% 0.0% ----- ----- ----- ----- ----- Net income (loss) 4.4% 7.0% (33.8%)[3] 7.5% 5.9% ===== ===== ===== ===== ===== EBITDA (excluding one-time charges) 12.1% 17.0% 17.5% 18.5% 15.3% SIX MONTHS ENDED JUNE 30, --------------------------- 1997 1998 ---------- ----------- Subscriber premiums 94.0% 83.0% Affiliated practice revenue 0.0% 12.9% Other revenue 6.0% 4.1% ----- ----- Total revenue 100.0% 100.0% Expenses: Dental care providers' fees and claim costs 51.9% 45.3% Commissions 8.4% 7.7% Premium taxes 0.7% 0.5% DHMI operating expense 0.0% 11.5% General and administrative 20.8% 19.4% Depreciation and amortization 3.5% 3.3% Goodwill impairment 0.0% 0.0% ----- ----- Total expenses 85.3% 87.7% ----- ----- Operating income (loss) 14.7% 12.3% Other expense (income): Interest income (0.5%) (0.6%) Interest expense 1.9% 2.5% Other, net (0.1%) (0.0%) ----- ----- Total other expense 1.3% 1.9% ----- ----- Income (loss) before provision for income taxes and extraordinary item 13.5% 10.4% Income tax provision 5.9% 4.5% ----- ----- Income (loss) before extraordinary item 7.5% 5.9% Extraordinary loss on early extinguishment of debt, net of income tax benefit 0.0% 0.0% ----- ----- Net income (loss) 7.5% 5.9% ===== ===== EBITDA (excluding one-time charges) 18.2% 15.7%
- -------------------------------------------------- [1] Includes a $2.0 million one-time charge associated with terminating an indemnity relationship. [2] Includes $7.4 million in unusual and one-time charges. [3] Excluding goodwill impairment charge and one-time charges, Goldcap would have reported an operating income margin of 13.9% and a net income margin of 7.0%. 11 PROJECT GOLDCAP HISTORICAL BALANCE SHEET INFORMATION (DOLLARS IN THOUSANDS)
DECEMBER 31, MARCH 31, JUNE 30, --------------------------------------- ----------- ---------- 1995 1996 1997 1998 1998 ----------- ---------- ---------- ----------- ---------- ASSETS Current assets: Cash and cash equivalents $ 40,388 $ 26,959 $ 21,963 $ 15,568 $ 9,726 Accrued interest receivable 84 48 -- -- 15 Premiums receivable from subscribers 3,637 3,121 5,554 4,556 4,440 Patient accounts receivable -- -- 1,668 2,201 2,100 Income taxes receivable -- 247 175 -- -- Assets held for sale 532 -- -- -- -- Deferred income taxes 1,416 3,106 5,081 5,081 2,578 Other current assets 197 602 2,842 4,067 1,932 -------- -------- --------- --------- --------- Total current assets 46,254 34,083 37,283 31,473 20,791 Restricted funds 1,463 2,070 2,321 2,234 2,320 Property and equipment, net 1,937 2,977 6,292 8,691 12,265 Excess of purchase price over net assets acquired 71,063 135,040 96,296 100,072 100,736 Noncompetition agreements 1,521 945 325 168 13 Investment in DHDC -- -- 1,500 1,500 1,500 Unamortized loan fees 172 189 -- -- 23 Reinsurance receivable 6,332 5,388 5,417 5,467 5,493 Cash surrender value of officers' life insurance 155 140 -- -- 207 Deferred income taxes 243 2,026 -- -- -- Other assets 256 1,309 1,437 1,849 1,947 -------- -------- --------- --------- --------- TOTAL ASSETS $129,396 $184,167 $ 150,871 $ 151,454 $ 145,295 ======== ======== ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Unearned revenue $ 10,300 $ 9,582 $ 9,538 $ 9,231 $ 9,197 Accounts payable and accrued expenses 7,372 10,956 14,855 13,552 11,502 Income taxes payable 883 -- -- -- 140 Accrued interest payable -- 390 109 152 110 Life policy and contract claims reserves 37 68 -- -- 63 Dental claims reserves 2,437 1,421 1,502 1,839 1,904 Other current liabilities 12 1,856 63 63 (3,327) -------- -------- --------- --------- --------- Total current liabilities 21,041 24,273 26,067 24,837 19,589 Aggregate reserves for life policies and contracts 5,323 5,338 5,331 5,355 5,372 Aggregate reserves for dental contracts 172 -- -- -- -- Notes payable -- 41,663 56,595 55,102 54,233 Deferred tax liability -- -- 1,887 1,887 -- Deferred compensation expense 384 338 298 287 276 Other liabilities 299 372 417 1,217 453 -------- -------- --------- --------- --------- Total liabilities 27,219 71,984 90,595 88,685 79,922 -------- -------- --------- --------- --------- Commitments and contingencies Stockholders' equity: Preferred stock -- -- -- -- -- Common stock 100 101 101 101 101 Additional paid-in capital 95,707 95,820 97,618 97,618 97,618 Retained earnings 6,370 16,262 (37,443) (34,950) (32,346) -------- -------- --------- --------- --------- Total stockholders' equity 102,177 112,183 60,276 62,769 65,373 -------- -------- --------- --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $129,396 $184,167 $ 150,871 $ 151,454 $ 145,295 ======== ======== ========= ========= =========
12 PROJECT GOLDCAP COMMON-SIZED HISTORICAL BALANCE SHEET INFORMATION (DOLLARS IN THOUSANDS)
DECEMBER 31, MARCH 31, JUNE 30, ------------------------------- ---------- --------- 1995 1996 1997 1998 1998 ------ ------- ------ ---------- --------- ASSETS Current assets: Cash and cash equivalents 31.2% 14.6% 14.6% 10.3% 6.7% Accrued interest receivable 0.1% 0.0% 0.0% 0.0% 0.0% Premiums receivable from subscribers 2.8% 1.7% 3.7% 3.0% 3.1% Patient accounts receivable 0.0% 0.0% 1.1% 1.5% 1.4% Income taxes receivable 0.0% 0.1% 0.1% 0.0% 0.0% Assets held for sale 0.4% 0.0% 0.0% 0.0% 0.0% Deferred income taxes 1.1% 1.7% 3.4% 3.4% 1.8% Other current assets 0.2% 0.3% 1.9% 2.7% 1.3% ----- ----- ----- ----- ----- Total current assets 35.7% 18.5% 24.7% 20.8% 14.3% Restricted funds 1.1% 1.1% 1.5% 1.5% 1.6% Property and equipment, net 1.5% 1.6% 4.2% 5.7% 8.4% Excess of purchase price over net assets acquired 54.9% 73.3% 63.8% 66.1% 69.3% Noncompetition agreements 1.2% 0.5% 0.2% 0.1% 0.0% Investment in DHDC 0.0% 0.0% 1.0% 1.0% 1.0% Unamortized loan fees 0.1% 0.1% 0.0% 0.0% 0.0% Reinsurance receivable 4.9% 2.9% 3.6% 3.6% 3.8% Cash surrender value of officers' life insurance 0.1% 0.1% 0.0% 0.0% 0.1% Deferred income taxes 0.2% 1.1% 0.0% 0.0% 0.0% Other assets 0.2% 0.7% 1.0% 1.2% 1.3% ----- ----- ----- ----- ----- TOTAL ASSETS 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== ===== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Unearned revenue 8.0% 5.2% 6.3% 6.1% 6.3% Accounts payable and accrued expenses 5.7% 5.9% 9.8% 8.9% 7.9% Income taxes payable 0.7% 0.0% 0.0% 0.0% 0.1% Accrued interest payable 0.0% 0.2% 0.1% 0.1% 0.1% Life policy and contract claims reserves 0.0% 0.0% 0.0% 0.0% 0.0% Dental claims reserves 1.9% 0.8% 1.0% 1.2% 1.3% Other current liabilities 0.0% 1.0% 0.0% 0.0% (2.3%) ----- ----- ----- ----- ----- Total current liabilities 16.3% 13.2% 17.3% 16.4% 13.5% Aggregate reserves for life policies and contracts 4.1% 2.9% 3.5% 3.5% 3.7% Aggregate reserves for dental contracts 0.1% 0.0% 0.0% 0.0% 0.0% Notes payable 0.0% 22.6% 37.5% 36.4% 37.3% Deferred tax liability 0.0% 0.0% 1.3% 1.2% 0.0% Deferred compensation expense 0.3% 0.2% 0.2% 0.2% 0.2% Other liabilities 0.2% 0.2% 0.3% 0.8% 0.3% ----- ----- ----- ----- ----- Total liabilities 21.0% 39.1% 60.0% 58.6% 55.0% ----- ----- ----- ----- ----- Commitments and contingencies Stockholders' equity: Preferred stock 0.0% 0.0% 0.0% 0.0% 0.0% Common stock 0.1% 0.1% 0.1% 0.1% 0.1% Additional paid-in capital 74.0% 52.0% 64.7% 64.5% 67.2% Retained earnings 4.9% 8.8% (24.8%) (23.1%) (22.3%) ----- ----- ----- ----- ----- Total stockholders' equity 79.0% 60.9% 40.0% 41.4% 45.0% ----- ----- ----- ----- ----- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
13 PROJECT GOLDCAP HISTORICAL STATEMENT OF CASH FLOWS INFORMATION (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, -------------------------------- ---------------------------- 1995 1996 1997 1997 1998 -------- -------- -------- -------- -------- Cash flows from operating activities: Net income (loss) $ 4,706 $ 9,892 $(53,705) $ 2,839 $ 2,493 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,855 5,248 5,735 1,348 1,379 Goodwill impairment -- -- 58,953 -- -- (Gain) loss on sale of assets held for sale 23 (174) -- -- -- Gain on sale of property and equipment -- (53) (12) (10) -- Loss on sale of property and equipment -- -- 65 -- -- Bad debt expense -- -- 183 -- -- Extraordinary loss on early extinguishment of debt 803 -- -- -- -- Deferred income tax expense (benefit) (255) 1,526 2,136 553 -- Changes in assets and liabilities: Premiums receivable from subscribers (203) 1,813 (2,433) (1,033) 465 Patient receivables -- -- (1,029) -- -- Income taxes receivable 213 (231) 71 856 1,313 Other assets (1,181) (73) (3,487) (662) (1,687) Unearned revenue 1,213 (1,445) (59) 201 (307) Accounts payable and accrued expenses (424) (3,200) (300) (1,393) (1,453) Income taxes payable 854 (903) -- -- -- Other liabilities (146) (2,895) (1,781) (1,242) (854) -------- -------- -------- -------- -------- Net cash provided by operating activities 8,458 9,505 4,337 1,457 1,349 -------- -------- -------- -------- -------- Cash flows from investing activities: Additions to property and equipment (1,076) (2,394) (3,985) (873) (2,838) Proceeds from sale of assets held for sale 1,323 694 -- -- -- Increase in restricted cash (106) (607) (175) (2) 87 Proceeds from sale of property and equipment -- 253 37 18 -- Cash surrender value of life insurance (28) 15 (28) -- -- Purchases of businesses, net of cash acquired (31,188) (62,462) (20,770) (715) (3,500) -------- -------- -------- -------- -------- Net cash used in investing activities (31,075) (64,501) (24,921) (1,572) (6,251) -------- -------- -------- -------- -------- Cash flows from financing activities: Repayment of notes payable (26,600) 57,697 59,456 -- -- Borrowings under credit agreement 25,000 (16,034) (44,525) -- -- Repayments under credit agreement (25,000) (112) -- (3,663) (1,493) Loan fees paid (240) -- -- -- -- Repayment of subordinated notes (7,947) -- -- -- -- Retirement of preferred stock (5,377) -- -- -- -- Proceeds from initial public offering, net of issuance cost 51,442 -- -- -- -- Proceeds from secondary public offering, net of issuance cost 42,047 -- -- -- -- Proceeds from exercise of stock options -- 66 21 -- -- Proceeds from employee stock purchase plan -- 48 53 -- -- Tax benefit realized from exercise of nonqualified stock options -- -- 583 583 -- Other -- (98) -- -- -- -------- -------- -------- -------- -------- Net cash provided by financing activities 53,325 41,567 15,588 (3,080) (1,493) -------- -------- -------- -------- -------- Decrease (increase) in cash and cash equivalents 30,708 (13,429) (4,996) (3,195) (6,395) Cash and equivalents, beginning of period 9,680 40,388 26,959 26,959 21,963 -------- -------- -------- -------- -------- Cash and equivalents, end of period $ 40,388 $ 26,959 $ 21,963 $ 23,764 $ 15,568 ======== ======== ======== ======== ========
14 PROJECT GOLDCAP HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ------------------ ---------------- MARCH 31, JUNE 30, JUNE 30, 1998 1998 1998 --------- -------- -------- Revenues: Subscriber premiums $ 35,422 $ 35,982 $ 71,404 Affiliated practice revenue 5,292 5,824 11,115 Other revenue 1,728 1,757 3,486 -------- -------- -------- Total revenue 42,442 43,563 86,005 Expenses: Dental care providers' fees and claim costs 19,428 19,505 38,934 Commissions 3,265 3,346 6,612 Premium taxes 261 194 455 DHMI operating expenses 4,605 5,262 9,867 General and administrative 8,374 8,293 16,667 Goodwill impairment -- -- -- Depreciation and amortization 1,379 1,475 2,854 -------- -------- -------- Total operating expenses 37,312 38,075 75,388 -------- -------- -------- Operating income (loss) 5,130 5,487 10,617 Other (income)/ expense Interest (income) (254) (245) (499) Interest expense 1,013 1,159 2,172 Other, net 0 (3) (3) -------- -------- -------- Total other (income) expense 759 910 1,669 -------- -------- -------- Income before income taxes 4,371 4,577 8,948 Provision for income taxes 1,878 1,972 3,850 -------- -------- -------- % rate 43.0% 43.1% 43.0% Net income before extraordinary item $ 2,493 $ 2,605 $ 5,098 ======== ======== ======== Diluted weighted average shares outstanding 10,175 10,181 10,178 Diluted earnings per share $ 0.25 $ 0.26 $ 0.50 EBITDA (excluding one-time charges) 6,509 6,962 13,471 EBITDA per share $ 0.64 $ 0.68 $ 1.32 After-tax EBITDA per share $ 0.36 $ 0.39 $ 0.75
15 PROJECT GOLDCAP HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ------------------ ---------------- MARCH 31, JUNE 30, JUNE 30, 1998 1998 1998 --------- -------- -------- Revenues: Subscriber premiums 83.5% 82.6% 83.0% Affiliated practice revenue 12.5% 13.4% 12.9% Other revenue 4.1% 4.0% 4.1% ----- ----- ----- Total revenue 100.0% 100.0% 100.0% Expenses: Dental care providers' fees and claim costs 45.8% 44.8% 45.3% Commissions 7.7% 7.7% 7.7% Premium taxes 0.6% 0.4% 0.5% DHMI operating expenses 10.9% 12.1% 11.5% General and administrative 19.7% 19.0% 19.4% Goodwill impairment 0.0% 0.0% 0.0% Depreciation and amortization 3.2% 3.4% 3.3% ----- ----- ----- Total operating expenses 87.9% 87.4% 87.7% ----- ----- ----- Operating income (loss) 12.1% 12.6% 12.3% Other (income)/ expense Interest (income) (0.6%) (0.6%) (0.6%) Interest expense 2.4% 2.7% 2.5% Other, net 0.0% (0.0%) (0.0%) ----- ----- ----- Total other (income) expense 1.8% 2.1% 1.9% ----- ----- ----- Income before income taxes 10.3% 10.5% 10.4% Provision for income taxes 4.4% 4.5% 4.5% ----- ----- ----- Net income 5.9% 6.0% 5.9% ===== ===== ===== EBITDA (excluding one-time charges) 15.3% 16.0% 15.7%
16 PROJECT GOLDCAP HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED -------------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1997 1997 1997 1997 --------- --------- ------------- ------------ ------------ Revenues: Subscriber premiums $ 35,636 $ 35,852 $ 35,982 $ 35,926 $ 143,396 Affiliated practice revenue -- -- 3,343 3,774 7,113 Other revenue 2,199 2,348 1,809 1,857 8,217 --------- --------- --------- --------- --------- Total revenue 37,835 38,200 41,134 41,557 158,726 Expenses: Dental care providers' fees and claim costs 19,544 19,906 19,849 22,391 [1] 81,690 [1] Commissions 3,172 3,192 3,552 3,356 13,272 Premium taxes 265 256 263 263 1,047 DHMI operating expenses -- -- -- -- -- General and administrative 7,860 7,967 10,231 18,260 [2] 44,318 [2] Goodwill impairment -- -- -- 58,953 58,953 Depreciation and amortization 1,321 1,355 1,553 1,506 5,735 --------- --------- --------- --------- --------- Total operating expenses 32,162 32,676 35,448 104,729 205,015 --------- --------- --------- --------- --------- Operating income (loss) 5,673 5,524 5,686 (63,172)[3] (46,289)[4] Other (income)/ expense Interest (income) (161) (254) (79) (231) (725) Interest expense 708 738 783 1,010 3,239 Other, net (45) (16) (5) 68 2 --------- --------- --------- --------- --------- Total other (income) expense 502 468 699 847 2,516 --------- --------- --------- --------- --------- Income before income taxes 5,171 5,056 4,987 (64,019) (48,805) Provision for income taxes 2,332 2,172 2,055 (1,659) 4,900 --------- --------- --------- --------- --------- % rate 45.1% 43.0% 41.2% NM (10.0%) Net income before extraordinary item $ 2,839 $ 2,884 $ 2,932 ($62,360)[3] ($53,705)[4] ========= ========= ========= ========= ========= Diluted weighted average shares outstanding 10,167 10,179 10,238 10,110 10,098 Diluted earnings per share $ 0.28 $ 0.28 $ 0.29 ($6.17)[3] ($5.32)[4] EBITDA (excluding one-time charges) 6,994 6,879 7,239 6,687 27,799 EBITDA per share $ 0.69 $ 0.68 $ 0.71 $ 0.66 $ 2.75 After-tax EBITDA per share $ 0.38 $ 0.39 $ 0.42 $ 0.37 $ 1.56
- --------------------------------------- [1] Includes a $2.0 million one-time charge associated with terminating an indemnity relationship. [2] Includes $7.4 million in unusual and one-time charges. [3] Excluding goodwill impairment charge and one-time charges, Goldcap would have reported $5.2 million in operating income, $2.4 million in net income and $0.24 in net income per share. [4] Excluding goodwill impairment charge and one-time charges, Goldcap would have reported $22.1 million in operating income, $11.1 million in net income and $1.10 in net income per share. 17 PROJECT GOLDCAP COMMON-SIZED HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED -------------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1997 1997 1997 1997 --------- --------- ------------- ------------ ------------ Revenues: Subscriber premiums 94.2% 93.9% 87.5% 86.4% 90.3% Affiliated practice revenue 0.0% 0.0% 8.1% 9.1% 4.5% Other revenue 5.8% 6.1% 4.4% 4.5% 5.2% ----- ----- ----- ------ ----- Total revenue 100.0% 100.0% 100.0% 100.0% 100.0% Expenses: Dental care providers' fees and claim costs 51.7% 52.1% 48.3% 53.9%[1] 51.5%[1] Commissions 8.4% 8.4% 8.6% 8.1% 8.4% Premium taxes 0.7% 0.7% 0.6% 0.6% 0.7% DHMI operating expenses 0.0% 0.0% 0.0% 0.0% 0.0% General and administrative 20.8% 20.9% 24.9% 43.9%[2] 27.9%[2] Goodwill impairment 0.0% 0.0% 0.0% 141.9% 37.1% Depreciation and amortization 3.5% 3.5% 3.8% 3.6% 3.6% ----- ----- ----- ------ ----- Total operating expenses 85.0% 85.5% 86.2% 252.0% 129.2% ----- ----- ----- ------ ----- Operating income (loss) 15.0% 14.5% 13.8% (152.0%)[3] (29.2%)[4] Other (income)/ expense Interest (income) (0.4%) (0.7%) (0.2%) (0.6%) (0.5%) Interest expense 1.9% 1.9% 1.9% 2.4% 2.0% Other, net (0.1%) (0.0%) (0.0%) 0.2% 0.0% ----- ----- ----- ------ ----- Total other (income) expense 1.3% 1.2% 1.7% 2.0% 1.6% ----- ----- ----- ------ ----- Income before income taxes 13.7% 13.2% 12.1% (154.1%) (30.7%) Provision for income taxes 6.2% 5.7% 5.0% (4.0%) 3.1% ----- ----- ----- ------ ----- Net income 7.5% 7.5% 7.1% (150.1%)[3] (33.8%)[4] ===== ===== ===== ====== ===== EBITDA (excluding one-time charges) 18.5% 18.0% 17.6% 16.1% 17.5%
- ----------------------------------- [1] Includes a $2.0 million one-time charge associated with terminating an indemnity relationship. [2] Includes $7.4 million in unusual and one-time charges. [3] Excluding goodwill impairment charge and one-time charges, Goldcap would have reported an operating income margin of 12.5% and a net income margin of 5.8%. [4] Excluding goodwill impairment charge and one-time charges, Goldcap would have reported an operating income margin of 13.9% and a net income margin of 7.0%. 18 PROJECT GOLDCAP HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED -------------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1997 1997 1997 1997 --------- --------- ------------- ------------ ------------ Revenues: Subscriber premiums $ 30,831 $ 33,384 $ 35,443 $ 36,149 $ 135,807 Affiliated practice revenue -- -- -- -- -- Other revenue 554 1,377 1,704 1,627 5,262 -------- -------- -------- -------- --------- Total revenue 31,385 34,761 37,147 37,776 141,069 Expenses: Dental care providers' fees and claim costs 16,481 17,967 19,196 19,787 73,431 Commissions 3,013 3,091 2,949 3,131 12,184 Premium taxes 259 264 264 231 1,018 DHMI operating expenses -- -- -- -- -- General and administrative 6,771 7,831 7,964 7,828 30,394 Goodwill impairment -- -- -- -- -- Depreciation and amortization 1,047 1,287 1,389 1,430 5,153 -------- -------- -------- -------- --------- Total operating expenses 27,571 30,440 31,762 32,407 122,180 -------- -------- -------- -------- --------- Operating income (loss) 3,814 4,321 5,385 5,369 18,889 Other (income)/ expense Interest (income) (153) (145) (117) (170) (585) Interest expense 46 434 697 758 1,935 Other, net (10) (299) 96 (6) (219) -------- -------- -------- -------- --------- Total other (income) expense (117) (10) 676 582 1,131 -------- -------- -------- -------- --------- Income before income taxes 3,931 4,331 4,709 4,787 17,758 Provision for income taxes 1,694 1,924 2,103 2,145 7,866 -------- -------- -------- -------- --------- % rate 43.1% 44.4% 44.7% 44.8% 44.3% Net income before extraordinary item $ 2,237 $ 2,407 $ 2,606 $ 2,642 $ 9,892 ======== ======== ======== ======== ========= Diluted weighted average shares outstanding 10,156 10,185 10,163 10,172 10,177 Diluted earnings per share $ 0.22 $ 0.24 $ 0.26 $ 0.26 $ 0.97 EBITDA (excluding one-time charges) 4,861 5,608 6,774 6,799 24,042 EBITDA per share $ 0.48 $ 0.55 $ 0.67 $ 0.67 $ 2.36 After-tax EBITDA per share $ 0.27 $ 0.31 $ 0.37 $ 0.37 $ 1.32
19 PROJECT GOLDCAP COMMON-SIZED HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED -------------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1997 1997 1997 1997 --------- --------- ------------- ------------ ------------ Revenues: Subscriber premiums 98.2% 96.0% 95.4% 95.7% 96.3% Affiliated practice revenue 0.0% 0.0% 0.0% 0.0% 0.0% Other revenue 1.8% 4.0% 4.6% 4.3% 3.7% ----- ----- ----- ----- ----- Total revenue 100.0% 100.0% 100.0% 100.0% 100.0% Expenses: Dental care providers' fees and claim costs 52.5% 51.7% 51.7% 52.4% 52.1% Commissions 9.6% 8.9% 7.9% 8.3% 8.6% Premium taxes 0.8% 0.8% 0.7% 0.6% 0.7% DHMI operating expenses 0.0% 0.0% 0.0% 0.0% 0.0% General and administrative 21.6% 22.5% 21.4% 20.7% 21.5% Goodwill impairment 0.0% 0.0% 0.0% 0.0% 0.0% Depreciation and amortization 3.3% 3.7% 3.7% 3.8% 3.7% ----- ----- ----- ----- ----- Total operating expenses 87.8% 87.6% 85.5% 85.8% 86.6% ----- ----- ----- ----- ----- Operating income (loss) 12.2% 12.4% 14.5% 14.2% 13.4% Other (income)/ expense Interest (income) (0.5%) (0.4%) (0.3%) (0.5%) (0.4%) Interest expense 0.1% 1.2% 1.9% 2.0% 1.4% Other, net (0.0%) (0.9%) 0.3% (0.0%) (0.2%) ----- ----- ----- ----- ----- Total other (income) expense (0.4%) (0.0%) 1.8% 1.5% 0.8% ----- ----- ----- ----- ----- Income before income taxes 12.5% 12.5% 12.7% 12.7% 12.6% Provision for income taxes 5.4% 5.5% 5.7% 5.7% 5.6% ----- ----- ----- ----- ----- Net income 7.1% 6.9% 7.0% 7.0% 7.0% ===== ===== ===== ===== ===== EBITDA (excluding one-time charges) 15.5% 16.1% 18.2% 18.0% 17.0%
20 PROJECT GOLDCAP HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED -------------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1997 1997 1997 1997 --------- --------- ------------- ------------ ------------ Revenues: Subscriber premiums $ 22,790 $ 23,238 $ 31,463 $ 27,407 $ 104,898 Affiliated practice revenue -- -- -- -- -- Other revenue 240 238 409 875 1,763 -------- -------- -------- -------- --------- Total revenue 23,031 23,476 31,872 28,282 106,661 Expenses: Dental care providers' fees and claim costs 13,700 13,832 18,802 15,884 62,218 Commissions 2,592 2,674 3,115 2,382 10,763 Premium taxes 324 353 375 340 1,392 DHMI operating expenses -- -- -- -- -- General and administrative 3,740 3,896 5,721 6,078 19,435 Goodwill impairment -- -- -- -- -- Depreciation and amortization 565 533 818 800 2,717 -------- -------- -------- -------- --------- Total operating expenses 20,921 21,288 28,831 25,484 96,525 -------- -------- -------- -------- --------- Operating income (loss) 2,109 2,188 3,041 2,798 10,136 Other (income)/ expense Interest (income) (31) (96) (181) (427) (735) Interest expense 949 630 352 39 1,970 Other, net 12 (7) (23) (50) (68) -------- -------- -------- -------- --------- Total other (income) expense 929 527 148 (438) 1,167 -------- -------- -------- -------- --------- Income before income taxes 1,180 1,661 2,893 3,236 8,969 Provision for income taxes 523 709 1,246 1,288 3,765 -------- -------- -------- -------- --------- % rate 44.3% 42.7% 43.1% 39.8% 42.0% Net income before extraordinary item $ 658 $ 952 $ 1,647 $ 1,948 $ 5,204 ======== ======== ======== ======== ========= Diluted weighted average shares outstanding 5,500 6,500 9,041 10,150 7,352 Diluted earnings per share $ 0.12 $ 0.15 $ 0.18 $ 0.19 $ 0.68 EBITDA (excluding one-time charges) 2,674 2,721 3,859 3,598 12,853 EBITDA per share $ 0.49 $ 0.42 $ 0.43 $ 0.36 $ 1.75 After-tax EBITDA per share $ 0.27 $ 0.24 $ 0.24 $ 0.22 $ 1.01
21 PROJECT GOLDCAP COMMON-SIZED HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED -------------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1997 1997 1997 1997 --------- --------- ------------- ------------ ------------ Revenues: Subscriber premiums 99.0% 99.0% 98.7% 96.9% 98.3% Affiliated practice revenue 0.0% 0.0% 0.0% 0.0% 0.0% Other revenue 1.0% 1.0% 1.3% 3.1% 1.7% ----- ----- ----- ----- ----- Total revenue 100.0% 100.0% 100.0% 100.0% 100.0% Expenses: Dental care providers' fees and claim costs 59.5% 58.9% 59.0% 56.2% 58.3% Commissions 11.3% 11.4% 9.8% 8.4% 10.1% Premium taxes 1.4% 1.5% 1.2% 1.2% 1.3% DHMI operating expenses 0.0% 0.0% 0.0% 0.0% 0.0% General and administrative 16.2% 16.6% 17.9% 21.5% 18.2% Goodwill impairment 0.0% 0.0% 0.0% 0.0% 0.0% Depreciation and amortization 2.5% 2.3% 2.6% 2.8% 2.5% ----- ----- ----- ----- ----- Total operating expenses 90.8% 90.7% 90.5% 90.1% 90.5% ----- ----- ----- ----- ----- Operating income (loss) 9.2% 9.3% 9.5% 9.9% 9.5% Other (income)/ expense Interest (income) (0.1%) (0.4%) (0.6%) (1.5%) (0.7%) Interest expense 4.1% 2.7% 1.1% 0.1% 1.8% Other, net 0.1% (0.0%) (0.1%) (0.2%) (0.1%) ----- ----- ----- ----- ----- Total other (income) expense 4.0% 2.2% 0.5% (1.5%) 1.1% ----- ----- ----- ----- ----- Income before income taxes 5.1% 7.1% 9.1% 11.4% 8.4% Provision for income taxes 2.3% 3.0% 3.9% 4.6% 3.5% ----- ----- ----- ----- ----- Net income before extraordinary item 2.9% 4.1% 5.2% 6.9% 4.9% ===== ===== ===== ===== ===== EBITDA (excluding one-time charges) 11.6% 11.6% 12.1% 12.7% 12.1%
22 PROJECT GOLDCAP HISTORICAL EBITDA ANALYSIS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED -------------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1997 1997 1997 1997 --------- --------- ------------- ------------ ------------ EBITDA $2,674 $2,721 $3,859 $3,598 $12,853 EBITDA margin 11.6% 11.6% 12.1% 12.7% 12.1% EBITDA per share $ 0.49 $ 0.42 $ 0.43 $ 0.36 $ 1.75 After-tax EBITDA per share $ 0.27 $ 0.24 $ 0.24 $ 0.22 $ 1.01
THREE MONTHS ENDED YEAR ENDED -------------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1997 1997 1997 1997 --------- --------- ------------- ------------ ------------ EBITDA $4,861 $5,608 $6,774 $6,799 $24,042 EBITDA margin 15.5% 16.1% 18.2% 18.0% 17.0% EBITDA per share $ 0.48 $ 0.55 $ 0.67 $ 0.67 $ 2.36 After-tax EBITDA per share $ 0.27 $ 0.31 $ 0.37 $ 0.37 $ 1.32
THREE MONTHS ENDED YEAR ENDED -------------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1997 1997 1997 1997 1997 --------- --------- ------------- ------------ ------------ EBITDA (excluding one-time charges) $6,994 $6,879 $7,239 $6,687 $27,799 EBITDA margin 18.5% 18.0% 17.6% 16.1% 17.5% EBITDA per share $ 0.69 $ 0.68 $ 0.71 $ 0.66 $ 2.75 After-tax EBITDA per share $ 0.38 $ 0.39 $ 0.42 $ 0.37 $ 1.56
THREE MONTHS ENDED ------------------------- MARCH 31, JUNE 30, 1998 1998 --------- -------- EBITDA $6,509 $6,962 EBITDA margin 15.3% 16.0% EBITDA per share $ 0.64 $ 0.68 After-tax EBITDA per share $ 0.36 $ 0.39
23 PROJECT GOLDCAP ROBINSON-HUMPHREY RESEARCH PROJECTED QUARTERLY INCOME STATEMENT INFORMATION [1] (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDING YEAR ENDING --------------------------------------------------------- ------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 (A) 1998 1998 1998 1998 ---------- --------- ------------- ------------ ------------ Revenues: Subscriber premiums $ 35,422 $ 35,627 $ 36,226 $ 36,837 $ 144,118 Affiliated practice revenue 5,292 6,250 7,250 8,250 27,042 Other revenue 1,728 1,800 1,825 1,850 7,202 --------- --------- --------- --------- --------- Total revenue 42,442 43,677 45,301 46,937 178,357 Expenses: Dental care providers' fees and claim costs 19,428 19,773 20,106 20,445 79,751 Commissions 3,265 3,278 3,333 3,389 13,265 Premium taxes 261 284 294 305 1,144 DHMI operating expenses 4,605 5,313 6,163 6,930 23,010 General and administrative 8,374 8,430 8,381 8,589 33,774 Depreciation and amortization 1,379 1,509 1,505 1,501 5,895 --------- --------- --------- --------- --------- Total operating expenses 37,312 38,587 39,782 41,159 156,839 --------- --------- --------- --------- --------- Operating income (loss) 5,130 5,091 5,520 5,777 21,518 Other (income)/ expense Interest (income) (254) (351) (389) (431) (1,424) Interest expense 1,013 1,014 1,014 1,014 4,056 Other, net -- -- -- -- -- --------- --------- --------- --------- --------- Total other (income) expense 759 663 625 583 2,632 --------- --------- --------- --------- --------- Income before income taxes 4,371 4,427 4,894 5,193 18,886 Provision for income taxes 1,878 1,904 2,105 2,233 8,121 --------- --------- --------- --------- --------- % rate 43% 43% 43% 43% 43% Net income $ 2,493 $ 2,524 $ 2,790 $ 2,960 $ 10,767 ========= ========= ========= ========= ========= Diluted weighted average shares outstanding 10,167 10,180 10,185 10,190 10,183 Diluted earnings per share $ 0.25 $ 0.25 $ 0.27 $ 0.29 $ 1.06 EBITDA 6,509 6,600 7,025 7,278 27,413 EBITDA per share $ 0.64 $ 0.65 $ 0.69 $ 0.71 $ 2.69 After-Tax EBITDA per share $ 0.37 $ 0.37 $ 0.39 $ 0.41 $ 1.53 THREE MONTHS ENDING YEAR ENDING --------------------------------------------------------- ----------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1999 1999 1999 1999 1999 ---------- ---------- ------------- ------------ ----------- Revenues: Subscriber premiums $ 37,146 $ 37,140 $ 37,448 $ 38,084 $ 149,818 Affiliated practice revenue 8,750 9,250 9,750 10,250 38,000 Other revenue 1,873 1,895 1,932 1,975 7,674 --------- --------- --------- --------- --------- Total revenue 47,769 48,285 49,130 50,309 195,492 Expenses: Dental care providers' fees and claim costs 20,802 20,724 20,971 21,327 83,821 Commissions 3,492 3,491 3,520 3,580 14,083 Premium taxes 310 314 319 327 1,271 DHMI operating expenses 7,350 7,770 8,190 8,610 31,920 General and administrative 8,360 8,450 8,598 8,678 34,085 Depreciation and amortization 1,553 1,560 1,567 1,573 6,253 --------- --------- --------- --------- --------- Total operating expenses 41,867 42,309 43,165 44,095 171,433 --------- --------- --------- --------- --------- Operating income (loss) 5,902 5,976 5,965 6,213 24,056 Other (income)/ expense Interest (income) (420) (434) (463) (493) (1,810) Interest expense 1,014 1,014 1,014 1,014 4,058 Other, net -- -- -- -- -- --------- --------- --------- --------- --------- Total other (income) expense 594 580 551 521 2,248 --------- --------- --------- --------- --------- Income before income taxes 5,308 5,395 5,413 5,692 21,808 Provision for income taxes 2,282 2,320 2,328 2,448 9,378 --------- --------- --------- --------- --------- % rate 43% 43% 43% 43% 43% Net income $ 3,025 $ 3,075 $ 3,086 $ 3,244 $ 12,431 ========= ========= ========= ========= ========= Diluted weighted average shares outstanding 10,400 10,400 10,400 10,400 10,400 Diluted earnings per share $ 0.29 $ 0.30 $ 0.30 $ 0.31 $ 1.20 EBITDA 7,455 7,536 7,532 7,786 30,309 EBITDA per share $ 0.72 $ 0.72 $ 0.72 $ 0.75 $ 2.91 After-Tax EBITDA per share $ 0.41 $ 0.41 $ 0.41 $ 0.43 $ 1.66
- ------------------------------------ [1] Projections dated April 28, 1998. 24 PROJECT GOLDCAP COMMON-SIZED ROBINSON-HUMPHREY RESEARCH PROJECTED QUARTERLY INCOME STATEMENT INFORMATION [1] (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDING YEAR ENDING ----------------------------------------------------- ------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 (A) 1998 1998 1998 1998 ---------- -------- ------------ ------------ ------------ Revenues: Subscriber premiums 83.5% 81.6% 80.0% 78.5% 80.8% Affiliated practice revenue 12.5% 14.3% 16.0% 17.6% 15.2% Other revenue 4.1% 4.1% 4.0% 3.9% 4.0% ----- ----- ----- ----- ----- Total revenue 100.0% 100.0% 100.0% 100.0% 100.0% Expenses: Dental care providers' fees and claim costs 45.8% 45.3% 44.4% 43.6% 44.7% Commissions 7.7% 7.5% 7.4% 7.2% 7.4% Premium taxes 0.6% 0.7% 0.6% 0.6% 0.6% DHMI operating expenses 10.9% 12.2% 13.6% 14.8% 12.9% General and administrative 19.7% 19.3% 18.5% 18.3% 18.9% Depreciation and amortization 3.2% 3.5% 3.3% 3.2% 3.3% ----- ----- ----- ----- ----- Total operating expenses 87.9% 88.3% 87.8% 87.7% 87.9% ----- ----- ----- ----- ----- Operating income (loss) 12.1% 11.7% 12.2% 12.3% 12.1% Other (income)/ expense Interest (income) -0.6% -0.8% -0.9% -0.9% -0.8% Interest expense 2.4% 2.3% 2.2% 2.2% 2.3% Other, net 0.0% 0.0% 0.0% 0.0% 0.0% ----- ----- ----- ----- ----- Total other (income) expense 1.8% 1.5% 1.4% 1.2% 1.5% ----- ----- ----- ----- ----- Income before income taxes 10.3% 10.1% 10.8% 11.1% 10.6% Provision for income taxes 4.4% 4.4% 4.6% 4.8% 4.6% ----- ----- ----- ----- ----- Net income 5.9% 5.8% 6.2% 6.3% 6.0% ===== ===== ===== ===== ===== EBITDA 15.3% 15.1% 15.5% 15.5% 15.4% THREE MONTHS ENDING YEAR ENDING ----------------------------------------------------- ------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1999 1999 1999 1999 1999 ---------- -------- ------------ ----------- ------------ Revenues: Subscriber premiums 77.8% 76.9% 76.2% 75.7% 76.6% Affiliated practice revenue 18.3% 19.2% 19.8% 20.4% 19.4% Other revenue 3.9% 3.9% 3.9% 3.9% 3.9% ----- ----- ----- ----- ----- Total revenue 100.0% 100.0% 100.0% 100.0% 100.0% Expenses: Dental care providers' fees and claim costs 43.5% 42.9% 42.7% 42.4% 42.9% Commissions 7.3% 7.2% 7.2% 7.1% 7.2% Premium taxes 0.6% 0.7% 0.6% 0.6% 0.7% DHMI operating expenses 15.4% 16.1% 16.7% 17.1% 16.3% General and administrative 17.5% 17.5% 17.5% 17.2% 17.4% Depreciation and amortization 3.3% 3.2% 3.2% 3.1% 3.2% ----- ----- ----- ----- ----- Total operating expenses 87.6% 87.6% 87.9% 87.6% 87.7% ----- ----- ----- ----- ----- Operating income (loss) 12.4% 12.4% 12.1% 12.3% 12.3% Other (income)/ expense Interest (income) -0.9% -0.9% -0.9% -1.0% -0.9% Interest expense 2.1% 2.1% 2.1% 2.0% 2.1% Other, net 0.0% 0.0% 0.0% 0.0% 0.0% ----- ----- ----- ----- ----- Total other (income) expense 1.2% 1.2% 1.1% 1.0% 1.1% ----- ----- ----- ----- ----- Income before income taxes 11.1% 11.2% 11.0% 11.3% 11.2% Provision for income taxes 4.8% 4.8% 4.7% 4.9% 4.8% ----- ----- ----- ----- ----- Net income 6.3% 6.4% 6.3% 6.4% 6.4% ===== ===== ===== ===== ===== EBITDA 15.6% 15.6% 15.3% 15.5% 15.5%
- ------------------------------------ [1] Projections dated April 28, 1998. 25 PROJECT GOLDCAP CONSOLIDATED PROJECTED INCOME STATEMENT INFORMATION [1] - ------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
PROJECTED YEAR ENDING DECEMBER 31, ----------------------------------------------------------------------------------- 1998 1999 2000 2001 2002 2003 -------- ------- -------- --------- ------- -------- Revenues: Benefits revenues $150,496 $163,785 $176,888 $191,039 $202,501 $214,651 DHMI patient revenues 22,329 24,773 27,422 30,354 33,600 37,193 DHDC management fee 2,190 2,367 2,620 2,900 3,210 3,554 Dentlease rental fees 11 13 14 16 18 20 -------- -------- -------- -------- -------- -------- Total revenues 175,026 190,938 206,944 224,309 239,329 255,417 % Growth 10.3% 9.1% 8.4% 8.4% 6.7% 6.7% Expenses: Benefits expenses 126,007 136,336 146,105 156,617 165,506 174,912 DHMI expenses 23,320 23,505 26,018 28,801 31,880 35,289 Depreciation and amortization 5,865 4,213 4,560 4,992 5,095 5,213 -------- -------- -------- -------- -------- -------- Total expenses 155,192 164,054 176,683 190,410 202,481 215,414 -------- -------- -------- -------- -------- -------- Operating income 19,834 26,884 30,261 33,900 36,848 40,003 % Growth -10.1% 35.5% 12.6% 12.0% 8.7% 8.6% Interest expense 3,384 4,100 4,100 4,100 4,100 4,100 -------- -------- -------- -------- -------- -------- Income before income taxes 16,450 22,784 26,161 29,800 32,748 35,903 Provision for income taxes 6,909 9,569 10,988 12,516 13,754 15,079 -------- -------- -------- -------- -------- -------- Net income $ 9,541 $ 13,215 $ 15,174 $ 17,284 $ 18,994 $ 20,824 ======== ======== ======== ======== ======== ======== % Growth -13.9% 38.5% 14.8% 13.9% 9.9% 9.6% Diluted shares outstanding 10,183 10,400 10,600 10,800 11,000 11,200 Diluted earnings per share $ 0.94 $ 1.27 $ 1.43 $ 1.60 $ 1.73 $ 1.86 EBITDA $ 25,699 $ 31,097 $ 34,821 $ 38,892 $ 41,943 $ 45,216
- ---------------------------------------- [1] Projections provided by management. 26 PROJECT GOLDCAP CONSOLIDATED PROJECTED COMMON-SIZED INCOME STATEMENT INFORMATION [1] - -------------------------------------------------------------------------------
PROJECTED YEAR ENDING DECEMBER 31, ----------------------------------------------------------------------------------- 1998 1999 2000 2001 2002 2003 -------- ------- -------- --------- ------- -------- Revenues: Benefits revenues 86.0% 85.8% 85.5% 85.2% 84.6% 84.0% DHMI patient revenues 12.8% 13.0% 13.3% 13.5% 14.0% 14.6% DHDC management fee 1.3% 1.2% 1.3% 1.3% 1.3% 1.4% Dentlease rental fees 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ------ ------ ------ ------- ------ ------ Total revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Expenses: Benefits expenses 72.0% 71.4% 70.6% 69.8% 69.2% 68.5% DHMI expenses 13.3% 12.3% 12.6% 12.8% 13.3% 13.8% Depreciation and amortization 3.4% 2.2% 2.2% 2.2% 2.1% 2.0% ------ ------ ------ ------- ------ ------ Total expenses 88.7% 85.9% 85.4% 84.9% 84.6% 84.3% Operating income 11.3% 14.1% 14.6% 15.1% 15.4% 15.7% Interest expense 1.9% 2.1% 2.0% 1.8% 1.7% 1.6% ------ ------ ------ ------- ------ ------ Income before income taxes 9.4% 11.9% 12.6% 13.3% 13.7% 14.1% Provision for income taxes 3.9% 5.0% 5.3% 5.6% 5.7% 5.9% ------ ------ ------ ------- ------ ------ Net income 5.5% 6.9% 7.3% 7.7% 7.9% 8.2% ====== ====== ====== ======= ====== ====== EBITDA 14.7% 16.3% 16.8% 17.3% 17.5% 17.7%
- ---------------------------------------- [1] Projections provided by management. 27 PROJECT GOLDCAP BENEFITS COMPANY PROJECTED INCOME STATEMENTS [1] - ------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
PROJECTED YEAR ENDING DECEMBER 31, ----------------------------------------------------------------------------- 1998 1999 2000 2001 2002 2003 -------- ------- -------- --------- ------- -------- Total revenues $150,496 $163,785 $176,888 $191,039 $202,501 $214,651 % Growth -0.7% 8.8% 8.0% 8.0% 6.0% 6.0% Expenses Dental care providers' fees and claim costs 79,761 86,806 93,751 101,251 107,326 113,765 Commissions 13,479 15,396 16,804 18,340 19,643 21,036 Premium taxes 1,167 1,270 1,372 1,481 1,570 1,665 General and administrative 31,600 32,864 34,178 35,545 36,967 38,446 Depreciation and amortization 5,132 3,472 3,793 4,197 4,268 4,351 -------- -------- -------- -------- -------- -------- Total expenses 131,139 139,808 149,898 160,814 169,774 179,263 -------- -------- -------- -------- -------- -------- Operating income 19,357 23,977 26,990 30,225 32,727 35,388 % Growth NA 23.9% 12.6% 12.0% 8.3% 8.1% Interest expense 4,313 5,000 5,000 5,000 5,000 5,000 Less interest income 929 900 900 900 900 900 -------- -------- -------- -------- -------- -------- Income before income taxes 15,973 19,877 22,890 26,125 28,627 31,288 Provision for income taxes 6,709 8,348 9,614 10,973 12,023 13,141 -------- -------- -------- -------- -------- -------- Net income $ 9,264 $ 11,529 $ 13,276 $ 15,153 $ 16,604 $ 18,147 ======== ======== ======== ======== ======== ======== % Growth NA 24.4% 15.2% 14.1% 9.6% 9.3% EBITDA $ 24,489 $ 27,449 $ 30,783 $ 34,422 $ 36,995 $ 39,739 Goodwill $ 1,849 $ 1,849 $ 1,849 $ 1,849 $ 1,849 $ 1,849 Tax rate 42.0% 42.0% 42.0% 42.0% 42.0% 42.0%
- ------------------------------------------ [1] Projections provided by management. 28 PROJECT GOLDCAP BENEFITS COMPANY PROJECTED COMMON-SIZED INCOME STATEMENTS [1] - -------------------------------------------------------------------------------
PROJECTED YEAR ENDING DECEMBER 31, ---------------------------------------------------------------------------- 1998 1999 2000 2001 2002 2003 -------- ------- -------- --------- ------- -------- Total revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Expenses Dental care providers' fees and claim costs 53.0% 53.0% 53.0% 53.0% 53.0% 53.0% Commissions 9.0% 9.4% 9.5% 9.6% 9.7% 9.8% Premium taxes 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% General and administrative 21.0% 20.1% 19.3% 18.6% 18.3% 17.9% Depreciation and amortization 3.4% 2.1% 2.1% 2.2% 2.1% 2.0% ------- ------ ------- ------- ------ ------- Total expenses 87.1% 85.4% 84.7% 84.2% 83.8% 83.5% ------- ------ ------- ------- ------ ------- Operating income 12.9% 14.6% 15.3% 15.8% 16.2% 16.5% Interest expense 2.9% 3.1% 2.8% 2.6% 2.5% 2.3% Less Interest income 0.6% 0.5% 0.5% 0.5% 0.4% 0.4% ------- ------ ------- ------- ------ ------- Income before income taxes 10.6% 12.1% 12.9% 13.7% 14.1% 14.6% Provision for income taxes 4.5% 5.1% 5.4% 5.7% 5.9% 6.1% ------- ------ ------- ------- ------ ------- Net income 6.2% 7.0% 7.5% 7.9% 8.2% 8.5% ======= ====== ======= ======= ====== ======= EBITDA 16.3% 16.8% 17.4% 18.0% 18.3% 18.5%
- ----------------------------------------------- [1] Projections provided by management. 29 PROJECT GOLDCAP DENTAL HEALTH MANAGEMENT, INC. PROJECTED INCOME STATEMENTS [1] SEC REPORTING FORMAT - ------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
PROJECTED YEAR ENDING DECEMBER 31, ---------------------------------------------------------------------------- 1998 1999 2000 2001 2002 2003 -------- ------- -------- --------- ------- -------- Patient revenues $ 22,329 $ 24,773 $ 27,422 $ 30,354 $ 33,600 $ 37,193 DHDC management fee 2,190 2,367 2,620 2,900 3,210 3,554 Dentlease rental fees 11 13 14 16 18 20 -------- -------- -------- -------- -------- -------- Total revenues 24,530 27,153 30,056 33,270 36,828 40,766 % Growth -- 10.7% 10.7% 10.7% 10.7% 10.7% Management fee expense 663 668 739 818 906 1,003 Operating expense 20,355 20,764 22,984 25,442 28,163 31,174 Unallocated corporate overhead 2,302 2,073 2,295 2,540 2,812 3,112 Depreciation expense 233 241 267 295 327 362 Amortization expense 500 500 500 500 500 500 -------- -------- -------- -------- -------- -------- Total expenses 24,053 24,246 26,785 29,596 32,707 36,151 -------- -------- -------- -------- -------- -------- Operating income 477 2,907 3,271 3,675 4,121 4,615 % Growth -- 509.4% 12.5% 12.3% 12.1% 12.0% Interest expense (income) -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- Income before income taxes 477 2,907 3,271 3,675 4,121 4,615 Income tax provision 200 1,221 1,374 1,543 1,731 1,938 -------- -------- -------- -------- -------- -------- Net income $ 277 $ 1,686 $ 1,897 $ 2,131 $ 2,390 $ 2,677 ======== ======== ======== ======== ======== ======== % Growth -- 509.4% 12.5% 12.3% 12.1% 12.0% EBITDA $ 1,210 $ 3,648 $ 4,038 $ 4,470 $ 4,948 $ 5,477
- ----------------------------------------------------------- [1]Projections provided by management for the years ending December 31, 1998 and 1999. Projections for December 31, 2000 through 2003 estimated using constant growth rates and margin assumptions. 30 PROJECT GOLDCAP DENTAL HEALTH MANAGEMENT, INC. PROJECTED COMMON-SIZED INCOME STATEMENTS [1] SEC REPORTING FORMAT - --------------------------------------------------------------------------------
PROJECTED YEAR ENDING DECEMBER 31, ---------------------------------------------------------------------------- 1998 1999 2000 2001 2002 2003 -------- ------- -------- --------- ------- -------- Patient revenues 91.0% 91.2% 91.2% 91.2% 91.2% 91.2% DHDC management fee 8.9% 8.7% 8.7% 8.7% 8.7% 8.7% Dentlease rental fees 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ------ ------- ----- ------ ------ ------- Total revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Management fee expense 2.7% 2.5% 2.5% 2.5% 2.5% 2.5% Operating expense 83.0% 76.5% 76.5% 76.5% 76.5% 76.5% Unallocated corporate overhead 9.4% 7.6% 7.6% 7.6% 7.6% 7.6% Depreciation expense 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% Amortization expense 2.0% 1.8% 1.7% 1.5% 1.4% 1.2% ------ ------- ----- ------ ------ ------- Total expenses 98.1% 89.3% 89.1% 89.0% 88.8% 88.7% ------ ------- ----- ------ ------ ------- Operating income 1.9% 10.7% 10.7% 10.7% 10.7% 10.7% Interest expense (income) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ------ ------- ----- ------ ------ ------- Income before income taxes 1.9% 10.7% 10.7% 10.7% 10.7% 10.7% Income tax provision 0.8% 4.5% 4.5% 4.5% 4.5% 4.5% ------ ------- ----- ------ ------ ------- Net income 1.1% 6.2% 6.2% 6.2% 6.2% 6.2% ====== ======== ===== ====== ====== ======= EBITDA 4.9% 13.4% 13.4% 13.4% 13.4% 13.4%
- ----------------------------------------------------------- [1]Projections provided by management for the years ending December 31, 1998 and 1999. Projections for December 31, 2000 through 2003 estimated using constant growth rates and margin assumptions. 31 PROJECT GOLDCAP COMPARISON OF PROJECTIONS (DOLLARS IN THOUSANDS)
YEAR ENDING DECEMBER 31, 1998 YEAR ENDING DECEMBER 31, 1999 ------------------------------------------------ --------------------------------------------- ROBINSON-HUMPHREY GOLDCAP ROBINSON-HUMPHREY GOLDCAP RESEARCH MANAGEMENT VARIANCE RESEARCH MANAGEMENT VARIANCE ----------------- ---------- -------- ----------------- ---------- -------- CONSOLIDATED GOLDCAP Revenues $178,357 $175,026 $ 3,331 $195,492 $190,938 $ 4,554 % Growth 12.4% 10.3% 1.9% 9.6% 9.1% 2.4% EBITDA $ 27,413 $ 25,699 $ 1,714 $ 30,309 $ 31,097 $ (788) % Growth (1.4%) (7.6%) 6.7% 10.6% 21.0% (2.5%) % Margin 15.4% 14.7% 15.5% 16.3% Operating income $ 21,518 $ 19,834 $ 1,684 $ 24,056 $ 26,884 $(2,828) % Growth (2.5%) (10.1%) 8.5% 11.8% 35.5% (10.5%) % Margin 12.1% 11.3% 12.3% 14.1% Net income $ 10,767 $ 9,541 $ 1,226 $ 12,431 $ 13,215 $ (784) % Growth (2.8%) (13.9%) 12.8% 15.5% 38.5% (5.9%) % Margin 6.0% 5.5% 6.4% 6.9% BENEFITS COMPANY Revenues $151,315 $150,496 $ 819 $157,492 $163,785 $(6,293) % Growth (0.2%) (0.7%) 0.5% 4.1% 8.8% (3.8%) EBITDA $ 23,381 $ 24,489 $(1,108) $ 24,229 $ 27,449 $(3,220) % Growth NA NA (4.5%) 3.6% 12.1% (11.7%) % Margin 15.5% 16.3% 15.4% 16.8% DHMI Revenues $ 27,042 $ 24,530 $ 2,512 $ 38,000 $ 27,153 $10,847 % Growth 280.2% 244.9% 10.2% 40.5% 10.7% 39.9% EBITDA $ 4,032 $ 1,210 $ 2,822 $ 6,080 $ 3,648 $ 2,432 % Growth NA NA 233.2% 50.8% 201.5% 66.7% % Margin 14.9% 4.9% 16.0% 13.4%
32 PROJECT GOLDCAP TRADING STATISTICS JULY 24, 1997 - JULY 24, 1998 - --------------------------------------------------------------------------------
AVERAGE CLOSING PRICE: AVERAGE DAILY VOLUME: - ---------------------- --------------------- ONE YEAR $17.67 ONE YEAR 87,900 90 DAYS 14.32 90 DAYS 65,952 60 DAYS 14.00 60 DAYS 69,170 30 DAYS 14.21 30 DAYS 52,113 5 DAYS 13.40 5 DAYS 19,120 HIGH CLOSE (10/3/97) 27.63 HIGH VOLUME (1/27/98) 717,000 LOW CLOSE (1/27/98) 9.56 LOW VOLUME (9/24/97) 600
DATE HIGH LOW CLOSE VOLUME - -------- ---------- ---------- ---------- ------------- 7/24/98 $13.38 $13.13 $13.25 14,200 7/23/98 13.38 13.13 13.38 15,800 7/22/98 13.75 13.13 13.25 19,200 7/21/98 13.75 13.38 13.75 12,500 7/20/98 13.63 13.25 13.38 33,900 7/17/98 14.13 13.50 13.50 50,500 7/16/98 14.44 13.81 14.00 38,000 7/15/98 14.63 14.13 14.19 19,500 7/14/98 14.88 14.50 14.50 11,300 7/13/98 15.06 14.63 14.75 21,000 7/10/98 15.00 14.63 15.00 7,000 7/09/98 15.06 14.63 14.75 17,400
33
DATE HIGH LOW CLOSE VOLUME - -------- ---------- ---------- ---------- ------------- 7/08/98 15.44 14.75 14.81 39,100 7/07/98 15.63 15.31 15.31 31,300 7/06/98 15.75 15.44 15.63 27,600 7/03/98 16.00 15.13 15.75 110,000 7/02/98 16.00 15.13 15.75 110,000 7/01/98 16.00 15.13 15.13 129,800 6/30/98 15.66 14.63 15.63 221,000 6/29/98 14.88 14.50 14.75 19,100 6/26/98 15.25 14.50 14.56 102,100 6/25/98 15.38 13.88 15.38 74,800 6/24/98 13.75 13.56 13.69 73,200 6/23/98 13.88 13.25 13.75 45,600 6/22/98 13.50 13.00 13.13 65,300 6/19/98 13.50 13.00 13.25 23,800 6/18/98 13.50 13.00 13.25 47,300 6/17/98 13.13 12.94 13.13 62,300 6/16/98 13.13 12.75 13.00 106,500 6/15/98 13.09 12.75 12.75 14,300 6/12/98 13.25 13.13 13.19 13,400 6/11/98 13.56 12.88 13.38 223,100 6/10/98 14.06 13.50 13.50 25,400 6/09/98 14.13 14.00 14.00 12,300 6/08/98 14.13 14.00 14.06 18,200 6/05/98 14.38 14.00 14.13 117,300 6/04/98 14.50 14.00 14.13 179,100 6/03/98 15.00 14.38 14.50 170,400 6/02/98 15.00 14.50 14.75 44,700 6/01/98 15.00 14.31 14.38 25,100 5/29/98 15.00 14.00 14.75 38,900 5/28/98 14.13 13.38 14.06 72,100 5/27/98 13.63 13.38 13.44 25,000 5/26/98 14.75 13.38 13.44 34,300 5/22/98 15.00 14.56 14.75 27,700 5/21/98 15.38 14.38 14.50 26,000 5/20/98 15.13 14.25 15.13 72,900 5/19/98 15.13 14.50 14.63 46,700
34
DATE HIGH LOW CLOSE VOLUME - -------- ---------- ---------- ---------- ------------- 5/18/98 15.50 13.75 15.13 277,100 5/15/98 13.63 13.38 13.63 23,400 5/14/98 13.50 13.00 13.00 71,400 5/13/98 13.25 13.00 13.25 35,500 5/12/98 13.13 12.88 13.00 70,900 5/11/98 13.13 12.88 12.88 89,300 5/08/98 13.13 12.75 13.00 304,400 5/07/98 12.88 12.63 12.81 156,000 5/06/98 13.00 12.63 12.81 207,100 5/05/98 13.38 12.88 12.88 54,000 5/04/98 13.38 13.09 13.25 16,200 5/01/98 13.38 13.13 13.38 108,900 4/30/98 13.75 13.06 13.13 100,800 4/29/98 13.75 13.25 13.25 143,300 4/28/98 14.88 12.50 13.13 273,200 4/27/98 15.00 14.00 14.38 46,900 4/24/98 14.88 14.50 14.78 21,500 4/23/98 15.25 14.63 14.72 48,100 4/22/98 15.13 14.94 15.06 63,800 4/21/98 15.13 14.75 14.75 15,500 4/20/98 15.00 14.75 15.00 27,300 4/17/98 15.13 14.75 15.00 16,000 4/16/98 15.25 14.38 15.25 51,700 4/15/98 16.00 14.00 15.13 136,200 4/14/98 17.63 16.13 16.13 141,000 4/13/98 17.88 15.13 17.50 173,100 4/09/98 15.56 14.94 15.38 50,800 4/08/98 15.25 15.00 15.06 22,200 4/07/98 15.56 15.00 15.19 19,300 4/06/98 15.50 15.25 15.50 14,100 4/03/98 15.31 15.00 15.00 9,000 4/02/98 15.38 15.19 15.25 17,300 4/01/98 15.38 15.19 15.38 38,300 3/31/98 15.44 14.75 15.38 70,500 3/30/98 15.56 14.56 14.63 38,600 3/27/98 15.56 14.75 15.56 43,900
35
DATE HIGH LOW CLOSE VOLUME - -------- ---------- ---------- ---------- ------------- 3/26/98 14.69 14.38 14.69 33,100 3/25/98 14.75 14.38 14.38 22,900 3/24/98 14.75 14.50 14.50 73,600 3/23/98 15.38 14.75 14.88 20,700 3/20/98 15.88 15.25 15.25 32,500 3/19/98 15.88 15.50 15.63 20,300 3/18/98 15.75 15.50 15.63 10,000 3/17/98 15.88 15.50 15.63 30,100 3/16/98 15.88 15.50 15.63 17,800 3/13/98 16.13 15.63 15.63 24,300 3/12/98 16.63 15.75 16.00 63,000 3/11/98 16.50 15.44 16.25 168,100 3/10/98 15.38 14.81 15.38 93,700 3/09/98 15.00 14.50 14.88 136,900 3/06/98 14.88 13.50 14.75 289,500 3/05/98 13.38 13.00 13.25 31,500 3/04/98 13.63 12.94 13.44 523,000 3/03/98 13.88 13.50 13.63 62,400 3/02/98 13.94 13.50 13.88 43,400 2/27/98 14.75 13.88 13.88 104,100 2/26/98 14.75 14.13 14.75 52,100 2/25/98 14.75 14.25 14.75 65,900 2/24/98 15.00 14.38 14.75 83,700 2/23/98 15.06 14.75 14.75 314,900 2/20/98 15.06 14.63 14.94 258,600 2/19/98 15.06 14.63 14.88 389,800 2/18/98 15.25 14.00 14.75 534,000 2/17/98 13.88 13.00 13.88 439,400 2/13/98 12.88 12.00 12.88 276,200 2/12/98 12.13 11.75 12.00 193,500 2/11/98 12.25 11.75 11.88 252,100 2/10/98 11.88 10.13 11.75 186,600 2/09/98 12.00 10.63 10.63 106,600 2/06/98 11.75 11.63 11.63 10,200 2/05/98 11.75 11.63 11.69 100,900 2/04/98 11.88 11.63 11.63 63,200
36
DATE HIGH LOW CLOSE VOLUME - -------- ---------- ---------- ---------- ------------- 2/03/98 12.00 11.75 11.81 69,600 2/02/98 12.25 11.75 11.75 96,500 1/30/98 12.25 11.50 11.63 287,600 1/29/98 11.75 10.75 11.75 261,400 1/28/98 10.81 9.88 10.50 414,300 1/27/98 10.63 9.00 9.56 717,000 1/26/98 11.00 10.63 10.63 54,800 1/23/98 11.50 10.88 11.00 49,800 1/22/98 11.75 11.19 11.19 72,300 1/21/98 11.88 11.38 11.63 67,600 1/20/98 12.50 11.50 11.88 63,500 1/16/98 12.50 12.00 12.31 29,800 1/15/98 12.38 12.13 12.28 36,000 1/14/98 12.50 12.00 12.13 223,000 1/13/98 12.88 11.88 11.88 419,500 1/12/98 14.13 11.81 12.50 404,100 1/09/98 19.06 18.00 18.00 104,500 1/08/98 20.25 19.00 19.00 23,500 1/07/98 20.25 19.75 20.25 6,100 1/06/98 20.00 19.75 19.75 4,200 1/05/98 20.25 19.75 20.06 9,800 1/02/98 20.25 19.63 19.88 44,400 12/31/97 20.88 20.25 20.28 21,100 12/30/97 20.75 20.38 20.50 34,400 12/29/97 20.38 19.25 20.25 101,900 12/26/97 19.00 18.88 19.00 5,900 12/24/97 19.25 18.63 19.00 21,500 12/23/97 19.25 18.88 19.13 15,700 12/22/97 19.50 18.25 19.00 64,200 12/19/97 18.88 18.13 18.63 48,300 12/18/97 19.75 19.00 19.00 113,800 12/17/97 20.00 19.56 19.75 37,500 12/16/97 20.00 19.56 19.56 6,700 12/15/97 21.13 19.88 19.94 42,900 12/12/97 21.25 20.63 20.63 27,000 12/11/97 21.13 19.50 21.13 51,300
37
DATE HIGH LOW CLOSE VOLUME - -------- ---------- ---------- ---------- ------------- 12/10/97 21.25 19.00 20.25 146,600 12/9/97 21.75 21.13 21.75 7,800 12/8/97 22.13 21.25 21.50 37,400 12/5/97 21.75 21.25 21.31 8,400 12/4/97 21.63 21.25 21.50 14,300 12/3/97 21.75 21.00 21.06 15,000 12/2/97 22.00 21.25 21.38 41,600 12/1/97 22.25 20.56 21.25 114,300 11/28/97 21.00 19.50 20.38 40,900 11/26/97 19.88 19.50 19.81 7,100 11/25/97 19.63 19.38 19.38 3,000 11/24/97 19.94 19.50 19.63 17,100 11/21/97 20.25 19.63 20.00 5,800 11/20/97 20.38 20.00 20.19 16,900 11/19/97 20.69 19.63 19.63 48,300 11/18/97 20.13 19.38 19.75 31,200 11/17/97 19.63 19.00 19.63 83,600 11/14/97 19.00 18.63 18.63 56,700 11/13/97 19.38 18.75 18.81 5,200 11/12/97 19.25 18.75 19.00 37,000 11/11/97 20.13 19.75 19.81 1,700 11/10/97 21.00 20.00 20.00 118,600 11/7/97 20.63 20.00 20.19 24,300 11/6/97 21.00 20.00 20.75 75,600 11/5/97 21.38 20.50 20.50 54,900 11/4/97 21.19 20.88 21.00 1,400 11/3/97 21.25 20.50 21.13 123,100 10/31/97 20.88 20.38 20.69 49,900 10/30/97 20.56 20.00 20.31 115,200 10/29/97 22.75 20.50 20.56 168,900 10/28/97 22.00 19.63 22.00 246,000 10/27/97 24.50 22.50 22.50 154,600 10/24/97 25.00 24.63 24.63 51,700 10/23/97 25.13 24.50 24.81 26,700 10/22/97 25.75 24.75 24.75 35,100 10/21/97 24.88 24.50 24.63 107,500
38
DATE HIGH LOW CLOSE VOLUME - -------- ---------- ---------- ---------- ------------- 10/20/97 24.88 24.50 24.63 112,100 10/17/97 25.13 24.63 25.00 86,300 10/16/97 25.63 25.25 25.25 49,100 10/15/97 25.75 25.25 25.25 28,300 10/14/97 25.75 25.50 25.75 25,800 10/13/97 25.69 25.63 25.63 28,300 10/10/97 25.75 25.25 25.63 75,600 10/9/97 26.00 25.38 25.88 68,700 10/8/97 26.00 25.63 25.88 21,100 10/7/97 26.50 25.75 26.00 30,300 10/6/97 27.75 26.63 26.63 46,300 10/3/97 27.63 25.38 27.63 146,100 10/2/97 25.38 24.75 25.38 85,100 10/1/97 24.75 24.63 24.75 27,700 9/30/97 25.00 24.63 25.00 26,600 9/29/97 25.13 24.69 24.88 24,900 9/26/97 24.75 24.50 24.75 19,400 9/25/97 24.75 24.50 24.75 2,400 9/24/97 24.88 24.75 24.75 600 9/23/97 24.88 24.00 24.88 83,200 9/22/97 25.00 24.63 24.75 35,500 9/19/97 24.63 24.13 24.63 61,100 9/18/97 25.38 24.13 24.13 609,400 9/17/97 26.38 25.50 25.50 104,300 9/16/97 26.38 25.63 26.13 83,800 9/15/97 26.00 24.88 25.56 78,400 9/12/97 25.25 24.50 24.75 103,400 9/11/97 24.75 24.38 24.50 56,800 9/10/97 24.75 24.44 24.75 51,700 9/09/97 24.69 24.38 24.63 58,700 9/08/97 24.63 24.38 24.56 58,600 9/05/97 24.63 24.25 24.63 63,400 9/04/97 25.00 24.25 24.50 70,700 9/03/97 25.00 24.25 24.63 74,500 9/02/97 24.50 24.13 24.31 73,100 8/29/97 24.75 23.63 24.25 218,400
39
DATE HIGH LOW CLOSE VOLUME - -------- ---------- ---------- ---------- ------------- 8/28/97 24.50 22.13 24.50 442,900 8/27/97 22.13 20.94 22.13 113,500 8/26/97 21.25 20.75 21.03 63,400 8/25/97 21.38 20.44 21.00 132,400 8/22/97 20.75 20.25 20.75 57,200 8/21/97 20.81 20.50 20.75 87,600 8/20/97 20.75 20.38 20.56 19,200 8/19/97 20.63 20.38 20.44 15,800 8/18/97 20.50 20.38 20.50 12,700 8/15/97 20.50 20.38 20.50 48,400 8/14/97 20.63 20.38 20.50 58,200 8/13/97 20.56 20.38 20.50 59,100 8/12/97 20.63 20.50 20.56 11,000 8/11/97 20.50 20.00 20.50 73,700 8/08/97 21.25 20.00 20.00 92,400 8/07/97 21.25 21.00 21.06 300,600 8/06/97 21.38 20.63 21.13 176,500 8/05/97 20.75 20.50 20.63 12,700 8/04/97 20.75 20.25 20.50 54,800 8/01/97 21.50 20.50 20.50 27,700 7/31/97 22.00 21.50 21.69 29,000 7/30/97 22.00 21.63 22.00 143,400 7/29/97 22.50 21.38 21.75 258,100 7/28/97 21.75 20.38 21.38 178,100 7/25/97 20.25 19.56 20.06 35,900 7/24/97 19.75 19.38 19.38 26,500
- --------------------------------------- Source: AT Financial 40 PROJECT GOLDCAP WEEKLY PRICE AND TRADING VOLUME - IPO THROUGH JULY 24, 1998 - ------------------------------------------------------------------------------- [GRAPH] 41 GOLDCAP CLOSE PRICE INDEX COMPARISON WEEKLY: 5/26/95 TO 7/24/98 [GRAPH DEPICTING WEEKLY CLOSING PRICE AS A PERCENT OF START PERIOD VALUE FROM 5/26/95 TO 7/24/98 FOR COMPDENT, THE DJIA, NASDAQ AND S&P 500] 42 GOLDCAP VOLUME DISTRIBUTION BY PRICE RANGE WEEKLY: 5/26/95 TO 7/24/98 [GRAPH]
11 to 19 19 to 27 27 to 35 35 to 43 43 to 51 -------- -------- -------- -------- -------- PERCENT TRADED 27.19% 22.06% 17.80% 24.30% 8.65%
43 GOLDCAP CUMULATIVE VOLUME DISTRIBUTION BY PRICE RANGE WEEKLY: 5/26/95 TO 7/24/98 [GRAPH]
11 to 19 up to 27 up to 35 up to 43 up to 51 -------- -------- -------- -------- -------- PERCENT TRADED 27.19% 49.25% 67.05% 91.35% 100.00%
44 PROJECT GOLDCAP LAST TWELVE MONTHS DAILY PRICE AND TRADING VOLUME SINCE JULY 24, 1997 - ----------------------------------------------------------------------- [GRAPH] 45 GOLDCAP CLOSE PRICE INDEX COMPARISON DAILY: 7/24/97 TO 7/24/98 [GRAPH DEPICTING DAILY CLOSE PRICE AS A PERCENT OF START PERIOD VALUE FROM 7/24/97 THROUGH 7/24/98 FOR COMPDENT, THE DJIA, NADAQ AND THE S&P 500] 46 GOLDCAP VOLUME DISTRIBUTION BY PRICE RANGE DAILY: 7/24/97 TO 7/24/98 [GRAPH]
9 to 12.8 12.8 to 16.6 16.6 to 20.4 20.4 to 24.2 24.2 to 28 --------- ------------ ------------ ------------ ---------- PERCENT TRADED 18.89% 43.46% 7.92% 16.97% 12.76%
47 GOLDCAP CUMULATIVE VOLUME DISTRIBUTION BY PRICE RANGE DAILY: 7/24/97 TO 7/24/98 [GRAPH]
9 to 12.8 up to 16.6 up to 20.4 up to 24.2 up to 28 --------- ---------- ---------- ---------- -------- PERCENT TRADED 18.89% 62.35% 70.27% 87.24% 100.00%
48 PROJECT GOLDCAP DAILY PRICE AND TRADING VOLUME - JANUARY 2, 1998 THROUGH JULY 24, 1998 - -------------------------------------------------------------------------------- [GRAPH] 49 GOLDCAP CLOSE PRICE INDEX COMPARISON DAILY: 1/2/98 TO 7/24/98 [GRAPH DEPICTING DAILY CLOSE PRICE AS A PERCENT OF START PERIOD VALUE FROM 1/2/98 THROUGH 7/24/98 FOR COMPDENT, THE DJIA, NASDAQ AND THE S&P 500] 50 GOLDCAP VOLUME DISTRIBUTION BY PRICE RANGE DAILY: 1/2/98 TO 7/24/98 [GRAPH]
9 to 11.4 11.4 to 13.8 13.8 to 16.2 16.2 to 18.6 18.6 to 21 --------- ------------ ------------ ------------ ---------- PERCENT TRADED 9.95% 43.76% 42.53% 3.14% 0.62%
51 GOLDCAP CUMULATIVE VOLUME DISTRIBUTION BY PRICE RANGE DAILY: 1/2/98 TO 7/24/98 [GRAPH]
9 to 11.4 up to 13.8 up to 16.2 up to 18.6 up to 21 --------- ---------- ---------- ---------- -------- PERCENT TRADED 9.95% 53.72% 96.24% 99.38% 100.00%
52 PROJECT GOLDCAP SHAREHOLDER OWNERSHIP ANALYSIS - --------------------------------------------------------------------------------
NUMBER OF AS A PERCENT SHARES OF TOTAL --------- ------------ Total Shares Outstanding as of April 30, 1998: 10,112,629 100.0% Date Institutional Ownership: - ---- ------------------------ 3/31/98 AID ASSOC FOR LUTHERANS 4,600 0.05% 3/31/98 AMERICAN GENERAL CORP 2,500 0.02% 12/31/97 ANB INVESTMENT MGMT & TR 8,682 0.09% 3/31/98 BANC ONE CORPORATION 10,500 0.10% 3/31/98 BANK OF NEW YORK 5,400 0.05% 3/31/98 BANKERS TRUST N Y CORP 199,900 1.98% 3/31/98 BARCLAYS BANK PLC 193,420 1.91% 3/31/98 BEAR STEARNS & CO 16 0.00% 3/31/98 BRANDYWINE ASSET MGMT. 2,500 0.02% 3/31/98 CALIF STATE TEACHERS RET 32,800 0.32% 3/31/98 CAPSTONE ASSET MGMT. CO. 2,530 0.03% 3/31/98 COLLEGE RETIRE EQUITIES 9,100 0.09% 3/31/98 COLORADO PUBLIC EMPL RET 7,900 0.08% 3/31/98 DEERE & COMPANY 10,700 0.11% 3/31/98 DIMENSIONAL FUND ADVS. 699,600 6.92% 3/31/98 EATON VANCE MANAGEMENT 90,400 0.89% 3/31/98 EDGEMONT ASSET MGMT CORP 1,500,000 14.83% 3/31/98 EQUITABLE COMPANIES INC 2,200 0.02% 3/31/98 FIDELITY MGMT & RES CORP 750,400 7.42% 3/31/98 FLEET FINL GROUP INC 9,900 0.10% 3/31/98 GENERAL ELECTRIC COMPANY 446,300 4.41% 3/31/98 GW CAPITAL MGMT INC 22,900 0.23% 3/31/98 LASALLE NATIONAL BANK 436,300 4.31% 3/31/98 LOOMIS SAYLES & COMPANY 139,100 1.38% 3/31/98 MASSACHUSETTS FINL SVCS 288,800 2.86% 3/31/98 MELLON BANK CORPORATION 48,764 0.48% 3/31/98 MERRILL LYNCH & CO INC 89 0.00% 3/31/98 NATIONSBANK CORPORATION 11,250 0.11% 3/31/98 NATIONWIDE ADVISORY SVCS 19,000 0.19% 3/31/98 NEUBERGER&BERM INST ASST 84,500 0.84% 3/31/98 NEUBERGER&BERMAN MGMT 252,900 2.50% 3/31/98 NEW YORK ST TEACHERS RET 35,900 0.36% 3/31/98 NOMURA ASSET MGMT CO LTD 4,500 0.04% 3/31/98 NORTHERN TRUST CORP 10,500 0.10% 3/31/98 PRUDENTIAL INS CO/AMER 713,100 7.05% 3/31/98 PUTNAM INVESTMENT MGMT 756,910 7.48% 3/31/98 RENAISSANCE TECHNOLOGIES 12,400 0.12% 3/31/98 SELIGMAN J W & COMPANY 755,700 7.47% 3/31/98 STATE STREET CORP 37,914 0.37% 3/31/98 STRONG CAPITAL MGMT INC 214,200 2.12% 3/31/98 TEXAS TEACHER RETIRM SYS 35,000 0.35% 3/31/98 TRAVELERS INC 19,065 0.19% 3/31/98 USAA UNITED SVCS AUTO 150,000 1.48% 3/31/98 VANGUARD GROUP INC 39,600 0.39% 3/31/98 WEISS PECK & GREER 280 0.00% 3/31/98 WORLD ASSET MANAGEMENT 9,300 0.09% ---------- ----- Total Institutional Holdings 8,087,320 80.0% Insider Ownership: INSIDER HOLDINGS 884,332[1] 8.7% ---------- Total Insider Holdings 884,332 8.7% Total Retail Holdings 1,140,977 11.3%
- --------------------------------------- [1] All Directors and Executive Officers as a group as reported in the Goldcap proxy dated March 30, 1998. Source: CDA Spectrum as of 7/16/98. (GOLDCAP OWNERSHIP CHART) INSIDERS 9% RETAIL FLOAT 11% INSTITUTIONS 80%
53 PROJECT GOLDCAP INSTITUTIONAL OWNERSHIP HISTORY QUARTERS ENDING SEPTEMBER 1995 THROUGH MARCH 1998 - --------------------------------------------------------------------------------
13F INSTITUTION 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96 - ------------------------------- --------- --------- --------- --------- --------- --------- EDGEMONT ASSET MGMT CORP 1,500,000 1,500,000 1,540,600 2,008,200 845,000 845,000 PUTNAM INVESTMENT MGMT 756,910 753,610 774,510 805,410 1,010,185 1,005,385 SELIGMAN J W & COMPANY 755,700 750,900 750,900 747,800 436,500 329,800 FIDELITY MGMT & RES CORP 750,400 618,400 463,400 355,900 PRUDENTIAL INS CO/AMER 713,100 575,800 497,000 542,500 7,600 7,100 DIMENSIONAL FUND ADVS. 699,600 354,900 317,600 280,600 GENERAL ELECTRIC COMPANY 446,300 446,300 295,800 0 11,000 12,300 LASALLE NATIONAL BANK 436,300 437,400 297,000 10,800 MASSACHUSETTS FINL SVCS 288,800 859,195 994,195 994,695 736,795 649,395 NEUBERGER&BERMAN MGMT 252,900 302,900 302,900 STRONG CAPITAL MGMT INC 214,200 1,200 114,700 7,700 63,700 0 BANKERS TRUST N Y CORP 199,900 214,500 212,100 165,200 164,200 165,700 BARCLAYS BANK PLC 193,420 209,563 211,934 200,134 170,434 171,214 USAA UNITED SVCS AUTO 150,000 110,000 110,000 45,000 45,000 45,000 LOOMIS SAYLES & COMPANY 139,100 358,500 295,400 47,300 EATON VANCE MANAGEMENT 90,400 NEUBERGER&BERM INST ASST 84,500 89,800 89,800 MELLON BANK CORPORATION 48,764 50,600 52,300 47,500 53,302 52,300 VANGUARD GROUP INC 39,600 37,100 37,100 37,100 37,100 STATE STREET CORP 37,914 37,614 29,200 27,000 27,400 33,800 NEW YORK ST TEACHERS RET 35,900 35,900 35,900 TEXAS TEACHER RETIRM SYS 35,000 35,000 35,000 20,000 CALIF STATE TEACHERS RET 32,800 32,800 32,800 32,800 32,700 32,700 GW CAPITAL MGMT INC 22,900 48,000 35,000 TRAVELERS INC 19,065 14,119 12,048 18,781 31,605 98,739 NATIONWIDE ADVISORY SVCS 19,000 19,000 19,000 RENAISSANCE TECHNOLOGIES 12,400 0 10,200 NATIONSBANK CORPORATION 11,250 DEERE & COMPANY 10,700 10,800 10,700 10,100 10,100 8,100 BANC ONE CORPORATION 10,500 0 10,000 106,522 NORTHERN TRUST CORP 10,500 FLEET FINL GROUP INC 9,900 9,900 9,900 WORLD ASSET MANAGEMENT 9,300 9,800 9,800 11,500 10,800 12,200 COLLEGE RETIRE EQUITIES 9,100 15,100 9,100 9,100 6,100 4,600 13F INSTITUTION 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 - ------------------------------- --------- --------- --------- --------- --------- EDGEMONT ASSET MGMT CORP 405,000 405,000 405,000 505,000 635,000 PUTNAM INVESTMENT MGMT 1,352,835 1,363,635 1,272,435 408,585 481,885 SELIGMAN J W & COMPANY 282,200 153,900 200,000 FIDELITY MGMT & RES CORP 0 35,000 358,000 PRUDENTIAL INS CO/AMER DIMENSIONAL FUND ADVS. GENERAL ELECTRIC COMPANY 12,300 12,300 LASALLE NATIONAL BANK MASSACHUSETTS FINL SVCS 248,805 159,300 175,400 199,100 199,100 NEUBERGER&BERMAN MGMT STRONG CAPITAL MGMT INC 44,750 7,725 116,475 30,500 13,700 BANKERS TRUST N Y CORP 167,050 114,050 43,450 360,850 309,250 BARCLAYS BANK PLC 176,798 178,228 USAA UNITED SVCS AUTO 45,000 45,000 45,000 50,000 50,000 LOOMIS SAYLES & COMPANY EATON VANCE MANAGEMENT NEUBERGER&BERM INST ASST MELLON BANK CORPORATION 47,100 34,100 16,600 16,600 VANGUARD GROUP INC STATE STREET CORP 11,500 27,100 NEW YORK ST TEACHERS RET TEXAS TEACHER RETIRM SYS CALIF STATE TEACHERS RET 32,700 0 32,100 21,100 GW CAPITAL MGMT INC TRAVELERS INC 73,378 80,962 86,414 12,999 13,039 NATIONWIDE ADVISORY SVCS RENAISSANCE TECHNOLOGIES NATIONSBANK CORPORATION 0 16,200 DEERE & COMPANY BANC ONE CORPORATION 106,522 NORTHERN TRUST CORP FLEET FINL GROUP INC WORLD ASSET MANAGEMENT 400 100 100 100 COLLEGE RETIRE EQUITIES 4,100
54
13F INSTITUTION 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96 - ------------------------------- --------- --------- --------- --------- --------- --------- COLORADO PUBLIC EMPL RET 7,900 0 6,400 BANK OF NEW YORK 5,400 2,400 2,400 2,300 2,200 2,200 AID ASSOC FOR LUTHERANS 4,600 NOMURA ASSET MGMT CO LTD 4,500 4,500 CAPSTONE ASSET MGMT. CO. 2,530 386 386 386 AMERICAN GENERAL CORP 2,500 2,500 2,500 2,000 2,000 2,000 BRANDYWINE ASSET MGMT. 2,500 EQUITABLE COMPANIES INC 2,200 15,900 15,900 16,200 192,600 168,600 WEISS PECK & GREER 280 200 200 MERRILL LYNCH & CO INC 89 1,400 167 0 BEAR STEARNS & CO 16 49 40 600 ARTISAN PARTNERS L P 0 442,000 368,800 245,600 CHARLES SCHWAB INVT MGMT 0 4,400 4,400 4,400 4,400 4,400 FIDUCIARY TRUST CO INTL. 0 26,100 87,600 48,300 FIRST INVESTORS MGMT CO 0 19,600 JACOBS LEVY EQUITY MGMT 0 14,100 14,100 MACKAY SHIELDS FINANCIAL 0 40,500 40,500 40,500 40,500 36,000 PELL RUDMAN TRUST CO NA 0 39,425 37,675 35,050 14,800 ROTHSCHILD/PELL RUDMAN 0 51,775 51,950 53,100 21,800 SCHRODER CAP MGMT INTL. 0 418,940 281,440 249,840 237,000 232,400 SEARS INVESTMENT MGMT 0 15,100 19,000 19,000 13,200 12,000 SUNTRUST BANKS INC 0 160,824 202,302 214,170 217,089 222,280 T ROWE PRICE ASSOCIATES 0 21,600 21,600 19,800 19,800 16,500 UNIVERSITY OF TEXAS INVT 0 46,600 41,300 28,700 ANB INVESTMENT MGMT & TR 0 8,682 9,600 9,800 9,800 10,400 AAL CAPITAL MGMT CORP AELTUS INVESTMENT MGMT 0 AETNA LIFE INS & ANNUITY AIM MGMT GROUP INC 0 1,028,500 1,027,100 ALLIED IRISH BANKS PLC AMERICAN CENTURY COS 0 APODACA INVT GROUP INC BANK OF TOKYO LTD BARON CAPITAL INC 0 30,000 25,000 17,500 BATTERYMARCH FINL MGMT 0 BENTLEY CAPITAL MGMT INC 0 25,000 BERGER ASSOCIATES INC 0 BERKELEY CAPITAL MGMT BZW BARCLAYS GLBL INVTS COLUMBIA MANAGEMENT CO COMERICA INC 0 9,700 11,500 10,800 12,200 DE GARMO & KELLEHER 0 40,000 13F INSTITUTION 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 - ------------------------------- --------- --------- --------- --------- --------- COLORADO PUBLIC EMPL RET BANK OF NEW YORK AID ASSOC FOR LUTHERANS NOMURA ASSET MGMT CO LTD CAPSTONE ASSET MGMT. CO. AMERICAN GENERAL CORP 2,000 1,100 BRANDYWINE ASSET MGMT. EQUITABLE COMPANIES INC 134,700 119,400 143,200 93,800 108,300 WEISS PECK & GREER MERRILL LYNCH & CO INC 100 2,700 BEAR STEARNS & CO ARTISAN PARTNERS L P CHARLES SCHWAB INVT MGMT 4,400 4,100 2,700 FIDUCIARY TRUST CO INTL. 0 10,000 FIRST INVESTORS MGMT CO JACOBS LEVY EQUITY MGMT MACKAY SHIELDS FINANCIAL 19,000 19,000 20,000 20,000 20,000 PELL RUDMAN TRUST CO NA ROTHSCHILD/PELL RUDMAN SCHRODER CAP MGMT INTL. 6,000 6,000 6,000 6,000 9,000 SEARS INVESTMENT MGMT SUNTRUST BANKS INC 20,065 148,277 89,794 62,376 62,376 T ROWE PRICE ASSOCIATES 12,000 UNIVERSITY OF TEXAS INVT 0 14,500 0 16,400 ANB INVESTMENT MGMT & TR 1,500 AAL CAPITAL MGMT CORP 0 58,100 AELTUS INVESTMENT MGMT 23,500 AETNA LIFE INS & ANNUITY 2,500 AIM MGMT GROUP INC 1,027,100 798,300 670,900 85,400 ALLIED IRISH BANKS PLC 0 152,700 AMERICAN CENTURY COS 250,000 250,000 380,000 APODACA INVT GROUP INC 0 157,400 BANK OF TOKYO LTD 0 2,500 BARON CAPITAL INC BATTERYMARCH FINL MGMT 21,000 14,900 BENTLEY CAPITAL MGMT INC BERGER ASSOCIATES INC 100,050 150,050 150,000 195,500 195,500 BERKELEY CAPITAL MGMT 0 153,100 2,700 BZW BARCLAYS GLBL INVTS 173,000 143,600 100,700 COLUMBIA MANAGEMENT CO 0 220,000 COMERICA INC DE GARMO & KELLEHER 40,000 80,000
55
13F INSTITUTION 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96 - ------------------------------- --------- --------- --------- --------- --------- --------- DRIEHAUS CAPITAL MGMT DUNCAN-HURST CAP MGMT FIRST OF AMER INVT-SCI 0 FIRSTAR CORPORATION FRANKLIN RESOURCES INC FRED ALGER MANAGEMENT 0 346,750 361,650 FRONTIER CAPITAL MGMT CO GARDNER LEWIS ASSET MGMT GE INVESTMENT CORP GEEWAX TERKER & COMPANY 0 29,900 GENERAL MOTORS INVT MGMT GRANAHAN INVT MGMT INC 0 205,000 321,100 HANCOCK JOHN ADVISERS 0 HILLIARD JJB, LYONS WL HINTZ HOLMAN & HECKSHER INVESTMENT ADVISERS INC 0 20,000 JANUS CAPITAL CORP 0 801,750 961,750 JMC CAPITAL MGMT INC 0 25,036 26,945 123,380 128,005 LGT ASSET MANAGEMENT INC LUTHER KING CAPITAL MGMT 0 35,000 MACKENZIE FINANCIAL CORP 0 90,100 90,100 90,100 83,100 MASS MUTUAL LIFE INSUR 0 8,500 MENTOR INVT ADVISORS LLC 0 45,370 83,770 METROPOLITAN LIFE INSUR 0 5,400 700 MITCHELL HUTCHINS ASSET MONETTA FINL SVCS INC MORGAN J P & CO INC MORGAN STANLEY D WITTER 0 17,000 0 NEW USA RESEARCH & MGMT NEW YORK ST COMMON RET. NICHOLAS CO 0 95,000 75,000 75,000 NICHOLAS-APPLEGATE CAP. NORTHERN TRUST CO/CONN 0 9,000 NORTHWESTERN MUTUAL INVT 0 186,600 NORTHWESTERN MUTUAL LIFE 0 143,100 350,500 OBERWEIS ASSET MGMT INC 0 15,000 15,000 ONE VALLEY BANK NA 0 PALISADE CAPITAL MGT LLC 0 69,800 304,800 219,800 PATTERSON J O & CO PHOENIX HOME LIFE MUTUAL 0 17,500 PILGRIM BAXTER & ASSOCS 0 574,075 987,100 PIMCO ADVISORS LP 13F INSTITUTION 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 - ------------------------------- --------- --------- --------- --------- --------- DRIEHAUS CAPITAL MGMT 0 297,188 301,853 DUNCAN-HURST CAP MGMT 0 341,290 345,490 342,840 223,840 FIRST OF AMER INVT-SCI 184,750 185,050 109,150 107,850 102,050 FIRSTAR CORPORATION 0 31,500 0 54,400 FRANKLIN RESOURCES INC 0 12,000 FRED ALGER MANAGEMENT 367,750 294,200 289,200 235,700 174,000 FRONTIER CAPITAL MGMT CO 0 125,900 120,600 GARDNER LEWIS ASSET MGMT 0 GE INVESTMENT CORP 0 20,300 GEEWAX TERKER & COMPANY GENERAL MOTORS INVT MGMT 0 47,500 65,500 GRANAHAN INVT MGMT INC HANCOCK JOHN ADVISERS 417,000 413,000 410,000 400,000 HILLIARD JJB, LYONS WL 100 100 HINTZ HOLMAN & HECKSHER 0 10,000 INVESTMENT ADVISERS INC JANUS CAPITAL CORP 671,925 377,425 0 JMC CAPITAL MGMT INC 130,960 179,660 234,150 260,710 LGT ASSET MANAGEMENT INC 0 15,000 0 LUTHER KING CAPITAL MGMT MACKENZIE FINANCIAL CORP 23,600 23,600 30,000 MASS MUTUAL LIFE INSUR 190,000 279,700 218,800 194,000 212,700 MENTOR INVT ADVISORS LLC 76,220 74,220 77,870 133,520 135,470 METROPOLITAN LIFE INSUR MITCHELL HUTCHINS ASSET 0 137,900 MONETTA FINL SVCS INC 0 39,250 190,485 80,000 MORGAN J P & CO INC 0 185,700 MORGAN STANLEY D WITTER NEW USA RESEARCH & MGMT 0 10,000 NEW YORK ST COMMON RET. 0 7,600 NICHOLAS CO 50,000 25,000 NICHOLAS-APPLEGATE CAP. 0 239,000 NORTHERN TRUST CO/CONN NORTHWESTERN MUTUAL INVT NORTHWESTERN MUTUAL LIFE 344,100 284,100 323,000 328,900 328,900 OBERWEIS ASSET MGMT INC 15,000 15,000 15,000 15,000 15,000 ONE VALLEY BANK NA 2,100 2,300 2,300 2,900 PALISADE CAPITAL MGT LLC 0 PATTERSON J O & CO 0 46,000 55,000 PHOENIX HOME LIFE MUTUAL PILGRIM BAXTER & ASSOCS 1,004,900 998,200 426,900 552,200 772,900 PIMCO ADVISORS LP 0 196,000 127,000
56
13F INSTITUTION 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96 - ------------------------------- --------- --------- --------- --------- --------- --------- PORTFOLIO ADVISORY SVCS PROVIDENT INVT COUNSEL 0 354,243 427,900 R S INVESTMENT MGMT INC 0 6,900 REPUBLIC NATL BANK/N.Y. 0 ROBERT FLEMING (FLEM CAP) ROBERTSON STEPHENS LP 0 22,300 SAFECO CORPORATION 0 293,500 SBC WARBURG DILLON READ 0 50,500 SCUDDER KEMPER INVTS INC 0 293,900 288,900 286,200 SSI INVESTMENT MGMT INC 0 STACEY BRAUN ASSOC INC STANDISH AYER & WOOD INC 0 11,900 TCW GROUP INC THOMSON HORSTMANN & BRYANT TURNER INVT PARTNERS INC 0 UNITED STATES TR/BOSTON VAN KAMPEN AMER CAPITAL WALL STREET ASSOCIATES 0 WARBURG PINCUS ASSET MGT WELLS FARGO BANK NA WILLIAM BLAIR & CO LLC 0 56,100 65,900 25,900 WILMINGTON TRUST COMPANY WISCONSIN INVESTMT BOARD ZWEIG-DIMENNA PARTNERS --------- --------- --------- --------- --------- --------- TOTAL HOLDINGS 8,078,638 9,275,296 9,069,283 8,866,011 9,335,064 9,189,510 TOTAL NUMBER OF OWNERS 58 58 66 69 60 59 SHARES OUTSTANDING (MILLIONS) 10.11 10.11 10.11 10.11 10.06 10.06 PERCENTAGE HELD BY INSTITUTIONS 79.9% 91.7% 89.7% 87.7% 92.8% 91.3% PRICE AT END OF PERIOD $ 15.38 $ 20.28 $ 25.00 $ 21.06 $ 28.00 $ 35.25 AVERAGE PRICE OF PERIOD $ 17.83 $ 22.64 $ 23.03 $ 24.53 $ 31.63 $ 36.50 TOP 15 HOLDERS PERCENTAGE 74.2% 13F INSTITUTION 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 - ------------------------------- --------- --------- --------- --------- --------- PORTFOLIO ADVISORY SVCS 0 88,290 66,110 58,610 42,030 PROVIDENT INVT COUNSEL 389,600 353,200 337,500 286,100 261,800 R S INVESTMENT MGMT INC 6,100 56,700 60,700 64,000 REPUBLIC NATL BANK/N.Y. 6,020 ROBERT FLEMING (FLEM CAP) 0 10,000 ROBERTSON STEPHENS LP SAFECO CORPORATION 0 SBC WARBURG DILLON READ 0 20,000 SCUDDER KEMPER INVTS INC 259,800 266,600 263,900 227,900 189,000 SSI INVESTMENT MGMT INC 1,000 STACEY BRAUN ASSOC INC 0 17,700 17,700 STANDISH AYER & WOOD INC TCW GROUP INC 0 50,000 40,000 THOMSON HORSTMANN & BRYANT 0 72,700 TURNER INVT PARTNERS INC 94,750 66,750 50,050 42,110 51,460 UNITED STATES TR/BOSTON 0 1,700 VAN KAMPEN AMER CAPITAL 150,350 150,450 151,000 62,700 57,800 WALL STREET ASSOCIATES 102,150 95,100 86,500 66,800 100,600 WARBURG PINCUS ASSET MGT 0 36,000 WELLS FARGO BANK NA 0 12,000 WILLIAM BLAIR & CO LLC WILMINGTON TRUST COMPANY 0 5,300 5,300 WISCONSIN INVESTMT BOARD 0 175,700 ZWEIG-DIMENNA PARTNERS 0 57,000 32,000 25,000 --------- --------- --------- --------- --------- TOTAL HOLDINGS 9,127,228 9,390,312 7,962,873 7,026,438 6,576,153 TOTAL NUMBER OF OWNERS 63 64 60 63 52 SHARES OUTSTANDING (MILLIONS) 10.06 10.06 10.06 10.02 10.02 PERCENTAGE HELD BY INSTITUTIONS 90.7% 93.3% 79.2% 70.1% 65.6% PRICE AT END OF PERIOD $ 37.75 $ 46.50 $ 36.00 $ 41.50 $ 29.25 AVERAGE PRICE OF PERIOD $ 42.13 $ 41.25 $ 38.75 $ 35.38 $ 25.13 TOP 15 HOLDERS PERCENTAGE
Source: CDA Spectrum as of July 16, 1998. 57 PROJECT GOLDCAP MARKET COMPARISON OF SELECTED PUBLIC COMPANIES ---------------------------------------------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
52 WEEK LATEST ------- COMPANY TICKER EXCHANGE FYE QUARTER HIGH LOW - ------- ------ -------- --- ------- ------ ----- Dental Managed Care Companies - ----------------------------- First Commonwealth, Inc. FCWI OTC DC 6/98 $19.75 $9.25 Safeguard Health Enterprises, Inc. SFGD OTC DC 6/98 14.87 6.00 United Dental Care, Inc.[2] UDCI OTC DC 3/98 20.37 10.25 Multi-Market HMOs - ----------------- Foundation Health Systems, Inc. FHS NYSE DC 3/98 $33.93 $22.00 Humana, Inc. HUM NYSE DC 3/98 32.12 18.43 Maxicare Health Plans, Inc. MAXI OTC DC 3/98 24.00 6.00 Mid Atlantic Medical Services, Inc. MME NYSE DC 3/98 17.00 8.75 Oxford Health Plans, Inc. OXHP OTC DC 3/98 89.00 9.13 PacifiCare Health Systems, Inc. PHSYA OTC DC 3/98 88.87 46.75 United HealthCare Corp. UNH NYSE DC 3/98 73.93 42.43 Dental Practice Management Companies - ------------------------------------ American Dental Partners [3] ADPI OTC DC 3/98 $19.37 $13.62 Birner Dental Management Services [4] BDMS OTC DC 3/98 8.37 5.31 Castle Dental Centers, Inc. CASL OTC DC 3/98 14.75 6.62 Coast Dental CDEN OTC DC 6/98 31.75 13.00 Dental Care Alliance, Inc. DENT OTC DC 3/98 15.75 8.00 Gentle Dental Service Corp. GNTL OTC DC 3/98 16.50 6.00 Monarch Dental Corporation MDDS OTC DC 3/98 23.87 11.00 Pentegra Dental Group, Inc. [5] PEN AMEX DC 3/98 9.00 6.25 Orthodontic Practice Management Companies - ----------------------------------------- Apple Orthodontix, Inc. AOI AMEX DC 3/98 $16.50 $4.00 Orthalliance ORAL OTC DC 3/98 17.25 8.50 Orthodontic Centers of America OCA NYSE DC 3/98 24.06 15.00 GOLDCAP OTC DC 3/98 $27.75 $9.00 EARNINGS PER SHARE (1) MARKET PRICE ------------------------- PRICE AS % CAL. CAL. 7/24/98 OF HIGH LTM 1998E 1999E ------- ------- ------ ------ ------ Dental Managed Care Companies - ----------------------------- First Commonwealth, Inc. $14.75 74.7% $0.97 $1.05 $1.21 Safeguard Health Enterprises, Inc. 6.56 44.1% 0.44 0.65 0.79 United Dental Care, Inc.[2] 19.50 95.7% 0.66 0.86 1.02 AVERAGE 71.5% MEDIAN 74.7% Multi-Market HMOs - ------------------ Foundation Health Systems, Inc. $21.50 63.4% $1.37 $1.42 $2.20 Humana, Inc. 26.94 83.9% 1.11 1.31 1.59 Maxicare Health Plans, Inc. 7.00 29.2% 0.15 (0.21) 0.63 Mid Atlantic Medical Services, Inc. 9.25 54.4% 0.43 0.67 0.89 Oxford Health Plans, Inc. 9.13 10.3% (4.49) (1.25) (0.18) PacifiCare Health Systems, Inc. 74.00 83.3% 2.26 3.79 4.69 United HealthCare Corp. 56.75 76.8% 2.35 2.75 3.38 AVERAGE 57.3% MEDIAN 63.4% Dental Practice Management Companies - ------------------------------------ American Dental Partners [3] $14.00 72.3% $0.07 $0.54 $0.82 Birner Dental Management Services [4] 6.00 71.7% 0.08 0.33 0.53 Castle Dental Centers, Inc. 10.63 72.0% 0.16 0.52 0.76 Coast Dental 14.63 46.1% 0.64 0.74 1.08 Dental Care Alliance, Inc. 10.63 67.5% 0.18 0.50 0.71 Gentle Dental Service Corp. 8.50 51.5% (0.21) 0.18 0.59 Monarch Dental Corporation 14.88 62.3% 0.32 0.58 0.82 Pentegra Dental Group, Inc. [5] 7.50 83.3% NA 0.50 0.68 AVERAGE 65.8% MEDIAN 69.6% Orthodontic Practice Management Companies - ----------------------------------------- Apple Orthodontix, Inc. $ 4.00 24.2% $0.26 $0.50 $0.69 Orthalliance 12.25 71.0% 0.49 0.56 0.69 Orthodontic Centers of America 17.56 73.0% 0.55 0.70 0.94 AVERAGE 56.1% MEDIAN 71.0% OVERALL AVERAGE 62.4% OVERALL MEDIAN 71.0% GOLDCAP $13.25 47.7% $1.07 $1.06 $1.20 PRICE/EARNINGS RATIO 5-YEAR ------------------------ GROWTH CAL. CAL. RATE [1] LTM 1998E 1998E -------- ----- ----- ------ Dental Managed Care Companies - ----------------------------- First Commonwealth, Inc. 19.0% 15.2x 14.0x 12.2x Safeguard Health Enterprises, Inc. 28.0% 14.9 10.1 8.3 United Dental Care, Inc.[2] 22.0% 29.5* 22.7* 19.1* AVERAGE 23.0% 15.1x 12.1x 10.2x MEDIAN 22.0% 15.2x 14.0x 12.2x Multi-Market HMOs - ----------------- Foundation Health Systems, Inc. 15.0% 15.7x 15.1x 9.8x Humana, Inc. 19.0% 24.3 20.6 16.9 Maxicare Health Plans, Inc. 10.0% 46.7* NM 11.1 Mid Atlantic Medical Services, Inc. 15.0% 21.5 13.8 10.4 Oxford Health Plans, Inc. 33.0% NM NM NM PacifiCare Health Systems, Inc. 20.0% 32.7* 19.5 15.8 United HealthCare Corp. 20.0% 24.1 20.6 16.8 AVERAGE 18.9% 21.4x 17.9x 13.5x MEDIAN 19.0% 24.2x 19.5x 13.4x Dental Practice Management Companies - ------------------------------------ American Dental Partners [3] 37.0% 200.0x* 25.9x 17.1x Birner Dental Management Services [4] NA 75.0 18.2 11.3 Castle Dental Centers, Inc. 37.0% 66.4 20.4 14.0 Coast Dental 40.0% 22.9 19.8 13.5 Dental Care Alliance, Inc. 35.0% 59.0 21.3 15.0 Gentle Dental Service Corp. 40.0% NM 47.2* 14.4 Monarch Dental Corporation 37.0% 46.5 25.6 18.1 Pentegra Dental Group, Inc. [5] 35.0% NA 15.0 11.0 AVERAGE 37.3% 48.7x 20.9x 14.3x MEDIAN 37.0% 62.7x 20.8x 14.2x Orthodontic Practice Management Companies - ----------------------------------------- Apple Orthodontix, Inc. 15.0% 15.4x 8.0x 5.8x Orthalliance NA 25.0 21.9 17.8 Orthodontic Centers of America 35.0% 31.9 25.1 18.7 AVERAGE 25.0% 24.1x 18.3x 14.1x MEDIAN 25.0% 25.0x 21.9x 17.8x OVERALL AVERAGE 26.9% 29.5x 18.5x 13.6x OVERALL MEDIAN 28.0% 24.2x 19.8x 14.0x GOLDCAP 15.0% 12.4x 12.5x 11.0x 1999 P/E/ 5-YEAR MARKET MARKET/ GROWTH CAP'N BOOK --------- ------- ------- Dental Managed Care Companies - ----------------------------- First Commonwealth, Inc. 0.64x $53.7 2.1x Safeguard Health Enterprises, Inc. 0.30 31.2 0.9 United Dental Care, Inc.[2] 0.87 175.2 1.4* AVERAGE 0.60x 1.5x MEDIAN 0.64x 1.4x Multi-Market HMOs - ------------------ Foundation Health Systems, Inc. 0.65x $2,624.3 2.8x Humana, Inc. 0.89 4,483.7 2.8 Maxicare Health Plans, Inc. 1.11 125.5 1.6 Mid Atlantic Medical Services, Inc. 0.69 503.3 2.3 Oxford Health Plans, Inc. NM 733.0 2.4 PacifiCare Health Systems, Inc. 0.79 3,088.2 1.5 United HealthCare Corp. 0.84 10,936.0 2.3 AVERAGE 0.83x 2.3x MEDIAN 0.81x 2.3x Dental Practice Management Companies - ------------------------------------ American Dental Partners [3] 0.46x $103.8 2.3x Birner Dental Management Services [4] NA 40.0 2.2 Castle Dental Centers, Inc. 0.38 66.4 1.8 Coast Dental 0.34 111.5 1.8 Dental Care Alliance, Inc. 0.43 74.1 2.9 Gentle Dental Service Corp. 0.36 66.4 3.2 Monarch Dental Corporation 0.49 153.6 3.6 Pentegra Dental Group, Inc. [5] 0.32 48.3 6.9* AVERAGE 0.40x 2.5x MEDIAN 0.38x 2.6x Orthodontic Practice Management Companies - ----------------------------------------- Apple Orthodontix, Inc. 0.39x $54.5 1.4x Orthalliance NA 155.9 3.4 Orthodontic Centers of America 0.53 836.4 4.2 AVERAGE 0.46x 3.0 MEDIAN 0.46x 3.4x OVERALL AVERAGE 0.58x 2.4x OVERALL MEDIAN 0.51x 2.3x GOLDCAP 0.74x $134.0 2.1x
- ------- *Excluded from average. NA - Not Available NM - Not Meaningful F - Fiscal Year Estimate [1] Earnings Estimates are consensus estimates from the First Call Research Network as of July 24, 1998 except for Orthodontic Centers of America and GoldCap which are from Robinson-Humphrey Research. Excludes all nonrecurring charges and gains. [2] Reflects the Protective Life Acquisition and premiums paid therein. [3] Initial public offering priced on April 15, 1998 at $15.00 per share. [4] Initial public offering priced on February 11, 1998 at $7.00 per share. [5] Initial public offering priced on March 24, 1998 at $8.50 per share. 58 Project Goldcap Market Comparison of Selected Public Companies (Dollars in Millions, Except Per Share Amounts)
Debt / LTM Shares Total Total Total Firm ------------------------------ Company Outstanding Debt Cap. Cash Value[1] Revenues EBIT EBITDA - ------- ----------- ---- ------ ----- -------- -------- ---- ------ (MM) ($MM) ($MM) ($MM) ($MM) ($MM) ($MM) Dental Managed Care Companies First Commonwealth, Inc. 3.640 $ 0.0[2] 0.0% $ 11.3[2] $ 42.4 $ 60.9 $ 5.5 $ 6.4[3] Safeguard Health Enterprises, Inc. 4.747 45.8[2] 56.7% 9.2 67.8 97.9 4.0 6.0[3] United Dental Care, Inc. 8.983 16.1 11.4% 21.2 170.0 172.4 6.1 11.4 AVERAGE MEDIAN Multi-Market HMOs Foundation Health Systems, Inc. 122.059 $1,356.9 59.4% $ 947.4 $ 3,033.8 $ 7,526.1 $ 227.5 $ 332.0 Humana, Inc. 166.447 847.0 34.8% 1,779.0 3,551.7 8,429.0 141.0 257.0 Maxicare Health Plans, Inc. 17.925 0.0 0.0% 82.2 43.3 689.7 (32.1) (31.4) Mid Atlantic Medical Services, Inc. 54.415 2.7 1.2% 183.3 322.8 1,100.4 13.8 24.5 Oxford Health Plans, Inc. 80.331 220.3 42.2% 696.3 257.0 4,424.7 (569.4) (505.4) PacifiCare Health Systems, Inc. 41.732 1,041.3 33.3% 1,162.3 2,967.2 9,521.0 199.9[4] 328.6[4] United HealthCare Corp. 192.704 520.0 10.0% 816.0 10,640.0 12,815.0 530.0 684.0 AVERAGE MEDIAN Dental Practice Management Companies American Dental Partners 7.417 $ 5.8 11.4% $ 11.8 $ 97.8 $ 60.2 $ 2.8 $ 5.5 Birner Dental Management Services 6.668 0.4 2.2% 6.2 34.3 15.1 1.5 2.2 Castle Dental Centers, Inc. 6.253 22.4 38.3% 1.8 87.0 34.2 3.6 5.9 Coast Dental 7.622 1.3[2] 2.0% 44.2[2] 68.6 27.5 5.5 6.9 Dental Care Alliance, Inc. 6.978 2.1 7.5% 11.2 64.9 11.6 1.3 1.6 Gentle Dental Service Corp. 7.809 25.7 55.3% 0.1 92.0 53.8 (0.3) 1.9 Monarch Dental Corporation 10.325 13.2 23.4% 3.9 162.9 52.8 6.3 9.7 Pentegra Dental Group, Inc. 6.442 1.1 13.3% 6.7 42.7 0.0 (3.1) (3.1) AVERAGE MEDIAN Orthodontic Practice Management Companies Apple Orthodontics, Inc. 13.615 $ 5.3 11.8% $ 2.5 $ 57.3 $ 30.4 $ 3.7 $ 5.1 Orthalliance 12.723 2.0 4.2% 3.9 153.9 32.7 6.0 6.8 Orthodontic Centers of America 47.627 13.2 6.2% 4.8 844.9 130.1 40.5 47.1 AVERAGE MEDIAN AVERAGE MEDIAN Goldcap 10.113 $ 55.1 46.7% $ 15.6 $ 173.5 $ 163.3 $ 21.5 $ 27.3
3 Year CAGR Firm Value to: ---------------- EBIT EBITDA ----------------------------- Net Company Margin Margin Revenues EBIT EBITDA Revenue Income - ------- ------ ------ -------- ---- ------ ------- ------ Dental Managed Care Companies First Commonwealth, Inc. 9.0% 10.5% 0.70 x 7.7 x 6.7 x 30.3% 28.8% Safeguard Health Enterprises, Inc. 4.1% 6.1% 0.69 16.9 11.3 25.3% (5.7%) United Dental Care, Inc. 3.6% 6.6% 0.99 * 27.7 * 14.9 * 48.8% 21.6% AVERAGE 5.6% 7.75 0.69 x 12.3 x 9.0 x 34.8% 14.9% MEDIAN 4.1% 6.6% 0.70 x 16.9 x 11.3 x 30.3% 21.6% Multi-Market HMOs Foundation Health Systems, Inc. 3.0% 4.4% 0.40 x 13.3 x 9.1 x 18.8% 15.1% Humana, Inc. 1.7% 3.0% 0.42 25.2 13.8 30.8% (22.4%) Maxicare Health Plans, Inc. (4.7%) (4.5%) 0.06 * NM NM 17.9% NM Mid Atlantic Medical Services, Inc. 1.3% 2.2% 0.29 23.4 13.2 7.8% (68.2%) Oxford Health Plans, Inc. (12.9%) (11.4%) 0.06 * NM NM 54.7% NM PacifiCare Health Systems, Inc. 2.1% 3.5% 0.31 14.8 9.0 55.2% 10.8% United HealthCare Corp. 4.1% 5.3% 0.83 20.1 15.6 44.9% 30.1% AVERAGE (0.8%) 0.4% 0.45 x 19.4 x 12.1 x 32.9% (6.9%) MEDIAN 1.7% 3.0% 0.31 x 20.1 x 13.2 x 30.8% 10.8% Dental Practice Management Companies American Dental Partners 4.7% 9.1% 1.62 x 34.7 x 17.8 NA NA Birner Dental Management Services 9.7% 14.7% 2.27 23.5 15.5 NA NA Castle Dental Centers, Inc. 10.5% 17.3% 2.55 24.2 14.7 31.2% NM Coast Dental 19.9% 25.2% 2.50 12.6 9.9 145.5% 392.7% Dental Care Alliance, Inc. 11.2% 13.6% 5.60* 49.9* 41.* 218.5% NM Gentle Dental Service Corp. (0.5%) 3.5% 1.71 NM 48.5* NA NA Monarch Dental Corporation 11.9% 18.4% 3.08 26.0 16.8 126.8% 16.2% Pentegra Dental Group, Inc. NA NA NM NM NM NA NA AVERAGE 9.6% 14.5% 2.29 x 24.2 x 14.9 x 130.5% 204.4% MEDIAN 10.5% 14.7% 2.50 x 25.1 x 16.8 x 136.1% 204.4% Orthodontic Practice Management Companies Apple Orthodontics, Inc. 12.2% 16.8% 1.88 x 15.4 x 11.2 NA NA Orthalliance 18.4% 20.6% 4.70 25.6 22.8 NA NA Orthodontic Centers of America 31.2% 36.2% 6.49 x 20.8 17.9 68.0% 58.3% AVERAGE 20.6% 24.5% 3.29 x 20.6 17.3 68.0% 58.3% MEDIAN 18.4% 20.6% 4.70 x 20.8 x 17.9 x 68.0% 58.3% AVERAGE 7.0% 10.1% 1.60 x 20.3 x 13.7 x 61.6% 43.4% MEDIAN 4.4% 7.9% 1.62 x 20.8 x 13.8 x 44.9% 16.2% Goldcap 13.2% 16.7% 1.06 x 8.1 x 6.4 x 22.0% 46.1%
* Excluded from average. NA - Not Available NM - Not Meaningful [1] Firm value equals market capitalization plus total debt and preferred stock minus cash and short term investments. [2] As of March 31, 1998. [3] Depreciation and amortization is for the twelve months ended March 31, 1998. [4] Excludes approximately $154 million in one-time charges. 59 PROJECT GOLDCAP HISTORICAL GROWTH ANALYSIS OF SELECTED COMPARABLE PUBLIC COMPANIES REVENUES (DOLLARS IN MILLIONS)
1995 1996 1997 FIRST QUARTER 1998 --------- --------------------- -------------------- 3 YEAR -------------------- $ AMT $ AMT GROWTH $ AMT GROWTH CAGR $ AMT GROWTH ----- ----- ------ ----- ------ ------ ----- ------ Dental Managed Care Companies First Commonwealth, Inc. $ 33.3 $ 44.1 32.4% $ 56.6 28.3% 30.3% $ 15.6 16.0% Safeguard Health Enterprises, Inc. 60.7 72.7 19.7% 95.4 31.1% 25.3% 24.4 6.3% United Dental Care, Inc. 78.6 112.7 43.4% 174.0 54.3% 48.8% 43.3 (3.5%) Multi-Market HMOs Foundation Health Systems, Inc. $ 5,047.1 $ 6,620.8 31.2% $ 7,120.7 7.5% 18.8% $ 2,149.2 23.2% Humana, Inc. 4,605.0 6,677.0 45.0% 7,880.0 18.0% 30.8% 2,352.0 30.4% Maxicare Health Plans, Inc. 477.3 562.8 17.9% 663.8 18.0% 17.9% 180.4 16.8% Mid Atlantic Medical Services, Inc. 942.9 1,119.4 18.7% 1,096.6 (2.0%) 7.8% 285.8 1.3% Oxford Health Plans, Inc. 1,746.0 3,032.6 73.7% 4,179.8 37.8% 54.7% 1,218.1 25.2% PacifiCare Health Systems, Inc. 3,731.0 4,637.3 24.3% 8,982.7 93.7% 55.2% 2,382.0 29.2% United HealthCare Corp. 5,511.0 9,889.0 79.4% 11,563.0 16.9% 44.9% 4,053.0 44.7% GOLDCAP $ 106.7 $ 141.1 32.3% $ 158.7 12.5% 22.0% $ 42.4 12.2%
60 PROJECT GOLDCAP HISTORICAL GROWTH ANALYSIS OF SELECTED COMPARABLE PUBLIC COMPANIES ------------------------------------------------------------------- EBITDA (DOLLARS IN MILLIONS)
1995 1996 1997 ----------------- ---------------------------- ----------------------------- $ Amt Margin $ Amt Margin Growth $ Amt Margin Growth ------ -------- ------ -------- ------- ------- ------- ------- Dental Managed Care Companies - ----------------------------- First Commonwealth, Inc. $ 3.6 10.7% $ 4.6 10.4% 29.3% $ 6.0 10.6% 29.8% Safeguard Health Enterprises, Inc. 3.6 5.9% 4.2 5.8% 17.5% 6.8 7.2% 61.3% United Dental Care, Inc. 7.5 9.5% 13.9 12.3% 86.5% 11.2 6.4% (19.5%) Multi-Market HMOs - ----------------- Foundation Health Systems, Inc. $390.0 7.7% $167.0 2.5% (57.2%) $ 354.3 5.0% 112.2% Humana, Inc. 272.0 5.9% 112.0 1.7% (58.8%) 242.0 3.1% 116.1% Maxicare Health Plans, Inc. 19.1 4.0% 11.0 2.0% (42.2%) (22.7) (3.4%) NM Mid Atlantic Medical Services, Inc. 91.4 9.7% (10.8) (1.0%) NM 17.1 1.6% NM Oxford Health Plans, Inc. 98.7 5.7% 176.9 5.8% 79.3% (413.3) (9.9%) NM PacifiCare Health Systems, Inc. 176.9 4.7% 211.6 4.6% 19.6% 315.4 3.5% 49.1% United HealthCare Corp. 549.0 10.0% 544.0 5.5% (0.9%) 657.0 5.7% 20.8% GOLDCAP $ 12.9 12.1% $ 24.0 17.0% 87.1% $ 27.8 17.5% 15.6% First Quarter 1998 3 YEAR ---------------------------- CAGR $ Amt Margin Growth ------ ------ ------- ------ Dental Managed Care Companies - ----------------------------- First Commonwealth, Inc. 29.6% $ 1.6 10.4% 16.6% Safeguard Health Enterprises, Inc. 37.7% 1.8 7.2% (28.2%) United Dental Care, Inc. 22.5% 4.2 9.8% 17.3% Multi-Market HMOs - ----------------- Foundation Health Systems, Inc. (4.7%) $ 69.8 3.2% (24.2%) Humana, Inc. (5.7%) 73.0 3.1% 25.9% Maxicare Health Plans, Inc. NM (4.1) (2.3%) NM Mid Atlantic Medical Services, Inc. (56.7%) 10.0 3.5% 280.6% Oxford Health Plans, Inc. NM (33.3) (2.7%) NM PacifiCare Health Systems, Inc. 33.5% 103.8 4.4% 14.6% United HealthCare Corp. 9.4% 189.0 4.7% 16.7% GOLDCAP 47.1% $ 6.5 15.3% (6.9%)
61 PROJECT GOLDCAP HISTORICAL GROWTH ANALYSIS OF SELECTED COMPARABLE PUBLIC COMPANIES ------------------------------------------------------------------ EBIT (DOLLARS IN MILLIONS)
1995 1996 1997 ---------------- ---------------------------- ------------------------ $ Amt Margin $ Amt Margin Growth $ Amt Margin Growth ----- ------ ------ ------ ------ ----- ------ ------ Dental Managed Care Companies - ----------------------------- First Commonwealth, Inc. $ 3.1 9.4% $ 4.0 9.0% 25.6% $ 5.1 9.0% 29.3% Safeguard Health Enterprises, Inc. 2.0 3.3% 1.9 2.6% (5.9%) 4.5 4.8% 141.4% United Dental Care, Inc. 6.3 8.0% 11.6 10.3% 85.7% 6.1 3.5% (47.3%) Multi-Market HMOs - ----------------- Foundation Health Systems, Inc. $300.6 6.0% $ 54.0 0.8% (82.0%) $ 255.9 3.6% 373.6% Humana, Inc. 202.0 4.4% 14.0 0.2% -93.1% 134.0 1.7% 857.1% Maxicare Health Plans, Inc. 17.8 3.7% 9.7 1.7% -45.4% (23.5) (3.5%) NM Mid Atlantic Medical Services, Inc. 85.3 9.1% (18.6) (1.7%) NM 6.9 0.6% NM Oxford Health Plans, Inc. 75.7 4.3% 134.0 4.4% 77.1% (474.4) (11.3%) NM PacifiCare Health Systems, Inc. 148.2 4.0% 179.5 3.9% 21.1% 198.5 2.2% 10.6% United HealthCare Corp. 455.0 8.3% 411.0 4.2% -9.7% 511.0 4.4% 24.3% GOLDCAP $ 10.1 9.5% $ 18.9 13.4% 86.4% $ 22.1 13.9% 16.8% First Quarter 1998 3 Year ------------------------------------------- CAGR $ Amt Margin Growth ------ ------ ------ ------ Dental Managed Care Companies - ----------------------------- First Commonwealth, Inc. 27.5% $ 1.4 8.9% 17.8% Safeguard Health Enterprises, Inc. 50.7% 1.1 4.6% (25.5%) United Dental Care, Inc. (1.1%) 2.9 6.7% 16.1% Multi-Market HMOs - ----------------- Foundation Health Systems, Inc. (7.7%) $ 39.0 1.8% (42.2%) Humana, Inc. (18.6%) 41.0 1.7% 20.6% Maxicare Health Plans, Inc. NM (4.3) (2.4%) NM Mid Atlantic Medical Services, Inc. (71.5%) 7.1 2.5% NM Oxford Health Plans, Inc. NM (49.4) (4.1%) NM PacifiCare Health Systems, Inc. 15.7% 72.5 3.0% 1.9% United HealthCare Corp. 6.0% 147.0 3.6% 14.8% GOLDCAP 47.5% $ 5.1 12.1% (9.6%)
62 PROJECT GOLDCAP HISTORICAL GROWTH ANALYSIS OF SELECTED COMPARABLE PUBLIC COMPANIES DILUTED EARNINGS PER SHARE
1995 1996 1997 FIRST QUARTER 1998 ------- ----------------- --------------------- 3 YEAR ----------------------- $ AMT $ AMT GROWTH $ AMT GROWTH CAGR $ AMT GROWTH ----- ----- ------ ----- ------ ------ ----- ------ Dental Managed Care Companies First Commonwealth, Inc. $ 0.67 $ 0.76 13.4% $ 0.89 17.1% 15.3% $ 0.24 20.0% Safeguard Health Enterprises, Inc. 0.45 0.30 (33.3%) 0.38 26.7% (8.1%) 0.14 (12.5%) United Dental Care, Inc. 0.68 1.00 47.1% (0.03) NM NM 0.17 6.3% Multi-Market HMOs Foundation Health Systems, Inc. $ 1.54 $ 0.52 (66.2%) $ 1.37 163.5% (5.7%) $ 0.22 (42.1%) Humana, Inc. 1.16 0.95 (18.1%) 1.05 10.5% (4.9%) 0.30 25.0% Maxicare Health Plans, Inc. 1.53 1.05 (31.4%) 0.63 (40.0%) (35.8%) (0.15) NM Mid Atlantic Medical Services, Inc. 1.28 (0.06) NM 0.31 NM (50.8%) 0.14 600.0% Oxford Health Plans, Inc. 0.71 1.25 76.1% (3.70) NM NM (0.37) NM PacifiCare Health Systems, Inc. 3.62 4.18 15.5% 2.43 (41.9%) (18.1%) 0.90 (19.6%) United HealthCare Corp. 1.57 1.76 12.1% 2.26 28.4% 20.0% 0.63 16.7% GOLDCAP $ 0.68 $ 0.97 42.6% $ 1.10 13.4% 27.2% $ 0.25 (10.7%)
63 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING PUBLIC DENTAL MANAGED CARE COMPANIES MULTIPLES (DOLLARS IN THOUSANDS) - ------------------------------------------------------------------------------
AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES ----------------------------------------------- IMPLIED IMPLIED GOLDCAP PRICE / PRICE / PRICE / PRICE / EQUITY EQUITY VALUE Valuation Parameter VALUE LTM EPS CAL. 1998 EPS CAL. 1999 EPS BOOK VALUE PER SHARE [1] - ------------------- ------ ------- ------------ ------------- ---- --------- ------------- LTM EPS [2] $ 1.07 [3] 15.1 x $162,962 $16.11 Est. 1998 EPS $ 0.94 [4] 12.1 x $129,403 $12.80 Est. 1999 EPS $ 1.27 [4] 10.2 x $124,367 $12.30 Book Value (as of 3/31/98) $62,769 1.5 x $ 94,810 $ 9.38 - ------------------------------------------------------------------------------------------------ AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES --------------------------------------------------------------- GOLDCAP FIRM VALUE / FIRM VALUE / FIRM VALUE / Valuation Parameter VALUE LTM REVENUES LTM EBIT LTM EBITDA - ------------------- ------- ------------ -------- ------------ LTM Revenues [2] $163,333 0.69 x LTM Operating Income [2] $21,521[3] 12.3 x LTM EBITDA [2] $27,314[3] 9.0 x
LESS IMPLIED PV OF DHDC IMPLIED IMPLIED FIRM LESS DEFERRED EQUITY EQUITY VALUE Valuation Parameter VALUE NET DEBT[2] LIABILITIES VALUE PER SHARE [1] - ------------------- -------- ----------- ----------- --------- -------------- LTM Revenues [2] $113,479 $39,534 $21,049 $ 52,896 $ 5.23 LTM Operating Income [2] $265,065 $39,534 $21,049 $204,482 $20.22 LTM EBITDA [2] $245,389 $39,534 $21,049 $184,806 $18.27 MEAN EQUITY VALUE $136,247 $13.47 MEDIAN EQUITY VALUE $131,403 $12.80
- ---------------------------------------------------------- * - Excluded from mean. [1] Assumes 10,112,629 Goldcap shares outstanding. [2] LTM ended March 31, 1998. [3] Excludes $58.9 million goodwill impairment charge and $9.4 million in one-time charges ($6.42 per share). [4] Projections provided by Robinson-Humphrey research. 64 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING PUBLIC DENTAL MANAGED CARE COMPANIES MULTIPLES (DOLLARS IN THOUSANDS) - ------------------------------------------------------------------------------
AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES --------------------------------------------------------- IMPLIED IMPLIED GOLDCAP PRICE / PRICE / PRICE / PRICE / EQUITY EQUITY VALUE Valuation Parameter VALUE LTM EPS CAL. 1998 EPS CAL. 1999 EPS BOOK VALUE PER SHARE [1] - ------------------- ------ ------- ------------- ------------- ------ --------- ------------- LTM EPS [2] $ 1.07 [3] 15.1 x $162,962 $16.11 Est. 1998 EPS $ 0.94 [4] 12.1 x $114,754 $11.35 Est. 1999 EPS $ 1.27 [4] 10.2 x $131,622 $13.02 Book Value (as of 3/31/98) $62,769 1.5 x $ 94,810 $ 9.38 - --------------------------------------------------------------------------------------------------------- AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES ----------------------------------------------- LESS IMPLIED PV OF DHDC GOLDCAP FIRM VALUE / FIRM VALUE / FIRM VALUE / FIRM LESS DEFERRED Valuation Parameter VALUE LTM REVENUES LTM EBIT LTM EBITDA VALUE NET DEBT[2] LIABILITIES - ------------------- ------- ------------ ------------ ------------ ----- ----------- ----------- LTM Revenues [2] $163,333 0.69 x $113,479 $39,534 $21,049 $ 52,896 $ 5.23 LTM Operating Income [2] $21,521[3] 12.3 x $265,065 $39,534 $21,049 $204,482 $20.22 LTM EBITDA [2] $27,314[3] 9.0 x $245,389 $39,534 $21,049 $184,806 $18.27 MEAN EQUITY VALUE $135,190 $13.37 MEDIAN EQUITY VALUE $131,622 $13.02
- ---------------------------------------------------------- * - Excluded from mean. [1] Assumes 10,112,629 Goldcap shares outstanding. [2] LTM ended March 31, 1998. [3] Excludes $58.9 million goodwill impairment charge and $9.4 million in one-time charges ($6.42 per share). [4] Projections provided by Goldcap management. 65 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING DENTAL MANAGED CARE AND DENTAL PRACTICE MANAGEMENT COMPANIES MULTIPLES (DOLLARS IN THOUSANDS)
BENEFITS COMPANY - ---------------- AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES ------------------------------------------------------ Benefits PRICE / PRICE / Valuation Parameter Value CAL. 1998 EPS CAL. 1999 EPS - ------------------- -------- ------------- ------------- Est. 1998 Net Income $ 9,264 [2] 12.1 x Est. 1999 Net Income $11,529 [2] 10.2 x AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES ------------------------------------------------------ Benefits FIRM VALUE / Valuation Parameter Value LTM EBITDA - ------------------- -------- ------------ LTM EBITDA [3] $26,383 [4] 9.0 x DHMI - ---- AVERAGE DENTAL PRACTICE MANAGEMENT COMPANIES MULTIPLES ------------------------------------------------------ DHMI PRICE / PRICE / Valuation Parameter Value CAL. 1998 EPS CAL. 1999 EPS - ------------------- -------- ------------- ------------- Est. 1998 Net Income $ 277 [2] 20.9 x Est. 1999 Net Income $ 1,686 [2] 14.3 x AVERAGE DENTAL PRACTICE MANAGEMENT COMPANIES MULTIPLES ------------------------------------------------------ DHMI FIRM VALUE / Valuation Parameter Value LTM EBITDA - ------------------- -------- ------------ LTM EBITDA [3] $ 931 [4] 14.9 x IMPLIED IMPLIED EQUITY EQUITY VALUE VALUE PER SHARE [1] ------- ------------- $111,834 $11.06 $118,155 $11.68 LESS IMPLIED PV OF DHDC FIRM LESS DEFERRED VALUE NET DEBT [2] LIABILITIES ------- ------------ ----------- $237,025 $39,534 $21,049 $176,442 $17.45 MEAN EQUITY VALUE $135,477 $13.40 MEDIAN EQUITY VALUE $118,155 $11.68 IMPLIED IMPLIED EQUITY EQUITY VALUE VALUE PER SHARE [2] ------- ------------- $ 5,785 $ 0.57 $ 24,122 $ 2.39 LESS IMPLIED PV OF DHDC FIRM LESS DEFERRED VALUE NET DEBT [2] LIABILITIES ------- ------------ ----------- $13,913 $ 0 $ 0 $ 13,913 $ 1.38 MEAN EQUITY VALUE $ 14,607 $ 1.44 MEDIAN EQUITY VALUE $ 13,913 $ 1.38 SUM OF MEANS $150,084 $14.84 SUM OF MEDIANS $132,068 $13.06
- ---------------------------------- * - Excluded from mean. [1] Assumes 10,112,629 Goldcap shares outstanding. [2] Projections provided by Goldcap management. [3] LTM ended March 31, 1998. [4] Excludes $58.9 million goodwill impairment charge and $9.4 million in one-time charges. 66 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING PUBLIC MULTI-MARKET HMO COMPANIES MULTIPLES (DOLLARS IN THOUSANDS)
AVERAGE MULTI-MARKET HMO COMPANIES MULTIPLES -------------------------------------------------------------- Goldcap PRICE / PRICE / PRICE / PRICE / Valuation Parameter Value [1] LTM EPS CAL. 1998 EPS CAL. 1999 EPS BOOK - ------------------- --------- ------- ------------- ------------- ---- LTM EPS [2] $ 1.07 [3] 21.4 x Est. 1998 EPS $ 1.06 [4] 17.9 x Est. 1999 EPS $ 1.20 [4] 13.5 x Book Value (as of 3/31/98) $ 62,769 2.3 x - ----------------------------------------------------------------------------------------------------------------------------------- AVERAGE MULTI-MARKET HMO COMPANIES MULTIPLES LESS ------------------------------------------------ IMPLIED PV OF DHDC Goldcap FIRM VALUE / FIRM VALUE / FIRM VALUE / FIRM LESS DEFERRED Valuation Parameter Value LTM REVENUES LTM EBIT LTM EBITDA VALUE NET DEBT [2] LIABILITIES - ------------------- -------- ------------ -------- ---------- ----- ------------ ----------- LTM Revenues [2] $163,333 0.45 x $ 73,818 $39,534 $21,049 LTM Operating Income [2] $ 21,521 [3] 19.4 x $416,949 $39,534 $21,049 LTM EBITDA [2] $ 27,314 [3] 12.1 x $331,804 $39,534 $21,049 IMPLIED IMPLIED EQUITY EQUITY VALUE Valuation Parameter VALUE PER SHARE [1] - ------------------- ----- ------------- LTM EPS [2] $231,619 $22.90 Est. 1998 EPS $192,244 $19.01 Est. 1999 EPS $163,394 $16.16 Book Value (as of 3/31/98) $141,770 $14.02 Valuation Parameter - ------------------- LTM Revenues [2] $ 13,235 * $ 1.31 * LTM Operating Income [2] $356,366 * $35.24 * LTM EBITDA [2] $271,221 $26.82 MEAN EQUITY VALUE $220,050 $19.78 MEDIAN EQUITY VALUE $192,244 $19.01
- ---------------------------------- * - Excluded from mean. [1] Assumes 10,112,629 Goldcap shares outstanding. [2] LTM ended March 31, 1998. [3] Excludes $58.9 million goodwill impairment charge and $9.4 million in one-time charges ($6.42 per share). [4] Projections provided by Robinson-Humphrey research. 67 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING PUBLIC MULTI-MARKET HMO COMPANIES MULTIPLES (DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------
AVERAGE MULTI-MARKET HMO COMPANIES MULTIPLES -------------------------------------------- IMPLIED IMPLIED Goldcap PRICE / PRICE / PRICE / PRICE/ EQUITY EQUITY VALUE VALUATION PARAMETER VALUE LTM EPS CAL. 1998 EPS CAL. 1999 EPS BOOK VALUE PER SHARE [1] - ------------------- ------- ------- ------------- ------------- ----- ------- ------------- LTM EPS [2] $ 1.07[3] 21.4 x $231,619 $22.90 Est. 1998 EPS $ 0.94[4] 17.9 x $170,481 $16.86 Est. 1999 EPS $ 1.27[4] 13.5x $172,925 $17.10 Book Value (as of 3/31/98) $62,769 2.3 x $141,770 $14.02 - -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTI-MARKET HMO COMPANIES MULTIPLES -------------------------------------------------------------------- GOLDCAP FIRM VALUE / FIRM VALUE / FIRM VALUE / Valuation Parameter VALUE LTM REVENUES LTM EBIT LTM EBITDA --------- ------------ ---------- ------------ LTM Revenues [2] $163,333 0.45x LTM Operating Income [2] $ 21,521[4] 19.4x TM EBITDA [2] $ 27,314[4] 12.1x
LESS IMPLIED PV OF DHDC IMPLIED IMPLIED FIRM LESS DEFERRED EQUITY EQUITY VALUE VALUE NET DEBT [2] LIABILITIES VALUE PER SHARE [1] ------- ------------ ----------- -------- ------------- Valuation Parameter LTM Revenues [2] $ 73,818 $39,534 $21,049 $ 13,235* $ 1.31* LTM Operating Income [2] $416,949 $39,534 $21,049 $356,366 $35.24* TM EBITDA [2] $331,804 $39,534 $21,049 $271,221 $26.82 Mean Equity Value $197,603 $19.54 Median Equity Value $172,925 $17.10
- ------------------------------------------------- * - Excluded from mean. [1] Assumes 10,112,629 Goldcap shares outstanding. [2] LTM ended March 31, 1998. [3] Excludes $58.9 million goodwill impairment charge and $9.4 million in one-time charges ($6.42 per share). [4] Projections provided by Goldcap management. 68 PROJECT GOLDCAP DENTAL MANAGED CARE HISTORICAL ACQUISITION MULTIPLES - ------------------------------------------------------------------------------- (DOLLARS IN MILLIONS)
Purchase Price as a Multiple of Equity ------------------------------- Adjusted Date Purchase LTM Latest Date Purchase Acquiror Target Completed Price Net Income Book Value Price [1] - -------- ------ --------- ------- ---------- ----------- --------- CompDent Corporation DentiCare/UniLife 12/94 $17.6 NM x 5.9x $15.8 CompDent Corporation CompDent 7/5/95 33.0 20.8 7.4 28.6 Protective Life Corp. National Health Care 3/21/95 38.3 19.2 NA 32.3 Systems of Florida United Dental Care Int'l. Dental Health Inc. 9/1/94 14.3 23.0 3.8 14.3 United Dental Care U.S. Dental 11/27/95 12.2 19.2 7.5 11.4 CompDent Corporation Texas Dental Plans 1/8/96 23.0 15.1 87.5* 22.4 United Dental Care Associated Health Plans 2/1/96 15.0 228.* 19.6* 14.6 Protective Life Dental Care of Oklahoma 3/19/96 4.5 17.0 6.9 4.2 CompDent Corporation Dental Care Plus 5/9/96 38.0 17.2 71.0* 36.9 United Dental Care OraCare DPO 11/21/96 30.5 26.0 NM 32.4 United Dental Care Kansas City Dental Care 11/21/96 12.5 60.0* 25.9* 11.9 United Dental Care UICI Dental Companies 11/21/96 14.4 29.5 6.1 11.6 Safeguard Health Advantage Dental Enterprises, Inc. HealthPlans, Inc. 5/13/97 9.0 NM 7.2 9.0 Protective Life Corp. United Dental Care Pending 175.0 NM 1.4 184.4 ------------------------------------------------- AVERAGE 20.8X 5.8X MEDIAN 20.8X 7.3X ------------------------------------------------- Adjusted Purchase Price as a Multiple of ------------------------------------------------ LTM LTM LTM Op. Cash Flow Op. Income Acquiror Target Revenues [2] (EBITDA) (EBIT) - -------- ------ ------------ ------------ ---------- CompDent Corporation DentiCare/UniLife 0.57* 7.9* 9.6* CompDent Corporation CompDent 0.89 9.6 11.4 Protective Life Corp. National Health Care 1.45 9.6 10.2 Systems of Florida United Dental Care Int'l. Dental Health Inc. 0.29* 10.8 13.7 United Dental Care U.S. Dental 0.84 7.8 8.4 CompDent Corporation Texas Dental Plans 2.52* 8.4 8.9 United Dental Care Associated Health Plans 1.03 27.9* 42.1* Protective Life Dental Care of Oklahoma 1.30 8.4 9.8 CompDent Corporation Dental Care Plus 1.59 9.0 9.8 United Dental Care OraCare DPO 2.82* 14.0 14.7 United Dental Care Kansas City Dental Care 1.33 30.2* 32.3* United Dental Care UICI Dental Companies 0.69 15.4 17.7 Safeguard Health Advantage Dental Enterprises, Inc. HealthPlans, Inc. 1.70 NA 15.3 Protective Life Corp. United Dental Care 1.06 16.5 30.1* ---------------------------------------------------------- AVERAGE 1.13X 10.7X 11.8X MEDIAN 1.18X 9.6X 12.6X ----------------------------------------------------------
- ---------------------------------------------------- [1] Adjusted purchase price equals equity value plus assumed debt minus acquired cash. [2] Excludes investment income. 69 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING DENTAL MANAGED CARE HISTORICAL ACQUISITION MULTIPLES (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
Selected Relevant Transaction Multiples --------------------------------------- Price/ Goldcap LTM Price/ Valuation Parameter Value EPS Book - ------------------- -------- ------ ------ LTM Net Income [2] $10,476 [3,4] 20.8 x 6/30/98 Book Value $65,373 5.8 x ---------------------------------------- - ---------------------------------------------------------------------------------------------- --------------------------------- Implied Implied Equity Equity Value Valuation Parameter Value Per Share [1] - ------------------- ------- ------------- LTM Net Income [2] $217,627 $21.52 6/30/98 Book Value $378,013 * $37.58 * - ----------------------------------------------------------------------------------------------
------------------------------------------------ Selected Relevant Transaction Multiples Less ------------------------------------------------ Implied PV of DHDC Goldcap Firm Value / Firm Value / Firm Value / Firm Less Deferred Valuation Parameter Value Revenues EBIT EBITDA Value Net Debt [1] Liabilities - ------------------- -------- ------------ ------------ ------------ ------- ------------ ----------- LTM Revenues [2] $168,696 1.13 x $191,107 $44,507 $21,049 LTM Operating Income [2] $ 21,484 [3] 11.8 x $252,963 $44,507 $21,049 LTM EBITDA [2] $ 27,397 [3] 10.7 x $292,500 $44,507 $21,049 ----------------------------------------------- Implied Implied Equity Equity Value Valuation Parameter Value Per Share [1] - ------------------- -------- ------------- LTM Revenues [2] $125,551 $12.42 LTM Operating Income [2] $187,407 $18.53 LTM EBITDA [2] $226,944 $22.44 ====================================================== - ------------------------------------------------------ MEAN EQUITY VALUE $189,382 $18.73 MEDIAN EQUITY VALUE $217,627 $21.52 ======================================================
- ------------------------------------- * - Excluded from mean. [1] Assumes 10,112,629 Goldcap shares outstanding. [2] LTM ended June 30, 1998. [3] Excludes $58.9 million goodwill impairment charge and $9.4 million in one-time charges ($64.8 million after-tax). [4] Assumes 38% tax rate on excluded one-time charges. 70 PROJECT GOLDCAP DENTAL MANAGED CARE FORWARD ACQUISITION MULTIPLES - -------------------------------------------------------------------------------- (DOLLARS IN MILLIONS)
Adjusted Purchase Price as a Multiple of ----------------------------------------- Equity Adjusted Projected Date Purchase Purchase Projected Projected Op. Income Acquiror Target Completed Price Price [1] Revenues [2] (EBITDA) (EBIT) - -------- ------ --------- -------- --------- ------------ --------- ---------- CompDent Corporation DentiCare/UniLife 12/94 $17.6 $15.8 0.49 x* 5.8 x 6.2 x CompDent Corporation CompDent 7/5/95 33.0 28.6 0.76 8.1 9.7 Protective Life Corp. National Health Care 3/21/95 38.3 32.3 1.22 NA 8.3 Systems of Florida CompDent Corporation Texas Dental Plans 1/8/96 23.0 22.4 2.01 * 7.1 7.4 United Dental Care Kansas City Dental Care 11/21/96 12.5 11.9 1.24 7.0 7.5 ------------------------------------------------------------- AVERAGE 1.07 x 7.0 x 7.8 x MEDIAN 1.23 x 7.0 x 7.5 x =============================================================
- --------------------------------------------- [1] Adjusted purchase price equals equity value plus assumed debt minus acquired cash. [2] Excludes investment income. 71 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING DENTAL MANAGED CARE FORWARD ACQUISITION MULTIPLES (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
---------------------------------------- Selected Relevant Transaction Multiples Less ---------------------------------------- Implied PV of DHDC IMPLIED IMPLIED Goldcap Firm Value/ Firm Value/ Firm Value/ Firm Less Deferred EQUITY EQUITY VALUE Valuation Parameter Value Revenues EBIT EBITDA Value Net Debt[1] Liabilities VALUE PER SHARE [2] - ------------------- ------- -------- ---- ------ -------- ----------- ----------- ----- ------------- Proj. 1998 Revenues $178,357[3] 1.07 x $190,926 $44,507 $21,049 $125,369 $12.40 Proj. 1998 Operating Income $ 21,518[3] 7.8 x $168,217 $44,507 $21,049 $102,661 $10.15 Projected 1998 EBITDA $ 27,413[3] 7.0 x $191,248 $44,507 $21,049 $125,692 $12.43 MEAN EQUITY VALUE $117,908 $11.66 MEDIAN EQUITY VALUE $125,369 $12.40
- --------------------------------- *-Excluded from mean. [1] As of June 30, 1998. [2] Assumes 10,112,629 Goldcap shares outstanding. [3] Projections provided by Robinson-Humphrey research. 72 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING DENTAL MANAGED CARE FORWARD ACQUISITION MULTIPLES (DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------
Selected Relevant Transaction Multiples Less --------------------------------------- Implied PV of DHDC IMPLIED IMPLIED Goldcap Firm Value/ Firm Value/ Firm Value/ Firm Less Deferred EQUITY EQUITY VALUE Valuation Parameter Value Revenues EBIT EBITDA Value Net Debt[1] Liabilities VALUE PER SHARE[2] - ------------------- -------- -------- ---- ------ -------- ----------- ----------- ------- ------------ Proj. 1998 Revenues $175,026[3] 1.07 x $187,360 $44,507 $21,049 $121,804 $12.04 Proj. 1998 Operating Income $ 19,834[3] 7.8 x $155,052 $44,507 $21,049 $ 89,496 $ 8.85 Projected 1998 EBITDA $ 25,699[3] 7.0 x $179,291 $44,507 $21,049 $113,734 $11.25 MEAN EQUITY VALUE $108,345 $10.71 MEDIAN EQUITY VALUE $113,734 $11.25
- ----------------------- * - Excluded from mean. [1] As of June 30, 1998. [2] Assumes 10,112,629 Goldcap shares outstanding. [3] Projections provided by Goldcap Management. 73 PROJECT GOLDCAP PROTECTIVE LIFE/ UNITED DENTAL CARE ACQUISITION MULTIPLES [1,2]
ACQUISITION ACQUISITION FIRM EQUITY VALUE (mm) VALUE (mm) ------------ ----------- $184.4 $175.0 Equity Value/ 1997 Net Income: 29.9 x Firm Value/ Members: [3] $97.06 Equity Value/ Projected 1998 Net Income:[4] 22.1 x Firm Value/ 1998 Revenues: [5] 1.01 x Equity Value/ Projected 1999 Net Income:[4] 18.3 x Firm Value/ 1998 EBIT: [5] 16.6 x Equity Value/ Book Value: 1.42 x Firm Value/ 1998 EBITDA: [5] 11.0 x Firm Value/ 1997 Revenues: 1.06 x Firm Value/ 1999 Revenues: [5] 0.89 x Firm Value/ 1997 EBIT: [6] 30.1 x Firm Value/ 1999 EBIT: [5] 13.5 x Firm Value/ 1997 EBITDA: [6] 16.5 x Firm Value/ 1999 EBITDA: [5] 9.0 x Premiums: 1 Day Before Announcement 20.5% 1 Week Before Announcement 49.2% 4 Weeks Before Announcement 57.4%
- -------------------- [1] Protective Life intends to pay $9.31 per share in cash and to swap 0.14465 of its shares for each United Dental share. [2] The proposed payment does not take into account Protective's recently effected two-for-one stock split. [3] 1,900,000 members as of December 31, 1997. [4] 1998 and 1999 estimates from the First Call Research Network as of March 17, 1998. [5] Estimates according to BT Alex Brown research as of February 23, 1998. [6] Excludes $9.6 million in one time charges. 74 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING PROTECTIVE LIFE/ UNITED DENTAL CARE HISTORICAL ACQUISITION MULTIPLES - ------------------------------------------------------------------------------- (DOLLARS AND MEMBERS IN THOUSANDS)
Selected Relevant Transaction Multiples --------------------------------------- Price/ Goldcap LTM Price/ Valuation Parameter Value EPS Book - ------------------ -------- --- ---- LTM Net Income [5] $10,476 [3,4] 29.x 6/30/98 Book Value $65,373 1.4 x ---------------------------------------
--------------------------------------------------- Selected Relevant Transaction Multiples --------------------------------------------------- Less Goldcap Firm Value/ Firm Value/ Firm Value/ Firm Value/ Implied PV of DHDC Valuation Parameter Value Revenues EBIT EBITDA Members Firm Less Deferred - ------------------- -------- ---------- ----------- ----------- ----------- Value Net Debt [5] Liabilities ---------- ------------ ----------- LTM Revenues [2] $168,696 1.06 x $178,048 $44,507 $21,049 LTM Operating Income [2] $ 21,484 [3] 30.1 x $645,900 $44,507 $21,049 LTM EBITDA [2] $ 27,397 [3] 16.5 x $451,759 $44,507 $21,049 Members [5] 2,141 $97.06 x $207,783 $44,507 $21,049 ------------------------------------------------
TRANSACTION PREMIUMS ------------------------------------------ 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR ----------- ------------ ------------- Goldcap Stock Price 1 day prior to announcement [6] $13.25 20.5% Goldcap Stock Price 1 week prior to announcement [6] 13.38 49.2% Goldcap Stock Price 4 weeks prior to announcement [6] 14.75 57.4%
- --------------------------------------- * - Excluded from mean. [1] Assumes 10,112,629 Goldcap shares outstanding. [2] LTM ended June 30, 1998. [3] Excludes $58.9 million goodwill impairment charge and $9.4 million in one-time charges. [4] Assumes 38% tax rate on excluded one-time charges. [5] As of June 30, 1998. [6] Assumes announcement after the market close on July 27, 1998.
IMPLIED IMPLIED EQUITY EQUITY VALUE Valuation Parameter VALUE PER SHARE [1] - ------------------ ------- ------------- LTM Net Income [5] $313,095 $30.96 6/30/98 Book Value $ 92,957 $ 9.19 Valuation Parameter - ------------------- LTM Revenues [2] $112,492 $11.12 $580,344* $57.39* LTM Operating Income [2] $386,203 $38.19 $142,227 $14.06 LTM EBITDA [2] Members [5] Goldcap Stock Price 1 day prior to announcement [6] $161,450 $15.97 Goldcap Stock Price 1 week prior to announcement [6] $201,777 $19.95 Goldcap Stock Price 4 weeks prior to announcement [6] $234,820 $23.22 ----------------------------------------------------------------- MEAN EQUITY VALUE $205,628 $20.33 MEDIAN EQUITY VALUE $201,777 $19.95 -----------------------------------------------------------------
75 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING PROTECTIVE LIFE/ UNITED DENTAL CARE FORWARD ACQUISITION MULTIPLES - ------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
GOLDCAP CURRENT YEAR FORWARD YEAR VALUATION PARAMETER VALUE P/E MULTIPLE P/E MULTIPLE ------------------- -------- ------------ ------------ Projected Cal. 1998 Net Income Per $1.06 [2] 22.1 x Projected Cal. 1999 Net Income Per $1.20 [2] 18.3 x
----------------------------------------------------------------------------------------------- SELECTED RELEVANT TRANSACTION MULTIPLES ----------------------------------------------------------------------------------------------- GOLDCAP FIRM VALUE/ FIRM VALUE/ FIRM VALUE/ FIRM VALUE/ FIRM VALUE/ FIRM VALUE/ VALUATION PARAMETER VALUE 1998 REVENUE 1999 REVENUES 1998 EBIT 1999 EBIT 1998 EBITDA 1999 EBITDA ------------------- ----------- ------------ ------------- ----------- ----------- ----------- ----------- Projected Cal. 1998 Revenues $178,357[2] 1.01 x Projected Cal. 1999 Revenues $195,492[2] 0.89 x Projected Cal. 1998 Operating Income $21,518 [2] 16.6x Projected Cal. 1999 Operating Income $24,056 [2] 13.5 x Projected Cal. 1998 EBITDA $27,413 [2] 11.0 x Projected Cal. 1999 EBITDA $30,309 [2] 9.0 x - ------------------------------------------------------------------------------------------------------------------------------------
PREMIUM PRIOR TO ANNOUNCEMENT DATE GOLDCAP -------------------------------------------- VALUATION PARAMETER VALUE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR ------------------- -------- ----------- ------------ ------------- Stock Price 1 Day Prior [4] $13.25 20.5% Stock Price 1 Week Prior [4] 13.38 49.2% Stock Price 4 Weeks Prior [4] 14.75 57.4%
- ---------------------------------------- * - Excluded from mean. [1] Assumes 10,112,629 Goldcap shares outstanding. [2] Projections provided by Robinson-Humphrey Research. [3] As of June 30, 1998. [4] Assumes announcement after the market close on July 27, 1998.
IMPLIED IMPLIED EQUITY EQUITY VALUE VALUATION PARAMETER VALUE PER SHARE [1] ------------------- -------- ------------- Projected Cal. 1998 Net Income Per $236,636 $23.40 Projected Cal. 1999 Net Income Per $222,399 $21.99
LESS IMPLIED PV OF DHDC FIRM LESS DEFERRED VALUATION PARAMETER VALUE NET DEBT [3] LIABILITIES ------------------- -------- ------------ ----------- Projected Cal. 1998 Revenues $180,599 $44,507 $21,049 $115,043 $11.38 Projected Cal. 1999 Revenues $174,258 $44,507 $21,049 $108,702 $10.75 Projected Cal. 1998 Operating Income $357,021 $44,507 $21,049 $291,465 $28.82 Projected Cal. 1999 Operating Income $324,401 $44,507 $21,049 $258,845 $25.60 Projected Cal. 1998 EBITDA $301,420 $44,507 $21,049 $235,864 $23.32 Projected Cal. 1999 EBITDA $273,423 $44,507 $21,049 $207,867 $20.56
VALUATION PARAMETER ------------------- Stock Price 1 Day Prior [4] $161,450 $15.97 Stock Price 1 Week Prior [4] $201,777 $19.95 Stock Price 4 Weeks Prior [4] $234,820 $23.22 ---------------------------------------------------------------------------------- MEAN EQUITY VALUE $206,806 $20.45 MEDIAN EQUITY VALUE $222,399 $21.99 ----------------------------------------------------------------------------------
76 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING PROTECTIVE LIFE/ UNITED DENTAL CARE FORWARD ACQUISITION MULTIPLES - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
IMPLIED IMPLIED GOLDCAP CURRENT YEAR FORWARD YEAR EQUITY EQUITY VALUE VALUATION PARAMETER VALUE P/E MULTIPLE P/E MULTIPLE VALUE PER SHARE [1] - ---------------------------------------- -------- ------------ ------------ ------- ------------- Projected Cal. 1998 Net Income Per Share $0.94 [2] 22.1 x $209,167 $20.68 Projected Cal. 1999 Net Income Per Share $1.27 [2] 18.3 x $235,492 $23.29
--------------------------------------------------------------------------------------------- SELECTED RELEVANT TRANSACTION MULTIPLES --------------------------------------------------------------------------------------------- GOLDCAP FIRM VALUE/ FIRM VALUE/ FIRM VALUE/ FIRM VALUE/ FIRM VALUE/ FIRM VALUE/ VALUATION PARAMETER VALUE 1998 REVENUES 1999 REVENUES 1998 EBIT 1999 EBIT 1998 EBITDA 1998 EBITDA - ------------------------------------ -------- ------------- ------------- ----------- ----------- ----------- ----------- Projected Cal. 1998 Revenues $175,026 [2] 1.01 x Projected Cal. 1999 Revenues $190,938 [2] 0.89 x Projected Cal. 1998 Operating Income $ 19,834 [2] 16.6 x Projected Cal. 1999 Operating Income $ 26,884 [2] 13.5 x Projected Cal. 1998 EBITDA $ 25,699 [2] 11.0 x Projected Cal. 1999 EBITDA $ 31,097 [2] 9.0 x --------------------------------------------------------------------------------------------- LESS IMPLIED PV OF DHDC IMPLIED IMPLIED FIRM LESS DEFERRED EQUITY EQUITY VALUE VALUATION PARAMETER VALUE NET DEBT [3] LIABILITIES VALUE PER SHARE [1] - ------------------------------------ -------- ------------ ----------- ------- ------------- Projected Cal. 1998 Revenues $177,226 $44,507 $21,049 $111,670 $11.04 Projected Cal. 1999 Revenues $170,199 $44,507 $21,049 $104,642 $10.35 Projected Cal. 1998 Operating Income $329,081 $44,507 $21,049 $263,524 $26.06 Projected Cal. 1999 Operating Income $362,538 $44,507 $21,049 $296,982 $29.37 Projected Cal. 1998 EBITDA $282,574 $44,507 $21,049 $217,018 $21.46 Projected Cal. 1999 EBITDA $280,532 $44,507 $21,049 $214,976 $21.26
------------------------------------------ PREMIUM PRIOR TO ANNOUNCEMENT DATE IMPLIED IMPLIED GOLDCAP ------------------------------------------ EQUITY EQUITY VALUE VALUATION PARAMETER VALUE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR VALUE PER SHARE [1] - ----------------------------- ------- ----------- ------------ ------------- ------- ------------- Stock Price 1 Day Prior [4] $13.25 20.5% $161,450 $15.97 Stock Price 1 Week Prior [4] 13.38 49.2% $201,777 $19.95 Stock Price 4 Weeks Prior [4] 14.75 57.4% $234,820 $23.22 --------------------------------------------------------------------------------------------------------- MEAN EQUITY VALUE $204,683 $20.24 MEDIAN EQUITY VALUE $214,976 $21.26 ---------------------------------------------------------------------------------------------------------
- --------------- * - Excluded from mean. [1] Assumes 10,112,629 Goldcap shares outstanding. [2] Projections provided by Goldcap management. [3] As of June 30, 1998. [4] Assumes announcement after the market close on July 27, 1998. 77 PROJECT GOLDCAP DENTAL PRACTICE MANAGEMENT COMPANY ACQUISITION MULTIPLES - -------------------------------------------------------------------------------- (DOLLARS IN MILLIONS)
Purchase Price as a Multiple of Equity ------------------------------- Adjusted Date Purchase LTM Latest Date Purchase Acquiror Target Completed Price Net Income Book Value Price [1] - -------- ------ --------- --------- ---------- ----------- --------- Gentle Dental Services Corp. Pinehurst Dental Clinic 7/95 $0.6 NM x NM x $0.7 Gentle Dental Services Corp. Scott Campbell, DDS, PS 9/95 [1] 0.6 NM 23.1 0.6 Coast Dental Volusia (Richard J. Shawn, DDS) 4/96 1.8 NM NA 1.8 Castle Dental Centers 1st Dental Care 5/96 6.0 39.5 NM 7.1 Castle Dental Centers Mid-South Dental Centers 5/96 4.8 NM 36.4* 5.3 Birner Dental Management Family Dental Group 6/96 3.3 NM NA 3.3 Castle Dental Centers Horizon Dental Centers 8/96 3.2 36.0 NM 4.3 Monarch Dental Midwest Dental 8/96 10.9 157.0* 10.7 12.4 Coast Dental Seminole 11/96 2.5 NA 8.0 2.3 Dentalco, Inc. Nanston, Inc. 1/97 20.8 NM 12.8 23.9 Dentalco, Inc. The Dental Center, Inc. 2/97 4.0 NM 132.0* 4.2 Dentalco, Inc. Modern Dental 5/97 9.6 29.3 NM 13.4 Castle Dental Centers SW Dental 8/97 6.8 18.3 44.8* 6.4 Birner Dental Management Gentle Dental & Affiliate 9/97 3.5 14.2 6.3 3.3 AVERAGE 27.5 X 12.2 X MEDIAN 32.6 X 18.0 X Adjusted Purchase Price as a Multiple of ---------------------------------------- LTM LTM LTM Op. Cash Flow Op. Income Acquiror Revenues [2] (EBITDA) (EBIT) - -------- ------------ -------- ------ Gentle Dental Services Corp. 0.90x 9.0x 15.1x Gentle Dental Services Corp. 0.90 NM NM Coast Dental 0.62 NM NM Castle Dental Centers 1.10 10.5 16.1 Castle Dental Centers 0.98 33.4* NM Birner Dental Management 0.69 NM NM Castle Dental Centers 0.79 22.6* 22.8* Monarch Dental 0.81 19.7 74.7* Coast Dental 0.69 5.3 5.3 Dentalco, Inc. 1.13 28.2* 182.7* Dentalco, Inc. 0.99 83.4* NM Dentalco, Inc. 0.91 12.3 19.7 Castle Dental Centers 1.21 8.6 10.1 Birner Dental Management 0.67 6.9 8.3 0.89 X 10.3 X 12.4 X 0.90 X 12.3 X 16.1 X
- ----------------------------------------------------------------------- [1] Adjusted purchase price equals equity value plus assumed debt minus acquired cash. [2] Excludes investment income. 78 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING DENTAL MANAGED CARE AND DENTAL PRACTICE MANAGEMENT ACQUISITION MULTIPLES (DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------- BENEFITS COMPANY
AVERAGE DENTAL MANAGED CARE ACQUISITION MULTIPLES ---------------------------- IMPLIED PV OF DHDC IMPLIED IMPLIED Benefits FIRM VALUE / FIRM VALUE / FIRM LESS DEFERRED EQUITY EQUITY VALUE Valuation Parameter Value LTM REVENUES LTM EBITDA VALUE NET DEBT [1] LIABILITIES VALUE PER SHARE [2] - ------------------- -------- ------------ ----------- ------ ------------ ----------- ------- ------------- LTM Revenues [3] $150,468 1.13 x $170,458 $44,507 $21,049 $104,902 $10.37 LTM EBITDA [3] $ 25,850 [4] 10.7 x $275,983 $44,507 $21,049 $210,427 $20.81 ======================= ------------------------------------------------------------- MEAN EQUITY VALUE $157,665 $15.59 MEDIAN EQUITY VALUE $157,665 $15.59 =============================================================
DHMI
AVERAGE DENTAL PRACTICE MANAGEMENT ACQUISITION MULTIPLES LESS ---------------------------------- IMPLIED PV OF DHDC IMPLIED IMPLIED DHMI FIRM VALUE / FIRM VALUE / FIRM LESS DEFERRED EQUITY EQUITY VALUE Valuation Parameter Value LTM REVENUES LTM EBITDA VALUE NET DEBT [1] LIABILITIES VALUE PER SHARE [2] - ------------------- ----- ------------ ----------- ------ ------------ ----------- ------ ------------- LTM Revenues [3] $18,228 0.89 x $16,146 $0 $0 $ 16,146 $ 1.60 LTM EBITDA [3] $ 1,547 [4] 10.3 x $15,972 $0 $0 $ 15,972 $ 1.58 ==================== ----------------------------------------------------------- MEAN EQUITY VALUE $ 16,059 $ 1.59 MEDIAN EQUITY VALUE $ 16,059 $ 1.59 =========================================================== ----------------------------------------------------------- SUM OF MEANS $173,724 $17.18 SUM OF MEDIANS $173,724 $17.18 ===========================================================
- ----------------------------------------------------------- * - Excluded from mean. [1] As of June 30, 1998. [2] Assumes 10,112,629 Goldcap shares outstanding. [3] LTM ended June 30, 1998. [4] Excludes $58.9 million goodwill impairment charge and $9.4 million in one-time charges. 79 PROJECT GOLDCAP SELECTED MERGER AND ACQUISITION TRANSACTIONS IN THE HMO INDUSTRY (DOLLARS IN MILLIONS)
Equity Value as Multiple of Equity --------------------------- Date Purchase LTM Latest Date Firm Acquiror Target Completed Price Net Income Book Value Value [1] - -------- ------ --------- ----- ---------- ---------- --------- WellPoint Health Networks, Inc. Cerulean Companies, Inc. Pending $ 500.0 148.6 * 2.5 x $ 500.0 United HealthCare Corp. Humana Inc. Pending 5,450.0 70.1 * 3.4 6,300.0 Foundation Health Corp. Physicians Health Services 01/02/98 166.2 NM 1.7 166.2 Humana, Inc. Physician Corp. of America 09/09/97 271.8 NM NM 403.7 CRA Managed Care Occusystems 09/02/97 683.4 47.0 * 4.8 782.5 Humana, Inc. ChoiceCare Pending 250.0 NA NA 250.0 CIGNA Corporation Healthsource Inc. 08/01/97 1,392.1 47.5 * 3.6 1,639.4 Foundation Health Corp. Health Systems International, Inc. 04/01/97 2,200.0 21.2 6.3 2,565.0 WellPoint Health Networks, Inc. GBO Operations of John Hancock 03/01/97 86.7 17.7 NM 86.7 PacifiCare Health Systems Inc. FHP International Corp. 02/14/97 2,100.0 49.9 * 1.8 2,219.3 Forstmann Little & Co. Community Health Systems Inc. 07/23/96 1,078.2 28.4 4.3 1,276.3 Merck-Medco Managed Care Inc. SysteMed Inc. 07/22/96 67.0 40.4 * 1.8 73.3 Aetna Life & Casualty U.S. Healthcare, Inc. 07/19/96 8,900.0 23.4 9.2 * 8,900.0 United HealthCare Corp. HealthWise of America, Inc. 04/12/96 290.0 33.6 8.3 256.0 United HealthCare Corp. Physicians Health Plan, Inc. [2] 04/01/96 139.0 19.7 5.3 139.0 Foundation Health Corp. Managed Health Network 03/08/96 45.0 NM 9.3 * 46.6 Healthsource, Inc. Central Mass. Health Care 02/06/96 46.5 NA NA 46.5 Humana, Inc. Emphesys Financial Group, Inc. 10/13/95 639.9 10.4 1.8 649.0 United HealthCare Corp. MetraHealth Companies [3] 10/03/95 1,650.0 NA NA 1,650.0 Coventry Corp. HealthCare USA Inc. 08/01/95 45.2 37.8 14.5 * 37.2 Value Health, Inc. Diagnostek, Inc. 07/28/95 450.0 37.0 2.3 455.7 Healthsource, Inc. Provident Life & Accident Ins. 06/01/95 231.0 27.7 1.2 * 225.5 United HealthCare Corp. Gencare Health systems 01/03/95 515.4 27.1 6.6 443.4 Humana, Inc. CareNetwork, Inc. 12/20/94 120.2 NM 8.4 * 101.1 Coventry Corp. Southern Health Management [4] 12/01/94 71.6 22.0 6.1 69.6 Foundation Health Corp. Intergroup Healthcare 11/01/94 255.7 12.2 2.9 244.5 FHP International Corp. TakeCare, Inc. 06/17/94 1,019.8 33.0 4.3 916.3 United HealthCare Corp. Complete Health Services, Inc. 05/31/94 242.4 69.0 * 24.2 * 183.8 United HealthCare Corp. Ramsay-HMO, Inc. 05/31/94 537.9 33.7 4.1 438.2 Value Health, Inc. Preferred Health Care Ltd. 12/14/93 382.2 47.5 * 6.7 374.0 Physician Corp. of America Family Health Systems Inc. 12/10/93 44.0 27.5 5.7 44.0 TakeCare Inc. Comprecare Inc. 09/09/93 85.7 25.8 5.6 101.1 United HealthCare Corp. HMO America Inc. 08/31/93 388.9 31.1 5.7 331.4 Healthsource, Inc. Physician Health Systems, Inc. 03/31/93 34.9 9.7 * 3.3 35.0 AVERAGE 26.1 x 4.3 x MEDIAN 31.1 x 4.8 x Firm Value as Multiple of ------------------------- LTM LTM LTM Acquiror Target Revenues EBITDA EBIT - -------- ------ -------- ------ ---- WellPoint Health Networks, Inc. Cerulean Companies, Inc. 0.31 * 46.0 * NM x United HealthCare Corp. Humana Inc. 0.75 25.3 44.7 * Foundation Health Corp. Physicians Health Services 0.30 * NM NM Humana, Inc. Physician Corp. of America 0.29 * NM NM CRA Managed Care Occusystems 4.17 * 22.8 29.9 Humana, Inc. ChoiceCare 0.84 NA NA CIGNA Corporation Healthsource Inc. 0.96 16.4 26.7 Foundation Health Corp. Health Systems International, Inc. 0.82 10.0 12.5 WellPoint Health Networks, Inc. GBO Operations of John Hancock 0.13 * NA 11.5 PacifiCare Health Systems Inc. FHP International Corp. 0.51 8.4 11.5 Forstmann Little & Co. Community Health Systems Inc. 1.48 11.2 16.3 Merck-Medco Managed Care Inc. SysteMed Inc. 0.50 14.4 25.0 Aetna Life & Casualty U.S. Healthcare, Inc. 2.37 13.4 14.2 United HealthCare Corp. HealthWise of America, Inc. 1.23 15.9 17.1 United HealthCare Corp. Physicians Health Plan, Inc. [2] 0.93 14.6 17.2 Foundation Health Corp. Managed Health Network 1.79 28.0 * 53.8 * Healthsource, Inc. Central Mass. Health Care NA NA NA Humana, Inc. Emphesys Financial Group, Inc. 0.41 * 5.9 6.4 United HealthCare Corp. MetraHealth Companies [3] 0.42 * NA NA Coventry Corp. HealthCare USA Inc. 1.38 27.4 * 32.1 * Value Health, Inc. Diagnostek, Inc. 0.66 19.3 25.9 Healthsource, Inc. Provident Life & Accident Ins. 0.95 7.6 17.7 United HealthCare Corp. Gencare Health systems 1.92 15.7 16.8 Humana, Inc. CareNetwork, Inc. 0.70 57.1 * NM Coventry Corp. Southern Health Management [4] 1.20 12.7 13.6 Foundation Health Corp. Intergroup Healthcare 0.52 6.4 7.1 FHP International Corp. TakeCare, Inc. 1.09 13.4 14.8 United HealthCare Corp. Complete Health Services, Inc. 0.63 19.9 22.8 United HealthCare Corp. Ramsay-HMO, Inc. 1.26 14.7 17.2 Value Health, Inc. Preferred Health Care Ltd. 4.76 * 27.5 * 36.3 * Physician Corp. of America Family Health Systems Inc. 0.59 14.7 17.2 TakeCare Inc. Comprecare Inc. 0.41 * 6.8 17.1 United HealthCare Corp. HMO America Inc. 0.94 16.8 16.8 Healthsource, Inc. Physician Health Systems, Inc. 1.06 6.5 6.9 AVERAGE 1.04 x 13.6 x 16.6 x MEDIAN 0.84 x 14.7 x 17.1 x
- --------------------------------------- * Excluded from average. NA - Not Available NM - Not Meaningful [1] Firm value equals equity value plus debt less cash. [2] LTM financials for Physicians Health Plan reflect annualized third quarter numbers. [3] Does not include $525 million in potential earn-out payments. [4] Data for Coventry/Southern Health merger taken from Securities Data Company. 80 PROJECT GOLDCAP IMPLIED VALUATION UTILIZING HMO HISTORICAL ACQUISITION MULTIPLES (DOLLARS IN THOUSANDS)
Selected Relevant Transaction Multiples --------------------------------------- Price/ IMPLIED IMPLIED Goldcap LTM Price/ EQUITY EQUITY VALUE Valuation Parameter Value EPS Book VALUE PER SHARE [1] - ------------------- ------- --- ---- ----- ------------- LTM Income [2] $ 10,476 [3,4] 26.1 x $273,027 $27.00 6/30/98 Book Value $ 65,373 4.3 x $281,559 $27.84 - ------------------------------------------------------------------------------------------------------------ Selected Relevant Transaction Multiples Less ---------------------------------------- Implied PV of DHDC Goldcap Firm Value / Firm Value / Firm Value / Firm Less Deferred Valuation Parameter Value Revenues Op. Income EBITDA Value Net Debt [5] Liabilities - ------------------- ------- -------- ---------- ------ ----- ------------ ----------- LTM Revenues [2] $168,696 1.04 x $176,046 $44,507 $21,049 $110,490 $10.93 LTM Operating Income [2] $ 21,484 [3] 16.6 x $356,995 $44,507 $21,049 $291,438 $28.82 LTM EBITDA [2] $ 27,397 [3] 13.6 x $372,431 $44,507 $21,049 $306,875 $30.35 MEAN EQUITY VALUE $252,678 $24.99 MEDIAN EQUITY VALUE $281,559 $27.84
- --------------------------------------------------- * - Excluded from mean. [1] Assumes 10,112,629 Goldcap shares outstanding. [2] LTM ended June 30, 1998. [3] Excludes $58.9 million goodwill impairment charge and $9.4 million in one-time charges. [4] Assumes 38% tax rate on one-time charges. [5] As of June 30, 1998. 81 PROJECT GOLDCAP SELECTED MERGER AND ACQUISITION FORWARD MULTIPLES AND TRANSACTION PREMIUMS FOR DEALS IN THE HMO INDUSTRY
VALUE OF PRICE DATE DATE TRANSACTION PER CURRENT YEAR FORWARD YEAR ANNOUNCED EFFECTIVE TARGET ACQUIROR ($MM) SHARE P/E RATIO P/E RATIO - --------- --------- ------ -------- ----- ----- --------- --------- 05/28/98 Pending Humana, Inc. United HealthCare Corp. $5,538.6 32.06 30.2 x 24.3 x 06/03/97 09/09/97 Physician Corp. of America Humana, Inc. 405.1 7.00 10.9 8.2 08/05/96 02/14/97 FHP International Corp. PacifiCare Health Systems, Inc. 2,000.1 33.27 17.4 23.3 06/10/96 07/22/96 SysteMed, Inc. Merck-Medco Managed Care, Inc. 64.8 3.00 21.4 9.1 06/11/96 07/23/96 Community Health Systems, Inc. Forstmann Little & Co. 1,080.0 52.00 23.1 19.3 02/01/96 04/12/96 HealthWise of America, Inc. United HealthCare Corp. 271.1 40.63 31.7 26.0 08/10/95 10/13/95 Emphesys Financial Group, Inc. Humana, Inc. 642.8 37.50 10.7 9.5 02/15/94 05/31/94 Ramsay-HMO, Inc. United HealthCare Corp. 564.9 74.66 35.9 * 29.4 * SELECT HMO TRANSACTIONS AVERAGE 20.8 x 17.1 x SELECT HMO TRANSACTIONS MEDIAN 22.3 x 21.3 x PREMIUM PREMIUM PREMIUM 1 DAY 1 WEEK 4 WEEKS PRIOR TO PRIOR TO PRIOR TO DATE DATE ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT ANNOUNCED EFFECTIVE TARGET ACQUIROR DATE DATE DATE - --------- --------- ------ -------- ---- ---- ---- 05/28/98 Pending Humana, Inc. United HealthCare Corp. 22.1 % 22.1 % 18.8 % 06/03/97 09/09/97 Physician Corp. of America Humana, Inc. 12.0 12.0 23.1 08/05/96 02/14/97 FHP International Corp. PacifiCare Health Systems, Inc. 19.4 27.4 19.1 06/10/96 07/22/96 SysteMed, Inc. Merck-Medco Managed Care, Inc. (4.0)* 4.3 * 9.1 * 06/11/96 07/23/96 Community Health Systems, Inc. Forstmann Little & Co. 20.2 19.9 18.9 02/01/96 04/12/96 HealthWise of America, Inc. United HealthCare Corp. 37.5 37.3 34.3 08/10/95 10/13/95 Emphesys Financial Group, Inc. Humana, Inc. 33.0 39.0 37.0 02/15/94 05/31/94 Ramsay-HMO, Inc. United HealthCare Corp. 62.7 * 62.7 * 81.0 * SELECT HMO TRANSACTIONS AVERAGE 24.0 % 26.3 % 25.2 % SELECT HMO TRANSACTIONS MEDIAN 21.2 % 24.8 % 21.1 %
* Excluded from average NA - Not Available NM - Not Meaningful - ------------------------------- Source: Securities Data Company, Inc. 82 PROJECT GOLDCAP IMPLIED VALUATION ANALYSIS UTILIZING M&A FORWARD MULTIPLES AMD TRANSACTION PREMIUMS IN THE HMO INDUSTRY (DOLLARS IN THOUSANDS)
CURRENT YEAR FORWARD YEAR IMPLIED IMPLIED GOLDCAP P/E MULTIPLE P/E MULTIPLE EQUITY EQUITY VALUE VALUATION PARAMETER VALUE ------------ ------------ VALUE PER SHARE [1] - ---------------------------------------- ------- ----- ------------- Projected Cal. 1998 Net Income Per Share $ 1.06 [2] 20.8 x $222,867 $22.04 Projected Cal. 1999 Net Income Per Share $ 1.20 [2] 17.1 x $207,472 $20.52 PREMIUM PRIOR TO ANNOUNCEMENT DATE GOLDCAP ---------------------------------------- VALUATION PARAMETER VALUE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR - ---------------------------------------- ------- ----------- ------------ ------------- Stock Price 1 Day Prior [3] $13.25 24.0 % $166,205 $16.44 Stock Price 1 Week Prior [3] 13.38 26.3 % $170,794 $16.89 Stock Price 4 Weeks Prior [3] 14.75 25.2 % $186,710 $18.46 MEAN EQUITY VALUE $190,810 $18.87 MEDIAN EQUITY VALUE $186,710 $18.46
- ------------------------------------------------------ * - Excluded from mean. [1] Assumes 10,112,629 Goldcap shares outstanding. [2] Projections provided by Robinson-Humphrey Research. [3] Assumes announcement after the market close on July 27, 1998. 83 PROJECT GOLDCAP IMPLIED VALUATION ANALYSIS UTILIZING M&A FORWARD MULTIPLES AMD TRANSACTION PREMIUMS IN THE HMO INDUSTRY (DOLLARS IN THOUSANDS)
CURRENT YEAR FORWARD YEAR IMPLIED IMPLIED GOLDCAP P/E MULTIPLE P/E MULTIPLE EQUITY EQUITY VALUE VALUATION PARAMETER VALUE ------------ ------------ VALUE PER SHARE [1] - ---------------------------------------- ------- ----- ------------- Projected Cal. 1998 Net Income Per Share $ 0.94 [2] 20.8 x $197,636 $19.54 Projected Cal. 1999 Net Income Per Share $ 1.27 [2] 17.1 x $219,575 $21.71 PREMIUM PRIOR TO ANNOUNCEMENT DATE GOLDCAP ---------------------------------------- VALUATION PARAMETER VALUE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR - ---------------------------------------- ------- ----------- ------------ ------------- Stock Price 1 Day Prior [3] $13.25 24.0 % $166,205 $16.44 Stock Price 1 Week Prior [3] 13.38 26.3 % $170,794 $16.89 Stock Price 4 Weeks Prior [3] 14.75 25.2 % $186,710 $18.46 MEAN EQUITY VALUE $188,184 $18.61 MEDIAN EQUITY VALUE $186,710 $18.46
- ------------------------------------------------------ * - Excluded from mean. [1] Assumes 10,112,629 Goldcap shares outstanding. [2] Projections provided by Robinson-Humphrey Research. [3] Assumes announcement after the market close on July 27, 1998. 84 SUMMARY OF RECENT MERGER AND ACQUISITION ACTIVITY (DOLLARS IN MILLIONS)
1992 1993 1994 1995 1996 AVERAGE -------- -------- -------- -------- -------- ------- ALL INDUSTRIES: - --------------- Total Number of Net Acquisition Announcements 2,574 2,663 2,997 3,510 5,848 Total Dollar Value Paid [1] $ 96,688 $176,400 $226,671 $356,016 $494,962 Average Premium Paid Over Market 41.0% 38.7% 41.9% 44.7% 36.6% 40.6% Median Premium Paid Over Market 34.7% 33.0% 35.0% 29.2% 27.3% 31.8% Average Price/Earnings Ratio Paid 22.7 x 24.4 x 24.5 x 23.8 x 26.2 x 24.3 x Median Price/Earnings Ratio Paid 18.1 x 20.0 x 20.2 x 19.1 x 20.3 x 19.5 x 1992 1993 1994 1995 1996 AVERAGE -------- -------- -------- -------- -------- ------- HEALTH SERVICES: - ---------------- Total Number of Net Acquisition Announcements 205 156 129 179 325 Total Dollar Value Paid [1] $ 1,686 $ 12,608 $ 9,288 $ 7,333 $ 15,533 Average Premium Paid Over Market 37.0% 41.9% 46.5% 32.2% 31.2% 37.8% Average Price/Earnings Ratio Paid 20.4 x 31.5 x 28.7 x 24.7 x 27.1 x 26.5 x
- ---------------------------------------- [1] Includes only transactions with a publicly disclosed purchase price. Source: Mergerstat Review 85 M&A PREMIUMS AND P/E RATIOS OFFERED BY DEAL SIZE 1992 - 1996 I. MEDIAN PERCENT PREMIUM OFFERED
PURCHASE PRICE: 1992 (BASE) 1993 (BASE) 1994 (BASE) 1995 (BASE) 1996 (BASE) - --------------- ------------- ------------- ------------- ------------- ------------ $25.0 million or less 33.3% (35) 32.3% (38) 42.9% (45) 42.9% (53) 32.2% (39) $25.0 through $50.0 million 21.6% (30) 36.7% (28) 33.9% (36) 24.4% (53) 26.4% (56) $50.0 through $100.0 million 32.3% (22) 31.5% (31) 27.8% (53) 35.4% (44) 27.3% (68) $100.0 million or more 39.0% (55) 32.0% (76) 35.8% (126) 29.0% (174) 26.6% (218) Cash Consideration 29.6% (35) 32.5% (46) 36.8% (59) 28.4% (91) 26.7% (115)
II. MEDIAN P/E RATIO OFFERED
PURCHASE PRICE: 1992 (BASE) 1993 (BASE) 1994 (BASE) 1995 (BASE) 1996 (BASE) - --------------- ------------- ------------- ------------- ------------- ------------- $25.0 million or less 15.5 (29) 17.6 (17) 17.5 (23) 17.0 (31) 16.2 (64) $25.0 through $50.0 million 18.4 (22) 20.3 (18) 20.3 (27) 14.8 (33) 20.3 (53) $50.0 through $100.0 million 21.1 (17) 18.1 (26) 17.1 (42) 19.2 (38) 20.5 (54) $100.0 million or more 23.2 (36) 24.2 (66) 21.8 (110) 21.1 (153) 21.3 (186) Cash Consideration 17.4 (27) 19.9 (32) 23.3 (38) 18.0 (68) 21.1 (106) Public Companies 18.1 (89) 19.7 (113) 19.8 (184) 19.4 (239) 21.7 (288)
86 DISTRIBUTION OF M&A PREMIUMS OFFERED 1987 - 1996
OVER 20% OVER 40% OVER 60% OVER 80% YEAR UNDER 20% THROUGH 40% THROUGH 60% THROUGH 80% THROUGH 100% OVER 100% TOTAL - ---- --------- ----------- ----------- ----------- ------------ ---------- ----- 1987 76 32.1% 79 33.3% 49 20.7% 17 7.2% 8 3.4% 8 3.4% 237 100.0% 1988 131 32.0% 124 30.2% 65 15.9% 48 11.7% 16 3.9% 26 6.3% 410 100.0% 1989 109 36.0% 78 25.7% 63 20.8% 25 8.3% 9 3.0% 19 6.3% 303 100.0% 1990 61 34.9% 44 25.1% 34 19.4% 14 8.0% 7 4.0% 15 8.6% 175 100.0% 1991 50 36.5% 42 30.7% 28 20.4% 7 5.1% 4 2.9% 6 4.4% 137 100.0% 1992 42 29.6% 42 29.6% 21 14.8% 19 13.4% 14 9.9% 4 2.8% 142 100.0% 1993 47 27.2% 63 36.4% 34 19.7% 14 8.1% 9 5.2% 6 3.5% 173 100.0% 1994 66 25.4% 89 34.2% 52 20.0% 28 10.8% 7 2.7% 18 6.9% 260 100.0% 1995 106 32.7% 108 33.3% 55 17.0% 22 6.8% 6 1.9% 27 8.3% 324 100.0% 1996 136 35.7% 117 30.7% 70 18.4% 34 8.9% 10 2.6% 14 3.7% 381 100.0%
DISTRIBUTION OF M&A P/E RATIOS OFFERED 1992 - 1996
OVER 8.5x OVER 10.5x OVER 13.0x OVER 17.0x YEAR UNDER 8.5x THROUGH 10.5x THROUGH 13.0x THROUGH 17.0x THROUGH 25.0x OVER 25.0x TOTAL - ---- ---------- ------------- ------------- ------------- ------------- ---------- ----- 1992 10 9.6% 2 1.9% 17 16.3% 16 15.4% 26 25.0% 33 31.7% 104 100.0% 1993 5 3.9% 5 3.9% 6 4.7% 27 21.3% 41 32.3% 43 33.9% 127 100.0% 1994 10 5.0% 12 5.9% 16 7.9% 39 19.3% 48 23.8% 77 38.1% 202 100.0% 1995 14 5.5% 14 5.5% 29 11.4% 45 17.6% 68 26.7% 85 33.3% 255 100.0% 1996 29 8.1% 16 4.5% 24 6.7% 60 16.8% 96 26.9% 132 37.0% 357 100.0%
87 PROJECT GOLDCAP IMPLIED VALUATION ANALYSIS UTILIZING SELECTED PREMIUMS FROM M&A TRANSACTIONS IN GENERAL - ------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS EXCEPT SHARE PRICE)
5-YR AVERAGE VALUE ----------------------------------------- IMPLIED PREMIUM 1 IMPLIED EQUITY GOLDCAP DAY PRIOR PRICE / EARNINGS EQUITY VALUE PER VALUATION PARAMETER VALUE TO ANNOUNCEMENT RATIO PAID VALUE SHARE [1] - ---------------------------------------------- ------------- -------------------- -------------------- -------- ---------- Stock Price 1 Day Prior to Announcement [2] $13.25 40.6% $188,366 $18.63 LTM Net Income [3] $10,476 [4,5] 24.3x 254,776 25.19 AVERAGE $221,571 $21.91 5-YR MEDIAN VALUE ----------------------------------------- IMPLIED PREMIUM 1 IMPLIED EQUITY GOLDCAP DAY PRIOR PRICE / EARNINGS EQUITY VALUE PER VALUATION PARAMETER VALUE TO ANNOUNCEMENT RATIO PAID VALUE SHARE [1] - ---------------------------------------------- ------------- -------------------- -------------------- ------- ---------- Stock Price 1 Day Prior to Announcement [2] $13.25 31.8% $176,655 $17.47 LTM Net Income [3] $10,476 [4,5] 19.5x 204,701 20.24 AVERAGE $190,678 $18.86
- ---------------------------------------------- * Excluded from the unweighted average. [1] Assumes 10,112,629 Goldcap shares outstanding. [2] Assumes announcement after the market close on July 27, 1998. [3] LTM ended June 30, 1998. [4] Excludes $58.9 million goodwill impairment charge and $9.4 million in one time charges. [5] Assumes 38.0% tax rate on excluded one-time charges. 88 PROJECT GOLDCAP IMPLIED VALUATION ANALYSIS UTILIZING SELECTED PREMIUMS FROM M&A TRANSACTIONS IN THE HEALTH SERVICES INDUSTRY - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS EXCEPT SHARE PRICE)
5-YR AVERAGE VALUE --------------------------------- IMPLIED PREMIUM 1 IMPLIED EQUITY GOLDCAP DAY PRIOR PRICE / EARNINGS EQUITY VALUE PER VALUATION PARAMETER VALUE TO ANNOUNCEMENT RATIO PAID VALUE SHARE - ------------------------------------------------ ---------------- --------------- ---------------- -------- --------- Stock Price 1 Day Prior to Announcement [1] $13.25 37.8% $184,588 $18.25 LTM Net Income [2] $10,476 [3,4] 26.5x 277,404 27.43 AVERAGE $230,996 $22.84
- ------------------------------------------------- * Excluded from the unweighted average. [1] Assumes announcement after the market close on July 27, 1998. [2] LTM ended June 30, 1998. [3] Excludes $58.9 million goodwill impairment charge and $9.4 million in one time charges. [4] Assumes 38.0% tax rate on excluded one-time charges. 89 PROJECT GOLDCAP PREMIUMS ANALYSIS: MERGERS AND ACQUISITIONS BETWEEN $100 AND $300 MILLION JULY 24, 1997 THROUGH JULY 24, 1998 - -------------------------------------------------------------------------------
DATE DATE EFFECTIVE ANNOUNCED TARGET NAME TARGET BUSINESS DESCRIPTION - ----------- --------- ----------------------------- ----------------------------- 11/12/97 10/03/96 Pittencrieff Communications Pvd radiotelephone commun svcs 08/04/97 11/14/96 Indiana Federal,Valparaiso,IN Commercial bank;holding co 08/29/97 02/13/97 Portsmouth Bank Shares,NH Bank holding company 12/09/97 02/20/97 NHP Inc(Apartment Investment) Own,op apartment buildings 08/01/97 03/07/97 Micro Bio-Medics Inc Whl,mnfr medical equip 08/25/97 03/11/97 First Citizens Financial,MD Bank holding company 08/29/97 03/24/97 Community Bankshares,NH Bank holding company 08/05/97 03/24/97 OnTrak Systems Inc Mnfrs semiconductor cap equip 10/13/97 04/29/97 SC Bancorp,Anaheim,California Bank holding co 01/05/98 05/06/97 Physicians Health Services Inc Own and operate HMO's 12/01/97 05/06/97 Virginia First Finl Corp,VA Bank holding co 06/03/98 05/07/97 Reliable Life Insurance Co Insurance company 10/16/97 05/12/97 Dynamics Corp of America Mnfr electrical appliances 08/26/97 05/13/97 Aurum Software Inc Dvlp sales, mktg info software 08/08/97 05/27/97 Alamco Inc Oil & gas exploration, prod 08/15/97 06/03/97 Alexander Haagen Properties Real estate investment trust 07/28/97 06/04/97 Maxis Inc Develop educational software 09/12/97 06/09/97 Amrion Inc Own,op food stores 08/29/97 06/16/97 Core Industries Inc Manufacture electronic equip 09/25/97 06/17/97 Hechinger Co Own,op retail home centers 07/24/97 06/17/97 McFarland Energy Inc Oil and gas exploration, prodn 07/25/97 06/17/97 Seda Specialty Packaging Corp Mnfr specialty packaging prods 08/15/97 06/19/97 Advanced Logic Research Inc Mnfr microcomputer systems 03/05/98 06/19/97 American Greetings Corp Mnfr greeting cards 10/23/97 06/20/97 Convest Energy Corp Oil and gas exploration,prodn 10/23/97 06/20/97 Edisto Resources Corp Oil and gas exploration,prodn 10/14/97 06/24/97 American Exploration Co Oil and gas exploration, prodn 09/23/97 07/02/97 American Filtrona Corp Mnfr bonded fiber 09/26/97 07/03/97 Krystal Co Own,op fast food restaurants 11/06/97 07/07/97 Cairn Energy USA Inc Oil and gas exploration,prodn 09/30/97 07/08/97 Delchamps Inc Own and operate supermarkets 09/23/97 07/09/97 Control Data Systems Inc Mnfr computers,peripherals 10/02/97 07/15/97 DH Technology Inc Mnfr,whl computer printers 10/28/97 07/15/97 Intl Imaging Materials Mnfr thermal transfer ribbons 02/01/98 07/16/97 ArgentBank,Thibodaux,Louisiana Commercial bank 11/07/97 07/22/97 Elexsys International Inc Manufacture circuit boards 12/18/97 07/23/97 Alliance Imaging Inc Pvd diagnostic imaging svcs 10/28/97 07/24/97 Astrotech International Corp Pvd storage tank maintenance 12/01/97 07/25/97 Homegate Hospitality Inc Own and operate hotels 08/28/97 07/25/97 Imo Industries Inc Mnfr industrial controls,pumps 09/24/97 07/31/97 Bucyrus International Inc Mnfr surface mining machinery 01/27/98 07/31/97 Santa Monica Bank Commercial bank 10/23/97 07/31/97 Sterling House Corp Own,op nursing homes 11/12/97 08/07/97 1st United Bancorp,FL Bank holding co 12/22/97 08/08/97 Titan Holdings Inc Auto,property,casualty ins co DATE DATE ACQUIROR SHORT EFFECTIVE ANNOUNCED ACQUIROR NAME BUSINESS DESCRIPTION - ----------- --------- ------------------------------ ---------------------------- 11/12/97 10/03/96 Nextel Communications Inc Pvd cellular telephone svcs 08/04/97 11/14/96 Pinnacle Financial Svcs Inc,MI Commercial bank;holding co 08/29/97 02/13/97 CFX Corp,Keene,New Hampshire Savings and loan 12/09/97 02/20/97 Apartment Investment & Mgmt Co Real estate investment trust 08/01/97 03/07/97 Henry Schein Inc Whl med supplies 08/25/97 03/11/97 Provident Bankshares,Maryland Bank holding company 08/29/97 03/24/97 CFX Corp,Keene,New Hampshire Savings and loan 08/05/97 03/24/97 Lam Research Corp Mnfr equip to mnfr semiconduct 10/13/97 04/29/97 Western Bancorp,California Bank holding co 01/05/98 05/06/97 Foundation Health Systems Inc Own,op HMO's; holding company 12/01/97 05/06/97 BB&T Corp,Winston-Salem,NC Bank holding company 06/03/98 05/07/97 Unitrin Inc Insurance company 10/16/97 05/12/97 CTS Corp Mnfr electronic components 08/26/97 05/13/97 Baan Co NV Develop software 08/08/97 05/27/97 Columbia Natural Resources Inc Operate natural gas pipeline 08/15/97 06/03/97 Lazard Freres & Co Investment bank 07/28/97 06/04/97 Electronic Arts Inc Develop,wholesale software 09/12/97 06/09/97 Whole Foods Market Inc Own,op natural foods stores 08/29/97 06/16/97 United Dominion Industries Ltd Mnfr structural metal 09/25/97 06/17/97 Leonard Green & Partners LP Merchant banking firm 07/24/97 06/17/97 Monterey Resources Inc Oil and gas exploration, prodn 07/25/97 06/17/97 CCL Industries Inc Mnfr,pvd specialty packaging 08/15/97 06/19/97 Gateway 2000 Inc Mnfr personal computers 03/05/98 06/19/97 American Greetings Corp Mnfr greeting cards 10/23/97 06/20/97 Forcenergy Inc Oil,gas exploration and prodn 10/23/97 06/20/97 Forcenergy Inc Oil,gas exploration and prodn 10/14/97 06/24/97 Louis Dreyfus Natural Gas Oil and gas exploration,prodn 09/23/97 07/02/97 Bunzl PLC Whl,mnfr paper,constn material 09/26/97 07/03/97 Port Royal Holdings Inc Investment company 11/06/97 07/07/97 Meridian Resource Corp Oil and gas exploration, prodn 09/30/97 07/08/97 Jitney-Jungle Stores of Amer Own and operate grocery stores 09/23/97 07/09/97 CDSI Holding Corp Investment holding company 10/02/97 07/15/97 Axiohm SA Mnfr,whl computer printers 10/28/97 07/15/97 Paxar Corp Mnfr label systems 02/01/98 07/16/97 Hibernia Corp,New Orleans,LA Bank holding co 11/07/97 07/22/97 Sanmina Corp Mnfr printed circuit boards 12/18/97 07/23/97 Newport Investment LLC Investment company 10/28/97 07/24/97 ITEQ Inc Mnfr air purification equip 12/01/97 07/25/97 Prime Hospitality Corp Own,operate,franchise hotels 08/28/97 07/25/97 Constellation Capital Partners Investment company 09/24/97 07/31/97 American Industrial Partners Pvd fund mgmt & fin adv svcs 01/27/98 07/31/97 Western Bancorp,California Bank holding co 10/23/97 07/31/97 Alternative Living Services Pvd residential care svcs 11/12/97 08/07/97 Wachovia Corp,Winston-Salem,NC Bank holding company 12/22/97 08/08/97 USF&G Corp Insurance holding company PREMIUM VALUE OF --------------------------------------------------------- DATE DATE TRANSACTION 1 DAY PRIOR TO 1 WEEK PRIOR TO 4 WEEKS PRIOR TO EFFECTIVE ANNOUNCE ($ MIL) ANNOUNCEMENT DATE ANNOUNCEMENT DATE ANNOUNCEMENT DATE - ----------- --------- ----------- ----------------- ----------------- ----------------- 11/12/97 10/03/96 158.4 9.0 14.4 30.7 08/04/97 11/14/96 120.5 22.2 26.9 17.9 08/29/97 02/13/97 102.2 33.2 38.4 38.4 12/09/97 02/20/97 114.5 28.3 25.2 16.9 08/01/97 03/07/97 136.1 12.2 12.2 10.4 08/25/97 03/11/97 107.8 26.5 42.3 47.3 08/29/97 03/24/97 101.6 63.3 64.1 54.7 08/05/97 03/24/97 217.9 (0.9) 3.0 13.9 10/13/97 04/29/97 105.0 20.0 31.0 37.3 01/05/98 05/06/97 268.2 23.5 27.0 51.7 12/01/97 05/06/97 145.3 77.3 77.3 74.1 06/03/98 05/07/97 261.1 51.1 51.1 52.1 10/16/97 05/12/97 244.6 91.3 94.2 112.7 08/26/97 05/13/97 259.9 33.0 40.4 55.8 08/08/97 05/27/97 102.8 7.7 11.5 16.7 08/15/97 06/03/97 235.0 (0.4) 11.1 3.4 07/28/97 06/04/97 127.5 2.3 2.3 40.6 09/12/97 06/09/97 152.6 8.1 19.2 47.0 08/29/97 06/16/97 275.2 26.6 37.9 49.3 09/25/97 06/17/97 127.0 (14.3) (7.7) (11.1) 07/24/97 06/17/97 111.2 11.6 41.3 44.8 07/25/97 06/17/97 182.6 31.8 36.5 52.6 08/15/97 06/19/97 206.8 29.2 30.5 34.8 03/05/98 06/19/97 158.1 0.0 (0.9) 1.8 10/23/97 06/20/97 102.0 11.1 11.1 18.9 10/23/97 06/20/97 147.7 (6.6) (6.6) (0.4) 10/14/97 06/24/97 275.5 13.0 15.0 21.6 09/23/97 07/02/97 183.5 8.8 2.2 3.4 09/26/97 07/03/97 145.4 132.0 169.8 176.2 11/06/97 07/07/97 233.6 22.3 29.0 26.7 09/30/97 07/08/97 213.6 (2.4) (0.8) 6.7 09/23/97 07/09/97 273.9 29.1 30.6 35.0 10/02/97 07/15/97 169.5 57.5 56.3 57.5 10/28/97 07/15/97 244.4 67.3 60.2 64.9 02/01/98 07/16/97 171.2 29.8 31.2 39.0 11/07/97 07/22/97 219.9 1.5 (8.6) 40.2 12/18/97 07/23/97 114.2 7.3 3.5 14.3 10/28/97 07/24/97 116.7 45.7 63.4 78.4 12/01/97 07/25/97 133.2 30.3 33.8 28.6 08/28/97 07/25/97 117.3 18.7 20.0 22.6 09/24/97 07/31/97 193.3 33.3 46.9 71.4 01/27/98 07/31/97 198.2 14.3 17.6 28.7 10/23/97 07/31/97 170.0 30.4 29.5 40.5 11/12/97 08/07/97 182.2 5.7 16.0 27.5 12/22/97 08/08/97 278.1 16.0 19.1 24.9
90 PROJECT GOLDCAP PREMIUMS ANALYSIS: MERGERS AND ACQUISITIONS BETWEEN $100 AND $300 MILLION JULY 24, 1997 THROUGH JULY 24, 1998 - -------------------------------------------------------------------------------
DATE DATE EFFECTIVE ANNOUNCED TARGET NAME TARGET BUSINESS DESCRIPTION - --------- ---------- ------------------------------ ------------------------------ 09/30/97 08/11/97 National Sanitary Supply Co Sanitary maintenance supplies 12/30/97 08/11/97 ProNet Inc Mnfr pagers;pager leasing svcs 12/22/97 08/11/97 Vacation Break USA Inc Real estate development firm 09/17/97 08/12/97 Isomedix Inc Pvd contract sterilization svc 09/16/97 08/14/97 American Medserve Corp Wholesale pharmaceuticals 09/24/97 08/14/97 Talbert Medical Management Own,op medical,dental clinics 12/29/97 08/14/97 Tuesday Morning Corp Own, operate giftware stores 12/05/97 08/14/97 Uniforce Services Inc Pvd temporary personnel svcs 03/27/98 08/15/97 Keystone Heritage Group Bank holding company 04/23/98 08/18/97 CENFED Financial,Pasadena,CA Bank holding company 10/21/97 08/25/97 ACC Consumer Finance Corp Pvd auto financing services 10/03/97 08/25/97 BioWhittaker Inc Mnfr,whl medical testing prods 01/23/98 08/25/97 PerSeptive Biosystems Inc Mnfr chromatography equipment 02/25/98 08/28/97 Value Property Trust Real estate investment trust 10/10/97 08/28/97 Versa Technologies Inc Mnfr rubber components,molds 02/24/98 09/03/97 Norwich Financial Corp,CT Savings and loan; holding co 01/16/98 09/05/97 Technology Modeling Assoc Inc Dvlp simulation software 12/31/97 09/08/97 Fuqua Enterprises Inc Manufacture tanned leather 11/28/97 09/10/97 Data Documents Inc Manufacture tabulating cards 04/01/98 09/11/97 George Mason Bankshares Inc Bank holding company 04/01/98 09/12/97 Coml Bancshares,Parkersburg,WV Bank holding company 12/09/97 09/12/97 Unison Software Inc Develop network mgmt software 01/16/98 09/12/97 WHG Resorts & Casino Inc Own,op resorts and casino 12/16/97 09/18/97 Guaranty National Corp Insurance company 01/16/98 09/19/97 Sterling Electronics Corp Whl electronic components 01/06/98 09/24/97 Vectra Banking Corp,Denver,CO Bank holding company 04/30/98 10/02/97 Kapson Senior Quarters Corp Provide residential care svcs 12/19/97 10/06/97 EndoVascular Technologies Inc Mnfr surgical instruments 12/23/97 10/09/97 Melamine Chemicals Inc Manufacture melamine crystal 01/22/98 10/13/97 Netcom On-Line Communication Internet service provider 12/19/97 10/14/97 Physician Support Systems Inc Pvd business mgmt services 02/12/98 10/16/97 Omni Insurance Group Inc Insurance company 02/27/98 10/17/97 ATC Group Services Inc Pvd engineering svcs 12/29/97 10/17/97 Computational Systems Inc Manufacture measuring devices 02/09/98 10/17/97 Tranzonic Cos Mnfr sanitary paper prod 04/24/98 10/23/97 Poughkeepsie Financial Corp Savings bank;bank holding co 12/19/97 10/23/97 Premenos Technology Corp Develop EDI software 03/12/98 10/31/97 ILC Technology Inc Mnfr high intensity lamps 04/01/98 11/03/97 Advantage Bancorp,Kenosha,WI Savings & loan holding company 05/22/98 11/03/97 CoBancorp Inc Commercial bank 01/09/98 11/03/97 Sequana Therapeutics Mnfr diagnostic substances 01/12/98 11/04/97 ComputerVision Corp Mnfr computers,peripherals 03/25/98 11/13/97 Chartwell Leisure Inc Own,op hotels and motels 05/12/98 11/17/97 Century Finl Corp,Rochester,PA Commercial bank 02/26/98 11/17/97 Granite Financial Inc Pvd business credit services 03/02/98 11/17/97 Visigenic Software Inc Dvlp database access software 01/20/98 11/21/97 New Jersey Steel(Von Roll) Mnfr steel reinforcing bars 02/03/98 11/24/97 Communications Central Inc Pvd telecommunications svcs 02/25/98 11/26/97 Universal Hospital Services Pvd med equip rental services 07/13/98 11/28/97 RedFed Bancorp Inc,Redlands,CA Savings and loan 02/19/98 12/01/97 Raptor Systems Inc Develop security mgmt software 03/31/98 12/11/97 First State Corp,Albany,Ga Bank holding co; coml bank 03/30/98 12/16/97 FFVA Financial Corp,VA Savings and loans 07/02/98 12/16/97 Franklin Bancorp,Washington,DC Bank holding company DATE DATE ACQUIROR SHORT EFFECTIVE ANNOUNCED ACQUIROR NAME BUSINESS DESCRIPTION - --------- ---------- ----------------------------- ----------------------------- 09/30/97 08/11/97 Unisource Worldwide Inc Wholesale printing paper 12/30/97 08/11/97 Metrocall Inc Pvd local paging services 12/22/97 08/11/97 Fairfield Communities Inc Construct vacation resorts 09/17/97 08/12/97 Steris Corp Mnfr sterile processing sys 09/16/97 08/14/97 Omnicare Inc Whl,retail pharmaceuticals 09/24/97 08/14/97 MedPartners Inc Pvd medical services to HMO's 12/29/97 08/14/97 Madison Dearborn Partners Investors 12/05/97 08/14/97 Comforce Corp Pvd help supply services 03/27/98 08/15/97 Fulton Finl Corp,Lancaster,PA Bank holding co 04/23/98 08/18/97 Golden State Bancorp Inc,CA Bank holding company 10/21/97 08/25/97 Household International Inc Provide financial services 10/03/97 08/25/97 Cambrex Corp Mnfr specialty chemicals 01/23/98 08/25/97 Perkin-Elmer Corp Mnfr analytical instruments 02/25/98 08/28/97 Wellsford Real Properties Inc Real estate investment trust 10/10/97 08/28/97 Applied Power Inc Mnfr tools,equip,consumables 02/24/98 09/03/97 Peoples Bk of Bridgeport,CT Savings bank 01/16/98 09/05/97 Avant! Corp Develop software 12/31/97 09/08/97 Graham-Field Health Products Mnfr medical supply,healthcare 11/28/97 09/10/97 Corporate Express Inc Retail office supplies 04/01/98 09/11/97 United Bankshares Inc,WV Bank holding company 04/01/98 09/12/97 WesBanco Inc,Wheeling,WV Bank holding company 12/09/97 09/12/97 Tivoli Systems Inc(IBM Corp) Dvlp systems mgmt software 01/16/98 09/12/97 Patriot Amer Hosp/Wyndham Intl Real estate investment trust 12/16/97 09/18/97 Orion Capital Corp Insurance company;holding co 01/16/98 09/19/97 Marshall Industries Whl electronic components 01/06/98 09/24/97 Zions Bancorp,Utah Bank holding company 04/30/98 10/02/97 Prometheus Senior Quarters Pvd nursing care services 12/19/97 10/06/97 Guidant Corp Mnfr cardiovascular equipment 12/23/97 10/09/97 Borden Chemical Inc(Borden) Mnfr formaldehyde,resins 01/22/98 10/13/97 ICG Communications Inc Pvd telecommunications svcs 12/19/97 10/14/97 National Data Corp Pvd info,transaction svcs 02/12/98 10/16/97 Hartford Financial Services Provide insurance services 02/27/98 10/17/97 Investor Group Investor group 12/29/97 10/17/97 Emerson Electric Co Mnfr appliance components 02/09/98 10/17/97 Linsalata Capital Partners II Investment firm 04/24/98 10/23/97 Hubco Inc,Mahwah,New Jersey Bank holding company 12/19/97 10/23/97 Harbinger Corp Dvle electn commerce software 03/12/98 10/31/97 BEC Group Inc Mnfr,whl eyeglass lenses,frame 04/01/98 11/03/97 Marshall & Ilsley,Milwaukee,WI Bank holding company 05/22/98 11/03/97 FirstMerit Corp,Akron,OH Commercial bank 01/09/98 11/03/97 Arris Pharmaceuticals Corp Manufacture synthetic drugs 01/12/98 11/04/97 Parametric Technology Corp Develop,wholesale software 03/25/98 11/13/97 Investor Group Investor group 05/12/98 11/17/97 Citizens Bancshares Inc,OH Commercial bank 02/26/98 11/17/97 Fidelity National Financial Title insurance company 03/02/98 11/17/97 Borland International Inc Develop software 01/20/98 11/21/97 Co-Steel Inc Mnfr steel and steel products 02/03/98 11/24/97 Davel Communications Group Inc Pvd pay telephone commun svcs 02/25/98 11/26/97 Investor Group Investor group 07/13/98 11/28/97 Golden State Bancorp Inc,CA Bank holding company 02/19/98 12/01/97 AXENT Technologies Inc Develop software 03/31/98 12/11/97 Regions Finl,Birmingham,AL Bank holding company 03/30/98 12/16/97 One Valley Bancorp Inc,WV Bank holding company 07/02/98 12/16/97 BB&T Corp,Winston-Salem,NC Bank holding company PREMIUM VALUE OF ------------------------------------------------------------ DATE DATE TRANSACTION 1 DAY PRIOR TO 1 WEEK PRIOR TO 4 WEEKS PRIOR TO EFFECTIVE ANNOUNCED ($ MIL) ANNOUNCEMENT DATE ANNOUNCEMENT DATE ANNOUNCEMENT DATE - --------- --------- ----------- ----------------- ------------------ ----------------- 09/30/97 08/11/97 155.9 (6.7) 20.0 47.4 12/30/97 08/11/97 239.3 (10.0) (0.7) 27.1 12/22/97 08/11/97 178.1 41.6 39.1 95.8 09/17/97 08/12/97 139.8 5.8 15.5 13.9 09/16/97 08/14/97 233.2 2.5 16.1 25.8 09/24/97 08/14/97 189.0 10.5 18.9 37.0 12/29/97 08/14/97 298.6 22.7 25.8 11.1 12/05/97 08/14/97 140.7 37.6 37.6 52.6 03/27/98 08/15/97 210.9 43.8 49.9 65.1 04/23/98 08/18/97 208.4 1.3 0.5 3.5 10/21/97 08/25/97 186.9 35.8 34.7 29.6 10/03/97 08/25/97 130.5 17.8 38.9 47.7 01/23/98 08/25/97 288.1 16.8 24.9 50.4 02/25/98 08/28/97 186.6 25.0 20.9 18.7 10/10/97 08/28/97 141.9 36.8 33.1 31.3 02/24/98 09/03/97 164.0 (0.5) 15.4 30.4 01/16/98 09/05/97 144.3 29.5 52.8 43.2 12/31/97 09/08/97 231.0 42.3 52.8 78.8 11/28/97 09/10/97 159.4 10.9 14.9 26.1 04/01/98 09/11/97 207.6 12.1 20.9 20.9 04/01/98 09/12/97 126.7 47.9 46.8 66.8 12/09/97 09/12/97 183.0 9.1 25.0 22.4 01/16/98 09/12/97 266.0 35.1 72.3 78.5 12/16/97 09/18/97 117.2 10.8 23.9 27.7 01/16/98 09/19/97 217.6 16.3 30.2 57.0 01/06/98 09/24/97 162.3 19.2 18.6 47.3 04/30/98 10/02/97 247.4 (0.9) 9.4 1.8 12/19/97 10/06/97 187.8 22.1 22.1 73.9 12/23/97 10/09/97 119.7 70.8 72.6 70.8 01/22/98 10/13/97 269.4 49.8 70.9 78.5 12/19/97 10/14/97 175.2 (1.0) (3.7) 4.8 02/12/98 10/16/97 184.7 78.9 75.8 130.9 02/27/98 10/17/97 150.0 0.0 (8.1) 10.3 12/29/97 10/17/97 158.6 45.1 48.3 62.5 02/09/98 10/17/97 104.8 (1.5) (2.9) 4.5 04/24/98 10/23/97 142.4 1.1 2.9 17.1 12/19/97 10/23/97 234.7 55.2 49.1 27.8 03/12/98 10/31/97 130.8 108.7 107.6 108.7 04/01/98 11/03/97 215.8 11.2 12.2 11.2 05/22/98 11/03/97 157.3 10.6 30.9 52.1 01/09/98 11/03/97 169.4 44.0 47.3 23.4 01/12/98 11/04/97 250.3 28.3 69.9 18.6 03/25/98 11/13/97 240.8 11.3 4.5 11.3 05/12/98 11/17/97 137.4 39.8 41.7 61.0 02/26/98 11/17/97 132.4 89.8 89.8 87.6 03/02/98 11/17/97 148.4 92.0 64.0 92.0 01/20/98 11/21/97 173.5 162.9 170.6 166.7 02/03/98 11/24/97 102.4 30.2 25.4 12.0 02/25/98 11/26/97 133.0 29.2 29.2 25.3 07/13/98 11/28/97 159.5 1.8 1.8 7.1 02/19/98 12/01/97 253.7 5.4 20.7 16.5 03/31/98 12/11/97 161.2 18.4 23.9 16.9 03/30/98 12/16/97 209.4 22.4 27.3 30.0 07/02/98 12/16/97 160.2 21.4 32.1 54.8
91 PROJECT GOLDCAP PREMIUMS ANALYSIS: MERGERS AND ACQUISITIONS BETWEEN $100 AND $300 MILLION JULY 24, 1997 THROUGH JULY 24, 1998 - --------------------------------------------------------------------------
DATE DATE EFFECTIVE ANNOUNCED TARGET NAME TARGET BUSINESS DESCRIPTION - ----------- --------- ------------------------------ ----------------------------------- 07/01/98 12/16/97 Progressive Bank,Pawling,NY Savings and loan holding co 01/23/98 12/17/97 Suburban Ostomy Supply Co Inc Whl medical and hospital equip 12/18/97 12/18/97 Central Newspapers Inc Publish newspapers 03/30/98 12/19/97 ASR Investments Corp Real estate investment trust 05/01/98 12/19/97 IPC Information Systems Inc Mnfr telecommunications equip 06/03/98 12/19/97 Eclipse Telecommunications Inc Pvd radiotelecommunication svc 01/27/98 12/19/97 Software Artistry Inc Develop help-desk software 03/17/98 12/29/97 Heartstream Inc Mnfr defibrillators 02/09/98 12/29/97 Holmes Protection Group Inc Provide security systems svcs 05/22/98 12/31/97 Red Lion Inns LP Own,op hotels 04/01/98 01/06/98 Schult Homes Corp Manufacture mobile homes 06/30/98 01/12/98 CBT Corp,Paducah,Kentucky Bank holding co 05/06/98 01/26/98 TransAmerican Waste Industries Pvd waste management services 03/03/98 01/27/98 State of the Art Inc Develop financial software 02/02/98 02/02/98 Comdisco Inc Whl,lease computers 06/09/98 02/04/98 TresCom International Inc Pvd communications svcs 06/30/98 02/09/98 PonceBank Savings and loan 04/16/98 02/09/98 Summit Care Corp Provide nursing services 03/11/98 02/10/98 Liberty Corp Life ins co;own,op TV stn 06/10/98 02/11/98 MTL Inc Pvd tank truck carrier svcs 06/02/98 02/19/98 California State Bank Bank holding company 04/21/98 02/19/98 Mastering Inc Provied computer training svcs 05/04/98 02/24/98 Somatogen Inc Dvlp human blood substitutes 04/30/98 03/02/98 First Alert Inc Mnfr fire and burglar alarms 07/02/98 03/13/98 Beverly Bancorp,Tinley Park,IL Bank holding company 07/10/98 03/16/98 International Murex Tech Corp Mnfr in-vitro test systems 05/28/98 03/16/98 Logic Works Inc Develop client/server software 05/27/98 03/17/98 ForeFront Group Inc Develop software 04/01/98 03/19/98 Lawter International Inc Mnfr printing ink and resins 03/23/98 03/23/98 BET Holdings Inc Own and operate TV stations 06/24/98 03/24/98 Walsh International Inc Provide programming svcs 06/29/98 03/31/98 IBAH Inc Mnfr pharmaceutical products 04/04/98 04/04/98 America Online Inc Internet Service Provider 07/10/98 04/06/98 MoneyGram Payment Systems Inc Pvd money wire transfer svcs 05/19/98 04/08/98 Blessings Corp Mnfr plastic film products 05/15/98 04/09/98 Dart Group Corp Own,operate auto part stores 06/15/98 05/08/98 Authentic Specialty Foods Inc Whl,mnfr Mexican foods 07/02/98 05/18/98 Graco Inc Mnfr fluid handling equipment 07/07/98 05/28/98 Donnelley Enterprise Solutions Pvd info management services 05/30/98 05/30/98 Panavision Inc Mnfr camera systems 06/19/98 06/19/98 Tremont Corp Mnfr drilling lubricants 07/01/98 07/01/98 Sotheby's Holdings Inc Provide auctioning, RE svcs DATE DATE ACQUIROR SHORT EFFECTIVE ANNOUNCED ACQUIROR NAME BUSINESS DESCRIPTION - ------------ --------- -------------------------------- ------------------------------- 07/01/98 12/16/97 Hudson Chartered Bancorp,NY National commercial bank 01/23/98 12/17/97 InvaCare Corporation Mnfr surgical,medical supplies 12/18/97 12/18/97 Central Newspapers Inc Publish newspapers 03/30/98 12/19/97 United Dominion Realty Tr Inc Real estate investment trust 05/01/98 12/19/97 Cable Systems International Mnfr telecommun equip 06/03/98 12/19/97 IXC Communications Inc Pvd long distance tele svcs 01/27/98 12/19/97 Tivoli Systems Inc(IBM Corp) Dvlp systems mgmt software 03/17/98 12/29/97 Hewlett-Packard Co Mnfr computers, testing equip 02/09/98 12/29/97 Tyco International Ltd Mnfr fire protection systems 05/22/98 12/31/97 Boykin Lodging Co Real estate investment trust 04/01/98 01/06/98 Oakwood Homes Corp Mnfr,ret factory-built homes 06/30/98 01/12/98 Mercantile Bancorp,St Louis,MO Commercial bank holding co 05/06/98 01/26/98 USA Waste Services Inc Pvd waste disposal services 03/03/98 01/27/98 Sage Group PLC Dvlp,whl accounting software 02/02/98 02/02/98 Investor Group Investor group 06/09/98 02/04/98 Primus Telecommunications Pvd telecommunications svcs 06/30/98 02/09/98 Banco Bilbao Vizcaya SA Bank;insurance;holding co 04/16/98 02/09/98 Fountain View(Heritage) Own,op healthcare facilities 03/11/98 02/10/98 Liberty Corp Life ins co;own,op TV stn 06/10/98 02/11/98 Sombrero Acquisition Corp Investment company 06/02/98 02/19/98 First Security Corp,Utah Bank holding co 04/21/98 02/19/98 PLATINUM Technology Inc Develop integrated software 05/04/98 02/24/98 Baxter International Inc Mnfr health care products 04/30/98 03/02/98 Sunbeam Corp Mnfr,whl household appliances 07/02/98 03/13/98 St. Paul Bancorp,Chicago,IL Bank holding company 07/10/98 03/16/98 Abbott Laboratories Mnfr pharmaceuticals,med equip 05/28/98 03/16/98 PLATINUM Technology Inc Develop integrated software 05/27/98 03/17/98 CBT Group PLC Dev educational software 04/01/98 03/19/98 Lawter International Inc Mnfr printing ink and resins 03/23/98 03/23/98 Investor Group Investor group 06/24/98 03/24/98 Cognizant Corp Pvd information services 06/29/98 03/31/98 Omnicare Inc Whl,retail pharmaceuticals 04/04/98 04/04/98 Goldman Sachs & Co Investment bank 07/10/98 04/06/98 Viad Corp Provide food catering services 05/19/98 04/08/98 Huntsman Packaging Corp Prod printed,laminated films 05/15/98 04/09/98 Richfood Holdings Inc Wholesale groceries 06/15/98 05/08/98 Agrobios(Desc SA de CV) Mnfr,whl foods products 07/02/98 05/18/98 Graco Inc Mnfr fluid handling equipment 07/07/98 05/28/98 Bowne & Co Inc Pvd printing svcs 05/30/98 05/30/98 Mafco Holdings Inc Mnfr toilet preparations 06/19/98 06/19/98 Valhi Inc Mnfr chemicals and pigments 07/01/98 07/01/98 Investor Group Investor group PREMIUM VALUE OF -------------------------------------------------------- DATE DATE TRANSACTION 1 DAY PRIOR TO 1 WEEK PRIOR TO 4 WEEKS PRIOR TO EFFECTIVE ANNOUNCED ($ MIL) ANNOUNCEMENT DATE ANNOUNCEMENT DATE ANNOUNCEMENT DATE - --------- --------- ----------- ------------------- ----------------- ---------------- 07/01/98 12/16/97 167.6 14.3 16.3 26.8 01/23/98 12/17/97 130.8 8.0 13.3 13.3 12/18/97 12/18/97 100.0 (1.1) 0.6 (0.3) 03/30/98 12/19/97 277.0 4.4 1.1 2.6 05/01/98 12/19/97 201.7 14.3 31.3 14.3 06/03/98 12/19/97 122.2 18.0 19.9 14.4 01/27/98 12/19/97 201.9 0.0 62.0 57.4 03/17/98 12/29/97 130.6 (6.7) 18.2 (8.6) 02/09/98 12/29/97 117.1 (5.6) (5.6) (13.9) 05/22/98 12/31/97 276.0 (6.4) (5.5) (3.4) 04/01/98 01/06/98 101.4 1.1 10.4 19.2 06/30/98 01/12/98 275.8 3.3 1.8 19.5 05/06/98 01/26/98 142.3 51.4 36.6 78.6 03/03/98 01/27/98 245.2 33.3 35.4 35.4 02/02/98 02/02/98 109.0 0.0 6.6 3.8 06/09/98 02/04/98 134.7 25.2 30.9 51.5 06/30/98 02/09/98 164.5 12.6 14.1 25.8 04/16/98 02/09/98 275.1 14.3 31.3 37.7 03/11/98 02/10/98 124.8 11.2 15.2 11.5 06/10/98 02/11/98 250.1 37.9 38.5 56.1 06/02/98 02/19/98 276.9 11.4 14.0 18.8 04/21/98 02/19/98 198.7 31.6 25.0 33.3 05/04/98 02/24/98 232.9 35.8 39.8 92.0 04/30/98 03/02/98 129.2 68.0 90.9 110.0 07/02/98 03/13/98 161.8 16.5 17.4 19.6 07/10/98 03/16/98 232.7 21.6 38.2 50.7 05/28/98 03/16/98 212.9 13.0 36.2 57.1 05/27/98 03/17/98 147.5 17.3 29.4 48.5 04/01/98 03/19/98 130.8 0.0 1.7 (2.7) 03/23/98 03/23/98 121.7 0.0 0.3 10.2 06/24/98 03/24/98 176.8 0.0 36.8 53.3 06/29/98 03/31/98 154.3 12.2 61.4 58.6 04/04/98 04/04/98 111.4 66.1 79.3 1.9 07/10/98 04/06/98 293.6 11.5 15.7 42.4 05/19/98 04/08/98 269.7 18.7 18.3 34.9 05/15/98 04/09/98 193.3 14.3 11.9 19.4 06/15/98 05/08/98 141.9 6.3 13.3 37.4 07/02/98 05/18/98 190.9 (6.5) (3.2) (9.1) 07/07/98 05/28/98 105.2 60.8 61.5 83.6 05/30/98 05/30/98 154.4 1.2 1.4 1.7 06/19/98 06/19/98 165.1 6.0 5.2 0.2 07/01/98 07/01/98 118.6 0.6 (1.1) 1.1 AVERAGE 23.8% 29.9% 37.3% MEDIAN 16.5% 25.0% 30.0%
92 PROJECT GOLDCAP PREMIUMS ANALYSIS: MERGERS AND ACQUISITIONS BETWEEN $100 AND $300 MILLION - ------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
AVERAGE PREMIUM AVERAGE PREMIUM AVERAGE PREMIUM IMPLIED IMPLIED 1 DAY PRIOR TO 1 WEEK PRIOR TO 4 WEEKS PRIOR TO EQUITY EQUITY VALUE ANNOUNCEMENT DATE [1] ANNOUNCEMENT DATE ANNOUNCEMENT DATE VALUE PER SHARE [2] --------------------- ----------------- ----------------- ------------- ------------- Goldcap Stock Price 1 Day Prior to Announcement Date: $13.25 23.8% $165,854 $ 16.40 Goldcap Stock Price 1 Week Prior to Announcement Date: $13.38 29.9% 175,706 17.38 Goldcap Stock Price 4 Weeks Prior to Announcement Date: $14.75 37.3% 204,783 20.25 AVERAGE $182,114 $18.01 MEDIAN $175,706 $17.38
- ------------------------------------------------- [1] Assumes announcement after the market close on July 27, 1998. [2] Assumes 10,112,629 Goldcap shares outstanding. 93 PROJECT GOLDCAP PROJECTED CASH FLOWS - CONSOLIDATED COMPANY (DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------
Dec. Dec. Dec. Dec. Dec. Dec. Terminal PROJECTIONS USED IN VALUATION: 1998 1999 (1) 2000 (1) 2001 (1) 2002 (1) 2003 (2) Value --------- --------- --------- --------- --------- --------- --------- Revenues: Benefits Company $ 150,496 163,785 $ 176,888 $ 191,039 $ 202,501 $ 214,651 $ 214,651 DHMI 24,530 27,153 30,056 33,270 36,828 40,766 40,766 --------- --------- --------- --------- --------- --------- --------- Total Revenues 175,026 190,938 206,944 224,309 239,329 255,417 255,417 Expenses: Dental Care Providers' Fees and Claim Costs 79,761 86,806 93,751 101,251 107,326 113,765 113,765 Commisions 13,479 15,396 16,804 18,340 19,643 21,036 21,036 Premium Taxes 1,167 1,270 1,372 1,481 1,570 1,665 1,665 General and Administrative 31,600 32,864 34,178 35,545 36,967 38,446 38,446 DHMI Operating Expenses 23,320 23,505 26,018 28,801 31,880 35,289 35,289 Depreciation (2) 3,516 1,862 2,209 2,641 2,743 2,862 2,862 Goodwill Amortization 2,349 2,349 2,349 2,349 2,349 2,349 2,349 --------- --------- --------- --------- --------- --------- --------- Total Expenses 155,192 164,052 176,681 190,408 202,478 215,412 215,412 Operating Expenses 88.7% 85.9% 85.4% 84.9% 84.6% 84.3% 84.3% Operating Income (EBIT) 19,834 26,886 30,263 33,901 36,851 40,005 40,005 Inc. Taxes 9,317 12,279 13,697 15,225 16,464 17,789 17,789 --------- --------- --------- --------- --------- --------- --------- After Tax Operating Income $ 10,517 $ 14,607 $ 16,566 $ 18,676 $ 20,387 $ 22,216 $ 22,216 Operating Margin 7.0% 8.9% 9.4% 9.8% 10.1% 10.3% 10.3% CASH SOURCES After Tax Operating Income $ 10,517 $ 14,607 $ 16,566 $ 18,676 $ 20,387 $ 22,216 $ 22,216 Depreciation and Amortization 5,865 4,211 4,558 4,990 5,092 5,211 5,211 Other Cash Sources (123) 690 680 734 595 631 631 --------- --------- --------- --------- --------- --------- --------- TOTAL SOURCES $ 16,259 $ 19,508 $ 21,804 $ 24,400 $ 26,074 $ 28,058 $ 28,058 ========= ========= ========= ========= ========= ========= ========= CASH USES Capital Expenditures $ 2,000 $ 2,500 $ 3,000 $ 3,000 $ 3,000 $ 3,000 $ 3,000 Increase in Current Assets Except Cash (162) 1,420 1,416 1,534 1,291 1,377 1,377 Increase in Current Liabilities Except Debt (246) 2,257 2,218 2,397 1,956 2,077 2,077 Increase/(Decrease) in Net Working Capital 84 (837) (802) (863) (666) (700) (700) Other Cash Uses (127) 833 824 891 730 775 775 --------- --------- --------- --------- --------- --------- --------- TOTAL USES $ 1,957 $ 2,497 $ 3,023 $ 3,028 $ 3,064 $ 3,075 $ 3,075 ========= ========= ========= ========= ========= ========= ========= FREE CASH FLOW $ 17,011 $ 18,781 $ 21,373 $ 23,010 $ 24,983 $ 24,983 ===================================================================================================================================
-------------------------------------------------------------------------------- Discount Rate (WACC) Present Value of Cash Flows -------------------------------------------------------------------------------- 11.00% $76,179 12.00% $74,172 13.00% $72,247 14.00% $70,398 15.00% $68,623 16.00% $66,917 --------------------------------------------------------------------------------
(1) Projections provided by the Company as of July 10, 1998. (2) Depreciation excludes transaction cost amortization. 94 PROJECT GOLDCAP EBIT MULTIPLE METHODOLOGY FOR DISCOUNTED CASH FLOW ANALYSIS (DOLLARS IN THOUSANDS)
- -------------------------------------------- SUMMARY: - -------------------------------------------- WACC : 13.00% Multiple: 8.00 EBIT Terminal Value: $ 40,005 Present Value of Cash Flows: $ 72,247 Present Value of Terminal Value: $ 173,705 --------- Total Value: $ 245,952 ========= Plus: Cash (1) $ 9,726 Less: Debt (1) $ 75,282 --------- Equity Value $ 180,396 ========= Equity Value per share $ 17.84 - --------------------------------------------
(1) As of June 30, 1998. Includes present value of remaining DentLease funding obligation and preferred stock purchase obligation. - ----------------------------------------------------------------------------------------------------------------------------------- Weighted Average Cost of Capital (WACC) 11.00% 12.00% 13.00% 14.00% 15.00% 16.00% - ----------------------------------------------------------------------------------------------------------------------------------- Present Value of Cash Flows: $ 76,179 $ 74,172 $ 72,247 $ 70,398 $ 68,623 $ 66,917 - ----------------------------------------------------------------------------------------------------------------------------------- Present Value of Terminal Value: 6.0x $142,446 $136,199 $130,279 $124,664 $119,337 $114,281 7.0 $166,187 $158,899 $151,992 $145,441 $139,227 $133,328 Multiple 8.0 $189,928 $181,599 $173,705 $166,219 $159,116 $152,375 9.0 $213,669 $204,299 $195,418 $186,996 $179,006 $171,422 10.0 $237,410 $226,999 $217,131 $207,773 $198,896 $190,469 11.0 $261,151 $249,699 $238,844 $228,551 $218,785 $209,516 12.0 $284,892 $272,399 $260,557 $249,328 $238,675 $228,563 - ------------------------------------------------------------------------------------------------------------------------------------ Total Value: 6.0x $218,625 $210,372 $202,525 $195,062 $187,960 $181,199 7.0 $242,366 $233,072 $224,238 $215,840 $207,850 $200,246 Multiple 8.0 $266,107 $255,772 $245,952 $236,617 $227,740 $219,293 9.0 $289,848 $278,471 $267,665 $257,394 $247,629 $238,340 10.0 $313,589 $301,171 $289,378 $278,172 $267,519 $257,386 11.0 $337,330 $323,871 $311,091 $298,949 $287,408 $276,433 12.0 $361,072 $346,571 $332,804 $319,726 $307,298 $295,480 - ------------------------------------------------------------------------------------------------------------------------------------ Equity Value: 6.0x $153,069 $144,816 $136,969 $129,506 $122,404 $115,643 7.0 $176,810 $167,516 $158,682 $150,284 $142,294 $134,690 Multiple 8.0 $200,551 $190,216 $180,396 $171,061 $162,184 $153,737 9.0 $224,292 $212,915 $202,109 $191,838 $182,073 $172,784 10.0 $248,033 $235,615 $223,822 $212,616 $201,963 $191,830 11.0 $271,774 $258,315 $245,535 $233,393 $221,852 $210,877 12.0 $295,516 $281,015 $267,248 $254,170 $241,742 $229,924 - ------------------------------------------------------------------------------------------------------------------------------------ Equity Value: 6.0x $ 15.14 $ 14.32 $ 13.54 $ 12.81 $ 12.10 $ 11.44 7.0 $ 17.48 $ 16.56 $ 15.69 $ 14.86 $ 14.07 $ 13.32 Multiple 8.0 $ 19.83 $ 18.81 $ 17.84 $ 16.92 $ 16.04 $ 15.20 9.0 $ 22.18 $ 21.05 $ 19.99 $ 18.97 $ 18.00 $ 17.09 10.0 $ 24.53 $ 23.30 $ 22.13 $ 21.02 $ 19.97 $ 18.97 11.0 $ 26.87 $ 25.54 $ 24.28 $ 23.08 $ 21.94 $ 20.85 12.0 $ 29.22 $ 27.79 $ 26.43 $ 25.13 $ 23.90 $ 22.74 - ----------------------------------------------------------------------------------------------------------------------------------- Implied Total Value/Calendar 1998 EBIT Multiple: 6.0x 8.1x 7.8x 7.5x 7.3x 7.0x 6.7x 7.0 9.0 8.7 8.3 8.0 7.7 7.4 Multiple 8.0 9.9 9.5 9.1 8.8 8.5 8.2 9.0 10.8 10.4 10.0 9.6 9.2 8.9 10.0 11.7 11.2 10.8 10.3 10.0 9.6 11.0 12.5 12.0 11.6 11.1 10.7 10.3 12.0 13.4 12.9 12.4 11.9 11.4 11.0 - ---------------------------------------------------------------------------------------------------------------------------------
95 The Robinson-Humphrey Company, LLC Project Goldcap EBITDA Multiple Methodology (Dollars in Thousands)
- -------------------------------------------- SUMMARY: - -------------------------------------------- WACC : 13.00% Multiple: 6.5 EBITDA Terminal Value: $ 45,216 Present Value of Cash Flows: $ 72,247 Present Value of Terminal Value: $159,519 -------- Total Value: $231,766 ======== Plus: Cash (1) $ 9,726 Less: Debt (1) $ 75,282 -------- Equity Value: $166,210 ======== Equity Value per Share $ 16.44 - --------------------------------------------
(1) As of June 30, 1998. Includes present value of remaining DentLease funding obligation and preferred stock purchase obligation. - ------------------------------------------------------------------------------------------------------------------------------------ Weighted Average Cost of Capital (WACC) 11.00% 12.00% 13.00% 14.00% 15.00% 16.00% - ------------------------------------------------------------------------------------------------------------------------------------ Present Value of Cash Flows: $ 76,179 $ 74,172 $ 72,247 $ 70,398 $ 68,623 $66,917 - ------------------------------------------------------------------------------------------------------------------------------------ Present Value of Terminal Value: 5.0x $134,167 $128,284 $122,707 $117,419 $112,402 $107,640 5.5 $147,584 $141,112 $134,978 $129,161 $123,642 $118,404 6.0 $161,001 $153,941 $147,249 $140,903 $134,882 $129,168 Multiple 6.5 $174,418 $166,769 $159,519 $152,645 $146,122 $139,932 7.0 $187,834 $179,597 $171,790 $164,386 $157,362 $150,695 7.5 $201,251 $192,426 $184,061 $176,128 $168,603 $161,459 8.0 $214,668 $205,254 $196,331 $187,870 $179,843 $172,223 8.5 $228,085 $218,083 $208,602 $199,612 $191,083 $182,987 9.0 $241,501 $230,911 $220,873 $211,354 $202,323 $193,751 - ------------------------------------------------------------------------------------------------------------------------------------ Total Value: 5.0x $210,347 $202,456 $194,954 $187,817 $181,025 $174,557 5.5 $223,763 $215,285 $207,225 $199,559 $192,265 $185,321 6.0 $237,180 $228,113 $219,495 $211,301 $203,505 $196,085 6.5 $250,597 $240,941 $231,766 $223,043 $214,745 $206,849 Multiple 7.0 $264,014 $253,770 $244,037 $234,785 $225,986 $217,613 7.5 $277,430 $266,598 $256,307 $246,527 $237,226 $228,377 8.0 $290,847 $279,426 $268,578 $258,268 $248,466 $239,141 8.5 $304,264 $292,255 $280,849 $270,010 $259,706 $249,905 9.0 $317,681 $305,083 $293,120 $281,752 $270,946 $260,669 - ------------------------------------------------------------------------------------------------------------------------------------ Equity Value: 5.0x $144,791 $136,900 $129,398 $122,261 $115,469 $109,001 5.5 $158,207 $149,729 $141,669 $134,003 $126,709 $119,765 6.0 $171,624 $162,557 $153,939 $145,745 $137,949 $130,529 6.5 $185,041 $175,385 $166,210 $157,487 $149,189 $141,293 Multiple 7.0 $198,458 $188,214 $178,481 $169,229 $160,430 $152,057 7.5 $211,874 $201,042 $190,751 $180,971 $171,670 $162,821 8.0 $225,291 $213,870 $203,022 $192,712 $182,910 $173,585 8.5 $238,708 $226,699 $215,293 $204,454 $194,150 $184,349 9.0 $252,125 $239,527 $227,564 $216,196 $205,390 $195,113 - ------------------------------------------------------------------------------------------------------------------------------------ Equity Value: 5.0x $ 14.32 $ 13.54 $ 12.80 $ 12.09 $ 11.42 $ 10.78 5.5 $ 15.64 $ 14.81 $ 14.01 $ 13.25 $ 12.53 $ 11.84 6.0 $ 16.97 $ 16.07 $ 15.22 $ 14.41 $ 13.64 $ 12.91 6.5 $ 18.30 $ 17.34 $ 16.44 $ 15.57 $ 14.75 $ 13.97 Multiple 7.0 $ 19.62 $ 18.61 $ 17.65 $ 16.73 $ 15.86 $ 15.04 7.5 $ 20.95 $ 19.88 $ 18.86 $ 17.90 $ 16.98 $ 16.10 8.0 $ 22.28 $ 21.15 $ 20.08 $ 19.06 $ 18.09 $ 17.17 8.5 $ 23.60 $ 22.42 $ 21.29 $ 20.22 $ 19.20 $ 18.23 9.0 $ 24.93 $ 23.69 $ 22.50 $ 21.38 $ 20.31 $ 19.29 - ------------------------------------------------------------------------------------------------------------------------------------ Implied Total Value / Calendar 1998 EBITDA Multiple: 5.0x 6.8x 6.5x 6.3x 6.3x 6.0x 5.6x 5.5 7.2 6.9 6.7 6.4 6.2 6.0 6.0 7.6 7.3 7.1 6.8 6.5 6.3 6.5 8.1 7.7 7.5 7.2 6.9 6.7 Multiple 7.0 8.5 8.2 7.8 7.6 7.3 7.0 7.5 8.9 8.6 8.2 7.9 7.6 7.3 8.0 9.4 9.0 8.6 8.3 8.0 7.7 8.5 9.8 9.4 9.0 8.7 8.4 8.0 9.0 10.2 9.8 9.4 9.1 8.7 8.4 - ------------------------------------------------------------------------------------------------------------------------------------
96 PROJECT GOLDCAP BALANCE SHEET ASSUMPTIONS (DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------
Dec. Dec. Dec. Dec. Dec. Dec. Dec. BALANCE SHEET DATA [1] 1997 1998 1999 2000 2001 2002 2003 -------- -------- -------- -------- -------- -------- -------- Current Assets Less Cash and Equivalents Premiums Receivable $ 6,192 $ 6,394 $ 6,975 $ 7,560 $ 8,194 $ 8,743 $ 9,331 Patient Accounts Receivable 1,668 1,655 1,801 1,945 2,101 2,227 2,361 Income Taxes Receivable 175 226 246 266 287 304 322 Deferred Income Taxes 5,027 5,042 5,487 5,926 6,400 6,784 7,191 Other Current Assets 2,921 2,504 2,732 2,961 3,209 3,424 3,654 -------- -------- -------- -------- -------- -------- -------- 15,983 15,821 17,241 18,658 20,191 21,482 22,859 Current Liabilities Less Current Debt Unearned Revenue $ 9,538 $ 9,030 $ 9,827 $ 10,614 $ 11,463 $ 12,150 $ 12,879 Accounts Payable 12,016 12,040 13,103 14,151 15,284 16,201 17,173 Accrued Interest Payable 109 75 95 103 112 119 127 Dental Claims Reserves 1,502 1,505 1,638 1,769 1,910 2,025 2,147 Other Current Liabilities 2,407 2,676 2,919 3,164 3,429 3,659 3,905 -------- -------- -------- -------- -------- -------- -------- 25,572 25,326 27,583 29,801 32,198 34,154 36,231 Working Capital Less Cash and Equivalents and Current Debt ($ 9,589) ($ 9,505) ($10,342) ($11,143) ($12,006) ($12,672) ($13,372) ----------------------------------------------------------------------------------------------------------- Change in Net Working Capital $ 84 ($ 837) ($ 802) ($ 863) ($ 666) ($ 700) ----------------------------------------------------------------------------------------------------------- Restricted Funds $ 2,321 $ 2,257 $ 2,456 $ 2,653 $ 2,865 $ 3,037 $ 3,219 Reinsurance Receivable 5,417 5,644 6,142 6,634 7,164 7,594 8,050 Other Assets 1,782 1,492 1,628 1,764 1,912 2,040 2,177 Aggregate Reserves for Life Policies 5,331 5,267 5,732 6,191 6,686 7,087 7,512 Deferred Tax Liability 1,887 1,866 2,031 2,193 2,369 2,511 2,661 Other Liabilities 715 677 737 796 859 911 966 Assumptions (Percentage of Revenues): Current Assets Less Cash and Equivalents Premiums Receivable 3.90% 3.65% 3.65% 3.65% 3.65% 3.65% 3.65% Patient Accounts Receivable - % of Benefits Revenues 1.10% 1.10% 1.10% 1.10% 1.10% 1.10% 1.10% Income Taxes Receivable - % of Benefits Revenues 0.12% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% Deferred Income Taxes - % of Benefits Revenues 3.32% 3.35% 3.35% 3.35% 3.35% 3.35% 3.35% Other Current Assets 1.84% 1.43% 1.43% 1.43% 1.43% 1.43% 1.43% Current Liabilities Less Current Debt Unearned Revenue - % of Benefits Revenues 6.29% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% Accounts Payable - % of Benefits Revenues 7.93% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% Accrued Interest Payable - % of Benefits Revenues 0.07% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% Dental Claims Reserves - % of Benefits Revenues 0.99% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Other Current Liabilities 1.52% 1.53% 1.53% 1.53% 1.53% 1.53% 1.53% Restricted Funds - % of Benefits Revenues 1.53% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% Reinsurance Receivable - % of Benefits Revenues 3.57% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75% Other Assets 1.12% 0.85% 0.85% 0.85% 0.85% 0.85% 0.85% Aggregate Reserves for Life Policies - % of Benefits Revenues 3.52% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% Deferred Tax Liability - % of Benefits Revenues 1.24% 1.24% 1.24% 1.24% 1.24% 1.24% 1.24% Other Liabilities - % of Benefits Revenues 0.47% 0.45% 0.45% 0.45% 0.45% 0.45% 0.45%
(1) Projections provided by the Company as of July 10, 1998. 97 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING ASSUMING $183.041 MILLION ($18.00 PER SHARE) PURCHASE PRICE FOR 100.0% OF THE EQUITY BENEFITS COMPANY TABLE OF CONTENTS - -------------------------------------------------------------------------------
EXHIBIT PAGE - ------------------------------------------------- -------- Sources and Uses of Funds 1 Forecasting Assumptions 2 Income Statement 3 Cash Flow Statement 4 Balance Sheet 5 Balance Sheet - Adjustments 6 Coverage Ratios and Financial Analysis 7 Return Analysis at 8.00x EBITDA 8 Return Analysis at 9.00x EBITDA 9 Return Analysis at 9.0x EBITDA 10
98 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING ASSUMING $183.041 MILLION ($18.00 PER SHARE) PURCHASE PRICE FOR 100.0% OF THE EQUITY (DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------- SOURCES & USES OF FUNDS - --------------------------------------------------------------------------------
SOURCES OF ACQUISITION FUNDS: APPLICATIONS OF ACQUISITION FUNDS: Cash From Balance Sheet $0.0 0.0% Cash to Purchase 100.0% Revolving Facility 4,680.4 1.9% of Equity $183,041.4 Senior Term Loan 50,000.0 20.1% Paydown of Existing Debt 52,854.0 Subordinated Debt 100,000.0 40.2% Cash Fees and Expenses 12,916.0 Redeemable Preferred Stock 88,943.8 35.7% ---------- Common Stock 4,681.3 1.9% Management Investment 506.0 0.2% ---------- TOTAL SOURCES $248,811.4 TOTAL APPLICATIONS $248,811.4 ========== ========== - ---------------------------------------------------------------------------------------------------------------
Projected Years Ending December 31, ---------------------------------------------------------------------------- 1999 2000 2001 2002 2003 - ----------------------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT ITEMS: Net Sales $ 163,785.0 $ 176,888.0 $ 191,039.0 $ 202,501.4 $ 214,651.5 EBIT 21,393.8 24,409.2 27,644.1 30,147.4 32,807.0 % of Net Sales 13.06% 13.80% 14.47% 14.89% 15.28% Pretax Income 6,846.1 10,545.5 15,356.6 19,070.1 23,132.7 % of Net Sales 4.2% 6.0% 8.0% 9.4% 10.8% ---------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME $ (5,613.3) $ (4,320.1) $ (2,459.9) $ (1,345.1) $ (132.1) % OF NET SALES (3.43%) (2.44%) (1.29%) -0.66% -0.06% - ----------------------------------------------------------------------------------------------------------------------------------- CASH FLOW ITEMS: Cash Flow From Operations $ 976.1 $ 2,580.3 $ 4,885.2 $ 5,963.0 $ 7,287.7 Cash Flow From Investing (1,734.7) (2,238.0) (2,217.0) (2,270.8) (2,257.0) Cash Flow From Financing 5,794.4 4,683.8 3,662.2 2,738.4 1,922.3 ---------------------------------------------------------------------------- Cash Flow (Deficit) Available to Decrease (Increase) Revolver or Increase Cash $ 5,035.8 $ 5,026.2 $ 6,330.4 $ 6,430.7 $ 6,953.0 ============================================================================
Pro Forma BALANCE SHEET ITEMS: 1998 ---- Cash and Equivalents $ 13,000.0 $ 15,648.8 $ 18,381.5 $ 24,711.9 $ 31,142.5 $ 38,095.5 Revolving Facility 4,680.4 2,293.4 0.0 0.0 0.0 0.0 Senior Term Loan 50,000.0 46,900.0 41,800.0 34,700.0 25,600.0 14,500.0 Subordinated Debt 100,000.0 100,000.0 100,000.0 100,000.0 100,000.0 100,000.0 Preferred Stock 88,943.8 97,838.1 107,621.9 118,384.1 130,222.5 143,244.8 ------------------------------------------------------------------------------------------ Total Debt and Preferred Stock 243,624.2 247,031.5 249,421.9 253,084.1 255,822.5 257,744.8 Total Stockholders' Equity (153,285.2) (158,898.4) (163,218.5) (165,678.4) (167,023.5) (167,155.6) ------------------------------------------------------------------------------------------ Total Invested Capital $ 90,339.0 $ 88,133.1 $ 86,203.4 $ 87,405.7 $ 88,799.0 $ 90,589.2 ==========================================================================================
99 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS) FORECASTING ASSUMPTIONS
Proj. Projected Years Ending December 31, ------------------------------------------------------------ INCOME STATEMENT 1998 1999 2000 2001 2002 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Revenue Growth Subscriber Premiums 4.95% 8.83% 8.00% 8.00% 6.00% 6.00% Dental Health Management NM NM NM NM NM NM Other Revenue -100.00% NM NM NM NM NM --------------------------------------------------------------------- Total Revenue Growth -5.19% 8.83% 8.00% 8.00% 6.00% 6.00% Provider Fees and Claim Costs as a % of Subscriber Premiums 53.00% 53.00% 53.00% 53.00% 53.00% 53.00% Commissions as a % of Subscriber Premiums 8.96% 9.40% 9.50% 9.60% 9.70% 9.80% Premium Taxes as a % of Subscriber Premiums 0.78% 0.78% 0.78% 0.78% 0.78% 0.78% Benefits Co. G&A Expense as a % of Subscriber Premiums 21.00% 20.07% 19.32% 18.61% 18.26% 17.91% DHMI G&A Expense as a % of DHMI Revenues NA 0.00% 0.00% 0.00% 0.00% 0.00% EBITDA Margin 16.27% 16.76% 17.40% 18.02% 18.27% 18.51% Depreciation $ 3,283.0 $1,623.0 $1,942.0 $1,799.0 $1,939.2 $1,829.4 Depreciation as a % of Net Sales 2.18% 0.99% 1.10% 0.94% 0.96% 0.85% Existing Amortization $ 1,849.0 $1,849.0 $1,849.0 $1,849.0 $1,849.0 $1,849.0 Existing Amortization as a % of Net Sales 1.23% 1.13% 1.05% 0.97% 0.91% 0.86% EBIT Margin 12.9% 13.1% 13.8% 14.5% 14.9% 15.3% Interest Expense: Revolving Facility NM 8.25% 8.25% 8.25% 8.25% 8.25% Senior Term Loan NM 8.45% 8.45% 8.45% 8.45% 8.45% Subordinated Debt NM 11.00% 11.00% 11.00% 11.00% 11.00% Interest Income as % of Average Cash Balance NM 5.00% 5.00% 5.00% 5.00% 5.00% Other Non-Operating Exp (Inc) as a % of Net Sales 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Income Taxes as a % of Pretax 37.64% 41.00% 41.00% 41.00% 41.00% 41.00% Total Capital Expenditures $ 1,500.0 $2,000.0 $2,500.0 $2,500.0 $2,500.0 $2,500.0 % Net Sales 1.00% 1.22% 1.41% 1.31% 1.23% 1.16% Acquisition Expenditures (At Beginning of Year) $13,832.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Less Fair Value of Assets Acquired 0.0 0.0 0.0 0.0 0.0 0.0 Plus Liabilities Assumed 0.0 0.0 0.0 0.0 0.0 0.0 ---------------------------------------------------------------------- Additional Goodwill $13,832.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Actual Projected Years Ending December 31, ----------------------------------------------------------------- BALANCE SHEET 1998 1999 2000 2001 2002 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Premiums Receivable as a % of Revenues 3.73% 3.73% 3.73% 3.73% 3.73% 3.73% Days in Receivables 13.6 13.6 13.6 13.6 13.6 13.6 Other Current Assets as a % of Revenues 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% Restricted Funds as a % of Subscriber Premiums 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% Other Assets as a % of Subscriber Premiums 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% Transaction Costs, Net $ 12,916.0 $ 10,332.8 $ 7,749.6 $ 5,166.4 $ 2,583.2 $ 0.0 Goodwill, Net 0.0 0.0 0.0 0.0 0.0 0.0 Accts Payable as a % of Revenues 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% Days in Payables 29.2 29.2 29.2 29.2 29.2 29.2 Unearned Revenue as a % of Net Sales 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% Accrued Interest Payable as a % of Net Sales 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% Dental Claims Reserves as a % of Net Sales 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Other Current Liabilities as % Net Sales 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% - ------------------------------------------------------------------------------------------------------------------------------------ DEBT AS A PERCENTAGE OF ORIGINAL BALANCE: REVOLVING FACILITY 100.00% 49.00% 0.00% 0.00% 0.00% 0.00% SENIOR TERM LOAN 100.00% 93.80% 83.60% 69.40% 51.20% 29.00% SUBORDINATED DEBT 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% REDEEMABLE PREFERRED STOCK 100.00% 110.00% 121.00% 133.10% 146.41% 161.05% - ------------------------------------------------------------------------------------------------------------------------------------
100 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS)
Projected Years Ending December 31, Actual Proj. -------------------------------------------------------------- INCOME STATEMENT 1997 1998 1999 2000 2001 2002 2003 - ---------------------------------------------------------------------------------------------------------------------------------- Net Sales Subscriber Premiums $143,396.0 $150,496.0 $163,785.0 $176,888.0 $191,039.0 $202,501.4 $214,651.5 Dental Health Management 7,113.0 0.0 0.0 0.0 0.0 0.0 0.0 Other Revenue 8,217.0 0.0 0.0 0.0 0.0 0.0 0.0 -------------------------------------------------------------------------------------- TOTAL NET SALES 158,726.0 150,496.0 163,785.0 176,888.0 191,039.0 202,501.4 214,651.5 Expenses Provider Fees and Claim Costs 79,690.0 79,761.0 86,806.1 93,750.6 101,250.7 107,325.7 113,765.3 Commissions 13,272.0 13,479.0 15,396.0 16,804.0 18,340.0 19,643.0 21,036.0 Premium Taxes 1,047.0 1,167.0 1,270.0 1,372.0 1,481.0 1,570.0 1,665.0 Benefits Co. G&A Expense 36,918.0 31,600.0 32,864.0 34,178.0 35,545.0 36,967.0 38,446.0 DHMI G&A Expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -------------------------------------------------------------------------------------- Total Expenses 130,927.0 126,007.0 136,336.1 146,104.6 156,616.7 165,505.7 174,912.3 EBITDA 27,799.0 24,489.0 27,449.0 30,783.4 34,422.3 36,995.6 39,739.2 Depreciation 5,735.0 3,283.0 1,623.0 1,942.0 2,346.0 2,416.0 2,500.0 Existing Amortization 0.0 1,849.0 1,849.0 1,849.0 1,849.0 1,849.0 1,849.0 Acquisition-Related Amortization (30 Years) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Goodwill Amortization (40 Years) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Amortization of Transaction Costs (5 Years) 0.0 0.0 2,583.2 2,583.2 2,583.2 2,583.2 2,583.2 -------------------------------------------------------------------------------------- EBIT 22,064.0 19,357.0 21,393.8 24,409.2 27,644.1 30,147.4 32,807.0 Interest Expense: Revolving Facility 0.0 0.0 287.7 94.6 0.0 0.0 0.0 Senior Term Loan 0.0 0.0 4,094.0 3,747.6 3,232.1 2,547.7 1,694.2 Subordinated Debt 0.0 0.0 11,000.0 11,000.0 11,000.0 11,000.0 11,000.0 Other Interest Expense/(Income) 2,514.0 3,384.0 (834.1) (978.5) (1,944.5) (2,470.4) (3,019.9) -------------------------------------------------------------------------------------- Net Cash Interest Expense 2,514.0 3,384.0 14,547.6 13,863.7 12,287.6 11,077.3 9,674.3 Other Non-Operating Expense (Inc.) 2.0 0.0 0.0 0.0 0.0 0.0 0.0 -------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 19,548.0 15,973.0 6,846.1 10,545.5 15,356.6 19,070.1 23,132.7 Income Taxes 8,466.0 6,709.0 3,565.0 5,081.7 7,054.3 8,576.8 10,242.5 Extraordinary Loss 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Preferred Dividend - 10% PIK 0.0 0.0 8,894.4 9,783.8 10,762.2 11,838.4 13,022.3 -------------------------------------------------------------------------------------- NET INCOME AVAIL. TO COMMON $ 11,082.0 $ 9,264.0 $ (5,613.3) $ (4,320.1) $ (2,459.9) $ (1,345.1) $ (132.1) ================================================================================================================================== INCOME RATIOS & ANALYSIS: EBITDA as a % of Net Sales 17.51% 16.27% 16.76 % 17.40 % 18.02 % 18.27 % 18.51 % EBIT as a % of Net Sales 13.90% 12.86% 13.06 % 13.80 % 14.47 % 14.89 % 15.28 % Pretax Profit as a % of Net Sales 12.32% 10.61% 4.18 % 5.96 % 8.04 % 9.42 % 10.78 % Net Income as a % of Net Sales 6.98% 6.16% (3.43)% (2.44)% (1.29)% (0.66)% (0.06)%
101 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS)
Projected Years Ending December 31, -------------------------------------------------------------- CASH FLOW STATEMENT 1999 2000 2001 2002 2003 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATIONS Net Income Available to Common $(5,613.3) $(4,320.1) $(2,459.9) $(1,345.1) $ (132.1) Adjustments to Reconcile Net Income to Net Cash Provided by (Used for) Operating Activities: Depreciation and Exisitng Amortization 3,472.0 3,791.0 4,195.0 4,265.0 4,349.0 Acquisition-Related Amortization (30 Year Amortization) 0.0 0.0 0.0 0.0 0.0 Transaction Costs (5 Year Amortization) 2,583.2 2,583.2 2,583.2 2,583.2 2,583.2 Goodwill (40 Year Amortization) 0.0 0.0 0.0 0.0 0.0 -------------------------------------------------------------- RECONCILIATION SUB TOTAL 6,055.2 6,374.2 6,778.2 6,848.2 6,932.2 Change in Current Assets Except Cash (1,159.9) (1,143.2) (1,236.0) (1,000.4) (1,060.4) Change in Current Liabilities Except Debt 2,066.4 2,037.5 2,200.5 1,782.4 1,889.3 -------------------------------------------------------------- NET SOURCE (USE) OF CASH PROVIDED BY WORKING CAPITAL 906.5 894.3 964.5 782.0 829.0 -------------------------------------------------------------- Change in Deferred Tax Asset 0.0 0.0 0.0 0.0 0.0 Change in Other Assets (597.0) (589.6) (636.8) (515.8) (546.7) Change in Other Liabilities 224.6 221.5 239.2 193.8 205.4 -------------------------------------------------------------- NET CASH PROVIDED BY (USED FOR) OPERATIONS 976.1 2,580.3 4,885.2 5,963.0 7,287.7 ============================================================== CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of Property and Equipment (2,000.0) (2,500.0) (2,500.0) (2,500.0) (2,500.0) Acquisition of Businesses, Net of Cash Acquired 0.0 0.0 0.0 0.0 0.0 Change in Restricted Funds (199.8) (196.5) (212.3) (171.9) (182.3) Change in Aggregate Reserves for Life Policies and Contracts 465.1 458.6 495.3 401.2 425.2 -------------------------------------------------------------- NET CASH PROVIDED BY (USED FOR) INVESTMENTS (1,734.7) (2,238.0) (2,217.0) (2,270.8) (2,257.0) ============================================================== CASH FLOWS FROM FINANCING ACTIVITIES: Net Borrowings (Repayments) Under Senior Debt (3,100.0) (5,100.0) (7,100.0) (9,100.0) (11,100.0) Net Borrowings (Repayments) Under Subordinated Debt 0.0 0.0 0.0 0.0 0.0 Paydown of Assumed Liabilities 0.0 0.0 0.0 0.0 0.0 Payments of Dividends on Preferred Stock 8,894.4 9,783.8 10,762.2 11,838.4 13,022.3 -------------------------------------------------------------- NET CASH PROVIDED BY (USED FOR) FINANCING $ 5,794.4 $ 4,683.8 $ 3,662.2 $ 2,738.4 $ 1,922.3 ============================================================== AFFECT ON SENIOR REVOLVING FACILITY: Cash From Balance Sheet (previous year) $13,000.0 $15,648.8 $18,381.5 $24,711.9 $31,142.5 Minimum Cash Balance 15,648.8 16,740.7 17,919.9 18,875.1 19,887.6 -------------------------------------------------------------- Cash Available (Required) From Balance Sheet (2,648.8) (1,091.9) 461.6 5,836.7 11,254.9 Cash Flow (Deficit) Available to (Increase) Decrease Revolver 5,035.8 5,026.2 6,330.4 6,430.7 6,953.0 Total Cash Available (Required) 2,387.0 3,934.2 6,791.9 12,267.4 18,207.9 Beginning Balance of Senior Revolving Facility 4,680.4 2,293.4 0.0 0.0 0.0 Cash Used to Decrease (Increase) Senior Revolving Facility 2,387.0 2,293.4 0.0 0.0 0.0 -------------------------------------------------------------- Ending Balance of Senior Revolving Facility $ 2,293.4 $ 0.0 $ 0.0 $ 0.0 $ 0.0 ==============================================================
102 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS)
Projected Years Ending December 31, Pro Forma ---------------------------------------------------------------- BALANCE SHEET 1998 1999 2000 2001 2002 2003 - ---------------------------------------------------------------------------------------------------------------------------------- Cash and Equivalents $ 13,000.0 $ 15,648.8 $ 18,381.5 $ 24,711.9 $ 31,142.5 $ 38,095.5 Receivable, Net 5,613.0 6,108.6 6,597.3 7,125.1 7,552.6 8,005.8 Income Tax Receivable 226.0 246.0 265.0 287.0 304.0 322.0 Deferred Tax Asset 5,042.0 5,487.0 5,926.0 6,400.0 6,784.0 7,191.0 Other Current Assets 2,257.0 2,456.3 2,652.8 2,865.0 3,036.9 3,219.1 ------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 26,138.0 29,946.7 33,822.6 41,389.0 48,820.1 56,833.4 Restricted Funds 2,257.0 2,456.8 2,653.3 2,865.6 3,037.5 3,219.8 Fixed Assets 2,696.0 4,696.0 7,196.0 9,696.0 12,196.0 14,696.0 Less: Accumulated Depreciation 0.0 1,623.0 3,565.0 5,911.0 8,327.0 10,827.0 ------------------------------------------------------------------------------ NET FIXED ASSETS 2,696.0 3,073.0 3,631.0 3,785.0 3,869.0 3,869.0 Transaction Costs (5 Year Amortization) 12,916.0 10,332.8 7,749.6 5,166.4 2,583.2 0.0 New Goodwill (40 Year Amortization) 0.0 0.0 0.0 0.0 0.0 0.0 Existing Goodwill (40 Year Amortization) 70,772.0 68,923.0 67,074.0 65,225.0 63,376.0 61,527.0 Acquisition Goodwill (30 Year Amortization) 0.0 0.0 0.0 0.0 0.0 0.0 Deferred Tax Asset 0.0 0.0 0.0 0.0 0.0 0.0 Other Assets 6,773.0 7,370.0 7,959.6 8,596.4 9,112.2 9,658.9 ------------------------------------------------------------------------------ TOTAL ASSETS $ 121,552.0 $ 122,102.3 $ 122,890.2 $ 127,027.4 $ 130,798.0 $ 135,108.1 ============================================================================== Accounts Payable and Accrued Expenses $ 12,040.0 $ 13,103.1 $ 14,151.4 $ 15,283.5 $ 16,200.5 $ 17,172.6 Unearned Revenue 9,030.0 9,827.4 10,613.6 11,462.6 12,150.4 12,879.4 Accrued Interest Payable 75.0 81.6 88.2 95.2 100.9 107.0 Dental Claims Reserves 1,505.0 1,637.9 1,768.9 1,910.4 2,025.1 2,146.6 Other Current Liabilities 752.0 818.4 883.9 954.6 1,011.9 1,072.6 ------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 23,402.0 25,468.4 27,505.9 29,706.4 31,488.8 33,378.1 Aggregate Reserves for Life Policies and Contracts 5,267.0 5,732.1 6,190.7 6,685.9 7,087.1 7,512.3 Long-Term Debt: Revolving Facility 4,680.4 2,293.4 0.0 0.0 0.0 0.0 Senior Term Loan 50,000.0 46,900.0 41,800.0 34,700.0 25,600.0 14,500.0 Subordinated Debt 100,000.0 100,000.0 100,000.0 100,000.0 100,000.0 100,000.0 Redeemable Preferred Stock 88,943.8 97,838.1 107,621.9 118,384.1 130,222.5 143,244.8 ------------------------------------------------------------------------------ Total Long-Term Debt and Preferred Stock 243,624.2 247,031.5 249,421.9 253,084.1 255,822.5 257,744.8 Other Long-Term Liabilities 2,544.0 2,768.6 2,990.1 3,229.3 3,423.1 3,628.5 Stockholders' Equity: Common Stock and Paid In Capital (103,731.2) (103,731.2) (103,731.2) (103,731.2) (103,731.2) (103,731.2) Retained Earnings (49,554.0) (55,167.3) (59,487.3) (61,947.2) (63,292.4) (63,424.4) ------------------------------------------------------------------------------ Total Stockholders' Equity (153,285.2) (158,898.4) (163,218.5) (165,678.4) (167,023.5) (167,155.6) ------------------------------------------------------------------------------ TOTAL LIABILITIES & EQUITY $ 121,552.0 $ 122,102.3 $ 122,890.2 $ 127,027.4 $ 130,798.0 $ 135,108.1 ==============================================================================
103 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS)
Proj. Goodwill Acquisition Pro Forma Valuation Pro Forma BALANCE SHEET ADJUSTMENTS 1998 Write-Down Adjustments Acquisition Adjustments Close - ---------------------------------------------------------------------------------------------------------------------------------- Cash and Equivalents $ 13,000.0 $ 13,000.0 $ 13,000.0 Receivable, Net 5,613.0 5,613.0 5,613.0 Income Tax Receivable 226.0 226.0 226.0 Deferred Tax Asset 5,042.0 5,042.0 5,042.0 Other Current Assets 2,257.0 2,257.0 2,257.0 ----------------------------------------------------------------------------- TOTAL CURRENT ASSETS 26,138.0 0.0 0.0 26,138.0 0.0 26,138.0 Restricted Funds 2,257.0 2,257.0 2,257.0 Fixed Assets 2,696.0 2,696.0 2,696.0 Less: Accumulated Depreciation 0.0 0.0 ----------------------------------------------------------------------------- NET FIXED ASSETS 2,696.0 0.0 0.0 2,696.0 0.0 2,696.0 Transaction Costs (5 Year Amortization) 0.0 12,916.0 12,916.0 12,916.0 New Goodwill (40 Year Amortization) 0.0 0.0 0.0 Existing Goodwill (40 Year Amortization) 70,772.0 70,772.0 70,772.0 Deferred Tax Asset 0.0 0.0 0.0 Other Assets 6,773.0 6,773.0 6,773.0 ----------------------------------------------------------------------------- TOTAL ASSETS $108,636.0 $0.0 $ 12,916.0 $ 121,552.0 $0.0 $121,552.0 ============================================================================= Current Maturities of Long-Term Debt $0.0 $ 0.0 $ 0.0 Line of Credit 0.0 0.0 0.0 Accounts Payable and Accrued Expenses 12,040.0 12,040.0 12,040.0 Unearned Revenue 9,030.0 9,030.0 9,030.0 Accrued Interest Payable 75.0 75.0 75.0 Dental Claims Reserves 1,505.0 1,505.0 1,505.0 Other Current Liabilities 752.0 752.0 752.0 ----------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 23,402.0 0.0 0.0 23,402.0 0.0 23,402.0 Aggregate Reserves for Life Policies and Contracts 5,267.0 5,267.0 5,267.0 Long-Term Debt: Existing Capital Leases and Notes Payable 52,854.0 (52,854.0) 0.0 0.0 Revolving Facility 0.0 4,680.4 4,680.4 4,680.4 Senior Term Loan 0.0 50,000.0 50,000.0 50,000.0 Subordinated Debt 0.0 100,000.0 100,000.0 100,000.0 Redeemable Preferred Stock 0.0 88,943.8 88,943.8 88,943.8 ----------------------------------------------------------------------------- Total Long-Term Debt and Preferred Stock 52,854.0 0.0 190,770.2 243,624.2 0.0 243,624.2 Other Long-Term Liabilities 2,544.0 2,544.0 2,544.0 Stockholders' Equity: Common Stock and Paid In Capital 74,123.0 (177,854.2) (103,731.2) (103,731.2) Retained Earnings (49,554.0) (49,554.0) (49,554.0) ----------------------------------------------------------------------------- Total Stockholders' Equity 24,569.0 0.0 (177,854.2) (153,285.2) 0.0 (153,285.2) ----------------------------------------------------------------------------- TOTAL LIABILITIES & EQUITY $108,636.0 $0.0 $ 12,916.0 $ 121,552.0 $0.0 $121,552.0 =============================================================================
104 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS)
Projected Years Ending December 31, ----------------------------------------------------------------------- COVERAGE RATIOS & FINANCIAL ANALYSIS 1999 2000 2001 2002 2003 - ---------------------------------------------------------------------------------------------------------------------------------- COVERAGE RATIOS: SUBORDINATED INTEREST COVERAGE Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) $ 27,449.0 $ 30,783.4 $ 34,422.3 $ 36,995.6 $ 39,739.2 Subordinated Interest $ 11,000.0 $ 11,000.0 $ 11,000.0 $ 11,000.0 $ 11,000.0 Subordinated Interest Coverage 2.50 2.80 3.13 3.36 3.61 ADJUSTED SUBORDINATED INTEREST COVERAGE EBITDA less Capital Expenditures $ 25,449.0 $ 28,283.4 $ 31,922.3 $ 34,495.6 $ 37,239.2 Subordinated Interest $ 11,000.0 $ 11,000.0 $ 11,000.0 $ 11,000.0 $ 11,000.0 Adjusted Subordinated Interest Coverage 2.31 2.57 2.90 3.14 3.39 TOTAL INTEREST COVERAGE Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) $ 27,449.0 $ 30,783.4 $ 34,422.3 $ 36,995.6 $ 39,739.2 Total Net Interest $ 14,547.6 $ 13,863.7 $ 12,287.6 $ 11,077.3 $ 9,674.3 Total Interest Coverage 1.89 2.22 2.80 3.34 4.11 TOTAL FINANCING COVERAGE Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) $ 27,449.0 $ 30,783.4 $ 34,422.3 $ 36,995.6 $ 39,739.2 Total Net Interest + Principal Repayment 17,647.6 18,963.7 19,387.6 20,177.3 20,774.3 Total Interest Coverage 1.56 1.62 1.78 1.83 1.91 TOTAL FIXED COVERAGE Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) $ 27,449.0 $ 30,783.4 $ 34,422.3 $ 36,995.6 $ 39,739.2 Total Net Interest + Principal Repayment + Cap. Ex $ 19,647.6 $ 21,463.7 $ 21,887.6 $ 22,677.3 $ 23,274.3 Total Fixed Coverage 1.40 1.43 1.57 1.63 1.71 MAINTENANCE OF FUNDED DEBT Total Debt / EBITDA 9.00 8.10 7.35 6.91 6.49 Total Debt / EBITDA less Capital Expenditures 9.71 8.82 7.93 7.42 6.92 Total Senior Debt / EBITDA 1.79 1.36 1.01 0.69 0.36 FINANCIAL ANALYSIS: INCOME STATEMENT: EBIT Margin 13.06 % 13.80 % 14.47 % 14.89 % 15.28 % Pretax Margin 4.18 % 5.96 % 8.04 % 9.42 % 10.78 % Net Margin (3.43)% (2.44)% (1.29)% (0.66)% (0.06)% Asset Turnover 1.34 1.44 1.50 1.55 1.59 Return on Average Assets (4.61)% (3.53)% (1.97)% (1.04)% (0.10)% Return on Average Equity 3.60 % 2.68 % 1.50 % 0.81 % 0.08 % BALANCE SHEET: Total Debt $ 247,031.5 $ 249,421.9 $ 253,084.1 $ 255,822.5 $ 257,744.8 Total Stockholders' Equity (158,898.4) (163,218.5) (165,678.4) (167,023.5) (167,155.6) Total Capitalization 88,133.1 86,203.4 87,405.7 88,799.0 90,589.2 Tangible Equity (227,821.4) (230,292.5) (230,903.4) (230,399.5) (228,682.6) Total Debt / Total Capitalization 280.29 % 289.34 % 289.55 % 288.09 % 284.52 % Total Debt / Total Stockholders' Equity -155.47 % -152.81 % -152.76 % -153.17 % -154.19 % Current Ratio (x) 1.18 1.23 1.39 1.55 1.70 Accounts Receivable Turns (x) 26.81 26.81 26.81 26.81 26.81 Accounts Receivable Days Outstanding 13.61 13.61 13.61 13.61 13.61 Accounts Payable Days Outstanding 29.20 29.20 29.20 29.20 29.20
105 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS) RETURN ANALYSIS--TERMINAL VALUE BASED ON AN EBITDA MULTIPLE OF 7.00X.
% of Current CAPITAL STRUCTURE Cap'n Return ----- ------- Revolving Facility $ 4,680.4 1.9% 8.25% Senior Term Loan 50,000.0 20.1% 8.45% Weighted Subordinated Debt 100,000.0 40.2% 11.00% Average Preferred Stock 88,943.8 35.7% 0.00% Initial Investor Common 4,681.3 1.9% 60.43% Cost of Management Common 506.0 0.2% 76.95% Capital - ------------------------------------------------------------------------------- TOTAL NEW CAPITAL $248,811.4 100.0% 7.57% - ------------------------------------------------------------------------------- PURCHASE MULTIPLE ANALYSIS ------------------------------------------ Firm Value Purchase Price Analysis: Year EBITDA Multiple ------------------------------------------ PRO FORMA EQUITY $183,041.4 1998A $24,489.0 9.01 x + Pro Forma Debt 52,854.0 1999E 27,449.0 8.12 x - - Pro Forma Cash (13,000.0) 2000E 30,783.4 7.24 x ---------- ------------------------------------------ FIRM VALUE PAID $222,895.4 TERMINAL VALUE CALCULATION AT END OF: --------------------------------------------------------------------- Firm Value Multiple: 7.00 x 1999 2000 2001 2002 2003 --------------------------------------------------------------------- EBITDA $ 27,449.0 $ 30,783.4 $ 34,422.3 $ 36,995.6 $ 39,739.2 Firm Value at a 7.00 Multiple = 192,142.7 215,483.5 240,956.4 258,969.5 278,174.3 - Total Debt and Preferred Stock 247,031.5 249,421.9 253,084.1 255,822.5 257,744.8 + Excess Cash 15,648.8 18,381.5 24,711.9 31,142.5 38,095.5 -------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------ VALUE OF COMMON EQUITY $(39,240.1) $(15,556.9) $ 12,584.2 $ 34,289.5 $ 58,525.0 MULTIPLE OF NET INCOME NM NM NM NM NM ------------------------------------------------------------------------------------------------------------
FIVE YEAR RETURNS - ----------------------------------------------------------------------------------------------------------------------------------- 1998 1999 2000 2001 2002 2003 IRR Equity % Cash Out Cash In Cash In Cash In Cash In Cash In % ----------------------------------------------------------------------------------- --- Revolving Facility Principal $ (4,680.4) $ 2,387.0 $ 2,293.4 $ 0.0 $ 0.0 $ 0.0 Interest 287.7 94.6 0.0 0.0 0.0 Equity Ownership 0.000% 0.0 ------------------------------------------------------------------------------------ TOTAL $ (4,680.4) $ 2,674.7 $ 2,388.0 $ 0.0 $ 0.0 $ 0.0 8.250% Senior Term Loan Principal $ (50,000.0) $ 3,100.0 $ 5,100.0 $ 7,100.0 $ 9,100.0 $ 25,600.0 Interest 4,094.0 3,747.6 3,232.1 2,547.7 1,694.2 Equity Ownership 0.000% 0.0 ------------------------------------------------------------------------------------ TOTAL $ (50,000.0) $ 7,194.0 $ 8,847.6 $10,332.1 $11,647.7 $ 27,294.2 8.450% Subordinated Debt Principal $(100,000.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $100,000.0 Interest 11,000.0 11,000.0 11,000.0 11,000.0 11,000.0 Equity Ownership 0.000% 0.0 ------------------------------------------------------------------------------------ TOTAL $(100,000.0) $11,000.0 $11,000.0 $11,000.0 $11,000.0 $111,000.0 11.000% Preferred Stock Principal $ (88,943.8) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $143,244.8 Interest 0.0 0.0 0.0 0.0 0.0 Equity Ownership 0.000% 0.0 ------------------------------------------------------------------------------------ TOTAL $ (88,943.8) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $143,244.8 10.000% Investor Common Equity 85.000% $ (4,681.3) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 49,746.3 60.428% Combined Preferred and Common 85.000% $ (93,625.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $192,991.1 15.566% Management Common Equity 15.000% $ (506.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 8,778.8 76.952% -------
106 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS) RETURN ANALYSIS--TERMINAL VALUE BASED ON AN EBITDA MULTIPLE OF 8.00X.
% of Current CAPITAL STRUCTURE Cap'n Return ----- ------ Revolving Facility $ 4,680.4 1.9% 8.25% Senior Term Loan 50,000.0 20.1% 8.45% Weighted Subordinated Debt 100,000.0 40.2% 11.00% Average Preferred Stock 88,943.8 35.7% 0.00% Initial Investor Common 4,681.3 1.9% 77.95% Cost of Management Common 506.0 0.2% 96.28% Capital - ---------------------------------------------------------------------------- TOTAL NEW CAPITAL $248,811.4 100.0% 7.94% - ----------------------------------------------------------------------------
PURCHASE MULTIPLE ANALYSIS
Firm Value Purchase Price Analysis: Year EBITDA Multiple --------------------------------------------- PRO FORMA EQUITY $183,041.4 1998A $24,489.0 9.63 X + Pro Forma Debt 52,854.0 1999E 27,449.0 8.59 X - - Pro Forma Cash 0.0 2000E 30,783.4 7.66 X ---------- FIRM VALUE PAID $235,895.4
TERMINAL VALUE CALCULATION
AT END OF: ------------------------------------------------------------------------ Firm Value Multiple: 8.x0 1999 2000 2001 2002 2003 ------------------------------------------------------------------------ EBITDA $ 27,449.0 $ 30,783.4 $ 34,422.3 $ 36,995.6 $ 39,739.2 Firm Value at a 8.00 Multiple = 219,591.6 246,266.9 275,378.8 295,965.2 317,913.5 - Total Debt and Preferred Stock 247,031.5 249,421.9 253,084.1 255,822.5 257,744.8 + Excess Cash 15,648.8 18,381.5 24,711.9 31,142.5 38,095.5 ------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ VALUE OF COMMON EQUIT $(11,791.2) $15,226.4 $47,006.5 $71,285.2 $98,264.2 MULTIPLE OF NET INCOM NM NM NM NM NM ------------------------------------------------------------------------------------------------------------
FIVE YEAR RETURNS - ----------------------------------------------------------------------------------------------------------------------------------- 1998 1999 2000 2001 2002 2003 IRR Equity % Cash Out Cash In Cash In Cash In Cash In Cash In % ---------------------------------------------------------------------------------------------- Revolving Facility Principal $ (4,680.4) $ 2,387.0 $ 2,293.4 $ 0.0 $ 0.0 $ 0.0 Interest 287.7 94.6 0.0 0.0 0.0 Equity Ownership 0.000% 0.0 ---------------------------------------------------------------------------------------------- TOTAL $ (4,680.4) $ 2,674.7 $ 2,388.0 $ 0.0 $ 0.0 $ 0.0 8.250% Senior Term Loan Principal $ (50,000.0) $ 3,100.0 $ 5,100.0 $ 7,100.0 $ 9,100.0 $ 25,600.0 Interest 4,094.0 3,747.6 3,232.1 2,547.7 1,694.2 Equity Ownership 0.000% 0.0 ---------------------------------------------------------------------------------------------- TOTAL $ (50,000.0) $ 7,194.0 $ 8,847.6 $10,332.1 $11,647.7 $ 27,294.2 8.450% Subordinated Debt Principal $(100,000.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $100,000.0 Interest 11,000.0 11,000.0 11,000.0 11,000.0 11,000.0 Equity Ownership 0.000% 0.0 ---------------------------------------------------------------------------------------------- TOTAL $(100,000.0) $11,000.0 $11,000.0 $11,000.0 $11,000.0 $111,000.0 11.000% Preferred Stock Principal $ (88,943.8) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $143,244.8 Interest 0.0 0.0 0.0 0.0 0.0 Equity Ownership 0.000% 0.0 ---------------------------------------------------------------------------------------------- TOTAL $ (88,943.8) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $143,244.8 10.000% Investor Common Equity 85.000% $ (4,681.3) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 83,524.6 77.947% Combined Preferred and 85.000% $ (93,625.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $226,769.4 19.354% Common Management Common Equity 15.000% $ (506.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 14,739.6 96.276%
107 PROJECT GOLDCAP GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING (DOLLARS IN THOUSANDS) RETURN ANALYSIS--TERMINAL VALUE BASED ON AN EBITDA MULTIPLE OF 9.00X.
% of Current CAPITAL STRUCTURE Cap'n Return ----- ------ Revolving Facility $ 4,680.4 1.9% 8.25% Senior Term Loan 50,000.0 20.1% 8.45% Weighted Subordinated Debt 100,000.0 40.2% 11.00% Average Preferred Stock 88,943.8 35.7% 0.00% Initial Investor Common 4,681.3 1.9% 90.45% Cost of Management Common 506.0 0.2% 110.07% Capital - ------------------------------------------------------------------------------------------------------------------------------- TOTAL NEW CAPITAL $248,811.4 100.0% 8.20% - -------------------------------------------------------------------------------------------------------------------------------
PURCHASE MULTIPLE ANALYSIS --------------------------------------- Firm Value Purchase Price Analysis: Year EBITDA Multiple --------------------------------------- PRO FORMA EQUITY $183,041.4 1998A $24,489.0 9.x3 + Pro Forma Debt 52,854.0 1999E 27,449.0 8.x9 - - Pro Forma Cash 0.0 2000E 30,783.4 7.x6 ---------- --------------------------------------- FIRM VALUE PAID $235,895.4
TERMINAL VALUE CALCULATION
AT END OF: ---------------------------------------------------------------------- Firm Value Multiple: 9.00 x 1999 2000 2001 2002 2003 ---------------------------------------------------------------------- EBITDA $ 27,449.0 $ 30,783.4 $ 34,422.3 $ 36,995.6 $ 39,739.2 Firm Value at a 9.00 Multiple = 247,040.6 277,050.2 309,801.1 332,960.8 357,652.7 - Total Debt and Preferred Stock 247,031.5 249,421.9 253,084.1 255,822.5 257,744.8 + Excess Cash 15,648.8 18,381.5 24,711.9 31,142.5 38,095.5 ---------------------------------------------------------------------- ---------------------------------------------------------------------- VALUE OF COMMON EQUITY $ 15,657.8 $ 46,009.8 $ 81,428.9 $108,280.8 $138,003.4 MULTIPLE OF NET INCOME NM NM NM NM NM ---------------------------------------------------------------------- FIVE YEAR RETURNS - ----------------------------------------------------------------------------------------------------------------------------------- 1998 1999 2000 2001 2002 2003 IRR Equity % Cash Out Cash In Cash In Cash In Cash In Cash In % ------------------------------------------------------------------------------------------------ Revolving Facility - ------------------ Principal $ (4,680.4) $ 2,387.0 $ 2,293.4 $ 0.0 $ 0.0 $ 0.0 Interest 287.7 94.6 0.0 0.0 0.0 Equity Ownership 0.000% 0.0 ------------------------------------------------------------------------------------------------ TOTAL $ (4,680.4) $ 2,674.7 $ 2,388.0 $ 0.0 $ 0.0 $ 0.0 8.250% Senior Term Loan - ---------------- Principal $ (50,000.0) $ 3,100.0 $ 5,100.0 $ 7,100.0 $ 9,100.0 $ 25,600.0 Interest 4,094.0 3,747.6 3,232.1 2,547.7 1,694.2 Equity Ownership 0.000% 0.0 ------------------------------------------------------------------------------------------------ TOTAL $ (50,000.0) $ 7,194.0 $ 8,847.6 $ 10,332.1 $ 11,647.7 $ 27,294.2 8.450% Subordinated Debt - ----------------- Principal $ (100,000.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 100,000.0 Interest 11,000.0 11,000.0 11,000.0 11,000.0 11,000.0 Equity Ownership 0.000% 0.0 ------------------------------------------------------------------------------------------------ TOTAL $ (100,000.0) $ 11,000.0 $ 11,000.0 $ 11,000.0 $ 11,000.0 $ 111,000.0 11.000% Preferred Stock - --------------- Principal $ (88,943.8) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 143,244.8 Interest 0.0 0.0 0.0 0.0 0.0 Equity Ownership 0.000% 0.0 ------------------------------------------------------------------------------------------------ TOTAL $ (88,943.8) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 143,244.8 10.000% Outside Investor 85.000% $ (4,681.3) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 117,302.9 90.454% Common Equity Combined Preferred 85.000% $ (93,625.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 260,547.7 22.715% and Common Management 15.000% $ (506.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 20,700.5 110.071% Common Equity
EX-99.(D)(3) 6 PRELIMINARY PROXY STATEMENT 1 SCHEDULE 14A (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [ ] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COMPDENT CORPORATION - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [ ] No fee required. [X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: Common Stock, par value $.01 per share ("Common Stock"), of CompDent Corporation. (2) Aggregate number of securities to which transaction applies: 10,291,129 shares of Common Stock (includes 178,500 underlying options to purchase shares of Common Stock) (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): $18.00 per share in cash-out merger plus the difference between $18.00 and the exercise price of each share subject to option (4) Proposed maximum aggregate value of transaction: $185,240,322 (5) Total fee paid: $37,048.06 (wired to Mellon Bank, N.A. on October 27, 1998) [ ] Fee paid previously with preliminary materials: [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: 2 COMPDENT CORPORATION 100 MANSELL COURT EAST, SUITE 400 ROSWELL, GEORGIA 30076 , 1998 Dear Stockholders: You are cordially invited to attend a Special Meeting of Stockholders (the "Special Meeting") of CompDent Corporation (the "Company" or "CompDent") to be held on January 31, 1999, at 10:00 a.m., local time, at the offices of King & Spalding, located at 191 Peachtree Street, Atlanta, Georgia. The purpose of the Special Meeting is to consider and vote upon a merger (the "Merger") that, if approved and subsequently consummated, will result in the public stockholders of CompDent (other than stockholders who have perfected their appraisal rights and certain members of management and other investors) receiving $18.00 in cash per share for their shares of CompDent common stock, $.01 par value ("Common Stock"). The acquiror of CompDent, TAGTCR Acquisition, Inc., a newly formed Delaware corporation (the "Acquiror"), was organized at the direction of three private investment partnerships and their affiliates that have jointly agreed, together with certain members of management and other investors, to acquire the Common Stock of the CompDent public stockholders. A special committee of the Board of Directors of CompDent (the "Special Committee"), consisting of three independent directors, was formed to consider and evaluate the Merger. The Special Committee has unanimously recommended to CompDent's Board of Directors that the Merger and related agreements be approved. In connection with its evaluation of the Merger, the Special Committee engaged The Robinson-Humphrey Company, LLC ("Robinson-Humphrey") to act as its financial advisor. Robinson-Humphrey has rendered its opinion dated July 28, 1998, and has not withdrawn its opinion as of , 1998, that based upon and subject to the assumptions, limitations and qualifications set forth in such opinion, the cash merger consideration of $18.00 per share to be received in the Merger is fair from a financial point of view to the stockholders of the Company (other than certain members of management, certain other investors and the Acquiror). The written opinion of Robinson-Humphrey, dated July 28, 1998, is attached as Appendix B to the enclosed Proxy Statement and should be read carefully and in its entirety by the stockholders. THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS BELIEVE THAT THE TERMS OF THE MERGER ARE FAIR AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS AND UNANIMOUSLY RECOMMEND THAT THE STOCKHOLDERS APPROVE THE MERGER. Approval of the Merger at the Special Meeting will require the affirmative vote of holders of a majority of the outstanding shares of Common Stock entitled to vote at the Special Meeting. The accompanying Proxy Statement provides you with a summary of the proposed Merger and additional information about the parties involved and their interests. PLEASE GIVE ALL THIS INFORMATION YOUR CAREFUL ATTENTION. WHETHER OR NOT YOU PLAN TO ATTEND, IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING. A FAILURE TO VOTE WILL COUNT AS A VOTE AGAINST THE MERGER. ACCORDINGLY, YOU ARE REQUESTED TO PROMPTLY COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND. THIS WILL NOT PREVENT YOU FROM VOTING YOUR SHARES IN PERSON IF YOU SUBSEQUENTLY CHOOSE TO ATTEND. Sincerely, David R. Klock Chairman and Chief Executive Officer 3 COMPDENT CORPORATION 100 MANSELL COURT EAST, SUITE 400 ROSWELL, GEORGIA 30076 --------------------- NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON , 1998 --------------------- Notice is hereby given that a Special Meeting of Stockholders (the "Special Meeting") of CompDent Corporation, a Delaware corporation (the "Company" or "CompDent"), will be held on January 31, 1999 at 10:00 a.m., local time, at the offices of King & Spalding, located at 191 Peachtree Street, Atlanta, Georgia, for the following purposes: (1) To consider and vote upon a proposal to approve an Agreement and Plan of Merger, dated July 28, 1998, as amended and restated on , 1998 (the "Merger Agreement"), pursuant to which TAGTCR Acquisition, Inc., a newly formed Delaware corporation (the "Acquiror"), will be merged (the "Merger") with and into the Company and each stockholder of the Company (other than stockholders who are entitled to and have perfected their appraisal rights, shares held by certain members of management, shares held by certain stockholders of CompDent, and shares held by the Acquiror) will become entitled to receive $18.00 in cash for each outstanding share of common stock, $.01 par value, of the Company (the "Common Stock") owned immediately prior to the effective time of the Merger. A copy of the Merger Agreement is attached as Appendix A to and is described in the accompanying Proxy Statement. (2) To consider and act upon such other matters as may properly come before the Special Meeting or any adjournment or adjournments thereof. The Board of Directors has determined that only holders of Common Stock of record at the close of business on , 1998, will be entitled to notice of, and to vote at, the Special Meeting or any adjournment or adjournments thereof. A form of proxy and a Proxy Statement containing more detailed information with respect to the matters to be considered at the Special Meeting accompany and form a part of this notice. By order of the Board of Directors, BRUCE A. MITCHELL Executive Vice President, General Counsel and Secretary Atlanta, Georgia , 1998 WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME. THE MERGER HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THE MERGER NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. Any stockholder shall have the right to dissent from the Merger and to receive payment of the "fair value" of his or her shares upon compliance with the procedures set forth in Section 262 of the Delaware General Corporation Law. See "RIGHTS OF DISSENTING STOCKHOLDERS" in the Proxy Statement that accompanies this notice and the full text of Section 262 of the Delaware General Corporation Law, which is attached as Appendix C and is described in the accompanying Proxy Statement. 4 COMPDENT CORPORATION 100 MANSELL COURT EAST, SUITE 400 ROSWELL, GEORGIA 30076 --------------------- PROXY STATEMENT --------------------- THE PROXY STATEMENT WAS FIRST MAILED TO STOCKHOLDERS ON , 1998. QUESTIONS AND ANSWERS ABOUT THE MERGER Q: WHAT WILL HAPPEN IN THE MERGER? A: Upon consummation of the Merger, the Acquiror will be merged with and into CompDent with CompDent being the surviving corporation. All stockholders of CompDent, other than the Acquiror, certain members of management, certain other investors, and those stockholders who exercise their appraisal rights (the "Public Stockholders"), will receive a cash payment for their outstanding shares of Common Stock. After the Merger, CompDent will become a privately held company owned by certain equity investors, members of management, and other participants (the "Investor Group"). To review the structure of the Merger in greater detail, see pages 33 through 37. Q: WHY IS COMPDENT BEING ACQUIRED? A: The Board of Directors and the Investor Group each believes that the acquisition of CompDent is in the best interests of the Public Stockholders of CompDent and that as a private company, CompDent will have greater operating flexibility to focus on enhancing value by emphasizing growth and operating cash flow. To review the background and reasons for the Merger in greater detail, see pages 9 through 17. Q: WHY WAS THE SPECIAL COMMITTEE FORMED? A: Because certain directors of CompDent will have a financial interest in the Merger, the CompDent Board of Directors appointed a special committee of disinterested directors (the "Special Committee") to review and evaluate the proposed transaction. The Special Committee has determined that the Merger is fair and in the best interests of the Public Stockholders. Q: WHAT WILL I RECEIVE IN THE MERGER? A: You will receive $18.00 in cash, without interest, for each share of CompDent Common Stock. This is the "Cash Merger Consideration." For example: If you own 100 shares of CompDent Common Stock, upon completion of the Merger you will receive $1,800 in cash. Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED? A: We are working to complete the Merger during the first quarter of 1999. Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME? A: The receipt of the Cash Merger Consideration by you will be a taxable transaction for federal income tax purposes. To review the tax consequences to you in greater detail, see pages 39 through 40. YOUR TAX CONSEQUENCES WILL DEPEND ON YOUR PERSONAL SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO YOU. Q: WHAT AM I BEING ASKED TO VOTE UPON? A: You are being asked to approve and adopt the Merger Agreement, which provides for the acquisition of CompDent by the Acquiror. After the Merger, CompDent will become a privately held company and you will no longer own an equity interest in CompDent. THE COMPDENT BOARD HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER AND RECOMMENDS VOTING FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. i 5 Q: WHAT DO I NEED TO DO NOW? A: Just indicate on your proxy card how you want to vote, and sign and mail it in the enclosed envelope as soon as possible, so that your shares will be represented at the meeting. Approval of the proposal requires the affirmative vote of a majority of the outstanding shares of CompDent Common Stock. Therefore, a failure to vote or a vote to abstain will have the same legal effect as a vote against the Merger. The Special Meeting will take place on , 1998 at 10:00 a.m., local time, at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia. You may attend the Special Meeting and vote your shares in person, rather than voting by proxy. In addition, you may withdraw your proxy up to and including the day of the Special Meeting and either change your vote or attend the Special Meeting and vote in person. Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR ME? A: Your broker will vote your shares of Common Stock only if you provide instructions on how to vote. You should instruct your broker how to vote your shares, following the directions your broker provides. If you do not provide instructions to your broker, your shares will not be voted and they will be counted as votes against the proposal to approve and adopt the Merger Agreement. Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW? A: No. After the Merger is completed, we will send you written instructions for exchanging your Common Stock certificates for the Cash Merger Consideration. WHO CAN HELP ANSWER YOUR QUESTIONS If you would like additional copies of this document, or if you would like to ask any additional questions about the Merger, you should contact: Keith J. Yoder CompDent Corporation 100 Mansell Court East, Suite 400 Roswell, Georgia 30076 Telephone: 770-998-8936 ii 6 CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION THIS PROXY STATEMENT AND OTHER STATEMENTS MADE FROM TIME TO TIME BY COMPDENT, THE ACQUIROR, OR THEIR REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, EACH AS FURTHER AMENDED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, IN U.S.C.A. SECTIONS 77Z-2 AND 78U-5 (SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF, OR CURRENT EXPECTATIONS OF COMPDENT AND THE ACQUIROR AND MEMBERS OF THEIR RESPECTIVE MANAGEMENT TEAMS, AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT OF COMPDENT AND THE ACQUIROR THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS DETAILED HEREIN AND: (I) COMPETITIVE PRESSURES IN THE DENTAL BENEFITS AND MANAGEMENT INDUSTRIES; (II) MANAGEMENT AND INTEGRATION OF THE OPERATIONS OF ACQUIRED BUSINESSES; (III) COMPDENT'S BUSINESS AND GROWTH STRATEGIES; AND (IV) GENERAL ECONOMIC CONDITIONS. COMPDENT AND THE ACQUIROR UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGES IN ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS, OR CHANGES IN FUTURE OPERATING RESULTS OVER TIME. iii 7 TABLE OF CONTENTS QUESTIONS AND ANSWERS ABOUT THE MERGER...................... i WHO CAN HELP ANSWER YOUR QUESTIONS.......................... ii CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION............................................... iii SUMMARY..................................................... 1 The Companies............................................. 1 The Special Meeting....................................... 1 Record Date; Voting Power................................. 1 Vote Required............................................. 1 Recommendations........................................... 1 Opinion of Financial Advisor.............................. 2 Terms of the Merger Agreement............................. 2 Share Ownership of CompDent following the Merger.......... 3 Accounting Treatment...................................... 4 Conflicts of Interest..................................... 4 Regulatory Approvals...................................... 4 Appraisal Rights.......................................... 4 Historical Market Information............................. 5 Selected Consolidated Financial Data...................... 6 Consolidated Ratios of Earnings to Fixed Charges and Book Value Per Share........................................ 7 Company Projections....................................... 7 SPECIAL FACTORS............................................. 9 Background of the Merger.................................. 9 The Special Committee's and the Board's Recommendation.... 13 Opinion of Financial Advisor.............................. 17 Purpose and Reasons of the Investor Group for the Merger................................................. 23 Position of the Investor Group as to Fairness of the Merger................................................. 24 Conflicts of Interest..................................... 24 Certain Effects of the Merger............................. 28 Financing of the Merger................................... 29 Conduct of CompDent's Business After the Merger........... 30 THE SPECIAL MEETING......................................... 31 Date, Time, and Place of the Special Meeting.............. 31 Proxy Solicitation........................................ 31 Record Date and Quorum Requirement........................ 31 Voting Procedures......................................... 31 Voting and Revocation of Proxies.......................... 31 Effective Time of the Merger and Payment for Shares....... 32 Other Matters to Be Considered............................ 32 THE MERGER.................................................. 33 Terms of the Merger Agreement............................. 33 Estimated Fees and Expenses of the Merger................. 37 RIGHTS OF DISSENTING STOCKHOLDERS........................... 37 FEDERAL INCOME TAX CONSEQUENCES............................. 39 PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT AND OTHERS.................................................... 40 CERTAIN INFORMATION CONCERNING THE ACQUIROR AND THE INVESTOR GROUP..................................................... 41 PURCHASES OF COMMON STOCK BY CERTAIN PERSONS................ 44 EXPERTS..................................................... 44 WHERE YOU CAN FIND MORE INFORMATION......................... 44 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 45
iv 8 STOCKHOLDER PROPOSALS....................................... 46 OTHER MATTERS............................................... 46 APPENDIX A -- Amended and Restated Agreement and Plan of Merger.................................................... A-1 APPENDIX B -- Opinion of The Robinson-Humphrey Company, LLC....................................................... B-1 APPENDIX C -- Text of Section 262 of the Delaware General Corporation Law........................................... C-1
v 9 SUMMARY This summary highlights selected information from this document and may not contain all of the information that is important to you. For a more complete understanding of the Merger and for a more complete description of the legal terms of the Merger, you should read this entire document carefully, as well as the additional documents to which we refer you, including the Merger Agreement. See "Where You Can Find More Information" (page 44). THE COMPANIES COMPDENT CORPORATION 100 Mansell Court East Suite 400 Roswell, Georgia 30076 (770) 998-8936 CompDent is a fully integrated dental management company, offering a full line of dental care plan services, including network-based dental care plans, reduced fee-for-service, and third-party administration services. CompDent markets its products to employers and other business entities and to individuals. CompDent's benefit plans also include a reduced fee-for-service product, a PPO and network dental product, and administrative services for self- insured dental plans. CompDent also owns Dental Health Management, Inc., which provides management and administrative services to dental practices. TAGTCR ACQUISITION, INC. c/o TA Associates, Inc. 125 High Street, Suite 2500 Boston, Massachusetts 02110 (617) 574-6700 TAGTCR Acquisition, Inc. was organized at the direction of three private investment partnerships that have jointly agreed, together with certain affiliated entities, members of management and other entities and individuals, to acquire the public stock of CompDent. These partnerships and their affiliates (the "Equity Investors") include (i) Golder, Thoma, Cressey, Rauner Fund V, L.P. and GTCR Associates V, each of which is affiliated with Golder, Thoma, Cressey, Rauner, Inc. (collectively, the "GTCR Partnership"), (ii) TA/Advent VIII L.P., Advent Atlantic and Pacific III, TA Executives Fund LLC, TA Investors LLC, Advent VII L.P., and Advent New York L.P., each of which is affiliated with TA Associates, Inc. (collectively, the "TA Fund"), and (iii) NMS Capital, L.P., an affiliate of NationsBank, N.A. (the "NMS Partnership"). THE SPECIAL MEETING (PAGE 31) The Special Meeting will be held on , 1998, at 10:00 a.m., local time, at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia. At the Special Meeting, CompDent stockholders will be asked to consider and vote upon a proposal to approve and adopt the Merger Agreement. RECORD DATE; VOTING POWER (PAGE 31) Holders of record of CompDent Common Stock at the close of business on , 1998 (the "Record Date") are entitled to notice of and to vote at the Special Meeting. As of such date, there were shares of Common Stock issued and outstanding held by approximately holders of record. Holders of record of Common Stock on the Record Date are entitled to one vote per share on any matter that may properly come before the Special Meeting. VOTE REQUIRED (PAGE 31) Approval by the CompDent stockholders of the proposal to approve and adopt the Merger Agreement will require the affirmative vote of a majority of the shares of CompDent Common Stock outstanding on the Record Date. Accordingly, a failure to vote or a vote to abstain will have the same legal effect as a vote against the Merger. RECOMMENDATIONS (PAGE 13) Because certain of the CompDent directors will have a financial interest in the Merger, the CompDent Board of Directors appointed the Special Committee to review and evaluate the proposed transaction. The Special Committee unanimously recommended to the CompDent Board that the Merger Agreement be approved and that it be recommended to the stockholders of the Company. Following the unanimous recommendation of the Special Committee, the CompDent Board unanimously determined that the Merger, the Merger Agreement, and the transactions contemplated 10 thereby were fair and in the best interests of the CompDent stockholders and recommended that the stockholders approve the Merger Agreement. The Special Committee and the CompDent Board recommend that the CompDent stockholders vote "For" the approval of the Merger Agreement. You also should refer to the reasons that the Special Committee and the CompDent Board considered in determining whether to approve and adopt the Merger Agreement on pages 13-17. OPINION OF FINANCIAL ADVISOR (PAGE 17) The Robinson-Humphrey Company, LLC, a nationally recognized investment banking firm which served as financial advisor to the Special Committee, has rendered an opinion dated July 28, 1998, and, after reviewing an amendment and restatement of the Merger Agreement, dated , 1998, has determined not to withdraw its opinion as of , 1998, to the Special Committee that the Cash Merger Consideration is fair from a financial point of view to the Public Stockholders of CompDent. A copy of the fairness opinion, setting forth the information reviewed, assumptions made, and matters considered, is attached to this Proxy Statement as Appendix B. You should read the fairness opinion of Robinson-Humphrey in its entirety. TERMS OF THE MERGER AGREEMENT (PAGE 33) The Merger Agreement is attached to this Proxy Statement as Appendix A. You are encouraged to read the Merger Agreement in its entirety. It is the legal document that governs the Merger. General. The Merger Agreement provides that the Acquiror will be merged with and into CompDent, with CompDent being the surviving corporation (the "Surviving Corporation"). As a result of the Merger, the Public Stockholders of CompDent will receive $18.00 in cash, without interest, for each share of Common Stock. In addition, certain members of management will receive cash for the aggregate unrealized gain on their vested stock options. Conditions to the Merger. The completion of the Merger depends upon the satisfaction of a number of conditions, including: - approval of the Merger Agreement by a majority of the CompDent stockholders; - receipt of all necessary orders and consents of governmental authorities and the expiration of any regulatory waiting periods; - receipt by the Acquiror of sufficient financing pursuant to its existing financing commitments to consummate the Merger; and - absence of a material adverse effect on the business of CompDent. Each party may, at its option, waive the satisfaction of any condition to such party's obligations under the Merger Agreement. EVEN IF THE STOCKHOLDERS APPROVE THE MERGER, THERE CAN BE NO ASSURANCE THAT THE MERGER WILL BE CONSUMMATED. No Solicitation. Until consummation or abandonment of the Merger, CompDent and its affiliates are not permitted to initiate or solicit any proposal from a third party with respect to a merger, consolidation, sale, or similar transaction involving CompDent or any of its subsidiaries (an "Acquisition Proposal"). Termination. Either CompDent or the Acquiror may terminate the Merger Agreement under certain circumstances, including if: - both parties consent in writing; - the Merger is not completed before June 30, 1999; - legal restraints or prohibitions prevent the consummation of the Merger; - the CompDent stockholders do not approve the Merger Agreement; or - the other party breaches in a material manner any of its representations, warranties or covenants under the Merger Agreement and such breach is not cured within 30 days of notice. In addition, CompDent may terminate the Merger Agreement if it accepts or recommends acceptance of an Acquisition Proposal with another party, and the Acquiror may terminate the Merger Agreement if the CompDent Board or the Special Committee withdraws, or adversely modifies, its approval or recommendation of the Merger or approves, recommends or causes CompDent to enter into any agreement with respect to an Acquisition Proposal. 2 11 Fees and Expenses. CompDent and the Acquiror will pay their own fees, costs, and expenses incurred in connection with the Merger Agreement. However, CompDent will pay the Acquiror a "break up" fee of $7.0 million, under certain circumstances, if CompDent approves, enters into, or consummates a transaction contemplated by an Acquisition Proposal, or if the Board or the Special Committee withdraws its recommendation of the Merger. In addition, each of the Acquiror and CompDent agrees to pay the other party's fees and expenses (not to exceed $2.0 million) upon the termination of the Merger Agreement after a material breach or failure to perform any representation, warranty or covenant that such party has under the Merger Agreement. SHARE OWNERSHIP OF COMPDENT FOLLOWING THE MERGER (PAGE 25) - The Management Sponsors. Pursuant to the Merger, David R. Klock, Chairman and Chief Executive Officer of CompDent, and Phyllis A. Klock, President and Chief Operating Officer of CompDent (the "Management Sponsors"), will collectively cause 200,000 shares of Common Stock with an agreed value of $18.00 per share (a total value of $3.6 million) to be converted into (i) shares of common stock, $.01 par value, of the Surviving Corporation and (ii) shares of Convertible Participating Preferred Stock, $.01 par value (the "Convertible Preferred Stock"), of the Surviving Corporation. The remaining 149,083 shares of Common Stock held by the Management Sponsors, which will not be converted into common stock and Convertible Preferred Stock of the surviving Corporation, will be sold immediately prior to the Merger to the NMS Partnership for $18.00 per share (a total value of $2,683,494). The Management Sponsors will own an aggregate common equity interest in the Surviving Corporation on a fully converted basis of approximately %. - The Equity Investors. The TA Fund will contribute approximately $ million in cash to the Acquiror, the GTCR Partnership will contribute approximately $ million in cash to the Acquiror, and the NMS Partnership will contribute approximately $ million in cash to the Acquiror, each in exchange for a combination of shares of common stock and Convertible Preferred Stock of the Acquiror, which shares will be converted into identical shares of the Surviving Corporation (i.e., CompDent) in the Merger. In addition, the NMS Partnership will cause its shares of CompDent Common Stock (i.e., the shares purchased from the Management Sponsors) with an agreed value of $18.00 per share (a total value of $2,683,494) to be converted into a combination of shares of common stock and Convertible Preferred Stock of the Surviving Corporation. Immediately following the Merger, the GTCR Partnership will transfer its equity interest in Dental Health Development Corporation ("DHDC"), a company in which CompDent has an indirect minority interest, to a subsidiary of CompDent in exchange for such subsidiary's transfer to the GTCR Partnership of shares of common stock and Convertible Preferred Stock of the Surviving Corporation having an agreed value of $ . The Equity Investors will own an aggregate common equity interest in the Surviving Corporation on a fully converted basis of %. - The Other Investors. Certain other investors will either cause their shares of Common Stock to be converted into shares of common stock and Convertible Preferred Stock of the Surviving Corporation or purchase for cash shares of common stock and Convertible Preferred Stock of the Surviving Corporation. The Other Investors will own an aggregate common equity interest in the Surviving Corporation on a fully converted basis of approximately %. - The Other Management Investors. Certain members of management will purchase or receive options to purchase shares of common stock of the Surviving Corporation representing an aggregate common equity interest in the Surviving Corporation on a fully converted basis of approximately 12%. These shares will be subject to certain vesting restrictions. In addition, the Surviving Corporation will reserve approximately 3% of the common stock of the Surviving Corporation on a fully converted basis for the grant of options to management employees on a prospective basis. The "Management 3 12 Sponsors" and the "Other Management Investors" are sometimes referred to hereafter as the "Management Group." ACCOUNTING TREATMENT (PAGE 24) The Acquiror believes that the Merger will be accounted for as a recapitalization for accounting purposes. CONFLICTS OF INTEREST (PAGE 24) - The Management Group. Certain members of the Management Group have interests in the Merger as employees and/or directors that are different from, or in addition to, yours as a CompDent stockholder. Members of the Management Group will continue to have an equity interest in the Surviving Corporation and the ultimate value of this interest could exceed the $18.00 per share to be received by the Public Stockholders in the Merger. If the Merger is consummated, the Management Sponsors will be designated as members of the CompDent Board and members of the Management Group will remain as senior management of CompDent. In addition, if the Merger is consummated, options to purchase common stock of the Surviving Corporation will be made available to the Management Group and the members of the Management Group will enter into new employment agreements with the Surviving Corporation. Also, certain indemnification arrangements and directors' and officers' liability insurance for existing directors and officers of CompDent will be continued by CompDent after the Merger. - Robinson-Humphrey. Robinson-Humphrey served as financial advisor to the Special Committee and has had certain relationships with CompDent and its management that could be perceived as adversely affecting its independence. Robinson-Humphrey served as a co-manager in CompDent's public offering of Common Stock in August 1995, as placement agent in DHDC's private placement of securities in September 1997, and as financial advisor to CompDent in all of its material acquisitions since January 1996, each in exchange for customary advisory fees and/or commission arrangements. In addition, an affiliate of Robinson-Humphrey purchased approximately $500,000, or 5%, of the Series A Preferred Stock and Class A Common Stock of DHDC from the GTCR Partnership on October 29, 1997. Robinson-Humphrey has agreed to resell this interest to the GTCR Partnership prior to the Merger for $ , which is equal to the original cost of this interest plus the accrued dividends thereon. Robinson-Humphrey believes that the foregoing arrangements do not affect its ability to independently and impartially act as financial advisor to the Special Committee. - The Special Committee. Upon consummation of the Merger, the members of the Special Committee will receive $18.00 per share in cash, without interest, for each share of their Common Stock and will receive cash for the aggregate unrealized gain on their vested stock options. The members of the Special Committee believe that the foregoing arrangements do not affect their independence or impartiality. REGULATORY APPROVALS (PAGE 34) CompDent is required to make filings with or obtain approvals from certain regulatory authorities in connection with the Merger. These consents and approvals include approval of the Federal Trade Commission, the Department of Justice, and certain state insurance authorities. An application and notice will be filed with the Federal Trade Commission and the Department of Justice. All other necessary applications and notices have been filed or are in the process of being filed. We cannot predict whether or when we will obtain all required regulatory approvals or the timing of these approvals. APPRAISAL RIGHTS (PAGE 37) Any stockholder of CompDent who does not vote in favor of the proposal to approve the Merger Agreement and who complies strictly with the applicable provisions of Section 262 of the Delaware General Corporation Law has appraisal rights to be paid cash for the "fair value" for such holder's shares of Common Stock. To perfect these appraisal rights with respect to the Merger, you must follow the required procedures precisely. The applicable provisions of Section 262 are attached to this Proxy Statement as Appendix C. 4 13 HISTORICAL MARKET INFORMATION The Common Stock is traded on The Nasdaq National Market ("Nasdaq") (symbol: CPDN). The following table sets forth the high and low sales prices for each quarterly period for the two most recent fiscal years and for the current fiscal year to date.
HIGH LOW ---- ---- 1996: First quarter............................................... $45 1/8 $34 1/4 Second quarter.............................................. 51 35 1/8 Third quarter............................................... 51 11/16 33 Fourth quarter.............................................. 40 3/8 27 1/2 1997: First quarter............................................... 39 1/4 27 1/2 Second quarter.............................................. 27 3/8 14 1/4 Third quarter............................................... 26 1/8 19 3/8 Fourth quarter.............................................. 27 5/8 18 5/8 1998: First quarter............................................... 20 1/4 9 1/2 Second quarter.............................................. 17 12 Third quarter (through October 26, 1998).................... 17 1/2 10 1/2
On July 27, 1998, the last trading day prior to the announcement of the execution of the Merger Agreement, the closing price per share of Common Stock as reported by Nasdaq was $13.50. On October 26, 1998, the last trading day prior to printing of this Proxy Statement, the closing price per share of Common Stock as reported by Nasdaq was $13 3/16. Since January 1, 1996, the Company has not paid any cash dividends on its Common Stock. Under the Merger Agreement, the Company has agreed not to pay any dividends on the Common Stock prior to the closing of the Merger. Under the Company's current senior credit facility, the distribution of dividends would also require lender consent. In addition, applicable laws generally limit the ability of the Company's subsidiaries to pay dividends to the extent that required regulatory capital would be impaired, which in turn further limits the Company's ability to pay dividends. In May 1995, CompDent completed an underwritten public offering of 3,420,000 shares of Common Stock. The offering price per share was $14.50, and the net proceeds received by CompDent were approximately $44.5 million. In August 1995, CompDent completed an underwritten public offering of 1,935,000 shares of Common Stock. The offering price per share was $23.25, and the net proceeds received by CompDent were approximately $42.0 million. 5 14 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) Certain selected consolidated historical financial data derived from the audited financial statements of the Company are set forth below. The selected financial data should be read in conjunction with the Consolidated Financial Statements of the Company, related notes, and other financial information incorporated by reference into this Proxy Statement.
PREDECESSOR COMPANY(1) ------------- SIX SIX MONTHS MONTHS SIX MONTHS ENDED ENDED ENDED YEAR ENDED DECEMBER 31, JUNE 30, JUNE 30, DECEMBER 31, ---------------------------------------------- ------------------- 1993 1993 1994(2) 1995(3) 1996(4)(5) 1997(6)(7) 1997 1998(8) ------------- ------------ ------- -------- ----------- ----------- -------- -------- STATEMENTS OF OPERATIONS: Total revenue.............. $22,004 $24,003 $55,192 $106,661 $141,069 $158,726 $ 76,035 $ 86,005 Total expenses............. 21,583 21,619 50,084 96,525 122,180 205,015 64,838 75,388 Operating (loss) income.... 421 2,414 5,108 10,136 18,889 (46,289) 11,197 10,617 Income (loss) before income taxes and extraordinary items.................... (718) 1,206 2,721 8,969 17,758 (48,805) 10,227 8,947 Income taxes............... 55 553 1,316 3,765 7,866 4,900 4,504 3,850 Extraordinary items, net of tax...................... -- -- -- 498 -- -- -- -- Net income (loss).......... (773) 653 1,405 4,706 9,892 (53,705) 5,723 5,097 Net income (loss) per common share before extraordinary items -- basic........... 0.31 0.69 0.98 (5.32) 0.57 0.50 Extraordinary loss per common share -- basic.... (0.07) Net income (loss) per common share -- basic.... 0.31 0.62 0.98 (5.32) 0.56 0.50 Net income (loss) per common share before extraordinary items -- diluted......... 0.30 0.68 0.97 (5.32) 0.57 0.50 Extraordinary loss per common share -- diluted......... (0.07) Net income (loss) per common share -- diluted......... 0.30 0.61 0.97 (5.32) 0.56 0.50 Weighted average number of shares outstanding -- basic..... 4,149 7,241 10,149 10,098 10,106 10,113 Weighted average number of shares outstanding -- diluted... 4,252 7,352 10,177 10,098 10,172 10,178 BALANCE SHEET DATA: Working capital............ $ 136 $(2,109) $ 25,213 $ 9,810 $ 11,216 $ 29,719 $ 2,943 Total assets............... 37,202 63,342 129,396 184,167 150,871 203,840 150,362 Long-term debt............. 26,250 33,450 0 41,663 56,595 55,000 54,233 Stockholders' equity....... 1,900 4,200 102,177 112,183 60,276 119,630 65,373
- --------------- (1) Presents consolidated financial data of the Company's predecessor, American Prepaid Professional Services, Inc., for the period prior to the Company's acquisition of all of the outstanding stock thereof effective in June 1993. Because of such transaction, certain aspects of the consolidated results of operations for the period prior to the period July 1, 1993 are not comparable with those for subsequent periods. Consequently, net income per share data are presented only for the years December 31, 1994 and thereafter. (2) The DentiCare, Inc. ("DentiCare") and UniLife Insurance Company ("UniLife") acquisitions were completed on December 28, 1994, and DentiCare and UniLife are, therefore, included in the consolidated balance sheet of the Company at December 31, 1994 and thereafter, and the consolidated statement of operations (from the date of acquisition) of the Company for the year ended December 31, 1994 and thereafter. Net income per common share for the year ended December 31, 1994 has been computed after deducting $109,000 from net income attributable to preferred stock dividend accumulation. 6 15 (3) The CompDent Corporation ("CompDent") acquisition was completed on July 5, 1995, and CompDent is, therefore, included in the consolidated balance sheet of the Company at December 31, 1995 and thereafter, and the consolidated statement of operations of the Company (from the date of acquisition) for the years ended December 31, 1995 and thereafter. Net income per common share for the year ended December 31, 1995 has been computed after deducting $218,000 from net income attributable to preferred stock dividend accumulation. (4) The Texas Dental Plans, Inc. ("Texas Dental") acquisition was completed on January 8, 1996 and Texas Dental is, therefore, included in the consolidated balance sheet of the Company at December 31, 1996 and thereafter, and the consolidated statement of operations of the Company (from the date of acquisition) for the year ended December 31, 1996 and thereafter. (5) The Dental Care Plus Management, Corp. ("Dental Care Plus") acquisition was completed on May 8, 1996, and Dental Care Plus is, therefore, included in the consolidated balance sheet of the Company at December 31, 1996 and thereafter, and the consolidated statement of operations of the Company (from the date of acquisition) for the year ended December 31, 1996 and thereafter. (6) The American Dental Providers, Inc., and Diamond Dental & Vision, Inc., acquisition was completed on March 21, 1997 and is, therefore, included in the consolidated balance sheet of the Company at December 31, 1997 and thereafter, and the consolidated statement of operations of the Company (from the date of acquisition) for the year ended December 31, 1997 and thereafter. (7) The Workman Management Group Ltd., and its affiliates, Old Cutler Dental Associates, P.A., Robert T. Winfree, D.D.S., and the Stratman Management Group acquisitions were completed on July 1, 1997, July 1, 1997, September 26, 1997, and November 7, 1997, respectively, and these four acquisitions are included in the consolidated balance sheet of the Company at December 31, 1997 and thereafter, and the consolidated statement of operations of the Company (from the date of acquisition) for the year ended December 31, 1997 and thereafter. (8) The Reznik Group and Kendall Roberts, D.D.S., acquisitions were completed in January 1998 and May 1998, respectively, and these two acquisitions are included in the consolidated balance sheet and the consolidated statement of operations of the Company (from the date of acquisition) at June 30, 1998 and thereafter. CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES AND BOOK VALUE PER SHARE The following table sets forth the Company's consolidated ratios of earnings to fixed charges for each of the last two fiscal years and as of June 30, 1998 and book value per share of Common Stock for the year ended December 31, 1997 and as of June 30, 1998.
SIX MONTHS YEAR ENDED YEAR ENDED ENDED DEC. 31, 1996 DEC. 31, 1997 JUNE 30, 1998 ------------- ------------- ------------- Ratio of earnings to fixed charges:(1)................. 6.1:1 --(2) 3.3:1 Book value per share................................... $11.02 $5.97 $6.42
- --------------- (1) For purposes of computing these ratios, earnings have been calculated by adding fixed charges (excluding capitalized interest) to income before extraordinary items. Fixed charges consist of interest costs, whether expensed or capitalized, and amortization of debt discounts and issue costs, whether expensed or capitalized. (2) The earnings for the year ended December 31, 1997 were a loss of $53,706,000. Therefore the calculation of this ratio is not applicable. COMPANY PROJECTIONS(1) In connection with the Equity Investors' review of the Company and in the course of the negotiations between the Company and the Equity Investors described in "SPECIAL FACTORS -- Background to Merger," the Company provided the Equity Investors with certain non-public business and financial 7 16 information. The non-public information provided by the Company included certain projections (the "Company Projections") of the future operating performance of the "dental benefits" operations of the Company. The Company Projections do not give effect to the Merger or the financing thereof. The Company does not, as a matter of course, publicly disclose projections as to future revenues or earnings. The Company Projections were not prepared with a view to public disclosure and are included in the Proxy Statement only because such information was made available to the Equity Investors in connection with its due diligence investigation of the Company. Accordingly, it is expected that there will be differences between actual and projected results, and actual results may be materially different than those set forth below. The Company Projections were not prepared with a view to compliance with the published guidelines of the Commission regarding projections, nor were they prepared in accordance with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial projections. These forward-looking statements reflect numerous assumptions made by the Company's management. In addition, factors such as industry performance, general business, economic, regulatory, and market and financial conditions, all of which are difficult to predict, may cause the Company Projections or the underlying assumptions to be inaccurate. Accordingly, there can be no assurance that the Company Projections will be realized, and actual results may be materially greater or less than those contained in the Company Projections. The inclusion of the Company Projections herein should not be regarded as an indication that the Equity Investors or the Company or their respective financial advisors considered or consider the Company Projections to be a reliable prediction of future events, and the Company Projections should not be relied upon as such. None of the Company, the Equity Investors, or any of their financial advisors intends to update or otherwise revise the Company Projections to reflect circumstances existing after the date when made or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the Company Projections are shown to be in error. The Company has provided to the Equity Investors the following Company Projections: total revenue of $153.8 million and $161.4 million, and operating income of $20.0 million and $21.7 million for fiscal years 1999 and 2000, respectively. The Equity Investors took this information, together with their own analyses, into account in determining whether to enter into the Merger Agreement. (1) PricewaterhouseCoopers LLP has not examined, compiled or applied any procedures to the Company Projections in accordance with standards established by the American Institute of Certified Public Accountants and expresses no opinion or any assurance on their reasonableness or achievability. 8 17 SPECIAL FACTORS BACKGROUND OF THE MERGER During 1997 and 1998, changes in the dental benefits marketplace were adversely affecting the Company's historical growth rate and profitability. The Company had historically grown in size and profitability through internal growth and acquisitions. During 1997 and 1998, management of the Company observed that due to increased competition and aggressive pricing by competitors, internal growth was becoming more difficult to achieve. In addition, acquisitions were becoming less attractive because acquisition prices had increased and the Company's reduced stock price made acquisitions more expensive and dilutive to earnings. Management of the Company undertook certain operational initiatives to strengthen the Company and to position the Company for the future. In the first quarter of 1997, the Company formed a new dental practice management company, Dental Health Management, Inc. ("DHMI"), to become a full service dental care company. In addition, the Company acquired an ownership interest in Dental Health Development Corporation ("DHDC"), a dental development company specializing in developing start-up dental practices. In addition to the operational initiatives, management of the Company met several times with Morgan Stanley & Co. Incorporated ("Morgan Stanley") during 1997 to discuss various strategic alternatives available to the Company. In the early part of November 1997, the Company was contacted by a large industrial company ("Company No. 1") indicating a level of interest in considering a possible transaction to acquire the Company. On November 11, 1997, at a meeting of the Board of Directors, the Board authorized management to engage in discussions with Company No. 1. On November 24, 1997, the Company formally engaged Morgan Stanley to act as its financial advisor in connection with a proposed transaction. On or about November 25, 1997, the Company received a written indication of interest from Company No. 1 to acquire the Company for $32.00 per share. On December 10, 1997, the Company was informed that the potential bidder determined not to proceed with a transaction. Subsequent conversations with the potential bidder in January 1998 convinced management of the Company that the potential bidder was not indeed interested in pursuing an acquisition of the Company despite the initial written offer from Company No. 1. On multiple occasions in 1997, senior management of the Company was in contact with a competitor ("Company No. 2") of the Company regarding a possible strategic transaction. Management reported these contacts to the Board of Directors and the Board authorized management to meet with Company No. 2 to discuss a possible strategic transaction and to report the results of that discussion to the Board. On December 21, 1997, David Klock and Phyllis Klock met with the Chairman of the Board of Company No. 2 to discuss a possible strategic transaction. The participants discussed the changing dental benefits industry and the positions of their respective companies in that industry. No formal proposal or indication of interest upon which the parties could continue discussions followed these meetings. On January 22, 1998, David Klock, Phyllis Klock, and Philip Hertik met with the senior management of a large regional insurance provider ("Company No. 3") to discuss a possible transaction. The participants discussed both the dental benefits and practice management industries in general and their respective companies in particular, but no formal proposal or indication of interest upon which the parties could continue discussions was made. In March 1998, Company No. 3 informed the Company that it was not interested at that time in pursuing a transaction with the Company. Following an initial meeting at an investment conference, a large multi-regional health care provider ("Company No. 4") visited the Company on March 18, 1998 to receive an overview of the Company and its position in the dental benefits industry. No follow-up conversation transpired. Following an initial meeting with a large national health care provider ("Company No. 5"), Company No. 5 requested a meeting to discuss a possible transaction. On May 7, 1998, David Klock, Phyllis Klock, Keith Yoder, and Philip Hertik met with the senior management of Company No. 5 to discuss a possible 9 18 transaction. Approximately three weeks following the meeting, Company No. 5 indicated that it was not interested at that time in considering a transaction with the Company. On January 12, 1998, the Company issued a press release that stated the Company expected its financial results for the fourth quarter ended December 31, 1997 to be below analysts' published consensus estimates. In addition, the Company announced that it was assessing goodwill recorded in prior acquisitions and was evaluating whether to record certain one-time charges, including a charge relating to goodwill impairment. During the fourth quarter of 1997, the Company had completed an extensive review of its operations and determined that changes had occurred which necessitated a number of unusual and one-time charges. The charges amounted to $68.4 million in the aggregate and were announced together with the Company's fourth quarter earnings on February 10, 1998. On January 12, 1998, the date the Company announced its expectations for fourth quarter earnings, the per share price of the Company's Common Stock dropped from $18.00 to $12.50. On February 20, 1998, management of the Company recommended to the compensation committee (the "Compensation Committee") of the Board of Directors that the Compensation Committee review the compensation packages of the executive officers of the Company in light of the significant decline in the Company's stock price. The decline in the Company's stock price had resulted in a significant reduction in the value of the executives' existing stock options. In addition, many of the executives' employment contracts did not have "change in control" provisions, and, therefore, the executives could be terminated without any significant payment if a third party acquired the Company. David Klock expressed concern that certain key employees of the Company would seek alternative career opportunities absent action by the Compensation Committee providing them with more attractive long-term incentives and protection in the event of a change in control of the Company. Following ongoing deliberations and review subsequent to its meeting on February 20, 1998, the Compensation Committee took action with respect to management compensation at a meeting of the Compensation Committee on April 30, 1998. The Compensation Committee retained the services of King & Spalding as legal counsel and a compensation consultant to advise it in relation to management's proposal. After considering the recommendations of the compensation consultant, the Compensation Committee determined to (i) put in place new employment agreements for certain management employees that contained appropriate change in control provisions and (ii) delay taking any action with respect to the executive officers' existing stock options to allow the Compensation Committee to fully evaluate the Company's long-term incentives for executive officers. On May 8, 1998, the Compensation Committee approved employment agreements for certain management employees of the Company. In late January 1998, senior management of the Company was approached by certain financial buyers interested in discussing a possible acquisition of the Company, which would include a significant investment by management. David Klock reported this development to the full Board of Directors on January 27, 1998. The Board of Directors encouraged Dr. Klock to pursue any discussions that could lead to a transaction that would provide enhanced value to the Company's stockholders. During the first quarter of 1998, David Klock, Phyllis Klock, and other members of senior management met several times with representatives of TA Associates, Inc. ("TA Associates") and Golder, Thoma, Cressey, Rauner, Inc. ("GTCR"), individually, to discuss the possibility of acquiring the Company. Concurrently, the management team held discussions with a number of other potential financial buyers. Discussions with TA Associates, GTCR and other potential acquirors continued through the spring and early summer of 1998. By July 1998, management had determined, based on its discussions with potential bidders, that the combined proposal of TA Associates and GTCR (together with the NMS Partnership, which joined the group later) would provide the greatest likelihood that a transaction which would provide enhanced value to the Company's stockholders could be successfully consummated. A special meeting of the Company's Board of Directors was scheduled for July 14, 1998, in anticipation of a proposal being made by TA Associates and GTCR regarding the acquisition of the Company. At the special meeting, representatives of TA Associates and GTCR made a presentation to the Board of Directors and submitted a non-binding proposal to acquire the Company for $17.50 per share in cash (the "Initial 10 19 Proposal"). TA Associates and GTCR told the Board that David Klock, Phyllis Klock, and possibly other members of senior management would participate in the proposed acquisition and have a continuing equity interest in the Company. After receiving the Initial Proposal, the Board of Directors formed the Special Committee, consisting of Joseph E. Stephenson, Philip Hertik, and David F. Scott, Jr., three members of the Board who are not employed by the Company and who will not own equity interests in or be employed by the Surviving Corporation, to consider the fairness to the Company's stockholders of the proposed transaction and to report its determination regarding the fairness of the Initial Proposal to the full Board of Directors. The Special Committee was further authorized to establish such procedures, review such information, engage such financial advisors and legal counsel as it deemed reasonable and necessary to fully and adequately make such determination, and conduct negotiations with the TA Fund, the GTCR Partnership, and the NMS Partnership (collectively, the "Equity Investors") regarding the terms of the proposed transaction. The Special Committee retained King & Spalding as its legal counsel. Thereafter, the Special Committee and its legal counsel discussed the procedures to be followed in analyzing the offer from the Equity Investors to acquire the Company. As part of this discussion, King & Spalding advised the Special Committee as to the Special Committee's legal responsibilities and the legal principles applicable to, and the legal consequences of, actions taken by the Special Committee with respect to the offer by the Equity Investors. The Special Committee unanimously selected Robinson-Humphrey to serve as its financial advisor for the purpose of advising and assisting the Special Committee in negotiations with the Equity Investors. The Special Committee instructed Robinson-Humphrey to commence its investigation and analysis of the value of the Company and the Initial Proposal. During the period from July 15 to July 20, 1998, Robinson-Humphrey reviewed certain financial and other information concerning the Company and met with certain members of the Company's management. On July 21, 1998, Robinson-Humphrey met with the Special Committee and its legal counsel to discuss the preliminary results of its analyses and to obtain further direction from the Special Committee. Representatives of Robinson-Humphrey discussed with the Special Committee the analyses they had performed to produce a range of implied values for the Company's Common Stock. The Special Committee also discussed with Robinson-Humphrey its preliminary findings in connection with Robinson-Humphrey's investigation of the Company and questioned Robinson-Humphrey concerning the assumptions made in connection with its analyses and the facts on which these analyses were based. Robinson-Humphrey explained to the Special Committee the assumptions, methodologies, and relative limits of its analyses. At the July 21 meeting, Robinson-Humphrey provided the Special Committee with presentation materials outlining its valuation analyses. A copy of the written materials provided by Robinson-Humphrey and distributed to the Special Committee at the July 21 meeting has been filed as an exhibit to the Schedule 13E-3 filed with the Securities and Exchange Commission (the "Commission") in connection with the Merger and is available for inspection and copying at the principal executive offices of the Company during its regular business hours by any stockholder or any representative of a stockholder who has been so designated in writing. A copy of such materials shall be provided to any stockholder or any representative of a stockholder who has been so designated in writing upon written request and at the expense of the requesting stockholder or representative. Robinson-Humphrey presented its analyses and advised the Special Committee that the $17.50 per share cash offer did not, in Robinson-Humphrey's opinion, give appropriate emphasis to certain valuation factors considered by it. The Special Committee then concluded that it could not recommend to the Board of Directors the original offer of $17.50 per share in cash. The Special Committee concluded not to respond with a specific price counteroffer to the Initial Proposal at that time. Instead, the Special Committee concluded that it would be advisable for Robinson-Humphrey to meet with the Equity Investors to discuss Robinson-Humphrey's analyses in support of a higher price. At the July 21, 1998 meeting, the Special Committee also reviewed with King & Spalding the preliminary draft of the Merger Agreement that had been provided by legal counsel for the Equity Investors. 11 20 In addition, the Special Committee met with members of management to discuss the Company's historical and projected financial results and opportunities available to the Company to achieve higher levels of internal growth and improved profitability. The Special Committee considered the advisability of contacting other potential acquirors regarding their interest in pursuing a transaction with the Company. Robinson-Humphrey reported to the Special Committee that they and King & Spalding had a discussion with Morgan Stanley on July 20, 1998 to review the contacts the Company had over the prior eight months with potentially interested third party acquirors. At that time, the Special Committee determined that it was unlikely that any of these companies would pursue a transaction with the Company. In addition, the Equity Investors had informed the Board of Directors that they did not want their proposal to be used to attempt to generate other bids from third parties. The Special Committee was concerned that if they contacted other bidders at this time, the Equity Investors would withdraw their proposal. Accordingly, the Special Committee determined at this time not to contact other parties, but to attempt to negotiate a higher per share price from the Equity Investors. In addition, the Special Committee instructed Robinson-Humphrey to tell the Equity Investors that the Special Committee required an appropriate "fiduciary out" from the non-solicitation covenant and a reduced "break-up" fee that would not preclude the Special Committee from accepting another acquisition proposal. On July 22, 1998, Robinson-Humphrey met telephonically with the Equity Investors to discuss the original offer of $17.50 per share in cash, the amount of the break-up fee, and certain other matters. The Equity Investors informed Robinson-Humphrey that they would review their Initial Proposal and respond to Robinson-Humphrey. On July 22, 1998, King & Spalding provided the Equity Investors and McDermott Will & Emery, then legal counsel to the Equity Investors, with comments regarding the terms of the Merger Agreement and entered into negotiations on behalf of the Special Committee with McDermott Will & Emery and the Equity Investors regarding the terms of the Merger Agreement. On July 23, 1998, the Equity Investors called Robinson-Humphrey and informed them that they would be prepared to raise their offer to $18.00 per share in cash. However, the Equity Investors informed Robinson-Humphrey that, to offer $18.00 per share in cash, the Equity Investors would be required to further discuss the terms of their financing commitments. Accordingly, the Equity Investors wanted confirmation that $18.00 per share in cash was an amount that the Special Committee thought it would be able to accept prior to the Equity Investors renegotiating their financing commitments. On July 24, 1998, the Special Committee, together with representatives of Robinson-Humphrey and King & Spalding, met to consider the revised $18.00 per share cash offer by the Equity Investors. Robinson-Humphrey indicated that based on the discussions with the Equity Investors, it believed that the $18.00 per share cash offer was the best offer available from the Equity Investors. Because such price was consistent with and supported by Robinson-Humphrey's valuation methodologies as a whole, Robinson-Humphrey indicated that it believed it would be able to deliver an opinion that the $18.00 per share cash price was fair to the Public Stockholders, from a financial point of view. The Special Committee discussed the $18.00 per share cash offer in detail. The Special Committee examined the advantages and disadvantages of continuing to urge the Equity Investors to make an even higher offer, including the Equity Investors' ability to decline to proceed with the transaction if the Special Committee insisted on a higher price, with the result that the Company's stockholders would not receive a substantial premium for their shares. Similarly, the Special Committee again discussed the advantages and disadvantages of contacting other potential acquirors regarding their interest in pursuing a transaction with the Company. Based on Robinson-Humphrey's discussions with the Equity Investors and the valuation analyses presented by Robinson-Humphrey to the Special Committee on July 21, 1998, the Special Committee authorized Robinson-Humphrey to inform the Equity Investors that the Special Committee would be willing to pursue a transaction at $18.00 per share in cash. The Special Committee also authorized King & Spalding to continue to negotiate the terms of the definitive Merger Agreement. On July 27, 1998, the Special Committee, together with representatives of Robinson-Humphrey and King & Spalding, met to consider further the $18.00 per share cash offer by the Equity Investors. Representatives of King & Spalding reviewed again with the members of the Special Committee their legal 12 21 duties in connection with the consideration of the offer. King & Spalding also reviewed with the Special Committee the terms of the proposed Merger Agreement and the terms of the Equity Investors' commitment letters for the equity and debt financing for the Merger. At the meeting, Robinson-Humphrey then presented an analysis of the $18.00 per share cash offer and concluded that it was prepared to give an opinion that such offer was fair, from a financial point of view, to the Public Stockholders. The Special Committee discussed the $18.00 per share cash offer in detail, and questioned Robinson-Humphrey regarding certain aspects of its valuation methodologies and analyses. Based on the Robinson-Humphrey opinion and the valuation analyses presented by Robinson-Humphrey to the Special Committee during the July 27 meeting, the Special Committee's belief that the $18.00 per share cash price was the best offer available and the other factors described below in "-- The Special Committee's and the Board's Recommendation," the Special Committee unanimously decided to recommend the approval and adoption of the $18.00 per share cash offer. The Special Committee authorized King & Spalding to continue to negotiate the terms of the Merger Agreement with the Equity Investors and McDermott Will & Emery. Immediately after the Special Committee meeting on July 27, 1998, the Board of Directors of the Company met to receive the report of the Special Committee. At this meeting, Mr. Stephenson, Chairman of the Special Committee, gave the report of the Special Committee in which the Special Committee unanimously recommended to the Board of Directors of the Company that the Board accept the $18.00 per share cash offer and approve and adopt the Merger Agreement. At the Board meeting, Robinson-Humphrey also summarized its presentation given to the Special Committee on July 27 for the full Board of Directors of the Company. Following the July 27 Board meeting, representatives of King & Spalding, representatives of McDermott Will & Emery, and the Equity Investors held telephone conferences and meetings to resolve the remaining terms of the proposed Merger Agreement, resulting in a Merger Agreement mutually satisfactory to the Equity Investors and the Special Committee. On July 28, 1998, prior to the opening of trading on Nasdaq, the Special Committee met to review with King & Spalding the changes made to the proposed Merger Agreement the prior evening. After discussing the changes, the Special Committee unanimously reaffirmed its recommendation to the Board of Directors to accept the $18.00 per share cash offer and determined that the Merger, the Merger Agreement, and the transactions contemplated thereby were fair and in the best interests of the Public Stockholders of the Company. Immediately after the Special Committee meeting, the Board of Directors met to review the changes to the Merger Agreement. After discussing the changes and hearing the recommendations of the Special Committee, the Board of Directors unanimously determined that the Merger, the Merger Agreement, and the transactions contemplated thereby were fair and in the best interests of the Public Stockholders and approved the Merger Agreement. At the conclusion of the July 28, 1998 meeting, the Company issued a press release announcing that based on the recommendation of the Special Committee the Board of Directors had approved the Equity Investors' merger proposal of $18.00 per share in cash. A copy of the written materials provided by Robinson-Humphrey and distributed to the Special Committee at the July 27, 1998 meeting has been filed as an exhibit to the Schedule 13E-3 and is available for inspection and copying at the principal executive offices of the Company during its regular business hours by any stockholder or any representative of a stockholder who has been so designated in writing. A copy of such materials shall be provided to any stockholder or any representative of a stockholder who has been so designated in writing upon written request and at the expense of the requesting stockholder or representative. After reviewing an amendment and restatement of the Merger Agreement, dated , 1998, Robinson-Humphrey has determined not to withdraw its fairness opinion as of , 1998, the full text of which is attached as Appendix B to this Proxy Statement. THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATION Because certain of the CompDent directors will have a financial interest in the Merger, the full Board formed the Special Committee, comprised of the sole disinterested directors, to review and evaluate the proposed transaction. The Special Committee unanimously recommended to the Board that the Merger Agreement be approved and that it be recommended to the stockholders of the Company. Following the unanimous recommendation of the Special Committee, the Board approved the Merger Agreement and 13 22 recommended that the stockholders of the Company approve the Merger Agreement. In connection with the foregoing, the Special Committee and the Board determined that the Merger, the Merger Agreement, and the transactions contemplated thereby were fair and in the best interests of the Public Stockholders. In connection with their recommendations, the Special Committee and the Board each adopted the analyses and findings of the Special Committee's financial advisor, Robinson-Humphrey. See "SPECIAL FACTORS -- Opinion of Financial Advisor." The Special Committee and the Board recommend that the stockholders vote "For" the approval of the Merger Agreement. The Special Committee met on six occasions between July 14, 1998, and the date of this Proxy Statement, in person or by telephone conference, to consider developments relating to a possible sale of the Company. The Special Committee was assisted in its deliberations by its financial advisor, Robinson-Humphrey, and its legal counsel, King & Spalding. At a meeting held on July 27, 1998, the Special Committee determined that the Merger, the Merger Agreement, and the transactions contemplated thereby were fair and in the best interests of the Public Stockholders of the Company and recommended that the full Board approve the Merger Agreement. The Special Committee is unaware of any development since its July 27, 1998 meeting that would affect its July 27, 1998 determination, and, accordingly, the Special Committee reconfirms, as of the date of this Proxy Statement, its determination that the Merger, the Merger Agreement, and the transactions contemplated thereby are fair and in the best interests of the Public Stockholders of the Company. Based on the foregoing, the Board also reconfirms, as of the date of this Proxy Statement, its determination that the Merger, the Merger Agreement, and the transactions contemplated thereby are fair and in the best interests of the Public Stockholders of the Company. The material factors the Special Committee evaluated in connection with the Merger are described below. Except as noted below, the Special Committee considered the following factors to be positive factors supporting its determination that the Merger is fair and in the best interests of the Public Stockholders. In arriving at its decision, the Special Committee gave the most weight to: (i) The Special Committee's view that the Company has experienced increased competition and aggressive pricing by competitors. As a result, internal growth has become more difficult to achieve. In addition, acquisitions have become less attractive because acquisition prices have increased and the Company's reduced stock price has made acquisitions more expensive and dilutive to earnings. These factors resulted in a lower overall growth rate for the Company which had an adverse effect on the market price of the Common Stock and on management's ability to execute the Company's business strategy. In this connection, the Special Committee considered that the Company may be managed more effectively as a private company not subject to pressures from the Public Stockholders and market professionals to grow earnings per share consistently and at the Company's historical double digit rates. In addition, the Committee was concerned that given the reduced market price of the Common Stock, any additional equity incentives which the Company might issue to retain key members of management would have further adverse effects on the market price of the Common Stock. The Special Committee believes that, as a private company, the Company would have greater flexibility to consider business strategies that have long-term benefits (including acquisitions which are often dilutive in the short-term), but that would adversely impact earnings per share and the market price of the Common Stock in the short-term if the Company were public. (ii) The belief of the Special Committee that the Merger represents a more desirable alternative than continuing to operate the Company as a public company. In this connection, the Special Committee gave consideration to rejecting the Equity Investors' proposal in favor of maintaining the Company's independence and enabling the Public Stockholders to share in the Company's future earnings and growth potential. However, the Special Committee believes that continuing to operate the Company as an independent entity would subject the Company and its stockholders to delays in implementation or the risk of execution of the Company's business strategy as described above. After evaluating such risk (including the factors described under item (i) above), the Special Committee concluded that, while the Company's business strategy could ultimately prove successful, the risk that the Company will continue to experience significant operating events adversely impacting the performance of the Common Stock justifies a sale of the Company pursuant to the terms of the Merger Agreement. As alternatives to the 14 23 Merger, the Special Committee considered continuing to operate the Company as an independent entity, the implementation of a stock repurchase plan, and the preliminary proposals that are described above under " -- Background of the Merger." (iii) Information with respect to the financial condition, results of operations, and business of the Company. The Special Committee focused in particular on projections, which reflected lower revenues and operating income for future periods than had been anticipated prior to fiscal year 1998. (iv) The scope of efforts to effect a transaction for the Company, including the number and identity of potential buyers from which indications of interest were received. In this connection, the Special Committee considered that the Company had discussions with the likely strategic partners for the Company and that none of those discussions led to a definitive proposal to acquire the Company or reasonable prospects that a definitive proposal would be forthcoming. The Special Committee determined that based upon the prior discussions, it was unlikely that another bidder would make a definitive proposal to acquire the Company, or that if such a proposal were made, it would result in a transaction that would provide greater value to the Public Stockholders. In addition, the Special Committee considered the fact that the Equity Investors would withdraw their bid if their proposal was used to attempt to generate other bids from third parties. (v) Robinson-Humphrey's written opinion delivered to the Special Committee on July 28, 1998, which, after reviewing an amendment to the Merger Agreement, dated , 1998, Robinson-Humphrey decided not to withdraw as of , 1998, that the $18.00 per share in cash to be received by the Public Stockholders was fair to such holders from a financial point of view. The full text of the written opinion of Robinson-Humphrey dated July 28, 1998, which sets forth assumptions made, matters considered, and limitations on the review undertaken in connection with its opinion is attached hereto as Appendix B and is incorporated herein by reference. The Special Committee and the Board adopted the analyses and findings of Robinson-Humphrey in their determination that the Merger is fair to the Public Stockholders. The Company's stockholders are urged to and should read such opinion in its entirety. See " -- Opinion of Financial Advisor." (vi) The proposed terms and conditions of the Merger Agreement. In particular, the Special Committee considered the fact that the Merger Agreement does not provide for unreasonable termination fees and expense reimbursement obligations which would have the effect of unreasonably discouraging competing bids and that, subject to the satisfaction of certain conditions, the Board would be able to withdraw or modify its recommendation to the stockholders regarding the Merger and enter into an agreement with respect to a more favorable transaction with a third party, if such a transaction becomes available prior to the consummation of the Merger. See "THE MERGER." (vii) The market price of the Common Stock, which as recently as January 27, 1998 had traded at $9.56 per share, and the premium over such prices (as well as over the $13.50 per share market price on July 27, 1998) represented by the $18.00 per share in cash to be received by the Public Stockholders in the Merger. In addition, the Special Committee considered Robinson-Humphrey's analyses of the premiums paid in comparable merger transactions which indicated that the average premiums paid over the target stock prices one trading day prior to the announcement date, one week prior to the announcement date, and four weeks prior to the announcement date were 33.3%, 34.6% and 22.0%, respectively. See " -- Opinion of Financial Advisor." (viii) The financial ability and willingness of the Equity Investors to consummate the Merger. The Merger Agreement conditions the Acquiror's obligations to consummate the Merger on the Acquiror's having obtained financing for the Merger on terms satisfactory to the Acquiror. In this connection, the Special Committee reviewed commitment letters for equity financing supplied by the Equity Investors and by certain members of the Management Group and for debt financing supplied by the Investor Group's lenders. In addition, the Special Committee, through its financial and legal advisors, discussed the proposed financing with the Investor Group and its lenders. Based on the foregoing, the Special Committee did not view as substantial the risk that the financing condition of the Merger Agreement would not be satisfied. See "THE MERGER -- Financing of the Merger." 15 24 (ix) Actual or potential conflicts of interest to which certain officers and directors of the Company and their affiliates are subject in connection with the Merger, as follows: - The Special Committee considered that members of the Management Sponsors will own shares of common stock and/or Convertible Preferred Stock in the Surviving Corporation, representing approximately % of the Company's fully diluted equity. The Special Committee also considered that the Company will reserve for sale and/or the grant of options to certain members of management shares of common stock of the Surviving Corporation representing 12% of the common equity of the Surviving Corporation, and will also reserve for issuance to employees of the Company, pursuant to future grants of additional options, shares of common stock of the Surviving Corporation representing 3% of the common equity of the Surviving Corporation, a substantial portion of which is anticipated to be granted to the Management Group. The Special Committee further considered that certain members of the Management Group will enter into new employment agreements with the Surviving Corporation replacing their existing employment agreements with the Company, and that such new employment agreements will provide for the payment to them of base salaries, possible annual cash bonuses, and potential severance benefits. - The Special Committee considered that the Company has given each of the Management Sponsors an opportunity to roll over a substantial portion of his or her equity investment in the Company into an investment in the Surviving Corporation. The Special Committee considered that the rollover of a substantial portion of the Management Sponsor's current equity investment in the Company would indicate a level of confidence in the Company's prospects that might be inconsistent with the Special Committee's assessment of the risks associated with the Company's future. - The Special Committee considered the foregoing conflicts of interest in connection with management's preparation of the Company projections, which reflect a slower rate of growth for the Company and support a significantly lower value for the Company than previously anticipated. While the Special Committee recognized that the conflicts of interest to which the Management Group were subject might be a basis for doubting the reasonableness of the projections, the Special Committee concluded, based on its discussions with the Management Group and other officers and employees of the Company as described above, that management's assumptions underlying the projections are reasonable. The Special Committee considered the Management Group's conflicts of interest in connection with preparation of the projections. The Special Committee did not assign relative weights to the factors it considered, and it did not consider any relative weighting to be necessary in reaching its fairness determination. The Special Committee noted that approximately 3.4% of the outstanding shares of Common Stock are held by persons who have expressed their intention to vote their shares of Common Stock in favor of the Merger, including all of the members of the Investor Group, the other executive officers of CompDent, and the members of the Special Committee, although no written agreement has been entered into in this regard. The Special Committee also considered that the obligation of the Company to consummate the Merger is not conditioned upon the favorable vote of a majority of the Public Stockholders. Notwithstanding the absence of such a voting requirement, the Special Committee believes that the procedure that was followed in determining the purchase price to be paid to the stockholders of the Company was fair to the Public Stockholders. As described above, the seven person Board of Directors of the Company (a majority of whom are members of the Management Group or are affiliated with the Management Group) appointed as the only members of the Special Committee the three non-employee directors who were independent of the Management Group and granted the Special Committee exclusive authority on behalf of the Board to review, evaluate, and negotiate the transaction proposed by management. The Merger Agreement negotiated by the Special Committee contains provisions that would enable the Board to withdraw or modify its recommendation to the stockholders regarding the Merger and to enter into an agreement with respect to a more favorable transaction with a third party, and contains provisions (without which the Special Committee believes the Equity Investors would not have entered into the Merger Agreement) imposing upon the Company 16 25 termination fee and expense reimbursement obligations that, in the view of the Special Committee, are reasonable and would not have the effect of unreasonably discouraging competing bids. Further, the stockholders of the Company may dissent from the Merger and be paid cash for the "fair value" of their shares as determined in accordance with Delaware law. Thus, although the Merger is not structured to require approval of a majority of the unaffiliated stockholders, the Special Committee nevertheless believes, as of the date of this Proxy Statement and for the reasons set forth above, the Merger is procedurally fair to the Public Stockholders. In considering the fairness of the Merger, the Special Committee and the Board did not consider such factors as the Company's net book value or liquidation value, which are not believed to be indicative of the value of the Company as a going concern. The Company's tangible net book value per share and net book value per share as of June 30, 1998 were ($3.47) and $6.42, respectively, on a fully diluted basis, both substantially below the $18.00 purchase price per share of Common Stock (the "Cash Merger Consideration") to be paid by the Acquiror in the Merger. The Special Committee further believes the Company's liquidation value, which takes into account the appreciated value of the Company's assets, also would be substantially below $18.00 per share. Based on the foregoing, the Special Committee unanimously determined that the Merger, the Merger Agreement, and the transactions contemplated thereby were fair and in the best interests of the Public Stockholders and recommended to the Board approval of the Merger Agreement and that it be recommended to the stockholders of the Company. The Board unanimously approved the Merger on July 28, 1998, and after reviewing an amendment and restatement of the Merger Agreement dated , 1998 has determined not to withdraw its recommendation, that the Merger is fair and in the best interests of the Public Stockholders. THE BOARD RECOMMENDS THAT THE STOCKHOLDERS APPROVE THE MERGER. OPINION OF FINANCIAL ADVISOR Pursuant to an engagement letter dated July 14, 1998, the Special Committee retained Robinson-Humphrey to act as its financial advisor in connection with the consideration of the possible acquisition by the Acquiror and to render to the Special Committee an opinion with respect to the fairness, from a financial point of view, to the Company's stockholders (other than the Acquiror and shares held by certain members of the Investor Group (the "Recapitalization Shares")) of the Cash Merger Consideration to be received in the Merger. Robinson-Humphrey was selected as the Special Committee's fairness advisor because of its previous association with the Company, its familiarity with the Company, and its operations and standing as a nationally-recognized investment banking firm which is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate, and other opinions. Based on these qualifications, the Special Committee selected Robinson-Humphrey as its financial advisor and determined that it was unnecessary to interview other investment banking firms. Robinson-Humphrey delivered its written opinion to the Special Committee to the effect that the Cash Merger Consideration to be received in the Proposed Transaction is fair to the stockholders of the Company (other than the Acquiror and the holders of Recapitalization Shares). On , 1998, Robinson- Humphrey reconfirmed in writing that its opinion to the Special Committee dated July 28, 1998 has not been withdrawn. The full text of Robinson-Humphrey's opinion dated as of July 28, 1998, which sets forth the assumptions made, matters considered, and limits on the review undertaken in connection with the opinion is attached hereto as Appendix B. The Company's stockholders are urged to carefully read such opinion in its entirety. Robinson-Humphrey's opinion is addressed to the Special Committee, is directed only to the fairness of the Cash Merger Consideration to be received in the Merger by the stockholders of the Company (other than the Acquiror and the holders of the Recapitalization Shares), and does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote in relation to the Merger. The summary 17 26 of the opinion of Robinson-Humphrey set forth in this Proxy Statement is qualified in its entirety by reference to the full text of such opinion. In arriving at its opinion, Robinson-Humphrey reviewed and analyzed: (i) the Agreement and Plan of Merger, (ii) publicly available information concerning the Company which Robinson-Humphrey believed to be relevant to its inquiry, (iii) financial and operating information with respect to the business, operations, and prospects of the Company furnished to Robinson-Humphrey by the Company, (iv) the Dental Health Development Corporation Securities Purchase Agreement dated September 12, 1997, (v) a trading history of the Company's Common Stock from May 26, 1995 to July 24, 1998, and a comparison of that trading history with those of other companies which Robinson-Humphrey deemed relevant, (vi) a comparison of the historical financial results and present financial condition of the Company with those of other companies which were deemed relevant, (vii) a comparison of the financial terms of the Merger with the financial terms of certain other recent transactions which Robinson-Humphrey deemed relevant and (viii) certain historical data relating to acquisitions of publicly traded companies, including percentage premiums and price/earnings ratios paid in such acquisitions. In addition, Robinson-Humphrey held discussions with the management of the Company concerning its business, operations, assets, present condition, and future prospects, and undertook such other studies, analyses, and investigation as Robinson-Humphrey deemed appropriate. Robinson-Humphrey relied upon the accuracy and completeness of the financial and other information used by Robinson-Humphrey in arriving at its opinion without independent verification. With respect to the financial forecasts of the Company, Robinson-Humphrey assumed that such forecasts had been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the Company's management as to the future financial performance of the Company. Robinson-Humphrey did not conduct a physical inspection of the properties and facilities of the Company and did not make or obtain any evaluations or appraisals of the assets or liabilities of the Company. In addition, Robinson-Humphrey was not authorized to solicit, and did not solicit, any indications of interest from any third party with respect to the acquisition of all or any portion of the Company's business. Robinson-Humphrey's opinion was necessarily based upon market, economic, and other conditions as they may have existed and could be evaluated as of July 28, 1998. In connection with the preparation of its fairness opinion, Robinson-Humphrey performed certain financial and comparative analyses, the material portions of which are summarized below. The summary set forth below includes the financial analyses used by Robinson-Humphrey and deemed to be material, but does not purport to be a complete description of the analyses performed by Robinson-Humphrey in arriving at its opinion. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances, and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. In addition, Robinson-Humphrey believes that its analyses must be considered as an integrated whole, and that selecting portions of such analyses and the factors considered by it, without considering all of such analyses and factors, could create a misleading or an incomplete view of the process underlying its analyses set forth in the opinion. In performing its analyses, Robinson-Humphrey made numerous assumptions with respect to industry and economic conditions and other matters, many of which are beyond the control of the Company. Any estimates contained in such analyses are not necessarily indicative of actual past or future results or values, which may be significantly more or less favorable than as set forth therein. Estimates of values of companies do not purport to be appraisals or necessarily to reflect the price at which such companies may actually be sold, and such estimates are inherently subject to uncertainty. No public company utilized as a comparison is identical to the Company and no merger and acquisition transaction involved companies identical to the Company. An analysis of the results of such comparisons is not mathematical; rather, it involves complex considerations and judgements concerning differences in financial and operating characteristics of the comparable companies and transactions and other factors that could affect the values of companies to which the Company is being compared. Certain analyses performed by Robinson-Humphrey utilized financial forecasts for the Company based upon estimates published by equity research analysts in the investment community, including Robinson-Humphrey's equity research analyst. 18 27 The following is a summary of the presentation by Robinson-Humphrey to the Special Committee and Board of Directors on July 27, 1998 in connection with its July 28, 1998 opinion. Historical Stock Price Analysis. Robinson-Humphrey analyzed the prices at which the Common Stock of the Company traded subsequent to the Company's initial public offering on May 26, 1995 through July 24, 1998. Robinson-Humphrey observed that the all-time high price for the Common Stock was $51.69 on July 2, 1996, and the all-time low price for the Common Stock was $9.56 on January 27, 1998. During the period from July 24, 1997 through July 24, 1998, Robinson-Humphrey observed that 18.9% of the total trading in the shares of the Company were traded in a price range of $9.00 to $12.80 per share, 43.5% of the shares were traded in a price range of $12.80 to $16.60, 7.9% of the shares were traded in a price range of $16.60 to $20.40 per share and 29.7% were traded in a price range of $20.40 to $28.00 per share. During the period from January 2, 1998 to July 24, 1998, Robinson-Humphrey observed that 10.0% of the total trading in the shares of the Company were traded in a price range of $9.00 to $11.40 per share, 43.8% of the shares were traded in a price range of $11.40 to $13.80 per share, 42.5% of the shares were traded in a price range of $13.80 to $16.20 per share, 3.1% of the shares were traded in a price range of $16.20 to $18.60 per share, and 0.6% of the shares were traded in a price range of $18.60 to $21.00 per share. Based on the Cash Merger Consideration of $18.00 per share for the Company, Robinson-Humphrey calculated per share premiums of 33.3%, 34.6%, and 22.0% to the Company's closing stock prices at one trading day, one week, and four weeks prior to the announcement date of the Merger, respectively. Comparable Public Company Analysis. Robinson-Humphrey reviewed and compared certain publicly available financial, operating, and market valuation data for the Company and three groups of publicly traded companies. The "Dental Managed Care Companies" included in Robinson-Humphrey's comparable public company analysis were First Commonwealth, Inc., Safeguard Health Enterprises, Inc., and United Dental Care, Inc. The "Dental Practice Management Companies" included in Robinson-Humphrey's comparable public company analysis were American Dental Partners, Inc., Birner Dental Management Services, Inc., Castle Dental Centers, Inc., Coast Dental Services, Inc., Dental Care Alliance, Inc., Gentle Dental Services Corporation, Monarch Dental Corporation, and Pentegra Dental Group, Inc. The "Multi-Market HMO Companies" included in Robinson-Humphrey's comparable public company analysis were Foundation Health Systems, Inc., Humana, Inc., Maxicare Health Plans, Inc., Mid-Atlantic Medical Services, Inc., Oxford Health Plans, Inc., Pacificare Health Systems, Inc., and United Healthcare Corp. Robinson-Humphrey noted that none of the comparable public companies were identical to the Company and that, accordingly, the analysis of the comparable public companies necessarily involves complex considerations and judgements concerning differences in financial and operating characteristics of the companies reviewed and other factors that would affect the market values of comparable companies. Robinson-Humphrey calculated various financial ratios and multiples based upon the closing prices of the comparable public companies as of July 24, 1998, the most recent publicly available information for the various companies, and information concerning the projected financial results of the various companies, as promulgated by equity research analysts of nationally recognized investment banking firms. The following valuation ratios were used in determining ranges of implied equity values per share of the Company: current market price to (i) latest twelve months ("LTM") earnings per share, (ii) current earnings per share estimates of research analysts as provided by First Call Investor Services, (iii) current earnings per share estimates of the Company's management and (iv) book value, and firm value (defined as equity value plus debt and preferred stock minus cash and marketable securities) to (a) LTM revenues, (b) LTM earnings before interest and taxes ("EBIT"), and (c) LTM earnings before interest, taxes, depreciation, and amortization ("EBITDA"). Robinson-Humphrey averaged the multiples of the publicly traded comparable companies in order to apply these multiples to the Company's values. To accurately reflect average values for statistical purposes, Robinson-Humphrey excluded certain outlying values that differed from the relative groupings of the other values. Robinson-Humphrey believed that these outlying values for certain companies reflect temporary market aberrations that can skew mean values. Robinson-Humphrey applied the valuation multiples for the group of Dental Managed Care Companies to the Company's: (i) LTM earnings per share, (ii) projected 1998 and 1999 earnings per share as estimated 19 28 by Robinson-Humphrey's equity research analyst and other equity research analysts, (iii) projected 1998 and 1999 earnings per share as estimated by the Company's management, (iv) book value, (v) LTM revenues, (vi) LTM EBIT, and (vii) LTM EBITDA. Based upon the average valuation multiples for the group of Dental Managed Care Companies, Robinson-Humphrey calculated a range of implied equity values from $5.23 per share to $20.22 per share, with an average implied equity value of $13.42 per share for the Company. Robinson-Humphrey also calculated a range of implied equity values for the Company by applying the valuation multiples of the group of Dental Managed Care Companies to the financial results of the Company's dental managed care business and by applying the valuation multiples of the group of Dental Practice Management Companies to the financial results for the Company's dental practice management business. Robinson-Humphrey then added the valuations derived for each segment of the Company's business to derive a range of implied equity values for the Company. Robinson-Humphrey applied the average valuation multiples for the group of Dental Managed Care Companies to the Company's (i) projected 1998 and 1999 net income for the dental managed care business as estimated by the Company's management and (ii) LTM EBITDA for the dental managed care business, and the average valuation multiples for the group of Dental Practice Management Companies to the Company's (i) projected 1998 and 1999 net income for the dental practice management business as estimated by the Company's management and (ii) LTM EBITDA for the dental practice management business. Based upon this valuation approach, Robinson-Humphrey calculated a range of implied equity values from $11.63 per share to $18.83 per share, with an average implied equity value of $14.84 per share for the Company. In addition, Robinson-Humphrey applied the valuation multiples for the group of Multi-Market HMO Companies to the Company's (i) LTM earnings per share, (ii) projected 1998 and 1999 earnings per share as estimated by Robinson-Humphrey's equity research analyst and other equity research analysts, (iii) projected 1998 and 1999 earnings per share as estimated by the Company's management, (iv) book value, (v) LTM revenues, (vi) LTM EBIT, and (vii) LTM EBITDA. Based upon the average valuation multiples for the group of Multi-Market HMO Companies, Robinson-Humphrey calculated a range of implied equity values from $1.31 per share to $35.24 per share, with an average implied equity value of $19.66 per share for the Company. Analysis of Selected Merger and Acquisition Transactions. Robinson-Humphrey reviewed and analyzed 14 pending and completed merger and acquisition transactions involving dental managed care companies since December 1994. Robinson-Humphrey noted that none of the selected transactions reviewed was identical to the Merger and that, accordingly, the analysis of comparable transactions necessarily involves complex considerations and judgements concerning differences in financial and operating characteristics of the companies reviewed and other factors that would effect the acquisition values of comparable transactions. For each acquisition, Robinson-Humphrey calculated purchase price as a multiple of (i) LTM net income and (ii) book value, and transaction firm value as a multiple of (i) LTM revenues, (ii) LTM EBIT and (iii) LTM EBITDA. Robinson-Humphrey averaged the multiples for the selected merger and acquisition transactions involving dental managed care companies in order to apply these multiples to the Company's values. Based upon the average multiples from these selected transactions involving dental managed care companies, Robinson-Humphrey calculated a range of implied equity values from $12.42 per share to $37.38 per share, with an average implied equity value of $18.73 per share for the Company. For the five merger and acquisition transactions involving dental managed care companies for which projected financial information at the time of the transaction was available, Robinson-Humphrey calculated transaction firm value as a multiple of (i) projected revenues, (ii) projected EBIT and (iii) projected EBITDA. Robinson-Humphrey averaged the multiples for these selected merger and acquisition transactions involving dental managed care companies in order to apply such multiples to the Company's values. Based upon the average multiples from these selected transactions involving dental managed care companies, Robinson-Humphrey calculated a range of implied equity values from $8.85 per share to $12.43 per share, with an average implied equity value of $11.19 per share for the Company. Robinson-Humphrey reviewed and analyzed the pending acquisition of United Dental Care, Inc. ("United Dental Care") by Protective Life Corporation. Robinson-Humphrey calculated purchase price as a 20 29 multiple of (i) LTM earnings per share and (ii) book value, and transaction firm value as a multiple of (i) LTM revenues, (ii) LTM EBIT, (iii) LTM EBITDA, and (iv) members, and calculated the transaction premiums one day, one week, and four weeks prior to the announcement date of the transaction. Based upon the transaction multiples and premiums paid in the United Dental Care acquisition, Robinson-Humphrey calculated a range of implied equity values from $9.19 per share to $57.39 per share, with an average implied equity value of $20.33 per share for the Company. Robinson-Humphrey also noted that the multiple of firm value to members in the United Dental Care acquisition implied an equity value of $14.06 per share for the Company. For the pending acquisition of United Dental Care, Robinson-Humphrey also calculated purchase price as a multiple of projected 1998 and 1999 earnings per share, transaction firm value as a multiple of projected 1998 and 1999 revenues, EBIT and EBITDA, and calculated the transaction premiums one day, one week, and four weeks prior to the announcement date of the transaction. Based upon these transaction multiples and premiums paid in the United Dental Care acquisition, Robinson-Humphrey calculated a range of implied equity values from $10.35 per share to $29.37 per share, with an average implied equity value of $20.35 per share for the Company. Robinson-Humphrey also calculated a range of implied equity values for the Company by applying the multiples for transactions involving dental managed care companies to the financial results for the Company's dental managed care business and by applying the multiples from 14 transactions involving dental practice management companies to the financial results for the Company's dental practice management business. Robinson-Humphrey then added the valuations derived for each segment of the Company's business to derive a range of implied equity values for the Company. Robinson-Humphrey applied the average transaction multiples for the transactions involving dental managed care companies to the Company's LTM revenues and LTM EBITDA for the dental managed care business and the average transaction multiples for the transactions involving dental practice management companies to the Company's LTM revenues and LTM EBITDA for the dental practice management business. Based upon this valuation approach, Robinson- Humphrey calculated a range of implied equity values from $11.97 per share to $22.39 per share, with an average implied equity value of $17.18 per share for the Company. In addition, Robinson-Humphrey reviewed and analyzed 34 pending and completed mergers and acquisitions involving HMO companies since March 1993. For each transaction, Robinson-Humphrey calculated purchase price as a multiple of (i) LTM net income and (ii) book value, and transaction firm value as a multiple of (i) LTM revenues, (ii) LTM EBIT, and (iii) LTM EBITDA. Robinson-Humphrey averaged the multiples for these selected merger and acquisition transactions involving HMO companies in order to apply these multiples to the Company's values. Based upon the multiples from these selected transactions involving HMO companies, Robinson-Humphrey calculated a range of implied equity values from $10.93 per share to $30.35 per share, with an average implied equity value of $24.99 per share for the Company. For the eight transactions involving HMO companies that were publicly traded, Robinson-Humphrey calculated purchase price as a multiple of projected earnings per share, as promulgated by industry analysts of nationally recognized investment banking firms as of the date most immediately available prior to the transaction announcement date, and calculated the implied transaction premiums one day, one week, and four weeks prior to the announcement date. Robinson-Humphrey averaged the transaction multiples and premiums paid for these selected transactions in order to apply these multiples to the Company's values. Based upon the average transaction multiples and premiums paid in these selected transactions involving publicly traded HMO companies, Robinson-Humphrey calculated a range of implied equity values from $16.44 per share to $22.04 per share, with an average implied equity value of $18.74 per share for the Company. Further, Robinson-Humphrey reviewed average and median transaction premiums and price to earnings multiples paid in corporate acquisitions in general occurring from 1992 through 1996. From the annual averages, Robinson-Humphrey calculated five-year average transaction premiums and price to earnings multiples in order to apply these premiums and multiples to the Company's values. Based upon these average transaction premiums and price to earnings multiples, Robinson-Humphrey calculated a range of implied 21 30 equity values from $17.47 per share to $27.43 per share, with an average implied equity value of $21.20 per share for the Company. Transaction Premiums Analysis. Robinson-Humphrey analyzed the premiums paid for 141 mergers and acquisitions of publicly traded companies with transaction values in the range of $100 million to $300 million during the period from July 24, 1997 to July 24, 1998. The average premiums paid over the target stock prices one trading day prior to the announcement date, one week prior to the announcement date, and four weeks prior to the announcement date were 23.8%, 29.9%, and 37.3%, respectively. Based upon these transaction premiums, Robinson-Humphrey calculated a range of implied equity values from $16.40 per share to $20.25 per share, with an average implied equity value of $18.01 per share for the Company. Discounted Cash Flow Analysis. Robinson-Humphrey performed a discounted cash flow analysis using the Company's financial projections for 1999 through 2003 to estimate the net present equity value per share for the Company. Robinson-Humphrey calculated a range of net present values of the Company's free cash flows (defined as projected earnings before interest after taxes plus depreciation and amortization, less capital expenditures and any increase in net working capital) for 1999 through 2003 using discount rates ranging from 11% to 16%. Robinson-Humphrey calculated a range of net present values of the Company's terminal values using the same range of discount rates and multiples ranging from 6.0x to 12.0x projected 2003 EBIT and also using the same range of discount rates and multiples ranging from 5.0x to 9.0x projected 2003 EBITDA. The present values of the free cash flows were then added to the corresponding present values of the terminal values. After adding the Company's cash and cash equivalents and deducting the Company's debt as of June 30, 1998, Robinson-Humphrey calculated a range of net present equity values for the Company of $11.44 per share to $29.22 per share based upon terminal values of EBIT multiples and a range of net present equity values for the Company of $10.78 per share to $24.93 per share based upon terminal values of EBITDA multiples. Using a mid-range discount rate of 13% and terminal value multiples of 8.0x projected 2003 EBIT and 6.5x projected 2003 EBITDA, Robinson-Humphrey calculated net present equity values for the Company of $17.84 per share and $16.44 per share, respectively. Analysis of Dental Health Development Corporation. On September 12, 1997, the Company, GTCR, and certain other parties invested in DHDC, a Delaware corporation which engages in the development of start-up dental facilities. Robinson-Humphrey analyzed and reviewed certain of the Company's commitments and options relating to DHDC. The Company has a commitment to provide $10.0 million of capital equipment funding for DentLease Inc. ("DentLease") over a 42 month period ending February 28, 2001. As of June 30, 1998, the Company had funded approximately $6.0 million of the $10.0 million DentLease funding commitment. The Company also has an option to redeem the outstanding shares of DHDC Series A Preferred Stock and Class A Common Stock held by GTCR, which would result in the redemption of certain purchase options that the GTCR Partnership has on the Company's 49% equity interest in DHMI and on certain equipment held by DentLease, which the GTCR Partnership can exercise for nominal consideration (the "GTCR Option"). In order to redeem the GTCR Option, the Company must redeem the approximately $10 million of DHDC Series A Preferred Stock and Class A Common Stock beginning on February 28, 2001, and ending on September 12, 2004, at a price equal to the principal invested plus all accrued and unpaid dividends. Dividends on each share of DHDC Series A Preferred Stock accrue at a compound rate of 31% per annum beginning September 12, 1997, the date of the initial investment. Robinson-Humphrey estimated the cost to the Company of extinguishing its capital funding commitment and redeeming the GTCR Option to range from $0.75 per share to $2.08 per share of Common Stock. Robinson-Humphrey believed the cost to extinguish its capital funding commitment and redeeming the GTCR Option should be added to the Cash Merger Consideration in order to evaluate the total consideration to be received by the Company's stockholders in the Merger. Therefore, in assessing the fairness, from a financial point of view, of the Cash Merger Consideration to be received by the Company's stockholders in the Merger, Robinson-Humphrey considered the cost to extinguish its capital funding commitment and redeeming the GTCR Option in addition to the $18.00 per share in cash to be received by the Company's stockholders in the Merger. The summary set forth above does not purport to be a complete description of the analyses conducted or data presented by Robinson-Humphrey. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Robinson-Humphrey believes that the 22 31 summary set forth above and their analyses must be considered as a whole and that selecting only portions thereof, without considering all of its analyses, could create an incomplete view of the processes underlying its analyses and opinion. Robinson-Humphrey based its analyses on assumptions that it deemed reasonable, including assumptions concerning general business and economic conditions and industry-specific factors. The preparation of fairness opinions does not involve a mathematical weighing of the results of the individual analyses performed, but requires Robinson-Humphrey to exercise its professional judgement, based on its experience and expertise, in considering a wide variety of analyses taken as a whole. Each of the analyses conducted by Robinson-Humphrey was carried out in order to provide a different perspective on the transaction and to add to the total mix of information available. Robinson-Humphrey did not form a conclusion as to whether any individual analysis, considered in isolation, supported or failed to support an opinion as to fairness. Rather, in reaching its conclusion, Robinson-Humphrey considered the results of the analyses in light of each other and ultimately reached its conclusion based on the results of all analyses taken as a whole. Under the terms of the Company's engagement letter with Robinson-Humphrey, the Company has paid Robinson-Humphrey a retainer of $50,000 and a fee of $500,000 for the preparation and delivery of its fairness opinion. If the Merger is consummated, an additional transaction fee of approximately $588,000 will be paid to Robinson-Humphrey. The Company has agreed to reimburse Robinson-Humphrey for its reasonable out-of-pocket expenses, including attorneys' fees, and to indemnify Robinson-Humphrey against certain liabilities, including certain liabilities under the federal securities laws. Robinson-Humphrey was engaged by the Company (i) as a co-managing underwriter in the Company's August 1995 public offering of Common Stock for which Robinson-Humphrey received underwriting commissions of approximately $587,075, (ii) as placement agent for DHDC's September 1997 private placement of securities for which Robinson-Humphrey received $450,000 in placement fees, and (iii) as a financial advisor to the Company in connection with four of the Company's acquisitions since January 1, 1996, for which Robinson-Humphrey received approximately $795,000 in fees. In the ordinary course of Robinson- Humphrey's business, Robinson-Humphrey actively trades in the equity securities of the Company for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or a short position in such securities. In addition, RH Capital Partners, L.P., an affiliate of Robinson-Humphrey ("RH Capital"), purchased $500,042 of the Series A Preferred Stock and Class A Common Stock of DHDC from the GTCR Partnership on October 29, 1997. This represents 5% of the total outstanding Series A Preferred Stock and Class A Common Stock of DHDC. RH Capital's investment is passive in nature and RH Capital does not have the right to nominate any representatives to the DHDC Board of Directors. Pursuant to the terms of the Series A Preferred Stock, RH Capital has the contractual right to receive a fixed, compound annual return of 31% on its investment in the Series A Preferred Stock. RH Capital has agreed to resell its investment in DHDC to the GTCR Partnership prior to the Merger for $ , which is equal to the original cost of this investment plus the accrued dividends thereon. Robinson-Humphrey believes that the foregoing arrangements do not affect its ability to independently and impartially deliver an opinion to the Special Committee with respect to the fairness of the Merger from a financial point of view. PURPOSE AND REASONS OF THE INVESTOR GROUP FOR THE MERGER The purpose of the Investor Group for engaging in the transactions contemplated by the Merger Agreement is to acquire 100% ownership of the Company. The Investor Group believes that as a private company CompDent will have greater operating flexibility to focus on enhancing value by emphasizing growth (both internally and through acquisitions) and operating cash flow without the constraint of the public market's emphasis on quarterly earnings. This assessment by the Investor Group is based upon publicly available information regarding the Company, the Investor Group's due diligence investigation of the Company, and the Investor Group's experience in investing in companies in the dental managed care industry. While the Investor Group believes that there will be significant opportunities associated with its investment in the Company, there are also substantial risks that such opportunities may not be fully realized. As a result of the Merger, the TA Fund will acquire, for an investment of up to approximately $ million, approximately % of the equity interest in the Company; the GTCR Partnership will 23 32 acquire, for an investment of up to approximately $ million and a contribution of its equity interest in DHDC with an agreed upon value of $ , approximately % of the equity interest in the Company; the NMS Partnership will acquire, for an investment of up to approximately $3.0 million, approximately % of the equity interest in the Company; the Management Group will acquire for an investment of up to approximately $ million, approximately % of the equity interest in the Company; and the Other Investors will acquire, for an investment of up to approximately $ million, approximately % of the equity interest in the Company. A portion of the Investor Group's investment in the Acquiror will result from the exchange of CompDent Common Stock for securities of the Surviving Corporation so that the transaction may be accounted for as a recapitalization for accounting purposes. Certain members of the Management Group and the Other Investors will also receive the Cash Merger Consideration for the remainder of their investment in the Company on the same terms as other stockholders and will receive a cash payment for the aggregate unrealized value of their outstanding stock options. POSITION OF THE INVESTOR GROUP AS TO FAIRNESS OF THE MERGER Each member of the Investor Group has considered the analyses and findings of the Special Committee and the Board (described in detail in "-- The Special Committee's and the Board's Recommendation") with respect to the fairness of the Merger to the Public Stockholders of the Company. As of the date of this Proxy Statement, each member of the Investor Group adopts the analyses and findings of the Special Committee and the Board with respect to the fairness of the Merger and believes that the Merger, the Merger Agreement, and the transactions contemplated thereby are fair and in the best interests of the Company's Public Stockholders; provided that no opinion is expressed as to the fairness to any stockholder making an investment in the Surviving Corporation. No member of the Investor Group makes any recommendation as to how the Company's stockholders should vote on the Merger Agreement. The Equity Investors and the Other Investors have financial interests in the Merger and the members of the Management Group have financial and employment interests in the Merger. See " -- Conflicts of Interest." CONFLICTS OF INTEREST In considering the recommendations of the Board with respect to the Merger, stockholders should be aware that certain officers and directors of CompDent, as well as certain investors in CompDent, have interests in connection with the Merger which may present them with actual or potential conflicts of interest as summarized below. The Special Committee and the Board were aware of these interests and considered them among the other matters described under " -- The Special Committee's and the Board's Recommendation." The Special Committee considered the Management Group's conflicts of interest to be a negative factor in its determination that the Merger is fair and in the best interests of the Public Stockholders, even though the compensation and benefits payable to members of the Management Group are intended to provide a substantially equivalent amount of compensation and benefits as they are currently entitled to receive from the Company. 24 33 Post-Merger Ownership and Control of the Surviving Corporation. It is anticipated that immediately after the Merger the following individuals and entities will beneficially own the number of shares of common stock and the number of shares of Convertible Preferred Stock of the Surviving Corporation shown in the following table.
NUMBER OF SHARES PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF OF COMMON STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED - ------------------------ ------------------ ------------------ ------------------- ------------------ Golder, Thoma, Cressey, Rauner Fund V, L.P................. GTCR Associates V............. TA/Advent VIII L.P............ Advent Atlantic and Pacific III......................... TA Executives Fund LLC........ TA Investors LLC.............. NMS Capital, L.P.............. David R. Klock................ Phyllis A. Klock.............. Bruce A. Mitchell............. Keith J. Yoder................ Joseph A. Ciffolillo..........
Following consummation of the Merger, the members of the Management Group will continue as the executive officers of the Surviving Corporation, and David Klock and Phyllis Klock will serve on the Board of Directors of the Surviving Corporation. It is anticipated that the Board of Directors of the Surviving Corporation will consist of seven members and will be comprised of David Klock, Phyllis Klock, Donald Edwards (as a designee of the GTCR Partnership), Roger Kafker (as a designee of the TA Fund), and up to three outside directors to be determined at a later time. The Management Group. After consummation of the Merger, members of the Management Group will own shares of Convertible Preferred Stock and/or common stock of the Surviving Corporation and/or options to purchase shares of common stock of the Surviving Corporation, representing approximately % of such shares expected to be then issued and outstanding (assuming exercise of such options). Certain of these Shares will be subject to vesting restrictions. Shares of Common Stock held by the Management Group that are not exchanged will be converted into the right to receive the same Cash Merger Consideration as shares of Common Stock held by other stockholders of the Company. The Surviving Corporation will also reserve for issuance, pursuant to future grants of additional options, shares of common stock of the Surviving Corporation representing 3% of the common equity of the Surviving Corporation. It is contemplated that members of the Management Group will receive a substantial portion of such option grants. Cash Payments to Management Group and Other Investors. At the closing of the Merger, all outstanding options to purchase Common Stock which are vested will be cashed out in accordance with the terms of the Merger Agreement. All options that are not vested will be canceled in accordance with their terms or the applicable option plan. See "THE MERGER -- Cash-Out of CompDent Stock Options." As of , 1998, there were vested options outstanding to purchase an aggregate of 620,750 shares of Common Stock, of which 442,250 have an exercise price per share of less than $18.00. The following table sets forth information as of the date of this Proxy Statement as to the shares of Common Stock and the options to 25 34 purchase shares of Common Stock held by members of the Management Group and the Other Investors for which cash payments will be received upon consummation of the Merger.
AMOUNT OF CASH TO SHARES NOT BE RECEIVED FOR INVESTOR GROUP MEMBER EXCHANGED SHARES EXCHANGED - --------------------- ---------- -----------------
TOTAL AMOUNT OF SHARES CASH TO BE RECEIVED UNDERLYING UPON CONSUMMATION INVESTOR GROUP MEMBER STOCK OPTIONS OF THE MERGER - --------------------- ------------- -------------------
Grant of New Options to the Management Group. The Board of Directors of the Surviving Corporation will reserve shares of common stock representing 3% of the common equity of the Surviving Corporation for the grant of stock options (the "New Options") to certain employees. The New Options are currently expected to either vest in equal portions annually over five years following the date of grant or vest upon the achievement of certain performance-based criteria. The New Options are subject to a number of other conditions. The New Options will be granted as follows: - the Management Group will receive between % and % of the New Options upon consummation of the Merger; - other key employees of the Company will receive approximately % of the remaining New Options upon consummation of the Merger; and - the approximately % of the remaining New Options will remain available for grant to future employees of CompDent. No determination has yet been made as to the number of New Options to be granted to any individual. "Change in Control" Payments to the Management Group. The consummation of the Merger will constitute a "change in control" of the Company triggering certain continuation bonus payment obligations pursuant to the terms of the respective employment agreements between the Company and each of David R. Klock and Phyllis A. Klock. It is proposed that each such individual waive any rights and forego any continuation bonus payments that such individual may have under his or her current employment agreement or that he or she might otherwise be entitled to upon a "change in control" of the Company in consideration of payments which would be received pursuant to the new employment agreements described below. If they do not agree to forego such payments, then David R. Klock and Phyllis A. Klock would be entitled to receive, among other compensation and benefits, $1,000,000 and $750,000, respectively, under their current employment agreements upon the occurrence of a "change in control" if they agree (i) to remain employed by the Company until the first anniversary of the consummation of the "change in control" and (ii) to be bound for an extended period of time by certain noncompetition provisions and (iii) provide certain consulting services to the Company. In addition, certain other members of the Management Group would be entitled to severance payments pursuant to the their respective employment agreements with the Company upon an involuntary 26 35 termination of employment following a "change in control". Because the Merger will constitute a "change in control," it is proposed that each of these members agree to amend their employment agreements to remove their respective "change in control" provisions. New Employment Agreements with the Management Group. It has been proposed that the employment agreements that certain members of the Management Group currently have with the Company be terminated upon consummation of the Merger, at which time, such members of the Management Group would enter into new employment agreements with the Surviving Corporation. The principal such proposed new employment agreements are as follows: - each agreement would have a term of years, unless terminated or not renewed in accordance with the agreement's terms; - each agreement would provide for compensation consisting of base salary and a potential cash bonus (the eligibility formula for which is intended to be based on ); and - each agreement would provide for a severance payment in the event of termination by the Company without cause or resignation by the employee for good reason, consisting of years' payment of base salary and bonus and continuation of normal health and life insurance, retirement, and other benefits. It is proposed that the initial base salaries for David R. Klock, Phyllis A. Klock, Bruce A. Mitchell, and Keith J. Yoder pursuant to their new employment agreements with the Surviving Corporation would be $250,000, $215,000, $200,000, and $200,000, respectively. The potential annual cash bonuses for each of the members of the Management Group pursuant to each of their employment agreements would be at the discretion of the Compensation Committee of the Board of Directors. Interests in Dental Health Development Corporation. Phyllis Klock and Bruce Mitchell own 700 and 500 shares of Class B Common Stock of DHDC, respectively. It is expected that these shares will be exchanged for a nominal number of shares of common stock and/or Convertible Preferred Stock of the Surviving Corporation following the closing of the Merger. Stockholders' Agreement. Members of the Investor Group are expected to enter into a stockholders' agreement that will restrict the ability of each member to transfer the shares of capital stock of CompDent to be owned by them and create certain other rights and obligations with respect to such shares. Indemnification and Insurance. The Merger Agreement requires that CompDent provide indemnification, to the full extent permitted by applicable law, to its current and former officers and directors (including members of the Special Committee) against liabilities (including reasonable attorneys' fees) relating to actions or omissions arising out of their being a director, officer, employee, or agent of the Company at or prior to the closing of the Merger (including the transactions contemplated by the Merger Agreement). In addition, CompDent is obligated for a period of six years from the closing of the Merger to continue in effect directors' and officers' liability insurance with respect to matters occurring prior to the closing of the Merger, which insurance must contain terms and conditions no less advantageous than are contained in the Company's current directors' and officers' liability insurance policy, provided that the Company is not obligated to expend annually more than 125% of the current cost of such coverage. The Other Investors. After consummation of the Merger, the Other Investors may be deemed to beneficially own approximately % of the shares of common stock and Convertible Preferred Stock of the Surviving Corporation expected to be then issued and outstanding. Joseph A. Ciffolillo, a director of the Company and a member of the Other Investors will . At the closing of the Merger, Mr. Ciffolillo will receive a cash payment of for the aggregate unrealized gain on his stock options to purchase shares of Common Stock. Robinson-Humphrey. Robinson-Humphrey was engaged by the Company (i) as a co-managing underwriter in the Company's August 1995 public offering of Common Stock for which Robinson-Humphrey received underwriting commissions of approximately $587,075, (ii) as placement agent for DHDC's September 1997 private placement of securities for which Robinson-Humphrey received $450,000 in 27 36 placement fees, and (iii) as a financial advisor to the Company in connection with four of the Company's acquisitions since January 1, 1996, for which Robinson-Humphrey received approximately $795,000 in fees. In the ordinary course of Robinson-Humphrey's business, Robinson-Humphrey actively trades in the equity securities of the Company for its own account and for the accounts of its customers and accordingly, may at any time hold a long or a short position in such securities. In addition, RH Capital, an affiliate of Robinson-Humphrey, purchased $500,042 of the Series A Preferred Stock and Class A Common Stock of DHDC from the GTCR Partnership on October 29, 1997. This represents 5% of the total outstanding Series A Preferred Stock and Class A Common Stock of DHDC. RH Capital's investment is passive in nature and RH Capital does not have the right to nominate any representatives to the DHDC Board of Directors. Pursuant to the terms of the Series A Preferred Stock, RH Capital has the contractual right to receive a fixed, compound annual return of 31% on its investment in the Series A Preferred Stock. RH Capital has agreed to resell its investment in DHDC to the GTCR Partnership prior to the Merger for $ , which is equal to the original cost of this investment plus the accrued dividends thereon. Robinson-Humphrey believes that the foregoing arrangements do not affect its ability to independently and impartially deliver an opinion to the Special Committee with respect to the fairness of the Merger from a financial point of view. Special Committee. The Special Committee, which met six times from July 1998 through the date of this Proxy Statement, will receive no additional compensation in connection with these committee meetings. Members of the Special Committee will be entitled to certain indemnification rights and to directors' and officers' liability insurance which will be continued by CompDent following the Merger as provided for by the Merger Agreement for the current and former officers and directors of the Company. Under the terms of the Merger Agreement, the options held by the members of the Special Committee will be terminated and each holder thereof will receive an amount in cash equal to the aggregate unrealized gain on such options on the same basis as other holders of CompDent stock options. Mr. Stephenson owns 1,000 shares of Common Stock, Mr. Hertik owns no shares of Common Stock, and Dr. Scott owns no shares of Common Stock. Upon consummation of the Merger, these shares will be canceled in exchange for the Cash Merger Consideration. In addition, each of the Special Committee members owns options to purchase shares of Common Stock. Accordingly, upon consummation of the Merger, the members of the Special Committee will receive the following cash payments: Mr. Stephenson will receive $315,198 for the aggregate unrealized gain on his stock options and $18,000 for his shares of Common Stock, for a total cash payment of $333,198. Mr. Hertik will receive $362,198 for the aggregate unrealized gain on his stock options. Dr. Scott will not receive any cash payment. CERTAIN EFFECTS OF THE MERGER As a result of the Merger, the entire equity interest in the Company will be owned by the Investor Group. The Public Stockholders will no longer have any interest in, and will not be stockholders of, CompDent, and therefore, will not participate in CompDent's future earnings and potential growth. Instead, the Public Stockholders will have the right to receive $18.00 in cash, without interest, for each share held (other than shares in respect of which appraisal rights have been perfected). An equity investment in the Company following the Merger involves substantial risk resulting from the limited liquidity of any such investment and the leverage resulting from the future borrowings that will be required to purchase the Common Stock from the Public Stockholders and to fund the capital expenditures and acquisitions necessary to execute the Company's business strategy. Nonetheless, if the Company successfully executes its business strategy, the value of such an equity investment could be considerably greater than the original cost thereof. See " -- Conflicts of Interest" and "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION." In addition, the Common Stock will no longer be traded on Nasdaq and price quotations with respect to sales of shares in the public market will no longer be available. The registration of the Common Stock under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), will terminate; however, American Prepaid Professional Services, Inc., a wholly owned subsidiary of CompDent, which will change its name to CompDent Benefit Corporation, Inc. at the closing of the Merger ("American Prepaid"), may begin to file 28 37 periodic financial and other information with the Commission in connection with certain debt securities which may be issued at the closing of the Merger. See "-- Financing of the Merger." FINANCING OF THE MERGER It is estimated that approximately $ million will be required to consummate the Merger and pay related fees and expenses. This sum will be provided by (i) a cash investment of up to approximately $ million from currently available funds by the Equity Investors, (ii) a contribution by the GTCR Partnership of its equity interest in DHDC for an agreed upon value of $ , (iii) an exchange by the Management Sponsors of approximately $ million in Common Stock, (iv) a cash investment of approximately $ million in by the Other Management Investors, (v) a cash investment of approximately $ million by the Other Investors and an exchange by the Other Investors of approximately $ million in Common Stock, (vi) the sale by American Prepaid of $100 million of senior subordinated notes (the "Senior Subordinated Notes"), (vii) up to $55 million of a $75 million secured credit facility of American Prepaid with senior lenders (the "American Prepaid Credit Facility"), including a $20 million revolving credit facility and term loans of $55 million in two separate tranches ($40 million in Tranche A and $15 million in Tranche B), and (viii) a $20 million credit facility of DHMI with senior lenders (the "DHMI Credit Facility") consisting solely of a term loan. The Equity Investors have entered into commitment letters to provide the equity financing to the Acquiror. In addition, the Equity Investors have received financing letters from NationsBank, N.A. ("NationsBank") to provide the American Prepaid Credit Facility and the DHMI Credit Facility, which letters are subject to numerous conditions. These financing letters are filed as exhibits to the Company's Schedule 13E-3. American Prepaid expects to issue the Senior Subordinated Notes in a private placement for resale pursuant to Rule 144A under the Securities Act of 1933, as amended. If such notes have not been issued at the time of the Merger, the Company intends to cause NationsBridge, L.L.C. ("NationsBridge") to make a certain bridge loan (the "Bridge Loan"), and thereafter utilize the proceeds of a future issuance of such senior subordinated notes to refinance the Bridge Loan. The Equity Investors have received a financing letter from NationsBridge, L.L.C. to provide the Bridge Loan, which letters are subject to numerous conditions. Borrowings under the American Prepaid Credit Facility will be secured by (i) 100% of the outstanding common stock of American Prepaid and each of the existing or subsequently acquired or organized subsidiaries of American Prepaid (except in the case of foreign subsidiaries, where the pledge of such common stock to be limited to 65%) and (ii) all present and future intercompany notes evidencing indebtedness between American Prepaid and its subsidiaries. The American Prepaid Credit Facility will be guaranteed by the Surviving Corporation and all existing or subsequently acquired or organized domestic subsidiaries of American Prepaid, except to the extent that (i) issuing any such guarantee by any such subsidiary is subject to regulatory restriction and approval and (ii) any such subsidiary is not required to guarantee the Bridge Loan. The DHMI Credit Facility will be guaranteed by the Equity Investors. The revolving credit facility under the American Prepaid Credit Facility will terminate five and one-half years after the closing of the Merger, and the term loans under the American Prepaid Credit Facility will mature on a non pro-rata basis between the twelfth and seventy-eighth month following the closing of the Merger, subject to mandatory amortization prior to maturity from excess cash flow and certain other sources. The term loans under the DHMI Credit Facility will mature on the third anniversary of the closing of the Merger, subject to mandatory amortization prior to maturity from excess cash flow and certain other sources. Interest on borrowings under the revolving credit facility and the Tranche A term loans under the American Prepaid Credit Facility will, in the event a LIBOR pricing option is exercised, range from 1.75% to 2.5% over LIBOR, and, in the event an alternate base rate pricing option is exercised, range from .75% to 1.5% over the alternate base rate. Interest on borrowings under the Tranche B term loans under the American Prepaid Credit Facility will, in the event a LIBOR pricing option is exercised, range from 2.25% to 2.75% over LIBOR, and, in the event an alternate base rate pricing option is exercised, range from 1.25% to 1.75% over the alternate base rate. Interest on borrowings under the DHMI Credit Facility will, in the event a LIBOR pricing option is exercised, be LIBOR plus .75%, and, in the event an alternate base rate pricing option is 29 38 exercised, be the alternate base rate plus .25%. Closing of the foregoing financings is subject to the satisfaction of numerous conditions. The commitment letters from NationsBank and NationsBridge are subject to certain conditions to funding, including certain financial tests and ratios and other customary conditions. At the time of entering into the Merger Agreement, the Company expected that it would not significantly exceed the levels required by these financial tests. The Company continues to evaluate its financial performance and believes that it will be able to meet the financial tests but that its ability to meet these tests will be very sensitive to its financial performance up until the closing of the Merger. In recent communications with the Acquiror, NationsBank and NationBridge have advised the Acquiror that it will continue to review the Company's financial results, but it does not intend to waive the condition that these financial tests or any conditions to closing be satisfied at the time of funding the related credit facilities and the Bridge Loan. CONDUCT OF COMPDENT'S BUSINESS AFTER THE MERGER The Investor Group is continuing to evaluate CompDent's business, practices, operations, properties, corporate structure, capitalization, management, and personnel and will discuss what changes, if any, will be desirable. Subject to the foregoing, the Investor Group expects that the day-to-day business and operations of CompDent will be conducted substantially as they are currently being conducted by CompDent. The Investor Group does not currently intend to dispose of any assets of CompDent, other than in the ordinary course of business. Additionally, the Investor Group does not currently contemplate any material change in the composition of CompDent's current management or personnel, although after the Merger, the Board will consist of David Klock, Phyllis Klock, Donald Edwards (as a designee of the GTCR Partnership), Roger Kafker (as a designee of the TA Fund) and up to three outside directors to be determined at a later time. 30 39 THE SPECIAL MEETING DATE, TIME, AND PLACE OF THE SPECIAL MEETING The Special Meeting of CompDent will be held on , 1998, at 10:00 a.m., local time, at the offices of King & Spalding, located at 191 Peachtree Street, Atlanta, Georgia. PROXY SOLICITATION This Proxy Statement is being solicited by the Company. All expenses incurred in connection with solicitation of the enclosed proxy will be paid by the Surviving Corporation. Officers, directors, and regular employees of the Company, who will receive no additional compensation for their services, may solicit proxies by telephone or personal call. In addition, the Company has retained MacKenzie Partners, Inc. to solicit proxies for a fee of $7,500 plus expenses. The Company has requested brokers and nominees who hold stock in their names to furnish this proxy material to their customers, and the Company will reimburse such brokers and nominees for their related out-of-pocket expenses. This Proxy Statement and the accompanying proxy card are being mailed to stockholders on or about , 1998. RECORD DATE AND QUORUM REQUIREMENT The Common Stock is the only outstanding voting security of the Company. The Board has fixed the close of business on , 1998 as the Record Date for the determination of stockholders entitled to notice of, and to vote at, the Special Meeting and any adjournment or adjournments thereof. Each holder of record of Common Stock at the close of business on the Record Date is entitled to one vote for each share then held on each matter submitted to a vote of stockholders. At the close of business on the Record Date, there were shares of Common Stock issued and outstanding held by holders of record and by approximately persons or entities holding in nominee name. The holders of a majority of the outstanding shares entitled to vote at the Special Meeting must be present in person or represented by proxy to constitute a quorum for the transaction of business. Abstentions are counted for purposes of determining the presence or absence of a quorum for the transaction of business. VOTING PROCEDURES Approval of the Merger Agreement, which is attached as Appendix A hereto, will require the affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote at the Special Meeting. A failure to vote or a vote to abstain will have the same legal effect as a vote cast against approval. Brokers and, in many cases, nominees will not have discretionary power to vote on the proposal to be presented at the Special Meeting. Accordingly, beneficial owners of shares should instruct their brokers or nominees how to vote. A broker non-vote will have the same effect as a vote against the Merger. Under Delaware law, holders of Common Stock who do not vote in favor of the Merger Agreement and who comply with certain notice requirements and other procedures will have the right to dissent and to be paid cash for the "fair value" of their shares as finally determined under such procedures, which may be more or less than the consideration to be received by other stockholders of CompDent under the terms of the Merger Agreement. Failure to follow such procedures precisely may result in loss of appraisal rights. See "RIGHTS OF DISSENTING STOCKHOLDERS." VOTING AND REVOCATION OF PROXIES A stockholder giving a proxy has the power to revoke it at any time before it is exercised by (i) filing with the Secretary of CompDent an instrument revoking it, (ii) submitting a duly executed proxy bearing a later date or (iii) voting in person at the Special Meeting. Subject to such revocation, all shares represented by each properly executed proxy received by the Secretary of CompDent will be voted in accordance with the instructions indicated thereon, and if no instructions are indicated, will be voted to approve the Merger and in 31 40 such manner as the persons named on the enclosed proxy card in their discretion determine upon such other business as may properly come before the Special Meeting or any adjournment thereof. The shares represented by the accompanying proxy card and entitled to vote will be voted if the proxy card is properly signed and received by the Secretary of the Company prior to the Special Meeting. EFFECTIVE TIME OF THE MERGER AND PAYMENT FOR SHARES The effective time of the Merger, which shall be the date and time of filing of Certificate of Merger with the Secretary of State of the State of Delaware (the "Effective Time"), is currently expected to occur as soon as practicable after the Special Meeting, subject to approval of the Merger Agreement at the Special Meeting and satisfaction or waiver of the terms and conditions of the Merger Agreement. Detailed instructions with regard to the surrender of Common Stock certificates, together with a letter of transmittal, will be forwarded to stockholders by the Company's paying agent, (the "Paying Agent"), promptly following the Effective Time. Stockholders should not submit their certificates to the Paying Agent until they have received such materials. The Paying Agent will send payment of the Cash Merger Consideration to stockholders as promptly as practicable following receipt by the Paying Agent of their certificates and other required documents. No interest will be paid or accrued on the cash payable upon the surrender of certificates. Stockholders should not send any certificates at this time. See "THE MERGER -- Conditions." OTHER MATTERS TO BE CONSIDERED The Company's Board of Directors is not aware of any other matters which will be brought before the Special Meeting. If, however, other matters are presented, proxies will be voted in accordance with the discretion of the holders of such proxies. 32 41 THE MERGER TERMS OF THE MERGER AGREEMENT General. The Merger Agreement provides that subject to satisfaction of certain conditions, the Acquiror will be merged with and into CompDent, and that following the Merger, the separate existence of the Acquiror will cease and CompDent will continue as the Surviving Corporation. At the Effective Time, and subject to the terms and conditions set forth in the Merger Agreement, each share of issued and outstanding Common Stock (other than shares as to which appraisal rights are properly perfected and not withdrawn, shares held by the Acquiror, and shares held by certain members of the Management Group (the "Recapitalization Shares")), will, by virtue of the Merger, be canceled and converted into the right to receive $18.00 in cash, without interest (the "Cash Merger Consideration"). As a result of the Merger, the Common Stock will no longer be publicly traded and the equity of the Surviving Corporation will be 100% owned by the Investor Group. The terms of and conditions to the Merger are contained in the Merger Agreement which is included in full as Appendix A to this Proxy Statement and is incorporated herein by reference. The discussion in this Proxy Statement of the Merger and the summary description of the principal terms of the Merger Agreement are subject to and qualified in their entirety by reference to the more complete information set forth in the Merger Agreement. Merger Consideration. Upon consummation of the Merger, each share of Common Stock issued and outstanding immediately prior to the Effective Time (excluding shares owned by CompDent or any of its subsidiaries or by the Acquiror and Recapitalization Shares and dissenting shares) will be converted into the right to receive the Cash Merger Consideration, upon surrender and exchange of the certificate or certificates which immediately prior to the Effective Time evidenced Common Stock (the "Certificate(s)"). All such shares of Common Stock, when converted (the "Shares"), will no longer be outstanding and will automatically be canceled and retired and will cease to exist, and each Certificate previously evidencing such Shares will thereafter represent only the right to receive the Cash Merger Consideration. As holders of Recapitalization Shares, the Management Sponsors will in the aggregate have 200,000 shares of Common Stock converted in the Merger into (i) shares of common stock of the Surviving Corporation and (ii) shares of Convertible Preferred Stock of the Surviving Corporation. In addition, certain other stockholders of the Company, as holders of Recapitalization Shares, will in the aggregate have shares of Common Stock converted in the Merger into (i) shares of common stock of the Surviving Corporation and (ii) shares of Convertible Preferred Stock of the Surviving Corporation. Payments for Shares. As soon as reasonably practicable after the Effective Time, the Paying Agent will mail to each holder of record of a Certificate (other than CompDent or the Acquiror) a form of letter of transmittal and instructions for use in effecting the surrender of the Certificate in exchange for payment therefor. Upon surrender of a Certificate for cancellation to the Paying Agent, together with such duly executed letter of transmittal, and any additional requested items, the holder of such Certificate will be entitled to receive in exchange therefor cash in an amount equal to the product of (x) the number of shares of Common Stock represented by such Certificate and (y) the Cash Merger Consideration. Cash-Out of CompDent Stock Options. The Merger Agreement provides that, at the Effective Time, each holder of an outstanding vested option (the "Vested Options") to purchase shares of Common Stock under any stock option plans or arrangements will receive cash equal to the excess of the Cash Merger Consideration over the per share exercise price of such Vested Option (the "Option Consideration"). Upon receipt of the Option Consideration, each Vested Option will be canceled in accordance with its terms or the applicable option plan. All options that are not Vested Options will be canceled in accordance with their terms or the applicable option plan. The total number of Vested Options which will be cashed out is 178,500, and other options totaling 442,250 will be canceled. The Merger Agreement provides that CompDent will also suspend, terminate, or refrain from renewing CompDent's Employee Stock Purchase Plan until the termination of the Merger Agreement. 33 42 Transfer of Shares. At the Effective Time, the stock transfer books of CompDent will be closed and there will be no further registration of transfer of shares of Common Stock thereafter on the records of CompDent. On or after the Effective Time, any certificates presented to the Surviving Corporation or the Paying Agent for any reason will be converted into the Cash Merger Consideration. Rights Plan. In August 1996, the CompDent Board adopted the Rights Agreement by and between CompDent and State Street Bank and Trust Company (the "Rights Agreement"). The CompDent Board has approved and CompDent has entered into an amendment to the CompDent Rights Agreement to provide that neither the Acquiror nor its Affiliates and Associates (as such terms are defined in the Rights Agreement) are deemed "Acquiring Persons" in connection with the Rights Agreement. The Rights Agreement will be terminated at the closing of the Merger. Conditions to the Merger. Each party's respective obligation to effect the Merger is subject to the satisfaction, prior to the Closing Date, of each of the following conditions: (i) the approval and adoption of the Merger Agreement and the Merger by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote thereon if such vote is required by applicable law; (ii) all licenses, permits, consents, authorizations, approvals, qualifications, and orders of necessary governmental entities, including, without limitation, the Form A Statements Regarding the Acquisition of Control of a Domicile Insurer from the Arizona and Texas Departments of Insurance and any other necessary insurance regulatory approval, shall have been obtained except where the failure to obtain such licenses, permits, consents, authorizations, approvals, qualifications, and orders, individually and in the aggregate, will not have a Material Adverse Effect (as defined in the Merger Agreement) on CompDent; and (iii) the waiting period (and any extension thereof) applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have expired or terminated. The obligations of the Acquiror and each of the Equity Investors, who have agreed, subject to certain limitations, to guarantee certain obligations of the Acquiror under the Merger Agreement, to effect the Merger are subject to the satisfaction of the following conditions, unless waived by the Acquiror and the Equity Investors: (i) there shall not have occurred a Material Adverse Effect on CompDent prior to the Effective Time; (ii) the representations and warranties of CompDent in the Merger Agreement shall be true in all material respects as of the date of the Merger Agreement and (except to the extent such representations and warranties expressly relate to an earlier date) as of the closing of the Merger (the "Closing Date") as though made on and as of the Closing Date, except as otherwise contemplated by the Merger Agreement and except that, with respect to representations and warranties otherwise qualified by Material Adverse Effect, such representations and warranties shall be true and correct in all respects; (iii) CompDent shall have performed in all material respects all obligations contained in the Merger Agreement required to be performed at or prior to the Closing Date; (iv) CompDent shall have received sufficient financing pursuant to its existing bank commitments to consummate the transactions contemplated by the Merger Agreement, including, without limitation, amounts sufficient (a) to pay the Cash Merger Consideration, (b) to refinance existing indebtedness of CompDent, and (c) to pay any fees and expenses in connection with the transactions contemplated by the Merger Agreement and the financing thereof; and (v) assuming the Acquiror's compliance with its obligation under Section 5.5 of the Merger Agreement, there shall have been no order or injunction entered in any action or proceeding before any governmental entity or other action taken, nor statute, rule, regulation, legislation, interpretation, judgment, or order enacted, entered, enforced, promulgated, amended, issued, or deemed applicable to CompDent, its subsidiaries, the Merger or the Merger Agreement by any governmental entity that would have the effect of making illegal, materially delaying, or otherwise directly or indirectly restraining or prohibiting the Merger or the transactions contemplated thereby. The obligations of CompDent to effect the Merger are subject to the satisfaction of the following conditions, unless waived by CompDent: (i) the Acquiror and the Equity Investors to the effect that the representations and warranties of the Acquiror and each of the Equity Investors contained in the Merger Agreement shall be true in all material respects as of the date of the Merger Agreement and (except to the extent such representations and warranties expressly related to an earlier date) as of the Closing Date as though made on and as of the Closing Date, except as otherwise contemplated by the Merger Agreement and except that, with respect to representations and warranties otherwise qualified by Material Adverse Effect, 34 43 such representations and warranties shall be true and correct in all respects; (ii) the Acquiror and each of the Equity Investors have performed in all material respects all obligations contained in the Merger required to be performed at or prior to the Closing Date; and (iii) assuming CompDent's compliance with its obligations under Section 5.5 of the Merger Agreement, no court of competent jurisdiction or governmental entity shall have enacted, issued, promulgated, enforced, or entered any statute, rule, regulation, judgment, decree, injunction, or other order (whether temporary, preliminary, or permanent) which is then in effect and has the effect of preventing or prohibiting the consummation of the transactions contemplated by this Agreement or the effective operation of the business of CompDent and the subsidiaries after the Effective Time. EVEN IF THE STOCKHOLDERS APPROVE THE MERGER, THERE CAN BE NO ASSURANCE THAT THE MERGER WILL BE CONSUMMATED. Representations and Warranties. CompDent has made representations and warranties in the Merger Agreement regarding, among other things, its organization and good standing, authority to enter into the transaction, its capitalization, its financial statements, the absence of certain changes in the business of CompDent since March 31, 1998, the content and submission of forms and reports required to be filed by CompDent with the Commission, requisite governmental and other consents and approvals, compliance with all applicable laws, absence of litigation to which CompDent is a party, brokers and finders fees, requisite tax filings, absence of defaults under material contracts, employee benefits, and environmental matters. The Acquiror has made representations and warranties in the Merger Agreement regarding, among other things, its organization and good standing, authority to enter into the transaction, the requisite governmental and other consents and approvals, and accuracy of information supplied by the Acquiror for submission on forms and reports required to be filed by CompDent with the Commission. The Equity Investors have made representations and warranties in the Merger Agreement regarding, among other things, their organization and good standing, authority to enter into the transaction, requisite governmental and other consents and approvals, accuracy of information supplied by the Equity Investors for submission on forms and reports required to be filed by CompDent with the Commission, and certain financing commitments. The representations, warranties, and agreements (other than Sections 5.4 and 5.6) in the Merger Agreement or in any instrument delivered pursuant to the Merger Agreement will expire at the Effective Time. Covenants. In the Merger Agreement, CompDent has agreed that prior to the Effective Time, unless otherwise agreed to in writing by the Acquiror or as otherwise expressly contemplated or permitted by the Merger Agreement, CompDent and each of its subsidiaries will, among other things, conduct business only in the usual, regular, and ordinary course substantially consistent with past practice, including, without limitation, not declaring any dividend on its capital stock or issuing any shares of capital stock. Nonsolicitation Covenant. The Merger Agreement provides that none of CompDent, including any of its subsidiaries or DHDC, nor any of their respective officers and directors shall, and CompDent will cause its employees, agents, and representatives not to, initiate or solicit, directly or indirectly, any inquiries or the making of any proposal with respect to a merger, consolidation, sale, or similar transaction involving CompDent or any of its subsidiaries (an "Acquisition Proposal") or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to any Acquisition Proposal, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal; provided, however, that the foregoing shall not prohibit the Special Committee of the Board of Directors of CompDent from furnishing information to, or entering into discussions or negotiations, or otherwise facilitating any effort or attempt to make or implement an Acquisition Proposal if, and to the extent, that the Special Committee determines after consultation with counsel and in good faith that failing to take such action would be inconsistent with the Special Committee's fiduciary duty under applicable law. CompDent will immediately cease and cause to be terminated any existing activities, discussions, or negotiations with any third parties conducted heretofore with respect to any of the foregoing. CompDent will notify the Acquiror immediately if any such inquiries or proposals are received by, any such information is 35 44 requested from, or any such negotiations or discussions are sought to be initiated or continued with, CompDent, any of its subsidiaries, DHDC, or any of their respective officers, directors, or employees, agents, or representatives. Indemnification and Insurance. The Merger Agreement provides that the Company's current and former directors and officers will be indemnified by the Surviving Corporation, to the fullest extent permitted under the Delaware General Corporation Law (the "DGCL"), against any costs, expenses, fines, losses, claims, damages, liabilities, or judgments, or amounts paid in settlement with the approval of the indemnifying party in connection with any threatened or actual claim, action, suit, proceeding, or investigation based in whole or in part on, or arising in whole or in part out of, or pertaining to the fact that such person is or was a director or officer of CompDent or any of its subsidiaries, whether pertaining to any matter existing or occurring at or prior to the Effective Time. In addition, the Surviving Corporation is required to maintain in effect, for a period of six years after the Effective Time, CompDent's policies of directors' and officers' liability insurance (provided that the Surviving Corporation may substitute therefor policies of at least the same amounts and comparable coverage). However, in no event will the Surviving Corporation be required to pay premiums for such insurance in excess of 125% of premiums paid by CompDent in the prior year. Termination. The Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after approval of the Merger by the stockholders of CompDent: (a) by mutual written consent of CompDent (by action of the Special Committee) and the Acquiror (by action of its Board); (b) by CompDent if there has been a material breach or failure to perform any representation, warranty, covenant, or agreement on the part of the Acquiror, which breach or failure to perform has not been cured within 30 calendar days following receipt by the Acquiror of notice of such breach or failure; (c) by the Acquiror if there has been a material breach or failure to perform any representation, warranty, covenant, or agreement on the part of CompDent, which breach or failure to perform has not been cured within 30 calendar days following receipt by CompDent of notice of such breach or failure; (d) by the Acquiror or CompDent if any permanent injunction or other order of a court or other competent authority preventing the consummation of the Merger shall have become final and nonappealable; (e) the Acquiror or CompDent if the Merger shall not have been consummated on or before June 30, 1999; (f) by the Acquiror in the event the Special Committee or the CompDent Board shall have (i) withdrawn or adversely modified its approval or recommendation of the Merger or this Agreement, (ii) failed to duly call, give notice of, convene, or hold the CompDent Stockholders Meeting, in violation of Section 5.1(b) of the Merger Agreement, and at the time of such failure, an Acquisition Proposal by any Person (other than the Acquiror or its affiliates) shall have been publicly announced or provided to CompDent or the Special Committee, (iii) recommended, approved, or accepted an Acquisition Proposal by any Person (other than the Acquiror or its affiliates), or (iv) resolved to do any of the foregoing (or CompDent has agreed to do any of the foregoing); (g) by CompDent if the Special Committee or the CompDent Board accepts or recommends to the holders of the shares of Common Stock approval or acceptance of an Acquisition Proposal by any Person (other than the Acquiror or its affiliates); provided, however that CompDent shall not terminate the Merger Agreement pursuant to Section 7.1(g) of the Merger Agreement without providing the Acquiror at least five (5) days prior written notice, which notice shall include in reasonable detail the terms of the Acquisition Proposal; or (h) by the Acquiror or CompDent if the Merger and the Merger Agreement shall have been voted on by the holders of Common Stock, and the votes shall not have been sufficient to satisfy the condition set forth in Section 6.1(a) of the Merger Agreement. Fees and Expenses. Except as otherwise provided in Section 7.3 of the Merger Agreement and except with respect to claims for damages incurred as a result of the breach of the Merger Agreement, all costs and expenses incurred in connection with the Merger Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. CompDent agrees to pay the Acquiror a fee in immediately available funds equal to $7.0 million (the "Specified Fee") upon the termination of the Merger Agreement under Sections 7.1(f) or (g) of the Merger Agreement. The Specified Fee shall be paid on the second business day following such termination. In the event (i) the Merger Agreement shall be terminated pursuant to Section 7.1(c) of the Merger Agreement as a result of a willful breach by CompDent or pursuant to Section 7.1(h) of the Merger Agreement, and (ii) either (A) a transaction with any person (other than the 36 45 Acquiror or its affiliates) that is contemplated by the term "Acquisition Proposal," which is based on an Acquisition Proposal made prior to such termination of the Merger Agreement, shall be consummated on or before the first anniversary of the termination of the Merger Agreement, or (B) CompDent shall enter into an agreement with any person (other than the Acquiror or its affiliates) on or before the first anniversary of the termination of the Merger Agreement with respect to an Acquisition Proposal which is made prior to such termination of the Merger Agreement, and a transaction contemplated by the term "Acquisition Proposal" shall thereafter be consummated with such person, then CompDent shall pay to the Acquiror the Specified Fee. Such amount shall be paid contemporaneously with the consummation of such contemplated transaction. Notwithstanding the foregoing, such fee shall be reduced by any amounts paid to the Acquiror pursuant to Section 7.3(d) of the Merger Agreement. The Acquiror agrees to pay CompDent a fee in immediately available funds equal to the amount of all CompDent's Designated Expenses (as defined below) upon the termination of the Merger Agreement under Section 7.1(b). CompDent agrees to pay the Acquiror a fee in immediately available funds equal to the amount of all the Acquiror's Designated Expenses upon the termination of this Agreement under Section 7.1(c) of the Merger Agreement. Such Designated Expenses shall be paid on the second business day following the submission thereof by the applicable party. The term "Designated Expenses" shall mean, with respect to a specified person, all documented, reasonable out-of-pocket fees and expenses (not to exceed $2.0 million) incurred or paid by or on behalf of such specified person and its affiliates to third parties in connection with the Merger or the consummation of any of the transactions contemplated by the Merger Agreement, including, without limitation, all printing costs, and reasonable fees and expenses of counsel, investment banking firms, brokers, accountants, experts, and consultants. Amendment. The Merger Agreement may be amended before it has been approved by the CompDent stockholders; provided, however, that, after the Merger Agreement is approved by the CompDent stockholders, no such amendment or modification shall reduce the amount or change the form of consideration to be received by the CompDent stockholders. Any amendment to the Merger Agreement must be in writing and signed by the parties to the Merger Agreement. ESTIMATED FEES AND EXPENSES OF THE MERGER Estimated fees and expenses incurred or to be incurred by the Surviving Corporation are approximately as follows: Advisory fees and expenses(1)............................... $ Lender fees and expenses(2)................................. Legal fees and expenses(3).................................. Accounting fees and expenses................................ Paying Agent fees and expenses.............................. Proxy solicitation fees and expenses........................ Securities and Exchange Commission filing fee............... Printing and mailing costs.................................. Miscellaneous expenses...................................... ------- Total............................................. $
- --------------- (1) Includes the fees and expenses of Robinson-Humphrey and Morgan Stanley. (2) Includes the fees and expenses of NationsBank, N.A., and NationsBridge, L.L.C. (3) Includes the estimated fees and expenses of counsel for the Company, the Special Committee, and the Investor Group. RIGHTS OF DISSENTING STOCKHOLDERS Holders of shares of the Company's Common Stock are entitled to appraisal rights under Section 262 of the DGCL. Section 262 is reprinted in its entirety as Appendix C to this Proxy Statement. All references in Section 262 and in this summary to a "stockholder" are to the record holder of the shares of the Company's Common Stock as to which appraisal rights are asserted. A person having a beneficial interest in shares of the 37 46 Company's Common Stock that are held of record in the name of another person, such as a broker or nominee, must act promptly to cause the record holder to properly follow the steps summarized below and in a timely manner to perfect whatever appraisal rights the beneficial owner may have. The following discussion is not a complete statement of the law relating to appraisal rights and is qualified in its entirety by reference to Appendix C. THIS DISCUSSION AND APPENDIX C SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO BECAUSE FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET FORTH HEREIN AND THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS. Each stockholder electing to demand the appraisal of his shares shall deliver to the Company, before the taking of the vote on the Merger at the Special Meeting, a written demand for appraisal of his shares of the Company's Common Stock. The demand must reasonably inform the Company of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of the shares of the Company's Common Stock. This written demand for appraisal of the shares of the Company's Common Stock must be in addition to and separate from any proxy or vote against the Merger. Voting against, abstaining from voting, or failing to vote on the Merger will not constitute a demand for appraisal within the meaning of Section 262. Any stockholder electing to demand his appraisal rights will not be granted appraisal rights under Section 262 if such stockholder has either voted in favor of the Merger or consented thereto in writing (including by granting the proxy solicited by this Proxy Statement or by returning a signed proxy without specifying a vote against the Merger or a direction to abstain from such vote). Additionally, appraisal rights will not be granted under Section 262 if the stockholder does not continuously hold through the Effective Time his shares of the Company's Common Stock with respect to which he demands appraisal. A demand for appraisal must be executed by or for the stockholder of record, fully and correctly, as such stockholder's name appears on the certificate or certificates representing shares of the Company's Common Stock. If the shares of the Company's Common Stock are owned of record in a fiduciary capacity, such as by a trustee, guardian, or custodian, such demand must be executed by the fiduciary. If the shares of the Company's Common Stock are owned of record by more than one person, as in a joint tenancy or tenancy in common, such demand must be executed by all joint owners. An authorized agent, including an agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner and expressly disclose the fact that, in exercising the demand, such person is acting as agent for the record owner. A record owner, such as a broker, who holds shares of the Company's Common Stock as a nominee for others, may exercise appraisal rights with respect to the shares of the Company's Common Stock held for all or less than all beneficial owners of shares of the Company's Common Stock as to which such person is the record owner. In such case, the written demand must set forth the number of shares of the Company's Common Stock covered by such demand. Where the number of shares of the Company's Common Stock is not expressly stated, the demand will be presumed to cover all shares of the Company's Common Stock outstanding in the name of such record owner. Beneficial owners who are not record owners and who intend to exercise appraisal rights should instruct the record owner to comply strictly with the statutory requirements with respect to the exercise of appraisal rights before the date of the Special Meeting. A stockholder who elects to exercise appraisal rights must mail or deliver his or her written demand to the Secretary of the Company at 100 Mansell Court East, Suite 400, Roswell, Georgia 30076. The written demand for appraisal must specify the stockholder's name and mailing address, the number of shares of the Company's Common Stock owned, and that the stockholder is thereby demanding appraisal of his or her shares. Within ten days after the Effective Time, the Company must provide notice of the Effective Time to all stockholders who have complied with Section 262 and have not voted for or consented to adoption of the Merger Agreement. Within 120 days after the Effective Time, either the Company or any stockholder who has complied with the required conditions of Section 262 may file a petition in the Delaware Court of Chancery (the "Delaware Chancery Court") demanding a determination of the value of the shares of the Company's Common Stock of 38 47 the dissenting stockholders. If a petition for an appraisal is timely filed, after a hearing on such petition, the Delaware Chancery Court will determine which stockholders are entitled to appraisal rights and will appraise the shares of the Company's Common Stock owned by such stockholders, determining the fair value of such shares of the Company's Common Stock, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with a fair rate of interest to be paid, if any, upon the amount determined to be the fair value. In determining such fair value, the Delaware Chancery Court is to take into account all relevant factors. Stockholders considering seeking appraisal should have in mind that the "fair value" of their shares of the Company's Common Stock determined under Section 262 could be more than, the same as, or less than the Cash Merger Consideration to be received by the Company's stockholders in the Merger, and that the opinion of Robinson-Humphrey as to fairness, from a financial point of view, is not an opinion as to fair value under Section 262. The cost of the appraisal proceeding may be determined by the Delaware Chancery Court and taxed against the parties as the Delaware Chancery Court deems equitable in the circumstances. Upon application of a dissenting stockholder, the Delaware Chancery Court may order that all or a portion of the expenses incurred by any dissenting stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys' fees and the fees and expenses of experts, be charged pro rata against the value of all shares of the Company's Common Stock entitled to appraisal. Any stockholder who has duly demanded appraisal in compliance with Section 262 will not, from and after the Effective Time, be entitled to vote for any purpose the shares of the Company's Common Stock subject to such demand or to receive payment of dividends or other distributions on such shares of the Company's Common Stock, except for dividends or distributions payable to stockholders of record at a date prior to the Effective Time. At any time within 60 days after the Effective Time, any stockholder shall have the right to withdraw his or her demand for appraisal and to accept the terms offered in the Merger; after this period, the stockholder may withdraw his or her demand for appraisal only with the consent of the Company. If no petition for appraisal is filed with the Delaware Chancery Court within 120 days after the Effective Time, stockholders' rights to appraisal shall cease, and all holders of shares of the Company's Common Stock shall be entitled to receive the Cash Merger Consideration as provided for in the Merger Agreement. Inasmuch as the Company has no obligation to file such a petition, and has no present intention to do so, any stockholder who desires such a petition to be filed is advised to file it on a timely basis. However, no petition timely filed in the Delaware Chancery Court demanding appraisal shall be dismissed as to any stockholder without the approval of the Delaware Chancery Court, and such approval may be conditioned upon such terms as the Delaware Chancery Court deems just. FEDERAL INCOME TAX CONSEQUENCES The following discussion summarizes the material federal income tax considerations relevant to the Merger that are generally applicable to holders of Common Stock. This discussion is based on currently existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury Regulations thereunder, and current administrative rulings and court decisions, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences to the holders of Common Stock as described herein. Special tax consequences not described below may be applicable to particular classes of taxpayers, including financial institutions, broker-dealers, persons who are not citizens or residents of the United States or who are foreign corporations, foreign partnerships, or foreign estates or trusts as to the United States, persons who will own stock of CompDent (actually or constructively, under certain constructive ownership rules in the Internal Revenue Code) after the Merger, and holders who acquired their stock through the exercise of an employee stock option or otherwise as compensation. The receipt of the Cash Merger Consideration in the Merger by holders of Common Stock will be a taxable transaction for federal income tax purposes. Each holder's gain or loss per share of Common Stock will be equal to the difference between $18.00 and the holder's basis in that particular share of the Common Stock. Such gain or loss generally will be a capital gain or loss. In the case of individuals, trusts, and estates, such 39 48 capital gain will be subject to a maximum federal income tax rate of 20% for shares of Common Stock held for more than 12 months prior to the date of disposition. A holder of Common Stock may be subject to backup withholding at the rate of 31% with respect to Cash Merger Consideration received pursuant to the Merger, unless the holder (a) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact or (b) provides a correct taxpayer identification number ("TIN"), certifies as to no loss of exemption from backup withholding, and otherwise complies with applicable requirements of the backup withholding rules. To prevent the possibility of backup federal income tax withholding on payments made with respect to shares of Common Stock pursuant to the Merger, each holder must provide the Paying Agent with his correct TIN by completing a Form W-9 or Substitute Form W-9. A holder of Common Stock who does not provide CompDent with his or her correct TIN may be subject to penalties imposed by the Internal Revenue Service (the "IRS"), as well as backup withholding. Any amount withheld under these rules will be creditable against the holder's federal income tax liability. CompDent (or its agent) will report to the holders of Common Stock and the IRS the amount of any "reportable payments," as defined in Section 3406 of the Code, and the amount of tax, if any, withheld with respect thereto. THE FOREGOING TAX DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS BASED UPON PRESENT LAW. THE FOREGOING DISCUSSION DOES NOT DISCUSS TAX CONSEQUENCES UNDER THE LAWS OF STATES OR LOCAL GOVERNMENTS OR OF ANY OTHER JURISDICTION OR TAX CONSEQUENCES TO CATEGORIES OF STOCKHOLDERS THAT MAY BE SUBJECT TO SPECIAL RULES, SUCH AS FOREIGN PERSONS, TAX-EXEMPT ENTITIES, INSURANCE COMPANIES, FINANCIAL INSTITUTIONS, AND DEALERS IN STOCKS AND SECURITIES. THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO A STOCKHOLDER WHO ACQUIRED HIS OR HER SHARES OF THE COMPANY'S COMMON STOCK PURSUANT TO THE EXERCISE OF STOCK OPTIONS OR OTHERWISE AS COMPENSATION. EACH HOLDER OF COMMON STOCK SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER TAX LAWS AND THE POSSIBLE EFFECT OF CHANGES IN SUCH TAX LAWS. PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT AND OTHERS The following table sets forth certain information with respect to the beneficial ownership of the Common Stock as of , 1998 by: (i) each person known to the Company to beneficially own more than 5% of the Common Stock, (ii) each director of the Company, (iii) each of the Equity Investors, (iv) each pension or profit sharing plan of the Company, (v) the Chief Executive Officer and the three other most highly compensated executive officers, and (vi) all executive officers and directors of the Company as a group.
PERCENTAGE OF AMOUNT AND NATURE COMMON NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP STOCK ------------------------ ----------------------- -------------
40 49 CERTAIN INFORMATION CONCERNING THE ACQUIROR AND THE INVESTOR GROUP The Acquiror. The Acquiror is a newly formed Delaware corporation organized at the direction of the Equity Investors, each of which is a private investment partnership or an affiliate thereof. It is anticipated that the Acquiror will not have any significant assets or liabilities prior to the Effective Time nor engage in any activities other than those involving the Merger. The principal executive offices of the Acquiror are located at c/o TA Associates, Inc., 125 High Street, Suite 2500, Boston, Massachusetts 02110. GTCR Partnership. Golder, Thoma, Cressey, Rauner Fund V, L.P., a Delaware limited partnership, and GTCR Associates V, a Delaware general partnership, are principally engaged in the business of investing in other companies. The sole general partner of Golder, Thoma, Cressey, Rauner Fund V, L.P., is GTCR V, L.P., a Delaware limited partnership. The sole general partner of GTCR V, L.P. and the managing general partner of GTCR Associates V is Golder, Thoma, Cressey, Rauner, Inc., a Delaware corporation ("GTCR, Inc."). Set forth below is the name of each director and executive officer of GTCR, Inc. and the present principal occupation or employment of each such person and a brief description of his principal occupation and business experience during at least the last five years. Each person listed below is a citizen of the United States. Carl D. Thoma. Mr. Thoma has served as a Director of GTCR, Inc. since 1993 and as a Principal of GTCR, Inc. or its predecessor since 1980. Bryan C. Cressey. Mr. Cressey has served as a Director of GTCR, Inc. since 1993 and as a Principal of GTCR, Inc. or its predecessor since 1980. Bruce V. Rauner. Mr. Rauner has served as a Director of GTCR, Inc. since 1993 and as a Principal or Associate of GTCR, Inc. or its predecessor since 1981. David A. Donnini. Mr. Donnini has served as a Principal of GTCR, Inc. since 1993. Donald J. Edwards. Mr. Edwards has served as a Principal of GTCR, Inc. since 1994. From 1988 to 1992, Mr. Edwards served as an Associate at Lazard Freres & Co. LLC, a nationally recognized investment banking firm. Lee M. Mitchell. Mr. Mitchell has served as a Principal of GTCR, Inc. since 1994. Joseph P. Nolan. Mr. Nolan has served as a Principal of GTCR, Inc. since 1994. Mr. Nolan served as a Vice President of Dean Witter Reynolds, a nationally recognized investment banking firm, from 1990 to 1994. Philip A. Canfield. Mr. Canfield has served as either an Associate or Principal of GTCR, Inc. or its predecessor since 1992. William C. Kessinger. Mr. Kessinger has served as a Principal of GTCR, Inc. since 1995. Mr. Kessinger was a Principal of the Parthenon Group, a strategic consulting firm, from 1990 to 1995. Stephen I. Ross. Mr. Ross has served as Chief Financial Officer of GTCR, Inc. since 1997. Mr. Ross previously served as Chief Financial Officer of Marquette Venture Partners, a venture capital firm, and as Accounting Manager of Kemper Financial Services, a financial services firm, from 1986 to 1994. The principal executive offices of GTCR, Inc. and all related entities and the business address for the individuals listed above is 6100 Sears Tower, Chicago, Illinois 60606. TA Fund. TA/Advent VIII L.P., a Delaware limited partnership, Advent Atlantic and Pacific III L.P., a Delaware limited partnership, TA Executives Fund LLC, a Delaware LLC, TA Investors LLC, a Delaware LLC, Advent VII L.P., a Delaware limited partnership, and Advent New York L.P., a Delaware limited partnership, are principally engaged in the business of investing in other companies. The sole general partner of TA/Advent VIII L.P. is TA Associates VIII LLC, a Delaware LLC. The sole general partner of Advent Atlantic and Pacific III L.P. is TA Associates AAP III L.P., a Delaware limited partnership. The sole general 41 50 partner of Advent VII L.P. is TA Associates VII L.P. The sole general partner of Advent New York L.P. is TA Associates VI L.P. The sole general partner of TA Associates AAP III L.P., Advent VII L.P. and Advent New York L.P. and the manager of TA Associates VIII LLC, TA Executives Fund LLC, and TA Investors LLC is TA Associates, Inc., a Delaware corporation. Set forth below is the name of each director and executive officer of TA Associates, Inc. and the present principal occupation or employment of each such person and a brief description of his principal occupation and business experience during at least the last five years. Each person listed below is a citizen of the United States. C. Kevin Landry. Mr. Landry has been the President, a Managing Director and Chairman of the Board of Directors of TA Associates, Inc. since January 1, 1994. P. Andrews McLane. Mr. McLane has been the Senior Managing Director of TA Associates, Inc. since January 1, 1997. From January 1, 1994 to January 1, 1997, Mr. McLane was a Managing Director of TA Associates, Inc. Jeffrey T. Chambers. Mr. Chambers has been a Managing Director of TA Associates, Inc. since January 1, 1994. Jacqueline C. Morby. Ms. Morby has been a Managing Director of TA Associates, Inc. since January 1, 1994. Katherine S. Cromwell. Ms. Cromwell has been a Managing Director and the Chief Financial Officer, Treasurer and Secretary of TA Associates, Inc. since January 1, 1994. The principal executive offices of TA Associates, Inc. and all related entities and the business address for each of the individuals listed above is 125 High Street, Suite 2500, Boston, Massachusetts 02110. NMS Partnership. NMS Capital, L.P., a Delaware limited partnership, is principally engaged in the business of investing in other companies. Its principal executive offices are located at 9 West 57th Street, 48th Floor, New York, New York 10019. The sole general partner of NMS Capital, L.P. is NMS Capital Management LLC, a Delaware limited liability company principally engaged in the business of investing through partnerships in other companies. The Managing Member of NMS Capital Management LLC is Gerald Rosenfeld who has held that position since April 1, 1998. Prior to becoming the Managing Member of NMS Capital Management LLC, Mr. Rosenfeld was employed by Lazard Freres & Co. LLC, as a Senior Generalist Merger Advisor from 1992 through 1997 and as the Head of Investment Banking from 1997 through April 1, 1998. The principal executive offices of NMS Capital, L.P. and NMS Capital Management LLC and the business address of Mr. Rosenfeld is 9 West 57th Street, 48th Floor, New York, New York 10019. Management Group. The members of the Management Group are the following executive officers of CompDent: David R. Klock. Mr. Klock has served as Chairman and Chief Executive Officer of the Company and all of its subsidiaries, except DHMI and DentLease, since September 1995. Mr. Klock also served as Chairman of DHMI and DentLease since January 1997, and as President of DHMI and DentLease since July 1998. The principal business address of both DHMI and DentLease is 2630 Elm Hill Pike, Suite 200, Nashville, Tennessee 37214-3108. In addition, Mr. Klock served as President and as a director of American Prepaid since 1991. American Prepaid's principal business address is 100 Mansell Court East, Suite 400, Roswell, Georgia 30076. Phyllis A. Klock. Ms. Klock has served as the President and Chief Operating Officer of the Company and all of its subsidiaries, except DHMI and DentLease, since February 1998. Ms. Klock also served as President of the Company and all of its subsidiaries, except DHMI and DentLease, since January 1997, and as Executive Vice President and Corporate Secretary from September 1995 through December 1996. In addition, Ms. Klock served as Senior Vice President, Chief Administrative Officer and Corporate Secretary of American Prepaid from 1993 through August 1995. 42 51 Bruce A. Mitchell. Mr. Mitchell has served as Executive Vice President, General Counsel and Corporate Secretary of the Company, and as Vice President of all of the Company's subsidiaries, except DHMI, since February 1996. Mr. Mitchell also served as Interim Chief Financial Officer and Treasurer of the Company and all of its subsidiaries, except DHMI and DentLease, from August 1997 through December 1997. In addition, Mr. Mitchell served as a partner in the law firm of Reinman, Harrell, Mitchell & Wattwood, P.A. ("Reinman, Harrell") from 1985 until January 1996. Reinman Harrell's principal business address is 1825 S. Riverview Drive, Melbourne, Florida 32901. Keith J. Yoder. Mr. Yoder has served as Executive Vice President, Chief Financial Officer and Treasurer of the Company since January 1998. From July 1997 to November 1997, Mr. Yoder served as Chief Financial Officer of GranCare, Inc., ("GranCare") and as Senior Vice President, Controller and Treasurer of GranCare from July 1995 to June 1997. Prior to the merger of Evergreen Healthcare, Inc. ("Evergreen") with GranCare in July 1995, Mr. Yoder served as Vice President and Chief Financial Officer of Evergreen since January 1992 and as Treasurer of Evergreen since December 1993. From December 1992 to June 1993, Mr. Yoder served as Vice President of National Heritage, Inc. ("NHI") and as the Chief Financial Officer and Secretary of NHI from January 1993 to June 1993. The business address for each member of the Management Group is the principal executive offices of CompDent, 100 Mansell Court East, Suite 400, Roswell, Georgia 30076. Each member of the Management Group is a citizen of the United States. Other Investors. The members of the Other Investors are the following individuals and entities: Joseph A. Ciffolillo, a director of CompDent, and . The business address for each member of the Other Investors is . Each member of the Other Investors who is a natural person is a citizen of the United States. 43 52 PURCHASES OF COMMON STOCK BY CERTAIN PERSONS The following table sets forth certain information concerning purchases of Common Stock since January 1, 1996 by the Company and members of the Investor Group.
NUMBER OF WHERE AND HOW NAME DATE SHARES PURCHASED PRICE PER SHARE TRANSACTION EFFECTED - ---- ----------------- ---------------- --------------- --------------------
EXPERTS The consolidated balance sheets as of December 31, 1997 and December 31, 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three fiscal years in the period ended December 31, 1997, incorporated by reference in this Proxy Statement, have been audited by PricewaterhouseCoopers LLP, independent auditors, as stated in their report. A representative of PricewaterhouseCoopers LLP will be at the Special Meeting to answer appropriate questions from stockholders and will have the opportunity to make a statement, if so desired. WHERE YOU CAN FIND MORE INFORMATION CompDent files annual, quarterly, and current reports, proxy statements, and other information with the Commission. You may read and copy any reports, statements, or other information that CompDent files at the Commission's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. CompDent public filings are also available to the public from commercial document retrieval services and at the Internet World Wide Web site maintained by the Commission at http://www.sec.gov. Reports, proxy statements, and other information concerning CompDent also may be inspected at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. The Commission allows CompDent to "incorporate by reference" information into this document, which means that CompDent can disclose important information to you by referring you to another document filed separately with the Commission. The information incorporated by reference is deemed to be a part of this document, except for any information superseded by information contained directly in this document. This document incorporates by reference certain documents that CompDent has previously filed with the Commission. These documents contain important business information about CompDent and its financial condition. CompDent may have sent to you some of the documents incorporated by reference, but you can obtain any of them through CompDent or the Commission or the Commission's Internet World Wide Web site described above. Documents incorporated by reference are available from CompDent without charge, excluding all exhibits unless specifically incorporated by reference as an exhibit to this document. Stockhold- 44 53 ers may obtain documents incorporated by reference in this document by requesting them in writing or by telephone at the following address: COMPDENT CORPORATION 100 Mansell Court East, Suite 400 Roswell, Georgia 30076 Telephone: (770) 998-8936 Attention: Keith J. Yoder -- Executive Vice President, Chief Financial Officer and Treasurer The Company, the Acquiror, the Equity Investors, and the Management Sponsors have filed a Schedule 13E-3 with the Commission with respect to the Merger. As permitted by the Commission, this Proxy Statement omits certain information contained in the Schedule 13E-3. The Schedule 13E-3, including any amendments and exhibits filed or incorporated by reference as a part thereof, is available for inspection or copying as set forth above. Statements contained in this Proxy Statement or in any document incorporated herein by reference as to the contents of any contract or other document referred to herein or therein are not necessarily complete and in each instance reference is made to such contract or other document filed as an exhibit to the Schedule 13E-3 or such other document, and each such statement shall be deemed qualified in its entirety by such reference. IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM COMPDENT, PLEASE DO SO AT LEAST FIVE BUSINESS DAYS BEFORE THE DATE OF THE SPECIAL MEETING IN ORDER TO RECEIVE TIMELY DELIVERY OF SUCH DOCUMENTS PRIOR TO THE SPECIAL MEETING. You should rely only on the information contained or incorporated by reference in this document to vote your shares at the Special Meeting. CompDent has not authorized anyone to provide you with information that is different from what is contained in this document. This document is dated , 1998. You should not assume that the information contained in this document is accurate as of any date other than that date, and the mailing of this document to stockholders does not create any implication to the contrary. This Proxy Statement does not constitute a solicitation of a proxy in any jurisdiction where, or to or from any person to whom, it is unlawful to make such proxy solicitation in such jurisdiction. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed with the Commission by CompDent are incorporated by reference in this Proxy Statement: (i) CompDent's Annual Report on Form 10-K for the fiscal year ended December 31, 1997; (ii) CompDent's Quarterly Report on Form 10-Q for quarter ended March 31, 1998; (iii) CompDent's Quarterly Report on Form 10-Q for quarter ended June 30, 1998; and (iv) CompDent's Current Report on Form 8-K filed on August 12, 1998. All documents filed by CompDent with the Commission pursuant to Sections 13(a), 13(c), 14, and 15(d) of the Exchange Act after the date hereof and prior to the date of the Special Meeting shall be deemed to be incorporated by reference herein and shall be a part hereof from the date of filing of such documents. Any statements contained in a document incorporated by reference herein or contained in this Proxy Statement shall be deemed to be modified or superseded for purposes hereof to the extent that a statement contained herein (or in any other subsequently filed document which also is incorporated by reference herein) modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed to constitute a part hereof except as so modified or superseded. 45 54 STOCKHOLDER PROPOSALS If the Merger is not consummated for any reason, proposals of stockholders intended to be presented at the 1999 Annual Meeting of Stockholders must be received by the Company at its principal executive offices on or prior to , 1998 to be eligible for inclusion in the Company's Proxy Statement and form of proxy relating to that meeting. OTHER MATTERS Management knows of no other business to be presented at the Special Meeting. If other matters do properly come before the meeting, or any adjournment or adjournments thereof, it is the intention of the persons named in the proxy to vote on such matters according to their best judgment unless the authority to do so is withheld in such proxy. 46 55 APPENDIX A AGREEMENT AND PLAN OF MERGER BY AND BETWEEN COMPDENT CORPORATION, TAGTCR ACQUISITION, INC. AND THE GUARANTORS DESCRIBED HEREIN DATED AS OF JULY 28, 1998 56 TABLE OF CONTENTS
PAGE ----- ARTICLE I THE MERGER...................................................... A-1 1.1 The Merger....................................................... A-1 1.2 Closing.......................................................... A-1 1.3 Effective Time of the Merger..................................... A-1 1.4 Effects of the Merger............................................ A-1 ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES......................... A-2 2.1 Effect on Capital Stock.......................................... A-2 (a) Capital Stock of TAGTCR..................................... A-2 (b) Cancellation of Treasury Stock and TAGTCR-Owned Stock....... A-2 2.2 Conversion of Securities......................................... A-2 2.3 Payment for Shares............................................... A-3 (a) Paying Agent................................................ A-3 (b) Payment Procedures.......................................... A-3 (c) Termination of Payment Fund; Interest....................... A-4 (d) No Liability................................................ A-4 (e) Withholding Rights.......................................... A-4 2.4 Stock Transfer Books............................................. A-4 2.5 Stock Options.................................................... A-4 2.6 Dissenting Shares................................................ A-5 ARTICLE III REPRESENTATIONS AND WARRANTIES................................ A-5 3.1 Representations and Warranties of the Company.................... A-5 (a) Organization, Standing and Power............................ A-5 (b) Capital Structure........................................... A-6 (c) Authority; No Violations; Consents and Approvals............ A-7 (d) SEC Documents............................................... A-8 (e) Information Supplied........................................ A-8 (f) Regulated Subsidiaries...................................... A-9 (g) Compliance with Applicable Laws............................. A-9 (h) Litigation.................................................. A-9 (i) Taxes....................................................... A-10 (j) Pension and Benefit Plans; ERISA............................ A-11 (k) Absence of Certain Changes or Events........................ A-12 (l) No Undisclosed Material Liabilities......................... A-12 (m) Vote Required............................................... A-12 (n) Labor Matters............................................... A-12 (o) Intellectual Property....................................... A-13 (p) Environmental Matters....................................... A-13 (q) Insurance................................................... A-15 (r) DHDC Financial Statements................................... A-15 (s) Board of Directors Recommendation........................... A-15 (t) Material Contracts.......................................... A-15 (u) Fairness Opinion............................................ A-16 (v) Regulatory Filings.......................................... A-16 (w) State Takeover Laws......................................... A-16 3.2 Representations and Warranties of TAGTCR......................... A-16 (a) Organization, Standing and Power............................ A-16 (b) Authority; No Violations; Consents and Approvals............ A-16 (c) Information Supplied........................................ A-17
(i) 57
PAGE ----- (d) Board of Directors Recommendation........................... A-17 (e) Delaware Law................................................ A-17 3.3 Representations and Warranties of the Guarantors................. A-17 (a) Organization, Standing and Power............................ A-17 (b) Authority; No Violations; Consents and Approvals............ A-18 (c) Information Supplied........................................ A-18 (d) Bridge Loan and Financing Commitment........................ A-19 ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS...................... A-19 4.1 Covenants of the Company......................................... A-19 (a) Ordinary Course............................................. A-19 (b) Dividends; Changes in Stock................................. A-19 (c) Issuance of Securities...................................... A-20 (d) Governing Documents......................................... A-20 (e) No Solicitation............................................. A-20 (f) No Acquisitions............................................. A-20 (g) No Dispositions............................................. A-20 (h) Governmental Filings........................................ A-20 (i) No Dissolution, Etc......................................... A-20 (j) Other Actions............................................... A-21 (k) Certain Employee Matters.................................... A-21 (l) Indebtedness; Agreements.................................... A-21 (m) Accounting.................................................. A-21 (n) Capital Expenditures........................................ A-21 (o) Insurance................................................... A-21 (p) Hedging..................................................... A-22 (q) Transfer of Interest in DHDC and DHMI....................... A-22 4.2 Covenants of TAGTCR and the Guarantors........................... A-22 ARTICLE V ADDITIONAL AGREEMENTS........................................... A-22 5.1 Preparation of the Proxy Statement; Company Stockholders Meeting.......................................................... A-22 5.2 Access to Information............................................ A-23 5.3 Broker and Finders............................................... A-23 5.4 Indemnification; Directors' and Officers' Insurance.............. A-23 5.5 Efforts and Actions.............................................. A-24 5.6 Publicity........................................................ A-25 5.7 Notice of Certain Events......................................... A-25 5.8 State Takeover Laws.............................................. A-25 ARTICLE VI CONDITIONS PRECEDENT........................................... A-25 6.1 Conditions to Each Party's Obligation to Effect the Merger....... A-25 (a) Stockholder Approval........................................ A-25 (b) HSR Act..................................................... A-25 (c) Governmental Consents....................................... A-25 6.2 Conditions of Obligations of TAGTCR and the Guarantors........... A-25 (a) No Material Adverse Effect.................................. A-25 (b) Representations and Warranties.............................. A-25 (c) Performance of Obligations of the Company................... A-26 (d) Financing................................................... A-26 (e) No Injunctions or Restraints................................ A-26 6.3 Conditions of Obligations of the Company......................... A-26 (a) Representations and Warranties of TAGTCR.................... A-26 (b) Representations and Warranties of the Guarantors............ A-26 (c) Performance of Obligations of TAGTCR........................ A-26
(ii) 58
PAGE ----- (d) Performance of Obligations of the Guarantors................ A-27 (e) No Injunctions or Restraints................................ A-27 ARTICLE VII TERMINATION AND AMENDMENT..................................... A-27 7.1 Termination...................................................... A-27 7.2 Effect of Termination............................................ A-28 7.3 Payment of Fees and Expenses..................................... A-28 ARTICLE VIII GENERAL PROVISIONS........................................... A-28 8.1 Nonsurvival of Representations, Warranties and Agreements........ A-28 8.2 Notices.......................................................... A-28 8.3 Interpretation................................................... A-30 8.4 Counterparts..................................................... A-30 8.5 Entire Agreement; Third Party Beneficiaries...................... A-30 8.6 GOVERNING LAW.................................................... A-30 8.7 Assignment....................................................... A-30 8.8 Amendment........................................................ A-30 8.9 Extension; Waiver................................................ A-30 Severability..................................................... 8.10 A-30 Enforcement of Agreement......................................... 8.11 A-31 Guarantors....................................................... 8.12 A-31 Disclosure Letters............................................... 8.13 A-31
(iii) 59 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER, dated as of July 28, 1998 (this "Agreement"), is made and entered into by and among TAGTCR Acquisition, Inc., a Delaware corporation ("TAGTCR"), NMS Capital, L.P. ("NMS"), Golder, Thoma, Cressey, Rauner Fund V, L.P. ("GTCR"), TA/Advent VIII L.P. ("TA" and together with NMS and GTCR, herein referred to as the "Guarantors"), and CompDent Corporation, a Delaware corporation (the "Company"). WHEREAS, the respective Boards of Directors of TAGTCR and the Company have approved the merger of TAGTCR with and into the Company (the "Merger"), upon the terms and subject to the conditions set forth in this Agreement; WHEREAS, the Merger and this Agreement require the vote of a majority of the issued and outstanding shares of common stock, par value $.01 per share of the Company (the "Company Common Stock"); WHEREAS, TAGTCR and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the consummation thereof; NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements herein contained, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I THE MERGER 1.1 The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the Delaware General Corporation Law, as amended (the "DGCL"), TAGTCR shall be merged with and into the Company at the Effective Time as set forth in Section 1.3. At the Effective Time, the separate corporate existence of TAGTCR shall cease, and the Company shall continue as the surviving corporation (the "Surviving Corporation"), and shall continue under the name "CompDent Corporation." 1.2 Closing. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Section 7.1, and subject to the satisfaction or waiver of the conditions set forth in Article VI, the closing of the Merger (the "Closing") shall take place at 10:00 a.m., Eastern time, on the thirtieth business day after satisfaction and/or waiver of all of the conditions set forth in Article VI (the "Closing Date"), at the offices of McDermott, Will & Emery, New York, New York, unless another date, time or place is agreed to in writing by the parties hereto. 1.3 Effective Time of the Merger. Subject to the provisions of this Agreement, the parties hereto shall cause the Merger to be consummated by filing a duly executed certificate of merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware, as provided in the DGCL, on the Closing Date, and the parties shall take such other and further actions as may be required by law to make the Merger effective. The Merger shall become effective as of the time of the filing of the Certificate of Merger (the "Effective Time"). 1.4 Effects of the Merger. (a) The Merger shall have the effects as set forth in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, powers, and franchises of the Company and TAGTCR shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and TAGTCR shall become the debts, liabilities and duties of the Surviving Corporation. (b) The directors of TAGTCR and the officers of the Company immediately prior to the Effective Time shall, from and after the Effective Time, be the initial directors and officers of the Surviving Corporation until their successors have been duly elected or appointed and qualified, or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Certificate of Incorporation and Bylaws and the DGCL. A-1 60 (c) The Certificate of Incorporation of the Company shall be amended and restated in its entirety as set forth in an exhibit to be provided by TAGTCR to the Company at least one (1) business day prior to the mailing of the Proxy Statement (as defined below) and such exhibit shall be deemed an amendment to this Agreement and incorporated herein, and, from and after the Effective Time, such amended and restated Certificate of Incorporation shall be the Certificate of Incorporation of the Surviving Corporation, until duly amended in accordance with the terms thereof and the DGCL; provided, however, that if such exhibit is not provided on a timely basis, the Certificate of Incorporation of the Company shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by applicable law. (d) The Bylaws of the Company shall be amended and restated in their entirety as set forth in an exhibit to be provided by TAGTCR to the Company at least one (1) day prior to the mailing of the Proxy Statement (as defined below) and such exhibit shall be deemed an amendment to this Agreement and incorporated herein, and, from and after the Effective Time, such amended and restated Bylaws shall be the Bylaws of the Surviving Corporation until thereafter amended as provided by applicable law, the Certificate of Incorporation or the Bylaws; provided, however, that if such exhibit is not provided on a timely basis, the Bylaws of the Company shall be the Bylaws of the Surviving Corporation until thereafter amended as provided by applicable law. ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES 2.1 Effect on Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of any holder of shares of Company Common Stock or any holder of shares of capital stock of TAGTCR: (a) Capital Stock of TAGTCR. Each share of the common stock of TAGTCR issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and nonassessable share of Common Stock, par value $0.01 per share, of the Surviving Corporation and each share of Class A Preferred Stock of TAGTCR issued and outstanding immediately prior to the Effective Time shall be converted into and become one share of Class A Preferred Stock of the Surviving Corporation with all of the rights and privileges set forth in the Certificate of Incorporation of Surviving Corporation in accordance with Section 1.4(c). (b) Cancellation of Treasury Stock and TAGTCR-Owned Stock. Each share of Company Common Stock and all other shares of capital stock of the Company that are owned by the Company or any of its Subsidiaries (as defined below) and all shares of Company Common Stock and other shares of capital stock of the Company owned by TAGTCR shall be cancelled and retired and shall cease to exist and no consideration shall be delivered or deliverable in exchange therefor. 2.2 Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of TAGTCR, the Company or the holders of any of the shares thereof: (a)(i) Subject to the other provisions of this Section 2.2, each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (excluding shares owned by the Company or any of its Subsidiaries (as defined below) or by TAGTCR and Recapitalization Shares (as defined below) and Dissenting Shares (as defined in Section 2.6)) shall be converted into the right to receive $18.00 per share, net to the seller in cash, payable to the holder thereof, without any interest thereon (the "Merger Consideration"), upon surrender and exchange of the Certificate (as defined in Section 2.3(b)) representing such share of Company Common Stock. (ii) All such shares of Company Common Stock, when converted as provided in Section 2.2(a)(i) (the "Shares"), no longer shall be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each Certificate previously evidencing such Shares shall thereafter represent only the right to receive the Merger Consideration. The holders of Certificates previously evidencing Shares A-2 61 outstanding immediately prior to the Effective Time shall cease to have any rights with respect to the Company Common Stock except as otherwise provided herein or by law and, upon the surrender of Certificates in accordance with the provisions of Section 2.3, shall only represent the right to receive for their Shares, the Merger Consideration, without any interest thereon. (iii) Each share of Company Common Stock identified on Schedule 2.2(a)(iii) (a "2.2(a)(iii) Recapitalization Share"), as supplemented from time to time at least one (1) business day prior to the mailing of the Proxy Statement by TAGTCR, shall be converted into 1.975 fully paid and nonassessable shares of Common Stock, par value $0.01 per share, of the Surviving Corporation and a fully paid and nonassessable fraction of a share of Class A Preferred Stock equal to $17.0125 divided by the stated value of each share of Class A Preferred Stock. (iv) Each share of Company Common Stock identified on Schedule 2.2(a)(iv) (a "2.2(a)(iv) Recapitalization Share" and together with the 2.2(a)(iii) Recapitalization Shares, the "Recapitalization Shares"), as supplemented from time to time at least one (1) business day prior to the mailing of the Proxy Statement by TAGTCR, shall be converted into a fully paid and nonassessable fraction of a share of Class A Preferred Stock equal to $18.00 divided by the stated value of each share of Class A Preferred Stock. 2.3 Payment for Shares. (a) Paying Agent. Prior to the Effective Time, TAGTCR shall appoint a bank or trust company reasonably acceptable to the Company to act as paying agent (the "Paying Agent") for the payment of the Merger Consideration, and TAGTCR shall deposit or shall cause to be deposited with the Paying Agent in a separate fund established for the benefit of the holders of shares of Company Common Stock, for payment in accordance with this Article II, through the Paying Agent (the "Payment Fund"), immediately available funds in amounts necessary to make the payments pursuant to Section 2.2(a)(i) and this Section 2.3 to holders of shares of Company Common Stock (other than the Company or TAGTCR or holders of Dissenting Shares). The Paying Agent shall, pursuant to irrevocable instructions, pay the Merger Consideration out of the Payment Fund. The Paying Agent shall invest portions of the Payment Fund as TAGTCR directs in obligations of or guaranteed by the United States of America, in commercial paper obligations receiving the highest investment grade rating from both Moody's Investors Services, Inc. and Standard & Poor's Corporation, or in certificates of deposit, bank repurchase agreements or banker's acceptances of commercial banks with capital exceeding $1,000,000,000 (collectively, "Permitted Investments"); provided, however, that the maturities of Permitted Investments shall be such as to permit the Paying Agent to make prompt payment to former holders of Company Common Stock entitled thereto as contemplated by this Section 2.3. The Surviving Corporation shall cause the Payment Fund to be promptly replenished to the extent of any losses incurred as a result of Permitted Investments. All earnings on Permitted Investments shall be paid to the Surviving Corporation. If for any reason (including losses) the Payment Fund is inadequate to pay the amounts to which holders of shares of Company Common Stock shall be entitled under this Section 2.3, the Surviving Corporation shall in any event be liable for payment thereof. The Payment Fund shall not be used for any purpose except as expressly provided in this Agreement. (b) Payment Procedures. As soon as reasonably practicable after the Effective Time, the Surviving Corporation shall instruct the Paying Agent to mail to each holder of record (other than the Company or TAGTCR) of a certificate or certificates which, immediately prior to the Effective Time, evidenced outstanding shares of Company Common Stock (the "Certificates"), (i) a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Paying Agent, and shall be in such form and have such other provisions as the Surviving Corporation reasonably may specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for payment therefor. Upon surrender of a Certificate for cancellation to the Paying Agent together with such letter of transmittal, duly executed, and such other customary documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in respect thereof cash in an amount equal to the product of (x) the number of shares of Company Common Stock represented by such Certificate and (y) the Merger Consideration, and the Certificate so A-3 62 surrendered shall forthwith be cancelled. No interest shall be paid or accrued on the Merger Consideration payable upon the surrender of any Certificate. If payment is to be made to a person other than the person in whose name the surrendered Certificate is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of the surrendered Certificate or established to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered in accordance with the provisions of this Section 2.3(b), each Certificate (other than Certificates representing Shares owned by the Company or TAGTCR or the Dissenting Shares), shall represent for all purposes only the right to receive the Merger Consideration. In the event that any Certificate shall have been lost, stolen or destroyed, the Paying Agent will pay in exchange for such lost, stolen or destroyed Certificate the Merger Consideration deliverable in respect thereof pursuant to this Agreement upon the delivery of a duly executed affidavit of that fact by the holder claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, reasonable indemnification against any claim that may be made against the Surviving Corporation with respect to such Certificate. (c) Termination of Payment Fund; Interest. Any portion of the Payment Fund which remains undistributed to the holders of Company Common Stock for six months after the Effective Time shall be delivered to the Surviving Corporation upon demand, and any holders of Company Common Stock who have not theretofore complied with this Article II and the instructions set forth in the letter of transmittal mailed to such holder after the Effective Time shall thereafter look only to the Surviving Corporation for payment of the Merger Consideration to which they are entitled. All interest accrued in respect of the Payment Fund shall inure to the benefit of and be paid to the Surviving Corporation. (d) No Liability. Neither the Surviving Corporation nor the Paying Agent shall be liable to any holder of shares of Company Common Stock for any cash from the Payment Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. (e) Withholding Rights. The Surviving Corporation shall be entitled to deduct and withhold from the corporation otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock such amounts as the Surviving Corporation is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the "Code"), or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by the Surviving Corporation, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock in respect of which such deduction and withholding was made by the Surviving Corporation. 2.4 Stock Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed and there shall be no further registration of transfer of shares of Company Common Stock thereafter on the records of the Company. On or after the Effective Time, any certificates presented to the Surviving Corporation or the Paying Agent for any reason shall be converted into the Merger Consideration. 2.5 Stock Options. At the Effective Time, each holder of a then outstanding option to purchase shares of Company Common Stock under any outstanding stock option plan or arrangement, including any outstanding stock option plan or arrangement which immediately prior to the Effective Time is then exercisable (a "Vested Option"), including the Company's Directors' Stock Option Plan, 1994 Stock Option and Grant Plan, as amended, 1997 Stock Option Plan (collectively, the "Option Plans") and those certain stock option agreements described in the Disclosure Schedule (as defined in Section 3.1, each an "Option" and collectively, the "Options"), but excluding those certain other stock option agreements described in the Disclosure Schedule (the "Excluded Options"), shall, in settlement thereof, receive for each share of Company Common Stock subject to such Option an amount (subject to any applicable withholding tax) in cash equal to the excess of the Merger Consideration over the per share exercise price of such Option to the extent such difference is a positive number (such amount being hereinafter referred to as the "Option Consideration"). Upon receipt of the Option Consideration, each Option shall be cancelled in accordance with its terms or the terms of the applicable Option Plan. All Options which are not Vested Options shall be A-4 63 cancelled in accordance with their terms or the applicable Option Plan. The surrender of an Option to the Company in exchange for the Option Consideration shall be deemed a release of any and all rights the holder had or may have had in respect of such Option. Prior the Effective Time, the Company shall use its reasonable best efforts to obtain all necessary consents or releases from holders of Options and take all such other lawful action as may be necessary to give effect to the transactions contemplated by this Section 2.5. All Option Plans and option agreements executed pursuant thereto, other than the Excluded Options (an "Option Agreement"), shall terminate as of the Effective Time and the provisions in any other plan, program or arrangement providing for the issuance or grant of any other interest in respect of the capital stock of the Company or any Subsidiary thereof shall be cancelled as of the Effective Time. The Company shall use its reasonable best efforts to ensure that following the Effective Time no participant in or under any Option Agreement, Option Plan or other plans, programs or arrangements shall have any right thereunder to acquire equity securities of the Company, the Surviving Corporation or any Subsidiary thereof and to terminate all such Option Agreements, Option Plans and other plans, programs and arrangements. Upon the execution and delivery of this Agreement, the Company will suspend, terminate, or refrain from renewing the Company's Employee Stock Purchase Plan ("ESPP") until the termination of this Agreement. 2.6 Dissenting Shares. Notwithstanding any other provisions of this Agreement to the contrary, shares of Company Common Stock that are outstanding immediately prior to the Effective Time and which are held by stockholders who shall have not voted in favor of the Merger or consented thereto in writing and who shall have demanded properly in writing appraisal for such shares in accordance with Section 262 of the DGCL (collectively, the "Dissenting Shares") shall not be converted into or represent the right to receive the Merger Consideration. Such stockholders instead shall be entitled to receive payment of the appraised value of such shares of Company Common Stock held by them in accordance with the provisions of such Section 262, except that all Dissenting Shares held by stockholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such shares of Company Common Stock under such Section 262 shall thereupon be deemed to have been converted into and to have become exchangeable, as of the Effective Time, for the right to receive, without any interest thereon, the Merger Consideration upon surrender in the manner provided in Section 2.3 of the Certificate or Certificates that, immediately prior to the Effective Time, evidenced such shares of Company Common Stock. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of the Company. With such exceptions as are specifically set forth in a letter (the "Disclosure Schedule") delivered by the Company to TAGTCR prior to the date of this Agreement, the Company represents and warrants to TAGTCR as follows: (a) Organization, Standing and Power. Each of the Company, its Subsidiaries, and Dental Health Development Corporation, a Delaware corporation ("DHDC"), is a corporation duly organized, validly existing, and in good standing under the laws of its respective jurisdiction of incorporation, has all requisite corporate power and authority to own, lease, and operate its properties and to carry on its business as now being conducted, and is duly qualified or licensed to do business as a foreign corporation and in good standing to conduct business in each jurisdiction in which the conduct of its business, or the operation, ownership or leasing of its properties, makes such qualification or licensing necessary, other than in such jurisdictions where the failure to so qualify or become so licensed will not have, individually or in the aggregate, a Material Adverse Effect (as described below) on the Company. The Company has heretofore made available to TAGTCR true and complete copies of its, its Subsidiaries' and DHDC's respective Certificates of Incorporation and Bylaws or comparable organizational documents. DHDC and all Subsidiaries of the Company and their respective jurisdictions of incorporation or organization are identified in Section 3.1(a) of the Disclosure Schedule which is attached hereto and incorporated herein. As used in this Agreement, the term "Material Adverse Effect" shall mean, with respect to a specified Person, the result of one or more events, changes or effects which, individually or in the aggregate, would have a material adverse effect on the business, results of operations, assets, liabilities (fixed or A-5 64 contingent), or financial condition of such Person and its Subsidiaries, taken as a whole. As used in this Agreement, the word "Subsidiary", with respect to any party, means any corporation, partnership, joint venture or other organization, whether incorporated or unincorporated, of which: (i) such party or any other Subsidiary of such party is a general partner; (ii) voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation, partnership, joint venture or other organization is held by such party or by any one or more of its Subsidiaries, or by such party and any one or more of its Subsidiaries; or (iii) at least 25% of the equity, other securities or other interests is, directly or indirectly, owned or controlled by such party or by any one or more of its Subsidiaries, or by such party and any one or more of its Subsidiaries. As used in this Agreement, "Person" means any individual, corporation, partnership, joint venture, association, trust or unincorporated organization. (b) Capital Structure. As of the date hereof, the authorized capital stock of the Company consists of 50,000,000 shares of Company Common Stock and 2,000,000 shares of preferred stock, $0.01 par value ("Preferred Stock"). At the close of business on the date of this Agreement: (i) 10,112,629 shares of Company Common Stock were issued and outstanding; (ii) no shares of Preferred Stock were issued and outstanding; (iii) 2,000,000 shares of Preferred Stock were reserved for issuance under the Shareholder Rights Agreement between the Company and State Street Bank and Trust Company (the "Rights Agreement"); (iv) 960,000 shares of Company Common Stock were reserved for issuance pursuant to the Option Plans of which 694,500 shares of Company Common Stock are subject to outstanding Options; (v) 438,500 shares of Company Common Stock were reserved for issuance pursuant to Option Agreements (other than Option Agreements under Option Plans); (vii) except for the issuance of shares of Company Common Stock pursuant to the exercise of the Options and agreements relating to the initial capitalization of DHDC, there are no employment, executive termination or other agreements providing for the issuance of shares of Company Common Stock; (vii) no shares of Company Common Stock were held by the Company; and (ix) no bonds, debentures, notes or other instruments or evidence of indebtedness having the right to vote (or convertible into, or exercisable or exchangeable for, securities having the right to vote) on any matters on which the Company's stockholders may vote ("Company Voting Debt") were issued or outstanding. All outstanding shares of Company Common Stock are duly authorized, validly issued, fully paid, and nonassessable and are not subject to preemptive or other similar rights. No shares of Company Common Stock are owned by DHDC or any Subsidiary of the Company. All outstanding shares of capital stock of DHDC and the Subsidiaries of the Company are duly authorized, validly issued, fully paid and nonassessable and (excluding the capital stock of DHDC) are owned by the Company or a direct or indirect Subsidiary free and clear of all liens, charges, claims or encumbrances of any nature ("Liens"). At the close of business on the date of this Agreement, DHDC had (i) 84,000 shares of Class A Common Stock outstanding, (ii) 13,000 shares of Class B Common Stock outstanding, (iii) 10,000 shares of Class A Preferred Stock outstanding, and (iv) 150 shares of Class B Preferred Stock outstanding, of which the Company owns beneficially and of record 150 shares of Series B Preferred Stock. Except (i) as set forth in this Section 3.1(b), (ii) for the rights under the Rights Agreement, (iii) for the issuance of shares of Company Common Stock under the ESPP with respect to purchase requests made prior to the date hereof, (iv) for the agreements entered into in connection with the initial capitalization of DHDC, and (v) for changes resulting from the exercise of Options or as contemplated by this Agreement, there are outstanding: (A) no shares of capital stock, Company Voting Debt or other voting securities of the Company, (B) no securities of the Company, DHDC or any Subsidiary of the Company convertible into, or exchangeable or exercisable for shares of capital stock, Company Voting Debt or other voting securities of the Company, DHDC, or any Subsidiary of the Company, and (C) no options, warrants, calls, subscriptions, or other rights, (including preemptive rights), commitments or agreements to which the Company, DHDC or any Subsidiary of the Company is a party or by which it is bound, to issue, deliver, sell, purchase, redeem or acquire, or cause to be issued, delivered, sold, purchased, redeemed or acquired, additional shares of capital stock or any Company Voting Debt or other voting securities of the Company, DHDC or any Subsidiary of the Company, or obligating the Company, DHDC or any Subsidiary of the Company to grant, extend, or enter into any such option, warrant, call, subscription, or A-6 65 other right, commitment or agreement. Set forth in Section 3.1(b) of the Disclosure Schedule is a true and complete list of all outstanding options, warrants and rights to purchase shares of Company Common Stock and the exercise prices relating thereto. There are not as of the date hereof and there will not be at the Effective Time any stockholder agreements, voting trusts, or other agreements to which the Company is a party or by which it is bound relating to the voting of any shares of the capital stock of the Company which will limit in any way the solicitation of proxies by or on behalf of the Company from, or the casting of votes by, the stockholders of the Company with respect to the Merger. The Company is not a party to any agreement that restricts the Company's voting of the stock of any of its Subsidiaries. (c) Authority; No Violations; Consents and Approvals. (i) The Company has all requisite corporate power and authority to enter into this Agreement and, subject to the approval of this Agreement and the Merger by the holders of a majority of the outstanding shares of Company Common Stock (the "Company Stockholder Approval"), to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Company's Board of Directors and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated (other than the Company Stockholder Approval). This Agreement has been duly executed and delivered by the Company and, subject to the Company Stockholder Approval and (assuming that this Agreement is duly executed and delivered by TAGTCR) constitutes a valid and binding obligation of the Company enforceable in accordance with its terms except that the enforcement hereof may be limited by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). (ii) The execution and delivery of this Agreement and the consummation of the Merger and the other transactions contemplated hereby by the Company, following the satisfaction or waiver of the conditions set forth in Article VI, will not: (A) violate any provision of the Certificate of Incorporation or Bylaws of the Company, any of its Subsidiaries or DHDC, (B) conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under; give rise to a right of termination, cancellation or acceleration (including pursuant to any put right) of any obligation; or result in the creation of a Lien or right of first refusal with respect to any asset or property (any such conflict, violation, default, right of termination, cancellation or acceleration, loss, creation or right of first refusal, a "Violation") pursuant to any loan or credit agreement, note, mortgage, deed of trust, indenture, lease, Company Employee Benefit Plan (as defined in Section 3.1(j)), Company Permit (as defined in Section 3.1(g)), or any other agreement, obligation, instrument, concession, franchise or license, or (C) any judgment, order, decree, law, statute, rule or regulation of any public body or authority applicable to the Company or any of its Subsidiaries, or DHDC, or their respective properties or assets; provided, however, that no representation or warranty is made in the foregoing clauses (B) and (C) with respect to matters that, individually or in the aggregate, will not have a Material Adverse Effect on the Company or materially delay the ability of such Person to consummate the transactions contemplated by this Agreement. The Board of Directors of the Company has taken all actions necessary under the DGCL, including approving the transactions contemplated by this Agreement, to ensure that Section 203 of the DGCL does not, and will not, apply to the transactions contemplated in this Agreement. (iii) No consent, approval, order or authorization of, or registration, declaration or filing with, notice to or permit from any court, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign (a "Governmental Entity") is required by or with respect to the Company or any of its Subsidiaries or DHDC in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the Merger and the other transactions contemplated hereby the failure to obtain which will, individually or in the aggregate, have a Material Adverse Effect on the Company or materially delay the ability of such Person to consummate the transactions contemplated by this Agreement, except for: (A) the filing of a pre-merger notification and report form by the Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as A-7 66 amended (the "HSR Act"), and the expiration or termination of the applicable waiting period thereunder; (B) the filing with the Securities and Exchange Commission (the "SEC") of (x) a proxy statement in definitive form relating to a meeting of the holders of Company Common Stock to approve this Agreement and the Merger (such proxy statement as amended or supplemented from time to time being hereinafter referred to as the "Proxy Statement"), and (y) such reports under and such other compliance with the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations thereunder as may be required in connection with this Agreement and the transactions contemplated hereby; (C) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware; (D) such filings and approvals as may be required by any applicable state securities, "blue sky" or takeover laws; (E) the filing of a Form A Statement Regarding the Acquisition of Control of a Domestic Insurer with the Arizona and Texas Departments of Insurance and the approval thereof by the Arizona and Texas Directors of Insurance, (F) the approval of this Agreement and the Merger pursuant to applicable laws governing dental referral plans, dental service corporations, health insurance organizations, life, accident, health and/or disability insurance organizations, limited service health maintenance organizations, prepaid dental plans, preferred provider administrators, third party administrators, health maintenance organizations, limited health service organizations, insurance holding companies and other product, program or service of the Company and its Subsidiaries (collectively "Dental Products") that is subject to regulation under the insurance laws of any state in which the Company or its Subsidiaries do business; (G) approval of transfer of ownership of any Dental Product of the Company and its Subsidiaries by the applicable Governmental Entity in any state in which such approval is required in connection with the performance of this Agreement; and (H) the filing of any notice of transfer of ownership or other notice relating to any Dental Product of the Company and its Subsidiaries, in compliance with the laws of any state in which any such filing is prepared, in connection with the performance of this Agreement. (iv) The Board of Directors of the Company has taken such action to amend the Rights Agreement so that neither TAGTCR nor its Affiliates and Associates (as such terms are defined in the Rights Agreement) are deemed "Acquiring Persons" in connection with the Rights Agreement. (d) SEC Documents. Since May 1, 1995, the Company has filed all forms, reports, schedules, registration statements, proxy statements and documents with the SEC required to be filed by it pursuant to the Securities Act of 1933, as amended (the "Securities Act") and the Exchange Act and the SEC rules and regulations promulgated thereunder (all such documents filed through the date hereof collectively, the "Company SEC Documents"). The Company has made available to TAGTCR the Company SEC Documents. As of their respective dates, the Company SEC Documents complied in all material respects with the requirements of the Securities Act, or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Company SEC Documents, and none of the Company SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the Company SEC Documents complied as to form in all material respects with the rules and regulations of the SEC with respect thereto, were prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly present in all material respects in accordance with applicable requirements of GAAP (subject, in the case of the unaudited statements, to normal, recurring adjustments) the consolidated financial position of the Company and its consolidated Subsidiaries as of their respective dates and the consolidated results of operations and the consolidated cash flows of the Company and its consolidated Subsidiaries for the periods presented therein. (e) Information Supplied. (i) None of the information supplied or to be supplied by the Company for inclusion or incorporated by reference in the Proxy Statement will, on the date it is first mailed to the holders of the Company Common Stock or at the time of the Company's Stockholders Meeting (as A-8 67 hereinafter defined) contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement, insofar as it relates to the Company or its Subsidiaries or other information supplied by the Company for inclusion therein will comply as to form, in all material respects, with the provisions of the Exchange Act or the rules and regulations thereunder. (ii) None of the information supplied or to be supplied by the Company for inclusion or incorporation by reference in the Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") will on the date filed with the SEC or at the time of the Company's Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Schedule 13E-3, insofar as it relates to the Company or its Subsidiaries or other information supplied by the Company for inclusion therein, will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder. (f) Regulated Subsidiaries. (i) The Company has previously made available to TAGTCR true and complete copies of the following statutory financial statements for each Subsidiary of the Company that is required to prepare and file statutory financial statements; (A) the annual statutory statements for each such Subsidiary for each of the years ended December 31, 1996 and 1997; and (B) the quarterly statutory statements for each such Subsidiary for the quarter ended March 31, 1998. Each such statement was prepared in accordance with the accounting practices required or permitted by the insurance regulatory authority in the applicable state, consistently applied. (ii) All Dental Products of the Company and each Subsidiary that are regulated by insurance or health care laws are, to the extent required by applicable law, on forms and at rates approved by the regulatory authority in the jurisdictions where issued (or have been filed with and not objected to by such regulatory authority within the period provided for objection), except where the failure be on such forms or at such rates will not, individually or in the aggregate, have a Material Adverse Effect on the Company. (g) Compliance with Applicable Laws. The Company, its Subsidiaries and DHDC hold all permits, licenses, variances, exemptions, orders, franchises and approvals of all Governmental Entities necessary to enable them to conduct their respective businesses as they are now being conducted other than those which the failure to hold does not have a Material Adverse Effect on the Company (the "Company Permits"); a list of Company Permits is set forth in Section 3.1(g) of the Disclosure Schedule. The Company, its Subsidiaries and DHDC are in compliance with the terms of the Company Permits, except for such noncompliance that will not, individually or in the aggregate, have a Material Adverse Effect on the Company. Except as disclosed in the Company SEC Documents, the Company, its Subsidiaries and DHDC are in compliance in all material respects with applicable laws, except for such noncompliance that will not, individually or in the aggregate, have a Material Adverse Effect on the Company. (h) Litigation. Except as disclosed in the Company SEC Documents, there is no suit, claim, investigation, action or proceeding pending or, to the knowledge of the Company, threatened against the Company, DHDC or any Subsidiary of the Company or any of their respective assets or properties, individually or in the aggregate, which will have a Material Adverse Effect on the Company ("Company Litigation"). There is no judgment, writ, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Company, DHDC or any Subsidiary of the Company which, individually or in the aggregate, will have a Material Adverse Effect on the Company ("Company Order"). A-9 68 (i) Taxes. (i) All Tax Returns (as defined herein) required to be filed by or with respect to the Company, each of its Subsidiaries and DHDC have been duly and timely filed, and all such Tax Returns are true, correct and complete in all material respects except where the failure to file would not have a Material Adverse Effect on the Company. The Company, each of its Subsidiaries and DHDC has duly and timely paid (or there has been paid on its behalf) all Taxes (as defined herein) that are due, or claimed or asserted by any taxing authority to be due, from or with respect to it, except for Taxes the liability for which is being contested in good faith or the nonpayment of which will not have a Material Adverse Effect on the Company. With respect to any period for which Taxes are not yet due with respect to the Company or any Subsidiary, each of the Company and its Subsidiaries has made due and sufficient current accruals for such Taxes in accordance with GAAP in the most recent financial statements contained in the Company SEC Documents. The Company and each of its Subsidiaries has made (or there has been made on its behalf) all required estimated tax payments sufficient to avoid any material underpayment penalties. Each of the Company, its Subsidiaries and DHDC has withheld and paid all Taxes required by all applicable laws to be withheld or paid in connection with any material amounts paid or owing to any employee, creditor, independent contractor or other third party. (ii) There are no outstanding agreements, waivers or arrangements extending the statutory period of limitation applicable to any claim for, or the period for the collection or assessment of, Taxes due from or with respect to the Company, any of its Subsidiaries or DHDC for any taxable period. No audit or other proceeding by any court, governmental or regulatory authority is pending or, to the knowledge of the Company, threatened in regard to any Taxes due from or with respect to the Company, any of its Subsidiaries or DHDC or any Tax Return filed by or with respect to the Company, any Subsidiaries or DHDC. No material assessment of Taxes is proposed against the Company, any of its Subsidiaries or DHDC or any of their assets. (iii) No election under Section 338 of the Internal Revenue Code of 1986, as amended (the "Code") has been made or filed by or with respect to the Company, any of its Subsidiaries or DHDC. No closing agreement pursuant to Section 7121 of the Code (or any predecessor provision) or any similar provision of state, local or foreign law has been entered into by or with respect to the Company, any of its Subsidiaries or DHDC. No consent to the application of Section 341(f)(2) of the Code (or any predecessor provision) has been made or filed by or with respect to the Company, any of its Subsidiaries or DHDC or any of their assets. None of the Company, any of its Subsidiaries or DHDC is or has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. None of the Company, any of its Subsidiaries or DHDC has agreed to make any adjustment pursuant to Section 481(a) of the Code (or any predecessor provision) by reason of any change in any accounting method, and there is no application pending with any taxing authority requesting permission for any changes in any accounting method of the Company, any of its Subsidiaries or DHDC. The Internal Revenue Service has not proposed any such adjustment or change in accounting method. None of the assets of the Company, any of its Subsidiaries or DHDC is or will be required to be treated as being owned by any Person (other than the Company or its Subsidiaries) pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately before the enactment of the Tax Reform Act of 1986. (iv) None of the Company, any of its Subsidiaries or DHDC is a party to, is bound by, or has any obligation under, any Tax sharing agreement, Tax allocation agreement, Tax indemnity agreements or similar contract. (v) The Company and each of its Subsidiaries are members of the affiliated group, within the meaning of Section 1504(a) of the Code, of which the Company is the common parent, and such affiliated group files a consolidated federal income Tax Return. (vi) The Company has previously made available to TAGTCR true and complete copies of each of (a) any written audit reports issued by any representative of a taxing authority within the last three years relating to the United States federal, state, local or foreign Taxes due from or with respect to the A-10 69 Company, its Subsidiaries and DHDC; and (b) the United States federal, state, local and foreign Tax Returns, for each of the last three taxable years, filed by or with respect to the Company, its Subsidiaries and DHDC. (vii) "Code" shall mean the Internal Revenue Code of 1986, as amended. "Taxes" shall mean all taxes, charges, fees, levies, or other assessments or liabilities, including without limitation (a) income, gross receipts, ad valorem, premium, excise, real property, personal property, sales, use, transfer, withholding, employment, payroll, and franchise taxes, license, severance, stamp, occupation, windfall profits, environmental, customs duties, capital stock, unemployment, disability, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind, whether disputed or not, imposed by the United States of America, or by any state, local, or foreign government, or any subdivision or agency of the United States or any such government, and (b) any interest, fines, penalties, assessments, or additions to taxes resulting from, attributable to, or incurred in connection with any Tax or any contest, dispute, or refund thereof, including any obligations under any agreements with respect to any of the foregoing. "Tax Returns" shall mean any report, return, or statement required to be supplied to a taxing authority in connection with Taxes. (j) Pension and Benefit Plans; ERISA. (i) Section 3.1(j)(i) of the Disclosure Schedule sets forth a true and complete list of: (A) all "employee benefit plans," as defined in Section 3(3) of ERISA, which the Company, any of its Subsidiaries or DHDC has any obligation or liability, contingent or otherwise ("Benefit Plans"); and (B) all employment or consulting agreements, bonus or other incentive compensation, deferred compensation, salary continuation during any absence from active employment for disability or other reasons, severance, sick days, stock award, stock option, stock purchase or other equity-based plan or program, tuition assistance, club membership, employee discount, employee loan, or vacation pay agreements, policies or arrangements which the Company, any of its Subsidiaries or DHDC maintains or has any obligation or liability (contingent or otherwise) with respect to any current or former officer, director or employee of the Company, any of its Subsidiaries or DHDC (the "Employee Arrangements"). (ii) With respect to each Benefit Plan and Employee Arrangement, a true and complete copy of each of the following documents (if applicable) has been made available to TAGTCR: (A) the most recent plan and related trust documents, and all amendments thereto (or, in the case of an unwritten Employment Arrangement, a description thereof); (B) the most recent summary plan description, and all related summaries of material modifications thereto; (C) the most recent Form 5500 (including schedules and attachments); (D) the most recent Internal Revenue Service determination letter; (E) the most recent actuarial reports (including for purposes of Financial Accounting Standards Board report no. 87, 88, 106, 112 and 132) and (F) each written employment, consulting or individual severance or other compensation agreement, and all amendments thereto. (iii) The Company, its Subsidiaries and DHDC have not during the preceding six years had any obligation or liability (contingent or otherwise) with respect to a Benefit Plan which is described in Section 3(37); 4(b)(4), 4063 or 4064 of ERISA or which is subject to Section 412 of the Code or Title IV of ERISA. (iv) The Benefit Plans and their related trusts intended to qualify under Section 401 and to be tax-exempt under Section 501(a) of the Code have received favorable determination letters from the Internal Revenue Service. The Company is not aware of any event or circumstance that could result in the failure of such Benefit Plans to be so qualified or tax exempt. Any voluntary employee benefit association which provides benefits to current or former employees of the Company and its Subsidiaries, or their beneficiaries, which is intended to be qualified and is tax-exempt under Section 501(c)(9) of the Code has received a favorable determination letter from the Internal Revenue Service. A-11 70 (v) All contributions or other payments required to have been made by the Company, its Subsidiaries and DHDC to or under any Benefit Plan or Employee Arrangements by applicable law or the terms of such Benefit Plan or Employee Arrangement (or any agreement relating thereto) have been timely and properly made, except for the failure to make such contribution or payment as will not, individually or in the aggregate, have a Material Adverse Effect on the Company. (vi) The Benefit Plans and Employee Arrangements comply in all material respects with applicable laws and have been maintained and administered in all material respects in accordance with their terms and applicable laws. (vii) There are no pending or, to the knowledge of Company, threatened actions, claims or proceedings against or relating to any Benefit Plan or Employee Arrangement other than routine benefit claims by Persons entitled to benefits thereunder and those actions, claims and proceedings that will not have a Material Adverse Effect on the Company. (viii) The Company, its Subsidiaries and DHDC do not maintain or have an obligation to contribute to retiree life or retiree health plans which provide for continuing benefits or coverage for current or former officers, directors or employees of the Company or any of its Subsidiaries except (A) as may be required under part 6 of Title I of ERISA or applicable state law (after a termination of employment or service as a director for which coverage of the participant or the participant's beneficiary is charged at the maximum possible premium) or (B) a medical expense reimbursement account plan pursuant to Section 125 of the Code. (ix) None of the assets of any Benefit Plan is stock of the Company, any of its affiliates or DHDC, or property leased to or jointly owned by the Company, any of its affiliates or DHDC. (x) The Company, its Subsidiaries and DHDC have no liability (contingent or otherwise) under Section 4069 of ERISA by reason of a transfer of an underfunded pension plan. (k) Absence of Certain Changes or Events. Except as disclosed in the Company SEC Documents filed after March 31, 1998, since March 31, 1998, the business of the Company and its Subsidiaries has been carried on only in the ordinary and usual course and in a manner which, if it had been carried on after execution of this Agreement, would have been in compliance with Section 4.1 hereof and no event or events has or have occurred that (either individually or in the aggregate) has had or will have a Material Adverse Effect on the Company. (l) No Undisclosed Material Liabilities. There are no liabilities of the Company or any of its Subsidiaries of any kind whatsoever, whether accrued, contingent, unmatured, absolute, determined, determinable or otherwise, that are required to be reflected on a balance sheet prepared in accordance with GAAP other than: (i) liabilities reflected on the Consolidated Balance Sheet of the Company and its Subsidiaries contained in the Quarterly Report on Form 10-Q or the notes thereto for the quarter ended March 31, 1998 (the "March 31 Balance Sheet"), (ii) liabilities under this Agreement, (iii) liabilities with respect to the Company's investment in DHDC and (iv) liabilities incurred in the ordinary course of business and consistent with past practices, none of which individually or in the aggregate, has had or will have a Material Adverse Effect on the Company. (m) Vote Required. The Company Stockholder Approval is the only vote of the holders of any class or series of the Company's capital stock necessary to approve the Merger and this Agreement and the transactions contemplated hereby under any applicable law, rule or regulation or pursuant to the requirements of the Company's Certificate of Incorporation and Bylaws. (n) Labor Matters. (i) Neither the Company, any of its Subsidiaries nor DHDC is a party to any labor or collective bargaining agreement, and no employees of Company, any of its Subsidiaries or DHDC are represented by any labor organization. Within the preceding three years, there have been no representation or certification proceedings, or petitions seeking a representation proceeding, pending or, to the knowledge of the Company, threatened in writing to be brought or filed with the National Labor Relations Board or any other labor relations tribunal or authority. Within the preceding three years, to the A-12 71 knowledge of Company, there have been no organizing activities involving the Company, its Subsidiaries or DHDC with respect to any group of employees of the Company, any of its Subsidiaries or DHDC. (ii) There are no strikes, work stoppages, slowdowns, lockouts, material arbitrations or material grievances or other material labor disputes pending or, to the Company's knowledge, threatened in writing against or involving Company, any of its Subsidiaries or DHDC. There are no unfair labor practice charges, grievances or complaints pending or, to the knowledge of the Company, threatened in writing by or on behalf of any employees or group of employees of the Company, any of its Subsidiaries or DHDC, which have or will have a Material Adverse Effect on the Company. (iii) There are no complaints, charges or claims against the Company, any of its Subsidiaries or DHDC pending or, to the knowledge of the Company, threatened to be brought or filed with any governmental authority, arbitrator or court based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment of any individual by the Company, any of its Subsidiaries or DHDC, which have or will have a Material Adverse Effect on the Company. (iv) there has been no "mass layoff" or "plant closing" (as defined by WARN) with respect to the Company, its Subsidiaries or DHDC within the six months prior to Closing. (o) Intellectual Property. (i) Section 3.1(o) of the Disclosure Schedule sets forth a true and complete list of each material trademark, trade name, patent, service mark, brand mark, brand name, industrial design, and copyright owned or used by the Company or its Subsidiaries on a regular basis in connection with the operation of the businesses of each of the Company, its Subsidiaries and DHDC as well as a true and complete list of all registrations thereof and pending applications therefor, and each license or other contract relating thereto (collectively, the "Company Intellectual Property"). All of the Company Intellectual Property is owned by the Company, its Subsidiaries or DHDC free and clear of any and all Liens, except where the failure to so own will not, individually or in the aggregate, have a Material Adverse Effect on the Company. To the Company's knowledge, the use of the Company Intellectual Property by the Company, its Subsidiaries or DHDC does not, in any material respect, conflict with, infringe upon, violate or interfere with or constitute an appropriation of any right, title, interest or goodwill, including, without limitation, any intellectual property right, trademark, trade name, patent, service mark, brand mark, brand name, industrial design, copyright or any pending application therefor of any other Person and neither the Company, any of its Subsidiaries nor DHDC has received any notice of any claim or otherwise knows that any of the Company Intellectual Property is invalid or conflicts with the asserted rights of any other Person except where such invalidity or conflict will not have a Material Adverse Effect on the Company. (ii) Each of the Company, its Subsidiaries and DHDC owns or has a right to use all Company Intellectual Property necessary for the operation of its respective business, except where the failure to so own or have a right to use will not, individually or in the aggregate, have a Material Adverse Effect on the Company. (iii) Each of the licenses or other contracts pursuant to which the Company, its Subsidiaries or DHDC has rights to Company Intellectual property is in full force and effect and is valid and enforceable in accordance with its terms, and there is no material default under any such license or contract either by the Company, any of its Subsidiaries or DHDC or, to the knowledge of the Company, by any other party thereto, except where such failure or default will not, individually or in the aggregate, have a Material Adverse Effect on the Company. (p) Environmental Matters. (i) For purposes of this Agreement: (A) "Environmental Costs and Liabilities" means any and all losses, liabilities, obligations, damages, fines, penalties, judgments, actions, claims, costs and expenses (including, without limitation, fees, disbursements and expenses of legal counsel, experts, engineers and consultants and the costs of investigation and feasibility studies and clean up, remove, treat, or in any other way address any Hazardous Materials) arising from or under any Environmental Law. A-13 72 (B) "Environmental Law" means any applicable law regulating or prohibiting Releases of Hazardous Materials into any part of the natural environment, or pertaining to the protection of natural resources, the environment and public and employee health and safety including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") (42 U.S.C. sec. 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. sec. 1801 et, seq.), the Resource Conservation and Recovery Act (42 U.S.C. sec. 6901 et, seq.), The Clean Water Act (33 U.S.C. sec. 1251 et, seq.), the Clean Air Act (33 U.S.C. sec. 7401 et, seq.), the Toxic Substances Control Act (15 U.S.C. sec. 7401 et, seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. sec. 136 et, seq.), and the Occupational Safety and Health Act (29 U.S.C. sec. 651 et, seq.) ("OSHA") and the regulations promulgated pursuant thereto, and any such applicable state or local statutes, including, without limitation, the Industrial Site Recovery Act ("IRSA"), and the regulations promulgated pursuant thereto, as such laws have been and may be amended or supplemented through the Closing Date; (C) "Hazardous Material" means any substance, material or waste which is regulated by any public or governmental authority in the jurisdictions in which the applicable party or its Subsidiaries conducts business, or the United States, including, without limitation, any material or substance which is defined as a "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste" or "restricted hazardous waste," "contaminant," "toxic waste" or "toxic substance" under any provision of Environmental Law and shall also include, without limitation, petroleum, petroleum products, asbestos, polychlorinated biphenyls and radioactive materials; (D) "Release" means any release, spill, effluent, emission, leaking, pumping, injection, deposit, disposal, discharge, disposal, leaching, or migration into the environment, including any property owned by the Company, its Subsidiaries or DHDC or into or out of any property; and (E) "Remedial Action" means all actions, including, without limitation, any capital expenditures, required by a governmental entity or required under any Environmental Law by the Company, its Subsidiaries or DHDC, or voluntarily undertaken by the Company, its Subsidiaries or DHDC to (I) clean up, remove, treated, or in any other way ameliorate or address any Hazardous Materials or other substance in the indoor or outdoor environment, (II) prevent the Release or threatened of Release, or minimize the further Release of any Hazardous Material so it does not endanger or threaten to endanger the public health or welfare of the indoor or outdoor environment, (III) perform pre-remedial studies and investigations or post-remedial monitoring and care pertaining or relating to a Release, or (IV) bring the applicable party into compliance with any Environmental Law. (ii) Except as set forth in Company SEC Documents or Section 3.1(q) of the Disclosure Schedule: (A) The operations of the Company, its Subsidiaries and DHDC have been and, as of the Closing Date, will be, in compliance with all Environmental Laws, except where the failure to be in compliance will not have a Material Adverse Effect on the Company; (B) The Company, its Subsidiaries and DHDC have obtained and will, as of the Closing Date, maintain all permits required under applicable Environmental Laws for the continued operations of their respective businesses, except such permits the lack of which would not have a Material Adverse Effect on the Company; (C) The Company, its Subsidiaries and DHDC are not subject to any outstanding written orders from, or written agreements with, any Governmental Entity or other Person respecting (1) Environmental Laws, (2) Remedial Action, or (3) any Release or threatened Release of a Hazardous Material; (D) The Company, its Subsidiaries and DHDC have not received any written communication alleging, with respect to any such party, the violation of or liability under any Environmental Law, which violation or liability is outstanding; A-14 73 (E) To the knowledge of the Company, neither the Company, any of its Subsidiaries or DHDC has any contingent liability in connection with the Release of any Hazardous Material into the indoor or outdoor environment (whether on-site or off-site) which will have a Material Adverse Effect on the Company; (F) Except for de minimis amounts which are regulated as conditionally exempt small quantity generators, the operations of the Company, its Subsidiaries and DHDC do not involve the transportation, treatment, storage, or disposal of hazardous waste for purposes of the requirements set forth under, 40 C.F.R. Parts 260-270 or any state equivalent; (G) There is not now, nor to the knowledge of the Company has there been in the past, on or in any property owned by the Company, its Subsidiaries or DHDC any of the following: (1) any underground storage tanks or surface impoundments, (2) any asbestos-containing materials, or (3) any polychlorinated biphenyls; (H) No judicial or administrative proceedings are pending or, to the knowledge of the Company, threatened against the Company, its Subsidiaries or DHDC alleging the violation of or seeking to impose liability pursuant to any Environmental Law and there are no investigations pending or, to the knowledge of the Company, threatened against the Company, any of its Subsidiaries or DHDC under Environmental Laws, in each case which will have a Material Adverse Effect on the Company; and (I) The Company and its Subsidiaries have made available to TAGTCR true and complete copies of all environmentally related audits, assessments, studies, reports, analyses, and results of investigations prepared within the past five years of any real property currently or formerly owned, operated or leased by the Company, its Subsidiaries or DHDC that are in the possession, custody or control of the Company, any of its Subsidiaries or DHDC. (q) Insurance. Set forth on Section 3.1(q) of the Disclosure Schedule is a true and complete list and description of insurance policies (including information on the premiums payable in connection therewith, the scope and amount of the coverage and deductibles provided thereunder and all claims against such policies) maintained by the Company, any of its Subsidiaries and DHDC. (r) DHDC Financial Statements. The Company has made available to TAGTCR the operating statement for DHDC for the period commencing January 1, 1998 until March 31, 1998 (the "DHDC Financial Statements"). The DHDC Financial Statements were prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects in accordance with applicable requirements of GAAP (subject, in the case of the unaudited statements, to normal, recurring adjustments) the results of operations of DHDC for the periods presented therein. (s) Board of Directors Recommendation. The Board of Directors of the Company, based upon the unanimous recommendation of a Special Committee consisting of only non-employee directors of the Company, at a meeting duly called and held, has by the vote of those directors present (i) determined that this Agreement, the Merger and the transactions contemplated hereby are fair to and in the best interests of the stockholders of the Company (other than TAGTCR and the holders of Recapitalization Shares) and has approved the same, and (ii) resolved to recommend that the holders of the shares of Company Common Stock approve and adopt this Agreement, the Merger and the transactions contemplated hereby. (t) Material Contracts. Except as set forth in the Company SEC Reports, neither the execution and delivery of this Agreement nor the consummation of the Merger or the other transactions contemplated hereby will result in, cause the accelerated vesting or delivery of, or increase the amount or value of, any payment or benefit to any director, officer or employee of the Company, and, without limiting the generality of the foregoing, no amount paid or payable by the Company in connection with the Merger with the other transactions contemplated hereby will be an "excess parachute payment" within the meaning of Section 280G of the Code. Each contract, agreement or other document or A-15 74 instrument ("Material Contract") to which the Company or any of its Subsidiaries is a party that was required to be filed as an exhibit to the Company's annual report on Form 10-K for the year ended December 31, 1997 was so filed. None of the Company or its Subsidiaries is (with or without lapse of time or giving notice, or both) in material breach or default in any respect under any Material Contract. Except for the Rights Agreement, the Company is not a party to or subject to any "poison pill", shareholders rights plan, rights agreement or similar agreement, instrument or plan. (u) Fairness Opinion. The Company has received the opinion of The Robinson-Humphrey Company, LLC, financial advisor to the Company (the "Financial Advisor"), to the effect that, as of the date hereof, the Merger Consideration to be received by the stockholders of the Company in the Merger is fair, from a financial point of view, to the stockholders of the Company. (v) Regulatory Filings. The Company has made available for inspection by TAGTCR complete copies of all material registrations, filings and submissions made since January 1, 1996 by the Company or any Subsidiary with any Governmental Entity and any reports of examinations issued since January 1, 1996 by any such Governmental Entity that relate to the Company or any Subsidiary. The Company and each Subsidiary has filed all reports, statements, documents, registrations, filings or submissions required to be filed by any of them with any Governmental Entity, except where the failure to file, in the aggregate, will not have a Material Adverse Effect on the Company; and, to the knowledge of the Company, all such reports, statements, documents, registrations, filings or submissions were in all material respects true, and complete and accurate when filed, except where such incompleteness or inaccuracy individually, or in the aggregate, will not have a Material Adverse Effect on the Company. (w) State Takeover Laws. The Company's Board of Directors has taken such action so that no takeover statute or similar statute or regulation of the State of Delaware or the State of Georgia (and, to the knowledge of the Company after due inquiry, of any other state or jurisdiction) applies to this Agreement, the Merger, or any of the other transactions contemplated hereby. 3.2 Representations and Warranties of TAGTCR. TAGTCR represents and warrants to the Company as follows: (a) Organization, Standing and Power. TAGTCR is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, has all requisite corporate power and authority to own, lease, and operate its properties and to carry on its business as now being conducted, and is duly qualified or licensed to do business as a foreign corporation and in good standing to conduct business in each jurisdiction in which the conduct of its business, or the operation, ownership or leasing of its properties, makes such qualification or licensing necessary, other than in such jurisdictions where the failure to so qualify or to become so licensed does not have or could not reasonably be expected to have a Material Adverse Effect on TAGTCR. (b) Authority; No Violations; Consents and Approvals. (i) TAGTCR has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of TAGTCR. This Agreement has been duly executed and delivered by TAGTCR and (assuming this Agreement is duly executed and delivered by the Company) constitutes a valid and binding obligation of TAGTCR enforceable in accordance with its terms and conditions except that the enforcement hereof may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other similar laws now or hereafter in effect relating to creditors' rights generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). (ii) The execution and delivery of this Agreement and the consummation of the Merger and the other transactions contemplated hereby by TAGTCR, following the satisfaction or waiver of the conditions set forth in Article VI, will not: (A) violate any provision of the Certificate of Incorporation or Bylaws of TAGTCR, (B) conflict with, or result in any violation of, or default (with or without notice or A-16 75 lapse of time, or both) under; give rise to a right of termination, cancellation or acceleration (including pursuant to any put right) of any obligation; or result in the creation of a Lien or right of first refusal with respect to any asset or property (any such conflict, violation, default, right of termination, cancellation or acceleration, loss, creation or right of first refusal, a "Violation") pursuant to any loan or credit agreement, note, mortgage, deed of trust, indenture, lease or other agreement, obligation, instrument, concession, franchise or license of TAGTCR or (C) any law applicable to TAGTCR or its respective property or assets; provided, however, that no representation or warranty is made in the foregoing clauses (B) and (C) with respect to matters that, individually or in the aggregate, will not have a Material Adverse Effect on TAGTCR. (iii) No consent, approval, order or authorization of, or registration, declaration or filing with, notice to, or permit from any Governmental Entity, is required by or with respect to TAGTCR in connection with the execution and delivery of this Agreement by TAGTCR or the consummation by TAGTCR of the transactions contemplated hereby, except for (A) filings under the HSR Act, (B) the filing with the SEC of such reports under and such other compliance with the Exchange Act and the rules and regulations thereunder, as may be required in connection with this Agreement and the transactions contemplated hereby, (C) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, (D) such filings and approvals as may be required by any applicable state securities, "blue sky" or takeover laws, (E) the approval of this Agreement and the Merger pursuant to applicable laws governing health maintenance organizations, limited service health organizations, and insurance holding companies set forth in the Disclosure Schedule, and (F) the filing of a Form A Statement Regarding the Acquisition of Control of a Domestic Insurer with the Arizona and Texas Departments of Insurance and the approval thereof by the Arizona and Texas Directors of Insurance. (c) Information Supplied. None of the information supplied or to be supplied by TAGTCR for inclusion or incorporation by reference in the Proxy Statement will, at the date it is first mailed to the Company's stockholders or at the time of the Company Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. None of the information supplied or to be supplied by TAGTCR for inclusion or incorporation by reference in the Schedule 13E-3 will, on the date filed with the SEC or at the time of the Company Stockholders Meeting or the Effective Time, contain any untrue statement of a material fact or admit to state any material facts required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Schedule 13E-3, insofar as it relates to TAGTCR or other information supplied by TAGTCR for inclusion therein, will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder. (d) Board of Directors Recommendation. The Board of Directors of TAGTCR, at a meeting duly called and held (or by valid written consent in lieu thereof), has determined that this Agreement, the Merger and the transactions contemplated hereby are fair to and in the best interests of TAGTCR and have approved the same. The Board of Directors of TAGTCR has approved this Agreement and the Merger at a meeting duly called and held (or by valid written consent in lieu thereof) and no further approval is required pursuant to the DGCL, the Certificate of Incorporation or the Bylaws of TAGTCR. (e) Delaware Law. TAGTCR was not, immediately prior to the execution of this Agreement, an "interested stockholder" within the meaning of Section 203 of the DGCL. 3.3 Representations and Warranties of the Guarantors. Each of the Guarantors represents and warrants severally with respect to themselves to the Company as follows: (a) Organization, Standing and Power. Each of the Guarantors is an entity duly organized, validly existing, and in good standing under the laws of its formation, has all requisite corporate or partnership power and authority to own, lease, and operate its properties and to carry on its business as now being conducted, and is duly qualified or licensed to do business as a foreign corporation and in good standing to conduct business in each jurisdiction in which the conduct of its business, or the operation, ownership or A-17 76 leasing of its properties, makes such qualification or licensing necessary, other than in such jurisdictions where the failure to so qualify or to become so licensed does not have or could not reasonably be expected to have a Material Adverse Effect on each of the Guarantors. (b) Authority; No Violations; Consents and Approvals. (i) Each of the Guarantors has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Guarantors. This Agreement has been duly executed and delivered by each of the Guarantors and (assuming this Agreement is duly executed and delivered by the Company) constitutes a valid and binding obligation of each of the Guarantors enforceable in accordance with its terms and conditions except that the enforcement hereof may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other similar laws now or hereafter in effect relating to creditors' rights generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). (ii) The execution and delivery of this Agreement and the consummation of the Merger and the other transactions contemplated hereby by each of the Guarantors, following the satisfaction or waiver of the conditions set forth in Article VI, will not: (A) violate any provision of the formation documents of each of the Guarantors, (B) conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under; give rise to a right of termination, cancellation or acceleration (including pursuant to any put right) of any obligation; or result in the creation of a Lien or right of first refusal with respect to any asset or property (any such conflict, violation, default, right of termination, cancellation or acceleration, loss, creation or right of first refusal, a "Violation") pursuant to any loan or credit agreement, note, mortgage, deed of trust, indenture, lease or other agreement, obligation, instrument, concession, franchise or license or (C) any law applicable to each of the Guarantors or its respective property or assets, which has or could reasonably be expected to have a Material Adverse Effect on each of the Guarantors; provided, however, that no representation or warranty is made in the foregoing clauses (B) and (C) with respect to matters that, individually or in the aggregate, will not have a Material Adverse Effect on each of the Guarantors. (iii) No consent, approval, order or authorization of, or registration, declaration or filing with, notice to, or permit from any Governmental Entity, is required by or with respect to any Guarantor in connection with the execution and delivery of this Agreement by such Guarantor or the consummation by such Guarantor of the transactions contemplated hereby, except for (A) filings under the HSR Act, (B) the filing with the SEC of such reports under and such other compliance with the Exchange Act and the rules and regulations thereunder, as may be required in connection with this Agreement and the transactions contemplated hereby, (C) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, (D) such filings and approvals as may be required by any applicable state securities, "blue sky" or takeover laws, (E) the approval of this Agreement and the Merger pursuant to applicable laws governing health maintenance organizations, limited service health organizations, and insurance holding companies set forth in the Disclosure Schedule, and (F) the filing of a Form A Statement Regarding the Acquisition of Control of a Domestic Insurer with the Texas and Arizona Departments of Insurance and the approval thereof by the Texas and Arizona Directors of Insurance. (c) Information Supplied. None of the information supplied or to be supplied by any Guarantor for inclusion or incorporation by reference in the Proxy Statement will, at the date it is first mailed to the Company's stockholders or at the time of the Company Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. None of the information supplied or to be supplied by any Guarantor for inclusion or incorporation by reference in the Schedule 13E-3 will, on the date filed with the SEC or at the time of the Company Stockholders Meeting, contain any untrue statement of a material fact or admit to state any material facts required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Schedule 13E-3, insofar as it A-18 77 relates to any Guarantor or other information supplied by any Guarantor for inclusion therein, will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder. (d) Bridge Loan and Financing Commitment. TAGTCR or the Guarantors have received (i) a written commitment (each of which is conditioned upon the conditions set forth therein) from NationsBridge, L.L.C., NationsBank, N.A. and NationsBanc Montgomery Securities, LLC (collectively, the "Banks") for the provision of a guaranteed loan in the amount of $20 million and senior and subordinated debt financing of approximately $175 million in the aggregate, (ii) written commitments from the Guarantors to subscribe for an aggregate of at least $87.7 million (including the DHDC Rollover (as defined below)), and (iii) a written commitment from certain existing stockholders of the Company to cause 200,000 shares of Company Common Stock to be treated as 2.2(a)(iii) Recapitalization Shares (the commitments set forth in (i), (ii) and (iii) are collectively referred to as the "Commitments"). The DHDC Rollover shall mean the agreement by GTCR to contribute its DHDC common stock directly or indirectly into Surviving Corporation immediately after the Effective Time, which agreement shall be valued so as to return $10 million and provide a 31% internal rate of return on GTCR's $10.0 million investment in DHDC from September 12, 1997. Based upon the representations and warranties set forth in Section 3.1, the aggregate of $286.3 million of financing contemplated by the Commitments (the "Financing") will be sufficient (i) to consummate the Merger and pay the Merger Consideration and the Option Consideration, (ii) to pay all fees and expenses required to be paid by TAGTCR and the Company in connection with the Merger and the transactions contemplated thereby, and (iii) to refinance the existing indebtedness of the Company to financial institutions. True and correct copies of the Commitments have been provided to the Company prior to the date hereof. The terms and conditions of the Class A Preferred Stock to be received by the holders of Recapitalization Shares will be identical to the Class A Preferred Stock to be received by the Guarantors. The holders of the Recapitalization Shares that receive Class A Preferred Stock will pay a per share amount equal to that paid by the Guarantors. ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1 Covenants of the Company. During the period from the date of this Agreement and continuing until the Effective Time, the Company agrees that (except as expressly contemplated or permitted by this Agreement, or to the extent that TAGTCR shall otherwise consent in writing): (a) Ordinary Course. Each of the Company and its Subsidiaries shall conduct its business and operations in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and shall use all reasonable efforts to preserve intact its present business organizations, keep available the services of its current officers and employees and preserve satisfactory relationships with customers, suppliers, distributors and others having business dealings with it and will take no action which would adversely affect its ability to consummate the Merger or the other transactions contemplated hereby. (b) Dividends; Changes in Stock. The Company shall not, nor shall it permit any of its Subsidiaries to: (i) declare, set aside, or pay any dividends on or make other distributions (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock (other than dividends or distributions by any Subsidiary to the Company), (ii) split, combine, or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) repurchase, redeem, or otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire, any shares of its capital stock, except as required by the terms of its securities outstanding on the date hereof, as contemplated by this Agreement or as contemplated by employee benefit and dividend reinvestment plans as in effect on the date hereof which terms are set forth on Section 4.1(b) of the Disclosure Schedule. A-19 78 (c) Issuance of Securities. The Company shall not, nor shall it permit any of its Subsidiaries to (i) grant any options, warrants or rights, to purchase shares of Company Common Stock, (ii) amend any Option or Option Plan, (iii) reprice any Option or Option Plans, or (iv) issue, deliver or sell, or authorize or propose to issue, deliver or sell, any shares of its capital stock of any class or series, any Company Voting Debt or any securities convertible into, or any rights, warrants or options to acquire, any such shares, Company Voting Debt or convertible securities, other than (A) the issuance of shares of Company Common Stock pursuant to the terms of the ESPP pursuant to purchase requests made prior to the date hereof, upon the exercise of Options granted under Option Plans which are outstanding on the date hereof, or in satisfaction of stock grants or stock based awards made prior to the date hereof pursuant to Option Plans or pursuant to any individual agreements such as employment agreements, executive termination agreements (in each such case, as in effect on the date hereof); and (B) issuances by a wholly-owned Subsidiary of its capital stock to its parent. (d) Governing Documents. The Company shall not amend or propose to amend its Certificate of Incorporation or Bylaws except to give effect to the Merger. (e) No Solicitation. None of the Company, any of its Subsidiaries or DHDC nor any of the respective officers and directors of the Company, any of its Subsidiaries or DHDC shall, and the Company will cause its employees, agents and representatives (including, without limitation, any investment banker, attorney or accountant retained by the Company, any of its Subsidiaries or DHDC) not to, initiate or solicit, directly or indirectly, any inquiries or the making of any proposal with respect to a merger, consolidation, recapitalization or similar transaction involving, or any purchase of all or any significant portion of the assets of, or any equity interest in, the Company, any Subsidiary or DHDC (an "Acquisition Proposal") or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to any Acquisition Proposal, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal; provided, however, that the foregoing shall not prohibit the Special Committee of the Board of Directors of the Company from furnishing information to, or entering into discussions or negotiations, or otherwise facilitating any effort or attempt to make or implement an Acquisition Proposal if, and to the extent, that the Special Committee determines after consultation with counsel and in good faith that failing to take such action would be inconsistent with the Special Committee's fiduciary duty under applicable law. The Company will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any third parties conducted heretofore with respect to any of the foregoing. The Company will notify TAGTCR immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with, the Company, any of its Subsidiaries, DHDC or any of their respective officers, directors, employees, agents or representatives. (f) No Acquisitions. The Company shall not, nor shall permit any of its Subsidiaries to, acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof without the prior consent of TAGTCR. (g) No Dispositions. Other than dispositions in the ordinary course of business consistent with past practice which are not material, individually or in the aggregate, to the Company and its Subsidiaries taken as a whole, the Company shall not, nor shall it permit any of its Subsidiaries to, sell, transfer, lease (whether such lease is an operating or capital lease), encumber, agree to sell, transfer, lease or otherwise dispose of, any of its assets. (h) Governmental Filings. The Company shall promptly provide TAGTCR (or its counsel) with copies of all filings made by the Company with the SEC or any other state or federal Governmental Entity in connection with this Agreement and the transactions contemplated hereby. (i) No Dissolution, Etc. Except as otherwise permitted or contemplated by this Agreement, the Company shall not, nor shall it permit any of its Subsidiaries to, authorize, recommend, propose or A-20 79 announce an intention to adopt or enter into any agreement in principle or an agreement with respect to, any plan of complete or partial liquidation or dissolution of the Company or any of its Subsidiaries. (j) Other Actions. Except as contemplated by this Agreement, the Company shall not, nor shall it permit any of its Subsidiaries to, take or agree or commit to take any action that is reasonably likely to result in any of the Company's representations or warranties hereunder being untrue in any material respect or in any of the Company's covenants hereunder or any of the conditions to the Merger not being satisfied in all material respects. (k) Certain Employee Matters. The Company shall not, nor shall it permit any if its Subsidiaries to (i) grant any increase in the base compensation (excluding bonuses) of any of its directors, officers or key employees who have base compensation of $100,000 a year or more, (ii) pay or agree to pay any pension, retirement allowance or other employee benefit not required or contemplated by any of the existing Company Benefit Plans or Company Pension Plans as in effect on the date hereof to any such director, officer or key employee, whether past or present, (iii) enter into any new, or materially amend any existing, employment or severance or termination agreement with any such director, officer or key employee, or (iv) except as may be required to comply with applicable law, become obligated under any new Company Employee Benefit Plan or Company Pension Plan, which was not in existence on the date hereof, or amend any such plan or arrangement in existence on the date hereof if such amendment would have the effect of materially enhancing any benefits thereunder. (l) Indebtedness; Agreements. (i) The Company shall not, nor shall the Company permit any of its Subsidiaries to, assume or incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities of the Company or any of its Subsidiaries or guarantee any debt securities of others or create any Liens on the property of the Company or any of its Subsidiaries in connection with any indebtedness thereof, or enter into any "keep well" or other agreement or arrangement to maintain the financial condition of another Person, other than the incurrence of indebtedness in accordance with the Company's existing line of credit with First Union National Bank, providing that the proceeds of such indebtedness are used only in the ordinary course of business and consistent with past practice (which includes funding acquisitions permitted under this Agreement). (ii) The Company shall not, nor shall the Company permit any of its Subsidiaries to, (a) make any loans, advances or capital contributions to, or investments in, any other person or (b) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, contingent or otherwise), other than the payment, discharge or satisfaction of liabilities in the ordinary course of business and consistent with past practice; provided, that Dent Lease, Inc. may continue to make capital expenditures that do not exceed $50,000 during any three month period. (iii) The Company shall not, nor shall the Company permit any of its Subsidiaries to, enter into, modify, rescind, terminate, waive, release or otherwise amend in any material respect any of the terms or provisions of any Material Contract. (m) Accounting. The Company shall not change, other than in the ordinary course of business, consistent with past practice or as required by the SEC or by law, any of its accounting policies, procedures, practices, books and records. (n) Capital Expenditures. The Company shall not, nor shall the Company permit any of its Subsidiaries to, incur any capital expenditures, that in the aggregate, are in excess of $500,000; provided, that DentLease, Inc. may continue to make capital expenditures that do not exceed $50,000 during any three month period. (o) Insurance. Neither the Company nor any Subsidiary shall permit any insurance policy naming it as a beneficiary or a loss payee to be cancelled, terminated or materially altered, except in the ordinary course of business and consistent with past practice and following written notice to TAGTCR. A-21 80 (p) Hedging. Neither the Company nor any Subsidiary shall enter into any hedging, option, derivative or other similar transaction. (q) Transfer of Interest in DHDC and DHMI. Prior to the Effective Time, the Company will cause all equity interests in DHDC and DHMI owned by it or any of its subsidiaries to be transferred to a newly formed, wholly owned subsidiary of the Company. 4.2 Covenants of TAGTCR and the Guarantors. (a) TAGTCR and the Guarantors will use their respective reasonable best efforts to cause the Financing to be closed on terms consistent with the Commitments; provided that the Guarantors can reduce the amount of equity they contribute to the extent of Recapitalization Shares in excess of $3.6 million such that the aggregate amount of Recapitalization Shares does not exceed $15,000,000. In the event that any portion of the Financing becomes unavailable, regardless of the reason therefor, TAGTCR and the Guarantors will use their respective reasonable best efforts to arrange alternative financing on behalf of the Company from other sources on and subject to substantially the same terms and conditions as the portion of the Financing that has become unavailable. TAGTCR and the Guarantors shall use their respective reasonable best efforts to (i) satisfy on or before the Closing all requirements of the definitive agreements pursuant to which the Financing will be obtained (the "Financing Agreements") which are conditions to closing to be satisfied by TAGTCR with respect to all transactions constituting the Financing and to drawing down the cash proceeds thereunder; (ii) defend all lawsuits or other legal proceedings challenging the Financing Agreements or the consummation of the transactions contemplated thereby; and (iii) lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated thereby. TAGTCR and the Guarantors shall keep the Company apprised of all material developments relating to the Financing. Any fees to be paid by the Company or any other obligations to be incurred by the Company in connection with the Financing shall be subject to the occurrence of the Closing. (b) The Guarantors agree that on or prior to the Closing Date they will purchase or cause to be purchased equity of TAGTCR for a cash purchase price of at least $87.7 million in the aggregate (including the DHDC Rollover), subject to the terms and conditions of, and in accordance with the standards set forth in, the equity commitment letter of Guarantors dated the date hereof; provided that, the Guarantors can reduce the amount of equity they contribute to the extent of Recapitalization Shares in excess of $3.6 million such that the aggregate amount of Recapitalization Shares does not exceed $15,000,000. ARTICLE V ADDITIONAL AGREEMENTS 5.1 Preparation of the Proxy Statement; Company Stockholders Meeting. (a) As soon as practicable following the date of this Agreement, the Company shall prepare and file with the SEC the Proxy Statement under the Exchange Act, and shall use its reasonable best efforts to have the Proxy Statement cleared by the SEC. TAGTCR shall furnish all information about itself, its business and operations and its owners and all financial information to the Company as may be reasonably necessary in connection with the preparation of the Proxy Statement. TAGTCR agrees promptly to correct any information provided by it for use in the Proxy Statement if and to the extent that such information shall have become false or misleading in any material respect. The Company shall notify TAGTCR of the receipt of any comments of the SEC with respect to the Proxy Statement and shall use its reasonable best efforts to respond to all SEC comments with respect to the Proxy Statement and to cause the Proxy Statement to be mailed to the Company's stockholders at the earliest practicable date. The Company shall give TAGTCR and its counsel the opportunity to review the Proxy Statement prior to its being filed with the SEC and shall give TAGTCR and its counsel the opportunity to review all amendments and supplements to the Proxy Statement and all responses to requests for additional information and replies to comments prior to their being filed with, or sent to, the SEC. If at any time prior to the Effective Time, any event with respect to the Company or any of its Subsidiaries or with respect to other information supplied by the Company or TAGTCR for inclusion in the Proxy Statement, shall occur which is required to be described in an amendment or supplement to the Proxy Statement, as the case may be, such A-22 81 event shall be so described, and such amendment or supplement shall be promptly filed with the SEC and, to the extent required by law, disseminated to the stockholders of the Company. (b) The Company will, as soon as practicable following the date of this Agreement, duly call, give notice of, convene and hold the Company Stockholders Meeting for the purpose of approving this Agreement and the transactions contemplated hereby. Except if the Special Committee of the Board of Directors determines in good faith that to do so would be inconsistent with its fiduciary duties under applicable law, the Company, through its Board of Directors, shall recommend to its stockholders approval of this Agreement (which recommendation shall be contained in the Proxy Statement) and shall use all commercially reasonable efforts to solicit from its stockholders proxies in favor of approval and adoption of this Agreement. (c) As soon as practicable following the date of this Agreement, TAGTCR shall prepare and file with the SEC the Schedule 13E-3. TAGTCR shall use all reasonable best efforts to have the Schedule 13E-3 cleared by the SEC. The Company shall furnish all information about itself, its business and operations and its owners and all financial information to TAGTCR as may be reasonably necessary in connection with the preparation of Schedule 13E-3. The Company agrees promptly to correct any information provided by it for use in Schedule 13E-3 if and to the extent that such information shall have become false or misleading in any material respect. TAGTCR shall notify the Company of the receipt of any comments of the SEC with respect to Schedule 13E-3. TAGTCR shall give the Company and its counsel the opportunity to review Schedule 13E-3 prior to its being filed with the SEC and shall give the Company and its counsel the opportunity to review all amendments and supplements to Schedule 13E-3 and all responses to requests for additional information and replies to comments prior to their being filed with, or sent to, the SEC. If at any time prior to the Effective Time, any event with respect to TAGTCR or with respect to other information supplied by TAGTCR or the Company for inclusion in Schedule 13E-3, shall occur which is required to be described in an amendment or supplement to Schedule 13E-3, as the case may be, such event shall be so described, and such amendment or supplement shall be promptly filed with the SEC. 5.2 Access to Information. Upon reasonable notice, the Company shall, and shall cause each of its Subsidiaries to, (i) afford to the officers, employees, accountants, counsel and other representatives of TAGTCR, including financing sources, access, during normal business hours from the date hereof to the Effective Time, to all the properties, books, contracts, and commitments, and (ii) furnish promptly to TAGTCR (a) a copy during such period of all materials filed pursuant to SEC requirements and (b) all other information concerning its business, properties and personnel as TAGTCR may reasonably request. The Confidentiality Agreements between the Company and each of TAGTCR, GTCR Golder-Rauner, LLC and TA/Advent VIII L.P., dated as of July 14, 1998 (collectively the "Confidentiality Agreement") shall apply with respect to information furnished thereunder or hereunder and any other activity contemplated thereby. No investigation pursuant to this Section 5.2 shall affect any representation or warranty in this Agreement or any party hereto or any condition to the obligations of the parties hereto. 5.3 Broker and Finders. (a) The Company represents, as to itself, its Subsidiaries and its affiliates, that no agent, broker, investment banker, financial advisor or other firm or Person is or will be entitled to any broker's or finders fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement, except for The Robinson-Humphrey Company, LLC and Morgan, Stanley & Co. Incorporated, whose fees and expenses will be paid by the Company in accordance with the Company's agreements with such firms (copies of which have been delivered by the Company to TAGTCR prior to the date of this Agreement). (b) TAGTCR represents, as to itself and its affiliates, that no agent, broker, investment banker, financial advisor or other firm or Person is or will be entitled to any broker's or finders fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement. 5.4 Indemnification; Directors' and Officers' Insurance. (a) The Company shall, and from and after the Effective Time, the Surviving Corporation shall, indemnify, defend and hold harmless the present and former directors, officers, employees and agents of the Company or any of its Subsidiaries (the "Indemnified Parties") against all losses, claims, damages, costs, expenses (including reasonable attorneys' fees and expenses), liabilities or judgments or amounts that are paid in settlement with the approval of the A-23 82 indemnifying party of or in connection with any threatened or actual claim, action, suit, proceeding or investigation based in whole or in part on or arising in whole or in part out of or pertaining to the fact that such person is or was a director or officer of the Company or any of its Subsidiaries whether pertaining to any matter existing or occurring at or prior to the Effective Time and whether asserted or claimed prior to, or at or after, the Effective Time ("Indemnified Liabilities"), including all Indemnified Liabilities based in whole or in part on, or arising in whole or in part out of, or pertaining to this Agreement or the transactions contemplated hereby, in each case to the fullest extent a corporation is permitted under the DGCL as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits broader rights than such law permitted prior to such amendment and only to the extent such amendment is not retroactively applicable) to indemnify its own directors or officers, as the case may be. Without limiting the foregoing, in the event any such claim, action, suit, proceeding or investigation is brought against any Indemnified Parties (whether arising before or after the Effective Time), (i) the Indemnified Parties may retain counsel satisfactory to them and the Surviving Corporation, and the Company or the Surviving Corporation shall pay all fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received and otherwise advance to such Indemnified Party upon request reimbursement of documented expenses incurred, in either case to the fullest extent and in the manner permitted by the DGCL; and (ii) the Company or the Surviving Corporation will use all reasonable efforts to assist in the vigorous defense of any such matter, provided that neither the Company nor the Surviving Corporation shall be liable for any settlement effected without its prior written consent (which consent shall not be unreasonably withheld). Any Indemnified Party wishing to claim indemnification under this Section 5.4, upon learning of any such claim, action, suit, proceeding or investigation, shall notify the Company (or after the Effective Time, the Surviving Corporation) (but the failure so to notify shall not relieve a party from any liability which it may have under this Section 5.4 except to the extent such failure materially prejudices such party), and shall to the extent required by the DGCL deliver to the Company (or after the Effective Time, the Surviving Corporation) the undertaking contemplated by Section 145(c) of the DGCL. The Indemnified Parties as a group may retain only one law firm to represent them with respect to each such matter unless there is, under applicable standards of professional conduct, a conflict on any significant issue between the positions of any two or more Indemnified Parties. The Company and TAGTCR agree that all rights to indemnification, including provisions relating to advances of expenses incurred in defense of any action or suit, existing in favor of the Indemnified Parties with respect to matters occurring through the Effective Time, shall survive the Merger and shall continue in full force and effect for a period of not less than six years from the Effective Time; provided, however, that all rights to indemnification in respect of any Indemnified Liabilities asserted or made within such period shall continue until the disposition of such Indemnified Liabilities. (b) For a period of six years after the Effective Time, the Surviving Corporation shall cause to be maintained in effect the current policies of directors' and officers' liability insurance maintained by the Company and its Subsidiaries (provided that TAGTCR may substitute therefor policies of at least the same coverage and amounts containing terms and conditions which are no less advantageous in any material respect to the Indemnified Parties) with respect to matters arising before the Effective Time; provided, however, that in no event shall the Surviving Corporation be required to maintain such insurance with comparable coverage if the cost of such insurance is more than 125% of the cost of such insurance in the prior year, but in such case, the Surviving Corporation shall purchase as much coverage as possible for such amount. 5.5 Efforts and Actions. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use its reasonable best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws to consummate and make effective the Merger and the other transactions contemplated by this Agreement, including (a) the obtaining of all necessary actions or nonactions, waivers, consents and approvals from all applicable Governmental Entities and the making of all necessary registrations and filings, including, without limitation, filings under the HSR Act and filings with such Governmental Entities, and the taking of all reasonable steps (including furnishing any information to any party hereto as such party may reasonably request in connection with any such filing) as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any such Governmental Entity, (b) the obtaining of all necessary consents, approvals or waivers from the third parties, A-24 83 (c) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of any of the transactions contemplated by this Agreement, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed, and (d) the execution and delivery of any additional instruments reasonably necessary to consummate the transactions contemplated by, and to fully carry out the purposes of this Agreement. 5.6 Publicity. The parties will consult with each other and will mutually agree upon any press release or public announcement pertaining to this Agreement, the Merger or any transactions contemplated hereby and shall not issue any such press release or make any such public announcement prior to such consultation and agreement, except as may be required by applicable law or by obligations arising under the Company's listing agreement with NASDAQ, in which case the party proposing to issue such press release or make such public announcement shall use reasonable efforts to consult in good faith with the other party before issuing any such press release or making any such public announcement. 5.7 Notice of Certain Events. The Company shall give prompt written notice to TAGTCR, and TAGTCR shall give prompt notice to the Company, of (a) the occurrence or nonoccurrence of any event that would be reasonably likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any respect at or prior to the Effective Time and (b) any failure of the Company or TAGTCR, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.7 shall not serve to cure such breach or non-compliance or limit or otherwise affect the remedies available hereunder to the party receiving such notice. 5.8 State Takeover Laws. The Company shall, upon the request of TAGTCR, take all reasonable steps to assist in any challenge by TAGTCR to the validity or applicability to the transactions contemplated by this Agreement, including the Merger, of any state takeover law. ARTICLE VI CONDITIONS PRECEDENT 6.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligation of each party to effect the Merger shall be subject to the satisfaction prior to the Closing Date of the following conditions: (a) Stockholder Approval. This Agreement and the Merger shall have been approved and adopted by the affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock entitled to vote thereon if such vote is required by applicable law. (b) HSR Act. The waiting period (and any extension thereof) applicable to the Merger under the HSR Act shall have been terminated or shall have expired. (c) Governmental Consents. All licenses, permits, consents, authorizations, approvals, qualifications and orders of Governmental Entities set forth in Section 3.1(c)(iii) of this Agreement shall have been obtained except where the failure to obtain such licenses, permits, consents, authorizations, approvals, qualifications and orders, individually and in the aggregate, will not have a material Adverse Effect on the Company. 6.2 Conditions of Obligations of TAGTCR and the Guarantors. The obligations of TAGTCR and each of the Guarantors to effect the Merger are subject to the satisfaction of the following conditions, any or all of which may be waived in whole or in part by TAGTCR and each Guarantor respectively: (a) No Material Adverse Effect. There shall not have occurred a Material Adverse Effect on the Company from the date hereof to the Effective Time. (b) Representations and Warranties. The representations and warranties of the Company set forth in this Agreement shall be true in all material respects as of the date of this Agreement and (except to the extent such representations and warranties expressly relate to an earlier date) as of the Closing Date as though made on and as of the Closing Date, except as otherwise contemplated by this Agreement and A-25 84 except that, with respect to representations and warranties otherwise qualified by Material Adverse Effect, for purposes of the satisfaction of this condition, such representations and warranties shall be true and correct in all respects. TAGTCR shall have received a certificate signed on behalf of the Company by the chief executive officer and by the chief financial officer of the Company to such effect. (c) Performance of Obligations of the Company. The Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and TAGTCR shall have received a certificate signed on behalf of the Company by the chief executive officer and by the chief financial officer of the Company to such effect. (d) Financing. The Company shall have received the proceeds of the Financing or other financings reasonably acceptable to TAGTCR in amounts sufficient to consummate the transactions contemplated by this Agreement, including, without limitation, amounts sufficient (i) to pay the Merger Consideration, (ii) to refinance existing indebtedness of the Company, and (iii) to pay any fees and expenses in connection with the transactions contemplated by this Agreement or the financing thereof; provided, however, that this condition shall be deemed to have been satisfied if TAGTCR and the Guarantors shall not have complied in all material respects with all of their respective covenants under Section 4.2. (e) No Injunctions or Restraints. There shall have been no order or preliminary or permanent injunction entered in any action or proceeding before any Governmental Entity or other action taken, nor statute, rule, regulation, legislation, interpretation, judgment or order enacted, entered, enforced, promulgated, amended, issued or deemed applicable to the Company or any of its Subsidiaries or the Merger or this Agreement by any Governmental Entity which shall have remained in effect, which, or any suit, claim, action or proceeding before any Governmental Entity, which, if adversely decided, would have the effect of: making illegal, materially delaying or otherwise directly or indirectly restraining or prohibiting the Merger, or the consummation of any of the other transactions contemplated by this Agreement; provided, however, that TAGTCR shall have complied with its obligations under Section 5.5. 6.3 Conditions of Obligations of the Company. The obligations of the Company to affect the Merger are subject to the satisfaction of the following conditions, any or all of which may be waived in whole or in part by the Company. (a) Representations and Warranties of TAGTCR. The representations and warranties of TAGTCR set forth in this Agreement shall be true in all material respects as of the date of this Agreement and (except to the extent such representations and warranties expressly relate to an earlier date) as of the Closing Date as though made on and as of the Closing Date, except as otherwise contemplated by this Agreement and except that, with respect to representations and warranties otherwise qualified by Material Adverse Effect, for purposes of the satisfaction of this condition, such representations and warranties shall be true and correct in all respects. The Company shall have received a certificate signed on behalf of TAGTCR by an executive officer of TAGTCR to such effect. (b) Representations and Warranties of the Guarantors. The representations and warranties of the Guarantors set forth in this Agreement shall be true in all material respects as of the date of this Agreement and (except to the extent such representations and warranties expressly relate to an earlier date) as of the Closing Date as though made on and as of the Closing Date, except as otherwise contemplated by this Agreement and except that, with respect to representations and warranties otherwise qualified by Material Adverse Effect, for purposes of the satisfaction of this condition, such representations and warranties shall be true and correct in all respects. The Company shall have received certificates signed on behalf of each Guarantor by an executive officer of such Guarantor to such effect. (c) Performance of Obligations of TAGTCR. TAGTCR shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and the Company shall have received a certificate signed on behalf of TAGTCR by an executive officer of TAGTCR to such effect. A-26 85 (d) Performance of Obligations of the Guarantors. The Guarantors shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Closing Date, and the Company shall have received certificates signed on behalf of each Guarantor by an executive officer of such Guarantor to such effect. (e) No Injunctions or Restraints. No court of competent jurisdiction or Governmental Entity shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is then in effect and has the effect of preventing or prohibiting the consummation of the transactions contemplated by this Agreement or the effective operation of the business of the Company and the Subsidiaries after the Effective Time; provided, however, that the Company shall have complied with its obligations under Section 5.5. ARTICLE VII TERMINATION AND AMENDMENT 7.1 Termination. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after approval of the Merger by the stockholders of the Company: (a) by mutual written consent of the Company, by action of the Special Committee of its Board of Directors, and TAGTCR, by action of its Board of Directors; (b) by the Company if there has been a material breach or failure to perform any representation, warranty, covenant or agreement on the part of TAGTCR which breach or failure to perform has not been cured within 30 calendar days following receipt by TAGTCR of notice of such breach or failure; (c) by TAGTCR if there has been a material breach or failure to perform any representation, warranty, covenant or agreement on the part of the Company which breach or failure to perform has not been cured within 30 calendar days following receipt by the Company of notice of such breach or failure; (d) by TAGTCR or the Company if any permanent injunction or other order of a court or other competent authority preventing the consummation of the Merger shall have become final and nonappealable; (e) by TAGTCR or the Company if the Merger shall not have been consummated on or before June 30, 1999; (f) by TAGTCR in the event the Special Committee of the Board of Directors or the Board of Directors of the Company shall have (i) withdrawn or adversely modified its approval or recommendation of the Merger or this Agreement, (ii) failed to duly call, give notice of, convene or hold the Company Stockholders Meeting, in violation of Section 5.1(b) and at the time of such failure an Acquisition Proposal by any Person (other than TAGTCR or its affiliates) shall have been publicly announced or provided to the Company or the Special Committee, (iii) recommended, approved, or accepted an Acquisition Proposal by any Person (other than TAGTCR or its affiliates), or (iv) resolved to do any of the foregoing (or the Company has agreed to do any of the foregoing); (g) by the Company if the Special Committee of the Board of Directors or the Board of Directors of the Company accepts or recommends to the holders of the shares of Company Common Stock approval or acceptance of, an Acquisition Proposal by any Person (other than TAGTCR or its affiliates); provided, however that the Company shall not terminate this Agreement pursuant to this Section 7.1(g) without providing TAGTCR at least five (5) days prior written notice, which notice shall include in reasonable detail the terms of the Acquisition Proposal; or (h) by TAGTCR or the Company if the Merger and this Agreement shall have been voted on by the holders of Company Common Stock, and the votes shall not have been sufficient to satisfy the condition set forth in Section 6.1(a). A-27 86 7.2 Effect of Termination. In the event of termination of this Agreement by either the Company or TAGTCR as provided in Section 7.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of TAGTCR or the Company or their respective affiliates, officers, directors, or stockholders, except (i) with respect to this Section 7.2, Section 5.2 and Section 7.3 each of which shall survive such termination, and (ii) for any breach by a party hereto of any of its representations, warranties, covenants or agreements contained in this Agreement. 7.3 Payment of Fees and Expenses. (a) Except as otherwise provided in this Section 7.3 and except with respect to claims for damages incurred as a result of the breach of this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense. (b) The Company agrees to pay TAGTCR a fee in immediately available funds equal to $7.0 million (the "Specified Fee") upon the termination of this Agreement under Sections 7.1(f) or (g). The Specified Fee shall be paid on the second business day following such termination. (c) In the event (i) this Agreement shall be terminated pursuant to Section 7.1(c) as a result of a willful breach by the Company or pursuant to Section 7.1(h), and (ii) either (A) a transaction with any person (other than TAGTCR or its affiliates) that is contemplated by the term "Acquisition Proposal" and which is based on an Acquisition Proposal made prior to such termination of this Agreement, shall be consummated on or before the first anniversary of the termination of this Agreement, or (B) the Company shall enter into an agreement with any person (other than TAGTCR or its affiliates), on or before the first anniversary of the termination of this Agreement, with respect to an Acquisition Proposal which is made prior to such termination of this Agreement, and a transaction contemplated by the term "Acquisition Proposal" shall thereafter be consummated with such person, then the Company shall pay to TAGTCR a fee in immediately available funds equal to the Specified Fee. Such amount shall be paid contemporaneously with the consummation of such contemplated transaction. Notwithstanding the foregoing, such fee shall be reduced by any amounts paid to TAGTCR pursuant to Section 7.3 (d). (d) TAGTCR agrees to pay the Company a fee in immediately available funds equal to the amount of all the Company's Designated Expenses upon the termination of this Agreement under Section 7.1(b). The Company agrees to pay TAGTCR a fee in immediately available funds equal to the amount of all of TAGTCR's Designated Expenses upon the termination of this Agreement under Section 7.1(c). Such Designated Expenses shall be paid on the second business day following the submission thereof by the applicable party. (e) For purposes of this Section 7.3, the term "Designated Expenses" shall mean, with respect to a specified person, all documented, reasonable out-of-pocket fees and expenses (not to exceed $2.0 million) incurred or paid by or on behalf of such specified person and its affiliates to third parties in connection with the Merger or the consummation of any of the transactions contemplated by this Agreement, including, without limitation, all printing costs and reasonable fees and expenses of counsel, investment banking firms, brokers, accountants, experts and consultants. ARTICLE VIII GENERAL PROVISIONS 8.1 Nonsurvival of Representations, Warranties and Agreements. None of the representations or warranties and agreements (other than Sections 5.4 and 5.6) in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time. 8.2 Notices. Any notice or communication required or permitted hereunder shall be in writing and either delivered personally, telecopied or sent by certified or registered mail, postage prepaid (and shall be A-28 87 deemed to have been duly given upon receipt), to the following address or telecopy number, or to such other address or addresses or telecopy numbers as may be subsequently designated by notice given hereunder: (a) if to TAGTCR, to: NMS Capital, L.P. 600 Montgomery Street San Francisco, CA 94111 Attn: William Bunting Telephone: 415-627-2426 Telecopy: 415-913-5704 Golder, Thoma, Cressey, Rauner Fund V, L.P. 6100 Sears Tower Chicago, Illinois 60606 Attn: Don Edwards Telephone: 312-382-2200 Telecopy: 312-382-2201 and TA/Advent VIII L.P. High Street Tower Suite 2500 125 High Street Boston, Massachusetts 02110 Attn: Roger B. Kafker Telephone: 617-574-6774 Telecopy: 617-574-6728 with a copy to: McDermott, Will & Emery 50 Rockefeller Plaza New York, New York 10020 Attn: Brian Hoffmann, Esq. Telephone: 212-547-5400 Telecopy: 212-547-5444 (b) if to the Company, to: Special Committee of the Board of Directors c/o CompDent Corporation 100 Mansell Court East Suite 400 Roswell, Georgia 30076 Attn: Joseph E. Stephenson, Chairman Telephone: 770-998-8936 Telecopy: 770-992-4349 with a copy to: King & Spalding 191 Peachtree Street Atlanta, Georgia 30303 Attn: John J. Kelley III, Esq. Telephone: 404-572-4600 Telecopy: 404-572-5100 A-29 88 8.3 Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the word "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." 8.4 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 8.5 Entire Agreement; Third Party Beneficiaries. This Agreement (together with the Confidentiality Agreement and any other documents and instruments referred to herein) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereto. This Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder, except that the rights under Section 5.4 shall inure to the benefit of and be enforceable by the Indemnified Parties. 8.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. EACH OF TAGTCR AND THE COMPANY HEREBY (A) IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF THE UNITED STATES OF AMERICA LOCATED IN THE STATE OF DELAWARE (THE "DELAWARE COURTS") FOR ANY LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, (B) AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN SUCH COURTS, (C) WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUCH LITIGATION IN THE DELAWARE COURTS, AND (D) AGREES NOT TO PLEAD OR CLAIM IN ANY DELAWARE COURT THAT SUCH LITIGATION BROUGHT THEREIN HAS BEEN BROUGHT IN ANY INCONVENIENT FORUM. 8.7 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. 8.8 Amendment. Subject to applicable law, this Agreement may be amended, modified or supplemented only by written agreement of TAGTCR, the Company and the Guarantors at any time prior to the Effective Time with respect to any of the terms contained herein; provided, however, that, after this Agreement is approved by the Company's stockholders, no such amendment or modification shall reduce the amount or change the form of consideration to be delivered to the stockholders of the Company; and provided, further, that the exhibits referred to in Sections 1.4(c) and (d) shall be deemed amendments hereto. 8.9 Extension; Waiver. At any time prior to the Effective Time, the parties hereto, by action taken or authorized by their respective Boards of Directors or Committees thereof, as the case may be, may, to the extent legally allowed: (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto; (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto; and (c) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. The failure of any party hereto to assert any of its rights hereunder shall not constitute a waiver of such rights. 8.10 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting A-30 89 the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. 8.11 Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions and other equitable remedies to prevent breaches of this Agreement and to enforce specifically the terms and provisions thereof in any Delaware Court, this being in addition to any other remedy to which they are entitled at law or in equity. Any requirements for the securing or positing of any bond with respect to such remedy are hereby waived by each of the parties hereto. 8.12 Guarantors. (a) Each Guarantor hereby unconditionally and irrevocably guarantees severally, but not jointly, to the Company the due and punctual performance of each of the obligations and the undertakings of TAGTCR under this Agreement when and to the extent the same are required to be performed and subject to all of the terms and conditions hereof; provided, however, that neither TA nor GTCR shall have liability for more than 48.235% of any liability, and NMS shall not have liability for more than 3.530% of any liability, arising from a breach by TAGTCR under this Agreement, and provided, further that no Guarantor shall have any liability whatsoever under this guaranty after the Closing, whether based upon events occurring prior to or after the Closing. If TAGTCR shall fail to perform fully and punctually any obligation or undertaking of TAGTCR under this Agreement when and to the extent the same is required to be performed, subject to the first sentence of this Section 8.12(a) each Guarantor will upon written demand from the Company forthwith perform or cause to be performed such obligation or undertaking, as the case may be. The obligations of each Guarantor under this guaranty shall constitute an absolute and unconditional present and continuing guarantee of performance to the extent provided herein, and shall not be contingent upon any attempt by the Company to enforce performance by TAGTCR. (b) Subject to 8.12(a), the obligations of each Guarantor under this guaranty are absolute and unconditional, are not subject to any counterclaim, set off, deduction, abatement or defense based upon any claim a Guarantor may have against the Company (except for any defense TAGTCR may have against the Company under the terms of this Agreement), and shall remain in full force and effect without regard to (i) any agreement or modification to any of the terms of this Agreement or any other agreement which may hereafter be made relating thereto; (ii) any exercise, non-exercise, or waiver by the Company of any right, power, privilege or remedy under or in respect of this Agreement; (iii) any insolvency, bankruptcy, dissolution, liquidation, reorganization or the like of TAGTCR at or prior to the Closing; (iv) absence of any notice to, or knowledge by, Guarantor of the existence or occurrence of any of the matters or events set forth in the foregoing causes (i) through (iii); (v) any transfer of shares of capital stock of TAGTCR, or any assignment by TAGTCR of its rights and obligations under this Agreement, to a wholly-owned subsidiary of TAGTCR or a Guarantor; or (vi) any other circumstance, whether similar or dissimilar to the foregoing. (c) Each Guarantor unconditionally waives (i) any and all notice of default, non-performance or non-payment by TAGTCR under this Agreement, (ii) all notices which may be required by statute, rule of law or otherwise to preserve intact any rights of the Company against a Guarantor, including, without limitation, any demand, presentment or protest, or proof of notice of non-payment under this Agreement, and (iii) any right to the enforcement, assertion or exercise by the Company of any right, power, privilege or remedy conferred in this Agreement or otherwise. (d) Notwithstanding any provision of this Agreement to the contrary, any liability arising under this contract or this guaranty shall be limited to $41.0 million, in the case of TA and GTCR, and $3.0 million, in the case of NMS. 8.13 Disclosure Letters. The Disclosure Letter is hereby incorporated into this Agreement and is hereby made a part hereof as if set out in full in this Agreement. Certain information set forth in the Disclosure Letter is included solely for informational purposes and may not be required to be disclosed pursuant to this Agreement. The disclosure of any information shall not be deemed to constitute an acknowledgment that such A-31 90 information is required to be disclosed in connection with the representations and warranties made by the Company in this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. TAGTCR Acquisition, Inc. By: /s/ ROGER B. KAFKER ------------------------------------ Name: Roger B. Kafker Title: President CompDent Corporation By: /s/ JOSEPH E. STEPHENSON ------------------------------------ Name: Joseph E. Stephenson Title: Chairman of the Special Committee of the Board of Directors TA/Advent VIII L.P. By: TA/ADVENT VIII L.P., its general partner By: /s/ ROGER B. KAFKER ------------------------------------ Name: Roger B. Kafker Title: President Golder, Thoma, Cressey, Rauner Fund V, L.P. By: /s/ DONALD EDWARDS ------------------------------------ Name: Donald Edwards Title: Principal NMS Capital, L.P. By: NMS CAPITAL MANAGEMENT LLC, its general partner By: /s/ WILLIAM B. BUNTING ------------------------------------ Name: William B. Bunting Title: A-32 91 SCHEDULE 2.2(A)(III) David Klock -- 100,000 shares Phyllis Klock -- 100,000 shares A-33 92 SCHEDULE 2.2(A)(IV) None A-34 93 APPENDIX B OPINION OF THE ROBINSON-HUMPHREY COMPANY, LLC July 28, 1998 Special Committee of the Board of Directors CompDent Corporation 100 Mansell Court East, Suite 400 Roswell, Georgia 30076 Dear Sirs: We understand that CompDent Corporation (the "Company") intends to enter into an Agreement and Plan of Merger (the "Merger Agreement") by and among TAGTCR Acquisition, Inc. ("TAGTCR"), NMS Capital, L.P., Golder, Thoma, Cressey, Rauner Fund V, L.P. and TA/Advent VIII L.P. We understand that under the Merger Agreement (the "Proposed Transaction") TAGTCR shall be merged with and into the Company and each share of Company common stock issued and outstanding immediately prior to the effective time of the merger (excluding shares owned by the Company or any of its subsidiaries or by TAGTCR and Recapitalization Shares (as defined in the Merger Agreement) and dissenting shares) shall be converted into the right to receive $18.00 per share in cash (the "Merger Consideration"). The terms and conditions of the Proposed Transaction are set forth in more detail in the Merger Agreement dated July 28, 1998. We have been requested by the Special Committee of the Board of Directors of the Company to render our opinion with respect to the fairness, from a financial point of view, to the Company's stockholders (other than TAGTCR and the holders of Recapitalization Shares) of the Merger Consideration to be received in the Proposed Transaction. In arriving at our opinion, we reviewed and analyzed: (1) the Merger Agreement dated July 28, 1998, (2) publicly available information concerning the Company which we believe to be relevant to our inquiry, (3) financial and operating information with respect to the business, operations and prospects of the Company furnished to us by the Company, (4) the Dental Health Development Corporation Securities Purchase Agreement dated September 12, 1997, (5) a trading history of the Company's Common Stock from May 26, 1995 to the present and a comparison of that trading history with those of other companies which we deemed relevant, (6) a comparison of the historical financial results and present financial condition of the Company with those of other companies which we deemed relevant, (7) a comparison of the financial terms of the Proposed Transaction with the financial terms of certain other recent transactions which we deemed relevant and (8) certain historical data relating to acquisitions of publicly traded companies, including percentage premiums and price/earnings ratios paid in such acquisitions. In addition, we have had discussions with the management of the Company concerning its business, operations, assets, present condition and future prospects and undertook such other studies, analyses and investigations as we deemed appropriate. We have assumed and relied upon the accuracy and completeness of the financial and other information used by us in arriving at our opinion without independent verification. With respect to the financial projections provided by the Company, we have assumed that such projections have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company as to the future financial performance of the Company. In arriving at our opinion, we have not conducted a physical inspection of the properties and facilities of the Company and have not made nor obtained any evaluations or appraisals of the assets or liabilities of the Company. In addition, you have not authorized us to solicit, and we have not solicited, any indications of interest from any third party with respect to the purchase of all or a part of the Company's business. Our opinion is necessarily based upon market, economic and other conditions as they exist on, and can be evaluated as of, the date of this letter. We have acted as financial advisor to the Special Committee of the Board of Directors of the Company in connection with the Proposed Transaction and will receive a fee for our services which is in part contingent upon the consummation of the Proposed Transaction. In addition, the Company has agreed to indemnify us B-1 94 for certain liabilities arising out of the rendering of this opinion. We have also performed various investment banking services for the Company in the past, and have received customary fees for such services. In the ordinary course of our business, we actively trade in the common stock of the Company for our own account and for the accounts of our customers and, accordingly, may at any time hold a long or short position in such securities. Based upon and subject to the foregoing, we are of the opinion as of the date hereof that, from a financial point of view, the Merger Consideration to be received in the Proposed Transaction is fair to the stockholders of the Company (other than TAGTCR and the holders of Recapitalization Shares). Very truly yours, THE ROBINSON-HUMPHREY COMPANY, LLC B-2 95 APPENDIX C SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW SEC. 262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to sec. 228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder's shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word "stockholder" means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository. (b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to sec. 251 (other than a merger effected pursuant to sec. 251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec. 264 of this title: (1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in subsection (f) of sec. 251 of this title. (2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except: a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof; b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in receipt thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders; c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph. (3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under sec. 253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation. C-1 96 (c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable. (d) Appraisal rights shall be perfected as follows: (1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsections (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of his shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of his shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of his shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or (2) If the merger or consolidation was approved pursuant to sec. 228 or sec. 253 of this title, each constituent corporation, either before the effective date of the merger or consolidation or within ten days thereafter, shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section; provided that, if the notice is given on or after the effective date of the merger or consolidation, such notice shall be given by the surviving or resulting corporation to all such holders of any class or series of stock of a constituent corporation that are entitled to appraisal rights. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given. C-2 97 (e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw his demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after his written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later. (f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation. (g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. (h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. In determining the fair rate of interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted his certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that he is not entitled to appraisal rights under this section. (i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as C-3 98 other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state. (j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal. (k) From and after the effective date of the merger or consolidation, no stockholder who has demanded his appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of his demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just. (l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation. C-4 99 PROXY COMPDENT CORPORATION 100 MANSELL COURT EAST, SUITE 400 ROSWELL, GEORGIA 30076 PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON _______, _________, 1998 AT 10:00 A.M. The undesigned hereby appoints Bruce A. Mitchell and Phyllis A. Klock, and each of them, proxies, with full power of substitution and resubstitution, for and in the name of the undersigned, to vote all shares of stock common, par value $.01 per share, of CompDent Corporation, held by the undersigned at the close of business on ___________, 1998, which the undersigned would be entitled to vote if personally present at the Special Meeting of Stockholders to be held on ___________, _________, 1998 at 10:00 a.m., local time, at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia 30303-1763, and at any adjournment thereof, upon the matters described in the accompanying Notice of Special Meeting of Stockholders and Proxy Statement, receipt of which is hereby acknowledged, and upon any other business that may properly come before the meeting or any adjournment thereof. Said proxies are directed to vote on the matters described in the Notice of Special Meeting of Stockholders and Proxy Statement as follows, and otherwise in their discretion upon such other business as may properly come before the meeting or any adjournment thereof. PROPOSAL OF THE BOARD OF DIRECTORS TO APPROVE THE AGREEMENT AND PLAN OF MERGER, DATED AS OF JULY 28, 1998, AS AMENDED ON ______________, 1998, BY AND AMONG COMPDENT CORPORATION, TAGTCR ACQUISITION, INC., NMS CAPITAL, L.P., GOLDER, THOMA, CRESSEY, RAUNER FUND V, L.P. AND TA/ADVENT VIII L.P. [_] FOR [_] AGAINST [_] ABSTAIN The undersigned hereby revokes any proxy or proxies heretofore given to vote upon or act with respect to such stock and hereby ratifies and confirms all that said proxies, their substitutes, or any of them, may lawfully do by virtue hereof. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF COMPDENT CORPORATION. THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS INDICATED, THE PROXY WILL BE VOTED FOR THE PROPOSAL LISTED ABOVE. Dated: ___________, 1998 ____________________________________________ Please sign exactly as your name(s) appear(s) hereon. Where more than one owner is shown above, each should sign. When signing in a fiduciary or representative capacity, please add your full title as such. If this proxy is submitted by a corporation, it should be executed in the full corporate name by a duly authorized officer. If a partnership, please sign in partnership name by authorized person. PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY. -----END PRIVACY-ENHANCED MESSAGE-----