<PAGE> 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)
<TABLE>
<S> <C> <C>
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
</TABLE>
<PAGE> 2
WITH COPIES TO:
<TABLE>
<S> <C> <C>
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
</TABLE>
(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
<TABLE>
<CAPTION>
==============================================================================
Transaction Value* Amount of Filing Fee
<S> <C>
$185,240,322 $37,048.06
==============================================================================
</TABLE>
* 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
<PAGE> 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
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN THE
ITEM IN SCHEDULE 13E-3 PROXY STATEMENT
<S> <C>
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
</TABLE>
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* Not applicable or answer is negative.
<PAGE> 4
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN THE
ITEM IN SCHEDULE 13E-3 PROXY STATEMENT
<S> <C>
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"
</TABLE>
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*Not applicable or answer is negative.
-2-
<PAGE> 5
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN THE
ITEM IN SCHEDULE 13E-3 PROXY STATEMENT
<S> <C>
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"
</TABLE>
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*Not applicable or answer is negative.
-3-
<PAGE> 6
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN THE
ITEM IN SCHEDULE 13E-3 PROXY STATEMENT
<S> <C>
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
</TABLE>
- ---------------
*Not applicable or answer is negative.
-4-
<PAGE> 7
<TABLE>
<CAPTION>
CAPTION OR LOCATION IN THE
ITEM IN SCHEDULE 13E-3 PROXY STATEMENT
<S> <C>
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) *
</TABLE>
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*Not applicable or answer is negative.
-5-
<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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-
<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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)).
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<PAGE> 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-
<PAGE> 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:
<PAGE> 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
<PAGE> 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
<PAGE> 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
---------------- -------------------------------------
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO.
DESCRIPTION PAGE NUMBER
- ----------- ----------- -----------
<S> <C> <C>
(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)).
</TABLE>
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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).
<PAGE> 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.
<PAGE> 7
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 8
Very truly yours,
NATIONSBANK, N.A.
By:
Title:
NATIONSBANC MONTGOMERY SECURITIES
LLC
By:
Title:
<PAGE> 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:
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
=====================================================
LOAN YEAR TERM LOAN A TERM LOAN B
=====================================================
<S> <C> <C>
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
=====================================================
</TABLE>
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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 22
ADDENDUM I
COMPDENT CORPORATION RECAPITALIZATION
SOURCES AND USES OF FUNDS
(IN MILLIONS OF DOLLARS)
(ALL FIGURES ARE APPROXIMATE)
<TABLE>
<CAPTION>
Uses of Funds Sources of Funds
- ------------- ----------------
<S> <C> <C> <C>
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
-------- --------
</TABLE>
<PAGE> 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:
<TABLE>
<CAPTION>
=======================================================================================================================
Revolving Loans and
Term A Loans Term B Loans
Funded Debt Commitment
to EBITDA Fee
-------------------------------------------------------------------------
Alternate Alternate
LIBOR Base Rate LIBOR Base Rate
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
=======================================================================================================================
</TABLE>
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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 30
ADDENDUM IV
FINANCIAL COVENANT LEVELS
<TABLE>
<CAPTION>
================================================================================================================================
Ratio From and Approximate Reset Date
After
Closing
-----------------------------------------------------------------------
1/1/00 1/1/01 1/1/02
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
================================================================================================================================
</TABLE>
<PAGE> 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)
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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]
<PAGE> 6
Very truly yours,
NATIONSBANK, N.A.
By:
Title:
NATIONSBANC MONTGOMERY SECURITIES
LLC
By:
Title:
<PAGE> 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:
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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,
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 16
ADDENDUM I
COMPDENT CORPORATION RECAPITALIZATION
SOURCES AND USES OF FUNDS
(IN MILLIONS OF DOLLARS)
(ALL FIGURES ARE APPROXIMATE)
<TABLE>
<CAPTION>
Uses of Funds Sources of Funds
- ------------- ----------------
<S> <C> <C> <C>
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
-------- ---------
</TABLE>
<PAGE> 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
<PAGE> 18
Facility, including without limitation, the reasonable
legal fees of the Agent's counsel regardless of whether
or not the Credit Facility is closed.
<PAGE> 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
- -------------------------------------------------------------------------------
<PAGE> 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
<PAGE> 3
PROJECT GOLDCAP
ANALYSIS OF PROPOSED TRANSACTION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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
- --------- -------------- -------- ------------ ----------- -------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$17.50 x 10,113 = $176,971 + $933 = $177,904 + $39,534 + $26,042 = $243,480
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
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)
------- ---------- ---------- --- ------- -------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
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)
------------- ------ ------- ------- ------- ------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
STOCK PRICE BEFORE ANNOUNCEMENT
-----------------------------------------
1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
----------- ------------ -------------
<S> <C> <C> <C>
ACTUAL VALUE $13.50 $15.00 $13.25
PREMIUM AT $17.50 PER SHARE 29.6% 16.7% 32.1%
</TABLE>
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.
<PAGE> 4
PROJECT GOLDCAP
CURRENT VESTED OPTIONS SCHEDULE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative
Vested Vested Cumulative
Options Exercise Aggregate Options Exercise
Outstanding Price Exercise Price Outstanding Price
- ----------- -------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Cumulative Additional
Deal Exercise In-the-Money Shares Fully Diluted
Price[1] Price Options Outstanding Shares Out[2]
- -------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
$17.50 $1,915,385 162,750 53,299 10,165,928
</TABLE>
<TABLE>
<CAPTION>
Cumulative Net Value of
Deal In-the-Money Value of Exercise In-the-Money
Price[1] Options Options Price Options
- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
$17.50 162,750 $2,848,125 $1,915,385 $932,740
</TABLE>
- -----------------------------------------------
[1] Assumes 10,112,629 pre-deal shares outstanding.
[2] Uses the treasury stock method.
<PAGE> 5
PROJECT GOLDCAP
ANALYSIS OF DHDC CONTINGENT LIABILITIES
- --------------------------------------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ending December 31,
---------------------------------------------
1997 1998 1999 2000
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
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
</TABLE>
- -----------------------------------
[1] Discounted at 12.0% annually.
[2] Issued September 12, 1997. Matures September 12, 2004. Purchase option
begins February 28, 2001.
<PAGE> 6
PROJECT GOLDCAP
VALUATION SUMMARY
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARKET COMPARISON OF SELECTED PUBLIC COMPANIES
<TABLE>
<CAPTION>
-------- -------- --------
HIGH LOW AVERAGE
-------- -------- --------
<S> <C> <C> <C>
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
--------------------------------------------------------------------------------------
</TABLE>
<PAGE> 7
PROJECT GOLDCAP
VALUATION SUMMARY
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PURCHASE PRICE MULTIPLES ANALYSIS OF SELECTED M&A TRANSACTIONS
<TABLE>
<CAPTION>
HIGH LOW AVERAGE
---- --- -------
<S> <C> <C> <C>
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
-----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 8
PROJECT GOLDCAP
VALUATION SUMMARY
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DISCOUNTED CASH FLOW ANALYSIS - CONSOLIDATED COMPANY
<TABLE>
<CAPTION>
HIGH LOW AVERAGE
----------- ----------- -----------
<S> <C> <C> <C>
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
</TABLE>
DISCOUNTED CASH FLOW ANALYSIS - BENEFITS COMPANY
<TABLE>
<CAPTION>
HIGH LOW AVERAGE
---- --- -------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 9
PROJECT GOLDCAP
HISTORICAL INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------- ----------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ------------------------------------
[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.
<PAGE> 10
PROJECT GOLDCAP
COMMON-SIZED HISTORICAL INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------- ----------------------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
- ------------------------------------------
[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%.
<PAGE> 11
PROJECT GOLDCAP
HISTORICAL BALANCE SHEET INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, March 31,
------------------------------------------- ---------
1995 1996 1997 1998
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
<PAGE> 12
PROJECT GOLDCAP
COMMON-SIZED HISTORICAL BALANCE SHEET INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------- ---------
1995 1996 1997 1998
------- ------- ------- ---------
<S> <C> <C> <C> <C>
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%
======= ======= ======= =======
</TABLE>
<PAGE> 13
PROJECT GOLDCAP
HISTORICAL STATEMENT OF CASH FLOWS INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------- ---------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========
</TABLE>
<PAGE> 14
PROJECT GOLDCAP
HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
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
--------- ---------- ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- -------------------------------------
[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.
<PAGE> 15
PROJECT GOLDCAP
COMMON-SIZED HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
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
--------- -------- ------------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
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 %
</TABLE>
- --------------------------------------
[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%.
<PAGE> 16
PROJECT GOLDCAP
HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
-------------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1996 1996 1996 1996
--------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 17
PROJECT GOLDCAP
COMMON-SIZED HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
--------------------------------------------------------- -------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1996 1996 1996 1996
------------ -------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 18
PROJECT GOLDCAP
HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1995 1995 1995 1995 1995
--------- --------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 19
PROJECT GOLDCAP
COMMON-SIZED HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
-------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1995 1995 1995 1995 1995
--------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 20
PROJECT GOLDCAP
HISTORICAL EBITDA ANALYSIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1995 1995 1995 1995 1995
---------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
-------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1996 1996 1996 1996
----------- -------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1997 1997 1997 1997
---------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
THREE MONTHS ENDED
----------
MARCH 31,
1998
----------
<S> <C>
EBITDA $6,509
EBITDA margin 15.3%
EBITDA per share $ 0.64
After-tax EBITDA per share $ 0.36
</TABLE>
<PAGE> 21
PROJECT GOLDCAP
ROBINSON-HUMPHREY RESEARCH PROJECTED QUARTERLY INCOME STATEMENT INFORMATION [1]
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDING YEAR ENDING
------------------------------------------------------- -------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 (A) 1998 1998 1998 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
THREE MONTHS ENDING YEAR ENDING
------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 1999 1999 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- -----------------------------------
[1] Projections dated April 28, 1998.
<PAGE> 22
PROJECT GOLDCAP
COMMON-SIZED ROBINSON-HUMPHREY RESEARCH PROJECTED QUARTERLY INCOME
STATEMENT INFORMATION [1]
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDING YEAR ENDING
----------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 (A) 1998 1998 1998 1998
---------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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%
<CAPTION>
THREE MONTHS ENDING YEAR ENDING
----------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 1999 1999 1999
---------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
- -------------------------------------
[1] Projections dated April 28, 1998.
<PAGE> 23
PROJECT GOLDCAP
CONSOLIDATED PROJECTED INCOME STATEMENT INFORMATION
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PROJECTED YEAR ENDING DECEMBER 31,
------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------------------------
[1] Projections provided by management.
<PAGE> 24
PROJECT GOLDCAP
CONSOLIDATED INCOME STATEMENT INFORMATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROJECTED YEAR ENDING DECEMBER 31,
------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 25
PROJECT GOLDCAP
BENEFITS COMPANY
PROJECTED INCOME STATEMENTS [1]
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PROJECTED YEAR ENDING DECEMBER 31,
------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
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%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[1] Projections provided by management.
<PAGE> 26
PROJECT GOLDCAP
BENEFITS COMPANY
PROJECTED INCOME STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROJECTED YEAR ENDING DECEMBER 31,
-----------------------------------------------------------------
1998 1999 2000 2001 2002 2003
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 27
PROJECT GOLDCAP
DENTAL HEALTH MANAGEMENT, INC.
PROJECTED INCOME STATEMENTS [1]
SEC REPORTING FORMAT
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PROJECTED YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
[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.
<PAGE> 28
PROJECT GOLDCAP
DENTAL HEALTH MANAGEMENT, INC.
PROJECTED INCOME STATEMENTS
SEC REPORTING FORMAT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROJECTED YEAR ENDING DECEMBER 31,
------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 29
PROJECT GOLDCAP
COMPARISON OF PROJECTIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1998 YEAR ENDING DECEMBER 31, 1999
----------------------------------------------- ----------------------------------------------
ROBINSON-HUMPHREY GOLDCAP ROBINSON-HUMPHREY GOLDCAP
RESEARCH MANAGEMENT VARIANCE RESEARCH MANAGEMENT VARIANCE
----------------- ---------- -------- ----------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 30
PROJECT GOLDCAP
TRADING STATISTICS
JULY 17, 1997 - JULY 17, 1998
<TABLE>
<CAPTION>
AVERAGE CLOSING PRICE: AVERAGE DAILY VOLUME:
- --------------------- --------------------
<S> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
DATE HIGH LOW CLOSE VOLUME
- ----------------- --------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
DATE HIGH LOW CLOSE VOLUME
- ----------------- --------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
DATE HIGH LOW CLOSE VOLUME
- ----------------- --------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
DATE HIGH LOW CLOSE VOLUME
- ----------------- --------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
DATE HIGH LOW CLOSE VOLUME
- ----------------- --------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
DATE HIGH LOW CLOSE VOLUME
- ----------------- --------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
DATE HIGH LOW CLOSE VOLUME
- ----------------- --------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
DATE HIGH LOW CLOSE VOLUME
- ----------------- --------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
- ----------------------------------------------------
Source: AT Financial
<PAGE> 38
PROJECT GOLDCAP
WEEKLY PRICE AND TRADING VOLUME - IPO THROUGH JULY 15, 1998
[GRAPH]
<PAGE> 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]
<PAGE> 40
GOLDCAP
VOLUME DISTRIBUTION BY PRICE RANGE
WEEKLY: 5/26/95 TO 07/15/98
[GRAPH]
<TABLE>
<CAPTION>
11 to 19 19 to 27 27 to 35 35 to 43 43 to 51
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PERCENT TRADED 27.03% 22.11% 17.84% 24.35% 8.67%
</TABLE>
<PAGE> 41
GOLDCAP
CUMULATIVE VOLUME DISTRIBUTION BY PRICE RANGE
WEEKLY: 5/26/95 TO 07/15/98
[GRAPH]
<TABLE>
<CAPTION>
11 to 19 up to 27 up to 35 up to 43 up to 51
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PERCENT TRADED 27.03% 49.13% 66.97% 91.33% 100.00%
</TABLE>
<PAGE> 42
PROJECT GOLDCAP
LAST TWELVE MONTHS DAILY PRICE AND TRADING VOLUME SINCE JULY 15, 1997
[GRAPH]
<PAGE> 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]
<PAGE> 44
GOLDCAP
VOLUME DISTRIBUTION BY PRICE RANGE
WEEKLY: 7/15/97 TO 07/15/98
[GRAPH]
<TABLE>
<CAPTION>
9 to 12.8 12.8 to 16.6 16.6 to 20.4 20.4 to 24.2 24.2 to 28
--------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
PERCENT TRADED 18.77% 42.37% 8.80% 17.37% 12.68%
</TABLE>
<PAGE> 45
GOLDCAP
CUMULATIVE VOLUME DISTRIBUTION BY PRICE RANGE
WEEKLY: 7/15/97 TO 07/15/98
[GRAPH]
<TABLE>
<CAPTION>
9 to 12.8 up to 16.6 up to 20.4 up to 24.2 up to 28
--------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
PERCENT TRADED 18.77% 61.15% 69.94% 87.32% 100.00%
</TABLE>
<PAGE> 46
PROJECT GOLDCAP
DAILY PRICE AND TRADING VOLUME - JANUARY 2, 1998 THROUGH JULY 15, 1998
[GRAPH]
[DESCRIPTION TO COME]
<PAGE> 47
GOLDCAP
CLOSE PRICE INDEX COMPARISON
DAILY: 1/1/98 TO 07/15/98
[GRAPH]
[DESCRIPTION TO COME]
<PAGE> 48
GOLDCAP
VOLUME DISTRIBUTION BY PRICE RANGE
WEEKLY: 1/1/98 TO 07/15/98
[GRAPH]
<TABLE>
<CAPTION>
9 to 11.4 11.4 to 13.8 13.8 to 16.2 16.2 to 18.6 18.6 to 21
--------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
PERCENT TRADED 10.09% 43.29% 42.82% 3.18% 0.63%
</TABLE>
<PAGE> 49
GOLDCAP
CUMULATIVE VOLUME DISTRIBUTION BY PRICE RANGE
WEEKLY: 1/1/98 TO 07/15/98
[GRAPH]
<TABLE>
<CAPTION>
9 to 11.4 up to 13.8 up to 16.2 up to 18.6 up to 21
--------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
PERCENT TRADED 10.09% 53.38% 96.20% 99.37% 100.00%
</TABLE>
<PAGE> 50
PROJECT GOLDCAP
SHAREHOLDER OWNERSHIP ANALYSIS
<TABLE>
<CAPTION>
NUMBER OF AS A PERCENT
SHARES OF TOTAL
----------- ------------
<S> <C> <C>
Total Shares Outstanding as of April 30, 1998: 10,112,629 100.0%
<CAPTION> [DESCRIPTION TO COME]
Date Institutional Ownership:
---- ------------------------
<S> <C> <C> <C> <C>
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%
</TABLE>
- -----------------------------------------
[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.
<PAGE> 51
PROJECT GOLDCAP
INSTITUTIONAL OWNERSHIP HISTORY
QUARTERS ENDING SEPTEMBER 1995 THROUGH MARCH 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
- ------------------------- ---------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
13F INSTITUTION 3/31/96 12/31/95 9/30/95
- ------------------------- --------- --------- --------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
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
- --------------------------- ------- -------- ------- -------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
13F INSTITUTION 3/31/96 12/31/95 9/30/95
- ------------------------- -------- -------- --------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 53
<TABLE>
<CAPTION>
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
- --------------------------- -------- -------- ------- -------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
13F INSTITUTION 3/31/96 12/31/95 9/30/95
- --------------------------- -------- --------- --------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
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
- --------------------------------- --------- ---------- ---------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
<CAPTION>
13F INSTITUTION 3/31/96 12/31/95 9/30/95
- --------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
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
</TABLE>
Source: CDA Spectrum as of July 16, 1998.
<PAGE> 55
PROJECT GOLDCAP
MARKET COMPARISON OF SELECTED PUBLIC COMPANIES
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
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
- ------- ------ -------- --- ------- ---- --- ------- ------- --- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
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
- ------- -------- --- ----- ----- ------ ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ----------------------------------
* 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 $8.50 per share.
<PAGE> 56
PROJECT GOLDCAP
MARKET COMPARISON OF SELECTED PUBLIC COMPANIES
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
DEBT / LTM
SHARES TOTAL TOTAL TOTAL FIRM ------------------------------
COMPANY OUTSTANDING DEBT CAP. CASH VALUE [1] REVENUES EBIT EBITDA
- ------- ----------- ---- ----- ----- --------- -------- ---- -------
(MM) ($MM) ($MM) ($MM) ($MM) ($MM) ($MM)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
3 YEAR CAGR
FIRM VALUE TO: -------------------
EBIT EBITDA ------------------------- NET
COMPANY MARGIN MARGIN REVENUES EBIT EBITDA REVENUE INCOME
- ------- ------ ------ -------- ---- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
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 %
</TABLE>
- ----------------------------------
* 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.
<PAGE> 57
PROJECT GOLDCAP
HISTORICAL GROWTH ANALYSIS OF SELECTED COMPARABLE PUBLIC COMPANIES
REVENUES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1995 1996 1997 FIRST QUARTER 1998
--------- ------------------- ------------------- 3 YEAR --------------------
$ AMT $ AMT GROWTH $ AMT GROWTH CAGR $ AMT GROWTH
----- ----- ------ ----- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 58
PROJECT GOLDCAP
HISTORICAL GROWTH ANALYSIS OF SELECTED COMPARABLE PUBLIC COMPANIES
EBITDA
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1995 1996 1997 FIRST QUARTER 1998
-------------- -------------------- -------------------- 3 YEAR ----------------------
$ AMT MARGIN $ AMT MARGIN GROWTH $ AMT MARGIN GROWTH CAGR $ AMT MARGIN GROWTH
------ ------ ----- ------ ------ ----- ------ ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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)%
</TABLE>
<PAGE> 59
PROJECT GOLDCAP
HISTORICAL GROWTH ANALYSIS OF SELECTED COMPARABLE PUBLIC COMPANIES
EBIT
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1995 1996 1997
--------------- ------------------------ ---------------------------- 3 YEAR
$ AMT MARGIN $ AMT MARGIN GROWTH $ AMT MARGIN GROWTH CAGR
----- ------ ----- ------ ------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
<CAPTION>
FIRST QUARTER 1998
------------------------
$ AMT MARGIN GROWTH
----- ------ ------
<S> <C> <C> <C>
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)%
</TABLE>
<PAGE> 60
PROJECT GOLDCAP
HISTORICAL GROWTH ANALYSIS OF SELECTED COMPARABLE PUBLIC COMPANIES
DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
1995 1996 1997 FIRST QUARTER 1998
----- ------------------ ------------------ 3 YEAR ------------------
$ AMT $ AMT GROWTH $ AMT GROWTH CAGR $ AMT GROWTH
----- ----- ------ ----- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)%
</TABLE>
<PAGE> 61
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING PUBLIC DENTAL MANAGED CARE COMPANIES MULTIPLES
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES
-------------------------------------------------------
Goldcap PRICE / PRICE / PRICE / PRICE /
Valuation Parameter Value [1] LTM EPS CAL. 1998 EPS CAL. 1999 EPS BOOK
- ------------------- --------- ------- ------------- ------------- ----
<S> <C> <C> <C> <C> <C>
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
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
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
<CAPTION>
IMPLIED IMPLIED
EQUITY EQUITY VALUE
Valuation Parameter VALUE PER SHARE [2]
- ------------------- ----- -------------
<S> <C> <C>
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
</TABLE>
- --------------------------------------------------------
* - 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.
<PAGE> 62
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING PUBLIC DENTAL MANAGED CARE COMPANIES MULTIPLES
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES
-------------------------------------------------------
Goldcap PRICE / PRICE / PRICE / PRICE /
Valuation Parameter Value [1] LTM EPS CAL. 1998 EPS CAL. 1999 EPS BOOK
- ------------------- --------- ------- ------------- ------------- ----
<S> <C> <C> <C> <C> <C>
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
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
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
<CAPTION>
IMPLIED IMPLIED
EQUITY EQUITY VALUE
Valuation Parameter VALUE PER SHARE [2]
- ------------------- ----- -------------
<S> <C> <C>
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
</TABLE>
- --------------------------------------------------------
* - 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.
<PAGE> 63
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING PUBLIC MULTI-MARKET HMO COMPANIES MULTIPLES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTI-MARKET HMO COMPANIES MULTIPLES
-------------------------------------------------------
Goldcap PRICE / PRICE / PRICE / PRICE /
Valuation Parameter Value [1] LTM EPS CAL. 1998 EPS CAL. 1999 EPS BOOK
- ------------------- --------- ------- ------------- ------------- ----
<S> <C> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
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
- ------------------- -------- ------------ -------- ---------- ----- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
IMPLIED IMPLIED
EQUITY EQUITY VALUE
Valuation Parameter VALUE PER SHARE [2]
- ------------------- ----- -------------
<S> <C> <C>
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
- -------------------
<S> <C> <C>
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
</TABLE>
- --------------------------------------------------------
* - 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.
<PAGE> 64
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING PUBLIC MULTI-MARKET HMO COMPANIES MULTIPLES
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
- ------------------- --------- ------- ------------- ------------- ----
<S> <C> <C> <C> <C> <C>
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
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
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
- ------------------- -------- ------------ -------- ---------- ----- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
IMPLIED IMPLIED
EQUITY EQUITY VALUE
Valuation Parameter VALUE PER SHARE [2]
- ------------------- ----- -------------
<S> <C> <C>
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
- -------------------------------------------------------------
<CAPTION>
Valuation Parameter
- -------------------
<S> <C> <C>
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
</TABLE>
- --------------------------------------------------------
* - 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.
<PAGE> 65
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING DENTAL MANAGED CARE AND DENTAL PRACTICE MANAGEMENT
COMPANIES MULTIPLES
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BENEFITS COMPANY
- ----------------
AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES
-----------------------------------------------
Benefits PRICE / PRICE /
Valuation Parameter Value [1] CAL. 1998 EPS CAL. 1999 EPS
- ------------------- --------- ------------- -------------
<S> <C> <C> <C>
Est. 1998 Net Income $ 9,264 12.3 x
Est. 1999 Net Income $11,529 10.4 x
<CAPTION>
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
- ------------------- --------- ------------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
LTM EBITDA $26,627 9.2 x $246,250 $39,534 $26,042
<CAPTION>
IMPLIED IMPLIED
EQUITY EQUITY VALUE
Valuation Parameter VALUE PER SHARE [2]
- ------------------- ----- -------------
<S> <C> <C>
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
<CAPTION>
DHMI
- ----
AVERAGE DENTAL PRACTICE MANAGEMENT COMPANIES MULTIPLES
------------------------------------------------------
DHMI PRICE / PRICE /
Valuation Parameter Value [1] CAL. 1998 EPS CAL. 1999 EPS
- ------------------- --------- ------------- -------------
<S> <C> <C> <C>
Est. 1998 Net Income $ 277 22.2 x
Est. 1999 Net Income $ 1,686 15.1 x
<CAPTION>
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
- ------------------- --------- ------------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
LTM EBITDA $ 687 16.3 x $ 11,203 $ 0 $ 0
<CAPTION>
IMPLIED IMPLIED
EQUITY EQUITY VALUE
Valuation Parameter VALUE PER SHARE [2]
- ------------------- ----- -------------
<S> <C> <C>
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
</TABLE>
- --------------------------------------------------------
* - Excluded from mean.
[1] Projections provided by Goldcap management.
[2] Assumes 10,112,629 Goldcap shares outstanding.
<PAGE> 66
PROJECT GOLDCAP
PRE-PAID DENTAL PLAN ACQUISITION MULTIPLES
- -------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Purchase Price as a Multiple of
Equity -------------------------------
Date Purchase LTM Latest Date
Acquiror Target Completed Price Net Income Book Value
- -------- ------ --------- ----- ---------- ----------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
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)
- -------- ------ --------- ------------ -------- ------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ------------------------------------------------------
[1] Adjusted purchase price equals equity value plus assumed debt minus acquired
cash.
[2] Excludes investment income.
<PAGE> 67
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING PRE-PAID DENTAL PLAN ACQUISITION MULTIPLES
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Selected Relevant Transaction Multiples
---------------------------------------
Price/ IMPLIED IMPLIED
Goldcap LTM Price/ EQUITY EQUITY VALUE
Valuation Parameter Value EPS Book VALUE PER SHARE [3]
- ------------------- -------- --- ---- ----- -------------
<S> <C> <C> <C> <C> <C>
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*
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
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
- ------------------- -------- -------- ---- ------ ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------------------------------------------
* - 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.
<PAGE> 68
PROJECT GOLDCAP
PROTECTIVE LIFE/UNITED DENTAL CARE ACQUISITION MULTIPLES [1,2]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
FIRM EQUITY
VALUE (MM) VALUE (MM)
----------- -----------
<S> <C>
$184.4 $175.0
</TABLE>
<TABLE>
<S> <C>
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%
</TABLE>
- ---------------------------------------------------
[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.
<PAGE> 69
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING PROTECTIVE LIFE/UNITED DENTAL CARE ACQUISITION
MULTIPLES
- --------------------------------------------------------------------------------
(DOLLARS AND MEMBERS IN THOUSANDS)
<TABLE>
<CAPTION>
Selected Relevant Transaction Multiples
---------------------------------------
Price/ IMPLIED IMPLIED
Goldcap LTM Price/ EQUITY EQUITY VALUE
Valuation Parameter Value EPS Book VALUE PER SHARE [3]
- ------------------- -------- --- ---- ----- -------------
<S> <C> <C> <C> <C> <C>
LTM Net Income $ 10,735 [1,2] NM NM NM
3/31/98 Book Value $ 62,769 1.4 x $ 89,255 $ 8.83
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
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
- ------------------- -------- -------- ---- ------ ------- ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
TRANSACTION PREMIUMS
----------------------------
1 DAY 1 WEEK 4 WEEKS
PRIOR PRIOR PRIOR
----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------------------------------------------
* - 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.
<PAGE> 70
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING PROTECTIVE LIFE/ UNITED DENTAL CARE ACQUISITION
MULTIPLES
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------
IMPLIED IMPLIED
GOLDCAP CURRENT YEAR FORWARD YEAR EQUITY EQUITY VALUE
VALUATION PARAMETER VALUE [1] P/E MULTIPLE P/E MULTIPLE VALUE PER SHARE [2]
- ------------------------- --------- ------------- --------------- -------- --------------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
PREMIUM PRIOR TO ANNOUNCEMENT DATE
GOLDCAP ----------------------------------------------
VALUATION PARAMETER VALUE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
- ------------------------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
==========================================================
</TABLE>
- -----------------------------------------------------------------
* - 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.
<PAGE> 71
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING PROTECTIVE LIFE/ UNITED DENTAL CARE ACQUISITION
MULTIPLES
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
-----------------------------
IMPLIED IMPLIED
GOLDCAP CURRENT YEAR CURRENT YEAR EQUITY EQUITY VALUE
VALUATION PARAMETER VALUE [1] P/E MUTLIPLE P/E MUTLIPLE VALUE PER SHARE [2]
- ------------------------- --------- ------------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
PREMIUM PRIOR TO ANNOUNCEMENT DATE
GOLDCAP ----------------------------------------------
VALUATION PARAMETER VALUE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
- ------------------------- ------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
==========================================================
</TABLE>
- -----------------------------------------------------------------
* - 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.
<PAGE> 72
PROJECT GOLDCAP
SELECTED MERGER AND ACQUISITION TRANSACTIONS IN THE HMO INDUSTRY
- --------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Equity Value as Multiple of
Equity ---------------------------
Date Purchase LTM Latest Date
Acquiror Target Completed Price Net Income Book Value
- -------- ------ --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
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
============================================================================================
<CAPTION>
Firm Value as Multiple of
-------------------------------
Firm LTM LTM LTM
Acquiror Target Value [1] Revenues EBITDA EBIT
- -------- ------ --------- -------- ------ ----
<S> <C> <C> <C> <C> <C>
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
===========================================================================================
</TABLE>
- -----------------------------------------------
* 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.
<PAGE> 73
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING HMO ACQUISITION MULTIPLES
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Selected Relevant
Transaction Multiples
---------------------
Price/
Goldcap LTM Price/
Valuation Parameter Value EPS Book
- ------------------- ------- ----- ------
<S> <C> <C> <C>
LTM Income $ 10,735 [1,2] 26.1 x
3/31/98 Book Value $ 62,769 4.3 x
---------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-------------------------------------------------------
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
- ------------------- ------- ----------- ----------- ---------- ---------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
------------------------------------------------------
<CAPTION>
-----------------------------
IMPLIED IMPLIED
EQUITY EQUITY VALUE
Valuation Parameter VALUE PER SHARE [3]
- ------------------- -------- -------------
<S> <C> <C>
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
====================================================
</TABLE>
- ---------------------------------------------------------
* - Excluded from mean.
[1] Excludes $58.9 million goodwill impairment and $9.4 million in one-time
charges.
[2] Assumes 38% tax rate on one-time charges.
[3] Assumes 10,112,629 Goldcap shares outstanding.
<PAGE> 74
PROJECT GOLDCAP
SELECTED M&A TRANSACTION PREMIUMS FOR DEALS IN THE HMO INDUSTRY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE OF PRICE
DATE DATE TRANSACTION PER
ANNOUNCED EFFECTIVE TARGET ACQUIROR ($MM) SHARE
- --------- --------- ------ -------- ----------- -----
<S> <C> <C> <C> <C> <C>
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
- --------- --------- ------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 %
======================================================================================================
</TABLE>
* Excluded from average NA - Not Available NM - Not Meaningful
- ---------------------------------
Source: Securities Data Company, Inc.
<PAGE> 75
PROJECT GOLDCAP
IMPLIED VALUATION ANALYSIS UTILIZING MERGER & ACQUISITION MULTIPLES IN THE HMO
INDUSTRY
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CURRENT YEAR FORWARD YEAR ----------------------------
P/E MULTIPLE P/E MULTIPLE IMPLIED IMPLIED
GOLDCAP -------------- ------------ EQUITY EQUITY VALUE
VALUATION PARAMETER VALUE [1] VALUE PER SHARE[2]
- ------------------------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
PREMIUM PRIOR TO ANNOUNCEMENT DATE
GOLDCAP ----------------------------------------------
VALUATION PARAMETER VALUE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
- ----------------------------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
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
==========================================================
</TABLE>
- ------------------------------------------------------------------
* - 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.
<PAGE> 76
PROJECT GOLDCAP
IMPLIED VALUATION ANALYSIS UTILIZING MERGER & ACQUISITION MULTIPLES IN THE HMO
INDUSTRY
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CURRENT YEAR FORWARD YEAR -----------------------------
P/E MULTIPLE P/E MULTIPLE IMPLIED IMPLIED
GOLDCAP ------------ ------------ EQUITY EQUITY VALUE
VALUATION PARAMETER VALUE [1] VALUE PER SHARE[2]
- ------------------------- --------- ------- -------------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
PREMIUM PRIOR TO ANNOUNCEMENT DATE
GOLDCAP ------------------------------------------------
VALUATION PARAMETER VALUE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
- ---------------------------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
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
==========================================================
</TABLE>
- -----------------------------------------------------------------
* - 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.
<PAGE> 77
SUMMARY OF RECENT MERGER AND ACQUISITION ACTIVITY
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 AVERAGE
-------- -------- -------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
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
=========
<CAPTION>
1992 1993 1994 1995 1996 AVERAGE
-------- -------- -------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
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
=========
</TABLE>
- -----------------------------------------------
[1] Includes only transactions with a publicly disclosed purchase price.
Source: Mergerstat Review
<PAGE> 78
M&A PREMIUMS AND P/E RATIOS OFFERED BY DEAL SIZE
1992 - 1996
I. MEDIAN PERCENT PREMIUM OFFERED
<TABLE>
<CAPTION>
PURCHASE PRICE: 1992 (BASE) 1993 (BASE) 1994 (BASE) 1995 (BASE) 1996 BASE)
- --------------- -------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$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)
</TABLE>
II. MEDIAN P/E RATIO OFFERED
<TABLE>
<CAPTION>
PURCHASE PRICE: 1992 (BASE) 1993 (BASE) 1994 (BASE) 1995 (BASE) 1996 (BASE)
- --------------- -------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$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)
</TABLE>
<PAGE> 79
DISTRIBUTION OF M&A PREMIUMS OFFERED
1987 - 1996
<TABLE>
<CAPTION>
OVER 20% OVER 40% OVER 60%
YEAR UNDER 20% THROUGH 40% THROUGH 60% THROUGH 80%
- ---- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
<CAPTION>
OVER 80%
YEAR THROUGH 100% OVER 100% TOTAL
- ---- ------------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
DISTRIBUTION OF M&A P/E RATIOS OFFERED
1992 - 1996
<TABLE>
<CAPTION>
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
- ---- ---------- ------------- ------------- ------------- ------------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 80
PROJECT GOLDCAP
IMPLIED VALUATION ANALYSIS UTILIZING SELECTED PREMIUMS FROM M&A TRANSACTIONS IN
GENERAL
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT SHARE PRICE)
<TABLE>
<CAPTION>
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)
- --------------------------------------------- ----------- ----------------- -------------------- -------- ----------
<S> <C> <C> <C> <C> <C>
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
----------------------------------------------------
<CAPTION>
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)
- --------------------------------------------- ----------- ----------------- -------------------- -------- -----------
<S> <C> <C> <C> <C> <C>
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
-------------------------------------------------------
</TABLE>
- ------------------------------------
* 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.
<PAGE> 81
PROJECT GOLDCAP
IMPLIED VALUATION ANALYSIS UTILIZING SELECTED PREMIUMS FROM M&A TRANSACTIONS IN
THE HEALTH SERVICES INDUSTRY
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT SHARE PRICE)
<TABLE>
<CAPTION>
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)
- --------------------------------------------- ----------- ----------------- -------------------- -------- -----------
<S> <C> <C> <C> <C> <C>
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
-------------------------------------------------------
</TABLE>
- --------------------------------------------
* 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.
<PAGE> 82
Project Goldcap
Premiums Analysis: Mergers and Acquisitions Between $100 and $300 Million
July 15, 1997 through July 15, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Date Date
Effective Announced Target Name Target Business Description Acquiror Name
- ----------- ---------- ------------------------------- ------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
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
<CAPTION>
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
- ------------ --------- ------------------------------ ------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 83
<TABLE>
<CAPTION>
Date Date
Effective Announced Target Name Target Business Description Acquiror Name
- ------------- ----------- ------------------------------- --------------------------------- -------------------------------
<S> <C> <C> <C> <C>
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
<CAPTION>
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
- ----------- --------- ------------------------------ ------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
DATE DATE
EFFECTIVE ANNOUNCED TARGET NAME TARGET BUSINESS DESCRIPTION ACQUIROR NAME
- ------------- ----------- ------------------------------- --------------------------------- ------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
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
------------------------------ ------------ ----------------- ----------------- -------------------
<S> <C> <C> <C> <C>
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%
=======================================================================
</TABLE>
- -------------------------------------
Source: Securities Data Corporation
<PAGE> 85
PROJECT GOLDCAP
PREMIUMS ANALYSIS: MERGERS AND ACQUISITIONS BETWEEN $100 AND $300 MILLION
- ------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
-------- ------------
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]
--------------------- ----------------- ----------------- -------- -------------
<S> <C> <C> <C> <C> <C> <S>
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
---------------------------------------------------------
</TABLE>
- --------------------------------
[1] Announcement date assumed to be after the market close on July 17, 1998.
[2] Assumes 10,112,629 Goldcap shares outstanding.
<PAGE> 86
PROJECT GOLDCAP
PROJECTED CASH FLOWS - CONSOLIDATED COMPANY
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dec. Dec. Dec. Dec. Dec.
Projections Used In Valuation: 1998 1999(1) 2000 (1) 2001 (1) 2002 (1)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Dec. Terminal
Projections Used In Valuation: 2003 (2) Value
--------- ---------
<S> <C> <C>
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
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Discount Rate (WACC) Present Value of Cash Flows
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
10.00% $78,272
11.00% $76,179
12.00% $74,172
13.00% $72,247
14.00% $70,398
15.00% $68,623
-----------------------------------------------------
</TABLE>
(1) Projections provided by the Company as of July 10, 1998.
(2) Depreciation excludes transaction cost amortization.
<PAGE> 87
PROJECT GOLDCAP
EBIT MULTIPLE METHODOLOGY FOR DISCOUNTED CASH FLOW ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------- --------------------------------------------------------------------
SUMMARY: Weighted Average Cost of Capital (WACC) 10.00% 11.00%
- ------------------------------------------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Weighted Average Cost of Capital (WACC) 12.00% 13.00% 14.00% 15.00%
- ----------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 88
PROJECT GOLDCAP
EBITDA MULTIPLE METHODOLOGY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------- --------------------------------------------------------------------
SUMMARY: Weighted Average Cost of Capital (WACC) 10.00% 11.00%
- ----------------------------------------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
-------------------------------------------------------------------
</TABLE>
PROJECT GOLDCAP
EBITDA MULTIPLE METHODOLOGY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Weighted Average Cost of Capital (WACC) 12.00% 13.00% 14.00% 15.00%
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 89
PROJECT GOLDCAP
BALANCE SHEET ASSUMPTIONS
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEC. DEC. DEC. DEC. DEC.
BALANCE SHEET DATA [1] 1997 1998 1999 2000 2001
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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)
--------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
- ---------------------
(1) Projections provided by the Company as of July 10, 1998.
<TABLE>
<CAPTION>
DEC. DEC.
BALANCE SHEET DATA [1] 2002 2003
--------- ---------
<S> <C> <C>
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)
-----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
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%
</TABLE>
- ---------------------
(1) Projections provided by the Company as of July 10, 1998.
<PAGE> 90
PROJECT GOLDCAP
PROJECTED CASH FLOWS - BENEFITS COMPANY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DEC. DEC. DEC. DEC. DEC. DEC. TERMINAL
PROJECTIONS USED IN VALUATION: 1998 1999 (1) 2000 (1) 2001 (1) 2002 (1) 2003 (2) VALUE
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
DISCOUNT RATE (WACC) PRESENT VALUE OF CASH FLOWS
--------------------------------------------------------------------------------
<S> <C>
10.00% $70,491
11.00% $68,610
12.00% $66,806
13.00% $65,075
14.00% $63,414
15.00% $61,818
--------------------------------------------------------------------------------
</TABLE>
(1) Projections provided by the Company as of July 10, 1998.
(2) Depreciation and amortization excludes transaction cost amortization.
<PAGE> 91
PROJECT GOLDCAP
EBIT MULTIPLE METHODOLOGY FOR DISCOUNTED CASH FLOW ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------
SUMMARY:
- ----------------------------------------------------
<S> <C>
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
- ---------------------------------------------------
</TABLE>
(1) As of 3/31/98. Includes present value of DentLease funding obligation.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Weighted Average Cost of Capital (WACC) 10.00% 11.00% 12.00% 13.00% 14.00% 15.00%
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 92
PROJECT GOLDCAP
EBITDA MULTIPLE METHODOLOGY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
SUMMARY:
- ---------------------------------------------------------
<S> <C>
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
- ---------------------------------------------------------
</TABLE>
(1) As of 3/31/98. Includes present value of DentLease funding obligation.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted Average Cost of Capital (WACC) 10.00% 11.00% 12.00% 13.00% 14.00% 15.00%
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 93
PROJECT GOLDCAP
BALANCE SHEET ASSUMPTIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DEC. DEC. DEC. DEC. DEC. DEC. DEC.
BALANCE SHEET DATA [1] 1997 1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
(1) Projections provided by the Company as of July 10, 1998.
<PAGE> 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
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT PAGE
- -------------------------- ------
<S> <C>
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
</TABLE>
<PAGE> 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)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
SOURCES & USES OF FUNDS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
========== ==========
------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Projected Years Ending December 31,
--------------------------------------------------------------------------
1999 2000 2001 2002 2003
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
========================================================================================
</TABLE>
<PAGE> 96
Page 2
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
FORECASTING ASSUMPTIONS
<TABLE>
<CAPTION>
Projected Years Ending December 31,
Proj. --------------------------------------------------------------
INCOME STATEMENT 1998 1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Projected Years Ending December 31,
Actual --------------------------------------------------------------
BALANCE SHEET 1998 1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 97
Page 3
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Projected Years Ending December 31,
Actual Proj. ---------------------------------------------------------------
INCOME STATEMENT 1997 1998 1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 98
Page 4
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Projected Years Ending December 31,
----------------------------------------------------------------
CASH FLOW STATEMENT 1999 2000 2001 2002 2003
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
==============================================================
</TABLE>
<PAGE> 99
Page 5
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Projected Years Ending December 31,
Pro Forma ----------------------------------------------------------------
BALANCE SHEET 1998 1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
==============================================================================
</TABLE>
<PAGE> 100
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Proj. Goodwill Acquisition Pro Forma Valuation Pro Forma
BALANCE SHEET ADJUSTMENTS 1998 Write-Down Adjustments Acquisition Adjustments Close
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
=============================================================================
</TABLE>
<PAGE> 101
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Projected Years Ending December 31,
------------------------------------------------------------------
COVERAGE RATIOS & FINANCIAL ANALYSIS 1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 102
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
RETURN ANALYSIS--TERMINAL VALUE BASED ON AN EBITDA MULTIPLE OF 6.50x.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Current
CAPITAL STRUCTURE Cap'n Return
----- -------
<S> <C> <C> <C> <C>
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%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PURCHASE MULTIPLE ANALYSIS
<TABLE>
<CAPTION>
--------------------------------------------------------------
Firm Value
Purchase Price Analysis: Year EBITDA Multiple
--------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
TERMINAL VALUE CALCULATION
AT END OF:
---------------------------------------------------------------
Firm Value Multiple: 6.50x 1999 2000 2001 2002 2003
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
---------------------------------------------------------------------------------------------------
</TABLE>
FIVE YEAR RETURNS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------
1998 1999 2000 2001 2002 2003 IRR
Equity % Cash Out Cash In Cash In Cash In Cash In Cash In %
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 103
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
RETURN ANALYSIS--TERMINAL VALUE BASED ON AN EBITDA MULTIPLE OF 7.50x.
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Current
CAPITAL STRUCTURE Cap'n Return
----- -------
<S> <C> <C> <C> <C>
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%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PURCHASE MULTIPLE ANALYSIS
---------------------------------------------------------------
Firm Value
Purchase Price Analysis: Year EBITDA Multiple
---------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
TERMINAL VALUE CALCULATION
AT END OF:
---------------------------------------------------------------
Firm Value Multiple: 7.50 x 1999 2000 2001 2002 2003
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
-------------------------------------------------------------------------------------------------
</TABLE>
FIVE YEAR RETURNS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------
1998 1999 2000 2001 2002 2003 IRR
Equity % Cash Out Cash In Cash In Cash In Cash In Cash In %
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 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
- --------------------------------------------------------------------------------
<PAGE> 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
<PAGE> 3
PROJECT GOLDCAP
ANALYSIS OF PROPOSED TRANSACTION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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
- --------- -------------- -------- ------------ ----------- ------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$18.00 x 10,113 = $182,027 + $1,014 = $183,041 + $44,507 + $21,049 = $248,598
</TABLE>
<TABLE>
<CAPTION>
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)
------ ---------- ---------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
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)
------------- ------ ------- ------- ------- ------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
STOCK PRICE BEFORE ANNOUNCEMENT
------------------------------------------
1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
----------- ------------ -------------
<S> <C> <C> <C>
ACTUAL VALUE $13.25[9] $13.38 $14.75
PREMIUM AT $18.00 PER SHARE 35.8% 34.6% 22.0%
</TABLE>
- ---------------------------------------
[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.
<PAGE> 4
PROJECT GOLDCAP
CURRENT VESTED OPTIONS SCHEDULE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative
Vested Vested Cumulative
Options Exercise Aggregate Options Exercise
Outstanding Price Exercise Price Outstanding Price
- ---------------- ------------ -------------------- --------------- -------------------
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Cumulative Additional
Deal Exercise In-the-Money Shares Fully Diluted
Price [1] Price Options Outstanding Shares Out [2]
- ------------- -------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C>
$18.00 $1,915,385 162,750 56,340 10,168,969
</TABLE>
<TABLE>
<CAPTION>
Cumulative Net Value of
Deal In-the-Money Value of Exercise In-the-Money
Price [1] Options Options Price Options
- ------------- -------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C>
$18.00 162,750 $2,929,500 $1,915,385 $1,014,115
</TABLE>
- ------------------------------------------------------
[1] Assumes 10,112,629 pre-deal shares outstanding.
[2] Uses the treasury stock method.
<PAGE> 5
PROJECT GOLDCAP
ANALYSIS OF DHDC DEFERRED LIABILITIES
- --------------------------------------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ending December 31,
---------------------------------------------
1997 1998 1999 2000
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
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
</TABLE>
- -----------------------------------
[1] Discounted at 13.0% annually.
[2] Issued September 12, 1997. Matures September 12, 2004. Purchase option
begins February 28, 2001.
<PAGE> 6
PROJECT GOLDCAP
VALUATION SUMMARY
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARKET COMPARISON OF SELECTED PUBLIC COMPANIES
- ----------------------------------------------
AVERAGE
-------
<S> <C>
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
</TABLE>
<PAGE> 7
PROJECT GOLDCAP
VALUATION SUMMARY
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PURCHASE PRICE MULTIPLES ANALYSIS OF SELECTED M&A TRANSACTIONS
- --------------------------------------------------------------
AVERAGE AVERAGE
------- -------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 8
PROJECT GOLDCAP
VALUATION SUMMARY
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DISCOUNTED CASH FLOW ANALYSIS
- -----------------------------
HIGH LOW AVERAGE
---- --- -------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 9
PROJECT GOLDCAP
HISTORICAL INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31, ENDED JUNE 30,
----------------------------- ------------------- -------------------
1995 1996 1997 1997 1998 1997 1998
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- -------------------------------------------
[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.
<PAGE> 10
PROJECT GOLDCAP
COMMON-SIZED HISTORICAL INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
---------------------------------- -----------------------------
1995 1996 1997 1997 1998
--------- -------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
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%
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1997 1998
---------- -----------
<S> <C> <C>
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%
</TABLE>
- --------------------------------------------------
[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%.
<PAGE> 11
PROJECT GOLDCAP
HISTORICAL BALANCE SHEET INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, JUNE 30,
--------------------------------------- ----------- ----------
1995 1996 1997 1998 1998
----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
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
======== ======== ========= ========= =========
</TABLE>
<PAGE> 12
PROJECT GOLDCAP
COMMON-SIZED HISTORICAL BALANCE SHEET INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, JUNE 30,
------------------------------- ---------- ---------
1995 1996 1997 1998 1998
------ ------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
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%
===== ===== ===== ===== =====
</TABLE>
<PAGE> 13
PROJECT GOLDCAP
HISTORICAL STATEMENT OF CASH FLOWS INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------- ----------------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========
</TABLE>
<PAGE> 14
PROJECT GOLDCAP
HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ------------------ ----------------
MARCH 31, JUNE 30, JUNE 30,
1998 1998 1998
--------- -------- --------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 15
PROJECT GOLDCAP
HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ------------------ ----------------
MARCH 31, JUNE 30, JUNE 30,
1998 1998 1998
--------- -------- --------
<S> <C> <C> <C>
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%
</TABLE>
<PAGE> 16
PROJECT GOLDCAP
HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
-------------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1997 1997 1997 1997
--------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------------------------------
[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.
<PAGE> 17
PROJECT GOLDCAP
COMMON-SIZED HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
-------------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1997 1997 1997 1997
--------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
- -----------------------------------
[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%.
<PAGE> 18
PROJECT GOLDCAP
HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
-------------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1997 1997 1997 1997
--------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 19
PROJECT GOLDCAP
COMMON-SIZED HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
-------------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1997 1997 1997 1997
--------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 20
PROJECT GOLDCAP
HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
-------------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1997 1997 1997 1997
--------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 21
PROJECT GOLDCAP
COMMON-SIZED HISTORICAL QUARTERLY INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
-------------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1997 1997 1997 1997
--------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 22
PROJECT GOLDCAP
HISTORICAL EBITDA ANALYSIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
-------------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1997 1997 1997 1997
--------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
-------------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1997 1997 1997 1997
--------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
-------------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1997 1997 1997 1997
--------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
MARCH 31, JUNE 30,
1998 1998
--------- --------
<S> <C> <C>
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
</TABLE>
<PAGE> 23
PROJECT GOLDCAP
ROBINSON-HUMPHREY RESEARCH PROJECTED QUARTERLY INCOME STATEMENT INFORMATION [1]
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDING YEAR ENDING
--------------------------------------------------------- ------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 (A) 1998 1998 1998 1998
---------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
THREE MONTHS ENDING YEAR ENDING
--------------------------------------------------------- -----------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 1999 1999 1999
---------- ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ------------------------------------
[1] Projections dated April 28, 1998.
<PAGE> 24
PROJECT GOLDCAP
COMMON-SIZED ROBINSON-HUMPHREY RESEARCH PROJECTED QUARTERLY INCOME STATEMENT
INFORMATION [1]
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDING YEAR ENDING
----------------------------------------------------- -------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 (A) 1998 1998 1998 1998
---------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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%
<CAPTION>
THREE MONTHS ENDING YEAR ENDING
----------------------------------------------------- -------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 1999 1999 1999
---------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
- ------------------------------------
[1] Projections dated April 28, 1998.
<PAGE> 25
PROJECT GOLDCAP
CONSOLIDATED PROJECTED INCOME STATEMENT INFORMATION [1]
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PROJECTED YEAR ENDING DECEMBER 31,
-----------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
-------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ----------------------------------------
[1] Projections provided by management.
<PAGE> 26
PROJECT GOLDCAP
CONSOLIDATED PROJECTED COMMON-SIZED INCOME STATEMENT INFORMATION [1]
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROJECTED YEAR ENDING DECEMBER 31,
-----------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
-------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
- ----------------------------------------
[1] Projections provided by management.
<PAGE> 27
PROJECT GOLDCAP
BENEFITS COMPANY
PROJECTED INCOME STATEMENTS [1]
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PROJECTED YEAR ENDING DECEMBER 31,
-----------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
-------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
- ------------------------------------------
[1] Projections provided by management.
<PAGE> 28
PROJECT GOLDCAP
BENEFITS COMPANY
PROJECTED COMMON-SIZED INCOME STATEMENTS [1]
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROJECTED YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
-------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
- -----------------------------------------------
[1] Projections provided by management.
<PAGE> 29
PROJECT GOLDCAP
DENTAL HEALTH MANAGEMENT, INC.
PROJECTED INCOME STATEMENTS [1]
SEC REPORTING FORMAT
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PROJECTED YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
-------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- -----------------------------------------------------------
[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.
<PAGE> 30
PROJECT GOLDCAP
DENTAL HEALTH MANAGEMENT, INC.
PROJECTED COMMON-SIZED INCOME STATEMENTS [1]
SEC REPORTING FORMAT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROJECTED YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
-------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
- -----------------------------------------------------------
[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.
<PAGE> 31
PROJECT GOLDCAP
COMPARISON OF PROJECTIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1998 YEAR ENDING DECEMBER 31, 1999
------------------------------------------------ ---------------------------------------------
ROBINSON-HUMPHREY GOLDCAP ROBINSON-HUMPHREY GOLDCAP
RESEARCH MANAGEMENT VARIANCE RESEARCH MANAGEMENT VARIANCE
----------------- ---------- -------- ----------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 32
PROJECT GOLDCAP
TRADING STATISTICS
JULY 24, 1997 - JULY 24, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE CLOSING PRICE: AVERAGE DAILY VOLUME:
- ---------------------- ---------------------
<S> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
DATE HIGH LOW CLOSE VOLUME
- -------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
DATE HIGH LOW CLOSE VOLUME
- -------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
DATE HIGH LOW CLOSE VOLUME
- -------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
DATE HIGH LOW CLOSE VOLUME
- -------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
DATE HIGH LOW CLOSE VOLUME
- -------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
DATE HIGH LOW CLOSE VOLUME
- -------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 38
<TABLE>
<CAPTION>
DATE HIGH LOW CLOSE VOLUME
- -------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
DATE HIGH LOW CLOSE VOLUME
- -------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
- ---------------------------------------
Source: AT Financial
<PAGE> 40
PROJECT GOLDCAP
WEEKLY PRICE AND TRADING VOLUME - IPO THROUGH JULY 24, 1998
- -------------------------------------------------------------------------------
[GRAPH]
<PAGE> 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]
<PAGE> 42
GOLDCAP
VOLUME DISTRIBUTION BY PRICE RANGE
WEEKLY: 5/26/95 TO 7/24/98
[GRAPH]
<TABLE>
<CAPTION>
11 to 19 19 to 27 27 to 35 35 to 43 43 to 51
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PERCENT TRADED 27.19% 22.06% 17.80% 24.30% 8.65%
</TABLE>
<PAGE> 43
GOLDCAP
CUMULATIVE VOLUME DISTRIBUTION BY PRICE RANGE
WEEKLY: 5/26/95 TO 7/24/98
[GRAPH]
<TABLE>
<CAPTION>
11 to 19 up to 27 up to 35 up to 43 up to 51
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PERCENT TRADED 27.19% 49.25% 67.05% 91.35% 100.00%
</TABLE>
<PAGE> 44
PROJECT GOLDCAP
LAST TWELVE MONTHS DAILY PRICE AND TRADING VOLUME SINCE JULY 24, 1997
- -----------------------------------------------------------------------
[GRAPH]
<PAGE> 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]
<PAGE> 46
GOLDCAP
VOLUME DISTRIBUTION BY PRICE RANGE
DAILY: 7/24/97 TO 7/24/98
[GRAPH]
<TABLE>
<CAPTION>
9 to 12.8 12.8 to 16.6 16.6 to 20.4 20.4 to 24.2 24.2 to 28
--------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
PERCENT TRADED 18.89% 43.46% 7.92% 16.97% 12.76%
</TABLE>
<PAGE> 47
GOLDCAP
CUMULATIVE VOLUME DISTRIBUTION BY PRICE RANGE
DAILY: 7/24/97 TO 7/24/98
[GRAPH]
<TABLE>
<CAPTION>
9 to 12.8 up to 16.6 up to 20.4 up to 24.2 up to 28
--------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
PERCENT TRADED 18.89% 62.35% 70.27% 87.24% 100.00%
</TABLE>
<PAGE> 48
PROJECT GOLDCAP
DAILY PRICE AND TRADING VOLUME - JANUARY 2, 1998 THROUGH JULY 24, 1998
- --------------------------------------------------------------------------------
[GRAPH]
<PAGE> 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]
<PAGE> 50
GOLDCAP
VOLUME DISTRIBUTION BY PRICE RANGE
DAILY: 1/2/98 TO 7/24/98
[GRAPH]
<TABLE>
<CAPTION>
9 to 11.4 11.4 to 13.8 13.8 to 16.2 16.2 to 18.6 18.6 to 21
--------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
PERCENT TRADED 9.95% 43.76% 42.53% 3.14% 0.62%
</TABLE>
<PAGE> 51
GOLDCAP
CUMULATIVE VOLUME DISTRIBUTION BY PRICE RANGE
DAILY: 1/2/98 TO 7/24/98
[GRAPH]
<TABLE>
<CAPTION>
9 to 11.4 up to 13.8 up to 16.2 up to 18.6 up to 21
--------- ---------- ---------- ---------- --------
<S> <C> <S> <C> <C> <C>
PERCENT TRADED 9.95% 53.72% 96.24% 99.38% 100.00%
</TABLE>
<PAGE> 52
PROJECT GOLDCAP
SHAREHOLDER OWNERSHIP ANALYSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF AS A PERCENT
SHARES OF TOTAL
--------- ------------
<S> <C> <C>
Total Shares Outstanding as of April 30, 1998: 10,112,629 100.0%
<CAPTION>
Date Institutional Ownership:
- ---- ------------------------
<S> <C> <C> <C>
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%
</TABLE>
- ---------------------------------------
[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)
<TABLE>
<S> <C>
INSIDERS 9%
RETAIL FLOAT 11%
INSTITUTIONS 80%
</TABLE>
<PAGE> 53
PROJECT GOLDCAP
INSTITUTIONAL OWNERSHIP HISTORY
QUARTERS ENDING SEPTEMBER 1995 THROUGH MARCH 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
13F INSTITUTION 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96
- ------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
13F INSTITUTION 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95
- ------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
13F INSTITUTION 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96
- ------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
13F INSTITUTION 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95
- ------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
13F INSTITUTION 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96
- ------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
13F INSTITUTION 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95
- ------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
13F INSTITUTION 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96
- ------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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%
<CAPTION>
13F INSTITUTION 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95
- ------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
Source: CDA Spectrum as of July 16, 1998.
<PAGE> 57
PROJECT GOLDCAP
MARKET COMPARISON OF SELECTED PUBLIC COMPANIES
----------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
52 WEEK
LATEST -------
COMPANY TICKER EXCHANGE FYE QUARTER HIGH LOW
- ------- ------ -------- --- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
EARNINGS PER SHARE (1)
MARKET PRICE -------------------------
PRICE AS % CAL. CAL.
7/24/98 OF HIGH LTM 1998E 1999E
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
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
-------- ----- ----- ------
<S> <C> <C> <C> <C>
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
<CAPTION>
1999 P/E/
5-YEAR MARKET MARKET/
GROWTH CAP'N BOOK
--------- ------- -------
<S> <C> <C> <C>
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
</TABLE>
- -------
*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 $8.50 per share.
<PAGE> 58
Project Goldcap
Market Comparison of Selected Public Companies
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
Debt / LTM
Shares Total Total Total Firm ------------------------------
Company Outstanding Debt Cap. Cash Value[1] Revenues EBIT EBITDA
- ------- ----------- ---- ------ ----- -------- -------- ---- ------
(MM) ($MM) ($MM) ($MM) ($MM) ($MM) ($MM)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
3 Year CAGR
Firm Value to: ----------------
EBIT EBITDA ----------------------------- Net
Company Margin Margin Revenues EBIT EBITDA Revenue Income
- ------- ------ ------ -------- ---- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
* 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.
<PAGE> 59
PROJECT GOLDCAP
HISTORICAL GROWTH ANALYSIS OF SELECTED COMPARABLE PUBLIC COMPANIES
REVENUES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1995 1996 1997 FIRST QUARTER 1998
--------- --------------------- -------------------- 3 YEAR --------------------
$ AMT $ AMT GROWTH $ AMT GROWTH CAGR $ AMT GROWTH
----- ----- ------ ----- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 60
PROJECT GOLDCAP
HISTORICAL GROWTH ANALYSIS OF SELECTED COMPARABLE PUBLIC COMPANIES
-------------------------------------------------------------------
EBITDA
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1995 1996 1997
----------------- ---------------------------- -----------------------------
$ Amt Margin $ Amt Margin Growth $ Amt Margin Growth
------ -------- ------ -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
<CAPTION>
First Quarter 1998
3 YEAR ----------------------------
CAGR $ Amt Margin Growth
------ ------ ------- ------
<S> <C> <C> <C> <C>
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%)
</TABLE>
<PAGE> 61
PROJECT GOLDCAP
HISTORICAL GROWTH ANALYSIS OF SELECTED COMPARABLE PUBLIC COMPANIES
------------------------------------------------------------------
EBIT
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ---------------------------- ------------------------
$ Amt Margin $ Amt Margin Growth $ Amt Margin Growth
----- ------ ------ ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
<CAPTION>
First Quarter 1998
3 Year -------------------------------------------
CAGR $ Amt Margin Growth
------ ------ ------ ------
<S> <C> <C> <C> <C>
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%)
</TABLE>
<PAGE> 62
PROJECT GOLDCAP
HISTORICAL GROWTH ANALYSIS OF SELECTED COMPARABLE PUBLIC COMPANIES
DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
1995 1996 1997 FIRST QUARTER 1998
------- ----------------- --------------------- 3 YEAR -----------------------
$ AMT $ AMT GROWTH $ AMT GROWTH CAGR $ AMT GROWTH
----- ----- ------ ----- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%)
</TABLE>
<PAGE> 63
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING PUBLIC DENTAL MANAGED CARE COMPANIES MULTIPLES
(DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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]
- ------------------- ------ ------- ------------ ------------- ---- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
- ------------------- ------- ------------ -------- ------------
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION> LESS
IMPLIED PV OF DHDC IMPLIED IMPLIED
FIRM LESS DEFERRED EQUITY EQUITY VALUE
Valuation Parameter VALUE NET DEBT[2] LIABILITIES VALUE PER SHARE [1]
- ------------------- -------- ----------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ----------------------------------------------------------
* - 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.
<PAGE> 64
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING PUBLIC DENTAL MANAGED CARE COMPANIES MULTIPLES
(DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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]
- ------------------- ------ ------- ------------- ------------- ------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
- ------------------- ------- ------------ ------------ ------------ ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ----------------------------------------------------------
* - 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.
<PAGE> 65
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING DENTAL MANAGED CARE AND DENTAL PRACTICE MANAGEMENT
COMPANIES MULTIPLES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BENEFITS COMPANY
- ----------------
AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES
------------------------------------------------------
Benefits PRICE / PRICE /
Valuation Parameter Value CAL. 1998 EPS CAL. 1999 EPS
- ------------------- -------- ------------- -------------
<S> <C> <C> <C>
Est. 1998 Net Income $ 9,264 [2] 12.1 x
Est. 1999 Net Income $11,529 [2] 10.2 x
<CAPTION>
AVERAGE DENTAL MANAGED CARE COMPANIES MULTIPLES
------------------------------------------------------
Benefits FIRM VALUE /
Valuation Parameter Value LTM EBITDA
- ------------------- -------- ------------
<S> <C> <C> <C>
LTM EBITDA [3] $26,383 [4] 9.0 x
<CAPTION>
DHMI
- ----
AVERAGE DENTAL PRACTICE MANAGEMENT COMPANIES MULTIPLES
------------------------------------------------------
DHMI PRICE / PRICE /
Valuation Parameter Value CAL. 1998 EPS CAL. 1999 EPS
- ------------------- -------- ------------- -------------
<S> <C> <C> <C>
Est. 1998 Net Income $ 277 [2] 20.9 x
Est. 1999 Net Income $ 1,686 [2] 14.3 x
<CAPTION>
AVERAGE DENTAL PRACTICE MANAGEMENT COMPANIES MULTIPLES
------------------------------------------------------
DHMI FIRM VALUE /
Valuation Parameter Value LTM EBITDA
- ------------------- -------- ------------
<S> <C> <C> <C>
LTM EBITDA [3] $ 931 [4] 14.9 x
<CAPTION>
IMPLIED IMPLIED
EQUITY EQUITY VALUE
VALUE PER SHARE [1]
------- -------------
<C> <C>
$111,834 $11.06
$118,155 $11.68
LESS
IMPLIED PV OF DHDC
FIRM LESS DEFERRED
VALUE NET DEBT [2] LIABILITIES
------- ------------ -----------
<C> <C> <C> <C> <C>
$237,025 $39,534 $21,049 $176,442 $17.45
MEAN EQUITY VALUE $135,477 $13.40
MEDIAN EQUITY VALUE $118,155 $11.68
<CAPTION>
IMPLIED IMPLIED
EQUITY EQUITY VALUE
VALUE PER SHARE [2]
------- -------------
<C> <C>
$ 5,785 $ 0.57
$ 24,122 $ 2.39
LESS
IMPLIED PV OF DHDC
FIRM LESS DEFERRED
VALUE NET DEBT [2] LIABILITIES
------- ------------ -----------
<C> <C> <C> <C> <C>
$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
</TABLE>
- ----------------------------------
* - 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.
<PAGE> 66
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING PUBLIC MULTI-MARKET HMO COMPANIES MULTIPLES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AVERAGE MULTI-MARKET HMO COMPANIES MULTIPLES
--------------------------------------------------------------
Goldcap PRICE / PRICE / PRICE / PRICE /
Valuation Parameter Value [1] LTM EPS CAL. 1998 EPS CAL. 1999 EPS BOOK
- ------------------- --------- ------- ------------- ------------- ----
<S> <C> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
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
- ------------------- -------- ------------ -------- ---------- ----- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
IMPLIED IMPLIED
EQUITY EQUITY VALUE
Valuation Parameter VALUE PER SHARE [1]
- ------------------- ----- -------------
<S> <C> <C>
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
</TABLE>
- ----------------------------------
* - 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.
<PAGE> 67
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING PUBLIC MULTI-MARKET HMO COMPANIES MULTIPLES
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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]
- ------------------- ------- ------- ------------- ------------- ----- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE MULTI-MARKET HMO COMPANIES MULTIPLES
--------------------------------------------------------------------
GOLDCAP FIRM VALUE / FIRM VALUE / FIRM VALUE /
Valuation Parameter VALUE LTM REVENUES LTM EBIT LTM EBITDA
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
LTM Revenues [2] $163,333 0.45x
LTM Operating Income [2] $ 21,521[4] 19.4x
TM EBITDA [2] $ 27,314[4] 12.1x
</TABLE>
<TABLE>
<CAPTION>
LESS
IMPLIED PV OF DHDC IMPLIED IMPLIED
FIRM LESS DEFERRED EQUITY EQUITY VALUE
VALUE NET DEBT [2] LIABILITIES VALUE PER SHARE [1]
------- ------------ ----------- -------- -------------
Valuation Parameter
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- -------------------------------------------------
* - 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.
<PAGE> 68
PROJECT GOLDCAP
DENTAL MANAGED CARE HISTORICAL ACQUISITION MULTIPLES
- -------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Purchase Price as a Multiple of
Equity ------------------------------- Adjusted
Date Purchase LTM Latest Date Purchase
Acquiror Target Completed Price Net Income Book Value Price [1]
- -------- ------ --------- ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
-------------------------------------------------
<CAPTION>
Adjusted Purchase Price as a Multiple of
------------------------------------------------
LTM LTM
LTM Op. Cash Flow Op. Income
Acquiror Target Revenues [2] (EBITDA) (EBIT)
- -------- ------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
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
----------------------------------------------------------
</TABLE>
- ----------------------------------------------------
[1] Adjusted purchase price equals equity value plus assumed debt minus acquired
cash.
[2] Excludes investment income.
<PAGE> 69
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING DENTAL MANAGED CARE HISTORICAL ACQUISITION MULTIPLES
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Selected Relevant Transaction Multiples
---------------------------------------
Price/
Goldcap LTM Price/
Valuation Parameter Value EPS Book
- ------------------- -------- ------ ------
<S> <C> <C> <C>
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]
- ------------------- ------- -------------
<S> <C> <C>
LTM Net Income [2] $217,627 $21.52
6/30/98 Book Value $378,013 * $37.58 *
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------
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
- ------------------- -------- ------------ ------------ ------------ ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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]
- ------------------- -------- -------------
<S> <C> <C>
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
======================================================
</TABLE>
- -------------------------------------
* - 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.
<PAGE> 70
PROJECT GOLDCAP
DENTAL MANAGED CARE FORWARD ACQUISITION MULTIPLES
- --------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
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)
- -------- ------ --------- -------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
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
=============================================================
</TABLE>
- ---------------------------------------------
[1] Adjusted purchase price equals equity value plus assumed debt minus acquired
cash.
[2] Excludes investment income.
<PAGE> 71
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING DENTAL MANAGED CARE FORWARD ACQUISITION MULTIPLES
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------
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]
- ------------------- ------- -------- ---- ------ -------- ----------- ----------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------------------------
*-Excluded from mean.
[1] As of June 30, 1998.
[2] Assumes 10,112,629 Goldcap shares outstanding.
[3] Projections provided by Robinson-Humphrey research.
<PAGE> 72
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING DENTAL MANAGED CARE FORWARD ACQUISITION MULTIPLES
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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]
- ------------------- -------- -------- ---- ------ -------- ----------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- -----------------------
* - Excluded from mean.
[1] As of June 30, 1998.
[2] Assumes 10,112,629 Goldcap shares outstanding.
[3] Projections provided by Goldcap Management.
<PAGE> 73
PROJECT GOLDCAP
PROTECTIVE LIFE/ UNITED DENTAL CARE ACQUISITION MULTIPLES [1,2]
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
FIRM EQUITY
VALUE (mm) VALUE (mm)
------------ -----------
$184.4 $175.0
<S> <C> <C> <C> <C>
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%
</TABLE>
- --------------------
[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.
<PAGE> 74
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING PROTECTIVE LIFE/ UNITED DENTAL CARE HISTORICAL
ACQUISITION MULTIPLES
- -------------------------------------------------------------------------------
(DOLLARS AND MEMBERS IN THOUSANDS)
<TABLE>
<CAPTION>
Selected Relevant Transaction Multiples
---------------------------------------
Price/
Goldcap LTM Price/
Valuation Parameter Value EPS Book
- ------------------ -------- --- ----
<S> <C> <C>
LTM Net Income [5] $10,476 [3,4] 29.x
6/30/98 Book Value $65,373 1.4 x
---------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------
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
---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TRANSACTION PREMIUMS
------------------------------------------
1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
----------- ------------ -------------
<S> <C> <C> <C> <C>
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%
</TABLE>
- ---------------------------------------
* - 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.
<TABLE>
<CAPTION>
IMPLIED IMPLIED
EQUITY EQUITY VALUE
Valuation Parameter VALUE PER SHARE [1]
- ------------------ ------- -------------
<S> <C> <C>
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
-----------------------------------------------------------------
</TABLE>
<PAGE> 75
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING PROTECTIVE LIFE/ UNITED DENTAL CARE FORWARD
ACQUISITION MULTIPLES
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GOLDCAP CURRENT YEAR FORWARD YEAR
VALUATION PARAMETER VALUE P/E MULTIPLE P/E MULTIPLE
------------------- -------- ------------ ------------
<S> <C> <C> <C>
Projected Cal. 1998 Net Income Per $1.06 [2] 22.1 x
Projected Cal. 1999 Net Income Per $1.20 [2] 18.3 x
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
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
------------------- ----------- ------------ ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PREMIUM PRIOR TO ANNOUNCEMENT DATE
GOLDCAP --------------------------------------------
VALUATION PARAMETER VALUE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
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%
</TABLE>
- ----------------------------------------
* - 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.
<TABLE>
<CAPTION>
IMPLIED IMPLIED
EQUITY EQUITY VALUE
VALUATION PARAMETER VALUE PER SHARE [1]
------------------- -------- -------------
<S> <C> <C>
Projected Cal. 1998 Net Income Per $236,636 $23.40
Projected Cal. 1999 Net Income Per $222,399 $21.99
</TABLE>
<TABLE>
<CAPTION>
LESS
IMPLIED PV OF DHDC
FIRM LESS DEFERRED
VALUATION PARAMETER VALUE NET DEBT [3] LIABILITIES
------------------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
VALUATION PARAMETER
-------------------
<S> <C> <C> <C>
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
----------------------------------------------------------------------------------
</TABLE>
<PAGE> 76
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING PROTECTIVE LIFE/ UNITED DENTAL CARE FORWARD
ACQUISITION MULTIPLES
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
IMPLIED IMPLIED
GOLDCAP CURRENT YEAR FORWARD YEAR EQUITY EQUITY VALUE
VALUATION PARAMETER VALUE P/E MULTIPLE P/E MULTIPLE VALUE PER SHARE [1]
- ---------------------------------------- -------- ------------ ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
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
- ------------------------------------ -------- ------------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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
---------------------------------------------------------------------------------------------
<CAPTION>
LESS
IMPLIED PV OF DHDC IMPLIED IMPLIED
FIRM LESS DEFERRED EQUITY EQUITY VALUE
VALUATION PARAMETER VALUE NET DEBT [3] LIABILITIES VALUE PER SHARE [1]
- ------------------------------------ -------- ------------ ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------
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]
- ----------------------------- ------- ----------- ------------ ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
---------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
* - 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.
<PAGE> 77
PROJECT GOLDCAP
DENTAL PRACTICE MANAGEMENT COMPANY ACQUISITION MULTIPLES
- --------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Purchase Price as a Multiple of
Equity ------------------------------- Adjusted
Date Purchase LTM Latest Date Purchase
Acquiror Target Completed Price Net Income Book Value Price [1]
- -------- ------ --------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
Adjusted Purchase Price as a Multiple of
----------------------------------------
LTM LTM
LTM Op. Cash Flow Op. Income
Acquiror Revenues [2] (EBITDA) (EBIT)
- -------- ------------ -------- ------
<S> <C> <C> <C>
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
</TABLE>
- -----------------------------------------------------------------------
[1] Adjusted purchase price equals equity value plus assumed debt minus acquired
cash.
[2] Excludes investment income.
<PAGE> 78
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING DENTAL MANAGED CARE AND DENTAL PRACTICE MANAGEMENT
ACQUISITION MULTIPLES
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
BENEFITS COMPANY
<TABLE>
<CAPTION>
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]
- ------------------- -------- ------------ ----------- ------ ------------ ----------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
=============================================================
</TABLE>
DHMI
<TABLE>
<CAPTION>
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]
- ------------------- ----- ------------ ----------- ------ ------------ ----------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
===========================================================
</TABLE>
- -----------------------------------------------------------
* - 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.
<PAGE> 79
PROJECT GOLDCAP
SELECTED MERGER AND ACQUISITION TRANSACTIONS IN THE HMO INDUSTRY
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Equity Value as Multiple of
Equity ---------------------------
Date Purchase LTM Latest Date Firm
Acquiror Target Completed Price Net Income Book Value Value [1]
- -------- ------ --------- ----- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
Firm Value as Multiple of
-------------------------
LTM LTM LTM
Acquiror Target Revenues EBITDA EBIT
- -------- ------ -------- ------ ----
<S> <C> <C> <C> <C>
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
</TABLE>
- ---------------------------------------
* 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.
<PAGE> 80
PROJECT GOLDCAP
IMPLIED VALUATION UTILIZING HMO HISTORICAL ACQUISITION MULTIPLES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Selected Relevant Transaction Multiples
---------------------------------------
Price/ IMPLIED IMPLIED
Goldcap LTM Price/ EQUITY EQUITY VALUE
Valuation Parameter Value EPS Book VALUE PER SHARE [1]
- ------------------- ------- --- ---- ----- -------------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
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
- ------------------- ------- -------- ---------- ------ ----- ------------ -----------
<S> <C> <C> <C> <C> <C. <C> <C> <C> <C>
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
</TABLE>
- ---------------------------------------------------
* - 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 $9.4 million in
one-time charges.
[4] Assumes 38% tax rate on one-time charges.
[5] As of June 30, 1998.
<PAGE> 81
PROJECT GOLDCAP
SELECTED MERGER AND ACQUISITION FORWARD MULTIPLES AND TRANSACTION PREMIUMS FOR
DEALS IN THE HMO INDUSTRY
<TABLE>
<CAPTION>
VALUE OF PRICE
DATE DATE TRANSACTION PER CURRENT YEAR FORWARD YEAR
ANNOUNCED EFFECTIVE TARGET ACQUIROR ($MM) SHARE P/E RATIO P/E RATIO
- --------- --------- ------ -------- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
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
- --------- --------- ------ -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
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 %
</TABLE>
* Excluded from average NA - Not Available NM - Not Meaningful
- -------------------------------
Source: Securities Data Company, Inc.
<PAGE> 82
PROJECT GOLDCAP
IMPLIED VALUATION ANALYSIS UTILIZING M&A FORWARD MULTIPLES AMD TRANSACTION
PREMIUMS IN THE HMO INDUSTRY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CURRENT YEAR FORWARD YEAR IMPLIED IMPLIED
GOLDCAP P/E MULTIPLE P/E MULTIPLE EQUITY EQUITY VALUE
VALUATION PARAMETER VALUE ------------ ------------ VALUE PER SHARE [1]
- ---------------------------------------- ------- ----- -------------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
PREMIUM PRIOR TO ANNOUNCEMENT DATE
GOLDCAP ----------------------------------------
VALUATION PARAMETER VALUE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
- ---------------------------------------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ------------------------------------------------------
* - 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.
<PAGE> 83
PROJECT GOLDCAP
IMPLIED VALUATION ANALYSIS UTILIZING M&A FORWARD MULTIPLES AMD TRANSACTION
PREMIUMS IN THE HMO INDUSTRY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CURRENT YEAR FORWARD YEAR IMPLIED IMPLIED
GOLDCAP P/E MULTIPLE P/E MULTIPLE EQUITY EQUITY VALUE
VALUATION PARAMETER VALUE ------------ ------------ VALUE PER SHARE [1]
- ---------------------------------------- ------- ----- -------------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
PREMIUM PRIOR TO ANNOUNCEMENT DATE
GOLDCAP ----------------------------------------
VALUATION PARAMETER VALUE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
- ---------------------------------------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ------------------------------------------------------
* - 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.
<PAGE> 84
SUMMARY OF RECENT MERGER AND ACQUISITION ACTIVITY
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 AVERAGE
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
1992 1993 1994 1995 1996 AVERAGE
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ----------------------------------------
[1] Includes only transactions with a publicly disclosed purchase price.
Source: Mergerstat Review
<PAGE> 85
M&A PREMIUMS AND P/E RATIOS OFFERED BY DEAL SIZE
1992 - 1996
I. MEDIAN PERCENT PREMIUM OFFERED
<TABLE>
<CAPTION>
PURCHASE PRICE: 1992 (BASE) 1993 (BASE) 1994 (BASE) 1995 (BASE) 1996 (BASE)
- --------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$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)
</TABLE>
II. MEDIAN P/E RATIO OFFERED
<TABLE>
<CAPTION>
PURCHASE PRICE: 1992 (BASE) 1993 (BASE) 1994 (BASE) 1995 (BASE) 1996 (BASE)
- --------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$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)
</TABLE>
<PAGE> 86
DISTRIBUTION OF M&A PREMIUMS OFFERED
1987 - 1996
<TABLE>
<CAPTION>
OVER 20% OVER 40% OVER 60% OVER 80%
YEAR UNDER 20% THROUGH 40% THROUGH 60% THROUGH 80% THROUGH 100% OVER 100% TOTAL
- ---- --------- ----------- ----------- ----------- ------------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
DISTRIBUTION OF M&A P/E RATIOS OFFERED
1992 - 1996
<TABLE>
<CAPTION>
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
- ---- ---------- ------------- ------------- ------------- ------------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 87
PROJECT GOLDCAP
IMPLIED VALUATION ANALYSIS UTILIZING SELECTED PREMIUMS FROM M&A TRANSACTIONS IN
GENERAL
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT SHARE PRICE)
<TABLE>
<CAPTION>
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]
- ---------------------------------------------- ------------- -------------------- -------------------- -------- ----------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
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]
- ---------------------------------------------- ------------- -------------------- -------------------- ------- ----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ----------------------------------------------
* 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.
<PAGE> 88
PROJECT GOLDCAP
IMPLIED VALUATION ANALYSIS UTILIZING SELECTED PREMIUMS FROM M&A TRANSACTIONS IN
THE HEALTH SERVICES INDUSTRY
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT SHARE PRICE)
<TABLE>
<CAPTION>
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
- ------------------------------------------------ ---------------- --------------- ---------------- -------- ---------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- -------------------------------------------------
* 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.
<PAGE> 89
PROJECT GOLDCAP
PREMIUMS ANALYSIS: MERGERS AND ACQUISITIONS BETWEEN $100 AND $300 MILLION
JULY 24, 1997 THROUGH JULY 24, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DATE DATE
EFFECTIVE ANNOUNCED TARGET NAME TARGET BUSINESS DESCRIPTION
- ----------- --------- ----------------------------- -----------------------------
<S> <C> <C> <C>
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
<CAPTION>
DATE DATE ACQUIROR SHORT
EFFECTIVE ANNOUNCED ACQUIROR NAME BUSINESS DESCRIPTION
- ----------- --------- ------------------------------ ----------------------------
<S> <C> <C> <C>
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
<CAPTION>
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
- ----------- --------- ----------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 90
PROJECT GOLDCAP
PREMIUMS ANALYSIS: MERGERS AND ACQUISITIONS BETWEEN $100 AND $300 MILLION
JULY 24, 1997 THROUGH JULY 24, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DATE DATE
EFFECTIVE ANNOUNCED TARGET NAME TARGET BUSINESS DESCRIPTION
- --------- ---------- ------------------------------ ------------------------------
<S> <C> <C> <C>
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
<CAPTION>
DATE DATE ACQUIROR SHORT
EFFECTIVE ANNOUNCED ACQUIROR NAME BUSINESS DESCRIPTION
- --------- ---------- ----------------------------- -----------------------------
<S> <C> <C> <C>
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
<CAPTION>
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
- --------- --------- ----------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 91
PROJECT GOLDCAP
PREMIUMS ANALYSIS: MERGERS AND ACQUISITIONS BETWEEN $100 AND $300 MILLION
JULY 24, 1997 THROUGH JULY 24, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
DATE DATE
EFFECTIVE ANNOUNCED TARGET NAME TARGET BUSINESS DESCRIPTION
- ----------- --------- ------------------------------ -----------------------------------
<S> <C> <C> <C>
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
<CAPTION>
DATE DATE ACQUIROR SHORT
EFFECTIVE ANNOUNCED ACQUIROR NAME BUSINESS DESCRIPTION
- ------------ --------- -------------------------------- -------------------------------
<S> <C> <C> <C>
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
<CAPTION>
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
- --------- --------- ----------- ------------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 92
PROJECT GOLDCAP
PREMIUMS ANALYSIS: MERGERS AND ACQUISITIONS BETWEEN $100 AND $300 MILLION
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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]
--------------------- ----------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- -------------------------------------------------
[1] Assumes announcement after the market close on July 27, 1998.
[2] Assumes 10,112,629 Goldcap shares outstanding.
<PAGE> 93
PROJECT GOLDCAP
PROJECTED CASH FLOWS - CONSOLIDATED COMPANY
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dec. Dec. Dec. Dec. Dec. Dec. Terminal
PROJECTIONS USED IN VALUATION: 1998 1999 (1) 2000 (1) 2001 (1) 2002 (1) 2003 (2) Value
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Discount Rate (WACC) Present Value of Cash Flows
--------------------------------------------------------------------------------
<S> <C>
11.00% $76,179
12.00% $74,172
13.00% $72,247
14.00% $70,398
15.00% $68,623
16.00% $66,917
--------------------------------------------------------------------------------
</TABLE>
(1) Projections provided by the Company as of July 10, 1998.
(2) Depreciation excludes transaction cost amortization.
<PAGE> 94
PROJECT GOLDCAP
EBIT MULTIPLE METHODOLOGY FOR DISCOUNTED CASH FLOW ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------
SUMMARY:
- --------------------------------------------
<S> <C>
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
- --------------------------------------------
</TABLE>
(1) As of June 30, 1998. Includes present value of remaining DentLease funding
obligation and preferred stock purchase obligation.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted Average Cost of Capital (WACC) 11.00% 12.00% 13.00% 14.00% 15.00% 16.00%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 95
The Robinson-Humphrey Company, LLC
Project Goldcap
EBITDA Multiple Methodology
(Dollars in Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------
SUMMARY:
- --------------------------------------------
<S> <C>
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
- --------------------------------------------
</TABLE>
(1) As of June 30, 1998. Includes present value of remaining DentLease funding
obligation and preferred stock purchase obligation.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Average Cost of Capital (WACC) 11.00% 12.00% 13.00% 14.00% 15.00% 16.00%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 96
PROJECT GOLDCAP
BALANCE SHEET ASSUMPTIONS
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dec. Dec. Dec. Dec. Dec. Dec. Dec.
BALANCE SHEET DATA [1] 1997 1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
(1) Projections provided by the Company as of July 10, 1998.
<PAGE> 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
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------------------------------------------------- --------
<S> <C>
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
</TABLE>
<PAGE> 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
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SOURCES OF ACQUISITION FUNDS: APPLICATIONS OF ACQUISITION FUNDS:
<S> <C> <C> <C> <C>
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
========== ==========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Projected Years Ending December 31,
----------------------------------------------------------------------------
1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT ITEMS:
<S> <C> <C> <C> <C> <C>
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
============================================================================
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
BALANCE SHEET ITEMS: 1998
----
<S> <C> <C> <C> <C> <C> <C>
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
==========================================================================================
</TABLE>
<PAGE> 99
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
FORECASTING ASSUMPTIONS
<TABLE>
<CAPTION>
Proj. Projected Years Ending December 31,
------------------------------------------------------------
INCOME STATEMENT 1998 1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Actual Projected Years Ending December 31,
-----------------------------------------------------------------
BALANCE SHEET 1998 1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 100
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Projected Years Ending December 31,
Actual Proj. --------------------------------------------------------------
INCOME STATEMENT 1997 1998 1999 2000 2001 2002 2003
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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)%
</TABLE>
<PAGE> 101
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Projected Years Ending December 31,
--------------------------------------------------------------
CASH FLOW STATEMENT 1999 2000 2001 2002 2003
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
==============================================================
</TABLE>
<PAGE> 102
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Projected Years Ending December 31,
Pro Forma ----------------------------------------------------------------
BALANCE SHEET 1998 1999 2000 2001 2002 2003
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
==============================================================================
</TABLE>
<PAGE> 103
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Proj. Goodwill Acquisition Pro Forma Valuation Pro Forma
BALANCE SHEET ADJUSTMENTS 1998 Write-Down Adjustments Acquisition Adjustments Close
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
=============================================================================
</TABLE>
<PAGE> 104
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Projected Years Ending December 31,
-----------------------------------------------------------------------
COVERAGE RATIOS & FINANCIAL ANALYSIS 1999 2000 2001 2002 2003
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 105
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
RETURN ANALYSIS--TERMINAL VALUE BASED ON AN EBITDA MULTIPLE OF 7.00X.
<TABLE>
<CAPTION>
% of Current
CAPITAL STRUCTURE Cap'n Return
----- -------
<S> <C> <C> <C> <C>
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%
- -------------------------------------------------------------------------------
<CAPTION>
PURCHASE MULTIPLE ANALYSIS
------------------------------------------
Firm Value
Purchase Price Analysis: Year EBITDA Multiple
------------------------------------------
<S> <C> <C> <C> <C>
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
<CAPTION>
TERMINAL VALUE CALCULATION
AT END OF:
---------------------------------------------------------------------
Firm Value Multiple: 7.00 x 1999 2000 2001 2002 2003
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIVE YEAR RETURNS
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 IRR
Equity % Cash Out Cash In Cash In Cash In Cash In Cash In %
----------------------------------------------------------------------------------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
-------
</TABLE>
<PAGE> 106
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
RETURN ANALYSIS--TERMINAL VALUE BASED ON AN EBITDA MULTIPLE OF 8.00X.
<TABLE>
<CAPTION>
% of Current
CAPITAL STRUCTURE Cap'n Return
----- ------
<S> <C> <C> <C> <C>
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%
- ----------------------------------------------------------------------------
</TABLE>
PURCHASE MULTIPLE ANALYSIS
<TABLE>
<CAPTION>
Firm Value
Purchase Price Analysis: Year EBITDA Multiple
---------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
TERMINAL VALUE CALCULATION
<TABLE>
<CAPTION>
AT END OF:
------------------------------------------------------------------------
Firm Value Multiple: 8.x0 1999 2000 2001 2002 2003
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIVE YEAR RETURNS
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 IRR
Equity % Cash Out Cash In Cash In Cash In Cash In Cash In %
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 107
PROJECT GOLDCAP
GOING PRIVATE ANALYSIS - RECAPITALIZATION ACCOUNTING
(DOLLARS IN THOUSANDS)
RETURN ANALYSIS--TERMINAL VALUE BASED ON AN EBITDA MULTIPLE OF 9.00X.
<TABLE>
<CAPTION>
% of Current
CAPITAL STRUCTURE Cap'n Return
----- ------
<S> <C> <C> <C>
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%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PURCHASE MULTIPLE ANALYSIS
---------------------------------------
Firm Value
Purchase Price Analysis: Year EBITDA Multiple
---------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
TERMINAL VALUE CALCULATION
<TABLE>
<CAPTION>
AT END OF:
----------------------------------------------------------------------
Firm Value Multiple: 9.00 x 1999 2000 2001 2002 2003
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 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:
<TABLE>
<S> <C>
[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
</TABLE>
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:
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
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
</TABLE>
iv
<PAGE> 8
<TABLE>
<S> <C>
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
</TABLE>
v
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
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
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
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)
------------- ------------ ------- -------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
(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
<PAGE> 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.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED YEAR ENDED ENDED
DEC. 31, 1996 DEC. 31, 1997 JUNE 30, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Ratio of earnings to fixed charges:(1)................. 6.1:1 --(2) 3.3:1
Book value per share................................... $11.02 $5.97 $6.42
</TABLE>
- ---------------
(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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
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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
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<PAGE> 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."
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
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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
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<PAGE> 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
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<PAGE> 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
<PAGE> 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.
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<PAGE> 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.
<TABLE>
<CAPTION>
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
- ------------------------ ------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
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..........
</TABLE>
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
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<PAGE> 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.
<TABLE>
<CAPTION>
AMOUNT OF CASH TO
SHARES NOT BE RECEIVED FOR
INVESTOR GROUP MEMBER EXCHANGED SHARES EXCHANGED
- --------------------- ---------- -----------------
<S> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
TOTAL AMOUNT OF
SHARES CASH TO BE RECEIVED
UNDERLYING UPON CONSUMMATION
INVESTOR GROUP MEMBER STOCK OPTIONS OF THE MERGER
- --------------------- ------------- -------------------
<S> <C> <C>
</TABLE>
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
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<PAGE> 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
<PAGE> 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
<PAGE> 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
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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.
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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
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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.
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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.
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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,
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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
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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
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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:
<TABLE>
<S> <C>
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............................................. $
</TABLE>
- ---------------
(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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT AND NATURE COMMON
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP STOCK
------------------------ ----------------------- -------------
<S> <C> <C>
</TABLE>
40
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
NUMBER OF WHERE AND HOW
NAME DATE SHARES PURCHASED PRICE PER SHARE TRANSACTION EFFECTED
- ---- ----------------- ---------------- --------------- --------------------
<S> <C> <C> <C> <C>
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 56
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C> <C>
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
</TABLE>
(i)
<PAGE> 57
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
(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
</TABLE>
(ii)
<PAGE> 58
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
(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
</TABLE>
(iii)
<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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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
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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
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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").
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(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
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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.
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(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
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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.
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(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;
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(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
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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
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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
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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
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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.
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(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
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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.
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(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
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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
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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,
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(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
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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.
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(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).
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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
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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
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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
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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
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<PAGE> 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:
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<PAGE> 91
SCHEDULE 2.2(A)(III)
David Klock -- 100,000 shares
Phyllis Klock -- 100,000 shares
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SCHEDULE 2.2(A)(IV)
None
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<PAGE> 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
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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
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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.
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(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.
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(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
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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.
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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.
