UNITED DENTAL CARE INC /DE/, S-1/A, 1996-10-01

UNITED DENTAL CARE INC /DE/
S-1/A, 1996-10-01
HOSPITAL & MEDICAL SERVICE PLANS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1996

REGISTRATION NO. 333-12425

================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------

AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
UNITED DENTAL CARE, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 6324 75-2309712
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
14755 PRESTON ROAD, SUITE 300 WILLIAM H. WILCOX
DALLAS, TEXAS 75240 PRESIDENT AND CHIEF EXECUTIVE OFFICER
(972) 458-7474 14755 PRESTON ROAD, SUITE 300
(Address, including zip code, and telephone DALLAS, TEXAS 75240
number, including area code, of registrant's (972) 458-7474
principal executive offices) (Name, address, including zip code, and
telephone number, including area code, of
agent for service)
</TABLE>

---------------------
Copies to:

<TABLE>
<S> <C>
DAVID K. MEYERCORD, ESQ. TERRY M. SCHPOK, P.C.
PATRICK OWENS, ESQ. DREW F. NACHOWIAK, ESQ.
STRASBURGER & PRICE, L.L.P. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
901 MAIN STREET, SUITE 4300 1700 PACIFIC AVENUE, SUITE 4100
DALLAS, TEXAS 75202 DALLAS, TEXAS 75201
(214) 651-4300 (214) 969-2800
</TABLE>

---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
==================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(1)(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.10 par value...... 2,300,000 $37.625 $86,537,500 $29,841
==================================================================================================
</TABLE>

(1) Includes up to 300,000 shares that the Underwriters may purchase to cover
over-allotments, if any.

(2) Estimated solely for the purpose of computing the amount of the registration
fee in accordance with Rule 457(c) under the Securities Act of 1933, as
amended, based on the average of the high and low sales prices of the
Common Stock on September 13, 1996, as reported on the Nasdaq National
Market.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2

***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************

SUBJECT TO COMPLETION

OCTOBER 1, 1996

2,000,000 SHARES

[UNITED DENTAL CARE LOGO]
COMMON STOCK
------------------
All of the 2,000,000 shares of Common Stock offered hereby are being sold by
United Dental Care, Inc. ("UDC" or the "Company"). The Company's Common Stock is
quoted on the Nasdaq National Market (the "Nasdaq National Market") under the
symbol "UDCI." On September 13, 1996, the last reported sale price of the
Company's Common Stock was $37.50 per share.
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS," PAGE 6.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
================================================================================
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Per Share................. $ $ $
- --------------------------------------------------------------------------------
Total(2).................. $ $ $
================================================================================
</TABLE>

(1) Before deducting expenses of the offering estimated at $550,000 payable by
the Company.
(2) The Company and a stockholder of the Company have granted the Underwriters a
30-day option to purchase up to an additional 225,000 and 75,000 shares of
Common Stock, respectively, solely to cover over-allotments, if any. To the
extent that the option is exercised, the Underwriters will offer the
additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."

------------------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1996.

ALEX. BROWN & SONS
INCORPORATED
COWEN & COMPANY

VOLPE, WELTY & COMPANY

THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 3

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (including all amendments,
exhibits and schedules thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Common Stock offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus omits certain information contained in the
Registration Statement. For further information with respect to the Company and
the Common Stock offered hereby, reference is hereby made to the Registration
Statement. Statements contained in this Prospectus regarding the contents of any
agreement or other document filed as an exhibit to the Registration Statement
are not necessarily complete, and in each instance reference is made to the copy
of such agreement filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement may be inspected at the public reference facilities maintained by the
Commission as described below, and copies of all or any part thereof may be
obtained from such facilities upon payment of the prescribed fees.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the regional offices of the Commission at 500 West Madison
Street, Suite 1400, Chicago, IL 60661-2511 and Seven World Trade Center, Suite
1300, New York, NY 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 at prescribed rates. In addition, electronically filed
documents, including reports, proxy statements and other information filed by
the Company, can be obtained from the Commission's Web site at
http://www.sec.gov. The Common Stock of the Company is quoted on the Nasdaq
National Market. Reports, proxy statements and other information concerning the
Company can be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this
Prospectus, including, without limitation, statements under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" regarding the Company's financial position, business
strategy and plans and objectives of management of the Company for future
operations, are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Company's expectations are disclosed under "Risk Factors" and elsewhere in this
Prospectus, including, without limitation, in conjunction with the
forward-looking statements included in this Prospectus. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by this section.

------------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."

------------------

UNITED DENTAL CARE(R) IS A REGISTERED TRADEMARK OF UNITED DENTAL CARE, INC.

2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements. See
"Disclosure Regarding Forward-Looking Statements."

THE COMPANY

UDC is a managed dental benefits company that is licensed to operate
prepaid dental plans in 25 states and, as of June 30, 1996, provided dental
coverage to approximately 1,175,000 members. The Company offers a comprehensive
range of prepaid dental plans capable of meeting the needs of employer groups of
all sizes as well as individuals. UDC's dentist networks, as of June 30, 1996,
consisted of approximately 3,000 general dentists as well as specialist dentists
providing a broad range of dental services. The Company markets its services
through multiple distribution channels, including a direct sales force of over
70 persons, independent brokers and third-party arrangements with medical health
maintenance organizations ("HMOs"). The Company recently entered into agreements
to acquire five managed dental benefits companies and a multi-state dental
referral plan having approximately 500,000 members in the aggregate at June 30,
1996. See "Pending and Recent Acquisitions."

Managed dental benefits plans are usually offered as an alternative to
traditional dental indemnity insurance, although the Company has the capability
of offering dual choice plans that provide both prepaid and indemnity plans.
Industry sources report that prepaid dental plans are typically priced 20% or
more below comparable indemnity benefits based on 1992 indemnity-industry
statistical information. Prepaid dental plans are offered by employers to
employees frequently on a voluntary-participation basis with all or part of the
premium being paid by the employee. At the time of enrollment, participating
employees and dependents become members of the prepaid dental plan and, under
most of the Company's plans, each member is entitled to select his or her own
dentist from the dentist network. The Company pays the network dentist a fixed
monthly amount, or capitation payment, for each member who selected that
dentist, regardless of the services rendered in any particular month. In
addition, the dentist is paid a separate fee, or copayment, by the member at the
time of service for many of the dental services covered under the plan. Under
the prepaid dental plans of the Company, virtually all covered dental services
are provided through these capitation arrangements, in which the Company bears
little financial risk for either utilization levels or cost of services.

Based on data compiled by the U.S. Office of National Health Statistics,
total expenditures for dental care in the United States grew from approximately
$14.4 billion in 1980 to approximately $43.2 billion in 1993. The number of
people with dental benefits was estimated by the National Association of Dental
Plans to be approximately 125 million in 1995, of which approximately 16% were
covered under a prepaid dental plan. Prepaid dental plans have reportedly grown
from approximately 10.4 million covered members in 1991 to an estimated 19.5
million in 1995, an annual compounded growth rate of approximately 17.0%. The
Company believes the relatively high growth rate for prepaid dental plans is
attributable to: (i) the greater acceptance of managed care by employers and
employees; (ii) the significant price advantage of prepaid dental plans relative
to indemnity plans; (iii) the cost effectiveness to employers of prepaid dental
plans as an employee benefit; and (iv) the growing acceptance of capitated
dental plans by dentists, resulting in improved accessibility and convenience
for members. The Company believes there will continue to be significant growth
for the managed dental benefits industry.

The Company's objective is to be the leading managed dental benefits
company in the United States by both increasing its market share in its current
markets and selectively entering new markets. The Company believes this
objective can be achieved by: (i) offering a full range of prepaid dental plan
benefits designed to meet the needs of small and large employers as well as
individuals; (ii) ensuring quality dental care through a locally managed network
of private practice dentists; (iii) utilizing multiple distribution channels to
access single-market and multi-state employer groups and members of third-party
HMOs; (iv) providing high levels of customer service through local service
representatives and regional customer service centers; and (v) acquiring other
managed dental benefits companies.

3
<PAGE> 5

Unless the context otherwise requires, references in this Prospectus to
"UDC" or the "Company" refer to United Dental Care, Inc. and its subsidiaries.
The Company's executive offices are located at 14755 Preston Road, Suite 300,
Dallas, Texas 75240, and its telephone number is (972) 458-7474.

PENDING AND RECENT ACQUISITIONS

The Company recently entered into definitive agreements to acquire five
managed dental benefits companies operating prepaid dental plans in New Jersey,
Florida, Oklahoma, Missouri, Kansas and Michigan having approximately 440,000
members in the aggregate at June 30, 1996. In addition, the Company recently
entered into a definitive agreement to acquire a company operating a multi-state
dental referral plan having approximately 60,000 members at June 30, 1996. The
companies to be acquired had combined revenues of approximately $35.9 million
for the year ended December 31, 1995 and $21.3 million for the six months ended
June 30, 1996. Upon completion of the acquisitions, the Company will be licensed
to operate prepaid dental plans in four additional states and will be licensed
to operate an indemnity plan in one additional state. The acquisitions are
subject to various conditions, including receipt of regulatory approvals. There
can be no assurance as to whether or when such acquisitions will be completed.
The proposed acquisitions are referred to in this Prospectus as the "Pending
Acquisitions."

Effective February 1, 1996, the Company acquired Associated Health Plans,
Inc., a managed dental benefits company that operated prepaid dental plans in
Arizona having approximately 220,000 members at the time of the acquisition, and
an affiliated management company (collectively, "AHP"). Effective November 1,
1995, the Company acquired U.S. Dental Management, Inc. ("US Dental"), a managed
dental benefits company that operated prepaid dental plans in Arizona, New
Mexico, Nebraska and Colorado having approximately 163,000 members at the time
of the acquisition and that administered a prepaid dental plan owned by a third
party in Nevada. See "Pending and Recent Acquisitions."

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company................... 2,000,000 shares
Common Stock to be outstanding after the offering..... 8,908,416 shares(1)
Use of proceeds....................................... To fund the Pending Acquisitions, to
pay existing indebtedness and for
general corporate purposes, including
working capital. See "Use of
Proceeds."
Nasdaq National Market symbol......................... UDCI
</TABLE>

- ---------------

(1) Excludes 617,000 shares of Common Stock issuable upon the exercise of stock
options outstanding at June 30, 1996 at a weighted average exercise price of
$22.42 per share. Also excludes 40,000 shares of Common Stock issuable upon
the exercise of warrants outstanding at June 30, 1996 at a purchase price of
$6.00 per share. A total of 48,000 of these stock options and warrants are
exercisable at the date of this Prospectus. See "Management -- Stock Option
Plans" and "Certain Transactions."

Except as otherwise specified, all information in this Prospectus assumes
no exercise of the Underwriters' over-allotment option. See "Underwriting."
Except as otherwise noted, (i) information in this Prospectus regarding the
Company reflects a two-for-one stock split effected in the form of a stock
dividend on July 17, 1995, (ii) information in this Prospectus regarding the
Company and its subsidiaries excludes information regarding the companies to be
acquired in the Pending Acquisitions and (iii) pro forma information in this
Prospectus (other than pro forma membership data) does not include financial
information regarding Independent Dental Plan, Inc. ("Independent"), a company
to be acquired in the Pending Acquisitions. See "Pending and Recent
Acquisitions."

4
<PAGE> 6

SUMMARY CONSOLIDATED FINANCIAL AND STATISTICAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)

<TABLE>
<CAPTION>
PRO FORMA
FOR THE PRO FORMA AS PRO FORMA AS
US DENTAL ADJUSTED FOR ADJUSTED FOR
AND AHP THE PENDING THE PENDING
ACQUISITIONS ACQUISITIONS SIX MONTHS ENDED ACQUISITIONS
YEAR ENDED DECEMBER 31, YEAR ENDED YEAR ENDED JUNE 30, SIX MONTHS
--------------------------- DECEMBER 31, DECEMBER 31, ----------------- ENDED JUNE
1993 1994 1995(1) 1995(2) 1995(3) 1995 1996(4) 30, 1996(5)
------- ------- ------- ------------ ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Managed benefits............... $16,805 $31,607 $61,352 $ 86,606 $ 115,133 $29,175 $43,118 $ 64,157
Indemnity...................... -- 5,514 16,622 16,622 22,093 8,459 7,422 7,600
Interest income and other
revenue...................... 173 254 1,255 1,462 1,714 393 585 869
------- ------- ------- -------- -------- ------- ------- -------
Total revenues............... 16,978 37,375 79,229 104,690 138,940 38,027 51,125 72,626
Income before Federal income
taxes, cumulative effect of a
change in accounting
principle and extraordinary
charge....................... 2,879 3,352 5,862 8,391 9,991 2,051 4,828 6,598
Net income applicable to common
stock........................ 1,863 2,096 3,589 5,137 5,789 1,251 3,056 3,930
Net income per common share.... $ 0.40 $ 0.44 $ 0.66 $ 0.94 $ 0.78 $ 0.26 $ 0.42 $ 0.43
Weighted average common shares
outstanding.................. 4,662 4,717 5,449 5,449 7,449 4,740 7,222 9,222
STATISTICAL DATA:
Members (in thousands):
Managed benefits............. 214 642 855 1,075 1,515 675 1,095 1,535
Indemnity.................... -- 95 76 76 76 93 76 76
Dental referral.............. -- 4 6 6 66 4 4 64
Total.................... 214 741 937 1,157 1,657 772 1,175 1,675
Number of network general
dentists....................... 545 2,530 2,872 2,485 3,000
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------------
PRO FORMA
AS ADJUSTED
FOR THE
PENDING
ACTUAL(4) AS ADJUSTED(6) ACQUISITIONS(7)
--------- -------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $ 18,449 $ 85,176 $ 30,226
Total assets........................................................ 76,142 141,891 145,825
Total debt.......................................................... 4,576 -- --
Stockholders' equity................................................ 64,671 134,996 134,996
</TABLE>

- ---------------

(1) Included in the historical consolidated statement of operations of the
Company for the year ended December 31, 1995 are the results of operations
of US Dental after October 31, 1995. See "Pending and Recent
Acquisitions -- Recent Acquisitions" and the Company's Consolidated
Financial Statements and the Notes thereto.
(2) Pro forma to give effect to: (i) the US Dental and AHP acquisitions; and
(ii) the Company's initial public offering that occurred in September 1995,
as if all of such transactions had occurred at January 1, 1995. See "Pending
and Recent Acquisitions -- Recent Acquisitions," "Financial Statements -- US
Dental and AHP" and "Unaudited Pro Forma Condensed Consolidated Financial
Statements."
(3) Adjusted to give effect to: (i) the US Dental and AHP acquisitions; (ii) the
Company's initial public offering that occurred in September 1995; (iii) the
issuance of the 2,000,000 shares of Common Stock offered by the Company
hereby at an assumed offering price of $37.50 per share and the payment of
existing indebtedness; and (iv) the completion of the Pending Acquisitions,
as if all of such transactions had occurred at January 1, 1995. See "Use of
Proceeds," "Pending and Recent Acquisitions," "Financial Statements -- US
Dental and AHP," "Financial Statements -- OraCare, UICI and KCDC" and
"Unaudited Pro Forma Condensed Combined Financial Statements."
(4) Included in the historical consolidated statement of operations of the
Company for the six months ended June 30, 1996 are the results of operations
of AHP after January 31, 1996. The June 30, 1996 historical consolidated
balance sheet of the Company includes AHP. See "Pending and Recent
Acquisitions -- Recent Acquisitions" and the Company's Consolidated
Financial Statements and the Notes thereto.
(5) Adjusted to give effect to: (i) the AHP acquisition; (ii) the issuance of
the 2,000,000 shares of Common Stock offered by the Company hereby at an
assumed offering price of $37.50 per share and the payment of existing
indebtedness; and (iii) the completion of the Pending Acquisitions, as if
all of such transactions had occurred at January 1, 1995. See "Use of
Proceeds," "Pending and Recent Acquisitions," "Financial Statements -- AHP,"
"Financial Statements -- OraCare, UICI and KCDC" and "Unaudited Pro Forma
Condensed Combined Financial Statements."
(6) Adjusted to give effect to the issuance of the 2,000,000 shares of Common
Stock offered by the Company hereby at an assumed offering price of $37.50
per share and the payment of existing indebtedness, as if such transactions
had occurred at June 30, 1996.
(7) Adjusted to give effect to: (i) the issuance of the 2,000,000 shares of
Common Stock offered by the Company hereby at an assumed offering price of
$37.50 per share and the payment of existing indebtedness; and (ii) the
completion of the Pending Acquisitions, as if all of such transactions had
occurred at June 30, 1996. See "Use of Proceeds," "Pending and Recent
Acquisitions," "Financial Statements -- OraCare, UICI and KCDC" and
"Unaudited Pro Forma Condensed Combined Financial Statements."

5
<PAGE> 7

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered by this Prospectus. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this Prospectus. See
"Disclosure Regarding Forward-Looking Statements."

Pending and Future Acquisitions. The Company's growth strategy is dependent
in part upon the Company's ability to pursue and complete strategic acquisition
opportunities as they arise. The necessity for regulatory approvals prior to an
acquisition as well as the substantial amount of time and effort required to
evaluate and negotiate a proposed acquisition may result in substantial
uncertainty as to whether a proposed acquisition will be successfully
consummated. In addition, even after an acquisition is consummated, no assurance
can be given that management will be able to successfully and efficiently
integrate and operate the acquired business or that unforeseen problems will not
arise requiring financial commitments or management efforts not contemplated in
connection with such acquisition. The Pending Acquisitions are subject to
receipt of regulatory approvals and other conditions that may not occur or that
may occur only if the terms of the acquisition vary from the terms described
herein. No assurance can be given that the Company will be able to successfully
implement its growth strategy through acquisitions, or that any acquisition,
including the Pending Acquisitions, will be consummated and successfully
integrated into the Company's operations. Any delay or failure to successfully
assimilate such acquisitions could result in cash expenditures and increased
demands on management's time and could have a material adverse effect on the
Company's business, financial condition and results of operations and on the
price of the Common Stock. One of the Pending Acquisitions involves a dental
practice management company which manages dental clinics operated by a licensed
dentist. The laws of the state in which the dental clinics are located prohibit
dentists from sharing fees with non-dentists and prohibits non-dentist entities
from practicing dentistry. Although the Company believes the operations of the
dental practice company are and will be in material compliance with existing
applicable laws, the structure of the management relationship between the
Company and the dentist has not been the subject of any state regulatory
interpretations. In addition, the Company has not previously engaged in the
dental practice management business. See "Business -- Business Strategy" and
"Pending and Recent Acquisitions."

Regulation. State insurance laws and other governmental regulations
establish various licensing, operational, financial and other requirements
relating to the prepaid dental plan business. State insurance departments and
other regulatory agencies are typically empowered to interpret such laws and
promulgate regulations applicable to the prepaid dental plan business. The laws
and regulations relating to the health care industry in general, and prepaid
dental plans specifically, are rapidly developing and have been the subject of
numerous past and present proposals which, if adopted, could adversely affect
the Company's business. Such proposals have included proposals that would
require the Company to admit "any willing provider" to its dental networks,
create mandatory minimum capitation payments to dental providers and specify
minimum loss ratios or mandate schedules of benefits. In addition, the Company's
insurance company subsidiary is subject to numerous laws and regulations
applicable to insurance companies generally. The Company is unable to predict
the extent to which changes to existing laws and regulations will be adopted or
the effect that any such changes may have on the Company's business. The
Company's ability to conduct its business in additional states is subject to
regulatory approvals required in connection with either acquisitions of existing
dental plan businesses or the application of the Company to conduct its existing
business in additional states. Approvals to acquire another licensed prepaid
dental plan business often require six months or longer to obtain, while
licenses and approvals necessary to commence operations of the Company's
existing business in an additional state can require two years or longer to
obtain. In addition, no assurance can be given that the Company's applications
for any such licenses or approvals will be granted. In the event any such
licenses or approvals are not granted, the Company's plans to expand in
additional states would be adversely affected. See "Business -- Business
Strategy" and "-- Government Regulation."

Medicare/Medicaid Programs. The Company contracts with certain medical HMOs
that provide health services to members under the Medicare or Medicaid programs
administered by certain state agencies. The

6
<PAGE> 8

Company provides the dental benefits coverage under such plans of the medical
HMOs. The medical HMOs receive reimbursement under either the Medicare or
Medicaid programs for the benefits provided. As a result, the availability of
such reimbursement or decreases in the level of reimbursement or changes in
regulatory requirements could have a significant impact on the decisions of the
medical HMOs to continue to offer dental benefits. In addition, in the event
that the contracts between such medical HMOs and the state agencies are
terminated or not renewed, such termination or nonrenewal would also terminate
the Company's contract with such medical HMO as a provider for dental benefits.
The membership of one of the Pending Acquisitions consists primarily of Medicaid
members of medical HMOs. See "Business -- Government Regulation."

Competition. The Company competes not only with other companies offering
prepaid dental plans similar to those offered by the Company, but also with
numerous other types of businesses in the health care industry, such as
insurance companies offering both prepaid dental plans and indemnity insurance,
medical HMOs offering dental benefit plans, self-funded employer plans,
preferred provider organizations ("PPOs") and dental referral plans. The Company
believes that the competition from all of such sources will continue to increase
in the future and that insurance companies and HMOs in particular will continue
to seek to enter the managed dental benefits business and expand their dental
care markets. Many of the Company's competitors are better known to the public
and have substantially greater financial and other resources than those of the
Company. Price considerations have been a significant competitive factor in the
past and the Company believes pricing will continue to be a significant
competitive factor in the future, especially with respect to contracts awarded
on the basis of competitive bidding. No assurance can be given that the Company
will be able to compete effectively in the future. See
"Business -- Competition."

Dentist Relationships. The Company's business strategy is dependent to a
large extent upon the Company's continued maintenance of a large network of
quality general and specialty dentists in each of the Company's markets.
Generally, the Company and network dentists enter into nonexclusive contracts
that can be terminated by either party with limited notice (generally 90 days).
Primarily for such reasons, the Company did not allocate for financial statement
purposes any portion of the consideration paid in the acquisitions of US Dental
and AHP to the dentist networks of the acquired companies. The Company's
business may be adversely affected if the Company is unable to establish and
maintain contracts with an adequate number of dentists in any market. See
"Business -- Dentist Networks" and "Pending and Recent
Acquisitions -- Acquisition Accounting Principles."

Specialty Care and Indemnity Benefits. Under many of the prepaid dental
plans offered by the Company, specialist dental care by specialist dentists is
made available to members. Specialist dentists are reimbursed by the Company on
a discounted, fee-for-service basis and are not reimbursed on a capitated basis.
Accordingly, the Company retains the risk for the payment of specialist care
benefits in such situations. In the event that the utilization of specialist
care benefits increases under the outstanding plans of the Company, it could
substantially adversely affect the profitability of the Company. With the
acquisition of United Dental Care Insurance Company ("UDCIC") as part of the
acquisition of International Dental Health, Inc. ("IDH") in 1994, the Company
for the first time became involved in the operation of an indemnity insurance
carrier subject to underwriting risk. The Company's present strategy regarding
UDCIC is, in situations where the employer declines to use the Company's dual
choice products, to primarily offer its indemnity policy to employer groups with
greater than 250 employees. To the extent additional members select the UDCIC
indemnity policy, UDCIC would become subject to additional underwriting risk.
One of the Pending Acquisitions involves the acquisition of another indemnity
insurance company through which a prepaid dental plan is operated in one state.
Capital requirements applicable to insurers such as UDCIC may require capital
contributions in the future to the extent earnings from operations are
insufficient to satisfy these requirements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

Arizona Regulatory Issues. On May 24, 1996, the Arizona Department of
Insurance filed a Notice of Administrative Hearing against the Company alleging
that the Company consummated its acquisition of AHP in January 1996 without
complying with the requirements of the Arizona Insurance Holding Company Act
(the "Act"). AHP is licensed in Arizona as a prepaid dental plan organization.
The Company did not make a filing under the Act because the Company's
interpretation is that the Act does not apply to AHP since AHP is

7
<PAGE> 9

not an "insurer" as defined by and subject to the Act. Pursuant to the notice,
the Arizona Department of Insurance seeks a fine of up to $50,000 against the
Company, a fine of up to $10,000 against an officer of the Company, and an order
directing compliance with the Act in connection with the AHP acquisition. The
Arizona Department of Insurance has broad powers to seek other remedies,
including injunctive relief and license revocation. There can be no assurance as
to what relief may ultimately be sought or obtained by the Arizona Department of
Insurance. The Company has filed an answer denying the allegations. A final
determination against the Company could have a material adverse effect on the
Company. See "Business -- Legal Proceedings."

Anti-takeover Effect of Regulatory and Charter Provisions. State insurance
laws applicable to the Company typically require regulatory approval for any
proposed change of control of the Company. Generally, a change of control would
be deemed to result if anyone acquired 10% or more of the outstanding voting
stock of the Company, although regulatory authorities generally have discretion
to determine whether a change of control in a particular case would occur
whether or not 10% of the voting stock of the Company is acquired. Therefore, no
one can acquire beneficial ownership of 10% or more of the outstanding Common
Stock of the Company, whether pursuant to this offering, open market purchases
or otherwise, without obtaining prior regulatory approval. Such regulatory
approval requirement could also apply to the solicitation of proxies to vote 10%
or more of the outstanding Common Stock and therefore could impair the ability
of a stockholder to conduct a proxy contest. The Company could seek a regulatory
hearing with respect to any stockholder proposal to acquire beneficial ownership
or proxies for 10% or more of the Company's Common Stock, and any stockholder
that fails to obtain regulatory approval in such circumstances may be subject to
regulatory sanctions including the possibility of a divestiture order. In
addition, failure to comply with such regulatory requirements could result in
adverse consequences to the Company. Certain provisions of the Company's
Certificate of Incorporation and Bylaws, certain sections of the Delaware
General Corporation Law, and the ability of the Board of Directors to issue
shares of Preferred Stock and to establish the voting rights, preferences and
other terms thereof without further action by the stockholders, may be deemed to
have an anti-takeover effect and may discourage takeover attempts not first
approved by the Board of Directors and also could delay or frustrate the removal
of incumbent directors, even if such takeover or removal would be beneficial to
stockholders. These provisions also could discourage or make more difficult a
merger, tender offer or proxy contest, even if such events would be beneficial
to the interests of stockholders. The Delaware General Corporation Law imposes
restrictions upon certain acquirors (including their affiliates and associates)
of 15% or more of the Company's Common Stock. See "Business -- Government
Regulation," "Description of Capital Stock -- Certain Provisions of Certificate
of Incorporation and Bylaws" and "-- Business Combinations."

Possible Control by Existing Stockholders. Upon consummation of this
offering, the Company's executive officers and directors will, in the aggregate,
beneficially own approximately 21.3% of the then outstanding Common Stock
(approximately 20.0% if the Underwriters' over-allotment option is exercised in
full). As a result, these stockholders, acting together, will be able to
influence significantly and possibly control most matters requiring approval by
the stockholders of the Company, including the election of directors. Such a
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company, including transactions in which stockholders
might otherwise receive a premium for their shares over then current market
prices. See "Management," "Principal Stockholders" and "Description of Capital
Stock."

Dividends. The Company has never paid cash dividends on its Common Stock.
The Company currently intends to retain earnings to finance the growth and
development of its business and does not anticipate paying cash dividends in the
foreseeable future. In addition, future bank borrowings may limit the ability of
the Company to pay, or may prohibit the payment of, cash dividends. Applicable
regulatory requirements may also restrict the ability of certain operating
subsidiaries of the Company to pay dividends. See "Dividend Policy,"
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Credit Facilities," and "Business -- Governmental
Regulation."

Risks Associated with Intangible Assets. At June 30, 1996, approximately
$41.7 million, or 55.0%, of the Company's total assets were intangible assets.
As adjusted for this offering, approximately 29.0% of the Company's total assets
at June 30, 1996 would have been intangible assets. Giving effect to the Pending

8
<PAGE> 10

Acquisitions as if such transactions occurred at June 30, 1996, approximately
$95.7 million, or 65.6%, of the Company's total assets (as adjusted for this
offering) would have been intangible assets. In the event of a sale or
liquidation of the Company, there could be no assurance that the value of such
intangible assets would be realized. In addition, any significant decrease in
the value of such intangible assets could have a material adverse effect on the
Company. See "Pending and Recent Acquisitions" and "Unaudited Pro Forma
Condensed Combined Financial Statements."

Possible Volatility of Stock Price. The stock market has experienced
significant price and volume fluctuations that have affected the market price
for many health care companies and that have often been unrelated to the
operating performance of such companies. The trading price of the Common Stock
may also be subject to significant fluctuations in response to variations in
quarterly operating results, the gain or loss of significant contracts, changes
in management, future announcements concerning the Company, legislative or
regulatory changes, general trends in the industry and other events or factors.
See "Business -- Competition," "-- Government Regulation" and "Underwriting."

9
<PAGE> 11

USE OF PROCEEDS

The net proceeds from the sale of the 2,000,000 shares of Common Stock
offered by the Company hereby are estimated to be $70.3 million, based upon an
assumed offering price of $37.50 per share (the last reported sale price of the
Common Stock on the Nasdaq National Market on September 13, 1996) and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company. The Company intends to use
approximately $58.5 million of such net proceeds to fund the Pending
Acquisitions and approximately $4.6 million to pay certain amounts owed under
agreements entered into in connection with the IDH, US Dental and AHP
acquisitions. The remaining net proceeds to the Company will be used for general
corporate purposes including future acquisitions and working capital. The
Company currently has no agreements or understandings relating to any
acquisitions other than the Pending Acquisitions. Until needed, the net proceeds
of this offering will be invested in short-term investment grade, interest
bearing obligations. See "Pending and Recent Acquisitions" and "Certain
Transactions."

Most of the Pending Acquisitions are anticipated to be completed after the
completion of this offering. However, none of the Pending Acquisitions are
subject to completion of this offering, and this offering is not subject to
completion of any of the Pending Acquisitions. The Company has secured a
commitment for a revolving line of credit in an amount up to $50 million with an
unaffiliated bank to finance, together with the available cash of the Company,
the Pending Acquisitions if they are consummated prior to completion of this
offering. If any of the Pending Acquisitions are consummated prior to the
completion of this offering, the Company would utilize such line of credit to
fund such acquisitions. In that event, the loan would be repaid in full out of
the net proceeds of this offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Credit Facilities" and "Pending
and Recent Acquisitions."

10
<PAGE> 12

PRICE RANGE OF COMMON STOCK

The Common Stock of the Company has been included for quotation in the
Nasdaq National Market under the symbol "UDCI" since the Company's initial
public offering of Common Stock on September 21, 1995. Prior to that time, there
was no public market for the Common Stock. The following tables set forth the
high and low closing prices for the Common Stock for the periods indicated as
reported by the Nasdaq National Market:

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1995:
Third Quarter (from September 22, 1995)................................ $30.00 $27.75
Fourth Quarter......................................................... 41.13 29.50
1996:
First Quarter.......................................................... $43.75 $34.25
Second Quarter......................................................... 44.25 37.25
Third Quarter (through September 13, 1996)............................. 45.75 32.75
</TABLE>

On September 13, 1996, the last reported sale price of the Common Stock was
$37.50 per share, and there were approximately 96 holders of record.

DIVIDEND POLICY

The Company has not paid or declared any cash dividends on its Common Stock
since its inception. The Company currently intends to retain all future earnings
for use in the expansion and operation of its business. In addition, future
borrowings may limit the Company's ability to pay cash dividends. It is
anticipated that the line of credit financing that may be used to finance the
Pending Acquisitions will contain a restriction on the payment of dividends. Any
payments of cash dividends in the future will depend upon the financial
condition, capital requirements and earnings of the Company, limitations on
dividend payments by subsidiaries of the Company under applicable state laws,
and such other factors as the Board of Directors may deem relevant. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "-- Credit Facilities" and
"Business -- Government Regulation."

11
<PAGE> 13

CAPITALIZATION

The following table sets forth the capitalization of the Company at June
30, 1996, and (i) as adjusted to give effect to the sale of the 2,000,000 shares
of Common Stock by the Company hereby at an assumed offering price of $37.50 per
share, after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company and (ii) as further adjusted to give
pro forma effect to the Pending Acquisitions. This table should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto and the Unaudited Pro Forma Condensed Combined Financial Statements and
Notes thereto that appear elsewhere in this Prospectus. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Pending and Recent
Acquisitions."

<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------
PRO FORMA
AS ADJUSTED
FOR THE
AS PENDING
ACTUAL ADJUSTED ACQUISITIONS
------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and short-term investments.............................. $20,345 $ 86,094 $ 33,125
======= ======= =======
Total long-term debt (including current maturities).......... 4,576 -- --
------- ------- -------
Stockholders' equity:
Preferred Stock, $.10 par value: 500,000 shares authorized;
no shares issued and outstanding........................ -- -- --
Common Stock, $.10 par value: 15,000,000 shares authorized;
6,908,416 shares issued and outstanding; 8,908,416
shares issued and outstanding as adjusted(1)............ 691 891 891
Additional paid-in capital................................. 52,100 122,225 122,225
Retained earnings.......................................... 11,880 11,880 11,880
------- ------- -------
Total stockholders' equity......................... 64,671 134,996 134,996
------- ------- -------
Total capitalization.......................... $69,247 $134,996 $134,996
======= ======= =======
</TABLE>

- ---------------

(1) Excludes 617,000 shares of Common Stock issuable upon the exercise of stock
options outstanding at June 30, 1996 at a weighted average exercise price of
$22.60 per share. Also excludes 40,000 shares of Common Stock issuable upon
the exercise of warrants outstanding at June 30, 1996 at a purchase price of
$6.00 per share. A total of 48,000 of these stock options and warrants are
exercisable at the date of this Prospectus. See "Management -- Stock Option
Plans" and "Certain Transactions."

12
<PAGE> 14

SELECTED FINANCIAL DATA

The selected financial data presented below for the Company for the years
ended December 31, 1993, 1994 and 1995, and at December 31, 1994 and 1995, are
derived from the audited consolidated financial statements of the Company
included elsewhere in this Prospectus. The selected financial data presented
below for the Company for the six months ended June 30, 1995 and 1996, and at
June 30, 1996, are derived from the unaudited consolidated financial statements
of the Company included elsewhere in this Prospectus. The selected financial
data presented below for the Company for each of the years ended December 31,
1991 and 1992, and at December 31, 1991, 1992 and 1993, are derived from the
audited consolidated financial statements of the Company not included herein.
The unaudited financial data includes all adjustments consisting of normal
recurring adjustments which are considered necessary for a fair presentation of
the financial position and results of operations of the Company for the periods
covered thereby. Results for interim periods are not necessarily indicative of
those to be expected for the year. This data is not necessarily indicative of
the Company's future performance. The selected financial data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the related Notes thereto included herein.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- ------------------
1991 1992 1993 1994 1995(1) 1995 1996(2)
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:....................
Revenues:
Managed benefits............................. $10,846 $13,854 $16,805 $31,607 $61,352 $29,175 $43,118
Indemnity.................................... -- -- -- 5,514 16,622 8,459 7,422
Interest income and other revenue............ 130 147 173 254 1,255 393 585
------- ------- ------- ------- ------- ------- -------
Total revenues........................... 10,976 14,001 16,978 37,375 79,229 38,027 51,125
Dental services expense:
Managed benefits............................. 4,692 5,934 7,283 15,559 33,068 15,775 25,127
Indemnity.................................... -- -- -- 4,567 13,682 7,035 5,547
------- ------- ------- ------- ------- ------- -------
Total dental services expense............ 4,692 5,934 7,283 20,126 46,750 22,810 30,674
------- ------- ------- ------- ------- ------- -------
Gross margin................................... 6,284 8,067 9,695 17,249 32,479 15,217 20,451
Sales and marketing............................ 2,105 2,445 3,025 5,756 9,637 5,012 5,726
General and administrative..................... 2,571 3,101 3,632 7,062 14,785 6,988 8,685
Depreciation and amortization.................. 157 324 159 541 1,190 557 1,003
Acquisition-related expenses................... -- -- -- 178 -- -- --
Interest expense............................... -- -- -- 360 1,005 609 209
------- ------- ------- ------- ------- ------- -------
Income before Federal income taxes and
cumulative effect of a change in accounting
principle and extraordinary charge........... 1,451 2,197 2,879 3,352 5,862 2,051 4,828
Provision for Federal income taxes............. 493 747 934 1,256 2,131 800 1,772
------- ------- ------- ------- ------- ------- -------
Income before cumulative effect of a change in
accounting principle and extraordinary
charge....................................... 958 1,450 1,945 2,096 3,731 1,251 3,056
Preferred stock dividends...................... 96 58 38 -- -- -- --
Cumulative effect of a change in accounting
principle.................................... -- -- 44 -- -- -- --
Extraordinary charge, net of tax............... -- -- -- -- 142 -- --
------- ------- ------- ------- ------- ------- -------
Net income applicable to common stock.......... $ 862 $ 1,392 $ 1,863 $ 2,096 $ 3,589 $ 1,251 $ 3,056
======= ======= ======= ======= ======= ======= =======
Net income per common share.................... $ 0.20 $ 0.30 $ 0.40 $ 0.44 $ 0.66 $ 0.26 $ 0.42
Weighted average common shares outstanding..... 4,410 4,575 4,662 4,717 5,449 4,740 7,222
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------ JUNE 30,
1991 1992 1993 1994 1995 1996
------ ------ ------ ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................ $2,241 $3,474 $3,907 $ 1,365 $30,892 $18,449
Total assets............................................... 3,927 5,485 7,283 31,404 86,588 76,142
Total debt including current portion....................... -- -- -- 14,558 15,182 4,576
Stockholders' equity....................................... 3,278 4,795 6,730 8,974 61,600 64,671
</TABLE>

- ---------------

(2) Included in the historical consolidated statement of operations of the
Company for the six months ended June 30, 1996 are the results of operations
of AHP after January 31, 1996. See "Pending and Recent
Acquisitions -- Recent Acquisitions" and the Company's Consolidated
Financial Statements and the Notes thereto.

13
<PAGE> 15

SELECTED UNAUDITED PRO FORMA CONDENSED
FINANCIAL INFORMATION

The selected unaudited pro forma condensed financial information set forth
below gives effect to: (i) the US Dental and AHP acquisitions; (ii) the sale of
the 2,000,000 shares of Common Stock offered by the Company hereby and the
application of the net proceeds therefrom as described in "Use of Proceeds;" and
(iii) the Pending Acquisitions, excluding the acquisition of Independent. The
historical and unaudited pro forma financial information set forth below has
been derived from, and is qualified by reference to, the consolidated financial
statements of the Company, US Dental, AHP and the companies to be acquired in
the Pending Acquisitions, except Independent, and the unaudited pro forma
financial statements included elsewhere in this Prospectus and should be read in
conjunction with those financial statements and the notes thereto.

The pro forma financial information set forth below reflects certain
adjustments, including, among others, to record the amortization of goodwill and
other intangible assets resulting from the US Dental, AHP and the Pending
Acquisitions, except Independent. The information set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the Unaudited Pro Forma Condensed Consolidated
Financial Statements and Unaudited Pro Forma Condensed Combined Financial
Statements and the related Notes thereto included elsewhere in this Prospectus.
The pro forma financial information set forth below does not purport to
represent what the results of operations or financial condition of the Company
would actually have been if this offering and the transactions reflected therein
had in fact occurred on such dates or to project the future consolidated results
of operations or financial condition of the Company:

FOR THE YEAR ENDED DECEMBER 31, 1995:

<TABLE>
<CAPTION>
PENDING
ACQUISITIONS
PRO FORMA FOR COMBINED PRO FORMA AS
THE US DENTAL WITH ADJUSTED FOR
UDC AND AHP PURCHASE THE PENDING
ACTUAL(1) ACQUISITIONS(2) ADJUSTMENTS ACQUISITIONS(3)
--------- --------------- ------------ ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Premiums earned and other revenues........................ $78,626 $ 104,034 $ 34,076 $ 138,110
Interest income........................................... 603 656 174 830
------- -------- -------- -------
Total revenues.......................................... 79,229 104,690 34,250 138,940
------- -------- -------- -------
Costs and expenses:
Dental services and claims expense........................ 46,750 65,049 19,177 84,226
Sales and marketing & general and administrative.......... 24,422 29,119 11,603 40,722
Depreciation and amortization............................. 1,190 2,131 1,870 4,001
Interest expense.......................................... 1,005 -- -- --
------- -------- -------- -------
Total costs and expenses............................ 73,367 96,299 32,650 128,949
------- -------- -------- -------
Income before Federal income taxes and extraordinary
charge.................................................... 5,862 8,391 1,600 9,991
Provision for Federal income taxes.......................... 2,131 3,254 948 4,202
------- -------- -------- -------
Net income before extraordinary charge...................... $ 3,731 $ 5,137 $ 652 $ 5,789
======= ======== ======== =======
Net income per common share before extraordinary charge..... $ 0.68 $ 0.94 $ -- $ 0.78
Weighted average number of common shares outstanding........ 5,449 5,449 -- 7,449
</TABLE>

14
<PAGE> 16

FOR THE SIX MONTHS ENDED JUNE 30, 1996:

<TABLE>
<CAPTION>
PRO FORMA
PRO PENDING AS ADJUSTED
UDC FORMA AS ACQUISITIONS FOR THE PENDING
ACTUAL(4) ADJUSTED(5) COMBINED ACQUISITIONS(6)
--------- ----------- ------------ ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Premiums earned and other revenues......................... $50,728 $ 51,904 $ 20,248 $ 72,152
Interest income............................................ 397 399 75 474
------- -------- -------- --------
Total revenues....................................... 51,125 52,303 20,323 72,626
------- -------- -------- --------
Costs and expenses:
Dental services and claims expense......................... 30,674 31,555 11,207 42,762
Sales and marketing & general and administrative........... 14,411 14,663 6,615 21,278
Depreciation and amortization.............................. 1,003 1,059 929 1,988
Interest expense........................................... 209 -- -- --
------- -------- -------- --------
Total costs and expenses............................. 46,297 47,277 18,751 66,028
------- -------- -------- --------
Income before Federal income taxes........................... 4,828 5,026 1,572 6,598
Provision for Federal income taxes........................... 1,772 1,850 818 2,668
------- -------- -------- --------
Net income applicable to common stock........................ $ 3,056 $ 3,176 $ 754 $ 3,930
------- -------- -------- --------
Net income per common share.................................. $ 0.42 $ 0.34 $ -- $ 0.43
Weighted average number of common shares outstanding......... 7,222 9,222 -- 9,222
As of June 30, 1996:
Total current assets......................................... $26,322 $ 92,071 $ 6,309 $ 41,055
Total assets................................................. 76,142 141,891 3,934 145,825
Total current liabilities.................................... 7,873 6,895 3,934 10,829
Total liabilities............................................ 11,471 6,895 3,934 10,829
Stockholders' equity......................................... 64,671 134,996 -- 134,996
</TABLE>

- ---------------

(2) Pro forma to give effect to: (i) the US Dental and AHP acquisitions; and
(ii) the Company's initial public offering that occurred in September 1995,
as if all of such transactions had occurred at January 1, 1995. See "Pending
and Recent Acquisitions -- Recent Acquisitions," "Financial Statements -- US
Dental and AHP" and "Unaudited Pro Forma Condensed Consolidated Financial
Statements."

(3) Adjusted to give effect to: (i) the US Dental and AHP acquisitions; (ii) the
Company's initial public offering that occurred in September 1995; (iii) the
issuance of the 2,000,000 shares of Common Stock offered by the Company
hereby at an assumed offering price of $37.50 per share and the payment of
existing indebtedness; and (iv) the completion of the Pending Acquisitions,
as if all of such transactions had occurred at January 1, 1995. See "Use of
Proceeds," "Pending and Recent Acquisitions," "Financial Statements -- US
Dental and AHP," "Financial Statements -- OraCare, UICI and KCDC" and
"Unaudited Pro Forma Condensed Combined Financial Statements."

(4) Included in the historical consolidated statement of operations of the
Company for the six months ended June 30, 1996 are the results of operations
of AHP after January 31, 1996. The June 30, 1996 historical consolidated
balance sheet of the Company includes AHP. See "Pending and Recent
Acquisitions -- Recent Acquisitions" and the Company's Consolidated
Financial Statements and the Notes thereto.

(5) Adjusted to give effect to: (i) the AHP acquisition as if such transaction
had occurred at January 1, 1995; and (ii) the issuance of the 2,000,000
shares of Common Stock offered by the Company hereby at an assumed offering
price of $37.50 per share and the payment of existing indebtedness, as if
all of such transactions had occurred at January 1, 1995 (or at June 30,
1996 for pro forma balance sheet information). See "Use of Proceeds,"
"Pending and Recent Acquisitions -- Recent Acquisitions," "Financial
Statements -- AHP" and "Unaudited Pro Forma Condensed Consolidated Financial
Statements."

(6) Adjusted to give effect to the Pending Acquisitions and the payment of
existing indebtedness, as if all of such transactions had occurred at
January 1, 1995 (or at June 30, 1996 for pro forma balance sheet
information). See "Use of Proceeds," "Pending and Recent Acquisitions,"
"Financial Statements -- OraCare, UICI and KCDC" and "Unaudited Pro Forma
Condensed Combined Financial Statements."

15
<PAGE> 17

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from the
results discussed in the forward-looking statements. See "Disclosure Regarding
Forward-Looking Statements."

OVERVIEW

UDC is a managed dental benefits company that is licensed to operate
prepaid dental plans in 25 states and, as of June 30, 1996, provides dental
coverage to approximately 1,175,000 members. The Company offers a comprehensive
range of prepaid dental plans capable of meeting the needs of employer groups of
all sizes as well as individuals. UDC's dentist networks, as of June 30, 1996,
consisted of approximately 3,000 general dentists as well as specialist dentists
providing a broad range of dental services. The Company markets its services
through multiple distribution channels, including a direct sales force of over
70 persons, independent brokers and third-party arrangements with medical HMOs.

Membership

The following table sets forth the number of members in the Company's
managed benefit plans and indemnity plans and the growth rates
period-over-period as of the indicated dates:

<TABLE>
<CAPTION>
PRO PRO
DECEMBER 31, FORMA JUNE 30, FORMA
-------------------- DECEMBER 31, ------------- JUNE 30,
1993 1994 1995 1995(1) 1995 1996 1996(2)
---- ---- ---- ------------ ---- ----- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
Membership:.............................................
Managed benefits...................................... 214 642 855 1,075 675 1,095 1,535
Indemnity............................................. -- 95 76 76 93 76 76
Dental referral....................................... -- 4 6 6 4 4 64
--- --- --- ----- --- ----- -----
Total membership................................ 214 741 937 1,157 772 1,175 1,675
--- --- --- ----- --- ----- -----
Total membership growth................................. -- 246% 26% 56% -- 52% 117%
Membership growth excluding acquisitions(3)............. -- 31% 4% -- -- 3% --
</TABLE>

- ---------------
(1) Pro forma to give effect to the AHP acquisition.
(2) Pro forma to give effect to the Pending Acquisitions.
(3) Excludes 460,000 members from IDH, 163,000 members from US Dental and
220,000 members from AHP, in each case for the periods in which the
acquisitions were made when compared to the prior period.

Total membership has grown at a compounded annual growth rate of 109% from
1993 to 1995. Membership growth is concentrated during employer group benefits
enrollment periods generally occurring in the first and fourth quarters of each
year. Membership growth excluding acquisitions has slowed as compared to the
prior periods primarily as a result of higher than expected sales force turnover
and management's emphasis on acquisition opportunities during the current year.
The Company is currently addressing these issues through increased focus on
mid-size and large employer groups, modified incentives in sales force
compensation and increased emphasis on sales through independent brokers.

The Company began operations in Texas in 1986 and expanded to Ohio in 1990
and Missouri in 1993. Since September 1994, the Company has acquired three
companies which had approximately 843,000 members in the aggregate as of the
respective acquisition dates. In addition, the Pending Acquisitions had
approximately 500,000 members in the aggregate as of June 30, 1996.

16
<PAGE> 18

Revenues

The Company's revenues are primarily derived from managed benefits premiums
for the prepaid dental plans offered by the Company and, to a lesser extent,
from indemnity premiums received by a subsidiary of the Company. The table below
sets forth the Company's revenue components as a percentage of total revenue for
the periods indicated:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Premium revenue
Managed benefits.................................. 99.0% 84.6% 77.4% 76.8% 84.4%
Indemnity......................................... -- 14.7 21.0 22.2 14.5
Interest income and other revenue................... 1.0 0.7 1.6 1.0 1.1
----- ----- ----- ----- -----
- - - - -
Total..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ======
</TABLE>

The revenue contribution from indemnity increased to 21.0% of revenues in
1995 primarily as a result of having a full year of revenues from the dental
indemnity insurance subsidiary acquired on September 1, 1994. The Company had no
indemnity premiums prior to that date. The Company expects revenue from
indemnity products to represent a lower percentage of total revenue in the
future as the Company continues to emphasize prepaid dental plans.

The Company's product pricing varies based on the type of plan, the
services provided (both general and specialty) and the amount of member
copayment. In addition, pricing varies by marketplace based on employer and
employee preference and competition. Pricing also may vary as a result of
different pricing terms of the plans in effect at companies when acquired by
UDC. As a result, per member pricing can fluctuate based on product mix,
shifting marketplace preferences and acquisition timing. As contracts are
renewed, the Company seeks to improve profitability on renewed plans by
increasing pricing, by offering plans with additional services at higher prices
and margins and by offering higher margin plans with fewer services at lower
costs. The Company estimates that premium rate increases have generally averaged
less than 3.5% per year during the three year period ended December 31, 1995.

Dental Services Expense Ratio

The following table sets forth the dental services expense ratios (dental
services expense as a percentage of premium revenue) for the Company's managed
benefit and indemnity plans for the periods indicated:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER ENDED
31, JUNE 30,
---------------------- -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Managed benefits....................................... 43.3% 49.2% 53.9% 54.1% 58.3%
Indemnity.............................................. -- 82.8 82.3 83.2 74.7
Total dental services expense ratio.......... 43.3 54.2 60.0 60.6 60.7
</TABLE>

The dental services expense ratio for the managed benefit plans increased
during the last three fiscal years and the latest six month period as a result
of integrating acquisitions that had higher dental services expense ratios. Some
of the companies acquired by UDC offered plans that paid dentists a percentage
of premiums higher than the plans of UDC. The Company expects prepaid dental
services expense ratios on such plans to improve in the future as acquired
contracts are converted to the Company's plans and less profitable contracts are
not renewed. The dental services expense ratio for the indemnity plans has
improved in the six months ended June 30, 1996 as compared to the prior period
primarily as a result of the Company's efforts to standardize its indemnity
products and the Company's emphasis on product pricing and profitability.

17
<PAGE> 19

Prior Acquisitions

Effective September 1, 1994, the Company completed the acquisition of IDH
for $14.3 million in cash and additional payments of $5.4 million over the six
year period beginning September 16, 1994. Effective November 1, 1995, the
Company completed the acquisition of US Dental for $1.3 million in cash at the
closing, deferred payments of $1.0 million over the three-year period commencing
November 30, 1995, and a promissory note in the amount of $10.3 million which
was paid in January 1996. In addition, on February 1, 1996, the Company
completed the acquisition of AHP for $14.3 million in cash at the closing and
deferred payments of $600,000 over the three-year period commencing February 22,
1996. See "Pending and Recent Acquisitions -- Recent Acquisitions."

The acquisitions of IDH, US Dental and AHP increased the Company's
enrollment by approximately 843,000 members, further increased UDC's market
presence in existing markets, permitted the Company to offer its prepaid dental
plans in 17 new states and augmented the Company's product line by adding an
indemnity insurance business. These acquisitions have resulted in greater
penetration of new accounts within UDC's current markets and currently allow the
Company to market its dental benefit programs to a broader customer base on a
multi-state level.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentages of
revenues represented by certain items reflected in the Company's consolidated
statements of operations:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- --------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Total revenue.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Costs and expenses:
Dental services expense.............................. 42.9 53.8 59.0 60.0 60.0
----- ----- ----- ----- -----
Gross margin...................................... 57.1 46.2 41.0 40.0 40.0
Sales and marketing.................................. 17.8 15.4 12.2 13.2 11.2
General and administrative........................... 21.4 18.9 18.7 18.4 17.0
Depreciation and amortization........................ 0.9 1.4 1.5 1.4 2.0
Acquisition-related expenses......................... -- 0.5 -- -- --
Interest expense..................................... -- 1.0 1.2 1.6 0.4
----- ----- ----- ----- -----
Total costs and expenses.......................... 83.0 91.0 92.6 94.6 90.6
----- ----- ----- ----- -----
Net income before Federal income taxes, cumulative
effect of a change in accounting principle and
extraordinary charge................................. 17.0 9.0 7.4 5.4 9.4
Provision for Federal income taxes..................... 5.5 3.4 2.7 2.1 3.4
----- ----- ----- ----- -----
Net income before cumulative effect of a change in
accounting principle and extraordinary charge........ 11.5 5.6 4.7 3.3 6.0
Preferred stock dividends.............................. 0.2 -- -- -- --
Cumulative effect of a change in accounting
principle............................................ 0.3 -- -- -- --
Extraordinary charge................................... -- -- 0.2 -- --
----- ----- ------ ----- -----
Net income applicable to common stock.................. 11.0% 5.6% 4.5% 3.3% 6.0%
===== ===== ===== ===== =====
</TABLE>

SIX MONTHS ENDED JUNE 30, 1996 AND 1995

Revenues. Managed benefits revenues increased by $13.9 million, or 47.8%,
to $43.1 million in 1996 from $29.2 million in 1995. Interest income and other
revenue increased $0.2 million. The increase in premium revenues was primarily a
result of an increase in the number of members. During the first six months of
1996, managed benefits membership increased from 861,051 at December 31, 1995 to
1,099,508 at June 30, 1996, including an increase of approximately 220,000
members from the AHP acquisition. The increase in the comparable period in 1995
was from 740,984 to 771,714. Indemnity revenues declined from $8.5 million

18
<PAGE> 20

(22.2% of revenues) to $7.4 million (14.5% of revenues) largely due to the
termination of a large New Mexico group in December 1995.

Dental Services. Dental services expenses increased $7.9 million, or 34.5%,
to $30.7 million in 1996 from $22.8 million in 1995, primarily due to the
increase in membership discussed above. Total dental services as a percentage of
premium revenues remained relatively unchanged at 60.7% of premiums (60.6% in
1995). Dental service expenses for the Company's managed benefits plans, which
consist primarily of capitation payments to general dentists, increased to 58.3%
of managed benefits revenues in 1996, from 54.1% in 1995. The managed benefits
plans offered by US Dental and AHP historically were sold at lower premium
levels than the Company's pre-existing managed benefits plans, thereby resulting
in the payment to general dentists of a relatively higher percentage of
premiums. Claims expense for the indemnity business was 74.7% of indemnity
revenues. See above discussion for additional information concerning trends in
dental expenses.

Sales and Marketing. Sales and marketing expenses increased $0.7 million,
or 14.2%, to $5.7 million in 1996 from $5.0 million in 1995. Sales and marketing
expenses as a percentage of revenue declined to 11.2% in 1996 from 13.2% in
1995. This decrease was largely attributable to the increase in the percentage
of revenues from managed dental benefits plans relative to indemnity plans in
1996 as compared to 1995. Since the indemnity business generates a higher per
member per month revenue than is generated by the managed dental benefits plans,
and a portion of the sales and marketing costs, such as base salaries and
printing costs, are fixed, the expenses as a percentage of revenues decline. In
addition, the commissions paid on the indemnity business are lower as a
percentage of revenues than those paid on the managed dental benefits plans.

General and Administrative. General and administrative expenses increased
$1.7 million, or 24.3%, to $8.7 million in 1996 from $7.0 million in 1995. The
decline in general and administrative expenses as a percentage of revenues to
17.0% in 1996 from 18.4% in 1995 was primarily attributable to efficiencies
achieved through the consolidation of executive staffs and accounting
departments due to the acquisition of IDH, US Dental and AHP. In addition, there
was a decrease in premium taxes as a percentage of revenue because the Company
now generates a greater percentage of its revenues in states that have lower
premium taxes.

Depreciation and Amortization. Depreciation and amortization expenses
increased $0.4 million, or 80.1%, to $1.0 million in 1996 from $0.6 million in
1995. This increase was the result of amortization of the goodwill and
consulting and non-competition agreements attributable to the acquisitions of US
Dental and AHP.

Interest. Interest expense decreased to $0.2 million in 1996 from $0.6
million in 1995. The 1996 interest expense was composed of the imputed interest
on the agreements incurred to finance the Company's acquisitions. The weighted
average interest rate on these agreements during the first six months of 1996
was 7.9%. This weighted average interest rate also includes the fees for letters
of credit related to the agreements.

Taxes. The average tax rate was 36.7% and 39.0% in 1996 and 1995,
respectively. The lower tax rate in 1996 was largely the result of the $0.4
million tax exempt interest income earned on cash balances. During the
comparable period in 1995, the Company did not have significant cash balances
and interest income was fully taxable. The average tax rate was higher than the
statutory Federal tax rate of 34%, primarily as the result of the
non-deductibility of the amortization of goodwill.

YEARS ENDED DECEMBER 31, 1995 AND 1994

Revenues. Revenues increased by $41.8 million, or 112.0%, to $79.2 million
in 1995 from $37.4 million in 1994. Of this increase, $2.2 million, or 5.3%, was
attributable to the operations added through the acquisition of US Dental in
November 1995. The remaining $39.6 million increase was a 106.1% increase in
revenues to $77.0 million in 1995 from $37.4 million in 1994, in markets where
the Company had operations in both periods. This increase was primarily a result
of having IDH operations for the full year in 1995 compared to only four months
in 1994 and the increase in the membership numbers. During 1995, members
increased from 740,984 at December 31, 1994 to 937,355 at December 31, 1995. The
increase in the comparable period in 1994 was from 214,455 to 740,984. Interest
income and other revenue increased $1.0 million, or 394.1%, from

19
<PAGE> 21

$0.3 million to $1.3 million in 1995. This increase was due to the interest
income derived from the cash proceeds of the initial public offering in
September 1995.

Dental Services. Dental services expenses increased $26.6 million, or
132.3%, to $46.7 million in 1995 from $20.1 million in 1994. Total dental
services as a percentage of revenue increased to 59.0% in 1995 from 53.8% in
1994, primarily due to the effect of a higher dental expense loss ratio in the
indemnity insurance business that the Company acquired through IDH. Claims
expense for the indemnity business was 82.3% of indemnity revenues in 1995 as
compared to 82.8% in 1994. Dental service expenses for the Company's managed
benefits plans, which consist primarily of capitation payments to general
dentists, increased to 53.9% of managed benefits revenues in 1995, from 49.2% in
1994. This increase is attributable to the fact that the managed benefits plans
offered by IDH have historically paid general dentists a higher percentage of
premiums than the Company's pre-existing managed benefits plans. It is
management's intention to increase premiums over the next several years, as
market conditions permit, thereby increasing revenues. In most markets, amounts
paid to general dentists will also be increased to maintain the Company's
competitive position and to improve the economics for general dentists.

Sales and Marketing. Sales and marketing expenses increased $3.8 million,
or 67.4%, to $9.6 million in 1995 from $5.8 million in 1994. Sales and marketing
expenses as a percentage of revenue declined to 12.2% in 1995 from 15.4% in
1994. This decrease was largely attributable to the change in product mix from
primarily managed benefits plans in 1994 to a combination of indemnity and
managed benefits plans in 1995, resulting from the acquisition of IDH effective
September 1, 1994. Since the indemnity business generates a higher per-
member-per-month revenue than is generated by the managed benefits plans, and a
portion of the sales and marketing costs, such as base salaries and printing
costs, are fixed, the expenses as a percentage of revenues decline. In addition,
the commissions paid on the indemnity business are lower as a percentage of
revenues than those paid on the managed benefits plans.

General and Administrative. General and administrative expenses increased
$7.7 million, or 109.4%, to $14.8 million in 1995 from $7.1 million in 1994. The
decline in general and administrative expenses as a percentage of revenues to
18.7% in 1995 from 18.9% in 1994 was primarily attributable to efficiencies
achieved through the consolidation of executive staffs and accounting
departments due to the acquisition of IDH. In addition, there was a decrease in
premium taxes as a percentage of revenue because the Company now generates a
greater percentage of its revenues in states that have lower premium taxes.

Depreciation and Amortization. Depreciation and amortization expenses
increased $0.7 million, or 120.0%, to $1.2 million in 1995 from $0.5 million in
1994. Most of this increase was the result of amortization of goodwill and
consulting and non-competition agreements (the "Agreements") attributable to the
acquisitions of IDH and US Dental and the depreciation of the assets acquired.

Interest. Interest expenses increased to $1.0 million in 1995 from $0.4 in
1994. The $1.0 million was composed of the interest on a bank loan incurred in
1994 to finance the IDH acquisition (the "Bank Loan"), a $10.3 million
promissory note maturing January 18, 1996, that was issued in November 1995 as
part of the consideration for the US Dental acquisition (the "Promissory Note"),
and the imputed interest on the consulting and non-competition agreements
incurred to finance the IDH and US Dental acquisitions (the "Agreements"). The
weighted average interest rates on the Bank Loan, the Promissory Note and the
Agreements during 1995 were 9.5%, 4.4% and 8.6%, respectively. These weighted
average interest rates include the effects of amortization of debt issuance
costs and the fees for letters of credit related to the Agreements.

Taxes. The average tax rate was 36.4% and 37.5% in 1995 and 1994,
respectively. In 1995 and 1994, the average tax rate was higher than the
statutory Federal tax rate of 34.0%, primarily as the result of the
nondeductibility of the amortization of goodwill. The average rate decrease from
1994 to 1995 was primarily due to tax exempt interest income in 1995.

Extraordinary Charge. Upon completion of the Company's initial public
offering in September 1995, the Company used a portion of the offering's
proceeds to repay the Bank Loan. This required the write off of the

20
<PAGE> 22

unamortized debt-financing expenses capitalized in connection with the Bank Loan
incurred to finance the IDH acquisition and the financing obtained (but not
used) for the US Dental acquisition.

YEARS ENDED DECEMBER 31, 1994 AND 1993

Revenues. Revenues increased by $20.4 million, or 120.1%, to $37.4 million
in 1994 from $17.0 million in 1993. Of this increase, $16.9 million, or 82.8%,
was attributable to the operations added through the acquisition of IDH
effective September 1, 1994. The remaining $3.5 million was a 20.7% increase in
revenues to $20.5 million in 1994 from $17.0 million in 1993 in markets where
the Company had operations in both periods. This increase was primarily a result
of an increase in the number of members and to a lesser extent, to premium rate
increases. During the year, members increased from 214,455 at December 31, 1993
to 740,984 at December 31, 1994. The increase for all of 1993 was from 160,885
to 214,455.

Dental Services. Dental services expenses increased $12.8 million, or
176.3%, to $20.1 million in 1994 from $7.3 million in 1993. Total dental
services as a percentage of revenues increased to 53.8% in 1994 from 42.9% in
1993 primarily due to the effect of a higher dental expense loss ratio in the
indemnity insurance business that the Company acquired through IDH in September
1994. Claims expense for the indemnity business was 82.8% of indemnity revenues.
Dental service expenses for the Company's managed benefits business, which
consist primarily of capitation to dentists, increased to 49.2% of managed
benefits revenues in 1994 from 43.3% in 1993. This increase is attributable to
the fact that the managed benefits plans offered by IDH have historically paid
dentists a higher percentage of premiums than the Company's pre-existing plans
paid.

Sales and Marketing. Sales and marketing expenses increased $2.7 million,
or 90.3%, to $5.7 million in 1994 from $3.0 million in 1993. Sales and marketing
expenses as a percentage of revenues declined to 15.4% in 1994 from 17.8% in
1993. This decrease was largely attributable to the change in product mix from
managed benefits plans only in 1993 to a combination of indemnity and managed
benefits plans in 1994 as a result of the IDH acquisition. Since the indemnity
business generates a higher per member per month revenue than generated by the
managed benefits plans, and a portion of the sales and marketing costs, such as
base salaries and printing costs, are fixed, the expenses as a percentage of
revenues decline. In addition, the commissions paid on the indemnity business
are lower as a percentage of revenues than those paid on the managed benefits
plans.

General and Administrative. General and administrative expenses increased
$3.5 million, or 94.4%, to $7.1 million in 1994 from $3.6 million in 1993. The
decline in general and administrative expenses as a percentage of revenues to
18.9% in 1994 from 21.4% in 1993 was primarily attributable to efficiencies
achieved through the consolidation of executive staffs and accounting
departments due to the acquisition of IDH. In addition, there was a decrease in
premium taxes as a percentage of revenue because the Company now generates a
greater percentage of its revenues in states that charge lower premium taxes.

Depreciation and Amortization. Depreciation and amortization expenses
increased $0.3 million, or 240.3%, to $0.5 million in 1994 from $0.2 million in
1993. Most of this increase was the result of amortization of goodwill and the
Agreements entered into in connection with the acquisition of IDH and the
depreciation of the assets acquired.

Acquisition-Related Expenses. During 1994, the Company incurred $0.2
million of acquisition-related expenses. These expenses were all due to the
acquisition of IDH in September 1994.

Interest. Interest expenses increased to $0.4 million in 1994 from $0 in
1993. The $0.4 million was entirely attributable to the interest on the Bank
Loan and the imputed interest on the Agreements incurred to finance the IDH
acquisition. The weighted average interest rates on the Bank Loan and the
Agreements during the portion of 1994 subsequent to the IDH acquisition were
8.3% and 8.8%, respectively. These weighted average interest rates include the
effects of amortization of debt issuance costs and the fees for letters of
credit related to the Agreements.

Change in Accounting Principle. During 1993, the Company incurred a minor
charge for the cumulative effect of a change in accounting principle as required
by SFAS 109 for "Accounting for Income Taxes."

21
<PAGE> 23

RESULTS OF OPERATIONS -- QUARTERLY INFORMATION

The following table sets forth certain unaudited condensed consolidated
financial data for the periods indicated:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1994 1995 1995 1995 1995 1996 1996
--------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Premiums earned........................ $ 9,164 $ 18,271 $18,683 $ 18,951 $19,058 $ 21,282 $24,490 $ 26,050
Interest income and other revenue...... 55 100 188 205 282 580 304 281
------- -------- ------- -------- ------- -------- ------- --------
Total revenues................... $ 9,219 $ 18,371 $18,871 $ 19,156 $19,340 $ 21,862 $24,794 $ 26,331
Costs and expenses:
Dental services expense................ 4,957 11,002 11,343 11,467 11,422 12,518 14,931 15,743
Sales and marketing.................... 1,459 2,334 2,586 2,426 2,298 2,327 2,798 2,928
General and administrative............. 1,636 3,311 3,509 3,479 3,487 4,310 4,282 4,403
Depreciation and amortization.......... 140 270 275 282 288 345 465 538
Interest expense....................... 49 311 315 294 310 86 94 115
------- -------- ------- -------- ------- -------- ------- --------
Total costs and expenses......... $ 8,241 $ 17,228 $18,028 $ 17,948 $17,805 $ 19,586 $22,570 $ 23,727
------- -------- ------- -------- ------- -------- ------- --------
Income before Federal income taxes and
extraordinary charges.................. 978 1,143 843 1,208 1,535 2,276 2,224 2,604
Provision for Federal income taxes....... 333 504 320 480 575 756 813 959
Extraordinary charge, net of tax......... -- -- -- -- 142 -- -- --
------- -------- ------- -------- ------- -------- ------- --------
Net income applicable to common stock.... $ 645 $ 639 $ 523 $ 728 $ 818 $ 1,520 $ 1,411 $ 1,645
======= ======== ======= ======== ======= ======== ======= ========
Net income per common share.............. $ 0.14 $ 0.14 $ 0.11 $ 0.15 $ 0.16 $ 0.21 $ 0.19 $ 0.23
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

In September 1995, the Company completed an initial public offering of
2,375,000 shares of its Common Stock at an offering price of $22.00 per share
resulting in net proceeds of approximately $48.0 million. The Company used
approximately $9.9 million of such proceeds for the repayment of all outstanding
indebtedness on the Bank Loan, which had been incurred in 1994 to finance the
acquisition of IDH.

The Company's historical operating cash requirements have been met through
cash provided by operations. Net cash provided by operating activities was $2.9
million for the year ended December 31, 1995. Net cash provided by operating
activities was $0.6 million for the six months ended June 30, 1996, composed of
$1.3 million in cash provided by operating activities in the first quarter of
1996 partially offset by the use of $0.7 million in the second quarter. The
second quarter's use of cash was a result of (i) a change to earlier capitation
payments to certain network dentists that resulted in a one-time increase in
cash outflow and (ii) a change to later collection of prepaid revenues from
certain groups that resulted in a one-time decrease in cash flows. Both changes
were instituted to provide better customer service and had no effect on
operating earnings. The decrease in unearned premiums of $2.2 million and the
decrease in accounts payable, accrued expenses and claims reserves of $2.0
million reflect this one-time impact on cash from operating activities.

The Company's primary cash need after operations is for debt service on the
Agreements entered into as a part of the prior acquisitions. The principal
amount of such indebtedness of the Company at June 30, 1996 was $4.6 million.
The various Agreements have fixed rates of interest ranging from 5.0% to 7.5%
and require aggregate payments of principal and interest of $1.4 million per
year. The $10.3 million Promissory Note was paid in full on January 18, 1996.

Under applicable insurance laws of most states in which the Company
conducts business, the Company's subsidiary operating in the particular state is
required to maintain a minimum level of net worth and reserves. In general,
minimum capital requirements are more stringent for insurance companies, such as
United Dental Care Insurance Company ("UDCIC"). The Company may be required from
time to time to invest funds in one or more of its subsidiaries to meet
regulatory capital requirements. The implementation of risk-based capital
regulations in states having jurisdiction over UDCIC may require that the
Company increase its investment in UDCIC. However, the Company does not believe
that compliance with such regulations will

22
<PAGE> 24

adversely affect the Company's ability to meet its operating cash requirements.
The Company believes that UDCIC will be able to satisfy such regulations without
the need for significant capital contributions by the Company. Applicable laws
generally limit the ability of the Company's subsidiaries to pay dividends to
the extent that required regulatory capital would be impaired. See
"Business -- Governmental Regulation."

Capital expenditures were $2.2 million during the year ended December 31,
1995 and $2.0 million in the six months ended June 30, 1996. Such expenditures
in 1995 primarily consisted of telephone equipment and the capitalized cost
related to the new information system. In June 1995, the Company entered into a
contract to acquire a new information system to replace its existing system. The
project is currently expected to cost approximately $4.0 million and to be
completed in the fourth quarter of 1996. Capital expenditures, other than the
cost of the new information system, were $0.8 million during the six months
ended June 30, 1996. Such expenditures primarily consisted of computer equipment
and furniture purchased in connection with the integration of US Dental and AHP
into the Company. Capital expenditures for the remainder of 1996, excluding the
costs associated with the new information system, are expected to be
approximately $0.7 million.

The Company believes that cash flow generated by operations will be
sufficient to fund its normal working capital needs and capital expenditures
(other than any acquisitions) for at least the next twelve months.

The Company believes that its operations are not materially affected by
inflation. The Company's principal costs, such as dental services expense and
sales and marketing expenses, are largely related to membership levels and are
therefore variably related to premium revenues. Historically, the Company's rate
of premium increases has been less than the rate of increase in the cost of
dental services in general.

CREDIT FACILITIES

Copies of the pending acquisitions commitment and the letters of credit
described below have been filed as exhibits to the Registration Statement of
which this Prospectus forms a part and are available as described under
"Additional Information." The following summaries of certain provisions of the
pending acquisitions commitment and the letters of credit do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all of the provisions of the pending acquisitions commitment and the letters of
credit.

Pending Acquisitions Commitment. The Company intends to use the net
proceeds of this offering to finance the Pending Acquisitions most of which are
anticipated to be completed following completion of this offering. However, none
of the Pending Acquisitions are subject to completion of this offering, and this
offering is not subject to completion of any of the Pending Acquisitions. The
Company has secured a commitment for a revolving line of credit in an amount up
to $50 million with an unaffiliated bank to finance, together with available
cash of the Company, the Pending Acquisitions if they are consummated prior to
completion of this offering. If any of the Pending Acquisitions are consummated
prior to the completion of this offering, the Company would utilize such line of
credit to fund such acquisitions. In that event, the loan would be repaid in
full out of the net proceeds of this offering. The commitment will be subject to
various conditions and, accordingly, there can be no assurance that the Company
will be able to complete such financing, if necessary.

The commitment provides for a revolving credit facility in an amount up to
$50 million, of which $35 million is a firm commitment and $15 million is on a
"best efforts" basis. The purpose of the credit facility is to provide (i)
funding future acquisitions of managed dental benefits companies, (ii) for the
issuance of letters of credit, (iii) for capital expenditures and (iv) at the
election of the Company, a working capital line of credit in an amount up to $5
million out of the total amount available under the credit facility. The
commitment will remain in effect until October 31, 1996. If established, the
credit facility will have a term of two years. Outstanding indebtedness under
the line of credit will bear interest payable quarterly, at the Company's
option, at: (i) up to .25 over the base rate of the lender or (ii) up to 2.0%
over LIBOR with the margin over the respective rates decreasing as the ratio of
total funded debt to EBITDA decreases. The Company would pay an annual fee up to
.25% of the amount available to be drawn under the credit facility and up to
1.00% of the amount available to be drawn under the letters of credit.

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<PAGE> 25

The credit facility would be secured by the pledge of all the outstanding
capital stock of the direct and indirect subsidiaries of the Company and a
negative pledge on all other assets. The credit facility would contain numerous
covenants including, among other things, that the Company would not, except in
certain permitted instances, (i) incur any additional indebtedness; (ii) grant
liens on any of the assets of the Company or its subsidiaries; (iii) declare or
pay any dividends; or (iv) merge or consolidate with any other entity. In
addition, the Company would be required to satisfy on an ongoing basis certain
financial covenants. The Company's breach of any covenants would result in an
event of default under the credit facility.

Letters of Credit. The Company has arranged for the issuance of two letters
of credit in the aggregate amount of $4.8 million. The letters of credit secure
the obligations of the Company under certain agreements executed in connection
with the IDH acquisition. The letters of credit decline in amount annually and
expire in September 1998. The Company pays an annual fee equal to 1% of the
amount remaining to be drawn under the letters of credit. The letters of credit
will remain outstanding after the offering.

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<PAGE> 26

BUSINESS

GENERAL

UDC is a managed dental benefits company that is licensed to operate
prepaid dental plans in 25 states and, as of June 30, 1996, provided dental
coverage to approximately 1,175,000 members. The Company offers a comprehensive
range of prepaid dental plans capable of meeting the needs of employer groups of
all sizes as well as individuals. UDC's dentist networks, as of June 30, 1996,
consisted of approximately 3,000 general dentists as well as specialist dentists
providing a broad range of dental services. The Company markets its services
through multiple distribution channels, including a direct sales force of over
70 persons, independent brokers and third-party arrangements with medical HMOs.
The Company recently entered into agreements to acquire five managed dental
benefits companies and one dental referral plan having approximately 500,000
members in the aggregate as of June 30, 1996. See "Pending and Recent
Acquisitions."

THE MANAGED DENTAL BENEFITS INDUSTRY

Background

According to the U.S. Office of National Health Statistics, total
expenditures for dental care in the United States grew from approximately $14.4
billion in 1980 to approximately $43.2 billion in 1993. According to the
American Dental Association, there were approximately 138,000 active licensed
dentists engaged in private practice in the United States in 1991. The American
Dental Association estimated that in 1993 approximately 68% of the nation's
private dentists were in solo practice and approximately 20% were in two-person
practices.

Historically, payment for dental services has been on a fee-for-service
basis. Under this system, the
individual, or a dental indemnity insurance company, pays fees established by
the dentist for the dental services provided by the dentist and the dentist has
little incentive to control costs or minimize expenses. The charges for such
services generally vary widely among dentists. Since the individual pays all or
a portion of the established fees, the individual is reluctant to incur the
costs of preventive dental care. In addition, the individual has limited access
to information regarding cost and quality on which to select a dentist.

Dental Indemnity Insurance

The number of individuals in the United States with dental benefits was
estimated by the National Association of Dental Plans to be approximately 125
million in 1994, representing approximately 48% of the total United States
population. Historically, dental coverage was not an employee benefit
customarily provided by employers. The Company believes that dental benefits are
a frequently requested employee benefit. In response to employee demand,
employers have increasingly offered dental coverage to employees usually in the
form of indemnity insurance. According to a 1993 survey performed by Foster
Higgins, an employee benefits consulting firm, approximately 87% of employers
with more than 200 employees, approximately 63% of employers with 50-199
employees and approximately 39% of employers with 10-49 employees offer dental

25
<PAGE> 27

coverage as an available employee benefit. Dental coverage is typically offered
as a separate benefit from medical coverage with the employer frequently paying
none, or only a portion, of the premium for the dental coverage.

Dental indemnity insurance is similar to medical indemnity insurance in
that the individual or the employer pays a premium for the dental insurance
coverage and the insurance company pays or reimburses the dentist in whole or in
part for the charges for dental services. While dental indemnity insurance
companies have utilized mechanisms to control costs such as limiting charges to
reasonable and customary charges for the community in which the services are
rendered and utilizing preferred providers with whom discounted fee schedules
are negotiated, such mechanisms do not transfer significant risk to the dentist
or provide significant incentives to the dentist to control costs or reduce fees
or to the individual to utilize preventative dental services.

Managed Dental Benefits

Increasing concern with the costs of health care, including dental care,
has resulted in a greater willingness by employers and consumers to consider
managed health care delivery systems. The Company believes that these alternate
delivery systems are able to provide for services, or benefits, at a lower cost,
or premium, than fee-for-service alternatives.

Companies having the management expertise and industry knowledge required
to establish and maintain a network of specialized providers such as dentists
have developed specialized managed delivery systems to provide such health care
services. HMOs, PPOs and other forms of managed health care plans for general
medical services have not customarily devoted the resources to develop specialty
managed delivery systems and frequently subcontract with companies providing
single-specialty managed delivery systems such as the Company's prepaid dental
plans.

According to the National Association of Dental Plans, prepaid dental plans
have grown from approximately 10.4 million covered members in 1991 to an
estimated 19.5 million in 1995, an annual compounded growth rate of
approximately 17.0%. The Company believes the relatively high growth rate for
prepaid dental plans is attributable to: (i) the greater acceptance and
utilization of managed care alternatives by employers and employees to reduce
costs; (ii) the significant price advantage relative to indemnity plans; (iii)
the cost effectiveness to employers of prepaid plans as an employee benefit; and
(iv) the growing acceptance of capitated dental plans by dentists, resulting in
improved accessibility and convenience for members. The number of people with
dental benefits was estimated by the National Association of Dental Plans to be
approximately 125 million in 1995, of which approximately 16% were covered under
prepaid dental plans representing approximately 8% of the total United States
population. The Company believes there is significant growth opportunity for the
managed dental benefits industry.

A prepaid dental plan pays a fixed monthly capitation payment to the
network dentist who provides dental services as needed at either no cost to the
member or at reduced fees (copayments) paid by the member. Consequently, the
risk of high utilization is shifted to the dentist, although generally the
dentist receives copayments for many covered services that are often greater
than the direct costs of the dentist, reducing financial risk. The capitation
method rewards efficient providers who stress routine, preventive care and
control their fixed expenses. In comparison, under the traditional
fee-for-service payment system, the risk of utilization is borne by the insurer
or the consumer, with little incentive to the dentist to be an efficient
provider. The Company believes that the ability of a managed dental benefits
plan to volume purchase, shift risk to providers and manage both the costs and
utilization of dental care typically results in premiums 20% or more below
premiums for a traditional indemnity plan.

In addition, some prepaid dental plans provide for specialty care at fixed
copayments by the member. Unlike medical care, the majority of dental care is
provided by general dentists with some specialty care provided by endodontists
(specialists in root canal therapy), oral surgeons (specialists in extractions),
pedodontists (specialists in dentistry for children) and periodontists
(specialists in gum-related treatment). Companies such as UDC that arrange for
specialist care at fixed copayments are further able to manage the costs and
utilization of dental services through specialist referral authorization
programs and discounted fee

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arrangements with specialist dentists. Medium to large employers increasingly
expect comprehensive dental care, including specialty care from prepaid dental
plans, at stipulated copayments comparable to the type of coverage provided by a
general medical plan.

According to the National Association of Dental Plans, the number of
dentists affiliated with prepaid dental plans was approximately 26,000 in 1994
or approximately 19% of all active dentists. The Company believes that
significant growth of prepaid dental plans will continue as a result of: (i)
growing acceptance and participation in such plans by dentists; (ii) greater
acceptance of such plans by consumers who are becoming increasingly aware of the
price advantages, improved service and convenience offered by such plans; and
(iii) recognition by employers that such plans can be used to provide important
employee benefits at little or no cost to the employer. Consequently, the
Company believes prepaid dental plans will be increasingly used to replace more
expensive forms of dental coverage and provide dental coverage to greater
portions of the population that presently have no dental coverage.

The Company believes that the managed dental benefits industry has the
potential for significant growth and is highly fragmented. The National
Association of Dental Plans estimated that, at the beginning of 1994,
approximately 40% of its members operating prepaid dental plans were
single-state companies. The Company believes that large independent managed
dental benefits companies will have a greater opportunity to grow and expand
because of growing interest in multi-state coverage by medium and large
employers and increased use by medical HMOs to contract with large dental plans
to provide dental coverage to the medical HMO members. The Company believes that
large dental plans have the resources and systems required to satisfy demands of
employers and requirements of dentists and achieve economies of scale. The
Company believes that the factors supporting the growth of large dental plans
will give rise to consolidation opportunities.

BUSINESS STRATEGY

The Company's goal is to be the leading managed dental benefits company in
the United States with the ability to offer prepaid dental plans to employers of
all sizes. The Company intends to maintain and develop a leadership position
within each of its existing key markets and to strategically enter new markets
that afford significant growth opportunities. At present, the Company is
licensed to operate prepaid dental plans in 25 states (not including four
additional states to be entered through the Pending Acquisitions). The Company
believes that as a large, multi-state managed dental benefits company with
significant management depth and financial resources, the Company will have a
competitive advantage over smaller and single-market companies in gaining market
share and participating in the consolidation of the managed dental benefits
industry. In order to implement its strategy, the Company will:

Offer a Full Range of Comprehensive Dental Benefits Plans. One of the keys
to the Company's success has been its ability to offer a broad range of prepaid
dental plans providing different levels of dental coverage, including specialist
care, tailored to meet the various needs of its customers. The variety of its
prepaid dental plans has enabled the Company to attract both small,
single-market employers and large, multi-state employers, as well as
individuals. In addition, the Company has developed prepaid dental plans that
may be offered in substantially all states where it is licensed so that large,
multi-state employers can provide the same dental coverage to all of their
employees.

Ensure Quality Dental Care Through Accessible Dentist Networks. The
Company's strategy is to be one of the three largest dentist networks in its key
markets, providing a full spectrum of dental care, including specialty care. The
Company believes that having provider relations representatives located in each
of its key markets enhances the quality of its dentist networks. The local
knowledge and expertise provided through these local representatives enables the
Company to develop highly accessible dentist networks convenient for members,
which is an important factor to employers in selecting a prepaid dental plan.
All local efforts are supported by the Company's corporate and regional dental
directors.

Utilize Multiple Distribution Channel Marketing Efforts. The Company
markets its prepaid dental plans to employers through (i) its direct sales force
of over 70 persons focusing on medium to large groups such as multi-state
employers and trade or professional organizations and (ii) a network of
independent insurance brokers who market to smaller employers and individuals.
In addition, the Company markets to third-party

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<PAGE> 29

medical HMOs to offer its prepaid dental plans as an additional benefit to
members of the medical HMO. The Company believes that its multiple distribution
channel approach is a competitive advantage that provides the flexibility to
meet the needs of the full spectrum of customers.

Emphasize an Integrated Approach to Customer Service. The Company utilizes
an integrated service approach involving local and regional specialized service
representatives to optimize its operations and product strategy for each target
market. Local offices are maintained in each of the Company's key markets with
specialized sales and service representatives for employer groups and insurance
brokers and with the local provider relations representatives for dentists.
Customer service is performed by regional member service centers, accessed via
an 800-telephone number, with the objective of providing consistent, responsive
and efficient member service.

Acquire Other Managed Dental Benefits Companies. The Company intends to
continue with acquisition efforts to enter target markets and to expand its
market penetration in current markets. The US Dental acquisition in November
1995 resulted in approximately 163,000 additional members, and the AHP
acquisition in January 1996 resulted in approximately 220,000 additional
members. The Pending Acquisitions, if completed, will result in approximately
500,000 additional members (including approximately 60,000 referral plan
members) in the aggregate. The Company currently has no agreements or
understandings relating to any acquisitions other than the Pending Acquisitions.
See "Pending and Recent Acquisitions."

BENEFITS PLANS

Managed Dental Plans

The Company offers a full spectrum of managed dental plans ("Plans")
through numerous state-level subsidiaries. The Plans range from lower coverage,
higher copayment plans with low premiums to higher coverage, low copayment plans
with higher premiums.

Under each of the Company's Plans, a premium is paid to the Company for the
type of coverage selected making the employee and each participating dependent a
member of the Plan. Premium payments are made by the employer or by the employee
(usually by payroll deduction) with respect to employer offered Plans or by the
member directly. Over half of the Company's revenues are derived from Plans in
which the member pays the entire premium. The remainder of the Plans are paid
either entirely by the employer or partially by the employer with the member
contributing the balance of the premium. Typically, the premiums charged are
fixed for a 12-month contract, except for certain multiple year contracts that
are subject to limitations on premium increases. Recently, the increase in the
dental component of the Consumer Price Index has averaged approximately 6% per
year. The Company estimates that its increases in premiums have averaged less
than 3.5% per year and that the premiums charged by the Company are typically
20% or more below premiums for comparable indemnity dental benefits.
Consequently, the Company believes that it is able to offer Plans that are not
only less expensive than the indemnity competition, but also have had lower
increases than most dental costs and indemnity premiums.

Many of the Company's Plans permit each member to select his or her own
individual general dentist from the Company's dentist network at the time of
enrollment. The Company intends to incorporate this flexibility into all its
Plans. Each month, the Company pays a fixed payment, or capitation, to the
member's general dentist regardless of which services are rendered in the month.
In return for the capitation payment and the specified copayments, the general
dentist agrees to provide all covered services for the member.

Although the Plans vary, typically routine preventive and diagnostic care
(exams, x-rays, sealants, teeth cleanings) is provided at no charge or at a
small copayment while basic care (including fillings and extractions) and
specialty care (root canal therapy and gum disease, or periodontal services) is
provided at stipulated copayments. More involved major care (such as crowns and
bridges) is also provided at copayments that are frequently lower than the
member's cost of coinsurance under a comparable indemnity insurance plan. The
Company believes that a specialty care referral program with specialist dentists
providing services at fixed copayments is necessary for the cost management of
dental care services. Orthodontic care is also available under many of the
Company's Plans.

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Dual Choice Plans

The Company is able to offer employers Plans providing both managed dental
benefits and traditional indemnity insurance coverage, commonly referred to as
dual choice plans. Such Plans allow an employee to select the most suitable type
of coverage at the beginning of the contract year by offering each employee the
choice of a prepaid plan utilizing the Company's dentist network or traditional
indemnity insurance coverage utilizing any dentist but usually at higher
premiums and with lower coverage than the prepaid plan alternative. A dual
choice plan is particularly useful when some employees reside in areas where the
Company's dentist network is less developed or in states where the Company is
not yet licensed to offer managed dental benefits.

The indemnity portion of the dual choice plans is made available either
through the Company's subsidiary that is licensed to offer dental indemnity
insurance in all states where the Company operates a prepaid dental plan or
through contractual arrangements with third party insurers. An employee who
selects the indemnity insurance option pays a portion of the charges for covered
services (or coinsurance) after satisfying any deductible. Although coinsurance
payments are typically higher than the copayments charged for the same services
under the other Company Plans, the employee may select any dentist for dental
services. In certain states, the Company has contracted with PPOs for discounted
fees for services covered under the Company's indemnity insurance.

Currently, the Company offers its dual choice plans and its point of
service plan as an enhancement to the marketing of its core business of prepaid
dental benefits. As of June 30, 1996, the Company had approximately 76,000
individuals covered through its indemnity insurance subsidiary, excluding point
of service members who are considered prepaid members.

Third-Party Plans

The Company offers customized plans and services through contractual
arrangements with medical HMOs, including contracts under which the Company acts
as a dental benefits subcontractor to HMO's that have contracted with state
agencies to provide Medicare or Medicaid benefits. Under these arrangements, the
Company often provides only preventive and diagnostic dental benefits but may
also provide more comprehensive coverages, in each case either on a
"private-label" basis or directly through the Company's Plans. As of June 30,
1996, the Company had 15 such arrangements which accounted for approximately
6.3% of its managed dental benefits membership and approximately 2.3% of its
revenues. The Company believes its size and geographic scope give it a
competitive advantage in developing additional third-party medical HMO
relationships.

Point of Service Plan

The Company has developed a point of service plan ("POS") that provides
members of the Company's prepaid dental plans the option of receiving dental
services from dentists outside the Company's dentist network on an indemnity
basis providing less coverage. The POS Plan allows the member to select the
dentist of the member's choice each time services are obtained. Although the
Company charges higher premiums under the POS Plan, the Company has somewhat
greater risk exposure than under its managed dental benefit plans.

Dental Referral Plan

Through its pending acquisition of Association Dental Plan, Inc., the
Company plans to offer a referral plan. This plan will initially be delivered
through a network of approximately 9,400 providers in 36 states. The referral
plan contracts with the dental providers to provide dental services to referral
plan members at certain scheduled fee-for-service rates. Members of the referral
plan pay a fixed fee per month for the member's ability to access the Company's
referral plan network. The Company will bear no financial risk or responsibility
for dental services provided to members in conjunction with its referral
product.

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<PAGE> 31

DENTIST NETWORKS

The Company designs its plans and capitation programs to create dentist
networks of general and specialist dentists that the Company believes provide
the quality of care and convenience needed to attract and retain members. The
Company's strategy is to be one of the three largest dentist networks in each of
its key markets. As of June 30, 1996, the Company had provider contracts with
approximately 3,000 general dentists. The Company also had contracts with
specialist dentists, representing the specialties of endodontics, oral surgery,
orthodontics, periodontics and pedodontics. Since specialist care is covered
under most of the Company's Plans, the Company has a specialist care referral
review program in order to manage the specialist care provided.

The Company employs 32 provider relations representatives located in local
offices situated in its key markets who recruit general and specialty dentists,
determine their qualifications for participation in the Company's network,
provide administrative training to the dentist's office staff and assist the
dentists with respect to participation in the Company's network. Collectively,
the dental directors are responsible for establishing and monitoring the
Company's quality review efforts, including credentialing and re-credentialing
for network participation, review of specialty referrals and utilization review.

Typically, the Company seeks established, private-practice dentists who
have capacity in their practice to see at least 200 of the Company's members as
new patients. Most general dentists and specialist dentists with whom the
Company contracts have small dental offices similar to those familiar to most
consumers. Both the dentist and the facility are reviewed in the Company's
credentialing process, which includes verification of licensure and malpractice
coverage, as well as a review of any actions that may have been taken by state
regulatory authorities. In addition to professional practice capabilities, the
Company also reviews the service amenities of the office, including available
parking, days and hours of operation, a patient recall system for routine,
preventive check-ups and radiographic and sterilization equipment and
procedures. Upon determining that a dentist meets the Company's requirements for
participation in the Company's dental network, the Company offers the dentist a
provider contract setting forth the capitation payments, copayments, limitations
and exclusions and other terms and conditions applicable to the specific Plans
in which such dentist will participate. Provider contracts are typically
non-exclusive and permit the Company or the dentist to terminate the contract
with 90 days prior written notice. The Company periodically reviews its general
and specialist dentists for continued compliance with Company requirements for
participation in the Company's dentist network.

The Company believes that the advantages to a dentist who participates in a
managed dental benefits plan include: (i) increasing the size of the dentist's
practice as a result of selection of the dentist by plan members and referrals
from plan members; (ii) increasing practice profitability through utilization of
excess capacity to accept additional patients; (iii) generation of predictable
incremental cash flow from regular capitation payments; (iv) retention of
patients seeking managed dental plan participation; and (v) reduction of paper
work and collection risks associated with conventional fee-for-service
practices.

The general and specialist dentists are independent from the Company,
providing service to members of the Company's Plans based upon dental practice
standards in the community and their contractual arrangements with the Company.
The Company requires that its network dentists maintain malpractice insurance
and satisfy quality service standards.

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<PAGE> 32

MARKETS AND OPERATIONS

The Company currently is licensed to market its prepaid dental plans in 25
states, and its indemnity plan in 25 states. As of June 30, 1996, approximately
75.1% of all UDC prepaid plan members were located in four states, Arizona,
Texas, New Mexico and Colorado. The table below shows the approximate number of
managed benefits members, indemnity members, referral plan members and total
members of the Company as of June 30, 1996.

<TABLE>
<CAPTION>
MANAGED
BENEFITS INDEMNITY REFERRAL PLAN
STATE MEMBERS MEMBERS MEMBERS TOTAL MEMBERS
- ------------------------------------------- --------- --------- --------------- -------------
<S> <C> <C> <C> <C>
Arizona.................................... 373,805 18,250 3,715 395,770
Texas...................................... 269,390 -- -- 269,390
New Mexico................................. 115,883 2,676 -- 118,559
Colorado................................... 90,648 7,898 -- 98,546
Ohio....................................... 63,640 -- -- 63,640
Utah....................................... 44,095 15,368 -- 59,463
California................................. 36,134 10,086 -- 46,220
Washington................................. 38,214 4,684 -- 42,898
Other states............................... 63,984 16,710 -- 80,694
--------- ------- ----- ---------
Totals........................... 1,095,793 75,672 3,715 1,175,180
</TABLE>

The acquisition of US Dental added approximately 163,000 members located in
four states where the Company already operated prepaid plans. The acquisition of
AHP added approximately 220,000 members, all of whom were located in Arizona.
The Pending Acquisitions are expected to add approximately 500,000 members in
the aggregate, of which approximately 350,000 members will be in four states
where the Company presently has no members. See "Pending and Recent
Acquisitions."

The Company markets its plans to small, single-market employers and large,
multi-state employers, as well as to individuals. No single employer group
accounted for more than 2% of the Company's revenues for the six months ended
June 30, 1996.

The Company maintains its regional customer service centers in Phoenix,
Arizona, San Diego, California, Denver, Colorado and Dallas, Texas. In addition,
the Company maintains 23 local offices with group sales and service
representatives and provider relations representatives in its key markets having
significant concentrations of members.

SALES AND MARKETING

The Company markets its Plans primarily to employers through: (i) its
direct sales force of over 70 persons focusing on medium to large groups such as
multi-state employers and trade or professional organizations; and (ii) a
network of independent insurance brokers who market to smaller employers and
individuals. In addition, the Company markets to medical HMOs to offer the
Company's Plans as an additional benefit to HMO members. The Company believes
its multiple distribution channel approach is a competitive advantage that
provides the flexibility to meet the needs of the full spectrum of customers.

The Company has focused the efforts of its direct sales representatives on
medium-to-large employers typically employing more than 250 employees and having
no relationship with an insurance broker. If an employer utilizes an insurance
broker, the Company generally sells through the broker to maintain its broker
relationships. The Company's direct sales representatives are compensated by a
combination of base salary and commissions based upon membership growth. The
Company has implemented a direct sales effort in all of its major markets.

The Company also sells its Plans through independent insurance brokers who
typically have relationships with small and medium size employers. Approximately
two-thirds of the Company's membership is the result

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<PAGE> 33

of sales through brokers who receive commissions based on premiums received by
the Company from such sales.

The Company has actively pursued alliances with HMOs to offer its Plans to
HMO members either on a private label basis or as a separate benefit and
currently has 15 such agreements in place. The Company believes that, as HMOs
seek to differentiate their services, many will consider contracting for dental
benefit plans and that the Company has a competitive advantage in arranging
alliances with HMOs as a result of the Company's experience, size and geographic
scope.

Sales to employers, regardless of distribution channel, involve selling
both the employer and its employees. Typically, the employee has the opportunity
to select the Company's Plans during an annual open enrollment period.
Frequently, representatives of the Company have the opportunity to make
presentations directly to the employees, while in other cases the employer
distributes the Company's marketing materials that explain the features and
benefits of the Company's Plan. The Company stresses: (i) the quality and size
of its dentist networks; (ii) the comprehensiveness of its Plan, including
specialty care coverage; (iii) its integrated customer service approach in
responding to member inquiries or complaints, including requests to change
general dentists; and (iv) the value of the Plan in relation to Plan premiums
and copayments.

CUSTOMER SERVICE

The Company employs 92 group sales and service representatives, 32 provider
relations representatives and 51 customer service representatives with primary
responsibility to service the needs of its groups and brokers, general and
specialist network dentists, and members, respectively. The Company's group
sales and service representatives and provider relations representatives are
based at the local market level, while the Company's customer service
representatives are located at four regional customer service centers in
Arizona, California, Colorado and Texas. Inquiries or complaints from members
are handled over the telephone via 800-telephone numbers by the regional
customer service representatives who provide consistent, responsive and
efficient member services. The Company believes this integrated approach enables
it to respond quickly and personally to group, broker and dentist issues where
direct interaction is critical.

MANAGEMENT INFORMATION SYSTEMS

All administrative, accounting, finance and information services are
provided from the Company's administrative offices in Dallas, Texas. The Company
believes that, in the managed dental benefits industry, an advanced information
system can be a significant competitive advantage. Accordingly, in 1995, the
Company entered into a contract to acquire an advanced software program
specifically designed for the managed dental benefits industry and subsequently
has acquired the necessary hardware to fully utilize such software. The Company
believes its new information system will significantly enhance the Company's
capabilities to provide customer service, analyze provider utilization, create
opportunities to take advantage of market conditions and support new product
development.

All of the Company's business is in the process of being converted to the
new information system. The conversion of the internally developed systems
formerly in use by IDH and AHP prior to their respective acquisitions by the
Company has been substantially completed. The Company's internally developed
system and the internally developed system used by US Dental at the time of the
US Dental acquisition are in the process of being converted. Until the
conversion is completed, the Company believes its system and the US Dental
system are adequate for the Company's current needs. The Company expects that
all of these systems will be fully integrated to the new system by the end of
1996. The information systems of the Pending Acquisitions will be converted to
the new system as rapidly as possible, although the timing for the completed
integration of such systems cannot currently be estimated.

The Company has an administrative services agreement with R.E. Harrington,
Inc. ("Harrington") pursuant to which Harrington provides indemnity claim
administrative services to the Company. The Company pays Harrington 3.85% of all
claims paid by Harrington, which percentage may be reduced if Harrington does
not meet performance guarantees. The term of this agreement is from January 1,
1995 to December 31, 1996, but the Company may terminate the contract with
90-day advance written notice and the payment of a contractual penalty.

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COMPETITION

There are numerous competitors wherever the Company conducts business,
creating a highly competitive marketplace. The Company's competitors include:
(i) large insurance companies with the capability to offer both managed dental
benefits and traditional dental indemnity insurance; (ii) HMOs that also offer
dental benefits; (iii) self-funded employer programs; (iv) dental PPOs; (v)
discounted, fee-for-service membership plans; and (vi) other local or regional
companies offering prepaid dental plans.

The Company believes the key factors in selecting a particular managed
dental benefits company include: (i) the comprehensiveness and range of prepaid
plans offered; (ii) the quality, accessibility and convenience of dentist
networks; (iii) the responsiveness of customer service; and (iv) the premium
charged. In all of the Company's markets, other prepaid dental plans and
insurance companies compete aggressively on all of these factors, particularly
in situations where the selection is through a competitive bidding process.
Certain markets also have intense price competition that could occur in all
markets in the future. In recent years, the Company has seen increasing
competition coming from all competitive sectors and the Company anticipates that
this trend will continue.

Larger, national indemnity insurance companies that offer both prepaid and
indemnity dental coverage may have a competitive advantage over independent
dental plans due to availability of multiple product lines, established business
relationships, better name recognition and greater financial and information
systems resources. The Company believes that it can effectively compete with
insurance companies due to the specialized focus of its management team and
resources directed towards developing competitive dental benefits plans at
generally lower premiums.

While some medical HMOs offer their own prepaid dental plans, others
contract with independent managed dental plans for those services. The Company
believes that it can compete with HMOs that offer dental benefits and pursue
opportunities to form alliances with HMOs to offer dental benefits to HMO
members. See "-- Sales and Marketing."

GOVERNMENT REGULATION

General

State insurance laws and other governmental regulations establish various
licensing, operational, financial and other requirements relating to the prepaid
dental plan business. State insurance departments and other regulatory agencies
are typically empowered to interpret such laws and promulgate regulations
applicable to the prepaid dental plan business. The laws and regulations
relating to the health care industry in general, and prepaid dental plans
specifically, are rapidly developing and have been the subject of numerous past
and present proposals which, if adopted, could adversely affect the Company's
business. Such proposals have included proposals that would require the Company
to admit "any willing provider" to its dental networks, create mandatory minimum
capitation payments to dental providers and specify minimum loss ratios or
mandate schedules of benefits. In addition, the Company's insurance company
subsidiary is subject to numerous laws and regulations applicable to insurance
companies generally. The Company is unable to predict the extent to which
changes to existing laws and regulations will be adopted or the effect that any
such changes may have on the Company's business.

The Company's ability to conduct its business in additional states is
subject to regulatory approvals required in connection with either acquisitions
of existing prepaid dental plan businesses or the application of the Company to
conduct its existing business in additional states. Approvals to acquire another
licensed prepaid dental plan business often require six months or longer to
obtain while licenses and approvals necessary to commence operations of the
Company's existing business in an additional state can require two years or
longer to obtain. In addition, no assurance can be given that the Company's
applications for any such licenses or approvals will be granted, in which case
the Company's plans to expand in additional states would be adversely affected.
In circumstances where the Company is unable to obtain licenses to conduct its
business in a particular state or pending the grant of a license, the Company
would be required to conduct business through contractual arrangements with a
licensed insurance company or a licensed HMO, which arrange-

33
<PAGE> 35

ments are typically less advantageous to the Company than its independent
offering of its prepaid dental plans. See "-- Business Strategy."

In addition to regulatory approvals for acquisitions and additional
licenses, various regulatory approvals and filing requirements may apply to
ongoing aspects of the Company's business such as approvals for benefits plans
offered, premium rates and certain contractual relationships with HMOs and
insurance companies. If the Company fails to maintain compliance with all
material regulations, regulatory authorities are empowered to take certain
actions against the Company such as license revocations that could adversely
affect the Company's ability to conduct business.

United Dental Care Insurance Company

UDCIC is licensed to conduct business in 25 states. UDCIC is a traditional
indemnity insurance carrier and therefore assumes underwriting risk. Currently,
UDCIC provides the indemnity portion of some of the Company's dual choice plans.
UDCIC has not issued any other form of insurance, and its maximum coverage under
each dental insurance policy is generally $1,000.

UDCIC is regulated by the Arizona Department of Insurance and the
departments of insurance of the other states in which UDCIC is licensed to
transact insurance business. The Company's ability to expand UDCIC's insurance
operations into states in which UDCIC is not currently licensed is dependent,
for the most part, on prior regulatory approval, which must be sought from the
department of insurance in each state in which the Company is applying. Such
reviews may take from six months to two years or more. Insurance companies are
heavily regulated and require significant cash deposits for capital and surplus.
The regulations of the various state insurance departments include specific
requirements with regard to such matters as minimum capital and surplus,
permitted investments, advertising, policy forms and claims processing
requirements. See "-- Legal Proceedings."

In December 1992, the National Association of Insurance Commissioners
approved risk-based capital ("RBC") standards for life and/or health insurance
companies, as well as a Model Act (the "RBC Model Act") to apply to such
standards at the state level. The RBC Model Act requires an insurance company to
submit an annual RBC report which compares its total adjusted capital with its
risk-based capital as calculated by an RBC formula which takes into account the
risk characteristics of the company's investments and products. The RBC formula
includes capital requirements for four categories of risk: asset risk, insurance
risk, interest rate risk and business risk, with capital requirements increasing
for higher levels of risk. There are four levels of progressively more intense
regulatory action against insurance companies whose total adjusted capital does
not meet the RBC standards, starting with the company being required to submit a
plan to improve its capitalization and ending with the state insurance
department placing the company under regulatory control. The State of Arizona
adopted the RBC Model Act effective January 1, 1996. At December 31, 1995,
UDCIC's total adjusted capital was $6.7 million, or 299%, of the "company action
level" of the RBC standard of $2.2 million. If the capital and surplus of UDCIC
does not exceed the "company action level" at December 31, 1997, UDCIC would be
required to submit a business plan to the state regulators. The Company does not
believe that compliance with the RBC standards will adversely affect the
Company's business since the Company estimates that UDCIC will be able to
satisfy such standards without the need for significant capital contributions by
the Company. In addition, the Company does not consider that compliance with the
RBC standards will adversely affect the ability of the Company to meet its
anticipated operating cash requirements.

FACILITIES

The Company leases approximately 26,634 square feet of office space for its
corporate offices in Dallas, Texas under a lease expiring in March 1997. In
addition, the Company leases an aggregate of approximately 55,363 square feet of
space for its other regional and local offices with lease terms expiring at
various times through August 2001.

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<PAGE> 36

EMPLOYEES

At June 30, 1996, the Company employed approximately 296 employees, of
which 92 were sales personnel, 51 were customer service personnel, 32 were
provider relations personnel, seven were dental directors and 114 were
administrative personnel. The Company has no collective bargaining agreements
with any unions and believes that its overall relations with its employees are
good.

INSURANCE

The Company carries general liability, comprehensive property damage,
workers' compensation and other insurance coverages that management considers
adequate for the protection of the Company's assets and operations. There can be
no assurance, however, that the coverage limits of such policies will be
adequate. A successful claim against the Company in excess of its insurance
coverage could have a material adverse effect on the Company.

LEGAL PROCEEDINGS

On May 24, 1996, the Arizona Department of Insurance filed a Notice of
Administrative Hearing against the Company alleging that the Company consummated
its acquisition of AHP in January 1996 without complying with the requirements
of the Arizona Insurance Holding Company Act (the "Act"). AHP is licensed in
Arizona as a prepaid dental plan organization. The Company did not make a filing
under the Act in connection with the AHP acquisition because the Company's
interpretation is that the Act does not apply to AHP since AHP is not an
"insurer" as defined by and subject to the Act. Pursuant to the notice, the
Arizona Department of Insurance seeks a fine of up to $50,000 against the
Company, a fine of up to $10,000 against an officer of the Company and an order
directing compliance with the Act in connection with the AHP acquisition. The
Arizona Department of Insurance has broad powers to seek other remedies,
including injunctive relief and license revocation. There can be no assurance as
to what relief may ultimately be sought or obtained by the Arizona Department of
Insurance. The Company has filed an answer denying the allegations. A final
determination against the Company could have a material adverse effect on the
Company.

The Company is, and may be in the future, party to litigation arising in
the course of its business. The Company carries insurance protecting it against
liability arising out of the provision of dental care services by contracting
dentists, who are not employees or agents of the Company. Claims against the
Company arising out of the provision of dental care services by contracting
dentists historically have been rare, but there can be no assurance that the
Company will not become involved in such litigation or otherwise become subject
to claims relating to its contracting dentists in the future. While the Company
has no significant pending claims, there can be no assurance that the Company's
insurance coverage will be adequate to cover all liabilities arising out of such
claims or that any such claims will be covered by the Company's insurance. Any
material claim which is not covered by insurance may have an adverse effect on
the Company's business. Claims against the Company, regardless of their merit or
outcome, may also have an adverse effect on the Company's reputation and
business.

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<PAGE> 37

PENDING AND RECENT ACQUISITIONS

PENDING ACQUISITIONS

The Company has recently entered into agreements to acquire five managed
dental benefits companies operating prepaid dental plans in New Jersey, Florida,
Oklahoma, Missouri, Kansas and Michigan having approximately 440,000 members in
the aggregate at June 30, 1996. In addition, the Company has recently entered
into an agreement to acquire a company that operates a multi-state dental
referral plan having approximately 60,000 members at June 30, 1996. Upon
completion of the acquisitions, the Company will obtain licenses to operate
prepaid dental plans in four additional states and a license to operate an
indemnity plan in one additional state.

OraCare Transaction

On September 5, 1996, the Company entered into agreements to acquire
OraCare DPO ("OraCare"), a New Jersey prepaid dental plan having approximately
150,000 members at June 30, 1996, and to acquire a management company affiliated
with OraCare. Approximately 75.6% of OraCare's members are Medicaid members of
medical HMOs that contract with OraCare to provide the dental benefits under
their plans. Members of one medical HMO represent approximately 34.4% of
OraCare's total membership. In addition, as a part of the transaction, the
Company agreed to cause one of its affiliates to acquire a dental professional
association owned by the majority stockholder of OraCare. The affiliated
management company provides management services to both the prepaid dental plan
and the professional association which, as of June 30, 1996, operated eight
dental clinics servicing both members of the OraCare prepaid dental plan and
other third-party prepaid and fee-for-service patients.

The OraCare entities had combined revenues of $9.2 million and $7.6 million
for the years ended December 31, 1995 and 1994, respectively, and $6.7 million
for the six months ended June 30, 1996. The consideration to be paid by the
Company in connection with the OraCare transaction is $30.5 million plus certain
contingent payments up to a maximum aggregate amount of $6.0 million based on
the financial performance of the Company in the States of New Jersey and
Pennsylvania in 1997 and 1998. The Company presently anticipates that
approximately $30.2 million of the initial consideration in the OraCare
transaction will be allocated to goodwill for financial statement purposes. See
"-- Acquisition Accounting Principles," the OraCare Combined Financial
Statements and the Notes thereto and the Unaudited Pro Forma Condensed Combined
Financial Statements.

In connection with the OraCare transaction, the Company will enter into
employment agreements with two former OraCare stockholders as operating officers
of the OraCare management company and two former stockholders as dental
directors and dental providers of the professional association. In addition, the
OraCare management company will enter into a long-term management contract
pursuant to which it will furnish the facilities and equipment and certain
management services to the OraCare professional association relating to the
operation of its dental clinics. The capital stock of the OraCare professional
association will be acquired by a licensed New Jersey dentist designated by the
Company because of New Jersey regulations prohibiting the corporate practice of
dentistry. The OraCare transaction is subject to the receipt of New Jersey
regulatory approvals.

UICI Transactions

On September 10, 1996, the Company entered into definitive agreements to
acquire three companies, two of which are wholly owned by UICI, formerly known
as United Insurance Companies, Inc., and one of which is majority owned by UICI.
The companies that will be acquired are: (i) United Dental Care, Inc.
("United"), which, through an indemnity insurance subsidiary, operates a prepaid
dental plan in Oklahoma having approximately 90,000 members at June 30, 1996;
(ii) International Dental Plan, Inc. ("IDP"), which operates a prepaid dental
plan in Florida having approximately 100,000 members at June 30, 1996; and (iii)
Association Dental Plan, Inc. ("ADP"), which operates a multi-state dental
referral plan having approximately 60,000 members at June 30, 1996.

36
<PAGE> 38

The consideration to be paid by the Company in connection with the United
transaction is approximately $5.8 million (subject to adjustment based on the
net worth of United at the time of closing less $750,000, which at June 30, 1996
would have resulted in additional consideration of approximately $1.6 million).
In connection with the United transaction, the Company will enter into four-year
employment agreements with two employees of United. The consideration to be paid
by the Company in the IDP transaction is $4.5 million and the consideration to
be paid in the ADP transaction is $2.5 million. In addition, in connection with
the ADP transaction, a note owed by ADP to UICI having a balance of
approximately $770,000 will be repaid in full.

United, IDP and ADP had combined revenues of approximately $16.6 million
for the year ended December 31, 1995 and $8.8 million for the six months ended
June 30, 1996. The Company presently anticipates that approximately $10.4
million will be allocated to goodwill for financial statement purposes in
connection with these transactions. See "-- Acquisition Accounting Principles,"
the UICI Dental Companies Combined Financial Statements and the Notes thereto
and the Unaudited Pro Forma Condensed Combined Financial Statements.

The United transaction is subject to receipt of Oklahoma regulatory
approval. The IDP transaction is subject to the receipt of Florida regulatory
approval. The United and ADP transactions are also subject to the Company and
two marketing entities affiliated with UICI having approximately 5,000 dedicated
agents entering into a marketing agreement pursuant to which such agents will
market the dental benefit products of the Company.

Kansas City Dental Care Transaction

On September 11, 1996, the Company entered into an agreement to acquire
Kansas City Dental Care, Inc. ("KCDC"), which operates prepaid dental plans in
Missouri and Kansas having approximately 90,000 members in the aggregate as of
June 30, 1996. KCDC had revenues of approximately $8.4 million for the year
ended December 31, 1995 and approximately $4.8 million for the six months ended
June 30, 1996. The consideration to be paid by the Company in connection with
the KCDC transaction is $12.5 million plus a contingent payment up to a maximum
of $2.0 million based on the financial performance of the Company operations in
the states of Missouri and Kansas in the second year after completion of the
acquisition. The Company presently contemplates that approximately $12.4 million
of the consideration to be paid in the KCDC transaction will be allocated to
goodwill for financial statement purposes. In connection with the KCDC
transaction, the Company will enter into three-year employment agreements with
two management officers of KCDC, one of whom is a stockholder and officer of
KCDC and the other of whom is the current chief executive officer (and stock
option holder) of KCDC. The KCDC transaction is subject to the receipt of
Missouri and Kansas regulatory approvals. The Company currently operates prepaid
dental plans in both states. See the Kansas City Dental Care Financial
Statements and the Notes thereto and "Unaudited Pro Forma Condensed Combined
Financial Statements."

Independent Dental Plan Transaction

On June 28, 1996, the Company entered into an agreement to acquire
Independent Dental Plan, Inc. ("Independent"), which operates a prepaid dental
plan in Michigan having approximately 10,000 members at June 30, 1996.
Independent had revenues of approximately $1.7 million for the year ended
December 31, 1995 and $0.9 million for the six months ended June 30, 1996. The
consideration to be paid by the Company in connection with the Independent
transaction is approximately $1.2 million. In addition, in connection with the
Independent transaction, the Company will enter into employment agreements with
two of the operating officers of Independent.

The Company intends to use the net proceeds of this offering to finance the
Pending Acquisitions, most of which are anticipated to be completed following
completion of this offering. However, none of the Pending Acquisitions are
subject to completion of this offering, and this offering is not subject to
completion of any of the Pending Acquisitions. The Company has secured a
commitment for a revolving line of credit in an amount up to $50 million with an
unaffiliated bank to finance the Pending Acquisitions if they are consummated
prior

37
<PAGE> 39

to completion of this offering. In that event, the loan would be repaid in full
out of the net proceeds of this offering. See "Management's Discussion And
Analysis Of Financial Condition and Results Of Operations -- Credit Facilities."

Except as otherwise noted in this Prospectus, all information in this
Prospectus regarding the Company and its subsidiaries excludes information
relating to the Pending Acquisitions.

RECENT ACQUISITIONS

US Dental Transaction

Effective November 1, 1995, the Company acquired U.S. Dental Management,
Inc. ("US Dental"), which operated prepaid dental plans in Arizona, New Mexico,
Nebraska and Colorado and administered a prepaid dental plan owned by a third
party in Nevada. The US Dental plans had approximately 163,000 members at the
time of the acquisition. US Dental had revenues of approximately $13.3 million
and $13.0 million for the years ended December 31, 1995 and 1994, respectively.
The consideration paid by the Company in the US Dental acquisition was
approximately $12.6 million, which included the present value of amounts payable
under 50-month consulting agreements and 36-month non-competition agreements
with the two former stockholders of US Dental.

The consideration paid in the US Dental acquisition was allocated for
financial statement purposes in the amounts of approximately $11.7 million to
goodwill, approximately $0.2 million to the non-competition and consulting
agreements and the balance to tangible assets. See "-- Acquisition Accounting
Principles."

AHP Transaction

Effective February 1, 1996, the Company acquired Associated Health Plans,
Inc. ("AHP"), which operated prepaid dental plans in Arizona having
approximately 220,000 members at the time of the acquisition. AHP had revenues
of approximately $14.2 million and $12.6 million for the years ended December
31, 1995 and 1994, respectively. The consideration paid by the Company in the
AHP transaction was approximately $15.0 million, which includes the present
value of amounts payable under 36-month non-competition agreements with four
former stockholders of AHP. The consideration paid in the AHP transaction was
allocated for financial statement purposes in amounts of approximately $14.1
million to goodwill, approximately $0.6 million to the non-competition
agreements and the balance to tangible assets. In making such allocation, the
Company applied the same accounting principles that it applied in connection
with the US Dental acquisition. See "-- Acquisition Accounting Principles."

ACQUISITION ACCOUNTING PRINCIPLES

A substantial majority of the consideration paid by the Company in the US
Dental and AHP acquisitions was allocated to goodwill for financial statement
purposes. Goodwill relates to items traditionally associated with going concern
values such as the reputation of an acquired entity in its markets, name
recognition, the ability to maintain and further develop systems and market
position in geographic areas in which the Company previously did not have a
market position. The allocations made in the US Dental and AHP acquisitions were
not based on third-party appraisals. The Company relied on its own expertise and
experience in the industry in making the valuation for such allocation. Other
than the amounts allocated to the non-competition and consulting agreements, the
Company did not allocate any portion of the consideration to other intangibles
such as dentist networks and subscriber contracts. The amounts allocated as the
values of the non-competition and consulting agreements were significantly below
the contractual payments due under such agreements based on an estimate by the
Company of the value of the benefits expected under such agreements. See the
Company's Consolidated Financial Statements and the Notes thereto, the US Dental
Financial Statements and the Notes thereto, the AHP Combined Financial
Statements and the Notes thereto and the Unaudited Pro Forma Condensed
Consolidated Financial Statements.

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<PAGE> 40

The Company did not allocate any portion of the US Dental or AHP
consideration to dentist networks because the dentist provider contracts were
non-exclusive and could be terminated on limited notice. The Company believes
that the expense attributable to recruiting new dentists does not constitute a
material portion of the Company's expenses incurred with respect to its ongoing
activities relating to credentialing dentists and maintaining its dental
provider relationships. The Company did not allocate any portion of the US
Dental or AHP consideration to subscriber contracts because the employer group
agreements generally had terms of less than one year. Additionally, individual
subscribers could terminate participation in the plan periodically during the
term of the employer group agreement, or at any time, if they cease to be
employed by the employer. The cost relating to recruiting, credentialing and
maintaining dentist networks and to sales and to account maintenance efforts are
expensed by the Company as incurred.

The Company intends to apply the same accounting principles it applied in
connection with the US Dental and AHP acquisitions in allocating for financial
statement purposes the consideration to be paid in connection with the Pending
Acquisitions.

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<PAGE> 41

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information concerning the executive
officers and directors of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -------------------------------------------------
<S> <C> <C>
William H. Wilcox(1)................. 44 President, Chief Executive Officer and Director
Mark E. Pape......................... 46 Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
Peter R. Barnett, DMD................ 44 Senior Vice President and Chief Operating Officer
Jack R. Anderson(1)(2)............... 71 Chairman of the Board of Directors
James B. Kingston.................... 43 Vice Chairman of the Board of Directors
James K. Newman(1)................... 52 Director
William H. Longfield(2).............. 58 Director
George E. Bello(3)................... 60 Director
James E. Buncher(3).................. 60 Director
Donald E. Steen...................... 49 Director
Robert J. Nettinga................... 45 Director
</TABLE>

- ---------------

(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.

Mr. Wilcox has been the President and Chief Executive Officer and a
Director of the Company since May 1996. He succeeded Mr. Kingston who had served
as the President of the Company since its inception in December 1985. From
September 1994 to May 1996, he served as a Group President of Columbia/HCA
Healthcare Corporation, a health care services corporation primarily involved in
the ownership and operation of hospitals and the provision of related services.
From September 1992 to September 1994, Mr. Wilcox was Chief Operating Officer of
Medical Care America, Inc., a corporation that operated ambulatory surgery
centers. Medical Care America, Inc. was acquired by Columbia/HCA Healthcare
Corporation in September 1994. Mr. Wilcox served as Executive Vice President and
Chief Operating Officer of Medical Care International, a predecessor to Medical
Care America, from 1983 to September 1992.

Mr. Pape has been Senior Vice President and Chief Financial Officer,
Treasurer and Secretary of the Company since January 1995. From September 1991
to January 1995, he was the Executive Vice President and Chief Financial Officer
of American Income Holding, Inc., an insurance holding company with subsidiaries
that issued individual supplemental life and accident insurance. From January
1988 to September 1991, he was an associate director of Bear, Stearns & Co.
Inc., an investment banking company.

Dr. Barnett served as Senior Vice President, Operations of the Company from
January 1995 until January 1996, when he became Senior Vice President and Chief
Operating Officer. From August 1994 to January 1995 he was the Executive
Director of Prudential DMO, a managed dental care company, where he was
responsible for its southeastern United States operations. From March 1993 to
August 1994, he was an independent consultant to managed health care companies.
From October 1991 to March 1993, he was a Senior Vice President of Pearle
Vision, Inc., an optical care company, where he had responsibility for managed
vision care programs, quality assurance, professional affairs and franchise
operations. He served as a Vice President of Pearle Vision, Inc. from July 1988
to October 1991.

Mr. Anderson has been Chairman of the Board of Directors of the Company
since December 1985. Mr. Anderson has been the President of Calver Corporation,
a health care consulting and investment firm, and a private investor since 1982.
Mr. Anderson currently serves on the board of directors of FHP International
Corporation and Horizon Mental Health Management, Inc.

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<PAGE> 42

Mr. Kingston has served as a Director of the Company since December 1985.
He became Vice Chairman of the Board in February 1996. He served as the
President and Chief Executive Officer of the Company from December 1985 until
May 1996. Since May 1996, Mr. Kingston has been a private investor. He served as
Chairman of the National Association of Dental Plans for 1994 and 1995 and
previously served as a director of that organization from 1989 to 1992 and as
chairman of its legislative committee from 1990 to 1992.

Mr. Newman has been a Director of the Company since January 1986. Mr.
Newman has been the President and Chief Executive Officer of Horizon Mental
Health Management, Inc., a contract manager of mental health services and
programs for general acute care hospitals, since July 1989. Mr. Newman currently
serves on the board of directors of Horizon Mental Health Management, Inc. and
Telecare Corporation.

Mr. Longfield has been a Director of the Company since January 1986. He has
been the Chairman and Chief Executive Officer of C.R. Bard, Inc., a
multi-national developer, manufacturer and marketer of health care products,
since September 1995. He was President and Chief Executive Officer of C.R. Bard,
Inc. from October 1993 to September 1995, President and Chief Operating Officer
from September 1991 to October 1993 and Executive Vice President and Chief
Operating Officer from February 1989 to September 1991. Mr. Longfield currently
serves on the board of directors of C.R. Bard, Inc., Manor Care, Inc., Horizon
Mental Health Management, Inc., The West Company, Health Industry Manufacturers
Association and Atlantic Health Systems. He is currently a Trustee of Centenary
College.

Mr. Bello was elected to the Board of Directors in December 1995. Mr. Bello
has been Executive Vice President and Controller of Reliance Group Holdings,
Inc., an insurance holding company, since 1979. Mr. Bello serves on the board of
directors of Reliance Group Holdings, Inc., Reliance Financial Services
Corporation, Zenith National Insurance Corp. and Horizon Mental Health
Management, Inc.

Mr. Buncher was elected to the Board of Directors in February 1996. Mr.
Buncher has served as President of Health Plans Group of Value Health, Inc., a
national specialty managed care company, since September 1995 and as President
and Chief Executive Officer of Community Care Network, Inc., a Value Health
subsidiary, since August 1992. During 1992, he served as a general management
consultant to TakeCare, Inc., a managed care company, and, from 1987 through
1991, he served as a general partner in Lake Investments, a Dallas, Texas-based
investment company. He currently serves on the board of directors of Alliance
Imaging, Inc.

Mr. Steen was elected to the Board of Directors in April 1996. He has been
President of the International Group of Columbia/HCA Healthcare Corporation
since September 1994. From August 1981 to September 1994, Mr. Steen was Chief
Executive Officer of Medical Care America, Inc. Mr. Steen currently serves on
the board of directors of Horizon Mental Health Management, Inc.

Mr. Nettinga, a private investor, has been a Director of the Company since
September 1994. Mr. Nettinga was a founder of the predecessor to IDH and served
as a director of IDH and its predecessor from 1977 until 1994. Since September
1994, Mr. Nettinga has been a private investor.

There are no family relationships between any executive officers and
directors of the Company. The Board of Directors is presently authorized to
consist of nine members.

The Company, certain of its stockholders and Mr. Nettinga entered into a
Stockholders Agreement dated September 16, 1994 pursuant to which such
stockholders agreed to vote all shares of Common Stock owned by them for the
election of Mr. Nettinga as a Director of the Company, and the Company and such
stockholders agreed that the Board of Directors of the Company would consist of
not less than seven members. The Stockholders Agreement has a term ending upon
the earlier of four years from the date of the agreement or the date on which
all obligations are paid under a non-competition agreement and a consulting
agreement among the Company, Mr. Nettinga and an affiliated entity. The
stockholders who are parties to the Stockholders Agreement include Messrs.
Kingston, Anderson, Newman and Longfield. The stockholders who are parties to
the Stockholders Agreement beneficially own in the aggregate approximately 15.6%
of the Common Stock of the Company outstanding prior to this offering and will
beneficially own in the aggregate approximately 12.1% of the Common Stock
outstanding after this offering. See "Principal Stockholders" and "Certain
Transactions."

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<PAGE> 43

EXECUTIVE COMPENSATION

The following table provides certain summary information concerning
compensation awarded to, earned by or paid to the Chief Executive Officer and
other officers of the Company named below (collectively, the "Named Executive
Officers") for the periods indicated.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- ------------
OTHER ANNUAL SECURITIES
COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) (2) OPTIONS(#)
- --------------------------------- ---- -------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
James B. Kingston(3)............. 1995 $180,000 $200,000 $ 4,901 --
Vice Chairman of the Board 1994 150,000 60,000 2,100 48,000
Mark E. Pape(4).................. 1995 137,760 53,400 2,467 40,000
Senior Vice President and Chief
Financial Officer
Peter R. Barnett, DMD(5)......... 1995 123,216 51,200 2,586 30,000
Senior Vice President and Chief
Operating Officer
</TABLE>

- ---------------

(1) Amounts shown for 1995 represent bonuses earned in the year ended December
31, 1995 and paid in 1996. Amounts shown for 1994 represent bonuses earned
in 1994 and paid in 1995. Excludes deferred bonus payments not payable until
1997, or later, that are contingent upon continued employment with the
Company. Such deferred amounts for Mr. Kingston, Mr. Pape and Dr. Barnett
were $32,200, $19,320, and $18,030, respectively.

(2) Represents premiums paid by the Company for the employee's health insurance,
net of employee's contribution.

(3) Mr. Kingston served as President and Chief Executive Officer of the Company
until May 1996. He continues to serve as Vice Chairman of the Board of
Directors. Mr. Kingston does not currently hold any stock options.

(4) Mr. Pape joined the Company in January 1995. In January 1995, Mr. Pape was
granted stock options to purchase 40,000 shares of Common Stock at a price
of $6.00 per share. Such options vest in five equal annual installments
beginning January 1997. In January 1995, Mr. Pape purchased from the Company
warrants to purchase 40,000 shares of Common Stock.

(5) Dr. Barnett joined the Company in January 1995. In January 1995, Dr. Barnett
was granted stock options to purchase 30,000 shares of Common Stock at a
price of $6.00 per share. Such options vest in five equal annual
installments beginning in January 1997.

STOCK OPTIONS

The following table sets forth information regarding the grant of options
to purchase shares of Common Stock to the executive officers of the Company who
received such grants in the year ended December 31, 1995. No stock appreciation
rights have been granted.

OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------------ ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED TO EXERCISE OR FOR OPTION TERMS(3)
GRANTED(1) EMPLOYEES IN BASE PRICE(2) EXPIRATION --------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5% 10%
- ----------------------- ------------------ ------------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Mark E. Pape........... 40,000 50.0% $6.00 01/01/2002 $150,800 $382,400
Peter R. Barnett,
DMD.................. 30,000 37.5 6.00 01/01/2002 113,100 286,800
</TABLE>

42
<PAGE> 44

- ---------------

(1) The options shown have a maximum term of eight years, subject to earlier
termination in the event employment with the Company is terminated. The
options vest and are exercisable cumulatively in equal installments over a
five-year period commencing two years from the date of grant.

(2) The exercise price per share of the options equaled or exceeded the fair
market value of the underlying shares of Common Stock on the date the
options were granted, as determined by the Company's Board of Directors.

(3) There is no assurance provided to any executive officer or any other holder
of the Company's securities that the actual stock price appreciation over
the option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock does in fact
appreciate over the option term, no value will be realized from the option
grants.

OPTION HOLDINGS

The following table sets forth certain information concerning stock options
exercised in the year ended December 31, 1995 and the number of shares covered
by unexercised stock options held by the executive officers of the Company who
held stock options outstanding as of December 31, 1995. Also reported are values
of "in-the-money" stock options representing the difference between the
respective exercise prices of such outstanding stock options and the fair market
value of the Common Stock as of December 31, 1995.

AGGREGATED OPTION EXERCISES
IN YEAR ENDED DECEMBER 31, 1995
AND
OPTION VALUES AS OF DECEMBER 31, 1995

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END(#)(1) AT FISCAL YEAR-END(2)
SHARES ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE(#) VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James B. Kingston(3).... 260,000 $1,490,000 -- 110,000 -- $ 4,062,750
Mark E. Pape............ -- -- -- 40,000 -- 1,405,000
Peter R. Barnett, DMD... -- -- -- 30,000 -- 1,053,750
</TABLE>

- ---------------

(1) The options shown for each of the executive officers have a maximum term of
ten years, subject to earlier termination in the event of the optionee's
cessation of service with the Company.

(2) Calculated based on $41.13 per share, the closing sales price of the Common
Stock on the Nasdaq National Market on the last business day of 1995
(December 29), less the applicable exercise price.

(3) Mr. Kingston exercised options for 260,000 shares on June 19, 1995. The
aggregate exercise price for such options was $330,000, and the value of
the Common Stock on the exercise date was estimated to be $7.00 per share.
Mr. Kingston currently does not hold any stock options.

1996 EXECUTIVE INCENTIVE PLAN

The Company has adopted an incentive bonus plan for its executive and other
officers for 1996. Under the bonus plan, officers are entitled to earn certain
cash bonuses if specified performance criteria are satisfied. The target bonuses
that may be earned by the executive officers of the Company under the bonus plan
are: (i) $170,000 for Mr. Wilcox; (ii) $110,000 for Mr. Pape; and (iii) $110,000
for Dr. Barnett. The bonuses are payable in 1997, except a portion of the bonus
earned may be deferred and payable in future years.

STOCK OPTION PLANS

1989 Stock Option Plan

The Company has a 1989 Key Employee Stock Option Plan (the "1989 Stock
Option Plan") that was adopted in April 1989. The 1989 Stock Option Plan
provides that a total of 724,000 shares of Common Stock of the Company may be
issued pursuant to nonqualified options granted thereunder. At June 30, 1996,
options

43
<PAGE> 45

for the entire 724,000 shares were outstanding or had been exercised. The Board
of Directors has terminated the 1989 Stock Option Plan for the purposes of any
additional stock option grants thereunder.

1995 Stock Option Plan

The Company has a 1995 Stock Option Plan (the "1995 Stock Option Plan")
that was adopted by the Company's Board of Directors in April 1995 and approved
by the stockholders of the Company in September 1995. The 1995 Stock Option Plan
provides that a total of 800,000 shares of Common Stock of the Company may be
issued pursuant to nonqualified options granted thereunder. In addition to
discretionary grants of stock options to employees, the 1995 Stock Option Plan
provides for the automatic one-time grant of stock options for 16,000 shares of
Common Stock to certain qualifying non-employee directors who were either
serving on the Board of Directors of the Company when the 1995 Stock Option Plan
was adopted by the Board of Directors or who are elected to the Board of
Directors in the future to the extent that options are available under the 1995
Stock Option Plan. At June 30, 1996, options for 405,000 shares had been granted
under the 1995 Stock Option Plan.

401(K) PLAN

The Company maintains the United Dental Care, Inc. 401(k) Plan (the "401(k)
Plan"). The 401(k) Plan is an individual account, defined contribution plan
which provides for deferred compensation as described in Section 401(k) of the
Internal Revenue Code of 1986. The 401(k) Plan is subject to the principal
protective provisions of Titles I and II of the Employee Retirement Income
Security Act of 1974.

EMPLOYMENT AGREEMENTS

The Company has entered into an employment agreement with William H. Wilcox
pursuant to which he is employed as the President and Chief Executive Officer of
the Company at a base salary of $300,000 per year. The employment agreement has
a term until May 31, 1999 but may be terminated by either party upon 60 days
prior notice. Termination by the Company requires the approval of 75% of the
members of the Board of Directors. In the event of termination without cause,
the Company is required to pay a severance payment to Mr. Wilcox in an amount
equal to the amount of his base salary for the lesser of 24 months or the then
remaining term of the employment agreement, plus a bonus equal to the average of
the annual bonuses paid to Mr. Wilcox in the preceding two calendar years. In
addition, in such event, all stock options then held by Mr. Wilcox become fully
vested and exercisable within 90 days after the date of termination, although,
under certain conditions, the Board may continue the exercisability of such
options as originally scheduled (but without any vesting conditions other than
the passage of time). In the event Mr. Wilcox cannot obtain third-party
financing to exercise the options, the Company is obligated to make a one-year
loan to Mr. Wilcox in an amount necessary to exercise the options. In the event
a change of control of the Company occurs, Mr. Wilcox may resign with good
reason if there is a material diminution of his responsibilities, position or
authority, or the Company fails to perform its obligations under the agreement
and, in such event, all stock options held by Mr. Wilcox will become fully
vested and exercisable for a period of 90 days but no severance payments will be
due. The employment agreement contains non-competition provisions that survive
for the greater of one year or the period of time severance payments are being
made or stock options remain exercisable or a loan from the Company to Mr.
Wilcox is outstanding. In connection with his employment, Mr. Wilcox was also
granted stock options for 300,000 shares of Common Stock at an exercise price of
$33.75 per share.

The Company has entered into an employment agreement with Mark E. Pape
pursuant to which he is employed as the Senior Vice President and Chief
Financial Officer of the Company. The employment agreement is on substantially
the same terms as the employment agreement with Mr. Wilcox except the agreement
has a term until May 31, 1998, the base salary for Mr. Pape is $165,000, the
severance payment is based on the lesser of 12 months of base salary or the base
salary payable over the remaining term of the agreement and only 50% of the
unvested stock options held by Mr. Pape are accelerated in the event of
termination without cause by the Company or resignation for good reason by Mr.
Pape after a change of control.

44
<PAGE> 46

The Company has entered into an employment agreement with Peter R. Barnett
pursuant to which he is employed as a Senior Vice President and Chief Operating
Officer of the Company. The employment agreement has identical terms, including
base salary, as the employment agreement with Mr. Pape.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Executive officer compensation decisions are made by the Compensation
Committee of the Board of Directors of the Company. Members of the Compensation
Committee currently are Messrs. Anderson and Longfield. Neither of these
individuals were at any time during the year ended December 31, 1995, or at any
time prior thereto, an officer or employee of the Company or any of its
subsidiaries. Upon completion of the offering, executive officer compensation
decisions will continue to be made by the Compensation Committee. During 1995,
no executive officer of the Company served as a director or as a member of the
compensation committee of any entity in which an executive officer of such
entity served as a director of the Company or as a member of the Company's
Compensation Committee. See "Principal Stockholders."

DIRECTOR COMPENSATION

Directors do not receive compensation for service on the Board of Directors
or any committee thereof but are reimbursed for their out-of-pocket expenses
incurred in attending meetings of the Board of Directors and committees.
Qualifying directors who are not employees of the Company receive an automatic
one-time grant of options for 16,000 shares of Common Stock of the Company under
the 1995 Stock Option Plan. See "-- 1995 Stock Option Plan."

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Section 145 of the Delaware General Corporation Law ("Delaware Law"),
the Company has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act. The Company's Bylaws provide that the Company shall indemnify
its directors and officers to the full extent permitted by law. The Bylaws also
provide that rights conferred thereunder shall not be deemed to be exclusive of
any other right such persons may have or acquire under any statute, the
Certificate of Incorporation, the Bylaws, agreement, vote of stockholders or
disinterested directors, or otherwise.

The Certificate of Incorporation provides that, pursuant to Delaware Law,
the Company's directors shall not be liable for monetary damages for breach of
the directors' fiduciary duty of care to the Company and its stockholders. This
provision in the Certificate of Incorporation does not eliminate the duty of
care, and in appropriate circumstances equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Delaware Law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Company or its stockholders, for acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware Law. The provision also does not
effect a director's responsibilities under any other law, such as the Federal
securities laws or state or Federal environmental laws.

45
<PAGE> 47

CERTAIN TRANSACTIONS

On September 16, 1994, the Company acquired all the issued and outstanding
capital stock of International Dental Health, Inc., a dental benefits company
("IDH"), for a total purchase price of approximately $14.3 million. Mr. Robert
J. Nettinga, a director of the Company, was the president of IDH. The Adaven
Group Limited Partnership was the principal stockholder of IDH and received
approximately $7.5 million in payment for its IDH shares in the transaction. Mr.
Nettinga is the president and principal stockholder of the corporation that is
the general partner of The Adaven Group Limited Partnership. In connection with
such transaction, IDH also paid an outstanding promissory note to Mr. Nettinga
in the amount of $183,770.

The Company also entered into a non-competition agreement with Robert J.
Nettinga and The Adaven Group Limited Partnership and a consulting agreement
with The Adaven Group Limited Partnership. Under the non-competition agreement,
the Company was obligated to pay, in six annual installments commencing in 1994,
approximately $3.3 million in the aggregate. Under the consulting agreement, the
Company was obligated to pay, in six annual installments commencing in 1994,
approximately $1.2 million in the aggregate. The Company has the right to prepay
such installments on a discounted present value basis using a discount rate of
5%. The obligations of the Company under the non-competition agreement and the
consulting agreement are secured by a letter of credit in the original amount of
approximately $4.0 million which amount declines annually after the payment
dates of the annual installments under such agreements.

In the IDH transaction, On-Line, Inc., an assignee of Paul C. Nettinga, the
brother of Robert J. Nettinga, received approximately $1.8 million in payment
for IDH shares. The Company also entered into a non-competition agreement with
Omega Marine Development, Inc. and Paul C. Nettinga under which the Company was
obligated to pay, in six annual installments commencing in 1994, approximately
$0.6 million in the aggregate and a consulting agreement with Omega Marine
Development, Inc. under which the Company was obligated to pay, in six annual
installments commencing in 1994, approximately $0.3 million in the aggregate.
Paul C. Nettinga is the president of Omega Marine Development, Inc. The terms of
the non-competition agreement and the consulting agreement for Paul C. Nettinga
and Omega Marine Development, Inc. are substantially the same as the agreements
with Robert J. Nettinga and The Adaven Group Limited Partnership. IDH also paid
an outstanding promissory note to Paul C. Nettinga in the amount of
approximately $0.3 million. The obligations of the Company under the
non-competition agreement and the consulting agreement are secured by a letter
of credit in the original amount of approximately $0.8 million which amount
declines annually after the payment dates of the annual installments under such
agreements.

The non-competition agreements restrict the parties thereto from competing,
directly or indirectly, with the business of the Company in the continental
United States and from soliciting the employment of any employee of the Company
until September 16, 2000. Under the consulting agreements, the parties thereto
agreed to provide to the Company services as an independent consultant and
adviser with respect to such business and financial matters as may be reasonably
requested by the Company from time to time for a period of six years. The party
providing such consulting services may not be required to render such services
outside of the state of residence of such party without the consent of such
party or at any time that the rendering of such services would interfere with
other business obligations of such party. The Company has not requested any
specific consulting services under the consulting agreements since the IDH
acquisition.

The Company, certain stockholders of the Company and Robert J. Nettinga
entered into a Stockholders Agreement on September 16, 1994 pursuant to which
such stockholders agreed to vote shares of Common Stock of the Company owned by
them for the election of Robert J. Nettinga as a director of the Company until
the earlier of the expiration of four years from the date of such agreement or
the date when all monetary obligations of the Company have been paid under the
non-competition agreement and the consulting agreement with Robert J. Nettinga.
See "Management."

In January 1995, Mark E. Pape, Senior Vice President, Chief Financial
Officer, Treasurer and Secretary of the Company, purchased from the Company
warrants to purchase 40,000 shares of Common Stock. The purchase price of the
40,000 warrants was $2.00 per warrant, and the warrants have an exercise price
of $6.00 per share of Common Stock.

46
<PAGE> 48

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of September 12, 1996 by: (i) each
person known by the Company to own beneficially more than 5% of the outstanding
shares of the Company's Common Stock; (ii) each of the Company's executive
officers and directors; and (iii) all directors and executive officers of the
Company as a group. Except as otherwise noted, the person named has sole voting
and investment power over the shares indicated:

<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED(1)
---------------------
NUMBER PERCENT
--------- -------
<S> <C> <C>
5% STOCKHOLDERS
Citibank, N.A. and George E. Bello, Trustees(2)...................... 778,500 11.3%
T. Rowe Price........................................................ 457,500 6.6
EXECUTIVE OFFICERS AND DIRECTORS
Jack R. Anderson(3).................................................. 1,081,700 15.7
William H. Wilcox.................................................... -- *
George E. Bello(4)................................................... 352,168 5.1
James B. Kingston(5)................................................. 270,704 3.9
James K. Newman...................................................... 95,666 1.4
William H. Longfield................................................. 64,000 1.0
James E. Buncher..................................................... -- --
Donald E. Steen...................................................... 2,000 *
Robert J. Nettinga................................................... 250 *
Mark E. Pape......................................................... 40,139 *
Peter R. Barnett..................................................... 1,541 *
All directors and executive officers as a group (11 persons)(6)...... 1,908,168 27.4%
</TABLE>

- ---------------

* Less than 1%.

(1) The address of Citibank, N.A. and George E. Bello, Trustees is c/o Citibank,
N.A., 153 East 53rd Street, 25th Floor, New York, NY 10043. The address of
T. Rowe Price is 100 E. Pratt Street, Baltimore, MD 21202. The address of
Jack R. Anderson is 14755 Preston Road, Suite 515, Dallas, TX 75240. The
address of George E. Bello is Park Avenue Plaza, 29th Floor, 55 East 52nd
Street, New York, NY 10055.

(2) Citibank, N.A. and George E. Bello are trustees having shared voting and
investment power under two trusts owning in the aggregate the number of
shares shown in the table. Relatives of Jack R. Anderson are beneficiaries
of both trusts. Mr. Anderson disclaims beneficial ownership of the shares
owned by the trusts.

(3) Includes 778,500 shares held by the two trusts of which Citibank, N.A. and
George E. Bello are trustees. Relatives of Mr. Anderson are beneficiaries of
both trusts. Excludes 54,300 shares of Common Stock held by other trusts of
which relatives of Mr. Anderson are beneficiaries. Mr. Anderson disclaims
beneficial ownership of the shares owned by all of the trusts.

(4) Excludes 778,500 shares of Common Stock held by the two trusts of which
Citibank, N.A. and George E. Bello are trustees. Relatives of Mr. Anderson
are beneficiaries of both trusts. Mr. Anderson disclaims beneficial
ownership of the shares owned by the trusts.

(5) Excludes 13,500 shares held by trusts for the benefit of the children of Mr.
Kingston. Mr. Kingston is not a trustee of such trusts, does not have voting
or investment power over such shares and disclaims beneficial ownership of
the shares owned by the trusts. Mr. Kingston has granted the Underwriters a
30-day option to purchase up to 75,000 shares of Common Stock solely to
cover over-allotments, if any. In the event such option is exercised in
full, Mr. Kingston will beneficially own approximately 2.1% of the
outstanding Common Stock of the Company after the offering and the directors
and executive officers of the Company will beneficially own approximately
20.0% of the outstanding Common Stock of the Company after the offering.

(6) After completion of this offering, all directors and executive officers will
collectively beneficially own approximately 21.3% of the outstanding Common
Stock of the Company assuming no exercise of the Underwriters'
over-allotment option.

47
<PAGE> 49

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 15,000,000 shares
of Common Stock, $.10 par value per share, and 500,000 shares of Preferred
Stock, $.10 par value per share.

CAPITAL STOCK

At September 13, 1996, there were 6,908,416 shares of Common Stock
outstanding, and such shares were held by approximately 96 stockholders of
record. Each holder of Common Stock is entitled to one vote for each share held.
The shares of Common Stock do not have cumulative voting rights. Following this
offering, the holders of Common Stock, voting as a single class, will be
entitled to elect all of the directors of the Company. Matters submitted for
stockholder approval generally require a majority vote.

Holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock will be entitled to share ratably in the
Company's assets remaining after the payment of liabilities and the satisfaction
of any liquidation preference granted to the holders of any outstanding shares
of Preferred Stock. Holders of Common Stock have no preemptive or other
subscription rights. The shares of Common Stock are not convertible into any
other security. The outstanding shares of Common Stock are, and the shares being
offered hereby will be, upon issuance and sale, fully paid and nonassessable.
See "Dividend Policy."

At June 30, 1996, there were no shares of Preferred Stock outstanding. The
Company is authorized to issue up to 500,000 shares of undesignated Preferred
Stock.

CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK

Upon completion of the offering, there will be 6,091,584 authorized but
unissued shares of Common Stock and 500,000 authorized but unissued shares of
Preferred Stock, all of which can be issued without stockholder approval. These
additional shares may be utilized for a variety of corporate purposes, including
future public offerings to raise additional capital or to facilitate corporate
acquisitions. The Company does not currently have any plans to issue additional
shares of Common Stock or Preferred Stock (other than shares of Common Stock
which may be issued upon the exercise of options or warrants which have been
granted or which may be granted in the future by the Company).

One of the effects of the existence of unissued and unreserved Common Stock
and Preferred Stock of the Company may be to enable the Board of Directors to
issue shares to persons friendly to current management which could render more
difficult or discourage an attempt to obtain control of the Company by means of
a merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of the Company's management and possibly deprive the stockholders of
opportunities to sell their shares of Common Stock at prices higher than
prevailing market prices. Such additional shares could also be used to dilute
the stock ownership of persons seeking to obtain control of the Company.

The Board of Directors is authorized, without any further action by the
stockholders, to determine the rights, preferences, privileges and restrictions
of the unissued Preferred Stock. One purpose of authorizing the Board of
Directors to determine such rights and preferences is to eliminate delays
associated with a stockholder vote on specific issuances. The Board of Directors
may issue Preferred Stock with voting and conversion rights which could
adversely affect the voting power of the holders of Common Stock and which
could, among other things, have the effect of delaying, deferring or preventing
a change in control of the Company.

CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS

The Delaware General Corporation Law provides that Delaware corporations
may amend their certificates of incorporation to relieve directors of monetary
liability for breach of their fiduciary duty including acts constituting gross
negligence, except under certain circumstances (including breach of the
director's duty of loyalty, acts or omissions not in good faith or involving
intentional misconduct and a knowing violation of law

48
<PAGE> 50

or any transaction from which the director derived improper personal benefit).
The Company's certificate of incorporation provides that the Company's directors
are not liable to the Company or its stockholders for monetary damages for
breach of their fiduciary duties, subject to the exceptions specified by
Delaware law.

Under Delaware law, the exclusive power to adopt, amend and repeal bylaws
is conferred solely on the stockholders unless the corporation's certificate of
incorporation also confers this power upon its board of directors. Under the
Company's Certificate of Incorporation, the Board of Directors has been granted
this power. The Company's Bylaws also provide that the number of directors shall
be as from time to time fixed by resolution of the Board. These provisions, in
addition to the existence of authorized but unissued capital stock, may have the
effect, either alone or in combination with each other, of making more difficult
or discouraging an acquisition of the Company deemed undesirable by the Board of
Directors.

BUSINESS COMBINATIONS

Delaware law prohibits Delaware corporations from engaging in a wide range
of specified transactions with any interested stockholder, defined to include,
among others, any person or entity who in the last three years obtained 15% or
more of any class or series of stock entitled to vote generally in the election
of directors, unless, among other exceptions, the transaction is approved by (i)
the board of directors prior to the date the interested stockholder obtained
such status or (ii) the holders of two-thirds of the outstanding shares of each
class or series of stock entitled to vote generally in the election of
directors, not including those shares owned by the interested stockholder. The
provisions of this statute apply to the Company.

The effect of this statute may be to deter unfriendly offers or other
efforts to obtain control of the Company that are not approved by the Board of
Directors and thereby protect the continuity of the Company's management and
possibly deprive the stockholders of opportunities to sell their shares of
Common Stock at prices higher than prevailing market prices. Such statute may
also tend to induce any persons seeking control of the Company or a business
combination with the Company to negotiate on terms acceptable to the then
elected Board of Directors.

REGULATORY REQUIREMENTS

State insurance laws applicable to the Company typically require regulatory
approval for any proposed change of control of the Company. Generally, a change
of control would be deemed to result if anyone acquired 10% or more of the
outstanding voting stock of the Company, although regulatory authorities
generally have discretion to determine whether a change of control in a
particular case would occur whether or not 10% of the voting stock of the
Company is acquired. Therefore, no one can acquire beneficial ownership of 10%
or more of the outstanding Common Stock of the Company, whether pursuant to this
offering, open market purchases or otherwise, without obtaining prior regulatory
approval. Such regulatory approval requirement could also apply to the
solicitation of proxies to vote 10% or more of the outstanding Common Stock and
therefore could impair the ability of a stockholder to conduct a proxy contest.
The Company could seek a regulatory hearing with respect to any stockholder
proposal to acquire beneficial ownership or proxies for 10% or more of the
Company's Common Stock, and any stockholder that fails to obtain regulatory
approval in such circumstances may be subject to regulatory sanctions including
the possibility of a divestiture order. In addition, failure to comply with such
regulatory requirements could result in adverse consequences to the Company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is First
Union National Bank of North Carolina.

49
<PAGE> 51

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, Cowen & Company and Volpe, Welty & Company,
have severally agreed to purchase from the Company the following respective
numbers of shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------------------------- ---------
<S> <C>
Alex. Brown & Sons Incorporated....................................................
Cowen & Company....................................................................
Volpe, Welty & Company.............................................................
---------
Total.............................................................................. 2,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.

The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $
per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After
the public offering, the offering price and other selling terms may be changed
by the Representatives of the Underwriters.

The Company and James B. Kingston, a director of the Company, have granted
the Underwriters an option, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to 300,000 additional shares of Common Stock in
the aggregate at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus. To the extent that
the Underwriters exercise such option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage thereof that the number
of shares of Common Stock to be purchased by it shown in the above table bears
to 2,000,000, and the Company and Mr. Kingston will be obligated, pursuant to
the option, to sell 225,000 and 75,000 shares, respectively, to the
Underwriters. To the extent that the Underwriters exercise such option, the
first 75,000 shares would be purchased from Mr. Kingston. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of the Common Stock offered hereby. If purchased, the Underwriters will
offer such additional shares on the same terms as those on which the 2,000,000
shares are being offered.

The Company and the selling stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.

The Company, its directors, executive officers and certain stockholders
have agreed that, subject to certain limited exceptions, they will not, for a
period of 90 days after the date of this Prospectus, sell, offer to sell,
contract to sell or otherwise dispose of any shares of Common Stock or any other
securities of the Company without the prior written consent of the
Representatives of the Underwriters, except that the Company may, without such
consent, issue shares of Common Stock under the 1989 Stock Option Plan and grant
options and issue shares of Common Stock under the 1995 Stock Option Plan. In
addition, the Company may issue shares of Common Stock in connection with any
acquisition of another company if the terms of such issuance provide that such
Common Stock shall not be sold prior to the expiration of the 90 day period
referenced in the preceding sentence.

In connection with this offering, the Underwriters and selling group
members, if any, or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market, may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market during the two
business

50
<PAGE> 52

day period prior to the commencement of the offers or sales of the Common Stock,
in accordance with Rule 10b-6A under the Exchange Act. Passive market making
consists of displaying bids on the Nasdaq National Market limited by the bid
prices of market makers not connected with this offering and purchases limited
by such prices and effected in response to order flow. Net purchases by a
passive market maker on each day are generally limited in amount to 30% of the
passive market maker's average daily trading volume in the Common Stock during
the two full consecutive calendar months immediately prior to the filing with
the Commission of the Registration Statement and must be discontinued when such
limit is reached. Passive market making may stabilize the market price of the
Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Strasburger & Price, L.L.P., Dallas, Texas. David K.
Meyercord, a partner in Strasburger & Price, L.L.P., is an Assistant Secretary
of the Company. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Akin, Gump, Strauss, Hauer & Feld, L.L.P.,
Dallas, Texas.

EXPERTS

The consolidated financial statements of United Dental Care, Inc. at
December 31, 1994 and 1995, and for each of the three years in the period ended
December 31, 1995, the combined financial statements of Associated Health Plans,
Inc. and Associated Companies, Inc. at December 31, 1995, and for the year ended
December 31, 1995, and the combined financial statements of UICI Dental
Companies at December 31, 1995, and for the year ended December 31, 1995,
appearing in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given upon the authority of such
firm as experts in accounting and auditing.

The combined financial statements of OraCare Dental Health Plans, Inc. at
December 31, 1994 and 1995, and for each of the two years in the period ended
December 31, 1995, appearing in this Prospectus have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance on such report given upon the
authority of such firm as experts in accounting and auditing.

The combined financial statements of Kansas City Dental Care, Inc. at
December 31, 1995, and for the year then ended, appearing in this Prospectus
have been so included in reliance on the report of James L. Gordon, C.P.A.,
independent accountant, given upon the authority of such person as an expert in
accounting and auditing.

The consolidated financial statements of U.S. Dental Management, Inc. at
December 31, 1993 and 1994, and for each of the three years in the period ended
December 31, 1994, appearing in this Prospectus have been so included in
reliance on the report of Andrew C. Sarager, C.P.A., P.C., independent
accountant, given upon the authority of such person as an expert in accounting
and auditing.

51
<PAGE> 53

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNITED DENTAL CARE, INC.
Report of Independent Accountants.................................................... F-3
Consolidated Balance Sheets as of December 31, 1994 and 1995, and June 30,
1996 (unaudited).................................................................. F-4
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and
1995, and the six months ended June 30, 1995 and 1996 (unaudited)................. F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995, and the six months ended June 30, 1996
(unaudited)....................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995, and the six months ended June 30, 1995 and 1996 (unaudited)................. F-7
Notes to Consolidated Financial Statements........................................... F-8
ORACARE DENTAL HEALTH PLANS, INC.
Report of Independent Auditors....................................................... F-16
Combined Balance Sheets as of December 31, 1994 and 1995, and June 30, 1996
(unaudited)....................................................................... F-17
Combined Statements of Income for the years ended December 31, 1994 and 1995, and the
six months ended June 30, 1995 and 1996 (unaudited)............................... F-18
Combined Statements of Changes in Stockholders' Deficiency for the years ended
December 31, 1994 and 1995, and the six months ended June 30, 1996 (unaudited).... F-19
Combined Statements of Cash Flows for the years ended December 31, 1994 and 1995, and
the six months ended June 30, 1995 and 1996 (unaudited)........................... F-20
Notes to Combined Financial Statements............................................... F-21
UICI DENTAL COMPANIES
Report of Independent Accountants.................................................... F-27
Combined Balance Sheets as of December 31, 1995 and June 30, 1996 (unaudited)........ F-28
Combined Statements of Operations for the year ended December 31, 1995, and the six
months ended June 30, 1995 and 1996 (unaudited)................................... F-29
Combined Statements of Changes in Equity for the year ended December 31, 1995 and the
six months ended June 30, 1996 (unaudited)........................................ F-30
Combined Statements of Cash Flows for the year ended December 31, 1995, and the six
months ended June 30, 1995 and 1996 (unaudited)................................... F-31
Notes to Combined Financial Statements............................................... F-32
KANSAS CITY DENTAL CARE, INC.
Report of Independent Accountants.................................................... F-38
Balance Sheet as of December 31, 1995, and June 30, 1996 (unaudited)................. F-39
Statement of Income for the year ended December 31, 1995, and the six months ended
June 30, 1995 and 1996 (unaudited)................................................ F-40
Statement of Retained Earnings for the year ended December 31, 1995, and the six
months ended June 30, 1996 (unaudited)............................................ F-41
Statement of Cash Flows for the year ended December 31, 1995, and the six months
ended June 30, 1995 and 1996 (unaudited).......................................... F-42
Notes to Financial Statements........................................................ F-43
</TABLE>

F-1
<PAGE> 54

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
U.S. DENTAL MANAGEMENT, INC.
Report of Independent Accountant..................................................... F-46
Consolidated Balance Sheets as of December 31, 1993 and 1994, and June 30, 1995
(unaudited)....................................................................... F-47
Consolidated Statements of Operations for the years ended December 31, 1992, 1993 and
1994, and the six months ended June 30, 1994 and 1995 (unaudited)................. F-48
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1992, 1993 and 1994, and the six months ended June 30, 1995
(unaudited)....................................................................... F-49
Consolidated Statements of Cash Flows for the years ended December 31, 1992, 1993 and
1994, and the six months ended June 30, 1994 and 1995 (unaudited)................. F-50
Notes to Consolidated Financial Statements........................................... F-51
ASSOCIATED HEALTH PLANS, INC. AND ASSOCIATED COMPANIES, INC.
Report of Independent Accountants.................................................... F-54
Combined Balance Sheet as of December 31, 1995....................................... F-55
Combined Statement of Operations and Changes in Retained Earnings for the year ended
December 31, 1995................................................................. F-56
Combined Statement of Cash Flows for the year ended December 31, 1995................ F-57
Notes to Combined Financial Statements............................................... F-58
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Condensed Consolidated Financial Statements...... F-62
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended
December 31, 1995................................................................. F-63
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the six months
ended June 30, 1996............................................................... F-64
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1996......... F-65
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements............. F-66
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Condensed Combined Financial Statements.......... F-68
Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1995................................................................. F-69
Unaudited Pro Forma Condensed Combined Statement of Operations for the six months
ended June 30, 1996............................................................... F-70
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 1996............. F-71
Notes to Unaudited Pro Forma Condensed Combined Financial Statements................. F-72
</TABLE>

F-2
<PAGE> 55

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
United Dental Care, Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of United Dental Care, Inc. and its subsidiaries at December 31, 1994
and 1995, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

As discussed in Notes 1 and 7, the Company adopted Statement of Financial
Account Standards No. 109, "Accounting for Income Taxes," effective January 1,
1993.

PRICE WATERHOUSE LLP

Dallas, Texas

February 5, 1996, except for Note 12,

which is as of September 11, 1996

F-3
<PAGE> 56

UNITED DENTAL CARE, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 8,821 $46,940 $20,345
Premiums receivable, net of allowance for doubtful accounts
of $210, $307 and $350 at December 31, 1994 and 1995, and
June 30, 1996, respectively.............................. 1,862 4,757 4,387
Accrued interest and other current assets................... 398 522 861
Deferred taxes, current..................................... 304 392 729
------- ------- -------
Total current assets................................ 11,385 52,611 26,322
Regulatory deposits........................................... 2,316 3,155 3,437
Furniture and equipment, net of accumulated depreciation of
$714, $1,289 and $1,650 at December 31, 1994 and 1995, and
June 30, 1996, respectively................................. 1,254 2,855 4,498
Intangible assets, net of accumulated amortization of $138,
$669 and $1,303 at December 31, 1994 and 1995, and June 30,
1996, respectively.......................................... 16,037 27,354 41,667
Pre-operational costs, net of accumulated amortization of
$121, $204 and $220 at December 31, 1994 and 1995, and June
30, 1996, respectively...................................... 93 40 --
Unamortized loan fees......................................... 171 -- --
Other assets.................................................. 41 434 109
Deferred taxes, noncurrent.................................... 107 139 109
------- ------- -------
TOTAL ASSETS.................................................. $31,404 $86,588 $76,142
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....................... $ 1,852 $ 2,633 $ 2,108
Current portion of debt..................................... 2,148 11,913 978
Claims reserve.............................................. 2,628 2,446 2,015
Unearned premiums........................................... 3,089 4,612 2,614
Other current liabilities................................... 303 115 158
------- ------- -------
Total current liabilities........................... 10,020 21,719 7,873
Long-term debt -- net of current portion................... 12,410 3,269 3,598
------- ------- -------
Total liabilities................................... 22,430 24,988 11,471
------- ------- -------
Stockholders' equity:
Preferred stock, $.10 par value; 491,077 shares authorized
at December 31, 1994 and 500,000 shares authorized at
December 31, 1995 and June 30, 1996; 1 share issued and
outstanding in 1994 and no shares outstanding at December
31, 1995 and June 30, 1996............................... -- -- --
Common stock, $.10 par value; 10,000,000 shares authorized
at December 31, 1994 and 15,000,000 shares authorized at
December 31, 1995 and June 30, 1996; 4,179,914 shares
issued and outstanding in 1994, 6,898,416 at December 31,
1995 and 6,908,416 at June 30, 1996...................... 418 690 691
Additional paid-in capital.................................. 3,321 52,086 52,100
Retained earnings........................................... 5,235 8,824 11,880
------- ------- -------
Total stockholders' equity.......................... 8,974 61,600 64,671
------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................... $31,404 $86,588 $76,142
======= ======= =======
</TABLE>

See accompanying notes.

F-4
<PAGE> 57

UNITED DENTAL CARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
----------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Managed benefits........................... $16,805 $31,607 $61,352 $29,175 $43,118
Indemnity.................................. -- 5,514 16,622 8,459 7,422
Interest income and other revenue.......... 173 254 1,255 393 585
------- ------- ------- ------- -------
16,978 37,375 79,229 38,027 51,125
Costs and expenses:
Dental services expense:
Managed benefits........................ 7,283 15,559 33,068 15,775 25,127
Indemnity............................... -- 4,567 13,682 7,035 5,547
Sales and marketing........................ 3,025 5,756 9,637 5,012 5,726
General and administrative................. 3,632 7,062 14,785 6,988 8,685
Depreciation and amortization.............. 159 541 1,190 557 1,003
Acquisition-related expenses............... -- 178 -- -- --
Interest expense........................... -- 360 1,005 609 209
------- ------- ------- ------- -------
14,099 34,023 73,367 35,976 46,297
Income before Federal income taxes,
cumulative effect of a change in accounting
principle and extraordinary charge......... 2,879 3,352 5,862 2,051 4,828
Provision for Federal income taxes........... 934 1,256 2,131 800 1,772
------- ------- ------- ------- -------
Income before cumulative effect of a change
in accounting principle and extraordinary
charge..................................... 1,945 2,096 3,731 1,251 3,056
Preferred stock dividends.................... 38 -- -- -- --
------- ------- ------- ------- -------
Net income applicable to common stock before
cumulative effect of a change in accounting
principle and extraordinary charge......... 1,907 2,096 3,731 1,251 3,056
Cumulative effect of a change in accounting
principle.................................. (44) -- -- -- --
Extraordinary charge, net of tax............. -- -- (142) -- --
------- ------- ------- ------- -------
Net income applicable to common stock........ $ 1,863 $ 2,096 $ 3,589 $ 1,251 $ 3,056
======= ======= ======= ======= =======
Per share amounts:
Net income per common share before
cumulative effect of a change in
accounting principle and extraordinary
charge.................................. $ 0.41 $ 0.44 $ 0.68 $ 0.26 $ 0.42
Cumulative effect of a change in
accounting principle.................. (0.01) -- -- -- --
Extraordinary charge, net of tax........ -- -- (0.02) -- --
------- ------- ------- ------- -------
Net income per common share............. $ 0.40 $ 0.44 $ 0.66 $ 0.26 $ .042
======= ======= ======= ======= =======
</TABLE>

See accompanying notes.

F-5
<PAGE> 58

UNITED DENTAL CARE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ ------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------- ------ --------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992....... 194,872 $ 19 3,597,438 $360 $ 3,113 $ 1,303 $ 4,795
Conversion of preferred common
stock........................ (194,871) (19) 463,976 46 -- (27 ) --
Preferred stock dividends...... -- -- -- -- -- (38 ) (38)
Stock options exercised........ -- -- 25,000 3 32 -- 35
Tax effect of stock options
exercised.................... -- -- -- -- 37 -- 37
Net income before preferred
dividends.................... -- -- -- -- -- 1,901 1,901
-------- ---- --------- ---- ------- ------- -------
Balance, December 31, 1993....... 1 -- 4,086,414 409 3,182 3,139 6,730
Stock options exercised........ -- -- 93,500 9 64 -- 73
Tax effect of stock options
exercised.................... -- -- -- -- 75 -- 75
Net income....................... -- -- -- -- -- 2,096 2,096
-------- ---- --------- ---- ------- ------- -------
Balance, December 31, 1994....... 1 -- 4,179,914 418 3,321 5,235 8,974
Conversion of preferred to
common stock................. (1) -- 2 -- -- -- --
Stock options exercised........ -- -- 343,500 34 431 -- 465
Stock warrants issued.......... -- -- -- -- 80 -- 80
Tax effect of stock options
exercised.................... -- -- -- -- 527 -- 527
Shares issued in public
offering..................... -- -- 2,375,000 238 47,727 -- 47,965
Net income..................... -- -- -- -- -- 3,589 3,589
-------- ---- --------- ---- ------- ------- -------
Balance, December 31, 1995....... -- -- 6,898,416 690 52,086 8,824 61,600
-------- ---- --------- ---- ------- ------- -------
Stock options exercised
(unaudited)................ -- -- 10,000 1 14 -- 15
Net income (unaudited)....... -- -- -- -- -- 3,056 3,056
-------- ---- --------- ---- ------- ------- -------
Balance, June 30, 1996
(unaudited).................... -- $ -- 6,908,416 $691 $ 52,100 $11,880 $64,671
======== ==== ========= ==== ======= ======= =======
</TABLE>

See accompanying notes.

F-6
<PAGE> 59

UNITED DENTAL CARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income before preferred stock
dividends................................. $ 1,901 $ 2,096 $ 3,589 $ 1,251 $ 3,056
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization............. 159 616 1,190 557 1003
Cumulative effect of accounting change.... 44 -- -- -- --
Changes in operating assets and
liabilities, net of effects from
purchase of IDH and US Dental:
Decrease (increase) in premiums
receivable........................... (99) (399) (1,049) (263) 822
Decrease (increase) in accrued interest
and other current assets............. (205) 60 134 47 (339)
Decrease (increase) in deferred income
taxes................................ 109 49 (27) -- (190)
Decrease (increase) in other assets..... (236) 229 (222) (142) 325
Increase (decrease) in accounts payable,
accrued expenses and claims
reserve.............................. (173) 386 (277) 947 (1,958)
Increase (decrease) in unearned
premiums............................. -- 180 (417) 138 (2,152)
------- ------- -------- ------- --------
Net cash provided by operating
activities......................... 1,500 3,217 2,921 2,535 567
Investing activities:
Decrease (increase) in regulatory deposits... (100) 33 (408) (217) (82)
Purchases of furniture and equipment......... (237) (662) (2,176) (482) (2,001)
Maturities of temporary investments.......... 840 1,295 -- -- --
Purchases of temporary and long-term
investments............................... (2,463) -- -- -- --
Proceeds from sale of long-term
investments............................... -- 2,124 -- -- --
Investment in new markets.................... -- -- (31) -- (148)
Purchase of IDH (net of cash acquired)....... -- (9,043) -- -- --
Purchase of US Dental (net of cash
acquired)................................. -- -- 726 -- --
Purchase of AHP (net of cash required)....... -- -- -- -- (13,575)
------- ------- -------- ------- --------
Net cash used in investing
activities......................... (1,960) (6,253) (1,889) (699) (15,806)
Financing activities:
Proceeds from long-term debt................. -- 11,000 1,154 135 --
Repayment of indebtedness.................... -- (1,734) (12,577) (1,917) (11,371)
Proceeds from IPO (net)...................... -- -- 47,965 -- --
Preferred stock dividend payments............ (38) -- -- -- --
Stock options exercised...................... 35 121 465 465 15
Issuance of stock warrants................... -- -- 80 80 --
------- ------- -------- ------- --------
Net cash provided by (used in)
financing activities............... (3) 9,387 37,087 (1,237) (11,356)
------- ------- -------- ------- --------
Net (decrease) increase in cash and cash
equivalents.................................. (463) 6,351 38,119 599 (26,595)
Cash and cash equivalents at beginning of
period....................................... 2,933 2,470 8,821 8,821 46,940
------- ------- -------- ------- --------
Cash and cash equivalents at end of period..... $ 2,470 $ 8,821 $ 46,940 $ 9,420 $ 20,345
======= ======= ======== ======= ========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest.................................. $ -- $ 229 $ 989 $ 460 $ 175
======= ======= ======== ======= ========
Income Taxes.............................. $ 1,149 $ 1,147 $ 1,385 $ 901 $ 1,972
======= ======= ======== ======= ========
</TABLE>

See accompanying notes.

F-7
<PAGE> 60

UNITED DENTAL CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of United Dental Care, Inc., and its subsidiaries (the "Company") for
all periods presented. All significant intercompany accounts and transactions
have been eliminated in consolidation. The Company, through its subsidiaries,
contracts with independent practitioners to provide dental services to members
in 19 states in the form of prepaid dental health contracts and/or indemnity
dental insurance.

REVENUE AND EXPENSE RECOGNITION: Premium revenue is recorded in the month
for which the member is entitled to service. Unearned premiums are reflected as
current liabilities and consist of amounts billed in the current period for
services to be rendered in a subsequent period. Included in unearned premiums
are deposits which will be applied against future months' services. Under
prepaid dental health contracts, the Company contracts with dentists for a set
per-member, per-month capitation fee to provide dental care for its members.
Specialty services not covered by capitation fees are recorded as incurred.

INTANGIBLE ASSETS: Goodwill resulting from acquisitions (see Note 2) is
being amortized on a straight-line basis over forty years. If facts and
circumstances were to indicate the carrying amount of goodwill is impaired, the
carrying amount would be reduced to an amount representing the undiscounted
future cash flows to be generated by the operation. Also included in intangible
assets are noncompetition and consulting agreements (a) related to the IDH
acquisition and valued at $400,000 at acquisition and (b) related to the US
Dental acquisition and valued at $175,000 at acquisition all of which are being
amortized on a straight-line basis over the three to six year terms of such
agreements. Accumulated amortization related to these agreements at December 31,
1994 and 1995, and June 30, 1996 was $23,000, $110,000, and $259,000
(unaudited), respectively.

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("FAS-121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which becomes effective for fiscal years beginning after December 15, 1995.
FAS-121 establishes standards for determining when impairment losses on
long-lived assets have occurred and how impairment losses should be measured.
The Company adopted FAS-121 effective December 31, 1995. The financial statement
impact of adopting FAS-121 was not material.

PRE-OPERATIONAL COSTS: Organizational costs, costs associated with the
establishment of the provider network, and pre-operational costs are capitalized
and amortized over periods not exceeding 30 months. Pre-operational costs
include office rent, salaries, site selection costs, licensing and legal fees,
and other costs directly related to commencing business in a new state.

FURNITURE AND EQUIPMENT: Furniture and equipment are recorded at cost.
Depreciation is calculated using the straight-line method over a period of three
to five years based on the estimated useful life of the related asset.

CLAIMS RESERVE: The reserve for costs expected to be incurred for services
approved during the year as well as costs incurred but not reported are
actuarial estimates based on the Company's historical claims data.

RECLASSIFICATIONS: Certain reclassifications have been made to the 1993 and
1994 consolidated financial statements to conform to the classifications used
for 1994 and 1995, respectively.

CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks, money market
investment accounts held by brokers which are readily convertible to cash and
certificates of deposit with original maturities of less than 90 days. See Note
2.

INCOME TAXES: Effective January 1, 1993, the Company prospectively adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (FAS-109), which requires the asset and liability method of accounting
for deferred income taxes. The asset and liability method requires recognition
of

F-8
<PAGE> 61

UNITED DENTAL CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

deferred tax assets and liabilities for the estimated future tax consequences
attributable to differences between the financial statement bases and the tax
basis of assets and liabilities. See Note 7 for additional information.

NET INCOME PER COMMON SHARE: Net income per common share is computed by
dividing net income by the weighted average number of common shares and dilutive
common stock equivalents outstanding during each period. Net income per common
share has been restated to reflect a two-for-one stock dividend that was
declared on July 17, 1995. The weighted average number of common shares and
dilutive common stock equivalents used in the calculation of net earnings per
common shares was 4,662,143; 4,716,713; 5,448,892 and 7,222,149 (unaudited) for
the years ended December 31, 1993, 1994, 1995, and the six months ended June 30,
1996, respectively. Pursuant to the requirements of the Securities and Exchange
Commission, common stock equivalent shares issued at prices below the original
assumed public offering price of $18.00 per share during the twelve months
immediately preceding the date of the initial filing of the Registration
Statement related to the Company's initial public offering have been included in
the calculation of common shares and common equivalent shares using the treasury
stock method, as if they were outstanding for all periods presented.

USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

UNAUDITED INTERIM FINANCIAL STATEMENTS: The unaudited interim financial
statements include all adjustments, consisting only of normal recurring
accruals, which the Company considers necessary for a fair presentation of the
financial position of the Company as of June 30, 1995 and 1996 and the results
of operations for the six months ended June 30, 1995 and 1996, as presented in
the accompanying unaudited interim financial statements.

2. ACQUISITIONS OF INTERNATIONAL DENTAL HEALTH, INC. AND U.S. DENTAL MANAGEMENT,
INC.

Effective September 1, 1994, the Company completed the acquisition of all
of the outstanding common stock of International Dental Health, Inc. ("IDH") for
$19.7 million, composed of $14.3 million in cash at the closing and additional
payments of $5.4 million over the six year period beginning September 16, 1994.
The cash portion of the purchase price was financed through bank borrowings of
$11.0 million and internal funds of $3.3 million.

The acquisition has been accounted for as a purchase and the net assets and
results of operations of IDH and its subsidiaries have been included in the
Company's consolidated financial statements beginning September 1, 1994. The
purchase price has been allocated to assets and liabilities of IDH based on
their estimated respective fair values. The purchase price exceeded the fair
value of IDH's net assets by $16.1 million of which $15.7 is recorded as
goodwill at the parent company level and $0.4 is recorded as the value of
non-competition and consulting agreements. The Company has not allocated any
portion of the purchase price to any other intangible assets considered to have
nominal value such as the dentist networks and subscriber contracts. Assets
acquired and liabilities assumed totaled $13.9 million and $9.6 million,
respectively.

Effective November 1, 1995, the Company completed the acquisition of all of
the outstanding common stock of U.S. Dental Management, Inc. ("US Dental") for
$12.6 million, composed of $1.3 million in cash at the closing, principal
payments totaling $1.0 million over the three year period beginning November 30,
1995 and an additional payment of $10.3 million in January 1996 from an amount
held in escrow.

The acquisition has been accounted for as a purchase and the net assets and
results of operations of US Dental and its subsidiaries have been included in
the Company's consolidated financial statements beginning November 1, 1995. The
purchase price has been allocated to assets and liabilities of US Dental based
on their

F-9
<PAGE> 62

UNITED DENTAL CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

estimated respective fair values. The purchase price exceeded the fair value of
US Dental's net assets by $11.9 million of which $11.7 is recorded as goodwill
and $0.2 is recorded as the value of non-competition and consulting agreements.
The Company has not allocated any portion of the purchase price to any other
intangible assets considered to have nominal value such as the dentist networks
and subscriber contracts. Assets acquired and liabilities assumed totaled $4.3
million and $3.6 million, respectively.

The following represents the unaudited pro forma results of operations as
if the IDH and US Dental acquisitions had occurred at the beginning of 1993
(dollars in thousands):

<TABLE>
<CAPTION>
UNAUDITED
---------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Revenues.................................................. $69,884 $82,769 $90,307
Income before income taxes, cumulative effect of a change
in accounting principle and extraordinary charge........ $ 399 $ 1,981 $ 5,409
Net income (loss) applicable to common stock.............. $ (38) $ 1,012 $ 3,151
</TABLE>

The pro forma information is based on historical information adjusted to
give effect to the amortization of goodwill and other intangibles as well as the
increased interest expense due to the borrowings incurred to finance the
acquisition. The pro forma information does not necessarily reflect the actual
results that would have occurred nor is it necessarily indicative of future
results of operations of the combined companies.

3. REGULATORY DEPOSITS

At December 31, 1995, regulatory deposits were recorded at cost and
consisted of $1,453,000 in U.S. government obligations that renew in 1996 and
$1,702,000 in certificates of deposit insured by the Federal Deposit Insurance
Corporation. The Company has set aside certificates of deposit bearing interest
at variable rates as required by various state statutes. The fair value of all
financial instruments, determined by reference to market data, approximated
their recorded value at each of the balance sheet dates shown.

4. ACQUISITION-RELATED EXPENSES

Certain expenditures related to the acquisitions of IDH and US Dental
discussed in Note 2 that have not been included in the costs of the acquisitions
are reported separately for comparability of expense categories to prior
reported periods. These costs are primarily related to upgrades to UDC's
facilities and computer systems necessitated by the acquisitions.

5. LONG-TERM DEBT

On September 16, 1994, in conjunction with the acquisition of IDH (see Note
2), the Company borrowed $11.0 million from a commercial bank under a reducing
revolver arrangement. The interest rate on the unpaid principal amount was, at
the Company's option (i) 1.0% per annum over the lender's prime rate or (ii)
2.75% per annum over LIBOR. Interest payments are due at least quarterly. On
December 15, 1994, the Company repaid $275,000, on February 17, 1995, the
Company repaid $275,000, on March 15, 1995, the Company repaid $1.5 million of
such indebtedness and on September 27, 1995, the Company repaid $9.9 million,
the entire remaining balance.

An additional portion of the IDH purchase price was deferred and is payable
over the period ended January 1, 2000. The payments may be prepaid without
penalty and are not contingent upon the future operations of the Company. The
present value of the future payments (assuming no voluntary prepayments,
discounted at 7.25%) is recorded as long-term debt. One of the former
shareholders of IDH was subsequently appointed a director to the Company. On
September 16, 1994, the Company made the first of the payments required under
the agreements in a total amount of $755,000. The Company entered into a letter
of credit

F-10
<PAGE> 63

UNITED DENTAL CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

facility relating to the deferral agreements that requires annual fees of 1% of
the unpaid amounts under these agreements.

A portion of the US Dental purchase price was financed by a Promissory Note
in the amount of $10.31 million that was subsequently paid in full on January
18, 1996. In addition, a portion of the US Dental purchase price in the amount
of $1.0 million was deferred and is payable over the period ended December 31,
1999. The payments may be prepaid without penalty and are not contingent upon
the future operations of the Company. The present value of the future payments
(assuming no voluntary prepayments, discounted at 7.50%) is recorded as
long-term debt. On November 30, 1995, the Company made the first of the payments
required under the agreements.

The following table summarizes the minimum required future principal
reductions (dollars in thousands):

<TABLE>
<CAPTION>
US DENTAL DEFERRED DEFERRED US
US DENTAL PROMISSORY IDH PURCHASE DENTAL PURCHASE ANNUAL
NOTES PAYABLE NOTE PRICE PAYMENTS PRICE PAYMENTS TOTAL
------------- ---------- -------------- --------------- -------
<S> <C> <C> <C> <C> <C>
1996................... $ 690 $ 10,310 $ 683 $ 230 $11,913
1997................... -- -- 724 250 974
1998................... -- -- 790 263 1,053
1999................... -- -- 849 251 1,100
2000................... -- -- 142 -- 142
---- ------- ------ ---- -------
TOTAL........ $ 690 $ 10,310 $3,188 $ 994 $15,182
==== ======= ====== ==== =======
</TABLE>

6. COMMITMENTS

The Company leases office space and certain equipment under operating
leases. In 1992, the Company entered into a five-year lease for office space
commencing in April 1992. Rental expense for the years ended December 31, 1993,
1994 and 1995 was $336,000, $648,000 and $1,351,000, respectively. Rental
expense for the six months ended June 30, 1995 and 1996 was $639,000 and
$619,000 (unaudited), respectively.

Minimum obligations under the operating leases at December 31, 1995 are as
follows (dollars in thousands):

<TABLE>
<S> <C>
1996........................................................ $1,069
1997........................................................ 816
1998........................................................ 561
1999........................................................ 335
2000........................................................ 45
Thereafter.................................................. --
------
$2,826
======
</TABLE>

7. INCOME TAXES

The provision (benefit) for income taxes allocated to continuing operations
consisted of the following components (dollars in thousands):

<TABLE>
<CAPTION>
1993 1994 1995
---- ------ ------
<S> <C> <C> <C>
Current.................................................... $863 $1,253 $2,250
Deferred (benefit)......................................... 71 3 (119)
---- ------ ------
Provision for Federal income taxes......................... $934 $1,256 $2,131
==== ====== ======
</TABLE>

F-11
<PAGE> 64

UNITED DENTAL CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

In September 1995, the Company incurred an extraordinary charge due to the
early retirement of debt in the amount of $142,000, net of a tax benefit in the
amount of $73,000.

The Company pays premium taxes in lieu of state income taxes in most states
where it has operations. The Company paid no state income taxes in 1993 and
immaterial amounts in 1994 and 1995.

In January 1993, the Company adopted SFAS 109. The cumulative effect of
this change in accounting principle decreased net income by $44,000, which is
reflected separately in the consolidated statement of income for the year ended
December 31, 1993.

During 1993, 1994 and 1995, certain employees exercised 12,500, 26,083 and
171,500 nonqualified stock options, respectively, resulting in tax savings of
approximately $31,000, $73,000 and $527,000, respectively, and a corresponding
increase to capital.

A reconciliation of the difference between the Federal income tax rate and
the Company's effective tax rate is as follows:

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate........................................ 34.0% 34.0% 34.0%
Amortization of goodwill....................................... -- 1.1 2.0
Tax exempt interest income..................................... -- -- (1.2)
Other.......................................................... (1.6) 2.3 1.6
---- ---- ----
Effective tax rate................................... 32.4% 37.4% 36.4%
==== ==== ====
</TABLE>

Deferred tax assets (liabilities) were comprised of the following at
December 31:

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- -------
<S> <C> <C> <C>
Premium reserve............................................ $ 3 $ 68 $ 69
Prepaid assets............................................. -- 88 23
Depreciation............................................... 11 -- 256
Start Up Costs............................................. -- 68 38
Unearned Premium........................................... -- 113 83
Note Receivable............................................ -- 107 --
Consulting and non-competition agreements.................. -- -- 1,698
Miscellaneous accruals/reserves............................ -- -- 49
---- ---- -------
Gross deferred tax asset......................... 14 444 2,216
---- ---- -------
Prepaid asset.............................................. (1) -- --
Depreciation............................................... -- (19) --
Startup costs.............................................. (32) -- --
Consulting and non-competition agreements.................. -- -- (1,685)
Miscellaneous reserves/accruals............................ (15) (14) --
---- ---- -------
Gross deferred tax liability..................... (48) (33) (1,685)
---- ---- -------
Net deferred tax asset (liability)......................... $(34) $411 $ 531
==== ==== =======
</TABLE>

8. EXTRAORDINARY CHARGE

In September 1995, the Company incurred an extraordinary charge due to the
early retirement of debt in the amount of $142,000, consisting of bank fees of
$195,000 and legal fees of $20,000 less a tax benefit of $73,000.

F-12
<PAGE> 65

UNITED DENTAL CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

9. STOCKHOLDERS' EQUITY

On September 21, 1995, the Company completed its initial public offering of
common stock, issuing 2,375,000 shares at a price of $22.00 per share before
expenses. After deduction of underwriting discounts and expenses of the
offering, the aggregate net offering proceeds were $48.0 million.

On December 15, 1993, the holders of the preferred stock converted 194,871
shares of preferred stock into 463,976 shares of the common stock. At December
31, 1993 and December 31, 1994, there was one share of preferred stock
outstanding. In April 1995, the one share of preferred stock was converted into
2 shares of common stock. Certain of the Company's subsidiaries are subject to
various state insurance regulations, some of which restrict the payment of
dividends within the consolidated group. See Note 10.

The Company had an Incentive Stock Option Plan pursuant to which 200,000
shares of common stock were reserved. During 1994 and 1995, 60,000 and 80,000
stock options were exercised, respectively, at an exercise price of $1.25 per
share. These options are considered noncompensatory. The board of directors has
terminated the Incentive Stock Option Plan for the purposes of any additional
grants thereunder.

The Company also has a Key Employee Stock Option Plan pursuant to which
332,000 shares were reserved as of December 31, 1995. During 1995, 263,500 stock
options were exercised at an average exercise price of $1.39. At December 31,
1995, none of the 332,000 outstanding Key Employee Stock Option Plan options
were exercisable. These options are considered compensatory and have terms of
five to ten years; the options are exercisable at various times during the terms
of the options at exercise prices ranging from $1.25 to $6.25, which amounts, in
management's estimation, were equal to or exceeded market value at the date of
grant. The board of directors has terminated the Key Employee Stock Option Plan
for the purposes of any additional grants thereunder.

In 1995, the Company's board of directors adopted a new employee stock
option plan (the "1995 Plan") that provides only for the grant of nonqualified
stock options. The 1995 Plan provides that a total of 300,000 shares of common
stock may be issued pursuant to the options granted under the 1995 Plan. At
December 31, 1995, options for 42,000 shares had been granted under the 1995
Plan.

F-13
<PAGE> 66

UNITED DENTAL CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The historical activity in the Incentive, Key Employee Stock and 1995
Option Plans since December 31, 1991 has been as follows:

<TABLE>
<CAPTION>
KEY EMPLOYEE
INCENTIVE AND 1995 PLAN
--------------------- -----------------------------
NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- ----------------
<S> <C> <C> <C> <C>
Options outstanding, December 31, 1991......... 200,000 $ 1.25 400,000 $1.25 - $ 1.50
------- -------
Options exercised............................ (60,000) 1.25 (40,000) $1.25 - $ 1.50
------- -------
Options outstanding, December 31, 1992......... 140,000 1.25 360,000 $ 1.25 - $ 1.50
Options granted.............................. -- -- 102,000 $4.00
Options exercised............................ -- -- (25,000) $ 1.25 - $ 1.50
------- -------
Options outstanding, December 31, 1993......... 140,000 1.25 437,000 $ 1.25 - $ 4.00
Options granted.............................. -- -- 224,000 $ 5.50 - $ 6.25
Options exercised............................ (60,000) 1.25 (33,500) $ 1.25 - $ 1.50
Options canceled............................. -- -- (72,000) $ 1.50 - $ 6.00
------- -------
Options outstanding, December 31, 1994......... 80,000 1.25 555,500 $ 1.25 - $ 6.25
Options granted.............................. -- -- 112,000 $ 6.00 - $31.88
Options exercised............................ (80,000) 1.25 (263,500) $ 1.25 - $ 4.00
Options canceled............................. -- -- (30,000) $6.25
------- -------
Options Outstanding, December 31, 1995......... -- -- 374,000 $ 1.50 - $31.88
------- -------
Options granted (unaudited).................. -- -- 363,000 $33.38 - $39.50
Options exercised (unaudited)................ -- -- (10,000) $1.50
Options canceled (unaudited)................. -- -- (110,000) $ 1.50 - $31.88
------- -------
Options Outstanding, June 30, 1996
(unaudited).................................. -- 617,000
======= =======
</TABLE>

In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("FAS-123") "Accounting for Stock-Based Compensation," which
becomes effective for fiscal years beginning after December 15, 1995. FAS-123
establishes new financial accounting and reporting standards for stock-based
compensation plans. Entities will be allowed to measure compensation under
FAS-123 or APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Entities electing to remain with the accounting in APB Opinion No. 25 will be
required to make pro forma disclosures of net income and earnings per share as
if the provisions of FAS-123 had been applied. The Company will continue to
measure compensation cost for stock-based compensation under APB Opinion No. 25
and will make the required disclosures for the year ending 1996.

10. STATUTORY NET WORTH COMPARED TO STOCKHOLDERS' EQUITY PER GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES

Certain assets recognized under generally accepted accounting principles
are considered nonadmissible under statutory accounting practices as filed and
submitted in the annual reports to the states of domicile of the various
subsidiaries required to submit such reports. These nonadmitted assets create
differences between statutory net worth as reported on the annual filing and
total stockholders' equity as recorded under generally accepted accounting
principles.

Statutory net worth of the Company's subsidiaries that are subject to state
insurance regulations totaled approximately $7 million and $18 million at
December 31, 1994 and 1995, respectively. Of these amounts, National Dental
Health Insurance Company (NDHIC) represents $4.3 million and $6.3 million at
December 31, 1994 and 1995, respectively. NDHIC is subject to the Arizona
insurance statutes and regulations and is required to maintain minimum capital
and surplus of $500,000 and without the prior

F-14
<PAGE> 67

UNITED DENTAL CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

approval of the Arizona Department of Insurance may not pay a dividend greater
than the lesser of 10% of capital and surplus as of the end of the prior year or
net investment income for the prior year. NDHIC received approval from the
Arizona Department of Insurance to pay a dividend of $315,000 in 1994.

At December 31, 1993 and for the year then ended, the difference between
statutory net worth and net income under the statutory accounting practices and
total stockholders' equity and net income as recorded under generally accepted
accounting principles was not material. Statutory net income of the Company's
subsidiaries for 1994 and 1995 was $4.6 million and $6.3 million, respectively,
and excludes a $3.9 million intercompany realized gain on the transfer of
subsidiaries among affiliates.

11. SUPPLEMENTARY FINANCIAL INFORMATION

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1994 QUARTERS 1995 QUARTERS
---------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------ ------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $4,806 $4,979 $9,219 $18,371 $18,871 $19,156 $19,340 $21,862
Net income:
Before extraordinary
charge................ 374 438 645 639 523 728 960 1,520
Extraordinary charge..... -- -- -- -- -- -- (142) --
------ ------ ------ ------- ------- ------- ------- -------
Net income....... $ 374 $ 438 $ 645 $ 639 $ 523 $ 728 $ 818 $ 1,520
====== ====== ====== ======= ======= ======= ======= =======
Net income per share:
Before extraordinary
charge................ $ 0.08 $ 0.09 $ 0.14 $ 0.14 $ 0.11 $ 0.15 $ 0.19 $ 0.21
Extraordinary charge..... -- -- -- -- -- -- (0.03) --
------ ------ ------ ------- ------- ------- ------- -------
Net income per
share.......... $ 0.08 $ 0.09 $ 0.14 $ 0.14 $ 0.11 $ 0.15 $ 0.16 $ 0.21
====== ====== ====== ======= ======= ======= ======= =======
</TABLE>

12. SUBSEQUENT EVENTS

On January 18, 1996, the Company paid off the $10.3 million Promissory Note
made in connection with the purchase of all the outstanding capital stock of US
Dental.

On January 22, 1996, the Company completed the acquisition of Associated
Health Plans, Inc. and Associated Companies, Inc. (collectively, "AHP") for
$15.0 million, which included the present value of amounts payable under
non-competition agreements totaling $600,000 and payable in equal monthly
installments through January 1999.

On June 28, 1996, the Company entered into a definitive agreement to
purchase all the outstanding capital stock of Independent Dental Plan, Inc. for
an aggregate cash price of $1.2 million.

On September 5, 1996, the Company entered into a definitive agreement to
purchase all the outstanding capital stock of OraCare D.P.O., Inc., an
affiliated management company, and dental practices owned by the majority
stockholder of OraCare for an aggregate cash price of $30.5 million.

On September 10, 1996, the Company entered into a definitive agreement to
purchase all the outstanding stock of three companies wholly and majority owned
by UICI for an aggregate cash price of $12.75 million.

On September 11, 1996, the Company entered into a definitive agreement to
purchase all the outstanding stock of Kansas City Dental Plan, Inc. for an
aggregate cash price of $12.5 million.

F-15
<PAGE> 68

REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of Directors of
OraCare Dental Health Plans, Inc.

We have audited the accompanying combined balance sheets as of December 31,
1994 and 1995, of the entities listed in Note 1, and the related combined
statements of income, changes in stockholders' deficiency and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position at December 31, 1994
and 1995, of the entities listed in Note 1, and the combined results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.

ERNST & YOUNG LLP

May 2, 1996, except for Note 5, as to
which the date is May 10, 1996, and Note 14,
as to which the date is September 5, 1996

F-16
<PAGE> 69

ORACARE DENTAL HEALTH PLANS, INC.

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash................................................. $ 28,455 $ 101,358 $ 121,183
Accounts receivable, net of allowance of $40,439 and -----------
$144,363 at December 31, 1994 and 1995,
respectively...................................... 811,343 953,631 1,245,267
Prepaid expenses and other current assets............ 15,748 177,775 56,265
----------- -----------
Total current assets......................... 855,546 1,232,764 1,422,715
Property and equipment, net (Note 4)................. 796,656 733,037 914,096
Deposits and other................................... 7,308 15,825 21,605
----------- ----------- -----------
TOTAL ASSETS........................................... $ 1,659,510 $ 1,981,626 $ 2,358,416
=========== =========== ===========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
Accounts payable..................................... $ 425,009 $ 164,083 $ 591,653
Accrued payroll and related costs.................... 87,610 95,969 119,541
Other accrued expenses............................... 50,263 68,229 75,318
Current portion of capital lease obligations (Note
5)................................................ 88,806 75,130 116,978
Current portion of long-term debt (Note 5)........... 339,096 438,456 439,185
State income taxes payable........................... 95,000 214,234
Deferred subscriber revenue.......................... 180,477 215,225 189,531
----------- ----------- -----------
Total current liabilities.................... 1,171,261 1,152,092 1,746,440
----------- ----------- -----------
Long-term debt, excluding current portion (Note 5)... 1,675,501 1,414,654 1,240,139
Obligations under capital lease, excluding current
portion (Note 8).................................. 270,386 195,256 266,679
----------- ----------- -----------
Total liabilities............................ 3,117,148 2,762,002 3,253,258
----------- ----------- -----------
Stockholders' deficiency:
Common stock (8,500 shares authorized, 1,300 shares
issued and outstanding, in 1994 and 1995) (Note
8)................................................ 2,500 2,500 2,500
Additional paid-in capital........................... 1,849,098 1,953,844 1,953,844
Retained deficit..................................... (3,309,236) (2,736,720) (2,851,186)
----------- ----------- -----------
Total stockholders' deficiency............... (1,457,638) (780,376) (894,842)
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY......... $ 1,659,510 $ 1,981,626 $ 2,358,416
=========== =========== ===========
</TABLE>

See accompanying notes.

F-17
<PAGE> 70

ORACARE DENTAL HEALTH PLANS, INC.

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- -------------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue (Note 6)........................ $7,589,720 $9,156,583 $4,357,604 $6,710,938
Dental service costs.................... 4,774,141 5,366,674 2,553,992 4,253,711
Selling, general and administrative
expense............................... 1,961,148 2,031,636 930,432 1,136,155
Interest expense........................ 187,104 241,694 109,901 128,729
---------- ---------- ---------- ----------
Total costs and expenses...... 6,922,393 7,640,004 3,594,325 5,518,595
---------- ---------- ---------- ----------
Income before provision for income
taxes................................. 667,327 1,516,579 763,279 1,192,343
Provision for income taxes (Note 2)..... 95,000 47,813 119,234
---------- ---------- ---------- ----------
Net income.............................. $ 667,327 $1,421,579 $ 715,466 $1,073,109
========== ========== ========== ==========
Pro forma (unaudited) (Note 2):
Historical income before provision for
federal income taxes............... $ 667,327 $1,421,579 $ 715,466 $1,073,109
Pro forma adjustment for federal
income taxes....................... 226,891 483,337 243,258 364,857
---------- ---------- ---------- ----------
Pro forma net income.................. $ 440,436 $ 938,242 $ 472,208 $ 708,252
========== ========== ========== ==========
</TABLE>

See accompanying notes.

F-18
<PAGE> 71

ORACARE DENTAL HEALTH PLANS, INC.

COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
--------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) DEFICIENCY
----- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994............... 1,300 $2,500 $1,753,629 $(3,142,724) $ (1,386,595)
Net income........................... 667,327 667,327
Stockholder contributions............ 95,469 95,469
Stockholder withdrawals.............. (833,839) (833,839)
----- ------ ---------- ----------- ------------
Balance, December 31, 1994............. 1,300 2,500 1,849,098 (3,309,236) (1,457,638)
Net income........................... 1,421,579 1,421,579
Stockholder contributions............ 104,746 104,746
Stockholder withdrawals.............. (849,063) (849,063)
----- ------ ---------- ----------- ------------
Balance, December 31, 1995............. 1,300 $2,500 $1,953,844 $(2,736,720) $ (780,376)
Net income (unaudited)............... 1,073,109 1,073,109
Stockholder contributions
(unaudited).......................
Stockholder withdrawals
(unaudited)....................... (1,187,575) (1,187,575)
----- ------ ---------- ----------- ------------
Balance, June 30, 1996 (unaudited)..... 1,300 $2,500 $1,953,844 $(2,851,186) $ (894,842)
===== ====== ========== =========== ============
</TABLE>

See accompanying notes.

F-19
<PAGE> 72

ORACARE DENTAL HEALTH PLANS, INC.

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- ------------------------
1994 1995 1995 1996
--------- ---------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................... $ 667,327 $1,421,579 $ 715,466 $ 1,073,109
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 100,533 107,780 53,890 61,866
Loss on the sale of fixed assets........... -- -- -- 1,446
Changes in operating assets and
liabilities:
Accounts receivable..................... (89,345) (142,288) (71,144) (291,636)
Prepaid expenses and other current
assets................................ (548) (162,027) (20,259) 121,510
Deposits and other assets............... (8,517) (4,259) (5,780)
Accounts payable, accrued payroll and
other accrued expenses................ 66,988 (234,601) (178,352) 458,230
State income taxes payable.............. 95,000 47,813 119,234
Deferred subscriber revenue............. 32,171 34,748 17,374 (25,694)
--------- ---------- --------- -----------
Net cash provided by operating
activities.............................. 777,126 1,111,674 560,529 1,512,285
--------- ---------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment.......... (252,550) (44,161) (22,095) (244,370)
--------- ---------- --------- -----------
Net cash used in investing activities........ (252,550) (44,161) (22,095) (244,370)
--------- ---------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital withdrawals.......................... (833,839) (849,063) (429,208) (1,187,575)
Capital contributions........................ 95,469 104,746 52,373 0
Payments of long-term debt and capital lease
obligations................................ (307,472) (444,217) (222,109) (210,509)
Proceeds from long-term debt................. 385,467 193,924 96,962 149,994
--------- ---------- --------- -----------
Net cash used in financing activities........ (660,375) (994,610) (501,982) (1,248,090)
---------- --------- --------- -----------
Increase (decrease) in cash and cash
equivalents................................ (135,799) 72,903 36,452 19,825
Cash at beginning of year.................... 164,254 28,455 28,455 101,358
--------- ---------- --------- -----------
Cash at end of year.......................... $ 28,455 $ 101,358 $ 64,907 $ 121,183
========== ========== ========= ===========
Interest paid for the year................... $ 143,325 $ 238,154 $ 109,901 $ 128,729
========== ========== ========= ===========
</TABLE>

See accompanying notes.

F-20
<PAGE> 73

ORACARE DENTAL HEALTH PLANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION: The accompanying combined financial statements include the
accounts of the following entities collectively doing business as OraCare Dental
Health Plans, Inc.: OraCare Investors (a Partnership), OraCare Consultants, Inc.
("OC"), OraCare D.P.O., Inc. ("DPO"), OraCare Dental Labs, Inc. ("ODL"), and
prior to February 1, 1995, OraCare Dental Health Center -- Vineland, OraCare
Dental Health Center -- Blackwood, OraCare Dental Health Center -- Greentree,
OraCare Dental Health Center -- Atlantic City (the "Health Centers"). On
February 1, 1995, the Health Centers were combined into a single corporation
known as OraCare Dental Associates, P.A. ("ODA"). All of the outstanding stock
of these corporations are owned by members of a single family. The Board of
Directors of the corporations consists of the same individuals. OraCare
Investors, OC, DPO, ODL and ODA are collectively referred to hereinafter as the
"Company". The Company operates and markets managed dental care plans in New
Jersey and Pennsylvania. The Company also operates multi-specialty group dental
practices which provide services to plan members as well as out-of-plan
patients. The Company markets managed dental care plans to health maintenance
organizations (HMO's) and other groups as an alternative to traditional dental
indemnity insurance. With the exception of OraCare Investors, all organizations
within the Company operate as New Jersey corporations and are established as
S-Corporations for Federal income tax purposes.

OC provides administrative and marketing services to DPO, ODL and ODA. OC
is wholly-owned by five members of the Board of Directors.

DPO provides dental services to managed care corporations and other
employers in need of managed dental services. DPO is licensed under the New
Jersey Department of Insurance to operate as a prepaid dental plan organization
under the "Dental Plan Organization Act" ("DPO Act"). DPO enters into dental
agreements with each dentist who provides dental services for DPO enrollees.
Consistent with the DPO Act, DPO is limited to the amount of underwriting risk
it can assume. The Department of Insurance must approve all new or revised
schedule of charges prior to its effective date. In accordance with the DPO Act,
the charges must not be excessive, inadequate or unfairly discriminatory. Among
other provisions, the DPO Act requires DPO to meet certain net worth and deposit
requirements discussed more fully in Note 3. It is management's opinion that DPO
was in compliance with these provisions as of December 31, 1994 and 1995. DPO is
wholly-owned by the Chairman of the Board of Directors.

ODL provides laboratory work for the Company and outside dentists. ODL is
wholly-owned by the Chairman of the Board of Directors.

ODA consists of dental health centers located throughout New Jersey. The
Health Centers provide multi-specialty dental services including pediatric
dentistry, oral surgery, endodontics, orthodontics and periodontics. Dentists
within the Health Centers are compensated a fixed salary plus bonus incentives.
The bonus incentives are contingent upon meeting certain productivity targets.
Under some plans, the dentist is also paid a separate fee, or co-payment, by the
member at the time of the dental service. Dental service costs of dentists
within the Health Centers consisted of approximately 36% and 32% of total dental
service costs at December 31, 1994 and 1995, respectively. All Health Centers
are wholly-owned by the Chairman of the Board of Directors.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF COMBINATION: The accompanying combined financial statements
include the financial statements of each organization within the Company. All
intercompany transactions and balances have been eliminated in combination.

REVENUE: Amounts billed to out-of-plan patients are recognized as revenue
in the month in which services are rendered. Revenue is recognized on group
policy holders and prepaid arrangements in the month

F-21
<PAGE> 74

ORACARE DENTAL HEALTH PLANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

in which the subscribers are entitled to receive services. Unearned fees are
reflected as current liabilities and consist of amounts billed in the current
period for services to be rendered in a subsequent period.

Under prepaid arrangements, the DPO contracts with dentists for dental
services to be provided to its subscribers. Provider capitation consists of
monthly fees paid to dentists and is expensed in the month in which the dentist
is obligated to render dental services. DPO is not obligated to dentists for
services exceeding the capitated payment.

DENTAL SERVICE COSTS: Indemnity and managed care dental expenses are
charged to expense in the period that the services are incurred. The Company
contracts with dentists not compensated by the Health Centers to provide
services to covered enrollees. These costs consist of compensation to dentists
participating in the managed dental care plan and are paid by the Company on a
per member, per month capitation basis. Dental provider contracts are on a
yearly basis subject to cancellation by either party upon 90 days written
notice. Dental provider contracts consisted of approximately 5% and 12% of
dental service costs for the years ended December 31, 1994 and 1995,
respectively.

PROPERTY AND EQUIPMENT: Property and equipment is recorded at cost.
Depreciation is provided on a straight-line basis over the estimated useful life
of the asset. Capitalized leases are recorded at their present value at the
inception of the lease. Equipment under capital leases is amortized on the
straight-line method over the shorter period of the lease term or the estimated
useful life of the equipment.

STATE INCOME TAXES: For federal income tax purposes, the corporations
within the Company have elected to be treated as S corporations and,
accordingly, federal income taxes are not provided for by the Company. The
corporations within the Company are subject to New Jersey state income taxes.
During 1994, the Company had sufficient state net operating loss carryforwards
to offset taxable income. State income taxes are based on income reported for
financial statement purposes, adjusted for permanent differences. Permanent
differences principally relate to the non-deductible portion of travel and
entertainment expenses and premiums paid for officers' life insurance. The
Company utilized operating loss carryforwards for state tax purposes of
approximately $667,000 and $140,000 for the years ended December 31, 1994 and
1995, respectively. At December 31, 1995, there are no remaining net operating
loss carryforwards available.

MALPRACTICE INSURANCE: In addition to individual dentist coverage, the
Company maintains claims made umbrella policies covering employed dentists and
other dental professionals. The policies have a $1,000,000 occurrence and
$1,000,000 to $3,000,000 annual aggregate limits.

USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates that affect the amounts reported in the financial statements. Actual
results could differ from those estimates.

UNAUDITED PRO FORMA INFORMATION: The unaudited pro forma information
presented in the combined statements of income reflect the pro forma effects for
federal income taxes at an effective rate of 34%, as if the Company had been a
taxable entity for federal purposes.

3. REGULATORY REQUIREMENTS AND RESTRICTED FUNDS

The State of New Jersey Department of Insurance (DOI) requires that the
DPO, among other things, maintain a required general surplus. At December 31,
1995, DPO's general surplus exceeded the minimum required general surplus of
approximately $66,000.

F-22
<PAGE> 75

ORACARE DENTAL HEALTH PLANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Auto........................................................ $ 16,845 $ 16,845
Leasehold improvements...................................... 115,565 115,565
Furniture................................................... 25,573 33,335
Dental equipment............................................ 904,233 912,741
Computer equipment.......................................... 186,147 214,037
---------- ----------
1,248,363 1,292,523
Less accumulated depreciation and amortization.............. (451,707) (559,486)
---------- ----------
$ 796,656 $ 733,037
========== ==========
</TABLE>

The total cost of capitalized leased equipment at December 31, 1994 and
1995 was $474,305 and $497,138, respectively. Total amortization expense
associated with capital leases for the years ended December 31, 1994 and 1995
was $48,886 and $58,723, respectively.

5. LONG-TERM OBLIGATIONS

A summary of long-term obligations is as follows:

<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
$175,000 Senior Debenture, due December 29, 2000, interest
10% payable semi-annually beginning June 30, 1996(a)...... $ 175,000
$121,562 loan payable, bearing interest at 12.66% per annum,
payable in 48 monthly principal and interest installments
of $3,240, due April 1997................................. $ 78,209 47,480
$119,453 loan payable, bearing interest at 14.0% per annum,
payable in 84 monthly principal and interest installments
of $2,239, due November 1997.............................. 66,955 44,929
$65,000 loan payable, bearing interest at 14.0% per annum,
payable in 60 monthly principal and interest installments
of $1,512, due November 1999.............................. 64,246 53,625
$250,000 note payable, collateralized by substantially all
property and equipment of the Health Centers, and a
$400,000 life insurance policy on the Chairman of the
Board of Directors. The note bears interest of 9.0% and
matures in October, 1996. Principal and interest payments
of $2,500 are due monthly with a balloon payment of
$102,000 due October 1996................................. 123,500 116,498
Notes payable, bearing interest at 15%, maturing on January
31, 2000. Principal and interest payments of $913 are due
monthly................................................... 38,812 33,308
$437,500 unsecured note payable, bearing interest at 9.0%,
maturing on April 1, 2000, principal payments of $7,500
required monthly, plus interest........................... 437,500 400,025
$511,959 unsecured note payable, bearing interest at 9.67%,
maturing on January 31, 2000, monthly principal and
interest payments vary from $9,000 to $15,000 for the life
of the note(b)............................................ 492,960 481,063
</TABLE>

F-23
<PAGE> 76

ORACARE DENTAL HEALTH PLANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

<TABLE>
<CAPTION>
DECEMBER 31
1994 1995
---------- ----------
<S> <C> <C>
$458,090 unsecured loan payable, bearing interest at 9.5%,
maturing in May, 1999, with monthly principal varying from
$6,000 to $7,800 for the life of the loan. The loan is
guaranteed by certain officers and directors(c)........... $ 360,400 $ 260,809
$224,264 note payable, collateralized by dental supplies
bearing interest of 9%, maturing January 1, 1999. Monthly
principal and interest payments vary from $4,000 per month
to $7,500 per month....................................... 224,264 191,236
Other long-term obligations with interest rates varying from
9% to 10.5%, maturing through November 1999............... 127,751 49,137
---------- ----------
2,014,597 1,853,110
Less current portion........................................ 339,096 438,456
---------- ----------
Long-term obligations....................................... $1,675,501 $1,414,654
========== ==========
</TABLE>

- ---------------

(a) The holder has an option to acquire 5% of the authorized, issued and
outstanding stock of DPO during two exercise periods. The consideration for
the issuance of the common stock shall be the debenture which the holder
will surrender to DPO. The two exercise periods set forth are December 1,
1997 through March 1, 1998, or at any time prior to March 1, 1998 in the
event that DPO has exercised its right to call the debenture.

(b) Under the terms of the note, 25% of the outstanding balance will be forgiven
if the remainder of the note is paid in full by December 31, 1996.

(c) Under the terms of the loan, total compensation of certain officers and
directors shall not exceed limits described in the loan documents. The
Company was in compliance with these covenants for the years ended December
31, 1994 and 1995, respectively. The terms of the loan were renegotiated on
May 10, 1996. The terms of the renegotiated loan are reflected in the
financial statements. The effect of the renegotiation was to extend the
payments of the loan an additional 34 months from the previous July 1996
maturity.

Future minimum payments at December 31, 1995 are as follows:

<TABLE>
<CAPTION>
CAPITAL LONG-TERM
LEASES OBLIGATIONS
-------- -----------
<S> <C> <C>
Year ended December 1996..................................... $103,335 $ 438,456
1997....................................................... 118,043 371,584
1998....................................................... 70,179 415,970
1999....................................................... 32,836 300,799
2000....................................................... 1,656 264,764
Thereafter................................................. 61,537
-------- -----------
326,049 1,853,110
Less amount representing interest............................ 55,663
-------- -----------
Present value of minimum future obligations.................. 270,386 1,853,110
Less current portion......................................... 75,130 626,323
-------- -----------
Long-term portion............................................ $195,256 $ 1,226,787
======== ===========
</TABLE>

F-24
<PAGE> 77

ORACARE DENTAL HEALTH PLANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

Capital lease obligations, at interest rates ranging from 5% to 17%, are
collateralized by property and equipment.

The fair value of long-term debt is estimated by discounting the required
future cash flows using borrowings rates that could be currently obtained by the
Company. At December 31, 1995, the Company believes that the carrying value of
long-term debt approximates fair value.

6. SOURCES OF REVENUES

The following table shows the percentage of revenue attributable to each
type of product offered:

<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Managed care........................................................... 34% 43%
Indemnity.............................................................. 66 57
--- ---
100% 100%
=== ===
</TABLE>

7. SIGNIFICANT CUSTOMERS

In 1994 and 1995, one customer, the State of New Jersey, accounted for
approximately 19.7% and 19.6% of the Company's subscriber revenue, respectively.

8. COMMON STOCK

At December 31, 1994 and 1995, the authorized and issued common stock of
the Company is as follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES
---------------------------
NO PAR $1 PAR
VALUE VALUE TOTAL
------ ------ -----
<S> <C> <C> <C>
Authorized:
OC........................................................ 2,500 2,500
ODA....................................................... 2,500 2,500
ODL....................................................... 2,500 2,500
DPO....................................................... 1,000 1,000
----- ----- -----
Total shares authorized..................................... 7,500 1,000 8,500
===== ===== =====
Issued:
OC........................................................ 1,000 1,000
ODA....................................................... 100 100
ODL....................................................... 100 100
DPO....................................................... 100 100
----- ----- -----
Total shares issued......................................... 1,200 100 1,300
===== ===== =====
</TABLE>

9. RETIREMENT PLAN

Effective January 1, 1995, the Company commenced a 401(k) profit sharing
plan in which all employees of the Company who have completed at least twelve
months of service and have attained age eighteen are eligible to participate.
Under the plan, the Company may elect to make matching contributions to eligible
plan members. The Company elected not to contribute to the plan for the year
ended December 31, 1995.

F-25
<PAGE> 78

ORACARE DENTAL HEALTH PLANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

10. CONCENTRATION OF CREDIT RISK

The Company grants credit without collateral to its patients, most of whom
are local residents and are insured under third-party payer agreements. Revenue
from patients and third-party payers was as follows:

<TABLE>
<CAPTION>
DECEMBER 31
-------------
1994 1995
---- ----
<S> <C> <C>
Commercial insurance and managed care.................................. 90% 91%
Self-pay............................................................... 10 9
--- ---
100% 100%
=== ===
</TABLE>

11. OPERATING LEASE OBLIGATIONS

The Company leases office space and various office equipment. The related
expenses for the years ended December 31, 1994 and 1995 was approximately
$280,971 and $287,917, respectively. The following is a schedule of future
minimum payments under operating leases that have initial or remaining
noncancelable lease terms in excess of one year for the next five years:

12. COMMITMENTS AND CONTINGENCIES

LITIGATION: Various suits and claims arising in the normal course of
operations are pending or are on appeal against the Company. Such suits and
claims are either specifically covered by insurance or are not material. While
the outcome of these suits cannot be determined at this time, legal counsel and
management believe that any loss which may arise from these actions will not
have a material adverse effect on the financial position or results of
operations of the Company.

13. RELATED PARTY TRANSACTIONS

Accounting services and rental of a dental facility are provided by a
member of the Board of Directors. These services are provided at current market
rates. Amounts charged are as follows:

<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1994 1995
------- -------
<S> <C> <C>
Accounting services.............................................. $15,032 $20,626
Rental of dental facility........................................ 43,800 43,800
------- -------
$58,832 $64,426
======= =======
</TABLE>

14. SUBSEQUENT EVENT

On September 5, 1996, the stockholders of OC and DPO entered into
agreements to sell all the issued and outstanding capital stock of such
companies to United Dental Care, Inc., a Delaware corporation ("UDC").
Additionally, the sole stockholder of ODA agreed to sell all the issued and
outstanding capital stock of ODA to a designee of UDC. The sale of the
outstanding capital stock of DPO is subject to New Jersey regulatory approval.

F-26
<PAGE> 79

REPORT OF INDEPENDENT ACCOUNTANTS

To the Boards of Directors and Shareholders

of United Dental Care of Oklahoma,

International Dental Plan, Inc.
and Association Dental Plans, Inc.
(d.b.a. UICI Dental Companies)

In our opinion, the accompanying combined balance sheet and the related combined
statements of operations, of changes in equity and of cash flows present fairly,
in all material respects, the combined financial position of the UICI Dental
Companies (as described in the basis of financial statement presentation in Note
1 to the financial statements) at December 31, 1995, and the results of their
combined operations and their combined cash flows for the year in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Companies' management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
Dallas, Texas
September 26, 1996

F-27
<PAGE> 80

UICI DENTAL COMPANIES

COMBINED BALANCE SHEETS
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, -----------
1995
------------ (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $1,492 $ 2,160
Temporary investments............................................. 725 1,425
Marketable securities............................................. 700
Accounts receivable............................................... 462 184
Notes receivable, current portion................................. 18 233
Other receivables................................................. 20 9
Mortgage loans.................................................... 55 55
Other current assets.............................................. 161 108
------ ------
Total current assets...................................... 3,633 4,174
Notes receivable, noncurrent...................................... 228
Regulatory deposits............................................... 350 350
Furniture and equipment, net...................................... 329 357
Other assets...................................................... 94 66
------ ------
Total assets.............................................. $4,634 $ 4,947
====== ======
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities.......................... $ 540 $ 600
Deferred revenues................................................. 735 840
Notes payable -- related parties.................................. 1,205 808
Accrued income taxes.............................................. 77 21
------ ------
Total current liabilities................................. 2,557 2,269
Future policy benefits -- annuity reserves.......................... 305 305
Deferred income taxes............................................... 24 25
------ ------
Total liabilities......................................... 2,886 2,599
------ ------
Commitments and contingencies (Notes 9 and 10)
Equity:
Contributed capital............................................... 15 19
Additional paid-in capital........................................ 285 400
Retained earnings................................................. 1,635 1,929
Treasury stock, at cost........................................... (187) --
------ ------
Total equity.............................................. 1,748 2,348
------ ------
Total liabilities and equity.............................. $4,634 $ 4,947
====== ======
</TABLE>

See accompanying notes.

F-28
<PAGE> 81

UICI DENTAL COMPANIES

COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -----------------
1995 1995 1996
------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Premiums................................................... $ 13,467 $6,924 $7,182
Membership fees............................................ 2,868 1,311 1,488
Other income............................................... 275 129 160
------- ------ ------
16,610 8,364 8,830
------- ------ ------
Costs and expenses:
Provider service expense................................... 8,116 4,883 4,195
Selling, general and administrative........................ 7,424 2,912 4,074
Depreciation and amortization.............................. 82 11 28
Interest................................................... 72 34 43
Other...................................................... 84 9 63
------- ------ ------
15,778 7,849 8,403
------- ------ ------
Income before income taxes................................. 832 515 427
Provision for income taxes................................. 213 90 133
------- ------ ------
Net income......................................... $ 619 $ 425 $ 294
======= ====== ======
</TABLE>

See accompanying notes.

F-29
<PAGE> 82

UICI DENTAL COMPANIES

COMBINED STATEMENTS OF CHANGES IN EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL
CONTRIBUTED PAID-IN RETAINED TREASURY
CAPITAL CAPITAL EARNINGS STOCK TOTAL
----------- ---------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994................... $15 $ 285 $1,016 $ (25) $1,291
Purchase of treasury stock................. (162) (162)
Net income................................. 619 619
--- ---- ------ ----- ------
Balance, December 31, 1995................... 15 285 1,635 (187) 1,748
Net income (unaudited)..................... 294 294
Retirement of treasury stock (unaudited)... (187) 187
Warrant issued (unaudited)................. 302 302
Common stock issued (unaudited)............ 4 4
--- ---- ------ ----- ------
Balance, June 30, 1996 (unaudited)........... $19 $ 400 $1,929 $ -- $2,348
=== ==== ====== ===== ======
</TABLE>

See accompanying notes.

F-30
<PAGE> 83

UICI DENTAL COMPANIES

COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED,
YEAR ENDED JUNE 30,
DECEMBER 31, -----------------
1995 1995 1996
------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 619 $ 425 $ 294
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 82 11 28
Deferred income taxes...................................... 16
Change in liability for future policy benefits............. (49) 102
Changes in assets and liabilities:
Accounts receivable..................................... (13) 253 278
Temporary investments................................... (200) (468) (700)
Accounts payable and accrued liabilities................ 208 38 10
Deferred revenues....................................... 40 8 105
Other current and noncurrent assets..................... 7 (9) 81
Other receivables....................................... (77) 10
------ ------ ------
Net cash provided by operating activities.......... 633 360 106
------ ------ ------
Cash flows from investing activities:
Capital expenditures....................................... (175) 3 (56)
Principal payments received on notes receivable............ 98 60 13
Proceeds of sale of marketable securities.................. 625 700
------ ------ ------
Net cash (used in) provided by investing
activities....................................... (77) 688 657
------ ------ ------
Cash flows from financing activities:
Cash paid for treasury stock............................... (162) (162)
Common stock issued........................................ 4
Warrants issued............................................ 302
Proceeds of borrowings..................................... 48
Principal payments on notes payable........................ (90) (101) (401)
------ ------ ------
Net cash used in financing activities.............. (204) (263) (95)
------ ------ ------
Net increase in cash......................................... 352 785 668
Cash and cash equivalents at beginning of period............. 1,140 1,140 1,492
------ ------ ------
Cash and cash equivalents at end of period................... $1,492 $1,925 $2,160
====== ====== ======
Cash paid during the period for:
Interest................................................ $ 46 $ 21 $ 27
Taxes................................................... $ 120 $ 87 $ 122
</TABLE>

See accompanying notes.

F-31
<PAGE> 84

UICI DENTAL COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS

(JUNE 30, 1996 AMOUNTS UNAUDITED)

1. ORGANIZATION, DESCRIPTION OF BUSINESS AND BASIS OF FINANCIAL STATEMENT
PRESENTATION

The accompanying combined financial statements include the accounts of the
following entities collectively doing business as UICI Dental Companies ("the
Companies"): United Dental Care of Oklahoma ("UDC-Oklahoma") and its wholly
owned subsidiary, UDC Life and Health Insurance Company; International Dental
Plan, Inc. ("IDP"); and Association Dental Plans, Inc. ("ADP"). Any intercompany
transactions and balances have been eliminated in combination.

Each of these companies was acquired by UICI (formerly known as United
Insurance Companies, Inc.) ("UICI") during 1995. UICI is a publicly-traded
financial services company with interests in life and health insurance and
related services, including the administration and delivery of managed health
care programs to select niche markets. In early 1995, UICI purchased a majority
interest in UDC-Oklahoma from its controlling stockholder. In November 1995,
UICI acquired 100% of the stock of ADP and, in December 1995, acquired 100% of
the stock of IDP. The accompanying combined financial statements present 100% of
the financial position and results of operations of UDC-Oklahoma

On September 10, 1996, UICI entered into a definitive agreement with United
Dental Care, Inc. ("UDC"), a publicly-traded managed dental benefits company
unrelated to UDC-Oklahoma, to sell 100% of the stock of IDP and ADP and their
majority interest in UDC-Oklahoma to UDC including a tender offer of the
minority interest in UDC-Oklahoma, for $12,750,000.

Both UDC-Oklahoma and IDP are licensed to operate and market managed dental
care plans in the states of Oklahoma and Florida, respectively. ADP is a
"referral-type" plan which operates a nationwide fee-for-service membership
plan. A "referral plan" generally is not considered an insurance product in most
states.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

Premium revenue related to managed benefits is recorded in the month for
which the member is entitled to service. Premium revenue for indemnity benefits
is recognized over the coverage period to which the premiums relate. Member fees
related to ADP's fee-for-service membership plan are reported as revenue in the
period in which the member is entitled to plan benefits. Unearned premiums and
member fees are reflected as deferred revenue and consist of amounts billed or
collected in the current period which pertain to services (or entitlement to
services) in subsequent periods.

REGULATORY DEPOSITS

Under Florida law, IDP is required to keep an interest bearing deposit of
$50,000 with the Florida Department of Insurance. In addition, IDP is required
to maintain a minimum adjusted net worth of $100,000 or 6% of total liabilities,
whichever is greater. As of January 1, 1996, this increased to the greater of
$150,000 or 10% of total liabilities. As of December 31, 1995, IDP had an
adjusted net worth of approximately $496,000.

Under Oklahoma law, UDC-Oklahoma is required to keep interest-bearing
certificates of deposit of $300,000 issued by solvent insured banks and trust
companies in Oklahoma on deposit with the State Treasurer. This required deposit
is held by the State Treasurer in trust for the benefit and protection of
persons covered by the Plan and is not subject to attachment by any creditors.

F-32
<PAGE> 85

UICI DENTAL COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

CASH AND CASH EQUIVALENTS

The companies consider all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

TEMPORARY INVESTMENTS

Temporary investments include assets which are fully bonded or guaranteed
by the United States Government, such as bank Certificates of Deposit covered by
FDIC insurance, mutual funds invested exclusively in US Government debt
instruments and Repurchase Agreements backed by US Government securities. Time
deposits have an original maturity of greater than three months. Temporary
investments are recorded at cost which approximates market.

MARKETABLE SECURITIES

In accordance with FAS 115, the Companies have treated their marketable
securities as held to maturity type investments and have recorded them at cost.
Marketable securities consist of several US Treasury Notes with a fair market
value, which approximates cost, of $700,000 as of December 31, 1995. The note
accrues interest at 4.25%.

FUTURE POLICY BENEFITS

The reserves for future policy benefits are computed in accordance with
state statutes and administrative regulations. The aggregate reserve for
accident and health policies consists of reserves for unearned premiums and
reported and incurred but not reported on life and annuity claims. The unearned
premiums reserve represents the portion of premiums paid in advance which have
not yet been earned.

The aggregate reserve for life and annuity policies represents the
actuarially determined present value of amounts not yet due on claims.

FURNITURE AND EQUIPMENT

Furniture and equipment are carried at cost, and are depreciated using the
straight line and double declining balance methods over estimated useful lives
of three to seven years. Leasehold improvements are carried at cost and
amortized over fifteen years. Upon disposition, the cost and related accumulated
depreciation are removed from the accounts and the resulting gain or loss is
reflected in operations of the period.

ACQUISITION COSTS

Acquisition costs, such as commissions and other costs of obtaining new
members, are expensed as incurred.

INCOME TAXES

The Companies use SFAS No. 109, "Accounting for Income Taxes", which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed for
those differences that have future tax consequences using the currently enacted
tax laws and rates that apply to the periods in which they are expected to
affect taxable income. Valuation allowances are established, if necessary, to
reduce deferred tax assets to the amount that will, more likely than not, be
realized. See Note 7 for additional information.

F-33
<PAGE> 86

UICI DENTAL COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at December 31, 1995 and June
30, 1996, and revenues and expenses during the periods then ended. The actual
outcome of the estimates could differ from the estimates made in the preparation
of the financial statements.

3. FURNITURE AND EQUIPMENT

Furniture and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ---------
<S> <C> <C>
Equipment..................................................... $502,187 $ 463,843
Furniture..................................................... 37,233 58,393
Computer equipment............................................ 123,392 227,922
Leasehold improvements........................................ 38,550 38,800
-------- ---------
701,362 788,958
Accumulated depreciation and amortization..................... (372,804) (432,149)
-------- ---------
$328,558 $ 356,809
======== =========
</TABLE>

4. NOTES PAYABLE -- RELATED PARTIES

A summary of notes payable by entity is as follows:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
<S> <C> <C>
UDC-Oklahoma........................................... $ 550,000 $ 87,500
ADP.................................................... 655,475 720,475
---------- --------
$1,205,475 $807,975
========== ========
</TABLE>

The UDC-Oklahoma notes payable at December 31, 1995 consist of two
promissory notes in the amount of $100,000 and $450,000 payable to The Mega Life
and Health Insurance Company ("MEGA") which also is a subsidiary of UICI. The
notes are payable on demand, but no later than August 26, 1997, and December 31,
1997, respectively. Interest is due monthly at an annual rate equal to the net
investment yield earned on the principal as invested by UDC Life and Health
Insurance Company, which is 4.25% for 1995. These notes are collateralized by
500,000 shares of the capital stock of UDC Life and Health Insurance Company,
and provide for certain restrictions on UDC-Oklahoma to incur borrowings, sell
assets, enter into reinsurance agreements and invest assets.

In addition, UDC-Oklahoma has a revolving line of credit available from
MEGA of $1,000,000, of which $850,000 is in the form of a revolving credit
facility and $150,000 is in the form of a term note payable. The amount of
borrowings that can be made under this revolving line of credit is restricted by
certain financial requirements of MEGA. Borrowings under the line of credit
shall bear interest at the rate of 1% per month. As of December 31, 1995, no
borrowings have been made against the line.

The ADP debt at December 31, 1995 consists of a promissory note in the
amount of $502,475 and a borrowing made against a line of credit of $153,000,
both payable to UICI. Interest is paid monthly, and is computed at a monthly
rate of 1% of the outstanding balance at the beginning of each month. The debt
is collateralized by all tangible and intangible assets of ADP. The promissory
note is due on demand and the revolving line of credit on October 12, 1997. The
maximum amount that can be borrowed under the revolving line of credit is
$200,000.

If the proposed acquisition of the Companies by UDC is consummated, all of
the above amounts will be repaid in full under the terms of the transaction.

F-34
<PAGE> 87

UICI DENTAL COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

5. STOCKHOLDERS' EQUITY

At December 31, 1995 the authorized and issued common stock of the
Companies is as follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------------------
$.001 PAR $2 PAR $.01 PAR
VALUE VALUE VALUE
---------- ------ --------
<S> <C> <C> <C>
Authorized:
IDP................................................... 50,000,000 -- --
UDC-Oklahoma.......................................... -- 25,000 --
ADP................................................... -- -- 1,000
---------- ------ -----
Total shares authorized................................. 50,000,000 25,000 1,000
========== ====== =====
Issued:
IDP................................................... 709,308 -- --
UDC-Oklahoma.......................................... -- 6,551 --
ADP................................................... -- -- 500
---------- ------ -----
Total shares issued..................................... 709,308 6,551 500
========== ====== =====
</TABLE>

UDC-Oklahoma has authority to issue two classes of preferred stock, Class A
and Class B. Holders of the Class B preferred stock are entitled to receive a
fixed yearly dividend of 14% payable as authorized by the directors. This
dividend, which is cumulative, is to be set aside or paid before any dividends
are paid on the Class A preferred stock or common stock. The Class A preferred
stockholders are entitled to a 12% annual cumulative dividend which is to be set
aside or paid before the common stock dividends. The holders of common stock are
entitled to receive all moneys appropriated to dividends, after the cumulative
dividends on Class A and B preferred stocks have been fully paid. In 1995, only
common stock shares were outstanding.

In connection with the revolving line of credit discussed in Note 4,
UDC-Oklahoma issued a warrant which was exercisable up to an aggregate of 3,125
shares of its common stock at a price of $100 per share through April 1996.
Subsequent to December 31, 1995 this warrant was exercised and 3,125 shares of
common stock were issued.

6. RELATED PARTY TRANSACTIONS

At December 31, 1995, IDP had certain notes receivable from participating
dental providers amounting to $43,884, of which $18,382 is included in current
assets in the accompanying balance sheets. The notes are payable monthly, bear
interest at an annual rate of 8%, are secured by dental office equipment, and
are due at various dates through September 1998.

At December 31, 1995, ADP and UDC-Oklahoma had notes payable to UICI
(either directly or through MEGA) totaling $1,205,475 (see Note 4).

UDC-Oklahoma leases office equipment from United Management and Consulting,
Inc. ("UMCI"), a company owned by a stockholder and officer of UDC-Oklahoma.
Lease payments made under the cancelable lease agreement amounted to $25,200 in
1995. The lease is cancelable by either party with at least one month's written
notice.

Included in selling, general and administrative expenses are management and
consulting fees charged by a professional association owned by certain former
shareholders of IDP totaling approximately $71,000 in 1995. Additionally, during
1995 consulting fees of $23,000 were charged by a former shareholder of IDP.

Included in other income in the accompanying 1995 statement of operations
is approximately $2,500 in net settlement income resulting from the collection
of approximately $601,000 in damages relating to a claim

F-35
<PAGE> 88

UICI DENTAL COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

filed by IDP in 1988, settled in 1991 and collected in 1995. IDP then paid
bonuses to certain employees in recognition of their contributions to the
recovery related to this claim and paid approximately $347,500 to a professional
partnership owned by certain former shareholders for professional services
principally rendered in prior years in connection with the claim. In connection
with this claim, IDP entered into an agreement with the professional partnership
owned by certain former shareholders whereby the professional partnership would
be entitled to additional amounts, up to $150,000, that may be received in the
future. In July 1996, IDP received an additional $346,000 in damages as final
settlement of this claim, $150,000 of which was disbursed to the professional
partnership in accordance with the agreement noted above.

UDC Oklahoma is the sublessee under an office lease whereby they pay MEGA
$2,430 per month for rent through April 1, 1998 and $2,494 through March 31,
2000. The lease is noncancellable.

The President of UICI and his wife purchased annuities from UDC Life and
Health Insurance Company. The total value of the annuities are $304,000. Payment
on two of the annuities commences in December 1999 while payment on the third
annuity commences in March of 1999.

7. INCOME TAXES

For the 1995 tax year, the Companies did not file tax returns as a single
consolidated group; each entity filed separately. The combined income tax
provision for the Companies is summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE
1995 30, 1996
------------ ------------
<S> <C> <C>
Current
Federal.................................................. $181,087 $122,982
State.................................................... 16,000 8,887
--------
197,087 131,869
--------
Deferred
Federal.................................................. 13,200 950
State.................................................... 2,300 181
--------
15,500 1,131
--------
$212,587 $133,000
========
</TABLE>

A reconciliation of the Federal income tax rate to the effective tax rate
is as follows:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
Federal income tax rate..................................... 34.0% 34.0%
Small life insurance company benefit........................ (13.0%)
Other....................................................... 5.0% (3.0%)
------
Effective tax rate.......................................... 26.0% 31.0%
======
</TABLE>

F-36
<PAGE> 89

UICI DENTAL COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

Deferred income tax liability comprises the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ---------
<S> <C> <C>
Alternative minimum tax credit carryforward -- UDC-Oklahoma... $ 79,601 $ 78,077
Valuation allowance........................................... (79,601) (78,077)
--------- ---------
0 0
--------- ---------
Furniture and equipment -- IDP................................ (23,800) (24,931)
--------- ---------
Net deferred tax liability.......................... $ (23,800) $ (24,931)
========= =========
</TABLE>

8. EMPLOYEE BENEFITS

During 1995, the Companies maintained qualified 401(k) profit-sharing plans
covering substantially all of their employees. The plans allow for employees to
contribute a percentage of their compensation up to the maximum limit allowable
by law. The plans also provide for a discretionary matching contribution by the
companies which totaled approximately $52,951 in 1995. The IDP plan was
terminated effective December 31, 1995, in connection with the Agreement and
plan of Exchange with UICI. The ADP plan was terminated effective December 31,
1995, at which time ADP adopted the UICI 401(k) plan.

9. OPERATING LEASE

The Companies lease office space and office equipment under various
noncancelable lease agreements. Rental expense for the year ended December 31,
1995 was $161,973. Future minimum lease payments required under the operating
leases as of December 31, 1995, are as follows:

<TABLE>
<S> <C>
1996.............................................. $157,130
1997.............................................. 101,130
1998.............................................. 56,130
1999.............................................. 55,574
2000.............................................. 55,574
Thereafter........................................ -0-
</TABLE>

10. RISKS, UNCERTAINTIES AND SUBSEQUENT EVENTS

The Companies contract with certain medical HMOs to provide dental benefits
to the HMO's members. In the event that the contracts between such HMOs and
significant customers (e.g., government programs such as Medicare or Medicaid,
major employer groups) are terminated or not renewed, such termination or
nonrenewal would also terminate the companies' contracts to provide dental
benefits to those HMOs. Furthermore, the contracts with the medical HMOs
generally are on a year-to-year basis. Decisions by any of the medical HMOs to
not renew the contracts (i.e., to change to a different dental care provider
organization, or to drop dental coverage as a plan benefit) could result in
significant membership loss. In 1996 IDP lost a major customer, through which it
provided dental benefits to approximately 62,000 Florida Medicaid beneficiaries.

The companies contract to provide services to government programs such as
Medicare and Medicaid, either though contractual relationships with medical HMOs
(as discussed above) or by contracting directly with the government program.
Changes in reimbursement regulations could have an impact on the amounts of
payments received under such contracts or on the timing of the payments received
under those contracts.

F-37
<PAGE> 90

REPORT OF INDEPENDENT ACCOUNTANT

To the Board of Directors of
Kansas City Dental Care, Inc.

I have audited the accompanying balance sheet of Kansas City Dental Care,
Inc. as of December 31, 1995, and the related statements of income, retained
earnings and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audit.

I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kansas City Dental Care,
Inc. as of December 31, 1995 and the results of its operation and its cash flow
for the year then ended in conformity with generally accepted accounting
principles.

James L. Gordon, C.P.A.

September 6, 1996

F-38

<PAGE> 91
KANSAS CITY DENTAL CARE, INC.

BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
JUNE 30, 1996
DECEMBER 31, -------------
1995
------------ (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash............................................................... $271,547 $ 600,310
Accounts Receivable -- Trade....................................... 116,095 50,125
Accounts Receivable -- Salary Advances............................. 10,648 8,198
Accrued Interest Receivable........................................ 1,453 1,291
U.S. Treasury Bond................................................. 49,702 49,731
Prepaid Income Taxes............................................... -- 2,280
----------- ---------- -
Total Current Assets....................................... 449,445 711,935
----------- ---------- -
Fixed Assets:
Dental Equipment................................................... 199,597 199,597
Office Equipment................................................... 72,312 81,246
Vehicles........................................................... 10,139 10,138
Computer Equipment................................................. 58,027 76,125
Buildings.......................................................... 120,000 120,000
----------- ---------- -
460,075 487,106
Less: Accumulated Depreciation..................................... (231,540) (244,142)
----------- ---------- -
Net Book Value of Fixed Assets..................................... 228,535 242,964
Other Assets......................................................... 2,700 2,700
----------- ---------- -
TOTAL ASSETS......................................................... $680,680 $ 957,599
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable................................................... $ 23,078 $ --
Payroll Taxes Payable.............................................. 2,109 4,934
Accrued Pension Payable............................................ 8,618 7,922
Escheat Fund Account............................................... 10 10
Income Taxes Payable............................................... 1,891 104,216
Deferred Premiums.................................................. 269,084 257,338
Fringe benefits payable............................................ -- 2,673
Current portion of long-term debt.................................. 30,490 30,763
----------- ---------- -
Total Current Liabilities.................................. 335,280 407,856
----------- ---------- -
Long Term Liabilities:
Notes Payable...................................................... 93,418 85,936
Less: Current portion.............................................. (30,490) (30,763)
Deferred Income Taxes.............................................. 11,407 11,407
----------- ---------- -
Total Long Term Liabilities................................ 74,335 66,580
----------- ---------- -
Total Liabilities.......................................... 409,615 474,436
----------- ---------- -
Stockholders Equity:
Capital Stock...................................................... 50,010 50,010
Paid-In-Capital In Excess of Par................................... 43,808 43,808
Retained Earnings.................................................. 177,247 389,345
----------- ---------- -
Total Stockholders' Equity................................. 271,065 483,163
----------- ---------- -
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................... $680,680 $ 957,599
=========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-39
<PAGE> 92

KANSAS CITY DENTAL CARE, INC.

STATEMENT OF INCOME

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
YEAR ENDED ------------------------
DECEMBER 31, 1995 1995 1996
----------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues
Sales -- Regular................................... $ 7,264,397 $3,699,127 $3,866,488
Sales -- Individual................................ 527,595 260,877 303,417
Sales -- Federal................................... 277,524 135,791 189,579
Sales -- ACH....................................... 68,742 36,194 38,396
Commissions and Other.............................. 281,782 101,930 381,835
----------- ---------- ----------
Total Revenues............................. 8,420,040 4,233,919 4,779,715
----------- ---------- ----------
Cost of Goods Sold
Broker Commission.................................. 536,330 269,185 345,906
Capitation......................................... 5,665,866 2,916,224 2,740,753
Refunds............................................ 27,249 13,468 17,419
Other Commissions.................................. 269,416 92,825 322,729
----------- ---------- ----------
Total Cost of Goods Sold................... 6,498,861 3,291,702 3,426,807
----------- ---------- ----------
Gross Profit............................... 1,921,179 942,217 1,352,908
----------- ---------- ----------
Operating Expenses
Sales & Marketing and General & Administrative..... 1,854,722 904,512 986,907
Depreciation....................................... 24,837 11,997 12,602
Interest........................................... 10,098 4,806 4,176
----------- ---------- ----------
Total Operating Expenses................... 1,889,657 921,315 1,003,685
----------- ---------- ----------
Income From Operations............................. 31,522 20,902 349,223
----------- ---------- ----------
Other Income (Expense)
Lease Income....................................... 6,216 -- --
Consulting Income.................................. 51,700 -- --
Interest Income.................................... 6,085 3,847 1,822
Gain on Sale of Equipment.......................... 50,002 50,656 --
Bonuses............................................ (137,166) (62,522) (34,731)
----------- ---------- ----------
Total Other Income (Expense)............... (23,163) (8,019) (32,909)
----------- ---------- ----------
Income Before Income Taxes......................... 8,359 12,883 316,314
Income Tax Expense................................. (1,680) (2,568) (104,216)
----------- ---------- ----------
Net Income......................................... $ 6,679 $ 10,315 $ 212,098
=========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-40
<PAGE> 93

KANSAS CITY DENTAL CARE, INC.

STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<S> <C>
Retained earnings -- January 1, 1995.............................................. $170,568
Net income for the year........................................................... 6,679
Less: Dividends paid.............................................................. --
----------
-
Retained earnings -- December 31, 1995............................................ 177,247
Net income for the period......................................................... 212,098
----------
-
Retained earnings -- June 30, 1996 (unaudited).................................... $389,345
===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-41
<PAGE> 94

KANSAS CITY DENTAL CARE, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
YEAR ENDED ----------------------
DECEMBER 31, 1995 1995 1996
----------------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................... $ 6,679 $ 10,315 $212,098
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................... 24,837 11,997 12,602
Deferred income taxes.............................. (3,504) -- --
Gain on sale of fixed assets....................... (50,002) (50,656) --
Amortization of discount........................... (264) (236) (29)
Changes in operating assets and liabilities:
Decrease (increase) in accounts
receivable -- trade............................. (61,624) -- 65,971
Decrease (increase) in prepaid expenses............ 4,841 2,000 (2,280)
Decrease (increase) in salary advances............. 4,376 (11,085) 450
Decrease in other receivables...................... 24,824 24,824 --
Increase (decrease) in accounts payable............ (23,421) (38,295) (23,248)
Increase (decrease) in deferred premiums........... 190,855 -- (11,747)
Increase in income taxes payable................... 1,393 2,071 102,496
Increase in other payables......................... 10,451 411 6,802
-------- --------- --------
Net cash provided by (used in) operations............ 129,441 (48,654) 363,115
-------- --------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of fixed assets................... 70,000 70,000 --
Decrease in notes receivable......................... 63,065 6,841 --
Purchase of real estate.............................. (120,000) (120,000) --
Purchase of fixed assets............................. (33,397) (5,815) (27,032)
Decrease (increase) in interest receivable........... (1,453) (1,292) 162
-------- --------- --------
Net cash used by investing activities................ (21,785) (50,266) (26,870)
-------- --------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from notes.................................. 120,000 120,000 --
Payments on notes.................................... (61,831) (41,926) (7,482)
-------- --------- --------
Net cash provided by (used in) financing
activities......................................... 58,169 78,074 (7,482)
-------- --------- --------
Net increase (decrease) in cash...................... 165,825 (20,846) 328,763
Cash -- beginning of period.......................... 105,721 105,721 271,547
-------- --------- --------
Cash -- end of period................................ $ 271,546 $ 84,875 $600,310
======== ========= ========
SUPPLEMENTAL DISCLOSURES
Interest paid........................................ $ 10,098 $ 4,806 $ 4,176
======== ========= ========
Income taxes paid.................................... $ 3,791 $ 498 $ 4,000
======== ========= ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-42
<PAGE> 95

KANSAS CITY DENTAL CARE, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. NATURE OF OPERATIONS

Kansas City Dental Care, Inc., a Missouri corporation, is a prepaid dental
care insurance company. The plan provides members with affordable, quality
dental care in an era of spiraling health care costs. Members of Kansas City
Dental Care, Inc. subscribe to coverage through a payroll deduction by their
employer, and may continue coverage upon separation from their employer by
renewing their subscription on an individual basis. Services are provided to
members by contracting dentists throughout the area.

2. BASIS OF ACCOUNTING

Financial statements are prepared on the accrual basis of accounting.
Revenues are recorded at the time of the sale or transaction. Expenditures are
recorded at the time the merchandise or service is received.

3. INVESTMENTS

Bonds and short-term investments are reported at amortized cost. Discounts
or premiums on bonds are amortized using the straight-line method. Interest
earned on investments is being accrued.

4. ACCOUNTS RECEIVABLE

Accounts receivable are stated at net realizable value. Doubtful accounts
are written directly to expense when in the opinion of management, amounts
involved are considered uncollectible, which approximates the allowance method
of bad debt write-off.

5. FIXED ASSETS

Fixed assets are stated at cost. Major improvements and betterments to
existing fixed assets have been capitalized. Expenditures for maintenance and
repairs which do not extend the life of the applicable fixed assets have been
charged to expense as incurred.

Depreciation is provided principally by the straight-line method over the
estimated useful lives of the assets.

6. ACCRUED LIABILITIES

Accrued liabilities are based on the accrual method of accounting and are
computed through December 31, 1995.

Unearned premiums are determined by prorating policy premiums over the
terms of the policies.

7. INCOME TAXES

Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related to temporary differences in reporting results of operations for income
tax and financial accounting purposes.

8. USE OF ESTIMATES

The preparation of financial statements on the accrual basis of accounting
requires management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could differ from
those estimates.

F-43
<PAGE> 96

KANSAS CITY DENTAL CARE, INC.

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

NOTE B -- CONCENTRATIONS OF CREDIT RISK

The Company maintains its cash balances primarily in one financial
institution located in Kansas City, Missouri. The balances are insured by the
Federal Deposit Insurance Corporation up to $100,000.00. At December 31, 1995
and June 30, 1996, the Company's uninsured cash balances total $242,422.46 and
$644,720, respectively.

NOTE C -- INVESTMENT -- TREASURY BOND

A $50,000 United States Treasury Bond paying interest at 7.75% was
purchased during the year ended November 30, 1991 for $49,437.50. The amortized
cost of the bond at December 31, 1995 and June 30, 1996 is $49,702 and $49,731,
respectively, which approximates market value. The bond matures February 15,
2001. The fair market value as of December 31, 1995 and June 30, 1996 is $55,094
and $52,844, respectively.

NOTE D -- COMMITMENTS -- LEASES

As Lessee: Kansas City Dental Care, Inc. is committed to a lease of their
office space until July 31, 2000. Monthly rent in the amount of $4,956.75 is
payable until July 31, 1998. Monthly rent will be $5,140.33 from August 1, 1998
through the end of the lease.

NOTE E -- 401(K) PLAN

Kansas City Dental Care, Inc. has in place a 401(k) plan which provides for
elective deferral of salaries for employees. The Company also invests a base
amount of 3% to all employees vested and will match employee contributions up to
an additional 4%. Contributions for the year ended December 31, 1995 and for the
six months ended June 30, 1996 of $52,145 and $33,309, respectively, reflect
both employee and employer contributions.

NOTE F -- NOTES PAYABLE

Notes payable consist of the following:

(a) 9.75% note for $95,000.00 payable in monthly installments of
$993.32 principal and interest to UMB Bank of Kansas City. This loan is
secured by real estate in Salina, Kansas, with a maturity date of February
1, 1998. The balance at December 31, 1995 and June 30, 1996 is $68,418 and
$60,936, respectively.

(b) 9.25% Line of Credit for $100,000.00 payable in quarterly
installments for interest only to UMB Bank of Kansas City on $25,000.00 of
this line. The remaining $75,000.00 is an open letter of credit for the
benefit of the State of Kansas which expires November 15, 1996. This open
letter must be renewed or replaced by August 15, 1996, or the commissioner
of insurance will be authorized to draw upon the letter of credit.

Principal maturities on notes payable are as follows:

<TABLE>
<S> <C>
Year ended December 31, 1996................................. $30,490
December 31, 1997................................. 6,050
December 31, 1998................................. 56,878
-------
$93,418
=======
</TABLE>

F-44
<PAGE> 97

KANSAS CITY DENTAL CARE, INC.

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

NOTE G -- COMMON STOCK

The corporation has authorized 10,000 shares of common stock with a par
value of $10.00. Issued capital stock at the financial statement date was 5,001
shares at par value of $10.00. The owners of the 5,001 shares on December 31,
1995 and on June 30, 1996 are as follows:

<TABLE>
<CAPTION>
SHARES
------
<S> <C>
John Carlin................................................. 1,667
Frank Schloegel............................................. 1,667
Dennis Dlabal............................................... 1,667
-----
Total............................................. 5,001
=====
</TABLE>

NOTE H -- RELATED PARTY TRANSACTIONS

An officer of Kansas City Dental Care, Inc. owns stock in dental clinics
with which the corporation has provider contracts. The capitation fees paid to
the officer's clinics for the year ended December 31, 1995 and for the six
months ended June 30, 1996 were $941,890 and $252,999, respectively. Management
services of $21,750.00 are also provided by another related corporation.

NOTE I -- DEFERRED INCOME TAXES

Temporary differences giving rise to the deferred tax liability of
$11,406.90 as of December 31, 1995 and as of June 30, 1996 consist of
depreciation expense being reported differently for financial reporting and tax
purposes.

NOTE J -- INCOME TAXES -- CURRENT

Income taxes payable consist of the following:

<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
---------- ---------- -----------
<S> <C> <C> <C>
1995 tax liability............................ $ 3,135.00 $ 2,049.00 $ 5,184.00
Less: Estimates paid and credits forwarded.... (2,841.00) (452.00) (3,293.00)
---------- --------- ----------
Total............................... $ 294.00 $ 1,597.00 $ 1,891.00
========== ========= ==========
</TABLE>

<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
---------- ---------- -----------
<S> <C> <C> <C>
1996 estimated tax liability.................. $89,093.24 $15,123.09 $104,216.33
Less: Estimates paid and credits forward...... (1,600.00) (680.00) (2,280.00)
---------- --------- ----------
Total............................... $87,493.24 $14,443.09 $101,936.33
========== ========= ==========
</TABLE>

F-45
<PAGE> 98

REPORT OF INDEPENDENT ACCOUNTANT

To the Board of Directors and Stockholders of
U.S. Dental Management, Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of U.S. Dental Management, Inc. and its subsidiaries at December 31,
1994 and 1993, and the results of their operations and their cash flows for each
of the three years ended December 31, 1994, 1993 and 1992, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

ANDREW C. SARAGER, C.P.A., P.C.

Phoenix, Arizona
February 14, 1995 except for
Notes 12 and 13 for which the date is
July 19, 1995

F-46
<PAGE> 99

U.S. DENTAL MANAGEMENT, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1993 1994 1995
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents..................................... $1,128 $1,914 $ 1,823
Accounts receivable -- premiums............................... 1,316 2,098 1,695
Other receivables............................................. 2 41 350
------ ------ ------
Total current assets.................................. 2,446 4,053 3,868
------ ------ ------
Property and equipment net of accumulated depreciation of $238
and $258 at December 31, 1993 and 1994, respectively, and $276
at March 31, 1995 (unaudited)................................. 99 83 105
Deferred and prepaid income taxes............................... 180 -- --
Regulatory certificates of deposits............................. 391 365 390
Intangible assets, net of accumulated amortization of $3 at June
30, 1995...................................................... -- -- 545
Other assets.................................................... 111 122 83
------ ------ ------
TOTAL ASSETS.......................................... $3,227 $4,623 $ 4,991
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term obligations...................... $ 45 $ 24 $ 24
Notes payable, officers....................................... -- -- 200
Line of credit................................................ -- 275 100
Accounts payable -- trade..................................... 98 609 294
Accrued payables.............................................. 359 95 79
Unearned revenue.............................................. 1,459 1,864 1,803
Dividends payable............................................. 27 34 --
Taxes payable................................................. -- 144 233
------ ------ ------
Total current liabilities............................. 1,988 3,045 2,733
Long-term liabilities:
Long-term obligations, net of current portion................. 26 3 623
Notes payable, officers....................................... 200 200 --
------ ------ ------
Total long-term liabilities........................... 226 203 623
------ ------ ------
Minority interests.............................................. 82 92 --
------ ------ ------
Stockholders' Equity:
Common stock -- $0.10 par value, 2,000,000 shares authorized;
500 shares issued and outstanding.......................... -- -- --
Additional paid-in capital.................................... 13 13 13
Retained earnings............................................. 918 1,270 1,622
------ ------ ------
TOTAL STOCKHOLDERS' EQUITY............................ 931 1,283 1,635
------ ------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $3,227 $4,623 $ 4,991
====== ====== ======
</TABLE>

See accompanying notes.

F-47
<PAGE> 100

U.S. DENTAL MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEARS ENDED MONTHS
DECEMBER 31, ENDED JUNE 30,
----------------------------- ----------------
1992 1993 1994 1994 1995
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Premiums...................................... $10,907 $11,654 $12,586 $6,040 $6,566
Interest income and other revenue............. 43 48 380 172 303
------- ------- ------- ------ ------
10,950 11,702 12,966 6,212 6,869
Expenses:
Dental care service........................... 7,390 8,423 8,773 4,270 4,372
General and administrative.................... 2,605 3,227 3,071 1,510 1,531
Sales and marketing........................... 664 297 245 124 134
Depreciation and amortization................. 71 67 55 33 29
Interest expense.............................. 20 16 24 16 29
------- ------- ------- ------ ------
10,750 12,030 12,168 5,953 6,095
Net income (loss) before taxes and minority
interests..................................... 200 (328) 798 259 774
Provision for taxes:
Federal income tax............................ 22 (178) 192 58 316
State premium tax............................. 137 182 210 102 106
------- ------- ------- ------ ------
159 4 402 160 422
------- ------- ------- ------ ------
Net income (loss) before minority interests..... 41 (332) 396 99 352
Minority Interests.............................. (1) 16 (11) -- --
------- ------- ------- ------ ------
Net income (loss)............................... $ 40 $ (316) $ 385 $ 99 $ 352
======= ======= ======= ====== ======
</TABLE>

See accompanying notes.

F-48
<PAGE> 101

U.S. DENTAL MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID IN RETAINED
STOCK CAPITAL EARNINGS
------ --------- --------
<S> <C> <C> <C>
Balance at 01/01/92.............................................. $ -- $ 13 $1,254
Net income..................................................... -- -- 40
Dividends...................................................... -- -- (27)
---- ---- ------
Balance at 12/31/92.............................................. -- 13 1,267
Net loss....................................................... -- -- (316)
Prior period adjustment........................................ -- -- (33)
---- ---- ------
Balance at 12/31/93.............................................. -- 13 918
Prior period adjustment........................................ -- -- (6)
Net income..................................................... -- -- 385
Dividends...................................................... -- -- (27)
---- ---- ------
Balance at 12/31/94.............................................. -- 13 1,270
Net income (unaudited)......................................... -- -- 352
---- ---- ------
Balance at 6/30/95 (unaudited)................................... $ -- $ 13 $1,622
==== ==== ======
</TABLE>

See accompanying notes.

F-49
<PAGE> 102

U.S. DENTAL MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------ ---------------
1992 1993 1994 1994 1995
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ 40 $ (316) $ 385 $ 99 $ 352
Reconciliation of net income to net cash provided by
operating activities:
Amortization and depreciation.................. 71 67 55 33 29
Loss on equipment sale......................... 6 -- 11 -- --
Minority interests............................. 1 (16) 11 -- --
(Increase) decrease in:
Accounts receivable-Premiums................... (365) (533) (782) (56) 403
Other receivables.............................. (7) 10 (39) (63) (309)
Deferred and prepaid income taxes.............. 22 (123) 181 180 --
Other assets................................... 10 (5) (17) (25) 39
Increase (decrease) in:
Accounts payable -- Trade...................... (51) 46 512 (38) (315)
Accrued payables............................... 63 268 (264) (59) (16)
Unearned revenue............................... 131 254 405 258 (61)
Taxes payable.................................. -- -- 144 103 89
Dividends payable.............................. -- -- 6 (27) (34)
------- ------- ------- ------- -------
Net cash provided (used) by operating activities:... (79) (348) 608 405 177
Cash flows from investing activities:
Capital expenditures.............................. (55) (13) (37) (9) (48)
Reclassification of regulatory certificates of
deposit ....................................... -- -- 26 26 (25)
Purchase of investments........................... (15) (31) (15) -- --
Proceeds from sale of assets...................... -- -- 1 -- --
Purchase of client accounts....................... (40) -- -- -- --
Purchase of minority interest in subsidiary ...... -- -- -- -- (640)
------- ------- ------- ------- -------
Net cash used in investing activities:.............. (110) (44) (25) 17 (713)
Financing activities:
Proceeds from long term debt...................... -- -- -- -- 640
Principal payments on loans....................... (39) (50) (45) (26) (20)
Proceeds from line of credit...................... -- -- 275 -- --
Principal payments on line of credit.............. -- -- -- -- (175)
Dividends declared................................ -- -- (27) -- --
Proceeds from stockholders' loans................. -- 150 -- -- --
------- ------- ------- ------- -------
Net cash provided (used) by financing activities:... (39) 100 203 (26) 445
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents:...................................... (228) (292) 786 396 (91)
Cash and cash equivalents at beginning of period:... 1,648 1,420 1,128 1,128 1,914
------- ------- ------- ------- -------
Cash and cash equivalents at end of period:......... $1,420 $1,128 $1,914 $1,524 $1,823
======= ======= ======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest............................ $ 20 $ 16 $ 24 $ 16 $ 29
Cash paid for income taxes........................ -- -- $ 10 -- $ 53
</TABLE>

See accompanying notes.

F-50
<PAGE> 103

U.S. DENTAL MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The consolidated financial statements include the
accounts of U.S. Dental Management, Inc. and its subsidiaries ("US Dental"). All
significant intercompany accounts and transactions have been eliminated in
consolidation. The company, through its subsidiaries, contracts with independent
practitioners to provide dental services to members in the form of pre-paid
dental health contracts.

Cash and Cash Equivalents: US Dental considers debt instruments purchased
with a maturity of three months or less to be cash equivalents.

Property and Equipment: Property and equipment are recorded at cost.
Depreciation is determined using the declining balance method over useful lives
of five to seven years.

Income taxes: US Dental and its subsidiaries file a consolidated income tax
return for federal income tax purposes. The subsidiaries of US Dental are
required to pay the State Treasurer a tax (premium tax) for transacting business
as a prepaid dental plan. The subsidiaries are exempt from state corporate
income tax due to the payment of the premium tax.

Significant Customer: During 1994 one customer accounted for approximately
16% of the aggregate revenue of US Dental.

Prior period adjustment: The prior period adjustment for the year ended
December 31, 1993, resulted from the payment of additional taxes not previously
accrued. The adjustment for the year ended December 31, 1994, resulted from the
write off of certain expenses that were incorrectly capitalized.

2. UNEARNED REVENUE

Unearned revenue consists of subscriber fees received or billed in the
current year for services to be rendered in a subsequent year.

3. STATUTORY RESERVE

Prepaid dental plan organizations are required to maintain a reserve in an
amount equal to two percent of subscription fees received, up to a maximum
reserve of $500,000 per state. These reserves are included in retained earnings.

4. DENTAL CARE SERVICE

Under prepaid dental health contracts, US Dental contracts with dentists
for a set per member per month capitation fee to provide for its members.
Specialty services not covered by capitation fees are recorded as incurred. In
addition, US Dental is liable for out of area emergency care for subscribers
under certain benefit packages. Subscriber reimbursements amounted to $20,000,
$16,000, and $7,000 in 1992, 1993 and 1994, respectively, and were recorded as
incurred.

5. REGULATORY DEPOSIT AND FINANCIAL INSTRUMENTS

State codes provide that prepaid dental plans shall maintain trust funds,
varying according to membership, with the Department of Insurance. The
regulatory deposits consist of certificates of deposit. The fair value of all
financial instruments, determined by reference to market data, approximated
their recorded value at each of the balance sheet dates shown.

6. LONG-TERM OBLIGATIONS

At December 31, 1994, there were 3 notes payable totaling $27,000 with
monthly payments ranging from $550 to $2,500, at interest rates ranging from 5%
to 11% maturing through March 1996.

F-51
<PAGE> 104

U.S. DENTAL MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

7. OPERATING LEASES

US Dental leases its facilities and certain equipment under noncancelable
operating lease agreements which expire in 1999. Rental expense under these
agreements for the years ended December 31, 1994, 1993 and 1992 totaled
$206,000, $226,000 and $120,000, respectively. Future minimum lease payments at
December 31, 1994 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------
<S> <C>
1995............................................... $ 243
1996............................................... 154
1997............................................... 144
1998............................................... 138
1999............................................... 138
</TABLE>

8. PROFIT SHARING AND RETIREMENT PLAN

Pursuant to section 10-044 of the Arizona Revised Statutes, US Dental
adopted a 401(k) beginning in 1992. The amount of $3,000, $6,000 and $6,000 was
expensed in 1992, 1993 and 1994, respectively.

US Dental adopted a Defined Contribution plan (Profit Sharing). The basis
for determining contribution amounts are under the discretionary contribution
plan of the IRS 401L disparity rules. The groups covered under the plan are the
shareholders and employees of U.S. Dental Plan of New Mexico, Inc. and U.S.
Dental Management, Inc. hired prior to July 1, 1989. There were no contributions
expenses for the year ended December 31, 1994.

9. BANK LINE-OF-CREDIT

US Dental has a bank line-of-credit for $300,000 which renewed April 15,
1995. There was an outstanding balance as of December 31, 1994 of $275,000.
Borrowings thereunder bear interest of 1.25% above the bank's prime rate. The
line is collateralized by US Dental's accounts receivable and is personally
guaranteed by US Dental's shareholders.

10. NOTES PAYABLE OFFICERS

Notes payable to officers consist of amounts due to shareholders, bearing
interest ranging from 7% to 9.5% and due upon demand.

11. INCOME TAXES

Deferred taxes result primarily from utilization of accelerated
depreciation for income tax reporting purposes. A reconciliation of the
difference between the federal income tax rate and US Dental's effective tax
rate is as follows:

<TABLE>
<CAPTION>
1992 1993 1994
----- ------ ------
<S> <C> <C> <C>
Federal Income Tax Rate (Benefit).................. 34.0% (34.0%) 34.0%
Other, net......................................... .9% (.9%) (1.3%)
---- ----- -----
Effective Tax Rate....................... 34.9% (34.9%) 32.7%
==== ===== =====
</TABLE>

US Dental generally pays premium taxes in lieu of state income taxes.

F-52
<PAGE> 105

U.S. DENTAL MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

12. ACQUISITION OF MINORITY INTEREST IN SUBSIDIARY

On April 1, 1995, US Dental redeemed the stock of a minority shareholder
for an aggregate redemption price of $640,000. The agreement provides for
payment of interest at 6.5% per month, with principal payments of approximately
$7,700 commencing in February 1996. The agreement provides for forgiveness of
dividends due to the minority shareholder approximating $92,000. The net cost of
acquiring the minority interest, $548,000, has been recorded as goodwill.

13. SUBSEQUENT EVENT

On July 19, 1995, the stockholders of US Dental entered into a definitive
agreement to sell all the outstanding capital stock of US Dental. US Dental is a
managed dental benefits company that operates pre-paid dental plans.

F-53
<PAGE> 106

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Associated Health Plans, Inc. and
Associated Companies, Inc.

In our opinion, the accompanying combined balance sheet and the related
statement of operations and retained earnings and of cash flows present fairly,
in all material respects, the combined financial position of Associated Health
Plans, Inc. and Associated Companies, Inc., as described in the basis of
financial statement presentation in Note 1 to the financial statements, at
December 31, 1995 and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Associated Health
Plans, Inc. and Associated Companies, Inc. management; our responsibility is to
express an opinion on these statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Dallas, Texas
February 26, 1996

F-54
<PAGE> 107

ASSOCIATED HEALTH PLANS, INC.
AND
ASSOCIATED COMPANIES, INC.

COMBINED BALANCE SHEET
DECEMBER 31, 1995

ASSETS

<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents...................................................... $ 358,179
Certificates of deposit........................................................ 386,559
Premiums receivable, net of allowance for doubtful accounts of $86,669......... 500,154
Deferred income taxes.......................................................... 155,782
Other assets................................................................... 137,474
----------
Total current assets................................................... 1,538,148
Fixed assets, net of accumulated depreciation of $134,217........................ 160,078
Intangible assets, net of accumulated amortization of $524,928................... 1,507,913
State deposits................................................................... 200,000
----------
Total assets........................................................... $3,406,139
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to providers........................................................... $ 400,807
Unearned premiums.............................................................. 63,294
Premium taxes payable.......................................................... 52,067
Accounts payable and accrued liabilities....................................... 12,511
Accrued federal income tax..................................................... 100,000
State income tax payable....................................................... 5,000
Notes payable -- noncompete agreements......................................... 2,008,122
----------
Total current liabilities.............................................. 2,641,801
Commitments and Contingencies
Stockholders' equity:
Common stock................................................................... 4,250
Additional paid-in capital..................................................... 57,789
Retained earnings.............................................................. 702,299
----------
Total stockholders' equity.................................................. 764,338
----------
$3,406,139
==========
</TABLE>

See accompanying notes to financial statements.

F-55
<PAGE> 108

ASSOCIATED HEALTH PLANS, INC.
AND
ASSOCIATED COMPANIES, INC.

COMBINED STATEMENT OF OPERATIONS AND CHANGES IN RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<S> <C>
Revenue:
Premiums earned............................................................... $14,200,112
Interest income............................................................... 28,758
-----------
Total revenue......................................................... $14,228,870
-----------
Operating expenses:
Dental provider services...................................................... 10,966,885
Sales and marketing........................................................... 922,213
General and administrative.................................................... 1,963,172
Premium taxes................................................................. 273,879
-----------
Total operating expenses.............................................. 14,126,149
-----------
Income before provision for federal income tax.................................. 102,721
Provision for federal income tax................................................ 37,000
-----------
Net income...................................................................... 65,721
Retained earnings, beginning of year............................................ 636,578
-----------
Retained earnings, end of year.................................................. $ 702,299
===========
</TABLE>

See accompanying notes to financial statements.

F-56
<PAGE> 109

ASSOCIATED HEALTH PLANS, INC.
AND
ASSOCIATED COMPANIES, INC.

COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 65,721
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization............................................... 177,843
Changes in operating assets and liabilities:
Increase in accounts receivable........................................... (176,372)
Increase in other assets.................................................. (13,401)
Increase in accounts payable and accrued expenses......................... 114,655
Decrease in deferred income taxes, accrued federal income tax and
state tax payable...................................................... (38,100)
---------
Net cash provided by operating activities.............................. 130,346
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment........................................... (55,404)
---------
Net cash used in investing activities.................................. (55,404)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of indebtedness...................................................... (146,873)
---------
Net cash used in financing activities.................................. (146,873)
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................................ (71,931)
CASH AND CASH EQUIVALENTS:
Beginning of period............................................................ 430,110
---------
End of period.................................................................. $ 358,179
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.................................................................... $ 110,127
=========
Income taxes................................................................ $ 6,600
=========
</TABLE>

See accompanying notes to financial statements.

F-57
<PAGE> 110

ASSOCIATED HEALTH PLANS, INC.
AND
ASSOCIATED COMPANIES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

1. AHP AND ITS OPERATIONS

At December 31, 1995, four individuals owned 100% of the common stock of
both Associated Health Plans, Inc. (Associated) and Associated Companies, Inc.
(ACI). Associated and ACI are referred to collectively as "AHP."

Associated operates as a prepaid dental plan in the state of Arizona.
Associated is licensed by the state of Arizona to operate as a prepaid dental
plan organization as defined under Article Seven of the Arizona Revised
Insurance Statutes.

Associated sells group prepaid dental coverage on a monthly term basis to
contract holders consisting of business, governmental and nonprofit groups. AHP
has joint venture marketing agreements with a medical health maintenance
organization and dental indemnity insurance company. Under these agreements, the
joint venture partners sell group prepaid dental coverage for AHP. They collect
the premiums directly and remit to AHP. They also sell prepaid dental coverage
to individual contract holders on an annual basis.

ACI is organized to provide management services for Associated. Under the
terms of a management agreement, ACI provides equipment and operating facilities
as well as administrative and marketing services. ACI also provides management
services for an affiliate, Associated Dental Care Providers, P.C. (ADCP) which
employs dentists and support staff who provide services primarily to individuals
under Associated's dental coverage. (See Note 5). At the date of the sale of the
common stock of Associated and ACI, all management services agreements between
ACI and ADCP were terminated.

Two stockholders, who are also licensed dentists, own 100% of the common
stock in ADCP. ADCP is a major provider of dental services to members enrolled
with AHP's contract holders. During 1995, payments to ADCP amounted to
$2,789,931.

BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying combined financial statements include the financial
statements of ACI and Associated for the year ended December 31, 1995. Based
upon the subsequent stock sale of ACI and Associated in January 1996 (Note 5),
the accompanying combined financial statements exclude the assets and
liabilities related to servicing ADCP as well as the operational results of
servicing ADCP for the year ended December 31, 1995. All significant
intercompany transactions have been eliminated in combination.

As noted above, ACI's revenues and expenses related to the management of
ADCP were excluded. The allocation of revenues and expenses can be separately
identified in the companies' general ledgers. Only those revenues and expenses
identified as relating to the management of Associated or ACI were included in
the combination.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PREMIUM EARNED AND PROVIDER CAPITATION

Premiums billed to individual and group subscribers are recognized as
revenue in the month in which subscribers are entitled to receive dental care.
Unearned premiums consist of amounts collected during the current period for
services to be rendered in a subsequent period. Allowance for doubtful accounts
for uncollectible premiums under 90 days past due are recorded as an expense
when established.

AHP contracts with dentists (providers) for dental services to be provided
to its subscribers. Provider capitation consists of monthly fees paid to
providers and is expensed in the month in which the provider is obligated to
render dental services. AHP is not obligated to providers for services exceeding
the basic benefit

F-58
<PAGE> 111

ASSOCIATED HEALTH PLANS, INC.
AND
ASSOCIATED COMPANIES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

coverage. Emergency services to members while temporarily out of their
provider's area, as well as specialty services not covered by capitation fees,
are recorded as incurred.

CASH AND CASH EQUIVALENTS

For purpose of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks, money market investment accounts held by
brokers which are readily convertible to cash, and certificates of deposit with
maturities at the date of purchase of less than 90 days.

FURNITURE AND EQUIPMENT

Furniture and equipment are recorded at cost. Depreciation is calculated
using the straight-line method over a period of three to five years based on the
estimated useful life of the related asset. Depreciation expense was $43,278 in
1995.

INCOME TAXES

Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which
requires the asset and liability method of accounting for deferred income taxes.
The asset and liability method requires recognition of deferred tax assets and
liabilities for the estimated future tax consequences attributable to
differences between the financial statement bases and the tax bases of assets
and liabilities. (Note 6)

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

3. INTANGIBLE ASSETS

Intangible assets consist of the net present value of certain noncompete
agreements entered into in connection with the purchase of AHP from its former
stockholders in January 1992. The noncompete agreements were originally recorded
at their net present value with imputed interest rates of 11.2% and 8.5% for the
two former stockholders, respectively, and are being amortized over the ten year
term of the agreement. Under these agreements, accumulated amortization at
December 31, 1995 was $524,928.

4. STATE DEPOSITS

AHP is required by statute to post a surety bond in the amount of $200,000
with the Arizona state treasurer. In lieu of purchasing a surety bond to
guarantee services under this plan, AHP has elected to deposit $200,000 of bank
certificates of deposit with the treasurer's office. AHP continues to receive
all interest income from the certificate of deposit held by these certificates.

5. SUBSEQUENT STOCK SALE OF AHP

On January 22, 1996, the common stock of ACI and Associated was purchased
by United Dental Care, Inc. for $14.4 million. In connection with the purchase,
$3,548,867 of the proceeds to the sellers were used to

F-59
<PAGE> 112

ASSOCIATED HEALTH PLANS, INC.
AND
ASSOCIATED COMPANIES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

repay the notes payable on behalf of Associated and ACI under the noncompete
agreements existing at December 31, 1995. (Note 7).

6. INCOME TAXES

The provision (benefit) for income taxes consisted of the following
components (dollars in thousands):

<TABLE>
<CAPTION>
1995
--------
<S> <C>
Current
Federal................................................................. $100,000
State................................................................... 5,000
--------
Total current............................................................. 105,000
Deferred (benefit)........................................................ (68,000)
--------
Provision for income taxes................................................ $ 37,000
========
</TABLE>

Associated files its corporate income tax return on a calendar year end and
ACI files its corporate income tax return on a fiscal year ended June 30.

As a licensed pre-paid dental plan organization, Associated pays premium
taxes in lieu of state income taxes.

A reconciliation of the difference between the Federal income tax rate and
AHP's effective tax rate is as follows:

<TABLE>
<S> <C>
Federal income tax rate........................................................ 34%
Officers life insurance........................................................ 5
Meals and entertainment........................................................ 4
State tax (net of federal benefit)............................................. 3
Change in assumption in the expected federal tax rate.......................... (10)
---
Effective tax rate............................................................. 36%
===
</TABLE>

Deferred tax assets/(liabilities) were comprised of the following at
December 31:

<TABLE>
<CAPTION>
1995
--------
<S> <C>
Premium reserve......................................................... $ 29,500
Noncompete agreement.................................................... 136,400
Unearned premium........................................................ 6,282
--------
Gross deferred tax assets............................................... 172,182
--------
Depreciation............................................................ (16,400)
--------
Gross deferred tax liability............................................ (16,400)
Valuation reserve....................................................... 0
--------
Net deferred tax asset.................................................. $155,782
========
</TABLE>

F-60
<PAGE> 113

ASSOCIATED HEALTH PLANS, INC.
AND
ASSOCIATED COMPANIES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

7. NOTES PAYABLE

Debt consists of notes payable to two former stockholders for the
noncompete agreement entered into with them in connection with the stock sale of
ACI to its current stockholders in 1992. Interest expense in 1995 was $285,017.
At December 31, 1995, notes payable consisted of the following:

<TABLE>
<S> <C>
11.2% note payable due in semimonthly payments of $9,083.33, including
interest through December 2001....................................... $ 912,915
8.5% note payable due in semimonthly payments of $6,805.55, from
January 1996 to December 2005........................................ 1,095,207
----------
Total........................................................ $2,008,122
==========
</TABLE>

In January 1996, the common stock of AHP was purchased by United Dental
Care, Inc. (UDC) and these obligations were repaid by UDC as part of the
purchase price. (Note 5)

8. COMMON STOCK

At December 31, 1995, Associated had 900,000 of $.10 par value shares
authorized and 22,500 shares outstanding. At December 31, 1995, ACI had 20,000
shares of $.10 par value stock authorized, issued and outstanding. During 1995,
there were no changes in the numbers of shares of common stock and the amount of
common stock or in additional paid-in capital.

9. COMMITMENTS AND CONTINGENCIES

AHP leases its facilities under noncancelable operating lease agreements
expiring at various dates through 1999. Rental expense under these agreements,
which is included in general and administrative expenses, was $117,088 in 1995.
Future minimum lease payments under these agreements are as follows:

As a result of the purchase by United Dental Care (Note 5), management
believes that the determination of the ultimate liability of these obligations,
after considering subleasing alternatives and a negotiated termination price,
cannot be determined at this time. Accordingly, no adjustments has been made to
the recorded lease liability.

AHP is involved in certain claims. In the opinion of management, the
disposition of these matters will not have a material adverse effect on AHP's
financial condition.

F-61
<PAGE> 114

UNITED DENTAL CARE, INC.

INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1995 has been prepared as if both the
US Dental and AHP acquisitions and the Company's initial public offering that
occurred in September 1995 had occurred on January 1, 1995. The accompanying
unaudited pro forma condensed consolidated statement of operations for the six
months ended June 30, 1996 has been prepared as if the AHP acquisition and the
offering of the Common Stock pursuant to this Prospectus had occurred on January
1, 1995. See "Pending and Recent Acquisitions." The unaudited pro forma
condensed consolidated statement of operations for the year ended December 31,
1995 includes: (i) the historical results of operations of the Company for the
year ended December 31, 1995; (ii) the historical results of operations of AHP
for the year ended December 31, 1995; (iii) the historical results of US Dental
for the ten months ended October 31, 1995, and gives effect to the US Dental and
AHP acquisitions under the purchase method of accounting; and (iv) the Company's
initial public offering. The unaudited pro forma condensed consolidated
statement of operations for the six months ended June 30, 1996 includes: (i) the
historical results of operations of the Company for the six months ended June
30, 1996; and (ii) the historical results of operations of AHP for the month
ended January 31, 1996, and gives effect to the AHP acquisition under the
purchase method of accounting; and (iii) the offering of the Common Stock
pursuant to this Prospectus. Such unaudited pro forma condensed consolidated
statements of operations incorporate the pro forma and offering adjustments
described in the accompanying Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements.

The unaudited pro forma condensed consolidated balance sheet as of June 30,
1996 includes the historical financial position of the Company as of June 30,
1996 and gives effect to the offering as if it had occurred at June 30, 1996.

The pro forma information does not purport to be indicative of actual
results that would have been achieved if the US Dental and AHP acquisitions, the
Company's initial public offering that occurred in September 1995 or the
issuance of the Common Stock offered hereby actually had been effective as of
the dates indicated or the results that may be obtained in the future. The pro
forma condensed consolidated financial statements should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the respective historical consolidated financial statements of
the Company, US Dental and AHP and the related notes thereto included elsewhere
in this Prospectus.

F-62
<PAGE> 115

UNITED DENTAL CARE, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
U.S. DENTAL UNITED
ASSOCIATED MANAGEMENT, INC. INITIAL DENTAL
UNITED HEALTH TEN MONTHS PUBLIC CARE, INC.
DENTAL PLANS ENDED PURCHASE OFFERING PRO FORMA
CARE, INC.(A) COMBINED(B) OCTOBER 31, 1995(C) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------- ----------- ------------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Premiums earned
and other
revenues.... $ 78,626 $14,200 $11,208 $ 104,034 $ 104,034
Interest
income...... 603 29 24 656 656
---------- ------- ------- ---------- ----------
79,229 14,229 11,232 104,690 104,690
---------- ------- ------- ---------- ----------
Costs and
expenses:
Dental services
and claims
expense..... 46,750 10,967 7,332 65,049 65,049
Sales and
marketing &
general and
administrative... 24,422 2,696 3,019 $(1,018)(d) 29,119 29,119
Depreciation
and
amortization... 1,190 178 52 711 (e) 2,131 2,131
Interest
expense..... 1,005 285 53 -- 1,343 $(1,343)(f) --
---------- ------- ------- ------- ---------- ------- ----------
73,367 14,126 10,456 (307) 97,642 (1,343) 96,299
---------- ------- ------- ------- ---------- ------- ----------
Income before
Federal income
taxes and
extraordinary
charge......... 5,862 103 776 307 7,048 1,343 8,391
Provision for
Federal income
taxes.......... 2,131 37 320 309 (g) 2,797 457(h) 3,254
---------- ------- ------- ------- ---------- ------- ----------
Net income
applicable to
common stock
before
extraordinary
charge......... $ 3,731 $ 66 $ 456 $ (2) $ 4,251 $ 886 $ 5,137
========== ======= ======= ======= ========== ======= ==========
Net income per
common share
before
extraordinary
charge......... $ 0.68 $ 0.78 $ 0.94(i)
========== ========== ==========
Weighted average
number of
common shares
outstanding.... 5,448,892 5,448,892 5,448,892(j)
</TABLE>

See accompanying notes.

F-63
<PAGE> 116

UNITED DENTAL CARE, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
ASSOCIATED UNITED
UNITED HEALTH PLANS DENTAL
DENTAL COMBINED CARE, INC.
CARE, JANUARY 31, PURCHASE OFFERING PRO FORMA
INC.(K) 1996(L) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
--------- ------------ ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Premiums earned and other
revenues......................... $ 50,728 $1,176 $51,904 $ 51,904
Interest income..................... 397 2 399 399
------- ------ ------- -------
51,125 1,178 52,303 52,303
------- ------ ------- -------
Costs and expenses:
Dental services and claims
expense.......................... 30,674 881 31,555 31,555
Sales and marketing & general and
administrative................... 14,411 309 $ (57)(m) 14,663 14,663
Depreciation and amortization....... 1,003 10 46 (n) 1,059 1,059
Interest expense.................... 209 4 213 $(213)(o) --
------- ------ ---- ------- ----- -------
46,297 1,204 (11) 47,490 (213) 47,277
------- ------ ---- ------- ----- -------
Income before Federal income taxes.... 4,828 (26) 11 4,813 213 5,026
Provision for Federal income taxes.... 1,772 (9) 15 (p) 1,778 72 (q) 1,850
------- ------ ---- ------- ----- -------
Net income applicable to common
stock............................... $ 3,056 $ (17) $ (4) $ 3,035 $ 141 $ 3,176
======= ====== ==== ======= ===== =======
Net income per common share........... $ 0.42 $ 0.34(i)
======= =======
Weighted average number of common
shares outstanding.................. 7,222,149 9,222,149(r)
</TABLE>

See accompanying notes.

F-64
<PAGE> 117

UNITED DENTAL CARE, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
UNITED DENTAL
CARE, INC.
UNITED DENTAL OFFERING PRO FORMA
CARE, INC. ADJUSTMENTS AS ADJUSTED
------------- ----------- -------------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents........................... $20,345 $65,749(s) $ 86,094
Premiums receivable................................. 4,387 -- 4,387
Accrued interest and other current assets........... 861 -- 861
Deferred taxes, current............................. 729 -- 729
------- ------- --------
Total current assets........................ 26,322 65,749 92,071
------- ------- --------
Regulatory deposits................................... 3,437 -- 3,437
Furniture and equipment, net.......................... 4,498 -- 4,498
Intangible assets, net................................ 41,667 -- 41,667
Other assets, net..................................... 109 -- 109
Deferred taxes, noncurrent............................ 109 -- 109
------- ------- --------
Total noncurrent assets..................... 49,820 -- 49,820
------- ------- --------
Total assets................................ $76,142 $65,749 $ 141,891
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable, accrued expenses and claims
reserve.......................................... $ 4,123 $ 4,123
Unearned premiums................................... 2,614 2,614
Current portion of debt............................. 978 $ (978)(t) --
Other current liabilities........................... 158 -- 158
------- ------- --------
Total current liabilities................... 7,873 (978) 6,895
Long-term debt, net of current portion................ 3,598 (3,598)(t) --
------- ------- --------
Total liabilities........................... 11,471 (4,576) 6,895
------- ------- --------
Stockholders' equity
Common stock, $.10 par value........................ 691 200(u) 891
Additional paid-in capital.......................... 52,100 70,125(u) 122,225
Retained earnings................................... 11,880 -- 11,880
------- ------- --------
Total stockholders' equity.................. 64,671 70,325 134,996
------- ------- --------
Total liabilities and stockholders'
equity.................................... $76,142 $65,749 $ 141,891
======= ======= ========
</TABLE>

See accompanying notes.

F-65
<PAGE> 118

UNITED DENTAL CARE, INC.

NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(a) The Company's statement of operations for the year ended December 31, 1995
includes the results of operations of US Dental after October 31, 1995. The
US Dental acquisition was effective November 1, 1995.

(b) Represents the historical results of operations of AHP for the year ended
December 31, 1995. The AHP acquisition was effective February 1, 1996.

(c) Represents the historical results of operations of US Dental for the ten
months ended October 31, 1995. See note (a) above.

(d) Sales and marketing & general and administrative expenses have been reduced
to eliminate salaries and benefits of certain senior officers of AHP and US
Dental, including officers who were former stockholders of AHP and US
Dental, since such officers did not continue with the Company subsequent to
the AHP and US Dental acquisitions and were not replaced.

(e) Reflects the increase in amortization expense ($602) of goodwill related to
the AHP and US Dental acquisitions as amortized over 40 years, and the
increase in amortization ($93) of the value of the non-competition
agreements related to the AHP and US Dental acquisitions as amortized over
three years. Also reflected is the increase in amortization expense ($16)
for the consulting agreements related to the US Dental acquisition as
amortized over four years.

(f) Reflects the elimination of the interest expense, assuming the initial
public offering occurred on January 1, 1995 resulting in the elimination of
debt.

(g) Reflects the income tax effect (assuming a marginal tax rate of 34.0%) of
the pro forma adjustments described in notes (d) and (e) herein.

(h) Reflects the income tax effect (assuming a marginal tax rate of 34.0%) of
the offering adjustment described in note (f) above.

(i) Net income per common share is calculated by dividing pro forma as adjusted
net income by the weighted average number of common shares outstanding.
Such pro forma as adjusted net income reflects the impact of the pro forma
adjustments and offering adjustments.

(j) Weighted average number of common shares outstanding is calculated based
upon the relevant weighted average common shares outstanding and the
options and warrants outstanding (using the treasury stock method) for each
calculation presented.

(k) The Company's statement of operations for the six months ended June 30,
1996 includes the results of operations of AHP for the five months ended
June 30, 1996. The AHP acquisition was effective February 1, 1996.

(l) Represents the historical results of operations of AHP for the month ended
January 31, 1996.

(m) Sales and marketing & general and administrative expenses have been reduced
to eliminate salaries and benefits of certain senior officers of AHP,
including former significant stockholders of AHP, since such officers did
not continue with the Company subsequent to the AHP acquisition and were
not replaced.

(n) Reflects the increase in amortization expense of goodwill and
non-competition agreements related to the AHP acquisition.

(o) Reflects the elimination of the interest expense, assuming the offering of
Common Stock pursuant to this Prospectus occurred on January 1, 1995
resulting in the elimination of debt.

(p) Reflects the income tax effect (assuming a marginal tax rate of 34.0%) of
the pro forma adjustments described in notes (m) and (n) herein.

F-66
<PAGE> 119

UNITED DENTAL CARE, INC.

NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

(q) Reflects the income tax effect (assuming a marginal tax rate of 34.0%) of
the offering adjustment described in note (o) above.

(r) Weighted average number of common shares outstanding is calculated based
upon the relevant weighted average common shares outstanding and the
options and warrants outstanding (using the treasury stock method),
including the offering of Common Stock pursuant to this Prospectus, for
each calculation presented.

(s) Reflects the net cash proceeds to the Company from the offering after the
payment of underwriting and offering expenses of $4,675 and outstanding
indebtedness of $4,576.

(t) Reflects the payment of outstanding indebtedness related to the US Dental
and AHP consulting and non-compete agreements ($4,576 at June 30, 1996).

(u) Reflects the increase in stockholders' equity resulting from the offering
of 2,000,000 shares of Common Stock pursuant to this Prospectus.

F-67
<PAGE> 120

UNITED DENTAL CARE, INC.

INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS

The accompanying unaudited pro forma condensed combined financial
statements reflect the consolidated financial position of the Company at June
30, 1996 and the results of its consolidated operations for the year ended
December 31, 1995 and the six months ended June 30, 1996, after giving pro forma
effect to: (i) the US Dental and AHP acquisitions; (ii) the offering of Common
Stock pursuant to this Prospectus; and (iii) the proposed Pending Acquisitions.
The unaudited pro forma condensed combined statement of operations for the year
ended December 31, 1995 includes: (i) the historical results of operations of
the Company for the year ended December 31, 1995; (ii) the historical results of
operations of US Dental for the ten months ended October 31, 1995; (iii) the
historical results of operations of AHP and the Pending Acquisitions, except
Independent, for the year ended December 31, 1995; and (iv) the offering of
Common Stock pursuant to this Prospectus. The unaudited pro forma condensed
combined statement of operations for the six months ended June 30, 1996
includes: (i) the historical results of operations of the Company for the six
months ended June 30, 1996; (ii) the historical results of operations of AHP for
the month ended January 31, 1996; (iii) the historical results of operations of
the Pending Acquisitions, except Independent, for the six months ended June 30,
1996; and (iv) the offering of Common Stock pursuant to this Prospectus. The
unaudited pro forma condensed combined balance sheet as of June 30, 1996
includes: (i) the historical financial position of the Company as of June 30,
1996; (ii) the historical financial position of the Pending Acquisitions, except
Independent, as of June 30, 1996; and (iii) the offering of Common Stock
pursuant to this Prospectus as of June 30, 1996.

The unaudited pro forma condensed combined statements of operations have
been prepared as if the US Dental and AHP acquisitions, the Pending Acquisitions
and the offering of Common Stock contemplated hereby had occurred on January 1,
1995. The unaudited pro forma condensed combined balance sheet gives effect to
the Pending Acquisitions and this offering as if such transactions had occurred
at June 30, 1996. See "Pending and Recent Acquisitions."

The pro forma condensed combined information gives effect to the US Dental
and AHP acquisitions and the Pending Acquisitions using the purchase method of
accounting. The assumptions and adjustments are described in the Notes to the
Unaudited Pro Forma Condensed Combined Financial Statements.

The pro forma condensed combined information does not purport to be
indicative of actual results that would have been achieved if the US Dental and
AHP acquisitions or the Pending Acquisitions or the issuance of the Common Stock
offered hereby had been effective as of the dates indicated or of the results
that may be obtained in the future. The pro forma condensed combined financial
statements should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the respective
historical consolidated financial statements of the Company, US Dental, AHP and
the Pending Acquisitions and the related notes thereto included elsewhere in
this Prospectus.

F-68
<PAGE> 121

UNITED DENTAL CARE, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
UNITED
DENTAL CARE, OFFERING
INC.(A) UICI AND PRO FORMA
PRO FORMA ORACARE KANSAS CITY DENTAL PURCHASE COMBINED
AS ADJUSTED COMBINED DENTAL CARE COMPANIES ADJUSTMENTS AS ADJUSTED
------------ -------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Premiums earned and other revenues...... $ 104,034 $9,156 $ 8,478 $16,442 $ 138,110
Interest income......................... 656 -- 6 168 830
---------- ------ ------- ------- ---------
104,690 9,156 8,484 16,610 138,940
---------- ------ ------- ------- ---------
Costs and expenses:
Dental services and claims expense...... 65,049 5,367 5,694 8,116 84,226
Sales and marketing & general and
administrative....................... 29,119 1,923 2,747 7,508 $ (575)(b) 40,722
Depreciation and amortization........... 2,131 108 25 82 1,655 (c) 4,001
Interest expense........................ -- 242 10 72 (324)(g) --
---------- ------ ------- ------- ---------
96,299 7,640 8,476 15,778 756 128,949
---------- ------ ------- ------- ---------
Income before Federal income taxes and
extraordinary charge.................... 8,391 1,516 8 832 (756) 9,991
Provision for Federal income taxes........ 3,254 578 2 213 155(d) 4,202
---------- ------ ------- ------- ---------
Net income applicable to common stock
before extraordinary charge............. $ 5,137 $ 938 $ 6 $ 619 $ (911) $ 5,789
========== ====== ======= ======= ======= =========
Net income per common share before
extraordinary charge.................... $ 0.94 $ 0.78 (e)
========== =========
Weighted average number of common shares
outstanding............................. 5,448,892 7,448,892 (f)
</TABLE>

See accompanying notes.

F-69
<PAGE> 122

UNITED DENTAL CARE, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
UNITED
DENTAL CARE, OFFERING
INC.(A) UICI AND PRO FORMA
PRO FORMA ORACARE KANSAS CITY DENTAL PURCHASE COMBINED
AS ADJUSTED COMBINED DENTAL CARE COMPANIES ADJUSTMENTS AS ADJUSTED
------------ -------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Premiums earned and other revenues... $ 51,904 $6,711 $ 4,780 $ 8,757 $ 72,152
Interest income...................... 399 -- 2 73 474
---------- ------ ------- ------- ----- ---------
52,303 6,711 4,782 8,830 72,626
---------- ------ ------- ------- ----- ---------
Costs and expenses:
Dental services and claims expense... 31,555 4,254 2,758 4,195 42,762
Sales and marketing & general and
administrative.................. 14,663 1,074 1,692 4,137 $(288)(b) 21,278
Depreciation and amortization........ 1,059 62 12 28 827 (c) 1,988
Interest expense..................... -- 129 4 43 (176)(g) 0
---------- ------ ------- ------- ----- ---------
47,277 5,519 4,466 8,403 363 66,028
---------- ------ ------- ------- ----- ---------
Income before Federal income taxes..... 5,026 1,192 316 427 363 6,598
Provision for Federal income taxes..... 1,850 484 104 133 97 (d) 2,668
---------- ------ ------- ------- ----- ---------
Net income applicable to common
stock................................ $ 3,176 $ 708 $ 212 $ 294 $(460) $ 3,930
========== ====== ======= ======= ===== =========
Net income per common share............ $ 0.34 $ 0.43 (e)
========== =========
Weighted average number of common
shares outstanding................... 9,222,149 9,222,149 (f)
</TABLE>

See accompanying notes.

F-70
<PAGE> 123

UNITED DENTAL CARE, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
UNITED
DENTAL CARE, OFFERING
INC.(A) UICI AND PRO FORMA
PRO FORMA ORACARE KANSAS CITY DENTAL PURCHASE COMBINED
AS ADJUSTED COMBINED DENTAL CARE COMPANIES ADJUSTMENTS AS ADJUSTED
------------ -------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents............ $ 86,094 $ 121 $ 650 $ 3,585 $ (57,325)(h) $ 33,125
Premiums receivable.................. 4,387 1,245 50 184 -- 5,866
Accrued interest and other current
assets............................ 861 56 13 405 -- 1,335
Deferred taxes, current.............. 729 -- -- -- -- 729
-------- ------- ----- ------- --------- ---------
Total current assets......... 92,071 1,422 713 4,174 (57,325) 41,055
-------- ------- ----- ------- --------- ---------
Regulatory deposits.................... 3,437 -- -- 350 -- 3,787
Furniture and equipment, net........... 4,498 914 244 357 (909)(i) 5,104
Intangible assets, net................. 41,667 -- -- -- 53,905(m) 95,572
Other assets, net...................... 109 23 -- 66 -- 198
Deferred taxes, noncurrent............. 109 -- -- -- -- 109
-------- ------- ----- ------- --------- ---------
Total noncurrent assets...... 49,820 937 244 773 52,996 104,770
-------- ------- ----- ------- --------- ---------
Total assets........................... $141,891 $ 2,359 $ 957 $ 4,947 $ (4,329) $ 145,825
======== ======= ===== ======= ========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable, accrued expenses
and claims reserve................ $ 4,123 $ 592 $ 23 $ 886 $ 136(j) $ 5,760
Unearned premiums.................... 2,614 190 257 840 -- 3,901
Current portion of debt.............. -- 556 -- 720 (1,276)(k) --
Other current liabilities............ 158 773 (n) 108 129 -- 1,168
-------- ------- ----- ------- --------- ---------
Total current liabilities.... 6,895 2,111 388 2,575 (1,140) 10,829
Long-term debt, net of current
portion.............................. -- 1,507 86 24 (1,617)(k) --
-------- ------- ----- ------- --------- ---------
Total liabilities............ 6,895 3,618 474 2,599 (2,757) 10,829
-------- ------- ----- ------- --------- ---------
Stockholders' equity
Common stock, $.10 par value......... 891 3 50 19 (72)(l) 891
Additional paid-in capital........... 122,225 1,954 44 400 (2,398)(l) 122,225
Retained earnings.................... 11,880 (3,216)(n) 389 1,929 898(l) 11,880
-------- ------- ----- ------- --------- ---------
Total stockholders' equity... 134,996 (1,259) 483 2,348 (1,572) 134,996
-------- ------- ----- ------- --------- ---------
Total liabilities and stockholders'
equity............................... $141,891 $ 2,359 $ 957 $ 4,947 $ (4,329) $ 145,825
======== ======= ===== ======= ========= =========
</TABLE>

See accompanying notes.

F-71
<PAGE> 124

UNITED DENTAL CARE, INC.

NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS

(a) See the Introduction to Unaudited Pro Forma Condensed Consolidated
Financial Statements.

(b) Sales and marketing & general and administrative expenses have been reduced
to eliminate salaries and benefits of certain senior officers of OraCare,
KCDC and UICI Dental Companies, since it is anticipated that certain
officers will not continue with the Company once the acquisitions are
complete.

(c) Reflects: (i) the amortization of goodwill related to the acquisitions of
OraCare, KCDC and UICI ($1,313 in the year ended December 31, 1995 and $656
in the six months ended June 30, 1996) as amortized over 40 years; and (ii)
the amortization of the value of the non-competition agreements entered
into in connection with the acquisitions ($342 in the year ended December
31, 1995 and $171 in the six months ended June 30, 1996) as amortized over
36 months. The Company intends to apply the same purchase price allocation
concepts as used in previous acquisitions as described in Note 2 to the
Company's Consolidated Financial Statements.

(d) Reflects the income tax effect (assuming a marginal tax rate of 34.0%) of
the business combination adjustments described in notes (b), (c) and (g)
herein.

(e) Net income per common share is calculated by dividing pro forma as adjusted
combined net income by the weighted average number of common shares
outstanding. Such pro forma as adjusted combined net income reflects: (i)
with respect to the year ended December 31, 1995, the impact of the
purchase adjustments and offering adjustments described in the Unaudited
Pro Forma Condensed Consolidated Financial Statements and the Notes thereto
and (ii) with respect to the six months ended June 30, 1996, the purchase
adjustments and offering adjustments.

(f) Weighted average number of common shares outstanding is calculated based
upon the relevant weighted average common shares outstanding and the
options and warrants outstanding (using the treasury stock method),
including the Common Stock to be issued pursuant to this offering, for each
calculation presented.

(g) Reflects the elimination of the interest expense on the indebtedness
related to the OraCare, KCDC and UICI acquisitions as a result of the
repayment in full of the indebtedness with the Company's net proceeds from
this offering.

(h) Reflects the payment of the purchase price for the acquisitions of OraCare
of $30,500, KCDC of $12,500 and UICI Dental Companies of $12,750 plus the
costs of the acquisitions.

(i) Reflects estimated purchase price adjustments for obsolete fixed assets.

(j) Reflects purchase price adjustment for estimated unrecorded liabilities.

(k) Reflects the payment of existing indebtedness of OraCare, KCDC and UICI
Dental Companies with the net proceeds from the offering.

(l) Reflects assumed adjustments based upon a preliminary purchase price
allocation for the OraCare, KCDC and UICI acquisitions including the use of
a portion of cash remaining from the public offering of Common Stock
pursuant to this Prospectus to purchase OraCare, KCDC and UICI Dental
Companies, the allocation of the purchase price over the fair value of the
net tangible assets acquired, payment of their existing indebtedness
($1,276 of current and $1,617 of long term debt) and the elimination of the
acquisitions stockholders' equity. The Company intends to apply the same
purchase price allocation concepts as used in past acquisitions as
described in Note 2 to the Company's Consolidated Financial Statements.

(m) Reflects the allocation to intangible assets, including consulting and
noncompetition agreements and goodwill, the excess of the purchase price
over the fair value of the net assets acquired for the acquisitions of
OraCare, KCDC and UICI Dental Companies.

(n) Includes an adjustment for additional income taxes of $365. Adjustment
reflects the pro-forma effects for federal income taxes at an effective
rate of 34.0%, as if OraCare had been a taxable entity for federal taxation
purposes.

F-72
<PAGE> 125

================================================================================

NO PERSON HAS BEEN AUTHORIZED IN CON- NECTION WITH THE OFFERING MADE
HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTA- TION NOT CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESEN- TATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UN-
DERWRITER. THIS PROSPECTUS DOES NOT CONSTI- TUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUN- DER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CON- TAINED HEREIN IS CORRECT AS OF ANY DATE SUBSE- QUENT TO
THE DATE HEREOF.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information............................................. 2
Disclosure Regarding Forward-Looking Statements................... 2
Prospectus Summary................................................ 3
Risk Factors...................................................... 6
Use of Proceeds................................................... 10
Price Range of Common Stock....................................... 11
Dividend Policy................................................... 11
Capitalization.................................................... 12
Selected Financial Data........................................... 13
Selected Unaudited Pro Forma Condensed Financial Information...... 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 16
Business.......................................................... 25
Pending and Recent Acquisitions................................... 36
Management........................................................ 40
Certain Transactions.............................................. 46
Principal Stockholders............................................ 47
Description of Capital Stock...................................... 48
Underwriting...................................................... 50
Legal Matters..................................................... 51
Experts........................................................... 51
Index to Financial Statements..................................... F-1
</TABLE>

------------------

================================================================================

2,000,000 SHARES

[UNITED DENTAL CARE LOGO]

COMMON STOCK

-----------------

PROSPECTUS
-----------------

ALEX. BROWN & SONS
INCORPORATED

COWEN & COMPANY

VOLPE, WELTY & COMPANY

, 1996

================================================================================

<PAGE> 126

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The estimated expenses payable by the registrant in connection with the
registration, issuance and distribution of the Common Stock offered hereby,
other than underwriting discounts and commissions, are as follows:

<TABLE>
<CAPTION>
ITEM
--------------------------------------------------------------------------
<S> <C>
SEC registration fee...................................................... $ 29,841
NASD filing fee........................................................... 9,154
Nasdaq National Market listing fee........................................ 17,500
"Blue Sky" fees and expenses.............................................. 20,000
Printing and engraving expenses........................................... 127,000
Legal fees and expenses................................................... 140,000
Accounting fees and expenses.............................................. 150,000
Fees and expenses of Transfer Agent and Registrar......................... 8,500
Miscellaneous............................................................. 48,005
-------
Total........................................................... $550,000
=======
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Under Section 145 of the Delaware General Corporation Law ("Delaware Law"),
the Company has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act. The Company's Bylaws (the "Bylaws") filed as Exhibit 3.02 hereto
provide that the Company shall indemnify its directors and officers to the full
extent permitted by Delaware Law. The Bylaws also provide that rights conferred
under such Bylaws shall not be deemed to be exclusive of any other right such
persons may have or acquire under any statute, agreement, vote of stockholders
or disinterested directors, or under the Certificate of Incorporation, the
Bylaws or otherwise.

The Certificate of Incorporation provides that, pursuant to Delaware Law,
the directors of the Company shall not be liable for monetary damages for breach
of the directors' fiduciary duty of care to the Company and its stockholders.
This provision in the Certificate of Incorporation does not eliminate the duty
of care, and in appropriate circumstances equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Delaware Law.
In addition, each director will continue to be subject to liability for breach
of the director's duty of loyalty to the Company for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware Law. The provision also does not affect a director's
responsibilities under any other law, such as the Federal securities laws or
state or federal environmental laws.

The form of Underwriting Agreement filed as Exhibit 1.01 hereto provides
for indemnification by the Underwriters of the Company and its officers and
directors, and by the Company of the Underwriters, for certain liabilities
arising under the Securities Act or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following is a summary of transactions by the Company during the last
three years preceding the date hereof involving sales of the Company's
securities that were not registered under the Securities Act.

(1) From time to time during the three years preceding the date hereof, the
Company granted stock options to purchase Common Stock pursuant to the Company's
1989 Stock Option Plan, as amended, and the

II-1
<PAGE> 127

Company's 1995 Stock Option Plan, as amended, and an incentive stock option plan
previously maintained by the Company to certain directors, officers and
employees of the Company. During the three year period referred to above, the
Company issued an aggregate of 472,000 shares of Common Stock to directors,
officers and employees upon the exercise of options issued under the Stock
Option Plans of the Company at exercise prices ranging from $1.25 to $4.00 per
share (as adjusted for the stock split described in Note (4) below).

(2) In December 1993 and April 1995, the Company issued 463,976 shares and
two shares of Common Stock respectively, upon the conversion of shares of 6%
Cumulative Convertible Preferred Stock at a conversion price of $1.37 per share
(as adjusted for the stock split described in Note (4) below).

(3) In January 1995, the Company sold to Mark E. Pape, Senior Vice
President, Chief Financial Officer, Secretary and Treasurer of the Company,
40,000 warrants to purchase an aggregate of 40,000 shares of Common Stock at a
purchase price of $6.00 per share (as adjusted for the stock split described in
Note (4) below). The purchase price for the warrants was $2.00 per warrant (as
adjusted for the stock split described in Note (4) below).

(4) On July 17, 1995, the Company declared a two-for-one stock split that
was effected as a stock dividend pursuant to which each stockholder was issued
one additional share of Common Stock for each outstanding share of Common Stock
owned by such stockholder.

The sales and issuances of securities in the above transactions were deemed
to be exempt from registration under the Securities Act either because they do
not involve a "sale" of securities or by virtue of Section 4(2) thereof as
transactions not involving a public offering. Appropriate legends are affixed to
the stock certificates, stock options or warrants issued in such transactions.
All recipients either received adequate information about the Company or had
access, through employment or other relationships, to such information.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
*1.01 -- Form of Underwriting Agreement.
*1.02 -- Form of Custody Agreement
3.01 -- Restated Certificate of Incorporation of the Company (filed as Exhibit 3.01 to
the Company's Registration Statement on Form S-1, Registration Number 33-94356
(the "Prior Registration Statement"), and incorporated herein by reference).
3.02 -- Amended and Restated Bylaws of the Company (filed as Exhibit 3.02 to the Prior
Registration Statement and incorporated herein by reference).
4.01 -- Specimen Common Stock Certificate (filed as Exhibit 4.01 to the Prior
Registration Statement and incorporated herein by reference).
**5.01 -- Opinion of Strasburger & Price, L.L.P. regarding legality.
10.01 -- Stock Purchase Agreement dated as of April 11, 1994 among United Dental Care,
Inc., the Stockholders of International Dental Health, Inc., Robert J. Nettinga
and Paul C. Nettinga (filed as Exhibit 10.05 to the Prior Registration
Statement and incorporated herein by reference).
10.02 -- Non-Competition Agreement dated as of September 16, 1994 among United Dental
Care, Inc., The Adaven Group Limited Partnership and Robert J. Nettinga (filed
as Exhibit 10.06 to the Prior Registration Statement and incorporated herein by
reference).
10.03 -- Agreement for Consulting Services dated as of September 16, 1994 between United
Dental Care, Inc. and The Adaven Group Limited Partnership (filed as Exhibit
10.07 to the Prior Registration Statement and incorporated herein by
reference).
</TABLE>

II-2
<PAGE> 128

<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
10.04 -- Non-Competition Agreement dated as of September 16, 1994 among United Dental
Care, Inc., Omega Marine Development, Inc. and Paul C. Nettinga (filed as
Exhibit 10.08 to the Prior Registration Statement and incorporated herein by
reference).
10.05 -- Agreement for Consulting Services dated as of September 16, 1994 between United
Dental Care, Inc. and Omega Marine Development, Inc (filed as Exhibit 10.09 to
the Prior Registration Statement and incorporated herein by reference).
10.06 -- Stockholders Agreement dated as of September 16, 1994 among United Dental Care,
Inc., certain stockholders of United Dental Care, Inc. named therein and Robert
J. Nettinga (filed as Exhibit 10.10 to the Prior Registration Statement and
incorporated herein by reference).
10.07 -- Irrevocable Letter of Credit dated September 16, 1994 in the amount of
$4,023,500 in favor of The Adaven Group Limited Partnership (filed as Exhibit
10.11 to the Prior Registration Statement and incorporated herein by
reference).
10.08 -- Irrevocable Letter of Credit dated September 16, 1994 in the amount of $756,242
in favor of Omega Marine Development, Inc (filed as Exhibit 10.12 to the Prior
Registration Statement and incorporated herein by reference).
**10.09 -- Amended and Restated Application and Agreement for $4,023,500 Standby Letter of
Credit in favor of The Adaven Group Limited Partnership dated September 16,
1994 by United Dental Care, Inc. to NationsBank of Texas, N.A.
**10.10 -- Amended and Restated Application and Agreement for $756,242 Standby Letter of
Credit in favor of Omega Marine Development, Inc. dated September 16, 1994 by
United Dental Care, Inc. to NationsBank of Texas, N.A.
10.11 -- Stock Purchase Agreement dated as of July 19, 1995 among United Dental Care,
Inc., Christopher A. Jehle, Dolores A. Kordek and U.S. Dental Management, Inc.
(filed as Exhibit 10.21 to the Prior Registration Statement and incorporated
herein by reference).
10.12 -- First Amendment to Stock Purchase Agreement dated as of November 27, 1995,
among United Dental Care, Inc., Christopher A. Jehle, Dolores A. Kordek and
U.S. Dental Management, Inc. (filed as Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995, File No. 0-26688
(the "1995 Form 10-Q"), and incorporated herein by reference).
10.13 -- Non-Competition Agreement, dated September 27, 1995, between United Dental
Care, Inc. and Dolores A. Kordek (filed as Exhibit 10.7 to the 1995 Form 10-Q
and incorporated herein by reference).
10.14 -- Non-Competition Agreement, dated September 27,1995, between United Dental Care,
Inc. and Christopher A. Jehle (filed as Exhibit 10.8 to the 1995 Form 10-Q and
incorporated herein by reference).
10.15 -- Consulting Agreement dated September 27, 1995, between United Dental Care, Inc.
and Dolores A. Kordek (filed as Exhibit 10.9 to the 1995 Form 10-Q and
incorporated herein by reference).
10.16 -- Consulting Agreement dated September 27, 1995, between United Dental Care, Inc.
and Christopher A. Jehle (filed as Exhibit 10.10 to the 1995 Form 10-Q and
incorporated herein by reference).
10.17 -- Release dated September 27, 1995, between United Dental Care, Inc., U.S. Dental
Management, Inc., Dolores A. Kordek and Christopher A. Jehle (filed as Exhibit
10.11 to the 1995 Form 10-Q and incorporated herein by reference).
</TABLE>

II-3
<PAGE> 129

<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
10.18 -- Stock Purchase Agreement dated as of December 14, 1995 among United Dental
Care, Inc., R. Bruce Buchanan, Joseph V. Errante, D.D.S., Margaret R. Errante,
D.D.S., The Francesca Irena Errante Irrevocable Trust U/A 10/1/95, The
Alexandra Nicole Errante Irrevocable Trust U/A 10/1/95, Timothy J. Moncher,
Associated Health Plans, Inc. and Associated Companies, Inc. (filed as Exhibit
10.1 to the Company's Current Report on Form 8-K filed January 22, 1996, File
No. 0-26688 (the "Form 8-K"), and incorporated herein by reference).
10.19 -- First Amendment to Stock Purchase Agreement dated as of January 17, 1996 among
United Dental Care, Inc., R. Bruce Buchanan, Joseph V. Errante, D.D.S.,
Margaret R. Errante, D.D.S., The Francesca Irena Errante Irrevocable Trust U/A
10/1/95, The Alexandra Nicole Errante Irrevocable Trust U/A 10/1/95, Timothy J.
Moncher, Associated Health Plans, Inc. and Associated Companies, Inc. (filed as
Exhibit 10.2 to the Form 8-K, and incorporated herein by reference).
10.20 -- Non-Competition Agreement, dated January 22, 1995, between United Dental Care,
Inc. and R. Bruce Buchanan (filed as Exhibit 10.3 to the Form 8-K, and
incorporated herein by reference). The three other Non- Competition Agreements
between United Dental Care, Inc. and Joseph V. Errante, D.D.S., Margaret R.
Errante, D.D.S. and Timothy J. Moncher, respectively, are identical in form
except as to the parties thereto and are therefore omitted from this filing.
10.21 -- Post-Closing Escrow Agreement dated as of January 22, 1996, among United Dental
Care, Inc., R. Bruce Buchanan, Joseph V. Errante, D.D.S., Margaret R. Errante,
D.D.S., The Francesca Irena Errante Irrevocable Trust U/A 10/1/95, The
Alexandra Nicole Errante Irrevocable Trust U/A 10/1/95, Timothy J. Moncher and
Lawyers Title of Arizona, Inc. (filed as Exhibit 10.4 to the Form 8-K, and
incorporated herein by reference).
10.22 -- Release Agreement dated January 22, 1996, executed by R. Bruce Buchanan, Joseph
V. Errante D.D.S., Margaret R. Errante D.D.S., The Francesca Irena Errante
Irrevocable Trust U/A 10/1/95, The Alexandra Nicole Errante Irrevocable Trust
U/A 10/1/95 and Timothy J. Moncher (filed as Exhibit 10.5 to the Form 8-K, and
incorporated herein by reference).
10.23 -- Office Lease dated January 9, 1992 between The Mutual Life Insurance Company of
New York and United Dental Care of Texas, Inc., and amendments thereto dated
May 31, 1994, November 7, 1994 and January 9, 1995, respectively (filed as
Exhibit 10.25 to the Prior Registration Statement and incorporated herein by
reference).
10.24 -- Standard Office Lease dated December 21, 1994 between Highland Court LLC and
United Dental Care, Inc. (filed as Exhibit 10.26 to the Prior Registration
Statement and incorporated herein by reference).
10.25 -- Lease dated October 11, 1988 between Centerside I and National Dental Health,
Inc., a Washington corporation, and amendments thereto dated April 16, 1990,
March 1, 1991, June 5, 1991, May 27, 1992, as of June 16, 1993, as of October
19, 1993 and as of January 28, 1994, and notice of partial termination with
respect thereto dated March 21, 1995 (filed as Exhibit 10.27 to the Prior
Registration Statement and incorporated herein by reference).
10.26 -- Administrative Services Agreement dated as of January 1, 1995 between United
Dental Care, Inc. and R.E. Harrington, Inc., and Memorandum of Understanding in
connection therewith dated as of January 1, 1995 (filed as Exhibit 10.28 to the
Prior Registration Statement and incorporated herein by reference).
**10.27 -- Stock Purchase Agreement among United Dental Care, Inc., as Purchaser, Gilbert
G. Finger, Patricia L. Schubring, Edward K. Halstead, Birchtree Enterprises and
Binkley & Stewart, P.C., as Sellers, and Independent Dental Plan, Inc. dated as
of June 28, 1996.
**10.28 -- Stock Purchase Agreement between United Dental Care, Inc., as Purchaser, and
UICI, as Seller, dated as of September 10, 1996, for all the issued and
outstanding shares of capital stock of Association Dental Plan, Inc, a District
of Columbia corporation.
</TABLE>

II-4
<PAGE> 130

<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
**10.29 -- Earnest Money Escrow Agreement among United Dental Care, Inc., UICI, and Texas
Commerce Bank National Association, dated as of September 10, 1996, regarding
the purchase of all the issued and outstanding shares of capital stock of
Association Dental Plan, Inc., a District of Columbia corporation.
**10.30 -- Stock Purchase Agreement between United Dental Care, Inc., as Purchaser, and
UICI, as Seller, dated as of September 10, 1996, for all the issued and
outstanding shares of capital stock of International Dental Plan, Inc., a
Florida corporation.
**10.31 -- Earnest Money Escrow Agreement among United Dental Care, Inc., UICI, and Texas
Commerce Bank National Association, dated as of September 10, 1996, regarding
the purchase of all the issued and outstanding shares of capital stock of
International Dental Plan, Inc., a Florida corporation.
**10.32 -- Stock Purchase Agreement among United Dental Care, Inc., as Purchaser, and
UICI, United Management & Consulting, Inc., United Management & Consulting
Retirement Plan, and Marie C. Montgomery Revocable Trust U/T/A March 23, 1992,
as Seller, dated as of September 10, 1996, for the purchase of 90% of the
issued and outstanding shares of capital stock of United Dental Care, Inc., an
Oklahoma corporation.
**10.33 -- Earnest Money Escrow Agreement among United Dental Care, Inc., UICI, United
Management & Consulting, Inc., United Management & Consulting Retirement Plan,
Marie C. Montgomery Revocable Trust U/T/A March 23, 1992, and Texas Commerce
Bank National Association, as Escrow Agent, dated as of September 10, 1996,
regarding the purchase of 90% of the issued and outstanding shares of capital
stock of United Dental Care, Inc., an Oklahoma corporation.
**10.34 -- Stock Purchase Agreement among United Dental Care, Inc., as Purchaser, and John
E. Carlin, Ph.D., Frank J. Schloegel, III, J. Dennis Dlabal, D.D.S., The John
E. Carlin Charitable Remainder Unitrust, UID June 28, 1996, The Frank J.
Schloegel Charitable Remainder Unitrust I, UID July 12, 1996, The Frank J.
Schloegel Charitable Remainder Unitrust II, UID July 12, 1996, The J. Dennis
Dlabal Charitable Remainder Trust, UID September 5, 1996, as Sellers, and
Kansas City Dental Care, Inc., dated as of September 11, 1996.
**10.35 -- Earnest Money Escrow Agreement among United Dental Care, Inc., John E. Carlin,
Ph.D., Frank J. Schloegel, III, J. Dennis Dlabal, D.D.S., The John E. Carlin
Charitable Remainder Unitrust, UID June 28, 1996, The Frank J. Schloegel
Charitable Remainder Unitrust I, UID July 12, 1996, The Frank J. Schloegel
Charitable Remainder Unitrust II, UID July 12, 1996, The J. Dennis Dlabal
Charitable Remainder Trust, UID September 5, 1996, and UMB Bank, N.A., as
Escrow Agent, dated as of September 11, 1996.
**10.36 -- Stock Purchase Agreement among United Dental Care, Inc., as Purchaser, and
Frank A. Pettisani, D.D.S., Lisa M. Mazzone, Frank A. Pettisani, Jr., D.D.S.,
Charles A. Costa, and Donna Costa, as Sellers, and Oracare Consultants, Inc.,
dated as of September 5, 1996.
**10.37 -- Earnest Money Escrow Agreement among United Dental Care, Inc., Frank A.
Pettisani, D.D.S., Lisa M. Mazzone, Frank A. Pettisani, Jr., D.D.S., Charles A.
Costa, and Donna Costa, and Prudential Securities, as Escrow Agent, dated as of
September 5, 1996.
**10.38 -- Stock Purchase Agreement among United Dental Care, Inc., as Purchaser, and
Frank A. Pettisani, D.D.S., as Seller, and Oracare Dental Associates, P.A.,
dated as of September 5, 1996.
**10.39 -- Stock Purchase Agreement among United Dental Care, Inc., as Purchaser, and
Frank A. Pettisani, D.D.S., Frank A. Pettisani, Jr., D.D.S., Charles A. Costa,
and Donna Costa, as Sellers, and Oracare DPO, Inc., dated as of September 5,
1996.
**10.40 -- Employment Agreement dated as of May 13, 1996, between United Dental Care,
Inc., and William H. Wilcox.
</TABLE>

II-5
<PAGE> 131

<TABLE>
<CAPTION>
NUMBER EXHIBIT
------- -------
<C> <S>
**10.41 -- Employment Agreement dated as of June 1, 1996, between United Dental Care,
Inc., and Mark E. Pape.
**10.42 -- Employment Agreement dated as of June 1, 1996, between United Dental Care,
Inc., and Peter R. Barnett, D.M.D.
10.43 -- Master Software License and Services Agreement dated as of June 20, 1995
between Software Technologies Corporation and United Dental Care, Inc. (filed
as Exhibit 10.29 to the Prior Registration Statement and incorporated herein by
reference).
10.44 -- United Dental Care, Inc. Amended and Restated 1989 Incentive Stock Option Plan
(filed as Exhibit 10.30 to the Prior Registration Statement and incorporated
herein by reference).
10.45 -- United Dental Care, Inc. Amended and Restated 1989 Key Employee Stock Option
Plan (filed as Exhibit 10.31 to the Prior Registration Statement and
incorporated herein by reference).
10.46 -- United Dental Care, Inc. 1995 Stock Option Plan (filed as Exhibit 10.32 to the
Prior Registration Statement and incorporated herein by reference).
**10.47 -- United Dental Care, Inc. Executive Incentive Plans for 1996 for Messrs. Wilcox,
Pape and Barnett.
*10.48 -- Commitment Letter dated as of September 27, 1996 between United Dental Care,
Inc. and Nationsbank of Texas, N.A. relating to $50 million revolving credit
facility.
**21.01 -- List of Subsidiaries of Registrant.
*23.01 -- Consent of Price Waterhouse LLP.
*23.02 -- Consent of Andrew C. Sarager, C.P.A., P.C.
*23.03 -- Consent of James L. Gordon, C.P.A.
*23.04 -- Consent of Ernst & Young LLP
**23.05 -- Consent of Strasburger & Price, L.L.P. (included in Exhibit 5.01 to this
Registration Statement).
**24.01 -- Power of Attorney (contained on the signature page of this Registration
Statement).
</TABLE>

- ---------------

* Filed herewith.

** Filed as an Exhibit to the Form S-1 Registration Statement filed with the
Commission on September 20, 1996 (Registration No. 333-12425).

(B) FINANCIAL STATEMENT SCHEDULES.

All schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or because
the information required is included in the Consolidated Financial Statements or
Notes thereto.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-6
<PAGE> 132

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, or controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-7
<PAGE> 133

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Dallas, State of
Texas, on October 1, 1996.

UNITED DENTAL CARE, INC.

By: /s/ WILLIAM H. WILCOX
-------------------------------
William H. Wilcox
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ WILLIAM H. WILCOX President, Chief Executive October 1, 1996
--------------------------------- Officer and Director
William H. Wilcox (Principal Executive
Officer)

/s/ MARK E. PAPE Senior Vice President and October 1, 1996
--------------------------------- Chief Financial Officer
Mark E. Pape (Principal Financial and
Accounting Officer)

* Director October 1, 1996
---------------------------------
Jack R. Anderson

* Director October 1, 1996
---------------------------------
James B. Kingston

* Director October 1, 1996
---------------------------------
James K. Newman

* Director October 1, 1996
---------------------------------
William H. Longfield

* Director October 1, 1996
---------------------------------
George E. Bello

* Director October 1, 1996
---------------------------------
James E. Buncher

* Director October 1, 1996
---------------------------------
Donald E. Steen

* Director October 1, 1996
---------------------------------
Robert J. Nettinga

*By: /s/ MARK E. PAPE
------------------------------
Mark E. Pape
Attorney-in-Fact
</TABLE>

II-8
<PAGE> 134

EXHIBIT INDEX

<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
*1.01 -- Form of Underwriting Agreement.
*1.02 -- Form of Custody Agreement.
3.01 -- Restated Certificate of Incorporation of the Company (filed as
Exhibit 3.01 to the Company's Registration Statement on Form S-1,
Registration Number 33-94356 (the "Prior Registration Statement"),
and incorporated herein by reference).
3.02 -- Amended and Restated Bylaws of the Company (filed as Exhibit 3.02 to
the Prior Registration Statement and incorporated herein by
reference).
</TABLE>

<TABLE>
<C> <S>
4.01 -- Specimen Common Stock Certificate (filed as Exhibit 4.01 to the Prior
Registration Statement and incorporated herein by reference).
**5.01 -- Opinion of Strasburger & Price, L.L.P. regarding legality.
10.01 -- Stock Purchase Agreement dated as of April 11, 1994 among United
Dental Care, Inc., the Stockholders of International Dental Health,
Inc., Robert J. Nettinga and Paul C. Nettinga (filed as Exhibit 10.05
to the Prior Registration Statement and incorporated herein by
reference).
10.02 -- Non-Competition Agreement dated as of September 16, 1994 among United
Dental Care, Inc., The Adaven Group Limited Partnership and Robert J.
Nettinga (filed as Exhibit 10.06 to the Prior Registration Statement
and incorporated herein by reference).
10.03 -- Agreement for Consulting Services dated as of September 16, 1994
between United Dental Care, Inc. and The Adaven Group Limited
Partnership (filed as Exhibit 10.07 to the Prior Registration
Statement and incorporated herein by reference).
10.04 -- Non-Competition Agreement dated as of September 16, 1994 among United
Dental Care, Inc., Omega Marine Development, Inc. and Paul C.
Nettinga (filed as Exhibit 10.08 to the Prior Registration Statement
and incorporated herein by reference).
10.05 -- Agreement for Consulting Services dated as of September 16, 1994
between United Dental Care, Inc. and Omega Marine Development, Inc
(filed as Exhibit 10.09 to the Prior Registration Statement and
incorporated herein by reference).
10.06 -- Stockholders Agreement dated as of September 16, 1994 among United
Dental Care, Inc., certain stockholders of United Dental Care, Inc.
named therein and Robert J. Nettinga (filed as Exhibit 10.10 to the
Prior Registration Statement and incorporated herein by reference).
10.07 -- Irrevocable Letter of Credit dated September 16, 1994 in the amount
of $4,023,500 in favor of The Adaven Group Limited Partnership (filed
as Exhibit 10.11 to the Prior Registration Statement and incorporated
herein by reference).
10.08 -- Irrevocable Letter of Credit dated September 16, 1994 in the amount
of $756,242 in favor of Omega Marine Development, Inc (filed as
Exhibit 10.12 to the Prior Registration Statement and incorporated
herein by reference).
**10.09 -- Amended and Restated Application and Agreement for $4,023,500 Standby
Letter of Credit in favor of The Adaven Group Limited Partnership
dated September 16, 1994 by United Dental Care, Inc. to NationsBank
of Texas, N.A.
**10.10 -- Amended and Restated Application and Agreement for $756,242 Standby
Letter of Credit in favor of Omega Marine Development, Inc. dated
September 16, 1994 by United Dental Care, Inc. to NationsBank of
Texas, N.A.
</TABLE>
<PAGE> 135

<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
10.11 -- Stock Purchase Agreement dated as of July 19, 1995 among United
Dental Care, Inc., Christopher A. Jehle, Dolores A. Kordek and U.S.
Dental Management, Inc. (filed as Exhibit 10.21 to the Prior
Registration Statement and incorporated herein by reference).
10.12 -- First Amendment to Stock Purchase Agreement dated as of November 27,
1995, among United Dental Care, Inc., Christopher A. Jehle, Dolores
A. Kordek and U.S. Dental Management, Inc. (filed as Exhibit 10.4 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995, File No. 0-26688 (the "1995 Form 10-Q"), and
incorporated herein by reference).
10.13 -- Non-Competition Agreement, dated September 27, 1995, between United
Dental Care, Inc. and Dolores A. Kordek (filed as Exhibit 10.7 to the
1995 Form 10-Q and incorporated herein by reference).
10.14 -- Non-Competition Agreement, dated September 27,1995, between United
Dental Care, Inc. and Christopher A. Jehle (filed as Exhibit 10.8 to
the 1995 Form 10-Q and incorporated herein by reference).
10.15 -- Consulting Agreement dated September 27, 1995, between United Dental
Care, Inc. and Dolores A. Kordek (filed as Exhibit 10.9 to the 1995
Form 10-Q and incorporated herein by reference).
10.16 -- Consulting Agreement dated September 27, 1995, between United Dental
Care, Inc. and Christopher A. Jehle (filed as Exhibit 10.10 to the
1995 Form 10-Q and incorporated herein by reference).
10.17 -- Release dated September 27, 1995, between United Dental Care, Inc.,
U.S. Dental Management, Inc., Dolores A. Kordek and Christopher A.
Jehle (filed as Exhibit 10.11 to the 1995 Form 10-Q and incorporated
herein by reference).
10.18 -- Stock Purchase Agreement dated as of December 14, 1995 among United
Dental Care, Inc., R. Bruce Buchanan, Joseph V. Errante, D.D.S.,
Margaret R. Errante, D.D.S., The Francesca Irena Errante Irrevocable
Trust U/A 10/1/95, The Alexandra Nicole Errante Irrevocable Trust U/A
10/1/95, Timothy J. Moncher, Associated Health Plans, Inc. and
Associated Companies, Inc. (filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K filed January 22, 1996, File No. 0-26688
(the "Form 8-K"), and incorporated herein by reference).
10.19 -- First Amendment to Stock Purchase Agreement dated as of January 17,
1996 among United Dental Care, Inc., R. Bruce Buchanan, Joseph V.
Errante, D.D.S., Margaret R. Errante, D.D.S., The Francesca Irena
Errante Irrevocable Trust U/A 10/1/95, The Alexandra Nicole Errante
Irrevocable Trust U/A 10/1/95, Timothy J. Moncher, Associated Health
Plans, Inc. and Associated Companies, Inc. (filed as Exhibit 10.2 to
the Form 8-K, and incorporated herein by reference).
10.20 -- Non-Competition Agreement, dated January 22, 1995, between United
Dental Care, Inc. and R. Bruce Buchanan (filed as Exhibit 10.3 to the
Form 8-K, and incorporated herein by reference). The three other Non-
Competition Agreements between United Dental Care, Inc. and Joseph V.
Errante, D.D.S., Margaret R. Errante, D.D.S. and Timothy J. Moncher,
respectively, are identical in form except as to the parties thereto
and are therefore omitted from this filing.
10.21 -- Post-Closing Escrow Agreement dated as of January 22, 1996, among
United Dental Care, Inc., R. Bruce Buchanan, Joseph V. Errante,
D.D.S., Margaret R. Errante, D.D.S., The Francesca Irena Errante
Irrevocable Trust U/A 10/1/95, The Alexandra Nicole Errante
Irrevocable Trust U/A 10/1/95, Timothy J. Moncher and Lawyers Title
of Arizona, Inc. (filed as Exhibit 10.4 to the Form 8-K, and
incorporated herein by reference).
</TABLE>
<PAGE> 136

<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ --------
<C> <S>
10.22 -- Release Agreement dated January 22, 1996, executed by R. Bruce
Buchanan, Joseph V. Errante D.D.S., Margaret R. Errante D.D.S., The
Francesca Irena Errante Irrevocable Trust U/A 10/1/95, The Alexandra
Nicole Errante Irrevocable Trust U/A 10/1/95 and Timothy J. Moncher
(filed as Exhibit 10.5 to the Form 8-K, and incorporated herein by
reference).
10.23 -- Office Lease dated January 9, 1992 between The Mutual Life Insurance
Company of New York and United Dental Care of Texas, Inc., and
amendments thereto dated May 31, 1994, November 7, 1994 and January
9, 1995, respectively (filed as Exhibit 10.25 to the Prior
Registration Statement and incorporated herein by reference).
10.24 -- Standard Office Lease dated December 21, 1994 between Highland Court
LLC and United Dental Care, Inc. (filed as Exhibit 10.26 to the Prior
Registration Statement and incorporated herein by reference).
10.25 -- Lease dated October 11, 1988 between Centerside I and National Dental
Health, Inc., a Washington corporation, and amendments thereto dated
April 16, 1990, March 1, 1991, June 5, 1991, May 27, 1992, as of June
16, 1993, as of October 19, 1993 and as of January 28, 1994, and
notice of partial termination with respect thereto dated March 21,
1995 (filed as Exhibit 10.27 to the Prior Registration Statement and
incorporated herein by reference).
10.26 -- Administrative Services Agreement dated as of January 1, 1995 between
United Dental Care, Inc. and R.E. Harrington, Inc., and Memorandum of
Understanding in connection therewith dated as of January 1, 1995
(filed as Exhibit 10.28 to the Prior Registration Statement and
incorporated herein by reference).
**10.27 -- Stock Purchase Agreement among United Dental Care, Inc., as
Purchaser, Gilbert G. Finger, Patricia L. Schubring, Edward K.
Halstead, Birchtree Enterprises and Binkley & Stewart, P.C., as
Sellers, and Independent Dental Plan, Inc. dated as of June 28, 1996.
**10.28 -- Stock Purchase Agreement between United Dental Care, Inc., as
Purchaser, and UICI, as Seller, dated as of September 10, 1996, for
all the issued and outstanding shares of capital stock of Association
Dental Plan, Inc, a District of Columbia corporation.
**10.29 -- Earnest Money Escrow Agreement among United Dental Care, Inc., UICI,
and Texas Commerce Bank National Association, dated as of September
10, 1996, regarding the purchase of all the issued and outstanding
shares of capital stock of Association Dental Plan, Inc., a District
of Columbia corporation.
**10.30 -- Stock Purchase Agreement between United Dental Care, Inc., as
Purchaser, and UICI, as Seller, dated as of September 10, 1996, for
all the issued and outstanding shares of capital stock of
International Dental Plan, Inc., a Florida corporation.
**10.31 -- Earnest Money Escrow Agreement among United Dental Care, Inc., UICI,
and Texas Commerce Bank National Association, dated as of September
10, 1996, regarding the purchase of all the issued and outstanding
shares of capital stock of International Dental Plan, Inc., a Florida
corporation.
**10.32 -- Stock Purchase Agreement among United Dental Care, Inc., as
Purchaser, and UICI, United Management & Consulting, Inc., United
Management & Consulting Retirement Plan, and Marie C. Montgomery
Revocable Trust U/T/A March 23, 1992, as Seller, dated as of
September 10, 1996, for the purchase of 90% of the issued and
outstanding shares of capital stock of United Dental Care, Inc., an
Oklahoma corporation.
</TABLE>
<PAGE> 137

<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
**10.33 -- Earnest Money Escrow Agreement among United Dental Care, Inc., UICI,
United Management & Consulting, Inc., United Management & Consulting
Retirement Plan, Marie C. Montgomery Revocable Trust U/T/A March 23,
1992, and Texas Commerce Bank National Association, as Escrow Agent,
dated as of September 10, 1996, regarding the purchase of 90% of the
issued and outstanding shares of capital stock of United Dental Care,
Inc., an Oklahoma corporation.
**10.34 -- Stock Purchase Agreement among United Dental Care, Inc., as
Purchaser, and John E. Carlin, Ph.D., Frank J. Schloegel, III, J.
Dennis Dlabal, D.D.S., The John E. Carlin Charitable Remainder
Unitrust, UID June 28, 1996, The Frank J. Schloegel Charitable
Remainder Unitrust I, UID July 12, 1996, The Frank J. Schloegel
Charitable Remainder Unitrust II, UID July 12, 1996, The J. Dennis
Dlabal Charitable Remainder Trust, UID September 5, 1996, as Sellers,
and Kansas City Dental Care, Inc., dated as of September 11, 1996.
**10.35 -- Earnest Money Escrow Agreement among United Dental Care, Inc., John
E. Carlin, Ph.D., Frank J. Schloegel, III, J. Dennis Dlabal, D.D.S.,
The John E. Carlin Charitable Remainder Unitrust, UID June 28, 1996,
The Frank J. Schloegel Charitable Remainder Unitrust I, UID July 12,
1996, The Frank J. Schloegel Charitable Remainder Unitrust II, UID
July 12, 1996, The J. Dennis Dlabal Charitable Remainder Trust, UID
September 5, 1996, and UMB Bank, N.A., as Escrow Agent, dated as of
September 11, 1996.
**10.36 -- Stock Purchase Agreement among United Dental Care, Inc., as
Purchaser, and Frank A. Pettisani, D.D.S., Lisa M. Mazzone, Frank A.
Pettisani, Jr., D.D.S., Charles A. Costa, and Donna Costa, as
Sellers, and Oracare Consultants, Inc., dated as of September 5,
1996.
**10.37 -- Earnest Money Escrow Agreement among United Dental Care, Inc., Frank
A. Pettisani, D.D.S., Lisa M. Mazzone, Frank A. Pettisani, Jr.,
D.D.S., Charles A. Costa, and Donna Costa, and Prudential Securities,
as Escrow Agent, dated as of September 5, 1996.
**10.38 -- Stock Purchase Agreement among United Dental Care, Inc., as
Purchaser, and Frank A. Pettisani, D.D.S., as Seller, and Oracare
Dental Associates, P.A., dated as of September 5, 1996.
**10.39 -- Stock Purchase Agreement among United Dental Care, Inc., as
Purchaser, and Frank A. Pettisani, D.D.S., Frank A. Pettisani, Jr.,
D.D.S., Charles A. Costa, and Donna Costa, as Sellers, and Oracare
DPO, Inc., dated as of September 5, 1996.
**10.40 -- Employment Agreement dated as of May 13, 1996, between United Dental
Care, Inc., and William H. Wilcox.
**10.41 -- Employment Agreement dated as of June 1, 1996, between United Dental
Care, Inc., and Mark E. Pape.
**10.42 -- Employment Agreement dated as of June 1, 1996, between United Dental
Care, Inc., and Peter R. Barnett, D.M.D.
10.43 -- Master Software License and Services Agreement dated as of June 20,
1995 between Software Technologies Corporation and United Dental
Care, Inc. (filed as Exhibit 10.29 to the Prior Registration
Statement and incorporated herein by reference).
10.44 -- United Dental Care, Inc. Amended and Restated 1989 Incentive Stock
Option Plan (filed as Exhibit 10.30 to the Prior Registration
Statement and incorporated herein by reference).
</TABLE>
<PAGE> 138

<TABLE>
<CAPTION>
NUMBER EXHIBIT
------- -------
<C> <S>
10.45 -- United Dental Care, Inc. Amended and Restated 1989 Key Employee Stock
Option Plan (filed as Exhibit 10.31 to the Prior Registration
Statement and incorporated herein by reference).
10.46 -- United Dental Care, Inc. 1995 Stock Option Plan (filed as Exhibit
10.32 to the Prior Registration Statement and incorporated herein by
reference).
**10.47 -- United Dental Care, Inc. Executive Incentive Plans for 1996 for
Messrs. Wilcox, Pape and Barnett.
*10.48 -- Commitment Letter dated as of September 27, 1996 between United
Dental Care, Inc. and Nationsbank of Texas, N.A. relating to $50
million revolving line of credit.
**21.01 -- List of Subsidiaries of Registrant.
*23.01 -- Consent of Price Waterhouse LLP.
*23.02 -- Consent of Andrew C. Sarager, C.P.A., P.C.
*23.03 -- Consent of James L. Gordon, C.P.A.
*23.04 -- Consent of Ernst & Young LLP
**23.05 -- Consent of Strasburger & Price, L.L.P. (included in Exhibit 5.01 to
this Registration Statement).
**24.01 -- Power of Attorney (contained on the signature page of this
Registration Statement).
</TABLE>

- ---------------

* Filed herewith.

** Filed as an Exhibit to the Form S-1 Registration Statement filed with the
Commission on September 20, 1996 (Registration No. 333-12425).

<PAGE> 1
EXHIBIT 1.01

2,000,000 Shares

United Dental Care, Inc.

Common Stock

($.10 Par Value)

UNDERWRITING AGREEMENT

____________, 1996

Alex. Brown & Sons Incorporated
Cowen & Company
Volpe, Welty & Company
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202

Gentlemen:

United Dental Care, Inc., a Delaware corporation (the "COMPANY")
proposes to sell to the several underwriters (the "UNDERWRITERS") named in
Schedule I hereto for whom you are acting as representatives (the
"REPRESENTATIVES") an aggregate of 2,000,000 shares of the Company's Common
Stock, $.10 par value (the "FIRM SHARES"), all of which will be sold by the
Company. The respective amounts of the Firm Shares to be so purchased by the
several Underwriters are set forth opposite their names in Schedule I hereto.
The Company and James B. Kingston, a stockholder of the Company (the "SELLING
STOCKHOLDER") also propose to sell, at the Underwriters' option, up to 300,000
additional shares of the Company's Common Stock (the "OPTION SHARES") as set
forth below. The Company and the Selling Stockholder are sometimes referred to
herein collectively as the "SELLERS."

As the Representatives, you have advised the Company and the Selling
Stockholder (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm
Shares set forth opposite their respective names in Schedule I, plus their pro
<PAGE> 2
rata portion of the Option Shares if you elect to exercise the over-allotment
option in whole or in part for the accounts of the several Underwriters. The
Firm Shares and the Option Shares (to the extent the aforementioned option is
exercised) are herein collectively called the "SHARES."

In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:

1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS.

(a) The Company represents and warrants to each of the
Underwriters as follows:

(i) A registration statement on Form S-1 (File
No. 333-12425) with respect to the Shares has been carefully
prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "ACT"), and the
Rules and Regulations (the "RULES AND REGULATIONS") of the
Securities and Exchange Commission (the "COMMISSION")
thereunder and has been filed with the Commission under the
Act. The Company has complied with the conditions for the use
of Form S-1. Copies of such registration statement, including
any amendments thereto, the preliminary prospectuses (meeting
the requirements of the Rules and Regulations) contained
therein and the exhibits, financial statements and schedules,
as finally amended and revised, have heretofore been delivered
by the Company to you. Such registration statement, together
with any registration statement filed by the Company pursuant
to Rule 462(b) of the Act, herein referred to as the
"REGISTRATION STATEMENT," shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and
contained in the Prospectus referred to below, has been
declared effective by the Commission under the Act and no post
effective amendment to the Registration Statement has been
filed as of the date of this Agreement. "PROSPECTUS" means
(a) the form of prospectus first filed with the Commission
pursuant to Rule 424(b) or (b) the last preliminary prospectus
included in the Registration Statement filed prior to the time
it becomes effective or filed pursuant to Rule 424(a) under
the Act that is delivered by the Company to the Underwriters
for delivery to purchasers of the Shares, together with the
term sheet or abbreviated term sheet filed with the Commission
pursuant to Rule 424(b)(7) under the Act. Each preliminary
prospectus included in the Registration Statement prior to the
time it becomes effective is herein referred to as a
"PRELIMINARY PROSPECTUS." Any reference herein to the
Registration Statement, any Preliminary Prospectus or to the
Prospectus shall be deemed to refer to and include any
documents incorporated by reference therein, and, in the case
of any reference herein to any Prospectus, also shall be
deemed to include any documents incorporated by reference
therein, and any supplements or amendments thereto, filed with
the Commission after the date of filing of the Prospectus
under Rules 424(b) or 430A, and prior to the termination of
the offering of the Shares by the Underwriters.

2
<PAGE> 3
(ii) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware, with corporate power and
authority to own or lease its properties and conduct its
business as described in the Registration Statement. Each of
the subsidiaries of the Company as listed in Exhibit A hereto
(collectively, the "SUBSIDIARIES") has been duly incorporated
and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own or lease its properties
and conduct its business as described in the Registration
Statement. The Subsidiaries are the only subsidiaries, direct
or indirect, of the Company. The Company and each of the
Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires
such qualification, except where the failure to be so
qualified would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and the
Subsidiaries considered as one enterprise. The outstanding
shares of capital stock of each of the Subsidiaries have been
duly authorized and validly issued, are fully paid and
nonassessable and, except as set forth in the Prospectus, are
owned by the Company or another Subsidiary free and clear of
all liens, encumbrances and security interests; and no
options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership
interests in the Subsidiaries are outstanding. The Company
has full power and authority to enter into this Agreement and
to carry out all of the terms and provisions hereof to be
carried out by it.

(iii) The outstanding shares of Common Stock of the
Company, including all shares to be sold by the Selling
Stockholder, have been duly authorized and validly issued and
are fully paid and nonassessable; the portion of the Shares to
be issued and sold by the Company have been duly authorized
and when issued and paid for as contemplated herein will be
validly issued, fully paid and nonassessable; and no
preemptive rights of stockholders exist with respect to any of
the Shares or the issue and sale thereof. Neither the filing
of the Registration Statement nor the offering or sale of the
Shares as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied,
for or relating to the registration of any shares of the
Company's Common Stock.

(iv) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All
of the Shares conform to the description thereof contained in
the Registration Statement. The form of certificates for the
Shares conforms to the corporate law of the jurisdiction of
the Company's incorporation.

(v) The Commission has not issued an order
preventing or suspending the use of any Prospectus relating to
the proposed offering of the Shares nor instituted proceedings
for that purpose.
The Registration Statement contains and the Prospectus and
any amendments or supplements thereto will contain all

3
<PAGE> 4

statements which are required to be stated therein by, and in
all respects conform or will conform, as the case may be, to
the requirements of, the Act and the Rules and Regulations.
The Registration Statement and any amendment thereto, does not
contain and will not contain, as the case may be, any untrue
statement of a material fact and does not omit and will not
omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and
the Prospectus and any amendments and supplements thereto do
not contain and will not contain, as the case may be, any
untrue statement of material fact and do not omit and will not
omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations
or warranties as to information contained in or omitted from
the Registration Statement or the Prospectus, or any such
amendment or supplement, in reliance upon, and in conformity
with, written information furnished to the Company by or on
behalf of any Underwriter through the Representatives,
specifically for use in the preparation thereof.

(vi) The consolidated financial statements of the
Company and the Subsidiaries, together with related notes and
schedules as set forth in the Registration Statement, present
fairly the financial position and the results of operations
and cash flows of the Company and Subsidiaries consolidated,
at the indicated dates and for the indicated periods. Such
financial statements have been prepared in accordance with
generally accepted principles of accounting, consistently
applied throughout the periods involved, and all adjustments
necessary for a fair presentation of results for such periods
have been made. The summary financial and statistical data
included in the Registration Statement present fairly the
information shown therein and have been compiled on a basis
consistent with the financial statements presented therein.
The pro forma financial statements and other pro forma
financial information included in the Registration Statement
and the Prospectus present fairly the information shown
therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma
financial statements, have been properly compiled on the pro
forma bases described therein, and, in the opinion of the
Company, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to
give effect to the transactions or circumstances referred to
therein. The statutory financial statements of each insurance
Subsidiary for each period in which financial information is
presented in the Registration Statement have for each relevant
period been prepared in accordance with accounting practices
prescribed or permitted by the Insurance Department of the
state of domicile of such Subsidiary and such accounting
practices have been applied on a consistent basis throughout
the periods involved, except as disclosed therein.

(vii) Price Waterhouse LLP, who have certified
certain of the financial statements filed with the Commission
as part of the Registration Statement, are independent public
accountants as required by the Act and the Rules and
Regulations.

4
<PAGE> 5
(viii) There is no action, suit, claim or proceeding
pending or, to the knowledge of the Company, threatened
against the Company or any of the Subsidiaries before any
court or administrative agency or otherwise which if
determined adversely to the Company or any of its Subsidiaries
might result in any material adverse change in the business,
management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and of
the Subsidiaries taken as a whole or to prevent the
consummation of the transactions contemplated hereby. No
injunction, writ, restraining order or other order of any
nature adverse to the Company or any Subsidiary thereof or the
conduct of the Company's business has been issued by any
governmental authority. Neither the Company nor any
Subsidiary thereof is in default in any material respect under
any applicable statute, rule, order, decree or regulation of
any court, arbitrator or governmental body or agency having
jurisdiction over the Company or any Subsidiary.

(ix) The Company and the Subsidiaries have good
and marketable title to all of the properties and assets
reflected in the financial statements (or as described in the
Registration Statement) hereinabove described, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind
except those reflected in such financial statements (or as
described in the Registration Statement) or which are not
material in amount. The Company and the Subsidiaries occupy
their leased properties under valid and binding leases
conforming in all material respects to the description thereof
set forth in the Registration Statement.

(x) The Company and the Subsidiaries have filed
all Federal, State, local and foreign income tax returns which
have been required to be filed and have paid all taxes
indicated by said returns and all assessments received by them
or any of them to the extent that such taxes have become due.
All tax liabilities are adequately provided for in the
financial statements of the Company.

(xi) Since the respective dates as of which
information is given in the Registration Statement, as it may
be amended or supplemented, there has not been any material
adverse change or any development involving a prospective
material adverse change in or affecting the business,
management, properties, assets, rights, operations, condition
(financial or otherwise), or prospects of the Company and its
Subsidiaries taken as a whole, whether or not occurring in the
ordinary course of business, and there has not been any
material transaction entered into or any material transaction
that is probable of being entered into by the Company or the
Subsidiaries, other than transactions in the ordinary course
of business and changes and transactions described in the
Registration Statement, as it may be amended or supplemented.
The Company and the Subsidiaries have no material contingent
obligations which are not disclosed in the Company's financial
statements which are included in the Registration Statement,
as it may be amended or supplemented.

(xii) Neither the Company nor any of the
Subsidiaries is or with the giving of notice or lapse of time
or both, will be, in violation of or in default

5
<PAGE> 6
under its Charter or Bylaws or under any agreement, lease,
contract, indenture or other instrument or obligation to which
it is a party or by which it, or any of its properties, is
bound and which default is of material significance in respect
of the condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole or the business, management,
properties, assets, rights, operations, condition (financial
or otherwise) or prospects of the Company and the Subsidiaries
taken as a whole. The consummation of the transactions herein
contemplated and the fulfillment of the terms hereof will not
conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust or other agreement or instrument to
which the Company or any Subsidiary is a party, or of the
Charter or Bylaws of the Company or any order, rule or
regulation applicable to the Company or any Subsidiary of any
court or of any regulatory body or administrative agency or
other governmental body having jurisdiction.

(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in
connection with the execution and delivery by the Company of
this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required
by the Commission, the National Association of Securities
Dealers, Inc. (the "NASD") or may be necessary to qualify the
Shares for public offering by the Underwriters under State
securities or Blue Sky laws) has been obtained or made and is
in full force and effect.

(xiv) The Company and each of the Subsidiaries
holds all material licenses, certificates and permits from
governmental authorities (including, without limitation,
insurance licenses from the Insurance Departments of the
various states where the Subsidiaries write insurance business
(the "INSURANCE LICENSES")) which are necessary to the conduct
of their businesses; the Subsidiaries have fulfilled and
performed all material obligations necessary to maintain their
respective Insurance Licenses, and no event or events have
occurred which may be reasonably expected to result in the
impairment, modification, termination or revocation of such
Insurance Licenses. Neither the Company nor any of the
Subsidiaries has infringed any patents, patent rights, trade
names, trademarks or copyrights, which infringement is
material to the business of the Company and the Subsidiaries
taken as a whole. The Company knows of no material
infringement by others of patents, patent rights, trade names,
trademarks or copyrights owned by or licensed to the Company.

(xv) Neither the Company, nor to the Company's
best knowledge, any of its affiliates, has taken or may take,
directly or indirectly, any action designed to cause or result
in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of
the price of the shares of Common Stock to facilitate the sale
or resale of the Shares. The Company acknowledges that the
Underwriters may engage in passive market making

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<PAGE> 7
transactions in the Shares on the Nasdaq National Market in
accordance with Rule 10b-6A under the Exchange Act.

(xvi) Neither the Company nor any Subsidiary is an
"investment company" within the meaning of such term under the
Investment Company Act of 1940, as amended, and the rules and
regulations of the Commission thereunder (the "1940 ACT").

(xvii) The Company maintains a system of internal
accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance
with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

(xviii) The Company and each of its Subsidiaries
carry, or are covered by, insurance in such amounts and
covering such risks as is adequate for the conduct of their
respective businesses and the value of their respective
properties and as is customary for companies engaged in
similar industries.

(xix) The Company is in compliance in all material
respects with all presently applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which the Company would have any
liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as
amended, including the regulations and published
interpretations thereunder (the "CODE"); and each "pension
plan" for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would
cause the loss of such qualification.

(xx) The Company and each of its Subsidiaries own
or possess adequate rights to use all material patents, patent
applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations,
copyrights and licenses necessary for the conduct of their
respective businesses and have no reason to believe that the
conduct of their respective businesses will conflict with,
and have not received any notice of any claim of conflict
with, any such right of others.

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<PAGE> 8
(xxi) The Company confirms as of the date hereof
that it is in compliance with all provisions of Section
517.075, Florida Statutes (Chapter 92-198, Laws of Florida) An
Act Relating to Disclosure of doing Business with Cuba, and
the Company further agrees that if it commences engaging in
business with the government of Cuba or with any person or
affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commission
or with the Florida Department of Banking and Finance (the
"DEPARTMENT"), whichever date is later, or if the information
reported or incorporated by reference in the Prospectus, if
any, concerning the Company's business with Cuba or with any
person or affiliate located in Cuba changes in any material
way, the Company will provide the Department notice of such
business or change, as appropriate, in a form acceptable to
the Department.

(xxii) Neither the Company nor any of its
Subsidiaries is involved in any material labor dispute nor, to
the best knowledge of the Company, is any such dispute
threatened.

(xxiii) The Company has no actual knowledge of (a)
the presence of any hazardous substances, hazardous materials,
toxic substances or waste materials (collectively, "HAZARDOUS
MATERIALS"), the existence of which is in violation of any
environmental law or regulation, on any of the properties
owned or leased by it (the "PROPERTIES"), or (b) any spills,
releases, discharges or disposal of Hazardous Materials by the
Company that have occurred or are presently occurring on
adjoining properties as a result of any construction on or
operation and use of such Properties except, with respect to
(a) and (b), as may otherwise be set forth in environmental
reports obtained by the Company. With respect to the
construction on or operation and use of the Properties the
Company represents that it has no actual knowledge of any
material failure to comply with all applicable local, state
and federal environmental laws, regulations, ordinances and
administrative and judicial orders relating to the generation,
recycling, reuse, sale, storage, handling, transport and
disposal of any Hazardous Materials.

(xxiv) The Company has obtained the agreement of the
Selling Stockholder and each of its directors and officers not
to offer, sell, contract to sell, or otherwise dispose of any
shares of Common Stock or any securities convertible into or
exchangeable or exercisable for Common Stock for a period of
90 days after the date of the Prospectus without the prior
written consent of the Representatives.

(b) Each of the Selling Stockholders severally represents
and warrants as follows:

(i) This Agreement has been duly authorized,
executed and delivered by or on behalf of such Selling
Stockholder and constitutes a valid and legally binding
agreement of such Selling Stockholder enforceable in
accordance with its terms except as (a) the enforceability
thereof may be limited by bankruptcy, insolvency or similar
laws affecting equitable creditors' rights generally and (b)

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<PAGE> 9
the availability of equitable remedies may be limited by
equitable principles of general applicability.

(ii) The execution and delivery by such Selling
Stockholder of, and the performance by such Selling
Stockholder of its obligations under, this Agreement, the
Custody Agreement signed by such Selling Stockholder and the
Company, as Custodian, relating to the deposit of the Shares
to be sold by such Selling Stockholder (the "CUSTODY
AGREEMENT") and the Power of Attorney appointing certain
individuals as such Selling Stockholder's attorneys-in-fact to
the extent set forth therein, relating to the transactions
contemplated hereby and by the Registration Statement (the
"POWER OF ATTORNEY") will not contravene any provision of
applicable law, or the certificate of incorporation of bylaws
of such Selling Stockholder (if such Selling Stockholder is a
corporation), or any agreement or other instrument (including,
without limitation, partnership agreements) binding upon such
Selling Stockholder or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over
such Selling Stockholder, and no consent, approval,
authorization or order of or qualification with any
governmental body or agency is required for the performance by
such Selling Stockholder of its obligations under this
Agreement or the Custody Agreement or Power of Attorney of
such Selling Stockholder, except such as may be required by
the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares or the
securities laws of any jurisdiction outside the United States.

(iii) Such Selling Stockholder has, and on the
Closing Date (as defined herein) will have, valid marketable
title to the Shares to be sold by such Selling Stockholder and
the legal right and power, and all authorization and approval
required by law, to enter into this Agreement, the Custody
Agreement and the Power of Attorney and to sell, transfer and
deliver the Shares to be sold by such Selling Stockholder.

(iv) The Shares to be sold by such Selling
Stockholder pursuant to this Agreement have been duly
authorized and are validly issued, fully paid and
nonassessable.

(v) The Custody Agreement and the Power of
Attorney have been duly authorized, executed and delivered by
such Selling Stockholder and are valid, legal and binding
agreements of such Selling Stockholder enforceable in
accordance with their terms except as (a) the enforceability
thereof may be limited by bankruptcy, insolvency or similar
laws affecting equitable creditors' rights generally and (b)
the availability of equitable remedies may be limited by
equitable principles of general applicability.

(vi) Delivery of the Shares to be sold by such
Selling Stockholder pursuant to this Agreement will pass
marketable title to such Shares free and clear of any security
interests, claims, liens, equities and other encumbrances.

9
<PAGE> 10
(vii) All information furnished by or on behalf of
such Selling Stockholder in writing expressly for use in the
Registration Statement and the Prospectuses is, and on the
Closing Date will be, true, correct and complete and does not,
and on the Closing Date will not, contain any untrue statement
of a material fact or omit to state any material fact
necessary to make such information not misleading.

(viii) Such Selling Stockholder has not taken and
will not take, directly or indirectly, any action designed to,
or which has constituted, or which might reasonably be
expected to cause or result in the stabilization or
manipulation of the price of the Common Stock of the Company.

(ix) Without having undertaken to determine
independently the accuracy or completeness of either the
representations and warranties of the Company contained herein
or the information contained in the Registration Statement,
such Selling Stockholder has no actual knowledge that the
representations and warranties of the Company contained in
this Section 1 are not true and correct, is familiar with the
Registration Statement and has no actual knowledge of any
material fact, condition or information not disclosed in the
Registration Statement which has adversely affected or may
adversely affect the business of the Company or any of the
Subsidiaries; and the sale of the Shares by such Selling
Stockholder pursuant hereto is not prompted by any information
concerning the Company or any of the Subsidiaries which is not
set forth in the Registration Statement or the documents
incorporated by reference therein. The information pertaining
to such Selling Stockholder under the caption "Principal and
Selling Stockholders" in the Prospectus is complete and
accurate in all material respects.

2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.

(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set
forth, the Company, severally and not jointly, agree to sell to the
Underwriters and each Underwriter agrees, severally and not jointly,
to purchase, at a price of $_____ per share, the number of Firm
Shares set forth opposite the name of each Underwriter in Schedule I
hereof, subject to adjustments in accordance with Section 9 hereof.
The number of Firm Shares to be purchased by each Underwriter from the
Company shall be as nearly as practicable in the same proportion to
the total number of Firm Shares being sold by the Company as the
number of Firm Shares being purchased by each Underwriter bears to the
total number of Firm Shares to be sold hereunder.

(b) Payment for the Firm Shares to be sold hereunder is
to be made in New York Clearing House funds by certified or bank
cashier's checks drawn to the order of the Company for the Shares to
be sold by it and for the Shares to be sold by the Selling
Stockholders, in each case against delivery of certificates therefor
to the Representatives for the several accounts of the Underwriters.
Such payment and delivery are to be made at the offices of Alex. Brown
& Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland,
at 10:00 a.m., Baltimore time, on the third business day after the
date of this

10
<PAGE> 11
Agreement or at such other time and date not later than three business
days thereafter as you and the Company shall agree upon, such time and
date being herein referred to as the "Closing Date." (As used herein,
"BUSINESS DAY" means a day on which the New York Stock Exchange is
open for trading and on which banks in New York are open for business
and not permitted by law or executive order to be closed.) The
certificates for the Firm Shares will be delivered in such
denominations and in such registrations as the Representatives request
in writing not later than the third full business day prior to the
Closing Date, and will be made available for inspection by the
Representatives at least one business day prior to the Closing Date.

(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions
herein set forth, the Company and the Selling Stockholder hereby grant
an option to the several Underwriters to purchase the Option Shares at
the price per share as set forth in the first paragraph of this
Section 2. The option granted hereby may be exercised in whole or in
part by giving written notice (i) at any time before the Closing Date
and (ii) only once thereafter within 30 days after the date of this
Agreement, by you, as Representatives of the several Underwriters, to
the Company, setting forth the number of Option Shares as to which the
several Underwriters are exercising the option, the names and
denominations in which the Option Shares are to be registered and the
time and date at which such certificates are to be delivered. The
time and date at which certificates for Option Shares are to be
delivered shall be determined by the Representatives but shall not be
earlier than three nor later than ten full business days after the
exercise of such option, nor in any event prior to the Closing Date
(such time and date being herein referred to as the "OPTION CLOSING
DATE"). If the date of exercise of the option is three or more days
before the Closing Date, the notice of exercise shall set the Closing
Date as the Option Closing Date. The number of Option Shares to be
purchased by each Underwriter shall be in the same proportion to the
total number of Option Shares being purchased as the number of Firm
Shares being purchased by such Underwriter bears to 2,000,000,
adjusted by you in such manner as to avoid fractional shares. The
option with respect to the Option Shares granted hereunder may be
exercised only to cover over-allotments in the sale of the Firm Shares
by the Underwriters. You, as Representatives of the several
Underwriters, may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the
Company. To the extent, if any, that the option is exercised, payment
for the Option Shares shall be made on the Option Closing Date in New
York Clearing House funds by certified or bank cashier's check drawn
to the order of the Company against delivery of certificates for the
Option Shares at the offices of Alex. Brown & Sons Incorporated, 135
East Baltimore Street, Baltimore, Maryland.

(d) Certificates in negotiable form for the total number
of the Shares to be sold hereunder by the Selling Stockholder have
been placed in custody with the Company as custodian (the "CUSTODIAN")
pursuant to the Custody Agreement executed by the Selling Stockholder
for delivery of all Option Shares to be sold hereunder by the Selling
Stockholder. The Selling Stockholder specifically agrees that the
Option Shares represented by the certificates held in custody for the
Selling Stockholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder, that the arrangements made by
the Selling Stockholder for such custody are to that extent

11
<PAGE> 12
irrevocable, and that the obligations of the Selling Stockholder
hereunder shall not be terminable by any act or deed of the Selling
Stockholder (or by any other person, firm or corporation including the
Company, the Custodian or the Underwriters) or by operation of law
(including the death of the Selling Stockholder or by the occurrence
of any other event or events, except as set forth in the Custody
Agreement. If any such event should occur prior to the delivery to
the Underwriters of the Option Shares hereunder, certificates for the
Option Shares shall be delivered by the Custodian in accordance with
the terms and conditions of this Agreement as if such event has not
occurred. The Custodian is authorized to receive and acknowledge
receipt of the proceeds of sale of the Shares held by it against
delivery of such Shares.

3. OFFERING BY THE UNDERWRITERS. It is understood that the
several Underwriters are to make a public offering of the Firm Shares as soon
as the Representatives deem it advisable to do so. The Firm Shares are to be
initially offered to the public at the offering price set forth in the
Prospectus. The Representatives may from time to time after the offering
change the public offering price and other selling terms. To the extent, if at
all, that any Option Shares are purchased pursuant to Section 2 hereof, the
Underwriters will offer them to the public on the foregoing terms.

It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.

4. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDER.

(a) The Company covenants and agrees with the several
Underwriters that:

(i) The Company will (A) use its best efforts to
cause the Registration Statement to become effective or, if
the procedure in Rule 430A of the Rules and Regulations is
followed, to prepare and timely file with the Commission under
Rule 424(b) of the Rules and Regulations a Prospectus in a
form approved by the Representatives containing information
previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Rules
and Regulations, and (B) not file any amendment to the
Registration Statement or supplement to the Prospectus of
which the Representatives shall not previously have been
advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or
which is not in compliance with the Rules and Regulations and
(C) file on a timely basis all reports and any definitive
proxy or information statements required to be filed by the
Company with the Commission subsequent to the date of the
Prospectus and prior to the termination of the offering of the
Shares by the Underwriters.

(ii) The Company will advise the Representatives
promptly (A) when the Registration Statement or any post
effective amendment thereto shall have become effective, (B)
of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any
additional information, and (D) of the

12
<PAGE> 13
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the use of the
Prospectus or of the institution of any proceedings for that
purpose. The Company will use its best efforts to prevent the
issuance of any such stop order preventing or suspending the
use of the Prospectus and to obtain as soon as possible the
lifting thereof, if issued.

(iii) The Company will cooperate with the
Representatives in endeavoring to qualify the Shares for sale
under the securities laws of such jurisdictions as the
Representatives may reasonably have designated in writing and
will make such applications, file such documents, and furnish
such information as may be reasonably required for that
purpose, provided the Company shall not be required to qualify
as a foreign corporation or to file a general consent to
service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company
will, from time to time, prepare and file such statements,
reports, and other documents, as are or may be required to
continue such qualifications in effect for so long a period as
the Representatives may reasonably request for distribution of
the Shares.

(iv) The Company will deliver to, or upon the
order of, the Representatives, from time to time, as many
copies of any Preliminary Prospectus as the Representatives
may reasonably request. The Company will deliver to, or upon
the order of, the Representatives during the period when
delivery of a Prospectus is required under the Act, as many
copies of the Prospectus in final form, or as thereafter
amended or supplemented, as the Representatives may reasonably
request. The Company will deliver to the Representatives at
or before the Closing Date, four signed copies of the
Registration Statement and all amendments thereto including
all exhibits filed therewith, and will deliver to the
Representatives such number of copies of the Registration
Statement (including such number of copies of the exhibits
filed therewith that may reasonably be requested), and of all
amendments thereto, as the Representatives may reasonably
request.

(v) The Company will comply to the best of its
ability with the Act and the Rules and Regulations, and the
Exchange Act, and the rules and regulations of the Commission
thereunder, so as to permit the completion of the distribution
of the Shares as contemplated in this Agreement and the
Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer
any event shall occur as a result of which, in the judgment of
the Company or in the reasonable opinion of the Underwriters,
it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered
to a purchaser, not misleading, or, if it is necessary at any
time to amend or supplement the Prospectus to comply with any
law, the Company promptly will prepare and file with the
Commission an appropriate amendment to the Registration
Statement or supplement to the Prospectus so that the
Prospectus as so amended or supplemented will not, in the
light of the

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<PAGE> 14
circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with the law.

(vi) The Company will make generally available to
its security holders, as soon as it is practicable to do so,
but in any event not later than 15 months after the effective
date of the Registration Statement, an earnings statement
(which need not be audited) in reasonable detail, covering a
period of at least 12 consecutive months beginning after the
effective date of the Registration Statement, which earnings
statement shall satisfy the requirements of Section 11(a) of
the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made
available.

(vii) The Company will, for a period of five years
from the Closing Date, deliver to the Representatives copies
of annual reports and copies of all other documents, reports
and information furnished by the Company to its stockholders
or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant
to the Act or the Exchange Act. The Company will deliver to
the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in the Rules
and Regulations, which are not consolidated in the Company's
financial statements.

(viii) Except for (a) the sale of the Shares
pursuant to this Agreement, (b) the issuances of options for
Common Stock under, and shares issuable upon the exercise of
options granted pursuant to, the stock option plans of the
Company described in the Prospectus and (c) the issuances of
shares in a private transaction in connection with an
acquisition where the holders of such shares agree in writing
to restrict transferability and registration of, such shares,
for a period ending 90 days after the date of this Agreement,
no offering, sale, short sale or other disposition of any
Common Stock of the Company or other securities convertible
into or exchangeable or exercisable for Common Stock or
derivative of Common Stock (or agreement for such) will be
made for a period ending 90 days after the date of this
Agreement, directly or indirectly, by the Company otherwise
than hereunder or with the prior written consent of Alex.
Brown & Sons Incorporated.

(ix) The Company will use its best efforts to
maintain the listing of the Shares on the Nasdaq National
Market.

(x) The Company shall cause each Company officer
and director and each stockholder holding more than 500,000
shares of Common Stock prior to the offering to furnish to
you, on or prior to the Closing Date, a letter or letters, in
form and substance satisfactory to the Underwriters, pursuant
to which each such person shall agree not to offer, sell, sell
short or otherwise dispose of any shares of Common Stock of
the Company or other capital stock of the Company, or any
other securities convertible, exchangeable or exercisable for
Common Stock or derivative of Common Stock owned by such
person or request the registration for the offer or sale of
any of the foregoing (or as to which such person has the
right

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<PAGE> 15
to direct the disposition of) for a period of 90 days after
the date of this Agreement, directly or indirectly, except
with the prior written consent of Alex. Brown & Sons
Incorporated.

(xi) The Company shall apply the net proceeds of
the sale of the Shares as set forth in the Prospectus and
shall file such reports with the Commission with respect to
the sale of the Shares and the application of the proceeds
therefrom as may be required in accordance with Rule 463 under
the Act.

(xii) The Company shall not invest, or otherwise
use the proceeds received by the Company from the sale of the
shares to the Underwriters in such a manner as would require
the Company or any of the subsidiaries to register as an
investment company under the 1940 Act.

(xiii) The Company will maintain a transfer agent
and, if necessary under the jurisdiction of incorporation of
the Company, a registrant for its Common Stock.

(xiv) The Company will not take, directly or
indirectly, any action designed to cause or result in, or that
has constituted or might reasonably be expected to constitute,
the stabilization or manipulation of the price of any
securities of the Company to facilitate the sale or resale of
the Shares.

(b) The Selling Stockholder covenants and agrees with the
several Underwriters that:

(i) no offering, sale, short sale or other
disposition of any Common Stock of the Company or other
capital stock of the Company or other securities convertible,
exchangeable or exercisable for Common Stock or derivative of
Common Stock owned by the Selling Stockholder or request for
the registration for the offer or sale of any of the foregoing
(or as to which the Selling Stockholder has the right to
direct the disposition of) will be made for a period of 90
days after the date of this Agreement, directly or indirectly,
by the Selling Stockholder otherwise than hereunder or with
the prior written consent of Alex. Brown & Sons Incorporated;

(ii) in order to document the Underwriters'
compliance with the reporting and withholding provisions of
the Tax Equity and Fiscal Responsibility Act of 1982 and the
Interest and Dividend Tax Compliance Act of 1983 with respect
to the transactions herein contemplated, the Selling
Stockholder agrees to deliver to you prior to or at the
Closing Date a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or
statement specified by Treasury Department regulations in lieu
thereof);

(iii) such Selling Stockholder will not take,
directly or indirectly, any action designed to cause or result
in, or that has constituted or might reasonably

15
<PAGE> 16
be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company to facilitate
the sale or resale of the Shares.

5. COSTS AND EXPENSES. The Company will pay all costs, expenses
and fees incident to the performance of the obligations of the Sellers under
this Agreement, including, without limiting the generality of the foregoing,
the following: accounting fees of the Company; the fees and disbursements of
counsel for the Company and the Selling Stockholder; the cost of printing and
delivering to, or as requested by, the Underwriters copies of the Registration
Statement, Preliminary Prospectuses, the Prospectus, this Agreement, the
Underwriters' Selling Memorandum, the Invitation Letter, the Listing
Application, the Blue Sky Survey and any supplements or amendments thereto; the
filing fees of the Commission; the filing fees and expenses (including legal
fees and disbursements) incident to securing any required review by the NASD of
the terms of the sale of the Shares; the Listing Fee of the Nasdaq National
Market; and the expenses, including the fees and disbursements of counsel for
the Underwriters, incurred in connection with the qualification of the Shares
under State securities or Blue Sky laws. To the extent, if at all, that the
Selling Stockholder engages special legal counsel to represent him in
connection with this offering, the fees and expenses of such counsel shall be
borne by the Selling Stockholder. Any transfer taxes imposed on the sale of
the Shares to the several Underwriters will be paid by the Sellers pro rata.
The Company agrees to pay all costs and expenses of the Underwriters, including
the fees and disbursements of counsel for the Underwriters, incident to the
offer and sale of directed shares of the Common Stock by the Underwriters to
employees and persons having business relationships with the Company and its
Subsidiaries if such persons have NASD affiliations or such sales are subject
to NASD filings or consents. The Company shall not, however, be required to
pay for any of the Underwriters expenses (other than those related to
qualification under State securities or Blue Sky laws) except that, if this
Agreement shall not be consummated because the conditions in Section 6 hereof
are not satisfied, or because this Agreement is terminated by the
Representatives pursuant to Section 11(b) hereof, or by reason of any failure,
refusal or inability on the part of the Company or the Selling Stockholder to
perform any undertaking or satisfy any condition of this Agreement or to comply
with any of the terms hereof on their part to be performed, unless such failure
to satisfy said condition or to comply with said terms is due to the default or
omission of any Underwriter, then the Company shall reimburse the several
Underwriters for reasonable out-of-pocket expenses, including fees and
disbursements of counsel, reasonably incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of performing
their obligations hereunder; but the Company and the Selling Stockholder shall
not in any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the Shares.

6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The several
obligations of the Underwriters to purchase the Firm Shares on the Closing Date
and the Option Shares, if any, on the Option Closing Date are subject to the
accuracy, as of the Closing Date or the Option Closing Date, as the case may
be, of the representations and warranties of the Company and the Selling
Stockholder contained herein, and to the performance by the Company and the
Selling Stockholder of their respective covenants and obligations hereunder and
to the following additional conditions:

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<PAGE> 17
(a) The Registration Statement and all post effective
amendments thereto shall have become effective and any and all filings
required by Rule 424 and Rule 430A of the Rules and Regulations shall
have been made, and any request of the Commission for additional
information (to be included in the Registration Statement or
otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order
suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company or
the Selling Stockholder, shall be contemplated by the Commission.

(b) The Representatives shall have received on the
Closing Date or the Option Closing Date, as the case may be, the
opinions of Strasburger & Price, L.L.P., counsel for the Company and
the Selling Stockholder, dated the Closing Date or the Option Closing
Date, as the case may be, addressed to the Underwriters to the effect
that:

(i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware, with corporate power and
authority to own or lease its properties and conduct its
business as described in the Registration Statement; each of
the Subsidiaries has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with corporate power
and authority to own or lease its properties and conduct its
business as described in the Registration Statement; the
Company and each of the Subsidiaries are duly qualified to
transact business in all jurisdictions in which the conduct of
their business requires such qualification, except where the
failure to qualify would not have a materially adverse effect
upon the business of the Company and the Subsidiaries taken as
a whole; and the outstanding shares of capital stock of each
of the Subsidiaries have been duly authorized and validly
issued and are fully paid and nonassessable and are owned by
the Company or a Subsidiary; and, to such counsel's knowledge,
except as set forth in the Prospectus, the outstanding shares
of capital stock of each of the Subsidiaries is owned free and
clear of all liens, encumbrances and security interests, and
no options, warrants or other rights to purchase, agreements
or other obligations to issue or other rights to convert any
obligations into any shares of capital stock or of ownership
interests in the Subsidiaries are outstanding;

(ii) the Company has authorized and outstanding
capital stock as set forth in the Prospectus; the authorized
shares of the Company's Common Stock have been duly
authorized; the outstanding shares of the Company's Common
Stock, including the Shares to be sold by the Selling
Stockholder, have been duly authorized and validly issued and
are fully paid and nonassessable; all of the Shares conform to
the description thereof under the caption "Description of
Capital Stock" contained in the Prospectus; the certificates
for the Shares, assuming they are in the form filed with the
Commission, are in due and proper form; the Shares to be sold
by the Company pursuant to this Agreement have been duly
authorized and will be validly issued, fully paid and
nonassessable when issued and paid for as contemplated by this
Agreement; and, to such

17
<PAGE> 18
counsel's knowledge, no preemptive rights of stockholders
exist with respect to any of the Shares or the issue or sale
thereof;

(iii) except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no
outstanding securities of the Company convertible or
exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and
there are no outstanding or authorized options, warrants or
rights of any character obligating the Company to issue any
shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or
subscribe for any shares of such stock; and except as
described in the Prospectus, to the knowledge of such counsel,
there is no holder of any securities of the Company or any
other person who has the right, contractual or otherwise,
which has not been satisfied or effectively waived, to cause
the Company to sell or otherwise issue to them, or to permit
them to underwrite the sale of, any of the Shares or the right
to have any Common Stock or other securities of the Company
included in the Registration Statement or the right, as a
result of the filing of the Registration Statement, to require
registration under the Act of any Common Stock or other
securities of the Company;

(iv) the Registration Statement has become
effective under the Act and, to the knowledge of such counsel,
no stop order proceedings with respect thereto have been
instituted or are pending or threatened under the Act;

(v) the Registration Statement, the Prospectus
and each amendment or supplement thereto comply as to form in
all material respects with the requirements of the Act and the
applicable rules and regulations thereunder (except that such
counsel need express no opinion as to the financial
statements, including notes and related schedules therein and
other financial and statistical information derived
therefrom);

(vi) the statements under the captions
"Business--Government Regulation," "Pending and Recent
Acquisitions," "Certain Transactions," and "Description of
Capital Stock" in the Prospectus and Items 14 and 15 of the
Registration Statement, insofar as such statements constitute
a summary of documents referred to therein or matters of law,
fairly summarize in all material respects the information
called for with respect to such documents and matters;

(vii) such counsel does not know of any contracts
or documents required to be filed as exhibits to the
Registration Statement or described in the Registration
Statement or the Prospectus which are not so filed or
described as required, and such contracts and documents as are
summarized in the Registration Statement or the Prospectus are
fairly summarized in all material respects;

(viii) such counsel knows of no material legal or
governmental proceedings pending or threatened against the
Company or any of the Subsidiaries except as set forth in the
Prospectus;

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<PAGE> 19
(ix) the execution and delivery of this Agreement
and the consummation of the transactions herein contemplated
do not and will not conflict with or result in a breach of any
of the terms or provisions of, or constitute a default under,
the Charter or Bylaws of the Company, or any agreement or
instrument known to such counsel to which the Company or any
of the Subsidiaries is a party or by which the Company or any
of the Subsidiaries may be bound;

(x) this Agreement has been duly authorized,
executed and delivered by the Company. The Company has full
power and authority to enter into this Agreement;

(xi) no approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body is necessary in
connection with the execution and delivery of this Agreement
and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by
State securities and Blue Sky laws as to which such counsel
need express no opinion) except such as have been obtained or
made, specifying the same;

(xii) the Company is not, and will not become as a
result of the consummation of the transactions contemplated by
this Agreement and application of the net proceeds therefrom
as described in the Prospectus, required to register as an
investment company under the 1940 Act;

(xiii) this Agreement has been duly executed and
delivered by the Selling Stockholder and, assuming due
authorization, execution and delivery by you, constitutes a
valid and legally binding agreement of the Selling Stockholder
enforceable in accordance with its terms except as (a) the
enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting equitable creditors'
rights generally and (b) the availability of equitable
remedies may be limited by equitable principles of general
applicability;

(xiv) the execution and delivery by the Selling
Stockholder of, and the performance by the Selling Stockholder
of his obligations under, this Agreement, the Custody
Agreement and Power of Attorney of the Selling Stockholder
(other than performance of indemnification or contribution
obligations concerning which no opinion need be expressed)
will not contravene any agreement or other instrument
(including, without limitation, partnership agreements)
binding upon the Selling Stockholder or, to the knowledge of
such counsel, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over
the Selling Stockholder or any applicable law, and, to the
knowledge of such counsel, no consent, approval, authorization
or order of or qualification with any governmental body or
agency is required for the performance by the Selling
Stockholder of his obligations under this Agreement or the
Custody Agreement or Power of Attorney of the Selling
Stockholder, except such as may be required by the securities
or Blue Sky laws of the various states or the securities laws
of

19
<PAGE> 20
and jurisdiction outside the United States in connection with
the offer and sale of the Shares;

(xv) to the best knowledge of such counsel, based
upon representations set forth in a certificate delivered by
the Selling Stockholder, the Selling Stockholder has valid
marketable title to the Shares to be sold by the Selling
Stockholder. The Selling Stockholder has the legal right and
power, and all authorization and approval required by law, to
enter into this Agreement and the Custody Agreement and Power
of Attorney of the Selling Stockholder and to sell, transfer
and deliver the Shares to be sold by the Selling Stockholder;

(xvi) each of the Custody Agreement and Power of
Attorney of the Selling Stockholder has been duly executed and
delivered by the Selling Stockholder and is a valid and
binding agreement of the Selling Stockholder and constitutes a
valid and legally binding agreement of the Selling Stockholder
enforceable in accordance with its terms except as (a) the
enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting equitable creditors'
rights generally and (b) the availability of equitable
remedies may be limited by equitable principles of general
applicability;

(xvii) the Underwriters (assuming that they are bona
fide purchasers within the meaning of the Uniform Commercial
Code), upon delivery of and payment for the Shares as
contemplated by this Agreement, will acquire good and
marketable title to the Shares being sold by the Selling
Stockholder on the Closing Date, free and clear of all liens,
encumbrances, equities and claims;

(xviii) to the knowledge of such counsel, the Company
and each of the Subsidiaries hold all material licenses,
certificates and permits from governmental authorities which
are necessary to the conduct of their businesses, including
all insurance Licenses and such counsel knows of no threatened
or pending proceedings to revoke or deny the renewal of any
Insurance Licenses.

In rendering such opinion Strasburger & Price, L.L.P. may rely
as to matters governed by the laws of states other than Delaware,
Texas or Federal laws on local counsel in such jurisdictions and as to
the matters set forth in subparagraphs (xiii), (xiv) and (xv) on
opinions of other counsel representing the Selling Stockholder,
provided that in each case Strasburger & Price, L.L.P. shall state
that they believe that they and the Underwriters are justified in
relying on such other counsel. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that
nothing has come to the attention of such counsel which leads them to
believe that (i) the Registration Statement, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act), as of the
Closing Date or the Option Closing Date, as the case may be, contained
an 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 not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as
the case may be,

20
<PAGE> 21
contained, an untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except
that such counsel need express no view as to financial statements,
schedules and statistical information therein). With respect to such
statement, Strasburger & Price, L.L.P. may state that their belief is
based upon the procedures set forth therein, but is without
independent check and verification.

(c) The Representatives shall have received from Akin,
Gump, Strauss, Hauer & Feld, L.L.P., counsel for the Underwriters, an
opinion dated the Closing Date or the Option Closing Date, as the case
may be, with respect to the Registration Statement, the Prospectus and
such other related matters as the Representatives shall reasonably
request and such counsel shall have received such papers, opinions and
information as they may reasonably request to enable them to pass upon
such matters. Such opinion shall also include a statement to the
effect that nothing has come to the attention of such counsel which
leads them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the Act,
(but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) as of the Closing Date or the
Option Closing Date, as the case may be, contained an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and (ii) the Prospectus, or any supplement thereto, on the
date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Option Closing Date, as the case may be, contained
an untrue statement of a material fact or omits to state a material
fact, necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading (except that
such counsel need express no view as to financial statements,
schedules and other financial information included therein). With
respect to such statement, Akin, Gump, Strauss, Hauer & Feld, L.L.P.
may state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.

(d) The Representatives shall have received at or prior
to the Closing Date from Akin, Gump, Strauss, Hauer & Feld, L.L.P., a
memorandum or summary, in form and substance satisfactory to the
Representatives, with respect to the qualification for offering and
sale by the Underwriters of the Shares under the State securities or
Blue Sky laws of such jurisdictions as the Representatives may
reasonably have designated to the Company.

(e) You shall have received, on each of the dates hereof
and the Closing Date or the Option Closing Date, as the case may be, a
letter dated the date of delivery thereof or the Closing Date or the
Option Closing Date, as the case may be, in form and substance
satisfactory to you, of Price Waterhouse LLP confirming that they are
independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that
in their opinion the financial statements and schedules examined by
them and included in the Registration Statement comply in form in all
material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations; and containing
such other statements and information as is ordinarily included in
accountants' "comfort letters" to

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<PAGE> 22
Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration
Statement and Prospectus.

(f) The Representatives shall have received on the
Closing Date or the Option Closing Date, as the case may be, a
certificate or certificates of the Chief Executive Officer and the
Chief Financial Officer of the Company to the effect that, as of the
Closing Date or the Option Closing Date, as the case may be, each of
them severally represents as follows:

(i) the Registration Statement has become
effective under the Act and no stop order suspending the
effectiveness of the Registrations Statement has been issued,
and no proceedings for such purpose have been taken or are, to
his knowledge, contemplated by the Commission;

(ii) the representations and warranties of the
Company contained in Section 1 hereof are true and correct as
of the Closing Date or the Option Closing Date, as the case
may be;

(iii) all filings required to have been made
pursuant to Rules 424 or 430A under the Act have been made;

(iv) he has carefully examined the Registration
Statement and the Prospectus and, in his opinion, as of the
effective date of the Registration Statement, the statements
contained in the Registration Statement were true and correct,
and such Registration Statement and Prospectus did not omit to
state a material fact required to be stated therein or
necessary in order to make the statements therein not
misleading and since the effective date of the Registration
Statement, no event has occurred which should have been set
forth in a supplement to or an amendment of the Prospectus
which has not been so set forth in such supplement or
amendment; and

(v) since the respective dates as of which
information is given in the Registration Statement and
Prospectus, there has not been any material adverse change or
any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise,
of the Company and its Subsidiaries taken as a whole or the
business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company
and the Subsidiaries taken as a whole, whether or not
occurring in the ordinary course of business.

(g) The Company and the Selling Stockholder shall have
furnished to the Representatives such further certificates, opinions
and documents confirming the representations and warranties, covenants
and conditions contained herein and related matters as the
Representatives may reasonably have requested.

(h) The Firm Shares and Option Shares, if any, have been
approved for designation upon notice of issuance on the Nasdaq
National Market.

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<PAGE> 23
(i) The Company shall have delivered to you written
agreements (the "LOCKUP AGREEMENTS") described in Section 4 (a)(x) and
4 (b)(i).

The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if
they are in all material respects satisfactory to the Representatives
and to Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for the
Underwriters.

If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this
Agreement to be fulfilled, the obligations of the Underwriters
hereunder may be terminated by the Representatives by notifying the
Company and the Selling Stockholder of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing
Date, as the case may be.

In such event, the Selling Stockholder, the Company and the
Underwriters shall not be under any obligation to each other (except
to the extent provided in Sections 5 and 8 hereof).

7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS. The obligations
of the Sellers to sell and deliver the portion of the Shares required to be
delivered as and when specified in this Agreement are subject to the conditions
that at the Closing Date or the Option Closing Date, as the case may be, no
stop order suspending the effectiveness of the Registration Statement shall
have been issued and in effect or proceedings therefor initiated or threatened.

8. INDEMNIFICATION.

(a) The Company agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act against any losses, claims, damages or
liabilities to which such Underwriter or such controlling person may
become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, or in Section 1 hereto, or (ii)
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter and each
such controlling person upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending any such loss, claim,
damage or liability, action or proceeding or in responding to a
subpoena or governmental inquiry whether or not such Underwriter or
controlling person is a party to any action or proceeding; provided,
however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement, or
omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation

23
<PAGE> 24
thereof and, provided further, that the indemnity agreement provided
in this Section 8(a) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person
asserting any losses, claims, damages, liabilities or actions based
upon any untrue statement or alleged untrue statement of material fact
or omission or alleged omission to state therein a material fact
purchased Shares, if a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission
was corrected had not been sent or given to such person within the
time required by the Act and the Rules and Regulations thereunder,
unless such failure is the result of noncompliance by the Company with
Section 4(a)(iv) hereof. This indemnity agreement in this Section
8(a) shall extend upon the same terms and conditions to, and shall
inure to the benefit of each person, if any, who controls any
Underwriter within the meaning of the Act. This indemnity agreement
will be in addition to any liability which the Company may otherwise
have.

(b) The Selling Stockholder agrees to indemnify and hold
harmless each Underwriter against any losses claims, damages or
liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, specifically including, but not
limited to, losses, claims, damages or liabilities, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any breach of any representation,
warranty, agreement or covenant of the Selling Stockholder herein
contained, (ii) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement; or any
amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, not
misleading, or (iii) any untrue statement or alleged untrue statement
of a material fact contained in the Preliminary Prospectus or the
Prospectus, of any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement therein, in the light of the circumstances under which they
were made, not misleading, in the case of subparagraphs (ii) and (iii)
of this Section 8(b) to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information furnished to the Company or such Underwriter by the
Selling Stockholder, directly or through the Selling Stockholder's
representatives, specifically for use in preparation thereof, and
agrees to reimburse each Underwriter for any legal or other expenses
reasonably incurred by it in connection with investigating and
defending any such loss, claim, damage, liability or action; provided,
however, that (A) the indemnity agreement provided in this Section
8(b) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses,
claims, charges, liabilities or litigation based upon any untrue
statement or alleged untrue statement of a material fact or omission
or alleged omission to state therein a material fact purchased Shares,
if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected has not
been sent or given to such person within the time required by the Act
and the Rules and Regulations thereunder, unless such failure is the
result of noncompliance by the Company with Section 4(a)(iv) hereof,
and (B) in no event shall the Selling Stockholder be liable under this
Section 8(b) for any amount in excess of the

24
<PAGE> 25
aggregate net proceeds the Selling Stockholder received from the sale
of Option Shares pursuant to this Agreement. The indemnity agreement
in this Section 8(b) shall extend upon the same terms and conditions
to, and shall inure to the benefit of each person, if any, who
controls any Underwriter within the meaning of the Act. This
indemnity agreement shall be in addition to any liabilities which the
Selling Stockholder may otherwise have.

(c) Each Underwriter severally and not jointly will
indemnify and hold harmless the Company, each of its directors, each
of its officers who have signed the Registration Statement, the
Selling Stockholder, and each person, if any, who controls the Company
within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer, the
Selling Stockholder or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any breach of any representation, warranty,
agreement or covenant of such Underwriter herein contained, (ii) any
untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto, or (iii) the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which
they were made; and will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, the
Selling Stockholder or controlling person in connection with
investigating or defending any such loss, claim, damage, liability,
action or proceeding; provided, however, that each Underwriter will be
liable in the case of subparagraph (ii) and (iii) of this Section 8(c)
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission has been made
in the Registration Statement, any Preliminary Prospectus, the
Prospectus or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or
through the Representatives specifically for use in the preparation
thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.

(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to this Section 8, such person
(the "INDEMNIFIED PARTY") shall promptly notify the person against
whom such indemnity may be sought (the "INDEMNIFYING PARTY") in
writing. No indemnification provided for in Sections 8(a), (b) or (c)
shall be available to any party who shall fail to give notice as
provided in this Section 8(d) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have
related and was materially prejudiced by the failure to give such
notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may
have to the indemnified party for contribution or otherwise than on
account of the provisions of Sections 8(a), (b) or (c). In case any
such proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, jointly with any other indemnifying
party similarly

25
<PAGE> 26
notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party and shall pay as incurred (on a monthly basis)
the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to
retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying party shall pay as incurred the fees and
expenses of the counsel retained by the indemnified party in the event
(i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. It is understood that the indemnifying party shall not, in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more
than one separate firm for all such indemnified parties. Such firm
shall be designated in writing by you in the case of parties
indemnified pursuant to Sections 8(a) and 8(b) and by the Company and
the Selling Stockholder in the case of parties indemnified pursuant to
Section 8(c). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but
if settled with such consent or if there be a final judgement for the
plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such
settlement or judgment. In addition, the indemnifying party will not,
without the prior written consent of the indemnified party, settle or
compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding of which indemnification may be
sought hereunder (whether or not any indemnified party is an actual or
potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of
each indemnified party from all liability arising out of such claim,
action or proceeding.

(e) If the indemnification provided for in this Section 8
is unavailable to or insufficient to hold harmless an indemnified
party under Sections 8(a), (b) or (c) above in respect of any losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as
a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the indemnifying party or
parties on the one hand and the indemnified party or parties on the
other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as
is appropriate to reflect not only such relative benefits but also the
relative fault of the indemnifying party or parties on the one hand
and the indemnified party or parties on the other in connection with
the statements or omissions which resulted in such losses, claims,
damages or liabilities, (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholder
on the one hand and the Underwriters on the other shall be deemed to
be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling
Stockholder bear to the total underwriting discounts and commissions
received by the Underwriters, in

26
<PAGE> 27
each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of
a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Selling Stockholder on the one hand or the Underwriters on the other
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.

The Company, the Selling Stockholder and the Underwriters
agree that it would not be just and equitable if contributions
pursuant to this Section 8(e) were determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose)
or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 8(e).
The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) referred to above in this Section 8(e) shall be
deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this
subsection (e), (i) no Underwriter shall be required to contribute any
amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter, (ii) no person
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation, and (iii) the
Selling Stockholder shall not be required to contribute any amount in
excess of the lesser of (A) that proportion of the total of such
losses, claims, damages or liabilities indemnified or contributed
against equal to the proportion of the total Shares sold hereunder
which is being sold by the Selling Stockholder, or (B) the proceeds
received by the Selling Stockholder from the Underwriters in the
offering. The Underwriters' obligations in this Section 8(e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.

(f) In any proceeding relating to the Registration
Statement, any Preliminary Prospectus, the Prospectus or any
supplement or amendment thereto, each party against whom contribution
may be sought under this Section 8 hereby consents to the jurisdiction
of any court having jurisdiction over any other contributing party,
agrees that process issuing from such court may be served upon him or
it by any other contributing party and consents to the service of such
process and agrees that any other contributing party may join him or
it as an additional defendant in any such proceeding in which such
other contributing party is a party.

(g) Any losses, claims, damages, liabilities or expenses
for which an indemnified party is entitled to indemnification or
contribution under this Section 8 shall be paid by the indemnifying
party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred. The indemnify and contribution
agreements contained in this Section 8 and the representations and
warranties of the Company set forth in this Agreement shall remain
operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or
any persons controlling the Company, (ii) acceptance of any Shares and
payment therefor hereunder,

27
<PAGE> 28
and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any
person controlling the Company or any Underwriter, shall be entitled
to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 8.

9. DEFAULT BY UNDERWRITERS. If on the Closing Date or the Option
Closing Date, as the case may be, any Underwriter shall fail to purchase and
pay for the portion of the Shares which such Underwriter has agreed to purchase
and pay for on such date (otherwise than by reason of any default on the part
of the Company or the Selling Stockholder), you, as Representatives of the
Underwriters, shall use your reasonable efforts to procure within 36 hours
thereafter one or more of the other Underwriters, or any others, to purchase
from the Company and the Selling Stockholder such amounts as may be agreed upon
and upon the terms set forth herein, the Firm Shares or Option Shares, as the
case may be, which the defaulting Underwriter or Underwriters failed to
purchase. If during such 36 hours you, as such Representatives, shall not have
procured such other Underwriters, or any others, to purchase the Firm Shares or
Option Shares, as the case may be, agreed to be purchased by the defaulting
Underwriter or Underwriters, then (a) if the aggregate number of shares with
respect to which such default shall occur does not exceed 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Shares or Option Shares, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Shares or Option Shares,
as the case may be, which such defaulting Underwriter or Underwriters failed to
purchase, or (b) if the aggregate number of shares of Firm Shares or Option
Shares, as the case may be, with respect to which such default shall occur
exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the Company and the Selling Stockholder or you as the Representatives
of the Underwriters will have the right, by written notice given within the
next 36-hour period to the parties to this Agreement, to terminate this
Agreement without liability on the part of the nondefaulting Underwriters or of
the Company or of the Selling Stockholder except to the extent provided in
Section 8 hereof. In the event of a default by any Underwriter or
Underwriters, as set forth in this Section 9, the Closing Date or Option
Closing Date, as the case may be, may be postponed for such period, not
exceeding seven days, as you, as Representatives, may determine in order that
the required changes in the Registration Statement or in the Prospectus or in
any other documents or arrangements may be effected. The term "Underwriter"
includes any person substituted for a defaulting Underwriter. Any action taken
under this Section 9 shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.

10. NOTICES. All communications hereunder shall be in writing
and, except as otherwise provided herein, will be mailed, delivered, telecopied
or telegraphed and confirmed as follows: if to the Underwriters, to Alex.
Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland
21202, Attention: Steven R. Schuh; with a copy to Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202. Attention:
General Counsel; if to the Company or the Selling Stockholder, to United Dental
Care, Inc., 14755 Preston Road, Suite 300, Dallas, Texas 75240, Attention:
Mark E. Pape; with a copy to Strasburger & Price, L.L.P., 901 Main Street,
Suite 4300, Dallas, Texas 75202, Attention: David K. Meyercord.

28
<PAGE> 29
11. TERMINATION. This Agreement may be terminated by you by
notice to the Sellers as follows:

(a) at any time prior to the earlier of (i) the time the
Shares are released by you for sale by notice to the Underwriters, or
(ii) 10:30 a.m., New York Time, on the first business day following
the date of this Agreement;

(b) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
any material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole or the
earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries taken as a whole, whether or not arising
in the ordinary course of business, (ii) any outbreak or escalation of
hostilities or declaration of war or national emergency or other
national or international calamity or crisis or change in economic or
political conditions involving either the United States if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis
or change on the financial markets of the United States would, in your
reasonable judgment, make the offering or delivery of the Shares
impracticable or inadvisable, (iii) suspension of trading in
securities generally on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market or limitation on prices
(other than limitations on hours or numbers of days of trading) for
securities on any such Exchange, (iv) the enactment, publication,
decree or other promulgation of any statute, regulation, rule or order
of any court or other governmental authority which in your opinion
materially and adversely affects or may materially and adversely
affect the business or operations of the Company, (v) declaration of a
banking moratorium by United States or New York State authorities,
(vi) any downgrading in the rating of the Company's, its Subsidiaries'
or its affiliates' debt securities by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule
436(g) under the Exchange Act); (vii) the suspension of trading of the
Company's common stock by the Nasdaq National Market or (viii) the
taking of any action by any governmental body or agency in respect of
its monetary or fiscal affairs which in your reasonable opinion has a
material adverse effect on the securities markets in the United
States; or

12. SUCCESSORS. This Agreement has been and is made solely for
the benefit of the Underwriters, the Company and the Selling Stockholder and
their respective successors, executors, administrators, heirs and assigns, and
the officers, directors and controlling persons referred to herein, and no
other person will have any right or obligation hereunder. No purchaser of any
of the Shares from any Underwriter shall be deemed a successor or assign merely
because of such purchase.

13. INFORMATION PROVIDED BY UNDERWRITERS. The Company, the
Selling Stockholder and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the

29
<PAGE> 30
Registration Statement consists of the information set forth in the last
paragraph on the front cover page (insofar as such information relates to the
Underwriters), legends required by Item 502(d) of Regulation S-K under the Act
and the information under the caption "Underwriting" in the Prospectus.

14. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and
effect regardless of (a) any termination of this Agreement, (b) any
investigation made by or on behalf of any Underwriter or controlling person
thereof, or by or on behalf of the Company or its directors or officers and
(c) delivery of and payment for the Shares under this Agreement.

This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.

If the foregoing letter is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Stockholder, the
Company and the several Underwriters in accordance with its terms.

Any person executing and delivering this Agreement as Attorney-in-Fact
for the Selling Stockholder represents by so doing that he has been duly
appointed as Attorney-in-Fact by the Selling Stockholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-Fact
to take such action.

Very truly yours,

UNITED DENTAL CARE, INC.

By:
------------------------------------
William H. Wilcox,
President and Chief Executive
Officer

SELLING STOCKHOLDER

By:
------------------------------------
Name:
-----------------------
Title: Attorney-in-Fact

30
<PAGE> 31
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.

ALEX. BROWN & SONS INCORPORATED
COWEN & COMPANY
VOLPE, WELTY & COMPANY

As Representatives of the several
Underwriters listed on Schedule I

By: Alex. Brown & Sons Incorporated

By:
--------------------------------------------
Authorized Officer

By: Cowen & Company

By:
--------------------------------------------
Authorized Officer

By: Volpe, Welty & Company

By:
--------------------------------------------
Authorized Officer

31
<PAGE> 32
SCHEDULE I

SCHEDULE OF UNDERWRITERS

<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
<S> <C>
Alex. Brown & Sons Incorporated
Cowen & Company
Volpe, Welty & Company

Total 2,000,000
=========
</TABLE>

32
<PAGE> 33
SCHEDULE II

SCHEDULE OF OPTION SHARES

<TABLE>
<CAPTION>
MAXIMUM NUMBER PERCENTAGE OF
OF OPTION SHARES TOTAL NUMBER
NAME OF SELLER TO BE SOLD OF OPTION SHARES
- -------------- -------------------- ----------------
<S> <C> <C>
United Dental Care, Inc. 225,000
James B. Kingston 75,000

TOTAL
------- ---
300,000 100%
</TABLE>

<PAGE> 1
EXHIBIT 1.02

CUSTODY AGREEMENT

CUSTODY AGREEMENT (this "Agreement"), dated ___________________, 1996,
between United Dental Care, Inc., a Delaware corporation, as Custodian (the
"Company"), and the undersigned stockholder of the Company (the "Selling
Stockholder").

On September 20, 1996, the Company filed a registration statement,
Registration No. 333-12425 (the "Registration Statement") with the Securities
and Exchange Commission to register for sale to the public under the Securities
Act of 1933, as amended (the "Act"), shares of the Company's common stock, $.10
par value per share (the "Common Stock").

The shares covered by the Registration Statement consist of (a)
2,000,000 shares of Common Stock to be sold by the Company, and (b) up to an
additional 300,000 shares of Common Stock subject to over-allotment options
(the "Option Shares") to be sold by the Company and James B. Kingston, a
stockholder of the Company, (the "Selling Stockholder"), (collectively, the
"Shares"), pursuant to the underwriting agreement between the underwriters
listed on Schedule A thereto (the "Underwriters"), the Company and the Selling
Stockholder (the "Underwriting Agreement"). The Shares that are not Option
Shares are sometimes referred to as the "Firm Shares."

The Selling Stockholder has executed and delivered a Power of Attorney
(the "Power of Attorney") naming each of William H. Wilcox and Mark E. Pape as
his attorney-in-fact (the "Attorneys") for certain purposes, including the
execution, delivery and performance of the Underwriting Agreement in his name,
place and stead in connection with the proposed sale by the Selling Stockholder
of up to the number of Option Shares set forth on page 8 of the Power of
Attorney.

1. A custody arrangement is hereby established by the Selling
Stockholder with the Company with respect to the Shares, and the Company is
hereby instructed to act in accordance with this Agreement and any amendments
or supplements hereto authorized by the Attorneys and approved by the Company.

2. There are herewith delivered to the Company, and the Company
hereby acknowledges receipt of:

(a) certificates representing shares of the issued and
outstanding Common Stock of the Company as specified at the end of
this Agreement on the page entitled "CERTIFICATES DEPOSITED;" and

(b) stock powers duly executed in blank for the Shares.
<PAGE> 2
3. The Company is authorized and directed by the Selling
Stockholder:

(a) to hold the certificates delivered by the Selling
Stockholder in its custody for the account of the Selling Stockholder;

(b) on or immediately prior to the settlement date for
any Shares sold pursuant to the Registration Statement (the "Closing
Date"), to cause such Shares to be transferred on the books of the
Company into such names as the Company shall have been instructed by
the representatives of the Underwriters (the "Representatives");

(c) to deliver the certificates representing the Shares
to the Representatives as instructed by the Representatives on the
Closing Dates for their account or accounts against full payment
therefor; to give receipt for such payment and to issue a certificate
or certificates to the Selling Stockholder for the Selling
Stockholder's Common Stock not sold as Shares in the Offering;

(d) to disburse such payments in the following manner:
(i) to itself, as agent for the Selling Stockholder, a reserve amount
to be designated in writing by the Attorneys from which amount the
Company shall pay, as soon as reasonably practicable, applicable stock
transfer taxes, if any, as directed by the Attorneys; and (ii) to the
Selling Stockholder, in the manner requested by the Selling
Stockholder at the end of this Custody Agreement or in such manner as
the Company, in accordance with the terms hereof, shall deem
appropriate, on the Closing Date, a sum equal to the proceeds to which
the Selling Stockholder is entitled less the reserve amount designated
by the Attorneys. With such remittance, the Company shall also return
to the Selling Stockholder new certificates representing the number of
shares of Common Stock, if any, represented by the certificates
deposited that are in excess of the number of shares of Common Stock
sold by the Selling Stockholder to the Underwriters, which new
certificates shall bear such restrictive legends as are required in
the opinion of counsel for the Company.

4. Subject in each case to the indemnification obligations set
forth in Section 7 which shall survive the termination of this Agreement, in
the event that the Registration Statement shall not have been declared
effective on or prior to December 1, 1996, the Company shall deliver to the
Selling Stockholder as soon as practicable after such date, certificates
representing such Common Stock deposited by such Selling Stockholder and the
stock powers duly executed in blank for the Shares, whereupon this Agreement
shall terminate. Certificates returned to the Selling Stockholder shall be
returned with any related stock powers, and any new certificates issued to the
Selling Stockholder with respect to the Shares shall bear such restrictive
legends as are required in the opinion of counsel for the Company.

5. This Agreement is for the express benefit of the Company, the
Selling Stockholders, the Representatives, the Underwriters and Strasburger &
Price, L.L.P. The obligations and authorizations of the Selling Stockholder
hereunder are irrevocable and shall not be terminated by any act of the Selling
Stockholder or by operation of law, whether by the death, disability,
incapacity, bankruptcy or insolvency of the Selling Stockholder or by the
<PAGE> 3
occurrence of any other event or events (including without limitation the
termination of any trust or estate for which the Selling Stockholder is acting
as a fiduciary or fiduciaries), and if after the execution hereof the Selling
Stockholder shall die or become disabled or incapacitated or is bankrupt or
insolvent, or if any other event or events shall occur before the delivery of
the Selling Stockholder's Shares hereunder to the Representatives, such Shares
shall be delivered to the Representatives in accordance with the terms and
conditions of this Agreement, as if such event had not occurred, regardless of
whether or not the Company shall have received notice of such event.

6. Until payment of the purchase price for the Shares has been
made to the Selling Stockholder or to the Company, the Selling Stockholder
shall remain the owner of (and shall retain the right to receive dividends and
distributions on, and to vote) the number of shares of Common Stock delivered
by it to the Company hereunder. Until such payment in full has been made or
until the offering of Shares has been terminated, the Selling Stockholder
agrees that such Selling Stockholder will not give, sell, pledge, hypothecate,
grant any lien on, transfer, deal with or contract with respect to the Common
Stock or the Shares or any interests therein.

7. The Company shall assume no responsibility to any person other
than to deal with the certificates deposited by the Selling Stockholder and the
proceeds from the sale of the Shares represented thereby in accordance with the
provisions hereof. The Selling Stockholder hereby agrees to indemnify the
Company for, and to hold the Company harmless against, any and all losses,
claims, damages or liabilities incurred on its part arising out of or in
connection with any claim that the Selling Stockholder does not have title to,
and the right to sell the Shares or to execute and deliver this Agreement, as
well as the cost and expenses of investigating and defending any such losses,
claims, damages or liabilities, except to the extent such losses, claims,
damages or liabilities are due to the negligence or bad faith of the Company.
The Selling Stockholder agrees that the Company may consult with counsel of its
own choice (who may be counsel for the Company in connection with the
Registration Statement), and the Company shall have full and complete
authorization and protection for any action taken or suffered by the Company
hereunder in good faith and in accordance with the opinion of such counsel.

8. The Selling Stockholder represents and warrants that:

(a) the Selling Stockholder has, and on the Closing Date
will have, good and valid title to such Shares as are to be sold by
the Selling Stockholder, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest, with full right,
power and authority to sell, assign, transfer and deliver the same
pursuant to the Underwriting Agreement, subject to the Company's
rights hereunder, and upon the delivery of and payment for the Shares
under the Underwriting Agreement, the several Underwriters will
receive good and valid title thereto, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest,
including any liability for estate or inheritance taxes, or any
liability to or claims of any creditor, devisee, legatee

-3-
<PAGE> 4
or beneficiary of the Selling Stockholder assuming that such
Underwriters are bona fide purchasers within the meaning of the
Uniform Commercial Code;

(b) this Custody Agreement between the Selling
Stockholder and the Company and the Power of Attorney referred to
herein have been duly executed and delivered by the Selling
Stockholder and constitute the valid and legally binding obligations
of the Selling Stockholder enforceable in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to or affecting creditors' rights generally or by general equitable
principles;

(c) the Selling Stockholder has full right and power to
sell, assign, transfer and deliver the Shares to be sold by the
Selling Stockholder in the manner provided in the Underwriting
Agreement;

(d) the Selling Stockholder has all right and power to
execute and deliver this Custody Agreement and the Power of Attorney
and to perform its obligations thereunder; the execution, delivery and
performance of this Custody Agreement and the Power of Attorney by the
Selling Stockholder will not conflict with, result in the creation or
imposition of any lien, charge, option or encumbrance upon any of the
Shares pursuant to the terms of, or constitute a default under, any
material bond, debenture, note or other evidence of indebtedness, or
any material contract, indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which the Selling
Stockholder is a party or by which the Selling Stockholder or the
Shares to be sold by it may be bound or result in any violation of any
law, order, rule, regulation, writ, injunction or decree of any court
or governmental agency or body;

(e) the Underwriting Agreement, upon due execution and
delivery, will be a valid and binding agreement of the Selling
Stockholder, enforceable in accordance with its terms, except as the
indemnification and contribution provisions thereunder may be limited
by applicable law and except as the enforcement thereof may be limited
by bankruptcy, insolvency, moratorium or other similar laws relating
to or affecting creditors' rights generally or by general equitable
principles; and the performance of the Underwriting Agreement and the
consummation of the transactions therein contemplated will not result
in a breach of or default under any material bond, debenture, note or
other evidence of indebtedness, or any material contract, indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which the Selling Stockholder is a party or by which the
Selling Stockholder's Shares thereunder may be bound or result in any
violation of any law, order, rule, regulation, writ, injunction or
decree of any court or governmental agency or body.

The foregoing representations, warranties and agreements, as well as
those contained in the Power of Attorney and those contained in the
Underwriting Agreement, are made for the benefit of, and may be relied upon by,
the Company, the Attorneys, the Underwriters and

-4-
<PAGE> 5
Strasburger & Price, L.L.P., as counsel for the Company, and, if applicable, as
counsel for the Selling Stockholder.

9. The Company's acceptance of this Agreement by the execution
hereof shall constitute an acknowledgement by the Company of the authorization
herein conferred and shall evidence the Company's agreement to carry out and
perform this Agreement in accordance with its terms.

10. This Agreement may be executed in two or more counterparts
with the same effect as if the signatures thereto and hereto were upon the same
instrument. Execution by the Company of one counterpart hereof and its
delivery thereof to the Attorneys shall constitute the valid execution of this
Agreement by the Company.

11. This Agreement shall be binding upon the Company, the Selling
Stockholder and the respective heirs, legal representatives, distributees,
successors and assigns of the Selling Stockholder.

12. ALL QUESTIONS CONCERNING THE VALIDITY, CONSTRUCTION AND
INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAW, AND NOT
THE LAW OF CONFLICTS, OF THE STATE OF TEXAS.

13. Any notice given pursuant to this Agreement shall be deemed
given if in writing and delivered in person, or if given by telephone or
telegraph if subsequently confirmed by letter: (i) if to a Selling
Stockholder, to the address set forth below; and (ii) if to the Company, to it
at United Dental Care, Inc., 14755 Preston Road, Suite 300, Dallas, Texas
75240, Attention: William H. Wilcox, President.

14. The Company shall be entitled to act and rely upon any
statement, request, notice or instruction with respect to this Agreement given
to it on behalf of the Selling Stockholder if the same shall be made or given
to the Company by the Attorneys, not only as to the authorization, validity and
effectiveness thereof, but also as to the truth and acceptability of any
information therein contained.

15. The Company is under no duty to render investment advice or
make investment recommendations and shall be responsible for loss of the funds
deposited pursuant to the terms of this Agreement only through its negligence
or bad faith. The Company shall be under no duty to take or omit to take any
action with respect to any property held pursuant to the terms of this
Agreement, except in accordance with written instructions received from the
Attorneys. Notwithstanding anything herein to the contrary, the Company shall
not be required to take any legal action or to appear in or defend any suit or
proceedings unless requested by the Attorneys in writing and indemnified to the
Company's satisfaction. It is agreed and understood that the Company is not
acting as a trustee and that there are no attributes of a trust inherent in the
relationship between the Selling Stockholder and the Company. It is agreed and
understood that the Company is hereby authorized to rely upon all investment
instructions received from the

-5-
<PAGE> 6
Attorneys without regard to whether such instructions are in violation of any
agreement between the Attorneys and the Selling Stockholder.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.

CUSTODIAN

UNITED DENTAL CARE, INC.

By:
-----------------------------------
Title:
-----------------------------------

THE SELLING STOCKHOLDER

--------------------------------------------
James B. Kingston

Address:
------------------------------------

----------------------------------

-6-
<PAGE> 7
Instruction: If you are an individual and are married, please have
your spouse complete this form:

SPOUSAL CONSENT

I am the spouse of James B. Kingston. On behalf of myself, my heirs
and legatees, I hereby join in and consent to the terms of the foregoing
Custody Agreement and to the terms of the Power of Attorney and agree to the
sale of the shares of the Common Stock of United Dental Care, Inc., a Delaware
corporation, registered in the name of my spouse or otherwise registered, that
my spouse proposed to sell pursuant to the Underwriting Agreement.

Dated:_________________, 1996.

--------------------------------
(Signature of Spouse)

-7-
<PAGE> 8
Instruction: Complete each column as to certificates to be deposited
with the Company as Custodian.

<TABLE>
<CAPTION>
Number of shares Maximum number of
of Common Stock shares of Common
Type of Certificate represented by Stock to be sold
security number(s) each certificate from certificates*
-------- ---------- ---------------- -----------------
<S> <C> <C> <C>
Common Stock

---------
TOTAL: 75,000

- ----------------------------------
</TABLE>

* If no indication is made as to the certificates from which shares to
be sold shall be allocated, then selection will be made at the
discretion of the Company or the Attorneys. The Attorneys do not
have the power to sell a greater number of shares than is listed in
this column, although they may sell a lesser number.

-8-
<PAGE> 9
Instruction: Indicate how you wish to receive payment for the shares
sold to the Underwriters. Please note that payment for the sale of shares held
in the name of a trust will be made only to the trust. A wire transfer can be
made only to an account standing in exactly the same name as the trust holding
the shares being sold.

MANNER OF PAYMENT

I request that payment of the net proceeds from the sale of the shares
of Common Stock of United Dental Care, Inc. to be sold by me pursuant to the
Underwriting Agreement be made in the following manner (CHECK ONE):

(___) CHECK made payable to:

---------------------------------------------------------

to be sent to the following address:

---------------------------------------------------------

phone (___)
---------------------------------------------

(___) WIRE TRANSFER to the following account:

Account No.
-------------------------------------------

Bank
--------------------------------------------------
(Name)

ABA#
------------------------------------------------

------------------------------------------------
(Address)

------------------------------------------------

phone (___)
--------------------------------------------

(___) OTHER (please specify):

---------------------------------------------------

-9-
<PAGE> 10
IMPORTANT: DO NOT INSERT DATE OR NUMBER OF SHARES. THESE WILL BE INSERTED BY
THE ATTORNEYS.

STOCK POWER

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto Alex. Brown & Sons Incorporated, as Representative of the
several Underwriters, __________ shares of Common Stock of United Dental Care,
Inc. and does hereby irrevocably constitute and appoint each of William H.
Wilcox and Mark E. Pape as its Attorneys to transfer said shares on the books
of said corporation with full power of substitution in the premises.

Date: ___________, 1996

Signature:

---------------------------------------
Name of stockholder, printed or typed

---------------------------------------
Signature

---------------------------------------
Name and title, if applicable

** Signature guaranteed

----------------------------

- --------------------------------
** The signature should be guaranteed by a Medallion Guarantee which
can be provided by financial institutions which are members of the
Medallion Program (inquire with your bank, savings and loan or
broker).

-10-

<PAGE> 1

[NATIONSBANK LETTERHEAD]

EXHIBIT 10.48

September 27, 1996

United Dental Care, Inc.
14755 Preston Road, Suite 300
Dallas, Texas 75240
Attention: Mr. Mark Pape

Dear Mark:

This letter (the "COMMITMENT LETTER") will confirm the understanding of United
Dental Care, Inc., a Delaware corporation ("BORROWER") and NationsBank of
Texas, N.A. ("NATIONSBANK") regarding Borrower's retention of NationsBank to
serve as Administrative Agent in connection with a revolving credit facility in
the amount of up to $50,000,000.00 (the "FACILITY") as set forth in the Summary
of Terms and Conditions attached hereto (the "TERM SHEET"). In addition,
subject to the conditions set forth herein and in the Term Sheet, NationsBank
is pleased to advise you of its commitment to provide up to $35,000,000.00 of
the Facility.

The amount of the Facility in excess of NationsBank's commitment hereunder is
subject to obtaining an additional lender or lenders, acceptable to
NationsBank and Borrower, provided that NationsBank has no obligation to obtain
such additional lender or lenders. Borrower agrees to actively assist
NationsBank in achieving a syndication that is satisfactory to Borrower and
NationsBank. The syndication will be accomplished by a variety of means,
including a bank meeting and direct contact during the syndication among senior
officers, representative, and advisors of Borrower and its affiliates and the
proposed lenders. Borrower also agrees to actively assist NationsBank in the
preparation of a confidential information memorandum and other marketing
materials to be used in connection with the syndication.

This Commitment Letter and the Term Sheet (collectively, the "COMMITMENT
DOCUMENTS") represent an outline of the basis on which NationsBank is prepared
to act as Administrative Agent and to provide its commitment under the Facility
to Borrower. The terms and conditions of the Facility, while substantially
defined in the Term Sheet, are not necessarily limited to those set forth in
the Term Sheet.

Until the closing date, NationsBank's commitment hereunder and in the Term
Sheet is subject to: (a) NationsBank's continuing satisfaction that there has
not occurred any material adverse change in the financial condition, business,
operations, assets, or prospects of Borrower and its subsidiaries
(collectively, the "COMPANIES"); and (b) the negotiation, execution, and
delivery of definitive documentation with respect to the Facility ("LOAN
DOCUMENTS") in form and substance satisfactory to Borrower, NationsBank, and
their respective counsel, which Loan Documents will include, without
limitation, the terms and conditions set forth in the Term Sheet, provisions
customary for this type of financing transaction and other provisions that
NationsBank may reasonably request. If, on or before the closing date,
NationsBank's continuing review of Borrower and the other Companies discloses
material information relating to conditions or events not previously disclosed
to NationsBank or additional developments (including, without limitation, in
the condition (financial or otherwise), assets, properties, business,

Commitment Letter
<PAGE> 2
United Dental Care, Inc.
September 27, 1996
Page 2

operations, or prospects of Borrower and the other Companies), then NationsBank
may, in its sole discretion, require reasonable changes in the Term Sheet to
reflect alternative financing amounts or structures that are satisfactory to
NationsBank or it may withdraw its commitment hereunder.

Borrower hereby represents and covenants that, to the best of its knowledge,
all information and data, concerning Borrower and the other Companies (the
"INFORMATION") which has been or is hereafter made available to NationsBank by
or on behalf of Borrower and the other Companies in connection with the
proposed Facility, is and will be complete and correct in all material respects
and does not and will not contain any untrue statement of a material fact and
does not fail to state any material fact necessary to make the statements
contained therein not materially misleading in light of the circumstances under
which such statements are made. Borrower agrees to supplement the Information
from time to time until the closing date of the Loan Documents, so that the
representation and warranty in the preceding sentence is correct on such
closing date. Borrower hereby acknowledges and consents that NationsBank may
share the Information, and any other information or matters relating to
Borrower and the other Companies or the transactions contemplated hereby with
affiliates of NationsBank and any prospective lenders, and that such affiliates
and prospective lenders may likewise share information relating to Borrower and
the other Companies or such transactions with NationsBank.

BORROWER, FOR ITSELF AND ON BEHALF OF THE OTHER COMPANIES, INDEMNIFIES,
PROTECTS, AND HOLDS EACH INDEMNIFIED PARTY (DEFINED BELOW) HARMLESS FROM AND
AGAINST ANY AND ALL INDEMNIFIED LIABILITIES. NO INDEMNIFIED PARTY, HOWEVER, IS
ENTITLED TO INDEMNITY UNDER THIS PARAGRAPH FOR ITS OWN FRAUD, GROSS NEGLIGENCE,
OR WILLFUL MISCONDUCT. As used in this paragraph (a) "INDEMNIFIED PARTIES"
means (i) NationsBank, (ii) its parents, subsidiaries, other affiliates,
directors, officers, employees, agents, attorneys, and other representatives,
and (iii) its present and future heirs, personal representatives, successors,
and assigns, and (b) "INDEMNIFIED LIABILITIES" means all present and future
obligations, losses, damages, penalties, actions, judgments, suits, claims,
proceedings, amounts paid in settlement, and reasonable costs, expenses
(including, without limitation, all reasonable attorneys' fees and reasonable
legal expenses whether or not any proceeding is instituted or the Indemnified
Party is a party to any proceeding if instituted), and disbursements of any
kind or nature that may at any time be imposed on, incurred by, or asserted
against any Indemnified Party that in any way directly or indirectly relates to
or arises out of (i) the Commitment Documents, the proposed Facility, or any
transaction (whether or not ever consummated) contemplated by the Commitment
Documents or to be financed by the Facility, (ii) any statements,
representations, or warranties made by Borrower or any of the other Companies
in any Commitment Document, (iii) any Indemnified Party's SOLE OR CONCURRENT
ORDINARY NEGLIGENCE, or (iv) any Indemnified Party's investigation, defense, or
participation in any of the foregoing. THE PROVISIONS OF AND UNDERTAKINGS AND
INDEMNIFICATION IN THIS PARAGRAPH SHALL SURVIVE THE TERMINATION OF THE
COMMITMENT DOCUMENTS AND THE EXECUTION AND DELIVERY, IF EVER, OF DEFINITIVE
LOAN DOCUMENTS. No Indemnified Party shall be responsible or liable to any
other party hereto or any other person for incidental or consequential damages
(including any loss of profit) which may be alleged as a result of the
Commitment Documents, or the transactions evidenced or contemplated hereby or
thereby.

-2-
Commitment Letter
<PAGE> 3
United Dental Care, Inc.
September 27, 1996
Page 3

Borrower hereby agrees, promptly upon request therefor by NationsBank, to
reimburse NationsBank for reasonable costs and expenses incurred by NationsBank
(including, without limitation, reasonable attorneys' fees and expenses and
reasonable expenses and fees of other outside experts) arising in connection
with the negotiation, preparation, execution, and delivery of the Commitment
Documents and/or the Loan Documents, and out-of-pocket expenses in connection
with the closing of the financing contemplated hereby (irrespective of whether
the transactions contemplated hereby are consummated).

The obligation of Borrower and the other Companies under the indemnification
and expense reimbursement provisions of this Commitment Letter shall continue
on and after any termination of this Commitment Letter and are and shall remain
the absolute obligations of Borrower and the other Companies, unless and until
superseded by the indemnity provisions of definitive Loan Documents on and as
of the effective date thereof.

Except as required by applicable law, the Commitment Documents and the contents
of such documents shall not be disclosed by Borrower or the other Companies to
any third party without the prior written consent of NationsBank, other than to
attorneys, financial advisors, and accountants of Borrower and the other
Companies (and whom, in each case, shall be made aware of this covenant not to
disclose), in each case only to the extent necessary in the reasonable
judgement of Borrower or the other Companies or as required by applicable law.
Prior to any such legally required disclosure, Borrower shall give NationsBank
prompt advance notice of any such intended disclosure and should make
commercially reasonably efforts to attempt to obtain confidential treatment of
such disclosure.

THIS LETTER AGREEMENT AND THE TERM SHEET (INCLUDING ALL EXHIBITS OR SCHEDULES
HERETO OR THERETO) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO ITS PRINCIPLES OF
CONFLICTS OF LAWS.

EACH OF THE PARTIES HERETO KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND EXPRESSLY
WAIVES ANY RIGHTS SUCH PARTY MAY HAVE TO TRIAL BY JURY WITH RESPECT TO ANY
MATTER CONTAINED IN OR ARISING FROM THE COMMITMENT DOCUMENTS OR THE ACTIONS OF
THE PARTIES RELATED THERETO.

This Commitment Letter (including, the attachments hereto), and the obligations
hereunder shall not be assignable by Borrower without the prior written consent
of NationsBank.

If Borrower is in agreement with the foregoing, then please execute a copy of
this Commitment Letter and return it to NationsBank, together with a commitment
fee of $100,000.00 representing the portion of the commitment fee required to
be paid upon acceptance hereof in accordance with the Term Sheet, no later than
5:00 p.m. (Dallas, Texas time) on October 7, 1996. This Commitment Letter and
the Commitment of NationsBank herein shall terminate if not accepted by
Borrower prior to that time. This Commitment Letter shall become effective upon
delivery to NationsBank of executed counterparts of this Commitment Letter.
Following acceptance by Borrower, this Commitment Letter and NationsBank's
commitment

-3-
Commitment Letter
<PAGE> 4
United Dental Care, Inc.
September 27, 1996
Page 4

hereunder shall terminate at 5:00 p.m. (Dallas, Texas time) on October 31,
1996, unless on or prior to such time the Loan Documents have been duly
executed and delivered.

This Commitment Letter may be executed in counterparts, which, taken together,
shall constitute one agreement. The Commitment Documents embody the entire
agreement and understanding among NationsBank and Borrower with respect to the
specific matters set forth herein, and supersedes all prior agreements and
understandings relating to the subject matter hereof. THE COMMITMENT DOCUMENTS
CONSTITUTE THE COMPLETE AND FINAL AGREEMENT OF THE PARTIES HERETO WITH RESPECT
TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. The agreements made herein may
be modified only by written agreement signed by NationsBank and Borrower. The
provisions of this letter will be superseded by the Loan Documents on the
effective date thereof.

Please execute a copy of this Commitment Letter in the space provided below to
acknowledge your agreement to the foregoing.

Very truly yours,

NATIONSBANK OF TEXAS, N.A.

By: /s/ CECIL G. EDWARDS, JR.
----------------------------
Cecil G. Edwards, Jr.
Senior Vice President

AGREED TO AND ACCEPTED THIS
1ST DAY OF OCTOBER, 1996

UNITED DENTAL CARE, INC.,
a Delaware corporation

By: /s/ MARK E. PAPE
-----------------------------
Name: Mark E. Pape
Title: Senior Vice President
Chief Financial Officer

-4-
Commitment Letter
<PAGE> 5
United Dental Care, Inc.

Summary of Terms and Conditions
For Proposed Revolving Credit Facility

September 27, 1996

- --------------------------------------------------------------------------------

BORROWER United Dental Care, Inc. ("Borrower" or the "Company")

AGENT NationsBank of Texas, N.A. ("NationsBank" or the
"Agent")

LENDERS Agent and a syndicate of other lenders reasonably
acceptable to Agent and Borrower.

FACILITY Revolving Credit Facility of up to $50,000,000.
Initial underwritten funding: up to $35MM in a
committed Revolving Credit Facility.
Secondary "best efforts" funding: an additional
$15MM upon confirmation or a participant.

PURPOSE Fund future acquisitions of all or substantially all
of the capital stock of domestic entities
("Qualified Companies") that are (a) dental
maintenance organizations, or other similar entities
and (b) whose business is comprised of more than
fifty percent (50%) prepaid dental plans (as opposed
to indemnity plans), issuance of Letters of Credit,
provide for capital expenditures, and other general
working capital needs (working capital
sublimit of $5MM) of Borrower.

CLOSING DATE Transaction to close by October 31, 1996 or on such
other date as the parties may select.

MATURITY Two (2) years from closing.

COLLATERAL Perfected, first priority liens and security interests
in all outstanding capital stock of all Subsidiaries
of Borrower and all outstanding capital stock of all
Subsidiaries of Borrower's Subsidiaries
("Collateral"). Negative pledge on all other assets.

INTEREST RATES At the Borrower's option, the Agent's Prime Rate or
LIBOR plus the Applicable Margin determined in
accordance with the Pricing Grid (see Exhibit 1).

INTEREST PERIODS For LIBOR loans, one, three or six months, subject to
availability.

United Dental Care, Inc.
Summary of Terms and Conditions
Page 1
<PAGE> 6
LETTER OF CREDIT FEES Refer to the Pricing Grid (Exhibit I).

DRAWDOWNS Drawdowns are at the Borrower's discretion with same
business day notice for the Prime Rate option and
three business days notice for LIBOR advances.

CONDITIONS TO
ADVANCES In addition to customary conditions precedent to
advances, advances for the purpose of making an
acquisition shall also be subject to the following
conditions:

(a) Borrower shall have provided to Agent (i)
current financial statements and historical operating
information on the target (ii) A pro-forma balance
sheet of Borrower, together with pro-forma operating
projections for the three (3) year period following
the acquisition, (iii) A pro-forma compliance
certificate showing calculations of all financial
covenants set forth in the loan agreement, and (iv) A
copy of the results of Borrower's due diligence with
respect to the target Qualified Company.

(b) Lender shall have notified Borrower within ten
(10) days of receipt of the information described in
(a) above in form and substance acceptable to Lender
that Lender has approved the acquisition of the
target Qualified Company.

The conditions in (a) and (b) above shall not apply
to the purchase of any Qualified Company for which
the aggregate indebtedness incurred by Borrower or
any Subsidiary, in order to purchase such Qualified
Company, is equal to or less than $12MM.

ORIGINATION FEE 3/8 of 1% of the $35MM Initial Funding -- $100,000
payable upon acceptance of the Commitment letter with
the remainder due upon confirmation of a participant.

3/8 of 1% of the $15MM Secondary Funding amount
payable upon confirmation of a participant.

PARTICIPATION FEE $20,000 payable to Agent upon confirmation of
participant(s).

UNUSED FEE Commencing on the Closing Date, a non-refundable fee
(in the percentage per annum specified in the
Performance Pricing Grid) will accrue and be payable
quarterly in arrears on the average daily unused
portion of the Revolving Credit Facility and on the
Revolving Credit facility commitment termination
date.

ADMINISTRATION FEE An Administration Fee of $15,000 will be charged by
the Agent on an annual and ongoing basis upon
confirmation and delivery of a participant in the
credit.

United Dental Care, Inc.
Summary of Terms and Conditions
Page 2
<PAGE> 7
REPAYMENT Interest payments will be due at the earlier of the
expiration of the match funding period and on a
quarterly basis. Outstanding principal of and any
unpaid interest on the Revolving Credit Facility
shall be repaid at maturity.

VOLUNTARY
PREPAYMENTS/
REDUCTIONS The Borrower may prepay the Revolving Credit Facility
or permanently reduce the unused Revolving Credit
commitments in whole or in part, upon three days
notice, in minimum amounts of $1,000,000 or integral
multiples thereof, subject to usual LIBOR breakage
costs. Commitments canceled may not be reborrowed or
reinstated.

MANDATORY
PREPAYMENTS/
REDUCTIONS The greater of $20,000,000 or 50% of net proceeds
from any permitted debt issuance or equity offering
by the Borrower will be required to reduce this
facility. Repayment to be made within 30-45 days of
the completion of the offering. No penalty will be
assessed for prepayment of principal, however, LIBOR
breakage costs, if any, shall be for the account of
the Borrower. The mandatory prepayments will not
reduce the total commitment amount of the Revolving
Credit Facility.

REPORTING
REQUIREMENTS Periodic financial reporting, including, but not
limited to the following: audited annual financial
statements, auditor's management letter, quarterly
financial statements, quarterly compliance
certificates and such other information including,
but not limited to, filings with federal and state
regulatory authorities, that may from time to time be
requested by the Agent and Lenders.

CONDITIONS
PRECEDENT Usual and customary for transactions of this nature
including, without limitation, the following:

Execution and delivery of satisfactory credit,
security and other related documentation embodying
the structure terms and conditions contained herein.

Receipt and satisfactory review of due diligence
materials mutually acceptable to Borrower and Agent.

Receipt of closing certificates, opinions of counsel,
etc., usual and customary for transactions of this
nature.

REPRESENTATIONS

United Dental Care, Inc.
Summary of Terms and Conditions
Page 3
<PAGE> 8
AND WARRANTIES Usual and customary for transactions of this nature,
including any antitrust issues.

AFFIRMATIVE
COVENANTS Usual and customary for transactions of this nature,
including the Borrower's payment of applicable legal
fees.

NEGATIVE
COVENANTS Usual and customary for the type of transaction
proposed and others to be reasonably specified by the
Agent, including, without limitations as follows
(which covenants shall include such exclusions as the
Agent and Borrower shall agree):

Restricting the incurrence of additional debt, leases
and contingent liabilities, including without
limitation, negative pledges on assets and
sale-leaseback transactions.

Restricting the making of dividends or similar
distributions.

Restricting the incurrence of liens (other than
Permitted Liens) or other encumbrances.

Restricting the sale of assets or similar transfers,
other than in the ordinary course of business or in
connection with Permitted Dispositions.

Restricting the making of investments or acquisitions
(in a single transaction or in a series of related
transactions) other than Permitted Acquisitions.

FINANCIAL
COVENANTS Usual and customary for transactions of this nature
and others to be reasonably specified by the Agent
to include but not be limited to:

Maintenance of a Minimum Liquidity Ratio: Ratio
should exceed 1.50 to 1.0 and would be defined as:

Cash and Cash Equivalents to the sum of (A)
Accounts Payable and Accrued Expenses and (B)
Claims Reserve.

Maintenance of a Minimum Fixed Charge Coverage Ratio:
Ratio to be discussed and would be defined as:

the sum of (A) Consolidated Adjusted Net Income,
(B) Income Taxes with respect to such Consolidated
Adjusted Net Income, (C) Operating Lease Expense,
(D) Rent Expense, and (E) Interest Expense to the
sum of (A) Interest Expense, (B) Operating Lease
Expense, and (C) Rent Expense, in each case for
Borrower and the Consolidated Subsidiaries and for
the four fiscal quarters ending on the date of
determination.

United Dental Care, Inc.
Summary of Terms and Conditions
Page 4
<PAGE> 9
Maintenance of a Maximum Funded Debt to EBITDA Ratio
of 3.00:1.00 and would be defined as the
following:

Funded Debt is the sum of (A) Senior Debt, (B)
Seller Notes, (C) Capitalized Leases, (D)
Subordinated Debt and (E) Letters of Credit
divided by the Borrower's Consolidated Net Income
before Interest Expense, Taxes, Depreciation, and
Amortization.

EBITDA for acquired entities to be calculated from
the date of acquisition on an annualized basis.
EBITDA for Borrower to be calculated on a rolling
four quarter basis.

Seller Notes to include non-compete and consulting
agreements.

Maximum Funded Debt to Total Capitalization not to
exceed 0.50:1.00.

Maintenance of A Minimum Net Worth of $64,000,000
plus 100% of proceeds from an equity offering.

YIELD PROTECTION Protective provisions for such matters as increased
costs, capital adequacy, funding losses, illegality
and LIBOR reserve requirements. All payments shall be
made free of taxes.

EVENTS OF
DEFAULT Usual and customary for similar transactions and
appropriate others for this particular transaction,
including, but not limited to, nonpayment of fees,
interest, or principal when due; breach of
representations, warranties, or covenants; breach of
other material agreements or contracts; cross-default
to other indebtedness; bankruptcy or insolvency;
material judgments; certain ERISA events; and a
change in control of Borrower.

INDEMNITY The Borrower will indemnify, pay, and hold harmless
the Agent and the Lenders (and their respective
directors, officers, employees and agents) against
any loss and any liability in respect to the
financing contemplated hereby, or the use (or
proposed use) of the proceeds thereof, other than any
loss or liability arising out of the gross negligence
or willful misconduct of the party seeking
indemnification.
OTHER TERMS
AND CONDITIONS Customary for facilities of this type, including, but
not limited to, the following:
-- Cross default to other indebtedness
-- Without limiting the foregoing, such
additional terms and conditions as may be necessary
to complete a successful syndication in the reasonable
judgment of the Agent.

GOVERNING
LAW Documents shall be deemed to be executed and
performable in and governed by the substantive laws
of the State of Texas.

United Dental Care, Inc.
Summary of Terms and Conditions
Page 5
<PAGE> 10
UNITED DENTAL CARE, INC.

Summary of Terms and Conditions
For Proposed Revolving Credit Facility

Exhibit One

Pricing Grid

The Commitment Fee, Letter of Credit Fee and the Applicable Margins for Prime
Rate and LIBOR loans will be determined based on the ratio of the Borrower's
Total Funded Debt to Trailing Four Quarter EBITDA in accordance with the
following grid. The determination will be done quarterly at the time of the
delivery of the Borrower's covenant compliance certificate, or if earlier at
the time of an Acquisition Drawdown on the Revolving Credit Facility. Total
Funded Debt will equal the amount of total funded debt in accordance with most
recent compliance certificate plus the amount of any proposed drawdown in the
case of an acquisition. Trailing EBITDA will include results of the Borrower
and each acquired company as if it had been part of the Borrower for the
previous four quarters.

<TABLE>
<CAPTION>
FUNDED LETTER
LEVEL DEBT/EBITDA PRIME RATE + LIBOR + UNUSED OF CREDIT
FEE FEE
<S> <C> <C> <C> <C> <C>
I (1.00x 0.00% 1.25% 0.15% 0.625%
II (1.50x)= 1.00x 0.00% 1.50% 0.20% 0.75%
III (2.00x)= 1.50x 0.00% 1.75% 0.20% 0.85%
IV )2.00x 0.25% 2.00% 0.25% 1.00%
</TABLE>

The grid notwithstanding, the Commitment Fee and Applicable Margins shall not
be less than Level III prior to delivery of the compliance certificate for the
quarter ending September 30, 1996.

United Dental Care, Inc.
Summary of Terms and Conditions
Page 6

<PAGE> 1

EXHIBIT 23.01

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 5, 1996, except
for Note 12, which is as of September 11, 1996, relating to the consolidated
financial statements of United Dental Care, Inc., our report dated February 26,
1996 relating to the combined financial statements of Associated Health Plans,
Inc. and Associated Companies, Inc., and our report dated September 26, 1996
relating to the combined financial statements of UICI Dental Companies, which
appear in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.

PRICE WATERHOUSE LLP

Dallas, Texas

September 27, 1996

<PAGE> 1

EXHIBIT 23.02

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 14, 1995, which
appears in such Prospectus. We also consent to the references to us under the
heading "Experts" in such Prospectus.

ANDREW C. SARAGER, CPA, PC

Phoenix, Arizona

September 30, 1996

<PAGE> 1

EXHIBIT 23.03

CONSENT OF INDEPENDENT ACCOUNTANT

I hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of my report dated September 6, 1996 relating
to the financial statements of Kansas City Dental Care, Inc. which appears in
such Prospectus. I also consent to the reference to me under the heading
"Experts" in such Prospectus.

JAMES L. GORDON

Manhattan, Kansas

September 27, 1996

<PAGE> 1

EXHIBIT 23.04

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 2, 1996, except for Note 5, as to which the date
is May 10, 1996, and Note 14, as to which the date is September 5, 1996, with
respect to the combined financial statements of OraCare Dental Health Plans,
Inc. included in the Registration Statement (Form S-1 No. 333-12425) and related
prospectus of United Dental Care, Inc., for the registration of 2,300,000 shares
of its common stock.

ERNST & YOUNG LLP

Iselin, New Jersey

September 27, 1996