1 Confidential Presentation to: Board of Directors of Sheridan Healthcare, Inc. FAIRNESS OPINION March 24, 1999 SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 2 SHERIDAN HEALTHCARE Confidential Material Presented to the Board of Directors The following pages contain material provided to the Board of Directors of Sheridan Healthcare, Inc. ("Sheridan" or the "Company") in the context of a meeting of the Board of Directors held to consider the proposed acquisition of the Company by Vestar Capital Partners III, L.P. ("Vestar") in a cash offer. The accompanying material was compiled or prepared on a confidential basis solely for use by the Board of Directors and not with a view toward public disclosure under state or federal securities laws or otherwise. The basic information utilized in preparing this presentation was obtained from the Company and other public sources. Any estimates and projections for the Company contained herein have been prepared by management, or are based upon such estimates and projections, and involve numerous and significant subjective determinations, which may or may not prove to be correct. No representation or warranty, express or implied, is made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a promise or representation, whether as to the past or the future. Because this material was prepared for use in the context of an oral presentation to the Board of Directors, which is familiar with the business and the affairs of the Company, neither the Company nor Salomon Smith Barney nor any of their respective legal advisors or accountants take any responsibility for the accuracy or completeness of any of the material if used by persons other than the Board of Directors of the Company. Neither the Company nor Salomon Smith Barney undertakes any obligation to update or otherwise revise the accompanying materials. SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 3 SHERIDAN HEALTHCARE Table of Contents 1 EXECUTIVE SUMMARY 2 SHERIDAN HEALTHCARE BUSINESS OVERVIEW 3 PPM INDUSTRY OVERVIEW AND RECENT EVENTS 4 SUMMARY VALUATION ANALYSIS APPENDIX A. COMPARABLE PUBLICLY TRADED COMPANIES B. PRECEDENT PPM TRANSACTIONS C. WACC ANALYSIS SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 4 SHERIDAN HEALTHCARE 1 EXECUTIVE SUMMARY SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 5 SHERIDAN HEALTHCARE Introduction GENESIS OF THE TRANSACTION o Salomon Smith Barney and Bowles Hollowell Conner have been engaged by Sheridan Healthcare, Inc. to evaluate strategic alternatives, including a possible sale of the Company. o Salomon Smith Barney and Bowles Hollowell Conner initiated an auction process in December 1998, and contacted a wide range of possible strategic and financial buyers. o On February 19, 1999 final bids were received, with Vestar Capital Partners as the winning bidder at $11.50 per share. o After completing further due diligence and focusing on the Company's strategic acquisition plan, Vestar Capital Partners submitted a revised bid of $9.25 per share on March 16, 1999. As part of its engagement, Salomon Smith Barney will render a fairness opinion. HISTORY OF SALOMON SMITH BARNEY'S RELATIONSHIP WITH SHERIDAN o Salomon Smith Barney was Sheridan's lead underwriter for its IPO on October 31, 1995 at $13.00 per share. o Since the IPO, Salomon Smith Barney has maintained a close relationship with Sheridan, but has not executed any further business until this sale process began. SALOMON SMITH BARNEY ---------------------------- 4 A member of citigroup [LOGO] 6 SHERIDAN HEALTHCARE Overview of Transaction Contemplated TRANSACTION STRUCTURE o Cash merger resulting in ownership of 100% of Sheridan stock (excluding management rollover shares) o Effective rollover of Management equity into Vestar equity SHERIDAN'S CURRENT SITUATION o Sheridan does not have access to capital to pursue its acquisition strategy o Current debt of $74 million already exceeds credit facility of $65 million o Exception on credit facility valid only until September o No current access to high-yield or equity markets o The Company has already delayed on several possible acquisitions because of the lack of financing. STRATEGIC BENEFITS o Provides Sheridan with capital support to proceed with its acquisition strategy, a primary driver of growth. o Eliminates Sheridan's dependence on capital markets in the face of uncertainty surrounding the PPM industry. o Provides Sheridan with the base to build out a regional physician network in Texas in the long-term, similar to the current network in Florida. o Gives shareholders the option to cash out at a premium to market. - - -------------------------------------------------------------------------------- Vestar is to acquire Sheridan for $9.25 per share. SALOMON SMITH BARNEY ---------------------------- 5 A member of citigroup [LOGO] 7 SHERIDAN HEALTHCARE Summary of Preliminary Purchase Agreement Terms - - -------------------------------------------------------------------------------- Feature Comments - - -------------------------------------------------------------------------------- Consideration $9.25 per share in cash - - -------------------------------------------------------------------------------- Structure Tender offer; Newly-formed Vestar subsidiary to own stock - - -------------------------------------------------------------------------------- Selected Conditions Management shares to be tendered and subscriptions for interests in Vestar subsidiary Management Agreements negotiated with key executives - - -------------------------------------------------------------------------------- Board Seats 2 Board Seats for existing Sheridan Management 3 Board Seats for Vestar Employees 2 Board Seats for Outside Directors - - -------------------------------------------------------------------------------- Events of Termination By mutual consent Material adverse change Financing out Break-up fee for topping bids - - -------------------------------------------------------------------------------- SALOMON SMITH BARNEY ---------------------------- 6 A member of citigroup [LOGO] 8 SHERIDAN HEALTHCARE Sources and Uses ($ in millions) - - -------------------------------------------------------------------------------- Uses - - -------------------------------------------------------------------------------- Equity Value at $9.25 (a) $66.3 Bank Debt $74.0 Texas June Payment 6.1 Est. Remaining Share Price Guarantees at Closing 0.1 Deferred Compensation 1.4 Capital Leases 0.8 Notes Payable 0.3 Mgmt COC Pmt/D&O Tail Policy 2.5 - - -------------------------------------------------------------------------------- Total Debt Consideration $85.1 Transaction Expense 12.0 - - -------------------------------------------------------------------------------- Total Uses $163.3 ================================================================================ - - -------------------------------------------------------------------------------- Sources - - -------------------------------------------------------------------------------- Option Proceeds $4.2 Bank Debt $75.0 Mezzanine $20.0 Vestar Equity Investment 61.1 Mgt. Equity Rollover 3.0 - - -------------------------------------------------------------------------------- Equity Financing $64.1 Total Sources $163.3 ================================================================================ (a) Assumes 7.163 million fully diluted shares, including 0.577 million in-the-money options at the $9.25 purchase as of 3/16/99. SALOMON SMITH BARNEY ---------------------------- 7 A member of citigroup [LOGO] 9 SHERIDAN HEALTHCARE Pro Forma Capitalization ($ in millions) - - -------------------------------------------------------------------------------- Pro Forma Capitalization - - -------------------------------------------------------------------------------- % of Total Cap --------- Bank Debt $75.0 47.1% Mezzanine 20.0 12.6 Vestar Common Equity $61.1 38.4 Management Common Equity 3.0 1.9 - - -------------------------------------------------------------------------------- Total Common Equity $64.1 40.3% Total Capitalization $159.1 100.0% - - ------------------------------------------------------------------- --------- - - -------------------------------------------------------------------------------- Pro Forma Common Equity Ownership (a) - - -------------------------------------------------------------------------------- Vestar 95.3% Management 4.7 - - -------------------------------------------------------------------------------- Total Common Equity Ownership 100.0% (a) Before conversion of mezzanine warrants. SALOMON SMITH BARNEY ---------------------------- 8 A member of citigroup [LOGO] 10 SHERIDAN HEALTHCARE Comparative Valuation Multiples Public Market ==================================================================================================================== Firm Value/LTM Price/Earnings ------------------------- -------------- Revenues EBITDA EBIT 1998A 1999E Sheridan Healthcare 1.2x 7.3x 9.5x 10.6x 8.6x - - ---------------------------------------------------------------------------------------------------------- Multi-Specialty Comparables Median 0.4 4.8 7.1 7.1 7.3 Single Specialty Comparables Median 1.5 6.4 8.5 8.6 7.4 - - ---------------------------------------------------------------------------------------------------------- Private Market ==================================================================================================================== Firm Value/LTM Premium ------------------------- ------------------------- Revenues EBITDA EBIT 1 Day 1 Week 1 Month Vestar Proposed Price - $9.25 (a) 1.3x 7.7x 10.0x 12.1% 12.1% 17.5% - - --------------------------------------------------------------------------------------- ------------------------- Selected Acquisition Multiples (b) Team Health / Madison Dearborn (1/99) 0.7x 6.0x 7.0x NA NA NA Spectrum Emergency Care / Laidlaw (10/97) NA 5.0 NA NA NA NA Health Partners / FPA Medical Management (7/97) 0.8 NM NM NA NA NA - - -------------------------------------------------------------------------------------------------------------------- (a) Premium based on 3/19/99 Sheridan closing price of $8.25. (b) Recent acquisitions which are most comparable to the proposed transaction. SALOMON SMITH BARNEY ---------------------------- 9 A member of citigroup [LOGO] 11 SHERIDAN HEALTHCARE Recent Stock Price Performance DAILY DATA: 3/19/98 THROUGH 3/19/99 [GRAPHIC OMITTED] Summary Statistics: High Low Average Latest 17.06 6.56 10.34 8.25 407 20 27 - - -------------------------------------------------------------------------------- Sheridan is currently trading at $8.25 per share, a 51.6% discount to its year-to-date high, and a 25.8% premium to its year-to-date low. SALOMON SMITH BARNEY ---------------------------- 10 A member of citigroup [LOGO] 12 SHERIDAN HEALTHCARE Relative Stock Price Performance DAILY DATA: 3/19/98 THROUGH 3/19/99 [GRAPHIC OMITTED] Summary Statistics: High Low Average Latest 111% 43% 67% 54% 151% 49% 100% 51% 105% 20% 48% 24% - - -------------------------------------------------------------------------------- Sheridan has under-performed the single specialty PPMs over the last six months. However, that gap has nearly disappeared due to the recent drop in Pediatrix share price. In addition, Sheridan has consistently out-performed multi-specialty PPMs over the last year. SALOMON SMITH BARNEY ---------------------------- 11 A member of citigroup [LOGO] 13 SHERIDAN HEALTHCARE Trading History SHERIDAN HEALTHCARE: PRICES AND VOLUME [GRAPHIC OMITTED] Weighted Volume Traded/ Average Shares Outstanding $9.89 58.9% $7.65 13.4% - - -------------------------------------------------------------------------------- Over the last three months, the volume of Sheridan shares traded has largely remained in the range of $7.00 to $8.00 per share. SALOMON SMITH BARNEY ---------------------------- 12 A member of citigroup [LOGO] 14 SHERIDAN HEALTHCARE Valuation Summary [The following table was depicted as a bar chart in the printed material.] Equity Value Per Share (In Dollars) Current Price-3/19/99 $8.25(a) Private Market Comparable Analysis Valuation $8.00-$13.00 5-Year DCF (without acquisitions) $3.75-$5.50 5-Year DCF (with acquisitions- 7.0x EBITDA purchase price) $4.00-$8.50 5-Year DCF (with acquisitions- 6.0x EBITDA purchase price) $9.50-$14.00 5-Year DCF (with acquisitions- 5.0x EBITDA purchase price) $15.00-$19.50 (a) $9.25 represents Vestar Capital's offer price. Note: Equity value reflects debt and contingencies of $85.2 million, and option proceeds of $2.0 million. Equity value per share reflects 6.916 million diluted shares before treasury method share buy-back. All assumptions as of March 19, 1999. Note: Salomon Smith Barney ran sensitivity cases of 6.0x and 7.0x EBITDA for acquisitions in the event a 5.0x multiple were not to be sustained going forward (in light of recent trend toward higher acquisition multiples). SALOMON SMITH BARNEY ---------------------------- 13 A member of citigroup [LOGO] 15 SHERIDAN HEALTHCARE Background on Vestar Vestar Capital Partners is a New York-based investment firm specializing in management buyouts and recapitalizations. o Since its founding in 1988, the firm has completed 26 transactions with a total value in excess of $5 billion. o Companies acquired include: Celestial Seasonings, Consolidated Cigar, La Petite Academy, Prestone Products Corporation, Remington Products Company, and Westinghouse Air Brake Company. o Currently manages over $1 billion of equity capital for a number of top tier investors including Harvard University, the Rockefeller Foundation, and the General Motors Pension Fund. SALOMON SMITH BARNEY ---------------------------- 14 A member of citigroup [LOGO] 16 SHERIDAN HEALTHCARE 2 SHERIDAN HEALTHCARE BUSINESS OVERVIEW SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 17 SHERIDAN HEALTHCARE Company Overview BUSINESS DESCRIPTION o Sheridan Healthcare is a physician practice management company currently affiliated with approximately 233 physicians practicing under 55 specialty service contracts at 37 hospitals and 28 office locations o Sheridan Healthcare operates and manages specialist physicians providing services at hospitals and ambulatory surgical facilities in the areas of: o anesthesia o neonatology o pediatrics o emergency services o obstetrics o pain management o Sheridan also owns, operates, or manages office-based physician practices which provide services in the areas of: o gynecology o obstetrics o infertility o perinatology o primary care o general surgery SALOMON SMITH BARNEY ---------------------------- 15 A member of citigroup [LOGO] 18 SHERIDAN HEALTHCARE Company Overview GEOGRAPHICAL LOCATION o Sheridan's hospital affiliations are located in Florida, New York, Ohio, Pennsylvania, Texas, Virginia and West Virginia o Sheridan's office-based group practices are regionally concentrated in Florida and Texas [GRAPHIC OMITTED] Multi-Specialty Group Physician Practices Hospital Outsourcing - - ----------------------------------------- -------------------- 151 Physicians 78 Physicians - - -------------- ------------- o 69 Anesthesiologists o 28 Anesthesiologists o 37 Neonatologists/Pediatricians o 15 Neonatologists/Pediatricians o 34 Obstetricians o 35 Emergency o 4 Surgeons o 4 Gynecological Oncologists o 2 Perinatologists o 1 Infertility Specialist Note: Excludes 4 primary care physicians in 3 locations. SALOMON SMITH BARNEY ---------------------------- 16 A member of citigroup [LOGO] 19 SHERIDAN HEALTHCARE Summary Market Data SHERIDAN HEALTHCARE PUBLIC MARKET STATISTICS Stock Price as of 3/19/99 $8.25 Equity Value (in millions) (a) $57 Firm Value (in millions) (b) $140 ------------------------------------------------------------- 1998 P/E 10.6x 1999E P/E (c) 8.6 ------------------------------------------------------------- Firm Value / 1998 EBITDA 7.3x Firm Value / 1999E EBITDA (d) 5.5 ------------------------------------------------------------- 52-Week High (3/30/98) $17.06 52-Week Low (10/28/98) $6.56 Average Daily Trading Volume (in thousands) (e) 18.2 ------------------------------------------------------------- (a) Assumes 6.916 million fully diluted shares outstanding, before treasury stock method share buy back. (b) Firm Value equals Equity Value plus total straight debt and contingencies of $85.2 million (comprised of $74.0 million of bank debt, $6.1 million of Texas June Payment, $0.2 million of remaining share price guarantees, $1.4 million of deferred compensation, $0.8 of capital leases, $0.3 million of notes payable, $2.5 million of management change of control payment and D&O Tail Policy), less options proceeds of $2.0 million. (c) Based on First Call 1999E EPS of $0.96. (d) EBITDA estimates based on equity research median. (e) Average daily trading volume over the last twelve months. SALOMON SMITH BARNEY ---------------------------- 17 A member of citigroup [LOGO] 20 SHERIDAN HEALTHCARE Sheridan's Multi-Specialty Group Physician Practices DEFINITION o "Multi-Specialty Group Physician Practices" is Sheridan's term for the provision of a variety of regionally-based physician services to Sheridan's patients by both: o office-based Sheridan physicians (e.g. obstetricians, gynecologists) and o hospital-based Sheridan physicians (e.g. anesthesiologists, neonatologists) o The term also alludes to the interaction of referrals between Sheridan's office-based and hospital-based physician services. MECHANICS o Sheridan employs or affiliates with office-based obstetricians or gynecologists practicing in a limited geographic area (e.g. in Florida). o Patients who use these office-based physicians for obstetrical or gynecological physician services are often referred to Sheridan's key hospitals where Sheridan's physicians provide neonatology and/or anesthesia physician services. o Revenue synergies are thus created as the introduction of new patients to the Company's office-based practices results in higher revenues (through higher volumes) for hospital-based physician services. - - -------------------------------------------------------------------------------- In November 1996, Sheridan decided to focus its principal growth strategy on operating regionally-focused multi-specialty group physician practices SALOMON SMITH BARNEY ---------------------------- 18 A member of citigroup [LOGO] 21 SHERIDAN HEALTHCARE Sheridan's "Win-Win" Multi-Specialty Model - - -------------------------------------------------------------------------------- Competitors Gate Keeper Model - - -------------------------------------------------------------------------------- Focus o How to cut the pie - - -------------------------------------------------------------------------------- Features o Fixed capitation model o Earnings generated via cost reduction o Encourages a reduction in hospital-care provided to patients - - -------------------------------------------------------------------------------- Results o Patients resentful as physician's earnings are tied to reducing patient care o Divergence of physician / patient care - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- Sheridan's "Win-Win" Model - - -------------------------------------------------------------------------------- Focus o How to grow the pie - - -------------------------------------------------------------------------------- Features o Emphasizes physician productivity o Allows Sheridan to pay attractive compensation to physicians o Growth by attracting new patients into the system - - -------------------------------------------------------------------------------- Results o Model creates value for patients, hospitals, physicians and health plans o Alignment of interest between patients and doctors - - -------------------------------------------------------------------------------- SALOMON SMITH BARNEY ---------------------------- 19 A member of citigroup [LOGO] 22 Historical Revenue Mix (Dollars in Thousands) HISTORICAL REVENUE MIX [The following table was depicted as a bar graph in the printed material.] 1996 1997 1998 Multi-Specialty Groups $40,788 $52,923 $76,573 Hospital Outsourcing $24,528 $27,487 $28,653 Priary Care $27,451 $18,206 $ 7,691 - - -------------------------------------------------------------------------------- Since 1996, Sheridan Healthcare has divested most of its higher-risk primary care business, and has instead focused on higher-margin multi-specialty group business. SALOMON SMITH BARNEY ---------------------------- 20 A member of citigroup [LOGO] 23 Physician Mix [The following tables were depicted as pie charts in the printed material.] Physicians By Division Multi-Specialty 64.8% Primary Care 1.7% Hospital Outsourcing 33.5% Physicians by Specialty Anesthesia 41.7% Infertility 0.4% Perinatology 0.9% Primary care 1.7% Gynecological oncology 1.7% Surgery 1.7% Obstetrics (office based) 13.3% Obstetrics (hospital based) 1.3% Emergency 15.0% Neonatology/Pediatrics 22.6% Total Physicians: 233 SALOMON SMITH BARNEY ---------------------------- 21 A member of citigroup [LOGO] 24 Sheridan's Competitive Advantages o Sheridan is a dominant niche player in a relatively unconsolidated market. o Sheridan is a physician practice management company with the market strategy of forming women's health networks. o Does not face high competition in hiring physicians compared to other single-specialty or national multi-specialty physician practice management companies. o Numerous opportunities to expand on a regional or national scale. o During its 45 years of operation, Sheridan has operated very conservatively and avoided the problems associated with rapid expansion. o One of the most prudent users of its capital and stock in the industry. o The Company is very selective in its acquisitions and continues to actively manage these acquisitions reducing the risks associated with integration. o Sheridan's women's health network provides doctors with a single source delivery platform to satisfy patients, managed care providers and hospitals in numerous markets. o Provides quality, consistent care to women during various stages of their lives. o Produces scale necessary to function with managed care payors. o Simplifies billing and payment for both hospitals and managed care providers. o Hospital based outsourcing operations are not capital intensive and provide continual cash flow necessary to expand the Company's women's health network. o Sheridan is not exposed to capitation risks that plague many other physician practice management companies. o The Company is regionally focused in two of the largest health care markets in the country o Regional focus creates opportunities for synergies and value-added services that are not present in more geographically distributed practices. o The populations of Texas and Florida are currently the 2nd and 4th largest state populations. o These two markets represent the 3rd and 4th largest health care markets in the United States. SALOMON SMITH BARNEY ---------------------------- 22 A member of citigroup [LOGO] 25 SHERIDAN HEALTHCARE Summary Historical Financials - Income Statement ($ in millions) Actual ----------------------------- 1996(a) 1997 1998 CAGR =============================================================== ====== Internal Revenue $52.9 $55.5 $56.6 3.4% Acquired Revenue 39.8 43.3 56.3 18.9 ======= ======= ======= Total Net Revenue $92.8 $98.7 $113.0 10.4 Growth -- 6.4% 14.4% Gross Margin $23.0 $25.6 $31.0 16.1 % of Revenues 24.8% 26.0% 27.5% EBITDA $11.5 $13.3 $19.1 29.0 % of Revenues 12.4% 13.5% 16.9% EBIT $8.0 $10.5 $14.8 35.9 % of Revenues 8.6% 10.7% 13.1% Net Income $5.2 $5.2 $6.4 10.3 % of Revenues 5.6% 5.3% 5.6% - - ------------------------------------------------------------------------- (a) Excludes write-down of $17.4 million on 11/4/96 related to change in strategic direction away from primary care business and non-strategic office based physician practices. Write down consists of $13.9 million of goodwill, $1.1 million of property and equipment, $0.4 million of intangible assets and $2.0 million in accrued expenses. SALOMON SMITH BARNEY ---------------------------- 23 A member of citigroup [LOGO] 26 SHERIDAN HEALTHCARE Historical Schedule of Sheridan's Acquisitions (1996-1997) (Dollars in thousands) EBITDA Acquisition Acquired Purchase Practice Name Description Date EBITDA Consideration Multiple - - ----------------------------------------------------------------------------------------------------------------------------- Harold Williams, M.D. Office-Based 2/96 NA $175 NM Internal Medicine Neonatology Certified, Inc. & Hospital-Based 3/96 $2,100 9,600 4.6x Childrens' Hospital Services, Inc. Neonatology & Pediatrics Rubin, Mehta, Davila, P.A. Office-Based 7/96 300 1,335 4.5 Obstetrics and Gynecology Kenneth Blaze, D.O., P.A. Office Based 10/96 175 875 5.0 Internal Medicine West Broward OB/Gyn Office-Based 3/97 600 3,126 5.2 Obstetrics and Gynecology Becerra and Augustino, M.D., Inc. Office-Based 5/97 525 2,000 3.8 Obstetrics and Gynecology Castillo-Plaza and Associates, M.D., Inc. Office-Based 5/97 250 1,025 4.1 Obstetrics and Gynecology Aventura Ob/Gyn Associates & Office-Based 9/97 600 2,400 4.0 Woman to Woman Obstetrics and Gynecology Obstetrics and Gynecology Frederick N. Herman, M.D., Inc. Office-based 11/97 400 2,000 5.0 General Surgery Physicians' Neonatal Group Hospital-Based 12/1/97 145 435 3.0 Neonatology -------------------------------------------------------------------------------- Total (a) $5,095 $22,971 4.5x -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- High $2,100 $9,600 5.2x Mean 566 2,297 4.3 Median 400 1,668 4.5 Low 145 175 3.0 -------------------------------------------------------------------------------- (a) Weighted average multiple. SALOMON SMITH BARNEY ---------------------------- 24 A member of citigroup [LOGO] 27 SHERIDAN HEALTHCARE Historical Schedule of Sheridan's Acquisitions (1998) (Dollars in thousands) EBITDA Acquisition Acquired Purchase Practice Name Description Date EBITDA Consideration Multiple - - ----------------------------------------------------------------------------------------------------------------------------------- Taranco & Associates Hospital-Based 1/9/98 $1,600 $8,000 5.0x Anesthesiology Comprehentsive Pain Management Hospital-Based & Office-Based 2/1/98 1,800 9,900 5.5 Northwest Florida Anesthesiology Consultants Anesthesiology & Pain Mgt. Gynecology Oncology Associates Office-Based 3/6/98 550 2,200 4.0 Gynecology North Texas Perinatology Hospital-Based 3/4/98 2,500 20,200 8.1 Michael Cavenee, M.D., P.A. Perinatology/Neonatolgy Kenneth Trimmer, M.D., P.A. Gynecology Associates, Dr. Craig Woodard Office-Based 4/24/98 100 300 3.0 Gynecology Dr. Eliezer Livnat Office-Based 5/19/98 100 500 5.0 Infertility Dr. Santiago Triana Office-Based 6/24/98 160 650 4.1 General Surgery Dr. Odalis Sijin Office Based 7/1/98 140 740 5.3 Obstetrics and Gynecology Miami Neonatal Associates Hospital-Based 6/26/98 455 1,500 3.3 Neonatology Dr. Henry Parl Hospital-Based 8/1/98 50 250 5.0 Obstetrics and Gynecology Dr. Rafael Pratts Office Based 8/20/98 450 2,300 5.1 Obstetrics and Gynecology Newman, Schneider, Santos and Semple Office-Based 9/10/98 300 1,500 5.0 Obstetrics and Gynecology ----------------------------------------------------------------------------------- Total (a) $8,205 $ 48,040 5.9x ----------------------------------------------------------------------------------- ----------------------------------------------------------------------------------- High $2,500 $ 20,200 8.1x Mean 684 4,003 4.9 Median 375 1,500 5.0 Low 50 250 3.0 ----------------------------------------------------------------------------------- (a) Weighted average multiple. - - -------------------------------------------------------------------------------- Although Sheridan's mean acquisition multiple for 1998 was 5.0x, it paid substantially higher multiples for larger transactions, raising its weighted average multiple for 1998 to 5.9x SALOMON SMITH BARNEY ---------------------------- 25 A member of citigroup [LOGO] 28 SHERIDAN HEALTHCARE Public Market Values: Sheridan Peer Rankings ------------------------------------------------ Projected 5 Year EPS Growth ------------------------------------------------ 1. Advanced Health 35.0% 2. Pediatrix Medical Group 30.0 3. American Oncology Resources, Inc. 25.0 ------------------------------------------------ 4. Sheridan Healthcare, Inc. 25.0 ------------------------------------------------ 5. PhyMatrix Corporation 22.5 6 American Physician Partners, Inc. 22.5 7. MedPartners, Inc. 20.0 8. AmeriPath, Inc. 20.0 9. Response Oncology, Inc. 20.0 10. ProMedCo Management 19.0 11. PhyCor, Inc. 15.0 ------------------------------------------------ Median 21.3% ------------------------------------------------ ------------------------------------------------ LTM Gross Margin ------------------------------------------------ 1. AmeriPath, Inc. 45.2% 2. American Physician Partners, Inc. 39.0 3. Pediatrix Medical Group 38.4 4. PhyMatrix Corporation 37.4 5. American Oncology Resources, Inc. 31.5 6 Response Oncology, Inc. 30.2 ------------------------------------------------ 7. Sheridan Healthcare, Inc. 27.5 ------------------------------------------------ 8. PhyCor, Inc. 26.4 9. ProMedCo Managment 15.6 10. Advanced Health Corporation 12.0 11. MedPartners, Inc. 4.1 ------------------------------------------------ Median 30.8% ------------------------------------------------ ------------------------------------------------ LTM EBITDA Margin ------------------------------------------------ 1. Pediatrix Medical Group 31.1% 2. AmeriPath, Inc. 29.6 3. American Physician Partners, Inc. 28.0 4. American Oncology Resources, Inc. 18.6 ------------------------------------------------ 5. Sheridan Healthcare, Inc. 16.9 ------------------------------------------------ 6. PhyCor, Inc. 15.6 7. Response Oncology, Inc. 13.9 8. ProMedCo Management 13.1 9. PhyMatrix Corporation 11.9 10. Advanced Health Corporation 0.6 11. MedPartners, Inc. NM ------------------------------------------------ Median 15.6% ------------------------------------------------ (a) Based on First Call Note: Sheridan not included in median calculations Bolded companies are Single Specialty PPMs. SALOMON SMITH BARNEY ---------------------------- 26 A member of citigroup [LOGO] 29 SHERIDAN HEALTHCARE Public Market Values: Sheridan Peer Comparison Market Value Divided by: Fully Dil. Adj ---------------------------------- Price Market Market Cal. 98 Cal. 99(E) Cal. 00(E) Company Name 3/19/99 Value Value (1) Net Inc. Net Inc. Net Inc. - - --------------------------------- ------- ---------- ---------- -------- ---------- ---------- Multispecialty/ Primary Care PPMs Advanced Health Corporation $3.13 $31,458 $19,529 NM NM NM MedPartners, Inc. (5) $3.38 $671,715 $2,280,915 NM 8.0x 5.5x PhyCor, Inc. $5.25 $399,809 $979,753 7.1x 8.2x 7.2x PhyMatrix Corporation $1.97 $64,990 $156,083 5.3x 4.2x 3.4x ProMedCo Management $4.56 $96,451 $119,574 7.4x 6.5x 5.5x ----------------------------------------------------------------------------------------------- Mean 6.6x 6.7x 5.4x Median 7.1x 7.3x 5.5x ----------------------------------------------------------------------------------------------- Single Specialty PPMs (non-dental) American Oncology Resources (4) $7.78 $770,533 $998,971 12.8x 10.4x 8.0x American Physician Partners (2) $6.00 $119,004 $222,260 8.6x 6.7x 5.2x AmeriPath, Inc. $7.50 $161,693 $270,668 8.4x 7.4x 6.2x Pediatrix Medical Group $22.06 $367,306 $384,572 12.5x 9.9x 8.3x Response Oncology, Inc. $2.50 $30,317 $73,925 6.1x 5.2x 4.3x ----------------------------------------------------------------------------------------------- Mean 9.7x 7.9x 6.4x Median 8.6x 7.4x 6.2x ----------------------------------------------------------------------------------------------- Sheridan Healthcare, Inc. $8.25 $57,053 $140,252 10.6x 8.6x 7.4x ---------------------------------------------------------------------------------------------------------------------------- Premium / (Discount) to Multi Specialty Median 49.1% 18.1% 33.6% Premium / (Discount) to Single Specialty Median 23.4% 16.9% 18.8% ---------------------------------------------------------------------------------------------------------------------------- Adjusted Market Value ----------------------------------------------------------------------- Net Revenue EBITDA EBIT ----------- --------------------- --------------------- Latest Qtr. Latest Qtr. Latest Qtr. Company Name LTM Annualized LTM Annualized LTM Annualized - - --------------------------------- ------ ----------- ------- ---------- ------- ----------- Multispecialty/ Primary Care PPMs Advanced Health Corporation 0.3x 0.4x 41.2x(3) NM NM NM MedPartners, Inc. (5) 0.3x 0.3x NM 7.6x NM 14.4x PhyCor, Inc. 0.7x 0.6x 4.4x 4.4x 7.1x 7.7x PhyMatrix Corporation 0.4x 0.5x 5.4x NM 10.4x NM ProMedCo Management 0.6x 0.5x 4.8x 3.8x 6.4x 5.1x ----------------------------------------------------------------------------------------------- Mean 0.5x 0.5x 4.9x 4.1x 7.9x 6.4x Median 0.4x 0.5x 4.8x 4.1x 7.1x 6.4x ----------------------------------------------------------------------------------------------- Single Specialty PPMs (non-dental) American Oncology Resources (4) 1.3x 1.1x 6.7x 6.0x 9.5x 9.0x American Physician Partners (2) 1.8x 1.6x 6.4x 5.8x 9.2x 8.4x AmeriPath, Inc. 1.5x 1.4x 5.4x 4.9x 6.6x 6.2x Pediatrix Medical Group 2.3x 1.9x 7.3x 6.2x 8.5x 7.4x Response Oncology, Inc. 0.6x 0.6x 4.4x 4.2x 6.3x 6.4x ----------------------------------------------------------------------------------------------- Mean 1.5x 1.3x 6.0x 5.4x 8.0x 7.5x Median 1.5x 1.4x 6.4x 5.8x 8.5x 7.4x ----------------------------------------------------------------------------------------------- Sheridan Healthcare, Inc. 1.2x 1.2x 7.3x 6.9x 9.5x 9.1x ---------------------------------------------------------------------------------------------------------------------------- Premium / (Discount) to Multi Specialty Median 198.7% 156.8% 52.2% 68.8% 33.9% 41.4% Premium / (Discount) to Single Specialty Median (18.7%) (16.2%) 14.3% 18.3% 11.7% 23.1% ---------------------------------------------------------------------------------------------------------------------------- (1) Adjusted Market Value = Fully Diluted Market Value + Debt Outstanding - Cash. (2) Pro forma presentation of analyst model. (3) Outlier not calculated in mean and median. (4) Pro forma for announced acquisition of PHYN. (5) Excluded from EBIT and EBITDA mean and median calulation because of its announced plan to exit the PPM business. SALOMON SMITH BARNEY ---------------------------- 27 A member of citigroup [LOGO] 30 SHERIDAN HEALTHCARE Summary of Equity Research View on Sheridan ANALYST COMMENTARY - - -------------------------------------------------------------------------------- Firm/ Comments Analyst/ Date - - -------------------------------------------------------------------------------- Wheat First Union "It appears that the company's acquisition Christopher D. McFadden pipeline is very robust, supported by the 4/22/98 company's growing reputation within the hospital-based physician segment as an efficient operator and integrator of physician networks." - - -------------------------------------------------------------------------------- Prudential Securities "Two years ago, Sheridan made a radical change ... Kenneth C. Bohringer with the decision to exit office-based primary 10/27/98 care medicine, where capitated managed contracts were proving extremely onerous; going forward, the focus would be on positioning the company's core hospital-based specialists ... as hubs around which to form "spokes" of office based physicians." - - -------------------------------------------------------------------------------- Salomon Smith Barney "The company continues to meet earnings Geoffrey E. Harris expectations by wisely managing its growth and 10/20/98 capital consumption. There are clearly abundant growth opportunities available to the company through acquisitions/affiliations however the company is currently constrained by the availability of capital to aggressively grow." - - -------------------------------------------------------------------------------- SALOMON SMITH BARNEY ---------------------------- 28 A member of citigroup [LOGO] 31 SHERIDAN HEALTHCARE 3 PPM INDUSTRY OVERVIEW AND RECENT EVENTS SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 32 SHERIDAN HEALTHCARE Overview of the Physician Practice Management Industry THE RISE OF PHYSICIAN PRACTICE MANAGEMENT There are more than 600,000 physicians in the United States. Physician services represented over $200 billion of total 1997 medical expenditures of nearly $1.2 trillion. Furthermore, physicians control an additional $600 billion through the referral of patients. o Six years ago, the PPM sector did not exist. o Coastal Physician Group and PhyCor were really the only public "Doc" companies, with the combined companies representing less than $500 million in market value in 1992. o The PPM sector has emerged over the past few years through a wave of initial public offerings, driven by one major theme - the acquisition and management of medical practices. o The trend toward more and larger physician groups and membership in independent practice associations has been driven by the following: o Managed Care. A key driver of PPM growth is the entry of managed care into a market. In 1993 and 1994, the power of managed care in health care was rapidly increasing. As a result, many PPM companies, as well as industry leaders, emerged during that period. o Risk management needs. In order to assume the risk associated with an increasingly capitated system, it is necessary for physicians to form groups. This enables them to contract for larger pools of patients, thus diversifying the risk. o Increased competition. Physicians find it advantageous to combine in groups in order to share overhead costs and realize economies of scale. SALOMON SMITH BARNEY ---------------------------- 29 A member of citigroup [LOGO] 33 SHERIDAN HEALTHCARE Overview of the Physician Practice Management Industry CURRENT TRENDS IN PHYSICIAN PRACTICE MANAGEMENT o At the end of 1997, the industry comprised more than 25 public companies, with a market value of nearly $14 billion. o Major players included MedPartners, PhyCor, PhyMatrix and FPA Medical Management. o Since the end of 1997, however, the market value of the PPM sector has dropped by more than 50%, with companies such as MedPartners, FPA, PhyCor and Pediatrix losing value in their stock prices. o This dramatic decline in valuations and company performance is due to a variety of reasons including: o Lowered earnings expectations for some companies, o Accounting changes that have taken place in the industry, o Recent bankruptcies that have been announced, and o The speed at which this industry has moved out of favor (both from a stock performance standpoint and a physician satisfaction standpoint, in some instances). - - -------------------------------------------------------------------------------- Due to a variety of reasons including a changed industry environment and several execution failures, the Physician Practice Management industry is out of favor with investors. SALOMON SMITH BARNEY ---------------------------- 30 A member of citigroup [LOGO] 34 SHERIDAN HEALTHCARE PPM Market Performance WEEKLY DATA -- 1/5/96 THROUGH 3/19/99 [GRAPHIC OMITTED] Summary Statistics: High Low Average Latest 210% 97% 145% 210% 129% 29% 84% 29% - - -------------------------------------------------------------------------------- The PPM sector has significantly under-performed the S&P 500 Index since October 1997. SALOMON SMITH BARNEY ---------------------------- 31 A member of citigroup [LOGO] 35 SHERIDAN HEALTHCARE Sheridan vs. Pediatrix Stock Price Performance DAILY DATA: 3/19/98 THROUGH 3/19/99 [GRAPHIC OMITTED] Summary Statistics: High Low Average Latest 111% 43% 67% 54% 148% 44% 100% 50% - - -------------------------------------------------------------------------------- Pediatrix, Sheridan's leading local competitor, lost approximately half of its value when it restated its earnings in early February due to an accounting change. SALOMON SMITH BARNEY ---------------------------- 32 A member of citigroup [LOGO] 36 SHERIDAN HEALTHCARE Overview of the Physician Practice Management Industry CONCLUSION o Market Exit. One of the conclusions reached by several companies in this area was to get out of the PPM business, and focus on more prosperous, profitable and growing product lines. o The biggest example of this decision came through MedPartners, which announced broad PPM market exit with its September, 1998 Q3 results, reported in early November of this past year. o In addition, PhyMatrix also sought to get out of their physician organization structures. o Restricted Access to Capital. The decline in the PPM sector's valuation will restrict its access to capital. o Growth in the PPM sector is based on access to large amounts of capital for the consolidation of doctors and investments in systems. o The decline in the access to capital should continue to drive an accelerated shake-out in the industry, as those companies that use high-multiple stock to create earnings growth are differentiated from the companies that truly add value to the practices under management. SALOMON SMITH BARNEY ---------------------------- 33 A member of citigroup [LOGO] 37 SHERIDAN HEALTHCARE 4 SUMMARY VALUATION ANALYSIS SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 38 SHERIDAN HEALTHCARE Overview of Methodologies We used several methodologies to determine a summary valuation range(a) : o Public Market Valuation o Discounted Cash Flow Valuation: o At Management's assumption of 5.0x EBITDA for acquisitions o Sensitivity cases of 6.0x and 7.0x EBITDA for acquisitions o No acquisitions o Private Market Valuation - - -------- (a) These summary valuations do not take into account any additional strategic value or synergies that a buyer may realize. Note: Salomon Smith Barney ran sensitivity cases of 6.0x and 7.0x EBITDA for acquisitions in the event a 5.0x multiple were not to be sustained going forward (in light of recent trend toward higher acquisition multiples). SALOMON SMITH BARNEY ---------------------------- 34 A member of citigroup [LOGO] 39 SHERIDAN HEALTHCARE Valuation Summary [The following table was depicted as a bar chart in the printed material.] Equity Value Per Share (In Dollars) Current Price-3/19/99 $8.25(a) Private Market Comparable Analysis Valuation $8.00-$13.00 5-Year DCF (without acquisitions) $3.75-$5.50 5-Year DCF (with acquisitions- 7.0x EBITDA purchase price) $4.00-$8.50 5-Year DCF (with acquisitions- 6.0x EBITDA purchase price) $9.50-$14.00 5-Year DCF (with acquisitions- 5.0x EBITDA purchase price) $15.00-$19.50 (a) $9.25 represents Vestar Capital's offer price. Note: Equity value reflects debt and contingencies of $85.2 million, and option proceeds of $2.0 million. Equity value per share reflects 6.916 million diluted shares before treasury method share buy-back. All assumptions as of March 19, 1999. Note: Salomon Smith Barney ran sensitivity cases of 6.0x and 7.0x EBITDA for acquisitions in the event a 5.0x multiple were not to be sustained going forward (in light of recent trend toward higher acquisition multiples). SALOMON SMITH BARNEY ---------------------------- 35 A member of citigroup [LOGO] 40 SHERIDAN HEALTHCARE Discounted Cash Flow Analysis OVERVIEW o Salomon Smith Barney has performed a DCF analysis of Sheridan looking at four cases: o Case 1: Including management's projected acquisitions (at management's projected 5.0x EBITDA purchase price) o Case 2: Including management's projected acquisitions (at a 6.0x EBITDA purchase price) o Case 3: Including management's projected acquisitions (at a 7.0x EBITDA purchase price) o Case 4: Excluding projected acquisitions KEY ASSUMPTIONS o Sheridan projections based on 1999-2003 forecasts provided by the Company's management o Valuations as of March 22, 1999 o Total debt and shares outstanding balances as of March 16, 1999 o Excess cash is not available o No acquisition expenditures occur in the first quarter of 1999 VALUATION PARAMETERS o WACC rate range of 10.00% - 11.00% o Midpoint EBITDA multiples: o 6.0x for cases 1 - 3 (with acquisitions) o 4.5x for case 4 (without acquisitions) Note: Salomon Smith Barney ran sensitivity cases of 6.0x and 7.0x EBITDA for acquisitions in the event a 5.0x multiple were not to be sustained going forward (in light of recent trend toward higher acquisition multiples). SALOMON SMITH BARNEY ---------------------------- 36 A member of citigroup [LOGO] 41 SHERIDAN HEALTHCARE Financial Projections - Income Statement (Management's Base Case) ($ in millions) Projected --------------------------------------------------- 1999 2000 2001 2002 2003 CAGR ============================================================================== ====== Net Revenue $172.8 $216.4 $264.6 $313.5 $380.0 21.8% Growth NM 25.3% 22.3% 18.5% 21.2% EBITDA $32.1 $40.6 $52.7 $67.0 $82.9 26.8 % of Revenues 18.6% 18.8% 19.9% 21.4% 21.8% EBIT $24.4 $30.8 $40.7 $52.5 $66.3 28.4 % of Revenues 14.1% 14.2% 15.4% 16.8% 17.4% Net Income $9.9 $12.4 17.2 $22.8 $28.8 30.7 % of Revenues 5.7% 5.7% 6.5% 7.3% 7.6% - - ------------------------------------------------------------------------------ Capital Expenditure $4.0 $3.5 $3.0 $3.0 $3.0 Acquisition Expenditure 60.0 35.0 40.0 50.0 65.0 - - ------------------------------------------------------------------------------ SALOMON SMITH BARNEY ---------------------------- 37 A member of citigroup [LOGO] 42 SHERIDAN HEALTHCARE Financial Projections - Income Statement (Without Acquisitions) ($ in millions) Projected --------------------------------------------------- 1999 2000 2001 2002 2003 CAGR ================================================================================ ====== Net Revenue $122.2 $136.7 $152.6 $162.4 $178.6 10.0% Growth NM 11.9% 11.6% 6.4% 10.0% % of Base Case Revenues 70.7% 63.2 57.7 51.8 47.0 EBITDA $19.5 $21.2 $25.6 $27.1 $29.7 11.1 % of Revenues 16.0% 15.5% 16.8% 16.7% 16.6% % of Base Case EBITDA 60.7 52.1 48.6 40.4 35.8 EBIT $14.0 $14.9 $18.8 $19.8 $22.8 13.0 % of Revenues 11.4% 10.9% 12.3% 12.2% 12.8% % of Base Case EBIT 57.3 48.4 46.2 37.6 34.4 Net Income $4.7 $5.5 $8.2 $7.3 $8.7 16.4 % of Revenues 3.9% 4.0% 5.4% 4.5% 4.9% % of Base Case Net Income 48.0 44.0 47.8 32.0 30.3 - - -------------------------------------------------------------------------------- Capital Expenditure $4.0 $3.5 $3.0 $3.0 $3.0 Acquisition Expenditure 0.0 0.0 0.0 0.0 0.0 - - -------------------------------------------------------------------------------- SALOMON SMITH BARNEY ---------------------------- 38 A member of citigroup [LOGO] 43 SHERIDAN HEALTHCARE Case 1: Management Projections With Acquisitions (5.0x EBITDA Purchase Price) o A DCF valuation of unlevered free cash flows, which includes projected acquisitions at a 5.0x EBITDA purchase price, generates a valuation range of approximately $15.00-$19.50 for the Company. Terminal EBITDA Multiple Range Terminal EBITDA Multiple Range ================================================== =================================================== 5.50x 5.75x 6.00x 6.25x 6.50x 5.50x 5.75x 6.00x 6.25x 6.50x -------------------------------------------------- --------------------------------------------------- Terminal Value Implied Terminal P/E Multiple ================================================== =================================================== $456 $477 $498 $518 $539 9.61x 10.33x 11.05x 11.77x 12.49x -------------------------------------------------- --------------------------------------------------- WACC Firm Value as of 3/22/99 WACC Equity Value as of 3/22/99 (a) =========================================================== ============================================================ 10.0% $182 $195 $208 $222 $235 10.0% $99 $112 $125 $138 $152 ----------------------------------------- ------------------------------- 10.3% 179 192 205 218 231 10.3% 96 109 122 135 148 10.5% 177 190 203 215 228 10.5% 94 106 119 132 145 10.8% 174 187 200 212 225 10.8% 91 104 116 129 142 ----------------------------------------- ------------------------------- 11.0% 172 184 197 209 222 11.0% 88 101 114 126 139 - - ----------------------------------------------------------- ------------------------------------------------------------ WACC Implied Perpetuity Growth Rate (b) WACC Equity Value per Share as of 3/22/99 (c) =========================================================== ============================================================ 10.0% 2.0% 2.4% 2.7% 2.9% 3.2% 10.0% $14.31 $16.21 $18.11 $20.02 $21.92 ----------------------------------------- ------------------------------- 10.3% 2.3 2.6 2.9 3.2 3.4 10.3% 13.92 15.80 17.68 19.56 21.44 10.5% 2.5 2.8 3.1 3.4 3.7 10.5% 13.53 15.39 17.26 19.12 20.98 10.8% 2.7 3.1 3.4 3.6 3.9 10.8% 13.15 14.99 16.83 18.68 20.52 ----------------------------------------- ------------------------------- 11.0% 3.0 3.3 3.6 3.9 4.1 11.0% 12.78 14.60 16.42 18.24 20.06 - - ----------------------------------------------------------- ------------------------------------------------------------ (a) Equity Value equals Firm Value less total straight debt and contingencies of $85.2 million (comprised of $74.0 million of bank debt, $6.1 million of Texas June Payment, $0.2 million of remaining share price guarantees, $1.4 million of deferred compensation, $0.8 million of capital leases, $0.3 million of notes payable and $2.5 million of management change of control payments and D&O Tail Policy), plus options proceeds of $2.0 million. (b) Terminal free cash flow adjusted to exclude acquisition expenditures. (c) Equity Value per Share equals Equity Value divided by Diluted shares outstanding of 6.916 million, before Treasury Stock Method share buy-back. SALOMON SMITH BARNEY ---------------------------- 39 A member of citigroup [LOGO] 44 SHERIDAN HEALTHCARE Case 2: Management Projections With Acquisitions (6.0x EBITDA Purchase Price) o A DCF valuation of unlevered free cash flows, which includes projected acquisitions at a 6.0x EBITDA purchase price, generates a valuation range of approximately $9.50-$14.00 for the Company. Terminal EBITDA Multiple Range Terminal EBITDA Multiple Range ================================================== =================================================== 5.50x 5.75x 6.00x 6.25x 6.50x 5.50x 5.75x 6.00x 6.25x 6.50x -------------------------------------------------- --------------------------------------------------- Terminal Value Implied Terminal P/E Multiple ================================================== =================================================== $456 $477 $498 $518 $539 8.79x 9.61x 10.43x 11.25x 12.07x -------------------------------------------------- --------------------------------------------------- WACC Firm Value as of 3/22/99 WACC Equity Value as of 3/22/99 (a) =========================================================== ============================================================ 10.0% $144 $157 $170 $183 $196 10.0% $60 $74 $87 $100 $113 ----------------------------------------- ------------------------------- 10.3% 141 154 167 180 193 10.3% 58 71 84 97 110 10.5% 139 152 164 177 190 10.5% 55 68 81 94 107 10.8% 136 149 162 174 187 10.8% 53 66 78 91 104 ----------------------------------------- ------------------------------- 11.0% 134 146 159 172 184 11.0% 51 63 76 88 101 - - ----------------------------------------------------------- ------------------------------------------------------------ WACC Implied Perpetuity Growth Rate (b) WACC Equity Value per Share as of 3/22/99 (c) =========================================================== ============================================================ 10.0% 1.9% 2.2% 2.5% 2.8% 3.1% 10.0% $8.74 $10.64 $12.54 $14.44 $16.35 ----------------------------------------- ------------------------------- 10.3% 2.1 2.4 2.7 3.0 3.3 10.3% 8.38 10.26 12.14 14.02 15.90 10.5% 2.3 2.7 3.0 3.3 3.5 10.5% 8.02 9.88 11.74 13.60 15.46 10.8% 2.6 2.9 3.2 3.5 3.8 10.8% 7.66 9.50 11.35 13.19 15.03 ----------------------------------------- ------------------------------- 11.0% 2.8 3.1 3.4 3.7 4.0 11.0% 7.32 9.14 10.96 12.78 14.60 - - ----------------------------------------------------------- ------------------------------------------------------------ (a) Equity Value equals Firm Value less total straight debt and contingencies of $85.2 million (comprised of $74.0 million of bank debt, $6.1 million of Texas June Payment, $0.2 million of remaining share price guarantees, $1.4 million of deferred compensation, $0.8 million of capital leases, $0.3 million of notes payable and $2.5 million of management change of control payments and D&O Tail Policy), plus options proceeds of $2.0 million. (b) Terminal free cash flow adjusted to exclude acquisition expenditures. (c) Equity Value per Share equals Equity Value divided by Diluted shares outstanding of 6.916 million, before Treasury Stock Method share buy-back. SALOMON SMITH BARNEY ---------------------------- 40 A member of citigroup [LOGO] 45 SHERIDAN HEALTHCARE Case 3: Management Projections With Acquisitions (7.0x EBITDA Purchase Price) o A DCF valuation of unlevered free cash flows, which includes projected acquisitions at a 7.0x EBITDA purchase price, generates a valuation range of approximately $4.00-$8.50 for the Company. Terminal EBITDA Multiple Range Terminal EBITDA Multiple Range ================================================== =================================================== 5.50x 5.75x 6.00x 6.25x 6.50x 5.50x 5.75x 6.00x 6.25x 6.50x -------------------------------------------------- --------------------------------------------------- Terminal Value Implied Terminal P/E Multiple ================================================== =================================================== $456 $477 $498 $518 $539 7.71x 8.66x 9.62x 10.57x 11.52x -------------------------------------------------- --------------------------------------------------- WACC Firm Value as of 3/22/99 WACC Equity Value as of 3/22/99 (a) =========================================================== ============================================================ 10.0% $105 $118 $131 $145 $158 10.0% $22 $35 $48 $61 $75 ------------------------------- ------------------------------- 10.3% 103 116 129 142 155 10.3% 20 33 46 59 72 10.5% 101 113 126 139 152 10.5% 17 30 43 56 69 10.8% 98 111 124 136 149 10.8% 15 28 40 53 66 ------------------------------- ------------------------------- 11.0% 96 109 121 134 146 11.0% 13 25 38 51 63 - - ----------------------------------------------------------- ------------------------------------------------------------ WACC Implied Perpetuity Growth Rate (b) WACC Equity Value per Share as of 3/22/99 (c) =========================================================== ============================================================ 10.0% 1.7% 2.1% 2.4% 2.7% 2.9% 10.0% $3.17 $5.07 $6.97 $8.87 $10.78 ------------------------------- ------------------------------- 10.3% 2.0 2.3 2.6 2.9 3.2 10.3% 2.83 4.71 6.60 8.48 10.36 10.5% 2.2 2.5 2.8 3.1 3.4 10.5% 2.50 4.36 6.22 8.08 9.94 10.8% 2.4 2.8 3.1 3.4 3.6 10.8% 2.17 4.02 5.86 7.70 9.54 ------------------------------- ------------------------------- 11.0% 2.7 3.0 3.3 3.6 3.9 11.0% 1.85 3.67 5.49 7.32 9.14 - - ----------------------------------------------------------- ------------------------------------------------------------ (a) Equity Value equals Firm Value less total straight debt and contingencies of $85.2 million (comprised of $74.0 million of bank debt, $6.1 million of Texas June Payment, $0.2 million of remaining share price guarantees, $1.4 million of deferred compensation, $0.8 million of capital leases, $0.3 million of notes payable and $2.5 million of management change of control payments and D&O Tail Policy), plus options proceeds of $2.0 million. (b) Terminal free cash flow adjusted to exclude acquisition expenditures. (c) Equity Value per Share equals Equity Value divided by Diluted shares outstanding of 6.916 million, before Treasury Stock Method share buy-back. SALOMON SMITH BARNEY ---------------------------- 41 A member of citigroup [LOGO] 46 SHERIDAN HEALTHCARE Case 4: Management Projections Without Acquisitions o A DCF valuation of unlevered free cash flows, which excludes projected acquisitions, generates a valuation range of approximately $3.75-$5.50 for the Company. Terminal EBITDA Multiple Range Terminal EBITDA Multiple Range ================================================== =================================================== 4.00x 4.25x 4.50x 4.75x 5.00x 4.00x 4.25x 4.50x 4.75x 5.00x -------------------------------------------------- --------------------------------------------------- Terminal Value Implied Terminal P/E Multiple ================================================== =================================================== $119 $126 $134 $141 $148 9.54x 10.39x 11.24x 12.10x 12.95x -------------------------------------------------- --------------------------------------------------- WACC Firm Value as of 3/22/99 WACC Equity Value as of 3/22/99 (a) =========================================================== ============================================================ 10.0% $108 $113 $118 $122 $127 10.0% $25 $30 $34 $39 $44 ------------------------------- ------------------------------- 10.3% 107 112 116 121 126 10.3% 24 29 33 38 43 10.5% 106 111 115 120 125 10.5% 23 28 32 37 41 10.8% 105 110 114 119 123 10.8% 22 26 31 36 40 ------------------------------- ------------------------------- 11.0% 104 109 113 118 122 11.0% 21 25 30 34 39 - - ----------------------------------------------------------- ------------------------------------------------------------ WACC Implied Perpetuity Growth Rate (b) WACC Equity Value per Share as of 3/22/99 (c) =========================================================== ============================================================ 10.0% 2.4% 2.8% 3.2% 3.5% 3.8% 10.0% $3.60 $4.28 $4.96 $5.64 $6.32 ------------------------------- ------------------------------- 10.3% 2.6 3.0 3.4 3.7 4.0 10.3% 3.45 4.13 4.80 5.47 6.15 10.5% 2.8 3.2 3.6 4.0 4.3 10.5% 3.31 3.98 4.64 5.31 5.98 10.8% 3.1 3.5 3.9 4.2 4.5 10.8% 3.17 3.83 4.49 5.15 5.81 ------------------------------- ------------------------------- 11.0% 3.3 3.7 4.1 4.4 4.7 11.0% 3.03 3.68 4.34 4.99 5.64 - - ----------------------------------------------------------- ------------------------------------------------------------ (a) Equity Value equals Firm Value less total straight debt and contingencies of $85.2 million (comprised of $74.0 million of bank debt, $6.1 million of Texas June Payment, $0.2 million of remaining share price guarantees, $1.4 million of deferred compensation, $0.8 million of capital leases, $0.3 million of notes payable and $2.5 million of management change of control payments and D&O Tail Policy), plus options proceeds of $2.0 million. (b) Terminal free cash flow adjusted to exclude acquisition expenditures. (c) Equity Value per Share equals Equity Value divided by Diluted shares outstanding of 6.916 million, before Treasury Stock Method share buy-back. SALOMON SMITH BARNEY ---------------------------- 42 A member of citigroup [LOGO] 47 SHERIDAN HEALTHCARE Private Market Valuation Summary Implied Equity Private Market Comparables Implied Firm Implied Equity Value per Multiple Range Value Range Value(a) Share(b) Sheridan -------------- ---------------- --------------- --------------- (Dollars in millions, Except per Share Data) Data Low High Low High Low High Low High ======================================================= ============== ================ =============== =============== Firm Value/ 1998 Revenues $113.0 1.2x 1.5x $135.6 $169.5 $52.4 $86.3 $7.58 $12.48 1998 EBITDA $19.1 6.0x 9.0x $114.9 $172.3 $31.7 $89.1 $4.58 $12.89 - - ----------------------------------------------------------------------------------------------------------------------------------- ============================================== Sheridan Valuation Range $8.00 $13.00 ============================================== =================================================================================================================================== Note: Equity Value equals Firm Value less total debt and contingencies, plus cash and options and warrants proceeds. (a) Equity Value reflects net debt and other items of $85.2 million, and Option Proceeds of $2.0 million. (b) Equity Value per share reflects 6.916 million diluted shares, before treasury stock method share buyback. SALOMON SMITH BARNEY ---------------------------- 43 A member of citigroup [LOGO] 48 SHERIDAN HEALTHCARE Private Market Values: Selected Acquisition Transactions (Dollars in thousands) MULTIPLES ANALYSIS Multiples of Transaction Value ------------------------------- Date Transaction LTM LTM LTM Announced Target / Acquiror Value Revenues EBITDA EBIT - - --------- ------------------------------------------- ----------- -------- ------ ------ Jan-99 Team Health (subsidiary of MedPartners) (a) $341,400 0.7x 6.0x 7.0x Madison Dearborn Partners (Cornerstone Equity Investors, Beecken Petty) Dec-98 Physician Reliance Network 690,874 1.8 9.7 14.5 American Oncology Resources (b) Oct-97 Spectrum Emergency Care Inc. (c) NA NA 5.0 NA Laidlaw Inc. Jul-97 Health Partners, Inc. (d) 114,000 0.8 NM NM FPA Medical Management, Inc. Jul-97 EmCare Holdings, Inc. (d) 379,500 1.8 15.7 19.6 Laidlaw Inc. Apr-97 OccuSystems (d) 581,623 3.3 18.6 24.5 CRA Managed Care Jan-97 InPhyNet Medical Management, Inc. (d) 563,300 1.2 14.6 17.0 MedPartners Inc. Nov-96 American Ophthalmic Inc. (d) 122,100 2.0 13.3 21.1 Physicians Resource Group Inc. Nov-96 AHI Healthcare Systems, Inc. (d) 109,600 0.9 NM NM FPA Medical Management, Inc. -------------------------------------------------------- Low 0.7x 5.0x 7.0x Median 1.5 6.0 10.8 Mean 1.6 6.9 10.8 High 3.3 18.6 24.5 -------------------------------------------------------- Note: This list excludes PPMs which focus on primary care or dental. (a) Based on Salomon Smith Barney estimates. (b) Based on American Oncology Resources closing market price of $13.00 on 12/11/98. (c) Terms of the transaction not disclosed. Source of EBITDA multiple: 10/6/97 press release. (d) Transactions which occurred before October 1997 are excluded from LTM EBITDA and EBIT transaction multiple median and mean calculations. - - -------------------------------------------------------------------------------- The recent acquisition of Team Health by Cornerstone Equity/Madison Dearborn is the most comparable recent precedent transaction. SALOMON SMITH BARNEY ---------------------------- 44 A member of citigroup [LOGO] 49 SHERIDAN HEALTHCARE Private Market Values: Selected Acquisition Transactions (cont.) PREMIUM ANALYSIS Stock Price Premium Paid Prior to Announcement Date Purchase -------------------------------- Announced Target / Acquiror Price (a) 1 Day 1 Week 1 Month - - --------- ------------------------------------------- ----------- -------- ------ ------- Jan-99 Team Health (subsidiary of MedPartners) (b) -- NA NA NA Madison Dearborn Partners (Cornerstone Equity Investors, Beecken Petty) Dec-98 Physician Reliance Network $12.22 6.3% 17.8% 24.1% American Oncology Resources (c) Oct-97 Spectrum Emergency Care Inc. (b) -- NA NA NA Laidlaw Inc. Jul-97 Health Partners, Inc. (b) -- NA NA NA FPA Medical Management, Inc. July-97 EmCare Holdings, Inc. (c) 38.00 NM NM NM Laidlaw Inc. Apr-97 OccuSystems 21.21 10.9 10.9 NM CRA Managed Care Jan-97 InPhyNet Medical Management, Inc. 26.38 7.1 28.7 46.5 MedPartners Inc. Nov-96 American Ophthalmic Inc. (b) -- NA NA NA Physicians Resource Group Inc. Nov-96 AHI Healthcare Systems, Inc. 8.75 20.7 45.8 34.6 FPA Medical Management, Inc. --------------------------------------------------------- Low 6.3% 10.9% 24.1% Median 9.0% 23.2% 34.6% Mean 11.2% 25.8% 35.1% High 20.7% 45.8% 46.5% --------------------------------------------------------- Note: This list excludes PPMs which focus on primary care or dental. (a) Price per share at date of announcement. (b) Target is private company. (c) Offer represents a 63% premium to EmCare's closing price on 2/12/97, when the company announced an agreement to pay the U.S. government $8 million to settle allegations of false billing. (d) Median price of collar. SALOMON SMITH BARNEY ---------------------------- 45 A member of citigroup [LOGO] 50 SHERIDAN HEALTHCARE APPENDIX SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 51 SHERIDAN HEALTHCARE A. COMPARABLE PUBLICLY TRADED COMPANIES SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 52 SHERIDAN HEALTHCARE Overview of Major PPM's SINGLE SPECIALITY (Dollars in Millions) Market Name Value(1) Business Focus/Description - - --------------------------------- -------- ------------------------------- American Oncology Resources, Inc. $770.5 American Oncology Resources is a multi-state physician practice management company focusing exclusively on oncology. The Company's physician practices provide a broad range of medical services to cancer patients, integrating the specialties of medical and gynecological oncology, hematology, radiation oncology, stem cell transplantation and diagnostic radiology. - - -------------------------------------------------------------------------------- American Physician Partners, Inc. $119.0 American Physician Partners is a leading provider of physician practice management services to radiology practices. The Company develops, consolidates and manages integrated radiology and imaging service systems. - - -------------------------------------------------------------------------------- AmeriPath, Inc. $161.7 AmeriPath is the leading physician practice management company focused on anatomic pathology services. - - -------------------------------------------------------------------------------- Pediatrix Medical Group $367.3 Pediatrix is a leading national provider of physician management services to hospital-based neonatal intensive care units, pediatric intensive care units and to pediatrics departments in hospitals. - - -------------------------------------------------------------------------------- Response Oncology, Inc. $30.3 Response Oncology is a comprehensive cancer management company. The Company provides advanced cancer treatment services through outpatient facilities, manages the practices of oncologists with whom the Company has affiliated and conducts clinical cancer research on behalf of pharmaceutical manufacturers. - - -------------------------------------------------------------------------------- - - -------- (1) Fully diluted market value based on closing price at March 19, 1999. SALOMON SMITH BARNEY ---------------------------- 46 A member of citigroup [LOGO] 53 SHERIDAN HEALTHCARE Overview of Major PPM's MULTI SPECIALTY (Dollars in Millions) Market Name Value(1) Business Focus/Description - - --------------------------------- -------- ------------------------------- Advanced Health Corporation $31.5 Advanced Health Corporation provides physician services through the management of multi-specialty and single-specialty physician group practices and networks. The Company focuses its management efforts on high-cost, high-volume disease specialties, such as cardiology, oncology and orthopedics. - - -------------------------------------------------------------------------------- MedPartners, Inc. $671.7 MedPartners is the nation's largest physician practice management company. Through the Company's network of affiliated group and IPA physicians, MedPartners provides primary and specialty health care services to prepaid physician practices in 25 states. - - -------------------------------------------------------------------------------- PhyCor, Inc. $399.8 PhyCor is the second largest physician practice management company. The Company acquires and operates multi-specialty medical clinics and develops and manages independent practice associations. - - -------------------------------------------------------------------------------- PhyMatrix Corporation $65.0 PhyMatrix corporation is a comprehensive health care company focused on creating physician-based health care networks within specific markets. The Company provides management services to disease-specific and primary care physicians and supports these physicians through certain medical support services in selected markets. - - -------------------------------------------------------------------------------- ProMedCo Management $96.5 ProMedCo is a physician practice management company that consolidates its affiliated physician groups into primary-care-driven multi-specialty networks. Additionally, their services include clinical quality assessment, enrollment and patient registration, capitation and processing payment, utilization and case management. - - -------------------------------------------------------------------------------- - - -------- (1) Fully diluted market value based on closing price at March 19, 1999. SALOMON SMITH BARNEY ---------------------------- 47 A member of citigroup [LOGO] 54 SHERIDAN HEALTHCARE B. PRECEDENT PPM TRANSACTIONS SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 55 SHERIDAN HEALTHCARE Private Market Values: Acquisition Transactions (dollars in thousands) Date Equity Transaction Announced Target / Acquiror Segment Value Value - - --------- ---------------------------------------------- ---------------- -------- ----------- Jan-99 Team Health (subsidiary of MedPartners) (a) Emergency NA $341,400 Madison Dearborn Partners (Cornerstone Equity Investors, Beecken Petty) Dec-98 Physician Reliance Network Single Specialty $642,784 690,874 American Oncology Resources (b) Sept-98 Valley Forge Dental Associates Dental $18,000 60,000 Monarch Dental Corporation Mar-98 Medcath Single Specialty 384,598 440,000 KKR, Welsh Carson Anderson & Stowe Mar-98 First Physician Care Primary/ 73,999 81,252 PhyCor, Inc. Multispecialty Oct-97 Spectrum Emergency Care Inc. (c) Emergency NA NA Laidlaw Inc. Aug-97 Talbert Medical Management Primary/ 200,300 145,300 MedPartners Inc. Multispecialty July-97 Health Partners, Inc. IPA 119,000 114,000 FPA Medical Management, Inc. July-97 EmCare Holdings, Inc. Emergency 333,300 379,500 Laidlaw Inc. Apr-97 OccuSystems Single Specialty 504,033 581,623 CRA Managed Care Jan-97 InPhyNet Medical Management, Inc. Emergency 493,700 563,300 MedPartners Inc. Nov-96 American Ophthalmic Inc. Single Specialty 68,200 122,100 Physicians Resource Group Inc. Nov-96 AHI Healthcare Systems, Inc. IPA 129,800 109,600 FPA Medical Management, Inc. Nov-96 STAT Healthcare Emergency 120,905 125,703 American Medical Response July-96 Foundation Health Clinics Primary/ 105,000 197,000 FPA Medical Management, Inc. Multispecialty May-96 PCA Clinics (Florida) Primary/ 25,718 22,000 FPA Medical Management, Inc. Multispecialty Multiples of Transaction Value ---------------------------------- Purchase Date LTM LTM LTM Price / LTM Forward Announced Target / Acquiror Revenues EBITDA EBIT Net Income P/E - - --------- ---------------------------------------------- ---------- ------ ----- ----------- ------- Jan-99 Team Health (subsidiary of MedPartners) (a) 0.7x 6.0x 7.0x NA NA Madison Dearborn Partners (Cornerstone Equity Investors, Beecken Petty) Dec-98 Physician Reliance Network 1.8 9.7 14.5 23.7x 18.2x American Oncology Resources (b) Sept-98 Valley Forge Dental Associates 1.0 NA NA NA NA Monarch Dental Corporation Mar-98 Medcath 4.0 15.3 27.8 55.3 29.2 KKR, Welsh Carson Anderson & Stowe Mar-98 First Physician Care 1.4 NM NM NM NA PhyCor, Inc. Oct-97 Spectrum Emergency Care Inc. (c) NA 5.0 NA NA NA Laidlaw Inc. Aug-97 Talbert Medical Management 0.3 NM NM NM NM MedPartners Inc. July-97 Health Partners, Inc. 0.8 NM NM NM NA FPA Medical Management, Inc. July-97 EmCare Holdings, Inc. 1.8 15.7 19.6 29.8 24.5 Laidlaw Inc. Apr-97 OccuSystems 3.3 18.6 24.5 37.8 17.3 CRA Managed Care Jan-97 InPhyNet Medical Management, Inc. 1.2 14.6 17.0 27.9 21.4 MedPartners Inc. Nov-96 American Ophthalmic Inc. 2.0 13.3 21.1 NM NA Physicians Resource Group Inc. Nov-96 AHI Healthcare Systems, Inc. 0.9 NM NM NM NM FPA Medical Management, Inc. Nov-96 STAT Healthcare 3.7 20.7 22.0 28.4 31.8 American Medical Response July-96 Foundation Health Clinics 1.3 NM NM NM NA FPA Medical Management, Inc. May-96 PCA Clinics (Florida) 0.5 9.4 44.5 70.6 NA FPA Medical Management, Inc. (CONTINUED ON NEXT PAGE) SALOMON SMITH BARNEY ---------------------------- 48 A member of citigroup [LOGO] 56 SHERIDAN HEALTHCARE Private Market Values: Acquisition Transactions (cont.) (dollars in thousands) Date Equity Transaction Announced Target / Acquiror Segment Value Value - - --------- ---------------------------------------------- ---------------- ---------- ----------- May-96 Caremark International Primary/ $2,464,167 $2,844,367 MedPartners/Mullikin Inc. Multispecialt May-96 Sterling Healthcare Group Inc. Emergency 199,888 211,288 FPA Medical Management, Inc. Mar-96 EyeCorp, Inc. (d) Single Specialty 139,100 162,200 Physicians Resource Group Inc. Dec-95 Pacific Physician Services Primary/ 322,617 317,619 MedPartners/Mullikin Inc. Multispecialty Aug-95 Mullikin Medical Enterprises (e) Primary/ 345,000 339,343 MedPartners Inc. Multispecialty Apr-95 Salick Healthcare Single Specialty 223,236 204,000 Zeneca Pharmaceuticals Aug-94 Friendly Hills Healthcare Primary/ 150,000 221,000 Caremark International Multispecialty Jul-94 Thomas-Davis Medical Center Primary/ 465,600 474,200 Foundation Health Corp. Multispecialty Multiples of Transaction Value ---------------------------------- Purchase Date LTM LTM LTM Price / LTM Forward Announced Target / Acquiror Revenues EBITDA EBIT Net Income P/E - - --------- ---------------------------------------------- ---------- ------ ----- ----------- ------- May-96 Caremark International 1.2x 18.3x 22.5x 32.8x 20.2x MedPartners/Mullikin Inc. May-96 Sterling Healthcare Group Inc. 1.7 18.4 24.0 37.7 NA FPA Medical Management, Inc. Mar-96 EyeCorp, Inc. (d) 2.4 12.8 19.1 35.7 NA Physicians Resource Group Inc. Dec-95 Pacific Physician Services 0.8 10.6 16.8 31.4 19.8 MedPartners/Mullikin Inc. Aug-95 Mullikin Medical Enterprises (e) 0.8 14.6 22.9 39.1 NA MedPartners Inc. Apr-95 Salick Healthcare 2.8 14.8 21.9 39.6 NA Zeneca Pharmaceuticals Aug-94 Friendly Hills Healthcare 1.1 8.8 NA NA NA Caremark International Jul-94 Thomas-Davis Medical Center 1.0 14.3 17.6 NM NA Foundation Health Corp. ----------------------------------------------------------------------------- Mean 1.6x 13.4x 21.4x 37.7x 22.8x Median 1.2 14.5 21.5 35.7 20.8 High 4.0 20.7 44.5 70.6 31.8 Low 0.3 5.0 7.0 23.7 17.3 ----------------------------------------------------------------------------- - - ---------- (a) Based on Salomon Smith Barney estimates. (b) Based on American Oncology Resources closing market price of $13.00 on 12/11/98. (c) Terms of the transaction not disclosed. (d) FYE 1995E net income. (e) LTM December 1995. SALOMON SMITH BARNEY ---------------------------- 49 A member of citigroup [LOGO] 57 SHERIDAN HEALTHCARE C. WACC ANALYSIS SALOMON SMITH BARNEY ---------------------------- A member of citigroup [LOGO] 58 WACC Analysis Comparable Companies Debt Equity Cost of Market Total Preferred Debt / Unlevered (Dollars in Millions) Beta Beta(a) Equity(b) Cap. Debt Stock Cap.(Mkt) (Asset) Beta(c) =============================================================================================================================== American Oncology Resources, Inc. 0.00 1.07 13.6% $771 $239 $0 23.6% 0.90 MedPartners 0.00 1.41 16.1 672 1,751 0 72.3 0.54 Pediatrix Medical Group Inc. 0.00 1.18 14.4 367 18 0 4.6 1.15 PhyCor 0.00 1.41 16.1 400 623 0 60.9 0.72 PhyMatrix 0.00 1.14 14.1 65 124 0 65.6 0.53 Physician Reliance Network, Inc. 0.00 0.91 12.4 418 60 0 12.6 0.84 - - ------------------------------------------------------------------------------------------------------------------------------- Median -- 1.16 14.26 -- -- -- 42.27 0.78 Mean 1.19 14.46 -- -- -- 39.94 0.78 - - ------------------------------------------------------------------------------------------------------------------------------- Assumptions ========================================== Tax Rate for Companies 39.0% Tax Rate for Target 39.0% Risk-Free Rate (30-Year TSY) 5.6% Pretax Cost of Debt (e) 8.0% Equity Risk Premium (f) 7.5% Political Risk Premium 0.0% Debt Beta for Target 0.00 - - ------------------------------------------ Weighted Average Cost of Capital(d) ========================================= Debt / Capitalization (Market) Unlevered ----------------------------------------- (Asset) Beta 30% 35% 40% 45% 50% =========================================================== 0.70 10.0% 9.9% 9.7% 9.6% 9.4% ------------------------ 0.75 10.3% 10.2% 10.0% 9.9% 9.7% 0.80 10.7% 10.5% 10.4% 10.2% 10.1% 0.85 11.0% 10.8% 10.7% 10.5% 10.4% ------------------------ 0.90 11.3% 11.2% 11.0% 10.8% 10.7% - - ----------------------------------------------------------- (a) Source: Bloomberg's estimate using Value Line's estimation methodology using returns vs. the S&P 500 as of 3/16/99. (b) Cost of Equity = Risk-Free Rate (R(F)) + Equity Beta(beta)(E) * Equity Risk Premium (R(M) - R(F)). (c) (beta)(A) = (beta)(E) [%E/[%E +%D * (1 - T)] + (beta)(D) * [%D * (1 - T)/%D * (1 - t) + %E]] (d) WACC = [(R(F) + (beta)(E) * (R(M) - R(F)) + R(P)) * %E] + [K(D) * (1 - T) * %D]. Assumes pretax cost of debt remains constant. (e) Any political risk premium (R(P)) is included in the pretax cost of debt (K(D)). (f) Source: Ibbotson Associates. Based on data from 1926 - 1996. - - -------------------------------------------------------------------------------- An analysis of the cost of capital using the capital asset pricing model implies a median cost of equity of 14.0%, and a weighted average cost of capital of 10.4%. SALOMON SMITH BARNEY ---------------------------- 50 A member of citigroup [LOGO]