<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 24, 1998
REGISTRATION NO. 333-37633
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PENTEGRA DENTAL GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8021 76-0545043
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
------------------------------
<TABLE>
<S> <C>
PENTEGRA DENTAL GROUP, INC. GARY S. GLATTER
2999 NORTH 44TH STREET, STE. 650 2999 NORTH 44TH STREET, STE. 650
PHOENIX, ARIZONA 85018 PHOENIX, ARIZONA 85018
(602) 952-1200 (602) 952-1200
(Address, including zip code, and (Name and address, including zip code,
telephone number, including area code, and telephone number, including area
of registrant's principal executive code, of agent for service)
offices)
</TABLE>
------------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD S. ROTH TED W. PARIS
JACKSON WALKER L.L.P. BAKER & BOTTS, L.L.P.
1100 LOUISIANA 910 LOUISIANA
SUITE 4200 SUITE 3000
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
</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,
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, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration 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,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(1) PRICE(2),(3) FEE(4)
<S> <C> <C> <C> <C>
Common Stock, $.001 par value............ -- -- $27,312,500 $8,058
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended,
the number of shares being registered and the proposed maximum offering
price per share are not included in this table.
(2) Includes shares of Common Stock issuable upon exercise of the Underwriters'
over-allotment option.
(3) Estimated solely for purposes of calculating the registration fee.
(4) Previously paid.
------------------------------
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>
SUBJECT TO COMPLETION, DATED FEBRUARY 24, 1998
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.
<PAGE>
2,500,000 SHARES
[LOGO]
PENTEGRA DENTAL GROUP, INC.
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by the
Company. Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price per
share will be between $8.50 and $9.50. For information relating to the factors
to be considered in determining the initial public offering price, see
"Underwriting". The Common Stock has been approved for listing on the American
Stock Exchange under the symbol "PEN."
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------
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>
Underwriting
Discounts
Price to and Proceeds to
Public Commissions(1) Company(2)
<S> <C> <C> <C>
Per Share........................................ $ $ $
Total(3)......................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting estimated expenses of $2,900,000, payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 375,000 shares of Common Stock, solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company, before deducting expenses, will be $ , $ and
$ , respectively. See "Underwriting."
----------------
The shares of Common Stock are offered severally by the Underwriters named
herein subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that certificates
representing the shares of Common Stock will be ready for delivery on or about
, 1998.
Dain Rauscher Incorporated EVEREN Securities, Inc.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
[MAP]
* Pentegra does not intend to employ dentists to practice dentistry or
otherwise control the practice of dentistry by dentists employed by
Affiliated Practices to which it will provide administrative and management
services.
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS AND WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL
INFORMATION FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK
OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
PENTEGRA DENTAL GROUP, INC. ("PENTEGRA" OR THE "COMPANY") WAS RECENTLY
FORMED TO SERVE, UPON COMPLETION OF THE OFFERING, AS THE PARENT CORPORATION OF
PENTEGRA INVESTMENTS, INC. ("PII"). CONCURRENTLY WITH THE CLOSING OF THE
OFFERING MADE HEREBY (THE "OFFERING"), (I) THE COMPANY WILL ACQUIRE, IN SEPARATE
TRANSACTIONS (THE "AFFILIATIONS"), SUBSTANTIALLY ALL THE TANGIBLE AND INTANGIBLE
ASSETS, AND ASSUME CERTAIN LIABILITIES, OF 50 DENTAL PRACTICES (COLLECTIVELY,
THE "FOUNDING AFFILIATED PRACTICES") IN EXCHANGE FOR CASH AND SHARES OF COMMON
STOCK, (II) THE HOLDERS OF COMMON STOCK OF PII WILL EXCHANGE EACH SHARE
OUTSTANDING IMMEDIATELY PRIOR TO THE CLOSING OF THE OFFERING (BUT AFTER GIVING
EFFECT TO A REPURCHASE BY PII OF SHARES OF ITS COMMON STOCK, AT A PURCHASE PRICE
OF $0.015 PER SHARE, SUCH THAT THE TOTAL NUMBER OF SHARES OF COMMON STOCK, PAR
VALUE $0.001 (THE "COMMON STOCK"), ISSUABLE BY THE COMPANY IN CONNECTION WITH
THE AFFILIATIONS AND THE SHARE EXCHANGE WILL NOT EXCEED 3,941,898 SHARES) FOR
SHARES OF COMMON STOCK ON A ONE-FOR-ONE BASIS (THE "SHARE EXCHANGE") PURSUANT TO
AN EXCHANGE AGREEMENT, (III) THE COMPANY WILL ACQUIRE (THE "PENTEGRA/NAPILI
TRANSACTION") SUBSTANTIALLY ALL OF THE ASSETS OF TWO COMPANIES CONTROLLED BY THE
COMPANY'S CHAIRMAN OF THE BOARD, PENTEGRA, LTD. AND NAPILI, INTERNATIONAL
("NAPILI"), (IV) PII WILL REPURCHASE 245,835 SHARES OF ITS CLASS B PREFERRED
STOCK, PAR VALUE $0.01 PER SHARE ("CLASS B PREFERRED"), AT THE SUBSCRIPTION
PRICE PER SHARE PAID TO PII FOR THOSE SHARES AND, IMMEDIATELY THEREAFTER, REDEEM
ALL OF THE REMAINING SHARES OF ITS CLASS A PREFERRED STOCK, PAR VALUE $0.01 PER
SHARE ("CLASS A PREFERRED") AND CLASS B PREFERRED AT A REDEMPTION PRICE OF $1.50
PER SHARE, $1.15 PAYABLE IN CASH AND $0.35 PAYABLE IN THE FORM OF A PROMISSORY
NOTE (THE "REPURCHASE AND REDEMPTION"), AND (V) THE COMPANY WILL REPAY
APPROXIMATELY $836,000 OF INDEBTEDNESS OUTSTANDING UNDER PROMISSORY NOTES ISSUED
BY THE COMPANY IN CONNECTION WITH ITS ORGANIZATIONAL FINANCING. THE NUMBER OF
SHARES OF COMMON STOCK TO BE ISSUED IN EACH AFFILIATION WILL DEPEND ON THE
INITIAL PUBLIC OFFERING PRICE OF THE COMMON STOCK. ACCORDINGLY, THE DISCLOSURES
HEREIN RELATING TO THE SHARES OF COMMON STOCK ISSUED IN CONNECTION WITH THE
AFFILIATIONS AND THE SHARE EXCHANGE ARE ESTIMATED, BASED ON AN ASSUMED INITIAL
PUBLIC OFFERING PRICE OF $9.00 PER SHARE (THE MIDPOINT OF THE ESTIMATED INITIAL
PUBLIC OFFERING PRICE RANGE). HOWEVER, IN ANY EVENT, THE NUMBER OF SHARES OF
COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE AFFILIATIONS AND THE SHARE
EXCHANGE WILL NOT EXCEED 3,941,898 SHARES IN THE AGGREGATE. PENTEGRA DOES NOT
EMPLOY DENTISTS TO PRACTICE DENTISTRY NOR DOES IT OTHERWISE CONTROL THE PRACTICE
OF DENTISTRY.
UNLESS OTHERWISE INDICATED BY THE CONTEXT, REFERENCES HEREIN TO (I)
"PENTEGRA" OR THE "COMPANY" INCLUDE PENTEGRA DENTAL GROUP, INC. AND PII AND (II)
"AFFILIATED PRACTICES" MEAN THE FOUNDING AFFILIATED PRACTICES AND ANY DENTAL
PRACTICES WITH WHICH THE COMPANY MAY ENTER INTO SIMILAR RELATIONSHIPS IN THE
FUTURE. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I) GIVES
EFFECT TO A REVERSE STOCK SPLIT OF THE OUTSTANDING SHARES OF COMMON STOCK OF PII
AND (II) ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. THE
FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN
THIS PROSPECTUS.
THE COMPANY
Pentegra Dental Group, Inc. was recently formed to provide management,
administrative, development and other services to dental practices throughout
the United States. The Company's approach to dental practice management (the
"Pentegra Dental Program") was developed by Dr. Omer K. Reed, the Chairman of
the Board of the Company, and is designed to increase revenues and lower costs
at Affiliated Practices while freeing the practicing dentists to focus on the
delivery of high-quality care. The Company will earn management service fees
under long-term service agreements with Affiliated Practices (the "Service
Agreements"). In most cases, service fees payable to the Company under the
Service Agreements represent a share of the Affiliated Practices' operating
profits, thereby providing incentives for the Company and the Affiliated
Practices to work together to maximize practice profitability. The Company will
also seek to grow by acquiring and affiliating with additional dental practices.
The Company has entered into definitive acquisition agreements and Service
Agreements with 50 professional corporations or associations owned by the
dentist-owners of the Founding Affiliated Practices, which include 77 dentists
and 63 dental offices located in 18 states. These acquisition agreements provide
3
<PAGE>
that the Company will acquire substantially all of the tangible and intangible
assets, and assume certain liabilities, of the Founding Affiliated Practices.
The Founding Affiliated Practices are primarily general dentistry practices, but
also include specialists such as periodontists, pedodontists and oral surgeons.
In addition, the Company will acquire from Dr. Reed the assets of a consulting
firm, Pentegra, Ltd., which was founded in 1988, and a seminar company, Napili,
which was founded in 1963. The clinical, administrative and marketing training
developed and provided by these companies to practicing dentists and their teams
are the foundation for the Pentegra Dental Program. After completion of the
Offering, the Pentegra Dental Program will be available exclusively to
Affiliated Practices.
The Health Care Finance Administration ("HCFA") estimates that in 1995
approximately $43 billion was spent in the United States on dental services, and
projects annual dental expenditures will reach $79 billion in the year 2005. In
a 1995 survey, the American Dental Association ("ADA") reported that there were
approximately 153,000 active dentists in the United States, approximately 88% of
whom were practicing either alone or with only one other dentist. In recent
years, dentists have begun to consolidate into affiliated groups and with
practice management companies. Dentists who affiliate with practice management
companies gain several benefits, such as opportunities to achieve economies of
scale, to implement cost management techniques and to gain access to capital for
new equipment and other working capital needs.
The Company's objective is to become a leader in providing dental practice
management services. In order to achieve this objective, the Company's strategy
includes the following elements:
- FOCUS ON TRADITIONAL FEE-FOR-SERVICE DENTAL CARE. According to the 1997
Mercer Consulting Group Survey of Employer-Sponsored Health Plans,
approximately 86% of the respondents in that survey reported that they
offer their employees dental plans that pay for dental services on a
fee-for-service basis. The Company believes that fee-for-service care is
high-quality, highly profitable and professionally rewarding for dentists.
- INCREASE PRODUCTIVITY AND PROFITABILITY OF AFFILIATED PRACTICES BY
IMPLEMENTING THE PENTEGRA DENTAL PROGRAM. The Pentegra Dental Program
involves implementing techniques designed to increase revenues and lower
costs, as well as methods to make the dentist and his or her practice team
more efficient in the delivery of dental care.
- LOWER OPERATING COSTS BY ACHIEVING ECONOMIES OF SCALE. The Company
believes that, as a result of its size and resources, it will be able to
provide Affiliated Practices with certain management functions at lower
cost than if the Affiliated Practices were to perform the services by
themselves.
- FREE THE DENTIST TO FOCUS MORE TIME ON THE PRACTICE OF DENTISTRY. The
Company will relieve practicing dentists of administrative tasks. The
Company believes its management and administrative support will
substantially reduce the amount of time affiliated dentists are required
to spend on administrative matters and enable them to dedicate more time
and effort toward the growth of their professional practices.
- GROW THROUGH ACQUISITIONS AND AFFILIATIONS OF ADDITIONAL DENTAL
PRACTICES. The Company will generally seek to affiliate with practices
that have high potential for future growth, particularly through
implementation of the Pentegra Dental Program, an established reputation
for high-quality care and a strategic fit either in an existing market or
as an entry into a new market.
The Pentegra Dental Program is based on a cooperative approach that
emphasizes patient wellness and involves the dentist and his or her patient
mutually agreeing on a program to achieve and maintain optimal oral health. The
Company believes that the average dentist has the skills necessary to diagnose
and provide appropriate care to patients, but many of them have not developed
the skills needed to obtain patient acceptances of, and commitments to, the
treatment plans. As a result, a significant amount of recommended care may not
be completed, with correspondingly lower revenues to the dentists. The Company
will provide training and support to assist affiliated dentists and their teams
to communicate
4
<PAGE>
effectively with each patient regarding the type and value of care needed, to
obtain the patient's commitment to a treatment plan and then to implement the
agreed-upon treatment. In order to promote operational efficiency and assure
quality of care at Affiliated Practices, the Company's information systems will
monitor patient treatment plans and track the number and type of procedures
performed by each practice. Additionally, the Company will provide the
Affiliated Practices with billing and collections, purchasing, inventory
management, invoice processing and payment, payroll processing, patient
scheduling and financial reporting and analysis relating to the implementation
of the Pentegra Dental Program. The Company anticipates that the cost of
implementing the Pentegra Dental Program in Affiliated Practices primarily
consists of compensation expenses to existing Pentegra, Ltd. and Napili
employees and will be comparable to the historical compensation expense levels
for those two entities.
The Service Agreements with the professional corporations or associations to
be formed by the dentist owners of the Founding Affiliated Practices have
initial terms of 40 years, subject to earlier termination under certain
circumstances. Pursuant to the Service Agreements, the Company will become the
exclusive manager and administrator of non-dental services relating to the
operation of the Founding Affiliated Practices, and will, among other things,
(i) administer the billing and collections for the Founding Affiliated
Practices, (ii) provide the necessary clerical, accounting and other non-dental
services to the Founding Affiliated Practices and (iii) provide facilities and
equipment for the Founding Affiliated Practices. The service fees payable by the
Founding Affiliated Practices to the Company under the Service Agreements were
determined in arm's length negotiations among the parties. Generally the service
fees are computed based on (i) a percentage of revenues less operating expenses,
(ii) a percentage of revenues not to exceed a percentage of revenues less
operating expenses, (iii) a specific fixed service fee or (iv) some combination
of these. See "Business--Service Agreements."
Dentist compensation is determined by the Affiliated Practices pursuant to
employment arrangements between the Affiliated Practice and the individual
dentists. The Company does not participate in the negotiation of dentist
compensation. Pursuant to the terms of the Service Agreements, the Affiliated
Practices will continue to provide dental services and will be exclusively in
control of all aspects of the practice of dentistry and the provision of dental
services. The Company will not engage in the practice of dentistry.
As a result of the Affiliations and upon completion of the Offering, the
dentist-owners of the Founding Affiliated Practices and the executive officers
and directors of the Company will beneficially own approximately 55.3% of the
outstanding shares of Common Stock. In addition, the Company's Bylaws provide
that a majority of the members of the Board of Directors must be (i) licensed to
practice dentistry and (ii) affiliated with one of the Affiliated Practices. See
"Risk Factors--Board Composition" and
"--Certain Anti-takeover Provisions," "Certain Transactions--Organization of the
Company" and "Principal Stockholders."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company...... 2,500,000 shares
Common Stock to be outstanding after the
Offering(1)............................ 6,441,898 shares
Use of proceeds.......................... To fund the cash distribution to the
dentist-owners of the Founding Affiliated
Practices (approximately $6.4 million), to fund
the cash portion of the consideration in the
Pentegra/Napili Transaction (approximately
$100,000), to fund the cash portion of the
repurchase or redemption price of the outstanding
shares of preferred stock of PII (approximately
$1.7 million), to repay certain indebtedness of
Pentegra and the Founding Affiliated Practices
(approximately $2.6 million), the 9.5% promissory
notes issued by the Company in connection with
its organizational financing ($350,000) and the
15.0% promissory notes issued by the Company in
connection with its organizational financing
($486,000), to purchase certain accounts
receivable of the Founding Affiliated Practices
(approximately $276,000) and for general
corporate purposes. See "Use of Proceeds."
American Stock Exchange symbol........... PEN
</TABLE>
- ---------
(1) Includes 2,922,549 shares of Common Stock to be issued in connection with
the Affiliations and 1,019,349 shares of Common Stock to be issued in
connection with the Share Exchange and excludes (i) an aggregate of 671,667
shares of Common Stock issuable upon exercise of stock options to be granted
under the Company's 1997 Stock Compensation Plan (the "1997 Stock
Compensation Plan") effective on the date the Offering closes at an exercise
price equal to the initial public offering price per share and (ii)
1,328,333 shares reserved for future issuance under the 1997 Stock
Compensation Plan. See "Management--1997 Stock Compensation Plan." The
actual number of shares to be issued as consideration for the Affiliations
may be higher or lower depending on the actual initial public offering price
per share. For example, an aggregate of 2,768,734 shares of Common Stock
would be issued to the dentist-owners of the Founding Affiliated Practices
if that price is $9.50 per share, while an aggregate of 3,094,468 shares of
Common Stock would be issued to the dentist-owners of the Founding
Affiliated Practices if that price is $8.50 per share. However, in any
event, the number of shares of Common Stock to be issued in connection with
the Affiliations and the Share Exchange will not exceed 3,941,898 shares in
the aggregate.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
6
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS)
Upon completion of the Offering and pursuant to the Affiliations, the
Company will acquire substantially all the tangible and intangible assets and
assume certain liabilities of the Founding Affiliated Practices. Due to the fact
that the Company has had no significant operations to date, no pro forma
statement of operations has been included in this Prospectus. The nature and
amount of costs to be incurred by the Company in connection with the management
services it will provide to the Founding Affiliated Practices may differ from
the costs historically incurred by the Founding Affiliated Practices. The
summary historical financial information presented below has been derived from
the audited financial statements of Pentegra Dental Group, Inc. included in this
Prospectus. Except as indicated, the following information does not reflect the
effects of the Offering, the Affiliations, the Share Exchange, the Pentegra/
Napili Transaction and the Repurchase and Redemption. For certain information
concerning the Affiliations, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 4 of Notes to the
Pentegra Dental Group, Inc. financial statements.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
INCEPTION (FEBRUARY
21, 1997) THROUGH
DECEMBER 31,
1997
-------------------
<S> <C>
Statement of Operations Data:
Revenue................................................................ $ --
Expenses
General and administrative expenses.................................. 709
Other expenses....................................................... 645
-------
Total expenses..................................................... 1,354
-------
Net loss............................................................. $ (1,354)
-------
-------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------
HISTORICAL AS ADJUSTED(1)
----------- ---------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents(2)..................................... $ 100 $ 7,687
Working capital (deficit)........................................ (2,210) 6,413
Total assets..................................................... 3,257 11,448
Redeemable preferred stock....................................... 1,089 --
Stockholders' equity (deficit)................................... (142) 9,300
</TABLE>
- ---------
(1) As adjusted gives effect to (i) the Offering, (ii) the Affiliations, (iii)
the repayment of certain indebtedness of Pentegra and the Founding
Affiliated Practices, (iv) the Pentegra/Napili Transaction, (v) the Share
Exchange and (vi) the Repurchase and Redemption, as if such transactions had
occurred on December 31, 1997. It excludes the effect of the issuance in
February 1998, and repayment from proceeds of the Offering, of $486,000
aggregate principal amount of 15% promissory notes. See the Unaudited Pro
Forma Balance Sheet of Pentegra and the notes thereto included in this
Prospectus.
(2) See "Use of Proceeds."
7
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER
CAREFULLY THE FOLLOWING FACTORS IN EVALUATING AN INVESTMENT IN THE COMMON STOCK.
STATEMENTS MADE IN THIS PROSPECTUS THAT ARE NOT HISTORICAL FACTS ARE
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS INCLUDE THOSE RELATING TO THE
COMPANY'S FUTURE PLANS AND EXPECTED EVENTS, OUTCOMES AND RESULTS. ALTHOUGH THE
COMPANY BELIEVES IT HAS A REASONABLE BASIS FOR EACH SUCH STATEMENT, SUCH
STATEMENTS ARE BY THEIR NATURE SUBJECT TO RISKS AND UNCERTAINTIES, INCLUDING
THOSE DESCRIBED BELOW, AND THE COMPANY CANNOT AND DOES NOT PROVIDE ANY ASSURANCE
AS TO SUCH PLANS OR EXPECTED EVENTS, OUTCOMES OR RESULTS. PROSPECTIVE PURCHASERS
SHOULD THEREFORE EXERCISE CAUTION IN MAKING AN INVESTMENT DECISION.
ABSENCE OF COMBINED OPERATING HISTORY; NO PRIOR OPERATING EXPERIENCE
The Company was incorporated in 1997 and has conducted no operations to date
other than in connection with the Offering and the Affiliations. The Company has
entered into agreements to acquire substantially all the assets and assume
certain liabilities of the Founding Affiliated Practices concurrently with the
closing of the Offering. In connection with the Affiliations, the Company is
entering into Service Agreements with the Founding Affiliated Practices for
initial terms of 40 years (subject to early termination by either party for
"cause," which includes a material default by or bankruptcy of the other party).
See "Business--Service Agreements." Historically, the Founding Affiliated
Practices have operated as separate independent entities. There can be no
assurance that the process of integrating the management and administrative
functions of the Founding Affiliated Practices will be successful or that the
Company's management will be able to manage these operations effectively or
implement the Company's operating or expansion strategies successfully. Failure
by the Company to implement its operating and expansion strategies successfully
would have a material adverse effect on the Company. See "Business--Business
Strategy" and "--Service Agreements."
RELIANCE ON AFFILIATED PRACTICES AND DENTISTS
The Company will receive fees for management services provided to the
Affiliated Practices under the Service Agreements. It will not employ dentists
or control the practice of dentistry by the dentists employed by the Affiliated
Practices, and its management services revenue generally will depend on revenue
generated by the Affiliated Practices. In some cases, the management fees will
be based on the costs and expenses the Company incurs in connection with
providing management services. While the laws of some states permit the Company
to participate in the negotiations by Affiliated Practices of managed care
contracts, preferred provider arrangements and other negotiated price
agreements, the Affiliated Practices will be the contracting parties for those
relationships, and the Company will be dependent on its Affiliated Practices for
the success of any such relationships. Accordingly, the profitability of those
payor relationships, as well as the performance of the individual dentists
employed by the Affiliated Practices, will affect the Company's profitability.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "Business--Service Agreements."
The revenue of the Affiliated Practices (and, therefore, the success of the
Company) is dependent on fees generated by the dentists employed by the
Affiliated Practices. In connection with the Service Agreements, each dentist
who owns a Founding Affiliated Practice will enter into a five-year employment
agreement with the professional corporation or other entity with which that
dentist is affiliated (and which is a party to a Service Agreement). The dentist
employment agreements provide that the employee dentist will not compete with
the Affiliated Practice during the term of the agreement and following the
termination of the agreement for a term of two years in a specified geographical
area. In most states, however, a covenant not to compete will be enforced only
to the extent it is necessary to protect a legitimate business interest of the
party seeking enforcement, does not unreasonably restrain the party against whom
enforcement is sought and is not contrary to the public interest. This
determination is made based on all the facts and circumstances of the specific
case at the time enforcement is sought. Thus, there can be no assurance that a
court will enforce such a covenant in a given situation. In addition, no
judicial
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precedents have addressed whether a dental practice management company's
interest under a management or service agreement will be viewed as the type of
protectable business interest that would permit it to enforce such a covenant or
to require an affiliated practice to enforce such covenants against an employee
dentist. A substantial reduction in the number of dentists employed by or
associated with the Affiliated Practices could have a material adverse effect on
the financial performance of the Company. Failure by the Affiliated Practices to
employ a sufficient number of dentists (whether by renewals of existing
employment agreements or otherwise) would have a material adverse effect on the
Company. See "Business--Dentist Employment Agreements."
DEPENDENCE ON MANAGEMENT INFORMATION SYSTEMS
The success of the Company's business strategy will be dependent on, among
other things, the successful implementation of new management information
systems and other operating systems to permit the effective integration of the
administrative operations of the Affiliated Practices into the Company's
operations. For example, the Company will be required to integrate its financial
information system with existing practice management systems at the Affiliated
Practices, which may be different from those used by the Company. Any
significant delay or increase in expense associated with the conversion and
integration of management information systems used by Affiliated Practices could
have a material adverse effect on the successful implementation of the Company's
expansion strategy. In addition, the Company will have some systems that are
decentralized, including cash collections. Accordingly, the Company will rely on
local staff for certain functions, including transferring cash from the
Affiliated Practices to the Company. See "Business--Management Information
Systems."
RISKS ASSOCIATED WITH EXPANSION STRATEGY
GENERAL
The success of the Company's expansion strategy will depend on a number of
factors, including the Company's ability to (i) identify attractive and willing
candidates to become Affiliated Practices in suitable markets and in suitable
locations within those markets, (ii) affiliate with acceptable Affiliated
Practices on favorable terms, (iii) adapt the Company's structure to comply with
present or future legal requirements affecting the Company's arrangements with
Affiliated Practices and comply with regulatory and licensing requirements
applicable to dentists and facilities operated and services offered by dentists,
(iv) obtain suitable financing to facilitate its expansion program and (v)
expand the Company's infrastructure and management to accommodate expansion. A
shortage of available dentists with the skills and experience sought by the
Company would have a material adverse effect on the Company's expansion
opportunities, and the Company anticipates facing substantial competition from
other companies to establish affiliations with additional dental practices. In
addition, there can be no assurance that the Company's expansion strategy will
be successful, that modifications to the Company's strategy will not be required
or that the Company will be able to manage effectively and enhance the
profitability of additional Affiliated Practices. There can be no assurance that
the Company will be able to achieve planned growth, that the assets of dental
practices will continue to be available for acquisition by the Company, that the
Company will be able to realize expected operating and economic efficiencies
from pending or future affiliations or that future affiliations with additional
Affiliated Practices will be profitable. See "--Competition," "--Immediate and
Substantial Dilution and Absence of Dividends," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and
"Business--Business Strategy."
POTENTIAL DILUTION OF EXISTING STOCKHOLDERS; NONCASH AMORTIZATION CHARGES
Using shares of Common Stock as consideration for (or in order to provide
financing for) future acquisitions could result in significant dilution to
then-existing stockholders. In addition, future acquisitions accounted for as
purchases may result in substantial annual noncash amortization charges for
intangible assets in the Company's statements of operations.
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NEED FOR ADDITIONAL FINANCING
The Company's expansion program will require substantial capital resources.
Capital is needed not only for the acquisition of the assets of additional
Affiliated Practices, but also for the effective integration, operation and
expansion of the Affiliated Practices. The Affiliated Practices may from time to
time require capital for renovation and expansion and for the addition of
equipment and technology, and there can be no assurance that an Affiliated
Practice to which the Company advances working capital loans for these purposes
will be able to repay those loans in full. The Company believes the net proceeds
from the Offering and cash flow from operations will be sufficient to meet the
Company's anticipated expansion and working capital needs through the end of
1998. Thereafter, however, the Company may require additional capital from
outside financing sources in order to continue its expansion program. There can
be no assurance that the Company will be able to obtain additional funds when
needed on satisfactory terms or at all. Any significant limitation on the
Company's ability to obtain additional financing could have a material adverse
effect on the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
PROCEEDS OF OFFERING PAYABLE TO AFFILIATES
In connection with the closing of the Affiliations, the Company will pay,
out of the net proceeds from the Offering, an aggregate of approximately $7.7
million to promoters (including $6.4 million to be paid to the dentist-owners of
the Founding Affiliated Practices as the cash portion of the consideration in
the Affiliations), officers and directors of the Company. Of this amount,
approximately $6.4 million will be paid to the owners of the Founding Affiliated
Practices, including approximately $216,326 to Ronnie L. Andress, D.D.S.,
$150,092 to James H. Clarke, Jr., D.D.S., $143,183 to Mack E. Greder, D.D.S.,
$144,017 to Roger Allen Kay, D.D.S., and $295,830 to Ronald M. Yaros, D.D.S.
(each of whom will become a member of the Board of Directors of the Company (the
"Board of Directors"). In addition, the Company will use $100,000 of the net
proceeds from the Offering to pay the cash portion of the consideration to
purchase substantially all of the tangible and intangible assets of Pentegra,
Ltd. and Napili, both of which entities are affiliates of Dr. Reed, the
Company's Chairman of the Board. The Company will also use approximately (i)
$1.7 million of the proceeds from the Offering in connection with the Repurchase
and Redemption of PII's Class A Preferred and Class B Preferred, including
approximately $37,500 to Dr. Reed, $37,500 to Gary S. Glatter, $37,500 to George
M. Siegel, $334 to James L. Dunn, Jr., $667 to J. Michael Casas, $37,500 to Dr.
Greder and $37,500 to Dr. Kay (each of whom is, or on closing of the Offering
will be, a member of the Board of Directors or an officer of the Company), (ii)
approximately $836,000 of the proceeds from the Offering in connection with the
repayment of $350,000 aggregate principal amount of 9.5% promissory notes and
$486,000 aggregate principal amount of 15.0% notes (all of which promissory
notes were issued by the Company to fund certain offering and operating
expenses), including principal amounts of approximately $10,000 to James P.
Allen, D.D.S., $10,000 to Steve Anderson, D.D.S., $10,000 to Marvin V.
Cavallino, D.D.S., $20,000 to James H. Clarke, Jr., D.D.S., $5,000 to Henry F.
Cuttler, D.D.S., $6,000 to Edward T. Dougherty, Jr., D.D.S., $20,000 to Kevin
Gasser, D.D.S., $5,000 to Alan H. Gerbholz, D.D.S., $20,000 to Mack E. Greder,
D.D.S., $20,000 to Salvatore Guarnieri, D.D.S., $25,000 to Kent Hamilton,
D.D.S., $10,000 to Stephen Hwang, D.D.S., $10,000 to Penn Jackson, Sr., D.D.S.,
$10,000 to Roger Allen Kay, D.D.S., $5,000 to Patrick T. Kelly, D.D.S., $5,000
to Brian K. Kniff, D.D.S., $10,000 to Donald W. Lanning, D.D.S., $10,000 to
David A. Little, D.D.S., $10,000 to Richard W. Mains, D.D.S., $35,000 to James
M. McDonough, D.D.S. $5,000 to James W. Medlock, D.D.S., $5,000 to Mary B.
Mellard, D.D.S., $7,500 to Byron L. Novosad, D.D.S., $35,000 to Harold A.
Pebbles, Jr., D.D.S. $5,000 to Richard Reinitz, D.D.S., $30,000 to Richard N.
Smith, D.D.S., $20,000 to Jack Stephens, D.D.S., $15,000 to Y. Paul Suzuki,
D.D.S., $10,000 to S. Victor Uhrenholdt, D.D.S. and $15,000 to Ronald M. Yaros,
D.D.S. (all of whom are dentist-owners of Founding Affiliated Practices) and
approximately $35,000 to George M. Siegel, and (iii) an aggregate of
approximately $276,000 of the net proceeds of the Offering in connection with
the purchase of certain accounts receivable from the Founding Affiliated
Practices. See "Use of Proceeds" and "Certain Transactions--Organization of the
Company."
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GOVERNMENT REGULATION
Various federal and state laws regulate the dental services industry.
Regulatory oversight includes, but is not limited to, considerations of fee
splitting, corporate practice of dentistry, prohibitions on fraud and abuse,
restrictions on referrals and self-referrals, advertising restrictions,
restrictions on delegation and state insurance regulation.
CORPORATE PRACTICE OF DENTISTRY AND FEE SPLITTING RESTRICTIONS
The laws of many states, including all the states in which the Founding
Affiliated Practices are located other than New Mexico and Wisconsin, prohibit
business corporations such as the Company from engaging in the practice of
dentistry or employing dentists to practice dentistry. The specific restrictions
against the corporate practice of dentistry, as well as the interpretation of
those restrictions by state regulatory authorities, vary from state to state.
The restrictions are generally designed to prohibit a non-dental entity (such as
the Company) from controlling the professional assets of a dental practice (such
as patient records and payor contracts), employing dentists to practice
dentistry (or, in certain states, employing dental hygienists or dental
assistants), or controlling the content of a dentist's advertising or
professional practice. The laws of many states, including all the states in
which the Founding Affiliated Practices are located other than Alaska, Maine,
Massachusetts, New Mexico and Wisconsin, also prohibit dentists from sharing
professional fees with non-dental entities. State dental boards do not generally
interpret these prohibitions as preventing a non-dental entity from owning
non-professional assets used by a dentist in a dental practice or providing
management services to a dentist for a fee, provided certain conditions are met.
The Company believes that its operations will not contravene any applicable
restriction on the corporate practice of dentistry. There can be no assurance,
however, that a review of the Company's business relationships by courts or
regulatory authorities will not result in determinations that could prohibit or
otherwise adversely affect the operations of the Company or that the regulatory
environment will not change, requiring the Company to reorganize or restrict its
existing or future operations. The laws regarding fee-splitting and the
corporate practice of dentistry and their interpretation are enforced by
regulatory authorities with broad discretion. There can be no assurance that the
legality of the Company's business or its relationship with the Affiliated
Practices will not be successfully challenged or that the enforceability of the
provisions of any Service Agreement will not be limited.
FRAUD AND ABUSE LAWS AND RESTRICTIONS ON REFERRALS AND SELF-REFERRALS
Many states in which the Founding Affiliated Practices are located,
including California, Florida, Maine, Maryland, Michigan, New York, Texas and
Washington, have fraud and abuse laws that, in many cases, apply to referrals
for items or services reimbursable by any insurer, not just by Medicare and
Medicaid. A number of states, including many of the states in which the Founding
Affiliated Practices are located, also impose significant penalties for
submitting false claims for dental services. In addition, most of the states in
which the Founding Affiliated Practices are located, including Alaska, Arizona,
California, Florida, Louisiana, Maine, Maryland, Michigan, New York, Texas and
Washington, have laws prohibiting paying or receiving any remuneration, direct
or indirect, that is intended to induce referrals for health care items or
services, including dental items and services. Many states in which the Founding
Affiliated Practices are located either prohibit or require disclosure of
self-referral arrangements and impose penalties for the violation of these laws.
Many states, including Alaska, Florida and Maine, limit the ability of a person
other than a licensed dentist to own or control equipment or offices used in a
dental practice. Some of these states allow leasing of equipment and office
space to a dental practice under a bona fide lease, if the equipment and office
remain under the control of the dentist.
ADVERTISING RESTRICTIONS AND LIMITATIONS ON DELEGATION
Some states prohibit the advertising of dental services under a trade or
corporate name. Some states, including Texas, require all advertisements to be
in the name of the dentist. A number of states also
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regulate the content of advertisements of dental services and the use of
promotional gift items. In addition, many states impose limits on the tasks that
may be delegated by dentists to hygienists and dental assistants. These laws and
their interpretations vary from state to state and are enforced by the courts
and by regulatory authorities with broad discretion.
INSURANCE REGULATION
There are certain state insurance regulatory risks associated with the
Company's anticipated role in negotiating and administering managed care
contracts on behalf of the Affiliated Practices. The application of state
insurance laws to third-party payor arrangements, other than fee-for-service
arrangements, is an unsettled area of law with little guidance available. State
insurance laws are subject to broad interpretation by regulators and, in some
states, state insurance regulators may determine that the Company or the
Affiliated Practices are engaged in the business of insurance because of the
capitation features (or similar features under which an Affiliated Practice
assumes financial risk) that may be contained in managed care contracts. In the
event the Company or an Affiliated Practice is determined to be engaged in the
business of insurance, the Company or the Affiliated Practice could be required
to either seek licensure as an insurance company or change the form of its
relationships with the third-party payors. There can be no assurance that the
Company's operations would not be adversely affected if the Company or any of
the Affiliated Practices were to become subject to state insurance regulations.
HEALTH CARE REFORM
The United States Congress has considered various types of health care
reform, including comprehensive revisions to the current health care system. It
is uncertain what legislative proposals, if any, will be adopted in the future
or what actions federal or state legislatures or third-party payors may take in
anticipation of or in response to any health care reform proposals or
legislation. There can be no assurance that applicable federal or state laws and
regulations will not change or be interpreted in the future either to restrict
or adversely affect the Company's relationships with dentists or the operation
of Affiliated Practices. See "Business--Government Regulation."
RISKS ASSOCIATED WITH COST CONTAINMENT INITIATIVES
The health care industry, including the dental services market, is
experiencing a trend toward cost containment, as third-party and government
payors seek to impose lower reimbursement rates on providers. The Company
believes this trend will continue and will increasingly affect dental services.
This may result in a reduction in per-patient and per-procedure revenue from
historical levels. There can be no assurance that any reductions in revenues and
operating margins could be offset through cost reductions, increased volume,
introduction of new procedures or otherwise. Accordingly, significant reductions
in payments to Affiliated Practices or other changes in reimbursement by
third-party payors for dental services performed by Affiliated Practices may
have a material adverse effect on the Company.
RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS; CAPITATED FEE REVENUE
The Company believes that managed care arrangements are becoming more
prevalent in certain sectors of the dental services industry. As an increasing
percentage of the population is covered by managed care organizations that
provide dental coverage, the Company believes its future success may be
dependent, in part, on its ability to assist the Affiliated Practices in
negotiating contracts with dental health maintenance organizations, insurance
companies, self insurance plans and other private third-party payors pursuant to
which services will be provided on some type of fee-for-service or capitated
basis by some of its Affiliated Practices. Under certain capitated contracts,
the health care provider accepts a predetermined amount per patient per month as
its sole payment in exchange for providing a specific schedule of services to
enrollees. These contracts shift much of the risk of providing health care from
the payor to the provider. To the extent that an Affiliated Practice enters into
capitated managed care arrangements, it will be
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exposed to the risk that the cost of providing dental care required by these
contracts exceeds the amount the Affiliated Practice receives for providing such
care. If those costs exceed the revenues received for the service provided, the
Affiliated Practice will remain responsible under its Service Agreement for
reimbursing the Company for all of the costs associated with providing those
services, even if no service fee is due thereunder. To the extent an Affiliated
Practice enters into additional managed care contracts, it may achieve greater
predictability of revenues but greater unpredictability of expenses due to the
fluctuating costs of the services provided. There can be no assurance that the
Company will be able to negotiate on behalf of the Affiliated Practices
satisfactory arrangements on a capitated basis, regardless of the amount of risk
sharing. In addition, to the extent that patients or enrollees covered by
certain of these contracts require, in the aggregate, more frequent or extensive
care than anticipated, operating margins may be reduced, or the revenues derived
from these agreements may be insufficient to cover the costs of the services
provided. As a result, Affiliated Practices would be at risk for additional
costs which would reduce or eliminate any earnings for the Affiliated Practices
under these contracts, with a corresponding reduction in or elimination of the
service fee payable to the Company in those cases where the Service Agreements
provide for percentage-based service fees.
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
Following the completion of the Affiliations and the Offering, Dr. Reed, the
Company's Chairman of the Board, the other executive officers and directors of
the Company as a group and the owners of the Founding Affiliated Practices other
than Dr. Reed will beneficially own approximately 2.0%, 14.5% and 45.5%,
respectively, of the outstanding shares of Common Stock. These persons, if
acting in concert, will be able to exercise control over the Company's affairs,
elect the entire Board of Directors and (subject to Section 203 of the Delaware
General Corporation Law ("DGCL")) control the outcome of any matter submitted to
a vote of stockholders.
CONFLICTS OF INTEREST; WORKING CAPITAL LOANS TO AFFILIATED PRACTICES
Each of Drs. Reed, Andress, Clarke, Greder, Kay and Yaros is the sole
shareholder of a Founding Affiliated Practice and a professional corporation or
association owned by them will be a party to a Service Agreement with the
Company. In connection with the provision of management services by the Company
to the Affiliated Practice owned by these dentists, there are conflicts of
interest that may arise from time to time in connection with negotiating terms
of working capital loans from the Company to that practice, if any, and certain
other arrangements under the Service Agreement. In the event the Company elects
to make working capital loans to Affiliated Practices, those loans will be
negotiated and documented as independent transactions between the Company and
the Affiliated Practices and will have no effect on the amount of service fees
payable to the Company. The Company has no present plans, understandings,
arrangements or agreements with respect to the making of working capital loans
to Affiliated Practices. The Company anticipates that, if any working capital
loans were made by the Company to Affiliated Practices, those loans would
generally bear interest at prime plus one percent and would be repayable over
varying periods of time not to exceed five years. In addition, if any such
Affiliated Practice did not have sufficient operating income in any given month
to pay the service fees due under its Service Agreement and repay all of the
principal and/or interest then due under such a working capital loan, the
Company anticipates it would permit the Affiliated Practice to defer the
repayment of the portion of the principal and/or interest payments due, to the
extent the Affiliated Practice is unable to pay, until the next month in which
the Affiliated Practice's operating income is sufficient to pay the service fees
and make all current debt service payments under the working capital loan.
BOARD COMPOSITION
The Company's Bylaws provide that a majority of the members of the Board of
Directors must be licensed dentists who are affiliated with Affiliated
Practices. As a result, there will be a limited group of
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persons from which candidates to fill these board positions may be selected, and
it is not anticipated that many of these persons will have had prior experience
as board members of publicly held companies. This provision could also
discourage potential acquisition proposals, delay or prevent a change in control
of the Company or limit the price that certain investors might be willing to pay
in the future for shares of Common Stock. In addition, each of Dr. Reed and the
other board members who own an Affiliated Practice will be a party to a Service
Agreement with the Company. In connection with the provision of management
services by the Company to the Affiliated Practices owned by those dentists,
conflicts of interest may arise. See "--Certain Anti-takeover Provisions,"
"Security Ownership of Certain Beneficial Owners and Management" and "Certain
Transactions."
DEPENDENCE ON KEY PERSONNEL
The Company's future performance depends in significant part on the
continued service of its senior management, including Dr. Reed and Gary S.
Glatter, the President and Chief Executive Officer of the Company. There can be
no assurance that these individuals will continue to work for the Company. Loss
of services of those persons could have a material adverse effect on the
Company. The success of the Company's growth strategy will also depend on the
Company's ability to attract and retain additional high quality personnel. See
"Business--Employees" and "Management."
COMPETITION
The Company anticipates facing substantial competition from other companies
to establish affiliations with additional dental practices. The Company is aware
of several publicly traded dental practice management companies that have
operations in jurisdictions where one or more of the Founding Affiliated
Practices conduct business (including Apple Orthodontix, Inc., Birner Dental
Management Services, Inc., Castle Dental Centers, Inc., Coast Dental Services,
Inc., Dental Care Alliance, Inc., Gentle Dental Service Corp., Monarch Dental
Corporation, OrthAlliance, Inc. and Orthodontic Centers of America, Inc.) and
several companies pursuing similar strategies in other segments of the health
care industry. Certain of these competitors have greater financial and other
resources than the Company and have operations in areas where the Company may
seek to expand in the future. Additional companies with similar objectives are
expected to enter the Company's markets and compete with the Company. In
addition, the business of providing dental services is highly competitive in
each market in which the Company will operate. Each of the Founding Affiliated
Practices faces local competition from other dentists, pedodontists (dentists
specializing in the care of children's teeth) and other providers of specialty
dental services (such as periodontists, orthodontists and oral surgeons) some of
whom have more established practices. There can be no assurance that the Company
or the Affiliated Practices will be able to compete effectively with their
respective competitors, that additional competitors will not enter their markets
or that additional competition will not have a material adverse effect on the
Company or the Affiliated Practices. See "Business-- Competition."
MALPRACTICE RISKS OF PROVIDING DENTAL SERVICES
The Affiliated Practices provide dental services to the public and are
exposed to the risk of professional liability and other claims. In recent years,
dentists have become subject to an increasing number of lawsuits alleging
malpractice and related legal theories. Some of these lawsuits may involve large
claims and significant defense costs. Any suits involving the Company or
dentists at the Affiliated Practices, if successful, could result in substantial
damage awards to the claimants that may exceed the limits of any applicable
insurance coverage. Although the Company will not control the practice of
dentistry by the Affiliated Practices, it could be asserted that the Company
should be held liable for malpractice of a dentist employed by an Affiliated
Practice. Each Affiliated Practice has undertaken to comply with all applicable
regulations and legal requirements, and the Company maintains liability
insurance for itself. There can be no assurance, however, that a future claim or
claims will not be successful
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or, if successful, will not exceed the limits of available insurance coverage or
that such coverage will continue to be available at acceptable costs.
Malpractice insurance, moreover, can be expensive and varies from state to
state. Successful malpractice claims asserted against the Affiliated Practices
(or their dentists) or the Company may have a material adverse effect on the
Company. See "Business--Litigation and Insurance."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
The market price of the Common Stock of the Company could be adversely
affected by the sale of substantial amounts of the Common Stock in the public
market following the Offering. The shares being sold in the Offering will be
freely tradable unless acquired by affiliates of the Company.
Concurrently with the closing of the Offering, the owners of the Founding
Affiliated Practices will receive, in the aggregate, 2,922,549 shares of Common
Stock as a portion of the consideration for the assets of their practices.
Certain other stockholders of the Company will hold, in the aggregate, an
additional 1,019,349 shares of Common Stock. Those shares are not being offered
and sold pursuant to this Prospectus. All of those 3,941,898 shares were or are
being issued in transactions that have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and, accordingly, such shares
may not be sold except in transactions registered under the Securities Act or
pursuant to an exemption from registration. In addition, the Company's executive
officers, directors and current stockholders and the persons acquiring shares of
Common Stock in connection with the Affiliations have agreed with the Company
that they will not sell any of the shares of Common Stock owned by them
immediately after the consummation of the Affiliations for a period of one year
following the closing of the Offering, subject to their right to exercise
certain piggy-back registration rights. After the expiration of that restricted
period, all of those shares may be sold in accordance with Rule 144 under the
Securities Act, subject to the applicable volume limitations, holding period and
other requirements of Rule 144.
The Company and its directors, executive officers and current stockholders
have agreed not to offer or sell any shares of Common Stock for a period of 180
days (the "180-Day Lockup Period") following the date of this Prospectus without
the prior written consent of Dain Rauscher Incorporated, except that the Company
may, subject to certain conditions, issue Common Stock in connection with
acquisitions and awards under the 1997 Stock Compensation Plan.
Following completion of the Offering, the Company intends to register the
issuance of an additional 1,500,000 shares of its Common Stock under the
Securities Act subsequent to completion of the Offering for use by the Company
as all or a portion of the consideration to be paid in future acquisitions.
Those shares will generally be freely tradable by nonaffiliates after their
issuance, unless the resale thereof is contractually restricted, and resales of
those shares during the 180-Day Lockup Period would require the prior written
consent of Dain Rauscher Incorporated.
The Company anticipates that, prior to the consummation of the Offering, the
Company will have outstanding under the 1997 Stock Compensation Plan options to
purchase approximately 671,667 shares of Common Stock. The Company intends to
register the shares issuable upon exercise of options granted under the 1997
Stock Compensation Plan. See "Management--1997 Stock Compensation Plan" and
"Shares Eligible for Future Sale."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or, if
a trading market does develop, that it will continue after the Offering. The
initial public offering price of the Common Stock, which will be determined
through negotiations between the Company and the Underwriters, may not be
indicative of the price at which the Common Stock will trade after the Offering.
See "Underwriting" for a description of the factors to be considered in
determining the initial public offering price. The securities markets have, from
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time to time, experienced significant price and volume fluctuations that may be
unrelated to the operating performance of particular companies. These
fluctuations often substantially affect the market price of a company's common
stock. The market prices for securities of medical and dental practice
management companies have in the past been, and can be expected to be,
particularly volatile. The market price of the Common Stock could be subject to
significant fluctuations in response to numerous factors, including variations
in financial results or announcements of material events by the Company or its
competitors. Regulatory changes, developments in the health care industry or
changes in general conditions in the economy or the financial markets could also
adversely affect the market price of the Common Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
(the "Certificate of Incorporation") and Bylaws and of the DGCL could, together
or separately, discourage potential acquisition proposals, delay or prevent a
change in control of the Company or limit the price that certain investors might
be willing to pay in the future for shares of the Common Stock. The Certificate
of Incorporation provides for "blank check" preferred stock, which may be issued
without stockholder approval and provides for a "staggered" Board of Directors.
In addition, certain provisions of the Company's Bylaws restrict the right of
the stockholders to call a special meeting of stockholders, to nominate
directors, to submit proposals to be considered at stockholders' meetings and to
adopt amendments to the Bylaws, and the Bylaws require that at least a majority
of the members of the Board of Directors be licensed dentists who are affiliated
with Affiliated Practices. The Company also is subject to Section 203 of the
DGCL, which, subject to certain exceptions, prohibits a Delaware corporation
from engaging in any of a broad range of business acquisitions with an
"interested stockholder" for a period of three years following the date such
stockholder became an interested stockholder. See "Description of Capital
Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF DIVIDENDS
Purchasers of shares of Common Stock offered hereby will experience
immediate and substantial dilution in the pro forma net tangible book value of
their shares in the amount of $7.59 per share. Existing stockholders will
receive an increase of $3.06 per share in the pro forma net tangible book value
of their shares, which have a historical deficit in net tangible book value per
share of $(1.65) as of December 31, 1997. See "Dilution." In the event the
Company issues additional Common Stock in the future, including shares that may
be issued in connection with future acquisitions, purchasers of Common Stock in
the Offering may experience further dilution in the net tangible book value per
share of Common Stock. The Company has never paid any cash dividends and does
not anticipate paying cash dividends on its Common Stock in the foreseeable
future. See "Dividend Policy."
16
<PAGE>
THE COMPANY
The Company has conducted no operations to date other than in connection
with the Offering and the Affiliations. PII was formed in February 1997 and
changed its name from "Pentegra Dental Group, Inc." to "Pentegra Investments,
Inc." in July 1997. PII then organized Pentegra Dental Group, Inc. as its wholly
owned subsidiary in July 1997 to, among other things, complete the Offering, the
Affiliations, the Share Exchange, the Pentegra/Napili Transaction and the
Repurchase and Redemption. The Company has entered into agreements to acquire
substantially all the assets and assume certain liabilities of the Founding
Affiliated Practices, Pentegra, Ltd. and Napili concurrently with the closing of
the Offering. The Company's principal executive offices are located at 2999 N.
44th Street, Suite 650, Phoenix, Arizona 85018, and its telephone number is
(602) 952-1200.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (after deducting the underwriting discounts and commissions and
estimated offering expenses (excluding the offering expenses previously funded
with proceeds from the issuance of promissory notes and capital stock of PII,
including all the Class A Preferred and Class B Preferred involved in the
Repurchase and Redemption)) are estimated to be approximately $19.0 million
(approximately $22.1 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $9.00 per share
(the midpoint of the estimated initial public offering price range). Of those
net proceeds, (i) approximately $6.4 million will be used to pay the cash
portion of the consideration for the Affiliations, (ii) $100,000 will be used to
fund the cash portion of the consideration in the Pentegra/Napili Transaction,
(iii) approximately $1.7 million will be used to fund the cash portion of the
consideration in the Redemption and Repurchase (approximately $1.5 million has
been received by the Company as proceeds in connection with the 1997 issuances
of the shares of Class A Preferred and Class B Preferred to be repurchased or
redeemed), (iv) approximately $2.6 million will be used to repay certain
indebtedness of the Company and the Founding Affiliated Practices (approximately
$520,000 of which was incurred in 1997 by certain Founding Affiliated Practices
to acquire dental equipment), (v) approximately $350,000 will be used to repay
9.5% promissory notes issued by the Company to fund certain offering and
operating expenses, which notes mature 30 days following consummation of the
Offering, (vi) approximately $486,000 will be used to repay 15.0% promissory
notes issued by the Company subsequent to December 31, 1997 to fund certain
offering and operating expenses, which notes mature three days following
consummation of the Offering, and (vii) approximately $276,000 will be used to
purchase certain accounts receivable, net of accounts payable, of the Founding
Affiliated Practices. The remaining net proceeds will be used for general
corporate purposes, which are expected to include future acquisitions and future
capital expenditures. Pending such uses, the net proceeds will be invested in
short-term, interest-bearing, investment-grade securities. The promoters
(including the dentist-owners of the Founding Affiliated Practices), officers
and directors of the Company will receive an aggregate of approximately $7.7
million out of the net proceeds of the Offering. Other than with respect to the
Affiliations, the Company currently has no agreement or understanding with
respect to any future affiliation. See "Risk Factors--Proceeds of Offering
Payable to Affiliates" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
The consideration being paid by the Company in connection with each
Affiliation was determined by negotiations between executive officers of the
Company not affiliated with any Founding Affiliated Practice and a
representative of that Founding Affiliated Practice. The Company used the same
valuation method to negotiate the consideration being paid to each of the
Founding Affiliated Practices, including the respective practices wholly owned
by Drs. Reed, Andress, Clarke, Greder, Kay and Yaros, which method was based
upon the Founding Affiliated Practice's gross revenue, net of certain operating
expenses, and the Company's assessment of growth potential. See "Certain
Transactions" for information concerning the identification of the owners of the
Founding Affiliated Practices and the respective amounts of cash being paid to
them out of the proceeds of the Offering and shares of Common Stock being issued
to them in connection with the Affiliations.
The indebtedness of the Founding Affiliated Practices to be repaid bears
interest at an average rate of 8.0% and would otherwise mature at various dates
through 2002.
DIVIDEND POLICY
It is the Company's current intention to retain earnings for the foreseeable
future to support operations and finance expansion. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, the Company's earnings, financial condition,
cash flow from operations, capital requirements, expansion plans, the income tax
laws then in effect, the requirements of Delaware law and restrictions that may
be imposed by the Company's future financing arrangements.
18
<PAGE>
DILUTION
The deficit in net tangible book value of the Company as of December 31,
1997 was approximately $(2.9) million, or $(1.65) per share of Common Stock, as
determined by dividing the tangible net worth of the Company (tangible assets
less total liabilities and the aggregate stated value of the Class A Preferred
and Class B Preferred) by the number of shares of Common Stock outstanding.
After giving effect to (i) the Affiliations and (ii) the sale by the Company of
2,500,000 shares of Common Stock offered at a price of $9.00 per share (the
midpoint of the estimated initial public offering price range) and the
application of the estimated net proceeds therefrom as set forth under "Use of
Proceeds," the net pro forma tangible book value of the Company as of December
31, 1997 would have been approximately $9.1 million, or $1.41 per share of
Common Stock. This represents an immediate increase in the net tangible book
value of $3.06 per share to existing stockholders consisting of a decrease of
$0.65 per share attributed to the assumption of net liabilities of the Founding
Affiliated Practices and the related cash distribution of approximately $6.4
million to promoters (which is the aggregate cash consideration to be
distributed in the Affiliations), a decrease of $(0.16) related to the
redemption of shares of Class A Preferred and Class B Preferred and an increase
of $3.87 per share relating to the Offering. The deficit in pro forma net
tangible book value immediately after the Affiliations is $9.1 million, or
$(2.30) per share. This is an immediate dilution to new investors purchasing
Common Stock in the Offering of $7.59 per share. The following table illustrates
the per share dilution to new investors purchasing Common Stock in the Offering:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1).......... $ 9.00
Historical deficit in net tangible book value............. $ (1.65)
Decrease due to acquisition of net assets and related cash
distribution to promoters............................... (0.65)
---------
Pro forma net tangible book value per share after the
Affiliations............................................ (2.30)
Redempton of preferred stock(2)........................... (0.16)
Increase due to the Offering.............................. 3.87
---------
Pro forma net tangible book value per share after the
Affiliations and Offering............................... $ 1.41
---------
Dilution per share to initial public offering investors..... $ 7.59
---------
---------
</TABLE>
- ---------
(1) Before deducting estimated underwriting discounts and expenses of the
Offering payable by the Company.
(2) Reflects the dividend to be recognized in connection with the redemption of
an aggregate of 1,337,500 shares of Class A Preferred and Class B Preferred.
See Note D to the Pentegra Dental Group, Inc. Unaudited Pro Forma Balance
Sheet.
The following table sets forth, on a pro forma basis to give effect to the
Affiliations as of December 31, 1997, the number of shares of Common Stock
purchased from the Company, the total consideration to the Company and the
average price per share paid to the Company by existing stockholders and the
19
<PAGE>
new investors purchasing shares from the Company in the Offering (before
deducting underwriting discounts and commissions and estimated offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ----------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 1,019,349 15.8% $ 1,212,000 6.9% $ 1.19
Stockholders receiving shares in
connection with the Affiliations.... 2,922,549 45.4% (6,167,000)(1) (35.1)% $ (2.11)(1)
New investors......................... 2,500,000 38.8% $ 22,500,000 128.2% $ 9.00
---------- ----- ---------------- -----
Total............................. 6,441,898 100.0% $ 17,545,000 100.0%
---------- ----- ---------------- -----
---------- ----- ---------------- -----
</TABLE>
- ---------
(1) Represents the cash distribution of approximately $6.4 million and the
aggregate historical book value of the assets to be acquired, net of
liabilities of the Founding Affiliated Practices to be assumed by the
Company (a net amount of approximately $220,000), in the Affiliations.
All of the calculations above exclude an aggregate of 671,667 shares of
Common Stock issuable upon exercise of stock options anticipated to be
outstanding on the date the Offering closes at an exercise price equal to the
initial public offering price per share under the 1997 Stock Compensation Plan
and 1,328,333 shares reserved for future issuance under the 1997 Stock
Compensation Plan. See "Management--1997 Stock Compensation Plan."
20
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and the capitalization of
the Company at December 31, 1997 (a) on a historical basis, (b) on a pro forma
basis, to give effect to the Affiliations and (c) on that pro forma basis, as
adjusted to give effect to the Offering and the use of the estimated net
proceeds therefrom as described under "Use of Proceeds." This table should be
read in conjunction with the unaudited Pro Forma Balance Sheet of Pentegra and
the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------------------
HISTORICAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Distribution liability(1).................................................. $ -- $ 6,487 $ --
Current portion of long-term debt, net of discount......................... 215 839 --
----------- ----------- -----------
Total short-term debt...................................................... $ 215 $ 7,326 $ --
----------- ----------- -----------
----------- ----------- -----------
Long-term debt:
Long-term debt, net of current portion(1).................................. -- 2,097 568
Redeemable Preferred Stock................................................... 1,089 1,089 --
Stockholders' equity (deficit):
Common Stock, 40,000,000 shares authorized; 1,756,667 shares issued and
outstanding, 3,941,898 shares issued and outstanding, pro forma, and
6,441,898 shares issued and outstanding, as adjusted(2).................. 18 21 7
Additional paid-in capital(2)(3)........................................... 1,194 (4,976) 12,032
Accumulated deficit........................................................ (1,354) (1,354) (2,739)
----------- ----------- -----------
Total stockholders' equity............................................... (142) (6,309) 9,300
----------- ----------- -----------
Total capitalization..................................................... $ 947 $ (3,123) $ 9,868
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ---------
(1) The distribution liability includes approximately $6,387,000 for the cash
portion of the consideration in the Affiliations payable as a distribution
to promoters and $100,000 payable on the closing of the Pentegra/Napili
Transaction. Long-term debt includes $1,997,000 debt to be assumed from the
Founding Affiliated Practices and a $100,000 promissory note to be issued in
connection with the Pentegra/Napili Transaction. The consideration for the
Pentegra/Napili Transaction consists of $100,000 from the proceeds of the
Offering and $100,000 in the form of a 9.0% promissory note due in April
1999.
(2) Reflects the shares of Common Stock to be issued and the dividend to be
recognized in connection with the repurchase of an aggregate of 245,835
shares and the redemption of an aggregate of 1,337,550 shares of Class A
Preferred and Class B Preferred. See Note D to the Pentegra Dental Group,
Inc. Unaudited Pro Forma Balance Sheet. Excludes 671,667 shares of Common
Stock to become subject to option awards that have been authorized pursuant
to the 1997 Stock Compensation Plan. See "Management--1997 Stock
Compensation Plan."
(3) The $(6,170,000) effect of the Affiliations on additional paid-in capital is
aggregate cash payments of approximately $6,387,000 to be made to promoters
as part of the consideration for the Affiliations, less the aggregate
historical book value of the assets to be acquired less the liabilities
assumed (a net amount of approximately $220,000), plus the par value of the
Common Stock to be issued in connection with the Affiliations.
21
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS)
Upon completion of the Offering and pursuant to the Affiliations, the
Company will acquire substantially all the tangible and intangible assets and
assume certain liabilities of the Founding Affiliated Practices. Due to the fact
that the Company has had no significant operations to date, no pro forma
statement of operations has been included in this Prospectus. The nature and
amount of costs to be incurred by the Company in connection with the management
services it will provide to the Founding Affiliated Practices may differ from
the costs historically incurred by the Founding Affiliated Practices. The
selected historical financial data of the Company should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and the notes thereto
included in this Prospectus. The selected historical financial data of the
Company as of December 31, 1997 and for the period from inception, February 21,
1997, through December 31, 1997, set forth below, have been derived from the
audited financial statements of Pentegra Dental Group, Inc. included in this
Prospectus. Except as indicated, the following information does not reflect the
effects of the Offering, the Affiliations, the Share Exchange, the
Pentegra/Napili Transaction and the Repurchase and Redemption. For certain
information concerning the Affiliations, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 4 of Notes
to the Pentegra Dental Group, Inc. financial statements.
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
INCEPTION
(FEBRUARY
21,
1997)
THROUGH
DECEMBER
31, 1997
--------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.............................................. $ --
General and administrative expenses................ 709
Other expenses..................................... 645
--------
Total expenses................................. 1,354
--------
Net loss........................................... $(1,354)
--------
--------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------
HISTORICAL AS ADJUSTED(1)
----------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(2)........................................................... $ 100 $ 7,687
Working capital (deficit).............................................................. (2,210) 6,413
Total assets........................................................................... 3,257 11,448
Redeemable preferred stock............................................................. 1,089 --
Stockholders' equity (deficit)......................................................... (142) 9,300
</TABLE>
- ---------
(1) As adjusted gives effect to (i) the Offering, (ii) the Affiliations, (iii)
the repayment of certain indebtedness of Pentegra and the Founding
Affiliated Practices, (iv) the Pentegra/Napili Transaction, (v) the Share
Exchange and (vi) the Repurchase and Redemption, as if such transactions had
occurred on December 31, 1997. It excludes the effect of the issuance in
February 1998, and repayment from proceeds of the Offering, of $486,000
aggregate principal amount of 15% promissory notes. See the Unaudited Pro
Forma Balance Sheet of Pentegra and the notes thereto included in this
Prospectus.
(2) See "Use of Proceeds."
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS CONTAINS CERTAIN STATEMENTS OF A
FORWARD-LOOKING NATURE RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL
PERFORMANCE OF THE COMPANY. SUCH STATEMENTS ARE ONLY PREDICTIONS AND THE ACTUAL
EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS,"
AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. THE HISTORICAL RESULTS
SET FORTH IN THIS DISCUSSION AND ANALYSIS ARE NOT INDICATIVE OF TRENDS WITH
RESPECT TO ANY ACTUAL OR PROJECTED FUTURE FINANCIAL PERFORMANCE OF THE COMPANY.
THIS DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE PRO FORMA
BALANCE SHEET, THE FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED
IN THIS PROSPECTUS.
OVERVIEW
Although the Company has conducted no significant operations to date, it
will succeed to the business of Pentegra, Ltd. and Napili, which developed the
Pentegra Dental Program. In connection with the Affiliations, the Company will
acquire certain tangible and intangible assets and assume certain liabilities
of, and enter into Service Agreements with, the Founding Affiliated Practices.
Through those Service Agreements, the Company will be providing practice
management services to the Founding Affiliated Practices in return for
management service fees.
The expenses incurred by the Company in fulfilling its obligations under the
Service Agreements will be generally of the same nature as the operating costs
and expenses that were otherwise incurred by the Founding Affiliated Practices,
including salaries, wages and benefits of practice personnel (excluding dentists
and certain other licensed dental care professionals), dental supplies and
office supplies used in administering their practices and the office (general
and administrative) expenses of the practices. In addition to the operating
costs and expenses discussed above, the Company will be incurring personnel and
administrative expenses in connection with establishing and maintaining a
corporate office, which will provide management, administrative, marketing and
development and acquisition services to Affiliated Practices.
The Service Agreements with the professional corporations or associations to
be formed by the dentist-owners of the Founding Affiliated Practices have
initial terms of 40 years, subject to earlier termination under certain
circumstances. Pursuant to those Service Agreements, the Company will become the
exclusive manager and administrator of non-dental services relating to the
operation of the Founding Affiliated Practices, and will, among other things,
(i) administer the billing and collections for the Founding Affiliated
Practices, (ii) provide the necessary clerical, accounting and other non-dental
services to the Founding Affiliated Practices and (iii) provide facilities and
equipment for the Founding Affiliated Practices. The service fees payable by the
Founding Affiliated Practices to the Company under the Service Agreements are
based on fair market value of the services to be provided. Generally, the
service fees are computed based on (i) a percentage of revenues less operating
expenses, (ii) a percentage of revenues not to exceed a percentage of revenues
less operating expenses, (iii) a specific fixed service fee or (iv) some
combination of these. See "--Planned Operations" and "Business--Service
Agreements."
The Company does not participate in the negotiation of dentist compensation.
Under each Service Agreement, the Affiliated Practice will retain the
decision-making power and responsibility for, among other things, (i) hiring,
compensating and supervising dentists and other licensed dental professionals,
(ii) ensuring that dentists have the required licenses, credentials, approvals
and other certifications appropriate to the performance of their duties and
(iii) complying with federal and state laws, regulations and ethical standards
applicable to the practice of dentistry. Pursuant to the terms of the Service
Agreements, the Affiliated Practices will continue to provide dental services
and will be exclusively in control of all aspects of the practice of dentistry
and the provision of dental services. The Company will not engage in the
practice of dentistry.
23
<PAGE>
As a result of the Affiliations and upon completion of the Offering, the
dentist-owners of the Founding Affiliated Practices and certain officers and
directors of the Company will beneficially own approximately 55.3% of the
outstanding shares of Common Stock. See "Certain Transactions--Organization of
the Company" and "Principal Stockholders."
RESULTS OF OPERATIONS
PENTEGRA AND PII
Pentegra and PII have conducted no significant operations to date and will
not conduct significant operations until the Affiliations, the Pentegra/Napili
Transaction and the Offering are completed. The Company had no revenues and a
net loss of $1,354,000 for the period from inception, February 21, 1997, through
December 31, 1997. General and administrative expenses totalling approximately
$1,354,000 were incurred during the period from inception through December 31,
1997. The Company has incurred and will continue to incur various legal,
accounting, travel, personnel and marketing costs in connection with the
Affiliations and the Offering. Of these expenses, (i) $1,450,000 is being funded
with proceeds from the issuances of the Common Stock, Class A Preferred and
Class B Preferred in the second quarter of 1997, (ii) $350,000 is being funded
with proceeds from the issuance of $350,000 aggregate principal amount of 9.5%
promissory notes of the Company to four separate lenders in October and November
1997 and (iii) $486,000 is being funded with proceeds from the issuance of
$486,000 aggregate principal amount of 15.0% promissory notes of the Company to
30 dentist-owners of Founding Affiliated Practices, two of the Company's
existing stockholders and two other lenders, all in February 1998.
PLANNED OPERATIONS
The Company intends to complete the Affiliations and the Pentegra/Napili
Transaction concurrently with the closing of the Offering. Upon consummation of
the Affiliations, the Company will enter into a Service Agreement with each
Founding Affiliated Practice under which the Company will become the exclusive
manager and administrator of non-dental services relating to the operation of
the Founding Affiliated Practices. The following is a summary of the typical
form of Service Agreement the Company will enter into with each Founding
Affiliated Practice. The Company expects to enter into similar agreements with
Affiliated Practices in the future. The actual terms of the Service Agreements
may vary from the description below on a case-by-case basis, depending on
negotiations with the individual Founding Affiliated Practices and the
requirements of applicable laws and governmental regulations.
Each Service Agreement is for an initial term of 40 years, with automatic
extensions (unless specified notice is given) of five years. The Service
Agreement may be terminated by either party if the other party (i) files a
petition in bankruptcy (or other similar events occur) or (ii) defaults on the
performance of a material duty or obligation, which default continues for a
specified term after notice. In addition, the Service Agreement may be
terminated by the Company (i) if the Founding Affiliated Practice or a dentist
engages in conduct for which the dentist's license to practice dentistry is
revoked or suspended or is the subject of any restrictions or limitations by any
governmental authority to such an extent that he, she or it cannot engage in the
practice of dentistry or (ii) upon a breach by the dentist of the employment
agreement between the Founding Affiliated Practice and the dentist.
The management service fees (the "Service Fees") payable to the Company by
the Founding Affiliated Practices under the Service Agreements, together with
operating and non-operating expenses of each Affiliated Practice to be paid to
the Company pursuant to the Service Agreements, are payable monthly and consist
of various combinations of the following: (i) "Standard Service Agreement",
which provides for (a) a percentage (ranging from 30% to 40%) of the Affiliated
Practice's revenues related to dental services less operating expenses
associated with the operation of the Affiliated Practice or (b) a percentage
(16%) of the Affiliated Practice's dental service revenues, not to exceed a
percentage (35%) of the difference between those revenues and operating expenses
associated with the operation of the
24
<PAGE>
Affiliated Practice; or (ii) "Alternative Service Agreement," which provides for
the greater of (a) a percentage (35%) of the Affiliated Practice's revenues
related to dental services less operating expenses associated with the operation
of the Affiliated Practice or (b) a specified fixed Service Fee (ranging from
$54,000 to $305,000 annually). In addition, with respect to four of the Founding
Affiliated Practices, the Service Fees are based on fixed fees that are subject
to renegotiation on an annual basis.
Service Fees payable to the Company under clause (i)(a) above are payable by
37 of the Founding Affiliated Practices, located in each state in which the
Founding Affiliated Practices are located other than New York and California,
and are calculated by subtracting the operating expenses of the Founding
Affiliated Practice (including non-dental salaries, insurance, rent and other
non-dentist costs) from the net revenues of the Founding Affiliated Practice and
multiplying the resulting amount by 30%, 35% or 40%, depending on the terms of
the particular Service Agreement. One Founding Affiliated Practice located in
California will pay its Service Fee according to the formula set forth in clause
(i)(b) above, equal to the greater of 16% of its net revenues or 35% of the
difference between its net revenues and operating expenses. Service Fees to be
received by the Company under clause (ii)(b) above are payable by eight of the
Founding Affiliated Practices in Texas and will result in a minimum service fee
being received by the Company (ranging from $54,000 to $305,000 annually). The
annual fixed fees payable by the four Founding Affiliated Practices in New York
are $66,009, $115,251, $83,579 and $140,127 and will be subject to renegotiation
each year based on the fair value of the services to be received by those
Founding Affiliated Practices from the Company. On a monthly basis, the Company
will calculate the Service Fee due from each Founding Affiliated Practice
pursuant to the terms of each Service Agreement. In addition, if the costs
related to providing dental services pursuant to capitated managed care
arrangements exceed the revenues received for those services, the Affiliated
Practice will remain responsible for reimbursing the Company for all of the
costs associated with providing those services, even if no Service Fee is due to
the Company under its Service Agreement.
Dentist compensation will be determined by the Affiliated Practices pursuant
to employment arrangements between the Affiliated Practices and the individual
dentists. The Company does not participate in the negotiation of dentist
employment compensation.
The Company will not engage in the practice of dentistry. To the extent that
a Founding Affiliated Practice, with the assistance of the Company pursuant to
its Service Agreement, increases its revenues and/ or decreases its operating
expenses, the Service Fees payable to the Company may increase. The Service Fees
for each Founding Affiliated Practice will be calculated individually and will
not be based on the operations of any other Founding Affiliated Practice.
It is anticipated that substantially all the Company's revenues will consist
of Service Fees and the operating expenses that the Affiliated Practices will
pay to the Company under the Service Agreements. Service Fees may be expected to
vary proportionately with the level of dental services provided by Founding
Affiliated Practices and future affiliations with additional Affiliated
Practices.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash of approximately $100,000 at December 31, 1997. In
October and November 1997, the Company received an additional $350,000 through
the issuance of $350,000 aggregate principal amount of 9.5% promissory notes to
four lenders. In connection with the issuance of the 9.5% promissory notes, PII
issued an aggregate of 20,000 shares of its common stock in October 1997 to two
of those lenders for cash consideration of $.015 per share. In February 1998,
the Company received an additional $486,000 through the issuance of $486,000
aggregate principal amount of 15.0% promissory notes to 30 dentist-owners of
Founding Affiliated Practices, two of the Company's existing stockholders and
two other lenders. The Company anticipates receiving approximately $19.0
million, net of underwriters' commissions and other offering costs, as proceeds
from the Offering. The Company will use the net proceeds of the Offering to pay
(i) the costs of the Offering not previously funded from the proceeds of the
issuance of
25
<PAGE>
capital stock and notes of the Company, (ii) the cash portion of the
consideration for the Affiliations of approximately $6.4 million, (iii) the cash
portion of the consideration for the Pentegra/Napili Transaction of $100,000,
(iv) approximately $1.7 million in connection with the cash portion payable by
the Company in the Repurchase and Redemption, (v) approximately $2.6 million to
retire certain indebtedness of the Founding Affiliated Practices and (vi)
approximately $836,000 to repay the aggregate principal amount outstanding under
the Company's 9.5% promissory notes and 15.0% promissory notes. The remaining
net proceeds will be used for general corporate purposes, which are expected to
include future acquisitions and capital expenditures. The cost of implementing
the Company's management information systems is estimated to be approximately
$550,000, including enhanced microcomputer and related hardware in certain
dental practice offices. Approximately half of this amount has been paid with
proceeds from the sale of Class A Preferred and Class B Preferred, with the
remainder to be paid from the net proceeds of the Offering. Any significant
delay or increase in expense associated with the implementation of the Company's
management information systems could have a material adverse effect on the
Company's results of operations and liquidity.
Management believes the net proceeds of the Offering, combined with the
Company's cash flows from operations, will be sufficient to fund planned capital
expenditures and ongoing operations of the Company through the end of 1998. The
Company is also seeking to establish a revolving bank credit facility and
intends to register an additional 1,500,000 shares of Common Stock under the
Securities Act following the Offering which, when combined with the Company's
cash resources, will be used in the Company's expansion program. In addition,
the Company may seek to utilize seller financing debt in future affiliations or
additional equity offerings to finance the Company's operations.
The Company has initiated preliminary discussions with a potential lender
regarding a credit facility (the "Credit Facility"), to be used for general
corporate purposes, including financing of acquisitions, capital expenditures
and working capital. On the basis of those discussions, the Company expects to
enter into the Credit Facility promptly following the closing of the Offering
and that the Credit Facility will provide for a revolving line of credit up to
$15.0 million. The ability of the Company to secure the Credit Facility is
subject to satisfactory negotiations with its prospective lender as well as the
negotiation and execution of definitive loan documentation. The Company expects
that any borrowings under the Credit Facility will be secured by liens on
certain of the Company's assets (including its rights under its Service
Agreements and accounts receivable) and that the Credit Facility will (i)
contain restrictions on the incurrence of additional indebtedness (except for
purchase money loans for property and equipment) and the payment of dividends on
the Common Stock, (ii) require compliance with certain financial covenants and
(iii) provide the lender with approval rights with respect to acquisitions
exceeding certain limits. There can be no assurance that the Company can obtain
the Credit Facility on terms it deems acceptable.
ACCOUNTING TREATMENT
In accordance with Staff Accounting Bulletin No. 48, "Transfers of
Nonmonetary Assets by Promoters or Shareholders" ("SAB 48"), the acquisition of
the assets and assumption of certain liabilities pursuant to the Affiliations
from certain promoters of the Company (the dentists who own the Founding
Affiliated Practices) will be accounted for by the Company at the transferors'
historical cost basis. The Common Stock being issued in the Affiliations will be
recorded at the historical net book value of the net assets being acquired, as
reflected on the books of the Founding Affiliated Practices. Cash consideration
paid to the promoters in the Affiliations of approximately $6.4 million and the
assumption of approximately $220,000 of net assets of the Founding Affiliated
Practices will be treated for accounting purposes as a dividend to the
promoters. See "Business--Summary of Terms of Affiliations" and "Certain
Transactions--Organization of the Company."
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CHANGE IN FISCAL YEAR
Following consummation of the Offering, the Company intends to change its
fiscal year from the year ending on December 31 to the year ending on March 31.
RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 specifies the computation, presentation, and disclosure
requirements of earnings per share and supersedes Accounting Principles Board
Opinion No. 15, "Earnings Per Share." SFAS No. 128 requires a dual presentation
of basic and diluted earnings per share. Basic earnings per share, which
excludes the impact of common stock equivalents, replaces primary earnings per
share. Diluted earnings per share, which utilizes the average market price per
share as opposed to the greater of the average market price per share or ending
market price per share when applying the treasury stock method in determining
common stock equivalents, replaces fully diluted earnings per share. SFAS No.
128 is effective for both interim and annual periods ending after December 15,
1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components in a full set of general
purpose financial statements. SFAS No. 131 establishes standards for reporting
segment information by public enterprises in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports to shareholders. Both of these statements
are effective for fiscal years beginning after December 15, 1997. The Company
believes implementation of SFAS Nos. 130 and 131 will not have a material effect
on its financial position, results of operations or cash flows.
In November 1997, the Emerging Issues Task Force of the FASB (the "EITF")
reached a consensus relating to the conditions under which a physician or dental
practice management company would consolidate the accounts of an affiliated
physician or dental practice. The Company believes that its accounting policies
conform to the EITF consensus.
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BUSINESS
OVERVIEW
Pentegra Dental Group, Inc. was recently formed to provide management,
administrative, development and other services to dental practices throughout
the United States. The Company's approach to dental practice management, the
Pentegra Dental Program, was developed by Dr. Omer K. Reed, the Chairman of the
Board of the Company, and is designed to increase revenues and lower costs at
Affiliated Practices while freeing the practicing dentists to focus on the
delivery of high-quality care. The Company will earn management service fees
under long-term service agreements with Affiliated Practices (the "Service
Agreements"). In most cases, service fees payable to the Company under the
Service Agreements represent a share of the Affiliated Practices' operating
profits, thereby providing incentives for the Company and the Affiliated
Practices to work together to maximize practice profitability. The Company will
also seek to grow by acquiring and affiliating with additional dental practices.
The Company has entered into definitive acquisition agreements and Service
Agreements with 50 Founding Affiliated Practices, which include 77 dentists and
63 dental offices located in 18 states. These dentists have practiced an average
of 21 years. Of these dentists, 68 are general dentists, one is a
prosthodontist, five are periodontists, one is a pedodontist and two are oral
surgeons. In addition, the Company will acquire from Dr. Reed the assets of a
consulting firm, Pentegra, Ltd., which was founded in 1988, and a seminar
company, Napili, which was founded in 1963. The clinical, administrative and
marketing training developed and provided by these companies to practicing
dentists and their teams are the foundation for the Pentegra Dental Program.
After completion of the Offering, the Pentegra Dental Program will be available
exclusively to Affiliated Practices.
The Company believes it has several advantages that would lead dental
practices to seek to affiliate with the Company: (i) the Company and the
Founding Affiliated Practices focus on providing traditional fee-for-service
dental care, which the Company believes is highly profitable and professionally
rewarding for dentists; (ii) the Pentegra Dental Program offers proven
techniques to increase practice profitability substantially; (iii) both the
Company and the Affiliated Practices will have incentives to work together to
maximize practice profitability; and (iv) affiliation with the Company will
enable Affiliated Practices to benefit from professional management techniques,
economies of scale in administrative and other functions, and enable affiliated
dentists to dedicate more time and effort towards the growth of their practices.
INDUSTRY
The Health Care Finance Administration ("HCFA") estimates that in 1995,
approximately $43 billion was spent in the United States on dental services.
HCFA projects annual dental expenditures to increase at an average annual rate
of six percent per year, reaching $79 billion in the year 2005. The Company
believes there are several factors that will drive growth in dental expenditures
in the United States, including (i) the aging of the population, which increases
the demand for restorative and maintenance procedures (E.G., crowns, bridges and
implants) that tend to be more profitable than routine procedures (E.G.,
cleanings and fillings); (ii) the increasing attention to dental health and
wellness, with greater emphasis on personal appearance, which increases the
demand for general dentistry services and, in particular, cosmetic dental
procedures (E.G., porcelain bonding and bleaching), which also tend to be more
profitable than routine procedures; and (iii) the increasing percentage of the
population covered by some form of dental insurance, which, according to the
National Center for Health Statistics, makes patients more likely to seek
treatment from their dentist.
Payments for dental services are made either directly by patients or by
third-party payors. Third-party payors primarily consist of private insurance
indemnity plans, preferred provider organizations ("PPOs") and dental health
maintenance organizations and other managed care programs ("DHMOs"). Private
indemnity insurance companies typically pay for a patient's dental care on a
fee-for-service basis, while PPO plans pay on a discounted fee-for-service
basis. DHMO plans typically pay on a per-person, per-
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month basis regardless of the level of service provided to the patient. In the
case of both PPOs and DHMOs, patients typically must pay on a fee-for-service
basis for any services outside the limited range of dental procedures covered.
According to the 1997 Mercer Consulting Group survey of Employer-Sponsored
Health Plans, approximately 86% of the respondents in that survey reported that
they offer their employees dental plans that pay for dental services on a
fee-for-service basis, while approximately 22% of the plans surveyed are PPO and
DHMO plans (I.E., discounted fee-for-service payments or capitated payments).
According to HCFA, only approximately four percent of all payments for dental
care are made under the Medicaid program (which provides limited coverage for
indigent children), with no coverage being provided by the Medicare program.
In a 1995 survey, the ADA reported that there were approximately 153,000
active dentists in the United States, approximately 88% of whom were practicing
either alone or with only one other dentist. In recent years, dentists have
begun to consolidate into affiliated groups and with practice management
organizations. Dentists who affiliate with practice management companies gain
several benefits, such as opportunities to achieve economies of scale, to
implement cost management techniques and to gain access to capital for new
equipment and other working capital needs.
BUSINESS STRATEGY
The Company's objective is to become a leader in providing dental practice
management services. In order to achieve this objective, the Company's strategy
includes the following elements:
- FOCUS ON TRADITIONAL FEE-FOR-SERVICE DENTAL CARE. According to the 1997
Mercer Consulting Group Survey of Employer-Sponsored Health Plans,
approximately 86% of the respondents in that survey reported that they
offer their employees dental plans that pay for dental services on a
fee-for-service basis. The Company believes that fee-for-service care is
high-quality, highly profitable and professionally rewarding for dentists.
- INCREASE PRODUCTIVITY AND PROFITABILITY OF AFFILIATED PRACTICES BY
IMPLEMENTING THE PENTEGRA DENTAL PROGRAM. The Pentegra Dental Program
involves implementing techniques designed to increase revenues and lower
costs, as well as methods to make the dentist and his or her practice team
more efficient in the delivery of dental care.
- LOWER OPERATING COSTS BY ACHIEVING ECONOMIES OF SCALE. The Company
believes that, as a result of its size and resources, it will be able to
provide Affiliated Practices with certain management functions at lower
cost than if the Affiliated Practices were to perform the services by
themselves.
- FREE THE DENTIST TO FOCUS MORE TIME ON THE PRACTICE OF DENTISTRY. The
Company will relieve practicing dentists of administrative tasks. The
Company believes its management and administrative support will
substantially reduce the amount of time affiliated dentists are required
to spend on administrative matters and enable them to dedicate more time
and effort toward the growth of their professional practices.
- GROW THROUGH ACQUISITIONS AND AFFILIATIONS OF ADDITIONAL DENTAL PRACTICES.
The Company will generally seek to affiliate with practices that have high
potential for future growth, particularly through implementation of the
Pentegra Dental Program, an established reputation for high-quality care
and a strategic fit either in an existing market or as an entry into a new
market.
SERVICES AND OPERATIONS
THE PENTEGRA DENTAL PROGRAM
The Company intends to implement the Pentegra Dental Program at each
Affiliated Practice. The Pentegra Dental Program was developed by Dr. Reed
through Pentegra, Ltd. and Napili. Napili was founded in 1963 and has conducted
technical and management seminars for over 15,000 practicing
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dentists, including many who have attended these seminars more than once. As a
result of demand by attendees of Napili seminars, Dr. Reed established Pentegra,
Ltd. in 1988 to provide hands-on, on-site training and services to small groups
of dentists. Shortly after completion of the Offering, Pentegra, Ltd. and Napili
will no longer operate independently and their services will be available
exclusively to Affiliated Practices.
The Company focuses on traditional fee-for-service practices, which generate
revenue by providing care to their established patient bases and typically grow
through patient referrals. The Company believes that the average dentist has the
skills necessary to diagnose and provide appropriate care to patients, but many
of them have not developed the skills needed to obtain patient acceptances of,
and commitments to, the treatment plans. As a result, a significant amount of
recommended care may not be completed, with correspondingly lower revenues to
the dentists.
The Pentegra Dental Program is based on a cooperative approach that
emphasizes patient wellness and involves the dentist and his or her patient
mutually agreeing on a program to achieve and maintain optimal oral health. The
Company will provide seminars and on-site training and support to assist
affiliated dentists (who will control the practice of dentistry at Affiliated
Practices) and their teams to communicate effectively with each patient
regarding the type and value of care needed, obtain the patient's commitment to
a treatment plan and then implement the agreed-upon treatment plan. An initial
on-site consulting and training session will be provided to Affiliated Practices
lasting from one to three days, with subsequent sessions provided as necessary.
At each initial session, the Company will perform an analysis that includes
on-site observation of the dental practice, monitoring of the clinical staff and
patient flow, as well as a review of the charting and record documentation of
the care provided. The purpose of this analysis is to identify areas where
improvements might be made in the day-to-day operations of the dental practice,
including changes in personnel and facility utilization, patient scheduling and
communication (both between the dentist and his or her staff and between all
dental practice personnel and its patients). In addition, the dental practice's
personnel, including its dentists, are introduced to techniques designed to (i)
improve communication among them and (ii) sensitize them to becoming more
confident and consistent in their communications with patients in order to
ensure that each patient is fully informed and agrees with the dentist on a
mutually acceptable treatment plan. The Company and the Affiliated Practices
will monitor the patients' treatment plans by using active recall systems to
ensure that scheduled treatments are actually performed. The Pentegra Dental
Program stresses quality of care and personal attention, both of which the
Company believes are highly valued by patients and help achieve treatment plan
acceptance. The Company intends to develop and maintain a statistical database
for each Affiliated Practice to define and measure the standard of care and
assure that the desired standards are being achieved.
The Pentegra Dental Program also analyzes and rationalizes fee structures to
increase profitability. The Company believes that typical fee structures do not
accurately reflect all direct and indirect costs of various procedures. In order
to address this, the Company will use time-related cost allocation models to
recommend fee structures for Affiliated Practices that are designed to reflect
the true cost of procedures and, hence, increase profitability.
In addition, the Pentegra Dental Program focuses on increasing the
productivity of the dentist and his or her team. The Company will seek to
increase the use of hygienists and production at the Affiliated Practices. A
number of dental services can be provided by hygiene teams with only limited
involvement by the dentist, thereby enabling dentists to use their extra time on
higher margin procedures requiring greater expertise and skill. The Company will
also monitor the Affiliated Practices' patient scheduling and time spent with
patients, and will provide office design services, in order to increase
utilization of existing dental equipment and personnel.
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MANAGEMENT INFORMATION SYSTEMS
The Company will utilize an integrated server-based information system to
track important operational and financial data related to each Affiliated
Practice's performance. The Company's management information system will enable
the Company to collect from each Affiliated Practice, on a daily basis, data on
patients seen, number and type of procedures performed, billing and collections,
and other data needed for financial reporting and analysis. The Company will
then compile and analyze this data in order to promote efficiency and assure
high quality care at Affiliated Practices, as well as maintain necessary
financial controls. The Company's management information system will also enable
the Company to centralize certain functions, such as purchasing, accounts
payable and payroll processing, and achieve economies of scale.
The centralized data repository of the Company's management information
system has been completed. The Company is currently in the process of refining
and testing the interfacing of its management information system with beta sites
at selected Founding Affiliated Practices. The Company has successfully
completed testing to ensure access to the Company's data repository via the
internet at the beta sites, but has not yet completed testing of the entry and
retrieval of statistical data into the data repository from the beta sites. The
Company expects its integrated system to be operational at all of the Founding
Affiliated Practices at the closing of the Offering, and will be installed
promptly at all future Affiliated Practices as they affiliate with the Company.
Any significant delay or increase in expense associated with the conversion and
integration of management information systems used by Affiliated Practices could
have a material adverse effect on the successful implementation of the Company's
expansion strategy. In addition, the Company will have some systems that will
remain decentralized for at least some time, such as cash collections.
Accordingly, the Company will rely on local staff for certain functions,
including transferring cash from the Affiliated Practices to the Company.
OTHER PRACTICE MANAGEMENT SERVICES
The Company will provide other practice management services to the
Affiliated Practices, including staffing, general business and professional
dental education and training to affiliated dentists, dental hygenists and
office staff, employee benefits administration, advertising and other marketing
support and, where permitted by applicable law, dentist recruiting. This
management and administrative support should substantially reduce the amount of
time affiliated dentists are required to spend on administrative matters and
enable them to dedicate more time and effort toward the growth of their
professional practices. In addition, the Company expects to be able to
negotiate, on behalf of Affiliated Practices, discounts on, among other things,
dental and office supplies, health and malpractice insurance and equipment. The
Company does not currently intend to enter into any agreements with third-party
payors.
In certain markets, the Company may assist Affiliated Practices in securing
reimbursement contracts from third-party payors. In those situations, the
Company's role will be to negotiate and administer the contracts on behalf of
the Affiliated Practices.
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LOCATIONS
Upon consummation of the Affiliations, the Company will provide management
services to the Founding Affiliated Practices, with offices in the following
states:
<TABLE>
<CAPTION>
NUMBER OF
-------------------------------
STATE OFFICES DENTISTS CITIES
- ------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Alaska............................................................. 1 1 1
Arizona............................................................ 6 7 4
California......................................................... 1 1 1
Colorado........................................................... 4 6 4
Florida............................................................ 3 3 2
Louisiana.......................................................... 1 1 1
Maine.............................................................. 1 1 1
Maryland........................................................... 1 1 1
Massachusetts...................................................... 1 2 1
Michigan........................................................... 1 1 1
Nebraska........................................................... 2 2 1
New Mexico......................................................... 1 2 1
New York........................................................... 4 4 3
North Dakota....................................................... 1 1 1
Oregon............................................................. 1 1 1
Texas.............................................................. 31 40 12
Washington......................................................... 2 2 2
Wisconsin.......................................................... 1 1 1
--------- --------- ---------
Totals........................................................... 63 77 39
--------- --------- ---------
--------- --------- ---------
</TABLE>
All office facilities are leased, in some cases from the owner of the
Affiliated Practice using the facility. Pursuant to its Service Agreements, the
Company will provide all the office facilities (which it intends to lease),
dental equipment and furnishings to the Affiliated Practices.
SUMMARY OF TERMS OF AFFILIATIONS
The aggregate consideration that will be paid by Pentegra to the promoters
consists of (i) approximately $6.4 million in cash and (ii) shares of Common
Stock having a value of approximately $26.3 million, based on the initial public
offering price (2,922,549 shares of Common Stock, based on an assumed initial
public offering price of $9.00 per share). The number of shares to be issued in
connection with the Affiliations will decrease if the initial public offering
price is higher, and will increase if the initial public offering price is
lower, than $9.00 per share. For example, an aggregate of 2,768,734 shares of
Common Stock would be issued to the dentist-owners of the Founding Affiliated
Practices (all of whom are promoters of the Company) if that price is $9.50 per
share, while an aggregate of 3,094,468 shares of Common Stock would be issued to
those persons if that price is $8.50 per share. The Company will also assume
certain indebtedness of the Founding Affiliated Practices of approximately $2.6
million. Pentegra will acquire substantially all the assets necessary to operate
the business of each of the Founding Affiliated Practices, except as limited by
applicable restrictions on the corporate practice of dentistry. See Note 4 of
Notes to the Pentegra Dental Group, Inc. Financial Statements and "--Government
Regulation." The assets to be acquired include furniture, fixtures, computer
equipment, dental chairs, lights, autoclaves, mixers, vacuum and suction
systems, cabinets, hand instruments and hand pieces of each Founding Affiliated
Practice. Pentegra will also acquire the intangible assets of each Founding
Affiliated Practice and will employ the non-professional staff of each Founding
Affiliated Practice. Prior to consummation of the Offering, each dentist-owner
who owns a Founding Affiliated Practice will form a new professional corporation
or association that will (i) employ the dentists-owner and all other dentists
working at the
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Founding Affiliated Practice and (ii) be a party to a Service Agreement to whom
the Company will provide services thereunder. The Company will own no interest
in those professional corporations or associations. In the event of a breach of
the Service Agreement by an Affiliated Practice, the Company will have the right
to designate a dentist to purchase the ownership interests of the applicable
professional corporation or association.
The consideration being paid by Pentegra for each Founding Affiliated
Practice was determined by negotiations between executive officers of Pentegra
not affiliated with any Founding Affiliated Practice and a representative of
that Founding Affiliated Practice. Pentegra used valuation methods to negotiate
the consideration being paid to each of the Founding Affiliated Practices,
including the respective practices wholly owned by Drs. Reed, Andress, Clarke,
Greder, Kay and Yaros, which methods were based upon the Founding Affiliated
Practice's gross revenue, net of certain operating expenses, and the Company's
assessment of growth potential.
The closing of each Affiliation is subject to customary conditions. These
conditions include, among others, the accuracy, on the closing date of the
Affiliations, of the representations and warranties made by the Founding
Affiliated Practices and their stockholders and by the Company; the performance
of each of their respective covenants included in the agreements relating to the
Affiliations; and the absence of any material adverse change in the results of
operations, financial condition or business of each Founding Affiliated
Practice.
Any Founding Affiliated Practice's acquisition agreement may be terminated,
under certain circumstances, prior to the closing of the Offering: (i) by the
mutual consent of Pentegra and the Founding Affiliated Practice; (ii) if the
Offering and the acquisition of that Founding Affiliated Practice are not closed
by March 31, 1998; or (iii) by the Founding Affiliated Practice or Pentegra if a
material breach or default is made by the other party in the observance or in
the due and timely performance of any of the covenants, agreements or conditions
contained in the acquisition agreement.
SERVICE AGREEMENTS
Upon consummation of the Affiliations, the Company will enter into a Service
Agreement with each Founding Affiliated Practice under which the Company will
become the exclusive manager and administrator of non-dental services relating
to the operation of the Founding Affiliated Practices. The following is intended
to be a brief summary of the typical form of Service Agreement the Company will
enter into with each Founding Affiliated Practice. The Company expects to enter
into similar agreements with Affiliated Practices in the future. The actual
terms of the various Service Agreements vary from the description below on a
case-by-case basis, depending on negotiations with the individual Founding
Affiliated Practices and the requirements of applicable law and governmental
regulations.
The Service Fees payable under the Service Agreements to the Company by the
professional corporations or associations to be formed by the dentist-owners of
the Founding Affiliated Practices were determined in arm's-length negotiations
among the parties. Those Affiliated Practices that have revenues greater than
the average amount of revenues generated by the Affiliated Practices will
typically require more administrative and other services from the Company than
those Affiliated Practices with lower than average revenues. Such fees, together
with reimbursement for operating and non-operating expenses of each Affiliated
Practice to be paid by the Company pursuant to the Service Agreements, are
payable monthly and consist of various combinations of the following: (i) a
percentage (ranging from 30% to 40%) of the Affiliated Practice's revenues
related to dental services less operating expenses associated with the operation
of the Affiliated Practice; (ii) a percentage (16%) of the Affiliated Practice's
dental service revenues, not to exceed a percentage (35%) of the difference
between those revenues and operating expenses associated with the operation of
the Affililated Practice; or (iii) the greater of (a) a percentage (not to
exceed 35%) of the Affiliated Practice's revenues related to dental services
less operating expenses associated with the operation of the Affiliated Practice
or (b) a specified fixed fee. In addition, with respect
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to four of the Founding Affiliated Practices, the Service Fees are based on
fixed fees that are subject to renegotiation on an annual basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--Planned Operations."
Pursuant to each Service Agreement, the Company will, among other things,
(i) act as the exclusive manager and administrator of non-dental services
relating to the operation of the Founding Affiliated Practice, subject to
certain matters reserved to the Founding Affiliated Practice, (ii) administer
the billing of patients, insurance companies and other third-party payors and
collect on behalf of the Founding Affiliated Practice the fees for professional
dental and other services and products rendered or sold by the Founding
Affiliated Practice, (iii) provide, as necessary, clerical, accounting, payroll,
legal, bookkeeping and computer services and personnel, information management,
printing, postage and duplication services and transcribing services, (iv)
supervise and maintain custody of substantially all files and records (other
than patient records if prohibited by applicable law), (v) provide facilities,
equipment and furnishings for the Founding Affiliated Practice, (vi) order and
purchase inventory and supplies as reasonably requested by the Founding
Affiliated Practice and (vii) implement, in consultation with the Founding
Affiliated Practice, public relations or advertising programs.
Pursuant to each Service Agreement, the respective Founding Affiliated
Practice retains the decision-making power and responsibility for, among other
things, (i) hiring, compensating and supervising dentist-employees and other
licensed dental professionals, (ii) ensuring that dentists have the required
licenses, credentials, approvals and other certifications appropriate for the
performance of their duties and (iii) complying with federal and state laws,
regulations and ethical standards applicable to the practice of dentistry. In
addition, the Founding Affiliated Practice will be exclusively in control of all
aspects of the practice of dentistry and the provision of dental services.
Each Service Agreement is for an initial term of 40 years, with automatic
extensions (unless specified notice is given) of five years. The Service
Agreement may be terminated by either party if the other party (i) files a
petition in bankruptcy or other similar events occur or (ii) defaults on the
performance of a material duty or obligation, which default continues for a
specified term after notice. In addition, the Service Agreement may be
terminated by the Company (i) if the Founding Affiliated Practice or a dental
employee engages in conduct for which the dental employee's license to practice
dentistry is revoked or suspended or is the subject of any restrictions or
limitations by any governmental authority to such an extent that he, she or it
cannot engage in the practice of dentistry or (ii) upon a breach by the dentist
of the employment agreement between the Founding Affiliated Practice and the
dentist.
The Service Agreement requires the Founding Affiliated Practice to enforce
the employment agreements between the Founding Affiliated Practice and the
dentists associated with the Founding Affiliated Practice (the "Dentist
Employment Agreements"). If the Founding Affiliated Practice does not enforce
such employment agreement, the Company may, at its option, require the Founding
Affiliated Practice to either assign (i) such employment agreement or (ii) the
rights to enforce the covenant not to compete set forth therein to the Company
or its designee.
The Founding Affiliated Practice is responsible for obtaining professional
liability insurance for the employees of the Founding Affiliated Practice and
the Company is responsible for obtaining general liability and property
insurance for the Founding Affiliated Practice.
Upon termination of a Service Agreement, the Founding Affiliated Practice
has the option to purchase and assume, and the Company has the option to require
the Founding Affiliated Practice to purchase and assume, the assets and
liabilities related to the Founding Affiliated Practice at the fair market value
thereof, except in certain circumstances where the Founding Affiliated Practice
or the Company, as applicable, was in breach of the Service Agreement.
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DENTIST AGREEMENT
Each dentist who has an ownership interest in a Founding Affiliated Practice
will enter into a dentist agreement, which provides the Company such dentist's
guarantee (for the initial five years and for so long thereafter as he or she
owns any interest in the Founding Affiliated Practice) of the Founding
Affiliated Practice's obligations under the applicable Service Agreement. In
addition, such agreement provides that the dentist may not sell his or her
ownership interest during the dentist's five-year employment term without the
Company's prior written consent. In the event of a default under the Service
Agreement by the Founding Affiliated Practice, the dentist agreement provides
that the Company may, at its option, require the Founding Affiliated Practice to
convey its patient records and the capital stock of the Founding Affiliated
Practice to the Company's authorized designee, who, in any such case, the
Company anticipates will be a dentist affiliated with an Affiliated Practice.
DENTIST EMPLOYMENT AGREEMENTS
Upon consummation of the Affiliations, each Founding Affiliated Practice
will be a party to a Dentist Employment Agreement with each dentist owner,
including the dentist who owns such Founding Affiliated Practice. The Dentist
Employment Agreements with dentists who will receive cash or Common Stock in the
Affiliations are for an initial term of five years and continue thereafter on a
year-to-year basis until terminated under the terms of the agreements. The
Dentist Employment Agreements provide that the employee dentist will not compete
with the Affiliated Practice during the term of the agreement and following the
termination of the agreement for a term of two years in a specified geographical
area. If employment of a dentist is terminated during the initial five-year term
without the consent of Pentegra for any reason other than the dentist's death or
disability or the occurrence of certain events outside the dentist's control, an
event of default will occur under the Service Agreement. In certain
jurisdictions a covenant not to compete may not be enforceable under certain
circumstances. See "Risk Factors-- Reliance on Affiliated Practices and
Dentists."
COMPETITION
The Company anticipates facing substantial competition from other companies
to establish affiliations with additional dental practices. The Company is aware
of several publicly traded dental practice management companies that have
operations in jurisdictions where one or more Founding Affiliated Practices
conduct business (including Apple Orthodontix, Inc., Birner Dental Management
Services, Inc., Castle Dental Centers, Inc., Coast Dental Services, Inc., Dental
Care Alliance, Inc., Gentle Dental Service Corp., Monarch Dental Corporation,
OrthAlliance, Inc. and Orthodontic Centers of America, Inc.) and several
companies pursuing similar strategies in other segments of the health care
industry. Certain of these competitors have greater financial and other
resources than the Company and have operations in areas where the Company may
seek to expand in the future. Additional companies with similar objectives are
expected to enter the Company's markets and compete with the Company. In
addition, the business of providing dental services is highly competitive in
each market in which the Company will operate. Each of the Founding Affiliated
Practices faces local competition from other dentists, pedodontists and other
providers of specialty dental services (such as periodontists, orthodontists and
oral surgeons), some of whom have more established practices. There can be no
assurance that the Company or the Affiliated Practices will be able to compete
effectively with their respective competitors, that additional competitors will
not enter their markets or that additional competition will not have a material
adverse effect on the Company or the Affiliated Practices.
EMPLOYEES
As of January 31, 1998, the Company employed three persons. Upon
consummation of the Affiliations, the Company expects that it will have
approximately 390 employees, of which approximately 15 will be employed at the
Company's headquarters in Phoenix, Arizona or at the Company's regional office
in
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Houston, Texas, and approximately 375 will be employed at the locations of the
Founding Affiliated Practices. None of the Company's employees is, or upon
consummation of the Affiliations will be, represented by collective bargaining
agreements. The Company considers its employee relations to be good.
LITIGATION AND INSURANCE
The Affiliated Practices provide dental services to the public and are
exposed to the risk of professional liability and other claims. In recent years,
dentists have become subject to an increasing number of lawsuits alleging
malpractice and related legal theories. Some of these lawsuits involve large
claims and significant defense costs. Any suits or claims involving the Company
or dentists at the Affiliated Practices, if successful, could result in
substantial damage awards to the claimants that may exceed the limits of any
applicable insurance coverage. Although the Company does not control the
practice of dentistry by the Affiliated Practices, it could be asserted that the
Company should be held liable for malpractice of a dentist employed by an
Affiliated Practice. Each Affiliated Practice has undertaken to comply with all
applicable regulations and legal requirements, and the Company maintains
liability insurance for itself. There can be no assurance, however, that a
future claim or claims will not be successful or, if successful, will not exceed
the limits of available insurance coverage or that such coverage will continue
to be available at acceptable costs.
The Company is currently not a party to any claims, suits or complaints. The
Company may become subject to certain pending claims (each of which is an
ordinary routine proceeding incidental to the business of the applicable
Founding Affiliated Practice) as the result of successor liability in connection
with the Affiliations; however, it is management's opinion that the ultimate
resolution of those claims will not have a material adverse effect on the
financial position, operating results or cash flows of the Company.
The Founding Affiliated Practices have maintained professional liability
insurance coverage, generally on a claims-made basis. Such insurance provides
coverage for claims asserted when the policy is in effect regardless of when the
events that caused the claim occurred. The Company intends to acquire similar
coverage after the closing of the Affiliations, since the Company, as a result
of the Affiliations, will in some cases succeed to the liabilities of the
Founding Affiliated Practices. Therefore, claims may be asserted against the
Company after the closing of Affiliations for events that occurred prior to such
closing.
GOVERNMENT REGULATION
The dental services industry is regulated extensively at both the state and
federal levels. Regulatory oversight includes, but is not limited to,
considerations of fee-splitting, corporate practice of dentistry, prohibitions
on fraud and abuse, restrictions on referrals and self-referrals, advertising
restrictions, restrictions on delegation and state insurance regulation.
CORPORATE PRACTICE OF DENTISTRY AND FEE-SPLITTING RESTRICTIONS
The laws of many states, including all of the states in which the Founding
Affiliated Practices are located other than New Mexico and Wisconsin, permit a
dentist to conduct a dental practice only as an individual, a member of a
partnership or an employee of a professional corporation, professional
association, limited liability company or limited liability partnership. These
laws prohibit business corporations such as the Company from engaging in the
practice of dentistry or employing dentists to practice dentistry. The specific
restrictions against the corporate practice of dentistry, as well as the
interpretation of those restrictions by state regulatory authorities, vary from
state to state. The restrictions are generally designed to prohibit a non-dental
entity (such as the Company) from controlling the professional assets of a
dental practice (such as patient records and payor contracts), employing
dentists to practice dentistry (or, in certain states, employing dental
hygienists or dental assistants) or controlling the content of a dentist's
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advertising or professional practice. The laws of many states, including all of
the states in which the Founding Affiliated Practices are located other than
Alaska, Maine, Massachusetts, New Mexico and Wisconsin, also prohibit dentists
from sharing professional fees with non-dental entities. State dental boards do
not generally interpret these prohibitions as preventing a non-dental entity
from owning non-professional assets used by a dentist in a dental practice or
providing management services to a dentist for a fee, provided certain
conditions are met. The Company believes that its operations will not contravene
any restriction on the corporate practice of dentistry. There can be no
assurance, however, that a review of the Company's business relationships by
courts or regulatory authorities will not result in determinations that could
prohibit or otherwise adversely affect the operations of the Company or that the
regulatory environment will not change, requiring the Company to reorganize or
restrict its existing or future operations. The laws regarding fee-splitting and
the corporate practice of dentistry and their interpretation are enforced by
regulatory authorities with broad discretion. There can be no assurance that the
legality of the Company's business or its relationship with the Affiliated
Practices will not be successfully challenged or that the enforceability of the
provisions of any Service Agreement will not be limited.
In many states in which the Founding Affiliated Practices are located, there
is no case law or other authority interpreting the foregoing provisions. There
are, however, interpretations in some states of analogous medical provisions.
One recent example is in the State of Florida, where the Florida Board of
Medicine recently considered the issue of whether a physician practice is
permitted to enter into a management agreement pursuant to which the managing
entity earns a management fee which includes a percentage of the practice's net
income as consideration for providing certain management and operational
services. The Florida Board of Medicine issued an opinion indicating that such a
management agreement is prohibited by applicable fee-splitting statutes.
However, that order has been stayed pending its appeal to the Florida courts.
Although the Florida Board of Medicine's decision did not apply to dental
practices, the court considering the appeal of the Board of Medicine's order
could reach conclusions or make statements that affect the application of
fee-splitting provisions applicable to dental management agreements. Pursuant to
the terms of the Service Agreements, in the event such a Service Agreement were
determined to be in violation of applicable law, the agreement would have to be
amended in a manner that complies with applicable law and preserves, to the
greatest extent possible, the economic interests of the parties thereto.
FRAUD AND ABUSE LAWS AND RESTRICTIONS ON REFERRALS AND SELF-REFERRALS
Many states in which the Founding Affiliated Practices are located,
including California, Florida, Maine, Maryland, Michigan, New York, Texas and
Washington, have fraud and abuse laws that, in many cases, apply to referrals
for items or services reimbursable by any insurer, not just by Medicare and
Medicaid. A number of states, including many of the states in which the Founding
Affiliated Practices are located, also impose significant penalties for
submitting false claims for dental services. In addition, most states in which
the Founding Affiliated Practices are located, including Alaska, Arizona,
California, Florida, Louisiana, Maine, Maryland, Michigan, New York, Texas and
Washington, have laws prohibiting paying or receiving any remuneration, direct
or indirect, that is intended to induce referrals for health care items or
services, including dental items and services. Many states in which the Founding
Affiliated Practices are located either prohibit or require disclosure of
self-referral arrangements and impose penalties for the violation of these laws.
Many states, including Alaska, Florida and Maine, limit the ability of a person
other than a licensed dentist to own or control equipment or offices used in a
dental practice. Some of these states allow leasing of equipment and office
space to a dental practice under a bona fide lease, if the equipment and office
remain under the control of the dentist. The Service Agreements that will be
entered into by the Company with respect to Affiliated Practices in Florida and
Maine will provide that equipment and offices owned or leased by the Company and
used at an Affiliated Practice will remain under the exclusive control of the
dentists employed by that Affiliated Practice.
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Federal laws regulating the provision of dental care apply only to dental
services which are reimbursed under the Medicare and Medicaid programs. Because
none of the Founding Affiliated Practices receive any revenue under Medicare or
Medicaid, the impact of these laws on the Company is anticipated to be
negligible. There can be no assurance, however, that Affiliated Practices will
not have patients in the future covered by these laws, or that the scope of
these laws will not be expanded in the future, and if expanded, such laws or
interpretations thereunder could have a material adverse effect on the Company.
The federal fraud and abuse statute prohibits, subject to certain safe
harbors, the payment, offer, solicitation or receipt of any form of remuneration
in return for, or in order to induce: (i) the referral of a person for service,
(ii) the furnishing or arranging to furnish items or services or (iii) the
purchase, lease or order or the arrangement or recommendation of a purchase,
lease or order of any item or service which is, in each case, reimbursable under
Medicare or Medicaid. The statute reflects the federal government's policy of
increased scrutiny of joint ventures and other transactions among healthcare
providers in an effort to reduce potential fraud and abuse related to Medicare
and Medicaid costs. Because dental services are covered under various government
programs, including Medicare and Medicaid, this federal law applies to dentists
and the provision of dental services under those programs.
Significant prohibitions against dentist self-referrals for services covered
by Medicare and Medicaid programs were enacted, subject to certain exceptions,
by Congress in the Omnibus Budget Reconciliation Act of 1993. These
prohibitions, commonly known as Stark II, amended prior physician and dentist
self-referral legislation known as Stark I (which applied only to clinical
laboratory referrals) by dramatically enlarging the list of services and
investment interests to which the self-referral prohibitions apply. Stark II
prohibits a physician or dentist, or a member of his or her immediate family,
from making referrals for certain "designated health services" to entities in
which the physician or dentist has an ownership or investment interest, or with
which the physician or dentist has a compensation arrangement. "Designated
health services" include, among other things, clinical laboratory services,
radiology and other diagnostic services, radiation therapy services, durable
medical equipment, prosthetics, outpatient prescription drugs, home health
services and inpatient and outpatient hospital services. Stark II prohibitions
include referrals within the physician's or dentist's own group practice (unless
such practice satisfies the "group practice" exception) and referrals in
connection with the physician's or dentist's employment arrangements with the
practice (unless the arrangement satisfies the employment exception). Stark II
also prohibits billing the Medicare or Medicaid programs for services rendered
following prohibited referrals. Noncompliance with, or violation of, Stark II
can result in exclusion from the Medicare and Medicaid programs and civil and
criminal penalties. The Company believes that its operations as presently
conducted do not pose a material risk under Stark II, primarily because the
Company does not provide "designated health services." Nevertheless, there can
be no assurance that Stark II will not be interpreted or hereafter amended in a
manner that has a material adverse effect on the Company's operations.
OTHER FEDERAL REGULATIONS
Federal regulations also allow state licensing boards to revoke or restrict
a dentist's license in the event such dentist defaults in the payment of a
government-guaranteed student loan, and further allow the Medicare program to
offset such overdue loan payments against Medicare income due to the defaulting
dentist's employer. The Company cannot assure compliance by dentists with the
payment terms of their student loans, if any.
The operations of the Affiliated Practices are also subject to compliance
with regulations promulgated by the Occupational Safety and Health
Administration ("OSHA"), relating to such matters as heat sterilization of
dental instruments and the use of barrier techniques such as masks, goggles and
gloves.
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LICENSURE, ADVERTISING RESTRICTIONS AND LIMITATIONS ON DELEGATION
The dentists associated with the Affiliated Practices must possess a license
from the applicable state Board of Dental Examiners and a permit from the U.S.
Drug Enforcement Agency.
Some states prohibit the advertising of dental services under a trade or
corporate name. Some states, including Texas, require all advertisements to be
in the name of the dentist. A number of states also regulate the content of
advertisements of dental services and the use of promotional gift items. In
addition, many states impose limits on the tasks that may be delegated by
dentists to hygienists and dental assistants. These laws and their
interpretations vary from state to state and are enforced by the courts and by
regulatory authorities with broad discretion.
INSURANCE REGULATION
There are certain state insurance regulatory risks associated with the
Company's anticipated role in negotiating and administering managed care
contracts on behalf of the Affiliated Practices. The application of state
insurance laws to third-party payor arrangements, other than fee-for-service
arrangements, is an unsettled area of law with little guidance available. State
insurance laws are subject to broad interpretation by regulators and, in some
states, state insurance regulators may determine that the Company or the
Affiliated Practices are engaged in the business of insurance because of the
capitation features (or similar features under which an Affiliated Practice
assumes financial risk) that may be contained in managed care contracts. In the
event that the Company or an Affiliated Practice is determined to be engaged in
the business of insurance, the Company or the Affiliated Practice could be
required to either seek licensure as an insurance company or change the form of
its relationships with the third-party payors. There can be no assurance that
the Company's operations would not be adversely affected if the Company or any
of the Affiliated Practices were to become subject to state insurance
regulations.
HEALTH CARE REFORM
The United States Congress has considered various types of health care
reform, including comprehensive revisions to the current health care system. It
is uncertain what legislative proposals, if any, will be adopted in the future
or what actions federal or state legislatures or third-party payors may take in
anticipation of or in response to any health care reform proposals or
legislation. There can be no assurance that applicable federal or state laws and
regulations will not change or be interpreted in the future either to restrict
or adversely affect the Company's relationships with dentists or the operation
of Affiliated Practices.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
As required by the Company's Bylaws, after the closing of the Offering, a
majority of the Company's Board of Directors will be dentists who are affiliated
with Affiliated Practices. The following table sets forth certain information
concerning the Company's directors, the nine persons nominated to become
directors on the closing of the Offering and the executive officers of the
Company (ages are as of February 20, 1997):
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ----------------------------------------------------------------
<S> <C> <C>
Omer K. Reed, D.D.S.................... 66 Chairman of the Board and Clinical Officer
Gary S. Glatter........................ 44 President, Chief Executive Officer and Director
Sam H. Carr(1)......................... 41 Senior Vice President, Chief Financial Officer and Director
James L. Dunn, Jr.(2).................. 36 Senior Vice President, Chief Development Officer and Director
John G. Thayer......................... 44 Senior Vice President and Chief Operating Officer
Kimberlee K. Rozman.................... 37 Senior Vice President, General Counsel and Secretary
Ronnie L. Andress, D.D.S.(1)........... 42 Director
J. Michael Casas....................... 35 Director
James H. Clarke, Jr., D.D.S.(1)........ 49 Director
Ronald E. Geistfeld, D.D.S.(1)......... 64 Director
Allen M. Gelwick(2).................... 38 Director
Mack E. Greder, D.D.S.(1).............. 54 Director
Roger Allen Kay, D.D.S.(1)............. 52 Director
Gerald F. Mahoney(1)................... 54 Director
Anthony P. Maris(1).................... 64 Director
George M. Siegel....................... 60 Director
Ronald M. Yaros, D.D.S.(1)............. 51 Director
</TABLE>
- ---------
(1) Appointment as a director will become effective upon the closing of the
Offering.
(2) Each of Mr. Dunn and Mr. Gelwick intends to resign as a director upon the
closing of the Offering.
OMER K. REED, D.D.S. has served as the Company's Chairman of the Board and
Clinical Officer since May 1997. He founded Pentegra, Ltd. in 1988 and Napili in
1963, and is a practicing dentist with one of the Founding Affiliated Practices.
Since inception, Pentegra, Ltd. and Napili have provided comprehensive
management and consulting services to dental practices around the nation. In
1965, Dr. Reed founded the CeramDent Laboratory and he has maintained a private
dental practice in Phoenix since 1959. He has held associate professorships in
the Departments of Ecological Dentistry at the University of North Carolina,
Chapel Hill (1978-1988) and the University of Minnesota (1982-1991), and has
lectured extensively around the world on various subjects related to the
practice of dentistry. Dr. Reed also serves on the Board of Directors of Century
Companies of America, CUNA Mutual Insurance Group and the American Volunteer
Medical Team. Pursuant to the terms of his employment agreement with the
Company, the Company has undertaken to use its best efforts to elect Dr. Reed as
a director of the Company.
GARY S. GLATTER has served as the Company's President, Chief Executive Officer
and a Director since May 1997. From January 1994 to March 1997, he was President
and Chief Operating Officer of H.E.R.C. Products Incorporated, a public company
engaged in manufacturing and selling chemical rehabilitation products for water
distribution systems. From 1989 until 1993, Mr. Glatter served as President and
Chief Executive Officer of Classic Properties, a New York-based real estate
company. Pursuant to the terms of his employment agreement with the Company, the
Company has undertaken to use its best efforts to elect Mr. Glatter as a
director of the Company.
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SAM H. CARR has served as the Company's Senior Vice President and Chief
Financial Officer since September 1997. From September 1996 until August of
1997, Mr. Carr served as Vice President--Finance and Corporate Development of
Ankle & Foot Centers of America, LLP, a podiatry practice management company.
From February 1995 until July 1996, Mr. Carr was a Senior Manager with Arthur
Andersen LLP. Prior thereto, Mr. Carr was Chief Financial Officer of
Columbia/HCA's Bellaire Hospital in Houston, Texas from January 1994 until
January 1995, and Vice President of Finance of St. Vincent Hospital in Santa Fe,
New Mexico from 1990 until 1994. From 1978 to 1990, Mr. Carr was an accountant
with Arthur Andersen L.L.P. Mr. Carr is a certified public accountant. Pursuant
to the terms of his employment agreement with the Company, the Company has
undertaken to use its best efforts to elect Mr. Carr as a director of the
Company.
JAMES L. DUNN, JR. has served as the Company's Senior Vice President and Chief
Development Officer since July 1997 and as a Director since March 1997. Since
1987, Mr. Dunn has been an attorney practicing as a sole practitioner in
Houston, Texas. His legal practice is focused on providing services to members
of the dental community. He has been actively involved in the valuation and sale
of dental practices over the past five years. In 1995, Mr. Dunn was appointed to
the Texas Medical Disclosure Panel, the body that determines which dental
procedures require informed consent. Mr. Dunn is a member of the American
Society of Pension Actuaries and is a certified public accountant.
JOHN G. THAYER has served as the Company's Senior Vice President and Chief
Operating Officer since March 1997. Prior thereto, Mr. Thayer was Managing
General Partner of England and Company, a public accounting firm he co-founded
in 1983, which provides accounting and practice management counseling to health
care professionals in the Texas Gulf Coast area. In 1994, he co-founded Medtek
Management, Inc., a privately held management information company specializing
in the data processing needs of health care professionals.
KIMBERLEE K. ROZMAN has served as the Company's Senior Vice President, General
Counsel and Secretary since July 1997. Prior thereto, she served as Vice
President, Senior Counsel (January to July 1997) and Associate General Counsel
(1996) of Physicians Resource Group, Inc., a public company engaged in providing
ophthalmic practice management services. From 1990 to 1996, Ms. Rozman was an
associate with the law firm of Jackson Walker L.L.P.
RONNIE L. ANDRESS, D.D.S. has been engaged in the private practice of dentistry
in Freeport, Texas since 1995 and is President of Ronnie L. Andress, D.D.S.,
Inc., one of the Founding Affiliated Practices. Prior to 1995, Dr. Andress was
engaged in the private practice of dentistry in Houston, Texas for over 12
years.
J. MICHAEL CASAS has been the President of Gustavia Investments, L.L.C. (a newly
organized venture capital firm) since October 1997. Prior thereto, he served as
a Vice President of Physicians Resource Group, Inc. from June 1995 to October
1997. From October 1991 to June 1995, Mr. Casas served as Administrator of Texas
Eye Institute Assoc., a comprehensive eye care provider in the greater Houston,
Texas area.
JAMES H. CLARKE, JR., D.D.S. has been engaged in the private practice of
dentistry in Houston, Texas since 1974 and is President of James H. Clark, Jr.,
D.D.S., Inc., one of the Founding Affiliated Practices.
RONALD E. GEISTFELD, D.D.S. is Professor Emeritus at the University of Minnesota
School of Dentistry, where he has taught since 1982. Dr. Geistfeld also
maintained a part-time dental practice in Minnesota from 1973 to 1992. He is a
member of the Minnesota Dental Association, the Minneapolis District Dental
Society, the American College of Dentists, the Academy of Operative Dentistry,
the Minnesota Academy of Restorative Dentistry and the Minnesota Academy for
Gnathological Research.
ALLEN M. GELWICK has served as a Senior Vice President of Alexander & Alexander,
an insurance brokerage firm, since 1995 and was previously a member of Alexander
& Alexander's Chairman's Council. From 1992 until 1994, he served as Senior Vice
President for Minet Insurance Services. Prior thereto, Mr. Gelwick served as
Senior Vice President for Frank B. Hall & Co. and was an underwriter for Chubb
Insurance.
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MACK E. GREDER, D.D.S. has been engaged in the private practice of dentistry in
Omaha, Nebraska since 1970 and is President of Mack E. Greder, D.D.S., P.C., one
of the Founding Affiliated Practices.
ROGER ALLEN KAY, D.D.S. has been engaged in the private practice of dentistry in
Farmington and Livermore Falls, Maine since 1972 and is President of Roger Allen
Kay, D.D.S., P.A., one of the Founding Affiliated Practices. He is a member of
the Maine Dental Association, the American Dental Association, the Academy of
General Dentistry and the American Society of Dentistry for Children.
GERALD F. MAHONEY has been Chairman of the Board and Chief Executive Officer of
Mail-Well, Inc., a public company engaged in printing and envelope manufacturing
with over 50 printing offices throughout the United States, since 1994. Prior
thereto, he served as Chairman of the Board, President and Chief Executive
Officer of Pavey Envelope beginning in 1991. Mr. Mahoney is a certified public
accountant.
ANTHONY P. MARIS is a consultant to health care businesses. From 1987 to 1996,
Mr. Maris was a Director, Vice President, Chief Financial Officer and Treasurer
of Roberts Pharmaceutical Corporation, a public company engaged in
pharmaceuticals manufacturing. Prior thereto, Mr. Maris was a Director and Chief
Financial Officer of Hoffmann--La Roche Inc., a pharmaceutical manufacturer.
GEORGE M. SIEGEL was President and Chief Executive Officer of Parcelway Courier
Systems, Inc., a publicly traded messenger and courier business with operations
throughout North America, from 1990 to 1997. In 1993, Mr. Siegel co-founded U.S.
Delivery Systems, a public company engaged in consolidating local messenger and
delivery companies. Prior thereto, Mr. Siegel founded and was the President and
Chief Executive Officer of U.S. Messenger & Delivery Service and Direct Dispatch
Corporation, two messenger and courier service companies that he sold to Mayne
Nickless Courier System, Inc.
RONALD M. YAROS, D.D.S. has been engaged in the private practice of dentistry in
Aurora, Colorado since 1973 and is President of Ronald M. Yaros, D.D.S., P.C.,
one of the Founding Affiliated Practices. He is a member of the American Dental
Association, the Colorado Dental Association, the Metro Denver Dental Society
and the Academy of General Dentistry.
BOARD OF DIRECTORS
The Board of Directors will be divided into three classes with at least four
directors in each class, with the term of one class expiring at the annual
meeting of stockholders in each year, commencing in 1998. At each annual meeting
of stockholders, directors of the class the term of which then expires will be
elected by the holders of the Common Stock to succeed those directors whose
terms are expiring. The first class, whose term of office will expire at the
first annual meeting of stockholders in 1998, is comprised of Drs. Andress,
Geistfeld and Kay, and Mr. Casas; the second class, whose term will expire one
year thereafter, is comprised of Drs. Clarke, Greder and Yaros and Mr. Carr; and
the third class, whose term will expire two years thereafter, is comprised of
Dr. Reed and Messrs. Glatter, Mahoney, Maris and Siegel. The Company's Bylaws
provide that a majority of the members of the Board of Directors must be
licensed to practice dentistry and affiliated with one of the Affiliated
Practices. See "Risk Factors--Board Composition" and "--Certain Anti-takeover
Provisions."
On closing of the Offering, there will be three committees of the Board:
Audit, Compensation and Executive. The initial members of the Audit Committee
will be Messrs. Maris and Mahoney. The initial members of the Compensation
Committee will be Messrs. Maris, Siegel and Casas. The initial members of the
Executive Committee will be Dr. Reed and Messrs. Glatter and Siegel. The members
of the Audit and Compensation Committees will not be employees of the Company.
Directors who are employees of the Company or a Founding Affiliated Practice
do not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or a Founding Affiliated Practice will
receive a fee of $1,500 for attendance at each Board of Directors meeting and
$750 for each committee meeting (unless held on the same day as a Board of
Directors meeting), and an initial grant of nonqualified options to purchase
10,000 shares of Common Stock (except
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with respect to Messrs. Casas and Siegel, who have waived their right to receive
those options). Directors who are not employees of the Company will also receive
annual grants of nonqualified options to purchase 5,000 shares on the first
business day of the month following the date on which each annual meeting of the
Company's stockholders is held. See "--1997 Stock Compensation Plan." All
directors of the Company are reimbursed for out-of-pocket expenses incurred in
attending meetings of the Board of Directors or committees thereof, and for
other expenses incurred in their capacity as directors of the Company.
EXECUTIVE COMPENSATION
Pentegra has conducted no operations to date other than in connection with
the Offering and the Affiliations. The Company anticipates that during 1998 its
most highly compensated executive officers will be Dr. Reed and Messrs. Glatter,
Carr, Dunn and Thayer (the "Named Executive Officers"), each of whom has entered
or will enter into an employment agreement providing for an annual salary of
$87,500, $175,000, $175,000, $125,000 and $125,000, respectively. See
"--Employment Agreements."
In addition to base salary, Messrs. Glatter, Carr, Dunn and Thayer through
their employment agreements are eligible for certain bonuses described under
"--Employment Agreements" and performance bonuses based on the achievement of
specific financial targets of the Company. Performance bonuses will not exceed
25% of base salary for each of those officers, except Mr. Glatter (whose bonus
will not exceed 50% of his base salary).
In September 1997, the Company granted options to purchase 333,333 shares,
66,667 shares, 33,333 shares and 33,333 shares of Common Stock to Messrs.
Glatter, Carr, Dunn and Thayer, respectively, under the Company's 1997 Stock
Compensation Plan, exercisable at the initial public offering price per share
set forth on the cover page of this Prospectus. Of the options granted to Mr.
Glatter, options to acquire 166,667 shares vest on the first anniversary of the
date of this Prospectus, options to acquire 66,667 shares vest on each of the
second and third anniversaries of the date of this Prospectus, and options to
acquire 33,333 shares vest on the fourth anniversary of the date of this
Prospectus. The options granted to Messrs. Carr, Dunn and Thayer vest annually
in 20% increments beginning on the first anniversary of the date of this
Prospectus. See "--1997 Stock Compensation Plan."
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Dr. Reed, Messrs.
Glatter, Carr, Dunn and Thayer and Ms. Rozman. These agreements, which will be
effective on the closing of the Affiliations and the Offering, have been filed
as exhibits to the Registration Statement of which this Prospectus is a part.
Each of these agreements provides for an annual base salary in an amount not
less than the initial specified amount and entitles the employee to participate
in all the Company's compensation plans in which other executive officers of the
Company participate. Dr. Reed's employment agreement provides that he will serve
as the Company's clinical officer and has a three-year term commencing on
completion of the Offering. Dr. Reed's base salary under the employment
agreement will be $87,500 per year, or as increased from time to time by the
Board of Directors, and provides for bonus payments aggregating $1,250,000
payable by the Company in installments of $10,000 on closing of each future
dental practice affiliation subsequent to the Offering until the bonus has been
paid in full, provided that the bonus must be paid in full by the third
anniversary of the date of this Prospectus. Mr. Glatter's employment agreement
provides that he will serve as the Company's chief executive officer and
president and has at least a four-year term commencing on July 1, 1997. Mr.
Glatter's base salary under the employment agreement will be as follows: (i)
$175,000 per year for the period from July 1, 1997 through June 30, 1998, (ii)
$200,000 per year for the period from July 1, 1998 through June 30, 1999, (iii)
$225,000 per year for the period from July 1, 1999 through June 30, 2000 and
(iv) $250,000 per year from July 1, 2000 thereafter or as increased from
time-to-time by the Board of Directors. Each of the agreements for Messrs. Carr,
Dunn and Thayer and Ms. Rozman has a continuous five-year term with an annual
base salary of $175,000 for Mr. Carr and of $125,000 for each of the other
officers, and is subject to the right of the Company to terminate the
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employee's employment at any time. Mr. Glatter is eligible to receive an annual
cash bonus in an amount equal to 10%, 20%, 30%, 40% or 50% of his base salary in
the event that the Company experiences from 20% to 22.5%, 22.5% to 25%, 25% to
27.5%, 27.5% to 30% or greater than 30%, respectively, growth in earnings per
share on a year-to-year basis (calculated on a pro forma basis for the calendar
year prior to the Company's first year of operations). For purposes of
determining the applicable year's earnings per share change, the cash bonuses
payable to Mr. Glatter and under all other employment agreements between the
Company and its officers will be taken into account. Each of the other named
officers (except Dr. Reed and Mr. Glatter) is eligible to receive an annual cash
bonus in an amount equal to 5%, 10%, 15%, 20% or 25% of his or her base salary
in the event that the Company experiences 20% to 22.5%, 22.5% to 25%, 25% to
27.5%, 27.5% to 30% or greater than 30%, respectively, growth in earnings per
share on a year-to-year basis (calculated on a pro forma basis for the calendar
year prior to the Company's first fiscal year of operations). For purposes of
determining the applicable year's earnings per share change, the cash bonuses
payable to the officer and under all other employment agreements between the
Company and its officers will be taken into account.
If the employee's employment is terminated by the Company without cause (as
defined), Messrs. Carr, Dunn and Thayer and Ms. Rozman will be entitled to a
payment equal to either 12 months' or six months' salary depending on whether
such employee has relocated to Phoenix, Arizona, and Dr. Reed and Mr. Glatter
will be entitled to a payment equal to the salary payable over the remaining
term of their respective employment agreements. Mr. Thayer will also receive a
$25,000 bonus on the closing of the Offering and a $25,000 bonus on the first
anniversary of that closing. Mr. Carr will also receive compensation on the
closing of the Offering equal to $4,583 multipled by the number of months in the
period beginning on September 1, 1997 and ending on the closing of the Offering.
Each of the foregoing agreements also contains a covenant limiting competition
with the Company for one year following termination of employment.
Each Founding Affiliated Practice will enter into an employment agreement
with its dentist employees. See "Business--Dentist Employment Agreements."
1997 STOCK COMPENSATION PLAN
In August 1997, the Board of Directors adopted, and the stockholders of the
Company approved, the 1997 Stock Compensation Plan. The purpose of the 1997
Stock Compensation Plan is to provide the Company's employees, non-employee
directors and advisors and employees and directors of Affiliated Practices with
additional incentives by increasing their proprietary interest in the Company.
The aggregate number of shares of Common Stock with respect to which options and
awards may be granted under the 1997 Stock Compensation Plan may not exceed
2,000,000 shares.
The 1997 Stock Compensation Plan provides for the grant of incentive stock
options ("ISOs"), as defined in Section 422 of the Code, nonqualified stock
options (collectively with ISOs, "Options") and restricted stock awards
("Awards"). Following the consummation of the Offering, the 1997 Stock
Compensation Plan will be administered by the Compensation Committee of the
Board of Directors, which will be comprised of not less than two members of the
Board of Directors (the "Committee"). Prior to the consummation of the Offering,
the 1997 Stock Compensation Plan had been administered by the Company's full
Board of Directors. The Committee has, subject to the terms of the 1997 Stock
Compensation Plan, the sole authority to grant Options and Awards under the 1997
Stock Compensation Plan, to interpret the 1997 Stock Compensation Plan and to
make all other determinations necessary or advisable for the administration of
the 1997 Stock Compensation Plan.
All of the Company's employees, non-employee directors and advisors and
employees and directors of Affiliated Practices are eligible to receive
nonqualified stock options and Awards under the 1997 Stock Compensation Plan,
but only employees of the Company are eligible to receive ISOs. Options will be
exercisable during the period specified in each option agreement and will
generally be exercisable in
44
<PAGE>
installments pursuant to a vesting schedule to be designated by the Committee.
Notwithstanding the provisions of any option agreement, options will become
immediately exercisable in the event of certain events including certain merger
or consolidation transactions and changes in control of the Company. No Option
will remain exercisable later than ten years after the date of grant (or five
years from the date of grant in the case of ISOs granted to holders of more than
10% of the outstanding Common Stock). An Award grants the recipient the right to
receive a specified number of shares of Common Stock, which shall become vested
over a period of time, not exceeding 10 years, specified by the Committee.
Restricted stock transferred to a recipient shall be forfeited upon the
termination of the recipient's employment or service other than for death,
permanent disability or retirement unless the Committee, in its sole discretion,
waives the restrictions for all or any part of an Award.
The exercise price for ISOs granted under the 1997 Stock Compensation Plan
may be no less than the fair market value of the Common Stock on the date of
grant (or 110% of the fair market value in the case of ISOs granted to employees
owning more than 10% of the Common Stock). The exercise price for nonqualified
options granted under the 1997 Stock Compensation Plan may not be less than the
fair market value of the Common Stock on the date of grant.
Payment upon exercise of an Option may be made in cash or by check, by means
of a "cashless exercise" involving the sale of shares by, or a loan from, a
broker, or, in the discretion of the Committee, by delivery of shares of Common
Stock, by payment of the par value of the shares subject to the Option plus a
promissory note for the balance of the exercise price or in any other form of
valid consideration permitted by the Committee.
There are generally no federal income tax consequences upon the grant of an
Option under the 1997 Stock Compensation Plan. Upon exercise of a nonqualified
option, the optionee generally will recognize ordinary income in the amount
equal to the difference between the fair market value of the shares at the time
of exercise and the exercise price, and the Company is generally entitled to a
corresponding deduction. When an optionee sells shares issued upon the exercise
of a nonqualified stock option, the optionee realizes short-term, mid-term or
long-term capital gain or loss, depending on the length of the holding period.
If the optionee holds the shares for more than 18 months, the capital gain or
loss will be long-term capital gain or loss. If the optionee holds the shares
for more than one year but not more than 18 months, the capital gain or loss
will be mid-term capital gain or loss. Otherwise, the capital gain or loss will
be short-term capital gain or loss. The Company is not entitled to any deduction
in connection with such sale.
An optionee will not be subject to federal income taxation upon the exercise
of ISOs granted under the 1997 Stock Compensation Plan, and the Company will not
be entitled to a federal income tax deduction by reason of such exercise. A sale
of shares of Common Stock acquired upon exercise of an ISO that does not occur
within one year after the date of exercise or within two years after the date of
grant of the option generally will result in the recognition of long-term or
mid-term capital gain or loss by the optionee in an amount equal to the
difference between the amount realized on the sale and the exercise price, and
the Company is not entitled to any deduction in connection therewith. If a sale
of shares of Common Stock acquired upon exercise of an ISO occurs within one
year from the date of exercise of the option or within two years from the date
of the option grant (a "disqualifying disposition"), the optionee generally will
recognize ordinary income equal to the lesser of (i) the excess of the fair
market value of the shares on the date of exercise of the options over the
exercise price or (ii) the excess of the amount realized on the sale of the
shares over the exercise price. Any amount realized on a disqualifying
disposition in excess of the amount treated as ordinary income will be long-term
or short-term capital gain, depending upon the length of time the shares were
held. The Company generally will be entitled to a tax deduction on a
disqualifying disposition corresponding to the ordinary income recognized by the
optionee.
For alternative minimum tax purposes, the difference between the fair market
value, on the date of exercise, of Common Stock purchased upon the exercise of
an ISO, and the exercise price increases
45
<PAGE>
alternative minimum taxable income. Additional rules apply if an optionee makes
a disqualifying disposition of the Common Stock.
There are generally no federal income tax consequences upon the grant of an
Award, except as described below regarding a section 83(b) election. Upon the
expiration of the restrictions on shares of Common Stock subject to an Award,
except as provided in the next sentence, the recipient of the Award will
recognize taxable ordinary income equal to the fair market value of the shares
at the time of such expiration. If the recipient of an Award elects, pursuant to
section 83(b) of the Code, within 30 days of the date shares of restricted stock
are considered transferred to the recipient, to recognize taxable ordinary
income at the time of the transfer in an amount equal to the fair market value
of such shares, no additional income will be recognized upon the lapse of the
restrictions on the shares and no deduction will be allowed to the recipient if
the shares are subsequently forfeited. A recipient who makes such an election
under section 83(b) is required to give notice of such election to the Company
immediately after making the election, and the Company will be entitled to a
deduction equal to the amount of income recognized by the recipient. For capital
gain purposes, the recipient's holding period for the shares received will begin
at the time taxable income is recognized under these rules and his or her basis
in the shares will be the amount of ordinary income recognized.
The Company anticipates that upon the consummation of the Offering it will
have (i) outstanding options to purchase a total of 671,667 shares of Common
Stock under the 1997 Stock Compensation Plan and (ii) 1,328,333 additional
shares available for future awards under the 1997 Stock Compensation Plan.
46
<PAGE>
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
In connection with the formation of the Company, in February 1997, PII
issued common stock to J. Michael Casas (200,000 shares), James L. Dunn, Jr.
(100,000 shares), John G. Thayer (66,667 shares) and Allen M. Gelwick (66,667
shares), at a purchase price per share of $0.015. In May 1997, PII issued Class
B Preferred to J. Michael Casas (66,667 shares) and James L. Dunn, Jr. (33,334
shares), at a purchase price per share of $0.01. In May 1997, PII issued Common
Stock to George M. Siegel (300,000 shares), Dr. Reed (150,000 shares), Gary S.
Glatter (100,000 shares), Kelly W. Reed (150,000 shares), Stephen E. Stapleton
(33,333 shares) and Kimberlee K. Rozman (33,333 shares), at a purchase price per
share of $0.015. In September 1997 and October 1997, PII repurchased 46,667
shares and 20,000 shares, respectively, of its common stock from George M.
Siegel at a purchase price per share of $0.015. In September 1997, the Company
issued 66,667 shares of common stock to Sam H. Carr at a purchase price per
share of $0.015.
In connection with the raising of $1,450,000 by PII in order to fund a
portion of the expenses for the Offering and the Affiliations, in June 1997, PII
issued capital stock to Dr. Reed (37,500 shares of Class B Preferred and 7,500
shares of common stock), Gary S. Glatter (37,500 shares of Class B Preferred and
7,500 shares of common stock), George M. Siegel (37,500 of Class B Preferred and
7,500 shares of common stock), Mack E. Greder, D.D.S. (25,000 shares of Class B
Preferred and 5,000 shares of common stock), Roger Allen Kay, D.D.S. (25,000
shares of Class B Preferred and 5,000 shares of common stock), Bruce A. Kanehl,
D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common stock),
Brian K. Kniff, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of
common stock), Richard W. Mains, Jr., D.M.D., RBM Trust (25,000 shares of Class
B Preferred and 5,000 shares of common stock), James W. Medlock, D.D.S. (25,000
shares of Class B Preferred and 5,000 shares of common stock), Thomas L.
Mullooly, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common
stock), Richard H. Fettig, D.D.S. (25,000 shares of Class B Preferred and 5,000
shares of common stock), Marvin V. Cavallino, D.D.S. (50,000 shares of Class B
Preferred and 10,000 shares of common stock), Alan H. Gerbholz, D.D.S. (25,000
shares of Class B Preferred and 5,000 shares of common stock), Victor H.
Burdick, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common
stock), Steve Anderson, D.D.S. (25,000 shares of Class B Preferred and 5,000
shares of common stock) and James P. Allen, D.D.S. (25,000 shares of Class B
Preferred and 5,000 shares of common stock), at a purchase price per share of
$1.00 for the Class B Preferred and of $0.015 for the common stock.
In September 1997, (i) each owner of shares of common stock of PII agreed to
exchange those shares for shares of Common Stock on a one-for-one basis and (ii)
each of Dr. Reed and Messrs. Glatter, Dunn, Casas and Siegel agreed to sell to
PII all shares of Class B Preferred he owns at a price per share equal to the
subscription price he paid to PII for those shares, which transactions will
occur concurrently with the closing of the Offering and the Affiliations. In
addition, immediately after the completion of the repurchases described in the
foregoing sentence, all outstanding shares of Class A Preferred and Class B
Preferred will be redeemed by PII at a redemption price, as established by
resolution of the board of directors of PII, of $1.50 per share, of which $1.15
per share will be paid in cash from the proceeds of the Offering and $0.35 per
share will be paid in the form of a 6.0% promissory note that becomes due and
payable by the Company on the earlier of the fifth anniversary of the date of
the closing of the Offering or the date on which the Company offers and sells an
amount of equity securities for gross proceeds equal to or greater than the
gross proceeds from the Offering.
In December 1997, the owners of the outstanding shares of common stock of
PII agreed that, in the event the initial public offering price is less than
$12.04 per share, PII will repurchase from those stockholders, on a pro rata
basis, at a purchase price of $.015 per share, that number of shares as will be
necessary so that the aggregate number of shares of Common Stock issuable in
connection with the Affiliations and the Share Exchange will not exceed
3,941,898 shares. Pursuant to that agreement,
47
<PAGE>
assuming an initial public offering price of $9.00 per share, PII would
repurchase approximately 42.0% of each such stockholder's shares of PII common
stock, or an aggregate of 737,318 shares.
The Company has entered into an agreement with Pentegra, Ltd., Napili and
Dr. Reed to purchase substantially all of the tangible and intangible assets of
Pentegra, Ltd. and Napili for consideration of $200,000 upon completion of the
Offering. Of the $200,000 in consideration, $100,000 will be paid from the
proceeds of the Offering and $100,000 will be paid in the form of a 9.0%
promissory note due April 1, 1999. This purchase price was negotiated by Mr.
Glatter, on behalf of the Company, by Dr. Reed, on behalf of himself, and by the
administrators of the Reed Family Trust, and was approved unanimously by the
Company's Board of Directors, which Dr. Reed serves on as Chairman of the Board.
Dr. Reed beneficially owns approximately 51.0% of the capital stock of each of
Pentegra, Ltd. and Napili and the Reed Family Trust (which is administered by,
and whose beneficiaries are, the children of Dr. Reed) beneficially owns 49% of
the capital stock of each of Pentegra, Ltd. and Napili. The assets that the
Company will acquire from Pentegra, Ltd. and Napili include office furniture and
equipment, marketing systems, recall systems, telephone systems, customer/client
lists, books and records and video tapes.
From February 1997 to January 1998, the Company has occupied and had access
to the facilities, equipment and staff of James L. Dunn & Assoc., Inc., an
affiliate of James L. Dunn, Jr. Beginning June 1, 1997, the Company agreed to
compensate James L. Dunn & Assoc., Inc. for use of and access to its office
facilities, equipment and staff at the rate of $10,000 per month. James L. Dunn
& Assoc., Inc. also provided the Company monthly invoices for delivery,
telephone, travel and other out-of-pocket expenses and obtained reimbursement
for those expenses from the Company. Through January 31, 1998, the Company has
reimbursed James L. Dunn & Assoc., Inc. for approximately $11,600 of such
expenses. The Company believes that the compensation paid to James L. Dunn &
Assoc., Inc. represents the fair market value of the services (which includes
the shared use of two clerical employees, use of office furniture, copy
machines, computers and other office equipment, and office supplies) provided to
the Company.
The Company has leased a portion of the office facilities, equipment and
staff of Pentegra, Ltd., which is wholly owned by Dr. Reed, beginning June 1,
1997. The Company has agreed to compensate Pentegra, Ltd. for use of and access
to its office facilities, equipment and staff at the rate of $11,000 per month.
Pentegra, Ltd. will also provide the Company a monthly invoice for delivery,
postage, telephone, travel and other out-of-pocket expenses and obtain
reimbursement for those expenses from the Company. Through January 31, 1998, the
Company has reimbursed Pentegra, Ltd. and Napili for approximately $8,000 of
such expenses. The Company believes that the compensation to be paid to
Pentegra, Ltd. represents the fair market value of the goods and services (which
includes utilities, furniture, office equipment and clerical services) being
provided to the Company under this arrangement. This lease will be assumed by
the Company in the Pentegra/Napili Transaction.
The following table provides certain information concerning each of the
Affiliations and each person who has an ownership interest in a Founding
Affiliated Practice (all of whom are promoters of the Company):
<TABLE>
<CAPTION>
CONSIDERATION TO BE RECEIVED
DEBT AND ---------------------------------------
ASSETS TO BE LIABILITIES NUMBER OF VALUE OF
FOUNDING AFFILIATED PRACTICE(1) CONTRIBUTED(2) ASSUMED SHARES(3) SHARES(3) CASH
- ----------------------------------------- -------------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
James P. Allen, D.D.S.................... $ 30,515 $ 67,069 61,467 $ 553,203 $ 138,301
Anderson Dental Group, Inc.:
Walter J. Anderson, D.D.S.............. 12,759 56,581 36,611 329,499 82,376
Donald H. Plotkin, D.D.S............... 11,957 53,026 34,311 308,799 77,200
William A. Cerney, D.D.S............... 10,086 44,730 28,943 260,487 65,122
Brian M. Ellis, D.D.S.................. 10,086 44,730 28,943 260,487 65,122
Afshan Kaviani, D.D.S.................. 9,240 40,976 26,515 238,635 59,658
William H. Swilley, D.D.S.............. 2,559 11,348 7,344 66,096 16,522
</TABLE>
(TABLE CONTINUED)
48
<PAGE>
<TABLE>
<CAPTION>
CONSIDERATION TO BE RECEIVED
DEBT AND ---------------------------------------
ASSETS TO BE LIABILITIES NUMBER OF VALUE OF
FOUNDING AFFILIATED PRACTICE(1) CONTRIBUTED(2) ASSUMED SHARES(3) SHARES(3) CASH
- ----------------------------------------- -------------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Ronnie L. Andress, D.D.S., Inc........... 111,690 181,623 96,145 865,305 216,326
Victor H. Burdick, D.D.S., P.C........... 351 4,344 50,722 456,498 114,126
Marvin V. Cavallino, D.D.S., A
Professional Corporation............... 61,486 72,426 63,754 573,786 143,447
James H. Clarke, Jr., D.D.S., Inc........ 148,515 54,000 66,708 600,372 150,092
Henry F. Cuttler, D.D.S.................. 88,507 114,028 35,205 316,845 79,211
Edward T. Dougherty, Jr., D.D.S., P.A.... 55,356 -- 103,480 931,320 232,830
Family Dental Center, P.A.:
Steve Anderson, D.D.S.................. 43,096 -- 78,539 706,851 176,711
Lindi B. Anderson, D.D.S............... 10,775 -- 19,634 176,706 44,178
Richard H. Fettig, D.D.S................. 30,613 19,836 43,246 389,214 97,303
Alan H. Gerbholz, D.D.S., P.C............ 159,202 -- 40,645 365,805 91,451
Michael J. Gershtenson, D.D.S., P.C...... 7,356 24,948 43,585 392,265 98,067
Mack E. Greder, D.D.S., P.C.............. 48,067 37,505 63,637 572,733 143,183
Salvatore Guarnieri, D.D.S............... 64,625 28,205 44,575 401,175 100,295
Kent Hamilton, D.D.S..................... 170,403 200,000 105,894 953,046 238,262
David R. Henderson, D.D.S................ 8,059 -- 37,826 340,434 85,109
Stephen Hwang, D.D.S..................... 26,446 -- 33,303 299,727 74,931
Jackson Dental Partnership:
Penn Jackson, Sr., D.D.S............... 51,739 -- 28,951 260,559 --
Penn Jackson, Jr., D.D.S............... 34,492 -- 19,301 173,709 --
Bruce A. Kanehl, D.D.S................... 19,132 1,350 65,501 589,509 147,378
Roger Allen Kay, D.D.S., P.A............. 2,837 4,816 64,008 576,072 144,017
Patrick T. Kelly, D.D.S., P.C............ 24,810 -- 17,337 156,033 39,008
Brian K. Kniff, D.D.S., P.C.:
Brian K. Kniff, D.D.S.................. 41,171 23,327 50,599 455,391 113,848
Gordon Ledingham, D.D.S................ 41,171 23,327 50,599 455,391 113,848
Lakeview Dental, P.C. (Kevin Gasser,
D.D.S.)................................ 35,769 34,803 45,413 408,717 102,180
Donald W. Lanning, D.D.S................. 34,414 -- 27,630 248,670 40,000
David A. Little, D.D.S................... 27,417 230,859 47,040 423,360 105,840
Susan Lunson, D.D.S...................... 164,826 157,000 26,335 237,015 59,253
Richard W. Mains, Jr., D.M.D., P.C....... 94,449 -- 74,734 672,606 168,152
James M. McDonough, D.D.S................ 35,802 56,000 56,189 505,701 126,424
James W. Medlock, D.D.S., P.A............ 125,408 28,000 79,973 719,757 179,940
James Randy Mellard, D.D.S. M.S., P.C.... 51,747 65,242 14,216 127,944 31,986
Mary B. Mellard, D.D.S., P.C............. 177,249 230,733 57,139 514,251 128,562
TL Mullooly, D.D.S., Inc................. 1,743 -- 43,075 387,675 96,918
Byron L. Novosad, D.D.S., Inc............ 21,396 -- 44,410 399,690 99,923
Randy O'Brien, D.D.S., Inc............... 25,705 27,753 34,139 307,251 76,811
Terrence C. O'Keefe, D.D.S............... 51,382 52,139 27,000 243,000 81,000
Harold A. Pebbles, Jr., D.D.S., P.C...... 13,475 -- 53,174 478,566 119,641
Jimmy F. Pinner, D.D.S................... 35,807 12,000 16,275 146,475 36,619
Omer K. Reed, D.D.S...................... 5,495 0 34,775 312,975 --
Richard Reinitz, D.D.S., P.C............. 108,868 226,009 140,439 1,263,951 315,988
Greg Richards, D.D.S..................... 51,658 59,000 18,360 165,240 41,302
Richard N. Smith, D.M.D., P.C............ -- 94,998 90,280 812,520 203,129
John N. Stellpflug, D.D.S................ 7,643 36,750 44,447 400,023 100,006
Jack Stephens, D.D.S..................... 63,013 -- 114,010 1,026,090 256,523
</TABLE>
(TABLE CONTINUED)
49
<PAGE>
<TABLE>
<CAPTION>
CONSIDERATION TO BE RECEIVED
DEBT AND ---------------------------------------
ASSETS TO BE LIABILITIES NUMBER OF VALUE OF
FOUNDING AFFILIATED PRACTICE(1) CONTRIBUTED(2) ASSUMED SHARES(3) SHARES(3) CASH
- ----------------------------------------- -------------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Y. Paul Suzuki, D.D.S., P.C.............. 24,337 -- 42,609 383,481 95,870
Donald F. Tamborello, D.D.S.............. 18,018 7,565 50,960 458,640 114,660
Helena Thomas, D.D.S..................... 92,752 113,013 27,362 246,258 61,566
Louis J. Thornley, D.D.S., P.C........... 26,074 -- 39,550 355,950 88,989
S. Victor Uhrenholdt, D.D.S., P.C........ 58,707 50,157 56,319 506,871 126,718
Scott Van Zandt, D.D.S................... 11,398 1,675 37,888 340,992 85,248
Ronald M. Yaros, D.D.S., P.C............. 139,371 29,570 131,480 1,183,320 295,830
-------------- ------------ ---------- ------------- ------------
$ 2,841,024 $ 2,621,461 2,922,549 $ 26,302,941 $ 6,387,000
-------------- ------------ ---------- ------------- ------------
-------------- ------------ ---------- ------------- ------------
</TABLE>
- ---------
(1) Unless otherwise noted, the dentist who owns all of the capital stock of the
Founding Affiliated Practice is set forth in the name of that Founding
Affiliated Practice.
(2) Assets to be contributed reflects the historical book value of the
nonmonetary assets of each practice to be transferred to the Company. These
nonmonetary assets are reflected at historical cost in accordance with SAB
No. 48. All monetary assets are recorded at fair value, which is
approximated by the historical costs recorded by the practices.
(3) Assumes an initial public offering price of $9.00 per share. The actual
number of shares to be issued as consideration for the Affiliations may be
higher or lower depending on the actual initial public offering price per
share. For example, an aggregate of 2,768,734 shares of Common Stock would
be issued to the dentist-owners of the Founding Affiliated Practices if that
price is $9.50 per share, while an aggregate of 3,094,468 shares of Common
Stock would be issued to the dentist-owners of the Founding Affiliated
Practices if that price is $8.50 per share.
The consideration being paid by the Company for each Founding Affiliated
Practice was determined by negotiations between executive officers of the
Company not affiliated with any Founding Affiliated Practice and a
representative of that Founding Affiliated Practice. The Company used the same
valuation method to negotiate the consideration being paid to each of the
Founding Affiliated Practices, including the respective practices wholly owned
by Drs. Reed, Andress, Clarke, Greder, Kay and Yaros, which method was based
upon the Founding Affiliated Practice's gross revenue net of certain operating
expenses, and the Company's assessment of growth potential.
All of the 2,922,549 shares of Common Stock issued in the Affiliations to
the dentists named in the foregoing table and all of 1,019,349 shares of Common
Stock issued in the Share Exchange will have certain piggy-back registration
rights. See "Shares Eligible for Future Sale."
COMPANY POLICY
It is anticipated that future transactions with affiliates of the Company
will be minimal, will be approved by a majority of the disinterested members of
the Board of Directors and will be made on terms no less favorable to the
Company than could be obtained from unaffiliated third parties. The Company does
not intend to incur any further indebtedness to, or make any loans to, any of
its executive officers, directors or other affiliates.
50
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table shows, as of January 31, 1998 (after giving effect to
the Share Exchange) and immediately after giving effect to the closing of the
Affiliations and the Offering, the then "beneficial ownership" of the Common
Stock of (i) each director and person nominated to become a director on closing
of the Offering, (ii) each executive officer, (iii) all executive officers and
directors of the Company as a group and (iv) each person who owns more than 5%
of the outstanding Common Stock. The table assumes none of such persons intend
to acquire shares in the Offering. The address of each person in the table is
c/o Pentegra Dental Group, Inc., 2999 North 44th Street, Suite 650, Phoenix,
Arizona 85018.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY
BEFORE OFFERING(1)(2) OWNED
AFTER OFFERING(1)(3)
---------------------- -----------------------
NUMBER PERCENT NUMBER PERCENT
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Omer K. Reed, D.D.S.................................................... 91,393 9.0% 126,168 2.0%
Gary S. Glatter........................................................ 62,380 6.1% 62,380 1.0%
Sam H. Carr............................................................ 38,685 3.8% 38,685 *
James L. Dunn, Jr...................................................... 54,159 5.3% 54,159 *
John G. Thayer......................................................... 38,685 3.8% 38,685 *
Kimberlee K. Rozman.................................................... 19,342 1.9% 19,342 *
George M. Siegel....................................................... 139,749 13.7% 139,749 2.2%
Ronald M. Yaros, D.D.S................................................. 0 -- 131,480 2.0%
J. Michael Casas....................................................... 116,055 11.4% 116,055 1.8%
Ronnie L. Andress, D.D.S............................................... 0 -- 96,145 1.5%
Kelly W. Reed(4)....................................................... 87,041 8.5% 87,041 1.4%
Roger Allen Kay, D.D.S................................................. 2,901 * 66,909 1.0%
James H. Clarke, Jr., D.D.S............................................ 0 -- 66,708 1.0%
Mack E. Greder, D.D.S.................................................. 2,901 * 66,538 1.0%
Allen M. Gelwick....................................................... 38,685 3.8% 38,685 *
Ronald E. Geistfeld, D.D.S............................................. 0 -- 0 --
Gerald F. Mahoney...................................................... 0 -- 0 --
Anthony P. Maris....................................................... 0 -- 0 --
All executive officers and directors as a group (17 persons)........... 604,935 59.3% 1,061,688 16.5%
</TABLE>
- ---------
* less than 1%.
(1) Shares shown in the above table do not include shares that could be acquired
upon exercise of currently outstanding stock options which do not vest
within 60 days of the date of this Prospectus.
(2) Gives effect to the Share Exchange. See Note (3).
(3) Gives effect to the Share Exchange and the Affiliations. The number of
shares of Common Stock to be issued in connection with the Affiliations
(2,922,549 shares) and the Share Exchange (1,019,349 shares) assumes an
initial public offering price of $9.00 per share. The actual number of such
shares may be higher or lower depending on the actual initial public
offering price per share. However, in any event, the number of shares of
Common Stock to be issued in connection with the Affiliations and the Share
Exchange will not exceed 3,941,898 shares in the aggregate. For example, an
aggregate of 2,768,734 shares of Common Stock would be issued to the
dentist-owners of the Founding Affiliated Practices if that price is $9.50
per share (in which event, 1,173,164 shares of Common Stock would be issued
in the Share Exchange), while an aggregate of 3,094,468 shares of Common
Stock would be issued to the dentist-owners of the Founding Affiliated
Practices if that price is $8.50 per share (in which event, 847,430 shares
would be issued in the Share Exchange).
(4) Kelly W. Reed, Vice President of Operations of the Company, is the son of
Omer K. Reed, D.D.S.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, par value $.001 per share, and 10,000,000 shares of preferred
stock, par value $.001 per share ("Preferred Stock"). At December 31, 1997,
1,756,667 shares of Common Stock were issued and outstanding and held of record
by 52 stockholders. The following summary is qualified in its entirety by
reference to the Certificate of Incorporation, which is included as an exhibit
to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
The Common Stock possesses ordinary voting rights for the election of
directors and in respect of other corporate matters, and each share has one
vote. The Common Stock affords no cumulative voting rights, and the holders of a
majority of the shares voting for the election of directors can elect all the
directors if they choose to do so. The Common Stock carries no preemptive
rights, is not convertible, redeemable or assessable. The holders of Common
Stock are entitled to dividends in such amounts and at such times as may be
declared by the Board of Directors out of funds legally available therefor. See
"Dividend Policy" for information regarding the Company's dividend policy.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series. Subject to the provisions of the
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional, exchange or other special rights,
qualifications, limitations or restrictions thereof, including dividend rights
(including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, in each case without any further action or vote
by the holders of Common Stock.
Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For example, the issuance of a series of Preferred Stock might impede
a business combination by including class voting rights that would enable the
holders to block such a transaction; or such issuance might facilitate a
business combination by including voting rights that would provide a required
percentage vote of the stockholders. In addition, under certain circumstances,
the issuance of Preferred Stock could adversely affect the voting power of the
holders of the Common Stock. Although the Board of Directors is required to make
any determination to issue such stock based on its judgment as to the best
interests of the stockholders of the Company, the Board of Directors could act
in a manner that would discourage an acquisition attempt or other transaction
that some or a majority of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then-market price of such stock. The Board of Directors does not at present
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or the rules of any market on
which the Company's securities are traded.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined) with a Delaware
corporation for three years following the date such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation
52
<PAGE>
approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination, (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the rights to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer) or (iii) following the
transaction in which such person became an interested stockholder, the business
combination was approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of 66 2/3% of the outstanding voting stock of the corporation not owned by the
interested stockholder. Under Section 203, the restrictions described above also
do not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of one of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.
OTHER MATTERS
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must exercise
an informed business judgment based on all material information reasonably
available to them. Absent the limitations authorized by Delaware law, directors
are accountable to corporations and their stockholders for monetary damages for
conduct constituting gross negligence in the exercise of their duty of care.
Delaware law enables corporations to limit available relief to equitable
remedies such as injunction or rescission. The Certificate of Incorporation
limits the liability of directors of the Company to the Company or its
stockholders to the fullest extent permitted by Delaware law. Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the DGCL.
The inclusion of this provision in the Certificate of Incorporation may have
the effect of reducing the likelihood of derivative litigation against directors
and may discourage or deter stockholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though such an action,
if successful, might otherwise have benefitted the Company and its stockholders.
The Company's Bylaws provide indemnification to the Company's officers and
directors and certain other persons with respect to certain matters.
The Bylaws provide that, from and after the first date that the Company has
received funding from the sale of capital stock in an initial public offering,
the stockholders may act only at an annual or special meeting of stockholders
and may not act by written consent. The Bylaws provide that special meetings of
the stockholders can be called only by the Chairman of the Board, the Chief
Executive Officer, the President or the Board of Directors.
The Certificate of Incorporation provides that the Board of Directors shall
consist of three classes of directors serving for staggered terms. As a result,
it is currently contemplated that approximately one-third of the Company's Board
of Directors will be elected each year. The classified board provision could
prevent a party who acquires control of a majority of the outstanding voting
stock of the Company from obtaining control of the Board of Directors until the
second annual stockholders' meeting following the date the acquirer obtains the
controlling interest. In addition, the Company's Bylaws provide that a
53
<PAGE>
majority of the members of the Board of Directors must be licensed dentists
affiliated with one of the Affiliated Practices. See "Management--Directors and
Executive Officers."
The Certificate of Incorporation provides that the number of directors shall
be as specified in the Bylaws. The Bylaws provide that the number of directors
shall be determined by the Board of Directors from time to time, but shall be at
least one and not more than nineteen. It also provides that directors may be
removed only for cause, and then only by the affirmative vote of the holders of
at least a majority of all outstanding voting stock entitled to vote. This
provision, in conjunction with the provision of the Bylaws authorizing the Board
of Directors to fill vacant directorships, will prevent stockholders from
removing incumbent directors without cause and filling the resulting vacancies
with their own nominees.
STOCKHOLDER PROPOSALS
The Company's Bylaws contain provisions (i) requiring that advance notice be
delivered to the Company of any business to be brought by a stockholder before
an annual meeting of stockholders and (ii) establishing certain procedures to be
followed by stockholders in nominating persons for election to the Board of
Directors. Generally, such advance notice provisions provide that written notice
must be given to the Secretary of the Company by a stockholder (i) in the event
of business to be brought by a stockholder before an annual meeting, not less
than 90 days nor more than 180 days prior to the earlier of the date of the
meeting or the corresponding date on which the immediately preceding annual
meeting of stockholders was held, and (ii) in the event of nominations of
persons for election to the Board of Directors by any stockholder, (a) with
respect to an election to be held at the annual meeting of stockholders, not
less than 90 days nor more than 180 days prior to the earlier of the date of the
meeting or the corresponding date on which the immediately preceding annual
meeting of stockholders was held, and (b) with respect to an election to be held
at a special meeting of stockholders for the election of directors, not later
than the close of business on the 10th day following the day on which notice of
the date of the special meeting was mailed to stockholders or public disclosure
of the date of the special meeting was made, whichever first occurs. Such notice
must set forth specific information regarding such stockholder and such business
or director nominee, as described in the Company's Bylaws. The foregoing summary
is qualified in its entirety by reference to the Company's Bylaws, which are
included as an exhibit to the Registration Statement of which this Prospectus is
a part.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Affiliations and the Offering, the Company will
have outstanding 6,441,898 shares of Common Stock (6,816,898 if the
Underwriters' over-allotment option is exercised in full) of which the 2,500,000
shares sold in the Offering (2,875,000 if the Underwriters' over-allotment
option is exercised in full) will be freely tradable without restriction or
further registration under the Securities Act, except for those held by
"affiliates" (as defined in the Securities Act) of the Company, which shares
will be subject to the resale limitations of Rule 144 under the Securities Act.
The remaining 3,941,898 shares of Common Stock are deemed "restricted
securities" under Rule 144 in that they were originally issued and sold by the
Company in private transactions in reliance upon exemptions under the Securities
Act, and may be publicly sold only if registered under the Securities Act or
sold in accordance with an applicable exemption from registration, such as those
provided by Rule 144 promulgated under the Securities Act as described below.
In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the date of acquisition of restricted securities from the
issuer or from an affiliate of the issuer, the acquirer or
54
<PAGE>
subsequent holder would be entitled to sell within any three-month period a
number of those shares that does not exceed the greater of one percent of the
number of shares of such class of stock then outstanding or the average weekly
trading volume of the shares of such class of stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale. Sales under
Rule 144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
issuer. In addition, if a period of at least two years has elapsed since the
later of the date of acquisition of restricted securities from the issuer or
from any affiliate of the issuer, and the acquirer or subsequent holder thereof
is deemed not to have been an affiliate of the issuer of such restricted
securities at any time during the 90 days preceding a sale, such person would be
entitled to sell such restricted securities under Rule 144(k) without regard to
the requirements described above. Rule 144 does not require the same person to
have held the securities for the applicable periods. The foregoing summary of
Rule 144 is not intended to be a complete description thereof. The Commission
has proposed certain amendments to Rule 144 that would, among other things,
eliminate the manner of sale requirements and revise the notice provisions of
that rule. The Commission has also solicited comments on other possible changes
to Rule 144, including possible revisions to the one- and two-year holding
periods and the volume limitations referred to above.
As of December 31, 1997, options to purchase an aggregate of 671,667 shares
of Common Stock were authorized for issuance under the Company's 1997 Stock
Compensation Plan. See "Management--1997 Stock Compensation Plan." In general,
pursuant to Rule 701 under the Securities Act, any employee, officer or director
of, or consultant to, the Company who purchased his or her shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permit non-affiliates to sell such shares without
compliance with the public information, holding period, volume limitation or
notice provisions of Rule 144, and permit affiliates to sell such shares without
compliance with the holding period provisions of Rule 144, in each case
commencing 90 days after the date of this Prospectus. In addition, the Company
intends to file a registration statement covering the 1,500,000 shares of Common
Stock issuable upon exercise of stock options that may be granted in the future
under the 1997 Stock Compensation Plan, in which case such shares of Common
Stock generally will be freely tradable by non-affiliates in the public market
without restriction under the Securities Act.
The Company and its executive officers, directors and current stockholders
have agreed not to offer for sale, sell, contract to sell, grant any option or
other right for the sale of, or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected to, result in
the disposition by any person at any time in the future of) any shares of Common
Stock or any securities, indebtedness or other rights exercisable for or
convertible or exchangeable into shares of Common Stock owned or acquired in the
future in any manner prior to the expiration of 180 days after the date of this
Prospectus (the "180-Day Lockup Period") without the prior written consent of
Dain Rauscher Incorporated, except that the Company may, subject to certain
conditions, issue shares of Common Stock in connection with future acquisitions
and may grant Options or Awards (or issue shares of Common Stock upon exercise
of Options or Awards) under the 1997 Stock Compensation Plan. These restrictions
will be applicable to any shares acquired by any of those persons in the
Offering or otherwise during the 180-Day Lockup Period. In addition, the
Company's executive officers, directors and current stockholders and the persons
acquiring shares of Common Stock in connection with the Affiliations have agreed
with the Company that they generally will not sell, transfer or otherwise
dispose of any of their shares for one year following the closing of the
Offering.
In connection with the Affiliations, the Company will enter into
registration rights agreements with former stockholders of the Founding
Affiliated Practices (the "Registration Rights Agreements"), which will provide
certain registration rights with respect to the Common Stock issued to such
stockholders in the Affiliations. Each Registration Rights Agreement will
provide the holders of Common Stock subject to such agreement with the right to
participate in registrations by the Company of its equity securities in
underwritten offerings. The registration rights conferred by the Registration
Rights Agreements will
55
<PAGE>
terminate on the second anniversary of the closing of the Offering. The Company
is generally required to pay the costs associated with such an offering, other
than underwriting discounts and commissions and transfer taxes attributable to
the shares sold on behalf of the selling stockholders. The Registration Rights
Agreements provide that the number of shares of Common Stock to be registered on
behalf of the selling stockholders is subject to limitation if the managing
underwriter determines that market conditions require a limitation. Under the
Registration Rights Agreements, the Company will indemnify the selling
stockholders thereunder, and such stockholders will indemnify the Company
against, certain liabilities in respect of any registration statement or
offering covered by the Registration Rights Agreements. The Company and each of
its current stockholders are parties to a stockholders agreement, which provides
those stockholders registration rights substantially equivalent to the
registration rights in the Registration Rights Agreements.
Prior to the Offering, there has been no established public market for the
Common Stock. No prediction can be made of the effect, if any, that sales of
shares under Rule 144, or otherwise, or the availability of shares for sale will
have on the market price of the Common Stock prevailing from time to time after
the Offering. The Company is unable to estimate the number of shares that may be
sold in the public market under Rule 144, or otherwise, because such amount will
depend on the trading volume in, and market price for, the Common Stock and
other factors. Nevertheless, sales of substantial amounts of shares in the
public market, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock. See "Underwriting."
Following the consummation of the Offering, the Company intends to register
1,500,000 shares of Common Stock under the Securities Act for use in connection
with future acquisitions. These shares generally will be freely tradable after
their issuance by persons not affiliated with the Company unless the Company
contractually restricts their resale. Resales of any of those shares during the
180-Day Lockup Period would require the prior written consent of Dain Rauscher
Incorporated.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Dain Rauscher Incorporated and EVEREN Securities,
Inc. are acting as representatives (the "Representatives"), has severally agreed
to purchase from the Company, the respective number of shares of Common Stock
set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- ------------------------------------------------------------ --------------
<S> <C>
Dain Rauscher Incorporated..................................
EVEREN Securities, Inc......................................
--------------
Total................................................... 2,500,000
--------------
--------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a selling concession of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the Representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 375,000
additional shares of Common Stock, at the initial public offering price less the
underwriting discount, as set forth on the cover page of this Prospectus. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 2,500,000 shares of Common
Stock offered. The Underwriters may exercise such option only to cover
over-allotments, if any, made in connection with the sale of Common Stock
offered hereby.
The Company and its executive officers, directors and current stockholders
have agreed not to, directly or indirectly, offer for sale, sell, contract to
sell, grant any option or other right for the sale of, or otherwise dispose of
(or enter into any transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any time in the future
of) any shares of Common Stock or any securities, indebtedness or other rights
exercisable for or convertible or exchangeable into shares of Common Stock prior
to the expiration of 180 days after the date of this Prospectus, without the
prior written consent of Dain Rauscher Incorporated, except for the shares of
Common Stock to be issued in connection with the Offering, the Affiliations and
the Share Exchange and except that the Company may, subject to certain
conditions, issue shares of Common Stock in connection with future acquisitions
and grant Options or Awards (or issue shares of Common Stock upon exercise of
Options or Awards) under the 1997 Stock Compensation Plan. For information
respecting additional restrictions on sales by the Company's executive officers,
directors, current stockholders and the persons acquiring shares of Common Stock
in connection with the Affiliations, see "Shares Eligible for Future Sale."
57
<PAGE>
The Representatives have informed the Company that they do not expect sales
of shares of Common Stock offered hereby to accounts over which the Underwriters
exercise discretionary authority to exceed 5% of the total number of shares of
Common Stock offered by them.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be negotiated between the Company and the
Representatives. Among the factors to be considered in determining the initial
public offering price of the Common Stock, in addition to prevailing market
conditions, will be the history of and the prospects for the industry in which
the Company competes, the past and present operations of the Founding Affiliated
Practices, the historical results of operations of the Founding Affiliated
Practices, the Company's capital structure, estimates of the business potential
and earnings prospects of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
The Common Stock has been approved for listing on the American Stock
Exchange under the symbol "PEN."
At the request of the Company, the Underwriters have reserved up to 125,000
of the shares of Common Stock offered hereby for sale at the initial public
offering price to employees of the Company and other persons associated with the
Company.
In connection with the Offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock; and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock than
they are required to purchase from the Company in the Offering. The Underwriters
may also impose a penalty bid, whereby selling concessions allowed to syndicate
members or other broker-dealers in respect of the Common Stock sold in the
Offering for their account may be reclaimed by the syndicate if such shares of
Common Stock are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Common Stock, which may be higher than the price that might
otherwise prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be effected on the American
Stock Exchange, in the over-the-counter market or otherwise.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
In February 1998, the Company issued to Dain Rauscher Incorporated a 15%
promissory note in the principal amount of $62,500 in exchange for a loan of
that amount in order to fund certain offering and operating expenses of the
Company. The Company intends to repay this note, together with accrued interest
thereon, with proceeds of the Offering on or before the third business day
following the closing of the Offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Jackson Walker L.L.P., Houston, Texas. Certain legal
matters in connection with the sale of the Common Stock offered hereby will be
passed upon for the Underwriters by Baker & Botts, L.L.P., Houston, Texas.
EXPERTS
The financial statements of Pentegra Dental Group, Inc. as of December 31,
1997 and for the period from inception, February 21, 1997, through December 31,
1997, as detailed in the index on page F-1, included in this Prospectus, have
been audited by Coopers & Lybrand L.L.P., independent accountants, as
58
<PAGE>
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all exhibits, schedules and amendments relating thereto, the
"Registration Statement") with respect to the Common Stock offered hereby. This
Prospectus, filed as part of the Registration Statement, does not contain all
the information contained in the Registration Statement, certain portions of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement including
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document filed as an exhibit to the
Registration Statement accurately describe the material provisions of such
document and are qualified in their entirety by reference to such exhibits for
complete statements of their provisions. All of these documents may be inspected
without charge at the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
following regional offices of the Commission: Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies can also be obtained from the Commission
at prescribed rates. The Commission maintains a Web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
59
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Pentegra Dental Group, Inc. Unaudited Pro Forma Balance Sheet.............................................. F-2
Unaudited Pro Forma Balance Sheet as of December 31, 1997................................................ F-3
Notes to Unaudited Pro Forma Balance Sheet............................................................... F-4
Pentegra Dental Group, Inc. Financial Statements
Report of Independent Public Accountants................................................................. F-6
Balance Sheet as of December 31, 1997.................................................................... F-7
Statement of Operations for the period from inception,
February 21, 1997, through December 31, 1997........................................................... F-8
Statement of Changes in Stockholders' Deficit for the period from inception, February 21, 1997, through
December 31, 1997...................................................................................... F-9
Statement of Cash Flows for the period from inception, February 21, 1997, through December 31, 1997...... F-10
Notes to Financial Statements............................................................................ F-11
</TABLE>
F-1
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
The unaudited pro forma balance sheet dated December 31, 1997 of Pentegra
Dental Group, Inc. (together with its parent entity, Pentegra Investments, Inc.,
"Pentegra" or the "Company") has been prepared as if (a) the acquisition by the
Company of certain assets and assumption of certain liabilities of 50 dental
practices (the "Founding Affiliated Practices") for consideration consisting of
a combination of cash and shares of its common stock, par value $.001 per share
(the "Common Stock"), and the execution of agreements to provide management
services to the Founding Affiliated Practices (collectively, the
"Affiliations"), (b) the repayment of certain debt of the Founding Affiliated
Practices, (c) the acquisition by the Company (the "Pentegra/Napili
Transaction") of certain assets of Pentegra, Ltd. and Napili, International
("Napili"), (d) the repurchase by Pentegra Investments, Inc. ("PII") of 245,845
shares of Class B Preferred Stock of PII from affiliates of the Company at the
subscription price per share paid to PII for those shares and the redemption by
PII of an aggregate of 1,337,500 shares of its Class A Preferred Stock and Class
B Preferred Stock for $1.50 per share, of which $1.15 per share will be paid by
the Company in cash and $0.35 per share will be paid in the form of a promissory
note (the "Repurchase and Redemption"), (e) the exchange of all outstanding
shares of common stock of PII for shares of Common Stock on a one-for-one basis
(the "Share Exchange") (after giving effect to a repurchase by PII of shares of
its common stock, at a purchase price of $0.015 per share, such that the total
number of shares of Common Stock issuable in connection with the Affiliations
and the Share Exchange will not exceed 3,941,898 shares), (f) the repayment of
$350,000 aggregate principal amount of 9.5% promissory notes (the "9.5%
Promissory Notes") and (g) the initial public offering of 2,500,000 shares of
Common Stock at an assumed public offering price of $9.00 per share (the
"Offering") and the application of the net proceeds therefrom (as described in
"Use of Proceeds, " except that the issuance and repayment (out of proceeds from
the Offering) of $486,000 aggregate principal amount outstanding under the
Company's 15% promissory notes, which were issued in February 1998, are not
reflected in the unaudited pro forma balance sheet), all had been completed, as
if those transactions had occurred on December 31, 1997. The Affiliations, the
repayment of certain debt of the Founding Affiliated Practices, the
Pentegra/Napili Transaction, the Repurchase and Redemption, the Share Exchange,
the repayment of the 9.5% Promissory Notes and the Offering are each contingent
on the occurrence of the others.
The Company will not employ dental professionals or control the practice of
dentistry by the dentists. As the Company will not be acquiring the future
patient revenues to be earned by the Founding Affiliated Practices, the
Affiliations are not deemed to be business combinations. In accordance with the
Securities and Exchange Commission's Staff Accounting Bulletin No. 48,
"Transfers of Nonmonetary Assets by Promoters or Shareholders," the Affiliations
will be accounted for at their historical cost basis with the shares of Common
Stock to be issued in the Affiliations being valued at the historical net book
value of the nonmonetary assets acquired, net of liabilities assumed. The cash
consideration will be reflected as a dividend by the Company to the owners of
the Founding Affiliated Practices. The acquisition of certain assets of
Pentegra, Ltd. and Napili will be accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16.
The unaudited pro forma balance sheet has been prepared by the Company based
on the audited historical financial statements of the Company, included
elsewhere in this Prospectus, including the audited combined financial
information of the Founding Affiliated Practices included in the notes to the
Company's financial statements, and assumptions deemed appropriate by the
Company.
The Company has not presented a pro forma statement of operations for the
transactions described above based on the requirements set forth in Article 11
of Regulation S-X, because it is a newly formed entity with no significant
operations to date and no operating history in the business of managing a large
number of geographically diverse dental practices.
F-2
<PAGE>
PENTEGRA DENTAL GROUP, INC.
UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
AFFILIATION OFFERING PRO FORMA,
PENTEGRA ADJUSTMENTS SUBTOTAL ADJUSTMENTS AS ADJUSTED
----------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 100 $ -- $ 100 $ (6,387)(A) $ 7,687(1)
18,973(B)
(100)(C)
(1,652)(D)
(2,621 (E)
(276 (F)
(350 (I)
Accounts receivable, net........................ -- -- -- 306 (F) 306
----------- ------------- --------- ------------- ------------
Total current assets.......................... 100 -- 100 7,893 7,993
Property and equipment, net....................... 409 2,841 (A) 3,250 17 (C) 3,267
Deferred offering costs........................... 2,743 -- 2,743 (2,743 (B) --
Other noncurrent assets, net...................... 5 -- 5 183 (C) 188
----------- ------------- --------- ------------- ------------
Total assets.................................. $ 3,257 $ 2,841 $ 6,098 $ 5,350 $ 11,448
----------- ------------- --------- ------------- ------------
----------- ------------- --------- ------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities........ $ 2,095 $ 6,387 (A) $ 8,482 $ (6,387 (A) $ 1,580
(1,795 (B)
30 (F)
1,250 (G)
Current portion of long-term debt, net.......... 215 624 (A) 839 (624 (E) --
(215 (I)
----------- ------------- --------- ------------- ------------
Total current liabilities..................... 2,310 7,011 9,321 (7,741 ) 1,580
Long-term debt.................................... -- 1,997 (A) 1,997 100 (C) 568
468 (D)
(1,997 (E)
Class A redeemable preferred stock................ 675 -- 675 (675 (D) --
Class B redeemable preferred stock................ 414 -- 414 (414 (D) --
Stockholders' equity (deficit):
Common stock.................................... 18 3 (A) 21 3 (B) 7
(17 (H)
Additional paid-in capital...................... 1,194 (6,170 (A) (4,976) 18,022 (B) 12,032
(1,031 (D)
17 (H)
Accumulated deficit............................. (1,354 ) -- (1,354) (1,250 (G) (2,739 )
(135 (I)
----------- ------------- --------- ------------- ------------
Total stockholders' equity (deficit).......... (142 ) (6,167 ) (6,309) 15,609 9,300
----------- ------------- --------- ------------- ------------
Total liabilities and stockholders' equity
(deficit)................................... $ 3,257 $ 2,841 $ 6,098 $ 5,350 $ 11,448
----------- ------------- --------- ------------- ------------
----------- ------------- --------- ------------- ------------
</TABLE>
- ----------
(1) See "Use of Proceeds."
The accompanying notes are an integral part of this unaudited pro forma
financial statement.
F-3
<PAGE>
PENTEGRA DENTAL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
The accompanying unaudited pro forma balance sheet as of December 31, 1997
gives effect to the Affiliations, the payment of debt assumed from the Founding
Affiliated Practices, the Pentegra/Napili Transaction, the Repurchase and
Redemption, the Share Exchange, the repayment of $350,000 of the 9.5% Promissory
Notes and the Offering and the application of the proceeds therefrom (as
described in "Use of Proceeds," except that the issuance and repayment (out of
proceeds from the Offering) of $486,000 aggregate principal amount outstanding
under the Company's 15% promissory notes, which were issued in February 1998,
are not reflected in the unaudited pro forma balance sheet), as if those
transactions had occurred on December 31, 1997. The unaudited pro forma balance
sheet does not represent the historical or future financial position of the
Company.
(A) Reflects completion of the Affiliations, which will involve (i) the issuance
of 2,922,549 shares of Common Stock, valued at the historical net book value
of the assets transferred less the liabilities assumed, and (ii) cash
distributions to be treated as dividends aggregating $6,387,000. The
historical net book value of the assets transferred and the liabilities
assumed from the Founding Affiliated Practices are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Property and equipment transferred.................................................. $ 2,841
Less
Current portion of notes payable.................................................. (624)
Long-term portion of notes payable................................................ (1,997)
---------
Net assets transferred.......................................................... $ 220
---------
---------
</TABLE>
Certain assets and liabilities will not be transferred from the Founding
Affiliated Practices. The assets not transferred are cash, certain accounts
receivable, prepaids and other current assets, and certain accounts payable.
Certain assets that are not reflected in the balance sheets of the Founding
Affiliated Practices will be transferred to the Company in the Affiliations.
These assets have no recorded book value, and therefore, are not reflected
in the unaudited pro forma balance sheet. They include items such as
contract rights, marketing systems, all transferable licenses, trade
secrets, books, records and policy and procedure manuals.
(B) Reflects the issuance of 2,500,000 shares Common Stock in the Offering, net
of (i) estimated underwriters' discounts and commissions and (ii) estimated
offering costs of $2,900,000 primarily consisting of legal, accounting and
printing expenses, less offering costs previously funded with proceeds from
the issuance of capital stock of PII, including all PII Class A Preferred
Stock and Class B Preferred Stock, and the Promissory Notes. The resulting
net proceeds are reflected as Common Stock and additional paid-in capital.
The Company has deferred offering costs of $2,743,000, of which $948,000 had
been paid at December 31, 1997.
(C) Reflects completion of the Pentegra/Napili Transaction for consideration of
$200,000. The Company will pay $100,000 from the proceeds of the Offering
and issue a $100,000 9.0% promissory note due April 1999. As of December 31,
1997, the assets to be acquired in the Pentegra/Napili Transaction have a
fair value of approximately $17,000. The cost in excess of the fair value of
the net tangible assets acquired will be amortized over a five-year period.
(D) Reflects (i) the repurchase of 245,835 shares of Class B Preferred Stock
from affiliates of the Company at the price per share paid to PII for those
shares and the redemption of an aggregate of 1,337,500 shares of Class A
Preferred Stock and Class B Preferred Stock for $1.50 per share, of which
F-4
<PAGE>
PENTEGRA DENTAL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
$1.15 per share will be paid in cash and $0.35 per share will be paid in the
form of a 6.0% promissory note that becomes due and payable by the Company
on the earlier of the fifth anniversary of the date of the closing of the
Offering or the date on which the Company offers and sells an amount of
equity securities for gross proceeds equal to or greater than the gross
proceeds from the Offering, and (ii) the recognition of the related deemed
dividend of $1,031,000. The payment for the Repurchase and Redemption and
dividend are as follows (in thousands):
<TABLE>
<S> <C>
Cash payment for Repurchase......................................... 114
Cash payment for Redemption......................................... 1,538
Promissory notes issued for Redemption.............................. 468
---------
2,120
Less
Recorded value of Class A and B Preferred Stock at December 31,
1997............................................................ 1,089
---------
Dividend to holders of Class A and B Preferred Stock.............. $ 1,031
---------
---------
</TABLE>
(E) Reflects the use of proceeds from the Offering to repay the debt assumed in
the Affiliations.
(F) Reflects the purchase of net monetary assets from the Founding Affiliated
Practices for cash of $276,000, which assets will be recorded at fair value.
The fair value of the net assets purchased are as follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable, net............................................. $ 306
Less
Accounts payable................................................... (30)
---------
Total................................................................ $ 276
---------
---------
</TABLE>
(G) Reflects the accrual of an employment bonus of $1,250,000 to the Chairman of
the Board of Directors (the "Chairman"). Payment of the bonus will be made
in increments of $10,000 on the closing of each future dental practice
affiliation until the bonus has been paid in full. Management expects the
bonus will be paid within the year following the Offering. In any event,
pursuant to the terms of the Company's employment agreement with the
Chairman, the employment bonus must be paid in full within three years of
the Offering. The bonus will be expensed in the fourth quarter of 1997
because its payment is not contingent on future services actually being
provided by the Chairman.
(H) Reflects repurchase by PII of 737,318 shares of its common stock and the
exchange at the closing of the Offering of 1,019,349 shares of Common Stock
for 1,019,349 shares of PII common stock.
(I) Reflects the repayment of the 9.5% Promissory Notes at their aggregate face
value of $350,000, with the discount of $135,000 recorded as a charge to the
accumulated deficit.
F-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Pentegra Dental Group, Inc.:
We have audited the accompanying balance sheet of Pentegra Dental Group,
Inc. as of December 31, 1997, and the related statements of operations, changes
in stockholders' deficit, and cash flows for the period from inception, February
21, 1997, through December 31, 1997. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pentegra Dental Group, Inc.
as of December 31, 1997, and the results of its operations and its cash flows
for the period from inception, February 21, 1997, through December 31, 1997 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
February 20, 1998
F-6
<PAGE>
PENTEGRA DENTAL GROUP, INC.
BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 100
---------
Total current assets........................................................... 100
---------
Property and equipment............................................................. 409
Deferred offering costs............................................................ 2,743
Organizational costs............................................................... 5
---------
Total assets............................................................... $ 3,257
---------
---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities......................................... $ 2,095
Notes payable, net of discount of $135........................................... 215
---------
Total current liabilities...................................................... 2,310
---------
Commitments and contingencies (See Notes)..........................................
Class A redeemable preferred stock, $0.01 par value, 5,000,000 shares authorized,
900,000 shares issued and outstanding (liquidation preference of $900)........... 675
Class B redeemable preferred stock, $0.01 par value, 5,000,000 shares authorized,
683,335 shares issued and outstanding (liquidation preference of $683)........... 414
Stockholders' deficit:
Common stock, $0.01 par value, 40,000,000 shares authorized, 1,756,667 shares
issued and outstanding......................................................... 18
Additional paid-in capital....................................................... 1,194
Accumulated deficit.............................................................. (1,354)
---------
Total stockholders' deficit.................................................... (142)
---------
Total liabilities and stockholders' deficit................................ $ 3,257
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
PENTEGRA DENTAL GROUP, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION, FEBRUARY 21, 1997, THROUGH DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Revenue............................................................................ $ --
<S> <C>
Expenses:
General and administrative expenses.............................................. 709
Compensation expense in connection with issuance of common stock................. 645
---------
Total expenses............................................................... 1,354
---------
Net loss........................................................................... $ (1,354)
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
PENTEGRA DENTAL GROUP, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION, FEBRUARY 21, 1997, THROUGH DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------ PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at February 21, 1997........................... -- $ -- $ -- $ -- $ --
Issuance of common stock
($0.015 per share cash on February 21, 1997)......... 667 7 3 -- 10
Issuance of common stock
($0.015 per share cash and $0.14 per share
compensation on May 22, 1997)........................ 767 8 107 -- 115
Issuance of common stock
($1.27 per share cash on June 13, 1997).............. 290 3 365 -- 368
Issuance of common stock
($0.015 per share cash and $1.26 per share
compensation on June 13, 1997)....................... 33 -- 42 -- 42
Purchases of common stock.............................. (87) (1) -- -- (1)
Issuance of common stock ($0.015 per share cash and
$7.46 per share compensation on September 1, 1997)... 67 1 497 -- 498
Issuance of common stock with promissory notes ($9.00
per share discount on promissory notes on October 8,
1997)................................................ 20 -- 180 -- 180
Net loss............................................... -- -- -- (1,354) (1,354)
----- ----- ----------- ------------ ------------
Balance at December 31, 1997........................... 1,757 $ 18 $ 1,194 $ (1,354) $ (142)
----- ----- ----------- ------------ ------------
----- ----- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
PENTEGRA DENTAL GROUP, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION, FEBRUARY 21, 1997, THROUGH DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C>
Net loss......................................................................... $ (1,354)
Accretion of discount on notes payable........................................... 45
Compensation associated with issuance of common stock............................ 645
Increase in accounts payable and accrued liabilities............................. 57
---------
Net cash used by operating activities........................................ (607)
---------
Net cash used in investing activities--additions to property and equipment......... (166)
---------
Cash flows provided by financing activities:
Proceeds from issuance of common and preferred stock............................. 1,476
Proceeds from issuance of notes payable.......................................... 350
Offering costs................................................................... (948)
Organizational costs............................................................. (5)
---------
Net cash provided by financing activities.................................... 873
---------
Net increase in cash and cash equivalents.......................................... 100
Balance at inception, February 21, 1997............................................ --
---------
Balance at December 31, 1997....................................................... $ 100
---------
---------
Non-cash activities:
Offering costs accrued........................................................... $ 1,795
---------
---------
Acquisition of property and equipment accrued.................................... $ 243
---------
---------
Discount on notes payable........................................................ $ 180
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE>
PENTEGRA DENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Pentegra Dental Group, Inc. (the "Company") was organized as a Delaware
corporation on February 21, 1997, for the purpose of creating a dental practice
management company.
In July 1997, the Company changed its name to Pentegra Investments, Inc. and
formed a new wholly owned subsidiary named Pentegra Dental Group, Inc.
("Pentegra Dental"). Pentegra Dental's operations to date have consisted
primarily of seeking affiliations with dental practices, negotiating to acquire
the tangible assets of those practices, and negotiating agreements to provide
management services to those practices. Pentegra Dental plans to complete an
initial public offering of its common stock, par value $0.001 per share (the
"Offering") and simultaneously exchange cash and shares of its common stock for
selected assets and liabilities (the "Affiliations") of 50 dental practices (the
"Founding Affiliated Practices" and, together with dental practices with which
the Company may enter into similar transactions in the future, the "Affiliated
Practices") (see Note 4). In December 1997, the owners of the outstanding shares
of the Company's common stock agreed that, in the event the initial public
offering price is less than $12.04 per share, it will repurchase (the "Share
Repurchase") from those stockholders, on a pro rata basis, at a purchase price
of $0.015 per share, that number of shares as will be necessary so that the
aggregate number of shares of Pentegra Dental common stock issuable in
connection with the Affiliations and the Share Exchange (as defined below) will
not exceed 3,941,898 shares. Pursuant to that agreement, assuming an initial
public offering price of $9.00 per share, the Company would repurchase
approximately 42.0% of each such stockholder's shares of the Company common
stock, or an aggregate of 737,318 shares. The current shareholders will exchange
on a share-for-share basis, their remaining shares of the Company's common
stock, par value $0.015 per share, for shares of common stock of Pentegra Dental
(the "Share Exchange"). It is contemplated that 245,835 shares of Class B
preferred stock held by affiliates of the Company will be repurchased at their
original issuance prices ranging from $0.01 to $1.00 per share and 1,337,500
shares of Class A and Class B preferred stock held by nonaffiliates will be
redeemed at a price of $1.50 per share (See Note 5). Pentegra Dental has also
entered into an agreement to acquire substantially all the assets and operations
of a dental management consulting firm, Pentegra, Ltd., and a dental management
seminar company, Napili, International (the "Pentegra/Napili Transaction") (see
Note 3). The Affiliations, the Pentegra/Napili Transaction and the Offering are
each contingent on the occurrence of the others.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as highly liquid financial instruments
with maturities of three months or less at the date of purchase.
DEFERRED OFFERING COSTS
Deferred offering costs include legal, accounting and other costs directly
related to the Offering. All deferred offering costs will be charged against the
proceeds of the Offering upon its completion. Such costs would be charged to
expense if the Offering were not completed.
ORGANIZATIONAL COSTS
Organizational costs are being amortized on a straight-line basis over a
five-year period.
F-11
<PAGE>
PENTEGRA DENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
STOCK OPTION PLAN
In September 1997, the board of directors of Pentegra Dental adopted the
1997 Stock Compensation Plan (the "Plan"). Employees, non-employee directors and
advisors and directors will be eligible to receive awards under the Plan and
only employees of the Company will be eligible to receive incentive stock
options. The aggregate number of options to purchase shares of common stock and
other awards of shares of common stock that may be granted under the Plan may
not exceed 2,000,000 shares. As of December 31, 1997, Pentegra Dental had
authorized for issuance options to acquire approximately 672,000 shares to
employees, practice employees and directors on the date the initial public
offering price is determined. The exercise price of these options will be the
initial public offering price per share. The Company has adopted Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which establishes accounting and reporting standards for
stock-based compensation plans. The Company will account for options issued to
employees and non-employee directors under the Plan in accordance with APB
Opinion No. 25 and provide disclosure of the pro forma effect of using the fair
value of options granted to employees to measure compensation. Of the amounts
authorized as of December 31, 1997, options to purchase approximately 58,000
shares will be issued to owners of Founding Affiliated Practices, practice
employees and other advisors. The fair value of such options will be charged to
operations over their vesting period.
EARNINGS PER SHARE
Earnings per share has been excluded from the financial statements because
the Company has limited historical operations and does not have a significant
operating history. Additionally, the historical operations do not reflect the
planned distribution to promoters in connection with the Affiliations, which
will be paid with a portion of the proceeds of the Offering (See Note 4).
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 may in some instances differ from previously
estimated amounts.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred taxes are determined based on differences between
the financial reporting and tax bases of assets and liabilities and are measured
using the enacted marginal tax rates currently in effect when the differences
reverse.
As reflected in the accompanying statement of operations, the Company
incurred a net loss of $1,354,000 during the period from inception, February 21,
1997, through December 31, 1997. The Company has recognized no tax benefit from
this net loss. Due to the limited operations of the Company since its inception,
a valuation allowance has been established to offset the deferred tax asset
related to these net losses that have been capitalized for tax purposes. There
is no other significant difference in the tax and book bases of the Company's
assets or liabilities that would give rise to deferred tax balances.
F-12
<PAGE>
PENTEGRA DENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share." SFAS No. 128 specifies the computation,
presentation and disclosure requirements of earnings per share and supersedes
Accounting Principles Board Opinion No. 15, "Earnings Per Share." SFAS No. 128
requires a dual presentation of basic and diluted earnings per share. Basic
earnings per share, which excludes the impact of common stock equivalents,
replaces primary earnings per share. Diluted earnings per share, which utilizes
the average market price per share as opposed to the greater of the average
market price per share or ending market price per share when applying the
treasury stock method in determining common stock equivalents, replaces fully
diluted earnings per share. SFAS No. 128 is effective for both interim and
annual periods ending after December 15, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components in a full set of general
purpose financial statements. SFAS No. 131 establishes standards for reporting
segment information by public enterprises in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports to shareholders. Both these statements are
effective for fiscal years beginning after December 15, 1997. The Company
believes implementation of SFAS Nos. 130 and 131 will not have a material effect
on its financial position, results of operations or cash flows.
In November 1997, the Emerging Issues Task Force of the FASB (the "EITF")
reached a consensus relating to the conditions under which a physician or dental
practice management company would consolidate the accounts of an affiliated
physician or dental practice. The Company believes that its accounting policies
conform to the EITF consensus.
3. RELATED PARTY TRANSACTIONS:
Pentegra Dental has entered into an agreement with the Chairman of its Board
of Directors effective at the date the Offering closes, to purchase
substantially all the assets and the operations of Pentegra, Ltd. and Napili,
International for total consideration of $200,000, consisting of an aggregate of
$100,000 in cash from the proceeds of the Offering and a $100,000 principal
amount 9.0% promissory note due April 1999. Pentegra Dental will enter into an
employment agreement effective at the date the Offering closes, that provides
for the payment to the Chairman of the Board of Directors of an employment bonus
of $1,250,000. The bonus is due in installments of $10,000 on the closing of
each future dental practice affiliation subsequent to the Affiliations. However,
the bonus must be paid in full within three years. The employment bonus will be
charged to operations at its effective date because its payment is not
contingent on any future services to be provided by the Chairman.
Since the Company's inception, it has occupied and had access to the
facilities, equipment and staff of a relative of an executive officer and
director of the Company. Prior to June 1, 1997, that use was insignificant. From
June 1, 1997 through January 31, 1998, the Company compensated the affiliate for
use of and access to its office facilities, equipment and staff at the rate of
$10,000 per month.
The Company has agreed to lease a portion of the office facilities,
equipment and staff of Pentegra, Ltd., which is owned by the Company's Chairman
of the Board, members of his family and other related entities. The Company has
agreed to compensate Pentegra, Ltd. for use of and access to its office
facilities,
F-13
<PAGE>
PENTEGRA DENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS: (CONTINUED)
equipment and staff at the rate of $11,000 per month until the Pentegra/Napili
Transaction is completed, whereupon the entire lease of those facilities will be
assumed by Pentegra Dental.
The Company believes that the compensation being paid to these related
parties represents the fair market value of the services that are being provided
to the Company.
4. PLANNED TRANSACTIONS:
Pentegra Dental plans to complete the Affiliations through a series of
mergers and asset transfers. Owners of the Founding Affiliated Practices (the
"Promoters") will receive shares of Common Stock having a value of approximately
$26.3 million, based on the initial public offering price (2,922,549 shares of
Common Stock, based on an assumed initial public offering price of $9.00 per
share), and approximately $6,400,000 in cash. In December 1997, the owners of
the outstanding shares of common stock of PII agreed that, in the event the
initial public offering price is less than $12.04 per share, PII will repurchase
from those stockholders, on a pro rata basis, at a purchase price of $0.015 per
share, that number of shares as will be necessary so that the aggregate number
of shares of Common Stock issuable in connection with the Affiliations and the
Share Exchange will not exceed 3,941,898 shares. Pursuant to that agreement,
assuming an initial public offering price of $9.00 per share, PII would
repurchase approximately 42.0% of each such stockholder's shares of PII common
stock, or an aggregate of 737,318 shares. Each Founding Affiliated Practice
transaction was individually negotiated between the Company and the Founding
Affiliated Practice as to all material terms, including, but not limited to,
valuation. The shares to be issued were based on a common allocation method that
considered each Founding Affiliated Practice's gross revenue, net of certain
operating expenses, and the Company's assessment of growth potential. No
independent appraisals of the Founding Affiliated Practices were obtained. Of
the total consideration for each transaction, each Founding Affiliated Practice
could elect to receive up to 20% in cash and the balance in shares of Common
Stock. The actual number of shares will be calculated by subtracting the cash
portion from the total consideration and dividing the resulting amount by the
initial public offering price per share. The assets to be transferred in the
Affiliations include supplies inventory, equipment and certain other current and
non-current assets. The liabilities to be transferred primarily consist of
long-term debt. In connection with the Affiliations, the Promoters and their
professional corporations, professional associations or other entities
(collectively, the "PCs") will enter into long-term service agreements with
Pentegra Dental (the "Service Agreements"). Additionally, those Promoters will
enter into employment and noncompete agreements with their respective PCs.
As of December 31, 1997, officers and directors of the Company, those who
will become officers and directors of the Company in connection with the
Offering and certain Promoters held common and preferred stock that was issued
in connection with the funding of a portion of the expenses for the Offering, as
follows (in thousands):
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------------ ------------------------
CARRYING CARRYING
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Officers and directors........................................... 1,049 $ 303 263 $ 123
Promoters and affiliates who are not officers and directors...... 80 101 400 300
----- ----- --- -----
1,129 $ 404 663 $ 423
----- ----- --- -----
----- ----- --- -----
</TABLE>
F-14
<PAGE>
PENTEGRA DENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PLANNED TRANSACTIONS: (CONTINUED)
All of the preferred stock will be repurchased or redeemed upon completion
of the Offering as described in Note 5.
Pentegra Dental will not employ dentists or control the practice of
dentistry by the dentists employed by the PCs. As Pentegra Dental will be
executing management service agreements and will not hold any equity ownership
in the PCs, the Affiliations are deemed not to be business combinations. Because
each of the owners of the Founding Affiliated Practices is a promoter of the
Offering, Securities and Exchange Commission's Staff Accounting Bulletin No. 48,
"Transfers of Nonmonetary Assets by Promoters or Shareholders" requires (i) the
transferred nonmonetary assets to be accounted for at the historical cost basis
of the Founding Affiliated Practices, (ii) any monetary assets and assumed
monetary liabilities included in the Affiliations to be recorded at fair value
and (iii) cash consideration paid and assumed liabilities in excess of net
assets transferred, to be reflected as a dividend paid by Pentegra Dental.
The information set forth below assumes all the Founding Affiliated
Practices will participate in the Affiliations. Although management expects that
all the practices will participate, there is no assurance that will be the case.
The net assets to be transferred and liabilities to be assumed from the
Founding Affiliated Practices are summarized, on a combined basis, in the
following table (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Property, equipment and improvements, net........................ 2,912 2,841
------------ ------------
Assets transferred............................................. 2,912 2,841
Current portion of notes payable................................. (1,078) (624)
Long-term portion of notes payable............................... (1,411) (1,997)
------------ ------------
Net assets transferred, net of liabilities assumed............. $ 423 $ 220
------------ ------------
------------ ------------
</TABLE>
The Company will also purchase certain net monetary assets from the founding
Affiliated Practices for a cash amount of $276,000. The net assets purchased
will be recorded at their fair value as of December 31, 1997. The fair value of
the net monetary assets to be acquired as of December 31, 1997 was as follows
(in thousands):
<TABLE>
<CAPTION>
Accounts receivable, net....................................... $ 306
<S> <C>
Less accounts payable.......................................... (30)
-----
Net monetary assets to be acquired........................... $ 276
-----
-----
</TABLE>
Upon consummation of the Affiliations, Pentegra Dental will enter into a
Service Agreement with each Founding Affiliated Practice under which Pentegra
Dental will become the exclusive manager and administrator of non-dental
services relating to the operation of the Founding Affiliated Practices. The
actual terms of the various Service Agreements vary from the description below
on a case-by-case basis, depending on negotiations with the individual Founding
Affiliated Practices and the requirements of applicable law and governmental
regulations.
The management service revenues that will be earned by Pentegra Dental
subsequent to the closing of the Affiliations and the execution of the Service
Agreements will be based on various arrangements. In general, the resulting fee
will be based primarily on the patient revenues less operating expenses
associated with each PC excluding dentists' salaries and depreciation. Patient
revenues are determined based on net
F-15
<PAGE>
PENTEGRA DENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PLANNED TRANSACTIONS: (CONTINUED)
patient revenues, as determined under generally accepted accounting principles,
including adjustments for contractual allowances and other discounts, less an
adjustment for uncollectable accounts. The Company will pay all operating
expenses incurred by each Affiliated Practice that are required to operate a
dental office, and the Affiliated Practice will be responsible for reimbursing
the Company for such expenses. These expenses will include the following:
- Salaries, benefits, payroll taxes, workers compensation, health insurance
and other benefit plans, and other direct expenses of all employees of the
Company at each location of the Affiliated Practice, excluding those costs
associated with the dentists and any other classification of employee
which the Company is prohibited from employing by law;
- Direct costs of all employees or consultants that provide services to each
location of the Affiliated Practice;
- Dental and office supplies, as permitted by law;
- Lease or rent payments, as permitted by law, and utilities, telephone and
maintenance expenses for practice facilities;
- Property taxes on the Company's assets located at the Affiliated
Practice's offices;
- Property, casualty, liability and malpractice insurance premiums relating
to the operations of the Affiliated Practice;
- Dentist recruiting expenses relating to the operations of the Affiliated
Practice; and
- Advertising and other marketing costs attributable to the promotion of the
Affiliated Practice's offices.
All of the above expenses will be incurred and paid by the Company directly
to the third-party provider of the goods or services indicated. In exchange for
incurring these expenses and providing management services, the Company will
record revenues in amounts equal to those incurred expenses, which the
Affiliated Practice will reimburse to the Company, together with a service fee
based on the type of Service Agreement entered into by the Affiliated Practice.
F-16
<PAGE>
PENTEGRA DENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PLANNED TRANSACTIONS: (CONTINUED)
The Founding Affiliated Practices will retain responsibility for the payment
of any and all direct employment expenses, including benefits, for any dentist
or other employee that the Company is prohibited from employing by law.
The management service fees (the "Service Fees") payable to the Company by
the Founding Affiliated Practices under the Service Agreements, together with
operating and non-operating expenses of each Affiliated Practice to be paid to
the Company pursuant to the Service Agreements, are payable monthly and consist
of various combinations of the following: (i) "Standard Service Agreement",
which provides for (a) a percentage (ranging from 30% to 40%) of the Affiliated
Practice's revenues related to dental services less operating expenses
associated with the operation of the Affiliated Practice or (b) a percentage
(16%) of the Affiliated Practice's dental service revenues, not to exceed a
percentage (35%) of the difference between those revenues and operating expenses
associated with the operation of the Affiliated Practice; or (ii) "Alternative
Service Agreement," which provides for the greater of (a) a percentage (35%) of
the Affiliated Practice's revenues related to dental services less operating
expenses associated with the operation of the Affiliated Practice or (b) a
specified fixed Service Fee (ranging from $54,000 to $305,000 annually). In
addition, with respect to four of the Founding Affiliated Practices, the Service
Fees are based on fixed fees that are subject to renegotiation on an annual
basis.
Service Fees payable to the Company under clause (i)(a) above are payable by
37 of the Founding Affiliated Practices, located in each state in which the
Founding Affiliated Practices are located other than New York and California,
and are calculated by subtracting the operating expenses of the Founding
Affiliated Practice (including non-dental salaries, insurance, rent and other
non-dentist costs) from the net revenues of the Founding Affiliated Practice and
multiplying the resulting amount by 30%, 35% or 40%, depending on the terms of
the particular Service Agreement. One Founding Affiliated Practice located in
California will pay its Service Fee according to the formula set forth in clause
(i)(b) above, equal to the greater of 16% of its net revenues or 35% of the
difference between its net revenues and operating expenses. Service Fees to be
received by the Company under clause (ii)(b) above are payable by eight of the
Founding Affiliated Practices in Texas and will result in a minimum service fee
being received by the Company (ranging from $54,000 to $305,000 annually). The
annual fixed fees payable by the four Founding Affiliated Practices in New York
are $66,009, $115,251, $83,579 and $140,127 and will be subject to renegotiation
each year based on the fair value of the services to be received by those
Founding Affiliated Practices from the Company. On a monthly basis, the Company
will calculate the Service Fee due from each Founding Affiliated Practice
pursuant to the terms of each Service Agreement. In addition, if the costs
related to providing dental services pursuant to capitated managed care
arrangements exceed the revenues received for those services, the Affiliated
Practice will remain responsible for reimbursing the Company for all of the
costs associated with providing those services, even if no Service Fee is due to
the
F-17
<PAGE>
PENTEGRA DENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PLANNED TRANSACTIONS: (CONTINUED)
Company under its Service Agreement. The patient revenues and operating expenses
(excluding depreciation and dentists' salaries) of the Founding Affiliated
Practices are summarized, on a combined basis, in the following tables for the
years ended December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1997
---------------------- ----------------------
PATIENT OPERATING PATIENT OPERATING
REVENUES EXPENSES REVENUES EXPENSES
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Practices participating under the Standard Service Agreement......... $ 28,371 $ 16,913 $ 29,156 $ 17,071
Practices participating under the Alternative Service Agreement...... 6,921 4,776 6,602 4,470
Practices participating under fixed-fee agreements................... 2,599 1,393 2,519 1,408
--------- ----------- --------- -----------
Totals for Founding Affiliated Practices............................. $ 37,891 $ 23,082 $ 38,277 $ 22,949
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
Subsequent to the Affiliations, substantially all the operating expenses of
the Founding Affiliated Practices (excluding dentists' salaries) will be paid by
Pentegra Dental and billed to the PCs. The historical operating expenses of the
Founding Affiliated Practices for the years ended December 31, 1996 and 1997,
excluding those employment expenses for any dentist or other employee that the
Company is prohibited from employing by law, are summarized, on a combined
basis, in the following table (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
1996 1997
------------ -------------
<S> <C> <C>
Salaries, wages and benefits of employees, excluding the
dentists...................................................... $ 8,495 $ 8,214
Dental supplies................................................. 5,680 5,572
Rent............................................................ 1,884 2,055
Advertising and marketing expenses.............................. 567 567
General and administrative expenses............................. 5,716 5,790
Other expenses.................................................. 740 751
------------ -------------
Total operating expenses.................................... 23,082 22,949
Depreciation and amortization................................... 879 833
------------ -------------
Total expenses.............................................. $ 23,961 $ 23,782
------------ -------------
------------ -------------
</TABLE>
The Company will continue to recognize depreciation and amortization on
assets transferred in connection with the Affiliations. However, such charges
are not considered operating expenses under the Service Agreements and will not
enter into the calculation of the service fees.
The combined historical financial information of the Founding Affiliated
Practices presented herein does not represent the financial position or results
of operations of Pentegra Dental or the Company. Because of the significant
relationship that will exist among the Company and the Founding Affiliated
Practices upon completion of the Offering, this information is presented solely
for the purpose of providing disclosures to potential investors regarding the
group of entities with which Pentegra Dental will be contracting to provide
future services. The Founding Affiliated Practices were not operated under
common control or management during the fiscal years ended December 31, 1996 or
1997. However, combined financial information has been presented because
entering into the Service Agreements with all of the Founding Affiliated
Practices is contingent upon a single event, the completion of the Offering.
F-18
<PAGE>
PENTEGRA DENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. REDEEMABLE PREFERRED STOCK
In May 1997, the Company authorized the designation, out of the authorized
and unissued preferred stock, of two classes of 5,000,000 shares each,
designated as "Class A" and "Class B." In May 1997, the Company issued 133,335
shares of Class B nonvoting preferred stock for cash of approximately $1,000. In
June 1997, the Company issued 900,000 shares of Class A nonvoting preferred
stock, 550,000 shares of Class B nonvoting preferred stock and 435,000 shares of
common stock for $1,457,000. The Company allocated $675,000 of the proceeds to
the Class A preferred stock, $413,000 to the Class B preferred stock and
$369,000 to the common stock based on the value of $0.75, $0.75 and $0.85 per
share, respectively, as determined by an independent valuation of the fair value
of those shares as of the date of issuance. The proceeds from these stock
issuances were reserved for legal and accounting costs associated with the
Offering, as well as operating costs. Holders of both classes of preferred stock
are entitled to per share dividends equivalent to any dividends that may be
declared on the common stock, but not to cumulative dividends. The preferred
stock entitles the holders thereof to preference in liquidation over the common
stock.
The terms of the Class A and B preferred stock provide for it to be redeemed
for $1.00 to $3.00 per share, as determined by the Company's Board of Directors,
upon completion of an initial public offering. The Board of Directors has
established the redemption price at $1.50 per share. In connection with
negotiating the Offering and the Affiliations, certain officers and directors
agreed that the Company may repurchase their shares of Class B Preferred Stock
at the subscription price. Accordingly, the Company will use a portion of the
net proceeds of the Offering to repurchase 245,835 shares of its Class B
preferred stock held by those officers and directors at repurchase prices equal
to the subscription prices, which ranged from $0.01 to $1.00 per share
(aggregating to $114,000). The remaining 1,337,500 shares of Class A and B
preferred stock outstanding will be redeemed at a price of $1.50 per share
(aggregating to $2,006,000), of which $1.15 per share will be paid in cash and
$0.35 per share will be paid in the form of a 6.0% promissory note that becomes
due and payable by the Company on the earlier of the fifth anniversary of the
date of the closing of the Offering or the date on which the Company offers and
sells an amount of equity securities with gross proceeds equal to or greater
than the gross proceeds of the Offering. The Company will recognize a dividend
on the preferred stock for the difference between the redemption amount and the
recorded value at the date of redemption. That difference has not been accreted
to the redemption amount during the current period because the date of the
Offering is not determinable.
6. COMMON STOCK
All share information in the accompanying financial statements has been
retroactively restated to reflect a two-for-three share reverse stock split of
the Company's common stock, which was effected in October 1997.
In February 1997, the Company issued 666,667 shares of common stock for cash
at a price of $0.015 per share. The Company issued an additional 766,667 shares
of common stock to members of management during May 1997 for cash at a price of
$0.015 per share. The Company valued these shares at $0.15 per share, based on
an independent valuation of the fair value of those shares as of the date of
issuance. In June 1997, in addition to the 290,000 shares of common stock issued
in connection with the issuance of the Class A and Class B preferred stock,
described in Note 5 above, the Company issued 33,333 shares of common stock for
cash at a price of $0.015 per share. Those shares were valued at $1.27 per
share, based on an independent valuation of the fair value of those shares as of
the date of issuance.
F-19
<PAGE>
PENTEGRA DENTAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMON STOCK (CONTINUED)
In September 1997, the Company repurchased 66,667 shares of its common stock
at a purchase price of $0.01 per share, of which 46,667 shares were repurchased
from a director of the Company. The Company issued 66,667 shares of common stock
to an officer of the Company at a purchase price of $0.015 per share. Those
shares were valued at the number of shares to be received by that officer in the
Share Exchange at the Offering price. The differences between the cash received
for shares of common stock and the fair value of those shares as of the
respective dates of issuance have been recognized as compensation expense.
7. NOTES PAYABLE
In October 1997, the Company repurchased an additional 20,000 shares of its
common stock from a director at a purchase price per share of $0.015, and issued
(i) 20,000 shares of common stock and (ii) $300,000 of 9.5% promissory notes due
on the earlier of 30 days after the closing of the Offering or October 1998. The
Company allocated the $300,000 proceeds between the promissory notes and the
common stock based on their relative fair values, with the value of the shares
based on an assumed initial public offering price of $9.00 per share. The amount
of the proceeds allocated to those shares of common stock was recorded as a
discount on the promissory notes of approximately $180,000. The Company is
accreting the discount over the term of the promissory notes.
In November 1997, the Company issued an additional $50,000 of 9.5%
promissory notes due on the earlier of 30 days after the closing of the Offering
or July 1998.
8. SUBSEQUENT EVENTS
In February 1998, the Company issued $486,000 of 15% promissory notes due on
the earlier of three days after the closing of the Offering or eight months from
the date the notes were issued.
F-20
<PAGE>
- ---------------------------------------------------------
---------------------------------------------------------
- ---------------------------------------------------------
---------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK OFFERED
HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................ 3
Risk Factors...................................... 8
The Company....................................... 17
Use of Proceeds................................... 18
Dividend Policy................................... 18
Dilution.......................................... 19
Capitalization.................................... 20
Selected Financial Data........................... 21
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 23
Business.......................................... 28
Management........................................ 40
Certain Transactions.............................. 47
Security Ownership of Certain Beneficial Owners
and Management.................................. 51
Description of Capital Stock...................... 52
Shares Eligible for Future Sale................... 54
Underwriting...................................... 57
Legal Matters..................................... 58
Experts........................................... 58
Additional Information............................ 59
Index to Financial Statements..................... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,500,000 SHARES
[LOGO]
PENTEGRA DENTAL GROUP, INC.
COMMON STOCK
---------------
PROSPECTUS
----------------
Dain Rauscher Incorporated
EVEREN Securities, Inc.
, 1998
- ---------------------------------------------------------
---------------------------------------------------------
- ---------------------------------------------------------
---------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be paid by the Company (other
than underwriting compensation expected to be incurred) in connection with the
offering described in this Registration Statement. All amounts are estimates,
except the SEC Registration Fee, the NASD Filing Fee and the American Stock
Exchange.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 12,197
NASD Filing Fee................................................. 4,525
American Stock Exchange Listing Fee............................. 35,000
Blue Sky Fees and Expenses...................................... 10,000
Printing Costs.................................................. 350,000
Legal Fees and Expenses......................................... 600,000
Accounting Fees and Expenses.................................... 1,800,000
Transfer Agent and Registrar Fees and Expenses.................. 5,000
Miscellaneous................................................... 83,278
---------
Total......................................................... $2,900,000
---------
---------
</TABLE>
- ---------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE GENERAL CORPORATION LAW
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
II-1
<PAGE>
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 145(d) of the DGCL states that any indemnification under subsections
(a) and (b) of Section 145 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
subsections (a) and (b). Such determination shall be made (1) by a majority vote
of the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) if there are no such directors or, if such
directors so direct, by independent legal counsel in a written opinion, or (3)
by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
RESTATED CERTIFICATE OF INCORPORATION
The Restated Certificate of Incorporation of the Company provides that a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided for in Section 174 of the DGCL. If the
DGCL is amended to
II-2
<PAGE>
authorize the further elimination or limitation of the liability of directors,
then the liability of a director of the Company, in addition to the limitation
on personal liability described above, shall be limited to the fullest extent
permitted by the amended DGCL. Further, any repeal or modification of such
provision of the Certificate of Incorporation by the stockholders of the Company
shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Company existing at the time of such
repeal or modification.
BYLAWS
The Bylaws of the Company provide that the Company will indemnify any
director or officer of the Company to the fullest extent permitted by applicable
law, from and against judgments, fines, amounts paid in settlement and expenses
(including attorneys' fees) whatsoever arising out of any event or occurrence
related to the fact that such person is or was a director or officer of the
Company and further provide that the Company may, but is not required to,
indemnify any employee or agent of the Company or a director, officer, employee
or agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise who is or was serving in such capacity at the
request of the Company; provided, however, that the Company is only required to
indemnify persons serving as directors and officers (and to the extent
authorized by the Board of Directors, such other persons) for the expenses
incurred in a proceeding if such person has met the standards of conduct that
make it permissible under the laws of the State of Delaware for the Company to
indemnify the claimant for the amount claimed. The Bylaws further provide that,
in the event of any threatened, or pending action, suit or proceeding in which
any director or officer of the Company is a party or is involved and that may
give rise to a right of indemnification under the Bylaws, following written
request by such person, the Company will promptly pay to such person amounts to
cover expenses reasonably incurred by such person in such proceeding in advance
of its final disposition upon such person undertaking to repay the advance if it
is ultimately determined that such person is not entitled to be indemnified by
the Company as provided in the Bylaws.
UNDERWRITING AGREEMENT
The Underwriting Agreement provides for the indemnification of the directors
and officers of the Company in certain circumstances.
INSURANCE
The Company intends to maintain liability insurance for the benefit of its
directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities issued or sold by the
Company within the last three years:
(i) In connection with the formation of the Company, on February 22, 1997 PII
issued shares of its common stock to J. Michael Casas (200,000 shares),
James L. Dunn, Jr. (100,000 shares), John G. Thayer (66,667 shares), Allen
M. Gelwick (66,667 shares), Stephen P. Schmitt (33,333 shares), Dunn Family
Trust, James L. Dunn, Jr., Trustee (33,333 shares), JoAn Majors (66,667
shares), John W. Parsons (66,667 shares) and Richard M. Vento (33,333
shares), at a purchase price per share of $0.015. On May 12, 1997, PII
issued Class B Preferred to J. Michael Casas (66,667 shares), James L.
Dunn, Jr. (33,334 shares) and John W. Parsons (33,334 shares), at a
purchase price per share of $0.01. On May 22, 1997, PII issued shares of
its common stock to George M. Siegel (300,000 shares), Omer K. Reed, D.D.S.
(150,000 shares), Gary S. Glatter (100,000 shares), Kelly W. Reed (150,000
shares), Stephen E. Stapleton (33,333 shares) and Kimberlee K. Rozman
(33,333 shares), at a purchase price per share of $0.015. On June 13, 1997,
(i) PII issued shares of its Class A Preferred to Marie Adamo (50,000
shares), Peter Anderson, Aurous, Ltd. (25,000 shares), Scott Bolding
(25,000 shares), William
II-3
<PAGE>
Decker (100,000 shares), Peter Anderson, Dufo, Ltd. (25,000 shares), Daniel
Goldman, Goldfam, Ltd. (75,000 shares), Peter Anderson, Laguna Enterprises,
Ltd. (25,000 shares), James Landers (50,000 shares), Gary Nagler (25,000
shares), Debra Novosad (50,000 shares), Edward Pitts, P/S Plan (125,000
shares), RTT Investments (150,000 shares), Candy Segall (25,000 shares),
Annie Smith (50,000 shares) and Ken W. Smith (100,000 shares), at a
purchase price per share of $1.00; (ii) PII issued shares of its Class B
Preferred to Omer K. Reed, D.D.S. (37,500 shares), Gary S. Glatter (37,500
shares), George M. Siegel (37,500 shares), Stephen E. Stapleton (12,500
shares), Mack E. Greder, D.D.S. (25,000 shares), Roger Allen Kay, D.D.S.
(25,000 shares), Debra Novosad (50,000 shares), Bruce A. Kanehl, D.D.S.
(25,000 shares), George King, D.D.S. (25,000 shares), Brian K. Kniff,
D.D.S. (25,000 shares), Richard W. Mains, D.D.S., RBM Trust (25,000
shares), James W. Medlock, D.D.S. (25,000 shares), Thomas L. Mullooly,
D.D.S. (25,000 shares), Richard H. Fettig, D.D.S. (25,000 shares), Marvin
V. Cavallino, D.D.S. (50,000 shares), Alan H. Gerbholz, D.D.S. (25,000
shares), Victor H. Burdick, D.D.S. (25,000 shares), Steve Anderson, D.D.S.
(25,000 shares) and James P. Allen, D.D.S. (25,000 shares), at a purchase
price per share of $1.00; and (iii) PII issued shares of its common stock
to Omer K. Reed, D.D.S. (7,500 shares), Gary S. Glatter (7,500 shares),
George M. Siegel (7,500 shares), Stephen E. Stapleton (2,500 shares), Mack
E. Greder, D.D.S. (5,000 shares), Roger Allen Kay, D.D.S. (5,000 shares),
Marie Adamo (10,000 shares), Peter Anderson, Aurous, Ltd. (5,000 shares),
Scott Bolding (5,000 shares), William Decker (20,000 shares), Peter
Anderson, Dufo, Ltd. (5,000 shares), Daniel Goldman, Goldfam, Ltd. (35,000
shares), Peter Anderson, Laguna Enterprises, Ltd. (5,000 shares), James
Landers (10,000 shares), Gary Nagler (5,000 shares), Debra Novosad (20,000
shares), Edward Pitts, P/S Plan (38,333 shares), RTT Investments (30,000
shares), Candy Segall (5,000 shares), Annie Smith (10,000 shares), Ken W.
Smith (20,000 shares), Marvin V. Cavallino, D.D.S. (10,000 shares), Bruce
A. Kanehl, D.D.S. (5,000 shares), Richard H. Fettig, D.D.S. (5,000 shares),
Victor H. Burdick, D.D.S. (5,000 shares), Thomas L. Mullooly, D.D.S. (5,000
shares), James W. Medlock, D.D.S. (5,000 shares), Alan H. Gerbholz, D.D.S.
(5,000 shares), Richard W. Mains, D.D.S., RBM Trust (5,000 shares), Brian
K. Kniff, D.D.S. (5,000 shares), George King, D.D.S. (5,000 shares), Steve
Anderson, D.D.S. (5,000 shares) and James P. Allen, D.D.S. (5,000 shares),
at a purchase price of $0.015 per share. On September 1, 1997, PII issued
66,667 shares of its common stock to Sam H. Carr at a purchase price of
$0.015 per share. On October 8, 1997, PII issued 6,667 shares of its common
stock to Manhattan Group Funding and 13,333 shares of its common stock to
Daniel A. Bock, at a purchase price of $0.015 per share. Each of the
above-mentioned issuances was exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) thereof as transactions not
involving any public offering.
(ii)
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement
2.1+ -- Form of Asset Contribution Agreement between Pentegra Dental Group, Inc. and a sole
proprietorship
2.2+ -- Form of Asset Contribution Agreement between Pentegra Dental Group, Inc. and a partnership
2.3+ -- Form of Asset Contribution Agreement between Pentegra Dental Group, Inc. and an entity
2.4+ -- Form of Agreement and Plan of Reorganization between Pentegra Dental Group, Inc. and an entity
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
<S> <C> <C>
2.5+ -- Exchange Agreement dated as of July 31, 1997 among Pentegra Investments, Inc., Pentegra Dental
Group, Inc. and the stockholders named therein
2.6+ -- Asset Contribution Agreement dated as of August 20, 1997 among Pentegra Dental Group, Inc.,
Pentegra, Ltd., Napili International and Omer K. Reed, D.D.S.
2.7+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and James
P. Allen, D.D.S.
2.8+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., Walter J. Anderson, D.D.S, Donald H. Plotkin, D.D.S, William H. Swilley, D.D.S., William
A. Cerny, D.D.S. and Graham A. Satchell, D.D.S., Inc., dba Anderson Dental Group and Walter J.
Anderson, D.D.S., Donald H. Plotkin, D.D.S., William A. Cerny, D.D.S., Brian M. Ellis, D.D.S.
and Afshan Kaviani, D.D.S.
2.9+ -- Asset Contribution Agreement dated August 15, 1997 by and among Pentegra Dental Group, Inc.,
Ronnie Andress, D.D.S., Inc., and Ronnie Andress, D.D.S.
2.10+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., Victor H. Burdick, D.D.S., P.C., and Victor H. Burdick, D.D.S.
2.11+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., Marvin V. Cavallino, D.D.S., A Professional Corporation, and Marvin Cavallino, D.D.S.
2.12+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., James H. Clarke, Jr., D.D.S., Inc. and James H. Clarke, Jr., D.D.S.
2.13+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and Henry
Cuttler, D.D.S.
2.14+ -- Agreement and Plan of Reorganization dated August 11, 1997 by and among Pentegra Dental Group,
Inc., Edward T. Dougherty, Jr., D.D.S., P.A., and Edward T. Dougherty, Jr., D.D.S.
2.15+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Family Dental Centers, P.A., Steve Anderson, D.D.S. and Lindi B. Anderson, D.D.S.
2.16+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Richard H. Fettig, D.D.S.
2.17+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc., Alan
H. Gerbholz, D.D.S., P.C. and The AMG Trust.
2.18+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., Michael J. Gershtenson, D.D.S., P.C. and Michael J. Gershtenson, D.D.S.
2.19+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., Mack E. Greder, D.D.S, P.C. and Mack Greder, D.D.S.
2.20+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Salvatore J. Guarnieri, D.D.S.
2.21+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc., Kent
M. Hamilton, D.D.S, P.C. and Kent M. Hamilton, D.D.S.
2.22+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and David
R. Henderson, D.D.S.
2.23+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Stephen Hwang, D.D.S.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
<S> <C> <C>
2.24+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Jackson Dental Partnership, Penn Jackson, Sr. and Penn Jackson, Jr.
2.25+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and Bruce
A. Kanehl, D.D.S.
2.26+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Roger Allen Kay, D.D.S, P.A. and Roger A. Kay, D.D.S.
2.27+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., Patrick T. Kelly, D.D.S, P.C. and Patrick T. Kelly, D.D.S.
2.28+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., Brian K. Kniff, D.D.S, P.C., Brian K. Kniff, D.D.S and Gordon Ledingham, D.D.S.
2.29+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., Lakeview Dental, P.C. and Kevin Gasser, D.D.S.
2.30+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and Donald
W. Lanning, D.D.S.
2.31+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and David
A. Little, D.D.S.
2.32+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Susan E. Lunson, D.D.S., P.C. and Susan E. Lunson, D.D.S.
2.33+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Richard W. Mains, Jr., D.M.D, P.C. and Richard W. Mains, Jr., D.M.D.
2.34+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and James
M. McDonough, D.D.S.
2.35+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
James W. Medlock, D.D.S., P.A. and James Medlock, D.D.S.
2.36+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., James Randy Mellard, D.D.S., M.S., P.C. and James Randy Mellard, D.D.S., M.S.
2.37+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., Mary B. Mellard, D.D.S., P.C. and Mary B. Mellard, D.D.S.
2.38+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., T.L. Mullooly, D.D.S., Inc. and T.L. Mullooly, D.D.S.
2.39+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Byron L. Novosad, D.D.S., Inc. and Byron L. Novosad, D.D.S.
2.40+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Randy O'Brien, D.D.S., Inc. and Randy O'Brien, D.D.S.
2.41+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Terrence C. O'Keefe, D.D.S.
2.42+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., Harold A. Pebbles, D.D.S., P.C. and Harold Pebbles, D.D.S.
2.43+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and Jimmy
F. Pinner, D.D.S.
2.44+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., Omer K. Reed, D.D.S., Ltd. and Omer K. Reed, D.D.S.
2.45+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., Richard Reinitz, D.D.S., P.C. and Richard Reinitz, D.D.S.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
<S> <C> <C>
2.46+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and Greg
Richards, D.D.S.
2.47+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., Richard N. Smith, DMD, P.C. and The Paradise Trust
2.48+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and John
N. Stellpflug, D.D.S.
2.49+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and Jack
Stephens, D.D.S.
2.50+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., Y. Paul Suzuki, D.D.S., P.S. and Paul Suzuki, D.D.S.
2.51+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and Donald
F. Tamborello, D.D.S.
2.52+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and Helena
Thomas, D.D.S.
2.53+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., Louis J. Thornley, D.D.S., P.S. and Louis J. Thornley, D.D.S.
2.54+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and S.
Victor Uhrenholdt, D.D.S.
2.55+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and Scott
Van Zandt, D.D.S.
2.56+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental Group,
Inc., Ronald M. Yaros, D.D.S., P.C. and Ron Yaros, D.D.S.
The schedules and exhibits to the foregoing acquisition agreements have not been filed as
exhibits to this Registration Statement. Pursuant to Item 601(b)(2) of Regulation S-K, Pentegra
Dental Group, Inc. agrees to furnish a copy of such schedules and exhibits to the Commission
upon request.
3.1+ -- Restated Certificate of Incorporation of Pentegra Dental Group, Inc.
3.2+ -- Bylaws of Pentegra Dental Group, Inc.
4.1+ -- Form of certificate evidencing ownership of Common Stock of Pentegra Dental Group, Inc.
4.2+ -- Form of Registration Rights Agreement for Owners of Founding Affiliated Practices
4.3+ -- Registration Rights Agreement dated September 30, 1997 between Pentegra Dental Group, Inc. and
the stockholders named therein
5.1+ -- Opinion of Jackson Walker L.L.P.
10.1+ -- Pentegra Dental Group, Inc. 1997 Stock Compensation Plan
10.2+ -- Employment Agreement dated July 31, 1997 between Pentegra Dental Group, Inc. and Omer K. Reed,
D.D.S.
10.3+ -- Employment Agreement dated July 1, 1997 between Pentegra Dental Group, Inc. and Gary S. Glatter
10.4+ -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and John Thayer
10.5+ -- Employment Agreement dated September 1, 1997 between Pentegra Dental Group, Inc. and Sam H. Carr
10.6+ -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and James Dunn, Jr.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
<S> <C> <C>
10.7+ -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and Kimberlee K.
Rozman
10.8+ -- Form of Service Agreement
10.9+ -- Amendment to Employment Agreement dated July 31, 1997 between Pentegra Dental Group, Inc. and
Omer K. Reed, D.D.S.
10.10 -- Second Amendment to Employment Agreement dated July 31, 1997 between Pentegra Dental Group, Inc.
and Omer K. Reed, D.D.S.
10.11 -- Amendment to Employment Agreement dated May 1, 1997 between Pentegra Dental Group, Inc. and Gary
S. Glatter
10.12 -- Amendment to Employment Agreement dated September 1, 1997 between Pentegra Dental Group, Inc. and
Sam H. Carr
10.13 -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and
James L. Dunn, Jr.
10.14 -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and
John Thayer
10.15 -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and
Kimberlee Rozman
10.16 -- Second Amendment to Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental
Group, Inc., Pentegra, Ltd., Napili International, Inc. and the shareholders of Pentegra, Ltd.
and Napili International, Inc.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2+ -- Consent of Jackson Walker L.L.P. (contained in Exhibit 5.1)
23.3+ -- Consents of Director Nominees
24.1+ -- Power of Attorney (contained on the signature page of this Registration Statement)
27.1+ -- Financial Data Schedule
</TABLE>
- ---------
+ Previously filed.
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14,
or otherwise, the registrant has been advised that in the opinion of the
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 payments by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant 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
registrant will, unless in the
II-8
<PAGE>
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.
(3) That, for the purposes of determining any liability under the
Securities Act, 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 registrant 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.
(4) That, for the purpose of determining any liability under the
Securities Act, 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-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Pentegra Dental Group, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on February 23, 1998.
<TABLE>
<S> <C> <C>
PENTEGRA DENTAL GROUP, INC.
By: /s/ GARY S. GLATTER
-----------------------------------------
Gary S. Glatter
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
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 indicated on February 23, 1998.
SIGNATURES TITLE
- ------------------------------ ----------------------------------------------
/s/ GARY S. GLATTER
- ------------------------------ President, Chief Executive Officer and
Gary S. Glatter Director (Principal Executive Officer)
/s/ SAM H. CARR Senior Vice President and Chief Financial
- ------------------------------ Officer (Principal Financial and Accounting
Sam H. Carr Officer)
/s/ OMER K. REED, D.D.S.*
- ------------------------------ Chairman of the Board
Omer K. Reed, D.D.S.
/s/ J. MICHAEL CASAS*
- ------------------------------ Director
J. Michael Casas
/s/ ALLEN M. GELWICK*
- ------------------------------ Director
Allen M. Gelwick
/s/ GEORGE M. SIEGEL*
- ------------------------------ Director
George M. Siegel
/s/ JAMES L. DUNN, JR.*
- ------------------------------ Director
James L. Dunn, Jr.
*By /s/ KIMBERLEE K.
ROZMAN
- ------------------------------
Kimberlee K. Rozman, as
ATTORNEY-IN-FACT
II-10
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ---------- -------------------------------------------------------------------------------------------- ---------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement
2.1+ -- Form of Asset Contribution Agreement between Pentegra Dental Group, Inc. and a sole
proprietorship
2.2+ -- Form of Asset Contribution Agreement between Pentegra Dental Group, Inc. and a partnership
2.3+ -- Form of Asset Contribution Agreement between Pentegra Dental Group, Inc. and an entity
2.4+ -- Form of Agreement and Plan of Reorganization between Pentegra Dental Group, Inc. and an
entity
2.5+ -- Exchange Agreement dated July 31, 1997 among Pentegra Investments, Inc., Pentegra Dental
Group, Inc. and the stockholders named therein
2.6+ -- Asset Contribution Agreement dated as of August 20, 1997 among Pentegra Dental Group, Inc.,
Pentegra, Ltd., Napili International and Omer K. Reed, D.D.S.
2.7+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
James P. Allen, D.D.S.
2.8+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Walter J. Anderson, D.D.S, Donald H. Plotkin, D.D.S, William H. Swilley,
D.D.S., William A. Cerny, D.D.S. and Graham A. Satchell, D.D.S., Inc., dba Anderson Dental
Group and Walter J. Anderson, D.D.S., Donald H. Plotkin, D.D.S., William A. Cerny, D.D.S.,
Brian M. Ellis, D.D.S. and Afshan Kaviani, D.D.S.
2.9+ -- Asset Contribution Agreement dated August 15, 1997 by and among Pentegra Dental Group, Inc.,
Ronnie Andress, D.D.S., Inc., and Ronnie Andress, D.D.S.
2.10+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Victor H. Burdick, D.D.S., P.C., and Victor H. Burdick, D.D.S.
2.11+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Marvin V. Cavallino, D.D.S., A Professional Corporation, and Marvin
Cavallino, D.D.S.
2.12+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., James H. Clarke, Jr., D.D.S., Inc. and James H. Clarke, Jr., D.D.S.
2.13+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Henry Cuttler, D.D.S.
2.14+ -- Agreement and Plan of Reorganization dated August 11, 1997 by and among Pentegra Dental
Group, Inc., Edward T. Dougherty, Jr., D.D.S., P.A., and Edward T. Dougherty, Jr., D.D.S.
2.15+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Family Dental Centers, P.A., Steve Anderson, D.D.S. and Lindi B. Anderson, D.D.S.
2.16+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Richard H. Fettig, D.D.S.
2.17+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Alan H. Gerbholz, D.D.S., P.C. and The AMG Trust.
2.18+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Michael J. Gershtenson, D.D.S., P.C. and Michael J. Gershtenson, D.D.S.
2.19+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Mack E. Greder, D.D.S, P.C. and Mack Greder, D.D.S.
</TABLE>
<PAGE>
<TABLE>
<C> <C> <S> <C>
2.20+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Salvatore J. Guarnieri, D.D.S.
2.21+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Kent M. Hamilton, D.D.S, P.C. and Kent M. Hamilton, D.D.S.
2.22+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
David R. Henderson, D.D.S.
2.23+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Stephen Hwang, D.D.S
2.24+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Jackson Dental Partnership, Penn Jackson, Sr. and Penn Jackson, Jr.
2.25+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Bruce A. Kanehl, D.D.S.
2.26+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Roger Allen Kay, D.D.S, P.A. and Roger A. Kay, D.D.S.
2.27+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Patrick T. Kelly, D.D.S, P.C. and Patrick T. Kelly, D.D.S.
2.28+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Brian K. Kniff, D.D.S, P.C., Brian K. Kniff, D.D.S and Gordon Ledingham,
D.D.S.
2.29+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Lakeview Dental, P.C. and Kevin Gasser, D.D.S.
2.30+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Donald W. Lanning, D.D.S.
2.31+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
David A. Little, D.D.S.
2.32+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Susan E. Lunson, D.D.S., P.C. and Susan E. Lunson, D.D.S.
2.33+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Richard W. Mains, Jr., D.M.D, P.C. and Richard W. Mains, Jr., D.M.D.
2.34+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
James M. McDonough, D.D.S.
2.35+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
James W. Medlock, D.D.S., P.A. and James Medlock, D.D.S.
2.36+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., James Randy Mellard, D.D.S., M.S., P.C. and James Randy Mellard, D.D.S., M.S.
2.37+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Mary B. Mellard, D.D.S., P.C. and Mary B. Mellard, D.D.S.
2.38+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., T.L. Mullooly, D.D.S., Inc. and T.L. Mullooly, D.D.S.
2.39+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Byron L. Novosad, D.D.S., Inc. and Byron L. Novosad, D.D.S.
2.40+ -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Randy O'Brien, D.D.S., Inc. and Randy O'Brien, D.D.S.
2.41+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Terrence C. O'Keefe, D.D.S.
</TABLE>
<PAGE>
<TABLE>
<C> <C> <S> <C>
2.42+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Harold A. Pebbles, D.D.S., P.C. and Harold Pebbles, D.D.S.
2.43+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Jimmy F. Pinner, D.D.S.
2.44+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Omer K. Reed, D.D.S., Ltd. and Omer K. Reed, D.D.S.
2.45+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Richard Reinitz, D.D.S., P.C. and Richard Reinitz, D.D.S.
2.46+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Greg Richards, D.D.S.
2.47+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Richard N. Smith, DMD, P.C. and The Paradise Trust
2.48+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
John N. Stellpflug, D.D.S.
2.49+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Jack Stephens, D.D.S.
2.50+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Y. Paul Suzuki, D.D.S., P.S. and Paul Suzuki, D.D.S.
2.51+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Donald F. Tamborello, D.D.S.
2.52+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Helena Thomas, D.D.S.
2.53+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Louis J. Thornley, D.D.S., P.S. and Louis J. Thornley, D.D.S.
2.54+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
S. Victor Uhrenholdt, D.D.S.
2.55+ -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Scott Van Zandt, D.D.S.
2.56+ -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Ronald M. Yaros, D.D.S., P.C. and Ron Yaros, D.D.S.
The schedules and exhibits to the foregoing acquisition agreements have not been filed as
exhibits to this Registration Statement. Pursuant to Item 601(b)(2) of Regulation S-K,
Pentegra Dental Group, Inc. agrees to furnish a copy of such schedules and exhibits to the
Commission upon request.
3.1+ -- Restated Certificate of Incorporation of Pentegra Dental Group, Inc.
3.2+ -- Bylaws of Pentegra Dental Group, Inc.
4.1+ -- Form of certificate evidencing ownership of Common Stock of Pentegra Dental Group, Inc.
4.2+ -- Form of Registration Rights Agreement for Owners of Founding Affiliated Practices
4.3+ -- Registration Rights Agreement dated September 30, 1997 between Pentegra Dental Group, Inc.
and the stockholders named therein
5.1+ -- Opinion of Jackson Walker L.L.P.
10.1+ -- Pentegra Dental Group, Inc. 1997 Stock Compensation Plan
10.2+ -- Employment Agreement dated July 31, 1997 between Pentegra Dental Group, Inc. and Omer K.
Reed, D.D.S.
</TABLE>
<PAGE>
<TABLE>
<C> <C> <S> <C>
10.3+ -- Employment Agreement dated July 1, 1997 between Pentegra Dental Group, Inc. and Gary S.
Glatter
10.4+ -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and John Thayer
10.5+ -- Employment Agreement dated September 1, 1997 between Pentegra Dental Group, Inc. and Sam H.
Carr
10.6+ -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and James Dunn,
Jr.
10.7+ -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and Kimberlee
K. Rozman
10.8+ -- Form of Service Agreement
10.9+ -- Amendment to Employment Agreement dated July 31, 1997 between Pentegra Dental Group, Inc.
and Omer K. Reed, D.D.S.
10.10 -- Second Amendment to Employment Agreement dated July 31, 1997 between Pentegra Dental Group,
Inc. and Omer K. Reed, D.D.S.
10.11 -- Amendment to Employment Agreement dated May 1, 1997 between Pentegra Dental Group, Inc. and
Gary S. Glatter.
10.12 -- Amendment to Employment Agreement dated September 1, 1997 between Pentegra Dental Group,
Inc. and Sam H. Carr.
10.13 -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc.
and James L. Dunn, Jr.
10.14 -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc.
and John Thayer.
10.15 -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc.
and Kimberlee Rozman.
10.16 -- Second Amendment to Asset Contribution Agreement dated August 20, 1997 between Pentegra
Dental Group, Inc., Pentegra, Ltd., Napili International, Inc. and the shareholders of
Pentegra, Ltd. and Napili International, Inc.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2+ -- Consent of Jackson Walker L.L.P. (contained in Exhibit 5.1)
23.3+ -- Consents of Director Nominees
24.1+ -- Power of Attorney (contained on the signature page of this Registration Statement)
27.1+ -- Financial Data Schedule
</TABLE>
- ---------
+ Previously filed.
<PAGE>
DRAFT: FEBRUARY 24, 1998
PENTEGRA DENTAL GROUP, INC.
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
----------------------
UNDERWRITING AGREEMENT
----------------------
March __, 1998
Dain Rauscher Incorporated
EVEREN Securities, Inc.
As Representatives of the several
Underwriters named in Schedule I hereto,
c/o Dain Rauscher Incorporated
Cityplace
2711 North Haskell Avenue, Suite 2400
Dallas, Texas 75204-2936
Dear Sirs:
Pentegra Dental Group, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and
sell to the Underwriters named in Schedule I hereto (the "Underwriters") an
aggregate of 2,500,000 shares (the "Firm Shares") of the Company's common
stock, par value $.001 per share ("Common Stock"), and, at the election of
the Underwriters, up to 375,000 additional shares of the Common Stock on the
terms and for the purposes set forth in Section 2 (the "Optional Shares").
The Firm Shares and the Optional Shares, if purchased, are hereinafter
collectively called the "Shares." This is to confirm the agreement concerning
the purchase of the Shares from the Company by the Underwriters, for whom you
are acting as representatives (the "Representatives").
1. The Company represents and warrants to, and agrees with, each
of the Underwriters that:
1
<PAGE>
(a) A registration statement on Form S-1 (File No. 333-37633)
with respect to the Shares has (i) been prepared by the Company in
conformity with the requirements of the United States Securities Act of
1933, as amended (the "Act"), and the rules and regulations (the "Rule
and Regulations") of the United States Securities and Exchange Commission
(the "Commission") thereunder, (ii) been filed with the Commission under
the Act and (iii) become effective under the Act. Copies of such
registration statement have been delivered by the Company to you as the
representatives (the "Representatives") of the Underwriters. As used in
this Agreement, "Effective Time" means the date and the time as of which
such registration statement, or the most recent post-effective amendment
thereto, if any, was declared effective by the Commission; "Effective
Date" means the date of the Effective Time; "Preliminary Prospectus"
means each prospectus included in such registration statement, or
amendments thereof, before it became effective under the Act and any
prospectus filed with the Commission by the Company with the prior
written consent of the Representatives pursuant to Rule 424(a) of the
Rules and Regulations; "Registration Statement" means such registration
statement, as amended at the Effective Time, including all information
contained in the final prospectus filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations in accordance with Section 5(a)
hereof and deemed to be a part of the registration statement as of the
Effective Time pursuant to paragraph (b) of Rule 430A of the Rules and
Regulations; and "Prospectus" means such final prospectus, as first filed
with the Commission pursuant to paragraph (1) or (4) of Rule 424(b) of
the Rules and Regulations. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all material respects to the
requirements of the Act and the Rules and Regulations and do not and will
not, as of the applicable effective date (as to the Registration
Statement and any amendment thereto) and as of the applicable filing date
(as to the Prospectus and any amendment or supplement thereto) contain 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; PROVIDED that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or
the Prospectus in reliance upon and in conformity with written
information furnished to the Company through the Representatives by or on
behalf of any Underwriter specifically for inclusion therein (which
written information is specifically identified in Section 8(e)).
(c) After giving effect to (i) the repurchase by Pentegra
Investments, Inc., a Delaware corporation ("PII"), of certain shares of
common stock of PII (the "PII Common Stock Repurchases") pursuant to the
terms of the Share Repurchase Agreement dated as of December 10, 1997 by
and among PII and the stockholders of PII listed on the signature pages
thereto (the "PII Common Stock Repurchase Agreement") and (ii) the share
exchange
2
<PAGE>
(the "Share Exchange") among the Company and the holders of the
outstanding shares of common stock of PII, to be completed on the First
Time of Delivery (as hereinafter defined) pursuant to the terms of the
Exchange Agreement dated as of July 31, 1997 among the Company, PII and
the holders of common stock of PII (the "Share Exchange Agreement") (a
copy of which has been filed as an exhibit to the Registration
Statement), PII will be the only subsidiary (as defined in Section 15) of
the Company as of the First Time of Delivery, and the Company has never
had any other subsidiary.
(d) The Company, PII and each of the entities that, on or prior
to the First Time of Delivery, will have entered into an Acquisition
Agreement (as hereinafter defined) and/or a management service agreement
or similar contract (each, a "Service Agreement") with the Company
(collectively, the "PA Affiliates"), other than those PA Affiliates that
are sole proprietorships, have been duly organized and are validly
existing in good standing (to the extent applicable) under the laws of
their respective jurisdictions of organization, are duly registered and
qualified to transact business and are in good standing as foreign
corporations, professional corporations, professional associations,
limited liability companies or limited partnerships, as the case may be,
in each jurisdiction in which their respective ownership or lease of
property or the conduct of their respective businesses requires such
qualification, and have all power and authority necessary to own, lease,
operate or hold their respective properties and to conduct the businesses
in which they are engaged. The PA Affiliates are listed on Schedule II
hereto, and the information contained in such Schedule is true and
correct.
(e) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the shares of capital stock of the Company
that will be issued and outstanding as of the First Time of Delivery
(before giving effect to the issuance and sale of the Shares hereunder)
have been duly and validly authorized and, when issued and delivered
pursuant to the Share Exchange Agreement and the Acquisition Agreements
(as hereinafter defined) on the First Time of Delivery, will be duly and
validly issued, fully paid and nonassessable, will not have been issued
in violation of any preemptive or similar rights and conform to the
description thereof contained in the Prospectus; and all of the issued
shares of capital stock of PII have been duly and validly authorized and
issued and are fully paid and nonassessable, have not been issued in
violation of any preemptive or similar rights and, as of the First Time
of Delivery, will be owned directly by the Company, free and clear of all
liens, encumbrances, equities or claims.
(f) The Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued, fully paid and nonassessable and will not have
been issued in violation of or be subject to any preemptive or similar
rights; and the Shares will conform to the description thereof contained
in the Prospectus.
3
<PAGE>
(g) The Company has the power and authority to enter into this
Agreement and to issue, sell and deliver the Shares to the Underwriters
as provided herein. This Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and binding
agreement of the Company enforceable against the Company in accordance
with its terms, subject to the effect of (i) any applicable bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or
affecting creditors' rights generally and (ii) general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(h) The Company has the power and authority to enter into each
of the acquisition transactions to be consummated as of the First Time of
Delivery, as described in the Registration Statement and the Prospectus
(collectively, the "Acquisitions"), each of the agreements pursuant to
which an Acquisition is being consummated (collectively, the "Acquisition
Agreements" and, together with the Service Agreements, the "Transaction
Agreements") and each of the Service Agreements to which it is (or, as of
the First Time of Delivery, will be) a party. Each PA Affiliate has the
power and authority to enter into each Transaction Agreement to which it
is (or, as of the First Time of Delivery, will be) a party. The
execution and delivery of, and the performance by the Company and the PA
Affiliates of their respective obligations under, the Transaction
Agreements to which they are parties, respectively, have been duly and
validly authorized by the Company and the PA Affiliates and each
Transaction Agreement has been (or, in the case of any such Transaction
Agreement to be entered into between the date of this Agreement and the
time of the deliveries to be made under this Agreement on the First Time
of Delivery, will, as of the First Time of Delivery, be) duly executed
and delivered by the Company and each PA Affiliate that is a party to
such agreement, and constitutes (or, in the case of any such Transaction
Agreement to be entered into between the date of this Agreement and the
time of the deliveries to be made under this Agreement as of the First
Time of Delivery, will, as of the First Time of Delivery, constitute) the
legal, valid and binding agreement of the Company and each such PA
Affiliate, enforceable in accordance with its terms, except as that
enforceability may be subject to the effect of (i) any applicable
bankruptcy, insolvency, reorganization, moratorium or other laws relating
to or affecting creditors' rights generally and (ii) general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(i) The execution, delivery and performance of this Agreement
and each of the Transaction Agreements by the Company and the
consummation of the transactions contemplated hereby and thereby will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which
the Company, PII or any of the PA Affiliates is a party or by which the
Company, PII or any of the PA Affiliates is bound or to which any of the
property or assets of the Company, PII or any of the PA Affiliates is
subject, nor will such actions result in any violation of the provisions
of the
4
<PAGE>
charter, by-laws or other organizational documents of the Company,
PII or any of the PA Affiliates or any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company, PII or any of the PA Affiliates or any of
their respective properties or assets; except for the registration of the
Shares under the Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the United
States Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and applicable state securities laws in connection with the purchase and
distribution of the Shares by the Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any such court
or governmental agency or body is required for the execution, delivery
and performance of this Agreement by the Company or the consummation of
the transactions contemplated hereby; and no consent, approval,
authorization or order of, or filing or registration with, any court or
governmental agency or body is required for the execution, delivery and
performance of any of the Transaction Agreements or the consummation of
the transactions contemplated thereby.
(j) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to (i)
require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person, (ii) require the Company to include such securities in the
securities registered pursuant to the Registration Statement or (iii)
except as described in the Prospectus, require that any securities be
registered pursuant to any other registration statement filed by the
Company under the Act.
(k) Except as described in the Registration Statement, the
Company has not sold or issued any shares of Common Stock during the
six-month period preceding the date of the Prospectus, including any
sales pursuant to Rule 144A under, or Regulations D or S of, the Act.
(l) None of the Company, PII or any of the PA Affiliates has
sustained, since the date of the latest audited financial statements
included in the Prospectus, any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in
the Prospectus; and, since such date, (i) there has not been any material
change in the capital stock or long-term or short-term debt of the
Company, PII or any of the PA Affiliates or any material adverse change,
or any development involving a prospective material adverse change, in or
affecting the general affairs, management, consolidated financial
position, stockholders' equity, results of operations or prospects of the
Company, otherwise than as set forth or contemplated in the Prospectus
and (ii) except as may otherwise be disclosed in the Prospectus, the
Company has not (A) issued or granted any securities, (B) incurred any
liability or obligation, direct, indirect or contingent, other than
liabilities and obligations that were incurred in the ordinary
5
<PAGE>
course of business, (C) entered into any transaction not in the ordinary
course of business or (D) declared or paid any dividend on its capital
stock.
(m) The financial statements (including the related notes and
any supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby, at
the dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved; the pro forma balance
sheet of the Company, together with the related notes, as set forth in
the Registration Statement and the Prospectus, present fairly the
information shown therein, have been prepared in accordance with the
applicable provisions of Article 11 of Regulation S-X promulgated by the
Commission with respect to pro forma financial statements and have been
properly compiled on the pro forma basis 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; and the
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or
supplement thereto) is, in all material respects, accurately presented
and has been prepared on a basis consistent with such financial
statements and the books and records of the Company.
(n) Coopers & Lybrand LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and who
have delivered the initial letter referred to in Section 7(i) hereof, are
independent public accountants as required by the Act and the Rules and
Regulations.
(o) None of the Company, PII or the PA Affiliates (i) is in
violation of its charter, by-laws or other organizational documents, (ii)
is in default in any material respect, and no event has occurred which,
with notice or lapse of time or both, would constitute such a default, in
the due performance or observance of any term, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which it is a party or by which it is
bound or to which any of its properties or assets is subject, except, in
the case of those PA Affiliates that are sole proprietorships, for any
such defaults as would not, individually or in the aggregate, adversely
affect the Company or (iii) is in violation in any material respect of
any law, ordinance, governmental rule, regulation or court decree to
which it or its property or assets may be subject or has failed to obtain
any material license, permit, certificate, franchise or other
governmental authorization or permit necessary to the ownership of its
property or to the conduct of its business, except, in the case of those
PA Affiliates that are sole proprietorships, for any such violations or
failures as would not, individually or in the aggregate, adversely affect
the Company.
6
<PAGE>
(p) Neither the Company, PII nor any of the PA Affiliates has
violated any foreign, federal, state or local law or regulation relating
to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
(collectively, "Environmental Laws"), or any foreign, federal or state
law relating to the practice of dentistry or governing the provision of
dental services or the collection and/or application of fees therefrom
(collectively, "Applicable Healthcare Laws"), or any foreign, federal or
state law relating to discrimination in the hiring, promotion or pay of
employees or any applicable foreign, federal or state wages and hours
laws, or any provisions of the United States Employee Retirement Income
Security Act of 1976, as amended (together with the rules and regulations
thereunder, "ERISA"), or the rules and regulations promulgated
thereunder, which, singly or in the aggregate, might have a material
adverse effect on the consolidated financial position, stockholders'
equity, results of operations, business or prospects of the Company and
PII, taken as a whole ("Material Adverse Effect").
(q) Each of the Company, PII and the PA Affiliates has such
permits, licenses, franchises and authorizations of governmental or
regulatory authorities ("permits"), including, without limitation, under
any applicable Environmental Laws and Applicable Healthcare Laws and
related governmental regulations, as are necessary to own its respective
properties and to conduct its business in the manner described in the
Prospectus, subject in each case to such qualifications as may be set
forth in the Prospectus and except where the failure to have such permits
would not, singly or in the aggregate, have a Material Adverse Effect;
each of the Company, PII and the PA Affiliates has fulfilled and
performed all of its obligations with respect to such permits and no
event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permits, subject in
each case to such qualifications as may be set forth in the Prospectus
and except where the failure so to fulfill or perform or the occurrence
of such an event would not, singly or in the aggregate, have a Material
Adverse Effect; and, except as described in the Prospectus, none of such
permits contains any restriction that is materially burdensome to the
Company, PII or the PA Affiliates. Each of the (i) dentists and (ii)
other professionals involved in providing dental care to patients (each,
a "Dental Professional") who is employed by or affiliated with a PA
Affiliate has such permits under Applicable Healthcare Laws and related
governmental regulations (including, as applicable, state and local
licenses to practice dentistry and federal Drug Enforcement Agency
Controlled Substances Registration certificates) as are necessary to
provide dental care in such jurisdictions as are contemplated by the
Service Agreement to be entered into between that PA Affiliate and the
Company as of the First Time of Delivery; each of such Dental
Professionals has fulfilled and performed all of his or her material
obligations with respect to such permits and no event has occurred which
allows, or after notice or lapse of time (or both) would allow,
revocation or termination thereof or would result in any other material
impairment of the rights of the holder of such permit; and, except as
described in the Prospectus, no such permit contains any restrictions
that are
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materially burdensome to the holder thereof or the PA Affiliate with
which that holder is affiliated or employed. The Company's and each
PA Affiliate's business practices do not violate any foreign, federal or
state laws regarding dentist ownership of (or financial relationship
with), and referral to, entities providing dental-related goods or
services, or laws respecting financial interests held by dentists in
entities to which they may refer patients for the provision of
dental-related goods or services. None of the PA Affiliates (or any of
their respective predecessors) has billed or accepted payment from any
Medicare, Medicaid or CHAMPUS program during the two years preceding the
date of this Agreement in an aggregate amount that was material to their
respective total billings or payments for either of those years.
(r) The Company, PII and each of the PA Affiliates have good
and marketable title in fee simple to all real property that has been or,
pursuant to the Acquisition Agreements, is to be acquired by the Company
on or before the First Closing Date and good and marketable title to all
personal property owned by them that has been or, pursuant to the
Acquisition Agreements, is to be acquired by the Company on or before the
First Closing Date, in each case free and clear of all liens,
encumbrances and defects, except such as are described in the Prospectus
or such as do not materially adversely affect the value of such property
and do not interfere with the use made and proposed to be made of such
property by the Company, PII and the PA Affiliates; and all real property
and buildings held under lease by the Company, PII and the PA Affiliates
are held by them under valid, subsisting and enforceable leases, with
such exceptions as are not material and do not interfere with the use
made and proposed to be made of such property and buildings by the
Company, PII and the PA Affiliates. Each PA Affiliate has obtained all
consents of third parties necessary under each lease (whether relating to
real property or personal property) to which it is a party for the
consummation of the transactions contemplated by the Transaction
Agreements to which it is (or, as of the First Time of Delivery, will be)
a party.
(s) The Company, PII and each of the PA Affiliates carry, or
otherwise are covered by, insurance in such amounts and covering such
risks (including, without limitation, malpractice 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 businesses; and none of the Company, PII or any of the PA
Affiliates has received any notice of cancellation or nonrenewal with
respect to such insurance.
(t) Each of the Company, PII and the PA Affiliates owns or
possesses adequate rights to use all material patents, patent
applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights and licenses used
in the conduct of its business and the Company has no reason to believe
that the conduct of their respective businesses will conflict with, and
has not received any notice of any claim of conflict with, any such
rights of others.
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(u) There are no legal or governmental proceedings (domestic or
foreign) pending to which the Company, PII or any of the PA Affiliates is
a party or of which any property or assets of the Company, PII or any of
the PA Affiliates is the subject which, singly or in the aggregate, if
determined adversely to the Company, PII or any of the PA Affiliates,
might have a Material Adverse Effect; and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by any
governmental authorities or threatened by others.
(v) There are no contracts or other documents that are required
to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations which
have not been described in the Prospectus or filed as exhibits to the
Registration Statement as required.
(w) No relationship, direct or indirect, exists between or
among the Company, on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company, on the other hand,
that is required to be described in the Prospectus and that is not so
described.
(x) No labor disturbance by the employees of the Company, PII
or any of the PA Affiliates exists or, to the knowledge of the Company,
is imminent which might be expected to, singly or in the aggregate, have
a Material Adverse Effect; none of the Company, PII or any of the PA
Affiliates has ever been party to a collective bargaining agreement; and
there are no significant unfair labor practice complaints pending against
the Company, PII or any of the PA Affiliates or, to the best of the
Company's knowledge, threatened against any of them. The Company is in
compliance in all material respects with all presently applicable
provisions of 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 United States 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.
(y) The Company and each of the PA Affiliates (i) have filed
all federal, state, local and foreign income and franchise tax returns
required to be filed through the date hereof and (ii) have paid all taxes
due thereon. No tax deficiency has been determined adversely to the
Company, PII or any of the PA Affiliates which has resulted in (nor does
the Company have any knowledge of any tax deficiency which, if determined
adversely to the
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<PAGE>
Company, PII or any of the PA Affiliates, might result in), singly or in
the aggregate, a Material Adverse Effect.
(z) None of the Company, PII or the PA Affiliates, nor any
director, officer, agent, employee or other person associated with or
acting on behalf of the Company, PII or the PA Affiliates, has used any
corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expense relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official
or employee from corporate funds; violated or is in violation of any
provision of the Foreign Corrupt Practices Act of 1977; or made any
bribe, rebate, payoff, influence payment, kickback or other unlawful
payment.
(aa) The Company (i) makes and keeps accurate books and records
and (ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain
accountability for its assets, (C) access to its assets is permitted only
in accordance with management's authorization and (D) the reported
accountability for its assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
difference.
(bb) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of toxic
wastes, medical wastes, hazardous wastes or hazardous substances by the
Company or PII (or, to the knowledge of the Company, any of their
predecessors in interest) at, upon or from any of the property now or
previously owned, leased or operated by the Company or PII in violation
of any applicable law, ordinance, rule, regulation, order, judgment,
decree or permit or which could require remedial action under any
applicable law, ordinance, rule, regulation, order, judgment, decree or
permit, except for any violation or remedial action which would not have,
or could not reasonably be expected to have, singularly or in the
aggregate with all such violations and remedial actions, a Material
Adverse Effect; there has been no material spill, discharge, leak,
emission, injection, escape, dumping or release of any kind onto such
property or into the environment surrounding such property of any toxic
wastes, medical wastes, solid wastes, hazardous wastes or hazardous
substances due to or caused by the Company or PII or with respect to
which the Company or PII have knowledge, except for any such spill,
discharge, leak, emission, injection, escape, dumping or release which
would not have or would not be reasonably likely to have, singularly or
in the aggregate with all such spills, discharges, leaks, emissions,
injections, escapes, dumpings and releases, a Material Adverse Effect;
and the terms "hazardous wastes," "toxic wastes," "hazardous substances"
and "medical wastes" shall have the meanings specified in any applicable
local, state, federal and foreign laws or regulations with respect to
environmental protection.
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(cc) In connection with the offering of the Shares contemplated
hereby, the Company has conducted a review of the effect of Environmental
Laws on the business, operations and properties of the Company, PII and
the PA Affiliates in the course of which it has identified and evaluated
associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any permit, license
or approval, any related constraints on operating activities and any
potential liabilities to third parties). On the basis of such review,
the Company has concluded that such associated costs and liabilities
would not, singly or in the aggregate, result in a Material Adverse
Effect or any development involving a prospective Material Adverse
Effect.
(dd) The Company has not taken and will not 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 shares of the Common Stock
to facilitate the sale or resale of the Shares.
(ee) Neither the Company nor PII is, and upon consummation of
the transactions contemplated hereby neither will be, 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.
2. Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, the Company
agrees to sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company, at a
purchase price per share of $______, the number of Firm Shares set opposite
that Underwriter's name in Schedule I hereto. The respective purchase
obligations of the Underwriters with respect to the Firm Shares shall be
adjusted by the Representatives so that no Underwriter shall be obligated to
purchase Optional Shares in other than 100-share amounts.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 375,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the
Company, given within a period of 30 calendar days after the date of this
Agreement and setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares is to be delivered, as
determined by the Representatives but in no event earlier than the First Time
of Delivery (as hereinafter defined) or, unless the Representatives and the
Company otherwise agree in writing, earlier than two or later than ten
business days after the date of such notice. Optional Shares shall be
purchased severally for the account of the Underwriters in proportion to the
number of Firm Shares set opposite the name of such Underwriters in Schedule
I hereto.
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<PAGE>
The Company shall not be obligated to deliver any of the Shares to be
delivered at the First Time of Delivery or the Second Time of Delivery (as
hereinafter defined), as the case may be, except upon payment for all the
Shares to be purchased at such Time of Delivery (as hereinafter defined) as
provided herein.
3. Upon authorization by you of the release of the Firm Shares,
the several Underwriters propose to offer the Firm Shares for sale upon the
terms and conditions set forth in the Prospectus.
It is understood that 175,000 of the Firm Shares will initially be
reserved by the several Underwriters for offer and sale upon the terms and
conditions set forth in the Prospectus and in accordance with the rules and
regulations of the National Association of Securities Dealers, Inc. to
employees and persons having business relationships with the Company who have
heretofore delivered to you offers or indications of interest to purchase
shares of Firm Shares in form satisfactory to you, and that any allocation of
such Firm Shares among such persons will be made in accordance with timely
directions received by you from the Company; PROVIDED that under no
circumstances will you or any Underwriter be liable to the Company or to any
such person for any action taken or omitted in good faith in connection with
such offering to employees and persons having business relationships with the
Company. It is further understood that any shares of such Firm Shares which
are not purchased by such persons will be offered by the Underwriters to the
public upon the terms and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter
hereunder, in definitive form, and in such authorized denominations and
registered in such names as Dain Rauscher Incorporated may request in writing
upon at least 48 hours' prior notice to the Company shall be delivered by or
on behalf of the Company to Dain Rauscher Incorporated, for the account of
such Underwriter, against payment by or on behalf of such Underwriter of the
purchase price therefor by wire transfer of immediately available funds to
the Company. The Company will cause the certificates representing the Shares
to be made available for checking and packaging at least 24 hours prior to
the Time of Delivery (as defined below) with respect thereto at the office of
Dain Rauscher Incorporated, 2711 North Haskell Avenue, Suite 2400, Dallas,
Texas 75204-2936 (the "Designated Office"). The time and date of such
delivery and payment shall be, with respect to the Firm Shares, 9:00 a.m.,
Dallas time, on March __, 1998 or such other time and date as Dain Rauscher
Incorporated and the Company may agree upon in writing, and with respect to
the Optional Shares, 9:00 a.m., Dallas time, on the date specified by Dain
Rauscher Incorporated in the written notice given by Dain Rauscher
Incorporated of the Underwriters' election to purchase such Optional Shares,
or such other time and date as Dain Rauscher Incorporated and the Company may
agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery," such time and date for delivery
of the Optional Shares, if not the First Time of Delivery, is herein called
the "Second Time of Delivery," and each such time and date for delivery is
herein called a "Time of Delivery."
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<PAGE>
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Shares and any additional documents requested by the
Underwriters, will be delivered at the offices of Jackson Walker L.L.P., 1100
Louisiana Street, Suite 4200, Houston, Texas 77002 (the "Closing Location"),
and the Shares will be delivered at the Designated Office, all at each Time
of Delivery. A meeting will be held at the Closing Location at 4:00 p.m.,
Houston time, on the Business Day next preceding each Time of Delivery, at
which meeting the final drafts of the documents to be delivered pursuant to
the preceding sentence will be available for review by the parties hereto.
For the purposes of this Agreement, "Business Day" shall mean each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which banking
institutions in the United States are generally authorized or obligated by
law or executive order to close or a day when the Commission's office in
Washington, D.C. is closed.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b) under
the Act not later than Commission's close of business on the second
business day following the execution and delivery of this Agreement or,
if applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Act; to make no further amendment or any supplement to the
Registration Statement or to the Prospectus except as permitted herein;
to advise the Representatives, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been
filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish the Representatives with
copies thereof; to advise the Representatives, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of
any order preventing or suspending the use of any Preliminary Prospectus
or the Prospectus, of the suspension of the qualification of the Shares
for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by
the Commission for the amending or supplementing of the Registration
Statement or the Prospectus or for additional information; and, in the
event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or
suspending any such qualification, to use promptly its best efforts to
obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the Underwriters a signed copy of the Registration Statement
as originally filed with the Commission, and each amendment thereto filed
with the Commission, including all consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of
the following documents as the Representatives shall reasonably request:
(i) conformed copies of the Registration Statement as originally filed
with the Commission and each amendment thereto
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<PAGE>
and, (ii) each Preliminary Prospectus, the Prospectus and any amended or
supplemented Prospectus; and, if the delivery of a prospectus is required
at any time after the Effective Time in connection with the offering or
sale of the Shares or any other securities relating thereto and if, at
such time, any events shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be
necessary to amend or supplement the Prospectus in order to comply with
the Act or the Exchange Act, to notify the Representatives and, upon
their request, to file such document and to prepare and furnish without
charge to each Underwriter and to any dealer in securities as many
copies as the Representatives may from time to time reasonably request of
an amended or supplemented Prospectus which will correct such statement
or omission or effect such compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the
Representatives, be required by the Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any Prospectus
pursuant to Rule 424 of the Rules and Regulations, to furnish a copy
thereof to the Representatives and counsel for the Underwriters and
obtain the consent of the Representatives to the filing;
(f) To make generally available to its securityholders as soon
as practicable, but in any event not later than 18 months after the
effective date of the Registration Statement (as defined in Rule 158(c))
under the Act, an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and
the rules and regulations thereunder of the Commission (including, at the
option of the Company, Rule 158);
(g) During a period of five years from the Effective Date, to
furnish to the Representatives copies of all reports or other
communications (financial or otherwise) furnished to shareholders, and
deliver to the Representatives (i) as soon as they are available, copies
of any reports and financial statements furnished to or filed with the
Commission or any national securities exchange or quotation system on
which any class of securities of the Company is listed or included; and
(ii) such additional information concerning the business and financial
condition of the Company as the Representatives may from time to time
reasonably request (such financial statements to be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its stockholders generally or to the
Commission);
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<PAGE>
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Shares for offering
and sale under the securities laws of such jurisdictions as the
Representatives may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Shares,
provided that in connection therewith the Company shall not be required
to qualify as a foreign corporation, to submit to taxation or to file a
general consent to service of process in any jurisdiction;
(i) During the period beginning from the date hereof and
continuing to and including the date 180 days after the effective date of
the Prospectus (the "180-Day Lockup Period"), not to, directly or
indirectly, (1) offer for sale, sell, pledge, issue, distribute or
otherwise dispose of (or enter into any transaction or device which is
designed to, or could be expected to, result in the disposition by any
person at any time in the future of) any shares of Common Stock or any
securities convertible into or exchangeable for shares of Common Stock,
or sell or grant options, rights or warrants with respect to any shares
of Common Stock or any securities convertible into or exchangeable for
shares of Common Stock, or (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part, any of the
economic benefits or risks of ownership of such shares of Common Stock,
whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Common Stock or other securities, in cash or
otherwise, in each case without the prior written consent of Dain
Rauscher Incorporated, except for (i) the issuance of the Shares
hereunder, (ii) the issuances of shares of Common Stock in connection
with the Share Exchange and the Acquisitions, as described in the
Prospectus, (iii) the grant of options or other awards pursuant to the
Company's 1997 Stock Compensation Plan, as in effect on the date hereof,
and (iv) the issuance of up to 1,500,000 shares of Common Stock in
connection with future acquisitions, PROVIDED that each recipient of
shares of Common Stock referred to in clause (iii) or (iv) agrees with
the Company not to offer for sale, sell or otherwise dispose of (or enter
into any transaction or device which is designed to, or could be expected
to, result in the disposition by any person at any time in the future of)
any of such shares during the 180-Day Lockup Period; and to cause each
(A) director, (B) officer, (C) each person or entity (other than PII) who
is, prior to the First Closing Date, a stockholder of the Company (if
any), and (D) each person or entity who will receive shares of Common
Stock in connection with the Share Exchange, to furnish to the
Representatives, prior to the First Time of Delivery, a letter or
letters, in form and substance satisfactory to the Representatives,
pursuant to which each such person shall agree not to, directly or
indirectly, offer for sale, sell, assign, pledge, issue, distribute,
grant any option or enter into any contract for the sale or otherwise
transfer or dispose of any shares of Common Stock or any other securities
of the Company or any security or other instrument which by its terms is
convertible into or exercisable or exchangeable for shares of Common
Stock or other securities of the Company, whether now owned or hereafter
acquired by such person or entity or with respect to which such person or
entity has or hereafter acquires the power of disposition, including,
without limitation, any shares of Common Stock issuable under any
employee stock option or
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<PAGE>
warrant, during (A) the 180-Day Lockup Period, without the prior written
consent of Dain Rauscher Incorporated, and (B) the period of one year
from the date of the Prospectus (the "One-Year Lockup Period"), without
the prior written consent of the Company, PROVIDED that the Company will
not waive the foregoing restrictions applicable during the One-Year
Lockup Period with respect to any shares of Common Stock (or other
securities) without first notifying and consulting with Dain Rauscher
Incorporated. The Company further agrees that, during the 180-Day Lockup
Period, it will not, without the prior written consent of Dain Rauscher
Incorporated, waive any provision of any agreement relating to any
restriction imposed on any of its stockholders (including each person
and entity who will receive shares of Common Stock in connection with
the Acquisitions) with respect to the transfer or other disposition of
shares of Common Stock or securities convertible into or exchangeable
for Common Stock and will take all reasonable steps to enforce any such
provision so as to limit the transfer or other disposition of those
shares of Common Stock or securities convertible into or exchangeable
for Common Stock during the 180-Day Lockup Period.
(j) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the
Prospectus under the caption "Use of Proceeds"; and
(k) Prior to filing with the Commission any reports with
respect to the offering and sale of the Shares and the application of the
proceeds therefrom as may be required under the Act, the Rules and
Regulations, the Exchange Act or the rules and regulations of the
Commission thereunder, to furnish a copy thereof to the counsel for the
Underwriters and receive and consider its comments thereon, and to
deliver promptly to the Representatives a signed copy of each such report
filed by it with the Commission.
6. The Company covenants and agrees to pay (a) the costs incident
to the authorization, issuance, sale and delivery of the Shares and any taxes
payable in that connection; (b) the costs incident to the preparation,
printing and filing under the Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the
Registration Statement as originally filed and each amendment thereto and any
post-effective amendments thereof (including, in each case, exhibits), any
Preliminary Prospectus, the Prospectus and any amendment or supplement to the
Prospectus, all as provided in this Agreement; (d) the costs of producing and
distributing this Agreement and any other related documents in connection
with the offering, purchase, sale and delivery of the Shares; (e) the filing
fees incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of sale of the Shares; (f) any
applicable listing or other fees; (g) the fees and expenses of qualifying the
Shares under the securities laws of the several jurisdictions as provided in
Section 5(h) and of preparing, printing and distributing a Blue Sky
Memorandum, if any (including related fees and expenses of counsel to the
Underwriters), (h) all costs and expenses of the Underwriters, including the
fees and disbursements of counsel for the Underwriters, incident to the offer
and sale of the Shares by the Underwriters to employees and persons having
business relationships with the Company, as described in Section 3,
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(i) all fees and expenses of an independent underwriter; and (j) all other
costs and expenses incident to the performance of the obligations of the
Company under this Agreement; PROVIDED that, except as provided in this
Section 6 and in Section 11, the Underwriters shall pay their own costs and
expenses, including the costs and expenses of their counsel, any transfer
taxes on the Shares which they may sell and the expenses of advertising any
offering of the Shares made by the Underwriters.
7. The respective obligations of the Underwriters hereunder are
subject to the accuracy, when made and as of each Time of Delivery, of the
representations and warranties of the Company contained herein, to the
performance by the Company of its obligations hereunder, and to each of the
following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 5(a); no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and any request of the
Commission for inclusion of additional information in the Registration
Statement or the Prospectus or otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Time of Delivery that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact which, in the opinion of counsel
for the Underwriters, is material or omits to state a fact which, in the
opinion of such counsel, is material and is required to be stated therein
or is necessary to make the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the Shares,
the Registration Statement and the Prospectus, and all other legal
matters relating to this Agreement and the transactions contemplated
hereby, shall be reasonably satisfactory in all material respects to
counsel for the Underwriters, and the Company shall have furnished to
such counsel all documents and information that they may reasonably
request to enable them to pass upon such matters.
(d) Jackson Walker L.L.P. shall have furnished to the
Representatives its written opinion, as counsel to the Company, addressed
to the Underwriters and dated such Time of Delivery, in form and
substance satisfactory to the Representatives, to the effect that:
(i) The Company and PII have been duly incorporated and
are validly existing as corporations in good standing under the
laws of the State of Delaware, are duly registered and qualified
to transact business and are in good standing as foreign
corporations in each jurisdiction in which their respective
ownership or lease of property or the conduct of their respective
businesses requires such qualification (except where the failure
to register or qualify would not have a Material Adverse
17
<PAGE>
Effect), and have all power and authority necessary to own, lease,
operate or hold their respective properties and conduct the
businesses in which they are engaged and, to such counsel's
knowledge, neither the Company nor PII is in violation of any
provision of its charter, by-laws or other organizational
documents;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (A) have been duly and validly authorized and
issued, (B) are fully paid and nonassessable, (C) have not been
issued in violation of any preemptive or similar rights under the
Company's charter or by-laws, the laws of the State of Delaware
or, to the knowledge of such counsel, otherwise and (D) conform to
the description thereof contained in the Prospectus; after giving
effect to the Share Exchange and the closing of the Acquisitions
and the issuance of the shares of Common Stock contemplated by the
Acquisition Agreements, but without giving effect to the issuance
of the Shares pursuant to the terms of this Agreement, the Company
has issued and outstanding ________ shares of Common Stock and no
shares of preferred stock; and all of the issued shares of capital
stock of PII (A) have been duly and validly authorized and issued,
(B) are fully paid and nonassessable, (C) have not been issued in
violation of any preemptive or similar rights under PII's charter
or by-laws, the laws of the State of Delaware or, to the knowledge
of such counsel, otherwise and (D) after giving effect to (1) the
repurchase of an aggregate of 245,835 shares of Class B preferred
stock of PII pursuant to the terms of the [Share Repurchase
Agreement] dated as of __________ ___, 1997 by and among PII and
________________ (the "PII Preferred Stock Repurchase Agreement")
and the redemption of all the remaining outstanding shares of
preferred stock of PII pursuant to the terms of the Certificate of
Designations, Rights and Preferences of Preferred Stock of PII
filed with the Secretary of State of the State of Delaware on June
2, 1997 (the "PII Certificate of Designations") and the plan of
redemption adopted by the Board of Directors of PII by unanimous
written consent dated as of [August 16, 1997] (the "PII Plan of
Redemption"), all as described in the Registration Statement and
the Prospectus (collectively, the "Repurchase and Redemption
Transactions"), (2) the PII Common Stock Repurchases and (3) the
Share Exchange, will be owned directly by the Company, free and
clear of all liens, encumbrances, equities or claims;
(iii) The Shares being issued and sold by the Company to
the Underwriters at such Time of Delivery have been duly and
validly authorized and, when issued and delivered against payment
therefor as provided in this Agreement, will be duly and validly
issued, fully paid and nonassessable and will not have been issued
in violation of or be subject to any preemptive or similar rights
under the Company's charter or by-laws, the laws of the State of
Delaware or, to the knowledge of such counsel, otherwise;
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(iv) Except as disclosed in the Prospectus, there are no
restrictions upon the voting or transfer of any of the Shares
pursuant to the Company's charter or by-laws, the laws of the
State of Delaware or, to the knowledge of such counsel, otherwise;
(v) The form of certificate representing shares of
Common Stock conforms to the applicable requirements of the
Delaware General Corporation Law;
(vi) Other than as set forth in the Prospectus, such
counsel does not know of any legal or governmental proceedings
(domestic or foreign) pending to which the Company or PII is a
party or of which any property or assets of the Company or PII is
the subject which is of a character required to be disclosed in
the Registration Statement and the Prospectus and which, if
determined adversely to the Company or PII, might, singly or in
the aggregate, have a Material Adverse Effect; and such counsel
does not know of any such proceedings that are threatened by any
governmental authorities or threatened by others;
(vii) The Registration Statement was declared effective
under the Act, the Prospectus was filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations and, to the
knowledge of such counsel after making telephone inquiries to the
staff of the Commission at such Time of Delivery, no stop order
suspending the effectiveness of the Registration Statement has
been issued and no proceeding for that purpose is pending or
threatened by the Commission;
(viii) The Registration Statement and the Prospectus and
any further amendments or supplements thereto made by the Company
prior to such Time of Delivery (other than the financial
statements and schedules (including the notes thereto and the
auditors' reports thereon) and the other financial data included
therein and the exhibits thereto, as to which such counsel need
express no opinion) appear on their face to have been
appropriately responsive in all material respects to the
requirements of the Act and the Rules and Regulations;
(ix) To the knowledge of such counsel, (i) there are no
contracts, indentures, mortgages, loan agreements, notes, leases
or other instruments required to be described or referred to in
the Registration Statement or to be filed as exhibits thereto
other than those described or referred to therein or filed as
exhibits thereto and (ii) the descriptions thereof or references
thereto are correct;
(x) The Company has full corporate power and authority
to enter into this Agreement and to issue, sell and deliver the
Shares to the Underwriters as provided herein, and this Agreement
has been duly authorized, executed and delivered by the Company;
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<PAGE>
(xi) The execution and delivery of this Agreement, the
issuance and sale of the Shares being delivered at such Time of
Delivery by the Company and the compliance by the Company with all
of the provisions of this Agreement and the consummation of the
transactions contemplated hereby will not conflict with or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which
the Company or PII is a party or by which the Company or PII is
bound or to which any of the property or assets of the Company or
PII is subject and which has been filed as an exhibit to the
Registration Statement, nor will such actions result in any
violation of the provisions of the charter or by-laws of the
Company or PII or any statute or any order, rule or regulation
known to such counsel of any court or governmental agency or body
(whether domestic or foreign) having jurisdiction over the Company
or PII or any of their properties or assets, other than (i) state
securities laws of the various states or other jurisdictions or
(ii) dental regulations (as to which such counsel shall deliver a
reasoned opinion as contemplated by Subsection 7(d)(xii) below);
and, except for the registration of the Shares under the Act and
such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and
applicable state securities laws in connection with the purchase
and distribution of the Shares by the Underwriters, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is required
for the execution, delivery and performance of this Agreement by
the Company or the consummation of the transactions contemplated
hereby;
(xii) The Company has the corporate power and authority to
enter into the Transaction Agreements to which it is a party and
to perform its obligations thereunder; the execution and delivery
of, and the performance by the Company of its obligations under,
the Transaction Agreements have been duly and validly authorized
by the Company, and each Transaction Agreement has been duly
executed and delivered by the Company and is a legal, valid and
binding agreement of the Company, enforceable in accordance with
its terms, except as that enforceability may be subject to the
effect of (A) any applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting
creditors' rights generally and (B) general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law); PROVIDED that the opinion set
forth in this subparagraph with respect to enforceability of the
Transaction Agreements will be subject to a reasoned analysis of
the prohibition against the corporate practice of dentistry in the
State of Texas established by the Tex. Health & Safety Code Ann.
arts. 4548a and 4551a(8) and the line of analogous court decisions
relating to the corporate practice of medicine including FLYNN
BROS., INC. V. FIRST MEDICAL ASSOC., 715 S.W.2d 782 (Tex.
App.--Dallas 1986, writ ref'd n.r.e.);
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<PAGE>
(xiii) Each of the Acquisitions has been consummated
pursuant to the terms of the Acquisition Agreement related
thereto;
(xiv) The PII Common Stock Repurchases have been completed
pursuant to the terms of the PII Common Stock Repurchase
Agreement, the Share Exchange has been completed pursuant to the
terms of the Share Exchange Agreement and the Repurchase and
Redemption Transactions have been completed pursuant to the terms
of the PII Preferred Stock Repurchase Agreement, the PII
Certificate of Designations and the PII Plan of Redemption;
(xv) The Shares and the shares of Common Stock issued in
connection with the Share Exchange and the Acquisitions have been
approved for listing, subject to notice of issuance, on the
American Stock Exchange;
(xvi) Neither the Company nor any subsidiary is an
"investment company" within the meaning of such term under the
Investment Company Act of 1940 and the rules and regulations of
the Commission thereunder; and
(xvii) To such counsel's knowledge, there are no contracts,
agreements or understandings between the Company and any person
granting such person the right to (i) require the Company to file
a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person,
(ii) require the Company to include such securities in the
securities registered pursuant to the Registration Statement or
(iii) except as described in the Prospectus, require that any
securities be registered pursuant to any other registration
statement filed by the Company under the Act.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the Federal laws of the United States of
America, the laws of the State of Texas and the corporate laws of the
State of Delaware. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the Underwriters and
dated such Time of Delivery, in form and substance satisfactory to the
Representatives, to the effect that (x) such counsel has acted as counsel
to the Company in connection with the preparation of the Registration
Statement, and (y) based on the foregoing, no facts have come to the
attention of such counsel which lead it to believe that the Registration
Statement (other than (i) the financial statements and schedules
(including the notes thereto and the auditors' reports thereon) included
therein or omitted therefrom and (ii) the other financial information
contained therein or omitted therefrom, and it being understood that such
counsel is not, by this statement, making any statement as to the
accuracy of any statement or representation contained in any exhibit to
the Registration Statement), as of the Effective Date, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading, or that the
21
<PAGE>
Prospectus contains any untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The foregoing opinion and
statement may be qualified by a statement to the effect that such counsel
does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or
the Prospectus.
(e) Kimberlee K. Rozman, general counsel of the Company, shall
have furnished to the Representatives her opinion, addressed to the
Underwriters and dated such Time of Delivery, in form and substance
satisfactory to the Representatives, to the effect that:
(i) The Company and PII have been duly incorporated and
are validly existing as corporations in good standing under the
laws of the State of Delaware, are duly registered and qualified
to transact business and are in good standing as foreign
corporations in each jurisdiction in which their respective
ownership or lease of property or the conduct of their respective
businesses requires such qualification (except where the failure
so to register or qualify would not have a Material Adverse
Effect), and have all power and authority necessary to own, lease,
operate or hold their respective properties and conduct the
businesses in which they are engaged and, to such counsel's
knowledge, neither the Company nor PII is in violation of any
provision of its charter, by-laws or other organizational
documents;
(ii) The Shares being issued and sold by the Company to
the Underwriters at such Time of Delivery have been duly and
validly authorized and, when issued and delivered against payment
therefor as provided in this Agreement, will be duly and validly
issued, fully paid and nonassessable and will not have been issued
in violation of or be subject to any preemptive or similar rights
under the Company's charter or by-laws, the laws of the State of
Delaware or, to the knowledge of such counsel, otherwise;
(iii) There are no restrictions upon the voting or
transfer of any of the Shares pursuant to the Company's charter or
by-laws, the laws of the State of Delaware or, to such counsel's
knowledge, otherwise;
(iv) To the best of such counsel's knowledge and other
than as set forth in the Prospectus, there are no legal or
governmental proceedings (domestic or foreign) pending to which
the Company or PII is a party or of which any property or assets
of the Company or PII is the subject which, if determined
adversely to the Company or PII, might, singly or in the
aggregate, have a Material Adverse Effect; and, to the best of
such counsel's knowledge, no such proceedings are threatened or
contemplated by any governmental authorities or threatened by
others;
22
<PAGE>
(v) The Company has full corporate power and authority
to enter into this Agreement and to issue, sell and deliver the
Shares to the Underwriters as provided herein, and this Agreement
has been duly authorized, executed and delivered by the Company;
(vi) The execution and delivery of this Agreement, the
issuance and sale of the Shares being delivered at such Time of
Delivery by the Company and the compliance by the Company with all
of the provisions of this Agreement and the consummation of the
transactions contemplated hereby will not conflict with or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which
the Company or PII is a party or by which the Company or PII is
bound or to which any of the property or assets of the Company or
PII is subject and which has been filed as an exhibit to the
Registration Statement, nor will such actions result in any
violation of the provisions of the charter or by-laws of the
Company or PII or any statute or any order, rule or regulation
known to such counsel of any court or governmental agency or body
(whether domestic or foreign) having jurisdiction over the Company
or PII or any of their properties or assets, other than (i) state
securities laws of the various states or other jurisdictions or
(ii) dental regulations (as to which such counsel shall deliver a
reasoned opinion as contemplated by subsection 7(e)(vii) below);
and, except for the registration of the Shares under the Act and
such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and
applicable state securities laws in connection with the purchase
and distribution of the Shares by the Underwriters, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is required
for the execution, delivery and performance of this Agreement by
the Company or the consummation of the transactions contemplated
hereby;
(vii) The Company has the corporate power and authority to
enter into the Transaction Agreements to which it is a party and
to perform its obligations thereunder; the execution and delivery
of, and the performance by the Company of its obligations under,
the Transaction Agreements have been duly and validly authorized
by the Company, and each Transaction Agreement has been duly
executed and delivered by the Company and is a legal, valid and
binding agreement of the Company, enforceable in accordance with
its terms, except as that enforceability may be subject to the
effect of (A) any applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting
creditors' rights generally and (B) general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law); PROVIDED that the opinion set
forth in this subparagraph with respect to enforceability of the
Transaction Agreements in each of the applicable jurisdictions may
be subject to a reasoned analysis of the
23
<PAGE>
prohibition against the corporate practice of dentistry in the
applicable jurisdiction, as set forth in an opinion of other
counsel delivered as provided in the last paragraph of this
Section 7(e);
(viii) To the best of such counsel's knowledge, (i) there
are no contracts or other documents that are required to be
described or referred to in the Prospectus or to be filed as
exhibits to the Registration Statement that have not been
described or referred to therein or filed as exhibits to the
Registration Statement, (ii) the descriptions thereof or
references thereto are correct and (iii) no default exists in the
due performance or observance of any material obligation,
agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other
instrument so described, referred to or filed, except for such
defaults that would not, singly or in the aggregate, have a
Material Adverse Effect;
(ix) The Company has full corporate power and authority,
and all necessary governmental authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all
governmental regulatory officials and bodies (except where the
failure so to have any such authorizations, approvals, orders,
licenses, certificates, franchises or permits would not, singly or
in the aggregate, have a Material Adverse Effect), to own its
properties and to conduct its business in the manner described in
the Prospectus;
(x) The Company's conduct of its business complies in
all material respects with the laws and governmental regulations
relating to the corporate practice of dentistry in each
jurisdiction in which it conducts its business (except where the
failure to comply would not, singly or in the aggregate, have a
Material Adverse Effect); PROVIDED that the opinion set forth in
this subparagraph may be subject to a reasoned analysis of the
prohibition against the corporate practice of dentistry in each
such jurisdiction, as set forth in an opinion of other counsel
delivered as provided in the last paragraph of this Section 7(e);
(xi) Each of the Acquisitions has been consummated
pursuant to the terms of the Acquisition Agreement related
thereto;
(xii) The PII Common Stock Repurchases have been completed
pursuant to the terms of the PII Common Stock Repurchase
Agreement, the Share Exchange has been completed pursuant to the
terms of the Share Exchange Agreement and the Repurchase and
Redemption Transactions have been completed pursuant to the terms
of the PII Preferred Stock Repurchase Agreement, the PII
Certificate of Designations and the PII Plan of Redemption;
24
<PAGE>
(xiii) To the best of such counsel's knowledge, there are
no contracts, agreements or understandings between the Company and
any person granting such person the right to (i) require the
Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by
such person, (ii) require the Company to include such securities
in the securities registered pursuant to the Registration
Statement or (iii) except as described in the Prospectus, require
that any securities be registered pursuant to any other
registration statement filed by the Company under the Act; and
(xiv) The statements contained in the Prospectus under the
captions "Risk Factors--Absence of Combined Operating History,"
"Risk Factors--Reliance on Affiliated Practices and Dentists,"
"Risk Factors--Government Regulation," "Risk Factors--Potential
Effect of Shares Eligible for Future Sale on Price of Common
Stock," "Risk Factors--Certain Anti-takeover Provisions,"
"Business--Summary of Terms of Acquisitions," "Business--Service
Agreements," "Business--Dentist Agreement," "Business--Dentist
Employment Agreements," "Business--Litigation and Insurance,"
"Business--Government Regulation," "Management--Executive
Compensation," "Management--Employment Agreements," "Management--
1997 Stock Compensation Plan," "Certain Transactions,"
"Description of Capital Stock," "Shares Eligible for Future Sale"
and "Underwriting," and in Items 14 and 15 of Part II of the
Registration Statement, insofar as such statements purport to
summarize the provisions of the documents or agreements referred
to therein or matters of law or legal conclusions, are true and
correct in all material respects and constitute a fair summary
thereof.
In rendering such opinion, such counsel may rely, to the extent
she considers such reliance appropriate, upon the opinion of other
counsel retained by her or the Company (which may include local counsel
referred to in Section 7(f)), PROVIDED that such other counsel is
satisfactory to counsel for the Underwriters, furnishes a copy of its
opinion to the Representatives and specifically addresses such opinion to
the Representatives. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the Underwriters and
dated such Time of Delivery, in form and substance satisfactory to the
Representatives, to the effect that (x) she has acted as general counsel
of the Company since its inception and, as such, is familiar with the
Company, its operations and the terms and conditions of the Acquisitions
and the Service Agreements and has acted as general counsel of the
Company in connection with the preparation of the Registration Statement
and (y) based on the foregoing, no facts have come to her attention which
lead her to believe that the Registration Statement (other than the
financial statements and schedules (including the notes thereto and the
auditors' reports thereon) included therein or omitted therefrom, and it
being understood that such counsel is not, by this statement, making any
statement as to the accuracy of any statement or representation contained
in any exhibit to the Registration Statement), as of the Effective Date,
contained any untrue statement of a material fact or
25
<PAGE>
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, or
that the Prospectus contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(f) The Representatives shall have received from local counsel
to the Company licensed to practice in each jurisdiction in which a PA
Affiliate is organized or doing business, which local counsel shall be
satisfactory to the Representatives, such opinions, dated such Time of
Delivery and expressly addressed to the Representatives, on behalf of the
Underwriters, each in substantially the form of the opinion letter set
forth in Exhibit A hereto, with such changes thereto as shall be
acceptable to the Representatives. The Representatives shall have
received from local counsel to each of the PA Affiliates licensed to
practice in each jurisdiction in which a PA Affiliate is organized or
doing business, which local counsel shall be satisfactory to the
Representatives, such opinions, dated such Time of Delivery and expressly
addressed to the Representatives, on behalf of the Underwriters, each in
substantially the form of the opinion letter set forth in Exhibit B
hereto, with such changes thereto as shall be acceptable to the
Representatives.
(g) The Representatives shall have received from Baker & Botts,
L.L.P., counsel for the Underwriters, such opinion or opinions, dated
such Time of Delivery, with respect to the issuance and sale of the
Shares, the Registration Statement, the Prospectus and other related
matters as the Representatives may reasonably require, and the Company
shall have furnished to such counsel such documents as they reasonably
request for the purpose of enabling them to pass upon such matters.
(h) At the time of execution of this Agreement, the
Representatives shall have received from Coopers & Lybrand LLP a letter,
in form and substance satisfactory to the Representatives, addressed to
the Underwriters and dated the date hereof, (i) confirming that they are
independent public accountants within the meaning of the Act and are in
compliance with the applicable requirements relating to the qualification
of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii)
stating, as of the date hereof (or, with respect to matters involving
changes or developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date not more
than five days prior to the date hereof), the conclusions and findings of
such firm with respect to the financial information and other matters
ordinarily covered by accountants' "comfort letters" to underwriters in
connection with registered public offerings.
(i) With respect to the letter of Coopers & Lybrand LLP
referred to in the preceding paragraph and delivered to the
Representatives concurrently with the execution of this Agreement (the
"initial letter"), the Company shall have furnished to the
Representatives a letter (the "bring-down letter") of such accountants,
addressed to the
26
<PAGE>
Underwriters and dated such Time of Delivery, (i) confirming that they
are independent public accountants within the meaning of the Act and are
in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date of the bring-down letter (or,
with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in
the Prospectus, as of a date not more than five days prior to the date of
the bring-down letter (PROVIDED that such date shall not be prior to the
Effective Date)), the conclusions and findings of such firm with respect
to the financial information and other matters covered by the initial
letter and (iii) confirming in all material respects the conclusions and
findings set forth in the initial letter.
(j) The Company shall have furnished to the Representatives a
certificate, dated such Time of Delivery, of its Chairman of the Board or
its President and Chief Executive Officer and its Chief Financial Officer
stating that:
(i) The representations, warranties and agreements of
the Company in Section 1 are true and correct as of such Time of
Delivery; the Company has complied with all of its agreements
contained herein; and the conditions set forth herein have been
fulfilled; and
(ii) They have carefully examined the Registration
Statement and the Prospectus and, in their opinion (A) as of the
Effective Date, the Registration Statement and Prospectus did not
include any untrue statement of a material fact and did not omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (B)
since the Effective Date, no event has occurred which should have
been set forth in a supplement or amendment to the Registration
Statement or the Prospectus.
(k) (i) None of the Company, PII or the PA Affiliates shall
have sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus, or (ii) since the respective dates as of which information is
given in the Prospectus there shall not have been any material change in
the capital stock or short-term or long-term debt of the Company, PII or
any of the PA Affiliates or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
consolidated financial position, stockholders' equity, results of
operations or prospects of the Company and PII, otherwise than as set
forth or contemplated in the Prospectus, the effect of which, in any such
case described in clause (i) or (ii), is, in the judgment of the
Representatives, so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the
27
<PAGE>
delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus.
(l) On or after the date hereof, there shall not have occurred
any of the following: (i) a suspension or material limitation in trading
in securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, (ii) or a suspension or
material limitation in trading in the Company's securities, (iii) a
general moratorium on commercial banking activities declared by either
Federal or state authorities, (iv) the outbreak or escalation of
hostilities involving the United States or a declaration by the United
States of a national emergency or war or (v) such a material adverse
change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the United
States shall be such) as to make it, in the judgment of the
Representatives or a majority in interest of the several Underwriters,
impracticable or inadvisable to proceed with the public offering or
delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus.
(m) The Shares to be sold by the Company at such Time of
Delivery, together with the shares of Common Stock issued or to be issued
in connection with the Share Exchange and the Acquisitions, shall have
been approved for listing, subject to notice of issuance, on the American
Stock Exchange.
(n) The PII Common Stock Repurchases shall have been completed
pursuant to the terms of the PII Common Stock Repurchase Agreement, the
Share Exchange shall have been completed pursuant to the terms of the
Share Exchange Agreement and the Repurchase and Redemption Transactions
shall have been completed pursuant to the terms of the PII Preferred
Stock Repurchase Agreement, the PII Certificate of Designations and the
PII Plan of Redemption.
(o) The Acquisitions shall have been consummated on the terms
set forth in the Registration Statement and the Acquisition Agreements,
without waiver or modification of any material terms or provisions of any
Acquisition Agreement, except as may be approved by the Representatives.
(p) The Company shall have obtained and delivered to the
Underwriters executed copies of the agreements to the effect set forth in
Section 5(i) from each of the persons referred to in such Section in form
and substance satisfactory to the Representatives.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
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<PAGE>
8. (a) The Company will 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, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or 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 statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; PROVIDED, HOWEVER, that the Company
shall 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 any
Preliminary Prospectus, 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 any Underwriter through Dain Rauscher
Incorporated expressly for use therein (which information is identified in
subsection (b) below).
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or 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 statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in any Preliminary Prospectus, 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 such
Underwriter through the Representatives expressly for use therein; and will
reimburse the Company for any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such action or
claim as such expenses are incurred. The Underwriters severally confirm that
the statements with respect to this public offering of the Shares by the
Underwriters set forth on the cover page of, the legend concerning
over-allotments on the inside front cover page of, and the concession and
reallowance figures appearing under the caption "Underwriting" in, the
Prospectus are correct, and the Underwriters and the Company agree that such
information constitutes the only information concerning any of the
Underwriters furnished in writing to the Company by or on behalf of any of
the Underwriters specifically for inclusion in the Registration Statement and
the Prospectus.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party under such subsection, notify the indemnifying party
29
<PAGE>
in writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have
to any indemnified party otherwise than under such subsection. In case any
such action 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 notified, to
assume the defense thereof, with counsel satisfactory to such indemnified
party (who shall not, except with the consent of the indemnified party, be
counsel to the indemnified party), and, after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of
the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action
or claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential
party to such action or claim) unless such settlement, compromise or judgment
(i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by
or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions 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 in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters 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 or if the indemnified party failed to give the notice required
under subsection (c) above, 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 Company on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative benefits
received by the Company 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 of the Shares (before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received by
the Underwriters with respect to the Shares, in 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 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
30
<PAGE>
statement or omission. The Company and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this subsection (d)
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 subsection (d). The amount paid or payable by an indemnified party
as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) 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 (d), no Underwriter shall
be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. 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. The Underwriters' obligations
in this subsection (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations
of the Underwriters under this Section 8 shall be in addition to any
liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each officer and director of
the Company (including any person who, with his or her consent, is named in
the Registration Statement as about to become a director of the Company) and
to each person, if any, who controls the Company within the meaning of the
Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or
other parties to purchase such Shares on the terms contained herein. If
within 36 hours after such default by any Underwriter you do not arrange for
the purchase of such Shares, then the Company shall be entitled to a further
period of 36 hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event
that, within the respective prescribed periods, you notify the Company that
you have so arranged for the purchase of such Shares, or the Company notify
you that they have so arranged for the purchase of such Shares, you or the
Company shall have the right to postpone such Time of Delivery for a period
of not more than seven days, in order to effect whatever changes may thereby
be made necessary in the Registration Statement or the Prospectus, or in any
other documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your
opinion may thereby be made necessary. The term "Underwriter" as used in
this Agreement shall include any person substituted under this Section with
like effect as if such person had originally been a party to this Agreement
with respect to the Shares purchased by it thereunder.
31
<PAGE>
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
as provided in subsection (a) above, the aggregate number of such Shares
which remains unpurchased does not exceed one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, then the
Company shall have the right to require each non-defaulting Underwriter to
purchase the number of Shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the
number of Shares which such Underwriter agreed to purchase hereunder) of the
Shares of such defaulting Underwriter or Underwriters for which such
arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
as provided in subsection (a) above, the aggregate number of such Shares
which remains unpurchased exceeds one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, or if the Company shall
not exercise the right described in subsection (b) above to require
non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or
Underwriters, then this Agreement or, with respect to the Second Time of
Delivery, the obligations of the Underwriters to purchase and of the Company
to sell the Optional Shares shall thereupon terminate, without liability on
the part of any non-defaulting Underwriter or the Company, except for the
expenses to be borne by the Company and the Underwriters as provided in
Section 6 hereof and the indemnity and contribution agreements in Section 8
hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the several Underwriters,
as set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless
of any investigation (or any statement as to the results thereof) made by or
on behalf of any Underwriter or any controlling person of any Underwriter, or
the Company, or any officer or director or controlling person of the Company,
and shall survive delivery of and payment for the Shares.
11. The obligations of the Underwriters hereunder may be terminated
by you by notice given to and received by the Company prior to delivery of
and payment for the Firm Shares if, prior to that time, any of the events
described in Sections 7(k) or 7(l), shall have occurred or if the
Underwriters shall decline to purchase the Shares for any reason permitted
under this Agreement.
12. If the Company shall fail to tender the Shares for delivery to
the Underwriters by reason of any failure, refusal or inability on the part
of the Company to perform any agreement on its part to be performed, or
because any other condition of the Underwriters' obligations hereunder
required to be fulfilled by the Company is not fulfilled, the Company will
reimburse the Underwriters for all reasonable out-of-pocket expenses
(including fees and disbursements of
32
<PAGE>
counsel) incurred by the Underwriters in connection with this Agreement
and the proposed purchase of the Shares and, upon demand, the Company shall
pay the full amount thereof to you. If this Agreement is terminated pursuant
to Section 9 by reason of the default of one or more Underwriters, the
Company shall not be obligated to reimburse any defaulting Underwriter on
account of those expenses.
13. In all dealings hereunder, you shall act on behalf of each of
the Underwriters, and the parties hereto shall be entitled to act and rely
upon any statement, request, notice or agreement on behalf of any Underwriter
made or given by you jointly or by Dain Rauscher Incorporated on behalf of
you as the Representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you in care of Dain Rauscher Incorporated at
Cityplace, 2711 North Haskell Avenue, Suite 2400, Dallas, Texas 75204-2936,
Attention: Corporate Syndicate Department; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to Pentegra Dental
Group, Inc., 2999 N. 44th Street, Suite 650, Phoenix, Arizona 85018,
facsimile number (602) 952-0544, Attention: President; PROVIDED, HOWEVER,
that any notice to an Underwriter pursuant to Section 8(d) hereof shall be
delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire or
telex constituting such Questionnaire, which address will be supplied to the
Company by you upon request. Any such statements, requests, notices or
agreements shall take effect upon receipt thereof.
14. Time shall be of the essence in the performance of this
Agreement. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters and the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective
heirs, executors, administrators, successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement. No
purchaser of any of the Shares from any Underwriter shall be deemed a
successor or assign by reason merely of such purchase.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS.
16. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one
and the same instrument.
17. The headings herein are inserted for convenience of reference
only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
33
<PAGE>
If the foregoing is in accordance with your understanding, please sign
and return to us one for the Company and for each of you plus one for each
counsel counterparts hereof, and upon the acceptance hereof by you, on behalf
of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters and the
Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination, upon request, but without warranty on your part as
to the authority of the signers thereof.
Very truly yours,
PENTEGRA DENTAL GROUP, INC.
By:
-----------------------------------------
Gary S. Glatter
President and Chief Executive Officer
Accepted as of the date hereof:
DAIN RAUSCHER INCORPORATED
EVEREN SECURITIES, INC.
By DAIN RAUSCHER INCORPORATED
By: ---------------------------------------
On behalf of each of the Underwriters
34
<PAGE>
SCHEDULE I
Number of
Underwriters Shares
------------ ---------
Dain Rauscher Incorporated......................
EVEREN Securities, Inc. ........................
---------
Total.................................... 2,500,000
---------
---------
I-1
<PAGE>
SCHEDULE II
PA AFFILIATES
James P. Allen, D.D.S.
Walter J. Anderson, D.D.S., Donald H. Plotkin, D.D.S., William H. Swilley,
D.D.S., William A. Cerny, D.D.S. and Graham A. Satchell, D.D.S., Inc., dba
Anderson Dental Group
Ronnie Andress, D.D.S., Inc.
Victor H. Burdick, D.D.S., P.C.
Marvin V. Cavallino, D.D.S., A Professional Corporation
James H. Clarke, Jr., D.D.S., Inc.
Henry Cuttler, D.D.S.
Edward T. Dougherty, Jr., D.D.S., P.A.
Family Dental Centers, P.A.
Richard H. Fettig, D.D.S.
Alan H. Gerbholz, D.D.S., P.C.
Michael J. Gershtenson, D.D.S., P.C.
Mack E. Greder, D.D.S., P.C.
Salvatore J. Guarnieri, D.D.S.
Kent M. Hamilton, D.D.S., P.C.
David R. Henderson, D.D.S.
Stephen Hwang, D.D.S.
Jackson Dental Partnership
II-1
<PAGE>
Bruce A. Kanehl, D.D.S.
Roger Allen Kay, D.D.S., P.A.
Patrick T. Kelly, D.D.S., P.C.
Brian K. Kniff, D.D.S., P.C.
Lakeview Dental, P.C.
Donald W. Lanning, D.D.S.
David A. Little, D.D.S.
Susan E. Lunson, D.D.S., P.C.
Richard W. Mains, Jr., D.M.D., P.C.
James M. McDonough, D.D.S.
James W. Medlock, D.D.S., P.A.
James Randy Mellard, D.D.S., M.S., P.C.
Mary B. Mellard, D.D.S., P.C.
T.L. Mullooly, D.D.S., Inc.
Byron L. Novosad, D.D.S., Inc.
Randy O'Brien, D.D.S., Inc.
Terrence C. O'Keefe, D.D.S.
Harold A. Pebbles, D.D.S., P.C.
Jimmy F. Pinner, D.D.S.
Omer K. Reed, D.D.S., Ltd.
Richard Reinitz, D.D.S., P.C.
II-2
<PAGE>
Greg Richards, D.D.S.
Richard N. Smith, DMD, P.C.
John N. Stellpflug, D.D.S.
Jack Stephens, D.D.S.
Y. Paul Suzuki, D.D.S., P.S.
Donald F. Tamborello, D.D.S.
Helena Thomas, D.D.S.
Louis J. Thornley, D.D.S., P.S.
S. Victor Uhrenholdt, D.D.S.
Scott Van Zandt, D.D.S.
Ronald M. Yaros, D.D.S., P.C.
James P. Allen, D.D.S., P.C.
Walter J. Anderson, D.D.S., P.C.
Family Dental Center, P.A.
Ronnie L. Andress, D.D.S., Inc.
Victor H. Burdick, Jr., D.D.S., P.C.
Marvin V. Cavallino, D.D.S., Ltd.
________________________
Henry F. Cuttler, D.D.S., P.C.
Dougherty Dental Corporation, P.A.
Fettig Dental Corporation, P.A.
II-3
<PAGE>
Gasser Dental Corporation, P.A.
Gasser Dental Corporation, P.A.
Alan H. Gerbohlz, D.D.S., P.C.
Front Range Dental Group, P.C.
M.G., D.D.S., P.C.
Salvatore J. Guarnieri, D.D.S., P.C.
Kent Hamilton, D.D.S., P.C.
________________________
________________________
Jackson Dental Partnership
Kanehl Dental Group, P.A.
Roger Allen Kay, D.D.S., P.C.
Kelly Dental Care of Marquette, P.C.
Kniff Dental Corporation, P.A.
Donald W. Lanning, D.D.S., P.C.
David A. Little, D.D.S., P.C.
Susan E. Lunson, D.D.S., P.C.
Richard W. Mains, Jr., D.M.D., P.C.
James M. McDonough, D.D.S., P.C.
James W. Medlock, D.D.S., P.A.
Northwest Periodontics, Inc.
II-4
<PAGE>
Northwest Dental Management, Inc.
Mullooly Dental Corporation
Byron L. Novosad, D.D.S.
Randy S. O'Brien, D.D.S., Inc.
Terrence C. O'Keefe, D.D.S., P.C.
Harold A. Pebbles, Jr., D.D.S., P.S.
Jimmy F. Pinner, D.D.S., P.C.
Concord Dental, Ltd.
Reinitz Dental Services, Inc.
______________________
Smith Dental Corporation, P.C.
John N. Stellpflug, D.D.S., S.C.
Jack Stephens, D.D.S., P.C.
Y. Paul Suzuki, D.D.S., P.S.
Donald F. Tamborello, D.D.S., P.C.
Helena Thomas, D.D.S., P.C.
Thornley Dental Clinic, P.C.
S. Victor Uhrenholdt, D.D.S., P.C.
Scott Van Zandt, D.D.S., P.C.
Aspenwood Dental Associates, P.C.
II-5
<PAGE>
EXHIBIT A
FORM OF OPINION OF LOCAL COUNSEL FOR THE COMPANY
A-1
<PAGE>
Pentegra Dental Group, Inc. [DATE OF CLOSING]
2999 N. 44th Street, Suite 650
Phoenix, Arizona 85018
Dain Rauscher Incorporated
2711 N. Haskell Avenue
Dallas, TX 75204
EVEREN Securities, Inc.
77 West Wacker Drive
31st Floor
Chicago, Illinois 80601
Re: [Contribution Agreement] [Agreement and Plan of Reorganization]
dated ________________; Service Agreement dated _________________;
Dentist Agreement dated __________________; Employment Agreement
dated _________________.
Ladies and Gentlemen:
We have acted as special counsel in the State of [______________] to
Pentegra Dental Group, Inc., a Delaware corporation ("Pentegra"), in connection
with that certain [Contribution Agreement] [Agreement and Plan or
Reorganization] dated ___________________, (the "Acquisition Agreement") by and
among Pentegra and __________________ ("Practice"), that certain Service
Agreement dated ___________________ (the "Service Agreement"), by and among
Pentegra and the Practice, that certain Dentist Agreement dated
__________________ (the "Dentist Agreement"), by and among ________________
("Dentist") and Pentegra and that certain Employment Agreement dated
_______________ (the "Employment Agreement"), by and among Practice and Dentist
(collectively, the "Agreements"). This opinion is delivered to you pursuant to
Section 7 of the Underwriting Agreement by and between Pentegra and Dain
Rauscher Incorporated and EVEREN Securities, Inc., individually and as
representatives of the several underwriters named in Schedule I thereto (the
"Underwriters").
<PAGE>
Pentegra Dental Group, Inc. -2- March ___, 1998
Dain Rauscher Incorporated
EVEREN Securities, Inc.
We understand that (i) pursuant to the terms of the Acquisition
Agreement, Pentegra will acquire substantially all of the Practice's
equipment, personnel and goodwill associated therewith in exchange for cash,
Pentegra common stock ("Pentegra Shares"), or a combination thereof; (ii)
with respect to an Agreement and Plan of Reorganization, the separate
corporate existence of the Practice shall cease; (iii) with respect to an
Agreement and Plan of Reorganization, prior to the statutory merger of the
Practice into Pentegra, the dentists and patient records, if any, of the
Practice will be transferred to a newly organized professional entity (the
"New PC") which will become bound by the Service Agreement; and (iv) Pentegra
and the Practice, in the case of a Contribution Agreement, or New PC in the
case of an Agreement and Plan of Reorganization, will enter into the Service
Agreement, pursuant to which Pentegra will provide facilities, equipment and
business and administrative management services necessary for the operation
of the New PC or the Practice, as applicable.
In rendering such opinions we have assumed that the signatures on all
documents examined are genuine, that all documents submitted to us as
originals are accurate and complete, and that all documents submitted to us
as copies are true, correct and complete copies of the originals thereof.
Without limiting the foregoing, we have examined originals or copies
otherwise identified to our satisfaction as being true and correct copies of
the following documents of Pentegra, the Practice and the Dentist:
(a) The Acquisition Agreement [and related Exhibits and
Schedules];
(b) The Service Agreement [and related Exhibits and Schedules];
(c) The Dentist Agreement; and
(d) The Employment Agreement.
Based solely upon the foregoing, subject to the comments and
exceptions stated herein, and limited in all respects to the laws of the
State of [______________], we are of the opinion that, except as further
discussed below:
1. The Service Agreement, the Acquisition Agreement, the Dentist
Agreement and the Employment Agreement constitute the valid and binding
obligations of each party thereto enforceable in accordance with their
respective terms, except as may be limited by future determinations, rulings or
opinions pursuant to any healthcare related law, rule, statute, ordinance or
regulation of the state of [________________]. Specifically, the transactions
and arrangements contemplated under the Acquisition Agreement, the Service
Agreement, the Dentist Agreement and
<PAGE>
Pentegra Dental Group, Inc. -3- March ___, 1998
Dain Rauscher Incorporated
EVEREN Securities, Inc.
the Employment Agreement do not violate any [State] statute, regulation,
judicial or regulatory interpretation (collectively, "State Law")
prohibiting, regulating or restricting:
(a) the corporate practice of dentistry;
(b) sharing or dividing fees by or among dentists or other
health care providers, often referred to as fee splitting laws;
(c) referrals by dentists to entities providing health care
services or goods with which the dentist has an ownership interest or
compensation arrangement, often referred to as self-referral laws; or
(d) payments to or from dentists or other health care providers
as inducements for referrals of patients or purchases of health care
goods or services, often referred to as illegal remuneration or anti-
kickback laws.
A. CORPORATE PRACTICE OF DENTISTRY
[INSERT NECESSARY DISCUSSION]
B. FEE SPLITTING
[INSERT NECESSARY DISCUSSION]
C. SELF REFERRALS
[INSERT NECESSARY DISCUSSION]
D. ANTI-KICKBACK
[INSERT NECESSARY DISCUSSION]
We further are of the opinion that:
2. No consent, license, approval or authorization of, or
registration or declaration with, any state or local governmental body,
authority, bureau, agency, or court is required in connection with the
execution and delivery of the Agreements or other agreements contemplated
thereby, or the consummation of the transactions contemplated thereby, on the
part of Pentegra.
<PAGE>
Pentegra Dental Group, Inc. -4- March ___, 1998
Dain Rauscher Incorporated
EVEREN Securities, Inc.
3. To our knowledge, there is no pending legislation or proposed
regulations, guidelines or instructions, or pending or threatened action,
suit or proceeding before any court or governmental agency, authority or
arbitrator to require licensure, certificate of need or other health planning
approval, accreditation or any other regulatory approval for the operation of
a dental practice management company which would have a material adverse
effect on Pentegra or the Practice.
This opinion is furnished by us and is solely for your benefit and the
benefit of all the Underwriters and their counsel, and you and they are
justified in relying thereon, and such reliance is reasonable under the
circumstances. No other use or distribution of this opinion may be made
without our prior written consent, except in response to a valid subpoena or
other lawful process.
Sincerely,
[FIRM]
By:
---------------------------
[Attorney]
<PAGE>
EXHIBIT B
FORM OF OPINION OF LOCAL COUNSEL FOR THE PA AFFILIATES
<PAGE>
OPINION OF COUNSEL TO THE COMPANY AND THE STOCKHOLDERS
(FOR CONTRIBUTION AGREEMENT)
March __, 1998
To: Pentegra Dental Group, Inc.
2999 N. 44th Street, Suite 650
Phoenix, Arizona 85018
Dain Rauscher Incorporated
2711 N. Haskell Avenue, Suite 2400
Dallas, Texas 75204
EVEREN Securities, Inc.
77 West Wacker Drive
31st Floor
Chicago, Illinois 80601
(a) The Company
(i) is a [professional] [association] [corporation] duly
organized, validly existing and in good standing under the laws of the
state of its organization,
(ii) is duly qualified and has all necessary licenses, permits,
approvals, consents, qualifications, authorizations and accreditations of
any governmental agency or authority and under all applicable laws or
regulations to own and operate its assets and properties as now owned or
operated and to carry on its business as now conducted (the "Approvals"),
and the continuation, validity and effectiveness of all the Approvals
will not be adversely affected by the transactions and arrangements
contemplated by the Agreement, the Service Agreement and the transactions
contemplated thereby, and
(iii) is duly qualified as a foreign [professional] [association]
[corporation] to do business and is in good standing in every
jurisdiction in which the failure to so qualify would have a material
adverse effect upon its business.
(b) Each Stockholder has all necessary licenses, permits, approvals,
consents, qualifications, authorizations and accreditations of any agency or
authority and under all applicable laws or regulations to practice dentistry in
the state of ______________ and to provide dental services as now provided (the
"Stockholder Approvals"), and the continuation, validity and
<PAGE>
Pentegra Dental Group, Inc. -2- March __, 1998
Dain Rauscher Incorporated
EVEREN Securities, Inc.
effectiveness of all the Stockholder Approvals will not be adversely affected
by the transactions contemplated by the Agreement, the Service Agreement and
the other transactions contemplated thereby.
(c) To the best of such counsel's knowledge, there is no pending
legislation, or proposed regulations, guidelines or instructions, or pending
or threatened action, investigation, suit or proceeding before any court or
governmental agency, authority or arbitrator to require licensure,
certificate of need or other health planning approval, accreditation or any
other regulatory approval for the operation of a dental practice or the
provision of dental services which would result in a material adverse effect
with respect to the Company.
(d) To the best of such counsel's knowledge, (i) no condition
exists, and no event has occurred, which, with the giving of notice, the
passage of time or both, would result in the suspension, revocation,
impairment, forfeiture or nonrenewal of any of the Approvals or the
Stockholder Approvals, and (ii) there is no claim pending challenging the
validity of any of the Approvals or the Stockholder Approvals.
(e) The Stockholders own all of the issued and outstanding shares
of capital stock of the Company, and to the best of such counsel's knowledge,
such stock is owned free and clear of any lien or adverse claim. None of
those shares were issued in violation of any preemptive or other similar
rights. All of those shares have been duly authorized and validly issued and
are fully paid and nonassessable. To the best knowledge of such counsel,
there are no existing options, warrants, subscriptions or other rights to
purchase, or securities convertible into or exchangeable for, the capital
stock of the Company. To the best knowledge of such counsel, except for the
Agreement, neither the Company nor any Stockholder is a party to or bound by
any agreement, instrument, contract, obligation, commitment or understanding
of any character, whether written or oral, express or implied, relating to
the sale, assignment, conveyance, encumbrance, transfer or delivery of any
capital stock of the Company or substantially all of the assets of the
Company.
(f) The Company has all requisite corporate power and authority to
execute, deliver and perform the Agreement, the Service Agreement, the
Security Agreement, the Employment Agreements and the other agreements to
which it is a party contemplated thereby (the "Agreements"). The execution,
delivery and performance by the Company of the Agreements and the other
agreements to which the Company is a party contemplated thereby have been
duly authorized by all necessary corporate action on the part of the Company,
and the Agreements and the other agreements to which it is a party
contemplated thereby have been duly executed and delivered by the Company and
constitute valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, except as may be
limited by
<PAGE>
Pentegra Dental Group, Inc. -3- March __, 1998
Dain Rauscher Incorporated
EVEREN Securities, Inc.
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
(g) The Agreements and the other agreements to which any
Stockholder is a party contemplated thereby have been duly executed and
delivered by the Stockholders and constitute valid and binding obligations of
the applicable Stockholder, enforceable against such Stockholder in
accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
(h) To the best knowledge of such counsel, except as disclosed in
the Schedules, there is no action, investigation, suit or proceeding at law
or in equity or by or before any governmental instrumentality or other agency
now pending or threatened against the Company or any Stockholder, or
affecting the assets or the business of the Company or questioning the
validity of any of the Agreements.
(i) To the best knowledge of such counsel, except as disclosed in
the Schedules, (i) the Company is not in violation of any provision of its
[Certificate] [Articles] of [Incorporation] [Association] or Bylaws, and (ii)
neither the Company nor any Stockholder, is in default with respect to any
judgment, writ, injunction or decree of any court or governmental
instrumentality or agency or in the performance, observance or fulfillment of
any obligation, covenant or agreement to which it or he is bound or to which
any of the assets of the Company is subject.
(j) Neither the execution, delivery and performance of the
Agreements and the other agreements to which the Company is a party
contemplated thereby nor the consummation of the transactions contemplated
thereby will conflict with, or result in a breach of the terms, conditions
and provisions of, or constitute a default under, the [Certificate] [Articles]
of [Incorporation][Association] or Bylaws of the Company or, to the best
knowledge of such counsel, any agreement, indenture or other instrument to
which the Company or any Stockholder is bound or to which any assets of the
Company are subject, or result in the creation or imposition of any security
interest, lien, charge or encumbrance upon any of the assets of the Company.
(k) No consent of any person, corporation, association, company,
partnership or other entity, and no consent, license, approval or
authorization of, or registration or declaration with, any governmental body,
authority, bureau or agency or federal, state or local court is required in
connection with the execution and delivery of the Agreements and the other
agreements contemplated thereby, or the consummation of the transactions
contemplated thereby, on the part
<PAGE>
Pentegra Dental Group, Inc. -4- March __, 1998
Dain Rauscher Incorporated
EVEREN Securities, Inc.
of the Company or the Stockholders, or to the extent that any such consent or
other action may be required, it has been validly procured or taken.
For purposes of this opinion, "knowledge" of counsel shall mean (with
respect to matters of fact) that after an examination of documents made
available to counsel by the Company and the Stockholders and after inquiry of
the Stockholders and officers of the Company, but without any judgment or
litigation searches or any other independent factual investigation, counsel
has no reason to believe that statements made to such counsel's "knowledge"
are factually incorrect. "Knowledge" shall furthermore refer only to then
current actual knowledge of members of counsel's firm who have worked on
matters for the Company.
<PAGE>
OPINION OF COUNSEL TO THE COMPANY, THE PRACTICE AND THE STOCKHOLDERS
(For use for Reorganizations and Sole Proprietor Contributions)
March __, 1998
To: Pentegra Dental Group, Inc.
2999 N. 44th Street, Suite 650
Phoenix, Arizona 85018
Dain Rauscher Incorporated
2711 N. Haskell Avenue, Suite 2400
Dallas, Texas 75204
EVEREN Securities, Inc.
77 West Wacker Drive
31st Floor
Chicago, Illinois 80601
(a) Each of the Company and the Practice
(i) is a [professional] [association] [corporation] duly
organized, validly existing and in good standing under the laws of the
state of its organization,
(ii) is duly qualified and has all necessary licenses, permits,
approvals, consents, qualifications, authorizations and accreditations of
any governmental agency or authority and under all applicable laws or
regulations to own and operate its assets and properties as now owned or
operated and to carry on its business as now conducted, or with respect
to the Practice, as proposed to be conducted (the "Approvals"), and the
continuation, validity and effectiveness of all the Approvals will not be
adversely affected by the transactions and arrangements contemplated by
the Agreement, the Service Agreement and the transactions contemplated
thereby, and
(iii) is duly qualified as a foreign [professional] [association]
[corporation] to do business and is in good standing in every
jurisdiction in which the failure to so qualify would have a material
adverse effect upon its business.
(b) Each Stockholder has all necessary licenses, permits,
approvals, consents, qualifications, authorizations and accreditations of any
agency or authority and under all applicable laws or regulations to practice
dentistry in the state of _______________ and to provide dental services as
now provided (the "Stockholder Approvals"), and the continuation, validity
and effectiveness of all the Stockholder Approvals will not be adversely
affected by the transactions
<PAGE>
Pentegra Dental Group, Inc. -2- March __, 1998
Dain Rauscher Incorporated
EVEREN Securities, Inc.
contemplated by the Agreement, the Service Agreement and the other
transactions contemplated thereby.
(c) To the best of such counsel's knowledge, there is no pending
legislation, or proposed regulations, guidelines or instructions, or pending
or threatened action, investigation, suit or proceeding before any court or
governmental agency, authority or arbitrator to require licensure,
certificate of need or other health planning approval, accreditation or any
other regulatory approval for the operation of a dental practice or the
provision of dental services which would result in a material adverse effect
with respect to the Company or the Practice.
(d) To the best of such counsel's knowledge, (i) no condition
exists, and no event has occurred, which, with the giving of notice, the
passage of time or both, would result in the suspension, relocation,
impairment, forfeiture or nonrenewal of any of the Approvals or the
Stockholder Approvals, and (ii) there is no claim pending challenging the
validity of any of the Approvals or the Stockholder Approvals.
(e) Immediately prior to the Closing, the authorized capital stock
of the Company consists of (i) ________________ shares of common stock, par
value $____ per share, of which _____________ shares are issued and
outstanding, and no such shares of capital stock are held in the treasury of
the Company. The authorized capital stock of the Practice consists of (i)
____________ shares of common stock, par value $_____ per share, of which
____________ shares are issued and outstanding, and no such shares of capital
stock are held in the treasury of the Practice. All of the outstanding
shares of capital stock of the Company and the Practice are duly authorized,
validly issued pursuant to applicable laws, fully paid and nonassessable, and
none of those shares were issued in violation of any preemptive or other
similar rights.
(f) The Stockholders own all of the issued and outstanding shares
of capital stock of the Company and the Practice, and to the best of such
counsel's knowledge, such stock is owned free and clear of any lien or
adverse claim. The Stockholders have full power and authority to sell,
transfer and deliver all of the issued and outstanding shares of Company
Common Stock in accordance with the terms of the Agreement. To the best
knowledge of such counsel, there are no existing options, warrants,
subscriptions or other rights to purchase, or securities convertible into or
exchangeable for, the capital stock of the Company or the Practice. To the
best knowledge of such counsel, except for the Agreement, neither the
Company, the Practice nor any Stockholder is a party to or bound by any
agreement, instrument, contract, obligation, commitment or understanding of
any character, whether written or oral, express or implied, relating to the
sale, assignment, conveyance, encumbrance, transfer or delivery of any
capital stock of the Company or the Practice or substantially all of the
assets of the Company or the Practice.
<PAGE>
Pentegra Dental Group, Inc. -3- March __, 1998
Dain Rauscher Incorporated
EVEREN Securities, Inc.
(g) The Company has all requisite corporate power and authority to
execute, deliver and perform the Agreement and the other agreements to which
it is a party contemplated thereby. The execution, delivery and performance
by the Company of the Agreement and the other agreements to which the Company
is a party contemplated thereby have been duly authorized by all necessary
corporate action on the part of the Company, and the Agreement and the other
agreements to which it is a party contemplated thereby have been duly
executed and delivered by the Company and constitute valid and binding
obligations of the Company, enforceable against the Company in accordance
with their respective terms, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally
or the availability of equitable remedies.
(h) The Practice has the requisite corporate power and authority to
execute, deliver and perform the Service Agreement, the Security Agreement
and the Employment Agreements (collectively, the "Practice Agreements") and
the other agreements to which it is a party contemplated thereby. The
execution, delivery and performance of the Practice Agreements and the other
agreements to which the Practice is a party contemplated thereby by the
Practice have been duly authorized by all necessary corporate action on the
part of the Practice, and the Practice Agreements and the other agreements to
which it is a party contemplated thereby have been duly executed and
delivered by the Practice and constitute valid and binding obligations of the
Practice, enforceable against the Practice in accordance with their
respective terms, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies.
(i) The Agreement, the Stockholder's Release, the Dentist
Agreement, the Employment Agreement and the other agreements to which any
Stockholder is a party contemplated thereby have been duly executed and
delivered by the Stockholders and constitute valid and binding obligations of
the applicable Stockholder, enforceable against such Stockholder in
accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
(j) To the best knowledge of such counsel, except as disclosed in
the Schedules, there is no action, investigation, suit or proceeding at law
or in equity or by or before any governmental instrumentality or other agency
now pending or threatened against the Company, the Practice or any
Stockholder, or affecting the assets or the business of the Company or the
Practice or questioning the validity of any of the Agreements.
(k) To the best knowledge of such counsel, except as disclosed in
the Schedules, (i) the Company nor the Practice is in violation of any
provision of its [Certificate] [Articles] of [Incorporation] [Association] or
Bylaws, and (ii) neither the Company, the Practice nor any
<PAGE>
Pentegra Dental Group, Inc. -4- March __, 1998
Dain Rauscher Incorporated
EVEREN Securities, Inc.
Stockholder is in default with respect to any judgment, writ, injunction or
decree of any court or governmental instrumentality or agency or in the
performance, observance or fulfillment of any obligation, covenant or
agreement to which it or he is bound or to which any of the assets of the
Company or the Practice is subject.
(l) Neither the execution, delivery and performance of the
Agreement and the other agreements to which the Company is a party
contemplated thereby nor the consummation of the transactions contemplated
thereby will conflict with, or result in a breach of the terms, conditions
and provisions of, or constitute a default under, the [Certificate] [Articles]
of [Incorporation][Association] or Bylaws of the Company or, to the best
knowledge of such counsel, any agreement, indenture or other instrument to
which the Company or any Stockholder is bound or to which any assets of the
Company are subject, or result in the creation or imposition of any security
interest, lien, charge or encumbrance upon any of the assets of the Company.
(m) Neither the execution, delivery and performance of the Practice
Agreements and the other agreements to which the Practice is a party
contemplated thereby nor the consummation of the transactions contemplated
thereby will conflict with, or result in a breach of the terms, conditions
and provisions of, or constitute a default under, the [Certificate] [Articles]
of [Incorporation] [Association] or Bylaws of the Practice or, to the best
knowledge of such counsel, any agreement, indenture or other instrument to
which the Practice or any Stockholder is bound or to which any assets of the
Practice are subject, or result in the creation or imposition of any security
interest, lien, charge or encumbrance upon any of the assets of the Practice
(except as contemplated in the Security Agreement).
(n) No consent of any person, corporation, association, company,
partnership or other entity, and no consent, license, approval or
authorization of, or registration or declaration with, any governmental body,
authority, bureau or agency or federal, state or local court is required in
connection with the execution and delivery of the Agreement, the Practice
Agreements and the other agreements contemplated thereby, or the consummation
of the transactions contemplated thereby, on the part of the Company, the
Practice or the Stockholders, or to the extent that any such consent or other
action may be required, it has been validly procured or taken.
[(o) The Certificate of Merger complies with the applicable law of the
[State] [Commonwealth] of ______________ and, following the filing thereof by
the Surviving Corporation with the [Secretary of State] of the [State]
[Commonwealth] of and the payment of all applicable filing fees with respect
thereto, the Merger will be effective on the [Closing Date] [date the
Certificate is filed with the Secretary of State].]
<PAGE>
Pentegra Dental Group, Inc. -5- March __, 1998
Dain Rauscher Incorporated
EVEREN Securities, Inc.
For purposes of this opinion, "knowledge" of counsel shall mean (with
respect to matters of fact) that after an examination of documents made
available to counsel by the Company, the Practice and the Stockholders and
after inquiry of the Stockholders and officers of the Company and the
Practice, but without any judgment or litigation searches or any other
independent factual investigation, counsel has no reason to believe that
statements made to such counsel's "knowledge" are factually incorrect.
"Knowledge" shall furthermore refer only to then current actual knowledge of
members of counsel's firm who have worked on matters for the Company.
<PAGE>
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
Second Amendment to Employment Agreement (the "Amendment"), dated effective
July 31, 1997, by and between Pentegra Dental Group, Inc., a Delaware
corporation (the "Company"), and Omer K. Reed, D.D.S. ("Employee").
W I T N E S S E T H
WHEREAS, the parties hereto entered into that certain Employment Agreement
(as amended, the "Employment Agreement") dated July 31, 1997 among the Company
and Employee, and that certain Amendment to Employment Agreement dated effective
July 31, 1997 among the Company and Employee.
WHEREAS, the parties hereto desire to further amend the Employment
Agreement as set forth herein.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and other good and valuable consideration, the
undersigned do hereby agree as follows:
1. Section 4(a) of the Employment Agreement is hereby amended in its
entirety to read as follows:
(a) BASE SALARY. Commencing on the Commencement Date, Employee shall
be entitled to receive a base salary of $87,500.00 per annum or as
increased from time to time by the Board of Directors of the Company or the
Compensation Committee of the Board of Directors ("Compensation Committee")
thereof.
2. The Employment Agreement shall be hereby amended to reflect the
foregoing agreement of the parties hereto. Except as amended hereby, the
Employment Agreement shall remain unchanged.
3. Terms used herein with their initial letter capitalized and not
otherwise defined shall have the meaning assigned to such terms in the
Employment Agreement.
<PAGE>
Executed to be effective as of the day and year first set forth above.
PENTEGRA DENTAL GROUP, INC.
By: /s/ Gary S. Glatter
--------------------------------
Gary S. Glatter, President
EMPLOYEE
/s/ Omer K. Reed
------------------------------------
Omer K. Reed, DDS
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment to Employment Agreement (the "Amendment"), dated effective
July 1, 1997, by and between Pentegra Dental Group, Inc., a Delaware
corporation (the "Company"), and Gary S. Glatter ("Employee").
W I T N E S S E T H
WHEREAS, the parties hereto entered into that certain Employment
Agreement (as amended, the "Employment Agreement") dated July 1, 1997 among the
Company and Employee.
WHEREAS, the parties hereto desire to amend the Employment Agreement as
set forth herein.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and other good and valuable consideration, the
undersigned do hereby agree as follows:
1. Exhibit A to the Employment Agreement is hereby amended in its
entirety to read as set forth on Exhibit A attached hereto and made a part
hereof.
2. The Employment Agreement shall be hereby amended to reflect the
foregoing agreement of the parties hereto. Except as amended hereby, the
Employment Agreement shall remain unchanged.
3. Terms used herein with their initial letter capitalized and not
otherwise defined shall have the meaning assigned to such terms in the
Employment Agreement.
Executed to be effective as of the day and year first set forth above.
PENTEGRA DENTAL GROUP, INC.
By: /s/ Kim Rozman
---------------------------------
Kim Rozman, Senior Vice President
EMPLOYEE
/s/ Gary S. Glatter
------------------------------------
Gary S. Glatter
<PAGE>
EXHIBIT A
BONUS
Employee shall be eligible to receive an annual cash bonus in an amount
equal to up to 50% of his base salary in the event that the Company
experiences at least 20% or greater growth in earnings per share on a year to
year basis (calculated on a pro forma basis for the calendar year prior to
the Company's first fiscal year of operations). For purposes of determining
the applicable year's earnings per share, the cash bonus payable hereunder
and under all other similar agreements between the Company and its officers
shall be included prior to such determination.
Percentage Increase in Bonus as a Percentage
Earnings Per Share Of Annual Base Salary
20.0-22.5% 10%
Over 22.5-25.0% 20%
Over 25.0% to 27.5% 30%
Over 27.5% to 30.0% 40%
Over 30.0% 50%
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment to Employment Agreement (the "Amendment"), dated effective
September 1, 1997, by and between Pentegra Dental Group, Inc., a Delaware
corporation (the "Company"), and Sam H. Carr ("Employee").
W I T N E S S E T H
WHEREAS, the parties hereto entered into that certain Employment
Agreement (as amended, the "Employment Agreement") dated September 1, 1997 among
the Company and Employee.
WHEREAS, the parties hereto desire to amend the Employment Agreement as
set forth herein.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and other good and valuable consideration, the
undersigned do hereby agree as follows:
1. Exhibit A to the Employment Agreement is hereby amended in its
entirety to read as set forth on Exhibit A attached hereto and made a part
hereof.
2. The Employment Agreement shall be hereby amended to reflect the
foregoing agreement of the parties hereto. Except as amended hereby, the
Employment Agreement shall remain unchanged.
3. Terms used herein with their initial letter capitalized and not
otherwise defined shall have the meaning assigned to such terms in the
Employment Agreement.
Executed to be effective as of the day and year first set forth above.
PENTEGRA DENTAL GROUP, INC.
By: /s/ Gary S. Glatter
-----------------------------------
Gary S. Glatter, President
EMPLOYEE
/s/ Sam H. Carr
-----------------------------------
Sam H. Carr
<PAGE>
EXHIBIT A
BONUS
Employee shall be eligible to receive an annual cash bonus in an amount
equal to up to 25% of his base salary in the event that the Company experiences
at least 20% or greater growth in earnings per share on a year to year basis
(calculated on a pro forma basis for the calendar year prior to the Company's
first fiscal year of operations). For purposes of determining the applicable
year's earnings per share, the cash bonus payable hereunder and under all other
similar agreements between the Company and its officers shall be included prior
to such determination.
Percentage Increase in Bonus as a Percentage
Earnings Per Share Of Annual Base Salary
20.0-22.5% 5%
Over 22.5-25.0% 10%
Over 25.0% to 27.5% 15%
Over 27.5% to 30.0% 20%
Over 30.0% 25%
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment to Employment Agreement (the "Amendment"), dated effective
July 12, 1997, by and between Pentegra Dental Group, Inc., a Delaware
corporation (the "Company"), and James L. Dunn, Jr. ("Employee").
W I T N E S S E T H
WHEREAS, the parties hereto entered into that certain Employment
Agreement (as amended, the "Employment Agreement") dated July 12, 1997 among
the Company and Employee.
WHEREAS, the parties hereto desire to amend the Employment Agreement as
set forth herein.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and other good and valuable consideration, the
undersigned do hereby agree as follows:
1. Exhibit A to the Employment Agreement is hereby amended in its
entirety to read as set forth on Exhibit A attached hereto and made a part
hereof.
2. The Employment Agreement shall be hereby amended to reflect the
foregoing agreement of the parties hereto. Except as amended hereby, the
Employment Agreement shall remain unchanged.
3. Terms used herein with their initial letter capitalized and not
otherwise defined shall have the meaning assigned to such terms in the
Employment Agreement.
Executed to be effective as of the day and year first set forth above.
PENTEGRA DENTAL GROUP, INC.
By: /s/ Gary S. Glatter
----------------------------------
Gary S. Glatter, President
EMPLOYEE
/s/ James L. Dunn. Jr.
---------------------------------------
James L. Dunn, Jr.
<PAGE>
EXHIBIT A
BONUS
Employee shall be eligible to receive an annual cash bonus in an
amount equal to up to 25% of his base salary in the event that the Company
experiences at least 20% or greater growth in earnings per share on a year to
year basis (calculated on a pro forma basis for the calendar year prior to
the Company's first fiscal year of operations). For purposes of determining
the applicable year's earnings per share, the cash bonus payable hereunder
and under all other similar agreements between the Company and its officers
shall be included prior to such determination.
Percentage Increase in Bonus as a Percentage
Earnings Per Share Of Annual Base Salary
20.0-22.5% 5%
Over 22.5-25.0% 10%
Over 25.0% to 27.5% 15%
Over 27.5% to 30.0% 20%
Over 30.0% 25%
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment to Employment Agreement (the "Amendment"), dated effective
July 12, 1997, by and between Pentegra Dental Group, Inc., a Delaware
corporation (the "Company"), and John Thayer ("Employee").
W I T N E S S E T H
WHEREAS, the parties hereto entered into that certain Employment
Agreement (as amended, the "Employment Agreement") dated July 12, 1997 among the
Company and Employee.
WHEREAS, the parties hereto desire to amend the Employment Agreement as
set forth herein.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and other good and valuable consideration, the
undersigned do hereby agree as follows:
1. Exhibit A to the Employment Agreement is hereby amended in its
entirety to read as set forth on Exhibit A attached hereto and made a part
hereof.
2. The Employment Agreement shall be hereby amended to reflect the
foregoing agreement of the parties hereto. Except as amended hereby, the
Employment Agreement shall remain unchanged.
3. Terms used herein with their initial letter capitalized and not
otherwise defined shall have the meaning assigned to such terms in the
Employment Agreement.
Executed to be effective as of the day and year first set forth above.
PENTEGRA DENTAL GROUP, INC.
By: /s/ Gary S. Glatter
-------------------------------
Gary S. Glatter, President
EMPLOYEE
/s/ John Thayer
-----------------------------------
John Thayer
<PAGE>
EXHIBIT A
BONUS
Employee shall be eligible to receive an annual cash bonus in an amount
equal to up to 25% of his base salary in the event that the Company experiences
at least 20% or greater growth in earnings per share on a year to year basis
(calculated on a pro forma basis for the calendar year prior to the Company's
first fiscal year of operations). For purposes of determining the applicable
year's earnings per share, the cash bonus payable hereunder and under all other
similar agreements between the Company and its officers shall be included prior
to such determination.
Percentage Increase in Bonus as a Percentage
Earnings Per Share Of Annual Base Salary
20.0-22.5% 5%
Over 22.5-25.0% 10%
Over 25.0% to 27.5% 15%
Over 27.5% to 30.0% 20%
Over 30.0% 25%
In addition, on the first anniversary of the closing of the IPO,
Employee shall receive a bonus in the amount of $25,000.00.
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment to Employment Agreement (the "Amendment"), dated effective
July 12, 1997, by and between Pentegra Dental Group, Inc., a Delaware
corporation (the "Company"), and Kimberlee K. Rozman ("Employee").
W I T N E S S E T H
WHEREAS, the parties hereto entered into that certain Employment
Agreement (as amended, the "Employment Agreement") dated July 12, 1997 among the
Company and Employee.
WHEREAS, the parties hereto desire to amend the Employment Agreement as
set forth herein.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and other good and valuable consideration, the
undersigned do hereby agree as follows:
1. Exhibit A to the Employment Agreement is hereby amended in its
entirety to read as set forth on Exhibit A attached hereto and made a part
hereof.
2. The Employment Agreement shall be hereby amended to reflect the
foregoing agreement of the parties hereto. Except as amended hereby, the
Employment Agreement shall remain unchanged.
3. Terms used herein with their initial letter capitalized and not
otherwise defined shall have the meaning assigned to such terms in the
Employment Agreement.
Executed to be effective as of the day and year first set forth above.
PENTEGRA DENTAL GROUP, INC.
By: /s/ Gary S. Glatter
--------------------------------------
Gary S. Glatter, President
EMPLOYEE
/s/ Kimberlee K. Rozman
-----------------------------------
Kimberlee K. Rozman
<PAGE>
EXHIBIT A
BONUS
Employee shall be eligible to receive an annual cash bonus in an amount
equal to up to 25% of his base salary in the event that the Company experiences
at least 20% or greater growth in earnings per share on a year to year basis
(calculated on a pro forma basis for the calendar year prior to the Company's
first fiscal year of operations). For purposes of determining the applicable
year's earnings per share, the cash bonus payable hereunder and under all other
similar agreements between the Company and its officers shall be included prior
to such determination.
Percentage Increase in Bonus as a Percentage
Earnings Per Share Of Annual Base Salary
20.0-22.5% 5%
Over 22.5-25.0% 10%
Over 25.0% to 27.5% 15%
Over 27.5% to 30.0% 20%
Over 30.0% 25%
<PAGE>
SECOND AMENDMENT
TO
ASSET CONTRIBUTION AGREEMENT
This Second Amendment to Asset Contribution Agreement (this
"Amendment"), dated to be effective August 20, 1997, is by and among Pentegra
Dental Group, Inc., a Delaware corporation, Pentegra, Ltd., Napili
International, Inc., Kelly Reed, MOR Limited Partnership and Reed Trust.
W I T N E S S E T H
WHEREAS, the parties hereto entered into that certain Asset
Contribution Agreement dated August 20, 1997 (as heretofore amended, the
"Agreement") as amended by that certain First Amendment to Asset Contribution
Agreement dated October 1, 1997; and
WHEREAS, the parties hereto desire to amend the Agreement as set forth
herein.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and other good and valuable consideration, the
undersigned do hereby agree as follows:
1. Annex A of the Agreement shall hereby be amended in its entirety
to read as follows:
ANNEX A
Acquisition Consideration
The aggregate consideration to be received by the Contributor
pursuant to the Agreement (the "Acquisition Consideration") is the
following:
Cash in the amount of $100,000.00.
Promissory Note in the original principal amount of $100,000.00
in the form attached hereto as Exhibit A-1.
2. The Agreement shall be hereby amended to reflect the foregoing
agreement of the parties hereto. Except as amended hereby, the Agreement shall
remain unchanged.
3. Terms used herein with their initial letter capitalized and not
otherwise defined shall have the meaning assigned to such terms in the
Agreement.
<PAGE>
Executed to be effective as of the day and year first set forth above.
PENTEGRA DENTAL GROUP, INC.
By: /s/ Gary S. Glatter
------------------------------------
Gary S. Glatter, President
/s/ Kelly W. Reed
---------------------------------------
Kelly W. Reed
MOR LIMITED PARTNERSHIP
By: /s/ Omer K. Reed
------------------------------------
Omer K. Reed, D.D.S.
By: /s/ Marcia J. Reed
------------------------------------
Marcia J. Reed
REED TRUST
By: /s/ Karl O. Reed
------------------------------------
Karl O. Reed, Trustee
By: /s/ Kelly W. Reed
------------------------------------
Kelly W. Reed, Trustee
-2-
<PAGE>
By: /s/ Kevin Reed
------------------------------------
Kevin P. Reed, Trustee
By: /s/ Kary Reed
------------------------------------
Kary Reed, Trustee
PENTEGRA, Ltd.
By: /s/ Kelly W. Reed
------------------------------------
Kelly W. Reed, President
NAPILI International, Inc.
By: /s/ Marcia J. Reed
------------------------------------
Marcia J. Reed, President
-3-
<PAGE>
EXHIBIT A-1
PROMISSORY NOTE
Date: March __, 1998
Maker: Pentegra Dental Group, Inc., a Delaware Corporation
Payee: Pentegra, Ltd.
Napili International, Inc.
Principal Amount: $100,000.00
For value received, the undersigned, Pentegra Dental Group, Inc., a
Delaware corporation (hereinafter referred to as the "Maker") does hereby
promise to pay to the order of Pentegra, Ltd. and Napili International, Inc.,
jointly (hereinafter referred to as the "Payee or Holder"), the sum of One
Hundred Thousand and 00/100 Dollars ($100,000.00) (the "Principal"). In
addition to said Principal amount, the undersigned also shall pay to the
order of Payee interest equal to nine percent per annum (9.00%). The
Principal and accrued interest shall be due and payable on April 1, 1999.
This Note shall be immediately due and payable at the option of the
Payee or Holder, after notice and failure to cure, upon the happening of any
one of the following events (an "Event of Default"): (a) Maker defaults in
the timely payment of interest or principal due hereunder; or, (b) Maker
makes a general assignment for creditors, is adjudicated bankrupt, files a
voluntary petition in bankruptcy or reorganization or effects or attempts to
effect a plan or other arrangement with creditors; or if Maker applies for a
receiver, custodian or trustee for it or for any substantial portion or its
property or assets; or if an order shall be entered by any court of competent
jurisdiction approving an involuntary petition seeking reorganization; or if
a receiver, trustee or custodian shall be appointed for it for any substantial
portion of its property or assets; or if bankruptcy, reorganization or
liquidation proceedings are instituted against the Maker and remain for sixty
(60) days.
The Events of Default set forth in the subparagraphs above shall not be
Events of Default until the Maker has been sent a notice from the Payee or
Holder of the Maker's default and Maker has not cured that Default within
twenty (20) days of such notice.
Payment of this Note before maturity may be made at any time, and from
time to time, in whole or in part without penalty or premium. The principal
and accrued interest shall be paid by the Maker in lawful money of the United
States of America.
The Maker and each Holder, surety, endorser, and guarantor, waives
presentment for payment, all demands for payment, notice of intent to
accelerate maturity, notice of acceleration of maturity, protests, and
notices of protest. Maker consentsthat the Payee or Holder may extend the
time of any payment or any part of the debt at any time. Any delay on the
part of the Payee or Holder in exercising any rights granted by this Note
shall not operate as a waiver of those rights; and the acceptance of any
payment after it's due date shall not be deemed a waiver of the right to
require prompt payment when due of all other sums; and the
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acceptance of any payment after the Payee has declared the entire indebtedness
due and payable shall not cure any default of the Maker nor operate as a waiver
of any rights of Payee or Holder.
The Maker agrees that, if this Note is given to an attorney for
collection, or if suit is brought for collection, or if it is collected
through probate, bankruptcy, or other judicial proceeding, then Maker shall
pay Payee or Holder all costs of collection, including reasonable attorney's
fees and court costs, in addition to other amounts due.
Any and all past due and unpaid principal and interest shall bear interest
at the rate of eighteen percent (18.0%) per annum. However, all agreements
between Maker, Payee or Holder are hereby expressly limited, so that in no event
shall the amount paid, or agreed to be paid, to Payee or Holder, exceed the
maximum amount permissible under the applicable federal and state usury laws. It
is therefore the intention of Maker and Payee or Holder to conform strictly to
said state and federal usury laws. Therefore, in this note or in any of the
documents securing payment hereof, the aggregate of all interest and any other
charges constituting interest under the applicable law contracted for,
chargeable, or receivable, under this note shall under no circumstances
exceed the maximum amount of interest permitted by law. If any excess of
interest is provided for, or be adjudicated to be so provided for, in this
note or in any of the documents securing payment hereof, then in such event,
the provisions of this paragraph shall govern and control; and neither Maker
or Maker's heirs, legal representatives, successors, assigns, or any other
party liable for the payment hereof shall be obligated to pay the amount of
such interest to the extent that it is in excess of the maximum permitted by
law; and any excess of said interest shall be deemed a mistake and is hereby
canceled automatically and if therefore paid, shall at the option of Payee or
Holder of this note be refunded to Maker or credited to the principal amount
of said note; and the effective rate of interest shall be automatically
subject to reduction to the maximum lawful contract rate allowed under said
laws, or as is or as they may hereafter be construed by courts of appropriate
jurisdiction. To the extent permitted by law, the determination of the rate
of interest shall be made by amortizing, prorating, allocating, and spreading
in equal parts during the period of the full stated term of this note, all
interest at any time contracted for, charged, or received from Maker in
connection therewith.
THE MAKER AND HOLDER AGREE THAT THIS WRITTEN NOTE REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THE MAKER AND
HOLDER AGREE THAT THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
When the context requires, singular nouns and pronouns include the plural.
Executed this ___ day of March, 1998.
Pentegra Dental Group, Inc.
a Delaware Corporation
By:
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Gary S. Glatter,
President
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333-37633) relating to the registration of 2,500,000 shares of $0.001 par
value common stock of our report dated February 20, 1998, on our audit of the
financial statements of Pentegra Dental Group, Inc. as of December 31, 1997 and
for the period from inception, February 21, 1997, through December 31, 1997. We
also consent to the reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
Houston, Texas
February 24, 1998
