PENTEGRA DENTAL GROUP INC, 424B5, 1998-10-21

PENTEGRA DENTAL GROUP INC
424B5, 1998-10-21
OFFICES & CLINICS OF DOCTORS OF MEDICINE

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PENTEGRA DENTAL GROUP, INC.
COMMON STOCK

CONVERTIBLE DEBT SECURITIES

Pentegra Dental Group, Inc. ("Pentegra" or the "Company") may offer and
issue 2,235,217 shares of its common stock, $.001 par value per share (the
"Common Stock"), and $50,000,000 aggregate principal amount of convertible
subordinated debt securities (the "Convertible Debt Securities") covered by this
Prospectus in business combination transactions involving its acquisition,
directly or indirectly, of businesses or other operating assets. Pentegra
expects that (i) the terms of these business combination transactions will be
determined by direct negotiations with the owners or controlling persons of the
businesses or assets to be acquired, (ii) the shares of Common Stock issued will
be valued at prices reasonably related to market prices prevailing either at the
time an acquisition agreement is executed or at or about the time of delivery of
the shares and (iii) the Convertible Debt Securities issued will be valued at
prices reasonably related to their principal amount. It does not expect to pay
any underwriting discounts or commissions, but may pay finder's fees from time
to time with respect to specific business combination transactions. Any person
receiving any such fees may be deemed to be an underwriter within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"). Pentegra will pay
all expenses of this offering.

The Convertible Debt Securities will be convertible in whole or in part into
shares of Common Stock of Pentegra at any time on or after their respective
Convertibility Commencement Date (as defined herein) and at or before the
Convertibility Termination Date (as defined herein), unless previously redeemed,
at their Conversion Price (as defined herein) as the applicable prospectus
supplement or supplements (each, a "Prospectus Supplement") and pricing
supplement or supplements (each, a "Pricing Supplement") hereto will specify,
subject to adjustment in certain events.

The Convertible Debt Securities will be (i) unsecured obligations of
Pentegra, (ii) subordinate to all present and future Senior Indebtedness (as
defined in the Indenture described herein or any applicable supplement to that
Indenture or Prospectus Supplement relating to one or more series of Convertible
Debt Securities) of Pentegra and (iii) effectively subordinated to all
indebtedness and other liabilities of subsidiaries of Pentegra.

Persons receiving the Convertible Debt Securities offered hereby may be
contractually required to hold some portions of those Convertible Debt
Securities for periods of up to two years. In addition, pursuant to the
provisions of Rule 145 under the Securities Act, the volume limitations and
certain other requirements of Rule 144 under the Securities Act will apply to
resales of those Convertible Debt Securities by affiliates of the businesses the
Company acquires for a period of one year (or such shorter period as the
Securities and Exchange Commission (the "Commission") may prescribe).

As of September 1, 1998, 7,581,681 shares of Common Stock were issued and
outstanding, of which 2,875,000 are registered and available for unrestricted
trading in public markets unless owned by affiliates of Pentegra. The Common
Stock is listed on The American Stock Exchange, under the symbol "PEN."
Application will be made to list the shares offered hereby on The American Stock
Exchange. On October 20, 1998, the last reported sales price of the Common Stock
on The American Stock Exchange was $2.00 per share.

All expenses of this offering (this "Offering") will be paid by Pentegra. No
underwriting discounts or commissions will be paid in connection with the
issuance of shares by Pentegra in business combination transactions, although
finder's fees may be paid with respect to specific acquisitions. Any person
receiving a finder's fee may be deemed to be an Underwriter within the meaning
of the Securities Act.

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

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.

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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.

THE DATE OF THIS PROSPECTUS IS OCTOBER 21, 1998.
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PROSPECTUS SUMMARY

UNLESS OTHERWISE INDICATED BY THE CONTEXT, REFERENCES HEREIN TO (I)
"PENTEGRA" OR THE "COMPANY" INCLUDE PENTEGRA DENTAL GROUP, INC. AND ITS WHOLLY
OWNED SUBSIDIARY, PENTEGRA INVESTMENTS, INC. ("PII") AND (II) "AFFILIATED
PRACTICES" MEAN THE DENTAL PRACTICES WITH WHICH THE COMPANY HAS AFFILIATED AND
THOSE DENTAL PRACTICES, IF ANY, WITH WHICH IT MAY ENTER INTO SIMILAR
RELATIONSHIPS IN THE FUTURE. 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 Service Agreements with 64 professional
corporations or associations owned by the dentist-owners of the Affiliated
Practices, which include 95 dentists and 75 dental offices located in 20 states.
The Company acquired substantially all of the tangible and intangible assets,
and assumed certain liabilities, of the Affiliated Practices. The Affiliated
Practices are primarily general dentistry practices, but also include
specialists such as periodontists, pedodontists and oral surgeons. In addition,
the Company acquired from Dr. Reed and certain of his affiliates (the
"Pentegra/Napili Transaction") the assets of a consulting firm, Pentegra, Ltd.,
which was founded in 1988, and a seminar company, Napili, International, Inc.
("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. The
Pentegra Dental Program is 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.

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- 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 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 Service Agreements with Affiliated Practices have initial terms of 40
years, subject to earlier termination under certain circumstances. Pursuant to
the Service Agreements, the Company is the exclusive manager and administrator
of non-dental services relating to the operation of the Affiliated Practices
and, among other things, (i) administers the billing and collections for the
Affiliated Practices, (ii) provides the necessary clerical, accounting and other
non-dental services to the Founding Affiliated Practices and (iii) provides
facilities and equipment for the Affiliated Practices. The service fees payable
by the 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."

RECENT DEVELOPMENTS

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the total number of existing Affiliated Practices to 64. During that period, the
Company also funded two dental practice acquisitions by dentists party to a
Service Agreement with the Company, which practices were "tucked-in" to an
existing Affiliated Practice. These additional practices expand the Company's
geographical base into Illinois and Oklahoma. In addition to these affiliations,
the Company is negotiating and will continue to negotiate to affiliate with
additional dental practices; however, although the Company intends to
aggressively pursue these and other affiliations, there can be no assurance that
any of such affiliations will be consummated.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company......... 2,235,217 shares
Common Stock to be outstanding after this
Offering(1)............................... 9,816,898 shares
American Stock Exchange symbol.............. PEN
</TABLE>

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(1) Includes 3,859,251 shares of Common Stock issued in connection with the
Company's affiliation with its Affiliated Practices (the "Affiliations"),
847,430 shares of Common Stock issued pursuant to an Exchange Agreement
whereby each outstanding share of Common Stock, par value $0.01 per share,
of PII was exchanged for a share of Common Stock (the "Share Exchange") and
2,875,000 shares of Common Stock issued in the IPO, and excludes (i) an
aggregate of 724,666 shares of Common Stock issuable upon exercise of stock
options granted under the Company's 1997 Stock Compensation Plan (the "1997
Stock Compensation Plan") at an exercise price equal to $8.50 per share and
(ii) 1,275,334 shares reserved for future issuance under the 1997 Stock
Compensation Plan. See "Management-- 1997 Stock Compensation Plan."

RISK FACTORS

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

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SUMMARY FINANCIAL DATA
(IN THOUSANDS)

Due to the fact that the Company has had no significant operations prior to
March 30, 1998, no comparative results have been included in this Prospectus.
The Company changed its fiscal year end from December 31, to March 31, effective
for the year beginning April 1, 1998. The summary historical financial
information presented below has been derived from the financial statements of
Pentegra Dental Group, Inc. included in this Prospectus. 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 THREE MONTHS THREE MONTHS
DECEMBER 31, ENDED ENDED
1997 MARCH 31, 1998 JUNE 30, 1998
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<S> <C> <C> <C>
Statement of Operations Data:
Revenue......................................... $ -- $ -- $ 7,412
Expenses
Clinical salaries, wages and benefits......... -- -- 2,836
Dental supplies and lab fees.................. -- -- 1,220
Rent.......................................... -- -- 550
Advertising and marketing..................... -- -- 111
General and administrative.................... 709 550 876
Depreciation and amortization................. -- -- 171
Other expenses................................ 645 1,250 751
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Total operating expenses.................... 1,354 1,800 6,515
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Earnings (loss) from operations............... (1,354) (1,800) 897
Interest income (expense)................... -- (160) 40
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Income (loss) before income taxes............. (1,354) (1,960) 937
Income taxes................................ -- -- 263
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Net income (loss)............................. (1,354) (1,960) 674
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Preferred stock dividend...................... -- (1,070) --
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Earnings (loss) attributable to common stock.. $ (1,354) $ (3,030) $ 674
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Earnings per share: $ 0.10
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Weighted average number of shares outstanding: 6,886
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</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1998
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<S> <C>
Balance Sheet Data:
Cash and cash equivalents............................................................. $ 3,094
Working capital....................................................................... 3,792
Total assets.......................................................................... 18,812
Stockholders' equity.................................................................. 15,270
Other Financial Data:
Ratio of earnings to fixed charges(1)................................................. 5.03x
</TABLE>

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(1) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes, and fixed charges. Fixed
charges include interest expense and a percentage of rents which management
deems representative of an interest factor. The ratio of earnings to fixed
charges is not presented as of any date other than June 30, 1998, because
the Company had no significant operations prior to March 30, 1998.

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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 conducted no operations prior to
March 30, 1998 other than in connection with the IPO and the Affiliations. The
Company acquired substantially all the assets and assumed certain liabilities of
the Founding Affiliated Practices concurrently with the closing of the IPO. In
connection with the Affiliations, the Company entered 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, substantially
all of the dentist-owners of the Founding Affiliated Practices entered 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

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judicial 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," "--Potential
Dilution of Existing Stockholders; Noncash Amortization Charges," "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 will 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 IPO PAID TO AFFILIATES

The Company paid, out of the net proceeds from the IPO, 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 was 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 is a member of the Board of Directors of the Company
(the "Board of Directors"). In addition, the Company paid $100,000 of the net
proceeds from the IPO as 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 also used approximately (i) $1.7 million of
the proceeds from the IPO in connection with the repurchase and redemption of
all of the issued and outstanding shares of preferred stock of PII (the
"Repurchase and Redemption"), 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 a member of the Board of Directors or an officer of the
Company), and (ii) approximately $836,000 of the proceeds from the IPO 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 IPO and
operating expenses), including principal amounts of approximately $20,000 to
James H. Clarke, Jr., D.D.S., $20,000 to Mack E. Greder, D.D.S., $10,000 to
Roger Allen Kay, D.D.S., $5,000 to James W. Medlock, D.D.S., $15,000 to Ronald
M. Yaros, D.D.S. and approximately $35,000 to George M. Siegel. See "Certain
Transactions--Organization of the Company."

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

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(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, Illinois, Maine, Maryland, Michigan, New York,
Oklahoma, 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, Illinois, Louisiana, Maine, Maryland,
Michigan, New York, Oklahoma, 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 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

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<PAGE>
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 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

10
<PAGE>
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

Dr. Reed, the Company's Chairman of the Board, and the other executive
officers and directors of the Company as a group beneficially own approximately
1.5% and 11.2%, 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.

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 is a limited group of 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 is 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

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<PAGE>
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 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 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. The shares of Common Stock and the Convertible Debt Securities
registered hereby are freely tradable unless acquired by affiliates of the
Company.

Concurrently with the closing of the IPO, the owners of the Founding
Affiliated Practices received, in the aggregate, 3,094,468 shares of Common
Stock as a portion of the consideration for the assets of their practices.
Certain other stockholders of the Company hold, in the aggregate, an additional
847,430 shares of Common Stock. Those shares are not being offered and sold
pursuant to this Prospectus. All of those 3,941,898 shares were issued in
transactions that have not been registered under 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 IPO, 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.

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<PAGE>
The 2,235,217 shares of Common Stock issuable pursuant to this Prospectus
will generally be freely tradable by nonaffiliates after their issuance, unless
the resale thereof is contractually restricted. The Company anticipates that the
agreements entered into in connection with its future acquisitions will
contractually restrict the resale of all or a portion of the shares issued in
those transactions for varying periods of time.

In April 1998, the Company registered 1,500,000 shares of Common Stock for
use by the Company as all or a portion of the consideration to be paid in future
affiliation transactions. As of September 1, 1998, approximately 764,783 of
these shares had been issued to the dentist owners of the Company's new
Affiliated Practices. These shares are, and the remaining approximately 735,217
of these shares (which are being offered and sold pursuant to this Prospectus)
will be, generally freely tradeable upon issuance; however, each party that has
received these shares of Common Stock has contractually agreed with the Company
not to sell any of such shares for a period of one year from receipt.

The Company has outstanding under the 1997 Stock Compensation Plan options
to purchase approximately 724,666 shares of Common Stock. The Company has
registered 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."

SUBORDINATION OF THE CONVERTIBLE DEBT SECURITIES

The Convertible Debt Securities are subordinate in right of payment to all
current and future Senior Indebtedness of Pentegra. Unless a Prospectus
Supplement provides otherwise for one or more series of Convertible Debt
Securities, Senior Indebtedness includes all secured indebtedness of Pentegra
for money borrowed. As of June 30, 1998, there is no outstanding Senior
Indebtedness to which the Convertible Debt Securities would have been
subordinated. The Indenture under which Pentegra will issue the Convertible Debt
Securities (the "Indenture") will not, unless provided otherwise by a supplement
thereto relating to one or more series of Convertible Debt Securities, limit the
amount of additional indebtedness, including Senior Indebtedness, which Pentegra
can create, incur, assume or guarantee. By reason of the subordination of the
Convertible Debt Securities, if any insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up of the business of Pentegra occurs,
the assets of Pentegra will be available to pay the amounts due on the
Convertible Debt Securities only after all Senior Indebtedness has been paid in
full.

Substantially all the subsidiaries of Pentegra have guaranteed the payment
of its obligations under the Company's $15.0 million revolving credit facility
(the "Credit Facility"), and the stock of those subsidiaries has been pledged by
Pentegra as collateral securing those obligations.

LIMITED MARKET FOR THE CONVERTIBLE DEBT SECURITIES

No market currently exists for any series of the Convertible Debt
Securities, and no assurance can be given (i) a market will develop for any
series of the Convertible Debt Securities, (ii) as to the liquidity or
sustainability of any market that may develop or (iii) as to the ability of
holders to sell their Convertible Debt Securities at any price. Future trading
prices of the Convertible Debt Securities will depend on many factors,
including, among others, prevailing interest rates, the Company's operating
results, the price of the Common Stock and the market for similar securities.

NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the IPO, there was 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 IPO or this Offering. The
securities markets have, from 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

13
<PAGE>
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. In addition, a "Change of Control"
(as defined in the Credit Facility) constitutes an event of default under the
Credit Facility, which could impede or prevent a change of control or depress
the price of the Common Stock. See "Description of Capital Stock" and
"Description of the Convertible Notes."

THE COMPANY

The Company conducted no operations prior to March 30, 1998 other than in
connection with the IPO 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
IPO, the Affiliations, the Share Exchange, the Pentegra/Napili Transaction and
the Repurchase and Redemption. 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.

RECENT DEVELOPMENTS

In connection with its initial public offering (the "IPO") in March 1998,
the Company acquired substantially all the tangible and intangible assets and
assumed certain liabilities of, and entered into agreements to provide long-term
management services to, 77 dentists operating in 63 offices located in 18 states
(the "Founding Affiliated Practices"). From the date of the IPO through August
31, 1998, the Company has affiliated with an additional 13 practices and 18
dentists operating in 12 offices, increasing the total number of existing
Affiliated Practices to 64. During that period, the Company also funded two
dental practice acquisitions by dentists party to a Service Agreement with the
Company, which practices were "tucked-in" to an existing Affiliated Practice.
These additional practices expand the Company's geographical base into Illinois
and Oklahoma. In addition to these affiliations, the Company is negotiating and
will continue to negotiate to affiliate with additional dental practices;
however, although the Company intends to aggressively pursue these and other
affiliations, there can be no assurance that any of such affiliations will be
consummated.

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<PAGE>
PRICE RANGE OF COMMON STOCK

The following table sets forth the range of high and low sale prices for the
Common Stock on the American Stock Exchange for the periods indicated:

<TABLE>
<CAPTION>
LOW HIGH
--------- ---------
<S> <C> <C>
Year ending December 31, 1998:
1st quarter (beginning March 25 through March 31, 1998).................... $ 8.00 $ 8.50
2nd quarter................................................................ $ 6.25 $ 9.00
3rd quarter................................................................ $ 3.87 $ 8.69
4th quarter (through October 20, 1998)..................................... $ 1.75 $ 3.81
</TABLE>

As of September 24, 1998 there were approximately 124 holders of record of
Common Stock, as shown on the records of the transfer agent and registrar for
the Common Stock. The number of record holders does not bear any relationship to
the number of beneficial owners of the Common Stock.

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 on, 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.

15
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS)

Due to the fact that the Company has had no significant operations prior to
March 30, 1998, no comparative results have been included in this Prospectus.
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 June 30, 1998 and for the periods from inception, February 21,
1997, through December 31, 1997, the three months ended March 31, 1998 and the
three months ended June 30, 1998, set forth below, have been derived from the
financial statements of Pentegra Dental Group, Inc. included in this Prospectus.
In May 1998, the Company changed its fiscal year end from December 31 to March
31, effective for the year beginning April 1, 1998. 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 THREE MONTHS THREE MONTHS
DECEMBER 31, ENDED MARCH 31, ENDED
1997 1998 JUNE 30, 1998
--------------- --------------- -------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................................................. $ -- $ -- $ 7,412
Expenses
Clinical salaries, wages and benefits.................................. -- -- 2,836
Dental supplies and lab fees........................................... -- -- 1,220
Rent................................................................... -- -- 550
Advertising and marketing.............................................. -- -- 111
General and administrative............................................. 709 550 876
Depreciation and amortization.......................................... -- -- 171
Other expenses......................................................... 645 1,250 751
------- ------- ------
Total operating expenses........................................... 1,354 1,800 6,515
------- ------- ------
Earnings (loss) from operations.......................................... (1,354) (1,800) 897
Interest income (expense).............................................. -- (160) 40
------- ------- ------
Income (loss) before income taxes........................................ (1,354) (1,960) 937
Income taxes........................................................... -- -- 263
------- ------- ------
Net income (loss)...................................................... (1,354) (1,960) 674
------- ------- ------
Preferred stock dividend............................................... -- (1,070) --
------- ------- ------
Earnings (loss) attributable to common stock........................... $ (1,354) $ (3,030) $ 674
------- ------- ------
------- ------- ------
Earnings per share......................................................................................... $ 0.10
------
------
Weighted average number of shares outstanding............................................................ 6,886
------
------
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1998
--------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................................... $ 3,094
Working capital......................................................................................... 3,792
Total assets............................................................................................ 18,812
Stockholders' equity.................................................................................... 15,270

OTHER FINANCIAL DATA:
Ratio of earnings to fixed charges(1)................................................................. 5.03x
</TABLE>

- ----------

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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

The Company provides practice management services to fee-for-service dental
practices in the United States. On March 30, 1998, the Company acquired
simultaneously with the closing of its IPO, substantially all of the tangible
and intangible assets, and assumed the liabilities, of the 50 Founding
Affiliated Practices. The Company also began to provide practice management
services to professional corporations or associations owned by the
dentist-owners of the Founding Affiliated Practices (one of which split into two
separate dental practices immediately after the IPO) pursuant to long-term
management service agreements entered into at the time of the Affiliations.
Since the IPO, the Company has affiliated with 13 practices. The Company expects
that its future growth will come from (i) implementing a comprehensive operating
strategy designed to drive internal growth of the affiliated practices and (ii)
entering into management service agreements with new affiliated practices. The
Company manages 64 dental practices, which include 95 dentists and 75 dental
offices in 20 states.

The expenses incurred by the Company in fulfilling its obligations under the
management service agreements will be generally of the same nature as the
operating costs and expenses that would have otherwise been incurred by the
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 their
practices. In addition to the operating costs and expenses discussed above, the
Company incurs personnel and administrative expenses in connection with
maintaining a corporate office, which provides management, practice
enhancements, administrative and business development services.

RESULTS OF OPERATIONS (UNAUDITED)

Following completion of the IPO and the Affiliations on March 30, 1998, the
Company began operations effective April 1, 1998. Management service fee
recognition and related expenses began April 1, 1998. The Company began managing
51 dental practices in 18 states. At August 31, 1998, the Company managed 64
practices in 75 offices in 20 states.

COMPONENTS OF REVENUES AND EXPENSES

Under the terms of the typical management services agreement with an
Affiliated Practice, the Company becomes the exclusive manager and administrator
of all non-dental services relating to the operation of the Affiliated Practice.
The obligations of the Company include assuming responsibility for the operating
expenses incurred in connection with managing the dental centers. These expenses
include salaries, wages and related costs of non-dental personnel, dental
supplies and laboratory fees, rental and lease expenses, promotion and marketing
costs, management information systems and other operating expenses incurred at
the Affiliated Practices. In addition, the Company incurs general and
administrative expenses related to the financial and administrative management
of dental operations, insurance, training and development and other typical
corporate expenditures. As compensation for its services under the

17
<PAGE>
typical services agreement and subject to applicable law, the Company is paid a
management fee comprised of two components: (1) the costs incurred by it on
behalf of the Affiliated Practice, and (2) a management fee either fixed in
amount or an amount usually approximating 35% of the Affiliated Practice's
operating profit, before dentist compensation ("Service Fee"). Therefore, net
revenues represent amounts earned by the Company under the terms of its
management services agreements with the Affiliated Practices, which generally
equate to the sum of the Service Fees and the operating expenses that the
affiliated practices paid to the Company under the service agreements.

NET REVENUE

Net revenue generated for the three months ended June 30, 1998 was $7.4
million. During the three months ended June 30, 1998, the Company affiliated
with 10 practices in addition to the Founding Affiliated Practices, and funded
one dental practice "tuck-in" acquisition by a dentist party to a Service
Agreement. For the three months ended June 30, 1998, dental center revenues
aggregated to approximately $10.9 million.

OPERATING EXPENSES

The Company incurred operating expenses of approximately $6.5 million (87.9%
of net revenue) for the three months ended June 30, 1998. Operating expenses
consisted primarily of salaries, wages and benefits, dental supplies and
laboratory fees, rent, advertising and marketing, and general and administrative
expenses.

General and administrative expenses include primarily the corporate expenses
of the Company. These corporate expenses include salaries, wages and benefits,
rent, consulting fees, travel (primarily related to practice development),
office costs and other general corporate expenses. For the three months ended
June 30, 1998, general and administrative expenses totaled approximately
$876,000, which represented 11.8% of net revenue. The Company expects that
general and administrative expenses will increase as the Company adds personnel
and related costs necessary to manage its affiliated practices and execute its
affiliation strategy.

INCOME TAX EXPENSE

The Company incurred income tax expense of approximately $263,000 for the
three months ended June 30, 1998, which represented a 28% tax rate. The
difference between the effective tax rate and the statutory rate reflects the
anticipated utilization of the operating loss carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1998, the Company had a working capital balance of approximately
$3.8 million. Current assets included approximately $3.1 million in cash and
$3.3 million in accounts receivable, due entirely from Affiliated Practices.
Current liabilities consisted of approximately $3.0 million in accounts payable
and accrued liabilities, mostly related to expenses of the Affiliated Practices.
The Company believes that cash on hand, together with the availability under its
Credit Facility will be sufficient to execute its affiliation strategy. On June
1, 1998 the Company closed a revolving bank credit facility with Bank One,
Texas, N.A., which provides the Company with a revolving line of credit of up to
$15.0 million, to be used for general corporate purposes including financing of
acquisitions, capital expenditures and working capital. The credit facility is
collateralized by liens on certain of the Company's assets, including its rights
under the management service agreements and accounts receivable. The credit
facility contain restrictions on the incurrence of additional indebtedness and
payment of dividends on the Common Stock. Additionally, compliance with certain
financial covenants is required and the lender has approval rights with respect
with acquisitions exceeding certain limits. At June 30, 1998, no amounts were
outstanding under the revolving line of credit.

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<PAGE>
Cash used for investing activities for the three months ended June 30, 1998
included $252,000 for purchases of capital equipment, mostly for assets acquired
in new practice affiliations, and $2.8 million for the purchase of intangibles
associated with those new practice affiliations.

Cash generated from financing activities in the three-month period ended
June 30, 1998 included the issuance of 375,000 shares of stock with the exercise
of the over-allotment option which provided cash to the Company of approximately
$2.9 million. Uses of cash during the three-month period ended June 30, 1998 by
financing activities included the payment of costs related to the IPO totaling
approximately $1.0 million, and the repayment of debt assumed in the initial
public offering of $392,000. These payments related to liabilities recognized at
March 31, 1998.

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) has been accounted for by the Company at the transferors'
historical cost basis. The Common Stock issued in the Affiliations has been
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 has been treated for accounting purposes as a dividend to the
promoters. See "Business--Summary of Terms of Affiliations" and "Certain
Transactions--Organization of the Company."

RECENT PRONOUNCEMENTS

In June 1997, the FASB issued Statement of Financial Accounting Standards
("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 Service Agreements with its Affiliated
Practices, which include 95 dentists and 75 dental offices located in 20 states.
In addition, the Company acquired 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. The Pentegra Dental Program
is 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-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-

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<PAGE>
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:

- 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.

- 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 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

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<PAGE>
training and services to small groups of dentists. Pentegra, Ltd. and Napili no
longer operate independently and their services are 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.

MANAGEMENT INFORMATION SYSTEMS

The Company utilizes 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 allows the Company to
collect from each Affiliated Practice, on a daily basis, data on patients

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<PAGE>
seen, number and type of procedures performed, billing and collections, and
other data needed for financial reporting and analysis. The Company then
compiles 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 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's financial reporting system is
operational at all of the Founding Affiliated Practices, 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.

OTHER PRACTICE MANAGEMENT SERVICES

The Company provides 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 is designed to 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 has negotiated, 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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<PAGE>
LOCATIONS

The Company provides management services to the Founding Affiliated
Practices, with offices in the following states:

<TABLE>
<CAPTION>
NUMBER OF
--------------------
STATE OFFICES DENTISTS
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Alaska..................................................................... 1 1
Arizona.................................................................... 6 7
California................................................................. 2 3
Colorado................................................................... 6 6
Florida.................................................................... 4 5
Illinois................................................................... 1 1
Louisiana.................................................................. 4 5
Maine...................................................................... 1 1
Maryland................................................................... 1 1
Massachusetts.............................................................. 1 2
Michigan................................................................... 1 1
Nebraska................................................................... 2 4
New Mexico................................................................. 1 2
New York................................................................... 4 4
North Dakota............................................................... 2 2
Oklahoma................................................................... 1 1
Oregon..................................................................... 1 1
Texas...................................................................... 33 45
Washington................................................................. 2 2
Wisconsin.................................................................. 1 1
--------- ---------
Totals................................................................... 75 95
--------- ---------
--------- ---------
</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.

SERVICE AGREEMENTS

The Company has entered into a Service Agreement with each Affiliated
Practice under which the Company is the exclusive manager and administrator of
non-dental services relating to the operation of the Affiliated Practices. The
following is intended to be a brief summary of the typical form of Service
Agreement the Company entered into with each 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 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 formed by the dentist-owners of the
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

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<PAGE>
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 to four of the
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, among other things, (i)
acts as the exclusive manager and administrator of non-dental services relating
to the operation of the Affiliated Practice, subject to certain matters reserved
to the Affiliated Practice, (ii) administers 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 Affiliated Practice, (iii) provides, as
necessary, clerical, accounting, payroll, legal, bookkeeping and computer
services and personnel, information management, printing, postage and
duplication services and transcribing services, (iv) supervises and maintain
custody of substantially all files and records (other than patient records if
prohibited by applicable law), (v) provides facilities, equipment and
furnishings for the Affiliated Practice, (vi) orders and purchase inventory and
supplies as reasonably requested by the Affiliated Practice and (vii)
implements, in consultation with the Affiliated Practice, public relations or
advertising programs.

Pursuant to each Service Agreement, the respective 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
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 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 Affiliated Practice and the dentist.

The Service Agreement requires the Affiliated Practice to enforce the
employment agreements between the Founding Affiliated Practice and the dentists
associated with the Affiliated Practice (the "Dentist Employment Agreements").
If the Affiliated Practice does not enforce such employment agreement, the
Company may, at its option, require the 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 Affiliated Practice is responsible for obtaining professional liability
insurance for the employees of the Affiliated Practice and the Company is
responsible for obtaining general liability and property insurance for the
Affiliated Practice.

Upon termination of a Service Agreement, the Affiliated Practice has the
option to purchase and assume, and the Company has the option to require the
Affiliated Practice to purchase and assume, the assets and liabilities related
to the Affiliated Practice at the fair market value thereof, except in certain

25
<PAGE>
circumstances where the Affiliated Practice or the Company, as applicable, was
in breach of the Service Agreement.

DENTIST AGREEMENT

Substantially all of the dentist-owners of the Affiliated Practices entered
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 Affiliated Practice) of the 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 Affiliated Practice, the
dentist agreement provides that the Company may, at its option, require the
Affiliated Practice to convey its patient records and the capital stock of the
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

Each Affiliated Practice will be a party to a Dentist Employment Agreement
with each dentist owner. The Dentist Employment Agreements with substantially
all of the dentists who received 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 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.

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<PAGE>
EMPLOYEES

As of September 15, 1998, the Company employed 502 persons. None of the
Company's employees is 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
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 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 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 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 advertising or professional practice. The
laws of many states, including all of the states in which the

27
<PAGE>
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 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 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 Affiliated Practices
are located, also impose significant penalties for submitting false claims for
dental services. In addition, most states in which the 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 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.

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 Affiliated Practices receive any revenue under Medicare or Medicaid,
the impact of these laws on the Company is anticipated to be negligible.

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<PAGE>
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.

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.

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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 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

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

As required by the Company's Bylaws, a majority of the Company's Board of
Directors are dentists who are affiliated with Affiliated Practices. The
following table sets forth certain information concerning the Company's
directors and the executive officers of the Company (ages are as of September 1,
1998):

<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........................ 45 President, Chief Executive Officer and Director
Sam H. Carr............................ 42 Senior Vice President, Chief Financial Officer and Director
James L. Dunn, Jr...................... 36 Senior Vice President and Chief Development Officer
John G. Thayer......................... 45 Senior Vice President and Chief Operating Officer
Kimberlee K. Rozman.................... 38 Senior Vice President, General Counsel and Secretary
Ronnie L. Andress, D.D.S............... 43 Director
J. Michael Casas....................... 36 Director
James H. Clarke, Jr., D.D.S............ 50 Director
Ronald E. Geistfeld, D.D.S............. 64 Director
Mack E. Greder, D.D.S.................. 54 Director
Roger Allen Kay, D.D.S................. 54 Director
Gerald F. Mahoney...................... 55 Director
Anthony P. Maris....................... 64 Director
George M. Siegel....................... 60 Director
Ronald M. Yaros, D.D.S................. 52 Director
</TABLE>

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.

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.

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.

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<PAGE>
JAMES L. DUNN, JR. has served as the Company's Senior Vice President and Chief
Development Officer since July 1997 and served as a Director from March 1997 to
March 1998. 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.

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.

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<PAGE>
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 is 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 1999, 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."

There are five committees of the Board: Audit, Compensation, Acquisition,
Nominating and Executive. The members of the Audit Committee are Messrs. Maris
and Mahoney. The members of the Compensation Committee are Messrs. Maris, Siegel
and Casas. The sole member of the Acquisition Committee is Mr. Glatter, who has
been delegated the authority to approve the terms of any business combination
transaction involving the payment by the Company of consideration with a value
of up to $3,000,000. The members of the Nominating Committee are Dr. Reed and
Messrs. Glatter and Maris. The members of the Executive Committee are 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 an Affiliated Practice do not
receive additional compensation for serving as directors. Each director who is
not an employee of the Company or an 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 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 conducted no operations prior to March 30, 1998 other than in
connection with the IPO 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."

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<PAGE>
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 approved the grant of 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 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 IPO. 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 IPO 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 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.

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<PAGE>
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 also received a
$25,000 bonus on the closing of the IPO and will receive a $25,000 bonus on the
first anniversary of that closing. Mr. Carr also received compensation on the
closing of the IPO of approximately $29,000. 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"). The 1997 Stock Compensation Plan is administered by the Compensation
Committee of the Board of Directors, which must be comprised of not less than
two members of the Board of Directors (the "Committee"). Prior to the
consummation of the IPO, the 1997 Stock Compensation Plan was 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 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

35
<PAGE>
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 generally realizes short-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 12 months, the capital gain or
loss will be long-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
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 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 has (i) outstanding options to purchase a total of 724,666
shares of Common Stock under the 1997 Stock Compensation Plan and (ii) 1,275,334
additional shares available for future awards under the 1997 Stock Compensation
Plan.

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<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 IPO and the Affiliations, in June 1997, PII
issued capital stock to Dr. Reed (37,500 shares of preferred stock and 7,500
shares of common stock), Gary S. Glatter (37,500 shares of preferred stock and
7,500 shares of common stock), George M. Siegel (37,500 of preferred stock and
7,500 shares of common stock), Mack E. Greder, D.D.S. (25,000 shares of
preferred stock and 5,000 shares of common stock) and Roger Allen Kay, D.D.S.
(25,000 shares of preferred stock and 5,000 shares of common stock), at a
purchase price per share of $1.00 for the preferred stock 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 preferred stock he owns at a price per share equal to the
subscription price he paid to PII for those shares, which transactions were
consummated concurrently with the closing of the IPO and the Affiliations. In
addition, immediately after the completion of the repurchases described in the
foregoing sentence, all outstanding shares of preferred stock of PII was
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 was paid in
cash from the proceeds of the IPO and $0.35 per share was 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 IPO 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 IPO.

In December 1997, the owners of the outstanding shares of common stock of
PII agreed to sell to PII on a pro rata basis at a purchase price of $.015 per
share, an aggregate of 909,237 shares (approximately 51.8% of each such
stockholder's shares), which sale has been consummated in accordance with that
agreement.

The Company purchased substantially all the tangible and intangible assets
of Pentegra, Ltd. and Napili for consideration of $200,000 upon completion of
the IPO. Of the $200,000 in consideration, $100,000 was paid from the proceeds
of the IPO and $100,000 was 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
acquired 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 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,

37
<PAGE>
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 March 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 March 31, 1998, the
Company 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 the Affiliations
with the directors of the Company who own an Affiliated Practice:

<TABLE>
<CAPTION>
CONSIDERATION RECEIVED
DEBT AND ---------------------------------------
ASSETS LIABILITIES NUMBER OF VALUE OF
FOUNDING AFFILIATED PRACTICE CONTRIBUTED(1) ASSUMED SHARES SHARES CASH
- ----------------------------------------- -------------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Ronnie L. Andress, D.D.S., Inc........... 111,690 181,623 101,801 865,308 216,326
James H. Clarke, Jr., D.D.S., Inc........ 148,515 54,000 70,632 600,372 150,092
Mack E. Greder, D.D.S., P.C.............. 48,067 37,505 67,380 572,730 143,183
Roger Allen Kay, D.D.S., P.A............. 2,837 4,816 67,773 576,070 144,017
Omer K. Reed, D.D.S...................... 5,495 0 36,821 312,978 --
Ronald M. Yaros, D.D.S., P.C............. 139,371 29,570 139,214 1,183,319 295,830
</TABLE>

- ---------

(1) Assets contributed reflects the historical book value of the nonmonetary
assets of each practice 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.

The consideration paid by the Company for each of these Founding Affiliated
Practices 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 shares of Common Stock issued to the dentists named in the
foregoing table and all of 847,430 shares of Common Stock issued in the Share
Exchange 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.

38
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The following table shows, as of September 1, 1998 the "beneficial
ownership" of the Common Stock of (i) each director, (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
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(1)
-----------------------
NUMBER PERCENT
---------- -----------
<S> <C> <C>
Omer K. Reed, D.D.S......................................................................... 112,800 1.5%
Gary S. Glatter............................................................................. 51,859 *
Sam H. Carr................................................................................. 32,161 *
James L. Dunn, Jr........................................................................... 45,025 *
John G. Thayer.............................................................................. 32,161 *
Kimberlee K. Rozman......................................................................... 16,080 *
Ronald M. Yaros, D.D.S...................................................................... 142,214 1.9%
George M. Siegel............................................................................ 116,180 1.5%
Ronnie L. Andress, D.D.S.................................................................... 102,101 1.3%
J. Michael Casas............................................................................ 96,482 1.3%
James H. Clarke, Jr., D.D.S................................................................. 70,632 *
Roger Allen Kay, D.D.S...................................................................... 70,185 *
Mack E. Greder, D.D.S....................................................................... 71,192 *
Ronald E. Geistfeld, D.D.S.................................................................. 1,000 *
Gerald F. Mahoney........................................................................... 0 --
Anthony P. Maris............................................................................ 0 --
All executive officers and directors as a group (17 persons)................................ 960,072 12.7%
</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.

39
<PAGE>
DESCRIPTION OF THE CONVERTIBLE DEBT SECURITIES

The Convertible Debt Securities offered hereby will be issued under an
Indenture dated as of October 21, 1998 (the "Indenture") between Pentegra and
U.S. Trust Company of Texas, N.A., as trustee (the "Trustee"). The following
description of the Convertible Securities summarizes certain general terms and
provisions of the Convertible Securities to which any Prospectus Supplement
(including any Pricing Supplement) may relate (the "Offered Convertible
Securities"). The particular terms of the Offered Convertible Securities and the
extent to which the general terms and provisions of the Indenture will apply
will be described in a Prospectus Supplement relating to the Offered Convertible
Securities. The terms of the Offered Convertible Securities also will include
those made a part of the Indenture by the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The statements under this caption relating
to the Convertible Securities and the Indenture are summaries only, do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Indenture, including the definitions
therein of certain terms, and the Trust Indenture Act. Certain terms defined in
the Indenture are capitalized herein. The Indenture is an exhibit to the
registration statement on Form S-4, as amended, of which this Prospectus is a
part (the "Acquisition Shelf Registration Statement") and is incorporated herein
by this reference.

GENERAL

The Indenture will provide that Convertible Securities may be issued from
time to time thereunder in one or more series, each in such aggregate principal
amount as Pentegra may authorize from time to time. All Convertible Securities
of one series need not be issued at the same time and, unless otherwise provided
in a Prospectus Supplement with respect to any series, that series may be
reopened, without the consent of the Holders of the Convertible Securities of
that series, for issuance of additional Convertible Securities of that series.
The Indenture will not limit either (i) the aggregate principal amount of
Convertible Securities which can be issued thereunder or (ii) the amount of
other indebtedness or liabilities, secured or unsecured, which Pentegra or its
subsidiaries may incur.

Unless otherwise indicated in a Prospectus Supplement with respect to one or
more series, the Convertible Securities will not benefit from any covenant or
other provision that would provide protection to Holders of the Convertible
Securities against any sudden and dramatic decline in credit quality of the
Company resulting from any takeover or highly leveraged transaction, including a
recapitalization or similar restructuring.

The Convertible Securities are unsecured obligations of Pentegra.

Unless otherwise indicated in a Prospectus Supplement with respect to one or
more series, principal of, and any premium or interest on, the Convertible
Securities will be payable at the office of the Trustee in New York, New York,
and the Convertible Securities may be surrendered for registration of transfer,
exchange or conversion at that office. Pentegra may, at its option, pay any
interest on the Convertible Securities by check mailed to the address of each
person entitled thereto as it appears in the applicable Securities Register for
the Convertible Securities or by wire transfer on the Regular Record Date for
that interest payment.

No service charge will be made for any registration of transfer or exchange
of the Convertible Securities, but Pentegra may require payment of a sum
sufficient to cover any tax or other governmental charge and any other expenses
(including the fees and expenses of the Trustee) payable in connection
therewith. If a Prospectus Supplement provides for the redemption of a series of
Convertible Securities, Pentegra will not be required (i) to issue, register the
transfer of or exchange any of those Convertible Securities during a period
beginning at the opening of business 15 days before the day of the mailing of a
notice of redemption and ending at the close of business on the day of that
mailing or (ii) to register the transfer of or exchange any of those Convertible
Securities selected for redemption in whole or in part, except the unredeemed
portion of those Convertible Securities being redeemed in part.

40
<PAGE>
All monies paid by Pentegra to the Trustee or any Paying Agent, or held by
Pentegra, in trust for the payment of principal of and any premium and interest
on any Convertible Security which remain unclaimed for two years after that
principal, premium or interest becomes due and payable may be repaid to Pentegra
or released from trust, as the case may be. Thereafter, the Holder of that
Convertible Security may, as an unsecured general creditor, look only to
Pentegra for payment thereof.

Reference is made to the Prospectus Supplement for the following terms of
the Offered Convertible Securities: (i) the title and aggregate principal amount
of the Offered Convertible Securities; (ii) the date or dates, or the method for
determining the date or dates, the Offered Convertible Securities will be issued
(each an "Original Issue Date") and the date or dates on which the Offered
Convertible Securities will mature; (iii) the rate or rates (which may be fixed
or variable) per annum, if any, at which the Offered Convertible Securities will
bear interest or the method of determining such rate or rates; (iv) the date or
dates from which that interest, if any, will accrue and the date or dates on
which that interest, if any, will be payable; (v) the terms for redemption or
early payment, if any, including any mandatory or optional sinking fund or
analogous provision; (vi) the date or dates (each, a Convertibility Commencement
Date) on which the Offered Convertible Securities first become convertible into
Common Stock and their initial Conversion Price; (vii) whether the Offered
Convertible Securities will be issued in fully registered form or bearer form or
any combination thereof; (viii) whether the Offered Convertible Securities will
be issued in the form of one or more global securities and whether those global
securities are to be issuable in temporary global form or permanent global form;
(ix) whether the Senior Indebtedness to which the Offered Convertible Securities
will be subordinated by the Indenture will be as defined in the Indenture or as
defined in the Prospectus Supplement; and (x) any other specific terms of the
Offered Convertible Securities. Reference is also made to the Prospectus
Supplement for information with respect to any additional covenants that may be
included in the terms of the Offered Convertible Securities.

The Convertible Securities may be issued as Original Issue Discount
Securities. An Original Issue Discount Security is a Security issued at a price
lower than the amount payable on the Stated Maturity thereof and which provides
that on redemption or acceleration of the maturity thereof an amount less than
the amount payable on the Stated Maturity thereof and determined in accordance
with the terms of the Convertible Security will become due and payable.

CONVERSION RIGHTS

Each Convertible Security will be convertible into Common Stock, at the
option of its Holder, at any time on or after its Convertibility Commencement
Date and prior to the Convertibility Termination Date, its redemption (if
redeemable) or final maturity, initially at its Conversion Price per share,
subject to adjustment as described below. The right to convert Convertible
Securities that the applicable Prospectus Supplement provides are subject to
redemption will, with respect to those Convertible Securities that have been
called for redemption, terminate at the close of business on the second business
day preceding the Redemption Date therefor unless Pentegra defaults in making
the payment due on that redemption.

The applicable Prospectus Supplement will set forth, or describe the method
for determining, the first date on which a Convertible Security may be converted
into Common Stock (the "Convertibility Commencement Date") and the date on which
the right to convert the Convertible Security will expire (the "Convertibility
Termination Date"). In the case of Convertible Securities to be issued as
purchase consideration in any acquisition for which installment-sale treatment
is sought for federal income tax purposes, their Convertibility Commencement
Date will be the first day following the first anniversary of the closing of the
acquisition, unless the Prospectus Supplement provides otherwise. The applicable
Prospectus Supplement also will set forth, or describe the method for
determining, the initial conversion price of each Convertible Security (the
"Conversion Price").

The conversion price of each Convertible Security will be subject to
adjustment as and when any of the following events occurs after its Original
Issue Date (or the Original Issue Date of any of its

41
<PAGE>
Predecessor Securities): (i) the subdivision, combination or reclassification of
outstanding shares of Common Stock; (ii) the payment of a dividend or
distribution on the Common Stock exclusively in Common Stock or any other class
of capital stock of Pentegra which includes Common Stock; (iii) the issuance of
rights or warrants to all holders of Common Stock entitling them to acquire
shares of Common Stock (or securities convertible into Common Stock) at a price
per share less than the then Current Market Price; (iv) the distribution to all
holders of Common Stock of shares of capital stock of Pentegra other than Common
Stock, evidences of indebtedness of Pentegra, cash or assets (including
securities, but excluding (a) dividends or distributions paid exclusively in
cash, (b) dividends or distributions provided for in clause (ii) above and (c)
rights and warrants provided for in clause (iii) above); (v) a distribution
consisting exclusively of cash (excluding any cash distributions referred to in
clause (iv) above) to all holders of Common Stock in an aggregate amount that,
together with (a) all other cash distributions (excluding any cash distributions
referred to in clause (iv) above) made within the 12 months preceding the record
date for that distribution and (b) any cash and the fair market value of other
consideration paid in respect of any tender offer subject to the provisions of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), made by
Pentegra or a subsidiary of Pentegra for Common Stock consummated within the 12
months preceding that distribution, exceeds the greater of (1) 12.5% of
Pentegra's market capitalization (being at any time the product of the then
Current Market Price times the number of shares of Common Stock then
outstanding) on that record date and (2) the Company's consolidated retained
earnings on that record date (determined without giving effect to that
distribution); and (vi) the consummation of a tender offer made by Pentegra or
any subsidiary of Pentegra for Common Stock which involves an aggregate
consideration that, together with (a) any cash and other consideration payable
in respect of any tender offer made by Pentegra or a subsidiary of Pentegra for
Common Stock consummated within the 12 months preceding the last time on which
tenders of Common Stock may be made pursuant to the current tender offer (the
"Expiration Time") and (b) the aggregate amount of all cash distributions
(excluding any cash distributions referred to in clause (iv) above) to all
holders of Common Stock within the 12 months preceding the consummation of that
tender offer, exceeds the greater of (1) 12.5% of Pentegra's market
capitalization immediately prior to that Expiration Time (determined using all
then tendered shares) and (2) the Company's consolidated retained earnings at
the Expiration Time (determined without giving effect to the purchase of
tendered shares). No adjustment of any conversion price will be required to be
made until cumulative adjustments amount to at least 1.0% of that conversion
price, as last adjusted. Any adjustment that would otherwise be required to be
made will be carried forward and taken into account in any subsequent
adjustment.

Pentegra will be permitted to reduce the conversion price of any Convertible
Security as it considers to be advisable in order that any event treated for
federal income tax purposes as a dividend of stock or stock rights will not be
taxable to the holders of Common Stock or, if that is not possible, to diminish
any income taxes that are otherwise payable because of that event. In the case
of any consolidation or merger of Pentegra with or into any other corporation
(other than one in which no change is made in the outstanding Common Stock), or
the sale or transfer of all or substantially all the properties and assets of
Pentegra, the Holder of any Convertible Security then Outstanding will, with
certain exceptions, have the right thereafter to convert that Convertible
Security only into the kind and amount of securities, cash and other property
receivable on that consolidation, merger, sale or transfer by a holder of the
number of shares of Common Stock into which that Convertible Security might have
been converted immediately prior to that consolidation, merger, sale or
transfer; and adjustments will be provided for events subsequent thereto which
are as nearly equivalent as practical to the conversion price adjustments
described above.

Pentegra will not issue fractional shares of Common Stock on conversion of
any Convertible Security, but, in lieu thereof, will pay a cash adjustment based
on the Closing Price at the close of business on the day of conversion. Pentegra
will not pay any interest on converted Convertible Securities with respect to
any Interest Payment Date subsequent to the date of conversion. No other payment
or adjustment for interest or dividends will be made on conversion of any
Convertible Security.

42
<PAGE>
SUBORDINATION

The payment of the principal of and any premium or interest on the
Convertible Securities and any other payment obligations of Pentegra in respect
of the Convertible Securities (including any obligation to repurchase the
Convertible Securities) are, to the extent set forth in the Indenture,
subordinated in right of payment to the prior payment in full in cash or cash
equivalents of all Senior Indebtedness, whether outstanding on the date of the
Indenture or thereafter incurred. If there is a payment or distribution of
assets to creditors on any liquidation, dissolution, winding up, receivership,
reorganization, assignment for the benefit of creditors, marshaling of assets
and liabilities or any bankruptcy, insolvency or similar case or proceeding of
Pentegra, the holders of all Senior Indebtedness will be entitled to receive
payment in full in cash or cash equivalents of all Obligations due or to become
due in respect of that Senior Indebtedness (including interest after the
commencement of any such case or proceeding, notwithstanding that Pentegra may
be excused as a result of such case or proceeding from the obligation to pay all
or any part of the interest otherwise payable in respect of any Senior
Indebtedness) before the Holders of the Convertible Securities will be entitled
to receive any payment in respect of the principal of or any premium or interest
on the Convertible Securities, and until all Obligations with respect to the
Senior Indebtedness are paid in full in cash or cash equivalents, any
distribution to which the Holders of the Convertible Securities would be
entitled must be made to the holders of the Senior Indebtedness. Pentegra also
may not make any payment (whether by redemption, purchase, retirement,
defeasance or otherwise) on or in respect of the Convertible Securities if (i) a
default in the payment of the principal of or any premium or interest on any
Designated Senior Indebtedness (a "Payment Default") occurs or (ii) any other
default occurs and is continuing with respect to any Designated Senior
Indebtedness which permits holders of Designated Senior Indebtedness as to which
that default relates to accelerate its maturity (a "Nonpayment Default") and the
Trustee receives notice of that default (a "Payment Blockage Notice") from (a)
if that Nonpayment Default shall have occurred under the Credit Facility or any
other secured debt facility with banks or other lenders which provides revolving
credit loans, term loans, receivables financing (including through the sale of
receivables) or letters of credit (each an "Other Debt Facility"), the
representative of the Credit Facility or that Other Debt Facility, as the case
may be, or (b) if that Nonpayment Default shall have occurred with respect to
any other issue of Designated Senior Indebtedness, the holders, or a
representative of the holders, of at least 20% of that Designated Senior
Indebtedness. The payments on or in respect of the Convertible Securities shall
be resumed (i) in the case of a Payment Default respecting Designated Senior
Indebtedness, on the date on which that default is cured or waived, and (ii) in
the case of a Nonpayment Default respecting Designated Senior Indebtedness, the
earliest of (a) the date on which that Nonpayment Default is cured or waived,
(b) the date the applicable Payment Blockage Notice is retracted by written
notice to the Trustee from a representative of the holders of the Designated
Senior Indebtedness which have given that Payment Blockage Notice and (c) 179
days after the date on which the applicable Payment Blockage Notice is received
by the Trustee, unless any Payment Default has occurred and is continuing or an
Event of Default of the type referred to in clause (vii) of the first sentence
under "--Events of Default" has occurred. No new period of payment blockage may
be commenced unless and until 360 days have elapsed since the date of
commencement of the payment blockage period resulting from the immediately prior
Payment Blockage Notice, and no Nonpayment Default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice.

If the Maturity of any Convertible Securities is accelerated because of an
Event of Default with respect thereto, (i) the Indenture requires Pentegra to
promptly notify holders of Designated Senior Indebtedness of that event and (ii)
the Holders of those Convertible Securities will, to the extent permitted by
law, be prohibited for a period of 180 days thereafter from making any
bankruptcy filing with respect to Pentegra or, to the extent permitted by law,
from filing suit to enforce their rights under the Indenture.

Unless a Prospectus Supplement provides otherwise for one or more series of
Convertible Securities, the Indenture's definition of "Senior Indebtedness" will
apply to the Convertible Securities. The Indenture

43
<PAGE>
will define "Senior Indebtedness" as the principal of and premium, if any, and
interest on and other Obligations in respect of (i) all secured indebtedness of
Pentegra for money borrowed (including any secured indebtedness under the Credit
Facility and any successor thereto and any secured indebtedness under all Other
Debt Facilities), whether outstanding on the date of execution of the Indenture
or thereafter created, incurred or assumed, and (ii) any amendments, renewals,
extensions, modifications, refinancings and refundings of any of the foregoing.
For purposes of this definition, "indebtedness for money borrowed" when used
with respect to Pentegra means (i) any obligation of, or any obligation
guaranteed by, Pentegra for the repayment of borrowed money (including fees,
penalties and other obligations in respect thereof), whether or not evidenced by
bonds, debentures, notes or other written instruments, (ii) any deferred payment
obligation of, or any such obligation guaranteed by, Pentegra for the payment of
the purchase price of property or assets evidenced by a note or similar
instrument and (iii) any obligation of, or any such obligation guaranteed by,
Pentegra for the payment of rent or other amounts under a lease of property or
assets, which obligation is required to be classified and accounted for as a
capitalized lease on the balance sheet of Pentegra under generally accepted
accounting principles. As used in the Indenture: (i) "Obligations" in respect of
the Senior Indebtedness include any principal, interest, premiums, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any such indebtedness; and (ii) "Designated Senior
Indebtedness" means (a) Obligations under the Credit Facility and all secured
Other Debt Facilities and (b) any other Senior Indebtedness the principal amount
of which is $1.0 million or more and that has been designated by Pentegra as
"Designated Senior Indebtedness." The Prospectus Supplement relating to any
series of Convertible Securities may provide that the "Senior Indebtedness" to
which the Convertible Securities of that series will be subordinated by the
Indenture will include all indebtedness of Pentegra for money borrowed, whether
secured or unsecured, except any such indebtedness that, by the terms of the
instrument or instruments by which it was created or incurred, expressly
provides that it (i) is junior in right of payment to those Convertible
Securities or (ii) ranks pari passu in right of payment with those Convertible
Securities.

The Convertible Securities will be obligations exclusively of Pentegra.
Pentegra currently conducts its operations through its subsidiaries, which are
separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due in respect of the Convertible Securities or to
make any funds available therefor, whether by dividends, loans or other
payments. The ability of any subsidiary of Pentegra to loan or advance funds or
pay dividends to Pentegra (i) may be subject to contractual or statutory
restrictions, (ii) will be contingent on the subsidiary's earnings and cash
flows and (iii) will be subject to various business considerations.

The Convertible Securities will be effectively subordinated to all
indebtedness and other liabilities and commitments (including trade payables and
lease obligations) of subsidiaries of Pentegra. Any right of Pentegra to receive
assets of any of its subsidiaries on the liquidation or reorganization of that
subsidiary (and any consequent right of the Holders of the Convertible
Securities to participate in those assets) will be effectively subordinated to
the claims of that subsidiary's creditors, except to the extent that Pentegra is
itself recognized as a creditor of that subsidiary, in which case the claims of
Pentegra would still be subordinated to any security in the assets of that
subsidiary and any indebtedness of that subsidiary senior to that held by
Pentegra.

The Indenture does not limit or prohibit the incurrence of (i) Senior
Indebtedness or (ii) indebtedness, liabilities or other commitments by Pentegra
or its subsidiaries. As of June 30, 1998, there is no outstanding Senior
Indebtedness to which the Convertible Securities would have been subordinated.

CONSOLIDATION, MERGER AND SALE OF ASSETS

The Indenture provides that Pentegra will not consolidate with or merge into
any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person in one

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transaction or a series of related transactions, unless (i) if applicable, the
Person formed by such consolidation or into which Pentegra is merged or the
Person or corporation which acquires the properties and assets of the Company
substantially as an entirety is a corporation, limited liability company,
partnership or trust organized and validly existing under the laws of the United
States or any state thereof or the District of Columbia and expressly assumes
payment of the principal of and any premium and interest on the Convertible
Securities and the performance or observance of each obligation of Pentegra
under the Indenture, (ii) immediately after giving effect to such transaction,
no Event of Default will have occurred and be continuing, (iii) such
consolidation, merger, conveyance, transfer or lease does not adversely affect
the validity or enforceability of the Convertible Securities and (iv) Pentegra
has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel,
each stating that such consolidation, merger, conveyance, transfer or lease
complies with the provisions of the Indenture.

EVENTS OF DEFAULT

Unless otherwise provided by a Prospectus Supplement with respect to any
series of the Convertible Securities, the following are Events of Default under
the Indenture with respect to that series: (i) default in the payment of
principal of or any premium on any Convertible Security when due (even if that
payment is prohibited by the subordination provisions of the Indenture); (ii)
default in the payment of any interest on any Convertible Security of that
series when due, which default continues for 30 days (even if that payment is
prohibited by the subordination provisions of the Indenture); (iii) failure to
provide timely notice of a Repurchase Event to Holders of Affected Convertible
Securities of that series as required by the Indenture; (iv) default in the
payment of the Repurchase Price in respect of any Affected Convertible Security
of that series on the Repurchase Date therefor (even if that payment is
prohibited by the subordination provisions of the Indenture); (v) default in the
performance or breach of any other covenant or warranty of Pentegra in the
Indenture (other than a covenant included in the Indenture for one or more
series of Convertible Securities other than Convertible Securities of that
series) which continues for 60 days after written notice as provided in the
Indenture; (vi) certain events in bankruptcy or reorganization of or similar
events respecting Pentegra or any of its Significant Subsidiaries; and (vii) any
other Event of Default as the applicable Prospectus Supplement may specify with
respect to the Convertible Securities of that series.

If an Event of Default with respect to any Outstanding series of Convertible
Securities occurs and is continuing, the Trustee or any Holder may declare the
principal of and any premium and interest on all the Outstanding Convertible
Securities of the applicable series (or of all Outstanding Convertible
Securities, as the case may be) to be due and payable immediately, but if a
majority in principal amount of Holders of Outstanding Convertible Securities of
the applicable series (or of all Outstanding Convertible Securities, as the case
may be) waive any past default (except the nonpayment of any premium or interest
on or principal of any Convertible Security and subject to certain other
limitations), then such default will cease to exist and any Event of Default
arising therefrom will be deemed cured for every purpose of the Indenture; but
no such waiver will extend to any subsequent or other default. If an Event of
Default occurs and is continuing as a result of an event of bankruptcy or
reorganization of Pentegra or any of its Significant Subsidiaries, the principal
of and any premium and accrued and unpaid interest on all Outstanding
Convertible Securities will automatically become due and payable without any
declaration or other act on the part of the Trustee or any Holder of any
Convertible Securities. Pentegra is required to furnish to the Trustee annually
a statement as to the performance by Pentegra of certain of its obligations
under the Indenture and as to any default in that performance. The Indenture
provides that the Trustee may withhold notice to Holders of the Convertible
Securities of any series of any continuing default (except in the case of a
default in payment of the principal of or any premium or interest on those
Convertible Securities), if the Trustee considers it in the interest of those
Holders to do so.

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MODIFICATIONS AND AMENDMENTS

Pentegra and the Trustee may modify or amend the Indenture without the
consent of Holders to: (i) set forth the terms of the Convertible Securities of
any series, including for purposes of that series any change in the definition
of Senior Indebtedness; (ii) evidence the succession of another Person to
Pentegra and the assumption by any such successor of the covenants of Pentegra
in the Indenture and the Convertible Securities; (iii) for the benefit of the
Holders of Convertible Securities of any or all series, add to the covenants of
Pentegra, add an additional Event of Default or surrender any right or power
conferred upon Pentegra; (iv) secure the Convertible Securities; (v) make
provision with respect to the conversion rights of Holders in the event of a
consolidation, merger or sale of assets involving Pentegra, as required by the
Indenture; (vi) evidence and provide for the acceptance of appointment by a
successor Trustee or successor Trustees with respect to the Convertible
Securities; or (vii) cure any ambiguity in or omission from, or, correct or
supplement any provision in, the Indenture or the Convertible Securities which
may be defective or inconsistent with any other provision or make any other
provisions with respect to matters or questions arising under the Indenture
which shall not be inconsistent with the provisions of the Indenture; provided,
however, that no such modification or amendment described in this clause (vii)
may adversely affect the interest of Holders of Securities of any series in any
material respect.

Pentegra and the Trustee may modify or amend the Indenture with the consent
of the Holders of a majority in principal amount of the Outstanding Convertible
Securities affected thereby; provided, that no such amendment or modification
may, without the consent of each Outstanding Convertible Security affected
thereby, (i) change the stated maturity date of the principal of, or any
installment of principal or interest on, any Convertible Security or reduce the
principal amount thereof or the rate of interest thereon or any premium payable
on the redemption thereof, or change the coin or currency in which any
Convertible Security or any premium or interest thereon is payable, or impair
the right to institute suit for the enforcement of any payment on or with
respect to any Convertible Security, (ii) reduce the percentage in principal
amount of the Outstanding Convertible Securities the consent of whose Holders is
required for any such supplemental indenture, or the consent of whose Holders is
required for any waiver of compliance with certain provisions of the applicable
Indenture or certain defaults thereunder and their consequences or (iii) modify
any of the provisions of the Indenture relating to the subordination of the
Outstanding Convertible Securities in a manner adverse to the Holders thereof.

SATISFACTION AND DISCHARGE

Pentegra may discharge its obligations under the Indenture while Convertible
Securities remain Outstanding, subject to certain conditions, if (i) all
Outstanding Convertible Securities have become due and payable or will become
due and payable at their scheduled maturity within one year or (ii) all
Outstanding Convertible Securities are scheduled for redemption within one year,
and in either case Pentegra has deposited with the Trustee an amount in cash
sufficient (without any consideration of any investment of that cash) to pay and
discharge all Outstanding Convertible Securities on the date of their scheduled
maturity or the scheduled date of redemption.

MEETINGS OF HOLDERS

The Indenture contains provisions for convening meetings of the Holders of
Convertible Securities of any series. A meeting may be called at any time by the
Trustee or, on request, by Pentegra or (any) holder of the Outstanding
Convertible Securities of any series, in any such case on notice given as
provided in the Indenture. Except for any consent that must be given by the
Holder of each Outstanding Convertible Security affected thereby, as described
above under "--Modifications and Amendments," any resolution presented at a
meeting or adjourned meeting at which a quorum is present may be adopted by the
affirmative vote of the Holders of a majority in principal amount of the
Outstanding Convertible Securities of that series; provided, however, that,
except for any consent that must be given by the Holder of each Outstanding
Convertible Security affected thereby, as described above under "--Modifications
and

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Amendments," any resolution with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that may be made, given or
taken by the Holders of a specified percentage, which is less than a majority in
principal amount of the Outstanding Convertible Securities of a series, may be
adopted at a meeting or adjourned meeting duly reconvened at which a quorum is
present by the affirmative vote of the Holders of such specified percentage in
principal amount of the Outstanding Convertible Securities of that series.
Subject to the proviso set forth above, any resolution passed or decision taken
at any meeting of Holders of Convertible Securities of that series duly held in
accordance with the Indenture will be binding on all Holders of Convertible
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be Persons holding or
representing a majority in principal amount of the Outstanding Convertible
Securities of a series.

FORM, DENOMINATION AND REGISTRATION

Unless the applicable Prospectus Supplement provides otherwise, the
Convertible Securities will be issued in fully registered form, without coupons,
in denominations of $1,000 and any integral multiples thereof.

GOVERNING LAW

The Indenture and the Convertible Securities will be governed by and
construed in accordance with the laws of the State of Arizona, without giving
effect to that state's conflicts of laws principles.

INFORMATION CONCERNING THE TRUSTEE

The Indenture contains certain limitations on the right of the Trustee, as a
creditor of the Company, to obtain payment of claims in certain cases and to
realize on certain property received with respect to any such claims, as
security or otherwise. The Trustee is permitted to engage in other transactions,
except that, if it acquires any conflicting interest (as defined), it must
eliminate that conflict or resign.

Pentegra and its subsidiaries may maintain deposit accounts and conduct
other banking transactions with the Trustee in the ordinary course of business.

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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 September 1, 1998,
7,581,681 shares of Common Stock were issued and outstanding and held of record
by 104 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

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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

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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.

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SHARES ELIGIBLE FOR FUTURE SALE

The Company has outstanding, as of September 1, 1998, 7,581,681 shares of
Common Stock of which the 2,875,000 shares sold in the IPO are 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. Approximately 3,941,898 outstanding 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 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 September 1, 1998, options to purchase an aggregate of 724,666 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
has filed a registration statement covering the 2,000,000 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 entered 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 terminate on the second anniversary
of the closing of the IPO. 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

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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 IPO, there was 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. 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."

The 2,235,217 shares of Common Stock being offered and sold pursuant to this
Prospectus generally will be freely tradable after their issuance by persons not
affiliated with the Company unless the Company contractually restricts their
resale. The Company anticipates that the agreements entered into in connection
with its future acquisitions will contractually restrict the resale of all or a
portion of the shares issued in those transactions for varying periods of time.

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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following discusses the material United States federal income tax
consequences under generally applicable current law of the acquisition,
ownership, conversion and disposition of Convertible Securities and Common Stock
acquired from Pentegra, in connection with the direct and indirect acquisition
of businesses, properties or securities in a business combination transaction (a
"Business Combination Transaction") and the acquisition, ownership, conversion
and disposition of Common Stock which was acquired on the conversion of one or
more Convertible Securities acquired from Pentegra in a Business Combination
Transaction by persons who hold those Convertible Securities and any such Common
Stock as capital assets. It does not, however, discuss the effect of (i) special
rules, such as those which apply to tax-exempt organizations, insurance
companies, financial institutions, persons who hold the Convertible Securities
or Common Stock in connection with a straddle or dealers, (ii) rules that may
permit (a) gain realized on the receipt of Convertible Securities in exchange
for property which is transferred to Pentegra in a Business Combination
Transaction to be reported on the installment method or (b) the receipt of
Convertible Securities or Common Stock in a Business Combination Transaction
without the recognition of gain or loss or (iii) any foreign, state or local tax
law. Accordingly, each person who is considering the acquisition of Convertible
Securities or Common Stock in a Business Combination Transaction pursuant to
this Prospectus is advised to consult his or her own tax advisor regarding the
matters discussed herein in light of his or her particular circumstances and the
application of state, local and foreign tax laws.

The following statements are based upon the Internal Revenue Code of 1986,
as amended (the "Code"), existing regulations thereunder and the current
judicial and administrative interpretations thereof.

OWNERSHIP BY U.S. PERSONS

The following applies to a person who is a citizen or resident of the United
States (a "U.S. Holder"), a corporation or partnership created or organized in
the United States or any state thereof or an estate or trust the income of which
is includible in income for United States federal income tax purposes regardless
of its source.

INTEREST ON CONVERTIBLE SECURITIES. The portion of any stated interest on a
Convertible Security which is qualified stated interest will be taxable as
ordinary income at the time that interest is paid or accrued in accordance with
the U.S. Holder's method of accounting for United States federal income tax
purposes. The portion of the stated interest on a Convertible Security which is
not qualified stated interest and, in certain circumstances, a portion of the
stated principal on a Convertible Security will be classified as original issue
discount. Any such original issue discount will be included in income at times
which generally precede the payment of that original issue discount. The effect
of the foregoing principles on a particular Convertible Security will depend, in
part, on the terms of the Convertible Security. A person who is considering the
acquisition of a Convertible Security in a Business Combination Transaction
pursuant to this Prospectus should consult with his or her tax advisor regarding
the amount of any such original issue discount with respect to that Convertible
Security and the effect thereof on such person.

CONVERSION OF CONVERTIBLE SECURITIES. A U.S. Holder who does not use the
installment method to report income on the receipt of a Convertible Security in
a Business Combination Transaction will generally not recognize gain or loss on
the conversion of that Convertible Security into Common Stock except that he or
she will recognize a capital gain or loss as a result of the receipt of cash in
lieu of a fractional share equal to the amount of cash reduced by the basis of
the portion of the Convertible Security in respect of which that cash was paid.
The basis of the Common Stock that is received on the conversion will be the
adjusted basis of the converted Convertible Security at the time of conversion
increased by any gain that is recognized, decreased by any loss that is
recognized and decreased by any cash that is received. The holding period of
that Common Stock will include the holding period of the converted Convertible
Security.

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Rev. Rul. 72-264 provides that (i) a U.S. Holder who uses the installment
method to report income on the receipt of a Convertible Security (any such
Convertible Security is referred to herein as an "Installment Method Convertible
Security") in a Business Combination Transaction will recognize gain or loss on
the conversion of that Installment Method Convertible Security into Common Stock
and (ii) the amount of that gain or loss will be the amount of cash received in
lieu of a fractional share increased by the fair market value of the Common
Stock received reduced by the basis (as defined in Section 453B(b) of the Code)
of that Convertible Security. Any gain or loss which is so recognized will be
considered to result from the sale or exchange of the property in exchange for
which the Installment Method Convertible Security was received.

CONSTRUCTIVE DIVIDEND. A distribution to holders of Common Stock may cause
a deemed distribution (which will be a dividend to the extent of the current or
accumulated earnings and profits of Pentegra) to the holders of Convertible
Securities if the conversion price or conversion ratio of the Convertible
Securities is adjusted to reflect that distribution.

SALE OR EXCHANGE OF CONVERTIBLE SECURITIES OR COMMON STOCK. Gain or loss
will be recognized on the sale or exchange of Convertible Securities or of
Common Stock in an amount equal to the difference between (i) the amount of cash
and the fair market value of any other property received by the U.S. Holder
(excluding, in the case of Convertible Securities, any amount representing
accrued, but theretofore unrecognized, interest, which will be taxable as such)
and (ii) the Holder's adjusted basis in the property sold or exchanged. If the
Convertible Security is an Installment Method Convertible Security, then any
gain or loss that is recognized on the sale or exchange thereof will be
considered to result from the sale or exchange of the property in exchange for
which the Installment Method Convertible Security was received. If the
Convertible Security is not an Installment Method Convertible Security, then any
such gain (other than gain characterized as interest under the market discount
rules) or loss with respect to that Convertible Security will be a capital gain
or loss and will be a long-term capital gain or loss if the holding period of
that Convertible Security is more than one year. Gain or loss that is recognized
on the sale or exchange of Common Stock will be a capital gain or loss and will
be a long-term capital gain or loss if the holding period of the Common Stock is
more than one year.

DIVIDENDS ON COMMON STOCK. Distributions on the Common Stock will be
dividends to the extent of the current or accumulated earnings and profits of
Pentegra, then a nontaxable return of capital reducing the holder's adjusted
basis in the Common Stock until such adjusted basis is reduced to zero and
finally an amount received in exchange for the Common Stock. Dividends paid to
domestic corporations may qualify for the dividends received deduction subject
to the limiting provisions that apply thereto.

OWNERSHIP BY NON-U.S. HOLDERS

The following applies to a person who is not a U.S. Holder (a "Non-U.S.
Holder") and to the income received thereby, such as interest, dividends and
gain or loss on disposition, with respect to Convertible Securities and Common
Stock which is not effectively connected with the conduct by the Non-U.S. Holder
of a trade or business within the United States. Any such items of income
generally will be subject to the United States federal income tax that applies
to U.S. Holders generally, and, in the case of such a Non-U.S. Holder that is a
foreign corporation, those items also will be subject to the branch profits tax.

INTEREST ON CONVERTIBLE SECURITIES. Interest paid on Convertible Securities
to a Non-U.S. Holder will not be subject to United States federal income tax or
to withholding in respect thereof if: (i) the beneficial owner (or if certain
requirements are satisfied, a member of a class of financial institutions)
certifies, under penalties of perjury, that the beneficial owner is not a U.S.
Holder and provides the beneficial owner's name and address; (ii) the Non-U.S.
Holder does not own actually or constructively 10% or more of the total voting
power of all classes of stock of Pentegra entitled to vote (Common Stock into
which a Convertible Security can be converted is constructively owned for these
purposes); (iii) the Non-U.S. Holder is not a controlled foreign corporation
with respect to which Pentegra is a "related person" within

54
<PAGE>
the meaning of Section 864(d)(4) of the Code; and (iv) the Non-U.S. Holder is
not a bank holding the Convertible Securities as a result of an extension of
credit made pursuant to a loan agreement entered into in the ordinary course of
its trade or business. Accrued market discount on a Convertible Security is not
treated for these purposes as interest income.

If the foregoing conditions are not satisfied, then the interest generally
will be subject to United States federal income tax withholding at a rate of 30%
(or any lower rate provided by any applicable treaty).

SALE OR EXCHANGE OF CONVERTIBLE SECURITIES OR COMMON STOCK; CONVERSION OF
CONVERTIBLE SECURITIES. A Non-U.S. Holder generally will not be subject to
United States federal income tax on gain recognized on the sale or exchange of
Convertible Securities or Common Stock or on the conversion of a Convertible
Security unless (i) the Holder is an individual who is present in the United
States for 183 or more days in the taxable year and certain other conditions are
satisfied or (ii) Pentegra is (as is not expected) a "United States real
property holding corporation," as defined in Section 897 of the Code, and
certain exceptions do not apply. Notwithstanding the foregoing, if any
Convertible Security is received in exchange for property used in the conduct of
a trade or business within the United States and the gain that was realized on
the
receipt of that Convertible Security was reported on the installment method,
then any gain that is realized on the collection, conversion, sale, exchange or
other disposition of that Convertible Security may be subject to United States
income tax as though the Non-U.S. Holder were a citizen or resident of the
United States.

DIVIDENDS ON COMMON STOCK. Any distribution on Common Stock to a Non-U.S.
Holder will be subject to United States federal income tax withholding at a rate
of 30% (or any lower rate provided by any applicable treaty).

ESTATE TAX. An individual Non-U.S. Holder of a Convertible Security will
not be required to include the value of that Convertible Security in his gross
estate for United States federal estate tax purposes, provided that the Holder
did not at the time of death actually or constructively own 10% or more of the
combined voting power of all classes of stock of Pentegra and, at the time of
the Holder's death, payments of interest on that Convertible Security would not
have been effectively connected with the conduct by the Holder of a trade or
business in the United States. An individual Non-U.S. Holder who is treated as
the owner of, or has made certain lifetime transfers of, an interest in the
Common Stock will be required to include the value thereof in his gross estate
for United States federal estate tax purposes (and may be subject to United
States federal estate tax with respect thereto), unless otherwise provided by an
applicable estate tax treaty.

BACKUP WITHHOLDING; INFORMATION REPORTING

A noncorporate U.S. Holder holding Convertible Securities or Common Stock
(and any Non-U.S. Holder failing to provide a certificate that it is not a U.S.
Holder) will be subject to backup withholding at the rate of 31% with respect to
interest paid on the Convertible Securities, dividends paid on Common Stock and
the proceeds of any sale, exchange or redemption thereof if the payee fails to
furnish a taxpayer identification number and in certain other circumstances. Any
amounts so withheld will be allowed as a refund or a credit against the Holder's
United States federal income tax liability, provided that certain information is
furnished to the Internal Revenue Service.

Information reporting will be required with respect to a payment of proceeds
from the sale or exchange of Convertible Securities or Common Stock through a
foreign office of a broker that is a United States person or of certain foreign
brokers unless the broker has documentary evidence in its files that the owner
is a Non-U.S. Holder and the broker has no actual knowledge to the contrary.

The Internal Revenue Service has proposed regulations that, if issued as
final regulations, would require certain Non-U.S. Holders to provide additional
information in order to establish an exemption from, or reduce the rate of,
withholding tax or backup withholding tax and in particular would require that

55
<PAGE>
foreign partnerships and partners of a foreign partnership provide certain
information and comply with certain certification requirements not required
under existing law. Such proposed regulations are proposed to be effective
generally for payments made after December 31, 1997. It is not possible to
predict whether, or in what form, the proposed regulations ultimately will be
adopted.

PLAN OF DISTRIBUTION

THE COMPANY

This Prospectus covers the offer an sale of up to 2,235,217 shares of Common
Stock and $50,000,000 aggregate principal amount of Convertible Debt Securities,
which the Company may issue from time to time in connection with the future
direct and indirect acquisitions of other businesses, properties or securities
in business combination transactions.

The Company expects that the (i) terms upon which it may issue the shares of
Common Stock and Convertible Debt Securities covered hereby will be determined
through negotiations with the securityholders or principal owners of the
businesses whose securities or assets are acquired and (ii) shares of Common
Stock that are issued will be valued at prices reasonably related to market
prices for the Common Stock prevailing either at the time an acquisition
agreement is executed or at the time an acquisition is consummated.

GENERAL

All expenses of this Offering will be paid by the Company. No underwriting
discounts or commissions will be paid in connection with the issuance of shares
by the Company in business combination transactions, although finder's fees may
be paid with respect to specific acquisitions. Any person receiving a finder's
fee may be deemed to be an Underwriter within the meaning of the Securities Act.

The shares of Common Stock offered hereunder will be included on The
American Stock Exchange, but may be subject to certain contractual holding
period restrictions.

LEGAL MATTERS

The validity of the shares of Common Stock and Convertible Debt Securities
offered hereby will be passed upon for the Company by Jackson Walker 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 PricewaterhouseCoopers LLP, independent accountants, as
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-4 (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

56
<PAGE>
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.

57
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Audited Financial Statements

Report of Independent Public Accountants................................................................... F-2

Balance Sheet as of December 31, 1997...................................................................... F-3

Statement of Operations for the period from inception,
February 21, 1997, through December 31, 1997............................................................. F-4

Statement of Changes in Stockholders' Deficit for the period from inception, February 21, 1997, through
December 31, 1997........................................................................................ F-5

Statement of Cash Flows for the period from inception, February 21, 1997, through December 31, 1997........ F-6

Notes to Financial Statements.............................................................................. F-7

Unaudited Financial Statements

Balance Sheets--December 31, 1997 and March 31, 1998....................................................... F-17

Statements of Operations for the period from inception, February 21, 1997 through March 31, 1997 and for
the Three Months ended March 31, 1998.................................................................... F-18

Statement of Changes in Stockholders' Equity for the period from inception, February 21, 1997 through
December 31, 1997 and for the Three Months ended March 31, 1998.......................................... F-19

Statement of Cash Flows for the period from inception February 21, 1997, through March 31, 1997 and for the
Three Months ended March 31, 1998........................................................................ F-20

Notes to Financial Statements.............................................................................. F-21

Balance Sheets--March 31 and June 30, 1998................................................................. F-25

Statements of Operations for the Three Months Ended June 30, 1997 and 1998................................. F-26

Statement of Changes in Stockholders' Equity for the Three Month Period Ended June 30, 1998................ F-27

Statements of Cash Flows for the Three Months Ended June 30, 1997 and 1998................................. F-28

Notes to Unaudited Financial Statements.................................................................... F-29
</TABLE>

F-1
<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.

/s/ Coopers & Lybrand L.L.P.

Houston, Texas

March 24, 1998, except for the second
and
third paragraphs of Note 8, as to
which the
date is May 5, 1998

F-2
<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-3
<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-4
<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-5
<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-6
<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, the Company will
repurchase approximately 51.8% of each such stockholder's shares of the Company
common stock, or an aggregate of 909,237 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).

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 IPO COSTS

Deferred IPO costs include legal, accounting and other costs directly
related to the IPO. All deferred IPO costs will be charged against the proceeds
of the IPO upon its completion. Such costs would be charged to expense if the
IPO were not completed.

ORGANIZATIONAL COSTS

Organizational costs are being amortized on a straight-line basis over a
five-year period.

F-7
<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 IPO (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-8
<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.

3. RELATED PARTY TRANSACTIONS:

Pentegra Dental has entered into an agreement with the Chairman of its Board
of Directors effective at the date the IPO 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 IPO 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 IPO 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-9
<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 3,094,468 shares of Common Stock 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, PII will repurchase
approximately 51.8% of each such stockholder's shares of PII common stock, or an
aggregate of 909,237 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 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 IPO and
certain Promoters held common and preferred stock that was issued in connection
with the funding of a portion of the expenses for the IPO, 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>

All of the preferred stock will be repurchased or redeemed upon completion
of the IPO 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

F-10
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. PLANNED TRANSACTIONS: (CONTINUED)
the owners of the Founding Affiliated Practices is a promoter of the IPO,
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 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:

F-11
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. PLANNED TRANSACTIONS: (CONTINUED)
- 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.

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.

F-12
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. PLANNED TRANSACTIONS: (CONTINUED)

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. 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):

F-13
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. PLANNED TRANSACTIONS: (CONTINUED)

<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 IPO, 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 IPO.

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 IPO,
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

F-14
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. REDEEMABLE PREFERRED STOCK (CONTINUED)
negotiating the IPO 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 IPO 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 IPO 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 IPO. 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 IPO 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.

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 IPO 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 IPO 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 $8.50 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.

F-15
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. NOTES PAYABLE (CONTINUED)
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 IPO 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 IPO or eight months from the
date the notes were issued.

In March 1998, the Company completed the IPO, issuing 2,500,000 shares at
$8.50 per share, and closed the related transactions under the terms described
in the Notes above.

In April 1998, the Company's underwriters exercised their option for the
overallotment of 375,000 shares at $8.50 per share, net of underwriters
discount.

F-16
<PAGE>
PENTEGRA DENTAL GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
PENTEGRA DENTAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000S)

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents............................................................. $ 100 $ 6,708
Prepaids and Other Current Assets..................................................... -- 101
------------ -----------
Total Current Assets................................................................ 100 6,809

Property and Equipment, Net............................................................. 409 3,577
Goodwill, Net........................................................................... -- 183
Other Assets, Net....................................................................... 2,748 64
------------ -----------
Total Assets........................................................................ $ 3,257 $ 10,633
------------ -----------
------------ -----------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current Liabilities:
Accounts Payable and Accrued Liabilities.............................................. $ 2,095 $ 1,313
Accrued Employment Agreement.......................................................... -- 1,250
------------ -----------
Total Current Liabilities........................................................... 2,095 2,563
Long Term Debt.......................................................................... 215 1,074
Preferred Stock--Class A................................................................ 675 --
Preferred Stock--Class B................................................................ 414 --
Shareholders' Equity (Deficit)
Common Stock.......................................................................... 18 6
Additional Paid in Capital............................................................ 1,194 10,304
Accumulated Deficit................................................................... (1,354) (3,314)
------------ -----------
Total Shareholders' Equity (Deficit)................................................ (142) 6,996
------------ -----------
Total Liabilities and Shareholders' Equity............................................ $ 3,257 $ 10,633
------------ -----------
------------ -----------
</TABLE>

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

F-17
<PAGE>
PENTEGRA DENTAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(000S)

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION,
FEBRUARY 21,
1997 FOR THE
THROUGH THREE MONTHS
MARCH 31, ENDED MARCH
1997 31, 1998
------------ ------------
<S> <C> <C>

Revenue.............................................................................. $ -- $ --

Expenses:

General and administrative expenses................................................ 11 550

Employment agreement............................................................... -- 1,250

Interest expense................................................................... -- 160
------------ ------------

Net loss............................................................................. $ (11) $ (1,960)
------------ ------------

Preferred stock dividend............................................................. -- (1,070)
------------ ------------

Loss attributable to common stock.................................................... $ (11) $ (3,030)
------------ ------------
------------ ------------
</TABLE>

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

F-18
<PAGE>
PENTEGRA DENTAL GROUP, INC
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
CLASS A
COMMON STOCK ADDITIONAL ACCUMULATED
------------------------- PAID IN EQUITY
SHARES AMOUNT CAPITAL (DEFICIT)
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>

Balance at February 21, 1997.................................... -- -- -- --

Issuance of common stock ($0.015 per share cash on February 21,
1997)......................................................... 666,667 $ 7 $ 3 --

Issuance of common stock ($0.015 per share cash and $0.14 per
share Compensation on May 22, 1997)........................... 766,667 8 107 --

Issuance of common stock ($1.27 per share on June 13, 1997)..... 290,000 3 365 --

Issuance of common stock ($0.015 per share cash and $1.26 per
share Compensation on June 13, 1997).......................... 33,333 -- 42 --

Purchases of common stock....................................... (86,667) (1) -- --

Issuance of common stock ($0.015 per share cash and $7.46 per
share compensation on September 1, 1997)...................... 66,667 1 497 --

Issuance of common stock with promissory notes ($9.00 per share
discount on promissory notes on October 8, 1997).............. 20,000 -- 180 --

Net Loss from inception through December 31, 1997............... -- -- -- (1,354)
------------ --- ----------- ------------

Balance at December 31, 1997.................................... 1,756,667 $ 18 $ 1,194 $ (1,354)
------------ --- ----------- ------------

Issuance of common stock........................................ 2,500,000 3 16,357 --

Transfers of certain assets and liabilities From Founding
Affiliated Practices.......................................... 3,094,468 3 (6,180) --

Dividend to Preferred Shareholders.............................. -- -- (1,070) --

Repurchase of Common Stock and Share exchange................... (909,237) (18) 3 --

Net loss........................................................ -- -- -- (1,960)
------------ --- ----------- ------------

Balance at March 31, 1998....................................... 6,441,898 $ 6 $ 10,304 $ (3,314)
------------ --- ----------- ------------
------------ --- ----------- ------------
</TABLE>

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

F-19
<PAGE>
PENTEGRA DENTAL GROUP, INC.
STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED
(000S)

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION, FOR THE
FEBRUARY 21, THREE MONTHS
1997 THROUGH ENDED MARCH
MARCH 31, 1997 31, 1998
--------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................................... (11) $ (1,960)
Increase in accounts payable and accrued expenses.................................. 4 1,476
Changes in operating assets and liabilities........................................ (49)
Amortization of loan discount...................................................... -- 135
--- ------------
Net cash used in operating activities.............................................. (7) (398)
--- ------------
Cash used in investing activities
Capital expenditures............................................................... (2) (310)
Acquisition........................................................................ -- (100)
Dividend to Founding Affiliated Practices.......................................... -- (6,492)
--- ------------
Net cash used in investing activities............................................ (2) (6,902)
--- ------------
Cash flows provided by financing activities:
Issuance of common stock........................................................... 10 19,762
Redemption of preferred stock...................................................... -- (1,691)
Repurchase of common stock......................................................... -- (14)
Proceeds from issuance of debt..................................................... -- 486
Repayment of long-term debt........................................................ -- (3,129)
Offering costs..................................................................... -- (1,447)
Organization costs................................................................. -- (59)
--- ------------
Net cash provided by financing activities........................................ 10 13,908
--- ------------
Net increase in cash and cash equivalents............................................ 1 6,608
--- ------------
--- ------------
Balance at inception, February 21, 1997 and January 1, 1998, respectively............ -- 100
Balance at end of period............................................................. 1 6,708
--- ------------
--- ------------
Non-Cash Activities
Offering cost accrued.............................................................. $ 1,008
------------
------------
Share exchange..................................................................... $ 17
------------
------------
Issuance of notes payable for prepaid assets and acquisitions...................... $ 373
------------
------------
Issuance of notes payable for redemption of preferred stock........................ $ 468
------------
------------
</TABLE>

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

F-20
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

Pentegra Dental Group, Inc. together with its wholly owned subsidiary,
Pentegra Investments, Inc. ("Pentegra" or the "Company"), provides practice
management services to dental practices in the United States. In July 1997, the
Company changed its name to Pentegra Investments, Inc. ("PII") and formed a new
wholly owned subsidiary named Pentegra Dental Group, Inc. ("Pentegra Dental").
On March 30, 1998, simultaneously with the initial public offering, PII
repurchased (the "Share Repurchase") from the stockholders of PII, on a pro rata
basis, at a purchase price of $0.015 per share, that number of shares as was
necessary so that the aggregate number of shares of Pentegra Dental common stock
issued in connection with the Affiliations (as defined below) and the Share
Exchange (as defined below) would not exceed 3,941,898 shares. Pursuant to that
agreement, PII repurchased 909,237 shares for approximately $14,000. The
shareholders exchanged on a share-for-share basis, shares of PII common stock,
par value $0.015 per share, for 1,756,667 shares of common stock of Pentegra
Dental (the "Share Exchange"). On March 30, 1998, Pentegra Dental acquired (the
"Affiliations") simultaneously with the closing of its initial public offering
(the "Offering" or "IPO") of its common stock, par value $.001 per share (the
"Common Stock"), substantially all of the tangible and intangible assets, and
assumed the liabilities, of 50 dental practices (collectively, the "Founding
Affiliated Practices") in exchange for 3.1 million shares of Common Stock, $6.5
million in cash and net assets assumed of approximately $300,000. The net
proceeds of the 2.5 million shares of Common Stock issued in the IPO (after
deducting the underwriting discounts and commissions) were $19.8 million. Total
related offering costs were $3.4 million. The acquisitions of the Founding
Affiliated Practices have been accounted for in accordance with the Securities
and Exchange Commission's Staff Accounting Bulletin No. 48.

In accordance with Staff Accounting Bulletin ("SAB") No. 48, "Transfers of
Nonmonetary Assets by Promoters or Shareholders", published by the SEC, the
acquisition of the assets and assumption of certain liabilities for all of the
Founding Affiliated Practices pursuant to the Acquisitions has been accounted
for by the Company at the transferors' historical cost basis, with the shares of
common stock issued in those transactions being valued at the historical cost of
the nonmonetary assets acquired net of liabilities assumed. The cash
consideration of $6.5 million, paid at closing on March 30, 1998, less net
assets acquired of approximately $300,000, is reflected as a dividend by
Pentegra to the owners of the Founding Affiliated Practices in the quarter ended
March 31, 1998. SAB No. 48 is not applicable to any acquisitions made by the
Company subsequent to the IPO. It is currently anticipated that the Company's
future acquisitions of certain of the assets and liabilities of Affiliated
Practices may result in substantial annual noncash amortization charges for
intangible assets in the Company's statements of operations.

In May 1998, the Board of Directors approved the change of Pentegra's fiscal
year from December 31 to March 31, effective for the year beginning April 1,
1998.

The unaudited condensed consolidated financial statements included herein
have been prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). Pursuant to
such regulations, certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting and disclosures, but do not purport to be a complete presentation
inasmuch as all note disclosures required are not included. In the opinion of
management, the financial statements reflect all elimination entries and normal
adjustments that are necessary for a fair presentation of the results for the
interim period ended March 31, 1998.

F-21
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
Operating results for interim periods are not necessarily indicative of the
results for full years. It is suggested that these consolidated financial
statements be read in conjunction with the Financial Statements of Pentegra and
related notes thereto, and management's discussion and analysis related thereto,
all of which are included in the Company's Registration Statement on Form S-1
(No. 333-37633), as amended (the "Registration Statement"), filed with the SEC
in connection with the Offering.

2. SIGNIFICANT ACCOUNTING POLICIES

INCOME TAXES

As reflected in the accompanying balance sheets, the Company incurred a
deficit of $3,314,000 during the period from inception, February 21, 1997,
through March 31, 1998. 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.

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.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.

3. REDEEMABLE PREFERRED STOCK

Prior to the IPO, certain officers and directors agreed to permit PII to
repurchase their shares of Class B Preferred Stock at the subscription price.
Accordingly, the Company used a portion of the net proceeds of the IPO to
repurchase 245,835 shares of PII 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. The remaining 1,337,500 shares of Class A
and B preferred stock outstanding were redeemed at a price of $1.50 per share,
of which $1.15 per share was paid in cash and $0.35 per share was paid in the
form of 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 IPO 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 IPO. The
Company

F-22
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

3. REDEEMABLE PREFERRED STOCK (CONTINUED)
recognized a dividend on the preferred stock for the difference between the
redemption amount and the recorded value at the date of the IPO of approximately
$1,070,000.

4. 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 IPO 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 $8.50 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 notes and interest were repaid in March 1998. The
Company recognized the remaining unamortized discount of $135,000 in interest
expense during the three-month period ending March 31, 1998.

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 IPO or
July 1998. The notes and interest were repaid in March 1998.

In February 1998, the Company issued $486,000 of 15% promissory notes due on
the earlier of three days after the closing of the IPO or eight months from the
date the notes were issued. The notes and interest were repaid on March 30,
1998.

In connection with the IPO, the Company issued approximately $468,000 notes
payable to certain shareholders formerly owning preferred stock. The notes bear
6% interest and are payable on the earlier of the fifth anniversary of the IPO,
or the date upon which the Company offers and sells an amount of equity
securities equal or greater to the gross proceeds of the IPO.

5. ACCUMULATED DEFICIT

The Company's accumulated deficit at March 31, 1998 is primarily
attributable to compensation costs and other costs of managing the Company prior
to its IPO. On March 30, 1998, an employment bonus of $1,250,000 to the Chairman
of the Board of Directors (the "Chairman") was recorded, and therefore is
included in the Company's accumulated deficit. 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. 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.

6. YEAR 2000

The year 2000 issue is the result of computer programs using two digits to
define the applicable year rather than four. Any programs that have time
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. A computer system that is not year 2000 compliant would not be
able to correctly process certain data, or, in extreme situations, system
failure could result.

F-23
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

6. YEAR 2000 (CONTINUED)
The Company has recently completed the purchase and installation of year
2000 compliant software for its operations. Accordingly the Company does not
expect the year 2000 issue to have a material effect on its financial position,
results of operations or cash flows.

7. SUBSEQUENT EVENTS

In April 1998, the underwriters of the IPO exercised their option to sell an
additional 375,000 shares of common stock for $8.50 per share. The net proceeds
after commissions provided an additional $3 million in cash to the Company.

Also in April 1998, the Company filed a Form S-4, registering an additional
1.5 million shares of Common Stock in the Company. The shares will be issued by
the Company as consideration for the affiliation of practices.

F-24
<PAGE>
PENTEGRA DENTAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(000S)

<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1998
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 6,708 $ 3,094
Receivables from affiliated practices.................................................... -- 3,447
Prepaid and other current assets......................................................... 101 291
----------- ---------
Total current assets................................................................... 6,809 6,832

Property and equipment, net................................................................ 3,577 4,245
Intangible assets, net..................................................................... 183 6,988
Notes receivables from affiliated practices................................................ -- 657
Other assets, net.......................................................................... 64 90
----------- ---------
Total assets........................................................................... $ 10,633 $ 18,812
----------- ---------
----------- ---------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable and accrued liabilities................................................. $ 1,313 $ 1,850
Accrued employment agreement............................................................. 1,250 1,190
----------- ---------
Total current liabilities.............................................................. 2,563 3,040

Long-term debt............................................................................. 1,074 502
----------- ---------
Total liabilities.................................................................... 3,637 3,542
----------- ---------
Shareholders' equity
Common stock............................................................................. 6 7
Additional paid-in capital............................................................... 10,304 17,903
Retained earnings (deficit).............................................................. (3,314) (2,640)
----------- ---------
Total shareholders' equity............................................................. 6,996 15,270
----------- ---------
Total liabilities and shareholders' equity............................................. $ 10,633 $ 18,812
----------- ---------
----------- ---------
</TABLE>

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

F-25
<PAGE>
PENTEGRA DENTAL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1998
--------------- -------------
<S> <C> <C>
Net revenue......................................................................... $ -- $ 7,412
----- -------------
Operating expenses:
Clinical salaries, wages and benefits............................................. -- 2,836
Dental supplies and lab fees...................................................... -- 1,220
Rent.............................................................................. -- 550
Advertising and marketing......................................................... -- 111
General and administrative........................................................ 80 876
Compensation expense in connection with issuance of common stock.................. 148 --
Other operating expenses.......................................................... -- 751
Depreciation and amortization..................................................... -- 171
----- -------------
Total operating expenses........................................................ 228 6,515
----- -------------
Earnings (loss) from operations..................................................... (228) 897
Interest income, net.............................................................. -- 40
----- -------------
Income (loss) before income taxes................................................... (228) 937
Income taxes...................................................................... -- 263
----- -------------
Net income (loss)................................................................... $ (228) $ 674
----- -------------
----- -------------
Basic and diluted earnings per share................................................ $ 0.10
-------------
-------------
Weighted average number of shares outstanding:
Basic............................................................................. 6,886,000
-------------
-------------
Diluted........................................................................... 6,886,000
-------------
-------------
</TABLE>

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

F-26
<PAGE>
PENTEGRA DENTAL GROUP, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
------------------------- PAID-IN EARNINGS SHAREHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
---------- ------------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1998............................ 6,441,898 $ 6 $ 10,304 $ (3,314) $ 6,996
Issuance of common stock............................ 375,000 2,929 2,929
Issuance of common stock to affiliated practices.... 677,592 1 4,670 4,671
Net income.......................................... 674 674
--
---------- ----------- --------- -------------
Balance at June 30, 1998............................ 7,494,490 $ 7 $ 17,903 $ (2,640) $ 15,270
--
--
---------- ----------- --------- -------------
---------- ----------- --------- -------------
</TABLE>

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

F-27
<PAGE>
PENTEGRA DENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000S)

<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1998
--------------- -------------
<S> <C> <C>
Net cash used in operating activities............................................... $ (88) $ (1,358)
----- -------------
Cash used in investing activities:
Capital expenditures.............................................................. (3) (252)
Acquisition of intangible assets.................................................. -- (2,782)
Issuance of notes receivable to affiliated practices.............................. -- (718)
----- -------------
Net cash used in investing activities........................................... (3) (3,752)
----- -------------
Cash flows provided by financing activities:
Issuance of common stock.......................................................... 378 2,964
Issuance of preferred stock....................................................... 763 --
Repayment of indebtedness......................................................... -- (392)
Payment of offering costs......................................................... (200) (1,076)
Payment of organization costs..................................................... (6) --
----- -------------
Net cash provided by financing activities....................................... 935 1,496
----- -------------
Net increase (decrease) in cash and cash equivalents................................ 844 (3,614)
----- -------------
Balance at beginning of period...................................................... 1 6,708
----- -------------
Balance at end of period............................................................ $ 845 $ 3,094
----- -------------
----- -------------
Non-cash activities:
Stock subscription receivable..................................................... 326 --
</TABLE>

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

F-28
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

Pentegra Dental Group, Inc. (the "Company") together with its wholly owned
subsidiary, Pentegra Investments, Inc. ("PII"), provides practice management
services to dental practices in the United States. In July 1997, the Pentegra
Dental Group, Inc., changed its name to Pentegra Investments, Inc. and formed a
new wholly owned subsidiary named Pentegra Dental Group, Inc. ("Pentegra Dental"
or "the Company"). On March 30, 1998, simultaneously with the Company's initial
public offering, PII repurchased (the "Share Repurchase") from the stockholders
of PII, on a pro rata basis, at a purchase price of $0.015 per share, that
number of shares as was necessary so that the aggregate number of shares of
Pentegra Dental common stock, par value $.001 per share (the "Common Stock")
issued in connection with the Affiliations (as defined below) and the Share
Exchange (as defined below) would not exceed 3,941,898 shares. Pursuant to that
agreement, PII repurchased 909,237 shares for approximately $14,000. The
shareholders exchanged on a share-for-share basis, shares of PII common stock,
par value $0.015 per share, for 1,756,667 shares of Common Stock (the "Share
Exchange"). On March 30, 1998, Pentegra Dental acquired (the "Affiliations")
simultaneously with the closing of its initial public offering (the "Offering"
or "IPO"), substantially all of the tangible and intangible assets, and assumed
the liabilities, of 50 dental practices (collectively, the "Founding Affiliated
Practices") in exchange for 3.1 million shares of Common Stock, $6.5 million in
cash and net assets assumed of approximately $300,000. The net proceeds of the
2.5 million shares of Common Stock issued in the IPO (after deducting the
underwriting discounts and commissions) were $19.8 million. Total related
offering costs were $3.4 million.

The acquisitions of the Founding Affiliated Practices have been accounted
for in accordance with the Securities and Exchange Commission's Staff Accounting
Bulletin ("SAB") No. 48, "Transfers of Nonmonetary Assets by Promoters or
Shareholders". In accordance with SAB No. 48, the acquisition of the assets and
assumption of certain liabilities for all of the Founding Affiliated Practices
pursuant to the Affiliations has been accounted for by the Company at the
transferors' historical cost basis, with the shares of Common Stock issued in
those transactions being valued at the historical cost of the nonmonetary assets
acquired net of liabilities assumed. The cash consideration of approximately
$6.5 million, paid at closing on March 30, 1998, less net assets acquired of
approximately $300,000, is reflected as a dividend by the Company to the owners
of the Founding Affiliated Practices in the quarter ended March 31, 1998. SAB
No. 48 is not applicable to any acquisitions made by the Company subsequent to
the IPO. Acquisitions of certain of the assets and liabilities of practices that
affiliate with the Company after the IPO will generally be accounted for as
purchases, and may result in substantial annual noncash amortization charges for
intangible assets in the Company's statements of operations. In April, 1998, the
over allotment option to sell 375,000 share of common stock was exercised at a
price of $8.50 per share, yielding additional net proceeds to the Company of
approximately $2.9 million.

On April 17, 1998, the Company filed a registration statement on Form S-4
for 1,500,000 shares of Common Stock, which the Company may issue from time to
time in connection with the direct and indirect acquisitions of other
businesses, properties or securities in business combination transactions. The
terms upon which it issues the shares in business combination transactions are
determined through negotiations with the security holders or principal owners of
the businesses whose securities or assets are to be acquired. The shares that
are issued are valued at prices reasonably related to prevailing market prices
for the Common Stock. Persons receiving Common Stock in connection with such
acquisitions may be contractually required to hold all or some portion of the
Common Stock for varying periods of time. As of June 30, 1998, 677,592 shares
registered under this filing had been issued.

F-29
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)

1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
In May 1998, the Company changed its fiscal year from December 31 to March
31, effective for the year beginning April 1, 1998.

The unaudited consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Pursuant to such
regulations, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
and disclosures, but do not purport to be a complete presentation inasmuch as
all note disclosures required are not included. In the opinion of management,
the consolidated financial statements reflect all elimination entries and normal
adjustments that are necessary for a fair presentation of the results for the
interim period ended June 30, 1998.

Operating results for interim periods are not necessarily indicative of the
results for full years. It is suggested that these consolidated financial
statements be read in conjunction with the Financial Statements of Pentegra
Dental Group, Inc., and related notes thereto, and management's discussion and
analysis related thereto, all of which are included in the Company's
Registration Statement on Form S-1 (No. 333-37633), as amended (the
"Registration Statement"), filed with the SEC in connection with the Offering.

2. SIGNIFICANT ACCOUNTING POLICIES

INTANGIBLE ASSETS

Intangible assets consist primarily of management service fee intangibles
which are amortized over a 25-year period. The Company's management periodically
evaluates the realizability of the intangible assets on a practice by practice
basis considering such factors as profitability and net cash flow. Should this
evaluation result in an assessment that the value of the intangible asset is
impaired, a loss will be recorded in the period that the impairment is
identified. If it is determined that the estimated amortization period requires
revision, that revision will be made on a prospective basis.

INCOME TAXES

The Company's effective tax rate for the period was 28%. The difference
between the effective tax rate and the statutory rate reflects the utilization
of operating loss carryforwards.

EARNINGS PER SHARE

Earnings per share are computed based upon the weighted average number of
shares of common stock and common stock equivalents outstanding during each
period. Diluted earnings per share are not separately presented because such
amounts would be the same as amounts computed for basic earnings per share.
Outstanding options to purchase 686,666 shares of Common Stock at exercise
prices above the

F-30
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
market value of Common Stock were excluded from the calculation of earnings per
share for the three months ended June 30, 1998 because their effect would have
been antidilutive.

USE OF ESTIMATES

3. NOTES PAYABLE

On June 1, 1998, the Company closed a revolving bank credit facility with
Bank One, Texas, N.A., which provides the Company with a revolving line of
credit of up to $15.0 million, to be used for general corporate purposes
including financing of acquisitions, capital expenditures and working capital.
The credit facility is collateralized by liens on certain of the Company's
assets, including its rights under the management service agreements and
accounts receivable. The credit facility contain restrictions on the incurrence
of additional indebtedness and payment of dividends on the Common Stock.
Additionally, compliance with certain financial covenants is required and the
lender has approval rights with respect to acquisitions exceeding certain
limits. At June 30, 1998, no amounts were outstanding under the revolving line
of credit.

4. RETAINED EARNINGS (DEFICIT)

The Company's retained earnings (deficit) at June 30, 1998 is primarily
attributable to compensation costs and other costs of managing the Company prior
to its IPO. On March 30, 1998, an employment bonus of $1,250,000 to the Chairman
of the Board of Directors (the "Chairman") was recorded, and therefore is
included in the Company's retained earnings (deficit). Payments of the bonus
have been and will continue to be made in increments of $10,000 on the closing
of each future dental practice affiliation until the bonus has been paid in
full. 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
IPO. At June 30, 1998, a bonus payable of $1,190,000 remained outstanding.

5. NEW DENTIST AFFILIATIONS

During the period from March 30, 1998 through June 30, 1998, the Company
completed new dentist affiliations with 10 practices representing 14 dentists
and 10 office locations. Total consideration related to the new affiliations
consisted of 677,592 shares of Common Stock and $2,782,000 cash. The cost of
each of the above new dental practice affiliations has been allocated on the
basis of the estimated fair market value of the assets acquired and liabilities
assumed, resulting in intangibles of $6,861,000. These allocations may be
adjusted to the extent that management becomes aware of additional information
within one reporting year of the affiliation date which results in a material
change in the amount of any contingency or changes in the estimated fair market
value of assets acquired and liabilities assumed.

F-31
<PAGE>
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----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................ 2

Risk Factors...................................... 6

The Company....................................... 14

Recent Developments............................... 14

Price Range of Common Stock....................... 15

Dividend Policy................................... 15

Selected Financial Data........................... 16

Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 17

Business.......................................... 20

Management........................................ 31

Certain Transactions.............................. 37

Security Ownership of Certain Beneficial Owners
and Management.................................. 39

Description of the Convertible Debt Securities.... 40

Description of Capital Stock...................... 48

Shares Eligible for Future Sale................... 51

Certain United States Federal Income Tax
Consequences.................................... 53

Plan of Distribution.............................. 56

Legal Matters..................................... 56

Experts........................................... 56

Additional Information............................ 56

Index to Financial Statements..................... F-1
</TABLE>

[LOGO]
PENTEGRA DENTAL GROUP, INC.

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

PROSPECTUS

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

OCTOBER 21, 1998

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