PENTEGRA DENTAL GROUP INC, S-4/A, 1998-04-17

PENTEGRA DENTAL GROUP INC
S-4/A, 1998-04-17
OFFICES & CLINICS OF DOCTORS OF MEDICINE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1998

REGISTRATION NO. 333-49473

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PENTEGRA DENTAL GROUP, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 8021 76-0545043
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>

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<TABLE>
<S> <C>
PENTEGRA DENTAL GROUP, INC. GARY S. GLATTER
2999 NORTH 44TH STREET, SUITE 650 2999 NORTH 44TH STREET, SUITE 650
PHOENIX, ARIZONA 85018 PHOENIX, ARIZONA 85018
(602) 952-1200 (602) 952-1200
(Address, including zip code, and (Name and address, including zip code,
telephone number, including area code, and telephone number, including area
of registrant's principal executive code, of agent for service)
offices)
</TABLE>

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COPY TO:

RICHARD S. ROTH
JACKSON WALKER L.L.P.
1100 LOUISIANA
SUITE 4200
HOUSTON, TEXAS 77002

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

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If the securities being registered on this Form are to be offered are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. / /

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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SUBJECT TO COMPLETION, DATED APRIL 17, 1998

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
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1,500,000 SHARES

[LOGO]
PENTEGRA DENTAL GROUP, INC.
COMMON STOCK

This Prospectus covers the offer and sale of up to 1,500,000 shares of
Pentegra Common Stock, par value $.001 per share ("Common Stock"), of Pentegra
Dental Group, Inc. ("Pentegra" or the "Company"), which Pentegra 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
in accordance with Rule 415(a)(1)(viii) of Regulation C under the Securities Act
of 1933, as amended, (the "Securities Act"), or as otherwise permitted under
Securities Act.

Pentegra expects that the terms upon which it may issue the shares in
business combination transactions will be determined through negotiations with
the securityholders or principal owners of the businesses whose securities or
assets are to be acquired. It is expected that the shares 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.

This Prospectus will be furnished to securityholders of the business,
properties or securities to be acquired. This Prospectus will only be used in
connection with the acquisition of businesses, properties or securities in
business combination transactions that would be exempt from registration but for
the possibility of integration with other transactions. If an acquisition of a
business, properties or securities in a business combination transaction is not
exempt from registration even if integration is not taken into account, then the
offerees of Common Stock in such acquisition will be furnished with copies of
this Prospectus as amended by a post-effective amendment to the Registration
Statement on Form S-4 of which this Prospectus is a part.

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. 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 shares by
affiliates of the businesses the Company acquires for a period of two years. See
"Plan of Distribution."

If an acquisition has a material financial effect upon Pentegra, a current
report on Form 8-K or if Pentegra is not eligible to incorporate such a report
by reference a post-effective amendment to the registration statement of which
this Prospectus forms a part, will be filed subsequent to the acquisition, and
prior to the consummation of additional acquisitions utilizing this Prospectus,
containing financial and other information about the acquisition that would be
material to subsequent acquirors of Common Stock offered hereby, including pro
forma information for Pentegra and historical financial information about the
company that was acquired. A current report on Form 8-K, or if Pentegra is not
eligible to incorporate such a report by reference a post-effective amendment to
the registration statement of which this Prospectus forms a part, will also be
filed when an acquisition does not per se have a material effect upon Pentegra,
but if aggregated with other acquisitions (for which such information has not
been filed) since the date of Pentegra's most recent audited financial
statements, would have such a material effect.

As of April 16, 1998, 6,441,898 shares of Common Stock were issued and
outstanding, of which 2,500,000 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 April 16, 1998, the last reported sales price of the Common Stock
on The American Stock Exchange was $8.188 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.

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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
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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 APRIL , 1998.

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[MAP]

*Pentegra does not intend to employ dentists to practice dentistry or
otherwise control the practice of dentistry by dentists employed by Affiliated
Practices to which it will provide administrative and management services.
<PAGE>
PROSPECTUS SUMMARY

PENTEGRA DENTAL GROUP, INC. ("PENTEGRA" OR THE "COMPANY") WAS RECENTLY
FORMED AND ACQUIRED ON MARCH 30, 1998 (CONCURRENTLY WITH THE CONSUMMATION OF
PENTEGRA'S INITIAL PUBLIC OFFERING (THE "IPO")), IN SEPARATE TRANSACTIONS (THE
"AFFILIATIONS"), SUBSTANTIALLY ALL THE TANGIBLE AND INTANGIBLE ASSETS OF,
ASSUMED CERTAIN LIABILITIES OF, AND ENTERED INTO LONG-TERM SERVICE AGREEMENTS
WITH 50 DENTAL PRACTICES (COLLECTIVELY, THE "FOUNDING AFFILIATED PRACTICES") IN
EXCHANGE FOR CASH AND SHARES OF COMMON STOCK. 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 FOUNDING AFFILIATED PRACTICES
AND ANY DENTAL PRACTICES WITH WHICH THE COMPANY 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 50 professional
corporations or associations owned by the dentist-owners of the Founding
Affiliated Practices, which include 77 dentists and 63 dental offices located in
18 states. The Company acquired substantially all of the tangible and intangible
assets, and assumed certain liabilities, of the Founding Affiliated Practices.
The Founding Affiliated Practices are primarily general dentistry practices, but
also include specialists such as periodontists, pedodontists and oral surgeons.
In addition, the Company 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:

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service basis. The Company believes that fee-for-service care is
high-quality, highly profitable and professionally rewarding for dentists.

- INCREASE PRODUCTIVITY AND PROFITABILITY OF AFFILIATED PRACTICES BY
IMPLEMENTING THE PENTEGRA DENTAL PROGRAM. The Pentegra Dental Program
involves implementing techniques designed to increase revenues and lower
costs, as well as methods to make the dentist and his or her practice team
more efficient in the delivery of dental care.

- LOWER OPERATING COSTS BY ACHIEVING ECONOMIES OF SCALE. The Company
believes that, as a result of its size and resources, it will be able to
provide Affiliated Practices with certain management functions at lower
cost than if the Affiliated Practices were to perform the services by
themselves.

- FREE THE DENTIST TO FOCUS MORE TIME ON THE PRACTICE OF DENTISTRY. The
Company will relieve practicing dentists of administrative tasks. The
Company believes its management and administrative support will
substantially reduce the amount of time affiliated dentists are required
to spend on administrative matters and enable them to dedicate more time
and effort toward the growth of their professional practices.

- GROW THROUGH ACQUISITIONS AND AFFILIATIONS OF ADDITIONAL DENTAL
PRACTICES. The Company will generally seek to affiliate with practices
that have high potential for future growth, particularly through
implementation of the Pentegra Dental Program, an established reputation
for high-quality care and a strategic fit either in an existing market or
as an entry into a new market.

The Pentegra Dental Program is based on a cooperative approach that
emphasizes patient wellness and involves the dentist and his or her patient
mutually agreeing on a program to achieve and maintain optimal oral health. The
Company believes that the average dentist has the skills necessary to diagnose
and provide appropriate care to patients, but many of them have not developed
the skills needed to obtain patient acceptances of, and commitments to, the
treatment plans. As a result, a significant amount of recommended care may not
be completed, with correspondingly lower revenues to the dentists. The Company
will provide training and support to assist affiliated dentists and their teams
to communicate 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 Founding Affiliated
Practices and, among other things, (i) administers the billing and collections
for the Founding 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 Founding Affiliated
Practices. The service fees payable by the Founding Affiliated Practices to the
Company under the Service Agreements were determined in arm's length
negotiations among the parties. Generally the service fees are computed based on
(i) a percentage of revenues less operating expenses, (ii) a percentage of
revenues not to exceed a percentage of revenues less operating expenses, (iii) a
specific fixed service fee or (iv) some combination of these. See
"Business--Service Agreements."

4
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THE OFFERING

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<S> <C>
Common Stock offered by the Company...... 1,500,000 shares
Common Stock to be outstanding after this
Offering(1)............................ 7,941,898 shares
American Stock Exchange symbol........... PEN
</TABLE>

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(1) Includes 3,094,468 shares of Common Stock issued in connection with 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 2,500,000 shares of Common Stock issued in the IPO, and
excludes (i) an aggregate of 671,667 shares of Common Stock issuable upon
exercise of stock options to be granted under the Company's 1997 Stock
Compensation Plan (the "1997 Stock Compensation Plan") effective on the date
of this Prospectus at an exercise price equal to $8.50 per share and (ii)
1,328,333 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 pro forma statement of operations has been included in this
Prospectus. The nature and amount of costs to be incurred by the Company in
connection with the management services it will provide to the Founding
Affiliated Practices may differ from the costs historically incurred by the
Founding Affiliated Practices. The summary historical financial information
presented below has been derived from the audited financial statements of
Pentegra Dental Group, Inc. included in this Prospectus. Except as indicated,
the following information does not reflect the effects of the IPO, the
Affiliations, the Share Exchange, the Pentegra/ Napili Transaction and the
repurchase and redemption of all of the issued and outstanding shares of
preferred stock of PII (the "Repurchase and Redemption"). For certain
information concerning the Affiliations, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 4 of Notes
to the Pentegra Dental Group, Inc. financial statements.

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<CAPTION>
FOR THE PERIOD FROM
INCEPTION (FEBRUARY
21, 1997) THROUGH
DECEMBER 31,
1997
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<S> <C>
Statement of Operations Data:
Revenue................................................................ $ --
Expenses
General and administrative expenses.................................. 709
Other expenses....................................................... 645
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Total expenses..................................................... 1,354
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Net loss............................................................. $ (1,354)
-------
-------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
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HISTORICAL AS ADJUSTED(1)
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<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................................ $ 100 $ 6,525
Working capital (deficit)........................................ (2,210) 5,251
Total assets..................................................... 3,257 10,286
Redeemable preferred stock....................................... 1,089 --
Stockholders' equity (deficit)................................... (142) 8,138
</TABLE>

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(1) As adjusted gives effect to (i) the IPO, (ii) the Affiliations, (iii) the
repayment of certain indebtedness of Pentegra and the Founding Affiliated
Practices, (iv) the Pentegra/Napili Transaction, (v) the Share Exchange and
(vi) the Repurchase and Redemption, as if such transactions had occurred on
December 31, 1997. It excludes the effect of the issuance in February 1998,
and repayment from proceeds of the IPO, of $486,000 aggregate principal
amount of 15% promissory notes. See the Unaudited Pro Forma Balance Sheet of
Pentegra and the notes thereto included in this Prospectus.

6
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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 has conducted no operations to date
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," "--Immediate and
Substantial Dilution and Absence of Dividends," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and
"Business--Business Strategy."

POTENTIAL DILUTION OF EXISTING STOCKHOLDERS; NONCASH AMORTIZATION CHARGES

Using shares of Common Stock as consideration for (or in order to provide
financing for) future acquisitions could result in significant dilution to
then-existing stockholders. In addition, future acquisitions accounted for as
purchases may result in substantial annual noncash amortization charges for
intangible assets in the Company's statements of operations.

8
<PAGE>
NEED FOR ADDITIONAL FINANCING

The Company's expansion program will require substantial capital resources.
Capital is needed not only for the acquisition of the assets of additional
Affiliated Practices, but also for the effective integration, operation and
expansion of the Affiliated Practices. The Affiliated Practices may from time to
time require capital for renovation and expansion and for the addition of
equipment and technology, and there can be no assurance that an Affiliated
Practice to which the Company advances working capital loans for these purposes
will be able to repay those loans in full. The Company believes the net proceeds
from the IPO and cash flow from operations will be sufficient to meet the
Company's anticipated expansion and working capital needs through the end of
1998. Thereafter, however, the Company may require additional capital from
outside financing sources in order to continue its expansion program. There can
be no assurance that the Company will be able to obtain additional funds when
needed on satisfactory terms or at all. Any significant limitation on the
Company's ability to obtain additional financing could have a material adverse
effect on the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

PROCEEDS OF IPO PAYABLE TO AFFILIATES

In connection with the closing of the Affiliations, 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, 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), (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 $10,000 to
James P. Allen, D.D.S., $10,000 to Steve Anderson, D.D.S., $10,000 to Marvin V.
Cavallino, D.D.S., $20,000 to James H. Clarke, Jr., D.D.S., $5,000 to Henry F.
Cuttler, D.D.S., $6,000 to Edward T. Dougherty, Jr., D.D.S., $20,000 to Kevin
Gasser, D.D.S., $5,000 to Alan H. Gerbholz, D.D.S., $20,000 to Mack E. Greder,
D.D.S., $20,000 to Salvatore Guarnieri, D.D.S., $25,000 to Kent Hamilton,
D.D.S., $10,000 to Stephen Hwang, D.D.S., $10,000 to Penn Jackson, Sr., D.D.S.,
$10,000 to Roger Allen Kay, D.D.S., $5,000 to Patrick T. Kelly, D.D.S., $5,000
to Brian K. Kniff, D.D.S., $10,000 to Donald W. Lanning, D.D.S., $10,000 to
David A. Little, D.D.S., $10,000 to Richard W. Mains, D.D.S., $35,000 to James
M. McDonough, D.D.S. $5,000 to James W. Medlock, D.D.S., $5,000 to Mary B.
Mellard, D.D.S., $7,500 to Byron L. Novosad, D.D.S., $35,000 to Harold A.
Pebbles, Jr., D.D.S. $5,000 to Richard Reinitz, D.D.S., $30,000 to Richard N.
Smith, D.D.S., $20,000 to Jack Stephens, D.D.S., $15,000 to Y. Paul Suzuki,
D.D.S., $10,000 to S. Victor Uhrenholdt, D.D.S. and $15,000 to Ronald M. Yaros,
D.D.S. (all of whom are dentist-owners of Founding Affiliated Practices) and
approximately $35,000 to George M. Siegel, and (iii) an aggregate of
approximately $276,000 of the net proceeds of the IPO in connection with the
purchase of certain accounts receivable from the Founding Affiliated Practices.
See "Use of Proceeds" and "Certain Transactions--Organization of the Company."

9
<PAGE>
GOVERNMENT REGULATION

Various federal and state laws regulate the dental services industry.
Regulatory oversight includes, but is not limited to, considerations of fee
splitting, corporate practice of dentistry, prohibitions on fraud and abuse,
restrictions on referrals and self-referrals, advertising restrictions,
restrictions on delegation and state insurance regulation.

CORPORATE PRACTICE OF DENTISTRY AND FEE SPLITTING RESTRICTIONS

The laws of many states, including all the states in which the Founding
Affiliated Practices are located other than New Mexico and Wisconsin, prohibit
business corporations such as the Company from engaging in the practice of
dentistry or employing dentists to practice dentistry. The specific restrictions
against the corporate practice of dentistry, as well as the interpretation of
those restrictions by state regulatory authorities, vary from state to state.
The restrictions are generally designed to prohibit a non-dental entity (such as
the Company) from controlling the professional assets of a dental practice (such
as patient records and payor contracts), employing dentists to practice
dentistry (or, in certain states, employing dental hygienists or dental
assistants), or controlling the content of a dentist's advertising or
professional practice. The laws of many states, including all the states in
which the Founding Affiliated Practices are located other than Alaska, Maine,
Massachusetts, New Mexico and Wisconsin, also prohibit dentists from sharing
professional fees with non-dental entities. State dental boards do not generally
interpret these prohibitions as preventing a non-dental entity from owning
non-professional assets used by a dentist in a dental practice or providing
management services to a dentist for a fee, provided certain conditions are met.
The Company believes that its operations will not contravene any applicable
restriction on the corporate practice of dentistry. There can be no assurance,
however, that a review of the Company's business relationships by courts or
regulatory authorities will not result in determinations that could prohibit or
otherwise adversely affect the operations of the Company or that the regulatory
environment will not change, requiring the Company to reorganize or restrict its
existing or future operations. The laws regarding fee-splitting and the
corporate practice of dentistry and their interpretation are enforced by
regulatory authorities with broad discretion. There can be no assurance that the
legality of the Company's business or its relationship with the Affiliated
Practices will not be successfully challenged or that the enforceability of the
provisions of any Service Agreement will not be limited.

FRAUD AND ABUSE LAWS AND RESTRICTIONS ON REFERRALS AND SELF-REFERRALS

Many states in which the Founding Affiliated Practices are located,
including California, Florida, Maine, Maryland, Michigan, New York, Texas and
Washington, have fraud and abuse laws that, in many cases, apply to referrals
for items or services reimbursable by any insurer, not just by Medicare and
Medicaid. A number of states, including many of the states in which the Founding
Affiliated Practices are located, also impose significant penalties for
submitting false claims for dental services. In addition, most of the states in
which the Founding Affiliated Practices are located, including Alaska, Arizona,
California, Florida, Louisiana, Maine, Maryland, Michigan, New York, Texas and
Washington, have laws prohibiting paying or receiving any remuneration, direct
or indirect, that is intended to induce referrals for health care items or
services, including dental items and services. Many states in which the Founding
Affiliated Practices are located either prohibit or require disclosure of
self-referral arrangements and impose penalties for the violation of these laws.
Many states, including Alaska, Florida and Maine, limit the ability of a person
other than a licensed dentist to own or control equipment or offices used in a
dental practice. Some of these states allow leasing of equipment and office
space to a dental practice under a bona fide lease, if the equipment and office
remain under the control of the dentist.

ADVERTISING RESTRICTIONS AND LIMITATIONS ON DELEGATION

10
<PAGE>
regulate the content of advertisements of dental services and the use of
promotional gift items. In addition, many states impose limits on the tasks that
may be delegated by dentists to hygienists and dental assistants. These laws and
their interpretations vary from state to state and are enforced by the courts
and by regulatory authorities with broad discretion.

INSURANCE REGULATION

There are certain state insurance regulatory risks associated with the
Company's anticipated role in negotiating and administering managed care
contracts on behalf of the Affiliated Practices. The application of state
insurance laws to third-party payor arrangements, other than fee-for-service
arrangements, is an unsettled area of law with little guidance available. State
insurance laws are subject to broad interpretation by regulators and, in some
states, state insurance regulators may determine that the Company or the
Affiliated Practices are engaged in the business of insurance because of the
capitation features (or similar features under which an Affiliated Practice
assumes financial risk) that may be contained in managed care contracts. In the
event the Company or an Affiliated Practice is determined to be engaged in the
business of insurance, the Company or the Affiliated Practice could be required
to either seek licensure as an insurance company or change the form of its
relationships with the third-party payors. There can be no assurance that the
Company's operations would not be adversely affected if the Company or any of
the Affiliated Practices were to become subject to state insurance regulations.

HEALTH CARE REFORM

The United States Congress has considered various types of health care
reform, including comprehensive revisions to the current health care system. It
is uncertain what legislative proposals, if any, will be adopted in the future
or what actions federal or state legislatures or third-party payors may take in
anticipation of or in response to any health care reform proposals or
legislation. There can be no assurance that applicable federal or state laws and
regulations will not change or be interpreted in the future either to restrict
or adversely affect the Company's relationships with dentists or the operation
of Affiliated Practices. See "Business--Government Regulation."

RISKS ASSOCIATED WITH COST CONTAINMENT INITIATIVES

The health care industry, including the dental services market, is
experiencing a trend toward cost containment, as third-party and government
payors seek to impose lower reimbursement rates on providers. The Company
believes this trend will continue and will increasingly affect dental services.
This may result in a reduction in per-patient and per-procedure revenue from
historical levels. There can be no assurance that any reductions in revenues and
operating margins could be offset through cost reductions, increased volume,
introduction of new procedures or otherwise. Accordingly, significant reductions
in payments to Affiliated Practices or other changes in reimbursement by
third-party payors for dental services performed by Affiliated Practices may
have a material adverse effect on the Company.

RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS; CAPITATED FEE REVENUE

The Company believes that managed care arrangements are becoming more
prevalent in certain sectors of the dental services industry. As an increasing
percentage of the population is covered by managed care organizations that
provide dental coverage, the Company believes its future success may be
dependent, in part, on its ability to assist the Affiliated Practices in
negotiating contracts with dental health maintenance organizations, insurance
companies, self insurance plans and other private third-party payors pursuant to
which services will be provided on some type of fee-for-service or capitated
basis by some of its Affiliated Practices. Under certain capitated contracts,
the health care provider accepts a predetermined amount per patient per month as
its sole payment in exchange for providing a specific schedule of services to
enrollees. These contracts shift much of the risk of providing health care from
the payor to the provider. To the extent that an Affiliated Practice enters into
capitated managed care arrangements, it will be

11
<PAGE>
exposed to the risk that the cost of providing dental care required by these
contracts exceeds the amount the Affiliated Practice receives for providing such
care. If those costs exceed the revenues received for the service provided, the
Affiliated Practice will remain responsible under its Service Agreement for
reimbursing the Company for all of the costs associated with providing those
services, even if no service fee is due thereunder. To the extent an Affiliated
Practice enters into additional managed care contracts, it may achieve greater
predictability of revenues but greater unpredictability of expenses due to the
fluctuating costs of the services provided. There can be no assurance that the
Company will be able to negotiate on behalf of the Affiliated Practices
satisfactory arrangements on a capitated basis, regardless of the amount of risk
sharing. In addition, to the extent that patients or enrollees covered by
certain of these contracts require, in the aggregate, more frequent or extensive
care than anticipated, operating margins may be reduced, or the revenues derived
from these agreements may be insufficient to cover the costs of the services
provided. As a result, Affiliated Practices would be at risk for additional
costs which would reduce or eliminate any earnings for the Affiliated Practices
under these contracts, with a corresponding reduction in or elimination of the
service fee payable to the Company in those cases where the Service Agreements
provide for percentage-based service fees.

CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS

Dr. Reed, the Company's Chairman of the Board, the other executive officers
and directors of the Company as a group and the owners of the Founding
Affiliated Practices other than Dr. Reed beneficially own approximately 1.8%,
13.6% and 46.8%, 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 will be 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 will be a party to a Service
Agreement with the Company. In connection with the provision of management
services by the Company to the Affiliated Practices owned by those dentists,
conflicts of interest may arise. See "--Certain Anti-takeover Provisions,"
"Security Ownership of Certain Beneficial Owners and Management" and "Certain
Transactions."

DEPENDENCE ON KEY PERSONNEL

The Company's future performance depends in significant part on the
continued service of its senior management, including Dr. Reed and Gary S.
Glatter, the President and Chief Executive Officer of the Company. There can be
no assurance that these individuals will continue to work for the Company. Loss
of

12
<PAGE>
services of those persons could have a material adverse effect on the Company.
The success of the Company's growth strategy will also depend on the Company's
ability to attract and retain additional high quality personnel. See
"Business--Employees" and "Management."

COMPETITION

The Company anticipates facing substantial competition from other companies
to establish affiliations with additional dental practices. The Company is aware
of several publicly traded dental practice management companies that have
operations in jurisdictions where one or more of the 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 (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 following the IPO. The shares being sold in the IPO 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

13
<PAGE>
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.

The Company and its directors, executive officers and current stockholders
have agreed not to offer or sell any shares of Common Stock for a period of 180
days (the "180-Day Lockup Period") following March 24, 1998 without the prior
written consent of Dain Rauscher Incorporated, except that the Company may,
subject to certain conditions, issue Common Stock in connection with
acquisitions and awards under the 1997 Stock Compensation Plan.

The 1,500,000 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, and resales of those shares
during the 180-Day Lockup Period would require the prior written consent of Dain
Rauscher Incorporated. The Company anticipates that 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.

The Company has outstanding under the 1997 Stock Compensation Plan options
to purchase approximately 671,667 shares of Common Stock. The Company intends to
register the shares issuable upon exercise of options granted under the 1997
Stock Compensation Plan. See "Management--1997 Stock Compensation Plan" and
"Shares Eligible for Future Sale."

NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the 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
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

14
<PAGE>
who are affiliated with Affiliated Practices. The Company also is subject to
Section 203 of the DGCL, which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any of a broad range of business
acquisitions with an "interested stockholder" for a period of three years
following the date such stockholder became an interested stockholder. See
"Description of Capital Stock."

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.

15
<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 (through April 14, 1998)....................................... 8.00 8.50
</TABLE>

As of March 31, 1998 there were approximately 97 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.

16
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS)

Due to the fact that the Company has had no significant operations prior to
March 30, 1998, no pro forma statement of operations has been included in this
Prospectus. The nature and amount of costs to be incurred by the Company in
connection with the management services it will provide to the Founding
Affiliated Practices may differ from the costs historically incurred by the
Founding Affiliated Practices. The selected historical financial data of the
Company should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the historical financial
statements and the notes thereto included in this Prospectus. The selected
historical financial data of the Company as of December 31, 1997 and for the
period from inception, February 21, 1997, through December 31, 1997, set forth
below, have been derived from the audited financial statements of Pentegra
Dental Group, Inc. included in this Prospectus. Except as indicated, the
following information does not reflect the effects of the IPO, the Affiliations,
the Share Exchange, the Pentegra/Napili Transaction and the Repurchase and
Redemption. For certain information concerning the Affiliations, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 4 of Notes to the Pentegra Dental Group, Inc. financial
statements.

<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
INCEPTION
(FEBRUARY
21,
1997)
THROUGH
DECEMBER
31, 1997
--------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.............................................. $ --
General and administrative expenses................ 709
Other expenses..................................... 645
--------
Total expenses................................. 1,354
--------
Net loss........................................... $(1,354)
--------
--------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------
HISTORICAL AS ADJUSTED(1)
----------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 100 $ 6,525
Working capital (deficit).............................................................. (2,210) 5,251
Total assets........................................................................... 3,257 10,286
Redeemable preferred stock............................................................. 1,089 --
Stockholders' equity (deficit)......................................................... (142) 8,138
</TABLE>

- ---------

17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS CONTAINS CERTAIN STATEMENTS OF A
FORWARD-LOOKING NATURE RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL
PERFORMANCE OF THE COMPANY. SUCH STATEMENTS ARE ONLY PREDICTIONS AND THE ACTUAL
EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS,"
AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. THE HISTORICAL RESULTS
SET FORTH IN THIS DISCUSSION AND ANALYSIS ARE NOT INDICATIVE OF TRENDS WITH
RESPECT TO ANY ACTUAL OR PROJECTED FUTURE FINANCIAL PERFORMANCE OF THE COMPANY.
THIS DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE PRO FORMA
BALANCE SHEET, THE FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED
IN THIS PROSPECTUS.

OVERVIEW

Although the Company has conducted no significant operations prior to March
30, 1998, it has succeeded to the business of Pentegra, Ltd. and Napili, which
developed the Pentegra Dental Program. In connection with the Affiliations, the
Company acquired certain tangible and intangible assets and assumed certain
liabilities of, and entered into Service Agreements with, the Founding
Affiliated Practices. Through those Service Agreements, the Company will be
providing practice management services to the Founding Affiliated Practices in
return for management service fees.

The expenses incurred by the Company in fulfilling its obligations under the
Service Agreements will be generally of the same nature as the operating costs
and expenses that were otherwise incurred by the Founding Affiliated Practices,
including salaries, wages and benefits of practice personnel (excluding dentists
and certain other licensed dental care professionals), dental supplies and
office supplies used in administering their practices and the office (general
and administrative) expenses of the practices. In addition to the operating
costs and expenses discussed above, the Company will be incurring personnel and
administrative expenses in connection with establishing and maintaining a
corporate office, which will provide management, administrative, marketing and
development and acquisition services to Affiliated Practices.

The Service Agreements with the professional corporations or associations
formed by substantially all of the dentist-owners of the Founding Affiliated
Practices have initial terms of 40 years, subject to earlier termination under
certain circumstances. Pursuant to those Service Agreements, the Company 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 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 are based on fair market value of the services to
be provided. Generally, the service fees are computed based on (i) a percentage
of revenues less operating expenses, (ii) a percentage of revenues not to exceed
a percentage of revenues less operating expenses, (iii) a specific fixed service
fee or (iv) some combination of these. See "--Planned Operations" and
"Business--Service Agreements."

The Company does not participate in the negotiation of dentist compensation.
Under each Service Agreement, the Affiliated Practice retains the
decision-making power and responsibility for, among other things, (i) hiring,
compensating and supervising dentists and other licensed dental professionals,
(ii) ensuring that dentists have the required licenses, credentials, approvals
and other certifications appropriate to the performance of their duties and
(iii) complying with federal and state laws, regulations and ethical standards
applicable to the practice of dentistry. Pursuant to the terms of the Service
Agreements, the Affiliated Practices will continue to provide dental services
and will be exclusively in control of all aspects of the practice of dentistry
and the provision of dental services. The Company will not engage in the
practice of dentistry.

18
<PAGE>
RESULTS OF OPERATIONS

PENTEGRA AND PII

Pentegra and PII have conducted no significant operations prior to March 30,
1998. The Company had no revenues and a net loss of $1,354,000 for the period
from inception, February 21, 1997, through December 31, 1997. General and
administrative expenses totalling approximately $1,354,000 were incurred during
the period from inception through December 31, 1997. The Company incurred
various legal, accounting, travel, personnel and marketing costs in connection
with the Affiliations and the IPO. Of these expenses, (i) $1,450,000 were funded
with proceeds from the issuances of the common stock and preferred stock of PII
in the second quarter of 1997, (ii) $350,000 were funded with proceeds from the
issuance of $350,000 aggregate principal amount of 9.5% promissory notes of the
Company to four separate lenders in October and November 1997 and (iii) $486,000
were funded with proceeds from the issuance of $486,000 aggregate principal
amount of 15.0% promissory notes of the Company to 30 dentist-owners of Founding
Affiliated Practices, two of the Company's existing stockholders and two other
lenders, all in February 1998.

PLANNED OPERATIONS

The Company is the exclusive manager and administrator of non-dental
services relating to the operation of the Affiliated Practices. The following is
a summary of the typical form of Service Agreement the Company entered into with
each Founding Affiliated Practice. The Company expects to enter into similar
agreements with Affiliated Practices in the future. The actual terms of the
Service Agreements may vary from the description below on a case-by-case basis,
depending on negotiations with the individual Affiliated Practices and the
requirements of applicable laws and governmental regulations.

Each Service Agreement is for an initial term of 40 years, with automatic
extensions (unless specified notice is given) of five years. The Service
Agreement may be terminated by either party if the other party (i) files a
petition in bankruptcy (or other similar events occur) or (ii) defaults on the
performance of a material duty or obligation, which default continues for a
specified term after notice. In addition, the Service Agreement may be
terminated by the Company (i) if the Affiliated Practice or a dentist engages in
conduct for which the dentist's license to practice dentistry is revoked or
suspended or is the subject of any restrictions or limitations by any
governmental authority to such an extent that he, she or it cannot engage in the
practice of dentistry or (ii) upon a breach by the dentist of the employment
agreement between the Affiliated Practice and the dentist.

The management service fees (the "Service Fees") payable to the Company by
the Founding Affiliated Practices under the Service Agreements, together with
operating and non-operating expenses of each Affiliated Practice to be paid to
the Company pursuant to the Service Agreements, are payable monthly and consist
of various combinations of the following: (i) "Standard Service Agreement",
which provides for (a) a percentage (ranging from 30% to 40%) of the Affiliated
Practice's revenues related to dental services less operating expenses
associated with the operation of the Affiliated Practice or (b) a percentage
(16%) of the Affiliated Practice's dental service revenues, not to exceed a
percentage (35%) of the difference between those revenues and operating expenses
associated with the operation of the 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.

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<PAGE>
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 pays 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 Affiliated Practice pursuant to the
terms of each Service Agreement. In addition, if the costs related to providing
dental services exceed the revenues received for those services, the Affiliated
Practice will remain responsible for reimbursing the Company for all of the
costs associated with providing those services, even if no Service Fee is due to
the Company under its Service Agreement.

Dentist compensation will be determined by the Affiliated Practices pursuant
to employment arrangements between the Affiliated Practices and the individual
dentists. The Company does not participate in the negotiation of dentist
employment compensation.

The Company will not engage in the practice of dentistry. To the extent that
an Affiliated Practice, with the assistance of the Company pursuant to its
Service Agreement, increases its revenues and/or decreases its operating
expenses, the Service Fees payable to the Company may increase. The Service Fees
for each Affiliated Practice will be calculated individually and will not be
based on the operations of any other Affiliated Practice.

It is anticipated that substantially all the Company's revenues will consist
of Service Fees and the operating expenses that the Affiliated Practices will
pay to the Company under the Service Agreements. Service Fees may be expected to
vary proportionately with the level of dental services provided by Founding
Affiliated Practices and future affiliations with additional Affiliated
Practices.

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash of approximately $100,000 at December 31, 1997. In
October and November 1997, the Company received an additional $350,000 through
the issuance of $350,000 aggregate principal amount of 9.5% promissory notes to
four lenders. In connection with the issuance of the 9.5% promissory notes, PII
issued an aggregate of 20,000 shares of its common stock in October 1997 to two
of those lenders for cash consideration of $.015 per share. In February 1998,
the Company received an additional $486,000 through the issuance of $486,000
aggregate principal amount of 15.0% promissory notes to 30 dentist-owners of
Founding Affiliated Practices, two of the Company's existing stockholders and
two other lenders. The Company received approximately $17.8 million, net of
underwriters' commissions and other offering costs, as proceeds from the IPO.
The Company used the net proceeds of the IPO to pay (i) the costs of the IPO not
previously funded from the proceeds of the issuance of capital stock and notes
of the Company, (ii) the cash portion of the consideration for the Affiliations
of approximately $6.4 million, (iii) the cash portion of the consideration for
the Pentegra/Napili Transaction of $100,000, (iv) approximately $1.7 million in
connection with the cash portion payable by the Company in the Repurchase and
Redemption, (v) approximately $2.6 million to retire certain indebtedness of the
Founding Affiliated Practices and (vi) approximately $836,000 to repay the
aggregate principal amount outstanding under the Company's 9.5% promissory notes
and 15.0% promissory notes. The remaining net proceeds will be used for general
corporate purposes, which are expected to include future acquisitions and
capital expenditures. The cost of implementing the Company's management
information systems is estimated to be approximately $550,000, including
enhanced microcomputer and related hardware in certain dental practice offices.
Approximately half of this amount has been paid with proceeds from the sale of
preferred stock of PII, with the remainder to be paid from the net proceeds of
the IPO. Any significant delay or

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increase in expense associated with the implementation of the Company's
management information systems could have a material adverse effect on the
Company's results of operations and liquidity.

Management believes the net proceeds of the IPO, combined with the Company's
cash flows from operations, will be sufficient to fund planned capital
expenditures and ongoing operations of the Company through the end of 1998. The
Company is also seeking to establish a revolving bank credit facility which,
when combined with the Company's cash resources, will be used in the Company's
expansion program. In addition, the Company may seek to utilize seller financing
debt in future affiliations or additional equity offerings to finance the
Company's operations.

The Company has initiated preliminary discussions with a potential lender
regarding a credit facility (the "Credit Facility"), to be used for general
corporate purposes, including financing of acquisitions, capital expenditures
and working capital. On the basis of those discussions, the Company expects to
enter into the Credit Facility promptly and that the Credit Facility will
provide for a revolving line of credit up to $15.0 million. The ability of the
Company to secure the Credit Facility is subject to satisfactory negotiations
with its prospective lender as well as the negotiation and execution of
definitive loan documentation. The Company expects that any borrowings under the
Credit Facility will be secured by liens on certain of the Company's assets
(including its rights under its Service Agreements and accounts receivable) and
that the Credit Facility will (i) contain restrictions on the incurrence of
additional indebtedness (except for purchase money loans for property and
equipment) and the payment of dividends on the Common Stock, (ii) require
compliance with certain financial covenants and (iii) provide the lender with
approval rights with respect to acquisitions exceeding certain limits. There can
be no assurance that the Company can obtain the Credit Facility on terms it
deems acceptable.

ACCOUNTING TREATMENT

In accordance with Staff Accounting Bulletin No. 48, "Transfers of
Nonmonetary Assets by Promoters or Shareholders" ("SAB 48"), the acquisition of
the assets and assumption of certain liabilities pursuant to the Affiliations
from certain promoters of the Company (the dentists who own the Founding
Affiliated Practices) 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 February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 specifies the computation, presentation, and disclosure
requirements of earnings per share and supersedes Accounting Principles Board
Opinion No. 15, "Earnings Per Share." SFAS No. 128 requires a dual presentation
of basic and diluted earnings per share. Basic earnings per share, which
excludes the impact of common stock equivalents, replaces primary earnings per
share. Diluted earnings per share, which utilizes the average market price per
share as opposed to the greater of the average market price per share or ending
market price per share when applying the treasury stock method in determining
common stock equivalents, replaces fully diluted earnings per share. SFAS No.
128 is effective for both interim and annual periods ending after December 15,
1997.

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<PAGE>
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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<PAGE>
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 50 Founding Affiliated
Practices, which include 77 dentists and 63 dental offices located in 18 states.
These dentists have practiced an average of 21 years. Of these dentists, 68 are
general dentists, one is a prosthodontist, five are periodontists, one is a
pedodontist and two are oral surgeons. In addition, the Company 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

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DHMOs, patients typically must pay on a fee-for-service basis for any services
outside the limited range of dental procedures covered. According to the 1997
Mercer Consulting Group survey of Employer-Sponsored Health Plans, approximately
86% of the respondents in that survey reported that they offer their employees
dental plans that pay for dental services on a fee-for-service basis, while
approximately 22% of the plans surveyed are PPO and DHMO plans (I.E., discounted
fee-for-service payments or capitated payments). According to HCFA, only
approximately four percent of all payments for dental care are made under the
Medicaid program (which provides limited coverage for indigent children), with
no coverage being provided by the Medicare program.

In a 1995 survey, the ADA reported that there were approximately 153,000
active dentists in the United States, approximately 88% of whom were practicing
either alone or with only one other dentist. In recent years, dentists have
begun to consolidate into affiliated groups and with practice management
organizations. Dentists who affiliate with practice management companies gain
several benefits, such as opportunities to achieve economies of scale, to
implement cost management techniques and to gain access to capital for new
equipment and other working capital needs.

BUSINESS STRATEGY

The Company's objective is to become a leader in providing dental practice
management services. In order to achieve this objective, the Company's strategy
includes the following elements:

- FOCUS ON TRADITIONAL FEE-FOR-SERVICE DENTAL CARE. According to the 1997
Mercer Consulting Group Survey of Employer-Sponsored Health Plans,
approximately 86% of the respondents in that survey reported that they
offer their employees dental plans that pay for dental services on a
fee-for-service basis. The Company believes that fee-for-service care is
high-quality, highly profitable and professionally rewarding for dentists.

- 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

24
<PAGE>
attendees of Napili seminars, Dr. Reed established Pentegra, Ltd. in 1988 to
provide hands-on, on-site training and services to small groups of dentists.
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 will utilize an integrated server-based information system to
track important operational and financial data related to each Affiliated
Practice's performance. The Company's management

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<PAGE>
information system will enable the Company to collect from each Affiliated
Practice, on a daily basis, data on patients seen, number and type of procedures
performed, billing and collections, and other data needed for financial
reporting and analysis. The Company will then compile and analyze this data in
order to promote efficiency and assure high quality care at Affiliated
Practices, as well as maintain necessary financial controls. The Company's
management information system will also enable the Company to centralize certain
functions, such as purchasing, accounts payable and payroll processing, and
achieve economies of scale.

The centralized data repository of the Company's management information
system has been completed. The Company has successfully completed testing to
ensure access to the Company's data repository via the internet. 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 will provide other practice management services to the
Affiliated Practices, including staffing, general business and professional
dental education and training to affiliated dentists, dental hygenists and
office staff, employee benefits administration, advertising and other marketing
support and, where permitted by applicable law, dentist recruiting. This
management and administrative support should substantially reduce the amount of
time affiliated dentists are required to spend on administrative matters and
enable them to dedicate more time and effort toward the growth of their
professional practices. In addition, the Company expects to be able to
negotiate, on behalf of Affiliated Practices, discounts on, among other things,
dental and office supplies, health and malpractice insurance and equipment. The
Company does not currently intend to enter into any agreements with third-party
payors.

In certain markets, the Company may assist Affiliated Practices in securing
reimbursement contracts from third-party payors. In those situations, the
Company's role will be to negotiate and administer the contracts on behalf of
the Affiliated Practices.

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LOCATIONS

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

<TABLE>
<CAPTION>
NUMBER OF
-------------------------------
STATE OFFICES DENTISTS CITIES
- ------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Alaska............................................................. 1 1 1
Arizona............................................................ 6 7 4
California......................................................... 1 1 1
Colorado........................................................... 4 6 4
Florida............................................................ 3 3 2
Louisiana.......................................................... 1 1 1
Maine.............................................................. 1 1 1
Maryland........................................................... 1 1 1
Massachusetts...................................................... 1 2 1
Michigan........................................................... 1 1 1
Nebraska........................................................... 2 2 1
New Mexico......................................................... 1 2 1
New York........................................................... 4 4 3
North Dakota....................................................... 1 1 1
Oregon............................................................. 1 1 1
Texas.............................................................. 31 40 12
Washington......................................................... 2 2 2
Wisconsin.......................................................... 1 1 1
--------- --------- ---------
Totals........................................................... 63 77 39
--------- --------- ---------
--------- --------- ---------
</TABLE>

All office facilities are leased, in some cases from the owner of the
Affiliated Practice using the facility. Pursuant to its Service Agreements, the
Company will provide all the office facilities (which it intends to lease),
dental equipment and furnishings to the Affiliated Practices.

SUMMARY OF TERMS OF AFFILIATIONS

The aggregate consideration paid by Pentegra to the promoters consists of
(i) approximately $6.4 million in cash and (ii) 3,094,468 shares of Common
Stock. The Company also assumed certain indebtedness of the Founding Affiliated
Practices of approximately $2.6 million. Pentegra acquired substantially all the
assets necessary to operate the business of each of the Founding Affiliated
Practices, except as limited by applicable restrictions on the corporate
practice of dentistry. See Note 4 of Notes to the Pentegra Dental Group, Inc.
Financial Statements and "--Government Regulation." The assets acquired include
furniture, fixtures, computer equipment, dental chairs, lights, autoclaves,
mixers, vacuum and suction systems, cabinets, hand instruments and hand pieces
of each Founding Affiliated Practice. Pentegra also acquired the intangible
assets of each Founding Affiliated Practice and employs the non-professional
staff of each Founding Affiliated Practice. Each Affiliated Practice (i) employs
the dentists-owners and all other dentists working at the Founding Affiliated
Practice and (ii) is party to a Service Agreement to whom the Company provides
services thereunder. The Company owns no interest in the Affiliated Practices.
In the event of a breach of the Service Agreement by an Affiliated Practice, the
Company will have the right to designate a dentist to purchase the ownership
interests of the applicable professional corporation or association.

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The consideration paid by Pentegra for each Founding Affiliated Practice was
determined by negotiations between executive officers of Pentegra not affiliated
with any Founding Affiliated Practice and a representative of that Founding
Affiliated Practice. Pentegra used valuation methods to negotiate the
consideration being paid to each of the Founding Affiliated Practices, including
the respective practices wholly owned by Drs. Reed, Andress, Clarke, Greder, Kay
and Yaros, which methods were based upon the Founding Affiliated Practice's
gross revenue, net of certain operating expenses, and the Company's assessment
of growth potential.

SERVICE AGREEMENTS

The Company has entered into a Service Agreement with each Founding
Affiliated Practice under which the Company is the exclusive manager and
administrator of non-dental services relating to the operation of the Founding
Affiliated Practices. The following is intended to be a brief summary of the
typical form of Service Agreement the Company entered into with each Founding
Affiliated Practice. The Company expects to enter into similar agreements with
Affiliated Practices in the future. The actual terms of the various Service
Agreements vary from the description below on a case-by-case basis, depending on
negotiations with the individual Founding Affiliated Practices and the
requirements of applicable law and governmental regulations.

The Service Fees payable under the Service Agreements to the Company by the
professional corporations or associations formed by the dentist-owners of the
Founding Affiliated Practices were determined in arm's-length negotiations among
the parties. Those Affiliated Practices that have revenues greater than the
average amount of revenues generated by the Affiliated Practices will typically
require more administrative and other services from the Company than those
Affiliated Practices with lower than average revenues. Such fees, together with
reimbursement for operating and non-operating expenses of each Affiliated
Practice to be paid by the Company pursuant to the Service Agreements, are
payable monthly and consist of various combinations of the following: (i) a
percentage (ranging from 30% to 40%) of the Affiliated Practice's revenues
related to dental services less operating expenses associated with the operation
of the Affiliated Practice; (ii) a percentage (16%) of the Affiliated Practice's
dental service revenues, not to exceed a percentage (35%) of the difference
between those revenues and operating expenses associated with the operation of
the Affililated Practice; or (iii) the greater of (a) a percentage (not to
exceed 35%) of the Affiliated Practice's revenues related to dental services
less operating expenses associated with the operation of the Affiliated Practice
or (b) a specified fixed fee. In addition, with respect to four of the Founding
Affiliated Practices, the Service Fees are based on fixed fees that are subject
to renegotiation on an annual basis. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Results of Operations--Planned
Operations."

Pursuant to each Service Agreement, the Company, among other things, (i)
acts as the exclusive manager and administrator of non-dental services relating
to the operation of the Founding Affiliated Practice, subject to certain matters
reserved to the Founding Affiliated Practice, (ii) 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 Founding 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 Founding Affiliated Practice, (vi) orders and purchase
inventory and supplies as reasonably requested by the Founding Affiliated
Practice and (vii) implements, in consultation with the Founding Affiliated
Practice, public relations or advertising programs.

Pursuant to each Service Agreement, the respective Founding Affiliated
Practice retains the decision-making power and responsibility for, among other
things, (i) hiring, compensating and supervising dentist-employees and other
licensed dental professionals, (ii) ensuring that dentists have the required
licenses, credentials, approvals and other certifications appropriate for the
performance of their duties and

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(iii) complying with federal and state laws, regulations and ethical standards
applicable to the practice of dentistry. In addition, the Founding Affiliated
Practice will be exclusively in control of all aspects of the practice of
dentistry and the provision of dental services.

Each Service Agreement is for an initial term of 40 years, with automatic
extensions (unless specified notice is given) of five years. The Service
Agreement may be terminated by either party if the other party (i) files a
petition in bankruptcy or other similar events occur or (ii) defaults on the
performance of a material duty or obligation, which default continues for a
specified term after notice. In addition, the Service Agreement may be
terminated by the Company (i) if the Founding Affiliated Practice or a dental
employee engages in conduct for which the dental employee's license to practice
dentistry is revoked or suspended or is the subject of any restrictions or
limitations by any governmental authority to such an extent that he, she or it
cannot engage in the practice of dentistry or (ii) upon a breach by the dentist
of the employment agreement between the Founding Affiliated Practice and the
dentist.

The Service Agreement requires the Founding Affiliated Practice to enforce
the employment agreements between the Founding Affiliated Practice and the
dentists associated with the Founding Affiliated Practice (the "Dentist
Employment Agreements"). If the Founding Affiliated Practice does not enforce
such employment agreement, the Company may, at its option, require the Founding
Affiliated Practice to either assign (i) such employment agreement or (ii) the
rights to enforce the covenant not to compete set forth therein to the Company
or its designee.

The Founding Affiliated Practice is responsible for obtaining professional
liability insurance for the employees of the Founding Affiliated Practice and
the Company is responsible for obtaining general liability and property
insurance for the Founding Affiliated Practice.

Upon termination of a Service Agreement, the Founding Affiliated Practice
has the option to purchase and assume, and the Company has the option to require
the Founding Affiliated Practice to purchase and assume, the assets and
liabilities related to the Founding Affiliated Practice at the fair market value
thereof, except in certain circumstances where the Founding Affiliated Practice
or the Company, as applicable, was in breach of the Service Agreement.

DENTIST AGREEMENT

Substantially all of the dentist-owners of the Founding 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 Founding Affiliated Practice) of the Founding
Affiliated Practice's obligations under the applicable Service Agreement. In
addition, such agreement provides that the dentist may not sell his or her
ownership interest during the dentist's five-year employment term without the
Company's prior written consent. In the event of a default under the Service
Agreement by the Founding Affiliated Practice, the dentist agreement provides
that the Company may, at its option, require the Founding Affiliated Practice to
convey its patient records and the capital stock of the Founding Affiliated
Practice to the Company's authorized designee, who, in any such case, the
Company anticipates will be a dentist affiliated with an Affiliated Practice.

DENTIST EMPLOYMENT AGREEMENTS

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

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covenant not to compete may not be enforceable under certain circumstances. See
"Risk Factors-- Reliance on Affiliated Practices and Dentists."

COMPETITION

The Company anticipates facing substantial competition from other companies
to establish affiliations with additional dental practices. The Company is aware
of several publicly traded dental practice management companies that have
operations in jurisdictions where one or more Founding Affiliated Practices
conduct business (including Apple Orthodontix, Inc., Birner Dental Management
Services, Inc., Castle Dental Centers, Inc., Coast Dental Services, Inc., Dental
Care Alliance, Inc., Gentle Dental Service Corp., Monarch Dental Corporation,
OrthAlliance, Inc. and Orthodontic Centers of America, Inc.) and several
companies pursuing similar strategies in other segments of the health care
industry. Certain of these competitors have greater financial and other
resources than the Company and have operations in areas where the Company may
seek to expand in the future. Additional companies with similar objectives are
expected to enter the Company's markets and compete with the Company. In
addition, the business of providing dental services is highly competitive in
each market in which the Company will operate. Each of the Founding Affiliated
Practices faces local competition from other dentists, pedodontists and other
providers of specialty dental services (such as periodontists, orthodontists and
oral surgeons), some of whom have more established practices. There can be no
assurance that the Company or the Affiliated Practices will be able to compete
effectively with their respective competitors, that additional competitors will
not enter their markets or that additional competition will not have a material
adverse effect on the Company or the Affiliated Practices.

EMPLOYEES

As of March 31, 1998, the Company employed 344 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
Founding Affiliated Practice) as the result of successor liability in connection
with the Affiliations; however, it is management's opinion that the ultimate
resolution of those claims will not have a material adverse effect on the
financial position, operating results or cash flows of the Company.

The Founding Affiliated Practices have maintained professional liability
insurance coverage, generally on a claims-made basis. Such insurance provides
coverage for claims asserted when the policy is in effect regardless of when the
events that caused the claim occurred. The Company intends to acquire similar
coverage after the closing of the Affiliations, since the Company, as a result
of the Affiliations, will in some

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cases succeed to the liabilities of the Founding Affiliated Practices.
Therefore, claims may be asserted against the Company after the closing of
Affiliations for events that occurred prior to such closing.

GOVERNMENT REGULATION

The dental services industry is regulated extensively at both the state and
federal levels. Regulatory oversight includes, but is not limited to,
considerations of fee-splitting, corporate practice of dentistry, prohibitions
on fraud and abuse, restrictions on referrals and self-referrals, advertising
restrictions, restrictions on delegation and state insurance regulation.

CORPORATE PRACTICE OF DENTISTRY AND FEE-SPLITTING RESTRICTIONS

The laws of many states, including all of the states in which the Founding
Affiliated Practices are located other than New Mexico and Wisconsin, permit a
dentist to conduct a dental practice only as an individual, a member of a
partnership or an employee of a professional corporation, professional
association, limited liability company or limited liability partnership. These
laws prohibit business corporations such as the Company from engaging in the
practice of dentistry or employing dentists to practice dentistry. The specific
restrictions against the corporate practice of dentistry, as well as the
interpretation of those restrictions by state regulatory authorities, vary from
state to state. The restrictions are generally designed to prohibit a non-dental
entity (such as the Company) from controlling the professional assets of a
dental practice (such as patient records and payor contracts), employing
dentists to practice dentistry (or, in certain states, employing dental
hygienists or dental assistants) or controlling the content of a dentist's
advertising or professional practice. The laws of many states, including all of
the states in which the Founding Affiliated Practices are located other than
Alaska, Maine, Massachusetts, New Mexico and Wisconsin, also prohibit dentists
from sharing professional fees with non-dental entities. State dental boards do
not generally interpret these prohibitions as preventing a non-dental entity
from owning non-professional assets used by a dentist in a dental practice or
providing management services to a dentist for a fee, provided certain
conditions are met. The Company believes that its operations will not contravene
any restriction on the corporate practice of dentistry. There can be no
assurance, however, that a review of the Company's business relationships by
courts or regulatory authorities will not result in determinations that could
prohibit or otherwise adversely affect the operations of the Company or that the
regulatory environment will not change, requiring the Company to reorganize or
restrict its existing or future operations. The laws regarding fee-splitting and
the corporate practice of dentistry and their interpretation are enforced by
regulatory authorities with broad discretion. There can be no assurance that the
legality of the Company's business or its relationship with the Affiliated
Practices will not be successfully challenged or that the enforceability of the
provisions of any Service Agreement will not be limited.

In many states in which the Founding Affiliated Practices are located, there
is no case law or other authority interpreting the foregoing provisions. There
are, however, interpretations in some states of analogous medical provisions.
One recent example is in the State of Florida, where the Florida Board of
Medicine recently considered the issue of whether a physician practice is
permitted to enter into a management agreement pursuant to which the managing
entity earns a management fee which includes a percentage of the practice's net
income as consideration for providing certain management and operational
services. The Florida Board of Medicine issued an opinion indicating that such a
management agreement is prohibited by applicable fee-splitting statutes.
However, that order has been stayed pending its appeal to the Florida courts.
Although the Florida Board of Medicine's decision did not apply to dental
practices, the court considering the appeal of the Board of Medicine's order
could reach conclusions or make statements that affect the application of
fee-splitting provisions applicable to dental management agreements. Pursuant to
the terms of the Service Agreements, in the event such a Service Agreement were
determined to be in violation of applicable law, the agreement would have to be
amended in a manner that complies with applicable law and preserves, to the
greatest extent possible, the economic interests of the parties thereto.

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<PAGE>
FRAUD AND ABUSE LAWS AND RESTRICTIONS ON REFERRALS AND SELF-REFERRALS

Many states in which the Founding Affiliated Practices are located,
including California, Florida, Maine, Maryland, Michigan, New York, Texas and
Washington, have fraud and abuse laws that, in many cases, apply to referrals
for items or services reimbursable by any insurer, not just by Medicare and
Medicaid. A number of states, including many of the states in which the Founding
Affiliated Practices are located, also impose significant penalties for
submitting false claims for dental services. In addition, most states in which
the Founding Affiliated Practices are located, including Alaska, Arizona,
California, Florida, Louisiana, Maine, Maryland, Michigan, New York, Texas and
Washington, have laws prohibiting paying or receiving any remuneration, direct
or indirect, that is intended to induce referrals for health care items or
services, including dental items and services. Many states in which the Founding
Affiliated Practices are located either prohibit or require disclosure of
self-referral arrangements and impose penalties for the violation of these laws.
Many states, including Alaska, Florida and Maine, limit the ability of a person
other than a licensed dentist to own or control equipment or offices used in a
dental practice. Some of these states allow leasing of equipment and office
space to a dental practice under a bona fide lease, if the equipment and office
remain under the control of the dentist. The Service Agreements that will be
entered into by the Company with respect to Affiliated Practices in Florida and
Maine will provide that equipment and offices owned or leased by the Company and
used at an Affiliated Practice will remain under the exclusive control of the
dentists employed by that Affiliated Practice.

Federal laws regulating the provision of dental care apply only to dental
services which are reimbursed under the Medicare and Medicaid programs. Because
none of the Founding Affiliated Practices receive any revenue under Medicare or
Medicaid, the impact of these laws on the Company is anticipated to be
negligible. There can be no assurance, however, that Affiliated Practices will
not have patients in the future covered by these laws, or that the scope of
these laws will not be expanded in the future, and if expanded, such laws or
interpretations thereunder could have a material adverse effect on the Company.

The federal fraud and abuse statute prohibits, subject to certain safe
harbors, the payment, offer, solicitation or receipt of any form of remuneration
in return for, or in order to induce: (i) the referral of a person for service,
(ii) the furnishing or arranging to furnish items or services or (iii) the
purchase, lease or order or the arrangement or recommendation of a purchase,
lease or order of any item or service which is, in each case, reimbursable under
Medicare or Medicaid. The statute reflects the federal government's policy of
increased scrutiny of joint ventures and other transactions among healthcare
providers in an effort to reduce potential fraud and abuse related to Medicare
and Medicaid costs. Because dental services are covered under various government
programs, including Medicare and Medicaid, this federal law applies to dentists
and the provision of dental services under those programs.

Significant prohibitions against dentist self-referrals for services covered
by Medicare and Medicaid programs were enacted, subject to certain exceptions,
by Congress in the Omnibus Budget Reconciliation Act of 1993. These
prohibitions, commonly known as Stark II, amended prior physician and dentist
self-referral legislation known as Stark I (which applied only to clinical
laboratory referrals) by dramatically enlarging the list of services and
investment interests to which the self-referral prohibitions apply. Stark II
prohibits a physician or dentist, or a member of his or her immediate family,
from making referrals for certain "designated health services" to entities in
which the physician or dentist has an ownership or investment interest, or with
which the physician or dentist has a compensation arrangement. "Designated
health services" include, among other things, clinical laboratory services,
radiology and other diagnostic services, radiation therapy services, durable
medical equipment, prosthetics, outpatient prescription drugs, home health
services and inpatient and outpatient hospital services. Stark II prohibitions
include referrals within the physician's or dentist's own group practice (unless
such practice satisfies the "group practice" exception) and referrals in
connection with the physician's or dentist's employment arrangements with the
practice (unless the arrangement satisfies the employment exception). Stark II
also prohibits billing the Medicare or Medicaid programs for services rendered
following prohibited referrals. Noncompliance with, or violation of, Stark II
can result in exclusion from the Medicare and Medicaid programs and civil and
criminal penalties. The Company believes that its operations as presently
conducted do not pose a material

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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.

Some states prohibit the advertising of dental services under a trade or
corporate name. Some states, including Texas, require all advertisements to be
in the name of the dentist. A number of states also regulate the content of
advertisements of dental services and the use of promotional gift items. In
addition, many states impose limits on the tasks that may be delegated by
dentists to hygienists and dental assistants. These laws and their
interpretations vary from state to state and are enforced by the courts and by
regulatory authorities with broad discretion.

INSURANCE REGULATION

There are certain state insurance regulatory risks associated with the
Company's anticipated role in negotiating and administering managed care
contracts on behalf of the Affiliated Practices. The application of state
insurance laws to third-party payor arrangements, other than fee-for-service
arrangements, is an unsettled area of law with little guidance available. State
insurance laws are subject to broad interpretation by regulators and, in some
states, state insurance regulators may determine that the Company or the
Affiliated Practices are engaged in the business of insurance because of the
capitation features (or similar features under which an Affiliated Practice
assumes financial risk) that may be contained in managed care contracts. In the
event that the Company or an Affiliated Practice is determined to be engaged in
the business of insurance, the Company or the Affiliated Practice could be
required to either seek licensure as an insurance company or change the form of
its relationships with the third-party payors. There can be no assurance that
the Company's operations would not be adversely affected if the Company or any
of the Affiliated Practices were to become subject to state insurance
regulations.

HEALTH CARE REFORM

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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 February 20,
1997):

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ----------------------------------------------------------------
<S> <C> <C>
Omer K. Reed, D.D.S.................... 66 Chairman of the Board and Clinical Officer
Gary S. Glatter........................ 44 President, Chief Executive Officer and Director
Sam H. Carr............................ 41 Senior Vice President, Chief Financial Officer and Director
James L. Dunn, Jr...................... 36 Senior Vice President and Chief Development Officer
John G. Thayer......................... 44 Senior Vice President and Chief Operating Officer
Kimberlee K. Rozman.................... 37 Senior Vice President, General Counsel and Secretary
Ronnie L. Andress, D.D.S............... 42 Director
J. Michael Casas....................... 35 Director
James H. Clarke, Jr., D.D.S............ 49 Director
Ronald E. Geistfeld, D.D.S............. 64 Director
Mack E. Greder, D.D.S.................. 54 Director
Roger Allen Kay, D.D.S................. 52 Director
Gerald F. Mahoney...................... 54 Director
Anthony P. Maris....................... 64 Director
George M. Siegel....................... 60 Director
Ronald M. Yaros, D.D.S................. 51 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. Pursuant to the terms of his employment agreement with the
Company, the Company has undertaken to use its best efforts to elect Dr. Reed as
a director of the Company.

GARY S. GLATTER has served as the Company's President, Chief Executive Officer
and a Director since May 1997. From January 1994 to March 1997, he was President
and Chief Operating Officer of H.E.R.C. Products Incorporated, a public company
engaged in manufacturing and selling chemical rehabilitation products for water
distribution systems. From 1989 until 1993, Mr. Glatter served as President and
Chief Executive Officer of Classic Properties, a New York-based real estate
company. Pursuant to the terms of his employment agreement with the Company, the
Company has undertaken to use its best efforts to elect Mr. Glatter as a
director of the Company.

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

34
<PAGE>
Andersen L.L.P. Mr. Carr is a certified public accountant. Pursuant to the terms
of his employment agreement with the Company, the Company has undertaken to use
its best efforts to elect Mr. Carr as a director of the Company.

JAMES L. DUNN, JR. has served as the Company's Senior Vice President and Chief
Development Officer since July 1997 and 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

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<PAGE>
company engaged in pharmaceuticals manufacturing. Prior thereto, Mr. Maris was a
Director and Chief Financial Officer of Hoffmann--La Roche Inc., a
pharmaceutical manufacturer.

GEORGE M. SIEGEL was President and Chief Executive Officer of Parcelway Courier
Systems, Inc., a publicly traded messenger and courier business with operations
throughout North America, from 1990 to 1997. In 1993, Mr. Siegel co-founded U.S.
Delivery Systems, a public company engaged in consolidating local messenger and
delivery companies. Prior thereto, Mr. Siegel founded and was the President and
Chief Executive Officer of U.S. Messenger & Delivery Service and Direct Dispatch
Corporation, two messenger and courier service companies that he sold to Mayne
Nickless Courier System, Inc.

RONALD M. YAROS, D.D.S. has been engaged in the private practice of dentistry in
Aurora, Colorado since 1973 and is President of Ronald M. Yaros, D.D.S., P.C.,
one of the Founding Affiliated Practices. He is a member of the American Dental
Association, the Colorado Dental Association, the Metro Denver Dental Society
and the Academy of General Dentistry.

BOARD OF DIRECTORS

The Board of Directors will be divided into three classes with at least four
directors in each class, with the term of one class expiring at the annual
meeting of stockholders in each year, commencing in 1998. At each annual meeting
of stockholders, directors of the class the term of which then expires will be
elected by the holders of the Common Stock to succeed those directors whose
terms are expiring. The first class, whose term of office will expire at the
first annual meeting of stockholders in 1998, is comprised of Drs. Andress,
Geistfeld and Kay, and Mr. Casas; the second class, whose term will expire one
year thereafter, is comprised of Drs. Clarke, Greder and Yaros and Mr. Carr; and
the third class, whose term will expire two years thereafter, is comprised of
Dr. Reed and Messrs. Glatter, Mahoney, Maris and Siegel. The Company's Bylaws
provide that a majority of the members of the Board of Directors must be
licensed to practice dentistry and affiliated with one of the Affiliated
Practices. See "Risk Factors--Board Composition" and "--Certain Anti-takeover
Provisions."

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 members of the Acquisition Committee are Drs. Reed and Clarke and
Messrs. Glatter and Casas. 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.

37
<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

38
<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 realizes short-term, mid-term or
long-term capital gain or loss, depending on the length of the holding period.
If the optionee holds the shares for more than 18 months, the capital gain or
loss will be long-term capital gain or loss. If the optionee holds the shares
for more than one year but not more than 18 months, the capital gain or loss
will be mid-term capital gain or loss. Otherwise, the capital gain or loss will
be short-term capital gain or loss. The Company is not entitled to any deduction
in connection with such sale.

An optionee will not be subject to federal income taxation upon the exercise
of ISOs granted under the 1997 Stock Compensation Plan, and the Company will not
be entitled to a federal income tax deduction by reason of such exercise. A sale
of shares of Common Stock acquired upon exercise of an ISO that does not occur
within one year after the date of exercise or within two years after the date of
grant of the option generally will result in the recognition of long-term or
mid-term capital gain or loss by the optionee in an amount equal to the
difference between the amount realized on the sale and the exercise price, and
the Company is not entitled to any deduction in connection therewith. If a sale
of shares of Common Stock acquired upon exercise of an ISO occurs within one
year from the date of exercise of the option or within two years from the date
of the option grant (a "disqualifying disposition"), the optionee generally will
recognize ordinary income equal to the lesser of (i) the excess of the fair
market value of the shares on the date of exercise of the options over the
exercise price or (ii) the excess of the amount realized on the sale of the
shares over the exercise price. Any amount realized on a disqualifying
disposition in excess of the amount treated as ordinary income will be long-term
or short-term capital gain, depending upon the length of time the shares were
held. The Company generally will be entitled to a tax deduction on a
disqualifying disposition corresponding to the ordinary income recognized by the
optionee.

For alternative minimum tax purposes, the difference between the fair market
value, on the date of exercise, of Common Stock purchased upon the exercise of
an ISO, and the exercise price increases 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 671,667
shares of Common Stock under the 1997 Stock Compensation Plan and (ii) 1,328,333
additional shares available for future awards under the 1997 Stock Compensation
Plan.

39
<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), Roger Allen Kay, D.D.S.
(25,000 shares of preferred stock and 5,000 shares of common stock), Bruce A.
Kanehl, D.D.S. (25,000 shares of preferred stock and 5,000 shares of common
stock), Brian K. Kniff, D.D.S. (25,000 shares of preferred stock and 5,000
shares of common stock), Richard W. Mains, Jr., D.M.D., RBM Trust (25,000 shares
of preferred stock and 5,000 shares of common stock), James W. Medlock, D.D.S.
(25,000 shares of preferred stock and 5,000 shares of common stock), Thomas L.
Mullooly, D.D.S. (25,000 shares of preferred stock and 5,000 shares of common
stock), Richard H. Fettig, D.D.S. (25,000 shares of preferred stock and 5,000
shares of common stock), Marvin V. Cavallino, D.D.S. (50,000 shares of preferred
stock and 10,000 shares of common stock), Alan H. Gerbholz, D.D.S. (25,000
shares of preferred stock and 5,000 shares of common stock), Victor H. Burdick,
D.D.S. (25,000 shares of preferred stock and 5,000 shares of common stock),
Steve Anderson, D.D.S. (25,000 shares of preferred stock and 5,000 shares of
common stock) and James P. Allen, 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,

40
<PAGE>
$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 has occupied and had access
to the facilities, equipment and staff of James L. Dunn & Assoc., Inc., an
affiliate of James L. Dunn, Jr. Beginning June 1, 1997, the Company agreed to
compensate James L. Dunn & Assoc., Inc. for use of and access to its office
facilities, equipment and staff at the rate of $10,000 per month. James L. Dunn
& Assoc., Inc. also provided the Company monthly invoices for delivery,
telephone, travel and other out-of-pocket expenses and obtained reimbursement
for those expenses from the Company. Through January 31, 1998, the Company has
reimbursed James L. Dunn & Assoc., Inc. for approximately $11,600 of such
expenses. The Company believes that the compensation paid to James L. Dunn &
Assoc., Inc. represents the fair market value of the services (which includes
the shared use of two clerical employees, use of office furniture, copy
machines, computers and other office equipment, and office supplies) provided to
the Company.

The Company has leased a portion of the office facilities, equipment and
staff of Pentegra, Ltd., which is wholly owned by Dr. Reed, beginning June 1,
1997. The Company has agreed to compensate Pentegra, Ltd. for use of and access
to its office facilities, equipment and staff at the rate of $11,000 per month.
Pentegra, Ltd. will also provide the Company a monthly invoice for delivery,
postage, telephone, travel and other out-of-pocket expenses and obtain
reimbursement for those expenses from the Company. Through January 31, 1998, the
Company has reimbursed Pentegra, Ltd. and Napili for approximately $8,000 of
such expenses. The Company believes that the compensation to be paid to
Pentegra, Ltd. represents the fair market value of the goods and services (which
includes utilities, furniture, office equipment and clerical services) being
provided to the Company under this arrangement. This lease will be assumed by
the Company in the Pentegra/Napili Transaction.

The following table provides certain information concerning 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,

41
<PAGE>
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 3,094,468 shares of Common Stock issued in the Affiliations 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.

42
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The following table shows, as of January 31, 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 1.8%
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...................................................................... 139,214 2.2%
George M. Siegel............................................................................ 116,180 1.8%
Ronnie L. Andress, D.D.S.................................................................... 101,801 1.6%
J. Michael Casas............................................................................ 96,482 1.5%
James H. Clarke, Jr., D.D.S................................................................. 70,632 1.1%
Roger Allen Kay, D.D.S...................................................................... 70,185 1.1%
Mack E. Greder, D.D.S....................................................................... 69,792 1.1%
Allen M. Gelwick............................................................................ 32,161 *
Ronald E. Geistfeld, D.D.S.................................................................. 0 --
Gerald F. Mahoney........................................................................... 0 --
Anthony P. Maris............................................................................ 0 --
All executive officers and directors as a group (17 persons)................................ 986,533 15.3%
</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.

43
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, par value $.001 per share, and 10,000,000 shares of preferred
stock, par value $.001 per share ("Preferred Stock"). At March 31, 1998,
6,441,898 shares of Common Stock were issued and outstanding and held of record
by 97 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

44
<PAGE>
approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination, (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the rights to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer) or (iii) following the
transaction in which such person became an interested stockholder, the business
combination was approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of 66 2/3% of the outstanding voting stock of the corporation not owned by the
interested stockholder. Under Section 203, the restrictions described above also
do not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of one of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.

OTHER MATTERS

Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must exercise
an informed business judgment based on all material information reasonably
available to them. Absent the limitations authorized by Delaware law, directors
are accountable to corporations and their stockholders for monetary damages for
conduct constituting gross negligence in the exercise of their duty of care.
Delaware law enables corporations to limit available relief to equitable
remedies such as injunction or rescission. The Certificate of Incorporation
limits the liability of directors of the Company to the Company or its
stockholders to the fullest extent permitted by Delaware law. Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the DGCL.

The inclusion of this provision in the Certificate of Incorporation may have
the effect of reducing the likelihood of derivative litigation against directors
and may discourage or deter stockholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though such an action,
if successful, might otherwise have benefitted the Company and its stockholders.
The Company's Bylaws provide indemnification to the Company's officers and
directors and certain other persons with respect to certain matters.

The Bylaws provide that, from and after the first date that the Company has
received funding from the sale of capital stock in an initial public offering,
the stockholders may act only at an annual or special meeting of stockholders
and may not act by written consent. The Bylaws provide that special meetings of
the stockholders can be called only by the Chairman of the Board, the Chief
Executive Officer, the President or the Board of Directors.

The Certificate of Incorporation provides that the Board of Directors shall
consist of three classes of directors serving for staggered terms. As a result,
it is currently contemplated that approximately one-third of the Company's Board
of Directors will be elected each year. The classified board provision could
prevent a party who acquires control of a majority of the outstanding voting
stock of the Company from obtaining control of the Board of Directors until the
second annual stockholders' meeting following the date the acquirer obtains the
controlling interest. In addition, the Company's Bylaws provide that a

45
<PAGE>
majority of the members of the Board of Directors must be licensed dentists
affiliated with one of the Affiliated Practices. See "Management--Directors and
Executive Officers."

The Certificate of Incorporation provides that the number of directors shall
be as specified in the Bylaws. The Bylaws provide that the number of directors
shall be determined by the Board of Directors from time to time, but shall be at
least one and not more than nineteen. It also provides that directors may be
removed only for cause, and then only by the affirmative vote of the holders of
at least a majority of all outstanding voting stock entitled to vote. This
provision, in conjunction with the provision of the Bylaws authorizing the Board
of Directors to fill vacant directorships, will prevent stockholders from
removing incumbent directors without cause and filling the resulting vacancies
with their own nominees.

STOCKHOLDER PROPOSALS

The Company's Bylaws contain provisions (i) requiring that advance notice be
delivered to the Company of any business to be brought by a stockholder before
an annual meeting of stockholders and (ii) establishing certain procedures to be
followed by stockholders in nominating persons for election to the Board of
Directors. Generally, such advance notice provisions provide that written notice
must be given to the Secretary of the Company by a stockholder (i) in the event
of business to be brought by a stockholder before an annual meeting, not less
than 90 days nor more than 180 days prior to the earlier of the date of the
meeting or the corresponding date on which the immediately preceding annual
meeting of stockholders was held, and (ii) in the event of nominations of
persons for election to the Board of Directors by any stockholder, (a) with
respect to an election to be held at the annual meeting of stockholders, not
less than 90 days nor more than 180 days prior to the earlier of the date of the
meeting or the corresponding date on which the immediately preceding annual
meeting of stockholders was held, and (b) with respect to an election to be held
at a special meeting of stockholders for the election of directors, not later
than the close of business on the 10th day following the day on which notice of
the date of the special meeting was mailed to stockholders or public disclosure
of the date of the special meeting was made, whichever first occurs. Such notice
must set forth specific information regarding such stockholder and such business
or director nominee, as described in the Company's Bylaws. The foregoing summary
is qualified in its entirety by reference to the Company's Bylaws, which are
included as an exhibit to the Registration Statement of which this Prospectus is
a part.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company.

46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

The Company has outstanding 6,441,898 shares of Common Stock of which the
2,500,000 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.
The remaining 3,941,898 shares of Common Stock are deemed "restricted
securities" under Rule 144 in that they were originally issued and sold by the
Company in private transactions in reliance upon exemptions under the Securities
Act, and may be publicly sold only if registered under the Securities Act or
sold in accordance with an applicable exemption from registration, such as those
provided by Rule 144 promulgated under the Securities Act as described below.

In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the date of acquisition of restricted securities from the
issuer or from an affiliate of the issuer, the acquirer or 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 March 31, 1998, options to purchase an aggregate of 671,667 shares of
Common Stock were authorized for issuance under the Company's 1997 Stock
Compensation Plan. See "Management--1997 Stock Compensation Plan." In general,
pursuant to Rule 701 under the Securities Act, any employee, officer or director
of, or consultant to, the Company who purchased his or her shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permit non-affiliates to sell such shares without
compliance with the public information, holding period, volume limitation or
notice provisions of Rule 144, and permit affiliates to sell such shares without
compliance with the holding period provisions of Rule 144, in each case
commencing 90 days after the date of this Prospectus. In addition, the Company
intends to file a registration statement covering the 1,500,000 shares of Common
Stock issuable upon exercise of stock options that may be granted in the future
under the 1997 Stock Compensation Plan, in which case such shares of Common
Stock generally will be freely tradable by non-affiliates in the public market
without restriction under the Securities Act.

The Company and its executive officers, directors and current stockholders
have agreed not to offer for sale, sell, contract to sell, grant any option or
other right for the sale of, or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected to, result in
the disposition by any person at any time in the future of) any shares of Common
Stock or any securities, indebtedness or other rights exercisable for or
convertible or exchangeable into shares of Common Stock owned or acquired in the
future in any manner prior to the expiration of 180 days after March 24, 1998
(the "180-Day Lockup Period") without the prior written consent of Dain Rauscher
Incorporated, except that the Company may, subject to certain conditions, issue
shares of Common Stock in connection with future acquisitions and may grant
Options or Awards (or issue shares of Common Stock upon exercise of Options or
Awards) under the 1997 Stock Compensation Plan. These restrictions will be
applicable to any shares

47
<PAGE>
acquired by any of those persons in the IPO or otherwise during the 180-Day
Lockup Period. In addition, the Company's executive officers, directors and
current stockholders and the persons who acquired shares of Common Stock in
connection with the Affiliations have agreed with the Company that they
generally will not sell, transfer or otherwise dispose of any of their shares
for one year following the closing of the IPO.

In connection with the Affiliations, 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 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 1,500,000 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. Resales of any of those shares during the 180-Day Lockup Period would
require the prior written consent of Dain Rauscher Incorporated. 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.

48
<PAGE>
PLAN OF DISTRIBUTION

THE COMPANY

This Prospectus covers the offer an sale of up to 1,500,000 shares of Common
Stock, which the Company may issue from time to time in connection with the
future direct and indrect acquisitions of other businesses, properties or
securities in business combination transactions in accordance with Rule
415(a)(1)(viii) of Regulation C under the Securities Act or as otherwise
permitted under the Securities Act.

The Company expects that the terms upon which it may issue the shares will
be determined through negotiations with the securityholders or principal owners
of the businesses whose securities or assets are acquired. It is expected that
the shares 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 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 Coopers & Lybrand L.L.P., 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 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.

49
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Pentegra Dental Group, Inc. Unaudited Pro Forma Balance Sheet.............................................. F-2
Unaudited Pro Forma Balance Sheet as of December 31, 1997................................................ F-3
Notes to Unaudited Pro Forma Balance Sheet............................................................... F-4

Pentegra Dental Group, Inc. Financial Statements
Report of Independent Public Accountants................................................................. F-6
Balance Sheet as of December 31, 1997.................................................................... F-7
Statement of Operations for the period from inception,
February 21, 1997, through December 31, 1997........................................................... F-8
Statement of Changes in Stockholders' Deficit for the period from inception, February 21, 1997, through
December 31, 1997...................................................................................... F-9
Statement of Cash Flows for the period from inception, February 21, 1997, through December 31, 1997...... F-10
Notes to Financial Statements............................................................................ F-11
</TABLE>

F-1
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET

The unaudited pro forma balance sheet dated December 31, 1997 of Pentegra
Dental Group, Inc. (together with its parent entity, Pentegra Investments, Inc.,
"Pentegra" or the "Company") has been prepared as if (a) the acquisition by the
Company of certain assets and assumption of certain liabilities of 50 dental
practices (the "Founding Affiliated Practices") for consideration consisting of
a combination of cash and shares of its common stock, par value $.001 per share
(the "Common Stock"), and the execution of agreements to provide management
services to the Founding Affiliated Practices (collectively, the
"Affiliations"), (b) the repayment of certain debt of the Founding Affiliated
Practices, (c) the acquisition by the Company (the "Pentegra/Napili
Transaction") of certain assets of Pentegra, Ltd. and Napili, International
("Napili"), (d) the repurchase by Pentegra Investments, Inc. ("PII") of 245,845
shares of preferred stock of PII from affiliates of the Company at the
subscription price per share paid to PII for those shares and the redemption by
PII of an aggregate of 1,337,500 shares of its Class A Preferred Stock and Class
B Preferred Stock for $1.50 per share, of which $1.15 per share will be paid by
the Company in cash and $0.35 per share will be paid in the form of a promissory
note (the "Repurchase and Redemption"), (e) the exchange of all outstanding
shares of common stock of PII for shares of Common Stock on a one-for-one basis
(the "Share Exchange") (after giving effect to a repurchase by PII of 909,237
shares of its common stock, at a purchase price of $0.015 per share), (f) the
repayment of $350,000 aggregate principal amount of 9.5% promissory notes (the
"9.5% Promissory Notes") and (g) the initial public offering of 2,500,000 shares
of Common Stock at the public offering price of $8.50 per share (the "IPO") and
the application of the net proceeds therefrom all had been completed, as if
those transactions had occurred on December 31, 1997.

The Company will not employ dental professionals or control the practice of
dentistry by the dentists. As the Company will not be acquiring the future
patient revenues to be earned by the Founding Affiliated Practices, the
Affiliations are not deemed to be business combinations. In accordance with the
Securities and Exchange Commission's Staff Accounting Bulletin No. 48,
"Transfers of Nonmonetary Assets by Promoters or Shareholders," the Affiliations
will be accounted for at their historical cost basis with the shares of Common
Stock to be issued in the Affiliations being valued at the historical net book
value of the nonmonetary assets acquired, net of liabilities assumed. The cash
consideration will be reflected as a dividend by the Company to the owners of
the Founding Affiliated Practices. The acquisition of certain assets of
Pentegra, Ltd. and Napili will be accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16.

The unaudited pro forma balance sheet has been prepared by the Company based
on the audited historical financial statements of the Company, included
elsewhere in this Prospectus, including the audited combined financial
information of the Founding Affiliated Practices included in the notes to the
Company's financial statements, and assumptions deemed appropriate by the
Company.

The Company has not presented a pro forma statement of operations for the
transactions described above based on the requirements set forth in Article 11
of Regulation S-X, because it is a newly formed entity with no significant
operations to date and no operating history in the business of managing a large
number of geographically diverse dental practices.

F-2
<PAGE>
PENTEGRA DENTAL GROUP, INC.

UNAUDITED PRO FORMA BALANCE SHEET

DECEMBER 31, 1997

(IN THOUSANDS)

<TABLE>
<CAPTION>
TOTAL
AFFILIATION IPO PRO FORMA,
PENTEGRA ADJUSTMENTS SUBTOTAL ADJUSTMENTS AS ADJUSTED
-------- ------------ -------- ----------- -----------

<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 100 $ -- $ 100 $(6,387)(A) $ 6,525(1)
17,811(B)
(100)(C)
(1,652)(D)
(2,621)(E)
(276)(F)
(350)(I)
Accounts receivable, net........................ -- -- -- 306(F) 306
-------- ------------ -------- ----------- -----------
Total current assets.......................... 100 -- 100 6,731 6,831
Property and equipment, net....................... 409 2,841(A) 3,250 17(C) 3,267
Deferred offering costs........................... 2,743 -- 2,743 (2,743)(B) --
Other noncurrent assets, net...................... 5 -- 5 183(C) 188
-------- ------------ -------- ----------- -----------
Total assets.................................. $ 3,257 $ 2,841 $ 6,098 $ 4,188 $10,286
-------- ------------ -------- ----------- -----------
-------- ------------ -------- ----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities........ $ 2,095 $ 6,387(A) $ 8,482 $(6,387)(A) $ 1,580
(1,795)(B)
30(F)
1,250(G)
Current portion of long-term debt, net.......... 215 624(A) 839 (624)(E) --
(215)(I)
-------- ------------ -------- ----------- -----------
Total current liabilities..................... 2,310 7,011 9,321 (7,741) 1,580

Long-term debt.................................... -- 1,997(A) 1,997 100(C) 568
468(D)
(1,997)(E)
Class A redeemable preferred stock................ 675 -- 675 (675)(D) --
Class B redeemable preferred stock................ 414 -- 414 (414)(D) --
Stockholders' equity (deficit):
Common stock.................................... 18 3(A) 21 3(B) 7
(17)(H)
Additional paid-in capital...................... 1,194 (6,170)(A) (4,976) 16,860(B) 10,870
(1,031)(D)
17(H)
Accumulated deficit............................. (1,354) -- (1,354) (1,250)(G) (2,739)
(135)(I)
-------- ------------ -------- ----------- -----------
Total stockholders' equity (deficit).......... (142) (6,167) (6,309) 14,447 8,138
-------- ------------ -------- ----------- -----------
Total liabilities and stockholders' equity
(deficit)................................... $ 3,257 $ 2,841 $ 6,098 $ 4,188 $10,286
-------- ------------ -------- ----------- -----------
-------- ------------ -------- ----------- -----------
</TABLE>

- ----------

(1) See "Use of Proceeds."

The accompanying notes are an integral part of this unaudited pro forma
financial statement.

F-3
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO UNAUDITED PRO FORMA BALANCE SHEET

The accompanying unaudited pro forma balance sheet as of December 31, 1997
gives effect to the Affiliations, the payment of debt assumed from the Founding
Affiliated Practices, the Pentegra/Napili Transaction, the Repurchase and
Redemption, the Share Exchange, the repayment of $350,000 of the 9.5% Promissory
Notes and the IPO and the application of the proceeds therefrom, as if those
transactions had occurred on December 31, 1997. The unaudited pro forma balance
sheet does not represent the historical or future financial position of the
Company.

(A) Reflects completion of the Affiliations, which will involve (i) the issuance
of 3,094,468 shares of Common Stock, valued at the historical net book value
of the assets transferred less the liabilities assumed, and (ii) cash
distributions to be treated as dividends aggregating $6,387,000. The
historical net book value of the assets transferred and the liabilities
assumed from the Founding Affiliated Practices are as follows (in
thousands):

<TABLE>
<CAPTION>
<S> <C>
Property and equipment transferred.................................................. $ 2,841
Less
Current portion of notes payable.................................................. (624)
Long-term portion of notes payable................................................ (1,997)
---------
Net assets transferred.......................................................... $ 220
---------
---------
</TABLE>

Certain assets and liabilities will not be transferred from the Founding
Affiliated Practices. The assets not transferred are cash, certain accounts
receivable, prepaids and other current assets, and certain accounts payable.

Certain assets that are not reflected in the balance sheets of the Founding
Affiliated Practices will be transferred to the Company in the Affiliations.
These assets have no recorded book value, and therefore, are not reflected
in the unaudited pro forma balance sheet. They include items such as
contract rights, marketing systems, all transferable licenses, trade
secrets, books, records and policy and procedure manuals.

(B) Reflects the issuance of 2,500,000 shares Common Stock in the IPO, net of
(i) estimated underwriters' discounts and commissions and (ii) estimated
offering costs of $2,900,000 primarily consisting of legal, accounting and
printing expenses, less offering costs previously funded with proceeds from
the issuance of capital stock of PII, including all PII Class A Preferred
Stock and Class B Preferred Stock, and the Promissory Notes. The resulting
net proceeds are reflected as Common Stock and additional paid-in capital.
The Company has deferred offering costs of $2,743,000, of which $948,000 had
been paid at December 31, 1997.

(C) Reflects completion of the Pentegra/Napili Transaction for consideration of
$200,000. The Company will pay $100,000 from the proceeds of the IPO and
issue a $100,000 9.0% promissory note due April 1999. As of December 31,
1997, the assets to be acquired in the Pentegra/Napili Transaction have a
fair value of approximately $17,000. The cost in excess of the fair value of
the net tangible assets acquired will be amortized over a five-year period.

(D) Reflects (i) the repurchase of 245,835 shares of Class B Preferred Stock
from affiliates of the Company at the price per share paid to PII for those
shares and the redemption of an aggregate of 1,337,500 shares of Class A
Preferred Stock and Class B Preferred Stock for $1.50 per share, of which
$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

F-4
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO UNAUDITED PRO FORMA BALANCE SHEET

securities for gross proceeds equal to or greater than the gross proceeds
from the IPO, and (ii) the recognition of the related deemed dividend of
$1,031,000. The payment for the Repurchase and Redemption and dividend are
as follows (in thousands):

<TABLE>
<S> <C>
Cash payment for Repurchase......................................... 114
Cash payment for Redemption......................................... 1,538
Promissory notes issued for Redemption.............................. 468
---------
2,120
Less
Recorded value of Class A and B Preferred Stock at December 31,
1997............................................................ 1,089
---------
Dividend to holders of Class A and B Preferred Stock.............. $ 1,031
---------
---------
</TABLE>

(E) Reflects the use of proceeds from the IPO to repay the debt assumed in the
Affiliations.

(F) Reflects the purchase of net monetary assets from the Founding Affiliated
Practices for cash of $276,000, which assets will be recorded at fair value.
The fair value of the net assets purchased are as follows (in thousands):

<TABLE>
<S> <C>
Accounts receivable, net............................................. $ 306
Less
Accounts payable................................................... (30)
---------
Total................................................................ $ 276
---------
---------
</TABLE>

(G) Reflects the accrual of an employment bonus of $1,250,000 to the Chairman of
the Board of Directors (the "Chairman"). Payment of the bonus will be made
in increments of $10,000 on the closing of each future dental practice
affiliation until the bonus has been paid in full. Management expects the
bonus will be paid within the year following the IPO. In any event, pursuant
to the terms of the Company's employment agreement with the Chairman, the
employment bonus must be paid in full within three years of the IPO. The
bonus will be expensed in the first quarter of 1998 because its payment is
not contingent on future services actually being provided by the Chairman.

(H) Reflects repurchase by PII of 909,237 shares of its common stock and the
exchange at the closing of the IPO of 847,430 shares of Common Stock for
847,430 shares of PII common stock.

(I) Reflects the repayment of the 9.5% Promissory Notes at their aggregate face
value of $350,000, with the discount of $135,000 recorded as a charge to the
accumulated deficit.

F-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Pentegra Dental Group, Inc.:

We have audited the accompanying balance sheet of Pentegra Dental Group,
Inc. as of December 31, 1997, and the related statements of operations, changes
in stockholders' deficit, and cash flows for the period from inception, February
21, 1997, through December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pentegra Dental Group, Inc.
as of December 31, 1997, and the results of its operations and its cash flows
for the period from inception, February 21, 1997, through December 31, 1997 in
conformity with generally accepted accounting principles.

/s/ COOPERS & LYBRAND L.L.P.

Houston, Texas

March 24, 1998, except for the second
paragraph of Note 8, as to which the
date is April 2, 1998

F-6
<PAGE>
PENTEGRA DENTAL GROUP, INC.

BALANCE SHEET

DECEMBER 31, 1997

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 100
---------
Total current assets........................................................... 100
---------
Property and equipment............................................................. 409
Deferred offering costs............................................................ 2,743
Organizational costs............................................................... 5
---------
Total assets............................................................... $ 3,257
---------
---------

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities......................................... $ 2,095
Notes payable, net of discount of $135........................................... 215
---------
Total current liabilities...................................................... 2,310
---------
Commitments and contingencies (See Notes)..........................................
Class A redeemable preferred stock, $0.01 par value, 5,000,000 shares authorized,
900,000 shares issued and outstanding (liquidation preference of $900)........... 675
Class B redeemable preferred stock, $0.01 par value, 5,000,000 shares authorized,
683,335 shares issued and outstanding (liquidation preference of $683)........... 414
Stockholders' deficit:
Common stock, $0.01 par value, 40,000,000 shares authorized, 1,756,667 shares
issued and outstanding......................................................... 18
Additional paid-in capital....................................................... 1,194
Accumulated deficit.............................................................. (1,354)
---------
Total stockholders' deficit.................................................... (142)
---------
Total liabilities and stockholders' deficit................................ $ 3,257
---------
---------
</TABLE>

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

F-7
<PAGE>
PENTEGRA DENTAL GROUP, INC.

STATEMENT OF OPERATIONS

FOR THE PERIOD FROM INCEPTION, FEBRUARY 21, 1997, THROUGH DECEMBER 31, 1997

(IN THOUSANDS)

<TABLE>
<CAPTION>
Revenue............................................................................ $ --
<S> <C>
Expenses:
General and administrative expenses.............................................. 709
Compensation expense in connection with issuance of common stock................. 645
---------
Total expenses............................................................... 1,354
---------
Net loss........................................................................... $ (1,354)
---------
---------
</TABLE>

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

F-8
<PAGE>
PENTEGRA DENTAL GROUP, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE PERIOD FROM INCEPTION, FEBRUARY 21, 1997, THROUGH DECEMBER 31, 1997

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------ PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at February 21, 1997........................... -- $ -- $ -- $ -- $ --
Issuance of common stock
($0.015 per share cash on February 21, 1997)......... 667 7 3 -- 10
Issuance of common stock
($0.015 per share cash and $0.14 per share
compensation on May 22, 1997)........................ 767 8 107 -- 115
Issuance of common stock
($1.27 per share cash on June 13, 1997).............. 290 3 365 -- 368
Issuance of common stock
($0.015 per share cash and $1.26 per share
compensation on June 13, 1997)....................... 33 -- 42 -- 42
Purchases of common stock.............................. (87) (1) -- -- (1)
Issuance of common stock ($0.015 per share cash and
$7.46 per share compensation on September 1, 1997)... 67 1 497 -- 498
Issuance of common stock with promissory notes ($9.00
per share discount on promissory notes on October 8,
1997)................................................ 20 -- 180 -- 180
Net loss............................................... -- -- -- (1,354) (1,354)
----- ----- ----------- ------------ ------------
Balance at December 31, 1997........................... 1,757 $ 18 $ 1,194 $ (1,354) $ (142)
----- ----- ----------- ------------ ------------
----- ----- ----------- ------------ ------------
</TABLE>

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

F-9
<PAGE>
PENTEGRA DENTAL GROUP, INC.

STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM INCEPTION, FEBRUARY 21, 1997, THROUGH DECEMBER 31, 1997

(IN THOUSANDS)

<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C>
Net loss......................................................................... $ (1,354)
Accretion of discount on notes payable........................................... 45
Compensation associated with issuance of common stock............................ 645
Increase in accounts payable and accrued liabilities............................. 57
---------
Net cash used by operating activities........................................ (607)
---------
Net cash used in investing activities--additions to property and equipment......... (166)
---------
Cash flows provided by financing activities:
Proceeds from issuance of common and preferred stock............................. 1,476
Proceeds from issuance of notes payable.......................................... 350
Offering costs................................................................... (948)
Organizational costs............................................................. (5)
---------
Net cash provided by financing activities.................................... 873
---------
Net increase in cash and cash equivalents.......................................... 100

Balance at inception, February 21, 1997............................................ --
---------
Balance at December 31, 1997....................................................... $ 100
---------
---------
Non-cash activities:
Offering costs accrued........................................................... $ 1,795
---------
---------
Acquisition of property and equipment accrued.................................... $ 243
---------
---------
Discount on notes payable........................................................ $ 180
---------
---------
</TABLE>

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

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

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Pentegra Dental Group, Inc. (the "Company") was organized as a Delaware
corporation on February 21, 1997, for the purpose of creating a dental practice
management company.

In July 1997, the Company changed its name to Pentegra Investments, Inc. and
formed a new wholly owned subsidiary named Pentegra Dental Group, Inc.
("Pentegra Dental"). Pentegra Dental's operations to date have consisted
primarily of seeking affiliations with dental practices, negotiating to acquire
the tangible assets of those practices, and negotiating agreements to provide
management services to those practices. Pentegra Dental plans to complete an
initial public offering of its common stock, par value $0.001 per share (the
"Offering") and simultaneously exchange cash and shares of its common stock for
selected assets and liabilities (the "Affiliations") of 50 dental practices (the
"Founding Affiliated Practices" and, together with dental practices with which
the Company may enter into similar transactions in the future, the "Affiliated
Practices") (see Note 4). In December 1997, the owners of the outstanding shares
of the Company's common stock agreed that, in the event the initial public
offering price is less than $12.04 per share, it will repurchase (the "Share
Repurchase") from those stockholders, on a pro rata basis, at a purchase price
of $0.015 per share, that number of shares as will be necessary so that the
aggregate number of shares of Pentegra Dental common stock issuable in
connection with the Affiliations and the Share Exchange (as defined below) will
not exceed 3,941,898 shares. Pursuant to that agreement, 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-11
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
STOCK OPTION PLAN

In September 1997, the board of directors of Pentegra Dental adopted the
1997 Stock Compensation Plan (the "Plan"). Employees, non-employee directors and
advisors and directors will be eligible to receive awards under the Plan and
only employees of the Company will be eligible to receive incentive stock
options. The aggregate number of options to purchase shares of common stock and
other awards of shares of common stock that may be granted under the Plan may
not exceed 2,000,000 shares. As of December 31, 1997, Pentegra Dental had
authorized for issuance options to acquire approximately 672,000 shares to
employees, practice employees and directors on the date the initial public
offering price is determined. The exercise price of these options will be the
initial public offering price per share. The Company has adopted Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which establishes accounting and reporting standards for
stock-based compensation plans. The Company will account for options issued to
employees and non-employee directors under the Plan in accordance with APB
Opinion No. 25 and provide disclosure of the pro forma effect of using the fair
value of options granted to employees to measure compensation. Of the amounts
authorized as of December 31, 1997, options to purchase approximately 58,000
shares will be issued to owners of Founding Affiliated Practices, practice
employees and other advisors. The fair value of such options will be charged to
operations over their vesting period.

EARNINGS PER SHARE

Earnings per share has been excluded from the financial statements because
the Company has limited historical operations and does not have a significant
operating history. Additionally, the historical operations do not reflect the
planned distribution to promoters in connection with the Affiliations, which
will be paid with a portion of the proceeds of the 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-12
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RECENT PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share." SFAS No. 128 specifies the computation,
presentation and disclosure requirements of earnings per share and supersedes
Accounting Principles Board Opinion No. 15, "Earnings Per Share." SFAS No. 128
requires a dual presentation of basic and diluted earnings per share. Basic
earnings per share, which excludes the impact of common stock equivalents,
replaces primary earnings per share. Diluted earnings per share, which utilizes
the average market price per share as opposed to the greater of the average
market price per share or ending market price per share when applying the
treasury stock method in determining common stock equivalents, replaces fully
diluted earnings per share. SFAS No. 128 is effective for both interim and
annual periods ending after December 15, 1997.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components in a full set of general
purpose financial statements. SFAS No. 131 establishes standards for reporting
segment information by public enterprises in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports to shareholders. Both these statements are
effective for fiscal years beginning after December 15, 1997. The Company
believes implementation of SFAS Nos. 130 and 131 will not have a material effect
on its financial position, results of operations or cash flows.

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-13
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. RELATED PARTY TRANSACTIONS: (CONTINUED)
equipment and staff at the rate of $11,000 per month until the Pentegra/Napili
Transaction is completed, whereupon the entire lease of those facilities will be
assumed by Pentegra Dental.

The Company believes that the compensation being paid to these related
parties represents the fair market value of the services that are being provided
to the Company.

4. PLANNED TRANSACTIONS:

Pentegra Dental plans to complete the Affiliations through a series of
mergers and asset transfers. Owners of the Founding Affiliated Practices (the
"Promoters") will receive 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-14
<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-15
<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.

F-16
<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-17
<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-18
<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-19
<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.

F-20
<PAGE>
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---------------------------------------------

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................ 3

Risk Factors...................................... 7

The Company....................................... 15

Price Range of Common Stock....................... 16

Dividend Policy................................... 16

Selected Financial Data........................... 17

Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 18

Business.......................................... 23

Management........................................ 34

Certain Transactions.............................. 40

Security Ownership of Certain Beneficial Owners
and Management.................................. 43

Description of Capital Stock...................... 44

Shares Eligible for Future Sale................... 47

Plan of Distribution.............................. 49

Legal Matters..................................... 49

Experts........................................... 49

Additional Information............................ 49

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

1,500,000 SHARES

[LOGO]
PENTEGRA DENTAL GROUP, INC.

COMMON STOCK

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

PROSPECTUS

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

APRIL , 1998

- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

DELAWARE GENERAL CORPORATION LAW

Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.

Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.

Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.

Section 145(d) of the DGCL states that any indemnification under subsections
(a) and (b) of Section 145 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
subsections (a) and (b). Such determination shall be made (1) by a majority vote
of the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) if there are no such directors or, if such
directors so direct, by independent legal counsel in a written opinion, or (3)
by the stockholders.

II-1
<PAGE>
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.

Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.

Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.

Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.

RESTATED CERTIFICATE OF INCORPORATION

The Restated Certificate of Incorporation of the Company provides that a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided for in Section 174 of the DGCL. If the
DGCL is amended to authorize the further elimination or limitation of the
liability of directors, then the liability of a director of the Company, in
addition to the limitation on personal liability described above, shall be
limited to the fullest extent permitted by the amended DGCL. Further, any repeal
or modification of such provision of the Restated Certificate of Incorporation
by the stockholders of the Company shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Company existing at the time of such repeal or modification. Furthermore, the
Company will, to the fullest extent permitted by the DGCL, as the DGCL currently
exists or may hereafter be amended, indemnify any and all persons it has power
to indemnify under the DGCL from and against any and all of the expenses,
liabilities or other matters referred to in or covered by such law.

BYLAWS

The Bylaws of the Company provide that the Company will indemnify any
director or officer of the Company to the fullest extent permitted by applicable
law, and may, if and to the extent authorized by the Board of Directors, so
indemnify such other persons whom it has the power to indemnify against any
liability, reasonable expense or other matter whatsoever.

UNDERWRITING AGREEMENT

The Underwriting Agreement provides for the indemnification of the directors
and officers of the Company in certain circumstances.

II-2
<PAGE>
INSURANCE

The Company intends to maintain liability insurance for the benefit of its
directors and officers.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
2.16(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Richard H. Fettig, D.D.S.
2.17(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Alan H. Gerbholz, D.D.S., P.C. and The AMG Trust.
2.18(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Michael J. Gershtenson, D.D.S., P.C. and Michael J. Gershtenson, D.D.S.
2.19(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Mack E. Greder, D.D.S, P.C. and Mack Greder, D.D.S.
2.20(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Salvatore J. Guarnieri, D.D.S.
2.21(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Kent M. Hamilton, D.D.S, P.C. and Kent M. Hamilton, D.D.S.
2.22(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
David R. Henderson, D.D.S.
2.23(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Stephen Hwang, D.D.S.
2.24(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Jackson Dental Partnership, Penn Jackson, Sr. and Penn Jackson, Jr.
2.25(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Bruce A. Kanehl, D.D.S.
2.26(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Roger Allen Kay, D.D.S, P.A. and Roger A. Kay, D.D.S.
2.27(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Patrick T. Kelly, D.D.S, P.C. and Patrick T. Kelly, D.D.S.
2.28(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Brian K. Kniff, D.D.S, P.C., Brian K. Kniff, D.D.S and Gordon Ledingham,
D.D.S.
2.29(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Lakeview Dental, P.C. and Kevin Gasser, D.D.S.
2.30(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Donald W. Lanning, D.D.S.
2.31(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
David A. Little, D.D.S.
2.32(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Susan E. Lunson, D.D.S., P.C. and Susan E. Lunson, D.D.S.
2.33(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Richard W. Mains, Jr., D.M.D, P.C. and Richard W. Mains, Jr., D.M.D.
2.34(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
James M. McDonough, D.D.S.
</TABLE>

II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
2.35(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
James W. Medlock, D.D.S., P.A. and James Medlock, D.D.S.
2.36(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., James Randy Mellard, D.D.S., M.S., P.C. and James Randy Mellard, D.D.S., M.S.
2.37(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Mary B. Mellard, D.D.S., P.C. and Mary B. Mellard, D.D.S.
2.38(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., T.L. Mullooly, D.D.S., Inc. and T.L. Mullooly, D.D.S.
2.39(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Byron L. Novosad, D.D.S., Inc. and Byron L. Novosad, D.D.S.
2.40(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Randy O'Brien, D.D.S., Inc. and Randy O'Brien, D.D.S.
2.41(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Terrence C. O'Keefe, D.D.S.
2.42(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Harold A. Pebbles, D.D.S., P.C. and Harold Pebbles, D.D.S.
2.43(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Jimmy F. Pinner, D.D.S.
2.44(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Omer K. Reed, D.D.S., Ltd. and Omer K. Reed, D.D.S.
2.45(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Richard Reinitz, D.D.S., P.C. and Richard Reinitz, D.D.S.
2.46(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Greg Richards, D.D.S.
2.47(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Richard N. Smith, DMD, P.C. and The Paradise Trust
2.48(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
John N. Stellpflug, D.D.S.
2.49(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Jack Stephens, D.D.S.
2.50(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Y. Paul Suzuki, D.D.S., P.S. and Paul Suzuki, D.D.S.
2.51(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Donald F. Tamborello, D.D.S.
2.52(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Helena Thomas, D.D.S.
</TABLE>

II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
2.53(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Louis J. Thornley, D.D.S., P.S. and Louis J. Thornley, D.D.S.
2.54(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and S.
Victor Uhrenholdt, D.D.S.
2.55(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Scott Van Zandt, D.D.S.
2.56(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Ronald M. Yaros, D.D.S., P.C. and Ron Yaros, D.D.S.
The schedules and exhibits to the foregoing acquisition agreements have not been filed as
exhibits to this Registration Statement. Pursuant to Item 601(b)(2) of Regulation S-K,
Pentegra Dental Group, Inc. agrees to furnish a copy of such schedules and exhibits to the
Commission upon request.
3.1(1) -- Restated Certificate of Incorporation of Pentegra Dental Group, Inc.
3.2(1) -- Bylaws of Pentegra Dental Group, Inc.
4.1(1) -- Form of certificate evidencing ownership of Common Stock of Pentegra Dental Group, Inc.
4.2(1) -- Form of Registration Rights Agreement for Owners of Founding Affiliated Practices
4.3(1) -- Registration Rights Agreement dated September 30, 1997 between Pentegra Dental Group, Inc.
and the stockholders named therein
5.1(2) -- Opinion of Jackson Walker L.L.P.
10.1(1) -- Pentegra Dental Group, Inc. 1997 Stock Compensation Plan
10.2(1) -- Employment Agreement dated July 31, 1997 between Pentegra Dental Group, Inc. and Omer K.
Reed, D.D.S.
10.3(1) -- Employment Agreement dated July 1, 1997 between Pentegra Dental Group, Inc. and Gary S.
Glatter
10.4(1) -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and John Thayer
10.5(1) -- Employment Agreement dated September 1, 1997 between Pentegra Dental Group, Inc. and Sam H.
Carr
10.6(1) -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and James Dunn,
Jr.
10.7(1) -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and Kimberlee K.
Rozman
10.8(1) -- Form of Service Agreement
10.9(1) -- Amendment to Employment Agreement dated July 31, 1997 between Pentegra Dental Group, Inc. and
Omer K. Reed, D.D.S.
10.10(1) -- Second Amendment to Employment Agreement dated July 31, 1997 between Pentegra Dental Group,
Inc. and Omer K. Reed, D.D.S.
10.11(1) -- Amendment to Employment Agreement dated May 1, 1997 between Pentegra Dental Group, Inc. and
Gary S. Glatter
10.12(1) -- Amendment to Employment Agreement dated September 1, 1997 between Pentegra Dental Group, Inc.
and Sam H. Carr
</TABLE>

II-6
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
10.13(1) -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and
James L. Dunn, Jr.
10.14(1) -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and
John Thayer
10.15(1) -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and
Kimberlee Rozman
10.16(1) -- Second Amendment to Asset Contribution Agreement dated August 20, 1997 between Pentegra
Dental Group, Inc., Pentegra, Ltd., Napili International, Inc. and the shareholders of
Pentegra, Ltd. and Napili International, Inc.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2(2) -- Consent of Jackson Walker L.L.P. (contained in Exhibit 5.1)
24.1(2) -- Power of Attorney
27.1(1) -- Financial Data Schedule
</TABLE>

- ---------

(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 333-37633), and incorporated herein by reference.

(2) Previously filed.

(b) Financial Statement Schedules.

All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.

ITEM 22. UNDERTAKINGS.

(a) The Company hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;

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

II-7
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

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

(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.

(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

(b) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.

(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.

II-8
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
Pentegra Dental Group, Inc. has duly caused Amendment No. 1 to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on April 16, 1998.

<TABLE>
<S> <C> <C>
PENTEGRA DENTAL GROUP, INC.

By: /s/ GARY S. GLATTER
-----------------------------------------
Gary S. Glatter
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, as amended,
Amendment No. 1 to this Registration Statement has been signed by the following
persons in the capacities indicated on April 16, 1998.

<TABLE>
<CAPTION>
SIGNATURES TITLE
- ------------------------------ ----------------------------------------------

<C> <S>
/s/ GARY S. GLATTER
- ------------------------------ President, Chief Executive Officer and
Gary S. Glatter Director (Principal Executive Officer)

/s/ SAM H. CARR Senior Vice President, Chief Financial Officer
- ------------------------------ and Director (Principal Financial and
Sam H. Carr Accounting Officer)

/s/ OMER K. REED*
- ------------------------------ Chairman of the Board
Omer K. Reed, D.D.S.

/s/ J. MICHAEL CASAS*
- ------------------------------ Director
J. Michael Casas

/s/ GEORGE M. SIEGEL*
- ------------------------------ Director
George M. Siegel

/s/ RONNIE L. ANDRESS,
D.D.S.*
- ------------------------------ Director
Ronnie L. Andress, D.D.S.

/s/ JAMES H. CLARKE, JR.
D.D.S.*
- ------------------------------ Director
James H. Clarke, Jr. D.D.S.

/s/ RONALD E. GEISTFELD,
D.D.S.*
- ------------------------------ Director
Ronald E. Geistfeld, D.D.S.

/s/ MACK E. GREDER, D.D.S.*
- ------------------------------ Director
Mack E. Greder, D.D.S.
</TABLE>

II-9
<PAGE>

<TABLE>
<CAPTION>
SIGNATURES TITLE
- ------------------------------ ----------------------------------------------

<C> <S>
/s/ ROGER ALLEN KAY, D.D.S.*
- ------------------------------ Director
Roger Allen Kay, D.D.S.

/s/ GERALD F. MAHONEY*
- ------------------------------ Director
Gerald F. Mahoney

/s/ ANTHONY P. MARIS*
- ------------------------------ Director
Anthony P. Maris

/s/ RONALD M. YAROS, D.D.S.*
- ------------------------------ Director
Ronald M. Yaros, D.D.S.

*By
/s/ KIMBERLEE K. ROZMAN
- ------------------------------
Kimberlee K. Rozman, as
ATTORNEY-IN-FACT
</TABLE>

II-10
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
2.1(1) -- Form of Asset Contribution Agreement between Pentegra Dental Group, Inc. and a sole
proprietorship
2.2(1) -- Form of Asset Contribution Agreement between Pentegra Dental Group, Inc. and a partnership
2.3(1) -- Form of Asset Contribution Agreement between Pentegra Dental Group, Inc. and an entity
2.4(1) -- Form of Agreement and Plan of Reorganization between Pentegra Dental Group, Inc. and an
entity
2.5(1) -- Exchange Agreement dated as of July 31, 1997 among Pentegra Investments, Inc., Pentegra
Dental Group, Inc. and the stockholders named therein
2.6(1) -- Asset Contribution Agreement dated as of August 20, 1997 among Pentegra Dental Group, Inc.,
Pentegra, Ltd., Napili International and Omer K. Reed, D.D.S.
2.7(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
James P. Allen, D.D.S.
2.8(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Walter J. Anderson, D.D.S, Donald H. Plotkin, D.D.S, William H. Swilley,
D.D.S., William A. Cerny, D.D.S. and Graham A. Satchell, D.D.S., Inc., dba Anderson Dental
Group and Walter J. Anderson, D.D.S., Donald H. Plotkin, D.D.S., William A. Cerny, D.D.S.,
Brian M. Ellis, D.D.S. and Afshan Kaviani, D.D.S.
2.9(1) -- Asset Contribution Agreement dated August 15, 1997 by and among Pentegra Dental Group, Inc.,
Ronnie Andress, D.D.S., Inc., and Ronnie Andress, D.D.S.
2.10(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Victor H. Burdick, D.D.S., P.C., and Victor H. Burdick, D.D.S.
2.11(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Marvin V. Cavallino, D.D.S., A Professional Corporation, and Marvin Cavallino,
D.D.S.
2.12(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., James H. Clarke, Jr., D.D.S., Inc. and James H. Clarke, Jr., D.D.S.
2.13(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Henry Cuttler, D.D.S.
2.14(1) -- Agreement and Plan of Reorganization dated August 11, 1997 by and among Pentegra Dental
Group, Inc., Edward T. Dougherty, Jr., D.D.S., P.A., and Edward T. Dougherty, Jr., D.D.S.
2.15(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Family Dental Centers, P.A., Steve Anderson, D.D.S. and Lindi B. Anderson, D.D.S.
2.16(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Richard H. Fettig, D.D.S.
2.17(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Alan H. Gerbholz, D.D.S., P.C. and The AMG Trust.
2.18(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Michael J. Gershtenson, D.D.S., P.C. and Michael J. Gershtenson, D.D.S.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
2.19(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Mack E. Greder, D.D.S, P.C. and Mack Greder, D.D.S.
2.20(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Salvatore J. Guarnieri, D.D.S.
2.21(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Kent M. Hamilton, D.D.S, P.C. and Kent M. Hamilton, D.D.S.
2.22(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
David R. Henderson, D.D.S.
2.23(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Stephen Hwang, D.D.S.
2.24(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Jackson Dental Partnership, Penn Jackson, Sr. and Penn Jackson, Jr.
2.25(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Bruce A. Kanehl, D.D.S.
2.26(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Roger Allen Kay, D.D.S, P.A. and Roger A. Kay, D.D.S.
2.27(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Patrick T. Kelly, D.D.S, P.C. and Patrick T. Kelly, D.D.S.
2.28(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Brian K. Kniff, D.D.S, P.C., Brian K. Kniff, D.D.S and Gordon Ledingham,
D.D.S.
2.29(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Lakeview Dental, P.C. and Kevin Gasser, D.D.S.
2.30(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Donald W. Lanning, D.D.S.
2.31(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
David A. Little, D.D.S.
2.32(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Susan E. Lunson, D.D.S., P.C. and Susan E. Lunson, D.D.S.
2.33(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Richard W. Mains, Jr., D.M.D, P.C. and Richard W. Mains, Jr., D.M.D.
2.34(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
James M. McDonough, D.D.S.
2.35(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
James W. Medlock, D.D.S., P.A. and James Medlock, D.D.S.
2.36(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., James Randy Mellard, D.D.S., M.S., P.C. and James Randy Mellard, D.D.S., M.S.
2.37(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Mary B. Mellard, D.D.S., P.C. and Mary B. Mellard, D.D.S.
2.38(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., T.L. Mullooly, D.D.S., Inc. and T.L. Mullooly, D.D.S.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
2.39(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Byron L. Novosad, D.D.S., Inc. and Byron L. Novosad, D.D.S.
2.40(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Randy O'Brien, D.D.S., Inc. and Randy O'Brien, D.D.S.
2.41(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Terrence C. O'Keefe, D.D.S.
2.42(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Harold A. Pebbles, D.D.S., P.C. and Harold Pebbles, D.D.S.
2.43(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Jimmy F. Pinner, D.D.S.
2.44(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Omer K. Reed, D.D.S., Ltd. and Omer K. Reed, D.D.S.
2.45(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Richard Reinitz, D.D.S., P.C. and Richard Reinitz, D.D.S.
2.46(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Greg Richards, D.D.S.
2.47(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Richard N. Smith, DMD, P.C. and The Paradise Trust
2.48(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
John N. Stellpflug, D.D.S.
2.49(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Jack Stephens, D.D.S.
2.50(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Y. Paul Suzuki, D.D.S., P.S. and Paul Suzuki, D.D.S.
2.51(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Donald F. Tamborello, D.D.S.
2.52(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Helena Thomas, D.D.S.
2.53(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Louis J. Thornley, D.D.S., P.S. and Louis J. Thornley, D.D.S.
2.54(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and S.
Victor Uhrenholdt, D.D.S.
2.55(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Scott Van Zandt, D.D.S.
2.56(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Ronald M. Yaros, D.D.S., P.C. and Ron Yaros, D.D.S.
The schedules and exhibits to the foregoing acquisition agreements have not been filed as
exhibits to this Registration Statement. Pursuant to Item 601(b)(2) of Regulation S-K,
Pentegra Dental Group, Inc. agrees to furnish a copy of such schedules and exhibits to the
Commission upon request.
3.1(1) -- Restated Certificate of Incorporation of Pentegra Dental Group, Inc.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
3.2(1) -- Bylaws of Pentegra Dental Group, Inc.
4.1(1) -- Form of certificate evidencing ownership of Common Stock of Pentegra Dental Group, Inc.
4.2(1) -- Form of Registration Rights Agreement for Owners of Founding Affiliated Practices
4.3(1) -- Registration Rights Agreement dated September 30, 1997 between Pentegra Dental Group, Inc.
and the stockholders named therein
5.1(2) -- Opinion of Jackson Walker L.L.P.
10.1(1) -- Pentegra Dental Group, Inc. 1997 Stock Compensation Plan
10.2(1) -- Employment Agreement dated July 31, 1997 between Pentegra Dental Group, Inc. and Omer K.
Reed, D.D.S.
10.3(1) -- Employment Agreement dated July 1, 1997 between Pentegra Dental Group, Inc. and Gary S.
Glatter
10.4(1) -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and John Thayer
10.5(1) -- Employment Agreement dated September 1, 1997 between Pentegra Dental Group, Inc. and Sam H.
Carr
10.6(1) -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and James Dunn,
Jr.
10.7(1) -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and Kimberlee K.
Rozman
10.8(1) -- Form of Service Agreement
10.9(1) -- Amendment to Employment Agreement dated July 31, 1997 between Pentegra Dental Group, Inc. and
Omer K. Reed, D.D.S.
10.10(1) -- Second Amendment to Employment Agreement dated July 31, 1997 between Pentegra Dental Group,
Inc. and Omer K. Reed, D.D.S.
10.11(1) -- Amendment to Employment Agreement dated May 1, 1997 between Pentegra Dental Group, Inc. and
Gary S. Glatter
10.12(1) -- Amendment to Employment Agreement dated September 1, 1997 between Pentegra Dental Group, Inc.
and Sam H. Carr
10.13(1) -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and
James L. Dunn, Jr.
10.14(1) -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and
John Thayer
10.15(1) -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and
Kimberlee Rozman
10.16(1) -- Second Amendment to Asset Contribution Agreement dated August 20, 1997 between Pentegra
Dental Group, Inc., Pentegra, Ltd., Napili International, Inc. and the shareholders of
Pentegra, Ltd. and Napili International, Inc.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2(2) -- Consent of Jackson Walker L.L.P. (contained in Exhibit 5.1)
24.1(2) -- Power of Attorney
27.1(1) -- Financial Data Schedule
</TABLE>

- ---------

(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 333-37633), and incorporated herein by reference.

(2) Previously filed.

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form S-4 (File
No. 333-49473) relating to the registration of 1,500,000 shares of $0.001 par
value common stock of our report dated March 24, 1998, except for the second
paragraph of Note 8, as to which the date is April 2, 1998 on our audit of the
financial statements of Pentegra Dental Group, Inc. as of December 31, 1997 and
for the period from inception, February 21, 1997, through December 31, 1997. We
also consent to the reference to our firm under the caption "Experts."

/s/ COOPERS & LYBRAND L.L.P.

Houston, Texas
April 16, 1998