PENTEGRA DENTAL GROUP INC, 424B1, 1998-03-25

PENTEGRA DENTAL GROUP INC
424B1, 1998-03-25
OFFICES & CLINICS OF DOCTORS OF MEDICINE

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<PAGE>
2,500,000 SHARES

[LOGO]
PENTEGRA DENTAL GROUP, INC.
COMMON STOCK

All of the shares of Common Stock offered hereby are being sold by the
Company. Prior to the Offering, there has been no public market for the Common
Stock. For information relating to the factors considered in determining the
initial public offering price, see "Underwriting." The Common Stock has been
approved for listing on the American Stock Exchange under the symbol "PEN."

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

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
Underwriting
Discounts
Price to and Proceeds to
Public Commissions(1) Company(2)
<S> <C> <C> <C>
Per Share........................................ $8.50 $0.595 $7.905
Total(3)......................................... $21,250,000 $1,487,500 $19,762,500
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."

(2) Before deducting estimated expenses of $2,900,000 payable by the Company.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 375,000 shares of Common Stock, solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company, before deducting expenses, will be $24,437,500,
$1,710,625 and $22,726,875, respectively. See "Underwriting."

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

The shares of Common Stock are offered severally by the Underwriters named
herein subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that certificates
representing the shares of Common Stock will be ready for delivery on or about
March 30, 1998.

Dain Rauscher Incorporated EVEREN Securities, Inc.

THE DATE OF THIS PROSPECTUS IS MARCH 24, 1998.
<PAGE>
[MAP]

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

The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and with quarterly reports containing unaudited summary financial
information for each of the first three quarters of each fiscal year.

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK
OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY

PENTEGRA DENTAL GROUP, INC. ("PENTEGRA" OR THE "COMPANY") WAS RECENTLY
FORMED TO SERVE, UPON COMPLETION OF THE OFFERING MADE HEREBY (THE "OFFERING"),
AS THE PARENT CORPORATION OF PENTEGRA INVESTMENTS, INC. ("PII"). CONCURRENTLY
WITH THE CLOSING OF THE OFFERING, (I) THE COMPANY WILL ACQUIRE, IN SEPARATE
TRANSACTIONS (THE "AFFILIATIONS"), SUBSTANTIALLY ALL THE TANGIBLE AND INTANGIBLE
ASSETS, AND ASSUME CERTAIN LIABILITIES, OF 50 DENTAL PRACTICES (COLLECTIVELY,
THE "FOUNDING AFFILIATED PRACTICES") IN EXCHANGE FOR CASH AND SHARES OF COMMON
STOCK, (II) THE HOLDERS OF COMMON STOCK OF PII WILL EXCHANGE EACH SHARE
OUTSTANDING IMMEDIATELY PRIOR TO THE CLOSING OF THE OFFERING (BUT AFTER GIVING
EFFECT TO A REPURCHASE BY PII OF 909,237 SHARES OF ITS COMMON STOCK, AT A
PURCHASE PRICE OF $0.015 PER SHARE) FOR SHARES OF COMMON STOCK OF THE COMPANY,
PAR VALUE $0.001 PER SHARE ("COMMON STOCK"), ON A ONE-FOR-ONE BASIS (THE "SHARE
EXCHANGE") PURSUANT TO AN EXCHANGE AGREEMENT, (III) THE COMPANY WILL ACQUIRE
(THE "PENTEGRA/NAPILI TRANSACTION") SUBSTANTIALLY ALL THE ASSETS OF TWO
COMPANIES CONTROLLED BY THE COMPANY'S CHAIRMAN OF THE BOARD, PENTEGRA, LTD. AND
NAPILI, INTERNATIONAL ("NAPILI"), (IV) PII WILL REPURCHASE 245,835 SHARES OF ITS
CLASS B PREFERRED STOCK, PAR VALUE $0.01 PER SHARE ("CLASS B PREFERRED"), AT THE
SUBSCRIPTION PRICE PER SHARE PAID TO PII FOR THOSE SHARES AND, IMMEDIATELY
THEREAFTER, REDEEM ALL THE REMAINING SHARES OF ITS CLASS A PREFERRED STOCK, PAR
VALUE $0.01 PER SHARE ("CLASS A PREFERRED") AND CLASS B PREFERRED AT A
REDEMPTION PRICE OF $1.50 PER SHARE, $1.15 PAYABLE IN CASH AND $0.35 PAYABLE IN
THE FORM OF A PROMISSORY NOTE (THE "REPURCHASE AND REDEMPTION"), AND (V) THE
COMPANY WILL REPAY APPROXIMATELY $836,000 OF INDEBTEDNESS OUTSTANDING UNDER
PROMISSORY NOTES IT ISSUED IN CONNECTION WITH ITS ORGANIZATIONAL FINANCING.
PENTEGRA DOES NOT EMPLOY DENTISTS TO PRACTICE DENTISTRY NOR DOES IT OTHERWISE
CONTROL THE PRACTICE OF DENTISTRY.

UNLESS OTHERWISE INDICATED BY THE CONTEXT, REFERENCES HEREIN TO (I)
"PENTEGRA" OR THE "COMPANY" INCLUDE PENTEGRA DENTAL GROUP, INC. AND PII AND (II)
"AFFILIATED PRACTICES" MEAN THE FOUNDING AFFILIATED PRACTICES AND ANY DENTAL
PRACTICES WITH WHICH THE COMPANY MAY ENTER INTO SIMILAR RELATIONSHIPS IN THE
FUTURE. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I) GIVES
EFFECT TO A REVERSE STOCK SPLIT OF THE OUTSTANDING SHARES OF COMMON STOCK OF PII
AND (II) ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. THE
FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN
THIS PROSPECTUS.

THE COMPANY

Pentegra Dental Group, Inc. was recently formed to provide management,
administrative, development and other services to dental practices throughout
the United States. The Company's approach to dental practice management (the
"Pentegra Dental Program") was developed by Dr. Omer K. Reed, the Chairman of
the Board of the Company, and is designed to increase revenues and lower costs
at Affiliated Practices while freeing the practicing dentists to focus on the
delivery of high-quality care. The Company will earn management service fees
under long-term service agreements with Affiliated Practices (the "Service
Agreements"). In most cases, service fees payable to the Company under the
Service Agreements represent a share of the Affiliated Practices' operating
profits, thereby providing incentives for the Company and the Affiliated
Practices to work together to maximize practice profitability. The Company will
also seek to grow by acquiring and affiliating with additional dental practices.

The Company has entered into definitive acquisition agreements and Service
Agreements with 50 professional corporations or associations owned by the
dentist-owners of the Founding Affiliated Practices, which include 77 dentists
and 63 dental offices located in 18 states. These acquisition agreements provide
that the Company will acquire substantially all of the tangible and intangible
assets, and assume certain liabilities, of the Founding Affiliated Practices.
The Founding Affiliated Practices are primarily general dentistry practices, but
also include specialists such as periodontists, pedodontists and oral surgeons.
In addition, the Company will acquire from Dr. Reed the assets of a consulting
firm, Pentegra, Ltd., which was founded in 1988, and a seminar company, Napili,
which was founded in 1963. The clinical, administrative and marketing training
developed and provided by these companies to practicing dentists and their

3
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teams are the foundation for the Pentegra Dental Program. After completion of
the Offering, the Pentegra Dental Program will be available exclusively to
Affiliated Practices.

The Health Care Finance Administration ("HCFA") estimates that in 1995
approximately $43 billion was spent in the United States on dental services, and
projects annual dental expenditures will reach $79 billion in the year 2005. In
a 1995 survey, the American Dental Association ("ADA") reported that there were
approximately 153,000 active dentists in the United States, approximately 88% of
whom were practicing either alone or with only one other dentist. In recent
years, dentists have begun to consolidate into affiliated groups and with
practice management companies. Dentists who affiliate with practice management
companies gain several benefits, such as opportunities to achieve economies of
scale, to implement cost management techniques and to gain access to capital for
new equipment and other working capital needs.

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

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

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

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

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

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

The Pentegra Dental Program is based on a cooperative approach that
emphasizes patient wellness and involves the dentist and his or her patient
mutually agreeing on a program to achieve and maintain optimal oral health. The
Company believes that the average dentist has the skills necessary to diagnose
and provide appropriate care to patients, but many of them have not developed
the skills needed to obtain patient acceptances of, and commitments to, the
treatment plans. As a result, a significant amount of recommended care may not
be completed, with correspondingly lower revenues to the dentists. The Company
will provide training and support to assist affiliated dentists and their teams
to communicate 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

4
<PAGE>
and financial reporting and analysis relating to the implementation of the
Pentegra Dental Program. The Company anticipates that the cost of implementing
the Pentegra Dental Program in Affiliated Practices primarily consists of
compensation expenses to existing Pentegra, Ltd. and Napili employees and will
be comparable to the historical compensation expense levels for those two
entities.

The Service Agreements with the professional corporations or associations to
be formed by the dentist owners of the Founding Affiliated Practices have
initial terms of 40 years, subject to earlier termination under certain
circumstances. Pursuant to the Service Agreements, the Company will become the
exclusive manager and administrator of non-dental services relating to the
operation of the Founding Affiliated Practices, and will, among other things,
(i) administer the billing and collections for the Founding Affiliated
Practices, (ii) provide the necessary clerical, accounting and other non-dental
services to the Founding Affiliated Practices and (iii) provide facilities and
equipment for the Founding Affiliated Practices. The service fees payable by the
Founding Affiliated Practices to the Company under the Service Agreements were
determined in arm's length negotiations among the parties. Generally the service
fees are computed based on (i) a percentage of revenues less operating expenses,
(ii) a percentage of revenues not to exceed a percentage of revenues less
operating expenses, (iii) a specific fixed service fee or (iv) some combination
of these. See "Business--Service Agreements."

Dentist compensation is determined by the Affiliated Practices pursuant to
employment arrangements between the Affiliated Practice and the individual
dentists. The Company does not participate in the negotiation of dentist
compensation. Pursuant to the terms of the Service Agreements, the Affiliated
Practices will continue to provide dental services and will be exclusively in
control of all aspects of the practice of dentistry and the provision of dental
services. The Company will not engage in the practice of dentistry.

As a result of the Affiliations and upon completion of the Offering, the
dentist-owners of the Founding Affiliated Practices and the executive officers
and directors of the Company will beneficially own approximately 56.3% of the
outstanding shares of Common Stock. In addition, the Company's Bylaws provide
that a majority of the members of the Board of Directors must be (i) licensed to
practice dentistry and (ii) affiliated with one of the Affiliated Practices. See
"Risk Factors--Board Composition" and
"--Certain Anti-takeover Provisions," "Certain Transactions--Organization of the
Company" and "Principal Stockholders."

5
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company...... 2,500,000 shares
Common Stock to be outstanding after the
Offering(1)............................ 6,441,898 shares
Use of proceeds.......................... To fund the cash distribution to the
dentist-owners of the Founding Affiliated
Practices (approximately $6.4 million), to fund
the cash portion of the consideration in the
Pentegra/Napili Transaction (approximately
$100,000), to fund the cash portion of the
repurchase or redemption price of the outstanding
shares of preferred stock of PII (approximately
$1.7 million), to repay certain indebtedness of
Pentegra and the Founding Affiliated Practices
(approximately $2.6 million), the 9.5% promissory
notes issued by the Company in connection with
its organizational financing ($350,000) and the
15.0% promissory notes issued by the Company in
connection with its organizational financing
($486,000), to purchase certain accounts
receivable of the Founding Affiliated Practices
(approximately $276,000) and for general
corporate purposes. See "Use of Proceeds."
American Stock Exchange symbol........... PEN
</TABLE>

- ---------

(1) Includes 3,094,468 shares of Common Stock to be issued in connection with
the Affiliations and 847,430 shares of Common Stock to be issued in
connection with the Share Exchange and excludes (i) an aggregate of 671,667
shares of Common Stock issuable upon exercise of stock options to be granted
under the Company's 1997 Stock Compensation Plan (the "1997 Stock
Compensation Plan") effective on the date of this Prospectus at an exercise
price equal to the initial public offering price per share and (ii)
1,328,333 shares reserved for future issuance under the 1997 Stock
Compensation Plan. See "Management--1997 Stock Compensation Plan."

RISK FACTORS

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

6
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS)

Upon completion of the Offering and pursuant to the Affiliations, the
Company will acquire substantially all the tangible and intangible assets and
assume certain liabilities of the Founding Affiliated Practices. Due to the fact
that the Company has had no significant operations to date, no pro forma
statement of operations has been included in this Prospectus. The nature and
amount of costs to be incurred by the Company in connection with the management
services it will provide to the Founding Affiliated Practices may differ from
the costs historically incurred by the Founding Affiliated Practices. The
summary historical financial information presented below has been derived from
the audited financial statements of Pentegra Dental Group, Inc. included in this
Prospectus. Except as indicated, the following information does not reflect the
effects of the Offering, the Affiliations, the Share Exchange, the Pentegra/
Napili Transaction and the Repurchase and Redemption. For certain information
concerning the Affiliations, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 4 of Notes to the
Pentegra Dental Group, Inc. financial statements.

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

<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------
HISTORICAL AS ADJUSTED(1)
----------- ---------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents(2)..................................... $ 100 $ 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>

- ---------

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

(2) See "Use of Proceeds."

7
<PAGE>
RISK FACTORS

PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER
CAREFULLY THE FOLLOWING FACTORS IN EVALUATING AN INVESTMENT IN THE COMMON STOCK.
STATEMENTS MADE IN THIS PROSPECTUS THAT ARE NOT HISTORICAL FACTS ARE
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS INCLUDE THOSE RELATING TO THE
COMPANY'S FUTURE PLANS AND EXPECTED EVENTS, OUTCOMES AND RESULTS. ALTHOUGH THE
COMPANY BELIEVES IT HAS A REASONABLE BASIS FOR EACH SUCH STATEMENT, SUCH
STATEMENTS ARE BY THEIR NATURE SUBJECT TO RISKS AND UNCERTAINTIES, INCLUDING
THOSE DESCRIBED BELOW, AND THE COMPANY CANNOT AND DOES NOT PROVIDE ANY ASSURANCE
AS TO SUCH PLANS OR EXPECTED EVENTS, OUTCOMES OR RESULTS. PROSPECTIVE PURCHASERS
SHOULD THEREFORE EXERCISE CAUTION IN MAKING AN INVESTMENT DECISION.

ABSENCE OF COMBINED OPERATING HISTORY; NO PRIOR OPERATING EXPERIENCE

The Company was incorporated in 1997 and has conducted no operations to date
other than in connection with the Offering and the Affiliations. The Company has
entered into agreements to acquire substantially all the assets and assume
certain liabilities of the Founding Affiliated Practices concurrently with the
closing of the Offering. In connection with the Affiliations, the Company is
entering into Service Agreements with the Founding Affiliated Practices for
initial terms of 40 years (subject to early termination by either party for
"cause," which includes a material default by or bankruptcy of the other party).
See "Business--Service Agreements." Historically, the Founding Affiliated
Practices have operated as separate independent entities. There can be no
assurance that the process of integrating the management and administrative
functions of the Founding Affiliated Practices will be successful or that the
Company's management will be able to manage these operations effectively or
implement the Company's operating or expansion strategies successfully. Failure
by the Company to implement its operating and expansion strategies successfully
would have a material adverse effect on the Company. See "Business--Business
Strategy" and "--Service Agreements."

RELIANCE ON AFFILIATED PRACTICES AND DENTISTS

The Company will receive fees for management services provided to the
Affiliated Practices under the Service Agreements. It will not employ dentists
or control the practice of dentistry by the dentists employed by the Affiliated
Practices, and its management services revenue generally will depend on revenue
generated by the Affiliated Practices. In some cases, the management fees will
be based on the costs and expenses the Company incurs in connection with
providing management services. While the laws of some states permit the Company
to participate in the negotiations by Affiliated Practices of managed care
contracts, preferred provider arrangements and other negotiated price
agreements, the Affiliated Practices will be the contracting parties for those
relationships, and the Company will be dependent on its Affiliated Practices for
the success of any such relationships. Accordingly, the profitability of those
payor relationships, as well as the performance of the individual dentists
employed by the Affiliated Practices, will affect the Company's profitability.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "Business--Service Agreements."

The revenue of the Affiliated Practices (and, therefore, the success of the
Company) is dependent on fees generated by the dentists employed by the
Affiliated Practices. In connection with the Service Agreements, each dentist
who owns a Founding Affiliated Practice will enter into a five-year employment
agreement with the professional corporation or other entity with which that
dentist is affiliated (and which is a party to a Service Agreement). The dentist
employment agreements provide that the employee dentist will not compete with
the Affiliated Practice during the term of the agreement and following the
termination of the agreement for a term of two years in a specified geographical
area. In most states, however, a covenant not to compete will be enforced only
to the extent it is necessary to protect a legitimate business interest of the
party seeking enforcement, does not unreasonably restrain the party against whom
enforcement is sought and is not contrary to the public interest. This
determination is made based on all the facts and circumstances of the specific
case at the time enforcement is sought. Thus, there can be no assurance that a
court will enforce such a covenant in a given situation. In addition, no
judicial

8
<PAGE>
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.

9
<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 Offering and cash flow from operations will be sufficient to meet the
Company's anticipated expansion and working capital needs through the end of
1998. Thereafter, however, the Company may require additional capital from
outside financing sources in order to continue its expansion program. There can
be no assurance that the Company will be able to obtain additional funds when
needed on satisfactory terms or at all. Any significant limitation on the
Company's ability to obtain additional financing could have a material adverse
effect on the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

PROCEEDS OF OFFERING PAYABLE TO AFFILIATES

In connection with the closing of the Affiliations, the Company will pay,
out of the net proceeds from the Offering, an aggregate of approximately $7.7
million to promoters (including $6.4 million to be paid to the dentist-owners of
the Founding Affiliated Practices as the cash portion of the consideration in
the Affiliations), officers and directors of the Company. Of this amount,
approximately $6.4 million will be paid to the owners of the Founding Affiliated
Practices, including approximately $216,326 to Ronnie L. Andress, D.D.S.,
$150,092 to James H. Clarke, Jr., D.D.S., $143,183 to Mack E. Greder, D.D.S.,
$144,017 to Roger Allen Kay, D.D.S., and $295,830 to Ronald M. Yaros, D.D.S.
(each of whom will become a member of the Board of Directors of the Company (the
"Board of Directors"). In addition, the Company will use $100,000 of the net
proceeds from the Offering to pay the cash portion of the consideration to
purchase substantially all of the tangible and intangible assets of Pentegra,
Ltd. and Napili, both of which entities are affiliates of Dr. Reed, the
Company's Chairman of the Board. The Company will also use approximately (i)
$1.7 million of the proceeds from the Offering in connection with the Repurchase
and Redemption of PII's Class A Preferred and Class B Preferred, including
approximately $37,500 to Dr. Reed, $37,500 to Gary S. Glatter, $37,500 to George
M. Siegel, $334 to James L. Dunn, Jr., $667 to J. Michael Casas, $37,500 to Dr.
Greder and $37,500 to Dr. Kay (each of whom is, or on closing of the Offering
will be, a member of the Board of Directors or an officer of the Company), (ii)
approximately $836,000 of the proceeds from the Offering in connection with the
repayment of $350,000 aggregate principal amount of 9.5% promissory notes and
$486,000 aggregate principal amount of 15.0% notes (all of which promissory
notes were issued by the Company to fund certain offering and operating
expenses), including principal amounts of approximately $10,000 to James P.
Allen, D.D.S., $10,000 to Steve Anderson, D.D.S., $10,000 to Marvin V.
Cavallino, D.D.S., $20,000 to James H. Clarke, Jr., D.D.S., $5,000 to Henry F.
Cuttler, D.D.S., $6,000 to Edward T. Dougherty, Jr., D.D.S., $20,000 to Kevin
Gasser, D.D.S., $5,000 to Alan H. Gerbholz, D.D.S., $20,000 to Mack E. Greder,
D.D.S., $20,000 to Salvatore Guarnieri, D.D.S., $25,000 to Kent Hamilton,
D.D.S., $10,000 to Stephen Hwang, D.D.S., $10,000 to Penn Jackson, Sr., D.D.S.,
$10,000 to Roger Allen Kay, D.D.S., $5,000 to Patrick T. Kelly, D.D.S., $5,000
to Brian K. Kniff, D.D.S., $10,000 to Donald W. Lanning, D.D.S., $10,000 to
David A. Little, D.D.S., $10,000 to Richard W. Mains, D.D.S., $35,000 to James
M. McDonough, D.D.S. $5,000 to James W. Medlock, D.D.S., $5,000 to Mary B.
Mellard, D.D.S., $7,500 to Byron L. Novosad, D.D.S., $35,000 to Harold A.
Pebbles, Jr., D.D.S. $5,000 to Richard Reinitz, D.D.S., $30,000 to Richard N.
Smith, D.D.S., $20,000 to Jack Stephens, D.D.S., $15,000 to Y. Paul Suzuki,
D.D.S., $10,000 to S. Victor Uhrenholdt, D.D.S. and $15,000 to Ronald M. Yaros,
D.D.S. (all of whom are dentist-owners of Founding Affiliated Practices) and
approximately $35,000 to George M. Siegel, and (iii) an aggregate of
approximately $276,000 of the net proceeds of the Offering in connection with
the purchase of certain accounts receivable from the Founding Affiliated
Practices. See "Use of Proceeds" and "Certain Transactions--Organization of the
Company."

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GOVERNMENT REGULATION

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

CORPORATE PRACTICE OF DENTISTRY AND FEE SPLITTING RESTRICTIONS

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

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

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

ADVERTISING RESTRICTIONS AND LIMITATIONS ON DELEGATION

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<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

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<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

Following the completion of the Affiliations and the Offering, Dr. Reed, the
Company's Chairman of the Board, the other executive officers and directors of
the Company as a group and the owners of the Founding Affiliated Practices other
than Dr. Reed will beneficially own approximately 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. In the event the Company elects
to make working capital loans to Affiliated Practices, those loans will be
negotiated and documented as independent transactions between the Company and
the Affiliated Practices and will have no effect on the amount of service fees
payable to the Company. The Company has no present plans, understandings,
arrangements or agreements with respect to the making of working capital loans
to Affiliated Practices. The Company anticipates that, if any working capital
loans were made by the Company to Affiliated Practices, those loans would
generally bear interest at prime plus one percent and would be repayable over
varying periods of time not to exceed five years. In addition, if any such
Affiliated Practice did not have sufficient operating income in any given month
to pay the service fees due under its Service Agreement and repay all of the
principal and/or interest then due under such a working capital loan, the
Company anticipates it would permit the Affiliated Practice to defer the
repayment of the portion of the principal and/or interest payments due, to the
extent the Affiliated Practice is unable to pay, until the next month in which
the Affiliated Practice's operating income is sufficient to pay the service fees
and make all current debt service payments under the working capital loan. In
the event an Affiliated Practice is unable to repay its debt service obligations
to the Company for an extended period of time, the Company's liquidity and
results of operations may be adversely affected.

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

COMPETITION

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

MALPRACTICE RISKS OF PROVIDING DENTAL SERVICES

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<PAGE>
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 Offering. The shares being sold in the Offering will be
freely tradable unless acquired by affiliates of the Company.

Concurrently with the closing of the Offering, the owners of the Founding
Affiliated Practices will receive, in the aggregate, 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 will hold, in the aggregate, an
additional 847,430 shares of Common Stock. Those shares are not being offered
and sold pursuant to this Prospectus. All of those 3,941,898 shares were or are
being issued in transactions that have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and, accordingly, such shares
may not be sold except in transactions registered under the Securities Act or
pursuant to an exemption from registration. In addition, the Company's executive
officers, directors and current stockholders and the persons acquiring shares of
Common Stock in connection with the Affiliations have agreed with the Company
that they will not sell any of the shares of Common Stock owned by them
immediately after the consummation of the Affiliations for a period of one year
following the closing of the Offering, subject to their right to exercise
certain piggy-back registration rights. After the expiration of that restricted
period, all of those shares may be sold in accordance with Rule 144 under the
Securities Act, subject to the applicable volume limitations, holding period and
other requirements of Rule 144.

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

Following completion of the Offering, the Company intends to register the
issuance of an additional 1,500,000 shares of its Common Stock under the
Securities Act subsequent to completion of the Offering for use by the Company
as all or a portion of the consideration to be paid in future acquisitions.
Those shares will generally be freely tradable by nonaffiliates after their
issuance, unless the resale thereof is contractually restricted, and resales of
those shares during the 180-Day Lockup Period would require the prior written
consent of Dain Rauscher Incorporated.

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

NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or, if
a trading market does develop, that it will continue after the Offering. The
initial public offering price of the Common Stock, which was determined

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<PAGE>
through negotiations between the Company and the Underwriters, may not be
indicative of the price at which the Common Stock will trade after the Offering.
See "Underwriting" for a description of the factors considered in determining
the initial public offering price. 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 who are affiliated
with Affiliated Practices. The Company also is subject to Section 203 of the
DGCL, which, subject to certain exceptions, prohibits a Delaware corporation
from engaging in any of a broad range of business acquisitions with an
"interested stockholder" for a period of three years following the date such
stockholder became an interested stockholder. See "Description of Capital
Stock."

IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF DIVIDENDS

Purchasers of shares of Common Stock offered hereby will experience
immediate and substantial dilution in the pro forma net tangible book value of
their shares in the amount of $7.26 per share. Existing stockholders will
receive an increase of $2.89 per share in the pro forma net tangible book value
of their shares, which have a historical deficit in net tangible book value per
share of $(1.65) as of December 31, 1997. See "Dilution." In the event the
Company issues additional Common Stock in the future, including shares that may
be issued in connection with future acquisitions, purchasers of Common Stock in
the Offering may experience further dilution in the net tangible book value per
share of Common Stock. The Company has never paid any cash dividends and does
not anticipate paying cash dividends on its Common Stock in the foreseeable
future. See "Dividend Policy."

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<PAGE>
THE COMPANY

The Company has conducted no operations to date other than in connection
with the Offering and the Affiliations. PII was formed in February 1997 and
changed its name from "Pentegra Dental Group, Inc." to "Pentegra Investments,
Inc." in July 1997. PII then organized Pentegra Dental Group, Inc. as its wholly
owned subsidiary in July 1997 to, among other things, complete the Offering, the
Affiliations, the Share Exchange, the Pentegra/Napili Transaction and the
Repurchase and Redemption. The Company has entered into agreements to acquire
substantially all the assets and assume certain liabilities of the Founding
Affiliated Practices, Pentegra, Ltd. and Napili concurrently with the closing of
the Offering. The Company's principal executive offices are located at 2999 N.
44th Street, Suite 650, Phoenix, Arizona 85018, and its telephone number is
(602) 952-1200.

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USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (after deducting the underwriting discounts and commissions and
estimated offering expenses (excluding the offering expenses previously funded
with proceeds from the issuance of promissory notes and capital stock of PII,
including all the Class A Preferred and Class B Preferred involved in the
Repurchase and Redemption)) are estimated to be approximately $17.8 million
(approximately $20.8 million if the Underwriters' over-allotment option is
exercised in full). Of those net proceeds, (i) approximately $6.4 million will
be used to pay the cash portion of the consideration for the Affiliations, (ii)
$100,000 will be used to fund the cash portion of the consideration in the
Pentegra/Napili Transaction, (iii) approximately $1.7 million will be used to
fund the cash portion of the consideration in the Redemption and Repurchase
(approximately $1.5 million has been received by the Company as proceeds in
connection with the 1997 issuances of the shares of Class A Preferred and Class
B Preferred to be repurchased or redeemed), (iv) approximately $2.6 million will
be used to repay certain indebtedness of the Company and the Founding Affiliated
Practices (approximately $520,000 of which was incurred in 1997 by certain
Founding Affiliated Practices to acquire dental equipment), (v) approximately
$350,000 will be used to repay 9.5% promissory notes issued by the Company to
fund certain offering and operating expenses, which notes mature 30 days
following consummation of the Offering, (vi) approximately $486,000 will be used
to repay 15.0% promissory notes issued by the Company subsequent to December 31,
1997 to fund certain offering and operating expenses, which notes mature three
days following consummation of the Offering, and (vii) approximately $276,000
will be used to purchase certain accounts receivable, net of accounts payable,
of the Founding Affiliated Practices. The remaining net proceeds will be used
for general corporate purposes, which are expected to include future
acquisitions and future capital expenditures. Pending such uses, the net
proceeds will be invested in short-term, interest-bearing, investment-grade
securities. The promoters (including the dentist-owners of the Founding
Affiliated Practices), officers and directors of the Company will receive an
aggregate of approximately $7.7 million out of the net proceeds of the Offering.
Other than with respect to the Affiliations, the Company currently has no
agreement or understanding with respect to any future affiliation. See "Risk
Factors--Proceeds of Offering Payable to Affiliates" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

The consideration being paid by the Company in connection with each
Affiliation was determined by negotiations between executive officers of the
Company not affiliated with any Founding Affiliated Practice and a
representative of that Founding Affiliated Practice. The Company used the same
valuation method to negotiate the consideration being paid to each of the
Founding Affiliated Practices, including the respective practices wholly owned
by Drs. Reed, Andress, Clarke, Greder, Kay and Yaros, which method was based
upon the Founding Affiliated Practice's gross revenue, net of certain operating
expenses, and the Company's assessment of growth potential. See "Certain
Transactions" for information concerning the identification of the owners of the
Founding Affiliated Practices and the respective amounts of cash being paid to
them out of the proceeds of the Offering and shares of Common Stock being issued
to them in connection with the Affiliations.

The indebtedness of the Founding Affiliated Practices to be repaid bears
interest at an average rate of 8.0% and would otherwise mature at various dates
through 2002.

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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.

DILUTION

The deficit in net tangible book value of the Company as of December 31,
1997 was approximately $(2.9) million, or $(1.65) per share of Common Stock, as
determined by dividing the tangible net worth of the Company (tangible assets
less total liabilities and the aggregate stated value of the Class A Preferred
and Class B Preferred) by the number of shares of Common Stock outstanding.
After giving effect to (i) the Affiliations and (ii) the sale by the Company of
2,500,000 shares of Common Stock offered hereby and the application of the
estimated net proceeds therefrom as set forth under "Use of Proceeds," the net
pro forma tangible book value of the Company as of December 31, 1997 would have
been approximately $8.0 million, or $1.24 per share of Common Stock. This
represents an immediate increase in the net tangible book value of $2.89 per
share to existing stockholders consisting of a decrease of $0.65 per share
attributed to the assumption of net liabilities of the Founding Affiliated
Practices and the related cash distribution of approximately $6.4 million to
promoters (which is the aggregate cash consideration to be distributed in the
Affiliations), a decrease of $(0.16) related to the redemption of shares of
Class A Preferred and Class B Preferred and an increase of $3.70 per share
relating to the Offering. The deficit in pro forma net tangible book value
immediately after the Affiliations is $9.1 million, or $(2.30) per share. This
is an immediate dilution to new investors purchasing Common Stock in the
Offering of $7.26 per share. The following table illustrates the per share
dilution to new investors purchasing Common Stock in the Offering:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1).......... $ 8.50
Historical deficit in net tangible book value............. $ (1.65)
Decrease due to acquisition of net assets and related cash
distribution to promoters............................... (0.65)
---------
Pro forma net tangible book value per share after the
Affiliations............................................ (2.30)
Redempton of preferred stock(2)........................... (0.16)
Increase due to the Offering.............................. 3.70
---------
Pro forma net tangible book value per share after the
Affiliations and Offering............................... $ 1.24
---------
Dilution per share to initial public offering investors..... $ 7.26
---------
---------
</TABLE>

- ---------

(1) Before deducting estimated underwriting discounts and expenses of the
Offering payable by the Company.

(2) Reflects the dividend to be recognized in connection with the redemption of
an aggregate of 1,337,500 shares of Class A Preferred and Class B Preferred.
See Note D to the Pentegra Dental Group, Inc. Unaudited Pro Forma Balance
Sheet.

The following table sets forth, on a pro forma basis to give effect to the
Affiliations as of December 31, 1997, the number of shares of Common Stock
purchased from the Company, the total consideration to the Company and the
average price per share paid to the Company by existing stockholders and the

19
<PAGE>
new investors purchasing shares from the Company in the Offering (before
deducting underwriting discounts and commissions and estimated offering
expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ----------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 847,430 13.1% $ 1,212,000 7.5% $ 1.43
Stockholders receiving shares in
connection with the Affiliations.... 3,094,468 48.1% (6,167,000)(1) (37.9)% $ (1.99)(1)
New investors......................... 2,500,000 38.8% $ 21,250,000 130.4% $ 8.50
---------- ----- ---------------- -----
Total............................. 6,441,898 100.0% $ 16,295,000 100.0%
---------- ----- ---------------- -----
---------- ----- ---------------- -----
</TABLE>

- ---------

(1) Represents the cash distribution of approximately $6.4 million and the
aggregate historical book value of the assets to be acquired, net of
liabilities of the Founding Affiliated Practices to be assumed by the
Company (a net amount of approximately $220,000), in the Affiliations.

All of the calculations above exclude an aggregate of 671,667 shares of
Common Stock issuable upon exercise of stock options outstanding on the date of
this Prospectus at an exercise price of $8.50 per share under the 1997 Stock
Compensation Plan and 1,328,333 shares reserved for future issuance under the
1997 Stock Compensation Plan. See "Management--1997 Stock Compensation Plan."

20
<PAGE>
CAPITALIZATION

The following table sets forth the short-term debt and the capitalization of
the Company at December 31, 1997 (a) on a historical basis, (b) on a pro forma
basis, to give effect to the Affiliations and (c) on that pro forma basis, as
adjusted to give effect to the Offering and the use of the estimated net
proceeds therefrom as described under "Use of Proceeds." This table should be
read in conjunction with the unaudited Pro Forma Balance Sheet of Pentegra and
the notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------------------
HISTORICAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Distribution liability(1).................................................. $ -- $ 6,487 $ --
Current portion of long-term debt, net of discount......................... 215 839 --
----------- ----------- -----------
Total short-term debt...................................................... $ 215 $ 7,326 $ --
----------- ----------- -----------
----------- ----------- -----------
Long-term debt:
Long-term debt, net of current portion(1).................................. -- 2,097 568
Redeemable Preferred Stock................................................... 1,089 1,089 --
Stockholders' equity (deficit):
Common Stock, 40,000,000 shares authorized; 1,756,667 shares issued and
outstanding, 3,941,898 shares issued and outstanding, pro forma, and
6,441,898 shares issued and outstanding, as adjusted(2).................. 18 21 7
Additional paid-in capital(2)(3)........................................... 1,194 (4,976) 10,870
Accumulated deficit........................................................ (1,354) (1,354) (2,739)
----------- ----------- -----------
Total stockholders' equity............................................... (142) (6,309) 8,138
----------- ----------- -----------
Total capitalization..................................................... $ 947 $ (3,123) $ 8,706
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

- ---------
(1) The distribution liability includes approximately $6,387,000 for the cash
portion of the consideration in the Affiliations payable as a distribution
to promoters and $100,000 payable on the closing of the Pentegra/Napili
Transaction. Long-term debt includes $1,997,000 debt to be assumed from the
Founding Affiliated Practices and a $100,000 promissory note to be issued in
connection with the Pentegra/Napili Transaction. The consideration for the
Pentegra/Napili Transaction consists of $100,000 from the proceeds of the
Offering and $100,000 in the form of a 9.0% promissory note due in April
1999.

(2) Reflects the shares of Common Stock to be issued and the dividend to be
recognized in connection with the repurchase of an aggregate of 245,835
shares and the redemption of an aggregate of 1,337,550 shares of Class A
Preferred and Class B Preferred. See Note D to the Pentegra Dental Group,
Inc. Unaudited Pro Forma Balance Sheet. Excludes 671,667 shares of Common
Stock to become subject to option awards that have been authorized pursuant
to the 1997 Stock Compensation Plan. See "Management--1997 Stock
Compensation Plan."

(3) The $(6,170,000) effect of the Affiliations on additional paid-in capital is
aggregate cash payments of approximately $6,387,000 to be made to promoters
as part of the consideration for the Affiliations, less the aggregate
historical book value of the assets to be acquired less the liabilities
assumed (a net amount of approximately $220,000), plus the par value of the
Common Stock to be issued in connection with the Affiliations.

21
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS)

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

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

<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------
HISTORICAL AS ADJUSTED(1)
----------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(2)........................................................... $ 100 $ 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>

- ---------

(2) See "Use of Proceeds."

22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

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

OVERVIEW

Although the Company has conducted no significant operations to date, it
will succeed to the business of Pentegra, Ltd. and Napili, which developed the
Pentegra Dental Program. In connection with the Affiliations, the Company will
acquire certain tangible and intangible assets and assume certain liabilities
of, and enter into Service Agreements with, the Founding Affiliated Practices.
Through those Service Agreements, the Company will be providing practice
management services to the Founding Affiliated Practices in return for
management service fees.

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

The Service Agreements with the professional corporations or associations to
be formed by the dentist-owners of the Founding Affiliated Practices have
initial terms of 40 years, subject to earlier termination under certain
circumstances. Pursuant to those Service Agreements, the Company will become the
exclusive manager and administrator of non-dental services relating to the
operation of the Founding Affiliated Practices, and will, among other things,
(i) administer the billing and collections for the Founding Affiliated
Practices, (ii) provide the necessary clerical, accounting and other non-dental
services to the Founding Affiliated Practices and (iii) provide facilities and
equipment for the Founding Affiliated Practices. The service fees payable by the
Founding Affiliated Practices to the Company under the Service Agreements are
based on fair market value of the services to be provided. Generally, the
service fees are computed based on (i) a percentage of revenues less operating
expenses, (ii) a percentage of revenues not to exceed a percentage of revenues
less operating expenses, (iii) a specific fixed service fee or (iv) some
combination of these. See "--Planned Operations" and "Business--Service
Agreements."

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

23
<PAGE>
As a result of the Affiliations and upon completion of the Offering, the
dentist-owners of the Founding Affiliated Practices and certain officers and
directors of the Company will beneficially own approximately 56.3% of the
outstanding shares of Common Stock. See "Certain Transactions--Organization of
the Company" and "Principal Stockholders."

RESULTS OF OPERATIONS

PENTEGRA AND PII

Pentegra and PII have conducted no significant operations to date and will
not conduct significant operations until the Affiliations, the Pentegra/Napili
Transaction and the Offering are completed. The Company had no revenues and a
net loss of $1,354,000 for the period from inception, February 21, 1997, through
December 31, 1997. General and administrative expenses totalling approximately
$1,354,000 were incurred during the period from inception through December 31,
1997. The Company has incurred and will continue to incur various legal,
accounting, travel, personnel and marketing costs in connection with the
Affiliations and the Offering. Of these expenses, (i) $1,450,000 is being funded
with proceeds from the issuances of the Common Stock, Class A Preferred and
Class B Preferred in the second quarter of 1997, (ii) $350,000 is being funded
with proceeds from the issuance of $350,000 aggregate principal amount of 9.5%
promissory notes of the Company to four separate lenders in October and November
1997 and (iii) $486,000 is being funded with proceeds from the issuance of
$486,000 aggregate principal amount of 15.0% promissory notes of the Company to
30 dentist-owners of Founding Affiliated Practices, two of the Company's
existing stockholders and two other lenders, all in February 1998.

PLANNED OPERATIONS

The Company intends to complete the Affiliations and the Pentegra/Napili
Transaction concurrently with the closing of the Offering. Upon consummation of
the Affiliations, the Company will enter into a Service Agreement with each
Founding Affiliated Practice under which the Company will become the exclusive
manager and administrator of non-dental services relating to the operation of
the Founding Affiliated Practices. The following is a summary of the typical
form of Service Agreement the Company will enter into with each Founding
Affiliated Practice. The Company expects to enter into similar agreements with
Affiliated Practices in the future. The actual terms of the Service Agreements
may vary from the description below on a case-by-case basis, depending on
negotiations with the individual Founding Affiliated Practices and the
requirements of applicable laws and governmental regulations.

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

24
<PAGE>
Affiliated Practice; or (ii) "Alternative Service Agreement," which provides for
the greater of (a) a percentage (35%) of the Affiliated Practice's revenues
related to dental services less operating expenses associated with the operation
of the Affiliated Practice or (b) a specified fixed Service Fee (ranging from
$54,000 to $305,000 annually). In addition, with respect to four of the Founding
Affiliated Practices, the Service Fees are based on fixed fees that are subject
to renegotiation on an annual basis.

Service Fees payable to the Company under clause (i)(a) above are payable by
37 of the Founding Affiliated Practices, located in each state in which the
Founding Affiliated Practices are located other than New York and California,
and are calculated by subtracting the operating expenses of the Founding
Affiliated Practice (including non-dental salaries, insurance, rent and other
non-dentist costs) from the net revenues of the Founding Affiliated Practice and
multiplying the resulting amount by 30%, 35% or 40%, depending on the terms of
the particular Service Agreement. One Founding Affiliated Practice located in
California will pay its Service Fee according to the formula set forth in clause
(i)(b) above, equal to the greater of 16% of its net revenues or 35% of the
difference between its net revenues and operating expenses. Service Fees to be
received by the Company under clause (ii)(b) above are payable by eight of the
Founding Affiliated Practices in Texas and will result in a minimum service fee
being received by the Company (ranging from $54,000 to $305,000 annually). The
annual fixed fees payable by the four Founding Affiliated Practices in New York
are $66,009, $115,251, $83,579 and $140,127 and will be subject to renegotiation
each year based on the fair value of the services to be received by those
Founding Affiliated Practices from the Company. On a monthly basis, the Company
will calculate the Service Fee due from each Founding Affiliated Practice
pursuant to the terms of each Service Agreement. In addition, if the costs
related to providing dental services pursuant to capitated managed care
arrangements exceed the revenues received for those services, the Affiliated
Practice will remain responsible for reimbursing the Company for all of the
costs associated with providing those services, even if no Service Fee is due to
the Company under its Service Agreement.

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash of approximately $100,000 at December 31, 1997. In
October and November 1997, the Company received an additional $350,000 through
the issuance of $350,000 aggregate principal amount of 9.5% promissory notes to
four lenders. In connection with the issuance of the 9.5% promissory notes, PII
issued an aggregate of 20,000 shares of its common stock in October 1997 to two
of those lenders for cash consideration of $.015 per share. In February 1998,
the Company received an additional $486,000 through the issuance of $486,000
aggregate principal amount of 15.0% promissory notes to 30 dentist-owners of
Founding Affiliated Practices, two of the Company's existing stockholders and
two other lenders. The Company anticipates receiving approximately $17.8
million, net of underwriters' commissions and other offering costs, as proceeds
from the Offering. The Company will use the net proceeds of the Offering to pay
(i) the costs of the Offering not previously funded from the proceeds of the
issuance of

25
<PAGE>
capital stock and notes of the Company, (ii) the cash portion of the
consideration for the Affiliations of approximately $6.4 million, (iii) the cash
portion of the consideration for the Pentegra/Napili Transaction of $100,000,
(iv) approximately $1.7 million in connection with the cash portion payable by
the Company in the Repurchase and Redemption, (v) approximately $2.6 million to
retire certain indebtedness of the Founding Affiliated Practices and (vi)
approximately $836,000 to repay the aggregate principal amount outstanding under
the Company's 9.5% promissory notes and 15.0% promissory notes. The remaining
net proceeds will be used for general corporate purposes, which are expected to
include future acquisitions and capital expenditures. The cost of implementing
the Company's management information systems is estimated to be approximately
$550,000, including enhanced microcomputer and related hardware in certain
dental practice offices. Approximately half of this amount has been paid with
proceeds from the sale of Class A Preferred and Class B Preferred, with the
remainder to be paid from the net proceeds of the Offering. Any significant
delay or increase in expense associated with the implementation of the Company's
management information systems could have a material adverse effect on the
Company's results of operations and liquidity.

Management believes the net proceeds of the Offering, combined with the
Company's cash flows from operations, will be sufficient to fund planned capital
expenditures and ongoing operations of the Company through the end of 1998. The
Company is also seeking to establish a revolving bank credit facility and
intends to register an additional 1,500,000 shares of Common Stock under the
Securities Act following the Offering which, when combined with the Company's
cash resources, will be used in the Company's expansion program. In addition,
the Company may seek to utilize seller financing debt in future affiliations or
additional equity offerings to finance the Company's operations.

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

ACCOUNTING TREATMENT

In accordance with Staff Accounting Bulletin No. 48, "Transfers of
Nonmonetary Assets by Promoters or Shareholders" ("SAB 48"), the acquisition of
the assets and assumption of certain liabilities pursuant to the Affiliations
from certain promoters of the Company (the dentists who own the Founding
Affiliated Practices) will be accounted for by the Company at the transferors'
historical cost basis. The Common Stock being issued in the Affiliations will be
recorded at the historical net book value of the net assets being acquired, as
reflected on the books of the Founding Affiliated Practices. Cash consideration
paid to the promoters in the Affiliations of approximately $6.4 million and the
assumption of approximately $220,000 of net assets of the Founding Affiliated
Practices will be treated for accounting purposes as a dividend to the
promoters. See "Business--Summary of Terms of Affiliations" and "Certain
Transactions--Organization of the Company."

26
<PAGE>
CHANGE IN FISCAL YEAR

Following consummation of the Offering, the Company intends to change its
fiscal year from the year ending on December 31 to the year ending on March 31.

RECENT PRONOUNCEMENTS

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

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

In November 1997, the Emerging Issues Task Force of the FASB (the "EITF")
reached a consensus relating to the conditions under which a physician or dental
practice management company would consolidate the accounts of an affiliated
physician or dental practice. The Company believes that its accounting policies
conform to the EITF consensus.

27
<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 definitive acquisition agreements and Service
Agreements with 50 Founding Affiliated Practices, which include 77 dentists and
63 dental offices located in 18 states. These dentists have practiced an average
of 21 years. Of these dentists, 68 are general dentists, one is a
prosthodontist, five are periodontists, one is a pedodontist and two are oral
surgeons. In addition, the Company will acquire from Dr. Reed the assets of a
consulting firm, Pentegra, Ltd., which was founded in 1988, and a seminar
company, Napili, which was founded in 1963. The clinical, administrative and
marketing training developed and provided by these companies to practicing
dentists and their teams are the foundation for the Pentegra Dental Program.
After completion of the Offering, the Pentegra Dental Program will be available
exclusively to Affiliated Practices.

The Company believes it has several advantages that would lead dental
practices to seek to affiliate with the Company: (i) the Company and the
Founding Affiliated Practices focus on providing traditional fee-for-service
dental care, which the Company believes is highly profitable and professionally
rewarding for dentists; (ii) the Pentegra Dental Program offers proven
techniques to increase practice profitability substantially; (iii) both the
Company and the Affiliated Practices will have incentives to work together to
maximize practice profitability; and (iv) affiliation with the Company will
enable Affiliated Practices to benefit from professional management techniques,
economies of scale in administrative and other functions, and enable affiliated
dentists to dedicate more time and effort towards the growth of their practices.

INDUSTRY

The Health Care Finance Administration ("HCFA") estimates that in 1995,
approximately $43 billion was spent in the United States on dental services.
HCFA projects annual dental expenditures to increase at an average annual rate
of six percent per year, reaching $79 billion in the year 2005. The Company
believes there are several factors that will drive growth in dental expenditures
in the United States, including (i) the aging of the population, which increases
the demand for restorative and maintenance procedures (E.G., crowns, bridges and
implants) that tend to be more profitable than routine procedures (E.G.,
cleanings and fillings); (ii) the increasing attention to dental health and
wellness, with greater emphasis on personal appearance, which increases the
demand for general dentistry services and, in particular, cosmetic dental
procedures (E.G., porcelain bonding and bleaching), which also tend to be more
profitable than routine procedures; and (iii) the increasing percentage of the
population covered by some form of dental insurance, which, according to the
National Center for Health Statistics, makes patients more likely to seek
treatment from their dentist.

Payments for dental services are made either directly by patients or by
third-party payors. Third-party payors primarily consist of private insurance
indemnity plans, preferred provider organizations ("PPOs") and dental health
maintenance organizations and other managed care programs ("DHMOs"). Private
indemnity insurance companies typically pay for a patient's dental care on a
fee-for-service basis, while PPO plans pay on a discounted fee-for-service
basis. DHMO plans typically pay on a per-person, per-

28
<PAGE>
month basis regardless of the level of service provided to the patient. In the
case of both PPOs and DHMOs, patients typically must pay on a fee-for-service
basis for any services outside the limited range of dental procedures covered.
According to the 1997 Mercer Consulting Group survey of Employer-Sponsored
Health Plans, approximately 86% of the respondents in that survey reported that
they offer their employees dental plans that pay for dental services on a
fee-for-service basis, while approximately 22% of the plans surveyed are PPO and
DHMO plans (I.E., discounted fee-for-service payments or capitated payments).
According to HCFA, only approximately four percent of all payments for dental
care are made under the Medicaid program (which provides limited coverage for
indigent children), with no coverage being provided by the Medicare program.

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

BUSINESS STRATEGY

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

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

SERVICES AND OPERATIONS

THE PENTEGRA DENTAL PROGRAM

The Company intends to implement the Pentegra Dental Program at each
Affiliated Practice. The Pentegra Dental Program was developed by Dr. Reed
through Pentegra, Ltd. and Napili. Napili was founded in 1963 and has conducted
technical and management seminars for over 15,000 practicing

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dentists, including many who have attended these seminars more than once. As a
result of demand by attendees of Napili seminars, Dr. Reed established Pentegra,
Ltd. in 1988 to provide hands-on, on-site training and services to small groups
of dentists. Shortly after completion of the Offering, Pentegra, Ltd. and Napili
will no longer operate independently and their services will be available
exclusively to Affiliated Practices.

The Company focuses on traditional fee-for-service practices, which generate
revenue by providing care to their established patient bases and typically grow
through patient referrals. The Company believes that the average dentist has the
skills necessary to diagnose and provide appropriate care to patients, but many
of them have not developed the skills needed to obtain patient acceptances of,
and commitments to, the treatment plans. As a result, a significant amount of
recommended care may not be completed, with correspondingly lower revenues to
the dentists.

The Pentegra Dental Program is based on a cooperative approach that
emphasizes patient wellness and involves the dentist and his or her patient
mutually agreeing on a program to achieve and maintain optimal oral health. The
Company will provide seminars and on-site training and support to assist
affiliated dentists (who will control the practice of dentistry at Affiliated
Practices) and their teams to communicate effectively with each patient
regarding the type and value of care needed, obtain the patient's commitment to
a treatment plan and then implement the agreed-upon treatment plan. An initial
on-site consulting and training session will be provided to Affiliated Practices
lasting from one to three days, with subsequent sessions provided as necessary.
At each initial session, the Company will perform an analysis that includes
on-site observation of the dental practice, monitoring of the clinical staff and
patient flow, as well as a review of the charting and record documentation of
the care provided. The purpose of this analysis is to identify areas where
improvements might be made in the day-to-day operations of the dental practice,
including changes in personnel and facility utilization, patient scheduling and
communication (both between the dentist and his or her staff and between all
dental practice personnel and its patients). In addition, the dental practice's
personnel, including its dentists, are introduced to techniques designed to (i)
improve communication among them and (ii) sensitize them to becoming more
confident and consistent in their communications with patients in order to
ensure that each patient is fully informed and agrees with the dentist on a
mutually acceptable treatment plan. The Company and the Affiliated Practices
will monitor the patients' treatment plans by using active recall systems to
ensure that scheduled treatments are actually performed. The Pentegra Dental
Program stresses quality of care and personal attention, both of which the
Company believes are highly valued by patients and help achieve treatment plan
acceptance. The Company intends to develop and maintain a statistical database
for each Affiliated Practice to define and measure the standard of care and
assure that the desired standards are being achieved.

The Pentegra Dental Program also analyzes and rationalizes fee structures to
increase profitability. The Company believes that typical fee structures do not
accurately reflect all direct and indirect costs of various procedures. In order
to address this, the Company will use time-related cost allocation models to
recommend fee structures for Affiliated Practices that are designed to reflect
the true cost of procedures and, hence, increase profitability.

In addition, the Pentegra Dental Program focuses on increasing the
productivity of the dentist and his or her team. The Company will seek to
increase the use of hygienists and production at the Affiliated Practices. A
number of dental services can be provided by hygiene teams with only limited
involvement by the dentist, thereby enabling dentists to use their extra time on
higher margin procedures requiring greater expertise and skill. The Company will
also monitor the Affiliated Practices' patient scheduling and time spent with
patients, and will provide office design services, in order to increase
utilization of existing dental equipment and personnel.

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<PAGE>
MANAGEMENT INFORMATION SYSTEMS

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

The centralized data repository of the Company's management information
system has been completed. The Company is currently in the process of refining
and testing the interfacing of its management information system with beta sites
at selected Founding Affiliated Practices. The Company has successfully
completed testing to ensure access to the Company's data repository via the
internet at the beta sites, but has not yet completed testing of the entry and
retrieval of statistical data into the data repository from the beta sites. The
Company expects its integrated system to be operational at all of the Founding
Affiliated Practices at the closing of the Offering, and will be installed
promptly at all future Affiliated Practices as they affiliate with the Company.
Any significant delay or increase in expense associated with the conversion and
integration of management information systems used by Affiliated Practices could
have a material adverse effect on the successful implementation of the Company's
expansion strategy. In addition, the Company will have some systems that will
remain decentralized for at least some time, such as cash collections.
Accordingly, the Company will rely on local staff for certain functions,
including transferring cash from the Affiliated Practices to the Company.

OTHER PRACTICE MANAGEMENT SERVICES

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

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

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LOCATIONS

Upon consummation of the Affiliations, the Company will provide management
services to the Founding Affiliated Practices, with offices in the following
states:

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

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

SUMMARY OF TERMS OF AFFILIATIONS

The aggregate consideration that will be paid by Pentegra to the promoters
consists of (i) approximately $6.4 million in cash and (ii) 3,094,468 shares of
Common Stock. The Company will also assume certain indebtedness of the Founding
Affiliated Practices of approximately $2.6 million. Pentegra will acquire
substantially all the assets necessary to operate the business of each of the
Founding Affiliated Practices, except as limited by applicable restrictions on
the corporate practice of dentistry. See Note 4 of Notes to the Pentegra Dental
Group, Inc. Financial Statements and "--Government Regulation." The assets to be
acquired include furniture, fixtures, computer equipment, dental chairs, lights,
autoclaves, mixers, vacuum and suction systems, cabinets, hand instruments and
hand pieces of each Founding Affiliated Practice. Pentegra will also acquire the
intangible assets of each Founding Affiliated Practice and will employ the
non-professional staff of each Founding Affiliated Practice. Prior to
consummation of the Offering, each dentist-owner who owns a Founding Affiliated
Practice will form a new professional corporation or association that will (i)
employ the dentists-owner and all other dentists working at the

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Founding Affiliated Practice and (ii) be a party to a Service Agreement to whom
the Company will provide services thereunder. The Company will own no interest
in those professional corporations or associations. In the event of a breach of
the Service Agreement by an Affiliated Practice, the Company will have the right
to designate a dentist to purchase the ownership interests of the applicable
professional corporation or association.

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

The closing of each Affiliation is subject to customary conditions. These
conditions include, among others, the accuracy, on the closing date of the
Affiliations, of the representations and warranties made by the Founding
Affiliated Practices and their stockholders and by the Company; the performance
of each of their respective covenants included in the agreements relating to the
Affiliations; and the absence of any material adverse change in the results of
operations, financial condition or business of each Founding Affiliated
Practice.

Any Founding Affiliated Practice's acquisition agreement may be terminated,
under certain circumstances, prior to the closing of the Offering: (i) by the
mutual consent of Pentegra and the Founding Affiliated Practice; (ii) if the
Offering and the acquisition of that Founding Affiliated Practice are not closed
by March 31, 1998; or (iii) by the Founding Affiliated Practice or Pentegra if a
material breach or default is made by the other party in the observance or in
the due and timely performance of any of the covenants, agreements or conditions
contained in the acquisition agreement.

SERVICE AGREEMENTS

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

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

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<PAGE>
to four of the Founding Affiliated Practices, the Service Fees are based on
fixed fees that are subject to renegotiation on an annual basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--Planned Operations."

Pursuant to each Service Agreement, the Company will, among other things,
(i) act as the exclusive manager and administrator of non-dental services
relating to the operation of the Founding Affiliated Practice, subject to
certain matters reserved to the Founding Affiliated Practice, (ii) administer
the billing of patients, insurance companies and other third-party payors and
collect on behalf of the Founding Affiliated Practice the fees for professional
dental and other services and products rendered or sold by the Founding
Affiliated Practice, (iii) provide, as necessary, clerical, accounting, payroll,
legal, bookkeeping and computer services and personnel, information management,
printing, postage and duplication services and transcribing services, (iv)
supervise and maintain custody of substantially all files and records (other
than patient records if prohibited by applicable law), (v) provide facilities,
equipment and furnishings for the Founding Affiliated Practice, (vi) order and
purchase inventory and supplies as reasonably requested by the Founding
Affiliated Practice and (vii) implement, in consultation with the Founding
Affiliated Practice, public relations or advertising programs.

Pursuant to each Service Agreement, the respective Founding Affiliated
Practice retains the decision-making power and responsibility for, among other
things, (i) hiring, compensating and supervising dentist-employees and other
licensed dental professionals, (ii) ensuring that dentists have the required
licenses, credentials, approvals and other certifications appropriate for the
performance of their duties and (iii) complying with federal and state laws,
regulations and ethical standards applicable to the practice of dentistry. In
addition, the Founding Affiliated Practice will be exclusively in control of all
aspects of the practice of dentistry and the provision of dental services.

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

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

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

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

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<PAGE>
DENTIST AGREEMENT

Each dentist who has an ownership interest in a Founding Affiliated Practice
will enter into a dentist agreement, which provides the Company such dentist's
guarantee (for the initial five years and for so long thereafter as he or she
owns any interest in the Founding Affiliated Practice) of the Founding
Affiliated Practice's obligations under the applicable Service Agreement. In
addition, such agreement provides that the dentist may not sell his or her
ownership interest during the dentist's five-year employment term without the
Company's prior written consent. In the event of a default under the Service
Agreement by the Founding Affiliated Practice, the dentist agreement provides
that the Company may, at its option, require the Founding Affiliated Practice to
convey its patient records and the capital stock of the Founding Affiliated
Practice to the Company's authorized designee, who, in any such case, the
Company anticipates will be a dentist affiliated with an Affiliated Practice.

DENTIST EMPLOYMENT AGREEMENTS

Upon consummation of the Affiliations, each Founding Affiliated Practice
will be a party to a Dentist Employment Agreement with each dentist owner,
including the dentist who owns such Founding Affiliated Practice. The Dentist
Employment Agreements with dentists who will receive cash or Common Stock in the
Affiliations are for an initial term of five years and continue thereafter on a
year-to-year basis until terminated under the terms of the agreements. The
Dentist Employment Agreements provide that the employee dentist will not compete
with the Affiliated Practice during the term of the agreement and following the
termination of the agreement for a term of two years in a specified geographical
area. If employment of a dentist is terminated during the initial five-year term
without the consent of Pentegra for any reason other than the dentist's death or
disability or the occurrence of certain events outside the dentist's control, an
event of default will occur under the Service Agreement. In certain
jurisdictions a covenant not to compete may not be enforceable under certain
circumstances. See "Risk Factors-- Reliance on Affiliated Practices and
Dentists."

COMPETITION

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

EMPLOYEES

As of January 31, 1998, the Company employed three persons. Upon
consummation of the Affiliations, the Company expects that it will have
approximately 390 employees, of which approximately 15 will be employed at the
Company's headquarters in Phoenix, Arizona or at the Company's regional office
in

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<PAGE>
Houston, Texas, and approximately 375 will be employed at the locations of the
Founding Affiliated Practices. None of the Company's employees is, or upon
consummation of the Affiliations will be, represented by collective bargaining
agreements. The Company considers its employee relations to be good.

LITIGATION AND INSURANCE

The Affiliated Practices provide dental services to the public and are
exposed to the risk of professional liability and other claims. In recent years,
dentists have become subject to an increasing number of lawsuits alleging
malpractice and related legal theories. Some of these lawsuits involve large
claims and significant defense costs. Any suits or claims involving the Company
or dentists at the Affiliated Practices, if successful, could result in
substantial damage awards to the claimants that may exceed the limits of any
applicable insurance coverage. Although the Company does not control the
practice of dentistry by the Affiliated Practices, it could be asserted that the
Company should be held liable for malpractice of a dentist employed by an
Affiliated Practice. Each Affiliated Practice has undertaken to comply with all
applicable regulations and legal requirements, and the Company maintains
liability insurance for itself. There can be no assurance, however, that a
future claim or claims will not be successful or, if successful, will not exceed
the limits of available insurance coverage or that such coverage will continue
to be available at acceptable costs.

The Company is currently not a party to any claims, suits or complaints. The
Company may become subject to certain pending claims (each of which is an
ordinary routine proceeding incidental to the business of the applicable
Founding Affiliated Practice) as the result of successor liability in connection
with the Affiliations; however, it is management's opinion that the ultimate
resolution of those claims will not have a material adverse effect on the
financial position, operating results or cash flows of the Company.

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

GOVERNMENT REGULATION

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

CORPORATE PRACTICE OF DENTISTRY AND FEE-SPLITTING RESTRICTIONS

The laws of many states, including all of the states in which the Founding
Affiliated Practices are located other than New Mexico and Wisconsin, permit a
dentist to conduct a dental practice only as an individual, a member of a
partnership or an employee of a professional corporation, professional
association, limited liability company or limited liability partnership. These
laws prohibit business corporations such as the Company from engaging in the
practice of dentistry or employing dentists to practice dentistry. The specific
restrictions against the corporate practice of dentistry, as well as the
interpretation of those restrictions by state regulatory authorities, vary from
state to state. The restrictions are generally designed to prohibit a non-dental
entity (such as the Company) from controlling the professional assets of a
dental practice (such as patient records and payor contracts), employing
dentists to practice dentistry (or, in certain states, employing dental
hygienists or dental assistants) or controlling the content of a dentist's

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

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

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

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

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

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

Significant prohibitions against dentist self-referrals for services covered
by Medicare and Medicaid programs were enacted, subject to certain exceptions,
by Congress in the Omnibus Budget Reconciliation Act of 1993. These
prohibitions, commonly known as Stark II, amended prior physician and dentist
self-referral legislation known as Stark I (which applied only to clinical
laboratory referrals) by dramatically enlarging the list of services and
investment interests to which the self-referral prohibitions apply. Stark II
prohibits a physician or dentist, or a member of his or her immediate family,
from making referrals for certain "designated health services" to entities in
which the physician or dentist has an ownership or investment interest, or with
which the physician or dentist has a compensation arrangement. "Designated
health services" include, among other things, clinical laboratory services,
radiology and other diagnostic services, radiation therapy services, durable
medical equipment, prosthetics, outpatient prescription drugs, home health
services and inpatient and outpatient hospital services. Stark II prohibitions
include referrals within the physician's or dentist's own group practice (unless
such practice satisfies the "group practice" exception) and referrals in
connection with the physician's or dentist's employment arrangements with the
practice (unless the arrangement satisfies the employment exception). Stark II
also prohibits billing the Medicare or Medicaid programs for services rendered
following prohibited referrals. Noncompliance with, or violation of, Stark II
can result in exclusion from the Medicare and Medicaid programs and civil and
criminal penalties. The Company believes that its operations as presently
conducted do not pose a material risk under Stark II, primarily because the
Company does not provide "designated health services." Nevertheless, there can
be no assurance that Stark II will not be interpreted or hereafter amended in a
manner that has a material adverse effect on the Company's operations.

OTHER FEDERAL REGULATIONS

Federal regulations also allow state licensing boards to revoke or restrict
a dentist's license in the event such dentist defaults in the payment of a
government-guaranteed student loan, and further allow the Medicare program to
offset such overdue loan payments against Medicare income due to the defaulting
dentist's employer. The Company cannot assure compliance by dentists with the
payment terms of their student loans, if any.

The operations of the Affiliated Practices are also subject to compliance
with regulations promulgated by the Occupational Safety and Health
Administration ("OSHA"), relating to such matters as heat sterilization of
dental instruments and the use of barrier techniques such as masks, goggles and
gloves.

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<PAGE>
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

39
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

As required by the Company's Bylaws, after the closing of the Offering, a
majority of the Company's Board of Directors will be dentists who are affiliated
with Affiliated Practices. The following table sets forth certain information
concerning the Company's directors, the nine persons nominated to become
directors on the closing of the Offering and the executive officers of the
Company (ages are as of February 20, 1997):

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ----------------------------------------------------------------
<S> <C> <C>
Omer K. Reed, D.D.S.................... 66 Chairman of the Board and Clinical Officer
Gary S. Glatter........................ 44 President, Chief Executive Officer and Director
Sam H. Carr(1)......................... 41 Senior Vice President, Chief Financial Officer and Director
James L. Dunn, Jr.(2).................. 36 Senior Vice President, Chief Development Officer and Director
John G. Thayer......................... 44 Senior Vice President and Chief Operating Officer
Kimberlee K. Rozman.................... 37 Senior Vice President, General Counsel and Secretary
Ronnie L. Andress, D.D.S.(1)........... 42 Director
J. Michael Casas....................... 35 Director
James H. Clarke, Jr., D.D.S.(1)........ 49 Director
Ronald E. Geistfeld, D.D.S.(1)......... 64 Director
Allen M. Gelwick(2).................... 38 Director
Mack E. Greder, D.D.S.(1).............. 54 Director
Roger Allen Kay, D.D.S.(1)............. 52 Director
Gerald F. Mahoney(1)................... 54 Director
Anthony P. Maris(1).................... 64 Director
George M. Siegel....................... 60 Director
Ronald M. Yaros, D.D.S.(1)............. 51 Director
</TABLE>

- ---------

(1) Appointment as a director will become effective upon the closing of the
Offering.

(2) Each of Mr. Dunn and Mr. Gelwick intends to resign as a director upon the
closing of the Offering.

OMER K. REED, D.D.S. has served as the Company's Chairman of the Board and
Clinical Officer since May 1997. He founded Pentegra, Ltd. in 1988 and Napili in
1963, and is a practicing dentist with one of the Founding Affiliated Practices.
Since inception, Pentegra, Ltd. and Napili have provided comprehensive
management and consulting services to dental practices around the nation. In
1965, Dr. Reed founded the CeramDent Laboratory and he has maintained a private
dental practice in Phoenix since 1959. He has held associate professorships in
the Departments of Ecological Dentistry at the University of North Carolina,
Chapel Hill (1978-1988) and the University of Minnesota (1982-1991), and has
lectured extensively around the world on various subjects related to the
practice of dentistry. Dr. Reed also serves on the Board of Directors of Century
Companies of America, CUNA Mutual Insurance Group and the American Volunteer
Medical Team. Pursuant to the terms of his employment agreement with the
Company, the Company has undertaken to use its best efforts to elect Dr. Reed as
a director of the Company.

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

40
<PAGE>
SAM H. CARR has served as the Company's Senior Vice President and Chief
Financial Officer since September 1997. From September 1996 until August of
1997, Mr. Carr served as Vice President--Finance and Corporate Development of
Ankle & Foot Centers of America, LLP, a podiatry practice management company.
From February 1995 until July 1996, Mr. Carr was a Senior Manager with Arthur
Andersen LLP. Prior thereto, Mr. Carr was Chief Financial Officer of
Columbia/HCA's Bellaire Hospital in Houston, Texas from January 1994 until
January 1995, and Vice President of Finance of St. Vincent Hospital in Santa Fe,
New Mexico from 1990 until 1994. From 1978 to 1990, Mr. Carr was an accountant
with Arthur Andersen L.L.P. Mr. Carr is a certified public accountant. Pursuant
to the terms of his employment agreement with the Company, the Company has
undertaken to use its best efforts to elect Mr. Carr as a director of the
Company.

JAMES L. DUNN, JR. has served as the Company's Senior Vice President and Chief
Development Officer since July 1997 and as a Director since March 1997. Since
1987, Mr. Dunn has been an attorney practicing as a sole practitioner in
Houston, Texas. His legal practice is focused on providing services to members
of the dental community. He has been actively involved in the valuation and sale
of dental practices over the past five years. In 1995, Mr. Dunn was appointed to
the Texas Medical Disclosure Panel, the body that determines which dental
procedures require informed consent. Mr. Dunn is a member of the American
Society of Pension Actuaries and is a certified public accountant.

JOHN G. THAYER has served as the Company's Senior Vice President and Chief
Operating Officer since March 1997. Prior thereto, Mr. Thayer was Managing
General Partner of England and Company, a public accounting firm he co-founded
in 1983, which provides accounting and practice management counseling to health
care professionals in the Texas Gulf Coast area. In 1994, he co-founded Medtek
Management, Inc., a privately held management information company specializing
in the data processing needs of health care professionals.

KIMBERLEE K. ROZMAN has served as the Company's Senior Vice President, General
Counsel and Secretary since July 1997. Prior thereto, she served as Vice
President, Senior Counsel (January to July 1997) and Associate General Counsel
(1996) of Physicians Resource Group, Inc., a public company engaged in providing
ophthalmic practice management services. From 1990 to 1996, Ms. Rozman was an
associate with the law firm of Jackson Walker L.L.P.

RONNIE L. ANDRESS, D.D.S. has been engaged in the private practice of dentistry
in Freeport, Texas since 1995 and is President of Ronnie L. Andress, D.D.S.,
Inc., one of the Founding Affiliated Practices. Prior to 1995, Dr. Andress was
engaged in the private practice of dentistry in Houston, Texas for over 12
years.

J. MICHAEL CASAS has been the President of Gustavia Investments, L.L.C. (a newly
organized venture capital firm) since October 1997. Prior thereto, he served as
a Vice President of Physicians Resource Group, Inc. from June 1995 to October
1997. From October 1991 to June 1995, Mr. Casas served as Administrator of Texas
Eye Institute Assoc., a comprehensive eye care provider in the greater Houston,
Texas area.

JAMES H. CLARKE, JR., D.D.S. has been engaged in the private practice of
dentistry in Houston, Texas since 1974 and is President of James H. Clark, Jr.,
D.D.S., Inc., one of the Founding Affiliated Practices.

RONALD E. GEISTFELD, D.D.S. is Professor Emeritus at the University of Minnesota
School of Dentistry, where he has taught since 1982. Dr. Geistfeld also
maintained a part-time dental practice in Minnesota from 1973 to 1992. He is a
member of the Minnesota Dental Association, the Minneapolis District Dental
Society, the American College of Dentists, the Academy of Operative Dentistry,
the Minnesota Academy of Restorative Dentistry and the Minnesota Academy for
Gnathological Research.

ALLEN M. GELWICK has served as a Senior Vice President of Alexander & Alexander,
an insurance brokerage firm, since 1995 and was previously a member of Alexander
& Alexander's Chairman's Council. From 1992 until 1994, he served as Senior Vice
President for Minet Insurance Services. Prior thereto, Mr. Gelwick served as
Senior Vice President for Frank B. Hall & Co. and was an underwriter for Chubb
Insurance.

41
<PAGE>
MACK E. GREDER, D.D.S. has been engaged in the private practice of dentistry in
Omaha, Nebraska since 1970 and is President of Mack E. Greder, D.D.S., P.C., one
of the Founding Affiliated Practices.

ROGER ALLEN KAY, D.D.S. has been engaged in the private practice of dentistry in
Farmington and Livermore Falls, Maine since 1972 and is President of Roger Allen
Kay, D.D.S., P.A., one of the Founding Affiliated Practices. He is a member of
the Maine Dental Association, the American Dental Association, the Academy of
General Dentistry and the American Society of Dentistry for Children.

GERALD F. MAHONEY has been Chairman of the Board and Chief Executive Officer of
Mail-Well, Inc., a public company engaged in printing and envelope manufacturing
with over 50 printing offices throughout the United States, since 1994. Prior
thereto, he served as Chairman of the Board, President and Chief Executive
Officer of Pavey Envelope beginning in 1991. Mr. Mahoney is a certified public
accountant.

ANTHONY P. MARIS is a consultant to health care businesses. From 1987 to 1996,
Mr. Maris was a Director, Vice President, Chief Financial Officer and Treasurer
of Roberts Pharmaceutical Corporation, a public company engaged in
pharmaceuticals manufacturing. Prior thereto, Mr. Maris was a Director and Chief
Financial Officer of Hoffmann--La Roche Inc., a pharmaceutical manufacturer.

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

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

BOARD OF DIRECTORS

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

On closing of the Offering, there will be three committees of the Board:
Audit, Compensation and Executive. The initial members of the Audit Committee
will be Messrs. Maris and Mahoney. The initial members of the Compensation
Committee will be Messrs. Maris, Siegel and Casas. The initial members of the
Executive Committee will be Dr. Reed and Messrs. Glatter and Siegel. The members
of the Audit and Compensation Committees will not be employees of the Company.

Directors who are employees of the Company or a Founding Affiliated Practice
do not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or a Founding Affiliated Practice will
receive a fee of $1,500 for attendance at each Board of Directors meeting and
$750 for each committee meeting (unless held on the same day as a Board of
Directors meeting), and an initial grant of nonqualified options to purchase
10,000 shares of Common Stock (except

42
<PAGE>
with respect to Messrs. Casas and Siegel, who have waived their right to receive
those options). Directors who are not employees of the Company will also receive
annual grants of nonqualified options to purchase 5,000 shares on the first
business day of the month following the date on which each annual meeting of the
Company's stockholders is held. See "--1997 Stock Compensation Plan." All
directors of the Company are reimbursed for out-of-pocket expenses incurred in
attending meetings of the Board of Directors or committees thereof, and for
other expenses incurred in their capacity as directors of the Company.

EXECUTIVE COMPENSATION

Pentegra has conducted no operations to date other than in connection with
the Offering and the Affiliations. The Company anticipates that during 1998 its
most highly compensated executive officers will be Dr. Reed and Messrs. Glatter,
Carr, Dunn and Thayer (the "Named Executive Officers"), each of whom has entered
or will enter into an employment agreement providing for an annual salary of
$87,500, $175,000, $175,000, $125,000 and $125,000, respectively. See
"--Employment Agreements."

In addition to base salary, Messrs. Glatter, Carr, Dunn and Thayer through
their employment agreements are eligible for certain bonuses described under
"--Employment Agreements" and performance bonuses based on the achievement of
specific financial targets of the Company. Performance bonuses will not exceed
25% of base salary for each of those officers, except Mr. Glatter (whose bonus
will not exceed 50% of his base salary).

In September 1997, the Company 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, which will be
effective on the closing of the Affiliations and the Offering, have been filed
as exhibits to the Registration Statement of which this Prospectus is a part.
Each of these agreements provides for an annual base salary in an amount not
less than the initial specified amount and entitles the employee to participate
in all the Company's compensation plans in which other executive officers of the
Company participate. Dr. Reed's employment agreement provides that he will serve
as the Company's clinical officer and has a three-year term commencing on
completion of the Offering. Dr. Reed's base salary under the employment
agreement will be $87,500 per year, or as increased from time to time by the
Board of Directors, and provides for bonus payments aggregating $1,250,000
payable by the Company in installments of $10,000 on closing of each future
dental practice affiliation subsequent to the Offering until the bonus has been
paid in full, provided that the bonus must be paid in full by the third
anniversary of the date of this Prospectus. Mr. Glatter's employment agreement
provides that he will serve as the Company's chief executive officer and
president and has at least a four-year term commencing on July 1, 1997. Mr.
Glatter's base salary under the employment agreement will be as follows: (i)
$175,000 per year for the period from July 1, 1997 through June 30, 1998, (ii)
$200,000 per year for the period from July 1, 1998 through June 30, 1999, (iii)
$225,000 per year for the period from July 1, 1999 through June 30, 2000 and
(iv) $250,000 per year from July 1, 2000 thereafter or as increased from
time-to-time by the Board of Directors. Each of the agreements for Messrs. Carr,
Dunn and Thayer and Ms. Rozman has a continuous five-year term with an annual
base salary of $175,000 for Mr. Carr and of $125,000 for each of the other
officers, and is subject to the right of the Company to terminate the

43
<PAGE>
employee's employment at any time. Mr. Glatter is eligible to receive an annual
cash bonus in an amount equal to 10%, 20%, 30%, 40% or 50% of his base salary in
the event that the Company experiences from 20% to 22.5%, 22.5% to 25%, 25% to
27.5%, 27.5% to 30% or greater than 30%, respectively, growth in earnings per
share on a year-to-year basis (calculated on a pro forma basis for the calendar
year prior to the Company's first year of operations). For purposes of
determining the applicable year's earnings per share change, the cash bonuses
payable to Mr. Glatter and under all other employment agreements between the
Company and its officers will be taken into account. Each of the other named
officers (except Dr. Reed and Mr. Glatter) is eligible to receive an annual cash
bonus in an amount equal to 5%, 10%, 15%, 20% or 25% of his or her base salary
in the event that the Company experiences 20% to 22.5%, 22.5% to 25%, 25% to
27.5%, 27.5% to 30% or greater than 30%, respectively, growth in earnings per
share on a year-to-year basis (calculated on a pro forma basis for the calendar
year prior to the Company's first fiscal year of operations). For purposes of
determining the applicable year's earnings per share change, the cash bonuses
payable to the officer and under all other employment agreements between the
Company and its officers will be taken into account.

If the employee's employment is terminated by the Company without cause (as
defined), Messrs. Carr, Dunn and Thayer and Ms. Rozman will be entitled to a
payment equal to either 12 months' or six months' salary depending on whether
such employee has relocated to Phoenix, Arizona, and Dr. Reed and Mr. Glatter
will be entitled to a payment equal to the salary payable over the remaining
term of their respective employment agreements. Mr. Thayer will also receive a
$25,000 bonus on the closing of the Offering and a $25,000 bonus on the first
anniversary of that closing. Mr. Carr will also receive compensation on the
closing of the Offering equal to $4,583 multipled by the number of months in the
period beginning on September 1, 1997 and ending on the closing of the Offering.
Each of the foregoing agreements also contains a covenant limiting competition
with the Company for one year following termination of employment.

Each Founding Affiliated Practice will enter into an employment agreement
with its dentist employees. See "Business--Dentist Employment Agreements."

1997 STOCK COMPENSATION PLAN

In August 1997, the Board of Directors adopted, and the stockholders of the
Company approved, the 1997 Stock Compensation Plan. The purpose of the 1997
Stock Compensation Plan is to provide the Company's employees, non-employee
directors and advisors and employees and directors of Affiliated Practices with
additional incentives by increasing their proprietary interest in the Company.
The aggregate number of shares of Common Stock with respect to which options and
awards may be granted under the 1997 Stock Compensation Plan may not exceed
2,000,000 shares.

The 1997 Stock Compensation Plan provides for the grant of incentive stock
options ("ISOs"), as defined in Section 422 of the Code, nonqualified stock
options (collectively with ISOs, "Options") and restricted stock awards
("Awards"). Following the consummation of the Offering, the 1997 Stock
Compensation Plan will be administered by the Compensation Committee of the
Board of Directors, which will be comprised of not less than two members of the
Board of Directors (the "Committee"). Prior to the consummation of the Offering,
the 1997 Stock Compensation Plan had been administered by the Company's full
Board of Directors. The Committee has, subject to the terms of the 1997 Stock
Compensation Plan, the sole authority to grant Options and Awards under the 1997
Stock Compensation Plan, to interpret the 1997 Stock Compensation Plan and to
make all other determinations necessary or advisable for the administration of
the 1997 Stock Compensation Plan.

All of the Company's employees, non-employee directors and advisors and
employees and directors of Affiliated Practices are eligible to receive
nonqualified stock options and Awards under the 1997 Stock Compensation Plan,
but only employees of the Company are eligible to receive ISOs. Options will be
exercisable during the period specified in each option agreement and will
generally be exercisable in

44
<PAGE>
installments pursuant to a vesting schedule to be designated by the Committee.
Notwithstanding the provisions of any option agreement, options will become
immediately exercisable in the event of certain events including certain merger
or consolidation transactions and changes in control of the Company. No Option
will remain exercisable later than ten years after the date of grant (or five
years from the date of grant in the case of ISOs granted to holders of more than
10% of the outstanding Common Stock). An Award grants the recipient the right to
receive a specified number of shares of Common Stock, which shall become vested
over a period of time, not exceeding 10 years, specified by the Committee.
Restricted stock transferred to a recipient shall be forfeited upon the
termination of the recipient's employment or service other than for death,
permanent disability or retirement unless the Committee, in its sole discretion,
waives the restrictions for all or any part of an Award.

The exercise price for ISOs granted under the 1997 Stock Compensation Plan
may be no less than the fair market value of the Common Stock on the date of
grant (or 110% of the fair market value in the case of ISOs granted to employees
owning more than 10% of the Common Stock). The exercise price for nonqualified
options granted under the 1997 Stock Compensation Plan may not be less than the
fair market value of the Common Stock on the date of grant.

Payment upon exercise of an Option may be made in cash or by check, by means
of a "cashless exercise" involving the sale of shares by, or a loan from, a
broker, or, in the discretion of the Committee, by delivery of shares of Common
Stock, by payment of the par value of the shares subject to the Option plus a
promissory note for the balance of the exercise price or in any other form of
valid consideration permitted by the Committee.

There are generally no federal income tax consequences upon the grant of an
Option under the 1997 Stock Compensation Plan. Upon exercise of a nonqualified
option, the optionee generally will recognize ordinary income in the amount
equal to the difference between the fair market value of the shares at the time
of exercise and the exercise price, and the Company is generally entitled to a
corresponding deduction. When an optionee sells shares issued upon the exercise
of a nonqualified stock option, the optionee realizes short-term, mid-term or
long-term capital gain or loss, depending on the length of the holding period.
If the optionee holds the shares for more than 18 months, the capital gain or
loss will be long-term capital gain or loss. If the optionee holds the shares
for more than one year but not more than 18 months, the capital gain or loss
will be mid-term capital gain or loss. Otherwise, the capital gain or loss will
be short-term capital gain or loss. The Company is not entitled to any deduction
in connection with such sale.

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

For alternative minimum tax purposes, the difference between the fair market
value, on the date of exercise, of Common Stock purchased upon the exercise of
an ISO, and the exercise price increases

45
<PAGE>
alternative minimum taxable income. Additional rules apply if an optionee makes
a disqualifying disposition of the Common Stock.

There are generally no federal income tax consequences upon the grant of an
Award, except as described below regarding a section 83(b) election. Upon the
expiration of the restrictions on shares of Common Stock subject to an Award,
except as provided in the next sentence, the recipient of the Award will
recognize taxable ordinary income equal to the fair market value of the shares
at the time of such expiration. If the recipient of an Award elects, pursuant to
section 83(b) of the Code, within 30 days of the date shares of restricted stock
are considered transferred to the recipient, to recognize taxable ordinary
income at the time of the transfer in an amount equal to the fair market value
of such shares, no additional income will be recognized upon the lapse of the
restrictions on the shares and no deduction will be allowed to the recipient if
the shares are subsequently forfeited. A recipient who makes such an election
under section 83(b) is required to give notice of such election to the Company
immediately after making the election, and the Company will be entitled to a
deduction equal to the amount of income recognized by the recipient. For capital
gain purposes, the recipient's holding period for the shares received will begin
at the time taxable income is recognized under these rules and his or her basis
in the shares will be the amount of ordinary income recognized.

The Company anticipates that upon the consummation of the Offering it will
have (i) outstanding options to purchase a total of 671,667 shares of Common
Stock under the 1997 Stock Compensation Plan and (ii) 1,328,333 additional
shares available for future awards under the 1997 Stock Compensation Plan.

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<PAGE>
CERTAIN TRANSACTIONS

ORGANIZATION OF THE COMPANY

In connection with the formation of the Company, in February 1997, PII
issued common stock to J. Michael Casas (200,000 shares), James L. Dunn, Jr.
(100,000 shares), John G. Thayer (66,667 shares) and Allen M. Gelwick (66,667
shares), at a purchase price per share of $0.015. In May 1997, PII issued Class
B Preferred to J. Michael Casas (66,667 shares) and James L. Dunn, Jr. (33,334
shares), at a purchase price per share of $0.01. In May 1997, PII issued Common
Stock to George M. Siegel (300,000 shares), Dr. Reed (150,000 shares), Gary S.
Glatter (100,000 shares), Kelly W. Reed (150,000 shares), Stephen E. Stapleton
(33,333 shares) and Kimberlee K. Rozman (33,333 shares), at a purchase price per
share of $0.015. In September 1997 and October 1997, PII repurchased 46,667
shares and 20,000 shares, respectively, of its common stock from George M.
Siegel at a purchase price per share of $0.015. In September 1997, the Company
issued 66,667 shares of common stock to Sam H. Carr at a purchase price per
share of $0.015.

In connection with the raising of $1,450,000 by PII in order to fund a
portion of the expenses for the Offering and the Affiliations, in June 1997, PII
issued capital stock to Dr. Reed (37,500 shares of Class B Preferred and 7,500
shares of common stock), Gary S. Glatter (37,500 shares of Class B Preferred and
7,500 shares of common stock), George M. Siegel (37,500 of Class B Preferred and
7,500 shares of common stock), Mack E. Greder, D.D.S. (25,000 shares of Class B
Preferred and 5,000 shares of common stock), Roger Allen Kay, D.D.S. (25,000
shares of Class B Preferred and 5,000 shares of common stock), Bruce A. Kanehl,
D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common stock),
Brian K. Kniff, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of
common stock), Richard W. Mains, Jr., D.M.D., RBM Trust (25,000 shares of Class
B Preferred and 5,000 shares of common stock), James W. Medlock, D.D.S. (25,000
shares of Class B Preferred and 5,000 shares of common stock), Thomas L.
Mullooly, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common
stock), Richard H. Fettig, D.D.S. (25,000 shares of Class B Preferred and 5,000
shares of common stock), Marvin V. Cavallino, D.D.S. (50,000 shares of Class B
Preferred and 10,000 shares of common stock), Alan H. Gerbholz, D.D.S. (25,000
shares of Class B Preferred and 5,000 shares of common stock), Victor H.
Burdick, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common
stock), Steve Anderson, D.D.S. (25,000 shares of Class B Preferred and 5,000
shares of common stock) and James P. Allen, D.D.S. (25,000 shares of Class B
Preferred and 5,000 shares of common stock), at a purchase price per share of
$1.00 for the Class B Preferred and of $0.015 for the common stock.
In September 1997, (i) each owner of shares of common stock of PII agreed to
exchange those shares for shares of Common Stock on a one-for-one basis and (ii)
each of Dr. Reed and Messrs. Glatter, Dunn, Casas and Siegel agreed to sell to
PII all shares of Class B Preferred he owns at a price per share equal to the
subscription price he paid to PII for those shares, which transactions will
occur concurrently with the closing of the Offering and the Affiliations. In
addition, immediately after the completion of the repurchases described in the
foregoing sentence, all outstanding shares of Class A Preferred and Class B
Preferred will be redeemed by PII at a redemption price, as established by
resolution of the board of directors of PII, of $1.50 per share, of which $1.15
per share will be paid in cash from the proceeds of the Offering and $0.35 per
share will be paid in the form of a 6.0% promissory note that becomes due and
payable by the Company on the earlier of the fifth anniversary of the date of
the closing of the Offering or the date on which the Company offers and sells an
amount of equity securities for gross proceeds equal to or greater than the
gross proceeds from the Offering.

In December 1997, the owners of the outstanding shares of common stock of
PII agreed 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).

The Company has entered into an agreement with Pentegra, Ltd., Napili and
Dr. Reed to purchase substantially all the tangible and intangible assets of
Pentegra, Ltd. and Napili for consideration of

47
<PAGE>
$200,000 upon completion of the Offering. Of the $200,000 in consideration,
$100,000 will be paid from the proceeds of the Offering and $100,000 will be
paid in the form of a 9.0% promissory note due April 1, 1999. This purchase
price was negotiated by Mr. Glatter, on behalf of the Company, by Dr. Reed, on
behalf of himself, and by the administrators of the Reed Family Trust, and was
approved unanimously by the Company's Board of Directors, which Dr. Reed serves
on as Chairman of the Board. Dr. Reed beneficially owns approximately 51.0% of
the capital stock of each of Pentegra, Ltd. and Napili and the Reed Family Trust
(which is administered by, and whose beneficiaries are, the children of Dr.
Reed) beneficially owns 49% of the capital stock of each of Pentegra, Ltd. and
Napili. The assets that the Company will acquire from Pentegra, Ltd. and Napili
include office furniture and equipment, marketing systems, recall systems,
telephone systems, customer/client lists, books and records and video tapes.

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

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

The following table provides certain information concerning each of the
Affiliations and each person who has an ownership interest in a Founding
Affiliated Practice (all of whom are promoters of the Company):

(TABLE CONTINUED)

48
<PAGE>

<TABLE>
<CAPTION>
CONSIDERATION TO BE RECEIVED
DEBT AND ---------------------------------------
ASSETS TO BE LIABILITIES NUMBER OF VALUE OF
FOUNDING AFFILIATED PRACTICE(1) CONTRIBUTED(2) ASSUMED SHARES 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
Victor H. Burdick, D.D.S., P.C........... 351 4,344 53,706 456,501 114,126
Marvin V. Cavallino, D.D.S., A
Professional Corporation............... 61,486 72,426 67,505 573,792 143,447
James H. Clarke, Jr., D.D.S., Inc........ 148,515 54,000 70,632 600,372 150,092
Henry F. Cuttler, D.D.S.................. 88,507 114,028 37,276 316,846 79,211
Edward T. Dougherty, Jr., D.D.S., P.A.... 55,356 -- 109,567 931,320 232,830
Family Dental Center, P.A.:
Steve Anderson, D.D.S.................. 43,096 -- 83,158 706,843 176,711
Lindi B. Anderson, D.D.S............... 10,775 -- 20,790 176,715 44,178
Richard H. Fettig, D.D.S................. 30,613 19,836 45,790 389,215 97,303
Alan H. Gerbholz, D.D.S., P.C............ 159,202 -- 43,036 365,806 91,451
Michael J. Gershtenson, D.D.S., P.C...... 7,356 24,948 46,149 392,266 98,067
Mack E. Greder, D.D.S., P.C.............. 48,067 37,505 67,380 572,730 143,183
Salvatore Guarnieri, D.D.S............... 64,625 28,205 47,198 401,183 100,295
Kent Hamilton, D.D.S..................... 170,403 200,000 112,123 953,046 238,262
David R. Henderson, D.D.S................ 8,059 -- 40,051 340,434 85,109
Stephen Hwang, D.D.S..................... 26,446 -- 35,262 299,727 74,931
Jackson Dental Partnership:
Penn Jackson, Sr., D.D.S............... 51,739 -- 35,360 300,560 --
Penn Jackson, Jr., D.D.S............... 34,492 -- 15,730 133,705 --
Bruce A. Kanehl, D.D.S................... 19,132 1,350 69,354 589,509 147,378
Roger Allen Kay, D.D.S., P.A............. 2,837 4,816 67,773 576,070 144,017
Patrick T. Kelly, D.D.S., P.C............ 24,810 -- 18,357 156,034 39,008
Brian K. Kniff, D.D.S., P.C.:
Brian K. Kniff, D.D.S.................. 41,171 23,327 53,576 455,396 113,848
Gordon Ledingham, D.D.S................ 41,171 23,327 53,575 455,387 113,848
Lakeview Dental, P.C. (Kevin Gasser,
D.D.S.)................................ 35,769 34,803 48,085 408,722 102,180
Donald W. Lanning, D.D.S................. 34,414 -- 29,255 248,667 40,000
David A. Little, D.D.S................... 27,417 230,859 49,807 423,360 105,840
Susan Lunson, D.D.S...................... 164,826 157,000 27,884 237,014 59,253
Richard W. Mains, Jr., D.M.D., P.C....... 94,449 -- 79,131 672,613 168,152
James M. McDonough, D.D.S................ 35,802 56,000 59,494 505,699 126,424
James W. Medlock, D.D.S., P.A............ 125,408 28,000 84,678 719,763 179,940
James Randy Mellard, D.D.S. M.S., P.C.... 51,747 65,242 15,052 127,942 31,986
Mary B. Mellard, D.D.S., P.C............. 177,249 230,733 60,500 514,250 128,562
TL Mullooly, D.D.S., Inc................. 1,743 -- 45,608 387,668 96,918
Byron L. Novosad, D.D.S., Inc............ 21,396 -- 47,023 399,695 99,923
Randy O'Brien, D.D.S., Inc............... 25,705 27,753 36,147 307,249 76,811
Terrence C. O'Keefe, D.D.S............... 51,382 52,139 28,588 242,998 81,000
Harold A. Pebbles, Jr., D.D.S., P.C...... 13,475 -- 56,302 478,567 119,641
Jimmy F. Pinner, D.D.S................... 35,807 12,000 17,232 146,472 36,619
Omer K. Reed, D.D.S...................... 5,495 0 36,821 312,978 --
Richard Reinitz, D.D.S., P.C............. 108,868 226,009 148,700 1,263,950 315,988
Greg Richards, D.D.S..................... 51,658 59,000 19,440 165,240 41,302
Richard N. Smith, D.M.D., P.C............ -- 94,998 95,590 812,515 203,129
John N. Stellpflug, D.D.S................ 7,643 36,750 47,062 400,027 100,006
Jack Stephens, D.D.S..................... 63,013 -- 120,716 1,026,086 256,523
</TABLE>

(TABLE CONTINUED)

49
<PAGE>
<TABLE>
<CAPTION>
CONSIDERATION TO BE RECEIVED
DEBT AND ---------------------------------------
ASSETS TO BE LIABILITIES NUMBER OF VALUE OF
FOUNDING AFFILIATED PRACTICE(1) CONTRIBUTED(2) ASSUMED SHARES SHARES CASH
- ----------------------------------------- -------------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Y. Paul Suzuki, D.D.S., P.C.............. 24,337 -- 45,116 383,486 95,870
Donald F. Tamborello, D.D.S.............. 18,018 7,565 53,958 458,643 114,660
Helena Thomas, D.D.S..................... 92,752 113,013 28,972 246,262 61,566
Louis J. Thornley, D.D.S., P.C........... 26,074 -- 41,877 355,954 88,989
S. Victor Uhrenholdt, D.D.S., P.C........ 58,707 50,157 59,632 506,872 126,718
Scott Van Zandt, D.D.S................... 11,398 1,675 40,117 340,994 85,248
Ronald M. Yaros, D.D.S., P.C............. 139,371 29,570 139,214 1,183,319 295,830
-------------- ------------ ---------- ------------- ------------
$ 2,841,024 $ 2,621,461 3,094,468 $ 26,302,971 $ 6,387,000
-------------- ------------ ---------- ------------- ------------
-------------- ------------ ---------- ------------- ------------
</TABLE>

- ---------

(1) Unless otherwise noted, the dentist who owns all of the capital stock of the
Founding Affiliated Practice is set forth in the name of that Founding
Affiliated Practice.

(2) Assets to be contributed reflects the historical book value of the
nonmonetary assets of each practice to be transferred to the Company. These
nonmonetary assets are reflected at historical cost in accordance with SAB
No. 48. All monetary assets are recorded at fair value, which is
approximated by the historical costs recorded by the practices.

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

All of the 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 will have certain piggy-back registration
rights. See "Shares Eligible for Future Sale."

COMPANY POLICY

It is anticipated that future transactions with affiliates of the Company
will be minimal, will be approved by a majority of the disinterested members of
the Board of Directors and will be made on terms no less favorable to the
Company than could be obtained from unaffiliated third parties. The Company does
not intend to incur any further indebtedness to, or make any loans to, any of
its executive officers, directors or other affiliates.

50
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The following table shows, as of January 31, 1998 (after giving effect to
the Share Exchange) and immediately after giving effect to the closing of the
Affiliations and the Offering, the then "beneficial ownership" of the Common
Stock of (i) each director and person nominated to become a director on closing
of the Offering, (ii) each executive officer, (iii) all executive officers and
directors of the Company as a group and (iv) each person who owns more than 5%
of the outstanding Common Stock. The table assumes none of such persons intend
to acquire shares in the Offering. The address of each person in the table is
c/o Pentegra Dental Group, Inc., 2999 North 44th Street, Suite 650, Phoenix,
Arizona 85018.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY
BEFORE OFFERING(1)(2) OWNED
AFTER OFFERING(1)(3)
---------------------- -----------------------
NUMBER PERCENT NUMBER PERCENT
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Omer K. Reed, D.D.S.................................................... 75,979 9.0% 112,800 1.8%
Gary S. Glatter........................................................ 51,859 6.1% 51,859 *
Sam H. Carr............................................................ 32,161 3.8% 32,161 *
James L. Dunn, Jr...................................................... 45,025 5.3% 45,025 *
John G. Thayer......................................................... 32,161 3.8% 32,161 *
Kimberlee K. Rozman.................................................... 16,080 1.9% 16,080 *
Ronald M. Yaros, D.D.S................................................. 0 -- 139,214 2.2%
George M. Siegel....................................................... 116,180 13.7% 116,180 1.8%
Ronnie L. Andress, D.D.S............................................... 0 -- 101,801 1.6%
J. Michael Casas....................................................... 96,482 11.4% 96,482 1.5%
Kelly W. Reed(4)....................................................... 72,361 8.5% 72,361 1.1%
James H. Clarke, Jr., D.D.S............................................ 0 -- 70,632 1.1%
Roger Allen Kay, D.D.S................................................. 2,412 * 70,185 1.1%
Mack E. Greder, D.D.S.................................................. 2,412 * 69,792 1.1%
Allen M. Gelwick....................................................... 32,161 3.8% 32,161 *
Ronald E. Geistfeld, D.D.S............................................. 0 -- 0 --
Gerald F. Mahoney...................................................... 0 -- 0 --
Anthony P. Maris....................................................... 0 -- 0 --
All executive officers and directors as a group (17 persons)........... 502,912 59.3% 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.

(2) Gives effect to the Share Exchange.

(3) Gives effect to the Share Exchange and the Affiliations.

(4) Kelly W. Reed, Vice President of Operations of the Company, is the son of
Omer K. Reed, D.D.S.

51
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, par value $.001 per share, and 10,000,000 shares of preferred
stock, par value $.001 per share ("Preferred Stock"). At December 31, 1997,
1,756,667 shares of Common Stock were issued and outstanding and held of record
by 52 stockholders. The following summary is qualified in its entirety by
reference to the Certificate of Incorporation, which is included as an exhibit
to the Registration Statement of which this Prospectus is a part.

COMMON STOCK

The Common Stock possesses ordinary voting rights for the election of
directors and in respect of other corporate matters, and each share has one
vote. The Common Stock affords no cumulative voting rights, and the holders of a
majority of the shares voting for the election of directors can elect all the
directors if they choose to do so. The Common Stock carries no preemptive
rights, is not convertible, redeemable or assessable. The holders of Common
Stock are entitled to dividends in such amounts and at such times as may be
declared by the Board of Directors out of funds legally available therefor. See
"Dividend Policy" for information regarding the Company's dividend policy.

PREFERRED STOCK

The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series. Subject to the provisions of the
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional, exchange or other special rights,
qualifications, limitations or restrictions thereof, including dividend rights
(including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, in each case without any further action or vote
by the holders of Common Stock.

Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For example, the issuance of a series of Preferred Stock might impede
a business combination by including class voting rights that would enable the
holders to block such a transaction; or such issuance might facilitate a
business combination by including voting rights that would provide a required
percentage vote of the stockholders. In addition, under certain circumstances,
the issuance of Preferred Stock could adversely affect the voting power of the
holders of the Common Stock. Although the Board of Directors is required to make
any determination to issue such stock based on its judgment as to the best
interests of the stockholders of the Company, the Board of Directors could act
in a manner that would discourage an acquisition attempt or other transaction
that some or a majority of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then-market price of such stock. The Board of Directors does not at present
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or the rules of any market on
which the Company's securities are traded.

STATUTORY BUSINESS COMBINATION PROVISION

The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined) with a Delaware
corporation for three years following the date such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation

52
<PAGE>
approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination, (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the rights to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer) or (iii) following the
transaction in which such person became an interested stockholder, the business
combination was approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of 66 2/3% of the outstanding voting stock of the corporation not owned by the
interested stockholder. Under Section 203, the restrictions described above also
do not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of one of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.

OTHER MATTERS

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

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

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

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

53
<PAGE>
majority of the members of the Board of Directors must be licensed dentists
affiliated with one of the Affiliated Practices. See "Management--Directors and
Executive Officers."

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

STOCKHOLDER PROPOSALS

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

TRANSFER AGENT AND REGISTRAR

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

54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Affiliations and the Offering, the Company will
have outstanding 6,441,898 shares of Common Stock (6,816,898 if the
Underwriters' over-allotment option is exercised in full) of which the 2,500,000
shares sold in the Offering (2,875,000 if the Underwriters' over-allotment
option is exercised in full) will be freely tradable without restriction or
further registration under the Securities Act, except for those held by
"affiliates" (as defined in the Securities Act) of the Company, which shares
will be subject to the resale limitations of Rule 144 under the Securities Act.
The remaining 3,941,898 shares of Common Stock are deemed "restricted
securities" under Rule 144 in that they were originally issued and sold by the
Company in private transactions in reliance upon exemptions under the Securities
Act, and may be publicly sold only if registered under the Securities Act or
sold in accordance with an applicable exemption from registration, such as those
provided by Rule 144 promulgated under the Securities Act as described below.

In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the date of acquisition of restricted securities from the
issuer or from an affiliate of the issuer, the acquirer or subsequent holder
would be entitled to sell within any three-month period a number of those shares
that does not exceed the greater of one percent of the number of shares of such
class of stock then outstanding or the average weekly trading volume of the
shares of such class of stock during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions and notice requirements and to the
availability of current public information about the issuer. In addition, if a
period of at least two years has elapsed since the later of the date of
acquisition of restricted securities from the issuer or from any affiliate of
the issuer, and the acquirer or subsequent holder thereof is deemed not to have
been an affiliate of the issuer of such restricted securities at any time during
the 90 days preceding a sale, such person would be entitled to sell such
restricted securities under Rule 144(k) without regard to the requirements
described above. Rule 144 does not require the same person to have held the
securities for the applicable periods. The foregoing summary of Rule 144 is not
intended to be a complete description thereof. The Commission has proposed
certain amendments to Rule 144 that would, among other things, eliminate the
manner of sale requirements and revise the notice provisions of that rule. The
Commission has also solicited comments on other possible changes to Rule 144,
including possible revisions to the one- and two-year holding periods and the
volume limitations referred to above.

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

The Company and its executive officers, directors and current stockholders
have agreed not to offer for sale, sell, contract to sell, grant any option or
other right for the sale of, or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected to, result in
the disposition by any person at any time in the future of) any shares of Common
Stock or any securities, indebtedness or other rights exercisable for or
convertible or exchangeable into shares of Common Stock owned or acquired in the
future in any manner prior to the expiration of 180 days after the date of this
Prospectus (the "180-Day Lockup Period") without the prior written consent of
Dain Rauscher Incorporated, except

55
<PAGE>
that the Company may, subject to certain conditions, issue shares of Common
Stock in connection with future acquisitions and may grant Options or Awards (or
issue shares of Common Stock upon exercise of Options or Awards) under the 1997
Stock Compensation Plan. These restrictions will be applicable to any shares
acquired by any of those persons in the Offering or otherwise during the 180-Day
Lockup Period. In addition, the Company's executive officers, directors and
current stockholders and the persons acquiring shares of Common Stock in
connection with the Affiliations have agreed with the Company that they
generally will not sell, transfer or otherwise dispose of any of their shares
for one year following the closing of the Offering.

In connection with the Affiliations, the Company will enter into
registration rights agreements with former stockholders of the Founding
Affiliated Practices (the "Registration Rights Agreements"), which will provide
certain registration rights with respect to the Common Stock issued to such
stockholders in the Affiliations. Each Registration Rights Agreement will
provide the holders of Common Stock subject to such agreement with the right to
participate in registrations by the Company of its equity securities in
underwritten offerings. The registration rights conferred by the Registration
Rights Agreements will terminate on the second anniversary of the closing of the
Offering. The Company is generally required to pay the costs associated with
such an offering, other than underwriting discounts and commissions and transfer
taxes attributable to the shares sold on behalf of the selling stockholders. The
Registration Rights Agreements provide that the number of shares of Common Stock
to be registered on behalf of the selling stockholders is subject to limitation
if the managing underwriter determines that market conditions require a
limitation. Under the Registration Rights Agreements, the Company will indemnify
the selling stockholders thereunder, and such stockholders will indemnify the
Company against, certain liabilities in respect of any registration statement or
offering covered by the Registration Rights Agreements. The Company and each of
its current stockholders are parties to a stockholders agreement, which provides
those stockholders registration rights substantially equivalent to the
registration rights in the Registration Rights Agreements.

Prior to the Offering, there has been no established public market for the
Common Stock. No prediction can be made of the effect, if any, that sales of
shares under Rule 144, or otherwise, or the availability of shares for sale will
have on the market price of the Common Stock prevailing from time to time after
the Offering. The Company is unable to estimate the number of shares that may be
sold in the public market under Rule 144, or otherwise, because such amount will
depend on the trading volume in, and market price for, the Common Stock and
other factors. Nevertheless, sales of substantial amounts of shares in the
public market, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock. See "Underwriting."

Following the consummation of the Offering, the Company intends to register
1,500,000 shares of Common Stock under the Securities Act for use in connection
with future acquisitions. These shares generally will be freely tradable after
their issuance by persons not affiliated with the Company unless the Company
contractually restricts their resale. Resales of any of those shares during the
180-Day Lockup Period would require the prior written consent of Dain Rauscher
Incorporated.

56
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Dain Rauscher Incorporated and EVEREN Securities,
Inc. are acting as representatives (the "Representatives"), has severally agreed
to purchase from the Company, the respective number of shares of Common Stock
set forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- ------------------------------------------------------------ --------------
<S> <C>
Dain Rauscher Incorporated.................................. 1,005,000
EVEREN Securities, Inc...................................... 670,000
Crowell, Weedon & Co........................................ 75,000
Friedman, Billings, Ramsey & Co., Inc....................... 75,000
Jefferies & Company, Inc.................................... 75,000
Ladenburg Thalmann & Co., Inc............................... 75,000
McDonald & Company Securities, Inc.......................... 75,000
Loewenbaum & Company Incorporated........................... 75,000
Sutro & Co. Incorporated.................................... 75,000
Tucker Anthony Incorporated................................. 75,000
Van Kasper & Company........................................ 75,000
Wedbush Morgan Securities................................... 75,000
Wessels, Arnold & Henderson, L.L.C.......................... 75,000
--------------
Total................................................... 2,500,000
--------------
--------------
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.

The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a selling concession of $0.33 per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $0.10 per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the Representatives.

The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 375,000
additional shares of Common Stock, at the initial public offering price less the
underwriting discount, as set forth on the cover page of this Prospectus. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 2,500,000 shares of Common
Stock offered. The Underwriters may exercise such option only to cover
over-allotments, if any, made in connection with the sale of Common Stock
offered hereby.

The Company and its executive officers, directors and current stockholders
have agreed not to, directly or indirectly, offer for sale, sell, contract to
sell, grant any option or other right for the sale of, or otherwise dispose of
(or enter into any transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any time in the future
of) any shares of Common Stock or any securities, indebtedness or other rights
exercisable for or convertible or exchangeable into shares of Common Stock prior
to the expiration of 180 days after the date of this Prospectus, without the
prior written consent of Dain Rauscher Incorporated, except for the shares of
Common Stock to be issued in

57
<PAGE>
connection with the Offering, the Affiliations and the Share Exchange and except
that the Company may, subject to certain conditions, issue shares of Common
Stock in connection with future acquisitions and grant Options or Awards (or
issue shares of Common Stock upon exercise of Options or Awards) under the 1997
Stock Compensation Plan. For information respecting additional restrictions on
sales by the Company's executive officers, directors, current stockholders and
the persons acquiring shares of Common Stock in connection with the
Affiliations, see "Shares Eligible for Future Sale."

The Representatives have informed the Company that they do not expect sales
of shares of Common Stock offered hereby to accounts over which the Underwriters
exercise discretionary authority to exceed 5% of the total number of shares of
Common Stock offered by them.

Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price was negotiated between the Company and the
Representatives. Among the factors considered in determining the initial public
offering price of the Common Stock, in addition to prevailing market conditions,
were the history of and the prospects for the industry in which the Company
competes, the past and present operations of the Founding Affiliated Practices,
the historical results of operations of the Founding Affiliated Practices, the
Company's capital structure, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuation of companies
in related businesses.

The Common Stock has been approved for listing on the American Stock
Exchange under the symbol "PEN."

At the request of the Company, the Underwriters have reserved up to 125,000
of the shares of Common Stock offered hereby for sale at the initial public
offering price to employees of the Company and other persons associated with the
Company.

In connection with the Offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock; and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock than
they are required to purchase from the Company in the Offering. The Underwriters
may also impose a penalty bid, whereby selling concessions allowed to syndicate
members or other broker-dealers in respect of the Common Stock sold in the
Offering for their account may be reclaimed by the syndicate if such shares of
Common Stock are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Common Stock, which may be higher than the price that might
otherwise prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be effected on the American
Stock Exchange, in the over-the-counter market or otherwise.

The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.

In February 1998, the Company issued to Dain Rauscher Incorporated a 15%
promissory note in the principal amount of $62,500 in exchange for a loan of
that amount in order to fund certain offering and operating expenses of the
Company. The Company intends to repay this note, together with accrued interest
thereon, with proceeds of the Offering on or before the third business day
following the closing of the Offering.

58
<PAGE>
LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Jackson Walker L.L.P., Houston, Texas. Certain legal
matters in connection with the sale of the Common Stock offered hereby will be
passed upon for the Underwriters by Baker & Botts, L.L.P., Houston, Texas.

EXPERTS

The financial statements of Pentegra Dental Group, Inc. as of December 31,
1997 and for the period from inception, February 21, 1997, through December 31,
1997, as detailed in the index on page F-1, included in this Prospectus, have
been audited by Coopers & Lybrand L.L.P., independent accountants, as indicated
in their report with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all exhibits, schedules and amendments relating thereto, the
"Registration Statement") with respect to the Common Stock offered hereby. This
Prospectus, filed as part of the Registration Statement, does not contain all
the information contained in the Registration Statement, certain portions of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement including
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document filed as an exhibit to the
Registration Statement accurately describe the material provisions of such
document and are qualified in their entirety by reference to such exhibits for
complete statements of their provisions. All of these documents may be inspected
without charge at the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
following regional offices of the Commission: Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies can also be obtained from the Commission
at prescribed rates. The Commission maintains a Web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.

59
<PAGE>
INDEX TO FINANCIAL STATEMENTS

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

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

F-1
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET

The unaudited pro forma balance sheet dated December 31, 1997 of Pentegra
Dental Group, Inc. (together with its parent entity, Pentegra Investments, Inc.,
"Pentegra" or the "Company") has been prepared as if (a) the acquisition by the
Company of certain assets and assumption of certain liabilities of 50 dental
practices (the "Founding Affiliated Practices") for consideration consisting of
a combination of cash and shares of its common stock, par value $.001 per share
(the "Common Stock"), and the execution of agreements to provide management
services to the Founding Affiliated Practices (collectively, the
"Affiliations"), (b) the repayment of certain debt of the Founding Affiliated
Practices, (c) the acquisition by the Company (the "Pentegra/Napili
Transaction") of certain assets of Pentegra, Ltd. and Napili, International
("Napili"), (d) the repurchase by Pentegra Investments, Inc. ("PII") of 245,845
shares of Class B Preferred Stock of PII from affiliates of the Company at the
subscription price per share paid to PII for those shares and the redemption by
PII of an aggregate of 1,337,500 shares of its Class A Preferred Stock and Class
B Preferred Stock for $1.50 per share, of which $1.15 per share will be paid by
the Company in cash and $0.35 per share will be paid in the form of a promissory
note (the "Repurchase and Redemption"), (e) the exchange of all outstanding
shares of common stock of PII for shares of Common Stock on a one-for-one basis
(the "Share Exchange") (after giving effect to a repurchase by PII of 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 "Offering")
and the application of the net proceeds therefrom (as described in "Use of
Proceeds, " except that the issuance and repayment (out of proceeds from the
Offering) of $486,000 aggregate principal amount outstanding under the Company's
15% promissory notes, which were issued in February 1998, are not reflected in
the unaudited pro forma balance sheet), all had been completed, as if those
transactions had occurred on December 31, 1997. The Affiliations, the repayment
of certain debt of the Founding Affiliated Practices, the Pentegra/Napili
Transaction, the Repurchase and Redemption, the Share Exchange, the repayment of
the 9.5% Promissory Notes and the Offering are each contingent on the occurrence
of the others.

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

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

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

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

UNAUDITED PRO FORMA BALANCE SHEET

DECEMBER 31, 1997

(IN THOUSANDS)

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

<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 100 $ -- $ 100 $ (6,387)(A) $ 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 Offering and the application of the proceeds therefrom (as
described in "Use of Proceeds," except that the issuance and repayment (out of
proceeds from the Offering) of $486,000 aggregate principal amount outstanding
under the Company's 15% promissory notes, which were issued in February 1998,
are not reflected in the unaudited pro forma balance sheet), as if those
transactions had occurred on December 31, 1997. The unaudited pro forma balance
sheet does not represent the historical or future financial position of the
Company.

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

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

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

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

NOTES TO UNAUDITED PRO FORMA BALANCE SHEET

$1.15 per share will be paid in cash and $0.35 per share will be paid in the
form of a 6.0% promissory note that becomes due and payable by the Company
on the earlier of the fifth anniversary of the date of the closing of the
Offering or the date on which the Company offers and sells an amount of
equity securities for gross proceeds equal to or greater than the gross
proceeds from the Offering, and (ii) the recognition of the related deemed
dividend of $1,031,000. The payment for the Repurchase and Redemption and
dividend are as follows (in thousands):

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

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

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

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

(G) Reflects the accrual of an employment bonus of $1,250,000 to the Chairman of
the Board of Directors (the "Chairman"). Payment of the bonus will be made
in increments of $10,000 on the closing of each future dental practice
affiliation until the bonus has been paid in full. Management expects the
bonus will be paid within the year following the Offering. In any event,
pursuant to the terms of the Company's employment agreement with the
Chairman, the employment bonus must be paid in full within three years of
the Offering. The bonus will be expensed in the fourth quarter of 1997
because its payment is not contingent on future services actually being
provided by the Chairman.

(H) Reflects repurchase by PII of 909,237 shares of its common stock and the
exchange at the closing of the Offering 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.

COOPERS & LYBRAND L.L.P.

Houston, Texas

March 24, 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). The Affiliations, the Pentegra/Napili Transaction and the Offering are
each contingent on the occurrence of the others.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CASH AND CASH EQUIVALENTS

Cash and cash equivalents are defined as highly liquid financial instruments
with maturities of three months or less at the date of purchase.

DEFERRED OFFERING COSTS

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

ORGANIZATIONAL COSTS

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

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

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

EARNINGS PER SHARE

Earnings per share has been excluded from the financial statements because
the Company has limited historical operations and does not have a significant
operating history. Additionally, the historical operations do not reflect the
planned distribution to promoters in connection with the Affiliations, which
will be paid with a portion of the proceeds of the Offering (See Note 4).

USE OF ESTIMATES

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

INCOME TAXES

The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred taxes are determined based on differences between
the financial reporting and tax bases of assets and liabilities and are measured
using the enacted marginal tax rates currently in effect when the differences
reverse.

As reflected in the accompanying statement of operations, the Company
incurred a net loss of $1,354,000 during the period from inception, February 21,
1997, through December 31, 1997. The Company has recognized no tax benefit from
this net loss. Due to the limited operations of the Company since its inception,
a valuation allowance has been established to offset the deferred tax asset
related to these net losses that have been capitalized for tax purposes. There
is no other significant difference in the tax and book bases of the Company's
assets or liabilities that would give rise to deferred tax balances.

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

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

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

3. RELATED PARTY TRANSACTIONS:

Pentegra Dental has entered into an agreement with the Chairman of its Board
of Directors effective at the date the Offering closes, to purchase
substantially all the assets and the operations of Pentegra, Ltd. and Napili,
International for total consideration of $200,000, consisting of an aggregate of
$100,000 in cash from the proceeds of the Offering and a $100,000 principal
amount 9.0% promissory note due April 1999. Pentegra Dental will enter into an
employment agreement effective at the date the Offering closes, that provides
for the payment to the Chairman of the Board of Directors of an employment bonus
of $1,250,000. The bonus is due in installments of $10,000 on the closing of
each future dental practice affiliation subsequent to the Affiliations. However,
the bonus must be paid in full within three years. The employment bonus will be
charged to operations at its effective date because its payment is not
contingent on any future services to be provided by the Chairman.

Since the Company's inception, it has occupied and had access to the
facilities, equipment and staff of a relative of an executive officer and
director of the Company. Prior to June 1, 1997, that use was insignificant. From
June 1, 1997 through January 31, 1998, the Company compensated the affiliate for
use of and access to its office facilities, equipment and staff at the rate of
$10,000 per month.

The Company has agreed to lease a portion of the office facilities,
equipment and staff of Pentegra, Ltd., which is owned by the Company's Chairman
of the Board, members of his family and other related entities. The Company has
agreed to compensate Pentegra, Ltd. for use of and access to its office
facilities,

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

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

4. PLANNED TRANSACTIONS:

Pentegra Dental plans to complete the Affiliations through a series of
mergers and asset transfers. Owners of the Founding Affiliated Practices (the
"Promoters") will receive 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
Offering and certain Promoters held common and preferred stock that was issued
in connection with the funding of a portion of the expenses for the Offering, as
follows (in thousands):

<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------------ ------------------------
CARRYING CARRYING
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Officers and directors........................................... 1,049 $ 303 263 $ 123
Promoters and affiliates who are not officers and directors...... 80 101 400 300
----- ----- --- -----
1,129 $ 404 663 $ 423
----- ----- --- -----
----- ----- --- -----
</TABLE>

All of the preferred stock will be repurchased or redeemed upon completion
of the Offering as described in Note 5.

Pentegra Dental will not employ dentists or control the practice of
dentistry by the dentists employed by the PCs. As Pentegra Dental will be
executing management service agreements and will not hold any equity ownership
in the PCs, the Affiliations are deemed not to be business combinations. Because
each of

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 Offering,
Securities and Exchange
Commission's Staff Accounting Bulletin No. 48, "Transfers of Nonmonetary Assets
by Promoters or Shareholders" requires (i) the transferred nonmonetary assets to
be accounted for at the historical cost basis of the Founding Affiliated
Practices, (ii) any monetary assets and assumed monetary liabilities included in
the Affiliations to be recorded at fair value and (iii) cash consideration paid
and assumed liabilities in excess of net assets transferred, to be reflected as
a dividend paid by Pentegra Dental.

The information set forth below assumes all the Founding Affiliated
Practices will participate in the Affiliations. Although management expects that
all the practices will participate, there is no assurance that will be the case.

The net assets to be transferred and liabilities to be assumed from the
Founding Affiliated Practices are summarized, on a combined basis, in the
following table (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Property, equipment and improvements, net........................ 2,912 2,841
------------ ------------
Assets transferred............................................. 2,912 2,841
Current portion of notes payable................................. (1,078) (624)
Long-term portion of notes payable............................... (1,411) (1,997)
------------ ------------
Net assets transferred, net of liabilities assumed............. $ 423 $ 220
------------ ------------
------------ ------------
</TABLE>

The Company will also purchase certain net monetary assets from the founding
Affiliated Practices for a cash amount of $276,000. The net assets purchased
will be recorded at their fair value as of December 31, 1997. The fair value of
the net monetary assets to be acquired as of December 31, 1997 was as follows
(in thousands):

<TABLE>
<CAPTION>
Accounts receivable, net....................................... $ 306
<S> <C>
Less accounts payable.......................................... (30)
-----
Net monetary assets to be acquired........................... $ 276
-----
-----
</TABLE>

Upon consummation of the Affiliations, Pentegra Dental will enter into a
Service Agreement with each Founding Affiliated Practice under which Pentegra
Dental will become the exclusive manager and administrator of non-dental
services relating to the operation of the Founding Affiliated Practices. The
actual terms of the various Service Agreements vary from the description below
on a case-by-case basis, depending on negotiations with the individual Founding
Affiliated Practices and the requirements of applicable law and governmental
regulations.

The management service revenues that will be earned by Pentegra Dental
subsequent to the closing of the Affiliations and the execution of the Service
Agreements will be based on various arrangements. In general, the resulting fee
will be based primarily on the patient revenues less operating expenses
associated with each PC, excluding dentists' salaries and depreciation. Patient
revenues are determined based on net 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.

The management service fees (the "Service Fees") payable to the Company by
the Founding Affiliated Practices under the Service Agreements, together with
operating and non-operating expenses of each Affiliated Practice to be paid to
the Company pursuant to the Service Agreements, are payable monthly and consist
of various combinations of the following: (i) "Standard Service Agreement",
which provides for (a) a percentage (ranging from 30% to 40%) of the Affiliated
Practice's revenues related to dental services less operating expenses
associated with the operation of the Affiliated Practice or (b) a percentage
(16%) of the Affiliated Practice's dental service revenues, not to exceed a
percentage (35%) of the difference between those revenues and operating expenses
associated with the operation of the Affiliated Practice; or (ii) "Alternative
Service Agreement," which provides for the greater of (a) a percentage (35%) of
the Affiliated Practice's revenues related to dental services less operating
expenses associated with the operation of the Affiliated Practice or (b) a
specified fixed Service Fee (ranging from $54,000 to $305,000 annually). In
addition, with respect to four of the Founding Affiliated Practices, the Service
Fees are based on fixed fees that are subject to renegotiation on an annual
basis.

F-16
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. PLANNED TRANSACTIONS: (CONTINUED)

<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 Offering, this information is presented solely
for the purpose of providing disclosures to potential investors regarding the
group of entities with which Pentegra Dental will be contracting to provide
future services. The Founding Affiliated Practices were not operated under
common control or management during the fiscal years ended December 31, 1996 or
1997. However, combined financial information has been presented because
entering into the Service Agreements with all of the Founding Affiliated
Practices is contingent upon a single event, the completion of the Offering.

5. REDEEMABLE PREFERRED STOCK

In May 1997, the Company authorized the designation, out of the authorized
and unissued preferred stock, of two classes of 5,000,000 shares each,
designated as "Class A" and "Class B." In May 1997, the Company issued 133,335
shares of Class B nonvoting preferred stock for cash of approximately $1,000. In
June 1997, the Company issued 900,000 shares of Class A nonvoting preferred
stock, 550,000 shares of Class B nonvoting preferred stock and 435,000 shares of
common stock for $1,457,000. The Company allocated $675,000 of the proceeds to
the Class A preferred stock, $413,000 to the Class B preferred stock and
$369,000 to the common stock based on the value of $0.75, $0.75 and $0.85 per
share, respectively, as determined by an independent valuation of the fair value
of those shares as of the date of issuance. The proceeds from these stock
issuances were reserved for legal and accounting costs associated with the
Offering, as well as operating costs. Holders of both classes of preferred stock
are entitled to per share dividends equivalent to any dividends that may be
declared on the common stock, but not to cumulative dividends. The preferred
stock entitles the holders thereof to preference in liquidation over the common
stock.

The terms of the Class A and B preferred stock provide for it to be redeemed
for $1.00 to $3.00 per share, as determined by the Company's Board of Directors,
upon completion of an initial public offering.

F-18
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. REDEEMABLE PREFERRED STOCK (CONTINUED)
The Board of Directors has established the redemption price at $1.50 per share.
In connection with negotiating the Offering and the Affiliations, certain
officers and directors agreed that the Company may repurchase their shares of
Class B Preferred Stock at the subscription price. Accordingly, the Company will
use a portion of the net proceeds of the Offering to repurchase 245,835 shares
of its Class B preferred stock held by those officers and directors at
repurchase prices equal to the subscription prices, which ranged from $0.01 to
$1.00 per share (aggregating to $114,000). The remaining 1,337,500 shares of
Class A and B preferred stock outstanding will be redeemed at a price of $1.50
per share (aggregating to $2,006,000), of which $1.15 per share will be paid in
cash and $0.35 per share will be paid in the form of a 6.0% promissory note that
becomes due and payable by the Company on the earlier of the fifth anniversary
of the date of the closing of the Offering or the date on which the Company
offers and sells an amount of equity securities with gross proceeds equal to or
greater than the gross proceeds of the Offering. The Company will recognize a
dividend on the preferred stock for the difference between the redemption amount
and the recorded value at the date of redemption. That difference has not been
accreted to the redemption amount during the current period because the date of
the Offering is not determinable.

6. COMMON STOCK

All share information in the accompanying financial statements has been
retroactively restated to reflect a two-for-three share reverse stock split of
the Company's common stock, which was effected in October 1997.

In February 1997, the Company issued 666,667 shares of common stock for cash
at a price of $0.015 per share. The Company issued an additional 766,667 shares
of common stock to members of management during May 1997 for cash at a price of
$0.015 per share. The Company valued these shares at $0.15 per share, based on
an independent valuation of the fair value of those shares as of the date of
issuance. In June 1997, in addition to the 290,000 shares of common stock issued
in connection with the issuance of the Class A and Class B preferred stock,
described in Note 5 above, the Company issued 33,333 shares of common stock for
cash at a price of $0.015 per share. Those shares were valued at $1.27 per
share, based on an independent valuation of the fair value of those shares as of
the date of issuance.

In September 1997, the Company repurchased 66,667 shares of its common stock
at a purchase price of $0.01 per share, of which 46,667 shares were repurchased
from a director of the Company. The Company issued 66,667 shares of common stock
to an officer of the Company at a purchase price of $0.015 per share. Those
shares were valued at the number of shares to be received by that officer in the
Share Exchange at the Offering price. The differences between the cash received
for shares of common stock and the fair value of those shares as of the
respective dates of issuance have been recognized as compensation expense.

7. NOTES PAYABLE

In October 1997, the Company repurchased an additional 20,000 shares of its
common stock from a director at a purchase price per share of $0.015, and issued
(i) 20,000 shares of common stock and (ii) $300,000 of 9.5% promissory notes due
on the earlier of 30 days after the closing of the Offering or October 1998. The
Company allocated the $300,000 proceeds between the promissory notes and the
common stock based on their relative fair values, with the value of the shares
based on $8.50 per share. The amount of the proceeds allocated to those shares
of common stock was recorded as a discount on the

F-19
<PAGE>
PENTEGRA DENTAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. NOTES PAYABLE (CONTINUED)
promissory notes of approximately $180,000. The Company is accreting the
discount over the term of the promissory notes.

In November 1997, the Company issued an additional $50,000 of 9.5%
promissory notes due on the earlier of 30 days after the closing of the Offering
or July 1998.

8. SUBSEQUENT EVENTS

In February 1998, the Company issued $486,000 of 15% promissory notes due on
the earlier of three days after the closing of the Offering or eight months from
the date the notes were issued.

F-20
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK
OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary................................ 3
Risk Factors...................................... 8
The Company....................................... 17
Use of Proceeds................................... 18
Dividend Policy................................... 19
Dilution.......................................... 19
Capitalization.................................... 21
Selected Financial Data........................... 22
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 23
Business.......................................... 28
Management........................................ 40
Certain Transactions.............................. 47
Security Ownership of Certain Beneficial Owners
and Management.................................. 51
Description of Capital Stock...................... 52
Shares Eligible for Future Sale................... 55
Underwriting...................................... 57
Legal Matters..................................... 59
Experts........................................... 59
Additional Information............................ 59
Index to Financial Statements..................... F-1
</TABLE>

UNTIL APRIL 18, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

2,500,000 SHARES

[LOGO]
PENTEGRA DENTAL GROUP, INC.

COMMON STOCK

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PROSPECTUS

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Dain Rauscher Incorporated
EVEREN Securities, Inc.

MARCH 24, 1998

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