PENTEGRA DENTAL GROUP INC, S-4, 1998-09-29

PENTEGRA DENTAL GROUP INC
S-4, 1998-09-29
OFFICES & CLINICS OF DOCTORS OF MEDICINE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 1998

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4

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

(Exact name of registrant as specified in its charter)

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

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

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COPY TO:

RICHARD S. ROTH
JACKSON WALKER L.L.P.
1100 LOUISIANA
SUITE 4200
HOUSTON, TEXAS 77002
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
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If the securities being registered on this Form are to be offered are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. / /

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

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

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

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
1,500,000
Common Stock, par value $.001 per share..... shares(2) $4.09375 $6,140,625 $1,812
Convertible Subordinated Debt
Securities(3)............................. $50,000,000 100% $50,000,000 $14,750
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(c), the offering price and registration fee with
respect to the Common Stock are computed on the basis of the average of the
high and low prices of the Common Stock on September 26, 1998, as reported
on The American Stock Exchange.

(2) This Registration Statement also includes 735,217 shares of Common Stock
which have been previously registered by the Registrant on Registration
Statement No. 333-49473 and for which the Registrant has previously paid
registration fees of $3,735.

(3) Includes such indeterminate number of shares of Common Stock as shall be
issuable on conversion of the Convertible Subordinated Debt Securities being
registered hereunder. No additional consideration will be received for the
Common Stock and therefore no registration fee is required pursuant to Rule
457(i).
--------------------------

Pursuant to Rule 429 under the Securities Act of 1933, as amended, the
Prospectus which is a part of this Registration Statement also relates to
735,217 shares of Common Stock of the Registrant covered by Registration
Statement No. 333-49473 (including all amendments thereto) previously filed by
the Registrant on Form S-4.
--------------------------

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

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<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 29, 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>

[LOGO]
PENTEGRA DENTAL GROUP, INC.
COMMON STOCK

CONVERTIBLE DEBT SECURITIES

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

The Convertible Debt Securities will be convertible in whole or in part into
shares of common stock, par value $.001 per share ("Common Stock"), of Pentegra
at any time on or after their respective Convertibility Commencement Date (as
defined herein) and at or before maturity, unless previously redeemed, at their
Conversion Price (as defined herein) as the applicable prospectus supplement or
supplements (each, a "Prospectus Supplement") and pricing supplement or
supplements (each, a "Pricing Supplement") hereto will specify, subject to
adjustment in certain events.

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

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

As of September 1, 1998, 7,581,681 shares of Common Stock were issued and
outstanding, of which 2,875,000 are registered and available for unrestricted
trading in public markets unless owned by affiliates of Pentegra. The Common
Stock is listed on The American Stock Exchange, under the symbol "PEN."
Application will be made to list the shares offered hereby on The American Stock
Exchange. On September 28, 1998, the last reported sales price of the Common
Stock on The American Stock Exchange was $3.875 per share.

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

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

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

THE DATE OF THIS PROSPECTUS IS SEPTEMBER , 1998.
<PAGE>
PROSPECTUS SUMMARY

UNLESS OTHERWISE INDICATED BY THE CONTEXT, REFERENCES HEREIN TO (I)
"PENTEGRA" OR THE "COMPANY" INCLUDE PENTEGRA DENTAL GROUP, INC. AND ITS WHOLLY
OWNED SUBSIDIARY, PENTEGRA INVESTMENTS, INC. ("PII") AND (II) "AFFILIATED
PRACTICES" MEAN THE DENTAL PRACTICES WITH WHICH THE COMPANY HAS AFFILIATED AND
THOSE DENTAL PRACTICES, IF ANY, WITH WHICH IT MAY ENTER INTO SIMILAR
RELATIONSHIPS IN THE FUTURE. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY
BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.

THE COMPANY

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

The Company has entered into Service Agreements with 64 professional
corporations or associations owned by the dentist-owners of the Affiliated
Practices, which include 95 dentists and 75 dental offices located in 20 states.
The Company acquired substantially all of the tangible and intangible assets,
and assumed certain liabilities, of the Affiliated Practices. The Affiliated
Practices are primarily general dentistry practices, but also include
specialists such as periodontists, pedodontists and oral surgeons. In addition,
the Company acquired from Dr. Reed and certain of his affiliates (the
"Pentegra/Napili Transaction") the assets of a consulting firm, Pentegra, Ltd.,
which was founded in 1988, and a seminar company, Napili, International, Inc.
("Napili"), which was founded in 1963. The clinical, administrative and
marketing training developed and provided by these companies to practicing
dentists and their teams are the foundation for the Pentegra Dental Program. The
Pentegra Dental Program is available exclusively to Affiliated Practices.

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

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

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

2
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- INCREASE PRODUCTIVITY AND PROFITABILITY OF AFFILIATED PRACTICES BY
IMPLEMENTING THE PENTEGRA DENTAL PROGRAM. The Pentegra Dental Program
involves implementing techniques designed to increase revenues and lower
costs, as well as methods to make the dentist and his or her practice team
more efficient in the delivery of dental care.

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

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

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

The Pentegra Dental Program is based on a cooperative approach that
emphasizes patient wellness and involves the dentist and his or her patient
mutually agreeing on a program to achieve and maintain optimal oral health. The
Company believes that the average dentist has the skills necessary to diagnose
and provide appropriate care to patients, but many of them have not developed
the skills needed to obtain patient acceptances of, and commitments to, the
treatment plans. As a result, a significant amount of recommended care may not
be completed, with correspondingly lower revenues to the dentists. The Company
will provide training and support to assist affiliated dentists and their teams
to communicate effectively with each patient regarding the type and value of
care needed, to obtain the patient's commitment to a treatment plan and then to
implement the agreed-upon treatment. In order to promote operational efficiency
and assure quality of care at Affiliated Practices, the Company's information
systems will monitor patient treatment plans and track the number and type of
procedures performed by each practice. Additionally, the Company will provide
the Affiliated Practices with billing and collections, purchasing, inventory
management, invoice processing and payment, payroll processing, patient
scheduling and financial reporting and analysis relating to the implementation
of the Pentegra Dental Program.

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

RECENT DEVELOPMENTS

3
<PAGE>
the total number of existing Affiliated Practices to 64. During that period, the
Company also funded two dental practice acquisitions by dentists party to a
Service Agreement with the Company, which practices were "tucked-in" to an
existing Affiliated Practice. These additional practices expand the Company's
geographical base into Illinois and Oklahoma. In addition to these affiliations,
the Company is negotiating and will continue to negotiate to affiliate with
additional dental practices; however, although the Company intends to
aggressively pursue these and other affiliations, there can be no assurance that
any of such affiliations will be consummated.

THE OFFERING

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

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

RISK FACTORS

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

4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS)

Due to the fact that the Company has had no significant operations prior to
March 30, 1998, no comparative results have been included in this Prospectus.
The Company changed its fiscal year end from December 31, to March 31, effective
for the year beginning April 1, 1998. The summary historical financial
information presented below has been derived from the financial statements of
Pentegra Dental Group, Inc. included in this Prospectus. For certain information
concerning the Affiliations, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 4 of Notes to the
Pentegra Dental Group, Inc. financial statements.

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
INCEPTION (FEBRUARY
21, 1997) THROUGH THREE MONTHS THREE MONTHS
DECEMBER 31, ENDED ENDED
1997 MARCH 31, 1998 JUNE 30, 1998
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<S> <C> <C> <C>
Statement of Operations Data:
Revenue......................................... $ -- $ -- $ 7,412
Expenses
Clinical salaries, wages and benefits......... -- -- 2,836
Dental supplies and lab fees.................. -- -- 1,220
Rent.......................................... -- -- 550
Advertising and marketing..................... -- -- 111
General and administrative.................... 709 550 876
Depreciation and amortization................. -- -- 171
Other expenses................................ 645 1,250 751
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Total operating expenses.................... 1,354 1,800 6,515
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Earnings (loss) from operations............... (1,354) (1,800) 897
Interest income (expense)................... -- (160) 40
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Income (loss) before income taxes............. (1,354) (1,960) 937
Income taxes................................ -- -- 263
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Net income (loss)............................. (1,354) (1,960) 674
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Preferred stock dividend...................... -- (1,070) --
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Earnings (loss) attributable to common stock.. $ (1,354) $ (3,030) $ 674
------- ------- ------
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Earnings per share: $ 0.10
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Weighted average number of shares outstanding: 6,886
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</TABLE>

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

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

5
<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 conducted no operations prior to
March 30, 1998 other than in connection with the IPO and the Affiliations. The
Company acquired substantially all the assets and assumed certain liabilities of
the Founding Affiliated Practices concurrently with the closing of the IPO. In
connection with the Affiliations, the Company entered into Service Agreements
with the Founding Affiliated Practices for initial terms of 40 years (subject to
early termination by either party for "cause," which includes a material default
by or bankruptcy of the other party). See "Business--Service Agreements."
Historically, the Founding Affiliated Practices have operated as separate
independent entities. There can be no assurance that the process of integrating
the management and administrative functions of the Founding Affiliated Practices
will be successful or that the Company's management will be able to manage these
operations effectively or implement the Company's operating or expansion
strategies successfully. Failure by the Company to implement its operating and
expansion strategies successfully would have a material adverse effect on the
Company. See "Business--Business Strategy" and "--Service Agreements."

RELIANCE ON AFFILIATED PRACTICES AND DENTISTS

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

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

6
<PAGE>
judicial precedents have addressed whether a dental practice management
company's interest under a management or service agreement will be viewed as the
type of protectable business interest that would permit it to enforce such a
covenant or to require an affiliated practice to enforce such covenants against
an employee dentist. A substantial reduction in the number of dentists employed
by or associated with the Affiliated Practices could have a material adverse
effect on the financial performance of the Company. Failure by the Affiliated
Practices to employ a sufficient number of dentists (whether by renewals of
existing employment agreements or otherwise) would have a material adverse
effect on the Company. See "Business--Dentist Employment Agreements."

DEPENDENCE ON MANAGEMENT INFORMATION SYSTEMS

The success of the Company's business strategy will be dependent on, among
other things, the successful implementation of new management information
systems and other operating systems to permit the effective integration of the
administrative operations of the Affiliated Practices into the Company's
operations. For example, the Company will be required to integrate its financial
information system with existing practice management systems at the Affiliated
Practices, which may be different from those used by the Company. Any
significant delay or increase in expense associated with the conversion and
integration of management information systems used by Affiliated Practices could
have a material adverse effect on the successful implementation of the Company's
expansion strategy. In addition, the Company will have some systems that are
decentralized, including cash collections. Accordingly, the Company will rely on
local staff for certain functions, including transferring cash from the
Affiliated Practices to the Company. See "Business--Management Information
Systems."

RISKS ASSOCIATED WITH EXPANSION STRATEGY

GENERAL

The success of the Company's expansion strategy will depend on a number of
factors, including the Company's ability to (i) identify attractive and willing
candidates to become Affiliated Practices in suitable markets and in suitable
locations within those markets, (ii) affiliate with acceptable Affiliated
Practices on favorable terms, (iii) adapt the Company's structure to comply with
present or future legal requirements affecting the Company's arrangements with
Affiliated Practices and comply with regulatory and licensing requirements
applicable to dentists and facilities operated and services offered by dentists,
(iv) obtain suitable financing to facilitate its expansion program and (v)
expand the Company's infrastructure and management to accommodate expansion. A
shortage of available dentists with the skills and experience sought by the
Company would have a material adverse effect on the Company's expansion
opportunities, and the Company anticipates facing substantial competition from
other companies to establish affiliations with additional dental practices. In
addition, there can be no assurance that the Company's expansion strategy will
be successful, that modifications to the Company's strategy will not be required
or that the Company will be able to manage effectively and enhance the
profitability of additional Affiliated Practices. There can be no assurance that
the Company will be able to achieve planned growth, that the assets of dental
practices will continue to be available for acquisition by the Company, that the
Company will be able to realize expected operating and economic efficiencies
from pending or future affiliations or that future affiliations with additional
Affiliated Practices will be profitable. See "--Competition," "--Immediate and
Substantial Dilution and Absence of Dividends," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and
"Business--Business Strategy."

POTENTIAL DILUTION OF EXISTING STOCKHOLDERS; NONCASH AMORTIZATION CHARGES

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

7
<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 will require additional
capital from outside financing sources in order to continue its expansion
program. There can be no assurance that the Company will be able to obtain
additional funds when needed on satisfactory terms or at all. Any significant
limitation on the Company's ability to obtain additional financing could have a
material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

PROCEEDS OF IPO PAID TO AFFILIATES

The Company paid, out of the net proceeds from the IPO, an aggregate of
approximately $7.7 million to promoters (including $6.4 million to be paid to
the dentist-owners of the Founding Affiliated Practices as the cash portion of
the consideration in the Affiliations), officers and directors of the Company.
Of this amount, approximately $6.4 million was paid to the owners of the
Founding Affiliated Practices, including approximately $216,326 to Ronnie L.
Andress, D.D.S., $150,092 to James H. Clarke, Jr., D.D.S., $143,183 to Mack E.
Greder, D.D.S., $144,017 to Roger Allen Kay, D.D.S., and $295,830 to Ronald M.
Yaros, D.D.S. (each of whom is a member of the Board of Directors of the Company
(the "Board of Directors"). In addition, the Company paid $100,000 of the net
proceeds from the IPO as the cash portion of the consideration to purchase
substantially all of the tangible and intangible assets of Pentegra, Ltd. and
Napili, both of which entities are affiliates of Dr. Reed, the Company's
Chairman of the Board. The Company also used approximately (i) $1.7 million of
the proceeds from the IPO in connection with the repurchase and redemption of
all of the issued and outstanding shares of preferred stock of PII (the
"Repurchase and Redemption"), including approximately $37,500 to Dr. Reed,
$37,500 to Gary S. Glatter, $37,500 to George M. Siegel, $334 to James L. Dunn,
Jr., $667 to J. Michael Casas, $37,500 to Dr. Greder and $37,500 to Dr. Kay
(each of whom is a member of the Board of Directors or an officer of the
Company), and (ii) approximately $836,000 of the proceeds from the IPO in
connection with the repayment of $350,000 aggregate principal amount of 9.5%
promissory notes and $486,000 aggregate principal amount of 15.0% notes (all of
which promissory notes were issued by the Company to fund certain IPO and
operating expenses), including principal amounts of approximately $20,000 to
James H. Clarke, Jr., D.D.S., $20,000 to Mack E. Greder, D.D.S., $10,000 to
Roger Allen Kay, D.D.S., $5,000 to James W. Medlock, D.D.S., $15,000 to Ronald
M. Yaros, D.D.S. and approximately $35,000 to George M. Siegel. See "Certain
Transactions--Organization of the Company."

GOVERNMENT REGULATION

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

CORPORATE PRACTICE OF DENTISTRY AND FEE SPLITTING RESTRICTIONS

The laws of many states, including all the states in which the Founding
Affiliated Practices are located other than New Mexico and Wisconsin, prohibit
business corporations such as the Company from engaging in the practice of
dentistry or employing dentists to practice dentistry. The specific restrictions
against the corporate practice of dentistry, as well as the interpretation of
those restrictions by state regulatory authorities, vary from state to state.
The restrictions are generally designed to prohibit a non-dental entity

8
<PAGE>
(such as the Company) from controlling the professional assets of a dental
practice (such as patient records and payor contracts), employing dentists to
practice dentistry (or, in certain states, employing dental hygienists or dental
assistants), or controlling the content of a dentist's advertising or
professional practice. The laws of many states, including all the states in
which the Founding Affiliated Practices are located other than Alaska, Maine,
Massachusetts, New Mexico and Wisconsin, also prohibit dentists from sharing
professional fees with non-dental entities. State dental boards do not generally
interpret these prohibitions as preventing a non-dental entity from owning
non-professional assets used by a dentist in a dental practice or providing
management services to a dentist for a fee, provided certain conditions are met.
The Company believes that its operations will not contravene any applicable
restriction on the corporate practice of dentistry. There can be no assurance,
however, that a review of the Company's business relationships by courts or
regulatory authorities will not result in determinations that could prohibit or
otherwise adversely affect the operations of the Company or that the regulatory
environment will not change, requiring the Company to reorganize or restrict its
existing or future operations. The laws regarding fee-splitting and the
corporate practice of dentistry and their interpretation are enforced by
regulatory authorities with broad discretion. There can be no assurance that the
legality of the Company's business or its relationship with the Affiliated
Practices will not be successfully challenged or that the enforceability of the
provisions of any Service Agreement will not be limited.

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

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

ADVERTISING RESTRICTIONS AND LIMITATIONS ON DELEGATION

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

INSURANCE REGULATION

9
<PAGE>
Company or the Affiliated Practices are engaged in the business of insurance
because of the capitation features (or similar features under which an
Affiliated Practice assumes financial risk) that may be contained in managed
care contracts. In the event the Company or an Affiliated Practice is determined
to be engaged in the business of insurance, the Company or the Affiliated
Practice could be required to either seek licensure as an insurance company or
change the form of its relationships with the third-party payors. There can be
no assurance that the Company's operations would not be adversely affected if
the Company or any of the Affiliated Practices were to become subject to state
insurance regulations.

HEALTH CARE REFORM

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

RISKS ASSOCIATED WITH COST CONTAINMENT INITIATIVES

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

RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS; CAPITATED FEE REVENUE

The Company believes that managed care arrangements are becoming more
prevalent in certain sectors of the dental services industry. As an increasing
percentage of the population is covered by managed care organizations that
provide dental coverage, the Company believes its future success may be
dependent, in part, on its ability to assist the Affiliated Practices in
negotiating contracts with dental health maintenance organizations, insurance
companies, self insurance plans and other private third-party payors pursuant to
which services will be provided on some type of fee-for-service or capitated
basis by some of its Affiliated Practices. Under certain capitated contracts,
the health care provider accepts a predetermined amount per patient per month as
its sole payment in exchange for providing a specific schedule of services to
enrollees. These contracts shift much of the risk of providing health care from
the payor to the provider. To the extent that an Affiliated Practice enters into
capitated managed care arrangements, it will be exposed to the risk that the
cost of providing dental care required by these contracts exceeds the amount the
Affiliated Practice receives for providing such care. If those costs exceed the
revenues received for the service provided, the Affiliated Practice will remain
responsible under its Service Agreement for reimbursing the Company for all of
the costs associated with providing those services, even if no service fee is
due thereunder. To the extent an Affiliated Practice enters into additional
managed care contracts, it may achieve greater predictability of revenues but
greater unpredictability of expenses due to the fluctuating costs of the
services provided. There can be no assurance that the Company will be able to
negotiate on behalf of the Affiliated Practices satisfactory arrangements on a
capitated basis, regardless of the amount of risk sharing. In addition, to the
extent that patients or enrollees covered by certain of these contracts require,
in the aggregate, more frequent or extensive care than anticipated, operating
margins may be reduced, or the revenues derived from these agreements may be
insufficient to cover the costs of the

10
<PAGE>
services provided. As a result, Affiliated Practices would be at risk for
additional costs which would reduce or eliminate any earnings for the Affiliated
Practices under these contracts, with a corresponding reduction in or
elimination of the service fee payable to the Company in those cases where the
Service Agreements provide for percentage-based service fees.

CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS

Dr. Reed, the Company's Chairman of the Board, and the other executive
officers and directors of the Company as a group beneficially own approximately
1.5% and 11.2%, respectively, of the outstanding shares of Common Stock. These
persons, if acting in concert, will be able to exercise control over the
Company's affairs, elect the entire Board of Directors and (subject to Section
203 of the Delaware General Corporation Law ("DGCL")) control the outcome of any
matter submitted to a vote of stockholders.

CONFLICTS OF INTEREST; WORKING CAPITAL LOANS TO AFFILIATED PRACTICES

Each of Drs. Reed, Andress, Clarke, Greder, Kay and Yaros is the sole
shareholder of a Founding Affiliated Practice and a professional corporation or
association owned by them will be a party to a Service Agreement with the
Company. In connection with the provision of management services by the Company
to the Affiliated Practice owned by these dentists, there are conflicts of
interest that may arise from time to time in connection with negotiating terms
of working capital loans from the Company to that practice, if any, and certain
other arrangements under the Service Agreement.

BOARD COMPOSITION

The Company's Bylaws provide that a majority of the members of the Board of
Directors must be licensed dentists who are affiliated with Affiliated
Practices. As a result, there is a limited group of persons from which
candidates to fill these board positions may be selected, and it is not
anticipated that many of these persons will have had prior experience as board
members of publicly held companies. This provision could also discourage
potential acquisition proposals, delay or prevent a change in control of the
Company or limit the price that certain investors might be willing to pay in the
future for shares of Common Stock. In addition, each of Dr. Reed and the other
board members who own an Affiliated Practice is a party to a Service Agreement
with the Company. In connection with the provision of management services by the
Company to the Affiliated Practices owned by those dentists, conflicts of
interest may arise. See "--Certain Anti-takeover Provisions," "Security
Ownership of Certain Beneficial Owners and Management" and "Certain
Transactions."

DEPENDENCE ON KEY PERSONNEL

The Company's future performance depends in significant part on the
continued service of its senior management, including Dr. Reed and Gary S.
Glatter, the President and Chief Executive Officer of the Company. There can be
no assurance that these individuals will continue to work for the Company. Loss
of services of those persons could have a material adverse effect on the
Company. The success of the Company's growth strategy will also depend on the
Company's ability to attract and retain additional high quality personnel. See
"Business--Employees" and "Management."

COMPETITION

11
<PAGE>
companies pursuing similar strategies in other segments of the health care
industry. Certain of these competitors have greater financial and other
resources than the Company and have operations in areas where the Company may
seek to expand in the future. Additional companies with similar objectives are
expected to enter the Company's markets and compete with the Company. In
addition, the business of providing dental services is highly competitive in
each market in which the Company will operate. Each of the Affiliated Practices
faces local competition from other dentists, pedodontists (dentists specializing
in the care of children's teeth) and other providers of specialty dental
services (such as periodontists, orthodontists and oral surgeons) some of whom
have more established practices. There can be no assurance that the Company or
the Affiliated Practices will be able to compete effectively with their
respective competitors, that additional competitors will not enter their markets
or that additional competition will not have a material adverse effect on the
Company or the Affiliated Practices. See "Business-- Competition."

MALPRACTICE RISKS OF PROVIDING DENTAL SERVICES

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

POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK

The market price of the Common Stock of the Company could be adversely
affected by the sale of substantial amounts of the Common Stock in the public
market. The shares of Common Stock and the Convertible Debt Securities
registered hereby are freely tradable unless acquired by affiliates of the
Company.

Concurrently with the closing of the IPO, the owners of the Founding
Affiliated Practices received, in the aggregate, 3,094,468 shares of Common
Stock as a portion of the consideration for the assets of their practices.
Certain other stockholders of the Company hold, in the aggregate, an additional
847,430 shares of Common Stock. Those shares are not being offered and sold
pursuant to this Prospectus. All of those 3,941,898 shares were issued in
transactions that have not been registered under the Securities Act and,
accordingly, such shares may not be sold except in transactions registered under
the Securities Act or pursuant to an exemption from registration. In addition,
the Company's executive officers, directors and current stockholders and the
persons acquiring shares of Common Stock in connection with the Affiliations
have agreed with the Company that they will not sell any of the shares of Common
Stock owned by them immediately after the consummation of the Affiliations for a
period of one year following the closing of the IPO, subject to their right to
exercise certain piggy-back registration rights. After the expiration of that
restricted period, all of those shares may be sold in accordance with Rule 144
under the Securities Act, subject to the applicable volume limitations, holding
period and other requirements of Rule 144.

12
<PAGE>
The 2,235,217 shares of Common Stock issuable pursuant to this Prospectus
will generally be freely tradable by nonaffiliates after their issuance, unless
the resale thereof is contractually restricted. The Company anticipates that the
agreements entered into in connection with its future acquisitions will
contractually restrict the resale of all or a portion of the shares issued in
those transactions for varying periods of time.

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

The Company has outstanding under the 1997 Stock Compensation Plan options
to purchase approximately 724,666 shares of Common Stock. The Company has
registered the shares issuable upon exercise of options granted under the 1997
Stock Compensation Plan. See "Management--1997 Stock Compensation Plan" and
"Shares Eligible for Future Sale."

SUBORDINATION OF THE CONVERTIBLE DEBT SECURITIES

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

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

LIMITATIONS ON REPURCHASE OF CONVERTIBLE DEBT SECURITIES IF A REPURCHASE EVENT
OCCURS

If a Repurchase Event, which consists of either a Change in Control or a
Termination of Trading (each as defined herein), occurs, each holder of
Convertible Debt Securities will have the right, at his option, to require
Pentegra to repurchase all or a portion of his Convertible Debt Securities at a
purchase price equal to 100% of the principal amount thereof plus accrued
interest to the repurchase date. Pentegra's ability to repurchase Convertible
Debt Securities following a Repurchase Event (i) may be limited by the terms of
the Senior Indebtedness and the subordination provisions of the Indenture and
any applicable supplement to the Indenture and (ii) will depend on the
availability of sufficient funds and compliance with applicable securities laws.
Accordingly, no assurance can be given Pentegra will repurchase any Convertible
Debt Securities following a Repurchase Event. The term "Repurchase Event" is
limited to certain specified transactions and may not include other events, such
as a highly leveraged business combination or reorganization not involving a
Repurchase Event, that might adversely affect the financial condition of
Pentegra or result in a downgrade of the credit rating (if any) of the
Convertible Debt Securities. See "Description of the Convertible Debt
Securities."

13
<PAGE>
LIMITED MARKET FOR THE CONVERTIBLE DEBT SECURITIES

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

NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the IPO, there was no public market for the Common Stock, and there
can be no assurance that an active trading market will develop or, if a trading
market does develop, that it will continue after the IPO or this Offering. The
securities markets have, from time to time, experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. These fluctuations often substantially affect the market
price of a company's common stock. The market prices for securities of medical
and dental practice management companies have in the past been, and can be
expected to be, particularly volatile. The market price of the Common Stock
could be subject to significant fluctuations in response to numerous factors,
including variations in financial results or announcements of material events by
the Company or its competitors. Regulatory changes, developments in the health
care industry or changes in general conditions in the economy or the financial
markets could also adversely affect the market price of the Common Stock.

CERTAIN ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Restated Certificate of Incorporation
(the "Certificate of Incorporation") and Bylaws and of the DGCL could, together
or separately, discourage potential acquisition proposals, delay or prevent a
change in control of the Company or limit the price that certain investors might
be willing to pay in the future for shares of the Common Stock. The Certificate
of Incorporation provides for "blank check" preferred stock, which may be issued
without stockholder approval and provides for a "staggered" Board of Directors.
In addition, certain provisions of the Company's Bylaws restrict the right of
the stockholders to call a special meeting of stockholders, to nominate
directors, to submit proposals to be considered at stockholders' meetings and to
adopt amendments to the Bylaws, and the Bylaws require that at least a majority
of the members of the Board of Directors be licensed dentists who are affiliated
with Affiliated Practices. The Company also is subject to Section 203 of the
DGCL, which, subject to certain exceptions, prohibits a Delaware corporation
from engaging in any of a broad range of business acquisitions with an
"interested stockholder" for a period of three years following the date such
stockholder became an interested stockholder. In addition, a "Change of Control"
(as defined in the Credit Facility) constitutes an event of default under the
Credit Facility, which could impede or prevent a change of control or depress
the price of the Common Stock. See "Description of Capital Stock" and
"Description of the Convertible Notes."

THE COMPANY

The Company conducted no operations prior to March 30, 1998 other than in
connection with the IPO and the Affiliations. PII was formed in February 1997
and changed its name from "Pentegra Dental Group, Inc." to "Pentegra
Investments, Inc." in July 1997. PII then organized Pentegra Dental Group, Inc.
as its wholly owned subsidiary in July 1997 to, among other things, complete the
IPO, the Affiliations, the Share Exchange, the Pentegra/Napili Transaction and
the Repurchase and Redemption. The Company's principal executive offices are
located at 2999 N. 44th Street, Suite 650, Phoenix, Arizona 85018, and its
telephone number is (602) 952-1200.

14
<PAGE>
RECENT DEVELOPMENTS

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

15
<PAGE>
PRICE RANGE OF COMMON STOCK

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

<TABLE>
<CAPTION>
LOW HIGH
--------- ---------
<S> <C> <C>
Year ending December 31, 1998:
1st quarter (beginning March 25 through March 31, 1998).................... $ 8.00 $ 8.50
2nd quarter................................................................ $ 6.25 $ 9.00
3rd quarter (through September 28, 1998)................................... $ 3.88 $ 8.82
</TABLE>

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

DIVIDEND POLICY

It is the Company's current intention to retain earnings for the foreseeable
future to support operations and finance expansion. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and will
depend on, among other things, the Company's earnings, financial condition, cash
flow from operations, capital requirements, expansion plans, the income tax laws
then in effect, the requirements of Delaware law and restrictions that may be
imposed by the Company's future financing arrangements.

16
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS)

Due to the fact that the Company has had no significant operations prior to
March 30, 1998, no comparative results have been included in this Prospectus.
The selected historical financial data of the Company should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements and the notes
thereto included in this Prospectus. The selected historical financial data of
the Company as of June 30, 1998 and for the periods from inception, February 21,
1997, through December 31, 1997, the three months ended March 31, 1998 and the
three months ended June 30, 1998, set forth below, have been derived from the
financial statements of Pentegra Dental Group, Inc. included in this Prospectus.
In May 1998, the Company changed its fiscal year end from December 31 to March
31, effective for the year beginning April 1, 1998. For certain information
concerning the Affiliations, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 4 of Notes to the
Pentegra Dental Group, Inc. financial statements.

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(FEBRUARY 21,
1997) THROUGH THREE MONTHS THREE MONTHS
DECEMBER 31, ENDED MARCH 31, ENDED
1997 1998 JUNE 30, 1998
--------------- --------------- -------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................................................. $ -- $ -- $ 7,412
Expenses
Clinical salaries, wages and benefits.................................. -- -- 2,836
Dental supplies and lab fees........................................... -- -- 1,220
Rent................................................................... -- -- 550
Advertising and marketing.............................................. -- -- 111
General and administrative............................................. 709 550 876
Depreciation and amortization.......................................... -- -- 171
Other expenses......................................................... 645 1,250 751
------- ------- ------
Total operating expenses........................................... 1,354 1,800 6,515
------- ------- ------
Earnings (loss) from operations.......................................... (1,354) (1,800) 897
Interest income (expense).............................................. -- (160) 40
------- ------- ------
Income (loss) before income taxes........................................ (1,354) (1,960) 937
Income taxes........................................................... -- -- 263
------- ------- ------
Net income (loss)...................................................... (1,354) (1,960) 674
------- ------- ------
Preferred stock dividend............................................... -- (1,070) --
------- ------- ------
Earnings (loss) attributable to common stock........................... $ (1,354) $ (3,030) $ 674
------- ------- ------
------- ------- ------
Earnings per share......................................................................................... $ 0.10
------
------
Weighted average number of shares outstanding............................................................ 6,886
------
------
</TABLE>

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

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

- ----------

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<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

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

The expenses incurred by the Company in fulfilling its obligations under the
management service agreements will be generally of the same nature as the
operating costs and expenses that would have otherwise been incurred by the
affiliated practices, including salaries, wages and benefits of practice
personnel (excluding dentists and certain other licensed dental care
professionals), dental supplies and office supplies used in administering their
practices and the office (general and administrative) expenses of their
practices. In addition to the operating costs and expenses discussed above, the
Company incurs personnel and administrative expenses in connection with
maintaining a corporate office, which provides management, practice
enhancements, administrative and business development services.

RESULTS OF OPERATIONS (UNAUDITED)

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

COMPONENTS OF REVENUES AND EXPENSES

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

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

NET REVENUE

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

OPERATING EXPENSES

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

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

INCOME TAX EXPENSE

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

ACCOUNTING TREATMENT

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

RECENT PRONOUNCEMENTS

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

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

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<PAGE>
BUSINESS

OVERVIEW

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

The Company has entered into Service Agreements with its Affiliated
Practices, which include 95 dentists and 75 dental offices located in 20 states.
In addition, the Company acquired from Dr. Reed the assets of a consulting firm,
Pentegra, Ltd., which was founded in 1988, and a seminar company, Napili, which
was founded in 1963. The clinical, administrative and marketing training
developed and provided by these companies to practicing dentists and their teams
are the foundation for the Pentegra Dental Program. The Pentegra Dental Program
is available exclusively to Affiliated Practices.

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

INDUSTRY

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

Payments for dental services are made either directly by patients or by
third-party payors. Third-party payors primarily consist of private insurance
indemnity plans, preferred provider organizations ("PPOs") and dental health
maintenance organizations and other managed care programs ("DHMOs"). Private
indemnity insurance companies typically pay for a patient's dental care on a
fee-for-service basis, while PPO plans pay on a discounted fee-for-service
basis. DHMO plans typically pay on a per-person, per-month basis regardless of
the level of service provided to the patient. In the case of both PPOs and
DHMOs, patients typically must pay on a fee-for-service basis for any services
outside the limited range of dental procedures covered. According to the 1997
Mercer Consulting Group survey of Employer-

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

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

BUSINESS STRATEGY

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

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

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

SERVICES AND OPERATIONS

THE PENTEGRA DENTAL PROGRAM

The Company intends to implement the Pentegra Dental Program at each
Affiliated Practice. The Pentegra Dental Program was developed by Dr. Reed
through Pentegra, Ltd. and Napili. Napili was founded in 1963 and has conducted
technical and management seminars for over 15,000 practicing dentists, including
many who have attended these seminars more than once. As a result of demand by
attendees of Napili seminars, Dr. Reed established Pentegra, Ltd. in 1988 to
provide hands-on, on-site

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

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

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

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

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

MANAGEMENT INFORMATION SYSTEMS

The Company utilizes an integrated server-based information system to track
important operational and financial data related to each Affiliated Practice's
performance. The Company's management information system allows the Company to
collect from each Affiliated Practice, on a daily basis, data on patients

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

The centralized data repository of the Company's management information
system has been completed. The Company's financial reporting system is
operational at all of the Founding Affiliated Practices, and will be installed
promptly at all future Affiliated Practices as they affiliate with the Company.
Any significant delay or increase in expense associated with the conversion and
integration of management information systems used by Affiliated Practices could
have a material adverse effect on the successful implementation of the Company's
expansion strategy. In addition, the Company will have some systems that will
remain decentralized for at least some time, such as cash collections.
Accordingly, the Company will rely on local staff for certain functions.

OTHER PRACTICE MANAGEMENT SERVICES

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

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

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LOCATIONS

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

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

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

SERVICE AGREEMENTS

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

The Service Fees payable under the Service Agreements to the Company by the
professional corporations or associations formed by the dentist-owners of the
Affiliated Practices were determined in arm's-length negotiations among the
parties. Those Affiliated Practices that have revenues greater than the average
amount of revenues generated by the Affiliated Practices will typically require
more administrative and other services from the Company than those Affiliated
Practices with lower than average revenues. Such fees, together with
reimbursement for operating and non-operating expenses of each Affiliated
Practice to be paid by the Company pursuant to the Service Agreements, are
payable monthly and consist of various combinations of the following: (i) a
percentage (ranging from 30% to 40%) of the Affiliated Practice's revenues
related to dental services less operating expenses associated with the

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operation of the Affiliated Practice; (ii) a percentage (16%) of the Affiliated
Practice's dental service revenues, not to exceed a percentage (35%) of the
difference between those revenues and operating expenses associated with the
operation of the Affililated Practice; or (iii) the greater of (a) a percentage
(not to exceed 35%) of the Affiliated Practice's revenues related to dental
services less operating expenses associated with the operation of the Affiliated
Practice or (b) a specified fixed fee. In addition, with respect to four of the
Affiliated Practices, the Service Fees are based on fixed fees that are subject
to renegotiation on an annual basis. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Results of Operations--Planned
Operations."

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

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

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

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

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

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

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

DENTIST AGREEMENT

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

DENTIST EMPLOYMENT AGREEMENTS

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

COMPETITION

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

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EMPLOYEES

As of September 15, 1998, the Company employed 502 persons. None of the
Company's employees is represented by collective bargaining agreements. The
Company considers its employee relations to be good.

LITIGATION AND INSURANCE

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

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

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

GOVERNMENT REGULATION

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

CORPORATE PRACTICE OF DENTISTRY AND FEE-SPLITTING RESTRICTIONS

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

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

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

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

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

Federal laws regulating the provision of dental care apply only to dental
services which are reimbursed under the Medicare and Medicaid programs. Because
none of the Affiliated Practices receive any revenue under Medicare or Medicaid,
the impact of these laws on the Company is anticipated to be negligible.

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<PAGE>
There can be no assurance, however, that Affiliated Practices will not have
patients in the future covered by these laws, or that the scope of these laws
will not be expanded in the future, and if expanded, such laws or
interpretations thereunder could have a material adverse effect on the Company.

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

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

OTHER FEDERAL REGULATIONS

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

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

LICENSURE, ADVERTISING RESTRICTIONS AND LIMITATIONS ON DELEGATION

The dentists associated with the Affiliated Practices must possess a license
from the applicable state Board of Dental Examiners and a permit from the U.S.
Drug Enforcement Agency.

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<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 that the Company or an Affiliated Practice is determined to be engaged in
the business of insurance, the Company or the Affiliated Practice could be
required to either seek licensure as an insurance company or change the form of
its relationships with the third-party payors. There can be no assurance that
the Company's operations would not be adversely affected if the Company or any
of the Affiliated Practices were to become subject to state insurance
regulations.

HEALTH CARE REFORM

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

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

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ----------------------------------------------------------------
<S> <C> <C>
Omer K. Reed, D.D.S.................... 66 Chairman of the Board and Clinical Officer
Gary S. Glatter........................ 45 President, Chief Executive Officer and Director
Sam H. Carr............................ 42 Senior Vice President, Chief Financial Officer and Director
James L. Dunn, Jr...................... 36 Senior Vice President and Chief Development Officer
John G. Thayer......................... 45 Senior Vice President and Chief Operating Officer
Kimberlee K. Rozman.................... 38 Senior Vice President, General Counsel and Secretary
Ronnie L. Andress, D.D.S............... 43 Director
J. Michael Casas....................... 36 Director
James H. Clarke, Jr., D.D.S............ 50 Director
Ronald E. Geistfeld, D.D.S............. 64 Director
Mack E. Greder, D.D.S.................. 54 Director
Roger Allen Kay, D.D.S................. 54 Director
Gerald F. Mahoney...................... 55 Director
Anthony P. Maris....................... 64 Director
George M. Siegel....................... 60 Director
Ronald M. Yaros, D.D.S................. 52 Director
</TABLE>

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

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

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

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<PAGE>
JAMES L. DUNN, JR. has served as the Company's Senior Vice President and Chief
Development Officer since July 1997 and served as a Director from March 1997 to
March 1998. Since 1987, Mr. Dunn has been an attorney practicing as a sole
practitioner in Houston, Texas. His legal practice is focused on providing
services to members of the dental community. He has been actively involved in
the valuation and sale of dental practices over the past five years. In 1995,
Mr. Dunn was appointed to the Texas Medical Disclosure Panel, the body that
determines which dental procedures require informed consent. Mr. Dunn is a
member of the American Society of Pension Actuaries and is a certified public
accountant.

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

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

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

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

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

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

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

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

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

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

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

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

BOARD OF DIRECTORS

The Board of Directors is divided into three classes with at least four
directors in each class, with the term of one class expiring at the annual
meeting of stockholders in each year, commencing in 1998. At each annual meeting
of stockholders, directors of the class the term of which then expires will be
elected by the holders of the Common Stock to succeed those directors whose
terms are expiring. The first class, whose term of office will expire at the
first annual meeting of stockholders in 1999, is comprised of Drs. Andress,
Geistfeld and Kay, and Mr. Casas; the second class, whose term will expire one
year thereafter, is comprised of Drs. Clarke, Greder and Yaros and Mr. Carr; and
the third class, whose term will expire two years thereafter, is comprised of
Dr. Reed and Messrs. Glatter, Mahoney, Maris and Siegel. The Company's Bylaws
provide that a majority of the members of the Board of Directors must be
licensed to practice dentistry and affiliated with one of the Affiliated
Practices. See "Risk Factors--Board Composition" and "--Certain Anti-takeover
Provisions."

There are five committees of the Board: Audit, Compensation, Acquisition,
Nominating and Executive. The members of the Audit Committee are Messrs. Maris
and Mahoney. The members of the Compensation Committee are Messrs. Maris, Siegel
and Casas. The sole member of the Acquisition Committee is Mr. Glatter, who has
been delegated the authority to approve the terms of any business combination
transaction involving the payment by the Company of consideration with a value
of up to $3,000,000. The members of the Nominating Committee are Dr. Reed and
Messrs. Glatter and Maris. The members of the Executive Committee are Dr. Reed
and Messrs. Glatter and Siegel. The members of the Audit and Compensation
Committees will not be employees of the Company.

Directors who are employees of the Company or an Affiliated Practice do not
receive additional compensation for serving as directors. Each director who is
not an employee of the Company or an Affiliated Practice will receive a fee of
$1,500 for attendance at each Board of Directors meeting and $750 for each
committee meeting (unless held on the same day as a Board of Directors meeting),
and an initial grant of nonqualified options to purchase 10,000 shares of Common
Stock (except with respect to Messrs. Casas and Siegel, who have waived their
right to receive those options). Directors who are not employees of the Company
will also receive annual grants of nonqualified options to purchase 5,000 shares
on the first business day of the month following the date on which each annual
meeting of the Company's stockholders is held. See "--1997 Stock Compensation
Plan." All directors of the Company are reimbursed for out-of-pocket expenses
incurred in attending meetings of the Board of Directors or committees thereof,
and for other expenses incurred in their capacity as directors of the Company.

EXECUTIVE COMPENSATION

Pentegra conducted no operations prior to March 30, 1998 other than in
connection with the IPO and the Affiliations. The Company anticipates that
during 1998 its most highly compensated executive officers will be Dr. Reed and
Messrs. Glatter, Carr, Dunn and Thayer (the "Named Executive Officers"), each of
whom has entered or will enter into an employment agreement providing for an
annual salary of $87,500, $175,000, $175,000, $125,000 and $125,000,
respectively. See "--Employment Agreements."

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

In September 1997, the Company approved the grant of options to purchase
333,333 shares, 66,667 shares, 33,333 shares and 33,333 shares of Common Stock
to Messrs. Glatter, Carr, Dunn and Thayer, respectively, under the Company's
1997 Stock Compensation Plan, exercisable at the initial public offering price
per share set forth on the cover page of this Prospectus. Of the options granted
to Mr. Glatter, options to acquire 166,667 shares vest on the first anniversary
of the date of this Prospectus, options to acquire 66,667 shares vest on each of
the second and third anniversaries of the date of this Prospectus, and options
to acquire 33,333 shares vest on the fourth anniversary of the date of this
Prospectus. The options granted to Messrs. Carr, Dunn and Thayer vest annually
in 20% increments beginning on the first anniversary of the date of this
Prospectus. See "--1997 Stock Compensation Plan."

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Dr. Reed, Messrs.
Glatter, Carr, Dunn and Thayer and Ms. Rozman. These agreements have been filed
as exhibits to the Registration Statement of which this Prospectus is a part.
Each of these agreements provides for an annual base salary in an amount not
less than the initial specified amount and entitles the employee to participate
in all the Company's compensation plans in which other executive officers of the
Company participate. Dr. Reed's employment agreement provides that he will serve
as the Company's clinical officer and has a three-year term commencing on
completion of the IPO. Dr. Reed's base salary under the employment agreement
will be $87,500 per year, or as increased from time to time by the Board of
Directors, and provides for bonus payments aggregating $1,250,000 payable by the
Company in installments of $10,000 on closing of each future dental practice
affiliation subsequent to the IPO until the bonus has been paid in full,
provided that the bonus must be paid in full by the third anniversary of the
date of this Prospectus. Mr. Glatter's employment agreement provides that he
will serve as the Company's chief executive officer and president and has at
least a four-year term commencing on July 1, 1997. Mr. Glatter's base salary
under the employment agreement will be as follows: (i) $175,000 per year for the
period from July 1, 1997 through June 30, 1998, (ii) $200,000 per year for the
period from July 1, 1998 through June 30, 1999, (iii) $225,000 per year for the
period from July 1, 1999 through June 30, 2000 and (iv) $250,000 per year from
July 1, 2000 thereafter or as increased from time-to-time by the Board of
Directors. Each of the agreements for Messrs. Carr, Dunn and Thayer and Ms.
Rozman has a continuous five-year term with an annual base salary of $175,000
for Mr. Carr and of $125,000 for each of the other officers, and is subject to
the right of the Company to terminate the employee's employment at any time. Mr.
Glatter is eligible to receive an annual cash bonus in an amount equal to 10%,
20%, 30%, 40% or 50% of his base salary in the event that the Company
experiences from 20% to 22.5%, 22.5% to 25%, 25% to 27.5%, 27.5% to 30% or
greater than 30%, respectively, growth in earnings per share on a year-to-year
basis (calculated on a pro forma basis for the calendar year prior to the
Company's first year of operations). For purposes of determining the applicable
year's earnings per share change, the cash bonuses payable to Mr. Glatter and
under all other employment agreements between the Company and its officers will
be taken into account. Each of the other named officers (except Dr. Reed and Mr.
Glatter) is eligible to receive an annual cash bonus in an amount equal to 5%,
10%, 15%, 20% or 25% of his or her base salary in the event that the Company
experiences 20% to 22.5%, 22.5% to 25%, 25% to 27.5%, 27.5% to 30% or greater
than 30%, respectively, growth in earnings per share on a year-to-year basis
(calculated on a pro forma basis for the calendar year prior to the Company's
first fiscal year of operations). For purposes of determining the applicable
year's earnings per share change, the cash bonuses payable to the officer and
under all other employment agreements between the Company and its officers will
be taken into account.

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<PAGE>
If the employee's employment is terminated by the Company without cause (as
defined), Messrs. Carr, Dunn and Thayer and Ms. Rozman will be entitled to a
payment equal to either 12 months' or six months' salary depending on whether
such employee has relocated to Phoenix, Arizona, and Dr. Reed and Mr. Glatter
will be entitled to a payment equal to the salary payable over the remaining
term of their respective employment agreements. Mr. Thayer also received a
$25,000 bonus on the closing of the IPO and will receive a $25,000 bonus on the
first anniversary of that closing. Mr. Carr also received compensation on the
closing of the IPO of approximately $29,000. Each of the foregoing agreements
also contains a covenant limiting competition with the Company for one year
following termination of employment.

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

1997 STOCK COMPENSATION PLAN

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

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

All of the Company's employees, non-employee directors and advisors and
employees and directors of Affiliated Practices are eligible to receive
nonqualified stock options and Awards under the 1997 Stock Compensation Plan,
but only employees of the Company are eligible to receive ISOs. Options will be
exercisable during the period specified in each option agreement and will
generally be exercisable in installments pursuant to a vesting schedule to be
designated by the Committee. Notwithstanding the provisions of any option
agreement, options will become immediately exercisable in the event of certain
events including certain merger or consolidation transactions and changes in
control of the Company. No Option will remain exercisable later than ten years
after the date of grant (or five years from the date of grant in the case of
ISOs granted to holders of more than 10% of the outstanding Common Stock). An
Award grants the recipient the right to receive a specified number of shares of
Common Stock, which shall become vested over a period of time, not exceeding 10
years, specified by the Committee. Restricted stock transferred to a recipient
shall be forfeited upon the termination of the recipient's employment or service
other than for death, permanent disability or retirement unless the Committee,
in its sole discretion, waives the restrictions for all or any part of an Award.

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

Payment upon exercise of an Option may be made in cash or by check, by means
of a "cashless exercise" involving the sale of shares by, or a loan from, a
broker, or, in the discretion of the Committee, by delivery of shares of Common
Stock, by payment of the par value of the shares subject to the Option

36
<PAGE>
plus a promissory note for the balance of the exercise price or in any other
form of valid consideration permitted by the Committee.

There are generally no federal income tax consequences upon the grant of an
Option under the 1997 Stock Compensation Plan. Upon exercise of a nonqualified
option, the optionee generally will recognize ordinary income in the amount
equal to the difference between the fair market value of the shares at the time
of exercise and the exercise price, and the Company is generally entitled to a
corresponding deduction. When an optionee sells shares issued upon the exercise
of a nonqualified stock option, the optionee generally realizes short-term or
long-term capital gain or loss, depending on the length of the holding period.
If the optionee holds the shares for more than 12 months, the capital gain or
loss will be long-term capital gain or loss. Otherwise, the capital gain or loss
will be short-term capital gain or loss. The Company is not entitled to any
deduction in connection with such sale.

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

For alternative minimum tax purposes, the difference between the fair market
value, on the date of exercise, of Common Stock purchased upon the exercise of
an ISO, and the exercise price increases alternative minimum taxable income.
Additional rules apply if an optionee makes a disqualifying disposition of the
Common Stock.

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

The Company has (i) outstanding options to purchase a total of 724,666
shares of Common Stock under the 1997 Stock Compensation Plan and (ii) 1,275,334
additional shares available for future awards under the 1997 Stock Compensation
Plan.

37
<PAGE>
CERTAIN TRANSACTIONS

ORGANIZATION OF THE COMPANY

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

In connection with the raising of $1,450,000 by PII in order to fund a
portion of the expenses for the IPO and the Affiliations, in June 1997, PII
issued capital stock to Dr. Reed (37,500 shares of preferred stock and 7,500
shares of common stock), Gary S. Glatter (37,500 shares of preferred stock and
7,500 shares of common stock), George M. Siegel (37,500 of preferred stock and
7,500 shares of common stock), Mack E. Greder, D.D.S. (25,000 shares of
preferred stock and 5,000 shares of common stock) and Roger Allen Kay, D.D.S.
(25,000 shares of preferred stock and 5,000 shares of common stock), at a
purchase price per share of $1.00 for the preferred stock and of $0.015 for the
common stock.

In September 1997, (i) each owner of shares of common stock of PII agreed to
exchange those shares for shares of Common Stock on a one-for-one basis and (ii)
each of Dr. Reed and Messrs. Glatter, Dunn, Casas and Siegel agreed to sell to
PII all shares of preferred stock he owns at a price per share equal to the
subscription price he paid to PII for those shares, which transactions were
consummated concurrently with the closing of the IPO and the Affiliations. In
addition, immediately after the completion of the repurchases described in the
foregoing sentence, all outstanding shares of preferred stock of PII was
redeemed by PII at a redemption price, as established by resolution of the board
of directors of PII, of $1.50 per share, of which $1.15 per share was paid in
cash from the proceeds of the IPO and $0.35 per share was paid in the form of a
6.0% promissory note that becomes due and payable by the Company on the earlier
of the fifth anniversary of the date of the closing of the IPO or the date on
which the Company offers and sells an amount of equity securities for gross
proceeds equal to or greater than the gross proceeds from the IPO.

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

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

From February 1997 to January 1998, the Company occupied and had access to
the facilities, equipment and staff of James L. Dunn & Assoc., Inc., an
affiliate of James L. Dunn, Jr. Beginning June 1,

38
<PAGE>
1997, the Company agreed to compensate James L. Dunn & Assoc., Inc. for use of
and access to its office facilities, equipment and staff at the rate of $10,000
per month. James L. Dunn & Assoc., Inc. also provided the Company monthly
invoices for delivery, telephone, travel and other out-of-pocket expenses and
obtained reimbursement for those expenses from the Company. Through March 31,
1998, the Company has reimbursed James L. Dunn & Assoc., Inc. for approximately
$11,600 of such expenses. The Company believes that the compensation paid to
James L. Dunn & Assoc., Inc. represents the fair market value of the services
(which includes the shared use of two clerical employees, use of office
furniture, copy machines, computers and other office equipment, and office
supplies) provided to the Company.

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

The following table provides certain information concerning the Affiliations
with the directors of the Company who own an Affiliated Practice:

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

- ---------

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

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

All of the shares of Common Stock issued to the dentists named in the
foregoing table and all of 847,430 shares of Common Stock issued in the Share
Exchange have certain piggy-back registration rights. See "Shares Eligible for
Future Sale."

COMPANY POLICY

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

39
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The following table shows, as of September 1, 1998 the "beneficial
ownership" of the Common Stock of (i) each director, (ii) each executive
officer, (iii) all executive officers and directors of the Company as a group
and (iv) each person who owns more than 5% of the outstanding Common Stock. The
address of each person in the table is c/o Pentegra Dental Group, Inc., 2999
North 44th Street, Suite 650, Phoenix, Arizona 85018.

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

- ---------

* less than 1%.

(1) Shares shown in the above table do not include shares that could be acquired
upon exercise of currently outstanding stock options which do not vest
within 60 days of the date of this Prospectus.

40
<PAGE>
DESCRIPTION OF THE CONVERTIBLE DEBT SECURITIES

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

GENERAL

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

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

The Convertible Securities are unsecured obligations of Pentegra.

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

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

41
<PAGE>
All monies paid by Pentegra to the Trustee or any Paying Agent, or held by
Pentegra, in trust for the payment of principal of and any premium and interest
on any Convertible Security which remain unclaimed for two years after that
principal, premium or interest becomes due and payable may be repaid to Pentegra
or released from trust, as the case may be. Thereafter, the Holder of that
Convertible Security may, as an unsecured general creditor, look only to
Pentegra for payment thereof.

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

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

CONVERSION RIGHTS

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

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

The conversion price of each Convertible Security will be subject to
adjustment as and when any of the following events occurs after its Original
Issue Date (or the Original Issue Date of any of its Predecessor Securities):
(i) the subdivision, combination or reclassification of outstanding shares of

42
<PAGE>
Common Stock; (ii) the payment of a dividend or distribution on the Common Stock
exclusively in Common Stock or any other class of capital stock of Pentegra
which includes Common Stock; (iii) the issuance of rights or warrants to all
holders of Common Stock entitling them to acquire shares of Common Stock (or
securities convertible into Common Stock) at a price per share less than the
then Current Market Price; (iv) the distribution to all holders of Common Stock
of shares of capital stock of Pentegra other than Common Stock, evidences of
indebtedness of Pentegra, cash or assets (including securities, but excluding
(a) dividends or distributions paid exclusively in cash, (b) dividends or
distributions provided for in clause (ii) above and (c) rights and warrants
provided for in clause (iii) above); (v) a distribution consisting exclusively
of cash (excluding any cash distributions referred to in clause (iv) above) to
all holders of Common Stock in an aggregate amount that, together with (a) all
other cash distributions (excluding any cash distributions referred to in clause
(iv) above) made within the 12 months preceding the record date for that
distribution and (b) any cash and the fair market value of other consideration
paid in respect of any tender offer subject to the provisions of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), made by Pentegra or a
subsidiary of Pentegra for Common Stock consummated within the 12 months
preceding that distribution, exceeds the greater of (1) 12.5% of Pentegra's
market capitalization (being at any time the product of the then Current Market
Price times the number of shares of Common Stock then outstanding) on that
record date and (2) the Company's consolidated retained earnings on that record
date (determined without giving effect to that distribution); and (vi) the
consummation of a tender offer made by Pentegra or any subsidiary of Pentegra
for Common Stock which involves an aggregate consideration that, together with
(a) any cash and other consideration payable in respect of any tender offer made
by Pentegra or a subsidiary of Pentegra for Common Stock consummated within the
12 months preceding the last time on which tenders of Common Stock may be made
pursuant to the current tender offer (the "Expiration Time") and (b) the
aggregate amount of all cash distributions (excluding any cash distributions
referred to in clause (iv) above) to all holders of Common Stock within the 12
months preceding the consummation of that tender offer, exceeds the greater of
(1) 12.5% of Pentegra's market capitalization immediately prior to that
Expiration Time (determined using all then tendered shares) and (2) the
Company's consolidated retained earnings at the Expiration Time (determined
without giving effect to the purchase of tendered shares). No adjustment of any
conversion price will be required to be made until cumulative adjustments amount
to at least 1.0% of that conversion price, as last adjusted. Any adjustment that
would otherwise be required to be made will be carried forward and taken into
account in any subsequent adjustment.

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

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

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<PAGE>
SUBORDINATION

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

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

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

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

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

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

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

CONSOLIDATION, MERGER AND SALE OF ASSETS

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

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

EVENTS OF DEFAULT

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

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

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MODIFICATIONS AND AMENDMENTS

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

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

SATISFACTION AND DISCHARGE

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

MEETINGS OF HOLDERS

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

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

FORM, DENOMINATION AND REGISTRATION

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

GOVERNING LAW

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

INFORMATION CONCERNING THE TRUSTEE

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

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

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DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, par value $.001 per share, and 10,000,000 shares of preferred
stock, par value $.001 per share ("Preferred Stock"). At September 1, 1998,
7,581,681 shares of Common Stock were issued and outstanding and held of record
by 104 stockholders. The following summary is qualified in its entirety by
reference to the Certificate of Incorporation, which is included as an exhibit
to the Registration Statement of which this Prospectus is a part.

COMMON STOCK

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

PREFERRED STOCK

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

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

STATUTORY BUSINESS COMBINATION PROVISION

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

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

OTHER MATTERS

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

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

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

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

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

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

STOCKHOLDER PROPOSALS

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

TRANSFER AGENT AND REGISTRAR

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

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SHARES ELIGIBLE FOR FUTURE SALE

The Company has outstanding, as of September 1, 1998, 7,581,681 shares of
Common Stock of which the 2,875,000 shares sold in the IPO are freely tradable
without restriction or further registration under the Securities Act, except for
those held by "affiliates" (as defined in the Securities Act) of the Company,
which shares will be subject to the resale limitations of Rule 144 under the
Securities Act. Approximately 3,941,898 outstanding shares of Common Stock are
deemed "restricted securities" under Rule 144 in that they were originally
issued and sold by the Company in private transactions in reliance upon
exemptions under the Securities Act, and may be publicly sold only if registered
under the Securities Act or sold in accordance with an applicable exemption from
registration, such as those provided by Rule 144 promulgated under the
Securities Act as described below.

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

As of September 1, 1998, options to purchase an aggregate of 724,666 shares
of Common Stock were authorized for issuance under the Company's 1997 Stock
Compensation Plan. See "Management--1997 Stock Compensation Plan." In general,
pursuant to Rule 701 under the Securities Act, any employee, officer or director
of, or consultant to, the Company who purchased his or her shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permit non-affiliates to sell such shares without
compliance with the public information, holding period, volume limitation or
notice provisions of Rule 144, and permit affiliates to sell such shares without
compliance with the holding period provisions of Rule 144, in each case
commencing 90 days after the date of this Prospectus. In addition, the Company
has filed a registration statement covering the 2,000,000 shares of Common Stock
issuable upon exercise of stock options that may be granted in the future under
the 1997 Stock Compensation Plan, in which case such shares of Common Stock
generally will be freely tradable by non-affiliates in the public market without
restriction under the Securities Act.

The Company entered into registration rights agreements with former
stockholders of the Founding Affiliated Practices (the "Registration Rights
Agreements"), which will provide certain registration rights with respect to the
Common Stock issued to such stockholders in the Affiliations. Each Registration
Rights Agreement will provide the holders of Common Stock subject to such
agreement with the right to participate in registrations by the Company of its
equity securities in underwritten offerings. The registration rights conferred
by the Registration Rights Agreements will terminate on the second anniversary
of the closing of the IPO. The Company is generally required to pay the costs
associated with such an offering, other than underwriting discounts and
commissions and transfer taxes attributable to the shares sold on behalf of the
selling stockholders. The Registration Rights Agreements provide that the number
of

52
<PAGE>
shares of Common Stock to be registered on behalf of the selling stockholders is
subject to limitation if the managing underwriter determines that market
conditions require a limitation. Under the Registration Rights Agreements, the
Company will indemnify the selling stockholders thereunder, and such
stockholders will indemnify the Company against, certain liabilities in respect
of any registration statement or offering covered by the Registration Rights
Agreements. The Company and each of its current stockholders are parties to a
stockholders agreement, which provides those stockholders registration rights
substantially equivalent to the registration rights in the Registration Rights
Agreements.

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

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

53
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

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

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

OWNERSHIP BY U.S. PERSONS

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

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

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

54
<PAGE>
Rev. Rul. 72-264 provides that (i) a U.S. Holder who uses the installment
method to report income on the receipt of a Convertible Security (any such
Convertible Security is referred to herein as an "Installment Method Convertible
Security") in a Business Combination Transaction will recognize gain or loss on
the conversion of that Installment Method Convertible Security into Common Stock
and (ii) the amount of that gain or loss will be the amount of cash received in
lieu of a fractional share increased by the fair market value of the Common
Stock received reduced by the basis (as defined in Section 453B(b) of the Code)
of that Convertible Security. Any gain or loss which is so recognized will be
considered to result from the sale or exchange of the property in exchange for
which the Installment Method Convertible Security was received.

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

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

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

OWNERSHIP BY NON-U.S. HOLDERS

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

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

55
<PAGE>
the meaning of Section 864(d)(4) of the Code; and (iv) the Non-U.S. Holder is
not a bank holding the Convertible Securities as a result of an extension of
credit made pursuant to a loan agreement entered into in the ordinary course of
its trade or business. Accrued market discount on a Convertible Security is not
treated for these purposes as interest income.

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

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

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

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

BACKUP WITHHOLDING; INFORMATION REPORTING

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

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

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

56
<PAGE>
foreign partnerships and partners of a foreign partnership provide certain
information and comply with certain certification requirements not required
under existing law. Such proposed regulations are proposed to be effective
generally for payments made after December 31, 1997. It is not possible to
predict whether, or in what form, the proposed regulations ultimately will be
adopted.

PLAN OF DISTRIBUTION

THE COMPANY

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

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

GENERAL

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

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

LEGAL MATTERS

The validity of the shares of Common Stock and Convertible Debt Securities
offered hereby will be passed upon for the Company by Jackson Walker L.L.P.,
Houston, Texas.

EXPERTS

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

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-4 (together with all exhibits, schedules and amendments relating thereto, the
"Registration Statement") with respect to the Common Stock offered hereby. This
Prospectus, filed as part of the Registration Statement, does not contain all
the information contained in the Registration Statement, certain portions of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement including
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document filed as an exhibit to the
Registration Statement accurately describe the material provisions of such
document and are qualified in their entirety by reference to such

57
<PAGE>
exhibits for complete statements of their provisions. All of these documents may
be inspected without charge at the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the following regional offices of the Commission: Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies can also be obtained from the
Commission at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.

58
<PAGE>
INDEX TO FINANCIAL STATEMENTS

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

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

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

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

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

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

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

Unaudited Financial Statements

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

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

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

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

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

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

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

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

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

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

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

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

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

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

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

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

Houston, Texas

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

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

BALANCE SHEET

DECEMBER 31, 1997

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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

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

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

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

STATEMENT OF OPERATIONS

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

(IN THOUSANDS)

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

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

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

STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

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

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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

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

F-5
<PAGE>
PENTEGRA DENTAL GROUP, INC.

STATEMENT OF CASH FLOWS

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

(IN THOUSANDS)

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

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

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

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

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

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

In July 1997, the Company changed its name to Pentegra Investments, Inc. and
formed a new wholly owned subsidiary named Pentegra Dental Group, Inc.
("Pentegra Dental"). Pentegra Dental's operations to date have consisted
primarily of seeking affiliations with dental practices, negotiating to acquire
the tangible assets of those practices, and negotiating agreements to provide
management services to those practices. Pentegra Dental plans to complete an
initial public offering of its common stock, par value $0.001 per share (the
"Offering") and simultaneously exchange cash and shares of its common stock for
selected assets and liabilities (the "Affiliations") of 50 dental practices (the
"Founding Affiliated Practices" and, together with dental practices with which
the Company may enter into similar transactions in the future, the "Affiliated
Practices") (see Note 4). In December 1997, the owners of the outstanding shares
of the Company's common stock agreed that, in the event the initial public
offering price is less than $12.04 per share, it will repurchase (the "Share
Repurchase") from those stockholders, on a pro rata basis, at a purchase price
of $0.015 per share, that number of shares as will be necessary so that the
aggregate number of shares of Pentegra Dental common stock issuable in
connection with the Affiliations and the Share Exchange (as defined below) will
not exceed 3,941,898 shares. Pursuant to that agreement, the Company will
repurchase approximately 51.8% of each such stockholder's shares of the Company
common stock, or an aggregate of 909,237 shares. The current shareholders will
exchange on a share-for-share basis, their remaining shares of the Company's
common stock, par value $0.015 per share, for shares of common stock of Pentegra
Dental (the "Share Exchange"). It is contemplated that 245,835 shares of Class B
preferred stock held by affiliates of the Company will be repurchased at their
original issuance prices ranging from $0.01 to $1.00 per share and 1,337,500
shares of Class A and Class B preferred stock held by nonaffiliates will be
redeemed at a price of $1.50 per share (See Note 5). Pentegra Dental has also
entered into an agreement to acquire substantially all the assets and operations
of a dental management consulting firm, Pentegra, Ltd., and a dental management
seminar company, Napili, International (the "Pentegra/Napili Transaction") (see
Note 3).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CASH AND CASH EQUIVALENTS

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

DEFERRED IPO COSTS

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

ORGANIZATIONAL COSTS

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

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

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

EARNINGS PER SHARE

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

USE OF ESTIMATES

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

INCOME TAXES

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

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

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

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

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

3. RELATED PARTY TRANSACTIONS:

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

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

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

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

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

4. PLANNED TRANSACTIONS:

Pentegra Dental plans to complete the Affiliations through a series of
mergers and asset transfers. Owners of the Founding Affiliated Practices (the
"Promoters") will receive 3,094,468 shares of Common Stock and approximately
$6,400,000 in cash. In December 1997, the owners of the outstanding shares of
common stock of PII agreed that, in the event the initial public offering price
is less than $12.04 per share, PII will repurchase from those stockholders, on a
pro rata basis, at a purchase price of $0.015 per share, that number of shares
as will be necessary so that the aggregate number of shares of Common Stock
issuable in connection with the Affiliations and the Share Exchange will not
exceed 3,941,898 shares. Pursuant to that agreement, PII will repurchase
approximately 51.8% of each such stockholder's shares of PII common stock, or an
aggregate of 909,237 shares. Each Founding Affiliated Practice transaction was
individually negotiated between the Company and the Founding Affiliated Practice
as to all material terms, including, but not limited to, valuation. The shares
to be issued were based on a common allocation method that considered each
Founding Affiliated Practice's gross revenue, net of certain operating expenses,
and the Company's assessment of growth potential. No independent appraisals of
the Founding Affiliated Practices were obtained. Of the total consideration for
each transaction, each Founding Affiliated Practice could elect to receive up to
20% in cash and the balance in shares of Common Stock. The assets to be
transferred in the Affiliations include supplies inventory, equipment and
certain other current and non-current assets. The liabilities to be transferred
primarily consist of long-term debt. In connection with the Affiliations, the
Promoters and their professional corporations, professional associations or
other entities (collectively, the "PCs") will enter into long-term service
agreements with Pentegra Dental (the "Service Agreements"). Additionally, those
Promoters will enter into employment and noncompete agreements with their
respective PCs.

As of December 31, 1997, officers and directors of the Company, those who
will become officers and directors of the Company in connection with the IPO and
certain Promoters held common and preferred stock that was issued in connection
with the funding of a portion of the expenses for the IPO, as follows (in
thousands):

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

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

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

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

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

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

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

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

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

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

The management service revenues that will be earned by Pentegra Dental
subsequent to the closing of the Affiliations and the execution of the Service
Agreements will be based on various arrangements. In general, the resulting fee
will be based primarily on the patient revenues less operating expenses
associated with each PC, excluding dentists' salaries and depreciation. Patient
revenues are determined based on net patient revenues, as determined under
generally accepted accounting principles, including adjustments for contractual
allowances and other discounts, less an adjustment for uncollectable accounts.
The Company will pay all operating expenses incurred by each Affiliated Practice
that are required to operate a dental office, and the Affiliated Practice will
be responsible for reimbursing the Company for such expenses. These expenses
will include the following:

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. PLANNED TRANSACTIONS: (CONTINUED)
- Salaries, benefits, payroll taxes, workers compensation, health insurance
and other benefit plans, and other direct expenses of all employees of the
Company at each location of the Affiliated Practice, excluding those costs
associated with the dentists and any other classification of employee
which the Company is prohibited from employing by law;

- Direct costs of all employees or consultants that provide services to each
location of the Affiliated Practice;

- Dental and office supplies, as permitted by law;

- Lease or rent payments, as permitted by law, and utilities, telephone and
maintenance expenses for practice facilities;

- Property taxes on the Company's assets located at the Affiliated
Practice's offices;

- Property, casualty, liability and malpractice insurance premiums relating
to the operations of the Affiliated Practice;

- Dentist recruiting expenses relating to the operations of the Affiliated
Practice; and

- Advertising and other marketing costs attributable to the promotion of the
Affiliated Practice's offices.

All of the above expenses will be incurred and paid by the Company directly
to the third-party provider of the goods or services indicated. In exchange for
incurring these expenses and providing management services, the Company will
record revenues in amounts equal to those incurred expenses, which the
Affiliated Practice will reimburse to the Company, together with a service fee
based on the type of Service Agreement entered into by the Affiliated Practice.

The Founding Affiliated Practices will retain responsibility for the payment
of any and all direct employment expenses, including benefits, for any dentist
or other employee that the Company is prohibited from employing by law.

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

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. PLANNED TRANSACTIONS: (CONTINUED)

Service Fees payable to the Company under clause (i)(a) above are payable by
37 of the Founding Affiliated Practices, located in each state in which the
Founding Affiliated Practices are located other than New York and California,
and are calculated by subtracting the operating expenses of the Founding
Affiliated Practice (including non-dental salaries, insurance, rent and other
non-dentist costs) from the net revenues of the Founding Affiliated Practice and
multiplying the resulting amount by 30%, 35% or 40%, depending on the terms of
the particular Service Agreement. One Founding Affiliated Practice located in
California will pay its Service Fee according to the formula set forth in clause
(i)(b) above, equal to the greater of 16% of its net revenues or 35% of the
difference between its net revenues and operating expenses. Service Fees to be
received by the Company under clause (ii)(b) above are payable by eight of the
Founding Affiliated Practices in Texas and will result in a minimum service fee
being received by the Company (ranging from $54,000 to $305,000 annually). The
annual fixed fees payable by the four Founding Affiliated Practices in New York
are $66,009, $115,251, $83,579 and $140,127 and will be subject to renegotiation
each year based on the fair value of the services to be received by those
Founding Affiliated Practices from the Company. On a monthly basis, the Company
will calculate the Service Fee due from each Founding Affiliated Practice
pursuant to the terms of each Service Agreement. In addition, if the costs
related to providing dental services pursuant to capitated managed care
arrangements exceed the revenues received for those services, the Affiliated
Practice will remain responsible for reimbursing the Company for all of the
costs associated with providing those services, even if no Service Fee is due to
the Company under its Service Agreement. The patient revenues and operating
expenses (excluding depreciation and dentists' salaries) of the Founding
Affiliated Practices are summarized, on a combined basis, in the following
tables for the years ended December 31, 1996 and 1997 (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1997
---------------------- ----------------------
PATIENT OPERATING PATIENT OPERATING
REVENUES EXPENSES REVENUES EXPENSES
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Practices participating under the Standard Service Agreement......... $ 28,371 $ 16,913 $ 29,156 $ 17,071
Practices participating under the Alternative Service Agreement...... 6,921 4,776 6,602 4,470
Practices participating under fixed-fee agreements................... 2,599 1,393 2,519 1,408
--------- ----------- --------- -----------
Totals for Founding Affiliated Practices............................. $ 37,891 $ 23,082 $ 38,277 $ 22,949
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>

Subsequent to the Affiliations, substantially all the operating expenses of
the Founding Affiliated Practices (excluding dentists' salaries) will be paid by
Pentegra Dental and billed to the PCs. The historical operating expenses of the
Founding Affiliated Practices for the years ended December 31, 1996 and 1997,
excluding those employment expenses for any dentist or other employee that the
Company is prohibited from employing by law, are summarized, on a combined
basis, in the following table (in thousands):

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. PLANNED TRANSACTIONS: (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
1996 1997
------------ -------------
<S> <C> <C>
Salaries, wages and benefits of employees, excluding the
dentists...................................................... $ 8,495 $ 8,214
Dental supplies................................................. 5,680 5,572
Rent............................................................ 1,884 2,055
Advertising and marketing expenses.............................. 567 567
General and administrative expenses............................. 5,716 5,790
Other expenses.................................................. 740 751
------------ -------------
Total operating expenses.................................... 23,082 22,949
Depreciation and amortization................................... 879 833
------------ -------------

Total expenses.............................................. $ 23,961 $ 23,782
------------ -------------
------------ -------------
</TABLE>

The Company will continue to recognize depreciation and amortization on
assets transferred in connection with the Affiliations. However, such charges
are not considered operating expenses under the Service Agreements and will not
enter into the calculation of the service fees.

The combined historical financial information of the Founding Affiliated
Practices presented herein does not represent the financial position or results
of operations of Pentegra Dental or the Company. Because of the significant
relationship that will exist among the Company and the Founding Affiliated
Practices upon completion of the IPO, this information is presented solely for
the purpose of providing disclosures to potential investors regarding the group
of entities with which Pentegra Dental will be contracting to provide future
services. The Founding Affiliated Practices were not operated under common
control or management during the fiscal years ended December 31, 1996 or 1997.
However, combined financial information has been presented because entering into
the Service Agreements with all of the Founding Affiliated Practices is
contingent upon a single event, the completion of the IPO.

5. REDEEMABLE PREFERRED STOCK

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

The terms of the Class A and B preferred stock provide for it to be redeemed
for $1.00 to $3.00 per share, as determined by the Company's Board of Directors,
upon completion of an initial public offering. The Board of Directors has
established the redemption price at $1.50 per share. In connection with

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

6. COMMON STOCK

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

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

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

7. NOTES PAYABLE

In October 1997, the Company repurchased an additional 20,000 shares of its
common stock from a director at a purchase price per share of $0.015, and issued
(i) 20,000 shares of common stock and (ii) $300,000 of 9.5% promissory notes due
on the earlier of 30 days after the closing of the IPO or October 1998. The
Company allocated the $300,000 proceeds between the promissory notes and the
common stock based on their relative fair values, with the value of the shares
based on $8.50 per share. The amount of the proceeds allocated to those shares
of common stock was recorded as a discount on the promissory notes of
approximately $180,000. The Company is accreting the discount over the term of
the promissory notes.

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. NOTES PAYABLE (CONTINUED)
In November 1997, the Company issued an additional $50,000 of 9.5%
promissory notes due on the earlier of 30 days after the closing of the IPO or
July 1998.

8. SUBSEQUENT EVENTS

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

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

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

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

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

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

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

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

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

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

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

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

Expenses:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

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

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

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

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

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

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

2. SIGNIFICANT ACCOUNTING POLICIES

INCOME TAXES

As reflected in the accompanying balance sheets, the Company incurred a
deficit of $3,314,000 during the period from inception, February 21, 1997,
through March 31, 1998. The Company has recognized no tax benefit from this net
loss. Due to the limited operations of the Company since its inception, a
valuation allowance has been established to offset the deferred tax asset
related to these net losses that have been capitalized for tax purposes. There
is no other significant difference in the tax and book bases of the Company's
assets or liabilities that would give rise to deferred tax balances.

EARNINGS PER SHARE

Earnings per share has been excluded from the financial statements because
the Company has limited historical operations and does not have a significant
operating history.

USE OF ESTIMATES

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

3. REDEEMABLE PREFERRED STOCK

Prior to the IPO, certain officers and directors agreed to permit PII to
repurchase their shares of Class B Preferred Stock at the subscription price.
Accordingly, the Company used a portion of the net proceeds of the IPO to
repurchase 245,835 shares of PII Class B Preferred Stock held by those officers
and directors at repurchase prices equal to the subscription prices, which
ranged from $0.01 to $1.00 per share. The remaining 1,337,500 shares of Class A
and B preferred stock outstanding were redeemed at a price of $1.50 per share,
of which $1.15 per share was paid in cash and $0.35 per share was paid in the
form of 6.0% promissory note that becomes due and payable by the Company on the
earlier of the fifth anniversary of the date of the closing of the IPO or the
date on which the Company offers and sells an amount of equity securities with
gross proceeds equal to or greater than the gross proceeds of the IPO. The
Company

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

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

4. NOTES PAYABLE

In October 1997, the Company repurchased an additional 20,000 shares of its
common stock from a director at a purchase price per share of $0.015, and issued
(i) 20,000 shares of common stock and (ii) $300,000 of 9.5% promissory notes due
on the earlier of 30 days after the closing of the IPO or October 1998. The
Company allocated the $300,000 proceeds between the promissory notes and the
common stock based on their relative fair values, with the value of the shares
based on $8.50 per share. The amount of the proceeds allocated to those shares
of common stock was recorded as a discount on the promissory notes of
approximately $180,000. The notes and interest were repaid in March 1998. The
Company recognized the remaining unamortized discount of $135,000 in interest
expense during the three-month period ending March 31, 1998.

In November 1997, the Company issued an additional $50,000 of 9.5%
promissory notes due on the earlier of 30 days after the closing of the IPO or
July 1998. The notes and interest were repaid in March 1998.

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

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

5. ACCUMULATED DEFICIT

The Company's accumulated deficit at March 31, 1998 is primarily
attributable to compensation costs and other costs of managing the Company prior
to its IPO. On March 30, 1998, an employment bonus of $1,250,000 to the Chairman
of the Board of Directors (the "Chairman") was recorded, and therefore is
included in the Company's accumulated deficit. Payment of the bonus will be made
in increments of $10,000 on the closing of each future dental practice
affiliation until the bonus has been paid in full. Pursuant to the terms of the
Company's employment agreement with the Chairman, the employment bonus must be
paid in full within three years of the Offering.

6. YEAR 2000

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

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

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

7. SUBSEQUENT EVENTS

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

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

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

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(000S)

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

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

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

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

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)

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

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

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

2. SIGNIFICANT ACCOUNTING POLICIES

INTANGIBLE ASSETS

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

INCOME TAXES

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

EARNINGS PER SHARE

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)

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

USE OF ESTIMATES

3. NOTES PAYABLE

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

4. RETAINED EARNINGS (DEFICIT)

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

5. NEW DENTIST AFFILIATIONS

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

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

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

TABLE OF CONTENTS

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

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

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

Recent Developments............................... 15

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

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

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

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

Business.......................................... 21

Management........................................ 32

Certain Transactions.............................. 38

Security Ownership of Certain Beneficial Owners
and Management.................................. 40

Description of Convertible Debt Securities........ 41

Description of Capital Stock...................... 49

Shares Eligible for Future Sale................... 52

Certain United States Federal Income Tax
Consequences.................................... 54

Plan of Distribution.............................. 57

Legal Matters..................................... 57

Experts........................................... 57

Additional Information............................ 57

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

[LOGO]
PENTEGRA DENTAL GROUP, INC.

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

PROSPECTUS

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

SEPTEMBER , 1998

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

DELAWARE GENERAL CORPORATION LAW

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

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

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

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

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

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

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

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

RESTATED CERTIFICATE OF INCORPORATION

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

BYLAWS

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

UNDERWRITING AGREEMENT

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

II-2
<PAGE>
INSURANCE

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

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

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

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

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

II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
10.12(1) -- Amendment to Employment Agreement dated September 1, 1997 between Pentegra Dental Group, Inc.
and Sam H. Carr
10.13(1) -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and
James L. Dunn, Jr.
10.14(1) -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and
John Thayer
10.15(1) -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and
Kimberlee Rozman
10.16(1) -- Second Amendment to Asset Contribution Agreement dated August 20, 1997 between Pentegra
Dental Group, Inc., Pentegra, Ltd., Napili International, Inc. and the shareholders of
Pentegra, Ltd. and Napili International, Inc.
10.17(2) -- Credit Agreement dated June 1, 1998 between Bank One, Texas, N.A. and Pentegra Dental Group,
Inc.
12.1 -- Statement of Ratio of Earnings to Fixed Charges
23.1 -- Consent of PricewaterhouseCoopers LLP
23.2 -- Consent of Jackson Walker L.L.P. (contained in Exhibit 5.1)
24.1 -- Power of Attorney (contained on the signature page of this Registration Statement)
25.1 -- Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of 1939
of U.S. Trust Company of Texas, N.A., as Trustee under Exhibit 4.4
</TABLE>

- ---------

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

(2) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1998.

(b) Financial Statement Schedules.

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

ITEM 22. UNDERTAKINGS.

(a) The Company hereby undertakes:

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

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

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

II-7
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;

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

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

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

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

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

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

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

II-8
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
Pentegra Dental Group, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on September 29, 1998.

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

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

Each person whose signature appears below hereby appoints Kimberlee K.
Rozman and Sam H. Carr and each of them, each of whom may act without joinder of
the other, as his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to execute in the name of each such person who is then
an officer or director of the Registrant, and to file, any amendments (including
post-effective amendments) to this Registration Statement and any registration
statement for the same offering filed pursuant to Rule 462 under the Securities
Act of 1933, as amended, and to file the same, with all exhibits thereto and all
other documents in connection therewith, with the Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing appropriate or necessary to be done, as fully and for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on September 29, 1998.

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

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

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

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

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

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

/s/ RONNIE L. ANDRESS,
D.D.S.
- ------------------------------ Director
Ronnie L. Andress, D.D.S.
</TABLE>

II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE
- ------------------------------ ----------------------------------------------

<C> <S>
/s/ JAMES H. CLARKE, JR.
D.D.S.
- ------------------------------ Director
James H. Clarke, Jr. D.D.S.

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

/s/ MACK E. GREDER, D.D.S.
- ------------------------------ Director
Mack E. Greder, D.D.S.

/s/ ROGER ALLEN KAY, D.D.S.
- ------------------------------ Director
Roger Allen Kay, D.D.S.

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

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

/s/ RONALD M. YAROS
- ------------------------------ Director
Ronald M. Yaros, D.D.S.
</TABLE>

II-10
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
2.1(1) -- Form of Asset Contribution Agreement between Pentegra Dental Group, Inc. and a sole
proprietorship
2.2(1) -- Form of Asset Contribution Agreement between Pentegra Dental Group, Inc. and a partnership
2.3(1) -- Form of Asset Contribution Agreement between Pentegra Dental Group, Inc. and an entity
2.4(1) -- Form of Agreement and Plan of Reorganization between Pentegra Dental Group, Inc. and an
entity
2.5(1) -- Exchange Agreement dated as of July 31, 1997 among Pentegra Investments, Inc., Pentegra
Dental Group, Inc. and the stockholders named therein
2.6(1) -- Asset Contribution Agreement dated as of August 20, 1997 among Pentegra Dental Group, Inc.,
Pentegra, Ltd., Napili International and Omer K. Reed, D.D.S.
2.7(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
James P. Allen, D.D.S.
2.8(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Walter J. Anderson, D.D.S, Donald H. Plotkin, D.D.S, William H. Swilley,
D.D.S., William A. Cerny, D.D.S. and Graham A. Satchell, D.D.S., Inc., dba Anderson Dental
Group and Walter J. Anderson, D.D.S., Donald H. Plotkin, D.D.S., William A. Cerny, D.D.S.,
Brian M. Ellis, D.D.S. and Afshan Kaviani, D.D.S.
2.9(1) -- Asset Contribution Agreement dated August 15, 1997 by and among Pentegra Dental Group, Inc.,
Ronnie Andress, D.D.S., Inc., and Ronnie Andress, D.D.S.
2.10(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Victor H. Burdick, D.D.S., P.C., and Victor H. Burdick, D.D.S.
2.11(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Marvin V. Cavallino, D.D.S., A Professional Corporation, and Marvin Cavallino,
D.D.S.
2.12(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., James H. Clarke, Jr., D.D.S., Inc. and James H. Clarke, Jr., D.D.S.
2.13(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Henry Cuttler, D.D.S.
2.14(1) -- Agreement and Plan of Reorganization dated August 11, 1997 by and among Pentegra Dental
Group, Inc., Edward T. Dougherty, Jr., D.D.S., P.A., and Edward T. Dougherty, Jr., D.D.S.
2.15(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Family Dental Centers, P.A., Steve Anderson, D.D.S. and Lindi B. Anderson, D.D.S.
2.16(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Richard H. Fettig, D.D.S.
2.17(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Alan H. Gerbholz, D.D.S., P.C. and The AMG Trust.
2.18(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Michael J. Gershtenson, D.D.S., P.C. and Michael J. Gershtenson, D.D.S.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
2.19(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Mack E. Greder, D.D.S, P.C. and Mack Greder, D.D.S.
2.20(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Salvatore J. Guarnieri, D.D.S.
2.21(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Kent M. Hamilton, D.D.S, P.C. and Kent M. Hamilton, D.D.S.
2.22(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
David R. Henderson, D.D.S.
2.23(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Stephen Hwang, D.D.S.
2.24(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Jackson Dental Partnership, Penn Jackson, Sr. and Penn Jackson, Jr.
2.25(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Bruce A. Kanehl, D.D.S.
2.26(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Roger Allen Kay, D.D.S, P.A. and Roger A. Kay, D.D.S.
2.27(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Patrick T. Kelly, D.D.S, P.C. and Patrick T. Kelly, D.D.S.
2.28(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Brian K. Kniff, D.D.S, P.C., Brian K. Kniff, D.D.S and Gordon Ledingham,
D.D.S.
2.29(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Lakeview Dental, P.C. and Kevin Gasser, D.D.S.
2.30(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Donald W. Lanning, D.D.S.
2.31(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
David A. Little, D.D.S.
2.32(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Susan E. Lunson, D.D.S., P.C. and Susan E. Lunson, D.D.S.
2.33(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Richard W. Mains, Jr., D.M.D, P.C. and Richard W. Mains, Jr., D.M.D.
2.34(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
James M. McDonough, D.D.S.
2.35(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
James W. Medlock, D.D.S., P.A. and James Medlock, D.D.S.
2.36(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., James Randy Mellard, D.D.S., M.S., P.C. and James Randy Mellard, D.D.S., M.S.
2.37(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Mary B. Mellard, D.D.S., P.C. and Mary B. Mellard, D.D.S.
2.38(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., T.L. Mullooly, D.D.S., Inc. and T.L. Mullooly, D.D.S.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
2.39(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Byron L. Novosad, D.D.S., Inc. and Byron L. Novosad, D.D.S.
2.40(1) -- Asset Contribution Agreement dated August 20, 1997 by and among Pentegra Dental Group, Inc.,
Randy O'Brien, D.D.S., Inc. and Randy O'Brien, D.D.S.
2.41(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Terrence C. O'Keefe, D.D.S.
2.42(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Harold A. Pebbles, D.D.S., P.C. and Harold Pebbles, D.D.S.
2.43(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Jimmy F. Pinner, D.D.S.
2.44(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Omer K. Reed, D.D.S., Ltd. and Omer K. Reed, D.D.S.
2.45(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Richard Reinitz, D.D.S., P.C. and Richard Reinitz, D.D.S.
2.46(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Greg Richards, D.D.S.
2.47(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Richard N. Smith, DMD, P.C. and The Paradise Trust
2.48(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
John N. Stellpflug, D.D.S.
2.49(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Jack Stephens, D.D.S.
2.50(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Y. Paul Suzuki, D.D.S., P.S. and Paul Suzuki, D.D.S.
2.51(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Donald F. Tamborello, D.D.S.
2.52(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Helena Thomas, D.D.S.
2.53(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Louis J. Thornley, D.D.S., P.S. and Louis J. Thornley, D.D.S.
2.54(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and S.
Victor Uhrenholdt, D.D.S.
2.55(1) -- Asset Contribution Agreement dated August 20, 1997 between Pentegra Dental Group, Inc. and
Scott Van Zandt, D.D.S.
2.56(1) -- Agreement and Plan of Reorganization dated August 20, 1997 by and among Pentegra Dental
Group, Inc., Ronald M. Yaros, D.D.S., P.C. and Ron Yaros, D.D.S.
The schedules and exhibits to the foregoing acquisition agreements have not been filed as
exhibits to this Registration Statement. Pursuant to Item 601(b)(2) of Regulation S-K,
Pentegra Dental Group, Inc. agrees to furnish a copy of such schedules and exhibits to the
Commission upon request.
3.1(1) -- Restated Certificate of Incorporation of Pentegra Dental Group, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
3.2(1) -- Bylaws of Pentegra Dental Group, Inc.
4.1(1) -- Form of certificate evidencing ownership of Common Stock of Pentegra Dental Group, Inc.
4.2(1) -- Form of Registration Rights Agreement for Owners of Founding Affiliated Practices
4.3(1) -- Registration Rights Agreement dated September 30, 1997 between Pentegra Dental Group, Inc.
and the stockholders named therein
4.4 -- Form of Indenture from Pentegra Dental Group, Inc. to U.S. Trust Company of Texas, N.A., as
Trustee relating to the Convertible Debt Securities
5.1 -- Opinion of Jackson Walker L.L.P.
10.1(1) -- Pentegra Dental Group, Inc. 1997 Stock Compensation Plan
10.2(1) -- Employment Agreement dated July 31, 1997 between Pentegra Dental Group, Inc. and Omer K.
Reed, D.D.S.
10.3(1) -- Employment Agreement dated July 1, 1997 between Pentegra Dental Group, Inc. and Gary S.
Glatter
10.4(1) -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and John Thayer
10.5(1) -- Employment Agreement dated September 1, 1997 between Pentegra Dental Group, Inc. and Sam H.
Carr
10.6(1) -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and James Dunn,
Jr.
10.7(1) -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and Kimberlee K.
Rozman
10.8(1) -- Form of Service Agreement
10.9(1) -- Amendment to Employment Agreement dated July 31, 1997 between Pentegra Dental Group, Inc. and
Omer K. Reed, D.D.S.
10.10(1) -- Second Amendment to Employment Agreement dated July 31, 1997 between Pentegra Dental Group,
Inc. and Omer K. Reed, D.D.S.
10.11(1) -- Amendment to Employment Agreement dated May 1, 1997 between Pentegra Dental Group, Inc. and
Gary S. Glatter
10.12(1) -- Amendment to Employment Agreement dated September 1, 1997 between Pentegra Dental Group, Inc.
and Sam H. Carr
10.13(1) -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and
James L. Dunn, Jr.
10.14(1) -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and
John Thayer
10.15(1) -- Amendment to Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and
Kimberlee Rozman
10.16(1) -- Second Amendment to Asset Contribution Agreement dated August 20, 1997 between Pentegra
Dental Group, Inc., Pentegra, Ltd., Napili International, Inc. and the shareholders of
Pentegra, Ltd. and Napili International, Inc.
10.17(2) -- Credit Agreement dated June 1, 1998 between Bank One, Texas, N.A. and Pentegra Dental Group,
Inc.
12.1 -- Statement of Ratio of Earnings to Fixed Charges
23.1 -- Consent of PricewaterhouseCoopers LLP
23.2 -- Consent of Jackson Walker L.L.P. (contained in Exhibit 5.1)
24.1 -- Power of Attorney (contained on the signature page of this Registration Statement)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
25.1 -- Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of 1939
of U.S. Trust Company of Texas, N.A., as Trustee under Exhibit 4.4
</TABLE>

- ---------

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

(2) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1998.

<PAGE>

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

PENTEGRA DENTAL GROUP, INC.

U.S. TRUST COMPANY OF TEXAS, N.A.,
as Trustee

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

FORM OF INDENTURE

Dated as of September ___, 1998

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

Convertible Subordinated Securities

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

<PAGE>

<TABLE>
<CAPTION>
TABLE OF CONTENTS

<S> <C>
ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION . . . . 1
SECTION 1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. COMPLIANCE CERTIFICATES AND OPINIONS. . . . . . . . . . 6
SECTION 1.03. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. . . . . . . . . 7
SECTION 1.04. ACTS OF HOLDERS; RECORD DATES . . . . . . . . . . . . . 7
SECTION 1.05. NOTICES, ETC., TO TRUSTEE AND COMPANY . . . . . . . . . 8
SECTION 1.06. NOTICE TO HOLDERS; WAIVER . . . . . . . . . . . . . . . 8
SECTION 1.07. CONFLICT WITH TRUST INDENTURE ACT . . . . . . . . . . . 9
SECTION 1.08. EFFECT OF HEADINGS AND TABLE OF CONTENTS. . . . . . . . 9
SECTION 1.09. SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . 9
SECTION 1.10. SEPARABILITY CLAUSE . . . . . . . . . . . . . . . . . . 9
SECTION 1.11. BENEFITS OF INDENTURE . . . . . . . . . . . . . . . . . 9
SECTION 1.12. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . 9
SECTION 1.13. LEGAL HOLIDAYS. . . . . . . . . . . . . . . . . . . . . 9
SECTION 1.14. NO SECURITY INTEREST CREATED. . . . . . . . . . . . . .10
SECTION 1.15. LIMITATION ON INDIVIDUAL LIABILITY. . . . . . . . . . .10

ARTICLE II SECURITY FORMS. . . . . . . . . . . . . . . . . . . . . . . . .10
SECTION 2.01. FORMS GENERALLY . . . . . . . . . . . . . . . . . . . .10
SECTION 2.02. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTIFICATION . . .11

ARTICLE III THE SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . .11
SECTION 3.01. AMOUNT UNLIMITED; ISSUABLE IN SERIES. . . . . . . . . .11
SECTION 3.02. DENOMINATIONS . . . . . . . . . . . . . . . . . . . . .13
SECTION 3.03. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. . . . .13
SECTION 3.04. TEMPORARY SECURITIES. . . . . . . . . . . . . . . . . .14
SECTION 3.05. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE . .14
SECTION 3.06. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES. . . .15
SECTION 3.07. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED. . . . .16
SECTION 3.08. PERSONS DEEMED OWNERS . . . . . . . . . . . . . . . . .17
SECTION 3.09. CANCELLATION. . . . . . . . . . . . . . . . . . . . . .17
SECTION 3.10. COMPUTATION OF INTEREST . . . . . . . . . . . . . . . .17

ARTICLE IV SATISFACTION AND DISCHARGE. . . . . . . . . . . . . . . . . . .17
SECTION 4.01. SATISFACTION AND DISCHARGE OF INDENTURE . . . . . . . .17
SECTION 4.02. APPLICATION OF TRUST MONEY. . . . . . . . . . . . . . .18
SECTION 4.03. REINSTATEMENT . . . . . . . . . . . . . . . . . . . . .18

ARTICLE V REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . .19
SECTION 5.01. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . .19
SECTION 5.02. ACCELERATION OF MATURITY; RESCISSION AND
ANNULMENT . . . . . . . . . . . . . . . . . . . . . . .20
SECTION 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR
ENFORCEMENT BY TRUSTEE. . . . . . . . . . . . . . . . .20
SECTION 5.04. TRUSTEE MAY FILE PROOFS OF CLAIM. . . . . . . . . . . .21
SECTION 5.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES. . . . . . . . . . . . . . . . . . . . . . .21
SECTION 5.06. APPLICATION OF MONEY COLLECTED. . . . . . . . . . . . .22
SECTION 5.07. LIMITATION ON SUITS . . . . . . . . . . . . . . . . . .22
SECTION 5.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL,

<PAGE>

PREMIUM, INTEREST AND TO CONVERT. . . . . . . . . . . .22
SECTION 5.09. RESTORATION OF RIGHTS AND REMEDIES. . . . . . . . . . .23
SECTION 5.10. RIGHTS AND REMEDIES CUMULATIVE. . . . . . . . . . . . .23
SECTION 5.11. DELAY OR OMISSION NOT WAIVER. . . . . . . . . . . . . .23
SECTION 5.12. CONTROL BY HOLDERS. . . . . . . . . . . . . . . . . . .23
SECTION 5.13. WAIVER OF PAST DEFAULTS . . . . . . . . . . . . . . . .24
SECTION 5.14. UNDERTAKING FOR COSTS . . . . . . . . . . . . . . . . .24

ARTICLE VI THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . .24
SECTION 6.01. CERTAIN DUTIES AND RESPONSIBILITIES . . . . . . . . . .24
SECTION 6.02. NOTICE OF DEFAULTS. . . . . . . . . . . . . . . . . . .25
SECTION 6.03. CERTAIN RIGHTS OF TRUSTEE . . . . . . . . . . . . . . .25
SECTION 6.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
SECURITIES. . . . . . . . . . . . . . . . . . . . . . .26
SECTION 6.05. MAY HOLD SECURITIES . . . . . . . . . . . . . . . . . .26
SECTION 6.06. MONEY HELD IN TRUST . . . . . . . . . . . . . . . . . .26
SECTION 6.07. COMPENSATION AND REIMBURSEMENT. . . . . . . . . . . . .26
SECTION 6.08. DISQUALIFICATION; CONFLICTING INTERESTS . . . . . . . .27
SECTION 6.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY . . . . . . . .27
SECTION 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF
SUCCESSOR . . . . . . . . . . . . . . . . . . . . . . .28
SECTION 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. . . . . . . . .29
SECTION 6.12. MERGER, CONVERSION, CONSOLIDATION OR
SUCCESSION TO BUSINESS. . . . . . . . . . . . . . . . .30
SECTION 6.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST
COMPANY . . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 6.14. APPOINTMENT OF AUTHENTICATING AGENT . . . . . . . . . .30

ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY . . . . . . .32
SECTION 7.01. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES
OF HOLDERS. . . . . . . . . . . . . . . . . . . . . . .32
SECTION 7.02. PRESERVATION OF INFORMATION; COMMUNICATION TO
HOLDERS . . . . . . . . . . . . . . . . . . . . . . . .32
SECTION 7.03. REPORTS BY TRUSTEE. . . . . . . . . . . . . . . . . . .32
SECTION 7.04. REPORTS BY COMPANY. . . . . . . . . . . . . . . . . . .33

ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE. . . . . .33
SECTION 8.01. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN
TERMS . . . . . . . . . . . . . . . . . . . . . . . . .33
SECTION 8.02. SUCCESSOR SUBSTITUTED . . . . . . . . . . . . . . . . .34

ARTICLE IX SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . . . . . . .34
SECTION 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
HOLDERS . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS . . . .35
SECTION 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES. . . . . . . . . .36
SECTION 9.04. EFFECT OF SUPPLEMENTAL INDENTURES . . . . . . . . . . .36
SECTION 9.05. CONFORMITY WITH TRUST INDENTURE ACT . . . . . . . . . .36
SECTION 9.06. REFERENCE IN SECURITIES TO SUPPLEMENTAL
INDENTURES. . . . . . . . . . . . . . . . . . . . . . .36
SECTION 9.07. NOTICE OF SUPPLEMENTAL INDENTURE. . . . . . . . . . . .36

ARTICLE X COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . .37
SECTION 10.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. . . . . . .37
SECTION 10.02. MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . . . .37
SECTION 10.03. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST . . . .37
SECTION 10.04. STATEMENT BY OFFICERS AS TO DEFAULT . . . . . . . . . .38
SECTION 10.05. EXISTENCE . . . . . . . . . . . . . . . . . . . . . . .38

<PAGE>

SECTION 10.06. WAIVER OF CERTAIN COVENANTS . . . . . . . . . . . . . .38
SECTION 10.07. ADDITIONAL AMOUNTS. . . . . . . . . . . . . . . . . . .39

ARTICLE XI REDEMPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . .39
SECTION 11.01. APPLICABILITY OF ARTICLE. . . . . . . . . . . . . . . .39
SECTION 11.02. ELECTION TO REDEEM; NOTICE TO TRUSTEE . . . . . . . . .39
SECTION 11.03. SELECTION BY TRUSTEE OF SECURITIES TO BE
REDEEMED. . . . . . . . . . . . . . . . . . . . . . . .40
SECTION 11.04. NOTICE OF REDEMPTION. . . . . . . . . . . . . . . . . .40
SECTION 11.05. DEPOSIT OF REDEMPTION PRICE . . . . . . . . . . . . . .41
SECTION 11.06. SECURITIES PAYABLE ON REDEMPTION DATE . . . . . . . . .41
SECTION 11.07 SECURITIES REDEEMED IN PART . . . . . . . . . . . . . .41

ARTICLE XII SUBORDINATION OF SECURITIES . . . . . . . . . . . . . . . . . .41
SECTION 12.01. SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS. . . . .42
SECTION 12.02. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. . . . .42
SECTION 12.03. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT. . . . .43
SECTION 12.04. PAYMENT PERMITTED IF NO DEFAULT . . . . . . . . . . . .44
SECTION 12.05. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR
INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . .44
SECTION 12.06. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS . . . . . .45
SECTION 12.07. TRUSTEE TO EFFECTUATE SUBORDINATION . . . . . . . . . .45
SECTION 12.08. NO WAIVER OF SUBORDINATION PROVISIONS . . . . . . . . .45
SECTION 12.09. NOTICE TO TRUSTEE . . . . . . . . . . . . . . . . . . .45
SECTION 12.10. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT . . . . . . . . . . . . . . . . . . .46
SECTION 12.11. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR
INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . .46
SECTION 12.12. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR
INDEBTEDNESS; PRESERVATION OF TRUSTEE'S RIGHTS. . . . .46
SECTION 12.13. ARTICLE APPLICABLE TO PAYING AGENTS . . . . . . . . . .47
SECTION 12.14. CERTAIN CONVERSIONS DEEMED PAYMENT. . . . . . . . . . .47
SECTION 12.15. NO SUSPENSION OF REMEDIES . . . . . . . . . . . . . . .47

ARTICLE XIII CONVERSION OF SECURITIES. . . . . . . . . . . . . . . . . . . .47
SECTION 13.01. CONVERSION PRIVILEGE AND CONVERSION PRICE . . . . . . .47
SECTION 13.02. EXERCISE OF CONVERSION PRIVILEGE. . . . . . . . . . . .48
SECTION 13.03. FRACTIONS OF SHARES . . . . . . . . . . . . . . . . . .48
SECTION 13.04. ADJUSTMENT OF CONVERSION PRICE. . . . . . . . . . . . .48
SECTION 13.05. NOTICE OF ADJUSTMENTS OF CONVERSION PRICE . . . . . . .53
SECTION 13.06. NOTICE OF CERTAIN CORPORATE ACTION. . . . . . . . . . .53
SECTION 13.07. COMPANY TO RESERVE COMMON STOCK . . . . . . . . . . . .54
SECTION 13.08. TAXES ON CONVERSIONS. . . . . . . . . . . . . . . . . .54
SECTION 13.09. COVENANT AS TO COMMON STOCK . . . . . . . . . . . . . .54
SECTION 13.10. CANCELLATION OF CONVERTED SECURITIES. . . . . . . . . .55
SECTION 13.11. PROVISIONS OF CONSOLIDATION, MERGER OR SALE OF
ASSETS. . . . . . . . . . . . . . . . . . . . . . . . .55
SECTION 13.12. TRUSTEE'S DISCLAIMER. . . . . . . . . . . . . . . . . .55

ARTICLE XIV MEETINGS OF HOLDERS OF SECURITIES . . . . . . . . . . . . . . .56
SECTION 14.01. PURPOSES FOR WHICH MEETINGS MAY BE CALLED . . . . . . .56
SECTION 14.02. CALL, NOTICE AND PLACE OF MEETINGS. . . . . . . . . . .56
SECTION 14.03. PERSONS ENTITLED TO VOTE AT MEETINGS. . . . . . . . . .56
SECTION 14.04. QUORUM; ACTION. . . . . . . . . . . . . . . . . . . . .56
SECTION 14.05. DETERMINATION OF VOTING RIGHTS; CONDUCT AND
ADJOURNMENT

iii

<PAGE>

OF MEETINGS . . . . . . . . . . . . . . . . . . . . . .57
SECTION 14.06. COUNTING VOTES AND RECORDING ACTION OF MEETINGS . . . .57
</TABLE>

<PAGE>

Certain Sections of this Indenture relating to Sections 310 through 318 of
the Trust Indenture Act of 1939:

<TABLE>
<CAPTION>
SECTION OF TRUST SECTION OF
INDENTURE ACT THIS INDENTURE
---------------- --------------
<S> <C>
Section 310(a)(1) 6.09
(a)(2) 6.09
(a)(3) Not Applicable
(a)(4) Not Applicable
(a)(5) 6.09
(b) 6.08
Section 311(a) 6.13
(b) 6.13
Section 312(a) 7.01
7.02(a)
(b) 7.02(b)
(c) 7.02(c)
Section 313(a) 7.03(a)
(b) 7.03(a)
(c) 7.03(a)
(d) 7.03(b)
Section 314(a) 7.04
(a)(4) 10.04
(b) Not Applicable
(c)(1) 1.02
(c)(2) 1.02
(c)(3) Not Applicable
(d) Not Applicable
(e) 1.02
Section 315(a) 6.01
(b) 6.02
(c) 6.01
(d) 6.01
(e) 5.14
Section 316(a)(1)(A) 5.02
5.12
(a)(1)(B) 5.13
(a)(2) Not Applicable
(b) 5.08
(c) 1.04(c)
Section 317(a)(1) 5.03
(a)(2) 5.04
(b) 10.03
Section 318(a) 1.07
</TABLE>

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

Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.

v
<PAGE>

INDENTURE, dated as of September __, 1998, between PENTEGRA DENTAL
GROUP, INC., a corporation duly organized and existing under the laws of
the State of Delaware (herein called the "Company"), and U.S. TRUST COMPANY
OF TEXAS, N.A., a national banking association, as Trustee (herein called
the "Trustee").

RECITALS OF THE COMPANY

The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
convertible subordinated debentures, notes or other evidences of
indebtedness (herein called the "Securities"), to be issued in one or more
series as in this Indenture provided.

This Indenture is subject to the provisions of the Trust Indenture Act
and the rules and regulations of the Commission promulgated thereunder
which are required to be part of this Indenture and, to the extent
applicable, shall be governed by such provisions.

All things necessary to make this Indenture a valid agreement of the
Company in accordance with its terms have been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in
consideration of the premises and the purchase of the Securities by the
Holders thereof, it is mutually agreed, for the equal and proportionate
benefit of all Holders of the Securities, as follows:

ARTICLE I

DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION

SECTION 1.01. DEFINITIONS.

For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:

(a) the terms defined in this Article have the meanings assigned to
them in this Article I and include the plural as well as the singular;

(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;

(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required and permitted hereunder shall mean such accounting principles as
are generally accepted and adopted by the Company at the date of this
Indenture; and

(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision; and references herein to "Articles"
and "Sections" are to Articles and Sections of this Indenture unless
otherwise specified.

Certain terms used in Articles V, XII and XIII are defined in those
Articles.

"Act" when used with respect to any Holder, has the meaning specified
in Section 1.04.

1
<PAGE>

"Additional Amounts" means any additional amounts that are required by
the express terms of a Security or by or pursuant to a Board Resolution,
under circumstances specified therein or pursuant thereto, to be paid by
the Company with respect to certain taxes, assessments or other
governmental charges imposed on certain Holders and that are owing to those
Holders.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the specified Person. For purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of the specified Person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.

"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 6.14 to act on behalf of the Trustee to authenticate
Securities.

"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.

"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly
adopted by the Board of Directors and to be in full force and effect on the
date of such certification and delivered to the Trustee.

"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Houston, Texas,
Dallas, Texas or New York, New York are authorized or obligated to close by
law or executive order.

"Commission" means the Securities and Exchange Commission as from time
to time constituted, created under the Exchange Act, or, if at any time
after the execution of this Instrument that Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act,
then the body performing those duties at such time.

"Common Stock" includes any stock of any class of the Company which
has no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding-up
of the Company and which is not subject to redemption by the Company.
However, subject to the provisions of Section 13.11, shares issuable on
conversion of Securities shall include only shares of the class designated as
Common Stock of the Company at the date of this Indenture or shares of any
class or classes resulting from any reclassification or reclassifications
thereof and which have no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation, dissolution
or winding-up of the Company and which are not subject to redemption by the
Company; PROVIDED, that if at any time there shall be more than one such
resulting class, the shares of each such class then so issuable shall be
substantially in the proportion which the total number of shares of such
class resulting from all such reclassifications bears to the total number of
shares of all such classes resulting from all such reclassifications.

"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean that successor Person.

"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Chief
Executive Officer, its President or a Vice President, and by its Chief
Financial Officer, Controller, its Treasurer or an Assistant Treasurer, or
its Secretary or an Assistant Secretary, and delivered to the Trustee.

<PAGE>

"Consolidated Subsidiary" means a Subsidiary whose financial
statements are included in the most recent annual consolidated financial
statements of the Company and its Subsidiaries.

"Conversion Price" when used with respect to any Security to be
converted, means the price per share of Common Stock which is fixed for the
conversion of that Security by or pursuant to this Indenture, subject to
adjustment after this issuance (or the earliest issuance of any of its
Predecessor Securities) pursuant to Article XIII.

"Convertibility Period" when used with respect to any Security, has
the meaning specified in Section 13.01.

"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall principally
be administered which is, as of the date of this Indenture, located at 2001
Ross Avenue, Suite 2700, Dallas, Texas 75201.

"Corporation" means a corporation, association, company, joint-stock
company or business trust.

"Credit Facility" means, in each case as amended, restated, modified,
renewed, extended, increased, refunded, replaced or refinanced in whole or
in part from time to time: (a) the Credit Agreement dated June 1, 1998,
between the Company and Bank One, Texas as Agent and Issuing Lender, and
the lenders party thereto from time to time and (b) one or more debt
facilities with banks or other lenders providing for revolving credit
loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow
from such lenders against such receivables) or letters of credit.

"Current Market Price" has the meaning specified in Section 13.04.

"Defaulted Interest" has the meaning specified in Section 3.07.

"Designated Senior Indebtedness" means (a) the Credit Facility and (b)
any other Senior Indebtedness of the Company the principal amount of which
is $1,000,000 or more and that has been designated by the Company as
"Designated Senior Indebtedness."

"Dollar" or "$" means at any time a dollar or other equivalent unit in
such coin or currency of the United States as at that time shall be legal
tender for the payment of public and private debts.

"Event of Default" has the meaning specified in Section 5.01.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Holder" means a Person in whose name a Security is registered in the
Security Register.

"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions
hereof, including the terms of one or more series of Securities established
as contemplated by Section 3.01 and, for all purposes of this instrument
and any such supplemental indenture, the provisions of the Trust Indenture
Act that are deemed to be a part of and to govern this instrument and any
such supplemental indenture, respectively.

"Interest Payment Date" when used with respect to any Security, means
the dates specified in that Security as the fixed dates on which an
installment of interest on that Security is due and payable.

"Maturity" when used with respect to any Security, means the date or
dates on which the principal of such Security becomes due and payable as
therein or herein provided, whether at the final Principal Payment Date
thereof or by declaration of acceleration, redemption or otherwise.

<PAGE>

"Obligations" in respect of Senior Indebtedness means any principal,
interest, premiums, fees, indemnifications, reimbursements, damages and
other liabilities payable under the documents governing any such
indebtedness.

"Officers' Certificate" means a certificate, in form satisfactory to
the Trustee, signed by the Chairman of the Board, the Chief Executive
Officer, the President or a Vice President, and by the Chief Financial
Officer, Controller, the Treasurer or an Assistant Treasurer, the Secretary
or an Assistant Secretary, of the Company, and delivered to the Trustee.

"Opinion of Counsel" means a written opinion, in form and substance
satisfactory to the Trustee, of counsel, who may be counsel for or an
employee of the Company, and who shall be acceptable to the Trustee.

"Original Issue Discount Security" means any Security that provides
for an amount less than the principal amount thereof to be due and payable
on a declaration of acceleration of the Maturity thereof pursuant to
Section 5.02.

"Outstanding" when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:

(a) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;

(b) Securities, or portions thereof, for the payment or redemption of
which moneys in the necessary amount have been theretofore deposited with
the Trustee or any Paying Agent (other than the Company) in trust or set
aside and segregated in trust by the Company (if the Company shall act as
its own Paying Agent) for the Holders of those Securities; PROVIDED, that
if those Securities, or portions thereof, are to be redeemed, notice of
that redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made; and

(c) Securities that have been paid pursuant to Section 3.06 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request,
demand, authorization, direction, notice, consent or waiver hereunder,
Securities owned by the Company or any other obligor on the Securities or
any Affiliate of the Company shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be
protected in relying on any such request, demand, authorization, direction,
notice, consent or waiver, only Securities that the Trustee knows to be so
owned shall be so disregarded. Securities so owned which have been pledged
in good faith may be regarded as Outstanding if the pledgee establishes to
the satisfaction of the Trustee the pledgee's right so to act with respect
to such Securities and that the pledgee is not the Company or any other
obligor on the Securities or any Affiliate of the Company.

"Paying Agent" means any Person, which may include the Company,
authorized by the Company to pay the principal of and premium, if any, or
interest on any one or more series of Securities on behalf of the Company.

"Person" means any individual, corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization or
government or any agency or political subdivision thereof.

"Place of Payment" when used with respect to the Securities of any
series, means Phoenix, Arizona and is the place where the principal of (and
premium, if any) and interest on the Securities of that series are payable
as specified in accordance with Section 3.01, subject to the provisions of
Section 10.02.

<PAGE>

"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by
that particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 3.06 in exchange for or
in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed
to evidence the same debt as the mutilated, destroyed, lost or stolen
Security.

"Principal Payment Date" when used with respect to any Security, means
the dates specified in that Security as the fixed dates on which the
principal of such Security or a portion of principal is due and payable.

"Record Date" means either a Regular Record Date or a Special Record
Date, as applicable.

"Redemption Date" when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.

"Redemption Price" when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture on the applicable Redemption Date.

"Regular Record Date" for the interest payable on any Interest Payment
Date means the date specified for that purpose as contemplated by Section
3.01, or, if not so specified, the last day of the calendar month preceding
that Interest Payment Date if that Interest Payment Date is the 15th day of
the calendar month or the 15th day of the calendar month preceding that
Interest Payment Date if that Interest Payment Date is the last day of a
calendar month, whether or not that day is a Business Day.

"Representative" means the indenture trustee or other trustee, agent
or representative for any Senior Indebtedness.

"Responsible Officer" means, when used with respect to the Trustee,
the chairman of the Board of Directors, any vice chairman of the Board of
Directors, the chairman of the trust committee, the chairman of the
executive committee, any vice chairman of the executive committee, the
president, any vice president (whether or not designated by numbers or
words added before or after the title "vice president"), the cashier, the
secretary, the treasurer, any trust officer, any assistant trust officer,
any assistant cashier, any assistant secretary, any assistant treasurer, or
any other officer or assistant officer of the Trustee customarily
performing functions similar to those performed by the Persons who at the
time shall be such officers, respectively, or to whom any corporate trust
matter is referred because of his or her knowledge of and familiarity with
the particular subject.

"Security Register" and "Security Registrar" have the respective
meanings specified in Section 3.05.

"Senior Indebtedness" means the principal of and premium, if any, and
interest on (a) all secured indebtedness of the Company, or any subsidiary
of the Company, for money borrowed under any Credit Facility, whether
outstanding on the date of execution of the Indenture or thereafter
created, incurred or assumed, and (b) all secured indebtedness of the
Company, or any subsidiary of the Company, for money borrowed, whether
outstanding on the date of execution of the Indenture or thereafter
created, incurred or assumed, and any amendments, renewals, extensions,
modifications, refinancings, replacements, and refundings of any or all
thereof. For the purposes of this definition, "indebtedness for money
borrowed" when used with respect to the Company means (a) any obligation
of, or any obligation guaranteed by, the Company, or any subsidiary of the
Company, for the repayment of borrowed money (including without limitation
fees, penalties or other obligations in respect thereof), whether or not
evidenced by bonds, debentures, notes or other written instruments, (b) any
deferred payment obligation of, or any such obligation guaranteed by, the
Company, or any subsidiary of the Company, for the payment of the purchase
price of property or assets evidenced by a note or similar instrument, and
(c) any obligation of, or any such obligation guaranteed by, the Company,
or any subsidiary of the Company, for the payment of rent or other amounts
under a lease of property or assets which obligation is required to be
classified and accounted for as a capitalized lease on the balance sheet of
the Company, or any subsidiary of the Company, under generally accepted
accounting principles.

5
<PAGE>

"Significant Subsidiary" means at any time a Subsidiary that is at
that time a "significant subsidiary" of the Company within the meaning of
Rule 1.02(w) of Regulation S-X under the Securities Act of 1933, as amended
and in effect on the date of this Indenture.

"Special Record Date" for the payment of any Defaulted Interest on the
Securities of any series means a date fixed by the Trustee pursuant to
Section 3.07.

"Subsidiary" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or
by one or more other Subsidiaries or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means
stock that ordinarily has voting power in the election of directors,
whether at all times or only so long as no senior class of stock has such
voting power by reason of any contingency.

"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this Indenture was executed; PROVIDED,
HOWEVER, that in the event the Trust Indenture Act of 1939 is amended after
that date, "Trust Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939 as so amended.

"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become
such pursuant to the applicable provisions of this Indenture, and
thereafter "Trustee" shall mean such successor Trustee.

"Vice President" when used with respect to the Company, means any vice
president, whether or not designated by a number or a word or words added
before or after the title "vice president."

"Yield to Maturity" when used with respect to any Original Issue
Discount Security, means the yield to maturity, if any, set forth on the
face thereof.

SECTION 1.02. COMPLIANCE CERTIFICATES AND OPINIONS.

On any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish
to the Trustee such certificates and opinions as may be required under the
Trust Indenture Act. Each such certificate or opinion shall be given in the
form of an Officers' Certificate, if to be given by officers of the
Company, or an Opinion of Counsel, if to be given by counsel, and shall
comply with the requirements of the Trust Indenture Act and any other
requirement set forth in this Indenture.

Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:

(a) a statement that each individual or firm signing such certificate
or opinion has read such covenant or condition and the definitions herein
relating thereto;

(b) a statement that, in the opinion of each such individual or such
firm, he has or they have made such examination or investigation as is
necessary to enable him or them to express an informed opinion as to
whether or not such covenant or condition has been complied with; and

(c) a statement as to whether, in the opinion of each such individual
or such firm, such condition or covenant has been complied with.

<PAGE>

SECTION 1.03. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.

In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one
such Person, or that they be so certified or covered by only one document,
but one such Person may certify or give an opinion with respect to some
matters and one or more other such Persons as to other matters, and any
Person may certify or give an opinion as to such matters in one or several
documents.

Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, on a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise
of reasonable care should know, that the certificate or opinion or
representations with respect to the matters on which his certificate or
opinion is based are erroneous. Any such certificate or Opinion of Counsel
may be based, insofar as it relates to factual matters, on a certificate of
public officials or on a certificate or opinion of, or representations by,
an officer or officers of the Company stating that the information with
respect to such factual matters is in the possession of the Company, unless
such counsel knows, or in the exercise of reasonable care should know, that
the certificate or opinion or representations with respect to such matters
are erroneous.

Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be
consolidated and form one instrument.

SECTION 1.04. ACTS OF HOLDERS; RECORD DATES.

(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents
duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby expressly
required, to the Company. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as
the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to
Section 6.01) conclusive in favor of the Trustee and the Company, if made
in the manner provided in this Section. The record of any meeting of
Holders shall be proved in the manner provided in Section 14.06.

(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that the
individual signing such instrument or writing acknowledged to him the
execution thereof. Where such execution is by a signer acting in a capacity
other than his individual capacity, such certificate or affidavit shall
also constitute sufficient proof of his authority. The fact and date of the
execution of any such instrument or writing, or the authority of the Person
executing the same, may also be proved in any other manner which the
Trustee deems sufficient.

(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of
determining the Holders entitled to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action, or to
vote on any action, authorized or permitted to be given or taken by
Holders. If not set by the Company prior to the first solicitation of a
Holder made by any Person in respect of any such action, or, in the case of
any such vote, prior to such vote, the record date for any such action or
vote shall be the 30th day (or, if later, the date of the most recent list
of Holders required to be provided pursuant to Section 7.01) prior to such
first solicitation or vote, as the case may be. With regard to any record
date, only the Holders on such date (or their duly designated proxies)
shall be entitled to give or take, or vote on, the relevant action.
Notwithstanding the foregoing, the

<PAGE>

Company shall not set a record date for, and the provisions of this paragraph
shall not apply with respect to, any Act by the Holders pursuant to Section
5.01, 5.02 or 5.12.

(d) The ownership of Securities shall be proved by the Security
Register.

(e) Any Act of the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued on the
registration of transfer therefor or in exchange therefor or in lieu
thereof in respect of anything done, omitted or suffered to be done by the
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Security.

(f) Without limiting the foregoing, a Holder entitled hereunder to
give or take any action hereunder with regard to any particular Security
may do so with regard to all or any part of the principal amount of such
Security or by one or more duly appointed agents each of which may do so
pursuant to such appointment with regard to all or any different part of
such principal amount.

SECTION 1.05. NOTICES, ETC., TO TRUSTEE AND COMPANY.

Any Act of Holders or other documents provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,

(a) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, 2001 Ross Avenue,
Suite 2700, Dallas, Texas 75201, Attention: Corporate Trust Administration,
or at such superseding other addresses previously furnished in writing to
the Holders and the Company by the Trustee; or

(b) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company,
addressed to it at 2999 N. 44th Street, Suite 650, Phoenix, Arizona 85018
or at such superseding address as has been previously furnished in writing
to the Trustee by the Company.

All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, registered or certified
with postage prepaid, if mailed; when answered back if telexed; when
receipt acknowledged, if telecopied; and the next Business Day after timely
delivery to the courier, if sent by nationally recognized overnight air
courier guaranteeing next day delivery.

SECTION 1.06. NOTICE TO HOLDERS; WAIVER.

Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly
provided) if made, given, furnished or filed in writing to each Holder
affected by such event, at his address as it appears in the Security
Register, not later than the latest date (if any), and not earlier than the
earliest date (if any), prescribed for the giving of such notice.

Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent
of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver. All such notices and
communications shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five Business Days after being
deposited in the mail, registered or certified with postage prepaid, if
mailed; when answered back if telexed; when receipt acknowledged, if
telecopied; and the next Business Day after timely delivery to the courier,
if sent by nationally recognized overnight air courier guaranteeing next
day delivery.

<PAGE>

In the case of any notice this Indenture provides shall be given by
mail, if, by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.

SECTION 1.07. CONFLICT WITH TRUST INDENTURE ACT.

If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act or another provision that would be
required or deemed under such Act to be a part of and govern this Indenture
if this Indenture were subject thereto, the latter provision shall control.
If any provision of this Indenture modifies or excludes any provision of
the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to
be excluded, as the case may be.

SECTION 1.08. EFFECT OF HEADINGS AND TABLE OF CONTENTS.

The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.

SECTION 1.09. SUCCESSORS AND ASSIGNS.

All covenants and agreements in this Indenture by the Company and the
Trustee shall bind each of their respective successors and assigns, whether
so expressed or not.

SECTION 1.10. SEPARABILITY CLAUSE.

In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

SECTION 1.11. BENEFITS OF INDENTURE.

Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their
successors hereunder, the Holders of Securities and, with respect to
Article Twelve, the holders of Senior Indebtedness, any benefit or any
legal or equitable right, remedy or claim under this Indenture.

SECTION 1.12. GOVERNING LAW.

THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF [NEW YORK,
TEXAS OR ARIZONA], BUT WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF.

SECTION 1.13. LEGAL HOLIDAYS.

In any case where any Interest Payment Date, Redemption Date or
Principal Payment Date of any Security or the last date on which a Holder
has the right to convert his Securities shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the
Securities) payment of interest or principal and premium, if any, or
conversion of the Securities need not be made on such date, but may be made
on the next succeeding Business Day with the same force and effect as if
made on the Interest Payment Date or Redemption Date, or on a Principal
Payment Date, or on such last day for conversion; PROVIDED, that no
interest shall accrue for the period from and after such Interest Payment
Date, Redemption Date or Principal Payment Date, as the case may be, to the
next succeeding Business Day.

<PAGE>

SECTION 1.14. NO SECURITY INTEREST CREATED.

Nothing in this Indenture or in the Securities, express or implied,
shall be construed to constitute a security interest under the Uniform
Commercial Code or similar legislation, as now or hereafter enacted and in
effect in any jurisdiction where property of the Company or its
Subsidiaries is or may be located.

SECTION 1.15. LIMITATION ON INDIVIDUAL LIABILITY.

No recourse under or on any obligation, covenant or agreement
contained in this Indenture or in any Security, or for any claim based
thereon or otherwise in respect thereof, shall be had against any
incorporator, shareholder, officer, attorney, employee, representative or
director, as such, past, present or future, of the Company or any successor
corporation, either directly or through the Company, whether by virtue of
any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly understood that this
Indenture and the obligations issued hereunder are solely corporate
obligations, and that no such personal liability whatever shall attach to,
or is or shall be incurred by, the incorporators, shareholders, officers,
attorneys, employees, representatives or directors, as such, of the Company
or any successor Person, or any of them, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any Security or
implied therefrom; and that any and all such personal liability of every
name and nature, either at common law or in equity or by constitution or
statute, of, and any and all such rights and claims against, every such
incorporator, shareholder, officer, attorney, employee, representative or
director, as such, because of the creation of the indebtedness hereby
authorized, or under or by reason of the obligations, covenants or
agreements contained in this Indenture or in any Security or implied
therefrom, are hereby expressly waived and released as a condition of, and
as a consideration for, the execution of this Indenture and the issuance of
such Security.

ARTICLE II

SECURITY FORMS

SECTION 2.01. FORMS GENERALLY.

The Securities of each series shall be in substantially such form or
forms as shall be established by or pursuant to a Board Resolution or in
one or more indentures supplemental hereto, in each case with such
appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters,
numbers or other marks of identification and such legends or endorsements
placed thereon as may be required to comply with the rules of any
securities exchange or as may, consistently herewith, be determined by the
officers executing such Securities, as evidenced by their execution of the
Securities. A copy of the Board Resolution establishing the form or forms
of Securities or of any series of Securities shall be certified by the
Secretary or an Assistant Secretary of the Company and delivered to the
Trustee at or prior to the delivery of the Company Order contemplated by
Section 3.03 for the authentication and delivery of those Securities.

The definitive Securities shall be printed, lithographed or engraved
on steel engraved borders or may be produced in any other manner, all as
determined by the officers executing those Securities, as evidenced by
their execution thereof.

SECTION 2.02. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTIFICATION.

The Trustee's certificate of authentification shall be in
substantially the following form:

"This is one of the Securities of the series designated, described or
provided for in the within-mentioned Indenture.

<PAGE>

---------------------------------,
U.S. TRUST COMPANY OF TEXAS, N.A.

By:
------------------------------
AUTHORIZED SIGNATORY".

ARTICLE III

THE SECURITIES

SECTION 3.01. AMOUNT UNLIMITED; ISSUABLE IN SERIES.

The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is unlimited.

The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution, and set forth in an
Officers' Certificate, or established in one or more indentures
supplemental hereto, prior to the issuance of Securities of any series,

(a) the title of the Securities of the series (which shall distinguish
the Securities of the series from all other Securities);

(b) any limit on the aggregate principal amount of the Securities of
the series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered on registration of
transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 3.04, 3.05, 3.06, 9.06, 11.07 or 13.02);

(c) the date or dates on which the principal of and any premium on the
Securities of the series is payable or the method of determination thereof;

(d) the rate or rates, or the method of determination thereof, at
which the Securities of the series shall bear interest, if any, whether and
under what circumstances Additional Amounts with respect to such Securities
shall be payable, the date or dates from which such interest shall accrue,
the Interest Payment Dates on which such interest shall be payable and, if
other than as set forth in Section 1.01, the Regular Record Date for the
interest payable on any Securities on any Interest Payment Date;

(e) the place where, subject to the provisions of Section 10.02, the
principal of, any premium or interest on and any Additional Amounts with
respect to the Securities of the series shall be payable;

(f) the period or periods within which, the price or prices (whether
denominated in cash, securities or otherwise) at which and the terms and
conditions on which Securities of the series may be redeemed, in whole or
in part, at the option of the Company, if the Company is to have that
option, and the manner in which the Company must exercise any such option;

(g) the obligation, if any, of the Company to redeem or purchase
Securities of the series pursuant to any sinking fund or analogous
provisions or at the option of a Holder thereof and the period or periods
within which, the price or prices (whether denominated in cash, securities
or otherwise) at which and the terms and conditions on which, Securities of
the series shall be redeemed or purchased in whole or in part pursuant to
such obligation;

(h) the denomination in which any Securities of that series shall be
issuable, if other than denominations of $1,000 and any integral multiple
thereof;

<PAGE>

(i) if the principal of, any premium or interest on or any Additional
Amounts with respect to the Securities of the series are to be payable, at
the election of the Company or a Holder thereof, in a currency or
currencies (including composite currencies) other than that in which the
Securities are stated to be payable, the currency or currencies (including
composite currencies) in which payment of the principal of or any premium
or interest on or any Additional Amounts with respect to Securities of the
series as to which such election is made shall be payable, and the periods
within which and the terms and conditions on which such election is to be
made;

(j) if the amount of payments of principal of, any premium or interest
on or any Additional Amounts with respect to the Securities of the series
may be determined with reference to any commodities, currencies or indices,
or values, rates or prices, the manner in which those amounts shall be
determined;

(k) if other than the entire principal amount thereof, the portion of
the principal amount of Securities of the series which shall be payable on
declaration of acceleration of the Maturity thereof pursuant to Section
5.02;

(l) any additional means of satisfaction and discharge of this
Indenture with respect to Securities of the series pursuant to Section 4.01
and any additional conditions to discharge pursuant to Section 4.01;

(m) any deletions or modifications of or additions to the Events of
Default set forth in Section 5.01 or covenants of the Company set forth in
Article X pertaining to the Securities of the series;

(n) if the Securities are to be subordinated pursuant to Article XII
to unsecured indebtedness or other liabilities, the modification for
purposes only of the series of the definition of "Senior Indebtedness"
herein;

(o) the convertibility provisions contemplated by Article XIII; and

(p) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).

All Securities of any one series shall be substantially identical,
except as to denomination and except as may otherwise be provided in or
pursuant to the Board Resolution referred to above and (subject to Section
3.03) set forth, or determined in the manner provided, in the Officers'
Certificate referred to above or in any such indenture supplemental hereto.

At the option of the Company, interest on the Securities of any series
that bears interest may be paid by mailing a check to the address of any
Holder as such address shall appear in the Security Register or by wire
transfer at the Holder's expense.

If any of the terms of the series are established by action taken
pursuant to a Board Resolution, a copy of an appropriate record of that
action together with that Board Resolution shall be certified by the
Secretary or an Assistant Secretary of the Company and delivered to the
Trustee at or prior to the delivery of the Officers' Certificate setting
forth the terms of the series.

SECTION 3.02. DENOMINATIONS.

The Securities of each series shall be issuable in such denominations
as shall be specified as contemplated by Section 3.01. In the absence of
any such provisions with respect to the Securities of any series, the
Securities of that series denominated in Dollars shall be issuable in
denominations of $1,000 and any integral multiple thereof.

<PAGE>

SECTION 3.03. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.

The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Chief Executive Officer, its President, its
Chief Financial Officer or one of its Vice Presidents, under its corporate
seal or a facsimile thereof reproduced thereon attested by its Secretary or
one of its Assistant Secretaries. The signature of any of these officers on
the Securities may be manual or facsimile.

Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the
Company, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such
Securities or did not hold such offices at the date of such Securities.

At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a Company Order for
the authentication and delivery of those Securities; and the Trustee in
accordance with such Company Order shall either at one time or from time to
time pursuant to such instructions as may be described therein authenticate
and deliver such Securities as in this Indenture provided and not otherwise.
Such Company Order shall specify the amount of Securities to be authenticated
and the date on which the original issue of Securities is to be authenticated,
and shall certify that all conditions precedent to the issuance of such
Securities contained in this Indenture have been complied with.

If the form or terms of the Securities of any series have been established
in or pursuant to one or more Board Resolutions as permitted by Sections 2.01
and 3.01, in authenticating those Securities, and accepting the additional
responsibilities under this Indenture in relation to those Securities, the
Trustee shall be entitled to receive, and (subject to Section 6.01) shall be
fully protected in relying on, an Opinion of Counsel stating:

(a) if the form of those Securities has been established by or
pursuant to Board Resolution as permitted by Section 2.01, that such form
has been established in conformity with the provisions of this Indenture;

(b) if the terms of those Securities have been established by or pursuant
to Board Resolution as permitted by Section 3.01, that such terms have been
established in conformity with the provisions of this Indenture; and

(c) that those Securities, when authenticated and delivered by the
Trustee and issued by the Company in the manner and subject to any
conditions specified in such Opinion of Counsel, will constitute legal,
valid and binding obligations of the Company, enforceable in accordance
with their terms, except as such enforcement is subject to the effect of
(i) bankruptcy, insolvency, fraudulent conveyance, reorganization or other
laws relating to or affecting creditors' rights generally, (ii) general
principles of equity (regardless of whether such enforcement is considered
in a proceeding in equity or at law) and (iii) any implied covenants of
good faith or fair dealing.

If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not acceptable to the Trustee.

Each Security shall be dated the date of its authentication.

No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided
for herein duly executed by the Trustee by manual signature, and such
certificate on any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder and is entitled to the benefits of the Indenture. Notwithstanding
the foregoing, if any Security shall have been authenticated and delivered
hereunder but never issued and sold by the Company, and the Company shall
deliver such Security to the Trustee for cancellation as provided in
Section 3.09 together with a written statement (which need not comply with
Section 1.03 and need not be

13
<PAGE>

accompanied by an Opinion of Counsel) stating that such Security has never
been issued and sold by the Company, for all purposes of this Indenture such
Security shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits of this Indenture.

The Trustee may appoint an Authenticating Agent pursuant to the terms
of Section 6.14.

SECTION 3.04. TEMPORARY SECURITIES.

Pending the preparation of definitive Securities of any series, the
Company may execute, and on Company Order the Trustee shall authenticate
and deliver, temporary Securities of that series which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any
authorized denomination, substantially of the tenor of the definitive
Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing those Securities may determine, as evidenced by their execution
of those Securities. Every such temporary Security shall be executed by the
Company and shall be authenticated and delivered by the Trustee on the same
conditions and in substantially the same manner, and with the same effect,
as the definitive Security or Securities in lieu of which it is issued.

If temporary Securities of any series are issued, the Company will
cause definitive Securities of that series to be prepared without
unreasonable delay. After the preparation of definitive Securities of any
series, the temporary Securities of that series shall be exchangeable for
those definitive Securities on surrender of the temporary Securities at any
office or agency of the Company designated pursuant to Section 10.02,
without charge to the Holder. On surrender for cancellation of any one or
more temporary Securities of any series, the Company shall execute and the
Trustee shall authenticate and deliver in exchange therefor one or more
definitive Securities of the same series and of like tenor, of any
authorized denominations and of a like aggregate principal amount. Until so
exchanged the temporary Securities of any series shall in all respects be
entitled to the same benefits under this Indenture as definitive Securities
of that series in whole or in part, except the unredeemed portion of any
Security being redeemed in part.

SECTION 3.05. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.

(a) The Security Registrar shall cause to be kept for each series of
Securities at one of the offices or agencies maintained pursuant to Section
10.02 a register (the register maintained in such office and in any other
office or agency of the Company in a Place of Payment being herein
sometimes collectively referred to as the "Security Register") in which,
subject to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of Securities and of transfers of
Securities of that series. The Company is hereby initially appointed
"Security Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided.

(b) On surrender for registration of transfer of any Security of any
series at the office or agency in a Place of Payment for that series, the
Company shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new
Securities of the same series and of like tenor, of any authorized
denominations and of a like aggregate principal amount.

At the option of the Holder, Securities of any series may be exchanged
for other Securities of the same series and of like tenor, of any
authorized denominations and of a like aggregate principal amount, on
surrender of the Securities to be exchanged at such office or agency.
Whenever any Securities are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Securities
that the Holder making the exchange is entitled to receive.

(c) All Securities issued on any registration of transfer or exchange
of Securities shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered on such registration of transfer or exchange.

<PAGE>

(d) Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Trustee and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.

(e) No service charge shall be made for any registration of transfer or
exchange of Securities, except as provided in Section 3.06 or if the Holder
has requested such registration of transfer or exchange. The Security
Registrar may require payment of a sum sufficient to cover any tax or other
governmental charge (including the fees and expenses of the Trustee) that may
be imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 3.04, 9.06, 11.07 or
13.02 not involving any transfer.

(f) The Security Registrar shall not be required (i) to issue, register
the transfer of or exchange Securities of any series during a period
beginning at the opening of business 15 days before the day of the mailing of
a notice of redemption of Securities of that series selected for redemption
and ending at the close of business on the day of the mailing of the relevant
notice of redemption or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the
unredeemed portion of any Security being redeemed in part.

SECTION 3.06. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.

If any mutilated Security of any series is surrendered to the Trustee,
the Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor a new Security of the same series and of like tenor and
principal amount and bearing a number not contemporaneously outstanding.

If there shall be delivered to the Company and the Trustee (a) evidence
to their satisfaction of the destruction, loss or theft of any Security and
(b) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice
to the Company or the Trustee that such Security has been acquired by a bona
fide purchaser, the Company shall execute and the Trustee shall authenticate
and deliver, in lieu of any such destroyed, lost or stolen Security, a new
Security of the same series and of like tenor and principal amount and
bearing a number not contemporaneously outstanding. The Trustee may charge
the Company for the Trustee's expenses in replacing such Security.

In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.

On the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected
therewith.

Every new Security of any series issued pursuant to this Section 3.06 in
lieu of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the
destroyed, lost or stolen Security shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally
and proportionately with any and all other Securities of that series duly
issued hereunder.

The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.

SECTION 3.07. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.

Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest. Unless otherwise provided with respect to the Securities

15
<PAGE>

of any series, payment of interest may be made at the option of the Company
by check mailed or delivered to the address of any Person entitled thereto as
such address shall appear in the Securities Register.

Any interest on any Security of any series which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the
Holder on the relevant Regular Record Date by virtue of having been such
Holder, and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in clause (a) or (b) below:

(a) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) of that series are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest which shall be
fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such deposit prior to
the date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted Interest as
in this clause provided. Thereupon the Trustee shall fix a Special Record
Date for the payment of such Defaulted Interest which shall be not more than
15 days and not less than 10 days prior to the date of the proposed payment
and not less than 10 days after the receipt by the Trustee of the notice of
the proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company, shall
cause notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be mailed, first-class postage prepaid, to
each Holder of Securities of that series at his address as it appears in the
Security Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so mailed, such Defaulted Interest shall be
paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) of that series are registered at the close of
business on such Special Record Date and shall no longer be payable pursuant
to the following clause (b).

(b) The Company may make payment of any Defaulted Interest on the
Securities of any series in any other lawful manner not inconsistent with the
requirements of any securities exchange on which those Securities may be
listed, and upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment pursuant
to this clause (b), such manner of payment shall be deemed practicable by the
Trustee.

Subject to the foregoing provisions of this Section 3.07, each Security
delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.

In the case of any Security of any series which is converted after any
Regular Record Date and on or prior to the next succeeding Interest Payment
Date (other than any Security whose Maturity is prior to such Interest
Payment Date), interest on that Security which has a Principal Payment Date
on such Interest Payment Date shall be payable on such Interest Payment Date
notwithstanding such conversion, and such interest (whether or not punctually
paid or duly provided for) shall be paid to the Person in whose name that
Security (or one or more of its Predecessor Securities) is registered at the
close of business on such Regular Record Date, PROVIDED, HOWEVER, that
Securities of any series so surrendered for conversion shall (except in the
case of those Securities called for redemption) be accompanied by payment in
New York Clearing House funds or other funds acceptable to the Company of an
amount equal to the interest payable on such Interest Payment Date on the
principal amount being surrendered for conversion. Except as otherwise
expressly provided in the immediately preceding sentence, in the case of any
Security of any series which is converted, interest which has a Principal
Payment Date after the date of conversion of that Security shall not be
payable.

SECTION 3.08. PERSONS DEEMED OWNERS.

16
<PAGE>

Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name that Security is registered as the owner of that
Security for the purpose of receiving payment of principal of and premium, if
any, and (subject to Section 3.07) interest on that Security and for all
other purposes whatsoever, whether or not that Security be overdue, and
neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.

SECTION 3.09. CANCELLATION.

All Securities surrendered for payment, redemption, registration of
transfer, exchange or conversion shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly canceled
by it. The Company may at any time deliver to the Trustee for cancellation
any Securities previously authenticated and delivered hereunder which the
Company may have acquired in any manner whatsoever, and all Securities so
delivered shall be promptly canceled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities canceled as
provided in this Section, except as expressly permitted by this Indenture.
All canceled Securities held by the Trustee shall be disposed of as directed
by a Company Order.

SECTION 3.10. COMPUTATION OF INTEREST.

Except as otherwise specified as contemplated by Section 3.01 for
Securities of any series, interest on the Securities of each series shall be
computed on the basis of a 360-day year of twelve 30-day months.

ARTICLE IV

SATISFACTION AND DISCHARGE

SECTION 4.01. SATISFACTION AND DISCHARGE OF INDENTURE.

This Indenture shall on Company Request cease to be of further effect
(except as expressly provided for in this Article IV), and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when

(a) either

(i) all Securities theretofore authenticated and delivered (other than
(A) Securities that have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 3.06 and (B) Securities for whose
payment money has theretofore been deposited in trust or segregated and held
in trust by the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 10.03) have been delivered to the
Trustee for cancellation; or

(ii) all those Securities not theretofore delivered to the Trustee for
cancellation

(A) have become due and payable, or

(B) will become due and payable at their Principal Payment Date
within one year, or

(C) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company, or

(D) are delivered to the Trustee for conversion in accordance with
Article XIII, and the Company, in the case of (A), (B), (C) or (D) above, has
irrevocably deposited or caused to be deposited with the Trustee as trust
funds in trust for the purpose of paying an amount in cash sufficient
(without consideration of any investment of such cash) to pay and discharge
the entire indebtedness on those Securities not theretofore delivered to the
Trustee for

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cancellation for principal and premium, if any, and interest and Additional
Amounts, if any, to the date of such deposit (in the case of Securities that
have become due and payable) or to the Principal Payment Date or Redemption
Date, as the case may be; PROVIDED that the Trustee is irrevocably instructed
to apply such amount to said payments with respect to those Securities;

(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and

(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
have been complied with.

Notwithstanding the satisfaction and discharge of this Indenture, the
following rights or obligations under the Securities and this Indenture shall
survive until otherwise terminated or discharged hereunder: (a) Article XIII
and the Company's obligations under Sections 3.04, 3.05, 3.06, 10.02 and
10.03, in each case with respect to any Securities described in subclause
(ii) of clause (a) of this Section 4.01, (b) this Article IV, (c) the rights,
powers, trusts, duties and immunities of the Trustee hereunder, including the
obligations of the Company to the Trustee under Section 6.07, and the
obligations of the Trustee or the Company to any Authenticating Agent under
Section 6.14 and (d) if money shall have been deposited with the Trustee
pursuant to subclause (ii) of clause (a) of this Section 4.01, the rights of
Holders of any Securities described in that subclause (ii) to receive, solely
from the trust fund described in that subclause (ii), payments in respect of
the principal of, and premium (if any) and interest on and Additional Amounts
(if any) with respect to, those Securities when such payments are due.

SECTION 4.02. APPLICATION OF TRUST MONEY.

Subject to the provisions of the last paragraph of Section 10.03, all
money deposited with the Trustee pursuant to Section 4.01 shall be held in
trust and applied by it, in accordance with the provisions of the Securities
and this Indenture, to the payment, either directly or through any Paying
Agent (including the Company acting as its own Paying Agent) as the Trustee
may determine, to the Persons entitled thereto, of the principal, premium, if
any, interest and Additional Amounts, if any, for whose payment such money
has been deposited with the Trustee. All moneys deposited with the Trustee
pursuant to Section 4.01 (and held by it or any Paying Agent) for the payment
of Securities subsequently converted shall be returned to the Company on
Company Request.

SECTION 4.03. REINSTATEMENT.

If the Trustee or the Paying Agent is unable to apply any money in
accordance with this Article IV by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article IV until such time as the
Trustee or Paying Agent is permitted to apply all money held in trust with
respect to the Securities; PROVIDED, HOWEVER, that if the Company makes any
payment of principal of, any premium or interest on or any Additional Amounts
with respect to any Security following the reinstatement of its obligations,
the Company shall be subrogated to the rights of the Holders of the
Securities to receive such payment from the money so held in trust.

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ARTICLE V

REMEDIES

SECTION 5.01. EVENTS OF DEFAULT.

"Event of Default," wherever used herein with respect to Securities of
any series, means any one of the following events (whatever the reason for
that Event of Default and whether it shall be occasioned by the provisions of
Article XII or be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body), unless it either
is inapplicable to a particular series of Securities or is specifically
deleted or modified in or pursuant to the supplemental indenture or Board
Resolution establishing that series or in the form of the Security for that
series:

(a) default in the payment of the principal of or premium, if any, on
any Security of that series at its Maturity, whether or not such payment is
prohibited by the provisions of Article XII; or

(b) default in the payment of any interest on or any Additional Amounts
with respect to any Security of that series when it becomes due and payable,
whether or not such payment is prohibited by the provisions of Article XII,
and continuance of such default for a period of 30 days; or

(c) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture (other than a covenant or warranty a default
in whose performance or whose breach is elsewhere in this Section 5.01
specifically dealt with or which has been expressly included in this
Indenture solely for the benefit of one or more series of Securities other
than that series), and continuance of such default or breach for a period of
60 days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by any Holder a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder; or

(d) the filing or commencement of an involuntary case or other
proceeding against the Company or any Significant Subsidiary of the Company
seeking liquidation, reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency or other similar law now or thereafter
in effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 90 days; or an order for relief
shall be entered against the Company or any Significant Subsidiary of the
Company under the federal bankruptcy laws as now or hereafter in effect; or

(e) the filing or commencement by the Company or any Significant
Subsidiary of the Company of a voluntary case or other proceeding seeking
liquidation, reorganization or other similar relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect, or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part
of its property, or the Company or any Significant Subsidiary of the Company
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it or shall make a general assignment for the benefit of
creditors; or

(f) any other Event of Default provided with respect to Securities of
that series as contemplated by Section 3.01.

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SECTION 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.

If an Event of Default with respect to any Outstanding Securities of any
series occurs and is continuing, then in every such case the Trustee or any
Holder may declare the outstanding principal amount and any accrued interest
of all the Securities of the series affected by such default or all series,
as the case may be, to be due and payable immediately, by a notice in writing
to the Company (and to the Trustee if given by any Holder), and on any such
declaration such outstanding principal amount and any accrued interest (or
specified amount) shall become immediately due and payable. If an Event of
Default described in clause (e) or (f) of Section 5.01 shall occur, the
outstanding principal amount and any accrued interest of the Outstanding
Securities of all series IPSO FACTO shall become and be immediately due and
payable without any declaration or other act on the part of the Trustee or
any Holder.

At any time after such a declaration of acceleration with respect to
Securities of any series (or of all series, as the case may be) has been made
and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article V provided, any Holder
of that series (or of all series, as the case may be), by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if

(a) the Company has paid or deposited with the Trustee or a Holder or
Holders a sum sufficient to pay:

(i) all overdue interest on, and any Additional Amounts with
respect to, all Securities of that series (or of all series, as the case may
be),

(ii) the principal of (and premium, if any, on) any Securities of
that series (or of all series, as the case may be) which have become due
otherwise than by such declaration of acceleration and interest thereon at
the rate or rates prescribed therefor in such Securities (in the case of
Original Issue Discount Securities, the Securities' Yield to Maturity),

(iii) to the extent that payment of such interest is lawful,
interest on overdue interest and any Additional Amounts at the rate or rates
prescribed therefor in such Securities (in the case of Original Issue
Discount Securities, the Securities' Yield to Maturity) and

(iv) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and

(b) all Events of Default with respect to such Security of that series
(or of all series), other than the non-payment of the principal of Securities
of that Security (or of all series) which have become due solely by such
declaration of acceleration, have been cured or waived as provided in Section
5.13.

No such rescission shall affect any subsequent default or impair any right
consequent thereon.

SECTION 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.

The Company covenants that if

(a) default is made in the payment of any interest on or any Additional
Amounts with respect to any Security of any series when such interest or
Additional Amounts shall have become due and payable and such default
continues for a period of 30 days, or

(b) default is made in the payment of the principal of or premium, if
any, on any Security of any series at the Maturity thereof, the Company will,
on demand of the Trustee, pay to it, for the benefit of the Holders of the
Securities of that series, the whole amount then due and payable on those
Securities for principal and premium, if any, and interest and any Additional
Amounts, and, to the extent that payment of such interest shall be legally
enforceable, interest on

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any overdue principal and premium, if any, and on any overdue interest and
Additional Amounts, at the rate borne by those Securities (or in the case of
Original Issue Discount Securities, the Yield to Maturity of those
Securities), and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee
and each predecessor Trustee, their respective agents and counsel, and any
other amounts due the Trustee or any predecessor Trustee under Section 6.07.

If the Company fails to pay such amounts forthwith on such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid and may
prosecute any such proceeding to judgment or final decree, and may enforce
the same against the Company (or any other obligor on those Securities) and
collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company (or any other obligor on those
Securities), wherever situated.

If an Event of Default with respect to Securities of any series occurs
and is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of those Securities by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.

SECTION 5.04. TRUSTEE MAY FILE PROOFS OF CLAIM.

In case of any judicial proceeding relative to the Company (or any other
obligor on the Securities of any series), its property or its creditors, the
Trustee shall be entitled and empowered, by intervention in such proceeding
or otherwise, to take any and all actions authorized under the Trust
Indenture Act in order to have the claims of the applicable Holders and the
Trustee allowed in any such proceeding. In particular, the Trustee shall be
authorized to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar
official in any such judicial proceeding is hereby authorized by each
applicable Holder to make such payments to the Trustee and, in the event that
the Trustee shall consent to the making of such payments directly to the
applicable Holders, to pay to the Trustee any amount due it and each
predecessor Trustee for the reasonable compensation, expenses, disbursements
and advances of the Trustee and each predecessor Trustee and their respective
agents and counsel, and any other amounts due the Trustee under Section 6.07.

No provision of this Indenture shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder of
Securities of any series any plan of reorganization, arrangement, adjustment
or composition affecting those Securities or the rights of any Holder thereof
or to authorize the Trustee to vote in respect of the claim of that Holder in
any such proceeding; PROVIDED, HOWEVER, that the Trustee may, on behalf of
the Holders of those Securities, vote for the election of a trustee in
bankruptcy or similar official and may be a member of the Creditors'
Committee.

SECTION 5.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES.

All rights of action and claims under this Indenture or the Securities
of any series may be prosecuted and enforced by the Trustee without the
possession of any of those Securities or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and
any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the Trustee
and each predecessor Trustee and their respective agents and counsel, be for
the ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.

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SECTION 5.06. APPLICATION OF MONEY COLLECTED.

Any money collected by the Trustee pursuant to this Article V shall be
applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal of,
premium, if any, or interest on or any Additional Amounts with respect to the
Securities of any series, on presentation of those Securities and the
notation thereon of the payment if only partially paid and on surrender
thereof if fully paid:

FIRST: Subject to Article XII, to the holders of Senior Indebtedness;

SECOND: To payment of all amounts due the Trustee under Section 6.07;

THIRD: To the payment of the amounts then due and unpaid for principal
of, premium, if any, and interest on and any Additional Amounts with respect
to the Securities in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on those Securities for principal,
premium, if any, interest and Additional Amounts, respectively; and

FOURTH: The balance, if any, to the Company or any other Person or
Persons determined to be entitled thereto.

SECTION 5.07. LIMITATION ON SUITS.

No Holder of any Security of any series will have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless

(a) an Event of Default with respect to Securities of that series has
occurred and is continuing and that Holder has previously given written
notice to the Trustee of that continuing Event of Default;

(b) any Holder of a particular series shall have made written request to
the Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;

(c) such Holder or Holders have offered to the Trustee reasonable
indemnity satisfactory to it against the costs, expenses and liabilities to
be incurred in compliance with such request;

(d) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and

(e) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by any Holder of a particular
series; it being understood and intended that no one or more of those Holders
shall have any right in any manner whatever by virtue of, or by availing of,
any provision of this Indenture to affect, disturb or prejudice the rights of
any other of those Holders, or to obtain or to seek to obtain priority or
preference over any other of those Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all those Holders.

SECTION 5.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM, INTEREST AND TO CONVERT.

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Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and premium, if any, and (subject to
Section 3.07) interest on and any Additional Amounts with respect to such
Security on the respective Principal Payment Dates expressed in that Security
(or, in the case of redemption, on the Redemption Date) and to convert such
Security in accordance with Article XIII and to institute suit for the
enforcement of any such payment and right to convert, and such rights shall
not be impaired without the consent of that Holder.

SECTION 5.09. RESTORATION OF RIGHTS AND REMEDIES.

If the Trustee or any Holder of Securities of any series has instituted
any proceeding to enforce any right or remedy under this Indenture and that
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to that Holder, then and in every such
case, subject to any determination in that proceeding, the Company, the
Trustee and the Holders of Securities of that series shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and those Holders shall continue as
though no such proceeding had been instituted.

SECTION 5.10. RIGHTS AND REMEDIES CUMULATIVE.

Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in Section 3.06, no right
or remedy herein conferred on or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition
to every other right and remedy given hereunder or now or hereafter existing
at law or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.

SECTION 5.11. DELAY OR OMISSION NOT WAIVER.

No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing on any Event of Default with respect to
that Security shall impair any such right or remedy or constitute a waiver of
any such Event of Default or an acquiescence therein. Every right and remedy
given by this Article V or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.

SECTION 5.12. CONTROL BY HOLDERS.

With respect to Securities of any series, any Holder of that series
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee relating to or arising under an Event of
Default described in clause (a), (b) or (f) of Section 5.01, and with respect
to all Securities any Holder shall have the right to direct the time, method
and place of conducting any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, not relating to or arising under
such an Event of Default; PROVIDED, that:

(a) such direction shall not be in conflict with any rule of law or with
this Indenture;

(b) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction; and

(c) subject to the provisions of Section 6.01, the Trustee shall have
the right to decline to follow any such direction if the Trustee in good
faith shall determine that the action so directed would involve the Trustee
in personal liability or would be unduly prejudicial to Holders not joining
in such direction.

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SECTION 5.13. WAIVER OF PAST DEFAULTS.

The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all the
Securities of that series waive any past default hereunder with respect to
that series and its consequences, and the Holders of a majority in principal
amount of all Outstanding Securities may on behalf of the Holders of all
Securities waive any other past default hereunder and its consequences,
except in each case a default

(a) in the payment of the principal of or premium, if any, or interest
on or any Additional Amounts with respect to any Security, or

(b) in respect of a covenant or provision hereof which under Article IX
cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected.

On any such waiver, the waived default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.

SECTION 5.14. UNDERTAKING FOR COSTS.

All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any
action taken or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such
court may in its discretion assess costs, including attorneys' fees, against
any party litigant in such suit, having due regard to the merits and good
faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.14 shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in
principal amount of the Outstanding Securities of any series, or to any suit
instituted by any Holder for the enforcement of the payment of the principal
of, or premium, if any, or interest on or any Additional Amounts with respect
to any Security on or after the Principal Payment Date or Maturities
expressed in such Security (or, in the case of redemption, on or after the
Redemption Date).

ARTICLE VI

THE TRUSTEE

SECTION 6.01. CERTAIN DUTIES AND RESPONSIBILITIES.

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The duties and responsibilities of the Trustee shall be as provided by
this Indenture and the Trust Indenture Act for securities issued pursuant to
indentures qualified thereunder. Except as otherwise provided herein,
notwithstanding the foregoing, no provision of this Indenture shall require
the Trustee to expend or risk its own funds or otherwise incur any financial
liability or risk in the performance of any of its duties hereunder, or in
the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity
satisfactory to it against such risk or liability is not reasonably assured
to it. Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section
6.01. The Trustee shall not be liable (a) for any error of judgment made in
good faith by a Responsible Officer or Responsible Officers of the Trustee,
unless it shall be proved that the Trustee was negligent in ascertaining the
pertinent facts or (b) with respect to any action taken or omitted to be
taken by it in good faith in accordance with the direction of the Holders of
not less than a majority in aggregate principal amount of the then
Outstanding Securities of any series or all series, determined as provided in
Section 5.12, relating to the time, method and place of conducting any
proceeding or any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee, under this Indenture with respect to those
Securities. Prior to the occurrence of an Event of Default with respect to
Securities of any series and after the curing or waiving of all Events of
Default with respect to all series which may have occurred: (a) the duties
and obligations of the Trustee shall be determined solely by the express
provisions of this Indenture and in the Trust Indenture Act, and the Trustee
shall not be liable except for the performance of such duties and obligations
as are specifically set forth in this Indenture and in the Trust Indenture
Act, and no implied covenants or obligations shall be read in to this
Indenture against the Trustee; and (b) in the absence of bad faith on the
part of the Trustee, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions therein, on any
statements, certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture and believed by the Trustee to be
genuine and to have been signed or presented by the proper party or parties;
but in the case of any such statements, certificates or options which by any
provisions hereof are specifically required to be furnished to the Trustee,
the Trustee shall be under a duty to examine the same to determine whether or
not they conform on their face to the requirements of this Indenture. If a
default or an Event of Default with respect to Securities of any series has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
its exercise thereof as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.

SECTION 6.02. NOTICE OF DEFAULTS.

The Trustee shall give the Holders of Securities of each series notice
of any default hereunder with respect to the Securities of that series known
to it as and to the extent provided by the Trust Indenture Act; PROVIDED,
HOWEVER, that in the case of any default with respect to the Securities of
that series of the character specified in Section 5.01(d), no such notice to
those Holders shall be given until at least 30 days after the occurrence
thereof; and PROVIDED, FURTHER, that, except in the case of a default in
payment of principal of, premium, if any, or interest on or any Additional
Amounts with respect to any Securities of any series, the Trustee may
withhold notice to the Holders of those Securities if and so long as a
committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of those Holders. For the purpose
of this Section 6.02, the term "default" with respect to the Securities of
any series means any event which is, or after notice or lapse of time or both
would become, an Event of Default with respect to those Securities.

SECTION 6.03. CERTAIN RIGHTS OF TRUSTEE.

Subject to the provisions of Section 6.01:

(a) the Trustee may rely and shall be protected in acting or refraining
from acting on any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party or
parties;

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(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;

(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith
on its part, rely on an Officers' Certificate;

(d) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;

(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee security or indemnity satisfactory to it against
the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction;

(f) the Trustee shall not be required to give any bond or surety in
respect of the performance of its power and duties hereunder; and

(g) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney.

SECTION 6.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.

The statements and recitals contained herein and in the Securities and
in any other document in connection with the sale of the Securities, except
the Trustee's certificate of authentication, shall be taken as the statements
of the Company, and the Trustee and any Authenticating Agent assume no
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or of the Securities. The
Trustee and any Authenticating Agent shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.

SECTION 6.05. MAY HOLD SECURITIES.

The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to
Sections 6.08 and 6.13, may otherwise deal with the Company or any Affiliate
of the Company with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Security Registrar or such other agent.

SECTION 6.06. MONEY HELD IN TRUST.

Money held by the Trustee or any Paying Agent in trust hereunder need
not be segregated from other funds except to the extent required by law. The
Trustee or any Paying Agent shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed with the Company.

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SECTION 6.07. COMPENSATION AND REIMBURSEMENT.

The Company agrees:

(a) to pay to the Trustee from time to time compensation for all
services rendered by it hereunder (including its services as Security
Registrar or Paying Agent, if so appointed by the Company) as may be mutually
agreed on in writing by the Company and the Trustee (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);

(b) except as otherwise expressly provided herein, to reimburse the
Trustee and each predecessor Trustee promptly on its request for all
reasonable expenses, disbursements and advances incurred or made by or on
behalf of it in connection with the performance of its duties under any
provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel and all other persons
not regularly in its employ) except to the extent any such expense,
disbursement or advance may be attributable to its negligence or bad faith;
and

(c) to indemnify the Trustee and each predecessor Trustee (each, an
"indemnitee") for, and to hold the indemnitee harmless against, any loss,
liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of this
Indenture or the trusts hereunder and its duties hereunder (including its
services as Security Registrar or Paying Agent, if so appointed by the
Company), including enforcement of this Indenture (including this Section
6.07) and including the costs and expenses of defending itself against or
investigating any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The Company shall
defend any claim or threatened claim asserted against an indemnitee for which
it may seek indemnity, and the indemnitee shall cooperate in the defense
unless, in the reasonable opinion of the indemnitee's counsel, the indemnitee
has an interest adverse to the Company or a potential conflict of interest
exists between the indemnitee and the Company, in which case the indemnitee
may have separate counsel and the Company shall pay the reasonable fees and
expenses of such counsel; PROVIDED that the Company shall only be responsible
for the reasonable fees and expenses of one law firm (in addition to local
counsel) in any one action or separate substantially similar actions in the
same jurisdiction arising out of the same general allegations or
circumstances, such law firm to be designated by the indemnitee.

When the Trustee or any predecessor Trustee incurs expenses or renders
services in connection with the performance of its obligations hereunder
(including its services as Security Registrar or Paying Agent, if so
appointed by the Company) after an Event of Default specified in Section
5.01(f) or (g) occurs, those expenses and the compensation for those services
are intended to constitute expenses of administration under any applicable
bankruptcy, insolvency or other similar federal or state law to the extent
provided in Section 503(b)(5) of Title 11 of the United States Code, as now
or hereafter in effect.

SECTION 6.08. DISQUALIFICATION; CONFLICTING INTERESTS.

(a) If the Trustee has or shall acquire any conflicting interest, as
defined in this Section 6.08, with respect to the Securities of any series,
it shall, within 90 days after ascertaining that it has such conflicting
interest, either eliminate that conflicting interest or resign with respect
to the Securities of that series in the manner and with the effect
hereinafter specified in this Article VI.

(b) In the event that the Trustee shall fail to comply with the
provisions of paragraph (a) of this Section 6.08 with respect to the
Securities of any series, the Trustee shall, within 10 days after the
expiration of the 90-day period referred to in that paragraph (a), transmit
by mail to all Holders of Securities of that series, as their names and
addresses appear in the Security Register for that series, notice of that
failure.

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(c) For the purposes of this Section, the term "conflicting interest"
shall have the meaning specified in Section 310(b) of the Trust Indenture Act
and the Trustee shall comply with Section 310(b) of the Trust Indenture Act;
PROVIDED, that there shall be excluded from the operation of Section
310(b)(1) of the Trust Indenture Act with respect to the Securities of any
series any indenture or indentures under which other securities, or
certificates of interest or participation in other securities, of the Company
are outstanding, if the requirements for such exclusion set forth in Section
310(b)(1) of the Trust Indenture Act are met. For purposes of the preceding
sentence, the optional provision permitted by the second sentence of Section
310(b)(9) of the Trust Indenture Act shall be applicable.

SECTION 6.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.

There shall at all times be a Trustee hereunder which shall be a Person
that (i) is eligible pursuant to the Trust Indenture Act to act as such, (ii)
has (or, in the case of a corporation included in a bank holding company
system, whose related bank holding company has) a combined capital and
surplus of at least $50,000,000 and (iii) has a Corporate Trust Office in the
Borough of Manhattan, The City of New York, or a designated agent. If such
Person publishes reports of conditions at least annually, pursuant to law or
to the requirements of a Federal or state supervising or examining authority,
then for the purposes of this Section 6.09, the combined capital and surplus
of such Person shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section 6.09, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article VI.

SECTION 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.

(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article VI shall become effective until
the acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 6.11.

(b) The Trustee may resign at any time with respect to the Securities of
one or more series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee for those Securities which is
required by Section 6.11 shall not have been delivered to the resigning
Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee for those Securities.

(c) The Trustee may be removed at any time with respect to the
Securities of any series by an Act of the Holders of a majority in principal
amount of the Outstanding Securities of that series delivered to the Trustee
and to the Company.

(d) If at any time:

(i) the Trustee shall fail to comply with Section 6.08 with
respect to the Securities of any series after written request therefor by the
Company or by any Holder who has been a bona fide Holder of a Security of
that series for the last six months, or

(ii) the Trustee shall cease to be eligible under Section 6.09
with respect to the Securities of any series and shall fail to resign after
written request therefor by the Company or by any Holder who has been a bona
fide Holder of a Security of that series for the last six months, or

(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then, in any such case, (i) the
Company by a Board Resolution may remove the Trustee with respect to the
Securities of all series, or (ii) subject to Section 5.14, any Holder who has
been a bona fide Holder of a Security for at least six months may, on behalf
of

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himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee or Trustees.

(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause
with respect to the Securities of one or more series, the Company, by a Board
Resolution, shall promptly appoint a successor Trustee or Trustees with
respect to those Securities (it being agreed that any such successor Trustee
may be appointed with respect to the Securities of one or more or all of
those series and that at any time there shall be only one Trustee with
respect to the Securities of any particular series) and such successor
Trustee or Trustees shall comply with the applicable requirements of Section
6.11. If no successor Trustee with respect to the Securities of any series
shall have been so appointed by the Company and accepted appointment in the
manner required by Section 6.11, any Holder who has been a bona fide Holder
of a Security of that series for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Securities of that series.

(f) The Company shall give notice of each resignation and each removal
of the Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities of any
series to all Holders of the Securities of that series in the manner provided
in Section 1.06. Each notice shall include the name of the successor Trustee
and the address of its Corporate Trust Office.

SECTION 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.

(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee
an instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested
with all the rights, powers, trusts and duties of the retiring Trustee; but,
on request of the Company or the successor Trustee, such retiring Trustee
shall, on payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of
the retiring Trustee and shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring Trustee
hereunder.

(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company,
the retiring Trustee and each such successor Trustee so appointed shall
execute and deliver an indenture supplemental hereto wherein each such
successor Trustee shall accept such appointment and which (i) shall contain
such provisions as shall be necessary or desirable to transfer and confirm
to, and to vest in, each such successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of
that or those series to which the appointment of such successor Trustee
relates, (ii) if the retiring Trustee is not retiring with respect to all
Securities, shall contain such provisions as shall be deemed necessary or
desirable to confirm that all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or those series as to
which the retiring Trustee is not retiring shall continue to be vested in the
retiring Trustee and (iii) shall add to or change any of the provisions of
this Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart
from any trust or trusts hereunder administered by any other such Trustee;
and on the execution and delivery of such supplemental indenture, the
resignation or removal of the retiring Trustee shall become effective to the
extent provided therein and each such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of
that or those series to which the appointment of such successor Trustee
relates; but, on request of the Company or any such successor Trustee, such
retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder with
respect to the Securities of that or those series to which the appointment of
such successor Trustee relates.

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<PAGE>

(c) On request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts
referred to in paragraph (a) or (b) of this Section 6.11, as the case may be.

(d) No successor Trustee shall accept its appointment unless, at the
time of that acceptance, that successor Trustee shall be qualified and
eligible under this Article VI.

SECTION 6.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.

Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under
this Article VI, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Securities shall
have been authenticated, but not delivered, by the Trustee then in office,
any successor by merger, conversion or consolidation to such authenticating
Trustee may adopt such authentication and deliver the Securities so
authenticated with the same effect as if such successor Trustee had itself
authenticated those Securities.

SECTION 6.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.

If and when the Trustee shall be or become a creditor of the Company (or
any other obligor on the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor).

SECTION 6.14. APPOINTMENT OF AUTHENTICATING AGENT.

The Trustee may appoint an Authenticating Agent or Agents with the
consent of the Company and at the expense of the Company which shall be
authorized to act on behalf of the Trustee to authenticate Securities issued
on original issue and on exchange, registration of transfer, partial
conversion or partial redemption or pursuant to Section 3.06, and Securities
so authenticated shall be entitled to the benefits of this Indenture and
shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating
Agent and a certificate of authentication executed on behalf of the Trustee
by an Authenticating Agent. Each Authenticating Agent shall be acceptable to
the Company and shall at all times be a Person organized and doing business
under the laws of the United States of America, any State thereof or the
District of Columbia, authorized under such laws to act as Authenticating
Agent, having (or, in the case of a corporation included in a bank holding
company system, whose related bank holding company has) a combined capital
and surplus of not less than $50,000,000 and subject to supervision or
examination by Federal or State authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the
purposes of this Section 6.14, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus
as set forth in its most recent report of condition so published. If at any
time an Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section 6.14, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section 6.14.

Any Person into which an Authenticating Agent may be merged or converted
or with which it may be consolidated, or any Person resulting from any
merger, conversion or consolidation to which such Authenticating Agent shall
be a party, or any Person succeeding to the corporate agency or corporate
trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such Person shall be otherwise eligible under
this Section 6.14, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.

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An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. On receiving such a
notice of resignation or on such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.14, the Trustee may appoint a successor
Authenticating Agent acceptable to the Company and shall mail notice of such
appointment by first-class mail, postage prepaid, to all Holders of
Securities for which such successor Authenticating Agent has been appointed
as their names and addresses appear in the Security Register. Any successor
Authenticating Agent on acceptance of its appointment under this Section 6.14
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating
Agent. No successor Authenticating Agent shall be appointed unless eligible
to act as such under the provisions of this Section 6.14.

Any Authenticating Agent by the acceptance of its appointment shall be
deemed to have represented to the Trustee that it is eligible for appointment
as Authenticating Agent under this Section 6.14 and to have agreed with the
Trustee that: it will perform and carry out the duties of an Authenticating
Agent as herein set forth, including, among other duties, the duties to
authenticate Securities when presented to it in connection with the original
issuance and with exchanges, registrations of transfer or redemptions or
conversions thereof or pursuant to Section 3.06; it will keep and maintain,
and furnish to the Trustee from time to time as requested by the Trustee,
appropriate records of all transactions carried out by it as Authenticating
Agent and will furnish the Trustee such other information and reports as the
Trustee may require; and it will notify the Trustee promptly if it shall
cease to be eligible to act as Authenticating Agent in accordance with the
provisions of this Section 6.14. Any Authenticating Agent by the acceptance
of its appointment shall be deemed to have agreed with the Trustee to
indemnify the Trustee against any loss, liability or expense incurred by the
Trustee and to defend any claim asserted against the Trustee by reason of any
acts or failures to act of such Authenticating Agent, but such Authenticating
Agent shall have no liability for any action taken by it in accordance with
the specific written direction of the Trustee.

The Trustee shall not be liable for any act or any failure of the
Authenticating Agent to perform any duty either required herein or authorized
herein to be performed by such person in accordance with this Indenture.

The Company agrees to pay to each Authenticating Agent from time to time
compensation for its services under this Section.

If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:

"This is one of the Securities of the series designated, described or
provided for in the within-mentioned Indenture.

------------------------------------
U.S. TRUST COMPANY OF TEXAS, N.A.

By:
--------------------------------
AS AUTHENTICATING AGENT

By:
--------------------------------
AUTHORIZED SIGNATORY"

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<PAGE>

Notwithstanding any provision of this Section 6.14 to the contrary, if
at any time any Authenticating Agent appointed hereunder with respect to any
series of Securities shall not also be acting as the Security Registrar
hereunder with respect to that series of Securities, then, in addition to all
other duties of an Authenticating Agent hereunder, such Authenticating Agent
shall also be obligated to furnish to the Security Registrar for that series
of Securities promptly all information necessary to enable that Security
Registrar to maintain at all times an accurate and current Security Register
for that series of Securities. Furthermore, the Security Registrar for that
series of Securities shall also be obligated to furnish the Authenticating
Agent promptly all information necessary to enable that Authenticating Agent
to maintain at all times accurate and current records for that series of
Securities.

ARTICLE VII

HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY

SECTION 7.01. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.

The Company will furnish or cause to be furnished to the Trustee with
respect to each series of Securities:

(a) semi-annually, not more than 15 days after each Regular Record Date,
a list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders of the Securities of that series as of such Regular
Record Date and

(b) not less than 15 days prior to the date on which the Trustee is
required or permitted to send any notice, report, or other information to
Holders, and

(c) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such
list is furnished.

Notwithstanding the foregoing, so long as the Trustee is the Security
Registrar, no such list shall be required to be furnished.

SECTION 7.02. PRESERVATION OF INFORMATION; COMMUNICATION TO HOLDERS.

(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders of Securities of each series
contained in the most recent list furnished to the Trustee as provided in
Section 7.01 and the names and addresses of Holders of those Securities. The
Trustee may destroy any list furnished to it as provided in Section 7.01 on
receipt of a new list so furnished.

(b) The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.

(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of them shall be held accountable by reason
of any disclosure of information as to names and addresses of Holders made
pursuant to the Trust Indenture Act or otherwise in accordance with this
Indenture.

SECTION 7.03. REPORTS BY TRUSTEE.

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(a) Not later than 60 days following each May 15, the Trustee shall
transmit to Holders such reports concerning the Trustee and its actions under
this Indenture as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant thereto.

(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange on which the
Securities of any series are listed, with the Commission and with the
Company. The Company will notify the Trustee when the Securities are listed
on any stock exchange.

SECTION 7.04. REPORTS BY COMPANY.

(a) The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at
the times and in the manner provided pursuant to the Trust Indenture Act;
PROVIDED, that any such information, documents or reports required to be
filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
shall be filed with the Trustee within 15 days after the same is so required
to be filed with the Commission.

(b) The Company shall file with the Trustee an Officer's Certificate and
supporting documentation, along with such other information and documentation
as may be required by the Trustee to document the payment by the Company of
all obligations hereunder within 15 days after any such payment is made.

ARTICLE VIII

CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

SECTION 8.01. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.

The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an
entirety to any Person in one transaction or a series of related transactions
unless:

(a) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets substantially
as an entirety to any Person in one transaction or a series of related
transactions, the Person formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or transfer, or
which leases, the properties and assets of the Company substantially as an
entirety shall be a corporation, partnership, limited liability company or
trust, shall be organized and validly existing under the laws of the United
States of America, any State thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed and delivered
to the Trustee, in form satisfactory to the Trustee, the due and punctual
payment of the principal of, premium, if any, and interest on and any
Additional Amounts with respect to all the Securities and the performance or
observance of every covenant of this Indenture on the part of the Company to
be performed or observed and shall have provided for conversion rights in
accordance with Section 13.11;

(b) immediately after giving effect to such transaction, no Event of
Default with respect to Securities of any series, and no event which, after
notice or lapse of time or both, would become an Event of Default with
respect to Securities of any series, shall have occurred and be continuing;

(c) such consolidation, merger, conveyance, transfer or lease does not
adversely affect the validity or enforceability of the Securities of any
series; and

(d) the Company or the successor Person has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a supplemental
indenture

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<PAGE>

is required in connection with such transaction, such supplemental indenture
comply with this Article VIII and that all conditions precedent herein
provided for relating to such transaction have been complied with.

SECTION 8.02. SUCCESSOR SUBSTITUTED.

On any consolidation of the Company with, or merger of the Company into,
any other Person or any conveyance, transfer or lease the properties and
assets of the Company substantially as an entirety to any Person in one
transaction or a series of related transactions in accordance with Section
8.01, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made
shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein, and thereafter, except
in the case of a transfer by lease, the predecessor Person shall be relieved
of all obligations and covenants under this Indenture and the Securities.

ARTICLE IX

SUPPLEMENTAL INDENTURES

SECTION 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.

Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto, in form satisfactory
to the Trustee, for any of the following purposes:

(a) to set forth the terms of the Securities of any unissued series,
including the additional indebtedness or other liabilities to which the
Securities of that series will be subordinated as contemplated by Section
3.01; or

(b) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company herein and
in the Securities; or

(c) for the benefit of the Holders of Securities of any or all series,
to add to the covenants of the Company, add an additional Event of Default or
surrender any right or power conferred herein or in the Securities of any
series on the Company (and if any such covenant, Event of Default or
surrender is to be for the benefit of Holders of Securities of less than all
series, stating that such covenants, Event of Default or surrender is or are
being included solely for the benefit of the Holders of Securities of those
series referred to in the supplemental indenture); or

(d) to secure the Securities of any or all series; or

(e) to make provision with respect to the conversion rights of Holders
pursuant to the requirements of Section 13.11; or

(f) to change or eliminate any of the provisions of this Indenture,
PROVIDED that any such change or elimination shall become effective only when
there is no Security Outstanding of any series created prior to the execution
of such supplemental indenture which is adversely affected by such change in
or elimination of such provision; or

(g) to supplement any of the provisions of this Indenture to such extent
as shall be necessary to permit or facilitate the defeasance and discharge of
any series of Securities pursuant to Section 4.01; PROVIDED, HOWEVER, that
any such action shall not adversely affect the interest of the Holders of
Securities of such series or any other series of Securities in any material
respect; or

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<PAGE>

(h) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee with respect to the Securities of one or more series
and to add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of Section
6.11(b); or

(i) to cure any ambiguity or omission, to correct or supplement any
provision herein or in the Securities of any or all series which may be
defective or inconsistent with any other provision herein or in the
Securities of any or all series, or to make any other provisions with respect
to matters or questions arising under this Indenture which shall not be
inconsistent with the provisions of this Indenture; PROVIDED, that such
action pursuant to this clause (i) shall not adversely affect the interests
of the Holders of Securities of any series in any material respect and the
Trustee may rely on an Opinion of Counsel to that effect.

SECTION 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.

With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities, by Act of said Holders delivered to the
Company and the Trustee, or, if the rights of one or more, but less than all,
series of Outstanding Securities are to be affected, then with the consent of
the Holders of not less than a majority in principal amount of all the series
of Outstanding Securities so to be affected, by Act of said Holders (acting
as one class) delivered to the Company and the Trustee, the Company, when
authorized by a Board Resolution, and the Trustee may enter into an indenture
or indentures supplemental hereto for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this
Indenture or of modifying in any manner the rights of the Holders under this
Indenture; PROVIDED, HOWEVER, that no such supplemental indenture shall,
without the consent of the Holder of each Outstanding Security affected
thereby,

(a) change the Principal Payment Date of the principal of, or any
installment of principal of or interest on, any Security, or reduce the
principal amount thereof or the rate of interest thereon, any Additional
Amounts with respect thereto or any premium payable on the redemption
thereof, or reduce the amount of the principal of any Original Issue Discount
Security that would be due and payable on a declaration of acceleration of
the Maturity thereof pursuant to Section 5.02, where, or the coin or currency
or currencies (including composite currencies) in which, any Security or any
premium or any interest thereon or Additional Amount with respect thereto is
payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Principal Payment Date thereof (or, in the case
of redemption, on or after the Redemption Date), or adversely affect the
right to convert any Security as provided in Article XIII (except as
permitted by Section 9.01(e)), or the provisions of this Indenture with
respect to the subordination of the Securities (except as contemplated by
Section 3.01 and permitted by Section 9.01(a)), in a matter adverse to the
Holders; or

(b) reduce the percentage in principal amount of Outstanding Securities
the consent of whose Holders is required for any such supplemental indenture,
or the consent of whose Holders is required for any waiver (of compliance
with certain provisions of this Indenture or certain defaults hereunder and
their consequences) provided for in this Indenture; or

(c) modify any of the provisions of this Section 9.02, Section 5.13 or
Section 10.06, except to increase any percentage provided herein or therein
or to provide with respect to any particular series the right to condition
the effectiveness of any supplemental indenture as to that series on the
consent of the Holders of a specified percentage of the aggregate principal
amount of Outstanding Securities of that series (which provision may be made
pursuant to Section 3.01 without the consent of any Holder) or to provide
that certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby, PROVIDED, that this clause (c) shall not be deemed to require the
consent of any Holder with respect to changes in the references to "the
Trustee" and concomitant changes in this Section 9.02 and Section 10.06, or
the deletion of this proviso, in accordance with the requirements of Sections
6.11(b) and 9.01(g).

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A supplemental indenture that changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under
this Indenture of the Holders of Securities of any other series.

It shall not be necessary for any Act of Holders under this Section 9.02
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if that Act approves the substance thereof.

The determination of the Trustee as to the series of Securities the
rights of which are to be affected pursuant to this Section 9.02 shall be
conclusive, and the Trustee in making that determination shall be protected
in relying on an Opinion of Counsel.

SECTION 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES.

In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article IX or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be
entitled to receive, and (subject to Section 6.01) shall be fully protected
in relying on, an Officers' Certificate and an Opinion of Counsel stating
that the execution of such supplemental indenture is authorized or permitted
by this Indenture. The Trustee may, but shall not be obligated to, enter into
any such supplemental indenture that adversely affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.

SECTION 9.04. EFFECT OF SUPPLEMENTAL INDENTURES.

On the execution of any supplemental indenture under this Article IX,
this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes;
and every Holder of Securities theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby.

SECTION 9.05. CONFORMITY WITH TRUST INDENTURE ACT.

Every supplemental indenture executed pursuant to this Article IX shall
conform to the requirements of the Trust Indenture Act.

SECTION 9.06. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.

Securities of any series authenticated and delivered after the execution
of any supplemental indenture pursuant to this Article IX may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as
to any matter provided for in such supplemental indenture. If the Company
shall so determine, new Securities of any series so modified as to conform,
in the opinion of the Trustee and the Company, to any such supplemental
indenture may be prepared and executed by the Company and (at the specific
direction of the Company) authenticated and delivered by the Trustee in
exchange for Outstanding Securities of that series.

SECTION 9.07. NOTICE OF SUPPLEMENTAL INDENTURE.

Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to Section 9.02, the Company shall transmit
to the Holders of Securities of all series affected thereby a notice setting
forth the substance of that supplemental indenture.

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ARTICLE X

COVENANTS

SECTION 10.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.

The Company covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of, premium, if
any, and interest on and any Additional Amounts with respect to the
Securities of that series in accordance with the terms of those Securities
and this Indenture.

SECTION 10.02. MAINTENANCE OF OFFICE OR AGENCY.

The Company will maintain in the Place of Payment for each series of
Securities an office or agency where Securities of that series may be
presented or surrendered for payment, where Securities of that series may be
surrendered for registration of transfer, where Securities of that series may
be surrendered for exchange or conversion and where notices and demands to or
on the Company in respect of the Securities of that series and this Indenture
may be served. The Company will give prompt written notice to the Trustee of
the location, and any change in the location, of any such office or agency.
If at any time the Company shall fail to maintain any such required office or
agency or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices
and demands.

The Company may also from time to time designate one or more other
offices or agencies where the Securities of one or more series may be
presented or surrendered for any or all such purposes and may from time to
time rescind such designations; PROVIDED, HOWEVER, that no such designation
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in each Place of Payment for Securities of any
series for such purposes. The Company will give prompt written notice to the
Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.

SECTION 10.03. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.

If the Company shall at any time act as its own Paying Agent with
respect to any series of Securities, it will, on or before each due date of
the principal of, premium, if any, or interest on or any Additional Amounts
with respect to any of the Securities of that series, segregate and hold in
trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the entire amount so becoming due until such sum shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify
the Trustee of its action or failure so to act.

Whenever the Company shall have one or more Paying Agents for any series
of Securities, it will, on or prior to each due date of the principal of,
premium, if any, or interest on or any Additional Amounts with respect to any
Securities of that series, deposit with a Paying Agent a sum sufficient to
pay the entire amount so becoming due, such sum to be held as provided by the
Trust Indenture Act, and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of its action or failure so to act.

The Company will cause each Paying Agent other than the Trustee or the
Company for each series of Securities to execute and deliver to the Trustee
an instrument in which such Paying Agent shall agree with the Trustee,
subject to the provisions of this Section 10.03, that such Paying Agent will:
(a) comply with the provisions of the Trust Indenture Act and this Indenture
applicable to it as a Paying Agent and hold all sums held by it for the
payment of principal of or any premium or interest on or any Additional
Amounts with respect to the Securities of that series in trust for the
benefit of the Persons entitled thereto until such sums shall be paid to
those Persons or otherwise disposed of as herein provided; (b) give the
Trustee notice of any default by the Company (or any other obligor on the
Securities) in the making of any payment in respect of the Securities of that
series; and (c) at any time during the continuance of any

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default by the Company (or any other obligor on the Securities of that
series) in the making of any payment in respect of the Securities of that
series, on the written request of the Trustee, forthwith pay to the Trustee
all sums held in trust by such Paying Agent for payment in respect of the
Securities of that series, and account for any funds disbursed.

The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay,
or by Company Order direct any Paying Agent to pay, to the Trustee all sums
held in trust by the Company or such Paying Agent, such sums to be held by
the Trustee on the same trusts as those on which such sums were held by the
Company or such Paying Agent; and, on such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.

Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if
any, or interest on or any Additional Amounts with respect to any Security of
any series and remaining unclaimed for two years after that principal,
premium, if any, interest or Additional Amounts, if any, has become due and
payable shall be paid to the Company on Company Request, or (if then held by
the Company) shall be discharged from such trust; and the Holder of that
Security shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereon cease; PROVIDED, HOWEVER, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at
the expense of the Company cause to be published once, in a newspaper
published in the English language, customarily published on each Business Day
and of general circulation in Phoenix, Arizona or Dallas, Texas, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Company.

SECTION 10.04. STATEMENT BY OFFICERS AS TO DEFAULT.

The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officers'
Certificate stating whether or not to the best knowledge of the signers
thereof the Company is in default in the performance and observance of any of
the terms, provisions and conditions of this Indenture (without regard to any
period of grace or requirement of notice provided hereunder) and, if the
Company shall be in default, specifying all such defaults and the nature and
status thereof of which they may have knowledge.

SECTION 10.05. EXISTENCE.

Subject to Article VIII, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises and the existence, rights
(charter and statutory) and franchises of each Subsidiary; PROVIDED, HOWEVER,
that the Company shall not be required to preserve any such right or
franchise if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company
and that the loss thereof is not disadvantageous in any material respect to
the Holders of Securities of any series.

SECTION 10.06. WAIVER OF CERTAIN COVENANTS.

The Company may omit in any particular instance to comply with any
covenant or condition set forth in Section 10.05, or any covenant added for
the benefit of any series of Securities as contemplated by Section 3.01
(unless otherwise specified pursuant to Section 3.01) if before or after the
time for such compliance the Holders of a majority in principal amount of the
Outstanding Securities of all series affected by that omission (acting as one
class) shall, by Act of such Holders, either waive such compliance in such
instance or generally waive compliance with such covenant or condition, but
no such waiver shall extend to or affect such covenant or condition except to
the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Company and the duties of the Trustee in
respect of any such covenant or condition shall remain in full force and
effect.

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SECTION 10.07. ADDITIONAL AMOUNTS.

If the Securities of a series expressly provide for the payment of
Additional Amounts, the Company will pay to the Holder of any Security of
that series Additional Amounts as expressly provided therein. Whenever in
this Indenture there is mentioned, in any context, the payment of the
principal of or any premium or interest on, or in respect of, any Security of
any series or the net proceeds received on the sale or exchange of any
Security of any series, such mention shall be deemed to include mention of
the payment of Additional Amounts provided for in this Section 10.07 to the
extent that, in such context, Additional Amounts are, were or would be
payable in respect thereof pursuant to the provisions of this Section 10.07
and express mention of the payment of Additional Amounts (if applicable) in
any provisions hereof shall not be construed as excluding Additional Amounts
in those provisions hereof where such express mention is not made.

If the Securities of a series provide for the payment of Additional
Amounts, at least 10 days prior to the first Interest Payment Date with
respect to that series of Securities (or if the Securities of that series
will not bear interest prior to Maturity, the first day on which a payment of
principal and any premium is made), and at least 10 days prior to each date
of payment of principal and any premium or interest if there has been any
change with respect to the matters set forth in the below-mentioned Officers'
Certificate, the Company shall furnish the Trustee and the Company's
principal Paying Agent or Paying Agents, if other than the Trustee, with an
Officers' Certificate instructing the Trustee and such Paying Agent or Paying
Agents whether such payment of principal of and any premium or interest on
the Securities of that series shall be made to Holders of Securities of that
series who are United States Aliens without withholding for or on account of
any tax, assessment or other governmental charge described in the Securities
of that series. If any such withholding shall be required, then such
Officers' Certificate shall specify by country the amount, if any, required
to be withheld on such payments to such Holders of Securities and the Company
will pay to such Paying Agent the Additional Amounts required by this
Section. The Company covenants to indemnify the Trustee and any Paying Agent
for, and to hold them harmless against any loss, liability or expense
reasonably incurred without negligence or bad faith on their part arising out
of or in connection with actions taken or omitted by any of them in reliance
on any Officers' Certificate furnished pursuant to this Section 10.07.

ARTICLE XI

REDEMPTION OF SECURITIES

SECTION 11.01. APPLICABILITY OF ARTICLE.

Securities of any series which are redeemable before their Maturity
shall be redeemable in accordance with their terms and (except as otherwise
specified as contemplated by Section 3.01 for Securities of any series) in
accordance with this Article XI.

SECTION 11.02. ELECTION TO REDEEM; NOTICE TO TRUSTEE.

The election of the Company to redeem any Securities shall be evidenced
by a Board Resolution. In case of any redemption at the election of the
Company of less than all the Securities of any series, the Company shall, at
least 60 days prior to the Redemption Date fixed by the Company (unless a
shorter period shall be satisfactory to the Trustee), notify the Trustee of
such Redemption Date and of the principal amount of Securities of that series
to be redeemed. In case of any redemption at the election of the Company of
all the Securities of any series, the Company shall, at least 45 days prior
to the Redemption Date fixed by the Company (unless a shorter period shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date.

SECTION 11.03. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.

If less than all the Securities of any series are to be redeemed, the
particular Securities of that series to be redeemed shall be selected not
more than 60 days prior to the Redemption Date by the Security Registrar,
from the

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Outstanding Securities of that series not previously called for redemption,
by lot or pro rata or by such other method as the Security Registrar shall
deem fair and appropriate and which may provide for the selection for
redemption of portions (equal to the minimum authorized denomination for
Securities of that series or any integral multiple thereof) of the principal
amount of Securities of that series of a denomination larger than the minimum
authorized denomination for Securities of that series. If any Security
selected for partial redemption is converted in part before termination of
the conversion right with respect to the portion of the Security so selected,
the converted portion of such Security shall be deemed (so far as may be) to
be the portion selected for redemption. Securities of any series which have
been converted during a selection of Securities of that series to be redeemed
shall be treated by the Security Registrar as Outstanding for the purpose of
such selection. In any case where more than one Security of the same series
is registered in the same name, the Security Registrar in its discretion may
treat the aggregate principal amount so registered as if it were represented
by one Security of that series.

The Security Registrar shall promptly notify the Company and the Trustee
in writing of the Securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to
be redeemed.

For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall
relate, in the case of any Securities redeemed or to be redeemed only in
part, to the portion of the principal amount of such Securities which has
been or is to be redeemed.

SECTION 11.04. NOTICE OF REDEMPTION.

Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 15 nor more than 60 days prior to the
Redemption Date, to the Trustee and to each Holder of Securities to be
redeemed, at his address appearing in the Security Register.

All notices of redemption shall state:

(a) the Redemption Date,

(b) the Redemption Price,

(c) if less than all the Outstanding Securities of any series are to be
redeemed, the identification (and, in the ease of partial redemption of any
Securities, the principal amounts) of the particular Securities to be
redeemed,

(d) that on the Redemption Date the Redemption Price will become due and
payable on each such Security to be redeemed and that (unless the Company
shall default in payment of the Redemption Price) interest thereon will cease
to accrue on and after said date,

(e) that the redemption is for a sinking fund, if that is the case,

(f) the conversion price, the date on which the right to convert the
Securities to be redeemed will terminate and the place or places where such
Securities may be surrendered for conversion, and

(g) the place or places where such Securities are to be surrendered for
payment of the Redemption Price.

Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request received
by the Trustee at least 25 days prior to the Redemption Date, by the Trustee
in the name and at the expense of the Company.

SECTION 11.05. DEPOSIT OF REDEMPTION PRICE.

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At or prior to 7:00 a.m. Phoenix, Arizona time on any Redemption Date,
the Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 10.03) an amount of money sufficient to pay the
Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date) accrued interest on, and any Additional Amounts with respect
to, all the Securities or portions thereof which are to be redeemed on that
date other than any Securities called for redemption on that date which have
been converted prior to the date of such deposit.

If any Security called for redemption is converted, any money deposited
with the Trustee or with any Paying Agent or so segregated and held in trust
for the redemption of such Security shall (subject to any right of the Holder
of such Security or any Predecessor Security to receive interest as provided
in the last paragraph of Section 3.07) be paid to the Company on Company
Request or, if then held by the Company, shall be discharged from such trust.

SECTION 11.06. SECURITIES PAYABLE ON REDEMPTION DATE.

Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest and any Additional Amounts) such Securities shall cease to bear
interest or be entitled to any Additional Amounts. On surrender of any such
Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued
interest and any Additional Amounts to the Redemption Date; PROVIDED,
HOWEVER, that installments of interest whose Maturity is on or prior to the
Redemption Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on
the relevant Record Dates according to their terms and the provisions of
Section 3.07.

If any Security called for redemption shall not be so paid on surrender
thereof for redemption, the principal and premium, if any, shall, until paid,
bear interest from the Redemption Date at the rate borne by the Security.

SECTION 11.07 SECURITIES REDEEMED IN PART.

Any Security which is to be redeemed only in part shall be surrendered
at an office or agency of the Company maintained for that purpose pursuant to
Section 10.02 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or his
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities of the same series, of any
authorized denomination as requested by such Holder, in an aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal of the Security so surrendered.

ARTICLE XII

SUBORDINATION OF SECURITIES

SECTION 12.01. SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS.

The Company covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees, that, at all times and in
all respects, the indebtedness represented by the Securities and the payment
of the principal of, premium, if any, and interest on and any Additional
Amounts with respect to each and all of the Securities are hereby expressly
made subordinate and subject in right of payment to the prior payment in full
of all Senior Indebtedness. Obligations in respect of Senior Indebtedness
will not be deemed to have been paid in full unless the holders thereof shall
have received payment in full in cash or cash equivalents with respect
thereto.

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Each Holder of the Securities by its acceptance thereof acknowledges and
agrees that the subordination provisions included herein are, and are
intended to be, an inducement and a consideration to each holder of any
Senior Indebtedness, whether such Senior Indebtedness was created or acquired
before or after the issuance of Securities, to acquire and/or continue to
hold such Senior Indebtedness, and such holder of Senior Indebtedness shall
be deemed conclusively to have relied on such subordination provisions in
acquiring and/or continuing to hold such Senior Indebtedness.

SECTION 12.02. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.

In the event of (a) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding, relative to the Company or to its creditors, as such, or to a
substantial part of its assets, or (b) any proceeding for the liquidation,
dissolution or other winding up of the Company, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy, or (c) any
general assignment for the benefit of creditors or any other marshaling of
assets and liabilities of the Company, then and in any such event the holders
of Senior Indebtedness shall be entitled to receive payment in full of all
Obligations due or to become due on or in respect of all Senior Indebtedness
before the Holders of the Securities are entitled to receive any payment or
distribution of any kind or character, whether in cash, property or
securities, on account of principal of, premium, if any, or interest on or
any Additional Amounts with respect to the Securities, and to that end the
holders of Senior Indebtedness shall be entitled to receive, for application
to the payment thereof, any payment or distribution of any kind or character,
including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other indebtedness of the Company
being subordinated to the payment of the Securities, which may be payable or
deliverable in respect of the Securities in any such case, proceeding,
dissolution, liquidation or other winding up or event. In furtherance of the
foregoing, but not by way of limitation thereof, in the event of any case or
proceeding described in clause (a) above in or as a result of which the
Company is excused from the obligation to pay all or any part of the interest
otherwise payable in respect of any Senior Indebtedness during the period
subsequent to the commencement of any such case or proceeding, all or such
part, as the case may be, of such interest shall be payable out of, and to
that extent shall diminish and be at the expense of, reorganization dividends
or other distributions in respect of the Securities.

In the event that, notwithstanding the foregoing provisions of this
Section 12.02, the Trustee or the Holder of any Security shall have received
any payment or distribution of any kind or character in respect of the
Securities, whether in cash, property or securities, including any such
payment or distribution which may be payable or deliverable by reason of the
payment of any other indebtedness of the Company being subordinated to the
payment of the Securities, before all Senior Indebtedness is paid in full,
such payment or distribution shall be held by the Trustee (if the Trustee has
knowledge that such payment or distribution is prohibited by this Section
12.02) or by such Holder (in trust) for the holders of Senior Indebtedness,
and shall be paid forthwith over and delivered to, the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee, agent or other Person
making payment or distribution of assets of the Company for application to
the payment of all Senior Indebtedness remaining unpaid, to the extent
necessary to pay all Senior Indebtedness in full, after giving effect to any
concurrent payment or distribution to or for the holders of Senior
Indebtedness.

To the extent any payment of or distribution in respect of Senior
Indebtedness (whether by or on behalf of the Company, as proceeds of security
or enforcement of any right of set off or otherwise) is declared to be
fraudulent or preferential, set aside or required to be paid to any receiver,
trustee in bankruptcy, liquidating trustee, agent or other similar Person
under any bankruptcy, insolvency, receivership, fraudulent conveyance or
similar law, then if such payment or distribution is recovered by, or paid
over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar Person, the Senior Indebtedness or part thereof originally
intended to be satisfied shall be deemed to be reinstated and outstanding as
if such payment has not occurred.

For purposes of this Article XII only, (a) a "distribution" may consist
of cash, securities or other property, by set-off or otherwise and (b) the
words "cash, property or securities" shall not be deemed to include
securities of the

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Company as reorganized or readjusted or securities of the Company or any
other corporation provided for by a plan of reorganization or readjustment,
which securities are subordinated in right of payment to all Senior
Indebtedness which may at the time be outstanding to substantially the same
extent as, or to a greater extent than, the Securities are so subordinated as
provided in this Article XII. The consolidation of the Company with, or the
merger of the Company into, another Person or the liquidation or dissolution
of the Company following the conveyance or transfer of its properties and
assets substantially as an entirety to another Person on the terms and
conditions set forth in Article VIII shall not be deemed a dissolution,
winding up, liquidation, reorganization, general assignment for the benefit
of creditors or marshaling of assets and liabilities of the Company for the
purposes of this Section 12.02 if the Person formed by such consolidation or
into which the Company is merged or which acquires by conveyance or transfer
such properties and assets substantially as an entirety, as the case may be,
shall, as a part of such consolidation, merger, conveyance or transfer,
comply with the conditions set forth in Article VIII.

SECTION 12.03. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT.

The Company may not make any payment (whether by redemption, purchase,
retirement, defeasance or otherwise) to the Trustee or any Holder on account
of the principal of, premium, if any, or interest on or any Additional
Amounts with respect to the Securities and may not acquire from the Trustee
or any Holder any Securities (other than payments and other distributions
made from any defeasance trust created pursuant to Section 4.01 if the
applicable deposit does not violate Article IV or this Article XII) until all
principal and other Obligations with respect to the Senior Indebtedness of
the Company have been paid in full if:

(a) a default in the payment of any principal of, premium, if any, or
interest on Designated Senior Indebtedness occurs; or

(b) a default, other than a payment default, on Designated Senior
Indebtedness occurs and is continuing that then permits holders of the
Designated Senior Indebtedness as to which such default relates to accelerate
its maturity and the Trustee receives a notice of the default (a "Payment
Blockage Notice") from a Person who is a Representative of the holders of
such Designated Senior Indebtedness, PROVIDED, that if such Designated Senior
Indebtedness is of the type referred to in clause (b) of the definition
thereof, the Payment Blockage Notice shall be given by a Representative of
the holders of at least 20% of such Designated Senior Indebtedness. If the
Trustee receives any such Payment Blockage Notice, no subsequent Payment
Blockage Notice shall be effective for purposes of this Section 12.03 unless
and until 360 days shall have elapsed since the date of commencement of the
payment blockage period resulting from the immediately prior Payment Blockage
Notice. No nonpayment default in respect of any Designated Senior
Indebtedness that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee shall be, or be made, the basis for
subsequent Payment Blockage Notices.

The Company shall resume payments on and distributions in respect of the
Securities and may acquire Securities on:

(a) in the case of a default referred to in subparagraph (a) of the
preceding paragraph, the date on which the default is cured or waived, or

(b) in the case of a default referred to in subparagraph (b) of the
preceding paragraph, the earliest of (i) the date on which such nonpayment
default is cured or waived, (ii) the date the applicable Payment Blockage
Notice is retracted by written notice to the Trustee from the Person who is a
Representative of the holders of the relevant Designated Senior Indebtedness
and (iii) 179 days after the date on which the applicable Payment Blockage
Notice is received unless (A) any of the events described in subparagraph (a)
of the preceding paragraph has occurred and is continuing or (B) a default or
Event of Default under clause (e) or (f) of Section 5.01 has occurred, if
this Article XII otherwise permits the payment, distribution or acquisition
at the time of such payment or acquisition.

<PAGE>

In the event that, notwithstanding the foregoing, the Company shall make
any payment or distribution to the Trustee or the Holder of any Security
prohibited by the foregoing provisions of this Section 12.03, such payment or
distribution shall be held by the Trustee (if the Trustee has knowledge that
such payment or distribution is so prohibited) or by such Holder (in trust)
for the holders of Senior Indebtedness, and shall be paid forthwith over and
delivered (a) to the holders of Senior Indebtedness or their respective
Representatives as their respective interests may appear or (b) as a court of
competent jurisdiction shall direct, in each case for application to the
payment of all Obligations with respect to Senior Indebtedness remaining
unpaid to the extent necessary to pay such Obligations in full in accordance
with their terms, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.

The provisions of this Section 12.03 shall not apply to any payment with
respect to which Section 12.02 would be applicable.

SECTION 12.04. PAYMENT PERMITTED IF NO DEFAULT.

Nothing contained in this Article XII or elsewhere in this Indenture or
in any of the Securities shall prevent (a) the Company, at any time except
under the circumstances referred to in Section 12.02 or under the conditions
described in Section 12.03, from making payments at any time of principal of,
premium, if any, or interest on or any Additional Amounts with respect to the
Securities, or (b) the application by the Trustee of any money deposited with
it hereunder to the payment of or on account of the principal of, premium, if
any, or interest on or any Additional Amounts with respect to the Securities
if, at the time of such application by the Trustee, it did not have knowledge
within the meaning of Section 12.09 that such payment would have been
prohibited by the provisions of this Article XII.

SECTION 12.05. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.

Subject to the payment in full of all Obligations in respect of Senior
Indebtedness, the Holders of the Securities shall be subrogated to the extent
of the payments or distributions made to the holders of Senior Indebtedness
pursuant to the provisions of this Article XII (equally and ratably with the
holders of all indebtedness of the Company which by its express terms is
subordinated to other indebtedness of the Company to substantially the same
extent as the Securities are subordinated and is entitled to like rights of
subrogation) to the rights of the holders of Senior Indebtedness to receive
payments and distributions applicable to the Senior Indebtedness until the
principal of, premium, if any, and interest on and any Additional Amounts
with respect to the Securities shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of the Senior
Indebtedness to which the Holders of the Securities or the Trustee would be
entitled except for the provisions of this Article XII, and no payments over
pursuant to the provisions of this Article XII to the holders of Senior
Indebtedness by Holders of the Securities or the Trustee, shall, as among the
Company, its creditors other than holders of Senior Indebtedness and the
Holders of the Securities, be deemed to be a payment or distribution by the
Company to or on account of the Senior Indebtedness.

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SECTION 12.06. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.

The provisions of this Article XII are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on
the one hand and the holders of Senior Indebtedness on the other hand.
Nothing contained in this Article XII or elsewhere in this Indenture or in
the Securities is intended to or shall: (a) impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Securities, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders of the Securities the principal of,
premium, if any, and interest on and any Additional Amounts with respect to
the Securities as and when the same shall become due and payable in
accordance with their terms; (b) affect the relative rights against the
Company or the Holders of the Securities and creditors of the Company other
than the holders of Senior Indebtedness; or (c) prevent the Trustee or the
Holder of any Security from exercising all remedies otherwise permitted by
applicable law on default under this Indenture, subject to the rights, if
any, under this Article XII of the holders of Senior Indebtedness to receive
distributions otherwise payable or deliverable to the Trustee or such Holder.

SECTION 12.07. TRUSTEE TO EFFECTUATE SUBORDINATION.

Each holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article XII and
appoints the Trustee his attorney-in-fact for any and all such purposes.

SECTION 12.08. NO WAIVER OF SUBORDINATION PROVISIONS.

No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the
Company or by any act or failure to act by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.

Without in any way limiting the generality of the preceding paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Trustee or the Holders of
the Securities and without impairing or releasing the subordination provided
in this Article XII or the obligations hereunder of the Trustee or the
Holders of the Securities to the holders of Senior Indebtedness, do any one
or more of the following: (a) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter, Senior Indebtedness, or
otherwise amend or supplement in any manner Senior Indebtedness or any
instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (b) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (c) release any Person liable in any manner for the collection
of Senior Indebtedness; and (d) exercise or refrain from exercising any
rights against the Company and any other Person.

SECTION 12.09. NOTICE TO TRUSTEE.

The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by
the Trustee in respect of the Securities. Notwithstanding the provisions of
this Article XII or any other provision of this Indenture, the Trustee shall
not be charged with knowledge of the existence of any facts that would
prohibit the making of any payment to or by the Trustee in respect of the
Securities, unless and until the Trustee shall have received written notice
thereof from the Company or a holder of Senior Indebtedness or from any
Representative therefor; and, prior to the receipt of any such written
notice, the Trustee, subject to the provisions of Section 6.01, shall be
entitled in all respects to assume that no such facts exist; PROVIDED,
HOWEVER, that if the Trustee shall not have received the notice provided for
in this Section 12.09 at least two Business Days prior to the date on which
by the terms hereof any money may become payable for any purpose (including,
without limitation, the payment of the principal of, premium, if any, or
interest on or any Additional Amounts with respect to

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any Security), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive
such money and to apply the same to the purpose for which such money was
received and shall not be affected by any notice to the contrary which may be
received by it within two Business Days prior to such date.

Subject to the provisions of Section 6.01, the Trustee shall be entitled
to rely on the delivery to it of a written notice by a Person representing
himself to be a holder of Senior Indebtedness (or a Representative therefor)
to establish that such notice has been given by a holder of Senior
Indebtedness (or a Representative therefor). In the event that the Trustee
determines in good faith that further evidence is required with respect to
the right of any Person as a holder of Senior Indebtedness to participate in
any payment or distribution pursuant to this Article XII, the Trustee may
request such Person to furnish evidence to the satisfaction of the Trustee as
to the amount of Senior Indebtedness held by such Person, the extent to which
such Person is entitled to participate in such payment or distribution and
any other facts pertinent to the rights of such Person under this Article
XII, and if such evidence is not furnished, the Trustee may defer any payment
to such Person pending judicial determination as to the right of such Person
to receive such payment.

SECTION 12.10. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING
AGENT.

On any payment or distribution in respect of the Securities or Senior
Indebtedness referred to in this Article XII, the Trustee, subject to the
provisions of Section 6.01, and, so long as the provisions of this Article
XII have been brought to the attention of the court, tribunal, trustee or
other Person making the payment or distribution, the Holders of the
Securities shall be entitled to rely on any order or decree entered by any
court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee for the benefit of
creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness and other indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article XII.

SECTION 12.11. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS.

The Trustee shall not be deemed to owe any fiduciary duty to the holders
of Senior Indebtedness and shall not be liable to any such holders if it
shall, absent gross negligence or wilful misconduct, mistakenly pay over or
distribute to Holders of Securities or to the Company or to any other Person
cash, property or securities to which holders of Senior Indebtedness shall be
entitled by virtue of this Article XII or otherwise. With respect to the
holders of Senior Indebtedness, the Trustee undertakes to perform or to
observe only such of its covenants and obligations as are specifically set
forth in this Article XII, and no implied covenants or obligations with
respect to the holders of Senior Indebtedness shall be read into this Article
XII against the Trustee.

SECTION 12.12. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS;
PRESERVATION OF TRUSTEE'S RIGHTS.

The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XII with respect to any Senior Indebtedness
which may at any time be held by it, to the same extent as any other holder
of Senior Indebtedness, and nothing in this Indenture shall deprive the
Trustee of any of its rights as such holder.

Nothing in this Article XII shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 6.07.

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SECTION 12.13. ARTICLE APPLICABLE TO PAYING AGENTS.

In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article XII shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying
Agent within its meaning as fully for all intents and purposes as if such
Paying Agent were named in this Article XII in addition to or in place of the
Trustee; PROVIDED, HOWEVER, that Section 12.12 shall not apply to the Company
or any Affiliate of the Company if it or such Affiliate acts as Paying Agent.

SECTION 12.14. CERTAIN CONVERSIONS DEEMED PAYMENT.

For the purposes of this Article XII only, (a) the issuance and delivery
of junior securities on conversion of Securities in accordance with Article
XIII shall not be deemed to constitute a payment or distribution on account
of the principal of, premium, if any, or interest on or any Additional
Amounts with respect to Securities or on account of the purchase or other
acquisition of Securities, and (b) the payment, issuance or delivery of cash,
property or securities (other than junior securities) on conversion of a
Security shall be deemed to constitute payment on account of the principal of
such Security. For the purposes of this Section 12.14, the term "junior
securities" means (a) shares of any class of capital stock of the Company and
(b) securities of the Company which are subordinated in right of payment to
all Senior Indebtedness which may be outstanding at the time of issuance or
delivery of such securities to substantially the same extent as, or to a
greater extent than, the Securities are so subordinated as provided in this
Article XII. Nothing contained in this Article XII or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as among the
Company, its creditors other than holders of Senior Indebtedness and the
Holders of the Securities, the right, which is absolute and unconditional, of
the Holder of any Security to convert such Security in accordance with
Article XIII.

SECTION 12.15. NO SUSPENSION OF REMEDIES.

Nothing contained in this Article XII shall limit the right of the
Trustee or the Holders of the Securities of any series to take any action to
accelerate the maturity of the Securities of that series pursuant to the
provisions described under Article V and as set forth in this Indenture or to
pursue any rights or remedies hereunder or under applicable law, subject to
the rights, if any, under this Article XII of the holders, from time to time,
of Senior Indebtedness to receive the cash, property or securities receivable
on the exercise of such rights or remedies.

ARTICLE XIII

CONVERSION OF SECURITIES

SECTION 13.01. CONVERSION PRIVILEGE AND CONVERSION PRICE.

Subject to and on compliance with the provisions of this Article XIII,
at the option of the Holder thereof, any Security of any series may be
converted at any time during the convertibility period as described on the
face of each Security (the "Convertibility Period") for that Security at the
principal amount thereof into fully paid and nonassessable shares (calculated
as to each conversion to the nearest 1/100 of a share) of Common Stock, at
the conversion price for that Security, determined as hereinafter provided,
in effect at the time of conversion. Such conversion right shall expire at
the close of business on the last day of the Convertibility Period. In case
a Security is called for redemption, such conversion right in respect of the
Security shall expire at the close of business on the second business day
preceding the applicable Redemption Date, unless the Company defaults in
making the payment due on redemption.

The price at which shares of Common Stock shall be delivered on
conversion of any Security (herein called the "conversion price") shall be
initially the Conversion Price per share of Common Stock which is fixed for
that Security by or pursuant to this Indenture. The conversion price shall be
adjusted in certain instances as provided in paragraphs (a), (b), (c), (d),
(e), (f) and (i) of Section 13.04.

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SECTION 13.02. EXERCISE OF CONVERSION PRIVILEGE.

In order to exercise the conversion privilege, the Holder of any
Security of any series shall surrender that Security, duly endorsed or
assigned to the Company or in blank, at any office or agency of the Company
maintained pursuant to Section 10.02 for that series, accompanied by written
notice to the Company in the form provided in the Security (or such other
notice as is acceptable to the Company) at such office or agency that the
Holder elects to convert that Security. Securities surrendered for
conversion during the period from the opening of business on any Regular
Record Date for that Security next preceding any Interest Payment Date for
that Security to the close of business on that Interest Payment Date (except
in the case of Securities which have been called for redemption on a
Redemption Date, occurring within such period) must be accompanied by payment
in New York Clearing House funds or other funds acceptable to the Company of
an amount equal to the interest payable on that Interest Payment Date on the
principal amount of Securities being surrendered for conversion. Except as
provided in the immediately preceding sentence and subject to the last
paragraph of Section 3.07, no payment or adjustment shall be made on any
conversion on account of any interest accrued on the Securities surrendered
for conversion or on account of any dividends on the Common Stock issued on
conversion.

Securities shall be deemed to have been converted immediately prior to
the close of business on the day of their surrender for conversion in
accordance with the foregoing provisions, and at such time the rights of the
Holders of those Securities as Holders shall cease, and the Person or Persons
entitled to receive the Common Stock issuable on conversion of those
Securities shall be treated for all purposes as having become the record
holder or holders of such Common Stock as and after such time. As promptly as
practicable on or after the conversion date, the Company shall issue and
shall deliver at such office or agency a certificate or certificates for the
number of full shares of Common Stock issuable on conversion, together with
payment in lieu of any fraction of a share, as provided in Section 13.03.

SECTION 13.03. FRACTIONS OF SHARES.

No fractional share of Common Stock shall be issued on conversion of
Securities of any series. If more than one Security of the same series shall
be surrendered for conversion at one time by the same Holder, the number of
full shares which shall be issuable on conversion thereof shall be computed
on the basis of the aggregate principal amount of the Securities (or
specified portions thereof) so surrendered. Instead of any fractional share
of Common Stock which would otherwise be issuable on conversion of any
Security or Securities (or specified portions thereof), the Company shall pay
a cash adjustment in respect of such fraction in an amount equal to the same
fraction of the Closing Price (as hereinafter defined) at the close of
business on the day of conversion (or, if such day is not a Trading Day (as
hereafter defined), on the Trading Day immediately preceding such day).

SECTION 13.04. ADJUSTMENT OF CONVERSION PRICE.

(a) In case the Company shall pay or make a dividend or other
distribution on the Common Stock exclusively in Common Stock or shall pay or
make a dividend or other distribution on any other class of capital stock of
the Company which dividend or distribution includes Common Stock, each
conversion price in effect for the Securities of each series at the opening
of business on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution shall be
reduced by multiplying that conversion price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day
following the date fixed for such determination. For the purpose of this
paragraph (a), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Company. The Company
shall not pay any dividend or make any distribution on shares of Common Stock
held in the treasury of the Company.

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(b) Subject to paragraph (g) of this Section 13.04, in case the Company
shall pay or make a dividend or other distribution on the Common Stock
consisting exclusively of, or shall otherwise issue to all holders of the
Common Stock, rights or warrants entitling the holders thereof to subscribe
for or purchase shares of Common Stock at a price per share less than the
Current Market Price (determined as provided in paragraph (h) of this Section
13.04) on the date fixed for the determination of stockholders entitled to
receive such rights or warrants, each conversion price in effect for the
Securities of each series at the opening of business on the day following the
date fixed for such determination shall be reduced by multiplying that
conversion price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of Common Stock
so offered for subscription or purchase would purchase at such Current Market
Price and the denominator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
plus the number of shares of Common Stock so offered for subscription or
purchase, such reduction to become effective immediately after the opening of
business on the day following the date fixed for such determination. For the
purposes of this paragraph (b), the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the
Company. The Company shall not issue any rights or warrants in respect of
shares of Common Stock held in the treasury of the Company.

(c) In case outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock, each conversion price in effect
for the Securities of each series at the opening of business on the day
following the day on which such subdivision becomes effective shall be
proportionately reduced, and, conversely, in case outstanding shares of
Common Stock shall be combined into a smaller number of shares of Common
Stock, each conversion price in effect for the Securities of each series at
the opening of business on the day following the day on which such
combination becomes effective shall be proportionately increased, such
reduction or increase, as the case may be, to become effective immediately
after the opening of business on the day following the day on which
subdivision or combination becomes effective.

(d) Subject to the last sentence of this paragraph (d) and to paragraph
(g) of this Section 13.04, in case the Company shall, by dividend or
otherwise, distribute to all holders of the Common Stock evidences of its
indebtedness, shares of any class of its capital stock, cash or other assets
(including securities, but excluding any rights or warrants referred to in
paragraph (b) of this Section 13.04, excluding any dividend or distribution
paid exclusively in cash and excluding any dividend or distribution referred
to in paragraph (a) of this Section 13.04), each conversion price for the
Securities of each series shall be reduced by multiplying that conversion
price as it was in effect immediately prior to the close of business on the
date fixed for the determination of stockholders entitled to such
distribution by a fraction of which the numerator shall be the Current Market
Price (determined as provided in paragraph (h) of this Section 13.04) on such
date less the fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and described in a Board Resolution)
on such date of the portion of the evidences of indebtedness, shares of
capital stock, cash and other assets to be distributed applicable to one
share of Common Stock and the denominator shall be such Current Market Price,
such reduction to become effective immediately prior to the opening of
business on the day following such date. If the Board of Directors determines
the fair market value of any distribution for purposes of this paragraph (d)
by reference to the actual or when-issued trading market for any securities
comprising part or all of such distribution, it must in doing so consider the
prices in such market over the same period used in computing the Current
Market Price pursuant to paragraph (h) of this Section 13.04, to the extent
possible. For purposes of this paragraph (d), any dividend or distribution
that includes shares of Common Stock, rights or warrants to subscribe for or
purchase shares of Common Stock or securities convertible into or
exchangeable for shares of Common Stock shall be deemed to be (i) a dividend
or distribution of the evidences of indebtedness, cash, assets or shares of
capital stock other than such shares of Common Stock, such rights or warrants
or such convertible or exchangeable securities (making any conversion price
reduction required by this paragraph (d)) immediately followed by (ii) in the
case of such shares of Common Stock or such rights or warrants, a dividend or
distribution thereof (making any further conversion price reduction required
by paragraphs (a) and (b) of this Section 13.04, except any shares of Common
Stock included in such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such
determination" within the meaning of paragraph (a) of this Section 13.04), or
(iii) in the case of such convertible or

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exchangeable securities, a dividend or distribution of the number of shares
of Common Stock as would then be issuable on the conversion or exchange
thereof, whether or not the conversion or exchange of such securities is
subject to any conditions (making any further conversion price reduction
required by paragraph (a) of this Section 13.04, except the shares deemed to
constitute such dividend or distribution shall not be deemed "outstanding at
the close of business on the date fixed for such determination" within the
meaning of paragraph (a) of this Section 13.04).

(e) In case the Company shall, by dividend or otherwise, at any time
distribute to all holders of the Common Stock cash (excluding any cash that
is distributed as part of a distribution referred to in paragraph (d) of this
Section 13.04 or in connection with a transaction to which Section 13.11
applies) in an aggregate amount that, together with (i) the aggregate amount
of any other distributions to all holders of the Common Stock made
exclusively in cash within the 12 months preceding the date fixed for the
determination of stockholders entitled to such distribution and in respect of
which no conversion price adjustment pursuant to this paragraph (e) has been
made previously and (ii) the aggregate of any cash plus the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution) as of such date of
determination of any other consideration payable in respect of any tender
offer by the Company or a Subsidiary for all or any portion of the Common
Stock consummated within the 12 months preceding such date of determination
and in respect of which no conversion price adjustment pursuant to paragraph
(f) of this Section 13.04 has been made previously, exceeds the greater of
(A) 12.5% of the product of the Current Market Price (determined as provided
in paragraph (h) of this Section) on such date of determination times the
number of shares of Common Stock outstanding on such date or (B) the
Company's consolidated retained earnings on the date fixed for determining
the stockholders entitled to such distribution (determined without giving
effect to such distribution), each conversion price for the Securities of
each series shall be reduced by multiplying that conversion price as it was
in effect immediately prior to the close of business on such date of
determination by a fraction of which the numerator shall be the Current
Market Price (determined as provided in paragraph (h) of this Section 13.04)
on such date less the amount of such cash previously distributed or to be
distributed at such time applicable to one share of Common Stock and the
denominator shall be such Current Market Price, such reduction to become
effective immediately prior to the opening of business on the day following
such date.

(f) In case a tender offer made by the Company or any Subsidiary for all
or any portion of the Common Stock shall be consummated and such tender offer
shall involve an aggregate consideration having a fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution) as of the last time (the "Expiration
Time") that tenders may be made pursuant to such tender offer (as it shall
have been amended) that, together with (i) the aggregate of the cash plus the
fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) as of
the Expiration Time of the other consideration paid in respect of any other
tender offer by the Company or a Subsidiary for all or any portion of the
Common Stock consummated within the 12 months preceding the Expiration Time
and in respect of which no conversion price adjustment pursuant to this
paragraph (f) has been made previously and (ii) the aggregate amount of any
distributions to all holders of the Common Stock made exclusively in cash
within the 12 months preceding the Expiration Time and in respect of which no
conversion price adjustment pursuant to paragraph (e) of this Section 13.04
has been made previously, exceeds the greater of (A) 12.5% of the product of
the Current Market Price (determined as provided in paragraph (h) of this
Section 13.04) immediately prior to the Expiration Time times the number of
shares of Common Stock outstanding (including any tendered shares) at the
Expiration Time or (B) the Company's consolidated retained earnings as of the
Expiration Time (determined without giving effect to the purchase of tendered
shares), each conversion price for the Securities of each series shall be
reduced by multiplying that conversion price as it was in effect immediately
prior to the Expiration Time by a fraction of which the numerator shall be
(1) the product of the Current Market Price (determined as provided in
paragraph (h) of this Section 13.04) immediately prior to the Expiration Time
times the number of shares of Common Stock outstanding (including any
tendered shares at the Expiration Time) minus (2) the fair market value
(determined as aforesaid) of the aggregate consideration payable to
stockholders on consummation of such tender offer and the denominator shall
be the product of (1) such Current Market Price times (2) such number of
outstanding shares at the Expiration Time minus the number of shares accepted
for payment in such tender offer (the "Purchased Shares"), such reduction to
become effective immediately prior to the opening of business on the day
following the Expiration Time; PROVIDED, that if the number of Purchased
Shares or the

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aggregate consideration payable therefor has not been finally determined by
such opening of business, the adjustment required by this paragraph (f)
shall, pending such final determination, be made based on the preliminarily
announced results of such tender offer, and, after such final determination
shall have been made, the adjustment required by this paragraph (f) shall be
made based on the number of Purchased Shares and the aggregate consideration
payable therefor as so finally determined.

(g) The reclassification of Common Stock into securities that include
securities other than Common Stock (other than any reclassification on a
consolidation or merger to which Section 13.11 applies) shall be deemed to
involve (i) a distribution of such securities other than Common Stock to all
holders of Common Stock (and the effective date of such reclassification
shall be deemed to be "the date fixed for the determination of stockholders
entitled to such distribution" within the meaning of paragraph (d) of this
Section 13.04), and (ii) a subdivision or combination, as the case may be, of
the number of shares of Common Stock outstanding immediately prior to such
reclassification into the number of shares of Common Stock outstanding
immediately thereafter (and the effective date of such reclassification shall
be deemed to be "the day on which such subdivision becomes effective" or "the
day on which such combination becomes effective", as the case may be, and
"the day on which such subdivision or combination becomes effective" within
the meaning of paragraph (c) of this Section 13.04).

Rights or warrants issued by the Company to all holders of the Common
Stock entitling the holders thereof to subscribe for or purchase shares of
Common Stock (either initially or under certain circumstances), which rights
or warrants (i) are deemed to be transferred with such shares of Common
Stock, (ii) are not exercisable and (iii) are also issued in respect of
future issuances of Common Stock, in each case in clauses (i) through (iii)
until the occurrence of a specified event or events ("Trigger Event"), shall
for purposes of this Section 13.04 not be deemed issued until the occurrence
of the earliest Trigger Event. If any such rights or warrants, including any
such existing rights or warrants distributed prior to the date of this
Indenture, are subject to subsequent events, on the occurrence of each of
which such rights or warrants shall become exercisable to purchase different
securities, evidences of indebtedness or other assets, then the occurrence of
each such event shall be deemed to be such date of issuance and record date
with respect to new rights or warrants (and a termination or expiration of
the existing rights or warrants without exercise by the holder thereof). In
addition, in the event of any distribution (or deemed distribution) of such
rights or warrants, or any Trigger Event with respect thereto, that was
counted for purposes of calculating a distribution amount for which an
adjustment to any conversion price under this Section 13.04 was made, (i) in
the case of any such rights or warrants that shall all have been redeemed or
repurchased without exercise by any holders thereof, that conversion price
shall be readjusted on such final redemption or repurchase to give effect to
such distribution or Trigger Event, as the case may be, as though it were a
cash distribution, equal to the per share redemption or repurchase price
received by a holder or holders of Common Stock with respect to such rights
or warrants (assuming such holder had retained such rights or warrants), made
to all holders of Common Stock as of the date of such redemption or
repurchase, and (ii) in the case of such rights or warrants that shall have
expired or been terminated without exercise by any holders thereof, that
conversion price shall be readjusted as if such rights and warrants had not
been issued.

Notwithstanding any other provision of this Section 13.04 to the
contrary, rights, warrants, evidences of indebtedness, other securities, cash
or other assets (including, without limitation, any rights distributed
pursuant to any stockholder rights plan) shall be deemed not to have been
distributed for purposes of this Section 13.04 if the Company makes proper
provision so that each holder of Securities of each series who converts a
Security (or any portion thereof) of that series after the date fixed for
determination of stockholders entitled to receive such distribution shall be
entitled to receive on such conversion, in addition to the shares of Common
Stock issuable on such conversion, the amount and kind of such distributions
which that holder would have been entitled to receive if such holder had,
immediately prior to such determination date, converted that Security into
Common Stock.

(h) For the purpose of any computation under this paragraph (h) and
paragraphs (b), (d) and (e) of this Section 13.04, the current market price
per share of Common Stock (the "Current Market Price") on any date shall be
deemed to be the average of the daily Closing Prices for the five consecutive
Trading Days selected by the Company commencing not more than 20 Trading Days
before, and ending not later than, the date in question; PROVIDED, HOWEVER,

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<PAGE>

that (i) if the "ex" date for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to any
conversion price pursuant to paragraph (a), (b), (c), (d), (e) or (f) of this
Section 13.04 occurs on or after the 20th Trading Day prior to the date in
question and prior to the "ex" date for the issuance or distribution
requiring such computation, the Closing Price for each Trading Day prior to
the "ex" date for such other event shall be adjusted by multiplying such
Closing Price by the same fraction by which that conversion price is so
required to be adjusted as a result of such other event, (ii) if the "ex"
date for any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the conversion price pursuant to
paragraph (a), (b), (c), (d), (e) or (f) of this Section 13.04 occurs on or
after the "ex" date for the issuance or distribution requiring such
computation and on or prior to the date in question, the Closing Price for
each Trading Day on and after the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the reciprocal of the fraction
by which that conversion price is so required to be adjusted as a result of
such other event, and (iii) if the "ex" date for the issuance or distribution
requiring such computation is on or prior to the date in question, after
taking into account any adjustment required pursuant to clause (ii) of this
proviso, the Closing Price for each Trading Day on or after such "ex" date
shall be adjusted by adding thereto the amount of any cash and the fair
market value on the date in question (as determined by the Board of Directors
in a manner consistent with any determination of such value for purposes of
paragraph (d) or (e) of this Section 13.04, whose determination shall be
conclusive and described in a Board Resolution) of the evidences of
indebtedness, shares of capital stock or assets being distributed applicable
to one share of Common Stock as of the close of business on the day before
such "ex" date. For the purpose of any computation under paragraph (f) of
this Section 13.04, the Current Market Price on any date shall be deemed to
be the average of the daily Closing Prices for the five consecutive Trading
Days selected by the Company commencing on or after the latest (the
"Commencement Date") of (i) the date 20 Trading Days before the date in
question, (ii) the date of commencement of the tender offer requiring such
computation and (iii) the date of the last amendment, if any, of such tender
offer involving a change in the maximum number of shares for which tenders
are sought or a change in the consideration offered, and ending not later
than the Expiration Time of such tender offer; PROVIDED, HOWEVER, that if the
"ex" date for any event (other than the tender offer requiring such
computation) that requires an adjustment to any conversion price pursuant to
paragraph (a), (b), (c), (d), (e) or (f) of this Section 13.04 occurs on or
after the Commencement Date and prior to the Expiration Time for the tender
offer requiring such computation, the Closing Price for each Trading Day
prior to the "ex" date for such other event shall be adjusted by multiplying
such Closing Price by the same fraction by which the conversion price is so
required to be adjusted as a result of such other event. The closing price
for any Trading Day (the "Closing Price") shall be the last reported sales
price regular way or, in case no such reported sale takes place on such day,
the average of the reported closing bid and asked prices regular way, in
either case on the American Stock Exchange or, if the Common Stock is not
listed or admitted to trading on such exchange, on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national securities
exchange, on the Nasdaq National Market or, if the Common Stock is not listed
or admitted to trading on any national securities exchange or quoted on the
Nasdaq National Market, the average of the closing bid and asked prices in
the over-the-counter market as furnished by any American Stock Exchange
member firm selected from time to time by the Company for that purpose. For
purposes of this paragraph, the term "Trading Day" means each Monday,
Tuesday, Wednesday, Thursday and Friday, other than any day on which
securities are generally not traded on the applicable securities exchange or
in the applicable securities market and the term "`ex' date," (i) when used
with respect to any issuance or distribution, means the first date on which
the Common Stock trades regular way on the relevant exchange or in the
relevant market from which the Closing Prices were obtained without the right
to receive such issuance or distribution, (ii) when used with respect to any
subdivision or combination of shares of Common Stock, means the first date on
which the Common Stock trades regular way on such exchange or in such market
after the time at which such subdivision or combination becomes effective and
(iii) when used with respect to any tender offer means the first date on
which the Common Stock trades regular way on such exchange or in such market
after the last time that tenders may be made pursuant to such tender offer
(as it shall have been amended).

(i) The Company may make such reductions in any conversion price for any
Security, in addition to those required by paragraphs (a), (b), (c), (d), (e)
and (f) of this Section 13.04, as it considers to be advisable (as evidenced
by a Board Resolution) in order that any event treated for federal income tax
purposes as a dividend of stock or stock

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<PAGE>

rights shall not be taxable to the recipients or, if that is not possible, to
diminish any income taxes that are otherwise payable because of such event.

(j) No adjustment in any conversion price for any Security shall be
required unless such adjustment (plus any other adjustments not previously
made by reason of this paragraph (j)) would require an increase or decrease
of at least 1% in that conversion price; PROVIDED, HOWEVER, that any
adjustments which by reason of this paragraph (j) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment
of that conversion price.

(k) Notwithstanding any other provision of this Section 13.04, no
adjustment to any conversion price for any Security shall reduce that
conversion price below the then par value per share of the Common Stock, and
any such purported adjustment shall instead reduce that conversion price to
that par value. The Company hereby covenants not to take any action to
increase the par value per share of the Common Stock.

SECTION 13.05. NOTICE OF ADJUSTMENTS OF CONVERSION PRICE.

Whenever any conversion price is adjusted as herein provided:

(a) the Company shall compute the adjusted conversion price in
accordance with Section 13.04 and shall prepare an Officers' Certificate
signed by the Treasurer of the Company setting forth the adjusted conversion
price and showing in reasonable detail the facts on which such adjustment is
based, and such certificate shall forthwith be filed (with a copy to the
Trustee) at each office or agency maintained pursuant to Section 10.02 for
the purpose of conversion of the Securities to which the adjusted conversion
price applies; and

(b) a notice stating that the conversion price has been adjusted and
setting forth the adjusted conversion price shall forthwith be prepared, and
as soon as practicable after it is prepared, such notice shall be mailed by
the Company to all Holders of Securities to which the adjusted conversion
price applies at their last addresses as they shall appear in the Security
Register.

SECTION 13.06. NOTICE OF CERTAIN CORPORATE ACTION.

In case:

(a) the Company shall declare a dividend (or any other distribution) on
the Common Stock payable (i) otherwise than exclusively in cash or (ii)
exclusively in cash in an amount that would require any conversion price
adjustment pursuant to paragraph (e) of Section 13.04; or

(b) the Company shall authorize the granting to the holders of the
Common Stock of rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any other rights (excluding shares of
capital stock or options for capital stock issued pursuant to a benefit plan
for employees, officers or directors of the Company); or

(c) of any reclassification of the Common Stock (other than a
subdivision or combination of the outstanding shares of Common Stock), or of
any consolidation, merger or share exchange to which the Company is a party
and for which approval of any stockholders of the Company is required, or of
the sale or transfer of all or substantially all the assets of the Company; or

(d) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company; or

(e) the Company or any Subsidiary shall commence a tender offer for all
or a portion of the outstanding shares of Common Stock (or shall amend any
such tender offer to change the maximum number of shares being sought or the
amount or type of consideration being offered therefor); then the Company
shall cause to be filed at each office or

53
<PAGE>

agency maintained pursuant to Section 10.02, and shall cause to be mailed to
all Holders at their last addresses as they shall appear in the Security
Register, at least 21 days (or 11 days in any case specified in clause (a),
(b) or (e) above) prior to the applicable record, effective or expiration
date hereinafter specified, a notice stating (i) the date on which a record
is to be taken for the purpose of such dividend, distribution or granting of
rights or warrants, or, if a record is not to be taken, the date as of which
the holders of Common Stock of record who will be entitled to such dividend,
distribution, rights or warrants are to be determined, (ii) the date on which
such reclassification, consolidation, merger, share exchange, sale, transfer,
dissolution, liquidation or winding up is expected to become effective, and
the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities,
cash or other property deliverable on such reclassification, consolidation,
merger, share exchange, sale, transfer, dissolution, liquidation or winding
up, or (iii) the date on which such tender offer commenced, the date on which
such tender offer is scheduled to expire unless extended, the consideration
offered and the other material terms thereof (or the material terms of any
amendment thereto). Neither the failure to give any such notice nor any
defect therein shall affect the legality or validity of any action described
in clauses (a) through (e) of this Section 13.06.

SECTION 13.07. COMPANY TO RESERVE COMMON STOCK.

The Company shall at all times reserve and keep available, free from
preemptive and other rights, out of the authorized but unissued Common Stock
or out of the Common Stock held in the treasury of the Company, for the
purpose of effecting the conversion of Securities, the full number of shares
of Common Stock then issuable on the conversion of all outstanding
Securities. Shares of Common Stock issuable on conversion of outstanding
Securities shall be issued out of the Common Stock held in the treasury of
the Company to the extent available.

SECTION 13.08. TAXES ON CONVERSIONS.

The Company will pay any and all taxes that may be payable in respect of
the issue or delivery of shares of Common Stock on conversion of Securities
pursuant hereto. The Company shall not, however, be required to pay any tax
that may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that of the Holder of
the Security or Securities to be converted, and no such issue or delivery
shall be made unless and until the Person requesting such issue has paid to
the Company the amount of any such tax, or has established to the
satisfaction of the Company that such tax has been paid.

SECTION 13.09. COVENANT AS TO COMMON STOCK.

The Company covenants that all shares of Common Stock which may be
issued on conversion of Securities will on issue be fully paid and
nonassessable and, except as provided in Section 13.08, the Company will pay
all taxes, liens and charges with respect to the issue thereof.

SECTION 13.10. CANCELLATION OF CONVERTED SECURITIES.

All Securities delivered for conversion shall be delivered to the
Trustee to be canceled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 3.09.

SECTION 13.11. PROVISIONS OF CONSOLIDATION, MERGER OR SALE OF ASSETS.

In case of any consolidation of the Company with, or merger of the
Company into, any other Person, (other than a merger which does not result in
any reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock) or any sale or transfer of all or substantially all
the assets of the Company (other than to a wholly-owned Subsidiary), the
Person formed by such consolidation or resulting from such merger or which
acquires such assets, as the case may be, shall execute and deliver to the
Trustee a supplemental indenture providing that the Holder of each Security
then Outstanding shall have the right thereafter, during the period such
Security shall be convertible as specified in or pursuant to this Indenture,
to convert such Security only into the kind and amount of securities, cash

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<PAGE>

and other property, if any, receivable on such consolidation, merger, sale or
transfer by a holder of the number of shares of Common Stock into which such
Security might have been converted immediately prior to such consolidation,
merger, sale or transfer, assuming such holder of Common Stock (i) is not a
Person with which the Company consolidated or into which the Company merged
or to which such sale or transfer was made, as the case may be (a
"Constituent Person"), or an Affiliate of a Constituent Person and (ii)
failed to exercise his rights of election, if any, as to the kind or amount
of securities, cash and other property receivable on such consolidation,
merger, sale or transfer (provided that if the kind or amount of securities,
cash and other property receivable on such consolidation, merger, sale or
transfer is not the same for each share of Common Stock held immediately
prior to such consolidation, merger, sale or transfer by other than a
Constituent Person or an Affiliate thereof and in respect of which such
rights of election shall not have been exercised ("nonelecting share"), then
for the purpose of this Section 13.11 the kind and amount of securities, cash
and other property receivable on such consolidation, merger, sale or transfer
by each nonelecting share shall be deemed to be the kind and amount so
receivable per share by a plurality of the nonelecting shares). Such
supplemental indenture shall provide for adjustments which, for events
subsequent to the effective date of such supplemental indenture, shall be as
nearly equivalent as may be practicable to the adjustments provided for in
this Article XIII. The above provisions of this Section 13.11 shall similarly
apply to successive consolidations, mergers, sales or transfers.

SECTION 13.12. TRUSTEE'S DISCLAIMER.

The Trustee has no duty to determine when an adjustment under this
Article XIII should be made, how it should be made or what such adjustment
should be, but may accept as conclusive evidence of the correctness of any
such adjustment, and shall be protected in relying on, the Officers'
Certificate with respect thereto which the Company is obligated to file with
the Trustee pursuant to Section 13.05. The Trustee makes no representation as
to the validity or value of any securities or assets issued on conversion of
Securities, and the Trustee shall not be responsible for the Company's
failure to comply with any provisions of this Article XIII.

The Trustee shall not be under any responsibility to determine the
correctness of any provisions contained in any supplemental indenture
executed pursuant to Section 13.11, but may accept as conclusive evidence of
the correctness thereof, and shall be protected in relying on, the Officers'
Certificate with respect thereto which the Company is obligated to file with
the Trustee pursuant to Section 1.02 in connection with that supplemental
indenture.

ARTICLE XIV

MEETINGS OF HOLDERS OF SECURITIES

SECTION 14.01. PURPOSES FOR WHICH MEETINGS MAY BE CALLED.

A meeting of Holders of Securities of any or all series may be called at
any time and from time to time pursuant to this Article to make, give or take
any request, demand, authorization, direction, notice, consent, waiver or
other action provided by this Indenture to be made, given or taken by Holders
of Securities of such series.

SECTION 14.02. CALL, NOTICE AND PLACE OF MEETINGS.

(a) The Trustee may at any time call a meeting of Holders of Securities
of any series for any purpose specified in Section 14.01, to be held at such
time and at such place in Houston, Texas, or in any other location, as the
Trustee shall determine. Notice of every meeting of Holders of Securities of
any series, setting forth the time and the place of such meeting and in
general terms the action proposed to be taken at such meeting, shall be
given, in the manner provided in Section 1.06, not less than 20 nor more than
180 days prior to the date fixed for the meeting.

(b) In case at any time the Company, pursuant to a Board Resolution, or
the Holders of at least 20% in aggregate principal amount of the Outstanding
Securities of any series, shall have requested the Trustee for that series to
call a meeting of the Holders of Securities of that series for any purpose
specified in Section 14.01, by written request

55
<PAGE>

setting forth in reasonable detail the action proposed to be taken at the
meeting, and the Trustee shall not have made the first publication of the
notice of that meeting within 30 days after receipt of such request or shall
not thereafter proceed to cause the meeting to be held as provided herein,
then the Company or the Holders of Securities of that series in the amount
above specified, as the case may be, may determine the time and the place in
Houston, Texas, for such meeting and may call such meeting for such purposes
by giving notice thereof as provided in Subsection (a) of this Section 14.02.

SECTION 14.03. PERSONS ENTITLED TO VOTE AT MEETINGS.

To be entitled to vote at any meeting of Holders of Securities of any
series, a Person shall be (a) a Holder of one or more Outstanding Securities
of that series or (b) a Person appointed by an instrument in writing as proxy
for a Holder or Holders of one or more Outstanding Securities of that series
by such Holder or Holders. The only Persons who shall be entitled to be
present or to speak at any meeting of Holders of Securities of any series
shall be the Persons entitled to vote at such meeting and their counsel, any
representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.

SECTION 14.04. QUORUM; ACTION.

The Persons entitled to vote a majority in aggregate principal amount of
the Outstanding Securities of a series shall constitute a quorum for a
meeting of Holders of Securities of that series. In the absence of a quorum
within 30 minutes of the time appointed for any such meeting, the meeting
shall, if convened at the request of Holders of Securities of that series, be
dissolved. In any other case, the meeting may be adjourned for a period of
not less than 10 days as determined by the chairman of the meeting prior to
the adjournment of such meeting. In the absence of a quorum at any such
adjourned meeting, such adjourned meeting may be further adjourned for a
period of not less than 10 days as determined by the chairman of the meeting
prior to the adjournment of such adjourned meeting. Subject to Section
14.05(d), notice of the reconvening of any adjourned meeting shall be given
as provided in Section 14.02(a), except that such notice need be given only
once not less than five days prior to the date on which the meeting is
scheduled to be reconvened. Notice of the reconvening of an adjourned meeting
shall state expressly that Persons entitled to vote a majority in principal
amount of the Outstanding Securities of that series shall constitute a quorum.

Except as limited by the proviso to Section 9.02, any resolution
presented to a meeting or adjourned meeting duly reconvened at which a quorum
is present as aforesaid may be adopted by the affirmative vote of the Holders
of a majority in aggregate principal amount of the Outstanding Securities of
that series; PROVIDED, HOWEVER, that, except as limited by the proviso to
Section 9.02, any resolution with respect to any request, demand,
authorization, direction, notice, consent or waiver which this Indenture
expressly provides may be made, given or taken by the Holders of a specified
percentage that is less than a majority in aggregate principal amount of the
Outstanding Securities of a series may be adopted at a meeting or an
adjourned meeting duly reconvened and at which a quorum is present as
aforesaid by the affirmative vote of the Holders of such specified percentage
in aggregate principal amount of the Outstanding Securities of that series.

Except as limited by the proviso to Section 9.02, any resolution passed
or decision taken at any meeting of Holders of Securities of any series duly
held in accordance with this Section shall be binding on all the Holders of
Securities of that series, whether or not present or represented at the
meeting.

SECTION 14.05. DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT OF
MEETINGS.

(a) The holding of Securities shall be proved in the manner specified in
Section 1.04 and the appointment of any proxy shall be proved in the manner
specified in Section 1.04 or by having the signature of the Person executing
the proxy witnessed or guaranteed by any trust company, bank or banker deemed
by the Trustee to be satisfactory. Such regulations may provide that written
instruments appointing proxies, regular on their face, may be presumed valid
and genuine without the proof specified in Section 1.04 or other proof.

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<PAGE>

(b) The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Holders of Securities as provided in Section 14.02(b), in which
case the Company or the Holders of Securities of the series calling the
meeting, as the case may be, shall appoint a temporary chairman. A permanent
chairman and a permanent secretary of the meeting shall be elected by vote of
the Persons entitled to vote a majority in aggregate principal amount of the
Outstanding Securities of all series represented at the meeting.

(c) At any meeting each Holder of a Security of each series represented
at the meeting and each proxy shall be entitled to one vote for each $1,000
principal amount of the Outstanding Securities of such series held or
represented by him; PROVIDED, HOWEVER, that no vote shall be cast or counted
at any meeting in respect of any Security challenged as not Outstanding and
ruled by the chairman of the meeting to be not Outstanding. The chairman of
the meeting shall have no right to vote, except as a Holder of a Security of
a series represented at the meeting or as a proxy.

(d) Any meeting of Holders of Securities of any series duly called
pursuant to Section 14.02 at which a quorum is present may be adjourned from
time to time by Persons entitled to vote a majority in aggregate principal
amount of the Outstanding Securities of all series represented at the
meeting; and the meeting may be held as so adjourned without further notice.

SECTION 14.06. COUNTING VOTES AND RECORDING ACTION OF MEETINGS.

The vote on any resolution submitted to any meeting of Holders of
Securities of any series shall be by written ballots on which shall be
subscribed the signatures of the Holders of Securities of that series or of
their representatives by proxy and the principal amounts and serial numbers
of the Outstanding Securities of that series held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and
who shall make and file with the secretary of the meeting their verified
written reports in duplicate of all votes cast at the meeting. A record, at
least in duplicate, of the proceedings of each meeting of Holders of
Securities of any series shall be prepared by the secretary of the meeting
and there shall be attached to such record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by one
or more persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that such notice was given as provided in
Section 14.02 and, if applicable, Section 14.04. Each copy shall be signed
and verified by the affidavits of the permanent chairman and secretary of the
meeting and one such copy shall be delivered to the Company and another to
the Trustee to be preserved by the Trustee, the latter to have attached
thereto the ballots voted at the meeting. Any record so signed and verified
shall be conclusive evidence of the matters therein stated.

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

This Indenture may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.

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<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.

PENTEGRA DENTAL GROUP, INC.

By:
-----------------------------------
Gary S. Glatter
President and Chief Executive Officer

Attest:

- -----------------------
Name:
Title:

U.S. TRUST COMPANY OF TEXAS, N.A.
as Trustee

By:
-----------------------------------
Name:
Title:

Attest:

- -----------------------
Name:
Title:

58
<PAGE>

STATE OF ________ )
) ss.
COUNTY OF _______ )

On the ___ day of ___________ 1998, before me personally came Gary S.
Glatter, to me known, who, being by me duly sworn, did depose and say that he
is President and Chief Executive Officer of Pentegra Dental Group, Inc., one
of the corporations described in and which executed the foregoing instrument;
that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by authority of the
Board of Directors of said corporation; and that he signed his name thereto
by like authority.

----------------------------------
Notary Public

STATE OF ___________ )
) ss.:
COUNTY OF _________ )

On the __ day of _______, 1998, before me personally came
______________, to me known, who, being by me duly sworn, did depose and say
that he is a Vice President of U.S. Trust Company of Texas, N.A., a national
banking association, described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed
to said instrument is such seal; that it was so affixed by authority of the
Board of Directors of said corporation; and that he signed his name thereto
by like authority.

----------------------------------
Notary Public

<PAGE>

September 29, 1998

Pentegra Dental Group, Inc.
2999 N. 44th Street, Suite 650
Phoenix, Arizona 85018

Re: Registration Statement on Form S-4 of Pentegra Dental Group, Inc.

Ladies and Gentlemen:

We have served as counsel to Pentegra Dental Group, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of the offering and sale of
up to 1,500,000 shares of the Company's Common Stock, par value $0.001 per
share (the "Shares"), $50,000,000 aggregate principal amount of Convertible
Subordinated Debt Securities ("Convertible Debt Securities") and the shares
of Common Stock issuable on conversion thereof (the "Conversion Shares"),
which Shares and Convertible Debt Securities will be issuable from time to
time in connection with the future direct and indirect acquisitions of other
businesses, properties or securities in business combination transactions by
the Company pursuant to Rule 415 under the Act. A Registration Statement on
Form S-4 (the "Registration Statement") covering the offering and sale of the
Shares was filed with the Securities and Exchange Commission (the
"Commission") on September 29, 1998.

In reaching the conclusions expressed in this opinion, we have examined
and relied upon the Registration Statement, the Restated Certificate of
Incorporation and Bylaws of the Company, the form of Indenture to be entered
into by the Company and U.S. Trust Company of Texas, N.A., as trustee (the
"Trustee"), relating to the Convertible Debt Securities and filed as an
exhibit to the Registration Statement (the "Form of Indenture"), and the
originals or certified copies of all documents, certificates and instruments
as we have deemed necessary to the opinions expressed herein. In making the
foregoing examinations, we have assumed the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals and the conformity to original documents of all copies submitted to
us.

In connection with this opinion, we have assumed that (i) the
Registration Statement, and any amendments thereto (including post-effective
amendments), will have become effective; and (ii) the Convertible Debt
Securities and Shares will be sold in compliance with applicable federal and
state securities laws and in the manner stated in the Registration Statement
and any appropriate prospectus supplement.

<PAGE>

Pentegra Dental Group, Inc.
September 29, 1998
Page 2

Based solely upon the foregoing, subject to the comments hereinafter
stated, and limited in all respects to the laws of the State of Texas, the
General Corporation Law of the State of Delaware and the federal laws of the
United States of America, it is our opinion that:

1. The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware.

2. With respect to the Shares, when (i) the Board of Directors of
the Company or, to the extent permitted by Section 141(c) of the General
Corporation Law of the State of Delaware, a duly constituted and acting
committee thereof (such Board of Directors or committee being
hereinafter referred to as the "Board"), has taken all necessary
corporate action to approve the issuance of and the terms of the
offering of the Shares and related matters and (ii) certificates
representing the Shares have been duly executed, countersigned,
registered and delivered in accordance with the applicable agreement and
plan of reorganization or definitive purchase or similar agreement
approved by the Board on payment of the consideration therefor (not less
than the par value of the Common Stock) provided for therein, the Shares
will be duly authorized, validly issued, fully paid and nonassessable.

3. With respect to the Convertible Debt Securities of any series,
when (i) the Board has taken all necessary corporate action to approve
the execution and delivery of an indenture in substantially the form of
the Form of Indenture (an "Indenture") and the issuance of and the terms
of the offering of the Convertible Debt Securities of that series and
related matters, (ii) an Indenture has been duly executed and delivered
by the Company and the Trustee or a successor Trustee, (iii) the Trustee
or a successor trustee has been duly qualified under the Trust Indenture
Act of 1939, as amended, and (iv) forms of securities complying with the
applicable terms of the Indenture and representing the Convertible Debt
Securities of that series have been duly executed and delivered by the
Company and authenticated by the Trustee or its duly appointed agent in
the form approved by the Board and in accordance with the Indenture and
the applicable agreement and plan of reorganization or definitive
purchase or similar agreement on payment of the consideration therefor
provided for therein, the Convertible Debt Securities of that series
will be duly authorized, validly issued, and constitute valid and
binding obligations of the Company entitled to the benefits of the
Indenture and enforceable against the Company in accordance with their
terms, except as such enforcement is subject to (a) any applicable
bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting creditors' rights generally, (b) general
principles of equity (regardless of whether that enforceability is
considered in a proceeding in equity or at law) and (c) any implied
covenants of good faith and fair dealing.

<PAGE>

Pentegra Dental Group, Inc.
September 29, 1998
Page 3

4. The Conversion Shares have been duly authorized and reserved
for issuance on conversion of the Convertible Debt Securities of any
series and when (i) the Convertible Debt Securities of that series have
been issued in compliance with clauses (i) through (iv) of the preceding
paragraph and (ii) certificates representing the Conversion Shares have
been duly executed, countersigned, registered and delivered in
accordance with the terms of the Convertible Debt Securities of that
series and the Indenture on conversion of the Convertible Debt
Securities of that series, the Conversion Shares will be duly
authorized, validly issued, fully paid and non-assessable.

You should be aware that we are not admitted to the practice of law in
the State of Delaware. Accordingly, any opinion herein as to the laws of the
State of Delaware is based solely upon the latest generally available
compilation of the statutes and case law of such state.

We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the use of our name in the Registration
Statement under the caption "Legal Matters." In giving this consent, we do
not admit that we come within the category of persons whose consent is
required under Section 7 of the Act or the rules and regulations of the
Commission promulgated thereunder.

Very truly yours,

/s/ Jackson Walker L.L.P.

<PAGE>
EXHIBIT 12.1

RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 1998
-------------------
<S> <C>
Income before taxes.......................................................................... $ 937
Fixed charges:
Interest expense........................................................................... 2
Interest factor portion of rentals......................................................... 220
-------
222
-------
Pretax income before fixed charges........................................................... 1,159
Less:
Interest income............................................................................ (42)
-------
Earnings before income taxes and fixed charges............................................... $ 1,117
-------
-------
Ratio of earnings to fixed charges........................................................... 5.03x
-------
-------
</TABLE>

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form S-4,
relating to the registration of 1,500,000 shares of $0.001 par value common
stock and $50,000,000 aggregate principal amount of convertible debt securities,
of our report dated March 24, 1998, except for the second and third paragraphs
of Note 8, as to which the date is May 5, 1998 on our audit of the financial
statements of Pentegra Dental Group, Inc. as of December 31, 1997 and for the
period from inception, February 21, 1997, through December 31, 1997. We also
consent to the reference to our firm under the caption "Experts."

/s/ PricewaterhouseCoopers LLP

Houston, Texas
September 29, 1998

<PAGE>

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM T-1

STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE
ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE

CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2)_________

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

U.S. TRUST COMPANY OF TEXAS, N.A.
(Exact name of trustee as specified in its charter)

75-2353745
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)

2001 Ross Ave, Suite 2700 75201
Dallas, Texas (Zip Code)
(Address of trustee's
principal executive offices)

Compliance Officer
U.S. Trust Company of Texas, N.A.
2001 Ross Ave, Suite 2700
Dallas, Texas 75201
(214) 754-1200
(Name, address and telephone number of agent for service)

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

Pentegra Dental Group, Inc.
(Exact name of obligor as specified in its charter)

Texas 76-0545043
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)

2999 North 44th Street, Suite 650
Phoenix, Arizona 85018
(Address of principal executive offices) (Zip Code)

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

Convertible Subordinated Debentures
(Title of the indenture securities)

- -------------------------------------------------------------------------------
<PAGE>

GENERAL

1. GENERAL INFORMATION.

Furnish the following information as to the Trustee:

(a) Name and address of each examining or supervising authority to which
it is subject.

Federal Reserve Bank of Dallas (11th District), Dallas, Texas
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Dallas, Texas
The Office of the Comptroller of the Currency, Dallas, Texas

(b) Whether it is authorized to exercise corporate trust powers.

The Trustee is authorized to exercise corporate trust powers.

2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS.

If the obligor or any underwriter for the obligor is an affiliate of the
Trustee, describe each such affiliation.

None.

3. VOTING SECURITIES OF THE TRUSTEE.

Furnish the following information as to each class of voting securities of
the Trustee:

As of September 28, 1998
- -------------------------------------------------------------------------------

Col A. Col B.

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

Title of Class Amount Outstanding

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

Capital Stock - par value $100 per share 5,000 shares

4. TRUSTEESHIPS UNDER OTHER INDENTURES.

Not Applicable

5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR
UNDERWRITERS.

Not Applicable

<PAGE>

6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS.

Not Applicable

7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR OFFICIALS.

Not Applicable

8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.

Not Applicable

9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.

Not Applicable

10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.

Not Applicable

11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON OWNING
50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.

Not Applicable

12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.

Not Applicable

13. DEFAULTS BY THE OBLIGOR.

Not Applicable

14. AFFILIATIONS WITH THE UNDERWRITERS.

Not Applicable

15. FOREIGN TRUSTEE.

Not Applicable

16. LIST OF EXHIBITS.

T-1.1 - A copy of the Articles of Association of U.S. Trust Company
of Texas, N.A.; incorporated herein by reference to Exhibit
T-1.1 filed with Form T-1 Statement, Registration
No. 22-21897.

<PAGE>

16. (con't.)

T-1.2 - A copy of the certificate of authority of the Trustee to
commence business;
incorporated herein by reference to Exhibit T-1.2 filed with
Form T-1 Statement, Registration No. 22-21897.

T-1.3 - A copy of the authorization of the Trustee to exercise
corporate trust powers; incorporated herein by reference to
Exhibit T-1.3 filed with Form T-1 Statement, Registration
No. 22-21897.

T-1.4 - A copy of the By-laws of the U.S. Trust Company of Texas,
N.A., as amended to date; incorporated herein by reference
to Exhibit T-1.4 filed with Form T-1 Statement, Registration
No. 22-21897.

T-1.6 - The consent of the Trustee required by Section 321(b) of the
Trust Indenture Act of 1939.

T-1.7 - A copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its
supervising or examining authority.

NOTE

As of September 28, 1998, the Trustee had 5,000 shares of Capital Stock
outstanding, all of which are owned by U.S. T.L.P.O. Corp. As of September 28,
1998, U.S. T.L.P.O. Corp. had 35 shares of Capital Stock outstanding, all of
which are owned by U.S. Trust Corporation. U.S. Trust Corporation had
outstanding 19,142,000.00 shares of $5 par value Common Stock as of February
24, 1998.

The term "Trustee" in Items 2, 5, 6, 7, 8, 9, 10 and 11 refers to each of U.S
Trust Company of Texas, N.A., U.S. T.L.P.O. Corp. and U.S. Trust Corporation.

Inasmuch as this Form T-1 is filed prior to the ascertainment by the Trustee
of all the facts on which to base responsive answers to Items 2, 5, 6, 7, 9,
10 and 11, the answers to said Items are based upon incomplete information.
Items 2, 5, 6, 7, 9, 10 and 11 may, however, be considered correct unless
amended by an amendment to this Form T-1.

In answering any items in this Statement of Eligibility and Qualification
which relates to matters peculiarly within the knowledge of the obligors or
their directors or officers, or an underwriter for the obligors, the Trustee
has relied upon information furnished to it by the obligors and will rely on
information to be furnished by the obligors or such underwriter, and the
Trustee disclaims responsibility for the accuracy or completeness of such
information.

---------------
<PAGE>

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
U.S Trust Company of Texas, N.A., a national banking association organized
under the laws of the United States of America, has duly caused this
statement of eligibility and qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Dallas, and State
of Texas on the 29th day of September, 1998.

U.S. Trust Company
of Texas, N.A., Trustee

By: /s/ Melissa Scott
---------------------
Melissa Scott
Vice President

<PAGE>

Exhibit T-1.6

CONSENT OF TRUSTEE

Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939 as amended in connection with the proposed issue of Pentegra Dental
Group, Inc. Convertible Subordinated Debentures, we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange
Commission upon request therefore.

U.S. Trust Company of Texas, N.A.

By: /s/ Melissa Scott
--------------------------
Melissa Scott
Vice President

<PAGE>

Board of Governors of the Federal
Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-005
Office of the Comptroller of the
Currency
Federal Financial Institutions OMB Number: 1557-008
Examination Council Expires March 31, 2001

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

(1)
Please Refer to Page I,
(LOGO) Table of Contents, for
the required disclosure
of estimated burden.

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

CONSOLIDATED REPORTS OF CONDITION AND
INCOME FOR A BANK WITH DOMESTIC OFFICES
ONLY AND TOTAL ASSETS OF LESS THAN $100
MILLION - - FFIEC 033 (19980630)
(RCRI 9999)
REPORT AT THE CLOSE OF BUSINESS
JUNE 30, 1998

This report form is to be filed by
This report is required by law: 12 banks with domestic offices only.
U.S.C. Section Section 324 (State Banks with branches and consolidated
member banks); 12 U.S.C. Section subsidiaries in U.S. territories and
Section 1817 (State nonmember banks); possessions, Edge or Agreement
and 12 U.S.C. Section Section 161 subsidiaries, foreign branches,
(National banks). consolidated foreign subsidiaries, or
International Banking Facilities must
file FFIEC 031.

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

NOTE: The Reports of Condition and The Reports of Condition and Income
Income must be signed by an authorized are to be prepared in accordance with
officer and the Report of Condition Federal regulatory authority
must be attested to by not less than instructions. NOTE: these
two directors (trustees) for State instructions may in some cases differ
nonmember banks and three directors for from generally accepted accounting
State member and National Banks. principles.

I, Alfred B. Childs, SVP & Cashier We, the undersigned directors
------------------------------- (trustees), attest to the correctness
Name and Title of Officer of this Report of Condition
Authorized to Sign Report (including the supporting schedules)
and declare that it has been examined
of the named bank do hereby declare by us and to the best of our
that these Reports of Condition and knowledge and belief has been
Income (including the supporting prepared in conformance with the
schedules) have been prepared in instructions issued by the
conformance with the instructions appropriate Federal regulatory
issued by the appropriate Federal authority and is true and correct.
regulatory authority and are true to
the best of my knowledge and belief.

/s/ William Goodwin
-------------------------
/s/ Alfred B. Childs Director (Trustee)
- ------------------------------------
Signature of Officer Authorized to
Sign Report /s/ Arthur White
-------------------------
Director (Trustee)
7/15/98
- ---------------------
Date of Signature /s/ Peter Denker
-------------------------
Director (Trustee)

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

SUBMISSION OF REPORTS (b) in hard-copy (paper) form and
arrange for another party to
Each bank must prepare its Reports of convert the paper report to
Condition and Income either: electronic form. That party (if
(a) in electronic form and then file other than EDS) must transmit the
the computer data file directly bank's computer data file to EDS.
with the banking agencies' To fulfill the signature and
collection agent, Electronic Data attestation requirement for the
Systems Corporation (EDS), by Reports of Condition and Income for
modem or on computer diskette; or this report date, attach this
signature page to the hard-copy record
of the completed report that the bank
places in its files.

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

FDIC Certificate Number 33217 US TRUST COMPANY OF TEXAS,
------------- NATIONAL ASSOCIATION
(RCRI 9050) --------------------------------------
Legal Title of Bank (TEXT 9010)

Dallas
--------------------------------------
City (TEXT 9130)

TX 75201
--------------------------------------
State Abbrev. Zip Code
(TEXT 9200) (TEXT 9220)

Board of Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency

<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. TRUST COMPANY OF TEXAS, N.A. Call Date: State #: 48-6797 FFIEC 033
2001 ROSS AVENUE, SUITE 2700 06/30/98 Cert #: 33217 RC-1
DALLAS, TX 75201 Vendor ID:
D
Transit #: 11101765
------------
9
------------
</TABLE>

CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR JUNE 30, 1998

All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.

<TABLE>
<CAPTION>
SCHEDULE RC - BALANCE SHEET
C200
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
1. Cash and balances due from depository institutions: RCON
---- -------
a. Noninterest-bearing balances and currency and coin (1,2)__________________ ______ _______ 0081 1,900 1.a
-------
b. Interest bearing balances (3)________________________________________ ______ _______ 0071 241 1.b
-------
2. Securities:
-------
a. Held-to-maturity securities (from Schedule RC-B, column A)____________ ______ _______ 1754 0 2.a
-------
b. Available-for-sale securities (from Schedule RC-B, column D)___________ ______ _______ 1773 127,638 2.b
-------
3. Federal funds sold (4) and securities purchased under agreements to resell: 1350 2,000 3
-------
4. Loans and lease financing receivables: RCON
---- -------
a. Loans and leases, net of unearned income (from Schedule RC-C)_________ 2122 20,749 4.a
-------
b. LESS: Allowance for loan and lease losses____________________________ 3123 230 4.b
-------
c. LESS: Allocated transfer risk reserve__________________________________ 3128 0 4.c
-------
d. Loans and leases, net of unearned income, allowance, and reserve RCON
---- -------
(item 4.a minus 4.b and 4.c)__________________________________________ ______ _______ 2125 20,519 4.d
-------
5. Trading assets_________________________________________________________ ______ _______ 3545 0 5.
-------
6. Premises and fixed assets (including capitalized leases)___________________ ______ _______ 2145 705 6.
-------
7. Other real estate owned (from Schedule RC-M)___________________________ ______ _______ 2150 0 7.
-------
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M)__________________________________________________ ______ _______ 2130 0 8.
-------
9. Customers' liability to this bank on acceptances outstanding________________ ______ _______ 2155 0 9.
-------
10. Intangible assets (from Schedule RC-M)__________________________________ ______ _______ 2143 0 10.
-------
11. Other assets (from Schedule RC-F)______________________________________ ______ _______ 2160 1,859 11.
-------
12. Total assets (sum of items 1 through 11)__________________________________ ______ _______ 2170 154,862 12.
-------
</TABLE>

(1) Includes cash items in process of collection and unposted debits.
(2) Included time certificates of deposit not held for trading.

<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. TRUST COMPANY OF TEXAS, N.A. Call Date: State #: 48-6797 FFIEC 033
2001 ROSS AVENUE, SUITE 2700 06/30/98 Cert #: 33217 RC-2
DALLAS, TX 75201 Vendor ID:
D
Transit #: 11101765
------------
10
------------

SCHEDULE RC - CONTINUED

Dollar Amounts in Thousands
LIABILITIES
<S> <C> <C> <C> <C> <C> <C>
13. Deposits:
a. In domestic offices (sum of totals of RCON
---- --------
columns A and C from Schedule RC-E)_______________________________ RCON 2200 128,302 13.a
---- -------- --------
(1) Noninterest-bearing (1)______________________________________ 6631 18,826 13.a.1
--------
(2) Interest-bearing ____________________________________________ 6636 109,476 13.a.2
--------
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing__________________________________________
(2) Interest-bearing_____________________________________________
--------
14. Federal funds purchased(2) and securities sold under agreements to RCON 0 14
repurchase: ---- --------
2800
15. a. Demand notes issued to the U.S. Treasury__________________________ _______ _______ 2840 0 15.a
--------
b. Trading liabilities_______________________________________________ ______ _______ 3548 0 15.b
16. Other borrowed money: --------
A. WITH A REMAINING MATURITY OF ONE YEAR OR LESS_____________________ ______ _______ 2332 1,000 16.a
--------
B. WITH A REMAINING MATURITY OF MORE THAN ONE YEAR THROUGH THREE ______ _______ A547 2,000 16.b
YEARS_________________________________________________________________ --------
C. WITH A REMAINING MATURITY OF MORE THAN THREE ______ _______ A548 1,000 16.c
YEARS_________________________________________________________________ ---------
17. Not applicable
18. Bank's liability on acceptances executed and outstanding______________ ______ _______ 2920 0 18.
---------
19. Subordinated notes and debentures_____________________________________ ______ _______ 3200 0 19.
---------
20. Other liabilities (from Schedule RC-G)________________________________ ______ _______ 2930 2,006 20.
---------
21. Total liabilities (sum of items 13 through 20)________________________ ______ _______ 2948 134,308 21.
22. Not applicable ---------

EQUITY CAPITAL
RCON
---- ---------
23. Perpetual preferred stock and related surplus_________________________ ______ _______ 3838 7,000 23.
---------
24. Common stock__________________________________________________________ ______ _______ 3230 500 24.
---------
25. Surplus (exclude all surplus related to preferred ______ _______ 3839 8,384 25.
stock)________________________________________________________________ ---------
26. a. Undivided profits and capital reserves____________________________ ______ _______ 3632 4,252 26.a
---------
b. Net unrealized holding gains (losses) on available-for-sale ______ _______ 8434 418 26.b
securities____________________________________________________________ ---------
27. Cumulative foreign currency translation adjustments___________________
---------
28. Total equity capital (sum of items 23 through 27)_____________________ ______ _______ 3210 20,554 28.
---------
29. Total liabilities and equity capital (sum of items 21 and 28)_________ ______ _______ 2257 154,862 29.
---------

MEMORANDUM

TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION. NUMBER
--------
1. Indicate in the box at the right the number of the statement below that best describes the most
comprehensive level of auditing work performed for the bank by independent external auditors as
of any date during 1997___________________________________________________________________ 6724 N/A M.1
--------
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by certified external auditors (may be required by state
public accounting firm which submits a report on the bank chartering authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company (but external auditors
not on the bank separately) 7 = Other audit procedures (excluding tax preparation
3 = Directors' examination of the bank conducted in accordance work)
with generally accepted auditing standards by a certified 8 = No external audit work
public accounting firm (may be required by state chartering
authority)
</TABLE>

(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.