<PAGE> 1
PROSPECTUS SUPPLEMENT RULE 424(B)(2)
(TO PROSPECTUS DATED OCTOBER 21, 1998) FILE NO. 333-64665
$5,000,000
[LOGO]
PENTEGRA DENTAL GROUP, INC.
CONVERTIBLE SUBORDINATED NOTES, SERIES B
INTEREST PAYABLE MARCH 31, JUNE 30, SEPTEMBER 30 AND DECEMBER 31
The convertible notes will mature on April 1, 2004 and bear interest at the
fixed rates specified in the applicable Pricing Supplement. Interest on the
convertible notes will be payable quarterly on March 31, June 30, September 30
and December 31 of each year, commencing March 31, 1999. The convertible notes
do not provide for a sinking fund. We may redeem the convertible notes on and
after April 1, 2000, in whole or in part, at the redemption prices specified in
the applicable Pricing Supplement.
The convertible notes will be convertible into shares of common stock of the
Company after the convertibility commencement dates and on or before the
convertibility termination dates, unless previously redeemed, at the initial
conversion price per share specified in the applicable Pricing Supplement,
subject to adjustment in certain events, at your option.
Trading Symbol for Common Stock
on the American Stock Exchange -- PEN
Closing Price on March 2, 1999 -- $1.6875
SEE "RISK FACTORS" ON PAGE 6 OF THE ACCOMPANYING PROSPECTUS FOR A DISCUSSION OF
CERTAIN RISK FACTORS THAT YOU SHOULD CONSIDER BEFORE ACQUIRING THE NOTES OFFERED
HEREBY.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the Prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus Supplement is March 3, 1999.
<PAGE> 2
RECENT DEVELOPMENTS
On February 16, 1999, Pentegra Dental Group, Inc. (the "Company") reported net
revenues of $9.9 million, net income of $770,000 and earnings of $0.10 per
diluted share for the three months ended December 31, 1998. For the nine months
ended December 31, 1998, the Company reported net revenues of $26.0 million, net
income of $1.7 million and earnings of $0.23 per diluted share.
On November 13, 1998 the Company and Liberty Dental Alliance, Inc. ("Liberty")
entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant
to which Liberty will become a wholly owned subsidiary of the Company, and James
M. Powers, Jr., D.D.S. has been named President of the Company, replacing Gary
S. Glatter. The Merger Agreement provides the Company will pay (a) $0.01 per
share for each outstanding share of Liberty common stock, par value $0.01 per
share (the "Liberty Common Stock") at closing and (b) up to $3.99 per share and
options to purchase up to 0.25 shares of common stock, par value $.001, of the
Company (the "Common Stock"), with an exercise price of $6.125 per share for
each share of Liberty Common Stock (collectively, the "Additional Common Merger
Consideration") in accordance with the following:
- - One-third of the Additional Common Merger Consideration is payable upon
completion of affiliations with dental practices under a letter of
intent with Liberty ("Liberty Affiliations") that had collected
revenues for the year ended December 31, 1997 ("1997 Practice
Revenues") aggregating to at least $10,000,000;
- - One-third of the Additional Common Merger Consideration is payable upon
completion of additional Liberty Affiliations that had aggregate 1997
Practice Revenues of at least $15,000,000; and
- - One-third of the Additional Common Merger Consideration is payable upon
completion of additional Liberty Affiliations that had aggregate 1997
Practice Revenues of at least $15,000,000.
The holders of shares of Liberty Common Stock will forfeit any right to receive
Additional Common Merger Consideration related to Liberty Affiliations not
consummated by June 30, 1999. As of March 3, 1999, there are 315,750 shares of
Liberty Common Stock outstanding, which would result in the Company paying an
aggregate of up to $1,263,000 cash and issuing options to acquire up to 78,938
shares of Common Stock.
The Merger Agreement also provides that the Company pay (a) $0.01 per share for
each outstanding share of Liberty Class B common stock, par value $0.01 per
share (the "Class B Stock") at closing and (b) up to one share of Common Stock
for each outstanding share of Class B Stock (the "Additional Class B Merger
Consideration") in accordance with the following:
- - One-fifth of the Additional Class B Merger Consideration is payable
upon completion of Liberty Affiliations that had aggregate 1997
Practice Revenues of at least $10,000,000;
S-2
<PAGE> 3
- - Three-tenths of the Additional Class B Merger Consideration is payable
upon completion of additional Liberty Affiliations that had aggregate
1997 Practice Revenues of at least $10,000,000;
- - Two-fifths of the Additional Class B Merger Consideration is payable
upon completion of additional Liberty Affiliations that had aggregate
1997 Practice Revenues of at least $20,000,000; and
- - One-tenth of the Additional Class B Merger Consideration is payable
upon completion of additional Liberty Affiliations that had aggregate
1997 Practice Revenues of at least $10,000,000.
The holders of shares of Class B Stock will forfeit any right to receive
Additional Class B Merger Consideration related to Liberty Affiliations not
consummated by June 30, 1999. As of March 3, 1999, there are 545,000 shares
of Liberty Class B Stock outstanding, which would result in the Company paying
an aggregate of up to $5,450 cash and up to 545,000 shares of Common Stock.
Consummation of the Merger Agreement, which is anticipated to occur prior to
March 31, 1999, is subject to, among other things, the Company obtaining the
consent of its lenders.
In connection with Merger Agreement, the Company has agreed to pay investment
banking fees of up to $600,000 to SunTrust Equitable Securities Corporation,
$166,667 of which is payable upon completion of Liberty Affiliations that had
aggregate 1997 Practice Revenues of at least $10,000,000, $166,667 of which is
payable upon completion of additional Liberty Affiliations that had aggregate
1997 Practice Revenues of at least $15,000,000 and $266,666 of which is payable
upon completion of additional Liberty Affiliations that had aggregate 1997
Practice Revenues of at least $15,000,000. The Company also agreed to issue an
aggregate of 145,000 options to acquire Common Stock to certain consultants of
the Company with an exercise price of $6.125 per share, in the same proportions
and upon completion of Liberty Affiliations as the Additional Common Merger
Consideration is payable.
As of December 31, 1998, the Company had completed 15 Liberty Affiliations as
well as three affiliations with additional dental practices not affiliated with
Liberty. These 18 dental practices generated aggregate annual patient revenue of
approximately $14.7 million during their most recently completed fiscal year,
and include 26 dentists treating patients in 19 dental offices. The aggregate
consideration paid by the Company for these practices consisted of approximately
$5.4 million, 1,235,691 shares of the Common Stock offered hereby and
approximately $4.2 million aggregate principal amount of the Series A
Convertible Subordinated Notes.
Dr. Powers has entered into an employment agreement with the Company, effective
November 13, 1998, pursuant to which he is serving as the Company's President,
Chief Executive Officer and Chairman of the Board. Omer K. Reed, D.D.S. is now
serving as a director and Chief Clinical
S-3
<PAGE> 4
Officer of the Company. Dr. Powers's two year employment agreement also provides
for a base annual salary of $200,000, bonus payments of up to 25% of the base
salary upon achievement of certain earnings per share targets and the issuance
of options to acquire 150,000 shares of Common Stock with an exercise price of
$6.125 per share and an additional 150,000 shares with an exercise price of
$3.1875 per share (the closing sale price on November 13, 1998).
Mr. Glatter entered into a severance agreement with the Company effective
November 13, 1998 pursuant to which he resigned as President, Chief Executive
Officer and a director of the Company. Mr. Glatter was paid $350,000 by the
Company pursuant to the agreement and forfeited all options to acquire shares of
Common Stock previously issued to him.
The Prospectus accompanying this Prospectus Supplement incorporates important
business and financial information about the Company that is not included in or
delivered with this Prospectus Supplement or with the Prospectus. This
information is available without charge to security holders upon written request
by contacting the company at 2999 North 44th Street, Suite 650, Phoenix, Arizona
85018 or upon oral request by calling (602) 952-1200, attn. Investor Relations.
In order to obtain timely delivery, security holders must request the
information no later than five business days before the date on which you select
to make your investment decision.
DESCRIPTION OF THE NOTES
The following description of the principal terms of the convertible notes
offered by the Company (referred to in the accompanying Prospectus as the
"Convertible Debt Securities") supplements, and to the extent inconsistent
therewith replaces, the description set forth in the Prospectus under
"Description of the Convertible Debt Securities" (the "Prospectus Description")
of the general terms and provisions of the convertible notes. Unless the
applicable Pricing Supplement specifies otherwise, the convertible notes will
have the terms described in the Prospectus Description and in this Prospectus
Supplement. The initial Conversion Price of each convertible note will be
subject to adjustment as provided in the Indenture between the Company and U.S.
Trust Company of Texas, N.A. (the "Indenture"). See "Prospectus Description --
Conversion Rights" in the accompanying Prospectus.
General
The convertible notes will be issued as part of the purchase price the Company
will pay for businesses or other assets to be acquired in separate affiliations.
The Pricing Supplement relating to the convertible notes issued in connection
with each affiliation will describe the following terms:
- - the aggregate principal amount of those convertible notes;
- - the date on which those convertible notes will be issued (the "Original
Issue Date");
S-4
<PAGE> 5
- - the annual fixed rate at which those convertible notes will bear
interest;
- - the Redemption Prices at which the Company, at its option, may redeem
those convertible notes; and
- - the initial Conversion Price, the first date on which a convertible
note may be converted into Common Stock (the "Convertibility
Commencement Date") and the date on which the right to convert the
convertible notes will expire (the "Convertibility Termination Date")
as to those convertible notes.
The convertible notes:
- - will be unsecured obligations of the Company;
- - are currently limited to $5,000,000 in aggregate principal amount; and
- - will mature on April 1, 2004.
Fixed Rate Convertible Notes
The applicable Pricing Supplement will designate the fixed rate of interest
payable on a convertible note from its Original Issue Date or from the most
recent Interest Payment Date. Interest will be paid March 31st, June 30th,
September 30th and December 31st ("Interest Payment Date"), and upon maturity,
redemption or complete conversion. If any payment date falls on a day that is
not a business day, payment will be made on the next business day and no
additional interest will be paid. The "Regular Record Dates" for such
convertible notes will be March 15th (for interest to be paid on March 31st),
June 15th (for interest to be paid on June 30th), September 15th (for interest
to be paid on September 30th) and December 15th (for interest to be paid on
December 31st). Interest payments will be the amount of interest accrued to, but
excluding, each March 31st, June 30th, September 30th and December 31st.
Interest will be computed using a 360-day year of twelve 30-day months.
Principal and interest on the convertible notes will be payable at the office of
the Company in Phoenix, Arizona, and the convertible notes may be surrendered
for registration of transfer, exchange or conversion at that office. The Company
may, at its option, pay interest on the convertible notes by check mailed to the
address of the person entitled thereto as it appears in the securities register
for the convertible notes on the Regular Record Date for that interest payment.
The convertible notes will be issued in fully registered form, without coupons,
in denominations of $1,000 and any integral multiples thereof.
S-5
<PAGE> 6
Conversion Rights
The applicable Pricing Supplement will designate the Convertibility Commencement
Date and the Convertibility Termination Date of the convertible notes to be
issued in connection with each affiliation and, unless that Pricing Supplement
provides otherwise, the Convertibility Commencement Date will be the day
(whether or not a business day) following the first anniversary of the date that
affiliation closes and the Convertibility Termination Date will be the day
(whether or not a business day) following the fifth anniversary of the date that
affiliation closes.
The convertible notes will be convertible into shares of Common Stock at any
time on or after their respective Convertibility Commencement Dates and on or
before their Convertibility Termination Date, unless previously redeemed, at
their respective initial Conversion Prices per share, subject to adjustment in
certain events, at the option of their holders. The applicable Pricing
Supplement will set forth the initial Conversion Price for the convertible notes
to be issued in connection with each affiliation. The initial Conversion Price
for each convertible note will be a negotiated term that the Company anticipates
will be between two times and four times the market price per share of the
Common Stock on the date that the applicable affiliation closes.
Optional Redemption
The Company may, at its option, redeem the convertible notes, in whole or from
time to time in part, at any time on or after April 1, 2000 (the "Redemption
Date"), on not less than 15 nor more than 60 days' notice mailed to each holder
of convertible notes to be redeemed at its address appearing in the security
register for the convertible notes and prior to maturity of the convertible
notes at the Redemption Prices the applicable Pricing Supplement will specify
plus accrued and unpaid interest to the Redemption Date (subject to the right of
holders of record of the convertible notes on the relevant Regular Record Date
to receive interest due on an Interest Payment Date that is on or prior to the
Redemption Date).
The Redemption Price for each convertible note will be a percentage of the
principal amount thereof plus the premium, if any, specified in the applicable
Pricing Supplement.
No sinking fund is provided for the convertible notes.
Subordination
The convertible notes are unsecured obligations of the Company and will be
subordinated to all Senior Indebtedness as provided in the Indenture, and the
Indenture's definition of Senior Indebtedness will apply to the convertible
notes. See "Prospectus Description -- Subordination" in the accompanying
Prospectus.
S-6
<PAGE> 7
Events of Default
The Events of Default with respect to the convertible notes will be those
described in clauses (i) through (vii) of the first sentence under "Prospectus
Description -- Events of Default" in the accompanying Prospectus.
Contractual Resale Provisions
Persons receiving the convertible notes offered hereby may be contractually
required to hold some portions of those convertible notes 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 notes by
affiliates of the business the Company affiliates with for a period of one year
(or such shorter period as the Securities and Exchange Commission may
prescribe).
S-7
<PAGE> 8
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS SUPPLEMENT,
THE APPLICABLE PRICING SUPPLEMENT AND THE PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THOSE TO WHICH THEY RELATE OR AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH
OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE
PRICING SUPPLEMENT OR THE PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PROSPECTUS SUPPLEMENT
<S> <C>
Recent Developments............................................................................ S-2
Description of the Notes....................................................................... S-4
PROSPECTUS
Prospectus Summary............................................................................. 2
Risk Factors................................................................................... 6
The Company.................................................................................... 14
Recent Developments............................................................................ 14
Price Range of Common Stock.................................................................... 15
Dividend Policy................................................................................ 15
Selected Financial Data........................................................................ 16
Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 17
Business....................................................................................... 20
Management..................................................................................... 31
Certain Transactions........................................................................... 37
Security Ownership of Certain Beneficial Owners and Management................................. 39
Description of the Convertible Debt Securities................................................. 40
Description of Capital Stock................................................................... 48
Shares Eligible for Future Sale................................................................ 51
Certain United States Federal Income Tax Consequences.......................................... 53
Plan of Distribution........................................................................... 56
Legal Matters.................................................................................. 56
Experts........................................................................................ 56
Additional Information......................................................................... 56
Index to Financial Statements.................................................................. F-1
</TABLE>
THE ADDITIONAL INFORMATION DESCRIBED ON P. 56 OF THE PROSPECTUS ACCOMPANYING
THIS PROSPECTUS SUPPLEMENT THAT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ("SEC") MAY BE READ AND COPIED AT THE SEC'S PUBLIC REFERENCE ROOM AT
450 FIFTH STREET, N.W., WASHINGTON, D.C. 20549. YOU MAY OBTAIN INFORMATION ON
THE OPERATION OF THE PUBLIC REFERENCE ROOM BY CALLING THE SEC AT 1-800-SEC-0330.
THE SEC MAINTAINS AN INTERNET SITE THAT CONTAINS REPORTS, PROXY AND INFORMATION
STATEMENTS, AND OTHER INFORMATION REGARDING ISSUERS THAT FILE ELECTRONICALLY
WITH THE SEC AND THE ADDRESS OF THAT SITE IS (HTTP://WWW.SEC.GOV).
S-8
