-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DnuCLtNt9ZmeRxlT+MTURxB0VNC8hNNH7CY5LcZBWYPXyqb6BLAVsmM9yIpxbB4z KlGnT7WSPweLA2LtXgW6uQ== 0001047469-97-000378.txt : 19971014 0001047469-97-000378.hdr.sgml : 19971014 ACCESSION NUMBER: 0001047469-97-000378 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 22 FILED AS OF DATE: 19971010 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENTEGRA DENTAL GROUP INC CENTRAL INDEX KEY: 0001042291 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 760545043 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-37633 FILM NUMBER: 97693766 BUSINESS ADDRESS: STREET 1: 18000 GROESCHKE RD STREET 2: BUILDING A2 PO BOX 218000 CITY: HOUSTON STATE: TX ZIP: 77218 BUSINESS PHONE: 6029521200 MAIL ADDRESS: STREET 1: 2999 N 44TH STREET STREET 2: SUITE 650 CITY: PHOENIX STATE: AZ ZIP: 85018 S-1 1 S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ PENTEGRA DENTAL GROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE 8021 76-0545043 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification incorporation or organization) Number)
-------------------------- PENTEGRA DENTAL GROUP, INC. GARY S. GLATTER 2999 NORTH 44TH STREET, STE. 650 2999 NORTH 44TH STREET, STE. 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)
-------------------------- COPIES TO: RICHARD S. ROTH TED W. PARIS JACKSON WALKER L.L.P. BAKER & BOTTS, L.L.P. 1100 LOUISIANA 910 LOUISIANA SUITE 4200 SUITE 3000 HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
-------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. -------------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration 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. / / -------------------------- CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AGGREGATE TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(1) PRICE(2),(3) REGISTRATION FEE Common Stock, $.001 par value............ -- -- $40,250,000 $12,197
(1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended, the number of shares being registered and the proposed maximum offering price per share are not included in this table. (2) Includes shares of Common Stock issuable upon exercise of the Underwriters' over-allotment option. (3) Estimated solely for purposes of calculating the registration fee. -------------------------- 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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. Subject To Completion, Dated October 10, 1997 PROSPECTUS 2,500,000 SHARES PENTEGRA DENTAL GROUP, INC. COMMON STOCK ---------------- All of the shares of Common Stock, par value $.001 per share ("Common Stock"), offered hereby (the "Offering") are being offered by Pentegra Dental Group, Inc. (the "Company"). Prior to the Offering, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $ and $ per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Company has applied to have the Common Stock approved for quotation on the Nasdaq National Market under the symbol "PDGI." --------------------- THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7. --------------------- 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.
Underwriting Discounts Price to and Proceeds to Public Commissions(1) Company(2) Per Share......................................... $ $ $ Total(3).......................................... $ $ $
(1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting estimated expenses of $2,300,000, payable by the Company. (3) The Company has granted the Underwriters a 30-day option to purchase up to 375,000 additional shares of Common Stock on the same terms and conditions as set forth above, solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." --------------------- The shares of Common Stock offered by this Prospectus are offered by the Underwriters, subject to prior sale, to withdrawal, cancellation or modification of the offer without notice, to delivery to and acceptance by the Underwriters and to certain further conditions. It is expected that delivery of certificates representing the shares of Common Stock will be made at the offices of Lehman Brothers Inc., New York, New York, on or about , 1997. --------------------- LEHMAN BROTHERS RAUSCHER PIERCE REFSNES, INC. , 1997 [MAP] CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 PROSPECTUS SUMMARY PENTEGRA DENTAL GROUP, INC. ("PENTEGRA" OR THE "COMPANY") WAS RECENTLY FORMED TO SERVE, UPON COMPLETION OF THE OFFERING, AS THE PARENT CORPORATION OF PENTEGRA INVESTMENTS, INC. ("PII"). CONCURRENTLY WITH THE CLOSING OF THE OFFERING, (I) THE COMPANY WILL ACQUIRE, IN SEPARATE TRANSACTIONS (THE "ACQUISITIONS"), SUBSTANTIALLY ALL THE TANGIBLE AND INTANGIBLE ASSETS, AND ASSUME CERTAIN LIABILITIES, OF 51 DENTAL PRACTICES (COLLECTIVELY, THE "FOUNDING AFFILIATED PRACTICES") IN EXCHANGE FOR CASH AND SHARES OF COMMON STOCK, (II) THE HOLDERS OF COMMON STOCK OF PII WILL EXCHANGE THEIR SHARES FOR SHARES OF COMMON STOCK ON A ONE-FOR-ONE BASIS (THE "SHARE EXCHANGE"), (III) THE COMPANY WILL ACQUIRE (THE "PENTEGRA/NAPILI TRANSACTION") SUBSTANTIALLY ALL OF THE ASSETS OF TWO COMPANIES CONTROLLED BY THE COMPANY'S CHAIRMAN OF THE BOARD, PENTEGRA, LTD. AND NAPILI, INTERNATIONAL ("NAPILI") AND (IV) PII WILL REPURCHASE 245,835 SHARES OF ITS CLASS B PREFERRED STOCK, PAR VALUE $0.01 PER SHARE ("CLASS B PREFERRED"), AT THE SUBSCRIPTION PRICE PER SHARE PAID TO PII FOR THOSE SHARES AND, IMMEDIATELY THEREAFTER, REDEEM ALL OF THE REMAINING SHARES OF ITS CLASS A PREFERRED STOCK, PAR VALUE $0.01 PER SHARE ("CLASS A PREFERRED") AND CLASS B PREFERRED AT A REDEMPTION PRICE OF $2.00 PER SHARE (THE "REPURCHASE AND REDEMPTION"). THE NUMBER OF SHARES OF COMMON STOCK TO BE ISSUED IN EACH ACQUISITION WILL DEPEND ON THE INITIAL PUBLIC OFFERING PRICE OF THE COMMON STOCK. ACCORDINGLY, THE DISCLOSURES HEREIN RELATING TO THE SHARES OF COMMON STOCK ISSUED IN CONNECTION WITH THE ACQUISITIONS ARE ESTIMATED, BASED ON AN ASSUMED INITIAL PUBLIC OFFERING PRICE OF $ PER SHARE (THE MIDPOINT OF THE ESTIMATED INITIAL PUBLIC OFFERING PRICE RANGE). UNLESS OTHERWISE INDICATED BY THE CONTEXT, REFERENCES HEREIN TO (I) "PENTEGRA" OR THE "COMPANY" INCLUDE PENTEGRA DENTAL GROUP, INC., PII, PENTEGRA, LTD. AND NAPILI AND (II) "AFFILIATED PRACTICES" MEAN THE FOUNDING AFFILIATED PRACTICES AND ANY DENTAL PRACTICES WITH WHICH THE COMPANY MAY ENTER INTO SIMILAR RELATIONSHIPS IN THE FUTURE. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I) GIVES EFFECT TO A REVERSE STOCK SPLIT OF THE OUTSTANDING SHARES OF COMMON STOCK OF PII AND (II) ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. THE COMPANY Pentegra Dental Group, Inc. was recently formed to provide management, administrative, development and other services to dental practices throughout the United States. The Company's approach to dental practice management (the "Pentegra Dental Program") was developed by Dr. Omer K. Reed, the Chairman of the Board of the Company, and is designed to increase revenues and lower costs at Affiliated Practices while freeing the practicing dentists to focus on the delivery of high-quality care. The Company will earn management service fees under long-term service agreements with Affiliated Practices (the "Service Agreements"). In most cases, service fees payable to the Company under the Service Agreements represent a share of the Affiliated Practices' operating profits, thereby providing incentives for the Company and the Affiliated Practices to work together to maximize practice profitability. The Company will also seek to grow by acquiring and affiliating with additional dental practices. The Company has entered into definitive acquisition agreements and Service Agreements with 51 Founding Affiliated Practices, which include 78 dentists and 63 dental offices located in 18 states. The Founding Affiliated Practices are primarily general dentistry practices, but also include specialists such as periodontists, pedodontists and oral surgeons. For the year ended December 31, 1996, total patient revenue for the Founding Affiliated Practices was approximately $39.2 million and pro forma revenue for the Company would have been approximately $27.1 million. In addition, the Company will acquire from Dr. Reed the assets of a consulting firm, Pentegra, Ltd., which was founded in 1988, and a seminar company, Napili, which was founded in 1963. The clinical, administrative and marketing training developed and provided by these companies to practicing dentists and their teams are the foundation for the Pentegra Dental Program. After completion of the Offering, the Pentegra Dental Program will be available exclusively to Affiliated Practices. The 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 3 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 1993 Foster Higgins National Survey of Employer-Sponsored Health Plans, approximately 78% of the plans surveyed pay for dental services on a fee-for-service basis. The Company believes that fee-for-service care is high-quality, highly profitable and professionally rewarding for dentists. - INCREASE PRODUCTIVITY AND PROFITABILITY OF AFFILIATED PRACTICES BY IMPLEMENTING THE PENTEGRA DENTAL PROGRAM. The Pentegra Dental Program involves proven techniques 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 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. 4 THE OFFERING Common Stock offered by the Company...... 2,500,000 shares Common Stock to be outstanding after the Offering............................... 6,319,178 shares(1) Use of proceeds.......................... To fund the cash portion of the aggregate purchase price of the assets of the Founding Affiliated Practices, to fund the Pentegra/Napili Transaction, to repurchase or redeem the outstanding shares of preferred stock of PII, to repay certain indebtedness of Pentegra and the Founding Affiliated Practices and for general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol... PDGI
- --------- (1) Includes 2,062,511 shares of Common Stock to be issued in connection with the Acquisitions and excludes (i) an aggregate of 646,667 shares of Common Stock issuable upon exercise of stock options to be granted under the Company's 1997 Stock Compensation Plan (the "1997 Stock Compensation Plan") effective on the date the Offering closes at an exercise price equal to the initial public offering price per share and (ii) 1,353,333 shares reserved for future issuance under the 1997 Stock Compensation Plan. See "Management--1997 Stock Compensation Plan." The number of shares to be outstanding on completion of the Offering will decrease if the initial public offering price is higher, and will increase if the initial public offering price is lower, than $ per share. For example, an aggregate of shares of Common Stock would be outstanding if that price is $ per share, while an aggregate of shares of Common Stock would be outstanding if that price is $ per share. RISK FACTORS The Common Stock offered hereby involves a high degree of risk. See "Risk Factors." 5 SUMMARY FINANCIAL DATA (IN THOUSANDS EXCEPT PER SHARE DATA) The following financial information is derived from the historical combined financial statements of Pentegra, Ltd. and Napili (the "Combined Predecessor Companies") and the historical financial statements and the notes thereto included in this Prospectus. Except as indicated, this information does not reflect the effects of the Offering, the Acquisitions, the Share Exchange, the Pentegra/Napili Transaction and the Repurchase and Redemption. For certain information concerning the Acquisitions, see Note 4 of Notes to the Pentegra Dental Group, Inc. Financial Statements.
COMBINED PREDECESSOR COMPANIES COMBINED PREDECESSOR -------------------- COMPANIES PENTEGRA ------------------------------- SIX MONTHS ENDED ----------- SIX MONTHS YEAR ENDED DECEMBER 31 JUNE 30 ENDED JUNE ------------------------------- -------------------- 30, 1994 1995 1996 1996 1997 1997 --------- --------- --------- --------- --------- ----------- UNAUDITED Statement of Operations Data: Revenue......................................................... $ 943 $ 841 $ 922 $ 371 $ 508 $ -- Expenses Staff salaries, wages and benefits............................ 181 246 292 122 126 -- Lecture and seminar expenses.................................. 117 96 70 47 161 -- Rent.......................................................... 148 144 159 46 74 -- General and administrative expenses........................... 364 313 360 93 125 91 Advertising expenses.......................................... 17 4 3 3 -- -- Depreciation.................................................. 21 24 8 4 4 -- Other expenses................................................ 15 9 2 2 11 148 --------- --------- --------- --------- --------- ----------- Total expenses.............................................. 863 836 894 317 501 239 --------- --------- --------- --------- --------- ----------- Income (loss) from operations................................... 80 5 28 54 7 (239) Interest expense................................................ 49 46 52 27 5 -- --------- --------- --------- --------- --------- ----------- Income (loss) before income taxes and extraordinary gain........ 31 (41) (24) 27 2 (239) Provision (benefit) for income taxes............................ 26 (13) 7 3 -- -- --------- --------- --------- --------- --------- ----------- Income (loss) before extraordinary gain......................... 5 (28) (31) 24 2 (239) Extraordinary gain, net of income tax effect of $5.............. -- 7 -- -- -- -- --------- --------- --------- --------- --------- ----------- Net income (loss)............................................. $ 5 $ (21) $ (31) $ 24 $ 2 $ (239) --------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- ----------- Net income (loss) per share................................... $ (0.14) ----------- ----------- Weighted average outstanding shares............................. 1,757 ----------- -----------
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1996 1997 ------------- ----------- Supplemental Data(1): Total patient revenue for the Founding Affiliated Practices.......................................... $ 39,214 $ 19,586 Total pro forma Service Agreement revenue of the Company............................................. $ 27,072 $ 13,403
COMBINED PREDECESSOR COMPANIES COMBINED ---------------------- PREDECESSOR COMPANIES PENTEGRA DECEMBER 31 --------------- ----------- ---------------------- JUNE 30, JUNE 30, 1995 1996 1997 1997 --------- ----- --------------- ----------- Balance Sheet Data: Cash and cash equivalents(3)........................................... $ 9 $ 38 $ 66 $ 845 Working capital (deficit).............................................. (352) (29) (4) 1,175 Total assets........................................................... 48 74 88 1,396 Notes payable, net of current portion.................................. -- 9 5 -- Redeemable preferred stock............................................. -- -- -- 1,089 Stockholders' equity (deficit)......................................... (329) (17) 10 297 AS ADJUSTED(2) --------------- JUNE 30, 1997 --------------- Balance Sheet Data: Cash and cash equivalents(3)........................................... $ 16,170 Working capital (deficit).............................................. 15,678 Total assets........................................................... 20,049 Notes payable, net of current portion.................................. -- Redeemable preferred stock............................................. -- Stockholders' equity (deficit)......................................... 18,663
- ------------- (1) See Note 4 of Notes to the Pentegra Dental Group, Inc. Financial Statements. (2) As adjusted gives effect to (i) the Offering, (ii) the Acquisitions, (iii) the repayment of certain debt of Pentegra and the Founding Affiliated Practices, (iv) the Pentegra/Napili Transaction, (v) the Share Exchange and (vi) the Repurchase and Redemption, as if such transactions had occurred on June 30, 1997. See the Unaudited Pro Forma Balance Sheet of Pentegra and the notes thereto included in this Prospectus. (3) See "Use of Proceeds." 6 RISK FACTORS IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CONSIDER THE FOLLOWING FACTORS IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING ANY OF THE SHARES OF THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. ABSENCE OF COMBINED OPERATING HISTORY The Company was incorporated in 1997 and has conducted no operations to date other than in connection with the Offering and the Acquisitions. The Company has entered into agreements to acquire substantially all the assets and assume certain liabilities of the Founding Affiliated Practices concurrently with the closing of the Offering. In connection with the Acquisitions, the Company is entering into Service Agreements with the Founding Affiliated Practices for initial terms of 40 years (subject to early termination by either party for "cause," which includes a material default by or bankruptcy of the other party). See "Business--Service Agreements." Historically, the Founding Affiliated Practices have operated as separate independent entities. There can be no assurance that the process of integrating the management and administrative functions of the Founding Affiliated Practices will be successful or that the Company's management will be able to manage these operations effectively or implement the Company's operating or expansion strategies successfully. Failure by the Company to implement its operating and expansion strategies successfully would have a material adverse effect on the Company. See "Business--Business Strategy" and "--Service Agreements." RELIANCE ON AFFILIATED PRACTICES AND DENTISTS The Company will receive fees for management services provided to the Affiliated Practices under the Service Agreements. It will not employ dentists or control the practice of dentistry by the dentists employed by the Affiliated Practices, and its management services revenue generally will depend on revenue generated by the Affiliated Practices. In some cases, the management fees will be based on the costs and expenses the Company incurs in connection with providing management services. While the laws of some states permit the Company to participate in the negotiations by Affiliated Practices of managed care contracts, preferred provider arrangements and other negotiated price agreements, the Affiliated Practices will be the contracting parties for those relationships, and the Company will be dependent on its Affiliated Practices for the success of any such relationships. Accordingly, the profitability of those payor relationships, as well as the performance of the individual dentists employed by the Affiliated Practices, will affect the Company's profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview" and "Business--Service Agreements." The revenue of the Affiliated Practices (and, therefore, the success of the Company) is dependent on fees generated by the dentists employed by the Affiliated Practices. In connection with the Service Agreements, each dentist who owns a Founding Affiliated Practice will enter into a five-year employment agreement with the professional corporation or other entity with which that dentist is affiliated (and which is a party to a Service Agreement). The dentist employment agreements provide that the employee dentist will not compete with the Affiliated Practice during the term of the agreement and following the termination of the agreement for a term of two years in a specified geographical area. In most states, however, a covenant not to compete will be enforced only to the extent it is necessary to protect a legitimate business interest of the party seeking enforcement, does not unreasonably restrain the party against whom enforcement is sought and is not contrary to the public interest. This determination is made based on all the facts and circumstances of the specific case at the time enforcement is sought. Thus, there can be no assurance that a court will enforce such a covenant in a given situation. In addition, no judicial 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 7 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." INTEGRATION OF 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 upstreaming cash to the Company. See "Business-- Management Information Systems." RISKS ASSOCIATED WITH EXPANSION STRATEGY 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. 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, that the Company will be able to manage effectively and enhance the profitability of additional Affiliated Practices or that the Company will be able to obtain adequate financing on reasonable terms to support its expansion program. Furthermore, 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. 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 acquisitions or that the addition of 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." 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, 8 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. The Company believes the net proceeds from the Offering and cash flow from operations will be sufficient to meet the Company's anticipated expansion and working capital needs through the end of 1998. Thereafter, however, the Company may require additional capital from outside financing sources in order to continue its expansion program. There can be no assurance that the Company will be able to obtain additional funds when needed on satisfactory terms or at all. Any significant limitation on the Company's ability to obtain additional financing could have a material adverse effect on the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." PROCEEDS OF OFFERING PAYABLE TO AFFILIATES In connection with the closing of the Acquisitions, the Company will pay, out of proceeds from the Offering, approximately $6.5 million in cash to the owners of the Founding Affiliated Practices, including approximately $216,326 to Ronnie L. Andress, D.D.S., $130,027 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. In addition, the Company will use $200,000 of the proceeds from the Offering to purchase substantially all of the tangible and intangible assets of Pentegra, Ltd. and Napili, both of which entities are controlled by Dr. Reed. The Company will also use approximately $2.8 million of the proceeds from the Offering in connection with the Repurchase and Redemption of PII's Class A Preferred and Class B Preferred, including approximately $37,500 to Dr. Reed, $37,500 to Gary S. Glatter, $334 to James L. Dunn, Jr., $667 to J. Michael Casas, $50,000 to Dr. Greder and $50,000 to Dr. Kay. See "Use of Proceeds" and "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 corporate practice of dentistry, fee splitting, fraud and abuse, self-referral, false claims and insurance regulation. CORPORATE PRACTICE OF DENTISTRY AND FEE SPLITTING RESTRICTIONS The laws of many states prohibit business corporations such as the Company from engaging in the practice of dentistry or employing dentists to practice dentistry and prohibit dentists from splitting fees with non-dentists. 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 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 and that the management fees it intends to charge for its services are consistent with the laws and regulations of the jurisdictions in which it will operate concerning fee-splitting. 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 9 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 have fraud and abuse laws that, in many cases, apply to referrals for items or services reimbursable by any insurer, not just by Medicare and Medicaid. A number of states, including many of the states in which the Founding Affiliated Practices are located, also impose significant penalties for submitting false claims for dental services. In addition, most states 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 There are certain state insurance regulatory risks associated with the Company's anticipated role in negotiating and administering managed care contracts on behalf of the Affiliated Practices. The application of state insurance laws to third-party payor arrangements, other than fee-for-service arrangements, is an unsettled area of law with little guidance available. State insurance laws are subject to broad interpretation by regulators and, in some states, state insurance regulators may determine that the Company or the Affiliated Practices are engaged in the business of insurance because of the capitation features (or similar features under which an Affiliated Practice assumes financial risk) that may be contained in managed care contracts. In the event the Company or an Affiliated Practice is determined to be engaged in the business of insurance, the Company or the Affiliated Practice could be required to either seek licensure as an insurance company or change the form of its relationships with the third-party payors. There can be no assurance that the Company's operations would not be adversely affected if the Company or any of the Affiliated Practices were to become subject to state insurance regulations. HEALTH CARE REFORM The United States Congress has considered various types of health care reform, including comprehensive revisions to the current health care system. It is uncertain what legislative proposals, if any, will be adopted in the future or what actions federal or state legislatures or third-party payors may take in anticipation of or in response to any health care reform proposals or legislation. There can be no assurance that applicable federal or state laws and regulations will not change or be interpreted in the future either to restrict or adversely affect the Company's relationships with dentists or the operation of Affiliated Practices. See "Business--Government Regulation." 10 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 the Affiliated Practices enter into capitated managed care arrangements, they are exposed to the risk that the cost of providing dental care required by these contracts exceeds the amount that the Affiliated Practice receives for providing such dental care. To the extent the Affiliated Practices enter into additional managed care contracts, the Affiliated Practices may achieve greater predictability of revenues but greater unpredictability of expenses due to the fluctuating costs of the services provided. There can be no assurance that the Company will be able to negotiate on behalf of the Affiliated Practices satisfactory arrangements on a capitated basis, regardless of the amount of risk sharing. In addition, to the extent that patients or enrollees covered by certain of these contracts require, in the aggregate, more frequent or extensive care than anticipated, operating margins may be reduced, or the revenues derived from these agreements may be insufficient to cover the costs of the services provided. As a result, Affiliated Practices would be at risk for additional costs which would reduce or eliminate any earnings for the Affiliated Practices under these contracts with a corresponding reduction in or elimination of the service fee payable to the Company. CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS Following the completion of the Acquisitions and the Offering, Dr. Reed, the Company's Chairman of the Board, the other executive officers and directors of the Company as a group and the owners of the Founding Affiliated Practices other than Dr. Reed will beneficially own approximately 2.9%, 18.5% and 32.6%, 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. 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. Each of Dr. Reed and the other board members who own an Affiliated Practice will be a party to a Service Agreement with the Company. In connection with the provision of management services by the Company to the Affiliated Practices owned by those dentists, potential conflicts may arise. See "Security Ownership of Certain Beneficial Owners and Management" and "Certain Transactions." 11 DEPENDENCE ON KEY PERSONNEL The Company's future performance depends in significant part on the continued service of its senior management, including Dr. Reed and Gary S. Glatter, the President and Chief Executive Officer of the Company. There can be no assurance that these individuals will continue to work for the Company. Loss of services of those persons could have a material adverse effect on the Company. The success of the Company's growth strategy will also depend on the Company's ability to attract and retain additional high quality personnel. See "Business--Employees" and "Management." COMPETITION The Company anticipates facing substantial competition from other companies to establish affiliations with additional dental practices. The Company is aware of several practice management companies focused on dentistry and several companies pursuing similar strategies in other segments of the health care industry (including dentistry). Certain of these competitors have greater financial and other resources than the Company and have operations in areas where the Company may seek to expand in the future. Additional companies with similar objectives are expected to enter the Company's markets and compete with the Company. In addition, the business of providing dental services is highly competitive in each market in which the Company will operate. Each of the Founding Affiliated Practices faces local competition from other dentists, pedodontists (dentists specializing in the care of children's teeth) and other providers of specialty dental services (such as periodontists, orthodontists and oral surgeons) some of whom have more established practices. There can be no assurance that the Company or the Affiliated Practices will be able to compete effectively with their respective competitors, that additional competitors will not enter their markets or that additional competition will not have a material adverse effect on the Company or the Affiliated Practices. See "Business--Competition." MALPRACTICE RISKS OF PROVIDING DENTAL SERVICES The Affiliated Practices provide dental services to the public and are exposed to the risk of professional liability and other claims. In recent years, dentists have become subject to an increasing number of lawsuits alleging malpractice and related legal theories. Some of these lawsuits may involve large claims and significant defense costs. Any suits involving the Company or dentists at the Affiliated Practices, if successful, could result in substantial damage awards to the claimants that may exceed the limits of any applicable insurance coverage. Although the Company will not control the practice of dentistry by the Affiliated Practices, it could be asserted that the Company should be held liable for malpractice of a dentist employed by an Affiliated Practice. Each Affiliated Practice has undertaken to comply with all applicable regulations and legal requirements, and the Company maintains liability insurance for itself. There can be no assurance, however, that a future claim or claims will not be successful or, if successful, will not exceed the limits of available insurance coverage or that such coverage will continue to be available at acceptable costs. Malpractice insurance, moreover, can be expensive and varies from state to state. Successful malpractice claims asserted against the Affiliated Practices (or their dentists) or the Company may have a material adverse effect on the Company. See "Business--Litigation and Insurance." POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK The market price of the Common Stock of the Company could be adversely affected by the sale of substantial amounts of the Common Stock in the public market following the Offering. The shares being sold in the Offering will be freely tradable unless acquired by affiliates of the Company. Concurrently with the closing of the Offering, the owners of the Founding Affiliated Practices will receive, in the aggregate, 2,062,511 shares of Common Stock as a portion of the consideration for the assets of their practices. Certain other stockholders of the Company will hold, in the aggregate, an 12 additional 1,756,667 shares of Common Stock. Those shares are not being offered and sold pursuant to this Prospectus. None of those 3,819,178 shares were acquired in transactions 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 Acquisitions have agreed with the Company that they will not sell any of the 3,819,178 shares of Common Stock owned by them immediately after the consummation of the Acquisitions for a period of one year following the closing of the Offering, subject to their right to exercise certain piggy-back registration rights. After the expiration of that restricted period, all of those shares may be sold in accordance with Rule 144 under the Securities Act, subject to the applicable volume limitations, holding period and other requirements of Rule 144. The Company, its directors, executive officers and current stockholders, and all persons acquiring shares of Common Stock in connection with the Acquisitions have agreed not to offer or sell any shares of Common Stock for a period of 180 days (the "180-Day Lockup Period") following the date of this Prospectus without the prior written consent of Lehman Brothers Inc., except that the Company may, subject to certain conditions, issue Common Stock in connection with acquisitions and awards under the 1997 Stock Compensation Plan. Following completion of the Offering, the Company intends to register the issuance of an additional 1,500,000 shares of its Common Stock under the Securities Act subsequent to completion of the Offering for use by the Company as all or a portion of the consideration to be paid in future acquisitions. Those shares will generally be freely tradable by nonaffiliates after their issuance, unless the resale thereof is contractually restricted, and resales of those shares during the 180-Day Lockup Period would require the prior written consent of Lehman Brothers Inc. The Company anticipates that, prior to the consummation of the Offering, the Company will have outstanding under the 1997 Stock Compensation Plan options to purchase approximately 646,667 shares of Common Stock. The Company intends to register the shares issuable upon exercise of options granted under the 1997 Stock Compensation Plan. See "Management--1997 Stock Compensation Plan" and "Shares Eligible for Future Sale." NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offering, there has been no public market for the Common Stock, and there can be no assurance that an active trading market will develop or, if a trading market does develop, that it will continue after the Offering. The initial public offering price of the Common Stock, which will be determined through negotiations between the Company and the Underwriters, may not be indicative of the price at which the Common Stock will trade after the Offering. See "Underwriting" for a description of the factors considered in determining the initial public offering price. The securities markets have, from time to time, experienced significant price and volume fluctuations that may be unrelated to the operating performance of particular companies. These fluctuations often substantially affect the market price of a company's common stock. The market prices for securities of medical and dental practice management companies have in the past been, and can be expected to be, particularly volatile. The market price of the Common Stock could be subject to significant fluctuations in response to numerous factors, including variations in financial results or announcements of material events by the Company or its competitors. Regulatory changes, developments in the health care industry or changes in general conditions in the economy or the financial markets could also adversely affect the market price of the Common Stock. CERTAIN ANTI-TAKEOVER PROVISIONS Certain provisions of the Company's Restated Certificate of Incorporation (the "Certificate of Incorporation") and Bylaws and of Delaware law could, together or separately, discourage potential 13 acquisition proposals, delay or prevent a change in control of the Company or limit the price that certain investors might be willing to pay in the future for shares of the Common Stock. The Certificate of Incorporation provides for "blank check" preferred stock, which may be issued without stockholder approval and provides for a "staggered" Board of Directors. In addition, certain provisions of the Company's Bylaws restrict the right of the stockholders to call a special meeting of stockholders, to nominate directors, to submit proposals to be considered at stockholders' meetings and to adopt amendments to the Bylaws, and the Bylaws require that at least a majority of the members of the Board of Directors be licensed dentists who are affiliated with Affiliated Practices. The Company also is subject to Section 203 of the DGCL, which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business acquisitions with an "interested stockholder" for a period of three years following the date such stockholder became an interested stockholder. See "Description of Capital Stock." IMMEDIATE AND SUBSTANTIAL DILUTION AND ABSENCE OF DIVIDENDS Purchasers of shares of Common Stock offered hereby will experience immediate and substantial dilution in the pro forma net tangible book value of their shares in the amount of $ per share. See "Dilution." In the event the Company issues additional Common Stock in the future, including shares that may be issued in connection with future acquisitions, purchasers of Common Stock in the Offering may experience further dilution in the net tangible book value per share of Common Stock. The Company has never paid any cash dividends and does not anticipate paying cash dividends on its Common Stock in the foreseeable future. See "Dividend Policy." 14 THE COMPANY The Company was organized in 1997 and has conducted no operations to date other than in connection with the Offering and the Acquisitions. The Company has entered into agreements to acquire substantially all the assets and assume certain liabilities of the Founding Affiliated Practices, Pentegra, Ltd. and Napili concurrently with the closing of the Offering. The Company's principal executive offices are located at 2999 N. 44th Street, Suite 650, Phoenix, Arizona 85018, and its telephone number is (602) 952-1200. USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered hereby (after deducting the underwriting discounts and commissions and estimated offering expenses (excluding the offering expenses previously funded with proceeds from the issuance of capital stock of PII, including all the Class A Preferred and Class B Preferred being acquired in the Repurchase and Redemption)) are estimated to be approximately $ million (approximately $ million if the Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $ per share (the midpoint of the estimated initial public offering price range). Of those net proceeds, (i) approximately $6.5 million will be used to pay the cash portion of the consideration for the Acquisitions, (ii) $200,000 will be used to effect the Pentegra/Napili Transaction, (iii) approximately $2.8 million will be used in connection with the Redemption and Repurchase, (iv) approximately $2.9 million will be used to repay certain indebtedness of the Company and the Founding Affiliated Practices and (v) approximately $300,000 will be used to repay the $300,000 aggregate principal amount outstanding under the Company's 9.5% promissory notes issued on September 30, 1997 to fund certain of the Company's offering and operating expenses. The indebtedness of the Founding Affiliated Practices to be repaid bears interest at an average rate of eight percent and would otherwise mature at various dates through 2002. The remaining net proceeds will be used for general corporate purposes, which are expected to include future acquisitions and future capital expenditures. Other than with respect to the Acquisitions, the Company currently has no agreement or understanding with respect to any future acquisition. Pending such uses, the net proceeds will be invested in short-term, interest-bearing, investment-grade securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 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 upon, among other things, the Company's earnings, financial condition, cash flow from operations, capital requirements, expansion plans, the income tax laws then in effect, the requirements of Delaware law and restrictions that may be imposed by the Company's future financing arrangements. 15 DILUTION The net tangible book value of the Company as of June 30, 1997 was $0.05 per share of Common Stock as determined by dividing the tangible net worth of the Company (tangible assets less total liabilities and the aggregate stated value of the Class A Preferred and Class B Preferred) by the number of shares of Common Stock outstanding. After giving effect to (i) the Acquisitions and (ii) the sale by the Company of 2,500,000 shares of Common Stock offered at a price of $ per share (the midpoint of the estimated initial public offering price range) and the application of the estimated net proceeds therefrom as set forth under "Use of Proceeds," the net pro forma tangible book value of the Company as of June 30, 1997 would have been $2.93 per share. This represents an immediate increase in the net tangible book value of $2.88 per share to existing stockholders and an immediate dilution to new investors purchasing Common Stock in the Offering of $ per share. The following table illustrates the per share dilution to new investors purchasing Common Stock in the Offering: Assumed initial public offering price per share(1)........... $ Historical net tangible book value......................... $ 0.05 Increase due to Acquisitions and the Offering.............. $ 2.88 --------- Pro forma net tangible book value per share after the Offering................................................. $ 2.93 --------- Dilution per share to initial public offering investors...... $ --------- ---------
- --------- (1) Before deducting estimated underwriting discounts and estimated expenses of the Offering payable by the Company. The dilution to new investors purchasing shares in the Offering will increase if the initial public offering price is higher, and will decrease if the initial public offering price is lower, than $ per share. The following table sets forth, on a pro forma basis to give effect to the Acquisitions as of June 30, 1997, the number of shares of Common Stock purchased from the Company, the total consideration to the Company and the average price per share paid to the Company by existing stockholders and the new investors purchasing shares from the Company in the Offering (before deducting underwriting discounts and commissions and estimated offering expenses):
SHARES PURCHASED TOTAL CONSIDERATION(1) AVERAGE ----------------------- -------------------------- PRICE PER NUMBER PERCENT AMOUNT PERCENT SHARE ---------- ----------- ------------- ----------- ----------- Existing stockholders............... 3,819,178 60.4% $ (6,609,018) % $ New investors....................... 2,500,000 39.6% $ % ---------- ----- ------------- ----- Total........................... 6,319,178 100.0% $ 100.0% ---------- ----- ------------- ----- ---------- ----- ------------- -----
- --------- (1) Total consideration paid by existing stockholders represents the combined stockholders' equity of the Founding Affiliated Practices before the Offering, adjusted to reflect the payment of $6.5 million in cash as part of the consideration for the Acquisitions. See "Use of Proceeds" and "Capitalization." All of the calculations above exclude an aggregate of 646,667 shares of Common Stock issuable upon exercise of stock options anticipated to be outstanding on the date the Offering closes at an exercise price equal to the initial public offering price per share under the 1997 Stock Compensation Plan and 1,353,333 shares reserved for future issuance under the 1997 Stock Compensation Plan. See "Management--1997 Stock Compensation Plan." 16 CAPITALIZATION The following table sets forth the short-term debt and the capitalization of the Company at June 30, 1997 on a historical basis and as adjusted to give effect to (i) the Offering, (ii) the Acquisitions, (iii) the repayment of certain debt of the Company and the Founding Affiliated Practices, (iv) the Share Exchange, (v) the Pentegra/Napili Transaction and (vi) the Repurchase and Redemption. See "Use of Proceeds." This table should be read in conjunction with the unaudited Pro Forma Balance Sheet of Pentegra and the notes thereto included elsewhere in this Prospectus.
AS OF JUNE 30, 1997 --------------------------- HISTORICAL AS ADJUSTED(1) ----------- -------------- (IN THOUSANDS) Short-term debt: Current portion of long-term debt.................................................... $ -- $ -- ----------- ------- Total short-term debt................................................................ $ -- $ -- ----------- ------- ----------- ------- Long-term debt: Long-term debt, net of current portion............................................... -- -- Redeemable Preferred Stock............................................................. 1,089 -- Stockholders' equity (deficit): Common Stock, 40,000,000 shares authorized; 1,756,667 shares issued and outstanding and shares issued and outstanding as adjusted(1)........................... 18 Additional paid-in capital(2)........................................................ 518 Accumulated deficit.................................................................. (239) ----------- ------- Total stockholders' equity......................................................... 297 ----------- ------- Total capitalization............................................................... $ 1,386 $ ----------- ------- ----------- -------
- --------- (1) Excludes 646,667 shares of Common Stock subject to options granted pursuant to the 1997 Stock Compensation Plan. See "Management--1997 Stock Compensation Plan." (2) The effect of the Acquisitions on additional paid-in capital is equal to the net of the aggregate liabilities to be assumed from the Founding Affiliated Practices (including $2.9 million of certain indebtedness to be assumed by the Company), and the aggregate book value of the assets to be acquired of $95,000, plus aggregate cash payments of $6.5 million to be made as part of the consideration for the Acquisitions less the par value of the Common Stock to be issued in connection with the Acquisitions. 17 SELECTED FINANCIAL DATA (IN THOUSANDS EXCEPT PER SHARE DATA) The selected historical financial data of the Company and the Combined Predecessor Companies 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 Combined Predecessor Companies as of December 31, 1995 and 1996 and for each of the years ended December 31, 1994, 1995 and 1996 and the historical financial data of the Company as of June 30, 1997 and for the period from inception, February 21, 1997, through June 30, 1997, set forth below, have been derived from the audited financial statements of the Combined Predecessor Companies and the Company. The selected historical financial data of the Combined Predecessor Companies set forth below as of June 30, 1997 and for the years ended December 31, 1992 and 1993 and the six months ended June 30, 1996 and 1997 have been derived from the unaudited financial statements of the Combined Predecessor Companies, which were prepared on the same basis as the audited financial statements of the Combined Predecessor Companies included elsewhere herein and which, in the opinion of management of the Company, include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the information set forth below. Except as indicated, this information does not reflect the effects of the Offering, the Acquisitions, the Share Exchange, the Pentegra/Napili Transaction and the Repurchase and Redemption. For certain information concerning the Acquisitions, see Note 4 of Notes to the Pentegra Dental Group, Inc. Financial Statements.
COMBINED PREDECESSOR COMPANIES ---------- PENTEGRA YEAR ENDED DECEMBER 31 -------- ------------------------------ SIX MONTHS SIX ENDED JUNE MONTHS COMBINED PREDECESSOR COMPANIES 30 ENDED ------------------------------ ---------- JUNE 30, 1992 1993 1994 1995 1996 1996 1997 1997 ------ ---- ---- ---- ---- ---- ---- -------- (UNAUDITED) (UNAUDITED) (UNAUDITED) STATEMENT OF OPERATIONS DATA: Revenue.............................................. $1,209 $680 $943 $841 $922 $371 $508 $ -- Expenses Staff salaries, wages and benefits................. 421 193 181 246 292 122 126 -- Lecture and seminar expenses....................... 321 199 117 96 70 47 161 -- Rent............................................... 141 73 148 144 159 46 74 -- General and administrative expenses................ 193 122 364 313 360 93 125 91 Advertising expenses............................... 24 9 17 4 3 3 -- -- Depreciation....................................... 45 15 21 24 8 4 4 -- Other expenses..................................... 5 11 15 9 2 2 11 148 ------ ---- ---- ---- ---- ---- ---- -------- Total expenses................................. 1,150 622 863 836 894 317 501 239 ------ ---- ---- ---- ---- ---- ---- -------- Income (loss) from operations...................... 59 58 80 5 28 54 7 (239) Interest expense................................... 50 42 49 46 52 27 5 -- ------ ---- ---- ---- ---- ---- ---- -------- Income (loss) before income taxes and extraordinary gain............................................. 9 16 31 (41) (24) 27 2 (239) Provision (benefit) for income taxes............... 2 4 26 (13) 7 3 -- -- ------ ---- ---- ---- ---- ---- ---- -------- Income (loss) before extraordinary gain............ 7 12 5 (28) (31) 24 2 (239) Extraordinary gain, net of income tax effect of $5............................................... -- -- -- 7 -- -- -- -- ------ ---- ---- ---- ---- ---- ---- -------- Net income (loss).............................. $ 7 $ 12 $ 5 $(21) $(31) $ 24 $ 2 $ (239) ------ ---- ---- ---- ---- ---- ---- -------- ------ ---- ---- ---- ---- ---- ---- -------- Net income (loss) per share.................... $(0.14) -------- -------- Weighted average outstanding shares.................. 1,757 -------- --------
18
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1996 1997 ------------ ----------- Supplemental Data(1): Total patient revenue for the Founding Affiliated Practices................................ $ 39,214 $ 19,586 Total pro forma Service Agreement revenue of the Company................................... $ 27,072 $ 13,403
COMBINED COMBINED PREDECESSOR PREDECESSOR COMPANIES COMPANIES PENTEGRA AS ADJUSTED(2) -------------------- --------------- ----------- -------------- DECEMBER 31 JUNE 30, JUNE 30, JUNE 30, 1995 1996 1997 1997 1997 --------- --------- --------------- ----------- -------------- BALANCE SHEET DATA: Cash and cash equivalents(3).................................... $ 9 $ 38 $ 66 $ 845 $ 16,170 Working capital (deficit)....................................... (352) (29) (4) 1,175 15,678 Total assets.................................................... 48 74 88 1,396 20,049 Notes payable, net of current portion........................... -- 9 5 -- -- Redeemable preferred stock...................................... -- -- -- 1,089 -- Stockholders' equity (deficit).................................. (329) (17) 10 297 18,663
- ------------ (1) See Note 4 of Notes to the Pentegra Dental Group, Inc. Financial Statements. (2) As adjusted gives effect to (i) the Offering, (ii) the Acquisitions, (iii) the repayment of certain debt of Pentegra and the Founding Affiliated Practices, (iv) the Pentegra/Napili Transaction, (v) the Share Exchange and (vi) the Repurchase and Redemption, as if such transactions had occurred on June 30, 1997. See the Unaudited Pro Forma Balance Sheet of Pentegra and the notes thereto included in this Prospectus. (3) See "Use of Proceeds." 19 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 ELSEWHERE IN THIS PROSPECTUS. OVERVIEW Although the Company has conducted no significant operations to date, it will succeed to the business of Pentegra, Ltd. and Napili, which developed the Pentegra Dental Program. In connection with the Acquisitions, the Company will acquire certain tangible and intangible assets and assume certain liabilities of, and enter into Service Agreements with, the Founding Affiliated Practices. Through the Service Agreements, the Company will be providing practice management services to the Founding Affiliated Practices in return for management service fees. The expenses incurred by the Company in fulfilling its obligations under the Service Agreements are generally of the same nature as the operating costs and expenses that were otherwise incurred by the Founding Affiliated Practices, including salaries, wages and benefits of practice personnel (excluding dentists and certain other licensed dental care professionals), dental supplies and office supplies used in administering their practices and the office (general and administrative) expenses of the practices. In addition to the operating costs and expenses discussed above, the Company will be incurring personnel and administrative expenses in connection with establishing and maintaining a corporate office, which will provide management, administrative, marketing and development and acquisition services that are generally of the same nature as those that have historically been incurred by Pentegra, Ltd. and Napili in connection with the provision of services to dental practices. RESULTS OF OPERATIONS PENTEGRA AND PII Pentegra and PII have conducted no significant operations to date and will not conduct significant operations until the Acquisitions, the Pentegra/Napili Transaction and the Offering are completed. Nominal general and administrative expenses were incurred during the six months ended June 30, 1997. The Company has incurred and will continue to incur various legal, accounting, travel, personnel and marketing costs in connection with the Acquisitions and the Offering. Of these expenses, $1,450,000 is being funded with proceeds from the issuances of the Common Stock, Class A Preferred and Class B Preferred in the second quarter of 1997 and $300,000 is being funded with proceeds from the issuance of $300,000 aggregate principal amount of 9.5% promissory notes of the Company to two separate lenders in October 1997. PENTEGRA, LTD. AND NAPILI Pentegra, Ltd. and Napili provide clinical, administrative and marketing consulting and training programs to dentists and their personnel. The period-to-period comparisons set forth below for the combined operations of Pentegra, Ltd. and Napili should be considered in conjunction with the discussion of pro forma results of operations below. 20 SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996. Total revenue for the six months ending June 30, 1997 was $508,000, a $137,000 increase over the same period in 1996. The increase resulted primarily from an increase in the number of seminars held by Napili and a 15 percent increase in the number of persons participating in Pentegra, Ltd. consulting programs. Expenses generally increased in proportion to the increase in seminars and consulting programs except for lecture and seminar expenses, which increased approximately 240% to $161,000. During 1997, Napili committed substantial additional resources to improving the setting and amenities offered in connection with its seminars to attract more participants. The Company expects lecture and seminar expenses to decrease in future periods as it limits participation to dentists employed by Affiliated Practices. In September 1996, the owners of Pentegra, Ltd. and Napili contributed capital of $343,000, which was used to repay indebtedness. Consequently, interest expense decreased by $22,000 to $5,000 for the six months ended June 30, 1997 compared to the corresponding period in the prior year. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995. Total revenue was $922,000 in 1996, an increase of $81,000 over 1995, resulting from an increase in the number of participants in Pentegra, Ltd. consulting programs. Staff salaries, wages and benefits increased by $46,000 to $292,000 because of additions of professional personnel by Pentegra, Ltd. Rent and general and administrative expenses increased in support of the additional personnel and enhanced consulting programs. Lecture and seminar expenses decreased $26,000 to $70,000, reflecting a general change in venues for seminars and lectures. Depreciation decreased by $16,000 to $8,000 because leasehold improvements were fully depreciated in 1996. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994. Total revenue decreased $102,000 to $841,000 in 1995, primarily as a result of reduced marketing and promotional expenses of Pentegra, Ltd. consulting programs due to the implementation of a new marketing strategy that was subsequently abandoned. Staff additions also occurred in 1996, which increased salaries, wages and benefits and increased focus on training new personnel, rather than marketing. Lecture and seminar expenses decreased by $21,000 to $96,000, reflecting more modest venues and a decrease in promotion, which is also reflected in the $13,000 decrease in advertising. PLANNED OPERATIONS The Company intends to complete the Acquisitions and the Pentegra/Napili Transaction concurrently with the Offering. See Note 4 of Notes to the Pentegra Dental Group, Inc. Financial Statements. It is anticipated that substantially all the Company's revenues will consist of fees under the Service Agreements. Pro forma revenues of $27.1 million and $13.4 million for the year ended December 31, 1996 and the six months ended June 30, 1997, respectively, are based on the service fees that would have been payable pursuant to the Service Agreements with the Founding Affiliated Practices. Revenues may be expected to vary proportionately with the level of dental care provided by Affiliated Practices. LIQUIDITY AND CAPITAL RESOURCES PENTEGRA AND PII The Company had cash of approximately $845,000 at June 30, 1997. In July 1997, the Company received an additional $326,000 proceeds from its June 1997 private placement of Common Stock, Class A Preferred and Class B Preferred and, in October 1997, the Company received an additional $300,000 through the issuance of $300,000 aggregate principal amount of 9.5% promissory notes aggregating to that amount to two lenders. In connection with the issuance of the 9.5% promissory notes, PII issued an aggregate of 20,000 shares of its common stock to the lenders for cash consideration of $.01 per share. The Company anticipates receiving approximately $ million, net of underwriters' commissions and other offering costs, as proceeds from the Offering. The Company will use the net proceeds of the Offering to pay (i) the costs of the Offering not previously funded from the proceeds of the issuance of capital stock of 21 PII, (ii) the cash portion of the consideration for the Acquisitions of approximately $6.5 million, (iii) the consideration for the Pentegra/Napili Transaction of $200,000, (iv) approximately $2.8 million in connection with the Repurchase and Redemption, (v) approximately $2.9 million to retire certain indebtedness of the Founding Affiliated Practices and (vi) approximately $300,000 to repay the aggregate principal amount outstanding under the Company's 9.5% promissory notes. The remaining net proceeds will be used for general corporate purposes, which are expected to include future acquisitions and capital expenditures. Management believes the net proceeds of the Offering, combined with the Company's cash flows from operations, will be sufficient to fund planned capital expenditures and ongoing operations of the Company through the end of 1998. The Company intends to register 1,500,000 shares of Common Stock under the Securities Act for use in the Company's acquisition program. PENTEGRA, LTD. AND NAPILI Pentegra, Ltd. and Napili had a working capital deficit of $4,000 at June 30, 1997. Management believes that cash flows from operations will be adequate to fund these companies' operations through the date the Pentegra/Napili Transaction is completed. ACCOUNTING TREATMENT The acquisition of the assets and assumption of certain liabilities of the Founding Affiliated Practices pursuant to the Acquisitions will be accounted for by the Company at the transferors' historical cost basis. The Common Stock being issued in the Acquisitions will be recorded at the historical net book value of the net assets being acquired, as reflected on the books of the Founding Affiliated Practices. Cash consideration paid in the Acquisitions will be treated for accounting purposes as a dividend to the Founding Affiliated Practices and their owners. RECENT PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 specifies the computation, presentation, and disclosure requirements of earnings per share and supersedes Accounting Principles Board Opinion No. 15, "Earnings Per Share." SFAS No. 128 requires a dual presentation of basic and diluted earnings per share. Basic earnings per share, which excludes the impact of common stock equivalents, replaces primary earnings per share. Diluted earnings per share, which utilizes the average market price per share as opposed to the greater of the average market price per share or ending market price per share when applying the treasury stock method in determining common stock equivalents, replaces fully diluted earnings per share. SFAS No. 128 is effective for both interim and annual periods ending after December 15, 1997. The Emerging Issues Task Force of the FASB is currently evaluating certain matters relating to the physician practice management industry, which the Company expects will include a review of accounting for affiliated dental practices. The Company is unable to predict the impact, if any, that this review may have on the Company's financial statement presentation. 22 BUSINESS OVERVIEW Pentegra Dental Group, Inc. was recently formed to provide management, administrative, development and other services to dental practices throughout the United States. The Company's approach to dental practice management (the "Pentegra Dental Program") was developed by Dr. Omer K. Reed, the Chairman of the Board of the Company, and is designed to increase revenues and lower costs at Affiliated Practices while freeing the practicing dentists to focus on the delivery of high-quality care. The Company will earn management service fees under long-term service agreements with Affiliated Practices (the "Service Agreements"). In most cases, service fees payable to the Company under the Service Agreements represent a share of the Affiliated Practices' operating profits, thereby providing incentives for the Company and the Affiliated Practices to work together to maximize practice profitability. The Company will also seek to grow by acquiring and affiliating with additional dental practices. The Company has entered into definitive acquisition agreements and Service Agreements with 51 Founding Affiliated Practices, which include 78 dentists and 63 dental offices located in 18 states. The Founding Affiliated Practices are primarily general dentistry practices, but also include specialists such as periodontists, pedodontists and oral surgeons. For the year ended December 31, 1996, total patient revenue for the Founding Affiliated Practices was approximately $39.2 million and pro forma revenue for the Company would have been approximately $27.1 million. In addition, the Company will acquire from Dr. Reed the assets of a consulting firm, Pentegra, Ltd., which was founded in 1988, and a seminar company, Napili, which was founded in 1963. The clinical, administrative and marketing training developed and provided by these companies to practicing dentists and their teams are the foundation for the Pentegra Dental Program. After completion of the Offering, the Pentegra Dental Program will be available exclusively to Affiliated Practices. The Company believes it has several advantages that would lead dental practices to seek to affiliate with the Company: (i) the Company and the Founding Affiliated Practices focus on providing traditional fee-for-service dental care, which the Company believes is highly profitable and professionally rewarding for dentists; (ii) the Pentegra Dental Program offers proven techniques to increase practice profitability substantially; (iii) both the Company and the Affiliated Practices will have incentives to work together to maximize practice profitability; and (iv) affiliation with the Company will enable Affiliated Practices to benefit from professional management techniques, economies of scale in administrative and other functions, and enable affiliated dentists to dedicate more time and effort towards the growth of their practices. INDUSTRY The Health Care Finance Administration ("HCFA") estimates that in 1995, approximately $43 billion was spent in the United States on dental services. HCFA projects annual dental expenditures to increase at an average annual rate of six percent per year, reaching $79 billion in the year 2005. The Company believes there are several factors that will drive growth in dental expenditures in the United States, including (i) the aging of the population, which increases the demand for restorative and maintenance procedures (E.G., crowns, bridges and implants) that tend to be more profitable than routine procedures (E.G., cleanings and fillings); (ii) the increasing attention to dental health and wellness, with greater emphasis on personal appearance, which increases the demand for general dentistry services and, in particular, cosmetic dental procedures (E.G., porcelain bonding and bleaching), which also tend to be more profitable than routine procedures; and (iii) the increasing percentage of the population covered by some form of dental insurance, which, according to the National Center for Health Statistics, makes patients more likely to seek treatment from their dentist. Payments for dental services are made either directly by patients or by third-party payors. Third-party payors primarily consist of private insurance indemnity plans, preferred provider organizations ("PPOs") and dental health maintenance organizations and other managed care programs ("DHMOs"). Private 23 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 1993 Foster Higgins National Survey of Employer-Sponsored Health Plans, approximately 78% of the plans surveyed pay for dental services on a fee-for-service basis, while approximately 22% of the plans surveyed are PPO and DHMO plans (I.E., discounted fee-for-service payments or capitated payments). According to HCFA, only approximately four percent of all payments for dental care are made under the Medicaid program (which provides limited coverage for indigent children), with no coverage being provided by the Medicare program. In a 1995 survey, the ADA reported that there were approximately 153,000 active dentists in the United States, approximately 88% of whom were practicing either alone or with only one other dentist. In recent years, dentists have begun to consolidate into affiliated groups and with practice management organizations. Dentists who affiliate with practice management companies gain several benefits, such as opportunities to achieve economies of scale, to implement cost management techniques and to gain access to capital for new equipment and other working capital needs. BUSINESS STRATEGY The Company's objective is to become a leader in providing dental practice management services. In order to achieve this objective, the Company's strategy includes the following elements: - FOCUS ON TRADITIONAL FEE-FOR-SERVICE DENTAL CARE. According to the 1993 Foster Higgens National Survey of Employer-Sponsored Health Plans, approximately 78% of the plans surveyed pay for dental services on a fee-for-service basis. The Company believes that fee-for-service care is high-quality, highly profitable and professionally rewarding for dentists. - INCREASE PRODUCTIVITY AND PROFITABILITY OF AFFILIATED PRACTICES BY IMPLEMENTING THE PENTEGRA DENTAL PROGRAM. The Pentegra Dental Program involves proven techniques 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 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. 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 several thousand practicing 24 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 training and services to small groups of dentists. Shortly after completion of the Offering, Pentegra, Ltd. and Napili will no longer operate independently and their services will be available exclusively to Affiliated Practices. The Company focuses on traditional fee-for-service practices, which generate revenue by providing care to their established patient bases and typically grow through patient referrals. The Company believes that the average dentist has the skills necessary to diagnose and provide appropriate care to patients, but many of them have not developed the skills needed to obtain patient acceptances of, and commitments to, the treatment plans. As a result, a significant amount of recommended care may not be completed, with correspondingly lower revenues to the dentists. The Pentegra Dental Program is based on a cooperative approach that emphasizes patient wellness and involves the dentist and his or her patient mutually agreeing on a program to achieve and maintain optimal oral health. The Company will provide training and support to assist affiliated dentists 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. 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 hygienic use 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 patient scheduling and time spent with patients in order to increase utilization of existing dental equipment and personnel. MANAGEMENT INFORMATION SYSTEMS The Company will utilize an integrated server-based information system to track important operational and financial data related to each Affiliated Practice's performance. The Company's management information system will interface with the practice management software currently being used by the Founding Affiliated Practices and enable the Company to collect from each Affiliated Practice, on a daily basis, data on patients seen, number and type of procedures performed, billing and collections, and other data needed for financial reporting and analysis. The Company will then compile and analyze this data in order to promote efficiency and assure high quality care at Affiliated Practices, as well as maintain necessary financial controls. The Company's management information system will also enable the Company to centralize certain functions, such as purchasing, accounts payable and payroll processing, and achieve economies of scale. The Company is currently in the process of refining and testing its management information system at beta sites at selected Founding Affiliated Practices. The Company expects its integrated system to be operational at all of the Founding Affiliated Practices at the closing of the Offering, and will be installed promptly at all future Affiliated Practices as they affiliate with the Company. Any significant delay or 25 increase in expense associated with the conversion and integration of management information systems used by Affiliated Practices could have a material adverse effect on the successful implementation of the Company's expansion strategy. In addition, the Company will have some systems that will remain decentralized for at least some time, such as cash collections. Accordingly, the Company will rely on local staff for certain functions, including upstreaming cash to the Company. OTHER PRACTICE MANAGEMENT SERVICES The Company will provide other practice management services to the Affiliated Practices, including staffing, education and training, employee benefits administration, advertising and other marketing support and, where permitted by applicable law, dentist recruiting. This management and administrative support should substantially reduce the amount of time affiliated dentists are required to spend on administrative matters and enable them to dedicate more time and effort toward the growth of their professional practices. In addition, the Company expects to be able to negotiate on behalf of Affiliated Practices discounts on, among other things, dental and office supplies, health and malpractice insurance and equipment. 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. LOCATIONS Upon consummation of the Acquisitions, the Company will provide management services to the practices and offices in the following states:
NUMBER OF -------------------- STATE OFFICES DENTISTS - --------------------------------------------------------------------------- --------- --------- Alaska..................................................................... 1 1 Arizona.................................................................... 6 7 California................................................................. 1 1 Colorado................................................................... 4 6 Florida.................................................................... 3 3 Louisiana.................................................................. 1 1 Maine...................................................................... 1 1 Maryland................................................................... 1 1 Massachusetts.............................................................. 1 2 Michigan................................................................... 1 1 Nebraska................................................................... 2 2 New Mexico................................................................. 1 2 New York................................................................... 4 4 North Dakota............................................................... 1 1 Oregon..................................................................... 1 1 Texas...................................................................... 31 41 Washington................................................................. 2 2 Wisconsin.................................................................. 1 1 --------- --------- Totals................................................................... 63 78 --------- --------- --------- ---------
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. 26 SUMMARY OF TERMS OF ACQUISITIONS The aggregate consideration that will be paid by Pentegra to acquire the Founding Affiliated Practices consists of (i) approximately $6.5 million in cash and (ii) approximately 2,062,511 shares of Common Stock. The number of shares to be outstanding on completion of the Offering will decrease if the initial public offering price is higher, and will increase if the initial public offering price is lower, than $ per share. The Company will also assume certain indebtedness of the Founding Affiliated Practices of approximately $2.9 million. Pentegra will acquire substantially all the assets necessary to operate the business of each of the Founding Affiliated Practices, except as limited by applicable restrictions on the corporate practice of dentistry. See Note 4 of Notes to the Pentegra Dental Group, Inc. Financial Statements and "--Government Regulation." The consideration being paid by Pentegra for each Founding Affiliated Practice was determined by arm's-length negotiations between Pentegra and a representative of that Founding Affiliated Practice. Pentegra used valuation methods to negotiate the consideration being paid to each of the Founding Affiliated Practices, including the practice wholly owned by Dr. Reed, which methods were based upon the Founding Affiliated Practice's gross revenue, net income and growth potential. The closing of each Acquisition is subject to customary conditions. These conditions include, among others, the accuracy, on the closing date of the Acquisitions, of the representations and warranties made by the Founding Affiliated Practices and their stockholders and by the Company; the performance of each of their respective covenants included in the agreements relating to the Acquisitions; and the absence of any material adverse change in the results of operations, financial condition or business of each Founding Affiliated Practice. Any Founding Affiliated Practice's acquisition agreement may be terminated, under certain circumstances, prior to the closing of the Offering: (i) by the mutual consent of Pentegra and the Founding Affiliated Practice; (ii) if the Offering and the acquisition of that Founding Affiliated Practice are not closed by March 31, 1998; or (iii) by the Founding Affiliated Practice or Pentegra if a material breach or default is made by the other party in the observance or in the due and timely performance of any of the covenants, agreements or conditions contained in the acquisition agreement. SERVICE AGREEMENTS Upon consummation of the Acquisitions, the Company will enter into a Service Agreement with each Founding Affiliated Practice under which the Company will become the exclusive manager and administrator of non-dental services relating to the operation of the Founding Affiliated Practices. The following is intended to be a brief summary of the typical form of Service Agreement the Company will enter into with each Founding Affiliated Practice. The Company expects to enter into similar agreements with Affiliated Practices in the future. The actual terms of the various Service Agreements vary from the description below on a case-by-case basis, depending on negotiations with the individual Founding Affiliated Practices and the requirements of applicable law and governmental regulations. The service fees (the "Service Fees") payable to the Company by the Founding Affiliated Practices under the Service Agreements vary based on the fair market value, as determined in arm's-length negotiations, of the nature and amount of services provided. Such fees, together with reimbursement for operating and non-operating expenses of the Founding Affiliated Practice to be paid by the Company pursuant to the Service Agreement, are payable monthly, and the Service Fees consist of various combinations of the following: (i) a percentage (ranging from 35% to 40%) of the difference between the sum of revenues related to dental services less operating expenses associated with the Founding Affiliated Practices; (ii) a percentage (16%) of the revenues relating to dental services, not to exceed a percentage (35%) of the difference between the revenues related to dental services and operating expenses associated with the Founding Affiliated Practices; or (iii) the greater of (a) a percentage (not to exceed 35%) of the difference between the revenues related to dental services and operating expenses associated with the Founding Affiliated Practices or (b) a specified fixed fee. In addition, with respect to four of the Founding 27 Affiliated Practices, the service fees are based on flat fees that are subject to renegotiation or adjustment on an annual basis. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview." Pursuant to each Service Agreement, the Company will, among other things, (i) act as the exclusive manager and administrator of non-dental services relating to the operation of the Founding Affiliated Practice, subject to matters reserved to the Founding Affiliated Practice, (ii) administer the billing of patients, insurance companies and other third-party payors and collect on behalf of the Founding Affiliated Practice the fees for professional dental and other services and products rendered or sold by the Founding Affiliated Practice, (iii) provide, as necessary, clerical, accounting, payroll, legal, bookkeeping and computer services and personnel, information management, printing, postage and duplication services and transcribing services, (iv) supervise and maintain custody of substantially all files and records (other than patient records if prohibited by applicable law), (v) provide facilities, equipment and furnishings for the Founding Affiliated Practice, (vi) order and purchase inventory and supplies as reasonably requested by the Founding Affiliated Practice and (vii) implement, in consultation with the Founding Affiliated Practice, public relations or advertising programs. Pursuant to each Service Agreement, the respective Founding Affiliated Practice retains the decision-making power and responsibility for, among other things, (i) hiring, compensating and supervising dentist employees and other licensed dental professionals, (ii) ensuring that dentists have the required licenses, credentials, approvals and other certifications appropriate to the performance of their duties and (iii) complying with federal and state laws, regulations and ethical standards applicable to the practice of dentistry. In addition, the Founding Affiliated Practice will be exclusively in control of all aspects of the practice of dentistry and the provision of dental services. Each Service Agreement is for an initial term of 40 years, with automatic extensions (unless specified notice is given) of five years. The Service Agreement may be terminated by either party if the other party (i) files a petition in bankruptcy or other similar events occur or (ii) defaults on the performance of a material duty or obligation, which default continues for a specified term after notice. In addition, the Service Agreement may be terminated by the Company (i) if the Founding Affiliated Practice or a dental employee engages in conduct for which the dental employee's license to practice dentistry is revoked or suspended or is the subject of any restrictions or limitations by any governmental authority to such an extent that he, she or it cannot engage in the practice of dentistry or (ii) upon a breach by the dentist of the employment agreement between the Founding Affiliated Practice and the dentist. The Service Agreement requires the Founding Affiliated Practice to enforce the employment agreements between the Founding Affiliated Practice and the dentists associated with the Founding Affiliated Practice (the "Dentist Employment Agreements"). If the Founding Affiliated Practice does not enforce such employment agreement, the Company may, at its option, require the Founding Affiliated Practice to either assign (i) such employment agreement or (ii) the rights to enforce the covenant not to compete set forth therein to the Company or its designee. The Founding Affiliated Practice is responsible for obtaining professional liability insurance for the employees of the Founding Affiliated Practice and the Company is responsible for obtaining general liability and property insurance for the Founding Affiliated Practice. Upon termination of a Service Agreement, the Founding Affiliated Practice has the option to purchase and assume, and the Company has the option to require the Founding Affiliated Practice to purchase and assume, the assets and liabilities related to the Founding Affiliated Practice at the fair market value thereof, except in certain circumstances where the Founding Affiliated Practice or the Company, as applicable, was in breach of the Service Agreement. 28 DENTIST AGREEMENT Each dentist who has an ownership interest in a Founding Affiliated Practice will enter into a dentist agreement, which provides the Company such dentist's guarantee (for the initial five years and for so long thereafter as he or she owns any interest in the Founding Affiliated Practice) of the Founding Affiliated Practice's obligations under the applicable Service Agreement. In addition, such agreement provides that the dentist may not sell his or her ownership interest during the dentist's five-year employment term without the Company's prior written consent. In the event of a default under the Service Agreement by the Founding Affiliated Practice, the dentist agreement provides that the Company may, at its option, require the Founding Affiliated Practice to convey its patient records and the capital stock of the Founding Affiliated Practice to the Company's authorized designee. DENTIST EMPLOYMENT AGREEMENTS Upon consummation of the Acquisitions, each Founding Affiliated Practice will be a party to a Dentist Employment Agreement with each dentist owner, including the dentist who owns such Founding Affiliated Practice. The Dentist Employment Agreements with dentists who will receive cash or Common Stock in the Acquisitions 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 practice management companies focused on dentistry and several companies pursuing similar strategies in other segments of the health care industry (including dentistry). Certain of these competitors have greater financial and other resources than the Company and have operations in areas where the Company may seek to expand in the future. Additional companies with similar objectives are expected to enter the Company's markets and compete with the Company. In addition, the business of providing dental services is highly competitive in each market in which the Company will operate. Each of the Founding Affiliated Practices faces local competition from other dentists and providers of specialty dental services (pedodontists, orthodontists, oral surgeons, etc.), 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. EMPLOYEES As of September 30, 1997, the Company employed three persons. Upon consummation of the Acquisitions, the Company expects that it will have approximately 390 employees, of which approximately 15 will be employed at the Company's headquarters or at the Company's regional office in Houston, Texas, and approximately 375 will be employed at the locations of the Founding Affiliated Practices. None of the Company's employees are represented by collective bargaining agreements. The Company considers its employee relations to be good. 29 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 as the result of successor liability in connection with the Acquisitions; however, it is management's opinion that the ultimate resolution of those claims will not have a material adverse effect on the financial position, operating results or cash flows of the Company. The Founding Affiliated Practices have maintained professional liability insurance coverage, generally on a claims-made basis. Such insurance provides coverage for claims asserted when the policy is in effect regardless of when the events that caused the claim occurred. The Company intends to acquire similar coverage after the closing of the Acquisitions, since the Company, as a result of the Acquisitions, will in some cases succeed to the liabilities of the Founding Affiliated Practices. Therefore, claims may be asserted against the Company after the closing of Acquisitions 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 and state insurance regulation. CORPORATE PRACTICE OF DENTISTRY AND FEE-SPLITTING RESTRICTIONS The laws of many states prohibit business corporations such as the Company from engaging in the practice of dentistry or employing dentists to practice dentistry and prohibit dentists from splitting fees with non-dentists. 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 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 and that the management fees it intends to charge for its services are consistent with the laws and regulations of the jurisdictions in which it will operate concerning fee-splitting. 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 30 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 have fraud and abuse laws that, in many cases, apply to referrals for items or services reimbursable by any insurer, not just by Medicare and Medicaid. A number of states, including many of the states in which the Founding Affiliated Practices are located, also impose significant penalties for submitting false claims for dental services. In addition, most states 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 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 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. 31 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS As required by the Company's Bylaws, after the closing of the Offering, a majority of the Company's Board of Directors will be dentists who are affiliated with Affiliated Practices. The following table sets forth certain information concerning the Company's directors, the nine persons nominated to become directors on the closing of the Offering and the executive officers of the Company (ages are as of September 30, 1997):
NAME AGE POSITION - --------------------------------------- --- ---------------------------------------------------------------- Omer K. Reed, D.D.S.................... 65 Chairman of the Board and Clinical Officer Gary S. Glatter........................ 44 President, Chief Executive Officer and Director Sam H. Carr(1)......................... 41 Senior Vice President, Chief Financial Officer and Director James L. Dunn, Jr.(2).................. 35 Senior Vice President, Chief Development Officer and Director John G. Thayer......................... 43 Senior Vice President and Chief Operating Officer Kimberlee K. Rozman.................... 37 Senior Vice President, General Counsel and Secretary Ronnie L. Andress, D.D.S.(1)........... 42 Director J. Michael Casas....................... 35 Director James H. Clarke, Jr., D.D.S.(1)........ 49 Director Ronald E. Geistfeld, D.D.S.(1)......... 63 Director Allen M. Gelwick(2).................... 38 Director Mack E. Greder, D.D.S.(1).............. 53 Director Roger Allen Kay, D.D.S.(1)............. 52 Director Gerald F. Mahoney(1)................... 53 Director Anthony P. Maris(1).................... 63 Director George M. Siegel....................... 59 Director Ronald M. Yaros, D.D.S.(1)............. 51 Director
- --------- (1) Appointment as a director will become effective upon the closing of the Offering. (2) Each of Mr. Gelwick and Mr. Dunn intends to resign as a director upon the closing of the Offering. OMER K. REED, D.D.S. has served as the Company's Chairman of the Board and Clinical Officer since May 1997. He founded Pentegra, Ltd. in 1988 and Napili in 1963, and is a practicing dentist with one of the Founding Affiliated Practices. Since inception, Pentegra, Ltd. and Napili have provided comprehensive management and consulting services to dental practices around the nation. In 1965, Dr. Reed founded the CeramDent Laboratory and he has maintained a private dental practice in Phoenix since 1959. He has held associate professorships in the Departments of Ecological Dentistry at the University of North Carolina, Chapel Hill (1978-1988) and the University of Minnesota (1982-1991), and has lectured extensively around the world on various subjects related to the practice of dentistry. Dr. Reed also serves on the Board of Directors of Century Companies of America, CUNA Mutual Insurance Group and the American Volunteer Medical Team. Pursuant to the terms of his employment agreement with the Company, the Company has undertaken to use its best efforts to elect Dr. Reed as a director of the Company. GARY S. GLATTER has served as the Company's President, Chief Executive Officer and a Director since May 1997. Prior thereto, he was President and Chief Operating Officer of H.E.R.C. Products Incorporated, a public company engaged in manufacturing and selling chemical rehabilitation products for water distribution systems. From 1989 until 1993, Mr. Glatter served as President and Chief Executive Officer of Classic Properties, a New York-based real estate company. Pursuant to the terms of his employment agreement with the Company, the Company has undertaken to use its best efforts to elect Mr. Glatter as a director of the Company. 32 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. Mr. Carr is a certified public accountant. Pursuant to the terms of his employment agreement with the Company, the Company has undertaken to use its best efforts to elect Mr. Carr as a director of the Company. JAMES L. DUNN, JR. has served as the Company's Senior Vice President and Chief Development Officer since July 1997 and as a Director since March 1997. Since 1987, Mr. Dunn has been an attorney practicing as a sole practitioner in Houston, Texas. His legal practice is focused on providing services to members of the dental community. He has been actively involved in the valuation or 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 served as a Vice President of Physicians Resource Group, Inc. since June 1995. From October 1991 to June 1995, Mr. Casas served as Administrator of Texas Eye Institute Assoc., a comprehensive eye care provider in the greater Houston, Texas area. JAMES H. CLARKE, JR., D.D.S. has been engaged in the private practice of dentistry in Houston, Texas since 1974 and is President of James H. Clark, Jr., D.D.S., Inc., one of the Founding Affiliated Practices. RONALD E. GEISTFELD, D.D.S. is Professor Emeritus at the University of Minnesota School of Dentistry, where he has taught since 1982. Dr. Geistfeld also maintained a part-time dental practice in Minnesota from 1973 to 1992. He is a member of the Minnesota Dental Association, the Minneapolis District Dental Society, the American College of Dentists, the Academy of Operative Dentistry, the Minnesota Academy of Restorative Dentistry and the Minnesota Academy for Gnathological Research. ALLEN M. GELWICK has served as a Senior Vice President of Alexander & Alexander, an insurance brokerage firm, since 1995 and previously was a member of Alexander & Alexander's Chairman's Council. From 1992 until 1994, he served as Senior Vice President for Minet Insurance Services. Prior thereto, Mr. Gelwick served as Senior Vice President for Frank B. Hall & Co. and was an underwriter for Chubb Insurance. 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. 33 ROGER ALLEN KAY, D.D.S. has been engaged in the private practice of dentistry in Farmington and Livermore Falls, Maine since 1972 and is President of Roger Allen Kay, D.D.S., P.A., one of the Founding Affiliated Practices. He is a member of the Maine Dental Association, the American Dental Association, the Academy of General Dentistry and the American Society of Dentistry for Children. GERALD F. MAHONEY has been Chairman of the Board and Chief Executive Officer of Mail-Well, Inc., a public company engaged in printing and envelope manufacturing with over 50 printing offices throughout the United States, since 1994. Prior thereto, he served as Chairman of the Board, President and Chief Executive Officer of Pavey Envelope beginning in 1991. Mr. Mahoney is a certified public accountant. ANTHONY P. MARIS is a consultant to health care businesses. From 1987 to 1996, Mr. Maris was a Director, Vice President, Chief Financial Officer and Treasurer of Roberts Pharmaceutical Corporation, a public company engaged in pharmaceuticals manufacturing. Prior thereto, Mr. Maris was a Director and Chief Financial Officer of Hoffmann--La Roche Inc., a pharmaceutical manufacturer. GEORGE M. SIEGEL was President and Chief Executive Officer of Parcelway Courier Systems, Inc., a publicly traded messenger and courier business with operations throughout North America, from 1990 to 1997. In 1993, Mr. Siegel co-founded U.S. Delivery Systems, a public company engaged in consolidating local messenger and delivery companies. Prior thereto, Mr. Siegel founded and was the President and Chief Executive Officer of U.S. Messenger & Delivery Service and Direct Dispatch Corporation, two messenger and courier service companies that he sold to Mayne Nickless Courier System, Inc. RONALD M. YAROS, D.D.S. has been engaged in the private practice of dentistry in Aurora, Colorado since 1973 and is President of Ronald M. Yaros, D.D.S., P.C., one of the Founding Affiliated Practices. He is a member of the American Dental Association, the Colorado Dental Association, the Metro Denver Dental Society and the Academy of General Dentistry. BOARD OF DIRECTORS The Board of Directors will be divided into three classes with at least four directors in each class, with the term of one class expiring at the annual meeting of stockholders in each year, commencing 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 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. On closing of the Offering, there will be three committees of the Board: Audit, Compensation and Executive. The initial members of the Audit Committee will be Messrs. Maris and Mahoney. The initial members of the Compensation Committee will be Messrs. Maris, Siegel and Casas. The initial members of the Executive Committee will be Dr. Reed and Messrs. Glatter and Siegel. The members of the Audit and Compensation Committees will not be employees of the Company. Directors who are employees of the Company or a Founding Affiliated Practice do not receive additional compensation for serving as directors. Each director who is not an employee of the Company or a Founding Affiliated Practice will receive a fee of $1,500 for attendance at each Board of Directors meeting and $750 for each committee meeting (unless held on the same day as a Board of Directors meeting), and an initial grant of nonqualified options to purchase 10,000 shares of Common Stock (except 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. 34 EXECUTIVE COMPENSATION Pentegra has conducted no operations to date other than in connection with the Offering and the Acquisitions. The Company anticipates that during 1997 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 $175,000, $175,000, $175,000, $125,000 and $125,000, respectively. See "--Employment Agreements." In addition to base salary, Messrs. Glatter, Carr, Dunn and Thayer through their employment agreements are eligible for certain bonuses described under "--Employment Agreements" and performance bonuses based on the achievement of specific financial targets of the Company. Performance bonuses will not exceed 50% of base salary for each of those officers, except Mr. Glatter (whose bonus will not exceed 200% of his base salary). In September 1997, the Company granted 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. The following summary of these agreements, which will be effective on the closing of the Acquisitions and the Offering, does not purport to be complete and is qualified by reference to such agreements, copies of which 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 (as defined) in which other executive officers of the Company participate. Dr. Reed's employment agreement provides that he will serve as the Company's clinical officer and has a three-year term commencing on completion of the Offering. Dr. Reed's base salary under the employment agreement will be $175,000 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 increments of $10,000 on closing of each future dental practice affiliation subsequent to the Offering until the bonus has been paid in full, provided that the bonus must be paid in full by the third anniversary of the date of this Prospectus. Mr. Glatter's employment agreement provides that he will serve as the Company's chief executive officer and president and has at least a four-year term commencing on July 1, 1997. Mr. Glatter's base salary under the employment agreement will be as follows: (i) $175,000 per year for the period from July 1, 1997 through June 30, 1998, (ii) $200,000 per year for the period from July 1, 1998 through June 30, 1999, (iii) $225,000 per year for the period from July 1, 1999 through June 30, 2000 and (iv) $250,000 per year from July 1, 2000 thereafter or as increased from time-to-time by the Board of Directors. Each of the agreements for Messrs. Carr, Dunn and Thayer and Ms. Rozman has a continuous five-year term with an annual base salary of $175,000 for Mr. Carr and of $125,000 for each of the other officers, and is subject to the right of the Company to terminate the employee's employment at any time. 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 agreements. Mr. Thayer will also receive a $25,000 bonus on the closing of the Offering and a $25,000 bonus on the first anniversary of that 35 closing. Each of the foregoing agreements also contain a covenant limiting competition with the Company for one year following termination of employment. Each Founding Affiliated Practice will enter into an employment agreement with its dentist employees. See "Business--Dentist Employment Agreements." 1997 STOCK COMPENSATION PLAN In August 1997, the Board of Directors adopted, and the stockholders of the Company approved, the 1997 Stock Compensation Plan. The purpose of the 1997 Stock Compensation Plan is to provide the Company's employees, non-employee directors and advisors and employees and directors of Affiliated Practices with additional incentives by increasing their proprietary interest in the Company. The aggregate number of shares of Common Stock with respect to which options and awards may be granted under the 1997 Stock Compensation Plan may not exceed 2,000,000 shares. The 1997 Stock Compensation Plan provides for the grant of incentive stock options ("ISOs"), as defined in Section 422 of the Code, nonqualified stock options (collectively with ISOs, "Options") and restricted stock awards ("Awards"). Following the consummation of the Offering, the 1997 Stock Compensation Plan will be administered by the Compensation Committee of the Board of Directors, which will be comprised of not less than two members of the Board of Directors (the "Committee"). Prior to the consummation of the Offering, the 1997 Stock Compensation Plan had been administered by the Company's full Board of Directors. The Committee has, subject to the terms of the 1997 Stock Compensation Plan, the sole authority to grant Options and Awards under the 1997 Stock Compensation Plan, to interpret the 1997 Stock Compensation Plan and to make all other determinations necessary or advisable for the administration of the 1997 Stock Compensation Plan. All of the Company's employees, non-employee directors and advisors and employees and directors of Affiliated Practices are eligible to receive nonqualified stock options and Awards under the 1997 Stock Compensation Plan, but only employees of the Company are eligible to receive ISOs. Options will be exercisable during the period specified in each option agreement and will generally be exercisable in installments pursuant to a vesting schedule to be designated by the Committee. Notwithstanding the provisions of any option agreement, options will become immediately exercisable in the event of certain events including certain merger or consolidation transactions and changes in control of the Company. No Option will remain exercisable later than ten years after the date of grant (or five years from the date of grant in the case of ISOs granted to holders of more than 10% of the outstanding Common Stock). An Award grants the recipient the right to receive a specified number of shares of Common Stock, which shall become vested over a period of time, not exceeding 10 years, specified by the Committee. Restricted stock transferred to a recipient shall be forfeited upon the termination of the recipient's employment or service other than for death, permanent disability or retirement unless the Committee, in its sole discretion, waives the restrictions for all or any part of an Award. The exercise price for ISOs granted under the 1997 Stock Compensation Plan may be no less than the fair market value of the Common Stock on the date of grant (or 110% of the fair market value in the case of ISOs granted to employees owning more than 10% of the Common Stock). The exercise price for nonqualified options granted under the 1997 Stock Compensation Plan may not be less than the fair market value of the Common Stock on the date of grant. Payment upon exercise of an Option may be made in cash or by check, by means of a "cashless exercise" involving the sale of shares by, or a loan from, a broker, or, in the discretion of the Committee, by delivery of shares of Common Stock, by payment of the par value of the shares subject to the Option plus a promissory note for the balance of the exercise price or in any other form of valid consideration permitted by the Committee. 36 There are generally no federal income tax consequences upon the grant of an Option under the 1997 Stock Compensation Plan. Upon exercise of a nonqualified option, the optionee generally will recognize ordinary income in the amount equal to the difference between the fair market value of the shares at the time of exercise and the exercise price, and the Company is generally entitled to a corresponding deduction. When an optionee sells shares issued upon the exercise of a nonqualified stock option, the optionee realizes short-term, mid-term or long-term capital gain or loss, depending on the length of the holding period. If the optionee holds the shares for more than 18 months, the capital gain or loss will be long-term capital gain or loss. If the optionee holds the shares for more than one year but not more than 18 months, the capital gain or loss will be mid-term capital gain or loss. Otherwise, the capital gain or loss will be short-term capital gain or loss. The Company is not entitled to any deduction in connection with such sale. An optionee will not be subject to federal income taxation upon the exercise of ISOs granted under the 1997 Stock Compensation Plan, and the Company will not be entitled to a federal income tax deduction by reason of such exercise. A sale of shares of Common Stock acquired upon exercise of an ISO that does not occur within one year after the date of exercise or within two years after the date of grant of the option generally will result in the recognition of long-term or mid-term capital gain or loss by the optionee in an amount equal to the difference between the amount realized on the sale and the exercise price, and the Company is not entitled to any deduction in connection therewith. If a sale of shares of Common Stock acquired upon exercise of an ISO occurs within one year from the date of exercise of the option or within two years from the date of the option grant (a "disqualifying disposition"), the optionee generally will recognize ordinary income equal to the lesser of (i) the excess of the fair market value of the shares on the date of exercise of the options over the exercise price or (ii) the excess of the amount realized on the sale of the shares over the exercise price. Any amount realized on a disqualifying disposition in excess of the amount treated as ordinary income will be long-term or short-term capital gain, depending upon the length of time the shares were held. The Company generally will be entitled to a tax deduction on a disqualifying disposition corresponding to the ordinary income recognized by the optionee. For alternative minimum tax purposes, the difference between the fair market value, on the date of exercise, of Common Stock purchased upon the exercise of an ISO, and the exercise price increases alternative minimum taxable income. Additional rules apply if an optionee makes a disqualifying disposition of the Common Stock. There are generally no federal income tax consequences upon the grant of an Award, except as described below regarding a section 83(b) election. Upon the expiration of the restrictions on shares of Common Stock subject to an Award, except as provided in the next sentence, the recipient of the Award will recognize taxable ordinary income equal to the fair market value of the shares at the time of such expiration. If the recipient of an Award elects, pursuant to section 83(b) of the Code, within 30 days of the date shares of restricted stock are considered transferred to the recipient, to recognize taxable ordinary income at the time of the transfer in an amount equal to the fair market value of such shares, no additional income will be recognized upon the lapse of the restrictions on the shares and no deduction will be allowed to the recipient if the shares are subsequently forfeited. A recipient who makes such an election under section 83(b) is required to give notice of such election to the Company immediately after making the election, and the Company will be entitled to a deduction equal to the amount of income recognized by the recipient. For capital gains purposes the recipient's holding period for the shares received will begin at the time taxable income is recognized under these rules and his or her basis in the shares will be the amount of ordinary income recognized. The Company anticipates that upon the consummation of the Offering it will have (i) outstanding options to purchase a total of approximately 646,667 shares of Common Stock under the 1997 Stock Compensation Plan and (ii) options to purchase 1,353,333 additional shares available for grant under the 1997 Stock Compensation Plan. 37 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 $0.01. 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) and Kimberlee K. Rozman (33,333 shares), at a purchase price per share of $0.01. In September 1997 and October 1997, PII purchased 46,667 shares and 20,000 shares, respectively, of its common stock from George M. Siegel at a purchase price per share of $0.01. In September 1997, the Company issued 66,667 shares of common stock to Sam H. Carr at a purchase price of $0.01 per share. In connection with the raising of $1,450,000 by PII in order to fund a portion of the expenses for the Offering and the Acquisitions, in June 1997, PII issued capital stock to Dr. Reed (37,500 shares of Class B Preferred and 7,500 shares of common stock), Gary S. Glatter (37,500 shares of Class B Preferred and 7,500 shares of common stock), George M. Siegel (37,500 of Class B Preferred and 7,500 shares of common stock), Mack E. Greder, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common stock), Roger Allen Kay, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common stock), Bruce A. Kanehl, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common stock), Brian K. Kniff, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common stock), Richard W. Mains, Jr., D.M.D., RBM Trust (25,000 shares of Class B Preferred and 5,000 shares of common stock), James W. Medlock, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common stock), Thomas L. Mullooly, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common stock), Richard H. Fettig, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common stock), Marvin V. Cavallino, D.D.S. (50,000 shares of Class B Preferred and 10,000 shares of common stock), Alan H. Gerbholz, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common stock), Victor H. Burdick, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common stock), Steve Anderson, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common stock) and James P. Allen, D.D.S. (25,000 shares of Class B Preferred and 5,000 shares of common stock), at a purchase price per share of $1.00 for the Class B Preferred and of $0.01 for the common stock. In September 1997, (i) each owner of shares of common stock of PII agreed to exchange those shares for shares of Common Stock on a one-for-one basis and (ii) each of Dr. Reed and Messrs. Glatter, Dunn, Casas and Siegel agreed to sell to PII all shares of Class B Preferred he owns at a price per share equal to the subscription price he paid to PII for those shares, which transactions will occur concurrently with the closing of the Offering and the Acquisitions. In addition, immediately after the completion of the repurchases described in the foregoing sentence, all outstanding shares of Class A Preferred and Class B Preferred will be redeemed by PII at a redemption price of $2.00 per share from the proceeds of the Offering. The Company has entered into an agreement with Pentegra, Ltd., Napili and Dr. Reed to purchase substantially all of the tangible and intangible assets of Pentegra, Ltd. and Napili for $200,000 upon completion of the Offering. Since February 1997, the Company has occupied and had access to the facilities, equipment and staff of James L. Dunn & Assoc., Inc, an affiliate of James L. Dunn, Jr. Beginning June 1, 1997, the Company agreed to compensate James L. Dunn & Assoc., Inc. for use of and access to its office facilities, equipment and staff at the rate of $10,000 per month. James L. Dunn & Assoc., Inc. will provide the Company a monthly invoice and obtain reimbursement for those expenses from the Company. The Company believes that the compensation to be paid to James L. Dunn & Assoc., Inc. represents the fair market value of the services that will be provided to the Company. Subsequent to the Offering, this arrangement may continue on a month-to-month basis at the discretion of the Company. 38 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 provide the Company a monthly invoice and obtain reimbursement for those expenses from the Company. The Company believes that the compensation to be paid to Pentegra, Ltd. represents the fair market value of the goods and services that will be provided to the Company. This lease will be assumed by the Company in the Pentegra/Napili Transaction. The following table provides certain information concerning the Acquisitions:
CONSIDERATION TO BE RECEIVED ------------------------ ASSETS TO BE NUMBER OF FOUNDING AFFILIATED PRACTICES CONTRIBUTED(1) SHARES(2) CASH - ----------------------------------------------------------------------- -------------- ---------- ------------ James P. Allen, D.D.S.................................................. $ (12,845) 42,554 $ 138,301 Anderson Dental Group, Inc............................................. (194,444) 112,615 366,000 Ronnie L. Andress, D.D.S., Inc......................................... (62,257) 66,562 216,326 Kenneth W. Baker, D.D.S., P.C.......................................... (44,262) 45,384 147,496 Victor H. Burdick, D.D.S., P.C......................................... (4,344) 35,116 114,126 Marvin V. Cavallino, D.D.S., A Professional Corporation................ (32,086) 44,138 143,447 James H. Clarke, Jr., D.D.S., Inc...................................... 2,448 40,008 130,027 Henry F. Cuttler, D.D.S................................................ (22,323) 24,372 79,211 Edward T. Dougherty, Jr., D.D.S., P.A.................................. 13,284 71,640 232,830 Family Dental Center, P.A.............................................. 61,038 67,966 220,889 Richard H. Fettig, D.D.S............................................... (5,548) 29,940 97,303 Alan H. Gerbholz, D.D.S., P.C.......................................... 15,154 28,139 91,451 Michael J. Gershtenson, D.D.S., P.C.................................... 67,846 30,174 98,067 Mack E. Greder, D.D.S., P.C............................................ 5,706 44,056 143,183 Salvatore Guarnieri, D.D.S............................................. 48,447 30,860 100,295 Kent Hamilton, D.D.S................................................... (39,219) 73,311 238,262 David R. Henderson, D.D.S.............................................. 6,202 26,187 85,109 Stephen Hwang, D.D.S................................................... 14,198 23,056 74,931 Jackson Dental Partnership............................................. 79,736 33,405 -- Bruce A. Kanehl, D.D.S................................................. (22,532) 45,347 147,378 Roger Allen Kay, D.D.S., P.A........................................... 15,067 44,313 144,017 Patrick T. Kelly, D.D.S., P.C.......................................... 8,133 12,003 39,008 Brian K. Kniff, D.D.S., P.C............................................ 158,300 70,060 227,696 Lakeview Dental, P.C................................................... (15,217) 31,440 102,180 Donald W. Lanning, D.D.S............................................... 39,167 19,128 40,000 David A. Little, D.D.S................................................. (141,340) 32,566 105,840 Susan Lunson, D.D.S.................................................... (117,218) 18,232 59,253 Richard W. Mains, Jr., D.M.D., P.C..................................... 86,785 51,739 168,152 James M. McDonough, D.D.S., P.C........................................ (12,524) 38,900 126,424 James W. Medlock, D.D.S., P.A.......................................... (14,784) 55,366 179,940 James Randy Mellard, D.D.S., M.S., P.C................................. (16,915) 9,842 31,986 Mary B. Mellard, D.D.S., P.C........................................... (102,614) 39,558 128,562 TL Mullooly, D.D.S., Inc............................................... 48,812 29,821 96,918 Byron L. Novosad, D.D.S., Inc.......................................... 6,594 30,745 99,923 Randy O'Brien, D.D.S., Inc............................................. (6,226) 23,634 76,811 Terrence C. O'Keefe, D.D.S............................................. 15,416 18,692 81,000 Harold A. Pebbles, Jr., D.D.S., P.C.................................... -- 36,813 119,641 Jimmy F. Pinner, D.D.S................................................. 6,664 11,267 36,619 Omer K. Reed, D.D.S.................................................... 17,806 24,075 -- Richard Reinitz, D.D.S., P.C........................................... (129,725) 97,227 315,988 Greg Richards, D.D.S................................................... (9,806) 12,711 41,305 Richard N. Smith, D.M.D., P.C.......................................... (60,599) 62,501 203,129 John N. Stellpflug, D.D.S.............................................. (16,671) 30,771 100,006 Jack Stephens, D.D.S................................................... 54,409 78,930 256,523 Y. Paul Suzuki, D.D.S., P.C............................................ 17,036 29,498 95,870 Donald F. Tamborello, D.D.S............................................ 6,243 35,280 114,660
(TABLE CONTINUED) 39
CONSIDERATION TO BE RECEIVED ------------------------ ASSETS TO BE NUMBER OF FOUNDING AFFILIATED PRACTICES CONTRIBUTED(1) SHARES(2) CASH - ----------------------------------------------------------------------- -------------- ---------- ------------ Helena Thomas, D.D.S................................................... (17,949) 18,943 61,566 Louis J. Thornley, D.D.S., P.C......................................... 25,843 27,381 88,988 S. Victor Uhrenholdt, D.D.S., P.C...................................... (7,441) 38,990 126,718 Scott Van Zandt, D.D.S................................................. 6,066 26,230 85,248 Ronald M. Yaros, D.D.S., P.C........................................... 187,368 91,025 295,830 -------------- ---------- ------------ $ (95,121) 2,062,511 $ 6,514,433 -------------- ---------- ------------ -------------- ---------- ------------
- --------- (1) Net assets to be contributed reflects the historical book value of the assets of each practice, including their patient receivable balance, net of prepayments and liabilities of the practice to be assumed or repaid by 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. (2) Assumes an initial public offering price of $ per share. The actual number of shares to be issued as consideration for the Acquisitions may be higher or lower depending on the actual initial public offering price per share. 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. 40 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table shows, as of September 30, 1997 and immediately after giving effect to the closing of the Acquisitions and the Offering, the then "beneficial ownership" of the Common Stock of (i) each director and person nominated to become a director on closing of the Offering, (ii) each executive officer, (iii) all executive officers and directors of the Company as a group and (iv) each person who owns more than 5% of the outstanding Common Stock. The table assumes none of such persons intend to acquire shares in the Offering.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED OWNED BEFORE OFFERING AFTER OFFERING(1) ----------------------- ----------------------- NUMBER PERCENT NUMBER PERCENT ---------- ----------- ---------- ----------- Omer K. Reed, D.D.S.................................................. 157,500 9.0% 181,575 2.9% Gary S. Glatter...................................................... 107,500 6.1% 107,500 1.7% Sam H. Carr.......................................................... 66,667 3.8% 66,667 1.1% James L. Dunn, Jr.................................................... 93,333 5.3% 93,333 1.5% John G. Thayer....................................................... 66,667 3.8% 66,667 1.1% Kimberlee K. Rozman.................................................. 33,333 1.9% 33,333 * Ronnie L. Andress, D.D.S............................................. 0 * 66,652 * J. Michael Casas..................................................... 200,000 11.4% 200,000 3.2% James H. Clarke, Jr., D.D.S.......................................... 0 * 40,008 * Ronald E. Geistfeld, D.D.S........................................... 0 * 0 * Allen M. Gelwick..................................................... 66,667 3.8% 66,667 1.1% Mack E. Greder, D.D.S................................................ 5,000 * 49,056 * Roger Allen Kay, D.D.S............................................... 5,000 * 49,313 * Gerald F. Mahoney.................................................... 0 * 0 * Anthony P. Maris..................................................... 0 * 0 * George M. Siegel..................................................... 240,833 13.7% 240,833 3.8% Ronald M. Yaros, D.D.S............................................... 0 * 91,025 1.6% Kelly W. Reed(2)..................................................... 150,000 8.5% 150,000 2.4% All executive officers and directors as a group (17 persons)......... 1,042,500 59.3% 1,352,629 21.4%
- --------- * 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. The number of shares to be issued in connection with the Acquisitions assumes an initial public offering price of $ per share. The actual number of such shares may be higher or lower depending on the actual initial public offering price per share. (2) Kelly W. Reed, Vice President of Operations of the Company, is the son of Omer K. Reed, D.D.S. 41 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 30, 1997, 1,756,667 shares of Common Stock were issued and outstanding. 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 approved the transaction in which the interested stockholder became an interested stockholder or 42 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 43 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. SHARES ELIGIBLE FOR FUTURE SALE Upon consummation of the Acquisitions and the Offering, the Company will have outstanding 6,319,178 shares of Common Stock (6,694,178 if the Underwriters' over-allotment option is exercised in full) of which the 2,500,000 shares sold in the Offering (2,875,000 if the Underwriters' over-allotment option is exercised in full) will be freely tradable without restriction or further registration under the Securities Act, except for those held by "affiliates" (as defined in the Securities Act) of the Company, which shares will be subject to the resale limitations of Rule 144 under the Securities Act. The remaining 3,819,178 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 later of the date of acquisition of restricted securities from the issuer or from an affiliate of the issuer, the 44 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 30, 1997, options to purchase an aggregate of 646,667 shares of Common Stock were outstanding under the Company's 1997 Stock Compensation Plan. See "Management--1997 Stock Compensation Plan." In general, pursuant to Rule 701 under the Securities Act, any employee, officer or director of, or consultant to, the Company who purchased his or her shares pursuant to a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701, which permit non-affiliates to sell such shares without compliance with the public information, holding period, volume limitation or notice provisions of Rule 144, and permit affiliates to sell such shares without compliance with the holding period provisions of Rule 144, in each case commencing 90 days after the date of this Prospectus. In addition, the Company intends to file a registration statement covering the 1,500,000 shares of Common Stock issuable upon exercise of stock options that may be granted in the future under the 1997 Stock Compensation Plan, in which case such shares of Common Stock generally will be freely tradable by non-affiliates in the public market without restriction under the Securities Act. The Company, its executive officers, directors and current stockholders, and the persons acquiring shares of Common Stock in connection with the Acquisitions have agreed not to offer for sale, sell, contract to sell, grant any option or other right for the sale of, or otherwise dispose of (or enter into any transaction or device which is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any shares of Common Stock or any securities, indebtedness or other rights exercisable for or convertible or exchangeable into shares of Common Stock owned or acquired in the future in any manner prior to the expiration of 180 days after the date of this Prospectus (the "180-Day Lockup Period") without the prior written consent of Lehman Brothers Inc., except that the Company may, subject to certain conditions, issue shares of Common Stock in connection with future acquisitions and may grant Options or Awards (or issue shares of Common Stock upon exercise of Options or Awards) under the 1997 Stock Compensation Plan. These restrictions will be applicable to any shares acquired by any of those persons in the Offering or otherwise during the 180-Day Lockup Period. In addition, the Company's executive officers, directors and current stockholders and the persons acquiring shares of Common Stock in connection with the Acquisitions have agreed with the Company that they generally will not sell, transfer or otherwise dispose of any of their shares for one year following the closing of the Offering. In connection with the Acquisitions, the Company will enter into registration rights agreements with former stockholders of the Founding Affiliated Practices (the "Registration Rights Agreements"), which will provide certain registration rights with respect to the Common Stock issued to such stockholders in the Acquisitions. 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 45 underwritten offerings. The registration rights conferred by the Registration Rights Agreements will terminate on the second anniversary of the closing of the Offering. The Company is generally required to pay the costs associated with such an offering, other than underwriting discounts and commissions and transfer taxes attributable to the shares sold on behalf of the selling stockholders. The Registration Rights Agreements provide that the number of shares of Common Stock to be registered on behalf of the selling stockholders is subject to limitation if the managing underwriter determines that market conditions require a limitation. Under the Registration Rights Agreements, the Company will indemnify the selling stockholders thereunder, and such stockholders will indemnify the Company against, certain liabilities in respect of any registration statement or offering covered by the Registration Rights Agreements. The Company and each of its current stockholders are parties to a stockholders agreement, which provides those stockholders registration rights substantially equivalent to the registration rights in the Registration Rights Agreements. Prior to the Offering, there has been no established public market for the Common Stock. No prediction can be made of the effect, if any, that sales of shares under Rule 144, or otherwise, or the availability of shares for sale will have on the market price of the Common Stock prevailing from time to time after the Offering. The Company is unable to estimate the number of shares that may be sold in the public market under Rule 144, or otherwise, because such amount will depend on the trading volume in, and market price for, the Common Stock and other factors. Nevertheless, sales of substantial amounts of shares in the public market, or the perception that such sales could occur, could adversely affect the market price of the Common Stock. See "Underwriting." Following the consummation of the Offering, the Company intends to register 1,500,000 shares of Common Stock under the Securities Act for use in connection with future acquisitions. These shares generally will be freely tradable after their issuance by persons not affiliated with the Company unless the Company contractually restricts their resale. Resales of any of those shares during the 180-Day Lockup Period would require the prior written consent of Lehman Brothers Inc. 46 UNDERWRITING Under the terms and subject to the conditions contained in an Underwriting Agreement dated the date of this Prospectus (the "Underwriting Agreement"), the underwriters named below (the "Underwriters"), for whom Lehman Brothers Inc. and Rauscher Pierce Refsnes, Inc. are acting as representatives (the "Representatives"), have severally agreed to purchase, and the Company has agreed to sell, the respective number of shares of Common Stock set forth opposite the name of each such Underwriter below:
NUMBER OF UNDERWRITERS SHARES - --------------------------------------------------------------------------------- ----------- Lehman Brothers Inc.............................................................. Rauscher Pierce Refsnes, Inc..................................................... ----------- Total........................................................................ 2,500,000 ----------- -----------
The Underwriting Agreement provides that the obligations of the Underwriters to purchase the shares of Common Stock are subject to certain conditions, and that, if any of the foregoing shares of Common Stock are purchased by the Underwriters pursuant to the Underwriting Agreement, then all the shares of Common Stock agreed to be purchased by the Underwriters pursuant to the Underwriting Agreement must be so purchased. The Company has been advised by the Representatives that the Underwriters propose to offer the shares of Common Stock in part directly to the public at the public offering price set forth on the cover page of this Prospectus, and in part to certain dealers (who may include the Underwriters) at such public offering price, less a selling concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain brokers or dealers. After the initial offering to the public, the public offering price, the concession to selected dealers and the reallowance may be changed by the Underwriters. The Company has granted the Underwriters an option to purchase up to 375,000 additional shares of Common Stock at the initial public offering price less the underwriting discounts and commissions shown on the cover page of this Prospectus, solely to cover over-allotments, if any. Such option may be exercised at any time until 30 days after the date of the Underwriting Agreement. To the extent that the option is exercised, each Underwriter will be committed, subject to certain conditions, to purchase a number of additional shares of Common Stock proportionate to such Underwriter's initial commitment as indicated in the preceding table. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute, under certain circumstances, to payments that the Underwriters may be required to make in respect thereof. The Company, its executive officers, directors and current stockholders and the persons acquiring shares of Common Stock in connection with the Acquisitions have agreed not to, directly or indirectly, offer for sale, sell, contract to sell, grant any option or other right for the sale of, or otherwise dispose of (or enter into any transaction or device which is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any shares of Common Stock or any securities, indebtedness or other rights exercisable for or convertible or exchangeable into shares of Common Stock prior to the expiration of 180 days after the date of this Prospectus, without the prior written consent of Lehman Brothers Inc., except that the Company may, subject to certain conditions, issue shares of Common Stock in connection with future acquisitions and grant Options or Awards (or issue shares of 47 Common Stock upon exercise of Options or Awards) under the 1997 Stock Compensation Plan. For information respecting additional restrictions on sales by the Company's executive officers, directors, current stockholders and the persons acquiring shares of Common Stock in connection with the Acquisitions, see "Shares Eligible for Future Sale." Prior to the Offering, there has been no public market for the Common Stock. The initial public offering price will be negotiated between the Company and the Representatives. Among the factors to be considered in determining the initial public offering price, in addition to prevailing market conditions, will be the history of and the prospects for the industry in which the Company competes, the past and present operations of the Founding Affiliated Practices, the historical results of operations of the Founding Affiliated Practices, the Company's capital structure, estimates of the business potential and earnings prospects of the Company, an overall assessment of the Company, an assessment of the Company's management and the consideration of the above factors in relation to market valuation of companies in related businesses. There can be no assurance that an active trading market will develop for the Common Stock or that the Common Stock will trade in the public market subsequent to the Offering at or above the initial public offering price. Until the distribution of the Common Stock is completed, rules of the Commission may limit the ability of the Underwriters and certain selling group members to bid for and purchase shares of Common Stock. As an exception to these rules, the Representatives are permitted to engage in certain transactions that stabilize the price of the Common Stock. Such transactions may consist of bids or purchases for the purposes of pegging, fixing or maintaining the price of the Common Stock. If the Underwriters create a short position in the Common Stock in connection with the Offering (I.E., if they sell more shares of Common Stock than are set forth on the cover page of this Prospectus), the Representatives may reduce that short position by purchasing Common Stock in the open market. The Representatives also may elect to reduce any short position by exercising all or part of the over-allotment option described herein. The Representatives also may impose a penalty bid on certain Underwriters and selling group members. This means that, if the Representatives purchase shares of Common Stock in the open market to reduce the Underwriters' short position or to stabilize the price of the Common Stock, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold those shares as part of the Offering. In general, purchases of a security for the purpose of stabilization or to reduce a syndicate short position could cause the price of the security to be higher than it might otherwise be in the absence of such purchases. The imposition of a penalty bid might have an effect on the price of a security to the extent that it were to discourage resales of the security by purchasers in the Offering. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Stock. In addition, neither the Company nor any of the Underwriters makes any representation that the Representatives will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. At the request of the Company, the Underwriters have reserved up to of the shares of Common Stock offered hereby for sale at the initial public offering price to employees of the Company and other persons associated with the Company. The Representatives have informed the Company that the Underwriters do not intend to confirm sales of shares of Common Stock offered hereby to accounts over which they exercise discretionary authority. 48 LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Jackson Walker L.L.P., Houston, Texas. Certain legal matters in connection with the sale of the Common Stock offered hereby will be passed upon for the Underwriters by Baker & Botts, L.L.P., Houston, Texas. EXPERTS The financial statements of Pentegra Dental Group, Inc. as of June 30, 1997 and for the period from inception, February 21, 1997, through June 30, 1997 and the combined financial statements of Pentegra, Ltd. and Napili, International as of December 31, 1995 and 1996 and for each of the three years ended December 31, 1996, as detailed in the index on page F-1, included in this Prospectus, have been audited by Coopers & Lybrand L.L.P., independent accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form S-1 (together with all exhibits, schedules and amendments relating thereto, the "Registration Statement") with respect to the Common Stock offered hereby. This Prospectus, filed as part of the Registration Statement, does not contain all the information contained in the Registration Statement, certain portions of which have been omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement including the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or other document filed as an exhibit to the Registration Statement accurately describe the material provisions of such document and are qualified in their entirety by reference to such exhibits for complete statements of their provisions. All of these documents may be inspected without charge at the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following regional offices of the Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies can also be obtained from the Commission at prescribed rates. The Commission maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. 49 INDEX TO FINANCIAL STATEMENTS
PAGE -------------- Pentegra Dental Group, Inc. Unaudited Pro Forma Balance Sheet..................................... F-2 Unaudited Pro Forma Balance Sheet as of June 30, 1997........................................... F-3 Notes to Unaudited Pro Forma Balance Sheet...................................................... F-4 Pentegra Dental Group, Inc. Financial Statements Report of Independent Public Accountants........................................................ F-5 Balance Sheet as of June 30, 1997............................................................... F-6 Statement of Operations for the period from inception, February 21, 1997, through June 30, 1997...................................................... F-7 Statement of Changes in Stockholders' Equity for the period from inception, February 21, 1997, through June 30, 1997......................................................................... F-8 Statement of Cash Flows for the period from inception, February 21, 1997, through June 30, 1997.......................................................................................... F-9 Notes to Financial Statements................................................................... F-10 Pentegra, Ltd. and Napili, International Combined Financial Statements Report of Independent Public Accountants........................................................ F-19 Combined Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (Unaudited)..................................................................... F-20 Combined Statements of Operations for the years ended December 31, 1994, 1995 and 1996 and for the six months ended June 30, 1996 and 1997 (Unaudited)....................................... F-21 Combined Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 1994, 1995 and 1996 and for the six months ended June 30, 1997 (Unaudited)..................................................................... F-22 Combined Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and for the six months ended June 30, 1996 and 1997 (Unaudited)....................................... F-23 Notes to Combined Financial Statements.......................................................... F-24
F-1 UNAUDITED PRO FORMA BALANCE SHEET The unaudited pro forma balance sheet dated June 30, 1997 of Pentegra Dental Group, Inc. (together with its parent entity, Pentegra Investments, Inc., "Pentegra" or the "Company") has been prepared as if (a) the acquisition by the Company of certain assets and assumption of certain liabilities of 51 dental practices (the "Founding Affiliated Practices") for consideration consisting of a combination of cash and shares of its common stock, par value $.001 per share (the "Common Stock"), and the execution of agreements to provide management services to the Founding Affiliated Practices (collectively, the "Acquisitions"), (b) the repayment of certain debt of the Founding Affiliated Practices, (c) the acquisition by the Company (the "Pentegra/Napili Transaction") of certain assets of Pentegra, Ltd. and Napili, International ("Napili"), (d) the repurchase by PII of 245,845 shares of Class B Preferred Stock of Pentegra Investments, Inc, ("PII") from affiliates of the Company at the subscription price per share paid to PII for those shares and the redemption by PII of an aggregate of 1,337,500 shares of its Class A Preferred Stock and Class B Preferred Stock for $2.00 per share (the "Repurchase and Redemption"), (e) the exchange of all outstanding shares of common stock of PII for shares of Common Stock on a one-for-one basis (the "Share Exchange") and (f) the initial public offering of 2,500,000 shares of Common Stock (the "Offering") and the application of the proceeds therefrom (as described in "Use of Proceeds"), all had been completed, as if those transactions had occurred on June 30, 1997. The Acquisitions, the repayment of certain debt of the Founding Affiliated Practices, the Pentegra/Napili Transaction, the Repurchase and Redemption, the Share Exchange and the Offering are each contingent on the occurrence of the others. The Company will not employ dental professionals or control the practice of dentistry by the dentists. As the Company will not be acquiring the future patient revenues to be earned by the Founding Affiliated Practices, the Acquisitions are not deemed to be business combinations. In accordance with the Securities and Exchange Commission's Staff Accounting Bulletin No. 48, "Transfers of Nonmonetary Assets by Promoters or Shareholders," the Acquisitions will be accounted for at their historical cost basis with the shares of Common Stock to be issued in the Acquisitions being valued at the historical net book value of the nonmonetary assets acquired, net of liabilities assumed. The cash consideration will be reflected as a dividend by the Company to the owners of the Founding Affiliated Practices. The acquisition of certain assets of Pentegra, Ltd. and Napili will be accounted for as a purchase in accordance with Accounting Principles Board Opinion No. 16. The unaudited pro forma balance sheet has been prepared by the Company based on the audited historical financial statements of the Company, Pentegra, Ltd. and Napili included elsewhere in this Prospectus, including the audited combined financial information of the Founding Affiliated Practices included in the notes to the Company's financial statements, and assumptions deemed appropriate by the Company. F-2 PENTEGRA DENTAL GROUP, INC. UNAUDITED PRO FORMA BALANCE SHEET JUNE 30, 1997 (IN THOUSANDS)
PENTEGRA, LTD./ PENTEGRA NAPILI ADJUSTMENTS PRO FORMA ----------- --------------- ------------- ----------- ASSETS Current assets: Cash and cash equivalents............................. $ 845 $ 66 $ 28,125(A) $ 16,170(1) (6,942 (B) (200 (C) (2,789 (D) (2,869 (E) (66 (F) Accounts receivable, net.............................. -- 2 554(B) 554 (2 (F) Other current assets.................................... 340 1 (1 (F) 340 ----------- ------ ------------- ----------- Total current assets................................ 1,185 69 15,810 17,064 Property and equipment, net............................. 5 19 2,774(B) 2,809 11(C) Deferred offering costs................................. 200 -- (200 (A) -- Other noncurrent assets, net............................ 6 -- 170(C) 176 ----------- ------ ------------- ----------- Total assets........................................ $ 1,396 $ 88 $ 18,565 $ 20,049 ----------- ------ ------------- ----------- ----------- ------ ------------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities.............. $ 10 $ 66 $ 126(B) $ 1,386 (66 (F) 1,250(G) Current portion of long-term debt..................... -- 7 785(B) -- (785 (E) (7 (F) ----------- ------ ------------- ----------- Total current liabilities........................... 10 73 1,303 1,386 Long-term debt.......................................... -- 5 2,084(B) -- (2,084 (E) (5 (F) Class A redeemable preferred stock...................... 675 (675 (D) -- Class B redeemable preferred stock...................... 414 -- (414 (D) -- Stockholders' equity: Common stock.......................................... 18 952 3(A) 7 2(B) (952 (F) (16 (H) Additional paid-in capital............................ 518 -- 27,923(A) 20,145 (6,612 (B) (1,700 (D) 16(H) Accumulated deficit................................... (239 ) (942 ) 942(F) (1,489 ) (1,250 (G) ----------- ------ ------------- ----------- Total stockholders' equity.......................... 297 10 18,356 18,663 ----------- ------ ------------- ----------- Total liabilities and stockholders' equity.......... $ 1,396 $ 88 $ 18,565 $ 20,049 ----------- ------ ------------- ----------- ----------- ------ ------------- -----------
- --------- (1) See "Use of Proceeds." The accompanying notes are an integral part of the unaudited pro forma financial statements. F-3 PENTEGRA DENTAL GROUP, INC. NOTES TO UNAUDITED PRO FORMA BALANCE SHEET UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS The accompanying unaudited pro forma balance sheet as of June 30, 1997 gives effect to the Acquisitions, the payment of debt assumed from the Founding Affiliated Practices, the Pentegra/Napili Transaction, the Repurchase and Redemption, the Share Exchange and the Offering and the application of the proceeds therefrom (as described in "Use of Proceeds," except for the repayment of $300,000 aggregate principal amount outstanding under the Company's 9.5% promissory notes), as if those transactions had occurred on June 30, 1997. The unaudited pro forma balance sheet does not represent the historical or future financial position of the Company. (A) Reflects the issuance of 2,500,000 shares Common Stock in the Offering, net of (i) estimated underwriters' discounts and commissions and (ii) estimated offering costs of $2,300,000 less previously funded offering costs to be paid with proceeds from the issuance of capital stock of Pentegra Investment, Inc., including all Class A Preferred Stock and Class B Preferred Stock. The resulting net proceeds are reflected as Common Stock and additional paid-in capital. The Company had deferred offering costs of $200,000 at June 30, 1997. (B) Reflects completion of the Acquisitions, which will involve (i) the issuance of 2,062,511 shares of Common Stock valued at the historical net book value of the assets transferred less the liabilities assumed, (ii) the deemed declaration of dividends totaling $6,514,000, taken together, and (iii) the purchase of monetary assets from the Founding Affiliated Practices for cash of $428,000, which assets are recorded at fair value. The historical net book value of the assets transferred and the liabilities assumed from the Founding Affiliated Practices are as follows (in thousands):
Property and equipment transferred.................................................. $ 2,774 Less Current portion of notes payable.................................................. (785) Long-term portion of notes payable................................................ (2,084) --------- Liabilities assumed, net of assets transferred.................................. $ (95) --------- ---------
(C) Reflects completion of the Pentegra/Napili Transaction for consideration of $200,000 cash. As of June 30, 1997, the assets to be acquired in the Pentegra/Napili Transaction have a fair value of approximately $30,000. The cost in excess of the fair value of the net assets acquired will be amortized over a five-year period. (D) Reflects the repurchase of 245,835 shares of Class B Preferred Stock from affiliates of the Company at the price per share paid to PII for those shares and the redemption of an aggregate of 1,337,500 shares of Class A Preferred Stock and Class B Preferred Stock for $2.00 per share and recognition of the related deemed dividend of $1,700,000. (E) Reflects the use of proceeds from the Offering to repay the debt assumed in the Acquisitions. (F) Reflects certain assets not acquired and liabilities not assumed of Pentegra, Ltd. and Napili in the Pentegra/Napili Transaction and elimination of those companies' historical equity accounts. (G) Reflects the accrual of an employment bonus of $1,250,000 to the Chairman of the Board of Directors (the "Chairman"). Payment of the bonus will be made in increments of $10,000 on the closing of each future dental practice affiliation until the bonus has been paid in full. Management expects the bonus will be paid within the year following the Offering. In any event, pursuant to the terms of the Company's employment agreement with the Chairman, the employment bonus must be paid in full within three years of the Offering. The bonus will be expensed upon closing of the Offering because its payment is not contingent on future services. (H) Reflects the exchange at the offering of 1,756,667 shares of $0.001 par value common stock of Pentegra Dental Group, Inc. for 1,756,667 shares of $0.01 par value common stock of PII. F-4 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 June 30, 1997, and the related statements of operations, changes in stockholders' equity, and cash flows for the period from inception, February 21, 1997, through June 30, 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 June 30, 1997, and the results of its operations and its cash flows for the period from inception, February 21, 1997, through June 30, 1997 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Houston, Texas October 10, 1997 F-5 PENTEGRA DENTAL GROUP, INC. BALANCE SHEET JUNE 30, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS Current assets: Cash and cash equivalents......................................................... $ 845 Stock subscriptions receivable.................................................... 326 Prepaid expenses and other current assets......................................... 14 --------- Total current assets............................................................ 1,185 Property and equipment.............................................................. 5 Deferred offering costs............................................................. 200 Organizational costs................................................................ 6 --------- Total assets................................................................ $ 1,396 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities.......................................... $ 10 --------- Total current liabilities....................................................... 10 --------- 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' equity: Common stock, $0.01 par value, 40,000,000 shares authorized, 1,756,667 shares issued and outstanding.......................................................... 18 Additional paid-in capital.......................................................... 518 Accumulated deficit................................................................. (239) --------- Total stockholders' equity...................................................... 297 --------- Total liabilities and stockholders' equity.................................. $ 1,396 --------- ---------
The accompanying notes are an integral part of the financial statements. F-6 PENTEGRA DENTAL GROUP, INC. STATEMENT OF OPERATIONS FOR THE PERIOD FROM INCEPTION, FEBRUARY 21, 1997, THROUGH JUNE 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenue......................................................................... $ -- Expenses: General and administrative expenses........................................... 91 Compensation expense in connection with issuance of common stock.............. 148 --------- Total expenses............................................................ 239 --------- Net loss before income taxes.................................................... (239) Provision for income taxes...................................................... -- --------- Net loss........................................................................ $ (239) --------- --------- Net loss per share.............................................................. $ (0.14) --------- --------- Weighted average common shares outstanding...................................... 1,757 --------- ---------
The accompanying notes are an integral part of the financial statements. F-7 PENTEGRA DENTAL GROUP, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD FROM INCEPTION, FEBRUARY 21, 1997, THROUGH JUNE 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMMON STOCK ADDITIONAL TOTAL ------------------------ PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT EQUITY ----------- ----------- ------------- ------------- ------------- Balance at February 21, 1997........................... -- $ -- $ -- $ -- $ -- Issuance of common stock ($0.01 per share cash on February 21, 1997).......... 667 7 3 -- 10 Issuance of common stock ($0.01 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 3 366 -- 369 Issuance of common stock ($0.01 per share cash and $1.26 per share compensation on June 13, 1997)....................... 33 -- 42 -- 42 Net loss............................................... -- -- -- (239) (239) ----- ----- ----- ----- ----- Balance at June 30, 1997............................... 1,757 $ 18 $ 518 $ (239) $ 297 ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
The accompanying notes are an integral part of the financial statements. F-8 PENTEGRA DENTAL GROUP, INC. STATEMENT OF CASH FLOWS FOR THE PERIOD FROM INCEPTION, FEBRUARY 21, 1997, THROUGH JUNE 30, 1997 (IN THOUSANDS)
Cash flows from operating activities: Net loss.......................................................................... $ (239) Compensation associated with issuance of common stock............................. 148 Increase in prepaid expenses and other current assets............................. (14) Increase in accounts payable and accrued liabilities.............................. 10 --------- Net cash used by operating activities......................................... (95) --------- Net cash used in investing activities--additions to property and equipment.......... (5) --------- Cash flows provided by financing activities: Proceeds from issuance of common and preferred stock.............................. 1,151 Offering costs.................................................................... (200) Organizational costs.............................................................. (6) --------- Net cash provided by financing activities..................................... 945 --------- Net increase in cash and cash equivalents........................................... 845 Balance at inception, February 21, 1997............................................. -- --------- Balance at June 30, 1997............................................................ $ 845 --------- --------- Noncash investing activities: Stock subscriptions receivable.................................................... $ 326 --------- ---------
The accompanying notes are an integral part of the financial statements. F-9 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 "Acquisitions") of 51 dental practices (the "Affiliated Practices") (see Note 4). Additionally, the current shareholders will exchange on a share-for-share basis, all of their shares of the Company's common stock, par value $0.01 per share, for shares of common stock of Pentegra Dental. 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 $2.00 per share with the proceeds of the Offering. Pentegra Dental has also entered into an agreement to acquire substantially all the assets and operations of a dental management consulting firm, Pentegra, Ltd., and a dental management seminar company, Napili, International (the "Pentegra/Napili Transaction") (see Note 3). The Acquisitions, the Pentegra/Napili Transaction and the Offering are each contingent on the occurrence of the others. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: CASH AND CASH EQUIVALENTS Cash and cash equivalents are defined as highly liquid financial instruments with maturities of three months or less at the date of purchase. DEFERRED OFFERING COSTS Deferred offering costs include legal, accounting and other costs directly related to the Offering. All deferred offering costs will be charged against the proceeds of the Offering upon its completion. Such costs would be charged to expense if the Offering were not completed. ORGANIZATIONAL COSTS Organizational costs are being amortized on a straight-line basis over a five-year period. PREFERRED STOCK In May 1997, the Company divided the authorized and unissued preferred stock into two classes of 5,000,000 shares each called "Class A" and "Class B." 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, of which $1,131,000 was collected in June 1997 and $326,000 was collected in July 1997. 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 their values of $0.75, $0.75 and $0.85 per share, respectively, as determined by an independent valuation of the F-10 PENTEGRA DENTAL GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) fair value of those shares as of the date of issuance. The proceeds from these stock issuances are reserved for legal and accounting costs associated with the Offering, as well as operating costs. The Class A and Class B preferred stock will not be registered with the Securities and Exchange Commission as part of the Offering. 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. COMMON STOCK In February 1997, the Company issued 666,667 shares of common stock for cash at a price of $0.01 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 $0.01 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 above, the Company issued 33,333 shares of common stock for cash at a price of $0.01 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. The difference between the cash received for common stock and its fair value has been recognized as compensation expense. 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. In August 1997, Pentegra Dental authorized issuance of options to purchase 646,667 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. Pentegra Dental will account for options issued to employees and non-employee directors under the Plan in accordance with APB Opinion No. 25. EARNINGS PER SHARE All share and per share information in the accompanying financial statements have been retroactively restated to reflect the effects of a 2-for-3 reverse split of the Company's common stock which was approved by the Company's Board of Directors in October 1997. Earnings per share is based on the weighted average number of common and equivalent shares outstanding during the period. Common shares issued at less than the Offering price within one year of the Offering are treated as outstanding during the entire period for all periods presented. Fully diluted earnings per share are not presented because such amounts would be the same as amounts computed for primary earnings per share or would be antidilutive. 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 F-11 PENTEGRA DENTAL GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) 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 $239,000 during the period from inception, February 21, 1997, through June 30, 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. RECENT PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 specifies the computation, presentation, and disclosure requirements of earnings per share and supersedes Accounting Principles Board Opinion No. 15, "Earnings Per Share." SFAS No. 128 requires a dual presentation of basic and diluted earnings per share. Basic earnings per share, which excludes the impact of common stock equivalents, replaces primary earnings per share. Diluted earnings per share, which utilizes the average market price per share as opposed to the greater of the average market price per share or ending market price per share when applying the treasury stock method in determining common stock equivalents, replaces fully diluted earnings per share. SFAS No. 128 is effective for both interim and annual periods ending after December 15, 1997. The Emerging Issues Task Force of the FASB is currently evaluating certain matters relating to the physician practice management industry, which the Company expects will include a review of accounting for affiliated dental practices. The Company is unable to predict the impact, if any, that this review may have on Pentegra Dental's financial statement presentation. 3. RELATED PARTY TRANSACTIONS: Pentegra Dental has entered into an agreement with the Chairman of its Board of Directors effective at the date the Offering closes, to purchase substantially all the assets and the operations of Pentegra, Ltd. and Napili, International for cash consideration of $200,000. Pentegra Dental will enter into an employment agreement, effective at the date the Offering closes, that provides for the payment to the Chairman of the Board of Directors of an employment bonus of $1,250,000. Payment of the bonus is based on $10,000 on the closing of each future dental practice affiliation subsequent to the Acquisitions. However, the bonus must be paid in full within three years. The employment bonus will be charged to operations in the period in which the Offering closes. 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 F-12 PENTEGRA DENTAL GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. RELATED PARTY TRANSACTIONS: (CONTINUED) insignificant. Effective June 1, 1997, the Company has agreed to compensate 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 wholly owned by the Company's Chairman of the Board. 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 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, through a series of mergers and asset transfers, the acquisition of certain assets and assumption of certain liabilities of the Founding Affiliated Practices (the "Acquisitions"). Owners of the Founding Affiliated Practices will receive shares of Pentegra Dental common stock and cash as consideration in the Acquisitions. In connection with the Acquisitions, the selling dentists and their professional corporations, professional associations or other entities (collectively, the "PCs") will enter into long-term service agreements with Pentegra Dental. Additionally, those dentists will enter into employment and noncompete agreements with the PCs. 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 Acquisitions are deemed not to be business combinations. In accordance with the Securities and Exchange Commission's Staff Accounting Bulletin No. 48, "Transfers of Nonmonetary Assets by Promoters or Shareholders," (i) each of the Founding Affiliated Practices will be deemed a promoter of the Offering, (ii) the transferred nonmonetary assets and assumed liabilities will be accounted for at the historical cost basis of the Founding Affiliated Practices, (iii) any monetary assets included in the Acquisitions will be recorded at fair value, (iv) the net book value of the net assets acquired by Pentegra Dental will be recorded as the value of the common stock issued and (v) cash consideration paid to selling dentists in conjunction with the Acquisitions will be reflected as a dividend paid by Pentegra Dental. The information set forth below assumes all the Founding Affiliated Practices will participate in the Acquisitions. Although management expects that all the practices will participate, there is no assurance that will be the case. F-13 PENTEGRA DENTAL GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. PLANNED TRANSACTIONS: (CONTINUED) 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):
DECEMBER 31, 1996 ------------ JUNE 30, 1997 ----------- (UNAUDITED) Patient receivables, net of allowances............................ $ 787 $ 554 Property, equipment and improvements, net......................... 2,958 2,774 ------------ ----------- Assets transferred.............................................. 3,745 3,328 Accounts payable and accrued liabilities.......................... (81) (126) Current portion of notes payable.................................. (1,103) (785) Long-term portion of notes payable................................ (1,460) (2,084) ------------ ----------- Assets transferred, net of liabilities assumed.................. $ 1,101 $ (333) ------------ ----------- ------------ -----------
Upon consummation of the Acquisitions, 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 Acquisitions and the execution of the service agreements will be based on various arrangements. In general, the resulting fee will be based primarily on the dental service revenues less certain operating expenses associated with each PC. The Company's standard form of service agreement (the "Standard Contract") will be applied to all practices operating in jurisdictions where permitted. In those instances where the Standard Contract may not be permitted by applicable law, an alternative form of agreement (the "Alternative Contract") will be used. In any jurisdiction where neither the Standard Contract nor the Alternative Contract is permitted, the fee will be based on a flat fee (the "fixed-fee agreements") that will be subject to annual renegotiation or adjustment. The patient revenue and operating expenses of the F-14 PENTEGRA DENTAL GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. PLANNED TRANSACTIONS: (CONTINUED) Founding Affiliated Practices are summarized, on a combined basis, in the following tables for the year ended December 31, 1996 and the six months ended June 30, 1997 (in thousands):
YEAR ENDED DECEMBER 31, 1996 ---------------------- PATIENT OPERATING REVENUE EXPENSES --------- ----------- Practices participating under the Standard Contract..................... $ 35,415 $ 19,442 Practices participating under the Alternative Contract.................. 1,200 797 Practices participating under fixed-fee agreements...................... 2,599 1,393 --------- ----------- Totals for Founding Affiliated Practices................................ $ 39,214 $ 21,632 --------- ----------- --------- -----------
SIX MONTHS ENDED JUNE 30, 1997 ---------------------- PATIENT OPERATING REVENUES EXPENSES --------- ----------- (UNAUDITED) Practices participating under the Standard Contract..................... $ 17,690 $ 9,433 Practices participating under the Alternative Contract.................. 631 460 Practices participating under fixed-fee agreements...................... 1,265 706 --------- ----------- Totals for Founding Affiliated Practices................................ $ 19,586 $ 10,599 --------- ----------- --------- -----------
F-15 PENTEGRA DENTAL GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. PLANNED TRANSACTIONS: (CONTINUED) Subsequent to the Acquisitions, the operating expenses of the Founding Affiliated Practices will be the responsibility of Pentegra Dental. Pentegra Dental will have discretion to control the level of those expenses in conjunction with providing the related services to the PCs. The historical operating expenses of the Founding Affiliated Practices for the year ended December 31, 1996 and the six months ended June 30, 1997 that will be assumed by Pentegra Dental in the future are summarized, on a combined basis, in the following table (in thousands):
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1997 1996 ----------- ------------ (UNAUDITED) Salaries, wages and benefits of employees, excluding the dentists........................................................ $ 6,542 $ 3,351 Dental supplies................................................... 5,865 2,982 Rent.............................................................. 1,936 954 Advertising and marketing expenses................................ 605 257 General and administrative expenses............................... 5,915 2,682 Other expenses.................................................... 769 373 ------------ ----------- Total operating expenses...................................... 21,632 10,599 Depreciation and amortization..................................... 901 449 ------------ ----------- Total expenses................................................ $ 22,533 $ 11,048 ------------ ----------- ------------ -----------
The combined historical financial information of the Founding Affiliated Practices presented herein is not related to the financial position or results of operations of Pentegra Dental or the Company. 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 year ended December 31, 1996 or the six months ended June 30, 1997. UNAUDITED PRO FORMA MANAGEMENT SERVICES FEES Upon consummation of the Acquisitions, 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 nondental services relating to the operation of the Founding Affiliated Practices. Under each service agreement, the Founding Affiliated Practice will retain the decision-making power and responsibility for, among other things, (i) hiring, compensating and supervising dental employees and other licensed dental professionals, (ii) ensuring that dentists have the required licenses, credentials, approvals and other certifications appropriate to the performance of their duties and (iii) complying with federal and state laws, regulations and ethical standards applicable to the practice of dentistry. In addition, each Founding Affiliated Practice will be exclusively in control of all aspects of the practice of dentistry and the provision of dental services by it. The following is a summary of the typical form of service agreement the Company will enter into with each Founding Affiliated Practice. The Company expects to enter into similar agreements with Affiliated Practices in the future. The actual terms of the service agreements may vary F-16 PENTEGRA DENTAL GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. PLANNED TRANSACTIONS: (CONTINUED) from the description below on a case-by-case basis, depending on negotiations with the individual Founding Affiliated Practice and the requirements of applicable laws and governmental regulations. The management service fees (the "Service Fees") payable to Pentegra Dental by the Founding Affiliated Practices under the service agreements vary based on the fair market value, as determined in arm's-length negotiations, or the nature and amount of services provided. The Service Fees, together with reimbursement for operating and non-operating expenses of the Founding Affiliated Practice to be paid by Pentegra Dental pursuant to the service agreement, are payable monthly, and consist of various combinations of the following: (i) Standard Contract-a percentage (ranging from 35% to 40%) of the difference between the sum of revenue related to dental services less operating expenses associated with the Founding Affiliated Practices; (ii) Alternative Contract-a percentage (16%) of the dental service revenue, not to exceed a percentage (35%) of the difference between the sum of revenue related to dental services less operating expenses associated with the Founding Affiliated Practices or (iii) Alternative Contract-the greater of (a) a percentage (not to exceed 35%) of the difference between the revenue related to dental services less operating expenses associated with the Founding Affiliated Practices or (b) a specified fixed fee. In addition, with respect to four of the Founding Affiliated Practices, the Service Fees are based on flat fees that are subject to renegotiation or adjustment on an annual basis. Each service agreement is for an initial term of 40 years, with automatic extensions (unless specified notice is given) of five years. The service agreement may be terminated by either party if the other party (i) files a petition in bankruptcy (or other similar events occur) or (ii) defaults on the performance of a material duty or obligation, which default continues for a specified term after notice. In addition, the service agreement may be terminated by the Company (i) if the Founding Affiliated Practice or a dental employee engages in conduct for which the dental employee's license to practice dentistry is revoked or suspended or is the subject of any restrictions or limitations by any governmental authority to such an extent that he or she cannot engage in the practice of dentistry, (ii) upon the death or disability of the dentist or (iii) upon a breach by the dentist of the employment agreement between the Founding Affiliated Practice and the dentist. The service agreement requires the Founding Affiliated Practice to enforce the employment agreements between the Founding Affiliate Practice and the dentists associated with the Founding Affiliated Practice (the "Dentist Employment Agreements"). If the Founding Affiliated Practice does not enforce such employment agreements, Pentegra Dental may, at its option, require the Founding Affiliated Practice to assign such employment agreements to Pentegra Dental or its designee. Under each service agreement, the Founding Affiliated Practice will be responsible for obtaining professional liability insurance for the employees of the Founding Affiliated Practice and Pentegra Dental will be responsible for obtaining general liability and property insurance for the Founding Affiliated Practice. Upon termination of a service agreement, the Founding Affiliated Practice will have the option to purchase and assume, and Pentegra Dental will have the option to require the Founding Affiliated Practice to purchase and assume, the assets and liabilities related to the Founding Affiliated Practice at the fair market value thereof, except in certain circumstances where the Founding Affiliated Practice or Pentegra Dental, as applicable, was in breach of the service agreement. F-17 4. PLANNED TRANSACTIONS: (CONTINUED) The unaudited pro forma management service fee for the Founding Affiliated Practices, based on the historical patient revenues and operating expenses set forth above is summarized in the following table for the year ended December 31, 1996 and the six months ended June 30, 1997 (in thousands):
SIX-MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1996 1997 ------------ ----------- Practices participating under the Standard Contract................ $ 24,442 $ 12,002 Practices participating under the Alternative Contract............. 832 493 Practices participating under the fixed-fee arrangement............ 1,798 908 ------------ ----------- Total pro forma service agreement revenues..................... $ 27,072 $ 13,403 ------------ ----------- ------------ -----------
5. SUBSEQUENT EVENTS In September 1997, the Company purchased 66,667 shares of its common stock at a purchase price of $0.01 per share, of which 46,667 shares were purchased from a director of the Company. The Company issued 66,667 shares of common stock to a member of management at a purchase price of $0.01 per share and will recognize the difference between the cash received and the shares' market value as compensation expense. In October 1997, the Company purchased an additional 20,000 shares of its common stock from a director at a purchase price per share of $0.01, and issued 20,000 shares of common stock and $300,000 of 9.5% promissory notes due on the earlier of 30 days after the closing of the Offering or October 8, 1998. F-18 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Pentegra, Ltd. and Napili, International: We have audited the accompanying combined balance sheets of Pentegra, Ltd. and Napili, International (collectively, "the Company") as of December 31, 1995 and 1996, and the related combined statements of operations, changes in stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1996. 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 audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 audits provide 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 the Company as of December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Houston, Texas August 8, 1997 F-19 PENTEGRA, LTD. AND NAPILI, INTERNATIONAL COMBINED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, -------------------- 1995 1996 --------- --------- JUNE 30, 1997 ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents........................................................ $ 9 $ 38 $ 66 Accounts receivable, net......................................................... 15 15 2 Prepaid expenses and other current assets........................................ 1 -- 1 --------- --------- ----- Total current assets......................................................... 25 53 69 Property and equipment, net........................................................ 23 21 19 --------- --------- ----- Total assets..................................................................... $ 48 $ 74 $ 88 --------- --------- ----- --------- --------- ----- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of notes payable................................................. $ 318 $ 7 $ 7 Accounts payable and accrued liabilities......................................... 59 75 66 --------- --------- ----- Total current liabilities.................................................... 377 82 73 Notes payable, net of current portion.............................................. -- 9 5 Commitments and contingencies (Note 5)............................................. -- -- -- Stockholders' equity (deficit): Pentegra, Ltd. common stock, no par value, 100,000,000 shares authorized; 20,357,762 issued and outstanding.............................................. 576 898 925 Napili, International common stock, no par value, 1,000,000 shares authorized; 1,000 shares issued and outstanding............................................ 8 29 27 Accumulated deficit................................................................ (913) (944) (942) --------- --------- ----- Total stockholders' equity (deficit)............................................. (329) (17) 10 --------- --------- ----- Total liabilities and stockholders' equity................................... $ 48 $ 74 $ 88 --------- --------- ----- --------- --------- -----
The accompanying notes are an integral part of the combined financial statements. F-20 PENTEGRA, LTD. AND NAPILI, INTERNATIONAL COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, ------------------------------- ---------------------------- 1994 1995 1996 1996 1997 --------- --------- --------- ------------- ------------- (UNAUDITED) Consulting revenue............................................. $ 687 $ 588 $ 654 $ 231 $ 266 Lecture and seminar revenue.................................... 256 253 268 140 242 --------- --------- --------- ----- ----- Total revenue................................................ 943 841 922 371 508 --------- --------- --------- ----- ----- Expenses: Staff salaries, wages and benefits........................... 181 246 292 122 126 Lecture and seminar expenses................................. 117 96 70 47 161 Rent......................................................... 148 144 159 46 74 General and administrative expenses.......................... 364 313 360 93 125 Advertising expenses......................................... 17 4 3 3 -- Depreciation................................................. 21 24 8 4 4 Other expenses............................................... 15 9 2 2 11 --------- --------- --------- ----- ----- Total expenses............................................. 863 836 894 317 501 --------- --------- --------- ----- ----- Income from operations....................................... 80 5 28 54 7 Interest expense............................................... 49 46 52 27 5 --------- --------- --------- ----- ----- Income (loss) before income taxes and extraordinary item....... 31 (41) (24) 27 2 Provision (benefit) for income taxes........................... 26 (13) 7 3 -- --------- --------- --------- ----- ----- Income (loss) before extraordinary gain........................ 5 (28) (31) 24 2 Extraordinary gain, net of income tax effect of $5............. -- 7 -- -- -- --------- --------- --------- ----- ----- Net income (loss).......................................... $ 5 $ (21) $ (31) $ 24 $ 2 --------- --------- --------- ----- ----- --------- --------- --------- ----- -----
The accompanying notes are an integral part of the combined financial statements. F-21 PENTEGRA, LTD. AND NAPILI, INTERNATIONAL COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT) (IN THOUSANDS)
COMMON STOCK STOCKHOLDERS' ---------------------- ACCUMULATED EQUITY SHARES AMOUNT DEFICIT (DEFICIT) --------- ----------- ------------- --------------- Balance, January 1, 1994.......................................... 20,359 $ 526 $ (897) $ (371) Net income........................................................ -- -- 5 5 Capital distribution.............................................. -- (40) -- (40) --------- ----- ----- ----- Balance, December 31, 1994........................................ 20,359 486 (892) (406) Net loss.......................................................... -- -- (21) (21) Capital contribution.............................................. -- 98 -- 98 --------- ----- ----- ----- Balance, December 31, 1995........................................ 20,359 584 (913) (329) Net loss.......................................................... -- -- (31) (31) Capital contribution.............................................. -- 343 -- 343 --------- ----- ----- ----- Balance, December 31, 1996........................................ 20,359 927 (944) (17) Income (Unaudited)................................................ -- -- 2 2 Capital contribution (Unaudited).................................. -- 25 -- 25 --------- ----- ----- ----- Balance, June 30, 1997 (Unaudited)................................ 20,359 $ 952 $ (942) $ 10 --------- ----- ----- ----- --------- ----- ----- -----
The accompanying notes are an integral part of the combined financial statements. F-22 PENTEGRA, LTD. AND NAPILI, INTERNATIONAL COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ------------------------------- ---------------------------- 1994 1995 1996 1996 1997 --------- --------- --------- ------------- ------------- (UNAUDITED) Cash flows from operating activities: Net income (loss)........................................... $ 5 $ (21) $ (31) $ 24 $ 2 Adjustments: Depreciation and amortization............................. 21 24 8 4 4 Deferred income taxes (benefit)........................... 22 (13) 1 -- -- Gain on early extinguishment of debt, net................. -- (7) -- -- -- Changes in operating assets and liabilities: Accounts receivable, net................................ 39 (11) -- 14 13 Prepaid expenses and other current assets............... (22) 21 1 1 (1) Accounts payable and accrued liabilities................ 60 (72) 15 (18) (9) --- --------- --------- --- --- Net cash provided by (used in) operating activities..... 125 (79) (6) 25 9 --- --------- --------- --- --- Net cash used in investing activities--capital expenditures... (9) (2) (6) (1) (2) Cash flows from financing activities Proceeds from long-term debt................................ -- 25 22 22 -- Repayment of debt........................................... (2) (120) (324) (25) (4) Capital contributions (distributions)....................... (40) 98 343 25 25 --- --------- --------- --- --- Net cash provided by (used in) financing activities....... (42) 3 41 22 21 --- --------- --------- --- --- Net change in cash and cash equivalents................... 74 (78) 29 46 28 Cash and cash equivalents, beginning of period................ 13 87 9 9 38 --- --------- --------- --- --- Cash and cash equivalents, end of period...................... $ 87 $ 9 $ 38 $ 55 $ 66 --- --------- --------- --- --- --- --------- --------- --- ---
The accompanying notes are an integral part of the combined financial statements. F-23 PENTEGRA, LTD. AND NAPILI, INTERNATIONAL NOTES TO COMBINED FINANCIAL STATEMENTS 1. CORPORATE ORGANIZATION AND BASIS OF PRESENTATION: Pentegra, Ltd., a consulting firm, and Napili, International ("Napili"), a seminar company (collectively, "the Company"), provide clinical, administrative and marketing consulting and training programs to dentists and their personnel. Pentegra, Ltd. and Napili have common ownership and management. The combined financial statements reflect the operations of Pentegra, Ltd. and Napili, the predecessor companies of Pentegra Dental Group, Inc. All intercompany accounts and transactions have been eliminated in combination. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt investments with original maturities of three months or less at the date of acquisition to be cash equivalents. The carrying amounts approximate fair value. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the various classes of depreciable assets, ranging from five to seven years. Fully depreciated assets are retained in property and equipment until they are removed from service. Maintenance and repairs are charged to expense, whereas renewals and major replacements are capitalized. Gains and losses from dispositions are included in operations. ADVERTISING Costs incurred for advertising are expensed when incurred. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS 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 could differ from those estimates. DENTAL PRACTICE MANAGEMENT CONSULTING AND LECTURE AND SEMINAR REVENUE The Company recognizes revenue from (i) consulting and (ii) lecture and seminar services, in each case, at the time services are performed. INTERIM FINANCIAL INFORMATION The financial statements as of June 30, 1997 and for the six months ended June 30, 1996 and 1997 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The financial statements should be read in conjunction with the annual financial statements of the Company included herein. In management's opinion, such interim financial statements include all normal recurring adjustments considered necessary for a fair presentation of such financial statements. Interim results are not necessarily indicative of results for a full year. F-24 PENTEGRA, LTD. AND NAPILI, INTERNATIONAL NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 2. PROPERTY AND EQUIPMENT: Property and equipment were as follows (in thousands):
DECEMBER 31, -------------------- JUNE 30, 1997 1995 1996 ------------- --------- --------- (UNAUDITED) Property and equipment: Equipment.................................................... $ 22 $ 27 29 Furniture and fixtures....................................... 121 122 122 --------- --------- --- Total property and equipment............................. 143 149 151 Less accumulated depreciation................................ (120) (128) (132) --------- --------- --- Property and equipment, net.............................. $ 23 $ 21 19 --------- --------- --- --------- --------- ---
Fully depreciated assets utilized in operations were approximately $95,000 at December 31, 1995 and 1996. 3. INCOME TAXES: Pentegra, Ltd. and Napili file separate federal and state income tax returns. The Company uses the liability method of accounting for income taxes. Under this method, deferred taxes are determined based on the difference 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 are reversed. Significant components of the Company's deferred tax liabilities and assets at December 31, 1995 and 1996, respectively, were as follows (in thousands):
1995 1996 --------- --------- Excess of book over tax basis in property and equipment.............................................. $ (5) $ (9) --------- --------- Total deferred tax liabilities......................... (5) (9) Net operating loss carryforward.......................... 4 -- Other.................................................... 1 7 --------- --------- Total deferred tax assets.............................. 5 7 --------- --------- Net deferred tax asset (liability)....................... $ -- (2) --------- --------- --------- ---------
F-25 PENTEGRA, LTD. AND NAPILI, INTERNATIONAL NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 3. INCOME TAXES: (CONTINUED) Significant components of the provision for income taxes for the years ended December 31, 1995 and 1996, respectively, were as follows (in thousands):
1994 1995 1996 --------- --------- --------- Current tax expense: Federal............................................................. $ -- $ -- $ 5 State............................................................... 4 -- 1 --------- --------- --------- Total current..................................................... 4 -- 6 --------- --------- --------- Deferred tax expense (benefit): Federal............................................................. 19 (6) 1 State............................................................... 3 (2) -- --------- --------- --------- Total deferred.................................................... 22 (8) 1 --------- --------- --------- Total................................................................. $ 26 $ (8) $ 7 --------- --------- --------- --------- --------- ---------
The differences between the tax computed at the statutory federal tax rate and the Company's provision (benefit) for income taxes for the years ended December 31, 1994, 1995 and 1996, respectively, were as follows (in thousands):
1994 1995 1996 --------- --------- --------- Tax at U.S. statutory rate......................................... $ 10 $ (10) $ (8) State income taxes, net of federal taxes........................... 2 (2) (1) Nondeductible expenses and other................................... 14 3 17 Other.............................................................. -- 1 (1) --------- --------- --------- $ 26 $ (8) $ 7 --------- --------- --------- --------- --------- --------- Total effective tax rate......................................... 82% (29%) 31% --------- --------- --------- --------- --------- ---------
Income taxes paid for the years ending December 31, 1994 and 1996 were approximately $3,600 and $5,700, respectively. Income taxes paid during 1995 were insignificant. 4. NOTES PAYABLE: Notes payable at December 31, 1996 and 1995 included notes issued by financial institutions and individuals with varying maturities in 1999, which are uncollateralized and guaranteed by a stockholder of the Company. Interest rates on these notes ranged from 8% to 12%. The following are the scheduled payments for the outstanding notes payable as of December 31, 1996 (in thousands): 1997.................................................................. $ 7 1998.................................................................. 7 1999.................................................................. 2 --- $ 16 --- ---
In 1995, the Company recognized a $7,000 gain on the early retirement of debt. F-26 PENTEGRA, LTD. AND NAPILI, INTERNATIONAL NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 5. COMMITMENTS AND CONTINGENCIES: LEASE COMMITMENTS Future minimum lease payments under noncancelable operating leases with remaining terms of one or more years consisted of the following at December 31, 1996 (in thousands): 1997................................................................. $ 146 1998................................................................. 117 1999................................................................. 6 2000................................................................. 4 --------- Total minimum lease obligation....................................... $ 273 --------- ---------
LITIGATION The Company is from time to time subject to claims and suits arising in the ordinary course of operations. In the opinion of management, the ultimate resolution of such pending legal proceedings will not have a material adverse effect on the Company's financial position, results of operations or liquidity. 6. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS: CREDIT RISK The Company grants customers credit in the normal course of business. The Company does not obtain collateral on the extension of credit. Procedures are in effect to monitor the creditworthiness of customers and appropriate allowances are made to reduce accounts to their net realizable values. The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. The Company's accounts at these institutions may, at times, exceed the federally insured limits. The Company has not experienced any losses in such accounts. FAIR VALUE OF FINANCIAL INSTRUMENTS The following estimated fair values of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair values due to the short-term maturities of these instruments. The carrying amounts of the Company's fixed-rate long-term borrowings approximate fair value. F-27 - --------------------------------------------------------- --------------------------------------------------------- - --------------------------------------------------------- --------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR ANY OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO ITS DATE. --------------------- TABLE OF CONTENTS
PAGE ----- Prospectus Summary................................ 3 Risk Factors...................................... 7 The Company....................................... 15 Use of Proceeds................................... 15 Dividend Policy................................... 15 Dilution.......................................... 16 Capitalization.................................... 17 Selected Financial Data........................... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations............. 20 Business.......................................... 23 Management........................................ 32 Certain Transactions.............................. 38 Security Ownership of Certain Beneficial Owners and Management.................................. 41 Description of Capital Stock...................... 42 Shares Eligible for Future Sale................... 44 Underwriting...................................... 47 Legal Matters..................................... 49 Experts........................................... 49 Additional Information............................ 49 Index to Financial Statements..................... F-1
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 2,500,000 SHARES PENTEGRA DENTAL GROUP, INC. COMMON STOCK ------------------- PROSPECTUS , 1997 --------------------- LEHMAN BROTHERS RAUSHER PIERCE REFSNES, INC. - --------------------------------------------------------- --------------------------------------------------------- - --------------------------------------------------------- --------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses to be paid by the Company (other than underwriting compensation expected to be incurred) in connection with the offering described in this Registration Statement. All amounts are estimates, except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq National Market Listing Fee. SEC Registration Fee............................................ $ 12,197 NASD Filing Fee................................................. 4,525 Nasdaq National Market Listing Fee.............................. Blue Sky Fees and Expenses...................................... * Printing Costs.................................................. * Legal Fees and Expenses......................................... * Accounting Fees and Expenses.................................... * Transfer Agent and Registrar Fees and Expenses.................. * --------- Miscellaneous................................................... * --------- Total......................................................... $ * --------- ---------
- --------- * To be provided by amendment. ITEM 14. 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 II-1 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. 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. CERTIFICATE OF INCORPORATION The 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 II-2 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 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. 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, from and against judgments, fines, amounts paid in settlement and expenses (including attorneys' fees) whatsoever arising out of any event or occurrence related to the fact that such person is or was a director or officer of the Company and further provide that the Company may, but is not required to, indemnify any employee or agent of the Company or a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise who is or was serving in such capacity at the request of the Company; provided, however, that the Company is only required to indemnify persons serving as directors and officers (and to the extent authorized by the Board of Directors, such other persons) for the expenses incurred in a proceeding if such person has met the standards of conduct that make it permissible under the laws of the State of Delaware for the Company to indemnify the claimant for the amount claimed. The Bylaws further provide that, in the event of any threatened, or pending action, suit or proceeding in which any director or officer of the Company is a party or is involved and that may give rise to a right of indemnification under the Bylaws, following written request by such person, the Company will promptly pay to such person amounts to cover expenses reasonably incurred by such person in such proceeding in advance of its final disposition upon such person undertaking to repay the advance if it is ultimately determined that such person is not entitled to be indemnified by the Company as provided in the Bylaws. UNDERWRITING AGREEMENT The Underwriting Agreement provides for the indemnification of the directors and officers of the Company in certain circumstances. INSURANCE The Company intends to maintain liability insurance for the benefit of its directors and officers. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. The following information relates to securities issued or sold by the Company within the last three years: (i) In connection with the formation of the Company, on February 22, 1997 the Company issued Common Stock to J. Michael Casas (200,000 shares), James L. Dunn, Jr. (100,000 shares), John G. Thayer (66,667 shares), Allen M. Gelwick (66,667 shares), Stephen P. Schmitt (33,333 shares), Dunn Family Trust, James L. Dunn, Jr., Trustee (33,333 shares), JoAn Majors (66,667 shares), John W. Parsons (66,667 shares) and Richard M. Vento (33,333 shares), at a purchase price per share of $0.01. On May 12, 1997, PII issued Class B Preferred to J. Michael Casas (66,667 shares), James L. Dunn, Jr. (33,334 shares) and John W. Parsons (33,334 shares), at a purchase price per share of $0.01. On May 22, 1997, the Company issued Common Stock to George M. Siegel (300,000 shares), Omer K. Reed, D.D.S. (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 $0.01. On June 13, 1997, (i) PII issued Class A Preferred to Marie Adamo (50,000 II-3 shares), Peter Anderson, Aurous, Ltd. (25,000 shares), Scott Bolding (25,000 shares), William Decker (100,000 shares), Peter Anderson, Dufo, Ltd. (25,000 shares), Daniel Goldman, Goldfam, Ltd. (75,000 shares), Peter Anderson, Laguna Enterprises, Ltd. (25,000 shares), James Landers (50,000 shares), Gary Nagler (25,000 shares), Debra Novosad (50,000 shares), Edward Pitts, P/S Plan (125,000 shares), RTT Investments (150,000 shares), Candy Segall (25,000 shares), Annie Smith (50,000 shares) and Ken W. Smith (100,000 shares), at a purchase price per share of $1.00; (ii) PII issued Class B Preferred to Omer K. Reed, D.D.S. (37,500 shares), Gary S. Glatter (37,500 shares), George M. Siegel (37,500 shares), Stephen E. Stapleton (12,500 shares), Mack E. Greder, D.D.S. (25,000 shares), Roger Allen Kay, D.D.S. (25,000 shares), Debra Novosad (50,000 shares), Bruce A. Kanehl, D.D.S. (25,000 shares), George King, D.D.S. (25,000 shares), Brian K. Kniff, D.D.S. (25,000 shares), Richard W. Mains, D.D.S., RBM Trust (25,000 shares), James W. Medlock, D.D.S. (25,000 shares), Thomas L. Mullooly, D.D.S. (25,000 shares), Richard H. Fettig, D.D.S. (25,000 shares), Marvin V. Cavallino, D.D.S. (50,000 shares), Alan H. Gerbholz, D.D.S. (25,000 shares), Victor H. Burdick, D.D.S. (25,000 shares), Steve Anderson, D.D.S. (25,000 shares) and James P. Allen, D.D.S. (25,000 shares), at a purchase price per share of $1.00; and (iii) the Company issued Common Stock to Omer K. Reed, D.D.S. (7,500 shares), Gary S. Glatter (7,500 shares), George M. Siegel (7,500 shares), Stephen E. Stapleton (2,500 shares), Mack E. Greder, D.D.S. (5,000 shares), Roger Allen Kay, D.D.S. (5,000 shares), Marie Adamo (10,000 shares), Peter Anderson, Aurous, Ltd. (5,000 shares), Scott Bolding (5,000 shares), William Decker (20,000 shares), Peter Anderson, Dufo, Ltd. (5,000 shares), Daniel Goldman, Goldfam, Ltd. (35,000 shares), Peter Anderson, Laguna Enterprises, Ltd. (5,000 shares), James Landers (10,000 shares), Gary Nagler (5,000 shares), Debra Novosad (20,000 shares), Edward Pitts, P/S Plan (38,333 shares), RTT Investments (30,000 shares), Candy Segall (5,000 shares), Annie Smith (10,000 shares), Ken W. Smith (20,000 shares), Marvin V. Cavallino, D.D.S. (10,000 shares), Bruce A. Kanehl, D.D.S. (5,000 shares), Richard H. Fettig, D.D.S. (5,000 shares), Victor H. Burdick, D.D.S. (5,000 shares), Thomas L. Mullooly, D.D.S. (5,000 shares), James W. Medlock, D.D.S. (5,000 shares), Alan H. Gerbholz, D.D.S. (5,000 shares), Richard W. Mains, D.D.S., RBM Trust (5,000 shares), Brian K. Kniff, D.D.S. (5,000 shares), George King, D.D.S. (5,000 shares), Steve Anderson, D.D.S. (5,000 shares) and James P. Allen, D.D.S. (5,000 shares), at a purchase price of $0.01 per share. On September 1, 1997, the Company issued 66,667 shares of Common Stock to Sam H. Carr at a purchase price of $0.01 per share. On October 8, 1997, the Company issued 6,667 shares of Common Stock to Manhattan Group Funding and 13,333 shares of Common Stock to Daniel A. Bock, at a purchase price of $0.01 per share. (ii) ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits.
EXHIBIT NUMBER DESCRIPTION - ----------- ------------------------------------------------------------------------------------------------- 1.1* -- Form of Underwriting Agreement. 2.1 -- Form of Asset Contribution Agreement between Pentegra Dental Group, Inc. and a sole proprietorship 2.2 -- Form of Asset Contribution Agreement between Pentegra Dental Group, Inc. and a partnership 2.3 -- Form of Asset Contribution Agreement between Pentegra Dental Group, Inc. and an entity 2.4 -- Form of Agreement and Plan of Reorganization between Pentegra Dental Group, Inc. and an entity
II-4
EXHIBIT NUMBER DESCRIPTION - ----------- ------------------------------------------------------------------------------------------------- 2.5 -- Exchange Agreement dated July 31, 1997 among Pentegra Investments, Inc., Pentegra Dental Group, Inc. and the stockholders named therein 2.6 -- 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. 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 -- Restated Certificate of Incorporation of Pentegra Dental Group, Inc. 3.2 -- Bylaws of Pentegra Dental Group, Inc. 4.1* -- Form of certificate evidencing ownership of Common Stock of Pentegra Dental Group, Inc. 4.2 -- Form of Registration Rights Agreement for Owners of Founding Affiliated Practices 4.3 -- Registration Rights Agreement dated September 30, 1997 between Pentegra Dental Group, Inc. and the stockholders named therein 5.1* -- Opinion of Jackson Walker L.L.P. 10.1 -- Pentegra Dental Group, Inc. 1997 Stock Compensation Plan 10.2 -- Employment Agreement dated July 31, 1997 between Pentegra Dental Group, Inc. and Omer K. Reed, D.D.S. 10.3 -- Employment Agreement dated July 1, 1997 between Pentegra Dental Group, Inc. and Gary S. Glatter 10.4 -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and John Thayer 10.5 -- Employment Agreement dated September 1, 1997 between Pentegra Dental Group, Inc. and Sam H. Carr 10.6 -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and James Dunn, Jr. 10.7 -- Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and Kimberlee K. Rozman 10.8 -- Form of Service Agreement 11.1 -- Computation of Earnings Per Share 23.1 -- Consent of Coopers & Lybrand, L.L.P. 23.2* -- Consent of Jackson Walker L.L.P. (contained in Exhibit 5) 23.3 -- Consents of Director Nominees. 24.1 -- Power of Attorney (contained on the signature page of this Registration Statement). 27.1* -- Financial Data Schedule.
- --------- * To be filed by amendment. (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. II-5 ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes as follows: (1) To provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. (2) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 14, or otherwise, the registrant 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 payments by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant 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 registrant 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. (3) That, for the purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (4) That, for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-6 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 October 10, 1997. PENTEGRA DENTAL GROUP, INC. By: /s/ GARY S. GLATTER ----------------------------------------- Gary S. Glatter PRESIDENT AND CHIEF EXECUTIVE OFFICER
Each person whose signature appears below hereby appoints Kimberlee K. Rozman and James L. Dunn, Jr. 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 October 10, 1997. SIGNATURES TITLE - ------------------------------ ---------------------------------------------- /s/ GARY S. GLATTER - ------------------------------ President, Chief Executive Officer and Gary S. Glatter Director (Principal Executive Officer) /s/ SAM H. CARR Senior Vice President and Chief Financial - ------------------------------ Officer (Principal Financial and Accounting Sam H. Carr Officer) /s/ OMER K. REED, D.D.S. - ------------------------------ Chairman of the Board Omer K. Reed, D.D.S. /s/ J. MICHAEL CASAS - ------------------------------ Director J. Michael Casas /s/ ALLEN M. GELWICK - ------------------------------ Director Allen M. Gelwick /s/ GEORGE M. SIEGEL - ------------------------------ Director George M. Siegel /s/ JAMES L. DUNN, JR. - ------------------------------ Director James L. Dunn, Jr. II-7 EX-2.1 2 EXHIBIT 2.1 EXHIBIT 2.1 FORM OF ASSET CONTRIBUTION AGREEMENT BY AND AMONG PENTEGRA DENTAL GROUP, INC., and ______________________________ [sole proprietorship] TABLE OF CONTENTS Page ---- Section 1. TERMS OF THE CONTRIBUTION 1.2 CONTRIBUTION OF ASSETS............................................. 1 1.3 EXCLUDED ASSETS.................................................... 1 1.4 PURCHASE PRICE; ASSUMPTION OF LIABILITIES.......................... 2 1.5 SUBSEQUENT ACTIONS................................................. 2 Section 2. REPRESENTATIONS AND WARRANTIES OF DENTIST. 2.1 EXISTENCE.......................................................... 2 2.2 POWER AND AUTHORITY................................................ 2 2.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS.................. 3 2.4 CONSENTS........................................................... 3 2.5 [INTENTIONALLY DELETED]............................................ 3 2.6 [INTENTIONALLY DELETED]............................................ 3 2.7 DENTIST'S FINANCIAL INFORMATION.................................... 3 2.8 LEASES............................................................. 3 2.9 CONDITION OF ASSETS................................................ 3 2.10 TITLE TO AND ENCUMBRANCES ON PROPERTY.............................. 3 2.11 INVENTORIES........................................................ 3 2.12 INTELLECTUAL PROPERTY RIGHTS; NAMES................................ 3 2.13 DIRECTORS AND OFFICERS; PAYROLL INFORMATION; EMPLOYEES............. 4 2.14 LEGAL PROCEEDINGS.................................................. 4 2.15 CONTRACTS.......................................................... 4 2.16 SUBSEQUENT EVENTS.................................................. 5 2.17 TAXES.............................................................. 6 2.18 COMMISSIONS AND FEES............................................... 6 2.19 LIABILITIES; DEBT.................................................. 6 2.20 INSURANCE POLICIES................................................. 6 2.21 EMPLOYEE BENEFIT PLANS............................................. 6 2.22 ADVERSE AGREEMENTS................................................. 7 2.23 COMPLIANCE WITH LAWS IN GENERAL.................................... 7 2.24 THIRD PARTY PAYORS................................................. 7 2.25 NO UNTRUE REPRESENTATIONS.......................................... 7 2.26 BANKING RELATIONS.................................................. 7 2.27 OWNERSHIP INTERESTS OF INTERESTED PERSONS; COMPETITORS............. 8 2.28 PAYORS............................................................. 8 Section 3. REPRESENTATIONS AND WARRANTIES OF PENTEGRA 3.1 CORPORATE EXISTENCE: GOOD STANDING................................. 8 3.2 POWER AND AUTHORITY................................................ 8 3.3 COMMISSIONS AND FEES............................................... 8 3.4 CAPITAL STOCK...................................................... 8 3.5 NO UNTRUE REPRESENTATIONS.......................................... 8 Section 4. COVENANTS OF DENTIST. 4.1 CONSUMMATION OF AGREEMENT.......................................... 9 4.2 BUSINESS OPERATIONS................................................ 9 4.3 ACCESS AND NOTICE.................................................. 9 4.4 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS................ 9 -i- 4.5 ACQUISITION PROPOSALS.............................................. 9 4.6 FUNDING OF ACCRUED EMPLOYEE BENEFITS............................... 9 4.7 EMPLOYEE MATTERS................................................... 9 4.8 [INTENTIONALLY OMITTED]............................................ 10 4.9 REQUIREMENTS TO EFFECT ACQUISITION................................. 10 4.10 ACCOUNTING AND TAX MATTERS......................................... 10 4.11 WAIVER OF BULK TRANSFER COMPLIANCE................................. 10 4.12 LEASE.............................................................. 10 4.13 HIRING OF EMPLOYEES................................................ 10 4.14 EMPLOYEE BENEFIT PLANS............................................. 10 4.15 INSURANCE.......................................................... 10 4.16 FORMATION OF THE PRACTICE.......................................... 10 4.17 CORPORATE RECORDS.................................................. 11 4.18 POWER AND AUTHORITY FOR TRANSACTIONS............................... 11 4.19 NO BUSINESS........................................................ 11 4.20 COMPLIANCE WITH LAWS............................................... 11 Section 5. COVENANTS OF PENTEGRA 5.1 CONSUMMATION OF AGREEMENT.......................................... 11 5.2 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS................ 11 Section 6. COVENANTS OF PENTEGRA AND DENTIST 6.1 FILINGS; OTHER ACTIONS............................................. 12 Section 7. PENTEGRA CONDITIONS PRECEDENT 7.1 REPRESENTATIONS AND WARRANTIES..................................... 12 7.2 COVENANTS AND CONDITIONS........................................... 12 7.3 PROCEEDINGS........................................................ 12 7.4 NO MATERIAL ADVERSE CHANGE......................................... 12 7.5 DUE DILIGENCE REVIEW............................................... 12 7.6 APPROVAL BY THE BOARD OF DIRECTORS................................. 12 7.7 SERVICE AGREEMENT; GUARANTY AGREEMENT.............................. 13 7.8 EMPLOYMENT ARRANGEMENTS............................................ 13 7.9 CONSENTS AND APPROVALS............................................. 13 7.10 CLOSING DELIVERIES................................................. 13 7.11 DEBT AND RECEIVABLES............................................... 13 7.12 INSURANCE.......................................................... 13 7.13 NO CHANGE IN WORKING CAPITAL....................................... 13 7.14 SECURITIES APPROVAL................................................ 13 Section 8. DENTIST'S CONDITIONS PRECEDENT 8.1 REPRESENTATIONS AND WARRANTIES..................................... 13 8.2 COVENANTS AND CONDITIONS........................................... 13 8.3 PROCEEDINGS........................................................ 13 8.4 CLOSING DELIVERIES................................................. 13 8.5 SECURITIES APPROVAL................................................ 14 Section 9. CLOSING DELIVERIES 9.1 DELIVERIES OF DENTIST.............................................. 14 9.2 DELIVERIES OF PENTEGRA............................................. 15 -ii- Section 10. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION 10.1 NATURE AND SURVIVAL................................................ 15 10.2 INDEMNIFICATION BY PENTEGRA........................................ 16 10.3 INDEMNIFICATION BY DENTIST......................................... 16 10.4 INDEMNIFICATION PROCEDURE.......................................... 17 10.5 RIGHT OF SETOFF.................................................... 18 Section 11. TERMINATION Section 12. TRANSFER REPRESENTATIONS 12.1 TRANSFER RESTRICTIONS.............................................. 18 12.2 INVESTMENTS; COMPLIANCE WITH LAW................................... 19 12.3 ECONOMIC RISK; SOPHISTICATION...................................... 19 Section 13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION Section 14. MISCELLANEOUS 14.1 TAX COVENANT....................................................... 19 14.2 NOTICES............................................................ 20 14.3 FURTHER ASSURANCES................................................. 20 14.4 EACH PARTY TO BEAR COSTS........................................... 20 14.5 PUBLIC DISCLOSURES................................................. 20 14.6 GOVERNING LAW...................................................... 21 14.7 CAPTIONS........................................................... 21 14.8 INTEGRATION OF EXHIBITS............................................ 21 14.9 ENTIRE AGREEMENT/AMENDMENT......................................... 21 14.10 COUNTERPARTS....................................................... 21 14.11 BINDING EFFECT/ASSIGNMENT.......................................... 21 14.12 NO RULE OF CONSTRUCTION............................................ 21 14.13 COSTS OF ENFORCEMENT............................................... 21 14.14 PRORATIONS......................................................... 21 14.15 AMENDMENTS; WAIVERS................................................ 21 14.16 ARBITRATION........................................................ 22 14.17 SEVERABILITY....................................................... 23 -iii- ASSET CONTRIBUTION AGREEMENT This ASSET CONTRIBUTION AGREEMENT (this "Agreement"), made and executed as of ________________, 1997, is by and among PENTEGRA DENTAL GROUP, INC., a Delaware corporation ("Pentegra") and _________________________________ ("Dentist"). WITNESSETH: WHEREAS, Dentist operates a dental practice ("Business") and Pentegra is engaged in the business of managing certain non-dentistry aspects of dental practices; WHEREAS, Dentist desires to contribute to Pentegra, and Pentegra desires to receive from Dentist, certain assets of Dentist; WHEREAS, Pentegra or its affiliated designee has entered into or intends to enter into Agreements and Plans of Reorganization, Asset Contribution Agreements and other acquisition agreements (collectively, the "Other Agreements") with such persons or entities or the stockholders of such entities listed on EXHIBIT A (together with Dentist, the "Target Companies"); WHEREAS, it is intended for Federal income tax purposes that the transfers contemplated by this Agreement, the Other Agreements and Pentegra's initial public offering ("Initial Public Offering") of shares of its common stock, par value $.01 per share ("Pentegra Common Stock") shall qualify as an exchange within the meaning of Section 351 of the Internal Revenue Code of 1986, as amended ("IRC" or "Code"); WHEREAS, the consummation of the transfers to Pentegra pursuant to this Agreement is intended to occur in connection with, and is conditioned upon, the simultaneous consummation of the transfers contemplated by the Other Agreements and the Initial Public Offering. . NOW THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, and for other good and valuable consideration, the sufficiency of which are hereby acknowledged, the parties agree as follows: SECTION 1. TERMS OF THE CONTRIBUTION. 1.1 THE CLOSING. The closing of the transactions contemplated hereby shall take place at 10:00 am local time, at the offices of Jackson & Walker, L.L.P., on the day on which the Initial Public Offering of Pentegra Common Stock is consummated. The date on which the Closing occurs is hereinafter referred to as the "Closing Date". 1.2 CONTRIBUTION OF ASSETS. Subject to and upon the terms and conditions contained herein, on the Closing Date, Dentist shall convey, transfer, deliver and assign to Pentegra or any affiliate of Pentegra designated by Pentegra all of Dentist's right, title and interest in and to those certain assets described on EXHIBIT 1.1 attached hereto (individually, "Asset", and collectively "Assets"), free and clear of all obligations, security interests, claims, liens and encumbrances, except as specifically assumed, or taken subject to, by Pentegra pursuant to SECTION 1.3(b) hereof. 1.3 EXCLUDED ASSETS. There shall be excluded from the Assets to be transferred and contributed hereunder, and Dentist shall retain all of its right, title and interest in and to, the assets not specifically transferred hereunder, including without limitation, the assets described on EXHIBIT 1.2 (the "Excluded Assets"). 1 1.4 PURCHASE PRICE; ASSUMPTION OF LIABILITIES. As consideration for the Assets and the representations, warranties and agreements of Dentist contained herein, Pentegra shall, on the Closing Date: (a) Cause to be transferred to Dentist the consideration specified in ANNEX I attached hereto (the "Acquisition Consideration"); and. (b) Except as otherwise provided herein, assume and perform or discharge on or after the Closing Date, the contracts, leases, obligations, commitments, liabilities and indebtedness of Dentist listed on EXHIBIT 1.3(b) attached hereto to the extent that such obligations, commitments, liabilities and indebtedness are current and not otherwise in default. (the "Assumed Liabilities"). Notwithstanding any contrary provision contained herein, Pentegra shall not be deemed to have assumed, nor shall Pentegra assume: (i) any liability, commitment or obligation or trade payable or indebtedness not specifically disclosed on EXHIBIT 1.3(b), (ii) any liability set forth on EXHIBIT 1.3(b) which may be incurred by reason of any breach of or default under such contracts, leases, commitments or obligations which occurred on or before the Closing Date; (iii) any liability for any employee benefits payable to employees of Dentist, including, but not limited to, liabilities arising under any Dentist Plan (as defined in SECTION 2.21 hereof); (iv) any liability based upon or arising out of a violation of any antitrust or similar restraint-of- trade laws by Dentist, including, without limiting the generality of the foregoing, any such antitrust liability which may arise in connection with agreements, contracts, commitments or orders for the sale of goods or provision of services by Dentist reflected on the books of Dentist at or prior to the Closing Date; (v) any liability based upon or arising out of any tortious or wrongful actions of Dentist, any licensed professional employee or independent contractor of Dentist, (vi) any liability for the payment of any taxes of Dentist, including without limitation, sales, use and other transfer taxes and income taxes arising from or by reason of the transactions contemplated by this Agreement; (vii) any indebtedness secured by deeds of trust or mortgages on real property; nor (viii) any liability incurred or to be incurred pursuant to any malpractice or other suits or actions pending against Dentist. 1.5 SUBSEQUENT ACTIONS. If, at any time after the Closing Date, Pentegra shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in Pentegra its right, title or interest in, to or under any of the Assets or otherwise to carry out this Agreement, in return for the consideration set forth in this Agreement, the Dentist shall execute and deliver all such deeds, bills of sale, assignments and assurances and take and do all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under the Assets in Pentegra or otherwise to carry out this Agreement. SECTION 2. REPRESENTATIONS AND WARRANTIES OF DENTIST. Dentist hereby represents and warrants to Pentegra as follows: 2.1 EXISTENCE. Dentist is a sole proprietorship under the laws of the State of __________________. Dentist does not have any assets, employees or offices in any state other than the state set forth in the first sentence of this SECTION 2.1. 2.2 POWER AND AUTHORITY. Dentist has the legal capacity to enter into and perform this Agreement and the other agreements to be executed and delivered in connection herewith. This Agreement and all agreements and documents executed and delivered in connection herewith have been, or will be as of the Closing Date, duly executed and delivered by Dentist and constitute or will constitute the legal, valid and binding obligations of Dentist in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. The execution and delivery of this Agreement, and the agreements executed and delivered pursuant to this Agreement or to be executed and delivered on the Closing Date, do not, and, subject to the receipt of consents described on EXHIBIT 2.4, the consummation of the actions contemplated hereby will not, result in the acceleration of, any obligation under any mortgage, lien, lease, agreement, rent, instrument, order, arbitration award, judgment or decree to which Dentist is a party or by which Dentist is bound, or violate any material restrictions of any kind to which Dentist is subject, or result in any lien or encumbrance on any of Dentist's assets or the Assets. 2 2.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. All building or other permits, certificates of occupancy, concessions, grants, franchises, licenses, certificates of need and other governmental authorizations and approvals required for the conduct of the Business or the use of the Assets, or waivers thereof, have been duly obtained and are in full force and effect and are described on EXHIBIT 2.3. There are no proceedings pending or, to the knowledge of Dentist, threatened, which may result in the revocation, cancellation or suspension, or any adverse modification, of any such licenses or permits. 2.4 CONSENTS. Except as set forth on EXHIBIT 2.4, no consent, authorization, permit, license or filing with any governmental authority, any lender, lessor, any manufacturer or supplier or any other person or entity is required to authorize, or is required in connection with, the execution, delivery and performance of this Agreement and the agreements and documents contemplated hereby on the part of Dentist. 2.5 [INTENTIONALLY DELETED]. 2.6 [INTENTIONALLY DELETED]. 2.7 DENTIST'S FINANCIAL INFORMATION. Dentist has heretofore furnished Pentegra with copies of its unaudited balance sheet and related unaudited statements of income, retained earnings and cash flows for its prior two full fiscal years, as well as copies of its unaudited balance sheet as of December 31, 1996 and June 30, 1997 (collectively, the "Balance Sheet" and the latest date thereof shall be referred to as the "Balance Sheet Date") and any related unaudited statements of income, retained earnings, schedule of accounts receivable, accounts payable and accrued liabilities, and cash flows for the twelve months then ended (collectively, with the related notes thereto, the "Financial Statements"). The Financial Statements fairly present the financial condition and results of operations of Dentist as of the dates and for the periods indicated and reflect all fixed and contingent liabilities of Dentist. 2.8 LEASES. EXHIBIT 2.8 attached hereto sets forth a list of all leases pursuant to which Dentist leases, as lessor or lessee, real or personal property used in operating the Business, related to the Assets or otherwise. All such leases listed on EXHIBIT 2.8 are valid and enforceable in accordance with their respective terms, and there is not under any such lease any existing default by Dentist, as lessor or lessee, or any condition or event of which Dentist has knowledge which with notice or lapse of time, or both, would constitute a default, in respect of which Dentist has not taken adequate steps to cure such default or to prevent a default from occurring. 2.9 CONDITION OF ASSETS. All of the Assets are in good condition and repair subject to normal wear and tear and conform with all applicable ordinances, regulations and other laws, and Dentist has no knowledge of any latent defects therein. 2.10 TITLE TO AND ENCUMBRANCES ON PROPERTY. Dentist has good, valid and marketable title to all of the Assets, free and clear of any liens, claims, charges, exceptions or encumbrances, except for those, if any, which are set forth in EXHIBIT 2.10 attached hereto. Dentist shall cause all encumbrances set forth on EXHIBIT 2.10 (other than those encumbrances indicated on EXHIBIT 1.3(b)) to be released or terminated prior to the Closing Date and evidence of such releases of liens and claims shall be provided to Pentegra on the Closing Date and the Assets shall not be used to satisfy such liens, claims or encumbrances. 2.11 INVENTORIES. All of the Assets constituting inventory are owned or used by Dentist, are in good, current, standard and merchantable condition and are not obsolete or defective. 2.12 INTELLECTUAL PROPERTY RIGHTS; NAMES. Except as set forth on EXHIBIT 2.12, Dentist has no right, title or interest in or to patents, patent rights, corporate names, assumed names, manufacturing processes, trade names, trademarks, service marks, inventions, specialized treatment protocols, copyrights, formulas and trade secrets or similar items. Set forth in EXHIBIT 2.12 is a listing of all names of all predecessor companies of Dentist, including the names of any entities from whom Dentist previously acquired significant assets. Except for off-the-shelf software licenses and except as set forth on EXHIBIT 2.12, Dentist is not a licensee in respect of any patents, trademarks, service marks, trade names, copyrights or applications therefor, or manufacturing processes, formulas or trade secrets or similar items and 3 no such licenses are necessary for the conduct of the Business or the use of the Assets. No claim is pending or has been made to the effect that the Assets or the present or past operations of Dentist in connection with the Assets or Business infringe upon or conflict with the asserted rights of others to any patents, patent rights, manufacturing processes, trade names, trademarks, service marks, inventions, licenses, specialized treatment protocols, copyrights, formulas, know-how and trade secrets. Dentist has the sole and exclusive right to use all Assets constituting proprietary rights without infringing or violating the rights of any third parties and no consents of any third parties are required for the use thereof by Pentegra. 2.13 DIRECTORS AND OFFICERS; PAYROLL INFORMATION; EMPLOYEES. Set forth on EXHIBIT 2.13 attached hereto is a true and complete list, as of the date of this Agreement of: (a) the most recent payroll report of Dentist, showing all current employees of Dentist and their current levels of compensation, (b) promised increases in compensation of employees of Dentist that have not yet been effected, (c) oral or written employment agreements, consulting agreements or independent contractor agreements (and all amendments thereto) to which Dentist is a party, copies of which have been delivered to Pentegra, and (d) all employee manuals, materials, policies, procedures and work-related rules, copies of which have been delivered to Pentegra. Dentist is in compliance with all applicable laws, rules, regulations and ordinances respecting employment and employment practices. Dentist has not engaged in any unfair labor practice. There are no unfair labor practices charges or complaints pending or threatened against Dentist, and Dentist has never been a party to any agreement with any union, labor organization or collective bargaining unit. 2.14 LEGAL PROCEEDINGS. Neither Dentist nor the Business nor any of the Assets is subject to any pending, nor does Dentist have knowledge of any threatened, litigation, governmental investigation, condemnation or other proceeding against or relating to or affecting Dentist, the Business, the Assets or the transactions contemplated by this Agreement, and, to the knowledge of Dentist, no basis for any such action exists, nor is there any legal impediment of which Dentist has knowledge to the continued operation of its business or the use of the Assets in the ordinary course, subject to consents set forth on EXHIBIT 2.4. 2.15 CONTRACTS. Dentist has delivered to Pentegra true copies of all written, and disclosed to Pentegra all oral, outstanding contracts, obligations and commitments of Dentist ("Contracts"), entered into in connection with and related to the Assets or the Business, all of which are listed or incorporated by reference on EXHIBIT 2.8 (in the case of leases), EXHIBIT 2.13 (in the case of employment agreements) and EXHIBIT 2.15 (in the case of Contracts other than leases) attached hereto. Except as otherwise indicated on such Exhibits, all of such Contracts are valid, binding and enforceable in accordance with their terms and are in full force and effect, and no defenses, offsets or counterclaims have been asserted or may be made by any party thereto. Except as indicated on such Exhibits, there is not under any such Contract any existing default by Dentist, or any condition or event of which Dentist has knowledge which with notice or lapse of time, or both, would constitute a default. Dentist has no knowledge of any default by any other party to such Contracts. Dentist has not received notice of the intention of any party to any Contract to cancel or terminate any Contract and have no reason to believe that any amendment or change to any Contract is contemplated by any party thereto. Other than those contracts, obligations and commitments listed on EXHIBIT 2.8, EXHIBIT 2.13 and EXHIBIT 2.15, Dentist is not a party to any material written or oral agreement contract, lease or arrangement, including without limitation, any: (a) Contract related to the Assets other than this Agreement; (b) Employment, consulting or compensation agreement or arrangement; (c) Labor or collective bargaining agreement; (d) Lease agreement with respect to any property, whether as lessor or lessee; (e) Deed, bill of sale or other document evidencing an interest in or agreement to purchase or sell real or personal property; 4 (f) Contract for the purchase of materials, supplies or equipment (i) which is in excess of the requirements of the Business now booked or for normal operating inventories, or (ii) which is not terminable upon notice of thirty (30) days or less; (g) Agreement for the purchase from a supplier of all or substantially all of the requirements of the Business of a particular product or service; (h) Loan agreement or other contract for money borrowed or lent or to be borrowed or lent to another; (i) Contracts containing non-competition covenants; (j) Financial or similar contracts or agreements with patients of the Dentist, oral or written, that provide for prepayments or deferred installment payments; or (k) Other contracts or agreements that involve either an unperformed commitment in excess of $1,000 or that terminate or can only be terminated by Dentist on more than 30 days after the date hereof. 2.16 SUBSEQUENT EVENTS. Other than as set forth on EXHIBIT 2.16, Dentist has not, since the Balance Sheet Date: (a) Incurred any material obligation or liability (absolute, accrued, contingent or otherwise) or entered into any contract, lease, license or commitment, except in connection with the performance of this Agreement; (b) Discharged or satisfied any material lien or encumbrance, or paid or satisfied any material obligation or liability (absolute, accrued, contingent or otherwise) other than (i) liabilities shown or reflected on the Balance Sheet, (ii) liabilities incurred since the Balance Sheet Date in the ordinary course of business; (c) Made any payments to or loaned any money to any person or entity other than in the ordinary course of business; (d) Lost or terminated any employee, patient, customer or supplier that has or may have, individually or in the aggregate, a material adverse effect on the Business; (e) Increased or established any reserve for taxes or any other liability on its books or otherwise provided therefor, except as may have been required due to income or operations of Dentist since the Balance Sheet Date; (f) Mortgaged, pledged or subjected to any lien, charge or other encumbrance any of the Assets, tangible or intangible; (g) Sold or contracted to sell or transferred or contracted to transfer any of the Assets or any other assets used in the conduct of the Business, canceled any debts or claims or waived any rights, except in the ordinary course of business; (h) Except in the ordinary course or business consistent with past practices, granted any increase in the rates of pay of employees, consultants or agents, or by means of any bonus or pension plan, contract or other commitment, increased the compensation of any officer, employee, consultant or agent; (i) Authorized or incurred any capital expenditures in excess of Five Thousand and No/100 Dollars ($5,000.00); (j) Except for this Agreement and any other agreement executed and delivered pursuant to this Agreement, entered into any material transaction other than in the ordinary course of business or permitted hereunder; 5 (k) Experienced damage, destruction or loss (whether or not covered by insurance) materially and adversely affecting any of its properties, assets or business or the Business or the Assets, or experienced any other material adverse change in its financial condition, assets, prospects, liabilities or business; or (l) Suffered any material adverse change in the Business or to the Assets. 2.17 TAXES. (a) Dentist has filed all tax returns (including tax reports and other statements) required to have been filed by it, and has paid all taxes (including any interest, penalty or additions thereto) required to have been paid by it. All such tax returns are complete and accurate in all respects and properly reflect the relevant taxes for the periods covered thereby. Dentist has not received any notice that any tax deficiency or delinquency has been or may be asserted against Dentist. There are no audits relating to taxes of Dentist pending or in process or, to the knowledge of Dentist, threatened. Dentist is not currently the beneficiary of any waiver of any statute of limitations in respect of taxes nor of any extension of time within which to file any tax return or to pay any tax assessment or deficiency. There are no liens or encumbrances relating to taxes on or threatened against any of the assets of Dentist. Dentist has withheld and paid all taxes required by law to have been withheld and paid by it. Neither Dentist nor any predecessor of Dentist is or has been a party to any tax allocation or sharing agreement or a member of an affiliated group of corporations filing a consolidated Federal income tax return. Dentist has delivered to Pentegra correct and complete copies of Dentist's three most recently filed annual state, local and Federal income tax returns, together with all examination reports and statements of deficiencies assessed against or agreed to by Dentist during the three calendar year period preceding the date of this Agreement. Dentist has neither made any payments, is obligated to make any payments, or is a party to any agreement that under any circumstance could obligate it to make any payments that will not be deductible under Code section 280G. (b) Dentist does not intend to dispose of any of the shares of Pentegra Common Stock to be received hereunder and is not a party to any plan, arrangement or agreement for the disposition of such shares. Nothing contained herein shall prohibit Dentist from selling such shares of Pentegra Common Stock after the designated holding period and in accordance with SECTION 12.1 hereof. 2.18 COMMISSIONS AND FEES. There are no claims for brokerage commissions or finder's or similar fees in connection with the transactions contemplated by this Agreement which may be now or hereafter asserted against Pentegra, Dentist resulting from any action taken by Dentist or their respective agents or employees, or any of them. 2.19 LIABILITIES; DEBT. Except to the extent reflected or reserved against on the Balance Sheet, Dentist did not have, as of the Balance Sheet Date, and has not incurred since that date and will not have incurred as of the Closing Date, any liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, other than those incurred in the ordinary course of business or as set forth on EXHIBIT 2.16. Dentist does not know, or have reasonable grounds to know, of any basis for the assertion against Dentist as of the Balance Sheet Date, of any claim or liability of any nature in any amount not fully reflected or reserved against on the Balance Sheet, or of any claim or liability of any nature arising since that date other than those incurred in the ordinary course of business or contemplated by this Agreement. All indebtedness of Dentist (including without limitation, indebtedness for borrowed money, guaranties and capital lease obligations) is described on EXHIBIT 2.19 attached hereto. 2.20 INSURANCE POLICIES. Dentist and each licensed professional of Dentist carries property, liability, malpractice, workers' compensation and such other types of insurance as is customary in the industry. Valid and enforceable policies in such amounts are outstanding and duly in force and will remain duly in force through the Closing Date. All such policies are described in EXHIBIT 2.20 attached hereto and true and correct copies have been delivered to Pentegra. Dentist has not received notice or other communication from the issuer of any such insurance policy cancelling or amending such policy or threatening to do so. Neither Dentist nor any licensed professional employee of Dentist has any outstanding claims, settlements or premiums owed against any insurance policy. 2.21 EMPLOYEE BENEFIT PLANS. Except as set forth on EXHIBIT 2.21 attached hereto, Dentist has neither established, nor maintains, nor is obligated to make contributions to or under or otherwise participate in, (a) any bonus or other type of compensation or employment plan, program, agreement, policy, commitment, contract or arrangement 6 (whether or not set forth in a written document); (b) any pension, profit- sharing, retirement or other plan, program or arrangement; or (c) any other employee benefit plan, fund or program, including, but not limited to, those described in SECTION 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). All such plans listed on EXHIBIT 2.20 (individually "Dentist Plan," and collectively "Dentist Plans") have been operated and administered in all material respects in accordance with all applicable laws, rules and regulations, including without limitation, ERISA, the Internal Revenue Code of 1986, as amended, Title VII of the Civil Rights Act of 1964, as amended, the Equal Pay Act of 1967, as amended, the Age Discrimination in Employment Act of 1967, as amended, and the related rules and regulations adopted by those Federal agencies responsible for the administration of such laws. No act or failure to act by Dentist has resulted in a "prohibited transaction" (as defined in ERISA) with respect to the Dentist Plans. No "reportable event" (as defined in ERISA) has occurred with respect to any of the Dentist Plans. Dentist has not previously made, is not currently making, and is not obligated in any way to make, any contributions to any multiemployer plan within the meaning of the Multi-Employer Pension Plan Amendments Act of 1980. With respect to each Dentist Plan, either (i) the value of plan assets (including commitments under insurance contracts) is at least equal to the value of plan liabilities or (ii) the value of plan liabilities in excess of plan assets is disclosed on the Balance Sheet, all as of the Closing Date. 2.22 ADVERSE AGREEMENTS. Dentist is not, and will not be as of the Closing Date, a party to any agreement or instrument or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, decree, rule or regulation that materially and adversely affects the condition (financial or otherwise), operations, assets, liabilities, business or prospects of Dentist, the Business or the Assets. 2.23 COMPLIANCE WITH LAWS IN GENERAL. Dentist and Dentist's licensed professional employees, and the conduct of the Business and use of the Assets, have complied with all applicable laws, rules, regulations and licensing requirements, including, without limitation, the Federal Environmental Protection Act, the Occupational Safety and Health Act, the Americans with Disabilities Act and any environmental laws and medical waste laws, and there exist no violations by Dentist or any licensed professional employee of Dentist of any Federal, state or local law or regulation. Dentist has not received any notice of a violation of any Federal, state and local laws, regulations and ordinances relating to the operations of the Business and Assets and no notice of any pending inspection or violation of any such law, regulation or ordinance has been received by Dentist. 2.24 THIRD PARTY PAYORS. Dentist and each licensed professional employee or independent contractor of Dentist has timely filed all claims or other reports required to be filed with respect to the purchase of services by third- party payors, and all such claims or reports are complete and accurate, and has no liability to any payor with respect thereto. There are no pending appeals, overpayment determinations, adjustments, challenges, audit, litigation or notices of intent to open Medicare or Medicaid claim determinations or other reports required to be filed by Dentist and each licensed professional employee of Dentist. Neither Dentist nor any licensed professional employee of Dentist has been convicted of, or pled guilty or nolo contendere to, patient abuse or negligence, or any other Medicare or Medicaid program related offense and none has committed any offense which may serve as the basis for suspension or exclusion from the Medicare and Medicaid programs or any other third party payor program. With respect to payors, Dentist and Dentist's licensed professional employees has not (a) knowingly and willfully making or causing to be made a false statement or representation of a material fact in any application for any benefit or payment; (b) knowingly and willfully making or causing to be made any false statement or representation of a material fact for use in determining rights to any benefit or payment; (c) failed to disclose knowledge of the occurrence of any event affecting the initial or continued right to any benefit or payment on its own behalf or on behalf of another, with the intent to fraudulently secure such benefit or payment; and (d) violated any applicable state anti-remuneration or self-referral statutes, rules or regulations. 2.25 NO UNTRUE REPRESENTATIONS. No representation or warranty by Dentist in this Agreement, and no Exhibit or certificate issued or executed by, or information furnished by Dentist or to be furnished by Dentist to Pentegra pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained therein not misleading. 7 2.26 BANKING RELATIONS. Set forth in EXHIBIT 2.26 is a complete and accurate list of all arrangements that Dentist has with any bank or other financial institution, indicating with respect to each relationship the type of arrangement maintained (such as checking account, borrowing arrangements, safe deposit box, etc.) and the person or persons authorized in respect thereof. 2.27 OWNERSHIP INTERESTS OF INTERESTED PERSONS; COMPETITORS. No officer or employee or family member of Dentist, or their respective spouses, children or affiliates, owns directly or indirectly, on an individual or joint basis, any interest in, has a compensation or other financial arrangement with, or serves as an officer or director of, any customer or supplier or competitor of Dentist or any organization that has a material contract or arrangement with Dentist. 2.28 PAYORS. EXHIBIT 2.28 sets forth a true, complete and correct list of the names and addresses of each payor of Dentist's services which accounted for more than 10% of revenues of Dentist in the preceding fiscal year. Dentist has good relations with all such payors and other material payors of Dentist and none of such payors has notified Dentist that it intends to discontinue its relationship with Dentist or to deny any claims submitted to such payor for payment. SECTION 3. REPRESENTATIONS AND WARRANTIES OF PENTEGRA. Pentegra hereby represents and warrants to Dentist as follows: 3.1 CORPORATE EXISTENCE: GOOD STANDING. Pentegra is a corporation duly organized and existing and in good standing under the laws of the State of Delaware. 3.2 POWER AND AUTHORITY; CONSENTS. Pentegra has corporate power to execute, deliver and perform this Agreement and all agreements and other documents executed and delivered by it pursuant to this Agreement or to be executed and delivered on the Closing Date, and has taken all actions required by law, its Certificate of Incorporation, its Bylaws or otherwise, to authorize the execution, delivery and performance of this Agreement and such related documents. This Agreement and all agreements and documents executed and delivered in connection herewith have been, or will be as of the Closing Date, duly executed and delivered by Pentegra and constitute or will constitute the legal, valid and binding obligations of Pentegra, enforceable against Pentegra in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. The execution and delivery of this Agreement, and the agreements executed and delivered pursuant to this Agreement or to be executed and delivered on the Closing Date, do not, and, the consummation of the actions contemplated hereby will not, violate any provision of the Certificate of Incorporation or Bylaws of Pentegra or any provisions of, or result in the acceleration of, any obligation under any mortgage, lien, lease, agreement, rent, instrument, order, arbitration award, judgment or decree to which Pentegra is a party or by which Pentegra is bound, or violate any material restrictions of any kind to which Pentegra is subject, or result in any lien or encumbrance on any of Pentegra's assets. Other than as have been obtained or as would not have a material adverse effect, there are no consents of any person or entity required for the transaction contemplated hereby on behalf of Pentegra. 3.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. All building or other permits, certificates of occupancy, concessions, grants, franchises, licenses, certificates of need and other governmental authorizations and approvals required for the conduct of the business of Penegra or waivers thereof, have been duly obtained and are in full force and effect, except as would not have a material adverse effect upon Pentegra. Other than as would not have a material adverse effect, there are no proceedings pending or, to the knowledge of Pentegra, threatened, which may result in the revocation, cancellation or suspension, or any adverse modification, of any such licenses or permits. 3.4 LEGAL PROCEEDINGS. Other than as would not have a material adverse effect, neither Pentegra nor its business or assets is subject to any pending, nor does Pentegra have knowledge of any threatened, litigation, governmental investigation, condemnation or other proceeding against or relating to or affecting Pentegra, its business, assets or the transactions contemplated by this Agreement, and, to the knowledge of Pentegra, no basis for any such 8 action exists, nor is there any legal impediment of which Pentegra has knowledge to the continued operation of its business or the use of its Assets in the ordinary course. 3.5 TAXES. Pentegra has filed all tax returns (including tax reports and other statements) required to have been filed by it, and has paid all taxes (including any interest, penalty or additions thereto) required to have been paid by it, other than as would not have a material adverse effect. Pentegra has not received any notice that any tax deficiency or delinquency has been or may be asserted against Pentegra. There are no audits relating to taxes of Pentegra pending or in process or, to the knowledge of Pentegra, threatened. Pentegra is not currently the beneficiary of any waiver of any statute of limitations in respect of taxes nor of any extension of time within which to file any tax return or to pay any tax assessment or deficiency. 3.6 COMMISSIONS AND FEES. Pentegra has not incurred any obligation for any finder's, broker's or similar fees in connection with the transactions contemplated hereby. 3.7 CAPITAL STOCK. The issuance and delivery by Pentegra of shares of Pentegra Common Stock in connection with the acquisition contemplated hereby will be as of the Closing Date duly and validly authorized by all necessary corporate action on the part of Pentegra. The Pentegra Common Stock to be issued in connection with the acquisition contemplated hereby, when issued in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable. 3.8 NO UNTRUE REPRESENTATIONS. No representation or warranty by Pentegra in this Agreement, and no Exhibit or certificate issued by officers or directors of Pentegra and furnished or to be furnished to Dentist pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained therein not misleading. SECTION 4. COVENANTS OF DENTIST. Dentist agrees that between the date hereof and the Closing Date: 4.1 CONSUMMATION OF AGREEMENT; EXHIBITS. Dentist shall use his best efforts to cause the consummation of the transactions contemplated hereby in accordance with their terms and conditions. Dentist agrees to complete the Exhibits hereto to be provided by him in form and substance satisfactory to Pentegra. 4.2 BUSINESS OPERATIONS. Dentist shall operate the Business and use the Assets in the ordinary course. Dentist shall not enter into any lease, contract, indebtedness, commitment, purchase or sale or acquire or dispose of any capital asset relating to the Business or the Assets except in the ordinary course of business. Dentist shall use their best efforts to preserve the Business and Assets intact and shall not take any action that would have an adverse effect on the Business or Assets. Dentist shall use their best efforts to preserve intact the relationships with payors, customers, suppliers, patients and others having significant business relations with Dentist. Dentist shall collect its receivables and pay its trade payables in the ordinary course of business. Dentist shall not introduce any new method of management, operations or accounting. 4.3 ACCESS AND NOTICE. Dentist shall permit Pentegra and its authorized representatives access to, and make available for inspection, all of the assets and business of Dentist, the Business and the Assets, including employees, customers and suppliers and permit Pentegra and its authorized representatives to inspect and make copies of all documents, records and information with respect to the business or assets of Dentist, the Business or the Assets as Pentegra or its representatives may request. Dentist shall promptly notify Pentegra in writing of (a) any notice or communication relating to a default or event that, with notice or lapse of time or both, could become a default, under 9 any contract, commitment or obligation to which Dentist is a party or relating to the Business or the Assets, and (b) any adverse change in Dentist's or the Business' financial condition or the Assets. 4.4 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. Dentist shall use his best efforts to secure all necessary approvals and consents of third parties to the consummation of the transactions contemplated hereby, including consents described on EXHIBIT 2.4. Dentist shall use his best efforts to obtain all licenses, permits, approvals or other authorizations required under any law, rule, regulation, or otherwise to provide the services of the Practice contemplated by the Service Agreement and to conduct the intended business of the Practice and operate the Business and use the Assets. 4.5 ACQUISITION PROPOSALS. From the execution of this Agreement until the earlier of Closing or the termination of this Agreement in accordance with the provisions hereof, Dentist shall not, and shall use its best efforts to cause Dentist's employees, agents and representatives not to, initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any proposal or offer, including without limitation, any proposal or offer to the Dentist, with respect to a merger, acquisition, consolidation or similar transaction involving, or the purchase of all or any significant portion of the assets or any equity securities of Dentist or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to such proposal or offer, and Dentist will immediately cease any such activities, discussions or negotiations heretofore conducted with respect to any of the foregoing. Dentist shall immediately notify Pentegra if any such inquiries or proposals are received. 4.6 FUNDING OF ACCRUED EMPLOYEE BENEFITS. Dentist hereby covenants and agrees that it will take whatever steps are necessary to pay or fund completely for any accrued benefits, where applicable, or vested accrued benefits for which Dentist or any entity might have any liability whatsoever arising from any insurance, pension plan, employment tax or similar liability of Dentist to any employee or other person or entity (including, without limitation, any Dentist Plan and any liability under employment contracts with Dentist) allocable to services performed prior to the Closing Date. Dentist acknowledges that the purpose and intent of this covenant is to assure that Pentegra shall have no liability whatsoever at any time after the Closing Date with respect to any of Dentist's employees or similar persons or entities, including, without limitation, any Dentist Plan for the period prior to the Closing Date. 4.7 EMPLOYEE MATTERS. Dentist shall not, without the prior written approval of Pentegra, except as required by law, increase the cash compensation of the Dentist (other than in the ordinary course of business) or other employee or an independent contractor of Dentist, adopt, amend or terminate any compensation plan, employment agreement, independent contractor agreement, employee policies and procedures or employee benefit plan, take any action that could deplete the assets of any employee benefit, or fail to pay any premium or contribution due or file any report with respect to any employee benefit plan, or take any other actions with respect to its employees or employee matters which might have an adverse effect upon Dentist, its business, assets or prospects. 4.8 [INTENTIONALLY OMITTED]. 4.9 REQUIREMENTS TO EFFECT ACQUISITION. Dentist shall use his best efforts to take, or cause to be taken, all actions necessary to effect the acquisition contemplated hereby under applicable law. 4.10 ACCOUNTING AND TAX MATTERS. Dentist will not change in any material respect the tax or financial accounting methods or practices followed by Dentist (including any material change in any assumption underlying, or any method of calculating, any bad debt, contingency or other reserve), except as may be required by law or generally accepted accounting principles. Dentist will duly, accurately and timely (without regard to any extensions of time) file all returns, information statements and other documents relating to taxes of Dentist required to be filed by it, and pay all taxes required to be paid by it, on or before the Closing Date. 4.11 WAIVER OF BULK TRANSFER COMPLIANCE. Pentegra and Dentist hereby waive any compliance with the applicable state Bulk Transfers Act, if any. Dentist covenants and agrees that all of the creditors with respect to the Business and the Assets will be paid in full by Dentist prior to the Closing Date, except to extent that any liability to such creditors is assumed by Pentegra pursuant to this Agreement. If required by Pentegra, Dentist shall furnish Pentegra 10 with proof of payment of all creditors with respect to the Business and the Assets. Notwithstanding the foregoing, Dentist may dispute the validity or amount of any such creditor's claim without being deemed to be in violation of this SECTION 4.11, provided that such dispute is in good faith and does not unreasonably delay the resolution of the claim and provided, further that Dentist agrees to indemnify and bond Pentegra for such amounts as is satisfactory to Pentegra. 4.12 LEASE. If Dentist leases any of its premises from the Dentist or other affiliate of Dentist, Pentegra shall have entered into a building lease (the "Building Lease") with the owner of such premises on terms and conditions satisfactory to Pentegra, the terms and conditions of which shall include, without limitation, (i) a five year initial term plus three five-year renewal options, (ii) a lease rate equal to the fair market value lease rate, as agreed to by Pentegra, and (iii) such other provisions to be acceptable to Pentegra. 4.13 HIRING OF EMPLOYEES. Dentist shall cooperate with all requests made by Pentegra for the purpose of allowing Pentegra to hire those non-dental employees of Dentist designated by Pentegra, such employment to be effective as of the Closing Date. Notwithstanding the above, Dentist shall remain liable under any Dentist Plans for any claims incurred by any employees or their spouses or dependents, and for all compensation, bonuses, benefits and other such items and other liabilities related to Dentist's employees incurred by Dentist prior to the Closing Date. 4.14 EMPLOYEE BENEFIT PLANS. Dentist agrees and acknowledges that all employees of Dentist hired by Pentegra pursuant to SECTION 4.13 above, shall be treated as "leased employees" (as defined in Code Section 414(n)) of Dentist and shall be treated as Clinic employees for purposes of eligibility and participation in Dentist Plans. 4.15 INSURANCE. Dentist shall cause Pentegra and its affiliates to be named as an additional insured on its liability insurance programs, effective as of the Closing Date. 4.16 FORMATION OF THE PRACTICE. Dentist shall have formed a limited liability company, partnership or other legal entity (the "Practice") approved by Pentegra for the purpose of practicing dentistry and entering into the Service Agreement. The Practice shall be duly organized, in existing and in good standing under the laws of the State in which the Dentist and the Practice are to practice dentistry. The Practice shall have all necessary power to own all of its assets and to carry on its business as such business is now being conducted. The Dentist shall be the sole member/shareholder/partner of the Practice and own all such interests free of all security interests, claims, encumbrances and liens. Each interest in the Practice shall be legally and validly issued and fully paid and nonassessable. There shall be no outstanding (a) bonds, debentures, notes or other obligations the holders of which have the right to vote with the members/partners/shareholders of the Practice on any matter, (b) securities of the Practice convertible into equity interests in the Practice, or (c) commitments, options, rights or warrants to issue any such equity interests in the Practice, to issue securities of the Practice convertible into such equity interests, or to redeem any securities of the Practice. No interests of the Practice shall have been issued or disposed of in violation of the preemptive rights, rights of first refusal or similar rights of any of the Practice's members/partners/shareholders. The Practice shall quality to do business as a foreign entity in any other state or jurisdiction by reason of its business, properties or activities in or relating to such other state or jurisdiction. 4.17 CORPORATE RECORDS. True and correct copies of the Articles of Organization/Partnership Agreement\Articles of Incorporation, Bylaws/Regulations and minutes of the Practice and all amendments thereto of the Practice shall have been delivered to Pentegra and shall be in form and substance satisfactory to Pentegra. The minute books of the Practice shall contain all accurate minutes of the meetings of and consents to actions taken without meetings of the members\managers/partners/board of directors of the Practice since its formation. The books of account of the Practice shall have been kept accurately in the ordinary course of business and the revenues, expenses, assets and liabilities of the Practice shall have been properly recorded in such books. 4.18 POWER AND AUTHORITY FOR TRANSACTIONS. The Practice shall have the power to execute, deliver and perform its obligations under all agreements and other documents to be executed and delivered by it pursuant to this Agreement, including without limitation, the Service Agreement and each Employment Agreement or to be executed and delivered on the Closing Date, and has taken all action required by law, its Organization/Partnership Agreement/Articles of Incorporation, its Bylaws/Regulations or otherwise, to authorize the execution, delivery and performance of such documents. The Service Agreement, the Employment Agreement and the other agreements 11 contemplated hereby shall have been duly executed and delivered by the Practice and constitute or will constitute the legal, valid and binding obligations of the Practice enforceable against the Practice in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. The execution and delivery of the Service Agreement, the Employment Agreements and the other agreements contemplated hereby will not violate any provision of the organizational documents of the Practice or any provisions of, or result in the acceleration of, any obligation under any mortgage, lien, lease, agreement, rent, instrument, order, arbitration award, judgment or decree to which the Practice is a party or by which the Practice is bound, or violate any material restrictions of any kind to which the Practice is subject, or result in any lienor encumbrance on any of the Practice's assets. 4.19 NO BUSINESS. Other than its Articles of Organization/Partnership Agreement/Articles of Incorporation, Bylaws/Regulations and as of the Closing Date, the Service Agreement and the Employment Agreements, the Practice shall not be a party to or subject to any agreement, indenture or other instrument. 4.20 COMPLIANCE WITH LAWS. The Practice shall have complied with all applicable laws, regulations and licensing requirements and has filed with the proper authorities all necessary statements and reports. SECTION 5. COVENANTS OF PENTEGRA. Pentegra agrees that between the date hereof and the Closing: 5.1 CONSUMMATION OF AGREEMENT; EXHIBITS. Pentegra shall use its best efforts to cause the consummation of the transactions contemplated hereby in accordance with their terms and provisions. Pentegra agrees to complete the Exhibits hereto to be provided by it. 5.2 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. Pentegra shall use its best efforts to secure all necessary approvals and consents of third parties to the consummation of the transactions contemplated hereby. SECTION 6. COVENANTS OF PENTEGRA AND DENTIST. Pentegra and Dentist agree as follows: 6.1 FILINGS; OTHER ACTIONS. Pentegra and Dentist shall cooperate to promptly prepare and file with the Securities Exchange Commission ("SEC") the Registration Statement on Form S-1 (or other appropriate Form) to be filed by Pentegra in connection with its Initial Public Offering (including the prospectus constituting a part thereof, the "Registration Statement"). Pentegra shall obtain all necessary state securities laws or "Blue Sky" permits and approvals required to carry out the transactions contemplated by this Agreement and the Dentist shall furnish all information concerning Dentist as may be reasonable requested in connection with any such action. Dentist represents and warrants that none of the information or documents supplied or to be supplied by it specifically for inclusion in the Registration Statement, by exhibit or otherwise, will, at the time the Registration Statement and each amendment or supplement thereto, if any, becomes effective under the Securities Act of 1933, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Dentist shall be entitled to review the Registration Statement and each amendment thereto, if any, prior to the time each becomes effective under the Securities Act of 1933. Dentist shall furnish Pentegra will all information concerning itself and such other matters as may be reasonable requested by Pentegra in connection with the preparation of the Registration Statement and each amendment or supplement thereto, or any other statement, filing, notice or application made by or on behalf of each such party or any of its subsidiaries to any governmental entity in connection with the transactions contemplated by the Other Agreements or this Agreement. 12 SECTION 7. PENTEGRA CONDITIONS PRECEDENT. The obligations of Pentegra hereunder are subject to the fulfillment at or prior to the Closing of each of the following conditions: 7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Dentist contained herein shall have been true and correct in all respects when initially made and shall be true and correct in all respects as of the Closing Date. 7.2 COVENANTS AND CONDITIONS. Dentist shall have performed and complied with all covenants and conditions required by this Agreement to be performed and complied with by Dentist prior to the Closing Date. 7.3 PROCEEDINGS. No action, proceeding or order by any court or governmental body shall have been threatened orally or in writing, asserted, instituted or entered to restrain or prohibit the carrying out of the transactions contemplated hereby. 7.4 NO MATERIAL ADVERSE CHANGE. No material adverse change in the condition (financial or otherwise), operations, assets, liabilities, business or prospects of Dentist shall have occurred since the Balance Sheet Date. 7.5 DUE DILIGENCE REVIEW. By the Closing Date, Pentegra shall have completed a due diligence review of the business, operations and financial statements of Dentist, the Business and the Assets, the results of which shall be satisfactory to Pentegra in its sole discretion. 7.6 APPROVAL BY THE BOARD OF DIRECTORS. This Agreement and the transactions contemplated hereby shall have been approved by the Board of Directors of Pentegra or a committee thereof. 7.7 SERVICE AGREEMENT; GUARANTY AGREEMENT. The Practice and Pentegra shall have executed and delivered a Service Agreement (the "Service Agreement"), in substantially the form attached hereto as EXHIBIT 7.7, pursuant to which Pentegra will provide management services to the Practice. Dentist shall have executed and delivered a Guaranty Agreement in substantially the form attached as EXHIBIT 4.10 of the Service Agreement pursuant to which Dentist shall, among other things, guaranty the obligations of the Practice under the Service Agreement. 7.8 EMPLOYMENT ARRANGEMENTS. Dentist shall have terminated his or her employment agreement and executed an employment agreement ("Employment Agreement") with the Practice in form and substance attached hereto as EXHIBIT 7.8 and otherwise satisfactory to Dentist and Pentegra. 7.9 CONSENTS AND APPROVALS. Dentist shall have obtained all necessary government and other third-party approvals and consents. 7.10 CLOSING DELIVERIES. Pentegra shall have received all documents, duly executed in form satisfactory to Pentegra and its counsel, referred to in SECTION 9.1. 7.11 DEBT AND RECEIVABLES. There shall be no indebtedness, receivables or payables between Dentist and its affiliates and Dentist shall not have any liabilities, including indebtedness, guaranties and capital leases, that are not set forth on EXHIBIT 2.19. 7.12 INSURANCE. Dentist shall have named Pentegra as an additional insured on irs liability insurance program in accordance with SECTION 4.15. 7.13 NO CHANGE IN WORKING CAPITAL. There shall have been no material change in the working capital of Dentist since the Balance Sheet Date. 7.14 SECURITIES APPROVAL. The Registration Statement shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no 13 proceedings for that purpose shall have been initiated or threatened by the SEC. At or prior to the date that the Registration Statement is declared effective by the SEC, Pentegra shall have received all state securities and "Blue Sky" permits necessary to consummate the transactions contemplated hereby. The Pentegra Common Stock shall have been approved for listing on Nasdaq or other exchange selected by Pentegra, subject only to official notification of issuance. SECTION 8. DENTIST'S CONDITIONS PRECEDENT. The obligations of Dentist hereunder are subject to fulfillment at or prior to the Closing of each of the following conditions: 8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Pentegra contained herein shall have been true and correct in all respects when initially made and shall be true and correct in all respects as of the Closing Date. 8.2 COVENANTS AND CONDITIONS. Pentegra shall have performed and complied with all covenants and conditions required by this Agreement to be performed and complied with by Pentegra prior to the Closing Date. 8.3 PROCEEDINGS. No action, proceeding or order by any court or governmental body shall have been threatened orally or in writing, asserted, instituted or entered to restrain or prohibit the carrying out of the transactions contemplated hereby. 8.4 CLOSING DELIVERIES. Dentist shall have received all documents, duly executed in form satisfactory to Dentist and its counsel, referred to in SECTION 9.2. 8.5 SECURITIES APPROVAL. The Registration Statement shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC. At or prior to the date that the Registration Statement is declared effective by the SEC, Pentegra shall have received all state securities and "Blue Sky" permits necessary to consummate the transactions contemplated hereby. The Pentegra Common Stock shall have been approved for listing on Nasdaq or other exchange selected by Pentegra, subject only to official notification of issuance. SECTION 9. CLOSING DELIVERIES. 9.1 DELIVERIES OF DENTIST. Within five business days after requested by Pentegra, Dentist shall deliver to Pentegra the following, all of which shall be in a form satisfactory to counsel to Pentegra and shall be held by Jackson & Walker, L.L.P. (counsel for Pentegra) in escrow pending Closing, pursuant to an escrow agreement or letter agreement in form and substance mutually acceptable to the parties hereto: (a) an executed original Service Agreement and executed originals of all documents required by that agreement, including but not limited to the Guaranty Agreemen and security agreement referred to therein; (b) executed Employment Agreements; (c) a bill of sale conveying the Assets to Pentegra; (d) an assignment of each contract, agreement and lease being assigned to and assumed by Pentegra; (e) certificates of Dentist dated as of the Closing Date, (i) as to the truth and correctness of the representations and warranties of Dentist contained herein; (ii) as to the performance of and compliance by Dentist with 14 all covenants contained herein; and (iii) certifying that all conditions precedent of Dentist to the Closing have been satisfied; (f) an opinion of counsel to Dentist opining as to the execution and delivery of this Agreement and the other documents and agreements to be executed pursuant hereto, the good standing and authority of Dentist, the enforceability of this Agreement and the other agreements and documents to be executed in connection herewith, and other matters reasonably requested by Pentegra; (g) non-foreign affidavits executed by Dentist; (h) all authorizations, consents, approvals, permits and licenses referred to in SECTIONS 2.3 and 2.4; (i) an executed Registration Rights Agreement between Pentegra and Dentist, in substantially the form attached hereto as EXHIBIT 9.1(l) (the "Registration Rights Agreement"); and (j) such other instruments and documents as reasonably requested by Pentegra to carry out and effect the purpose and intent of this Agreement. 9.2 DELIVERIES OF PENTEGRA. On or before the Closing Date, Pentegra shall deliver to Dentist the following, all of which shall be in a form satisfactory to counsel to Dentist and shall be held by Jackson & Walker, L.L.P. (counsel for Pentegra) in escrow pending Closing, pursuant to an escrow agreement or letter agreement in form and substance mutually acceptable to the parties hereto: (a) the Acquisition Consideration; (b) an executed Service Agreement; (c) an assumption of each contract, agreement and lease being assigned to and assumed by Pentegra; (d) a copy of the resolutions of the Board of Directors of Pentegra (or a committee thereof) authorizing the execution, delivery and performance of this Agreement and all related documents and agreements each certified by the Secretary as being true and correct copies of the original thereof; (e) certificates of the President of Pentegra, dated as of the Closing Date, (i) as to the truth and correctness of the representations and warranties of Pentegra contained herein; (ii) as to the performance of and compliance by Pentegra with all covenants contained herein; and (iii) certifying that all conditions precedent of Pentegra to the Closing have been satisfied; (f) a certificate of the Secretary of Pentegra certifying as to the incumbency of the directors and officers of Pentegra and as to the signatures of such directors and officers who have executed documents delivered at the Closing on behalf of Pentegra; (g) certificates, dated within 30 days of the Closing Date, of the Secretary of the State of Delaware establishing that Pentegra is in existence and are in good standing to transact business in the State of Delaware and the State of incorporation of Dentist; (h) an opinion of counsel to Pentegra opining as to the execution and delivery of this Agreement and the other documents and agreements to be executed pursuant hereto, the good standing and authority of Pentegra, the enforceability of this Agreement and the other agreements and documents to be executed in connection herewith, and other matters reasonably requested by Dentist; 15 (i) the executed Registration Rights Agreement; and (j) such other instruments and documents as reasonably requested by Dentist to carry out and effect the purpose and intent of this Agreement. SECTION 10. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION. 10.1 NATURE AND SURVIVAL. All statements contained in this Agreement or in any Exhibit attached hereto, any agreement executed pursuant hereto, and any certificate executed and delivered by any party pursuant to the terms of this Agreement, shall constitute representations and warranties of Dentist or of Pentegra, as the case may be. All such representations and warranties, and all representations and warranties expressly labeled as such in this Agreement shall survive the date of this Agreement and the Closing Date for a period of five (5) years following the Closing Date, except that (i) the representations and warranties with respect to environmental and medical waste laws and health care laws and matters shall survive for a period of fifteen (15) years and tax representations shall survive until one year after the expiration of the applicable statute of limitations. Each party covenants with the other parties not to make any claim with respect to such representations and warranties, against any party after the date on which such survival period shall terminate. No party shall be entitled to claim indemnity from any other party pursuant to SECTION 10.2 or 10.3 hereof, unless such party has timely given the notice required in SECTION 10.2, 10.3 or 10.4 hereof, as the case may be. Each party hereby releases, acquits and discharges the other party from any and all claims and demands, actions and causes of action, damages, costs, expenses and rights of setoff with respect to which the notices required by SECTION 10.2, 10.3 or 10.4, as applicable, are not timely provided. 10.2 INDEMNIFICATION BY PENTEGRA. PENTEGRA (FOR PURPOSES OF THIS SECTION 10.2 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, "INDEMNITOR"), SHALL INDEMNIFY AND HOLD DENTIST AND ITS AGENTS AND EMPLOYEES (EACH OF THE FOREGOING, INCLUDING DENTIST FOR PURPOSES OF THIS SECTION 10.2 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, AN "INDEMNIFIED PERSON"), HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, DAMAGES, ACTIONS, SUITS, COSTS, DEFICIENCIES AND EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE FEES AND DISBURSEMENTS OF COUNSEL THROUGH APPEAL) ARISING FROM OR BY REASON OF OR RESULTING FROM: (A) ANY BREACH BY INDEMNITOR OF ANY REPRESENTATION, WARRANTY, AGREEMENT OR COVENANT CONTAINED IN THIS AGREEMENT (INCLUDING THE EXHIBITS HERETO) AND EACH DOCUMENT, CERTIFICATE OR OTHER INSTRUMENT FURNISHED OR TO BE FURNISHED BY INDEMNITOR HEREUNDER, AND (B) AFTER THE CLOSING DATE, INDEMNITOR'S OWNERSHIP OF THE ASSETS, AND (C) ANY LIABILITY UNDER THE SECURITIES ACT, THE EXCHANGE ACT OR ANY OTHER FEDERAL OR STATE "BLUE SKY" OR SECURITIES LAWS OR REGULATION, AT COMMON LAW OR OTHERWISE, ARISING OUT OF OR BASED UPON ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT RELATING TO PENTEGRA CONTAINED IN ANY PRELIMINARY PROSPECTUS, THE REGISTRATION STATEMENT OR ANY PROSPECTUS FORMING A PART THEREOF, OR ANY AMENDMENT THEREOF OR SUPPLEMENT THERETO, ARISING OUT OF OR BASED UPON ANY OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT RELATING TO PENTEGRA REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING. IN CONNECTION WITH INDEMNITOR'S OBLIGATION TO INDEMNIFY FOR EXPENSES, INDEMNITOR SHALL REIMBURSE EACH INDEMNIFIED PERSON FOR ALL SUCH EXPENSES AS THEY ARE INCURRED BY SUCH INDEMNIFIED PERSON, PROVIDED THAT SUCH INDEMNIFIED PERSON AGREES IN WRITING TO REFUND ALL SUCH REIMBURSED EXPENSES IF AND TO THE EXTENT THAT IT IS FINALLY 16 JUDICIALLY DETERMINED THAT SUCH INDEMNIFIED PERSON IS NOT ENTITLED TO INDEMNIFICATION HEREUNDER. 10.3 INDEMNIFICATION BY DENTIST. DENTIST (FOR PURPOSES OF THIS SECTION 10.3 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, "INDEMNITOR"), SHALL INDEMNIFY AND HOLD PENTEGRA AND ITS AFFILIATES, OFFICERS, DIRECTORS, SHAREHOLDERS, AGENTS AND EMPLOYEES (EACH OF THE FOREGOING, INCLUDING PENTEGRA, FOR PURPOSES OF THIS SECTION 10.3 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, AN "INDEMNIFIED PERSON") HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, CLAIMS, DAMAGES, ACTIONS, SUITS, COSTS, DEFICIENCIES AND EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE FEES AND DISBURSEMENTS OF COUNSEL THROUGH APPEAL) ARISING FROM OR BY REASON OF OR RESULTING FROM OR WITH RESPECT TO: (A) ANY BREACH BY INDEMNITOR OF ANY REPRESENTATION, WARRANTY, AGREEMENT OR COVENANT CONTAINED IN THIS AGREEMENT (INCLUDING THE EXHIBITS HERETO) AND EACH DOCUMENT, CERTIFICATE, OR OTHER INSTRUMENT FURNISHED OR TO BE FURNISHED BY INDEMNITOR HEREUNDER, (B) PRIOR TO AND AFTER THE CLOSING DATE, THE INDEMNITOR'S MANAGEMENT AND CONDUCT OF THE BUSINESS AND OWNERSHIP OR OPERATION OF THE ASSETS, AND (C) ANY ALLEGED ACT OR NEGLIGENCE OF INDEMNITOR OR ITS EMPLOYEES, AGENTS AND INDEPENDENT CONTRACTORS IN OR ABOUT DENTIST'S BUSINESS WHETHER ON OR AFTER THE CLOSING DATE, (D) ANY VIOLATION BY DENTIST OR ITS CONSULTANTS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND AFFILIATES OF STATE OR FEDERAL LAWS GOVERNING HEALTHCARE FRAUD AND ABUSE, OR ANY OVERPAYMENT OR OBLIGATION ARISING OUT OF OR RESULTING FROM ACTIONS OF THE DENTIST RELATING TO CLAIMS SUBMITTED TO ANY THIRD PARTY PAYOR, WHETHER ON OR AFTER THE CLOSING DATE, (E) TAXES OF DENTIST OR ANY OTHER PERSON OR ENTITY RELATED TO OR AFFILIATED WITH DENTIST ARISING FROM OR AS A RESULT OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (F) ANY LIABILITY OF DENTIST FOR COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES) INCURRED IN CONNECTION WITH THE NEGOTIATION, PREPARATION OF CLOSING OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE OTHER DOCUMENTS TO BE EXECUTED IN CONNECTION HEREWITH, (G) ANY ACCRUED UNFUNDED RETIREMENT OR PENSION PLAN LIABILITIES, (H) ANY LIABILITIES THAT ARE NOT SET FORTH ON EXHIBIT 1.3(b), OR (I) ANY LIABILITY UNDER THE SECURITIES ACT, THE EXCHANGE ACT OR ANY OTHER FEDERAL OR STATE "BLUE SKY" OR SECURITIES LAWS OR REGULATION, AT COMMON LAW OR OTHERWISE, ARISING OUT OF OR BASED UPON ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT RELATING TO DENTIST AND PROVIDED TO PENTEGRA OR ITS COUNSEL BY THE DENTIST SPECIFICALLY FOR INCLUSION IN ANY PRELIMINARY PROSPECTUS, THE REGISTRATION STATEMENT OR ANY PROSPECTUS FORMING A PART THEREOF, OR ANY AMENDMENT THEREOF OR SUPPLEMENT THERETO, ARISING OUT OF OR BASED UPON ANY OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT RELATING TO DENTIST REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING. 17 IN CONNECTION WITH INDEMNITOR'S OBLIGATION TO INDEMNIFY FOR EXPENSES, INDEMNITOR SHALL REIMBURSE EACH INDEMNIFIED PERSON FOR ALL SUCH EXPENSES AS THEY ARE INCURRED BY SUCH INDEMNIFIED PERSON, PROVIDED THAT SUCH INDEMNIFIED PERSON AGREES IN WRITING TO REFUND ALL SUCH REIMBURSED EXPENSES IF AND TO THE EXTENT THAT IT IS FINALLY JUDICIALLY DETERMINED THAT SUCH INDEMNIFIED PERSON IS NOT ENTITLED TO INDEMNIFICATION HEREUNDER. 10.4 INDEMNIFICATION PROCEDURE. Within sixty (60) days after Indemnified Person receives written notice of the commencement of any action or other proceeding in respect of which indemnification or reimbursement may be sought hereunder, or within such lesser time as may be provided by law for the defense of such action or proceeding, such Indemnified Person shall notify Indemnitor thereof. If any such action or other proceeding shall be brought against any Indemnified Person, Indemnitor shall, upon written notice given within a reasonable time following receipt by Indemnitor of such notice from Indemnified Person, be entitled to assume the defense of such action or proceeding with counsel chosen by Indemnitor and reasonably satisfactory to Indemnified Person; provided, however, that any Indemnified Person may at its own expense retain separate counsel to participate in such defense. Notwithstanding the foregoing, Indemnified Person shall have the right to employ separate counsel at Indemnitor's expense and to control its own defense of such action or proceeding if, in the reasonable opinion of counsel to such Indemnified Person, (a) there are or may be legal defenses available to such Indemnified Person or to other Indemnified Persons that are different from or additional to those available to Indemnitor and which could not be adequately advanced by counsel chosen by Indemnitor, or (b) a conflict or potential conflict exists between Indemnitor and such Indemnified Person that would make such separate representation advisable; provided, however, that in no event shall Indemnitor be required to pay fees and expenses hereunder for more than one firm of attorneys of Indemnified Person in any jurisdiction in any one action or proceeding or group of related actions or proceedings. Indemnitor shall not, without the prior written consent of any Indemnified Person, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding to which such Indemnified Person is a party unless such settlement, compromise or consent includes an unconditional release of such Indemnified Person from all liability arising or potentially arising from or by reason of such claim, action or proceeding. 10.5 RIGHT OF SETOFF. In the event of any breach of warranty, representation, covenant or agreement by Dentist giving rise to indemnification under SECTION 10.3 or SECTION 10.4 hereof, Pentegra shall be entitled to offset the amount of damages incurred by it as a result of such breach of warranty, representation, covenant or agreement against any amounts payable by Pentegra, including the amounts payable under the Service Agreement. SECTION 11. TERMINATION. This Agreement may be terminated: (a) at any time by mutual agreement of all parties; (b) at any time by Pentegra if any representation or warranty of Dentist contained in this Agreement or in any certificate or other document executed and delivered by Dentist pursuant to this Agreement is or becomes untrue or breached in any material respect or if Dentist fails to comply in any material respect with any covenant or agreement contained herein, and any such misrepresentation, noncompliance or breach is not cured, waived or eliminated within twenty (20) days after receipt of written notice thereof; (c) at any time by Dentist if any representation or warranty of Pentegra contained in this Agreement or in any certificate or other document executed and delivered by Pentegra pursuant to this Agreement is or becomes untrue or breached in any material respect or if Pentegra fails to comply in any material respect with any covenant or agreement contained herein and such misrepresentation, noncompliance or breach is not cured, waived or eliminated within twenty (20) days after receipt of written notice thereof; (d) by Pentegra or Dentist if the transaction contemplated hereby shall not have been consummated by December 31, 1997; or 18 (e) by Pentegra at any time prior to the Closing Date if Pentegra determines in its sole discretion as the result of its legal, financial and operational due diligence with respect to Dentist, that such termination is desirable and in the best interests of Pentegra. SECTION 12. TRANSFER REPRESENTATIONS. 12.1 TRANSFER RESTRICTIONS. For a period of one year from the Closing Date, Dentist shall not voluntarily (a) sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose of (i) any shares of Pentegra Common Stock received by such party hereunder, (ii) any interest (including without limitation, an option to buy or sell) in any shares of Pentegra Common Stock, in whole or in part, and no such attempted transfer shall be treated as effective for any purpose or (b) engage in any transaction, whether or not with respect to any shares of Pentegra Common Stock or any interest therein, the intent or effect of which is to reduce the risk of owning shares of Pentegra Common Stock. The certificates evidencing the Pentegra Common Stock delivered to Dentist pursuant to the terms hereof will bear a legend substantially in the form set forth below and containing such other information as Pentegra may deem necessary or appropriate: The shares represented by this certificate may not be voluntarily sold, assigned, exchanged, transferred, encumbered, pledged, distributed, appointed or otherwise disposed of, and the issuer shall not be required to give effect to any attempted voluntary sale, assignment, exchange, transfer, encumbrance, pledge, distribution, appointment or other disposition prior to _________ [date that is one year from the Closing Date]. Upon the written request of the holder of this certificate, the issuer agrees to remove this restrictive legend (and any stop order placed with the transfer agent) after the date specified above. 12.2 INVESTMENTS; COMPLIANCE WITH LAW. Dentist acknowledges that the shares of Pentegra Common Stock to be delivered to Dentist pursuant to this Agreement have not been and will not be registered under the Securities Act of 1933 and may not be resold without compliance with the Securities Act of 1933. The Pentegra Common Stock to be acquired by Dentist pursuant to this Agreement is being acquired solely for its own account, for investment purposes only and with no present intention of distributing, selling or otherwise disposing of it in connection with a distribution. Dentist covenants, warrants and represents that none of the shares of Pentegra Common Stock issued to it will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise disposed of except after full compliance with all of the applicable provisions of the Securities Act, as amended, and the rules and regulations of the Securities Exchange Commission and applicable state securities laws and regulations. All certificates evidencing shares of Pentegra Common Stock shall bear the following legend in addition to the legend referenced in SECTION 12.1. The shares represented hereby have not been registered under the Securities Act of 1933 (the "Act") and may only be sold or otherwise transferred if the holder hereof complies with the Act and applicable securities laws. In addition, certificates evidencing shares of Pentegra Common Stock shall bear any legend required by the securities or blue sky laws of any state where Dentist resides. 12.3 ECONOMIC RISK; SOPHISTICATION. Dentist is able to bear the economic risk of an investment in Pentegra Common Stock acquired pursuant to this Agreement and can afford to sustain a total loss of such investment and has such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of the proposed investment and therefore have the capacity to protect its own interests in connection with the acquisition of the Pentegra Common Stock. Dentist and its representatives have had an adequate opportunity to ask questions and receive answers from the officers of Pentegra concerning any and all matters relating to the background and experience of the officers and directors of Pentegra, the plans for the operations of the business of Pentegra, and any plans for additional acquisitions and the like. Dentist and its representatives have asked any and all questions in the nature described in the preceding sentence and all questions have been answered to their satisfaction. Dentist is an "accredited investors" as defined in Regulation D of the Securities Act of 1933, as amended. SECTION 13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Dentist recognizes and acknowledges that it had in the past, currently have, and in the future may possibly have, access to certain confidential information of Pentegra that is 19 valuable, special and unique assets of Pentegra's businesses. Dentist agrees that it will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, unless (i) such information becomes available to or known by the public generally through no fault of Dentist, (ii) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (ii), Dentist shall, if possible, give prior written notice thereof to the other parties hereto, and provide such other parties hereto with the opportunity to contest such disclosure, (iii) Dentist reasonably believes that such disclosure is required in connection with the defense of a lawsuit against the disclosing party, or (iv) Dentist is the sole and exclusive owner of such confidential information as a result of the transactions contemplated hereunder or otherwise. In the event of a breach or threatened breach by Dentist of the provisions of this SECTION 13, Pentegra shall be entitled to an injunction restraining Dentist from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting Pentegra from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. The obligations of the parties under this SECTION 13 shall survive the termination of this Agreement. SECTION 14. MISCELLANEOUS. 14.1 TAX COVENANT. The parties intend that the transactions contemplated by this Agreement, together with the transactions contemplated by the Other Agreement and the Initial Public Offering, will qualify as an exchange meeting the requirements of Section 351 of the Code. The tax returns (and schedules thereto) of Dentist and Pentegra shall be filed in a manner consistent with such intention and Dentist and Pentegra shall each provide the other with such tax information, reports, returns or schedules as may be reasonably required to assist the other in so reporting the transactions contemplated hereby. 14.2 NOTICES. Any communications required or desired to be given hereunder shall be deemed to have been properly given if sent by hand delivery, or by facsimile AND overnight courier, to the parties hereto at the following addresses, or at such other address as either party may advise the other in writing from time to time: If to Pentegra: Pentegra Dental Group, Inc. 2999 N. 44th Street, Suite 650 Phoenix, Arizona 85018 Attn: President Facsimile: (602) 952-0554 with a copy of each notice directed to Pentegra to: James S. Ryan, III, Esquire Jackson Walker L.L.P. 901 Main Street Dallas, Texas 75202 Facsimile: (214) 953-5822 If to Dentist: To address set forth on EXHIBIT 14.2 with a copy to: Person and address set forth on EXHIBIT 14.2 20 All such communications shall be deemed to have been delivered on the date of hand delivery or on the next business day following the deposit of such communications, properly addressed and postage prepaid with the overnight courier. 14.3 FURTHER ASSURANCES. Each party hereby agrees to perform any further acts and to execute and deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement. 14.4 EACH PARTY TO BEAR COSTS. Subject to SECTION 14.12, each of the parties to this Agreement shall pay all of the costs and expenses incurred by such party in connection with the transactions contemplated by this Agreement, whether or not such transactions are consummated. Without limiting the generality of the foregoing and whether or not such liabilities may be deemed to have been incurred in the ordinary course of business, Pentegra shall not be liable to or required to pay, either directly or indirectly, any fees and expenses of legal counsel, accountants, auditors or other persons or entities retained by Dentist for services rendered in connection with negotiating and closing the transactions contemplated by this Agreement or the documents to be executed in connection herewith, whether or not such costs or expenses are incurred before or after the Closing Date. 14.5 PUBLIC DISCLOSURES. Each party shall keep this Agreement and its terms confidential, and shall make no press release or public disclosure, either written or oral, regarding the transactions contemplated by this Agreement without the prior written consent of the other party, provided that the foregoing shall not prohibit any disclosure (a) by press release, filing or otherwise that Pentegra has determined in good faith judgment to be required by Federal securities laws or the rules of the National Association of Securities Dealers, (b) to attorneys, accountants, investment bankers or other agents of the parties assisting the parties in connection with the transactions contemplated by this Agreement, and (c) by Pentegra in connection with the conduct of its Initial Public Offering and conducting an examination of the operations and assets of Dentist. 14.6 GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF INCORPORATION OF Dentist AND APPLIED WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAWS PRINCIPLES. 14.7 CAPTIONS. The captions or headings in this Agreement are made for convenience and general reference only and shall not be construed to describe, define or limit the scope or intent of the provisions of this Agreement. 14.8 INTEGRATION OF EXHIBITS. All Exhibits attached to this Agreement are integral parts of this Agreement as if fully set forth herein, and all statements appearing therein shall be deemed disclosed for all purposes and not only in connection with the specific representation in which they are explicitly referenced. 14.9 ENTIRE AGREEMENT/AMENDMENT. THIS INSTRUMENT, INCLUDING ALL EXHIBITS ATTACHED HERETO, CONTAINS THE ENTIRE AGREEMENT OF THE PARTIES AND SUPERSEDES ANY AND ALL PRIOR OR CONTEMPORANEOUS AGREEMENTS BETWEEN THE PARTIES, WRITTEN OR ORAL, WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY. 14.10 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which when so executed shall be deemed to be an original, and such counterparts shall together constitute and be one and the same instrument. 14.11 BINDING EFFECT/ASSIGNMENT. This Agreement shall be binding on, and shall inure to the benefit of, the parties hereto, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No party may assign any right or obligation hereunder without the prior written consent of the other parties; provided, however, that Pentegra may assign its rights and delegate its obligations hereunder to any entity that is an affiliate of Pentegra. For purposes of this Agreement an "affiliate" of Pentegra shall include any entity that, through one or more intermediaries is, controlled, controlled by or under common control with, Pentegra. Upon any such assignment prior to the Closing, all references herein to Pentegra (including those to Pentegra Common Stock) shall be deemed to include references to the assignee and the assignee's common stock. Notwithstanding any such assignment, Pentegra shall not, absent a written release from Dentist, be relieved from its obligations to Dentist under this Agreement. 21 14.12 COSTS OF ENFORCEMENT. In the event that Pentegra, on the one hand, or Dentist, on the other hand, file suit in any court against any other party to enforce the terms of this Agreement against the other party or to obtain performance by it hereunder, the prevailing party will be entitled to recover all reasonable costs, including reasonable attorneys' fees, from the other party as part of any judgment in such suit. The term "prevailing party" shall mean the party in whose favor final judgment after appeal (if any) is rendered with respect to the claims asserted in the Complaint. "Reasonable attorneys' fees" are those reasonable attorneys' fees actually incurred in obtaining a judgment in favor of the prevailing party. 14.13 PRORATIONS. Dentist agrees to reimburse Pentegra at Closing a pro rata portion of all taxes levied upon the Assets for the calendar year in which the Closing occurs. Such taxes shall be estimated, apportioned and pro-rated among Dentist and Pentegra as of the Closing Date, and the prorated amount due Pentegra shall be credited to the cash portion of the Purchase Consideration. Upon payment by Pentegra of such taxes actually assessed and paid on the Assets, Pentegra shall calculate the apportionment of such taxes and shall pay Dentist or may demand from Dentist, and Dentist agrees to pay, the amount necessary to correct the estimate and proration made at Closing. 14.14 AMENDMENTS; WAIVERS. This Agreement may be amended, modified or supplemented only by an instrument in writing executed by all the parties hereto. Any waiver of the terms and conditions hereof must be in writing, and signed by the parties hereto. The waiver of any of the terms and conditions of this Agreement shall not be construed as a waiver of any other terms and conditions hereof. 14.15 ARBITRATION. Upon the request of either Pentegra or the Dentist (hereinafter referred to as a "Party"), whether made before or after the institution of any legal proceeding, any dispute among the parties hereto in any way arising out of, related to, or in connection with this Agreement (hereinafter a "Dispute"), shall be resolved by binding arbitration in accordance with the terms of this Section (hereinafter the "Arbitration Program"). All Disputes between the Parties shall be resolved by binding arbitration administered by the American Arbitration Association (the "AAA") in accordance with the terms of this Arbitration Program, the Commercial Arbitration Rules of the AAA. In the event of any inconsistency between this Arbitration Program and those rules or statutes, then the terms of this Arbitration Program shall control. The parties hereto agree to adhere to all warranties and covenants (as described herein) until such time as the arbitration process has been completed and the arbitrators have determined each party's post-arbitration obligations and responsibilities as it relates to such warranties and covenants. No provision of, nor the exercise of any rights under, this Arbitration Program shall limit the right of any Party at any time to seek or use ancillary or preliminary judicial or non-judicial self help remedies for the purposes of obtaining, perfecting, preserving, or foreclosing upon any personal property in which there has been granted a security interest or lien by a Party in the Documents. In Disputes involving indebtedness or other monetary obligations, each Party agrees that the other Party may proceed against all liable persons, jointly and severally against one or more of them, without impairing rights against other liable persons. Nor shall a Party be required to join the principal obligor or any other liable persons (e.g., sureties or guarantors) in any proceeding against a particular person. A Party may release or settle with one or more liable persons as the Party deems fit without releasing or impairing rights to proceed against any persons not so released. All statutes of limitation that would otherwise be applicable shall apply to any arbitration proceeding. The party seeking arbitration shall notify the other Party, in writing, of that Party's desire to arbitrate a dispute; and each Party shall, within twenty (20) days from the date such notification is received, select an arbitrator, and those two arbitrators shall select a third arbitrator within ten (10) days thereafter. The issues or claims in dispute shall be committed to writing, separately stated and numbered, and each party's proposed answers or contentions shall be signed below the questions. Failure by a party to select an arbitrator within the prescribed time period shall serve as that Party's acquiescence and acceptance of the other party's selection of arbitrator. The arbitrators shall resolve all Disputes in accordance with the applicable substantive law. Any Dispute shall be decided by a majority vote of three arbitrators, unless the claim or amount in controversy does not exceed $100,000.00, in which case a single arbitrator (who shall have authority to render a maximum award of $100,000.00, including all damages of any kind, costs and fees) may decide the Dispute. The arbitrators may grant any remedy or relief that the arbitrators deem just and equitable and within the scope of this Arbitration Program. The arbitrators may also grant such ancillary relief 22 as is necessary to make effective the award. In all arbitration proceedings the arbitrators shall make specific and written findings of fact and conclusions of law. In all arbitration proceedings in which the amount in controversy exceeds $100,000.00, in the aggregate, the Parties shall have in addition to the statutory right to seek vacation or modification of any award pursuant to applicable law, the right to seek vacation or modification of any award that is based in whole, or in part, on an incorrect or erroneous ruling of law by appeal to an appropriate court having jurisdiction; provided, however, that any such application for vacation or modification of an award based on an incorrect ruling of law must be filed in a court having jurisdiction over the Dispute within 15 days from the date the award in rendered. The arbitrators' findings of fact shall be binding on all Parties and shall not be subject to further review except as otherwise allowed by applicable law. To the maximum extent practicable, an arbitration proceeding hereunder shall be concluded within 180 days of the filing of the Dispute with AAA. Arbitration proceedings hereunder shall be conducted where agreed to in writing by the Parties or, in the absence of such agreement in Phoeniz, Arizona or the headquarters of Pentegra if other than Phoeniz, Arizona. The provisions of this Arbitration Program shall survive any termination, amendment, or expiration of the Documents, unless the Parties otherwise expressly agree in writing making specific reference to this Arbitration Program. To the extent permitted by applicable law, the arbitrator shall have the power to award recovery of all costs and fees (including attorney's fees, administrative fees, and arbitrators' fees) to the prevailing Party. This Arbitration Program may be amended, changed, or modified only by a writing which specifically refers to this Arbitration Program and which is signed by all the Parties. If any term, covenant, condition or provision of the Arbitration Program is found to be unlawful or invalid or unenforceable, such illegality or invalidity or unenforceable shall not affect the legality, validity or enforceability of the remaining parts of this Arbitration Program, and all such remaining parts hereof shall be valid and enforceable and have full force and effect as if the illegal, invalid or unenforceable part had not been included. Each Party agrees to keep all Disputes and arbitration proceedings strictly confidential, except for disclosures of information required in the ordinary course of business of the Parties or by applicable law or regulation. 14.16 SEVERABILITY. If any provision of this Agreement shall be found to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable and this Agreement shall be construed and enforced as if such provision never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect. In lieu of such provision, there shall be added automatically as part of this Agreement, a provision as similar in its terms to such provision as may be possible and be legal, valid and enforceable. [End of Page] 23 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. PENTEGRA DENTAL GROUP, INC. By: ---------------------------------- Its: ---------------------------------- -------------------------------------- ----------------------- , D.D.S. 24 INDEX TO EXHIBITS EXHIBIT DESCRIPTION ------- ----------- Annex I Acquisition Consideration A Target Companies 1.1 Assets 1.2(b) Excluded Assets 1.3(b) Assumed Liabilities 2.1 [intentionally omitted] 2.3 Permits and Licenses 2.4 Consents 2.8 Leases 2.10 Real and Personal Property; Encumbrances 2.12 Patents and Trademarks; Names 2.13 Payroll Information; Employment Agreements 2.15 Contracts (other than Leases and Employment Agreements) 2.16 Subsequent Events 2.19 Debt 2.20 Insurance Policies 2.21 Employee Benefit Plans 2.26 Banking Relations 2.28 Payors 7.7 Form of Service Agreement 7.8 Form of Employment Agreement 9.1(l) Form of Registration Rights Agreement 14.2 Addresses for Notice 25 ANNEX I ACQUISITION CONSIDERATION The aggregate consideration to be received by the Dentist pursuant to the Agreement (the "Acquisition Consideration") is the following: Shares of Pentegra Common Stock equal to $_________ divided by the initial public offering price of Pentegra. Cash in the amount of $________________________. No fractional shares of Pentegra Common Stock will be issued; rather, shares of Pentegra Common Stock to be issued to Dentist shall be rounded to the nearest whole share. 26 EX-2.2 3 EXHIBIT 2.2 EXHIBIT 2.2 FORM OF ASSET CONTRIBUTION AGREEMENT BY AND AMONG PENTEGRA DENTAL GROUP, INC., __________________________________ [target entity] and _______________________________[partners] TABLE OF CONTENTS
Page ---- Section 1. TERMS OF THE CONTRIBUTION 1.2 CONTRIBUTION OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . .1 1.3 EXCLUDED ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1.4 PURCHASE PRICE; ASSUMPTION OF LIABILITIES. . . . . . . . . . . . . . . .2 1.5 SUBSEQUENT ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Section 2. REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR AND PARTNERS. 2.1 EXISTENCE; GOOD STANDING . . . . . . . . . . . . . . . . . . . . . . . .2 2.2 POWER AND AUTHORITY FOR TRANSACTIONS . . . . . . . . . . . . . . . . . .3 2.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. . . . . . . . . . . .3 2.4 CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 2.5 DISTRIBUTIONS AND REPURCHASES. . . . . . . . . . . . . . . . . . . . . .3 2.6 CORPORATE RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . .3 2.7 CONTRIBUTOR'S FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . .3 2.8 LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 2.9 CONDITION OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . .4 2.10 TITLE TO AND ENCUMBRANCES ON PROPERTY. . . . . . . . . . . . . . . . . .4 2.11 INVENTORIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 2.12 INTELLECTUAL PROPERTY RIGHTS; NAMES. . . . . . . . . . . . . . . . . . .4 2.13 PAYROLL INFORMATION; EMPLOYEES . . . . . . . . . . . . . . . . . . . . .4 2.14 LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . .4 2.15 CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 2.16 SUBSEQUENT EVENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .5 2.17 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 2.18 COMMISSIONS AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . .7 2.19 LIABILITIES; DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . .7 2.20 INSURANCE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . .7 2.21 EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . . . .7 2.22 ADVERSE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . .7 2.23 COMPLIANCE WITH LAWS IN GENERAL. . . . . . . . . . . . . . . . . . . . .8 2.24 THIRD PARTY PAYORS . . . . . . . . . . . . . . . . . . . . . . . . . . .8 2.25 NO UNTRUE REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . .8 2.26 BANKING RELATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .8 2.27 OWNERSHIP INTERESTS OF INTERESTED PERSONS; COMPETITORS . . . . . . . . .8 2.28 PAYORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Section 3. REPRESENTATIONS AND WARRANTIES OF PENTEGRA 3.1 CORPORATE EXISTENCE: GOOD STANDING . . . . . . . . . . . . . . . . . . .9 3.2 POWER AND AUTHORITY; CONSENTS. . . . . . . . . . . . . . . . . . . . . .9 3.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. . . . . . . . . . . .9 3.4 LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . .9 3.5 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 3.6 COMMISSIONS AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . .9 3.7 CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 3.8 NO UNTRUE REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . 10 Section 4. COVENANTS OF CONTRIBUTOR AND PARTNERS. 4.1 CONSUMMATION OF AGREEMENT; EXHIBITS. . . . . . . . . . . . . . . . . . 10 -i- 4.2 BUSINESS OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.3 ACCESS AND NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.4 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. . . . . . . . . . 10 4.5 ACQUISITION PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . 10 4.6 FUNDING OF ACCRUED EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . 10 4.7 EMPLOYEE MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.8 DISTRIBUTIONS AND REPURCHASES. . . . . . . . . . . . . . . . . . . . . 11 4.9 REQUIREMENTS TO EFFECT ACQUISITION . . . . . . . . . . . . . . . . . . 11 4.10 ACCOUNTING AND TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . 11 4.11 WAIVER OF BULK TRANSFER COMPLIANCE . . . . . . . . . . . . . . . . . . 11 4.12 LEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.13 HIRING OF EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.14 EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . . . 11 4.15 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 5. COVENANTS OF PENTEGRA 5.1 CONSUMMATION OF AGREEMENT; EXHIBITS. . . . . . . . . . . . . . . . . . 12 5.2 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. . . . . . . . . . 12 Section 6. COVENANTS OF PENTEGRA AND CONTRIBUTOR AND PARTNERS 6.1 FILINGS; OTHER ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 7. PENTEGRA CONDITIONS PRECEDENT 7.1 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 12 7.2 COVENANTS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . 13 7.3 PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.4 NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . 13 7.5 DUE DILIGENCE REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.6 APPROVAL BY THE BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . 13 7.7 SERVICE AGREEMENT; GUARANTY AGREEMENT. . . . . . . . . . . . . . . . . 13 7.8 EMPLOYMENT ARRANGEMENTS. . . . . . . . . . . . . . . . . . . . . . . . 13 7.9 CONSENTS AND APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . 13 7.10 CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.11 DEBT AND RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.12 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.13 NO CHANGE IN WORKING CAPITAL . . . . . . . . . . . . . . . . . . . . . 13 7.14 SECURITIES APPROVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 8. CONTRIBUTOR'S AND PARTNERS' CONDITIONS PRECEDENT 8.1 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 14 8.2 COVENANTS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . 14 8.3 PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 8.4 CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . 14 8.5 SECURITIES APPROVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 9. CLOSING DELIVERIES 9.1 DELIVERIES OF CONTRIBUTOR AND PARTNERS . . . . . . . . . . . . . . . . 14 9.2 DELIVERIES OF PENTEGRA . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 10. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION 10.1 NATURE AND SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 16 10.2 INDEMNIFICATION BY PENTEGRA. . . . . . . . . . . . . . . . . . . . . . 16 10.3 INDEMNIFICATION BY CONTRIBUTOR AND PARTNERS. . . . . . . . . . . . . . 17 -ii- 10.4 INDEMNIFICATION PROCEDURE. . . . . . . . . . . . . . . . . . . . . . . 18 10.5 RIGHT OF SETOFF. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 11. TERMINATION Section 12. TRANSFER REPRESENTATIONS 12.1 TRANSFER RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . 19 12.2 INVESTMENTS; COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . 19 12.3 ECONOMIC RISK; SOPHISTICATION. . . . . . . . . . . . . . . . . . . . . 19 Section 13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION Section 14. MISCELLANEOUS 14.1 TAX COVENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 14.2 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 14.3 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.4 EACH PARTY TO BEAR COSTS . . . . . . . . . . . . . . . . . . . . . . . 21 14.5 PUBLIC DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.6 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.7 CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.8 INTEGRATION OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . 21 14.9 ENTIRE AGREEMENT/AMENDMENT . . . . . . . . . . . . . . . . . . . . . . 21 14.10 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.11 BINDING EFFECT/ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . 21 14.12 COSTS OF ENFORCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.13 PRORATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.14 AMENDMENTS; WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.15 ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.16 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-iii- ASSET CONTRIBUTION AGREEMENT This ASSET CONTRIBUTION AGREEMENT (this "Agreement"), made and executed as ________________, 1997, is by and among PENTEGRA DENTAL GROUP, INC., a Delaware corporation ("Pentegra"), _____________________________________________ ("Contributor") and __________________________________, partners of Contributor (referred to herein as "Partner" or "Partners"). WITNESSETH: WHEREAS, Contributor operates a dental practice ("Business") and Pentegra is engaged in the business of managing certain non-dentistry aspects of dental practices; WHEREAS, Contributor desires to contribute to Pentegra, and Pentegra desires to receive from Contributor, certain assets of Contributor; WHEREAS, Pentegra or its affiliated designee has entered into or intends to enter into Agreements and Plans of Reorganization, Asset Contribution Agreements and other acquisition agreements (collectively, the "Other Agreements") with such persons or entities or the stockholders of such entities listed on EXHIBIT A (together with Contributor, the "Target Companies"); WHEREAS, it is intended for Federal income tax purposes that the transfers contemplated by this Agreement, the Other Agreements and Pentegra's initial public offering ("Initial Public Offering") of shares of its common stock, par value $.01 per share ("Pentegra Common Stock") shall qualify as an exchange within the meaning of Section 351 of the Internal Revenue Code of 1986, as amended ("IRC" or "Code"); WHEREAS, the consummation of the transfers to Pentegra pursuant to this Agreement is intended to occur in connection with, and is conditioned upon, the simultaneous consummation of the transfers contemplated by the Other Agreements and the Initial Public Offering. NOW THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, and for other good and valuable consideration, the sufficiency of which are hereby acknowledged, the parties agree as follows: SECTION 1. TERMS OF THE CONTRIBUTION. 1.1 THE CLOSING. The closing of the transactions contemplated hereby shall take place at 10:00 am local time, at the offices of Jackson Walker L.L.P., on the day on which the Initial Public Offering of Pentegra Common Stock is consummated. The date on which the Closing occurs is hereinafter referred to as the "Closing Date". 1.2 CONTRIBUTION OF ASSETS. Subject to and upon the terms and conditions contained herein, on the Closing Date, Contributor shall convey, transfer, deliver and assign to Pentegra or any affiliate of Pentegra designated by Pentegra all of Contributor's right, title and interest in and to those certain assets described on EXHIBIT 1.1 attached hereto (individually, "Asset", and collectively "Assets"), free and clear of all obligations, security interests, claims, liens and encumbrances, except as specifically assumed, or taken subject to, by Pentegra pursuant to SECTION 1.3(b) hereof. 1.3 EXCLUDED ASSETS. There shall be excluded from the Assets to be transferred and contributed hereunder, and Contributor shall retain all of its right, title and interest in and to, the assets not specifically transferred hereunder, including without limitation, the assets described on EXHIBIT 1.2 (the "Excluded Assets"). 1 1.4 PURCHASE PRICE; ASSUMPTION OF LIABILITIES. As consideration for the Assets and the representations, warranties and agreements of Contributor contained herein, Pentegra shall, on the Closing Date: (a) Cause to be transferred to Contributor the consideration specified in ANNEX I attached hereto (the "Acquisition Consideration"); and. (b) Except as otherwise provided herein, assume and perform or discharge on or after the Closing Date, the contracts, leases, obligations, commitments, liabilities and indebtedness of Contributor listed on EXHIBIT 1.3(b) attached hereto to the extent that such obligations, commitments, liabilities and indebtedness are current and not otherwise in default. (the "Assumed Liabilities"). Notwithstanding any contrary provision contained herein, Pentegra shall not be deemed to have assumed, nor shall Pentegra assume: (i) any liability, commitment or obligation or trade payable or indebtedness not specifically disclosed on EXHIBIT 1.3(b), (ii) any liability set forth on EXHIBIT 1.3(b) which may be incurred by reason of any breach of or default under such contracts, leases, commitments or obligations which occurred on or before the Closing Date; (iii) any liability for any employee benefits payable to employees of Contributor, including, but not limited to, liabilities arising under any Contributor Plan (as defined in SECTION 2.21 hereof); (iv) any liability based upon or arising out of a violation of any antitrust or similar restraint-of-trade laws by Contributor or any Partner, including, without limiting the generality of the foregoing, any such antitrust liability which may arise in connection with agreements, contracts, commitments or orders for the sale of goods or provision of services by Contributor reflected on the books of Contributor at or prior to the Closing Date; (v) any liability based upon or arising out of any tortious or wrongful actions of Contributor, any licensed professional employee or independent contractor of Contributor or any Partner, (vi) any liability for the payment of any taxes of Contributor or any Partner, including without limitation, sales, use and other transfer taxes and income taxes arising from or by reason of the transactions contemplated by this Agreement; (vii) any indebtedness secured by deeds of trust or mortgages on real property; nor (viii) any liability incurred or to be incurred pursuant to any malpractice or other suits or actions pending against Contributor or any Partner. 1.5 SUBSEQUENT ACTIONS. If, at any time after the Closing Date, Pentegra shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in Pentegra its right, title or interest in, to or under any of the Assets or otherwise to carry out this Agreement, in return for the consideration set forth in this Agreement, Contributor and Partners shall execute and deliver all such deeds, bills of sale, assignments and assurances and take and do all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under the Assets in Pentegra or otherwise to carry out this Agreement. SECTION 2. REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR AND PARTNERS. Contributor and Partners, jointly and severally, hereby represent and warrant to Pentegra as follows: 2.1 EXISTENCE; GOOD STANDING. Contributor is a partnership duly organized, validly existing and in good standing under the laws of the State of ___________. Contributor has all necessary partnership power to own all of its assets and to carry on its business as such business is now being conducted. Contributor does not own stock in or control, directly or indirectly, any other corporation, association or business organization, nor is Contributor a party to any joint venture or partnership. The Partners are the sole partners of Contributor and own all outstanding partnership interests free of all security interests, claims, encumbrances and liens in the amounts set forth on EXHIBIT 2.1. Each partnreship interest of Contributor has been legally and validly issued and fully paid and nonassessable. There are no outstanding (a) bonds, debentures, notes or other obligations the holders of which have the right to vote with the partners of Contributor on any matter, (b) securities of Contributor convertible into equity interests in Contributor, or (c) commitments, options, rights or warrants to issue any such equity interests in Contributor, to issue securities of Contributor convertible into such equity interests, or to redeem any securities of Contributor. No partnership interests of Contributor have been issued or disposed of in violation of the preemptive rights, rights of first refusal or similar rights of any of Contributor's partners. Contributor is not required to qualify to do business as a foreign corporation in any other state or jurisdiction by reason of its business, properties or activities in or relating to such other state or 2 jurisdiction. Contributor does not have any assets, employees or offices in any state other than the state set forth in the first sentence of this SECTION 2.1. 2.2 POWER AND AUTHORITY FOR TRANSACTIONS. Contributor has the partnership power to execute, deliver and perform this Agreement and all agreements and other documents executed and delivered by it pursuant to this Agreement or to be executed and delivered on the Closing Date, and has taken all action required by law, its Partnership Agreement or otherwise, to authorize the execution, delivery and performance of this Agreement and such related documents. Each Partner has the legal capacity to enter into and perform this Agreement and the other agreements to be executed and delivered in connection herewith. Contributor has obtained the approval of its partners necessary to the consummation of the transactions contemplated herein. This Agreement and all agreements and documents executed and delivered in connection herewith have been, or will be as of the Closing Date, duly executed and delivered by Contributor and Partners, as appropriate, and constitute or will constitute the legal, valid and binding obligations of Contributor and Partners, enforceable against Contributor and Partners in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. The execution and delivery of this Agreement, and the agreements executed and delivered pursuant to this Agreement or to be executed and delivered on the Closing Date, do not, and, subject to the receipt of consents described on EXHIBIT 2.4, the consummation of the actions contemplated hereby will not, violate any provision of the Partnership Agreement of Contributor or any provisions of, or result in the acceleration of, any obligation under any mortgage, lien, lease, agreement, rent, instrument, order, arbitration award, judgment or decree to which Contributor or any Partner is a party or by which Contributor or any Partner is bound, or violate any material restrictions of any kind to which Contributor is subject, or result in any lien or encumbrance on any of Contributor's assets or the Assets. 2.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. All building or other permits, certificates of occupancy, concessions, grants, franchises, licenses, certificates of need and other governmental authorizations and approvals required for the conduct of the Business or the use of the Assets, or waivers thereof, have been duly obtained and are in full force and effect and are described on EXHIBIT 2.3. There are no proceedings pending or, to the knowledge of Contributor and Partners, threatened, which may result in the revocation, cancellation or suspension, or any adverse modification, of any such licenses or permits. 2.4 CONSENTS. Except as set forth on EXHIBIT 2.4, no consent, authorization, permit, license or filing with any governmental authority, any lender, lessor, any manufacturer or supplier or any other person or entity is required to authorize, or is required in connection with, the execution, delivery and performance of this Agreement and the agreements and documents contemplated hereby on the part of Contributor or Partners. 2.5 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or dividend of any kind has been declared or paid by Contributor on any of its partnership interests since the Balance Sheet Date. No repurchase of any of Contributor's partnership interests has been approved, effected or is pending, or is contemplated by Contributor. 2.6 CORPORATE RECORDS. True and correct copies of the Partnership Agreement and minutes of Contributor and all amendments thereto have been delivered to Pentegra. The books of account of Contributor have been kept accurately in the ordinary course of business and the revenues, expenses, assets and liabilities of Contributor have been properly recorded in such books. 2.7 CONTRIBUTOR'S FINANCIAL INFORMATION. Contributor has heretofore furnished Pentegra with copies of its unaudited balance sheet and related unaudited statements of income, retained earnings and cash flows for its prior two full fiscal years, as well as copies of its unaudited balance sheet as of December 31, 1996 and June 30, 1997 (collectively, the "Balance Sheet" and the latest date thereof shall be referred to as the "Balance Sheet Date") and any related unaudited statements of income, retained earnings, schedule of accounts receivable, accounts payable and accrued liabilities, and cash flows for the twelve months then ended (collectively, with the related notes thereto, the "Financial Statements"). The Financial Statements fairly present the financial condition and results of operations of Contributor as of the dates and for the periods indicated and reflect all fixed and contingent liabilities of Contributor. 3 2.8 LEASES. EXHIBIT 2.8 attached hereto sets forth a list of all leases pursuant to which Contributor or any Partner leases, as lessor or lessee, real or personal property used in operating the Business, related to the Assets or otherwise. All such leases listed on EXHIBIT 2.8 are valid and enforceable in accordance with their respective terms, and there is not under any such lease any existing default by Contributor, as lessor or lessee, or any condition or event of which any Partner or Contributor has knowledge which with notice or lapse of time, or both, would constitute a default, in respect of which Contributor or Partners have not taken adequate steps to cure such default or to prevent a default from occurring. 2.9 CONDITION OF ASSETS. All of the Assets are in good condition and repair subject to normal wear and tear and conform with all applicable ordinances, regulations and other laws, and Contributor and Partners have no knowledge of any latent defects therein. 2.10 TITLE TO AND ENCUMBRANCES ON PROPERTY. Contributor has good, valid and marketable title to all of the Assets, free and clear of any liens, claims, charges, exceptions or encumbrances, except for those, if any, which are set forth in EXHIBIT 2.10 attached hereto. Contributor shall cause all encumbrances set forth on EXHIBIT 2.10 (other than those encumbrances indicated on EXHIBIT 1.3(b)) to be released or terminated prior to the Closing Date and evidence of such releases of liens and claims shall be provided to Pentegra on the Closing Date and the Assets shall not be used to satisfy such liens, claims or encumbrances. 2.11 INVENTORIES. All of the Assets constituting inventory are owned or used by Contributor, are in good, current, standard and merchantable condition and are not obsolete or defective. 2.12 INTELLECTUAL PROPERTY RIGHTS; NAMES. Except as set forth on EXHIBIT 2.12, Contributor has no right, title or interest in or to patents, patent rights, corporate names, assumed names, manufacturing processes, trade names, trademarks, service marks, inventions, specialized treatment protocols, copyrights, formulas and trade secrets or similar items. Set forth in EXHIBIT 2.12 is a listing of all names of all predecessor companies of Contributor, including the names of any entities from whom Contributor previously acquired significant assets. Except for off-the-shelf software licenses and except as set forth on EXHIBIT 2.12, Contributor is not a licensee in respect of any patents, trademarks, service marks, trade names, copyrights or applications therefor, or manufacturing processes, formulas or trade secrets or similar items and no such licenses are necessary for the conduct of the Business or the use of the Assets. No claim is pending or has been made to the effect that the Assets or the present or past operations of Contributor in connection with the Assets or Business infringe upon or conflict with the asserted rights of others to any patents, patent rights, manufacturing processes, trade names, trademarks, service marks, inventions, licenses, specialized treatment protocols, copyrights, formulas, know-how and trade secrets. Contributor has the sole and exclusive right to use all Assets constituting proprietary rights without infringing or violating the rights of any third parties and no consents of any third parties are required for the use thereof by Pentegra. 2.13 PAYROLL INFORMATION; EMPLOYEES. Set forth on EXHIBIT 2.13 attached hereto is a true and complete list, as of the date of this Agreement of: (a) the most recent payroll report of Contributor, showing all current employees of Contributor and their current levels of compensation, (b) promised increases in compensation of employees of Contributor that have not yet been effected, (c) oral or written employment agreements, consulting agreements or independent contractor agreements (and all amendments thereto) to which Contributor is a party, copies of which have been delivered to Pentegra, and (d) all employee manuals, materials, policies, procedures and work-related rules, copies of which have been delivered to Pentegra. Contributor is in compliance with all applicable laws, rules, regulations and ordinances respecting employment and employment practices. Contributor has not engaged in any unfair labor practice. There are no unfair labor practices charges or complaints pending or threatened against Contributor, and Contributor has never been a party to any agreement with any union, labor organization or collective bargaining unit. 2.14 LEGAL PROCEEDINGS. Neither any Partner, Contributor nor the Business nor any of the Assets is subject to any pending, nor does Contributor or any Partner have knowledge of any threatened, litigation, governmental investigation, condemnation or other proceeding against or relating to or affecting Contributor, any Partner, the Business, the Assets or the transactions contemplated by this Agreement, and, to the knowledge of Contributor and Partners, no basis for any such action exists, nor is there any legal impediment of which Contributor or any Partner has 4 knowledge to the continued operation of its business or the use of the Assets in the ordinary course, subject to consents set forth on EXHIBIT 2.4. 2.15 CONTRACTS. Contributor has delivered to Pentegra true copies of all written, and disclosed to Pentegra all oral, outstanding contracts, obligations and commitments of Contributor ("Contracts"), entered into in connection with and related to the Assets or the Business, all of which are listed or incorporated by reference on EXHIBIT 2.8 (in the case of leases), EXHIBIT 2.13 (in the case of employment agreements) and EXHIBIT 2.15 (in the case of Contracts other than leases) attached hereto. Except as otherwise indicated on such Exhibits, all of such Contracts are valid, binding and enforceable in accordance with their terms and are in full force and effect, and no defenses, offsets or counterclaims have been asserted or may be made by any party thereto. Except as indicated on such Exhibits, there is not under any such Contract any existing default by Contributor or any Partner, or any condition or event of which Contributor or any Partner has knowledge which with notice or lapse of time, or both, would constitute a default. Contributor and Partners have no knowledge of any default by any other party to such Contracts. Contributor and Partners have not received notice of the intention of any party to any Contract to cancel or terminate any Contract and have no reason to believe that any amendment or change to any Contract is contemplated by any party thereto. Other than those contracts, obligations and commitments listed on EXHIBIT 2.8, EXHIBIT 2.13 and EXHIBIT 2.15, Contributor are not a party to any material written or oral agreement contract, lease or arrangement, including without limitation, any is: (a) Contract related to the Assets other than this Agreement; (b) Employment, consulting or compensation agreement or arrangement; (c) Labor or collective bargaining agreement; (d) Lease agreement with respect to any property, whether as lessor or lessee; (e) Deed, bill of sale or other document evidencing an interest in or agreement to purchase or sell real or personal property; (f) Contract for the purchase of materials, supplies or equipment (i) which is in excess of the requirements of the Business now booked or for normal operating inventories, or (ii) which is not terminable upon notice of thirty (30) days or less; (g) Agreement for the purchase from a supplier of all or substantially all of the requirements of the Business of a particular product or service; (h) Loan agreement or other contract for money borrowed or lent or to be borrowed or lent to another; (i) Contracts containing non-competition covenants; (j) Financial or similar contracts or agreements with patients of Contributor or Partners, oral or written, that provide for prepayments or deferred installment payments; or (k) Other contracts or agreements that involve either an unperformed commitment in excess of $1,000 or that terminate or can only be terminated by Contributor on more than 30 days after the date hereof. 2.16 SUBSEQUENT EVENTS. Other than as set forth on EXHIBIT 2.16, Contributor has not, since the Balance Sheet Date: (a) Incurred any material obligation or liability (absolute, accrued, contingent or otherwise) or entered into any contract, lease, license or commitment, except in connection with the performance of this Agreement; 5 (b) Discharged or satisfied any material lien or encumbrance, or paid or satisfied any material obligation or liability (absolute, accrued, contingent or otherwise) other than (i) liabilities shown or reflected on the Balance Sheet, (ii) liabilities incurred since the Balance Sheet Date in the ordinary course of business; (c) Formed or acquired or disposed of any interest in any corporation, partnership, joint venture or other entity; (d) Made any payments to or loaned any money to any person or entity other than in the ordinary course of business; (e) Lost or terminated any employee, patient, customer or supplier that has or may have, individually or in the aggregate, a material adverse effect on the Business; (f) Increased or established any reserve for taxes or any other liability on its books or otherwise provided therefor, except as may have been required due to income or operations of Contributor since the Balance Sheet Date; (g) Mortgaged, pledged or subjected to any lien, charge or other encumbrance any of the Assets, tangible or intangible; (h) Sold or contracted to sell or transferred or contracted to transfer any of the Assets or any other assets used in the conduct of the Business, canceled any debts or claims or waived any rights, except in the ordinary course of business; (i) Except in the ordinary course or business consistent with past practices, granted any increase in the rates of pay of employees, consultants or agents, or by means of any bonus or pension plan, contract or other commitment, increased the compensation of any officer, employee, consultant or agent; (j) Authorized or incurred any capital expenditures in excess of Five Thousand and No/100 Dollars ($5,000.00); (k) Except for this Agreement and any other agreement executed and delivered pursuant to this Agreement, entered into any material transaction other than in the ordinary course of business or permitted hereunder; (l) Redeemed, purchased, sold or issued any stock, bonds or other securities; (m) Experienced damage, destruction or loss (whether or not covered by insurance) materially and adversely affecting any of its properties, assets or business or the Business or the Assets, or experienced any other material adverse change in its financial condition, assets, prospects, liabilities or business; (n) Declared or paid a distribution, payment or dividend of any kind on the equity interests of Contributor; (o) Repurchased, approved any repurchase or agreed to repurchase any of Contributor's partnership interests; or (p) Suffered any material adverse change in the Business or to the Assets. 2.17 TAXES. (a) Contributor has filed all tax returns (including tax reports and other statements) required to have been filed by it, and has paid all taxes (including any interest, penalty or additions thereto) required to have been paid by it. All such tax returns are complete and accurate in all respects and properly reflect the relevant taxes for the periods covered thereby. Contributor has not received any notice that any tax deficiency or delinquency has been or may be asserted against Contributor. There are no audits relating to taxes of Contributor pending or in process or, to the knowledge of Contributor, threatened. Contributor is not currently the beneficiary of any waiver of any statute of 6 limitations in respect of taxes nor of any extension of time within which to file any tax return or to pay any tax assessment or deficiency. There are no liens or encumbrances relating to taxes on or threatened against any of the assets of Contributor. Contributor has withheld and paid all taxes required by law to have been withheld and paid by it. Neither Contributor nor any predecessor of Contributor is or has been a party to any tax allocation or sharing agreement or a member of an affiliated group of corporations filing a consolidated Federal income tax return. Contributor has delivered to Pentegra correct and complete copies of Contributor's three most recently filed annual state, local and Federal income tax returns, together with all examination reports and statements of deficiencies assessed against or agreed to by Contributor during the three calendar year period preceding the date of this Agreement. Contributor has neither made any payments, is obligated to make any payments, or is a party to any agreement that under any circumstance could obligate it to make any payments that will not be deductible under Code section 280G. (b) Contributor does not intend to dispose of any of the shares of Pentegra Common Stock to be received hereunder and is not a party to any plan, arrangement or agreement for the disposition of such shares. Contributor and Partners have no knowledge, after due inquiry, of any such intent, plan, arrangement or agreement by any Partner. Nothing contained herein shall prohibit Contributor from selling such shares of Pentegra Common Stock after the designated holding period and in accordance with SECTION 12.1 hereof. 2.18 COMMISSIONS AND FEES. There are no claims for brokerage commissions or finder's or similar fees in connection with the transactions contemplated by this Agreement which may be now or hereafter asserted against Pentegra, Contributor or Contributor's Partners resulting from any action taken by Contributor or any Partner or their respective agents or employees, or any of them. 2.19 LIABILITIES; DEBT. Except to the extent reflected or reserved against on the Balance Sheet, Contributor did not have, as of the Balance Sheet Date, and has not incurred since that date and will not have incurred as of the Closing Date, any liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, other than those incurred in the ordinary course of business or as set forth on EXHIBIT 2.16. Contributor and Partners do not know, or have reasonable grounds to know, of any basis for the assertion against Contributor or any Partner as of the Balance Sheet Date, of any claim or liability of any nature in any amount not fully reflected or reserved against on the Balance Sheet, or of any claim or liability of any nature arising since that date other than those incurred in the ordinary course of business or contemplated by this Agreement. All indebtedness of Contributor (including without limitation, indebtedness for borrowed money, guaranties and capital lease obligations) is described on EXHIBIT 2.19 attached hereto. 2.20 INSURANCE POLICIES. Contributor, each Partner and each licensed professional of Contributor carries property, liability, malpractice, workers' compensation and such other types of insurance as is customary in the industry. Valid and enforceable policies in such amounts are outstanding and duly in force and will remain duly in force through the Closing Date. All such policies are described in EXHIBIT 2.20 attached hereto and true and correct copies have been delivered to Pentegra. Neither Partners nor Contributor have not received notice or other communication from the issuer of any such insurance policy cancelling or amending such policy or threatening to do so. Neither Contributor, nor any Partner nor any licensed professional employee of Contributor has any outstanding claims, settlements or premiums owed against any insurance policy. 2.21 EMPLOYEE BENEFIT PLANS. Except as set forth on EXHIBIT 2.21 attached hereto, Contributor has neither established, nor maintains, nor is obligated to make contributions to or under or otherwise participate in, (a) any bonus or other type of compensation or employment plan, program, agreement, policy, commitment, contract or arrangement (whether or not set forth in a written document); (b) any pension, profit-sharing, retirement or other plan, program or arrangement; or (c) any other employee benefit plan, fund or program, including, but not limited to, those described in SECTION 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). All such plans listed on EXHIBIT 2.20 (individually "Contributor Plan," and collectively "Contributor Plans") have been operated and administered in all material respects in accordance with all applicable laws, rules and regulations, including without limitation, ERISA, the Internal Revenue Code of 1986, as amended, Title VII of the Civil Rights Act of 1964, as amended, the Equal Pay Act of 1967, as amended, the Age Discrimination in Employment Act of 1967, as amended, and the related rules and regulations adopted by those Federal agencies responsible for the administration of such laws. No act or failure to act by Contributor has resulted in a "prohibited transaction" (as defined in ERISA) with respect to 7 the Contributor Plans. No "reportable event" (as defined in ERISA) has occurred with respect to any of the Contributor Plans. Contributor has not previously made, is not currently making, and is not obligated in any way to make, any contributions to any multiemployer plan within the meaning of the Multi-Employer Pension Plan Amendments Act of 1980. With respect to each Contributor Plan, either (i) the value of plan assets (including commitments under insurance contracts) is at least equal to the value of plan liabilities or (ii) the value of plan liabilities in excess of plan assets is disclosed on the Balance Sheet, all as of the Closing Date. 2.22 ADVERSE AGREEMENTS. Contributor is not, and will not be as of the Closing Date, a party to any agreement or instrument or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, decree, rule or regulation that materially and adversely affects the condition (financial or otherwise), operations, assets, liabilities, business or prospects of Contributor, the Business or the Assets. 2.23 COMPLIANCE WITH LAWS IN GENERAL. Contributor, Partners and Contributor's licensed professional employees, and the conduct of the Business and use of the Assets, have complied with all applicable laws, rules, regulations and licensing requirements, including, without limitation, the Federal Environmental Protection Act, the Occupational Safety and Health Act, the Americans with Disabilities Act and any environmental laws and medical waste laws, and there exist no violations by Contributor, any Partner or any licensed professional employee of Contributor of any Federal, state or local law or regulation. Contributor and Partners have not received any notice of a violation of any Federal, state and local laws, regulations and ordinances relating to the operations of the Business and Assets and no notice of any pending inspection or violation of any such law, regulation or ordinance has been received by Contributor. 2.24 THIRD PARTY PAYORS. Contributor, Partners and each licensed professional employee or independent contractor of Contributor has timely filed all claims or other reports required to be filed with respect to the purchase of services by third-party payors, and all such claims or reports are complete and accurate, and has no liability to any payor with respect thereto. There are no pending appeals, overpayment determinations, adjustments, challenges, audit, litigation or notices of intent to open Medicare or Medicaid claim determinations or other reports required to be filed by Contributor, any Partner and each licensed professional employee of Contributor. Neither Contributor, nor any Partner, nor any licensed professional employee of Contributor has been convicted of, or pled guilty or nolo contendere to, patient abuse or negligence, or any other Medicare or Medicaid program related offense and none has committed any offense which may serve as the basis for suspension or exclusion from the Medicare and Medicaid programs or any other third party payor program. With respect to payors, Contributor, Partners and Contributor's licensed professional employees has not (a) knowingly and willfully making or causing to be made a false statement or representation of a material fact in any application for any benefit or payment; (b) knowingly and willfully making or causing to be made any false statement or representation of a material fact for use in determining rights to any benefit or payment; (c) failed to disclose knowledge of the occurrence of any event affecting the initial or continued right to any benefit or payment on its own behalf or on behalf of another, with the intent to fraudulently secure such benefit or payment; and (d) violated any applicable state anti-remuneration or self-referral statutes, rules or regulations. 2.25 NO UNTRUE REPRESENTATIONS. No representation or warranty by Contributor or Partners in this Agreement, and no Exhibit or certificate issued or executed by, or information furnished by, officers or directors of Contributor or any Partner and furnished or to be furnished to Pentegra pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained therein not misleading. 2.26 BANKING RELATIONS. Set forth in EXHIBIT 2.26 is a complete and accurate list of all arrangements that Contributor has with any bank or other financial institution, indicating with respect to each relationship the type of arrangement maintained (such as checking account, borrowing arrangements, safe deposit box, etc.) and the person or persons authorized in respect thereof. 2.27 OWNERSHIP INTERESTS OF INTERESTED PERSONS; COMPETITORS. No officer, employee, director or stockholder of Contributor, or their respective spouses, children or affiliates, owns directly or indirectly, on an individual or joint basis, any interest in, has a compensation or other financial arrangement with, or serves as an officer or director 8 of, any customer or supplier or competitor of Contributor or any organization that has a material contract or arrangement with Contributor. 2.28 PAYORS. EXHIBIT 2.28 sets forth a true, complete and correct list of the names and addresses of each payor of Contributor's services which accounted for more than 10% of revenues of Contributor in the preceding fiscal year. Contributor has good relations with all such payors and other material payors of Contributor and none of such payors has notified Contributor that it intends to discontinue its relationship with Contributor or to deny any claims submitted to such payor for payment. SECTION 3. REPRESENTATIONS AND WARRANTIES OF PENTEGRA. Pentegra hereby represents and warrants to Contributor and Partners as follows: 3.1 CORPORATE EXISTENCE: GOOD STANDING. Pentegra is a corporation duly organized and existing and in good standing under the laws of the State of Delaware. 3.2 POWER AND AUTHORITY; CONSENTS. Pentegra has corporate power to execute, deliver and perform this Agreement and all agreements and other documents executed and delivered by it pursuant to this Agreement or to be executed and delivered on the Closing Date, and has taken all actions required by law, its Certificate of Incorporation, its Bylaws or otherwise, to authorize the execution, delivery and performance of this Agreement and such related documents. This Agreement and all agreements and documents executed and delivered in connection herewith have been, or will be as of the Closing Date, duly executed and delivered by Pentegra and constitute or will constitute the legal, valid and binding obligations of Pentegra, enforceable against Pentegra in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. The execution and delivery of this Agreement, and the agreements executed and delivered pursuant to this Agreement or to be executed and delivered on the Closing Date, do not, and, the consummation of the actions contemplated hereby will not, violate any provision of the Certificate of Incorporation or Bylaws of Pentegra or any provisions of, or result in the acceleration of, any obligation under any mortgage, lien, lease, agreement, rent, instrument, order, arbitration award, judgment or decree to which Pentegra is a party or by which Pentegra is bound, or violate any material restrictions of any kind to which Pentegra is subject, or result in any lien or encumbrance on any of Pentegra's assets. Other than as have been obtained or as would not have a material adverse effect, there are no consents of any person or entity required for the transaction contemplated hereby on behalf of Pentegra. 3.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. All building or other permits, certificates of occupancy, concessions, grants, franchises, licenses, certificates of need and other governmental authorizations and approvals required for the conduct of the business of Penegra or waivers thereof, have been duly obtained and are in full force and effect, except as would not have a material adverse effect upon Pentegra. Other than as would not have a material adverse effect, there are no proceedings pending or, to the knowledge of Pentegra, threatened, which may result in the revocation, cancellation or suspension, or any adverse modification, of any such licenses or permits. 3.4 LEGAL PROCEEDINGS. Other than as would not have a material adverse effect, neither Pentegra nor its business or assets is subject to any pending, nor does Pentegra have knowledge of any threatened, litigation, governmental investigation, condemnation or other proceeding against or relating to or affecting Pentegra, its business, assets or the transactions contemplated by this Agreement, and, to the knowledge of Pentegra, no basis for any such action exists, nor is there any legal impediment of which Pentegra has knowledge to the continued operation of its business or the use of its Assets in the ordinary course. 3.5 TAXES. Pentegra has filed all tax returns (including tax reports and other statements) required to have been filed by it, and has paid all taxes (including any interest, penalty or additions thereto) required to have been paid by it, other than as would not have a material adverse effect. Pentegra has not received any notice that any tax deficiency or delinquency has been or may be asserted against Pentegra. There are no audits relating to taxes of Pentegra pending or in process or, to the knowledge of Pentegra, threatened. Pentegra is not currently the beneficiary 9 of any waiver of any statute of limitations in respect of taxes nor of any extension of time within which to file any tax return or to pay any tax assessment or deficiency. 3.6 COMMISSIONS AND FEES. Pentegra has not incurred any obligation for any finder's, broker's or similar fees in connection with the transactions contemplated hereby. 3.7 CAPITAL STOCK. The issuance and delivery by Pentegra of shares of Pentegra Common Stock in connection with the acquisition contemplated hereby will be as of the Closing Date duly and validly authorized by all necessary corporate action on the part of Pentegra. The Pentegra Common Stock to be issued in connection with the acquisition contemplated hereby, when issued in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable. 3.8 NO UNTRUE REPRESENTATIONS. No representation or warranty by Pentegra in this Agreement, and no Exhibit or certificate issued by officers or directors of Pentegra and furnished or to be furnished to Contributor or any Partner pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained therein not misleading. SECTION 4. COVENANTS OF CONTRIBUTOR AND PARTNERS. Contributor and Partners, jointly and severally, agree that between the date hereof and the Closing Date: 4.1 CONSUMMATION OF AGREEMENT; EXHIBITS. Contributor and Partners shall use their best efforts to cause the consummation of the transactions contemplated hereby in accordance with their terms and conditions. Contributor and Partners agree to complete the Exhibits hereto to be provided by them in form and substance satisfactory to Pentegra. 4.2 BUSINESS OPERATIONS. Contributor and Partners shall operate the Business and use the Assets in the ordinary course. Contributor and Partners shall not enter into any lease, contract, indebtedness, commitment, purchase or sale or acquire or dispose of any capital asset relating to the Business or the Assets except in the ordinary course of business. Contributor and Partners shall use their best efforts to preserve the Business and Assets intact and shall not take any action that would have an adverse effect on the Business or Assets. Contributor and Partners shall use their best efforts to preserve intact the relationships with payors, customers, suppliers, patients and others having significant business relations with Contributor. Contributor and Partners shall collect its receivables and pay its trade payables in the ordinary course of business. Contributor and Partners shall not introduce any new method of management, operations or accounting. 4.3 ACCESS AND NOTICE. Contributor and Partners shall permit Pentegra and its authorized representatives access to, and make available for inspection, all of the assets and business of Contributor, the Business and the Assets, including employees, customers and suppliers and permit Pentegra and its authorized representatives to inspect and make copies of all documents, records and information with respect to the business or assets of Contributor, the Business or the Assets as Pentegra or its representatives may request. Contributor and Partners shall promptly notify Pentegra in writing of (a) any notice or communication relating to a default or event that, with notice or lapse of time or both, could become a default, under any contract, commitment or obligation to which Contributor is a party or relating to the Business or the Assets, and (b) any adverse change in Contributor's or the Business' financial condition or the Assets. 4.4 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. Contributor and Partners shall use their best efforts to secure all necessary approvals and consents of third parties to the consummation of the transactions contemplated hereby, including consents described on EXHIBIT 2.4. Contributor and Partners shall use their best efforts to obtain all licenses, permits, approvals or other authorizations required under any law, rule, regulation, or otherwise to provide the services of Contributor contemplated by the Service Agreement and to conduct the intended business of Contributor and operate the Business and use the Assets. 10 4.5 ACQUISITION PROPOSALS. From the execution of this Agreement until the earlier of the Closing or the termination of this Agreement in accordance with the provisions hereof, Contributor and Partners shall not, and shall use its best efforts to cause Contributor's employees, agents and representatives not to, initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any proposal or offer, including without limitation, any proposal or offer to any Partner, with respect to a merger, acquisition, consolidation or similar transaction involving, or the purchase of all or any significant portion of the assets or any equity securities of Contributor or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to such proposal or offer, and Contributor and Partners will immediately cease any such activities, discussions or negotiations heretofore conducted with respect to any of the foregoing. Contributor and Partners shall immediately notify Pentegra if any such inquiries or proposals are received. 4.6 FUNDING OF ACCRUED EMPLOYEE BENEFITS. Contributor hereby covenants and agrees that it will take whatever steps are necessary to pay or fund completely for any accrued benefits, where applicable, or vested accrued benefits for which Contributor or any entity might have any liability whatsoever arising from any insurance, pension plan, employment tax or similar liability of Contributor to any employee or other person or entity (including, without limitation, any Contributor Plan and any liability under employment contracts with Contributor) allocable to services performed prior to the Closing Date. Contributor and Partners acknowledge that the purpose and intent of this covenant is to assure that Pentegra shall have no unfunded liability whatsoever at any time after the Closing Date with respect to any of Contributor's employees or similar persons or entities, including, without limitation, any Contributor Plan for the period prior to the Closing Date. 4.7 EMPLOYEE MATTERS. Contributor shall not, without the prior written approval of Pentegra, except as required by law, increase the cash compensation of any Partner (other than in the ordinary course of business) or other employee or an independent contractor of Contributor, adopt, amend or terminate any compensation plan, employment agreement, independent contractor agreement, employee policies and procedures or employee benefit plan, take any action that could deplete the assets of any employee benefit, or fail to pay any premium or contribution due or file any report with respect to any employee benefit plan, or take any other actions with respect to its employees or employee matters which might have an adverse effect upon Contributor, its business, assets or prospects. 4.8 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or dividend of any kind will be declared or paid by Contributor, nor will any repurchase of any of Contributor's partnership interests be approved or effected. 4.9 REQUIREMENTS TO EFFECT ACQUISITION. Contributor and Partners shall use their best efforts to take, or cause to be taken, all actions necessary to effect the acquisition contemplated hereby under applicable law. 4.10 ACCOUNTING AND TAX MATTERS. Contributor and Partners will not change in any material respect the tax or financial accounting methods or practices followed by Contributor (including any material change in any assumption underlying, or any method of calculating, any bad debt, contingency or other reserve), except as may be required by law or generally accepted accounting principles. Contributor and Partners will duly, accurately and timely (without regard to any extensions of time) file all returns, information statements and other documents relating to taxes of Contributor required to be filed by it, and pay all taxes required to be paid by it, on or before the Closing Date. 4.11 WAIVER OF BULK TRANSFER COMPLIANCE. Pentegra, Partners and Contributor hereby waive any compliance with the applicable state Bulk Transfers Act, if any. Contributor and Partners covenant and agree that all of the creditors with respect to the Business and the Assets will be paid in full by Contributor prior to the Closing Date, except to extent that any liability to such creditors is assumed by Pentegra pursuant to this Agreement. If required by Pentegra, Contributor and Partners shall furnish Pentegra with proof of payment of all creditors with respect to the Business and the Assets. Notwithstanding the foregoing, Contributor and Partners may dispute the validity or amount of any such creditor's claim without being deemed to be in violation of this SECTION 4.11, provided that such dispute is in good faith and does not unreasonably delay the resolution of the claim and provided, further that Contributor and Partners agree to indemnify and bond Pentegra for such amounts as is satisfactory to Pentegra. 4.12 LEASE. If Contributor leases any of its premises from any Partner or other affiliate of Contributor or any Partner of Contributor, Pentegra shall have entered into a building lease (the "Building Lease") with the owner of 11 such premises on terms and conditions satisfactory to Pentegra, the terms and conditions of which shall include, without limitation, (i) a five year initial term plus three five-year renewal options, (ii) a lease rate equal to the fair market value lease rate, as agreed to by Pentegra, and (iii) such other provisions to be acceptable to Pentegra. 4.13 HIRING OF EMPLOYEES. Contributor and Partners shall cooperate with all requests made by Pentegra for the purpose of allowing Pentegra to hire those non-dentist employees of Contributor designated by Pentegra, such employment to be effective as of the Closing Date. Notwithstanding the above, Contributor and Partners shall remain liable under any Contributor Plans for any claims incurred by any employees or their spouses or dependents, and for all compensation, bonuses, benefits and other such items and other liabilities related to Contributor's employees incurred by Contributor prior to the Closing Date. 4.14 EMPLOYEE BENEFIT PLANS. Contributor agrees and acknowledges that all employees of Contributor hired by Pentegra pursuant to SECTION 4.13 above, shall be treated as "leased employees" (as defined in Code Section 414(n)) of Contributor and shall be treated as Clinic employees for purposes of eligibility and participation in Contributor Plans. 4.15 INSURANCE. Contributor shall cause Pentegra and its affiliates to be named as an additional insured on its liability insurance programs, effective as of the Closing Date. SECTION 5. COVENANTS OF PENTEGRA. Pentegra agrees that between the date hereof and the Closing: 5.1 CONSUMMATION OF AGREEMENT; EXHIBITS. Pentegra shall use its best efforts to cause the consummation of the transactions contemplated hereby in accordance with their terms and provisions. Pentegra agrees to complete the Exhibits hereto to be provided by it. 5.2 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. Pentegra shall use its best efforts to secure all necessary approvals and consents of third parties to the consummation of the transactions contemplated hereby. SECTION 6. COVENANTS OF PENTEGRA AND CONTRIBUTOR AND PARTNERS. Pentegra, Partners and Contributor agree as follows: 6.1 FILINGS; OTHER ACTIONS. Pentegra, Contributor and Partners shall cooperate to promptly prepare and file with the Securities Exchange Commission ("SEC") the Registration Statement on Form S-1 (or other appropriate Form) to be filed by Pentegra in connection with its Initial Public Offering (including the prospectus constituting a part thereof, the "Registration Statement"). Pentegra shall obtain all necessary state securities laws or "Blue Sky" permits and approvals required to carry out the transactions contemplated by this Agreement and the Contributor and Partners shall furnish all information concerning Contributor and Partners as may be reasonable requested in connection with any such action. Contributor and Partner represent and warrant that none of the information or documents supplied or to be supplied by it specifically for inclusion in the Registration Statement, by exhibit or otherwise, will, at the time the Registration Statement and each amendment or supplement thereto, if any, becomes effective under the Securities Act of 1933, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Contributor and Partners shall be entitled to review the Registration Statement and each amendment thereto, if any, prior to the time each becomes effective under the Securities Act of 1933. Contributor and Partners shall furnish Pentegra will all information concerning themselves, their subsidiaries, if any, directors, officers and stockholders and such other matters as may be reasonable requested by Pentegra in 12 connection with the preparation of the Registration Statement and each amendment or supplement thereto, or any other statement, filing, notice or application made by or on behalf of each such party or any of its subsidiaries to any governmental entity in connection with the transactions contemplated by the Other Agreements or this Agreement. SECTION 7. PENTEGRA CONDITIONS PRECEDENT. The obligations of Pentegra hereunder are subject to the fulfillment at or prior to the Closing of each of the following conditions: 7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Contributor and Partners contained herein shall have been true and correct in all respects when initially made and shall be true and correct in all respects as of the Closing Date. 7.2 COVENANTS AND CONDITIONS. Contributor and Partners shall have performed and complied with all covenants and conditions required by this Agreement to be performed and complied with by Contributor and Partners prior to the Closing Date. 7.3 PROCEEDINGS. No action, proceeding or order by any court or governmental body shall have been threatened orally or in writing, asserted, instituted or entered to restrain or prohibit the carrying out of the transactions contemplated hereby. 7.4 NO MATERIAL ADVERSE CHANGE. No material adverse change in the condition (financial or otherwise), operations, assets, liabilities, business or prospects of Contributor shall have occurred since the Balance Sheet Date. 7.5 DUE DILIGENCE REVIEW. By the Closing Date, Pentegra shall have completed a due diligence review of the business, operations and financial statements of Contributor, the Business and the Assets, the results of which shall be satisfactory to Pentegra in its sole discretion. 7.6 APPROVAL BY THE BOARD OF DIRECTORS. This Agreement and the transactions contemplated hereby shall have been approved by the Board of Directors of Pentegra or a committee thereof. 7.7 SERVICE AGREEMENT; GUARANTY AGREEMENT. Contributor and Pentegra shall have executed and delivered a Service Agreement (the "Service Agreement"), in substantially the form attached hereto as EXHIBIT 7.7, pursuant to which Pentegra will provide management services to the Contributor. Each Partner shall have executed and delivered a Guaranty Agreement in substantially the form attached as EXHIBIT 4.10 of the Service Agreement pursuant to which Partner shall, among other things, guaranty the obligations of Contributor under the Service Agreement. 7.8 EMPLOYMENT ARRANGEMENTS. Contributor shall have terminated, and caused each Partner of Contributor that has an existing employment agreement with Contributor to have terminated his or her employment agreement with Contributor and shall have executed an employment agreement ("Employment Agreement") with Contributor in form and substance attached hereto as EXHIBIT 7.8 and otherwise satisfactory to Contributor and Pentegra. 7.9 CONSENTS AND APPROVALS. Contributor and Partners shall have obtained all necessary government and other third-party approvals and consents. 7.10 CLOSING DELIVERIES. Pentegra shall have received all documents, duly executed in form satisfactory to Pentegra and its counsel, referred to in SECTION 9.1. 7.11 DEBT AND RECEIVABLES. There shall be no indebtedness, receivables or payables between Contributor and its Partners or affiliates and Contributor shall not have any liabilities, including indebtedness, guaranties and capital leases, that are not set forth on EXHIBIT 2.19. 7.12 INSURANCE. Contributor and Partners shall have named Pentegra as an additional insured on their liability insurance program in accordance with SECTION 4.15. 13 7.13 NO CHANGE IN WORKING CAPITAL. There shall have been no material change in the working capital of Contributor since the Balance Sheet Date. 7.14 SECURITIES APPROVAL. The Registration Statement shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC. At or prior to the date that the Registration Statement is declared effective by the SEC, Pentegra shall have received all state securities and "Blue Sky" permits necessary to consummate the transactions contemplated hereby. The Pentegra Common Stock shall have been approved for listing on Nasdaq or other exchange selected by Pentegra, subject only to official notification of issuance. SECTION 8. CONTRIBUTOR'S AND PARTNERS' CONDITIONS PRECEDENT. The obligations of Contributor and Partners hereunder are subject to fulfillment at or prior to the Closing of each of the following conditions: 8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Pentegra contained herein shall have been true and correct in all respects when initially made and shall be true and correct in all respects as of the Closing Date. 8.2 COVENANTS AND CONDITIONS. Pentegra shall have performed and complied with all covenants and conditions required by this Agreement to be performed and complied with by Pentegra prior to the Closing Date. 8.3 PROCEEDINGS. No action, proceeding or order by any court or governmental body shall have been threatened orally or in writing, asserted, instituted or entered to restrain or prohibit the carrying out of the transactions contemplated hereby. 8.4 CLOSING DELIVERIES. Contributor shall have received all documents, duly executed in form satisfactory to Contributor and its counsel, referred to in SECTION 9.2. 8.5 SECURITIES APPROVAL. The Registration Statement shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC. At or prior to the date that the Registration Statement is declared effective by the SEC, Pentegra shall have received all state securities and "Blue Sky" permits necessary to consummate the transactions contemplated hereby. The Pentegra Common Stock shall have been approved for listing on Nasdaq or other exchange selected by Pentegra, subject only to official notification of issuance. SECTION 9. CLOSING DELIVERIES. 9.1 DELIVERIES OF CONTRIBUTOR AND PARTNERS. Within five business days after requested by Pentegra, Contributor and Partners shall deliver to Pentegra the following, all of which shall be in a form satisfactory to counsel to Pentegra and shall be held by Jackson Walker L.L.P. (counsel for Pentegra) in escrow pending Closing, pursuant to an escrow agreement or letter agreement in form and substance mutually acceptable to the parties hereto: (a) an executed original Service Agreement and executed originals of all documents required by that agreement, including but not limited to the Guaranty Agreement and security agreement referred to therein; (b) executed Employment Agreements; (c) a copy of the resolutions of the Partners authorizing the execution, delivery and performance of this Agreement, the Service Agreement, the Employment Agreements and all related documents and agreements each certified by the Secretary as being true and correct copies of the original thereof; 14 (d) a bill of sale conveying the Assets to Pentegra; (e) an assignment of each contract, agreement and lease being assigned to and assumed by Pentegra; (f) certificates of the Partners and a duly authorized officer of Contributor dated as of the Closing Date, (i) as to the truth and correctness of the representations and warranties of Contributor and Partners contained herein; (ii) as to the performance of and compliance by Contributor and Partner with all covenants contained herein; and (iii) certifying that all conditions precedent of Contributor and Partners to the Closing have been satisfied; (g) a certificate, dated within 30 days of the Closing Date, of the Secretary of the State of incorporation of Contributor and any state of required foreign qualification of Contributor establishing that Contributor is in existence and is in good standing to transact business in its state of incorporation; (h) an opinion of counsel to Contributor and Partner opining as to the execution and delivery of this Agreement and the other documents and agreements to be executed pursuant hereto, the good standing and authority of Contributor, the enforceability of this Agreement and the other agreements and documents to be executed in connection herewith, and other matters reasonably requested by Pentegra; (i) non-foreign affidavits executed by Contributor; (j) all authorizations, consents, approvals, permits and licenses referred to in SECTIONS 2.3 and 2.4; (k) an executed Registration Rights Agreement between Pentegra and Contributor, in substantially the form attached hereto as EXHIBIT 9.1(l) (the "Registration Rights Agreement"); and (l) such other instruments and documents as reasonably requested by Pentegra to carry out and effect the purpose and intent of this Agreement. 9.2 DELIVERIES OF PENTEGRA. On or before the Closing Date, Pentegra shall deliver to Contributor and Partner, the following, all of which shall be in a form satisfactory to counsel to Contributor and Partners and shall be held by Jackson Walker L.L.P. (counsel for Pentegra) in escrow pending Closing, pursuant to an escrow agreement or letter agreement in form and substance mutually acceptable to the parties hereto: (a) the Acquisition Consideration; (b) an executed Service Agreement; (c) an assumption of each contract, agreement and lease being assigned to and assumed by Pentegra; (d) a copy of the resolutions of the Board of Directors of Pentegra (or a committee thereof) authorizing the execution, delivery and performance of this Agreement and all related documents and agreements each certified by the Secretary as being true and correct copies of the original thereof; (e) certificates of the President of Pentegra, dated as of the Closing Date, (i) as to the truth and correctness of the representations and warranties of Pentegra contained herein; (ii) as to the performance of and compliance by Pentegra with all covenants contained herein; and (iii) certifying that all conditions precedent of Pentegra to the Closing have been satisfied; (f) a certificate of the Secretary of Pentegra certifying as to the incumbency of the directors and officers of Pentegra and as to the signatures of such directors and officers who have executed documents delivered at the Closing on behalf of Pentegra; 15 (g) certificates, dated within 30 days of the Closing Date, of the Secretary of the State of Delaware establishing that Pentegra is in existence and are in good standing to transact business in the State of Delaware and the State of incorporation of Contributor; (h) an opinion of counsel to Pentegra opining as to the execution and delivery of this Agreement and the other documents and agreements to be executed pursuant hereto, the good standing and authority of Pentegra, the enforceability of this Agreement and the other agreements and documents to be executed in connection herewith, and other matters reasonably requested by Contributor; (i) the executed Registration Rights Agreement; and (j) such other instruments and documents as reasonably requested by Contributor to carry out and effect the purpose and intent of this Agreement. SECTION 10. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION. 10.1 NATURE AND SURVIVAL. All statements contained in this Agreement or in any Exhibit attached hereto, any agreement executed pursuant hereto, and any certificate executed and delivered by any party pursuant to the terms of this Agreement, shall constitute representations and warranties of Contributor and Partners, jointly and severally, or of Pentegra, as the case may be. All such representations and warranties, and all representations and warranties expressly labeled as such in this Agreement shall survive the date of this Agreement and the Closing Date for a period of five (5) years following the Closing Date, except that (i) the representations and warranties with respect to environmental and medical waste laws and health care laws and matters shall survive for a period of fifteen (15) years and tax representations shall survive until one year after the expiration of the applicable statute of limitations. Each party covenants with the other parties not to make any claim with respect to such representations and warranties, against any party after the date on which such survival period shall terminate. No party shall be entitled to claim indemnity from any other party pursuant to SECTION 10.2 or 10.3 hereof, unless such party has timely given the notice required in SECTION 10.2, 10.3 or 10.4 hereof, as the case may be. Each party hereby releases, acquits and discharges the other party from any and all claims and demands, actions and causes of action, damages, costs, expenses and rights of setoff with respect to which the notices required by SECTION 10.2, 10.3 or 10.4, as applicable, are not timely provided. 10.2 INDEMNIFICATION BY PENTEGRA. PENTEGRA (FOR PURPOSES OF THIS SECTION 10.2 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, "INDEMNITOR"), SHALL INDEMNIFY AND HOLD CONTRIBUTOR AND ITS PartnerS, AGENTS AND EMPLOYEES (EACH OF THE FOREGOING, INCLUDING CONTRIBUTOR AND PartnerS, FOR PURPOSES OF THIS SECTION 10.2 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, AN "INDEMNIFIED PERSON"), HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, DAMAGES, ACTIONS, SUITS, COSTS, DEFICIENCIES AND EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE FEES AND DISBURSEMENTS OF COUNSEL THROUGH APPEAL) ARISING FROM OR BY REASON OF OR RESULTING FROM: (A) ANY BREACH BY INDEMNITOR OF ANY REPRESENTATION, WARRANTY, AGREEMENT OR COVENANT CONTAINED IN THIS AGREEMENT (INCLUDING THE EXHIBITS HERETO) AND EACH DOCUMENT, CERTIFICATE OR OTHER INSTRUMENT FURNISHED OR TO BE FURNISHED BY INDEMNITOR HEREUNDER, AND (B) AFTER THE CLOSING DATE, INDEMNITOR'S OWNERSHIP OF THE ASSETS, AND (C) ANY LIABILITY UNDER THE SECURITIES ACT, THE EXCHANGE ACT OR ANY OTHER FEDERAL OR STATE "BLUE SKY" OR SECURITIES LAWS OR REGULATION, AT COMMON LAW OR OTHERWISE, ARISING OUT OF OR BASED UPON ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT RELATING TO PENTEGRA CONTAINED IN ANY PRELIMINARY PROSPECTUS, THE REGISTRATION STATEMENT OR ANY PROSPECTUS FORMING A PART THEREOF, OR ANY AMENDMENT THEREOF OR SUPPLEMENT THERETO, ARISING OUT OF OR BASED UPON ANY 16 OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT RELATING TO PENTEGRA REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING. IN CONNECTION WITH INDEMNITOR'S OBLIGATION TO INDEMNIFY FOR EXPENSES, INDEMNITOR SHALL REIMBURSE EACH INDEMNIFIED PERSON FOR ALL SUCH EXPENSES AS THEY ARE INCURRED BY SUCH INDEMNIFIED PERSON, PROVIDED THAT SUCH INDEMNIFIED PERSON AGREES IN WRITING TO REFUND ALL SUCH REIMBURSED EXPENSES IF AND TO THE EXTENT THAT IT IS FINALLY JUDICIALLY DETERMINED THAT SUCH INDEMNIFIED PERSON IS NOT ENTITLED TO INDEMNIFICATION HEREUNDER. 10.3 INDEMNIFICATION BY CONTRIBUTOR AND PARTNERS. CONTRIBUTOR AND PARTNERS (FOR PURPOSES OF THIS SECTION 10.3 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, "INDEMNITOR"), JOINTLY AND SEVERALLY, SHALL INDEMNIFY AND HOLD PENTEGRA AND ITS AFFILIATES, OFFICERS, DIRECTORS, PARTNERS, AGENTS AND EMPLOYEES (EACH OF THE FOREGOING, INCLUDING PENTEGRA, FOR PURPOSES OF THIS SECTION 10.3 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, AN "INDEMNIFIED PERSON") HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, CLAIMS, DAMAGES, ACTIONS, SUITS, COSTS, DEFICIENCIES AND EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE FEES AND DISBURSEMENTS OF COUNSEL THROUGH APPEAL) ARISING FROM OR BY REASON OF OR RESULTING FROM OR WITH RESPECT TO: (A) ANY BREACH BY INDEMNITOR OF ANY REPRESENTATION, WARRANTY, AGREEMENT OR COVENANT CONTAINED IN THIS AGREEMENT (INCLUDING THE EXHIBITS HERETO) AND EACH DOCUMENT, CERTIFICATE, OR OTHER INSTRUMENT FURNISHED OR TO BE FURNISHED BY INDEMNITOR HEREUNDER, (B) PRIOR TO AND AFTER THE CLOSING DATE, THE INDEMNITOR'S MANAGEMENT AND CONDUCT OF THE BUSINESS AND OWNERSHIP OR OPERATION OF THE ASSETS, (C) ANY ALLEGED ACT OR NEGLIGENCE OF INDEMNITOR OR ITS EMPLOYEES, AGENTS AND INDEPENDENT CONTRACTORS IN OR ABOUT CONTRIBUTOR'S BUSINESS WHETHER ON OR AFTER THE CLOSING DATE, (D) ANY VIOLATION BY CONTRIBUTOR OR ITS PARTNERS OR THEIR CONSULTANTS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND AFFILIATES OF STATE OR FEDERAL LAWS GOVERNING HEALTHCARE FRAUD AND ABUSE, OR ANY OVERPAYMENT OR OBLIGATION ARISING OUT OF OR RESULTING FROM ACTIONS OF THE CONTRIBUTOR OR PARTNERS RELATING TO CLAIMS SUBMITTED TO ANY THIRD PARTY PAYOR, WHETHER ON OR AFTER THE CLOSING DATE, (E) TAXES OF CONTRIBUTOR OR ANY PARTNER OR ANY OTHER PERSON OR ENTITY RELATED TO OR AFFILIATED WITH THE CONTRIBUTOR OR ANY PARTNER ARISING FROM OR AS A RESULT OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (F) ANY LIABILITY OF CONTRIBUTOR OR THE PARTNERS FOR COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES) INCURRED IN CONNECTION WITH THE NEGOTIATION, PREPARATION OF CLOSING OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE OTHER DOCUMENTS TO BE EXECUTED IN CONNECTION HEREWITH, (G) ANY ACCRUED UNFUNDED RETIREMENT OR PENSION PLAN LIABILITIES, (H) ANY LIABILITIES THAT ARE NOT SET FORTH ON EXHIBIT 1.3(b), OR (I) ANY LIABILITY UNDER THE SECURITIES ACT, THE EXCHANGE ACT OR ANY OTHER FEDERAL OR STATE "BLUE SKY" OR SECURITIES LAWS OR REGULATION, AT COMMON LAW OR 17 OTHERWISE, ARISING OUT OF OR BASED UPON ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT RELATING TO CONTRIBUTOR OR ITS PARTNERS AND PROVIDED TO PENTEGRA, OR ITS COUNSEL BY THE CONTRIBUTOR OR ITS PARTNERS SPECIFICALLY FOR INCLUSION IN ANY PRELIMINARY PROSPECTUS, THE REGISTRATION STATEMENT OR ANY PROSPECTUS FORMING A PART THEREOF, OR ANY AMENDMENT THEREOF OR SUPPLEMENT THERETO, ARISING OUT OF OR BASED UPON ANY OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT RELATING TO CONTRIBUTOR OR ITS PARTNERS REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING. IN CONNECTION WITH INDEMNITOR'S OBLIGATION TO INDEMNIFY FOR EXPENSES, INDEMNITOR SHALL REIMBURSE EACH INDEMNIFIED PERSON FOR ALL SUCH EXPENSES AS THEY ARE INCURRED BY SUCH INDEMNIFIED PERSON, PROVIDED THAT SUCH INDEMNIFIED PERSON AGREES IN WRITING TO REFUND ALL SUCH REIMBURSED EXPENSES IF AND TO THE EXTENT THAT IT IS FINALLY JUDICIALLY DETERMINED THAT SUCH INDEMNIFIED PERSON IS NOT ENTITLED TO INDEMNIFICATION HEREUNDER. 10.4 INDEMNIFICATION PROCEDURE. Within sixty (60) days after Indemnified Person receives written notice of the commencement of any action or other proceeding in respect of which indemnification or reimbursement may be sought hereunder, or within such lesser time as may be provided by law for the defense of such action or proceeding, such Indemnified Person shall notify Indemnitor thereof. If any such action or other proceeding shall be brought against any Indemnified Person, Indemnitor shall, upon written notice given within a reasonable time following receipt by Indemnitor of such notice from Indemnified Person, be entitled to assume the defense of such action or proceeding with counsel chosen by Indemnitor and reasonably satisfactory to Indemnified Person; provided, however, that any Indemnified Person may at its own expense retain separate counsel to participate in such defense. Notwithstanding the foregoing, Indemnified Person shall have the right to employ separate counsel at Indemnitor's expense and to control its own defense of such action or proceeding if, in the reasonable opinion of counsel to such Indemnified Person, (a) there are or may be legal defenses available to such Indemnified Person or to other Indemnified Persons that are different from or additional to those available to Indemnitor and which could not be adequately advanced by counsel chosen by Indemnitor, or (b) a conflict or potential conflict exists between Indemnitor and such Indemnified Person that would make such separate representation advisable; provided, however, that in no event shall Indemnitor be required to pay fees and expenses hereunder for more than one firm of attorneys of Indemnified Person in any jurisdiction in any one action or proceeding or group of related actions or proceedings. Indemnitor shall not, without the prior written consent of any Indemnified Person, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding to which such Indemnified Person is a party unless such settlement, compromise or consent includes an unconditional release of such Indemnified Person from all liability arising or potentially arising from or by reason of such claim, action or proceeding. 10.5 RIGHT OF SETOFF. In the event of any breach of warranty, representation, covenant or agreement by Contributor or any Partner giving rise to indemnification under SECTION 10.3 or SECTION 10.4 hereof, Pentegra shall be entitled to offset the amount of damages incurred by it as a result of such breach of warranty, representation, covenant or agreement against any amounts payable by Pentegra, including the amounts payable under the Service Agreement. SECTION 11. TERMINATION. This Agreement may be terminated: (a) at any time by mutual agreement of all parties; (b) at any time by Pentegra if any representation or warranty of Contributor or any Partner contained in this Agreement or in any certificate or other document executed and delivered by Contributor or any Partner pursuant to this Agreement is or becomes untrue or breached in any material respect or if Contributor or any Partner fails to comply in any material respect with any covenant or agreement contained herein, and any such misrepresentation, noncompliance or breach is not cured, waived or eliminated within twenty (20) days after receipt of written notice thereof; 18 (c) at any time by Contributor or any Partner if any representation or warranty of Pentegra contained in this Agreement or in any certificate or other document executed and delivered by Pentegra pursuant to this Agreement is or becomes untrue or breached in any material respect or if Pentegra fails to comply in any material respect with any covenant or agreement contained herein and such misrepresentation, noncompliance or breach is not cured, waived or eliminated within twenty (20) days after receipt of written notice thereof; (d) by Pentegra, Partners or Contributor if the transaction contemplated hereby shall not have been consummated by December 31, 1997; or (e) by Pentegra at any time prior to the Closing Date if Pentegra determines in its sole discretion as the result of its legal, financial and operational due diligence with respect to Contributor, that such termination is desirable and in the best interests of Pentegra. SECTION 12. TRANSFER REPRESENTATIONS. 12.1 TRANSFER RESTRICTIONS. For a period of one year from the Closing Date, Contributor shall not voluntarily (a) sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose of (i) any shares of Pentegra Common Stock received by such party hereunder, (ii) any interest (including without limitation, an option to buy or sell) in any shares of Pentegra Common Stock, in whole or in part, and no such attempted transfer shall be treated as effective for any purpose or (b) engage in any transaction, whether or not with respect to any shares of Pentegra Common Stock or any interest therein, the intent or effect of which is to reduce the risk of owning shares of Pentegra Common Stock. The certificates evidencing the Pentegra Common Stock delivered to Contributor pursuant to the terms hereof will bear a legend substantially in the form set forth below and containing such other information as Pentegra may deem necessary or appropriate: The shares represented by this certificate may not be voluntarily sold, assigned, exchanged, transferred, encumbered, pledged, distributed, appointed or otherwise disposed of, and the issuer shall not be required to give effect to any attempted voluntary sale, assignment, exchange, transfer, encumbrance, pledge, distribution, appointment or other disposition prior to _________ [date that is one year from the Closing Date]. Upon the written request of the holder of this certificate, the issuer agrees to remove this restrictive legend (and any stop order placed with the transfer agent) after the date specified above. 12.2 INVESTMENTS; COMPLIANCE WITH LAW. Contributor and Partners acknowledge that the shares of Pentegra Common Stock to be delivered to Contributor pursuant to this Agreement have not been and will not be registered under the Securities Act of 1933 and may not be resold without compliance with the Securities Act of 1933. The Pentegra Common Stock to be acquired by Contributor pursuant to this Agreement is being acquired solely for its own account, for investment purposes only and with no present intention of distributing, selling or otherwise disposing of it in connection with a distribution. Contributor covenants, warrants and represents that none of the shares of Pentegra Common Stock issued to it will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise disposed of except after full compliance with all of the applicable provisions of the Securities Act, as amended, and the rules and regulations of the Securities Exchange Commission and applicable state securities laws and regulations. All certificates evidencing shares of Pentegra Common Stock shall bear the following legend in addition to the legend referenced in SECTION 12.1. The shares represented hereby have not been registered under the Securities Act of 1933 (the "Act") and may only be sold or otherwise transferred if the holder hereof complies with the Act and applicable securities laws. In addition, certificates evidencing shares of Pentegra Common Stock shall bear any legend required by the securities or blue sky laws of any state where Contributor resides. 12.3 ECONOMIC RISK; SOPHISTICATION. Contributor and Partners are able to bear the economic risk of an investment in Pentegra Common Stock acquired pursuant to this Agreement and can afford to sustain a total loss of such investment and have such knowledge and experience in financial and business matters that they are capable of 19 evaluating the merits and risks of the proposed investment and therefore have the capacity to protect their own interests in connection with the acquisition of the Pentegra Common Stock. Contributor, Partners and their representatives have had an adequate opportunity to ask questions and receive answers from the officers of Pentegra concerning any and all matters relating to the background and experience of the officers and directors of Pentegra, the plans for the operations of the business of Pentegra, and any plans for additional acquisitions and the like. Contributor, Partners and their representatives have asked any and all questions in the nature described in the preceding sentence and all questions have been answered to their satisfaction. Contractor and Partners are "accredited investors" as defined in Regulation D of the Securities Act of 1933, as amended. SECTION 13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Contributor and Partners recognize and acknowledge that they had in the past, currently have, and in the future may possibly have, access to certain confidential information of Pentegra that is valuable, special and unique assets of Pentegra's businesses. Contributor and Partners agree that it will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, unless (i) such information becomes available to or known by the public generally through no fault of Contributor or Partners, (ii) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (ii), Contributor and Partners shall, if possible, give prior written notice thereof to the other parties hereto, and provide such other parties hereto with the opportunity to contest such disclosure, (iii) Contributor and Partners reasonably believe that such disclosure is required in connection with the defense of a lawsuit against the disclosing party, or (iv) Contributor and Partners are the sole and exclusive owner of such confidential information as a result of the transactions contemplated hereunder or otherwise. In the event of a breach or threatened breach by Contributor or Partners of the provisions of this SECTION 13, Pentegra shall be entitled to an injunction restraining Contributor and Partners from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting Pentegra from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. The obligations of the parties under this SECTION 13 shall survive the termination of this Agreement. SECTION 14. MISCELLANEOUS. 14.1 TAX COVENANT. The parties intend that the transactions contemplated by this Agreement, together with the transactions contemplated by the Other Agreement and the Initial Public Offering, will qualify as an exchange meeting the requirements of Section 351 of the Code. The tax returns (and schedules thereto) of Partners, Contributor and Pentegra shall be filed in a manner consistent with such intention and Contributor and Pentegra shall each provide the other with such tax information, reports, returns or schedules as may be reasonably required to assist the other in so reporting the transactions contemplated hereby. 14.2 NOTICES. Any communications required or desired to be given hereunder shall be deemed to have been properly given if sent by hand delivery, or by facsimile AND overnight courier, to the parties hereto at the following addresses, or at such other address as either party may advise the other in writing from time to time: If to Pentegra: Pentegra Dental Group, Inc. 2999 N. 44th Street, Suite 650 Phoenix, Arizona 85018 Attn: President Facsimile: (602) 952-0554 20 with a copy of each notice directed to Pentegra to: James S. Ryan, III, Esquire Jackson Walker L.L.P. 901 Main Street Dallas, Texas 75202 Facsimile: (214) 953-5822 If to Contributor or Partners: To address set forth on EXHIBIT 14.2 with a copy to: Person and address set forth on EXHIBIT 14.2 All such communications shall be deemed to have been delivered on the date of hand delivery or on the next business day following the deposit of such communications, properly addressed and postage prepaid with the overnight courier. 14.3 FURTHER ASSURANCES. Each party hereby agrees to perform any further acts and to execute and deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement. 14.4 EACH PARTY TO BEAR COSTS. Subject to SECTION 14.12, each of the parties to this Agreement shall pay all of the costs and expenses incurred by such party in connection with the transactions contemplated by this Agreement, whether or not such transactions are consummated. Without limiting the generality of the foregoing and whether or not such liabilities may be deemed to have been incurred in the ordinary course of business, Pentegra shall not be liable to or required to pay, either directly or indirectly, any fees and expenses of legal counsel, accountants, auditors or other persons or entities retained by Contributor or any Partner for services rendered in connection with negotiating and closing the transactions contemplated by this Agreement or the documents to be executed in connection herewith, whether or not such costs or expenses are incurred before or after the Closing Date. 14.5 PUBLIC DISCLOSURES. Each party shall keep this Agreement and its terms confidential, and shall make no press release or public disclosure, either written or oral, regarding the transactions contemplated by this Agreement without the prior written consent of the other party, provided that the foregoing shall not prohibit any disclosure (a) by press release, filing or otherwise that Pentegra has determined in good faith judgment to be required by Federal securities laws or the rules of the National Association of Securities Dealers, (b) to attorneys, accountants, investment bankers or other agents of the parties assisting the parties in connection with the transactions contemplated by this Agreement, and (c) by Pentegra in connection with the conduct of its Initial Public Offering and conducting an examination of the operations and assets of Contributor. 14.6 GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF INCORPORATION OF CONTRIBUTOR AND APPLIED WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAWS PRINCIPLES. 14.7 CAPTIONS. The captions or headings in this Agreement are made for convenience and general reference only and shall not be construed to describe, define or limit the scope or intent of the provisions of this Agreement. 14.8 INTEGRATION OF EXHIBITS. All Exhibits attached to this Agreement are integral parts of this Agreement as if fully set forth herein, and all statements appearing therein shall be deemed disclosed for all purposes and not only in connection with the specific representation in which they are explicitly referenced. 14.9 ENTIRE AGREEMENT/AMENDMENT. THIS INSTRUMENT, INCLUDING ALL EXHIBITS ATTACHED HERETO, CONTAINS THE ENTIRE AGREEMENT OF THE PARTIES AND SUPERSEDES ANY 21 AND ALL PRIOR OR CONTEMPORANEOUS AGREEMENTS BETWEEN THE PARTIES, WRITTEN OR ORAL, WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY. 14.10 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which when so executed shall be deemed to be an original, and such counterparts shall together constitute and be one and the same instrument 14.11 BINDING EFFECT/ASSIGNMENT. This Agreement shall be binding on, and shall inure to the benefit of, the parties hereto, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No party may assign any right or obligation hereunder without the prior written consent of the other parties; provided, however, that Pentegra may assign its rights and delegate its obligations hereunder to any entity that is an affiliate of Pentegra. For purposes of this Agreement an "affiliate" of Pentegra shall include any entity that, through one or more intermediaries is, controlled, controlled by or under common control with, Pentegra. Upon any such assignment prior to the Closing, all references herein to Pentegra (including those to Pentegra Common Stock) shall be deemed to include references to the assignee and the assignee's common stock. Notwithstanding any such assignment, Pentegra shall not, absent a written release from Contributor, be relieved from its obligations to Contributor under this Agreement. 14.12 COSTS OF ENFORCEMENT. In the event that Pentegra, on the one hand, or Contributor, on the other hand, file suit in any court against any other party to enforce the terms of this Agreement against the other party or to obtain performance by it hereunder, the prevailing party will be entitled to recover all reasonable costs, including reasonable attorneys' fees, from the other party as part of any judgment in such suit. The term "prevailing party" shall mean the party in whose favor final judgment after appeal (if any) is rendered with respect to the claims asserted in the Complaint. "Reasonable attorneys' fees" are those reasonable attorneys' fees actually incurred in obtaining a judgment in favor of the prevailing party. 14.13 PRORATIONS. Contributor agrees to reimburse Pentegra at Closing a pro rata portion of all taxes levied upon the Assets for the calendar year in which the Closing occurs. Such taxes shall be estimated, apportioned and pro-rated among Contributor and Pentegra as of the Closing Date, and the prorated amount due Pentegra shall be credited to the cash portion of the Purchase Consideration. Upon payment by Pentegra of such taxes actually assessed and paid on the Assets, Pentegra shall calculate the apportionment of such taxes and shall pay Contributor or may demand from Contributor, and Contributor agrees to pay, the amount necessary to correct the estimate and proration made at Closing. 14.14 AMENDMENTS; WAIVERS. This Agreement may be amended, modified or supplemented only by an instrument in writing executed by all the parties hereto. Any waiver of the terms and conditions hereof must be in writing, and signed by the parties hereto. The waiver of any of the terms and conditions of this Agreement shall not be construed as a waiver of any other terms and conditions hereof. 14.15 ARBITRATION. Upon the request of either Pentegra or the Contributors or Partners (hereinafter referred to as a "Party"), whether made before or after the institution of any legal proceeding, any dispute among the parties hereto in any way arising out of, related to, or in connection with this Agreement (hereinafter a "Dispute"), shall be resolved by binding arbitration in accordance with the terms of this Section (hereinafter the "Arbitration Program"). All Disputes between the Parties shall be resolved by binding arbitration administered by the American Arbitration Association (the "AAA") in accordance with the terms of this Arbitration Program, the Commercial Arbitration Rules of the AAA. In the event of any inconsistency between this Arbitration Program and those rules or statutes, then the terms of this Arbitration Program shall control. The parties hereto agree to adhere to all warranties and covenants (as described herein) until such time as the arbitration process has been completed and the arbitrators have determined each party's post-arbitration obligations and responsibilities as it relates to such warranties and covenants. No provision of, nor the exercise of any rights under, this Arbitration Program shall limit the right of any Party at any time to seek or use ancillary or preliminary 22 judicial or non-judicial self help remedies for the purposes of obtaining, perfecting, preserving, or foreclosing upon any personal property in which there has been granted a security interest or lien by a Party in the Documents. In Disputes involving indebtedness or other monetary obligations, each Party agrees that the other Party may proceed against all liable persons, jointly and severally against one or more of them, without impairing rights against other liable persons. Nor shall a Party be required to join the principal obligor or any other liable persons (e.g., sureties or guarantors) in any proceeding against a particular person. A Party may release or settle with one or more liable persons as the Party deems fit without releasing or impairing rights to proceed against any persons not so released. All statutes of limitation that would otherwise be applicable shall apply to any arbitration proceeding. The party seeking arbitration shall notify the other Party, in writing, of that Party's desire to arbitrate a dispute; and each Party shall, within twenty (20) days from the date such notification is received, select an arbitrator, and those two arbitrators shall select a third arbitrator within ten (10) days thereafter. The issues or claims in dispute shall be committed to writing, separately stated and numbered, and each party's proposed answers or contentions shall be signed below the questions. Failure by a party to select an arbitrator within the prescribed time period shall serve as that Party's acquiescence and acceptance of the other party's selection of arbitrator. The arbitrators shall resolve all Disputes in accordance with the applicable substantive law. Any Dispute shall be decided by a majority vote of three arbitrators, unless the claim or amount in controversy does not exceed $100,000.00, in which case a single arbitrator (who shall have authority to render a maximum award of $100,000.00, including all damages of any kind, costs and fees) may decide the Dispute. The arbitrators may grant any remedy or relief that the arbitrators deem just and equitable and within the scope of this Arbitration Program. The arbitrators may also grant such ancillary relief as is necessary to make effective the award. In all arbitration proceedings the arbitrators shall make specific and written findings of fact and conclusions of law. In all arbitration proceedings in which the amount in controversy exceeds $100,000.00, in the aggregate, the Parties shall have in addition to the statutory right to seek vacation or modification of any award pursuant to applicable law, the right to seek vacation or modification of any award that is based in whole, or in part, on an incorrect or erroneous ruling of law by appeal to an appropriate court having jurisdiction; provided, however, that any such application for vacation or modification of an award based on an incorrect ruling of law must be filed in a court having jurisdiction over the Dispute within 15 days from the date the award in rendered. The arbitrators' findings of fact shall be binding on all Parties and shall not be subject to further review except as otherwise allowed by applicable law. To the maximum extent practicable, an arbitration proceeding hereunder shall be concluded within 180 days of the filing of the Dispute with AAA. Arbitration proceedings hereunder shall be conducted where agreed to in writing by the Parties or, in the absence of such agreement in Phoeniz, Arizona or the headquarters of Pentegra if other than Phoeniz, Arizona. The provisions of this Arbitration Program shall survive any termination, amendment, or expiration of the Documents, unless the Parties otherwise expressly agree in writing making specific reference to this Arbitration Program. To the extent permitted by applicable law, the arbitrator shall have the power to award recovery of all costs and fees (including attorney's fees, administrative fees, and arbitrators' fees) to the prevailing Party. This Arbitration Program may be amended, changed, or modified only by a writing which specifically refers to this Arbitration Program and which is signed by all the Parties. If any term, covenant, condition or provision of the Arbitration Program is found to be unlawful or invalid or unenforceable, such illegality or invalidity or unenforceable shall not affect the legality, validity or enforceability of the remaining parts of this Arbitration Program, and all such remaining parts hereof shall be valid and enforceable and have full force and effect as if the illegal, invalid or unenforceable part had not been included. Each Party agrees to keep all Disputes and arbitration proceedings strictly confidential, except for disclosures of information required in the ordinary course of business of the Parties or by applicable law or regulation. 14.16 SEVERABILITY. If any provision of this Agreement shall be found to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable and this Agreement shall be construed and enforced as if such provision never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect. In lieu of such provision, there shall be added automatically as part of this Agreement, a provision as similar in its terms to such provision as may be possible and be legal, valid and enforceable. [End of Page] 23 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. ----------------------------------------- By: -------------------------------------- Its: ------------------------------------- PENTEGRA DENTAL GROUP, INC. By: -------------------------------------- It: -------------------------------------- ----------------------------------------- , D.D.S. ---------------------------- 24 INDEX TO EXHIBITS Exhibit Description ------- ----------- Annex I Acquisition Consideration A Target Companies 1.1 Assets 1.2(b) Excluded Assets 1.3(b) Assumed Liabilities 2.1 Existence; Good Standing; Partners/Ownership 2.3 Permits and Licenses 2.4 Consents 2.8 Leases 2.10 Real and Personal Property; Encumbrances 2.12 Patents and Trademarks; Names 2.13 Payroll Information; Employment Agreements 2.15 Contracts (other than Leases and Employment Agreements) 2.16 Subsequent Events 2.19 Debt 2.20 Insurance Policies 2.21 Employee Benefit Plans 2.26 Banking Relations 2.28 Payors 7.7 Form of Service Agreement 7.8 Form of Employment Agreement 9.1(l) Form of Registration Rights Agreement 14.2 Addresses for Notice 25 ANNEX I ACQUISITION CONSIDERATION The aggregate consideration to be received by the Contributor pursuant to the Agreement (the "Acquisition Consideration") is the following: Shares of Pentegra Common Stock equal to $_________ divided by the initial public offering price of Pentegra. Cash in the amount of $________________________. No fractional shares of Pentegra Common Stock will be issued; rather, shares of Pentegra Common Stock to be issued to Contributor shall be rounded to the nearest whole share. 26 EX-2.3 4 EXHIBIT 2.3 EXHIBIT 2.3 FORM OF ASSET CONTRIBUTION AGREEMENT BY AND AMONG PENTEGRA DENTAL GROUP, INC., _________________________________ [target entity] and _______________________________ [shareholders] TABLE OF CONTENTS
Page ---- Section 1. TERMS OF THE CONTRIBUTION 1.2 CONTRIBUTION OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . .1 1.3 EXCLUDED ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1.4 PURCHASE PRICE; ASSUMPTION OF LIABILITIES. . . . . . . . . . . . . . . .2 1.5 SUBSEQUENT ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Section 2. REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR AND SHAREHOLDERS. 2.1 CORPORATE EXISTENCE; GOOD STANDING . . . . . . . . . . . . . . . . . . .2 2.2 POWER AND AUTHORITY FOR TRANSACTIONS . . . . . . . . . . . . . . . . . .3 2.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. . . . . . . . . . . .3 2.4 CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 2.5 DISTRIBUTIONS AND REPURCHASES. . . . . . . . . . . . . . . . . . . . . .3 2.6 CORPORATE RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . .3 2.7 CONTRIBUTOR'S FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . .3 2.8 LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 2.9 CONDITION OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . .4 2.10 TITLE TO AND ENCUMBRANCES ON PROPERTY. . . . . . . . . . . . . . . . . .4 2.11 INVENTORIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 2.12 INTELLECTUAL PROPERTY RIGHTS; NAMES. . . . . . . . . . . . . . . . . . .4 2.13 DIRECTORS AND OFFICERS; PAYROLL INFORMATION; EMPLOYEES . . . . . . . . .4 2.14 LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . .4 2.15 CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 2.16 SUBSEQUENT EVENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .5 2.17 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 2.18 COMMISSIONS AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . .7 2.19 LIABILITIES; DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . .7 2.20 INSURANCE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . .7 2.21 EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . . . .7 2.22 ADVERSE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . .8 2.23 COMPLIANCE WITH LAWS IN GENERAL. . . . . . . . . . . . . . . . . . . . .8 2.24 THIRD PARTY PAYORS . . . . . . . . . . . . . . . . . . . . . . . . . . .8 2.25 NO UNTRUE REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . .8 2.26 BANKING RELATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .8 2.27 OWNERSHIP INTERESTS OF INTERESTED PERSONS; COMPETITORS . . . . . . . . .8 2.28 PAYORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Section 3. REPRESENTATIONS AND WARRANTIES OF PENTEGRA 3.1 CORPORATE EXISTENCE: GOOD STANDING . . . . . . . . . . . . . . . . . . .9 3.2 POWER AND AUTHORITY; CONSENTS. . . . . . . . . . . . . . . . . . . . . .9 3.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. . . . . . . . . . . .9 3.4 LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . .9 3.5 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 3.6 COMMISSIONS AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.7 CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.8 NO UNTRUE REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . 10 Section 4. COVENANTS OF CONTRIBUTOR AND SHAREHOLDERS. 4.1 CONSUMMATION OF AGREEMENT; EXHIBITS. . . . . . . . . . . . . . . . . . 10 -i- 4.2 BUSINESS OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.3 ACCESS AND NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.4 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. . . . . . . . . . 10 4.5 ACQUISITION PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . 10 4.6 FUNDING OF ACCRUED EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . 11 4.7 EMPLOYEE MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.8 DISTRIBUTIONS AND REPURCHASES. . . . . . . . . . . . . . . . . . . . . 11 4.9 REQUIREMENTS TO EFFECT ACQUISITION . . . . . . . . . . . . . . . . . . 11 4.10 ACCOUNTING AND TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . 11 4.11 WAIVER OF BULK TRANSFER COMPLIANCE . . . . . . . . . . . . . . . . . . 11 4.12 LEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.13 HIRING OF EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.14 EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . . . 12 4.15 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 5. COVENANTS OF PENTEGRA 5.1 CONSUMMATION OF AGREEMENT; EXHIBITS. . . . . . . . . . . . . . . . . . 12 5.2 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. . . . . . . . . . 12 Section 6. COVENANTS OF PENTEGRA AND CONTRIBUTOR AND SHAREHOLDERS 6.1 FILINGS; OTHER ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 7. PENTEGRA CONDITIONS PRECEDENT 7.1 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 13 7.2 COVENANTS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . 13 7.3 PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.4 NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . 13 7.5 DUE DILIGENCE REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.6 APPROVAL BY THE BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . 13 7.7 SERVICE AGREEMENT; GUARANTY AGREEMENT. . . . . . . . . . . . . . . . . 13 7.8 EMPLOYMENT ARRANGEMENTS. . . . . . . . . . . . . . . . . . . . . . . . 13 7.9 CONSENTS AND APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . 13 7.10 CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.11 DEBT AND RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.12 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.13 NO CHANGE IN WORKING CAPITAL . . . . . . . . . . . . . . . . . . . . . 13 7.14 SECURITIES APPROVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 8. CONTRIBUTOR'S AND SHAREHOLDERS' CONDITIONS PRECEDENT 8.1 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 14 8.2 COVENANTS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . 14 8.3 PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 8.4 CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . 14 8.5 SECURITIES APPROVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 9. CLOSING DELIVERIES 9.1 DELIVERIES OF CONTRIBUTOR AND SHAREHOLDERS . . . . . . . . . . . . . . 14 9.2 DELIVERIES OF PENTEGRA . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 10. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION 10.1 NATURE AND SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 16 10.2 INDEMNIFICATION BY PENTEGRA. . . . . . . . . . . . . . . . . . . . . . 16 10.3 INDEMNIFICATION BY CONTRIBUTOR AND SHAREHOLDERS. . . . . . . . . . . . 17 -ii- 10.4 INDEMNIFICATION PROCEDURE. . . . . . . . . . . . . . . . . . . . . . . 18 10.5 RIGHT OF SETOFF. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 11. TERMINATION Section 12. TRANSFER REPRESENTATIONS 12.1 TRANSFER RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . 19 12.2 INVESTMENTS; COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . 19 12.3 ECONOMIC RISK; SOPHISTICATION. . . . . . . . . . . . . . . . . . . . . 20 Section 13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION Section 14. MISCELLANEOUS 14.1 TAX COVENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 14.2 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 14.3 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.4 EACH PARTY TO BEAR COSTS . . . . . . . . . . . . . . . . . . . . . . . 21 14.5 PUBLIC DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.6 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.7 CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.8 INTEGRATION OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . 21 14.9 ENTIRE AGREEMENT/AMENDMENT . . . . . . . . . . . . . . . . . . . . . . 21 14.10 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.11 BINDING EFFECT/ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . 22 14.12 COSTS OF ENFORCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.13 PRORATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.14 AMENDMENTS; WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.15 ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.16 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-iii- ASSET CONTRIBUTION AGREEMENT This ASSET CONTRIBUTION AGREEMENT (this "Agreement"), made and executed as of ________________, 1997, is by and among PENTEGRA DENTAL GROUP, INC., a Delaware corporation ("Pentegra"), __________________________________________ ("Contributor") and _________________________________, shareholders of Contributor (referred to herein as "Shareholder" or "Shareholders"). WITNESSETH: WHEREAS, Contributor operates a dental practice ("Business") and Pentegra is engaged in the business of managing certain non-dentistry aspects of dental practices; WHEREAS, Contributor desires to contribute to Pentegra, and Pentegra desires to receive from Contributor, certain assets of Contributor; WHEREAS, Pentegra or its affiliated designee has entered into or intends to enter into Agreements and Plans of Reorganization, Asset Contribution Agreements and other acquisition agreements (collectively, the "Other Agreements") with such persons or entities or the stockholders of such entities listed on EXHIBIT A (together with Contributor, the "Target Companies"); WHEREAS, it is intended for Federal income tax purposes that the transfers contemplated by this Agreement, the Other Agreements and Pentegra's initial public offering ("Initial Public Offering") of shares of its common stock, par value $.01 per share ("Pentegra Common Stock") shall qualify as an exchange within the meaning of Section 351 of the Internal Revenue Code of 1986, as amended ("IRC" or "Code"); WHEREAS, the consummation of the transfers to Pentegra pursuant to this Agreement is intended to occur in connection with, and is conditioned upon, the simultaneous consummation of the transfers contemplated by the Other Agreements and the Initial Public Offering. NOW THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, and for other good and valuable consideration, the sufficiency of which are hereby acknowledged, the parties agree as follows: SECTION 1. TERMS OF THE CONTRIBUTION. 1.1 THE CLOSING. The closing of the transactions contemplated hereby shall take place at 10:00 am local time, at the offices of Jackson & Walker, L.L.P., on the day on which the Initial Public Offering of Pentegra Common Stock is consummated. The date on which the Closing occurs is hereinafter referred to as the "Closing Date". 1.2 CONTRIBUTION OF ASSETS. Subject to and upon the terms and conditions contained herein, on the Closing Date, Contributor shall convey, transfer, deliver and assign to Pentegra or any affiliate of Pentegra designated by Pentegra all of Contributor's right, title and interest in and to those certain assets described on EXHIBIT 1.1 attached hereto (individually, "Asset", and collectively "Assets"), free and clear of all obligations, security interests, claims, liens and encumbrances, except as specifically assumed, or taken subject to, by Pentegra pursuant to SECTION 1.3(b) hereof. 1 1.3 EXCLUDED ASSETS. There shall be excluded from the Assets to be transferred and contributed hereunder, and Contributor shall retain all of its right, title and interest in and to, the assets not specifically transferred hereunder, including without limitation, the assets described on EXHIBIT 1.2 (the "Excluded Assets"). 1.4 PURCHASE PRICE; ASSUMPTION OF LIABILITIES. As consideration for the Assets and the representations, warranties and agreements of Contributor contained herein, Pentegra shall, on the Closing Date: (a) Cause to be transferred to Contributor the consideration specified in ANNEX I attached hereto (the "Acquisition Consideration"); and. (b) Except as otherwise provided herein, assume and perform or discharge on or after the Closing Date, the contracts, leases, obligations, commitments, liabilities and indebtedness of Contributor listed on EXHIBIT 1.3(b) attached hereto to the extent that such obligations, commitments, liabilities and indebtedness are current and not otherwise in default. (the "Assumed Liabilities"). Notwithstanding any contrary provision contained herein, Pentegra shall not be deemed to have assumed, nor shall Pentegra assume: (i) any liability, commitment or obligation or trade payable or indebtedness not specifically disclosed on EXHIBIT 1.3(b), (ii) any liability set forth on EXHIBIT 1.3(b) which may be incurred by reason of any breach of or default under such contracts, leases, commitments or obligations which occurred on or before the Closing Date; (iii) any liability for any employee benefits payable to employees of Contributor, including, but not limited to, liabilities arising under any Contributor Plan (as defined in SECTION 2.21 hereof); (iv) any liability based upon or arising out of a violation of any antitrust or similar restraint-of-trade laws by any Shareholder or Contributor, including, without limiting the generality of the foregoing, any such antitrust liability which may arise in connection with agreements, contracts, commitments or orders for the sale of goods or provision of services by Contributor reflected on the books of Contributor at or prior to the Closing Date; (v) any liability based upon or arising out of any tortious or wrongful actions of Contributor, any licensed professional employee or independent contractor of Contributor or any Shareholder, (vi) any liability for the payment of any taxes of Contributor or any Shareholder, including without limitation, sales, use and other transfer taxes and income taxes arising from or by reason of the transactions contemplated by this Agreement; (vii) any indebtedness secured by deeds of trust or mortgages on real property; nor (viii) any liability incurred or to be incurred pursuant to any malpractice or other suits or actions pending against Contributor or any Shareholder. 1.5 SUBSEQUENT ACTIONS. If, at any time after the Closing Date, Pentegra shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in Pentegra its right, title or interest in, to or under any of the Assets or otherwise to carry out this Agreement, in return for the consideration set forth in this Agreement, Contributor and Shareholders shall execute and deliver all such deeds, bills of sale, assignments and assurances and take and do all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under the Assets in Pentegra or otherwise to carry out this Agreement. SECTION 2. REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR AND SHAREHOLDERS. Contributor and Shareholders, jointly and severally, hereby represent and warrant to Pentegra as follows: 2.1 CORPORATE EXISTENCE; GOOD STANDING. Contributor is a professional corporation or association, as applicable, duly organized, validly existing and in good standing under the laws of the State of __________________. Contributor has all necessary corporate powers to own all of its assets and to carry on its business as such business is now being conducted. Contributor does not own stock in or control, directly or indirectly, any other corporation, association or business organization, nor is Contributor a party to any joint venture or partnership. The Shareholders are the sole shareholders of Contributor and own all outstanding shares of capital stock free of all security interests, claims, encumbrances and liens in the amounts set forth on EXHIBIT 2.1. Each share of Contributor's common stock has been legally and validly issued and fully paid and nonassessable. No shares of capital stock of Contributor are owned by Contributor in treasury. There are no outstanding (a) bonds, debentures, notes or other obligations the holders of which have the right to vote with the stockholders of Contributor on any matter, (b) securities of Contributor convertible into equity interests in Contributor, or (c) commitments, options, rights or warrants to issue any such equity interests 2 in Contributor, to issue securities of Contributor convertible into such equity interests, or to redeem any securities of Contributor. No shares of capital stock of Contributor have been issued or disposed of in violation of the preemptive rights, rights of first refusal or similar rights of any of Contributor's stockholders. Contributor is not required to qualify to do business as a foreign corporation in any other state or jurisdiction by reason of its business, properties or activities in or relating to such other state or jurisdiction. Contributor does not have any assets, employees or offices in any state other than the state set forth in the first sentence of this SECTION 2.1. 2.2 POWER AND AUTHORITY FOR TRANSACTIONS. Contributor has the corporate power to execute, deliver and perform this Agreement and all agreements and other documents executed and delivered by it pursuant to this Agreement or to be executed and delivered on the Closing Date, and has taken all action required by law, its Articles or Certificate of Incorporation, its Bylaws or otherwise, to authorize the execution, delivery and performance of this Agreement and such related documents. Each Shareholder has the legal capacity to enter into and perform this Agreement and the other agreements to be executed and delivered in connection herewith. Contributor has obtained the approval of its stockholders necessary to the consummation of the transactions contemplated herein. This Agreement and all agreements and documents executed and delivered in connection herewith have been, or will be as of the Closing Date, duly executed and delivered by Contributor and Shareholders, as appropriate, and constitute or will constitute the legal, valid and binding obligations of Contributor and Shareholders, enforceable against Contributor and Shareholders in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. The execution and delivery of this Agreement, and the agreements executed and delivered pursuant to this Agreement or to be executed and delivered on the Closing Date, do not, and, subject to the receipt of consents described on EXHIBIT 2.4, the consummation of the actions contemplated hereby will not, violate any provision of the Articles or Certificate of Incorporation or Bylaws of Contributor or any provisions of, or result in the acceleration of, any obligation under any mortgage, lien, lease, agreement, rent, instrument, order, arbitration award, judgment or decree to which Contributor or any Shareholder is a party or by which Contributor or any Shareholder is bound, or violate any material restrictions of any kind to which Contributor is subject, or result in any lien or encumbrance on any of Contributor's assets or the Assets. 2.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. All building or other permits, certificates of occupancy, concessions, grants, franchises, licenses, certificates of need and other governmental authorizations and approvals required for the conduct of the Business or the use of the Assets, or waivers thereof, have been duly obtained and are in full force and effect and are described on EXHIBIT 2.3. There are no proceedings pending or, to the knowledge of Contributor and Shareholders, threatened, which may result in the revocation, cancellation or suspension, or any adverse modification, of any such licenses or permits. 2.4 CONSENTS. Except as set forth on EXHIBIT 2.4, no consent, authorization, permit, license or filing with any governmental authority, any lender, lessor, any manufacturer or supplier or any other person or entity is required to authorize, or is required in connection with, the execution, delivery and performance of this Agreement and the agreements and documents contemplated hereby on the part of Contributor or Shareholders. 2.5 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or dividend of any kind has been declared or paid by Contributor on any of its capital stock since the Balance Sheet Date. No repurchase of any of Contributor's capital stock has been approved, effected or is pending, or is contemplated by Contributor. 2.6 CORPORATE RECORDS. True and correct copies of the Articles or Certificate of Incorporation, Bylaws and minutes of Contributor and all amendments thereto have been delivered to Pentegra. The minute books of Contributor contain accurate minutes of all meetings of and consents to actions taken without meetings of the Board of Directors and stockholders of Contributor since its formation. The books of account of Contributor have been kept accurately in the ordinary course of business and the revenues, expenses, assets and liabilities of Contributor have been properly recorded in such books. 2.7 CONTRIBUTOR'S FINANCIAL INFORMATION. Contributor has heretofore furnished Pentegra with copies of its unaudited balance sheet and related unaudited statements of income, retained earnings and cash flows for its prior two full fiscal years, as well as copies of its unaudited balance sheet as of December 31, 1996 and June 30, 1997 3 (collectively, the "Balance Sheet" and the latest date thereof shall be referred to as the "Balance Sheet Date") and any related unaudited statements of income, retained earnings, schedule of accounts receivable, accounts payable and accrued liabilities, and cash flows for the twelve months then ended (collectively, with the related notes thereto, the "Financial Statements"). The Financial Statements fairly present the financial condition and results of operations of Contributor as of the dates and for the periods indicated and reflect all fixed and contingent liabilities of Contributor. 2.8 LEASES. EXHIBIT 2.8 attached hereto sets forth a list of all leases pursuant to which Contributor or any Shareholder leases, as lessor or lessee, real or personal property used in operating the Business, related to the Assets or otherwise. All such leases listed on EXHIBIT 2.8 are valid and enforceable in accordance with their respective terms, and there is not under any such lease any existing default by Contributor, as lessor or lessee, or any condition or event of which any Shareholder or Contributor has knowledge which with notice or lapse of time, or both, would constitute a default, in respect of which Contributor or Shareholders have not taken adequate steps to cure such default or to prevent a default from occurring. 2.9 CONDITION OF ASSETS. All of the Assets are in good condition and repair subject to normal wear and tear and conform with all applicable ordinances, regulations and other laws, and Contributor and Shareholders have no knowledge of any latent defects therein. 2.10 TITLE TO AND ENCUMBRANCES ON PROPERTY. Contributor has good, valid and marketable title to all of the Assets, free and clear of any liens, claims, charges, exceptions or encumbrances, except for those, if any, which are set forth in EXHIBIT 2.10 attached hereto. Contributor shall cause all encumbrances set forth on EXHIBIT 2.10 (other than those encumbrances indicated on EXHIBIT 1.3(b)) to be released or terminated prior to the Closing Date and evidence of such releases of liens and claims shall be provided to Pentegra on the Closing Date and the Assets shall not be used to satisfy such liens, claims or encumbrances. 2.11 INVENTORIES. All of the Assets constituting inventory are owned or used by Contributor, are in good, current, standard and merchantable condition and are not obsolete or defective. 2.12 INTELLECTUAL PROPERTY RIGHTS; NAMES. Except as set forth on EXHIBIT 2.12, Contributor has no right, title or interest in or to patents, patent rights, corporate names, assumed names, manufacturing processes, trade names, trademarks, service marks, inventions, specialized treatment protocols, copyrights, formulas and trade secrets or similar items. Set forth in EXHIBIT 2.12 is a listing of all names of all predecessor companies of Contributor, including the names of any entities from whom Contributor previously acquired significant assets. Except for off-the-shelf software licenses and except as set forth on EXHIBIT 2.12, Contributor is not a licensee in respect of any patents, trademarks, service marks, trade names, copyrights or applications therefor, or manufacturing processes, formulas or trade secrets or similar items and no such licenses are necessary for the conduct of the Business or the use of the Assets. No claim is pending or has been made to the effect that the Assets or the present or past operations of Contributor in connection with the Assets or Business infringe upon or conflict with the asserted rights of others to any patents, patent rights, manufacturing processes, trade names, trademarks, service marks, inventions, licenses, specialized treatment protocols, copyrights, formulas, know-how and trade secrets. Contributor has the sole and exclusive right to use all Assets constituting proprietary rights without infringing or violating the rights of any third parties and no consents of any third parties are required for the use thereof by Pentegra. 2.13 DIRECTORS AND OFFICERS; PAYROLL INFORMATION; EMPLOYEES. Set forth on EXHIBIT 2.13 attached hereto is a true and complete list, as of the date of this Agreement of: (a) the name of each director and officer of Contributor and the offices held by each, (b) the most recent payroll report of Contributor, showing all current employees of Contributor and their current levels of compensation, (c) promised increases in compensation of employees of Contributor that have not yet been effected, (d) oral or written employment agreements, consulting agreements or independent contractor agreements (and all amendments thereto) to which Contributor is a party, copies of which have been delivered to Pentegra, and (e) all employee manuals, materials, policies, procedures and work-related rules, copies of which have been delivered to Pentegra. Contributor is in compliance with all applicable laws, rules, regulations and ordinances respecting employment and employment practices. Contributor has not engaged in any unfair labor practice. There are no unfair labor practices charges or complaints pending or threatened against Contributor, and Contributor has never been a party to any agreement with any union, labor organization or collective bargaining unit. 4 2.14 LEGAL PROCEEDINGS. Neither any Shareholder, Contributor nor the Business nor any of the Assets is subject to any pending, nor does Contributor or any Shareholder have knowledge of any threatened, litigation, governmental investigation, condemnation or other proceeding against or relating to or affecting Contributor, any Shareholder, the Business, the Assets or the transactions contemplated by this Agreement, and, to the knowledge of Contributor and Shareholders, no basis for any such action exists, nor is there any legal impediment of which Contributor or any Shareholder has knowledge to the continued operation of its business or the use of the Assets in the ordinary course, subject to consents set forth on EXHIBIT 2.4. 2.15 CONTRACTS. Contributor has delivered to Pentegra true copies of all written, and disclosed to Pentegra all oral, outstanding contracts, obligations and commitments of Contributor ("Contracts"), entered into in connection with and related to the Assets or the Business, all of which are listed or incorporated by reference on EXHIBIT 2.8 (in the case of leases), EXHIBIT 2.13 (in the case of employment agreements) and EXHIBIT 2.15 (in the case of Contracts other than leases) attached hereto. Except as otherwise indicated on such Exhibits, all of such Contracts are valid, binding and enforceable in accordance with their terms and are in full force and effect, and no defenses, offsets or counterclaims have been asserted or may be made by any party thereto. Except as indicated on such Exhibits, there is not under any such Contract any existing default by Contributor or any Shareholder, or any condition or event of which Contributor or any Shareholder has knowledge which with notice or lapse of time, or both, would constitute a default. Contributor and Shareholders have no knowledge of any default by any other party to such Contracts. Contributor and Shareholders have not received notice of the intention of any party to any Contract to cancel or terminate any Contract and have no reason to believe that any amendment or change to any Contract is contemplated by any party thereto. Other than those contracts, obligations and commitments listed on EXHIBIT 2.8, EXHIBIT 2.13 and EXHIBIT 2.15, Contributor are not a party to any material written or oral agreement contract, lease or arrangement, including without limitation, any: (a) Contract related to the Assets other than this Agreement; (b) Employment, consulting or compensation agreement or arrangement; (c) Labor or collective bargaining agreement; (d) Lease agreement with respect to any property, whether as lessor or lessee; (e) Deed, bill of sale or other document evidencing an interest in or agreement to purchase or sell real or personal property; (f) Contract for the purchase of materials, supplies or equipment (i) which is in excess of the requirements of the Business now booked or for normal operating inventories, or (ii) which is not terminable upon notice of thirty (30) days or less; (g) Agreement for the purchase from a supplier of all or substantially all of the requirements of the Business of a particular product or service; (h) Loan agreement or other contract for money borrowed or lent or to be borrowed or lent to another; (i) Contracts containing non-competition covenants; (j) Financial or similar contracts or agreements with patients of the Contributor or Shareholders, oral or written, that provide for prepayments or deferred installment payments; or (k) Other contracts or agreements that involve either an unperformed commitment in excess of $1,000 or that terminate or can only be terminated by Contributor on more than 30 days after the date hereof. 5 2.16 SUBSEQUENT EVENTS. Other than as set forth on EXHIBIT 2.16, Contributor has not, since the Balance Sheet Date: (a) Incurred any material obligation or liability (absolute, accrued, contingent or otherwise) or entered into any contract, lease, license or commitment, except in connection with the performance of this Agreement; (b) Discharged or satisfied any material lien or encumbrance, or paid or satisfied any material obligation or liability (absolute, accrued, contingent or otherwise) other than (i) liabilities shown or reflected on the Balance Sheet, (ii) liabilities incurred since the Balance Sheet Date in the ordinary course of business; (c) Formed or acquired or disposed of any interest in any corporation, partnership, joint venture or other entity; (d) Made any payments to or loaned any money to any person or entity other than in the ordinary course of business; (e) Lost or terminated any employee, patient, customer or supplier that has or may have, individually or in the aggregate, a material adverse effect on the Business; (f) Increased or established any reserve for taxes or any other liability on its books or otherwise provided therefor, except as may have been required due to income or operations of Contributor since the Balance Sheet Date; (g) Mortgaged, pledged or subjected to any lien, charge or other encumbrance any of the Assets, tangible or intangible; (h) Sold or contracted to sell or transferred or contracted to transfer any of the Assets or any other assets used in the conduct of the Business, canceled any debts or claims or waived any rights, except in the ordinary course of business; (i) Except in the ordinary course or business consistent with past practices, granted any increase in the rates of pay of employees, consultants or agents, or by means of any bonus or pension plan, contract or other commitment, increased the compensation of any officer, employee, consultant or agent; (j) Authorized or incurred any capital expenditures in excess of Five Thousand and No/100 Dollars ($5,000.00); (k) Except for this Agreement and any other agreement executed and delivered pursuant to this Agreement, entered into any material transaction other than in the ordinary course of business or permitted hereunder; (l) Redeemed, purchased, sold or issued any stock, bonds or other securities; (m) Experienced damage, destruction or loss (whether or not covered by insurance) materially and adversely affecting any of its properties, assets or business or the Business or the Assets, or experienced any other material adverse change in its financial condition, assets, prospects, liabilities or business; (n) Declared or paid a distribution, payment or dividend of any kind on the capital stock of Contributor; (o) Repurchased, approved any repurchase or agreed to repurchase any of Contributor's capital stock; or (p) Suffered any material adverse change in the Business or to the Assets. 6 2.17 TAXES. (a) Contributor has filed all tax returns (including tax reports and other statements) required to have been filed by it, and has paid all taxes (including any interest, penalty or additions thereto) required to have been paid by it. All such tax returns are complete and accurate in all respects and properly reflect the relevant taxes for the periods covered thereby. Contributor has not received any notice that any tax deficiency or delinquency has been or may be asserted against Contributor. There are no audits relating to taxes of Contributor pending or in process or, to the knowledge of Contributor, threatened. Contributor is not currently the beneficiary of any waiver of any statute of limitations in respect of taxes nor of any extension of time within which to file any tax return or to pay any tax assessment or deficiency. There are no liens or encumbrances relating to taxes on or threatened against any of the assets of Contributor. Contributor has withheld and paid all taxes required by law to have been withheld and paid by it. Neither Contributor nor any predecessor of Contributor is or has been a party to any tax allocation or sharing agreement or a member of an affiliated group of corporations filing a consolidated Federal income tax return. Contributor has delivered to Pentegra correct and complete copies of Contributor's three most recently filed annual state, local and Federal income tax returns, together with all examination reports and statements of deficiencies assessed against or agreed to by Contributor during the three calendar year period preceding the date of this Agreement. Contributor has neither made any payments, is obligated to make any payments, or is a party to any agreement that under any circumstance could obligate it to make any payments that will not be deductible under Code section 280G. (b) Contributor does not intend to dispose of any of the shares of Pentegra Common Stock to be received hereunder and is not a party to any plan, arrangement or agreement for the disposition of such shares. Contributor and Shareholders have no knowledge, after due inquiry, of any such intent, plan, arrangement or agreement by any Shareholder. Nothing contained herein shall prohibit Contributor from selling such shares of Pentegra Common Stock after the designated holding period and in accordance with SECTION 12.1 hereof. 2.18 COMMISSIONS AND FEES. There are no claims for brokerage commissions or finder's or similar fees in connection with the transactions contemplated by this Agreement which may be now or hereafter asserted against Pentegra, Contributor or Contributor's shareholders resulting from any action taken by Contributor or any Shareholder or their respective agents or employees, or any of them. 2.19 LIABILITIES; DEBT. Except to the extent reflected or reserved against on the Balance Sheet, Contributor did not have, as of the Balance Sheet Date, and has not incurred since that date and will not have incurred as of the Closing Date, any liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, other than those incurred in the ordinary course of business or as set forth on EXHIBIT 2.16. Contributor and Shareholders do not know, or have reasonable grounds to know, of any basis for the assertion against Contributor or any Shareholder as of the Balance Sheet Date, of any claim or liability of any nature in any amount not fully reflected or reserved against on the Balance Sheet, or of any claim or liability of any nature arising since that date other than those incurred in the ordinary course of business or contemplated by this Agreement. All indebtedness of Contributor (including without limitation, indebtedness for borrowed money, guaranties and capital lease obligations) is described on EXHIBIT 2.19 attached hereto. 2.20 INSURANCE POLICIES. Contributor, each Shareholder and each licensed professional of Contributor carries property, liability, malpractice, workers' compensation and such other types of insurance as is customary in the industry. Valid and enforceable policies in such amounts are outstanding and duly in force and will remain duly in force through the Closing Date. All such policies are described in EXHIBIT 2.20 attached hereto and true and correct copies have been delivered to Pentegra. Neither Shareholders nor Contributor have not received notice or other communication from the issuer of any such insurance policy cancelling or amending such policy or threatening to do so. Neither Contributor, nor any Shareholder nor any licensed professional employee of Contributor has any outstanding claims, settlements or premiums owed against any insurance policy. 2.21 EMPLOYEE BENEFIT PLANS. Except as set forth on EXHIBIT 2.21 attached hereto, Contributor has neither established, nor maintains, nor is obligated to make contributions to or under or otherwise participate in, (a) any bonus or other type of compensation or employment plan, program, agreement, policy, commitment, contract or arrangement (whether or not set forth in a written document); (b) any pension, profit-sharing, retirement or other plan, program or arrangement; or (c) any other employee benefit plan, fund or program, including, but not limited to, those described in SECTION 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). All such plans listed 7 on EXHIBIT 2.20 (individually "Contributor Plan," and collectively "Contributor Plans") have been operated and administered in all material respects in accordance with all applicable laws, rules and regulations, including without limitation, ERISA, the Internal Revenue Code of 1986, as amended, Title VII of the Civil Rights Act of 1964, as amended, the Equal Pay Act of 1967, as amended, the Age Discrimination in Employment Act of 1967, as amended, and the related rules and regulations adopted by those Federal agencies responsible for the administration of such laws. No act or failure to act by Contributor has resulted in a "prohibited transaction" (as defined in ERISA) with respect to the Contributor Plans. No "reportable event" (as defined in ERISA) has occurred with respect to any of the Contributor Plans. Contributor has not previously made, is not currently making, and is not obligated in any way to make, any contributions to any multiemployer plan within the meaning of the Multi-Employer Pension Plan Amendments Act of 1980. With respect to each Contributor Plan, either (i) the value of plan assets (including commitments under insurance contracts) is at least equal to the value of plan liabilities or (ii) the value of plan liabilities in excess of plan assets is disclosed on the Balance Sheet, all as of the Closing Date. 2.22 ADVERSE AGREEMENTS. Contributor is not, and will not be as of the Closing Date, a party to any agreement or instrument or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, decree, rule or regulation that materially and adversely affects the condition (financial or otherwise), operations, assets, liabilities, business or prospects of Contributor, the Business or the Assets. 2.23 COMPLIANCE WITH LAWS IN GENERAL. Contributor, Shareholders and Contributor's licensed professional employees, and the conduct of the Business and use of the Assets, have complied with all applicable laws, rules, regulations and licensing requirements, including, without limitation, the Federal Environmental Protection Act, the Occupational Safety and Health Act, the Americans with Disabilities Act and any environmental laws and medical waste laws, and there exist no violations by Contributor, any Shareholder or any licensed professional employee of Contributor of any Federal, state or local law or regulation. Contributor and Shareholders have not received any notice of a violation of any Federal, state and local laws, regulations and ordinances relating to the operations of the Business and Assets and no notice of any pending inspection or violation of any such law, regulation or ordinance has been received by Contributor. 2.24 THIRD PARTY PAYORS. Contributor, Shareholders and each licensed professional employee or independent contractor of Contributor has timely filed all claims or other reports required to be filed with respect to the purchase of services by third-party payors, and all such claims or reports are complete and accurate, and has no liability to any payor with respect thereto. There are no pending appeals, overpayment determinations, adjustments, challenges, audit, litigation or notices of intent to open Medicare or Medicaid claim determinations or other reports required to be filed by Contributor, any Shareholder and each licensed professional employee of Contributor. Neither Contributor, nor any Shareholder, nor any licensed professional employee of Contributor has been convicted of, or pled guilty or nolo contendere to, patient abuse or negligence, or any other Medicare or Medicaid program related offense and none has committed any offense which may serve as the basis for suspension or exclusion from the Medicare and Medicaid programs or any other third party payor program. With respect to payors, Contributor, Shareholders and Contributor's licensed professional employees has not (a) knowingly and willfully making or causing to be made a false statement or representation of a material fact in any application for any benefit or payment; (b) knowingly and willfully making or causing to be made any false statement or representation of a material fact for use in determining rights to any benefit or payment; (c) failed to disclose knowledge of the occurrence of any event affecting the initial or continued right to any benefit or payment on its own behalf or on behalf of another, with the intent to fraudulently secure such benefit or payment; and (d) violated any applicable state anti-remuneration or self-referral statutes, rules or regulations. 2.25 NO UNTRUE REPRESENTATIONS. No representation or warranty by Contributor or Shareholders in this Agreement, and no Exhibit or certificate issued or executed by, or information furnished by, officers or directors of Contributor or any Shareholder and furnished or to be furnished to Pentegra pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained therein not misleading. 2.26 BANKING RELATIONS. Set forth in EXHIBIT 2.26 is a complete and accurate list of all arrangements that Contributor has with any bank or other financial institution, indicating with respect to each relationship the type of 8 arrangement maintained (such as checking account, borrowing arrangements, safe deposit box, etc.) and the person or persons authorized in respect thereof. 2.27 OWNERSHIP INTERESTS OF INTERESTED PERSONS; COMPETITORS. No officer, employee, director or stockholder of Contributor, or their respective spouses, children or affiliates, owns directly or indirectly, on an individual or joint basis, any interest in, has a compensation or other financial arrangement with, or serves as an officer or director of, any customer or supplier or competitor of Contributor or any organization that has a material contract or arrangement with Contributor. 2.28 PAYORS. EXHIBIT 2.28 sets forth a true, complete and correct list of the names and addresses of each payor of Contributor's services which accounted for more than 10% of revenues of Contributor in the preceding fiscal year. Contributor has good relations with all such payors and other material payors of Contributor and none of such payors has notified Contributor that it intends to discontinue its relationship with Contributor or to deny any claims submitted to such payor for payment. SECTION 3. REPRESENTATIONS AND WARRANTIES OF PENTEGRA. Pentegra hereby represents and warrants to Contributor and Shareholders as follows: 3.1 CORPORATE EXISTENCE: GOOD STANDING. Pentegra is a corporation duly organized and existing and in good standing under the laws of the State of Delaware. 3.2 POWER AND AUTHORITY; CONSENTS. Pentegra has corporate power to execute, deliver and perform this Agreement and all agreements and other documents executed and delivered by it pursuant to this Agreement or to be executed and delivered on the Closing Date, and has taken all actions required by law, its Certificate of Incorporation, its Bylaws or otherwise, to authorize the execution, delivery and performance of this Agreement and such related documents. This Agreement and all agreements and documents executed and delivered in connection herewith have been, or will be as of the Closing Date, duly executed and delivered by Pentegra and constitute or will constitute the legal, valid and binding obligations of Pentegra, enforceable against Pentegra in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. The execution and delivery of this Agreement, and the agreements executed and delivered pursuant to this Agreement or to be executed and delivered on the Closing Date, do not, and, the consummation of the actions contemplated hereby will not, violate any provision of the Certificate of Incorporation or Bylaws of Pentegra or any provisions of, or result in the acceleration of, any obligation under any mortgage, lien, lease, agreement, rent, instrument, order, arbitration award, judgment or decree to which Pentegra is a party or by which Pentegra is bound, or violate any material restrictions of any kind to which Pentegra is subject, or result in any lien or encumbrance on any of Pentegra's assets. Other than as have been obtained or as would not have a material adverse effect, there are no consents of any person or entity required for the transaction contemplated hereby on behalf of Pentegra. 3.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. All building or other permits, certificates of occupancy, concessions, grants, franchises, licenses, certificates of need and other governmental authorizations and approvals required for the conduct of the business of Penegra or waivers thereof, have been duly obtained and are in full force and effect, except as would not have a material adverse effect upon Pentegra. Other than as would not have a material adverse effect, there are no proceedings pending or, to the knowledge of Pentegra, threatened, which may result in the revocation, cancellation or suspension, or any adverse modification, of any such licenses or permits. 3.4 LEGAL PROCEEDINGS. Other than as would not have a material adverse effect, neither Pentegra nor its business or assets is subject to any pending, nor does Pentegra have knowledge of any threatened, litigation, governmental investigation, condemnation or other proceeding against or relating to or affecting Pentegra, its business, assets or the transactions contemplated by this Agreement, and, to the knowledge of Pentegra, no basis for any such action exists, nor is there any legal impediment of which Pentegra has knowledge to the continued operation of its business or the use of its Assets in the ordinary course. 9 3.5 TAXES. Pentegra has filed all tax returns (including tax reports and other statements) required to have been filed by it, and has paid all taxes (including any interest, penalty or additions thereto) required to have been paid by it, other than as would not have a material adverse effect. Pentegra has not received any notice that any tax deficiency or delinquency has been or may be asserted against Pentegra. There are no audits relating to taxes of Pentegra pending or in process or, to the knowledge of Pentegra, threatened. Pentegra is not currently the beneficiary of any waiver of any statute of limitations in respect of taxes nor of any extension of time within which to file any tax return or to pay any tax assessment or deficiency. 3.6 COMMISSIONS AND FEES. Pentegra has not incurred any obligation for any finder's, broker's or similar fees in connection with the transactions contemplated hereby. 3.7 CAPITAL STOCK. The issuance and delivery by Pentegra of shares of Pentegra Common Stock in connection with the acquisition contemplated hereby will be as of the Closing Date duly and validly authorized by all necessary corporate action on the part of Pentegra. The Pentegra Common Stock to be issued in connection with the acquisition contemplated hereby, when issued in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable. 3.8 NO UNTRUE REPRESENTATIONS. No representation or warranty by Pentegra in this Agreement, and no Exhibit or certificate issued by officers or directors of Pentegra and furnished or to be furnished to Contributor or any Shareholder pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained therein not misleading. SECTION 4. COVENANTS OF CONTRIBUTOR AND SHAREHOLDERS. Contributor and Shareholders, jointly and severally, agree that between the date hereof and the Closing Date: 4.1 CONSUMMATION OF AGREEMENT; EXHIBITS. Contributor and Shareholders shall use their best efforts to cause the consummation of the transactions contemplated hereby in accordance with their terms and conditions. Contributor and Shareholders agree to complete the Exhibits hereto to be provided by them in form and substance satisfactory to Pentegra. 4.2 BUSINESS OPERATIONS. Contributor and Shareholders shall operate the Business and use the Assets in the ordinary course. Contributor and Shareholders shall not enter into any lease, contract, indebtedness, commitment, purchase or sale or acquire or dispose of any capital asset relating to the Business or the Assets except in the ordinary course of business. Contributor and Shareholders shall use their best efforts to preserve the Business and Assets intact and shall not take any action that would have an adverse effect on the Business or Assets. Contributor and Shareholders shall use their best efforts to preserve intact the relationships with payors, customers, suppliers, patients and others having significant business relations with Contributor. Contributor and Shareholders shall collect its receivables and pay its trade payables in the ordinary course of business. Contributor and Shareholdes shall not introduce any new method of management, operations or accounting. 4.3 ACCESS AND NOTICE. Contributor and Shareholders shall permit Pentegra and its authorized representatives access to, and make available for inspection, all of the assets and business of Contributor, the Business and the Assets, including employees, customers and suppliers and permit Pentegra and its authorized representatives to inspect and make copies of all documents, records and information with respect to the business or assets of Contributor, the Business or the Assets as Pentegra or its representatives may request. Contributor and Shareholders shall promptly notify Pentegra in writing of (a) any notice or communication relating to a default or event that, with notice or lapse of time or both, could become a default, under any contract, commitment or obligation to which Contributor is a party or relating to the Business or the Assets, and (b) any adverse change in Contributor's or the Business' financial condition or the Assets. 10 4.4 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. Contributor and Shareholders shall use their best efforts to secure all necessary approvals and consents of third parties to the consummation of the transactions contemplated hereby, including consents described on EXHIBIT 2.4. Contributor and Shareholders shall use their best efforts to obtain all licenses, permits, approvals or other authorizations required under any law, rule, regulation, or otherwise to provide the services of Contributor contemplated by the Service Agreement and to conduct the intended business of Contributor and operate the Business and use the Assets. 4.5 ACQUISITION PROPOSALS. From the execution of this Agreement until the earlier of Closing or the termination of this Agreement in accordance with the provisions hereof, Contributor and Shareholders shall not, and shall use its best efforts to cause Contributor's employees, agents and representatives not to, initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any proposal or offer, including without limitation, any proposal or offer to any Shareholder, with respect to a merger, acquisition, consolidation or similar transaction involving, or the purchase of all or any significant portion of the assets or any equity securities of Contributor or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to such proposal or offer, and Contributor and Shareholders will immediately cease any such activities, discussions or negotiations heretofore conducted with respect to any of the foregoing. Contributor and Shareholders shall immediately notify Pentegra if any such inquiries or proposals are received. 4.6 FUNDING OF ACCRUED EMPLOYEE BENEFITS. Contributor hereby covenants and agrees that it will take whatever steps are necessary to pay or fund completely for any accrued benefits, where applicable, or vested accrued benefits for which Contributor or any entity might have any liability whatsoever arising from any insurance, pension plan, employment tax or similar liability of Contributor to any employee or other person or entity (including, without limitation, any Contributor Plan and any liability under employment contracts with Contributor) allocable to services performed prior to the Closing Date. Contributor and Shareholders acknowledge that the purpose and intent of this covenant is to assure that Pentegra shall have no unfunded liability whatsoever at any time after the Closing Date with respect to any of Contributor's employees or similar persons or entities, including, without limitation, any Contributor Plan for the period prior to the Closing Date. 4.7 EMPLOYEE MATTERS. Contributor shall not, without the prior written approval of Pentegra, except as required by law, increase the cash compensation of any Shareholder (other than in the ordinary course of business) or other employee or an independent contractor of Contributor, adopt, amend or terminate any compensation plan, employment agreement, independent contractor agreement, employee policies and procedures or employee benefit plan, take any action that could deplete the assets of any employee benefit, or fail to pay any premium or contribution due or file any report with respect to any employee benefit plan, or take any other actions with respect to its employees or employee matters which might have an adverse effect upon Contributor, its business, assets or prospects. 4.8 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or dividend of any kind will be declared or paid by Contributor, nor will any repurchase of any of Contributor's capital stock be approved or effected. 4.9 REQUIREMENTS TO EFFECT ACQUISITION. Contributor and Shareholders shall use their best efforts to take, or cause to be taken, all actions necessary to effect the acquisition contemplated hereby under applicable law. 4.10 ACCOUNTING AND TAX MATTERS. Contributor and Shareholders will not change in any material respect the tax or financial accounting methods or practices followed by Contributor (including any material change in any assumption underlying, or any method of calculating, any bad debt, contingency or other reserve), except as may be required by law or generally accepted accounting principles. Contributor and Shareholders will duly, accurately and timely (without regard to any extensions of time) file all returns, information statements and other documents relating to taxes of Contributor required to be filed by it, and pay all taxes required to be paid by it, on or before the Closing Date. 4.11 WAIVER OF BULK TRANSFER COMPLIANCE. Pentegra, Shareholders and Contributor hereby waive any compliance with the applicable state Bulk Transfers Act, if any. Contributor and Shareholders covenant and agree that all of the creditors with respect to the Business and the Assets will be paid in full by Contributor prior to the Closing Date, except to extent that any liability to such creditors is assumed by Pentegra pursuant to this Agreement. If required 11 by Pentegra, Contributor and Shareholders shall furnish Pentegra with proof of payment of all creditors with respect to the Business and the Assets. Notwithstanding the foregoing, Contributor and Shareholders may dispute the validity or amount of any such creditor's claim without being deemed to be in violation of this SECTION 4.11, provided that such dispute is in good faith and does not unreasonably delay the resolution of the claim and provided, further that Contributor and Shareholders agree to indemnify and bond Pentegra for such amounts as is satisfactory to Pentegra. 4.12 LEASE. If Contributor leases any of its premises from any Shareholder or other affiliate of Contributor or any shareholder of Contributor, Pentegra shall have entered into a building lease (the "Building Lease") with the owner of such premises on terms and conditions satisfactory to Pentegra, the terms and conditions of which shall include, without limitation, (i) a five year initial term plus three five-year renewal options, (ii) a lease rate equal to the fair market value lease rate, as agreed to by Pentegra, and (iii) such other provisions to be acceptable to Pentegra. 4.13 HIRING OF EMPLOYEES. Contributor and Shareholders shall cooperate with all requests made by Pentegra for the purpose of allowing Pentegra to hire those non-dental employees of Contributor designated by Pentegra, such employment to be effective as of the Closing Date. Notwithstanding the above, Contributor and Shareholders shall remain liable under any Contributor Plans for any claims incurred by any employees or their spouses or dependents, and for all compensation, bonuses, benefits and other such items and other liabilities related to Contributor's employees incurred by Contributor prior to the Closing Date. 4.14 EMPLOYEE BENEFIT PLANS. Contributor agrees and acknowledges that all employees of Contributor hired by Pentegra pursuant to SECTION 4.13 above, shall be treated as "leased employees" (as defined in Code Section 414(n)) of Contributor and shall be treated as Clinic employees for purposes of eligibility and participation in Contributor Plans. 4.15 INSURANCE. Contributor shall cause Pentegra and its affiliates to be named as an additional insured on its liability insurance programs, effective as of the Closing Date. SECTION 5. COVENANTS OF PENTEGRA. Pentegra agrees that between the date hereof and the Closing: 5.1 CONSUMMATION OF AGREEMENT; EXHIBITS. Pentegra shall use its best efforts to cause the consummation of the transactions contemplated hereby in accordance with their terms and provisions. Pentegra agrees to complete the Exhibits hereto to be provided by it. 5.2 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. Pentegra shall use its best efforts to secure all necessary approvals and consents of third parties to the consummation of the transactions contemplated hereby. SECTION 6. COVENANTS OF PENTEGRA AND CONTRIBUTOR AND SHAREHOLDERS. Pentegra, Shareholders and Contributor agree as follows: 6.1 FILINGS; OTHER ACTIONS. Pentegra, Contributor and Shareholders shall cooperate to promptly prepare and file with the Securities Exchange Commission ("SEC") the Registration Statement on Form S-1 (or other appropriate Form) to be filed by Pentegra in connection with its Initial Public Offering (including the prospectus constituting a part thereof, the "Registration Statement"). Pentegra shall obtain all necessary state securities laws or "Blue Sky" permits and approvals required to carry out the transactions contemplated by this Agreement and the Contributor and Shareholders shall furnish all information concerning Contributor and Shareholders as may be reasonable requested in connection with any such action. Contributor and Shareholder represent and warrant that none of the information or documents supplied or to be supplied by it specifically for inclusion in the Registration Statement, by exhibit or otherwise, will, at the time the 12 Registration Statement and each amendment or supplement thereto, if any, becomes effective under the Securities Act of 1933, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Contributor and Shareholders shall be entitled to review the Registration Statement and each amendment thereto, if any, prior to the time each becomes effective under the Securities Act of 1933. Contributor and Shareholders shall furnish Pentegra will all information concerning themselves, their subsidiaries, if any, directors, officers and stockholders and such other matters as may be reasonable requested by Pentegra in connection with the preparation of the Registration Statement and each amendment or supplement thereto, or any other statement, filing, notice or application made by or on behalf of each such party or any of its subsidiaries to any governmental entity in connection with the transactions contemplated by the Other Agreements or this Agreement. SECTION 7. PENTEGRA CONDITIONS PRECEDENT. The obligations of Pentegra hereunder are subject to the fulfillment at or prior to the Closing of each of the following conditions: 7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Contributor and Shareholders contained herein shall have been true and correct in all respects when initially made and shall be true and correct in all respects as of the Closing Date. 7.2 COVENANTS AND CONDITIONS. Contributor and Shareholders shall have performed and complied with all covenants and conditions required by this Agreement to be performed and complied with by Contributor and Shareholders prior to the Closing Date. 7.3 PROCEEDINGS. No action, proceeding or order by any court or governmental body shall have been threatened orally or in writing, asserted, instituted or entered to restrain or prohibit the carrying out of the transactions contemplated hereby. 7.4 NO MATERIAL ADVERSE CHANGE. No material adverse change in the condition (financial or otherwise), operations, assets, liabilities, business or prospects of Contributor shall have occurred since the Balance Sheet Date. 7.5 DUE DILIGENCE REVIEW. By the Closing Date, Pentegra shall have completed a due diligence review of the business, operations and financial statements of Contributor, the Business and the Assets, the results of which shall be satisfactory to Pentegra in its sole discretion. 7.6 APPROVAL BY THE BOARD OF DIRECTORS. This Agreement and the transactions contemplated hereby shall have been approved by the Board of Directors of Pentegra or a committee thereof. 7.7 SERVICE AGREEMENT; GUARANTY AGREEMENT. Contributor and Pentegra shall have executed and delivered a Service Agreement (the "Service Agreement"), in substantially the form attached hereto as EXHIBIT 7.7, pursuant to which Pentegra will provide management services to the Contributor. Each Shareholder shall have executed and delivered a Guaranty Agreement in substantially the form attached as EXHIBIT 4.10 of the Service Agreement pursuant to which Shareholder shall, among other things, guaranty the obligations of Contributor under the Service Agreement. 7.8 EMPLOYMENT ARRANGEMENTS. Contributor shall have terminated, and caused each shareholder of Contributor that has an existing employment agreement with Contributor to have terminated his or her employment agreement with Contributor and shall have executed an employment agreement ("Employment Agreement") with Contributor in form and substance attached hereto as EXHIBIT 7.8 and otherwise satisfactory to Contributor and Pentegra. 7.9 CONSENTS AND APPROVALS. Contributor and Shareholders shall have obtained all necessary government and other third-party approvals and consents. 13 7.10 CLOSING DELIVERIES. Pentegra shall have received all documents, duly executed in form satisfactory to Pentegra and its counsel, referred to in SECTION 9.1. 7.11 DEBT AND RECEIVABLES. There shall be no indebtedness, receivables or payables between Contributor and its shareholders or affiliates and Contributor shall not have any liabilities, including indebtedness, guaranties and capital leases, that are not set forth on EXHIBIT 2.19. 7.12 INSURANCE. Contributor and Shareholders shall have named Pentegra as an additional insured on their liability insurance program in accordance with SECTION 4.15. 7.13 NO CHANGE IN WORKING CAPITAL. There shall have been no material change in the working capital of Contributor since the Balance Sheet Date. 7.14 SECURITIES APPROVAL. The Registration Statement shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC. At or prior to the date that the Registration Statement is declared effective by the SEC, Pentegra shall have received all state securities and "Blue Sky" permits necessary to consummate the transactions contemplated hereby. The Pentegra Common Stock shall have been approved for listing on Nasdaq or other exchange selected by Pentegra, subject only to official notification of issuance. SECTION 8. CONTRIBUTOR'S AND SHAREHOLDERS' CONDITIONS PRECEDENT. The obligations of Contributor and Shareholders hereunder are subject to fulfillment at or prior to the Closing of each of the following conditions: 8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Pentegra contained herein shall have been true and correct in all respects when initially made and shall be true and correct in all respects as of the Closing Date. 8.2 COVENANTS AND CONDITIONS. Pentegra shall have performed and complied with all covenants and conditions required by this Agreement to be performed and complied with by Pentegra prior to the Closing Date. 8.3 PROCEEDINGS. No action, proceeding or order by any court or governmental body shall have been threatened orally or in writing, asserted, instituted or entered to restrain or prohibit the carrying out of the transactions contemplated hereby. 8.4 CLOSING DELIVERIES. Contributor shall have received all documents, duly executed in form satisfactory to Contributor and its counsel, referred to in SECTION 9.2. 8.5 SECURITIES APPROVAL. The Registration Statement shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC. At or prior to the date that the Registration Statement is declared effective by the SEC, Pentegra shall have received all state securities and "Blue Sky" permits necessary to consummate the transactions contemplated hereby. The Pentegra Common Stock shall have been approved for listing on Nasdaq or other exchange selected by Pentegra, subject only to official notification of issuance. 14 SECTION 9. CLOSING DELIVERIES. 9.1 DELIVERIES OF CONTRIBUTOR AND SHAREHOLDERS. Within five business days after requested by Pentegra, Contributor and Shareholders shall deliver to Pentegra the following, all of which shall be in a form satisfactory to counsel to Pentegra and shall be held by Jackson & Walker, L.L.P. (counsel for Pentegra) in escrow pending Closing, pursuant to an escrow agreement or letter agreement in form and substance mutually acceptable to the parties hereto: (a) an executed original Service Agreement and executed originals of all documents required by that agreement, including but not limited to the Guaranty Agreement and security agreement referred to therein; (b) executed Employment Agreements; (c) a copy of the resolutions of the Board of Directors of Contributor authorizing the execution, delivery and performance of this Agreement, the Service Agreement, the Employment Agreements and all related documents and agreements each certified by the Secretary as being true and correct copies of the original thereof; (d) a bill of sale conveying the Assets to Pentegra; (e) an assignment of each contract, agreement and lease being assigned to and assumed by Pentegra; (f) certificates of the Shareholders and a duly authorized officer of Contributor dated as of the Closing Date, (i) as to the truth and correctness of the representations and warranties of Contributor and Shareholder contained herein; (ii) as to the performance of and compliance by Contributor and Shareholder with all covenants contained herein; and (iii) certifying that all conditions precedent of Contributor and Shareholders to the Closing have been satisfied; (g) a certificate of the Secretary of Contributor certifying as to the incumbency of the directors and officers of Contributor and as to the signatures of such directors and officers who have executed documents delivered at the Closing on behalf of Contributor; (h) a certificate, dated within 30 days of the Closing Date, of the Secretary of the State of incorporation of Contributor and any state of required foreign qualification of Contributor establishing that Contributor is in existence and is in good standing to transact business in its state of incorporation; (i) an opinion of counsel to Contributor and Shareholder opining as to the execution and delivery of this Agreement and the other documents and agreements to be executed pursuant hereto, the good standing and authority of Contributor, the enforceability of this Agreement and the other agreements and documents to be executed in connection herewith, and other matters reasonably requested by Pentegra; (j) non-foreign affidavits executed by Contributor; (k) all authorizations, consents, approvals, permits and licenses referred to in SECTIONS 2.3 and 2.4; (l) an executed Registration Rights Agreement between Pentegra and Contributor, in substantially the form attached hereto as EXHIBIT 9.1(l) (the "Registration Rights Agreement"); and (m) such other instruments and documents as reasonably requested by Pentegra to carry out and effect the purpose and intent of this Agreement. 15 9.2 DELIVERIES OF PENTEGRA. On or before the Closing Date, Pentegra shall deliver to Contributor and Shareholder, the following, all of which shall be in a form satisfactory to counsel to Contributor and Shareholders and shall be held by Jackson & Walker, L.L.P. (counsel for Pentegra) in escrow pending Closing, pursuant to an escrow agreement or letter agreement in form and substance mutually acceptable to the parties hereto: (a) the Acquisition Consideration; (b) an executed Service Agreement; (c) an assumption of each contract, agreement and lease being assigned to and assumed by Pentegra; (d) a copy of the resolutions of the Board of Directors of Pentegra (or a committee thereof) authorizing the execution, delivery and performance of this Agreement and all related documents and agreements each certified by the Secretary as being true and correct copies of the original thereof; (e) certificates of the President of Pentegra, dated as of the Closing Date, (i) as to the truth and correctness of the representations and warranties of Pentegra contained herein; (ii) as to the performance of and compliance by Pentegra with all covenants contained herein; and (iii) certifying that all conditions precedent of Pentegra to the Closing have been satisfied; (f) a certificate of the Secretary of Pentegra certifying as to the incumbency of the directors and officers of Pentegra and as to the signatures of such directors and officers who have executed documents delivered at the Closing on behalf of Pentegra; (g) certificates, dated within 30 days of the Closing Date, of the Secretary of the State of Delaware establishing that Pentegra is in existence and are in good standing to transact business in the State of Delaware and the State of incorporation of Contributor; (h) an opinion of counsel to Pentegra opining as to the execution and delivery of this Agreement and the other documents and agreements to be executed pursuant hereto, the good standing and authority of Pentegra, the enforceability of this Agreement and the other agreements and documents to be executed in connection herewith, and other matters reasonably requested by Contributor; (i) the executed Registration Rights Agreement; and (j) such other instruments and documents as reasonably requested by Contributor to carry out and effect the purpose and intent of this Agreement. SECTION 10. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION. 10.1 NATURE AND SURVIVAL. All statements contained in this Agreement or in any Exhibit attached hereto, any agreement executed pursuant hereto, and any certificate executed and delivered by any party pursuant to the terms of this Agreement, shall constitute representations and warranties of Contributor and Shareholders, jointly and severally, or of Pentegra, as the case may be. All such representations and warranties, and all representations and warranties expressly labeled as such in this Agreement shall survive the date of this Agreement and the Closing Date for a period of five (5) years following the Closing Date, except that (i) the representations and warranties with respect to environmental and medical waste laws and health care laws and matters shall survive for a period of fifteen (15) years and tax representations shall survive until one year after the expiration of the applicable statute of limitations. Each party covenants with the other parties not to make any claim with respect to such representations and warranties, against any party after the date on which such survival period shall terminate. No party shall be entitled to claim indemnity from any other party pursuant to SECTION 10.2 or 10.3 hereof, unless such party has timely given the notice required in SECTION 10.2, 10.3 or 10.4 hereof, as the case may be. Each party hereby releases, acquits and discharges the other party 16 from any and all claims and demands, actions and causes of action, damages, costs, expenses and rights of setoff with respect to which the notices required by SECTION 10.2, 10.3 or 10.4, as applicable, are not timely provided. 10.2 INDEMNIFICATION BY PENTEGRA. PENTEGRA (FOR PURPOSES OF THIS SECTION 10.2 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, "INDEMNITOR"), SHALL INDEMNIFY AND HOLD CONTRIBUTOR AND ITS SHAREHOLDERS, AGENTS AND EMPLOYEES (EACH OF THE FOREGOING, INCLUDING CONTRIBUTOR AND SHAREHOLDERS, FOR PURPOSES OF THIS SECTION 10.2 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, AN "INDEMNIFIED PERSON"), HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, DAMAGES, ACTIONS, SUITS, COSTS, DEFICIENCIES AND EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE FEES AND DISBURSEMENTS OF COUNSEL THROUGH APPEAL) ARISING FROM OR BY REASON OF OR RESULTING FROM: (A) ANY BREACH BY INDEMNITOR OF ANY REPRESENTATION, WARRANTY, AGREEMENT OR COVENANT CONTAINED IN THIS AGREEMENT (INCLUDING THE EXHIBITS HERETO) AND EACH DOCUMENT, CERTIFICATE OR OTHER INSTRUMENT FURNISHED OR TO BE FURNISHED BY INDEMNITOR HEREUNDER, AND (B) AFTER THE CLOSING DATE, INDEMNITOR'S OWNERSHIP OF THE ASSETS, AND (C) ANY LIABILITY UNDER THE SECURITIES ACT, THE EXCHANGE ACT OR ANY OTHER FEDERAL OR STATE "BLUE SKY" OR SECURITIES LAWS OR REGULATION, AT COMMON LAW OR OTHERWISE, ARISING OUT OF OR BASED UPON ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT RELATING TO PENTEGRA CONTAINED IN ANY PRELIMINARY PROSPECTUS, THE REGISTRATION STATEMENT OR ANY PROSPECTUS FORMING A PART THEREOF, OR ANY AMENDMENT THEREOF OR SUPPLEMENT THERETO, ARISING OUT OF OR BASED UPON ANY OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT RELATING TO PENTEGRA REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING. IN CONNECTION WITH INDEMNITOR'S OBLIGATION TO INDEMNIFY FOR EXPENSES, INDEMNITOR SHALL REIMBURSE EACH INDEMNIFIED PERSON FOR ALL SUCH EXPENSES AS THEY ARE INCURRED BY SUCH INDEMNIFIED PERSON, PROVIDED THAT SUCH INDEMNIFIED PERSON AGREES IN WRITING TO REFUND ALL SUCH REIMBURSED EXPENSES IF AND TO THE EXTENT THAT IT IS FINALLY JUDICIALLY DETERMINED THAT SUCH INDEMNIFIED PERSON IS NOT ENTITLED TO INDEMNIFICATION HEREUNDER. 10.3 INDEMNIFICATION BY CONTRIBUTOR AND SHAREHOLDERS. CONTRIBUTOR AND SHAREHOLDERS (FOR PURPOSES OF THIS SECTION 10.3 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, "INDEMNITOR"), JOINTLY AND SEVERALLY, SHALL INDEMNIFY AND HOLD PENTEGRA AND ITS AFFILIATES, OFFICERS, DIRECTORS, SHAREHOLDERS, AGENTS AND EMPLOYEES (EACH OF THE FOREGOING, INCLUDING PENTEGRA, FOR PURPOSES OF THIS SECTION 10.3 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, AN "INDEMNIFIED PERSON") HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, CLAIMS, DAMAGES, ACTIONS, SUITS, COSTS, DEFICIENCIES AND EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE FEES AND DISBURSEMENTS OF COUNSEL THROUGH APPEAL) ARISING FROM OR BY REASON OF OR RESULTING FROM OR WITH RESPECT TO: (A) ANY BREACH BY INDEMNITOR OF ANY REPRESENTATION, WARRANTY, AGREEMENT OR COVENANT CONTAINED IN THIS AGREEMENT (INCLUDING THE EXHIBITS HERETO) AND EACH DOCUMENT, CERTIFICATE, OR OTHER INSTRUMENT FURNISHED OR TO BE FURNISHED BY INDEMNITOR HEREUNDER, AND (B) PRIOR TO AND AFTER THE CLOSING DATE, THE INDEMNITOR'S MANAGEMENT AND CONDUCT OF THE BUSINESS AND OWNERSHIP OR OPERATION OF THE ASSETS, 17 (C) ANY ALLEGED ACT OR NEGLIGENCE OF INDEMNITOR OR ITS EMPLOYEES, AGENTS AND INDEPENDENT CONTRACTORS IN OR ABOUT CONTRIBUTOR'S BUSINESS WHETHER ON OR AFTER THE CLOSING DATE, (D) ANY VIOLATION BY CONTRIBUTOR OR ITS SHAREHOLDERS OR THEIR CONSULTANTS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND AFFILIATES OF STATE OR FEDERAL LAWS GOVERNING HEALTHCARE FRAUD AND ABUSE, OR ANY OVERPAYMENT OR OBLIGATION ARISING OUT OF OR RESULTING FROM ACTIONS OF THE CONTRIBUTOR OR SHAREHOLDERS RELATING TO CLAIMS SUBMITTED TO ANY THIRD PARTY PAYOR, WHETHER ON OR AFTER THE CLOSING DATE, (E) TAXES OF CONTRIBUTOR OR ANY SHAREHOLDER OR ANY OTHER PERSON OR ENTITY RELATED TO OR AFFILIATED WITH THE CONTRIBUTOR OR SHAREHOLDER ARISING FROM OR AS A RESULT OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (F) ANY LIABILITY OF CONTRIBUTOR OR THE SHAREHOLDERS FOR COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES) INCURRED IN CONNECTION WITH THE NEGOTIATION, PREPARATION OF CLOSING OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE OTHER DOCUMENTS TO BE EXECUTED IN CONNECTION HEREWITH, (G) ANY ACCRUED UNFUNDED RETIREMENT OR PENSION PLAN LIABILITIES, (H) ANY LIABILITIES THAT ARE NOT SET FORTH ON EXHIBIT 1.3(b), OR (I) ANY LIABILITY UNDER THE SECURITIES ACT, THE EXCHANGE ACT OR ANY OTHER FEDERAL OR STATE "BLUE SKY" OR SECURITIES LAWS OR REGULATION, AT COMMON LAW OR OTHERWISE, ARISING OUT OF OR BASED UPON ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT RELATING TO CONTRIBUTOR OR ITS SHAREHOLDERS AND PROVIDED TO PENTEGRA OR ITS COUNSEL BY THE CONTRIBUTOR OR ITS SHAREHOLDERS SPECIFICALLY FOR INCLUSION IN ANY PRELIMINARY PROSPECTUS, THE REGISTRATION STATEMENT OR ANY PROSPECTUS FORMING A PART THEREOF, OR ANY AMENDMENT THEREOF OR SUPPLEMENT THERETO, ARISING OUT OF OR BASED UPON ANY OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT RELATING TO CONTRIBUTOR OR ITS SHAREHOLDERS REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING. IN CONNECTION WITH INDEMNITOR'S OBLIGATION TO INDEMNIFY FOR EXPENSES, INDEMNITOR SHALL REIMBURSE EACH INDEMNIFIED PERSON FOR ALL SUCH EXPENSES AS THEY ARE INCURRED BY SUCH INDEMNIFIED PERSON, PROVIDED THAT SUCH INDEMNIFIED PERSON AGREES IN WRITING TO REFUND ALL SUCH REIMBURSED EXPENSES IF AND TO THE EXTENT THAT IT IS FINALLY JUDICIALLY DETERMINED THAT SUCH INDEMNIFIED PERSON IS NOT ENTITLED TO INDEMNIFICATION HEREUNDER. 10.4 INDEMNIFICATION PROCEDURE. Within sixty (60) days after Indemnified Person receives written notice of the commencement of any action or other proceeding in respect of which indemnification or reimbursement may be sought hereunder, or within such lesser time as may be provided by law for the defense of such action or proceeding, such Indemnified Person shall notify Indemnitor thereof. If any such action or other proceeding shall be brought against any Indemnified Person, Indemnitor shall, upon written notice given within a reasonable time following receipt by Indemnitor of such notice from Indemnified Person, be entitled to assume the defense of such action or proceeding with counsel chosen by Indemnitor and reasonably satisfactory to Indemnified Person; provided, however, that any Indemnified Person may at its own expense retain separate counsel to participate in such defense. Notwithstanding the foregoing, Indemnified Person shall have the right to employ separate counsel at Indemnitor's expense and to control its own defense of such action or proceeding if, in the reasonable opinion of counsel to such Indemnified Person, (a) there are or may be legal defenses available to such Indemnified Person or to other Indemnified Persons that are different from or additional to those available to Indemnitor and which could not be adequately advanced by counsel chosen by Indemnitor, or (b) a conflict or potential conflict exists between Indemnitor and such Indemnified Person that 18 would make such separate representation advisable; provided, however, that in no event shall Indemnitor be required to pay fees and expenses hereunder for more than one firm of attorneys of Indemnified Person in any jurisdiction in any one action or proceeding or group of related actions or proceedings. Indemnitor shall not, without the prior written consent of any Indemnified Person, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding to which such Indemnified Person is a party unless such settlement, compromise or consent includes an unconditional release of such Indemnified Person from all liability arising or potentially arising from or by reason of such claim, action or proceeding. 10.5 RIGHT OF SETOFF. In the event of any breach of warranty, representation, covenant or agreement by Contributor or any Shareholder giving rise to indemnification under SECTION 10.3 or SECTION 10.4 hereof, Pentegra shall be entitled to offset the amount of damages incurred by it as a result of such breach of warranty, representation, covenant or agreement against any amounts payable by Pentegra, including the amounts payable under the Service Agreement. SECTION 11. TERMINATION. This Agreement may be terminated: (a) at any time by mutual agreement of all parties; (b) at any time by Pentegra if any representation or warranty of Contributor or Shareholder contained in this Agreement or in any certificate or other document executed and delivered by Contributor or any Shareholder pursuant to this Agreement is or becomes untrue or breached in any material respect or if Contributor or any Shareholder fails to comply in any material respect with any covenant or agreement contained herein, and any such misrepresentation, noncompliance or breach is not cured, waived or eliminated within twenty (20) days after receipt of written notice thereof; (c) at any time by Contributor or any Shareholder if any representation or warranty of Pentegra contained in this Agreement or in any certificate or other document executed and delivered by Pentegra pursuant to this Agreement is or becomes untrue or breached in any material respect or if Pentegra fails to comply in any material respect with any covenant or agreement contained herein and such misrepresentation, noncompliance or breach is not cured, waived or eliminated within twenty (20) days after receipt of written notice thereof; (d) by Pentegra, Shareholders or Contributor if the transaction contemplated hereby shall not have been consummated by December 31, 1997; or (e) by Pentegra at any time prior to the Closing Date if Pentegra determines in its sole discretion as the result of its legal, financial and operational due diligence with respect to Contributor, that such termination is desirable and in the best interests of Pentegra. SECTION 12. TRANSFER REPRESENTATIONS. 12.1 TRANSFER RESTRICTIONS. For a period of one year from the Closing Date, Contributor shall not voluntarily (a) sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose of (i) any shares of Pentegra Common Stock received by such party hereunder, (ii) any interest (including without limitation, an option to buy or sell) in any shares of Pentegra Common Stock, in whole or in part, and no such attempted transfer shall be treated as effective for any purpose or (b) engage in any transaction, whether or not with respect to any shares of Pentegra Common Stock or any interest therein, the intent or effect of which is to reduce the risk of owning shares of Pentegra Common Stock. The certificates evidencing the Pentegra Common Stock delivered to Contributor pursuant to the terms hereof will bear a legend substantially in the form set forth below and containing such other information as Pentegra may deem necessary or appropriate: The shares represented by this certificate may not be voluntarily sold, assigned, exchanged, transferred, encumbered, pledged, distributed, appointed or otherwise disposed of, and the issuer shall not be required to 19 give effect to any attempted voluntary sale, assignment, exchange, transfer, encumbrance, pledge, distribution, appointment or other disposition prior to _________ [date that is one year from the Closing Date]. Upon the written request of the holder of this certificate, the issuer agrees to remove this restrictive legend (and any stop order placed with the transfer agent) after the date specified above. 12.2 INVESTMENTS; COMPLIANCE WITH LAW. Contributor and Shareholders acknowledge that the shares of Pentegra Common Stock to be delivered to Contributor pursuant to this Agreement have not been and will not be registered under the Securities Act of 1933 and may not be resold without compliance with the Securities Act of 1933. The Pentegra Common Stock to be acquired by Contributor pursuant to this Agreement is being acquired solely for its own account, for investment purposes only and with no present intention of distributing, selling or otherwise disposing of it in connection with a distribution. Contributor covenants, warrants and represents that none of the shares of Pentegra Common Stock issued to it will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise disposed of except after full compliance with all of the applicable provisions of the Securities Act, as amended, and the rules and regulations of the Securities Exchange Commission and applicable state securities laws and regulations. All certificates evidencing shares of Pentegra Common Stock shall bear the following legend in addition to the legend referenced in SECTION 12.1. The shares represented hereby have not been registered under the Securities Act of 1933 (the "Act") and may only be sold or otherwise transferred if the holder hereof complies with the Act and applicable securities laws. In addition, certificates evidencing shares of Pentegra Common Stock shall bear any legend required by the securities or blue sky laws of any state where Contributor resides. 12.3 ECONOMIC RISK; SOPHISTICATION. Contributor and Shareholders are able to bear the economic risk of an investment in Pentegra Common Stock acquired pursuant to this Agreement and can afford to sustain a total loss of such investment and have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of the proposed investment and therefore have the capacity to protect their own interests in connection with the acquisition of the Pentegra Common Stock. Contributor, Shareholders and their representatives have had an adequate opportunity to ask questions and receive answers from the officers of Pentegra concerning any and all matters relating to the background and experience of the officers and directors of Pentegra, the plans for the operations of the business of Pentegra, and any plans for additional acquisitions and the like. Contributor, Shareholders and their representatives have asked any and all questions in the nature described in the preceding sentence and all questions have been answered to their satisfaction. Contributor and Shareholders are "accredited investors" as defined in Regulation D of the Securities Act of 1933, as amended. SECTION 13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Contributor and Shareholders recognize and acknowledge that they had in the past, currently have, and in the future may possibly have, access to certain confidential information of Pentegra that is valuable, special and unique assets of Pentegra's businesses. Contributor and Shareholders agree that it will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, unless (i) such information becomes available to or known by the public generally through no fault of Contributor or Shareholders, (ii) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (ii), Contributor and Shareholders shall, if possible, give prior written notice thereof to the other parties hereto, and provide such other parties hereto with the opportunity to contest such disclosure, (iii) Contributor and Shareholders reasonably believe that such disclosure is required in connection with the defense of a lawsuit against the disclosing party, or (iv) Contributor and Shareholders are the sole and exclusive owner of such confidential information as a result of the transactions contemplated hereunder or otherwise. In the event of a breach or threatened breach by Contributor or Shareholders of the provisions of this SECTION 13, Pentegra shall be entitled to an injunction restraining Contributor and Shareholders from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting Pentegra from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. The obligations of the parties under this SECTION 13 shall survive the termination of this Agreement. 20 SECTION 14. MISCELLANEOUS. 14.1 TAX COVENANT. The parties intend that the transactions contemplated by this Agreement, together with the transactions contemplated by the Other Agreement and the Initial Public Offering, will qualify as an exchange meeting the requirements of Section 351 of the Code. The tax returns (and schedules thereto) of Shareholders, Contributor and Pentegra shall be filed in a manner consistent with such intention and Contributor and Pentegra shall each provide the other with such tax information, reports, returns or schedules as may be reasonably required to assist the other in so reporting the transactions contemplated hereby. 14.2 NOTICES. Any communications required or desired to be given hereunder shall be deemed to have been properly given if sent by hand delivery, or by facsimile AND overnight courier, to the parties hereto at the following addresses, or at such other address as either party may advise the other in writing from time to time: If to Pentegra: Pentegra Dental Group, Inc. 2999 N. 44th Street, Suite 650 Phoenix, Arizona 85018 Attn: President Facsimile: (602) 952-0554 with a copy of each notice directed to Pentegra to: James S. Ryan, III, Esquire Jackson & Walker, L.L.P. 901 Main Street Dallas, Texas 75202 Facsimile: (214) 953-5822 If to Contributor or Shareholders: To address set forth on EXHIBIT 14.2 with a copy to: Person and address set forth on EXHIBIT 14.2 All such communications shall be deemed to have been delivered on the date of hand delivery or on the next business day following the deposit of such communications, properly addressed and postage prepaid with the overnight courier. 14.3 FURTHER ASSURANCES. Each party hereby agrees to perform any further acts and to execute and deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement. 14.4 EACH PARTY TO BEAR COSTS. Subject to SECTION 14.12, each of the parties to this Agreement shall pay all of the costs and expenses incurred by such party in connection with the transactions contemplated by this Agreement, whether or not such transactions are consummated. Without limiting the generality of the foregoing and whether or not such liabilities may be deemed to have been incurred in the ordinary course of business, Pentegra shall not be liable to or required to pay, either directly or indirectly, any fees and expenses of legal counsel, accountants, auditors or other persons or entities retained by Contributor or any Shareholder for services rendered in connection with negotiating and closing the transactions contemplated by this Agreement or the documents to be executed in connection herewith, whether or not such costs or expenses are incurred before or after the Closing Date. 21 14.5 PUBLIC DISCLOSURES. Each party shall keep this Agreement and its terms confidential, and shall make no press release or public disclosure, either written or oral, regarding the transactions contemplated by this Agreement without the prior written consent of the other party, provided that the foregoing shall not prohibit any disclosure (a) by press release, filing or otherwise that Pentegra has determined in good faith judgment to be required by Federal securities laws or the rules of the National Association of Securities Dealers, (b) to attorneys, accountants, investment bankers or other agents of the parties assisting the parties in connection with the transactions contemplated by this Agreement, and (c) by Pentegra in connection with the conduct of its Initial Public Offering and conducting an examination of the operations and assets of Contributor. 14.6 GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF INCORPORATION OF CONTRIBUTOR AND APPLIED WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAWS PRINCIPLES. 14.7 CAPTIONS. The captions or headings in this Agreement are made for convenience and general reference only and shall not be construed to describe, define or limit the scope or intent of the provisions of this Agreement. 14.8 INTEGRATION OF EXHIBITS. All Exhibits attached to this Agreement are integral parts of this Agreement as if fully set forth herein, and all statements appearing therein shall be deemed disclosed for all purposes and not only in connection with the specific representation in which they are explicitly referenced. 14.9 ENTIRE AGREEMENT/AMENDMENT. THIS INSTRUMENT, INCLUDING ALL EXHIBITS ATTACHED HERETO, CONTAINS THE ENTIRE AGREEMENT OF THE PARTIES AND SUPERSEDES ANY AND ALL PRIOR OR CONTEMPORANEOUS AGREEMENTS BETWEEN THE PARTIES, WRITTEN OR ORAL, WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY. 14.10 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which when so executed shall be deemed to be an original, and such counterparts shall together constitute and be one and the same instrument 14.11 BINDING EFFECT/ASSIGNMENT. This Agreement shall be binding on, and shall inure to the benefit of, the parties hereto, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No party may assign any right or obligation hereunder without the prior written consent of the other parties; provided, however, that Pentegra may assign its rights and delegate its obligations hereunder to any entity that is an affiliate of Pentegra. For purposes of this Agreement an "affiliate" of Pentegra shall include any entity that, through one or more intermediaries is, controlled, controlled by or under common control with, Pentegra. Upon any such assignment prior to the Closing, all references herein to Pentegra (including those to Pentegra Common Stock) shall be deemed to include references to the assignee and the assignee's common stock. Notwithstanding any such assignment, Pentegra shall not, absent a written release from Contributor, be relieved from its obligations to Contributor under this Agreement. 14.12 COSTS OF ENFORCEMENT. In the event that Pentegra, on the one hand, or Contributor, on the other hand, file suit in any court against any other party to enforce the terms of this Agreement against the other party or to obtain performance by it hereunder, the prevailing party will be entitled to recover all reasonable costs, including reasonable attorneys' fees, from the other party as part of any judgment in such suit. The term "prevailing party" shall mean the party in whose favor final judgment after appeal (if any) is rendered with respect to the claims asserted in the Complaint. "Reasonable attorneys' fees" are those reasonable attorneys' fees actually incurred in obtaining a judgment in favor of the prevailing party. 14.13 PRORATIONS. Contributor agrees to reimburse Pentegra at Closing a pro rata portion of all taxes levied upon the Assets for the calendar year in which the Closing occurs. Such taxes shall be estimated, apportioned and pro-rated among Contributor and Pentegra as of the Closing Date, and the prorated amount due Pentegra shall be credited to the cash portion of the Purchase Consideration. Upon payment by Pentegra of such taxes actually assessed and paid on the Assets, Pentegra shall calculate the apportionment of such taxes and shall pay Contributor or may demand from Contributor, and Contributor agrees to pay, the amount necessary to correct the estimate and proration made at Closing. 22 14.14 AMENDMENTS; WAIVERS. This Agreement may be amended, modified or supplemented only by an instrument in writing executed by all the parties hereto. Any waiver of the terms and conditions hereof must be in writing, and signed by the parties hereto. The waiver of any of the terms and conditions of this Agreement shall not be construed as a waiver of any other terms and conditions hereof. 14.15 ARBITRATION. Upon the request of either Pentegra or the Contributors or Shareholders (hereinafter referred to as a "Party"), whether made before or after the institution of any legal proceeding, any dispute among the parties hereto in any way arising out of, related to, or in connection with this Agreement (hereinafter a "Dispute"), shall be resolved by binding arbitration in accordance with the terms of this Section (hereinafter the "Arbitration Program"). All Disputes between the Parties shall be resolved by binding arbitration administered by the American Arbitration Association (the "AAA") in accordance with the terms of this Arbitration Program, the Commercial Arbitration Rules of the AAA. In the event of any inconsistency between this Arbitration Program and those rules or statutes, then the terms of this Arbitration Program shall control. The parties hereto agree to adhere to all warranties and covenants (as described herein) until such time as the arbitration process has been completed and the arbitrators have determined each party's post-arbitration obligations and responsibilities as it relates to such warranties and covenants. No provision of, nor the exercise of any rights under, this Arbitration Program shall limit the right of any Party at any time to seek or use ancillary or preliminary judicial or non-judicial self help remedies for the purposes of obtaining, perfecting, preserving, or foreclosing upon any personal property in which there has been granted a security interest or lien by a Party in the Documents. In Disputes involving indebtedness or other monetary obligations, each Party agrees that the other Party may proceed against all liable persons, jointly and severally against one or more of them, without impairing rights against other liable persons. Nor shall a Party be required to join the principal obligor or any other liable persons (e.g., sureties or guarantors) in any proceeding against a particular person. A Party may release or settle with one or more liable persons as the Party deems fit without releasing or impairing rights to proceed against any persons not so released. All statutes of limitation that would otherwise be applicable shall apply to any arbitration proceeding. The party seeking arbitration shall notify the other Party, in writing, of that Party's desire to arbitrate a dispute; and each Party shall, within twenty (20) days from the date such notification is received, select an arbitrator, and those two arbitrators shall select a third arbitrator within ten (10) days thereafter. The issues or claims in dispute shall be committed to writing, separately stated and numbered, and each party's proposed answers or contentions shall be signed below the questions. Failure by a party to select an arbitrator within the prescribed time period shall serve as that Party's acquiescence and acceptance of the other party's selection of arbitrator. The arbitrators shall resolve all Disputes in accordance with the applicable substantive law. Any Dispute shall be decided by a majority vote of three arbitrators, unless the claim or amount in controversy does not exceed $100,000.00, in which case a single arbitrator (who shall have authority to render a maximum award of $100,000.00, including all damages of any kind, costs and fees) may decide the Dispute. The arbitrators may grant any remedy or relief that the arbitrators deem just and equitable and within the scope of this Arbitration Program. The arbitrators may also grant such ancillary relief as is necessary to make effective the award. In all arbitration proceedings the arbitrators shall make specific and written findings of fact and conclusions of law. In all arbitration proceedings in which the amount in controversy exceeds $100,000.00, in the aggregate, the Parties shall have in addition to the statutory right to seek vacation or modification of any award pursuant to applicable law, the right to seek vacation or modification of any award that is based in whole, or in part, on an incorrect or erroneous ruling of law by appeal to an appropriate court having jurisdiction; provided, however, that any such application for vacation or modification of an award based on an incorrect ruling of law must be filed in a court having jurisdiction over the Dispute within 15 days from the date the award in rendered. The arbitrators' findings of fact shall be binding on all Parties and shall not be subject to further review except as otherwise allowed by applicable law. To the maximum extent practicable, an arbitration proceeding hereunder shall be concluded within 180 days of the filing of the Dispute with AAA. Arbitration proceedings hereunder shall be conducted where agreed to in writing by the Parties or, in the absence of such agreement in Phoeniz, Arizona or the headquarters of Pentegra if other than Phoeniz, Arizona. The provisions of this Arbitration Program shall survive any termination, amendment, 23 or expiration of the Documents, unless the Parties otherwise expressly agree in writing making specific reference to this Arbitration Program. To the extent permitted by applicable law, the arbitrator shall have the power to award recovery of all costs and fees (including attorney's fees, administrative fees, and arbitrators' fees) to the prevailing Party. This Arbitration Program may be amended, changed, or modified only by a writing which specifically refers to this Arbitration Program and which is signed by all the Parties. If any term, covenant, condition or provision of the Arbitration Program is found to be unlawful or invalid or unenforceable, such illegality or invalidity or unenforceable shall not affect the legality, validity or enforceability of the remaining parts of this Arbitration Program, and all such remaining parts hereof shall be valid and enforceable and have full force and effect as if the illegal, invalid or unenforceable part had not been included. Each Party agrees to keep all Disputes and arbitration proceedings strictly confidential, except for disclosures of information required in the ordinary course of business of the Parties or by applicable law or regulation. 14.16 SEVERABILITY. If any provision of this Agreement shall be found to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable and this Agreement shall be construed and enforced as if such provision never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect. In lieu of such provision, there shall be added automatically as part of this Agreement, a provision as similar in its terms to such provision as may be possible and be legal, valid and enforceable. [End of Page] 24 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. --------------------------------------- By: --------------------------------------- Its: --------------------------------------- PENTEGRA DENTAL GROUP, INC. By: --------------------------------------- Its: --------------------------------------- --------------------------------------- ------------------------------------- , D.D.S. 25 INDEX TO EXHIBITS Exhibit Description ------- ----------- Annex I Acquisition Consideration A Target Companies 1.1 Assets 1.2(b) Excluded Assets 1.3(b) Assumed Liabilities 2.1 Corporate Existence; Good Standing; Shareholders/Ownership 2.3 Permits and Licenses 2.4 Consents 2.8 Leases 2.10 Real and Personal Property; Encumbrances 2.12 Patents and Trademarks; Names 2.13 Directors and Officers; Payroll Information; Employment Agreements 2.15 Contracts (other than Leases and Employment Agreements) 2.16 Subsequent Events 2.19 Debt 2.20 Insurance Policies 2.21 Employee Benefit Plans 2.26 Banking Relations 2.28 Payors 7.7 Form of Service Agreement 7.8 Form of Employment Agreement 9.1(l) Form of Registration Rights Agreement 14.2 Addresses for Notice 26 ANNEX I ACQUISITION CONSIDERATION The aggregate consideration to be received by the Contributor pursuant to the Agreement (the "Acquisition Consideration") is the following: Shares of Pentegra Common Stock equal to $_________ divided by the initial public offering price of Pentegra. Cash in the amount of $________________________. No fractional shares of Pentegra Common Stock will be issued; rather, shares of Pentegra Common Stock to be issued to Contributor shall be rounded to the nearest whole share. 27 EX-2.4 5 EXHIBIT 2.4 EXHIBIT 2.4 FORM OF AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG PENTEGRA DENTAL GROUP, INC., __________________________________ [target entity] and _______________________________ [shareholders] TABLE OF CONTENTS Page ---- Section 1. TERMS OF THE REORGANIZATION 1.2 MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1.3 CERTIFICATE OF INCORPORATION; BYLAWS . . . . . . . . . . . . . . . . . .2 1.7 SUBSEQUENT ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Section 2. REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS. 2.1 CORPORATE EXISTENCE; GOOD STANDING . . . . . . . . . . . . . . . . . . .2 2.2 POWER AND AUTHORITY FOR TRANSACTIONS . . . . . . . . . . . . . . . . . .3 2.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. . . . . . . . . . . .3 2.4 CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 2.5 DISTRIBUTIONS AND REPURCHASES. . . . . . . . . . . . . . . . . . . . . .3 2.6 CORPORATE RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . .3 2.7 COMPANY'S FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . .4 2.8 LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 2.9 CONDITION OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . .4 2.10 TITLE TO AND ENCUMBRANCES ON PROPERTY. . . . . . . . . . . . . . . . . .4 2.11 INVENTORIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 2.12 INTELLECTUAL PROPERTY RIGHTS; NAMES. . . . . . . . . . . . . . . . . . .4 2.13 DIRECTORS AND OFFICERS; PAYROLL INFORMATION; EMPLOYEES . . . . . . . . .4 2.14 LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . .5 2.15 CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 2.16 SUBSEQUENT EVENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .6 2.17 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 2.18 COMMISSIONS AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . .7 2.19 LIABILITIES; DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . .7 2.20 INSURANCE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . .7 2.21 EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . . . .7 2.22 ADVERSE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . .8 2.23 COMPLIANCE WITH LAWS IN GENERAL. . . . . . . . . . . . . . . . . . . . .8 2.24 THIRD PARTY PAYORS . . . . . . . . . . . . . . . . . . . . . . . . . . .8 2.25 NO UNTRUE REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . .8 2.26 BANKING RELATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .8 2.27 OWNERSHIP INTERESTS OF INTERESTED PERSONS; COMPETITORS . . . . . . . . .9 2.28 PAYORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Section 3. REPRESENTATIONS AND WARRANTIES OF PENTEGRA 3.1 CORPORATE EXISTENCE: GOOD STANDING . . . . . . . . . . . . . . . . . . .9 3.2 POWER AND AUTHORITY; CONSENTS. . . . . . . . . . . . . . . . . . . . . .9 3.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. . . . . . . . . . . .9 3.4 LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . .9 3.5 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.6 COMMISSIONS AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.7 CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.8 NO UNTRUE REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . 10 Section 4. COVENANTS OF COMPANY AND SHAREHOLDERS. 4.1 CONSUMMATION OF AGREEMENT; EXHIBITS. . . . . . . . . . . . . . . . . . 10 4.2 BUSINESS OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 10 -i- 4.3 ACCESS AND NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.4 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. . . . . . . . . . 10 4.5 ACQUISITION PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . 11 4.6 FUNDING OF ACCRUED EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . 11 4.7 EMPLOYEE MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.8 DISTRIBUTIONS AND REPURCHASES. . . . . . . . . . . . . . . . . . . . . 11 4.9 REQUIREMENTS TO EFFECT REORGANIZATION. . . . . . . . . . . . . . . . . 11 4.10 ACCOUNTING AND TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . 11 4.11 WAIVER OF BULK TRANSFER COMPLIANCE . . . . . . . . . . . . . . . . . . 11 4.12 LEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.13 HIRING OF EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.14 EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . . . 12 4.15 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.17 CORPORATE RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.18 POWER AND AUTHORITY FOR TRANSACTIONS . . . . . . . . . . . . . . . . . 12 4.19 NO BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.20 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 5. COVENANTS OF PENTEGRA 5.1 CONSUMMATION OF AGREEMENT; EXHIBITS. . . . . . . . . . . . . . . . . . 13 5.2 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. . . . . . . . . . 13 Section 6. COVENANTS OF PENTEGRA AND COMPANY AND SHAREHOLDERS 6.1 FILINGS; OTHER ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 7. PENTEGRA CONDITIONS PRECEDENT 7.1 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 14 7.2 COVENANTS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . 14 7.3 PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.4 NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . 14 7.5 DUE DILIGENCE REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.6 APPROVAL BY THE BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . 14 7.7 SERVICE AGREEMENT; GUARANTY AGREEMENT. . . . . . . . . . . . . . . . . 14 7.8 EMPLOYMENT ARRANGEMENTS. . . . . . . . . . . . . . . . . . . . . . . . 14 7.9 CONSENTS AND APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . 14 7.10 CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.11 DEBT AND RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.12 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.13 NO CHANGE IN WORKING CAPITAL . . . . . . . . . . . . . . . . . . . . . 15 7.14 SECURITIES APPROVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 8. COMPANY'S AND SHAREHOLDERS' CONDITIONS PRECEDENT 8.1 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 15 8.2 COVENANTS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . 15 8.3 PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 8.4 CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . 15 8.5 SECURITIES APPROVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 9. CLOSING DELIVERIES 9.1 DELIVERIES OF COMPANY AND SHAREHOLDERS . . . . . . . . . . . . . . . . 15 9.2 DELIVERIES OF PENTEGRA . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 10. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION -ii- 10.1 NATURE AND SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 17 10.2 INDEMNIFICATION BY PENTEGRA. . . . . . . . . . . . . . . . . . . . . . 17 10.3 INDEMNIFICATION BY COMPANY AND SHAREHOLDERS. . . . . . . . . . . . . . 18 10.4 INDEMNIFICATION PROCEDURE. . . . . . . . . . . . . . . . . . . . . . . 19 10.5 RIGHT OF SETOFF. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 11. TERMINATION Section 12. TRANSFER REPRESENTATIONS 12.1 TRANSFER RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . 20 12.2 INVESTMENTS; COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . 20 12.3 ECONOMIC RISK; SOPHISTICATION. . . . . . . . . . . . . . . . . . . . . 21 Section 13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION Section 14. MISCELLANEOUS 14.1 TAX COVENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.2 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14.3 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.4 EACH PARTY TO BEAR COSTS . . . . . . . . . . . . . . . . . . . . . . . 22 14.5 PUBLIC DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.6 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.7 CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 14.8 INTEGRATION OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . 22 14.9 ENTIRE AGREEMENT/AMENDMENT . . . . . . . . . . . . . . . . . . . . . . 22 14.10 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 14.11 BINDING EFFECT/ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . 23 14.12 COSTS OF ENFORCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 23 14.13 PRORATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 14.14 AMENDMENTS; WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . 23 14.15 ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 14.16 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-iii- AGREEMENT AND PLAN OF REORGANIZATION This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), made and executed as of ________________, 1997, is by and among PENTEGRA DENTAL GROUP, INC., a Delaware corporation ("Pentegra"), ________________________ ("Company") and ______________________, shareholders of Company (referred to herein as "Shareholder" or "Shareholders"). WITNESSETH: WHEREAS, Company operates a dental practice ("Business") and Pentegra is engaged in the business of managing certain non-dentistry aspects of dental practices; WHEREAS, the Boards of Directors of the Company and Pentegra have determined that a reorganization between each of them is in the best interests of their respective companies; WHEREAS, Pentegra or its affiliated designee has entered into or intends to enter into Agreements and Plans of Reorganization, Asset Contribution Agreements and other acquisition agreements (collectively, the "Other Agreements") with such persons or entities or the stockholders of such entities listed on EXHIBIT A (together with Company, the "Target Companies") and simultaneously with the closing of the reorganization contemplated herein, intends to consummate its initial public offering ("Initial Public Offering") of shares of its common stock, par value $.01 per share ("Pentegra Common Stock"); WHEREAS, it is intended for Federal income tax purposes that the reorganization contemplated by this Agreement shall qualify as an reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended ("IRC" or "Code"); WHEREAS, the consummation of the transfers to Pentegra pursuant to this Agreement is intended to occur in connection with, and is conditioned upon, the simultaneous consummation of the transfers contemplated by the Other Agreements and the Initial Public Offering. . NOW THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, and for other good and valuable consideration, the sufficiency of which are hereby acknowledged, the parties agree as follows: SECTION 1. TERMS OF THE REORGANIZATION. 1.1 THE CLOSING. The closing of the transactions contemplated hereby shall take place at 10:00 am local time, at the offices of Jackson & Walker, L.L.P., on the day on which the Initial Public Offering of Pentegra Common Stock is consummated. The date on which the Closing occurs is hereinafter referred to as the "Closing Date". 1.2 MERGER. Subject to and upon the terms and conditions contained herein, on the Closing Date, the Company shall be merged with and into Pentegra (or its designated affiliate, in which case, the references herein to Pentegra shall be to such designated affiliate and its shares of common stock) in accordance with this Agreement and the separate corporate existence of the Company shall thereupon cease ("Merger"). Pentegra shall be the surviving corporation in the Merger ("Surviving Corporation") and shall continue to be governed by the laws of the State of Delaware and the separate corporate existence of Pentegra with all rights, privileges, powers, immunities and purposes shall continue unaffected by the Merger. The Merger shall have the effects specified in the Delaware General Corporation Law and the _______ Business Corporation Law. If all the conditions to the Merger set forth herein shall have been fulfilled or waived in accordance herewith and this Agreement shall not have been terminated in accordance 1 herewith, the parties hereto shall cause to be properly executed and filed on the Closing Date Certificates of Merger for the Company meeting the applicable legal requirements. The Mergers shall become effective on the Closing Date or the filing of such documents, in accordance with applicable law, or at such later time as the parties hereto have agreed upon and designated in such merger filings. 1.3 CERTIFICATE OF INCORPORATION; BYLAWS. The Certificate of Incorporation and Bylaws of Pentegra shall be the Certificate of Incorporation and Bylaws of the Surviving Corporation until duly amended in accordance with their terms. 1.4 DIRECTORS; OFFICERS. The persons who are directors of Pentegra immediately prior to the effective date of the Merger shall be the directors of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Certificate of Incorporation and Bylaws. The persons who are officers of Pentegra immediately prior to the effective date of the Merger shall be the officers of the Surviving Corporation and shall hold their respective offices until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal. 1.5 CONVERSION OF COMPANY COMMON STOCK. As a result of the Merger and without any action on the part of the holder thereof, all shares of the Company's common stock issued and outstanding on the effective date of the Merger shall cease to be outstanding and shall be cancelled and retired and shall cease to exist, and each holder of a certificate of representing shares of Company common stock shall thereafter cease to have any rights with respect to such shares except the right to receive the consideration set forth on ANNEX I attached hereto (the "Merger Consideration"). Each share of common stock of the Company held in treasury at the effective date of the Merger shall cease to be outstanding and shall be cancelled and retired without payment of any consideration therefor. On the effective date of the Merger, each share of Pentegra Common Stock issued and outstanding shall, by virtue of he Mergers, and without any action on the part of the holder thereof, continue unchanged and remain outstanding as a share of validly issued, fully paid and nonassessable share of Surviving Corporation common stock. 1.6 EXCHANGE OF STOCK CERTIFICATES. On the effective date of the Merger, the Shareholders, as the holders of a certificate or certificates representing shares of Company common stock shall, upon surrender of such certificate or certificates, receive the Merger Consideration, and until the certificate or certificates of Company common stock shall have been surrendered by the Shareholder and replaced by a certificate or certificates representing Pentegra Common Stock (as set forth on ANNEX I), the certificate or certificates of Company common stock shall, for all purposes be deemed to evidence ownership of the number of shares of Pentegra Common Stock determined in accordance with the provisions of ANNEX I. All shares of Pentegra Common Stock issuable to the Shareholders in the Merger shall be deemed for all purposes to have been issued by Pentegra on the Closing Date. The Shareholders shall deliver to Pentegra at Closing the certificate or certificates representing the Company common stock owned by them, duly endorsed in blank by the Shareholders, or accompanied by duly executed blank stock powers, and with all necessary transfer tax and other revenue stamps, acquired at the Shareholder's expense, affixed and cancelled. 1.7 SUBSEQUENT ACTIONS. If, at any time after the Closing Date, Pentegra shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in Pentegra its right, title or interest in, to or under any of the Assets or otherwise to carry out this Agreement, in return for the consideration set forth in this Agreement, the Company and Shareholders shall excecute and deliver all such deeds, bills of sale, assignments and assurances and take and do all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under the Assets in Pentegra or otherwise to carry out this Agreement. 2 SECTION 2. REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS. Company and Shareholders, jointly and severally, hereby represent and warrant to Pentegra as follows: 2.1 CORPORATE EXISTENCE; GOOD STANDING. Company is a professional corporation or association, as applicable, duly organized, validly existing and in good standing under the laws of the State of _________________. Company has all necessary corporate powers to own all of its assets and to carry on its business as such business is now being conducted. Company does not own stock in or control, directly or indirectly, any other corporation, association or business organization, nor is Company a party to any joint venture or partnership. The Shareholders are the sole shareholders of Company and own all outstanding shares of capital stock free of all security interests, claims, encumbrances and liens in the amounts set forth on EXHIBIT 2.1. Each share of Company's common stock has been legally and validly issued and fully paid and nonassessable. No shares of capital stock of Company are owned by Company in treasury. There are no outstanding (a) bonds, debentures, notes or other obligations the holders of which have the right to vote with the stockholders of Company on any matter, (b) securities of Company convertible into equity interests in Company, or (c) commitments, options, rights or warrants to issue any such equity interests in Company, to issue securities of Company convertible into such equity interests, or to redeem any securities of Company. No shares of capital stock of Company have been issued or disposed of in violation of the preemptive rights, rights of first refusal or similar rights of any of Company's stockholders. Company is not required to qualify to do business as a foreign corporation in any other state or jurisdiction by reason of its business, properties or activities in or relating to such other state or jurisdiction. Company does not have any assets, employees or offices in any state other than the state set forth in the first sentence of this SECTION 2.1. 2.2 POWER AND AUTHORITY FOR TRANSACTIONS. Company has the corporate power to execute, deliver and perform this Agreement and all agreements and other documents executed and delivered by it pursuant to this Agreement or to be executed and delivered on the Closing Date, and has taken all action required by law, its Articles or Certificate of Incorporation, its Bylaws or otherwise, to authorize the execution, delivery and performance of this Agreement and such related documents. Each Shareholder has the legal capacity to enter into and perform this Agreement and the other agreements to be executed and delivered in connection herewith. Company has obtained the approval of its stockholders necessary to the consummation of the transactions contemplated herein. This Agreement and all agreements and documents executed and delivered in connection herewith have been, or will be as of the Closing Date, duly executed and delivered by Company and Shareholders, as appropriate, and constitute or will constitute the legal, valid and binding obligations of Company and Shareholders, enforceable against Company and Shareholders in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. The execution and delivery of this Agreement, and the agreements executed and delivered pursuant to this Agreement or to be executed and delivered on the Closing Date, do not, and, subject to the receipt of consents described on EXHIBIT 2.4, the consummation of the actions contemplated hereby will not, violate any provision of the Articles or Certificate of Incorporation or Bylaws of Company or any provisions of, or result in the acceleration of, any obligation under any mortgage, lien, lease, agreement, rent, instrument, order, arbitration award, judgment or decree to which Company or any Shareholder is a party or by which Company or any Shareholder is bound, or violate any material restrictions of any kind to which Company is subject, or result in any lien or encumbrance on any of Company's assets or the Assets. 2.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. All building or other permits, certificates of occupancy, concessions, grants, franchises, licenses, certificates of need and other governmental authorizations and approvals required for the conduct of the Business or the use of the Assets, or waivers thereof, have been duly obtained and are in full force and effect and are described on EXHIBIT 2.3. There are no proceedings pending or, to the knowledge of Company and Shareholders, threatened, which may result in the revocation, cancellation or suspension, or any adverse modification, of any such licenses or permits. 2.4 CONSENTS. Except as set forth on EXHIBIT 2.4, no consent, authorization, permit, license or filing with any governmental authority, any lender, lessor, any manufacturer or supplier or any other person or entity is required to authorize, or is required in connection with, the execution, delivery and performance of this Agreement and the agreements and documents contemplated hereby on the part of Company or Shareholders. 3 2.5 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or dividend of any kind has been declared or paid by Company on any of its capital stock since the Balance Sheet Date. No repurchase of any of Company's capital stock has been approved, effected or is pending, or is contemplated by Company. 2.6 CORPORATE RECORDS. True and correct copies of the Articles or Certificate of Incorporation, Bylaws and minutes of Company and all amendments thereto have been delivered to Pentegra. The minute books of Company contain accurate minutes of all meetings of and consents to actions taken without meetings of the Board of Directors and stockholders of Company since its formation. The books of account of Company have been kept accurately in the ordinary course of business and the revenues, expenses, assets and liabilities of Company have been properly recorded in such books. 2.7 COMPANY'S FINANCIAL INFORMATION. Company has heretofore furnished Pentegra with copies of its unaudited balance sheet and related unaudited statements of income, retained earnings and cash flows for its prior two full fiscal years, as well as copies of its unaudited balance sheet as of December 31, 1996 and June 30, 1997 (collectively, the "Balance Sheet" and the latest date thereof shall be referred to as the "Balance Sheet Date") and any related unaudited statements of income, retained earnings, schedule of accounts receivable, accounts payable and accrued liabilities, and cash flows for the twelve months then ended (collectively, with the related notes thereto, the "Financial Statements"). The Financial Statements fairly present the financial condition and results of operations of Company as of the dates and for the periods indicated and reflect all fixed and contingent liabilities of Company. 2.8 LEASES. EXHIBIT 2.8 attached hereto sets forth a list of all leases pursuant to which Company or any Shareholder leases, as lessor or lessee, real or personal property used in operating the Business, related to the Assets or otherwise. All such leases listed on EXHIBIT 2.8 are valid and enforceable in accordance with their respective terms, and there is not under any such lease any existing default by Company, as lessor or lessee, or any condition or event of which any Shareholder or Company has knowledge which with notice or lapse of time, or both, would constitute a default, in respect of which Company or Shareholders have not taken adequate steps to cure such default or to prevent a default from occurring. 2.9 CONDITION OF ASSETS. All of the Assets are in good condition and repair subject to normal wear and tear and conform with all applicable ordinances, regulations and other laws, and Company and Shareholders have no knowledge of any latent defects therein. 2.10 TITLE TO AND ENCUMBRANCES ON PROPERTY. Company has good, valid and marketable title to all of the Assets, free and clear of any liens, claims, charges, exceptions or encumbrances, except for those, if any, which are set forth in EXHIBIT 2.10 attached hereto. Company shall cause all encumbrances set forth on EXHIBIT 2.10 (other than those encumbrances indicated on EXHIBIT 1.3(B)) to be released or terminated prior to the Closing Date and evidence of such releases of liens and claims shall be provided to Pentegra on the Closing Date and the Assets shall not be used to satisfy such liens, claims or encumbrances. 2.11 INVENTORIES. All of the Assets constituting inventory are owned or used by Company, are in good, current, standard and merchantable condition and are not obsolete or defective. 2.12 INTELLECTUAL PROPERTY RIGHTS; NAMES. Except as set forth on EXHIBIT 2.12, Company has no right, title or interest in or to patents, patent rights, corporate names, assumed names, manufacturing processes, trade names, trademarks, service marks, inventions, specialized treatment protocols, copyrights, formulas and trade secrets or similar items. Set forth in EXHIBIT 2.12 is a listing of all names of all predecessor companies of Company, including the names of any entities from whom Company previously acquired significant assets. Except for off-the-shelf software licenses and except as set forth on EXHIBIT 2.12, Company is not a licensee in respect of any patents, trademarks, service marks, trade names, copyrights or applications therefor, or manufacturing processes, formulas or trade secrets or similar items and no such licenses are necessary for the conduct of the Business or the use of the Assets. No claim is pending or has been made to the effect that the Assets or the present or past operations of Company in connection with the Assets or Business infringe upon or conflict with the asserted rights of others to any patents, patent rights, manufacturing processes, trade names, trademarks, service marks, inventions, licenses, specialized treatment protocols, copyrights, formulas, know-how and trade secrets. Company has the sole and exclusive right to use all Assets constituting 4 proprietary rights without infringing or violating the rights of any third parties and no consents of any third parties are required for the use thereof by Pentegra. 2.13 DIRECTORS AND OFFICERS; PAYROLL INFORMATION; EMPLOYEES. Set forth on EXHIBIT 2.13 attached hereto is a true and complete list, as of the date of this Agreement of: (a) the name of each director and officer of Company and the offices held by each, (b) the most recent payroll report of Company, showing all current employees of Company and their current levels of compensation, (c) promised increases in compensation of employees of Company that have not yet been effected, (d) oral or written employment agreements, consulting agreements or independent contractor agreements (and all amendments thereto) to which Company is a party, copies of which have been delivered to Pentegra, and (e) all employee manuals, materials, policies, procedures and work-related rules, copies of which have been delivered to Pentegra. Company is in compliance with all applicable laws, rules, regulations and ordinances respecting employment and employment practices. Company has not engaged in any unfair labor practice. There are no unfair labor practices charges or complaints pending or threatened against Company, and Company has never been a party to any agreement with any union, labor organization or collective bargaining unit. 2.14 LEGAL PROCEEDINGS. Neither any Shareholder, Company nor the Business nor any of the Assets is subject to any pending, nor does Company or any Shareholder have knowledge of any threatened, litigation, governmental investigation, condemnation or other proceeding against or relating to or affecting Company, any Shareholder, the Business, the Assets or the transactions contemplated by this Agreement, and, to the knowledge of Company and Shareholders, no basis for any such action exists, nor is there any legal impediment of which Company or any Shareholder has knowledge to the continued operation of its business or the use of the Assets in the ordinary course, subject to consents set forth on EXHIBIT 2.4. 2.15 CONTRACTS. Company has delivered to Pentegra true copies of all written, and disclosed to Pentegra all oral, outstanding contracts, obligations and commitments of Company ("Contracts"), entered into in connection with and related to the Assets or the Business, all of which are listed or incorporated by reference on EXHIBIT 2.8 (in the case of leases), EXHIBIT 2.13 (in the case of employment agreements) and EXHIBIT 2.15 (in the case of Contracts other than leases) attached hereto. Except as otherwise indicated on such Exhibits, all of such Contracts are valid, binding and enforceable in accordance with their terms and are in full force and effect, and no defenses, offsets or counterclaims have been asserted or may be made by any party thereto. Except as indicated on such Exhibits, there is not under any such Contract any existing default by Company or any Shareholder, or any condition or event of which Company or any Shareholder has knowledge which with notice or lapse of time, or both, would constitute a default. Company and Shareholders have no knowledge of any default by any other party to such Contracts. Company and Shareholders have not received notice of the intention of any party to any Contract to cancel or terminate any Contract and have no reason to believe that any amendment or change to any Contract is contemplated by any party thereto. Other than those contracts, obligations and commitments listed on EXHIBIT 2.8, EXHIBIT 2.13 and EXHIBIT 2.15, Company are not a party to any material written or oral agreement contract, lease or arrangement, including without limitation, any: (a) Contract related to the Assets other than this Agreement; (b) Employment, consulting or compensation agreement or arrangement; (c) Labor or collective bargaining agreement; (d) Lease agreement with respect to any property, whether as lessor or lessee; (e) Deed, bill of sale or other document evidencing an interest in or agreement to purchase or sell real or personal property; (f) Contract for the purchase of materials, supplies or equipment (i) which is in excess of the requirements of the Business now booked or for normal operating inventories, or (ii) which is not terminable upon notice of thirty (30) days or less; 5 (g) Agreement for the purchase from a supplier of all or substantially all of the requirements of the Business of a particular product or service; (h) Loan agreement or other contract for money borrowed or lent or to be borrowed or lent to another; (i) Contracts containing non-competition covenants; (j) Financial or similar contracts or agreements with patients of the Company or Shareholders, oral or written, that provide for prepayments or deferred installment payments; or (k) Other contracts or agreements that involve either an unperformed commitment in excess of $1,000 or that terminate or can only be terminated by Company on more than 30 days after the date hereof. 2.16 SUBSEQUENT EVENTS. Other than as set forth on EXHIBIT 2.16, Company has not, since the Balance Sheet Date: (a) Incurred any material obligation or liability (absolute, accrued, contingent or otherwise) or entered into any contract, lease, license or commitment, except in connection with the performance of this Agreement; (b) Discharged or satisfied any material lien or encumbrance, or paid or satisfied any material obligation or liability (absolute, accrued, contingent or otherwise) other than (i) liabilities shown or reflected on the Balance Sheet, (ii) liabilities incurred since the Balance Sheet Date in the ordinary course of business; (c) Formed or acquired or disposed of any interest in any corporation, partnership, joint venture or other entity; (d) Made any payments to or loaned any money to any person or entity other than in the ordinary course of business; (e) Lost or terminated any employee, patient, customer or supplier that has or may have, individually or in the aggregate, a material adverse effect on the Business; (f) Increased or established any reserve for taxes or any other liability on its books or otherwise provided therefor, except as may have been required due to income or operations of Company since the Balance Sheet Date; (g) Mortgaged, pledged or subjected to any lien, charge or other encumbrance any of the Assets, tangible or intangible; (h) Sold or contracted to sell or transferred or contracted to transfer any of the Assets or any other assets used in the conduct of the Business, canceled any debts or claims or waived any rights, except in the ordinary course of business; (i) Except in the ordinary course or business consistent with past practices, granted any increase in the rates of pay of employees, consultants or agents, or by means of any bonus or pension plan, contract or other commitment, increased the compensation of any officer, employee, consultant or agent; (j) Authorized or incurred any capital expenditures in excess of Five Thousand and No/100 Dollars ($5,000.00); (k) Except for this Agreement and any other agreement executed and delivered pursuant to this Agreement, entered into any material transaction other than in the ordinary course of business or permitted hereunder; (l) Redeemed, purchased, sold or issued any stock, bonds or other securities; (m) Experienced damage, destruction or loss (whether or not covered by insurance) materially and adversely affecting any of its properties, assets or business or the Business or the Assets, or experienced any other material adverse change in its financial condition, assets, prospects, liabilities or business; (n) Declared or paid a distribution, payment or dividend of any kind on the capital stock of Company; (o) Repurchased, approved any repurchase or agreed to repurchase any of Company's capital stock; or (p) Suffered any material adverse change in the Business or to the Assets. 2.17 TAXES. (a) Company has filed all tax returns (including tax reports and other statements) required to have been filed by it, and has paid all taxes (including any interest, penalty or additions thereto) required to have been paid by it. All such tax returns are complete and accurate in all respects and properly reflect the relevant taxes for the periods covered thereby. Company has not received any notice that any tax deficiency or delinquency has been or may be asserted against Company. There are no audits relating to taxes of Company pending or in process or, to the knowledge of Company, threatened. Company is not currently the beneficiary of any waiver of any statute of limitations in respect of taxes nor of any extension of time within which to file any tax return or to pay any tax assessment or deficiency. There are no liens or encumbrances relating to taxes on or threatened against any of the assets of Company. Company has withheld and paid all taxes required by law to have been withheld and paid by it. Neither Company nor any predecessor of Company is or has been a party to any tax allocation or sharing agreement or a member of an affiliated group of corporations filing a consolidated Federal income tax return. Company has delivered to Pentegra correct and complete copies of Company's three most recently filed annual state, local and Federal income tax returns, together with all examination reports and statements of deficiencies assessed against or agreed to by Company during the three calendar year period preceding the date of this Agreement. Company has neither made any payments, is obligated to make any payments, or is a party to any agreement that under any circumstance could obligate it to make any payments that will not be deductible under Code section 280G. (b) No Shareholder presently intends to dispose of any of the shares of Pentegra Common Stock to be received hereunder nor is a party to any plan, arrangement or agreement for the disposition of such shares. Company and Shareholders have no knowledge, after due inquiry, of any such intent, plan, arrangement or agreement by any Shareholder. Nothing contained herein shall prohibit Shareholders from selling such shares of Pentegra Common Stock after the designated holding period and in accordance with SECTION 12.1 hereof. 2.18 COMMISSIONS AND FEES. There are no claims for brokerage commissions or finder's or similar fees in connection with the transactions contemplated by this Agreement which may be now or hereafter asserted against Pentegra, Company or Company's shareholders resulting from any action taken by Company or any Shareholder or their respective agents or employees, or any of them. 2.19 LIABILITIES; DEBT. Except to the extent reflected or reserved against on the Balance Sheet, Company did not have, as of the Balance Sheet Date, and has not incurred since that date and will not have incurred as of the Closing Date, any liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, other than those incurred in the ordinary course of business or as set forth on EXHIBIT 2.16. Company and Shareholders do not know, or have reasonable grounds to know, of any basis for the assertion against Company or any Shareholder as of the Balance Sheet Date, of any claim or liability of any nature in any amount not fully reflected or reserved against on the Balance Sheet, or of any claim or liability of any nature arising since that date other than those incurred in the ordinary course of business or contemplated by this Agreement. All indebtedness of Company (including without limitation, indebtedness for borrowed money, guaranties and capital lease obligations) is described on EXHIBIT 2.19 attached hereto. 7 2.20 INSURANCE POLICIES. Company, each Shareholder and each licensed professional of Company carries property, liability, malpractice, workers' compensation and such other types of insurance as is customary in the industry. Valid and enforceable policies in such amounts are outstanding and duly in force and will remain duly in force through the Closing Date. All such policies are described in EXHIBIT 2.20 attached hereto and true and correct copies have been delivered to Pentegra. Neither Shareholders nor Company have not received notice or other communication from the issuer of any such insurance policy cancelling or amending such policy or threatening to do so. Neither Company, nor any Shareholder nor any licensed professional employee of Company has any outstanding claims, settlements or premiums owed against any insurance policy. 2.21 EMPLOYEE BENEFIT PLANS. Except as set forth on EXHIBIT 2.21 attached hereto, Company has neither established, nor maintains, nor is obligated to make contributions to or under or otherwise participate in, (a) any bonus or other type of compensation or employment plan, program, agreement, policy, commitment, contract or arrangement (whether or not set forth in a written document); (b) any pension, profit-sharing, retirement or other plan, program or arrangement; or (c) any other employee benefit plan, fund or program, including, but not limited to, those described in SECTION 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). All such plans listed on EXHIBIT 2.20 (individually "Company Plan," and collectively "Company Plans") have been operated and administered in all material respects in accordance with all applicable laws, rules and regulations, including without limitation, ERISA, the Internal Revenue Code of 1986, as amended, Title VII of the Civil Rights Act of 1964, as amended, the Equal Pay Act of 1967, as amended, the Age Discrimination in Employment Act of 1967, as amended, and the related rules and regulations adopted by those Federal agencies responsible for the administration of such laws. No act or failure to act by Company has resulted in a "prohibited transaction" (as defined in ERISA) with respect to the Company Plans. No "reportable event" (as defined in ERISA) has occurred with respect to any of the Company Plans. Company has not previously made, is not currently making, and is not obligated in any way to make, any contributions to any multiemployer plan within the meaning of the Multi-Employer Pension Plan Amendments Act of 1980. With respect to each Company Plan, either (i) the value of plan assets (including commitments under insurance contracts) is at least equal to the value of plan liabilities or (ii) the value of plan liabilities in excess of plan assets is disclosed on the Balance Sheet, all as of the Closing Date. 2.22 ADVERSE AGREEMENTS. Company is not, and will not be as of the Closing Date, a party to any agreement or instrument or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, decree, rule or regulation that materially and adversely affects the condition (financial or otherwise), operations, assets, liabilities, business or prospects of Company, the Business or the Assets. 2.23 COMPLIANCE WITH LAWS IN GENERAL. Company, Shareholders and Company's licensed professional employees, and the conduct of the Business and use of the Assets, have complied with all applicable laws, rules, regulations and licensing requirements, including, without limitation, the Federal Environmental Protection Act, the Occupational Safety and Health Act, the Americans with Disabilities Act and any environmental laws and medical waste laws, and there exist no violations by Company, any Shareholder or any licensed professional employee of Company of any Federal, state or local law or regulation. Company and Shareholders have not received any notice of a violation of any Federal, state and local laws, regulations and ordinances relating to the operations of the Business and Assets and no notice of any pending inspection or violation of any such law, regulation or ordinance has been received by Company. 2.24 THIRD PARTY PAYORS. Company, Shareholders and each licensed professional employee or independent contractor of Company has timely filed all claims or other reports required to be filed with respect to the purchase of services by third-party payors, and all such claims or reports are complete and accurate, and has no liability to any payor with respect thereto. There are no pending appeals, overpayment determinations, adjustments, challenges, audit, litigation or notices of intent to open Medicare or Medicaid claim determinations or other reports required to be filed by Company, any Shareholder and each licensed professional employee of Company. Neither Company, nor any Shareholder, nor any licensed professional employee of Company has been convicted of, or pled guilty or nolo contendere to, patient abuse or negligence, or any other Medicare or Medicaid program related offense and none has committed any offense which may serve as the basis for suspension or exclusion from the Medicare and Medicaid programs or any other third party payor program. With respect to payors, Company, Shareholders and Company's licensed professional employees has not (a) knowingly and willfully making or causing to be made a false statement 8 or representation of a material fact in any application for any benefit or payment; (b) knowingly and willfully making or causing to be made any false statement or representation of a material fact for use in determining rights to any benefit or payment; (c) failed to disclose knowledge of the occurrence of any event affecting the initial or continued right to any benefit or payment on its own behalf or on behalf of another, with the intent to fraudulently secure such benefit or payment; and (d) violated any applicable state anti-remuneration or self-referral statutes, rules or regulations. 2.25 NO UNTRUE REPRESENTATIONS. No representation or warranty by Company or Shareholders in this Agreement, and no Exhibit or certificate issued or executed by, or information furnished by, officers or directors of Company or any Shareholder and furnished or to be furnished to Pentegra pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained therein not misleading. 2.26 BANKING RELATIONS. Set forth in EXHIBIT 2.26 is a complete and accurate list of all arrangements that Company has with any bank or other financial institution, indicating with respect to each relationship the type of arrangement maintained (such as checking account, borrowing arrangements, safe deposit box, etc.) and the person or persons authorized in respect thereof. 2.27 OWNERSHIP INTERESTS OF INTERESTED PERSONS; COMPETITORS. No officer, employee, director or stockholder of Company, or their respective spouses, children or affiliates, owns directly or indirectly, on an individual or joint basis, any interest in, has a compensation or other financial arrangement with, or serves as an officer or director of, any customer or supplier or competitor of Company or any organization that has a material contract or arrangement with Company. 2.28 PAYORS. EXHIBIT 2.28 sets forth a true, complete and correct list of the names and addresses of each payor of Company's services which accounted for more than 10% of revenues of Company in the preceding fiscal year. Company has good relations with all such payors and other material payors of Company and none of such payors has notified Company that it intends to discontinue its relationship with Company or to deny any claims submitted to such payor for payment. SECTION 3. REPRESENTATIONS AND WARRANTIES OF PENTEGRA. Pentegra hereby represents and warrants to Company and Shareholders as follows: 3.1 CORPORATE EXISTENCE: GOOD STANDING. Pentegra is a corporation duly organized and existing and in good standing under the laws of the State of Delaware. 3.2 POWER AND AUTHORITY; CONSENTS. Pentegra has corporate power to execute, deliver and perform this Agreement and all agreements and other documents executed and delivered by it pursuant to this Agreement or to be executed and delivered on the Closing Date, and has taken all actions required by law, its Certificate of Incorporation, its Bylaws or otherwise, to authorize the execution, delivery and performance of this Agreement and such related documents. This Agreement and all agreements and documents executed and delivered in connection herewith have been, or will be as of the Closing Date, duly executed and delivered by Pentegra and constitute or will constitute the legal, valid and binding obligations of Pentegra, enforceable against Pentegra in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. The execution and delivery of this Agreement, and the agreements executed and delivered pursuant to this Agreement or to be executed and delivered on the Closing Date, do not, and, the consummation of the actions contemplated hereby will not, violate any provision of the Certificate of Incorporation or Bylaws of Pentegra or any provisions of, or result in the acceleration of, any obligation under any mortgage, lien, lease, agreement, rent, instrument, order, arbitration award, judgment or decree to which Pentegra is a party or by which Pentegra is bound, or violate any material restrictions of any kind to which Pentegra is subject, or result in any lien or encumbrance on any of Pentegra's assets. Other than as have been obtained or as would not have a material adverse effect, there are no consents of any person or entity required for the transaction contemplated hereby on behalf of Pentegra. 9 3.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. All building or other permits, certificates of occupancy, concessions, grants, franchises, licenses, certificates of need and other governmental authorizations and approvals required for the conduct of the business of Penegra or waivers thereof, have been duly obtained and are in full force and effect, except as would not have a material adverse effect upon Pentegra. Other than as would not have a material adverse effect, there are no proceedings pending or, to the knowledge of Pentegra, threatened, which may result in the revocation, cancellation or suspension, or any adverse modification, of any such licenses or permits. 3.4 LEGAL PROCEEDINGS. Other than as would not have a material adverse effect, neither Pentegra nor its business or assets is subject to any pending, nor does Pentegra have knowledge of any threatened, litigation, governmental investigation, condemnation or other proceeding against or relating to or affecting Pentegra, its business, assets or the transactions contemplated by this Agreement, and, to the knowledge of Pentegra, no basis for any such action exists, nor is there any legal impediment of which Pentegra has knowledge to the continued operation of its business or the use of its Assets in the ordinary course. 3.5 TAXES. Pentegra has filed all tax returns (including tax reports and other statements) required to have been filed by it, and has paid all taxes (including any interest, penalty or additions thereto) required to have been paid by it, other than as would not have a material adverse effect. Pentegra has not received any notice that any tax deficiency or delinquency has been or may be asserted against Pentegra. There are no audits relating to taxes of Pentegra pending or in process or, to the knowledge of Pentegra, threatened. Pentegra is not currently the beneficiary of any waiver of any statute of limitations in respect of taxes nor of any extension of time within which to file any tax return or to pay any tax assessment or deficiency. 3.6 COMMISSIONS AND FEES. Pentegra has not incurred any obligation for any finder's, broker's or similar fees in connection with the transactions contemplated hereby. 3.7 CAPITAL STOCK. The issuance and delivery by Pentegra of shares of Pentegra Common Stock in connection with the reorganization contemplated hereby will be as of the Closing Date duly and validly authorized by all necessary corporate action on the part of Pentegra. The Pentegra Common Stock to be issued in connection with the reorganization contemplated hereby, when issued in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable. 3.8 NO UNTRUE REPRESENTATIONS. No representation or warranty by Pentegra in this Agreement, and no Exhibit or certificate issued by officers or directors of Pentegra and furnished or to be furnished to Company or any Shareholder pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained therein not misleading. SECTION 4. COVENANTS OF COMPANY AND SHAREHOLDERS. Company and Shareholders, jointly and severally, agree that between the date hereof and the Closing Date: 4.1 CONSUMMATION OF AGREEMENT; EXHIBITS. Company and Shareholders shall use their best efforts to cause the consummation of the transactions contemplated hereby in accordance with their terms and conditions. Company and Shareholders agree to complete the Exhibits hereto to be provided by them in form and substance satisfactory to Pentegra. 4.2 BUSINESS OPERATIONS. Company and Shareholders shall operate the Business and use the Assets in the ordinary course. Company and Shareholders shall not enter into any lease, contract, indebtedness, commitment, purchase or sale or acquire or dispose of any capital asset relating to the Business or the Assets except in the ordinary course of business. Company and Shareholders shall use their best efforts to preserve the Business and Assets intact and shall not take any action that would have an adverse effect on the Business or Assets. Company and Shareholders shall use their best efforts to preserve intact the relationships with payors, customers, suppliers, patients and others 10 having significant business relations with Company. Company and Shareholders shall collect its receivables and pay its trade payables in the ordinary course of business. Company and Shareholdes shall not introduce any new method of management, operations or accounting. 4.3 ACCESS AND NOTICE. Company and Shareholders shall permit Pentegra and its authorized representatives access to, and make available for inspection, all of the assets and business of Company, the Business and the Assets, including employees, customers and suppliers and permit Pentegra and its authorized representatives to inspect and make copies of all documents, records and information with respect to the business or assets of Company, the Business or the Assets as Pentegra or its representatives may request. Company and Shareholders shall promptly notify Pentegra in writing of (a) any notice or communication relating to a default or event that, with notice or lapse of time or both, could become a default, under any contract, commitment or obligation to which Company is a party or relating to the Business or the Assets, and (b) any adverse change in Company's or the Business' financial condition or the Assets. 4.4 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. Company and Shareholders shall use their best efforts to secure all necessary approvals and consents of third parties to the consummation of the transactions contemplated hereby, including consents described on EXHIBIT 2.4. Company and Shareholders shall use their best efforts to obtain all licenses, permits, approvals or other authorizations required under any law, rule, regulation, or otherwise to provide the services of the Practice contemplated by the Service Agreement and to conduct the intended business of the Practice and operate the Business and use the Assets. 4.5 ACQUISITION PROPOSALS. From the execution of this Agreement until the earlier of Closing or the termination of this Agreement in accordance with the provisions hereof, Company and Shareholders shall not, and shall use its best efforts to cause Company's employees, agents and representatives not to, initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any proposal or offer, including without limitation, any proposal or offer to any Shareholder, with respect to a merger, acquisition, consolidation or similar transaction involving, or the purchase of all or any significant portion of the assets or any equity securities of Company or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to such proposal or offer, and Company and Shareholders will immediately cease any such activities, discussions or negotiations heretofore conducted with respect to any of the foregoing. Company and Shareholders shall immediately notify Pentegra if any such inquiries or proposals are received. 4.6 FUNDING OF ACCRUED EMPLOYEE BENEFITS. Company hereby covenants and agrees that it will take whatever steps are necessary to pay or fund completely for any accrued benefits, where applicable, or vested accrued benefits for which Company or any entity might have any liability whatsoever arising from any insurance, pension plan, employment tax or similar liability of Company to any employee or other person or entity (including, without limitation, any Company Plan and any liability under employment contracts with Company) allocable to services performed prior to the Closing Date. Company and Shareholders acknowledge that the purpose and intent of this covenant is to assure that Pentegra shall have no unfunded liability whatsoever at any time after the Closing Date with respect to any of Company's employees or similar persons or entities, including, without limitation, any Company Plan for the period prior to the Closing Date. 4.7 EMPLOYEE MATTERS. Company shall not, without the prior written approval of Pentegra, except as required by law, increase the cash compensation of any Shareholder (other than in the ordinary course of business) or other employee or an independent contractor of Company, adopt, amend or terminate any compensation plan, employment agreement, independent contractor agreement, employee policies and procedures or employee benefit plan, take any action that could deplete the assets of any employee benefit, or fail to pay any premium or contribution due or file any report with respect to any employee benefit plan, or take any other actions with respect to its employees or employee matters which might have an adverse effect upon Company, its business, assets or prospects. 4.8 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or dividend of any kind will be declared or paid by Company, nor will any repurchase of any of Company's capital stock be approved or effected. 11 4.9 REQUIREMENTS TO EFFECT REORGANIZATION. Company and Shareholders shall use their best efforts to take, or cause to be taken, all actions necessary to effect the reorganization contemplated hereby under applicable law. 4.10 ACCOUNTING AND TAX MATTERS. Company and Shareholders will not change in any material respect the tax or financial accounting methods or practices followed by Company (including any material change in any assumption underlying, or any method of calculating, any bad debt, contingency or other reserve), except as may be required by law or generally accepted accounting principles. Company and Shareholders will duly, accurately and timely (without regard to any extensions of time) file all returns, information statements and other documents relating to taxes of Company required to be filed by it, and pay all taxes required to be paid by it, on or before the Closing Date. 4.11 WAIVER OF BULK TRANSFER COMPLIANCE. Pentegra, Shareholders and Company hereby waive any compliance with the applicable state Bulk Transfers Act, if any. Company and Shareholders covenant and agree that all of the creditors with respect to the Business and the Assets will be paid in full by Company prior to the Closing Date, except to extent that any liability to such creditors is assumed by Pentegra pursuant to this Agreement. If required by Pentegra, Company and Shareholders shall furnish Pentegra with proof of payment of all creditors with respect to the Business and the Assets. Notwithstanding the foregoing, Company and Shareholders may dispute the validity or amount of any such creditor's claim without being deemed to be in violation of this SECTION 4.11, provided that such dispute is in good faith and does not unreasonably delay the resolution of the claim and provided, further that Company and Shareholders agree to indemnify and bond Pentegra for such amounts as is satisfactory to Pentegra. 4.12 LEASE. If Company leases any of its premises from any Shareholder or other affiliate of Company or any shareholder of Company, Pentegra shall have entered into a building lease (the "Building Lease") with the owner of such premises on terms and conditions satisfactory to Pentegra, the terms and conditions of which shall include, without limitation, (i) a five year initial term plus three five-year renewal options, (ii) a lease rate equal to the fair market value lease rate, as agreed to by Pentegra, and (iii) such other provisions to be acceptable to Pentegra. 4.13 HIRING OF EMPLOYEES. Company and Shareholders shall cooperate with all requests made by Pentegra for the purpose of allowing Pentegra to hire those non-dentist employees of Company designated by Pentegra, such employment to be effective as of the Closing Date. Notwithstanding the above, Company and Shareholders shall remain liable under any Company Plans for any claims incurred by any employees or their spouses or dependents, and for all compensation, bonuses, benefits and other such items and other liabilities related to Company's employees incurred by Company prior to the Closing Date. 4.14 EMPLOYEE BENEFIT PLANS. Company agrees and acknowledges that all employees of Company hired by Pentegra pursuant to SECTION 4.13 above, shall be treated as "leased employees" (as defined in Code Section 414(n)) of Company and shall be treated as Clinic employees for purposes of eligibility and participation in Company Plans. 4.15 INSURANCE. Company shall cause Pentegra and its affiliates to be named as an additional insured on its liability insurance programs, effective as of the Closing Date. 4.16 FORMATION OF THE PRACTICE. The Shareholders shall have formed a limited liability company, partnership or other legal entity (the "Practice") approved by Pentegra for the purpose of practicing dentistry and entering into the Service Agreement. The Practice shall be duly organized, in existing and in good standing under the laws of the State in which the practice of dentistry is conducted by the Shareholders and the Practice. The Practice shall have all necessary power to own all of its assets and to carry on its business as such business is now being conducted. The Shareholders shall be the sole member/shareholder/partner of the Practice and own all such interests free of all security interests, claims, encumbrances and liens. Each interest in the Practice shall be legally and validly issued and fully paid and nonassessable. There shall be no outstanding (a) bonds, debentures, notes or other obligations the holders of which have the right to vote with the members/partners/shareholders of the Practice on any matter, (b) securities of the Practice convertible into equity interests in the Practice, or (c) commitments, options, rights or warrants to issue any such equity interests in the Practice, to issue securities of the Practice convertible into such equity interests, or to redeem any securities of the Practice. No interests of the Practice shall have been issued or disposed of in violation of the preemptive rights, rights of first refusal or similar rights of any of the Practice's members/partners/shareholders. The Practice shall quality to do business as a foreign entity in any other state or jurisdiction by reason of its business, 12 properties or activities in or relating to such other state or jurisdiction. The Company shall have transferred the Excluded Assets set forth on EXHIBIT 4.16 to the Practice and shall have caused the Practice to assume the Excluded Liabilities set forth on EXHIBIT 4.16 in exchange for equity interest in the Practice, and the Company shall have distributed such equity interests in the Practice to the Shareholders. 4.17 CORPORATE RECORDS. True and correct copies of the Articles of Organization/Partnership Agreement\Articles of Incorporation, Bylaws/Regulations and minutes of the Practice and all amendments thereto of the Practice shall have been delivered to Pentegra and shall be in form and substance satisfactory to Pentegra. The minute books of the Practice shall contain all accurate minutes of the meetings of and consents to actions taken without meetings of the members\managers/partners/board of directors of the Practice since its formation. The books of account of the Practice shall have been kept accurately in the ordinary course of business and the revenues, expenses, assets and liabilities of the Practice shall have been properly recorded in such books. 4.18 POWER AND AUTHORITY FOR TRANSACTIONS. The Practice shall have the power to execute, deliver and perform its obligations under all agreements and other documents to be executed and delivered by it pursuant to this Agreement, including without limitation, the Service Agreement and each Employment Agreement or to be executed and delivered on the Closing Date, and has taken all action required by law, its Organization/Partnership Agreement/Articles of Incorporation, its Bylaws/Regulations or otherwise, to authorize the execution, delivery and performance of such documents. The Service Agreement, the Employment Agreement and the other agreements contemplated hereby shall have been duly executed and delivered by the Practice and constitute or will constitute the legal, valid and binding obligations of the Practice enforceable against the Practice in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. The execution and delivery of the Service Agreement, the Employment Agreements and the other agreements contemplated hereby will not violate any provision of the organizational documents of the Practice or any provisions of, or result in the acceleration of, any obligation under any mortgage, lien, lease, agreement, rent, instrument, order, arbitration award, judgment or decree to which the Practice is a party or by which the Practice is bound, or violate any material restrictions of any kind to which the Practice is subject, or result in any lien or encumbrance on any of the Practice's assets. 4.19 NO BUSINESS. Other than its Articles of Organization/Partnership Agreement/Articles of Incorporation, Bylaws/Regulations and as of the Closing Date, the Service Agreement and the Employment Agreements, the Practice shall not be a party to or subject to any agreement, indenture or other instrument. 4.20 COMPLIANCE WITH LAWS. The Practice shall have complied with all applicable laws, regulations and licensing requirements and have filed with the proper authorities all necessary statements and reports. SECTION 5. COVENANTS OF PENTEGRA. Pentegra agrees that between the date hereof and the Closing: 5.1 CONSUMMATION OF AGREEMENT; EXHIBITS. Pentegra shall use its best efforts to cause the consummation of the transactions contemplated hereby in accordance with their terms and provisions. Pentegra agrees to complete the Exhibits hereto to be provided by it. 5.2 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. Pentegra shall use its best efforts to secure all necessary approvals and consents of third parties to the consummation of the transactions contemplated hereby. 13 SECTION 6. COVENANTS OF PENTEGRA AND COMPANY AND SHAREHOLDERS. Pentegra, Shareholders and Company agree as follows: 6.1 FILINGS; OTHER ACTIONS. Pentegra, Company and Shareholders shall cooperate to promptly prepare and file with the Securities Exchange Commission ("SEC") the Registration Statement on Form S-1 (or other appropriate Form) to be filed by Pentegra in connection with its Initial Public Offering (including the prospectus constituting a part thereof, the "Registration Statement"). Pentegra shall obtain all necessary state securities laws or "Blue Sky" permits and approvals required to carry out the transactions contemplated by this Agreement and the Company and Shareholders shall furnish all information concerning Company and Shareholders as may be reasonable requested in connection with any such action. Company and Shareholder represent and warrant that none of the information or documents supplied or to be supplied by it specifically for inclusion in the Registration Statement, by exhibit or otherwise, will, at the time the Registration Statement and each amendment or supplement thereto, if any, becomes effective under the Securities Act of 1933, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Company and Shareholders shall be entitled to review the Registration Statement and each amendment thereto, if any, prior to the time each becomes effective under the Securities Act of 1933. Company and Shareholders shall furnish Pentegra will all information concerning themselves, their subsidiaries, if any, directors, officers and stockholders and such other matters as may be reasonable requested by Pentegra in connection with the preparation of the Registration Statement and each amendment or supplement thereto, or any other statement, filing, notice or application made by or on behalf of each such party or any of its subsidiaries to any governmental entity in connection with the transactions contemplated by the Other Agreements or this Agreement. SECTION 7. PENTEGRA CONDITIONS PRECEDENT. The obligations of Pentegra hereunder are subject to the fulfillment at or prior to the Closing of each of the following conditions: 7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Company and Shareholders contained herein shall have been true and correct in all respects when initially made and shall be true and correct in all respects as of the Closing Date. 7.2 COVENANTS AND CONDITIONS. Company and Shareholders shall have performed and complied with all covenants and conditions required by this Agreement to be performed and complied with by Company and Shareholders prior to the Closing Date. 7.3 PROCEEDINGS. No action, proceeding or order by any court or governmental body shall have been threatened orally or in writing, asserted, instituted or entered to restrain or prohibit the carrying out of the transactions contemplated hereby. 7.4 NO MATERIAL ADVERSE CHANGE. No material adverse change in the condition (financial or otherwise), operations, assets, liabilities, business or prospects of Company shall have occurred since the Balance Sheet Date. 7.5 DUE DILIGENCE REVIEW. By the Closing Date, Pentegra shall have completed a due diligence review of the business, operations and financial statements of Company, the Business and the Assets, the results of which shall be satisfactory to Pentegra in its sole discretion. 7.6 APPROVAL BY THE BOARD OF DIRECTORS. This Agreement and the transactions contemplated hereby shall have been approved by the Board of Directors of Pentegra or a committee thereof. 14 7.7 SERVICE AGREEMENT; GUARANTY AGREEMENT. The Practice and Pentegra shall have executed and delivered a Service Agreement (the "Service Agreement"), in substantially the form attached hereto as EXHIBIT 7.7, pursuant to which Pentegra will provide management services to the Practice. Each Shareholder shall have executed and delivered a Guaranty Agreement in substantially the form attached as EXHIBIT 4.10 of the Service Agreement pursuant to which Shareholder shall, among other things, guaranty the obligations of the Practice under the Service Agreement. 7.8 EMPLOYMENT ARRANGEMENTS. Company shall have terminated, and caused each shareholder of Company that has an existing employment agreement with Company to have terminated his or her employment agreement with Company and shall have executed an employment agreement ("Employment Agreement") with the Practice in form and substance attached hereto as EXHIBIT 7.8 and otherwise satisfactory to Company and Pentegra. 7.9 CONSENTS AND APPROVALS. Company and Shareholders shall have obtained all necessary government and other third-party approvals and consents. 7.10 CLOSING DELIVERIES. Pentegra shall have received all documents, duly executed in form satisfactory to Pentegra and its counsel, referred to in SECTION 9.1. 7.11 DEBT AND RECEIVABLES. There shall be no indebtedness, receivables or payables between Company and its shareholders or affiliates and Company shall not have any liabilities, including indebtedness, guaranties and capital leases, that are not set forth on EXHIBIT 2.19. 7.12 INSURANCE. Company and Shareholders shall have named Pentegra as an additional insured on their liability insurance program in accordance with SECTION 4.15. 7.13 NO CHANGE IN WORKING CAPITAL. There shall have been no material change in the working capital of Company since the Balance Sheet Date. 7.14 SECURITIES APPROVAL. The Registration Statement shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC. At or prior to the date that the Registration Statement is declared effective by the SEC, Pentegra shall have received all state securities and "Blue Sky" permits necessary to consummate the transactions contemplated hereby. The Pentegra Common Stock shall have been approved for listing on Nasdaq or other exchange selected by Pentegra, subject only to official notification of issuance. SECTION 8. COMPANY'S AND SHAREHOLDERS' CONDITIONS PRECEDENT. The obligations of Company and Shareholders hereunder are subject to fulfillment at or prior to the Closing of each of the following conditions: 8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Pentegra contained herein shall have been true and correct in all respects when initially made and shall be true and correct in all respects as of the Closing Date. 8.2 COVENANTS AND CONDITIONS. Pentegra shall have performed and complied with all covenants and conditions required by this Agreement to be performed and complied with by Pentegra prior to the Closing Date. 8.3 PROCEEDINGS. No action, proceeding or order by any court or governmental body shall have been threatened orally or in writing, asserted, instituted or entered to restrain or prohibit the carrying out of the transactions contemplated hereby. 8.4 CLOSING DELIVERIES. Company shall have received all documents, duly executed in form satisfactory to Company and its counsel, referred to in SECTION 9.2. 15 8.5 SECURITIES APPROVAL. The Registration Statement shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC. At or prior to the date that the Registration Statement is declared effective by the SEC, Pentegra shall have received all state securities and "Blue Sky" permits necessary to consummate the transactions contemplated hereby. The Pentegra Common Stock shall have been approved for listing on Nasdaq or other exchange selected by Pentegra, subject only to official notification of issuance. SECTION 9. CLOSING DELIVERIES. 9.1 DELIVERIES OF COMPANY AND SHAREHOLDERS. Within five business days after requested by Pentegra, Company and Shareholders shall deliver to Pentegra the following, all of which shall be in a form satisfactory to counsel to Pentegra and shall be held by Jackson & Walker, L.L.P. (counsel for Pentegra) in escrow pending Closing, pursuant to an escrow agreement or letter agreement in form and substance mutually acceptable to the parties hereto: (a) an executed original Service Agreement and executed originals of all documents required by that agreement, including but not limited to the Guaranty Agreement and security agreement referred to therein; (b) executed Employment Agreements; (c) a copy of the resolutions of the Board of Directors of Company authorizing the execution, delivery and performance of this Agreement, the Service Agreement, the Employment Agreements and all related documents and agreements each certified by the Secretary as being true and correct copies of the original thereof; (d) executed merger certificate and/or plan as required by applicable state law; (e) an assignment of each contract, agreement and lease being assigned to and assumed by Pentegra and the original stock certificates together with blank stock powers representing the outstanding shares of Company common stock; (f) certificates of the Shareholders and a duly authorized officer of Company dated as of the Closing Date, (i) as to the truth and correctness of the representations and warranties of Company and Shareholder contained herein; (ii) as to the performance of and compliance by Company and Shareholder with all covenants contained herein; and (iii) certifying that all conditions precedent of Company and Shareholders to the Closing have been satisfied; (g) a certificate of the Secretary of Company certifying as to the incumbency of the directors and officers of Company and as to the signatures of such directors and officers who have executed documents delivered at the Closing on behalf of Company; (h) a certificate, dated within 30 days of the Closing Date, of the Secretary of the State of incorporation of Company and any state of required foreign qualification of Company establishing that Company is in existence and is in good standing to transact business in its state of incorporation; (i) an opinion of counsel to Company and Shareholder opining as to the execution and delivery of this Agreement and the other documents and agreements to be executed pursuant hereto, the good standing and authority of Company, the enforceability of this Agreement and the other agreements and documents to be executed in connection herewith, and other matters reasonably requested by Pentegra; (j) non-foreign affidavits executed by Company; (k) all authorizations, consents, approvals, permits and licenses referred to in SECTIONS 2.3 and 2.4; 16 (l) an executed Registration Rights Agreement between Pentegra and Company, in substantially the form attached hereto as EXHIBIT 9.1(L) (the "Registration Rights Agreement"); and (m) such other instruments and documents as reasonably requested by Pentegra to carry out and effect the purpose and intent of this Agreement. 9.2 DELIVERIES OF PENTEGRA. On or before the Closing Date, Pentegra shall deliver to Company and Shareholders, the following, all of which shall be in a form satisfactory to counsel to Company and Shareholders and shall be held by Jackson & Walker, L.L.P. (counsel for Pentegra) in escrow pending Closing, pursuant to an escrow agreement or letter agreement in form and substance mutually acceptable to the parties hereto: (a) the Merger Consideration; (b) an executed Service Agreement; (c) an assumption of each contract, agreement and lease being assigned to and assumed by Pentegra; (d) a copy of the resolutions of the Board of Directors of Pentegra (or a committee thereof) authorizing the execution, delivery and performance of this Agreement and all related documents and agreements each certified by the Secretary as being true and correct copies of the original thereof; (e) certificates of the President of Pentegra, dated as of the Closing Date, (i) as to the truth and correctness of the representations and warranties of Pentegra contained herein; (ii) as to the performance of and compliance by Pentegra with all covenants contained herein; and (iii) certifying that all conditions precedent of Pentegra to the Closing have been satisfied; (f) a certificate of the Secretary of Pentegra certifying as to the incumbency of the directors and officers of Pentegra and as to the signatures of such directors and officers who have executed documents delivered at the Closing on behalf of Pentegra; (g) certificates, dated within 30 days of the Closing Date, of the Secretary of the State of Delaware establishing that Pentegra is in existence and are in good standing to transact business in the State of Delaware and the State of incorporation of Company; (h) an opinion of counsel to Pentegra opining as to the execution and delivery of this Agreement and the other documents and agreements to be executed pursuant hereto, the good standing and authority of Pentegra, the enforceability of this Agreement and the other agreements and documents to be executed in connection herewith, and other matters reasonably requested by Company; (i) the executed Registration Rights Agreement; and (j) such other instruments and documents as reasonably requested by Company to carry out and effect the purpose and intent of this Agreement. SECTION 10. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION. 10.1 NATURE AND SURVIVAL. All statements contained in this Agreement or in any Exhibit attached hereto, any agreement executed pursuant hereto, and any certificate executed and delivered by any party pursuant to the terms of this Agreement, shall constitute representations and warranties of Company and Shareholders, jointly and severally, or of Pentegra, as the case may be. All such representations and warranties, and all representations and warranties expressly labeled as such in this Agreement shall survive the date of this Agreement and the Closing Date for a period of five (5) years following the Closing Date, except that (i) the representations and warranties with respect to 17 environmental and medical waste laws and health care laws and matters shall survive for a period of fifteen (15) years and tax representations shall survive until one year after the expiration of the applicable statute of limitations. Each party covenants with the other parties not to make any claim with respect to such representations and warranties, against any party after the date on which such survival period shall terminate. No party shall be entitled to claim indemnity from any other party pursuant to SECTION 10.2 or 10.3 hereof, unless such party has timely given the notice required in SECTION 10.2, 10.3 or 10.4 hereof, as the case may be. Each party hereby releases, acquits and discharges the other party from any and all claims and demands, actions and causes of action, damages, costs, expenses and rights of setoff with respect to which the notices required by SECTION 10.2, 10.3 or 10.4, as applicable, are not timely provided. 10.2 INDEMNIFICATION BY PENTEGRA. PENTEGRA (FOR PURPOSES OF THIS SECTION 10.2 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, "INDEMNITOR"), SHALL INDEMNIFY AND HOLD COMPANY AND ITS SHAREHOLDERS, AGENTS AND EMPLOYEES (EACH OF THE FOREGOING, INCLUDING COMPANY AND SHAREHOLDERS, FOR PURPOSES OF THIS SECTION 10.2 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, AN "INDEMNIFIED PERSON"), HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, DAMAGES, ACTIONS, SUITS, COSTS, DEFICIENCIES AND EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE FEES AND DISBURSEMENTS OF COUNSEL THROUGH APPEAL) ARISING FROM OR BY REASON OF OR RESULTING FROM: (A) ANY BREACH BY INDEMNITOR OF ANY REPRESENTATION, WARRANTY, AGREEMENT OR COVENANT CONTAINED IN THIS AGREEMENT (INCLUDING THE EXHIBITS HERETO) AND EACH DOCUMENT, CERTIFICATE OR OTHER INSTRUMENT FURNISHED OR TO BE FURNISHED BY INDEMNITOR HEREUNDER, AND (B) AFTER THE CLOSING DATE, INDEMNITOR'S OWNERSHIP OF THE ASSETS, AND (C) ANY LIABILITY UNDER THE SECURITIES ACT, THE EXCHANGE ACT OR ANY OTHER FEDERAL OR STATE "BLUE SKY" OR SECURITIES LAWS OR REGULATION, AT COMMON LAW OR OTHERWISE, ARISING OUT OF OR BASED UPON ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT RELATING TO PENTEGRA CONTAINED IN ANY PRELIMINARY PROSPECTUS, THE REGISTRATION STATEMENT OR ANY PROSPECTUS FORMING A PART THEREOF, OR ANY AMENDMENT THEREOF OR SUPPLEMENT THERETO, ARISING OUT OF OR BASED UPON ANY OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT RELATING TO PENTEGRA REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING. IN CONNECTION WITH INDEMNITOR'S OBLIGATION TO INDEMNIFY FOR EXPENSES, INDEMNITOR SHALL REIMBURSE EACH INDEMNIFIED PERSON FOR ALL SUCH EXPENSES AS THEY ARE INCURRED BY SUCH INDEMNIFIED PERSON, PROVIDED THAT SUCH INDEMNIFIED PERSON AGREES IN WRITING TO REFUND ALL SUCH REIMBURSED EXPENSES IF AND TO THE EXTENT THAT IT IS FINALLY JUDICIALLY DETERMINED THAT SUCH INDEMNIFIED PERSON IS NOT ENTITLED TO INDEMNIFICATION HEREUNDER. 10.3 INDEMNIFICATION BY COMPANY AND SHAREHOLDERS. SHAREHOLDERS AND, PRIOR TO THE EFFECTIVE DATE OF THE MERGER, COMPANY (FOR PURPOSES OF THIS SECTION 10.3 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, "INDEMNITOR"), JOINTLY AND SEVERALLY, SHALL INDEMNIFY AND HOLD PENTEGRA AND ITS AFFILIATES, OFFICERS, DIRECTORS, SHAREHOLDERS, AGENTS AND EMPLOYEES (EACH OF THE FOREGOING, INCLUDING PENTEGRA, FOR PURPOSES OF THIS SECTION 10.3 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, AN "INDEMNIFIED PERSON") HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, CLAIMS, DAMAGES, ACTIONS, SUITS, COSTS, DEFICIENCIES AND EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE FEES AND DISBURSEMENTS OF COUNSEL THROUGH APPEAL) ARISING FROM OR BY REASON OF OR RESULTING FROM OR WITH RESPECT TO: 18 (A) ANY BREACH BY INDEMNITOR OF ANY REPRESENTATION, WARRANTY, AGREEMENT OR COVENANT CONTAINED IN THIS AGREEMENT (INCLUDING THE EXHIBITS HERETO) AND EACH DOCUMENT, CERTIFICATE, OR OTHER INSTRUMENT FURNISHED OR TO BE FURNISHED BY INDEMNITOR HEREUNDER, (B) PRIOR TO AND AFTER THE CLOSING DATE, THE INDEMNITOR'S MANAGEMENT AND CONDUCT OF THE BUSINESS AND OWNERSHIP OR OPERATION OF THE ASSETS, (C) ANY ALLEGED ACT OR NEGLIGENCE OF INDEMNITOR OR ITS EMPLOYEES, AGENTS AND INDEPENDENT CONTRACTORS IN OR ABOUT COMPANY'S BUSINESS WHETHER ON OR AFTER THE CLOSING DATE, (D) ANY VIOLATION BY COMPANY OR ITS SHAREHOLDERS OR THEIR CONSULTANTS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND AFFILIATES OF STATE OR FEDERAL LAWS GOVERNING HEALTHCARE FRAUD AND ABUSE, OR ANY OVERPAYMENT OR OBLIGATION ARISING OUT OF OR RESULTING FROM ACTIONS OF THE COMPANY OR ITS SHAREHOLDERS RELATING TO CLAIMS SUBMITTED TO ANY THIRD PARTY PAYOR, WHETHER ON OR AFTER THE CLOSING DATE, (E) TAXES OF COMPANY OR ANY SHAREHOLDER OR ANY OTHER PERSON OR ENTITY RELATED TO OR AFFILIATED WITH THE COMPANY OR SHAREHOLDER ARISING FROM OR AS A RESULT OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (F) ANY LIABILITY OF COMPANY OR THE SHAREHOLDERS FOR COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES) INCURRED IN CONNECTION WITH THE NEGOTIATION, PREPARATION OF CLOSING OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE OTHER DOCUMENTS TO BE EXECUTED IN CONNECTION HEREWITH, (G) ANY ACCRUED UNFUNDED RETIREMENT OR PENSION PLAN LIABILITIES, (H) ANY EXCLUDED LIABILITIES (SET FORTH ON EXHIBIT 4.16), OR (I) ANY LIABILITY UNDER THE SECURITIES ACT, THE EXCHANGE ACT OR ANY OTHER FEDERAL OR STATE "BLUE SKY" OR SECURITIES LAWS OR REGULATION, AT COMMON LAW OR OTHERWISE, ARISING OUT OF OR BASED UPON ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT RELATING TO COMPANY OR ITS SHAREHOLDERS AND PROVIDED TO PENTEGRA OR ITS COUNSEL BY THE COMPANY OR ITS SHAREHOLDERS SPECIFICALLY FOR INCLUSION IN ANY PRELIMINARY PROSPECTUS, THE REGISTRATION STATEMENT OR ANY PROSPECTUS FORMING A PART THEREOF, OR ANY AMENDMENT THEREOF OR SUPPLEMENT THERETO, ARISING OUT OF OR BASED UPON ANY OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT RELATING TO COMPANY OR ITS SHAREHOLDERS REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING. IN CONNECTION WITH INDEMNITOR'S OBLIGATION TO INDEMNIFY FOR EXPENSES, INDEMNITOR SHALL REIMBURSE EACH INDEMNIFIED PERSON FOR ALL SUCH EXPENSES AS THEY ARE INCURRED BY SUCH INDEMNIFIED PERSON, PROVIDED THAT SUCH INDEMNIFIED PERSON AGREES IN WRITING TO REFUND ALL SUCH REIMBURSED EXPENSES IF AND TO THE EXTENT THAT IT IS FINALLY JUDICIALLY DETERMINED THAT SUCH INDEMNIFIED PERSON IS NOT ENTITLED TO INDEMNIFICATION HEREUNDER. 10.4 INDEMNIFICATION PROCEDURE. Within sixty (60) days after Indemnified Person receives written notice of the commencement of any action or other proceeding in respect of which indemnification or reimbursement may be sought hereunder, or within such lesser time as may be provided by law for the defense of such action or proceeding, such Indemnified Person shall notify Indemnitor thereof. If any such action or other proceeding shall be brought against any Indemnified Person, Indemnitor shall, upon written notice given within a reasonable time following receipt by 19 Indemnitor of such notice from Indemnified Person, be entitled to assume the defense of such action or proceeding with counsel chosen by Indemnitor and reasonably satisfactory to Indemnified Person; provided, however, that any Indemnified Person may at its own expense retain separate counsel to participate in such defense. Notwithstanding the foregoing, Indemnified Person shall have the right to employ separate counsel at Indemnitor's expense and to control its own defense of such action or proceeding if, in the reasonable opinion of counsel to such Indemnified Person, (a) there are or may be legal defenses available to such Indemnified Person or to other Indemnified Persons that are different from or additional to those available to Indemnitor and which could not be adequately advanced by counsel chosen by Indemnitor, or (b) a conflict or potential conflict exists between Indemnitor and such Indemnified Person that would make such separate representation advisable; provided, however, that in no event shall Indemnitor be required to pay fees and expenses hereunder for more than one firm of attorneys of Indemnified Person in any jurisdiction in any one action or proceeding or group of related actions or proceedings. Indemnitor shall not, without the prior written consent of any Indemnified Person, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding to which such Indemnified Person is a party unless such settlement, compromise or consent includes an unconditional release of such Indemnified Person from all liability arising or potentially arising from or by reason of such claim, action or proceeding. 10.5 RIGHT OF SETOFF. In the event of any breach of warranty, representation, covenant or agreement by Company or any Shareholder giving rise to indemnification under SECTION 10.3 or SECTION 10.4 hereof, Pentegra shall be entitled to offset the amount of damages incurred by it as a result of such breach of warranty, representation, covenant or agreement against any amounts payable by Pentegra, including the amounts payable under the Service Agreement. SECTION 11. TERMINATION. This Agreement may be terminated: (a) at any time by mutual agreement of all parties; (b) at any time by Pentegra if any representation or warranty of Company or any Shareholder contained in this Agreement or in any certificate or other document executed and delivered by Company or any Shareholder pursuant to this Agreement is or becomes untrue or breached in any material respect or if Company or any Shareholder fails to comply in any material respect with any covenant or agreement contained herein, and any such misrepresentation, noncompliance or breach is not cured, waived or eliminated within twenty (20) days after receipt of written notice thereof; (c) at any time by Company or any Shareholder if any representation or warranty of Pentegra contained in this Agreement or in any certificate or other document executed and delivered by Pentegra pursuant to this Agreement is or becomes untrue or breached in any material respect or if Pentegra fails to comply in any material respect with any covenant or agreement contained herein and such misrepresentation, noncompliance or breach is not cured, waived or eliminated within twenty (20) days after receipt of written notice thereof; (d) by Pentegra, Shareholders or Company if the transaction contemplated hereby shall not have been consummated by December 31, 1997; or (e) by Pentegra at any time prior to the Closing Date if Pentegra determines in its sole discretion as the result of its legal, financial and operational due diligence with respect to Company, that such termination is desirable and in the best interests of Pentegra. SECTION 12. TRANSFER REPRESENTATIONS. 12.1 TRANSFER RESTRICTIONS. For a period of one year from the Closing Date, Shareholder shall not voluntarily (a) sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose of (i) any shares of Pentegra Common Stock received by such party hereunder, (ii) any interest (including without limitation, an option to buy or sell) in any shares of Pentegra Common Stock, in whole or in part, and no such attempted transfer shall 20 be treated as effective for any purpose or (b) engage in any transaction, whether or not with respect to any shares of Pentegra Common Stock or any interest therein, the intent or effect of which is to reduce the risk of owning shares of Pentegra Common Stock. The certificates evidencing the Pentegra Common Stock delivered to Company pursuant to the terms hereof will bear a legend substantially in the form set forth below and containing such other information as Pentegra may deem necessary or appropriate: The shares represented by this certificate may not be voluntarily sold, assigned, exchanged, transferred, encumbered, pledged, distributed, appointed or otherwise disposed of, and the issuer shall not be required to give effect to any attempted voluntary sale, assignment, exchange, transfer, encumbrance, pledge, distribution, appointment or other disposition prior to _________ [date that is one year from the Closing Date]. Upon the written request of the holder of this certificate, the issuer agrees to remove this restrictive legend (and any stop order placed with the transfer agent) after the date specified above. 12.2 INVESTMENTS; COMPLIANCE WITH LAW. Shareholders acknowledge that the shares of Pentegra Common Stock to be delivered to Company pursuant to this Agreement have not been and will not be registered under the Securities Act of 1933 and may not be resold without compliance with the Securities Act of 1933. The Pentegra Common Stock to be acquired by Shareholders pursuant to this Agreement is being acquired solely for its own account, for investment purposes only and with no present intention of distributing, selling or otherwise disposing of it in connection with a distribution. Each Shareholder covenants, warrants and represents that none of the shares of Pentegra Common Stock issued to it will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise disposed of except after full compliance with all of the applicable provisions of the Securities Act, as amended, and the rules and regulations of the Securities Exchange Commission and applicable state securities laws and regulations. All certificates evidencing shares of Pentegra Common Stock shall bear the following legend in addition to the legend referenced in SECTION 12.1. The shares represented hereby have not been registered under the Securities Act of 1933 (the "Act") and may only be sold or otherwise transferred if the holder hereof complies with the Act and applicable securities laws. In addition, certificates evidencing shares of Pentegra Common Stock shall bear any legend required by the securities or blue sky laws of any state where Company resides. 12.3 ECONOMIC RISK; SOPHISTICATION. Shareholders are able to bear the economic risk of an investment in Pentegra Common Stock acquired pursuant to this Agreement and can afford to sustain a total loss of such investment and have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of the proposed investment and therefore have the capacity to protect their own interests in connection with the acquisition of the Pentegra Common Stock. Shareholders and their representatives have had an adequate opportunity to ask questions and receive answers from the officers of Pentegra concerning any and all matters relating to the background and experience of the officers and directors of Pentegra, the plans for the operations of the business of Pentegra, and any plans for additional acquisitions and the like. Shareholders and their representatives have asked any and all questions in the nature described in the preceding sentence and all questions have been answered to their satisfaction. Shareholders are "accredited investors" as defined in Regulation D of the Securities Act of 1933, as amended. SECTION 13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Company and Shareholders recognize and acknowledge that they had in the past, currently have, and in the future may possibly have, access to certain confidential information of Pentegra that is valuable, special and unique assets of Pentegra's businesses. Company and Shareholders agree that it will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, unless (i) such information becomes available to or known by the public generally through no fault of Company or Shareholders, (ii) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (ii), Company and Shareholders shall, if possible, give prior written notice thereof to the other parties hereto, and provide such other parties hereto with the opportunity to contest such disclosure, (iii) Company and Shareholders reasonably believe that such disclosure is required in connection with the defense of a lawsuit against the disclosing party, or (iv) Company and Shareholders are the sole and exclusive owner of such confidential information as a result of the transactions 21 contemplated hereunder or otherwise. In the event of a breach or threatened breach by Company or Shareholders of the provisions of this SECTION 13, Pentegra shall be entitled to an injunction restraining Company and Shareholders from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting Pentegra from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. The obligations of the parties under this SECTION 13 shall survive the termination of this Agreement. SECTION 14. MISCELLANEOUS. 14.1 TAX COVENANT. The parties intend that the transactions contemplated by this Agreement will qualify as a reorganization within the meaning of Section 368(a) of the Code. The tax returns (and schedules thereto) of Shareholders, Company and Pentegra shall be filed in a manner consistent with such intention and Shareholders and Pentegra shall each provide the other with such tax information, reports, returns or schedules as may be reasonably required to assist the other in so reporting the transactions contemplated hereby. 14.2 NOTICES. Any communications required or desired to be given hereunder shall be deemed to have been properly given if sent by hand delivery, or by facsimile AND overnight courier, to the parties hereto at the following addresses, or at such other address as either party may advise the other in writing from time to time: If to Pentegra: Pentegra Dental Group, Inc. 2999 N. 44th Street, Suite 650 Phoenix, Arizona 85018 Attn: President Facsimile: (602) 952-0554 with a copy of each notice directed to Pentegra to: James S. Ryan, III, Esquire Jackson & Walker, L.L.P. 901 Main Street Dallas, Texas 75202 Facsimile: (214) 953-5822 If to Company and Shareholders: To address set forth on EXHIBIT 14.2 with a copy to: Person and address set forth on EXHIBIT 14.2 All such communications shall be deemed to have been delivered on the date of hand delivery or on the next business day following the deposit of such communications, properly addressed and postage prepaid with the overnight courier. 14.3 FURTHER ASSURANCES. Each party hereby agrees to perform any further acts and to execute and deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement. 14.4 EACH PARTY TO BEAR COSTS. Subject to SECTION 14.12, each of the parties to this Agreement shall pay all of the costs and expenses incurred by such party in connection with the transactions contemplated by this Agreement, whether or not such transactions are consummated. Without limiting the generality of the foregoing and whether or not such liabilities may be deemed to have been incurred in the ordinary course of business, Pentegra shall not be liable to 22 or required to pay, either directly or indirectly, any fees and expenses of legal counsel, accountants, auditors or other persons or entities retained by Company or any Shareholder for services rendered in connection with negotiating and closing the transactions contemplated by this Agreement or the documents to be executed in connection herewith, whether or not such costs or expenses are incurred before or after the Closing Date. 14.5 PUBLIC DISCLOSURES. Each party shall keep this Agreement and its terms confidential, and shall make no press release or public disclosure, either written or oral, regarding the transactions contemplated by this Agreement without the prior written consent of the other party, provided that the foregoing shall not prohibit any disclosure (a) by press release, filing or otherwise that Pentegra has determined in good faith judgment to be required by Federal securities laws or the rules of the National Association of Securities Dealers, (b) to attorneys, accountants, investment bankers or other agents of the parties assisting the parties in connection with the transactions contemplated by this Agreement, and (c) by Pentegra in connection with the conduct of its Initial Public Offering and conducting an examination of the operations and assets of Company. 14.6 GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF INCORPORATION OF Company AND APPLIED WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAWS PRINCIPLES. 14.7 CAPTIONS. The captions or headings in this Agreement are made for convenience and general reference only and shall not be construed to describe, define or limit the scope or intent of the provisions of this Agreement. 14.8 INTEGRATION OF EXHIBITS. All Exhibits attached to this Agreement are integral parts of this Agreement as if fully set forth herein, and all statements appearing therein shall be deemed disclosed for all purposes and not only in connection with the specific representation in which they are explicitly referenced. 14.9 ENTIRE AGREEMENT/AMENDMENT. THIS INSTRUMENT, INCLUDING ALL EXHIBITS ATTACHED HERETO, CONTAINS THE ENTIRE AGREEMENT OF THE PARTIES AND SUPERSEDES ANY AND ALL PRIOR OR CONTEMPORANEOUS AGREEMENTS BETWEEN THE PARTIES, WRITTEN OR ORAL, WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY. 14.10 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which when so executed shall be deemed to be an original, and such counterparts shall together constitute and be one and the same instrument 14.11 BINDING EFFECT/ASSIGNMENT. This Agreement shall be binding on, and shall inure to the benefit of, the parties hereto, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No party may assign any right or obligation hereunder without the prior written consent of the other parties; provided, however, that Pentegra may assign its rights and delegate its obligations hereunder to any entity that is an affiliate of Pentegra. For purposes of this Agreement an "affiliate" of Pentegra shall include any entity that, through one or more intermediaries is, controlled, controlled by or under common control with, Pentegra. Upon any such assignment prior to the Closing, all references herein to Pentegra (including those to Pentegra Common Stock) shall be deemed to include references to the assignee and the assignee's common stock. Notwithstanding any such assignment, Pentegra shall not, absent a written release from Company, be relieved from its obligations to Company under this Agreement. 14.12 COSTS OF ENFORCEMENT. In the event that Pentegra, on the one hand, or Company, on the other hand, file suit in any court against any other party to enforce the terms of this Agreement against the other party or to obtain performance by it hereunder, the prevailing party will be entitled to recover all reasonable costs, including reasonable attorneys' fees, from the other party as part of any judgment in such suit. The term "prevailing party" shall mean the party in whose favor final judgment after appeal (if any) is rendered with respect to the claims asserted in the Complaint. "Reasonable attorneys' fees" are those reasonable attorneys' fees actually incurred in obtaining a judgment in favor of the prevailing party. 23 14.13 PRORATIONS. Company agrees to reimburse Pentegra at Closing a pro rata portion of all taxes levied upon the Assets for the calendar year in which the Closing occurs. Such taxes shall be estimated, apportioned and pro-rated among Company and Pentegra as of the Closing Date, and the prorated amount due Pentegra shall be credited to the cash portion of the Purchase Consideration. Upon payment by Pentegra of such taxes actually assessed and paid on the Assets, Pentegra shall calculate the apportionment of such taxes and shall pay Company or may demand from Company, and Company agrees to pay, the amount necessary to correct the estimate and proration made at Closing. 14.14 AMENDMENTS; WAIVERS. This Agreement may be amended, modified or supplemented only by an instrument in writing executed by all the parties hereto. Any waiver of the terms and conditions hereof must be in writing, and signed by the parties hereto. The waiver of any of the terms and conditions of this Agreement shall not be construed as a waiver of any other terms and conditions hereof. 14.15 ARBITRATION. Upon the request of either Pentegra or the Companys or Shareholders (hereinafter referred to as a "Party"), whether made before or after the institution of any legal proceeding, any dispute among the parties hereto in any way arising out of, related to, or in connection with this Agreement (hereinafter a "Dispute"), shall be resolved by binding arbitration in accordance with the terms of this Section (hereinafter the "Arbitration Program"). All Disputes between the Parties shall be resolved by binding arbitration administered by the American Arbitration Association (the "AAA") in accordance with the terms of this Arbitration Program, the Commercial Arbitration Rules of the AAA. In the event of any inconsistency between this Arbitration Program and those rules or statutes, then the terms of this Arbitration Program shall control. The parties hereto agree to adhere to all warranties and covenants (as described herein) until such time as the arbitration process has been completed and the arbitrators have determined each party's post-arbitration obligations and responsibilities as it relates to such warranties and covenants. No provision of, nor the exercise of any rights under, this Arbitration Program shall limit the right of any Party at any time to seek or use ancillary or preliminary judicial or non-judicial self help remedies for the purposes of obtaining, perfecting, preserving, or foreclosing upon any personal property in which there has been granted a security interest or lien by a Party in the Documents. In Disputes involving indebtedness or other monetary obligations, each Party agrees that the other Party may proceed against all liable persons, jointly and severally against one or more of them, without impairing rights against other liable persons. Nor shall a Party be required to join the principal obligor or any other liable persons (e.g., sureties or guarantors) in any proceeding against a particular person. A Party may release or settle with one or more liable persons as the Party deems fit without releasing or impairing rights to proceed against any persons not so released. All statutes of limitation that would otherwise be applicable shall apply to any arbitration proceeding. The party seeking arbitration shall notify the other Party, in writing, of that Party's desire to arbitrate a dispute; and each Party shall, within twenty (20) days from the date such notification is received, select an arbitrator, and those two arbitrators shall select a third arbitrator within ten (10) days thereafter. The issues or claims in dispute shall be committed to writing, separately stated and numbered, and each party's proposed answers or contentions shall be signed below the questions. Failure by a party to select an arbitrator within the prescribed time period shall serve as that Party's acquiescence and acceptance of the other party's selection of arbitrator. The arbitrators shall resolve all Disputes in accordance with the applicable substantive law. Any Dispute shall be decided by a majority vote of three arbitrators, unless the claim or amount in controversy does not exceed $100,000.00, in which case a single arbitrator (who shall have authority to render a maximum award of $100,000.00, including all damages of any kind, costs and fees) may decide the Dispute. The arbitrators may grant any remedy or relief that the arbitrators deem just and equitable and within the scope of this Arbitration Program. The arbitrators may also grant such ancillary relief as is necessary to make effective the award. In all arbitration proceedings the arbitrators shall make specific and written findings of fact and conclusions of law. In all arbitration proceedings in which the amount in controversy exceeds $100,000.00, in the aggregate, the Parties shall have in addition to the statutory right to seek vacation or modification of any award pursuant to applicable law, the right to seek vacation or modification of any award that is based in whole, or in part, on an incorrect or erroneous ruling of law by appeal to an appropriate court having jurisdiction; provided, however, that any such application for vacation or modification of an award based on an incorrect ruling of law must be filed in a court having jurisdiction over the Dispute within 15 days from the date the 24 award in rendered. The arbitrators' findings of fact shall be binding on all Parties and shall not be subject to further review except as otherwise allowed by applicable law. To the maximum extent practicable, an arbitration proceeding hereunder shall be concluded within 180 days of the filing of the Dispute with AAA. Arbitration proceedings hereunder shall be conducted where agreed to in writing by the Parties or, in the absence of such agreement in Phoeniz, Arizona or the headquarters of Pentegra if other than Phoeniz, Arizona. The provisions of this Arbitration Program shall survive any termination, amendment, or expiration of the Documents, unless the Parties otherwise expressly agree in writing making specific reference to this Arbitration Program. To the extent permitted by applicable law, the arbitrator shall have the power to award recovery of all costs and fees (including attorney's fees, administrative fees, and arbitrators' fees) to the prevailing Party. This Arbitration Program may be amended, changed, or modified only by a writing which specifically refers to this Arbitration Program and which is signed by all the Parties. If any term, covenant, condition or provision of the Arbitration Program is found to be unlawful or invalid or unenforceable, such illegality or invalidity or unenforceable shall not affect the legality, validity or enforceability of the remaining parts of this Arbitration Program, and all such remaining parts hereof shall be valid and enforceable and have full force and effect as if the illegal, invalid or unenforceable part had not been included. Each Party agrees to keep all Disputes and arbitration proceedings strictly confidential, except for disclosures of information required in the ordinary course of business of the Parties or by applicable law or regulation. 14.16 SEVERABILITY. If any provision of this Agreement shall be found to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable and this Agreement shall be construed and enforced as if such provision never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect. In lieu of such provision, there shall be added automatically as part of this Agreement, a provision as similar in its terms to such provision as may be possible and be legal, valid and enforceable. [End of Page] 25 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. -------------------------------------------- By: ----------------------------------------- Its: ---------------------------------------- PENTEGRA DENTAL GROUP, INC. By: ----------------------------------------- Its: ---------------------------------------- -------------------------------------------- , D.D.S. ---------------------------- 26 INDEX TO EXHIBITS Exhibit Description ------- ----------- Annex I Merger Consideration A Target Companies 2.1 Corporate Existence; Good Standing; Shareholders/Ownership 2.3 Permits and Licenses 2.4 Consents 2.8 Leases 2.10 Real and Personal Property; Encumbrances 2.12 Patents and Trademarks; Names 2.13 Directors and Officers; Payroll Information; Employment Agreements 2.15 Contracts (other than Leases and Employment Agreements) 2.16 Subsequent Events 2.19 Debt 2.20 Insurance Policies 2.21 Employee Benefit Plans 2.26 Banking Relations 2.28 Payors 4.16 Excluded Assets and Excluded Liabilities; and Assumed Liabilities 7.7 Form of Service Agreement 7.8 Form of Employment Agreement 9.1(l) Form of Registration Rights Agreement 14.2 Addresses for Notice 27 ANNEX I MERGER CONSIDERATION The aggregate consideration to be received by the Shareholders pursuant to the Agreement (the "Merger Consideration") is the following: Shares of Pentegra Common Stock equal to $_________ divided by the initial public offering price of Pentegra Common Stock. Cash in the amount of $________________________. No fractional shares of Pentegra Common Stock will be issued; rather, shares of Pentegra Common Stock to be issued to the Shareholders shall be rounded to the nearest whole share. [Allocation to each Shareholder needed more than one] 28 EX-2.5 6 EXHIBIT 2.5 EXHIBIT 2.5 EXCHANGE AGREEMENT THIS EXCHANGE AGREEMENT ("AGREEMENT"), dated to be effective as of July 31, 1997, is among Pentegra Dental Group, Inc., a Delaware corporation ("Holdings"), Pentegra Investments, Inc.(f/k/a Pentegra Dental Group, Inc.), a Delaware corporation, and the persons named on the signature pages hereof under the caption "Holders". W I T N E S S E T H : WHEREAS, Holders hold all of the issued and outstanding shares of common stock of Pentegra Investments, Inc.("Investments"), par value $.01 per share ("Investments Common Stock"); WHEREAS, Investments was formed for the purpose of negotiating the acquisition of various dental practices in connection with an initial public offering of shares of Investments Common Stock ("IPO"); WHEREAS, the board of directors of Investments and the Holders have determined that it would be in their mutual best interests to form a holding company to consummate the practice acquisitions and the IPO in order to facilitate future acquisitions and divestitures and to provide a cost center for the Pentegra group's financial, banking and executive and administrative management functions; WHEREAS, to facilitate the formation of a holding company structure, Investments has caused Holdings to be formed and, solely for the purpose of organizing Holdings, Holdings has issued to Investments one share of its common stock, par value $.01 per share ("Holdings Common Stock"); and WHEREAS, it is the intention of the parties that the exchange by the Holders of the Investments Common Stock for Holdings Common Stock contemplated by this Agreement be consummated simultaneously with the closing of the practice acquisitions and the IPO pursuant to an overall plan of exchange that satisfies the requirements of Section 351 of the Internal Revenue Code of 1986 (the "Code"). NOW THEREFORE, in consideration of the premises, and of the agreements, covenants and conditions hereinafter contained, the parties hereto agree, with respect to the exchanges provided for herein (the "EXCHANGE"), that at the Closing (as hereinafter defined) each share of Investments Common Stock issued and outstanding immediately prior to the Closing will be exchanged for one share of Holdings Common Stock on the following terms and conditions: ARTICLE I Subject to the satisfaction of the conditions and obligations of the parties hereto, the Exchange shall be effective upon consummation of the closing of the IPO (the "Closing"). ARTICLE II At the Closing and simultaneously with the issuance of Holdings Common Stock in the IPO and the consummation of the practice acquisitions: 1. Each share of Investments Common Stock issued and outstanding immediately prior to the Closing shall be exchanged for one share of Holdings Common Stock, which shall thereupon be fully paid and non-assessable; 2. Holdings shall become the owner and holder of each issued and outstanding share of Investments common stock so exchanged; 3. Each share of Holdings Common Stock owned by Investments prior to the Closing shall be canceled; and 4. Immediately after the Closing, the Holders, the public purchasers of Holdings Common Stock in the IPO and the persons issued Holdings Common Stock pursuant to the practice acquisitions shall be the sole shareholders of Holdings and Investments shall be a wholly-owned subsidiary of Holdings. ARTICLE III The consummation of the Exchange is subject to the following conditions precedent: 1. The satisfaction of the respective obligations of the parties hereto in accordance with the terms and conditions herein contained; 2. The registration statement filed under the Securities Act of 1933 covering the Holdings Common Stock to be issued in the IPO shall have become effective and approval for listing, upon official notice of issuance, by Nasdaq stock market or other nationally recognized exchange, of Holdings Common Stock to be issued in the IPO shall have been obtained; and 3. Any orders, authorizations, approvals or waivers from all applicable regulatory bodies, boards or agencies, if any, which are required in connection with the Exchange and related transactions shall have been obtained. ARTICLE IV Upon written notice from Investments each Holder of an outstanding certificate or certificates theretofore representing shares of Investments common stock shall immediately surrender the same to Holdings duly endorsed for transfer or with stock powers attached in exchange for the issuance by Holdings of a certificate or certificates in such Holder's name evidencing one share of Holdings Common Stock for each share of Investments Common Stock held by such Holder immediately prior to the Closing. Until so surrendered or presented for transfer, each outstanding certificate which, immediately prior to the Closing, represented Investments Common Stock shall be deemed and treated for all corporate purposes to represent the ownership of the same number of shares of Holdings Common Stock as though such surrender or transfer and exchange had taken place. Except as provided herein, no Holder shall sell, assign, transfer, pledge or encumber any shares of Investments Common Stock presently or hereafter held by it and, except as otherwise required by law, shall have no right to have their shares of Investments Common Stock transferred on the stock transfer books of Investments. At the Closing, Investments shall surrender for cancellation the shares of Holdings Common Stock then held by it in exchange for the return of the consideration paid therefor. ARTICLE V Each Holder represents and warrants to Holdings, as of the date of this Agreement and as of the Closing date, that: 1. The Holdings Common Stock to be received by it pursuant to this Agreement is being acquired solely for the Holder's own account and for investment purposes only; 2. The Holder has no present plan or intention of distributing, selling or otherwise disposing of the shares of Holdings Common Stock to be received by it in the Exchange; and 3. The shares of Investments Common Stock to be surrendered in the Exchange are free of any and all transfer restrictions, pledges, encumbrances or other conflicting claims of every nature. ARTICLE V This Agreement may be amended, modified or supplemented, or compliance with any provision or condition hereof may be waived, at any time, only by the mutual consent of the Holders and Holdings. This Agreement may be terminated and the Exchange and related transactions abandoned at any time prior to the Closing if the board of directors of Investments determines, in its sole discretion, that consummation of the Exchange would be inadvisable or not in the best interests of Investments or its subsidiaries. The covenants, representations and warranties of Holdings and each Holder set forth in this Agreement shall survive the Closing of the Exchange indefinitely. This Agreement (i) shall be construed and enforced pursuant to the laws of the State of Texas, exclusive of any conflicts of law principles thereof that might refer such construction or enforcement to the laws of another jurisdiction, and (ii) may be executed in multiple counterparts, each of which shall constitute one and the same agreement. IN WITNESS WHEREOF, the Holders, Investments and Holdings have caused this Agreement to be duly executed as of the date first above written. PENTEGRA INVESTMENTS, INC. By: /s/ Gary S. Glatter --------------------------------- Its: President --------------------------------- PENTEGRA DENTAL GROUP, INC. By: /s/ Gary S. Glatter --------------------------------- Its: President --------------------------------- HOLDERS: /s/ Marie Adamo /s/ Victor Burdick - ---------------------------------- ----------------------------------- Marie Adamo Victor Burdick Stampeder Services Corp. By: /s/ Jim Allen /s/ J. Michael Casas - ---------------------------------- ----------------------------------- Jim Allen J. Michael Casas /s/ Steve Anderson /s/ Marvin Cavallino - ---------------------------------- ----------------------------------- Steve Anderson Marvin Cavallino Aurous, Ltd. By: /s/ John Benson /s/ William Decker - ---------------------------------- ----------------------------------- John Benson William Decker Director /s/ Scott Bolding /s/ James L. Dunn - ---------------------------------- ----------------------------------- Scott Bolding James L. Dunn /s/ Thomas Mullooly /s/ Stephen P. Schmitt - ---------------------------------- ----------------------------------- Thomas Mullooly Stephen P. Schmitt Edward Pitts, P/S Plan /s/ Gary Nagler By: /s/ Edward Pitts - ---------------------------------- ----------------------------------- Gary Nagler Edward Pitts /s/ Debra Novosad /s/ Candy Segall - ---------------------------------- ----------------------------------- Debra Novosad Candy Segall /s/ John W. Parsons /s/ George M. Siegel - ---------------------------------- ----------------------------------- John W. Parsons George M. Siegel /s/ Kelly W. Reed /s/ Annie Smith - ---------------------------------- ----------------------------------- Kelly W. Reed Annie Smith /s/ Omer K. Reed /s/ Ken W. Smith - ---------------------------------- ----------------------------------- Omer K. Reed Ken W. Smith /s/ Kim Rozman /s/ Stephen Stapleton - ---------------------------------- ----------------------------------- Kim Rozman Stephen Stapleton RTT Investments By: /s/ John Thayer /s/ John Thayer - ---------------------------------- ----------------------------------- John Thayer John Thayer /s/ Richard Fettig /s/ Richard Vento - ---------------------------------- ----------------------------------- Richard Fettig Richard Vento Laguna Enterprises, Ltd. Dufo, Ltd. By: /s/ John Benbow By: /s/ John Benbow - ---------------------------------- ----------------------------------- John Benbow John Benbow Dunn Family Trust By: /s/ James L. Dunn, Jr. /s/ Roger Kay - ---------------------------------- ----------------------------------- James L. Dunn, Jr. Roger Kay Trustee /s/ Allen M. Gelwick /s/ George King - ---------------------------------- ----------------------------------- Allen M. Gelwick George King /s/ Alan Gerbholz /s/ Brian Kniff - ----------------------------------- ----------------------------------- Alan Gerbholz Brian Kniff /s/ Gary Glatter /s/ James Landers - ---------------------------------- ----------------------------------- Gary Glatter James Landers Goldfam, Ltd. RBM Trust By: /s/ Daniel Goldman By: /s/ Richard Mains - ---------------------------------- ----------------------------------- Daniel Goldman Richard Mains /s/ Mack E. Greder /s/ JoAn Majors - ---------------------------------- ----------------------------------- Mack E. Greder JoAn Majors /s/ Bruce Kanehl /s/ James Medlock - ---------------------------------- ----------------------------------- Bruce Kanehl James Medlock /s/ Sam H. Carr - ---------------------------------- Sam H. Carr /s/ Daniel A. Bock - ---------------------------------- Daniel A. Bock MANHATTAN GROUP FUNDING By: /s/ Ronald I. Heller - ---------------------------------- Ronald I. Heller Partner By: /s/ David S. Nagelberg - ---------------------------------- David S. Nagelberg Partner EX-2.6 7 EXHIBIT 2.6 ASSET CONTRIBUTION AGREEMENT BY AND AMONG PENTEGRA DENTAL GROUP, INC., PENTEGRA, LTD., NAPILI, INTERNATIONAL and OMER K. REED, D.D.S. TABLE OF CONTENTS PAGE ---- Section 1. TERMS OF THE CONTRIBUTION 1.2 CONTRIBUTION OF ASSETS. . . . . . . . . . . . . . . . . 1 1.3 EXCLUDED ASSETS . . . . . . . . . . . . . . . . . . . . 1 1.4 PURCHASE PRICE; ASSUMPTION OF LIABILITIES . . . . . . . 2 1.5 SUBSEQUENT ACTIONS. . . . . . . . . . . . . . . . . . . 2 Section 2. REPRESENTATIONS AND WARRANTIES OF CONTRIBUTORS AND SHAREHOLDER. 2.1 CORPORATE EXISTENCE; GOOD STANDING. . . . . . . . . . . 2 2.2 POWER AND AUTHORITY FOR TRANSACTIONS. . . . . . . . . . 3 2.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS . . . 3 2.4 CONSENTS. . . . . . . . . . . . . . . . . . . . . . . . 3 2.5 DISTRIBUTIONS AND REPURCHASES . . . . . . . . . . . . . 3 2.6 CORPORATE RECORDS . . . . . . . . . . . . . . . . . . . 3 2.7 CONTRIBUTORS' FINANCIAL INFORMATION . . . . . . . . . . 3 2.8 LEASES. . . . . . . . . . . . . . . . . . . . . . . . . 4 2.9 CONDITION OF ASSETS . . . . . . . . . . . . . . . . . . 4 2.10 TITLE TO AND ENCUMBRANCES ON PROPERTY . . . . . . . . . 4 2.11 INVENTORIES . . . . . . . . . . . . . . . . . . . . . . 4 2.12 INTELLECTUAL PROPERTY RIGHTS; NAMES . . . . . . . . . . 4 2.13 DIRECTORS AND OFFICERS; PAYROLL INFORMATION; EMPLOYEES. 4 2.14 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . 4 2.15 CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . 5 2.16 SUBSEQUENT EVENTS . . . . . . . . . . . . . . . . . . . 5 2.17 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.18 COMMISSIONS AND FEES. . . . . . . . . . . . . . . . . . 7 2.19 LIABILITIES; DEBT . . . . . . . . . . . . . . . . . . . 7 2.20 INSURANCE POLICIES. . . . . . . . . . . . . . . . . . . 7 2.21 EMPLOYEE BENEFIT PLANS. . . . . . . . . . . . . . . . . 7 2.22 ADVERSE AGREEMENTS. . . . . . . . . . . . . . . . . . . 8 2.23 COMPLIANCE WITH LAWS IN GENERAL . . . . . . . . . . . . 8 2.24 [intentionally deleted] . . . . . . . . . . . . . . . . 8 2.25 NO UNTRUE REPRESENTATIONS . . . . . . . . . . . . . . . 8 2.26 BANKING RELATIONS . . . . . . . . . . . . . . . . . . . 8 2.27 [INTENTIONALLY DELETED] . . . . . . . . . . . . . . . . 8 2.28 [INTENTIONALLY DELETED] . . . . . . . . . . . . . . . . 8 Section 3. REPRESENTATIONS AND WARRANTIES OF PENTEGRA 3.1 CORPORATE EXISTENCE: GOOD STANDING. . . . . . . . . . . 8 3.2 POWER AND AUTHORITY; CONSENTS . . . . . . . . . . . . . 8 3.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS . . . 9 3.4 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . 9 3.5 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.6 COMMISSIONS AND FEES. . . . . . . . . . . . . . . . . . 9 3.7 CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . 9 3.8 NO UNTRUE REPRESENTATIONS . . . . . . . . . . . . . . . 9 Section 4. COVENANTS OF CONTRIBUTORS AND SHAREHOLDER. 4.1 CONSUMMATION OF AGREEMENT; EXHIBITS . . . . . . . . . . 9 -i- 4.2 BUSINESS OPERATIONS; CHANGE OF NAME . . . . . . . . . . 10 4.3 ACCESS AND NOTICE . . . . . . . . . . . . . . . . . . . 10 4.4 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS . . 10 4.5 ACQUISITION PROPOSALS . . . . . . . . . . . . . . . . . 10 4.6 FUNDING OF ACCRUED EMPLOYEE BENEFITS. . . . . . . . . . 10 4.7 EMPLOYEE MATTERS. . . . . . . . . . . . . . . . . . . . 10 4.8 DISTRIBUTIONS AND REPURCHASES . . . . . . . . . . . . . 11 4.9 REQUIREMENTS TO EFFECT ACQUISITION. . . . . . . . . . . 11 4.10 ACCOUNTING AND TAX MATTERS. . . . . . . . . . . . . . . 11 4.11 WAIVER OF BULK TRANSFER COMPLIANCE. . . . . . . . . . . 11 4.12 [INTENTIONALLY DELETED] . . . . . . . . . . . . . . . . 11 4.13 HIRING OF EMPLOYEES . . . . . . . . . . . . . . . . . . 11 Section 5. COVENANTS OF PENTEGRA 5.1 CONSUMMATION OF AGREEMENT; EXHIBITS . . . . . . . . . . 11 5.2 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS . . 11 Section 6. COVENANTS OF PENTEGRA AND CONTRIBUTORS AND SHAREHOLDER 6.1 FILINGS; OTHER ACTIONS. . . . . . . . . . . . . . . . . 11 Section 7. PENTEGRA CONDITIONS PRECEDENT 7.1 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . 12 7.2 COVENANTS AND CONDITIONS. . . . . . . . . . . . . . . . 12 7.3 PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . 12 7.4 NO MATERIAL ADVERSE CHANGE. . . . . . . . . . . . . . . 12 7.5 DUE DILIGENCE REVIEW. . . . . . . . . . . . . . . . . . 12 7.6 APPROVAL BY THE BOARD OF DIRECTORS. . . . . . . . . . . 12 7.7 CONSENTS AND APPROVALS. . . . . . . . . . . . . . . . . 12 7.8 CLOSING DELIVERIES. . . . . . . . . . . . . . . . . . . 12 7.9 DEBT AND RECEIVABLES. . . . . . . . . . . . . . . . . . 12 7.10 NO CHANGE IN WORKING CAPITAL. . . . . . . . . . . . . . 13 Section 8. CONTRIBUTORS'S AND SHAREHOLDER' CONDITIONS PRECEDENT 8.1 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . 13 8.2 COVENANTS AND CONDITIONS. . . . . . . . . . . . . . . . 13 8.3 PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . 13 8.4 CLOSING DELIVERIES. . . . . . . . . . . . . . . . . . . 13 8.5 SECURITIES APPROVAL . . . . . . . . . . . . . . . . . . 13 Section 9. CLOSING DELIVERIES 9.1 DELIVERIES OF CONTRIBUTORS AND SHAREHOLDER. . . . . . . 13 9.2 DELIVERIES OF PENTEGRA. . . . . . . . . . . . . . . . . 14 Section 10. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION 10.1 NATURE AND SURVIVAL . . . . . . . . . . . . . . . . . . 15 10.2 INDEMNIFICATION BY PENTEGRA . . . . . . . . . . . . . . 15 10.3 INDEMNIFICATION BY CONTRIBUTORS AND SHAREHOLDER . . . . 16 10.4 INDEMNIFICATION PROCEDURE . . . . . . . . . . . . . . . 17 10.5 RIGHT OF SETOFF . . . . . . . . . . . . . . . . . . . . 17 Section 11. TERMINATION Section 12. TRANSFER REPRESENTATIONS -ii- 12.1 TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . 18 12.2 INVESTMENTS; COMPLIANCE WITH LAW. . . . . . . . . . . . 18 12.3 ECONOMIC RISK; SOPHISTICATION . . . . . . . . . . . . . 18 Section 13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION Section 14. NONCOMPETITION 14.1 PROHIBITED ACTIVITIES . . . . . . . . . . . . . . . . . 19 14.2 REASONABLE RESTRAINT. . . . . . . . . . . . . . . . . . 19 14.3 SEVERABILITY; REFORMATION . . . . . . . . . . . . . . . 19 14.4 TERM. . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 15. MISCELLANEOUS 15.1 TAX COVENANT. . . . . . . . . . . . . . . . . . . . . . 20 15.2 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . 20 15.3 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . 20 15.4 EACH PARTY TO BEAR COSTS. . . . . . . . . . . . . . . . 20 15.5 PUBLIC DISCLOSURES. . . . . . . . . . . . . . . . . . . 20 15.6 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . 21 15.7 CAPTIONS. . . . . . . . . . . . . . . . . . . . . . . . 21 15.8 INTEGRATION OF EXHIBITS . . . . . . . . . . . . . . . . 21 15.9 ENTIRE AGREEMENT/AMENDMENT. . . . . . . . . . . . . . . 21 15.10 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . 21 15.11 BINDING EFFECT/ASSIGNMENT . . . . . . . . . . . . . . . 21 15.12 COSTS OF ENFORCEMENT. . . . . . . . . . . . . . . . . . 21 15.13 PRORATIONS. . . . . . . . . . . . . . . . . . . . . . . 21 15.14 AMENDMENTS; WAIVERS . . . . . . . . . . . . . . . . . . 22 15.15 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . 22 15.16 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . 23 -iii- ASSET CONTRIBUTION AGREEMENT This ASSET CONTRIBUTION AGREEMENT (this "Agreement"), made and executed as of August 20, 1997, is by and among PENTEGRA DENTAL GROUP, INC., a Delaware corporation ("Pentegra"), PENTEGRA, LTD., an Arizona corporation and NAPILI, INTERNATIONAL, an Arizona corporation (collectively, "Contributors"), and the shareholders of Contributors set forth on the signature page hereof (referred to herein as "Shareholder" or "Shareholder"). WITNESSETH: WHEREAS, Contributors conduct a consulting and training business ("Business") and Pentegra is engaged in the business of managing certain non-dentistry aspects of dental practices; WHEREAS, Contributors desire to contribute to Pentegra, and Pentegra desires to receive from Contributors, certain assets of Contributors; WHEREAS, Pentegra or its affiliated designee has entered into or intends to enter into Agreements and Plans of Reorganization, Asset Contribution Agreements and other acquisition agreements (collectively, the "Other Agreements") with such persons or entities or the stockholders of such entities listed on EXHIBIT A (together with Contributors, the "Target Companies"); WHEREAS, it is intended for Federal income tax purposes that the transfers contemplated by this Agreement, the Other Agreements and Pentegra's initial public offering ("Initial Public Offering") of shares of its common stock, par value $.01 per share ("Pentegra Common Stock") shall qualify as an exchange within the meaning of Section 351 of the Internal Revenue Code of 1986, as amended ("IRC" or "Code"); WHEREAS, the consummation of the transfers to Pentegra pursuant to this Agreement is intended to occur in connection with, and is conditioned upon, the simultaneous consummation of the transfers contemplated by the Other Agreements and the Initial Public Offering. . NOW THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, and for other good and valuable consideration, the sufficiency of which are hereby acknowledged, the parties agree as follows: SECTION 1. TERMS OF THE CONTRIBUTION. 1.1 THE CLOSING. The closing of the transactions contemplated hereby shall take place at 10:00 am local time, at the offices of Jackson Walker L.L.P., on the day on which the Initial Public Offering of Pentegra Common Stock is consummated. The date on which the Closing occurs is hereinafter referred to as the "Closing Date". 1.2 CONTRIBUTION OF ASSETS. Subject to and upon the terms and conditions contained herein, on the Closing Date, Contributors shall convey, transfer, deliver and assign to Pentegra or any affiliate of Pentegra designated by Pentegra all of Contributors' right, title and interest in and to those certain assets described on EXHIBIT 1.1 attached hereto (individually, "Asset", and collectively "Assets"), free and clear of all obligations, security interests, claims, liens and encumbrances, except as specifically assumed, or taken subject to, by Pentegra pursuant to SECTION 1.3(b) hereof. 1 1.3 EXCLUDED ASSETS. There shall be excluded from the Assets to be transferred and contributed hereunder, and Contributors shall retain all of their right, title and interest in and to, the assets not specifically transferred hereunder, including without limitation, the assets described on EXHIBIT 1.2 (the "Excluded Assets"). 1.4 PURCHASE PRICE; ASSUMPTION OF LIABILITIES. As consideration for the Assets and the representations, warranties and agreements of Contributors contained herein, Pentegra shall, on the Closing Date: (a) Cause to be transferred to Contributors the consideration specified in ANNEX I attached hereto (the "Acquisition Consideration"); and. (b) Except as otherwise provided herein, assume and perform or discharge on or after the Closing Date, the contracts, leases, obligations, commitments, liabilities and indebtedness of Contributors listed on EXHIBIT 1.3(b) attached hereto to the extent that such obligations, commitments, liabilities and indebtedness are current and not otherwise in default. (the "Assumed Liabilities"). Notwithstanding any contrary provision contained herein, Pentegra shall not be deemed to have assumed, nor shall Pentegra assume: (i) any liability, commitment or obligation or trade payable or indebtedness not specifically disclosed on EXHIBIT 1.3(b), (ii) any liability set forth on EXHIBIT 1.3(b) which may be incurred by reason of any breach of or default under such contracts, leases, commitments or obligations which occurred on or before the Closing Date; (iii) any liability for any employee benefits payable to employees of Contributors, including, but not limited to, liabilities arising under any Contributor Plan (as defined in SECTION 2.21 hereof); (iv) any liability based upon or arising out of a violation of any antitrust or similar restraint-of-trade laws by Shareholder or Contributors, including, without limiting the generality of the foregoing, any such antitrust liability which may arise in connection with agreements, contracts, commitments or orders for the sale of goods or provision of services by Contributors reflected on the books of Contributors at or prior to the Closing Date; (v) any liability based upon or arising out of any tortious or wrongful actions of Contributors, any employee or independent contractor of Contributors or Shareholder, (vi) any liability for the payment of any taxes of Contributors or Shareholder, including without limitation, sales, use and other transfer taxes and income taxes arising from or by reason of the transactions contemplated by this Agreement; (vii) any indebtedness secured by deeds of trust or mortgages on real property; nor (viii) any liability incurred or to be incurred pursuant to any malpractice or other suits or actions pending against Contributors or Shareholder. 1.5 SUBSEQUENT ACTIONS. If, at any time after the Closing Date, Pentegra shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in Pentegra its right, title or interest in, to or under any of the Assets or otherwise to carry out this Agreement, in return for the consideration set forth in this Agreement, Contributors and Shareholder shall execute and deliver all such deeds, bills of sale, assignments and assurances and take and do all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under the Assets in Pentegra or otherwise to carry out this Agreement. SECTION 2. REPRESENTATIONS AND WARRANTIES OF CONTRIBUTORS AND SHAREHOLDER. Contributors and Shareholder, jointly and severally, hereby represent and warrant to Pentegra as follows: 2.1 CORPORATE EXISTENCE; GOOD STANDING. Contributors are each a corporation duly organized, validly existing and in good standing under the laws of the State of Arizona. Contributors have all necessary corporate powers to own all of its assets and to carry on its business as such business is now being conducted. Contributors do not own stock in or control, directly or indirectly, any other corporation, association or business organization, nor are Contributors a party to any joint venture or partnership. The Shareholder is the sole shareholder of each Contributor and own all outstanding shares of capital stock free of all security interests, claims, encumbrances and liens. Each share of each Contributor's common stock has been legally and validly issued and fully paid and nonassessable. No shares of capital stock of either Contributor are owned by either Contributor in treasury. There are no outstanding (a) bonds, debentures, notes or other obligations the holders of which have the right to vote with the stockholders of Contributors on any matter, (b) securities of Contributors convertible into equity interests in Contributors, or (c) commitments, options, rights or warrants to issue any such equity interests in Contributors, to issue securities of Contributors 2 convertible into such equity interests, or to redeem any securities of Contributors. No shares of capital stock of Contributors have been issued or disposed of in violation of the preemptive rights, rights of first refusal or similar rights of any of Contributors' stockholders. Contributors are not required to qualify to do business as a foreign corporation in any other state or jurisdiction by reason of its business, properties or activities in or relating to such other state or jurisdiction. Contributors do not have any assets, employees or offices in any state other than the state set forth in the first sentence of this SECTION 2.1. 2.2 POWER AND AUTHORITY FOR TRANSACTIONS. Contributors have the corporate power to execute, deliver and perform this Agreement and all agreements and other documents executed and delivered by them pursuant to this Agreement or to be executed and delivered on the Closing Date, and has taken all action required by law, their Articles or Certificate of Incorporation, their Bylaws or otherwise, to authorize the execution, delivery and performance of this Agreement and such related documents. Shareholder has the legal capacity to enter into and perform this Agreement and the other agreements to be executed and delivered in connection herewith. Contributors have obtained the approval of their stockholders necessary to the consummation of the transactions contemplated herein. This Agreement and all agreements and documents executed and delivered in connection herewith have been, or will be as of the Closing Date, duly executed and delivered by Contributors and Shareholder, as appropriate, and constitute or will constitute the legal, valid and binding obligations of Contributors and Shareholder, enforceable against Contributors and Shareholder in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. The execution and delivery of this Agreement, and the agreements executed and delivered pursuant to this Agreement or to be executed and delivered on the Closing Date, do not, and, subject to the receipt of consents described on EXHIBIT 2.4, the consummation of the actions contemplated hereby will not, violate any provision of the Articles or Certificate of Incorporation or Bylaws of Contributors or any provisions of, or result in the acceleration of, any obligation under any mortgage, lien, lease, agreement, rent, instrument, order, arbitration award, judgment or decree to which Contributors or Shareholder is a party or by which Contributors or Shareholder is bound, or violate any material restrictions of any kind to which Contributors is subject, or result in any lien or encumbrance on any of Contributors' assets or the Assets. 2.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. All building or other permits, certificates of occupancy, concessions, grants, franchises, licenses, certificates of need and other governmental authorizations and approvals required for the conduct of the Business or the use of the Assets, or waivers thereof, have been duly obtained and are in full force and effect and are described on EXHIBIT 2.3. There are no proceedings pending or, to the knowledge of Contributors and Shareholder, threatened, which may result in the revocation, cancellation or suspension, or any adverse modification, of any such licenses or permits. 2.4 CONSENTS. Except as set forth on EXHIBIT 2.4, no consent, authorization, permit, license or filing with any governmental authority, any lender, lessor, any manufacturer or supplier or any other person or entity is required to authorize, or is required in connection with, the execution, delivery and performance of this Agreement and the agreements and documents contemplated hereby on the part of Contributors or Shareholder. 2.5 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or dividend of any kind has been declared or paid by Contributors on any of their capital stock since the Balance Sheet Date. No repurchase of any of Contributors' capital stock has been approved, effected or is pending, or is contemplated by Contributors. 2.6 CORPORATE RECORDS. True and correct copies of the Articles or Certificate of Incorporation, Bylaws and minutes of Contributors and all amendments thereto have been delivered to Pentegra. The minute books of Contributors contain accurate minutes of all meetings of and consents to actions taken without meetings of the Board of Directors and stockholders of Contributors since their formation. The books of account of Contributors have been kept accurately in the ordinary course of business and the revenues, expenses, assets and liabilities of Contributors have been properly recorded in such books. 2.7 CONTRIBUTORS' FINANCIAL INFORMATION. Contributors have heretofore furnished Pentegra with copies of its unaudited balance sheet and related unaudited statements of income, retained earnings and cash flows for its prior two full fiscal years, as well as copies of its unaudited balance sheet as of December 31, 1996 and June 30, 1997 (collectively, the "Balance Sheet" and the latest date thereof shall be referred to as the "Balance Sheet Date") and any 3 related unaudited statements of income, retained earnings, schedule of accounts receivable, accounts payable and accrued liabilities, and cash flows for the twelve months then ended (collectively, with the related notes thereto, the "Financial Statements"). The Financial Statements fairly present the financial condition and results of operations of Contributors as of the dates and for the periods indicated and reflect all fixed and contingent liabilities of Contributors. 2.8 LEASES. EXHIBIT 2.8 attached hereto sets forth a list of all leases pursuant to which Contributors or Shareholder leases, as lessor or lessee, real or personal property used in operating the Business, related to the Assets or otherwise. All such leases listed on EXHIBIT 2.8 are valid and enforceable in accordance with their respective terms, and there is not under any such lease any existing default by Contributors, as lessor or lessee, or any condition or event of which Shareholder or Contributors has knowledge which with notice or lapse of time, or both, would constitute a default, in respect of which Contributors or Shareholder have not taken adequate steps to cure such default or to prevent a default from occurring. 2.9 CONDITION OF ASSETS. All of the Assets are in good condition and repair subject to normal wear and tear and conform with all applicable ordinances, regulations and other laws, and Contributors and Shareholder have no knowledge of any latent defects therein. 2.10 TITLE TO AND ENCUMBRANCES ON PROPERTY. Contributors have good, valid and marketable title to all of the Assets, free and clear of any liens, claims, charges, exceptions or encumbrances, except for those, if any, which are set forth in EXHIBIT 2.10 attached hereto. Contributors shall cause all encumbrances set forth on EXHIBIT 2.10 (other than those encumbrances indicated on EXHIBIT 1.3(b)) to be released or terminated prior to the Closing Date and evidence of such releases of liens and claims shall be provided to Pentegra on the Closing Date and the Assets shall not be used to satisfy such liens, claims or encumbrances. 2.11 INVENTORIES. All of the Assets constituting inventory are owned or used by Contributors, are in good, current, standard and merchantable condition and are not obsolete or defective. 2.12 INTELLECTUAL PROPERTY RIGHTS; NAMES. Except as set forth on EXHIBIT 2.12, Contributors have no right, title or interest in or to patents, patent rights, corporate names, assumed names, manufacturing processes, trade names, trademarks, service marks, inventions, specialized treatment protocols, copyrights, formulas and trade secrets or similar items. Set forth in EXHIBIT 2.12 is a listing of all names of all predecessor companies of Contributors, including the names of any entities from whom Contributors previously acquired significant assets. Except for off-the-shelf software licenses and except as set forth on EXHIBIT 2.12, Contributors are not a licensee in respect of any patents, trademarks, service marks, trade names, copyrights or applications therefor, or manufacturing processes, formulas or trade secrets or similar items and no such licenses are necessary for the conduct of the Business or the use of the Assets. No claim is pending or has been made to the effect that the Assets or the present or past operations of Contributors in connection with the Assets or Business infringe upon or conflict with the asserted rights of others to any patents, patent rights, manufacturing processes, trade names, trademarks, service marks, inventions, licenses, specialized treatment protocols, copyrights, formulas, know-how and trade secrets. Contributors have the sole and exclusive right to use all Assets constituting proprietary rights without infringing or violating the rights of any third parties and no consents of any third parties are required for the use thereof by Pentegra. 2.13 DIRECTORS AND OFFICERS; PAYROLL INFORMATION; EMPLOYEES. Set forth on EXHIBIT 2.13 attached hereto is a true and complete list, as of the date of this Agreement of: (a) the name of each director and officer of Contributors and the offices held by each, (b) the most recent payroll report of Contributors, showing all current employees of Contributors and their current levels of compensation, (c) promised increases in compensation of employees of Contributors that have not yet been effected, (d) oral or written employment agreements, consulting agreements or independent contractor agreements (and all amendments thereto) to which Contributors is a party, copies of which have been delivered to Pentegra, and (e) all employee manuals, materials, policies, procedures and work-related rules, copies of which have been delivered to Pentegra. Contributors are in compliance with all applicable laws, rules, regulations and ordinances respecting employment and employment practices. Contributors have not engaged in any unfair labor practice. There are no unfair labor practices charges or complaints pending or threatened against Contributors, and Contributors has never been a party to any agreement with any union, labor organization or collective bargaining unit. 4 2.14 LEGAL PROCEEDINGS. Neither Shareholder, Contributors nor the Business nor any of the Assets is subject to any pending, nor does Contributors or Shareholder have knowledge of any threatened, litigation, governmental investigation, condemnation or other proceeding against or relating to or affecting Contributors, Shareholder, the Business, the Assets or the transactions contemplated by this Agreement, and, to the knowledge of Contributors and Shareholder, no basis for any such action exists, nor is there any legal impediment of which Contributors or Shareholder has knowledge to the continued operation of its business or the use of the Assets in the ordinary course, subject to consents set forth on EXHIBIT 2.4. 2.15 CONTRACTS. Contributors have delivered to Pentegra true copies of all written, and disclosed to Pentegra all oral, outstanding contracts, obligations and commitments of Contributors ("Contracts"), entered into in connection with and related to the Assets or the Business, all of which are listed or incorporated by reference on EXHIBIT 2.8 (in the case of leases), EXHIBIT 2.13 (in the case of employment agreements) and EXHIBIT 2.15 (in the case of Contracts other than leases) attached hereto. Except as otherwise indicated on such Exhibits, all of such Contracts are valid, binding and enforceable in accordance with their terms and are in full force and effect, and no defenses, offsets or counterclaims have been asserted or may be made by any party thereto. Except as indicated on such Exhibits, there is not under any such Contract any existing default by Contributors or Shareholder, or any condition or event of which Contributors or Shareholder has knowledge which with notice or lapse of time, or both, would constitute a default. Contributors and Shareholder have no knowledge of any default by any other party to such Contracts. Contributors and Shareholder have not received notice of the intention of any party to any Contract to cancel or terminate any Contract and have no reason to believe that any amendment or change to any Contract is contemplated by any party thereto. Other than those contracts, obligations and commitments listed on EXHIBIT 2.8, EXHIBIT 2.13 and EXHIBIT 2.15, Contributors are not a party to any material written or oral agreement contract, lease or arrangement, including without limitation, any: (a) Contract related to the Assets other than this Agreement; (b) Employment, consulting or compensation agreement or arrangement; (c) Labor or collective bargaining agreement; (d) Lease agreement with respect to any property, whether as lessor or lessee; (e) Deed, bill of sale or other document evidencing an interest in or agreement to purchase or sell real or personal property; (f) Contract for the purchase of materials, supplies or equipment (i) which is in excess of the requirements of the Business now booked or for normal operating inventories, or (ii) which is not terminable upon notice of thirty (30) days or less; (g) Agreement for the purchase from a supplier of all or substantially all of the requirements of the Business of a particular product or service; (h) Loan agreement or other contract for money borrowed or lent or to be borrowed or lent to another; (i) Contracts containing non-competition covenants; (j) Financial or similar contracts or agreements with patients of the Contributors or Shareholder, oral or written, that provide for prepayments or deferred installment payments; or (k) Other contracts or agreements that involve either an unperformed commitment in excess of $1,000 or that terminate or can only be terminated by Contributors on more than 30 days after the date hereof. 5 2.16 SUBSEQUENT EVENTS. Other than as set forth on EXHIBIT 2.16, Contributors have not, since the Balance Sheet Date: (a) Incurred any material obligation or liability (absolute, accrued, contingent or otherwise) or entered into any contract, lease, license or commitment, except in connection with the performance of this Agreement; (b) Discharged or satisfied any material lien or encumbrance, or paid or satisfied any material obligation or liability (absolute, accrued, contingent or otherwise) other than (i) liabilities shown or reflected on the Balance Sheet, (ii) liabilities incurred since the Balance Sheet Date in the ordinary course of business; (c) Formed or acquired or disposed of any interest in any corporation, partnership, joint venture or other entity; (d) Made any payments to or loaned any money to any person or entity other than in the ordinary course of business; (e) Lost or terminated any employee, patient, customer or supplier that has or may have, individually or in the aggregate, a material adverse effect on the Business; (f) Increased or established any reserve for taxes or any other liability on its books or otherwise provided therefor, except as may have been required due to income or operations of Contributors since the Balance Sheet Date; (g) Mortgaged, pledged or subjected to any lien, charge or other encumbrance any of the Assets, tangible or intangible; (h) Sold or contracted to sell or transferred or contracted to transfer any of the Assets or any other assets used in the conduct of the Business, canceled any debts or claims or waived any rights, except in the ordinary course of business; (i) Except in the ordinary course or business consistent with past practices, granted any increase in the rates of pay of employees, consultants or agents, or by means of any bonus or pension plan, contract or other commitment, increased the compensation of any officer, employee, consultant or agent; (j) Authorized or incurred any capital expenditures in excess of Five Thousand and No/100 Dollars ($5,000.00); (k) Except for this Agreement and any other agreement executed and delivered pursuant to this Agreement, entered into any material transaction other than in the ordinary course of business or permitted hereunder; (l) Redeemed, purchased, sold or issued any stock, bonds or other securities; (m) Experienced damage, destruction or loss (whether or not covered by insurance) materially and adversely affecting any of its properties, assets or business or the Business or the Assets, or experienced any other material adverse change in its financial condition, assets, prospects, liabilities or business; (n) Declared or paid a distribution, payment or dividend of any kind on the capital stock of Contributors; (o) Repurchased, approved any repurchase or agreed to repurchase any of Contributors's capital stock; or (p) Suffered any material adverse change in the Business or to the Assets. 6 2.17 TAXES. (a) Contributors have filed all tax returns (including tax reports and other statements) required to have been filed by it, and has paid all taxes (including any interest, penalty or additions thereto) required to have been paid by it. All such tax returns are complete and accurate in all respects and properly reflect the relevant taxes for the periods covered thereby. Contributors has not received any notice that any tax deficiency or delinquency has been or may be asserted against Contributors. There are no audits relating to taxes of Contributors pending or in process or, to the knowledge of Contributors, threatened. Contributors is not currently the beneficiary of any waiver of any statute of limitations in respect of taxes nor of any extension of time within which to file any tax return or to pay any tax assessment or deficiency. There are no liens or encumbrances relating to taxes on or threatened against any of the assets of Contributors. Contributors have withheld and paid all taxes required by law to have been withheld and paid by it. Neither Contributors nor any predecessor of Contributors is or has been a party to any tax allocation or sharing agreement or a member of an affiliated group of corporations filing a consolidated Federal income tax return. Contributors have delivered to Pentegra correct and complete copies of Contributors's three most recently filed annual state, local and Federal income tax returns, together with all examination reports and statements of deficiencies assessed against or agreed to by Contributors during the three calendar year period preceding the date of this Agreement. Contributors have neither made any payments, is obligated to make any payments, or is a party to any agreement that under any circumstance could obligate it to make any payments that will not be deductible under Code section 280G. (b) Contributors do not intend to dispose of any of the shares of Pentegra Common Stock to be received hereunder and is not a party to any plan, arrangement or agreement for the disposition of such shares. Contributors and Shareholder have no knowledge, after due inquiry, of any such intent, plan, arrangement or agreement by Shareholder. Nothing contained herein shall prohibit Contributors from selling such shares of Pentegra Common Stock after the designated holding period and in accordance with SECTION 12.1 hereof. 2.18 COMMISSIONS AND FEES. There are no claims for brokerage commissions or finder's or similar fees in connection with the transactions contemplated by this Agreement which may be now or hereafter asserted against Pentegra, Contributors or Contributors's Shareholder resulting from any action taken by Contributors or Shareholder or their respective agents or employees, or any of them. 2.19 LIABILITIES; DEBT. Except to the extent reflected or reserved against on the Balance Sheet, Contributors did not have, as of the Balance Sheet Date, and has not incurred since that date and will not have incurred as of the Closing Date, any liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, other than those incurred in the ordinary course of business or as set forth on EXHIBIT 2.16. Contributors and Shareholder do not know, or have reasonable grounds to know, of any basis for the assertion against Contributors or Shareholder as of the Balance Sheet Date, of any claim or liability of any nature in any amount not fully reflected or reserved against on the Balance Sheet, or of any claim or liability of any nature arising since that date other than those incurred in the ordinary course of business or contemplated by this Agreement. All indebtedness of Contributors (including without limitation, indebtedness for borrowed money, guaranties and capital lease obligations) is described on EXHIBIT 2.19 attached hereto. 2.20 INSURANCE POLICIES. Contributors carry property, liability, malpractice, workers' compensation and such other types of insurance as is customary in the industry. Valid and enforceable policies in such amounts are outstanding and duly in force and will remain duly in force through the Closing Date. All such policies are described in EXHIBIT 2.20 attached hereto and true and correct copies have been delivered to Pentegra. Neither Shareholder nor Contributors have not received notice or other communication from the issuer of any such insurance policy cancelling or amending such policy or threatening to do so. Contributors have no outstanding settlements or premiums owed against any insurance policy. 2.21 EMPLOYEE BENEFIT PLANS. Except as set forth on EXHIBIT 2.21 attached hereto, Contributors neither established, nor maintains, nor is obligated to make contributions to or under or otherwise participate in, (a) any bonus or other type of compensation or employment plan, program, agreement, policy, commitment, contract or arrangement (whether or not set forth in a written document); (b) any pension, profit-sharing, retirement or other plan, program or arrangement; or (c) any other employee benefit plan, fund or program, including, but not limited to, those described in SECTION 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). All such plans listed on EXHIBIT 2.20 (individually "Contributors Plan," and collectively "Contributors Plans") have been operated and 7 administered in all material respects in accordance with all applicable laws, rules and regulations, including without limitation, ERISA, the Internal Revenue Code of 1986, as amended, Title VII of the Civil Rights Act of 1964, as amended, the Equal Pay Act of 1967, as amended, the Age Discrimination in Employment Act of 1967, as amended, and the related rules and regulations adopted by those Federal agencies responsible for the administration of such laws. No act or failure to act by Contributors has resulted in a "prohibited transaction" (as defined in ERISA) with respect to the Contributors Plans. No "reportable event" (as defined in ERISA) has occurred with respect to any of the Contributors Plans. Contributors have not previously made, is not currently making, and is not obligated in any way to make, any contributions to any multiemployer plan within the meaning of the Multi-Employer Pension Plan Amendments Act of 1980. With respect to each Contributors Plan, either (i) the value of plan assets (including commitments under insurance contracts) is at least equal to the value of plan liabilities or (ii) the value of plan liabilities in excess of plan assets is disclosed on the Balance Sheet, all as of the Closing Date. 2.22 ADVERSE AGREEMENTS. Contributors are not, and will not be as of the Closing Date, a party to any agreement or instrument or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, decree, rule or regulation that materially and adversely affects the condition (financial or otherwise), operations, assets, liabilities, business or prospects of Contributors, the Business or the Assets. 2.23 COMPLIANCE WITH LAWS IN GENERAL. Contributors and Shareholder and the conduct of the Business and use of the Assets, have complied with all applicable laws, rules, regulations and licensing requirements, including, without limitation, the Federal Environmental Protection Act, the Occupational Safety and Health Act, the Americans with Disabilities Act and any environmental laws and medical waste laws, and there exist no violations by Contributors of any Federal, state or local law or regulation. Contributors and Shareholder have not received any notice of a violation of any Federal, state and local laws, regulations and ordinances relating to the operations of the Business and Assets and no notice of any pending inspection or violation of any such law, regulation or ordinance has been received by Contributors. 2.24 [INTENTIONALLY DELETED] 2.25 NO UNTRUE REPRESENTATIONS. No representation or warranty by Contributors or Shareholder in this Agreement, and no Exhibit or certificate issued or executed by, or information furnished by, officers or directors of Contributors or Shareholder and furnished or to be furnished to Pentegra pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained therein not misleading. 2.26 BANKING RELATIONS. Set forth in EXHIBIT 2.26 is a complete and accurate list of all arrangements that Contributors have with any bank or other financial institution, indicating with respect to each relationship the type of arrangement maintained (such as checking account, borrowing arrangements, safe deposit box, etc.) and the person or persons authorized in respect thereof. 2.27 [INTENTIONALLY DELETED] 2.28 [INTENTIONALLY DELETED] SECTION 3. REPRESENTATIONS AND WARRANTIES OF PENTEGRA. Pentegra hereby represents and warrants to Contributors and Shareholder as follows: 3.1 CORPORATE EXISTENCE: GOOD STANDING. Pentegra is a corporation duly organized and existing and in good standing under the laws of the State of Delaware. 3.2 POWER AND AUTHORITY; CONSENTS. Pentegra has corporate power to execute, deliver and perform this Agreement and all agreements and other documents executed and delivered by it pursuant to this Agreement or to be executed and delivered on the Closing Date, and has taken all actions required by law, its Certificate of Incorporation, 8 its Bylaws or otherwise, to authorize the execution, delivery and performance of this Agreement and such related documents. This Agreement and all agreements and documents executed and delivered in connection herewith have been, or will be as of the Closing Date, duly executed and delivered by Pentegra and constitute or will constitute the legal, valid and binding obligations of Pentegra, enforceable against Pentegra in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. The execution and delivery of this Agreement, and the agreements executed and delivered pursuant to this Agreement or to be executed and delivered on the Closing Date, do not, and, the consummation of the actions contemplated hereby will not, violate any provision of the Certificate of Incorporation or Bylaws of Pentegra or any provisions of, or result in the acceleration of, any obligation under any mortgage, lien, lease, agreement, rent, instrument, order, arbitration award, judgment or decree to which Pentegra is a party or by which Pentegra is bound, or violate any material restrictions of any kind to which Pentegra is subject, or result in any lien or encumbrance on any of Pentegra's assets. Other than as have been obtained or as would not have a material adverse effect, there are no consents of any person or entity required for the transaction contemplated hereby on behalf of Pentegra. 3.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. All building or other permits, certificates of occupancy, concessions, grants, franchises, licenses, certificates of need and other governmental authorizations and approvals required for the conduct of the business of Penegra or waivers thereof, have been duly obtained and are in full force and effect, except as would not have a material adverse effect upon Pentegra. Other than as would not have a material adverse effect, there are no proceedings pending or, to the knowledge of Pentegra, threatened, which may result in the revocation, cancellation or suspension, or any adverse modification, of any such licenses or permits. 3.4 LEGAL PROCEEDINGS. Other than as would not have a material adverse effect, neither Pentegra nor its business or assets is subject to any pending, nor does Pentegra have knowledge of any threatened, litigation, governmental investigation, condemnation or other proceeding against or relating to or affecting Pentegra, its business, assets or the transactions contemplated by this Agreement, and, to the knowledge of Pentegra, no basis for any such action exists, nor is there any legal impediment of which Pentegra has knowledge to the continued operation of its business or the use of its Assets in the ordinary course. 3.5 TAXES. Pentegra has filed all tax returns (including tax reports and other statements) required to have been filed by it, and has paid all taxes (including any interest, penalty or additions thereto) required to have been paid by it, other than as would not have a material adverse effect. Pentegra has not received any notice that any tax deficiency or delinquency has been or may be asserted against Pentegra. There are no audits relating to taxes of Pentegra pending or in process or, to the knowledge of Pentegra, threatened. Pentegra is not currently the beneficiary of any waiver of any statute of limitations in respect of taxes nor of any extension of time within which to file any tax return or to pay any tax assessment or deficiency. 3.6 COMMISSIONS AND FEES. Pentegra has not incurred any obligation for any finder's, broker's or similar fees in connection with the transactions contemplated hereby. 3.7 CAPITAL STOCK. The issuance and delivery by Pentegra of shares of Pentegra Common Stock in connection with the acquisition contemplated hereby will be as of the Closing Date duly and validly authorized by all necessary corporate action on the part of Pentegra. The Pentegra Common Stock to be issued in connection with the acquisition contemplated hereby, when issued in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable. 3.8 NO UNTRUE REPRESENTATIONS. No representation or warranty by Pentegra in this Agreement, and no Exhibit or certificate issued by officers or directors of Pentegra and furnished or to be furnished to Contributors or Shareholder pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained therein not misleading. 9 SECTION 4. COVENANTS OF CONTRIBUTORS AND SHAREHOLDER. Contributors and Shareholder, jointly and severally, agree that between the date hereof and the Closing Date: 4.1 CONSUMMATION OF AGREEMENT; EXHIBITS. Contributors and Shareholder shall use their best efforts to cause the consummation of the transactions contemplated hereby in accordance with their terms and conditions. Contributors and Shareholder agree to complete the Exhibits hereto to be provided by them in form and substance satisfactory to Pentegra. 4.2 BUSINESS OPERATIONS; CHANGE OF NAME. Contributors and Shareholder shall operate the Business and use the Assets in the ordinary course. Contributors and Shareholder shall not enter into any lease, contract, indebtedness, commitment, purchase or sale or acquire or dispose of any capital asset relating to the Business or the Assets except in the ordinary course of business. Contributors and Shareholder shall use their best efforts to preserve the Business and Assets intact and shall not take any action that would have an adverse effect on the Business or Assets. Contributors and Shareholder shall use their best efforts to preserve intact the relationships with payors, customers, suppliers, patients and others having significant business relations with Contributors. Contributors and Shareholder shall collect its receivables and pay its trade payables in the ordinary course of business. Contributors and Shareholder shall not introduce any new method of management, operations or accounting. Each Contributors shall change its name to a name approved by Pentegra in its reasonable discretion. 4.3 ACCESS AND NOTICE. Contributors and Shareholder shall permit Pentegra and its authorized representatives access to, and make available for inspection, all of the assets and business of Contributors, the Business and the Assets, including employees, customers and suppliers and permit Pentegra and its authorized representatives to inspect and make copies of all documents, records and information with respect to the business or assets of Contributors, the Business or the Assets as Pentegra or its representatives may request. Contributors and Shareholder shall promptly notify Pentegra in writing of (a) any notice or communication relating to a default or event that, with notice or lapse of time or both, could become a default, under any contract, commitment or obligation to which Contributors is a party or relating to the Business or the Assets, and (b) any adverse change in Contributors's or the Business' financial condition or the Assets. 4.4 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. Contributors and Shareholder shall use their best efforts to secure all necessary approvals and consents of third parties to the consummation of the transactions contemplated hereby, including consents described on EXHIBIT 2.4. 4.5 ACQUISITION PROPOSALS. From the execution of this Agreement until the earlier of Closing or the termination of this Agreement in accordance with the provisions hereof, Contributors and Shareholder shall not, and shall use its best efforts to cause Contributors's employees, agents and representatives not to, initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any proposal or offer, including without limitation, any proposal or offer to Shareholder, with respect to a merger, acquisition, consolidation or similar transaction involving, or the purchase of all or any significant portion of the assets or any equity securities of Contributors or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to such proposal or offer, and Contributors and Shareholder will immediately cease any such activities, discussions or negotiations heretofore conducted with respect to any of the foregoing. Contributors and Shareholder shall immediately notify Pentegra if any such inquiries or proposals are received. 4.6 FUNDING OF ACCRUED EMPLOYEE BENEFITS. Contributors hereby covenants and agrees that it will take whatever steps are necessary to pay or fund completely for any accrued benefits, where applicable, or vested accrued benefits for which Contributors or any entity might have any liability whatsoever arising from any insurance, pension plan, employment tax or similar liability of Contributors to any employee or other person or entity (including, without limitation, any Contributors Plan and any liability under employment contracts with Contributors) allocable to services performed prior to the Closing Date. Contributors and Shareholder acknowledge that the purpose and intent of this covenant is to assure that Pentegra shall have no unfunded liability whatsoever at any time after the Closing Date with respect to any of Contributors's employees or similar persons or entities, including, without limitation, any Contributors Plan for the period prior to the Closing Date. 10 4.7 EMPLOYEE MATTERS. Contributors shall not, without the prior written approval of Pentegra, except as required by law, increase the cash compensation of Shareholder (other than in the ordinary course of business) or other employee or an independent contractor of Contributors, adopt, amend or terminate any compensation plan, employment agreement, independent contractor agreement, employee policies and procedures or employee benefit plan, take any action that could deplete the assets of any employee benefit, or fail to pay any premium or contribution due or file any report with respect to any employee benefit plan, or take any other actions with respect to its employees or employee matters which might have an adverse effect upon Contributors, its business, assets or prospects. 4.8 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or dividend of any kind will be declared or paid by Contributors, nor will any repurchase of any of Contributors's capital stock be approved or effected. 4.9 REQUIREMENTS TO EFFECT ACQUISITION. Contributors and Shareholder shall use their best efforts to take, or cause to be taken, all actions necessary to effect the acquisition contemplated hereby under applicable law. 4.10 ACCOUNTING AND TAX MATTERS. Contributors and Shareholder will not change in any material respect the tax or financial accounting methods or practices followed by Contributors (including any material change in any assumption underlying, or any method of calculating, any bad debt, contingency or other reserve), except as may be required by law or generally accepted accounting principles. Contributors and Shareholder will duly, accurately and timely (without regard to any extensions of time) file all returns, information statements and other documents relating to taxes of Contributors required to be filed by it, and pay all taxes required to be paid by it, on or before the Closing Date. 4.11 WAIVER OF BULK TRANSFER COMPLIANCE. Pentegra, Shareholder and Contributors hereby waive any compliance with the applicable state Bulk Transfers Act, if any. Contributors and Shareholder covenant and agree that all of the creditors with respect to the Business and the Assets will be paid in full by Contributors prior to the Closing Date, except to extent that any liability to such creditors is assumed by Pentegra pursuant to this Agreement. If required by Pentegra, Contributors and Shareholder shall furnish Pentegra with proof of payment of all creditors with respect to the Business and the Assets. Notwithstanding the foregoing, Contributors and Shareholder may dispute the validity or amount of any such creditor's claim without being deemed to be in violation of this SECTION 4.11, provided that such dispute is in good faith and does not unreasonably delay the resolution of the claim and provided, further that Contributors and Shareholder agree to indemnify and bond Pentegra for such amounts as is satisfactory to Pentegra. 4.12 [INTENTIONALLY DELETED] 4.13 HIRING OF EMPLOYEES. Contributors and Shareholder shall cooperate with all requests made by Pentegra for the purpose of allowing Pentegra to hire those non-dental employees of Contributors designated by Pentegra, such employment to be effective as of the Closing Date. Notwithstanding the above, Contributors and Shareholder shall remain liable under any Contributors Plans for any claims incurred by any employees or their spouses or dependents, and for all compensation, bonuses, benefits and other such items and other liabilities related to Contributors's employees incurred by Contributors prior to the Closing Date. SECTION 5. COVENANTS OF PENTEGRA. Pentegra agrees that between the date hereof and the Closing: 5.1 CONSUMMATION OF AGREEMENT; EXHIBITS. Pentegra shall use its best efforts to cause the consummation of the transactions contemplated hereby in accordance with their terms and provisions. Pentegra agrees to complete the Exhibits hereto to be provided by it. 5.2 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. Pentegra shall use its best efforts to secure all necessary approvals and consents of third parties to the consummation of the transactions contemplated hereby. 11 SECTION 6. COVENANTS OF PENTEGRA AND CONTRIBUTORS AND SHAREHOLDER. Pentegra, Shareholder and Contributors agree as follows: 6.1 FILINGS; OTHER ACTIONS. Pentegra, Contributors and Shareholder shall cooperate to promptly prepare and file with the Securities Exchange Commission ("SEC") the Registration Statement on Form S-1 (or other appropriate Form) to be filed by Pentegra in connection with its Initial Public Offering (including the prospectus constituting a part thereof, the "Registration Statement"). Pentegra shall obtain all necessary state securities laws or "Blue Sky" permits and approvals required to carry out the transactions contemplated by this Agreement and the Contributors and Shareholder shall furnish all information concerning Contributors and Shareholder as may be reasonable requested in connection with any such action. Contributors and Shareholder represent and warrant that none of the information or documents supplied or to be supplied by it specifically for inclusion in the Registration Statement, by exhibit or otherwise, will, at the time the Registration Statement and each amendment or supplement thereto, if any, becomes effective under the Securities Act of 1933, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Contributors and Shareholder shall be entitled to review the Registration Statement and each amendment thereto, if any, prior to the time each becomes effective under the Securities Act of 1933. Contributors and Shareholder shall furnish Pentegra will all information concerning themselves, their subsidiaries, if any, directors, officers and stockholders and such other matters as may be reasonable requested by Pentegra in connection with the preparation of the Registration Statement and each amendment or supplement thereto, or any other statement, filing, notice or application made by or on behalf of each such party or any of its subsidiaries to any governmental entity in connection with the transactions contemplated by the Other Agreements or this Agreement. SECTION 7. PENTEGRA CONDITIONS PRECEDENT. The obligations of Pentegra hereunder are subject to the fulfillment at or prior to the Closing of each of the following conditions: 7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Contributors and Shareholder contained herein shall have been true and correct in all respects when initially made and shall be true and correct in all respects as of the Closing Date. 7.2 COVENANTS AND CONDITIONS. Contributors and Shareholder shall have performed and complied with all covenants and conditions required by this Agreement to be performed and complied with by Contributors and Shareholder prior to the Closing Date. 7.3 PROCEEDINGS. No action, proceeding or order by any court or governmental body shall have been threatened orally or in writing, asserted, instituted or entered to restrain or prohibit the carrying out of the transactions contemplated hereby. 7.4 NO MATERIAL ADVERSE CHANGE. No material adverse change in the condition (financial or otherwise), operations, assets, liabilities, business or prospects of Contributors shall have occurred since the Balance Sheet Date. 7.5 DUE DILIGENCE REVIEW. By the Closing Date, Pentegra shall have completed a due diligence review of the business, operations and financial statements of Contributors, the Business and the Assets, the results of which shall be satisfactory to Pentegra in its sole discretion. 7.6 APPROVAL BY THE BOARD OF DIRECTORS. This Agreement and the transactions contemplated hereby shall have been approved by the Board of Directors of Pentegra or a committee thereof. 12 7.7 CONSENTS AND APPROVALS. Contributors and Shareholder shall have obtained all necessary government and other third-party approvals and consents. 7.8 CLOSING DELIVERIES. Pentegra shall have received all documents, duly executed in form satisfactory to Pentegra and its counsel, referred to in SECTION 9.1. 7.9 DEBT AND RECEIVABLES. There shall be no indebtedness, receivables or payables between Contributors and its Shareholder or affiliates and Contributors shall not have any liabilities, including indebtedness, guaranties and capital leases, that are not set forth on EXHIBIT 2.19. 7.10 NO CHANGE IN WORKING CAPITAL. There shall have been no material change in the working capital of Contributors since the Balance Sheet Date. SECTION 8. CONTRIBUTORS'S AND SHAREHOLDER' CONDITIONS PRECEDENT. The obligations of Contributors and Shareholder hereunder are subject to fulfillment at or prior to the Closing of each of the following conditions: 8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Pentegra contained herein shall have been true and correct in all respects when initially made and shall be true and correct in all respects as of the Closing Date. 8.2 COVENANTS AND CONDITIONS. Pentegra shall have performed and complied with all covenants and conditions required by this Agreement to be performed and complied with by Pentegra prior to the Closing Date. 8.3 PROCEEDINGS. No action, proceeding or order by any court or governmental body shall have been threatened orally or in writing, asserted, instituted or entered to restrain or prohibit the carrying out of the transactions contemplated hereby. 8.4 CLOSING DELIVERIES. Contributors shall have received all documents, duly executed in form satisfactory to Contributors and its counsel, referred to in SECTION 9.2. 8.5 SECURITIES APPROVAL. The Registration Statement shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC. At or prior to the date that the Registration Statement is declared effective by the SEC, Pentegra shall have received all state securities and "Blue Sky" permits necessary to consummate the transactions contemplated hereby. The Pentegra Common Stock shall have been approved for listing on Nasdaq or other exchange selected by Pentegra, subject only to official notification of issuance. SECTION 9. CLOSING DELIVERIES. 9.1 DELIVERIES OF CONTRIBUTORS AND SHAREHOLDER. Within five business days after requested by Pentegra, Contributors and Shareholder shall deliver to Pentegra the following, all of which shall be in a form satisfactory to counsel to Pentegra and shall be held by Jackson & Walker, L.L.P. (counsel for Pentegra) in escrow pending Closing, pursuant to an escrow agreement or letter agreement in form and substance mutually acceptable to the parties hereto: (a) a copy of the resolutions of the Board of Directors of Contributors authorizing the execution, delivery and performance of this Agreement and all related documents and agreements each certified by the Secretary as being true and correct copies of the original thereof; 13 (b) a bill of sale conveying the Assets to Pentegra; (c) an assignment of each contract, agreement and lease being assigned to and assumed by Pentegra; (d) certificates of the Shareholder and a duly authorized officer of Contributors dated as of the Closing Date, (i) as to the truth and correctness of the representations and warranties of Contributors and Shareholder contained herein; (ii) as to the performance of and compliance by Contributors and Shareholder with all covenants contained herein; and (iii) certifying that all conditions precedent of Contributors and Shareholder to the Closing have been satisfied; (e) a certificate of the Secretary of Contributors certifying as to the incumbency of the directors and officers of Contributors and as to the signatures of such directors and officers who have executed documents delivered at the Closing on behalf of Contributors; (f) a certificate, dated within 30 days of the Closing Date, of the Secretary of the State of incorporation of Contributors and any state of required foreign qualification of Contributors establishing that Contributors is in existence and is in good standing to transact business in its state of incorporation; (g) an opinion of counsel to Contributors and Shareholder opining as to the execution and delivery of this Agreement and the other documents and agreements to be executed pursuant hereto, the good standing and authority of Contributors, the enforceability of this Agreement and the other agreements and documents to be executed in connection herewith, and other matters reasonably requested by Pentegra; (h) non-foreign affidavits executed by Contributors; (i) all authorizations, consents, approvals, permits and licenses referred to in SECTIONS 2.3 and 2.4; (j) evidence of the change of name of Contributors pursuant to SECTION 4.2; (k) an executed Registration Rights Agreement between Pentegra and Contributors, in substantially the form attached hereto as EXHIBIT 9.1(l) (the "Registration Rights Agreement"); and (l) such other instruments and documents as reasonably requested by Pentegra to carry out and effect the purpose and intent of this Agreement. 9.2 DELIVERIES OF PENTEGRA. On or before the Closing Date, Pentegra shall deliver to Contributors and Shareholder, the following, all of which shall be in a form satisfactory to counsel to Contributors and Shareholder and shall be held by Jackson & Walker, L.L.P. (counsel for Pentegra) in escrow pending Closing, pursuant to an escrow agreement or letter agreement in form and substance mutually acceptable to the parties hereto: (a) the Acquisition Consideration; (b) an assumption of each contract, agreement and lease being assigned to and assumed by Pentegra; (c) a copy of the resolutions of the Board of Directors of Pentegra (or a committee thereof) authorizing the execution, delivery and performance of this Agreement and all related documents and agreements each certified by the Secretary as being true and correct copies of the original thereof; (d) certificates of the President of Pentegra, dated as of the Closing Date, (i) as to the truth and correctness of the representations and warranties of Pentegra contained herein; (ii) as to the performance of and 14 compliance by Pentegra with all covenants contained herein; and (iii) certifying that all conditions precedent of Pentegra to the Closing have been satisfied; (e) a certificate of the Secretary of Pentegra certifying as to the incumbency of the directors and officers of Pentegra and as to the signatures of such directors and officers who have executed documents delivered at the Closing on behalf of Pentegra; (f) certificates, dated within 30 days of the Closing Date, of the Secretary of the State of Delaware establishing that Pentegra is in existence and are in good standing to transact business in the State of Delaware and the State of incorporation of Contributors; (g) an opinion of counsel to Pentegra opining as to the execution and delivery of this Agreement and the other documents and agreements to be executed pursuant hereto, the good standing and authority of Pentegra, the enforceability of this Agreement and the other agreements and documents to be executed in connection herewith, and other matters reasonably requested by Contributors; (h) the executed Registration Rights Agreement; and (i) such other instruments and documents as reasonably requested by Contributors to carry out and effect the purpose and intent of this Agreement. SECTION 10. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION. 10.1 NATURE AND SURVIVAL. All statements contained in this Agreement or in any Exhibit attached hereto, any agreement executed pursuant hereto, and any certificate executed and delivered by any party pursuant to the terms of this Agreement, shall constitute representations and warranties of Contributors and Shareholder, jointly and severally, or of Pentegra, as the case may be. All such representations and warranties, and all representations and warranties expressly labeled as such in this Agreement shall survive the date of this Agreement and the Closing Date for a period of five (5) years following the Closing Date, except that (i) the representations and warranties with respect to environmental and medical waste laws and health care laws and matters shall survive for a period of fifteen (15) years and tax representations shall survive until one year after the expiration of the applicable statute of limitations. Each party covenants with the other parties not to make any claim with respect to such representations and warranties, against any party after the date on which such survival period shall terminate. No party shall be entitled to claim indemnity from any other party pursuant to SECTION 10.2 or 10.3 hereof, unless such party has timely given the notice required in SECTION 10.2, 10.3 or 10.4 hereof, as the case may be. Each party hereby releases, acquits and discharges the other party from any and all claims and demands, actions and causes of action, damages, costs, expenses and rights of setoff with respect to which the notices required by SECTION 10.2, 10.3 or 10.4, as applicable, are not timely provided. 10.2 INDEMNIFICATION BY PENTEGRA. PENTEGRA (FOR PURPOSES OF THIS SECTION 10.2 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, "INDEMNITOR"), SHALL INDEMNIFY AND HOLD CONTRIBUTORS AND THEIR SHAREHOLDERS, AGENTS AND EMPLOYEES (EACH OF THE FOREGOING, INCLUDING CONTRIBUTORS AND SHAREHOLDERS, FOR PURPOSES OF THIS SECTION 10.2 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, AN "INDEMNIFIED PERSON"), HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, DAMAGES, ACTIONS, SUITS, COSTS, DEFICIENCIES AND EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE FEES AND DISBURSEMENTS OF COUNSEL THROUGH APPEAL) ARISING FROM OR BY REASON OF OR RESULTING FROM: (A) ANY BREACH BY INDEMNITOR OF ANY REPRESENTATION, WARRANTY, AGREEMENT OR COVENANT CONTAINED IN THIS AGREEMENT (INCLUDING THE EXHIBITS HERETO) AND EACH DOCUMENT, CERTIFICATE OR OTHER INSTRUMENT FURNISHED OR TO BE FURNISHED BY INDEMNITOR HEREUNDER, AND (B) AFTER THE CLOSING DATE, INDEMNITOR'S OWNERSHIP OF THE ASSETS, AND 15 (C) ANY LIABILITY UNDER THE SECURITIES ACT, THE EXCHANGE ACT OR ANY OTHER FEDERAL OR STATE "BLUE SKY" OR SECURITIES LAWS OR REGULATION, AT COMMON LAW OR OTHERWISE, ARISING OUT OF OR BASED UPON ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT RELATING TO PENTEGRA CONTAINED IN ANY PRELIMINARY PROSPECTUS, THE REGISTRATION STATEMENT OR ANY PROSPECTUS FORMING A PART THEREOF, OR ANY AMENDMENT THEREOF OR SUPPLEMENT THERETO, ARISING OUT OF OR BASED UPON ANY OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT RELATING TO PENTEGRA REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING. IN CONNECTION WITH INDEMNITOR'S OBLIGATION TO INDEMNIFY FOR EXPENSES, INDEMNITOR SHALL REIMBURSE EACH INDEMNIFIED PERSON FOR ALL SUCH EXPENSES AS THEY ARE INCURRED BY SUCH INDEMNIFIED PERSON, PROVIDED THAT SUCH INDEMNIFIED PERSON AGREES IN WRITING TO REFUND ALL SUCH REIMBURSED EXPENSES IF AND TO THE EXTENT THAT IT IS FINALLY JUDICIALLY DETERMINED THAT SUCH INDEMNIFIED PERSON IS NOT ENTITLED TO INDEMNIFICATION HEREUNDER. 10.3 INDEMNIFICATION BY CONTRIBUTORS AND SHAREHOLDER. CONTRIBUTORS AND SHAREHOLDER (FOR PURPOSES OF THIS SECTION 10.3 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, "INDEMNITOR"), JOINTLY AND SEVERALLY, SHALL INDEMNIFY AND HOLD PENTEGRA AND ITS AFFILIATES, OFFICERS, DIRECTORS, SHAREHOLDER, AGENTS AND EMPLOYEES (EACH OF THE FOREGOING, INCLUDING PENTEGRA, FOR PURPOSES OF THIS SECTION 10.3 AND, TO THE EXTENT APPLICABLE, SECTION 10.4, AN "INDEMNIFIED PERSON") HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, CLAIMS, DAMAGES, ACTIONS, SUITS, COSTS, DEFICIENCIES AND EXPENSES (INCLUDING, BUT NOT LIMITED TO, REASONABLE FEES AND DISBURSEMENTS OF COUNSEL THROUGH APPEAL) ARISING FROM OR BY REASON OF OR RESULTING FROM OR WITH RESPECT TO: (A) ANY BREACH BY INDEMNITOR OF ANY REPRESENTATION, WARRANTY, AGREEMENT OR COVENANT CONTAINED IN THIS AGREEMENT (INCLUDING THE EXHIBITS HERETO) AND EACH DOCUMENT, CERTIFICATE, OR OTHER INSTRUMENT FURNISHED OR TO BE FURNISHED BY INDEMNITOR HEREUNDER, AND (B) PRIOR TO AND AFTER THE CLOSING DATE, THE INDEMNITOR'S MANAGEMENT AND CONDUCT OF THE BUSINESS; (C) ANY ALLEGED ACT OR NEGLIGENCE OF INDEMNITOR OR ITS EMPLOYEES, AGENTS AND INDEPENDENT CONTRACTORS IN OR ABOUT CONTRIBUTORS'S BUSINESS WHETHER ON OR AFTER THE CLOSING DATE, (D) ANY VIOLATION BY CONTRIBUTORS OR ITS SHAREHOLDER OR THEIR CONSULTANTS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND AFFILIATES OF STATE OR FEDERAL LAWS GOVERNING HEALTHCARE FRAUD AND ABUSE, OR ANY OVERPAYMENT OR OBLIGATION ARISING OUT OF OR RESULTING FROM ACTIONS OF THE CONTRIBUTORS OR SHAREHOLDER RELATING TO CLAIMS SUBMITTED TO ANY THIRD PARTY PAYOR, WHETHER ON OR AFTER THE CLOSING DATE, (E) TAXES OF CONTRIBUTORS OR SHAREHOLDER OR ANY OTHER PERSON OR ENTITY RELATED TO OR AFFILIATED WITH THE CONTRIBUTORS OR SHAREHOLDER ARISING FROM OR AS A RESULT OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (F) ANY LIABILITY OF CONTRIBUTORS OR THE SHAREHOLDER FOR COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES) INCURRED IN CONNECTION WITH THE NEGOTIATION, PREPARATION OF CLOSING OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE OTHER DOCUMENTS TO BE EXECUTED IN CONNECTION HEREWITH, 16 (G) ANY ACCRUED UNFUNDED RETIREMENT OR PENSION PLAN LIABILITIES, (H) ANY LIABILITIES THAT ARE NOT SET FORTH ON EXHIBIT 1.3(b), OR (I) ANY LIABILITY UNDER THE SECURITIES ACT, THE EXCHANGE ACT OR ANY OTHER FEDERAL OR STATE "BLUE SKY" OR SECURITIES LAWS OR REGULATION, AT COMMON LAW OR OTHERWISE, ARISING OUT OF OR BASED UPON ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT RELATING TO CONTRIBUTORS OR ITS SHAREHOLDER AND PROVIDED TO PENTEGRA OR ITS COUNSEL BY THE CONTRIBUTORS OR ITS SHAREHOLDER SPECIFICALLY FOR INCLUSION IN ANY PRELIMINARY PROSPECTUS, THE REGISTRATION STATEMENT OR ANY PROSPECTUS FORMING A PART THEREOF, OR ANY AMENDMENT THEREOF OR SUPPLEMENT THERETO, ARISING OUT OF OR BASED UPON ANY OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT RELATING TO CONTRIBUTORS OR ITS SHAREHOLDER REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING. IN CONNECTION WITH INDEMNITOR'S OBLIGATION TO INDEMNIFY FOR EXPENSES, INDEMNITOR SHALL REIMBURSE EACH INDEMNIFIED PERSON FOR ALL SUCH EXPENSES AS THEY ARE INCURRED BY SUCH INDEMNIFIED PERSON, PROVIDED THAT SUCH INDEMNIFIED PERSON AGREES IN WRITING TO REFUND ALL SUCH REIMBURSED EXPENSES IF AND TO THE EXTENT THAT IT IS FINALLY JUDICIALLY DETERMINED THAT SUCH INDEMNIFIED PERSON IS NOT ENTITLED TO INDEMNIFICATION HEREUNDER. 10.4 INDEMNIFICATION PROCEDURE. Within sixty (60) days after Indemnified Person receives written notice of the commencement of any action or other proceeding in respect of which indemnification or reimbursement may be sought hereunder, or within such lesser time as may be provided by law for the defense of such action or proceeding, such Indemnified Person shall notify Indemnitor thereof. If any such action or other proceeding shall be brought against any Indemnified Person, Indemnitor shall, upon written notice given within a reasonable time following receipt by Indemnitor of such notice from Indemnified Person, be entitled to assume the defense of such action or proceeding with counsel chosen by Indemnitor and reasonably satisfactory to Indemnified Person; provided, however, that any Indemnified Person may at its own expense retain separate counsel to participate in such defense. Notwithstanding the foregoing, Indemnified Person shall have the right to employ separate counsel at Indemnitor's expense and to control its own defense of such action or proceeding if, in the reasonable opinion of counsel to such Indemnified Person, (a) there are or may be legal defenses available to such Indemnified Person or to other Indemnified Persons that are different from or additional to those available to Indemnitor and which could not be adequately advanced by counsel chosen by Indemnitor, or (b) a conflict or potential conflict exists between Indemnitor and such Indemnified Person that would make such separate representation advisable; provided, however, that in no event shall Indemnitor be required to pay fees and expenses hereunder for more than one firm of attorneys of Indemnified Person in any jurisdiction in any one action or proceeding or group of related actions or proceedings. Indemnitor shall not, without the prior written consent of any Indemnified Person, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding to which such Indemnified Person is a party unless such settlement, compromise or consent includes an unconditional release of such Indemnified Person from all liability arising or potentially arising from or by reason of such claim, action or proceeding. 10.5 RIGHT OF SETOFF. In the event of any breach of warranty, representation, covenant or agreement by Contributors or Shareholder giving rise to indemnification under SECTION 10.3 or SECTION 10.4 hereof, Pentegra shall be entitled to offset the amount of damages incurred by it as a result of such breach of warranty, representation, covenant or agreement against any amounts payable by Pentegra, including the amounts payable under the Service Agreement. SECTION 11. TERMINATION. This Agreement may be terminated: (a) at any time by mutual agreement of all parties; 17 (b) at any time by Pentegra if any representation or warranty of Contributors or Shareholder contained in this Agreement or in any certificate or other document executed and delivered by Contributors or Shareholder pursuant to this Agreement is or becomes untrue or breached in any material respect or if Contributors or Shareholder fails to comply in any material respect with any covenant or agreement contained herein, and any such misrepresentation, noncompliance or breach is not cured, waived or eliminated within twenty (20) days after receipt of written notice thereof; (c) at any time by Contributors or Shareholder if any representation or warranty of Pentegra contained in this Agreement or in any certificate or other document executed and delivered by Pentegra pursuant to this Agreement is or becomes untrue or breached in any material respect or if Pentegra fails to comply in any material respect with any covenant or agreement contained herein and such misrepresentation, noncompliance or breach is not cured, waived or eliminated within twenty (20) days after receipt of written notice thereof; (d) by Pentegra, Shareholder or Contributors if the transaction contemplated hereby shall not have been consummated by December 31, 1997; or (e) by Pentegra at any time prior to the Closing Date if Pentegra determines in its sole discretion as the result of its legal, financial and operational due diligence with respect to Contributors, that such termination is desirable and in the best interests of Pentegra. SECTION 12. TRANSFER REPRESENTATIONS. 12.1 TRANSFER RESTRICTIONS. For a period of one year from the Closing Date, Contributors shall not voluntarily (a) sell, assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose of (i) any shares of Pentegra Common Stock received by such party hereunder, (ii) any interest (including without limitation, an option to buy or sell) in any shares of Pentegra Common Stock, in whole or in part, and no such attempted transfer shall be treated as effective for any purpose or (b) engage in any transaction, whether or not with respect to any shares of Pentegra Common Stock or any interest therein, the intent or effect of which is to reduce the risk of owning shares of Pentegra Common Stock. The certificates evidencing the Pentegra Common Stock delivered to Contributors pursuant to the terms hereof will bear a legend substantially in the form set forth below and containing such other information as Pentegra may deem necessary or appropriate: The shares represented by this certificate may not be voluntarily sold, assigned, exchanged, transferred, encumbered, pledged, distributed, appointed or otherwise disposed of, and the issuer shall not be required to give effect to any attempted voluntary sale, assignment, exchange, transfer, encumbrance, pledge, distribution, appointment or other disposition prior to _________ [date that is one year from the Closing Date]. Upon the written request of the holder of this certificate, the issuer agrees to remove this restrictive legend (and any stop order placed with the transfer agent) after the date specified above. 12.2 INVESTMENTS; COMPLIANCE WITH LAW. Contributors and Shareholder acknowledge that the shares of Pentegra Common Stock to be delivered to Contributors pursuant to this Agreement have not been and will not be registered under the Securities Act of 1933 and may not be resold without compliance with the Securities Act of 1933. The Pentegra Common Stock to be acquired by Contributors pursuant to this Agreement is being acquired solely for its own account, for investment purposes only and with no present intention of distributing, selling or otherwise disposing of it in connection with a distribution. Contributors covenants, warrants and represents that none of the shares of Pentegra Common Stock issued to it will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise disposed of except after full compliance with all of the applicable provisions of the Securities Act, as amended, and the rules and regulations of the Securities Exchange Commission and applicable state securities laws and regulations. All certificates evidencing shares of Pentegra Common Stock shall bear the following legend in addition to the legend referenced in SECTION 12.1. The shares represented hereby have not been registered under the Securities Act of 1933 (the "Act") and may only be sold or otherwise transferred if the holder hereof complies with the Act and applicable securities laws. 18 In addition, certificates evidencing shares of Pentegra Common Stock shall bear any legend required by the securities or blue sky laws of any state where Contributors resides. 12.3 ECONOMIC RISK; SOPHISTICATION. Contributors and Shareholder are able to bear the economic risk of an investment in Pentegra Common Stock acquired pursuant to this Agreement and can afford to sustain a total loss of such investment and have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of the proposed investment and therefore have the capacity to protect their own interests in connection with the acquisition of the Pentegra Common Stock. Contributors, Shareholder and their representatives have had an adequate opportunity to ask questions and receive answers from the officers of Pentegra concerning any and all matters relating to the background and experience of the officers and directors of Pentegra, the plans for the operations of the business of Pentegra, and any plans for additional acquisitions and the like. Contributors, Shareholder and their representatives have asked any and all questions in the nature described in the preceding sentence and all questions have been answered to their satisfaction. Contributors and Shareholder are "accredited investors" as defined in Regulation D of the Securities Act of 1933, as amended. SECTION 13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Contributors and Shareholder recognize and acknowledge that they had in the past, currently have, and in the future may possibly have, access to certain confidential information of Pentegra that is valuable, special and unique assets of Pentegra's businesses. Contributors and Shareholder agree that it will not disclose such confidential information to any person, firm, corporation, association or other entity for any purpose or reason whatsoever, unless (i) such information becomes available to or known by the public generally through no fault of Contributors or Shareholder, (ii) disclosure is required by law or the order of any governmental authority under color of law, provided, that prior to disclosing any information pursuant to this clause (ii), Contributors and Shareholder shall, if possible, give prior written notice thereof to the other parties hereto, and provide such other parties hereto with the opportunity to contest such disclosure, (iii) Contributors and Shareholder reasonably believe that such disclosure is required in connection with the defense of a lawsuit against the disclosing party, or (iv) Contributors and Shareholder are the sole and exclusive owner of such confidential information as a result of the transactions contemplated hereunder or otherwise. In the event of a breach or threatened breach by Contributors or Shareholder of the provisions of this SECTION 13, Pentegra shall be entitled to an injunction restraining Contributors and Shareholder from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting Pentegra from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages. The obligations of the parties under this SECTION 13 shall survive the termination of this Agreement. SECTION 14. NONCOMPETITION. 14.1 PROHIBITED ACTIVITIES. In order to protect Pentegra and each of its affiliates against the unauthorized use or disclosure of any of their confidential information presently known or hereinafter acquired by the Shareholder and the Contributors and other good and valuable consideration, Shareholder and the Contributors hereby agree that, subject to adjustment pursuant to SECTION 14.4, for a period of five (5) years following the Closing Date, each Contributor and Shareholder and his or her respective affiliates shall not knowingly, directly or indirectly, for herself or himself or on or behalf of any other corporation, person, firm, partnership, association or any other entity (whether as an individual, agent, employee, offer director or in any other capacity) act as an officer, director, employee, consultant, shareholder, lender, guarantor or agent of, or otherwise assist any entity which is engaged in any business of the same nature as, or in direct competition with, the dental practice management business, consulting business or training business or any other business in which Pentegra or its affiliates are now engaged or other business in which such entities become engaged. The Contributors and Shareholders agree that, in the event of a breach by them of the foregoing covenant, the covenant may be enforced by Pentegra by a suit for damages, by injunction or by restraining order. 14.2 REASONABLE RESTRAINT. It is agreed by the parties that the foregoing covenants in this SECTION 14 impose a reasonable restraint on the Contributors and Shareholder in light of the activities and business of PRG on the date of the execution of this Agreement and the future plans of Pentegra. 19 14.3 SEVERABILITY; REFORMATION. The covenants in this SECTION 14 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall thereby be reformed. 14.4 TERM. It is specifically agreed that the period of five (5) years stated above, shall be computed by excluding from such computation any time during which any Contributor or Shareholder is in violation of any provision of this SECTION 14. The covenants contained in this SECTION 14 shall have no effect if the transactions contemplated by this Agreement are not consummated for any reason but otherwise shall not be affected by any breach of any other provision hereof by any party hereto. SECTION 15. MISCELLANEOUS. 15.1 TAX COVENANT. The parties intend that the transactions contemplated by this Agreement, together with the transactions contemplated by the Other Agreement and the Initial Public Offering, will qualify as an exchange meeting the requirements of Section 351 of the Code. The tax returns (and schedules thereto) of Shareholder, Contributors and Pentegra shall be filed in a manner consistent with such intention and Contributors and Pentegra shall each provide the other with such tax information, reports, returns or schedules as may be reasonably required to assist the other in so reporting the transactions contemplated hereby. 15.2 NOTICES. Any communications required or desired to be given hereunder shall be deemed to have been properly given if sent by hand delivery, or by facsimile AND overnight courier, to the parties hereto at the following addresses, or at such other address as either party may advise the other in writing from time to time: If to Pentegra: Pentegra Dental Group, Inc. 2999 N. 44th Street, Suite 650 Phoenix, Arizona 85018 Attn: President Facsimile: (602) 952-0554 with a copy of each notice directed to Pentegra to: James S. Ryan, III, Esquire Jackson Walker L.L.P. 901 Main Street Dallas, Texas 75202 Facsimile: (214) 953-5822 If to Contributors or Shareholder: To address set forth on EXHIBIT 15.2 with a copy to: Person and address set forth on EXHIBIT 15.2 All such communications shall be deemed to have been delivered on the date of hand delivery or on the next business day following the deposit of such communications, properly addressed and postage prepaid with the overnight courier. 20 15.3 FURTHER ASSURANCES. Each party hereby agrees to perform any further acts and to execute and deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement. 15.4 EACH PARTY TO BEAR COSTS. Subject to SECTION 15.12, each of the parties to this Agreement shall pay all of the costs and expenses incurred by such party in connection with the transactions contemplated by this Agreement, whether or not such transactions are consummated. Without limiting the generality of the foregoing and whether or not such liabilities may be deemed to have been incurred in the ordinary course of business, Pentegra shall not be liable to or required to pay, either directly or indirectly, any fees and expenses of legal counsel, accountants, auditors or other persons or entities retained by Contributors or Shareholder for services rendered in connection with negotiating and closing the transactions contemplated by this Agreement or the documents to be executed in connection herewith, whether or not such costs or expenses are incurred before or after the Closing Date. 15.5 PUBLIC DISCLOSURES. Each party shall keep this Agreement and its terms confidential, and shall make no press release or public disclosure, either written or oral, regarding the transactions contemplated by this Agreement without the prior written consent of the other party, provided that the foregoing shall not prohibit any disclosure (a) by press release, filing or otherwise that Pentegra has determined in good faith judgment to be required by Federal securities laws or the rules of the National Association of Securities Dealers, (b) to attorneys, accountants, investment bankers or other agents of the parties assisting the parties in connection with the transactions contemplated by this Agreement, and (c) by Pentegra in connection with the conduct of its Initial Public Offering and conducting an examination of the operations and assets of Contributors. 15.6 GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF INCORPORATION OF Contributors AND APPLIED WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAWS PRINCIPLES. 15.7 CAPTIONS. The captions or headings in this Agreement are made for convenience and general reference only and shall not be construed to describe, define or limit the scope or intent of the provisions of this Agreement. 15.8 INTEGRATION OF EXHIBITS. All Exhibits attached to this Agreement are integral parts of this Agreement as if fully set forth herein, and all statements appearing therein shall be deemed disclosed for all purposes and not only in connection with the specific representation in which they are explicitly referenced. 15.9 ENTIRE AGREEMENT/AMENDMENT. THIS INSTRUMENT, INCLUDING ALL EXHIBITS ATTACHED HERETO, CONTAINS THE ENTIRE AGREEMENT OF THE PARTIES AND SUPERSEDES ANY AND ALL PRIOR OR CONTEMPORANEOUS AGREEMENTS BETWEEN THE PARTIES, WRITTEN OR ORAL, WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY. 15.10 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which when so executed shall be deemed to be an original, and such counterparts shall together constitute and be one and the same instrument 15.11 BINDING EFFECT/ASSIGNMENT. This Agreement shall be binding on, and shall inure to the benefit of, the parties hereto, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No party may assign any right or obligation hereunder without the prior written consent of the other parties; provided, however, that Pentegra may assign its rights and delegate its obligations hereunder to any entity that is an affiliate of Pentegra. For purposes of this Agreement an "affiliate" of Pentegra shall include any entity that, through one or more intermediaries is, controlled, controlled by or under common control with, Pentegra. Upon any such assignment prior to the Closing, all references herein to Pentegra (including those to Pentegra Common Stock) shall be deemed to include references to the assignee and the assignee's common stock. Notwithstanding any such assignment, Pentegra shall not, absent a written release from Contributors, be relieved from its obligations to Contributors under this Agreement. 15.12 COSTS OF ENFORCEMENT. In the event that Pentegra, on the one hand, or Contributors, on the other hand, file suit in any court against any other party to enforce the terms of this Agreement against the other party or to obtain 21 performance by it hereunder, the prevailing party will be entitled to recover all reasonable costs, including reasonable attorneys' fees, from the other party as part of any judgment in such suit. The term "prevailing party" shall mean the party in whose favor final judgment after appeal (if any) is rendered with respect to the claims asserted in the Complaint. "Reasonable attorneys' fees" are those reasonable attorneys' fees actually incurred in obtaining a judgment in favor of the prevailing party. 15.13 PRORATIONS. Contributors agrees to reimburse Pentegra at Closing a pro rata portion of all taxes levied upon the Assets for the calendar year in which the Closing occurs. Such taxes shall be estimated, apportioned and pro-rated among Contributors and Pentegra as of the Closing Date, and the prorated amount due Pentegra shall be credited to the cash portion of the Purchase Consideration. Upon payment by Pentegra of such taxes actually assessed and paid on the Assets, Pentegra shall calculate the apportionment of such taxes and shall pay Contributors or may demand from Contributors, and Contributors agrees to pay, the amount necessary to correct the estimate and proration made at Closing. 15.14 AMENDMENTS; WAIVERS. This Agreement may be amended, modified or supplemented only by an instrument in writing executed by all the parties hereto. Any waiver of the terms and conditions hereof must be in writing, and signed by the parties hereto. The waiver of any of the terms and conditions of this Agreement shall not be construed as a waiver of any other terms and conditions hereof. 15.15 ARBITRATION. Other than pursuant to SECTION 14 hereunder, upon the request of either Pentegra or the Contributors or Shareholder (hereinafter referred to as a "Party"), whether made before or after the institution of any legal proceeding, any dispute among the parties hereto in any way arising out of, related to, or in connection with this Agreement (hereinafter a "Dispute"), shall be resolved by binding arbitration in accordance with the terms of this Section (hereinafter the "Arbitration Program"). All Disputes between the Parties shall be resolved by binding arbitration administered by the American Arbitration Association (the "AAA") in accordance with the terms of this Arbitration Program, the Commercial Arbitration Rules of the AAA. In the event of any inconsistency between this Arbitration Program and those rules or statutes, then the terms of this Arbitration Program shall control. The parties hereto agree to adhere to all warranties and covenants (as described herein) until such time as the arbitration process has been completed and the arbitrators have determined each party's post-arbitration obligations and responsibilities as it relates to such warranties and covenants. No provision of, nor the exercise of any rights under, this Arbitration Program shall limit the right of any Party at any time to seek or use ancillary or preliminary judicial or non-judicial self help remedies for the purposes of obtaining, perfecting, preserving, or foreclosing upon any personal property in which there has been granted a security interest or lien by a Party in the Documents. In Disputes involving indebtedness or other monetary obligations, each Party agrees that the other Party may proceed against all liable persons, jointly and severally against one or more of them, without impairing rights against other liable persons. Nor shall a Party be required to join the principal obligor or any other liable persons (e.g., sureties or guarantors) in any proceeding against a particular person. A Party may release or settle with one or more liable persons as the Party deems fit without releasing or impairing rights to proceed against any persons not so released. All statutes of limitation that would otherwise be applicable shall apply to any arbitration proceeding. The party seeking arbitration shall notify the other Party, in writing, of that Party's desire to arbitrate a dispute; and each Party shall, within twenty (20) days from the date such notification is received, select an arbitrator, and those two arbitrators shall select a third arbitrator within ten (10) days thereafter. The issues or claims in dispute shall be committed to writing, separately stated and numbered, and each party's proposed answers or contentions shall be signed below the questions. Failure by a party to select an arbitrator within the prescribed time period shall serve as that Party's acquiescence and acceptance of the other party's selection of arbitrator. The arbitrators shall resolve all Disputes in accordance with the applicable substantive law. Any Dispute shall be decided by a majority vote of three arbitrators, unless the claim or amount in controversy does not exceed $100,000.00, in which case a single arbitrator (who shall have authority to render a maximum award of $100,000.00, including all damages of any kind, costs and fees) may decide the Dispute. The arbitrators may grant any remedy or relief that the arbitrators deem just and equitable and within the scope of this Arbitration Program. The arbitrators may also grant such ancillary relief 22 as is necessary to make effective the award. In all arbitration proceedings the arbitrators shall make specific and written findings of fact and conclusions of law. In all arbitration proceedings in which the amount in controversy exceeds $100,000.00, in the aggregate, the Parties shall have in addition to the statutory right to seek vacation or modification of any award pursuant to applicable law, the right to seek vacation or modification of any award that is based in whole, or in part, on an incorrect or erroneous ruling of law by appeal to an appropriate court having jurisdiction; provided, however, that any such application for vacation or modification of an award based on an incorrect ruling of law must be filed in a court having jurisdiction over the Dispute within 15 days from the date the award in rendered. The arbitrators' findings of fact shall be binding on all Parties and shall not be subject to further review except as otherwise allowed by applicable law. To the maximum extent practicable, an arbitration proceeding hereunder shall be concluded within 180 days of the filing of the Dispute with AAA. Arbitration proceedings hereunder shall be conducted where agreed to in writing by the Parties or, in the absence of such agreement in Phoeniz, Arizona or the headquarters of Pentegra if other than Phoeniz, Arizona. The provisions of this Arbitration Program shall survive any termination, amendment, or expiration of the Documents, unless the Parties otherwise expressly agree in writing making specific reference to this Arbitration Program. To the extent permitted by applicable law, the arbitrator shall have the power to award recovery of all costs and fees (including attorney's fees, administrative fees, and arbitrators' fees) to the prevailing Party. This Arbitration Program may be amended, changed, or modified only by a writing which specifically refers to this Arbitration Program and which is signed by all the Parties. If any term, covenant, condition or provision of the Arbitration Program is found to be unlawful or invalid or unenforceable, such illegality or invalidity or unenforceable shall not affect the legality, validity or enforceability of the remaining parts of this Arbitration Program, and all such remaining parts hereof shall be valid and enforceable and have full force and effect as if the illegal, invalid or unenforceable part had not been included. Each Party agrees to keep all Disputes and arbitration proceedings strictly confidential, except for disclosures of information required in the ordinary course of business of the Parties or by applicable law or regulation. 15.16 SEVERABILITY. If any provision of this Agreement shall be found to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable and this Agreement shall be construed and enforced as if such provision never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect. In lieu of such provision, there shall be added automatically as part of this Agreement, a provision as similar in its terms to such provision as may be possible and be legal, valid and enforceable. [End of Page] 23 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. PENTEGRA, LTD. By: /s/ Kelly W. Reed ---------------------------------------- Kelly W. Reed, President NAPILI INTERNTIONAL, INC. By: /s/ Marcia T. Reed ---------------------------------------- Marcia T. Reed, President PENTEGRA DENTAL GROUP, INC. By: /s/ Kim Rozman ---------------------------------------- Its: Senior V.P. --------------------------------------- /s/ KELLY W. REED ---------------------------------------- Kelly W. Reed MOR LIMITED PARTNERSHIP By: /s/ Omer K. Reed, D.D.S. ---------------------------------------- Omer K. Reed, D.D.S. By: /s/ Marcia J. Reed ---------------------------------------- Marcia J. Reed REED TRUST By: /s/ Karl O. Reed ---------------------------------------- Karl O. Reed, Trustee By: /s/ Kelly W. Reed ---------------------------------------- Kelly W. Reed, Trustee By: /s/ Kevin P. Reed ---------------------------------------- Kevin P. Reed, Trustee By: /s/ Kary Reed Wilson ---------------------------------------- Kary Reed Wilson, Trustee 24 INDEX TO EXHIBITS EXHIBIT DESCRIPTION Annex I Acquisition Consideration A Target Companies 1.1 Assets 1.2(b) Excluded Assets 1.3(b) Assumed Liabilities 2.3 Permits and Licenses 2.4 Consents 2.8 Leases 2.10 Encumbrances 2.12 Patents and Trademarks; Names 2.13 Directors and Officers; Payroll Information; Employment Agreements 2.15 Contracts (other than Leases and Employment Agreements) 2.16 Subsequent Events 2.19 Debt 2.20 Insurance Policies 2.21 Employee Benefit Plans 2.26 Banking Relations 9.1(l) Form of Registration Rights Agreement 15.2 Addresses for Notice 25 ANNEX I ACQUISITION CONSIDERATION The aggregate consideration to be received by the Contributors pursuant to the Agreement (the "Acquisition Consideration") is the following: Cash in the amount of $200,000.00. 26 EX-3.1 8 EXHIBIT 3.1 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF PENTEGRA DENTAL GROUP, INC. Pentegra Dental Group, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "DGCL"), hereby adopts this Restated Certificate of Incorporation, which accurately restates and integrates the provisions of the existing Certificate of Incorporation of the Corporation and all amendments thereto that are in effect on the date hereof (the "Certificate of Incorporation") and further amends the provisions of the Certificate of Incorporation as described below, and does hereby further certify that: 1. The name of the Corporation is Pentegra Dental Group, Inc. The original certificate of incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on July 30, 1997. 2. The Board of Directors of the Corporation duly adopted a resolution proposing and declaring advisable the amendments to the Certificate of Incorporation as described herein, and the holders of a majority of the Corporation's outstanding capital stock have duly adopted such amendments, all in accordance with the provisions of Sections 228, 242 and 245 of the DGCL. 3. This Restated Certificate of Incorporation is being filed pursuant to Sections 242 and 245 of the Delaware General Corporation Law in order to restate the Certificate of Incorporation of the Corporation as amended to date, and also to amend further the Certificate of Incorporation to provide that from and after such time that any class of the Corporation's equity securities is traded on a national securities exchange, the stockholders of the Corporation may take action only at an annual or special meeting of stockholders of the Corporation and not via any consent in writing by such stockholders. This Restated Certificate of Incorporation is also being filed in order to change the par value of the common stock and preferred stock from $.01 per share to $.001 per share. 4. The Certificate of Incorporation is hereby restated and further amended to read in its entirety as follows: RESTATED CERTIFICATE OF INCORPORATION FIRST: The name of the corporation is Pentegra Dental Group, Inc. SECOND. The Corporation's registered office in the State of Delaware is 1209 Orange Street, Corporation Trust Center, in the City of Wilmington, County of New Castle. The name and address of its registered agent is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware. THIRD. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. FOURTH. The aggregate number of shares of capital stock that the Corporation will have authority to issue is Fifty Million (50,000,000), Forty Million (40,000,000) of which will be shares of Common Stock, having a par value of $0.001 per share, and Ten Million (10,000,000) of which will be shares of preferred stock, having a par value of $0.001 per share. Preferred stock may be issued in one or more series as may be determined from time to time by the Board of Directors. All shares of any one series of preferred stock will be identical except as to the dates of issue and the dates from which dividends on shares of the series issued on different dates will cumulate, if cumulative. Authority is hereby expressly granted to the Board of Directors to authorize the issuance of one or more series of preferred stock, and to fix by resolution or resolutions providing for the issue of each such series the voting powers, designations, preferences, and relative, participating, optional, redemption, conversion, exchange or other special rights, qualifications, limitations or restrictions of such series, and the number of shares in each series, to the full extent now or hereafter permitted by law. FIFTH: The number of directors of the Corporation shall be as specified in, or determined in the manner provided in, the Bylaws. Election of directors need not be by written ballot. SIXTH. No stockholder of the Corporation will, solely by reason of holding shares of any class, have any preemptive or preferential right to purchase or subscribe for any shares of the Corporation, now or hereafter to be authorized, or any notes, debentures, bonds or other securities convertible into or carrying warrants, rights or options to purchase shares of any class, now or hereafter to be authorized, whether or not the issuance of any such shares or such notes, debentures, bonds or other securities would adversely affect the dividend, voting or any other rights of such stockholder. The Board of Directors may authorize the issuance of, and the Corporation may issue, shares of any class of the Corporation, or any notes, debentures, bonds or other securities convertible into or carrying warrants, rights or options to purchase any such shares, without offering any shares of any class to the existing holders of any class of stock of the Corporation. SEVENTH. At all meetings of stockholders, a quorum will be present if the holders of a majority of the shares entitled to vote at the meeting are represented at the meeting in person or by proxy. From and after the first date as of which any class of the Corporation's equity securities is traded on a national securities exchange, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. EIGHTH. Stockholders of the Corporation will not have the right of cumulative voting for the election of directors or for any other purpose. 2 NINTH. The Board of Directors is expressly authorized to alter, amend or repeal the Bylaws of the Corporation or to adopt new Bylaws. TENTH. The directors shall be classified, with respect to the time for which they severally hold office, into three classes (Class A, Class B and Class C), as nearly equal in number as possible, as determined by the Board of Directors, one class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1998, another class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1999 and another class to hold office for a term expiring at the annual meeting of stockholders to be held in 2000, with members of each class to hold office until whichever of the following occurs first: his or her successor is elected and qualified, his or her resignation, his or her removal from office by the stockholders or his or her death. At each annual meeting of stockholders of the Corporation, the successors to the class of directors whose term expires at the meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. ELEVENTH. (a) The Corporation will, to the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended, indemnify any and all persons it has power to indemnify under such law from and against any and all of the expenses, liabilities or other matters referred to in or covered by such law. Such indemnification may be provided pursuant to any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his director or officer capacity and as to action in another capacity while holding such office, will continue as to a person who has ceased to be a director, officer, employee or agent, and will inure to the benefit of the heirs, executors and administrators of such a person. (b) If a claim under the preceding paragraph (a) is not paid in full by the Corporation within 30 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant will be entitled to be paid also the expense of prosecuting such claim. It will be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct that make it permissible under the laws of the State of Delaware for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense will be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the laws of the State of Delaware nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, will be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. 3 TWELFTH. To the fullest extent permitted by the laws of the State of Delaware as the same exist or may hereafter be amended, a director of the Corporation will not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this Article will not increase the personal liability of any director of the Corporation for any act or occurrence taking place before such repeal or modification, or adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. The provisions of this Article shall not be deemed to limit or preclude indemnification of a director by the Corporation for any liability of a director that has not been eliminated by the provisions of this Article. [Intentionally left blank] 4 IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed this 17th day of September, 1997. PENTEGRA DENTAL GROUP, INC. By: /s/ Gary S. Glatter ------------------------------ Gary S. Glatter President 5 EX-3.2 9 EXHIBIT 3.2 EXHIBIT 3.2 BYLAWS OF PENTEGRA DENTAL GROUP, INC. TABLE OF CONTENTS ARTICLE I OFFICES Section 1. REGISTERED OFFICE..............................................1 Section 2. OTHER OFFICES..................................................1 ARTICLE II STOCKHOLDERS Section 1. PLACE OF MEETINGS..............................................1 Section 2. ANNUAL MEETING.................................................1 Section 3. LIST OF STOCKHOLDERS...........................................1 Section 4. SPECIAL MEETINGS...............................................2 Section 5. NOTICE.........................................................2 Section 6. QUORUM.........................................................2 Section 7. VOTING.........................................................2 Section 8. METHOD OF VOTING...............................................2 Section 9. RECORD DATE....................................................3 Section 10. ACTION BY CONSENT..............................................3 SECTION 11. STOCKHOLDER PROPOSALS..........................................3 SECTION 12. NOMINATION OF DIRECTORS........................................4 ARTICLE III BOARD OF DIRECTORS Section 1. MANAGEMENT.....................................................5 Section 2. QUALIFICATION; ELECTION; TERM..................................5 Section 3. NUMBER.........................................................6 Section 4. REMOVAL........................................................6 Section 5. VACANCIES......................................................6 Section 6. PLACE OF MEETINGS..............................................7 Section 7. ANNUAL MEETING.................................................7 Section 8. REGULAR MEETINGS...............................................7 Section 9. SPECIAL MEETINGS...............................................7 Section 10. QUORUM.........................................................7 Section 11. INTERESTED DIRECTORS...........................................7 Section 12. COMMITTEES.....................................................8 Section 13. ACTION BY CONSENT..............................................8 Section 14. COMPENSATION OF DIRECTORS......................................8 ARTICLE IV NOTICE Section 1. FORM OF NOTICE.................................................8 Section 2. WAIVER.........................................................8 ARTICLE V OFFICERS AND AGENTS Section 1. IN GENERAL.....................................................9 Section 2. ELECTION.......................................................9 Section 3. OTHER OFFICERS AND AGENTS......................................9 Section 4. COMPENSATION...................................................9 Section 5. TERM OF OFFICE AND REMOVAL.....................................9 Section 6. EMPLOYMENT AND OTHER CONTRACTS.................................9 Section 7. CHAIRMAN OF THE BOARD OF DIRECTORS.............................9 Section 8. CHIEF EXECUTIVE OFFICER...................................... 10 Section 9. PRESIDENT.................................................... 10 Section 10. CHIEF FINANCIAL OFFICER...................................... 10 Section 11. SECRETARY.................................................... 10 Section 12. BONDING...................................................... 10 ARTICLE VI CERTIFICATES REPRESENTING SHARES Section 1. FORM OF CERTIFICATES......................................... 11 Section 2. LOST CERTIFICATES............................................ 11 Section 3. TRANSFER OF SHARES........................................... 11 Section 4. REGISTERED STOCKHOLDERS...................................... 12 ARTICLE VII GENERAL PROVISIONS Section 1. DIVIDENDS.................................................... 12 Section 2. RESERVES..................................................... 12 Section 3. TELEPHONE AND SIMILAR MEETINGS............................... 12 Section 4. BOOKS AND RECORDS............................................ 12 Section 5. FISCAL YEAR.................................................. 13 Section 6. SEAL......................................................... 13 Section 7. ADVANCES OF EXPENSES......................................... 13 Section 8. INDEMNIFICATION.............................................. 14 Section 9. INSURANCE.................................................... 14 Section 10. RESIGNATION.................................................. 14 Section 11. AMENDMENT OF BYLAWS.......................................... 14 Section 12. INVALID PROVISIONS........................................... 14 Section 13. RELATION TO THE CERTIFICATE OF INCORPORATION................. 14 BYLAWS OF PENTEGRA DENTAL GROUP, INC. ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. The registered office and registered agent of Pentegra Dental Group, Inc. (the "Corporation") will be as from time to time set forth in the Corporation's Certificate of Incorporation (as may be amended from time to time) or in any certificate filed with the Secretary of State of the State of Delaware, and the appropriate county Recorder or Recorders, as the case may be, to amend such information. SECTION 2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders for the election of Directors will be held at such place, within or without the State of Delaware, as may be fixed from time to time by the Board of Directors. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as may be stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2. ANNUAL MEETING. An annual meeting of the stockholders will be held at such time as may be determined by the Board of Directors, at which meeting the stockholders will elect a Board of Directors, and transact such other business as may properly be brought before the meeting. SECTION 3. LIST OF STOCKHOLDERS. At least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, with the address of and the number of voting shares registered in the name of each, will be prepared by the officer or agent having charge of the stock transfer books. Such list will be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place will be specified in the notice of the meeting, or if not so specified at the place where the meeting is to be held. Such list will be produced and kept open at the time 1 and place of the meeting during the whole time thereof, and will be subject to the inspection of any stockholder who may be present. SECTION 4. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by law, the Certificate of Incorporation or these Bylaws, may be called by the Chairman of the Board, the Chief Executive Officer, the President or the Board of Directors. Business transacted at all special meetings will be confined to the purposes stated in the notice of the meeting unless all stockholders entitled to vote are present and consent. SECTION 5. NOTICE. Written or printed notice stating the place, day and hour of any meeting of the stockholders and, in case of a special meeting, the purpose or purposes for which the meeting is called, will be delivered not less than ten nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, the Chief Executive Officer, the President, the Secretary, or the officer or person calling the meeting, to each stockholder of record entitled to vote at the meeting. If mailed, such notice will be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. SECTION 6. QUORUM. At all meetings of the stockholders, the presence in person or by proxy of the holders of a majority of the shares issued and outstanding and entitled to vote will be necessary and sufficient to constitute a quorum for the transaction of business except as otherwise provided by law, the Certificate of Incorporation or these Bylaws. If, however, such quorum is not present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, will have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally notified. SECTION 7. VOTING. When a quorum is present at any meeting of the Corporation's stockholders, the vote of the holders of a majority of the shares entitled to vote on, and voted for or against, any matter will decide any questions brought before such meeting, unless the question is one upon which, by express provision of law, the Certificate of Incorporation or these Bylaws, a different vote is required, in which case such express provision will govern and control the decision of such question. The stockholders present in person or by proxy at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. SECTION 8. METHOD OF VOTING. Each outstanding share of the Corporation's capital stock, regardless of class, will be entitled to one vote on each matter submitted to a vote at a meeting of stockholders, except to the extent that the voting rights of the shares of any class or classes are limited or denied by the Certificate of Incorporation, as amended from time to time. At any meeting 2 of the stockholders, every stockholder having the right to vote will be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to such meeting, unless such instrument provides for a longer period. Each proxy will be revocable unless expressly provided therein to be irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. Such proxy will be filed with the Secretary of the Corporation prior to or at the time of the meeting. Voting on any question or in any election, other than for directors, may be by voice vote or show of hands unless the presiding officer orders, or any stockholder demands, that voting be by written ballot. SECTION 9. RECORD DATE. The Board of Directors may fix in advance a record date for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, which record date will not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date will not be less than ten nor more than sixty days prior to such meeting. In the absence of any action by the Board of Directors, the close of business on the date next preceding the day on which the notice is given will be the record date, or, if notice is waived, the close of business on the day next preceding the day on which the meeting is held will be the record date. SECTION 10. ACTION BY CONSENT. Except as set forth below, any action required or permitted by law, the Certificate of Incorporation or these Bylaws to be taken at a meeting of the stockholders of the Corporation may be taken without a meeting if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and will be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business or an officer or agent of the Corporation having custody of the minute book. Notwithstanding the foregoing, from and after the first date that the Corporation has received funding from the sale of capital stock of the Corporation in an initial public offering, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of the stockholders of the Corporation and may not be effected by any consent in writing by the stockholders. SECTION 11. STOCKHOLDER PROPOSALS. No proposal by a stockholder made pursuant to this Article II may be voted upon at a meeting of stockholders unless such stockholder shall have delivered or mailed in a timely manner (as set herein) and in writing to the Secretary of the Corporation (i) notice of such proposal, (ii) the text of the proposed alteration, amendment or repeal, if such proposal relates to a proposed change to the Corporation's Certificate of Incorporation or Bylaws, (iii) evidence reasonably satisfactory to the Secretary of the Corporation of such stockholder's status as such and of the number of shares of each class of capital stock of the Corporation of which such stockholder is the beneficial owner, (iv) a list of the names and addresses of other beneficial owners of shares of the capital stock of the Corporation, if any, with whom such stockholder is acting in concert, and the number of shares of each class of capital stock of the Corporation beneficially owned by each such beneficial owner and (v) an opinion of 3 counsel, which counsel and the form and substance of which opinion shall be reasonably satisfactory to the Board of Directors of the Corporation, to the effect that the Certificate of Incorporation or Bylaws resulting from the adoption of such proposal would not be in conflict with the laws of the State of Delaware, if such proposal relates to a proposed change to the Corporation's Certificate of Incorporation or Bylaws. To be timely in connection with an annual meeting of stockholders, a stockholder's notice and other aforesaid items shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety nor more than 180 days prior to the earlier of the date of the meeting or the corresponding date on which the immediately preceding year's annual meeting of stockholders was held. To be timely in connection with the voting on any such proposal at a special meeting of the stockholders, a stockholder's notice and other aforesaid items shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than forty days nor more than sixty days prior to the date of such meeting; provided, however, that in the event that less than fifty days' notice or prior public disclosure of the date of the special meeting of the stockholders is given or made to the stockholders, such stockholder's notice and other aforesaid items to be timely must be so received not later than the close of business on the seventh day following the day on which such notice of date of the meeting was mailed or such public disclosure was made. Within thirty days (or such shorter period that may exist prior to the date of the meeting) after such stockholder shall have submitted the aforesaid items, the Secretary and the Board of Directors of the Corporation shall respectively determine whether the items to be ruled upon by them are reasonably satisfactory and shall notify such stockholder in writing of their respective determinations. If such stockholder fails to submit a required item in the form or within the time indicated, or if the Secretary or the Board of Directors of the Corporation determines that the items to be ruled upon by them are not reasonably satisfactory, then such proposal by such stockholder may not be voted upon by the stockholders of the Corporation at such meeting of stockholders. The presiding person at each meeting of stockholders shall, if the facts warrant, determine and declare to the meeting that a proposal was not made in accordance with the procedure prescribed by these Bylaws, and if he should so determine, he shall so declare to the meeting and the defective proposal shall be disregarded. The requirements of this Section 11 shall be in addition to any other requirements imposed by these Bylaws, by the Corporation's Certificate of Incorporation or the law. SECTION 12. NOMINATION OF DIRECTORS. Nominations for the election of directors may be made by the Board of Directors or by any stockholder (a "Nominator") entitled to vote in the election of directors. Such nominations, other than those made by the Board of Directors, shall be made in writing pursuant to timely notice delivered to or mailed and received by the Secretary of the Corporation as set forth in this Section 10. To be timely in connection with an annual meeting of stockholders, a Nominator's notice, setting forth the name and address of the person to be nominated, shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety 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 year's annual meeting of stockholders was held. To be timely in connection with any election of a director at a special meeting of the stockholders, a Nominator's notice, setting forth the name and address of the person to be nominated, shall be delivered to or mailed and received at the principal 4 executive offices of the Corporation not later than the close of business on the tenth day following the day on which such notice of date of the meeting was mailed or such public disclosure was made, whichever first occurs. At such time, the Nominator shall also submit written evidence, reasonably satisfactory to the Secretary of the Corporation, that the Nominator is a stockholder of the Corporation and shall identify in writing (i) the name and address of the Nominator, (ii) the number of shares of each class of capital stock of the Corporation of which the Nominator is the beneficial owner, (iii) the name and address of each of the persons with whom the Nominator is acting in concert and (iv) the number of shares of capital stock of which each such person with whom the Nominator is acting in concert is the beneficial owner pursuant to which the nomination or nominations are to be made. At such time, the Nominator shall also submit in writing (i) the information with respect to each such proposed nominee that would be required to be provided in a proxy statement prepared in accordance with Regulation 14A under the Securities Exchange Act of 1934, as amended, and (ii) a notarized affidavit executed by each such proposed nominee to the effect that, if elected as a member of the Board of Directors, he will serve and that he is eligible for election as a member of the Board of Directors. Within thirty days (or such shorter time period that may exist prior to the date of the meeting) after the Nominator has submitted the aforesaid items to the Secretary of the Corporation, the Secretary of the Corporation shall determine whether the evidence of the Nominator's status as a stockholder submitted by the Nominator is reasonably satisfactory and shall notify the Nominator in writing of his determination. If the Secretary of the Corporation finds that such evidence is not reasonably satisfactory, or if the Nominator fails to submit the requisite information in the form or within the time indicated, such nomination shall be ineffective for the election at the meeting at which such person is proposed to be nominated. The presiding person at each meeting of stockholders shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. The requirements of this Section 12 shall be in addition to any other requirements imposed by these bylaws, by the Certificate of Incorporation or by law. ARTICLE III BOARD OF DIRECTORS SECTION 1. MANAGEMENT. The business and affairs of the Corporation will be managed by or under the direction of its Board of Directors who may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law, by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. SECTION 2. QUALIFICATION; ELECTION; TERM. None of the Directors need be a stockholder of the Corporation or a resident of the State of Delaware. From and after the date of consummation of the Corporation's initial public offering and until such time as two-thirds (2/3) of the Directors vote to rescind the requirements of this sentence, a majority of the directors who constitute the Board of Directors shall be dentists who are affiliated with dental practices that have a management services 5 relationship with the Corporation. Any Director who ceases to be a dentist affiliated with a dental practice that has a management relationship with the Corporation shall immediately resign from the Board (or may be immediately removed by the Board if such resignation is not tendered), at which time such vacancy may be filled by the vote of a majority of the Directors then in office, which vote shall occur within thirty (30) business days of such resignation or removal. No default shall be deemed to have occurred under these Bylaws during such thirty (30) day period if the majority of the Directors during such period are not dentists affiliated with dental practices that have a management services relationship with the Corporation. The Directors shall be classified, with respect to the time for which they severally hold office, into three classes (Class A, Class B and Class C), as nearly equal in number as possible, as determined by the Board of Directors, one class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1998, another class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1999 and another class to hold office for a term expiring at the annual meeting of stockholders to be held in 2000, with members of each class to hold office until whichever of the following occurs first: his successor is elected and qualified, his resignation, his removal from office by the stockholders or his death. At each annual meeting of stockholders of the Corporation, the successors to the class of directors whose term expires at the meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy and entitled to vote on the election of Directors at any annual or special meeting of stockholders. Such election shall be by written ballot. SECTION 3. NUMBER. The number of Directors of the Corporation will be at least one and not more than nineteen. The number of Directors authorized will be fixed as the Board of Directors may from time to time designate, or if no such designation has been made, the number of Directors will be the same as the number of members of the initial Board of Directors as set forth in the Certificate of Incorporation. SECTION 4. REMOVAL. Any Director may be removed, only for cause, at any special meeting of stockholders by the affirmative vote of the holders of a majority in number of all outstanding voting stock entitled to vote; provided that notice of the intention to act upon such matter has been given in the notice calling such meeting. SECTION 5. VACANCIES. Newly created directorships resulting from any increase in the authorized number of Directors and any vacancies occurring in the Board of Directors caused by death, resignation, retirement, disqualification or removal from office of any Directors or otherwise, may be filled by the vote of a majority of the Directors then in office, though less than a quorum, or a successor or successors may be chosen at a special meeting of the stockholders called for that purpose, and each successor Director so chosen will hold office until the next election of the class for which such Director has been chosen or until whichever of the following occurs first: his successor is elected and qualified, his resignation, his removal from office by the stockholders or his death. 6 SECTION 6. PLACE OF MEETINGS. Meetings of the Board of Directors, regular or special, may be held at such place within or without the State of Delaware as may be fixed from time to time by the Board of Directors. SECTION 7. ANNUAL MEETING. The first meeting of each newly elected Board of Directors will be held without further notice immediately following the annual meeting of stockholders and at the same place, unless by unanimous consent, the Directors then elected and serving change such time or place. SECTION 8. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such time and place as is from time to time determined by resolution of the Board of Directors. SECTION 9. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive Officer or the President on oral or written notice to each Director, given either personally, by telephone, by telegram or by mail; special meetings will be called by the Chairman of the Board, Chief Executive Officer, President or Secretary in like manner and on like notice on the written request of at least three Directors. The purpose or purposes of any special meeting will be specified in the notice relating thereto. SECTION 10. QUORUM. At all meetings of the Board of Directors the presence of a majority of the number of Directors fixed by these Bylaws will be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the Directors present at any meeting at which there is a quorum will be the act of the Board of Directors, except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws. If a quorum is not present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum is present. SECTION 11. INTERESTED DIRECTORS. No contract or transaction between the Corporation and one or more of its Directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of the Corporation's Directors or officers are directors or officers or have a financial interest, will be void or voidable solely for this reason, solely because the Director or officer is present at or participates in the meeting of the Board of Directors or committee thereof that authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (i) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested Directors, even though the disinterested Directors be less than a quorum, (ii) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. 7 Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee that authorizes the contract or transaction. SECTION 12. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the entire Board, designate committees, each committee to consist of two or more Directors of the Corporation, which committees will have such power and authority and will perform such functions as may be provided in such resolution. Such committee or committees will have such name or names as may be designated by the Board and will keep regular minutes of their proceedings and report the same to the Board of Directors when required. SECTION 13. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee of the Board of Directors may be taken without such a meeting if a consent or consents in writing, setting forth the action so taken, is signed by all the members of the Board of Directors or such committee, as the case may be. SECTION 14. COMPENSATION OF DIRECTORS. Directors will receive such compensation for their services and reimbursement for their expenses as the Board of Directors, by resolution, may establish; provided that nothing herein contained will be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE IV NOTICE SECTION 1. FORM OF NOTICE. Whenever by law, the Certificate of Incorporation or of these Bylaws, notice is to be given to any Director or stockholder, and no provision is made as to how such notice will be given, such notice may be given in writing, by mail, postage prepaid, addressed to such Director or stockholder at such address as appears on the books of the Corporation. Any notice required or permitted to be given by mail will be deemed to be given at the time the same is deposited in the United States mails. SECTION 2. WAIVER. Whenever any notice is required to be given to any stockholder or Director of the Corporation as required by law, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, will be equivalent to the giving of such notice. Attendance of a stockholder or Director at a meeting will constitute a waiver of notice of such meeting, except where such stockholder or Director attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened. 8 ARTICLE V OFFICERS AND AGENTS SECTION 1. IN GENERAL. The officers of the Corporation will consist of a Chief Executive Officer, President, Chief Financial Officer and Secretary and such other officers as shall be elected by the Board of Directors or the Chief Executive Officer. Any two or more offices may be held by the same person. SECTION 2. ELECTION. The Board of Directors, at its first meeting after each annual meeting of stockholders, will elect the officers, none of whom need be a member of the Board of Directors. SECTION 3. OTHER OFFICERS AND AGENTS. The Board of Directors and Chief Executive Officer may also elect and appoint such other officers and agents as it or he deems necessary, who will be elected and appointed for such terms and will exercise such powers and perform such duties as may be determined from time to time by the Board or the Chief Executive Officer. SECTION 4. COMPENSATION. The compensation of all officers and agents of the Corporation will be fixed by the Board of Directors or any committee of the Board, if so authorized by the Board. SECTION 5. TERM OF OFFICE AND REMOVAL. Each officer of the Corporation will hold office until his death, his resignation or removal from office, or the election and qualification of his successor, whichever occurs first. Any officer or agent elected or appointed by the Board of Directors or the Chief Executive Officer may be removed at any time, for or without cause, by the affirmative vote of a majority of the entire Board of Directors or at the discretion of the Chief Executive Officer (without regard to how the agent or officer was elected), but such removal will not prejudice the contract rights, if any, of the person so removed. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors or, in the case of a vacancy in the office of officer other than Chief Executive Officer and President, such vacancy may be filled by the Chief Executive Officer. SECTION 6. EMPLOYMENT AND OTHER CONTRACTS. The Board of Directors may authorize any officer or officers or agent or agents to enter into any contract or execute and deliver any instrument in the name or on behalf of the Corporation, and such authority may be general or confined to specific instances. The Board of Directors may, when it believes the interest of the Corporation will best be served thereby, authorize executive employment contracts that will have terms no longer than ten years and contain such other terms and conditions as the Board of Directors deems appropriate. Nothing herein will limit the authority of the Board of Directors to authorize employment contracts for shorter terms. SECTION 7. CHAIRMAN OF THE BOARD OF DIRECTORS. If the Board of Directors has elected a Chairman of the Board, he will preside at all meetings of the stockholders and the Board of Directors. 9 SECTION 8. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer will be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, will supervise and control all of the business and affairs of the Corporation. The Chief Executive Officer shall have the authority to elect any officer of the Corporation other than the Chief Executive Officer or President. He will, in the absence of the Chairman of the Board, preside at all meetings of the stockholders and the Board of Directors. The Chief Executive Officer will have all powers and perform all duties incident to the office of Chief Executive Officer and will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe. During the absence or disability of the President, the Chief Executive Officer will exercise the powers and perform the duties of President. SECTION 9. PRESIDENT. The President will have responsibility for oversight of the Corporation's operating and development activities. In the absence or disability of the Chief Executive Officer and the Chairman of the Board, the President will exercise the powers and perform the duties of the Chief Executive Officer. The President will render to the Directors whenever they may require it an account of the operating and development activities of the Corporation and will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate to him. SECTION 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer will have principal responsibility for the financial operations of the Corporation. The Chief Financial Officer will render to the Directors whenever they may require it an account of the operating results and financial condition of the Corporation and will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate to him. SECTION 11. SECRETARY. The Secretary will attend all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose. The Secretary will perform like duties for the Board of Directors and committees thereof when required. The Secretary will give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors. The Secretary will keep in safe custody the seal of the Corporation. The Secretary will be under the supervision of the Chief Executive Officer. The Secretary will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate to him. SECTION 12. BONDING. The Corporation may secure a bond to protect the Corporation from loss in the event of defalcation by any of the officers, which bond may be in such form and amount and with such surety as the Board of Directors may deem appropriate. 10 ARTICLE VI CERTIFICATES REPRESENTING SHARES SECTION 1. FORM OF CERTIFICATES. Certificates, in such form as may be determined by the Board of Directors, representing shares to which stockholders are entitled will be delivered to each stockholder. Such certificates will be consecutively numbered and will be entered in the stock book of the Corporation as they are issued. Each certificate will state on the face thereof the holder's name, the number, class of shares, and the par value of such shares or a statement that such shares are without par value. They will be signed by the Chief Executive Officer or President and the Secretary or an Assistant Secretary, and may be sealed with the seal of the Corporation or a facsimile thereof. If any certificate is countersigned by a transfer agent, or an assistant transfer agent or registered by a registrar, either of which is other than the Corporation or an employee of the Corporation, the signatures of the Corporation's officers may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on such certificate or certificates, ceases to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates have been delivered by the Corporation or its agents, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation. SECTION 2. LOST CERTIFICATES. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of such lost or destroyed certificate, or his legal representative, to advertise the same in such manner as it may require and/or to give the Corporation a bond, in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. When a certificate has been lost, apparently destroyed or wrongfully taken, and the holder of record fails to notify the Corporation within a reasonable time after such holder has notice of it, and the Corporation registers a transfer of the shares represented by the certificate before receiving such notification, the holder of record is precluded from making any claim against the Corporation for the transfer of a new certificate. SECTION 3. TRANSFER OF SHARES. Shares of stock will be transferable only on the books of the Corporation by the holder thereof in person or by such holder's duly authorized attorney. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it will be the duty of the Corporation or the transfer agent of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. 11 SECTION 4. REGISTERED STOCKHOLDERS. The Corporation will be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, will not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it has express or other notice thereof, except as otherwise provided by law. ARTICLE VII GENERAL PROVISIONS SECTION 1. DIVIDENDS. Dividends upon the outstanding shares of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, in property, or in shares of the Corporation, subject to the provisions of the General Corporation Law of the State of Delaware and the Certificate of Incorporation. The Board of Directors may fix in advance a record date for the purpose of determining stockholders entitled to receive payment of any dividend, such record date will not precede the date upon which the resolution fixing the record date is adopted, and such record date will not be more than sixty days prior to the payment date of such dividend. In the absence of any action by the Board of Directors, the close of business on the date upon which the Board of Directors adopts the resolution declaring such dividend will be the record date. SECTION 2. RESERVES. There may be created by resolution of the Board of Directors out of the surplus of the Corporation such reserve or reserves as the Directors from time to time, in their discretion, deem proper to provide for contingencies, or to equalize dividends, or to repair or maintain any property of the Corporation, or for such other purpose as the Directors may deem beneficial to the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created. Surplus of the Corporation to the extent so reserved will not be available for the payment of dividends or other distributions by the Corporation. SECTION 3. TELEPHONE AND SIMILAR MEETINGS. Stockholders, directors and committee members may participate in and hold meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Participation in such a meeting will constitute presence in person at the meeting, except where a person participates in the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened. SECTION 4. BOOKS AND RECORDS. The Corporation will keep correct and complete books and records of account and minutes of the proceedings of its stockholders and Board of Directors, and will keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its stockholders, giving the names and addresses of all stockholders and the number and class of the shares held by each. 12 SECTION 5. FISCAL YEAR. The fiscal year of the Corporation will be fixed by resolution of the Board of Directors. SECTION 6. SEAL. The Corporation may have a seal, and the seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Any officer of the Corporation will have authority to affix the seal to any document requiring it. SECTION 7. ADVANCES OF EXPENSES. The Corporation will advance to its directors and officers expenses incurred by them in connection with any "Proceeding," which term includes any threatened, pending or completed action, suit or proceeding, whether brought by or in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature (including all appeals therefrom), in which a director or officer may be or may have been involved as a party or otherwise, by reason of the fact that he is or was a director or officer of the Corporation, by reason of any action taken by him or of any inaction on his part while acting as such, or by reason of the fact that he is or was serving at the request of the Corporation as a director, officer, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise ("Official," which term also includes directors and officers of the Corporation in their capacities as directors and officers of the Corporation), whether or not he is serving in such capacity at the time any liability or expense is incurred; provided that the Official undertakes to repay all amounts advanced unless: (i) in the case of all Proceedings other than a Proceeding by or in the right of the Corporation, the Official establishes to the satisfaction of the disinterested members of the Board of Directors that he acted in good faith or in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, that he did not have reasonable cause to believe his conduct was unlawful; provided that the termination of any such Proceeding by judgment, order of court, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not by itself create a presumption as to whether the Official acted in good faith or in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, as to whether he had reasonable cause to believe his conduct was unlawful; or (ii) in the case of a Proceeding by or in the right of the Corporation, the Official establishes to the satisfaction of the disinterested members of the Board of Directors that he acted in good faith or in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; provided that if in such a Proceeding the Official is adjudged to be liable to the Corporation, all amounts advanced to the Official for expenses must be repaid except to the extent that the court in which such adjudication was made shall determine upon application that despite such adjudication, in view of all the circumstances, the Official is fairly and reasonably entitled to indemnity for such expenses as the court may deem proper. 13 SECTION 8. INDEMNIFICATION. The Corporation will indemnify its directors and officers to the fullest extent permitted by the General Corporation Law of the State of Delaware 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. SECTION 9. INSURANCE. The Corporation may at the discretion of the Board of Directors purchase and maintain insurance on behalf of the Corporation and any person whom it has the power to indemnify pursuant to law, the Certificate of Incorporation, these Bylaws or otherwise. SECTION 10. RESIGNATION. Any director, officer or agent may resign by giving written notice to the President or the Secretary. Such resignation will take effect at the time specified therein or immediately if no time is specified therein. Unless otherwise specified therein, the acceptance of such resignation will not be necessary to make it effective. SECTION 11. AMENDMENT OF BYLAWS. Other than as set forth herein, these Bylaws may be altered, amended, or repealed at any meeting of the Board of Directors at which a quorum is present, by the affirmative vote of a majority of the Directors present at such meeting. SECTION 12. INVALID PROVISIONS. If any part of these Bylaws is held invalid or inoperative for any reason, the remaining parts, so far as possible and reasonable, will be valid and operative. SECTION 13. RELATION TO THE CERTIFICATE OF INCORPORATION. These Bylaws are subject to, and governed by, the Certificate of Incorporation of the Corporation as amended from time to time. 14 EX-4.2 10 EXHIBIT 4.2 EXHIBIT 4.2 FORM OF REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made and entered into as of ____________________, 1997, by and among Pentegra Dental Group, Inc., a Delaware corporation ("Pentegra"), and each person listed on the signature pages hereof under the caption "Stockholder" (the "Stockholder"). This Agreement is made pursuant to the terms of the Agreement and Plan of Reorganization or Asset Contribution Agreement dated as of _________________, by and among Pentegra, and the Stockholder and certain other individuals or entities, if any (the "Plan"). In order to induce the Stockholder to enter into the Plan, Pentegra has agreed to provide the registration rights on the terms set forth in this Agreement for the benefit of the Stockholder. The parties hereto agree as follows: 1. DEFINITIONS. All capitalized terms not otherwise defined herein shall have the same meaning attributed to them as in the Plan. 2. PIGGYBACK REGISTRATION RIGHTS. At any time within two years following the date hereof, whenever Pentegra proposes to register any Pentegra Common Stock for its own or others' account under the Securities Act for a public offering for cash, other than a registration relating to (i) employee benefit plans, or (ii) issuance of shares in connection with an acquisition transaction under a Registration Statement on Form S-4 (or a successor to Form S-4 adopted by the Securities and Exchange Commission ("SEC"), Pentegra will give Stockholder prompt written notice of its intent to do so (a "Registration Notice") at least thirty (30) days prior to the filing of the related registration statement with the SEC. Such notice shall specify the approximate date on which Pentegra proposes to file such registration statement and shall contain a statement that the Stockholder is entitled to participate in such offering and shall set forth the number of shares of Registrable Common (as hereinafter defined) that represents the best estimate of the lead managing underwriter (or if not known or applicable, Pentegra) that will be available for sale by the holders of Registrable Common in the proposed offering. If Pentegra shall have delivered a Registration Notice, Stockholder shall be entitled to participate on the same terms and conditions as Pentegra in the public offering to which such Registration Notice relates and to offer and sell shares of Registrable Common therein only to the extent provided in this SECTION 2. Stockholder desiring to participate in such offering shall notify Pentegra no later than twenty (20) days following receipt of the Registration Notice of the aggregate number of shares of Registrable Common that Stockholder then desires to sell in the offering. Stockholder desiring to participate in such public offering may include shares of Registrable Common in the registration statement relating to the offering to the extent that the inclusion of such shares shall not reduce the number of shares of Pentegra Common Stock to be offered and sold by Pentegra to be included therein. If the lead managing underwriter selected by Pentegra for a public offering (or, if the offering is not underwritten, a financial advisor to Pentegra) determines that marketing factors require a limitation on the number of shares of Registrable Common to be offered and sold in such offering, there shall be included in the offering only that 1 number of shares of Registrable Common, if any, that such lead managing underwriter or financial advisor, as the case may be, reasonably and in good faith believes will not jeopardize the success of the offering, provided that if the lead managing underwriter or financial advisor, as the case may be, determines that marketing factors require a limitation on the number of shares of Registrable Common to be offered and sold as aforesaid and so notifies Pentegra in writing, the number of shares of Registrable Common to be offered and sold by holders desiring to participate in the offering shall be allocated among such holders on a pro rata basis based on their holdings of Registrable Common. As used herein, "Registrable Common" means shares of Pentegra Common Stock that were (i) issued to the Stockholder and certain other stockholders pursuant to the Plan or the Other Agreements or (ii) were owned by certain stockholders of Pentegra at the Closing Date or (iii) were issued to other stockholders of Pentegra pursuant to acquisitions conducted after the date hereof, and that, as of the time of determination, have presently exercisable registration rights pursuant to the terms of this Agreement or a similar agreement (the "Other Registration Rights Agreements") and shall include any additional shares of Pentegra Common Stock issued or distributed in respect of any such shares by way of stock dividend or distribution or stock split or in connection with a combination of shares, recapitalization, reorganization, merger, consolidation or otherwise. For purposes of this Agreement and the Other Registration Rights Agreements, shares of Registrable Common will cease to be Registrable Common when and to the extent that (i) a registration statement covering such shares has been declared effective under the Securities Act and such shares have been disposed of pursuant to such effective registration statement, (ii) such shares are distributed to the public pursuant to Rule 144 (or any similar provision then in force) under the Securities Act, or (iii) such shares have been otherwise transferred to a party that is not an affiliate of the transferring stockholder and new certificates for such shares of Registrable Common not bearing a legend restricting further transfer shall have been delivered by Pentegra. 3. REGISTRATION PROCEDURES. In connection with registrations under SECTION 2 hereof, Pentegra shall (a) use its best efforts to prepare and file with the SEC as soon as reasonably practicable, a registration statement with respect to the Registrable Common and use its best efforts to cause such registration to promptly become and remain effective for a period of at least 120 days (or such shorter period during which holders shall have sold all Registrable Common which they requested to be registered) and (ii) in the case of any registration of a Stockholder's Registrable Common on Form S-3 which is intended to be offered on a continuous or delayed basis, such 120-day period shall be extended, if necessary, to keep the registration statement effective until all such shares of Registrable Common are sold; (b) prepare and file with the SEC such amendments (including post-effective amendments) to such registration statement and supplements to the related prospectus to appropriately reflect the plan of distribution of the securities registered thereunder until the completion of the distribution contemplated by such registration statement or for so long thereafter as a dealer is required by law to deliver a prospectus in connection with the offer and sale of the shares of Registrable Common covered by such registration statement and/or as shall be necessary so that neither such registration statement nor the related prospectus shall contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and so that such registration statement and the related prospectus will otherwise comply with applicable legal requirements; (c) provide to any Stockholder 2 requesting to include shares of Registrable Common in such registration statement and a single counsel for all holders of Registrable Common requesting to include shares of Registrable Common in such registration statement, which counsel shall be selected by the holders of a majority of shares of Registrable Common requested to be included in such registration statement and shall be reasonably satisfactory to Pentegra, an opportunity to review and provide comments with respect to such registration statement (and any post-effective amendment thereto) prior to such registration statement (or post-effective amendment) becoming effective; (d) use its best efforts to register and qualify the Registrable Common covered by such registration statement under applicable securities or "Blue Sky" laws of such jurisdictions as the holders shall reasonably request for the distribution of the Registrable Common; (e) take such other actions as are reasonable and necessary to comply with the requirements of the Securities Act and the rules and regulations thereunder; (f) furnish such number of prospectuses (including preliminary prospectuses) and documents incident thereto as a Stockholder from time to time may reasonably request; (g) provide to any Stockholder requesting to include Registrable Common in such registration statement and any managing underwriter participating in any distribution thereof, and to any attorney, accountant or other agent retained by Stockholder or managing underwriter, reasonable access to appropriate officers and directors of Pentegra to ask questions and to obtain information reasonably requested by any Stockholder, managing underwriter, attorney, accountant or other agent in connection with such registration statement or any amendment thereto, provided, however, that (i) in connection with any such access or request, any such requesting persons shall cooperate to the extent reasonably practicable to minimize any disruption to the operation by Pentegra of its business and (ii) any records, information or documents shall be kept confidential by such requesting persons, unless (1) such records, information or documents are in the public domain or otherwise publicly available or (2) disclosure of such records, information or documents is required by court or administrative order or by applicable law (including, without limitation, the Securities Act); (h) list or include such Registrable Common on any securities exchange on which any stock of Pentegra is then listed or included, if the listing or inclusion of such Registrable Common is then permitted under the rules of such exchange; (i) use its best efforts to keep the Stockholder informed of Pentegra's best estimate of the earliest date on which such registration statement or any post-effective amendment thereto will become effective and will notify Stockholder and the managing underwriters participating in the distribution pursuant to such registration statement promptly (i) when Pentegra is informed that such registration statement or any post-effective amendment to such registration statement becomes effective, (ii) of any request by the SEC for an amendment or any supplement to such registration statement or any related prospectus, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of such registration statement or of any order preventing or suspending the use of any related prospectus or the initiation or threat of any proceeding for that purpose, (iv) of the suspension of the qualification of any shares of Registrable Common included in such registration statement for sale in any jurisdiction or the initiation or threat of a proceeding for that purpose, (v) of any determination by Pentegra that an event has occurred which makes untrue any statement of a material fact made in such registration statement or any related prospectus or which requires the making of a change in such registration statement or any related prospectus in order that the same will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (vi) of the completion of the distribution contemplated by such registration statement if it relates to an offering by Pentegra; (j) in the event of the issuance of any stop order suspending the effectiveness of such registration 3 statement or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any shares of Registrable Common included in such registration statement for sale in any jurisdiction, use its best efforts promptly to obtain its withdrawal; and (k) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, but not later than fifteen months after the effective date of such registration statement, an earnings statement covering the period of at least twelve months beginning with the first full fiscal quarter after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act. 4. UNDERWRITING AGREEMENT. In connection with each registration pursuant to SECTION 2 covering an underwritten registered public offering, Pentegra and each participating holder agree to enter into a written agreement with the managing underwriter in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of Pentegra's size and investment stature, including provisions for indemnification by Pentegra. 5. AVAILABILITY OF RULE 144. Notwithstanding anything contained herein to the contrary (including SECTION 2 hereof), Pentegra shall not be obligated to register shares of Registrable Common held by any Stockholder at any time (a) following the second anniversary of the date hereof or (b) for any Stockholder then owning less than 1% of Pentegra's then outstanding Common Stock when the resale provisions of Rule 144(k) promulgated under the Securities Act are available to Stockholder or Stockholder is otherwise entitled to sell the shares of Registrable Common held by him or her without registration under the Securities Act and without limitation as to volume or manner of sale or both. 6. RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the SEC which may permit the sale of the shares of Registrable Common held by the Stockholder to the public without registration, Pentegra agrees to: (a) make and keep public information available as those terms are understood and defined in Rule 144 promulgated under the Securities Act, at all times from and after ninety (90) days following the effective date of the Registration Statement; (b) use its best efforts to file with the SEC in a timely manner all reports and other documents required of Pentegra under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; and (c) so long as a Stockholder owns any shares of Registrable Common, furnish to the Stockholder forthwith upon request a written statement by Pentegra as to its compliance with the reporting requirements of Rule 144, the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of Pentegra, and such other reports and documents so filed as a Stockholder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Stockholder to sell any such securities without registration. 4 7. MARKET STANDOFF. In consideration of the granting to Stockholder of the registration rights pursuant to this Agreement, Stockholder agrees that, for so long as Stockholder holds shares of Registrable Common, except as permitted by SECTION 2 hereof, Stockholder will not sell, transfer or otherwise dispose of, including, without limitation, through put or short sale arrangements, shares of Pentegra Common Stock in the ten days prior to the effectiveness of any registration (other than pursuant to Registration Statement on Form S-8 or Form S-4 or any successor forms) of Pentegra Common Stock for sale to the public and for up to 90 days following the effectiveness of such registration, provided that (i) the underwriters for such offering reasonably request and provide written notice to Stockholder that the Stockholder be bound by such restrictions and (ii) all directors, executive officers and holders of more than five percent of the outstanding Pentegra Common Stock agree to the same restrictions. 8. REGISTRATION ON FORM S-3. Pentegra shall use its best efforts to qualify for registration on Form S-3 or any comparable or successor form or forms. 9. REGISTRATION EXPENSES. All expenses incurred in connection with any registration, qualification and compliance under this Agreement (including, without limitation, all registration, filing, qualification, legal, printing and accounting fees) shall be borne by Pentegra. All underwriting commissions and discounts applicable to shares of Registrable Common included in the registrations under this Agreement shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered. Subject to the foregoing, all expenses incident to Pentegra's performance of or compliance with this Agreement, including, without limitation, all filing fees, fees and expenses of compliance with securities or blue sky laws (including, without limitation, fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Common), printing expenses, messenger and delivery expenses, internal expenses (including, without limitation, all salaries and expenses of Pentegra's officers and employees performing legal or accounting duties), the fees and expenses applicable to shares of Registrable Common included in connection with the listing of the securities to be registered on each securities exchange on which similar securities issued by Pentegra are then listed, registrar and transfer agents' fees and fees and disbursements of counsel for Pentegra and its independent certified public accountants (including, without limitation, the expenses of any "cold comfort" letters required by or incident to such performance and the fees and expenses of any special audit required or incident to a registration hereunder), securities act liability insurance of Pentegra and its officers and directors (if Pentegra elects to obtain such insurance), the fees and expenses of any special experts retained by Pentegra in connection with such registration and fees and expenses of other persons retained by Pentegra incurred in connection with each registration hereunder (but not including, without limitation, any underwriting fees, discounts or commissions attributable to the sale of Registrable Common, fees and expenses of counsel and any other special experts retained by the holders of Registrable Common in connection with a registration required hereunder, and transfer taxes, if any), will be borne by Pentegra. 10. INDEMNIFICATION; CONTRIBUTION. (a) INDEMNIFICATION BY PENTEGRA. Pentegra agrees to indemnify and hold harmless Stockholder, its officers, directors, agents, employees, representatives and each person or entity who 5 controls Stockholder (within the meaning of the Securities Act) with respect to which registration, qualification or compliance has been effected pursuant to SECTION 2, against all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement (or alleged untrue statement) of material fact contained in any registration statement, any amendment or supplement thereto, any prospectus or preliminary prospectus or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by Pentegra of the Securities Act or any rule or regulation thereunder applicable to Pentegra and relating to action or inaction required of Pentegra in connection with such registration, qualification or compliance, except insofar as the same arise out of or are based upon any such untrue statement (or alleged untrue statement) or omission (or alleged omission) based upon information with respect to Stockholder furnished in writing to Pentegra by Stockholder expressly for use therein. In connection with an underwritten offering, Pentegra will indemnify the underwriters thereof, their officers and directors and each person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of Registrable Common. (b) INDEMNIFICATION BY HOLDERS OF REGISTRABLE COMMON. In connection with any registration statement in which a holder of Registrable Common is participating, each such holder will furnish to Pentegra in writing such information with respect to the name and address of such holder, the amount of Pentegra Common Stock held by such holder and the nature of such holdings, and such other information as is required by Pentegra for use in connection with any such registration statement or prospectus. Each such participating Stockholder severally agrees to indemnify and hold harmless Pentegra, its directors, officers, agents, employees, representatives and each person or entity who controls Pentegra (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement of material fact contained in any registration statement, any amendment or supplement thereto, any prospectus or preliminary prospectus or any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information with respect to such holder so furnished in writing by such holder specifically for inclusion in or for use in the preparation of any prospectus or registration statement. In no event shall the liability of any selling holder of Registrable Common hereunder be greater in amount than the dollar amount of the proceeds received by such holder upon the sale of the Registrable Common giving rise to such indemnification obligation. (c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person entitled to indemnification hereunder agrees to give prompt written notice to the indemnifying party after the receipt by such person of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which such person will claim indemnification or contribution pursuant to this Agreement; provided, however, that the failure to notify the indemnifying party shall not relieve it from its indemnification obligations to the indemnified party under this Agreement unless the resulting delay is materially prejudicial to the defense of such claim; provided, further, that the failure to deliver any such notice shall not relieve an indemnifying party of any liability or obligation that it may have to an indemnified party otherwise than pursuant to this SECTION 10. 6 Unless in the reasonable judgment of such indemnified party (i) a conflict of interest may exist between such indemnified party and the indemnifying party with respect to such claim or (ii) the named parties to any such action, suit, proceeding or investigation (including any impleaded parties) include both an indemnifying party and an indemnified party, and such indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party, the indemnified party shall permit the indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to such indemnified party. Whether or not such defense is assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to the indemnified party of a release from all liability in respect of such claim or litigation. If the indemnifying party is not entitled to, or elects not to, assume the defense of a claim, it will not be obligated to pay the fees and expenses of more than one counsel with respect to such claim; provided, however, that an indemnified party shall have the right to retain its own counsel, with the reasonable fees and expenses of such counsel to be paid by the indemnifying party, if the indemnified party, based on the advice of counsel, reasonably believes that representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. (d) CONTRIBUTION. If the indemnification provided for in this SECTION 10 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any untrue statement (or alleged untrue statement) of a material fact or omission (or alleged omission) to state a material fact has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in SECTION 10(c), any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this SECTION 10(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this SECTION 10(d), no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Common underwritten by it and distributed to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue 7 statement or omission or alleged omission, and no selling holder shall be required to contribute any amount in excess of the amount by which the total price at which shares of the Registrable Common of such selling holder were offered to the public exceeds the amount of any damages which such selling holder has otherwise been required to pay by reason of such untrue statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. If indemnification is available under this SECTION 10, the indemnifying parties shall indemnify each indemnified party to the full extent provided in SECTION 10(a) AND (b) without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this SECTION 10(d). The provisions of this SECTION 10 shall survive the termination of any or all of the other provisions of this Agreement. 11. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No holder of Registrable Common may participate in any underwritten registration hereunder unless such holder (a) agrees to sell such holder's securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 12. TRANSFER OF REGISTRATION RIGHTS; ADDITIONAL GRANTS OF REGISTRATION RIGHTS. The registration rights provided to the holders of Registrable Common under SECTION 2 hereof may not be transferred to any other person or entity except pursuant to the laws of descent and distribution and to immediate family members of Stockholder; provided that such transferees shall be bound by and subject to the terms and conditions contained herein. The Company may, without the prior consent of the Stockholder, extend the registration rights provided in this Agreement to additional persons or entities who become holders of Common Stock subsequent to the date of this Agreement by entering into similar agreements with such stockholders. Nothing herein shall limit the ability of Pentegra to grant to any person or entity any registration or similar rights in the future with respect to Common Stock or other securities of Pentegra (whether pursuant to the foregoing or otherwise). 13. MISCELLANEOUS. (a) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless Pentegra has obtained the written consent of holders of at least 66 2/3% of the shares of Registrable Common then outstanding and affected by such amendment, modification, supplement, waiver or departure. (b) NOTICES. All notices and other communications provided for or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or sent by telex or telecopies, registered or certified mail (return receipt requested), postage prepaid, or courier to the parties at the following addresses (or at such other address for any party as shall be specified by like notice, provided that notices of a change of address shall be effective only upon receipt 8 thereof). Notices sent by mail shall be effective when answered back, notices sent by telecopier shall be effective when receipt is acknowledged, and notices sent by courier guaranteeing next day delivery shall be effective on the next business day after timely delivery to the courier. Notices shall be sent to the following addresses: (i) to a Stockholder, at the most current address given by such holder to Pentegra in writing; (ii) if to Pentegra, at its address set forth in the Plan. (c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. (d) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (e) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN THAT STATE. (g) SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the Stockholder shall be enforceable to the fullest extent permitted by law. (h) ENTIRE AGREEMENT. This Agreement, together with the Plan and the Other Agreements, is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. (i) REMEDIES. In addition to being entitled to exercise all rights granted by law, including recovery of damages, Stockholder will be entitled to specific performance of its rights under this Agreement. 9 EXECUTED as of the date first above written. PENTEGRA: PENTEGRA DENTAL GROUP, INC. By: ------------------------------------------- Kim Rozman, Senior Vice President STOCKHOLDER: ----------------------------------------------- [] 10 EX-4.3 11 EXHIBIT 4.3 EXHIBIT 4.3 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made and entered into as of September 30, 1997, by and among Pentegra Dental Group, Inc., a Delaware corporation ("Pentegra"), and each person listed on the signature pages hereof under the caption "Stockholder" (each a "Stockholder"). WHEREAS, each Stockholder has received or will receive on the closing date (the "Closing Date") of Pentegra's initial public offering (the "IPO") shares of common stock, par value $.001 per share, of Pentegra ("Pentegra Common Stock") pursuant to an agreement with Pentegra; NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements set forth herein, and intending to be legally bound hereby, the parties to this Agreement agree as follows: 1. PIGGYBACK REGISTRATION RIGHTS. At any time within two years following Closing Date, whenever Pentegra proposes to register any Pentegra Common Stock for its own or others' account under the Securities Act for a public offering for cash, other than a registration relating to (i) employee benefit plans, or (ii) issuance of shares in connection with one or more acquisition transactions under a Registration Statement on Form S-4 (or a successor to Form S-4 adopted by the SEC), Pentegra will give each Stockholder prompt written notice of its intent to do so (a "Registration Notice") at least thirty (30) days prior to the filing of the related registration statement with the SEC. Such notice shall specify the approximate date on which Pentegra proposes to file such registration statement and shall contain a statement that each Stockholder is entitled to participate in such offering and shall set forth the number of shares of Registrable Common (as hereinafter defined) that represents the best estimate of the lead managing underwriter (or if not known or applicable, Pentegra) that will be available for sale by the holders of Registrable Common in the proposed offering. If Pentegra shall have delivered a Registration Notice, each Stockholder shall be entitled to participate on the same terms and conditions as Pentegra in the public offering to which such Registration Notice relates and to offer and sell shares of Registrable Common therein only to the extent provided in this SECTION 1. Each Stockholder desiring to participate in such offering shall notify Pentegra no later than twenty (20) days following receipt of the Registration Notice of the aggregate number of shares of Registrable Common that such Stockholder then desires to sell in the offering. Each Stockholder desiring to participate in such public offering may include shares of Registrable Common in the registration statement relating to the offering to the extent that the inclusion of such shares shall not reduce the number of shares of Pentegra Common Stock to be offered and sold by Pentegra to be included therein. If the lead managing underwriter selected by Pentegra for a public offering (or, if the offering is not underwritten, a financial advisor to Pentegra) determines that marketing factors require a limitation on the number of shares of Registrable Common to be offered and sold in such offering, there shall be included in the offering only that number of shares of Registrable Common, if any, that such lead managing underwriter or financial advisor, as the case may be, reasonably and in good faith believes will not jeopardize the success of the offering, provided that if the lead managing underwriter or financial advisor, as the case may be, determines that marketing factors require a limitation on the number of shares of Registrable Common to be offered and sold as aforesaid and so notifies Pentegra in writing, the number of shares of Registrable Common to be offered and sold by Stockholders desiring to participate in the offering shall be allocated among such Stockholders on a pro rata basis, based on their holdings of Registrable Common. As used herein, "Registrable Common" means shares of Pentegra Common Stock that are (i) issuable to each Stockholder pursuant to that certain Exchange Agreement between such Stockholder and Pentegra dated August ___, 1997, or (ii) issued to other stockholders of Pentegra pursuant to acquisitions conducted prior to or after the date hereof, and that, as of the time of determination, have presently exercisable registration rights pursuant to the terms of this Agreement or a similar agreement (the "Other Registration Rights Agreements") and shall include any additional shares of Pentegra Common Stock issued or distributed in respect of any such shares by way of stock dividend or distribution or stock split or in connection with a combination of shares, recapitalization, reorganization, merger, consolidation or otherwise. For purposes of this Agreement and the Other Registration Rights Agreements, shares of Registrable Common will cease to be Registrable Common when and to the extent that (i) a registration statement covering such shares has been declared effective under the Securities Act and such shares have been disposed of pursuant to such effective registration statement, (ii) such shares are distributed to the public pursuant to Rule 144 (or any similar provision then in force) under the Securities Act, or (iii) such shares have been otherwise transferred to a party that is not an affiliate of the transferring stockholder and new certificates for such shares of Registrable Common not bearing a legend restricting further transfer shall have been delivered by Pentegra. 2. REGISTRATION PROCEDURES. In connection with registrations under SECTION 1 hereof, Pentegra shall (a) prepare and file with the SEC such amendments (including post-effective amendments) to such registration statement and supplements to the related prospectus to appropriately reflect the plan of distribution of the securities registered thereunder until the completion of the distribution contemplated by such registration statement or for so long thereafter as a dealer is required by law to deliver a prospectus in connection with the offer and sale of the shares of Registrable Common covered by such registration statement and/or as shall be necessary so that neither such registration statement nor the related prospectus shall contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and so that such registration statement and the related prospectus will otherwise comply with applicable legal requirements; (b) provide to any Stockholder requesting to include shares of Registrable Common in such registration statement and a single counsel for all holders of Registrable Common requesting to include shares of Registrable Common in such registration statement, which counsel shall be selected by the holders of a majority of shares of Registrable Common requested to be included in such registration statement and shall be reasonably satisfactory to Pentegra, an opportunity to review and provide comments with respect to such registration statement (and any post-effective amendment thereto) prior to such registration statement (or post-effective amendment) becoming effective; (c) use its best efforts to register and qualify the Registrable Common covered by such registration statement under applicable securities or "Blue Sky" laws of such jurisdictions as the holders shall reasonably request for the distribution of the Registrable Common; (d) take such other actions as are reasonable and necessary to comply with the requirements of the Securities Act and the rules and regulations thereunder; (f) furnish such number of prospectuses (including preliminary prospectuses) and documents incident thereto as a Stockholder from time to time may reasonably request; (e) provide to any Stockholder requesting to include Registrable Common in such registration statement and any managing underwriter participating in any distribution thereof, and to any attorney, accountant or other agent retained by Stockholder or managing underwriter, reasonable access to appropriate officers and directors of Pentegra to ask questions and to obtain information reasonably requested by any Stockholder, managing underwriter, attorney, accountant or other agent in connection with such registration statement or any amendment thereto, provided, however, that (i) in connection with any such access or request, any such requesting persons shall cooperate to the extent reasonably practicable to minimize any disruption to the operation by Pentegra of its business and (ii) any records, information or documents shall be kept confidential by such requesting persons, unless (1) such records, information or documents are in the public domain or otherwise publicly available or (2) disclosure of such records, information or documents is required by court or administrative order or by applicable law (including, without limitation, the Securities Act); (h) list or include such Registrable Common on any securities exchange or quotation system on which any stock of Pentegra is then listed or included, if the listing or inclusion of such Registrable Common is then permitted under the rules of such exchange or quotation system; (i) use its best efforts to keep the Stockholder informed of Pentegra's best estimate of the earliest date on which such registration statement or any post-effective amendment thereto will become effective and will notify Stockholder and the managing underwriters participating in the distribution pursuant to such registration statement promptly (i) when Pentegra is informed that such registration statement or any post-effective amendment to such registration statement becomes effective, (ii) of any request by the SEC for an amendment or any supplement to such registration statement or any related prospectus, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of such registration statement or of any order preventing or suspending the use of any related prospectus or the initiation or threat of any proceeding for that purpose, (iv) of the suspension of the qualification of any shares of Registrable Common included in such registration statement for sale in any jurisdiction or the initiation or threat of a proceeding for that purpose, (v) of any determination by Pentegra that an event has occurred which makes untrue any statement of a material fact made in such registration statement or any related prospectus or which requires the making of a change in such registration statement or any related prospectus in order that the same will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (vi) of the completion of the distribution contemplated by such registration statement if it relates to an offering by Pentegra; (j) in the event of the issuance of any stop order suspending the effectiveness of such registration statement or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any shares of Registrable Common included in such registration statement for sale in any jurisdiction, use its best efforts promptly to obtain its withdrawal; and (k) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, but not later than fifteen months after the effective date of such registration statement, an earnings statement covering the period of at least twelve months beginning with the first full fiscal quarter after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act. 3. UNDERWRITING AGREEMENT. In connection with each registration pursuant to SECTION 1 covering an underwritten registered public offering, Pentegra and each participating stockholder agree to enter into a written agreement with the managing underwriter in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of Pentegra's size and investment stature. 4. AVAILABILITY OF RULE 144. Notwithstanding anything contained herein to the contrary (including SECTION 1 hereof), Pentegra shall not be obligated to register shares of Registrable Common held by any Stockholder at any time (a) following the second anniversary of the Closing Date or (b) for any Stockholder then owning less than 1% of the then outstanding shares of Pentegra Common Stock when the resale provisions of Rule 144(k) promulgated under the Securities Act are available to that Stockholder or that Stockholder is otherwise entitled to sell the shares of Registrable Common held by him or her without registration under the Securities Act and without limitation as to volume or manner of sale or both. 5. RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the SEC which may permit the sale of the shares of Registrable Common held by the Stockholder to the public without registration, Pentegra agrees to: (a) make and keep public information available as those terms are understood and defined in Rule 144 promulgated under the Securities Act, at all times from and after ninety (90) days following the effective date of the Registration Statement; (b) use its best efforts to file with the SEC in a timely manner all reports and other documents required of Pentegra under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; and (c) so long as a Stockholder owns any shares of Registrable Common, furnish to that Stockholder forthwith upon request a written statement by Pentegra as to its compliance with the reporting requirements of Rule 144, the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of Pentegra, and such other reports and documents so filed as a Stockholder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Stockholder to sell any such securities without registration. 6. MARKET STANDOFF. In consideration of the granting to the Stockholder of the registration rights pursuant to this Agreement, each Stockholder agrees that, for so long as such Stockholder holds shares of Registrable Common, except as permitted by SECTION 1 hereof, such Stockholder will not sell, transfer or otherwise dispose of, including, without limitation, through put or short sale arrangements, shares of Pentegra Common Stock in the ten days prior to the effectiveness of any registration (other than pursuant to Registration Statement on Form S-8 or Form S-4 or any successor forms) of Pentegra Common Stock for sale to the public and for up to 90 days following the effectiveness of such registration, provided that (i) the underwriters for such offering reasonably request that the Stockholder be bound by such restrictions and (ii) all directors, executive officers and holders of more than five percent of the outstanding Pentegra Common Stock agree to the same restrictions. 7. REGISTRATION EXPENSES. Except as provided in this Section, all expenses incurred in connection with any registration, qualification and compliance under this Agreement (including, without limitation, all registration, filing, qualification, legal, printing and accounting fees) shall be borne by Pentegra. All underwriting commissions and discounts applicable to shares of Registrable Common included in the registrations under this Agreement shall be borne by the holders of the securities so registered, pro rata on the basis of the number of shares so registered. Subject to the foregoing, all expenses incident to Pentegra's performance of or compliance with this Agreement, including, without limitation, all filing fees, fees and expenses of compliance with securities or blue sky laws (including, without limitation, fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Common), printing expenses, messenger and delivery expenses, internal expenses (including, without limitation, all salaries and expenses of Pentegra's officers and employees performing legal or accounting duties), registrar and transfer agents' fees and fees and disbursements of counsel for Pentegra and its independent certified public accountants (including, without limitation, the expenses of any "cold comfort" letters required by or incident to such performance and the fees and expenses of any special audit required or incident to a registration hereunder), securities act liability insurance of Pentegra and its officers and directors (if Pentegra elects to obtain such insurance), the fees and expenses of any special experts retained by Pentegra in connection with such registration and fees and expenses of other persons retained by Pentegra incurred in connection with each registration hereunder (but not including, without limitation, any underwriting fees, discounts or commissions attributable to the sale of Registrable Common, fees and expenses of counsel retained by the holders of Registrable Common in connection with a registration required hereunder, and transfer taxes, if any), will be borne by Pentegra. 8. INDEMNIFICATION; CONTRIBUTION. (a) INDEMNIFICATION BY PENTEGRA. Pentegra agrees to indemnify and hold harmless Stockholder, its officers, directors, agents, employees, representatives and each person or entity who controls Stockholder (within the meaning of the Securities Act) with respect to which registration, qualification or compliance has been effected pursuant to SECTION 1, against all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement (or alleged untrue statement) of material fact contained in any registration statement, any amendment or supplement thereto, any prospectus or preliminary prospectus or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by Pentegra of the Securities Act or any rule or regulation thereunder applicable to Pentegra and relating to action or inaction required of Pentegra in connection with such registration, qualification or compliance, except insofar as the same arise out of or are based upon any such untrue statement (or alleged untrue statement) or omission (or alleged omission) based upon information with respect to Stockholder furnished in writing to Pentegra by Stockholder expressly for use therein. In connection with an underwritten offering, Pentegra will indemnify the underwriters thereof, their officers and directors and each person who controls such underwriters (within the meaning of the Securities Act) on either (i) substantially the same basis on which it will indemnify each selling holder of Registrable Common pursuant to the foregoing provisions or (ii) such other basis as is customarily obtained by underwriters from issuers at the time of that offering. (b) INDEMNIFICATION BY HOLDERS OF REGISTRABLE COMMON. In connection with any registration statement in which a holder of Registrable Common is participating, each such holder will furnish to Pentegra in writing such information with respect to the name and address of such holder, the amount of Pentegra Common Stock held by such holder and the nature of such holdings, and such other information as is required by Pentegra for use in connection with any such registration statement or prospectus. Each such participating Stockholder severally agrees to indemnify and hold harmless Pentegra, its directors, officers, agents, employees, representatives and each person or entity who controls Pentegra (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement of material fact contained in any registration statement, any amendment or supplement thereto, any prospectus or preliminary prospectus or any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information with respect to such holder so furnished in writing by such holder specifically for inclusion in or for use in the preparation of any prospectus or registration statement. Each participating Stockholder also will, to the extent permitted by applicable law, indemnify and hold harmless the underwriters of the shares of Registrable Common on substantially the same basis on which Pentegra will indemnify and hold harmless those persons pursuant to SECTION 8(a). (c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person entitled to indemnification hereunder agrees to give prompt written notice to the indemnifying party after the receipt by such person of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which such person will claim indemnification or contribution pursuant to this Agreement; provided, however, that the failure to notify the indemnifying party shall not relieve it from its indemnification obligations to the indemnified party under this Agreement unless the resulting delay is materially prejudicial to the defense of such claim; provided, further, that the failure to deliver any such notice shall not relieve an indemnifying party of any liability or obligation that it may have to an indemnified party otherwise than pursuant to this SECTION 8. Unless in the reasonable judgment of such indemnified party (i) a conflict of interest may exist between such indemnified party and the indemnifying party with respect to such claim or (ii) the named parties to any such action, suit, proceeding or investigation (including any impleaded parties) include both an indemnifying party and an indemnified party, and such indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party, the indemnified party shall permit the indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to such indemnified party. Whether or not such defense is assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to the indemnified party of a release from all liability in respect of such claim or litigation. If the indemnifying party is not entitled to, or elects not to, assume the defense of a claim, it will not be obligated to pay the fees and expenses of more than one counsel with respect to such claim; provided, however, that an indemnified party shall have the right to retain its own counsel, with the reasonable fees and expenses of such counsel to be paid by the indemnifying party, if the indemnified party, based on the advice of counsel, reasonably believes that representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. (d) CONTRIBUTION. If the indemnification provided for in this SECTION 8 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any untrue statement (or alleged untrue statement) of a material fact or omission (or alleged omission) to state a material fact has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in SECTION 8(c), any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this SECTION 8(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this SECTION 8(d), no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Common underwritten by it and distributed to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no selling holder shall be required to contribute any amount in excess of the amount by which the total price at which shares of the Registrable Common of such selling holder were offered to the public exceeds the amount of any damages which such selling holder has otherwise been required to pay by reason of such untrue statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. If indemnification is available under this SECTION 8, the indemnifying parties shall indemnify each indemnified party to the full extent provided in SECTION 8(a) AND (b) without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this SECTION 8(d). The provisions of this SECTION 8 shall survive the termination of any or all of the other provisions of this Agreement. 9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No holder of Registrable Common may participate in any underwritten registration hereunder unless such holder (a) agrees to sell such holder's securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 10. TRANSFER OF REGISTRATION RIGHTS; ADDITIONAL GRANTS OF REGISTRATION RIGHTS. The registration rights provided to the holders of Registrable Common under SECTION 1 hereof may not be transferred to any other person or entity except pursuant to the laws of descent and distribution and to immediate family members of a Stockholder; provided that such transferees shall be bound by and subject to the terms and conditions contained herein. Pentegra may, without the prior written consent of any Stockholder, extend the registration rights provided in this Agreement to additional persons or entities who become holders of Pentegra Common Stock subsequent to the date of this Agreement by entering into similar agreement (or an addendum to this Agreement) with such stockholders. Nothing herein shall limit the ability of Pentegra to grant to any person or entity any registration or similar rights in the future with respect to Pentegra Common Stock or other securities of Pentegra (whether pursuant to the foregoing or otherwise). 11. MISCELLANEOUS. (a) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless Pentegra has obtained the written consent of holders of at least 50.1% of the shares of Registrable Common then outstanding and affected by such amendment, modification, supplement, waiver or departure. (b) NOTICES. All notices and other communications provided for or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or sent by telex or telecopies, registered or certified mail (return receipt requested), postage prepaid, or courier to the parties at the following addresses (or at such other address for any party as shall be specified by like notice, provided that notices of a change of address shall be effective only upon receipt thereof). Notices sent by mail shall be effective when answered back, notices sent by telecopier shall be effective when receipt is acknowledged, and notices sent by courier guaranteeing next day delivery shall be effective on the next business day after timely delivery to the courier. Notices shall be sent to the following addresses: (i) to a Stockholder, at the most current address given by such holder to Pentegra in writing; (ii) if to Pentegra, at its address set forth on the signature page hereof. (c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. (d) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (e) HEADINGS AND REFERENCES. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. References herein to "Sections" are to Sections of this Agreement unless otherwise indicated. (f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN THAT STATE. (g) SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the Stockholder shall be enforceable to the fullest extent permitted by law. (h) ENTIRE AGREEMENT. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. EXECUTED as of the date first above written. PENTEGRA: PENTEGRA DENTAL GROUP, INC. By: /s/ Gary S. Glatter --------------------------------------------- Its: President -------------------------------------------- 2999 N. 44th Street, Suite 650 Phoenix, Arizona 85018 (602) 952-7363 (602) 952-0544 fax STOCKHOLDERS: EX-10.1 12 EXHIBIT 10.1 EXHIBIT 10.1 PENTEGRA DENTAL GROUP, INC. 1997 STOCK COMPENSATION PLAN PENTEGRA DENTAL GROUP, INC. 1997 STOCK COMPENSATION PLAN ARTICLE I THE PLAN 1.1 NAME. This Plan shall be known as the "Pentegra Dental Group, Inc. 1997 Stock Compensation Plan." Capitalized terms used herein are defined in ARTICLE VIII hereof. 1.2 PURPOSE. The purpose of the Plan is to promote the growth and general prosperity of the Company by permitting the Company to grant to Employees, Outside Directors, Advisors, Practice Employees and Practice Employee Directors Common Stock of the Company and Options to purchase Common Stock of the Company. The Plan is designed to help the Company and its Subsidiaries attract and retain superior personnel for positions of substantial responsibility and to provide Employees, Outside Directors, Advisors, Practice Employees and Practice Employee Directors with an additional incentive to contribute to the success of the Company. The Company intends that Incentive Stock Options granted pursuant to ARTICLE III shall qualify as "incentive stock options" within the meaning of Section 422 of the Code. 1.3 EFFECTIVE DATE. The Plan shall become effective upon the Effective Date. 1.4 ELIGIBILITY TO PARTICIPATE. Any Employee, Outside Director, Advisor, Practice Employee or Practice Employee Director shall be eligible to participate in the Plan. Subject to the following provisions, including without limitation SECTION 4.5, the Committee may grant Options or Restricted Stock in accordance with such determinations as the Committee from time to time in its sole discretion shall make; provided, however, that Incentive Stock Options may be granted only to persons who are Employees. No grants made under this Plan shall be effective until the effective date of the initial public offering of the Company. 1.5 SHARES SUBJECT TO THE PLAN. The shares of Common Stock to be issued pursuant to the Plan shall be either authorized and unissued shares of Common Stock or shares of Common Stock issued and thereafter acquired by the Company. 1.6 MAXIMUM NUMBER OF PLAN SHARES. Subject to adjustment pursuant to the provisions of SECTION 6.2, and subject to any additional restrictions elsewhere in the Plan, the maximum aggregate number of shares of Common Stock that may be issued and sold hereunder shall not exceed 2,000,000 shares. No more than 1,000,000 shares of Common Stock shall be available for Incentive Stock Options. Subject to adjustment pursuant to the provisions of SECTION 6.2, and subject to any additional restrictions elsewhere in the Plan, the maximum aggregate number of shares of Common Stock with respect to which Options may be granted to any Optionee during the term of the Plan shall not exceed 1,000,000 shares. 1 1.7 OPTIONS AND STOCK GRANTED UNDER PLAN. Plan Shares with respect to which an Option shall have been exercised or a Restricted Stock Award shall have vested shall not again be available for grant hereunder. If an Option terminates for any reason without being wholly exercised or Restricted Stock is forfeited, new Options or Restricted Stock may be granted hereunder covering the number of Plan Shares to which such Option termination or forfeiture relates. 1.8 CONDITIONS PRECEDENT. The Company shall not issue any certificate for Plan Shares pursuant to the Plan prior to fulfillment of all of the following conditions: (a) The admission of the Plan Shares to listing on all stock exchanges on which the Common Stock is then listed, unless the Board or Committee determines in its sole discretion that such listing is neither necessary nor advisable; (b) The completion of any registration or other qualification of the offer or sale of the Plan Shares under any federal or state law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body that the Board or Committee shall in its sole discretion deem necessary or advisable; and (c) The obtaining of any approval or other clearance from any federal or state governmental agency that the Committee shall in its sole discretion determine to be necessary or advisable. 1.9 RESERVATION OF SHARES OF COMMON STOCK. During the term of the Plan, the Company shall at all times reserve and keep available such number of shares of Common Stock as shall be necessary to satisfy the requirements of the Plan as to the number of Plan Shares. In addition, the Company shall from time to time, as is necessary to accomplish the purposes of the Plan, seek or obtain from any regulatory agency having jurisdiction any requisite authority that is necessary to issue Plan Shares hereunder. The inability of the Company to obtain from any regulatory agency having jurisdiction the authority deemed by the Company's counsel to be necessary to the lawful issuance of any Plan Shares shall relieve the Company of any liability in respect of the nonissuance of Plan Shares as to which the requisite authority shall not have been obtained. 1.10 TAX WITHHOLDING. (a) CONDITION PRECEDENT. The issuance of Plan Shares pursuant to the exercise of any Option under the Plan or the receipt or vesting of Restricted Stock is subject to the condition that if at any time the Committee shall determine, in its discretion, that the satisfaction of withholding tax or other withholding liabilities under any federal, state or local law is necessary or desirable as a condition of, or in connection with, such issuances, then the issuances shall not be effective unless the withholding shall have been effected or obtained in a manner acceptable to the Committee. 2 (b) MANNER OF SATISFYING WITHHOLDING OBLIGATION. When a Participant is required by the Committee to pay to the Company an amount required to be withheld under applicable income tax laws in connection with the exercise of an Option or the receipt or vesting of Restricted Stock, such payment may be made (i) in cash, (ii) by check, (iii) if permitted by the Committee, by delivery to the Company of shares of Common Stock already owned by the Participant having a Fair Market Value on the Tax Date equal to the amount required to be withheld, (iv) through the withholding by the Company ("Company Withholding") of a portion of the Plan Shares acquired upon the exercise of the Options (if applicable) having a Fair Market Value on the Tax Date equal to the amount required to be withheld or (v) in any other form of valid consideration, as permitted by the Committee in its discretion. (c) NOTICE OF DISPOSITION OF STOCK ACQUIRED PURSUANT TO INCENTIVE STOCK OPTIONS. The Company may require as a condition to the issuance of Plan Shares covered by any Incentive Stock Option that the party exercising such Option give a written representation to the Company, which is satisfactory in form and substance to its counsel and upon which the Company may reasonably rely, that he shall report to the Company any disposition of such shares prior to the expiration of the holding periods specified by Section 422(a)(1) of the Code. If and to the extent that the realization of income in such a disposition imposes upon the Company federal, state or local withholding tax requirements, or any such withholding is required to secure for the Company an otherwise available tax deduction, the Company shall have the right to require that the recipient remit to the Company an amount sufficient to satisfy those requirements; and the Company may require as a condition to the issuance of Plan Shares covered by an Incentive Stock Option that the party exercising such Option give a satisfactory written representation promising to make such a remittance. 1.11 EXERCISE OF OPTIONS. (a) METHOD OF EXERCISE. Each Option shall be exercisable in accordance with the terms of the Option Agreement pursuant to which the Option was granted. No Option may be exercised for a fraction of a Plan Share. (b) PAYMENT OF PURCHASE PRICE. The purchase price of any Plan Shares purchased shall be paid at the time of exercise of the Option either (i) in cash, (ii) by certified or cashier's check, (iii) if permitted by the Committee, by shares of Common Stock, (iv) if permitted by the Committee, by cash or certified or cashier's check for the par value of the Plan Shares plus a promissory note for the balance of the purchase price, which note shall provide for full personal liability of the maker and shall contain such terms and provisions as the Committee may determine, including without limitation the right to repay the note partially or wholly with Common Stock, (v) by delivery of a copy of irrevocable instructions from the Optionee to a broker or dealer, reasonably acceptable to the Company, to sell certain of the Plan Shares purchased upon exercise of the Option 3 or to pledge them as collateral for a loan and promptly deliver to the Company the amount of sale or loan proceeds necessary to pay such purchase price or (vi) in any other form of valid consideration, as permitted by the Committee in its discretion. If any portion of the purchase price or a note given at the time of exercise is paid in shares of Common Stock, those shares shall be valued at the then Fair Market Value. 1.12 ACCELERATION IN CERTAIN EVENTS. The Committee may accelerate the exercisability of any Option in whole or in part at any time. Notwithstanding the provisions of any Option Agreement, the following provisions shall apply: (a) MERGERS, CONSOLIDATION, ETC. If the Company or its stockholders enter into an agreement to dispose of all or substantially all of the assets of the Company by means of a sale, merger or other reorganization, liquidation or otherwise in a transaction in which the Company is not the surviving entity or in which the Company is the surviving entity but stockholders of the Company own less than 40% of the total combined voting power of all of the classes entitled to vote of the surviving entity immediately after the transaction, all Options shall become fully vested and immediately exercisable with respect to the full number of shares subject to such Options during the period commencing as of the date of the agreement to dispose of all or substantially all of the assets or stock of the Company and ending when the disposition of assets or stock contemplated by that agreement is consummated or the Options are otherwise terminated in accordance with their provisions or the provisions of this Plan, whichever occurs first; provided that no Option will be immediately exercisable under this Section on account of any agreement of merger, sale of assets or other reorganization when the stockholders of the Company immediately before the consummation of the transaction will own at least 40% of the total combined voting power of all the classes of the stock entitled to vote of the surviving entity immediately after the consummation of the transaction. (b) CHANGE IN CONTROL. Anything contained herein to the contrary notwithstanding, (1) an Optionee shall become fully vested and immediately exercisable in each of his or her Options upon the occurrence of a change in control (as defined below) or a threatened change in control (as determined by the Committee in its sole discretion); and (2) no Option held by an Optionee at the time a change in control or threatened change in control occurs or at any time thereafter shall terminate for any reason before the end of the Option's express term. For purposes of this Section, "change in control" means one or more of the following events: (i) Any person within the meaning of Section 13(d) and 14(d) of the Exchange Act, other than the Company (including its subsidiaries and affiliates), has become the beneficial owner, within the meaning of Rule 13d-3 under the Exchange Act, of 25% or more of the combined voting power of the Company's then outstanding Common Stock or equivalent in voting power of any class or classes of the Company's outstanding securities ordinarily entitled to vote in elections of directors ("voting securities"); or 4 (ii) Shares representing 25% or more of the combined voting power of the Company's voting securities are purchased pursuant to a tender offer or exchange offer (other than an offer by the Company or its subsidiaries or affiliates); or (iii) A change during any period of two consecutive years of a majority of the members of the Board for any reason, unless the election, or the nomination for election by the Company's shareholders, of each director was approved by a vote of a majority of the directors then still in office who were directors at the beginning of the period; provided that a change in control will not be deemed to have occurred for purposes hereof with respect to any person meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1) promulgated under the Exchange Act. (iv) The Company transfers more than 50% of its assets, or the last of a series of transfers results in the transfer of more than 50% of the assets of the Company, to another entity that is not wholly-owned by the Company. For purposes of this subsection (v), the determination of what constitutes 50% of the assets of the Company shall be made by the Committee, as constituted immediately prior to the events that would constitute a change of control if 50% of the Company's assets were transferred in connection with such events, in its sole discretion. 1.13 WRITTEN NOTICE REQUIRED. Any Option shall be deemed to be exercised for purposes of the Plan when written notice of exercise has been received by the Company at its principal office from the person entitled to exercise the Option and payment for the Plan Shares with respect to which the Option is exercised has been received by the Company in accordance with SECTION 1.11. 1.14 COMPLIANCE WITH SECURITIES LAWS. Plan Shares shall not be issued with respect to any Option or any Restricted Stock Award unless the issuance and delivery of the Plan Shares (and the exercise of an Option, if applicable) shall comply with all relevant provisions of state and federal law (including without limitation (i) the Securities Act and the rules and regulations promulgated thereunder, and (ii) the requirements of any stock exchange upon which the Plan Shares may then be listed) and shall be further subject to the approval of counsel for the Company with respect to such compliance. The Committee may also require a Participant to furnish evidence satisfactory to the Company, including without limitation a written and signed representation letter and consent to be bound by any transfer restrictions imposed by law, legend, condition, or otherwise, that the Plan Shares are being acquired only for investment and without any present intention to sell or distribute the shares in violation of any state or federal law, rule, or regulation. Further, each Participant shall consent to the imposition of a legend on the certificate representing the Plan Shares issued pursuant to the exercise of an Option or a Restricted Stock Award restricting their transfer as required by law or this Section. 1.15 EMPLOYMENT OR SERVICE OF OPTIONEE. Nothing in the Plan or in any Award granted hereunder shall confer upon any Employee or Practice Employee any right to continued 5 employment by the Company or any of its Subsidiaries or by any Practice, as applicable or limit in any way the right of the Company or any Subsidiary or any Practice at any time to terminate or alter the terms of that employment. Nothing in the Plan or in any Award granted hereunder shall confer upon any Outside Director or Advisor or Practice Employee Director any right to continued service as an Outside Director or Advisor or Practice Employee Director of the Company or any of its Subsidiaries or limit in any way the right of the Company or any Subsidiary at any time to terminate or alter the terms of that service. 1.16 RIGHTS OF OPTIONEES UPON TERMINATION OF EMPLOYMENT OR SERVICE. The Committee shall provide in each Option Agreement for the circumstances under which the Option granted hereunder terminates. The Committee shall also address in each Option Agreement the exercisability of the Options following death, Permanent Disability or Retirement or cessation of employment of an Optionee. 1.17 TRANSFERABILITY OF OPTIONS. Except as may be agreed upon by the Committee in accordance with the following paragraph, Options shall not be transferable other than by will or the laws of descent and distribution or, with respect to Nonqualified Stock Options, pursuant to the terms of a qualified domestic relations order as defined by the Code or Title I of ERISA, or the rules thereunder, and, with respect to Incentive Stock Options, may be exercised during the lifetime of an Optionee only by that Optionee or by his legally authorized representative. The designation by an Optionee of a beneficiary shall not constitute a transfer of the Option. The Committee may, in its discretion, provide in an Option Agreement that Nonqualified Stock Options granted hereunder may be transferred by the Optionee to members of his immediate family, trusts for the benefit of such immediate family members and partnerships in which such immediate family members are the only partners. 1.18 INFORMATION TO PARTICIPANTS. The Company shall furnish to each Participant a copy of the annual report, proxy statements, if any, and all other reports sent to the Company's shareholders. Upon written request, the Company shall furnish to each Participant a copy of its most recent Form 10-K Annual Report and each quarterly report, if any, to shareholders issued since the end of the Company's most recent fiscal year. ARTICLE II ADMINISTRATION 2.1 COMMITTEE. Subject to SECTION 2.2, the Plan shall be administered by a Committee of not fewer than two members of the Board. Each member of the Committee shall be a "Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act. Moreover, in the event any Awards granted hereunder are intended to qualify as performance-based compensation under Section 162(m) of the Code, all members of the Committee shall be "outside directors" within the meaning of Section 162(m) of the Code and the regulations thereunder. Subject to the provisions of the Plan, the Committee shall have the sole discretion and authority to determine from time to time the Employees, Outside Directors, Advisors, Practice Employees 6 and Practice Employee Directors to whom Awards shall be granted and the number of Plan Shares subject to each Award, to interpret the Plan, to prescribe, amend and rescind any rules and regulations necessary or appropriate for the administration of the Plan, to determine and interpret the details and provisions of each Award Agreement, to modify or amend any Award Agreement or waive any conditions or restrictions applicable to any Awards (or the exercise thereof), and to make all other determinations necessary or advisable for the administration of the Plan. 2.2 GRANTS PRIOR TO INITIAL PUBLIC OFFERING. Notwithstanding the provisions of SECTION 2.1, prior to the date of the Company's initial public offering of its Common Stock, the Plan shall be administered by the Board and the Board shall have all of the powers of the Committee hereunder. 2.3 APPOINTMENT OF COMMITTEE. The Committee shall be appointed by the Board; provided that the Board may remove any Committee member, with or without cause. 2.4 MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. A majority of the members of the Committee shall constitute a quorum, and any action taken by a majority present at a meeting at which a quorum is present or any action taken without a meeting evidenced by a writing executed by all members of the Committee shall constitute the action of the Committee. Meetings of the Committee may take place by telephone conference call. 2.5 COMPANY ASSISTANCE. The Company shall supply full and timely information to the Committee on all matters relating to Employees, Outside Directors, Advisors, Practice Employees and Practice Employee Directors, their employment, death, Retirement, Permanent Disability, or other termination of employment or other relationship with the Company, and such other pertinent facts as the Committee may require. The Company shall furnish the Committee with such clerical and other assistance as is necessary in the performance of its duties. 2.6 EXCULPATION OF COMMITTEE. No member of the Committee shall be personally liable for, and the Company shall indemnify all members of the Committee and hold them harmless against, any claims resulting directly or indirectly from any action or inaction by the Committee pursuant to the Plan, including without limitation any determination by the Committee regarding whether a "change in control" (within the meaning of SECTION 1.12) is threatened or any failure by the Committee to consider such a determination. ARTICLE III INCENTIVE STOCK OPTIONS 3.1 TERMS AND CONDITIONS. The terms and conditions of Options granted under this Article may differ from one another as the Committee shall, in its discretion, determine, as long as all Options granted under this Article satisfy the requirements of this Article. 7 3.2 DURATION OF OPTIONS. Each Option granted pursuant to this Article and all rights thereunder shall expire on the date determined by the Committee, but in no event shall any Option granted under this Article expire earlier than one year or later than 10 years after the date on which the Option is granted. In addition, each Option shall be subject to early termination as provided elsewhere in the Plan or the Option Agreement. 3.3 PURCHASE PRICE. The purchase price for Plan Shares acquired pursuant to the exercise, in whole or in part, of any Option granted under this Article shall not be less than the Fair Market Value of the Plan Shares at the time of the grant of the Option; provided, however, in the event of the grant of any Option to an individual who, at the time the Option is granted, owns shares of stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary or affiliate thereof within the meaning of Section 422 of the Code, the purchase price for the Plan Shares subject to that Option must be at least 110% of the Fair Market Value of those Plan Shares at the time the Option is granted and the Option must not be exercisable after the expiration of five years from the date of its grant. 3.4 MAXIMUM AMOUNT OF OPTIONS FIRST EXERCISABLE IN ANY CALENDAR YEAR. The aggregate Fair Market Value of Plan Shares (determined at the time the Option is granted) with respect to which Options issued under this Article are exercisable for the first time by any Employee during any calendar year under all incentive stock option plans of the Company and its Subsidiaries and affiliates shall not exceed $100,000. Any portion of an Option granted under the Plan in excess of the foregoing limit shall be considered granted pursuant to ARTICLE IV. 3.5 INDIVIDUAL OPTION AGREEMENTS. Each Employee receiving Options pursuant to this Article shall be required to enter into a written Option Agreement with the Company. In such Option Agreement, the Employee shall agree to be bound by the terms and conditions of the Plan, the Options made pursuant hereto, and such other matters as the Committee deems appropriate. ARTICLE IV NONQUALIFIED STOCK OPTIONS 4.1 OPTION TERMS AND CONDITIONS. Subject to SECTION 4.5, the terms and conditions of Options granted under this Article may differ from one another as the Committee shall, in its discretion, determine as long as all Options granted under this Article satisfy the requirements of this Article. 4.2 DURATION OF OPTIONS. Each Option granted pursuant to this Article and all rights thereunder shall expire on the date determined by the Committee. In addition, each Option shall be subject to early termination as provided elsewhere in the Plan. 8 4.3 PURCHASE PRICE. The purchase price for the Plan Shares acquired pursuant to the exercise, in whole or in part, of any Option granted under this Article shall not be less than the Fair Market Value of the Plan Shares at the time of the grant of the Option. 4.4 INDIVIDUAL OPTION AGREEMENTS. Each Optionee receiving Options pursuant to this Article shall be required to enter into a written Option Agreement with the Company. In such Option Agreement, the Optionee shall agree to be bound by the terms and conditions of the Plan, the Options made pursuant hereto, and such other matters as the Committee deems appropriate. 4.5 AUTOMATIC GRANTS TO OUTSIDE DIRECTORS AND PRACTICE EMPLOYEE DIRECTORS. Each Outside Director shall automatically be granted a Nonqualified Stock Option to purchase 10,000 shares of Common Stock either on later of (i) upon initial election or appointment to the Board or (ii) if the Outside Director is serving on the Board on the date the Plan is approved by the Company's stockholders, on the date the Plan is so approved. Each Outside Director and each Practice Employee Director will receive a Nonqualified Stock Option to purchase 5,000 shares of Common Stock on the date of each annual meeting of stockholders of the Company subsequent to his initial election as a director. The purchase price for Plan Shares acquired pursuant to the exercise, in whole or in part, of any Option received by Outside Directors or Practice Employee Directors shall be the Fair Market Value of the Plan Shares on the date of grant of such Option. One half of each Option shall become exercisable on the first anniversary of the date of grant of such Option and the remaining one half of each Option shall become exercisable on the second anniversary of the date of grant. Each Option shall expire on the day prior to the tenth anniversary of the date of grant of such Option, unless otherwise specified herein. ARTICLE V RESTRICTED STOCK 5.1 GRANT OF RESTRICTED STOCK AWARDS. The Committee may, in its sole discretion, grant Restricted Stock Awards in accordance with the terms and conditions set forth in the Plan. Each Restricted Stock Agreement may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as are determined by the Committee in its sole discretion. 5.2. TERMS AND CONDITIONS. Each Restricted Stock Award confers upon the recipient thereof the right to receive a specified number of shares of Common Stock in accordance with the terms and conditions of each Participant's Restricted Stock Agreement. The general terms and conditions of a Restricted Stock Award will be as follows: (a) Any shares of Common Stock awarded hereunder to a Participant will be restricted for a period of time to be determined by the Committee for each Participant at the time of the Award, which period shall be not more than ten years. The restrictions will prohibit the sale, assignment, transfer, pledge or other 9 encumbrance of such shares, and will provide for possible reversion thereof to the Company in accordance with subparagraph (b) during the period of restriction. (b) All Restricted Stock awarded under the Plan to a Participant will be forfeited and returned to the Company in the event the Participant's employment or service with the Company or a subsidiary thereof is terminated prior to the expiration of the period of restriction, unless the Participant's termination of employment or service is due to his death, Permanent Disability or Retirement or unless the Committee, in its sole discretion, waives the restrictions established in accordance with subparagraph (a) with respect to any or all of the shares of Restricted Stock. (c) In the event of a Participant's death or Permanent Disability, the restrictions established in accordance with subparagraph (a) will lapse with respect to all Restricted Stock awarded to the Participant prior to any such event, and the shares of Common Stock involved will cease to be Restricted Stock and will no longer be subject to forfeiture to the Company pursuant to subparagraph (b). (d) In the event of a Participant's Retirement, the restrictions established in accordance with subparagraph (a) will continue to apply unless the Committee in its sole discretion shortens the restriction period. (e) Stock certificates issued with respect to Restricted Stock Awards will be registered in the name of the Participant, but will be delivered by him to the Company together with a stock power endorsed in blank. Each such certificate will bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE, RESTRICTIONS ON TRANSFER AND CERTAIN OTHER TERMS AND CONDITIONS SET FORTH IN THE PENTEGRA DENTAL GROUP, INC. 1997 STOCK COMPENSATION PLAN AND THE AGREEMENT BETWEEN THE REGISTERED OWNER OF THE SHARES REPRESENTED BY THIS CERTIFICATE AND PENTEGRA DENTAL GROUP, INC. ENTERED INTO PURSUANT TO SUCH PLAN." From the time of grant of the Restricted Stock Award, the Participant will be entitled to exercise all rights (including dividend and voting rights) with respect to the shares represented by such certificate, subject to forfeiture of such voting rights and the Common Stock as provided in subparagraph (b). 10 (f) Upon the lapse of a restriction period as determined pursuant to subparagraph (a), the Company will return the stock certificates representing the shares with respect to which the restriction has lapsed to the Participant or his legal representative, and pursuant to the instruction of the Participant or his legal representative will issue a certificate for such shares that does not bear the legend set forth in subparagraph (e). (g) Any other securities or assets (other than ordinary cash dividends) that are received by a Participant with respect to Restricted Stock awarded to him, which is still subject to restrictions established in accordance with subparagraph (a), will be subject to the same restrictions and will be delivered by the Participant to the Company as provided in subparagraph (e). 5.3. NOTICE TO COMPANY OF SECTION 83(b) ELECTION. Any Participant who exercises an election under Section 83(b) of the Code to have his receipt of shares of Restricted Stock taxed currently, without regard to restrictions, must give notice to the Company of such election immediately upon making such election. Such an election must be made within 30 days after the effective date of issuance and cannot be revoked except with the consent of the Internal Revenue Service. ARTICLE VI TERMINATION, AMENDMENT, AND ADJUSTMENT 6.1 TERMINATION AND AMENDMENT. The Plan shall terminate on July 1, 2007. No Award shall be granted under the Plan after that date of termination. Subject to the limitations contained in this Section, the Committee may at any time amend or revise the terms of the Plan, including the form and substance of the Award Agreements to be used in connection herewith; provided that no amendment or revision may (i) increase the maximum aggregate number of Plan Shares, except as permitted under SECTION 6.2, (ii) change the minimum purchase price for shares under ARTICLE III, or (iii) permit the granting of an Option or Restricted Stock Award to anyone other than as provided in the Plan. No amendment, suspension, or termination of the Plan shall, without the consent of the individual who has received an Award hereunder, adversely alter or impair any of that individual's rights or obligations under any Award granted under the Plan prior to that amendment, suspension, or termination. 6.2 ADJUSTMENTS. If the outstanding Common Stock is increased, decreased, changed into, or exchanged for a different number or kind of shares or securities through merger, consolidation, combination, exchange of shares, other reorganization, recapitalization, reclassification, stock dividend, stock split, or reverse stock split, an appropriate and proportionate adjustment shall be made in the maximum number and kind of Plan Shares as to which Awards may be granted under the Plan. A corresponding adjustment changing the number or kind of shares allocated to unexercised Options or portions thereof and outstanding Restricted 11 Stock Awards, which shall have been granted prior to any such change, shall likewise be made. Any such adjustment in outstanding Options shall be made without change in the aggregate purchase price applicable to the unexercised portion of the Options, but with a corresponding adjustment in the price for each share covered by the Options. The foregoing adjustments and the manner of application of the foregoing provisions shall be determined solely by the Committee, and any such adjustment may provide for the elimination of fractional share interests. ARTICLE VII MISCELLANEOUS 7.1 OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect any other stock option or incentive or other compensation plans in effect for the Company or any Subsidiary or affiliate of the Company, nor shall the Plan preclude the Company or any Subsidiary or affiliate thereof from establishing any other forms of incentive or other compensation plans. 7.2 PLAN BINDING ON SUCCESSORS. The Plan shall be binding upon the successors and assigns of the Company and any Subsidiary or affiliate of the Company that adopts the Plan. 7.3 NUMBER AND GENDER. Whenever used herein, nouns in the singular shall include the plural where appropriate, and the masculine pronoun shall include the feminine gender. 7.4 HEADINGS. Headings of articles and sections hereof are inserted for convenience of reference and constitute no part of the Plan. ARTICLE VIII DEFINITIONS As used herein with initial capital letters, the following terms have the meanings hereinafter set forth unless the context clearly indicates to the contrary: 8.1 "ADVISOR" means any individual performing substantial BONA FIDE services for the Company or any Subsidiary of the Company that has adopted the Plan who is not an Employee, a Director or a Practice Employee. 8.2 "AWARD" means a grant of Options under ARTICLE III or IV of the Plan or a Restricted Stock Award under ARTICLE V of the Plan. 8.3 "AWARD AGREEMENT" means an Option Agreement or a Restricted Stock Agreement. 8.4 "BOARD" means the Board of Directors of the Company. 12 8.5 "CAUSE" means conviction of a crime involving moral turpitude or a crime providing for a term of imprisonment in a federal or state penitentiary; failure or refusal to follow reasonable instructions of the Board; failure or refusal to comply with the reasonable policies, standards and regulations of the Company, which from time to time may be established; failure or refusal to faithfully and diligently perform the usual customary duties of his employment or service; acting in an unprofessional, unethical, immoral or fraudulent manner; acting in a manner which discredits or is detrimental to the reputation, character and standing of Company or a Subsidiary; or the commission of any other act that causes or reasonably may be expected to cause substantial injury to the Company. 8.6 "CODE" means the Internal Revenue Code of 1986, as amended. 8.7 "COMMITTEE" means the Committee appointed in accordance with SECTION 2.2. 8.8 "COMMON STOCK" means the Common Stock, par value $0.01 per share, of the Company or, in the event that the outstanding shares of such Common Stock are hereafter changed into or exchanged for shares of a different stock or security of the Company or some other corporation, such other stock or security. 8.9 "COMPANY" means Pentegra Dental Group, Inc., a Delaware corporation. 8.10 "DIRECTOR" means a member of the Board. 8.11 "EFFECTIVE DATE" means August 1, 1997 8.12 "EMPLOYEE" means an employee (as defined in Section 3401(c) of the Code and the regulations thereunder) of the Company or of any Subsidiary of the Company that adopts the Plan, including Officers. 8.13 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 8.14 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. 8.15 "FAIR MARKET VALUE" means such value as determined by the Committee on the basis of such factors as it deems appropriate; provided that if the Common Stock is traded on a national securities exchange or transactions in the Common Stock are quoted on the Nasdaq National Market System, such value as shall be determined by the Committee on the basis of the reported sales prices for the Common Stock on the date for which such determination is relevant, as reported on the national securities exchange or the Nasdaq National Market System, as the case may be. If the Common Stock is not listed and traded upon a recognized securities exchange or on the Nasdaq National Market System, the Committee shall make a determination of Fair Market Value on a reasonable basis, which may include the mean between the closing bid and asked 13 quotations for such stock on the date for which such determination is relevant (as reported by a recognized stock quotation service) or, in the event that there shall be no bid or asked quotations on the date for which such determination is relevant, then on the basis of the mean between the closing bid and asked quotations on the date nearest preceding the date for which such determination is relevant for which such bid and asked quotations were available. 8.16 "INCENTIVE STOCK OPTION" means an Option granted pursuant to ARTICLE III. 8.17 "NONQUALIFIED STOCK OPTION" means an Option granted pursuant to ARTICLE IV. 8.18 "OFFICER" means an officer of the Company or any Subsidiary of the Company. 8.19 "OPTION" means an Incentive Stock Option or a Nonqualified Stock Option. 8.20 "OPTIONEE" means an Employee, Outside Director, Advisor, Practice Employee or Practice Employee Director to whom an Option has been granted hereunder. 8.21 "OPTION AGREEMENT" means an agreement between the Company and an Optionee with respect to one or more Options. 8.22 "OUTSIDE DIRECTOR" means a member of the Board who is not an Officer or Employee of the Company and who is not a Practice Employee. 8.23 "PARTICIPANT" means a person to whom an Award has been granted. 8.24 "PERMANENT DISABILITY" has the same meaning as that provided in Section 22(e)(3) of the Code. 8.25 "PLAN" means the Pentegra Dental Group, Inc. 1997 Stock Compensation Plan, as amended from time to time. 8.26 "PLAN SHARES" means shares of Common Stock issuable pursuant to the Plan. 8.27 "PRACTICE" means a professional corporation, association, limited liability company, sole proprietorship, partnership or other entity that has a practice management contract with the Company or a Subsidiary. 8.28 "PRACTICE EMPLOYEES" means employees of any Practice, including without limitation, dentists employed by a Practice. 8.29 "PRACTICE EMPLOYEE DIRECTOR" means a member of the Board who is an officer or Employee of a Practice. 14 8.30 "RESTRICTED STOCK" or "RESTRICTED STOCK AWARD" means an award of Common Stock granted under ARTICLE V. 8.31 "RESTRICTED STOCK AGREEMENT" means a written agreement between the Company and a Participant with respect to a Restricted Stock Award. 8.32 "RETIREMENT" occurs when an Employee or Director or Practice Employee terminates his relationship with the Company or a Subsidiary or a Practice on or after the date he (a) turns 65 years old or (b) turns 55 years old and has completed 10 years of service with the Company or a Subsidiary as otherwise determined by the Board. 8.33 "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any successor rule. 8.34 "SECURITIES ACT" means the Securities Act of 1933, as amended. 8.35 "SUBSIDIARY" means a subsidiary corporation of the Company, as defined in Section 424(f) of the Code. 8.36 "TAX DATE" means the date on which the amount of tax to be withheld is determined. 15 EX-10.2 13 EXHIBIT 10.2 EXHIBIT 10.2 EMPLOYMENT AGREEMENT Employment Agreement (the "Agreement"), dated July 31, 1997, by and between Pentegra Dental Group, Inc., a Delaware corporation (the "Company"), and Omer K. Reed, D.D.S. ("Employee"). In consideration of the mutual premises and conditions contained herein, the parties hereto agree as follows: Section 1. EMPLOYMENT. The Company hereby agrees to employ Employee, and Employee hereby accepts employment by the Company, upon the terms and subject to the conditions hereinafter set forth. Section 2. DUTIES. Employee shall serve as Clinical Officer of the Company. Employee agrees to devote his full time and best efforts to the performance of his duties to the Company. All of Employee's duties and authorities shall be subject to the reasonable direction and control of the Company's Chief Executive Officer or Board of Directors. The Company shall use its best efforts to elect Employee as a director of the Company during the term of this Agreement. Employee acknowledges that the executive offices of the Company will be located in Phoenix, Arizona. Section 3. TERM. Except as otherwise provided in Section 6 hereof, the term of this Agreement shall be for three (3) years ("Term"), commencing on the date the initial public offering of the Company's common stock ("IPO") is consummated (the "Commencement Date"). Section 4. COMPENSATION AND BENEFITS. In consideration for the services of the Employee hereunder, the Company will compensate Employee as follows: (a) BASE SALARY. Commencing on the Commencement Date, Employee shall be entitled to receive a base salary of $175,000.00 per annum or as increased from time to time by the Board of Directors of the Company or the Compensation Committee of the Board of Directors ("Compensation Committee") thereof. (b) SIGNING BONUS. Employee shall be entitled to receive a signing bonus on the Commencement Date, which signing bonus shall be payable as follows: $10,000 payable on the closing of each dental practice acquired by the Company following the Commencement Date up to a maximum amount of $1,250,000.00; provided, however, that on the third anniversary of the Commencement Date, Employee shall be entitled to receive the sum of $1,250,000.00 less all amounts paid under this subsection and such signing bonus shall thereby be paid in full. In no event shall the signing bonus payable pursuant to this subsection exceed $1,250,000.00. Such bonus shall be payable in the proportion of cash and stock as the Company and Employee shall agree. (c) BONUS. Employee shall be entitled to receive a bonus as established from time to time by the Board of Directors of the Company or the Compensation Committee thereof. (d) BENEFITS. During the term of this Agreement, Employee shall be entitled to participate in and receive benefits under any and all employee benefit plans and programs which are from time to time generally made available to the executive employees of the Company, subject to approval and grant by the appropriate committee of the Board of Directors of the Company with respect to programs calling for such approvals or grants. Additionally, Employee shall be entitled to medical, dental, disability, life insurance and other benefits as are generally made available to the executive employees of the Company. Medical, dental and other health insurances shall also be provided for Employee's spouse and children. Employee shall be entitled to three (3) weeks vacation and such other days for personal use as reasonably determined by the Company. Section 5. EXPENSES. It is acknowledged by the parties that Employee, in connection with the services to be performed by him pursuant to the terms of this Agreement, will be required to make payments for travel, entertainment of business associates, mobile telephone and similar expenses. The Company will reimburse Employee for all reasonable expenses of types authorized by the Company and incurred by Employee in the performance of his duties hereunder. Employee will comply with such budget limitations and approval and reporting requirements with respect to expenses as the Company may establish from time to time. Section 6. TERMINATION. Employee's employment hereunder will commence on the Commencement Date and continue until the end of the Term, except that the employment of Employee hereunder will terminate earlier upon the occurrence of the following events: (a) DEATH OR DISABILITY. Employee's employment will terminate immediately upon the death of Employee during the term of his employment hereunder or, at the option of the Company, in the event of Employee's disability, upon 30 days notice to Employee. Employee will be deemed disabled if, as a result of Employee's incapacity due to physical or mental illness, Employee shall have been absent from his duties with the Company on a full-time basis for 120 consecutive business days and Employee shall not reasonably be expected to be able to resume his duties within 60 days of the end of such 120 day period. In the event of the termination of this Agreement pursuant to this subsection, Employee will be entitled to the portion of his base salary accrued but unpaid from the last monthly payment date to the date of termination, expense reimbursements under Section 5 hereof for expenses incurred in the performance of his duties hereunder prior to termination, and the sum of $1,250,000.00 less all amounts paid to Employee under subsection 4(b) as of the occurrence of such event. (b) FOR CAUSE. The Company may terminate the Employee's employment for "Cause" immediately upon written notice by the Company to Employee. For purposes of this Agreement, a termination will be for Cause if: (i) Employee willfully and continuously fails to perform his duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), (ii) Employee willfully engages in gross misconduct materially and demonstrably injurious to the Company or (iii) Employee has been convicted of a felony. In the event of the termination of this Agreement pursuant to this subsection, Employee will not be entitled to any severance pay or other compensation except for any portion of his base salary accrued but unpaid from the last monthly payment date to the date of termination and expense reimbursements under Section 5 hereof for expenses incurred in the performance of his duties hereunder prior to termination. (c) BY COMPANY WITHOUT CAUSE. If the Company terminates this Agreement at any time during the Term without cause, the Company shall pay Employee, as Employee's sole remedy in connection with such termination, severance pay in the amount of Employee's base salary for the remainder of the Term as set forth in Section 4(a) hereof, together with the sum of $1,250,000 less the amounts paid by the Company to Employee pursuant to Section 4(b) hereof. The Company will also pay Employee the portion of his base salary accrued but unpaid from the last monthly payment date to the date of termination and expense reimbursements under Section 5 hereof for expenses incurred in the performance of his duties hereunder prior to termination. The Company will pay the severance payments provided for in this subsection in a lump sum amount concurrent with Employee's termination of employment. The Company will not be entitled to offset or mitigate the amounts due under this subsection by any other amounts payable to Employee, including amounts payable or paid to Employee by third parties for Employee's services after the date of termination. Section 7. CONFIDENTIAL INFORMATION. Employee recognizes and acknowledges that certain assets of the Company and its affiliates, including without limitation information regarding customers, pricing policies, methods of operation, proprietary computer programs, sales, products, profits, costs, markets, key personnel, formulae, product applications, technical processes, and trade secrets (hereinafter called "Confidential Information") are valuable, special and unique assets of the Company and its affiliates. Employee will not, during or after his term of employment, disclose any of the Confidential Information to any person, firm, corporation, association, or any other entity for any reason or purpose whatsoever, directly or indirectly, except as may be required pursuant to his employment hereunder, unless and until such Confidential Information becomes publicly available other than as a consequence of the breach by Employee of his confidentiality obligations hereunder. In the event of the termination of his employment, whether voluntary or involuntary and whether by the Company or Employee, Employee will deliver to the Company all documents and data pertaining to the Confidential Information and will not take with him any documents or data of any kind or any reproductions (in whole or in part) of any items relating to the Confidential Information. Section 8. NONCOMPETITION. Until one year after termination of Employee's employment with the Company for any reason, whether voluntary or involuntary, Employee will not (i) engage directly or indirectly, alone or as a shareholder, partner, officer, director, employee or consultant of any other business organization, in any business activities which relate to the acquisition and consolidation of, or consulting, management or similar services for, dental practices which were either conducted by the Company at the time of Employee's termination or "Proposed to be Conducted" (as defined herein) by the Company at the time of such termination (the "Designated Industry"), (ii) divert to any competitor of the Company in the Designated Industry any customer of Employee, or (iii) solicit or encourage any officer, employee, or consultant of the Company to leave its employ for employment by or with any competitor of the Company in the Designated Industry. The parties hereto acknowledge that Employee's noncompetition obligations hereunder will not preclude Employee from (i) owning less than 5% of the common stock of any publicly traded corporation conducting business activities in the Designated Industry or (ii) serving as an officer, director, stockholder or employee of an entity engaged in the healthcare industry whose business operations are not competitive with those of the Company. "Proposed to be Conducted", as used herein, shall mean those business activities which are the subject of a formal, written business plan approved by the Board of Directors prior to termination of Employee's employment and which the Company takes material action to implement within 12 months of the termination of Employee's employment. Employee will continue to be bound by the provisions of this Section 8 until their expiration and will not be entitled to any compensation from the Company with respect thereto. If at any time the provisions of this Section 8 are determined to be invalid or unenforceable, by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 8 will be considered divisible and will become and be immediately amended to only such area, duration and scope of activity as will be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter; and Employee agrees that this Section 8 as so amended will be valid and binding as though any invalid or unenforceable provision had not been included herein. Section 9. GENERAL. (a) NOTICES. All notices and other communications hereunder will be in writing or by written telecommunication, and will be deemed to have been duly given if delivered personally or if mailed by certified mail, return receipt requested or by written telecommunication, to the relevant address set forth below, or to such other address as the recipient of such notice or communication will have specified to the other party hereto in accordance with this Section 9(a): If to the Company, to: with a copy to: Pentegra Dental Group, Inc. Jackson & Walker, L.L.P. 2999 N. 44th Street, Suite 650 901 Main Street, Suite 6000 Phoenix, Arizona 85018 Dallas, Texas 75202 Attn: Chief Executive Officer Attn: James S. Ryan, III Fax No.: (602) 952-0544 Fax No.: (214) 953-5822 If to Employee, to: 3255 E. Valley Vista Lane Paradise Valley, Arizona 85253 (b) WITHHOLDING; NO OFFSET. All payments required to be made by the Company under this Agreement to Employee will be subject to the withholding of such amounts, if any, relating to federal, state and local taxes as may be required by law. No payment under this Agreement will be subject to offset or reduction attributable to any amount Employee may owe to the Company or any other person. (c) EQUITABLE REMEDIES. Each of the parties hereto acknowledges and agrees that upon any breach by Employee of his obligations under any of Sections 8 and 9 hereof, the Company will have no adequate remedy at law, and accordingly will be entitled to specific performance and other appropriate injunctive and equitable relief. (d) SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable, such provision will be fully severable and this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining provisions hereof will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. (e) WAIVERS. No delay or omission by either party hereto in exercising any right, power or privilege hereunder will impair such right, power or privilege, nor will any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege. (f) COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which will be deemed an original, and all of which together will constitute one and the same instrument. (g) CAPTIONS. The captions in this Agreement are for convenience of reference only and will not limit or otherwise affect any of the terms or provisions hereof. (h) REFERENCE TO AGREEMENT. Use of the words "herein," "hereof," "hereto" and the like in this Agreement refer to this Agreement only as a whole and not to any particular subsection or provision of this Agreement, unless otherwise noted. (i) BINDING AGREEMENT. This Agreement will be binding upon and inure to the benefit of the parties and will be enforceable by the personal representatives and heirs of Employee and the successors of the Company. If Employee dies while any amounts would still be payable to him hereunder, such amounts will be paid to Employee's estate. This Agreement is not otherwise assignable by Employee. (j) ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings relating to the subject matter hereof and may not be amended except by a written instrument hereafter signed by each of the parties hereto. (k) GOVERNING LAW. This Agreement and the performance hereof will be construed and governed in accordance with the laws of the State of Arizona, without regard to its choice of law principles. Section 10. BINDING ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled exclusively by arbitration in Phoenix, Arizona, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment upon the award rendered by the arbitrator(s) may be entered in, and enforced by, any court having jurisdiction thereof. EXECUTED as of the date and year first above written. PENTEGRA DENTAL GROUP, INC. By: /s/ Gary S. Glatter ----------------------------- Its: Chief Executive Officer ----------------------------- EMPLOYEE /s/ Omer K. Reed --------------------------------- Omer Reed, DDS EX-10.3 14 EXHIBIT 10.3 EXHIBIT 10.3 EMPLOYMENT AGREEMENT Employment Agreement (the "Agreement"), effective July 1, 1997, by and between Pentegra Dental Group, Inc., a Delaware corporation (the "Company"), and Gary S. Glatter ("Employee"). In consideration of the mutual premises and conditions contained herein, the parties hereto agree as follows: Section 1. EMPLOYMENT. The Company hereby agrees to employ Employee, and Employee hereby accepts employment by the Company, upon the terms and subject to the conditions hereinafter set forth. Section 2. DUTIES. Employee shall serve as the Chief Executive Officer and President of the Company. Employee agrees to devote his full time and best efforts to the performance of his duties to the Company. All of Employee's powers and authorities shall be subject to the reasonable direction and control of the Company's Board of Directors ("Board"). The Company shall use its best efforts to elect Employee as a director of the Company during the term of this Agreement. Employee acknowledges that the executive offices of the Company will be located in Phoenix, Arizona. Section 3. TERM. Except as otherwise provided in Section 6 hereof, the term of this Agreement shall be for at least four (4) years commencing on July 1, 1997 (the "Commencement Date") and ending on the date that is four (4) years from the date the initial public offering of the Company's common stock ("IPO") is consummated (the "Term"). Section 4. COMPENSATION AND BENEFITS. In consideration for the services of the Employee hereunder, the Company will compensate Employee as follows: (a) BASE SALARY. Commencing on the Commencement Date, Employee shall be entitled to receive a base salary of (i) $175,000 per annum for the period from July 1, 1997 through June 30, 1997, (ii) $200,000 per annum for the period from July 1, 1998 through June 30, 1999, (iii) $225,000 per annum for the period from July 1, 1999 through June 30, 2000, and (iv) $250,000 per annum from July 1, 2000 thereafter, or as increased from time to time by the Board of Directors of the Company or the Compensation Committee of the Board of Directors ("Compensation Committee") thereof. (b) BONUS. Commencing January 1, 1998, Employee shall be eligible to receive a bonus each year during the term of this Agreement in accordance with the bonus plan set forth on Exhibit A. Such bonus shall be payable by the Company to Employee on or before 90 days from the end of each calendar year. 1 (c) BENEFITS. The Company shall grant Employee options to purchase shares of the Company's Common Stock at the initial public offering price for the Company's Common Stock on terms and in a quantity to be agreed upon following good faith negotiations between the Company's management team and the underwriters of the IPO, which terms shall be consistent with the terms of the stock option plans adopted by the Company pursuant to which the options are granted. It currently is contemplated that such options will vest over a period of four years. In addition, during the term of this Agreement, Employee shall be entitled to participate in and receive benefits under any and all employee benefit plans and programs which are from time to time generally made available to the executive employees of the Company, subject to approval and grant by the appropriate committee of the Board of Directors of the Company with respect to programs calling for such approvals or grants. Additionally, Employee shall be entitled to medical, dental, disability, life insurance and other benefits as are generally made available to the executive employees of the Company. Medical, dental and other health insurances shall also be provided for Employee's spouse and children. Employee shall be entitled to four (4) weeks vacation and such other days for personal and religious reasons as reasonably determined by the Company. Section 5. EXPENSES; AUTOMOBILE. It is acknowledged by the parties that Employee, in connection with the services to be performed by him pursuant to the terms of this Agreement, will be required to make payments for travel, entertainment of business associates, mobile telephone and similar expenses. The Company will reimburse Employee for all reasonable expenses of types authorized by the Company and incurred by Employee in the performance of his duties hereunder. Employee will comply with such budget limitations and approval and reporting requirements with respect to expenses as the Company may establish from time to time. The Company will provide Employee with an 800# pager, a cellular phone and a corporate credit card from a major issuer (e.g., American Express, Master Card or Visa International) to facilitate payment of such expenses. The Company shall provide Employee with a suitable automobile for business use and shall pay all costs and expenses reasonably incurred by Employee in connection with the business use thereof, including purchase or leasing costs, fuel, maintenance, insurance, garaging and mobile (cellular) telephone. Section 6. TERMINATION. Employee's employment hereunder will commence on the Commencement Date and continue until the end of the Term, except that the employment of Employee hereunder will terminate earlier upon the occurrence of the following events: (a) DEATH OR DISABILITY. Employee's employment will terminate immediately upon the death of Employee during the term of his employment hereunder or, at the option of the Company, in the event of Employee's disability, upon 30 days notice to Employee. Employee will be deemed disabled if, as a result of Employee's incapacity due to physical or mental illness, Employee shall have been absent from his duties with the Company on a 2 full-time basis for 120 consecutive business days and Employee shall not reasonably be expected to be able to resume his duties within 60 days of the end of such 120 day period. In the event of the termination of this Agreement pursuant to this subsection, Employee or the legal representative of Employee's estate will be paid base salary and bonus (determined on a quarterly rather than an accrual basis) to the end of the calendar quarter in which Employee dies or in which such termination occurs, as the case may be. Additionally, Employee or the legal representative of Employee's estate will be entitled to expense reimbursements under Section 5 hereof for expenses incurred in the performance of Employee's duties hereunder prior to termination. (b) FOR CAUSE. The Company may terminate the Employee's employment for "Cause" immediately upon written notice by the Company to Employee. For purposes of this Agreement, a termination will be for Cause if: (i) Employee willfully and continuously fails to perform his duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), (ii) Employee willfully engages in gross misconduct materially and demonstrably injurious to the Company or (iii) Employee has been convicted of a felony. In the event of the termination of this Agreement pursuant to this subsection, Employee will not be entitled to any severance pay or other compensation except for any portion of his base salary accrued but unpaid from the last monthly payment date to the date of termination and expense reimbursements under Section 5 hereof for expenses incurred in the performance of his duties hereunder prior to termination. (c) BY COMPANY WITHOUT CAUSE. If the Company terminates this Agreement at any time during the Term without cause, the Company shall pay Employee, as Employee's sole remedy in connection with such termination, severance pay in the amount of Employee's base salary for the remainder of the Term as set forth in Section 4(a) hereof. The Company will also pay Employee the bonus due Employee under Section 4(b) hereof through the end of the calendar year in which such termination shall occur, which bonus shall be payable on the date for payment set forth in Section 4(b) hereof. The Company will pay the severance payments provided for in this subsection (other than in the foregoing sentence) in a lump sum amount concurrent with Employee's termination of employment. The Company will also pay Employee the portion of his base salary accrued but unpaid from the last monthly payment date to the date of termination and expense reimbursements under Section 5 hereof for expenses incurred in the performance of his duties hereunder prior to termination. The Company will not be entitled to offset or mitigate the amounts due under this subsection by any other amounts payable to Employee, including amounts payable or paid to Employee by third parties for Employee's services after the date of termination. Section 7. EFFECT OF TERMINATION ON OPTIONS. The Employee has been granted options to purchase shares of the Company's Common Stock and may continue to be granted such options from time to time. The effect of the termination of the Employee's employment on such options shall be determined by the option agreement between the Employee and the Company. 3 Section 8. CONFIDENTIAL INFORMATION. Employee recognizes and acknowledges that certain assets of the Company and its affiliates, including without limitation information regarding customers, pricing policies, methods of operation, proprietary computer programs, sales, products, profits, costs, markets, key personnel, formulae, product applications, technical processes, and trade secrets (hereinafter called "Confidential Information") are valuable, special and unique assets of the Company and its affiliates. Employee will not, during or after his term of employment, disclose any of the Confidential Information to any person, firm, corporation, association, or any other entity for any reason or purpose whatsoever, directly or indirectly, except as may be required pursuant to his employment hereunder, unless and until such Confidential Information becomes publicly available other than as a consequence of the breach by Employee of his confidentiality obligations hereunder. In the event of the termination of his employment, whether voluntary or involuntary and whether by the Company or Employee, Employee will deliver to the Company all documents and data pertaining to the Confidential Information and will not take with him any documents or data of any kind or any reproductions (in whole or in part) of any items relating to the Confidential Information. Section 9. NONCOMPETITION. Until one year after termination of Employee's employment with the Company for any reason, whether voluntary or involuntary, Employee will not (i) engage directly or indirectly, alone or as a shareholder, partner, officer, director, employee or consultant of any other business organization, in any business activities which relate to the acquisition and consolidation of dental practices which were either conducted by the Company at the time of Employee's termination or "Proposed to be Conducted" (as defined herein) by the Company at the time of such termination (the "Designated Industry"), (ii) divert to any competitor of the Company in the Designated Industry any customer of Employee, or (iii) solicit or encourage any officer, employee, or consultant of the Company to leave its employ for employment by or with any competitor of the Company in the Designated Industry. The parties hereto acknowledge that Employee's noncompetition obligations hereunder will not preclude Employee from (i) owning less than 5% of the common stock of any publicly traded corporation conducting business activities in the Designated Industry or (ii) serving as an officer, director, stockholder or employee of an entity engaged in the healthcare industry whose business operations are not competitive with those of the Company. "Proposed to be Conducted", as used herein, shall mean those business activities which are the subject of a formal, written business plan approved by the Board of Directors prior to termination of Employee's employment and which the Company takes material action to implement within 12 months of the termination of Employee's employment. Employee will continue to be bound by the provisions of this Section 9 until their expiration and will not be entitled to any compensation from the Company with respect thereto. If at any time the provisions of this Section 9 are determined to be invalid or unenforceable, by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 9 will be considered divisible and will become and be immediately amended to only such area, duration and scope of activity as will be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter; and Employee agrees that this Section 9 as so amended will be valid and binding as though any invalid or unenforceable provision had not been included herein. Section 10. GENERAL. 4 (a) NOTICES. All notices and other communications hereunder will be in writing or by written telecommunication, and will be deemed to have been duly given if delivered personally or if mailed by certified mail, return receipt requested or by written telecommunication, to the relevant address set forth below, or to such other address as the recipient of such notice or communication will have specified to the other party hereto in accordance with this Section 10(a): If to the Company, to: with a copy to: Pentegra Dental Group, Inc. Jackson & Walker, L.L.P. 2999 N. 44th Street, Suite 650 901 Main Street, Suite 6000 Phoenix, Arizona 85018 Dallas, Texas 75202 Attn: Chief Executive Officer AttAttn: James S. Ryan, III Fax No.: (602) 952-0544 Fax No.: (214) 953-5822 If to Employee, to: 11160 East Cochise Avenue Scottsdale, Arizona 85259 Fax No.: (602) 860-6679 (b) WITHHOLDING; NO OFFSET. All payments required to be made by the Company under this Agreement to Employee will be subject to the withholding of such amounts, if any, relating to federal, state and local taxes as may be required by law. No payment under this Agreement will be subject to offset or reduction attributable to any amount Employee may owe to the Company or any other person. (c) EQUITABLE REMEDIES. Each of the parties hereto acknowledges and agrees that upon any breach by Employee of his obligations under any of Sections 8 and 9 hereof, the Company will have no adequate remedy at law, and accordingly will be entitled to specific performance and other appropriate injunctive and equitable relief. (d) SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable, such provision will be fully severable and this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining provisions hereof will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 5 (e) WAIVERS. No delay or omission by either party hereto in exercising any right, power or privilege hereunder will impair such right, power or privilege, nor will any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege. (f) COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which will be deemed an original, and all of which together will constitute one and the same instrument. (g) CAPTIONS. The captions in this Agreement are for convenience of reference only and will not limit or otherwise affect any of the terms or provisions hereof. (h) REFERENCE TO AGREEMENT. Use of the words "herein," "hereof," "hereto" and the like in this Agreement refer to this Agreement only as a whole and not to any particular subsection or provision of this Agreement, unless otherwise noted. (i) BINDING AGREEMENT. This Agreement will be binding upon and inure to the benefit of the parties and will be enforceable by the personal representatives and heirs of Employee and the successors of the Company. If Employee dies while any amounts would still be payable to him hereunder, such amounts will be paid to Employee's estate. This Agreement is not otherwise assignable by Employee. (j) ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings relating to the subject matter hereof and may not be amended except by a written instrument hereafter signed by each of the parties hereto. This Agreement supersedes and replaces all prior employment agreements between Employee and the Company. (k) GOVERNING LAW. This Agreement and the performance hereof will be construed and governed in accordance with the laws of the State of Arizona, without regard to its choice of law principles. Section 11. BINDING ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled exclusively by arbitration in Phoenix, Arizona, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment upon the award rendered by the arbitrator(s) may be entered in, and enforced by, any court having jurisdiction thereof. EXECUTED as of the date and year first above written. PENTEGRA DENTAL GROUP, INC. 6 By: /s/ James L. Dunn, Jr. ---------------------------------- Its: President --------------------------------- 7 EMPLOYEE /s/ Gary S. Glatter -------------------------------------- Gary S. Glatter 8 EXHIBIT A BONUS Employee shall be eligible to receive an annual cash bonus in an amount equal to up to 200% percentage of his base salary in the event that the Company experiences at least 5% or greater 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, the cash bonus payable hereunder and under all other agreements between the Company and its officers shall be included prior to such determination. Percentage Increase in Bonus as a Percentage Earnings Per Share Of Annual Base Salary 5.0-9.99% 50% 10%-19.99% 100% 20%-29.99% 150% 30% or over 200% 9 EX-10.4 15 EXHIBIT 10.4 EXHIBIT 10.4 EMPLOYMENT AGREEMENT Employment Agreement (the "Agreement"), dated July 12, 1997, by and between Pentegra Dental Group, Inc., a Delaware corporation (the "Company"), and John Thayer ("Employee"). In consideration of the mutual premises and conditions contained herein, the parties hereto agree as follows: Section 1. EMPLOYMENT. The Company hereby agrees to employ Employee, and Employee hereby accepts employment by the Company, upon the terms and subject to the conditions hereinafter set forth. Section 2. DUTIES. Employee shall serve as the Chief Operating Officer of the Company. Employee agrees to devote his full time and best efforts to the performance of his duties to the Company. Employee acknowledges that the executive offices of the Company will be located in Phoenix, Arizona. Section 3. TERM. Except as otherwise provided in Section 6 hereof, the term of this Agreement shall be for five (5) years ("Term"), commencing on the date the initial public offering of the Company's common stock ("IPO") is consummated (the "Commencement Date"). Section 4. COMPENSATION AND BENEFITS. In consideration for the services of the Employee hereunder, the Company will compensate Employee as follows: (a) BASE SALARY. Commencing on the Commencement Date, Employee shall be entitled to receive a base salary of $125,000.00 per annum or as increased from time to time by the Board of Directors of the Company or the Compensation Committee of the Board of Directors ("Compensation Committee") thereof. (b) BONUS. Commencing January 1, 1998, Employee shall be eligible to receive a bonus each year during the term of this Agreement in accordance with the bonus plan set forth on Exhibit A. Such bonus shall be payable by the Company to Employee on or before 90 days from the end of each calendar year. In addition, on the effective date of the IPO, Employee shall receive a bonus in the amount of $25,000 cash. (c) BENEFITS. The Company shall grant Employee options to purchase shares of the Company's Common Stock at the initial public offering price for the Company's Common Stock on terms and in a quantity to be agreed upon following good faith negotiations between the Company's management team and the underwriters of the IPO, which terms shall be consistent with the terms of the stock option plans adopted by the Company pursuant to which the options are granted. It currently is contemplated that such options will vest over a period of five years. In addition, during the term of this Agreement, Employee shall be entitled to participate in and receive benefits under any and all employee benefit plans and programs which are from time to time generally made available to the executive employees of the Company, subject to approval and grant by the appropriate committee of the Board of Directors of the Company with respect to programs calling for such approvals or grants. Additionally, Employee shall be entitled to medical, dental, disability, life insurance and other benefits as are generally made available to the executive employees of the Company. Medical, dental and other health insurances shall also be provided for Employee's spouse and children. Employee shall be entitled to three (3) weeks vacation and such other days for personal use as reasonably determined by the Company. Section 5. EXPENSES. It is acknowledged by the parties that Employee, in connection with the services to be performed by him pursuant to the terms of this Agreement, will be required to make payments for travel, entertainment of business associates, mobile telephone and similar expenses. The Company will reimburse Employee for all reasonable expenses of types authorized by the Company and incurred by Employee in the performance of his duties hereunder. Employee will comply with such budget limitations and approval and reporting requirements with respect to expenses as the Company may establish from time to time. Section 6. TERMINATION. Employee's employment hereunder will commence on the Commencement Date and continue until the end of the Term, except that the employment of Employee hereunder will terminate earlier upon the occurrence of the following events: (a) DEATH OR DISABILITY. Employee's employment will terminate immediately upon the death of Employee during the term of his employment hereunder or, at the option of the Company, in the event of Employee's disability, upon 30 days notice to Employee. Employee will be deemed disabled if, as a result of Employee's incapacity due to physical or mental illness, Employee shall have been absent from his duties with the Company on a full-time basis for 120 consecutive business days and Employee shall not reasonably be expected to be able to resume his duties within 60 days of the end of such 120 day period. In the event of the termination of this Agreement pursuant to this subsection, Employee will not be entitled to any severance pay or other compensation except for any portion of his base salary accrued but unpaid from the last monthly payment date to the date of termination and expense reimbursements under Section 5 hereof for expenses incurred in the performance of his duties hereunder prior to termination. (b) FOR CAUSE. The Company may terminate the Employee's employment for "Cause" immediately upon written notice by the Company to Employee. For purposes of this Agreement, a termination will be for Cause if: (i) Employee willfully and continuously fails to perform his duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), (ii) Employee willfully engages in gross misconduct materially and demonstrably injurious to the Company or (iii) Employee has been convicted of a felony. In the event of the termination of this Agreement pursuant to this subsection, Employee will not be entitled to any severance pay or other compensation except for any portion of his base salary accrued but unpaid from the last monthly payment date to the date of termination and expense reimbursements under Section 5 hereof for expenses incurred in the performance of his duties hereunder prior to termination. (c) BY COMPANY WITHOUT CAUSE. The Company may terminate this Agreement during the Term at any time for any reason without cause. In the event of the termination of this Agreement pursuant to this subsection, the Company will pay Employee, as Employee's sole remedy in connection with such termination, severance pay in the amount determined by multiplying (i) Employee's monthly base salary at the rate in effect immediately preceding the termination of Employee's employment, by (ii) in the event the Employee has relocated to the Phoenix, Arizona area, twelve (12) months, or in the event the Employee has not relocated to the Phoenix, Arizona area or resides in the Phoenix, Arizona area on the date hereof, six (6) months. The Company will also pay Employee the portion of his base salary accrued but unpaid from the last monthly payment date to the date of termination and expense reimbursements under Section 5 hereof for expenses incurred in the performance of his duties hereunder prior to termination. The Company will also pay Employee the bonus due Employee under Section 4(a) hereunder accrued to the date of termination, which bonus shall be payable on the date for payment set forth in Section 4(a) hereof. The Company will pay the severance payments provided for in this subsection (other than in the foregoing sentence) in a lump sum amount concurrent with Employee's termination of employment. The Company will not be entitled to offset or mitigate the amount due under this subsection by any other amounts payable to Employee, including amounts payable or paid to Employee by third parties for Employee's services after the date of termination. Section 7. EFFECT OF TERMINATION ON OPTIONS. The Employee has been granted options to purchase shares of the Company's Common Stock and may continue to be granted such options from time to time. The effect of the termination of the Employee's employment on such options shall be determined by the option plan. Section 8. CONFIDENTIAL INFORMATION. Employee recognizes and acknowledges that certain assets of the Company and its affiliates, including without limitation information regarding customers, pricing policies, methods of operation, proprietary computer programs, sales, products, profits, costs, markets, key personnel, formulae, product applications, technical processes, and trade secrets (hereinafter called "Confidential Information") are valuable, special and unique assets of the Company and its affiliates. Employee will not, during or after his term of employment, disclose any of the Confidential Information to any person, firm, corporation, association, or any other entity for any reason or purpose whatsoever, directly or indirectly, except as may be required pursuant to his employment hereunder, unless and until such Confidential Information becomes publicly available other than as a consequence of the breach by Employee of his confidentiality obligations hereunder. In the event of the termination of his employment, whether voluntary or involuntary and whether by the Company or Employee, Employee will deliver to the Company all documents and data pertaining to the Confidential Information and will not take with him any documents or data of any kind or any reproductions (in whole or in part) of any items relating to the Confidential Information. Section 9. NONCOMPETITION. Until one year after termination of Employee's employment with the Company for any reason, whether voluntary or involuntary, Employee will not (i) engage directly or indirectly, alone or as a shareholder, partner, officer, director, employee or consultant of any other business organization, in any business activities which relate to the acquisition and consolidation of dental practices which were either conducted by the Company at the time of Employee's termination or "Proposed to be Conducted" (as defined herein) by the Company at the time of such termination (the "Designated Industry"), (ii) divert to any competitor of the Company in the Designated Industry any customer of Employee, or (iii) solicit or encourage any officer, employee, or consultant of the Company to leave its employ for employment by or with any competitor of the Company in the Designated Industry. The parties hereto acknowledge that Employee's noncompetition obligations hereunder will not preclude Employee from (i) owning less than 5% of the common stock of any publicly traded corporation conducting business activities in the Designated Industry or (ii) serving as an officer, director, stockholder or employee of an entity engaged in the healthcare industry whose business operations are not competitive with those of the Company. "Proposed to be Conducted", as used herein, shall mean those business activities which are the subject of a formal, written business plan approved by the Board of Directors prior to termination of Employee's employment and which the Company takes material action to implement within 12 months of the termination of Employee's employment. Employee will continue to be bound by the provisions of this Section 9 until their expiration and will not be entitled to any compensation from the Company with respect thereto. If at any time the provisions of this Section 9 are determined to be invalid or unenforceable, by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 9 will be considered divisible and will become and be immediately amended to only such area, duration and scope of activity as will be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter; and Employee agrees that this Section 9 as so amended will be valid and binding as though any invalid or unenforceable provision had not been included herein. Section 10. GENERAL. (a) NOTICES. All notices and other communications hereunder will be in writing or by written telecommunication, and will be deemed to have been duly given if delivered personally or if mailed by certified mail, return receipt requested or by written telecommunication, to the relevant address set forth below, or to such other address as the recipient of such notice or communication will have specified to the other party hereto in accordance with this Section 10(a): If to the Company, to: with a copy to: Pentegra Dental Group, Inc. Jackson & Walker, L.L.P. 2999 N. 44th Street, Suite 650 901 Main Street, Suite 6000 Phoenix, Arizona 85018 Dallas, Texas 75202 Attn: Chief Executive Officer Attn: James S. Ryan, III Fax No.: (602) 952-0544 Fax No.: (214) 953-5822 If to Employee, to: ------------------------ ------------------------ ------------------------ ------------------------ (b) WITHHOLDING; NO OFFSET. All payments required to be made by the Company under this Agreement to Employee will be subject to the withholding of such amounts, if any, relating to federal, state and local taxes as may be required by law. No payment under this Agreement will be subject to offset or reduction attributable to any amount Employee may owe to the Company or any other person. (c) EQUITABLE REMEDIES. Each of the parties hereto acknowledges and agrees that upon any breach by Employee of his obligations under any of Sections 8 and 9 hereof, the Company will have no adequate remedy at law, and accordingly will be entitled to specific performance and other appropriate injunctive and equitable relief. (d) SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable, such provision will be fully severable and this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining provisions hereof will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. (e) WAIVERS. No delay or omission by either party hereto in exercising any right, power or privilege hereunder will impair such right, power or privilege, nor will any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege. (f) COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which will be deemed an original, and all of which together will constitute one and the same instrument. (g) CAPTIONS. The captions in this Agreement are for convenience of reference only and will not limit or otherwise affect any of the terms or provisions hereof. (h) REFERENCE TO AGREEMENT. Use of the words "herein," "hereof," "hereto" and the like in this Agreement refer to this Agreement only as a whole and not to any particular subsection or provision of this Agreement, unless otherwise noted. (i) BINDING AGREEMENT. This Agreement will be binding upon and inure to the benefit of the parties and will be enforceable by the personal representatives and heirs of Employee and the successors of the Company. If Employee dies while any amounts would still be payable to him hereunder, such amounts will be paid to Employee's estate. This Agreement is not otherwise assignable by Employee. (j) ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings relating to the subject matter hereof and may not be amended except by a written instrument hereafter signed by each of the parties hereto. (k) GOVERNING LAW. This Agreement and the performance hereof will be construed and governed in accordance with the laws of the State of Arizona, without regard to its choice of law principles. Section 11. BINDING ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled exclusively by arbitration in Phoenix, Arizona, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment upon the award rendered by the arbitrator(s) may be entered in, and enforced by, any court having jurisdiction thereof. EXECUTED as of the date and year first above written. PENTEGRA DENTAL GROUP, INC. By: /s/ Gary S. Glatter ----------------------------------- Its: President & CEO ----------------------------------- EMPLOYEE /s/ John Thayer --------------------------------------- John Thayer EXHIBIT A BONUS Employee shall be eligible to receive an annual cash bonus in an amount equal to up to 50% of his base salary in the event that the Company experiences at least 20% or greater 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, the cash bonus payable hereunder and under all other similar agreements between the Company and its officers shall be included prior to such determination. Percentage Increase in Bonus as a Percentage Earnings Per Share Of Annual Base Salary 20.0-22.5% 10% Over 22.5-25.0% 20% Over 25.0% to 27.5% 30% Over 27.5% to 30.0% 40% Over 30.0% 50% In addition, on the first anniversary of the closing of the IPO, Employee shall receive a bonus in the amount of $25,000.00. EX-10.5 16 EXHIBIT 10.5 EXHIBIT 10.5 EMPLOYMENT AGREEMENT Employment Agreement (the "Agreement"), dated September 1, 1997, by and between Pentegra Dental Group, Inc., a Delaware corporation (the "Company"), and Sam H. Carr ("Employee"). In consideration of the mutual premises and conditions contained herein, the parties hereto agree as follows: Section 1. EMPLOYMENT. The Company hereby agrees to employ Employee, and Employee hereby accepts employment by the Company, upon the terms and subject to the conditions hereinafter set forth. Section 2. DUTIES. Employee shall serve as the Chief Financial Officer of the Company. Employee agrees to devote his full time and best efforts to the performance of his duties to the Company. Effective as of the consummation of the IPO (as defined herein) of the Company and thereafter during the term of this Agreement, the Company shall use its best efforts to elect Employee as a director of the Company. Employee acknowledges that the executive offices of the Company will be located in Phoenix, Arizona, and that he shall relocate to the Phoenix, Arizona area no later than January 1, 1998. Section 3. TERM. The term of this Agreement shall be for five (5) years ("Term"), commencing on the date hereof (the "Commencement Date"). Section 4. COMPENSATION AND BENEFITS. In consideration for the services of the Employee hereunder, the Company will compensate Employee as follows: (a) BASE SALARY. Commencing on the Commencement Date, Employee shall be entitled to receive a base salary of $120,000.00 per annum or as increased from time to time by the Board of Directors of the Company or the Compensation Committee of the Board of Directors ("Compensation Committee"). Upon the consummation of the initial public offering of the Company's common stock ("IPO"), Employee shall be entitled to receive a base salary of $175,000.00 per annum or as increased from time to time by the Board of Directors of the Company or the Compensation Committee. Additionally, on the date of the closing of the IPO, Employee shall be entitled to receive additional salary equal to $4,583 multiplied by the number of months between the date hereof and the closing of the IPO (or a pro rata amount thereof if less a full month). The amount payable in the preceding sentence, less withholdings set forth in Section 12(b) hereof, shall be paid to Employee within thirty (30) days of the closing of the IPO. (b) BONUS. Commencing January 1, 1998, Employee shall be eligible to receive a bonus each year during the term of this Agreement in accordance with the bonus plan set forth on Exhibit A. Such bonus shall be payable by the Company to Employee on or before 90 days from the end of each calendar year. (c) BENEFITS. The Company shall grant Employee options to purchase shares of the Company's Common Stock at the initial public offering price for the Company's Common Stock on terms and in a quantity to be agreed upon following good faith negotiations between the Company's management team and the underwriters of the IPO, which terms shall be consistent with the terms of the stock option plans adopted by the Company pursuant to which the options are granted. Such options will be for 100,000 shares and will vest 20% each year for five years; provided, however, that such options shall be ratably decreased with members of executive management of the Company should the underwriters of the IPO determine the necessity for a decrease in the outstanding options of the Company. In addition, during the term of this Agreement, Employee shall be entitled to participate in and receive benefits under any and all employee benefit plans and programs which are from time to time generally made available to the executive employees of the Company, subject to approval and grant by the appropriate committee of the Board of Directors of the Company with respect to programs calling for such approvals or grants. Additionally, Employee shall be entitled to medical, dental, disability, life insurance and other benefits as are generally made available to the executive employees of the Company. Medical, dental and other health insurances shall also be provided for Employee's spouse and children. Medical insurance shall be provided to Employee, his spouse and children on the date hereof, provided, however, that at the election of Employer, Employer may reimburse Employee for expenses incurred as a result of exercise of his continuation (COBRA) rights for such insurance and Employee shall make such COBRA election at the request of Employer. Employee shall be entitled to three (3) weeks vacation and such other days for personal use as reasonably determined by the Company. Section 5. EXPENSES. It is acknowledged by the parties that Employee, in connection with the services to be performed by him pursuant to the terms of this Agreement, will be required to make payments for travel, entertainment of business associates, mobile telephone and similar expenses. The Company will reimburse Employee for all reasonable expenses of types authorized by the Company and incurred by Employee in the performance of his duties hereunder. Employee will comply with such budget limitations and approval and reporting requirements with respect to expenses as the Company may establish from time to time. The Company will reimburse Employee for all reasonable duplicate living costs incurred by Employee between the date hereof and the earlier of (i) the relocation of Employee to Phoenix, Arizona, or (ii) January 1, 1998; provided, however, that if the closing of the IPO shall occur after December 31, 1997, the reimbursement of reasonable duplicate living costs shall be payable by Employer to Employee for thirty (30) days following the closing of the IPO. Section 6. COMMON STOCK. The Company agrees to issue 100,000 shares of common stock of the Company to Employee on the date hereof. The Company agrees to provide Employee with a copy of an appraisal ("Appraisal") indicating the value of such shares as of the date hereof and the value of the common stock of the Company as of May 22, 1997. In the event that the Internal Revenue Service or a reputable third-party accountant engaged by Employee and approved by Employer determines that the issuance of such shares shall constitute compensation to Employee for 1997, on April 15, 1998 or an earlier date as required to avoid tax penalty for an estimated payment, Employer agrees to make a non-recourse loan (the "Loan") to Employee in the amount of the actual tax liability incurred or reasonably determined by such third-party accountant, provided, however, that the amount of such loan shall not exceed (i) 40%, multiplied by (ii) 100,000 shares, multiplied by (a) the value of the Company's common stock as of the date hereof as indicated by the Appraisal, less (b) the value of the Company's common stock as of the May 22, 1997 as indicated by the Appraisal. The Loan shall be secured by the 100,000 shares of common stock issued to Employee on the date hereof, shall be payable by Employee to Employer no later than one year and ninety days from the closing of the IPO and shall not bear interest. Employee agrees to execute all stock pledge agreements, promissory notes, blank stock powers and other documents reasonably required by Employer to evidence the repayment of the Loan and to grant the security interest as set forth above. Section 7. TERMINATION. Employee's employment hereunder will commence on the Commencement Date and continue until the end of the Term, except that the employment of Employee hereunder will terminate earlier upon the occurrence of the following events: (a) DEATH OR DISABILITY. Employee's employment will terminate immediately upon the death of Employee during the term of his employment hereunder or, at the option of the Company, in the event of Employee's disability, upon 30 days notice to Employee. Employee will be deemed disabled if, as a result of Employee's incapacity due to physical or mental illness, Employee shall have been absent from his duties with the Company on a full-time basis for 120 consecutive business days and Employee shall not reasonably be expected to be able to resume his duties within 60 days of the end of such 120 day period. In the event of the termination of this Agreement pursuant to this subsection, Employee will not be entitled to any severance pay or other compensation except for any portion of his base salary accrued but unpaid from the last monthly payment date to the date of termination and expense reimbursements under Section 5 hereof for expenses incurred in the performance of his duties hereunder prior to termination. (b) FOR CAUSE. The Company may terminate the Employee's employment for "Cause" immediately upon written notice by the Company to Employee. For purposes of this Agreement, a termination will be for Cause if: (i) Employee willfully and continuously fails to perform his duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), (ii) Employee willfully engages in gross misconduct materially and demonstrably injurious to the Company or (iii) Employee has been convicted of a felony. In the event of the termination of this Agreement pursuant to this subsection, Employee will not be entitled to any severance pay or other compensation except for any portion of his base salary accrued but unpaid from the last monthly payment date to the date of termination and expense reimbursements under Section 5 hereof for expenses incurred in the performance of his duties hereunder prior to termination. (c) BY COMPANY WITHOUT CAUSE. The Company may terminate this Agreement during the Term at any time for any reason without cause. In the event of the termination of this Agreement pursuant to this subsection, the Company will pay Employee, as Employee's sole remedy in connection with such termination, severance pay in the amount determined by multiplying (i) Employee's monthly base salary at the rate in effect immediately preceding the termination of Employee's employment, by (ii) in the event the Employee has relocated to the Phoenix, Arizona area, twelve (12) months, or in the event the Employee has not relocated to the Phoenix, Arizona area, six (6) months. The Company will also pay Employee the portion of his base salary accrued but unpaid from the last monthly payment date to the date of termination and expense reimbursements under Section 5 hereof for expenses incurred in the performance of his duties hereunder prior to termination. The Company will also pay Employee the bonus due Employee under Section 4(b) hereunder accrued to the date of termination, which bonus shall be payable on the date for payment set forth in Section 4(b) hereof. The Company will pay the severance payments provided for in this subsection (other than in the foregoing sentence) in a lump sum amount concurrent with Employee's termination of employment. The Company will not be entitled to offset or mitigate the amount due under this subsection by any other amounts payable to Employee, including amounts payable or paid to Employee by third parties for Employee's services after the date of termination. Section 8. EFFECT OF TERMINATION ON OPTIONS. The Employee has been granted options to purchase shares of the Company's Common Stock and may continue to be granted such options from time to time. The effect of the termination of the Employee's employment on such options shall be determined by the option plan. Section 9. CONFIDENTIAL INFORMATION. Employee recognizes and acknowledges that certain assets of the Company and its affiliates, including without limitation information regarding customers, pricing policies, methods of operation, proprietary computer programs, sales, products, profits, costs, markets, key personnel, formulae, product applications, technical processes, and trade secrets (hereinafter called "Confidential Information") are valuable, special and unique assets of the Company and its affiliates. Employee will not, during or after his term of employment, disclose any of the Confidential Information to any person, firm, corporation, association, or any other entity for any reason or purpose whatsoever, directly or indirectly, except as may be required pursuant to his employment hereunder, unless and until such Confidential Information becomes publicly available other than as a consequence of the breach by Employee of his confidentiality obligations hereunder. In the event of the termination of his employment, whether voluntary or involuntary and whether by the Company or Employee, Employee will deliver to the Company all documents and data pertaining to the Confidential Information and will not take with him any documents or data of any kind or any reproductions (in whole or in part) of any items relating to the Confidential Information. Section 10. NONCOMPETITION. Until one year after termination of Employee's employment with the Company for any reason, whether voluntary or involuntary, Employee will not (i) engage directly or indirectly, alone or as a shareholder, partner, officer, director, employee or consultant of any other business organization, in any business activities which relate to the acquisition and consolidation of dental practices which were either conducted by the Company at the time of Employee's termination or "Proposed to be Conducted" (as defined herein) by the Company at the time of such termination (the "Designated Industry"), (ii) divert to any competitor of the Company in the Designated Industry any customer of Employee, or (iii) solicit or encourage any officer, employee, or consultant of the Company to leave its employ for employment by or with any competitor of the Company in the Designated Industry. The parties hereto acknowledge that Employee's noncompetition obligations hereunder will not preclude Employee from (i) owning less than 5% of the common stock of any publicly traded corporation conducting business activities in the Designated Industry or (ii) serving as an officer, director, stockholder or employee of an entity engaged in the healthcare industry whose business operations are not competitive with those of the Company. "Proposed to be Conducted", as used herein, shall mean those business activities which are the subject of a formal, written business plan approved by the Board of Directors prior to termination of Employee's employment and which the Company takes material action to implement within 12 months of the termination of Employee's employment. Employee will continue to be bound by the provisions of this Section 10 until their expiration and will not be entitled to any compensation from the Company with respect thereto. If at any time the provisions of this Section 9 are determined to be invalid or unenforceable, by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 10 will be considered divisible and will become and be immediately amended to only such area, duration and scope of activity as will be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter; and Employee agrees that this Section 10 as so amended will be valid and binding as though any invalid or unenforceable provision had not been included herein. Section 11. INDEMNIFICATION. The Company shall indemnify and hold Employee harmless from all liabilities, losses, damages, actions, suits, costs and expenses (including but not limited to, reasonable fees and disbursements of counsel through appeal) arising from or by reason of or resulting from any action taken by Jack N. McCrary, Ankle & Foot Centers of America, LLC, American Medical Providers, Inc. or their successors against Employee based on Employee's resignation from Ankle & Foot Centers of America, LLC and American Medical Providers, Inc. or that certain letter dated September 6, 1996 between Ankle & Foot Centers and Employee. Section 12. GENERAL. (a) NOTICES. All notices and other communications hereunder will be in writing or by written telecommunication, and will be deemed to have been duly given if delivered personally or if mailed by certified mail, return receipt requested or by written telecommunication, to the relevant address set forth below, or to such other address as the recipient of such notice or communication will have specified to the other party hereto in accordance with this Section 12(a): If to the Company, to: with a copy to: Pentegra Dental Group, Inc. Jackson & Walker, L.L.P. 2999 N. 44th Street, Suite 650 901 Main Street, Suite 6000 Phoenix, Arizona 85018 Dallas, Texas 75202 Attn: Chief Executive Officer Attn: James S. Ryan, III Fax No.: (602) 952-0544 Fax No.: (214) 953-5822 If to Employee, to: Sam H. Carr 14755 Kellywood Houston, Texas 77079 (b) WITHHOLDING; NO OFFSET. All payments required to be made by the Company under this Agreement to Employee will be subject to the withholding of such amounts, if any, relating to federal, state and local taxes as may be required by law. No payment under this Agreement will be subject to offset or reduction attributable to any amount Employee may owe to the Company or any other person. (c) EQUITABLE REMEDIES. Each of the parties hereto acknowledges and agrees that upon any breach by Employee of his obligations under any of Sections 9 and 10 hereof, the Company will have no adequate remedy at law, and accordingly will be entitled to specific performance and other appropriate injunctive and equitable relief. (d) SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable, such provision will be fully severable and this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining provisions hereof will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. (e) WAIVERS. No delay or omission by either party hereto in exercising any right, power or privilege hereunder will impair such right, power or privilege, nor will any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege. (f) COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which will be deemed an original, and all of which together will constitute one and the same instrument. (g) CAPTIONS. The captions in this Agreement are for convenience of reference only and will not limit or otherwise affect any of the terms or provisions hereof. (h) REFERENCE TO AGREEMENT. Use of the words "herein," "hereof," "hereto" and the like in this Agreement refer to this Agreement only as a whole and not to any particular subsection or provision of this Agreement, unless otherwise noted. (i) BINDING AGREEMENT. This Agreement will be binding upon and inure to the benefit of the parties and will be enforceable by the personal representatives and heirs of Employee and the successors of the Company. If Employee dies while any amounts would still be payable to him hereunder, such amounts will be paid to Employee's estate. This Agreement is not otherwise assignable by Employee. (j) ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings relating to the subject matter hereof and may not be amended except by a written instrument hereafter signed by each of the parties hereto. (k) GOVERNING LAW. This Agreement and the performance hereof will be construed and governed in accordance with the laws of the State of Arizona, without regard to its choice of law principles. Section 13. BINDING ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled exclusively by arbitration in Phoenix, Arizona, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment upon the award rendered by the arbitrator(s) may be entered in, and enforced by, any court having jurisdiction thereof. EXECUTED as of the date and year first above written. PENTEGRA DENTAL GROUP, INC. By: /s/ Gary S. Glatter ----------------------------------------- Gary S. Glatter, Chief Executive Officer EMPLOYEE /s/ Sam H. Carr -------------------------------------------- Sam H. Carr EXHIBIT A BONUS Employee shall be eligible to receive an annual cash bonus in an amount equal to up to 50% of his base salary in the event that the Company experiences at least 20% or greater 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, the cash bonus payable hereunder and under all other similar agreements between the Company and its officers shall be included prior to such determination. Percentage Increase in Bonus as a Percentage Earnings Per Share Of Annual Base Salary 20.0-22.5% 10% Over 22.5-25.0% 20% Over 25.0% to 27.5% 30% Over 27.5% to 30.0% 40% Over 30.0% 50% ADDENDUM TO EMPLOYMENT AGREEMENT This Addendum to Employment Agreement shall be made a part of the Employment Agreement dated September 1, 1997, between Pentegra Dental Group, Inc. and Sam H. Carr. Upon relocation of the Employee to Phoenix, Arizona, Employee shall be entitled to receive reimbursement of the moving/relocation expenses set forth below: The Company will reimburse the Employee for all reasonable, out-of-pocket and adequately documented moving expenses. The term "reasonable, out-of-pocket and adequately documented moving expenses incurred by Employee" shall include the following: 1. Expenses incurred by Employee in connection with the sale of Employee's present principal residence, such as real estate commissions and closing costs, payable in connection with such sale but not including an equity loss on the sale of such residence; 2. Expenses in the form of closing costs, but excluding prepayments and mortgage discount points, incurred by Employee in connection with the purchase by Employee of a new permanent principal residence in the area where the Employee is being asked to relocate; 3. Expenses incurred by Employee for the packing and moving of usual and customary personal property and automobiles of Employee located in the present principal residence to the Employee's new residence; 4. Expenses incurred by Employee for up to two (2) trips to the relocation area, of up to three (3) days and nights, for Employee and Employee's spouse in connection with Employee's efforts to locate a new permanent residence (such expenses to include airfare, hotel and automobile rental). 5. Cash reasonably calculated by the Company to negate adverse income tax consequences to Employee of the foregoing reimbursement. EX-10.6 17 EXHIBIT 10.6 EXHIBIT 10.6 EMPLOYMENT AGREEMENT Employment Agreement (the "Agreement"), dated July 12, 1997, by and between Pentegra Dental Group, Inc., a Delaware corporation (the "Company"), and James Dunn, Jr. ("Employee"). In consideration of the mutual premises and conditions contained herein, the parties hereto agree as follows: Section 1. EMPLOYMENT. The Company hereby agrees to employ Employee, and Employee hereby accepts employment by the Company, upon the terms and subject to the conditions hereinafter set forth. Section 2. DUTIES. Employee shall serve as the Chief Development Officer of the Company. Employee agrees to devote his full time and best efforts to the performance of his duties to the Company. Employee acknowledges that the executive offices of the Company will be located in Phoenix, Arizona. Section 3. TERM. Except as otherwise provided in Section 6 hereof, the term of this Agreement shall be for five (5) years ("Term"), commencing on the date the initial public offering of the Company's common stock ("IPO") is consummated (the "Commencement Date"). Section 4. COMPENSATION AND BENEFITS. In consideration for the services of the Employee hereunder, the Company will compensate Employee as follows: (a) BASE SALARY. Commencing on the Commencement Date, Employee shall be entitled to receive a base salary of $125,000.00 per annum or as increased from time to time by the Board of Directors of the Company or the Compensation Committee of the Board of Directors ("Compensation Committee") thereof. (b) BONUS. Commencing January 1, 1998, Employee shall be eligible to receive a bonus each year during the term of this Agreement in accordance with the bonus plan set forth on Exhibit A. Such bonus shall be payable by the Company to Employee on or before 90 days from the end of each calendar year. (c) BENEFITS. The Company shall grant Employee options to purchase shares of the Company's Common Stock at the initial public offering price for the Company's Common Stock on terms and in a quantity to be agreed upon following good faith negotiations between the Company's management team and the underwriters of the IPO, which terms shall be consistent with the terms of the stock option plans adopted by the Company pursuant to which the options are granted. It currently is contemplated that such options will vest over a period of five years. In addition, during the term of this Agreement, Employee shall be entitled to participate in and receive benefits under any and all employee benefit plans and programs which are from time to time generally made available to the executive employees of the Company, subject to approval and grant by the appropriate committee of the Board of Directors of the Company with respect to programs calling for such approvals or grants. Additionally, Employee shall be entitled to medical, dental, disability, life insurance and other benefits as are generally made available to the executive employees of the Company. Medical, dental and other health insurances shall also be provided for Employee's spouse and children. Employee shall be entitled to three (3) weeks vacation and such other days for personal use as reasonably determined by the Company. Section 5. EXPENSES. It is acknowledged by the parties that Employee, in connection with the services to be performed by him pursuant to the terms of this Agreement, will be required to make payments for travel, entertainment of business associates, mobile telephone and similar expenses. The Company will reimburse Employee for all reasonable expenses of types authorized by the Company and incurred by Employee in the performance of his duties hereunder. Employee will comply with such budget limitations and approval and reporting requirements with respect to expenses as the Company may establish from time to time. Section 6. TERMINATION. Employee's employment hereunder will commence on the Commencement Date and continue until the end of the Term, except that the employment of Employee hereunder will terminate earlier upon the occurrence of the following events: (a) DEATH OR DISABILITY. Employee's employment will terminate immediately upon the death of Employee during the term of his employment hereunder or, at the option of the Company, in the event of Employee's disability, upon 30 days notice to Employee. Employee will be deemed disabled if, as a result of Employee's incapacity due to physical or mental illness, Employee shall have been absent from his duties with the Company on a full-time basis for 120 consecutive business days and Employee shall not reasonably be expected to be able to resume his duties within 60 days of the end of such 120 day period. In the event of the termination of this Agreement pursuant to this subsection, Employee will not be entitled to any severance pay or other compensation except for any portion of his base salary accrued but unpaid from the last monthly payment date to the date of termination and expense reimbursements under Section 5 hereof for expenses incurred in the performance of his duties hereunder prior to termination. (b) FOR CAUSE. The Company may terminate the Employee's employment for "Cause" immediately upon written notice by the Company to Employee. For purposes of this Agreement, a termination will be for Cause if: (i) Employee willfully and continuously fails to perform his duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), (ii) Employee willfully engages in gross misconduct materially and demonstrably injurious to the Company or (iii) Employee has been convicted of a felony. In the event of the termination of this Agreement pursuant to this subsection, Employee will not be entitled to any severance pay or other compensation except for any portion of his base salary accrued but unpaid from the last monthly payment date to the date of termination and expense reimbursements under Section 5 hereof for expenses incurred in the performance of his duties hereunder prior to termination. (c) BY COMPANY WITHOUT CAUSE. The Company may terminate this Agreement during the Term at any time for any reason without cause. In the event of the termination of this Agreement pursuant to this subsection, the Company will pay Employee, as Employee's sole remedy in connection with such termination, severance pay in the amount determined by multiplying (i) Employee's monthly base salary at the rate in effect immediately preceding the termination of Employee's employment, by (ii) in the event the Employee has relocated to the Phoenix, Arizona area, twelve (12) months, or in the event the Employee has not relocated to the Phoenix, Arizona area or resides in the Phoenix, Arizona area on the date hereof, six (6) months. The Company will also pay Employee the portion of his base salary accrued but unpaid from the last monthly payment date to the date of termination and expense reimbursements under Section 5 hereof for expenses incurred in the performance of his duties hereunder prior to termination. The Company will also pay Employee the bonus due Employee under Section 4(a) hereunder accrued to the date of termination, which bonus shall be payable on the date for payment set forth in Section 4(a) hereof. The Company will pay the severance payments provided for in this subsection (other than in the foregoing sentence) in a lump sum amount concurrent with Employee's termination of employment. The Company will not be entitled to offset or mitigate the amount due under this subsection by any other amounts payable to Employee, including amounts payable or paid to Employee by third parties for Employee's services after the date of termination. Section 7. EFFECT OF TERMINATION ON OPTIONS. The Employee has been granted options to purchase shares of the Company's Common Stock and may continue to be granted such options from time to time. The effect of the termination of the Employee's employment on such options shall be determined by the option plan. Section 8. CONFIDENTIAL INFORMATION. Employee recognizes and acknowledges that certain assets of the Company and its affiliates, including without limitation information regarding customers, pricing policies, methods of operation, proprietary computer programs, sales, products, profits, costs, markets, key personnel, formulae, product applications, technical processes, and trade secrets (hereinafter called "Confidential Information") are valuable, special and unique assets of the Company and its affiliates. Employee will not, during or after his term of employment, disclose any of the Confidential Information to any person, firm, corporation, association, or any other entity for any reason or purpose whatsoever, directly or indirectly, except as may be required pursuant to his employment hereunder, unless and until such Confidential Information becomes publicly available other than as a consequence of the breach by Employee of his confidentiality obligations hereunder. In the event of the termination of his employment, whether voluntary or involuntary and whether by the Company or Employee, Employee will deliver to the Company all documents and data pertaining to the Confidential Information and will not take with him any documents or data of any kind or any reproductions (in whole or in part) of any items relating to the Confidential Information. Section 9. NONCOMPETITION. Until one year after termination of Employee's employment with the Company for any reason, whether voluntary or involuntary, Employee will not (i) engage directly or indirectly, alone or as a shareholder, partner, officer, director, employee or consultant of any other business organization, in any business activities which relate to the acquisition and consolidation of dental practices which were either conducted by the Company at the time of Employee's termination or "Proposed to be Conducted" (as defined herein) by the Company at the time of such termination (the "Designated Industry"), (ii) divert to any competitor of the Company in the Designated Industry any customer of Employee, or (iii) solicit or encourage any officer, employee, or consultant of the Company to leave its employ for employment by or with any competitor of the Company in the Designated Industry. The parties hereto acknowledge that Employee's noncompetition obligations hereunder will not preclude Employee from (i) owning less than 5% of the common stock of any publicly traded corporation conducting business activities in the Designated Industry or (ii) serving as an officer, director, stockholder or employee of an entity engaged in the healthcare industry whose business operations are not competitive with those of the Company. "Proposed to be Conducted", as used herein, shall mean those business activities which are the subject of a formal, written business plan approved by the Board of Directors prior to termination of Employee's employment and which the Company takes material action to implement within 12 months of the termination of Employee's employment. Employee will continue to be bound by the provisions of this Section 9 until their expiration and will not be entitled to any compensation from the Company with respect thereto. If at any time the provisions of this Section 9 are determined to be invalid or unenforceable, by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 9 will be considered divisible and will become and be immediately amended to only such area, duration and scope of activity as will be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter; and Employee agrees that this Section 9 as so amended will be valid and binding as though any invalid or unenforceable provision had not been included herein. Section 10. GENERAL. (a) NOTICES. All notices and other communications hereunder will be in writing or by written telecommunication, and will be deemed to have been duly given if delivered personally or if mailed by certified mail, return receipt requested or by written telecommunication, to the relevant address set forth below, or to such other address as the recipient of such notice or communication will have specified to the other party hereto in accordance with this Section 10(a): If to the Company, to: with a copy to: Pentegra Dental Group, Inc. Jackson & Walker, L.L.P. 2999 N. 44th Street, Suite 650 901 Main Street, Suite 6000 Phoenix, Arizona 85018 Dallas, Texas 75202 Attn: Chief Executive Officer Attn: James S. Ryan, III Fax No.: (602) 952-0544 Fax No.: (214) 953-5822 If to Employee, to: ------------------------ ------------------------ ------------------------ ------------------------ (b) WITHHOLDING; NO OFFSET. All payments required to be made by the Company under this Agreement to Employee will be subject to the withholding of such amounts, if any, relating to federal, state and local taxes as may be required by law. No payment under this Agreement will be subject to offset or reduction attributable to any amount Employee may owe to the Company or any other person. (c) EQUITABLE REMEDIES. Each of the parties hereto acknowledges and agrees that upon any breach by Employee of his obligations under any of Sections 8 and 9 hereof, the Company will have no adequate remedy at law, and accordingly will be entitled to specific performance and other appropriate injunctive and equitable relief. (d) SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable, such provision will be fully severable and this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining provisions hereof will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. (e) WAIVERS. No delay or omission by either party hereto in exercising any right, power or privilege hereunder will impair such right, power or privilege, nor will any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege. (f) COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which will be deemed an original, and all of which together will constitute one and the same instrument. (g) CAPTIONS. The captions in this Agreement are for convenience of reference only and will not limit or otherwise affect any of the terms or provisions hereof. (h) REFERENCE TO AGREEMENT. Use of the words "herein," "hereof," "hereto" and the like in this Agreement refer to this Agreement only as a whole and not to any particular subsection or provision of this Agreement, unless otherwise noted. (i) BINDING AGREEMENT. This Agreement will be binding upon and inure to the benefit of the parties and will be enforceable by the personal representatives and heirs of Employee and the successors of the Company. If Employee dies while any amounts would still be payable to him hereunder, such amounts will be paid to Employee's estate. This Agreement is not otherwise assignable by Employee. (j) ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings relating to the subject matter hereof and may not be amended except by a written instrument hereafter signed by each of the parties hereto. (k) GOVERNING LAW. This Agreement and the performance hereof will be construed and governed in accordance with the laws of the State of Arizona, without regard to its choice of law principles. Section 11. BINDING ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled exclusively by arbitration in Phoenix, Arizona, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment upon the award rendered by the arbitrator(s) may be entered in, and enforced by, any court having jurisdiction thereof. EXECUTED as of the date and year first above written. PENTEGRA DENTAL GROUP, INC. By: /s/ Gary S. Glatter ------------------------------------ Its: President & CEO ------------------------------------ EMPLOYEE /s/ James Dunn, Jr. ----------------------------------------- James Dunn, Jr. EXHIBIT A BONUS Employee shall be eligible to receive an annual cash bonus in an amount equal to up to 50% of his base salary in the event that the Company experiences at least 20% or greater 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, the cash bonus payable hereunder and under all other similar agreements between the Company and its officers shall be included prior to such determination. Percentage Increase in Bonus as a Percentage Earnings Per Share Of Annual Base Salary 20.0-22.5% 10% Over 22.5-25.0% 20% Over 25.0% to 27.5% 30% Over 27.5% to 30.0% 40% Over 30.0% 50% ADDENDUM TO EMPLOYMENT AGREEMENT This Addendum to Employment Agreement shall be made a part of the Employment Agreement dated July 12, 1997, between Pentegra Dental Group, Inc. and James Dunn, Jr. Upon relocation of the Employee to Phoenix, Arizona and subsequent relocation by Employee should the headquarters of the Company be moved from Phoenix, Arizona, Employee shall be entitled to receive reimbursement of the moving/relocation expenses set forth below: The Company will reimburse the Employee for all reasonable, out-of-pocket and adequately documented moving expenses. The term "reasonable, out-of-pocket and adequately documented moving expenses incurred by Employee" shall include the following: 1. Expenses incurred by Employee in connection with the sale of Employee's present principal residence, such as real estate commissions and closing costs, payable in connection with such sale but not including an equity loss on the sale of such residence; 2. Expenses in the form of closing costs, but excluding prepayments and mortgage discount points, incurred by Employee in connection with the purchase by Employee of a new permanent principal residence in the area where the Employee is being asked to relocate; 3. Expenses incurred by Employee for the packing and moving of usual and customary personal property and automobiles of Employee located in the present principal residence to the Employee's new residence; 4. Expenses incurred by Employee for up to two (2) trips to the relocation area, of up to three (3) days and nights, for Employee and Employee's spouse in connection with Employee's efforts to locate a new permanent residence (such expenses to include airfare, hotel and automobile rental). 5. Cash reasonably calculated by the Company to negate adverse income tax consequences to Employee of the foregoing reimbursement. Additionally, If Employee is terminated without cause pursuant to Section 6(c) hereof, the Company shall pay to Employee a lump sum amount (on the date of such termination) equal to the amounts paid by the Company to Employee as set forth above (i.e., if Employee receives the sum of $25,000 set forth above for relocation to Phoenix, Arizona and tax consequences of such reimbursement, upon termination of Employee pursuant to Section 6(c), Employee shall again receive the sum of $25,000). EX-10.7 18 EXHIBIT 10.7 EXHIBIT 10.7 EMPLOYMENT AGREEMENT Employment Agreement (the "Agreement"), dated July 12, 1997, by and between Pentegra Dental Group, Inc., a Delaware corporation (the "Company"), and Kimberlee K. Rozman ("Employee"). In consideration of the mutual premises and conditions contained herein, the parties hereto agree as follows: Section 1. EMPLOYMENT. The Company hereby agrees to employ Employee, and Employee hereby accepts employment by the Company, upon the terms and subject to the conditions hereinafter set forth. Section 2. DUTIES. Employee shall serve as the General Counsel and Secretary of the Company. Employee agrees to devote her full time and best efforts to the performance of her duties to the Company. Employee acknowledges that the executive offices of the Company will be located in Phoenix, Arizona. Section 3. TERM. Except as otherwise provided in Section 6 hereof, the term of this Agreement shall be for five (5) years ("Term"), commencing on the date the initial public offering of the Company's common stock ("IPO") is consummated (the "Commencement Date"). Section 4. COMPENSATION AND BENEFITS. In consideration for the services of the Employee hereunder, the Company will compensate Employee as follows: (a) BASE SALARY. Commencing on the Commencement Date, Employee shall be entitled to receive a base salary of $125,000.00 per annum or as increased from time to time by the Board of Directors of the Company or the Compensation Committee of the Board of Directors ("Compensation Committee") thereof. (b) BONUS. Commencing January 1, 1998, Employee shall be eligible to receive a bonus each year during the term of this Agreement in accordance with the bonus plan set forth on Exhibit A. Such bonus shall be payable by the Company to Employee on or before 90 days from the end of each calendar year. (c) BENEFITS. The Company shall grant Employee options to purchase shares of the Company's Common Stock at the initial public offering price for the Company's Common Stock on terms and in a quantity to be agreed upon following good faith negotiations between the Company's management team and the underwriters of the IPO, which terms shall be consistent with the terms of the stock option plans adopted by the Company pursuant to which the options are granted. It currently is contemplated that such options will vest over a period of five years. In addition, during the term of this Agreement, Employee shall be entitled to participate in and receive benefits under any and all employee benefit plans and programs which are from time to time generally made available to the executive employees of the Company, subject to approval and grant by the appropriate committee of the Board of Directors of the Company with respect to programs calling for such approvals or grants. Additionally, Employee shall be entitled to medical, dental, disability, life insurance and other benefits as are generally made available to the executive employees of the Company. Medical, dental and other health insurances shall also be provided for Employee's spouse and children. Employee shall be entitled to three (3) weeks vacation and such other days for personal use as reasonably determined by the Company. Section 5. EXPENSES. It is acknowledged by the parties that Employee, in connection with the services to be performed by him pursuant to the terms of this Agreement, will be required to make payments for travel, entertainment of business associates, mobile telephone and similar expenses. The Company will reimburse Employee for all reasonable expenses of types authorized by the Company and incurred by Employee in the performance of her duties hereunder. Employee will comply with such budget limitations and approval and reporting requirements with respect to expenses as the Company may establish from time to time. Section 6. TERMINATION. Employee's employment hereunder will commence on the Commencement Date and continue until the end of the Term, except that the employment of Employee hereunder will terminate earlier upon the occurrence of the following events: (a) DEATH OR DISABILITY. Employee's employment will terminate immediately upon the death of Employee during the term of her employment hereunder or, at the option of the Company, in the event of Employee's disability, upon 30 days notice to Employee. Employee will be deemed disabled if, as a result of Employee's incapacity due to physical or mental illness, Employee shall have been absent from her duties with the Company on a full-time basis for 120 consecutive business days and Employee shall not reasonably be expected to be able to resume her duties within 60 days of the end of such 120 day period. In the event of the termination of this Agreement pursuant to this subsection, Employee will not be entitled to any severance pay or other compensation except for any portion of her base salary accrued but unpaid from the last monthly payment date to the date of termination and expense reimbursements under Section 5 hereof for expenses incurred in the performance of her duties hereunder prior to termination. (b) FOR CAUSE. The Company may terminate the Employee's employment for "Cause" immediately upon written notice by the Company to Employee. For purposes of this Agreement, a termination will be for Cause if: (i) Employee willfully and continuously fails to perform her duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), (ii) Employee willfully engages in gross misconduct materially and demonstrably injurious to the Company or (iii) Employee has been convicted of a felony. In the event of the termination of this Agreement pursuant to this subsection, Employee will not be entitled to any severance pay or other compensation except for any portion of her base salary accrued but unpaid from the last monthly payment date to the date of termination and expense reimbursements under Section 5 hereof for expenses incurred in the performance of her duties hereunder prior to termination. (c) BY COMPANY WITHOUT CAUSE. The Company may terminate this Agreement during the Term at any time for any reason without cause. In the event of the termination of this Agreement pursuant to this subsection, the Company will pay Employee, as Employee's sole remedy in connection with such termination, severance pay in the amount determined by multiplying (i) Employee's monthly base salary at the rate in effect immediately preceding the termination of Employee's employment, by (ii) in the event the Employee has relocated to the Phoenix, Arizona area, twelve (12) months, or in the event the Employee has not relocated to the Phoenix, Arizona area or resides in the Phoenix, Arizona area on the date hereof, six (6) months. The Company will also pay Employee the portion of her base salary accrued but unpaid from the last monthly payment date to the date of termination and expense reimbursements under Section 5 hereof for expenses incurred in the performance of her duties hereunder prior to termination. The Company will also pay Employee the bonus due Employee under Section 4(a) hereunder accrued to the date of termination, which bonus shall be payable on the date for payment set forth in Section 4(a) hereof. The Company will pay the severance payments provided for in this subsection (other than in the foregoing sentence) in a lump sum amount concurrent with Employee's termination of employment. The Company will not be entitled to offset or mitigate the amount due under this subsection by any other amounts payable to Employee, including amounts payable or paid to Employee by third parties for Employee's services after the date of termination. Section 7. EFFECT OF TERMINATION ON OPTIONS. The Employee has been granted options to purchase shares of the Company's Common Stock and may continue to be granted such options from time to time. The effect of the termination of the Employee's employment on such options shall be determined by the option plan. Section 8. CONFIDENTIAL INFORMATION. Employee recognizes and acknowledges that certain assets of the Company and its affiliates, including without limitation information regarding customers, pricing policies, methods of operation, proprietary computer programs, sales, products, profits, costs, markets, key personnel, formulae, product applications, technical processes, and trade secrets (hereinafter called "Confidential Information") are valuable, special and unique assets of the Company and its affiliates. Employee will not, during or after her term of employment, disclose any of the Confidential Information to any person, firm, corporation, association, or any other entity for any reason or purpose whatsoever, directly or indirectly, except as may be required pursuant to her employment hereunder, unless and until such Confidential Information becomes publicly available other than as a consequence of the breach by Employee of her confidentiality obligations hereunder. In the event of the termination of her employment, whether voluntary or involuntary and whether by the Company or Employee, Employee will deliver to the Company all documents and data pertaining to the Confidential Information and will not take with him any documents or data of any kind or any reproductions (in whole or in part) of any items relating to the Confidential Information. Section 9. NONCOMPETITION. Until one year after termination of Employee's employment with the Company for any reason, whether voluntary or involuntary, Employee will not (i) engage directly or indirectly, alone or as a shareholder, partner, officer, director, employee or consultant of any other business organization, in any business activities which relate to the acquisition and consolidation of dental practices which were either conducted by the Company at the time of Employee's termination or "Proposed to be Conducted" (as defined herein) by the Company at the time of such termination (the "Designated Industry"), (ii) divert to any competitor of the Company in the Designated Industry any customer of Employee, or (iii) solicit or encourage any officer, employee, or consultant of the Company to leave its employ for employment by or with any competitor of the Company in the Designated Industry. The parties hereto acknowledge that Employee's noncompetition obligations hereunder will not preclude Employee from (i) owning less than 5% of the common stock of any publicly traded corporation conducting business activities in the Designated Industry or (ii) serving as an officer, director, stockholder or employee of an entity engaged in the healthcare industry whose business operations are not competitive with those of the Company. "Proposed to be Conducted", as used herein, shall mean those business activities which are the subject of a formal, written business plan approved by the Board of Directors prior to termination of Employee's employment and which the Company takes material action to implement within 12 months of the termination of Employee's employment. Employee will continue to be bound by the provisions of this Section 9 until their expiration and will not be entitled to any compensation from the Company with respect thereto. If at any time the provisions of this Section 9 are determined to be invalid or unenforceable, by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 9 will be considered divisible and will become and be immediately amended to only such area, duration and scope of activity as will be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter; and Employee agrees that this Section 9 as so amended will be valid and binding as though any invalid or unenforceable provision had not been included herein. Section 10. GENERAL. (a) NOTICES. All notices and other communications hereunder will be in writing or by written telecommunication, and will be deemed to have been duly given if delivered personally or if mailed by certified mail, return receipt requested or by written telecommunication, to the relevant address set forth below, or to such other address as the recipient of such notice or communication will have specified to the other party hereto in accordance with this Section 10(a): If to the Company, to: with a copy to: Pentegra Dental Group, Inc. Jackson & Walker, L.L.P. 2999 N. 44th Street, Suite 650 901 Main Street, Suite 6000 Phoenix, Arizona 85018 Dallas, Texas 75202 Attn: Chief Executive Officer Attn: James S. Ryan, III Fax No.: (602) 952-0544 Fax No.: (214) 953-5822 If to Employee, to: Kim Rozman 1702 Waverly Court Richardson, Texas 75082 (b) WITHHOLDING; NO OFFSET. All payments required to be made by the Company under this Agreement to Employee will be subject to the withholding of such amounts, if any, relating to federal, state and local taxes as may be required by law. No payment under this Agreement will be subject to offset or reduction attributable to any amount Employee may owe to the Company or any other person. (c) EQUITABLE REMEDIES. Each of the parties hereto acknowledges and agrees that upon any breach by Employee of her obligations under any of Sections 8 and 9 hereof, the Company will have no adequate remedy at law, and accordingly will be entitled to specific performance and other appropriate injunctive and equitable relief. (d) SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable, such provision will be fully severable and this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining provisions hereof will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. (e) WAIVERS. No delay or omission by either party hereto in exercising any right, power or privilege hereunder will impair such right, power or privilege, nor will any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege. (f) COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which will be deemed an original, and all of which together will constitute one and the same instrument. (g) CAPTIONS. The captions in this Agreement are for convenience of reference only and will not limit or otherwise affect any of the terms or provisions hereof. (h) REFERENCE TO AGREEMENT. Use of the words "herein," "hereof," "hereto" and the like in this Agreement refer to this Agreement only as a whole and not to any particular subsection or provision of this Agreement, unless otherwise noted. (i) BINDING AGREEMENT. This Agreement will be binding upon and inure to the benefit of the parties and will be enforceable by the personal representatives and heirs of Employee and the successors of the Company. If Employee dies while any amounts would still be payable to him hereunder, such amounts will be paid to Employee's estate. This Agreement is not otherwise assignable by Employee. (j) ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings relating to the subject matter hereof and may not be amended except by a written instrument hereafter signed by each of the parties hereto. (k) GOVERNING LAW. This Agreement and the performance hereof will be construed and governed in accordance with the laws of the State of Arizona, without regard to its choice of law principles. Section 11. BINDING ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled exclusively by arbitration in Phoenix, Arizona, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment upon the award rendered by the arbitrator(s) may be entered in, and enforced by, any court having jurisdiction thereof. EXECUTED as of the date and year first above written. PENTEGRA DENTAL GROUP, INC. By: /s/ Gary S. Glatter ------------------------------------ Its: President & CEO ------------------------------------ EMPLOYEE /s/ Kimberlee K. Rozman ------------------------------------------ Kimberlee K. Rozman EXHIBIT A BONUS Employee shall be eligible to receive an annual cash bonus in an amount equal to up to 50% of her base salary in the event that the Company experiences at least 20% or greater 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, the cash bonus payable hereunder and under all other similar agreements between the Company and its officers shall be included prior to such determination. Percentage Increase in Bonus as a Percentage Earnings Per Share Of Annual Base Salary 20.0-22.5% 10% Over 22.5-25.0% 20% Over 25.0% to 27.5% 30% Over 27.5% to 30.0% 40% Over 30.0% 50% ADDENDUM TO EMPLOYMENT AGREEMENT This Addendum to Employment Agreement shall be made a part of the Employment Agreement dated July 12, 1997 between Pentegra Dental Group, Inc. and Kimberlee K. Rozman. Upon relocation of the Employee to Phoenix, Arizona and subsequent relocation by Employee should the headquarters of the Company be moved from Phoenix, Arizona, Employee shall be entitled to receive reimbursement of the moving/relocation expenses set forth below: The Company will reimburse the Employee for all reasonable, out-of-pocket and adequately documented moving expenses. The term "reasonable, out-of-pocket and adequately documented moving expenses incurred by Employee" shall include the following: 1. Expenses incurred by Employee in connection with the sale of Employee's present principal residence, such as real estate commissions and closing costs, payable in connection with such sale but not including an equity loss on the sale of such residence; 2. Expenses in the form of closing costs, but excluding prepayments and mortgage discount points, incurred by Employee in connection with the purchase by Employee of a new permanent principal residence in the area where the Employee is being asked to relocate; 3. Expenses incurred by Employee for the packing and moving of usual and customary personal property and automobiles of Employee located in the present principal residence to the Employee's new residence; 4. Expenses incurred by Employee for up to two (2) trips to the relocation area, of up to three (3) days and nights, for Employee and Employee's spouse in connection with Employee's efforts to locate a new permanent residence (such expenses to include airfare, hotel and automobile rental). 5. Cash reasonably calculated by the Company to negate adverse income tax consequences to Employee of the foregoing reimbursement. Additionally, If Employee is terminated without cause pursuant to Section 6(c) hereof, the Company shall pay to Employee a lump sum amount (on the date of such termination) equal to the amounts paid by the Company to Employee as set forth above (i.e., if Employee receives the sum of $25,000 set forth above for relocation to Phoenix, Arizona and tax consequences of such reimbursement, upon termination of Employee pursuant to Section 6(c), Employee shall again receive the sum of $25,000). EX-10.8 19 EXHIBIT 10.8 EXHIBIT 10.8 - ------------------------------------------------------------------------------- FORM OF SERVICE AGREEMENT DATED AS OF THE ____ DAY OF ________________, 1997 BY AND BETWEEN PENTEGRA DENTAL GROUP, INC., AND ______________ - ------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Relationship of the Parties. . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Services to be Provided by Pentegra. . . . . . . . . . . . . . . . . . . . . . 5 Section 3.1 Overall Function . . . . . . . . . . . . . . . . . . . . . 5 Section 3.2 General Administrative Services. . . . . . . . . . . . . . 5 Section 3.3 Facilities. . . . . . . . . . . . . . . . . . . . . . . . 6 Section 3.4 Acquisition and Assistance.. . . . . . . . . . . . . . . . 7 Section 3.5 Inventory and Supplies . . . . . . . . . . . . . . . . . . 7 Section 3.6 Advertising and Public Relations . . . . . . . . . . . . . 7 Section 3.7 Personnel. . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 3.8 Quality Assurance. . . . . . . . . . . . . . . . . . . . . 8 Section 3.9 Other Consulting and Advisory Services . . . . . . . . . . 8 Section 3.10 Events Excusing Performance. . . . . . . . . . . . . . . . 8 ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Obligations of the Practice. . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 4.1 Employment of Practice Professional Employees and Practice Employees. . . . . . . . . . . . . . . . . . . . 8 Section 4.2 Professional Services. . . . . . . . . . . . . . . . . . . 8 Section 4.3 Dental Practice. . . . . . . . . . . . . . . . . . . . . . 9 Section 4.4 Practice's Internal Matters. . . . . . . . . . . . . . . . 9 Section 4.5 Compliance with Laws . . . . . . . . . . . . . . . . . . . 9 Section 4.6 Ancillary Services; Mergers, Sales, etc.; Issuance of Equity Interests. . . . . . . . . . . . . . . . . . . . . 9 Section 4.7 Premises and Personal Property . . . . . . . . . . . . . . 9 Section 4.8 Practice Employee Benefit Plans. . . . . . . . . . . . . . 10 Section 4.10 Subsequent Equity Owners of the Practice . . . . . . . . . 11 ARTICLE V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Joint Planning Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 5.1 Formation and Operation of the Joint Planning Board. . . . 11 ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Practice Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 6.1 Acknowledgement of Proprietary Interest. . . . . . . . . . 12 Section 6.2 Covenant Not-to-Divulge Confidential and Proprietary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 6.3 Return of Materials to Pentegra. . . . . . . . . . . . . . 12 Section 6.4 Prohibition on Disparaging Remarks . . . . . . . . . . . . 12 Section 6.5 Restrictive Covenants of Dentists and Practice Professional Employees. . . . . . . . . . . . . . . . . . 12 Section 6.6 Enforcement of Employment Agreements. . . . . . . . . . . 13 Section 6.7 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE VII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Financial and Security Arrangements. . . . . . . . . . . . . . . . . . . . . . 13 Section 7.1 Compensation . . . . . . . . . . . . . . . . . . . . . . . 13 Section 7.2 Capital Made Available by Pentegra . . . . . . . . . . . . 14 Section 7.3 Security Agreement . . . . . . . . . . . . . . . . . . . . 14 ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Insurance and Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 8.1 Insurance to be Maintained by the Practice . . . . . . . . 14 Section 8.2 Insurance to be Maintained by Pentegra . . . . . . . . . . 14 Section 8.3 Continuing Liability Insurance Coverage. . . . . . . . . . 14 Section 8.4 Additional Insureds. . . . . . . . . . . . . . . . . . . . 15 Section 8.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Term and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 9.1 Term of Agreement. . . . . . . . . . . . . . . . . . . . . 15 Section 9.2 Extended Term. . . . . . . . . . . . . . . . . . . . . . . 15 Section 9.3 Termination by the Practice. . . . . . . . . . . . . . . . 15 Section 9.4 Termination by Pentegra. . . . . . . . . . . . . . . . . . 16 Section 9.5 Effective Date of Termination. . . . . . . . . . . . . . . 16 Section 9.6 Purchase of Assets . . . . . . . . . . . . . . . . . . . . 16 Section 9.7 Terms of Purchase. . . . . . . . . . . . . . . . . . . . . 17 Section 9.8 Exception to Purchase. . . . . . . . . . . . . . . . . . . 17 Section 9.9 Effect Upon Termination. . . . . . . . . . . . . . . . . . 18 ARTICLE X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 10.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 10.2 Amendments . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 10.3 Waiver of Provisions . . . . . . . . . . . . . . . . . . . 18 Section 10.4 Additional Documents . . . . . . . . . . . . . . . . . . . 18 Section 10.5 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . 19 Section 10.6 Contract Modifications for Prospective Legal Events. . . . 19 Section 10.7 Offset . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 10.8 Parties In Interest; No Third Party Beneficiaries. . . . . 19 Section 10.9 Entire Agreement . . . . . . . . . . . . . . . . . . . . . 19 Section 10.10 Severability . . . . . . . . . . . . . . . . . . . . . . . 19 Section 10.11 Governing Law. . . . . . . . . . . . . . . . . . . . . . . 19 Section 10.12 No Waiver; Remedies Cumulative . . . . . . . . . . . . . . 19 Section 10.13 Language Construction. . . . . . . . . . . . . . . . . . . 20 Section 10.14 Communications . . . . . . . . . . . . . . . . . . . . . . 20 Section 10.15 Captions . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 10.16 Gender and Number. . . . . . . . . . . . . . . . . . . . . 20 Section 10.17 Reference to Agreement . . . . . . . . . . . . . . . . . . 20 Section 10.18 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 10.19 Counterparts . . . . . . . . . . . . . . . . . . . . . . . 21 Section 10.20 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . 21 Section 10.21 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . 21
-ii- LIST OF EXHIBITS Exhibit 1.1(h)(vi) - Excluded Practice Expenses Exhibit 3.3 - Premises Exhibit 4.8(c) - Approved Retirement Plans Exhibit 4.10 - Dentist Agreement Exhibit 7.1(b) - Service Fee Exhibit 7.3 - Form of Security Agreement Exhibit 10.18 - Addresses for Notice -iii- SERVICE AGREEMENT This Service Agreement (this "Agreement"), dated as of __________________, 1997, is by and between Pentegra Dental Group, Inc., a Delaware corporation ("Pentegra"), and ________________, (the "Practice") W I T N E S S E T H: WHEREAS, the Practice conducts a dental practice and provides professional dental care and products to the general public; and WHEREAS, Pentegra and its Affiliates manage the non-professional functions of dental practices. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and on the terms and subject to the conditions herein set forth, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 DEFINITIONS. For the purposes of this Agreement, the following definitions shall apply: (a) "Acquisition" shall mean the acquisition described in the Acquisition Agreement. (b) "Acquisition Agreement" shall mean the ______________, dated ________________, among _____________________________. (c) "Acquisition Closing Date" shall mean the date the Acquisition is effective pursuant to the terms of the Acquisition Agreement. (d) "Affiliate" with respect to any person shall mean a person that directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such person. Pentegra and the Practice shall not be deemed to be an Affiliate of the other. (e) "Code" shall mean the Internal Revenue Code of 1986, as amended. (f) "Dentists" shall mean _______________________ and any holder of any equity interest in the Practice. (g) "Employment Agreements" shall mean the employment agreements entered into between the Practice and each Dentist in the form set forth as an exhibit to the Acquisition Agreement and any employment agreements entered into between the Practice and Practice Professional Employees. (h) "Excluded Practice Expenses" shall mean, pursuant to GAAP applied on a consistent basis: 1 (i) any salaries or other distributions made to any Dentists or any equity holder of the Practice, whether for professional fee income or otherwise, and any expenses related thereto, including payroll and other taxes associated therewith, (ii) all costs associated with life insurance and profit sharing or pension benefits for any Dentist or any equity holder of the Practice, (iii) any federal, state or local franchise or income taxes applicable to the Practice or any Dentist and the preparation of tax returns for any Dentist, (iv) legal, accounting and other costs incurred by the Practice or any Dentist in connection with the negotiation, preparation of or closing of the transactions contemplated by the Acquisition Agreement, this Agreement or any other document executed in connection herewith or therewith, (v) salaries and benefits and related payroll and other taxes of Practice Professional Employees not included in the Practice operating budget or not otherwise agreed to by Pentegra in the manner set forth in SECTION 5.1(b), and (vi) any other expenses specifically included in "Excluded Practice Expenses" in this Agreement and the expenses set forth on EXHIBIT 1.1(h)(vi). (i) "Fair Market Value" shall mean the fair market value as agreed to by the Practice and Pentegra, or if the parties cannot agree to such value by ninety (90) days prior to the Purchase Closing, fair market value as determined by an Independent Financial Expert selected by Pentegra; provided, however, that if the Practice shall object to such determination within ten (10) days after being notified thereof by Pentegra, the Practice and Pentegra shall each select an Independent Financial Expert who shall select another Independent Financial Expert to determine fair market value and the value determined by such third party Independent Financial Expert shall be binding on the parties hereto. Independent Financial Expert shall mean any entity regularly engaged in the business of evaluating assets of dental Practices and associated businesses and who is not an Affiliate of Pentegra, the Practice or any Dentist. (j) "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board and Securities and Exchange Commission or in such other statements by such other entity or other practices and procedures as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. (k) "IRS" shall mean the Internal Revenue Service. (l) "Joint Planning Board" shall mean a three (3) member joint board established pursuant to SECTION 5.1. (m) "Pentegra Common Stock" shall mean the common stock, par value $0.01 per share, of Pentegra. (n) "Pentegra Expenses" shall mean, pursuant to GAAP applied on a consistent basis: (i) Any corporate overhead charges of Pentegra and other items incurred by Pentegra that are not incurred specifically for the purpose of providing services to the Practice or are not 2 directly attributable to the Practice as reasonably determined by Pentegra, including without limitation, salaries and benefits of executive officers of Pentegra; (ii) Any amortization of any intangible asset resulting from the Acquisition; (iii) Any legal and accounting expenses incurred by Pentegra in connection with the Acquisition; (iv) All taxes of Pentegra, including but not limited to local, state and federal income taxes and franchise taxes, but excluding local, state and federal employee taxes related to any Dentist or employees who provide services for the Practice, property taxes on assets used by the Practice or any Dentist and other taxes specifically included in Excluded Practice Expenses or Practice Expenses; and (v) Any other expenses specifically included in "Pentegra Expenses" in this Agreement. (o) "Practice" shall include the Practice as defined in the first paragraph of this Agreement and all satellite locations and related businesses of such Practice. (p) "Practice Employees" shall mean those non-dentist licensed individuals (such as hygenists) who are employed by or otherwise under contract or associated with the Practice that generate a professional charge, and that are required by law to be employed by the Practice. (q) "Practice Expenses" shall mean, pursuant to GAAP, all operating and non-operating expenses of Pentegra incurred in the operation of the Practice and all operating and non-operating expenses of the Practice incurred by the Practice in the operation of the Practice, including, without limitation (and other than as set forth on EXHIBIT 1.1(h)(vi)): (i) Salaries, benefits and other direct costs of all employees of Pentegra (other than officers of Pentegra located at Pentegra's headquarters) who perform services directly for the Practice, and for those who perform services on a proportionate basis for the Practice, the allocated portion of their time which is spent on the Practice, and all salaries and benefits of Practice Employees including, without limitation, federal and state employee taxes and costs related to workers' compensation; (ii) Direct costs of all employees (other than officers of Pentegra located at Pentegra's headquarters) or consultants of Pentegra and their Affiliates engaged to provide services at or in connection with the Practice or who actually provide services at or in connection with the Practice for improved performance, such as quality assurance, materials management, purchasing program, charge and coding analysis, dentist recruitment, and business office consultation; provided, however, only the portion of expenses related to such employee or consultant, without mark-up, that is allocable to work performed at or for the benefit of the Practice shall be included in Practice Expenses; provided, however, that any third-party consultants shall be approved by the Practice, such approval not to be unreasonably withheld; (iii) The obligations of Pentegra under leases or subleases for assets which are leased or utilized for the benefit of the Practice; (iv) Real, personal and intangible property taxes assessed against Pentegra's assets which are leased or utilized for the benefit of the Practice, commencing on the date of this Agreement; 3 (v) All costs, fees, expenses and other disbursements incurred in connection with the Premises (as defined in SECTION 3.3) and the Personal Property (as defined in SECTION 3.3), including, without limitation, all costs of repairs, maintenance and improvements, utility expenses (i.e., telephone, electric, gas and water), janitorial services, refuse disposal, real or personal property lease cost payments and expenses, taxes and casualty, liability and other insurance; (vi) Any tax assessed against the Practice or any Dentist by any state in which the Practice or any Dentist practices dentistry and any sales and use taxes assessed against the Practice or any Dentist related to Practice operations, the practice of dentistry by any Dentist or assessed against Pentegra related to services or property provided hereunder; (vii) Expenses related to professional meetings, seminars and dues and professional licensing fees of any Dentist, any Practice Employee, any Practice Professional Employee or related to the business of the Practice; (viii) The costs of third-party preparation of (and/or the costs of Pentegra as agreed to between the Practice and Pentegra for the preparation of) tax returns and similar matters for the Practice; (ix) Salaries and benefits of Practice Professional Employees as agreed to by Pentegra pursuant to SECTION 5.1 hereof; (x) Interest expense on indebtedness incurred in connection with assets acquired or utilized (other than the assets acquired in the Acquisition) by Pentegra for the benefit of the Practice; interest expense on indebtedness incurred by the Practice in connection with Pentegra making advances or capital available to the Practice and in providing other services pursuant to this Agreement; book basis depreciation expense on any assets acquired or utilized by Pentegra (other than the assets acquired in the Acquisition) for the benefit of the Practice, determined by applying the straight line method of depreciation over the useful life of the asset. (xi) All expenses specifically included in "Practice Expenses" in this Agreement; (xii) Other expenses incurred by Pentegra in providing services for the direct benefit of the Practice or any Dentist or in carrying out its obligations under this Agreement, including without limitation, the Practice's pro rata share of the costs (without markup) of a central business office if one is established for the payroll and accounting functions of the Practice (other than costs incurred in connection with the headquarters of Pentegra); and Provided, however, that, notwithstanding anything contained herein, Pentegra Expenses and Excluded Practice Expenses shall not be included in Practice Expenses. (r) "Practice Professional Employees" shall mean those individuals who are dentists employed by the Practice or otherwise under contract or associated with the Practice to provide professional dental services to patients of the Practice; provided, however, that the Dentists shall be excluded from the definition of Practice Professional Employees. (s) "Revenues" for any month, shall mean, pursuant to GAAP, all fees and income of the Practice and the Dentists (net of Adjustments) including, without limitation, the fees and income as a result of professional services furnished to patients by Dentists, Practice Professional Employees, Practice Employees or employees of the Practice or any Dentist and other fees or income generated in their capacity as professionals, whether rendered in an inpatient or outpatient setting. "Adjustments" shall mean any 4 adjustments for uncollectible accounts, discounts, disallowances, worker's compensation, employee/dependent health care benefit programs, professional courtesies and other activities to the extent they do not generate a collectible fee or offset of fee previously recorded. ARTICLE II RELATIONSHIP OF THE PARTIES The Practice and Pentegra intend to act and perform as independent contractors, and the provisions hereof are not intended to create any partnership, joint venture, agency or employment relationship between the parties. Pentegra and the Practice agree that the Practice shall retain the exclusive authority to direct the dental, professional, and ethical aspects of its dental practice. Pentegra shall neither exercise control over nor interfere with the patient relationships of the Practice or the Dentists, which shall be maintained strictly between the dental professionals of the Practice, the Dentists and their patients. The parties hereby agree that the benefits to the Practice hereunder do not require, are not payment for, and are not in any way contingent upon the admission, referral or any other arrangement for the provision of any item or service offered by Pentegra or any of its Affiliates to any of the Practice's or Dentist's patients in any facility or laboratory controlled, managed or operated by Pentegra. ARTICLE III SERVICES TO BE PROVIDED BY PENTEGRA SECTION 3.1 OVERALL FUNCTION. Pentegra shall provide or arrange for the services set forth in this ARTICLE III, and the costs, fees, expenses and other disbursements incurred by Pentegra in connection therewith shall be included in Practice Expenses, except to the extent such costs, fees or expenses are expressly included in Excluded Practice Expenses or Pentegra Expenses. Pentegra is authorized to perform its services hereunder as is necessary or appropriate for the efficient operation of the Practice. The Practice will not act in a manner that would prevent Pentegra from performing its duties hereunder and will provide such information and assistance to Pentegra as is reasonably required by Pentegra to perform its services hereunder. Pentegra shall, and shall use its best efforts to cause its employees to, comply with all applicable federal, state and local laws, rules and regulations in its provision of services hereunder. SECTION 3.2 GENERAL ADMINISTRATIVE SERVICES. (a) The Practice hereby engages Pentegra to serve as its exclusive manager of non-dental services relating to the operation and business of the Practice. The Practice agrees that the purpose and intent of this Agreement is to relieve the Practice to the maximum extent possible of the administrative, accounting, purchasing, non-dentist personnel and other business aspects of their practices. Pentegra agrees that the Practice, the Dentists and Practice Professional Employees, and only the Practice, the Dentists and Practice Professional Employees, will perform the dental functions of the Practice; provided, however, that to the extent that a Pentegra employee assists a Dentist, any Practice Professional Employee or the Practice in performing dental functions, such employee shall be subject to the professional direction and supervision of such Dentist, Practice Professional Employee or Practice and in the performance of such dental functions, shall not be subject to any direction or control by, or liability to, Pentegra, except as may be specifically authorized by Pentegra. Pentegra shall have no authority, directly or indirectly, to perform or supervise, and shall not perform or supervise, any dental function. Pentegra may, however, advise the Practice as to the relationship between its performance of dental functions and the overall administrative and business functions of its practice to the extent permitted by applicable law. 5 (b) Pentegra shall, in the name of and on behalf of the Practice and the Dentists, bill patients, insurance companies, managed care payors, governmental entities and other third-party payors and collect the professional and ancillary fees for services rendered by the Practice, for services performed outside the Practice for its patients, for all other professional and Practice services and products and for services rendered by the Practice, the Dentists and Practice Employees. The Practice hereby appoints Pentegra for the term of this Agreement to be its true and lawful attorney-in-fact, for the following purposes: (i) to bill patients, insurance companies, managed care payors, government payors and other third-party payors in the Practice's name and on its behalf; (ii) to collect accounts receivable resulting from such billing in the Practice's name and on its behalf; (iii) to receive payments on behalf of the Practice from insurance companies, prepayments received from health care plans, government payors and all other third party payors; (iv) to take possession of and endorse in the name of the Practice (and/or in the name of an individual dentist, such payment intended for purpose of payment of a bill related to the Practice), any notes, checks, money orders, insurance payments and other instruments received in payment of accounts receivable and to open, close and otherwise deal with bank accounts in the name of the Practice but which are managed by Pentegra; and (v) to initiate the institution of legal proceedings in the name of the Practice or a Practice Professional Employee to collect any accounts and monies owed to the Practice, any Dentist or a Practice Professional Employee, to enforce the rights of the Practice, any Dentist or any Practice Professional Employee as creditor under any contract or in connection with the rendering of any service, and to contest adjustments and denials by governmental agencies (or their fiscal intermediaries) as third-party payors. The Practice may perform the functions or exercise the rights set forth in this SECTION 3.2(b) only with the consent of Pentegra. The Practice shall cooperate with and at the request of Pentegra shall provide reasonable assistance to Pentegra with the functions set forth herein. (c) Pentegra shall supply to the Practice the ordinary, necessary or appropriate services for the efficient operation of the Practice, including without limitation, necessary front desk, administration of recall and patient scheduling systems, clerical, accounting, purchasing, payroll, legal, bookkeeping and computer services, information management, printing, postage and duplication services and transcribing services. Pentegra shall prepare annual and monthly unaudited financial statements for the Practice containing a balance sheet and income statement, which shall be delivered to the Practice as soon as practicable, but no later than 45 days after the end of each calendar month and 120 days after the end of each calendar year. Any audits to be conducted at the request of the Practice with respect to such financial statements shall be an Excluded Practice Expense. (d) Pentegra shall maintain all files and records of the Practice relating to the operation and business of the Practice, including, but not limited to, accounting, billing, collection and customary financial records and patient files. The management of all files and records shall comply with all applicable federal, state and local statutes and regulations, and all files and records shall be located so that they are readily accessible for patient care, consistent with ordinary records management practices. The Practice shall supervise the preparation of, and direct the contents of, patient records, all of which shall remain confidential. All original patient records shall be and remain the property of the Dentists or the Practice, as required by applicable law, except as provided in the Dentist Agreement. (e) The Joint Planning Board, in consultation with Pentegra, shall submit the annual operating and capital budget for the Practice to Pentegra at least one hundred twenty (120) days prior to the end of each fiscal year. Pentegra shall review and approve, or disapprove, such budget and if Pentegra shall disapprove of such budget, it shall provide its reasons to the Practice. The parties hereto agree to use their best efforts to agree to such annual operating and capital budget for the Practice no later than thirty (30) days prior to the end of each fiscal year. All Non- Budgeted Expenses (including salaries/benefits of Practice Professional Employees) shall be subject to the approval of Pentegra. Non-Budgeted Expenses shall mean those expenses not set forth on the budget prepared by the Joint Planning Board and approved by Pentegra. 6 SECTION 3.3 FACILITIES. (a) PREMISES. Pentegra shall make available to the Practice the premises that are described in EXHIBIT 3.3 attached hereto and such other real property leased or acquired (with the consent of the Practice, such consent not to be unreasonably withheld) and improvements made by Pentegra for the use of the Practice hereunder ("Premises"); provided, that in the event that Pentegra's right to use any such Premises shall terminate, Pentegra shall use its best efforts to provide other suitable premises to be used by the Practice, which premises shall be approved by the Practice, such approval not to be unreasonably withheld. Pentegra shall obtain for the Practice all utilities reasonably required in connection with the use of the Premises and shall provide for the proper cleanliness of the Premises, including normal janitorial services and refuse disposal. (b) PERSONAL PROPERTY. Pentegra shall provide the Practice with the use of the equipment, furniture, fixtures, furnishings and other personal property acquired by Pentegra in the Acquisition, together with such other equipment, furniture, fixtures, furnishings and other personal property acquired by Pentegra for the use of Practice pursuant to the terms hereof (collectively, the "Personal Property"). (c) DISPOSITION. Nothing herein shall be construed as precluding Pentegra from selling, leasing or otherwise disposing of all or any part of its real property, improvements, Personal Property, tradenames, trademarks and other intangible property; provided that any such disposition shall not eliminate or diminish Pentegra's obligations hereunder or unreasonably interfere with the operations of the Practice. SECTION 3.4 ACQUISITION AND ASSISTANCE. In the event a decision is made by the Practice to employ additional dentists or acquire dental groups or practices, Pentegra may, in its reasonable discretion and subject to applicable law, assist the Practice in the identification and selection of dentists or dentist groups or practices that may be beneficial in the operation of the Practice. In the event that a decision is made by the Practice to pursue the employment of selected dentists or the acquisition of a particular dental group or practice, Pentegra may, in its reasonable discretion and subject to applicable law, provide recruiting, consulting, negotiating and other services and may provide for legal, accounting and other professional advisor services in connection with such transaction. Nothing contained herein shall be construed to require Pentegra to provide any capital, funds or other assistance to the Practice in connection with the employment of dentists or acquisition of dental groups or practices by the Practice. SECTION 3.5 INVENTORY AND SUPPLIES. Pentegra shall order and purchase inventory and supplies, and such other ordinary, necessary or appropriate materials which are requested by the Practice and which the Practice shall reasonably determine to be necessary in the operation of the Practice. Such inventory, supplies and other materials shall be included in Practice Expenses at their pro rata cost (without markup) to Pentegra. Pentegra shall use its best efforts to negotiate, establish, supervise and maintain purchasing contracts with suppliers of dental supplies and equipment and lab services for the benefit of the Practice. SECTION 3.6 ADVERTISING AND PUBLIC RELATIONS. In consultation with, and upon the reasonable request of, the Practice, Pentegra shall implement and design (where requested) any appropriate local public relations or advertising program on behalf of the Practice, with appropriate emphasis on public awareness of the availability of services at the Practice, the cost of which shall be a Practice Expense. Upon the reasonable request of the Practice, Pentegra shall also design and implement all national or other local and non-local public relations or advertising programs on behalf of the Practice, the cost of which shall be included in Practice Expenses. The parties hereto agree that all public relations and advertising programs shall be conducted in compliance with applicable standards of ethics, laws and regulations. SECTION 3.7 PERSONNEL. Pentegra shall provide non-dentist professional support and administrative, clerical, secretarial, bookkeeping and collection personnel as reasonably necessary for the efficient conduct of the Practice's operations. Pentegra shall consult with the Practice to determine the salaries and fringe benefits to be paid to such personnel. Such personnel shall be under the direction, supervision and control of Pentegra, with those 7 personnel performing patient care services subject to the professional supervision of the Practice and Dentists while such personnel are performing such patient care services. If the Practice is dissatisfied with the services of any Pentegra personnel, the Practice shall consult with Pentegra. Pentegra shall in good faith determine whether the performance of that employee could be brought to acceptable levels through counsel and assistance, or whether such employee should be reassigned or terminated. Additionally, upon the reasonable request of the Practice (and provided that such expense is provided for in the Budget), Pentegra shall hire such non-dentist professional support and administrative staff for the Practice as is reasonably requested by the Practice. All of Pentegra's obligations regarding staff shall be governed by the overriding principle and goal of providing high quality dental care. Employee assignments shall be made to assure consistent and continued rendering of high quality dental support services and to ensure prompt availability and accessibility of individual dental support personnel to the Practice, Dentists and other practices for which Pentegra provides management services in order to develop constant, familiar and routine working relationships. SECTION 3.8 QUALITY ASSURANCE. Subject to ARTICLE II, Pentegra shall assist the Practice in fulfilling its obligations to its patients to maintain a high quality of dental and professional services and the expenses incurred in connection therewith shall be Practice Expenses. SECTION 3.9 OTHER CONSULTING AND ADVISORY SERVICES. Pentegra will provide such consulting and other advisory services as requested by the Practice in all areas of the Practice's or the Dentists' business functions, including, without limitation, financial planning, acquisition and expansion strategies, development of long-term business objectives and other related matters. The costs and expenses of third party consultants engaged by Pentegra to provide such services shall be Practice Expenses. SECTION 3.10 EVENTS EXCUSING PERFORMANCE. In the event of strikes, lock-outs, calamities, acts of God, unavailability of supplies or other events over which Pentegra has no control, Pentegra shall not be liable to the Practice for failure to perform any of the services required hereunder and the Practice shall not have the right to terminate this Agreement for so long as such events continue and for a reasonable period of time thereafter; provided, however, that if such events continue and Pentegra is not able to perform any of the services required hereunder for a period of 120 consecutive days or more, Pentegra or Practice may terminate this Agreement by written notice to the other. ARTICLE IV OBLIGATIONS OF THE PRACTICE SECTION 4.1 EMPLOYMENT OF PRACTICE PROFESSIONAL EMPLOYEES AND PRACTICE EMPLOYEES. The Practice shall have complete control of and responsibility for the hiring, compensation, supervision, training, evaluation and termination of their Practice Professional Employees and Practice Employees, although at the request of the Practice, Pentegra and/or the Joint Planning Board (as set forth in SECTION 5.1) shall consult with the Practice with respect to such matters. The Practice shall conduct an appropriate and reasonable due diligence review in connection with the hiring of any dentist or the acquisition of any dental group or practice. Although Pentegra may provide payroll and other related services to the Practice, the Practice shall be legally responsible for the payment of such Dentists' and Practice Professional Employees' and the Practice Employees' salaries and wages, payroll taxes and all other taxes now or hereafter applicable to their employment. Such salaries, wages, payroll taxes and other such taxes shall be Practice Expenses or Excluded Practice Expenses as set forth in SECTION 1.1 hereof and nothing contained herein shall be construed otherwise. The Practice, the Dentists, the Practice Professional Employees and the Practice Employees shall not have any claim under this Agreement or otherwise against Pentegra for workers' compensation, unemployment compensation or Social Security benefits, all of which shall be the responsibility of the Practice. The Practice shall only employ or contract with licensed dentists or other persons meeting applicable credentialing guidelines established by the Practice and approved by the Joint Planning Board. The Practice shall cooperate in the obtaining and retaining of professional liability insurance by ensuring that the Dentists, Practice Professional Employees and the Practice 8 Employees, and other employees who may have malpractice exposure or liability, are insurable and participate in an on-going risk management program. SECTION 4.2 PROFESSIONAL SERVICES. The Practice shall provide professional services to patients in compliance at all times with ethical standards, laws, rules and regulations applicable to the operations of the Practice, the Dentists and the Practice Professional Employees. The Practice shall ensure that each Dentist, Practice Employee and Practice Professional Employee has all required licenses, credentials, approvals or other certifications to perform his or her duties and services for the Practice. In the event that any disciplinary actions or malpractice actions are initiated against any Dentist or Practice Professional Employee, the Practice shall promptly inform Pentegra of such action and the underlying facts and circumstances. The Practice shall carry out a program to monitor the quality of care practiced by the Dentists and at the Practice, and agree to cooperate with Pentegra in establishing a system of peer review within and among the dental practices associated with Pentegra or its Affiliates. SECTION 4.3 DENTAL PRACTICE. The Practice shall use and occupy the Premises exclusively for the practice of dentistry and for providing other related services and products. Unless otherwise approved in writing by Pentegra, which approval shall not be unreasonably withheld, it is expressly acknowledged by the Practice that the dental practice or practices conducted by the Practice shall be conducted solely by dentists associated with the Practice, and that the Practice shall not permit any other dentists or practitioner to use or occupy the Practice. The Practice and the Dentists shall be solely and exclusively in control of all aspects of the practice of dentistry and the delivery of services by the Dentists or at the Practice's facilities. The rendition of all professional services, including, but not limited to, diagnosis, treatment, therapy and the supervision and preparation of dental records shall be the sole responsibility of the Practice.. Notwithstanding any provision of this Agreement to the contrary, nothing herein shall be construed as precluding Pentegra from permitting the use of or from entering into agreements with other dentists or entities owned by other dentists similar to this Agreement, with respect to the Premises, Personal Property and tradenames and trademarks of Pentegra utilized by the Practice pursuant to this Agreement; provided any such other agreement shall not eliminate or diminish Pentegra's obligations hereunder or unreasonably interfere with the Practice's operations. SECTION 4.4 PRACTICE'S INTERNAL MATTERS. The Practice shall be responsible for matters involving its respective corporate governance, employees and similar internal matters, including, but not limited to, preparation and contents of such reports to regulatory and tax authorities governing the Practice that the Practice is required by law to provide and distribution of professional fee income among the Dentists or the equity holders of the Practice. The legal, accounting and other professional services fees incurred by the Practice in connection with the internal matters of the Practice, the distribution of the fee income among Dentists or equity holders of the Practice and the personal accounting of the Practice and the Dentists and similar internal and personal matters (other than the preparation of Practice tax returns, which cost shall be a Practice Expense) shall be Excluded Practice Expenses. SECTION 4.5 COMPLIANCE WITH LAWS. The Practice shall, and shall use its best efforts to cause the Dentists, the Practice Employees and the Practice Professional Employees, to comply with all applicable federal, state and local laws, rules, regulations and restrictions in the conduct of the Practice's business. Without limiting the generality of the foregoing, the Practice shall, and shall use its best efforts to cause the Dentists, Practice Employees and Practice Professional Employees not to: (a) knowingly and willfully make or cause to be made a false statement or representation of a material fact in any application for any benefit or payment; (b) knowingly and willfully make or cause to be made any false statement or representation of a material fact for use in determining rights to any benefit or payment; (c) fail to disclose knowledge of the occurrence of any event affecting the initial or continued right to any benefit or payment on its own behalf or on behalf of another, with the intent to fraudulently secure such benefit or payment; or (d) violate any applicable state or federal anti-remuneration or self-referral statutes, rules or regulations. SECTION 4.6 ANCILLARY SERVICES; MERGERS, SALES, ETC.; ISSUANCE OF EQUITY INTERESTS. The Practice agrees not to acquire, establish or commence the operation of any satellite location, dental office, laboratory or similar entity or organization after the date hereof without the prior written consent of Pentegra, which consent shall not be unreasonably withheld. Should the expansion of service or establishment of a new Practice or location be approved, 9 Pentegra, at its option, shall have the exclusive right to provide services at the new Practice or the Practice, as applicable. The Practice shall not enter into any agreement for the sale, lease of or other disposition of all or any material portion of the Practice's assets, merge or consolidate with any other entity or liquidate or dissolve or wind-up Practice's affairs or enter into any partnerships, joint ventures or sale-leaseback transactions or purchase or otherwise acquire (in one or a series of transactions) any part of the property or assets of any other person or entity without the prior written consent of Pentegra. The Practice shall not issue any equity interests in the Practice without the prior written consent of Pentegra. SECTION 4.7 PREMISES AND PERSONAL PROPERTY. The Practice shall use its best efforts to prevent damage, excessive wear and tear, and malfunction or other breakdown of the Premises and Personal Property or any part thereof. The Practice shall promptly inform Pentegra in writing of any and all necessary replacements, repairs or maintenance to any of the Premises or Personal Property and any failures of equipment that they become aware of. The Practice shall comply with all covenants and provisions set forth in any leases for the Premises entered into or assumed by Pentegra and Pentegra agrees to provide copies of all such leases to the Practice. SECTION 4.8 PRACTICE EMPLOYEE BENEFIT PLANS. (a) Effective on the Acquisition Closing Date, the Practice shall amend the tax-qualified retirement plan(s) described on EXHIBIT 4.8(c) (the "Practice Plan") to provide that employees of Pentegra who are classified as "leased employees" (as defined in Code Section 414(n)) of the Practice shall be treated as Practice employees for purposes of the Practice Plan to the extent required by applicable law. The Practice and Pentegra shall establish mutually agreeable procedures with respect to the identification of "leased employees" for purposes of the Practice Plan. Such procedures shall be designed to avoid the tax disqualification of the Practice Plan, similar plans of practices similarly situated, and any similar plan sponsored or maintained by the Pentegra from time to time (collectively, the "Plans"). (b) If the Joint Planning Board determines that the relationship between the Pentegra and the Practice (and other Practices similarly situated) constitutes an "affiliated service group" (as defined in Code Section 414(m)), Pentegra and the Practice shall take such actions as may be necessary to avoid the tax disqualification of the Plans. Such actions may include the amendment, freeze, termination or merger of the Practice Plan. (c) The Plans described on EXHIBIT 4.8(c) attached hereto are approved by Pentegra. The Practice shall not enter into any new "employee benefit plan" (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") without the written consent of Pentegra. In addition, the Practice shall not offer any retirement benefits or make any material retirement payments other than under the Practice Plan to any stockholder of the Practice without the written consent of Pentegra. Except as otherwise required by law, the Practice shall not materially amend, freeze, terminate or merge the Practice Plan without the written consent of Pentegra. Notwithstanding anything contained herein to the contrary, the Practice acknowledges and agrees that it will not maintain a self-funded employee welfare benefit plan after the Acquisition Closing Date. (d) Expenses incurred in connection with the Practice Plan or other Practice employee benefit plans, including without limitation the compensation of counsel, accountants, corporate trustees, and other agents shall be included in Practice Expenses. (e) The contribution and administration expenses for all employees of Pentegra or the Practice other than the Dentists shall be included in the Practice's operating budget. The Practice and Pentegra shall not make employee benefit plan contributions or payments to the Practice for their respective employees in excess of such budgeted amounts unless required by law or the terms of the Practice Plan. Pentegra shall make contributions or payments with respect to the Practice Plan or other Practice employee benefit plans, as a 10 Practice Expense, on behalf of eligible employees of Pentegra. The Practice shall make contributions or payments with respect to the Practice Plan or other Practice employee benefit plans, as a Practice Expense, on behalf of eligible employees of the Practice (other than Dentists, which contributions or payments shall be Excluded Practice Expenses). In the event a Practice Plan or other Practice employee benefit plan is terminated, Pentegra shall be responsible, as a Practice Expense, for any funding liabilities related to eligible Practice Professional Employees, designated leased employees, and other eligible Practice employees (other than the Dentists). SECTION 4.9 BANK ACCOUNTS. The Practice agrees to establish and maintain a bank account for the purpose of (a) depositing Revenues, (b) paying Practice Expenses, (c) depositing Capital Funds, and (d) paying the Service Fee. The Practice shall designate a Pentegra employee as a signatory on such bank account. Pentegra shall pay Practice Expenses from such account as those expenses become due and funds are available. Pentegra shall also be authorized to withdraw the Service Fee from such account on the date due pursuant to SECTION 7.1(c). During each month, the Practice shall not, and the Practice shall cause the Dentists not to, withdraw at any time from any bank accounts that contain sums constituting Revenues or Capital Funds in an amount constituting the Practice Expenses and Service Fee anticipated to be payable, pursuant to the budget or otherwise. During each month, Pentegra shall not withdraw at any time from any bank accounts that contain sums constituting Revenues or Capital Funds an amount in excess of Practice Expenses and Service Fee anticipated to be payable for the then current month, pursuant to the budget or otherwise. In the event of a dispute or objection as to the applicable Service Fee to be withdrawn from such account, the parties agree that the amount that is not subject to dispute or objection may be withdrawn as provided herein and to use their best efforts to mutually agree as to the remainder of the Service Fee due and payable. If the parties are unable to agree as to such amount and right of withdrawal within ten business days, the determination of such amount and right of withdrawal shall be subject to arbitration as provided in SECTION 10.21 hereof. SECTION 4.10 SUBSEQUENT EQUITY OWNERS OF THE PRACTICE. As a condition to any person or entity becoming a owner of any interest in the Practice, the Practice shall require that such person or entity execute a Dentist Agreement in the form of EXHIBIT 4.10 attached hereto, and such person or entity shall execute an Employment Agreement in form and substance attached as an Exhibit to the Acquisition Agreement. ARTICLE V JOINT PLANNING BOARD SECTION 5.1 FORMATION AND OPERATION OF THE JOINT PLANNING BOARD. (a) The parties hereto shall establish a Joint Planning Board which shall be responsible for developing long-term strategic planning objectives and management policies for the overall operation of the Practice and shall facilitate communication and interaction between Pentegra and the Practice. The Joint Planning Board shall consist of three (3) members. Pentegra shall designate, in its sole discretion, one (1) member of the Joint Planning Board. The Practice shall designate, in its sole discretion, two (2) members of the Joint Planning Board. The act of a majority of the members of the Joint Planning Board shall be the act of the Joint Planning Board. (b) The Joint Planning Board shall, in addition to the responsibilities set forth elsewhere in this Agreement, have the authority to (i) develop and assist the Practice in implementing long-term strategic objectives, (ii) prepare proposals and make recommendations to the Board of Directors of Pentegra regarding capital expenditures, capital improvements and expansion projects on behalf of the Practice and the Dentists, (iii) assist and consult with Pentegra in preparation of the annual capital and operating budgets of the Practice, (iv) consider and make recommendations regarding grievances pertaining to matters not specifically addressed 11 in this Agreement if such matters are referred to it by the Practice or Pentegra, (v) make recommendations to the Practice regarding the number and type of dentists required for the efficient operation of the Practice, (vi) subject to the provisions contained in SECTION 4.8, make decisions and recommendations regarding the Practice Plan; (vii) develop and assist the Practice in implementing an exit strategy in the event of retirement or semi-retirement of a Dentist to cover issues such as securing replacement coverage for the Dentist and/or buyout provisions for the Dentist's ownership of the Practice; and (viii) make recommendations to the Practice regarding the salaries and benefits of Practice Professional Employees, which salaries and benefits shall be Practice Expenses only to the extent contained in the budget or otherwise approved by Pentegra. Pentegra shall not unreasonably withhold consent to such salaries/benefits of Practice Professional Employees being included in Practice Expenses if such inclusion would not have a material adverse effect on the anticipated or historically received Service Fee. Subject to the foregoing, decisions regarding hiring or firing dentists shall be made solely by the Practice. ARTICLE VI PRACTICE COVENANTS SECTION 6.1 ACKNOWLEDGEMENT OF PROPRIETARY INTEREST. The Practice recognizes the proprietary interest of Pentegra and the dental practices managed by Pentegra (collectively, "Pentegra Group") in any Confidential and Proprietary Information (as hereinafter defined) of Pentegra Group. The Practice acknowledges and agrees that any and all Confidential and Proprietary Information communicated to, learned of, developed or otherwise acquired by the Practice during the term of this Agreement shall be the property of Pentegra Group. The Practice further acknowledges and understands that its disclosure of any Confidential and Proprietary Information will result in irreparable injury and damage to Pentegra Group. As used herein, "Confidential and Proprietary Information" means all trade secrets and other confidential and/or proprietary information of Pentegra Group, including information derived from reports, investigations, research, work in progress, codes, marketing and sales programs, financial projections, cost summaries, pricing formula, contracts analyses, financial information, projections, confidential filings with any state or federal agency, and all other confidential concepts, methods of doing business, ideas, materials or information (other than the Practice's or the Dentists' patients, patient records or income and expense information prepared by the Practice) prepared or performed for, by or on behalf of Pentegra Group by its employees, officers, directors, agents, representatives, or consultants. SECTION 6.2 COVENANT NOT-TO-DIVULGE CONFIDENTIAL AND PROPRIETARY INFORMATION. The Practice acknowledges and agrees that Pentegra Group is entitled to prevent the disclosure of Confidential and Proprietary Information. The Practice agrees at all times during the term of this Agreement and thereafter to hold in strictest confidence and not to disclose to any person, firm or corporation, other than to Practice Professional Employees and persons engaged by Pentegra to further the business of the Practice, and not to use except in the pursuit of the business of Pentegra Group, Confidential and Proprietary Information, without the prior written consent of Pentegra; unless (i) such information becomes known or available to the public generally through no wrongful act of the Practice or its employees, (ii) disclosure is required by law or the rule, regulation or order of any governmental authority under color of law, provided, that prior to disclosing any Confidential and Proprietary Information pursuant to this clause (ii), the Practice shall, if possible, give prior written notice thereof to Pentegra and provide Pentegra with the opportunity to contest such disclosure, or (iii) the Practice reasonably believes that such disclosure is required in connection with a lawsuit to which the Practice is a party. SECTION 6.3 RETURN OF MATERIALS TO PENTEGRA. In the event of any termination of this Agreement for any reason whatsoever, or at any time upon the request of Pentegra, the Practice will promptly deliver to Pentegra all documents, data and other information in the Practice's possession that contains any Confidential and Proprietary Information. The Practice shall not take or retain any documents or other information, or any reproduction or excerpt thereof, containing any Confidential and Proprietary Information, unless otherwise authorized in writing by Pentegra. 12 SECTION 6.4 PROHIBITION ON DISPARAGING REMARKS. During the term of this Agreement, the Practice shall, and shall cause, the Dentists, the Practice Professional Employees and the Practice Employees to, refrain from making disparaging, negative or other similar remarks concerning the Pentegra Group to any third party that causes substantial harm to the Pentegra Group, except to the extent that any such person (a) is required to make such remarks by applicable law or regulation or judicial or regulatory process or (b) makes such remarks in or in connection with any pending or threatened litigation or other legal proceeding. SECTION 6.5 RESTRICTIVE COVENANTS OF DENTISTS AND PRACTICE PROFESSIONAL EMPLOYEES. Each Employment Agreement executed between the Practice and Dentists and certain of the Employment Agreements executed between the Practice and Practice Professional Employees contain certain restrictive covenants pertaining to covenants not to compete with and not to divulge the confidential and proprietary information of Pentegra, the Dentists and the Practice. During the term of this Agreement, the Practice shall obtain written agreements which contain restrictive covenants reasonably approved by Pentegra (after consultation with the Practice) from each Practice Professional Employee (other than Practice Employees) associated with the Practice after the date hereof. During the term hereof, the Practice shall not amend, alter or otherwise change or terminate any Employment Agreement without the prior written consent of Pentegra. Following termination of this Agreement, the Practice shall not amend, alter or otherwise change any term or provision of the restrictive covenants contained in such Employment Agreement unless such provisions are no longer in force and effect pursuant to the terms of the applicable agreement at the time of termination of this Agreement. SECTION 6.6 ENFORCEMENT OF EMPLOYMENT AGREEMENTS. The Practice shall enforce the Employment Agreements, including, without limitation, the restrictive covenants contained therein. In the event that, after a request by Pentegra, the Practice does not pursue any remedy that may be available to it by reason of a breach or default of the restrictive covenants or any other provision of the Employment Agreements, upon the request of Pentegra, the Practice shall assign to Pentegra such Employment Agreements and the causes of action and/or other rights it may have related to such breach or default and shall cooperate with and provide reasonable assistance to Pentegra with respect thereto. The costs and expenses of the Practice and/or Pentegra in connection with pursuing such causes of action or other rights shall be Practice Expenses and any monetary recovery thereunder shall be Revenues. The provisions of this SECTION 6.6 shall survive termination of this Agreement. SECTION 6.7 REMEDIES. Pentegra and the Practice acknowledge and agree that a remedy at law for any breach or attempted breach of the provisions of this ARTICLE VI shall be inadequate, and therefore, either party shall be entitled to specific performance and injunctive or other equitable relief in the event of any such breach or attempted breach, in addition to any other rights or remedies available to either party at law or in equity. Each party hereto waives any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief. If any provision of the restrictive covenants contained in the Employment Agreements or this ARTICLE VI relating to the restrictive period, scope of activity restricted and/or the territory described therein shall be declared by a court of competent jurisdiction to exceed the maximum time period, scope of activity restricted or geographical area such court deems reasonable and enforceable under applicable law, the time period, scope of activity restricted and/or area of restriction held reasonable and enforceable by the court shall thereafter be the restrictive period, scope of activity restricted and/or the territory applicable to such provision of the restrictive covenants or this ARTICLE VI. The invalidity or non-enforceability of any provision of the restrictive covenants or this ARTICLE VI in any respect shall not affect the validity or enforceability of the remainder of the restrictive covenants or this ARTICLE VI or of any other provisions of this Agreement. 13 ARTICLE VII FINANCIAL AND SECURITY ARRANGEMENTS The Practice and Pentegra agree that the compensation set forth in this ARTICLE VII is being paid to Pentegra in consideration of the services provided and the substantial commitment and effort made by Pentegra hereunder and that such fees have been negotiated at arms' length and are fair, reasonable and consistent with fair market value. SECTION 7.1 COMPENSATION. (a) PRACTICE EXPENSES. Pentegra shall be entitled to compensation from the Practice equal to the amount of all Practice Expenses incurred during the term of this Agreement (determined pursuant to GAAP) (the "Practice Expenses"). (b) SERVICE FEE. Pentegra shall be entitled to compensation from the Practice equal to the amount set forth on EXHIBIT 7.1(b) attached hereto and made a part hereof (the "Service Fee"). (c) PAYMENT TERMS. The payments to be made to Pentegra under this Agreement shall be made at the end of each month, but no later than the 15th day after the end of each month (or the first preceeding day that is a business day if the 15th is not a business day). Pentegra shall be entitled to withdraw funds from the bank account(s) of the Practice established pursuant to SECTION 4.10 to pay Pentegra for Practice Expenses and the Service Fee. SECTION 7.2 CAPITAL MADE AVAILABLE BY PENTEGRA. As necessary from time to time and with the approval of the Practice, which shall not unreasonably be withheld, Pentegra may acquire assets to be utilized by the Practice, loan funds directly to the Practice or borrow funds on behalf of the Practice from outside sources to finance capital expenditures and for working capital needs ("Capital Funds"). All Capital Funds shall be documented in an intercompany account and shall bear interest (i) in the case of funds loaned directly from Pentegra or in the case of assets acquired by Pentegra to be utilized by the Practice, at Pentegra's prevailing rate, or if none, at the prime lending rate of NationsBank of Texas, N.A., or (ii) in the case of funds borrowed from an outside source, at such cost from the outside source, and shall be evidenced by a promissory note which shall provide for arms length repayment terms on substantially the same terms that an independent third-party lender would require. SECTION 7.3 SECURITY AGREEMENT. In order to secure their obligations hereunder, the Practice shall execute a Security Agreement in substantially the form attached hereto as EXHIBIT 7.3 (the "Security Agreement"), which Security Agreement grants a security interest in the Practice's accounts receivable (as more fully described in the Security Agreement) to Pentegra. In addition, the Practice shall cooperate with Pentegra and execute all necessary documents in connection with the pledge of such accounts receivable to Pentegra or at Pentegra's option, its lenders. ARTICLE VIII INSURANCE AND INDEMNITY SECTION 8.1 INSURANCE TO BE MAINTAINED BY THE PRACTICE. During the term of this Agreement, the Practice shall maintain comprehensive professional liability insurance for itself and each Dentist and Clinic Professional Employee with such carrier as determined jointly by Pentegra and the Practice with limits per claim and per dentist to be agreed upon by Pentegra and the Practice and a separate limit for the Practice with such deductible as is mutually agreeable by Pentegra and the Practice. All malpractice premiums and deductibles related thereto shall be included in Practice Expenses. All costs, expenses and liabilities incurred by the Practice, any Dentist or Pentegra in excess of the limits of such policies shall be included in Excluded Practice Expenses. 14 SECTION 8.2 INSURANCE TO BE MAINTAINED BY PENTEGRA. During the term of this Agreement, Pentegra will use commercially reasonable efforts to provide and maintain, as a Practice Expense, comprehensive professional liability insurance for all professional employees of Pentegra, and comprehensive general liability and property insurance covering the Practice premises and operations with such limits and coverages as may reasonably be determined to be appropriate by Pentegra. SECTION 8.3 CONTINUING LIABILITY INSURANCE COVERAGE. The Practice shall obtain or require the Dentists and the Practice Professional Employees to obtain continuing liability insurance coverage under either a "tail policy" or a "prior acts policy," with the same limits and deductibles as the insurance coverage provided pursuant to SECTION 8.1 upon the termination of such professional's relationship with the Practice for any reason. In the event that neither the Practice, the Dentists nor the Practice Professional Employee obtains such continuing liability insurance coverage, Pentegra may do so. The cost of such continuing liability insurance coverage shall be included in Practice Expenses unless such cost is borne by the Dentist or the Practice Professional Employee. SECTION 8.4 ADDITIONAL INSUREDS. The Practice and Pentegra agree to use their reasonable efforts to have each other named as an additional insured on the other's respective professional liability insurance programs. The additional cost, if any, associated therewith shall be a Practice Expense. SECTION 8.5 INDEMNIFICATION. The Practice shall indemnify, defend and hold Pentegra and its officers, directors, shareholders, employees, agents and consultants (other than such persons who are also officers, directors, shareholders, employees, agents or consultants of the Practice) harmless, from and against any and all liabilities, losses, damages, claims, causes of action and expenses (including reasonable attorneys' fees), not covered by insurance (including self-insured insurance and reserves), whenever arising or incurred, that are caused or asserted to have been caused, directly or indirectly, by or as a result of the performance of services or the performance of any intentional acts, negligent acts or omissions by the Dentists, the Practice and/or their shareholders, employees and/or subcontractors (other than Pentegra or its employees) during the term of this Agreement or related to, resulting from or arising out of an Pentegra employee performing a dental or related function under the supervision of any Dentist, Practice Professional Employee or the Practice. Pentegra shall indemnify, defend and hold the Practice and its officers, shareholders, directors, employees, agents and consultants, harmless from and against any and all liabilities, losses, damages, claims, causes of action and expenses (including reasonable attorneys' fees), not covered by insurance (including self-insured insurance and reserves), whenever arising or incurred, that are caused or asserted to have been caused, directly or indirectly, by or as a result of the performance of any intentional acts, negligent acts or omissions by Pentegra and/or its shareholders, employees and/or subcontractors (other than the Practice, Practice Professional Employees, the Dentists or their employees) during the term of this Agreement. In the event an indemnification obligation under the preceding sentence arises as a result of any act or omission of a person who is an officer, shareholder or other equity holder, director, employee, agent or consultant of the Practice and Pentegra, such person shall not be entitled to indemnification in connection therewith and any other adjustment as is equitable shall be made to Pentegra's indemnification obligation arising thereby. ARTICLE IX TERM AND TERMINATION SECTION 9.1 TERM OF AGREEMENT. This Agreement shall commence on the date hereof and shall expire on the 40th anniversary hereof unless earlier terminated pursuant to the terms of either SECTION 9.3 or SECTION 9.4 or automatically extended pursuant to the terms of SECTION 9.2. SECTION 9.2 EXTENDED TERM. Unless earlier terminated as provided for in either SECTION 9.3 or SECTION 9.4, the term of this Agreement shall be automatically extended for additional terms of five (5) years each, unless any party delivers to the other parties, not less than twelve (12) months nor earlier than fifteen (15) months prior to the expiration of the preceding term, written notice of such party's intention not to extend the term of this Agreement. 15 SECTION 9.3 TERMINATION BY THE PRACTICE. The Practice may terminate this Agreement with respect to such party by giving written notice thereof to Pentegra (after the giving of any required notices and the expiration of any applicable waiting periods set forth below) upon the occurrence of any the following events: (a) Pentegra shall admit in writing its inability to generally pay its debts when due, apply for or consent to the appointment of a receiver, trustee or liquidator of all or substantially all of its assets, file a petition in bankruptcy or make an assignment for the benefit of creditors, or upon other action taken or suffered by Pentegra voluntarily or involuntarily, under any federal or state law for the benefit of creditors, except for the filing of a petition in involuntary bankruptcy against Pentegra which is dismissed within sixty (60) days thereafter. (b) Pentegra shall default in the performance of any material duty or material obligation imposed upon it by this Agreement and such default shall continue for a period of sixty (60) days after written notice thereof has been given to Pentegra by the Practice, provided that the Practice may terminate this Agreement, if and only if, such termination shall have been approved by the affirmative vote of the holders of two-thirds of the interests of the equity holders of the Practice. SECTION 9.4 TERMINATION BY PENTEGRA. Pentegra may terminate this Agreement in its entirety or with respect to the Practice by giving written notice thereof to the Practice (after the giving of any required notices and the expiration of any applicable waiting periods set forth below) upon the occurrence of any the following events: (a) The Practice shall admit in writing its inability to generally pay its debts when due, apply for or consent to the appointment of a receiver, trustee or liquidator of all or substantially all of its assets, file a petition in bankruptcy or make an assignment for the benefit of creditors, or upon other action taken or suffered by the Practice, voluntarily or involuntarily, under any federal or state law for the benefit of debtors, except for the filing of a petition in involuntary bankruptcy against the Practice which is dismissed within sixty (60) days thereafter. (b) The Practice shall default in the performance of any material duty or material obligation imposed upon it by this Agreement, and such default shall continue for a period of sixty (60) days after written notice thereof has been given to the Practice by Pentegra. (c) The Practice or any Dentist (i) engages in any conduct for which the Practice's or any Dentist's license to practice dentistry is revoked or suspended or is reasonably likely to be revoked or suspended and such conduct has a material adverse effect on the Practice, (ii) is otherwise disciplined by any licensing, regulatory or professional entity or institution, (iii) 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. (d) The Employment Agreement executed between the Practice and the Dentist shall be terminated (i) for any reason (other than the death or Disability of the Dentist) during the five year period beginning on the date hereof, or (ii) due to the breach by Dentist under the terms thereof following the five year period beginning on the date hereof. SECTION 9.5 EFFECTIVE DATE OF TERMINATION. Any termination of this Agreement shall be effective (the "Termination Date") as follows: (a) Immediately upon receipt of a termination notice pursuant to either SECTION 9.3, SECTION 9.4 or SECTION 3.11 (a "Termination Notice"); or (b) Upon the expiration of this Agreement pursuant to SECTIONS 9.1 and 9.2. 16 SECTION 9.6 PURCHASE OF ASSETS. Upon the termination of this Agreement, subject to the provisions set forth below, the Practice shall have the option to, and Pentegra shall have the option to require the Practice to: (a) Purchase from Pentegra or its Affiliates, as the case may be, all assets, tangible and intangible, of Pentegra or its Affiliates that are used principally by the Practice in the conduct of its business and practice, other than Pentegra's or its Affiliates' accounting and financial records (the "Purchase Assets"), including, but not limited to, without duplication, (i) all equipment, furniture, fixtures, furnishings, inventory, supplies, improvements, additions and leasehold improvements utilized exclusively by the Practice, (ii) any real estate owned by Pentegra or its Affiliates that is occupied by or used for the benefit of the Practice, and (iii) all other tangible and intangible assets that would be set forth on a balance sheet of Pentegra or its Affiliates prepared as of the date of the Purchase Closing (as defined in SECTION 9.7) relating primarily to the Practice; and (b) Assume all of Pentegra's and its Affiliates' liabilities, debt, payables and other obligations (including lease and other contractual obligations), or portions thereof, which relate directly or are directly attributable to the Purchase Assets (the "Practice Related Liabilities"). The Practice shall be able to exercise its option under this Section (unless this Agreement is terminated pursuant to SECTION 9.4) and Pentegra shall be able to exercise its option under this Section (unless this Agreement is terminated pursuant to SECTION 9.3) by giving written notice thereof in the Termination Notice, if applicable, or prior to ninety (90) days before the Termination Date if this Agreement is terminated pursuant to SECTIONS 9.1 and 9.2. In connection with the purchase and sale of the Purchase Assets pursuant to SECTION 9.6, Pentegra shall convey the Purchase Assets free of any lien, claim or encumbrance, other than those arising out of the Practice Related Liabilities. SECTION 9.7 TERMS OF PURCHASE. The closing of the transactions contemplated by SECTION 9.6 (the "Purchase Closing") shall occur (a) on the Termination Date if this Agreement expires pursuant to the terms of SECTIONS 9.1 and 9.2, or (b) on a date mutually acceptable to the parties hereto that shall be within 180 days after receipt of a Termination Notice (or such later date as is necessary for Pentegra to obtain lessor consents to the assignment to the Practice of leases of real and personal property to be assumed by the Practice. Subject to the conditions set forth below, at the Purchase Closing, Pentegra and/or its Affiliates, as the case may be, shall transfer and assign the Purchase Assets to the Practice and in consideration therefor, the Practice shall (a) pay to Pentegra an amount in cash or, at the option of the Practice (subject to the conditions set forth below), Pentegra Common Stock (valued at the last reported sale price of Pentegra Common Stock on the exchange on which the Pentegra Common Stock is then listed or the last quoted ask price on any over-the-counter market through which the Pentegra Common Stock is then quoted on the last trading day immediately preceding the Purchase Closing), or some combination of cash and Pentegra Common Stock equal to the excess, if any, of the Fair Market Value of the Purchase Assets as of a date agreed upon by the parties or, if none, the date for which the Independent Financial Expert's determination is made, over the amount of the Practice Related Liabilities (the "Purchase Price") and (b) assume the Practice Related Liabilities. Each party shall execute such documents or instruments as is reasonably necessary, in the opinion of each party and its counsel, to effect the foregoing transaction. The Practice shall, and shall use its best efforts to cause each shareholder of the Practice to, execute such documents or instruments as may be necessary to cause the Practice to assume the Practice Related Liabilities and to release Pentegra and/or its Affiliates, as the case may be, from any liability or obligation with respect thereto. In the event the Practice desires to pay all or a portion of the Purchase Price in shares of Pentegra Common Stock, such transaction shall be subject to the satisfaction of each of the following conditions: (a) The holders of such shares of Pentegra Common Stock shall transfer to Pentegra good, valid and marketable title to the shares of Pentegra Common Stock, free and clear of all adverse claims, security interests, liens, claims, proxies, options, stockholders' agreements and encumbrances; 17 (b) The holders of such shares of Pentegra Common Stock shall make such representations and warranties as to title to the stock, absences of security interests, liens, claims, proxies, options, stockholders' agreements and other encumbrances and other matters as reasonably requested by Pentegra; and (c) All other terms and conditions of any such proposed transaction and the effects thereof, including any legal or tax consequences, shall be reasonably satisfactory to Pentegra. SECTION 9.8 EXCEPTION TO PURCHASE. Notwithstanding anything contained herein to the contrary, Pentegra shall not be obligated to sell the Purchase Assets to the Practice if the Practice is not able to pay the Purchase Price pursuant to the terms set forth above and assume the Practice Related Liabilities at the Purchase Closing. In such event, the Practice shall surrender the Purchase Assets to Pentegra as of the Termination Date. If the Practice fails to so surrender the Purchase Assets, Pentegra may, without prejudice to any other remedy which it may have hereunder or otherwise, enter the Premises and take possession of the Purchase Assets and expel or remove the Practice and any other person who may be occupying the Premises or any part thereof. SECTION 9.9 EFFECT UPON TERMINATION. Upon the Termination Date, this Agreement shall terminate and shall be of no further force and effect; provided, however: (a) Upon termination of this Service Agreement pursuant to SECTION 9.4, the Practice shall assign the Employment Agreements and the patient records of the Practice to Pentegra or its designee (which may be any person or entity designated by Pentegra in its sole discretion) and execute all documents requested by Pentegra to evidence such assignment. (b) Pentegra shall use its best efforts to cooperate with the Practice for the appropriate transfer of management services. (c) Each party hereto shall provide the other party with reasonable access to books and records owned by it to permit such requesting party to satisfy reporting and contractual obligations which may be required of it. (d) Any amounts due and owing under the Capital Funds and all Practice Expenses and Service Fees owing and unpaid to either Pentegra or the Practice as of the Termination Date shall be paid promptly by the appropriate party. If not paid on or before ten (10) days from the date of demand for such payment, such failure to pay shall be deemed to be an event of default hereunder and Pentegra shall be entitled to enforce the Security Agreement and foreclose the collateral referenced therein. (e) Any and all covenants and obligations of either party hereto which by their terms or by reasonable implication are to be performed, in whole or in part, after the termination of this Agreement, shall survive such termination, including, without limitation, the obligations of the parties pursuant to the following SECTIONS: 6.1, 6.2, 6.5, 6.6, 6.7, 8.5, 9.6, ARTICLE VII and the applicable provisions of ARTICLE X; provided, however, that Sections 6.5 and 6.6 hereof shall not survive termination of this Agreement pursuant to SECTION 9.3 hereof or termination of this Agreement pursuant to mutual consent of the parties hereto. ARTICLE X GENERAL PROVISIONS SECTION 10.1 ASSIGNMENT. Pentegra shall have the right to assign its rights hereunder to any lender of Pentegra, any Affiliate of Pentegra or any successor to all or substantially all of the assets of Pentegra; provided that such assignee shall agree to be bound by the terms and conditions contained heretin. Pentegra shall have the right to 18 assign the items set forth in Section 9.9(a) to any person or entity in its sole discretion. The Practice shall not have the right to assign their rights or obligations hereunder without the prior written consent of Pentegra. SECTION 10.2 AMENDMENTS. This Agreement shall not be modified or amended except by a written document executed by both parties to this Agreement, and such written modification(s) or amendment(s) shall be attached hereto. SECTION 10.3 WAIVER OF PROVISIONS. Any waiver of any terms and conditions hereof must be in writing, and signed by the parties hereto. The waiver of any of the terms and conditions of this Agreement shall not be construed as a waiver of any other terms and conditions hereof. SECTION 10.4 ADDITIONAL DOCUMENTS. Each of the parties hereto agrees to execute any document or documents that may be requested from time to time by the other party to implement or complete such party's obligations pursuant to this Agreement. SECTION 10.5 ATTORNEYS' FEES. If legal action is commenced by either party to enforce or defend its rights under this Agreement, the prevailing party in such action shall be entitled to recover its costs and reasonable attorneys' fees in addition to any other relief granted. SECTION 10.6 CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS. In the event any state or federal laws or regulations, now existing or enacted or promulgated after the date hereof, are interpreted by judicial decision, a regulatory agency or legal counsel in such a manner as to indicate that this Agreement or any provision hereof may be in violation of such laws or regulations, the Practice and Pentegra shall amend this Agreement as necessary to preserve the underlying economic and financial arrangements between the Practice and Pentegra and without substantial economic detriment to either party. To the extent any act or service required of Pentegra in this Agreement should be construed or deemed, by any governmental authority, agency or court to constitute the illegal practice of dentistry, the performance of said act or service by Pentegra shall be deemed waived and forever unenforceable and the provisions of this SECTION 10.6 shall be applicable. Neither party shall claim or assert illegality as a defense to the enforcement of this Agreement or any provision hereof; instead, any such purported illegality shall be resolved pursuant to the terms of this SECTION 10.6 and SECTION 10.10. SECTION 10.7 OFFSET. Any and all amounts owing or to be paid by the Practice to Pentegra hereunder or otherwise shall be subject to offset and reduction PRO TANTO by any amounts that may be owing at any time by Pentegra to the Practice in connection with this Agreement or any other agreement between Pentegra and the Practice or any transaction contemplated hereby or thereby, as reasonably determined by Pentegra. If Pentegra determines that such offset is appropriate, written notice specifying the reason for such offset shall be given to the Practice at least ten (10) days prior to the due date of the payment to be reduced. In the event that the Practice disputes any amount to be offset hereunder by written notice given to Pentegra within five (5) days of receipt of the foregoing written notice by Pentegra, such dispute shall be subject to arbitration as set forth in SECTION 10.21 hereof. SECTION 10.8 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective heirs, legal representatives, successors and permitted assigns of the parties hereto. Neither this Agreement nor any other agreement contemplated hereby shall be deemed to confer upon any person not a party hereto or thereto any rights or remedies hereunder or thereunder. SECTION 10.9 ENTIRE AGREEMENT. This Agreement and the agreements contemplated hereby constitute the entire agreement of the parties regarding the subject matter hereof, and supersede all prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. 19 SECTION 10.10 SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. SECTION 10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF LAWS) OF THE STATE OF INCORPORATION OF THE PRACTICE AS OF THE DATE HEREOF. SECTION 10.12 NO WAIVER; REMEDIES CUMULATIVE. No party hereto shall by any act (except by written instrument pursuant to SECTION 10.2 hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default in or breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of any party hereto, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No remedy set forth in this Agreement or otherwise conferred upon or reserved to any party shall be considered exclusive of any other remedy available to any party, but the same shall be distinct, separate and cumulative and may be exercised from time to time as often as occasion may arise or as may be deemed expedient. SECTION 10.13 COMMUNICATIONS. The Practice and Pentegra agree that good communication between the parties is essential to the successful performance of this Agreement, and each pledges to communicate fully and clearly with the other on matters relating to the successful operation of the Practice. SECTION 10.14 CAPTIONS. The captions in this Agreement are for convenience of reference only and shall not limit or otherwise affect any of the terms or provisions hereof. SECTION 10.15 GENDER AND NUMBER. When the context requires, the gender of all words used herein shall include the masculine, feminine and neuter and the number of all words shall include the singular and plural. SECTION 10.16 REFERENCE TO AGREEMENT. Use of the words "herein", "hereof", "hereto" and the like in this Agreement shall be construed as references to this Agreement as a whole and not to any particular Article, Section or provision of this Agreement, unless otherwise noted. SECTION 10.17 NOTICE. Whenever this Agreement requires or permits any notice, request, or demand from one party to another, the notice, request, or demand must be in writing to be effective and shall be deemed to be delivered and received (i) if personally delivered or if delivered by telex, telegram, facsimile or courier service, when actually received by the party to whom notice is sent or (ii) if delivered by mail (whether actually received or not), at the close of business on the third business day next following the day when placed in the mail, postage prepaid, certified or registered, addressed to the appropriate party or parties, at the address of such party set forth below (or at such other address as such party may designate by written notice to all other parties in accordance herewith): If to Pentegra: Pentegra Dental Group, Inc. 2999 N. 44th Street, Suite 650 Phoenix, Arizona 85018 Fax No.: (602) 952-0544 Attn: President 20 with a copy to: Jackson Walker L.L.P. 901 Main Street, Suite 6000 Dallas, Texas 75202 Fax No.: (214) 953-5822 Attn: James S. Ryan, III If to the Practice: See Exhibit 10.18 with a copy to: See Exhibit 10.18 SECTION 10.18 COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. SECTION 10.19 DEFINED TERMS. Terms used in the Exhibits attached hereto with their initial letter capitalized and not otherwise defined therein shall have the meanings assigned to such terms in this Agreement. SECTION 10.20 ARBITRATION. Upon the request of either Pentegra or the Practice (hereinafter referred to as a "Party"), whether made before or after the institution of any legal proceeding, any dispute among the parties hereto in any way arising out of, related to, or in connection with this Agreement (hereinafter a "Dispute"), shall be resolved by binding arbitration in accordance with the terms of this Section (hereinafter the "Arbitration Program"). All Disputes between the Parties shall be resolved by binding arbitration administered by the American Arbitration Association (the "AAA") in accordance with the terms of this Arbitration Program, the Commercial Arbitration Rules of the AAA. In the event of any inconsistency between this Arbitration Program and those rules or statutes, then the terms of this Arbitration Program shall control. The parties hereto agree to adhere to all warranties and covenants (as described herein) until such time as the arbitration process has been completed and the arbitrators have determined each party's post-arbitration obligations and responsibilities as it relates to such warranties and covenants. No provision of, nor the exercise of any rights under, this Arbitration Program shall limit the right of any Party at any time to seek or use ancillary or preliminary judicial or non-judicial self help remedies for the purposes of obtaining, perfecting, preserving, or foreclosing upon any personal property in which there has been granted a security interest or lien by a Party in the Documents. In Disputes involving indebtedness or other monetary obligations, each Party agrees that the other Party may proceed against all liable persons, jointly and severally against one or more of them, without impairing rights against other liable persons. Nor shall a Party be required to join the principal obligor or any other liable persons (e.g., sureties or guarantors) in any proceeding against a particular person. A Party may release or settle with one or more liable persons as the Party deems fit without releasing or impairing rights to proceed against any persons not so released. All statutes of limitation that would otherwise be applicable shall apply to any arbitration proceeding. The party seeking arbitration shall notify the other Party, in writing, of that Party's desire to arbitrate a dispute; and each Party shall, within twenty (20) days from the date such notification is received, select an arbitrator, and those two arbitrators shall select a third arbitrator within ten (10) days thereafter. The issues or claims in dispute shall be committed to writing, separately stated and numbered, and each party's proposed answers or contentions shall be signed below the questions. Failure by a party to select an arbitrator within the prescribed time period shall serve as that Party's acquiescence and acceptance of the other party's selection of arbitrator. The arbitrators shall resolve all Disputes in accordance with the applicable substantive law. Any Dispute shall be decided by a majority vote of three arbitrators, unless the claim or amount in controversy does not exceed $100,000.00, in which case a single arbitrator (who shall have authority to render a maximum award of $100,000.00, including all damages of any kind, 21 costs and fees) may decide the Dispute. The arbitrators may grant any remedy or relief that the arbitrators deem just and equitable and within the scope of this Arbitration Program. The arbitrators may also grant such ancillary relief as is necessary to make effective the award. In all arbitration proceedings the arbitrators shall make specific and written findings of fact and conclusions of law. In all arbitration proceedings in which the amount in controversy exceeds $100,000.00, in the aggregate, the Parties shall have in addition to the statutory right to seek vacation or modification of any award pursuant to applicable law, the right to seek vacation or modification of any award that is based in whole, or in part, on an incorrect or erroneous ruling of law by appeal to an appropriate court having jurisdiction; provided, however, that any such application for vacation or modification of an award based on an incorrect ruling of law must be filed in a court having jurisdiction over the Dispute within 15 days from the date the award in rendered. The arbitrators' findings of fact shall be binding on all Parties and shall not be subject to further review except as otherwise allowed by applicable law. To the maximum extent practicable, an arbitration proceeding hereunder shall be concluded within 180 days of the filing of the Dispute with AAA. Arbitration proceedings hereunder shall be conducted where agreed to in writing by the Parties or, in the absence of such agreement in Phoeniz, Arizona or the headquarters of Pentegra if other than Phoeniz, Arizona. The provisions of this Arbitration Program shall survive any termination, amendment, or expiration of the Documents, unless the Parties otherwise expressly agree in writing making specific reference to this Arbitration Program. To the extent permitted by applicable law, the arbitrator shall have the power to award recovery of all costs and fees (including attorney's fees, administrative fees, and arbitrators' fees) to the prevailing Party. This Arbitration Program may be amended, changed, or modified only by a writing which specifically refers to this Arbitration Program and which is signed by all the Parties. If any term, covenant, condition or provision of the Arbitration Program is found to be unlawful or invalid or unenforceable, such illegality or invalidity or unenforceable shall not affect the legality, validity or enforceability of the remaining parts of this Arbitration Program, and all such remaining parts hereof shall be valid and enforceable and have full force and effect as if the illegal, invalid or unenforceable part had not been included. Each Party agrees to keep all Disputes and arbitration proceedings strictly confidential, except for disclosures of information required in the ordinary course of business of the Parties or by applicable law or regulation. 22 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. ------------------------------------- By: --------------------------------- Title: --------------------------------- Pentegra Dental Group, Inc. By: --------------------------------- Title: --------------------------------- 23 Exhibit 1.1(h)(iv) Additional Excluded Practice Expenses (i.e., "Addback") Exhibit 3.3 Premises Exhibit 4.8(c) Practice Plans Exhibit 4.10 DENTIST AGREEMENT This Dentist Agreement (the "Agreement") is made and entered into as of the ______ day of _______________ , 1997, by and between ______________________ ("Dentist") in favor of Pentegra Dental Group, Inc., a Delaware corporation ("Pentegra"). W I T N E S S E T H: WHEREAS, __________________ ("Practice") and Pentegra have agreed to enter into that certain Service Agreement (herein so called) dated the date hereof, pursuant to which Pentegra is to provide certain management services to the Practice; and WHEREAS, as a condition to entering into the Service Agreement, Dentist has agreed to execute this Agreement. NOW, THEREFORE, for and in consideration of ________________________[part of the Acquisition Consideration] and other good and valuable consideration paid by Pentegra to the Dentist, the receipt and sufficiency of which are hereby acknowledged, Dentist hereby agrees as follows: SECTION 1. GUARANTY BY DENTIST. (a) For five years from the date hereof and for so long thereafter as (i) Dentist owns any equity or other interest in the Practice (as defined in the Service Agreement), (ii) Dentist is employed by the Practice, or (iii) Dentist is in breach of the Employment Agreement between the Practice and Dentist, Dentist hereby guarantees, absolutely and unconditionally, the full punctual and prompt payment and performance (when due) of each and every obligation of Practice under the Service Agreement ("Guaranty"). This Guaranty shall include payment of the Service Fee, Practice Expenses and all other obligations and liabilities of the Practice contained in the Service Agreement. This is a guaranty of payment and performance and not a guaranty of collection. This Guaranty shall extend to and cover every extension, amendment or renewal of the Service Agreement and shall bind the Guarantor irrespective of the existence, value or condition of any collateral or security interest of Pentegra. (b) This Guaranty is made and accepted upon the following terms and conditions: Without notice to or the consent of the Dentist, Pentegra may renew, amend or extend the time, manner, place or terms of payment of the obligations under the Service Agreement or any renewal or extension thereof, and/or Pentegra may supplement, change, amend, substitute, modify or alter the obligations arising under the Service Agreement without in any way changing, releasing or discharging Dentist from liability and obligation hereunder; Dentist waives notice of presentment, and notice of protest, default or dishonor of the Service Agreement or any renewal or extension thereof; Dentist waives any right to require Pentegra to (1) proceed against the Practice, (2) proceed against or exhaust any security held by Pentegra, or (3) pursue any other remedy that Pentegra has or to which it may be entitled; Dentist agrees to pay reasonable attorney's fees and court costs which may be incurred by Pentegra in the enforcement of this Guaranty; The liability of the Dentist shall remain and continue in full force and effect in spite of the voluntary or involuntary liquidation, dissolution, sale of all or substantially all of the property of the Practice or marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of, or any similar proceeding affecting, the Practice or any of its assets; Until the Service Agreement is terminated and/or all obligations and liabilities thereunder are satisfied, Dentist hereby waives and releases any right of subrogation that Dentist has or to which Dentist may be entitled. If any of the following events occur or shall be continuing (an "Event of Default"): (1) A breach or event of default occurs under the terms of the Service Agreement and continues beyond any grace period, if any, provided therein for the curing of such default; (2) Default in the performance or observance of any agreement, covenant, term or condition contained herein and such failure to cure such default within five (5) days from notice of such default given to Dentist; Pentegra may declare the obligations of Dentist hereunder and thereunder to be due and/or performable by Dentist under the terms hereof and thereof. (c) Pentegra does not, by its execution of this Agreement, waive any rights it may have against the Practice. No failure, omission or delay on the part of Pentegra in exercising any rights hereunder or in taking any action to collect or enforce payment or performance of any obligation to which this Guaranty applies or in enforcing observance or performance of any agreement, covenant, term or condition to be performed or observed under the Service Agreement either against the Practice or any other person primarily or secondarily liable with the Practice, shall operate as a waiver of any such right or in any manner prejudice the rights of Pentegra against the Dentist. SECTION 2. POWER OF ATTORNEY FOR BILLING. In order to enable Pentegra to perform its services under the Service Agreement, the Dentist hereby appoints Pentegra for the term of this Agreement to be its true and lawful attorney-in-fact, for the following purposes: (i) to bill patients, insurance companies, managed care payors, government payors and other third-party payors in the Dentist's name and on its behalf; (ii) to collect accounts receivable resulting from such billing in the Dentist's name and on its behalf; (iii) to receive payments on behalf of the Dentist from insurance companies, prepayments received from health care plans, government payors and all other third party payors; (iv) to take possession of and endorse in the name of the Dentist (and/or in the name of an individual dentist, such payment intended for purpose of payment of a bill related to the Dentist), any notes, checks, money orders, insurance payments and other instruments received in payment of accounts receivable and to open, close and otherwise deal with bank accounts in the name of the Dentist but which are managed by Pentegra; and (v) with the consent of Dentist, such consent not to be unreasonably withheld, to initiate the institution of legal proceedings in the name of the Dentist to collect any accounts and monies owed to the Dentist, to enforce the rights of the Dentist as creditor under any contract or in connection with the rendering of any service, and to contest adjustments and denials by governmental agencies (or their fiscal intermediaries) as third-party payors. The Dentist may perform the functions or exercise the rights set forth in this Section only with the consent of Pentegra. The Dentist shall cooperate with and at the request of Pentegra shall provide reasonable assistance to Pentegra with the functions set forth herein. Pentegra agrees that any initiation of collection proceedings shall not be done in a manner as to injure the reputation of Dentist. SECTION 3. INDEMNIFICATION. The Dentist shall indemnify, defend and hold Pentegra and its officers, directors, shareholders, employees, agents and consultants (other than such persons who are also officers, directors, shareholders, employees, agents or consultants of the Practice) harmless, from and against any and all liabilities, losses, damages, claims, causes of action and expenses (including reasonable attorneys' fees), not covered by insurance 2 (including self-insured insurance and reserves), whenever arising or incurred, that are caused or asserted to have been caused, directly or indirectly, by or as a result of the performance of services or the performance of any intentional acts, negligent acts or omissions by the Dentist during the term of the Service Agreement or related to, resulting from or arising out of an Pentegra employee performing a dental or related function under the supervision of the Dentist. SECTION 4. SALE OF OWNERSHIP OF THE PRACTICE. Dentist acknowledges and agrees that, for a period of five (5) years from the date hereof and for so long thereafter as Dentist is a party to the Employment Agreement with the Practice and is not in breach thereof (other than upon termination of the Service Agreement pursuant to SECTION 9.3 thereof), Dentist shall not pledge, encumber, grant a security interest in, sell, transfer or otherwise dispose of any interest (equity, participation or otherwise) in the Practice, whether presently held or hereafter acquired, without the prior written consent of Pentegra. SECTION 5. ACKNOWLEDGEMENT OF PROPRIETARY INTEREST. Dentist recognizes recognizes the proprietary interest of Pentegra and the dental practices managed by Pentegra (collectively, "Pentegra Group") in any Confidential and Proprietary Information (as hereinafter defined) of Pentegra Group. Dentist acknowledges and agrees that any and all Confidential and Proprietary Information communicated to, learned of, developed or otherwise acquired by the Dentist during the term of this Agreement shall be the property of Pentegra Group. Dentist further acknowledges and understands that its disclosure of any Confidential and Proprietary Information will result in irreparable injury and damage to Pentegra Group. As used herein, "Confidential and Proprietary Information" means all trade secrets and other confidential and/or proprietary information of Pentegra Group, including information derived from reports, investigations, research, work in progress, codes, marketing and sales programs, financial projections, cost summaries, pricing formula, contracts analyses, financial information, projections, confidential filings with any state or federal agency, and all other confidential concepts, methods of doing business, ideas, materials or information (other than the Practice's or the Dentists' original patient records) prepared or performed for, by or on behalf of Pentegra Group by its employees, officers, directors, agents, representatives, or consultants. SECTION 6. COVENANT NOT-TO-DIVULGE CONFIDENTIAL AND PROPRIETARY INFORMATION. Dentist acknowledges and agrees that Pentegra Group is entitled to prevent the disclosure of Confidential and Proprietary Information. Dentist agrees at all times during the term of this Agreement and thereafter to hold in strictest confidence and not to disclose to any person, firm or corporation, other than to Practice Professional Employees (as defined in the Service Agreement) and persons engaged by Pentegra to further the business of the Practice, and not to use, except in the pursuit of the business of Pentegra Group, Confidential and Proprietary Information, without the prior written consent of Pentegra; unless (i) such information becomes known or available to the public generally through no wrongful act of Dentist or its employees, (ii) disclosure is required by law or the rule, regulation or order of any governmental authority under color of law, provided, that prior to disclosing any Confidential and Proprietary Information pursuant to this clause (ii) Dentist shall, if possible, give prior written notice thereof to Pentegra and provide Pentegra with the opportunity to contest such disclosure, or (iii) Dentist reasonably believes that such disclosure is required in connection with a lawsuit to which Dentist is a party. SECTION 7. NON-SOLICITATION OF PATIENTS. Dentist agrees that for five years from the date hereof and two years following the termination of Dentist's employment with the Practice and/or ownership interest in the Practice, Dentist shall not induce or attempt to influence any employee of the Practice or Pentegra to terminate his or her employment, or to hire any such employee, whether or not so induced or influenced, except that any such employee may be hired with the prior written consent of the Practice or Pentegra, as applicable, or (iv) solicit, induce or attempt to influence any patient of the Practice or any dental practice managed by Pentegra to cease treatment by or to begin treatment at any dental office not managed or affiliated with the Practice or Pentegra. SECTION 8. RETURN OF MATERIALS TO PENTEGRA. In the event of termination of the Service Agreement or at any time upon the request of Pentegra, Dentist will promptly deliver to Pentegra all documents, data and other information in Dentist's possession that contains any Confidential and Proprietary Information. Dentist shall not take 3 or retain any documents or other information, or any reproduction or excerpt thereof, containing any Confidential and Proprietary Information, unless otherwise authorized in writing by Pentegra. SECTION 9. ASSIGNMENT OF EMPLOYMENT AGREEMENT. Dentist acknowledges and agrees that in the event of an Event of Default, the Practice shall be required to assign the Employment Agreement executed between the Practice and the Dentist to Pentegra or its authorized designee pursuant to the terms of the Service Agreement; and the Dentist hereby agrees that he shall execute all documentation evidencing such assignment. SECTION 10. OPTION TO PURCHASE PRACTICE EQUITY INTEREST AND PATIENT RECORDS. Upon the occurrence of an Event of Default or termination of the Service Agreement pursuant to SECTION 9.4 thereof, Pentegra shall have the option to cause any legally authorized designee of Pentegra (to be selected by Pentegra in its sole discretion) to: (i) purchase the ownership interests of Dentist in the Practice for the sum of the amounts paid by the Dentist for such equity interests and (ii) purchase the patient records of Dentist for the sum of ten dollars. The Practice and Dentist hereby agree that in the event of the exercise of such option, each shall cooperate regarding the giving of the requisite patient notification of such assignment. Dentist and the Practice hereby agree to execute any and all documentation evidencing the transfer of such equity interest and patient records, including without limitation, transfer and delivery of the stock certificates or other documents evidencing such equity ownership, an assignment of the patient records and charts and a notification letter to be forwarded to such patients. The option contained herein shall not be exercisable by Pentegra upon the death or Disability (as defined in the Service Agreement) of Dentist. SECTION 11. ASSIGNMENT. Pentegra shall have the right to assign its rights hereunder to any lender of Pentegra, any affiliate of Pentegra or any successor to all or substantially all of the assets of Pentegra; provided that such assignee shall agree to be bound by the terms and conditions contained herein. Pentegra shall have the right to assign the items set forth in Section 10 to any person or entity in its sole discretion. Dentist shall not have the right to assign its rights or obligations hereunder without the prior written consent of Pentegra. SECTION 12. AMENDMENTS; WAIVER. This Agreement shall not be modified or amended, and no provision hereof shall be waived, except by a written document executed by both parties to this Agreement. SECTION 13. ADDITIONAL DOCUMENTS. Each of the parties hereto agrees to execute any document or documents that may be requested from time to time by the other party to implement or complete such party's obligations pursuant to this Agreement. Section 14. ATTORNEYS' FEES. If legal action is commenced by either party to enforce or defend its rights under this Agreement, the prevailing party in such action shall be entitled to recover its costs and reasonable attorneys' fees in addition to any other relief granted. SECTION 15. PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective heirs, legal representatives, successors and permitted assigns of the parties hereto. Neither this Agreement nor any other agreement contemplated hereby shall be deemed to confer upon any person not a party hereto or thereto any rights or remedies hereunder or thereunder. Section 16. ENTIRE AGREEMENT. This Agreement and the agreements contemplated hereby constitute the entire agreement of the parties regarding the subject matter hereof, and supersede all prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. SECTION 17. SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the 4 illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. SECTION 18. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF LAWS) OF THE STATE OF INCORPORATION OF THE PRACTICE AS OF THE DATE HEREOF. SECTION 19. NO WAIVER; REMEDIES CUMULATIVE. No party hereto shall by any act (except by written instrument pursuant to SECTION 10.2 hereof), of delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default in or breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of any party hereto, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No remedy set forth in this Agreement or otherwise conferred upon or reserved to any party shall be considered exclusive of any other remedy available to any party, but the same shall be distinct, separate and cumulative and may be exercised from time to time as often as occasion may arise or as may be deemed expedient. SECTION 20. NOTICE. Whenever this Agreement requires or permits any notice, request, or demand from one party to another, the notice, request, or demand must be in writing to be effective and shall be deemed to be delivered and received (i) if personally delivered or if delivered by telex, telegram, facsimile or courier service, when actually received by the party to whom notice is sent or (ii) if delivered by mail (whether actually received or not), at the close of business on the third business day next following the day when placed in the mail, postage prepaid, certified or registered, addressed to the appropriate party or parties, at the address of such party set forth below (or at such other address as such party may designate by written notice to all other parties in accordance herewith): If to Pentegra: Pentegra Dental Group, Inc. 2999 N. 44th Street, Suite 650 Phoenix, Arizona 85018 Fax No.: (602) 952-0544 Attn: President with a copy to: Jackson Walker L.L.P. 901 Main Street, Suite 6000 Dallas, Texas 75202 Fax No.: (214) 953-5822 Attn: James S. Ryan, III If to the Dentist: ------------------------------------ ------------------------------------ ------------------------------------ Fax No.: -------------------------- with a copy to: ------------------------------------ ------------------------------------ ------------------------------------ Fax No.: -------------------------- 5 SECTION 21. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. SECTION 22. ARBITRATION. Upon the request of either Pentegra or the Dentist (hereinafter referred to as a "Party"), whether made before or after the institution of any legal proceeding, any dispute arising out of, related to, or in connection with this Agreement (hereinafter a "Dispute"), shall be resolved by binding arbitration in accordance with the terms of this Section (hereinafter the "Arbitration Program"). All Disputes between the Parties shall be resolved by binding arbitration administered by the American Arbitration Association (the "AAA") in accordance with the terms of this Arbitration Program, the Commercial Arbitration Rules of the AAA. In the event of any inconsistency between this Arbitration Program and those rules or statutes, then the terms of this Arbitration Program shall control. The parties hereto agree to adhere to all warranties and covenants (as described herein) until such time as the arbitration process has been completed and the arbitrators have determined each party's post-arbitration obligations and responsibilities as it relates to such warranties and covenants. No provision of, nor the exercise of any rights under, this Arbitration Program shall limit the right of any Party at any time to seek or use ancillary or preliminary judicial or non-judicial self help remedies for the purposes of obtaining, perfecting, preserving, or foreclosing upon any personal property in which there has been granted a security interest or lien by a Party in the Documents. In Disputes involving indebtedness or other monetary obligations, each Party agrees that the other Party may proceed against all liable persons, jointly and severally against one or more of them, without impairing rights against other liable persons. Nor shall a Party be required to join the principal obligor or any other liable persons (e.g., sureties or guarantors) in any proceeding against a particular person. A Party may release or settle with one or more liable persons as the Party deems fit without releasing or impairing rights to proceed against any persons not so released. All statutes of limitation that would otherwise be applicable shall apply to any arbitration proceeding. The party seeking arbitration shall notify the other Party, in writing, of that Party's desire to arbitrate a dispute; and each Party shall, within twenty (20) days from the date such notification is received, select an arbitrator, and those two arbitrators shall select a third arbitrator within ten (10) days thereafter. The issues or claims in dispute shall be committed to writing, separately stated and numbered, and each party's proposed answers or contentions shall be signed below the questions. Failure by a party to select an arbitrator within the prescribed time period shall serve as that Party's acquiescence and acceptance of the other party's selection of arbitrator. The arbitrators shall resolve all Disputes in accordance with the applicable substantive law. Any Dispute shall be decided by a majority vote of three arbitrators, unless the claim or amount in controversy does not exceed $100,000.00, in which case a single arbitrator (who shall have authority to render a maximum award of $100,000.00, including all damages of any kind, costs and fees) may decide the Dispute. The arbitrators may grant any remedy or relief that the arbitrators deem just and equitable and within the scope of this Arbitration Program. The arbitrators may also grant such ancillary relief as is necessary to make effective the award. In all arbitration proceedings the arbitrators shall make specific and written findings of fact and conclusions of law. In all arbitration proceedings in which the amount in controversy exceeds $100,000.00, in the aggregate, the Parties shall have in addition to the statutory right to seek vacation or modification of any award pursuant to applicable law, the right to seek vacation or modification of any award that is based in whole, or in part, on an incorrect or erroneous ruling of law by appeal to an appropriate court having jurisdiction; provided, however, that any such application for vacation or modification of an award based on an incorrect ruling of law must be filed in a court having jurisdiction over the Dispute within 15 days from the date the award in rendered. The arbitrators' findings of fact shall be binding on all Parties and shall not be subject to further review except as otherwise allowed by applicable law. To the maximum extent practicable, an arbitration proceeding hereunder shall be concluded within 180 days of the filing of the Dispute with AAA. Arbitration proceedings hereunder shall be conducted where agreed to in writing by the Parties or, in the absence of such agreement in Phoeniz, Arizona or the headquarters of Pentegra if other than Phoeniz, Arizona. The provisions of this Arbitration Program shall survive any termination, amendment, 6 or expiration of the Documents, unless the Parties otherwise expressly agree in writing making specific reference to this Arbitration Program. To the extent permitted by applicable law, the arbitrator shall have the power to award recovery of all costs and fees (including attorney's fees, administrative fees, and arbitrators' fees) to the prevailing Party. This Arbitration Program may be amended, changed, or modified only by a writing which specifically refers to this Arbitration Program and which is signed by all the Parties. If any term, covenant, condition or provision of the Arbitration Program is found to be unlawful or invalid or unenforceable, such illegality or invalidity or unenforceable shall not affect the legality, validity or enforceability of the remaining parts of this Arbitration Program, and all such remaining parts hereof shall be valid and enforceable and have full force and effect as if the illegal, invalid or unenforceable part had not been included. Each Party agrees to keep all Disputes and arbitration proceedings strictly confidential, except for disclosures of information required in the ordinary course of business of the Parties or by applicable law or regulation. 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. Practice By: ---------------------------------------- Title: ---------------------------------------- Pentegra Dental Group, Inc. By: ---------------------------------------- Title: ---------------------------------------- 8 Exhibit 7.1(b) ________________ percent (____%) of Practice Accrual Earnings (the "Service Fee"). Practice Accrual Earnings shall be defined as Revenues, earned on the accrual basis of accounting and applying GAAP concepts, less Practice Expenses. [or] $________ per year to be renegotiated in good faith between the parties hereto prior to each anniversary hereof. [or] Sixteen percent (16%) of Revenues, not to exceed thirty-five percent (35%) of Practice Accrual Earnings (the "Service Fee"). Practice Accrual Earnings shall be defined as Revenues, earned on the accrual basis of accounting and applying GAAP concepts, less Practice Expenses. [or] For the first _____ calendar years following the date hereof, the greater of (i) __________ percent (____%) of Practice Accrual Earnings, or $___________; and thereafter __________ percent (____%) of Practice Accrual Earnings (the "Service Fee"). Practice Accrual Earnings shall be defined as Revenues, earned on the accrual basis of accounting and applying GAAP concepts, less Practice Expenses. Exhibit 7.3 Form of Security Agreement Exhibit 10.18 Addresses for Notices EX-11.1 20 EXHIBIT 11.1 PENTEGRA DENTAL GROUP, INC. EXHIBIT 11.1--COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS)
HISTORICAL FOR THE PERIOD FROM INCEPTION, FEBRUARY 21, 1997, THROUGH JUNE 30, 1997 --------------------- Primary: Weighted average common shares outstanding................................................. 1,757 Weighted average shares issued for Acquisitions............................................ -- Shares issued in initial public offering................................................... -- Less excess shares issued in initial public offering....................................... -- ------ Total primary shares....................................................................... 1,757 ------ ------ Net income (loss).......................................................................... $ (239) ------ ------ Net income (loss) per share................................................................ $ (0.14) ------ ------ FULLY DILUTED: Weighted average common shares outstanding................................................. 1,757 Weighted average shares issued for Acquisitions............................................ -- Shares issued in initial public offering................................................... -- Less excess shares issued in initial public offering....................................... -- ------ Total fully diluted shares................................................................. 1,757 ------ ------ Net income (loss).......................................................................... $ (239) ------ ------ Net income (loss) per share................................................................ $ (0.14) ------ ------
EX-23.1 21 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 (File No. ) relating to the registration of 2,500,000 shares of $0.001 par value common stock of i) our report dated October 10, 1997 on our audit of the financial statements of Pentegra Dental Group, Inc. as of June 30, 1997 and for the period from inception, February 21, 1997, through June 30, 1997, and ii) our report dated August 8, 1997 on our audits of the combined financial statements of Pentegra, Ltd, and Napili, International as of December 31, 1995 and 1996 and for each of the three years ended December 31, 1996. We also consent to the reference to our firm under the caption "Experts." /s/ COOPERS & LYBRAND L.L.P. Houston, Texas October 10, 1997 EX-23.3 22 EXHIBIT 23.3 EXHIBIT 23.3 CONSENT OF PROPOSED DIRECTOR Pursuant to Rule 428 under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned hereby consents to being named as a nominee to the Board of Directors of Pentegra Dental Group, Inc. (the "Registrant") in the Prospectus constituting a part of the Registration Statement on Form S-1 of the Registrant filed under the Securities Act. /s/ Ronnie L. Andress -------------------------------------- Name: Ronnie L. Andress September 9, 1997
CONSENT OF PROPOSED DIRECTOR Pursuant to Rule 428 under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned hereby consents to being named as a nominee to the Board of Directors of Pentegra Dental Group, Inc. (the "Registrant") in the Prospectus constituting a part of the Registration Statement on Form S-1 of the Registrant filed under the Securities Act. /s/ James H. Clarke, Jr., D.D.S. -------------------------------------- Name: James H. Clarke, Jr., D.D.S. September 4, 1997
CONSENT OF PROPOSED DIRECTOR Pursuant to Rule 428 under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned hereby consents to being named as a nominee to the Board of Directors of Pentegra Dental Group, Inc. (the "Registrant") in the Prospectus constituting a part of the Registration Statement on Form S-1 of the Registrant filed under the Securities Act. /s/ Ronald E. Geistfeld -------------------------------------- Name: Ronald E. Geistfeld July 24, 1997
CONSENT OF PROPOSED DIRECTOR Pursuant to Rule 428 under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned hereby consents to being named as a nominee to the Board of Directors of Pentegra Dental Group, Inc. (the "Registrant") in the Prospectus constituting a part of the Registration Statement on Form S-1 of the Registrant filed under the Securities Act. /s/ Mack E. Greder -------------------------------------- Name: Mack E. Greder July 24, 1997
CONSENT OF PROPOSED DIRECTOR Pursuant to Rule 428 under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned hereby consents to being named as a nominee to the Board of Directors of Pentegra Dental Group, Inc. (the "Registrant") in the Prospectus constituting a part of the Registration Statement on Form S-1 of the Registrant filed under the Securities Act. /s/ Roger Allen Kay -------------------------------------- Name: Roger Allen Kay July 28, 1997
CONSENT OF PROPOSED DIRECTOR Pursuant to Rule 428 under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned hereby consents to being named as a nominee to the Board of Directors of Pentegra Dental Group, Inc. (the "Registrant") in the Prospectus constituting a part of the Registration Statement on Form S-1 of the Registrant filed under the Securities Act. /s/ Gerald F. Mahoney -------------------------------------- Name: Gerald F. Mahoney July 22, 1997
CONSENT OF PROPOSED DIRECTOR Pursuant to Rule 428 under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned hereby consents to being named as a nominee to the Board of Directors of Pentegra Dental Group, Inc. (the "Registrant") in the Prospectus constituting a part of the Registration Statement on Form S-1 of the Registrant filed under the Securities Act. /s/ Anthony P. Maris -------------------------------------- Name: Anthony P. Maris July 25, 1997
CONSENT OF PROPOSED DIRECTOR Pursuant to Rule 428 under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned hereby consents to being named as a nominee to the Board of Directors of Pentegra Dental Group, Inc. (the "Registrant") in the Prospectus constituting a part of the Registration Statement on Form S-1 of the Registrant filed under the Securities Act. /s/ Ronald M. Yaros -------------------------------------- Name: Ronald M. Yaros July 25, 1997
CONSENT OF PROPOSED DIRECTOR Pursuant to Rule 428 under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned hereby consents to being named as a nominee to the Board of Directors of Pentegra Dental Group, Inc. (the "Registrant") in the Prospectus constituting a part of the Registration Statement on Form S-1 of the Registrant filed under the Securities Act. /s/ Sam H. Carr -------------------------------------- Name: Sam H. Carr September 19, 1997
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