10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2008

Commission File Number: 0-23363

AMERICAN DENTAL PARTNERS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	04-3297858
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

American Dental Partners, Inc.

401 Edgewater Place, Suite 430

Wakefield, Massachusetts 01880

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (781) 224-0880

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.01 par value	The Nasdaq Stock Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one)

Large accelerated filer ¨                Accelerated filer x                Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company, as defined in Rule 12b-2 of the Act. ¨ Yes x No

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, as reported by the Nasdaq National Market System, on June 30, 2008, amounted to $145,873,920. Shares of voting stock held by each officer and director and by each person who owns 10% or more of the outstanding voting stock have been excluded, in that such person may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

There were 12,948,575 shares outstanding of the issuer’s Common Stock, $0.01 par value, at March 4, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for its 2008 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A are incorporated by reference in Part III, Items 10, 11, 12, 13, and 14 of this Annual Report on Form 10-K.

AMERICAN DENTAL PARTNERS, INC.

INDEX

		Page
Information Regarding Forward-looking Statements		3
PART I.
Item 1.	Business	3
Item 1A.	Risk Factors	15
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	18
Item 3.	Legal Proceedings	18
Item 4.	Submission of Matters to a Vote of Security Holders	20
PART II.
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6.	Selected Financial Data	23
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	43
Item 8.	Financial Statements and Supplementary Data	44
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	73
Item 9A.	Controls and Procedures	73
Item 9B.	Other Information	73
PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	74
Item 11.	Executive Compensation	74
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	74
Item 13.	Certain Relationships and Related Transactions, and Director Independence	74
Item 14.	Principal Accountant Fees and Services	74
PART IV.
Item 15.	Exhibits and Financial Statement Schedules	75

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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

Some of the information in this Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “project,” and similar expressions, among others, identify forward-looking statements. Forward-looking statements speak only as of the date the statement was made. Such forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from those projected, anticipated or implied. Certain factors that might cause such a difference include, among others, the Company’s risks associated with its ability to refinance its credit facilities on satisfactory terms, overall or regional economic conditions, dependence upon affiliated dental practices, contracts its affiliated practices have with third-party payors, dependence upon service agreements and government regulation of the dental industry, the impact of any terminations or potential terminations of such contracts, fluctuations in labor markets and the Company’s acquisition and affiliation strategy. Additional risks, uncertainties and other factors are described in Item 1A.

PART I

As used in this Annual Report, unless otherwise indicated, the terms the “Company”, “we”, “us” and “our” refer to American Dental Partners, Inc. and its wholly-owned subsidiaries. The term “practice” or “dental group practice” refers to a dentist-owned professional corporation, professional association or service corporation which is responsible for providing dental care to patients. An “affiliated practice” or an “affiliated dental practice” is a professional corporation, professional association or service corporation which is not owned by us that has entered into a long-term service agreement with us. An “affiliated dental group” is comprised of an affiliated practice and a Company-owned service company entity which have entered into a long-term service agreement. An affiliated dental group typically comprises several dental facilities in a given metropolitan market. The terms “affiliated practice,” “affiliated dental practice” and “affiliated dental group” also include Arizona’s Tooth Doctor for Kids, a corporation that is 85% owned by us and, as permitted by applicable state law, employs dentists. Consequently, there is no service agreement between Arizona’s Tooth Doctor for Kids and us (see “Item 1. Business – Arizona’s Tooth Doctor for Kids”).

ITEM 1.  BUSINESS

Overview

American Dental Partners is a leading provider of dental facilities, support staff and business services to multidisciplinary dental group practices in selected markets throughout the United States. We are committed to the success of the affiliated practices, and we make substantial investments to support each affiliated practice’s growth. We provide or assist with organizational planning and development; recruiting, retention and training programs; quality assurance initiatives; facilities development and management; employee benefits administration; procurement; information systems and practice technology; marketing and payor relations; and financial planning, reporting and analysis. At December 31, 2008, we were affiliated with 25 dental group practices, comprising 545 full-time equivalent dentists practicing in 241 dental facilities in 18 states. We were incorporated in Delaware in 1995.

Dental Care Industry

The market for dental care is large, growing and highly fragmented. Based on Centers for Medicare & Medicaid Services statistics, estimated expenditures for dental care grew 7% annually from 1990 to 2007 reaching $95 billion in 2007. Expenditures for dental care are expected to be approximately $170 billion by 2017, representing a 6% annual growth rate from 2007 to 2017. We believe that the growth in expenditures for dental care will continue to be driven by both increases in costs and increases in demand for services due to:

• increased enrollment in dental benefits plans, particularly preferred provider organization (“PPO”) plans, and to a lesser extent, dental referral plans;

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• increased demand for dental care as a result of the aging population and a greater percentage of the population retaining its dentition; and

• increased demand for aesthetic dental procedures as a result of an increasing awareness of personal appearance and the development of new dental materials and procedures which address these desires.

We believe that this growth will benefit not only dentists, but companies that provide services to the dental care industry, including dental management service organizations. However, the failure of any of these factors to materialize could offset increases in demand for dental care, and any such increases may not correlate with growth in our business.

Unlike many other sectors of the health care services industry, the dental care profession remains dominated by practices owned and operated by just one dentist. According to the American Dental Association (“ADA”), in 2005, approximately 63% of the 160,000 dentists in the United States were solo practitioners. The percentage of graduating dentists who initially began their career as an owner of a dental practice, however, fell from 22% in 2002 to 19% in 2006 according to the ADA. We believe a greater percentage of dentists will practice as partners or associates in group dental practices rather than practicing as a solo practitioner as a result of high educational debt levels and a change in gender profile of graduating dentists. According to the ADA, dental students in 2006 graduated with an average of $247,000 of debt and 43% were female. We believe group dental practice provides economic and professional flexibility advantages to graduating dentists as compared to solo practice.

Most dental care performed in the United States is categorized as general dentistry. According to the ADA, in 2006, approximately 79% of dentists were general dentists. General dentistry includes preventative care, diagnosis and treatment planning, as well as procedures such as fillings, crowns, bridges, dentures and extractions. Specialty dentistry, which includes endodontics, oral surgery, orthodontics, periodontics, prosthodontics and pediatric dentistry, represented the remaining 21% of practicing dentists.

Historically, dental care was not covered by insurers and consequently was paid for by patients on a fee-for-service basis. An increasing number of employers have responded to the desire of employees for enhanced benefits by providing coverage from third-party payors for dental care. These third-party payors offer indemnity insurance plans, PPO plans, capitated managed care plans and dental referral plans. Under an indemnity insurance plan, the dental provider charges a fee for each service provided to the insured patient, which is typically the same as that charged to a patient not covered by any type of dental insurance. We categorize indemnity insurance plans as fee-for-service plans. Under a PPO plan, the dentist agrees to accept a discounted fee for each service provided based on a schedule negotiated with the dental benefit provider. Under a capitated managed care plan, the dentist receives a fixed monthly fee from the managed care organization for each member covered under the plan who selects that dentist as his or her provider. Capitated managed care plans also typically require a co-payment by the patient. Dental referral plans are not insurance products but are network-based products that provide access to dental care. Typically, a small monthly fee is paid by an individual or employer for a list of dentists who have agreed to accept certain negotiated fees or a discount from their normal fees. Under dental referral plans, full reimbursement for dental care provided is made directly by a patient to the participating dentist, as compared to indemnity, PPO and capitation plans in which some portion of reimbursement is provided by the payor to the participating dentist. We categorize dental referral plans as PPO plans.

The National Association of Dental Plans (“NADP”) and the Delta Dental Plans Association (“DDPA”) estimated that 173 million people, or 57% of the population of the United States, were covered by some form of dental benefit plan in 2007. This compares with 133 million people, or 52% of the population, in 1996. Of the 173 million people with coverage, 55% were covered by PPO plans, 15% by indemnity insurance plans, 12% by publicly funded benefits such as Medicaid, 9% by dental referral plans, 8% by capitated managed care plans and 1% by direct reimbursement plans. The number of people covered by PPO plans increased from 21 million in 1996 to 92 million in 2006, representing an annual growth rate of 16%.

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Business Objective and Strategy

Our objective is to be the leading business partner to dental group practices in selected markets throughout the United States. In order to achieve our objective, our strategy is to provide value-added resources and support to each affiliated practice so that each may become the market leading, high quality dental provider of its community. We believe the core attributes of a leading dental group include the following: (i) a common identity and clinical philosophy, (ii) professional recruiting and mentoring programs, (iii) formalized peer review and quality assurance initiatives, (iv) functional and well-maintained dental facilities, (v) advanced information systems and (vi) a qualified local management team with well-defined responsibilities and accountability.

In executing our strategy, we provide dental facilities and support staff to the affiliated practices and provide or assist with organizational planning and development; recruiting, retention and training programs; quality assurance initiatives; facilities development and management; employee benefits administration; procurement; information systems and practice technology; marketing and payor relations; and financial planning, reporting and analysis. In order to execute our strategy successfully we are continually enhancing or expanding our capabilities and resources, including vertical integration of ancillary activities.

We believe that successful execution of our strategy will result in growth from the following areas: (i) assisting affiliated practices to increase their community presence, (ii) affiliating with dental group practices in new communities and (iii) adding additional capabilities or resources to our service offering through the acquisition or development of related businesses. Our objective is to help the affiliated practices grow their patient revenue 8 to 10% annually and to supplement our growth through completion of additional affiliations in new communities. We are constantly evaluating potential affiliations with dental group practices that would expand our business, as well as possible acquisitions of companies that would broaden our business capabilities. Although we have completed many successful practice affiliations and business acquisitions, there can be no assurance that additional affiliation or acquisition candidates can be identified or that they can be consummated or successfully integrated into our operations.

Affiliation Philosophy

We believe that dental care is an important part of an individual’s overall health care. Because the practitioner is best qualified to manage the clinical aspects of dentistry, the provision of dental care must be centered around the dentist. However, current market trends in health care are increasing the complexity of operating a dental group practice. In addition, the principals of many dental group practices are reaching retirement age and are beginning to investigate means for transitioning the non-clinical leadership and management of their dental group practices. Consequently, many are engaging professional consultants to assist with these complexities and challenges, and in certain instances are choosing to affiliate with dental management service organizations that can manage the non-clinical aspects of dentistry and provide the necessary organizational structure, resources and capital for continued growth and success.

We believe that, similar to other sectors of the health care delivery system, the delivery of dental care is fundamentally a local business. Therefore, each affiliated dental group maintains its local identity and operating philosophy. In each affiliation, we strive to maintain the local culture of the affiliated dental group, and we encourage it to continue using the same name, continue its presence in community events, maintain its relationship with patients and local dental benefit providers and maintain and strengthen the existing management organization.

Our affiliation model is designed to create a relationship between the affiliated practice and us that allows each party to maximize its strengths and retain its autonomy. We believe the core values of our relationship with our affiliated practices are shared governance and shared financial objectives, and we have structured our affiliation model to achieve these goals. Shared governance is achieved by the formation of a joint policy board for each affiliated dental group which is comprised of an equal number of representatives from the affiliated practice and us. Together, members of the joint policy board develop strategies and decide on major business initiatives. Shared financial objectives are achieved through the joint implementation of an annual planning process that

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establishes the financial performance standards for the affiliated dental group, including the affiliated practice and us. Under our business model, the dentists continue to have sole and complete discretion over clinical decision-making and patient care while we manage the business aspects of the affiliated practice.

Affiliated Dental Groups

From November 1996 (the date of our first affiliation) through December 31, 2008, we have completed 104 acquisition and affiliation transactions, which resulted in affiliations with 25 affiliated dental groups comprising 241 dental facilities in 18 states. On December 31, 2007, our affiliation with PDG, P.A. (“PDG”), the affiliated practice at Park Dental, ended, and on February 29, 2008 we transferred 25 of our 31 Park Dental facilities to PDG as part of a settlement agreement. For additional information, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Litigation Settlement Agreements.” The following table lists our affiliated dental groups as of December 31, 2008.

				Practice Specialties (2)
Affiliated Dental Group	State	Dental Facilities	Operatories (1)	General	Endo- dontics	Oral Surgery	Ortho- dontics	Pedo- dontics	Perio- dontics	Prosth- odontics
1st Advantage Dental – New England	Massachusetts/Vermont	4	33	ü
1st Advantage Dental – New York	New York	11	86	ü	ü	ü	ü	ü	ü
Advanced Dental Specialists	Wisconsin	2	16		ü	ü			ü
American Family Dentistry	Tennessee	8	54	ü			ü		ü
Arizona’s Tooth Doctor for Kids (3)	Arizona	6	68	ü			ü	ü
Associated Dental Care Providers (3)	Arizona	12	130	ü	ü		ü
Assure Dental	Minnesota	2	8	ü
Carus Dental (3) (4)	Texas	22	163	ü		ü	ü	ü
Chestnut Hills Dental	Pennsylvania	8	60	ü		ü	ü
Cumberland Dental (3)	Alabama	3	33	ü		ü	ü		ü
Deerwood Orthodontics	Wisconsin	7	35				ü
Dental Arts Center	Virginia	1	39	ü	ü	ü	ü	ü	ü	ü
Forward Dental (3)	Wisconsin	27	258	ü	ü			ü	ü
Greater Maryland Dental Partners	Maryland/Virginia	6	71	ü	ü	ü	ü	ü	ü
Lakeside Dental Care	Louisiana	2	15	ü			ü		ü
Metro Dentalcare	Minnesota	41	329	ü	ü	ü	ü	ü	ü
Oklahoma Dental Group	Oklahoma	4	36	ü			ü
Orthodontic Care Specialists (3)	Minnesota/Wisconsin	20	104				ü
Premier Dental Partners	Missouri	8	76	ü					ü
Redwood Dental Group	Michigan	6	76	ü			ü		ü	ü
Riverside Dental Group (3)	California	7	121	ü	ü	ü	ü	ü	ü	ü
Sacramento Oral Surgery	California	5	10			ü
University Dental Associates (3) (5)	North Carolina	13	106	ü		ü	ü
Valley Dental Group (3)	Minnesota	1	15	ü	ü	ü	ü		ü	ü
Western New York Dental Group (3)	New York	15	165	ü	ü	ü	ü	ü	ü
		241	2,107

(1) An operatory is an area where dental care is performed and generally contains a dental chair, a hand piece delivery system and other essential dental equipment.

(2) Services provided by specialists who are board-certified or board-eligible.

(3) Accredited by the Accreditation Association for Ambulatory Health Care (“AAAHC”).

(4) Texas Oral & Maxillofacial Surgery Associates merged with Carus Dental in 2008.

(5) University Dental Associates’ dental residency program is accredited by the American Dental Association.

Operations

Operating Structure

Where permitted by applicable state law, we generally employ the hygienists, dental assistants and administrative staff at each dental facility, but all clinical activities are performed under the supervision of the dentists who are employed by or contracted with an affiliated practice. Each dental facility has a manager who, along with the administrative staff, typically oversees the day-to-day business operations, including facility staffing, patient scheduling, on-site patient billing and ordering office and dental supplies. Each affiliated dental group has a local operations director who oversees all the managers of the dental facilities of a particular affiliated dental group.

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Our shared services teams provide administrative and operational support to one or more affiliated dental groups on either a national, regional or local basis. These teams provide or assist in organizational planning and development; recruiting, hiring and training programs; administering employee benefits and processing payroll; developing and maintaining information systems; developing annual operating plans; producing accounting and financial reporting information; developing and maintaining facilities; and marketing. As smaller affiliated dental groups grow in size, they may add local resources to assume some of the support functions provided by shared services teams.

A regional operations director is responsible for monitoring the operating performance of multiple affiliated dental groups in multiple communities. Each regional operations director participates as a member of the joint policy board of each of the affiliated dental groups for which he or she has oversight responsibilities. The regional operations directors are responsible for overseeing the development of annual operating plans and monitoring actual results.

Accreditation Association for Ambulatory Health Care

We have selected the Accreditation Association for Ambulatory Health Care (“AAAHC”) as a means for supporting the quality initiatives of the affiliated dental groups. The AAAHC is a peer-based, not-for-profit organization that is nationally recognized for conducting extensive evaluations of ambulatory health care organizations. The AAAHC evaluates a number of areas in granting accreditation, such as patients’ rights, governance, administration, clinical records, professional development, quality management and improvement and facilities. We work with the affiliated practices to achieve accreditation. Depending on the level of development and organization, achieving accreditation can take several years of preparation. Currently, ten affiliated practices have achieved accreditation status from the AAAHC.

Training and Leadership Development

We believe that our long term success requires a significant investment in the development of people at all levels within the Company and at the affiliated practices. We have both leadership development and skills training programs.

The American Dental Partners Leadership Institute provides both personal and professional development by bringing dentists and management leaders together to develop effective leadership techniques to create work environments that inspire peak performance from team members. The Leadership Institute is conducted on a national basis with dentists and management from multiple affiliated dental groups in attendance. As part of the learning process, participants receive feedback on the climate they create, their leadership styles and their leadership competencies. Feedback is obtained from the leader’s team members through on-line assessment surveys. Survey results are shared with the leader during the program, and personal action plans are created to enhance leadership effectiveness. We believe creating a high performance climate improves morale, lowers staff turnover and improves productivity.

We have also devoted significant resources to develop innovative, proprietary skills training programs. Training programs exist for improving patient service, such as creating a positive patient arrival/departure experience, improving telephone etiquette and managing unhappy patients, and developing business management competencies, such as improving recruiting skills, developing effective mentoring processes and managing time. The programs are modular and are made available at the affiliated dental groups. We have a national training team comprised of training specialists who partner with the leadership of our affiliated groups to assess the job skills and services of each affiliate in order to implement and maintain continuous training and development programs. Once implemented, the affiliated dental groups have on-going sessions with additional modules as they are developed and with new staff members as they join the dental group. We believe that by investing in skills training, we empower our team members to assist the affiliated practices in providing exceptional patient care and service.

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Payor Relationships and Reimbursement Mix

Although we believe that the clinical philosophy of each affiliated practice should not be compromised by economic decisions, we recognize that the source of payment for dental services affects operating and financial performance. Generally, we believe it is easier to grow patient revenue within a given community when the payor mix of the affiliated practice is aligned with the payor mix in that community. We help the affiliated practices optimize their revenue by analyzing their payor mix on an ongoing basis, as well as providing assistance with evaluating and negotiating their dental benefit provider contracts for improved reimbursement rates.

We believe it is advantageous to be affiliated with dental group practices that have successfully provided care to patients under all reimbursement methodologies. Since a shift is taking place in the dental benefits market from indemnity insurance plans and capitated managed care plans to PPO plans and dental referral plans, we believe that experience in operating under all of these plans provides an advantage as it relates to increasing community presence. Most of the affiliated practices provide care under traditional fee-for-service plans and non-fee-for-service plans. The following table provides the aggregate payor mix of the affiliated practices for the years ended December 31:

	2008		2007		2006
Fee-for-service	19	%	28	%	31	%
PPO and dental referral plans	70	%	60	%	52	%
Capitated managed care plans	11	%	12	%	17	%

In recent years, many of the affiliated practices have been realigning their reimbursement mix away from deeply discounted dental benefit plans or negotiating improved reimbursement rates. This effort has largely been accomplished with the cooperation of the dental benefit provider community in general. There can be no assurance, however, that this effort will not result in the termination of certain third-party payor contracts between the affiliated practices and dental benefit providers that adversely impact our business, financial condition or results of operations.

Facilities Development and Management

The affiliated practices operate out of dental facilities that in most instances we lease from third-parties under long-term operating leases. Generally, our dental facilities are constructed to be warm, attractive and inviting to patients and typically have between eight and ten operatories or treatment rooms, which accommodate general and specialty dentists, hygienists and dental assistants as well as required support staff. Most of the dental facilities are either located within a professional office or medical building or are a free-standing location.

We assist the affiliated dental groups in improving facility utilization by evaluating existing capacity, identifying expansion opportunities and prioritizing facility upgrades. We acquire or construct each dental facility as appropriate for the local community and add or equip additional operatories to meet increases in demand. We use architectural design services to improve facility design by working with each affiliated dental group to establish defined facility standards. These standards are developed to meet the needs of each affiliated dental group, while creating a consistency across new dental facilities which shortens the site development process and improves productivity of dentists and support staff.

Financial Planning and Financial Information System

We assist the affiliated dental groups with financial planning. In conjunction with each affiliated practice, we develop an annual operating plan for the affiliated dental group which sets specific goals for revenue growth, operating expenses and capital expenditures. Once a plan has been approved by the joint policy board, we measure forecasted and actual financial performance of each affiliated dental group against the annual operating plan.

Our financial information system enables us to measure, monitor and compare the financial performance of each affiliated dental group on a standardized basis. The system also allows us to track and control costs and facilitates the accounting and financial reporting process. This financial system is used with all affiliated dental groups.

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Practice Management Systems

The affiliated dental groups use various dental practice management software systems to facilitate patient scheduling, billing patients and insurance companies, assistance with facility staffing and for other practice related activities. Since 2002, we have been developing Improvis, a proprietary practice management system which replaces Comdent, a legacy software system. Improvis has been designed to include expanded clinical, managerial and financial capabilities. As of December 31, 2008, 19 affiliated dental groups had implemented Improvis at 179 dental facilities. We intend to implement Improvis at four additional affiliated dental groups in 2009. At year end 2008, we were pilot testing Improvis’ electronic dental record phase, and in 2009 we intend to pilot test Improvis’ digital radiography phase. In addition to these phases, Improvis will include orthodontic practice management and management dashboard functionality as future phases. There can be no assurance, however, that we will successfully implement Improvis at additional dental groups during 2009 or that all phases of the system will be successfully developed.

In connection with one of our affiliations, we acquired the rights to Comdent, a practice management system designed for use by multi-specialty dental groups. Comdent has been in continuous use since 1987, and as of December 31, 2008, Comdent was in use at two of the affiliated dental groups. We intend to retire Comdent in 2009. Two of the affiliated dental groups use commercially available practice management systems.

Orthodontic Care Specialists and Deerwood Orthodontics, which exclusively provide orthodontic services, utilize a proprietary practice management system designed specifically for the unique requirements of the orthodontics specialty. We have implemented this orthodontic practice management system at fifteen other affiliated dental groups which have a significant orthodontics practice.

Service Agreements and Affiliation Structure

Except for Arizona’s Tooth Doctor for Kids (see “Arizona’s Tooth Doctor for Kids”), we have entered into a service agreement with each affiliated practice pursuant to which we are responsible for managing all administrative, non-clinical aspects of the dental practice. We anticipate that each new dental practice with which we affiliate will enter into a similar service agreement or become a party to an existing service agreement at the time of affiliation with us. We are dependent on our service agreements for the vast majority of our net revenue. The termination of one or more of our service agreements could have a material adverse effect on us.

Pursuant to the service agreement, the affiliated practice is solely responsible for all clinical aspects of the dental operations of the affiliated dental group. These clinical aspects include recruiting and hiring dentists, selecting, training and supervising other licensed dental personnel and unlicensed dental assistants, providing dental care, implementing and maintaining quality assurance and peer review programs, setting patient fee schedules, entering into dental benefit plan provider contracts and maintaining professional and comprehensive general liability insurance covering the affiliated practice and each of its dentists. We do not assume any authority, responsibility, supervision or control over the provision of dental care to patients. The service agreement also includes non-competition and confidentiality provisions which prohibit the affiliated practice from owning or operating another dental facility or having any interest in any business which competes with us, within the contractually agreed upon service territory.

Pursuant to the service agreement, we are responsible for providing dental facilities, support staff and all services necessary and appropriate for the administration of the non-clinical aspects of the affiliated dental group. These services include assisting with organizational planning and development; providing recruiting, retention and training programs; supporting quality assurance initiatives; providing on-going facilities development and maintenance; administering employee benefits and payroll; procuring supplies and other necessary resources; maintaining necessary information systems; assisting with marketing and payor relations; and providing financial planning, reporting and analysis. As mandated by the service agreement, we along with each affiliated practice establish a joint policy board which is responsible for developing and implementing management and administrative policies. The joint policy board consists of an equal number of representatives designated by us and the affiliated practice. The joint policy board members designated by the affiliated practice must be licensed

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dentists currently employed by the practice. The joint policy board’s responsibilities include the review and approval of the long-term strategic and short-term operational goals, objectives and plans for the dental facilities, all annual capital and operating plans, all renovation and expansion plans and capital equipment expenditures with respect to the dental facilities, all advertising and marketing services and staffing plans regarding provider and support personnel. The joint policy board also reviews and monitors the financial performance of the affiliated dental group, including the affiliated practice. The joint policy board also has the authority to approve or disapprove any merger or combination with, or acquisition of, any dental practice by the affiliated practice. Finally, the joint policy board reviews and makes recommendations with respect to contractual relationships with dental benefit providers, as well as patient fee schedules, although these and all other clinical decisions, as enumerated above, remain the exclusive decision of the affiliated practice through its joint policy board members.

The affiliated practices reimburse us for actual expenses incurred on their behalf in connection with the operation and administration of the dental facilities and pay fees to us for management services provided and capital committed. Under certain service agreements, our service fee consists entirely of a fixed monthly fee determined by agreement between us and the affiliated practice in a formal annual planning process. Under certain service agreements, our service fee consists of a monthly fee equal to the prior year service fee and an additional performance fee based upon a percentage of the increase of the amount by which the affiliated practice’s patient revenue exceeds expenses as compared to the prior year. In no event, however, under these service agreements will the total service fee be greater than the affiliated practice’s patient revenue less expenses. Under certain service agreements, our service fee consists of a monthly fee which is based upon a specified percentage of the amount by which the affiliated practice’s patient revenue exceeds expenses. Under a certain service agreement our service fee consists of a fixed monthly fee and an additional performance fee based upon a percentage of the amount by which the affiliated practice’s patient revenue exceeds expenses as compared to the planned amount of the current year. The structure of the service fee, whether comprised of variable, fixed and variable or fixed components, is dependent in part on laws of each state in which we operate. The affiliated practice is also responsible for provider expenses, which generally consist of the salaries, benefits and certain other expenses of the dentists.

Pursuant to the terms of the service agreements, we bill patients and third-party payors on behalf of the affiliated practices. Such funds, as collected, are applied in the following order of priority:

• reimbursement of expenses incurred by us in connection with the operation and administration of the dental facilities;

• repayment of advances, if any, made by us to the affiliated practice;

• payment of monthly service fee to us;

• payment of provider expenses; and

• payment of the additional variable service fee, if applicable, to us.

Our service agreements have an initial term of 40 years and automatically renew for successive five-year terms, unless terminated by notice given at least 120 days prior to the end of the initial term or any renewal term. In addition, the service agreement may be terminated earlier by either party upon the occurrence of certain events involving the other party, such as dissolution, bankruptcy, liquidation or our failure, which continues through the applicable notice and cure period, to perform material duties and obligations under the service agreement. In the event a service agreement is terminated, the affiliated practice is required to reimburse us for unpaid expenses incurred in connection with the operation and administration of the dental facilities, repay advances and pay us for unpaid service fees. In addition, the affiliated practice may be required, at our option in nearly all instances, to purchase the unamortized balance of intangible assets at the current book value, repurchase equipment and other assets at the greater of fair value or book value and assume our leases and other liabilities related to the terminated service agreement.

As part of the litigation settlement with PDG, we entered into a transition services agreement effective January 1, 2008. Under the agreement, we provided certain of the same types of services to PDG as we provide under our

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other service agreements, including access to our Comdent practice management system, financial reporting and accounting, billing and collection management, human resource, accounts payable and payroll, supplies procurement and other administrative services. These services were provided to the 25 dental facilities transferred to PDG as part of the litigation settlement and to the PDG dentists who were practicing in our dental facilities on a temporary basis. Our services under the agreement terminated on September 30, 2008, PDG has paid fees for the services in the aggregate amount of $19,000,000 in 2008 and reimbursed certain of our expenses. For additional information, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Litigation Settlement Agreements.”

Arizona’s Tooth Doctor for Kids

We own 85% of Arizona’s Tooth Doctor for Kids (“Tooth Doctor”). Tooth Doctor is a dental group practice which provides dental care to children through six locations in metropolitan Phoenix and Globe, Arizona, and approximately 90% of the group’s revenue is derived from PPO health plans that are contracted with the Arizona Health Care Cost Containment System (“AHCCCS”), the state’s Medicaid program. While we employ the Tooth Doctor dentists as permitted by applicable state law, we do not exercise control over, or otherwise influence, their clinical judgment, decisions or practice.

Competition

The dental services industry is highly competitive. There are approximately 24 competing dental management companies in our current service areas that provide business services to dentists and dental group practices through contractual arrangements. The principal factors of competition between dental management companies are their affiliation models, the number and reputation of their existing affiliated practices, their management expertise, the quality of support services provided to the affiliated practices and their financial track record. We believe we compete effectively with other companies that provide business services to dental practices with respect to these factors. The dental practices affiliated with us compete with other dental group practices and individual dentists in their respective communities.

Government Regulation

General

The practice of dentistry is highly regulated, and our operations and those of the affiliated practices are subject to numerous state and federal laws and regulations. Furthermore, we may become subject to additional laws and regulations as we expand into new states, and there can be no assurance that the regulatory environment in which we and the affiliated practices operate will not change significantly in the future. Our ability to operate profitably will depend, in part, upon us and the affiliated practices obtaining and maintaining all necessary licenses, certifications and other approvals and operating in compliance with applicable laws. Future legislative or regulatory changes could have a material impact on us, and violations of federal or state laws can result in criminal, civil and administrative penalties.

We structure our business, operations and contractual relationships in a manner intended to comply with applicable law, but there can be no assurance that applicable laws will not change and will be interpreted in a manner consistent with our interpretation and intent. In light of this, our service agreements provide that if there is any change in any law, regulation, rule or policy, or any ruling or interpretation by any court or other governing body, that materially and adversely affects, or is reasonably likely to affect, the way in which either party is to perform or be compensated under the service agreement, or which makes the service agreement unlawful, then the parties are obligated to use their best efforts to revise their relationship in a way that complies with the applicable regulatory change or ruling and approximates as closely as possible the economic positions of the parties prior to that change or ruling. There can be no assurance, however, that this provision will be enforced if the legality of our service agreement is challenged.

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State Regulation

Each state imposes licensing and other requirements on dentists. The laws of almost all states in which we currently operate prohibit, either by specific statutes, case law or as a matter of general public policy, entities not wholly owned or controlled by dentists, such as American Dental Partners, from practicing dentistry, employing dentists and, in certain circumstances, dental assistants and hygienists, exercising control over the provision of dental services, splitting fees or receiving fees for patient referrals. Many states prohibit or restrict the ability of a person other than a licensed dentist to own, manage or control the assets, equipment or facilities used by a dental practice. However, the laws of Arizona permit us to own the dental practice and employ the dentists at Tooth Doctor. The laws of some states prohibit the advertising of dental services under a trade or corporate name and require all advertisements to be in the name of a dentist. A number of states also regulate the content of advertisements of dental services and the use of promotional gift items. These laws and their interpretation vary from state to state and are enforced by regulatory authorities with broad discretion.

Many states’ laws and regulations relating to the practice of dentistry were adopted prior to the emergence of providers of business services to dental group practices like us. As a result, a number of states, including states in which we currently operate, are in the process of reviewing and/or amending their laws or regulations relating to the practice of dentistry and dentists’ business arrangements with unlicensed persons like us. There can be no assurance that any amendments or new laws or regulations, or the interpretation or application of existing or new laws or regulations, will not have a material adverse effect on our business, financial condition and results of operations.

There are certain regulatory issues associated with our role in negotiating and administering managed care contracts. To the extent that we or any affiliated practice contracts with third-party payors, including self-insured plans, under a capitated or other arrangement which causes us or such affiliated practice to assume a portion of the financial risk of providing dental care, we or such affiliated practice may become subject to state insurance laws. If we or any affiliated practice is determined to be engaged in the business of insurance, we may be required to change our contractual relationships or seek appropriate licensure. Any regulation of us or the affiliated practices under insurance laws could have a material adverse effect on our business, financial condition and results of operations. In certain circumstances, through our role in negotiating and administering managed care and other provider contracts, plans or arrangements we are also subject to regulation in certain states as an administrator and must ensure that our activities comply with relevant regulation.

Federal Regulation

The dental industry is also regulated at the federal level to the extent that dental services are reimbursed under federal programs. Participation by the affiliated practices and their dentists in such programs subjects them, and potentially us, to significant regulation regarding the provision of services to beneficiaries, submission of claims and related matters, including the types of regulations discussed below. Violation of these laws or regulations can result in civil and criminal penalties, including possible exclusion of individuals and entities from participation in federal payment programs.

The federal anti-kickback statutes prohibit, in part, and subject to certain safe harbors, the payment or receipt of remuneration in return for, or in order to induce, referrals, or arranging for referrals, for items or services which are reimbursable under federal payment programs. Other federal laws impose significant penalties for false or improper billings or inappropriate coding for dental services. The federal self-referral law, or “Stark law,” prohibits dentists from making referrals for certain designated health services reimbursable under federal payment programs to entities with which they have financial relationships unless a specific exception applies. The Stark law also prohibits the entity receiving such referrals from submitting a claim for services provided pursuant to such referral. We may be subject to federal payor rules prohibiting the assignment of the right to receive payment for services rendered unless certain conditions are met. These rules prohibit a billing agent from receiving a fee based on a percentage of collections and may require payments for the services of the dentists to

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be made directly to the dentist providing the services or to a lock-box account held in the name of the dentist or his or her dental group. In addition, these rules provide that accounts receivables from federal payors are not saleable or assignable.

Tooth Doctor and the other affiliated practices are also covered entities under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). Among other things, HIPAA includes provisions regarding protection of the privacy of patient-identifiable health information, requiring us to maintain extensive policies and procedures and also includes provisions relating to standards for security of electronic protected health information and electronic transactions. New health information standards, whether implemented pursuant to HIPAA or otherwise, could have a material effect on how we and our affiliated practices handle health care related data and the cost of compliance. Failure to comply with existing or new laws or regulations related to patient health information could result in criminal or civil sanctions

Finally, dental practices are also subject to compliance with federal regulatory standards in the areas of safety, health and access.

Medicaid

Tooth Doctor and three of our other affiliated practices are providers under Medicaid programs in Arizona, Minnesota, New York and Texas. As a result, they must comply with both state and federal Medicaid laws as well as the requirements of their contracts with third-party payors which administer claims and reimbursement under those programs.

Insurance

We maintain insurance coverage that we believe is appropriate for our business, including property, business interruption and general liability, among others. In addition, the affiliated practices are required to maintain, or cause to be maintained, professional liability insurance with us as a named insured. Certain of our insurances are reinsured by a wholly-owned captive insurance company licensed in the state of Vermont. While we believe that our current insurance coverage is adequate for our current operations, it may not be sufficient for all future claims. In addition, the costs, retention levels and availability of certain insurance have fluctuated significantly in recent years, and there can be no assurance that our current insurance coverages will continue to be available in adequate amounts or at a reasonable cost in the future or that reserve levels of our captive insurance company for potential losses below applicable retention levels under certain insurance coverages will be sufficient.

Customers

For the fiscal year ended December 31, 2008, revenue generated from our service agreements with Metro Dentalcare P.L.C., the affiliated practice at Metro Dentalcare, and Wisconsin Dental Group, S.C., the affiliated practice at Forward Dental, represented 20% and 12%, respectively, of our consolidated net revenue. The termination of either service agreement could have a material adverse effect on our business, financial condition and results of operations.

Employees

As of December 31, 2008, we had 2,531 employees, including 35 dentists and 1 medical doctor (representing 34 full-time equivalent dentists), 430 hygienists, 704 dental assistants and 1,365 administrative personnel at our dental facilities, shared service centers and our corporate office. We consider our relationship with our employees to be satisfactory. We do not employ dentists, hygienists or dental assistants in states where laws prohibit us from doing so. As of December 31, 2008, the affiliated practices, excluding Tooth Doctor, employed 315 hygienists, 304 dental assistants and employed or contracted with 622 dentists (representing 511 full-time equivalent dentists).

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Available Information

We make available, free of charge, through our website (www.amdpi.com), our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, all amendments to these reports and other filings with the United States Securities and Exchange Commission (the “SEC”), as soon as reasonably practicable after filing. The public can also obtain access to our reports by visiting the SEC Public Reference Room, 100 F Street, NE, Room 1580, Washington, DC 20549, by calling the SEC at 1-800-SEC-0330 or by the SEC’s website at www.sec.gov.

Executive Officers and Senior Management of the Registrant

The following table sets forth information concerning each of our current executive officers and members of senior management, each of whom are elected annually by the Board of Directors:

Name	Age	Position
Gregory A. Serrao*	46	Chairman, President and Chief Executive Officer
Breht T. Feigh*	42	Executive Vice President – Chief Financial Officer and Treasurer
Michael J. Vaughan*	55	Executive Vice President – Chief Operating Officer
Michael J. Kenneally	48	Senior Vice President – Regional Operations
Jesely C. Ruff, D.D.S.	54	Senior Vice President – Chief Professional Officer
Ian H. Brock	39	Vice President – Planning and Investment
Robert A. Duncan	61	Vice President – Information Systems
Mark W. Vargo*	57	Vice President – Chief Accounting Officer

* Designated by the Board of Directors as an executive officer.

Mr. Serrao founded American Dental Partners, Inc. and has served as our President, Chief Executive Officer and a Director since December 1995 and as Chairman since October 1997. From 1992 through December 1995, Mr. Serrao served as the President of National Specialty Services, Inc., a subsidiary of Cardinal Health, Inc. (“Cardinal Health”). From 1991 to 1992, Mr. Serrao served as Vice President – Corporate Development of Cardinal Health. Before joining Cardinal Health, Mr. Serrao was an investment banker at Dean Witter Reynolds Inc. from 1985 to 1990. Mr. Serrao serves on the Board of Fellows of the Harvard School of Dental Medicine, the Board of Directors of Focus Financial, LLC and the Board of Governors for the Boys and Girls Club of Lawrence, Massachusetts.

Mr. Feigh has served as our Executive Vice President – Chief Financial Officer and Treasurer since November 2003. Mr. Feigh was Vice President – Chief Financial Officer and Treasurer from January 2001 to October 2003, Vice President – Strategic Initiatives from January 2000 to December 2000 and was Director – Corporate Development from October 1997 to December 1999. Prior to joining us, Mr. Feigh was employed in various investment banking positions at Dean Witter Reynolds Inc., ING Barings and Robertson, Stephens & Company from 1989 to 1997.

Mr. Vaughan has served as our Executive Vice President – Chief Operating Officer since November 2003. Mr. Vaughan was Senior Vice President – Chief Operating Officer from October 2001 to October 2003, Senior Vice President – Regional Operations from January 2001 to September 2001 and Vice President – Operations from January 2000 to December 2000. From 1996 to December 1999, Mr. Vaughan served as Regional Vice President for Cardinal Distribution, a subsidiary of Cardinal Health. From 1988 to 1995, Mr. Vaughan held the positions of Vice President and General Manager of Cardinal Distribution’s Knoxville, Tennessee and Zanesville, Ohio facilities and also Vice President of Strategic Initiatives. Prior to joining Cardinal Health, Mr. Vaughan worked for McKesson HBOC in various sales management positions.

Mr. Kenneally has served as our Senior Vice President – Regional Operations since February 2005. Mr. Kenneally has also served as Chief Executive Officer of PDHC, Ltd., one of our subsidiaries, since January

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2001. Mr. Kenneally was Chief Operating Officer of PDHC, Ltd. from July 1998 to December 2000, Director of Business Management from 1995 to June 1998, Director of Finance and Information Systems from 1994 to 1995 and Controller from 1988 to 1994.

Dr. Ruff has served as our Senior Vice President – Chief Professional Officer since February 2005. Dr. Ruff was Vice President – Chief Professional Officer from January 1999 to February 2005 and has chaired our Professional Leadership Forum and its predecessor since January 1997. From 1992 to December 1998, Dr. Ruff served as President of Wisconsin Dental Group, S.C., one of our affiliated practices, where he was employed as a practicing dentist and held a variety of positions since 1985. In 1994, Dr. Ruff served on the Board of Directors of the National Association of Prepaid Dental Plans. From 1983 to 1991, Dr. Ruff was an Assistant Professor at the Marquette University School of Dentistry and an adjunct faculty member from 1991 to 1996, where he held a variety of clinical faculty and grant-related positions.

Mr. Brock has served as our Vice President – Planning and Investment since February 2005. Mr. Brock was Vice President – Finance from October 2001 to January 2005, Vice President – Financial Planning from January 2001 to September 2001, Director – Financial Planning from February 1998 to December 2000 and Assistant Controller from September 1996 to January 1998. Prior to joining us, Mr. Brock worked for American Medical Response, Inc., (“AMR”) a national provider of ambulance services, as a corporate financial analyst from 1995 to 1996 and as an accounting manager and financial analyst from 1991 to 1995 with AMR of Connecticut, Inc., one of AMR’s four founding subsidiaries.

Mr. Duncan has served as our Vice President – Information Services since July 2002. From March 1998 to June 2002, Mr. Duncan served as Vice President of Information Technology Services for National City Bank of Minneapolis N.A. From October 1995 to February 1998, Mr. Duncan served as Manager of Distributed Computing Services for Alltel Information Services. From 1992 to 1995, Mr. Duncan served as Manager of Technical Support for American Bank, N.A. From 1985 to 1992, Mr. Duncan served as Assistant Vice President of Support Services for First Banks Systems N.A., now US BancCorp.

Mr. Vargo has served as our Vice President – Chief Accounting Officer since May 2003. From May 2000 to August 2002, Mr. Vargo was Vice President of Finance and Administration for International Garden Products, Inc. (“IGP”), during which he served as Chief Financial Officer of IGP’s Langeveld business unit from October 2001 to August 2002. From January 1999 to February 2000, Mr. Vargo was Global Controller of EMC, Inc. From 1990 to January 1999, Mr. Vargo served in several senior management positions at Anixter International Inc. including Vice President of Finance of the Structured Cabling Division and North American Controller. Mr. Vargo began his professional accounting career with a predecessor to KPMG LLP.

ITEM 1A. RISK FACTORS

We may not be able to refinance our credit facilities on satisfactory terms

Our revolving credit facility and term loan mature on January 20, 2010 and the current credit markets are very limited and restrictive. Our failure to extend the maturity or to refinance our revolving credit facility and term loan with our existing lenders or others on satisfactory terms will have a material adverse effect on our business, financial condition and results of operations. We may be able to refinance only a portion of our revolving credit facility and term loan, necessitating the issuance of subordinated debt, preferred stock or common stock, or some combination of such securities. Such securities may include interest or dividends, voting rights or other dilutive effects to our existing shareholders.

We are impacted by general economic conditions

Our net revenue depends primarily on revenue generated by the affiliated practices. We estimate approximately 85% of the patients of our affiliated practices have dental insurance, and demand for dental care is heavily influenced by dental insurance. In general, dental insurance covers 100% of preventative care, only 80% of basic restorative procedures and 50% of more extensive restorative procedures. In addition, dental insurance often caps

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benefits at an annual maximum of $1,000 to $1,500. As a result, patients, with or without dental insurance, are financially responsible for a considerable portion of their dental expenditures. With the deteriorating economic conditions initially emanating from consumer indebtedness, consumer spending patterns have changed. Our affiliated practices have observed patients either delaying care or, for those patients with dental insurance, opting for dental procedures that are largely covered by insurance. As are result, revenue growth rates of the affiliated practices have decreased and revenue mix has shifted towards lower cost and lower profitability dental procedures. The effect to us is lower net revenue and lower profit margins. We believe economic conditions will adversely impact us during 2009, although we are unable to predict the likely duration or severity of the current adverse economic conditions or the severity of the effect of those conditions on our business and results of operations. We also believe the current economic conditions will not lessen the dental care needs of patients and therefore will not impact long term trends of the dental care industry.

We are dependent on the performance of the affiliated practices for our net revenue

Our net revenue depends primarily on revenue generated by the affiliated practices. We do not employ dentists, except for Arizona’s Tooth Doctor for Kids, and we do not control the clinical decisions of any of the affiliated practices. There can be no assurance that the affiliated practices will maintain successful operations or that any of the key members of a particular affiliated practice will continue practicing with that practice. Availability of dentists, hygienists or dental assistants could have a material adverse effect on our business. To the extent permitted by state law, each affiliated practice has entered into non-competition agreements and other restrictive covenants with dentists under their employ and we have similar restrictive covenants with Tooth Doctor’s dentists. There can be no assurance that these restrictive covenants will remain in effect in all cases, are or will be sufficient to protect the interests of the affiliated practices or that a court will enforce such agreements. Any material loss of revenue by an affiliated practice, whether due to the loss of existing dentists or the inability to recruit new ones, could have a material adverse effect on our business, financial condition and results of operations.

We are dependent upon the service agreements we have entered into with each of the affiliated practices, except for Tooth Doctor, for substantially all of our revenue. Revenue generated from our service agreements with Metro Dentalcare P.L.C., the affiliated dental practice at Metro Dentalcare, and with Wisconsin Dental Group, S.C., the affiliated practice at Forward Dental, represented 20% and 12%, respectively of our consolidated net revenue in 2008. The termination of either of these service agreements would have a material adverse effect on our business, financial condition and results of operations.

Our net revenue may be adversely affected by third-party payor cost containment efforts

A significant portion of the payments for dental care that is received by the affiliated practices is paid or reimbursed under insurance programs with third-party payors. Third-party payors are continually negotiating the fees charged for dental care, with a goal of containing reimbursement and utilization rates. Loss of revenue by the affiliated practices caused by third-party payor cost containment efforts or an inability to negotiate satisfactory reimbursement rates could have a material adverse effect on our business, financial condition and results of operations.

Some third-party payor contracts are capitated arrangements. Under such contracts, the affiliated practice receives a monthly payment based on the number of members for which they provide care and generally receives a co-payment from the patient at the time care is provided. Such payment methods shift a portion of the risk of providing care from the third-party payors to the affiliated practice. To the extent that patients covered by such contracts require more frequent or extensive care than is anticipated, there may be a shortfall between the capitated payments received by the affiliated practice and the costs incurred to provide such care. Unfavorable utilization under these contracts, as well as termination of such contracts, could have a material adverse effect on our business, financial condition and results of operations.

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Our net revenue at Tooth Doctor and three other affiliated practices may be adversely affected by changes in state Medicaid programs

Tooth Doctor is largely dependent upon reimbursements under Arizona’s Medicaid program and three of our other affiliated practices are providers under various state Medicaid programs. Changes in those programs affecting provider eligibility, reimbursement rates or specific dental procedures eligible for reimbursement, or our affiliated practices failure to maintain its authorization as a provider under these programs, or to comply with applicable state and federal law or its contracts with the payors who administer claims and make payments under these programs, could have a material adverse effect on our business, financial condition and results of operations.

Determinations by regulatory authorities could have a material adverse effect on our operations

The dental industry and dental practices are highly regulated at the state and federal levels, as described in “Item 1. Business-Government Regulation.” Many of these laws and regulations vary widely by state. In addition, these laws and regulations are enforced by federal and state regulatory authorities with broad discretion, and our agreements may be subject to review by these authorities from time to time. For example, regulatory authorities in some states in which we operate have obtained a copy of our service agreement for review in the past, and in the future such reviews could result in changes to our service agreements. We do not, and do not intend to, control the practice of dentistry by the affiliated practices or their compliance with the regulatory requirements directly applicable to dentists or the practice of dentistry. However, there can be no assurance that any review of our business relationships, including our relationship with the affiliated practices, by courts or other regulatory authorities, will not result in determinations that could have a material adverse effect on our operations.

Changes in the laws and regulatory environment could have a material adverse effect on our operations

Similarly, there can be no assurance that the laws and regulatory environment will not change to restrict or limit the enforceability of our service agreements. The laws and regulations of some states in which we currently operate or may seek to expand may require us to change our contractual relationships with dental group practices in a manner that may restrict our operations in those states or may prevent us from affiliating with dental group practices or providing comprehensive business services to dental group practices in those states, or may require us to restructure our current or future operations. For example, a bill recently introduced in the Arizona legislature would impose additional specific reporting and other obligations on business entities, such as us, who own dental practices, and there have been efforts in the past to enact legislation which would have restricted our ability to own dental practices in that state. There can be no assurance that similar legislation will not be enacted in the future. Additionally, the Arizona Board of Dentistry has approved changes to certain sedation rules, and those proposed changes were sent to the Governor’s Regulatory Review Counsel for review. Those changes, if ultimately implemented, or other changes to these rules could adversely affect Tooth Doctor.

Our future affiliations or acquisitions may not be completed on acceptable terms or successfully integrated

Our strategy includes expansion through affiliations with dental group practices in new and existing states and the expansion of such affiliated practices. Affiliations involve numerous risks, including failure to retain key personnel and contracts of the affiliated practices and the inability to work successfully with us as a business partner. There can be no assurance that we will be able to complete additional affiliations on acceptable terms and conditions or that we will be able to serve successfully as a business partner to additional practices, and this could adversely affect our business, financial condition or results of operations. In addition, we entered into agreements to amend our revolving credit agreement and our term loan effective October 24, 2008 which limit amounts which can be borrowed to fund affiliations and acquisitions, and as a result the number of new affiliations and acquisitions over the next twelve months will be at levels lower than we achieved in recent years.

We may not realize the expected value of our goodwill and intangible assets

A significant portion of our total assets is represented by goodwill and intangible assets, with the amount expected to increase with future affiliations. In addition, the amortization expense related to definite lived

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intangible assets will increase in the future as a result of additional intangible assets recorded in connection with new affiliations. Management performs an impairment test on goodwill and indefinite lived intangible assets at least annually or when facts and circumstances exist which would suggest that the goodwill or indefinite lived intangible asset is impaired. An impairment test on goodwill and definite lived intangible assets is performed when facts and circumstances exist which would suggest that the definite lived intangible asset may be impaired, such as loss of key personnel, change in legal factors or competition. Impairment assessment inherently involves judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. If impairment were determined, we would make the appropriate adjustment to the intangible asset to reduce the asset’s carrying value to fair value. In the event of any sale or liquidation of us or a portion of our assets, there can be no assurance that the value of our intangible assets will be realized. Any future determination requiring the write off of goodwill, indefinite lived intangibles or a significant portion of unamortized intangible assets could have a material adverse effect on our business, financial condition and results of operations.

Our operating results may be adversely affected by professional liability claims against the affiliated practices

The affiliated practices and/or individual dentists in their employ could be exposed to the risk of professional liability claims, and it is possible that such claims could also be asserted against us. With respect to Tooth Doctor, any such claims would likely be asserted against us. Such claims, if successful, could result in substantial damages that could exceed the limits of any applicable insurance coverage. We are named as an insured under the professional liability insurance policy covering the affiliated practices. In addition, we also require each affiliated practice to indemnify us for actions or omissions related to the delivery of dental care by such affiliated practice. However, a successful professional liability claim against an affiliated practice or us could have a material adverse effect on our business, financial condition and results of operations.

A loss of the services of our key personnel could have a material adverse effect on our business

Our continued success depends upon the retention of our senior officers who have been instrumental in our success and upon our ability to attract and retain other highly qualified individuals. The loss of some of our senior officers, or an inability to attract or retain other key individuals, could materially adversely affect us. Continued growth and success in our business depends, to a large degree, on our ability to retain and attract such employees.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES

We lease most of our facilities from unrelated third-parties. As of December 31, 2008, we leased or owned 241 dental facilities, three dental labs and 15 local management offices, including our corporate headquarters. Our corporate office is located at 401 Edgewater Place, Suite 430, Wakefield, Massachusetts 01880, in approximately 17,000 square feet of office space occupied under a lease which expires in 2014. We consider our properties in good condition, well maintained and generally suitable and adequate to carry on our business activities. For the year ended December 31, 2008, facility utilization varied from affiliated dental group to affiliated dental group, but overall was at a satisfactory level. The majority of our dental facilities have sufficient capacity to allow for future growth.

ITEM 3.  LEGAL PROCEEDINGS

Shareholder Litigation

On or about January 25, 2008, February 4, 2008, February 12, 2008, and March 13, 2008, we and certain of our executive officers were named as defendants in four actions respectively entitled “Oliphant v. American Dental Partners, Inc. et. al.,” civil action number 1:08-CV-10119-RGS, “Downey v. American Dental Partners, Inc. et. al.,” civil action number 1:08-CV-10169-RGS, “Johnston v. American Dental Partners, Inc. et. al.,” civil action

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number 1:08-CA-10230-RGS, and “Monihan v. American Dental Partners, Inc., et. al.,” civil action number 1:08-CV-10410-RGS, all filed in the United States District Court for the District of Massachusetts. The actions each purport to be brought on behalf of a class of purchasers of our common stock during the period August 10, 2005 through December 13, 2007. The complaints allege that we and certain of our executive officers violated the federal securities laws, in particular, Section 10(b) of the Securities Exchange Act, 15 U.S.C. §§ 78, and Rule 10b-5 promulgated there under, 17 C.F.R. § 240.10b-5, by making allegedly material misrepresentations and failing to disclose allegedly material facts concerning the lawsuit by Park Dental Group against PDHC, Ltd., titled PDG, P.A. v. PDHC, Ltd., Civ. A. Nos. 27-CV-06-2500 and 27-CV-07-13030, filed in the Fourth Judicial District of Hennepin County, Minnesota on February 3, 2006 (“PDG Litigation”), and conduct at issue in that action during the Class Period, which had the effect of artificially inflating the market price of our stock. Each complaint also asserts control person claims under Section 20(a) of the Securities Exchange Act against the executive officers named as defendants.

On or about May 29, 2008, the Court appointed the Operating Engineers Pension Fund, as lead plaintiff and its counsel, the law firm of Grant & Eisenhofer P.A., as lead counsel. The Court also ordered that the four pending actions be consolidated under the caption “In re American Dental Partners, Inc. Securities Litigation,” civil action number 1:08-CV-10119-RGS. On or about June 5, 2008, one of the original named plaintiffs, W.K. Downey, agreed to enter an order that dismissed his individual claims with prejudice. On September 29, 2008, the Operating Engineers Pension Fund filed with the Court a consolidated amended complaint, which alleges a new class period of February 25, 2004 through December 13, 2007 and asserts violations of the federal securities laws as described above. On December 5, 2008, we and the other defendants filed a motion to dismiss the action. The plaintiff filed an opposition to the motion on January 30, 2009. The Court has scheduled a hearing on the motion in April 2009. Each plaintiff seeks class certification, an unspecified amount of money damages, costs and attorneys’ fees and any equitable, injunctive or other relief the Court deems proper. We are unable to estimate any potential losses with respect to these actions. We intend to defend the matters vigorously.

Derivative Litigation

On or about June 2, 2008, a derivative action was filed in the Suffolk Superior Court of the Commonwealth of Massachusetts on behalf of the Company entitled “Musselman v. Serrao et al.,” C.A. No. 08-2444-BLS. The complaint names us as a nominal defendant and certain of our directors and executive officers (collectively, the “Musselman Individual Defendants”) as defendants. The action was filed without first making a demand on our Board of Directors to address the allegations. The complaint was amended on July 31, 2008. The amended complaint involves factual allegations relating to the PDG Litigation and asserts claims for breach of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets, and aiding and abetting breaches of fiduciary duties against all of the Musselman Individual Defendants and claims for unjust enrichment and insider selling against some of the Individual Defendants. The relief the complaint seeks on behalf of us includes an unspecified amount of money damages, disgorgement from some of the Individual Defendants, corporate governance changes and any equitable, injunctive or other relief the Court deems proper. Plaintiffs Teresa and Stephen Musselman also seek costs and attorneys’ fees. Because the action is derivative in nature, any damages will be for the benefit of the Company. We are unable to provide a range of potential damages with respect to this action.

On or about July 1, 2008, a derivative action was filed in Middlesex Superior Court of the Commonwealth of Massachusetts on behalf of the Company entitled “Dyer v. Serrao et al.,” C.A. No. 08-2417. The complaint names ADPI as a nominal defendant and certain of our present directors and executive officers (collectively, the “Dyer Individual Defendants”) as defendants. Plaintiff Dyer filed the action without first making a demand on our Board of Directors to address the allegations. The complaint involves factual allegations relating to the PDG Litigation and asserts a claim for breach of fiduciary duty of good faith against all of the Dyer Individual Defendants. The relief the complaint seeks on behalf of the Company includes an unspecified amount of money damages and any equitable, injunctive or other relief the Court deems proper. The plaintiff also seeks costs and attorneys’ fees. Because the action is derivative in nature, any damages will be for the benefit of the Company. We are unable to provide a range of potential damages with respect to this action.

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On August 15, 2008, on the joint motion of the parties, the Dyer and the Musselman actions were consolidated and the Dyer action was ordered to be transferred to the Business Litigation Session of Suffolk Superior Court of the Commonwealth of Massachusetts. The Dyer action was received in the Business Litigation Section on September 22, 2008, under the new civil action number 08-4132-BLS1.

On October 3, 2008, the Court granted Plaintiffs’ Motion to Appoint Co-Lead Counsel and Liaison Counsel and for Entry of a Pre-Trial Order. Defendants filed a Motion to Stay Discovery, which the Court granted on November 20, 2008. We, and the Dyer and Musselman Individual Defendants, have brought a motion to dismiss the consolidated action, which was fully briefed and filed with the Court on December 23, 2008. A hearing date on the motion has been scheduled in April 2009. We intend to defend the matter vigorously.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5.  MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information, Holders and Dividends

Our Common Stock is traded on the NASDAQ National Market system under the symbol “ADPI.” The following table sets forth the range of the reported high and low sales prices of our Common Stock for the years ended December 31, 2007 and 2008.

2007	High		Low
1st Quarter	$	22.35	$	18.58
2nd Quarter	$	29.50	$	20.39
3rd Quarter	$	28.36	$	19.18
4th Quarter	$	28.95	$	4.22
2008	High		Low
1st Quarter	$	10.68	$	8.19
2nd Quarter	$	12.50	$	8.67
3rd Quarter	$	14.17	$	10.01
4th Quarter	$	12.00	$	6.30

As of December 31, 2008, there were approximately 14 holders of record of our Common Stock on the books of our transfer agent and registrar. However, the number of registered holders does not bear any relationship to the number of beneficial owners of our Common Stock.

Historically we have had the ability to pay cash dividends but have not done so. Under our most recent amendments to our credit facility and term loan, we no longer have the ability to pay cash dividends (see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Liquidity and Capital Resources”).

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Our performance graph below (and the accompanying data points upon which the graph is based on) provides a graphical comparison of our stock performance to comparable indices over five years.

	12/03	12/04	12/05	12/06	12/07	12/08
American Dental Partners, Inc.	100.00	167.05	238.94	249.65	132.56	91.72
Russell 2000	100.00	118.33	123.72	146.44	144.15	95.44
S&P Health Care	100.00	101.68	108.24	116.40	124.72	96.27

Summary of Equity Plans

See Item 12 of Part III for a summary of equity plans as of December 31, 2008.

Recent Sales of Unregistered Securities

None.

Recent Share Repurchases

None.

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ITEM 6.  SELECTED FINANCIAL DATA (in thousands, except per share amounts and Statistical Data)

The following selected consolidated financial and operating data set forth below with respect to the Company’s consolidated statements of income for fiscal years 2008, 2007 and 2006 and consolidated balance sheets as of December 31, 2008 and 2007 are derived from the Company’s consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Data with respect to the consolidated statements of income for fiscal years 2005 and 2004 and consolidated balance sheets as of December 31, 2006, 2005 and 2004 are derived from the Company’s consolidated financial statements as previously filed. The data set forth below should be read in conjunction with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

	Years Ending December 31,
	2008			2007			2006			2005		2004
Consolidated Statement of Operations Data:
Net revenue	$	291,108		$	278,755		$	217,917		$	196,928	$	178,554
Operating expenses:
Salaries and benefits		125,795			119,411			91,282			83,638		77,489
Lab fees and dental supplies		42,836			43,209			35,066			31,638		28,566
Office occupancy		33,878			31,457			26,404			23,013		20,956
Other operating expenses		26,017			23,400			19,084			18,372		16,643
General corporate expenses (1)		12,366			14,427			11,126			9,570		8,856
Depreciation		11,054			9,422			7,845			7,001		5,934
Amortization of intangible assets		9,634			7,049			5,358			5,007		4,408
Litigation expense (1)		(30,662	)		36,734			1,570			-		-
Total operating expenses		230,918			285,109			197,735			178,239		162,852
Earnings (losses) from operations		60,190			(6,354	)		20,182			18,689		15,702
Interest expense		10,193			5,253			1,848			1,804		1,592
Minority interest, net of tax		634			390			54			-		-
Earnings (losses) before income taxes		49,363			(11,997	)		18,280			16,885		14,110
Income taxes		19,245			(4,281	)		7,146			6,594		5,591
Net earnings (losses)	$	30,118		$	(7,716	)	$	11,134		$	10,291	$	8,519
Net earnings (losses) per common share (2):
Basic	$	2.34		$	(0.61	)	$	0.91		$	0.86	$	0.75
Diluted	$	2.29		$	(0.61	)	$	0.86		$	0.81	$	0.70
Weighted average common shares outstanding (2):
Basic		12,876			12,681			12,301			12,006		11,372
Diluted		13,150			12,681			12,916			12,716		12,102
	December 31,
	2008			2007			2006			2005		2004
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	6,626		$	6,376		$	1,386		$	592	$	1,378
Working capital		13,588			(19,897	)		(4,813	)		2,055		(2,306	)
Total assets (3)		353,253			368,506			196,386			170,937		154,508
Total debt		131,637			141,174			33,888			32,162		28,541
Total stockholders’ equity		146,498			114,903			116,311			101,895		87,207
Statistical Data:
Number of states		18			18			18			18		17
Number of affiliated dental groups practices (4) (5)		25			26			22			19		19
Number of dental facilities (4)		241			266			209			187		177
Number of operatories (4) (6)		2,107			2,357			1,944			1,761		1,583
Number of affiliated dentists (4) (7)		545			611			470			435		398
Patient revenue of affiliated practices (in thousands)	$	415,958		$	418,471		$	337,401		$	302,982	$	272,369

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(1) Professional fees associated with the litigation with PDG, P.A. of $1,103,000 and $3,371,000 for the years ended December 31, 2008 and 2007, respectively, have been reclassified from general corporate expense to litigation expense.

(2) Net earnings per common share are computed on the basis described in Notes 2 and 13 to our Consolidated Financial Statements.

(3) Amounts due to affiliated practices has been reclassfied from accounts recievable, net to accounts payable for all years presented.

(4) On December 31, 2007 the service agreement with PDG, P.A. was terminated, and we transfered the assets of 25 of the 31 dental facilites to PDG, P.A. These 25 locations had 256 operatories and 77 full-time equivalent dentists at December 31, 2007.

(5) Texas Oral & Maxillofacial Surgical Associates merged with Carus Dental in 2008.

(6) An operatory is an area where dental care is performed and generally contains a dental chair, a hand piece delivery system and other essential dental equipment.

(7) Includes full-time equivalent general or specialist dentists employed by or contracted with the affiliated practices.

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ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

American Dental Partners is a leading provider of dental facilities, support staff and business services to multidisciplinary dental group practices in selected markets throughout the United States. We are committed to the success of the affiliated practices, and we make substantial investments to support each affiliated practice’s growth. We provide or assist with organizational planning and development; recruiting, retention and training programs; quality assurance initiatives; facilities development and management; employee benefits administration; procurement; information systems and practice technology; marketing and payor relations; and financial planning, reporting and analysis. At December 31, 2008 we were affiliated with 25 dental group practices, comprising 545 full-time equivalent dentists practicing in 241 dental facilities in 18 states.

Our net revenue depends primarily on revenue generated by the affiliated practices. We estimate approximately 85% of the patients of our affiliated practices have dental insurance, and demand for dental care is heavily influenced by dental insurance. In general, dental insurance covers 100% of preventative care, only 80% of basic restorative procedures and 50% of more extensive restorative procedures. In addition, dental insurance often caps benefits at an annual maximum of $1,000 to $1,500. As a result, patients, with or without dental insurance, are financially responsible for a considerable portion of their dental expenditures. With the deteriorating economic conditions initially emanating from consumer indebtedness, consumer spending patterns have changed. Our affiliated practices have observed patients either delaying care or, for those patients with dental insurance, opting for dental procedures that are largely covered by insurance. As are result, revenue growth rates of the affiliated practices have decreased and revenue mix has shifted towards lower cost and lower profitability dental procedures. The effect to us is lower net revenue and lower profit margins. We believe economic conditions will adversely impact us during 2009, although we are unable to predict the likely duration or severity of the current adverse economic conditions or the severity of the effect of those conditions on our business and results of operations.

Acquisition and Affiliation Summary

When affiliating with a dental practice, we customarily acquire selected assets and enter into a long-term service agreement with the affiliated practice. Under our service agreements, we are responsible for providing all services necessary for the administration of the non-clinical aspects of the dental operations. The affiliated practice is responsible for the provision of dental care. Each of our service agreements is for an initial term of 40 years.

During 2008, 2007 and 2006, we completed eight, 14 and 13 acquisition and affiliation transactions, respectively. In four of these transactions, we acquired non-clinical assets and entered into long-term service agreements with the affiliated practices. In one of these transactions, we developed de novo dental facilities rather than acquiring non-clinical assets, and we entered into a long-term service agreement with the affiliated practice. In 27 of these transactions, we acquired non-clinical assets, and the practices were combined with one of our existing affiliated practices and became subject to an existing service agreement. In one of these transactions, we acquired the assets of the practice, Arizona’s Tooth Doctor for Kids (“Tooth Doctor’), and as permitted by applicable state law, Tooth Doctor employs the dentists thus not necessitating a service agreement between us and the affiliated practice. Finally, in one of these transactions, we acquired 100% of the outstanding capital stock of Metro Dentalcare which owned non-clinical assets, and entered into a long term service agreement with an affiliated practice, Metro Dentalcare, P.L.C. These acquisition and affiliation transactions resulted in the addition of seven affiliated practices, 79 dental facilities and 567 operatories. The 2008, 2007 and 2006 acquisition and affiliation transactions, at the time of the transactions, generated $5 million, $109 million and $38 million of patient revenue on an annualized basis, respectively.

We are constantly evaluating potential acquisition and affiliation transactions with dental practices and acquisitions of other dental-related companies that would expand our business capabilities. We entered into

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agreements to amend our revolving credit agreement and our term loan effective October 24, 2008 which limit amounts which can be borrowed to fund affiliations and acquisitions, and as a result the number of new affiliations and acquisitions over the next twelve months will be at levels lower than we achieved in recent years.

Litigation Settlement Agreements

In December 2007, we entered into a settlement agreement in which the service agreement with PDG, P.A. was terminated effective December 31, 2007, and we transferred the operating assets of 25 of the 31 Park Dental facilities and the “Park Dental” trade name to PDG. We retained the remaining six dental facilities which were combined with Metro Dentalcare. We also entered into a transition services agreement with PDG to provide services for a period of nine months through September 30, 2008 for $19,000,000. We completed the transition services, received the related $19 million payment and are completing the final steps in the separation of the companies. As a result of these agreements, our results of operations are not comparable and may not reflect the results of operations to be expected in future periods.

Revenue Overview

Net Revenue

Our net revenue includes management fees earned by us pursuant to the terms of the service agreements with the affiliated practices, as well as reimbursement of clinic expenses paid by us on their behalf, and other revenue which includes patient revenue of Tooth Doctor, fees earned by our dental benefits third party administrator (“TPA”), fees earned by our dental laboratory and other miscellaneous revenue. In 2008, other revenue also includes fees earned under the transition services agreement with PDG.

The following table provides the components of our net revenue for 2008, 2007 and 2006 (in thousands):

	2008		2007		2006
Reimbursement of expenses	$	189,500	$	187,260	$	159,932
Business service fees		55,971		64,088		51,945
Revenue earned under service agreements		245,471		251,348		211,877
Other revenue (1)		45,637		27,407		6,040
Net revenue	$	291,108	$	278,755	$	217,917

(1) 2008 includes $17,697 earned from the transition services agreement with PDG (See “Litigation Settlement Agreements”).

Revenues earned from business service fees and reimbursed expenses under the terms of our affiliated dental practice service agreements represented 84%, 90% and 97% of net revenues for the years ended December 31, 2008, 2007 and 2006, respectively. Due to growth in other revenue the declining percentage in 2007 is primarily due to the Tooth Doctor which was acquired in 2006, and the decline in 2008 was due to revenue earned under our transition services agreement with PDG. Both the affiliated dental practices and Company-owned businesses can be affected by changes in the US economy that may influence discretionary spending for dental services not covered by dental benefit plans. The Tooth Doctor business is directly affected by patient services reimbursed by state Medicaid programs.

Fees earned under service agreements include reimbursement of expenses incurred by us on behalf of the affiliated practices in connection with the operation and administration of dental facilities and business service fees charged to the affiliated practices pursuant to the terms of the service agreements for management services provided and capital committed by us. Under certain service agreements, representing 80% of our 2008 business service fees, our business service fee consists of a monthly fee which is based upon a specified percentage of the amount by which the affiliated practice’s patient revenue exceeds expenses. Under certain service agreements,

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representing 19% of our 2008 business service fees, our business service fee consists entirely of a fixed monthly fee determined by agreement of us and the affiliated practice in a formal planning process. Under certain other service agreements, representing less than 1% of our 2008 business service fees, our business service fee consists of either a fixed monthly fee and an additional performance fee based upon a percentage of the amount by which the affiliated practice’s patient revenue exceeds expenses as compared to the planned amount for the current year, a specified percentage of patient revenue or a specified percentage of collections on patient revenue. In all instances, the business service fee is negotiated at fair market value for services provided and capital committed by us to the affiliated practices.

The Company’s net revenue from the reimbursement of expenses is accounted for on an accrual basis and is recognized when these expenses are incurred and billed to the affiliated practices. Reimbursement of expenses includes costs incurred by us for the operation and administration of the dental facilities that include salaries and benefits for non-dentist personnel working at the dental facilities (the administrative staff and, where permitted by law, the dental assistants and hygienists), lab fees, dental supplies, office occupancy costs of the dental facilities, depreciation related to the fixed assets at the dental facilities and other expenses such as professional fees, marketing costs and general and administrative expenses.

Other revenue includes patient revenue from the Tooth Doctor, professional services, dental laboratory fees and other miscellaneous revenue.

For additional information on components of our net revenue, see Note 3 of “Notes to Consolidated Financial Statements.”

Patient Revenue of the Affiliated Practices

We believe it is important to understand patient revenue of the affiliated practices. This includes the practices that we do not control, nor own any equity interests in, and are affiliated with us by means of service agreements. We do not consolidate the financial statements of these affiliated practices with ours, and accordingly their patient revenue is not a measure of our financial performance under generally accepted accounting principles because it is not our revenue. It is however, a financial measure we use, along with the patient revenue of Tooth Doctor, to monitor operating performance and to help identify and analyze trends of the affiliated practices which may impact our business. Most of the operating expenses incurred by us, pursuant to service agreements, are on behalf of the affiliated practices in the operation of dental facilities. These expenses are significantly affected by the patient revenue of the affiliated practices.

The affiliated practices generate revenue from providing care to patients and receive payment from patients and dental benefit providers, or payors, under fee-for-service, PPO plans and managed care capitation plans. Patient revenue reflects the amounts billed by an affiliated practice at its established rates reduced by any contractual adjustments and allowances for uncollectible accounts. Contractual adjustments represent discounts off established rates negotiated pursuant to certain dental benefit plan provider contracts with the affiliated practices. While payor mix varies from market to market, the following table provides the aggregate payor mix of all affiliated practices, including Tooth Doctor, for the years ended December 31:

	2008		2007		2006
Fee-for-service	19	%	28	%	31	%
PPO and dental referral plans	70	%	60	%	52	%
Capitated managed care plans	11	%	12	%	17	%

For the affiliated practices that we do not own and are affiliated with us by means of a service agreement, after collection of fees from patients and third-party insurers for the provision of dental care and payment to us of our service fee and reimbursement of clinic expenses incurred by us on their behalf, the amounts remaining are used by these affiliated practices for compensation of dentists and, in certain states, hygienists and/or dental assistants who are employed by these affiliated practices.

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The following table sets forth for the years ended December 31, 2008, 2007 and 2006, the patient revenue of all the affiliated practices, patient revenue earned by Tooth Doctor, the amounts due to us under service agreements, and amounts retained by the affiliated practices we do not own for compensation of dentists and, where applicable, other clinical staff (in thousands):

	Twelve Months Ended December 31,				% Change		Twelve Months Ended December 31,				% Change
	2008		2007				2007		2006
Patient revenue of affiliated practices:
Platform dental group practices affiliated with us in both periods of comparison	$	322,318	$	305,249	5.6	%	$	363,508	$	331,434	9.7	%
Platform dental group practices that affiliated with us during periods of comparison		93,640		113,222	-17.3	%		54,963		5,967	821.1	%
Total patient revenue		415,958		418,471	-0.6	%		418,471		337,401	24.0	%
Patient revenue of Tooth Doctor		24,438		22,426	8.9	%		22,426		1,539	1,357.2	%
Patient revenue of platform dental group practices affiliated with us by means of service agreements		391,520		396,045	-1.1	%		396,045		335,862	17.9	%
Amounts due to us under service agreements		245,471		251,241	-2.3	%		251,241		211,877	18.6	%
Amounts retained by platform dental group practices affiliated with us by means of service agreements	$	146,049	$	144,804	0.9	%	$	144,804	$	123,985	16.8	%

Same market patient revenue growth was 5.6% for the year ended December 31, 2008 and was comprised of an 8.4% increase in provider hours, 1.5% reduction in provider productivity and the remainder to reduced reimbursement rates received from dental benefit insurers. Same market patient revenue growth for 2008 excludes platform affiliations that occurred after January 1, 2007. Same market patient revenue growth was 9.7% for the year ended December 31, 2007 and was comprised of a 7.0% increase in provider hours, 1.8% improvement in provider productivity and the remainder to improved reimbursement rates. Same market patient revenue growth for 2007 excludes platform affiliations that occurred after January 1, 2006.

Amounts retained by affiliated practices we do not own increased as a percentage of patient revenue of affiliated practices we do not own from 36.6% in 2007 to 37.3% in 2008 primarily due to increased provider compensation. Amounts retained by affiliated practices we do not own decreased as a percentage of patient revenue of affiliated practices we do not own from 36.9% in 2006 to 36.6% in 2007 due to the affiliation with Metro where we employ the clinical staff rather than the affiliated practice.

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Results of Operations

The following tables set forth our net revenue and results of operations for the years ended December 31, 2008, 2007 and 2006 (dollars in thousands):

	2008					2007					% Change
	Amount			% of Net Revenue		Amount			% of Net Revenue
Net revenue	$	291,108		100.0	%	$	278,755		100.0	%	4.4	%
Salaries and benefits		125,795		43.2	%		119,411		42.8	%	5.3	%
Lab fees and dental supplies		42,836		14.7	%		43,209		15.5	%	-0.9	%
Office occupancy		33,878		11.6	%		31,457		11.3	%	7.7	%
Other operating expenses		26,017		8.9	%		23,400		8.4	%	11.2	%
General corporate expenses (1)		12,366		4.2	%		14,427		5.2	%	-14.3	%
Depreciation expense		11,054		3.8	%		9,422		3.4	%	17.3	%
Amortization of intangible assets		9,634		3.3	%		7,049		2.5	%	36.7	%
Litigation expense (1)		(30,662	)	-10.5	%		36,734		13.2	%	-183.5	%
Total operating expenses		230,918		79.3	%		285,109		102.3	%	-19.0	%
Earnings (losses) from operations		60,190		20.7	%		(6,354	)	-2.3	%	-1047.3	%
Interest expense, net		10,193		3.5	%		5,253		2.0	%	94.0	%
Minority interest		634		0.2	%		390		0.1	%	62.6	%
Earnings (losses) before income taxes		49,363		17.0	%		(11,997	)	-4.3	%	-511.5	%
Income taxes		19,245		6.6	%		(4,281	)	-1.5	%	-549.5	%
Net earnings (losses)	$	30,118		10.3	%	$	(7,716	)	-2.8	%	-490.3	%
	2007					2006					% Change
	Amount			% of Net Revenue		Amount			% of Net Revenue
Net revenue	$	278,755		100.0	%	$	217,917		100.0	%	27.9	%
Salaries and benefits		119,411		42.8	%		91,282		41.9	%	30.8	%
Lab fees and dental supplies		43,209		15.5	%		35,066		16.1	%	23.2	%
Office occupancy		31,457		11.3	%		26,404		12.1	%	19.1	%
Other operating expenses		23,400		8.4	%		19,084		8.8	%	22.6	%
General corporate expenses (1)		14,427		5.2	%		11,126		5.1	%	29.7	%
Depreciation expense		9,422		3.4	%		7,845		3.6	%	20.1	%
Amortization of intangible assets		7,049		2.5	%		5,358		2.5	%	31.6	%
Litigation expense (1)		36,734		13.2	%		1,570		0.7	%	2,239.7	%
Total operating expenses		285,109		102.3	%		197,735		90.7	%	44.2	%
Earnings from operations		(6,354	)	-2.3	%		20,182		9.3	%	-131.5	%
Interest expense, net		5,253		2.0	%		1,848		0.8	%	184.3	%
Minority interest		390		0.1	%		54		0.0	%	622.2	%
Earnings before income taxes		(11,997	)	-4.3	%		18,280		8.4	%	-165.6	%
Income taxes		(4,281	)	-1.5	%		7,146		3.3	%	-159.9	%
Net earnings	$	(7,716	)	-2.8	%	$	11,134		5.1	%	-169.3	%

(1) Professional fees associated with the litigation with PDG, P.A. of $1,103,000 and $3,371,000 for the years ended December 31, 2008 and 2007, respectively, have been reclassified from general corporate expense to litigation expense.

Financial Presentation of Litigation Settlement

On February 29, 2008, under the terms of a settlement agreement entered into on December 26, 2007 among American Dental Partners, Inc., PDHC, one of our Minnesota subsidiaries, PDG, Dental Specialists of Minnesota, P.A. and Northland Dental Partners, P.L.L.C. to settle outstanding litigation among the parties, we transferred the operating assets of 25 of 31 Park Dental facilities and associated trade names to PDG, forgave

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outstanding accounts receivable due from PDG and entered into a transition services agreement with PDG to provide interim management services through September 30, 2008. See “Litigation Expense” for a discussion of how we have accounted for the transactions.

In addition to our actual results, we believe it is necessary to provide a pro forma financial presentation to exclude temporary and non-recurring items related to the litigation settlement as we believe that such pro forma presentation is important to understanding future trends of our underlying and ongoing operations. The pro forma information are non-GAAP financial measures.

The following table reconciles the actual results of operations to our pro forma non-GAAP financial measures for the twelve months ended December 30, 2008 (in thousands except per share amounts):

				Pro Forma Adjustments
	Actual			Settlement Assets			Management Services		Pro Forma
Net revenue	$	291,108		$	7,697		$	10,000	$	273,411
Operating expenses
Salaries and benefits		125,795			4,717			1,453		119,625
Lab fees and dental supplies		42,836			1,436			-		41,400
Office occupancy expenses		33,878			1,092			180		32,606
Other operating expenses		26,017			135			323		25,559
General corporate expenses		12,366			-			-		12,366
Litigation expenses		(30,662	)		(30,662	)		-		-
EBITDA		80,878			30,979			8,044		41,855
Depreciation		11,054			317			42		10,695
Amortization		9,634			-			-		9,634
Earnings from operations		60,190			30,662			8,002		21,526
Interest expense, net		10,193			-			-		10,193
Minority interest		634			-			-		634
Earnings before income taxes		49,363			30,662			8,002		10,699
Income taxes		19,245								4,171
Net earnings		30,118								6,528
Amortization of service agreements, net of tax		5,456								5,455
Cash net earnings	$	35,574							$	11,983
Diluted net earnings per common share	$	2.29							$	0.50
Diluted cash net earnings per common share	$	2.71							$	0.91

Pro forma adjustments for settlement assets include the following items: (i) revenue due us from PDG for the operating expenses of the 25 dental facilities prior to their transfer to PDG on February 29, 2008 and the operating expenses associated with the PDG doctors who practiced temporarily in the six dental facilities retained by us, (ii) a gain on disposal of assets of $30,763,000, pursuant to Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets,” (iii) insurance proceeds of $1,002,000 received for professional fees that were partially reimbursable pursuant to insurance coverage and (iv) professional fees and other expenses associated with the litigation of $1,103,000.

Pro forma adjustments for management services include revenue earned under the transition services agreement with PDG and estimated expenses to provide such services, and salaries and benefits expense of management staff, including severance, who have been terminated as a result of realigning the Company’s Minnesota based management team.

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The following table reconciles the actual results of operations to our pro forma non-GAAP financial measures for the twelve months ended December 31, 2007 (in thousands except per share amounts):

				Pro Forma Adjustments
	Actual			Settlement Assets			Management Services		Pro Forma
Net revenue	$	278,755		$	36,246		$	12,498	$	230,011
Operating expenses
Salaries and benefits		119,411			20,316			1,995		97,100
Lab fees and dental supplies		43,209			6,883			-		36,326
Office occupancy expenses		31,457			4,611			214		26,632
Other operating expenses		23,400			3,059			288		20,053
General corporate expenses		14,427			-			-		14,427
Litigation expenses		36,734			36,734			-		-
EBITDA		10,117			(35,357	)		10,001		35,473
Depreciation		9,422			1,377			54		7,991
Amortization		7,049			-			-		7,049
Earnings from operations		(6,354	)		(36,734	)		9,947		20,433
Interest expense, net		5,253			-			-		5,253
Minority interest		390			-			-		390
Earnings before income taxes		(11,997	)		(36,734	)		9,947		14,790
Income taxes		(4,281	)							5,798
Net earnings		(7,716	)							8,992
Amortization of service agreements, net of tax		4,282								4,282
Cash net earnings	$	(3,434	)						$	13,274
Diluted net earnings per common share	$	(0.61	)						$	0.68
Diluted cash net earnings per common share	$	(0.27	)						$	1.00

For comparability purposes with the twelve months ended December 31, 2008, pro forma adjustments for settlement assets include: (i) revenue due to us from PDG for the operating expenses of the 25 dental facilities transferred to PDG as part of the litigation settlement of $36,246,000, (ii) the fair value of the assets transferred to PDG, interim management fee in excess of fair value, forgiveness of outstanding accounts receivable and (iii) professional fees related to the litigation of $3,731,000.

Pro forma adjustments for management services include: (i) business service fees earned under the service agreement with PDG which terminated effective December 31, 2007 of $12,498,000 and (ii) estimated expenses to provide such services.

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The following table sets forth the percentage change between the pro forma non-GAAP financial measures for the twelve months ended December 31, 2008 and 2007 (dollars in thousands):

	2008				2007				% Change
	Pro Forma Amount		% of Net   Revenue		Pro Forma Amount		% of Net   Revenue
Net revenue	$	273,411	100.0	%	$	230,011	100.0	%	18.9	%
Operating expenses
Salaries and benefits		119,625	43.8	%		97,100	42.2	%	23.2	%
Lab fees and dental supplies		41,400	15.1	%		36,326	15.8	%	14.0	%
Office occupancy expenses		32,606	11.9	%		26,632	11.6	%	22.4	%
Other operating expenses		25,559	9.3	%		20,053	8.7	%	27.5	%
General corporate expenses		12,366	4.5	%		14,427	6.3	%	-14.3	%
Litigation expenses		-	0.0	%		-	0.0	%
EBITDA		41,855	15.3	%		35,473	15.4	%	18.0	%
Depreciation		10,695	3.9	%		7,991	3.5	%	33.8	%
Amortization		9,634	3.5	%		7,049	3.1	%	36.7	%
Earnings from operations		21,526	7.9	%		20,433	8.9	%	5.3	%
Interest expense, net		10,193	3.7	%		5,253	2.3	%	94.0	%
Minority interest		634	0.2	%		390	0.2	%	62.6	%
Earnings before income taxes		10,699	3.9	%		14,790	6.4	%	-27.7	%
Income taxes		4,171	1.5	%		5,798	2.5	%	-28.1	%
Net earnings	$	6,528	2.4	%	$	8,992	3.9	%	-27.4	%

The pro forma financial tables above exclude the results of operations, and associated business service fees, of the 25 dental facilities transferred to PDG from both periods of comparison, the PDG doctors who practiced temporarily in the dental facilities retained by us and temporary and non-recurring items related to the litigation settlement. Management believes that such pro forma presentation provides a better understanding of our results of operations and potential future trends of our underlying operations.

Net Revenue

Net revenue increased 4.4% to $291,108,000 in 2008 from $278,755,000 in 2007. Net revenue earned under our transition services agreement with PDG represented approximately 6% of our consolidated net revenue in 2008 and net revenue from our service agreement with PDG which terminated effective December 31, 2007 represented approximately 23% of our consolidated net revenue in 2007. Net revenue increased 27.9% to $278,755,000 in 2007 from $217,917,000 in 2006. The increase in 2007 was attributable to an increase in other revenue due to patient revenue earned by Tooth Doctor which was acquired on December 1, 2006, platform affiliations completed during 2007 and 2006, and a 9.1% increase in same market net revenue growth.

Pro forma net revenue increased 18.9% to $273,411,000 in 2008 from $230,011,000 in 2007. This increase was attributable to a full year of net revenue from our affiliation with Metro Dentalcare, affiliation transactions completed in 2007 and an increase in revenue at the Tooth Doctor.

Net revenue derived from our service agreement with Metro Dentalcare P.L.C., the affiliated practice at Metro Dentalcare, represented approximately 21% of pro forma net revenue for 2008 and 7% of pro forma net revenue for 2007. Net revenue from our service agreement with Wisconsin Dental Group, S.C., the affiliated practice at Forward Dental, represented approximately 13% of our pro forma net revenue for 2008 and 14% of pro forma net revenue for 2007. No other service agreement or customers accounted for greater than 10% of our pro forma net revenue. The termination of either of these service agreements could have a material adverse effect on our business, financial condition and results of operations.

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Salaries and Benefits

Salaries and benefits expense includes costs for personnel working at the dental facilities, dental laboratory and local and regional shared service centers. At the facility level, we generally employ the administrative staff and, where permitted by state law, the hygienists and dental assistants. We also employ the dentists at Tooth Doctor. The personnel at the local and regional shared service centers support the dental facilities.

Salaries and benefits expense as a percentage of net revenue increased to 43.2% in 2008 from 42.8% in 2007. Salaries and benefits expense as a percentage of net revenue increased to 42.8% in 2007 from 41.9% in 2006. The increase in 2007 was primarily due to our 2006 acquisition of Tooth Doctor where we employ the dentists.

Pro forma salaries and benefits expense as a percentage of pro forma net revenue increased to 43.8% in 2008 from 42.2 % in 2007. The increase is due to the six dental facilities that we did not transfer to PDG as part of the litigation settlement, the Tooth Doctor where we employ the dentists and to a lesser degree at Metro Dentalcare.

Lab Fees and Dental Supplies

Lab fees and dental supplies expense varies from each affiliate to affiliate and is affected by the volume and type of procedures performed.

Lab fees and dental supplies expense as a percentage of net revenue decreased to 14.7% in 2008 from 15.5% in 2007. These expenses are largely impacted by the patient revenue of the affiliated practices, and as a percentage of patient revenue were 10.3% for both 2008 and 2007. Lab fees as a percent or our net revenue decreased to 15.5% for 2007 from 16.1% in 2006 but as a percentage of patient revenue was 10.3% for 2007 and 10.4% for 2006. These decreases are due to a decrease in lab fees and dental supplies as a percentage of patient revenue as a result of the 2007 and 2006 acquisitions and affiliations where patient care involves fewer procedures requiring crowns, bridges and other dental laboratory services.

Pro forma lab fees and dental supplies expense as a percentage of pro forma net revenue decreased to 15.1% of pro forma net revenue in 2008 from 15.8% in 2007. The decrease is due to concerted efforts to manage dental supplies expense across all affiliates and reduced lab fees at our specialty affiliated practices where lab fees are lower than the average for the overall business.

Office Occupancy

Office occupancy expense includes rent expense and certain other operating costs, such as utilities, associated with dental facilities, dental laboratory and the local and regional shared service centers. Such costs vary based on the size of each facility and the market rental rate for dental office and administrative space in each particular geographic market.

Office occupancy expense as a percentage of net revenue increased to 11.6% in 2008 from 11.3% in 2007. Office occupancy expense as a percentage of net revenue decreased to 11.3% in 2007 from 12.1% in 2006. The decrease in 2007 is primarily due to our 2006 acquisition of Tooth Doctor where office occupancy expense is lower as a percentage of net revenue compared to our other affiliated dental groups, a $234,000 lease buy-out payment made during 2006 and, to a lesser extent, improved facility utilization at the affiliated dental groups.

Pro forma office occupancy expense as a percentage of pro forma net revenue increased to 11.9% in 2008 from 11.6% in 2007. The increase is primarily due to the six retained facilities that we did not transfer to PDG as part of the litigation settlement and Barzman, Kasimov & Vieth (“BKV”) where office occupancy as a percentage of net revenue is higher than our other affiliated dental groups.

Other Operating Expenses

Other operating expenses include non-employment related insurance expense, professional fees, marketing costs and other general and administrative expenses.

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Other operating expenses increased as a percentage of net revenue to 8.9% in 2008 from 8.4% in 2007. Other operating expenses decreased as a percentage of net revenue to 8.4% in 2007 from 8.8% in 2006. The decrease in 2007 is due to a reduction in other general and administrative expenses, a decrease in professional fees at the affiliated dental groups, and, to a lesser extent, a non-recurring expense in 2006 related to the disposal of undepreciated assets.

Pro forma other operating expenses as a percentage of pro forma net revenue increased to 9.3% in 2008 from 8.7% in 2007. This increase is due to new affiliations completed in 2008, increased administrative expenses at several of our affiliated dental groups and the disposal of undepreciated assets associated with the relocation of a dental facility.

General Corporate Expenses

General corporate expenses consist of compensation and travel expenses for our corporate personnel and administrative staff, facility and other administrative costs of our corporate office and professional fees, including legal and accounting.

General corporate expense as a percentage of pro forma net revenue decreased to 4.2% in 2008 from 5.2% in 2007. General corporate expenses as a percentage of net revenue increased to 5.2% in 2007 from 5.1% in 2006. The increase in 2007 is due to an increase in stock-based compensation expense.

Pro forma general corporate expenses decreased as a percentage of pro forma net revenue to 4.5% for 2008 from 6.3% in 2007. This decrease is due to a reduced incentive compensation expense and reduced administrative expenses.

Stock-based compensation expense was $1,978,000, $1,898,000 and $1,363,000 for the years ended December 31, 2008, 2007 and 2006, respectively. We anticipate these costs to remain relatively unchanged in 2009.

Depreciation

Depreciation expense, including amortization of leasehold improvements, increased to 3.8% of net revenue in 2008 from 3.4% in 2007. Depreciation expense, decreased to 3.4% of net revenue in 2007 from 3.6% in 2006. The decrease in 2007 is primarily due to improved facility utilization at the affiliated practices as well as our 2006 acquisition of Tooth Doctor where depreciation expense is lower as a percentage of revenue compared to other affiliated dental groups.

Pro forma depreciation expense as a percentage of pro forma net revenue increased to 3.9% in 2008 from 3.5% in 2007. The increase was the result of the underutilization of the six retained facilities that we did not transfer to PDG as part of the litigation settlement and 2008 facility investments.

We expect to continue to invest in the development of new dental facilities and the relocation and/or expansion of existing dental facilities in 2009 but at lower levels than we have in past years.

Amortization of Service Agreements and Other Intangible Assets

Amortization expense, principally relating to our service agreements with affiliated practices, as a percentage of net revenue increased to 3.3% in 2008 from 2.5% in 2007. Amortization expense as a percentage of net revenue remained constant at 2.5% for 2007 and 2006. The increase in amortization expense from new affiliations was offset by same market net revenue growth of the affiliated dental groups and our 2006 acquisition of Tooth Doctor where the majority of the purchase price was allocated to goodwill.

Amortization expense as a percentage of pro forma net revenue increased to 3.5% in 2008 from 3.1% in 2007. The increase was due to affiliations completed during 2007, most notably the affiliations with BKV.

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Litigation Expense

We accounted for the transactions associated with the PDG litigation (See “Litigation Settlement Agreements”) in 2008 and 2007 as follows:

On February 29, 2008, under the terms of the settlement agreement we transferred the operating assets of 25 of the 31 Park Dental facilities and pursuant to Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”) we realized a net gain of $30,763,000 which represents the fair value of the assets transferred in excess of the book value of the assets transferred, insurance proceeds of $1,002,000 for professional fees associated with the PDG litigation which were partially reimbursable pursuant to insurance coverage offset by professional fees and other net expenses associated with the litigation of $1,103,000. In addition, we recorded a management service fee, during 2008, totaling $10,000,000 offset by the costs to provide these services including severance costs.

In accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (“SFAS 5”), we accrued a loss contingency of $30,968,000 at December 31, 2007, which is comprised of the following items: (i) $39,968,000 representing the estimated fair value, using discounted cash flows, of the operating assets being transferred and (ii) a reduction of $9,000,000 from the $19,000,000 to be paid by PDG, which represents the amount deemed in excess of the fair market value of the management services to be provided. In addition to this $30,968,000 accrual, litigation expense in our statement of operations is also comprised of the following: (i) $2,035,000 of accounts receivable due from PDG, P.A. that we reserved as part of the litigation settlement and (ii) professional fees associated with the litigation of $3,731,000. Professional fees associated with the litigation of $1,570,000 for the year ended December 31, 2006 have been reclassified from general corporate expenses to litigation expense.

Earnings from Operations

Earnings from operations increased to $60,190,000 in 2008 from a loss of $(6,354,000) in 2007. Earnings from operations decreased to a loss of $(6,354,000) in 2007 from $20,182,000 in 2006. The primary reason for the decrease in 2007 was the litigation expense of $36,734,000 in 2007 and litigation gain in 2008.

Pro forma earnings from operations increased 5.3% to $21,526,000 or 7.9% of pro forma net revenue in 2008 from $20,433,000, or 8.9% of pro forma net revenue, in 2007. The decrease as a percentage of pro forma net revenue is primarily due to increased depreciation and amortization expense, increased salaries and benefits and other operating expenses somewhat offset somewhat by reduced general corporate expenses and lab fees and dental supplies.

Interest Expense

Net interest expense increased to $10,193,000 in 2008 from $5,253,000 in 2007. The increase in interest expense was primarily due to greater borrowings as a result of acquisitions and affiliations completed in 2007 and to a lesser extent higher credit spreads over LIBOR and an increase in amortization of bank fees associated with our credit facility which is now being amortized through January 2010. Net interest expense increased to $5,253,000 in 2007 from $1,848,000 in 2006. Pursuant to Emerging Issues Task Force Issue No. 98-14 “Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements” (“EITF 98-14”), we expensed $851,000 of unamortized deferred financing costs as a result of the forbearance agreement we entered into with our lenders on December 18, 2007. The increase in 2007 in interest expense was due to higher average borrowings. While market rates affecting our variable rate interest declined in 2007, our effective interest rate was comparable to 2006 because of an increase in our borrowing margin as a result of our higher leverage ratios after financing the 2007 acquisition of Metro Dentalcare.

Minority Interest

The increase in minority interest expense in 2008 and 2007 is due to gains attributable to the minority interest holders in the earnings of the Tooth Doctor. In 2008, we acquired the remaining 10% ownership interest from the

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minority holders in one of our subsidiaries. In 2006 and 2007, we entered into three platform affiliations in which our subsidiaries had minority owners. For the years ended December 31, 2008, 2007 and 2006, we recorded minority interest expense of $634,000, $390,000 and $54,000, respectively, representing the gains attributable to minority interest holder, net of cumulative losses.

Income Taxes

Our effective tax rate was 39.0% for 2008, 35.7% for 2007 and 39.1% in 2006. The change in 2007 is attributable to the accounting impact associated with the PDG litigation settlement. We expect our 2009 effective tax rate to increase as a result of announced rate increases in certain states in which we operate.

Net Earnings

As a result of the foregoing, net earnings increased to $30,118,000 in 2008 as compared to a loss of $(7,716,000), in 2007. Net earnings decreased to a loss of $(7,716,000) in 2007 from earnings of $11,134,000 in 2006.

Pro forma net earnings decreased 27.4% to $6,528,000, or 2.4% of pro forma net revenue, in 2008 from $8,992,000, or 3.9% pro forma net revenue, in 2007. The decrease as a percentage of pro forma net revenue is due to an increase in interest expense and salaries and benefits somewhat offset by reduced general corporate expenses.

Liquidity and Capital Resources

Overview

We have financed our operating and capital needs, including cash used for acquisitions and affiliations, capital expenditures and working capital, principally from operating cash flows and borrowings under our revolving line of credit and term loan. We have, in the past, also used proceeds from the sale of equity securities and the issuance of subordinated promissory notes to finance certain capital needs, but have not done so in recent years.

Current Credit Market Conditions

The credit markets have recently experienced unprecedented volatility, which has affected both the availability and cost of debt financing. In this current volatile credit environment, we have taken a number of initiatives to maintain our liquidity, including the following:

• we largely eliminated 2008 incentive compensation expense accruals and as a result cash bonus payments associated with these accruals will be significantly reduced during the first quarter of 2009;

• we have delayed 2009 compensation increases until the economic environment and our financial performance merit such increases;

• we have implemented a hiring freeze for non-clinical positions and are evaluating all non-essential positions;

• we have reduced valuations for affiliations and acquisitions and will complete only those that make both strategic and economic sense; and

• we have reduced 2009 capital expenditure expectations to approximately $7,000,000.

We have a $75,000,000 revolving credit facility and $100,000,000 term loan, both of which are senior secured facilities, are provided by commercial banks and have maturities of January 20, 2010. The availability of senior secured debt has been significantly reduced in the current credit markets which has resulted in increased borrowing rates, reduced financial covenants and higher upfront fees. To the extent that we are not able to refinance our credit facilities in the senior credit markets or to obtain extensions from our existing lenders, we may need to seek financing from other sources, including the sale of subordinated debt, preferred stock or common stock. These forms of financing may include interest payments, dividend payments and dilutive effects to our existing common stockholders. We cannot assure you that such financing will be available or on terms acceptable to us.

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Unless we refinance our credit facilities or obtain extensions from our existing lenders subsequent to December 31, 2008, our existing indebtedness will be classified as a current liability at March 31, 2009.

Operating Activities

For the years ended December 31, 2008 and 2007, cash provided by operating activities amounted to $38,561,000 and $25,574,000, respectively. In 2008, cash from operations primarily resulted from net earnings after adding back non-cash items, a decrease in accrued expenses and a decrease in accrued compensation and benefits and an estimated $9,964,000, net of taxes, from the transition services agreement with PDG that will not reoccur in 2009, partially offset by an increase in accounts receivable. Excluding the impact of the transition services agreement, cash provided by operating activities in 2008 would have been approximately $28,597,000. We are not able to estimate the cash provided by operating activities in 2007 for the service agreement with PDG which terminated effective December 31, 2007 as we transferred only 25 of the 31 dental facilities to PDG. The decrease in accrued compensation and benefits is due to decreases in accrued bonuses and other benefits. The increase in accounts receivable, net, is due to an increase in amounts due from the six locations we retained in the PDG settlement. Days revenue outstanding for patient receivables at the affiliated practices decreased to 35 days as of December 31, 2008 from 38 days as of December 31, 2007. The decrease in days revenue outstanding for patient receivables was primarily due to a continued focus on receivables management at the affiliated practices. For the years ended December 31, 2007 and 2006, cash provided by operating activities amounted to $25,574,000 and $31,050,000, respectively. In 2007, cash from operations primarily resulted from net earnings after adding back non-cash items, an increase in accrued expenses and an increase in accrued compensation and benefits, partially offset by an increase in accounts receivable, net. The increase in accrued expenses is primarily due to an increase in accruals for professional fees associated with the PDG litigation and, to a lesser extent, an increase in accrued professional liability at our captive insurance subsidiary. The increase in accrued compensation and benefits is primarily due to increases in accrued bonuses and other benefits. The increase in accounts receivable, net is due to an increase in amounts due from affiliated practices, which is largely affected by patient receivables at the affiliated practices which increased to 38 days revenue outstanding as of December 31, 2007 from 32 days revenue outstanding as of December 31, 2006. This increase is primarily due to the implementation of Improvis at several of the affiliated dental groups which has historically resulted in a temporary increase in accounts receivable.

Investing Activities

For the years ended December 31, 2008 and 2007, cash used for investing activities amounted to $27,541,000 and $132,852,000, respectively. The net decrease of $105,311,000 in cash used in investing activities is primarily due to a decrease of $114,159,000 in cash used for affiliations and acquisitions in 2007, net of cash acquired, offset by an increase in 2008 of $8,658,000 for contingent and deferred payments. In 2008, cash used for contingent and deferred payments included a contingent payment related to the Metro Dentalcare acquisition of approximately $9,685,000 of which $4,575,000 was accrued as of December 31, 2007. For the years ended December 31, 2007 and 2006, cash used for investing activities amounted to $132,852,000 and $33,902,000, respectively. The net increase of $98,950,000 in cash used for investing activities is primarily due to an increase of $93,245,000 in cash used for acquisitions, net of cash acquired, and an increase in capital expenditures of $4,033,000, and to a lesser extent increases in contingent payments made as part of affiliations and payment of affiliation costs. Cash paid for acquisitions and affiliations increased as a result of the affiliations being larger than those completed in 2006, most notably the acquisition of Metro Dentalcare and the affiliation with BKV. In addition, a contingent payment of approximately $1,300,000, which had been accrued for as of December 31, 2006 was paid in 2007. Capital expenditures increased due to project timing as certain 2006 relocation and/or expansion projects were extended into 2007.

Financing Activities

For the years ended December 31, 2008 and 2007, cash (used)/provided by financing activities amounted to $(10,770,000) and $112,268,000, respectively. The decrease of $123,038,000 in cash provided by financing

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activities is primarily due to our term loan borrowing of $100,000,000 in 2007 and increased net repayments on our revolving credit facility of approximately $16,100,000 and to a lesser extent an increase of approximately $1,528,000 of payments for costs associated with our October 2008 amendments to our credit facilities, discussed more fully below. For the years ended December 31, 2007 and 2006, cash provided by financing activities amounted to $112,268,000 and $3,646,000, respectively. The increase of $108,622,000 in cash provided by financing activities is primarily due to our term loan borrowing of $100,000,000 and increased net borrowings on our revolving credit facility of approximately $4,900,000 and to a lesser extent an increase of approximately $3,200,000 in benefits and proceeds from stock option exercises. The increased borrowings were used to fund our acquisition and affiliation activities. Proceeds from the exercise of stock options increased in 2007 due to an increased number of option exercises compared to 2006.

Credit Agreements

In September 2007, we increased the capacity of our revolving credit facility to $130,000,000 and extended the maturity to September 2012, and we entered into a term loan Agreement in the amount of $100,000,000 with a maturity of September 2008. All of the obligations under the term loan facility rank pari passu in right of payment to all of the obligations of our revolving credit facility.

As a result of the outcome of the litigation between PDG and us in December 2007 (See “Litigation Settlement Agreements”), on February 21, 2008, we entered into agreements to amend our revolving credit facility and term loan with our existing lenders. Pursuant to the agreements, the terms of the revolving credit facility and term loan were amended, including a reduction in the revolving credit facility to $75,000,000, establishing the maturity of both facilities at June 30, 2009 and increasing the borrowing costs under both facilities. The amended facilities permitted us to borrow up to $15,000,000 annually for capital expenditures, $15,000,000 annually for acquisitions and up to $13,000,000 for earn out and contingent payments on previously completed acquisitions, subject to a maximum debt to earnings before interest, taxes, depreciation and amortization leverage ratio of 3.75x.

The revolving credit facility and term loan facility were amended on June 11, 2008 to extend the maturity from June 30, 2009 to July 20, 2009. If we had not amended the facilities prior to June 30, 2008 to extend the maturity date beyond June 30, 2009, we would have been required to classify these borrowings as a current versus a long term liability. No other provisions of the loan agreements were amended on June 11, 2008.

On October 24, 2008, we entered into agreements to amend the maturities and borrowing costs of our $75,000,000 revolving credit facility and $100,000,000 term loan with our existing lenders. The maturity of both facilities was extended to January 20, 2010. Borrowings under the revolving credit facility bear interest at either prime or LIBOR plus a margin, at the Company’s option. The margin is based upon our debt coverage ratio and ranges from 4.25% to 4.50% for both prime and LIBOR borrowings. Interest on the term loan is at LIBOR plus a margin. The margin is 450 basis points from October 24, 2008 until February 28, 2009 and increases 50 basis points each 90 days thereafter. We pay a commitment fee on the unused balance of our revolving credit facility ranging from 0.375% to 0.5%. Borrowings are limited to an availability formula based on earnings before income taxes, depreciation and amortization, adjusted for certain items, to a maximum of 3.75x and are secured by a first lien on substantially all of our assets, including a pledge of the stock of our subsidiaries. The outstanding balance under this line as of December 31, 2008 was $31,100,000, and we had stand-by letters of credit amounting to approximately $1,669,200 at December 31, 2008. At December 31, 2008 the LIBOR-based and prime interest rate for the term loan was 8.48% and ranged from 4.98% to 9.25% for the revolving line of credit. On December 31, 2008 we were in compliance with all credit agreements covenants.

On May 9, 2007, we entered into an interest rate swap to hedge $20,000,000 of our borrowings under the revolving credit facility. Under this arrangement, we have effectively converted our 3-month, floating LIBOR interest rate exposure, plus a credit spread, to fixed 5.0%, plus a credit spread, until February 2012.

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Contractual Obligations

A summary of our contractual obligations as of December 31, 2008 is as follows (in thousands):

	Payments due by period
	Total		2009		2010-2011		2012-2013		Thereafter
Long-term debt (1)	$	536	$	196	$	340	$	-	$	-
Revolving credit facility and term loan (2)		131,100		-		131,100		-		-
Operating leases (3)		95,537		18,325		29,121		20,672		27,419
Uncertain tax positions (4)		434		-		-		-		434
Total	$	227,607	$	18,521	$	160,561	$	20,672	$	27,853

(1) In addition to these contractual obligations, future interest payments relating to our long-term debt are fixed at rates between 5% and 7% and are due as follows: $24,000 in 2009 and $19,000 in 2010-2011.

(2) Future interest obligations relating to our revolving credit facility and term loans are not determinable as the interest rates are variable and the agreements do not include a required principal repayment schedule. In 2007 we hedged $20,000,000 of our market interest rate exposure at 5% plus a credit spread resulting in minimum expected payments of $1,000,000 per year through 2009.

(3) Operating lease payments include amounts which are to be reimbursed to us pursuant to the terms of our service agreements with the affiliated practices. The amounts to be reimbursed by the affiliated practices are $84,908 and are due as follows: $16,309 in 2009, $25,504 in 2010-2011, $18,130 in 2012-2013, and $24,966 thereafter.

(4) Uncertain tax positions are taken or expected to be taken on an income tax return that may result in additional payments to tax authorities. The amount in the preceding table includes interest and penalties accrued related to such positions as of December 31, 2008. The total amount of uncertain tax positions is included in the “Thereafter” column as we are not able to reasonably estimate the timing of potential future payments. If a tax authority agrees with the tax position taken or expected to be taken or the applicable statute of limitations expires, then additional payments will not be necessary.

In certain affiliation or acquisition transactions we may be obligated to make deferred or contingent payments. Typically, these payments are based upon the achievement of revenue or earnings for an agreed upon period after the transaction. The potential future payments under these agreements cannot exceed $1,917,000 in 2009, $2,327,000 in 2010-2011 and $125,000 in 2012.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis management evaluates its estimates, including those related to the carrying value of goodwill, receivables due from affiliated practices, other intangible assets, loss reserves for our captive insurance company and contingent accruals for litigation in accordance with Statement of Financial Accounting Standards No. 5. Management bases its estimates on historical experience, on various other assumptions that are believed to be reasonable under the circumstances and in certain instances actuarial studies conducted by third parties, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the policies below as critical to our business operations and the understanding of our results of operations.

Valuation of Accounts Receivable

Our accounts receivable include amounts due from affiliated practices that have entered into service agreements with us and amounts due from insurance companies, patients and dentists for our Tooth Doctor, dental benefits third party administrator and dental laboratory businesses. At December 31, 2008, amounts due from affiliated practices represented 85% of our accounts receivable.

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The carrying amount of receivables due from affiliated practices requires management to assess the collectability of the fees we earn pursuant to the service agreements. Collection of our service fees are dependent on the economic viability of the affiliated practices based on actual and expected future financial performance including collectability of the affiliated practices’ patient receivables, net of contractual adjustments and allowances for doubtful accounts. The affiliated practices record revenue at established rates reduced by contractual adjustments and allowances for doubtful accounts to arrive at patient revenue. Contractual adjustments represent the difference between gross billable charges at established rates and the portion of those charges reimbursed pursuant to certain dental benefit plan provider contracts. For contracts where there is no defined benefit, contractual adjustments are based upon historical collection experience and other relevant factors. The affiliated practices’ provision for doubtful accounts is estimated in the period that services are rendered and adjusted in future periods as necessary. The estimates for the provision and related allowance are based on an evaluation of historical collection experience, the aging profile of the accounts receivable, write-off percentages and other relevant factors. Changes in these factors in future periods could result in increases or decreases in the provision. In the event that final reimbursement or bad debt experience differs from original estimates, adjustments to the affiliated practices’ patient receivables would be required which could impact the collectability of our receivables due from affiliated practices.

Except for accounts receivable due from PDG which we agreed to forgive pursuant to settlement of outstanding litigation, to date we have not recorded any losses related to our receivables due from affiliated practices and accordingly have not recorded any reserves for uncollectability. We have recorded reserves for uncollectability against accounts receivable of our Tooth Doctor, dental benefits third party administrator and dental laboratory businesses based on historical collection experience, the aging profile of the accounts receivable, write-off percentages and other relevant factors.

Goodwill and Intangible Assets

We have intangible assets, including goodwill and other identifiable intangibles assets, which are the result of affiliation transactions and acquisitions of businesses. The initial identification and valuation of these intangible assets and the determination of useful lives at the time of affiliation or acquisition involve the use of management judgments and estimates. These estimates are based on, among other factors, reviews of projected future income, cash flows and statutory regulations. At December 31, 2008, intangible assets were $252,000,000 and represented 71% of our total assets, and goodwill and indefinite-lived intangible assets representing 30% of our intangible assets and definite-lived intangible assets related to service agreements representing 70% of our intangible assets.

Our affiliations with dental group practices as a result of the parties entering into a service agreement are not business combinations, and as such, do not result in recognition of goodwill. We recognize capitalized service agreement costs which are accounted for as definite-lived intangible assets acquired in affiliations other than a business combination, and are recorded at fair value. In determining the fair value of a service agreement recognized in connection with an affiliation, management estimates the timing, amount and value of future expected cash flows. These service agreements have contractual terms of 40 years but the asset is generally amortized on a straight-line basis over a period of 25 years. In the event a service agreement is terminated, the related affiliated practice is required, at our option in nearly all instances, to purchase the remaining unamortized balance of intangible assets at the current book value, purchase other assets at the greater of fair value or book value and assume leases and other liabilities related to the performance of our obligations under the service agreement.

We review identified intangible assets with defined useful lives and subject to amortization for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss occurred requires comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset group.

We test goodwill for impairment annually as of October 1 and whenever events or circumstances make it more likely than not that the fair value of a reporting unit has fallen below its carrying amount, such as a significant adverse change in the assets utilized by the business. Determining whether an impairment has occurred requires

40

valuation of the respective reporting business unit, which we estimate using a discounted cash flow method. When available and as appropriate, we consider market multiples to supplement the discounted cash flow analysis. In applying this methodology, we rely on a number of factors, including actual operating results, future business plans, economic projections and market data. If this analysis indicates goodwill is impaired, measuring the impairment requires a fair value estimate of each identified tangible and intangible asset. In this case, we would supplement the cash flow approach discussed above with independent appraisals.

We tested goodwill for impairment as of October 1, 2008 which included various scenarios with varying revenue, expense and capital investment assumptions and determined there was no impairment of goodwill and indefinite lived intangible assets. Subsequent to the annual testing, our market capitalization decreased significantly to below its book value. We believe that this decline was the result of the financial markets’ reaction to the nation’s deteriorating economic conditions and concerns about our ability to renegotiate our revolving credit facility and term loan facility. In view of these developments, we reviewed our operating results subsequent to October 1, 2008 which included financial and key operating metrics as well as available market data, and concluded that an interim impairment test was not warranted. There can be no assurance, however, that further deterioration of economic conditions will not materially or adversely effect our operations. Should the fair value of the Company’s goodwill or indefinite lived intangible assets decline because necessary changes in assumptions of our impairment tests, or other circumstances that may indicate impairment, recognition of impairment may be necessary in the future which could be material.

While we believe we have made reasonable estimates and assumption to calculate the fair value of the reporting units and other intangible assets, it is possible a material change could occur in the future. If our actual results are not consistent with our estimates and assumptions, we may be required to perform the second step of the impairment analysis, which could result in a material impairment of our goodwill or other intangible assets.

Insurance

We maintain various insurance coverages that we believe are appropriate for our business, including workers’ compensation, property, business interruption and general liability, among others. In addition, the affiliated practices are required to maintain, or cause to be maintained, professional liability insurance with us as a named insured. Certain of our insurances are reinsured by a wholly-owned captive insurance company licensed in the state of Vermont. Several of these insurance programs have retention levels in which we and our captive insurance company are financially obligated for insured losses below certain financial thresholds before the insurer is financially obligated for insured losses. We and our captive insurance company maintain reserves for certain of these programs, which are based upon estimates provided by third-party actuaries or by individual case-basis valuations. Changes in trends of loss severity or loss frequency may affect the calculation of these estimates and create the need for subsequent adjustments to estimated loss reserves.

Stock-Based Compensation

We account for stock-based compensation in accordance with the fair value recognition provision of SFAS No. 123(R). We use the Black-Scholes option-pricing model, which requires the input of subjective assumptions. These assumptions include: estimating the length of time employees will retain their vested stock options before exercising them (expected life), the estimated volatility of our common stock price over the expected life (volatility), and the number of options that will ultimately not complete their vesting requirements (forfeitures). Changes in these assumptions for future stock option grants can materially affect the estimate of the fair value of stock-based compensation.

Income Taxes

Our annual tax rate is based on statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties under FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement 109” (“FIN 48”). FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is

41

required to meet before being recognized in the financial statements, and also provides guidance on the de-recognition, measurement classification, interest and penalties, accounting in interim periods and disclosures. We review our tax positions quarterly and adjust the balances as new information becomes available.

Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the consolidated financial statement carrying amounts and the tax basis of existing assets and liabilities, as well as from net operating loss and tax credit carry forwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. We use our historical experience and our short and long-range business forecasts to provide insight. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established.

We are subject to income tax arising from U.S. federal and multiple state jurisdictions. In the normal course of business, we are subject to examination by U.S. federal and state taxing authorities. The tax years 2006, 2007 and 2008 remain open to examination, and on October 7, 2008, the Internal Revenue Service notified us that it will examine our federal income tax return for the year ending December 31, 2006.

Our policy for recording interest and penalties associated with audits is to record such items as a component of income before taxes. For the year ended December 31, 2008, $42,000 of interest expense and $78,000 of tax expense related to penalties were recognized in the statement of earnings, compared with $24,000 and $80,000, respectively, for the year ended December 31, 2007.

Recent Accounting Pronouncements

In December, 2007 the FASB issued SFAS No. 141(R) “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) introduces significant changes in the accounting for and reporting of business acquisitions. SFAS 141(R) continues the movement toward the greater use of fair values in financial reporting and increased transparency through expanded disclosures. SFAS 141(R) changes how business acquisitions are accounted for and will impact financial statements at the acquisition date and in subsequent periods. In addition, SFAS 141(R) will impact the annual goodwill impairment test associated with acquisitions that close both before and after its effective date. SFAS 141(R) applies prospectively to fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. An entity may not apply SFAS 141(R) before that date. The Company expects no material effect at the adoption date. However, upon adoption, this statement may materially affect the accounting for future business combinations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of Accounting Research Bulletin No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This statement is effective for the Company beginning January 1, 2009. The Company is assessing the impact of SFAS 160 on its future consolidated financial statements, particularly the minority interest related to Tooth Doctor.

In March 2008, the FASB issued FSP 157 and related interpretations that (1) partially deferred the effective date of SFAS No. 157 “Fair Value Measurement” for one year for certain nonfinancial assets and nonfinancial liabilities and (2) removed certain leasing transactions from the scope of SFAS No. 157. SFAS No. 157 as amended by this FSP is effective for nonfinancial assets and nonfinancial liabilities in fiscal years beginning after November 15, 2008 and will be applied prospectively. The provisions of SFAS No. 157 are not expected to have a material impact on our consolidated financial statements.

42

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” with the intent to provide users of financial statements with an enhanced understanding of how and why an entity uses derivative instruments, how these instruments and related hedged items are accounted for under SFAS No. 133 and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flow. To meet those objectives, this statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. This statement is effective for the Company beginning January 1, 2009. The Company is assessing the impact of SFAS 161 on its future consolidated financial statements.

Other new pronouncements issued by the FASB that are not effective until after December 31, 2008 are not expected to have a material impact on our consolidated financial statements, financial position, results of operations or liquidity or are not relevant to the Company are not included above.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the ordinary course of business, we are exposed to interest rate risk. With regard to our revolving credit facility, we are also exposed to variable rate interest for the banks’ applicable margins ranging from 4.25% to 4.5% based upon our debt coverage ratio. For fixed rate debt, interest rate changes affect the fair value but do not impact earnings or cash flow. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value but do impact future earnings and cash flow. We do not believe a one percentage point change in interest rates would have a material impact on the fair market value of our fixed rate debt. In addition, we have entered into an interest rate swap arrangement to fix the interest rate on $20,000,000 of our long term debt borrowings. The pre-tax earnings and cash flow impact for one year, based upon the amounts outstanding at December 31, 2008 under our variable rate revolving credit facility and term loan, for each one percentage point change in interest rates would be approximately $1,111,000 per annum.

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ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements

	Page
Consolidated Financial Statements
Management’s Report on Internal Control Over Financial Reporting	45
Reports of Independent Registered Public Accounting Firm	46
Consolidated Balance Sheets	47
Consolidated Statements of Income	48
Consolidated Statements of Changes in Stockholders’ Equity	49
Consolidated Statements of Cash Flows	50
Notes to Consolidated Financial Statements	51
Financial Statement Schedules
Not Applicable.

44

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended. As required by Rule 13a-15(c) under the Exchange Act, the Company’s management evaluated the effectiveness of the design and operation of its internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, the Company’s management concluded that the Company’s internal control over financial reporting as of December 31, 2008 was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

45

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of American Dental Partners, Inc.

In our opinion, the accompanying consolidated financial statements in the accompanying index present fairly, in all material respects, the financial position of American Dental Partners, Inc. (the “Company”) at December 31, 2008 and December 31, 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing in Item 8. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 1 to the consolidated financial statements, the Company is in the process of pursuing financial arrangements based on the fact that the outstanding term loan and revolving credit facility mature on January 20, 2010.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

Boston, MA

March 13, 2009

46

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2008			2007
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	6,626		$	6,376
Accounts receivable, net		25,875			23,621
Inventories		2,447			3,009
Prepaid expenses and other current assets		4,745			3,373
Prepaid/refundable income taxes		798			1,459
Deferred income taxes		4,193			17,420
Total current assets		44,684			55,258
Property and equipment, net		54,542			60,445
Non-current assets:
Goodwill		76,122			70,602
Service agreements and other intangibles, net		175,527			179,969
Deferred income taxes		1,912			1,756
Other		466			476
Total non-current assets		254,027			252,803
Total assets	$	353,253		$	368,506
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,763		$	15,224
Accrued compensation and benefits		9,436			13,527
Accrued expenses		6,620			11,773
Accrued litigation expense		-			30,968
Deferred income taxes		81			3,475
Current maturities of debt		196			188
Total current liabilities		31,096			75,155
Non-current liabilities:
Long-term debt		131,441			140,986
Deferred income taxes		38,499			35,064
Other liabilities		5,135			1,504
Total non-current liabilities		175,075			177,554
Total liabilities		206,171			252,709
Minority interest		584			894
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.01 per share, 1,000,000 shares authorized, no shares issued or outstanding		-			-
Common stock, par value $0.01 per share, 25,000,000 shares authorized, 13,484,241 and 13,397,120 shares issued; 12,901,741 and 12,814,620 shares outstanding at December 31, 2008 and December 31, 2007, respectively		135			134
Additional paid-in capital		71,096			68,332
Treasury stock, at cost (582,500 shares)		(3,874	)		(3,874	)
Accumulated comprehensive income		(2,059	)		(771	)
Retained earnings		81,200			51,082
Total stockholders’ equity		146,498			114,903
Total liabilities and stockholders’ equity	$	353,253		$	368,506

See accompanying notes to consolidated financial statements.

47

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED STATEMENTS OF INCOME

	Years Ended December 31,
	2008			2007			2006
	(In thousands, except per share amounts)
Net revenue	$	291,108		$	278,755		$	217,917
Operating expenses:
Salaries and benefits		125,795			119,411			91,282
Lab fees and dental supplies		42,836			43,209			35,066
Office occupancy		33,878			31,457			26,404
Other operating expense		26,017			23,400			19,084
General corporate expense		12,366			14,427			11,126
Depreciation		11,054			9,422			7,845
Amortization of intangible assets		9,634			7,049			5,358
Litigation (income) expense		(30,662	)		36,734			1,570
Total operating expenses		230,918			285,109			197,735
Earnings (losses) from operations		60,190			(6,354	)		20,182
Interest expense		10,193			5,253			1,848
Minority interest		634			390			54
Earnings (losses) before income taxes		49,363			(11,997	)		18,280
Income taxes		19,245			(4,281	)		7,146
Net earnings (losses)	$	30,118		$	(7,716	)	$	11,134
Net earnings (losses) per common share:
Basic	$	2.34		$	(0.61	)	$	0.91
Diluted	$	2.29		$	(0.61	)	$	0.86
Weighted average common shares outstanding:
Basic		12,876			12,681			12,301
Diluted		13,150			12,681			12,916

See accompanying notes to consolidated financial statements.

48

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

	Number of Shares			Common Stock		Additional Paid-In Capital		Retained Earnings			Treasury Stock at Cost			Accu- mulated Other Compre- hensive Income			Total Stockholders’ Equity
	Common Stock Issued	Common Stock in Treasury
Balance at December 31, 2005	12,840	(582	)	$	128	$	57,977	$	47,664		$	(3,874	)	$	-		$	101,895
Issuance of common stock for employee stock purchase plan
Issuance of common stock for exercised stock options, including tax benefit of $14	35	-			1		486		-			-			-			487
Issuance of common stock for exercised stock options, including tax benefit of $565	116	-			1		1,431		-			-			-			1,432
Stock-based compensation expense	-	-			-		1,363		-			-			-			1,363
Net earnings	-	-			-		-		11,134			-			-			11,134
Balance at December 31, 2006	12,991	(582	)		130		61,257		58,798			(3,874	)		-			116,311
Issuance of common stock for employee stock purchase plan including tax benefit of $13	39	-			1		580		-			-			-			581
Issuance of common stock for exercised stock options, including tax benefit of $2,413	367	-			3		4,597		-			-			-			4,600
Stock-based compensation expense	-	-			-		1,898		-			-			-			1,898
Accumulated other comprehensive income	-	-			-		-		-			-			(771	)		(771	)
Net losses	-	-			-		-		(7,716	)		-			-			(7,716	)
Balance at December 31, 2007	13,397	(582	)		134		68,332		51,082			(3,874	)		(771	)		114,903
Issuance of common stock for employee stock purchase plan including tax benefit of $2	59	-			1		545		-			-			-			546
Issuance of common stock for exercised stock options, including tax benefit of $21	28	-			-		241		-			-			-			241
Stock-based compensation expense	-	-			-		1,978		-			-			-			1,978
Accumulated other comprehensive income	-	-			-		-		-			-			(1,288	)		(1,288	)
Net earnings	-	-			-		-		30,118			-			-			30,118
Balance at December 31, 2008	13,484	(582	)	$	135	$	71,096	$	81,200		$	(3,874	)	$	(2,059	)	$	146,498

See accompanying notes to consolidated financial statements.

49

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2008			2007			2006
	(In thousands)
Cash flows from operating activities:
Net earnings (losses)	$	30,118		$	(7,716	)	$	11,134
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		11,054			9,422			7,845
Stock-based compensation		1,978			1,898			1,363
Minority interest		634			390			54
Amortization of intangible assets		9,634			7,049			5,358
Other amortization and write off of deferred financing costs		536			970			165
Deferred income tax benefit		12,681			(11,937	)		(501	)
(Gain)/loss on disposal of property and equipment		268			(25	)		(1	)
Accrued litigation expense		(30,968	)		30,968			-
Assets transferred to PDG as part of the settlement of litigation		9,402			-			-
Changes in assets and liabilities, net of acquisitions and affiliations:
Accounts receivable, net		(3,456	)		(6,140	)		654
Other current assets		(1,720	)		(380	)		(350	)
Accounts payable and accrued expenses		539			1,877			4,020
Accrued compensation and benefits		(4,101	)		1,101			541
Income taxes payable/refundable, net		661			(1,392	)		650
Other, net		1,301			(511	)		118
Net cash provided by operating activities		38,561			25,574			31,050
Cash flows from investing activities:
Cash paid for affiliation and acquisition transactions		(4,938	)		(119,097	)		(25,852	)
Capital expenditures, net		(11,984	)		(11,276	)		(7,243	)
Payment of affiliation costs		(181	)		(699	)		(333	)
Contingent and deferred payments		(10,438	)		(1,780	)		(474	)
Net cash used in investing activities		(27,541	)		(132,852	)		(33,902	)
Cash flows from financing activities:
Proceeds from issuance of common stock		1			-			-
Borrowings under revolving line of credit, net of repayments		(9,350	)		6,750			1,850
Repayments of debt		(187	)		(113	)		(123	)
Borrowings of debt		-			100,000			-
Contributions from minority interest holders		(492	)		451			-
Proceeds from shares issued under employee stock purchase plan		543			568			473
Proceeds from issuance of common stock for exercise of stock options		220			2,186			867
Tax benefit on exercise of stock options		21			2,413			565
Tax benefit on disqualified dispositions		2			13			14
Payment of debt issuance costs		(1,528	)		-			-
Net cash (used in) provided by financing activities		(10,770	)		112,268			3,646
Increase in cash and cash equivalents		250			4,990			794
Cash and cash equivalents at beginning of period		6,376			1,386			592
Cash and cash equivalents at end of period	$	6,626		$	6,376		$	1,386
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	9,404		$	4,167		$	1,737
Cash paid during the period for income taxes, net	$	5,839		$	6,617		$	6,490
Outstanding checks in excess of deposits in transit	$	2,349		$	381		$	2,694
Non-cash investing activities:
Capital expenditures and intangibles accrued for, not paid	$	151		$	5,768		$	1,411

See accompanying notes to consolidated financial statements.

50

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2008, 2007 and 2006

(1) Description of Business

American Dental Partners, Inc. (the “Company”) is a leading provider of dental facilities, support staff and business services to multidisciplinary dental group practices in selected markets throughout the United States. The Company customarily acquires selected assets of the dental practices with which it affiliates and enters into long-term service agreements with professional corporations, professional associations or service corporations which are not owned by the Company. The Company is responsible for providing all services necessary for the administration of the non-clinical aspects of the dental operations, while the affiliated dental practices are responsible for providing dental care to patients. Services provided to the affiliated practices include providing assistance with organizational planning and development; recruiting, retention and training programs; quality assurance initiatives; facilities development and management; employee benefits administration; procurement; information systems and practice technology; marketing and payor relations; and financial planning, reporting and analysis. The Company operates in one segment.

The Company’s revolving credit facility and term loan mature on January 20, 2010 and the current credit markets are very limited and restrictive. If the Company fails to extend the maturity or to refinance its revolving credit facility and term loan with its existing lenders or others on satisfactory terms it would likely have a material adverse effect on its business, financial condition and results of operations. The Company may be able to refinance only a portion of its revolving credit facility and term loan, necessitating the issuance of subordinated debt, preferred stock or common stock, or some combination of such securities. Such securities may include interest or dividends, voting rights or other dilutive effects to our existing shareholders (see Note 8, “Debt” for further discussion).

(2) Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of American Dental Partners, Inc., its wholly-owned subsidiaries and its Arizona’s Tooth Doctor for Kids (“Tooth Doctor”) subsidiary which is owned 85% by the Company. All material intercompany balances and transactions have been eliminated in consolidation. Management has determined that, based on the provisions of its service agreements, the Company is not required to consolidate the financial statements of the affiliated practices which are affiliated with the Company by means of a long-term service agreement with its own.

Use of Estimates

The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company’s carrying amount of accounts receivable, net, requires management to make estimates and assumptions regarding the collectability of accounts receivable in its consolidated financial statements. The Company’s affiliation and acquisition transactions typically result in goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment expense that the Company will incur. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect the consolidated financial statements. The Company and the affiliated practices maintain insurance coverage for various business activities. Certain of the coverages have retentions which require the Company to make estimates and assumptions regarding losses below applicable retention levels. There can be no assurance that actual results will not differ from those estimates.

51

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(2) Summary of Significant Accounting Policies – (Continued)

Reclassifications

Amounts due to affiliated practices of $566,000 for 2006 have been reclassified from accounts receivable, net to accounts payable to conform to 2008 and 2007 presentations. Professional fees associated with the litigation among PDG, P.A. (“PDG”), PDHC, Ltd. (“PDHC”) and the Company of $1,570,000 for 2006 have been reclassified from general corporate expense to litigation expense to conform to 2008 and 2007 presentations.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents.

Fair Value of Financial Instruments

The Company believes the carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these items. The carrying amount of long-term debt approximates fair value because the interest rates are approximate rates at which similar types of borrowing arrangements could be obtained by the Company.

Net Revenue

The Company’s net revenue represents primarily reimbursement of expenses and fees charged to affiliated practices pursuant to the terms of the service agreements. Under certain service agreements, the Company’s service fee consists of a monthly fee which is based upon a specified percentage of the amount by which the affiliated practice’s patient revenue exceeds expenses. Under certain service agreements, the Company’s service fee consists entirely of a fixed monthly fee determined by agreement of the Company and the affiliated practice in a formal planning process. In all instances, the service fee is negotiated as fair market value for services and capital provided by the Company to the affiliated practices. Additionally, the Company’s net revenue includes amounts from patient revenue of Tooth Doctor, dental benefits third party administrator (“TPA”) fees and dental laboratory fees.

The Company’s net revenue from the reimbursement of expenses is accounted for on an accrual basis and is recognized when these expenses are incurred and billed to the affiliated practices. Reimbursement of expenses includes costs incurred by the Company for the operation and administration of the dental facilities that include salaries and benefits for non-dentist personnel working at the dental facilities; lab fees, dental supplies, office occupancy costs of the dental facilities, depreciation related to the fixed assets at the dental facilities and other expenses such as professional fees, marketing costs and general and administrative expenses.

In December 2007, the Company entered into a settlement agreement in which the service agreement with PDG, P.A. (“PDG”) was terminated effective December 31, 2007 and transferred the operating assets of 25 of the 31 Park Dental facilities and the “Park Dental” trade name to PDG. The Company also entered into a transition services agreement with PDG to provide interim management services for a period of nine months through September 30, 2008 for $19,000,000. In 2008, the Company concluded the transition services agreement with PDG and recorded fees as other revenue pursuant to the transition services agreement.

Inventories

Inventories consist primarily of dental supplies and are stated at the lower of cost or market, with cost being determined under the weighted average method.

52

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(2) Summary of Significant Accounting Policies – (Continued)

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are recorded using the straight-line method over the estimated useful lives of the related assets which are 30-40 years for buildings, 3-12 years for equipment, and 5-7 years for furniture and fixtures, and the remaining life of the lease for leasehold improvements. Development costs incurred for computer software development or obtained for internal use are capitalized and amortized in accordance with Statement of Position No. 98-1, “Accounting for the Costs of Computer Software Developed for Internal Use.” Capitalized software costs are amortized over 10 years once a determination is made that the software is deemed fit for operational use.

Goodwill and Other Intangible Assets

The Company has intangible assets, including goodwill and other identifiable intangibles assets, which are the result of affiliation transactions and acquisitions of businesses. The initial identification and valuation of these intangible assets and the determination of useful lives at the time of affiliation or acquisition involve the use of management judgments and estimates. These estimates are based on, among other factors, reviews of projected future income, cash flows and statutory regulations. At December 31, 2008, intangible assets were $252,000,000 and represented 71% of our total assets, and goodwill and indefinite-lived intangible assets represented 30% of our intangible assets and definite-lived intangible assets related to service agreements represented 70% of the Company’s intangible assets.

To the extent any intangible assets is impaired, its carrying value will be written down to its implied fair value and a charge will be made to earnings. Such an impairment charge could materially and adversely affect the Company’s operating results and financial condition.

Goodwill results from the excess of the purchase price of an acquisition over the estimated fair value of the tangible and intangible assets acquired and liabilities assumed. The Company performs an annual impairment assessment and compares the fair value to the carrying value of each reporting unit based on discounted future cash flows using a discount rate reflecting the Company’s average cost of funds. If impairment were determined, an appropriate adjustment to goodwill to reduce the asset’s carrying value would be made. The Company has not recorded any impairment charges on goodwill as of December 31, 2008.

We tested goodwill for impairment as of October 1, 2008 which included various scenarios with varying revenue, expense and capital investment assumptions and determined there was no impairment of goodwill and indefinite lived intangible assets.

The Company’s affiliations with dental group practices by means of service agreements are not business combinations, and as such, do not result in recognition of goodwill. The Company recognizes capitalized service agreement costs which are accounted for as definite-lived intangible assets acquired in other than a business combination and recorded at fair value. In determining the fair value of a service agreement recognized in connection with an affiliation, management estimates the timing, amount and value of future expected cash flows. These service agreements have contractual terms of 40 years but the asset is generally amortized on a straight-line basis over a period of 25 years. In the event a service agreement is terminated, the related affiliated practice is required, at the Company’s option in nearly all instances, to purchase the remaining unamortized balance of intangible assets at the current book value.

53

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(2) Summary of Significant Accounting Policies – (Continued)

Customer relationship intangible assets associated with the acquisition of dental laboratories are amortized on a straight-line basis over 15 years. Customer relationship intangible assets associated with the acquisition of Tooth Doctor are amortized over five years on an accelerated basis. The trade name intangible asset associated with acquisition of Metro Dentalcare is amortized on a straight-line basis over five years. The trade name intangible asset associated with the Tooth Doctor acquisition is indefinite-lived and not amortized.

Management performs an impairment test on definite-lived intangible assets when facts and circumstances exist which would suggest that the intangible assets may be impaired by comparing the undiscounted net cash flows of the asset to its carrying value. If impairment were determined, an appropriate adjustment to the intangible asset would be made to reduce the asset’s carrying value to fair value. Fair value is determined by calculating the projected discounted operating net cash flows of the asset using a discount rate reflecting the Company’s average cost of funds. The Company has not recorded any impairment charges or write-downs on definite-lived intangibles as of December 31, 2008.

Insurance

The Company maintains various insurance coverages for its business, including property-casualty, business interruption, workers’ compensation and general liability, among others. In addition, the affiliated practices are required to maintain, or cause to be maintained, professional liability insurance with the Company as a named insured. Certain of the Company’s insurances are reinsured by a wholly-owned captive insurance company licensed in the state of Vermont. Several of these insurance programs have retention levels in which the Company and its captive insurance company are financially obligated for insured losses below certain financial thresholds before the insurer is financially obligated for insured losses. The Company and its captive insurance company maintain reserves for certain of these programs, which are based upon estimates provided by third-party actuaries or by individual case-basis valuations. Amounts accrued for workers compensation insurance, including estimates for losses below retention levels, were $1,600,000 for 2008 and $1,400,000 for 2007. Changes in trends of loss severity or loss frequency may affect the calculation of these estimates and create the need for subsequent adjustments to estimated loss reserves.

Fair Value Measurement

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”) which is effective for fiscal years beginning after November 15, 2007. This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. This statement applies under other accounting pronouncements that require or permit fair value measurements. The statement indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Relative to SFAS 157, the FASB issued FASB Staff Positions (“FSP”) 157-1 and 157-2. FSP 157-1 amends SFAS 157 to exclude SFAS 13, “Accounting for Leases” (“SFAS 13”) and its related interpretive accounting pronouncements that address leasing transactions, while FSP 157-2 delays the effective date of the application of SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The Company adopted SFAS 157 as of January 1, 2008, with the exception of the application of the statement to non-recurring nonfinancial assets and nonfinancial liabilities.

54

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(2) Summary of Significant Accounting Policies – (Continued)

The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during 2008. The Company’s financial assets and liabilities are primarily comprised of cash equivalents and an interest rate swap.

SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs that are not corroborated by market data based on assumptions of the Company used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2008:

	Level 1		Level 2			Level 3		Total
Interest rate swap	$	-	$	(2,059	)	$	-	$	(2,059	)
Cash equivalents		4,105		-			-		4,105
Total	$	4,105	$	(2,059	)	$	-	$	2,046

In accordance with SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, the Company is required to disclose the fair value of its long-term debt at least annually or more frequently if the fair value has changed significantly.

The Company’s long-term debt is carried at cost and is more fully described in Note 8. As of December 31, 2008 the estimated fair value the Company’s revolving line of credit was $31,188,000 and the fair value of the term loan was $102,015,000.

Income Taxes

Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the consolidated financial statement carrying amounts and the tax basis of existing assets and liabilities, as well as from net operating loss and tax credit carry forwards. The Company evaluates the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. The Company uses its historical experience and its short and long-range business forecasts to provide insight. To the extent the Company does not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established.

Earnings per Share

Earnings per share are computed based on SFAS No. 128 “Earnings per Share.” SFAS No. 128 requires presentation of basic earnings per share (“Basic EPS”) and diluted earnings per share (“Diluted EPS”) by all

55

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(2) Summary of Significant Accounting Policies – (Continued)

entities that have publicly traded common stock or potential common stock (options, warrants, convertible securities or contingent stock arrangements). Basic EPS is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period. The computation of Diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings.

Recent Accounting Pronouncements

In December, 2007, the FASB issued SFAS No. 141(R) “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) introduces significant changes in the accounting for and reporting of business acquisitions. SFAS 141(R) continues the movement toward the greater use of fair values in financial reporting and increased transparency through expanded disclosures. SFAS 141(R) changes how business acquisitions are accounted for and will impact financial statements at the acquisition date and in subsequent periods. In addition, SFAS 141(R) will impact the annual goodwill impairment test associated with acquisitions that close both before and after its effective date. SFAS 141(R) applies prospectively to fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. An entity may not apply SFAS 141(R) before that date. The Company expects no material effect at adoption date. However, upon adoption, this statement may materially affect the accounting for any future business combinations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of Accounting Research Bulletin No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This statement is effective for the Company beginning January 1, 2009. The Company is assessing the impact of SFAS 160 on its future consolidated financial statements, particularly the minority interest related to Tooth Doctor.

In March 2008, the FASB issued FSP 157-1 and 157-2 that (1) partially deferred the effective date of SFAS No. 157 “Fair Value Measurement” for one year for certain nonfinancial assets and nonfinancial liabilities and (2) removed certain leasing transactions from the scope of SFAS No. 157. SFAS No. 157 as amended by this FSP is effective for nonfinancial assets and nonfinancial liabilities in fiscal years beginning after November 15, 2008 and will be applied prospectively. The provisions of SFAS No. 157 are not expected to have a material impact on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, with the intent to provide users of financial statements with an enhanced understanding of how and why an entity uses derivative instruments, how these instruments and related hedged items are accounted for under SFAS No. 133 and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flow. To meet those objectives, this statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments and

56

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(2) Summary of Significant Accounting Policies – (Continued)

disclosures about credit-risk-related contingent features in derivative agreements. This statement is effective for the Company beginning January 1, 2009. The Company is assessing the impact of SFAS 161 on its future consolidated financial statements.

(3) Accounts Receivable, net and Net revenue

Accounts receivable, net

Accounts receivable, net reflects receivables due from affiliated dental practices and represent amounts due pursuant to the terms of the service agreements and other receivables, which include trade receivables, net of any allowances for doubtful accounts, of the Company’s affiliated dental practice, captive insurance subsidiary, dental lab and third party administrator. The following table lists receivables due from affiliated practices and other receivables for the years ended December 31 (in thousands):

	December 31,
	2008		2007
Receivables due from affiliated practices	$	22,511	$	20,151
Other receivables, net		3,364		3,470
Accounts receivable, net	$	25,875	$	23,621

Net revenue

For the years ended December 31, 2008, 2007 and 2006, net revenue consisted of the following (in thousands):

	2008		2007		2006
Reimbursement of expenses:
Salaries and benefits	$	87,500	$	88,658	$	76,154
Lab and dental supplies		44,790		44,269		37,250
Office occupancy expenses		29,324		28,243		24,371
Other operating expenses		19,079		18,176		15,485
Depreciation expense		8,807		7,914		6,672
Total reimbursement of expenses		189,500		187,260		159,932
Business service fees		55,971		64,088		51,945
Revenue earned under service agreements		245,471		251,348		211,877
Patient revenue, professional services, dental laboratory fees and other miscellaneous revenue		45,637		27,407		6,040
Net revenue	$	291,108	$	278,755	$	217,917

Net revenue derived from the Company’s service agreement with Metro Dentalcare P.L.C., the affiliated practice at Metro Dentalcare, represented approximately 20%, 5% and 0% of the Company’s consolidated net revenue for 2008, 2007 and 2006, respectively. Net revenue from the Company’s service agreement with Wisconsin Dental Group, S.C., the affiliated practice at Forward Dental, represented approximately 12%, 12% and 13% of the

57

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(3) Accounts Receivable, net and Net revenue – (Continued)

Company’s consolidated net revenue for 2008, 2007 and 2006, respectively. No other service agreement or customer accounted for greater than 10% of the Company’s consolidated net revenue in 2008. Patient revenue, professional services, dental laboratory fees and other miscellaneous revenue includes $17,697,000 in revenue earned pursuant to the transition services agreement with PDG.

(4) Acquisitions and Affiliations

During the year ended December 31, 2008, the Company completed eight affiliation transactions. The Company acquired selected assets of seven dental practices that joined existing affiliated practices and one platform affiliation in Wisconsin. All transactions completed in 2008 are referred to as “2008 Transactions.” The aggregate purchase price paid in connection with these transactions consisted of approximately $4,650,000 in cash, net of cash acquired. Contingent payments associated with three 2008 Transactions are based on revenue, for an agreed upon period after the transaction, meeting or exceeding a predetermined threshold, and in total cannot exceed $597,000. In 2008, the Company made a contingent payment based upon earnings related to the Metro Dentalcare acquisition of approximately $9,685,000 of which $4,575,000 was accrued as of December 31, 2007.

During the year ended December 31, 2007, the Company completed fourteen acquisition and affiliation transactions. The Company acquired selected assets of ten dental practices that joined existing affiliated practices and three platform affiliations in California, Minnesota and Texas, which included execution of a new service agreement between the Company and the affiliated practices. Finally, the Company acquired 100% of the outstanding capital stock of Metropolitan Dental Holdings, Inc. (“Metro Dentalcare”) and entered into a platform affiliation with Metro Dentalcare, P.L.C., which included the execution of a new service agreement between the Company and the affiliated practice. All transactions completed in 2007 are referred to as “2007 Transactions.” The aggregate purchase price paid in connection with these transactions consisted of approximately $119,123,000 in cash, net of cash acquired. Excluding Metro Dentalcare, contingent payments associated with six 2007 Transactions are based on revenue, for an agreed upon period after the transaction, meeting or exceeding a predetermined threshold, and in total cannot exceed $2,220,000.

58

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(4) Acquisitions and Affiliations – (Continued)

The 2008 and 2007 Transactions are as follows:

Date	Affiliated Practice	Location(s)
December 2008	Amrutha Mandava, D.M.D. & Sreedevi Mandava, D.D.S.	Albany, NY
December 2008	Ronald Verhulst, D.D.S.	West Allis, WI
November 2008	Freida Grimes-Moore, D.D.S.	Bartlett, TN
November 2008	Jeffrey Dean, D.D.S.	Greenfield, WI
October 2008	Barry S. Rosenblatt, D.M.D.	Troy, NY
July 2008	David J. Barabe, D.D.S.	Winston-Salem, NC
March 2008	Chris Meyers, D.D.S. & Margita Meyers, D.M.D.	Shorewood, WI
March 2008	Advanced Dental Specialist	Milwaukee, WI
December 2007	Michael Sabeti, D.D.S., M.S.	Pearland, TX
December 2007	Michael Berman, D.D.S.	Killeen, TX
September 2007	Metropolitan Dental Holdings, Inc.	Minneapolis, MN
September 2007	Larry J. Gaydos, D.D.S.	St. Louis, MO
September 2007	Jeffrey W. Ausen, D.D.S.	Waukesha, WI
August 2007	Barzman, Kasimov & Vieth, D.D.S.	Buffalo, NY
July 2007	Virginia A. Plaisted, D.D.S.	Delmar, NY
June 2007	Mark Moskowitz, D.D.S.	Queensbury, NY
June 2007	Sacramento Oral Surgery	Sacramento, CA
May 2007	Valley Dental Group	Golden Valley, MN
May 2007	Mark H. Karakourtis, M.D., D.D.S.	Austin, TX
March 2007	Donald L. Roberts, D.D.S.	Houston, TX
February 2007	James T. Shoptaw, D.D.S.	Killeen/Temple, TX
January 2007	Jeffrey & Paul Morrison, D.D.S.	Bethesda, MD

The accompanying consolidated financial statements include the results of operations under the service agreements from the date of affiliation. The following table includes total consideration paid, the estimated fair value of net assets acquired and intangible assets associated with 2008 and 2007 Transactions, excluding Metro Dentalcare (in thousands):

	2008		2007
Total consideration paid	$	4,938	$	35,419
Fair value of net tangible assets acquired and liabilities assumed		798		1,688
Intangible assets	$	4,140	$	33,731

On September 25, 2007, the Company acquired 100% of the outstanding capital stock of Metro Dentalcare. In connection with the acquisition, a subsidiary of Metro Dentalcare entered into a 40-year service agreement with an affiliated professional limited liability corporation. The purchase price paid in connection with the acquisition was approximately $87,044,000 in cash plus an earn out of $9,685,000 paid in 2008 based on Metro Dentalcare’s earnings before interest, taxes, depreciation and amortization for the fiscal year ended December 31, 2007. As of December 31, 2007, the Company had accrued approximately $4,575,000 of this amount, reflected in accrued expense, in connection with the Metro Dentalcare earn out.

59

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(5) Property and Equipment

Property and equipment consisted of the following at December 31 (in thousands):

	2008			2007
Land and buildings	$	783		$	783
Equipment		58,473			59,776
Furniture and fixtures		11,984			12,851
Leasehold improvements		41,188			46,054
Total property and equipment		112,428			119,464
Less accumulated depreciation		(57,886	)		(59,019	)
Total property and equipment, net	$	54,542		$	60,445

Depreciation expense was $11,054,000, $9,422,000 and $7,845,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

Since 2002, the Company has been developing Improvis, a proprietary practice management system. As of December 31, 2008, 19 affiliated practices, comprising 179 dental facilities, were using Improvis. The Company has recorded aggregate capitalized software costs amounting to $2,255,350, which includes approximately $216,600 in capitalized interest, in connection with this project as of December 31, 2008, of which $898,000 relates to the first development phase. The Company began to amortize costs associated with the first development phase in October 2005 and has recognized approximately $292,000 in amortization costs as of December 31, 2008. These costs will be amortized over ten years.

The Company is obligated under non-cancelable operating leases for premises and equipment expiring in various years through the year 2026. Rent expense for the years ended December 31, 2008, 2007 and 2006 amounted to $25,340,000, $24,690,000 and $19,560,000, respectively, of which $22,690,000, $22,230,000 and $18,055,000 were reimbursed under service agreements.

Minimum future rental payments under non-cancelable operating leases and amounts to be reimbursed under service agreements as of December 31, 2008 are as follows (in thousands):

	Total Amount Due		Amounts Subject to Reimbursement Under Service Agreements		Net Amount
2009	$	18,325	$	16,309	$	2,016
2010		15,982		14,028		1,954
2011		13,139		11,475		1,663
2012		11,157		9,805		1,352
2013		9,515		8,325		1,190
Thereafter		27,419		24,966		2,453
Total minimum lease payments	$	95,537	$	84,908	$	10,628

60

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(6) Intangible Assets

Intangible assets consisted of the following as of December 31, 2008 and 2007 (in thousands):

	Gross Carrying Amount		Accumulated Amortization			Net
December 31, 2008
Service agreements	$	223,718	$	(51,684	)	$	172,034
Trade name		4,035		(700	)		3,335
Customer relationships		605		(447	)		158
	$	228,358	$	(52,831	)	$	175,527
December 31, 2007
Service agreements	$	218,527	$	(42,742	)	$	175,785
Trade name		4,035		(148	)		3,887
Customer relationships		605		(308	)		297
	$	223,167	$	(43,198	)	$	179,969

Intangible asset amortization expense for 2008, 2007 and 2006 was $9,635,000, $7,049,000, and $5,358,000, respectively. Annual amortization expense for each of the next five fiscal years will be approximately $9,466,000. The weighted average amortization period for service agreements is 25 years. The weighted average amortization period for the Metro Dentalcare trade name intangible is five years. The trade name intangible asset associated with the Tooth Doctor is indefinite-lived and not amortized. The weighted average amortization period for customer relationships is 3 years. The weighted average remaining life of all intangible assets is 18 years.

(7) Income Taxes

Income tax expense for the years ended December 31 consists of the following (in thousands):

	2008		2007			2006
Current:
Federal	$	4,734	$	6,809		$	6,854
State		1,331		881			754
Total current		6,065		7,690			7,608
Deferred:
Federal		11,352		(10,934	)		(634	)
State		1,828		(1,037	)		172
Total deferred		13,180		(11,971	)		(462	)
Total income taxes	$	19,245	$	(4,281	)	$	7,146

61

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(7) Income Taxes – (Continued)

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as of December 31 are as follows (in thousands):

	2008			2007
Deferred tax assets:
Operating loss and other carryforwards	$	709		$	876
Organization and start-up costs		-			3
Stock-based compensation		1,861			1,184
Litigation expense		-			16,321
Accrued expenses and other liabilities		4,086			1,539
Gross deferred tax assets		6,656			19,923
Net valuation allowance		(551	)		(748	)
Net deferred tax assets		6,105			19,175
Deferred tax liabilities:
Intangibles		(34,337	)		(33,290	)
Property and equipment		(1,444	)		(941	)
Other		(2,170	)		(56	)
Deferred revenue		331			(3,420	)
Software costs		(962	)		(833	)
Total deferred tax liabilities		(38,582	)		(38,540	)
Net deferred tax liabilities	$	(32,477	)	$	(19,365	)

The Company has a valuation allowance against a portion of its deferred tax assets related to its state tax attributes. Based upon the Company’s current structure, it is more likely than not that this deferred tax asset will not be realized. The valuation allowance for deferred tax assets was $551,000 and $748,000 as of December 31, 2008 and 2007, respectively. The change in the valuation allowance for the years ended December 31, 2008 and 2007 was $197,000 and $265,000 respectively. The initial recognition (that is, by elimination of the valuation allowance) of the state tax benefits in the future will be primarily recorded to additional paid-in capital, not consolidated statements of income.

Tax benefits associated with tax deductions for stock option exercises were credited to additional paid-in capital in the amounts of $75,000 and $2,426,000 for the years ended December 31, 2008 and 2007, respectively.

62

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(7) Income Taxes – (Continued)

The net deferred tax assets and liabilities consisted of the following at December 31 (in thousands):

	2008									2007
	Federal			State			Total			Federal			State			Total
Deferred tax assets:
Current	$	3,784		$	409		$	4,193		$	15,775		$	1,645		$	17,420
Non-current		1,484			428			1,912			569			1,186			1,755
Total deferred tax assets		5,268			837			6,105			16,344			2,831			19,175
Deferred tax liabilities:
Current		(69	)		(12	)		(81	)		(3,054	)		(422	)		(3,476	)
Non-current		(32,436	)		(6,065	)		(38,501	)		(29,061	)		(6,003	)		(35,064	)
Total deferred tax liabilities		(32,505	)		(6,077	)		(38,582	)		(32,115	)		(6,425	)		(38,540	)
Net deferred tax liabilities	$	(27,237	)	$	(5,240	)	$	(32,477	)	$	(15,771	)	$	(3,594	)	$	(19,365	)

The Company has state net operating loss carry forwards of $14,324,000 as of December 31, 2008 which expire at various times from 2009 through 2025.

The following table reconciles the federal statutory income tax rate to the Company’s effective income tax rate for the years ended December 31:

	2008		2007		2006
Income taxes at Federal statutory rate	35.0	%	35.0	%	35.0	%
Differential due to graduated rate	(0.2	)	0.8		0.0
State taxes, net of Federal benefit	4.2		0.8		3.3
SFAS No. 123(R) expense for employee stock purchase plan	0.2		(0.3	)	0.4
Other permanent differences	(0.2	)	(0.6	)	0.4
Effective income tax rate	39.0	%	35.7	%	39.1	%

In the Company’s opinion, adequate tax liabilities have been established for all years. Federal tax years prior to 2006 are closed.

63

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(7) Income Taxes – (Continued)

The Company adopted the provisions of FIN 48 on January 1, 2008. There was no material impact on our results of operations or financial position as a result of the implementation of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement 109” (“FIN 48”). The amount of gross unrecognized tax benefits at December 31, 2008 was $386,000, of which $386,000 would impact the Company’s effective tax rate if recognized. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	2008			2007
Balance, beginning of year	$	393		$	253
Additions for tax positions during the current year		-			63
Additions for tax positions for prior years		-			190
Reductions for tax positions of prior years for:
Changes in judgment		-			-
Settlements during the period		-			(15	)
Lapses of applicable statute of limitations		(7	)		(98	)
Balance, end of year	$	386		$	393

It is expected that the amount of unrecognized tax benefits will change in the next twelve months; however, the Company does not expect the change to have a significant impact on the results of operations or the financial position of the Company.

The Company recognizes interest and penalties accrued in connection with unrecognized tax benefits as a component of income before taxes in the Consolidated Statements of Income, which is consistent with the recognition of these items in prior reporting periods. Accrued interest and penalties were $104,235 and $120,522 as of January 1, 2008 and December 31, 2008, respectively.

(8) Debt

Long-term debt obligations consist of the following at December 31 (in thousands):

	2008		2007
Revolving line of credit advances, collateralized by substantially all assets of the Company, LIBOR-based and prime interest rates ranging from approximately 4.98% to 9.25%	$	31,100	$	40,450
Term loan, ranks pari passu in right of payment to all of the obligations of revolving credit facility, LIBOR-based and prime interest rate of 8.48%		100,000		100,000
Subordinated notes payable to stockholders and former owners, bearing interest at 7%, maturing through 2010		72		107
Note payable to River Road Dental, collateralized by substantially all assets of the Metro-Brooklyn Center clinic, bearing interest at 6%, maturing through 2011		445		577
Note payable to Bloomington Southgate, bearing interest at 5%, maturing through 2009		20		40
Total long-term debt		131,637		141,174
Less current maturities		196		188
Long-term debt, non-current portion	$	131,441	$	140,986

64

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(8) Debt – (Continued)

Annual maturities of long-term debt as of December 31, 2008 are as follows (in thousands):

	Long-term Debt
2010	$	131,285
2011		156
2012		-
2013		-
2014		-
Thereafter		-
Total payments	$	131,441

Revolving Line of Credit and Term Loan

The Company has a revolving credit facility in the amount of $75,000,000. The facility matures on January 20, 2010 and can be used for general corporate purposes, including working capital, acquisitions and affiliations and capital expenditures. Borrowings under the credit facility bear interest at either prime or LIBOR plus a margin, at the Company’s option. The margin is based upon the Company’s debt coverage ratio and ranges from 4.25% to 4.50% for both prime borrowings and LIBOR borrowings. At December 31, 2008, the LIBOR and prime interest rate under the credit facility, including borrowing margin, was 8.48%. In addition, the Company pays a commitment fee on the unused balance of its credit facility ranging from 0.375% to 0.5%. Borrowings are limited to an availability formula based on earnings before income taxes, depreciation and amortization, adjusted for certain items, and are collateralized by a first lien on substantially all of the Company’s assets, including a pledge of the stock of the Company’s subsidiaries. The Company is also required to comply with financial and other covenants, including minimum net worth, leverage and fixed charge coverage ratios and maximum capital expenditures as defined by the credit agreement. The Company was in compliance with its covenants as of December 31, 2008. The outstanding balance under this line as of December 31, 2008 was $31,100,000, and the Company had stand-by letters of credit amounting to $1,669,200 at December 31, 2008. The unused balance under this revolving credit facility as of December 31, 2008 was $42,230,800 and based on borrowing covenants, reduced by the stand-by letter of credit, $35,346,730 was available for borrowing.

The Company has a term loan in the amount of $100,000,000. The loan matures on January 20, 2010 and was used to fund the Company’s 2007 acquisitions and affiliations. Interest on the term loan is at LIBOR plus a margin of 4.5%. The margin for the first 90 days from October 24, 2008 is 450 basis points and will increase 50 basis points March 1, 2009 and each 90 days thereafter. All of the obligations under this term loan facility rank pari passu in right of payment to all of the obligations of the Company’s revolving credit facility.

Pursuant to amendments to both the revolving credit facility and term loan on October 24, 2008 the Company is permitted to borrow up to $15,000,000 annually for capital expenditures, $15,000,000 annually for acquisitions and up to $13,000,000 for earnout and contingent payments on previously completed acquisitions, subject to various financial covenants, including a maximum debt to earnings before interest, taxes, depreciation and amortization leverage ratio of 3.75x.

On May 9, 2007, the Company entered into an interest rate swap to hedge $20,000,000 of borrowings under the credit facility. Under this arrangement, the Company has effectively converted its 3-month, floating LIBOR interest rate exposure, plus a credit spread, to fixed 5.0%, plus a credit spread, until February 2012. Management believes it will maintain debt in amounts in excess of the hedge amount through its maturity.

65

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(9) Accrued Litigation Expense

In December 2007, the Company entered into a settlement agreement with respect to litigation among PDHC Ltd., (“PDHC”) one of its Minnesota subsidiaries, and PDG. Under the terms of the definitive agreements contemplated by the settlement agreement and in release of the PDG litigation, the Company transferred to PDG the leases and operating assets of 25 of the 31 Park Dental facilities and trade name “Park Dental” to PDG, effective February 29, 2008. The parties also entered into a transition services agreement. Under the agreement, the Company agreed to provide interim management services to PDG for a period of up to nine months commencing on January 1, 2008 for $19,000,000. PDG paid the interim management services fee and the Company provided the services. The parties are completing the final steps in the separation of PDHC and PDG.

The Company has accounted for the transactions in 2007 and 2008 as follows:

In accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (“SFAS 5”), the Company accrued a loss contingency of $30,968,000 at December 31, 2007, which was comprised of the following items: (i) $39,968,000 representing the estimated fair value, using discounted cash flows, of the operating assets being transferred and (ii) a reduction of $9,000,000 from the $19,000,000 to be paid by PDG, which represents the amount deemed in excess of the fair market value of the management services to be provided. In addition to this $30,968,000 accrual, litigation expense in the Company’s statement of operations is also comprised of the following: (i) $2,035,000 of accounts receivable due from PDG that the Company reserved as part of the litigation settlement and (ii) professional fees associated with the litigation of $3,731,000. Professional fees associated with the litigation of $1,570,000 for the year ended December 31, 2006 have been reclassified from general corporate expenses to litigation expense. The Company expensed, as interest expense, approximately $851,000 of previously capitalized financing costs pursuant to Emerging Issues Task Force Issue No. 98-14 “Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements” (“EITF 98-14”), when the Company and the lenders entered into a forbearance agreement on December 18, 2007.

On February 29, 2008, under the terms of the settlement agreement the Company transferred the operating assets of 25 of the 31 Park Dental facilities and pursuant to Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”) we realized a net gain of $30,763,000 which represents the fair value of the assets transferred in excess of the book value of the assets transferred. In addition, the Company recorded an interim management services fee, during 2008, totaling $10,000,000 offset by the costs to provide these services including severance costs.

(10) Stockholders’ Equity

Preferred Stock

The Company is authorized to issue up to 1,000,000 shares of Preferred Stock, $0.01 par value.

Preferred Stock may be issued in one or more series as determined by the Board of Directors without further stockholder approval, and the Board of Directors is authorized to fix and determine the terms, limitations and relative rights and preferences of such Preferred Stock, and to fix and determine the variations among series of Preferred Stock. Any new Preferred Stock issued would have priority over the Common Stock with respect to dividends and other distributions, including the distribution of assets upon liquidation and dissolution. Such Preferred Stock may be subject to repurchase or redemption by the Company. The Board of Directors, without stockholder approval, could issue Preferred Stock with voting and conversion rights that could adversely affect

66

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(10) Stockholders’ Equity – (Continued)

the voting power of the holders of Common Stock and the issuance of which could be used by the Board of Directors in defense of a hostile takeover of the Company. As of December 31, 2008 and 2007, there were no shares of Preferred Stock issued or outstanding.

Common Stock

The Company is authorized to issue up to 25,000,000 shares of Common Stock, $0.01 par value. As of December 31, 2008, 13,484,241 shares were issued and 12,901,741 shares were outstanding. As of December 31, 2007, 13,397,120 shares were issued and 12,814,620 shares were outstanding.

Treasury Stock

On December 16, 1999, the Board of Directors authorized the Company to repurchase up to $5,000,000 of its Common Stock in the open market. Under this plan, the Company has repurchased 582,500 shares of its Common Stock through December 31, 2008 at a cost of $3,874,000.

(11) Stock-based Compensation

Options granted under the following plans generally have a ten-year term and generally have a vesting period of four years, except for the 2005 Directors Stock Option Plan which vests over three years . At December 31, 2008, options for 1,366,301 shares were vested and 588,125 shares were available for future grants under the 2005 Equity Incentive Plan and the 2005 Directors Stock Option Plan. The Company issues new shares upon stock option exercises. No restricted shares have been awarded.

Under SFAS No. 123(R), the Company is required to select a valuation technique or option-pricing model that meets the criteria as stated by the standard, which includes a binomial model and the Black-Scholes model. At the present time, the Company is using the Black-Scholes model. The adoption of SFAS No. 123(R), applying the “modified prospective method,” as elected by the Company, requires the Company to estimate forfeitures in calculating the expense related to stock-based compensation as opposed to only recognizing those forfeitures and the corresponding reduction in expense as they occur. The Company has chosen to use the “short-cut method” to determine the pool of windfall tax benefits as of the adoption of SFAS No. 123(R). In addition, SFAS No. 123(R) requires the Company to reflect tax savings resulting from the tax deductions in excess of expense as a financing cash flow in its statement of cash flows rather than as an operating cash flow as reflected prior to the adoption of SFAS No. 123(R).

The Company recognized stock-based compensation expense for options granted and its employee stock purchase plan (“ESPP”) of $1,978,000 and $1,898,000 for the years ended December 31, 2008 and 2007, respectively, and this expense was recorded within general corporate expense on the Company’s consolidated statements of income. In addition, the Company recorded a deferred tax benefit associated with stock-based compensation for options grants of $1,396,435 and $622,386 for the years ended December 31, 2008 and 2007, respectively, and no amounts were capitalized. The remaining unrecognized stock-based compensation expense for unvested stock option awards as of December 31, 2008 was approximately $4,006,000 and the weighted average period of time over which this cost will be recognized is 3 years.

67

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(11) Stock-based Compensation – (Continued)

The fair value for these options and employee stock purchase rights granted was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for the years ended December 31:

	2008						2007						2006
	Stock Options			ESPP			Stock Options			ESPP			Stock Options			ESPP
Risk-free interest rate		2.7	%		1.6	%		4.6	%		5.1	%		4.6	%		4.9	%
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Expected volatility		77	%		71	%		42	%		39	%		42	%		41	%
Expected life (years)		5.40			0.25			6.20			0.50			6.25			0.50
Expected forfeiture		4.0	%		-			3.0	%		-			4.0	%		-
Weighted average fair value of options/ purchase rights granted during the year	$	6.31		$	1.95		$	10.60		$	6.13		$	6.91		$	4.59

The Company calculated the volatility assumption using a blend of a historical volatility rate for a period equal to the expected term and an expected volatility rate based on more recent activity. The Company estimated the expected life of its stock options using the simplified method for determining the expected term as prescribed by the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107, “Share-based Payment.” Expected life of the Company’s ESPP purchase rights reflects the length of each period (six months) an employee can participate in at the end of which shares are purchased.

Since adoption of SFAS 123(R), forfeitures are estimated based on historical experience.

The following table summarizes the stock option transactions during the year ended December 31, 2008:

	Shares (in thousands)		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2007	1,828		$	11.05	-		-
Granted	104			9.78	-		-
Exercised	(28	)		7.90	-		-
Forfeited or expired	(88	)		16.11	-		-
Outstanding at December 31, 2008	1,816		$	10.78	5.66	$	798
Vested and unvested expected to vest as of December 31, 2008	1,764		$	10.61	5.60	$	798
Exercisable at December 31, 2008	1,366		$	8.90	4.92	$	798

Cash proceeds, tax benefits and intrinsic value related to total stock options exercised during the year ended December 31 2008, 2007 and 2006 are provided in the following table (in thousands):

	2008		2007		2006
Proceeds from stock options exercised	$	220	$	2,186	$	867
Tax benefit related to stock options exercised	$	21	$	2,413	$	565
Intrinsic value of stock options exercised	$	88	$	6,520	$	1,205

68

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(11) Stock-based Compensation – (Continued)

Summaries of the Company’s stock option plans as of December 31, 2008 are as follows:

2005 Equity Incentive Plan

The Company’s 2005 Equity Incentive Plan, (the “2005 Plan”), provides for the grant of stock options to key employees. The 2005 Plan permits the grant of options that qualify as incentive stock options and non-qualified options. The exercise price of such options can be no less than the fair market value of the Common Stock at the time of grant. Options granted pursuant to the 2005 Plan generally vest over four years and expire ten years after the date of grant. At December 31, 2008, 700,000 shares were authorized under the 2005 Plan, with 671,125 shares reserved for issuance and options for 493,000 shares outstanding. As part of the approval of the 2005 Plan, no further stock options will be granted by the Company under the Amended and Restated 1996 Stock Option Plan and the 1999 Restricted Stock Plan has been terminated.

2005 Directors Stock Option Plan

The Company’s 2005 Directors Stock Option Plan, (the “2005 Directors Plan”), provides for the granting of options to non-employee directors. Only non-qualified options may be granted pursuant to the Directors Plan. The exercise price of such options can be no less than the fair market value of the Common Stock at the time of grant. Options granted pursuant to the 2005 Directors Plan generally vest over three years and expire ten years after the date of grant. At December 31, 2008, 175,000 shares were authorized under the Directors Plan, with 175,000 shares reserved for issuance and options for 90,000 shares outstanding. As part of the approval of the 2005 Directors Plan, no further stock options will be granted under the Company’s Amended and Restated 1996 Directors Stock Option Plan.

1996 Stock Option Plan

The Company’s 1996 Stock Option Plan, as amended (the “1996 Plan”), provides for the grant of stock options to key employees. The 1996 Plan permits the granting of options that qualify as incentive stock options and non-qualified options. The exercise price of such options is no less than the fair market value of the Common Stock at the time of grant. Options granted pursuant to the 1996 Plan generally vest over four years and expire ten years after the date of grant. At December 31, 2008, 2,359,869 shares were authorized under the 1996 Plan, with 1,017,863 shares reserved for issuance and options for 982,446 shares outstanding. No further options will be granted under the 1996 Plan.

1996 Time Accelerated Restricted Stock Option Plan

The Company’s 1996 Time Accelerated Restricted Stock Option Plan, as amended (“TARSOP Plan”), provides for the grant of stock options to key employees. Only non-qualified options may be granted pursuant to the TARSOP Plan. The exercise price of such options is no less than the fair market value of the Common Stock at the time of grant. Options granted under this plan vest at the end of the nine years, subject to accelerated vesting based on achievement of certain performance measures, and generally expire after nine and a half years. In February 2003, the Company’s Board of Directors approved an amendment to prohibit future grants under the TARSOP Plan, except for options for 14,054 shares that were granted in July 2003 in connection with the Company’s one-time stock option exchange program. At December 31, 2008, options for 14,054 shares were outstanding under this Plan. All outstanding options to purchase such shares became exercisable at the completion of the IPO except for the options granted in July 2003 in connection with the Company’s one-time stock option exchange program. The TARSOP Plan expired on January 11, 2006.

69

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(11) Stock-based Compensation – (Continued)

1996 Affiliate Stock Option Plan

The Company’s 1996 Affiliate Stock Option Plan, as amended (the “Affiliate Plan”), provides for the grant of stock options to certain persons associated with the affiliated practices. Only non-qualified options may be granted pursuant to the Affiliate Plan. The exercise price of such options is no less than the fair market value of the Common Stock at the time of grant. Options granted pursuant to the Affiliate Plan generally vest over four years and expire ten years after the date of grant. In February 2003, the Company’s Board of Directors approved an amendment to prohibit future grants under the Affiliate Plan. At December 31, 2008, no options were outstanding under the Affiliate Plan.

1996 Directors Stock Option Plan

The Company’s 1996 Directors Stock Option Plan, as amended (the “1996 Directors Plan”), provides for the granting of options to outside directors. Only non-qualified options may be granted pursuant to the 1996 Directors Plan. The exercise price of such options is no less than the fair market value of the Common Stock at the time of grant. Options granted pursuant to the Directors Plan generally vest over four years and expire ten years after the date of grant. At December 31, 2008, 577,500 shares were authorized under the 1996 Directors Plan, with 258,300 shares reserved for issuance and options for 236,175 shares outstanding. No further options will be granted under the 1996 Directors Plan.

1997 Employee Stock Purchase Plan

The 1997 Employee Stock Purchase Plan, as amended (the “Employee Stock Purchase Plan” or “ESPP”), enables eligible employees to purchase shares of Common Stock at a discount on a periodic basis through payroll deductions and is intended to meet the requirements of Section 423 of the Internal Revenue Code. Purchases occur at the end of option periods, each of six months’ duration. The purchase price of Common Stock under the ESPP is 85% of the lesser of the value of the Common Stock at the beginning or the end of the option period. Prior to each option period, participants may elect to have from 2% to 10% of their compensation withheld and applied to the purchase of shares at the end of the option period. The ESPP imposes a maximum of $12,500 on the amount that may be withheld from any participant in any option period. A total of 550,000 shares of Common Stock has been reserved for issuance under the ESPP, of which 448,338 shares have been issued through 2008 and 39,334 shares were committed for issuance as of December 31, 2008.

Stock Option Activity

A summary of stock option activity under all the Company’s stock option plans for the years ended December 31, 2008, 2007 and 2006 follows:

	2008			2007			2006
	Options	Weighted Average Exercise Price		Options	Weighted Average Exercise Price		Options	Weighted Average Exercise Price
Outstanding at beginning of year	1,827,992	$	11.05	1,942,704	$	8.60	1,781,531	$	7.65
Granted	103,900		9.78	270,650		22.05	284,800		14.17
Exercised	(27,873)		7.90	(366,725)		5.96	(115,804)		7.51
Cancelled	(88,344)		16.11	(18,637)		15.90	(7,823)		11.09
Outstanding at end of year	1,815,675	$	10.78	1,827,992	$	11.05	1,942,704	$	8.60
Exercisable at end of year	1,366,307	$	8.90	1,186,330	$	7.69	1,294,261	$	6.53

70

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(11) Stock-based Compensation – (Continued)

The following table summarizes information about stock options outstanding at December 31, 2008:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$ 4.41 - $ 6.00	532,885	3.76	$	5.66	508,135	$	5.66
$ 6.00 - $ 13.80	826,525	6.41		9.51	636,825		8.85
$ 13.80 -$ 19.45	217,215	6.65		15.75	149,748		15.75
$ 19.45 -$ 26.02	239,050	8.22		21.89	71,599		21.65
	1,815,675	5.66	$	10.78	1,366,307	$	8.90

(12) Employee Retirement Benefit Plans

The Company has a Savings and Retirement Plan (401(k) Plan), adopted October 1, 1996, which is the Company’s principal defined contribution retirement plan. The plan provides for a match of up to 50% of the first 6% of an employee’s eligible compensation, subject to IRS maximums/minimums. Total plan expense for the years ended December 31, 2008, 2007 and 2006 was $1,912,000, $1,395,000 and $1,184,000, respectively.

(13) Earnings Per Share

The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the years ended December 31 (in thousands, except per share amounts):

	2008		2007			2006
Basic Earnings (Losses) Per Share:
Net earnings (losses) available to common stockholders	$	30,118	$	(7,716	)	$	11,134
Weighted average common shares outstanding		12,876		12,681			12,301
Net earnings (losses) per share	$	2.34	$	(0.61	)	$	0.91
Diluted Earnings (Losses) Per Share:
Net earnings (losses) available to common stockholders		30,118	$	(7,716	)	$	11,134
Weighted average common shares outstanding		12,876		12,681			12,301
Add: Dilutive effect of options (1)		274		-			615
Weighted average common shares as adjusted		13,150		12,681			12,916
Net earnings (losses) per share	$	2.29	$	(0.61	)	$	0.86

(1) In 2008, 793,662 options were excluded from the computation of diluted earnings per share due to their antidilutive effect.

In 2007, the dilutive effect of 631,247 shares were excluded as the Company had a loss from continuing operations pursuant to SFAS 128 “Earnings per Share.” In 2006, 461,865 options were excluded from the computation of diluted earnings per share due to their antidilutive effect.

71

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2008, 2007 and 2006

(14) Selected Quarterly Operating Results (unaudited)

The following table sets forth summary quarterly results of operations for the Company for the years ended December 31, 2008 and 2007 (in thousands, except per share amounts):

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
2008
Net revenue	$	79,811	$	74,639	$	71,548	$	65,110
Operating expenses		41,931		65,557		63,590		59,840
Earnings from operations		37,880		9,082		7,958		5,270
Earnings before income taxes		35,285		6,512		5,428		2,138
Income taxes		13,760		2,539		2,118		828
Net earnings	$	21,525	$	3,973	$	3,310	$	1,310
Net earnings per share (1):
Basic	$	1.68	$	0.31	$	0.26	$	0.10
Diluted	$	1.65	$	0.30	$	0.25	$	0.10
Weighted average common shares outstanding:
Basic		12,839		12,862		12,900		12,902
Diluted		13,084		13,117		13,230		13,057
2007
Net revenue	$	65,458	$	66,552	$	67,162	$	79,583
Operating expenses		58,235		58,365		61,910		106,599
Earnings (losses) from operations		7,223		8,187		5,252		(27,016	)
Earnings (losses) before income taxes		6,441		7,519		4,327		(30,284	)
Income taxes		2,562		2,991		1,626		(11,460	)
Net earnings (losses)	$	3,879	$	4,528	$	2,701	$	(18,824	)
Net earnings (losses) per share (1):
Basic	$	0.31	$	0.36	$	0.21	$	(1.47	)
Diluted	$	0.30	$	0.34	$	0.20	$	(1.47	)
Weighted average common shares outstanding:
Basic		12,456		12,669		12,779		12,812
Diluted		13,145		13,302		13,395		12,812

(1) The sum of the quarterly earnings per share may not equal the full-year earnings per share as the computations of the weighted average shares outstanding for each quarter and the full year are made independently.

72

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of December 31, 2007. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures timely alert them to material information relating to the Company required to be included in this report and were effective as of December 31, 2008.

Management’s Report on Internal Control over Financial Reporting and Report of Independent Registered Public Accounting Firm

The information required to be furnished pursuant to this item is set forth under the captions “Management’s Report on Internal Control over Financial Reporting” and “Report of Independent Registered Public Accounting Firm” included at Item 8. Financial Statements and Supplementary Data.

Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the Company’s internal control over financial reporting to determine whether any changes occurred during the fourth fiscal quarter covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the fourth fiscal quarter covered by this annual report.

ITEM 9B. OTHER INFORMATION

On March 11, 2009, Northland Dental Partners, PLLC, Family Periodontic Specialists, P.L.C., Family Oral Surgery Specialists, PLC, Family Endodontic Specialists, PLC and PDHC, Ltd entered into an Amended and Restated Service Agreement, effective January 1, 2009.

73

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE REGISTRANT

Information relating to the executive officers of the Company is included under the caption “Executive Officers and Senior Management of the Registrant” in Part I of this Report.

The information set forth under the captions “Elections of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” in the Company’s Proxy Statement to be filed with the Commission in connection with the 2009 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

The information set forth under the caption “Executive Compensation” in the Company’s Proxy Statement is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

A summary of our stockholder approved and non-approved equity plans as of December 31, 2008 (in thousands, except per share amounts):

	(a)	(b)		(c)
	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security shareholders (excluding ESPP)	1,816	$	10.78	588
Equity compensation plans approved by security shareholders (ESPP only)	N/A		N/A	62
Total all plans	1,816	$	10.78	650

The information set forth under the caption “Principal Stockholders” in the Proxy Statement is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information set forth under the caption “Certain Relationships and Related Transactions” and the information set forth under the caption “Election of Directors” and “Compensation Committee Interlocks” in the Company’s Proxy Statement is incorporated herein by reference.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

Information set forth under the caption “Proposal 4 – Ratification of Independent Public Accountant – Independent Accountant Fees” and “Audit Committee Report” in the Company’s Proxy Statement is incorporated herein by reference.

74

PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this report:

(a)(1) Consolidated Financial Statements (see Item. 8)

(a)(2) Financial Statement Schedules

All schedules are omitted as the required information is not applicable or is included in the consolidated financial statements or related notes.

(a)(3) Exhibits

The exhibits which are filed with this Form 10-K or which are incorporated herein by reference are set forth in the Exhibit Index which appears in this report beginning at page 77.

75

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Wakefield, Commonwealth of Massachusetts, on the 16^th day of March, 2009.

AMERICAN DENTAL PARTNERS, INC.
By:	/S/ GREGORY A. SERRAO
	Gregory A. Serrao Chairman, President and Chief Executive Officer

Pursuant to the requirement of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Capacity In Which Signed	Date
/S/ GREGORY A. SERRAO Gregory A. Serrao	Chairman, President and Chief Executive Officer and Director (principal executive officer)	March 16, 2009
/S/ BREHT T. FEIGH Breht T. Feigh	Executive Vice President – Chief Financial Officer and Treasurer (principal financial officer)	March 16, 2009
/S/ MARK W. VARGO Mark W. Vargo	Vice President – Chief Accounting Officer (principal accounting officer)	March 16, 2009
/S/ DR. ROBERT E. HUNTER Dr. Robert E. Hunter	Director	March 16, 2009
/S/ JAMES T. KELLY James T. Kelly	Director	March 16, 2009
/S/ LONNIE H. NORRIS Lonnie H. Norris	Director	March 16, 2009
/S/ GERARD M. MOUFFLET Gerard M. Moufflet	Director	March 16, 2009
/S/ DERRIL W. REEVES Derril W. Reeves	Director	March 16, 2009
/S/ STEVEN J. SEMMELMAYER Steven J. Semmelmayer	Director	March 16, 2009

76

EXHIBIT INDEX

Exhibit Number	Exhibit Description
3(a)	Second Amended and Restated Certificate of Incorporation of American Dental Partners, Inc. (1)
3(b)	Amended and Restated By-laws of American Dental Partners, Inc. (2)
3(c)	Amendment to Article 5 of the Company’s Amended and Restated By-laws (22)
4(a)	Form of Stock Certificate (1)
10(b)	American Dental Partners, Inc. Amended and Restated 1996 Stock Option Plan, as amended by Amendments No. 1, No. 2, No. 3 and No. 4 (3)
10(d)	Amendment No. 5 to American Dental Partners, Inc. Amended and Restated 1996 Stock Option Plan (4)
10(e)	Amendment No. 6 to American Dental Partners, Inc. Amended and Restated 1996 Stock Option Plan (5)
10(f)	American Dental Partners, Inc. 1996 Time Accelerated Stock Option Plan, as amended by Amendment No. 1 (2)
10(g)	American Dental Partners, Inc. Amended and Restated 1996 Affiliate Stock Option Plan, as amended by Amendments No.1, No. 2 and No. 3 (3)
10(h)	American Dental Partners, Inc. Amended and Restated 1996 Directors Stock Option Plan, as amended by Amendments No. 1, No. 2, No. 3 and No. 4 (3)
10(i)	Amendment No. 5 to Amended and Restated 1996 Directors Stock Option Plan (5)
10(j)	American Dental Partners, Inc. 1999 Restricted Stock Plan (6)
10(k)	Amendment No. 1 to American Dental Partners, Inc. Amended and Restated 1999 Restricted Stock Plan (4)
10(l)	Amended and Restated Employment and Non-Competition Agreement dated January 2, 2001, between American Dental Partners, Inc. and Gregory A. Serrao (7)
10(t)	Amendment No. 6 to American Dental Partners, Inc. Amended and Restated 1996 Stock Option Plan (8)
10(u)	Amendment No. 4 to American Dental Partners, Inc. Amended and Restated 1996 Affiliate Stock Option Plan (8)
10(v)	Amendment No. 2 to American Dental Partners, Inc. 1996 Time Accelerated Stock Option Plan (8)
10(z)	Amendment No. 7 to American Dental Partners, Inc. Amended and Restated 1996 Directors Stock Option Plan (10)
10(aa)	Amendment No. 7 to American Dental Partners, Inc. Amended and Restated 1996 Stock Option Plan (11)
10(bb)	Amendment No. 4 to American Dental Partners, Inc. 1997 Employee Stock Purchase Plan (11)
10(cc)	Amendment No. 2 to American Dental Partners, Inc. 1999 Restricted Stock Plan (11)
10(dd)	Amended and Restated Credit Agreement dated February 22, 2005 among American Dental Partners, Inc., the Lenders Named Herein and KeyBank National Association as Agent (12)
10(ee)	Amended and Restated Subsidiary Guaranty dated February 22, 2005 between The Subsidiaries of American Dental Partners, Inc. and KeyBank National Association (12)

77

EXHIBIT INDEX (cont.)

10(ff)	Amended and Restated Pledge and Security Agreement dated February 22, 2005 between American Dental Partners, Inc. and its subsidiaries and KeyBank National Association (12)
10(gg)	Amended and Restated Service Agreement dated January 1, 1999 between Smileage Dental Care, Inc. and Wisconsin Dental Group, S.C. (14)
10(hh)	Amendment No. 1 to Amended and Restated Service Agreement dated October 1, 2000 between Wisconsin Dental Group, S.C. and Northpark Dental Group, Inc. (14)
10(ii)	Amendment No. 2 to Amended and Restated Service Agreement dated January 1, 2001 between Wisconsin Dental Group, S.C. and Northpark Dental Group, Inc. (14)
10(jj)	Amendment No. 3 to Amended and Restated Service Agreement dated July 1, 2003 between Wisconsin Dental Group, S.C. and Northpark Dental Group, Inc. (14)
10(kk)	Amended Exhibit A-1 to Amended and Restated Service Agreement dated January 1, 2004 between Wisconsin Dental Group, S.C. and Northpark Dental Group, Inc. (14)
10(ll)	Amended 2005 Equity Incentive Plan (15)
10(mm)	Amended 2005 Directors Stock Option Plan (15)
10(nn)	Nonqualified Stock Option Agreement for 2005 Equity Incentive Plan (15)
10(oo)	Nonqualified Stock Option Agreement for 2005 Directors Stock Option Plan (15)
10(pp)	Written Description of the Company’s Executive Bonus Plan (16)
10(rr)	Fourth Amendment to Amended and Restated Service Agreement dated January 1, 2005 between Wisconsin Dental Group, S.C. and Northpark Dental Group, LLC (17)
10(uu)	Omnibus Amendment Agreement and Waiver, dated as of January 24, 2007, by and among American Dental Partners, Inc. and its Subsidiaries, the lending institutions party to the Credit Agreement, and KeyBank National Association, as administrative agent for the lenders (18)
10(vv)	Amendment No. 2 to Amended and Restated Credit Agreement dated as of February 21, 2007, by and among American Dental Partners, Inc. and its Subsidiaries, the lending institutions party to the Credit Agreement and JP Morgan Chase Bank, N.A., and KeyBank National Association, as administrative agent for the lenders (19)
10(ww)	Amendment to Service Agreement dated effective as of January 1, 2007 between Wisconsin Dental Group, S.C., and American Dental Partners of Wisconsin, LLC (20)
10(yy)	Service Agreement among Metro Dentalcare, PLC, Family Periodontic Specialists, P.L.C., Family Oral Surgery Specialists, PLC, Family Endodontic Specialists, PLC and Metropolitan Dental Management, Inc., with an effective date of September 25, 2007 (21)
10(zz)	Amendment No. 3 to Amended and Restated Credit Agreement among American Dental Partners, Inc. its subsidiaries, Key Bank National Associates and the lending institutions party to the Credit Agreement, dated September 25, 2007 (23)
10(aaa)	Term Loan Agreement among American Dental Partners, Inc., certain lending institutions and KBCM Bridge, LLC, dated September 25, 2007 (23)
10(bbb)	Forbearance Agreement among the Company and its subsidiary guarantors, the lending institutions party to the Credit Agreement and KeyBank National Association, as lender and as administrative agent, dated December 18, 2007 (24)
10(ccc)	Forbearance Agreement among the Company and its subsidiary guarantors, the lending institutions party to the Term Loan Agreement and KBCM Bridge LLC, as lender and as administrative agent, dated December 18, 2007 (24)

78

EXHIBIT INDEX (cont.)

10(ddd)	Settlement Agreement among the Company, PDHC, Ltd., PDG, P.A., Dental Specialists of Minnesota, P.A. and James Ludke, D.D.S., PLLC dated December 26, 2007 (25)
10(eee)	Standstill Agreement among the Company, PDHC, Ltd., PDG, P.A. and Dental Specialists of Minnesota, P.A. dated December 26, 2007 (25)
10(fff)	Amended and Restated Forbearance Agreement and Amendment No. 4 to the Credit Agreement with the lending institutions party to the credit agreement dated February 22, 2005, as amended and KeyBank National Association, as lender and as administrative agent, dated January 11, 2008, and letter dated January 11, 2008 (26)
10(ggg)	Amended and Restated Forbearance Agreement among the Company and its subsidiary guarantors, the lending institutions party to the Term Loan Agreement and KBCM Bridge LLC, as lender and as administrative agent, dated January 11, 2008, and letter dated January 11, 2008 (26)
10(hhh)	Amendment No. 5 to Amended and Restated Credit Agreement and Waiver among American Dental Partners, Inc., its subsidiary guarantors and the lending institutions party to the credit agreement dated February 22, 2005, as amended and KeyBank National Association, as lender and as administrative agent, dated February 21, 2008 (27)
10(iii)	Amendment No. 1 to Term Loan Agreement and Waiver among American Dental Partners, Inc., its subsidiary guarantors, the lending institutions party to the Term Loan Agreement and KBCM Bridge LLC, as lender and as administrative agent, dated February 21, 2008 (27)
10(jjj)	Definitive Settlement Agreement among American Dental Partners, Inc., PDHC, LTD., Northland Dental Partners, PLLC, PDG, P.A., and Dental Specialists of Minnesota, P.A., effective February 29, 2008 (28)
10(kkk)	Transition Services Agreement among PDG, P.A., Dentist Specialists of Minnesota, P.A., American Dental Partners, Inc., and PDHC, LTD., effective February 29, 2008 (28)
10(lll)	Mutual Release of Claims by and among American Dental Partners, Inc., PDHC, Ltd., Northland Dental Partners, PLLC, fka James Ludke, D.D.S., PLLC, PDG, P.A., and Dental Specialists of Minnesota, P.A. effective February 29, 2008 (28)
10(mmm)	First Amendment to Amended and Restated Employment and Non-Competition Agreement by and between the Company and Gregory A. Serrao effective January 1, 2009 (Filed Herewith)
10(nnn)	Amended and Restated Service Agreement among Northland Dental Partners, PLLC, Family Periodontic Specialists, P.L.C., Family Oral Surgery Specialists, PLC, Family Endodontic Specialists, PLC and PDHC, LTD effective January 1, 2009 (Filed Herewith)
10(ooo)	Amendment No. 6 to Amended and Restated Credit Agreement among the Company and its subsidiary guarantors and the lending institutions party to the credit agreement dated February 22, 2005 as amended and KeyBank National Association, as lender and as administrative agent, dated June 11, 2008 (29)
10(ppp)	Amendment No. 3 to Term Loan Agreement among the Company, its subsidiary guarantors, the lending institutions party to the term loan agreement and KBCM Bridge LLC, as lender and as administrative agent, dated June 11, 2008 (29)
10(qqq)	Amendment No. 7 to Amended and Restated Credit Agreement among the Company and its subsidiary guarantors and the lending institutions party to the credit agreement dated February 22, 2005 as amended and KeyBank National Association, as lender and as administrative agent, dated October 24, 2008 (30)

79

EXHIBIT INDEX (cont.)

10(rrr)	Amendment No. 3 to Term Loan Amendment among the Company, its subsidiary guarantors, the lending institutions party to the term loan agreement and KBCM Bridge LLC, as lender and as administrative agent, dated October 24, 2008 (30)
14.1	American Dental Partners, Inc. Code of Business Conduct and Ethics (13)
21	Subsidiaries of American Dental Partners, Inc., filed herewith.
23	Consent of PricewaterhouseCoopers LLP, filed herewith.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

(1) Incorporated by reference to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (Registration No. 333-39981) filed on December 31, 1997.

(2) Incorporated by reference to the Company’s Registration Statement on Form S-1 (Registration No. 333-39981) filed on November 12, 1997.

(3) Incorporated by reference to the Company’s Form 10-K filed on March 16, 2000.

(4) Incorporated by reference to the Company’s Form 10-Q filed on November 13, 2001.

(5) Incorporated by reference to the Company’s Form 10-Q filed on August 12, 2002.

(6) Incorporated by reference to the Company’s Form 10-Q filed on November 10, 1999.

(7) Incorporated by reference to the Company’s Form 10-K filed on March 23, 2001.

(8) Incorporated by reference to the Company’s Form 10-Q filed on May 15, 2003.

(9) Incorporated by reference to the Company’s Form 10-Q filed on November 5, 2003.

(10) Incorporated by reference to the Company’s Form 10-Q filed on May 13, 2004.

(11) Incorporated by reference to the Company’s Form 10-Q filed on August 11, 2004.

(12) Incorporated by reference to the Company’s Form 8-K filed on February 28, 2005.

(13) Incorporated by reference to the Company’s Form 10-K filed on March 17, 2004.

(14) Incorporated by reference to the Company’s Form 10-K filed on March 14, 2005.

(15) Incorporated by reference to the Company’s Form 8-K filed on July 18, 2005.

(16) Incorporated by reference to the Company’s Form 8-K filed on April 20, 2005.

(17) Incorporated by reference to the Company’s Form 10-K filed on March 10, 2006.

(18) Incorporated by reference to the Company’s Form 8-K filed on January 30, 2007.

(19) Incorporated by reference to the Company’s Form 8-K filed on February 22, 2007.

(20) Incorporated by reference to the Company’s Form 8-K filed on May 9, 2007.

(21) Incorporated by reference to the Company’s Form 8-K filed on September 25, 2007.

(22) Incorporated by reference to the Company’s Form 8-K filed on October 29, 2007.

(23) Incorporated by reference to the Company’s Form 10-Q filed on November 9, 2007.

(24) Incorporated by reference to the Company’s Form 8-K filed on December 19, 2007.

(25) Incorporated by reference to the Company’s Form 8-K filed on December 27, 2007.

(26) Incorporated by reference to the Company’s Form 8-K filed on January 14, 2008.

(27) Incorporated by reference to the Company’s Form 8-K filed on February 27, 2008.

(28) Incorporated by reference to the Company’s Form 8-K filed on March 5, 2008.

(29) Incorporated by reference to the Company’s Form 8-K filed on June 12, 2008.

(30) Incorporated by reference to the Company’s Form 8-K filed on October 28, 2008.

80

EX-10.(MMM)

Exhibit 10(mmm)

FIRST AMENDMENT TO

AMENDED AND RESTATED EMPLOYMENT

AND NON-COMPETITION AGREEMENT

This amendment is made effective January 1, 2009, between Gregory A. Serrao (the “Executive”) and American Dental Partners, Inc., a Delaware corporation (the “Company”).

Background Information

A. The Executive and the Company (the “Parties”) are parties to an Amended and Restated Employment and Non-Competition Agreement dated January 2, 2001 (the “Agreement”).

B. The Parties desire to modify the Agreement to cause it to comply with the final regulations promulgated under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), which governs non-qualified deferred compensation arrangements, and the Parties are entering into this amendment for that purpose.

Statement of the Agreement

The Parties hereby acknowledge the foregoing Background Information and agree as follows:

1. Definitions. Any capitalized terms used but not otherwise defined in this amendment shall have the respective meanings given those terms in the Agreement.

2. Bonus Payments. The last sentence in Section 5 of the Agreement is hereby amended to read in its entirety as follows:

Each bonus payable to the Executive under the Bonus Plan, if any, shall be paid not later than the first to occur of (i) 10 days after receipt of the audited financial statements for the applicable fiscal year or (ii) the date which is 75 days after the end of such fiscal year; provided that in no event shall such payment be made later than December 31 following the 75-day period after such applicable fiscal year.

3. Benefits. A new last sentence is hereby added to the end of Sections 6.02 and 6.06 of the Agreement to read as follows:

If any such benefits are taxable, the Company shall ensure that terms of the benefits will comply with Section 409A of the Code (“Section 409A”) and the Treasury Regulations and other guidance promulgated or issued thereunder.

4. Reimbursement of Expenses. A new last sentence is hereby added to the end of Section 6.03 to read as follows:

Such reimbursement shall occur no later than the end of the calendar year following the calendar year in which such expense was incurred.

5. Post-Termination Payments. New Sections 8.06, 8.07, and 8.08 are hereby added to the Agreement to read in their entirety as follows:

Section 8.06. Specified Employee Delay. If at the time of termination of his employment with the Company the Executive is a “specified employee” as defined in Section 409A, any payments under this Agreement due to a separation from service (as defined in Section 409A) and subject to Section 409A shall be delayed until the first business day of the seventh calendar month following the date of separation from service, or, if earlier, the date of death of the Executive (in either case, the “Payment Date”). Payments which are delayed pursuant to the preceding sentence (the “Delayed Payments”) shall be accumulated and paid on the Payment Date. In addition, on the Payment Date, the Company shall pay the Executive interest on each Delayed Payment, accrued from the original date such payment otherwise would have been payable but for the first sentence of this Section 8.06 (the “Original Payment Date”) to the Payment Date, at a rate equal to the U.S. prime rate of interest, as published by The Wall Street Journal, in effect on the Original Payment Date.

Section 8.07. Payments for Taxes. In accordance with Section 409A and the regulations issued thereunder, this Agreement shall permit the payment of amounts necessary to (a) satisfy the employment tax withholding obligations that arise under this Agreement prior to the date that payment may otherwise be made under this Agreement and/or (b) satisfy the excise tax or underpayment penalties owed under Section 409A in the event of a violation of Section 409A under this Agreement.

Section 8.08. Effect of Dispute. In the event of a genuine dispute between the Company and the Executive regarding the amount or timing of benefits under this Agreement, a delay in the payment of amounts under this Agreement shall not cause the Executive to violate Section 409A to the extent such delay satisfies the conditions set forth in Section 409A and applicable regulations thereunder.

6. Interpretation. In the event of any inconsistency between the provisions of the Agreement and this amendment, the provisions of this amendment shall control. Except as modified by this amendment, the Agreement shall continue in full force and effect. The headings of the various sections of this amendment are not part of the context of this amendment, are merely labels to assist in locating those sections, and shall be ignored in construing this amendment.

	AMERICAN DENTAL PARTNERS, INC.
/s/ Gregory A. Serrao	/s/ Breht T. Feigh
GREGORY A. SERRAO	Breht T. Feigh, Chief Financial Officer

- 2 -

EX-10.(NNN)

Exhibit 10(nnn)

AMENDED AND RESTATED

SERVICE AGREEMENT

AMONG

NORTHLAND DENTAL PARTNERS, PLLC

FAMILY PERIODONTIC SPECIALISTS, P.L.C.,

FAMILY ORAL SURGERY SPECIALISTS, PLC,

FAMILY ENDODONTIC SPECIALISTS, PLC

and

PDHC, LTD.

Effective Date: January 1, 2009

TABLE OF CONTENTS

		Page
ARTICLE I	DEFINITIONS	2
ARTICLE II	ENGAGEMENT AND AUTHORITY OF SERVICE COMPANY	2
2.1	Engagement	2
2.2	Authority	2
2.3	Patient Referrals	2
2.4	Internal Management of Provider	2
2.5	Practice of Dentistry	3
ARTICLE III	POLICY BOARD	3
3.1	Formation and Operation of Policy Board	3
3.2	Responsibilities of the Policy Board	4
3.3	Dental Decisions	5
ARTICLE IV	RESPONSIBILITIES OF SERVICE COMPANY	5
4.1	Clinics	5
4.2	Equipment	6
4.3	Laboratory Services	6
4.4	Supplies	6
4.5	Capital Investment	7
4.6	Support Services	7
4.7	Quality Assurance, Risk Management, and Utilization Review	7
4.8	Licenses and Permits	7
4.9	Personnel	7
4.10	Contract Negotiations	8
4.11	Billing and Collection	8
4.12	Provider Account	9
4.13	Financial Matters	10
4.14	Reports and Records	11
4.15	Recruitment of Provider Dentists	12
4.16	Service Company’s Insurance	12
4.17	License of Name and Marks	12
4.18	No Warranty	12

-i-

TABLE OF CONTENTS

(continued)

		Page
ARTICLE V	RESPONSIBILITIES OF PROVIDER	13
5.1	Organization and Operations	13
5.2	Provider Personnel	13
5.3	Professional Standards	14
5.4	Dental Care	14
5.5	Peer Review and Quality Assurance	14
5.6	Provider’s Insurance	15
5.7	Noncompetition	17
5.8	Use of Names	17
ARTICLE VI	CONFIDENTIALITY	18
6.1	Confidential and Proprietary Information	18
6.2	Use of Practice Statistics	18
ARTICLE VII	FINANCIAL ARRANGEMENTS	18
7.1	Clinic Expense Reimbursement	18
7.2	Repayment of Advances	19
7.3	Service Fee	19
7.4	Reasonable Value	19
7.5	Payment	19
7.6	Accounts Receivable	19
ARTICLE VIII	TERM AND TERMINATION	20
8.1	Initial and Renewal Term	20
8.2	Termination	20
8.3	Effects of Termination	22
8.4	Purchase Obligation	22
8.5	Closing of Purchase	23
ARTICLE IX	GENERAL	24
9.1	Nature of Services	24
9.2	Relationship of Parties	24
9.3	Notices	24
9.4	Execution of Documents	25

-ii-

TABLE OF CONTENTS

(continued)

		Page
9.5	Governing Law	25
9.6	Severability	25
9.7	Setoff	25
9.8	Remedies	25
9.9	Non-waiver	26
9.10	Indemnification	26
9.11	No Third Party Benefit	26
9.12	Captions	26
9.13	Genders and Numbers	26
9.14	Complete Agreement	26
9.15	Counterparts	27
9.16	Assignment	27
9.17	Successors	27
9.18	Force Majeure	27
9.19	Interpretation	27
9.20	Jury Trial Wavier	28
Exhibit A, Definitions		A-1

-iii-

AMENDED AND RESTATED

SERVICE AGREEMENT

This Amended and Restated Service Agreement (the “Agreement”) is made effective January 1, 2009, among Northland Dental Partners, PLLC, a Minnesota professional limited liability company, fka James Ludke, D.D.S., PLLC (“Northland”), its wholly owned subsidiaries, Family Periodontic Specialists, P.L.C., Family Oral Surgery Specialists, PLC, and Family Endodontic Specialists, PLC, all Minnesota professional limited liability companies (the “Subsidiaries,” and with Northland, collectively “Provider”), and PDHC, Ltd., a Minnesota corporation (“Service Company”).

Background Information

A. Provider operates dental practices providing dental services to the general public in and around the Minneapolis, Minnesota area through individual dentists who are licensed to practice dentistry in the State of Minnesota and who are employed or otherwise retained by Provider.

B. Service Company is engaged in the business of providing assets, personnel, and services to dental practices, other than such services as are directly related to or would improperly influence the provision of dental care or the practice of dentistry. Service Company’s services are intended to permit the dentists in such practices to focus their efforts primarily on rendering quality dental care.

C. Prior to December 31, 2008, Northland was the sole member in Metro Dentalcare, P.L.C., a Minnesota professional limited liability company (“Metro”), and Metro was the sole member in each Subsidiary. On December 31, 2008, Metro was merged with and into Northland, with the result that, among other things, Northland is now the sole member in each Subsidiary.

D. Metro, the Subsidiaries, and Metropolitan Dental Management, Inc., a Minnesota corporation (“MDMI”), are the parties to a Service Agreement dated September 25, 2007 (the “Metro Service Agreement”). Metro, the Subsidiaries, and MDMI have terminated the Metro Service Agreement as of the date of this Agreement.

E. Northland and Service Company are the parties to a Service Agreement dated January 1, 2008 (the “Original Agreement”), pursuant to which Provider engaged Service Company to provide such services as are necessary and appropriate for the day-to-day administration of the non-clinical aspects of Provider’s dental practice.

F. Northland desires to continue focusing its energies, expertise and time on the practice of dentistry and on the delivery of dental services to patients. Northland also desires to have Service Company provide its services to the dental practice formerly operated by Metro, which is now part of Northland’s practice, and to the dental practices operated by the Subsidiaries. As a result, Provider and Service Company (the “Parties”) desire to amend and restate the Original Agreement to provide for Service Company to provide its services to all of Provider’s dental practices, all as set forth in this Agreement.

1

Statement of Agreement

The Parties hereby acknowledge the accuracy of the foregoing Background Information and agree as follows:

ARTICLE I

DEFINITIONS

Capitalized terms used in this Agreement but not otherwise defined herein shall have the respective meanings given those terms in the attached Exhibit A.

ARTICLE II

ENGAGEMENT AND AUTHORITY OF SERVICE COMPANY

2.1 Engagement. Provider hereby engages Service Company as its sole and exclusive provider of the Services, and Service Company hereby accepts such engagement, subject at all times to the provisions of this Agreement.

2.2 Authority. Service Company shall have all power, authority, and responsibility reasonably necessary to provide the Services and carry out Service Company’s other obligations under this Agreement. Without limiting the foregoing, Service Company shall have the authority to provide the Services in any reasonable manner Service Company deems appropriate to meet the day-to-day requirements of the business functions of Provider. Provider shall give Service Company 30 days prior written notice of Provider’s intent to execute any agreement obligating Provider to perform Dental Care or otherwise creating a binding legal obligation on Provider. Unless an expense is expressly designated as a Service Company Expense in this Agreement, all expenses incurred by Service Company in providing Services pursuant to this Agreement shall be Clinic Expenses.

2.3 Patient Referrals. The Parties agree that the benefits to Provider hereunder do not require, are not payment for, and are not in any way contingent upon the referral, admission, treatment, or any other arrangement for the provision of any item or service offered by Service Company to patients of Provider in any facility, laboratory, or dental care operation controlled, managed, or operated by Service Company. Likewise, the Parties agree that Service Company is not engaging, does not intend to engage, and is not required to engage in any referrals of patients to Provider or any similar activities, and neither the Service Fee nor any other amount paid to Service Company by Provider pursuant to this Agreement is being paid as consideration for or in connection with any such activities.

2.4 Internal Management of Provider. Matters involving the tax planning, investment planning, and internal management, control, or finances of Provider, including without limitation the compensation of dentists employed or retained by Provider, shall remain the sole and exclusive responsibility of Provider and its members.

The operations of Northland and the Subsidiaries, as Provider under this Agreement, shall to the extent practicable be treated as one operation for purposes of this Agreement, including without limitation for purposes of budgeting. Northland and the Subsidiaries shall be jointly and severally liable for all of Provider’s obligations to Service Company under this Agreement. However, Northland shall have the sole responsibility and authority for all decisions, consents, appointments, and other actions (hereinafter simply “actions”) to be made, taken, or given by Provider pursuant to or in connection with this Agreement, and each Subsidiary hereby irrevocably appoints Northland as such Subsidiary’s attorney-in-fact and agent, with full power of substitution, to take all such actions without any further involvement of such Subsidiary. All such actions shall be binding on the Subsidiaries, and Service Company shall have the absolute right to rely on all such actions taken by Northland.

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2.5 Practice of Dentistry. The Parties acknowledge and agree that: (a) Service Company is not authorized or qualified to engage in any activity that may be construed or deemed to constitute the practice of dentistry; and (b) notwithstanding anything in this Agreement to the contrary: (i) Provider, through its dentists, shall be solely responsible for and shall have complete authority, responsibility, supervision, and control over the provision of all Dental Care and that all Dental Care shall be provided and performed exclusively by or under the supervision of dentists as such dentists, in their sole discretion, deem appropriate, consistent with applicable law; (ii) Service Company shall not have or exercise any control or supervision over the provision of Dental Care; and (iii) to the extent any act or service required of Service Company under this Agreement is reasonably likely to be construed by a court of competent jurisdiction or by any applicable governmental agency to constitute the practice of dentistry, the requirement to perform that act or service by Service Company shall be deemed waived and unenforceable. For purposes of this Agreement and as the context permits, the term “dentist” shall be deemed to include those individuals licensed by the Minnesota Board of Dentistry to practice general dentistry or a dental care specialty such as orthodontics, endodontics, periodontics, prosthodontics, pediatric dentistry, oral surgery, public health dentistry, and oral pathology.

ARTICLE III

POLICY BOARD

3.1 Formation and Operation of Policy Board. The Parties hereby establish a policy board (the “Policy Board”) which shall be responsible for developing and implementing management and administrative policies for the overall operation of Clinics, subject to Section 3.3, below. The Policy Board shall initially consist of six members, of which three members shall be designated by Service Company, in its sole discretion, and three members shall be designated by Provider, in its sole discretion; provided that, unless otherwise agreed by the Parties the Policy Board members designated by Provider shall be licensed dentists employed by Provider. Each Party shall have the right to designate, remove, and replace its Policy Board designees at any time and from time to time upon notice to the other Party.

Any decision made by a Party’s Policy Board representatives shall be binding on that Party. Except as may otherwise be expressly provided in this Agreement or any rules, bylaws, or regulations adopted by the Policy Board, the act of a majority of the members of the Policy Board shall be the act of the Policy Board. The Policy Board’s decisions may be evidenced by either minutes of a Policy Board meeting or written action taken by the Policy Board members making the decision; provided that no written action signed by less than all of the Policy Board members shall be effective unless notice of such action is given to each Policy Board member who is not signing such action at least two business days prior to the effective date of such action. The decisions, resolutions, actions or recommendations of the Policy Board within its authority shall be implemented by Service Company or Provider, as appropriate.

The Policy Board shall hold regular meetings at such places and at such times (not less often than quarterly) as the Policy Board may determine from time to time. Special Policy Board meetings may be called by either Party or any two Policy Board members; provided that notice of any meeting which is not a regularly scheduled meeting shall be given to all Policy Board members at least five business days prior to the meeting, unless such notice is waived by the Policy Board members. Policy Board meetings may be held through the use of remote communications equipment so long as all members can participate with each other clearly during the meeting.

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3.2 Responsibilities of the Policy Board. The Policy Board shall have the following duties, responsibilities, and authority:

(a) Capital Improvements and Expansion. Any renovation and expansion plans and capital equipment expenditures with respect to Clinics shall be reviewed and approved by the Policy Board and shall be based upon economic feasibility, dentist support, productivity, and then-current market conditions.

(b) Annual Budgets. All annual capital and operating budgets prepared in accordance with Section 4.13(a) by Service Company (in consultation with Provider) shall be subject to the review, comment, and approval of the Policy Board. Notwithstanding the foregoing sentence, such budgets shall be subject to the review, comment, and approval of Parent.

(c) Marketing and Advertising. All advertising and other marketing of the dental services performed at any Clinic shall be subject to the prior review and approval of the Policy Board.

(d) Patient Fees; Collection Policies. Subject to Section 3.3, as a part of the annual operating budget, in consultation with Provider and Service Company, the Policy Board shall review and make recommendations concerning the fee schedules and collection policies for all dental and ancillary services rendered by Provider. Approval of the fee schedules shall be a Dental Decision.

(e) Provider and Payor Relationships. Subject to Section 3.3: (i) decisions regarding the establishment or maintenance of contractual relationships between Provider and outside or institutional dental care providers and third-party payors shall be subject to the review and recommendations of the Policy Board; and (ii) all discounted fee practices and schedules, including individual provider or specialty discount arrangements, preferred provider organization discounts and capitated fee arrangements, shall be subject to the review and recommendations of the Policy Board. Where there is no clear methodology for the allocation of capitated fees among Provider’s Dental Care Professionals, the Policy Board shall recommend the methodology intended to result in the equitable and appropriate allocation of all related fees consistent with the type and utilization of Dental Care covered under the capitation arrangement.

(f) Strategic and Operational Planning. The Policy Board shall review and approve the long-term strategic and short-term operational goals, objectives and plans developed by Service Company.

(g) Capital Expenditures. The Policy Board shall determine the priority of major capital expenditures. Notwithstanding the preceding sentence or any other provisions of this Agreement to the contrary, all capital expenditures must be approved by Parent.

(h) Personnel Planning. The Policy Board shall review and approve personnel manpower plans for Provider and Clinic-level support personnel developed by Service Company.

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(i) Risk Management. The Policy Board shall cause to be developed and implemented claims reporting procedures intended to ensure timely reporting to each Party of all patient claims made against either Party or its employees or independent contractors, as well as procedures for the timely review and monitoring of such claims, including without limitation reporting the resolution of such claims, including any Provider reimbursement decisions (collectively, the “Risk Management Procedures”); provided that any Dental Care related patient concern or claims reimbursement decision shall be a Dental Decision.

(j) Environmental Health and Safety. The Policy Board shall review, approve and monitor environmental and workplace health and safety guidelines, the goal of which is to achieve compliance with current national, state and local laws and regulations regarding environmental and workplace health and safety.

(k) Emergency Care Services. The Policy Board shall review, approve and periodically make suggestions for improving (i) the organization and delivery of emergency Dental Care by Provider, and (ii) the process and guidelines for ensuring an appropriate response by Provider to dental and in-Clinic medical emergencies as they may occur from time to time.

(l) Financial Review. The Policy Board shall review and monitor the financial performance of Provider with respect to the attainment of its budgeted goals.

(m) Provider Acquisitions. The Policy Board shall have the authority to approve or disapprove any merger or combination with or acquisition of any dental practice by Provider.

(n) Other. The Policy Board shall have such other duties, responsibilities, and authority as may be set forth in this Agreement or agreed upon by the Parties from time to time.

3.3 Dental Decisions. Notwithstanding the preceding section or any other provisions of this Agreement to the contrary, all Dental Decisions (defined below) shall be made solely by the dentist members of the Policy Board; provided that non-dentist members of the Policy Board may participate in the related analysis and discussion. For purposes of this Agreement, “Dental Decisions” shall mean decisions relating directly to: (a) types and levels of Dental Care to be provided and methodologies and techniques for the provision of Dental Care; (b) recruitment of dentists for Provider, including the evaluation of the background, experience, qualifications, specialties, and other credentials of such recruited individuals; (c) fee schedules for Provider’s services, including without limitation Provider’s usual and customary fee schedule; (d) to the extent required by applicable law, third party payor contracting; and (e) any other Dental Care related functions or decisions agreed upon by the Parties.

ARTICLE IV

RESPONSIBILITIES OF SERVICE COMPANY

During the Term, Service Company shall provide all such Services as are necessary and appropriate for the day-to-day administration of the business aspects of Provider’s operations, including without limitation those services set forth in this Article, provided that all such services shall be subject to the applicable Budget.

4.1 Clinics

(a) Service Company shall lease, acquire or otherwise procure Clinics at such locations as are approved by the Policy Board, taking into consideration the professional concerns of Provider. The expenses associated with any such leasing, acquisition, or procurement shall be Clinic Expenses. Any Clinic procured by Service Company for use by Provider shall be procured at commercially reasonable rates. Any move from a present Provider practice location shall be made only after Service Company has received Provider Consent.

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(b) In the event Provider is the lessee of a Clinic under a lease with an unrelated and nonaffiliated lessor, Service Company may require Provider to assign such lease to Service Company upon receipt of consent from the lessor. Provider shall exercise all reasonable efforts to assist in obtaining the lessor’s consent to the assignment. Any expenses incurred in the assignment shall be Clinic Expenses.

(c) Service Company shall be responsible for the repair and maintenance of each Clinic, in a manner consistent with Service Company’s responsibilities under the terms of any lease or other use arrangement relating to that Clinic, the costs and expenses of which shall be a Clinic Expense; provided that the costs and expenses of any repairs or maintenance necessitated by the negligence or willful misconduct of dentists or other personnel employed or otherwise retained by Provider shall be a Provider Expense, but one that is ignored for purposes of calculating the Calculated Margin and that therefore must be paid out of the Provider Retained Earnings.

4.2 Equipment

(a) Service Company shall provide all non-dental equipment, fixtures, office supplies, furniture and furnishings deemed reasonably necessary by Service Company for the operation of each Clinic and reasonably necessary for the provision of Dental Care.

(b) Service Company shall provide, finance, or cause to be provided or financed such dental related equipment as is reasonably required by Provider. Provider shall have final authority in all dental equipment selections, subject to economic feasibility as set forth in the budgets approved pursuant to this Agreement. Service Company may, however, advise Provider on the relationship between its dental equipment decisions and the overall administrative and financial operations of the Clinics. Except for Special Dental Supplies, all dental and non-dental equipment acquired for the use of Provider shall be owned by Service Company.

(c) Service Company shall be responsible for repairing, maintaining, and keeping in reasonably good condition (ordinary wear and tear excepted), and replacing (as necessary), all equipment provided by Service Company under this Agreement, ordinary wear and tear excepted, the cost and expense of which shall be a Clinic Expense; provided that the costs and expenses of any repairs, maintenance and replacement necessitated by the negligence or willful misconduct of dentists or other personnel employed or otherwise retained by Provider shall be a Provider Expense, but one that is ignored for purposes of calculating the Calculated Margin and that therefore must be paid out of the Provider Retained Earnings.

4.3 Laboratory Services. Unless otherwise prohibited by federal or state law, Service Company shall arrange for laboratory services (consistent with the requirements of applicable law), including without limitation dental appliance laboratory service, pathology laboratory service, medical laboratory service, and such other laboratory services as are reasonably necessary and appropriate for the operation of each Clinic and the provision of Dental Care therein.

4.4 Supplies. Service Company shall order, procure, purchase, own, and provide to Provider a reasonable inventory of Ordinary Dental Supplies and office supplies as are reasonably necessary and appropriate for the operation of each Clinic and the provision of Dental Care therein. Unless otherwise prohibited by federal or state law, Service Company shall also order, procure, purchase and

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provide on behalf of and as agent for Provider all reasonable Special Dental Supplies required by Provider to provide Dental Care, the cost of which shall be a Clinic Expense. Service Company shall exercise commercially reasonable efforts to ensure that each Clinic is at all times adequately stocked with all such supplies. The ultimate oversight, supervision and ownership of (a) all office and Ordinary Dental Supplies is and shall remain the sole responsibility of Service Company, and (b) all Special Dental Supplies is and shall remain the sole responsibility of Provider.

4.5 Capital Investment. Access to all needed working capital and capital expenditures approved by the Policy Board will be provided by Service Company. Service Company shall determine the source of capital to be invested, which may include (a) inter-company borrowings from Parent, and (b) borrowings, leases, or other financing methods through independent third-party financial institutions.

4.6 Support Services. Service Company shall provide or arrange for all printing, stationery, forms, postage, duplication, facsimile, photocopying, and data transmission and processing services, information services (including providing a computer system for clinic functions, billing, communications, and management), and other support services as are reasonably necessary and appropriate for the operation of each Clinic and the provision of Dental Care therein.

4.7 Quality Assurance, Risk Management, and Utilization Review. Service Company shall assist Provider in Provider’s establishment and implementation of procedures to ensure the consistency, quality, appropriateness, and necessity of Dental Care provided by Provider, and shall provide administrative support for Provider’s overall quality assurance, risk management, and utilization review programs. Service Company shall have the authority to monitor Provider’s level of conformance with such procedures and to report its findings to Provider.

4.8 Licenses and Permits. Although Provider shall be solely responsible for obtaining and maintaining all federal, state, and local licenses and regulatory permits required for or in connection with the operation of Provider and in connection with the operation of all dental equipment located in each Clinic, Service Company shall assist Provider with the implementation of a plan designed to ensure that all such licenses and permits are obtained and shall provide reasonable assistance to Provider in obtaining the same. Service Company also shall maintain all licenses and permits required for all equipment (existing and future) located at each Clinic.

4.9 Personnel. Except as provided in Section 5.2(d) of this Agreement and subject to Section 3.3: (a) Service Company shall employ or otherwise retain and shall be responsible for recruiting, hiring, and terminating all management, administrative, supervisory, clerical, secretarial, bookkeeping, accounting, and payroll personnel, laboratory technicians and personnel, dental hygienists, dental assistants, and other non-dentist personnel as Service Company deems necessary and appropriate for Service Company’s performance of its duties and obligations under this Agreement; and (b) the selection, training and supervision of all such personnel to be employed by Service Company shall be the responsibility of Service Company. Consistent with reasonably prudent personnel management policies, Service Company shall seek and consider the advice, input, and requests of Provider in regard to personnel matters. Service Company shall have sole responsibility for determining the salaries and fringe benefits of such non-professional personnel and for withholding all appropriate amounts for income taxes, unemployment insurance, social security, workers’ compensation, and any other withholding required by applicable law.

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4.10 Contract Negotiations. Subject to Section 3.2(e), above, Service Company shall advise Provider with respect to and negotiate, either directly or on Provider’s behalf, as appropriate, such contractual arrangements with third parties as are reasonably necessary and appropriate for Provider’s provision of Dental Care, including without limitation negotiated price agreements with third party payors, alternative delivery systems, or other purchasers of group dental care services; provided that no contract or arrangement regarding the provision of Dental Care shall be entered into without Provider Consent.

4.11 Billing and Collection. On behalf of and for the account of Provider, Service Company shall establish and maintain credit and billing and collection policies and procedures, and shall exercise reasonable efforts to bill and collect in a timely manner (and to the extent permitted by applicable law) all professional and other fees for all billable Dental Care provided by Dental Care Professionals. Service Company shall advise and consult with Provider regarding the fees for Dental Care provided by Provider (including any related discounting policy), it being understood, however, that Provider shall establish the fees (subject to Section 3.2(d), above) to be charged for Dental Care and that Service Company shall have no authority whatsoever with respect to the establishment of such fees. In connection with the billing and collection services to be provided hereunder, Provider hereby grants to Service Company, to the extent permitted by applicable law, throughout the Term (and thereafter as provided in Section 8.3), an exclusive special power of attorney and appoints Service Company, to the extent permitted by applicable law, as Provider’s exclusive true and lawful agent and attorney-in-fact, and Service Company hereby accepts such special power of attorney and appointment, for the following purposes:

(a) To bill Provider’s patients, in Provider’s name and on Provider’s behalf, for all billable Dental Care provided by or on behalf of Provider to patients.

(b) To bill, in Provider’s name and on Provider’s behalf, all claims for reimbursement or indemnification from insurance companies and plans, all state or federally funded dental benefit plans, and all other third party payors or fiscal intermediaries for all covered billable Dental Care provided by or on behalf of Provider to patients.

(c) To collect and receive, in Provider’s name and on Provider’s behalf, all accounts receivable generated by such billings and claims for reimbursement, to administer such accounts including, but not limited to, extending the time of payment of any such accounts for cash, credit or otherwise; discharging or releasing the obligors of any such accounts; suing, assigning or selling at a discount such accounts to collection agencies; or taking other measures to require the payment of any such accounts; provided, however, that extraordinary collection measures, such as filing lawsuits, discharging or releasing obligors, or assigning or selling accounts at a discount to collection agencies shall not be undertaken without Provider Consent.

(d) To deposit all amounts collected into the Provider Account which shall be and at all times remain in Provider’s name. Provider shall transfer and deliver to Service Company all funds received by Provider from patients or third party payors for Dental Care. Upon receipt by Service Company of any funds from patients or third party payors or from Provider for Dental Care pursuant to this Agreement, Service Company shall promptly deposit the same into the Provider Account.

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(e) To take possession of, endorse in the name of Provider, and deposit into the Provider Account any notes, checks, money orders, insurance payments, and any other instruments received in payment of accounts receivable for Dental Care.

(f) To sign checks, drafts, bank notes or other instruments on behalf of Provider, and to make withdrawals from the Provider Account for payments specified in this Agreement and as requested from time to time by Provider.

(g) To designate, remove, and change such signatories on the Provider Account as Service Company deems necessary or appropriate from time to time.

Upon request of Service Company, Provider shall execute and deliver to the financial institution at which the Provider Account is maintained such additional documents or instruments as Service Company may reasonably request to evidence or effect the special power of attorney granted to Service Company by Provider pursuant to this section and Section 4.12. The special power of attorney granted herein is coupled with an interest and shall be irrevocable except with Service Company’s written consent. The irrevocable power of attorney shall expire when this Agreement has been terminated, all accounts receivable purchased by Service Company pursuant to Section 7.6, if any, have been collected, and all amounts due to Service Company as described in Article VII have been paid.

4.12 Provider Account

(a) Power of Attorney. Service Company shall have access to the Provider Account solely for the purposes stated herein and shall use all funds on deposit therein in accordance with the terms of this Agreement. Provider hereby grants to Service Company an exclusive special power of attorney and appoints Service Company as Provider’s true and lawful agent and attorney-in-fact, throughout the Term (and thereafter as provided in Section 8.3), and Service Company hereby accepts such special power of attorney and appointment, to make withdrawals from the Provider Account for: (i) payments described in this Agreement; and (ii) such other purposes as Service Company deems appropriate (consistent with this Agreement), including without limitation daily transfers to one or more accounts owned by Service Company or its affiliates as part of cash management procedures established or adopted by Service Company or its affiliates from time to time; provided that to the extent that the aggregate funds withdrawn by Service Company from the Provider Account pursuant to this section (the “Aggregate Withdrawals”) exceed the aggregate amounts paid or payable to Service Company under this Agreement (the “Aggregate Payments”), then such excess shall be deemed to be held by Service Company as agent for Provider. Notwithstanding this exclusive special power of attorney, Provider may, upon reasonable advance notice to Service Company, request that Service Company draw checks on the Provider Account for Provider Expenses and such other amounts as may be due to Provider under this Agreement, subject to Section 4.12(b) of this Agreement.

(b) Priority of Payments. Payments described in this Agreement to be made from funds in the Provider Account shall be applied (to the extent available) in the following order of priority:

(i) Reimbursement of Clinic Expenses to Service Company pursuant to Section 7.1;

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(ii) Repayment of advances made by Service Company to Provider pursuant to Section 7.2;

(iii) Payment of the Service Fee to Service Company pursuant to Section 7.3;

(iv) Payment of Provider Expenses other than those to be paid out of Provider Retained Earnings; and

(v) Payment of remaining Provider Expenses and, to the extent requested by Provider, distribution of the remaining Provider Retained Earnings.

(c) Further Assurances. Promptly upon request by Service Company, Provider shall execute a separate power of attorney in form reasonably satisfactory to Service Company for the purpose of further confirming or evidencing the rights granted to Service Company under Sections 4.11 and 4.12.

4.13 Financial Matters

(a) Annual Budget. At least 30 days prior to the commencement of each calendar year, Service Company, in consultation with Provider, shall prepare and deliver to the Policy Board for its review and approval a proposed Budget, setting forth an estimate of Provider’s revenue and expenses for the upcoming calendar year (including without limitation the Service Fee associated with the services provided by Service Company hereunder).

In the event that a proposed Budget is not approved by either the Policy Board or Parent (pursuant to Section 3.2(b)), Service Company, in consultation with Provider, shall promptly revise such Budget, taking into consideration the comments of the Policy Board or Parent, as applicable, and shall deliver such revised Budget to the Policy Board for approval. In the event that a proposed Budget has not been approved by both the Policy Board and Parent by the beginning of the calendar year, then, until a new Budget has been approved by both the Policy Board and Parent, the Budget for the prior year shall be deemed to be adopted as the Budget for the then-current year except that (i) the Budget for Clinic Expenses shall be adjusted to account for any changes beyond the reasonable control of Service Company, including without limitation changes in laboratory fees or supply costs and automatic increases in rent or other occupancy costs, (ii) Service Company shall have the right to adjust the Budget for reasonable compensation increases for its employees, for changes in employee benefits or related costs, and for expenses related to new employees reasonably necessary for Service Company to perform the Services, and (iii) the Budget for capital expenditures shall include only expenditures for maintenance or emergency needs and any other capital expenditures expressly approved by both the Policy Board and Parent from time to time.

Notwithstanding any provisions of this Agreement to the contrary, for purposes of all calculations related to the Service Fee for any period the amount of Provider Expense used in such calculations for that period shall be determined by applying the methodology for compensating dentists and paying other budgeted Provider Expenses contained in the then-applicable Budget (e.g., if the Budget requires a dentist to be paid a base salary, that salary shall be used for purposes of such calculations, and if the Budget requires that a dentist be paid formula-based compensation, that formula shall be used for purposes of such calculations); provided that the Parties shall exercise reasonable efforts to adjust the Budget from time to time as necessary to

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reflect changes in Provider’s staff of dentists and/or compensation and/or other budgeted Provider Expenses (it being understood that neither Party shall be obligated to agree to Budget adjustments deemed by such Party to be unreasonable under the then-relevant circumstances).

(b) Accounting and Financial Records. Service Company shall establish and administer accounting policies and procedures, internal controls, and systems for the development, preparation and safekeeping of administrative or financial records and books of account relating to the business and financial affairs of Provider, all of which shall be prepared and maintained in accordance with GAAP. Service Company shall prepare and deliver to Provider, within 45 days after the end of each of the first three calendar quarters during each year and within 90 days after the end of each calendar year, a balance sheet and an income statement reflecting the financial status of Provider in regard to the provision of Dental Care as of the end of each such calendar quarter and each such calendar year, as applicable, all of which shall be prepared in accordance with GAAP. In addition, Service Company shall prepare or assist in the preparation of any other financial statements or records as Provider may reasonably request.

(c) Review of Expenditures. One of Provider’s representatives to the Policy Board shall review all expenditures related to the operation of Provider, but such representative shall not have the power to prohibit or invalidate any expenditure.

(d) Tax Matters

(i) General. Service Company shall prepare or arrange for the preparation of all tax returns and reports of Provider required by applicable law, which returns and reports shall be prepared by an accountant reasonably acceptable to Provider.

(ii) Sales and Use Taxes. Service Company and Provider acknowledge and agree that to the extent that any of the services to be provided by Service Company hereunder may be subject to any state sales and use taxes, Service Company may have a legal obligation to collect such taxes from Provider and to remit the same to the appropriate tax collection authorities. Provider agrees to pay any and all applicable state sales, use, gross receipts, and other similar taxes and charges (other than taxes on Service Company’s net income) with respect to any amount paid to Service Company hereunder and that such amounts shall be a Clinic Expense.

4.14 Reports and Records

(a) Dental Records. Service Company shall establish, monitor and maintain procedures and policies for the timely creation, preparation, filing and retrieval of all dental records generated by Provider in connection with Provider’s provision of Dental Care; and, subject to applicable law, shall ensure that dental records are promptly available to dentists and any other appropriate persons. All such dental records shall be retained and maintained in accordance with all applicable state and federal laws relating to the confidentiality and retention thereof.

(b) Other Reports and Records. Service Company shall timely create, prepare, and file such additional reports and records as are reasonably necessary and appropriate for Provider’s provision of Dental Care and shall analyze and interpret such reports and records upon the reasonable request of Provider.

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4.15 Recruitment of Provider Dentists. Upon Provider’s request, Service Company shall perform all services reasonably necessary and appropriate in connection with the recruitment of dentists. Service Company shall provide Provider with model agreements to document Provider’s employment, retention or other service arrangements with such individuals. However, it shall be and remain the sole and complete responsibility of Provider to interview, select, contract with (subject to Section 5.2, below), supervise, control and terminate all dentists performing Dental Care or other professional services, and Service Company shall have no authority whatsoever with respect to such activities.

4.16 Service Company’s Insurance. Throughout the Term, Service Company shall, as a Clinic Expense, obtain and maintain with commercial carriers, or through self-insurance, or some combination thereof: (a) appropriate worker’s compensation coverage for the employees of Service Company provided pursuant to this Agreement; and (b) professional, casualty and comprehensive general liability insurance covering Service Company, Service Company’s personnel, and all of Service Company’s equipment in such amounts and on such terms and conditions as Service Company deems appropriate. Service Company shall cause Provider to be named as an additional insured on Service Company’s property and casualty insurance policies. Upon the request of Provider, Service Company shall provide Provider with a certificate evidencing such insurance coverage. Service Company may also carry, at Service Company’s option and as a Clinic Expense, key person life and disability insurance on any member or dentist employee of Provider in amounts determined to be reasonable and sufficient by Service Company. Service Company shall be the owner and beneficiary of any such insurance.

4.17 License of Name and Marks. Service Company hereby grants to Provider, for the Term, a non-exclusive royalty-free license to use the Approved Names (as defined in Section 5.8) and all related marks and logos owned by Service Company for the purpose of fulfilling its obligations hereunder, including without limitation providing Dental Care to its patients (it being understood and agreed that Service Company or one of its affiliates owns such names, marks and logos).

4.18 No Warranty. Provider acknowledges that Service Company has not made and will not make any representations or warranties, express or implied, regarding Service Company’s services under this Agreement or the results of those services, including without limitation any representations or warranties that the Services will result in any particular amount or level of dental practice or income to Provider.

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ARTICLE V

RESPONSIBILITIES OF PROVIDER

5.1 Organization and Operations. As a continuing condition of Service Company’s obligations under this Agreement, Provider shall at all times during the Term: (a) be and remain legally organized and operated to provide Dental Care in a manner consistent with all state and federal laws; (b) operate and maintain within the Practice Territory a full time practice of dentistry providing Dental Care in compliance with all applicable federal, state, and local laws, rules, regulations, ordinances, and orders; (c) maintain and use its best efforts to enforce its articles or certificate of incorporation (or other instrument of organization), bylaws, member control agreements, and other organizational documents (hereafter in this Section 5.1 simply “organizational documents”) in the respective forms provided to Service Company prior to execution of this Agreement; (d) have at least one executive officer at the level of vice president or above who is also an active practicing dentist employee of Provider; (e) maintain and use its best efforts to enforce the written employment agreements and independent contractor agreements described in Section 5.2(a), below; and (f) not, without Service Company Consent, (i) amend any of its employment agreements or organizational documents in any material respect or waive any material rights thereunder, or (ii) engage in any transaction constituting a merger, consolidation, reorganization, sale or purchase of assets outside of the ordinary course of business, liquidation, or dissolution. Provider hereby acknowledges that Service Company would not have entered into this Agreement but for Provider’s covenant to maintain such organizational documents and employment agreements, and Provider shall pay to Service Company, in addition to the amounts set forth in Article VII, any damages, compensation, payment, or settlement amounts received by Provider from a dentist who receives consideration directly or indirectly from Service Company or Parent as an inducement to become or remain affiliated with Service Company through his employment by Provider and who thereafter terminates his employment agreement in violation thereof or whose employment agreement is terminated by Provider for cause.

5.2 Provider Personnel

(a) Dentist Personnel. Provider shall retain, as a Provider Expense and not as a Clinic Expense, that number of dentists during the Term which are necessary and appropriate, in Provider’s sole discretion, to provide Dental Care to reasonably meet the demand therefor. Provider shall cause each dentist retained by Provider to hold and maintain a valid and unrestricted license to practice dentistry in the State of Minnesota, including without limitation any licenses required for the provision of any specialty dental services, together with all necessary or appropriate board or other certifications. Provider shall be responsible for paying the compensation and benefits, as applicable, for all dentists and any other dentist personnel or other contracted or affiliated dentists, and for withholding all sums for income tax, unemployment insurance, social security, or any other withholding required by applicable law. Service Company may, on behalf of Provider, administer the compensation and benefits with respect to such individuals in accordance with the written agreement between Provider and each dentist. Service Company shall neither control nor direct any dentist in the performance of Dental Care for patients. Provider shall provide to Service Company evidence of such licensing, certifications, and other credentials of the dentists retained by Provider as Service Company may request from time to time.

(b) Provider and Patient Scheduling. Provider shall, with the reasonable assistance of Service Company: (i) develop a set of Provider and patient scheduling guidelines and a corresponding scheduling system; and (ii) support Service Company in the implementation of such guidelines and effective operation of such system.

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(c) Paid Hours Reporting. Provider shall support the development and effective operation by Service Company of a system to monitor and report hours of dental service provided.

(d) Non-Dentist Dental Care Personnel. Notwithstanding any other provision of this Agreement to the contrary, all non-dentist personnel who provide Dental Care, including without limitation dental hygienists, dental assistants and other clinical staff (whether licensed or unlicensed), and other licensed or certified personnel, shall be under such control, supervision and direction of Provider and the dentists retained by Provider in the performance of or in connection with Dental Care for patients as is required under applicable state law and regulations.

5.3 Professional Standards. As a continuing condition of Service Company’s obligations hereunder, each dentist retained by Provider to provide Dental Care must: (a) have and maintain a valid and unrestricted license to practice dentistry in the State of Minnesota; and (b) comply with, be controlled and governed by, and otherwise provide Dental Care in accordance with applicable federal, state, and municipal laws, rules, regulations, ordinances and orders, and the ethics and standard of care of the dental profession. All specialty Dental Care shall be provided by a dentist who is either board certified or board eligible in that specialty or by another dentist licensed to provide such specialty Dental Care operating under the general supervision of a dentist who is either board certified or board eligible in that specialty.

5.4 Dental Care. Subject to Service Company’s responsibilities under §4.9 of this Agreement, Provider shall ensure that dentists are available in sufficient numbers as are necessary or appropriate to provide Dental Care to reasonably meet the demand for such Dental Care. In addition, Provider shall provide advice, input, and requests to Service Company for its consideration with respect to the recruiting and staffing of dental hygienists and other licensed or unlicensed non-dentist dental care personnel (including unlicensed dental assistants and other clinical staff) necessary or appropriate to provide Dental Care to reasonably meet the demand for such Dental Care. In the event that dentists employed by, or members of, Provider are not available to provide Dental Care coverage, Provider shall engage and retain dentists on a temporary coverage basis, which dentists shall meet or exceed the qualifications required for Provider’s Dental Care Professionals under this Agreement. All costs and expenses associated with the retention of such temporary coverage shall be Provider Expenses. With the assistance of the Service Company, Provider and the dentists shall be responsible for scheduling dentist and non-dentist dental care personnel coverage of all dental procedures. Provider shall cause all dentists to exert their best efforts to develop and promote Provider in such a manner as to ensure Provider is able to serve the diverse needs of the community. Provider shall organize and maintain a high quality, cost-effective process for ensuring that patients will have timely access to emergency Dental Care on a 24-hour per day, seven day per week basis.

5.5 Peer Review and Quality Assurance. Provider shall conduct its peer review and quality assurance activities in a manner that is consistent with maintaining the confidentiality of the related processes, actions, and documentation.

(a) Provider shall designate a committee of dentists to function as a dental peer review committee to review credentials of potential dentist recruits, periodically review the credentials of Provider’s existing dentists, determine the practice privileges of the dentists retained by Provider, perform quality assurance, utilization review, and Provider profiling functions, and otherwise

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resolve dental competency issues. The dental peer review committee shall function pursuant to formal written policies and procedures established by Provider upon consultation with and assistance of Service Company.

(b) Provider also shall adopt a quality assurance program to monitor and evaluate the quality and cost-effectiveness of the Dental Care provided by Provider’s dentists and by non-dentist personnel providing Dental Care under the supervision of Provider’s dentists. Upon request of Provider, Service Company shall provide administrative assistance to Provider in performing its quality assurance activities. All costs and expenses incurred in connection with this Section 5.5(b) shall be deemed Clinic Expenses.

(c) Provider shall cooperate fully with Service Company in an effort to achieve and maintain full accreditation status for Provider. For purposes of facilitating accreditation and other related processes and without limiting Provider’s responsibilities under the preceding sentence, subject to Section 3.3, Provider shall (i) develop and maintain a philosophy of practice and a set of practice guidelines which are reasonably acceptable to the Policy Board, and (ii) cause all personnel retained by it to abide by such philosophy and guidelines at all times.

(d) Provider shall support the Risk Management Procedures implemented pursuant to this Agreement, and shall take all actions related to such Risk Management Procedures as may be reasonably requested by Service Company. Provider shall cause all personnel retained by it to comply fully with such process at all times.

(e) Provider shall, with the assistance of Service Company, develop a set of quality standards and utilization, process monitoring, and reporting guidelines. Provider shall cause all personnel retained by it to comply with such standards and guidelines.

(f) Provider shall, with the assistance of Service Company, develop patient grievance procedures to the extent not specifically addressed in this Agreement. Provider shall cause all personnel retained by it to comply with such procedures.

5.6 Provider’s Insurance.

(a) Provider shall obtain and maintain with commercial carriers reasonably acceptable to Service Company or through self insurance or some combination thereof (reasonably acceptable to Service Company) appropriate workers’ compensation coverage for Provider’s employed personnel (which, with respect to dental hygienists and other non-dentist licensed dental personnel employed by Provider, shall be a Clinic Expense, and which, with respect to all other employees of Provider, including without limitation dentists, shall be a Provider Expense) and professional liability and comprehensive general liability insurance covering Provider and each of the dentists, dental hygienists, and other licensed dental personnel Provider retains to provide Dental Care (which, including any applicable deductibles, shall be a Clinic Expense). All costs, expenses, and liabilities incurred by Provider or Service Company in excess of the limits of such policies shall be a Provider Expense. Provider shall actively support the participation of all dentists, dental hygienists, and other licensed dental personnel retained by Provider in training and continuing education programs in order to reduce the risk of exposure to and the related cost of obtaining and maintaining such coverage. The comprehensive general liability coverage and professional liability coverage shall be in such

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minimum amounts and with such deductibles as Service Company may establish from time to time. In addition, Provider shall cause each dentist retained by Provider as an independent contractor to obtain comparable professional and comprehensive general liability insurance coverage.

(b) All such insurance policies shall (a) name Service Company as an additional insured and with respect to policies provided by independent contractors under the preceding sentence, name Provider as additional insured as well, and (b) provide for at least 30 days advance written notice to Provider and Service Company from the insurer with respect to any alteration of coverage, cancellation, or proposed cancellation for any reason. Provider shall cause to be issued to Service Company by such insurer or insurers a certificate reflecting such coverage.

(c) Provider shall enter into employment or other agreements with all dentists employed or otherwise retained by Provider which provide, among other things, that (i) upon the termination of the employment or retention of any such dentist, such dentist shall be required to (A) purchase, at such dentist’s expense, “tail” professional liability coverage meeting the requirements of this §5.6, including without limitation those relating to coverage amounts and insureds, for an unlimited extended reporting period, or (B) obtain retroactive coverage meeting the same requirements from such dentist’s new employer, and (ii) if such dentist does not provide satisfactory evidence of such coverage prior to such termination, Provider shall have the right, without limiting any other rights of Provider, to withhold the cost of the “tail” coverage described in the immediately preceding clause (i)(A) from any amounts owed to such dentist by Provider and purchase such “tail” coverage on such dentist’s behalf; provided that if Provider does not have such agreements in place with dentists employed or otherwise retained by Provider as of the date of execution of this Agreement, Provider shall not be in breach of this Agreement so long as it (1) exercises commercially reasonable efforts to enter into such agreements with the dentists currently employed or retained by Provider, and (2) enters into such agreements with all new dentists employed or retained by Provider.

(d) Upon the termination of this Agreement for any reason, Provider shall continue to carry professional liability insurance in the amounts specified in this §5.6 for 10 years after termination, or, if Provider dissolves or ceases to practice dentistry, Provider shall obtain and maintain as a Provider Expense “tail” professional liability coverage in the amounts specified in this §5.6 for an unlimited extended reporting period. Provider shall be responsible for paying all premiums for such “tail” insurance coverage. Notwithstanding the foregoing, if Provider fails to obtain such “tail” insurance coverage, Service Company shall have the right, without limiting any other rights of Service Company, to purchase such coverage on Provider’s behalf out of funds otherwise owed to Provider under this Agreement.

(e) In no event shall a professional liability insurance carrier be replaced or changed without Service Company Consent. Service Company shall provide reasonable assistance to Provider to obtain the insurance coverages described in this §5.6.

(f) Each Party shall, and shall cause it employees, agents, and other representatives to, cooperate in all ways reasonably requested by the other Party in connection with the handling and disposition of claims covered by the insurance described in this §5.6. This requirement shall continue, notwithstanding any termination of this Agreement, until all such claims have been resolved.

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5.7 Noncompetition. Provider acknowledges that Service Company will incur substantial costs in providing the equipment, support services, personnel, and other items and services that are the subject matter of this Agreement and that in the process of providing services under this Agreement, Provider will learn or have access to financial and other Confidential Information of Service Company to which Provider would not otherwise be exposed. Provider also recognizes that the services to be provided by Service Company will be feasible only if Provider operates an active practice to which the dentists associated with Provider devote their full time and attention. Accordingly, Provider further agrees as follows:

(a) During the Term, except for any Clinic or other office or facility covered by this Agreement, Provider shall not establish, operate, or provide Dental Care at any dental office, clinic or other dental care facility anywhere within the Practice Territory nor have any ownership interest, direct or indirect, in any entity, or participate in any joint venture, which operates any such office, clinic or facility; and

(b) Except as specifically approved by Service Company in writing, during the Term and for a period of five years immediately following the date this Agreement is terminated for any reason, Provider shall not directly or indirectly own (excluding ownership of less than five percent (5%) of the equity of any publicly traded entity), manage, operate, control, lend funds to, lend its name to, maintain any interest in, or otherwise enter into, engage in, or promote or assist (financially or otherwise) any entity, business, or enterprise which (i) provides, distributes, or promotes any type of management or administrative services or products to third parties in competition with Service Company in the Practice Territory, or (ii) offers any type of service or product to third parties substantially similar to those offered by Service Company to Provider in the Practice Territory. Notwithstanding the above restriction, nothing herein shall prohibit Provider or any of its members from providing management and administrative services to its or their own dental practices after the termination of this Agreement, and nothing herein shall prohibit Provider or its members from contracting with a third party manager to provide administrative or management services for its or their dental practices after termination of this Agreement as long as such relationship complies with the provisions of this section.

5.8 Use of Names. At all times during the Term, Provider shall operate its dental practice under the names “Metro Dentalcare,” “Family Orthodontic Specialists,” “Metro Dentalcare Orthodontics,” Riverdale Family Orthodontics,” “Midway Family Orthodontics,” “Woodlake Family Orthodontics,” “Burnsville Family Orthodontics,” Family Periodontic Specialists,” “Metro Dentalcare Periodontics,” “Family Pediatric Dental Specialists,” “Metro Dentalcare Children’s Dentistry,” “Family Oral Surgery Specialists,” “Focus Dental Management,” Family Endodontics Specialists,” and “Merit Dental Lab” or such other trade name or names as may be agreed upon by the Parties from time to time (all such names, the “Approved Names”), including without limitation using the related marks and logos as are licensed to Provider pursuant to Section 4.17, above. Provider shall file appropriate assumed or fictitious name applications or registrations with all appropriate governmental agencies. Notwithstanding the preceding provisions of this section, Provider shall, immediately upon the expiration of the Term, abstain from using such names, marks and logos and shall take such steps as are necessary to terminate such applications and registrations and Provider’s rights thereunder, except to the extent otherwise provided in Article VIII, below.

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ARTICLE VI

CONFIDENTIALITY

6.1 Confidential and Proprietary Information. Neither Party shall, in any manner or at any time, directly or indirectly, disclose any of the Confidential Information of the other Party to any person, firm, association, organization, or entity, or use, or permit or assist any person, firm, association, organization, or entity to use, any such Confidential Information, excepting only: (a) disclosures (i) required by law, as reasonably determined by the disclosing Party or its legal counsel, or (ii) made on a confidential basis to the disclosing Party’s shareholders, directors, officers, employees (limited to those who need to know such Confidential Information), and legal, accounting, and other professional advisors (collectively, the “Permitted Recipients”); or (b) use of such Confidential Information by Permitted Recipients in connection with this Agreement; provided that each Party shall (i) make its Permitted Recipients aware of the requirements of this Agreement, (ii) take reasonable steps to prohibit disclosure of such Confidential Information by any Permitted Recipient to any other person or entity except another Permitted Recipient, including without limitation taking such steps as that Party customarily takes to protect its own Confidential Information, and (iii) be responsible and liable for any disclosure or use of such Confidential Information by any of its Permitted Recipients, except disclosures or uses permitted by this Agreement.

6.2 Use of Practice Statistics. Notwithstanding Section 6.1, above, but subject to the restrictions of this section and applicable law, Service Company or its affiliates may: (a) share with other professional corporations, associations, dental practices, or dental care delivery entities, or their representatives, the practice statistics and other information relating to the operation of Provider’s dental practice, including utilization review data, quality assurance data, revenue and cost data, outcomes data, or other practice data or information, provided that such information shall only be disclosed to (i) affiliates of Service Company, (ii) other dental groups with whom Service Company or any of its affiliates has a management or service relationship, (iii) managed care dental benefit providers and other third party payors for the purpose of obtaining or maintaining third party payor contracts, (iv) financial analysts and underwriters, (v) employers and employee benefit associations, (vi) quality assurance and accrediting organizations, or (vii) financial institutions; and (b) disclose all practice-related information necessary or desirable in connection with any public or private offering of any security of Service Company or any of its affiliates. In addition, subject to the restrictions of this section and applicable law (including without limitation federal and state law and regulation relating to confidentiality), Service Company or its affiliates may disclose practice-related information and data in connection with any survey, presentation, published material, study, or research project which Service Company deems appropriate for the purpose of gaining insight into existing and changing patterns in the organization and delivery of Dental Care and related issues. In no event will any such data disclose or divulge the identity of any patient or, to the extent reasonably practicable, any dentist.

ARTICLE VII

FINANCIAL ARRANGEMENTS

7.1 Clinic Expense Reimbursement. Service Company shall be reimbursed for the amount of all Clinic Expenses incurred by Service Company.

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7.2 Repayment of Advances. Service Company shall be reimbursed for any and all amounts advanced to Provider by Service Company pursuant to the terms and conditions of this Agreement.

7.3 Service Fee. Provider and Service Company acknowledge and agree that the compensation set forth in this Article is being paid by Provider to Service Company in consideration of the substantial commitment being made by Service Company hereunder and that such fee is fair and reasonable in all respects in consideration of (a) the services performed by Service Company hereunder, and (b) the capital being made available by Service Company. Service Company shall be paid by Provider an annual Service Fee (determined on a calendar year basis) equal to 89% of the Calculated Margin, which shall be calculated and be earned and accrue daily, and shall be payable monthly.

7.4 Reasonable Value. Payment of the Service Fee is not intended to be and shall not be interpreted or applied as permitting Service Company to share in Provider’s fee for Dental Care or any other services, but is the Parties’ negotiated agreement as to the reasonable fair market value of the equipment, contract analysis and support, other support services, purchasing, personnel, office space, management, administration, strategic management, and other items and services furnished by Service Company pursuant to this Agreement, considering the nature and volume of the services required and the risks assumed by Service Company. Provider and Service Company acknowledge that: (a) Service Company’s administrative expertise will contribute great value to Provider’s performance; (b) Service Company will incur substantial costs and business risks in arranging for Provider’s use of each Clinic and in providing the equipment, support services, personnel, marketing, office space, management, administration, and other items and services that are the subject matter of this Agreement; and (c) certain of such costs and expenses can vary to a considerable degree according to the extent of Provider’s business and services. It is the intent of the Parties that the Service Fee reasonably compensate Service Company for the value to Provider of Service Company’s administrative expertise, given the considerable business risk to Service Company in providing the items and services that are the subject of this Agreement.

7.5 Payment. The amounts to be paid to Service Company under this Article shall be paid monthly. To facilitate the payments due to Service Company under this Article, Provider hereby expressly authorizes Service Company to make withdrawals of such amounts from the Provider Account during the Term in accordance with Section 4.12(b), and after termination as provided in Section 8.3.

7.6 Accounts Receivable. To assure that Provider receives the entire amount of professional fees for its services and to assist Provider in maintaining reasonable cash flow for the payment of Clinic Expenses, Service Company may, during the Term, purchase, with recourse to Provider for the amount of the purchase, the accounts receivable of Provider arising during the previous month, except for any receivables due to Provider from Medicaid or any other governmental health care reimbursement program which Service Company is not permitted to receive under applicable law (the “Restricted Receivables”), by transferring the amount set forth below into the Provider Account. The consideration for the purchase shall be an amount equal to the Adjusted Gross Revenue recorded each month, less the Adjusted Gross Revenue related to Restricted Receivables. Service Company shall be entitled to offset Clinic Expense reimbursement plus all fees and advances due to Service Company under this Article against the amount payable for such accounts receivable. Although it is the intention of the Parties that Service Company purchase and thereby become the owner of the accounts receivable of Provider, in the event such purchase shall be ineffective or prohibited for any reason, Provider hereby

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grants to Service Company a security interest in the accounts receivable, to the extent permitted by applicable law, and Provider shall cooperate with Service Company and execute all documents which may be reasonably requested by Service Company in connection with such security interest. All collections in respect of such accounts receivable purchased by Service Company shall be received by Provider as the agent of Service Company and shall be endorsed to Service Company and deposited in a bank account at a bank designated by Service Company. To the extent Provider comes into possession of any payments in respect of such accounts receivable, Provider shall direct such payments to Service Company for deposit in bank accounts designated by Service Company.

ARTICLE VIII

TERM AND TERMINATION

8.1 Initial and Renewal Term. The Term of this Agreement shall be for an initial period of 39 years beginning on the date of this Agreement, and shall renew automatically for successive five-year periods thereafter unless and until either Party gives notice to the other Party at least 120 days prior to the expiration of the then-current term of its intent to terminate this Agreement at the end of the then-current term or unless otherwise terminated as provided in Section 8.2 of this Agreement.

8.2 Termination

(a) Termination By Service Company. Service Company may terminate this Agreement immediately upon notice to Provider upon the occurrence of any one of the following events:

(i) The dissolution of Provider;

(ii) Provider admits in writing its inability to pay generally its debts as they become due or makes an assignment for the benefit of creditors;

(iii) A receiver, trustee, liquidator, or conservator is appointed for Provider or to take possession of all or substantially all of Provider’s property or a petition for insolvency, dissolution, liquidation, or reorganization, or order for relief in which Provider is named as debtor, is filed by, against, or with respect to Provider pursuant to any federal or state statute, regulation, or law for the protection of debtors, and, with respect to any such appointment or filing, Provider fails to secure a stay or discharge thereof within 45 days after such appointment or filing;

(iv) Provider fails to pay when due any payment to be made by Provider under this Agreement, which failure continues for 10 days after notice is given by Service Company to Provider thereof, provided that such failure is not directly attributable to Service Company’s failure to apply available funds in the Provider Account according to Section 4.12(b); or

(v) Provider fails to comply with or perform any of its other material duties or obligations under this Agreement, which failure continues for 30 days after notice is given by Service Company to Provider thereof, or if because of the nature of such failure it cannot reasonably be corrected within such 30 day period, failure by Provider to commence such correction promptly following its receipt of notice from Service Company and thereafter to expeditiously and continuously prosecute the correction to completion.

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(b) Termination By Provider. Provider may terminate this Agreement immediately upon notice to Service Company upon the occurrence of any of the following events:

(i) A receiver, trustee, liquidator, or conservator is appointed for Service Company or to take possession of all or substantially all of Service Company’s property or a petition for insolvency, dissolution, liquidation, or reorganization, or order for relief in which Service Company is named as debtor, is filed by, against, or with respect to Service Company pursuant to any federal or state statute, regulation, or law for the protection of debtors, and, with respect to any such appointment or filing, Service Company fails to secure a stay or discharge thereof within 45 days after such appointment or filing;

(ii) Service Company fails to comply with or perform any of its material duties or obligations under this Agreement, which failure continues for 30 days after notice is given by Provider to Service Company thereof, or if because of the nature of such failure it cannot reasonably be corrected within such 30 day period, failure by Service Company to commence such correction promptly following its receipt of notice from Provider and thereafter to expeditiously and continuously prosecute the correction to completion; or

(iii) A court of competent jurisdiction makes a final determination that Service Company has materially breached a fiduciary duty owed to Provider.

Notwithstanding the foregoing, any termination by Provider under this section shall require the affirmative vote of three-fourths of the then-outstanding membership interests of Provider entitled to vote on such a matter.

(c) Termination by Agreement. Provider and Service Company may mutually agree to terminate this Agreement at any time, such agreement to be in writing and signed by both Parties.

(d) Legislative, Regulatory or Administrative Change. If (a) there is (i) any change in any federal, state, or local statute, law, regulation, legislation, rule, policy, or general instruction, or a change in any third party reimbursement system, or (ii) any ruling, judgment, decree, or interpretation by any court, agency, or other governing body having jurisdiction over either Party (in any such case, for purposes of this clause (d), a “Regulatory Matter”), and (b) such Regulatory Matter materially and adversely affects, or is reasonably likely to affect, the manner in which either Party is to perform or be compensated for its services under this Agreement or which shall make this Agreement unlawful, the Parties shall immediately use their best efforts to enter into a new service arrangement or basis for compensation for the services furnished pursuant to this Agreement that complies with such Regulatory Matter and approximates as closely as possible the economic position of the Parties prior to such Regulatory Matter.

If the Parties are unable to reach a new agreement within a reasonable period of time following the date upon which it becomes reasonably certain that such Regulatory Matter will arise, then either Party may submit the issue to arbitration which shall be binding on the Parties and subject to the then-applicable Commercial Arbitration Rules of the American Arbitration Association. In any such arbitration, the arbitrators shall consist of a panel of three arbitrators, which shall act by majority vote and which shall consist of one arbitrator selected by the Party on one side of the issue subject to the arbitration, one arbitrator selected by the Party on the other side of the issue, and a third arbitrator selected by the two arbitrators so selected, who shall be either a certified public accountant or an attorney at law licensed to practice in the State of Minnesota and who shall act as

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chairman of the arbitration panel; provided that if the Party on one side of the issue selects its arbitrator for the panel and the other Party fails so to select its arbitrator within 10 business days after being requested by the first Party to do so, then the sole arbitrator shall be the arbitrator selected by the first Party.

All costs and expenses of arbitration shall be borne by the Parties as determined by the arbitrator or arbitration panel, except that the fees of any arbitrator on an arbitration panel who is selected individually by a Party shall be borne separately by the Party appointing him; provided that if one Party fails to select an arbitrator for a panel, and the sole arbitrator is the arbitrator selected by the other Party, then the fees of that arbitrator shall be borne by the Parties as determined by that arbitrator.

8.3 Effects of Termination. Upon termination of this Agreement as herein provided, neither Party shall have any further obligations under this Agreement, except for: (a) obligations accruing prior to the date of termination, including without limitation payment of the amounts set forth in Article VII relating to services provided prior to the termination of this Agreement; (b) obligations set forth in this Agreement that expressly extend beyond the Term, including without limitation indemnities and noncompetition provisions, which provisions shall survive the expiration or termination of this Agreement; (c) the obligations of each Party set forth in Article VI; and (d) the obligation of Provider described in Section 8.4. Provider specifically acknowledges and agrees that Service Company shall continue to collect and receive on behalf of Provider all cash collections from accounts receivable in existence at the time this Agreement is terminated (which have not otherwise been purchased by Service Company pursuant to Section 7.6), and that all such cash collections shall be disbursed in accordance with Section 4.12(b), it being understood that such cash collections will represent, in part, compensation to Service Company for Services already rendered and compensation on accounts receivable purchased by Service Company, if any. Upon the expiration or termination of this Agreement for any reason or cause whatsoever, Service Company shall surrender to Provider all books and records pertaining to Provider’s dental practice; provided that Service Company may retain copies of such documents to the extent reasonably necessary for Service Company to complete its post-termination obligations and activities under this Agreement.

8.4 Purchase Obligation. Upon termination of this Agreement for any reason Provider shall, at Service Company’s option (subject to any consent rights of Parent’s senior creditor):

(a) Purchase from Service Company at book value the intangible assets, deferred charges, goodwill, and all other amounts on the books of the Service Company relating to this Agreement or the items or services provided by Service Company pursuant to this Agreement, including without limitation the amount, if any, for the covenants described in Section 5.7, above, as adjusted through the last day of the month most recently ended prior to the date of such termination in accordance with GAAP to reflect amortization or depreciation of all such amounts, provided the foregoing shall not apply to any trade names, trademarks, service marks, or similar items owned by Service Company or its affiliates and used at any time during the term of this Agreement in connection with the operation of Provider’s dental practice (the “Marks”);

(b) Purchase from Service Company any real estate owned by Service Company and used as a Clinic at the greater of the appraised fair market value thereof or the then book value thereof;

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(c) Purchase, at the greater of the appraised fair market value or the then book value, all improvements, additions, or leasehold improvements that have been made by Service Company at any Clinic and that relate to the performance of Service Company’s obligations under this Agreement;

(d) Assume all debt, and all contracts, payables, and leases that are obligations of Service Company and that relate to the performance of Service Company’s obligations under this Agreement or the properties leased or subleased by Service Company in connection with its obligations under this Agreement;

(e) Purchase from Service Company, at the greater of the appraised fair market value or the then book value, all of the equipment then being supplied by Service Company pursuant to Service Company’s obligations under this Agreement, and all other assets, including inventory and supplies, tangibles and intangibles (other than the Marks), set forth on the books of Service Company as adjusted through the last day of the month most recently ended prior to the date of such termination in accordance with GAAP to reflect operations of each Clinic, depreciation, amortization, and other adjustments of assets shown on the books of the Service Company; and

(f) Purchase from Service Company, at the greater of appraised fair market value or then book value, all Marks designated by Service Company.

For purposes of subsections (b), (c), (e), and (f) above, the appraised value shall be determined by an appraiser mutually agreed upon by the Parties. In the event the Parties are unable to agree upon an appraiser within 10 days following the date upon which either Party requests the other Party to agree to an appraiser, then each Party shall appoint an appraiser, who shall in turn select a third appraiser who shall serve as the appraiser hereunder. In the event either Party fails to select an appraiser within 15 days of the selection of an appraiser by the other Party, the appraiser selected by the other Party shall serve as the appraiser hereunder. The determination of the appraised value of the assets identified in such subsections, by the appraiser or appraisers selected hereunder shall be binding on both Parties.

8.5 Closing of Purchase. If Provider purchases assets pursuant to Section 8.4, Provider shall pay cash for the purchased assets; provided that the amount of the purchase price allocable to an asset shall be reduced by the amount of debt and liabilities of Service Company, if any, relating directly to that asset which are assumed by Provider in connection with such purchase. Any asset which is purchased by Provider pursuant to Section 8.4 and with respect to which the purchase price reduction described in the preceding sentence does not apply shall be transferred to Provider free and clear of all liens and encumbrances at closing. Provider and any dentist associated with Provider shall execute such documents as may be required for Provider to assume the liabilities set forth in Section 8.4(d) and to remove Service Company from any liability with respect to such purchased asset and with respect to any property leased or subleased by Service Company. The closing date for the purchase shall be determined by the Parties but shall in no event occur later than 180 days from the date of the notice of termination. Provider shall be released from the covenants described in Section 5.7, above, upon the successful consummation of such closing.

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ARTICLE IX

GENERAL

9.1 Nature of Services. Nothing in this Agreement is intended or shall be construed to allow Service Company to exercise control or direction over the manner or method by which Provider and its dentists or the dental hygienists and other licensed dental personnel and unlicensed dental assistants and other personnel supervised by Provider or its dentists, perform Dental Care or other professional dental care services. The rendition of all Dental Care shall be the sole responsibility of Provider and its dentists and the dental hygienists and other licensed dental personnel and unlicensed dental assistants supervised by Provider and its dentists, and Service Company shall not interfere in any manner or to any extent therewith. Nothing contained in this Agreement shall be construed to permit Service Company to engage in the practice of dentistry, it being the sole intention of the Parties hereto that the services to be rendered to Provider by Service Company are solely for the purpose of providing non-dental administrative and management services to Provider so as to enable Provider to devote its full time and energies to the professional conduct of its dental practice and provision of Dental Care to its patients and not to administration or practice management.

9.2 Relationship of Parties. The relationship of the Parties is and shall be that of independent contractors, and nothing in this Agreement is intended, and nothing shall be construed, to create an employer/employee, partnership, or joint venture relationship between the Parties, or to allow either to exercise control or direction over the manner or method by which the other performs the services that are the subject matter of this Agreement; provided always that the services to be provided hereunder shall be furnished in a manner consistent with the standards governing such services and the provisions of this Agreement.

9.3 Notices. All notices and other communications under this Agreement to any Party shall be in writing and shall be deemed given when delivered personally, transmitted by facsimile (which is confirmed) to that Party at the facsimile number for that Party set forth below, mailed by certified mail (return receipt requested) to that Party at the address for that Party set forth below (or at such other address for such Party as such Party shall have specified in notice to the other Party), or delivered to Federal Express, UPS, or any similar express delivery service for delivery to that Party at that address:

(a) If to Service Company:

                      PDHC, Ltd.

                      c/o American Dental Partners, Inc.

                      401 Edgewater Place, Suite 430

                      Wakefield, Massachusetts 01880-1249

Attention:	Gregory A. Serrao, President
	and Chief Executive Officer
Facsimile No.:	(781) 224-0837

                      with a copy to:

                      Baker & Hostetler, LLP

                      65 East State Street, Suite 2100

                      Columbus, Ohio 43215

                      Attention:         Gary A. Wadman, Esq.

                      Facsimile No.: (614) 462-2616

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(b) If to Provider:

Northland Dental Partners, PLLC

1717 Paramount Drive

Waukesha, WI 53186

Attention:    James Ludke

Any Party may change the address to which notices and other communications are to be given by giving the other Party notice of such change.

9.4 Execution of Documents. Each Party shall execute, acknowledge or verify, and deliver any and all documents, and take any and all other actions, which from time to time may be reasonably requested by the other Party to carry out the purposes and intent of this Agreement.

9.5 Governing Law. All questions concerning the validity, intention, or meaning of this Agreement or relating to the rights and obligations of the Parties with respect to performance under this Agreement shall be construed and resolved under the laws of Minnesota without reference to conflict of law principles.

9.6 Severability. The intention of the Parties is to comply fully with all applicable laws and public policies, and this Agreement shall be construed consistently with all laws and public policies to the extent possible. If and to the extent that any court of competent jurisdiction determines that it is impossible to construe any provision of this Agreement consistently with any law or public policy and consequently holds that provision to be invalid, such holding shall in no way affect the validity of the other provisions of this Agreement, which shall remain in full force and effect. With respect to any provision in this Agreement finally determined by such a court to be invalid or unenforceable, such court shall have jurisdiction to reform this Agreement (consistent with the intent of the Parties) to the extent necessary to make such provision valid and enforceable, and, as reformed, such provision shall be binding on the Parties.

9.7 Setoff. Notwithstanding any provision of this Agreement to the contrary, Service Company shall have the right from time to time to setoff any amounts owed by Service Company to Provider against any amounts owed by Provider to Service Company.

9.8 Remedies. All rights and remedies of each Party under this Agreement are cumulative and in addition to all other rights and remedies which may be available to that Party from time to time, whether under any other agreement, at law, or in equity.

Each Party hereby acknowledges that: (a) the provisions of Sections 5.7 and 6.1 of this Agreement are fundamental for the protection of the other Party’s legitimate business interests; (b) such provisions are reasonable and appropriate in all respects; and (c) in the event it violates any such provisions, the other Party would suffer irreparable harm and its remedies at law would be inadequate. Accordingly, in the event either Party violates or attempts to violate any such provisions, the other Party shall be entitled

25

to a temporary restraining order, temporary and permanent injunctions, specific performance, and other equitable relief without any showing of irreparable harm or damage or the posting of any bond, in addition to any other rights or remedies which may then be available to the other Party.

9.9 Non-waiver. No failure by any Party to insist upon strict compliance with any term of this Agreement, to exercise any option, enforce any right, or seek any remedy upon any default of any other Party shall affect, or constitute a waiver of, the first Party’s right to insist upon such strict compliance, exercise that option, enforce that right, or seek that remedy with respect to that default or any prior, contemporaneous, or subsequent default; nor shall any custom or practice of the Parties at variance with any provision of this Agreement affect or constitute a waiver of, any Party’s right to demand strict compliance with all provisions of this Agreement.

9.10 Indemnification. To the extent not covered by and paid from its insurance coverage, each Party (the “Indemnifying Party”) shall indemnify and hold harmless the other Party and its shareholders, members, managers, directors, officers, employees, agents, representatives, and affiliates (the “Indemnified Parties”) from and against any and all losses, liabilities, damages, demands, claims, suits, actions, judgments, assessments, costs and expenses, including without limitation interest, penalties, attorneys’ fees, any and all expenses incurred in investigating, preparing, or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation (collectively, “Damages”), asserted against, imposed upon, or incurred or suffered by the Indemnified Parties, directly or indirectly, as a result of or arising from: (i) any failure of any representation or warranty of the Indemnifying Party in this Agreement to be accurate and complete in all material respects when made; or (ii) any failure by the Indemnifying Party to perform and observe fully all obligations and conditions to be performed or observed by the Indemnifying Party under this Agreement. In addition, Provider shall indemnify Service Company and its shareholders, members, managers, directors, officers, employees, agents, representatives, and affiliates from and against any and all Damages asserted against, imposed upon, or incurred or suffered by any of them, directly or indirectly, as a result of or arising from the acts or omissions of Provider or its employees, contractors, or other agents or representatives.

9.11 No Third Party Benefit. This Agreement is intended for the exclusive benefit of the Parties and their respective successors and assigns, and nothing contained in this Agreement shall be construed as creating any rights or benefits in or to any third party.

9.12 Captions. The captions of the various sections of this Agreement are not part of the context of this Agreement, are only labels to assist in locating and reading those sections, and shall be ignored in construing this Agreement.

9.13 Genders and Numbers. When permitted by the context, each pronoun used in this Agreement includes the same pronoun in other genders or numbers and each noun used in this Agreement includes the same noun in other numbers.

9.14 Complete Agreement. This document (including its exhibits and all other documents referred to herein, all of which are hereby incorporated herein by reference) contains the entire agreement among the Parties with respect to the subject matter of this Agreement and supersedes all prior or contemporaneous discussions, negotiations, representations, or agreements relating to the subject matter of this Agreement. No changes to this Agreement shall be made or be binding upon any Party unless made in writing and signed by each Party to this Agreement.

26

9.15 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same Agreement, and any photocopy, facsimile, or electronic reproduction of the executed Agreement shall constitute an original.

9.16 Assignment. Provider may not assign this Agreement without the prior written consent of Service Company, which consent may be withheld for any reason. The sale, transfer, pledge, or assignment of any of the membership interests of Provider held by any member of Provider, the issuance by Provider of voting membership interests to any other person, or any combination of such transactions within any period of two years, such that the members in Provider at the beginning of that two-year period fail to maintain a majority of the voting interest in Provider, shall be deemed an attempted assignment by Provider, and shall be null and void unless consented to in writing by Service Company prior to any such transfer or issuance. Any breach of this provision, whether or not void or voidable, shall constitute a material breach of this Agreement, and in the event of such breach, Service Company may terminate this Agreement upon 24 hours notice to Provider. Service Company shall have the right to (i) assign its rights and obligations hereunder to any third party and (ii) collaterally assign its interest in this Agreement and its right to collect the amounts set forth in Article VII hereunder to any financial institution or other third party without the consent of Provider. Service Company shall notify Provider of any assignment of this Agreement of the type described in the immediately preceding clause (i).

9.17 Successors. Subject to Section 9.16, above, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the successors and assigns of each Party.

9.18 Force Majeure. Neither Party shall be liable or deemed to be in default for any delay or failure in performance under this Agreement or other interruption of service deemed to result, directly or indirectly, from acts of God, civil or military authority, acts of public enemy, war, accidents, fires, explosions, earthquakes, floods, failure of transportation, strikes or other work interruptions by either Party’s employees, or any other similar cause beyond the reasonable control of either Party unless such delay or failure in performance is expressly addressed elsewhere in this Agreement.

9.19 Interpretation. This Agreement supersedes the Original Agreement in its entirety from and after the date of this Agreement; provided that this Agreement shall not modify or otherwise affect any rights or obligations of the Parties under the Original Agreement which are based upon acts or omissions occurring prior to the date of this Agreement, which rights and obligations shall survive the execution of this Agreement. If and to the extent any provision of this Agreement conflicts with the obligations of either Northland or Service Company under the Definitive Settlement Agreement dated February 29, 2008 among Northland, Service Company, PDG, P.A., and Dental Specialists of Minnesota, P.A., or any other agreement or document executed by either of them pursuant to such Definitive Settlement Agreement, then that Party’s obligation to perform or observe such provision of this Agreement shall be modified to the extent necessary for that Party to be in compliance with such Definitive Settlement Agreement or such other agreement or document.

27

9.20 JURY TRIAL WAIVER. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY WAIVES ANY AND ALL RIGHTS TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE `BETWEEN THEM, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THIS AGREEMENT OR THE INITIAL AGREEMENT OR THE RELATIONSHIP ESTABLISHED PURSUANT TO THIS AGREEMENT OR THE INITIAL AGREEMENT.

PROVIDER:		SERVICE COMPANY:
NORTHLAND DENTAL PARTNERS, PLLC(1)		PDHC, LTD.
By:	/s/ James Ludke	By:	/s/ Gregory A. Serrao
	James Ludke, DDS, President		Gregory A. Serrao, Chairman

⁽¹⁾ For itself and on behalf of each Subsidiary as its sole member

28

Exhibit A

DEFINITIONS

Adjusted Gross Revenue. The term “Adjusted Gross Revenue” shall mean Gross Revenue less Adjustments.

Adjustments. The term “Adjustments” shall mean all adjustments on the accrual basis for (a) third party payor contractual allowances, adjustments, discounts, and professional courtesies, (b) uncollectible accounts and related expenses, and (c) other activities that do not result in collectible charges (provided that Adjustments for any period beginning on or after the effective date of this Agreement shall exclude adjustments which relate to (i) Dental Care that was rendered prior to the effective date of this Agreement, (ii) Capitation Revenue that was recorded prior to the effective date of this Agreement, or (iii) any other revenue recorded prior to the effective date of this Agreement).

Ancillary Revenue. The term “Ancillary Revenue” shall mean all other revenue actually recorded each month that is not Professional Service Revenue.

Budget. The term “Budget” shall mean an operating budget and capital expenditure budget for each calendar year as prepared by Service Company, in consultation with Provider, and approved by each of the Policy Board and Parent.

Calculated Margin. The term “Calculated Margin” shall mean, for any period, the actual Adjusted Gross Revenue for that period, less the sum of (a) the actual Clinic Expense for that period and (b) the actual Provider Expense for that period to the extent included as described in the definition of Provider Expense below.

Capitation Revenue. The term “Capitation Revenue” shall mean all revenue recorded under GAAP from managed care organizations or third party payors where such revenue is recorded periodically on a per member basis for the partial or total dental needs of an enrolled patient.

Clinic. The term “Clinic” shall mean any of the facilities, including satellite facilities, that Service Company owns, leases or otherwise procures and provides for the use of Provider for the provision of Dental Care.

Clinic Expense. The term “Clinic Expense” shall mean any operating or nonoperating expense incurred by Service Company or Parent in the provision of services to Provider and any expense incurred by Provider which is expressly identified in this Agreement as a Clinic Expense, including without limitation any expense described in this definition for which Provider is required by applicable law to be financially liable. Clinic Expense shall not include any state or federal income tax of Provider, any expense related to any Dental Assets or the maintenance or protection of the same, or any other expense reasonably designated by Service Company as a Provider Expense. Without limiting the foregoing, Clinic Expense shall include:

(a) The salaries, benefits, and other direct costs of all employees of Provider or Service Company at a Clinic, but not the salaries, benefits, or other direct costs of the dentists;

A-1

(b) The cost of any employee or consultant that provides services at or in connection with a Clinic for improved Clinic performance, such as management, billing and collections, business office consultation, accounting and legal services, including salaries, benefits, other compensation, travel costs, and other expenses, but only when such services are coordinated by Service Company;

(c) Reasonable recruitment costs and out-of-pocket expenses of Service Company or Provider associated with the recruitment of additional dentists, dental hygienists, or other licensed dental personnel or unlicensed dental assistants;

(d) Dental malpractice liability insurance expenses for dentists, dental hygienists, or dental assistants, Service Company employees, and non-dentist employees; workers’ compensation premiums for Service Company employees at each Clinic; and comprehensive general liability insurance expenses covering each Clinic and employees of Provider and Service Company at each Clinic;

(e) The cost of laboratory services;

(f) The cost of dental supplies (including but not limited to products, substances, items, or dental devices), and office supplies;

(g) The expense of using, leasing, or otherwise procuring Clinics and related equipment, including utilities, depreciation, and repairs and maintenance, provided that such expense shall not include the cost of acquiring goodwill, noncompete covenants, or other intangible assets in connection with such procurement;

(h) Without limiting the foregoing, expenses related to the practice management and other information systems provided, made available, or arranged for by Service Company for use in connection with Provider’s practice, including without limitation expenses associated with third party systems, amortization of internal development costs, costs of facilities and hardware (including occupancy costs and hardware for off site data centers), costs of establishing and maintaining a wide area network and similar expenses, costs and expenses of personnel involved in any system conversion, and costs and expenses of the helpdesk and database administrator personnel.

(i) Personal property and intangible taxes assessed against Service Company’s assets which are provided or otherwise employed by Service Company for the benefit of Provider;

(j) The reasonable travel expenses (except for the corporate staff of Service Company and Parent) associated with attending meetings, conferences, or seminars to benefit Provider;

(k) Other expenses incurred by Service Company or Parent in carrying out its obligations under this Agreement in accordance with the policies and budgets established by the Policy Board, including without limitation the write-off of any tangible or intangible assets on the balance sheet of Service Company or any portion thereof other than costs incurred in connection with the execution of this Agreement and the issuance by Parent of stock options to Provider or its dentists;

(l) Any tax assessed against Service Company (other than income taxes) in connection with the services provided by Service Company hereunder; and

A-2

(m) Any other cost or expense designated as a Clinic Expense pursuant to this Agreement.

To the extent any cost or expense of the type includable in Clinic Expense results from a service or other item provided by Service Company or Parent to multiple dental practices affiliated with Service Company or Parent (including Provider), the costs and expenses of such services or other items included in Clinic Expense under this Agreement shall be limited to a reasonable allocation of a portion of the total of such costs and expenses.

Confidential Information. The term “Confidential Information” shall mean, with respect to a Party, all trade secrets, proprietary data, and other information (whether written or oral) of a confidential nature relating directly or indirectly to that Party or its business, including without limitation all business management, marketing, and economic studies and methods, patient lists, proprietary forms, marketing data, fee schedules, customer lists, financial, tax, accounting, and other information regarding business operations or structure, business plans, ideas, concepts, policies, and procedures, and any other information which that Party is obligated to treat as confidential pursuant to any law, agreement, or course of dealing by which that Party is bound, whether or not such Confidential Information is disclosed or otherwise made available pursuant to this Agreement. Confidential Information shall also include the terms and provisions of this Agreement and any transactions or documents executed by the Parties pursuant to this Agreement. Confidential Information shall not include any information which (a) is or becomes known or available to the public and did not become so known through the breach of this Agreement by either Party, (b) has been lawfully acquired from a third party without any breach of any confidentiality restriction, or (c) is already in the possession of the receiving Party at the time it was disclosed to the receiving Party by the disclosing Party.

Dental Assets. The term “Dental Assets” shall mean the following assets of Provider:

(a) All of Provider’s rights, title and interest in, to or under, or possession of, all drugs, pharmaceuticals, products, substances, items or devices whose purchase, possession, maintenance, administration, prescription or security requires the authorization or order of a Dental Care Professional or requires a permit, registration, certification or any other governmental authorization held by a Dental Care Professional as specified under any federal or state law, or both;

(b) All of Provider’s rights, title and interest in and to records of identity, diagnosis, evaluation or treatment of patients;

(c) All of Provider’s rights, title and interest in, to or under insurance policies covering or relating to dental malpractice;

(d) The name of Provider;

(e) All franchises, licenses, permits, certificates, approvals and other governmental authorizations necessary or desirable to own and operate any of the other Dental Assets;

(f) All of Provider’s rights, title and interest in, to or under any contract or agreement that requires performance by a licensed dental care provider under federal or applicable state law.

A-3

Dental Care. The term “Dental Care” shall mean such intra-oral diagnostic and therapeutic procedures, operations, and services as are included under the definition of the “practice of dentistry” under the laws and regulations of the state in which such procedures, operations, and services are performed and which are provided by Provider to its patients through Provider’s dentists and through dental hygienists, dental assistants, and other professional dental care personnel operating under the supervision of Provider’s dentists, including but not limited to the practice of general dentistry, endodontics, periodontics, orthodontics, prosthodontics, pediatric dental care, and oral surgery, and all dental care associated with any of the foregoing.

Dental Care Professional. The term “Dental Care Professional” shall mean any individual holding a current, unrestricted license issued by the appropriate dental licensing board in the state in which the Dental Care Professional renders Dental Care, which permits such individual to provide Dental Care, including without limitation dentists (as that term is defined in Section 2.5) and denturists, dental hygienists, and dental assistants.

First Group Employment Agreements. The term “First Group Employment Agreements” shall mean Northland’s initial employment agreements with dentists identified on the attached Schedule A-1 as contemplated by the Initial Agreement.

GAAP. The term “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 the 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 the determination. All financial definitions in this exhibit are intended to be construed in accordance with GAAP, whether or not expressly so stated.

Gross Revenue. The term “Gross Revenue” shall mean the sum of all Professional Service Revenue and Ancillary Revenue before Adjustments.

Guaranteed Payments. The term “Guaranteed Payments” shall mean (a) the Guaranteed Payments as defined in the Initial Agreement, except that, for any period, such term shall include Minimum Base Compensation (as defined in the First Group Employment Agreements) only to the extent the Minimum Base Compensation for that period exceeds the actual Base Compensation for that period (as defined in the First Group Employment Agreements), plus (b) $5,000 a month.

Initial Agreement. The term “Initial Agreement” shall mean the Agreement Regarding Service Agreement dated July 17, 2007 between Northland and Service Company.

Ordinary Dental Supplies. The term “Ordinary Dental Supplies” shall mean all products, substances, items, or devices which (a) are necessary or appropriate for Provider’s provision of Dental Care, and (b) are not Special Dental Supplies.

Parent. The term “Parent” shall mean American Dental Partners, Inc., a Delaware corporation.

A-4

Practice Territory. The term “Practice Territory” shall mean the geographic area within which Provider provides Dental Care, which geographic area shall include all of the following territories: (a) with respect to each Clinic which offers general dentistry services only, the geographic area within a radius of 30 miles of such Clinic, and (b) with respect to each Clinic which offers specialty dental services, the geographic area within a radius of 50 miles of such Clinic.

Preliminary Settlement Agreement. The term “Preliminary Settlement Agreement” shall mean the Settlement Agreement dated December 26, 2007, among PDG, P.A., Dental Specialists of Minnesota, P.A., Service Company, Parent, and Provider.

Professional Service Revenue. The term “Professional Service Revenue” shall mean the sum of all (a) professional fees actually recorded each month on an accrual basis under GAAP as a result of the Dental Care rendered by the Dental Care Professionals retained by Provider, and (b) Capitation Revenue.

Provider Account. The term “Provider Account” shall mean the bank account of Provider established by Provider promptly following the execution of this Agreement at a financial institution reasonably acceptable to Service Company, which account shall be administered by Service Company according to Sections 4.11 and 4.12 of this Agreement.

Provider Consent. The term “Provider Consent” shall mean the consent granted by a majority of Provider’s representatives who serve on the Policy Board. When any provision of this Agreement requires Provider Consent, Provider Consent shall not be unreasonably withheld and shall be binding on Provider.

Provider Expense. The term “Provider Expense” shall mean any expense (other than an expense for which Provider is required by applicable law to be financially liable and which is expressly identified in this Agreement as a Clinic Expense) incurred by the Service Company or Provider and for which Provider, and not the Service Company, is financially liable. Provider Expense shall include dentist (as defined in Section 2.5) salaries, benefits (which includes workers’ compensation coverage), and other direct costs related to the dentists employed or otherwise retained by Provider for the provision of its Dental Care (including professional dues, subscriptions, continuing dental education expenses, and travel costs for continuing dental education or other business travel, but excluding business travel requested by Service Company, which shall be a Clinic Expense), together with any expense related to any Dental Assets or the maintenance or protection of the same and any other cost or expense designated as a Provider Expense in or pursuant to this Agreement. In the event Provider incurs any consulting, accounting, legal or other similar fee without Service Company’s approval of such engagement through Service Company, any fee or expense so incurred shall be a Provider Expense, but one that is ignored for purposes of calculating the Calculated Margin and therefore must be paid out of Provider Retained Earnings. Any Provider Expense which is not within the then-applicable Budget or the parameters described in the third paragraph of Section 4.13(a) and is not approved by either the Policy Board or the Service Company shall be ignored for purposes of calculating the Calculated Margin and therefore must be paid out of Provider Retained Earnings. In addition, and notwithstanding any other provisions of this Agreement or the Initial Agreement to the contrary, the Guaranteed Payments shall not be deemed to be Provider Expenses for purposes of calculating the Calculated Margin and also must be paid out of Provider Retained Earnings; provided that to the extent Provider Retained Earnings are insufficient for Provider to make the Guaranteed Payments, Service Company shall advance funds to Provider in an amount equal to such insufficiency (which advances shall be deemed made under Section 7.2).

A-5

Provider Retained Earnings. The term “Provider Retained Earnings” shall mean, for any period, the Calculated Margin for that period, less the Service Fee for that period.

Representatives. The term “Representatives” shall mean a Party’s officers, directors, managers, employees, and other agents or representatives, and attorneys, accountants, and other professional advisors.

Service Company Consent. The term “Service Company Consent” shall mean the consent granted by a majority of Service Company’s representatives who serve on the Policy Board. When any provision of this Agreement requires Service Company Consent, Service Company Consent shall not be unreasonably withheld and shall be binding on Service Company.

Service Company Expense. The term “Service Company Expense” shall mean an expense or cost incurred by Service Company or Parent and for which Service Company or Parent, and not Provider, is financially liable. Without limiting the generality of the foregoing, Service Company Expense shall specifically include:

(a) The costs of Service Company’s and Parent’s corporate personnel and the travel costs of such corporate personnel; and

(b) General overhead costs of Service Company or Parent that neither directly benefit Provider nor are otherwise incurred by Service Company or Parent in providing services pursuant to this Agreement, such as (by way of illustration and not limitation) rent expense for Parent’s corporate headquarters.

Service Company Expense shall specifically exclude any expense incurred by Service Company or Parent that directly benefits Provider or is otherwise incurred by Service Company or Parent in providing services pursuant to this Agreement.

Service Fee. The term “Service Fee” shall mean the fee payable to Service Company by Provider as described in Section 7.3.

Services. The term “Services” shall mean the business, administrative, and management services to be provided for Provider by Service Company as set forth in this Agreement, including without limitation the provision of equipment, supplies, support services, non-dentist personnel, office space, financial recordkeeping and reporting, billing and collection and other business office services. Services shall not include the provision of Dental Care to patients of the Provider or the supervision or control of persons while they are providing Dental Care to patients.

Special Dental Supplies. The term “Special Dental Supplies” shall mean all products, substances, items or devices, the purchase, possession, maintenance, administration, prescription or security of which requires the authorization or order of a Dental Care Professional or requires a permit, registration, certification or other governmental authorization held by a Dental Care Professional as specified under any federal or state law (or both).

Term. The term “Term” shall mean the initial term and any renewal periods of this Agreement as described in Section 8.1, subject to termination pursuant to Section 8.2.

A-6

SCHEDULE A-1

DENTISTS WITH FIRST GROUP EMPLOYMENT AGREEMENTS

Davis, Dr. Bart

Elvecrog, Dr. Mark

Gearhart, Dr. Kyle

Giddings, Dr. Nicole

Haas, Dr. Thomas

Hamilton, Dr. Craig

Healy, Dr. James

Hom, Dr. Michael

Kottas, Dr. Katherine

Kottke, Dr. Steven

Le, Dr. Mai-Trinh

Ludwig, Dr. Cobi

Rounds, Dr. Noah

Sawyer, Dr. Stephen

Siskoff, Dr. Luke

Tran, Dr. Thomas

Welch, Dr. Sarah

Wilcox, Dr. Andrew

A-1

EX-21

EXHIBIT 21

SUBSIDIARIES OF AMERICAN DENTAL PARTNERS, INC.

PDHC, Ltd., a Minnesota corporation

American Dental Partners of Wisconsin, LLC, a Delaware limited liability company

American Dental Partners of Louisiana, LLC, a Delaware limited liability company

American Dental Partners of Pennsylvania, LLC, a Delaware limited liability company

Apple Park Associates, Inc., a Delaware corporation

American Dental Partners of Ohio, Inc., a Delaware corporation

American Dental Partners of Arizona, LLC, a Delaware limited liability company

American Dental Professional Services, LLC, a Delaware limited liability company

American Dental Partners of Virginia, LLC, a Delaware limited liability company

American Dental Partners of Maryland, LLC, a Delaware limited liability company

American Dental Partners of Alabama, LLC, a Delaware limited liability company

American Dental Partners of Oklahoma, LLC, a Delaware limited liability company

American Dental Partners of North Carolina, LLC, a Delaware limited liability company

American Dental Partners of California, Inc., a Delaware corporation

ADP of New York, LLC, a Delaware limited liability company

American Dental Partners of Tennessee, LLC, a Delaware limited liability company

Voss Dental Lab, Inc., a New York corporation

American Dental Partners of Michigan, LLC, a Delaware limited liability company

American Dental Partners of Missouri, LLC, a Delaware limited liability company

American Dental Partners of Minnesota, LLC, a Delaware limited liability company

ADP-CFK, LLC, a Delaware limited liability company

Care for Kids – USA, LLC, a Delaware limited liability company

Care for Kids of Arizona, LLC, a Delaware limited liability company, d/b/a Arizona’s Tooth Doctor for Kids

Edgewater Indemnity Company, a Vermont Corporation

Metropolitan Dental Holdings, Inc., a Delaware corporation

Metropolitan Dental Management, Inc., a Minnesota corporation

American Dental Partners of Texas, LLC, a Delaware limited liability company

CFK of Texas, LLC, a Delaware limited liability company

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 333-116637, 333-107795, 333-98545, 333-34522, 333-50605, 333-59075, 333-59077, 333-59079, 333-126725 and 333-146231) of American Dental Partners, Inc. of our report dated March 13, 2009 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K.

PricewaterhouseCoopers LLP

Boston, MA

March 13, 2009

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Gregory A. Serrao, certify that:

1. I have reviewed this report on Form 10-K of American Dental Partners, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: March 16, 2009	By:	/S/ GREGORY A. SERRAO
		Gregory A. Serrao
		Chairman, President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Breht T. Feigh, certify that:

1. I have reviewed this report on Form 10-K of American Dental Partners, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: March 16, 2009	By:	/S/ BREHT T. FEIGH
		Breht T. Feigh
		Executive Vice President, Chief Financial Officer and Treasurer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Gregory A. Serrao, Chairman, President and Chief Executive Officer, of American Dental Partners, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Annual Report on Form 10-K of the Company for the period ended December 31, 2008 which this certification accompanies fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (U.S.C. 78m or 78o(d)); and

(2) Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ GREGORY A. SERRAO

Gregory A. Serrao, Chairman, President and Chief Executive Officer

March 16, 2009

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Breht T. Feigh, Executive Vice President, Chief Financial Officer and Treasurer, of American Dental Partners, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Annual Report on Form 10-K of the Company for the period ended December 31, 2008 which this certification accompanies fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (U.S.C. 78m or 78o(d)); and

(2) Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ BREHT T. FEIGH

Breht T. Feigh, Executive Vice President, Chief Financial Officer and Treasurer

March 16, 2009