10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ 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. ¨

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

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

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 stock held by non-affiliates, computed by reference to the closing price of the registrant’s common stock on the Nasdaq Global Select Market on June 30, 2009, amounted to $117,443,575.

There were 16,302,258 shares outstanding of the registrant’s common stock, $0.01 par value, at March 8, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for its 2010 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	19
Item 4.	Removed and Reserved	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	44
Item 8.	Financial Statements and Supplementary Data	45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	78
Item 9A.	Controls and Procedures	78
Item 9B.	Other Information	78
PART III.
Item 10.	Directors, Executive Officers and Corporate Governance of the Registrant	79
Item 11.	Executive Compensation	79
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	79
Item 13.	Certain Relationships and Related Transactions, and Director Independence	79
Item 14.	Principal Accounting Fees and Services	79
PART IV.
Item 15.	Exhibits and Financial Statement Schedules	80

This annual report on Form 10-K includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and Section 27A of the Securities Act of 1933, as amended, or the Securities Act. For this purpose, any statements contained in this annual report regarding our strategy, future plans or operations, financial position, future revenues, projected costs, prospects and management objectives, other than statements of historical facts, may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we actually will achieve the plans, intentions or expectations expressed or implied in forward-looking statements. There are a number of factors that could cause actual events or results to differ materially from those indicated or implied by forward-looking statements, many of which are beyond our control, including the risk factors discussed in Item 1A of this annual report. In addition, the forward-looking statements contained in this annual report represent our estimates only as of the date of this filing and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, whether to reflect actual results, changes in assumptions, changes in other factors affecting such forward-looking statements or otherwise.

The information included under the heading “Performance Graph” in Item 5 of this annual report is “furnished” and not “filed” and shall not be deemed to be “soliciting material” or subject to Regulation 14A, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, and shall not be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act.

PART I

As used in this annual report, “practice” refers to a dentist-owned professional corporation, professional association, professional limited liability company or service corporation that is responsible for providing dental care to patients. “Group practice” refers to a practice that employs multiple dentists and typically is owned by more than one dentist. “Affiliated practice” refers to a practice that has entered into a long-term service agreement with one of our subsidiary service companies. “Affiliated dental group” refers collectively to the affiliated practice and service company that are parties to the service agreement. An affiliated dental group typically comprises several dental facilities in a given metropolitan market. The terms “affiliated practice” and “affiliated dental group” also include Arizona’s Tooth Doctor for Kids, “Arizona Tooth Doctor,” a corporation that is 85% owned by us and as permitted by applicable state law, employs dentists.

ITEM 1.  BUSINESS

Overview

We are a leading provider of business services, support staff and dental facilities to multidisciplinary dental group practices in selected markets throughout the United States. We are committed to the success of the affiliated practices and make substantial investments to support their growth. We provide dental facilities and support staff to the affiliated practices and provide or assist with organizational planning and development, staff recruitment, employee retention and training programs, quality assurance initiatives, facilities development and management, employee benefits administration, procurement, information systems and practice technology, marketing, payor contracting, and financial planning, reporting and analysis. At December 31, 2009, we were affiliated with 27 dental group practices, comprising 533 full-time equivalent dentists practicing in 268 dental facilities in 19 states.

Dental Care Industry

The market for dental care is large and highly fragmented with long-term growth potential. Based on Centers for Medicare & Medicaid Services statistics, estimated expenditures for dental care grew 7% on a compound annual

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basis from 1998 to 2008 reaching $101 billion in 2008. Expenditures for dental care are expected to be approximately $161 billion by 2018, representing a 5% annual growth rate from 2008 to 2018. 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, or PPO, plans, and to a lesser extent, dental referral plans;

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

• increased demand for aesthetic dental procedures and the development of new dental materials and procedures that address this demand; and

• increasing awareness of linkages between wellness and oral health.

We believe that this growth will benefit not only dentists, but also 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, or ADA, in 2007, approximately 61% of the 167,000 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 31% in 1989 to 18% in 2007 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 solo practitioners as a result of high educational debt levels and a change in gender profile of graduating dentists. According to the ADA, dental students in 2007 graduated with an average of $242,000 of debt and 44% 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 2007, approximately 80% 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 20% 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 one or more of the following: 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 and patients without dental insurance as fee-for-service. 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.

The National Association of Dental Plans, or NADP, and the Delta Dental Plans Association, or DDPA, estimated that nearly 176 million people, or 57% of the population of the United States, were covered by some

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form of dental benefit plan in 2008. This compares with 133 million people, or 52% of the population, in 1996. Of the 176 million people with coverage, 57% were covered by PPO plans, 13% by indemnity insurance plans, 14% by publicly funded benefits such as Medicaid, 8% by dental referral plans, 7% by capitated managed care plans and 1% by direct reimbursement plans. The number of people covered by PPO plans increased from 39 million in 1998 to 102 million in 2008, representing a compound annual growth rate of 10%.

Dental caries is the single most common chronic childhood disease. While, in recent years, dental caries has declined among children as a result of various preventive regimens, dental caries remains a significant problem in certain populations, particularly among poor children. With one in three children being born into households eligible for Medicaid or State Children’s Health Insurance Program, or SCHIP, the number of children eligible under these programs reached 28 million in 2008. According to the Pew Charitable Trusts, just one-third of Medicaid-enrolled children receive any dental care annually. In addition to issues at home contributing to dental disease among children, the Pew Charitable Trusts believes broader, systemic factors play a significant role in the lack of access to care including (i) too few children have access to proven preventive measures, including sealants and fluoridation; (ii) too few dentists are willing to treat Medicaid-enrolled children; and (iii) in some communities there are not enough dentists to provide care.

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 to each affiliated practice so that each may become the market leading, high quality dental provider of its community. Specifically, we provide dental facilities and support staff to the affiliated practices and provide or assist with organizational planning and development, staff recruitment, employee retention and training programs, quality assurance initiatives, facilities development and management, employee benefits administration, procurement, information systems and practice technology, marketing, payor contracting, and financial planning, reporting and analysis. In addition to the resources we currently offer to the affiliated practices, from time to time, we selectively seek to enhance or expand our capabilities and services, including through vertical integration of ancillary activities.

The services we offer to the affiliated practices are designed to foster or support what we believe to be the core attributes that define a leading, high quality dental provider: (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 addition to assisting the affiliated practices achieve or maintain these attributes, our objective is to help the affiliated practices grow their patient revenue eight to ten percent annually.

We believe that successful execution of our strategy will lead to growth in (i) the number of affiliated practices and communities that we service, (ii) the community presence of the affiliated practices, and (iii) our capabilities and resources.

Affiliation Philosophy

Current market trends in health care, including provider demographics and resource requirements, are adding to 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. Our business model enables dentists to focus on the clinical aspects of their dental group practices, while we manage the non-clinical aspects. We are additionally able to provide the necessary organizational structure, resources and capital for continued growth and success.

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. The dentists of the affiliated practice continue to have

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control over clinical decision-making and patient care while we manage the business aspects of the affiliated dental group. 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 relationships with patients and local dental benefit providers, and strengthen the existing management organization.

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.

Affiliated Dental Groups

From November 12, 1996 (the date of our first affiliation) through December 31, 2009, we completed 110 acquisition and affiliation transactions, which have resulted in affiliations with 27 affiliated dental groups comprising 268 dental facilities in 19 states. The following table lists our affiliated dental groups as of December 31, 2009.

				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	87	ü	ü	ü	ü		ü
Advanced Dental Specialists	Wisconsin	2	16		ü	ü			ü
American Family Dentistry	Tennessee	8	57	ü			ü		ü
Arizona’s Tooth Doctor for Kids (3)	Arizona	8	78	ü			ü	ü
Associated Dental Care Providers (3)	Arizona	10	102	ü	ü	ü	ü
Assure Dental (3)	Minnesota	2	8	ü
Carus Dental (3)	Texas	22	155	ü		ü	ü	ü	ü
Chestnut Hills Dental	Pennsylvania	8	60	ü		ü	ü
Christie Dental	Florida	26	151	ü	ü	ü	ü	ü	ü
Cumberland Dental (3)	Alabama	3	34	ü	ü	ü	ü		ü
Deerwood Orthodontics	Wisconsin	7	35				ü
Dental Arts Center	Virginia	1	39	ü	ü	ü	ü	ü	ü	ü
ForwardDental (3)	Wisconsin	29	265	ü				ü
Greater Maryland Dental Partners	Maryland/Virginia	6	71	ü	ü	ü	ü	ü	ü
Lakeside Dental Care	Louisiana	2	15	ü	ü
Metro Dentalcare	Minnesota	40	343	ü	ü	ü	ü	ü	ü
Oklahoma Dental Group	Oklahoma	4	36	ü
Orthodontic Care Specialists (3)	Minnesota/Wisconsin	20	104				ü
Premier Dental Partners	Missouri	8	78	ü					ü
Redwood Dental Group (3)	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
Texas Tooth Doctor for Kids	Texas	2	12	ü				ü
University Dental Associates (3) (4)	North Carolina	12	98	ü		ü	ü
Valley Dental Group (3)	Minnesota	1	15	ü	ü	ü	ü		ü	ü
Western New York Dental Group (3)	New York	14	160	ü	ü	ü	ü	ü	ü
		268	2,259

(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) 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 have contracted with, an affiliated practice. Each dental facility has a manager or supervisor

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who, along with the administrative staff, typically oversees day-to-day business operations, including facility staffing, patient scheduling, on-site patient billing and general office management. Each affiliated dental group has an operations director who oversees all the managers of the dental facilities of the affiliated dental group.

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; employee benefits administration and payroll processing; information systems; development of annual operating plans; accounting and financial reporting information; facilities maintenance; procurement; risk management; corporate development; accounts receivable management; dental laboratory services; payor contracting; and marketing.

A regional operations director is responsible for managing the operations directors and monitoring the operating performance of multiple affiliated dental groups in multiple communities. The regional operations directors are responsible for overseeing the development of annual operating plans for the affiliated dental groups and monitoring actual results.

Accreditation Association for Ambulatory Health Care

We have selected the Accreditation Association for Ambulatory Health Care, or AAAHC, as a means for supporting the quality initiatives of the affiliated practices. 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, twelve 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 our 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 also have 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. These programs are modular and are made available at the affiliated dental groups. We have a national training team composed of training specialists who work with the leadership of the affiliated dental groups to assess the job skills and services of each affiliated dental group 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 affiliated 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 by providing assistance with evaluation and negotiation of 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:

	2009		2008		2007
Fee-for-service	15	%	19	%	28	%
PPO and dental referral plans	77	%	70	%	60	%
Capitated managed care plans	8	%	11	%	12	%

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.

Facilities Development and Management

The affiliated dental groups 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 free standing.

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 firms that work with each affiliated dental group to improve facility design and establish defined facility standards. These standards create consistency across new dental facilities and thereby shorten the site development process and improve productivity of dentists and support staff.

Financial Planning and Financial Information System

We assist the affiliated practices with financial planning. We develop with each affiliated practice an annual operating plan for the affiliated dental group that sets specific goals for revenue growth, operating expenses and capital expenditures. Once a plan has been approved, 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 Improvis®, our proprietary dental practice management software system, to, among other things, facilitate patient scheduling, bill patients and insurance companies and manage facility staffing and timekeeping. Orthodontic Care Specialists and Deerwood Orthodontics, two affiliated dental groups that exclusively provide orthodontic services, utilize a different proprietary practice management system designed specifically for the unique requirements of the orthodontics specialty. We have implemented this orthodontic practice management system at 16 other affiliated dental groups that have a significant orthodontics practice.

We have a software development team that is responsible for development and enhancement of Improvis. Electronic dental record and digital radiography functionality has been incorporated into Improvis. At year end 2009, we were pilot testing the electronic dental record, and in 2010 we intend to pilot test digital radiography functionality.

Service Agreements and Affiliation Structure

Except for Arizona Tooth Doctor, as discussed below, 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 affiliated practice. We anticipate that each new practice with which we affiliate will enter into a similar service agreement or become a party to an existing service agreement. We are dependent on our service agreements for a substantial 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 that prohibit the affiliated practice from owning or operating another dental facility or having any interest in any business that 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.

With respect to each affiliated practice other than Christie Dental Practice Group, P.L., the affiliated practice at Christie Dental, we and the practice establish, pursuant to the terms of the service agreement, a joint policy board that 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 dentists currently employed by the practice. The joint policy board’s responsibilities include the review and approval of long-term strategic and short-term operational goals, objectives and plans for the affiliated dental groups, annual capital and operating plans, renovation and expansion plans and capital equipment expenditures with respect to the dental facilities, advertising and marketing services, and staffing plans. The joint policy board also reviews and monitors the financial performance of the affiliated dental group. Finally, the joint policy board reviews and makes recommendations with respect to patient fee schedules and contractual relationships with dental benefit

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providers, although final decisions regarding these and all other clinical matters, as previously discussed, are made exclusively by the affiliated practice. At Christie Dental, the matters that require policy board agreement or approval at the other affiliated practices generally require agreement between us and Christie Dental Practice Group, P.L.

The affiliated practices reimburse us for actual expenses incurred on their behalf in connection with the operation and administration of the dental facilities or our other services and pay fees to us for management services provided and capital committed. Our fee, depending on the service agreement and affiliated practice, consists of one of the following:

• a fixed monthly fee determined by agreement between us and the affiliated practice (but in no event will the total service fee be greater than the affiliated practice’s patient revenue less expenses);

• a monthly fee equal to the prior year’s service fee and an additional performance fee based upon a percentage of the increase in the amount by which the affiliated practice’s patient revenue exceeds expenses as compared to the prior year (but in no event will the total service fee be greater than the affiliated practice’s patient revenue less expenses);

• a monthly fee that is based upon a specified percentage of the amount by which the affiliated practice’s patient revenue exceeds expenses;

• 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; or

• a monthly fee based on a specified percentage of patient revenue or a specified percentage of collections on patient revenue.

The structure of the service fee, whether composed of variable or fixed components, or both, is dependent in part on the laws and regulations of the states in which we operate. The affiliated practice is responsible for its own business expenses, which generally consist of the salaries, benefits and certain other expenses of the dentists. We refer to these expenses as provider expenses.

Pursuant to the terms of the service agreements, we bill patients and third-party payors on behalf of the affiliated practices. These 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 the monthly service fee to us;

• payment of provider expenses; and

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

Each of our service agreements has an initial term of 40 years and automatically renews for successive 5-year terms, unless terminated by notice by either party given at least 120 days prior to the end of the initial term or any renewal term, or with respect to Christie Dental, by us at any time upon 180 days advance notice. 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 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 any unpaid service fees. The affiliated practice may also 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.

Arizona’s Tooth Doctor for Kids

Arizona Tooth Doctor is a dental group practice that provides dental care to children through eight locations in metropolitan Phoenix, Mesa, Chandler and Globe, Arizona. Approximately 90% of Arizona Tooth Doctor’s

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revenue is derived from PPO health plans that are contracted with the Arizona Health Care Cost Containment System, or AHCCCS, the state’s Medicaid program. While we employ the Arizona 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 25 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 group practices with respect to these factors. The practices affiliated with us compete with other dental practices and individual dentists in their respective communities.

Government Regulation

General

The practice of dentistry is highly regulated. Our operations and those of the affiliated practices are subject to a broad range of state and federal laws, regulations and licensing regimes. Changes to the legal or regulatory environments in which we and the affiliated practices operate could have a material impact on the operation and financial performance of our business. We consequently monitor and, as appropriate, seek to participate in relevant legislative and regulatory activity. Each of our service agreements provides that if any legal or regulatory change, or any ruling or interpretation by any court or administrative body, does, or is reasonably likely to, materially and adversely affect the performance or compensation of us or the affiliated practice under the service agreement, or makes the service agreement unlawful, then we and the affiliated practice are obligated to use best efforts to revise the relationship in a way that is legally compliant and approximates as closely as possible the originally negotiated economic positions of the parties.

State Regulation

Each state imposes licensing and other requirements on dentists. The laws of almost all of the states in which we operate prohibit, either by statute, regulation case law or as a matter of general public policy, entities not wholly-owned or controlled by dentists, such as us, from practicing dentistry; employing dentists and, in certain states, dental hygienists and assistants; exercising control over the provision of dental services; splitting fees; or receiving fees for patient referrals. An exception to the preceding is the State of Arizona, the laws of which permit us to own the dental practice and employ the dentists at Arizona Tooth Doctor. Many states additionally 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. Certain states also regulate the advertising of dental services, which regulations may include prohibiting the advertising of dental services under a trade or corporate name, requiring all advertisements to be in the name of a dentist or proscribing the content of advertisements and the use of promotional gift items. These laws and regulations and their interpretation vary from state to state and, in many instances, are subject to enforcement by regulatory authorities with broad discretionary authority.

Many state laws and regulations relating to the practice of dentistry were adopted prior to the emergence of dental management service organizations, like us, in the dental industry. The emergence of dental management service organizations has prompted certain states, including some of the states in which we operate, to review laws or regulations relating to the practice of dentistry and the business arrangements between dentists and dental management service organizations. These reviews could potentially result in legal or regulatory changes that could have a material impact on the operations and financial performance of our business.

In certain states, we are additionally subject to regulations pertaining to our role in the negotiation and administration of managed care contracts, plans or arrangements. To the extent that we or any affiliated practice

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contracts with a third-party payor, including a self-insured plan, under a capitated or other arrangement that causes us or the affiliated practice to assume a portion of the financial risk of providing dental care, we or the affiliated practice may become subject to state insurance laws. If we or the 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. Many states also have adopted patient privacy laws similar to the Health Insurance Portability and Accountability Act of 1996, or HIPAA and the Health Information Technology for Economic and Clinical Health Act, or HITECH provisions described below, some of which are more stringent than the federal regulations.

Federal Regulation

Participation by the affiliated practices and their dentists in federal payment programs subjects them, and us with respect to our Arizona Tooth Doctor operation, to federal laws and regulations concerning the provision of dental services to beneficiaries, submission of claims and related matters, certain of which are discussed below. Violation of these laws and regulations can result in liability for overpayments, and civil and criminal penalties, including possible exclusion of individuals and entities from participation in those federal programs.

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 that 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 a proscribed referral from submitting a claim for services provided pursuant to that 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 dental services to 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 practice. In addition, these rules provide that accounts receivable from federal payors are not saleable or assignable.

The affiliated practices are covered entities under HIPAA, and the recently enacted HITECH. Among other things, these laws include provisions regarding protection of the privacy of patient-identifiable health information and standards for security of electronic protected health information and electronic transactions. HITECH extended the HIPAA privacy and security rules to make them directly applicable to entities, such as us, that are “business associates” of the affiliated practices. Additionally, HITECH expanded the scope of HIPAA by, among other things, mandating individual and United States Department of Health and Human Services notification in instances of a breach of protected health information, and public notices in the event of a breach involving 500 or more patients; providing enhanced penalties for HIPAA violations; and granting enforcement authority to states’ attorneys general in addition to the United States Department of Health and Human Services Office of Civil Rights. We maintain policies and procedures for the handling of patient records and other information in order to comply with these laws. The laws and regulations in this area may continue to evolve, and new health information standards, whether implemented pursuant to HIPAA or otherwise, could have a material effect on how we and the affiliated practices handle health care related data and the cost of compliance. Failure to comply with existing or new laws or regulations related to the privacy or security of patient information could result in criminal or civil sanctions.

In addition to the preceding federal laws and regulations, dental practices are also subject to compliance with federal regulatory standards in the areas of safety, health and access.

Medicaid

Arizona Tooth Doctor is a provider under the Medicaid program in Arizona and Texas Tooth Doctor for Kids, or Texas Tooth Doctor is a provider under the Medicaid program in Texas. As providers under Medicaid programs,

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these affiliated practices must comply with extensive state and federal Medicaid laws and regulations, as well as contractual requirements owed to third-party payors that administer claims and reimbursement under those programs. The Medicaid programs include significant penalties for false or improper billings and inappropriate coding for dental services or related services.

Insurance

We maintain insurance coverage that we believe is appropriate for our business, including property, business interruption, workers’ compensation and general liability, among other coverages. In addition, the affiliated practices are required to maintain, or must cause to be maintained, professional liability insurance with us as a named insured. Certain of our insurance programs are reinsured by a wholly-owned captive insurance company licensed in Vermont.

Customers

For the fiscal year ended December 31, 2009, revenue generated from our service agreements with Northland Dental Partners, PLLC, the affiliated practice at Metro Dentalcare, and Wisconsin Dental Group, S.C., the affiliated practice at ForwardDental, represented 22% and 14%, 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

We do not employ dentists, hygienists or dental assistants in states where laws prohibit us from doing so. As of December 31, 2009, we had 2,585 employees, including 35 dentists (representing 33 full-time equivalent dentists), 449 hygienists, 741 dental assistants and 1,363 administrative personnel at our dental facilities, shared service centers and corporate office. As of December 31, 2009, the affiliated practices, excluding Arizona Tooth Doctor, employed 402 hygienists, 389 dental assistants and employed or contracted with 669 dentists (representing 500 full-time equivalent dentists). We consider our relationships with our employees to be satisfactory.

Available Information

We make available, free of charge, through our website at 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, or 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 visiting 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*	47	Chairman, President and Chief Executive Officer
Breht T. Feigh*	43	Executive Vice President – Chief Financial Officer and Treasurer
Michael J. Vaughan*	56	Executive Vice President – Chief Operating Officer
Michael J. Kenneally	49	Senior Vice President – Regional Operations
Jesley C. Ruff, D.D.S.	55	Senior Vice President – Chief Professional Officer
Ian H. Brock	40	Vice President – Planning and Investment
Michael W. Hoyt	46	Vice President – Information Systems
Mark W. Vargo*	58	Vice President – Chief Accounting Officer

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

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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. 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 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 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 our Minnesota subsidiaries since January 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. 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., or 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. Hoyt has served as Vice President – Information Services since May 2009. From 2001 to May 2009, Mr. Hoyt served as Senior Technology Director for GTECH, an international gaming technology company. From 1985 to 2000, Mr. Hoyt was with Electronic Data Systems, or EDS, in positions of increasing responsibility supporting clients across several industries, including health care claims processing and medical device manufacturing. In his most recent role at EDS, Mr. Hoyt served as Client Delivery Executive.

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,

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Inc., or 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

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below in addition to the other information included or incorporated by reference in this annual report before making an investment decision regarding our common stock. If any of the following risks actually occurs, our business, financial condition or operating results would likely suffer, possibly materially, the trading price of our common stock could decline and you could lose part or all of your investment.

Our business is highly dependent on the performance of the affiliated practices, which are predominantly independent third-parties that exercise sole decision-making authority with respect to all clinical matters.

We derive our net revenue primarily from revenue generated by the affiliated practices. The affiliated practices, with the exception of Arizona Tooth Doctor, are independent third parties. We cannot be certain that the affiliated practices will operate their businesses successfully or realize their full revenue potential. The affiliated practices have sole decision-making authority with respect to all clinical matters. Because clinical decisions are made without revenue considerations, we cannot be certain what impact those decisions may have on the revenue of the affiliated practices.

The affiliated practices, other then Arizona Tooth Doctor, control all employment decisions regarding dentists, and, with respect to certain affiliated practices, dental hygienists and assistants. The affiliated practices may, among other things, ineffectively recruit or manage their employees resulting in high employee turnover, loss of key personnel, employment disputes, any of which could negatively affect the revenue of the affiliated practices.

The restrictive covenants that we rely upon to protect, in part, the value of our investments in the affiliated practices may be difficult or costly to enforce.

We invest substantial sums to affiliate with practices and to maintain and support their growth. As part of the affiliation process, we acquire certain assets of the affiliated practice. The asset acquisition agreement typically includes time-limited covenants that restrict, among other things, the sellers from providing competing business services or interfering with our relationships with personnel or business partners. Although we believe that these restrictive covenants are reasonable to protect our investments and we attempt to draft such covenants to be legally enforceable, we cannot guarantee that such covenants will be upheld as reasonable and enforced, in whole or in part, by a court of competent jurisdiction if legally challenged. Additionally, we may incur significant costs defending the legality of the covenants. To the extent any of the restrictive covenants are unenforceable or enforcement proves not to be cost-effective, our investments may diminish in value, our competitive position may be compromised and our results of operation may suffer.

Our business model is dependent upon the enforceability and legality of the service agreements between us and the affiliated practices.

Our net revenue derives primarily from revenue generated by the affiliated practices. The service agreements create the affiliations and establish the terms under which we receive payment for the management services that we provide to the affiliated practices. We structure the service agreement in the context of each affiliation to comply with relevant state laws and regulations, including, without limitation, those concerning the practice of dentistry. We cannot, however, be certain that our interpretations of certain laws and regulations are correct. State regulatory authorities have in the past reviewed, and may in the future review, our service agreement for legal and regulatory compliance. To the extent our service agreement with any affiliated practice were deemed

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by a regulatory or judicial authority to be in violation of any law or regulation, our relationship with that affiliated practice might terminate, the service agreement might require material amendments with uncertain consequences, or we might be required to restructure our business model at significant cost.

A significant percentage of our net revenue results from a disproportionately small number of affiliated practices.

Revenue generated from our service agreements with Northland Dental Partners, PLLC, the affiliated practice at Metro Dentalcare, and with Wisconsin Dental Group, S.C., the affiliated practice at ForwardDental, represented 22% and 14%, respectively of our consolidated net revenue in 2009. The termination of either of these service agreements would have a material adverse effect on our business, financial condition and results of operations.

The recent economic downturn has negatively affected consumer demand for dental care, which may negatively affect revenue and profitability.

Our net revenue depends primarily on revenue generated by the affiliated practices. Demand for dental care has declined among patients both with and without dental insurance. We estimate approximately 90% of patients at the affiliated practices have dental insurance. In general, dental insurance covers 100% of preventative care, 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, even patients with dental insurance are financially responsible for a considerable portion of their dental expenditures. The recent economic downturn has caused consumer spending patterns to change. The 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 a 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 has been lower net revenue and lower profit margins. We anticipate that negative macroeconomic conditions will continue to adversely affect our business in 2010, although we are unable to predict the likely duration or severity of those conditions or the magnitude effect on our business or results of operations. We do not, however, believe that the current economic conditions will lessen the dental care needs of patients and do not therefore expect lasting long-term impact on the dental care industry.

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. To contain reimbursement and utilization rates, third-party payors often attempt to, or do in fact, amend or renegotiate their fee reimbursement schedules. 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 revenue and results of operations.

Our net revenue at Arizona Tooth Doctor and Texas Tooth Doctor may be adversely affected by changes in state Medicaid programs.

Arizona Tooth Doctor and Texas Tooth Doctor are largely dependent upon reimbursements from authorized third-party payors operating under state Medicaid programs. Certain states, including Arizona, have recently reduced or proposed reducing Medicaid reimbursement rates in response to state budgetary shortfalls. These reductions generally are passed on to contracted practices and negatively affect revenue and operating results.

We and the affiliated practices are subject to extensive and complex laws and regulations. If we or the affiliated practices fail to comply with existing or new laws or regulations, we or they could suffer civil or criminal penalties.

The practice of dentistry is highly regulated. Our operations and those of the affiliated dental groups are subject to a broad range of state and federal laws, regulations and licensing requirements, including laws and regulations

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affecting the structure of our relationships with the affiliated practices, governing the qualifications and conduct of clinical personnel, billing and reimbursement, fee splitting, patient referrals, advertising and regarding privacy and security of protected health information. The substance and enforcement of many of these laws and regulations, particularly at the state level, lack consistency from jurisdiction to jurisdiction. In certain jurisdictions, laws and regulations may be ambiguous or vague without clarifying case law or administrative guidance. Although we strive to maintain a legally-compliant business, our operations may not be in compliance with certain laws or regulations, as written or as may be interpreted. Failure to comply with laws and regulations may subject us or the affiliated practices to civil or criminal penalties, licensing or other sanctions, or refunding of reimbursement, that limit our ability to operate our business or their ability to provide dental services. In addition, the affiliated practices that provide services under Medicaid programs could be excluded from participating in those programs.

Changes to laws and regulations pose two additional risks. First, as described above, failure to comply with changes to law and regulations may subject us or the affiliated practices to civil or criminal penalties, or licensing or other sanctions that limit our ability to operate our business or the ability of the practices to provide dental services. Second, changes to laws or regulations might have the effect of rendering invalid or illegal, in whole or in part, certain aspects of the services agreements between us and the affiliated practices.

Sedation is used extensively by Arizona Tooth Doctor and Texas Tooth Doctor, and harm to a patient resulting from its use could have a material adverse effect on our business.

Arizona Tooth Doctor and Texas Tooth Doctor utilize sedation extensively in providing dental services to patients, including children, ranging from conscious sedation to general anesthesia. Although we believe these affiliated practices have appropriate protocols and procedures in place for the safe and efficient use of sedation, a certain level of risk is inherent with those procedures, and there can be no assurance that harm to a patient will not occur. Any such event could have a material adverse effect on those affiliated practices, as well as our overall reputation.

In addition, the ability of these affiliated practices to continue using sedation to the extent currently in use is dependent upon their ability to retain, credential and supervise a sufficient number of qualified professionals and staff to perform these services, whether anesthesiologists or certified registered nurse anesthetists as may be required under applicable protocols or legal requirements, and to obtain sufficient reimbursement for their services. There can be no assurance that either affiliated practice will be able to continue retaining and utilizing the services of these individuals, or that their services can be obtained on a cost-effective basis.

New affiliations could be difficult to integrate, disrupt our business or impair our financial results.

To the extent we affiliate with new practices, we undertake certain risks that include, but are not limited to: difficulty assimilating the operations, assets and personnel that we acquire from the affiliated practice; potential loss of key employees from the affiliated practice; unidentified issues not discovered in due diligence; and the possibility of incurring impairment losses related to goodwill or other intangible assets that we acquire from the affiliated practice.

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

A significant portion of our total assets are represented by goodwill and intangible assets. Our goodwill and intangible assets will likely increase to the extent we consummate additional affiliations or acquisitions in the future. The amortization expense related to definite lived intangible assets will also likely increase in the future as a result of additional intangible assets being 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 that would suggest that the goodwill or indefinite lived intangible asset is impaired. An impairment test on goodwill and definite lived intangible assets is likewise performed when facts and circumstances exist that would suggest that the definite lived intangible asset may be impaired, such as loss of key personnel or contracts or change in legal factors. Impairment assessment inherently involves judgment as to

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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 negatively affect our balance sheet.

Our dental benefits third party administrator historically earned a significant percentage of its revenue from administering capitated managed care plans. As a result of the continuing decline of capitated managed care plans in the dental profession, our dental benefits third party administrator has been developing additional product offerings, including dental referral plans, to offset the decline of this part of its business. In 2009, our dental benefits third party administrator experienced a reduction of revenue and incurred an operating loss as a result of the continuing decline of administrative services for capitated managed care plans. Based on its business plan and future projections, we determined the fair value of this business reporting unit exceeded the carrying value of $2,266,000 at October 1, 2009. If this business plan is not successfully executed or projected financial results are not achieved, we may need to record an impairment charge related to the carrying value of the goodwill of this reporting unit.

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 are subject from time to time to professional liability claims, and it is possible that these claims could also be asserted against us. These claims, if successful, could result in substantial damage awards that could exceed the limits of our applicable insurance coverage. We are named as an insured under the professional liability insurance policy covering the affiliated practices. In addition, we require each affiliated practice to indemnify us for actions or omissions related to the provision of dental care by the affiliated practice. Nonetheless, a successful professional liability claim against an affiliated practice might have a material adverse effect on our business, financial condition and results of operations.

Interruptions in our information systems could limit our ability to operate our business.

Our business is dependent on information systems, which could be vulnerable to damage or interruption from computer viruses, human error, natural disasters, telecommunications failures, intentional acts of vandalism and similar events. A significant or prolonged interruption in our computer network, data center or software applications could have a material adverse effect on our business, financial condition and results of operations.

A catastrophic event may significantly limit our ability and that of the affiliated dental groups to conduct business as normal.

We operate a complex, geographically dispersed business. Disruption or failure of networks or systems, or injury or damage to personnel or physical infrastructure, caused by a natural disaster, public health crisis, terrorism, cyber attack, act of war or other catastrophic event may significantly limit our ability and that of the affiliated practices to conduct business as normal, including our ability to communicate and transact with the affiliated practices, as well as with suppliers and vendors, and the ability of the affiliated practices to provide dental care to patients. We may not be adequately insured for all losses and disruptions caused by catastrophic events, and we may not have a sufficiently comprehensive enterprise-wide disaster recovery plan in place.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES

We lease most of our facilities from unrelated third parties. As of December 31, 2009, we leased or owned 268 dental facilities, 3 dental labs and 12 administrative offices, including our corporate headquarters. Our corporate

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office is located at 401 Edgewater Place, Suite 430, Wakefield, Massachusetts 01880, and comprises approximately 17,000 square feet of office space. Our lease for our corporate office 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, 2009, 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 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 thereunder, 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, or PDG, 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 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. 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.

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 that 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 Court denied the motion on April 2, 2009.

On December 15, 2009, we, the other defendants and the lead plaintiff entered a Class Action Settlement Agreement to settle and release all remaining claims. The settlement agreement was filed on December 15, 2009 and is subject to the Court’s final approval. Pursuant to the terms of the settlement agreement, the insurance company that issued our Directors, Officers and Corporate Liability Insurance Policy has paid $6,000,000 into a settlement fund that will be distributed in accordance with the Court’s order if the Court grants its final approval. The Court preliminarily approved the settlement agreement on December 23, 2009 and has scheduled a fairness hearing for March 18, 2010.

On or about February 22 and 23, 2010, Special Situations Fund III L.P., Special Situations Cayman Fund, L.P., and Special Situations Fund III Q.P., L.P. excluded themselves from the pending settlement and filed an opt-out complaint in the District of Massachusetts, against us and the same executive officers named as defendants in the prior actions, entitled “Special Situations Fund III, L.P. et al. v. American Dental Partners, Inc. et al.,” civil action number 1:10-CV-10331. The complaint asserts that the plaintiffs purchased over 500,000 shares of our common stock during the class period, alleges the same violations of the federal securities laws described above,

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and claims that certain of the alleged misrepresentations also violated Section 18 of the Securities Exchange Act, 15 U.S.C. § 78(r). The plaintiffs seek an unspecified amount of money damages, costs and attorneys’ fees, and any other relief the Court deems proper. Our time within which to respond has not yet elapsed. 

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 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 defendants and claims for unjust enrichment and insider selling against some of the individual defendants. The relief the complaint seeks on behalf of the company 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. The plaintiffs 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 plaintiff filed the action without first making a demand on our board of directors to address the allegations. The complaint names us as a nominal defendant and certain of our directors and executive officers as defendants. 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 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.

On August 15, 2008, on the joint motion of the parties, the Dyer and 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 other individual defendants brought a motion to dismiss the consolidated actions that was heard by the Court on April 15, 2008. The Court granted that motion on May 28, 2009 and entered judgments dismissing the Musselman and Dyer actions on May 29, 2009.

On June 24, 2009, the Dyer and Musselman plaintiffs filed Notices of Appeal. The Superior Court noticed the assembly of the record on appeal in both actions on July 16, 2009, and, on July 22, 2009, the Massachusetts Appeals Court consolidated both appeals on its docket at No. 2009-P-1426. The appeal was fully briefed on January 22, 2010. The Massachusetts Appeals Court has not yet set the date for the hearing. We intend to defend the matter vigorously.

ITEM 4.  REMOVED AND RESERVED

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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 Global Select 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, 2008 and 2009.

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
2009	High		Low
1st Quarter	$	7.20	$	5.86
2nd Quarter	$	10.03	$	6.02
3rd Quarter	$	14.37	$	9.16
4th Quarter	$	15.26	$	10.99

On March 8, 2010, the last reported sale price of our common stock on the NASDAQ Global Select Market was $13.20 per share. The approximate number of holders of record of our common stock at March 8, 2010 was 14. This number does not include shareholders for whom shares were held in a “nominee” or “street” name. We have never declared or paid cash dividends on our capital stock and our credit agreement contains restrictions on our 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.

	12/04	12/05	12/06	12/07	12/08	12/09
American Dental Partners, Inc.	100.00	143.04	149.45	79.35	54.91	101.98
Russell 2000	100.00	104.55	123.76	121.82	80.66	102.58
S&P Health Care	100.00	106.46	114.48	122.67	94.69	113.34

Summary of Equity Plans

See Item 12 of Part III for a summary of equity plans as of December 31, 2009.

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 our consolidated statements of income for fiscal years 2009, 2008 and 2007 and consolidated balance sheets as of December 31, 2009 and 2008 are derived from our consolidated financial statements included elsewhere in this annual report. Data with respect to the consolidated statements of income for fiscal years 2006 and 2005 and consolidated balance sheets as of December 31, 2007, 2006 and 2005 are derived from our 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 our consolidated financial statements and notes thereto included elsewhere in this annual report.

	Years Ending December 31,
	2009			2008			2007			2006			2005
Consolidated Statement of Operations Data:
Net revenue	$	274,342		$	291,108		$	278,755		$	217,917		$	196,928
Operating expenses:
Salaries and benefits (1)		117,429			127,273			119,616			91,289			83,727
Lab fees and dental supplies		39,691			42,836			43,209			35,066			31,638
Office occupancy		34,326			33,878			31,457			26,404			23,013
Other operating expenses (1)		23,739			24,539			23,195			19,077			18,283
General corporate expenses		13,709			12,366			14,427			11,126			9,570
Depreciation		11,137			11,054			9,422			7,845			7,001
Amortization of intangible assets		9,463			9,634			7,049			5,358			5,007
Litigation expense		-			(30,662	)		36,734			1,570			-
Total operating expenses		249,494			230,918			285,109			197,735			178,239
Earnings from operations		24,848			60,190			(6,354	)		20,182			18,689
Interest expense		11,055			10,193			5,253			1,848			1,804
Earnings before income taxes		13,793			49,997			(11,607	)		18,334			16,885
Income taxes		5,475			19,245			(4,281	)		7,146			6,594
Consolidated net earnings		8,318			30,752			(7,326	)		11,188			10,291
Noncontrolling interest		589			634			390			54			-
Net earnings	$	7,729		$	30,118		$	(7,716	)	$	11,134		$	10,291
Net earnings (losses) per common share (2):
Basic	$	0.55		$	2.34		$	(0.61	)	$	0.91		$	0.86
Diluted	$	0.55		$	2.29		$	(0.61	)	$	0.86		$	0.81
Weighted average common shares outstanding (2):
Basic		13,946			12,876			12,681			12,301			12,006
Diluted		14,155			13,150			12,681			12,916			12,716
	December 31,
	2009			2008			2007			2006			2005
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	6,807		$	6,626		$	6,376		$	1,386		$	592
Working capital		(4,803	)		13,588			(19,897	)		(4,813	)		2,055
Total assets (3)		374,011			353,253			368,506			196,386			170,937
Total debt		102,191			131,637			141,174			33,888			32,162
Total stockholders’ equity		185,459			146,498			114,903			116,311			101,895
Statistical Data:
Number of states		19			18			18			18			18
Number of affiliated practices (4) (5)		27			25			26			22			19
Number of dental facilities (4)		268			241			266			209			187
Number of operatories (4) (6)		2,259			2,107			2,357			1,944			1,761
Number of affiliated dentists (4) (7)		533			545			611			470			435
Patient revenue of affiliated practices (in thousands)	$	418,405		$	415,958		$	418,471		$	337,401		$	302,982

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(1) Certain expenses in previous years were reclassified from other operating expenses to salaries and benefits to agree with current year presentation.

(2) Net earnings per common share are computed on the basis described in Notes 2 and 14 to our Consolidated Financial Statements.

(3) Amounts due to affiliated practices have been reclassified from accounts receivable, net of accounts payable for all years presented.

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

(5) Two affiliated practices, Texas Oral & Maxillofacial Surgical Associates and Carus Dental, merged 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

We are 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, 2009 we were affiliated with 27 dental group practices, comprising 533 full-time equivalent dentists practicing in 268 dental facilities in 19 states.

Our net revenue depends primarily on revenue generated by the affiliated practices. Demand for dental care has declined among patients both with and without dental insurance. We estimate approximately 90% of patients at the affiliated practices have dental insurance. In general, dental insurance covers 100% of preventative care, 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, even patients with dental insurance are financially responsible for a considerable portion of their dental expenditures. The recent economic downturn has caused consumer spending patterns to change. The 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 a 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 has been lower net revenue and lower profit margins. We anticipate that negative macroeconomic conditions will continue to adversely affect our business in 2010, although we are unable to predict the likely duration or severity of those conditions or the magnitude effect on our business or results of operations. We do not, however, believe that the current economic conditions will lessen the dental care needs of patients and do not therefore expect lasting long-term impact on the dental care industry.

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 2009, 2008 and 2007, we completed 6, 8 and 14 acquisition and affiliation transactions, respectively. In five 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 22 of these transactions, we completed in-market practice acquisitions, which became subject to existing service agreements. These acquisition and affiliation transactions resulted in the addition of 89 dental facilities and 569 operatories. The 2009, 2008 and 2007 acquisition and affiliation transactions, at the time of the transactions, generated $27,000,000, $5,000,000 and $109,000,000 of pro forma 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.

Litigation Settlement Agreements

In December 2007, we entered into a settlement agreement in the litigation matter with PDG, P.A., formerly the affiliated practice at Park Dental. Pursuant to the settlement agreement, the service agreement with PDG was

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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, which was recorded as $10,000,000 in net revenue and $9,000,000 as an offset to the litigation loss. We completed the transition services, received the related $19,000,000 payment and completed the final steps in the termination of the relationship with PDG. As a result of the PDG settlement, our results of operations may not be comparable period to period 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 Arizona Tooth Doctor, fees earned by our dental benefits third party administrator or fees earned by our dental laboratory and other miscellaneous revenue. For 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 2009, 2008 and 2007 (in thousands):

	2009		2008		2007
Reimbursement of expenses	$	187,127	$	189,500	$	187,260
Business service fees		59,976		55,971		64,088
Revenue earned under service agreements		247,103		245,471		251,348
Other revenue (1)		27,239		45,637		27,407
Net revenue	$	274,342	$	291,108	$	278,755

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

Revenue earned from business service fees and reimbursed expenses under the terms of the affiliated practice service agreements represented 90%, 84% and 90% of net revenue for the years ended December 31, 2009, 2008 and 2007, respectively. The increase in other revenue in 2008 was due to revenue earned under our transition services agreement with PDG. We believe both the affiliated practices and our other revenue sources have been affected by changes in the U.S. economy that we believe have influenced discretionary spending for dental services not covered wholly or significantly by dental benefit plans. The Arizona Tooth Doctor business is directly affected by patient care service reimbursed under Arizona’s Medicaid program.

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 77% of our 2009 business service fees, our business service fee consists of a monthly fee that is based upon a specified percentage of the amount by which the affiliated practice’s patient revenue exceeds expenses. Under certain service agreements, representing 22% of our 2009 business service fees, our business service fee consists entirely of a fixed monthly fee determined by agreement between us and the affiliated practice in a formal planning process. Under certain other service agreements, representing less than 1% of our 2009 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.

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We account for net revenue from the reimbursement of expenses on an accrual basis and recognize revenue when these expenses are incurred by the affiliated practices. Reimbursement of expenses includes costs incurred by us for the operation and administration of the dental facilities, which 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 of Arizona Tooth Doctor, fees earned by our dental benefits third party administrator, dental laboratory fees and other miscellaneous revenue.

Patient Revenue of the Affiliated Practices

We believe it is important for investors to understand patient revenue of the affiliated practices, which with the exception of Arizona Tooth Doctor, we do not own or control. 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. It is however, a financial measure we use to monitor operating performance and to help identify and analyze trends of the affiliated practices that may affect our business. Most of the operating expenses incurred by us, pursuant to the 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 dental referral 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 for the years ended December 31:

	2009		2008		2007
Fee-for-service	15	%	19	%	28	%
PPO and dental referral plans	77	%	70	%	60	%
Capitated managed care plans	8	%	11	%	12	%

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 them.

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The following table sets forth for the years ended December 31, 2009, 2008 and 2007, same market patient revenue of all the affiliated practices, the amounts due to us under service agreements, and amounts retained by the affiliated practices for compensation of dentists and, where applicable, other clinical staff (in thousands):

	Twelve Months Ended December 31,				% Change		Twelve Months Ended December 31,				% Change
	2009		2008				2008		2007
Patient revenue of affiliated practices:
Platform dental group practices affiliated with us in both periods of comparison	$	413,742	$	414,197	-0.1	%	$	322,318	$	305,249	5.6	%
Platform dental group practices that affiliated with us during periods of comparison		4,663		1,761	164.8	%		93,640		113,222	-17.3	%
Total patient revenue		418,405		415,958	0.6	%		415,958		418,471	-0.6	%
Patient revenue of Arizona Tooth Doctor		24,708		24,438	1.1	%		24,438		22,426	9.0	%
Patient revenue of affiliated practices other than Arizona
Tooth Doctor		393,697		391,520	0.6	%		391,520		396,045	-1.1	%
Amounts due to us under service agreements		247,103		245,471	0.7	%		245,471		251,241	-2.3	%
Amounts retained by affiliated practices other than
Arizona Tooth Doctor	$	146,594	$	146,049	0.4	%	$	146,049	$	144,804	0.9	%

Same market patient revenue growth was -0.1% for the year ended December 31, 2009 and was composed of a 0.9% decrease in provider hours, a 2.4% increase in provider productivity and a 1.6% deterioration in reimbursement rates received from dental benefit insurers. Same market patient revenue growth for 2009 excludes platform affiliations that occurred after January 1, 2008. Same market patient revenue growth was 5.6% for the year ended December 31, 2008 and was composed of an 8.4% increase in provider hours and 1.5% reduction in provider productivity, with the remainder being attributable to deterioration in reimbursement rates received from dental benefit insurers. Same market patient revenue growth for 2008 excludes platform affiliations that occurred after January 1, 2007.

Amounts retained by affiliated practices, excluding Arizona Tooth Doctor, decreased as a percentage of patient revenue of affiliated practices we do not own from 37.3% in 2008 to 37.2% in 2009. 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 expense.

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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, 2009, 2008 and 2007 (dollars in thousands):

	2009				2008					2007
	Amount		% of Net Revenue		Amount			% of Net Revenue		Amount			% of Net Revenue
Net revenue	$	274,342	100.0	%	$	291,108		100.0	%	$	278,755		100.0	%
Salaries and benefits (1)		117,429	42.8	%		127,273		43.7	%		119,616		42.9	%
Lab fees and dental supplies		39,691	14.5	%		42,836		14.7	%		43,209		15.5	%
Office occupancy		34,326	12.5	%		33,878		11.6	%		31,457		11.3	%
Other operating expenses (1)		23,739	8.7	%		24,539		8.4	%		23,195		8.3	%
General corporate expenses (2)		13,709	5.0	%		12,366		4.2	%		14,427		5.2	%
Depreciation expense		11,137	4.1	%		11,054		3.8	%		9,422		3.4	%
Amortization of intangible assets		9,463	3.4	%		9,634		3.3	%		7,049		2.5	%
Litigation expense (2)		-	0.0	%		(30,662	)	-10.5	%		36,734		13.2	%
Total operating expenses		249,494	90.9	%		230,918		79.3	%		285,109		102.3	%
Earnings from operations		24,848	9.1	%		60,190		20.7	%		(6,354	)	-2.3	%
Interest expense, net		11,055	4.0	%		10,193		3.5	%		5,253		1.9	%
Earnings before income taxes		13,793	5.0	%		49,997		17.2	%		(11,607	)	-4.2	%
Income taxes		5,475	2.0	%		19,245		6.6	%		(4,281	)	-1.5	%
Consolidated net earnings		8,318	3.0	%		30,752		10.6	%		(7,326	)	-2.6	%
Noncontrolling interest		589	0.2	%		634		0.2	%		390		0.1	%
Net earnings	$	7,729	2.8	%	$	30,118		10.3	%	$	(7,716	)	-2.8	%

(1) Certain expenses in previous years were reclassified from other operating expenses to salaries and benefits to agree with current year presentation.

(2) Professional fees associated with the PDG litigation of $1,103 and $3,371 for the years ended December 31, 2008 and 2007 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 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 for fiscal years 2008 and 2007 to exclude temporary and non-recurring items related to the litigation settlement as we believe that the pro forma presentation is important to understanding future trends of our underlying and ongoing operations. The pro forma information consists of non-GAAP financial measures. There were no significant non-recurring items that require the Company to include pro forma financial information for fiscal year 2009.

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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, 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		127,273			4,717			1,453		121,103
Lab fees and dental supplies		42,836			1,436			-		41,400
Office occupancy expenses		33,878			1,092			180		32,606
Other operating expenses		24,539			135			323		24,081
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
Earnings before income taxes		49,997			30,662			8,002		11,333
Income taxes		19,245								4,171
Consolidated net earnings		30,752								7,162
Noncontrolling interest		634			-			-		634
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 6 dental facilities retained by us, (ii) a gain on disposal of assets of $30,763,000, pursuant to authoritative guidance for 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 these services, and salaries and benefits expense of management staff, including severance, who have been terminated as a result of realigning our 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		119,616			20,316			1,995		97,305
Lab fees and dental supplies		43,209			6,883			-		36,326
Office occupancy expenses		31,457			4,611			214		26,632
Other operating expenses		23,195			3,059			288		19,848
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 and 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 these services.

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The following table sets forth the percentage change between the GAAP financials for the twelve months ended December 31, 2009 and the pro forma non-GAAP financial measures for the twelve months ended December 31, 2008 (dollars in thousands):

	2009				2008
	Actual Amounts		% of Net   Revenue		Pro Forma Amounts		% of Net   Revenue		% Change
Net revenue	$	274,342	100.0	%	$	273,411	100.0	%	0.3	%
Operating expenses
Salaries and benefits		117,429	42.8	%		121,103	44.3	%	-3.0	%
Lab fees and dental supplies		39,691	14.5	%		41,400	15.1	%	-4.1	%
Office occupancy expenses		34,326	12.5	%		32,606	11.9	%	5.3	%
Other operating expenses		23,739	8.7	%		24,081	8.8	%	-1.4	%
General corporate expenses		13,709	5.0	%		12,366	4.5	%	10.9	%
EBITDA		45,448	16.6	%		41,855	15.3	%	8.6	%
Depreciation		11,137	4.1	%		10,695	3.9	%	4.1	%
Amortization		9,463	3.4	%		9,634	3.5	%	-1.8	%
Earnings from operations		24,848	9.1	%		21,526	7.9	%	15.4	%
Interest expense, net		11,055	4.0	%		10,193	3.7	%	8.5	%
Earnings before income taxes		13,793	5.0	%		11,333	4.1	%	21.7	%
Income taxes		5,475	2.0	%		4,171	1.5	%	31.3	%
Consolidated net earnings		8,318	3.0	%		7,162	2.6	%	16.1	%
Noncontrolling interest		589	0.2	%		634	0.2	%	-7.1	%
Net earnings	$	7,729	2.8	%	$	6,528	2.4	%	18.4	%

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
	Pro Forma Amounts		% of Net   Revenue		Pro Forma Amounts		% of Net   Revenue		% Change
Net revenue	$	273,411	100.0	%	$	230,011	100.0	%	18.9	%
Operating expenses
Salaries and benefits		121,103	44.3	%		97,305	42.3	%	24.5	%
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		24,081	8.8	%		19,848	8.6	%	21.3	%
General corporate expenses		12,366	4.5	%		14,427	6.3	%	-14.3	%
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	%
Earnings before income taxes		11,333	4.1	%		15,180	6.6	%	-25.3	%
Income taxes		4,171	1.5	%		5,798	2.5	%	-28.1	%
Consolidated net earnings		7,162	2.6	%		9,382	4.1	%	-23.7	%
Noncontrolling interest		634	0.2	%		390	0.2	%	62.6	%
Net earnings	$	6,528	2.4	%	$	8,992	3.9	%	-27.4	%

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Management believes that this pro forma presentation provides a better understanding of our results of operations and potential future trends of our underlying operations.

Net Revenue

Net revenue decreased 5.8% to $274,342,000 in 2009 from $291,108,000 in 2008 and increased 4.4% to $291,108,000 in 2008 from $278,755,000 in 2007. Net revenue increased in 2008 as a result of the transition services agreement with PDG and a full year contribution of Metro Dentalcare acquired in September 2007 offset by the transfer of 25 Park Dental facilities to PDG effective December 31, 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 0.3% to $274,342,000 in 2009 from pro forma net revenue of $273,411,000 in 2008. The increase was primarily due to the contribution of the Christie Dental platform affiliation entered into on December 1, 2009 and the newly created platform affiliation, Texas Tooth Doctor for Kids, in which we developed two de novo facilities in January 2009 and July 2009. Pro forma net revenue increased 18.9% to $273,411,000 in 2008 from pro forma net revenue of $230,011,000 in 2007. This increase was due to a full year of net revenue earned from our platform affiliation with Metro Dentalcare, in-market practice acquisitions completed in 2007 and an increase in revenue at Arizona Tooth Doctor.

Net revenue derived from our service agreement with Northland Dental Partners, PLLC, the affiliated practice at Metro Dentalcare, represented approximately 22% of net revenue for 2009, 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 ForwardDental, represented approximately 14% of net revenue for 2009, 13% of 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 2009 net revenue and 2008 and 2007 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.

Salaries and Benefits

Salaries and benefits expense includes costs for personnel working at the dental facilities, dental laboratories 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 Arizona 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 decreased to 42.8% in 2009 from 43.7% in 2008. Salaries and benefits expense as a percentage of net revenue increased to 43.7% in 2008 from 42.9% in 2007.

Salaries and benefits expense as a percentage of net revenue decreased to 42.8% in 2009 from 44.3% of pro forma net revenue in 2008. The decrease was due primarily due to actions we have taken with staffing and compensation management initiatives in response to current economic conditions. Pro forma salaries and benefits expense as a percentage of pro forma net revenue increased to 44.3% in 2008 from pro forma salaries and benefits expense as a percentage of pro forma net revenue of 42.3% in 2007. The increase is due to underutilization of the six dental facilities that we did not transfer to PDG as part of the litigation settlement, which resulted in higher salaries costs as a percentage of net revenue, Arizona Tooth Doctor where we employ dentists and to a lesser degree a full year impact of Metro Dentalcare.

Lab Fees and Dental Supplies

Lab fees and dental supplies expense varies from affiliated practice to affiliated practice and is affected by the volume and type of procedures performed. These expenses are significantly affected by the patient revenue of the

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affiliated practices, and as a percentage of patient revenue were 9.5% for 2009 and 10.3% for 2008 as revenue growth rates of the affiliated practices have decreased and revenue mix has shifted towards lower cost dental procedures that do not have lab fees.

Lab fees and dental supplies expense as a percentage of net revenue decreased to 14.5% in 2009 from 14.7% in 2008. Lab fees and dental supplies expense as a percentage of net revenue decreased to 14.7% in 2008 from 15.5% in 2007.

Lab fees and dental supplies expense as a percentage of net revenue decreased to 14.5% of net revenue in 2009 from 15.1% of pro forma net revenue in 2008. The decrease was largely attributed to a reduction of lab fees and to a lesser extent dental supply costs. Lab fees and dental supplies expense as a percentage of net revenue decreased to 15.1% of pro forma net revenue in 2008 from 15.8% of pro forma net revenue in 2007. The decrease was due to concerted efforts to manage dental supplies expense across all affiliated practices 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 laboratories and the local and regional shared service centers. These 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 12.5% in 2009 from 11.6% in 2008. 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 increased to 12.5% in 2009 from 11.9% of pro forma net revenue in 2008. The increase was largely due to our 2008 affiliation activity, in which several new facilities were acquired; the expansion of our pediatric Medicaid business in Texas; the Christie Dental acquisition; and to a lesser degree increased rent and related charges at certain locations. Pro forma office occupancy expense as a percentage of pro forma net revenue increased to 11.9% in 2008 from 11.6% of pro forma net revenue 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 the affiliation with Barzman, Kasimov & Vieth, or BKV, where office occupancy as a percentage of net revenue was 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.

Other operating expenses increased as a percentage of net revenue to 8.7% in 2009 from 8.4% in 2008. Other operating expenses increased as a percentage of net revenue to 8.4% in 2008 from 8.3% in 2007.

Other operating expenses as a percentage of net revenue decreased to 8.7% in 2009 from 8.8% of pro forma net revenue in 2008. The decrease is due primarily to lower professional fees and travel expenses. Other operating expenses as a percentage of pro forma net revenue increased to 8.8% in 2008 from 8.6% of pro forma net revenue in 2007. This increase is due to new affiliations completed in 2008, increased administrative expenses at several of the 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.

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General corporate expense as a percentage of net revenue increased to 5.0% in 2009 from 4.2% in 2008. General corporate expenses as a percentage of net revenue decreased to 4.2% in 2008 from 5.2% in 2007.

General corporate expenses as a percentage of net revenue increased to 5.0% in 2009 from 4.5% of pro forma net revenue in 2008. This increase is due to higher incentive compensation expense in 2009. Pro forma general corporate expenses as a percentage of pro forma net revenue decreased to 4.5% for 2008 from 6.3% of pro forma net revenue in 2007. This decrease is due to a reduced incentive compensation expense and reduced travel expenses.

Stock-based compensation expense was $1,603,000, $1,978,000 and $1,898,000 for the years ended December 31, 2009, 2008 and 2007, respectively.

Depreciation

Depreciation expense, including amortization of leasehold improvements, increased to 4.1% of net revenue in 2009 from 3.8% in 2008. Depreciation expense, increased to 3.8% of net revenue in 2008 from 3.4% in 2007.

Depreciation expense as a percentage of net revenue increased to 4.1% in 2009 from 3.9% of pro forma net revenue in 2008. The increase was the result of facility investments and accelerated amortization of leasehold improvements associated with the anticipated closing of dental facilities. Depreciation expense as a percentage of pro forma net revenue increased to 3.9% in 2008 from 3.5% of pro forma net revenue in 2007. The increase was the result of the underutilization of the six 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 2010.

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 3.4% in 2009 from 3.3% in 2008. Amortization expense 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 decreased to 3.4% for 2009 from 3.5% of pro forma net revenue for 2008. The decrease is attributed to a change in the classification of our Metro Dentalcare trade name from a definite lived to an indefinite lived asset. Amortization expense as a percentage of pro forma net revenue increased to 3.5% for 2008 from 3.1% of pro forma net revenue for 2007. The increase was due to affiliations completed during 2007, most notably the affiliation with BKV.

Litigation Expense

On February 29, 2008, under the terms of the PDG litigation settlement agreement we transferred the operating assets of 25 of the 31 Park Dental facilities to PDG. Pursuant to authoritative guidance for accounting for the impairment or disposal of long-lived assets 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 from PDG in 2008 totaling $10,000,000 offset by the costs to provide these services, including severance costs.

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 that was 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.

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Earnings from Operations

Earnings from operations decreased to $24,848,000 in 2009 from $60,190,000 in 2008. Earnings from operations increased to $60,190,000 in 2008 from a loss of $(6,354,000) in 2007. The primary reason for the increase in 2008 was the litigation gain and the decrease in 2007 was the litigation expense.

Earnings from operations increased 15.4% to $24,848,000, or 9.1% of net revenue, in 2009 from $21,526,000, or 7.9% of pro forma net revenue, in 2008. The increase is primarily due to improvement in salaries and benefit management. 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 by reduced general corporate expense and lab fees and dental supplies.

Interest Expense

Net interest expense increased to $11,055,000 in 2009 from $10,193,000 in 2008. The increase in interest expense was primarily the result of $989,000 of expense comprised of certain unamortized deferred financing costs of our prior credit facilities and debt advisory fees, offset by reduced borrowing levels. 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. Interest expense in 2007 included $851,000 of unamortized deferred financing costs as a result of the forbearance agreement we entered into with our lenders on December 18, 2007.

Noncontrolling Interest

Noncontrolling interest decreased to $589,000 in 2009 from $634,000 in 2008. The decrease is primarily due to the acquisition of the remaining 10% ownership interest from the noncontrolling holders in one of our subsidiaries in 2008. Noncontrolling interest increased to $634,000 in 2008 from $390,000 in 2007. The increase in noncontrolling interest expense is primarily due to gains attributable to the minority interest holders in the earnings of the Arizona Tooth Doctor.

Income Taxes

Our effective tax rate was 39.7% for 2009, 39.0% for 2008 and 35.7% in 2007. The change in 2009 is attributable to an increase in our uncertain tax positions. We expect our effective tax rate in 2010 to be between 39.0% and 39.5%.

Net Earnings

Net earnings decreased to $7,729,000 in 2009 as compared to $30,118,000 in 2008. Net earnings increased to $30,118,000 in 2008 as compared to a loss of ($7,716,000) in 2007.

Net earnings increased 18.4% to $7,729,000, or 2.8% of net revenue, in 2009 from $6,528,000, or 2.4% of pro forma net revenue, in 2008. The increase is due to lower salaries and benefits somewhat offset by higher interest expense. 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% of pro forma net revenue in 2007. The decrease is due to an increase in interest expense and salaries and benefits expense offset by reduced general corporate expense.

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 cash flow from operations and borrowings under senior credit facilities and most recently from the issuance of common stock. We have, in the past, also issued subordinated promissory notes to finance certain capital needs but have not done so in recent years.

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We believe that cash generated from operations and amounts available under our senior secured credit facility will be sufficient to fund our operating cash needs and commitments for the next twelve months. We expect capital expenditures in 2010 to be between $12,000,000 and $13,000,000.

Operating Activities

For the years ended December 31, 2009 and 2008, cash provided by operating activities amounted to $40,445,000 and $38,561,000, respectively. Excluding the impact of the transition services agreement with PDG, cash provided by operating activities in 2008 would have been approximately $28,597,000. In 2009, cash flow from operations primarily resulted from net earnings after adding back non-cash items, a reduction in accounts receivable and an increase in accrued compensation and benefits partially offset by a decrease in accounts payable and accrued expenses. The reduction in accounts receivable, net is primarily due to a reduction in amounts due from the affiliated practices, which is largely affected by patient receivables at the affiliated practices. Days revenue outstanding for patient receivables decreased to 28 days as of December 31, 2009 from 35 days as of December 31, 2008. The decrease in days revenue outstanding for patient receivables was primarily due to enhanced account receivable information and processes associated with Improvis^®. The increase from accrued compensation and benefits is largely the result of minimal payments in 2009 for incentive compensation earned in 2008 and accruals in 2009 for incentive compensation earned in 2009 that will not be disbursed until 2010. The decrease from accounts payable and accrued expenses is related to timing differences between the periods of comparison. 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 flow 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, partially offset by an increase in accounts receivable. The decrease in accrued compensation and benefits is due to payment of incentive compensation earned in 2007 and paid in 2008 and significantly reduced incentive compensation earned and accrued in 2008. 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 is primarily due to a continued focus on receivables management at the affiliated practices.

Investing Activities

For the years ended December 31, 2009 and 2008, cash used for investing activities amounted to $34,794,000 and $27,541,000, respectively. The net increase of $7,253,000 in cash used in investing activities is primarily due to an increase of $23,141,000 in cash used for affiliations and acquisitions in 2009, net of cash acquired, offset by a decrease in 2009 of $10,138,000 for contingent and deferred payments. The increase in cash paid for affiliations is primarily due to $27,000,000 of cash consideration paid for the acquisition of Christie Dental. The decrease in contingent payments is due to a contingent payment in 2008 related to the Metro Dentalcare acquisition of approximately $9,685,000. 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 cash paid in 2007 of $102,000,000 for the platform affiliation with Metro Dentalcare and the in-market acquisition of BKV.

Financing Activities

For the years ended December 31, 2009 and 2008, cash used by financing activities amounted to $5,470,000 and $10,770,000, respectively. The decrease of $5,300,000 in cash used by financing activities is primarily due to $29,209,000 raised in common equity and $125,556,000 borrowed to retire prior credit facilities and payment of $5,831,000 in debt issuance costs whereas in 2008 we had cash flow from operations to pay down debt by $9,350,000. 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 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.

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Credit Agreements

In August 2009, we entered into a $130,000,000 senior secured credit facility, comprising a $50,000,000 revolving line of credit and an $80,000,000 term loan. The senior secured credit facility matures in August 2012 and can be used for general corporate purposes, including working capital, acquisitions and affiliations and capital expenditures. Borrowings under the senior secured credit facility bear interest at our option at either prime or the greater of LIBOR or 2% plus a margin. The margin is based our debt coverage ratio and ranges from 4.75% to 5.50% for prime borrowings and 5.25% and 6.0% for LIBOR borrowings. In addition, we pay a commitment fee on the unused balance of the revolving line of credit that ranges from 0.375% to 0.625%. 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 our assets, including a pledge of the stock of our subsidiaries.

The senior secured credit facility requires scheduled quarterly principal repayments on the term loan. Principal repayments of $2,000,000 are required for each of the quarters ended March 31, 2010 through September 30, 2010, $2,500,000 for each of the quarters ended December 31, 2010 through September 30, 2011, $3,000,000 for each of the quarters ended December 31, 2012 through June 30, 2012 and $53,000,000 due at maturity. The total amount of repayments in 2009 on the term loan was $2,000,000.

We must comply with financial and other covenants, including minimum net worth, minimum EBITDA, minimum leverage and fixed charge coverage ratios as defined by the senior secured credit agreement. Pursuant to provisions of the senior secured credit facility, we are permitted to borrow up to $25,000,000 annually for acquisitions including earn-outs and contingent payments on previously completed acquisitions. In November 2009, we entered into an amendment of the credit facility in order to fund the acquisition of Christie Dental pursuant to which we were permitted to make acquisitions up to $32,000,000 annually through December 31, 2009 and up to $25,000,000 thereafter. We were in compliance with all amended covenants as of December 31, 2009.

The outstanding balance with respect to the senior secured credit facility as of December 31, 2009 was $78,000,000 under the term loan and $23,850,000 under the revolving line of credit. We had stand-by letters of credit amounting to $1,669,200 at December 31, 2009, and based on borrowing covenants, reduced by the stand-by letters of credit, approximately $26,140,000 was available for borrowing under the revolving line of credit.

In connection with the equity offering and borrowings under the senior secured credit facility, we retired our previous $75,000,000 revolving line of credit and $100,000,000 term loan in August 2009.

We entered into an interest rate swap on May 9, 2007 on $20,000,000 of our borrowings. Under this arrangement, we have effectively converted three-month, floating LIBOR interest rate exposure, plus a credit spread, to a 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, 2009 is as follows (in thousands):

	Payments due by period
	Total		2010		2011-2012		2013-2014		Thereafter
Long-term debt (1)	$	341	$	185	$	156	$	-	$	-
Senior secured credit facility (2)		101,850		8,500		93,350		-		-
Interest rate swap (3)		1,641		-		1,641		-		-
Operating leases (4)		94,600		19,276		29,683		21,043		24,598
Accrued contingent payments (5)		299		48		251		-		-
Total	$	198,731	$	28,009	$	125,081	$	21,043	$	24,598

(1) In addition to these contractual obligations, future interest payments relating to our long-term debt are fixed at rates between 6% and 7% and are due as follows: $16 in 2010 and $5 in 2011.

(2) Future interest obligations relating to senior secured credit facility are payable at variable interest rates. Based on current interest rates of 6.03% to 7.75% on the term loan, our future interest obligations are as follows: $5,469 in 2010 and $7,435 in 2011-2012. Future interest obligations related to our revolving line of credit are not determinable as interest rates are variable and do not include a required principal repayment schedule.

(3) In 2007, we hedged $20,000 of our market interest rate exposure at 5% plus a credit spread. Interest based on current rates of $1,000 per year through 2012.

(4) Operating lease payments include amounts that 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 $85,595 and are due as follows: $17,279 in 2010, $26,657 in 2011-2012, $18,791 in 2013-2014 and $22,868 thereafter.

(5) 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 $329 in 2010 and $2,099 in 2011-2012.

Uncertain tax positions are taken or expected to be taken on an income tax return that may result in additional payments to tax authorities. 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.

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, we evaluate our estimates, including those related to the carrying value of goodwill, receivables due from the affiliated practices, other intangible assets, loss reserves for our captive insurance company and contingent accruals for litigation in accordance with authoritative guidance for accounting for contingencies. We base our 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 the affiliated practices that have entered into service agreements with us and amounts due from insurance companies, patients for Arizona Tooth Doctor, our dental benefits third-party administrator and our dental laboratory businesses. At December 31, 2009, amounts due from affiliated practices represented 84% of our accounts receivable.

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The carrying amount of receivables due from the 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 in which there is no defined benefit, contractual adjustments are based upon historical collection experience and other relevant factors. Each affiliated practice’s 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 practice’s patient receivables would be required, which could impact the collectability of our receivables due from the affiliated practice.

Except for accounts receivable due from PDG, which we agreed to forgive pursuant to the litigation settlement, to date we have not recorded any losses related to our receivables due from the affiliated practices and accordingly have not recorded any reserves for uncollectability. We have recorded reserves for uncollectability against accounts receivable of Arizona Tooth Doctor, our dental benefits third-party administrator and our 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, statutory regulations and, when necessary, input from accredited valuation consultants. At December 31, 2009, goodwill and intangible assets were $267,425,000 and represented 72% of our total assets, with goodwill and indefinite-lived intangible assets representing 34% of our intangible assets and definite-lived intangible assets related to service agreements representing 66% of our intangible assets.

Our affiliations with dental 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 definite 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.

We test goodwill and indefinite lived intangibles 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

40

impairment has occurred requires valuation of the respective reporting business unit, which we estimate using a discounted cash flow method. When available and as appropriate, we use comparative market multiples to corroborate discounted cash flow results. 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 for impairment as of October 1, 2009, 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.

Our dental benefits third party administrator historically earned a significant percentage of its revenue from administering capitated managed care plans. As a result of the continuing decline of capitated managed care plans in the dental profession, our dental benefits third party administrator has been developing additional product offerings, including dental referral plans, to offset the decline of this part of its business. In 2009, our dental benefits third party administrator experienced a reduction of revenue and incurred an operating loss as a result of the continuing decline of administrative services for capitated managed care plans. Based on its business plan and future projections, we determined the fair value of this business reporting unit exceeded the carrying value of $2,266,000 at October 1, 2009. If this business plan is not successfully executed or projected financial results are not achieved, we may need to record an impairment charge related to the carrying value of the goodwill of this reporting unit.

While we believe we have made reasonable estimates and assumptions to calculate the fair value of the reporting units and other intangible assets, a material change could possibly 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 authoritative guidance for stock-based compensation. We use the Black-Scholes option-pricing model, which requires the input of subjective assumptions. These assumptions include the estimated 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 and the market value of our stock 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 our income, 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

41

taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties in income taxes. 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 government 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 and 2007 have been audited by the Internal Revenue Service and are closed to examination. Tax year 2008 and 2009 remains open to examination.

Our policy for recording interest and penalties associated with audits is to record these items as expense. For the year ended December 31, 2009, $61,000 of interest expense and $49,000 of tax expense related to penalties were recognized in our statement of earnings, compared with $42,000 and $78,000, respectively, for the year ended December 31, 2008.

Recent Accounting Pronouncements

The Financial Accounting and Standards Board, or FASB, issued an amendment to the accounting and disclosure requirements for business combinations. The amendment is effective for interim and annual periods beginning after December 15, 2008. The purpose of the amendment is to better represent the economic value of a business combination transaction. The changes from the previous guidance include, but are not limited to: (1) acquisition costs are recognized separately from the acquisition; (2) known contractual contingencies at the time of the acquisition are considered part of the liabilities acquired and measured at their fair value; all other contingencies are part of the liabilities acquired and measured at their fair value only if it is more likely than not that they meet the definition of a liability; (3) contingent consideration based on the outcome of future events is recognized and measured at the time of the acquisition; (4) business combinations achieved in stages (step acquisitions) recognize the identifiable assets and liabilities, as well as noncontrolling interests, in the acquiree, at the full amounts of their fair values; and (5) a bargain purchase (defined as a business combination in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any noncontrolling interest in the acquiree) requires that excess to be recognized as a gain attributable to the acquirer. The provisions of the amendment are only applicable for our transactions that qualify as business combinations and not our affiliation transactions. No material effect at adoption but may materially affect accounting for future business combinations.

The FASB issued an amendment to accounting and disclosure requirements for consolidated financial statements with a focus on noncontrolling interests in consolidated financials statements. The amendment is effective for interim and annual periods beginning after December 15, 2008. The amendment was issued to improve the relevance, comparability and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority) interests in subsidiaries in the same way as equity in the consolidated financial statements. Moreover, the amendment eliminates the diversity that existed in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions. Preferred securities, including noncontrolling interests, that are redeemable for cash or other assets to be classified outside of permanent equity if they are redeemable (1) at a fixed or determinable price on a fixed or determinable date, (2) at the option of the holder or (3) upon the occurrence of an event that is not solely within

42

the control of the issuer. Accordingly, we have classified noncontrolling interest as mezzanine equity and not as part of equity.

The FASB issued an amendment to accounting and disclosure requirements for derivative instruments with a focus on disclosures about derivative instruments and hedging activities. The amendment is effective for interim and annual periods beginning after November 15, 2008. This amendment requires enhanced disclosures about an entity’s derivative and hedging activities and encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company adopted the amendment and applicable disclosures are included.

In April 2009, the FASB issued additional guidance on accounting and disclosures for fair value with a focus on identifying and disclosing assets and liabilities when the volume and level of activity have significantly decreased. The FASB also issued authoritative guidance relating to accounting for impaired debt securities. These standards are effective for interim and annual periods ending after June 15, 2009. We adopted the interim disclosure requirement of fair value and determined that the remaining additional accounting guidance has no current application (see “Summary of Significant Accounting Policies, Fair Value Measurement” for further discussion).

In May 2009, the FASB issued new accounting and disclosure guidance with respect to disclosures on subsequent events. The amendment is effective for interim and annual periods beginning after June 15, 2009. This statement incorporates guidance into accounting literature that was previously addressed only in auditing standards. Subsequent events are referred to as either Type I (events that provide additional evidence about conditions that existed at the balance sheet date) or Type II (events that provide additional evidence with respect to conditions that did not exist at the balance sheet date but arose subsequent to that date but before financial statements are issued or are available to be issued.) Recognized subsequent events (Type I) should be recognized in the financial statements. Nonrecognized subsequent events (Type II) should not be recognized in the financial statements but the nature of the event and an estimate of its financial effect disclosed.

In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for transfers of financial assets. The new guidance eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. The amendment is effective for fiscal years beginning after November 15, 2009. The amendment will not have a material impact on our consolidated results.

In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities. The amendment is effective for interim and annual periods beginning after November 15, 2009. The amendments include (i) the elimination of the exemption for qualifying special purpose entities, (ii) a new approach for determining who should consolidate a variable-interest entity and (iii) changes to when it is necessary to reassess who should consolidate a variable-interest entity. The amendment is effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period. The amendment is not expected to have a material impact on our consolidated results.

In June 2009, the FASB issued the FASB Accounting Standards Codification. The codification is the single source for all authoritative GAAP recognized by the FASB to be applied for financial statements issued for periods ending after September 15, 2009. The codification does not change GAAP and did not have an affect on our financial position, results of operations or liquidity.

Other new pronouncements issued by the FASB that are not effective until after December 31, 2009 are not expected to have a material impact on our consolidated financial statements, financial position, results of operations or liquidity or that are not relevant to us are not included above.

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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 senior secured credit facility, we are also exposed to variable rate interest for the banks’ applicable margins ranging from 4.75% to 5.50% for prime borrowings and 5.25% to 6.00% for LIBOR borrowings based upon our debt coverage ratio. For fixed-rate debt, interest rate changes affect the fair value, but do not affect earnings or cash flow. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value, but do affect 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 borrowings. The pre-tax earnings and cash flow impact for one year, based upon the amounts outstanding at December 31, 2009 under our variable rate revolving credit facility and term loan, for each one percentage point change in interest rates would be approximately $818,500 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	46
Reports of Independent Registered Public Accounting Firm	47
Consolidated Balance Sheets	48
Consolidated Statements of Income	49
Consolidated Statements of Changes in Stockholders’ Equity and Noncontrolling Interest	50
Consolidated Statements of Cash Flows	51
Notes to Consolidated Financial Statements	52
Financial Statement Schedules
Not Applicable.

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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) and 15d-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, 2009 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. We have excluded certain elements of the internal control over financial reporting of American Dental Partners of Florida, LLC, a 100% owned subsidiary, from our assessment of internal control over financial reporting as of December 31, 2009 because it was acquired by us in a business combination during fiscal 2009. The excluded elements represent controls over accounts of approximately 8% of consolidated assets and less than 1% of consolidated revenues for the year ended December 31, 2009. American Dental Partners of Florida, LLC will be included in our fiscal 2010 evaluation.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in this Annual Report on Form 10-K.

46

Report of Independent Registered Public Accounting Firm

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

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of American Dental Partners, Inc. and its subsidiaries (the “Company”) at December 31, 2009 and December 31, 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 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, 2009, 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 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.

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.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Christie Dental, a 100% owned subsidiary, from its assessment of internal control over financial reporting as of December 31, 2009 because it was acquired by the Company in a business combination in 2009. The excluded elements represent controls over accounts of approximately 8% of consolidated assets and less than 1% of consolidated net revenues for the year ended December 31, 2009.

PricewaterhouseCoopers LLP

Boston, MA

March 12, 2010

47

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2009			2008
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	6,807		$	6,626
Accounts receivable, net		20,811			25,875
Inventories		2,539			2,447
Prepaid expenses and other current assets		9,559			4,745
Prepaid/refundable income taxes		-			798
Deferred income taxes		3,431			4,193
Total current assets		43,147			44,684
Property and equipment, net		53,766			54,542
Non-current assets:
Goodwill		86,852			76,122
Service agreements and other intangibles, net		180,573			175,527
Deferred income taxes		3,761			1,912
Other		5,912			466
Total non-current assets		277,098			254,027
Total assets	$	374,011		$	353,253
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	15,977		$	14,763
Accrued compensation and benefits		10,883			9,436
Accrued expenses		11,234			6,620
Income tax payable		927			-
Deferred income taxes		244			81
Current maturities of debt		8,685			196
Total current liabilities		47,950			31,096
Non-current liabilities:
Long-term debt		93,506			131,441
Deferred income taxes		39,573			38,499
Other liabilities		5,666			5,135
Total non-current liabilities		138,745			175,075
Total liabilities		186,695			206,171
Noncontrolling interest		1,857			584
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, 16,272,786 and 13,484,241 shares issued and 15,690,286 and 12,901,741 shares outstanding at December 31, 2009 and December 31, 2008, respectively		162			135
Additional paid-in capital		103,151			71,096
Treasury stock, at cost, 582,500 shares, at both December 31, 2009 and December 31, 2008		(3,874	)		(3,874	)
Accumulated comprehensive income		(1,641	)		(2,059	)
Retained earnings		87,661			81,200
Total stockholders’ equity		185,459			146,498
Total liabilities and stockholders’ equity	$	374,011		$	353,253

See accompanying notes to consolidated financial statements.

48

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED STATEMENTS OF INCOME

	Years Ended December 31,
	2009		2008			2007
	(In thousands, except per share amounts)
Net revenue	$	274,342	$	291,108		$	278,755
Operating expenses:
Salaries and benefits		117,429		127,273			119,616
Lab fees and dental supplies		39,691		42,836			43,209
Office occupancy		34,326		33,878			31,457
Other operating expense		23,739		24,539			23,195
General corporate expense		13,709		12,366			14,427
Depreciation		11,137		11,054			9,422
Amortization of intangible assets		9,463		9,634			7,049
Litigation (income) expense		-		(30,662	)		36,734
Total operating expenses		249,494		230,918			285,109
Earnings (losses) from operations		24,848		60,190			(6,354	)
Interest expense		11,055		10,193			5,253
Earnings (losses) before income taxes		13,793		49,997			(11,607	)
Income taxes		5,475		19,245			(4,281	)
Consolidated net earnings (losses)		8,318		30,752			(7,326	)
Noncontrolling interest		589		634			390
Net earnings (losses)	$	7,729	$	30,118		$	(7,716	)
Net earnings (losses) per common share:
Basic	$	0.55	$	2.34		$	(0.61	)
Diluted	$	0.55	$	2.29		$	(0.61	)
Weighted average common shares outstanding:
Basic		13,946		12,876			12,681
Diluted		14,155		13,150			12,681

See accompanying notes to consolidated financial statements.

49

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND NONCONTROLLING INTEREST

(in thousands)

	Stockholder’s Equity
	Number of Shares			Common Stock		Additional Paid-In Capital		Retained Earnings			Treasury Stock at Cost			Accu- mulated Other Compre- hensive Income			Total Stock- holders’ Equity			Non- controlling Interest
	Common Stock Issued	Common Stock in Treasury
Balance at December 31, 2006	12,991	(582	)	$	130	$	61,257	$	58,798		$	(3,874	)	$	-		$	116,311		$	54
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	)
Noncontrolling interest contributions																					450
Net losses	-	-			-		-		(7,716	)		-			-			(7,716	)		390
Balance at December 31, 2007	13,397	(582	)		134		68,332		51,082			(3,874	)		(771	)		114,903			894
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	)
Investment in subsidiary																					(452	)
Noncontrolling interest distributions																					(492	)
Net earnings	-	-			-		-		30,118			-			-			30,118			634
Balance at December 31, 2008	13,484	(582	)		135		71,096		81,200			(3,874	)		(2,059	)		146,498			584
Issuance of common stock for employee stock purchase plan including tax benefit of $0	76	-			1		444		-			-			-			445
Issuance of common stock for exercised stock options, including tax benefit of $28	114	-			-		810		-			-			-			810
Issuance of common stock for equity offering	2,599				26		29,183											29,209
Stock-based compensation expense	-	-			-		1,603		-			-			-			1,603
Accumulated other comprehensive income	-	-			-		-		-			-			418			418
Noncontrolling interest contributions (distributions)							15											15			(584	)
Cummulative adjustment of noncontrolling interest									(1,268	)								(1,268	)		1,268
Net income	-	-			-		-		7,729			-			-			7,729			589
Balance at December 31, 2009	16,273	(582	)	$	162	$	103,151	$	87,661		$	(3,874	)	$	(1,641	)	$	185,459		$	1,857

See accompanying notes to consolidated financial statements.

50

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2009			2008			2007
	(In thousands)
Cash flows from operating activities:
Consolidated net earnings (losses)	$	8,318		$	30,752		$	(7,326	)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		11,137			11,054			9,422
Stock-based compensation		1,603			1,978			1,898
Amortization of intangible assets		9,463			9,634			7,049
Other amortization and write-off of deferred financing costs		1,660			536			970
Deferred income tax benefit		238			12,681			(11,937	)
(Gain)/loss on disposal of property and equipment		13			268			(25	)
Accrued litigation expense		-			(30,968	)		30,968
Assets transferred to PDG as part of litigation settlement		-			9,402			-
Changes in assets and liabilities, net of acquisitions and affiliations and settlement of litigation:
Accounts receivable, net		5,096			(3,456	)		(6,140	)
Other current assets		(247	)		(1,720	)		(380	)
Accounts payable and accrued expenses		(1,120	)		539			1,877
Accrued compensation and benefits		1,236			(4,101	)		1,101
Income taxes payable/refundable, net		1,726			661			(1,392	)
Other, net		1,322			1,301			(511	)
Net cash provided by operating activities		40,445			38,561			25,574
Cash flows from investing activities:
Cash paid for affiliation and acquisition transactions		(28,079	)		(4,938	)		(119,097	)
Capital expenditures, net		(6,401	)		(11,984	)		(11,276	)
Payment of affiliation costs		(14	)		(181	)		(699	)
Contingent and deferred payments		(300	)		(10,438	)		(1,780	)
Net cash used in investing activities		(34,794	)		(27,541	)		(132,852	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		29,209			1			-
Proceeds from credit facilities		125,556			-			106,750
Repayments under revolving and term credit facilities		(154,806	)		(9,350	)		-
Repayments of debt		(195	)		(187	)		(112	)
Contributions from (distributions to) noncontrolling interest holders		(569	)		(492	)		450
Proceeds from shares issued under employee stock purchase plan		444			543			568
Proceeds from issuance of common stock for exercise of stock options		694			220			2,186
Tax benefit on exercise of stock options		28			21			2,413
Tax benefit on disqualified dispositions		-			2			13
Payment of debt issuance costs		(5,831	)		(1,528	)		-
Net cash (used in) provided by financing activities		(5,470	)		(10,770	)		112,268
Increase in cash and cash equivalents		181			250			4,990
Cash and cash equivalents at beginning of period		6,626			6,376			1,386
Cash and cash equivalents at end of period	$	6,807		$	6,626		$	6,376
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	9,021		$	9,404		$	4,167
Cash paid during the period for income taxes, net	$	4,072		$	5,839		$	6,617
Non-cash investing activities:
Capital expenditures and intangibles accrued for, not paid	$	101		$	151		$	5,768

See accompanying notes to consolidated financial statements.

51

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2009, 2008 and 2007

(1) Description of Business

American Dental Partners, Inc. (the “Company”) is a leading provider of business services, dental facilities and support staff 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 that 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.

(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 (“Arizona Tooth Doctor”) subsidiary, which is owned 85% by the Company. All 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 that 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 these 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 that 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.

Reclassifications

Other operating expenses of $1,478,000 and $205,000 for 2008 and 2007, respectively, have been reclassified to salaries and benefits to conform to the 2009 presentation.

52

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

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

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 the affiliated practices pursuant to the terms of service agreements. Additionally, the Company’s net revenue includes the amounts from patient revenue of Arizona Tooth Doctor, its dental benefits third-party administrator fees and its 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 by the affiliated practices. Reimbursement of expenses includes costs incurred by the Company for the operation and administration of the dental facilities, which include salaries and benefits for non-dentist personnel working at the dental facilities; lab fees, dental supplies and 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 litigation settlement agreement pursuant to which the service agreement with PDG, P.A. (“PDG”), the former affiliated practice at Park Dental, was terminated effective December 31, 2007 and the Company 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, which was recorded as $10,000,000 in net revenue in 2008, which reflects the estimated fair value of the service, and $9,000,000 as an offset to the litigation loss in 2007. 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.

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, 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

53

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

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

amortized in accordance with authoritative guidance for accounting for costs of computer software development. Capitalized software costs are amortized over ten 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, statutory regulations and, in certain instances, input from accredited valuation consultants. At December 31, 2009, goodwill and intangible assets were $267,425,000 and represented 72% of the Company’s total assets, with goodwill and indefinite-lived intangible assets representing 32% of the Company’s intangible assets and definite-lived intangible assets related to service agreements representing 68% of the Company’s intangible assets.

To the extent any intangible asset is impaired, its carrying value will be written down to its implied fair value and a charge will be made to earnings. 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 impairment assessment annually 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, 2009.

The Company tested goodwill for impairment as of October 1, 2009, which testing 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 dental benefits third party administrator historically earned a significant percentage of its revenue from administering capitated managed care plans. As a result of the continuing decline of capitated managed care plans in the dental profession, the Company’s third party administrator has been developing additional product offerings, including dental referral plans, to offset the decline of this part of the Company’s business. In 2009, the Company’s third party administrator experienced a reduction of revenue and incurred an operating loss as a result of the continuing decline of administrative services for capitated managed care plans. Based on its business plan and future projections, the Company determined the fair value of this business reporting unit exceeded the carrying value of $2,266,000 at October 1, 2009. If this business plan is not successfully executed or projected financial results are not achieved, the Company may need to record an impairment charge related to the carrying value of the goodwill of this reporting unit.

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

54

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

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

connection with an affiliation, the Company estimates the timing, amount and value of future expected cash flows. The service agreements have contractual terms of 40 years, but the asset is 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.

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 Arizona Tooth Doctor are amortized over five years on an accelerated basis. Non-compete agreements associated with the acquisition of Christie Dental Practice Group, P.L., which was acquired in 2009, are amortized over five years. Trade names are accounted for as indefinite-lived and not amortized.

The Company performs an impairment test on indefinite lived intangible and definite-lived intangible assets when facts and circumstances exist that would suggest that the intangible assets may be impaired. The test requires 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, 2009.

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 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 $994,000 for 2009 and $1,181,000 for 2008. Amounts accrued for professional liability insurance, including estimates for losses below retention levels, were $1,629,000 for 2009 and $1,602,000 for 2008. 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 FASB issued authoritative guidance for fair value measurement and disclosures that 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 authoritative guidance for fair value measurement and disclosures, the FASB issued additional guidance to exclude accounting for leases and its related interpretive

55

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

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

accounting pronouncements that address leasing transactions. The Company adopted the additional guidance as of January 1, 2008, with the exception of the application of the statement to non-recurring nonfinancial assets and nonfinancial liabilities, which the Company adopted as of January 1, 2009. This statement had no impact.

The Company uses the market approach technique to value its financial instruments. There were no changes in valuation techniques during 2009. The Company’s financial assets and liabilities are primarily composed of cash equivalents and an interest rate swap.

The current authoritative guidance for fair value measurement and disclosures 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, 2009 and 2008:

	Level 1		Level 2			Level 3		Total
December 31, 2009
Interest rate swap	$	-	$	(1,641	)	$	-	$	(1,641	)
Cash equivalents		4,665		-			-		4,665
Total	$	4,665	$	(1,641	)	$	-	$	3,024
	Level 1		Level 2			Level 3		Total
December 31, 2008
Interest rate swap	$	-	$	(2,059	)	$	-	$	(2,059	)
Cash equivalents		4,105		-			-		4,105
Total	$	4,105	$	(2,059	)	$	-	$	2,046

The Company’s long-term debt is carried at cost and is more fully described in Note 8. As of December 31, 2009, the estimated fair value of the Company’s revolving line of credit was $25,333,000 and the fair value of the term loan was $81,355,000.

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

56

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

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

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.

The Company is subject to income tax arising from U.S. federal and multiple state jurisdictions. In the normal course of business, the Company is subject to examination by U.S. federal and state taxing authorities. The tax years 2006 and 2007 have been audited by the Internal Revenue Service and are closed to examination. Tax years 2008 and 2009 remain open to examination.

Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period plus the dilutive effect of outstanding stock options using the “treasury stock” method. The computation of diluted earnings per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings.

Recent Accounting Pronouncements

The Financial Accounting and Standards Board, or FASB, issued an amendment to the accounting and disclosure requirements for business combinations. The amendment is effective for interim and annual periods beginning after December 15, 2008. The purpose of the amendment is to better represent the economic value of a business combination transaction. The changes from the previous guidance include, but are not limited to: (1) acquisition costs are recognized separately from the acquisition; (2) known contractual contingencies at the time of the acquisition are considered part of the liabilities acquired and measured at their fair value; all other contingencies are part of the liabilities acquired and measured at their fair value only if it is more likely than not that they meet the definition of a liability; (3) contingent consideration based on the outcome of future events is recognized and measured at the time of the acquisition; (4) business combinations achieved in stages (step acquisitions) recognize the identifiable assets and liabilities, as well as noncontrolling interests, in the acquiree, at the full amounts of their fair values; and (5) a bargain purchase (defined as a business combination in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any noncontrolling interest in the acquiree) requires that excess to be recognized as a gain attributable to the acquirer. The provisions of the amendment are only applicable for our transactions that qualify as business combinations and not our affiliation transactions. No material effect at adoption but may materially affect accounting for future business combinations.

The FASB issued an amendment to accounting and disclosure requirements for consolidated financial statements with a focus on noncontrolling interests in consolidated financials statements. The amendment is effective for interim and annual periods beginning after December 15, 2008. The amendment was issued to improve the relevance, comparability and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority) interests in subsidiaries in the same way as equity in the consolidated financial statements. Moreover, the amendment eliminates the diversity that existed in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions.

57

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

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

Preferred securities, including noncontrolling interests, that are redeemable for cash or other assets to be classified outside of permanent equity if they are redeemable (1) at a fixed or determinable price on a fixed or determinable date, (2) at the option of the holder or (3) upon the occurrence of an event that is not solely within the control of the issuer. Accordingly, we have classified noncontrolling interest as mezzanine equity and not as part of equity.

The FASB issued an amendment to accounting and disclosure requirements for derivative instruments with a focus on disclosures about derivative instruments and hedging activities. The amendment is effective for interim and annual periods beginning after November 15, 2008. This amendment requires enhanced disclosures about an entity’s derivative and hedging activities and encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company adopted the amendment and applicable disclosures are included.

In April 2009, the FASB issued additional guidance on accounting and disclosures for fair value with a focus on identifying and disclosing assets and liabilities when the volume and level of activity have significantly decreased. The FASB also issued authoritative guidance relating to accounting for impaired debt securities. These standards are effective for interim and annual periods ending after June 15, 2009. We adopted the interim disclosure requirement of fair value and determined that the remaining additional accounting guidance has no current application (see “Summary of Significant Accounting Policies, Fair Value Measurement” for further discussion).

In May 2009, the FASB issued new accounting and disclosure guidance with respect to disclosures on subsequent events. The amendment is effective for interim and annual periods beginning after June 15, 2009. This statement incorporates guidance into accounting literature that was previously addressed only in auditing standards. Subsequent events are referred to as either Type I (events that provide additional evidence about conditions that existed at the balance sheet date) or Type II (events that provide additional evidence with respect to conditions that did not exist at the balance sheet date but arose subsequent to that date but before financial statements are issued or are available to be issued.) Recognized subsequent events (Type I) should be recognized in the financial statements. Nonrecognized subsequent events (Type II) should not be recognized in the financial statements but the nature of the event and an estimate of its financial effect disclosed.

In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for transfers of financial assets. The new guidance eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. The amendment is effective for fiscal years beginning after November 15, 2009. The amendment will not have a material impact on our consolidated results.

In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities. The amendment is effective for interim and annual periods beginning after November 15, 2009. The amendments include (i) the elimination of the exemption for qualifying special purpose entities, (ii) a new approach for determining who should consolidate a variable-interest entity and (iii) changes to when it is necessary to reassess who should consolidate a variable-interest entity. The amendment is effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period. The amendment is not expected to have a material impact on our consolidated results.

58

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

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

In June 2009, the FASB issued the FASB Accounting Standards Codification. The codification is the single source for all authoritative GAAP recognized by the FASB to be applied for financial statements issued for periods ending after September 15, 2009. The codification does not change GAAP and did not have an affect on our financial position, results of operations or liquidity.

Other new pronouncements issued by the FASB that are not effective until after December 31, 2009 are not expected to have a material impact on our consolidated financial statements, financial position, results of operations or liquidity or that are not relevant to us are not included above.

(3) Accounts Receivable, net and Net revenue

Accounts receivable, net

Accounts receivable, net reflects receivables due from the affiliated practices and represents 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 affiliated practices, the Company’s captive insurance subsidiary, its dental laboratories and its dental benefit third-party administrator. The following table lists receivables due from the affiliated practices and other receivables for the years ended December 31 (in thousands):

	December 31,
	2009		2008
Receivables due from affiliated practices	$	17,410	$	22,511
Other receivables, net		3,401		3,364
Accounts receivable, net	$	20,811	$	25,875

Receivables due from Metro Dentalcare P.L.C, the affiliated practice at Metro Dentalcare, represented approximately 20% and 14% of the Company’s consolidated accounts receivable, net for 2009 and 2008, respectively. Receivables due from Wisconsin Dental Group, S.C., the affiliated practice at ForwardDental, represented approximately 17% and 12% of the Company’s consolidated accounts receivable, net for 2009 and 2008, respectively. Other receivables of Arizona’s Tooth Doctor, represented approximately 12% and 10% of the Company’s consolidated accounts receivable, net for 2009 and 2008, respectively.

59

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

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

Net revenue

For the years ended December 31, 2009, 2008 and 2007, net revenue consisted of the following (in thousands):

	2009		2008		2007
Reimbursement of expenses:
Salaries and benefits	$	83,340	$	87,500	$	88,658
Lab and dental supplies		43,174		44,790		44,269
Office occupancy expenses		30,464		29,324		28,243
Other operating expenses		20,638		19,079		18,176
Depreciation expense		9,511		8,807		7,914
Total reimbursement of expenses		187,127		189,500		187,260
Business service fees		59,976		55,971		64,088
Revenue earned under service agreements		247,103		245,471		251,348
Patient revenue, professional services, dental laboratory fees and other miscellaneous revenue		27,239		45,637		27,407
Net revenue	$	274,342	$	291,108	$	278,755

Net revenue derived from the Company’s service agreement with Northland Dental Partners, PLLC, the affiliated practice at Metro Dentalcare, represented approximately 22%, 20% and 5% of the Company’s consolidated net revenue for 2009, 2008 and 2007, respectively. Net revenue from the Company’s service agreement with Wisconsin Dental Group, S.C., the affiliated practice at ForwardDental, represented approximately 14%, 12% and 12% of the Company’s consolidated net revenue for 2009, 2008 and 2007, respectively. No other service agreement or customer accounted for greater than 10% of the Company’s consolidated net revenue in 2009. Patient revenue, professional services, dental laboratory fees and other miscellaneous revenue includes $17,697,000 of revenue earned pursuant to the transition services agreement with PDG in 2008.

(4) Acquisitions and Affiliations

During the year ended December 31, 2009, the Company completed six acquisition and affiliation transactions. The Company acquired selected assets of four dental practices that joined existing affiliated practices and one platform affiliation in Florida, which included execution of a new service agreement between the Company and the affiliated practice. The aggregate purchase price paid in connection with these transactions consisted of approximately $28,104,000 in cash, net of cash acquired. A contingent payment of $200,000 was recognized for one 2009 transaction. The Company accounts for contingent payments associated with asset acquisitions in accordance with authoritative guidance for contingencies. In another transaction completed in 2009, the Company developed de novo dental facilities in Texas, rather than acquiring selected clinical assets, and executed a service agreement between the Company and the affiliated practice. All affiliation transactions completed in 2009 are referred to as “2009 Transactions.”

60

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(4) Acquisitions and Affiliations – (Continued)

During the year ended December 31, 2008, the Company completed eight acquisition and 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 2009 and 2008 Transactions were as follows:

Date	Affiliated Practice	Location(s)
December 2009	Michael J. Perpich, D.D.S. & Jonathan C. Moren, D.D.S.	Edina, MN
December 2009	Christie Dental Practice Group, P.L.	Melbourne, Ocala and Orlando, FL
December 2009	Gina R. Davis, D.D.S., P.A.	Charlotte, NC
April 2009	Matthew E. Kutz, D.D.S.	Madison, WI
March 2009	David L. Hehli, D.D.S.	Rochester, WI
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 Specialists	Milwaukee, WI

On December 1, 2009, the Company completed an acquisition of the nonclinical assets of Christie Dental Practice Group, P.L., (“Christie Dental”) to establish a Florida presence. In connection with the acquisition, the Company entered into a 40-year service agreement with a professional limited liability company. The acquisition was funded with borrowings and cash on hand. The acquired business contributed revenues of $997,000 and earnings from operations of $256,000 to the Company for the period from December 1, 2009 to December 31, 2009.

The Company incurred $561,000 of acquisition costs related to the Christie Dental acquisition attributed to legal and consulting services. These expenses are included in general corporate expense in the Company’s consolidated statement of income for the year ended December 31, 2009.

61

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(4) Acquisitions and Affiliations – (Continued)

The following table summarizes the consideration paid to acquire Christie Dental and the amounts of identified assets acquired and liabilities assumed at the acquisition date:

	Amount
Current assets	$	220,000
Property and equipment		3,866,000
Service agreement		11,000,000
Trade name		2,000,000
Non-compete agreements		220,000
Goodwill		10,730,000
Other non current assets		171,000
Total assets acquired		28,207,000
Accrued expenses and other current liabilities		(1,116,000	)
Other long term liabilities		(91,000	)
Total liabilities assumed		(1,207,000	)
Total allocation of purchase price consideration	$	27,000,000

In connection with the Christie Dental acquisition, the Company recorded $11,000,000 of tax deductible intangible assets related to the service agreement with the affiliated practice; $2,000,000 of intangible assets classified as an indefinite lived trade name intangible; and $220,000 of employment non-compete agreements. The intangible assets related to the service agreement is amortized over 25 years and the intangible assets related to the employment non-compete agreements are amortized over 5 years. In addition, the Company recorded tax deductible goodwill of $10,730,000. The Company believes the resulting amount of goodwill reflects its expectations of synergistic benefits expected to result from the application of the Company’s more experienced and deeper resources of its national organization to the dental facilities, administrative and management staff and professionals of Christie Dental resulting in enhanced growth and operating margins.

In accordance with the asset purchase agreement between the Company and Christie Dental, the transaction consideration is subject to a post-closing adjustment. The adjustment, if any, is defined as the difference between a target net working capital amount and the net working capital calculated as of December 1, 2009. If the parties are not in agreement the matter will be submitted to an independent accountant for resolution. Subsequent to December 31, 2009, the parties have agreed that there will be no working capital adjustment.

The following unaudited pro forma summary presents consolidated information of the Company as if the business combination with Christie Dental had occurred on January 1, 2008:

	Pro Forma Year Ended		Pro Forma Year Ended
	December 31, 2009		December 31, 2008
Net revenue	$	291,509,000	$	308,822,000
Net earnings		8,093,000		29,305,000
Net earnings per common share share-basic		0.58		2.28
Net earnings per common share share-dilutive		0.57		2.23

62

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(4) Acquisitions and Affiliations – (Continued)

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Christie Dental to reflect the additional interest, depreciation and amortization that would have been charged assuming interest had been applied on the borrowed portion of the purchase price from January 1, 2008 and fair value adjustments to property, plant and equipment, and intangible assets had been applied from January 1, 2008, together with the consequential tax effects. These pro forma results have been prepared for comparative purposes only and are not necessarily indicative either of the results of operations that actually would have resulted had the acquisition been in effect at the beginning of the respective periods or of future results.

(5) Property and Equipment

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

	2009			2008
Land and buildings	$	783		$	783
Equipment		63,938			58,473
Furniture and fixtures		12,621			11,984
Leasehold improvements		45,576			41,188
Total property and equipment		122,918			112,428
Less accumulated depreciation		(69,152	)		(57,886	)
Total property and equipment, net	$	53,766		$	54,542

Depreciation expense was $11,137,000, $11,054,000 and $9,422,000 for the years ended December 31, 2009, 2008 and 2007, respectively.

The Company has a proprietary practice management software system, Improvis. The Company has recorded aggregate capitalized software development costs amounting to $2,678,572, which includes approximately $312,328 in capitalized interest, in connection with this system as of December 31, 2009. Of total capitalized costs, $898,250 relates to the first development phase, $214,588 relates to the second development phase and $1,565,734 relates to other phases of development. The Company began to depreciate costs associated with the first development phase in October 2005 and the second development phase in April 2009. Accumulated depreciation expense associated with the first phase is $381,756 and accumulated depreciation expense associated with the second phase is $16,094. 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 2025. Rent expense for the years ended December 31, 2009, 2008 and 2007 amounted to $25,483,000, $25,340,000 and $24,690,000, respectively, of which $22,600,000, $22,690,000 and $22,230,000 were reimbursed under service agreements.

63

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(5) Property and Equipment – (Continued)

Minimum future rental payments under non-cancelable operating leases and amounts expected to be reimbursed under service agreements as of December 31, 2009 were as follows (in thousands):

	Total Amount Due		Amounts Subject to Reimbursement Under Service Agreements			Net Amount
2010	$	19,276	$	(17,736	)	$	1,540
2011		16,084		(14,802	)		1,282
2012		13,598		(12,541	)		1,057
2013		11,623		(10,736	)		887
2014		9,420		(8,547	)		873
Thereafter		24,599		(23,230	)		1,369
Total minimum lease payments	$	94,600	$	(87,592	)	$	7,008

(6) Intangible Assets and Goodwill

Intangible assets consisted of the following as of December 31, 2009 and 2008 (in thousands):

	Gross Carrying Amount		Accumulated Amortization			Net
December 31, 2009
Service agreements	$	236,009	$	(60,819	)	$	175,190
Trade names		6,035		(976	)		5,059
Customer relationships		605		(497	)		108
Covenant not to compete		220		(4	)		216
	$	242,869	$	(62,296	)	$	180,573
December 31, 2008
Service agreements	$	223,718	$	(51,684	)	$	172,034
Trade names		4,035		(700	)		3,335
Customer relationships		605		(447	)		158
	$	228,358	$	(52,831	)	$	175,527

64

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(6) Intangible Assets and Goodwill – (Continued)

Intangible asset amortization expense for 2009, 2008 and 2007 was $9,463,000, $9,634,000 and $7,049,000, respectively. Annual amortization expense for each of the next five fiscal years will be approximately $9,570,000. The amortization period for service agreements is 25 years. The trade name for Metro Dentalcare was reclassified from a definite life to an indefinite life intangible asset in 2009. At that time of the Metro Dentalcare acquisition in 2007, the Company had not determined its future strategy for trade names in the Minneapolis-St. Paul market. As part of the settlement of litigation with PDG, the Company transferred the “Park Dental” trade name to PDG and in 2009 concluded that the Metro Dentalcare trade name would be the trade name in the Minneapolis-St. Paul market and therefore should be categorized as an indefinite lived intangible asset. As of December 31, 2009, the total carrying amount of intangible assets not subject to amortization was $5,059,000 and comprised of the Christie Dental, Metro Dentalcare and Arizona Tooth Doctor trade names. The weighted average amortization period for customer relationships is two years. The weighted average remaining life of covenants not to compete is five years. The weighted average remaining life of all intangible assets excluding indefinite lived trade names is 17 years.

The changes in the carrying amount of goodwill were as follows (in thousands):

	2009		2008
Balance as of January 1
Goodwill	$	76,122	$	70,602
Goodwill acquired during the year		10,730		-
Goodwill related to post acquisition adjustments (1)		-		5,520
Balance as of December 31
Goodwill	$	86,852	$	76,122

(1) 2008 includes a $5,110 adjustment for the Metro Dentalcare acquisition. The Company made a contingent payment of approximately $9,685 of which $4,575 was accrued as of December 31, 2007.

(7) Income Taxes

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

	2009			2008		2007
Current:
Federal	$	4,536		$	4,734	$	6,809
State		781			1,331		881
Total current		5,317			6,065		7,690
Deferred:
Federal		380			11,352		(10,934	)
State		(222	)		1,828		(1,037	)
Total deferred		158			13,180		(11,971	)
Total income taxes	$	5,475		$	19,245	$	(4,281	)

65

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(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 were as follows (in thousands):

	2009			2008
Deferred tax assets:
Operating loss and other carry forwards	$	161		$	158
Stock-based compensation		2,658			1,861
Accrued expenses and other liabilities		4,373			4,086
Total deferred tax assets		7,192			6,105
Deferred tax liabilities:
Intangibles		(36,421	)		(34,335	)
Property and equipment		(1,105	)		(1,444	)
Other		600			(2,170	)
Deferred revenue		(1,669	)		331
Software costs		(1,222	)		(962	)
Total deferred tax liabilities		(39,817	)		(38,580	)
Net deferred tax liabilities	$	(32,625	)	$	(32,475	)

The Company had share option exercises in prior years resulting in tax deductions before the actual realization of the related tax benefit due to net operating losses generated in those years. Therefore a tax benefit and a credit to additional paid-in capital for the excess deduction have not been recognized. Recognition will occur when that deduction reduces taxes payable.

Tax benefits associated with tax deductions for stock option exercises were credited to additional paid-in capital in the amounts of $115,000 and $75,000 for the years ended December 31, 2009 and 2008, respectively.

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

	2009									2008
	Federal			State			Total			Federal			State			Total
Deferred tax assets:
Current	$	3,139		$	292		$	3,431		$	3,784		$	409		$	4,193
Non-current		2,035			1,726			3,761			1,484			428			1,912
Total deferred tax assets		5,174			2,018			7,192			5,268			837			6,105
Deferred tax liabilities:
Current		(107	)		(137	)		(244	)		(69	)		(12	)		(81	)
Non-current		(32,642	)		(6,931	)		(39,573	)		(32,434	)		(6,065	)		(38,499	)
Total deferred tax liabilities		(32,749	)		(7,068	)		(39,817	)		(32,503	)		(6,077	)		(38,580	)
Net deferred tax liabilities	$	(27,575	)	$	(5,050	)	$	(32,625	)	$	(27,235	)	$	(5,240	)	$	(32,475	)

66

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(7) Income Taxes – (Continued)

The Company has state net operating loss carry-forwards of $12,811,000 as of December 31, 2009, which expire at various times from 2010 through 2026.

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

	2009		2008		2007
Income taxes at federal statutory rate	35.0	%	35.0	%	35.0	%
Differential due to graduated rate	0.0		(0.2	)	0.8
State taxes, net of federal benefit	2.8		4.2		0.8
Compensation expense for employee stock purchase plan	0.4		0.2		(0.3	)
Other permanent differences	1.5		(0.2	)	(0.6	)
Effective income tax rate	39.7	%	39.0	%	35.7	%

In the Company’s opinion, adequate tax liabilities have been established for all years. Federal tax years 2007 and prior are closed.

The Company adopted the FASB interpretation for accounting for uncertainty on income taxes on January 1, 2008. There was no material impact on its results of operations or financial position as a result of the implementation of this FASB interpretation. The amount of gross unrecognized tax benefits at December 31, 2009 was $689,000, of which $581,000 would affect the Company’s effective tax rate if recognized. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):

	2009			2008			2007
Balance, beginning of year	$	386		$	393		$	253
Additions for tax positions during the current year		331			-			63
Additions for business combinations		-			-			190
Reductions for tax positions of prior years for:
Settlements during the period		(116	)		-			(15	)
Lapses of applicable statute of limitations		(58	)		(7	)		(98	)
Balance, end of year	$	543		$	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 its results of operations or financial position.

The Company recognizes interest and penalties accrued in connection with unrecognized tax benefits as a component provision for income taxes. Accrued interest and penalties were $146,000 as of December 31, 2008 and December 31, 2009.

67

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(8) Debt

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

	2009		2008
Revolving line of credit advances, collateralized by substantially all assets of the Company, LIBOR-based and prime interest rates ranging from approximately 6.03% to 8.50%	$	23,850	$	31,100
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 6.03% to 7.75%		78,000		100,000
Subordinated notes payable, bearing interest at 7%, maturing 2010		36		72
Note payable to River Road Dental, collateralized by substantially all assets of the
Metro-Brooklyn Center clinic, bearing interest at 6%, maturing 2011		305		445
Note payable to Bloomington Southgate, bearing interest at 5%		-		20
Total long-term debt		102,191		131,637
Less current maturities		8,685		196
Long-term debt, non-current portion	$	93,506	$	131,441

Annual maturities of long-term debt as of December 31, 2009 were as follows (in thousands):

	Long-term Debt
2010	$	8,685
2011		10,656
2012		82,850
2013		-
2014		-
Thereafter		-
Total payments	$	102,191

Senior Secured Credit Facility

In August 2009, the Company entered into a $130,000,000 senior secured credit facility, comprising a $50,000,000 revolving line of credit and an $80,000,000 term loan. The senior secured credit facility matures in August 2012 and can be used for general corporate purposes, including working capital, acquisitions and affiliations, and capital expenditures. Borrowings under the senior secured credit facility bear interest at the Company’s option at either prime or the greater of LIBOR or 2% plus a margin. The margin is based upon the Company’s debt coverage ratio and ranges from 4.75% to 5.50% for prime borrowings and 5.25% and 6.0% for LIBOR borrowings. In addition, the Company pays a commitment fee on the unused balance of the revolving line of credit that ranges from 0.375% to 0.625%. Borrowings are limited to an availability formula based on earnings before income taxes, depreciation and amortization, or EBITDA 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 senior secured credit facility requires scheduled quarterly principal repayments on the term loan. Principal repayments of $2,000,000 are required for each of the quarters ended March 31, 2010 through September 30, 2010, $2,500,000 for each of the quarters ended December 31, 2010 through September 30, 2011, $3,000,000 for each of the quarters ended December 31, 2012 through June 30, 2012, and $53,000,000 due at maturity. The total amount of repayments on the term loan in 2009 was $2,000,000.

68

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(8) Debt – (Continued)

The Company must comply with financial and other covenants, including minimum net worth, minimum EBITDA, minimum leverage and fixed charge coverage ratios as defined by the senior secured credit agreement. Pursuant to provisions of the senior secured credit facility, the Company is permitted to borrow up to $25,000,000 annually for acquisitions including earn-outs and contingent payments on previously completed acquisitions. In November 2009, the Company entered into an amendment of the credit facility in order to fund the acquisition of Christie Dental pursuant to which the Company was permitted to make acquisitions up to $32,000,000 annually through December 31, 2009 and up to $25,000,000 thereafter. The Company was in compliance with its amended covenants as of December 31, 2009.

The outstanding balance with respect to the senior secured credit facility as of December 31, 2009 was $78,000,000 under the term loan and $23,850,000 under the revolving line of credit. The Company had stand-by letters of credit amounting to $1,669,200 at December 31, 2009, and, based on borrowing covenants, reduced by the stand-by letters of credit, approximately $26,140,000 was available for borrowing under the revolving line of credit.

In connection with an equity offering (see Note 11, “Stockholders’ Equity”) and borrowings under the senior secured credit facility, the Company retired its previous $75,000,000 revolving line of credit and $100,000,000 term loan in August 2009.

The Company entered into an interest rate swap on May 9, 2007 on $20,000,000 of its borrowings. Under this arrangement, the Company has effectively converted three-month, floating LIBOR interest rate exposure, plus a credit spread, to a fixed 5.0%, plus a credit spread, until February 2012.

(9) Litigation Expense

In December 2007, the Company entered into a litigation settlement agreement with PDG. Under the terms of the definitive agreements contemplated by the settlement agreement and in release of the litigation with PDG, the Company transferred to PDG the leases and operating assets of 25 of the 31 Park Dental facilities and the 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 completed the final steps in their termination of the relationship.

In accordance with authoritative guidance for accounting for contingencies, the Company accrued a loss contingency of $30,968,000 at December 31, 2007, which comprised: (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 that were to be provided. In addition to this $30,968,000 accrual, litigation expense in the Company’s statement of operations also comprised: (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. The Company expensed, as interest expense, approximately $851,000 of previously capitalized financing costs when the Company and the lenders entered into a forbearance agreement on December 18, 2007.

69

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(9) Litigation Expense – (Continued)

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 authoritative guidance for impairment or disposal of long-lived assets, the Company realized a net gain of $30,763,000, which represents the fair value of the assets transferred in excess of their book value. In addition, the Company recorded an interim management services fee, in 2008 totaling $10,000,000, offset by the costs to provide these services including severance costs.

(10) Pending Shareholder Litigation Settlement

Pursuant to the terms of the pending shareholder settlement agreement, the insurance company that issued the Company’s Directors, Officers and Corporate Liability Insurance Policy has paid $6,000,000 into a settlement fund that will be distributed in accordance with the Court’s order if the Court grants its final approval. The Court preliminarily approved the settlement agreement on December 23, 2009 and has scheduled a fairness hearing for March 18, 2010. As a result of the pending settlement, the Company has recorded $6,000,000 in accrued expenses to reflect the pending settlement and $6,000,000 in prepaid expenses and other current assets to reflect the pending receipt of insurance proceeds as of December 31, 2009.

(11) Stockholders’ Equity

Preferred Stock

The Company is authorized to issue up to 1,000,000 shares of preferred stock, $0.01 par value per share.

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 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, 2009 and 2008, 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 per share. In August 2009, the Company issued 2,599,000 shares of common stock in an underwritten public offering, which included 339,000 shares issued pursuant to the exercise of an over-allotment option granted to the underwriters in connection with the offering, at a price of $12.00 per share, less an underwriting discount of $0.66 per share and offering expenses, for net proceeds of $29,209,000. The proceeds were used to reduce indebtedness. As of December 31, 2009, 16,272,786 shares were issued and 15,690,286 shares were outstanding. As of December 31, 2008, 13,484,241 shares of common stock were issued and 12,901,741 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, 2009 at a cost of $3,874,000.

70

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(12) 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 options granted under the 2005 Directors Stock Option Plan, which have three year vesting terms. At December 31, 2009, options for 1,415,465 shares were vested and 729,950 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 authoritative guidance for stock-based compensation, 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. Applying the “modified prospective method,” as elected by the Company, the Company must 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. In addition, the revised authoritative guidance 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 the revised guidance.

The Company recognized stock-based compensation expense for options granted under its 2005 Equity Incentive Plan, 2005 Directors Stock Option Plan and its 1997 Employee Stock Purchase Plan (“ESPP”) of $1,603,000 and $1,978,000 for the years ended December 31, 2009 and 2008, respectively. 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 $1,466,000 and $1,396,000 for the years ended December 31, 2009 and 2008, respectively, and no amounts were capitalized. The remaining unrecognized stock-based compensation expense for unvested stock option awards as of December 31, 2009 was approximately $2,023,000, and the weighted average period of time over which this cost will be recognized is 1.6 years.

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:

	2009						2008						2007
	Stock Options			ESPP			Stock Options			ESPP			Stock Options			ESPP
Risk-free interest rate		2.1	%		3.0	%		2.7	%		1.6	%		4.6	%		5.1	%
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Expected volatility		58	%		50	%		77	%		71	%		42	%		39	%
Expected life (years)		6.00			0.50			5.40			0.50			6.20			0.50
Expected forfeiture		4.0	%		0.0	%		4.0	%		-			3.0	%		-
Weighted average fair value of options/ purchase rights granted during the year	$	3.81		$	1.33		$	6.31		$	1.95		$	10.60		$	6.13

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 weighted average of the actual term of all stock option exercises. Expected life of the Company’s ESPP purchase rights reflects the length of each plan period (six months) at the end of which shares are purchased. Forfeitures are estimated based on historical experience.

71

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(12) Stock-based Compensation – (Continued)

The following table summarizes the stock option transactions during the year ended December 31, 2009:

	Shares (in thousands)		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2008	1,816		$	10.78	-		-
Granted	343			6.87	-		-
Exercised	(114	)		6.11	-		-
Forfeited or expired	(56	)		15.64	-		-
Outstanding at December 31, 2009	1,989		$	10.25	5.53	$	8,146
Vested and unvested expected to vest as of December 31, 2009	1,962		$	10.27	5.49	$	8,011
Exercisable as of December 31, 2009	1,415		$	10.02	4.37	$	5,891

Cash proceeds, tax benefits and intrinsic value related to total stock options exercised during the year ended December 31, 2009, 2008 and 2007 are provided in the following table (in thousands):

	2009		2008		2007
Proceeds from stock options exercised	$	694	$	220	$	2,186
Tax benefit related to stock options exercised	$	28	$	21	$	2,413
Intrinsic value of stock options exercised	$	586	$	88	$	6,520

Summaries of the Company’s stock option plans as of December 31, 2009 are as follows:

2005 Equity Incentive Plan

The Company’s 2005 Equity Incentive Plan, as amended (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 the 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, 2009, 1,150,000 shares were authorized under the 2005 Plan, with 609,950 shares reserved for issuance and options for 757,000 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, as amended (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 the 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, 2009, 175,000 shares were authorized under the Directors Plan, with 120,000 shares reserved for issuance and options for 130,000 shares outstanding. As part of the approval of the 2005 Directors Plan, no further stock options will be granted under the Amended and Restated 1996 Directors Stock Option Plan.

72

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(12) Stock-based Compensation – (Continued)

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, 2009, 2,359,869 shares were authorized under the 1996 Plan and options for 950,826 shares were 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 (the “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 the options may be 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 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, 2009, options for 14,054 shares were outstanding under this Plan. All outstanding options became exercisable at the completion of the Company’s initial public offering, 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.

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 the options may be no less than the fair market value of the common stock at the time of grant. Options granted pursuant to the 1996 Directors Plan generally vest over four years and expire ten years after the date of grant. At December 31, 2009, 577,500 shares were authorized under the 1996 Directors Plan, with no shares reserved for issuance and options for 136,800 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 “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 $10,000 on the amount that may be withheld from any participant in any option period. A total of 800,000 shares of common stock has been reserved for issuance under the ESPP, of which 523,773 shares have been issued through 2009 and 28,479 shares were committed for issuance as of December 31, 2009.

73

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(12) Stock-based Compensation – (Continued)

Stock Option Activity

A summary of stock option activity under all the Company’s stock option plans for the years ended December 31, 2009, 2008 and 2007 follows:

	2009				2008				2007
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding at beginning of year	1,815,675		$	10.78	1,827,992		$	11.05	1,942,704		$	8.60
Granted	342,800			6.87	103,900			9.78	270,650			22.05
Exercised	(113,831	)		6.11	(27,873	)		7.90	(366,725	)		5.96
Cancelled	(55,264	)		15.64	(88,344	)		16.11	(18,637	)		15.90
Outstanding at end of year	1,989,380		$	10.25	1,815,675		$	10.78	1,827,992		$	11.05
Exercisable at end of year	1,415,465		$	10.02	1,366,307		$	8.90	1,186,330		$	7.69

The following table summarizes information about stock options outstanding at December 31, 2009:

	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
4.59 - 6.50	466,690	2.95	$	5.73	466,690	$	5.73
6.51 - 7.00	615,900	6.53		6.60	300,000		6.67
7.01 - 15.64	482,825	6.08		11.37	336,433		11.29
15.65 - 26.02	423,965	6.33		19.27	312,342		18.27
	1,989,380	5.54	$	10.25	1,415,465	$	10.02

(13) 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, 2009, 2008 and 2007 was $1,562,000, $1,701,000 and $1,395,000, respectively.

74

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(14) 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):

	2009		2008		2007
Basic Earnings (Losses) Per Share:
Net earnings (losses) available to common stockholders	$	7,729	$	30,118	$	(7,716	)
Weighted average common shares outstanding		13,946		12,876		12,681
Net earnings (losses) per share	$	0.55	$	2.34	$	(0.61	)
Diluted Earnings (Losses) Per Share:
Net earnings (losses) available to common stockholders		7,729		30,118	$	(7,716	)
Weighted average common shares outstanding		13,946		12,876		12,681
Add: Dilutive effect of options (1)		209		274		-
Weighted average common shares as adjusted		14,155		13,150		12,681
Net earnings (losses) per share	$	0.55	$	2.29	$	(0.61	)

(1) 489,651, 793,662 and 631,247 options were excluded from the compensation of diluted net earnings per share for the twelve months ended December 31, 2009, 2008 and 2007, respectively, due to their antidilutive effect.

75

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(15) Selected Quarterly Operating Results (unaudited)

The following table sets forth summary quarterly results of operations for the Company for the years ended December 31, 2009 and 2008 (in thousands, except per share amounts):

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
2009
Net revenue	$	69,385	$	70,378	$	67,986	$	66,593
Operating expenses		63,436		62,924		62,313		60,820
Earnings from operations		5,949		7,454		5,673		5,773
Earnings before income taxes		2,579		5,267		2,746		3,202
Income taxes		1,021		2,091		1,091		1,272
Noncontrolling interest		137		164		223		65
Net earnings	$	1,421	$	3,012	$	1,432	$	1,865
Net earnings per share (1):
Basic	$	0.11	$	0.23	$	0.10	$	0.12
Diluted	$	0.11	$	0.23	$	0.10	$	0.12
Weighted average common shares outstanding:
Basic		12,935		12,949		14,186		15,682
Diluted		12,994		13,099		14,521		16,009
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		35,425		6,663		5,568		2,341
Income taxes		13,760		2,539		2,118		828
Noncontrolling interest		140		151		140		203
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

(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.

76

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For the Years Ended December 31, 2009, 2008 and 2007

(16) Interest Rate Swap

The Company entered into an interest rate swap arrangement on May 9, 2007 to fix the interest rate on $20,000,000 of borrowings under its senior secured credit facility as a cash flow hedging instrument that matures in February 2012. The terms of this agreement provide that the Company exchange its variable rate three-month LIBOR payment, plus a credit spread, for a fixed rate of 5%, plus a credit spread. Swaps are generally held to maturity and are intended to mitigate the interest rate risk inherent with variable rate debt. Accordingly, interest expense associated with the hedge reflects the fixed rate and the change in the fair value of the hedge as of December 31, 2009 included in other non-current liabilities, with an offset to other comprehensive income (“OCI”). The impact of the interest swap hedge on the Company’s consolidated financial statements for the periods ending December 31, 2009 and December 31, 2008 is set forth below (in thousands):

	December 30, 2009		December 31, 2008		Balance Sheet Location
Interest Rate Swap (1)	$	1,641	$	2,059	Other non-current liabilities

The impact on OCI from the interest rate swap for the periods ended December 31, 2009 and December 31, 2008 was as follows (in thousands):

	Amount of Gain (Loss) Recognized in OCI
	2009		2008
Interest Rate Swap (1)	$	418	$	(1,288)

(1) Derivative designated as cash flow hedging instrument

Pursuant to authoritative guidance for accounting for derivative instruments and hedging activities, the Company performed its hedge effectiveness analysis for the period ended December 31, 2009 and concluded that the interest rate swap was effective.

(17) Subsequent events

The Company has determined that there were no subsequent events to recognize or disclose in these audited consolidated financial statements.

77

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 our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2009. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures timely alert them to material information relating to us required to be included in this report and were effective as of December 31, 2009.

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 in 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, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our 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 10, 2010, our wholly-owned subsidiary, American Dental Partners of Minnesota, LLC, entered into the Second Amended and Restated Service Agreement among Northland Dental Partners, PLLC; Family Periodontic Specialists, P.L.C.; Family Oral Surgery Specialists, PLC; and Family Endodontic Specialists, PLC, referred to collectively as the Northland affiliated dental practices, effective as of January 1, 2010. There is no material relationship between us and the Northland affiliated dental practices other than in respect of the Service Agreement.

Pursuant to the Second Amended and Restated Service Agreement, the parties have established a revised fee structure. Once certain indebtedness of the Northland affiliated dental practices has been repaid, the service fee payable to us will be established annually based upon our return on committed capital for the prior year. The service fee will continue to be expressed as a percentage of calculated margin and can range from 89% (the percentage currently applicable) to 95%.

The Second Amended and Restated Service Agreement also includes, among others, the following amended provisions: (i) the grant to us of a security interest in certain property of the Northland affiliated dental practices to secure present and future performance; (ii) the right of the parties to engage in specified activities following a termination of the Second Amended and Restated Service Agreement; (iii) required arbitration of disputes between the parties; (iv) exclusion of indirect damages and certain claims; and (v) limitation on our liability to an amount equal to the service fee paid to us during the previous twelve months.

78

PART III

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

Information relating to our executive officers 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 our proxy statement to be filed with the SEC in connection with our 2010 Annual Meeting of Stockholders is incorporated in this annual report by reference.

ITEM 11.  EXECUTIVE COMPENSATION

The information set forth under the caption “Executive Compensation” in our proxy statement in connection with our 2010 Annual Meeting of Stockholders is incorporated in this annual report 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, 2009 follows (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)	1,989	$	10.25	730
Equity compensation plans approved by security shareholders (ESPP only)	N/A		N/A	248
Total all plans	1,989	$	10.25	978

The information set forth under the caption “Principal Stockholders” in our proxy statement is incorporated in this annual report 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 our proxy statement in connection with our 2010 Annual Meeting of Stockholders is incorporated in this annual report by reference.

ITEM  14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

Information set forth under the caption “Proposal 3 – Ratification of Independent Public Accountant – Independent Accountant Fees” and “Audit Committee Report” in our proxy statement in connection with our 2010 Annual Meeting of Stockholders is incorporated in this annual report by reference.

79

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 that are filed with this Form 10-K or are incorporated in this annual report by reference are set forth in the Exhibit Index that appears beginning at page 82.

80

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Wakefield, Commonwealth of Massachusetts, on the 12^th day of March, 2010.

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 12, 2010
/S/ BREHT T. FEIGH Breht T. Feigh	Executive Vice President – Chief Financial Officer and Treasurer (principal financial officer)	March 12, 2010
/S/ MARK W. VARGO Mark W. Vargo	Vice President – Chief Accounting Officer (principal accounting officer)	March 12, 2010
/S/ FAY DONOHUE Fay Donohue	Director	March 12, 2010
/S/ DR. ROBERT E. HUNTER Dr. Robert E. Hunter	Director	March 12, 2010
/S/ DAVID E. MILBRATH, D.D.S. David E. Milbrath, D.D.S.	Director	March 12, 2010
/S/ GERARD M. MOUFFLET Gerard M. Moufflet	Director	March 12, 2010
/S/ DR. LONNIE H. NORRIS Dr. Lonnie H. Norris	Director	March 12, 2010
/S/ DERRIL W. REEVES Derril W. Reeves	Director	March 12, 2010
/S/ STEVEN J. SEMMELMAYER Steven J. Semmelmayer	Director	March 12, 2010

81

EXHIBIT INDEX

			Incorporated by Reference
Exhibit No.	Description	Filed with this Form 10-K	Form or Schedule	SEC Filing Date	SEC File Number
3.1	Second Amended and Restated Certificate of Incorporation of the Registrant		S-1/A	December 31, 1997	333-39981
3.2	Amended and Restated By-laws of the Registrant		S-1	November 12, 1997	333-39981
3.3	Amendment to Article 5 of the Amended and Restated By-laws of the Registrant		8-K	October 30, 2007	000-23363
4	Specimen Certificate representing the Registrant’s Common Stock		S-1/A	December 31, 1997	333-39981
10.1*	Amended and Restated 1996 Stock Option Plan		S-1	November 12, 1997	333-39981
10.2*	Amendment No. 1 to Amended and Restated 1996 Stock Option Plan		S-1/A	March 23, 1998	333-39981
10.3*	Amendment No. 2 to Amended and Restated 1996 Stock Option Plan		10-K	March 9, 1999	000-23363
10.4*	Amendment No. 3 to Amended and Restated 1996 Stock Option Plan		10-K	March 9, 1999	000-23363
10.5*	Amendment No. 4 to Amended and Restated 1996 Stock Option Plan		10-K	March 16, 2000	000-23363
10.6*	Amendment No. 5 to Amended and Restated 1996 Stock Option Plan		10-Q	November 13, 2001	000-23363
10.7*	Amendment No. 6 to Amended and Restated 1996 Stock Option Plan		10-Q	August 13, 2002	000-23363
10.8*	Amendment No. 7 to Amended and Restated 1996 Stock Option Plan		10-Q	August 11, 2004	000-23363
10.9*	1996 Time Accelerated Restricted Stock Option Plan, including Amendment No. 1		S-1	November 12, 1997	333-39981
10.10*	Amendment No. 2 to 1996 Time Accelerated Restricted Stock Option Plan		10-Q	May 15, 2003	000-23363

82

			Incorporated by Reference
Exhibit No.	Description	Filed with this Form 10-K	Form or Schedule	SEC Filing Date	SEC File Number
10.11*	Amended and Restated 1996 Directors Stock Option Plan, including Amendment No. 1		S-1	November 12, 1997	333-39981
10.12*	Amendment No. 2 to Amended and Restated 1996 Directors Stock Option Plan		10-K	March 9, 1999	000-23363
10.13*	Amendment No. 3 to Amended and Restated 1996 Directors Stock Option Plan		10-K	March 9, 1999	000-23363
10.14*	Amendment No. 4 to Amended and Restated 1996 Directors Stock Option Plan		10-K	March 16, 2000	000-23363
10.15*	Amendment No. 5 to Amended and Restated 1996 Directors Stock Option Plan		10-Q	August 13, 2002	000-23363
10.16*	Amendment No. 6 to Amended and Restated 1996 Directors Stock Option Plan		10-Q	May 15, 2003	000-23363
10.17*	Amendment No. 7 to Amended and Restated 1996 Directors Stock Option Plan		10-Q	May 13, 2004	000-23363
10.18*	1997 Employee Stock Purchase Plan		S-8	April 21, 1998	333-50605
10.19*	Amendment No. 1 to 1997 Employee Stock Purchase Plan		S-8	April 21, 1998	333-50605
10.20*	Amendment No. 2 to 1997 Employee Stock Purchase Plan		S-8	April 11, 2000	333-34522
10.21*	Amendment No. 3 to 1997 Employee Stock Purchase Plan	X
10.22*	Amendment No. 4 to 1997 Employee Stock Purchase Plan		10-Q	August 11, 2004	000-23363
10.23*	Amendment No. 5 to 1997 Employee Stock Purchase Plan		10-Q	May 11, 2009	000-23363
10.24*	Amendment No. 6 to 1997 Employee Stock Purchase Plan		10-Q	May 11, 2009	000-23363
10.25*	1999 Restricted Stock Plan		10-Q	November 12, 1999	000-23363
10.26*	Amendment No. 1 to 1999 Restricted Stock Plan		10-Q	November 13, 2001	000-23363

83

			Incorporated by Reference
Exhibit No.	Description	Filed with this Form 10-K	Form or Schedule	SEC Filing Date	SEC File Number
10.27*	Amendment No. 2 to 1999 Restricted Stock Plan		10-Q	August 11, 2004	000-23363
10.28*	Amended 2005 Equity Incentive Plan		8-K	July 18, 2005	000-23363
10.29*	Amendment to Amended 2005 Equity Incentive Plan	X
10.30*	Nonqualified Stock Option Agreement for Amended 2005 Equity Incentive Plan		8-K	July 18, 2005	000-23363
10.31*	Amended 2005 Directors Stock Option Plan		8-K	July 18, 2005	000-23363
10.32*	Amendment to Amended 2005 Directors Stock Option Plan	X
10.33*	Nonqualified Stock Option Agreement for Amended 2005 Directors Stock Option Plan		8-K	July 18, 2005	000-23363
10.34*	Amended and Restated Employment and Non-Competition Agreement dated January 2, 2001 between the Registrant and Gregory A. Serrao		10-K	March 23, 2001	000-23363
10.35*	First Amendment dated January 1, 2009 to Amended and Restated Employment and Non-Competition Agreement dated January 2, 2001 between the Registrant and Gregory A. Serrao		10-K	March 16, 2009	000-23363
10.36*	Written Description of the Company’s Executive Bonus Plan		8-K	April 15, 2009	000-23363
10.37	Senior Secured Credit Facility dated August 21, 2009 among the Registrant, as borrower; the lending institutions named therein, as lenders; KeyBank National Association, as a co-lead arranger and administrative agent; RBS Securities Inc., as a co-lead arranger; Banc of America Securities LLC, as a co-lead arranger; Bank of America, N.A., as documentation agent; and RBS Citizens, N.A., as syndication agent		8-K	August 26, 2009	000-23363

84

			Incorporated by Reference
Exhibit No.	Description	Filed with this Form 10-K	Form or Schedule	SEC Filing Date	SEC File Number
10.38	Amendment No. 1 dated November 13, 2009 to Senior Secured Credit Facility dated August 21, 2009 among the Registrant, as borrower; the lending institutions named therein, as lenders; KeyBank National Association, as a co-lead arranger and administrative agent; RBS Securities Inc., as a co-lead arranger; Banc of America Securities LLC, as a co-lead arranger; Bank of America, N.A., as documentation agent; and RBS Citizens, N.A., as syndication agent		8-K	November 16, 2009	000-23363
10.39	Amended and Restated Service Agreement dated January 1, 1999 between Wisconsin Dental Group, S.C. and Smileage Dental Care, Inc. (predecessor to American Dental Partners of Wisconsin, LLC)		10-K	March 14, 2005	000-23363
10.40	Amendment No. 1 dated October 1, 2000 to Amended and Restated Service Agreement dated January 1, 1999 between Wisconsin Dental Group, S.C. and Northpark Dental Group, Inc. (predecessor to American Dental Partners of Wisconsin, LLC)		10-K	March 14, 2005	000-23363
10.41	Amendment No. 2 dated January 1, 2001 to Amended and Restated Service Agreement dated January 1, 1999 between Wisconsin Dental Group, S.C. and Northpark Dental Group, Inc. (predecessor to American Dental Partners of Wisconsin, LLC)		10-K	March 14, 2005	000-23363
10.42	Amendment No. 3 dated July 1, 2003 to Amended and Restated Service Agreement dated January 1, 1999 between Wisconsin Dental Group, S.C. and Northpark Dental Group, LLC (predecessor to American Dental Partners of Wisconsin, LLC)		10-K	March 14, 2005	000-23363

85

			Incorporated by Reference
Exhibit No.	Description	Filed with this Form 10-K	Form or Schedule	SEC Filing Date	SEC File Number
10.43	Amendment No. 4 dated January 1, 2005 to Amended and Restated Service Agreement dated January 1, 1999 between Wisconsin Dental Group, S.C. and Northpark Dental Group, LLC (predecessor to American Dental Partners of Wisconsin, LLC)		10-K	March 10, 2006	000-23363
10.44	Amendment No. 5 dated January 1, 2006 to Service Agreement dated January 1, 1999 between Wisconsin Dental Group, S.C. and American Dental Partners of Wisconsin, LLC		10-Q	May 9, 2006	000-23363
10.45	Amendment No. 6 dated June 1, 2006 to Service Agreement dated January 1, 1999 between Wisconsin Dental Group, S.C. and American Dental Partners of Wisconsin, LLC		10-Q	August 9, 2006	000-23363
10.46	Amendment No. 7 dated January 1, 2007 to Service Agreement dated January 1, 1999 between Wisconsin Dental Group, S.C. and American Dental Partners of Wisconsin, LLC		10-Q	May 9, 2007	000-23363
10.47	Amended Exhibit A-1 to Amended and Restated Service Agreement dated January 1, 1999 between Wisconsin Dental Group, S.C. and Northpark Dental Group, LLC (predecessor to American Dental Partners of Wisconsin, LLC)		10-K	March 14, 2005	000-23363
10.48	Business Associate Addendum dated March 9, 2010 between Wisconsin Dental Group, S.C. and American Dental Partners of Wisconsin, LLC	X
10.49	Second Amended and Restated Service Agreement dated effective January 1, 2010 among Northland Dental Partners, PLLC, Family Periodontic Specialists, P.L.C., Family Oral Surgery Specialists, PLC, Family Endodontic Specialists, PLC, and American Dental Partners of Minnesota, LLC	X

86

			Incorporated by Reference
Exhibit No.	Description	Filed with this Form 10-K	Form or Schedule	SEC Filing Date	SEC File Number
10.50	Business Associate Addendum dated effective January 1, 2010 among Northland Dental Partners, PLLC, Family Periodontic Specialists, P.L.C., Family Oral Surgery Specialists, PLC, Family Endodontic Specialists, PLC, and American Dental Partners of Minnesota, LLC	X
10.51	Definitive Settlement Agreement dated February 29, 2008 among American Dental Partners, Inc., PDHC, LTD., Northland Dental Partners, PLLC, PDG, P.A., and Dental Specialists of Minnesota, P.A.		8-K	March 5, 2008	000-23363
10.52	Mutual Release of Claims dated February 29, 2008 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.		8-K	March 5, 2008	000-23363
21	Subsidiaries of the Registrant	X
23	Consent of PricewaterhouseCoopers LLP	X
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer	X
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer	X
32	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer	X

* Management contract or compensatory plan identified pursuant to Item 15(a)3.

87

EX-10.21

Exhibit 10.21

AMENDMENT NO. 3

TO

AMERICAN DENTAL PARTNERS, INC.

1997 EMPLOYEE STOCK PURCHASE PLAN

The American Dental Partners, Inc. 1997 Employee Stock Purchase Plan, as previously amended by an Amendment dated February 27, 1998, and an Amendment dated February 25, 2000 (collectively, the “Plan”), is hereby amended pursuant to the following provisions:

1. Definitions

All capitalized terms used in this amendment which are not otherwise defined herein shall have the respective meanings given such terms in the Plan.

2. Eligibility

The second sentence of Section 4 of the Plan is hereby deleted from the Plan in its entirety and replaced with the following:

For purposes of this §4, the term “Subsidiary” or “subsidiary corporation” shall mean (i) a subsidiary corporation of the Company as defined in §424(f) of the Code and the rules and regulations thereunder, and (ii) any limited liability company in which the Company or any such subsidiary corporation is the sole member.

3. Effective Date; Construction

The effective date of this amendment is July 1, 2001, and this amendment shall be deemed to be a part of the Plan as of such date. In the event of any inconsistencies between the provisions of the Plan and this amendment, the provisions of this amendment shall control. Except as modified by this amendment, the Plan shall continue in full force and effect without change.

EX-10.29

Exhibit 10.29

AMENDMENT TO

AMERICAN DENTAL PARTNERS, INC.

2005 EQUITY INCENTIVE PLAN, AS AMENDED

The American Dental Partners, Inc. 2005 Equity Incentive Plan (the “Plan”) is hereby amended pursuant to the following provisions:

1. Definitions

All capitalized terms used in this amendment which are not otherwise defined herein shall have the respective meanings given such terms in the Plan.

2. Exercise Price of Stock Options

Section 6(a) of the Plan is hereby deleted in its entirety and replaced with the following:

(a) Exercise Price

The exercise price per Share issuable upon exercise of a Stock Option shall be no less than the fair market value per Share on the date the Stock Option is granted; provided that, if the Participant at the time an ISO is granted owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any subsidiary, the exercise price per Share shall be at least 110% of the fair market value of the Shares subject to the ISO on the date of grant. For purposes of the Plan, the fair market value of the Shares shall mean, as of any given date, the (i) last reported sale price on the New York Stock Exchange on that date, (ii) last reported sale price on the Nasdaq Stock Market on that date, (iii) mean between the high and low bid and ask prices, as reported by the National Association of Securities Dealers, Inc. on that date, or (iv) last reported sale price on any other stock exchange on which the Shares are listed on that date, whichever is applicable; provided that if none of the foregoing is applicable, then the fair market value of the Shares shall be the value determined in good faith by the Committee, in its sole discretion.

3. Effective Date; Construction

The effective date of this amendment is February 23, 2010, and this amendment shall be deemed to be a part of the Plan as of such date. In the event of any inconsistencies between the provisions of the Plan and this amendment, the provisions of this amendment shall control. Except as modified by this amendment, the Plan shall continue in full force and effect without change.

EX-10.32

Exhibit 10.32

AMENDMENT TO

AMERICAN DENTAL PARTNERS, INC.

2005 DIRECTORS STOCK OPTION PLAN, AS AMENDED

The American Dental Partners, Inc. 2005 Directors Stock Option Plan (the “Plan”) is hereby amended pursuant to the following provisions:

1. Definitions

All capitalized terms used in this amendment which are not otherwise defined herein shall have the respective meanings given such terms in the Plan.

2. Exercise Price of Stock Options

Section 5(b) of the Plan is hereby deleted in its entirety and replaced with the following:

(a) Exercise Price

The exercise price per Share issuable upon exercise of a Stock Option shall be determined by the Committee at the time of grant and set forth in the applicable Stock Options Agreement; provided that such exercise price shall not be less than the fair market value per Share on the date the Option is granted. For purposes of the Plan, the fair market value of the Shares shall mean, as of any given date, the (i) last reported sale price on the New York Stock Exchange on that date, (ii) last reported sale price on the Nasdaq Stock Market on that date, (iii) mean between the high and low bid and ask prices, as reported by the National Association of Securities Dealers, Inc. on that date, or (iv) last reported sale price on any other stock exchange on which the Shares are listed on that date, whichever is applicable; provided that if none of the foregoing is applicable, then the fair market value of the Shares shall be the value determined in good faith by the Committee, in its sole discretion.

3. Effective Date; Construction

The effective date of this amendment is February 23, 2010, and this amendment shall be deemed to be a part of the Plan as of such date. In the event of any inconsistencies between the provisions of the Plan and this amendment, the provisions of this amendment shall control. Except as modified by this amendment, the Plan shall continue in full force and effect without change.

EX-10.48

Exhibit 10.48

BUSINESS ASSOCIATE ADDENDUM

This Business Associate Addendum (the “Addendum”) is made effective March 9, 2010 between Wisconsin Dental Group, S.C., a Wisconsin service corporation (“Provider”), and American Dental Partners of Wisconsin, LLC, a Delaware limited liability company (“Business Associate”).

Background Information

A. Provider and Business Associate (the “Parties”) are the parties to the Amended and Restated Service Agreement dated January 1, 1999 (as amended from time to time, the “Service Agreement”). Pursuant to this Service Agreement, Business Associate will provide a variety of non-clinical administrative and management services to Provider.

B. In connection with its services under the Service Agreement, Business Associate will have access to “protected health information” and “electronic protected health information” regarding Provider’s patients (collectively, “PHI”), as those terms are defined in the Health Insurance Portability and Accountability Act of 1996 (P.L. 104-191), 42 U.S.C. Section 1320d, et. seq., and regulations promulgated thereunder, as amended (such statute and regulations collectively, “HIPAA”). In addition, Provider is a “covered entity,” and Business Associate is a “business associate,” as those terms are defined under HIPAA.

C. The Parties are entering into this Addendum to comply with HIPAA as it relates to the use and disclosure of PHI and related matters.

Statement of Agreement

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

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

2. Term. The term of this Addendum shall begin on the date of this Addendum and shall end on the date on which the Service Agreement is terminated; provided that if the Parties’ post-termination activities under the Service Agreement involve the potential use or disclosure of PHI by Business Associate, then the term of this Addendum shall continue until all such post-termination activities have been completed.

3. HIPAA Compliance and Agents. During the term of this Addendum, to the extent Business Associate has access to, uses, or discloses PHI, Business Associate shall comply with the “Business Associate” requirements under HIPAA. Without limiting the foregoing, Business Associate may use or disclose PHI only if such use or disclosure is permitted by this Addendum or HIPAA.

Business Associate shall ensure that each of its agents or subcontractors to whom it provides PHI received from, or created, used or disclosed by Business Associate on behalf of, Provider, agrees, by a written agreement or Workforce training, as applicable, to the same restrictions, terms, and conditions as are applicable to Business Associate under this Addendum,

including without limitation the requirement to implement administrative, physical and technical safeguards that reasonably and appropriately protect the confidentiality, integrity, and availability of any electronic PHI that it creates, receives, maintains, or transmits on behalf of Provider or Business Associate.

4. Use and Disclosure; Rights. Business Associate may use or disclose the PHI received or created by it: (a) to perform functions, activities, or services for, or on behalf of, Provider pursuant to the Service Agreement, as it may be amended from time to time, or for other related purposes requested or approved by Provider, (b) to perform its obligations under this Addendum, (c) to properly manage and administer Business Associate’s business, (d) to carry out its legal responsibilities if the disclosure is ‘required by law,’ as defined by HIPAA, (e) for ‘data aggregation functions,’ as defined by HIPAA, or (f) as otherwise permitted or required by applicable law. Provider shall not request that Business Associate use or disclose PHI in any manner that would not be permitted under HIPAA if done by Provider as a ‘covered entity.’ If, pursuant to clause (c) of this section, Business Associate discloses PHI to others, Business Associate shall obtain reasonable assurances from the person, firm, association, organization, or entity (hereinafter, simply “person”) to whom the information is disclosed that (i) such PHI shall be held confidentially and used or further disclosed only as required by law or for the purpose for which it is disclosed to such person, and (ii) that such person shall notify Business Associate of any instances of which it becomes aware that the confidentiality of the information has been breached.

5. HIPAA Security Rule; Safeguards. Business Associate shall implement, document, and use administrative, physical, and technical safeguards that prevent use or disclosure of PHI other than as permitted or required by this Addendum, and that reasonably and appropriately protect the confidentiality, integrity, and availability of any electronic PHI that it creates, receives, maintains, or transmits on behalf of Provider, including without limitation reporting to Provider any security incident of which Business Associate becomes aware. Without limiting the foregoing, on or before February 17, 2010, Business Associate shall comply with the Security Standards for the Protection of Electronic Protected Health Information (and Implementation Specifications therein) promulgated by the U. S. Department of Health and Human Services (“DHHS”) in §§ 164.308, 164.310, 164.312, and 164.316 of title 45, Code of Federal Regulations (the “Security Standards”) with respect to all electronic PHI (“ePHI”) it creates, receives, maintains or transmits on behalf of Provider. Notwithstanding the foregoing, Provider shall be solely responsible for ensuring that appropriate administrative, physical and technical safeguards are implemented with respect to ePHI Provider creates, receives, maintains, uses or discloses, in accordance with the Security Standards and other requirements under HIPAA as amended from time to time.

6. Minimum Necessary. Business Associate shall limit any use, disclosure, or request for use or disclosure to the minimum amount of PHI necessary to accomplish the intended purpose of the use, disclosure or request in accordance with the requirements of HIPAA.

7. Records; Covered Entity Access. Business Associate shall maintain such records of PHI received from, or created or received on behalf of, Provider as may be reasonably necessary and appropriate in order for Provider to comply with HIPAA with respect to the services described in the Service Agreement. Business Associate shall grant Provider reasonable access to examine and copy, at Provider’s expense, such PHI, and records and documents of Business Associate related thereto, during normal business hours.

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8. DHHS Access to Books, Records, and Other Information. As required by applicable law, Business Associate shall make available to the Secretary of DHHS its internal practices, books, and records relating to the use and disclosure of PHI received from, or created or received by Business Associate on behalf of, Provider for purposes of determining the Provider’s or Business Associate’s compliance with HIPAA. Business Associate shall cooperate and assist Provider in good faith with complying with the requirements of HIPAA and any investigation of Provider regarding compliance with HIPAA conducted by DHHS, its Office for Civil Rights, or any other administrative or judicial body with jurisdiction over Provider.

9. Designated Record Set. Business Associate shall maintain a ‘designated record set,’ as defined by HIPAA, only for individuals for which it has PHI and only upon the specific written request of Provider or as required by the Service Agreement. Business Associate shall make a patient’s designated record set available to Provider for purposes of complying with such patient’s right under HIPAA to access, copy or append such record.

10. Accounting. Business Associate shall make available to Provider any PHI or any other information reasonably required to prepare, or reasonably assist in preparing, an accounting of disclosures in accordance with HIPAA. Business Associate shall document disclosures of PHI in such a manner as will assist Provider in responding to any request for an accounting of disclosures of PHI. With respect to written PHI, Business Associate shall have this information and documentation available for the six years preceding any request by Provider. If Business Associate maintains an “electronic health record” with respect to Provider’s patients, Business Associate shall have this information and documentation available for the three years preceding any request by Provider, and the exceptions under 45 C.F.R. § 164.528(a)(1)(i) shall not apply. Notwithstanding the foregoing, if Business Associate has provided services to Provider for less than the three-year or six-year, as applicable, Business Associate shall be obligated to make available to Provider only the information relating to the period during which Business Associate provided services to Provider.

11. Amendment of and Access to PHI; Notification. In accordance with an individual’s right to access his or her own PHI under HIPAA, and that individual’s right to copy or append amendments to such records, Business Associate shall make available to Provider all PHI in a designated record set that it maintains, or to the individual to whom the information pertains, or to such individual’s representative, in each case upon the written request of Provider. Business Associate shall append amendments to PHI in a designated record set that Business Associate maintains in accordance with a written request, including any amendment to be appended to such records, from Provider.

12. Individual Authorizations; Restrictions. Provider shall notify Business Associate of any restriction on the use or disclosure of PHI that Provider has agreed to with an individual, or that is otherwise required by HIPAA, or that Provider has placed in its Notice of Privacy Practices, or of any changes in or revocation of an authorization or other permission by an individual, to the extent that such restriction, change or revocation may affect Business Associate’s use or disclosure of PHI. Provider shall notify Business Associate of any change in or revocation of any restriction on the use or disclosure of PHI that Provider had previously agreed to with an individual or that Provider had placed in its Notice of Privacy Practices.

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13. Material Breach of Agreement. Pursuant to 45 C.F.R. 164.504(e)(1)(ii), if either Party knows or becomes aware of a pattern of activity or practice of the other Party that constitutes a material breach of the such Party’s obligations under this Addendum, such Party shall notify such other Party in writing, and both Parties shall, for a period of 60 days following receipt of such written notice and an explanation of the breach from the notifying Party, cooperate in good faith to take steps reasonably necessary to cure such breach; provided, however, that if such steps are unsuccessful, the non-breaching Party may, in addition to any other remedy: (a) terminate this Addendum, if feasible, or (b) if cure and termination are not feasible, discontinue use or disclosure of PHI to the extent feasible and report the breach to Secretary of DHHS.

14. Breach of Unsecured PHI. Pursuant to regulations promulgated under subpart D of part 164 of title 45, Code of Federal Regulations, as enacted by Section 13402(j) of the Health Information Technology for Economic and Clinical Health Act (“HITECH Act”), Business Associate is hereby delegated the authority and responsibility, on behalf of Provider, to notify individuals of any breach of unsecured PHI, as determined in good faith by Business Associate in accordance with the HIPAA Breach Notification Policy attached to this Addendum as Exhibit A, which is hereby incorporated herein by reference.

15. Electronic Standards, Code Sets, and Security Regulations. If Business Associate conducts, in whole or in part, electronic transactions on behalf of Provider of the type covered by HIPAA regulations, including Standards for Electronic Transactions and Electronic Code Sets, Business Associate shall comply, and shall require any of its agents or subcontractors to comply, with each applicable requirement of such regulations.

16. Return of PHI. At the end of the term of this Addendum, Business Associate shall return or destroy all PHI received from, or created or received by Business Associate on behalf of, Provider that Business Associate maintains in any form and retain no copies of such information; provided that, if and to the extent Business Associate reasonably determines that such return or destruction is not reasonably feasible, Business Associate shall not be required to return or destroy such PHI, but Business Associate shall extend the protections of this Addendum to such PHI.

17. Data Use Agreement. If Business Associate is the recipient of a ‘limited data set’, as defined by HIPAA, or if Business Associate is engaged by Provider to create a limited data set for purposes of Provider’s health care operations, this Addendum shall also be considered to be a ‘data use agreement,’ as defined by HIPAA, that establishes the permitted uses and disclosures of the information by Business Associate as a limited data set recipient as required by HIPAA. To the extent that, and for as long as, it possesses limited data set information for or on behalf of Provider, Business Associate hereby agrees to fully comply with the requirements of HIPAA applicable with respect to limited data set information, including without limitation, 45 C.F.R. §164.514(e). The provisions of this Addendum relative to PHI shall also apply to limited data set information, if any, in the possession or control of Business Associate. Limited data set information may be used or disclosed by Business Associate only for the purposes of research, public health, or health care operations. Business Associate may not disclose limited data set

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information in a manner that would violate HIPAA if Business Associate were a covered entity thereunder. Business Associate may only disclose limited data set information to and permit the use of such information by other persons as may be agreed upon between Provider and Business Associate in writing from time to time. Business Associate shall not identify or attempt to identify the individual(s) to whom the limited data set information pertains or contact or attempt to contact the individual(s) that Business Associate believes to be the subject of any limited data set information.

18. HIPAA Amendments. In the event Congress or the U. S. Department of Health and Human Services amend HIPAA, this Addendum shall be deemed automatically amended to incorporate any supplemental, amended or modified requirements as are expressly applicable to Provider and/or Business Associate, effective on the effective date of such amendments. Without limiting the foregoing, the Parties agree to negotiate and cooperate in good faith in the execution of any amendments, agreements or other instruments deemed necessary or appropriate by the Parties in their reasonable discretion to carry out such HIPAA amendments.

19. Interpretation. This Addendum is an addendum to and a part of the Service Agreement and shall be interpreted in a manner consistent with the Service Agreement. In addition, the Addendum shall continue to apply to the Service Agreement as it may subsequently be amended or restated. In the event of any inconsistency between the provisions of the Service Agreement, as so amended and restated (if applicable), and this Addendum, the provisions of the Service Agreement shall control. This Addendum supersedes all prior agreements or understandings regarding the subject matter of this Addendum.

PROVIDER:		SERVICE COMPANY:
WISCONSIN DENTAL GROUP, S.C.		AMERICAN DENTAL PARTNERS OF WISCONSIN, LLC
By	Robert Trettin, D.D.S.	By	Ian H. Brock
Its	President	Its	Vice President

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Exhibit A

HIPAA BREACH NOTIFICATION POLICY

SCOPE:

This HIPAA Breach Notification Policy (the “Policy”) applies to Wisconsin Dental Group, S.C. (“Provider”), and its shareholders, directors, officers, employees, agents, and business associates (as defined in HIPAA), including American Dental Partners of Wisconsin, LLC (“Business Associate”).

PURPOSE:

This Policy has been developed to facilitate the Provider’s compliance with the requirements of the Health Information Technology for Economic and Clinical Health Act (HITECH) component of the American Recovery and Reinvestment Act of 2009 (ARRA) concerning breach notification of unsecured protected health information (PHI). The purpose of this Policy is to outline a systematic process designed to notify patients of any breach of privacy or security with respect to any unsecured PHI that is received, created, retained, used or disclosed by Provider as a Covered Entity, its owners, members, directors, officers, employees, and business associates. The phrase “received, created, retained, used or disclosed” is interpreted to include many activities a Covered Entity may take with respect to PHI, including, but not limited to: accessing, maintaining, retaining, modifying, recording, storing, destroying, or otherwise holding, using or disclosing PHI.

DEFINITIONS:

The following definitions apply to all of the Provider’s privacy and security policies and procedures related to personal health information received, created, retained, used or disclosed by the Provider as a Covered Entity, Business Associate or any other business associate of the Provider.

Breach – The acquisition, access, use, or disclosure of PHI in a manner not permitted under the Privacy Rule (as defined below), which compromises the security or privacy of the PHI. The determination of whether any breach or potential breach compromises the security or privacy of the PHI shall be made in good faith by Business Associate on behalf of the Provider, taking into consideration an assessment of whether the potential breach poses a significant risk of financial, reputational, or other harm to the individual. The term “breach” does not include:

(i) any unintentional acquisition, access, or use of PHI by an employee or other workforce member of the Provider, or by a person acting under the authority of the Provider, such as a member of Business Associate’s workforce, if such acquisition, access, or use: (1) was made in good faith and within the course and scope of the employment or authority of such person, and (2) does not result in further use or disclosure in a manner not permitted under the Privacy Rule; or

(ii) any inadvertent disclosure by a person who is authorized to access PHI by the Provider or Business Associate, to another person authorized to access PHI at the Provider or

Business Associate, or within an organized health care arrangement in which the Provider participates, and the information received as a result of such disclosure is not further used or disclosed in a manner not permitted under the Privacy Rule; or

(iii) a disclosure of PHI where Business Associate or the Provider has determined or has a good faith belief that an unauthorized person to whom the disclosure was made would not reasonably have been able to retain such information.

Breach Notification Rule – Regulations promulgated at subpart D of part 164, title 45, Code of Federal Regulations.

Business Associate – A person or entity who, on behalf of the Provider, or on behalf of an organized health care arrangement in which the Provider participates (“OHCA”), but other than in the capacity as an employee, performs or assists in the performance of: (a) a function or activity involving the use or disclosure of individually identifiable health information, including claims processing or administration; data analysis, processing or administration; utilization review; quality assurance; billing; benefit management; practice management; repricing; or any other function or activity regulated under HIPAA, or (b) provides legal, actuarial, accounting, consulting, data aggregation, management, administrative, accreditation, or financial services to or for Provider or such OHCA, where the provision of the service involves the disclosure of individually identifiable health information from Provider or such OHCA, or from another business associate of Provider or such OHCA, to the person or entity.

Covered Entity – (1) A health plan; (2) a health care clearinghouse; or (3) a health care provider who transmits any health information in electronic form in connection with a transaction covered by HIPAA.

HIPAA – The Health Insurance Portability and Accountability Act of 1996 (P.L. 104-191), 42 U.S.C. Section 1320d, et. seq., and regulations promulgated thereunder, as amended from time to time.

Privacy Officer – The person designated by the Provider, or, with Provider’s consent, by Business Associate as the manager of certain non-clinical parts of Provider’s dental practice, to oversee and administer the Provider’s compliance with HIPAA.

Privacy Rule – Regulations promulgated at subpart E of part 164, title 45, Code of Federal Regulations.

Protected Health Information, or PHI – PHI shall have the meaning prescribed to it under 45 C.F.R. § 160.103. Generally, this includes any oral, written or electronic individually-identifiable health information received, created, retained, used or disclosed by Provider as a Covered Entity. Individually-identifiable health information includes demographic information and is information created or received by a health care provider, health plan, employer, or health care clearinghouse; and relates to the past, present or future physical or mental health or condition of an individual; the provision of health care to an individual; or the past, present or future payment for the provision of health care to an individual; and that identifies the individual, or with respect to which there is a reasonable basis to believe the information can be used to identify the individual. PHI does not include employment records held by a Covered Entity in its role as an employer.

Security Rule – Regulations promulgated at subpart C of part 164, title 45, Code of Federal Regulations.

Unsecured PHI – Protected health information that is not rendered unusable, unreadable, or indecipherable to unauthorized individuals through the use of a technology or methodology specified in guidance published by the Secretary of the Department of Health and Human Services (HHS).

Additional Definitions – Terms not otherwise defined herein, shall have the meanings set forth in the Administrative Simplification provisions of the Health Insurance Portability and Accountability Act of 1996 (P.L. 104-191), 42 U.S.C. Section 1320d, et. seq., and the HIPAA Privacy and Security Standards, 45 C.F.R. parts 160 and 164, as amended from time to time.

POLICY:

In the case of a breach of unsecured PHI, Business Associate, on behalf of the Provider, shall notify the affected patient(s) of the breach, without unreasonable delay and in no case later than sixty (60) calendar days after discovery of the breach.

Limited Data Sets (as defined under HIPAA) (except those that exclude patient zip code and date of birth) are subject to this Policy and the required breach notification.

All Provider and Business Associate directors, officers, employees and agents are expected to work collaboratively to timely and accurately report any breach of unsecured PHI to the Privacy Officer and according to this Policy, ARRA, and any and all other federal and state laws and regulations. The Privacy Officer shall maintain all documentation related to any breach of unsecured PHI, for a minimum of six (6) years from the date of notification provided hereunder.

PROCEDURE:

Breach Analysis:

Upon discovering a potential breach, in order to determine if a breach has actually occurred, Business Associate, in consultation with Provider, shall conduct a breach analysis. Such analysis consists of:

1) determining whether the PHI was unsecure;

2) determining whether the PHI was used or disclosed in an unauthorized manner (in a manner not permitted under the Privacy Rule);

3) determining whether the unauthorized use or disclosure poses a significant risk of financial, reputational, or other harm to the affected individuals; and

4) determining whether the incident falls under any of the three enumerated exceptions to a breach listed in the definition of “breach” above.

The following information, in addition to any other relevant facts and circumstances, should be considered when determining whether the unauthorized use or disclosure poses a significant risk of financial, reputational, or other harm to the affected individuals/participants/patients (number 3, above): who impermissibly used or to whom the information was impermissibly disclosed; whether immediate steps have been taken to mitigate an impermissible use or disclosure such that the risk of harm has been eliminated or reduced to less than a significant amount of harm; and the type and amount of PHI involved in the impermissible use or disclosure. The risk assessment should be fact specific.

Business Associate, on behalf of Provider, shall document its breach analysis and maintain such documentation for a minimum of six (6) years.

Notification of Affected Individuals/Patients:

1. After a prompt investigation and breach analysis, without unreasonable delay and in no case later than sixty (60) calendar days of Business Associate or Provider (as the case may be) discovering a breach, Business Associate, on behalf of the Provider, shall provide written notice to each patient whose unsecured PHI has been, or is reasonably believed by Business Associate to have been, accessed, acquired, used, or disclosed as a result of such breach. In the following situations, the persons listed shall be notified:

a. If the patient is deceased, the patient’s next-of-kin or personal representative (e.g., appointed executor or administrator of the patient’s estate), in accordance with applicable law.

b. If the patient is incapacitated/incompetent, the patient’s personal representative (e.g., durable power of attorney for health care or legal guardian).

c. If the patient is an unemancipated minor, the parent or legal guardian.

2. Written notification must be sent by first-class mail to the last known address of the patient, or, if previously agreed to by the patient and not revoked, by encrypted electronic mail.

3. In the case where there is insufficient or out-of-date contact information that precludes written notification to the patient, substitute notice reasonably calculated to reach the patient shall be provided, in accordance with §164.404(d)(2) of title 45, Code of Federal Regulations.

4. In any case that Business Associate, on behalf of the Provider, determines that the patient should be notified urgently of a breach because of possible imminent misuse of unsecured PHI, Business Associate may, in addition to providing notice as outlined in steps 1-3 above, contact the patient by telephone or other means, as appropriate.

5. If a law enforcement official determines that a notification would impede a criminal investigation or cause damage to national security, such notification shall be delayed in the same manner as provided under §164.528(a)(2) of title 45, Code of Federal Regulations.

Media Notification:

1. In any case where a breach involves more than 500 patients who are residents of the same State or jurisdiction, Business Associate, on behalf of the Provider, shall notify prominent media outlets, without unreasonable delay and in no case later than sixty (60) calendar days after discovery of the breach. The content of the media notice must meet the same requirements as the content of written notification to patients.

2. The Privacy Officer should work with Provider’s leadership and Business Associate management to coordinate any media notification required hereunder.

HHS Notification:

1. In any case of a breach involving less than 500 patients (regardless of the State or jurisdiction), Business Associate, on behalf of the Provider, must record the breach in a centralized log of all breaches of unsecured PHI that occurred during the calendar year and annually submit the log to HHS (with a copy to Business Associate’s corporate office) no later than sixty (60) calendar days after the end of the calendar year. Notice of breaches affecting less than 500 individuals must be submitted electronically by using the breach notification form located at this website address: http://transparency.cit.nih.gov/breach/index.cfm (or at any address located in subsequent guidance). A separate form must be completed for every breach that has occurred and has been logged on behalf of Provider during the calendar year. If Business Associate has submitted a breach notification form to the Secretary of HHS on behalf of Provider, and later discovers additional information to report, Business Associate may submit an additional form, checking the appropriate box to signal that it is an updated submission.

2. In any case of a breach involving 500 or more patients (regardless of the State or jurisdiction), Business Associate, on behalf of the Provider, shall, without unreasonable delay and in no case later than sixty (60) calendar days after discovery of the breach, provide notification to the Secretary of the U.S. Department of Health and Human Services (HHS). The notice to HHS shall be provided contemporaneously with, and in addition to, the notification to patients. The notice must be submitted electronically by using the breach notification form located at this website address: http://transparency.cit.nih.gov/breach/index.cfm (or at any address located in subsequent guidance).

Content of Notification:

Regardless of the method by which the notice is provided to patients, notice of the breach must include:

1. A brief description of what happened, including the date of the breach and the date of the discovery of the breach, if known.

2. A description of the types of unsecured PHI that were involved in the breach, such as whether or not the patient’s full name, Social Security Number, date of birth, home address, account number, diagnosis code or disability code or other types of information were involved. Only the generic type of PHI should be listed in the notice (i.e., “date of birth” rather than the patient’s actual birth date).

3. The steps the individual should take to protect themselves from potential harm resulting from the breach.

4. A brief description of what the Provider, or Business Associate on behalf of the Provider, is doing to investigate the breach, mitigate harm to the patients, and to protect against any further breaches.

5. Contact procedures for patients to ask questions or learn additional information, which shall include a toll-free telephone number, an e-mail address, website, or postal address.

6. Any other information required by the Breach Notification Rule.

7. Provider is required to maintain documentation that all required notifications were made, for a minimum of six (6) years.

Notification by the Provider’s Business Associates:

All business associates of Provider (as defined above) shall be required, either by the applicable Business Associate Agreement entered into with Provider, or by adherence to this Policy, to notify Business Associate of any breach of unsecured PHI, without unreasonable delay and in no event later than five (5) business days after the discovery of the breach by the business associate or any director, officer, employee, or agent of the business associate (excluding the person who may have committed the breach). Provider shall immediately notify Business Associate of any notices of breach it receives from its other business associates.

State Law or Other Legal Requirements:

In the event of a breach of PHI, Business Associate, on behalf of Provider, shall review and take appropriate actions under any applicable state breach notification laws, and/or other federal laws that may be applicable to the incident.

POLICY OVERSIGHT:

This Policy shall be administered by the Privacy Officer in consultation with Business Associate. The Privacy Officer shall review this Policy annually for updates and revisions required in order to comply with applicable state, federal or local laws. Proposed modifications, updates, or revisions required by law shall be presented by the Privacy Officer to the Provider and Business Associate for approval.

EX-10.49

Exhibit 10.49

SECOND 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

AMERICAN DENTAL PARTNERS OF MINNESOTA, LLC

Effective Date: January 1, 2010

TABLE OF CONTENTS

		Page
ARTICLE I          DEFINITIONS		1
ARTICLE II        ENGAGEMENT AND AUTHORITY OF SERVICE COMPANY		2
2.1	Engagement	2
2.2	Limitations On Service Company Authority	2
2.3	Patient Referrals	2
2.4	Internal Management of Provider	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		6
4.1	Clinics	6
4.2	Equipment	6
4.3	Laboratory Services	7
4.4	Supplies	7
4.5	Capital Investment	7
4.6	Support Services	7
4.7	Quality Assurance, Risk Management, and Utilization Review	8
4.8	Licenses and Permits	8
4.9	Personnel	8
4.10	Contract Negotiations	8
4.11	Billing and Collection	8
4.12	Provider Account	10
4.13	Financial Matters	11
4.14	Reports and Records	12
4.15	Recruitment of Provider Dentists	13
4.16	Service Company’s Insurance	13
4.17	License of Name and Marks	13
4.18	No Warranty	14
ARTICLE V        RESPONSIBILITIES OF PROVIDER		14

-i-

TABLE OF CONTENTS

(continued)

		Page
5.1	Organization and Operations	14
5.2	Provider Personnel	15
5.3	Professional Standards	15
5.4	Dental Care	15
5.5	Peer Review and Quality Assurance	16
5.6	Provider’s Insurance	17
5.7	Noncompetition	18
5.8	Use of Names	19
ARTICLE VI        CONFIDENTIALITY		19
6.1	Confidential and Proprietary Information	19
6.2	Exceptions	20
6.3	Legally Required Disclosure	20
6.4	Use of Practice Statistics	20
6.5	Trading in Parent Securities	21
ARTICLE VII      FINANCIAL ARRANGEMENTS		21
7.1	Clinic Expense Reimbursement	21
7.2	Repayment of Advances	21
7.3	Service Fee	21
7.4	Fair Value	21
7.5	Payment	22
7.6	Accounts Receivable; Security Interest	22
ARTICLE VIII    TERM AND TERMINATION		23
8.1	Initial and Renewal Term	23
8.2	Termination	23
8.3	Effects of Termination	25
8.4	Purchase Obligation	25
8.5	Closing of Purchase	26
ARTICLE IX      GENERAL		27
9.1	Nature of Services	27
9.2	Relationship of Parties	27

-ii-

TABLE OF CONTENTS

(continued)

		Page
9.3	Notices	27
9.4	Further Assurances	28
9.5	Governing Law	28
9.6	Severability	28
9.7	Setoff	29
9.8	Remedies	29
9.9	Non-waiver	29
9.10	Indemnification	29
9.11	No Third Party Benefit	29
9.12	Captions	30
9.13	Genders and Numbers	30
9.14	References to Law	30
9.15	Complete Agreement	30
9.16	Counterparts	30
9.17	Assignment	30
9.18	Successors	30
9.19	Force Majeure	31
9.20	Interpretation	31
9.21	Covenant Not to Sue	31
9.22	Mutually Negotiated	31
9.23	Arbitration	31
9.24	Exclusion of Indirect Damages	33
9.25	Limitation of Liability	33
Exhibit A, Definitions		A-1

-iii-

SECOND AMENDED AND RESTATED

SERVICE AGREEMENT

This Second Amended and Restated Service Agreement (the “Agreement”) is made March 10, 2010, to be effective January 1, 2010 (the “Effective Date”), among Northland Dental Partners, PLLC, a Minnesota professional limited liability company (“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 American Dental Partners of Minnesota, LLC, a Delaware limited liability company, as successor in interest to 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 non-clinical administrative and management services to dental practices, including obtaining dental offices and providing those offices, other assets, working capital, systems, certain personnel, and a variety of business services, but not including services that are directly related to or would improperly influence the practice of dentistry.

C. Provider acknowledges that there is a distinction between the clinical and non-clinical, or business, aspects of a dental practice and has retained Service Company to manage the business aspects of Provider’s dental practice pursuant to an Amended and Restated Service Agreement dated January 1, 2009 (the “Original Agreement”) between Provider and Service Company (the “Parties”), so that Provider and its dentists can focus their efforts primarily on providing quality dental care. In addition, Provider acknowledges that since it is practicing in offices provided by Service Company, is using trade names and marks owned by Service Company, and is supervising certain of Service Company’s employees, cooperation between the Parties is necessary for the efficient and effective operation of their respective businesses, and that Service Company has an interest in ensuring that Provider operates its dental practice in a safe and high quality manner and in compliance with applicable law.

D. The Parties desire to continue their relationship, but to modify the Original Agreement in certain respects, and they are entering into this Agreement to accomplish those purposes.

Statement of Agreement

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

ARTICLE I

DEFINITIONS

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

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ARTICLE II

ENGAGEMENT AND AUTHORITY OF SERVICE COMPANY

2.1 Engagement. Provider hereby engages Service Company as Provider’s exclusive provider of the Services, and Service Company hereby accepts such engagement. Subject at all times to the other express provisions of this Agreement, Service Company shall have the authority to provide the Services in any reasonable manner Service Company deems appropriate. Without limiting the foregoing, Provider acknowledges that Service Company may arrange for certain of the Services to be performed by employees of Parent or other subsidiaries of Parent who are located in other states, including without limitation certain Services related to payroll processing and benefits administration, risk management, and information technology support. Unless an expense is expressly designated as a Service Company Expense in this Agreement, all expenses incurred by Service Company, Parent, or such other subsidiaries of Parent in providing the Services shall be Clinic Expenses.

2.2 Limitations On Service Company Authority. The Parties acknowledge and agree that: (a) Service Company is not authorized or qualified to engage in the practice of dentistry; (b) Service Company is not employing or engaging Provider or any of its dentists or other clinical personnel to practice dentistry; and (c) 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 practice of dentistry and provision of Dental Care in the Clinics, and all Dental Care shall be provided and performed exclusively by or under appropriate supervision of dentists as such dentists, in their sole discretion, deem appropriate, (ii) Service Company shall not have or exercise any control or supervision over the practice of dentistry or provision of Dental Care, (iii) this Agreement does not permit Service Company to interfere in the independent professional judgment of Provider’s dentists in their practice of dentistry, and (iv) 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, board, or authority to constitute the practice of dentistry, the requirement that Service Company perform that act or service 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 Board of Dentistry of the State of Minnesota 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.

2.3 Patient Referrals. The Parties acknowledge and agree that: (a) the benefits to Provider under this Agreement 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-related operation controlled, managed, or operated by Service Company; and (b) Service Company is not engaging, does not intend to engage, and is not

2

required to engage in any referrals of patients to Provider or any similar activities, or any other activities designed or intended to result in referrals of patients to Provider, 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. Provider has its own internal governance structure, which is not controlled in any way by Service Company, and 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. However, notwithstanding the foregoing or any other provisions of this Agreement to the contrary, Provider acknowledges that it has elected to participate in certain employee benefit plans and programs sponsored or made available by Service Company, including without limitation the 401(k) plan established by Parent. Provider has reviewed the terms of such plans and programs, has found them satisfactory, and shall abide by all requirements of such plans and programs.

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.

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

3

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.

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.

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(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.

(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 Provider, its members of the Policy Board, or its individual dentists, as appropriate; 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, including without limitation the selection of a course of treatment for a patient, the procedures or materials to be used as part of such course of treatment, and the manner in which such course of treatment is carried out; (b) recruitment of dentists for Provider,

5

including evaluating the background, experience, qualifications, specialties, and other credentials of such individuals; (c) fee schedules for Provider’s services, including without limitation Provider’s usual and customary fee schedule and related pricing, credit, warranty and refund policies; (d) advertising and marketing activities relating to Provider’s services; (e) care, custody, and control of (i) dental materials and equipment when used for the provision of Dental Care, and (ii) patient records of Provider’s patients; (f) third party payor contracting; (g) hours of operation of Provider’s dental practice; and (h) 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; provided that Service Company shall exercise commercially reasonable efforts to procure Clinics at commercially reasonable rates. Any move from a present Provider practice location shall be made only after Service Company has received Provider Consent.

(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 commercially reasonable efforts to assist in obtaining the lessor’s consent to the assignment. Any expenses incurred in connection with 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 that Service Company deems reasonably necessary for the operation of each Clinic or reasonably necessary for the provision of Dental Care.

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(b) Service Company shall provide, finance, or cause to be provided or financed such dental equipment as is reasonably required by Provider for the provision of Dental Care. Subject to the preceding sentence and to economic feasibility as set forth in the Budgets approved pursuant to this Agreement, Provider shall have final authority in all dental equipment selections. 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, and replacing (as reasonably necessary), all equipment provided by Service Company under this Agreement, ordinary wear and tear excepted in all cases, the costs and expenses of which shall be Clinic Expenses; 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 (on a basis consistent with this Agreement and 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 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 provide on behalf of and as agent for Provider all Special Dental Supplies reasonably 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 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 included in the then-current Budget or otherwise 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.

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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 assist Provider by monitoring Provider’s level of compliance 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): (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; provided that, 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 compensation and fringe benefits of such personnel and for withholding all appropriate amounts for income taxes, unemployment insurance, social security, workers’ compensation, and any other withholding required by applicable law.

4.10 Contract Negotiations. To the extent reasonably requested by Provider, 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.

4.11 Billing and Collection. Service Company shall assist Provider with the establishment and maintenance of credit, billing, and collection policies and procedures, and shall exercise reasonable efforts to bill and collect on behalf of Provider in a timely manner (and to the extent permitted by applicable law) all professional and other fees for all billable Dental Care provided by Provider. Service Company shall advise and consult with Provider regarding the fees for Dental Care provided by Provider (including any related discounting policy). In connection with the billing and collection services to be provided under this Agreement, Provider hereby grants to Service Company, to the fullest extent permitted by applicable law, throughout

8

the Term (and thereafter as provided in Section 8.3), an exclusive special power of attorney and appoints Service Company, to the fullest 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.

(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.

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4.12 Provider Account

(a) Power of Attorney. Service Company shall have access to the Provider Account, and shall use all funds on deposit therein, solely 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 or cause to be made 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 Parent as part of cash management procedures established or adopted by Service Company or Parent 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 exceed the aggregate amounts paid or payable to Service Company under this Agreement, then such excess shall be deemed to be held by Service Company as agent for Provider. Without limiting the foregoing, Provider acknowledges that under the cash management procedures currently utilized by Service Company and Parent, funds in the Provider Account shall be transferred on a daily basis to one or more accounts of Parent at a bank located in Boston, Massachusetts. Notwithstanding this exclusive special power of attorney, Provider may, upon reasonable advance notice to Service Company, request that Service Company use funds in the Provider Account or held by Service Company as agent for Provider to pay Provider Expenses and such other amounts as may be due to Provider under this Agreement, subject to Section 4.12(b); provided that the amount that may be requested by Provider under this sentence shall be reduced by reserves sufficient to satisfy the reasonably anticipated needs of Provider’s business operations and its reasonably foreseeable obligations under this Agreement, including without limitation reserves reflecting differences in timing between the receipt of cash and financial statement accruals, including, to the extent applicable, a reserve appropriate to fund future expenses associated with deferred revenue for situations in which Provider’s receipt of cash, recognition of revenue, and/or related expenses occur in different accounting periods.

(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;

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

(iii) Payment of the Service Fee to Service Company;

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

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(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. The Parties shall reasonably cooperate to develop the Budget for each calendar year during the Term. To accomplish this: (i) Provider shall exercise commercially reasonable efforts to provide to Service Company, not less than 90 days prior to each calendar year, Provider’s anticipated hours for providing Dental Care, gross production per hour goals for each dentist and dental hygienist to be utilized by Provider to provide Dental Care, and Provider Expenses for that calendar year; and (ii) Service Company, in consultation with Provider, shall exercise commercially reasonable efforts to prepare and deliver to the Policy Board, not less than 30 days prior to each calendar year (assuming Provider has timely provided the information as required under the immediately preceding clause), a proposed Budget for that calendar year, setting forth an estimate of Provider’s revenue and expenses for that year (including without limitation the Service Fee). Each Budget shall be subject to the approval of the Policy Board. Each Budget also shall be subject to the approval of Parent since Parent is the primary source of working capital and other capital for Provider’s and Service Company’s operations.

If a proposed Budget is not approved by either the Policy Board or Parent, Service Company, in consultation with Provider and Parent, shall promptly revise such proposed Budget, taking into consideration the comments of the Policy Board and Parent, and shall deliver such revised Budget to the Policy Board and Parent for approval. Notwithstanding any other provisions of this Agreement to the contrary, if a proposed Budget has not been approved by both the Policy Board and Parent for a calendar year, then, until a new Budget has been approved by both the Policy Board and Parent, the Budget in effect for the prior calendar year shall be deemed to be adopted as the Budget for the then-current year except that (i) the Budget for Clinic Expenses and all related items 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

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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 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. 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; provided that the financial statements for the first three quarters of any calendar year shall be subject to normal year-end adjustments, and all financial statements may omit footnotes and other presentation items that are required by GAAP. In addition, Service Company shall prepare or assist in the preparation of any other financial statements or records that 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. Provider’s tax returns shall be prepared on the accrual basis.

(ii) Sales and Use Taxes. The Parties acknowledge and agree that to the extent that any of the Services to be provided by Service Company under this Agreement 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 shall 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 under this Agreement, and such amounts shall be Clinic Expenses.

4.14 Reports and Records

(a) Dental Records. Service Company shall: (i) establish, monitor and maintain procedures and policies for the timely preparation, filing and retrieval of all dental records generated by Provider in connection with Provider’s provision of Dental Care; and (ii)

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subject to applicable law, 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. Subject to applicable law, Service Company shall (i) timely prepare and file such additional reports and records as are reasonably necessary and appropriate for Provider’s provision of Dental Care; and (ii) analyze and interpret such reports and records upon the reasonable request of Provider.

(c) Business Associate Addendum. The Parties acknowledge that as a result of Service Company’s services under this Agreement, Service Company will have access to individually identifiable protected health information regarding Provider’s patients, and that such information is subject to the requirements of the Health Insurance Portability and Accountability Act of 1996 and other laws and regulations protecting the privacy of such information. As a result, the Parties have entered into a Business Associate Addendum to this Agreement having the same date as this Agreement (the “BAA”) to set forth additional rights and obligations regarding use and disclosure of such information.

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. 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 dental services, and Service Company shall have no authority whatsoever with respect to such activities. In addition, Provider shall be solely responsible for determining whether dentists with whom it might contract for the provision of Dental Care on its behalf should be retained as employees or independent contractors, and Provider shall be responsible for, indemnify Service Company against, and hold it harmless from, any and all Damages that may result from such determinations by Provider.

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.

4.17 License of Name and Marks.

(a) License. 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 under this Agreement, including without limitation providing Dental Care to its patients.

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Provider shall not at any time: (i) do or permit any act to be done that may in any way impair the rights of Service Company in the Approved Names or related marks and logos; (ii) challenge (or assist others in challenging) Service Company’s intellectual property rights in the Approved Names or related marks or logos, or the registration thereof; (iii) register any marks confusingly similar to the Approved Names or related marks or logos; (iv) form, or change the name of, any corporation or other entity under or to a name, or do business under any name, that incorporates any Approved Name or related mark; or (v) modify any Approved Name or related mark or logo in any way. The prohibitions set forth in the preceding sentence shall survive expiration or termination of this Agreement.

(b) Quality Control Standards. In order to comply with Service Company’s quality control standards, Provider shall: (i) use the Approved Names and related marks and logos in compliance with all relevant laws and regulations; (ii) comply with any applicable usage standards and guidelines that Service Company may establish from time to time with respect to the Approved Names and related marks and logos; and (iii) provide, at Service Company’s request, reasonable quantities of samples of advertisements and other promotional materials on which the Approved Names and related marks and logos are affixed, in order to allow Service Company to confirm that Provider’s use is in compliance with any such applicable standards and guidelines.

4.18 No Warranty. PROVIDER ACKNOWLEDGES THAT SERVICE COMPANY HAS NOT MADE, WILL NOT MAKE, AND HEREBY EXPRESSLY DISCLAIMS 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 REVENUE OR INCOME TO PROVIDER.

ARTICLE V

RESPONSIBILITIES OF PROVIDER

5.1 Organization and Operations. 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 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) not, without Service Company Consent, (i) engage in any transaction constituting a merger, consolidation, reorganization, sale or purchase of assets outside of the ordinary course of business because such a transaction could have a material impact on Service Company’s obligations under this Agreement, or (ii) cause or permit itself to be liquidated or dissolved. 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 or her employment or engagement by Provider and who thereafter terminates his employment or engagement in violation of his or her applicable agreement, or whose employment or engagement is terminated by Provider for cause.

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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 (the “Required Licenses”). 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.

(c) Paid Hours Reporting. To facilitate Service Company’s efficient performance of its Services, Provider shall report to Service Company the hours of Dental Care provided and to be provided by Provider pursuant to a system reasonably established by Service Company for that purpose.

(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 under this Agreement, each dentist retained by Provider to provide Dental Care must: (a) have and maintain the Required Licenses; 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.

5.4 Dental Care. With the assistance of the Service Company, Provider and the dentists shall be responsible for scheduling dentist and non-dentist Dental Care personnel

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coverage of all dental procedures. 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 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 with AAAHC or such other accrediting body as Service Company may reasonably designate.

Provider shall support the Risk Management Procedures implemented pursuant to this Agreement or otherwise agreed upon by the Parties, take all actions related to such Risk Management Procedures as may be reasonably requested by Service Company, and cause all personnel retained by it to comply fully with such process at all times. Without limiting the preceding sentence: (i) Provider shall reasonably cooperate in the risk management program and practices operated by Parent from time to time; and (ii) if, at any time, Service Company reasonably determines that any of Provider’s dentists or other personnel is or is likely to be engaging in any activity that presents a material risk to the health or safety of patients, Service Company’s employees, or others, may create unacceptable legal risks to Service Company, or is otherwise inconsistent with the Risk Management Procedures or Parent’s risk management program, Service Company shall have the right to request that Provider cause that activity to be terminated, and Provider shall comply with that request. In addition, Service Company shall not be obligated to provide Services in support of any such activity.

(d) 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.

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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 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 insurance policies described in the preceding subsection (a) shall: (i) name Service Company as an additional insured and be primary to and non-contributory with insurance or self-insurance carried by Service Company, and include a waiver of subrogation in favor of Service Company, as its interest may appear with respect to this Agreement, and with respect to policies provided by independent contractors under the preceding sentence, name Provider as additional insured as well, and (ii) 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 Effective Date, 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 upon hiring with all new dentists employed or retained by Provider.

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(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 and shall provide evidence of such to Service Company upon request, 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) Provider may elect to fulfill its obligations to obtain and maintain the insurance coverages required of Provider or its dentists as described above by participating in insurance programs arranged by Service Company or Parent, as such programs may be in effect from time to time (to the extent such programs involve insurance coverage required of Provider and its dentists). If Provider elects to participate in such programs, such election shall constitute Provider’s acknowledgement that it has reviewed such programs and found them to be acceptable, and Provider shall comply, and cause its dentists to comply, with all applicable requirements of such programs.

(g) 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.

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. Accordingly, Provider further agrees as follows:

(a) During the Term, except for any Clinic made available to Provider for its use pursuant to 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

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less than one percent (1%) 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,” and “Family Endodontics Specialists,” 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. Provider acknowledges that Service Company or one of its affiliates is the owner of all Approved Names and all related marks and logos, and nothing in this agreement grants Provider any ownership rights therein.

ARTICLE VI

CONFIDENTIALITY

6.1 Confidential and Proprietary Information. All Confidential Information disclosed by a Party in connection with this Agreement shall be held in confidence by the receiving Party and shall be used solely in connection with the performance of the receiving Party’s obligations under this Agreement. The receiving Party shall protect the confidentiality of such Confidential Information with at least the same degree of care as the receiving Party uses to protect the confidentiality of its own Confidential Information, but in no event less than reasonable care. 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 (hereinafter, simply “person”), or use, or permit or assist any person to use, any such Confidential Information, excepting only: (a) disclosures (i) permitted under Section 6.3, or (ii) made on a confidential basis to a Party’s members, shareholders, directors, officers, employees, and legal, accounting, and other professional advisors who need to know such information in connection with that Party’s performance under this Agreement, and who are similarly bound by

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written agreement with, or otherwise owe a professional duty to, such Party to protect the confidentiality of such Confidential Information (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 Exceptions. The preceding section notwithstanding, the receiving Party shall have no confidentiality obligations with respect to any Confidential Information to the extent that such Confidential Information (i) is or becomes generally known to the public without the receiving Party or its Permitted Recipients violating this Agreement; (ii) is rightfully in the receiving Party’s possession at the time of disclosure without the receiving Party having any confidentiality obligations to the disclosing Party with respect thereto; (iii) becomes known to the receiving Party through disclosure by sources other than the disclosing Party or its Permitted Recipients without such sources, to the knowledge of the receiving Party, violating any confidentiality obligations to the disclosing Party; or (iv) is independently developed by the receiving Party without reference to or reliance upon the disclosing Party’s Confidential Information.

6.3 Legally Required Disclosure. If the receiving Party or any of its Permitted Recipients is requested or required (by oral questions, interrogatories, requests for information or documents in legal proceedings, subpoena, civil investigative demand or other similar process, or by the rules or regulations of any regulatory authority having jurisdiction over the receiving Party or a stock exchange on which the receiving Party’s securities are traded) to disclose any of the disclosing Party’s Confidential Information, the receiving Party shall, except as prohibited by law, provide the disclosing Party with prompt written notice of any such request or requirement so that the disclosing Party may seek, at the disclosing Party’s expense, a protective order or other remedy and/or waive compliance with the confidentiality provisions of this Agreement. If the disclosing Party seeks a protective order or other remedy, the receiving Party shall provide such cooperation as the disclosing Party shall reasonably request. If, in the absence of a protective order or other remedy or the receipt by the receiving Party of a waiver from the disclosing Party, the receiving Party or any of its Permitted Recipients is legally required to disclose the disclosing Party’s Confidential Information to any person or entity, the receiving Party or its Permitted Recipients may, without liability hereunder, disclose to such person or entity only that portion of the disclosing Party’s Confidential Information that is legally required to be disclosed, provided that the receiving Party and its Permitted Recipients shall exercise reasonable efforts to minimize the disclosure of the disclosing Party’s Confidential Information.

6.4 Use of Practice Statistics. Notwithstanding Section 6.1, 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,

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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.

6.5 Trading in Parent Securities. Provider acknowledges that it is aware (and that it will make all of its personnel aware) that applicable securities laws prohibit any person who is aware of material, non-public information about Parent obtained directly or indirectly from Parent or its affiliates from purchasing or selling securities of Parent or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities.

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.

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 shall pay Service Company an annual Service Fee equal to a percentage of the Calculated Margin, which shall be calculated and be earned and accrue daily, and shall be payable monthly. Until the Debt Payoff Date, the Service Fee shall be 89% of the Calculated Margin. For the period beginning with the first full calendar month following the Debt Payoff Date and ending the last day of the calendar year that includes such month, the Service Fee shall be 95% of the Calculated Margin. For each calendar year thereafter, the Service Fee shall be a percentage of the Calculated Margin determined as provided in the attached Exhibit B.

7.4 Fair Value. Provider acknowledges and agrees that the Service Fee and other amounts to be paid by Provider to Service Company under this Agreement are fair, equitable, and reasonable in all respects and constitute fair market value for the substantial commitment of resources made by Service Company and Parent under or in connection with this Agreement, including without limitation (a) the extensive nature and volume of the Services performed and

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other items provided by Service Company and Parent, and (b) the capital made available to Provider by Service Company. Provider further acknowledges and agrees that: (i) Service Company’s business and administrative expertise will provide value to Provider’s operations; and (ii) Service Company and Parent will incur substantial costs and business risks in providing the Services, capital and other items and services that are the subject matter of this Agreement.

7.5 Payment. The amounts to be paid to Service Company under this Article shall be calculated by Service Company on the accrual basis of accounting and 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; Security Interest. 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 that 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. 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.

In addition, to secure Provider’s present and future payment and performance obligations to Service Company under this Agreement, Provider hereby grants to Service Company a first-priority security interest under the Uniform Commercial Code as the same may be in effect from time to time in the State of Minnesota (the “Minnesota UCC”) in the following property, whether Provider’s interest therein is as owner, co-owner, lessee, consignee, secured party or otherwise, and whether now owned or existing or hereafter arising or acquired (collectively referred to herein as the “Collateral”):

All of Provider’s Accounts, Accounts receivable, contract rights, General intangibles, income tax refunds, Instruments, Notes, Notes receivable, and other forms of obligations and receivables arising from or in connection with the operation of Provider’s business, together with all substitutions, replacements, additions and accessions therefor or thereto, all instruments and negotiable documents relating thereto, all products thereof, and all Cash and Noncash Proceeds thereof.

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To perfect such security interest, Provider hereby authorizes Service Company to prepare and file one or more Financing Statements describing the Collateral and naming Provider as Debtor and Service Company as the Secured Party, as the Service Company may determine are necessary to perfect the security interest granted by Provider to Service Company covering the Collateral. Provider also shall execute and deliver to Service Company such documents as may be reasonably requested by Service Company from time to time to further evidence, confirm, protect, or perfect such security interest or Service Company’s rights related thereto. This Agreement is intended to be a security agreement under the Minnesota UCC. All capitalized terms used in this Section 7.6 that are not otherwise defined in this Agreement shall have the respective meanings given those terms in the Minnesota UCC.

ARTICLE VIII

TERM AND TERMINATION

8.1 Initial and Renewal Term. The Term of this Agreement shall be for an initial period beginning on the date of this Agreement and continuing to and including December 31, 2047 (the “Initial Term”), and shall renew automatically for successive five-year periods thereafter (the “Renewal Terms”) unless and until terminated as permitted under Section 8.2.

8.2 Termination

(a) Termination By Agreement Or By Either Party. This Agreement may be terminated at any time by the mutual written agreement of the Parties. In addition, either Party may terminate this Agreement at the end of the Initial Term or any Renewal Term by giving the other Party notice of such termination at least 120 days prior to the expiration of the then-current term.

(b) Termination By Service Company. Service Company may terminate this Agreement upon notice to Provider, specifying as the termination date the date of that notice or any future date selected by Service Company, 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

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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);

(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; or

(vi) Provider violates any provision of Section 5.7.

(c) Termination By Provider. Provider may terminate this Agreement upon notice to Service Company, specifying as the termination date the date of that notice or any future date selected by Provider, 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; or

(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.

Notwithstanding the foregoing, any termination by Provider under this section shall require the affirmative unanimous approval of all members of Provider entitled to vote on or otherwise approve or consent to such a matter.

(d) Legislative, Regulatory or Administrative Change. If (i) there is (A) 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 (B) 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 Agreement, 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 or any portion hereof 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.

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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 conducted as provided in Section 9.23.

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 periods 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 owned by Provider that are in Service Company’s possession; 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.

In addition, if either Party terminates this Agreement as permitted under Section 8.2, then, beginning on the date on which such Party gives its termination notice, each Party shall have the right to engage in all activities it reasonably deems necessary or appropriate in connection with preparing to operate its business following termination of this Agreement; provided that such activities do not violate other provisions of this Agreement or applicable law. Without limiting the preceding sentence: (i) Service Company shall have the right to make arrangements with one or more other dental group practices to practice in Service Company’s Clinics following termination of this Agreement, and (ii) such practices shall have the right to solicit and offer employment to Provider’s personnel, so long as such activities do not violate any written agreements between Provider and such personnel.

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”);

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(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;

(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 those assets that 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

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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 upon the successful consummation of such closing.

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 either Party shall be in writing and shall be sent to that Party at its address set forth below, (a) by personal delivery; (b) by facsimile (which is confirmed); (c) by certified mail (return receipt requested); or (d) by delivery to Federal Express, UPS, or any similar reputable express delivery service for delivery to that Party the next business day. Each such notice or communication shall be deemed duly delivered upon actual receipt by the Party for which it is intended.

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(a) If to Service Company:

American Dental Partners of Minnesota, LLC

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

(b) If to Provider:

Northland Dental Partners, PLLC

3030 Centre Pointe Drive

Roseville, Minnesota 55113-1115

Attention: Dr. James Ludke

Facsimile No.: 651-633-6811

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

9.4 Further Assurances. 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 arbitration panel (as defined in Section 9.23) or 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 arbitration panel or court to be invalid or unenforceable, such arbitration panel or 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.

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9.7 Setoff. Notwithstanding any provision of this Agreement to the contrary, Service Company shall have the right to setoff from time to time 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, including without limitation termination, 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 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 Damages asserted against, imposed upon, or incurred or suffered by the Indemnified Parties, directly or indirectly, as a result of or arising from 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, except for the rights and benefits accruing to Parent or the Indemnified Parties.

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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 References to Law. Any reference in this Agreement to any federal, state or local law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise.

9.15 Complete Agreement. This document (including its exhibits and all other documents referred to herein, including without limitation the BAA, all of which are hereby incorporated herein by reference) contains the entire agreement between 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.

9.16 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.

9.17 Assignment. Provider shall not have the right to assign this Agreement without the prior written consent of Service Company, which consent may be withheld for any reason or no reason. Any assignment made in violation hereof shall be wholly void and invalid, the assignee shall acquire no rights whatsoever, and Service Company shall not recognize, nor shall it be required to recognize, the assignment. 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).

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

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9.19 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.

9.20 Interpretation. This Agreement supersedes the Original Agreement in its entirety from and after the date of this Agreement; provided any payment obligations of Provider under the Original Agreement shall survive.

9.21 Covenant Not to Sue. Provider shall not make, assert, maintain, or initiate, or cause to be made, asserted, maintained, or initiated, any claim, charge, demand, action, or proceeding of any type, the basis of which is, in whole or in part, that this Agreement, any portion of this Agreement, or the relationship created by the Agreement is illegal, or that the Service Fee or other amount payable by Provider to Service Company under this Agreement is unreasonable, does not represent fair market value for the Services and other items provided by Service Company, or constitutes unjust enrichment. If Provider takes any action which is inconsistent with the preceding sentence, then Provider shall pay all costs and expenses (including without limitation attorneys’ fees) incurred by Service Company in defending such claim, which payment shall be made promptly upon the request of Service Company.

9.22 Mutually Negotiated. The Parties agree that this Agreement reflects their mutual intent and that no rule of strict construction shall be applied against either Party with respect to the interpretation of this Agreement.

9.23 Arbitration.

(a) Binding Arbitration. Except as expressly provided in Section 9.23(f), any claim or dispute, whether sounding in contract, tort, or otherwise, arising out of, in connection with, related to, or incidental to this Agreement, the Services, or the relationship established pursuant to this Agreement shall be subject to binding arbitration, pursuant to the Federal Arbitration Act, which shall be held in Boston, Massachusetts and be conducted in accordance with the Federal Rules of Civil Procedure (including without limitation the mandatory disclosure requirements of Federal Rule of Civil Procedure 26(a)) and the Federal Rules of Evidence, but in each case only to the extent such act or any such rule is not inconsistent with this Section 9.23.

(b) Selection of Arbitrators. In any 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 (i) be either (A) a former Federal District Court judge or (B) a former state court judge who presided over a court of general jurisdiction for no less than five years, and (ii) act as 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.

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(c) Costs of Arbitration. All costs and expenses of arbitration shall be borne by the Parties as determined by the arbitration panel, except that the fees of any arbitrator on the arbitration panel who is selected individually by a Party shall be borne separately by the Party appointing that arbitrator; 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. As hereafter used in this Section 9.23, the term “arbitration panel” shall mean the arbitration panel or sole arbitrator selected as provided in Section 9.23(b).

(d) Authority of Arbitration Panel. The arbitration panel shall have only the authority to interpret, apply, or determine compliance or non-compliance with the provisions of this Agreement (including without limitation the exhibits hereto and other documents referred to herein which have been incorporated herein by reference). The arbitration panel shall not have the authority to add to, remove, modify, or otherwise alter any terms of this Agreement except as expressly provided in this Agreement. The arbitration panel shall be limited in its authority to reviewing and making a determination of the specific dispute or claim submitted for arbitration. The arbitration panel shall provide a reasoned decision setting forth the analysis and legal basis for its award, addressing each claim or disputed issue separately. The arbitration panel may proceed to an award notwithstanding the failure of the other Party to participate in the proceedings. Except for the temporary and preliminary relief described in Section 9.23(f), the arbitration panel shall be authorized to grant injunctive or other equitable relief, including without limitation in connection with the actual or threatened breach of Section 4.17, 5.7, 5.8, or 6.1, or to prevent the destruction of goods or documents involved in the dispute, to protect trade secrets, or to provide for security for a prospective monetary award.

The limitations on liability set forth in this Agreement shall apply to an award of the arbitration panel. Except as expressly provided in Section 9.23(f), the award of the arbitration panel shall be the sole and exclusive remedy of the Parties with respect to any claim or dispute, whether sounding in contract, tort, or otherwise, arising out of, in connection with, related to, or incidental to this Agreement, the Services, or the relationship established pursuant to this Agreement.

(e) Enforcement of Arbitration Award; Jurisdiction. Either Party shall be entitled to apply to a court for a judicial acceptance of the ruling of the arbitration panel or an order of enforcement relating thereto. Each Party hereby (i) designates the state and federal courts sitting in Boston, Massachusetts (the “Designated Courts”) as the exclusive courts of proper jurisdiction and venue for purposes of enforcing any ruling of the arbitration panel, or seeking injunctive relief as permitted in Section 9.23(f), and for any and all other legal proceedings relating to this Agreement; (ii) irrevocably consents to such designation, jurisdiction, and venue, and (iii) waives any objections or defenses relating to jurisdiction or venue with respect to any legal proceeding initiated in or transferred to a Designated Court.

(f) Injunctive Relief. Each Party acknowledges that the time required to select an arbitration panel and conduct an arbitration pursuant to this Section 9.23 in the event of an actual or threatened breach of Section 4.17, 5.7, 5.8, or 6.1 would likely result in irreparable harm to the aggrieved Party before such Party could obtain relief through arbitration. Therefore,

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in any such event, either Party may commence an action, only in a Designated Court, for the sole and limited purpose of seeking a temporary restraining order and/or preliminary injunction to prevent irreparable injury or harm. Any order issued by a Designated Court granting a temporary restraining order or preliminary injunction shall be binding upon each Party, shall remain in full force and effect until such time as an arbitration panel is selected as provided in Section 9.23(b) and shall be subject to review or appeal only by that arbitration panel.

(g) Jury Trial Waiver. IF ANY ARBITRATOR OR COURT HOLDS THAT ANY CLAIM OR DISPUTE BETWEEN THE PARTIES IS NOT SUBJECT TO BINDING ARBITRATION AS AGREED TO BY THE PARTIES HEREIN, THEN TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY (I) AGREES THAT THE CLAIM OR DISPUTE SHALL BE SUBMITTED FOR DECISION TO THE JUDGE OF A DESIGNATED COURT ONLY, AND (II) WAIVES ANY AND ALL RIGHT OR CLAIM 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, THE SERVICES, OR THE RELATIONSHIP ESTABLISHED PURSUANT TO THIS AGREEMENT.

(h) Confidentiality of Arbitration Decision. Any decision of the arbitration panel shall be deemed to be Confidential Information of each Party (and not subject to the exceptions set forth in clauses (i), (ii), (iii), and (iv) of Section 6.1). To facilitate judicial enforcement of any arbitration decision without compromising the confidentiality of such decision, the Parties shall instruct the arbitration panel to issue an order succinctly setting forth the affirmative and negative responsibilities of the Parties, separate from the reasoned decision provided for in the first paragraph of Section 9.23(d), and such order shall be used to enforce the arbitration panel’s decision under Section 9.23(e).

9.24 Exclusion of Indirect Damages. EXCEPT FOR BREACH BY PROVIDER OF SECTION 5.7 OR BREACH BY EITHER PARTY OF SECTION 6.1, TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INCIDENTAL, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR LOST PROFITS, HOWEVER CAUSED, REGARDLESS OF THE THEORY OF LIABILITY (CONTRACT, TORT, NEGLIGENCE, OR OTHER), AND EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

9.25 Limitation of Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, IN NO EVENT SHALL SERVICE COMPANY’S TOTAL LIABILITY TO PROVIDER FOR ANY AND ALL DAMAGES EXCEED AN AMOUNT EQUAL TO THE AGGREGATE AMOUNT OF THE SERVICE FEE PAID TO SERVICE COMPANY DURING THE PERIOD OF TWELVE CALENDAR MONTHS IMMEDIATELY PRECEDING THE DATE OF CALCULATION OF SUCH DAMAGES.

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EACH PARTY REPRESENTS AND WARRANTS THAT SUCH PARTY HAS BEEN ADVISED BY ITS OWN INDEPENDENT LEGAL COUNSEL IN CONNECTION WITH THIS AGREEMENT, AND THAT SUCH PARTY HAS READ AND FULLY UNDERSTANDS THIS AGREEMENT.

PROVIDER:		SERVICE COMPANY:
NORTHLAND DENTAL PARTNERS, PLLC(1)		AMERICAN DENTAL PARTNERS OF MINNESOTA, LLC
By:	/s/ James Ludke	By:	Ian H. Brock
	James Ludke, DDS, President	Its:	Vice President

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

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Exhibit A

DEFINITIONS

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

Adjusted Pre-Tax Earnings. The term “Adjusted Pre-Tax Earnings” shall mean, for any period, Service Company’s earnings from operations resulting from its Services to Provider for that period, less the Allocable Share of Parent’s interest expense and the non-allocated expenses of Parent’s National Resource Group for that period.

Allocable Share. The term “Allocable Share” shall mean, for any period, a fraction having as its numerator Provider’s Adjusted Gross Revenue for that period and having as its denominator the Adjusted Gross Revenue for that period of all dental group practices affiliated with Parent or its subsidiaries.

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.

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

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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;

(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;

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(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

(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.

Committed Capital. The term “Committed Capital” shall be the amount of capital invested by Service Company, Parent, or any other subsidiary of Parent (hereinafter, for purposes of this definition, simply “Parent”) in the operations related to Provider’s practice, including the consideration paid in connection with the transactions resulting in the affiliation by Parent with Provider, its current or former subsidiaries, and any other dental practices which may become part of Provider’s operations (the “Affiliated Group”), all capital expenditures made by Parent for the benefit of any member of the Affiliated Group, and the net working capital invested for the benefit of the members of the Affiliated Group.

Confidential Information. The term “Confidential Information” shall mean, with respect to any person, all trade secrets, proprietary data, and other information (whether written or oral) of a confidential nature relating directly or indirectly to that person 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 person is obligated to treat as confidential pursuant to any law, agreement, or course of dealing by which that person is bound, whether or not such Confidential Information is disclosed or otherwise made available pursuant to this Agreement. In addition, Service Company’s Confidential Information shall include all information relating to Parent’s proprietary Improvis practice management system, including any accompanying written materials, and all other Confidential Information of or relating to Parent.

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Damages. The term “Damages” shall mean any and all losses, liabilities, damages, demands, claims, suits, actions, judgments, assessments, costs and expenses, including without limitation interest, penalties, attorneys’ fees, and any and all expenses incurred in investigating, preparing, or defending against new litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation.

Debt Payoff Date. The term “Debt Payoff Date” shall mean the date on which all of the following have been paid, or repaid, by Provider in full: (a) all advances made by Service Company to Provider to fund (i) the Guaranteed Payments, or (ii) compensation paid to Provider’s dentists for non-clinical services (“Non-Chair Side Compensation”) prior to the Effective Date (other than any such Non-Chair Side Compensation included in the Guaranteed Payments); (b) advances made by Service Company to Associated Dental Care, P.A., a Minnesota professional association, dba Assure Dental (“Assure Dental”), and Assure Dental’s obligations under notes payable by it to Wisconsin Dental Group, S.C., to the extent any such indebtedness is assumed by Provider in connection with its anticipated acquisition of Assure Dental or its dental practice (including any refinancings of any such indebtedness); and (c) any indebtedness of Family Orthodontic Specialists, P.L.C., a Minnesota professional limited liability company in which Provider has a 50% membership interest (FOS”), to Service Company that is assumed by Provider in connection with the anticipated dissolution or reorganization of FOS.

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.

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

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“practice of dentistry” under the laws and regulations of the state in which such procedures, operations, and services are performed and that 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 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 that (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, and its successors.

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

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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.

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 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. Notwithstanding the foregoing, 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 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: (a) 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

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made under Section 7.2); and (b) Provider shall have the right to use Provider Retained Earnings to fund distributions to Provider’s members from time to time (including without limitation in periodic installments during a calendar year) in amounts reasonably estimated by Provider as the aggregate individual income tax liabilities incurred by its members as a result of their membership in Provider (the “Tax Distributions”), or (ii) such additional amounts, if any, as the Parties may agree upon from time to time for Non-Chair Side Compensation payable after the Effective Date, instead of, in either case, first applying such funds to repayment of advances made by Service Company or funding Guaranteed Payments; and (c) if the Provider Retained Earnings are insufficient for Provider to make the Tax Distributions or pay such Non-Chair Side Compensation, Service company shall advance funds to Provider in an amount equal to such insufficiency (which advances shall be deemed to be made under Section 7.2).

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.

ROCC. The term “ROCC” shall mean return on committed capital and, for any period, shall be calculated by dividing the annualized Adjusted Pre-Tax Earnings for that period by the total Committed Capital as of the end of that period, with the result expressed as a percentage.

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 or arranged by Service Company as set forth in this Agreement, including without limitation the provision of equipment, supplies, support services, non-dentist

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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 Terms, subject to termination pursuant to Section 8.2.

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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

Schedule A-1

Exhibit B

SERVICE FEE

The percentage of the Calculated Margin to be used for the Service Fee for a calendar year (or partial calendar year, if applicable) shall be determined with reference to the ROCC for the prior calendar year as follows:

Prior Year ROCC	Calculated Margin %
Less than 10%	95	%
At least 10%, but less than 13%	94	%
At least 13%, but less than 15%	93	%
At least 15%, but less than 17%	92	%
At least 17%, but less than 19%	91	%
At least 19%, but less than 20%	90	%
20% or more	89	%

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EX-10.50

Exhibit 10.50

BUSINESS ASSOCIATE ADDENDUM

This Business Associate Addendum (the “Addendum”) is made effective January 1, 2010 among Northland Dental Partners, PLLC, a Minnesota professional limited liability company (“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 collectively with Northland, “Provider”), and American Dental Partners of Minnesota, LLC, a Delaware limited liability company (“Business Associate”).

Background Information

A. Provider and Business Associate (the “Parties”) are the parties to a Service Agreement having the same effective date as this Addendum (the “Service Agreement”). Pursuant to this Service Agreement, Business Associate will provide a variety of non-clinical administrative and management services to Provider.

B. In connection with its services under the Service Agreement, Business Associate will have access to “protected health information” and “electronic protected health information” regarding Provider’s patients (collectively, “PHI”), as those terms are defined in the Health Insurance Portability and Accountability Act of 1996 (P.L. 104-191), 42 U.S.C. Section 1320d, et. seq., and regulations promulgated thereunder, as amended (such statute and regulations collectively, “HIPAA”). In addition, Provider is a “covered entity,” and Business Associate is a “business associate,” as those terms are defined under HIPAA.

C. The Parties are entering into this Addendum to comply with HIPAA as it relates to the use and disclosure of PHI and related matters.

Statement of Agreement

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

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

2. Term. The term of this Addendum shall begin on the date of this Addendum and shall end on the date on which the Service Agreement is terminated; provided that if the Parties’ post-termination activities under the Service Agreement involve the potential use or disclosure of PHI by Business Associate, then the term of this Addendum shall continue until all such post-termination activities have been completed.

3. HIPAA Compliance and Agents. During the term of this Addendum, to the extent Business Associate has access to, uses, or discloses PHI, Business Associate shall comply with the “Business Associate” requirements under HIPAA. Without limiting the foregoing, Business Associate may use or disclose PHI only if such use or disclosure is permitted by this Addendum or HIPAA.

Business Associate shall ensure that each of its agents or subcontractors to whom it provides PHI received from, or created, used or disclosed by Business Associate on behalf of, Provider, agrees, by a written agreement or Workforce training, as applicable, to the same restrictions, terms, and conditions as are applicable to Business Associate under this Addendum, including without limitation the requirement to implement administrative, physical and technical safeguards that reasonably and appropriately protect the confidentiality, integrity, and availability of any electronic PHI that it creates, receives, maintains, or transmits on behalf of Provider or Business Associate.

4. Use and Disclosure; Rights. Business Associate may use or disclose the PHI received or created by it: (a) to perform functions, activities, or services for, or on behalf of, Provider pursuant to the Service Agreement, as it may be amended from time to time, or for other related purposes requested or approved by Provider, (b) to perform its obligations under this Addendum, (c) to properly manage and administer Business Associate’s business, (d) to carry out its legal responsibilities if the disclosure is ‘required by law,’ as defined by HIPAA, (e) for ‘data aggregation functions,’ as defined by HIPAA, or (f) as otherwise permitted or required by applicable law. Provider shall not request that Business Associate use or disclose PHI in any manner that would not be permitted under HIPAA if done by Provider as a ‘covered entity.’ If, pursuant to clause (c) of this section, Business Associate discloses PHI to others, Business Associate shall obtain reasonable assurances from the person, firm, association, organization, or entity (hereinafter, simply “person”) to whom the information is disclosed that (i) such PHI shall be held confidentially and used or further disclosed only as required by law or for the purpose for which it is disclosed to such person, and (ii) that such person shall notify Business Associate of any instances of which it becomes aware that the confidentiality of the information has been breached.

5. HIPAA Security Rule; Safeguards. Business Associate shall implement, document, and use administrative, physical, and technical safeguards that prevent use or disclosure of PHI other than as permitted or required by this Addendum, and that reasonably and appropriately protect the confidentiality, integrity, and availability of any electronic PHI that it creates, receives, maintains, or transmits on behalf of Provider, including without limitation reporting to Provider any security incident of which Business Associate becomes aware. Without limiting the foregoing, on or before February 17, 2010, Business Associate shall comply with the Security Standards for the Protection of Electronic Protected Health Information (and Implementation Specifications therein) promulgated by the U. S. Department of Health and Human Services (“DHHS”) in §§ 164.308, 164.310, 164.312, and 164.316 of title 45, Code of Federal Regulations (the “Security Standards”) with respect to all electronic PHI (“ePHI”) it creates, receives, maintains or transmits on behalf of Provider. Notwithstanding the foregoing, Provider shall be solely responsible for ensuring that appropriate administrative, physical and technical safeguards are implemented with respect to ePHI Provider creates, receives, maintains, uses or discloses, in accordance with the Security Standards and other requirements under HIPAA as amended from time to time.

6. Minimum Necessary. Business Associate shall limit any use, disclosure, or request for use or disclosure to the minimum amount of PHI necessary to accomplish the intended purpose of the use, disclosure or request in accordance with the requirements of HIPAA.

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7. Records; Covered Entity Access. Business Associate shall maintain such records of PHI received from, or created or received on behalf of, Provider as may be reasonably necessary and appropriate in order for Provider to comply with HIPAA with respect to the services described in the Service Agreement. Business Associate shall grant Provider reasonable access to examine and copy, at Provider’s expense, such PHI, and records and documents of Business Associate related thereto, during normal business hours.

8. DHHS Access to Books, Records, and Other Information. As required by applicable law, Business Associate shall make available to the Secretary of DHHS its internal practices, books, and records relating to the use and disclosure of PHI received from, or created or received by Business Associate on behalf of, Provider for purposes of determining the Provider’s or Business Associate’s compliance with HIPAA. Business Associate shall cooperate and assist Provider in good faith with complying with the requirements of HIPAA and any investigation of Provider regarding compliance with HIPAA conducted by DHHS, its Office for Civil Rights, or any other administrative or judicial body with jurisdiction over Provider.

9. Designated Record Set. Business Associate shall maintain a ‘designated record set,’ as defined by HIPAA, only for individuals for which it has PHI and only upon the specific written request of Provider or as required by the Service Agreement. Business Associate shall make a patient’s designated record set available to Provider for purposes of complying with such patient’s right under HIPAA to access, copy or append such record.

10. Accounting. Business Associate shall make available to Provider any PHI or any other information reasonably required to prepare, or reasonably assist in preparing, an accounting of disclosures in accordance with HIPAA. Business Associate shall document disclosures of PHI in such a manner as will assist Provider in responding to any request for an accounting of disclosures of PHI. With respect to written PHI, Business Associate shall have this information and documentation available for the six years preceding any request by Provider. If Business Associate maintains an “electronic health record” with respect to Provider’s patients, Business Associate shall have this information and documentation available for the three years preceding any request by Provider, and the exceptions under 45 C.F.R. § 164.528(a)(1)(i) shall not apply. Notwithstanding the foregoing, if Business Associate has provided services to Provider for less than the three-year or six-year, as applicable, Business Associate shall be obligated to make available to Provider only the information relating to the period during which Business Associate provided services to Provider.

11. Amendment of and Access to PHI; Notification. In accordance with an individual’s right to access his or her own PHI under HIPAA, and that individual’s right to copy or append amendments to such records, Business Associate shall make available to Provider all PHI in a designated record set that it maintains, or to the individual to whom the information pertains, or to such individual’s representative, in each case upon the written request of Provider. Business Associate shall append amendments to PHI in a designated record set that Business Associate maintains in accordance with a written request, including any amendment to be appended to such records, from Provider.

12. Individual Authorizations; Restrictions. Provider shall notify Business Associate of any restriction on the use or disclosure of PHI that Provider has agreed to with an individual, or that is otherwise required by HIPAA, or that Provider has placed in its Notice of Privacy

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Practices, or of any changes in or revocation of an authorization or other permission by an individual, to the extent that such restriction, change or revocation may affect Business Associate’s use or disclosure of PHI. Provider shall notify Business Associate of any change in or revocation of any restriction on the use or disclosure of PHI that Provider had previously agreed to with an individual or that Provider had placed in its Notice of Privacy Practices.

13. Material Breach of Agreement. Pursuant to 45 C.F.R. 164.504(e)(1)(ii), if either Party knows or becomes aware of a pattern of activity or practice of the other Party that constitutes a material breach of the such Party’s obligations under this Addendum, such Party shall notify such other Party in writing, and both Parties shall, for a period of 60 days following receipt of such written notice and an explanation of the breach from the notifying Party, cooperate in good faith to take steps reasonably necessary to cure such breach; provided, however, that if such steps are unsuccessful, the non-breaching Party may, in addition to any other remedy: (a) terminate this Addendum, if feasible, or (b) if cure and termination are not feasible, discontinue use or disclosure of PHI to the extent feasible and report the breach to Secretary of DHHS.

14. Breach of Unsecured PHI. Pursuant to regulations promulgated under subpart D of part 164 of title 45, Code of Federal Regulations, as enacted by Section 13402(j) of the Health Information Technology for Economic and Clinical Health Act (“HITECH Act”), Business Associate is hereby delegated the authority and responsibility, on behalf of Provider, to notify individuals of any breach of unsecured PHI, as determined in good faith by Business Associate in accordance with the HIPAA Breach Notification Policy attached to this Addendum as Exhibit A, which is hereby incorporated herein by reference.

15. Electronic Standards, Code Sets, and Security Regulations. If Business Associate conducts, in whole or in part, electronic transactions on behalf of Provider of the type covered by HIPAA regulations, including Standards for Electronic Transactions and Electronic Code Sets, Business Associate shall comply, and shall require any of its agents or subcontractors to comply, with each applicable requirement of such regulations.

16. Return of PHI. At the end of the term of this Addendum, Business Associate shall return or destroy all PHI received from, or created or received by Business Associate on behalf of, Provider that Business Associate maintains in any form and retain no copies of such information; provided that, if and to the extent Business Associate reasonably determines that such return or destruction is not reasonably feasible, Business Associate shall not be required to return or destroy such PHI, but Business Associate shall extend the protections of this Addendum to such PHI.

17. Data Use Agreement. If Business Associate is the recipient of a ‘limited data set’, as defined by HIPAA, or if Business Associate is engaged by Provider to create a limited data set for purposes of Provider’s health care operations, this Addendum shall also be considered to be a ‘data use agreement,’ as defined by HIPAA, that establishes the permitted uses and disclosures of the information by Business Associate as a limited data set recipient as required by HIPAA. To the extent that, and for as long as, it possesses limited data set information for or on behalf of Provider, Business Associate hereby agrees to fully comply with the requirements of HIPAA applicable with respect to limited data set information, including without limitation, 45 C.F.R. §164.514(e). The provisions of this Addendum relative to PHI shall also apply to limited data

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set information, if any, in the possession or control of Business Associate. Limited data set information may be used or disclosed by Business Associate only for the purposes of research, public health, or health care operations. Business Associate may not disclose limited data set information in a manner that would violate HIPAA if Business Associate were a covered entity thereunder. Business Associate may only disclose limited data set information to and permit the use of such information by other persons as may be agreed upon between Provider and Business Associate in writing from time to time. Business Associate shall not identify or attempt to identify the individual(s) to whom the limited data set information pertains or contact or attempt to contact the individual(s) that Business Associate believes to be the subject of any limited data set information.

18. HIPAA Amendments. In the event Congress or the U. S. Department of Health and Human Services amend HIPAA, this Addendum shall be deemed automatically amended to incorporate any supplemental, amended or modified requirements as are expressly applicable to Provider and/or Business Associate, effective on the effective date of such amendments. Without limiting the foregoing, the Parties agree to negotiate and cooperate in good faith in the execution of any amendments, agreements or other instruments deemed necessary or appropriate by the Parties in their reasonable discretion to carry out such HIPAA amendments.

19. Interpretation. This Addendum is an addendum to and a part of the Service Agreement and shall be interpreted in a manner consistent with the Service Agreement. In addition, the Addendum shall continue to apply to the Service Agreement as it may subsequently be amended or restated. In the event of any inconsistency between the provisions of the Service Agreement, as so amended and restated (if applicable), and this Addendum, the provisions of the Service Agreement shall control. This Addendum supersedes all prior agreements or understandings regarding the subject matter of this Addendum.

PROVIDER:		SERVICE COMPANY:
NORTHLAND DENTAL PARTNERS, PLLC *		AMERICAN DENTAL PARTNERS OF MINNESOTA, LLC
By	/s/ James Ludke	By	Ian H. Brock
Its	President	Its	Vice President

* For itself and on behalf of each

Subsidiary as its sole member

-5-

Exhibit A

HIPAA BREACH NOTIFICATION POLICY

SCOPE:

This HIPAA Breach Notification Policy (the “Policy”) applies to Northland Dental Partners, LLC (“Provider”), and its subsidiaries, members, directors, officers, employees, agents, and business associates (as defined in HIPAA), including American Dental Partners of Minnesota, LLC (“Business Associate”).

PURPOSE:

This Policy has been developed to facilitate the Provider’s compliance with the requirements of the Health Information Technology for Economic and Clinical Health Act (HITECH) component of the American Recovery and Reinvestment Act of 2009 (ARRA) concerning breach notification of unsecured protected health information (PHI). The purpose of this Policy is to outline a systematic process designed to notify patients of any breach of privacy or security with respect to any unsecured PHI that is received, created, retained, used or disclosed by Provider as a Covered Entity, its owners, members, directors, officers, employees, and business associates. The phrase “received, created, retained, used or disclosed” is interpreted to include many activities a Covered Entity may take with respect to PHI, including, but not limited to: accessing, maintaining, retaining, modifying, recording, storing, destroying, or otherwise holding, using or disclosing PHI.

DEFINITIONS:

The following definitions apply to all of the Provider’s privacy and security policies and procedures related to personal health information received, created, retained, used or disclosed by the Provider as a Covered Entity, Business Associate or any other business associate of the Provider.

Breach – The acquisition, access, use, or disclosure of PHI in a manner not permitted under the Privacy Rule (as defined below), which compromises the security or privacy of the PHI. The determination of whether any breach or potential breach compromises the security or privacy of the PHI shall be made in good faith by Business Associate on behalf of the Provider, taking into consideration an assessment of whether the potential breach poses a significant risk of financial, reputational, or other harm to the individual. The term “breach” does not include:

(i) any unintentional acquisition, access, or use of PHI by an employee or other workforce member of the Provider, or by a person acting under the authority of the Provider, such as a member of Business Associate’s workforce, if such acquisition, access, or use: (1) was made in good faith and within the course and scope of the employment or authority of such person, and (2) does not result in further use or disclosure in a manner not permitted under the Privacy Rule; or

(ii) any inadvertent disclosure by a person who is authorized to access PHI by the Provider or Business Associate, to another person authorized to access PHI at the Provider or

Business Associate, or within an organized health care arrangement in which the Provider participates, and the information received as a result of such disclosure is not further used or disclosed in a manner not permitted under the Privacy Rule; or

(iii) a disclosure of PHI where Business Associate or the Provider has determined or has a good faith belief that an unauthorized person to whom the disclosure was made would not reasonably have been able to retain such information.

Breach Notification Rule – Regulations promulgated at subpart D of part 164, title 45, Code of Federal Regulations.

Business Associate – A person or entity who, on behalf of the Provider, or on behalf of an organized health care arrangement in which the Provider participates (“OHCA”), but other than in the capacity as an employee, performs or assists in the performance of: (a) a function or activity involving the use or disclosure of individually identifiable health information, including claims processing or administration; data analysis, processing or administration; utilization review; quality assurance; billing; benefit management; practice management; repricing; or any other function or activity regulated under HIPAA, or (b) provides legal, actuarial, accounting, consulting, data aggregation, management, administrative, accreditation, or financial services to or for Provider or such OHCA, where the provision of the service involves the disclosure of individually identifiable health information from Provider or such OHCA, or from another business associate of Provider or such OHCA, to the person or entity.

Covered Entity – (1) A health plan; (2) a health care clearinghouse; or (3) a health care provider who transmits any health information in electronic form in connection with a transaction covered by HIPAA.

HIPAA – The Health Insurance Portability and Accountability Act of 1996 (P.L. 104-191), 42 U.S.C. Section 1320d, et. seq., and regulations promulgated thereunder, as amended from time to time.

Privacy Officer – The person designated by the Provider, or, with Provider’s consent, by Business Associate as the manager of certain non-clinical parts of Provider’s dental practice, to oversee and administer the Provider’s compliance with HIPAA.

Privacy Rule – Regulations promulgated at subpart E of part 164, title 45, Code of Federal Regulations.

Protected Health Information, or PHI – PHI shall have the meaning prescribed to it under 45 C.F.R. § 160.103. Generally, this includes any oral, written or electronic individually-identifiable health information received, created, retained, used or disclosed by Provider as a Covered Entity. Individually-identifiable health information includes demographic information and is information created or received by a health care provider, health plan, employer, or health care clearinghouse; and relates to the past, present or future physical or mental health or condition of an individual; the provision of health care to an individual; or the past, present or future payment for the provision of health care to an individual; and that identifies the individual, or with respect to which there is a reasonable basis to believe the information can be used to identify the individual. PHI does not include employment records held by a Covered Entity in its role as an employer.

Security Rule – Regulations promulgated at subpart C of part 164, title 45, Code of Federal Regulations.

Unsecured PHI – Protected health information that is not rendered unusable, unreadable, or indecipherable to unauthorized individuals through the use of a technology or methodology specified in guidance published by the Secretary of the Department of Health and Human Services (HHS).

Additional Definitions – Terms not otherwise defined herein, shall have the meanings set forth in the Administrative Simplification provisions of the Health Insurance Portability and Accountability Act of 1996 (P.L. 104-191), 42 U.S.C. Section 1320d, et. seq., and the HIPAA Privacy and Security Standards, 45 C.F.R. parts 160 and 164, as amended from time to time.

POLICY:

In the case of a breach of unsecured PHI, Business Associate, on behalf of the Provider, shall notify the affected patient(s) of the breach, without unreasonable delay and in no case later than sixty (60) calendar days after discovery of the breach.

Limited Data Sets (as defined under HIPAA) (except those that exclude patient zip code and date of birth) are subject to this Policy and the required breach notification.

All Provider and Business Associate directors, officers, employees and agents are expected to work collaboratively to timely and accurately report any breach of unsecured PHI to the Privacy Officer and according to this Policy, ARRA, and any and all other federal and state laws and regulations. The Privacy Officer shall maintain all documentation related to any breach of unsecured PHI, for a minimum of six (6) years from the date of notification provided hereunder.

PROCEDURE:

Breach Analysis:

Upon discovering a potential breach, in order to determine if a breach has actually occurred, Business Associate, in consultation with Provider, shall conduct a breach analysis. Such analysis consists of:

1) determining whether the PHI was unsecure;

2) determining whether the PHI was used or disclosed in an unauthorized manner (in a manner not permitted under the Privacy Rule);

3) determining whether the unauthorized use or disclosure poses a significant risk of financial, reputational, or other harm to the affected individuals; and

4) determining whether the incident falls under any of the three enumerated exceptions to a breach listed in the definition of “breach” above.

The following information, in addition to any other relevant facts and circumstances, should be considered when determining whether the unauthorized use or disclosure poses a significant risk of financial, reputational, or other harm to the affected individuals/participants/patients (number 3, above): who impermissibly used or to whom the information was impermissibly disclosed; whether immediate steps have been taken to mitigate an impermissible use or disclosure such that the risk of harm has been eliminated or reduced to less than a significant amount of harm; and the type and amount of PHI involved in the impermissible use or disclosure. The risk assessment should be fact specific.

Business Associate, on behalf of Provider, shall document its breach analysis and maintain such documentation for a minimum of six (6) years.

Notification of Affected Individuals/Patients:

1. After a prompt investigation and breach analysis, without unreasonable delay and in no case later than sixty (60) calendar days of Business Associate or Provider (as the case may be) discovering a breach, Business Associate, on behalf of the Provider, shall provide written notice to each patient whose unsecured PHI has been, or is reasonably believed by Business Associate to have been, accessed, acquired, used, or disclosed as a result of such breach. In the following situations, the persons listed shall be notified:

a. If the patient is deceased, the patient’s next-of-kin or personal representative (e.g., appointed executor or administrator of the patient’s estate), in accordance with applicable law.

b. If the patient is incapacitated/incompetent, the patient’s personal representative (e.g., durable power of attorney for health care or legal guardian).

c. If the patient is an unemancipated minor, the parent or legal guardian.

2. Written notification must be sent by first-class mail to the last known address of the patient, or, if previously agreed to by the patient and not revoked, by encrypted electronic mail.

3. In the case where there is insufficient or out-of-date contact information that precludes written notification to the patient, substitute notice reasonably calculated to reach the patient shall be provided, in accordance with §164.404(d)(2) of title 45, Code of Federal Regulations.

4. In any case that Business Associate, on behalf of the Provider, determines that the patient should be notified urgently of a breach because of possible imminent misuse of unsecured PHI, Business Associate may, in addition to providing notice as outlined in steps 1-3 above, contact the patient by telephone or other means, as appropriate.

5. If a law enforcement official determines that a notification would impede a criminal investigation or cause damage to national security, such notification shall be delayed in the same manner as provided under §164.528(a)(2) of title 45, Code of Federal Regulations.

Media Notification:

1. In any case where a breach involves more than 500 patients who are residents of the same State or jurisdiction, Business Associate, on behalf of the Provider, shall notify prominent media outlets, without unreasonable delay and in no case later than sixty (60) calendar days after discovery of the breach. The content of the media notice must meet the same requirements as the content of written notification to patients.

2. The Privacy Officer should work with Provider’s leadership and Business Associate management to coordinate any media notification required hereunder.

HHS Notification:

1. In any case of a breach involving less than 500 patients (regardless of the State or jurisdiction), Business Associate, on behalf of the Provider, must record the breach in a centralized log of all breaches of unsecured PHI that occurred during the calendar year and annually submit the log to HHS (with a copy to Business Associate’s corporate office) no later than sixty (60) calendar days after the end of the calendar year. Notice of breaches affecting less than 500 individuals must be submitted electronically by using the breach notification form located at this website address: http://transparency.cit.nih.gov/breach/index.cfm (or at any address located in subsequent guidance). A separate form must be completed for every breach that has occurred and has been logged on behalf of Provider during the calendar year. If Business Associate has submitted a breach notification form to the Secretary of HHS on behalf of Provider, and later discovers additional information to report, Business Associate may submit an additional form, checking the appropriate box to signal that it is an updated submission.

2. In any case of a breach involving 500 or more patients (regardless of the State or jurisdiction), Business Associate, on behalf of the Provider, shall, without unreasonable delay and in no case later than sixty (60) calendar days after discovery of the breach, provide notification to the Secretary of the U. S. Department of Health and Human Services (HHS). The notice to HHS shall be provided contemporaneously with, and in addition to, the notification to patients. The notice must be submitted electronically by using the breach notification form located at this website address: http://transparency.cit.nih.gov/breach/index.cfm (or at any address located in subsequent guidance).

Content of Notification:

Regardless of the method by which the notice is provided to patients, notice of the breach must include:

1. A brief description of what happened, including the date of the breach and the date of the discovery of the breach, if known.

2. A description of the types of unsecured PHI that were involved in the breach, such as whether or not the patient’s full name, Social Security Number, date of birth, home address, account number, diagnosis code or disability code or other types of information were involved. Only the generic type of PHI should be listed in the notice (i.e., “date of birth” rather than the patient’s actual birth date).

3. The steps the individual should take to protect themselves from potential harm resulting from the breach.

4. A brief description of what the Provider, or Business Associate on behalf of the Provider, is doing to investigate the breach, mitigate harm to the patients, and to protect against any further breaches.

5. Contact procedures for patients to ask questions or learn additional information, which shall include a toll-free telephone number, an e-mail address, website, or postal address.

6. Any other information required by the Breach Notification Rule.

7. Provider is required to maintain documentation that all required notifications were made, for a minimum of six (6) years.

Notification by the Provider’s Business Associates:

All business associates of Provider (as defined above) shall be required, either by the applicable Business Associate Agreement entered into with Provider, or by adherence to this Policy, to notify Business Associate of any breach of unsecured PHI, without unreasonable delay and in no event later than five (5) business days after the discovery of the breach by the business associate or any director, officer, employee, or agent of the business associate (excluding the person who may have committed the breach). Provider shall immediately notify Business Associate of any notices of breach it receives from its other business associates.

State Law or Other Legal Requirements:

In the event of a breach of PHI, Business Associate, on behalf of Provider, shall review and take appropriate actions under any applicable state breach notification laws, and/or other federal laws that may be applicable to the incident.

POLICY OVERSIGHT:

This Policy shall be administered by the Privacy Officer in consultation with Business Associate. The Privacy Officer shall review this Policy annually for updates and revisions required in order to comply with applicable state, federal or local laws. Proposed modifications, updates, or revisions required by law shall be presented by the Privacy Officer to the Provider and Business Associate for approval.

EX-21

EXHIBIT 21

SUBSIDIARIES OF AMERICAN DENTAL PARTNERS, INC.

ADP-CFK, LLC, a Delaware limited liability company

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

Apple Park Associates, Inc., a Delaware corporation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

American Dental Partners of Wisconsin, 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

CFK of Texas, LLC, a Delaware limited liability company

Edgewater Indemnity Company, a Vermont Corporation

Voss Dental Lab, Inc., a New York corporation

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, 333-146231, 333-162961 and 333-162964) and on Form S-3 (No. 333-160157) of American Dental Partners, Inc. of our report dated March 12, 2010, relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

PricewaterhouseCoopers LLP

Boston, MA

March 12, 2010

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 12, 2010	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 12, 2010	By:	/S/ BREHT T. FEIGH
		Breht T. Feigh
		Executive Vice President, Chief Financial Officer and Treasurer

EX-32

EXHIBIT 32

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

In connection with the Annual Report on Form 10-K of American Dental Partners, Inc. (the “Company”) for the year ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Gregory A. Serrao, Chairman, President and Chief Executive Officer of the Company, and Breht T. Feigh, Executive Vice President, Chief Financial Officer and Treasurer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; 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 12, 2010

/s/ Breht T. Feigh

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

March 12, 2010