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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2003

Commission File Number: 0-23363

AMERICAN DENTAL PARTNERS, INC.

(Exact name of registrant as specified in our charter)

American Dental Partners, Inc.

201 Edgewater Drive, Suite 285

Wakefield, Massachusetts 01880

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (781) 224-0880 / (781) 224-4216 (fax)

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

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

Common Stock, $0.01 par value

(Title of Class)

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

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

Indicate by check mark whether registrant is an accelerated filer (as defined by Rule 12b-2 of the Act.)  ¨

The aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant was approximately $38,413,623 on June 30, 2003, based on the closing price of such stock, as reported on the NASDAQ National Market System.

The number of shares of Common Stock, $0.01 par value, outstanding as of March 12, 2004 was 7,460,763.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Definitive 2004 Proxy Statement for our 2004 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.

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AMERICAN DENTAL PARTNERS, INC.

INDEX

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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

Some of the information in this Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “project,” and similar expressions, among others, identify forward-looking statements. Forward-looking statements speak only as of the date the statement was made. Such forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from those projected, anticipated or implied. Certain factors that might cause such a difference include, among others, the Company’s risks associated with overall or regional economic conditions, its affiliated dental groups’ contracts with third party payors and the impact of any terminations or potential terminations of such contracts, the cost of and access to capital, fluctuations in labor markets, the Company’s acquisition and affiliation strategy, management of rapid growth, dependence upon affiliated dental groups, dependence upon service agreements and government regulation of the dental industry. Additional risks, uncertainties and other factors are set forth in the “Risk Factors” section of the Company’s Registration Statement on Form S-4 (File No. 333-56941).

PART I

ITEM 1. BUSINESS

Overview

American Dental Partners, Inc. (“ADPI”) is a leading provider of business services to multi-disciplinary dental groups in selected markets throughout the United States. We are committed to the growth and success of our affiliated dental groups, and we make substantial investments to support each affiliated dental group’s growth. We assist our affiliates with organizational planning and development; recruiting, retention and training programs; quality assurance initiatives; facilities development and management; employee benefits administration; procurement; information systems; marketing and payor relations; and financial planning, reporting and analysis. At December 31, 2003, we were affiliated with 19 dental groups, comprising 396 dentists practicing in 171 locations in 17 states.

Dental Care Industry

The market for dental care is large, growing and highly fragmented. Based on Centers for Medicare & Medicaid Services statistics, estimated expenditures for dental care grew 7% annually from 1990 to 2002 reaching $70 billion in 2002. Expenditures are expected to be approximately $108 billion by 2010. 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:

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

Unlike many other sectors of the health care services industry, the dental care profession remains dominated by practices owned and operated by just one or two dentists. Although the provision of dental care remains

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highly fragmented, the trend towards group practice is growing. According to the American Dental Association (“ADA”), in 2000, approximately 14% of the 156,000 dentists in the United States were practicing in a group setting of three or more. We believe the trend towards the delivery of dental care in the group practice setting will continue as a result of high educational debt levels and a change in gender profile of graduating dentists.

Most dental care performed in the United States is categorized as general dentistry. According to the ADA, in 2000, general dentistry was estimated to represent approximately 81% of all dental services performed in the United States. 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 orthodontics, periodontics, endodontics, prosthodontics and pediatric dentistry, represented the remaining 19% of dental care services.

Historically, dental care was not covered by insurers and consequently was paid for by patients on a fee-for-service basis. An increasing number of employers have responded to the desire of employees for enhanced benefits by providing coverage from third party payors for dental care. These third party payors offer indemnity insurance, PPO plans, capitated managed care plans and dental referral plans. Under an indemnity insurance plan, the dental provider charges a fee for each service provided to the insured patient, which is typically the same as that charged to a patient not covered by any type of dental insurance. We categorize indemnity insurance plans as fee-for-service plans. Under a PPO plan, the dentist charges 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 network 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 level of reimbursement is provided by the payor to the participating dentist.

The National Association of Dental Plans (“NADP”) estimated that 155 million people, or 54% of the population of the United States, were covered by some form of dental care plan in 2002. This compares with 140 million people, or 52% of the population, in 1997. Of the 155 million people with coverage, 42% were covered by PPO plans, 35% by indemnity insurance plans, 8% by dental referral plans, and 15% by capitated managed care plans. The remaining 46% of the population in 2002 did not have dental benefit coverage. We believe that the number of people with dental benefits will continue to increase and that the majority of this growth will be in PPO plans. For instance, according to the NADP, the number of people covered by PPO plans increased from 29 million in 1997 to 65 million in 2002, representing a 17% compound annual growth rate.

Business Objective and Strategy

Our objective is to be the leading business partner to dental group practices in selected markets throughout the United States. In order to achieve our objective, our strategy is to provide value-added resources and support to each of our affiliated dental groups in order that they may become the market leading, high quality dental group of each of their respective communities. We believe the core attributes of such a leading dental group include the following: (i) 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) qualified local management team with well-defined responsibilities and accountability.

In executing our strategy, we assist our affiliated dental groups with organizational planning and development; recruiting, retention and training programs; quality assurance initiatives; facilities development and management; employee benefits administration; procurement; information systems; marketing and payor

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relations; and financial planning, reporting and analysis. In order to execute our strategy successfully, we are continually enhancing or expanding our capabilities and resources, including vertical integration of ancillary dental activities. As an example, we expanded our procurement capabilities in 2002 with the acquisition and integration of two dental labs.

Successful execution of our strategy will result in growth from the following areas: (i) assisting our current affiliated dental groups to increase their market presence, (ii) completing additional affiliations with dental groups in attractive new markets and (iii) adding additional capabilities or resources to our service offering through the acquisition of related businesses. Our objective is to help our affiliated dental group practices grow their patient revenue 8 to 10% per annum, and supplement our growth through completion of additional affiliations in new markets. We are constantly evaluating potential affiliations with dental groups and acquisition of companies that would expand our business capabilities. Although we have completed many affiliations and acquisitions since November 1996, there can be no assurance that additional affiliation or acquisitions candidates can be identified or that they can be consummated or successfully integrated into our operations. The number of new affiliations and acquisitions over the next twelve months could be at levels greater or less than we have achieved during each of the past two years.

Affiliation Philosophy

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

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

Our affiliation model is designed to create a partnership in management between the affiliated dental group practice and us that allows each party to maximize its strengths and retain its autonomy. Under our affiliation model, the affiliated dentists continue to own their practice and have sole purview over the clinical aspects of the practice while we manage the business aspects of the dental group. This affiliation model is consistent across dental groups and, even where permitted by law, we do not employ practicing dentists.

We believe the core values of a business partnership are shared governance and shared financial objectives and have structured our affiliation model to achieve these goals. Shared governance is achieved by the formation of a joint policy board for each affiliated dental group which is comprised of an equal number of representatives from the affiliated dental group practice and us. Together, members of the joint policy board develop strategies and decide on major business initiatives. Shared financial objectives are achieved through the joint implementation of an annual planning process that establishes the financial performance standards for the affiliated dental group practice and us.

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Affiliated Dental Groups

From November 1996 (the date of our first affiliation) through December 31, 2003, we completed 54 affiliation transactions, which now comprise 19 dental groups in 17 states. The following table lists our affiliated dental groups as of December 31, 2003.

Operations

Operating Structure

We operate under a decentralized organizational structure. Within a dental practice location, where permitted by applicable state law, we generally employ the hygienists, dental assistants and administrative staff. At each dental practice, a practice manager typically oversees the day-to-day business operations. The practice manager and administrative staff are responsible for, among other things, facility staffing, patient scheduling, on-site patient billing and ordering office and dental supplies.

We have regional management teams that supervise the non-clinical operations of one or more affiliated dental groups. These teams provide support in areas such as developing and implementing operating policies and procedures; recruiting, hiring and training staff; administering employee benefits and processing payroll; maintaining information systems; producing accounting and financial reporting information; developing and maintaining facilities; and marketing. As our smaller affiliated dental groups grow in size, they may add local resources and assume some or all of the support functions provided by regional management teams.

Each regional management team reports to one of our operating vice presidents. An operating vice president is responsible for monitoring the operating performance of multiple affiliated dental groups in multiple markets. Each operating vice president participates as a member of the joint policy board of each of the affiliated dental groups for which he or she has management oversight responsibilities. The operating vice presidents are responsible for overseeing the development of annual operating plans and monitoring actual results.

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On a national level, we support our affiliated dental groups in several ways. We assist with:

We also take advantage of economies of scale by contracting for various goods and services. For example, we have arranged for national contracts for the purchase of dental supplies and equipment, long distance telephone services, professional, casualty and general liability insurance, employee benefits such as a 401(k) plan, flexible spending program, life insurance and disability insurance and payroll processing.

National Professional Advisory Forum

We have organized the National Professional Advisory Forum (“NPAF”) to facilitate sharing of information by our affiliated dental group practices with respect to the clinical aspects of dentistry. Leading dentists from our affiliated dental group practices are selected to participate in the NPAF. The NPAF meets on a national basis and a regional basis each year and provides a forum for dentists to share the best clinical practices of their respective dental group practices and an opportunity for them to build professional relationships with other dental group practices affiliated with us. These dentists, as a result of their affiliation with us, share common long-term goals. This enables the discussion at the NPAF to be more open than it may be with other professional organizations. While the primary emphasis of the NPAF is on the clinical aspects of dentistry, it also provides our management an opportunity to continue to build strong, mutually beneficial partner relationships with our affiliated dental group practices.

Accreditation Association for Ambulatory Health Care

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

Training and Development

We believe that quality of care encompasses more than technical dental quality. It also includes the level of service provided to patients. Improving the level of service provided to patients requires on-going training and development of both clinical and administrative staff. We have devoted significant resources to develop an innovative, proprietary training and development programs arranged around three broad areas, leadership excellence, service excellence and technical excellence. The programs are modular. Modules exist, for example, for improving recruiting skills, developing effective mentoring processes, managing time, improving telephone etiquette and managing unhappy patients. We make these programs available at the local practice level of the affiliated dental groups and at our National Professional Advisory Forum. At a local level, we assist our affiliated dental groups in selecting a local person who is responsible for implementing and maintaining continuous training and development programs. Once implemented, our affiliated dental groups have on-going sessions with additional modules as they are developed and with new staff members as they join the dental group.

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Payor Relationships and Reimbursement Mix

We believe that our affiliated dental group practices’ clinical philosophy should not be compromised by economic decisions. We recognize, however, that the source of payment for services affects operating and financial performance. We assist our affiliated dental group practices in analyzing their revenue and payor mix on an ongoing basis and recommend methods by which they can improve operating efficiency while not compromising their clinical practice philosophy. As a general rule, we believe that growth in a market is best facilitated where the payor mix of each of our affiliated dental group practices mirrors the payor mix for its community. We assist each of our affiliated dental group practices in evaluating and negotiating dental benefit provider contracts.

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 capitated managed care dental plans to PPO plans, dental referral networks, and, to a lesser extent, traditional fee-for-service plans, we believe that our affiliates’ experience in operating under all of these plans provides them with an advantage as it relates to increasing their market presence. Most of our affiliated dental group practices provide care under traditional fee-for-service plans and non-fee-for-service plans. The following table provides the aggregate payor mix of our affiliated dental group practices for the years ended December 31:

Many of our affiliated dental group practices are challenged with both strong patient demand and tight labor markets. This combination can create a challenging practice environment which negatively impacts staff retention. Given these dynamics, in selected markets, our affiliated dental group practices have been realigning their reimbursement mix away from deeply discounted dental benefit plans. This has largely been accomplished with the cooperation of the dental benefit provider community in general. There can be no assurance, however, that the shift in reimbursement mix will not result in the termination of certain third party payor contracts.

Facilities Development and Management

We believe an inviting professional environment is a critical aspect of overall patient satisfaction. Each of our dental facilities is constructed to be warm, attractive and inviting to the patients in addition to being highly functional. Our dental facilities typically have eight to ten operatories and accommodate general and specialty dentists, hygienists and dental assistants, a practice manager and a receptionist. Generally, our facilities are either stand alone or located within a professional office building or medical facility.

We work with each of our affiliated dental groups in analyzing utilization of existing capacity and identifying facility upgrade and expansion priorities. We also provide our affiliates guidance in the site selection process. We initially construct each facility as appropriate for the market and add or equip additional operatories as necessary based on capacity and utilization analyses.

We use architectural design services to improve the facility design process and to ensure that all facilities are properly constructed and meet the standards set forth by the AAAHC, Occupational Safety and Health Administration (“OSHA”) and Americans with Disabilities Act (“ADA”). To this end, we work with each affiliated dental group to establish a defined set of standards which are consistent with the desires of the affiliated dental group. We believe such facility standards are necessary to speed the site development process and create consistency across newly developed facilities, leading to enhanced staff and dentist productivity.

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Financial Planning and Financial Information System

We assist each affiliated dental group with financial planning. In conjunction with each affiliated dental group practice, we develop on an annual basis an operating plan for the affiliated dental group which sets specific goals for revenue growth, operating expenses and capital expenditures. Once a plan has been approved, we measure the financial performance of each affiliated dental group, which includes both the affiliated dental group practice and us, on a monthly basis and compare actual performance to 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 of our affiliated dental groups.

Practice Management Systems

We use various dental practice management software systems to facilitate patient scheduling, to bill patients and insurance companies, to assist with facility staffing and for other practice related activities. In connection with our affiliation with Park Dental, we acquired the rights to Comdent, a practice management system designed for use by multi-specialty dental groups. Comdent has been used continuously at Park Dental since 1987 and continuously enhanced by Park Dental and us since 1987. We believe that Comdent’s scheduling, electronic data interchange and data management features are superior to others that are commercially available. In addition, Comdent is scalable and capable of accommodating large, multi-site dental groups. We have converted nine of our multi-speciality dental groups to Comdent. Four of our multi-specialty dental groups use Quality Systems, Inc.’s commercially available practice management system, and the remaining four of our multi-specialty dental groups use various other commercially available practice management systems. Orthodontic Care Specialists, our affiliated dental group which exclusively provides orthodontic services, utilizes a proprietary practice management system designed specifically for the unique requirements of the orthodontics specialty.

We are currently in the process of developing Improvis, a replacement system to Comdent. Improvis will include expanded clinical, managerial, and financial capabilities. We intend to begin implementation of Improvis in late 2004, but there can be no assurance that Improvis will be successfully developed by the targeted date or that it will function satisfactorily in the practice environment.

Affiliation Structure

We have entered into a service agreement with each affiliated dental group practice, or professional corporation (“PC”), pursuant to which we perform all administrative, non-clinical aspects of the dental group. We expect that each new affiliated PC will enter into a similar service agreement or become a party to an existing service agreement at the time of affiliation with us. We are dependent on our service agreements for the vast majority of our operating revenue. The termination of one or more of these service agreements could have a material adverse effect on us.

Pursuant to the service agreement, the affiliated PC is responsible for all clinical aspects of the dental operations of the affiliated dental group. These clinical aspects include recruiting and hiring dentists, other licensed dental personnel and unlicensed dental assistants necessary to provide dental care, 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 PC 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 requires the affiliated PC to abide by non-competition and confidentiality provisions. The non-competition provisions of the service agreement prohibit the affiliated PC from owning or operating a dental facility, or having any interest in any business which competes with us, within the contractually agreed upon service territory. The affiliated PC is not restricted from owning and operating a dental practice outside of the agreed upon service territory, including providing for the administrative aspects of that practice.

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The service agreement requires the affiliated PC to enter into an employment or independent contractor agreement with each dentist retained by the affiliated PC. The employment agreements with full-time dentists who are owners of the affiliated PCs at the time of affiliation with us generally are for a specified initial term of up to five years and may not be terminated by the dentists without cause during the initial term. The employment agreements with other dentists may be for terms up to 18 months and are usually terminable by either the affiliated PC or the dentist upon advance written notice, which in most cases is 90 days, and are terminable by the PC for cause immediately upon written notice to the dentist. These agreements typically contain non-competition provisions which prohibit a dentist from engaging in the practice of dentistry or otherwise performing professional dental services within a specified geographic area, usually a specified number of miles from the relevant dental facility, following termination. The non-competition restrictions are generally for one to two years following termination.

Pursuant to the service agreement, we are responsible for providing all services necessary for the administration of the non-clinical aspects of the dental operations of the affiliated dental group. These services include assisting with organizational planning and development; providing recruiting, retention and training programs; supporting quality assurance initiatives of the affiliated dental group; providing on-going facilities development, maintenance and management; administering employee benefits and payroll; procuring supplies and other necessary resources; maintaining necessary information systems; assisting with marketing and payor relations; and providing financial planning, reporting and analysis.

As mandated by the service agreement, we and each affiliated PC establish a joint policy board which is responsible for developing and implementing management and administrative policies for the affiliated dental group. The joint policy board consists of an equal number of representatives designated by us and the affiliated PC. The joint policy board members designated by the affiliated PC must be licensed dentists employed by the affiliated PC. The joint policy board’s responsibilities include the review and approval of the long-term strategic and short-term operational goals, objectives, and plans for the dental facilities, all annual capital and operating plans, all renovation and expansion plans and capital equipment expenditures with respect to the dental facilities, all advertising and marketing services, and staffing plans regarding provider and support personnel for the affiliated dental group. The joint policy board also reviews and monitors the financial performance of the affiliated dental group and the affiliated PC with respect to the attainment of the affiliated dental group’s and the affiliated PC’s financial goals. The joint policy board also has the authority to approve or disapprove any merger or combination with, or acquisition of, any dental practice by the affiliated PC. Finally, the joint policy board reviews and makes recommendations with respect to contractual relationships between the affiliated PC and dental benefit providers and the affiliated PC’s patient fee schedules, although these and all other clinical decisions, as enumerated above, remain the exclusive decision of the affiliated PC through its joint policy board members.

The PC reimburses us for actual expenses incurred on its behalf in connection with the operation and administration of the dental facilities and pays fees to us for business services and capital provided. Under certain service agreements, our service fee consists of a variable monthly fee which is based upon a specified percentage of the amount by which the PC’s adjusted gross revenue exceeds expenses incurred in connection with the operation and administration of the dental facilities. Under certain service agreements our service fees consist of a fixed monthly fee and an additional variable fee. Under certain service agreements, our service fee consists entirely of a fixed monthly fee. The fixed monthly fees are determined by agreement between us and the affiliated PC in a formal financial planning process. The structure of the service fee, whether comprised of variable, fixed and variable or fixed components, is dictated by laws of each state in which we operate. The PC is also responsible for provider expenses, which generally consist of the salaries, benefits, and certain other expenses of the dentists. Pursuant to the terms of the service agreements, we bill patients and third party payors on behalf of the affiliated PCs. Such funds are applied in the following order of priority:

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

Competition

The dental services industry is highly competitive. Our affiliated dental groups compete with other dental groups and individual dentists in their respective markets. We estimate that we compete with approximately twelve companies in our current service areas that provide business services to dentists and dental groups through service agreement arrangements. We believe that the principal factors of competition between companies that provide business services to dental groups are their affiliation methods and models, the number and reputation of their existing affiliates, their management expertise and experience, the sophistication of their management information, accounting, finance and other systems, their operating methods and access to capital. We believe that we compete effectively with other companies that provide business services to dental groups with respect to these factors.

Government Regulation

General

The practice of dentistry is highly regulated, and our operations and those of our affiliated dental group practices are subject to numerous state and federal laws and regulations. Furthermore, we may become subject to additional laws and regulations as we expand into new markets. There can be no assurance that the regulatory environment in which we and our affiliated dental group practices operate will not change significantly in the future. Our ability to operate profitably will depend, in part, upon us and our affiliated dental group practices obtaining and maintaining all necessary licenses, certifications and other approvals and operating in compliance with applicable laws. In light of this, our service agreements provide that if there is any change in any law of regulation, or any ruling or interpretation by any court or governing body, that materially and adversely affects the way in which either party is to perform or be compensated under the service agreement, or which makes the service agreement unlawful, then the parties are obligated to use their best efforts to revise their relationship in a way that complies with the applicable regulatory development and approximates as closely as possible the economic positions of the parties prior to that development.

State Regulation

Each state imposes licensing and other requirements on dentists. Except for Wisconsin, the laws of the states in which we currently operate prohibit, either by specific statutes, case law or as a matter of general public policy, entities not wholly owned or controlled by dentists, such as American Dental Partners, from practicing dentistry, employing dentists and, in certain circumstances, dental assistants and dental hygienists, exercising control over the provision of dental services, splitting fees or receiving fees for patient referrals. Many states prohibit or restrict the ability of a person other than a licensed dentist to own, manage or control the assets, equipment or offices used in a dental practice. The laws of some states prohibit the advertising of dental services

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under a trade or corporate name and require all advertisements to be in the name of the dentist. A number of states also regulate the content of advertisements of dental services and the use of promotional gift items. These laws and their interpretation vary from state to state and are enforced by regulatory authorities with broad discretion.

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

Many states’ laws and regulations relating to the practice of dentistry were adopted prior to the emergence of providers of business services to dental groups like us. As a result, a