AMERICAN DENTAL PARTNERS INC, 424B2, 1998-12-08

AMERICAN DENTAL PARTNERS INC
424B2, 1998-12-08
MISC HEALTH & ALLIED SERVICES, NEC

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AMERICAN DENTAL PARTNERS, INC.

750,000 SHARES OF COMMON STOCK

AND

$25,000,000 AGGREGATE PRINCIPAL AMOUNT OF SUBORDINATED PROMISSORY NOTES

This Prospectus covers the offer and sale of up to 750,000 shares of Common
Stock, $0.01 par value (the "Common Stock"), of American Dental Partners, Inc.
(the "Company") and up to $25,000,000 aggregate principal amount of
Subordinated Promissory Notes (the "Subordinated Notes") of the Company, which
the Company may issue from time to time in connection with the future direct
and indirect acquisitions of other businesses, properties, or securities in
acquisition and affiliation transactions in accordance with Rule
415(a)(1)(viii) of Regulation C under the Securities Act of 1933, as amended
(the "Securities Act"), or as otherwise permitted under the Securities Act.

The Company expects that the terms upon which it may issue the Common Stock
and/or the Subordinated Notes in acquisition and affiliation transactions will
be determined through negotiations with the securityholders or principal
owners of the businesses whose securities or assets are to be acquired,
including the rates of interest for the Subordinated Notes. The Company
expects that the Common Stock issued will be valued at prices reasonably
related to market prices for the Common Stock prevailing either at the time an
affiliation or acquisition agreement is executed or at the time such a
transaction is consummated. The Subordinated Notes will be unsecured debt
obligations of the Company, subordinated to all Senior Indebtedness, as
hereinafter defined, payable over seven years, and on parity with all
currently outstanding or hereinafter issued Subordinated Notes.

This Prospectus will be furnished to securityholders of the business,
properties or securities to be acquired. This Prospectus will only be used in
connection with the acquisition of businesses, properties or securities in
acquisition and affiliation transactions that would be exempt from
registration but for the possibility of integration with other transactions.

Persons receiving Common Stock in connection with such transactions may be
contractually required to hold all or some portion of the Common Stock for
some period of time. Pursuant to the provisions of Rule 145 under the
Securities Act, the volume limitations and certain other requirements of Rule
144 under the Securities Act will apply to resales of those shares by
affiliates of the businesses with which the Company affiliates or acquires for
a period of two years. The Company does not anticipate that a market for the
Subordinated Notes will develop in the foreseeable future. See "Shares
Eligible for Future Sale" and "Plan of Distribution."

The Company filed a Registration Statement on Form S-1 (Registration No.
333-39981), as amended (the "IPO Registration Statement"), with the Securities
and Exchange Commission (the "Commission") pursuant to which it sold 2,587,500
shares of Common Stock in its initial public offering (the "IPO"). As of
November 16, 1998, 7,436,066 shares of Common Stock were issued and
outstanding. The Common Stock trades on the Nasdaq National Market under the
symbol "ADPI." On November 16, 1998, the last reported sale price of the
Common Stock on the Nasdaq National Market was $12.56 per share.

All expenses of this offering (this "Offering") will be paid by the Company.
No underwriting discounts or commissions will be paid in connection with the
issuance of the Common Stock and/or the Subordinated Notes by the Company in
acquisition and affiliation transactions, although finder's fees may be paid
with respect to specific transactions. Any person receiving a finder's fee may
be deemed to be an Underwriter within the meaning of the Securities Act.

THE COMMON STOCK AND SUBORDINATED NOTES OFFERED HEREBY INVOLVE A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

----------------

The date of this Prospectus is November 25, 1998.
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FROM NOVEMBER 1996 (THE DATE OF ITS FIRST AFFILIATION) THROUGH NOVEMBER 1,
1998, THE COMPANY COMPLETED AFFILIATIONS WITH 19 DENTAL GROUP PRACTICES AND
CURRENTLY OPERATES 102 DENTAL FACILITIES WITH 826 OPERATORIES IN EIGHT STATES.
THE COMPANY ACQUIRES SUBSTANTIALLY ALL THE ASSETS OF THE DENTAL PRACTICES WITH
WHICH IT AFFILIATES, EXCEPT THOSE REQUIRED BY LAW TO BE OWNED OR MAINTAINED BY
DENTISTS, AND ENTERS INTO LONG-TERM SERVICE AGREEMENTS WITH THE AFFILIATED
DENTAL PRACTICES.

[MAP OF THE UNITED STATES INDICATING LOCATION OF
THE COMPANY'S AFFILIATION APPEARS HERE]

The Company's corporate office is located at 301 Edgewater Place, Suite 320,
Wakefield, Massachusetts 01880. Its telephone number is (781) 224-0880.
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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus.

THE COMPANY

American Dental Partners, Inc. is a leading provider of dental practice
management services to multi-disciplinary dental group practices in selected
markets in the United States. The Company seeks to affiliate with leading
dental groups that provide a comprehensive range of dental care services, have
outstanding reputations for quality and have proven records of financial
performance. From November 1996 (the date of its first affiliation) through
November 1, 1998, the Company has completed affiliations with 19 dental group
practices and currently operates 102 dental facilities with 826 operatories in
eight states. The Company's rapid growth has resulted primarily from these
affiliations, which consisted of three dental group practice affiliations
completed in 1996, six dental group practice affiliations completed in 1997 and
ten dental group practice affiliations completed in 1998. For the year ended
December 31, 1997, the Company generated $53.3 million in net revenue and $1.1
million in net earnings. For the nine months ended September 30, 1998, the
Company generated $60.7 million in net revenue and $2.5 million in net
earnings. Based on the size of the Company's affiliated network and its results
of operations, the Company believes it is a leading provider of dental practice
management services in the United States.

The United States Health Care Financing Administration estimates that
expenditures for dental care were approximately $47.6 billion in 1996 and will
reach approximately $83.4 billion by 2005, representing a compound annual
growth rate of approximately 6.4%. The Company believes 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: (i) improved dental benefits
offered by employers; (ii) increased availability and use of dental insurance,
including preferred provider organization ("PPO") plans and capitated managed
care plans; (iii) increased demand for dental care from an aging population;
and (iv) increased demand for cosmetic and preventative procedures. The Company
believes that this growth will benefit not only dentists, but companies that
provide services to the dental care industry, such as dental practice
management companies. However, the failure of any of the foregoing factors to
materialize could offset increases in demand for dental care, and any such
increases may not correlate with growth in the Company's business.

The delivery of dental care in the United States is highly fragmented. Unlike
many other sectors of the health care services industry, the dental care
industry is in the early stages of consolidation. Although dental care is
typically offered by solo practitioners, the trend toward group practice is
growing. According to the American Dental Association, in 1995, 11.8% of the
approximately 153,300 dentists in the United States were practicing in groups
of three or more, up from 4.1% in 1991. The Company believes that this
consolidation trend will continue and that dental group practices will seek to
affiliate with entities, such as the Company, that: (i) allow dentists to focus
on the clinical aspects of dentistry by providing management resources to
conduct the business and administrative aspects of dentistry; (ii) provide
information and operating systems that are required to effectively operate in
an increasingly complex reimbursement environment; (iii) assist with third-
party contracting; (iv) realize economies of scale in purchasing and provide
access to capital; and (v) provide dentists the opportunity to realize value
for their practices.

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network with each affiliate and provides assistance with information systems,
budgeting, financial reporting, facilities management, third-party payor
contracting, supplies and equipment procurement, quality assurance initiatives,
billing and collecting accounts receivable, marketing and recruiting, hiring
and training support staff.

Under its service agreements, the Company is responsible for providing all
services necessary for the administration of the non-clinical aspects of the
dental operations. The PC is responsible for the provision of dental care. The
PC reimburses the Company for expenses incurred on its behalf in connection
with the operation and administration of the dental facilities and pays fees to
the Company for its management services. Each of the Company's service
agreements is for an initial term of 40 years. For 1997, the total amount of
the fees earned under the Company's service agreements ranged from
approximately 9% of the adjusted gross revenue of one PC to approximately 25%
of the adjusted gross revenue of another PC.

The Company's objective is to be the leading dental practice management
company in the United States. The Company's strategy for achieving this
objective is to: (i) expand into carefully selected and diverse geographic
markets which have favorable demographics and projected economic growth; (ii)
affiliate with leading dental group practices which have reputations for
quality care and proven records of financial performance; (iii) increase market
penetration in each of its markets through additional affiliations, recruitment
of dentists and new facility development; (iv) add value to each affiliated
dental group practice by assisting the practice in improving operating
performance; and (v) pursue various initiatives to help its affiliates provide
the highest quality of care and service.

THE OFFERING

Common Stock offered by
the Company.............. 750,000 shares of Common Stock to be issued by the
Company in connection with the acquisition of
businesses, properties or securities in acquisition
and affiliation transactions, of which 730,446
shares remain available for future issuance. The
Company expects that the terms upon which it may
issue the Common Stock in such acquisition and
affiliation transactions will be determined through
negotiations with the securityholders or principal
owners of the businesses whose securities or assets
are to be acquired. The Company expects that the
Common Stock issued will be valued at prices
reasonably related to market prices for the Common
Stock prevailing either at the time an acquisition
agreement is executed or at the time an acquisition
is consummated.

Subordinated Notes
offered by the Company... $25,000,000 aggregate principal amount of
Subordinated Promissory Notes to be issued by the
Company in connection with the acquisition of
businesses, properties or securities in acquisition
and affiliation transactions, of which $24,540,000
of notes remain available for future issuance. The
Company expects that the terms upon which it may
issue the Subordinated Notes in such acquisition
and affiliation transactions, including the rates
of interest for the Subordinated Notes, will be
determined through negotiations with the
securityholders or principal owners of the
businesses whose securities or assets are to be
acquired. The Subordinated Notes will be unsecured
debt obligations of the Company, subordinated to
all Senior Indebtedness, payable over seven years
and on parity with all currently outstanding or
hereinafter issued Subordinated Notes.

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Transfer of Common Persons acquiring shares of Common Stock in
Stock.................... transactions pursuant to this Offering may be
contractually required to hold all or some portion
of the Common Stock for some period of time.

Transfer of Subordinated
Notes.................... Persons acquiring Subordinated Notes in acquisition
and affiliation transactions pursuant to this
Offering should be aware that presently there is no
market for the Subordinated Notes, and it is not
anticipated that a market for the Subordinated
Notes will develop in the foreseeable future. In
addition, the acquisition agreements for the
applicable acquisition and affiliation transactions
will contain certain restrictions with respect to
the transfer of the Subordinated Notes.

Common Stock 7,436,066 shares (1)
outstanding..............

Nasdaq National Market ADPI
Symbol...................
- --------
(1) Based on shares outstanding at November 16, 1998. Does not include shares
of Common Stock issuable upon the exercise of outstanding options issued
pursuant to the Company's stock option plans.

Unless otherwise indicated, the term "Company" includes American Dental
Partners, Inc. and (i) its management service organization ("MSO") subsidiaries
and (ii) its wholly owned subsidiaries, Orthocare, Ltd. and American Dental
Professional Services, Inc. The term "PC" means the dental professional
corporation or other professional entity formed by the dentists of the
affiliating dental group practice. The Company does not own or control the PCs
and, accordingly, does not consolidate the financial statements of the PCs with
those of the Company.

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIOS, PER SHARE AND STATISTICAL DATA)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 4,675 $ 3,134
Working capital...................................... 759 (3,210)
Total assets......................................... 47,959 71,452
Long-term debt, excluding current maturities......... 21,253 11,047
Redeemable and convertible preferred stock........... 16,297 --
Total stockholders' equity........................... 909 46,875
</TABLE>

See accompanying footnotes on following page.

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- --------
The following footnotes should be read in conjunction with the information
under "The Company," "Capitalization" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

(1) Net earnings (loss) per common share are computed on the basis described in
Notes 2 and 12 to the Company's Consolidated Financial Statements and in
Note 4 to the Company's Unaudited Interim Consolidated Financial
Statements.
(2) The ratio of earnings to fixed charges is computed by dividing fixed
charges of the Company into earnings before income taxes plus fixed
charges. Fixed charges include interest expense, amortization of debt
expenses and the portion of non-reimbursed rental expense estimated to be
representative of the interest factor (approximately 1/3 of non-reimbursed
rental expense). Fixed charges ordinarily do not include any provision for
principal repayment. For the year ended December 31, 1996, earnings before
income taxes plus fixed charges were insufficient to cover fixed charges by
approximately $2.4 million.
(3) 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.
(4) Includes full-time general dentists employed by the PCs and full-time
specialists, some of whom are independent contractors to the PCs.

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RISK FACTORS

An investment in the securities offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to other information contained in this Prospectus, before
purchasing the securities offered hereby. This Prospectus contains forward-
looking statements. Prospective investors are cautioned that any such forward-
looking statements are not guarantees of future performance and involve risks
and uncertainties. Actual events or results may differ materially from those
discussed in the forward-looking statements, including the risk factors set
forth below and the matters set forth in this Prospectus generally.

LIMITED OPERATING HISTORY; 1996 OPERATING LOSS

The Company was formed in December 1995, commenced operations in January
1996 and began engaging in dental practice management operations in November
1996, concurrent with the completion of its first dental practice affiliation.
The Company experienced an operating loss in 1996. Although the Company was
profitable in 1997 and in the first nine months of 1998, there can be no
assurance that the Company will be able to sustain profitable operations.

RISKS ASSOCIATED WITH ACQUISITION STRATEGY

The Company's strategy includes expansion through affiliations with dental
practices in new and existing markets and the expansion of such affiliated
practices. Affiliations involve numerous risks, including failure to retain
key personnel and contracts of the affiliated practices and the inability to
integrate businesses without material disruption. In addition, the Company
competes with other dental practice management companies which have a similar
strategy, some of which may have greater financial resources and a longer
operating history than the Company. Competition for affiliations may intensify
due to ongoing consolidation in the dental care services industry, which may
substantially increase the costs associated with completing affiliation
transactions. There can be no assurance that any future affiliations will be
successfully integrated into the Company's operations, that competition for
affiliations will not intensify or that the Company will be able to complete
such affiliations on acceptable terms and conditions. In addition, the costs
of unsuccessful affiliation efforts may adversely affect the Company's
business, financial condition or results of operations.

The Company devotes substantial time and resources to affiliation-related
activities. Identifying appropriate affiliation candidates and negotiating and
consummating affiliations with dental practices can be a lengthy, complex and
costly process. The success of the Company's expansion strategy will depend on
a number of factors, including the Company's ability to identify and affiliate
with quality dental practices in suitable markets and regulatory constraints.
There can be no assurance that the Company's affiliation strategy will be
successful or that modifications to its strategy will not be required.

MANAGEMENT OF RAPID GROWTH

The Company has experienced substantial growth in a relatively short period
of time, primarily because of affiliations with existing dental practices.
This growth has placed, and will continue to place, significant demands upon
the Company's management, operations and systems. The Company's ability to
manage its growth effectively will depend upon its ability to hire, train and
assimilate additional management and other employees and its ability to
expand, improve and effectively utilize its accounting and finance, management
and operating systems in order to accommodate its expanded operations. A
failure by the Company's management to anticipate, implement and manage
effectively the changes required to sustain the Company's growth could have a
material adverse effect on the Company's business, financial condition and
results of operations.

DEPENDENCE UPON AFFILIATED DENTAL GROUP PRACTICES

The Company's revenue will depend on revenue generated by dental group
practices with which the Company affiliates. The Company does not employ
dentists or control the clinical practices of the dental groups

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with which it affiliates. There can be no assurance that dental group
practices with which the Company affiliates will maintain successful dental
practices or that any of the key members of a particular dental group practice
will continue practicing with that group. A shortage of available dentists
could have a material adverse effect on the Company's expansion opportunities.
To the extent permitted by state law, each PC has entered into non-competition
agreements and other restrictive covenants with the dentists employed by the
PC. There can be no assurance that these restrictive covenants are or will be
sufficient to protect the interests of the Company or the PC or that a court
would enforce such agreements. Any material loss of revenue by the affiliated
dental group practices, whether through the loss of existing dentists, the
inability to attract new dentists or otherwise, would have a material adverse
effect on the Company's business, financial condition and results of
operations.

DEPENDENCE UPON SERVICE AGREEMENTS

The Company is dependent upon the service agreements it has entered into
with each of its affiliated PCs for substantially all of its operating
revenue. Under the service agreements, the Company is responsible for
providing all services necessary for the administration of the non-clinical
aspects of the PCs' dental operations. The Company pays all expenses incurred
for these services. The Company is reimbursed for these expenses and also
receives fees for providing management services. The Company's service fees
typically consist of a fixed monthly fee and an additional variable fee. The
fixed monthly fee is determined prior to each affiliation and annually
thereafter by agreement of the Company and the affiliated dental group in a
formal budgeting process. To the extent that there is operating income after
payment of the fixed monthly fee, reimbursement of expenses incurred in
connection with the operation and administration of the dental facilities and
payment of provider expenses, an additional variable fee is paid to the
Company in the amount of such excess up to budgeted operating income and 50%
of such excess over budgeted operating income. Under certain service
agreements, the Company's service fees consist 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 its dental facilities. In those situations, no additional
variable fee is applicable.

Revenue generated from service agreements with two of the Company's
affiliated dental group practices, Park Dental and Smileage Dental Care,
represented approximately 56% and 16%, respectively, of the Company's
consolidated net revenue for the year ended December 31, 1997 and
approximately 42% and 13%, respectively, of the Company's consolidated net
revenue for the nine months ended September 30, 1998. The termination of
either of these service agreements could have a material adverse effect on the
Company.

Any material loss in revenue by one or more PCs (such as the loss of
contracts which provide for significant revenue or significant increases in
patient nonpayment) would have a material adverse effect on their ability to
reimburse the Company for expenses and to pay service fees. The failure to
receive such amounts could have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, in the
event of a breach of a service agreement by a PC, there can be no assurance
that the remedies available to the Company under the service agreements will
be enforceable or will be adequate to compensate the Company for its damages
resulting from such breach.

GOVERNMENT REGULATION

The dental industry and dental practices are regulated extensively at the
state and federal levels. The laws of many states, including states where the
Company operates and anticipates operating, prohibit entities not wholly owned
or controlled by dentists from practicing dentistry (which in certain states
includes owning, managing or controlling the assets, equipment or offices used
in a dental practice), employing dentists and, in certain circumstances,
dental assistants and dental hygienists, or exercising control over the
provision of dental services. These laws also often regulate the content of
advertisements of dental services. The Company and its affiliated dental
practices are also subject to state and/or federal licensure, fraud and abuse,
anti-kickback, false claims, fee splitting, self-referral, antitrust and
safety and health laws and regulations. At the state level, many of these laws
and regulations vary widely. In addition, these laws and regulations are
enforced by federal and state regulatory authorities with broad discretion.
The Company does not, and does not intend to, control the practice

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of dentistry by the affiliated dental group practices or their compliance with
the regulatory requirements directly applicable to dentists or the practice of
dentistry. However, there can be no assurance that any review of the Company's
business relationships, including the relationships of the Company with
affiliated dental group practices, by courts or other regulatory authorities,
will not result in determinations that could have a material adverse effect on
the operations of the Company, or that the laws and regulatory environment
will not change to restrict or limit the enforceability of the Company's
service agreements. The laws and regulations of certain states in which the
Company may seek to expand may require the Company to change its contractual
relationships with dental practices in a manner that may restrict the
Company's operations in those states or may prevent the Company from
affiliating with dental practices or providing comprehensive services to
dental practices in those states. To the extent that the Company or any
affiliated dental group practice contracts with third party payors, including
self-insured plans, on a capitated or other basis which causes the Company or
such affiliated dental group practice to assume a portion of the financial
risk of providing dental care, the Company or such affiliated dental group
practice may become subject to state insurance laws, in which case the Company
may be required to change the method of payment from third party payors or
seek appropriate licensure. Any regulation of the Company or its affiliated
dental group practices under insurance laws could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Government Regulation."

NEED FOR ADDITIONAL FINANCING

The Company's ability to execute its business strategy depends to a
significant degree on its ability to obtain substantial capital to finance
future affiliations. To date, the Company has obtained financing through the
public sale of its Common Stock in the IPO, the private sales of Preferred and
Common Stock and through its $30 million revolving credit facility. The
Company has historically used a combination of cash, Common Stock and
Subordinated Notes as consideration in affiliations with dental practices and
intends to continue this practice. However, the Company's ability to use its
Common Stock and Subordinated Notes as consideration for future affiliations
may be adversely affected if the Common Stock fails to maintain a sufficient
market value or if the affiliation candidates are unwilling to accept the
Subordinated Notes. Furthermore, while funds are currently available under the
Company's revolving credit facility, the Company's ability to draw such funds
is subject to certain terms and conditions, and there can be no assurance that
the Company will be able to satisfy such terms and conditions. There can be no
assurance that any other financing will be available to the Company, or if
available, that such financing would be on terms favorable to the Company.

SUBORDINATION OF SUBORDINATED NOTES

The Subordinated Notes will be unsecured debt obligations of the Company and
will at all times remain subordinated to all Senior Indebtedness. The
Subordinated Notes will not restrict the Company from incurring any other
indebtedness, some of which may be senior to the Subordinated Notes and
secured. Because of such subordination, in the event of the Company's
liquidation and dissolution, the holders of the Subordinated Notes may receive
less, ratably, than the other creditors of the Company. See "Description of
Subordinated Notes."

SETOFF AGAINST SUBORDINATED NOTES

Under the terms of the acquisition agreements to be entered into in
connection with the acquisition and affiliation transactions, the Subordinated
Notes will be subject to certain setoff rights in favor of the Company to
secure the indemnification obligations of the securityholders or principal
owners of the businesses whose securities or assets are to be acquired.
Consequently, the consideration to be received by such securityholders or
owners may be reduced. See "Description of Subordinated Notes."

LACK OF MARKET FOR SUBORDINATED NOTES; RESTRICTIONS ON TRANSFER

At present, there is no market for the Subordinated Notes, and it is not
anticipated that a market for the Subordinated Notes will develop in the
foreseeable future. In addition, the acquisition agreements for the

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business combination transactions will contain certain restrictions with
respect to the transfer of the Subordinated Notes. The securityholders or
principal owners of the businesses whose securities or assets are to be
acquired should be willing and have the financial ability to bear the risk of
his or her investment in the Subordinated Notes for an indefinite period of
time.

RISKS RELATED TO CAPITATED FEES AND OTHER THIRD PARTY ARRANGEMENTS

A significant portion of the payments for dental care is paid or reimbursed
under insurance programs ("third party payors"). While payor mix varies from
market to market, the aggregate payor mix percentage of the Company's
affiliated practices was approximately 33% fee-for-service (which includes
indemnity plans), 14% PPO plans and 53% capitated managed care plans for the
year ended December 31, 1997. Third party payors are continually negotiating
the prices charged for dental care, with a goal of lowering reimbursement and
utilization rates. Third party payors can also deny reimbursement for dental
care if they determine that a treatment was not performed in accordance with
treatment protocols established by such third party payors or for other
reasons. Loss of revenue by the Company's affiliated dental group practices
caused by cost containment efforts could have a material adverse effect on the
Company. Additionally, some third-party payor contracts are capitated
arrangements. Under such contracts, which are typically terminable by either
party on 30 to 90 days notice, the affiliated dental group practice receives a
capitated payment, calculated on a per member per month basis, to provide care
to the covered enrollees and generally receives a co-payment at the time care
is provided. Such payment methods shift a portion of the risk of high costs of
over-utilization from the third party payors to the affiliated dental group
practices because, to the extent that patients or enrollees covered by such
contracts require more frequent or extensive care than is anticipated by the
affiliated dental group practices, there may be a potential shortfall between
the capitated payments received by the affiliated dental group practices and
the costs to provide the contracted services. These shortfalls may impact the
Company by the possible reduction in expense reimbursement and service fees
from the affiliated dental group practices. The Company's payor mix with
respect to capitated managed care plans increases the Company's possible
exposure with respect to such shortfalls. There can be no assurance that the
Company will be able to negotiate satisfactory third-party payor arrangements
on behalf of the affiliated dental practices. Insufficient revenue under
capitated contracts or other agreements with third party payors could have a
material adverse effect on the Company's business, financial condition and
results of operations.

POSSIBLE EXPOSURE TO PROFESSIONAL LIABILITY

The Company's affiliated dental practices provide dental care to the public
and could be exposed to the risk of professional liability and other claims.
Such claims, if successful, could result in substantial damages which could
exceed the limits of any applicable insurance coverage. It is possible that
such claims could be asserted against the Company as well as the affiliated
dental practices, that a claim brought against an affiliated dental group
practice or dentist could materially increase professional liability insurance
premiums of the affiliated dental group practice, or that fees to the Company
from a dental group practice could be adversely affected, if damages payable
by that practice exceed insurance coverage limits. The Company's service
agreements require that it be named as an additional insured party under the
liability insurance policy that each affiliated dental group is required to
maintain. In addition, the Company requires each affiliated dental group
practice to indemnify the Company for actions or omissions related to the
delivery of dental care by such affiliated dental group practice. However, a
successful professional liability claim against the Company or an affiliated
dental group practice could have a material adverse effect on the Company's
business, financial condition and results of operations.

FLUCTUATIONS IN OPERATING RESULTS

The Company's results of operations may fluctuate significantly from quarter
to quarter or year to year. Results may fluctuate due to a number of factors,
including the timing of future affiliations, seasonal fluctuations in the
demand for dental care and competitive factors. Accordingly, quarterly
comparisons of the Company's revenues and operating results should not be
relied on as an indication of future performance, and the results of

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any quarterly period may not be indicative of results to be expected for a
full year. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

HIGHLY COMPETITIVE MARKET

The business of providing practice management services is highly
competitive. The Company is aware of a number of competitors specializing in
the business of providing comprehensive management services to dental
practices and there are other companies with substantial resources that may
decide to enter the dental practice management business. In addition, the
Company's revenue depends on the success of its affiliated dental groups and
those groups face competition from several sources, including solo
practitioners and single and multi-disciplinary groups, many of which may have
more established practices. See "Business--Competition."

RISKS RELATED TO INTANGIBLE ASSETS

A significant portion of the Company's consolidated total assets are
represented by intangible assets, the amount and concentration of which are
expected to increase in connection with future acquisitions. In addition,
amortization expense associated with these intangible assets will increase in
the future as a result of intangibles recorded in connection with
affiliations. In the event of any sale or liquidation of the Company or a
portion of its assets, there can be no assurance that the value of the
Company's intangible assets will be realized. In addition, the Company
periodically evaluates whether events or circumstances have occurred
indicating that any portion of the remaining balance of the amount allocable
to the Company's intangible assets may not be recoverable. When factors
indicate that the amount allocable to the Company's intangible assets has been
impaired, the Company would be required to reduce the carrying value of such
assets. Any future determination requiring the write off of a significant
portion of unamortized intangible assets could have a material adverse effect
on the Company's business, financial condition and results of operation.

CONTROL BY EXISTING STOCKHOLDERS

As of November 16, 1998, Summit Partners and the other directors and
executive officers of the Company beneficially owned an aggregate of
approximately 32.0% and 15.2%, respectively, of the outstanding shares of
Common Stock. If these groups were to act together, they would have
significant voting power with respect to, and may be able to control, the
election of the Company's directors and, in general, the determination of the
outcome of all corporate actions requiring approval of stockholders, and thus
control the business affairs and policies of the Company. Such control could
also have the effect of delaying or preventing a change in control of the
Company and consequently may adversely affect the market price of the Common
Stock. See "Principal Stockholders."

SHARES ELIGIBLE FOR FUTURE SALE

The shares of Common Stock sold in the IPO are freely tradable unless
acquired by affiliates of the Company. In addition, as of the completion of
the IPO, substantially all of the shares of Common Stock that were outstanding
prior to the IPO became eligible for sale in the public market under Rule 144
beginning 90 days after the date of the IPO Prospectus (April 15, 1998).

The 750,000 shares of Common Stock issuable pursuant to this Offering
generally will be eligible for resale after their issuance as follows: (i) for
non-affiliates of the businesses with which the Company affiliates or
acquires, without restriction; and (ii) for affiliates of the businesses with
which the Company affiliates or acquires, subject to compliance with the
volume and manner-of-sale restrictions of Rule 145, unless in each case the
Company contractually restricts their resale. The Company anticipates that the
persons acquiring shares of Common Stock in acquisition and affiliation
transactions pursuant to this Offering will be contractually required to hold
all or some portion of the Common Stock for some period of time. See "Shares
Eligible for Future Sale."

12
<PAGE>

The Company is unable to predict the effect, if any, that future sales of
Common Stock or the availability of Common Stock for sale may have on the
market price of the Common Stock prevailing from time to time. Certain
existing stockholders have the right to require the Company to register their
Common Stock from time to time. See "Description of Capital Stock" and "Shares
Eligible for Future Sale."

POSSIBLE VOLATILITY OF STOCK PRICE

The Common Stock is traded on the Nasdaq National Market, however, there can
be no assurance that an active trading market will be sustained. The trading
prices of the Company's Common Stock could be subject to wide fluctuations in
response to quarter-to-quarter variations in the Company's operating results,
material announcements by the Company, governmental regulatory action, general
conditions in the health care industry, or other events or factors, many of
which are beyond the Company's control. In addition, the stock market has
experienced extreme price and volume fluctuations, which have particularly
affected the market prices of many health care services companies and which
have often been unrelated to the operating performance of such companies. The
Company's operating results in the future may be below the expectations of
securities analysts and investors. In such event, the price of the Common
Stock would likely decline, perhaps substantially.

NO DIVIDENDS DUE TO POLICY AND PROHIBITIONS

The Company does not intend to pay cash dividends on the Common Stock in the
foreseeable future and anticipates that future earnings will be retained to
finance future operations and expansion. In addition, the terms of the
Company's revolving credit facility prohibit the Company from paying dividends
or making other payments with respect to its Common Stock without the consent
of the lender. See "Dividend Policy."

CERTAIN ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Second Amended and Restated Certificate
of Incorporation (the "Certificate of Incorporation") and Amended and Restated
By-laws (the "By-laws") and of Delaware law could, together or separately,
discourage potential acquisition proposals, delay or prevent a change in
control of the Company or limit the price that certain investors might be
willing to pay in the future for shares of the Common Stock. Among other
matters, the Certificate of Incorporation provides for "blank check" preferred
stock, which may be issued without stockholder approval, and requires all
actions by stockholders to be taken at meetings of stockholders. The By-laws
provide for a classified Board of Directors. The Company also is subject to
Section 203 of the Delaware General Corporation Law ("DGCL"), which, subject
to certain exceptions, prohibits a Delaware corporation from engaging in any
of a broad range of business acquisitions with an "interested stockholder" for
a period of three years following the date such stockholder became an
interested stockholder. See "Description of Capital Stock."

13
<PAGE>

THE COMPANY

Overview

American Dental Partners, Inc. was formed as a Delaware corporation on
December 22, 1995, commenced operations in January 1996 and began engaging in
dental practice management operations in November 1996, concurrent with the
completion of its first dental group practice affiliation. The Company
acquires substantially all the assets of the dental practices with which it
affiliates, except those required by law to be owned or maintained by dentists
(such as third party contracts, certain governmental receivables and patient
records), and enters into long-term service agreements with the affiliated
dental practices. The Company provides all services necessary for the
administration of the non-clinical aspects of the dental operations. Services
provided to affiliated dental practices include assistance with information
systems, budgeting, financial reporting, facilities management, third-party
payor contracting, supplies and equipment procurement, billing and collecting
accounts receivable, marketing and recruiting, hiring and training support
staff. The Company does not employ dentists or control the clinical aspects of
dentistry. As described below, the Company's rapid growth has resulted
primarily from the affiliations completed, which consisted of three dental
group practice affiliations in 1996, six dental group practice affiliations
completed in 1997 and ten dental group practice affiliations completed through
November 1, 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Affiliation Summary."

1996 Transactions

During 1996, the Company acquired substantially all the assets of three
dental group practices, except those required by law to be owned or maintained
by dentists (such as third party contracts, certain governmental receivables
and patient records), and simultaneously entered into a 40-year service
agreement with each of the affiliated dental groups. These affiliated dental
groups and their respective dates of affiliation are: PDG, P.A. ("Park
Dental") in November 1996; L. Crane & Associates, P.C. ("Longhorn Dental") in
December 1996; and the Wisconsin Dental Group, S.C. ("Smileage Dental Care")
in December 1996. These transactions are referred to as the "1996
Transactions."

1997 Transactions

During 1997, the Company acquired substantially all the assets of six dental
group practices, except those required by law to be owned or maintained by
dentists (such as third party contracts, certain governmental receivables and
patient records), and simultaneously entered into 40-year service agreements
with four of the affiliated dental groups (two practices joined existing
affiliates). These dental group practices and their respective dates of
affiliation are: Lakeside Dental Group professional corporation ("Lakeside
Dental Care") in March 1997; Malcolm R. Scott, D.D.S. in March 1997; AJS
Associates, P.C. ("Soster Dental Group") in May 1997; Wisconsin Dental
Professionals, S.C. ("Northpoint Dental Group") in July 1997; the four
professional corporations owned by Dr. Terrance R. Wilkens (the "Wilkens
Dental Group") in October 1997; and OCG, Ltd. (the "Orthocare Group") in
October 1997. As part of the Orthocare Group transaction, the Company acquired
Orthocare, Ltd., a related entity that contracts with third party payors and
orthodontic providers to arrange for the provision of orthodontic care to
patients insured by such third party payors in Minneapolis/St. Paul and
Wisconsin. These transactions are referred to as the "1997 Transactions."

1998 Transactions

Since the beginning of 1998, the Company has acquired substantially all the
assets of ten dental group practices, except those required by law to be owned
or maintained by dentists (such as third party contracts, certain governmental
receivables and patient records), and simultaneously entered into 40-year
service agreements with four of the affiliated dental groups (six practices
joined existing affiliates). These dental group practices and their respective
dates of affiliation are: Associated Dental Care Providers, P.C. ("Associated
Dental Care") in January 1998; Family Care Dental Centers, Inc. in April 1998;
John E. Carey, D.D.S. and James J. Peterman, D.D.S. in April 1998; Leroy S.
Crapanzano, D.D.S. in April 1998; Reston Dental Group, P.C. in June 1998; TSC
Dental Centers in June 1998; Indiana Dental Group, Inc. in July 1998; Mintz &
Pincus Dental Group in September 1998; Westmore Dental Group in September
1998; and St. Croix Valley Orthodontics, Ltd. in November 1998. These
transactions are referred to as the "1998 Transactions."

14
<PAGE>

DIVIDEND POLICY

The Company has not paid any cash dividends on its Common Stock in the past
and does not plan to pay any cash dividends on its Common Stock in the
foreseeable future. In addition, the terms of the Company's revolving credit
facility prohibit it from paying dividends or making other payments with
respect to its Common Stock without the lender's consent. The Company's Board
of Directors intends, for the foreseeable future, to retain earnings to
finance the continued operation and expansion of the Company's business.

PRICE RANGE OF COMMON STOCK

Since April 16, 1998, the commencement date of the IPO, the Company's Common
Stock has been traded on the Nasdaq National Market system under the symbol
"ADPI." The following table sets forth the range of the reported high and low
sales prices of the Company's Common Stock for the periods indicated:

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Year Ending December 31, 1998:
2nd Quarter (beginning April 16, 1998).................... $19.375 $13.750
3rd Quarter .............................................. $15.000 $ 8.250
4th Quarter (through November 16, 1998)................... $13.125 $ 7.125
</TABLE>

As of November 16, 1998, there were approximately 70 holders of record of
Common Stock, as shown on the records of the transfer agent and registrar of
Common Stock. The number of record holders does not bear any relationship to
the number of beneficial owners of the Common Stock. The last reported sale
price of the Common Stock on the Nasdaq National Market as of November 16,
1998 was $12.56 per share.

15
<PAGE>

CAPITALIZATION

The following table sets forth as of September 30, 1998 cash and cash
equivalents, current maturities of debt and the capitalization of the Company
(in thousands, except share and per share amounts):

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------
<S> <C>
Cash and cash equivalents................................... $ 3,134
=======
Current maturities of debt.................................. $ 1,021
=======
Long-term debt, less current maturities..................... $11,047
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, 7,436,066 shares issued and outstanding (1).. 74
Additional paid-in capital................................ 45,742
Unearned compensation..................................... (30)
Retained earnings......................................... 1,089
-------
Total stockholders' equity.............................. 46,875
-------
Total capitalization.................................. $57,922
=======
</TABLE>
- --------
(1) Excludes 1,215,429 shares of Common Stock issuable upon the exercise of
outstanding options issued pursuant to the Company's stock option plans as
of November 16, 1998. See "Management--Stock Plans."

16
<PAGE>

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIOS, PER SHARE AND STATISTICAL DATA)

The selected consolidated statement of operations data for the years ended
December 31, 1996 and 1997 and the selected consolidated balance sheet data at
December 31, 1996 and 1997 have been derived from the Consolidated Financial
Statements of the Company which have been audited by KPMG Peat Marwick LLP,
Independent Certified Public Accountants, and which are included elsewhere in
this Prospectus. The selected consolidated statement of operations data for
the nine months ended September 30, 1997 and 1998 and the selected
consolidated balance sheet data at September 30, 1998 have been derived from
the Unaudited Interim Consolidated Financial Statements of the Company which
are also included elsewhere in this Prospectus. The selected historical
financial data provided below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
Consolidated Financial Statements and the related notes thereto of the Company
and other financial information included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
---------------- --------------------
1996 1997 1997 1998
------- ------- --------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net revenue............................ $ 3,933 $53,270 $ 36,620 $ 60,722
------- ------- --------- ---------
Operating expenses:
Salaries and benefits................ 2,098 28,438 19,625 31,464
Lab fees and dental supplies......... 534 6,435 4,491 7,787
Office occupancy..................... 389 4,814 3,368 5,532
Other operating expenses............. 773 6,264 4,433 5,023
General corporate expenses........... 2,395 3,337 2,260 3,002
Depreciation......................... 177 1,580 1,154 1,803
Amortization of intangibles.......... 48 645 349 1,237
------- ------- --------- ---------
Total operating expenses........... 6,414 51,513 35,680 55,848
------- ------- --------- ---------
Earnings (loss) from operations........ (2,481) 1,757 940 4,874
Interest expense (income), net....... (38) 563 195 838
------- ------- --------- ---------
Earnings (loss) before income taxes.... (2,443) 1,194 745 4,036
Income taxes......................... -- 124 81 1,574
------- ------- --------- ---------
Net earnings (loss).................. $(2,443) $ 1,070 $ 664 $ 2,462
======= ======= ========= =========
Net earnings (loss) per common
share(1):
Basic................................ $ (3.45) $ (0.05) $ (0.10) $ 0.38
Diluted.............................. $ (3.45) $ (0.05) $ (0.10) $ 0.34
Weighted average common shares
outstanding(1):
Basic................................ 768 2,273 2,232 5,392
Diluted.............................. 768 2,273 2,232 6,593
Ratio of earnings to fixed
charges(2)............................ N/A 2.4 2.7 4.7
</TABLE>

See accompanying footnotes on following page.

17
<PAGE>

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA--CONTINUED
(IN THOUSANDS, EXCEPT RATIOS, PER SHARE AND STATISTICAL DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1996 1997 1998
------- ------- -------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 5,836 $ 4,675 $ 3,134
Working capital.................................. 3,189 759 (3,210)
Total assets..................................... 25,294 47,959 71,452
Long-term debt, excluding current maturities..... 3,063 21,253 11,047
Redeemable and convertible preferred stock....... 15,105 16,297 --
Total stockholders' equity....................... 164 909 46,875
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1996 1997 1998
------ ------ -------------
<S> <C> <C> <C>
STATISTICAL DATA (END OF PERIOD):
Number of states.................................. 3 5 8
Number of dental facilities....................... 42 77 100
Number of operatories(3).......................... 331 566 818
Number of affiliated dentists(4).................. 128 171 236
</TABLE>
- --------
The following footnotes should be read in conjunction with the information
under "The Company," "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

(1) Net earnings (loss) per common share are computed on the basis described
in Notes 2 and 12 to the Company's Consolidated Financial Statements and
in Note 4 to the Company's Unaudited Interim Consolidated Financial
Statements.
(2) The ratio of earnings to fixed charges is computed by dividing fixed
charges of the Company into earnings before income taxes plus fixed
charges. Fixed charges include interest expense, amortization of debt
expenses and the portion of non-reimbursed rental expense estimated to be
representative of the interest factor (approximately 1/3 of non-reimbursed
rental expense). Fixed charges ordinarily do not include any provision for
principal repayment. For the year ended December 31, 1996, earnings before
income taxes plus fixed charges were insufficient to cover fixed charges
by approximately $2.4 million.
(3) 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.
(4) Includes full-time general dentists employed by the PCs and full-time
specialists, some of whom are independent contractors to the PCs.

18
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the Unaudited Interim Consolidated Financial
Statements, and the notes thereto, of the Company included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
events or results may differ materially from those discussed in the forward-
looking statements as a result of various factors, including the risk factors
set forth under "Risk Factors" and the matters set forth in this Prospectus
generally.

OVERVIEW

American Dental Partners, Inc. is a leading provider of dental practice
management services to multi-disciplinary dental group practices in selected
markets in the United States. The Company was formed in December 1995,
commenced operations in January 1996 and began engaging in dental practice
management operations in November 1996, concurrent with the completion of its
first dental group practice affiliation. The Company's rapid growth has
resulted primarily from the Company's affiliations with dental group
practices. From November 1996 (the date of the Company's first dental group
practice affiliation) to September 30, 1998, the Company completed
affiliations with 18 dental group practices and, at September 30, 1998,
operated 100 dental facilities with 818 operatories in eight states.

An integral part of the Company's strategy is to affiliate with dental group
practices. Because of the financial impact of the Company's affiliations
during 1996 and 1997, it is difficult to make meaningful comparisons between
the Company's financial statements during these periods. In addition, due to
the relatively small number of affiliated dental group practices, each
affiliation can impact the overall operating results of the Company. After
affiliating with a dental group practice, the Company typically takes a number
of steps designed to enhance the dental group's practice revenue, improve
practice operating efficiencies and expand practice operating margins. The
benefits of these actions generally do not occur immediately. Consequently,
the financial performance of a newly-affiliated dental group practice could
negatively affect overall operating margins in the near term. As the Company
grows, it expects that the effect of adding a new dental group practice
affiliation will be mitigated by the expanded financial base of the existing
affiliations. See "Business--Business Strategy."

AFFILIATION SUMMARY

When affiliating with a dental group practice, the Company acquires
substantially all its assets except those required by law to be owned or
maintained by dentists (such as third party contracts, certain governmental
receivables and patient records), and enters into a long-term service
agreement with the affiliated dental practice. Under its service agreements,
the Company is responsible for providing all services necessary for the
administration of the non-clinical aspects of the dental operations. The PC is
responsible for the provision of dental care. Each of the Company's service
agreements is for an initial term of 40 years. The Company does not own or
control the affiliated dental practices and, accordingly, does not consolidate
the financial statements of the PCs with those of the Company.

1996 Transactions

During 1996, the Company acquired substantially all the assets of three
dental group practices and simultaneously entered into a 40-year service
agreement with each of the affiliated dental groups. These affiliated dental
groups are: Park Dental in Minneapolis; Longhorn Dental in Austin; and
Smileage Dental Care in Milwaukee. These transactions resulted in the addition
of 42 dental facilities with 331 operatories. The aggregate consideration for
the 1996 Transactions consisted of approximately $7.3 million in cash, $2.2
million in Subordinated Notes and 1,613,400 shares of Common Stock. All
Subordinated Notes bear interest at 7% and are payable in seven annual
installments maturing in 2003.

19
<PAGE>

1997 Transactions

During 1997, the Company acquired substantially all the assets of six dental
group practices and Orthocare Ltd., a related entity of one of these
practices, and simultaneously entered into 40-year service agreements with
four of these affiliated dental groups (two practices joined existing
affiliates). These six dental group practices are: Lakeside Dental Care in New
Orleans; Malcolm R. Scott, D.D.S. in San Marcos, Texas; Soster Dental Group in
Pittsburgh; Northpoint Dental Group and Wilkens Dental Group in Milwaukee; and
the Orthocare Group in Minneapolis. The Lakeside Dental Care and Soster Dental
Group affiliations represented the entry into two new markets by the Company.
The affiliation with Malcolm R. Scott, D.D.S. expanded the Company's market
presence in Austin by adding one dental facility with six operatories. The
affiliation with Northpoint Dental and Wilkens Dental groups expanded the
Company's market presence in Milwaukee by adding six dental facilities with 53
operatories. In total, these transactions resulted in the addition of 29
dental facilities with 199 operatories. The aggregate consideration for the
above transactions consisted of approximately $16.8 million in cash, $2.4
million in Subordinated Notes and 180,834 shares of Common Stock. All
Subordinated Notes bear interest at 7% and are payable in seven annual
installments maturing in 2004.

1998 Transaction (completed through September 30, 1998)

Since the beginning of 1998, the Company acquired substantially all the
assets of nine dental group practices and simultaneously entered into 40-year
service agreements with four of the affiliated dental groups (five practices
joined existing affiliates). These nine dental group practices are: Associated
Dental Care in Phoenix and Tucson; Family Care Dental Centers in Janesville,
Kenosha and Racine, Wisconsin; John E. Carey, D.D.S. and James J. Peterman,
D.D.S. in Madison, Wisconsin; Leroy S. Crapanzano, D.D.S. in New Orleans;
Reston Dental Group in Reston, Virginia; TSC Dental Centers in Houston;
Indiana Dental Group in Indiana, Pennsylvania; Mintz & Pincus Dental Group in
Oxon Hill and Waldorf, Maryland; and Westmore Dental Group in Mt. Pleasant,
Pennsylvania. The Associated Dental Care, Reston Dental Group, TSC Dental
Centers, Indiana Dental Group and Mintz & Pincus Dental Group affiliations
represented the entry into six new markets by the Company. The affiliation
with Family Care Dental Centers expanded the Company's market presence in the
Kenosha, Wisconsin market and represented the entry of the Company into two
new markets in Wisconsin, Janesville and Racine. The affiliations with John E.
Carey, D.D.S. and James J. Peterman, D.D.S., Leroy S. Crapanzano, D.D.S. and
Westmore Dental Group expanded the Company's market presence in the Madison,
New Orleans and Pittsburgh markets, respectively. In total, these affiliations
resulted in the addition of 22 dental facilities with 227 operatories. The
aggregate consideration for these transactions consisted of approximately
$18.5 million in cash, $2.2 million in Subordinated Notes, $1.0 million in
deferred payments, 54,354 shares of Common Stock and future contingent
payments for one affiliation based on a multiple of service fees received in
excess of a predetermined threshold for each of the three years ending May 31,
1999, 2000 and 2001.

Subsequent and Pending Transactions

Effective November 1, 1998, the Company acquired substantially all the
assets of St. Croix Valley Orthodontics, Ltd. which joined the Company's
existing affiliate in Minneapolis. In addition, the Company currently is in
discussions with a number of dentists and owners of dental group practices
about possible affiliations with the Company. There can be no assurance that
the Company will consummate any future transactions.

COMPONENTS OF REVENUE AND EXPENSES

Affiliate Adjusted Gross Revenue and Payor Mix. The Company's affiliated
dental group practices generate revenue from patients and third party payors
under fee-for-service, PPO plans and capitated managed care plans. The
affiliated dental group practices record revenue at established rates reduced
by contractual adjustments and allowances for doubtful accounts to arrive at
adjusted gross revenue. Contractual adjustments represent the difference
between gross billable charges at established rates and the portion of those
charges allowable by third party payors pursuant to certain reimbursement and
managed care contracts. While payor mix varies from market to market, the
aggregate payor mix percentage of the Company's affiliated practices was
approximately 33% fee-for-service, 14% PPO plans and 53% capitated managed
care plans for the year ended December 31, 1997.

20
<PAGE>

The PC reimburses the Company for expenses incurred on its behalf in
connection with the operation and administration of the dental facilities and
pays fees to the Company for management services. Expenses incurred for the
operation and administration of the dental facilities include salaries and
benefits for non-dentist personnel working at the dental facilities (the
administrative staff and, where premitted by law, the dental hygienists and
dental assistants), lab fees, dental supplies, office occupancy costs of the
dental facilities (rent, utilities, etc.) and depreciation related to the
fixed assets at the dental facilities. The PC is also responsible for provider
expenses, which generally consist of the salaries, benefits and certain other
expenses of the dentists.

Net Revenue. Net revenue for the Company represents the aggregate fees
charged to the affiliated dental practices pursuant to the terms of the long-
term service agreements under which the Company agrees to manage the non-
clinical aspects of the dental practice. Under such agreements, the affiliated
dental group practices reimburse the Company for actual expenses incurred in
connection with the operation and administration of the dental facilities and
pay fees to the Company for its management services. The Company's service
fees typically consist of a fixed monthly fee and an additional variable fee.
The fixed monthly fee is determined prior to each affiliation and annually
thereafter by agreement of the Company and the affiliated dental group in a
formal budgeting process. To the extent that there is operating income after
payment of the fixed monthly fee, reimbursement of expenses incurred in
connection with the operation and administration of the dental facilities and
payment of provider expenses, an additional variable fee is paid to the
Company in the amount of such excess up to budgeted operating income and 50%
of such excess over budgeted operating income. Under certain service
agreements, the Company's service fees consist 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 its dental facilities. In those situations, no additional
variable fee is applicable. For the year ended December 31, 1997, the total
amount of the monthly fees earned under the Company's service agreements
ranged from approximately 9% of the adjusted gross revenue of one PC to
approximately 25% of the adjusted gross revenue of another PC. The amount of
the additional variable fee ranged from 0% of the adjusted gross revenue of
one PC to approximately 4% of the adjusted gross revenue of another PC.
Pursuant to the terms of the service agreements, the Company bills patients
and third party payors on behalf of the affiliated PCs. Such funds are used to
pay all operating expenses, to pay fees to the Company for its management
services and are then used by the PCs to pay their provider expenses. Such
funds are applied in the following order of priority: reimbursement of
expenses incurred in connection with the operation and administration of the
dental facilities; repayment of advances, if any, made by the Company to the
PC; payment of the monthly fee; payment of provider expenses; and payment of
the additional variable fee. Additionally, the Company's net revenue includes
amounts from third party payors related to the arrangement of the provision of
care to patients.

Operating Expenses. Operating expenses (excluding general corporate
expenses, depreciation and amortization of intangibles) consist of the
expenses incurred by the Company in fulfilling its obligations under the
service agreements. These expenses are operating costs and expenses that would
have been incurred by the affiliated dental groups had they not affiliated
with the Company and include non-dentist salaries and benefits, lab fees and
dental supplies, office occupancy cost and other expenses related to
operations. Salaries and benefits expense are for personnel working for the
Company at the dental facilities, as well as the local operating management.
At the facility level, the Company generally employs the administrative staff
and, where permitted by law, the dental hygienists and dental assistants. The
local operating management team supervises and supports the staff at the
dental facilities. Office occupancy includes rent expense and certain other
operating costs such as utilities associated with dental facilities and the
local administrative offices. Such costs vary based on the size of each
facility and the market rental rate for dental office space in the particular
geographic market. Other expenses consist of professional fees, marketing
costs and other general and administrative expenses. See "Business--
Operations--Operating Structure."

General Corporate Expenses. General corporate expenses consist of
compensation expenses for the Company's corporate personnel and administrative
staff, as well as facility and other administrative costs of the Company's
corporate offices. The Company provides management, administrative, third
party contracting and other services to the affiliated groups.

21
<PAGE>

Depreciation. Depreciation expense includes depreciation charges related to
leasehold improvements and furniture, fixtures and equipment used to operate
the dental facilities.

Amortization of Intangibles. Amortization of intangibles relates to
intangible assets incurred in connection with the 1996, 1997 and 1998
Transactions.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Overview

The Company conducted no significant operations from January 1996 until
November 1996, when it completed its first affiliation. Accordingly, the
Company generated net revenue of only $3,933,000 for 1996. General corporate
expenses incurred during 1996 were $2,395,000 and contributed to a net loss of
$2,443,000. During 1997, net revenue generated from completed affiliations
exceeded operating expenses and general corporate expenses resulting in net
income of $1,070,000. As a result of the Company's recent rapid expansion, the
Company does not believe that a period-to-period comparison and the percentage
relationships of the year ended December 31, 1996 as compared with the year
ended December 31, 1997 are meaningful.

Results of Operations

Net Revenue. Net revenue amounted to $3,933,000 for 1996 as compared with
$53,270,000 for 1997. The 1997 period included revenue derived from service
agreements entered into in connection with the 1996 Transactions for the
entire year of 1997, plus revenue derived from service agreements entered into
in connection with the 1997 Transactions. Net revenue included expense
reimbursements ($3,175,000 for 1996 as compared with $36,386,000 for 1997),
management service fees ($720,000 for 1996 as compared with $12,056,000 for
1997) and revenue related to the arrangement of the provision of care to
patients ($38,000 for 1996 as compared with $4,828,000 for 1997). Expense
reimbursements included rent expense ($267,000 for 1996 as compared with
$3,476,000 for 1997) and other operating expenses ($2,908,000 for 1996 as
compared with $32,910,000 for 1997). Management service fees included the
monthly fee ($720,000 for 1996 as compared with $10,724,000 for 1997) and the
additional variable fee ($0 for 1996 as compared with $1,332,000 for 1997).
Net revenue derived from the Company's service agreement with Park Dental
represented approximately 56% of the Company's consolidated net revenue for
the year ended December 31, 1997. The termination of this service agreement
could have a material adverse effect on the Company. See "Risk Factors--
Dependence Upon Service Agreements."

Operating Expenses. Operating expenses for 1996 were $3,794,000 or
approximately 96% of net revenue as compared with $45,951,000 or approximately
86% of net revenue for 1997. The increase in the dollar amount resulted from
the full year impact of the 1996 Transactions plus the impact of the 1997
Transactions.

General Corporate Expenses. General corporate expenses were $2,395,000 or
approximately 61% of net revenue for 1996, as compared with $3,337,000 or
approximately 6% of net revenue for 1997. The increase resulted primarily from
the impact of additional corporate personnel hired in finance, information
systems and operations in late 1996 and early 1997 to build infrastructure in
anticipation of the Company's growth. The level of general corporate expenses
will likely continue to increase in the future as the Company continues to
expand its management infrastructure. However, it is anticipated that these
expenses will decline as a percentage of net revenue as the Company achieves
its growth objectives.

Depreciation. Depreciation expense was $177,000 or approximately 5% of net
revenue for 1996, as compared with $1,580,000 or approximately 3% of net
revenue for 1997. Depreciation expense for 1996 resulted from costs incurred
in connection with the purchase of furniture, fixtures and equipment for the
corporate office.

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Depreciation expense for 1997 included depreciation related primarily to the
assets acquired and capital expenditures incurred in connection with the
Company's completed affiliations. Depending on the amount and timing of future
capital expenditures, depreciation expense will likely increase.

Amortization of Intangible Assets. Amortization of intangibles was $48,000
or approximately 1% of net revenue for 1996, as compared with $645,000 or
approximately 1% of net revenue for 1997. Amortization resulted from
intangible assets recorded in connection with the Company's nine affiliations
and one acquisition completed during 1997. The Company expects that
amortization of intangibles will increase in the future as a result of
intangibles recorded in connection with future affiliations.

Interest Expense (Income), Net. Net interest income was $38,000 for 1996, as
compared with net interest expense of $563,000 for 1997. Interest income for
1996 resulted from earnings on proceeds received from the Company's private
sales of equity securities. Interest expense for 1997 resulted from borrowings
under the Company's credit facility, the issuance of subordinated notes and
the assumption of certain other debt in connection with completed
affiliations.

Income Taxes. The Company incurred no income tax expense for 1996, as
compared with $124,000 for 1997. The net loss incurred for 1996 resulted in
the Company creating a net operating loss carryforward for financial statement
purposes. For 1997, the Company utilized a portion of its net operating loss
carryforward which resulted in only $124,000 of income tax expense.

THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998

Overview

The Company's net earnings amounted to $281,000 or a diluted loss per share
available to common stockholders of $(0.01) for the three months ended
September 30, 1997, as compared with net earnings of $1,155,000 or diluted
earnings per share of $0.15 for the three months ended September 30, 1998. The
increase in net earnings resulted from incremental earnings provided from
completed acquisitions and affiliations and from internal growth.

Net Revenue. Net revenue increased from $13,318,000 for 1997 to $22,334,000
for 1998, an increase of approximately 68%. The increase in net revenue in
1998 is due primarily to the inclusion of revenue derived from service
agreements entered into in connection with the 1997 Transactions for the
entire period and from the 1998 Transactions. In addition, same market growth
from the Company's affiliates in Austin, Milwaukee, Minneapolis, New Orleans
and Pittsburgh resulted from the addition and expansion of the Company's
facilities, the addition of dentists to the Company's affiliated dental group
network and increases in certain affiliates' fees. Net revenue included
expense reimbursements ($9,220,000 for 1997 as compared with $14,954,000 for
1998), management service fees ($3,190,000 for 1997 as compared with
$5,156,000 for 1998) and revenue related to the arrangement of the provision
of care to patients ($908,000 for 1997 as compared with $2,224,000 for 1998).
Expense reimbursements included rent expense ($895,000 for 1997 as compared
with $1,511,000 for 1998) and other operating expenses ($8,325,000 for 1997 as
compared with $13,443,000 for 1998). Management service fees included a
monthly fee ($2,664,000 for 1997 as compared with $4,658,000 for 1998) and an
additional variable fee ($526,000 for 1997 as compared with $498,000 for
1998). Net revenue derived from the Company's service agreement with Park
Dental represented approximately 57% and 39% of the Company's consolidated net
revenue for 1997 and 1998, respectively.

Salaries and Benefits Expense. Salaries and benefits amounted to $7,097,000
or 53.3% of net revenue for 1997, as compared with $11,363,000 or 50.9% of net
revenue for 1998. The decrease in salaries and benefits as a percentage of net
revenue resulted primarily from more efficient utilization of staff in
existing facilities, the regionalization of finance, operations and
administrative staff in certain markets and the acquisition of facilities with
a generally lower ratio of staffing costs to net revenue in their respective
markets compared to the existing base of facilities. These savings were
partially offset by an increase in the amount of expense related to the
arrangement of the provision of care to patients, which is at a higher
percentage of net revenue.

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<PAGE>

Lab Fees and Dental Supplies Expense. Lab fees and dental supplies expense
increased from $1,652,000 or 12.4% of net revenue for 1997 to $2,950,000 or
13.2% of net revenue for 1998. Lab fees and dental supplies expense varies
from affiliate to affiliate and is affected by the volume and type of
procedures performed. The increase in lab fees and dental supplies as a
percentage of net revenue is attributable to a combination of the acquisition
of facilities with a generally higher ratio of lab fees and dental supplies
expense to net revenue in their respective markets compared to the existing
base of facilities, rate increases from certain lab providers and the
outsourcing of certain lab work which was previously handled in-house.

Office Occupancy Expense. Office occupancy expense amounted to $1,247,000
for 1997, as compared with $2,073,000 for 1998. As a percentage of net
revenue, these costs remained relatively consistent at 9.4% for 1997 and 9.3%
for 1998.

Other Operating Expenses. Other expenses amounted to $1,486,000 or 11.2% of
net revenue for 1997, as compared with $1,759,000 or 7.9% of net revenue for
1998. Other costs decreased as a percentage of net revenue due primarily to
the reduction of certain expenses associated with the administration of a
benefit plan that was renegotiated, the regionalization of administrative
functions in certain markets, a reduction of the Minnesota Care Tax rate from
2.0% to 1.5% and efficiencies from managing certain expenses, such as
professional fees and other costs associated with operating a stand alone
dental group practice, on a national level, as opposed to on a local level.

General Corporate Expenses. General corporate expenses were $836,000 or 6.3%
of net revenue for 1997, as compared with $971,000 or 4.3% of net revenue for
1998. The Company has built its management infrastructure in anticipation of
rapid growth. This included the hiring of key management and support staff in
the areas of finance, operations and information systems. In 1998, the Company
began to leverage these costs, resulting in a reduction of general corporate
expenses as a percentage of net revenue. This reduction was partially offset
by an increase in costs associated with being a public company. The level of
general corporate expenses will likely continue to increase in the future as
the Company continues to expand its management infrastructure. However, it is
anticipated that these expenses will continue to decline as a percentage of
net revenue.

Depreciation. Depreciation expense was $395,000 or 3.0% of net revenue for
1997, as compared with $641,000 or 2.9% of net revenue for 1998. Depreciation
expense included depreciation related primarily to the assets acquired and
capital expenditures associated with the addition of three new dental
facilities in Minneapolis in late 1997 and mid-1998 and the addition of new
operatories in Austin, Milwaukee and Minneapolis throughout 1998. Depending on
the amount and timing of future capital expenditures, depreciation expense
will likely increase.

Amortization of Intangibles. Amortization of intangibles was $135,000 or
1.0% of net revenue for 1997, as compared with $491,000 or 2.2% of net revenue
for 1998. The increase in amortization resulted from intangible assets
recorded in connection with the Company's six affiliations and one acquisition
completed during 1997 and nine affiliations completed during 1998. The Company
expects that amortization of intangibles will increase in the future as a
result of intangibles recorded in connection with future acquisitions and
affiliations.

Interest Expense, net. Net interest expense was $115,000 or 0.9% of net
revenue for 1997, as compared with $193,000 or 0.9% of net revenue for 1998.
The increase in interest expense resulted from an increase in average
borrowings under the Company's revolving credit facility in 1998 as compared
with 1997. In addition, the issuance of subordinated notes in connection with
the 1997 and 1998 Transactions contributed to higher interest expense in 1998.

Income Taxes. The Company incurred income tax expense of $74,000 for 1997,
as compared with $738,000 for 1998. In 1997, the Company utilized a portion of
its net operating loss carryforward which resulted in minimal income tax
expense. For 1998, the Company's effective tax rate was approximately 39%,
resulting in income tax expense of $738,000.

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<PAGE>

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998

Overview

The Company's net earnings amounted to $664,000 or a diluted loss per share
available to common stockholders of $(0.10) for the nine months ended
September 30, 1997, as compared with net earnings of $2,462,000 or diluted
earnings per share of $0.34 for the nine months ended September 30, 1998. The
increase in net earnings resulted from incremental earnings provided from
completed acquisitions and affiliations and from internal growth.

Net Revenue. Net revenue increased from $36,620,000 for 1997 to $60,722,000
for 1998, an increase of approximately 66%. The increase in net revenue in
1998 is due primarily to the inclusion of revenue derived from service
agreements entered into in connection with the 1997 Transactions for the
entire period and from the 1998 Transactions. In addition, same market growth
from the Company's affiliates in Austin, Milwaukee and Minneapolis resulted
from the addition and expansion of the Company's facilities, the addition of
dentists to the Company's affiliated dental group network and increases in
certain affiliates' fees. Net revenue included expense reimbursements
($25,407,000 for 1997 as compared with $40,599,000 for 1998), management
service fees ($8,398,000 for 1997 as compared with $13,811,000 for 1998) and
revenue related to the arrangement of the provision of care to patients
($2,815,000 for 1997 as compared with $6,312,000 for 1998). Expense
reimbursements included rent expense ($2,416,000 for 1997 as compared with
$4,047,000 for 1998) and other operating expenses ($22,991,000 for 1997 as
compared with $36,552,000 for 1998). Management service fees included a
monthly fee ($7,490,000 for 1997 as compared with $12,639,000 for 1998) and an
additional variable fee ($908,000 for 1997 as compared with $1,172,000 for
1998). Net revenue derived from the Company's service agreement with Park
Dental represented approximately 60% and 42% of the Company's consolidated net
revenue for 1997 and 1998, respectively.

Salaries and Benefits Expense. Salaries and benefits amounted to $19,625,000
or 53.6% of net revenue for 1997, as compared with $31,464,000 or 51.8% of net
revenue for 1998. The decrease in salaries and benefits as a percentage of net
revenue resulted primarily from more efficient utilization of staff in
existing facilities, the regionalization of finance, operations and
administrative staff in certain markets and the acquisition of facilities with
a generally lower ratio of staffing costs to net revenue in their respective
markets compared to the existing base of facilities. These cost savings were
partially offset by an increase in the amount of expense related to the
arrangement of the provision of care to patients, which is at a higher
percentage of net revenue.

Lab Fees and Dental Supplies Expense. Lab fees and dental supplies expense
increased from $4,491,000 or 12.3% of net revenue for 1997 to $7,787,000 or
12.8% of net revenue for 1998. Lab fees and dental supplies expense varies
from affiliate to affiliate and is affected by the volume and type of
procedures performed. The increase in lab fees and dental supplies as a
percentage of net revenue is attributable to a combination of the acquisition
of facilities with a generally higher ratio of lab fees and dental supplies
expense to net revenue in their respective markets compared to the existing
base of facilities, rate increases from certain lab providers and the
outsourcing of certain lab work which was previously handled in-house.

Office Occupancy Expense. Office occupancy expense amounted to $3,368,000
for 1997, as compared with $5,532,000 for 1998. As a percentage of net
revenue, these costs remained relatively consistent at 9.2% for 1997 and 9.1%
for 1998.

Other Operating Expenses. Other expenses amounted to $4,433,000 or 12.1% of
net revenue for 1997, as compared with $5,023,000 or 8.3% of net revenue for
1998. Other costs decreased as a percentage of net revenue due primarily to
the reduction of certain expenses associated with the administration of a
benefit plan that was renegotiated, the regionalization of administrative
functions in certain markets, a reduction of the Minnesota Care Tax rate from
2.0% to 1.5% and efficiencies from managing certain expenses, such as
professional fees and other costs associated with operating a stand alone
dental group practice, on a national level, as opposed to on a local level.

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<PAGE>

General Corporate Expenses. General corporate expenses were $2,260,000 or
6.2% of net revenue for 1997, as compared with $3,002,000 or 4.9% of net
revenue for 1998. The Company has built its management infrastructure in
anticipation of rapid growth. This included the hiring of key management and
support staff in the areas of finance, operations and information systems. In
1998, the Company began to leverage these costs, resulting in a reduction of
general corporate expenses as a percentage of net revenue. This reduction was
partially offset by an increase in costs associated with being a public
company. The level of general corporate expenses will likely continue to
increase in the future as the Company continues to expand its management
infrastructure. However, it is anticipated that these expenses will continue
to decline as a percentage of net revenue.

Depreciation. Depreciation expense was $1,154,000 or 3.2% of net revenue for
1997, as compared with $1,803,000 or 3.0% of net revenue for 1998.
Depreciation expense included depreciation related primarily to assets
acquired and capital expenditures associated with the addition of three new
dental facilities in Minneapolis in late 1997 and mid-1998 and the addition of
new operatories in Austin, Milwaukee and Minneapolis throughout 1998.
Depending on the amount and timing of future capital expenditures,
depreciation expense will likely increase.

Amortization of Intangibles. Amortization of intangibles was $349,000 or
1.0% of net revenue for 1997, as compared with $1,237,000 or 2.0% of net
revenue for 1998. The increase in amortization resulted from intangible assets
recorded in connection with the Company's six affiliations and one acquisition
completed during 1997 and nine affiliations completed during 1998. The Company
expects that amortization of intangibles will increase in the future as a
result of intangibles recorded in connection with future acquisitions and
affiliations.

Interest Expense, net. Net interest expense was $195,000 or 0.5% of net
revenue for 1997, as compared with $838,000 or 1.4% of net revenue for 1998.
The increase in interest expense resulted primarily from increased average
borrowings under the Company's credit facility in 1998 as compared with 1997.
In addition, the issuance of subordinated notes in connection with the 1997
and 1998 Transactions contributed to higher interest expense in 1998.

Income Taxes. The Company incurred income tax expense of $81,000 for 1997,
as compared with $1,574,000 for 1998. In 1997, the Company utilized a portion
of its net operating loss carryforward which resulted in minimal income tax
expense. For 1998, the Company's effective tax rate was approximately 39%,
resulting in income tax expense of $1,574,000.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operating and capital needs, including cash
used for acquisitions, capital expenditures and working capital, from its
sales of equity securities, borrowings under its revolving line of credit and
cash generated from operations. From November 1996 (the date of the Company's
first dental group practice affiliation) through September 30, 1998, the
Company completed 18 dental group practice affiliations for aggregate
consideration of $42,619,000 in cash, $6,778,000 in subordinated promissory
notes, $1,015,000 in deferred payments, 1,848,588 shares of Common Stock and
future contingent payments for one affiliation based on a multiple of service
fees received in excess of a predetermined threshold for each of the three
years ending May 31, 1999, 2000 and 2001.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1997

For the years ended December 31, 1996 and 1997, cash provided by (used for)
operating activities amounted to ($1,539,000) and $1,901,000, respectively.
Cash used for operating activities during 1996 resulted primarily from the
Company's start-up activities prior to the completion of its first
affiliation.

For the years ended December 31, 1996 and 1997, cash used in investing
activities amounted to $6,878,000 and $17,977,000, respectively. For 1996,
this included $6,632,000 in cash used for acquisitions, net of cash acquired,
and $386,000 in capital expenditures. Capital expenditures in 1996 included
costs associated with the opening of dental facilities in Austin and in
Milwaukee. For the year ended December 31, 1997, cash used for

26
<PAGE>

acquisitions amounted to $14,878,000, net of cash acquired, and capital
expenditures amounted to $3,212,000. Capital expenditures for the year ended
December 31, 1997 included costs associated with the opening of two new
facilities in Minneapolis and two new facilities in Milwaukee.

For the years ended December 31, 1996 and 1997, cash provided from financing
activities amounted to $14,253,000 and $14,915,000, respectively. Cash
provided by financing activities during 1996 resulted primarily from the
Company's private sales of Preferred and Common Stock, which included
$7,900,000 in proceeds from the issuance of Series A Convertible Preferred
Stock, $7,000,000 in proceeds from the issuance of Series B Redeemable
Preferred Stock and $100,000 in proceeds from the issuance of Common Stock.
Cash provided from financing activities for the year ended December 31, 1997
resulted primarily from borrowings under the Company's revolving credit
facility.

Nine Months Ended September 30, 1997 Compared to the Nine Months Ended
September 30, 1998

For the nine months ended September 30, 1997 and 1998, cash provided by
operating activities amounted to $1,911,000 and $7,375,000, respectively. The
increase in cash from operations resulted primarily from earnings generated
from acquisitions and affiliations, same market growth and expanded profit
margins.

For the nine months ended September 30, 1997 and 1998, cash used in
investing activities amounted to $6,567,000 and $22,661,000, respectively.
Cash used for investing activities included cash used for acquisitions and
affiliations and for capital expenditures. Cash used for acquisitions, net of
cash acquired, was $3,337,000 for 1997 and $18,138,000 for 1998. Cash used for
capital expenditures was $2,102,000 and $3,142,000 for 1997 and 1998,
respectively. Capital expenditures for 1997 included costs associated with the
addition of dental facilities in Austin and Milwaukee. Capital expenditures
for 1998 included costs associated with the addition of three new dental
facilities in Minneapolis and the addition of new operatories in Austin,
Milwaukee and Minneapolis. The establishment of new dental facilities and the
expansion of existing dental facilities in the future will require ongoing
capital expenditures.

For the nine months ended September 30, 1997 and 1998, cash provided by
financing activities amounted to $1,279,000 and $13,745,000, respectively.
Cash provided by financing activities during 1997 resulted from borrowings
under the Company's revolving line of credit of $2,300,000, net of the
repayment of certain indebtedness and the payment of debt issuance costs and
initial public offering costs. Cash provided by financing activities in 1998
resulted primarily from net proceeds received from the Company's initial
public offering. During the second quarter of 1998, the Company sold 2,587,500
shares of Common Stock in their initial public offering at $15.00 per share.
Net proceeds to the Company after deducting underwriting discounts and
commissions and offering costs were approximately $34,596,000. Such proceeds
were used to (i) redeem all the Series B Redeemable Preferred Stock, including
unpaid dividends, in the amount of $7,851,000 and (ii) repay outstanding
indebtedness under the Company's revolving credit facility, including accrued
interest, in the amount of $20,651,000 and (iii) complete additional
affiliation transactions.

In April 1997, the Company entered into a $30 million revolving line of
credit agreement with Fleet National Bank. The credit facility is being used
for general corporate purposes, including acquisitions and affiliations.
Borrowings under this line of credit bear interest at either prime- or LIBOR-
based rates, at the Company's option, plus a margin based upon the Company's
debt coverage ratio, which ranges up to 0.50% for prime-based loans and up to
2.125% for LIBOR-based loans. In addition, the Company pays a commitment fee
of 0.25% of the average daily balance of the unused line. Borrowings are
limited to an availability formula based on adjusted EBITDA. The Company is
also required to comply with certain financial and other covenants. The line
of credit matures in April 2000. The outstanding balance under this line as of
September 30, 1998 was $4,735,000.

As of November 1, 1998, 730,446 shares of Common Stock and $24,540,000
aggregate principal amount of subordinated promissory notes remain available
to be issued pursuant to this Offering.

27
<PAGE>

The Company believes that cash generated from operations and amounts
available under its revolving credit facility will be sufficient to fund its
anticipated cash needs for working capital, capital expenditures and
acquisitions and affiliations for at least the next 12 months.

YEAR 2000 ISSUE

The Year 2000 issue is the result of certain computer programs being written
using two digits rather than four digits to define the year. Accordingly,
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than 2000. This could result in system failures
or miscalculations causing disruptions in operations, including the temporary
inability to process transactions, send invoices or statements, or engage in
similar normal business activities. The Company utilizes software and related
computer technologies essential to its operations.

All significant operating systems, the general ledger system and network
communication software system utilized by the Company are either already Year
2000 compliant or will be Year 2000 compliant upon installation of available
patches or upgrades. The general ledger system has already been satisfactorily
tested for compliance.

The Company also uses various dental practice management software systems in
its affiliated dental group practices, some of which are already Year 2000
compliant. In particular, the Company's proprietary practice management
system, Comdent, is Year 2000 compliant. The Company intends, when
appropriate, to convert its current and future affiliated dental group
practices to Comdent. As part of its due diligence in connection with future
affiliations, the Company will perform a review of the dental practice
management software systems being used by those dental practices for Year 2000
compliance. In general, the other practice management systems are commercially
available systems that are either already Year 2000 compliant or scheduled for
Year 2000 compliance by the end of 1998 or early 1999. Preliminary compliance
testing has been done on Comdent and other significant practice management
systems and the Company intends to complete all such testing by the end of the
second quarter of 1999. Any systems deemed to be non-compliant at such time
will be converted to Year 2000 compliant systems by the end of 1999. The
Company believes that costs associated with Year 2000 compliance issues will
not be material to the Company's financial position or results of operations.

The Company is still in the process of identifying potential compliance
issues with non-information technology ("non-IT") systems such as phone
systems and certain other equipment. The Company does not believe the failure
of such systems would have a material adverse effect on the Company's
operations. Non-IT systems that are not compliant, if any, are expected to be
upgraded or replaced by June 30, 1999.

Year 2000 issues also relate to third parties with which the Company has a
significant relationship. The Company intends to identify all significant
third party business partners and initiate communications with such third
parties in late 1998 and early 1999. The purpose of these communications will
be to assess the extent to which their systems are vulnerable to Year 2000
issues, request compliance certification and develop appropriate contingency
plans. There can be no assurance, however, that the systems of these
significant third parties will be Year 2000 compliant on a timely basis.
Potential system failures due to Year 2000 issues related to such third
parties could have a material adverse effect on the Company's cash flows and
financial condition.

28
<PAGE>

BUSINESS

OVERVIEW

American Dental Partners, Inc. is a leading provider of dental practice
management services to multi-disciplinary dental group practices in selected
markets in the United States. The Company seeks to affiliate with leading
dental groups that provide a comprehensive range of dental care services, have
outstanding reputations for quality and have proven records of financial
performance. From November 1996 (the date of its first affiliation) through
November 1, 1998, the Company completed affiliations with 19 dental group
practices and currently operates 102 dental facilities with 826 operatories in
eight states. The Company's rapid growth has resulted primarily from these
affiliations, which consisted of three dental group practice affiliations
completed in 1996, six dental group practice affiliations completed in 1997
and ten dental group practice affiliations completed in 1998. For the year
ended December 31, 1997, the Company generated $53.3 million in net revenue
and $1.1 million in net earnings. For the nine months ended September 30,
1998, the Company generated $60.7 million in net revenue and $2.5 million in
net earnings.

The Company's affiliation model is designed to create a partnership in
management between the Company and the affiliated dental group practice that
allows each party to maximize its strengths and retain its autonomy. When
affiliating with a dental group practice, the Company acquires substantially
all of its assets and enters into a long-term service agreement to manage the
non-clinical aspects of the dental operations. The Company supports its
affiliated dental group practices with a broad range of services designed to
enhance practice revenue, improve operating efficiencies and expand operating
margins. The Company shares the best practices of its network with each
affiliate and provides assistance with information systems, budgeting,
financial reporting, facilities management, third-party payor contracting,
supplies and equipment procurement, quality assurance initiatives, billing and
collecting accounts receivable, marketing and recruiting, hiring and training
support staff.

The Company's objective is to be the leading dental practice management
company in the United States. The Company's strategy for achieving this
objective is to: (i) expand into carefully selected and diverse geographic
markets which have favorable demographics and projected economic growth; (ii)
affiliate with leading dental group practices which have reputations for
quality care and proven records of financial performance; (iii) increase
market penetration in each of its markets through additional affiliations,
recruitment of dentists and new facility development; (iv) add value to each
affiliated dental group practice by assisting the practice in improving
operating performance; and (v) pursue various initiatives to ensure the
highest quality of care and service.

DENTAL CARE INDUSTRY

The market for dental care is large, growing and highly fragmented. The
United States Health Care Financing Administration estimates that expenditures
for dental care were approximately $47.6 billion in 1996 and will reach
approximately $83.4 billion by 2005, representing a compound annual growth
rate of approximately 6.4%. The Company believes 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: (i) improved dental
benefits offered by employers; (ii) increased availability and use of dental
insurance, including preferred provider organization ("PPO") plans and
capitated managed care plans; (iii) increased demand for dental care from an
aging population; and (iv) increased demand for cosmetic and preventative
procedures. The Company believes that this growth will benefit not only
dentists, but companies that provide services to the dental care industry,
such as dental practice management companies. However, the failure of any of
the foregoing factors to materialize could offset increases in demand for
dental care, and any such increases may not correlate with growth in the
Company's business.

Unlike many other sectors of the health care services industry, the dental
care industry is in the early stages of consolidation. Although dental care is
typically offered by solo practitioners, the trend towards group practice is
growing. According to the American Dental Association ("ADA"), in 1995, 11.8%
of the approximately 153,300 dentists in the United States were practicing in
groups of three or more, up from 4.1% in 1991. The Company believes this
consolidation trend will continue.

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<PAGE>

Most dental care performed in the United States is categorized as general
dentistry. Based upon a 1990 survey by the ADA, general dentistry was
estimated to represent approximately 83% 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 17% 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 and capitated managed care 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. The Company
categorizes 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 PPO. 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.

The National Association of Dental Plans ("NADP") estimated that
approximately 147 million people, or approximately 55% of the population of
the United States, were covered by some form of dental care plan in 1997. This
compares with approximately 117 million people, or approximately 46% of the
population of the United States, in 1995 and approximately 96 million people,
or approximately 41% of the population of the United States, in 1990. Of the
147 million people with coverage, approximately 65% were covered by indemnity
insurance, approximately 18% were covered by capitated managed care plans and
approximately 17% were covered by PPO plans. The remaining approximately 120
million people, or approximately 45% of the population of the United States in
1997, did not have dental benefit coverage. The Company believes that the
number of people with dental benefits will continue to increase and that the
majority of this growth will be in PPO and capitated managed care plans. For
instance, according to the NADP, the number of people covered by capitated
managed care plans increased from 7.8 million in 1990 to 26.5 million in 1997,
representing a 19.1% compound annual growth rate. Also, according to the NADP,
the number of people covered by PPO plans increased from 11.7 million in 1994
to 24.5 million in 1997, representing a 27.9% compound annual growth rate.

The Company believes that the increased prevalence of dental benefits and
the shift of those benefits from traditional fee-for-service to non-fee-for-
service plans has increased the complexity of operating a dental practice and
has led dental practices to begin to affiliate or consolidate with entities,
such as the Company, that: (i) allow dentists to focus on the clinical aspects
of dentistry by providing management resources to conduct the business and
administrative aspects of dentistry; (ii) provide information and operating
systems that are required to effectively manage in an increasingly complex
reimbursement environment; (iii) assist with third-party payor contracting;
(iv) realize economies of scale in purchasing and provide access to capital;
and (v) provide dentists the opportunity to realize value for their practices.

BUSINESS STRATEGY

The Company's objective is to be the leading dental practice management
company in the United States. In order to achieve this objective, the
Company's business strategy is to:

Expand into carefully selected markets. The Company plans to expand its
network of affiliated dental group practices into carefully selected and
diverse geographic markets. The Company focuses on markets that: (i) offer
the opportunity to gain market share leadership; (ii) have a prevalence of
dental group practices; (iii) have favorable demographics and projected
economic growth; and (iv) have access to dental schools. To date, the
Company has identified approximately 125 markets that currently meet its
market selection criteria. The Company believes that operating in multiple
markets increases the attractiveness of the Company and its affiliated
dental group practices to third party payors who seek to contract with
dental providers that are strategically located in attractive markets and
that offer a comprehensive range of multi-disciplinary dental care
services.

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<PAGE>

Affiliate with leading dental group practices. In entering a new market,
the Company seeks to affiliate with a leading dental group practice in that
market as a platform for expansion. A "platform" dental group practice is
one which has a reputation for quality care, provides a comprehensive range
of dental services, has a significant market presence and has a proven
record of financial performance. The Company believes that by affiliating
with leading dental group practices it will become more attractive to other
practices, dentists and payors.

Increase market penetration. The Company seeks to be the market share
leader in each market in which it operates. After affiliating with a
leading dental group practice, the Company seeks to increase its market
share by assisting the affiliate in recruiting new general and specialty
dentists, expanding its patient base and opening new facilities.
Additionally, the Company may affiliate with other dental practices or with
specialty group practices that complement the platform dental group
practice.

Add value to each affiliated dental group practice. The Company supports
its affiliated dental group practices with a broad range of services
designed to enhance their practice revenue, improve operating efficiencies
and expand operating margins. The Company shares the best practices of its
network with each affiliate and assists each affiliate with an analysis of
its revenue and payor mix, capacity, utilization, staffing, scheduling and
productivity. The Company also provides its affiliates assistance with
information systems, budgeting, financial reporting, facilities management,
third-party payor contracting, supplies and equipment procurement, quality
assurance initiatives, billing and collecting accounts receivable,
marketing and recruiting, hiring and training support staff.

Focus on quality care. The Company pursues various initiatives to help
its affiliates provide the highest quality of care and service. The
Company's goal is to have each affiliated dental group practice become
accredited by the Accreditation Association of Ambulatory Health Care, Inc.
("AAAHC"). Through its National Professional Advisory Forum, the Company
provides its affiliated dental group practices with the opportunity to
share clinical knowledge and best clinical practices. The Company also
implements comprehensive patient satisfaction surveys administered by
independent third parties. The Company believes that its focus on quality
care enhances: (i) its affiliates' relationships with patients; (ii) its
affiliates' ability to recruit dentists; (iii) the Company's ability to
attract new dental groups as affiliates; and (iv) the Company's
attractiveness to third party payors.

AFFILIATION PHILOSOPHY

The Company believes 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 practice. Consequently,
dentists are affiliating with professional practice managers who can manage
the non-clinical aspects of dentistry and provide the business skills that can
improve practice operating performance.

The Company believes that, similar to other sectors of the health care
delivery system, the delivery of dental care is fundamentally a local
business. Therefore, the Company operates its business in a decentralized
manner and maintains the identity of the local affiliated practice. In each
affiliation, the Company strives to maintain the local culture of the
affiliated group and encourages it to retain the name of the practice,
continue its presence in community events, maintain its relationship with
patients and local third party payors and, to the extent possible, maintain
the existing management organization.

The Company's affiliation model is designed to create a partnership in
management between the Company and the affiliated dental group practice that
allows each party to maximize its strengths and retain its autonomy. Under the
Company's affiliation model, the affiliated dental group continues to own its
practice and has sole purview over the clinical aspects of the practice while
the Company manages the business aspects of the practice. The Company's method
of affiliation is consistent across practices and, even where permitted by
law, the Company does not employ dentists.

31
<PAGE>

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

The organizational structure of a dental group practice before and after its
affiliation with the Company is as follows:

THE COMPANY'S AFFILIATION MODEL

Before Affiliation After Affiliation
- -------------------- -------------------------------------

Joint Policy
Board

Dentist-owned Company-owned
Dental Professional Service Management
Group Corporation Agreement Service
(PC) 40 Year Organization
(MSO)

MARKET AND GROUP SELECTION

Market Selection

The Company has well-defined market selection criteria. The Company defines
potential markets with reference to one or more Metropolitan Statistical Areas
("MSAs"). An MSA is generally a geographic area consisting of a city of at
least 50,000 people, together with adjacent communities that have a high
degree of economic and social integration with the population center. In 1996,
there were 316 MSAs in the United States. The Company typically focuses on
markets with a population of at least 250,000 people that: (i) offer the
opportunity to gain market share leadership; (ii) have a prevalence of dental
group practices; (iii) have favorable demographics and projected economic
growth; and (iv) have access to dental schools. The Company has identified
approximately 125 MSAs that currently meet its market selection criteria.

Group Selection

The Company seeks to affiliate with leading dental group practices in each
selected market. The Company focuses on group practices because they have
greater potential to be market share leaders. Group practices are also more
likely to have implemented quality assurance and peer review policies and
procedures and are better positioned to operate in an increasingly complex
reimbursement environment. When entering a new market, the Company seeks to
affiliate with a platform dental group with a: (i) reputation for quality
care; (ii) comprehensive range of dental care services; (iii) significant
market presence; and (iv) proven record of financial performance. The Company
believes that, although a limited number of platform dental group practices
exist within any given market, there are a significant number of such groups
nationwide.

Affiliation Process

Once the Company has identified a potential affiliate within a market, the
Company's management seeks to determine whether the group practice and the
Company share a common philosophy about the dental industry

32
<PAGE>

and common strategic goals and objectives. To this end, the Company conducts a
series of meetings, site visits and presentations with the potential affiliate
about the industry, the Company and its affiliation model. The Company
believes that the existence of shared philosophical values is a critical
element of the affiliation's ultimate success.

If the Company and a potential affiliate determine that they share common
values, goals and objectives, the Company then undertakes a preliminary due
diligence review of clinical, operating and financial information. Based upon
this review, the Company formulates an offer outlining the basic terms and
conditions of the affiliation which, if accepted by the dental group practice,
is generally embodied in a letter of intent between the parties.

Upon signing a letter of intent, the Company and its representatives begin a
thorough review of the potential affiliate's clinical systems, processes,
facilities and compliance with licensing and credentialing requirements, as
well as performing legal and accounting due diligence. Acquisition, service
and other agreements are then prepared and the transaction is closed.
Generally, the process of identifying an acceptable affiliation candidate to
closing the transaction takes approximately six to nine months.

Potential Affiliations

The Company is constantly discussing potential affiliations with dental
group practices that meet the Company's group selection criteria, which may be
at various stages at any point in time. There can be no assurance that the
Company will consummate any future transactions.

33
<PAGE>

AFFILIATED NETWORK

From November 1996 (the date of its first affiliation) through November 1,
1998, the Company has affiliated with 19 dental practices in eight states. The
following table lists the affiliations completed by the Company as of November
1, 1998:

<TABLE>
<CAPTION>
DENTAL
MARKET FACILITIES OPERATORIES(1) MSA AFFILIATION DATE
------ ---------- -------------- --------------------- ----------------
<S> <C> <C> <C> <C>
ARIZONA
Associated Dental 6 51 Phoenix and Tucson January 1998
Care.................
LOUISIANA
Lakeside Dental Care.. 1 28 Metairie March 1997
Leroy S. Crapanzano, 1 5 Hammond April 1998
D.D.S................
MARYLAND
Mintz & Pincus Dental 2 35 Oxon Hill and Waldorf September 1998
Group................
MINNESOTA
Park Dental........... 29 216 Minneapolis/St. Paul November 1996
Orthocare Group....... 17 85 Minneapolis/St. Paul October 1997
PENNSYLVANIA
Soster Dental Group... 4 29 Pittsburgh May 1997
Indiana Dental Group.. 2 9 Indiana June 1998
Westmore Dental 1 13 Mt. Pleasant September 1998
Group................
TEXAS
Longhorn Dental....... 8 47 Austin and Killeen December 1996
Malcolm R. Scott, 1 6 San Marcos March 1997
D.D.S................
TSC Dental Centers.... 3 28 Houston June 1998
VIRGINIA
Reston Dental Group... 1 39 Fairfax County June 1998
WISCONSIN
Smileage Dental Care.. 13 126 Appleton, Green Bay, December 1996
Kenosha, Madison and
Milwaukee
Northpoint Dental 2 28 Milwaukee July 1997
Group................
Wilkens Dental Group.. 4 30 Milwaukee October 1997
Family Care Dental 5 40 Janesville, Kenosha April 1998
Centers.............. and Racine
John E. Carey, D.D.S.
and
James J. Peterman,
D.D.S................ 1 7 Madison April 1998
St. Croix Valley 1 4 Hudson November 1998
Orthodontics.........
--- ---
Total............... 102 826
=== ===
</TABLE>
- --------
(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.

MARKET PENETRATION

After affiliating with a platform dental group practice, the Company's
strategy is to increase its market penetration by increasing the market share
of its existing affiliated dental group and by affiliating with other leading
dental groups that complement or add to the dental care provided by its
existing affiliate.

Increase Existing Groups' Market Share

Upon completing an affiliation, the Company prepares a thorough operating
evaluation of the affiliate which builds upon its operational due diligence.
Based on this evaluation, the Company prepares a plan for increasing

34
<PAGE>

the affiliate's market penetration. This plan may include one or more of the
following methods: (i) opening new facilities that are conveniently located in
highly populated areas within the MSA or in contiguous MSAs; (ii) recruiting
additional general and specialty dentists that will complement or enhance the
dental care provided by each affiliated dental group; (iii) expanding physical
capacity by adding new operatories at existing facilities; (iv) increasing the
utilization of existing physical capacity by expanding hours of operation; and
(v) growing its affiliate's patient base through increased marketing efforts
and expanded relationships with third party payors.

Opening New Facilities. The Company has successfully demonstrated its
ability to open new facilities in several of the markets in which it operates.
Since its affiliation with Park Dental in Minneapolis/St. Paul, the Company
has opened four new facilities with a total of 21 operatories. Additionally,
since its affiliation with Longhorn Dental in Austin, the Company has opened
two new facilities with a total of nine operatories. In Wisconsin, the Company
has opened two new facilities with a total of 11 operatories in Appleton and
Madison, two MSAs contiguous to Milwaukee. Finally, the Company opened a new
four operatory facility in Phoenix.

Recruiting Dentists. In markets where the Company has available physical
capacity and where the opportunity exists to attract new patients, the Company
assists its affiliates in recruiting new general and/or specialty dentists.
The Company assists its affiliates in recruiting dentists through a variety of
methods including recommendations from existing affiliated dentists,
participating in dental school activities, attending state dental association
meetings and advertisements in dental publications. In 1997, the Company
assisted in the recruitment of 17 additional dentists for its affiliates.

Expanding Physical Capacity. In some cases, to facilitate an affiliate's
need for additional physical capacity, the Company adds new operatories to an
existing facility. In 1997, the Company added operatories to several of its
facilities located in Austin, Pittsburgh and Minneapolis/St. Paul. Since the
beginning of 1998, the Company has added operatories to existing facilities in
the Austin, Milwaukee and Minneapolis/St. Paul markets and expects that it
will continue to expand capacity at selected facilities.

Expanding Hours of Operations. The hours of operation at each of the
Company's facilities vary widely depending on patient needs and staffing
availability. In each of the Company's markets, the Company's facilities
operate on an expanded hours basis (i.e., before 8:00 a.m. and after 5:00
p.m.). Additionally, many of the Company's facilities are open on Saturdays.
In cases where the Company and its affiliated dental groups believe they can
enhance patient service and satisfaction by expanding the hours of operation,
a plan is developed to staff the facilities and implement an expanded hours
program.

Growing Patient Base. Although the Company believes that the greatest source
of new patients is referrals from existing patients, the Company proactively
assists each of its affiliates in growing their patient base through local
marketing efforts and by expanding relationships with third party payors. The
Company and its affiliates attend health fairs, sponsor community activities,
educate elementary school children on the merits of good oral health and
sponsor public awareness programs. In addition, the Company actively develops
new relationships with third party payors at the local, regional and national
level, which increases patient flow at its affiliated practices.

Affiliations in Existing Markets

The Company also increases its market penetration by affiliating with other
leading general dentistry group practices and specialty dental group practices
that complement the platform dental group practice in a given market. These
practices are selected in much the same manner as the platform dental group
practice. The Company identifies those practices which have an outstanding
reputation for quality and provide the type of dental care which will
complement or add to the dental care offered by the platform dental group in
that market.

The Company has demonstrated its ability to affiliate with other leading
dental groups in existing markets. For example, following its affiliation with
Park Dental in Minneapolis/St. Paul, the Company affiliated with the Orthocare
Group in October 1997. The Orthocare Group is a leading provider of
orthodontic care in

35
<PAGE>

Minneapolis/St. Paul, operating 17 facilities with 85 operatories. In
Wisconsin, the Company expanded its market penetration through four
affiliations with leading dental groups. In July 1997, the Company affiliated
with Northpoint Dental Group, adding two facilities with 28 operatories, and
in October 1997, the Company affiliated with the Wilkens Dental Group, adding
four facilities with 30 operatories in the Milwaukee market. In April 1998,
the Company continued to expand its market penetration in Wisconsin by
affiliating with Family Care Dental Centers and John E. Carey, D.D.S. and
James J. Peterman, D.D.S., adding six facilities with 47 operatories in
Janesville, Kenosha, Madison and Racine. In Texas, the Company affiliated with
Malcolm R. Scott, D.D.S. in March 1997 and the principal dentists joined
Longhorn Dental. This affiliation expanded the Company's physical capacity and
geographic reach by adding a facility with six operatories in San Marcos.
Furthermore, the Company's affiliation with Leroy S. Crapanzano, D.D.S. in
April 1998 added a facility with five operatories in the New Orleans market.
In Pennsylvania, the Company affiliated with Indiana Dental Group in July 1998
and Westmore Dental Group in September 1998 and the principal dentists of
these practices joined Soster Dental Group. These affiliations expanded the
Company's physical capacity and geographic reach by adding three facilities
and 22 operatories in the Indiana and Pittsburgh, Pennsylvania areas.

OPERATIONS

Operating Structure

The Company operates under a decentralized organizational structure. At the
facility level, the Company generally employs the dental hygienists, dental
assistants and administrative staff. At each facility, 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 invoicing and ordering office
and dental supplies. The Company believes local office scheduling is crucial
because it allows each practice to accommodate the needs of its patients and
increase the productivity of its dentists.

In each market, the Company has a local management team that supervises the
operations of one or more affiliates. This team provides support in areas such
as recruiting, hiring and training facility staff, developing and implementing
quality assurance programs, developing and implementing operating policies and
procedures, billing and collecting accounts receivable, processing payroll,
information systems, accounting, marketing and facilities development and
management.

Each local management team reports to one of the Company's 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 policy
board 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 operating plans and annual budgets and
monitoring actual results. Additionally, the Company supports each of its
dental group practices with analysis of the capacity, utilization and
productivity of each dental facility. This analysis assists each practice in
improving its operating performance from both a clinical and financial
perspective.

On a national level, the Company supports its affiliated network in several
ways. The Company assists its affiliates with: (i) sharing best clinical
practices through its National Professional Advisory Forum; (ii) evaluating
and negotiating third party contracts; (iii) designing, locating and leasing
new facilities; (iv) developing budgets and implementing accounting and
financial systems; and (v) developing and implementing practice management and
other information systems. The Company also takes advantage of economies of
scale by contracting for various goods and services. For example, the Company
has arranged for national contracts for the purchase of dental supplies and
equipment, professional, casualty, and general liability insurance and payroll
processing.

National Professional Advisory Forum

The Company has organized the National Professional Advisory Forum ("NPAF")
to provide guidance to its affiliated dental group practices with respect to
the clinical aspects of dentistry. Leading dentists from the

36
<PAGE>

Company's affiliated dental groups are selected to participate in the NPAF.
The NPAF meets quarterly and provides a forum for dentists to share the best
clinical practices of their respective dental groups and an opportunity for
them to build professional relationships with other dentists affiliated with
the Company. These dentists, as a result of their affiliation with the
Company, share common long-term goals. This enables the discussion at the NPAF
to be more open than it may be in other professional settings. While the
primary emphasis of the NPAF is on the clinical aspects of dentistry, it also
provides the Company's management an opportunity to communicate with
affiliated dentists. This enables the Company to continue to build strong,
mutually beneficial partner relationships with its affiliated dental groups.

Payor Relationships and Reimbursement Mix

The Company and its affiliates believe that clinical and economic decisions
should be made separately. However, the Company recognizes that the source of
payment for services affects operating and financial performance. The Company
assists its affiliates in analyzing their revenue and payor mix on an ongoing
basis and recommends methods by which the affiliated dental group practices
can improve operating efficiency by improving their revenue and payor mix. As
a general rule, the Company believes that growth in a market is best
facilitated where the payor mix of its affiliates mirrors the payor mix for
that market. The Company assists each of its affiliated dental groups in
evaluating and negotiating third-party payor contracts on a local, regional
and national level. The aggregate payor mix percentage of the Company's
affiliated practices was approximately 33% fee-for-service, 14% PPO plans and
53% capitated managed care plans for the year ended December 31, 1997.

The Company believes it is advantageous to be affiliated with dental groups
that have successfully provided care to patients under all reimbursement
methodologies. Since a shift is taking place in the dental benefits market
from traditional fee-for-service to PPO and capitated managed care dental
plans, the Company believes that its affiliates' experience in operating under
all of these plans provides them with a competitive advantage. All of the
Company's affiliated dental groups have provided care under traditional fee-
for-service plans and non-fee-for-service plans. Several of the Company's
affiliated dental groups have been providing care to patients with capitated
managed care dental benefits for more than 20 years.

Facilities Development and Management

The Company believes an inviting professional environment is a critical
aspect of overall patient satisfaction. Each of the Company's facilities is
constructed to be warm, attractive and inviting to the patients in addition to
being highly functional. The Company's dental facilities have from three to 39
operatories, and typically accommodate general and specialty dentists, dental
hygienists and dental assistants, a business manager and a receptionist.
Generally the Company's facilities are either stand alone or located within a
professional office building or medical facility and range in size from
approximately 1,500 to 10,000 square feet.

The Company works with each of its affiliated dental groups in analyzing
utilization of existing capacity and identifying facility upgrade and
expansion priorities. The Company also provides its affiliates guidance in the
site selection process. The Company initially constructs each facility as
appropriate for the market and adds and equips additional operatories as
necessary through a capacity and utilization analysis.

The Company uses architectural design services to improve the facility
design process and to further ensure that all facilities are properly
constructed and meet the standards set forth by the AAAHC. To this end, the
Company works with each affiliated dental group to establish a defined set of
standards for each facility, such as operatory design and dental equipment,
which are consistent with the desires of the dental group. The Company
believes such facility standards are necessary to speed the site development
process and create consistency across newly developed facilities, leading to
enhanced staff and provider productivity.

Budgeting and Planning; Financial Information Systems

The Company assists each affiliate with budgeting and planning. The Company
and each affiliate develop a strategic plan for increased market penetration
on an annual basis. The Company and each affiliated dental group

37
<PAGE>

then jointly develop a budget which sets specific goals for revenue growth,
operating expenses and capital expenditures. Once a budget has been approved,
the Company measures the financial performance of each affiliated dental group
on a monthly basis and compares actual performance to budget.

The Company's financial information system enables it to measure, monitor
and compare the financial performance of affiliated dental groups on a
standardized basis across its entire network. The system also allows the
Company to track and control costs and facilitates the accounting and
financial reporting process. This financial system is installed in all
affiliated dental group practices. Historically, the Company has converted all
affiliates to its system within 90 days of affiliation and intends to continue
this practice with new affiliates.

Practice Management Systems

The Company uses various dental practice management software systems to
facilitate patient scheduling, to invoice patients and insurance companies, to
assist with facility staffing and for other practice related activities. In
connection with its affiliation with Park Dental, the Company acquired the
rights to Comdent, a proprietary practice management software system which has
been used and continuously enhanced at Park Dental since 1987. The Company
believes 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 group practices. The Company intends, when appropriate, to convert its
affiliated dental group practices to the Comdent practice management software
system. The Company is also developing a data warehouse and decision support
system to analyze information across its entire network.

AFFILIATION STRUCTURE

Service Agreement

The Company has entered into a service agreement with each of its affiliated
PCs pursuant to which the Company performs all administrative, non-clinical
aspects of such PC's dental practice. The Company expects 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 its affiliation. The Company is
dependent on its service agreements for all of its operating revenue. The
termination of one or more of these service agreements could have a material
adverse effect on the Company. See "Risk Factors--Dependence Upon Service
Agreements."

The Company is responsible for providing all services necessary for the
administration of the non-clinical aspects of the dental operations. These
services include assisting its affiliates with information systems, budgeting
and financial reporting, facilities management, third-party contracting,
supplies and equipment procurement, quality assurance initiatives, billing and
collecting accounts receivable, marketing and recruiting, hiring and training
support staff.

The PC is responsible for recruiting and hiring all of the dentists
necessary to provide dental care. The Company does not assume any authority,
responsibility, supervision or control over the provision of dental care to
patients. The service agreement requires the PC to enter into employment or
independent contractor agreements with each dentist retained by the PC. The
service agreement also requires the PC to implement and maintain quality
assurance and peer review programs, maintain professional and comprehensive
general liability insurance covering the PC and each of its dentists and abide
by non-competition and confidentiality provisions.

The Company and each PC establish a joint policy board which is responsible
for developing and implementing management and administrative policies for the
dental operation. The policy board consists of an equal number of
representatives designated by the Company and the PC. The policy board members
designated by the PC must be licensed dentists employed by the PC. The policy
board's responsibilities include the review and approval of all renovation and
expansion plans and capital equipment expenditures with respect to the dental
facilities affiliated with the PC, all annual capital and operating budgets,
all advertising and marketing services, the long-term strategic and short-term
operational goals, objectives, and plans for the dental facilities and
staffing

38
<PAGE>

plans regarding provider and support personnel for the dental facilities. The
policy board also reviews and monitors the financial performance of the PC
with respect to the attainment of the PC's budgeted goals. The policy board
also has the authority to approve or disapprove any merger or combination
with, or acquisition of, any dental practice by the PC. Finally, the policy
board reviews and makes recommendations with respect to contractual
relationships between the PC and third-party payors. However, the PCs have
final approval over matters relating to dental care including all third-party
payor contracts and fee practices and schedules.

The PC reimburses the Company for actual expenses incurred on its behalf in
connection with the operation and administration of the dental facilities and
pays fees to the Company for management services. The Company's service fees
typically consist of a fixed monthly fee and an additional variable fee. The
fixed monthly fee is determined prior to each affiliation and annually
thereafter by agreement of the Company and the affiliated dental group in a
formal budgeting process. To the extent that there is operating income after
payment of the fixed monthly fee, reimbursement of expenses incurred in
connection with the operation and administration of the dental facilities and
payment of provider expenses, an additional variable fee is paid to the
Company in the amount of such excess up to budgeted operating income and 50%
of such excess over budgeted operating income. Under certain service
agreements, the Company's service fees consist 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 its dental facilities. In those situations, no additional
variable fee is applicable. For the year ended December 31, 1997, the total
amount of service fees earned under the Company's service agreements ranged
from approximately 9% of the adjusted gross revenue of one PC to approximately
25% of the adjusted gross revenue of another PC. The amount of the additional
variable fee ranged from 0% of the adjusted gross revenue of one PC to
approximately 4% of the adjusted gross revenue of another PC. 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, the Company bills patients and third party payors on
behalf of the affiliated PCs. Such funds are applied in the following order of
priority: reimbursement of expenses incurred in connection with the operation
and administration of the dental facilities; repayment of advances, if any,
made by the Company to the PC; payment of the monthly fee; payment of provider
expenses; and payment of the additional variable fee.

Each of the Company's 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 its dissolution, bankruptcy, liquidation, or its failure
to perform its material duties and obligations under the service agreement. In
the event a management service agreement is terminated, the related affiliated
dental practice is required to purchase, at the Company's option, the
unamortized balance of intangible assets at the current book value, as well as
all related other assets associated with the affiliated dental practice.

Employment Agreements with Dentists

All dentists practicing full-time at the dental facilities have entered into
employment agreements with their respective PCs. The employment agreements
with dentists who are owners of the PCs generally are for a specified initial
term of up to five years. The employment agreements with other dentists may be
for terms up to 18 months. Such employment agreements are usually terminable
by either party upon advance written notice, which may be 90 days in some
cases, and are terminable by the PC for cause immediately upon written notice
to the dentist. Such agreements typically contain non-competition provisions
which prohibit the 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.

COMPETITION

The dental practice management industry, currently in its formative stage,
is highly competitive and is expected to become more competitive. The Company
competes with other dental practice management

39
<PAGE>

companies with respect to providing management services to dentists, as well
as those seeking to affiliate with existing dental practices through service
agreement arrangements. The Company believes that the principal factors of
competition between dental practice management companies are their affiliation
methods and models, the reputation of their existing affiliates, the scope of
their dental care networks, their management expertise and experience, the
sophistication of their management information, accounting, finance and other
systems and their operating methods. The Company believes that it competes
effectively with other dental practice management companies with respect to
these factors. See "Risk Factors--Highly Competitive Market."

GOVERNMENT REGULATION

General

The practice of dentistry is highly regulated, and the operations of the
Company and its affiliated dental practices are subject to numerous state and
federal laws and regulations. Furthermore, the Company may become subject to
additional laws and regulations as it expands into new markets. There can be
no assurance that the regulatory environment in which the Company and its
affiliated dental group practices operate will not change significantly in the
future. The ability of the Company to operate profitably will depend, in part,
upon the Company and its affiliated dental group practices obtaining and
maintaining all necessary licenses, certifications and other approvals and
operating in compliance with applicable laws. See "Risk Factors--Government
Regulation."

State Regulation

Every state imposes licensing and other requirements on individual dentists
and dental facilities and services. Except for Wisconsin, the laws of the
states in which the Company currently operates 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 the Company, from practicing
dentistry, from employing dentists and, in certain circumstances, dental
assistants and dental hygienists, or from exercising control over the
provision of dental services. 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 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 the Company's role in
negotiating and administering managed care contracts. To the extent that the
Company or any affiliated dental group practice contracts with third party
payors, including self-insured plans, under a capitated or other arrangement
which causes the Company or such affiliated dental group practice to assume a
portion of the financial risk of providing dental care, the Company or such
affiliated dental group practice may become subject to state insurance laws.
If the Company or any affiliated dental group practice is determined to be
engaged in the business of insurance, the Company may be required to change
the method of payment from third party payors or to seek appropriate
licensure. Any regulation of the Company or its affiliated dental group
practices under insurance laws could have a material adverse effect on the
Company's business, financial condition and results of operations.

Many states have fraud and abuse laws, including anti-kickback laws, which
are similar to the federal laws, discussed below, and in many cases these laws
apply to all referrals for items or services reimbursable by any payor. A
number of states also impose significant criminal and civil penalties for
false claims, false or improper billings, or inappropriate coding for dental
services. Many states either prohibit or require disclosure of self-referral
arrangements and impose criminal and civil penalties for violations of these
laws.

Many states also prohibit a dentist from paying a portion of fees received
for dental services to another person or entity. In some states, this "fee-
splitting" prohibition applies only to payments in exchange for

40
<PAGE>

referrals. Other states flatly prohibit any rebates or split fees regardless
of whether referrals are involved. There can be no assurance that management
fees paid to the Company, to the extent based on a percentage of dental
service revenues or profits, will not be deemed to violate such laws.

Many states have antitrust laws which prohibit agreements in restraint of
trade, the exercise of monopoly power and other practices that are considered
to be anti-competitive, including cooperation by separate economic entities to
fix the prices of services. Dental practices are also subject to compliance
with state and local regulatory standards in the areas of safety and health.

Federal Regulation

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

The federal anti-kickback statutes prohibit, in part, and subject to certain
safe harbors, the payment or receipt of remuneration in return for, or in
order to induce, referrals, or arranging for referrals, for items or services
which are reimbursable under federal payment programs. Other federal laws
impose significant penalties for false or improper billings or inappropriate
coding for dental services regardless of the payor source. The federal self-
referral law, or "Stark law," prohibits dentists from making referrals for
certain designated health services reimbursable under federal payment programs
to entities with which they have financial relationships unless a specific
exception applies. The Stark law also prohibits the entity receiving such
referrals from submitting a claim for services provided pursuant to such
referral. The Company may be subject to federal payor rules prohibiting the
assignment of the right to receive payment for services rendered unless
certain conditions are met. These rules prohibit a billing agent from
receiving a fee based on a percentage of collections and may require payments
for the services of the dentists to be made directly to the dentist providing
the services or to a lock-box account held in the name of the dentist or his
or her dental group. In addition, these rules provide that accounts
receivables from federal payors are not saleable or assignable.

Federal antitrust laws prohibit agreements in restraint of trade, the
exercise of monopoly power and other practices that are considered to be anti-
competitive, including cooperation by separate economic entities to fix the
prices of services. Finally, dental practices are also subject to compliance
with federal regulatory standards in the areas of safety and health.

INSURANCE

The Company maintains property-casualty insurance covering its corporate
offices and dental facilities on a replacement cost basis. Each affiliated PC
maintains, or causes to be maintained, professional liability insurance
covering itself and its employees and contractors, including the dentists,
hygienists and dental assistants employed by, or contracted by such affiliated
PC in the amount of $1 million per occurrence and $3 million annual aggregate.
The Company generally is a named insured under such policies. The Company also
maintains umbrella liability coverage for its property-casualty policies in
the amount of $10 million. Certain types of risks and liabilities may not be
covered by insurance, however, and there can be no assurance that coverage
will continue to be available upon terms satisfactory to the Company or that
the coverage will be adequate to cover losses. Malpractice insurance,
moreover, can be expensive and varies from state to state. Successful
malpractice claims asserted against the dentists, the PCs or the Company may
have a material adverse effect on the Company's business, financial condition
and operating results. While the Company believes its insurance policies are
adequate in amount and coverage for its current operations, there can be no
assurance that the coverage maintained by the Company will be sufficient to
cover all future claims or will continue to be available in adequate amounts
or at a reasonable cost.

41
<PAGE>

LEGAL PROCEEDINGS

From time to time, the Company may be subject to litigation incidental to
its business. The Company is not presently a party to any material litigation.
The dentists employed by, or independent contractors of, the Company's
affiliated PCs are from time to time subject to malpractice claims. Such
claims, if successful, could result in damage awards exceeding applicable
insurance coverage.

FACILITIES AND EMPLOYEES

The Company's corporate office is located at 301 Edgewater Place, Suite 320,
Wakefield, Massachusetts, in approximately 5,300 square feet occupied under a
lease which expires in June 1999. The Company leases most of its dental
facilities. Typically, each acquired dental facility is located at the site
used by the dental group practice prior to affiliating with the Company.

As of November 1, 1998, the Company employed, either directly or through
independent contract arrangements, 1,029 people. This amount included 544
hygienists and dental assistants and 485 administrative and management
personnel located at the Company's 102 dental facilities and local management
offices. In addition, the Company was affiliated with 241 dentists, as well as
66 hygienists and dental assistants located in states which prohibit the
Company's employment of hygienists and/or dental assistants, all of whom were
employees or independent contractors of their respective affiliated PCs. The
Company considers its relations with its employees to be good.

42
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information concerning each of the directors
and executive officers of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gregory A. Serrao.................. 35 Chairman, President and Chief Executive
Officer
Ronald M. Levenson................. 42 Senior Vice President, Chief Financial
Officer and Treasurer
William H. Bottlinger.............. 54 Vice President--Regional Operations and
Chief Information Officer
Forrest M. Flint................... 46 Vice President--Business Development
Michael F. Frisch.................. 40 Vice President--Regional Operations
Dr. Joseph V. Errante.............. 43 Vice President--Regional Operations
Lee S. Feldman..................... 31 Vice President--General Counsel
Kathryn A. Russell................. 46 Vice President--Financial Operations
Dr. Gregory T. Swenson............. 64 President of PDHC, Ltd. and Director
James T. Kelly (1)................. 52 Director
Martin J. Mannion (1)(2)........... 39 Director
Derril W. Reeves (1)(2)............ 54 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.

Mr. Serrao, the founder of the Company, has served as President, Chief
Executive Officer and a Director of the Company since December 1995 and as
Chairman since October 1997. From 1992 through December 1995, Mr. Serrao
served as the President of National Specialty Services, Inc., a subsidiary of
Cardinal Health, Inc. ("Cardinal Health"). From 1991 to 1992, Mr. Serrao
served as Vice President--Corporate Development of Cardinal Health. Before
joining Cardinal Health, Mr. Serrao was an investment banker at Dean Witter
Reynolds Inc. where he co-founded its health care investment banking group and
specialized in mergers, acquisitions and public equity offerings.

Mr. Levenson has served as Senior Vice President, Chief Financial Officer
and Treasurer of the Company since April 1996. Prior to joining the Company,
Mr. Levenson was employed by American Medical Response, Inc. ("AMR"), a
national provider of ambulance services, where he served as Senior Vice
President and Chief Accounting Officer from October 1992 through April 1996
and also served as Treasurer from August 1995 through April 1996. Prior to
joining AMR, Mr. Levenson was a Senior Manager at KPMG Peat Marwick LLP, a
public accounting firm, where he was employed from 1979 through 1992.

Mr. Bottlinger has served as Vice President and Chief Information Officer of
the Company since January 1997 and as Vice President--Regional Operations
since November 1997. From 1985 through 1996, Mr. Bottlinger served as Senior
Vice President and Chief Information Officer for Cardinal Health and Senior
Vice President and General Manager of CORD Logistics, Inc., a Cardinal Health
subsidiary which provided pharmaceutical distribution and information
technology services for emerging biotechnical manufacturing companies. During
his career, Mr. Bottlinger has initiated the use of state of the art
information system technology in a variety of businesses engaged in retailing,
food wholesaling, pharmaceutical manufacturing and distribution, pharmacy
operations and financial services.

Mr. Flint has served as Vice President--Business Development of the Company
since November 1996. From 1985 through November 1996, Mr. Flint served as the
Executive Director of PDHC, Ltd ("Park"), prior to its affiliation with the
Company. At Park, Mr. Flint was responsible for managing all external
relationships and contracting with third party payors. From 1984 to 1985, Mr.
Flint was an investment banker in the health

43
<PAGE>

care finance group of Dain Bosworth, Inc. From 1977 to 1984, Mr. Flint was the
Director of the South Dakota Division of Health Services. Mr. Flint is a past
Board Member of the Accreditation Association for Ambulatory Health Care, Inc.

Mr. Frisch has served as Vice President--Regional Operations of the Company
since June 1997. From January 1997 to June 1997, Mr. Frisch served as the
Company's Director--National Support Initiatives. From July 1996 to January
1997, Mr. Frisch was an independent consultant to the Company. From June 1993
to July 1996, Mr. Frisch served as Vice President and General Manager of
National Specialty Services, Inc., a subsidiary of Cardinal Health. From July
1986 to June 1993, Mr. Frisch was employed by VHA, Inc., a national health
care alliance, in a variety of marketing, business development and management
positions.

Dr. Errante has served as Vice President--Regional Operations of the Company
since November 1998 and as Chief Executive Officer of Innovative Practice
Concepts, Inc. (which was acquired by the Company in January 1998) since
January 1996. From January 1996 to January 1998, Dr. Errante also served as
Chairman of Associated Dental Care Providers, P.C. (an affiliated dental group
practice of the Company since January 1998), which he co-founded in 1985. From
1992 to 1996, Dr. Errante served as Chief Executive Officer and Chairman of
Associated Companies, Inc., the management company that operated Associated
Health Plans, Inc. ("AHP"), a managed care dental plan in Arizona. From 1985
to 1992, Dr. Errante served as the Dental Director for AHP. Dr. Errante
currently serves as President-elect of the American Academy of Dental Group
Practices ("AADGP") and sits on the Managed Care Dental Advisory Board to
Proctor and Gamble.

Mr. Feldman has served as Vice President--General Counsel of the Company
since November 1998. Prior to joining the Company, Mr. Feldman was employed by
Professional Dental Associates, Inc., a dental practice management company,
where he served as Vice President--General Counsel and Secretary from June
1997 to November 1998. From 1993 to 1997, Mr. Feldman was an associate with
Ropes and Gray, a law firm located in Boston, Massachusetts.

Ms. Russell has served as Vice President--Financial Operations of the
Company since January 1998. From December 1996 to January 1998, Ms. Russell
served as Vice President--Finance. Prior to joining the Company, Ms. Russell
was employed by Heartland Foods Systems, Inc., a multi-concept food retailer
with 230 locations, where she served as Vice President and Assistant Secretary
from 1993 through 1995. From 1991 to 1992, Ms. Russell was Manager of Sales
Audit for The Limited, Inc., a publicly-held retailer. From 1983 to 1991, Ms.
Russell held management positions with several publicly held financial
services companies. Prior to 1983, Ms. Russell was a Senior Manager at
Deloitte & Touche, a public accounting firm, where she was employed from 1974
through 1983.

Dr. Swenson has served as President of PDHC, Ltd., President of Park Dental
and a Director of the Company since November 1996. From 1983, when he co-
founded Park, to November 1996, Dr. Swenson served as Chairman and Chief
Executive Officer of Park. Dr. Swenson was a member of the AADGP from 1980
until 1995, serving on many occasions as a practice auditor in the AADGP's
accreditation program. In 1978, Park's predecessor was the second group
practice to receive AADGP's accreditation certificate. In 1973, a national
referee committee selected Dr. Swenson to the American Association of
Endodontics, a society with which he maintained a membership until 1989. In
1972, after practicing solo dentistry for ten years, he formed a partnership
with colleagues and helped build Park's predecessor group practice. Dr.
Swenson is a member of the Minnesota State Dental Association, the American
Dental Association, and Federation Dentaire Internationale. From 1980 to 1996,
Dr. Swenson served on the Board of Directors of Marquette Bank Brookdale.

Mr. Kelly has served as a Director of the Company since February 1997. Mr.
Kelly has served as Chairman of the Board of Lincare Holdings Inc., a provider
of home respiratory therapy services, since April 1994. Mr. Kelly served as
the Chief Executive Officer of Lincare from June 1986 through December 1996.
Prior to 1986, Mr. Kelly served in a number of capacities within the Mining
and Metals Division of Union Carbide Corporation over a 19-year period.

44
<PAGE>

Mr. Mannion has served as a Director of the Company since January 1996 and
served as Chairman from January 1996 to October 1997. Mr. Mannion is a general
partner with Summit Partners, a private equity capital firm, where he has been
employed since 1985. Through his work with Summit Partners, Mr. Mannion
currently serves as a director of Suburban Ostomy Supply Company and numerous
private companies.

Mr. Reeves has served as a Director of the Company since February 1997. Mr.
Reeves is a founder, Vice Chairman of the Board and Chief Development Officer
of PhyCor, Inc. From 1974 to 1976, Mr. Reeves was with Hospital Affiliates
International ("HAI") where he served as Vice President of Hospital Management
Corporation, the hospital management subsidiary of HAI. In 1977, he joined
Hospital Corporation of America ("HCA") to head the growth function for HCA's
management company. Mr. Reeves was a Vice President of HCA and also Vice
President of Development for HCA Management Company until 1985. In 1985, he
moved to HCA Health Plans as Vice President of Sales and Marketing and was
instrumental in the creation of Equicor where he was Senior Vice President,
National Sales.

BOARD OF DIRECTORS

The Company's Board of Directors is divided into three classes, with each
class elected to serve a staggered three-year term. The Class I director,
whose term will expire at the 2001 annual meeting of stockholders, is
Dr. Swenson. The Class II directors, whose terms will expire at the 1999
annual meeting of stockholders, are Messrs. Mannion and Kelly. The Class III
directors, whose terms will expire at the 2000 annual meeting of stockholders,
are Messrs. Serrao and Reeves. The classified Board of Directors may increase
the difficulty of consummating or discourage a business combination or an
attempt to gain control of the Company that is not approved by the Board of
Directors. The Company's executive officers are elected annually by and serve
at the discretion of the Board of Directors. See "--Employment Agreements."

COMPENSATION OF DIRECTORS

Directors who are also employees of the Company or one of its subsidiaries
do not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries receives a
fee of $1,000 for attending each Board of Directors' meeting and $500 for
attending each committee meeting. In addition, each non-employee director who
is not an officer of the Company is eligible to receive options under the
Company's 1996 Amended and Restated Directors Stock Plan. These options are
issued at such times and in such amounts as may be determined by the Directors
Stock Option Plan Committee, at their discretion. See "Stock Plans--1996
Directors Stock Option Plan." Directors are also reimbursed for out-of-pocket
expenses incurred in attending meetings of the Board of Directors or
committees thereof.

45
<PAGE>

COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth information with respect to compensation paid
to or accrued on behalf of (i) the Chief Executive Officer and (ii) the other
most highly compensated executive officers of the Company whose aggregate base
salary and bonus exceeded $100,000 (the "Named Executive Officers") in 1997
and 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM AWARDS
-------------------------------------- ------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
YEAR SALARY ($) BONUS ($) COMPENSATION(1) STOCK OPTIONS (#) COMPENSATION(2)
---- ---------- --------- --------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gregory A. Serrao....... 1997 $153,000 $123,600 $ -- $ -- 189,600 $1,946
Chairman, President and 1996 $144,000(3) $ 90,000 $136,543(4) $99,500(5) 270,270 $ 519
Chief Executive Officer
Ronald M. Levenson...... 1997 $153,000 $ 82,400 $ -- $ -- 126,000 $1,946
Senior Vice President, 1996 $101,000(3) $ 41,600 $ 23,000(6) $ -- 81,000 $ --
Chief Financial Officer
and Treasurer
George W. Robinson...... 1997 $123,000 $ 55,000 $ -- $ -- 6,480 $1,989
Senior Vice President-- 1996 $ 70,000(3) $ 43,750 $ 41,000(6) $ -- 60,000 $ 433
Operations
William H. Bottlinger... 1997 $143,000(7) $ 58,800 $ 57,900(6) $ -- 15,000 $ --
Vice President--
Regional Operations and
Chief Information
Officer
Forrest M. Flint........ 1997 $125,000 $ 30,000 $ -- $ -- 7,200 $2,340
Vice President-- 1996 $ 14,000(3) $ 15,000 $ -- $ -- 36,000 $ 288
Business Development
</TABLE>
- --------
(1) Except as specifically noted, no Other Annual Compensation for any Named
Executive Officer exceeded $50,000 or 10% of the total salary and bonus
for such officer.
(2) Represents matching contributions under the Company's 401(k) plan.
(3) Represents less than one full year's compensation.
(4) Consists of a tax offset bonus in the amount of $84,461 paid with respect
to the restricted Common Stock issued to Mr. Serrao in January 1996, and
moving and relocation expenses in the amount of $52,082.
(5) Represents the dollar value (net of consideration paid) of 300,000 shares
of restricted Common Stock issued to Mr. Serrao in January 1996, based
upon the fair market value of such shares on the date of issuance. Such
shares are subject to repurchase rights in favor of the Company upon the
occurrence of certain events, including the termination of Mr. Serrao's
employment. Such repurchase rights lapse ratably during the first four
years of Mr. Serrao's employment and upon the occurrence of certain other
events. As of December 31, 1997, 156,204 shares of restricted Common Stock
with a fair market value on such date of $2,213,411 were held by Mr.
Serrao. Dividends, if declared and paid upon the Common Stock, will be
paid on such restricted stock.
(6) Consists of moving and relocation expenses.
(7) Mr. Bottlinger's employment with the Company began in 1997.

46
<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information about options to purchase
Common Stock which were granted during the year ended December 31, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZEABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
-------------------------------------------------- ---------------------
NUMBER OF
SECURITIES EXERCISE
UNDERLYING OPTIONS % OF TOTAL PRICE EXPIRATION
GRANTED (#) OPTIONS ($/SHARE) DATE 5% ($) 10% ($)
------------------ ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gregory A. Serrao....... 9,600(1) 2% $12.50 1/01/07 $ 75,467 $ 191,249
169,590(1) 31% $14.17 8/01/07 $1,511,291 $3,829,907
10,410(2) 2% $14.17 1/30/07 $ 87,047 $ 217,701
Ronald M. Levenson...... 6,000(1) 1% $12.50 1/01/07 $ 47,167 $ 119,531
109,590(1) 20% $14.17 8/01/07 $ 976,604 $2,474,907
10,410(2) 2% $14.17 1/30/07 $ 87,047 $ 217,701
George W. Robinson...... 3,480(1) 1% $12.50 1/01/07 $ 27,357 $ 69,328
3,000(1) 1% $14.17 8/01/07 $ 26,734 $ 67,750
William H. Bottlinger... 5,850(1) 1% $12.50 1/17/07 $ 45,988 $ 116,542
7,200(1) 1% $14.17 8/01/07 $ 64,162 $ 162,600
1,950(2) -- $12.50 7/18/06 $ 14,384 $ 35,973
Forrest M. Flint........ 7,200(1) 1% $14.17 8/01/07 $ 64,162 $ 162,600
</TABLE>

- --------
(1) Options issued under the 1996 Stock Option Plan. The exercise price of the
options is no less than the fair market value of the Company's Common
Stock on the date of grant. Options become exercisable in equal annual
installments over a four-year period.
(2) Options issued under the 1996 Time Accelerated Restricted Stock Option
Plan. The exercise price of the options is no less than the fair market
value of the Company's Common Stock on the date of grant. These options
became exercisable as of the completion of the IPO.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table presents information about the value of options
outstanding for each of the Named Executive Officers as of December 31, 1997.
No options were exercised during the year.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1997(#) AT DECEMBER 31, 1997 ($)
----------------------------------- ----------------------------
EXERCISABLE(1) UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE
---------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Gregory A. Serrao....... 280,680 179,190 $3,740,537 $ 16,032
Ronald M. Levenson...... 46,410 160,590 $ 498,240 $632,820
George W. Robinson...... 27,150 39,330 $ 158,556 $197,656
William H. Bottlinger... 1,950 13,050 $ 3,257 $ 9,770
Forrest M. Flint........ 20,160 23,040 $ 117,734 $ 92,506
</TABLE>
- --------
(1) Although not all exercisable at December 31, 1997, all options became
exercisable as of the completion of the IPO.

EMPLOYMENT AGREEMENTS

The Company has a five-year employment agreement with Mr. Serrao which
terminates in January 2001. Under his employment agreement, Mr. Serrao
receives an annual base salary of $150,000 (subject to potential annual salary
increases) and a bonus in an amount up to 60% of his then current base salary.
Mr. Serrao is also subject to non-competition and confidentiality provisions
in the employment agreement. If Mr. Serrao's employment is terminated prior to
the end of the five-year term by the Company without cause or by Mr. Serrao

47
<PAGE>

for "good reason" (as defined in the employment agreement) he is entitled to
receive severance benefits which include severance payments in an amount equal
to his then current annual base salary and health care benefits for one year
after termination.

The Company has a three-year employment agreement with Mr. Levenson which
terminates in April 1999. Under his employment agreement, Mr. Levenson
receives an annual base salary of $150,000 (subject to potential annual salary
increases) and a bonus in an amount up to 40% of his then current base salary.
Mr. Levenson is also subject to non-competition and confidentiality provisions
in the employment agreement. If Mr. Levenson's employment is terminated prior
to the end of the three-year term by the Company without cause or by Mr.
Levenson for "good reason" (as defined in the employment agreement) he is
entitled to receive severance benefits which include severance payments in an
amount equal to his then current annual base salary and health care benefits
for one year after termination.

The Company has a three-year employment agreement with Mr. Robinson which
terminates in May 1999. Under his employment agreement, Mr. Robinson receives
an annual base salary of $125,000 and a bonus in an amount up to $75,000. Mr.
Robinson is also subject to non-competition and confidentiality provisions in
the employment agreement. If Mr. Robinson's employment is terminated prior to
the end of the three-year term by the Company without cause, he is entitled to
receive severance benefits which include severance payments in an amount equal
to his base salary for the shorter of one year or the remainder of the term of
the agreement.

The Company has a three-year employment agreement with Mr. Flint which
terminates in November 1999. Under his employment agreement, Mr. Flint
receives an annual base salary of $130,000 (subject to potential annual salary
increases) and a bonus in an amount up to $26,250 for 1997, and 25% of his
then-current base salary thereafter. Mr. Flint is also subject to non-
competition and confidentiality provisions in the employment agreement. If Mr.
Flint's employment is terminated prior to the end of the three-year term by
the Company for any reason other than for cause, he is entitled to receive
severance benefits which include severance payments in an amount equal to his
then current base salary for the remainder of such term.

STOCK PLANS

1996 Stock Option Plan

The 1996 Stock Option Plan, as amended (the "1996 Plan"), was originally
adopted in January 1996 to provide options to officers and key employees of
the Company and its subsidiaries. Options are granted at a price per share
which is no less than the fair market value of the Common Stock at the time of
the grant. Options granted pursuant to the 1996 Plan expire ten years from the
date of grant, or may expire earlier upon termination of the grantee's
employment with the Company. The total number of shares of Common Stock
subject to the 1996 Plan is 973,246, of which options for 740,683 shares were
outstanding at November 16, 1998.

1996 Time Accelerated Restricted Stock Option Plan

The 1996 Time Accelerated Restricted Stock Option Plan, as amended (the
"TARSOP"), was originally adopted in January 1996. The total number of shares
subject to the TARSOP is 360,360. Options to purchase all such shares have
been granted and became exercisable at the completion of the IPO.

1996 Affiliate Stock Option Plan

The 1996 Affiliate Stock Option Plan, as amended (the "Affiliate Plan"), was
originally adopted in September 1996 to provide options to certain persons
associated with the affiliated dental practices. Options are granted at a
price per share which is no less than the fair market value of Common Stock at
the time of grant. The total number of shares of Common Stock subject to the
Affiliate Plan is 110,000, of which options for 89,586 shares were outstanding
at November 16, 1998.

1996 Directors Stock Option Plan

The 1996 Directors Stock Option Plan, as amended (the "Directors Plan"), was
originally adopted in September 1996 to grant options to those directors of
the Company who are not employees or officers of the

48
<PAGE>

Company or any subsidiary of the Company. Options are granted at a price per
share which is no less than the fair market value of Common Stock at the date
of the time of grant. The total number of shares of Common Stock subject to
the Directors Plan is 60,000, of which options for 24,800 shares were
outstanding at November 16, 1998.

1997 Employee Stock Purchase Plan

The 1997 Employee Stock Purchase Plan, as amended (the "Employee Stock
Purchase Plan"), 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 will occur at the end of option periods, each of six months'
duration, except that the first such option period began concurrent with the
completion of the IPO and will end on December 31, 1998. The purchase price of
Common Stock under the Employee Stock Purchase Plan is 85% of the lesser of
the value of the Common Stock at the beginning of an option period and the
value of the Common Stock at the end of the option period. Participants may
elect under the Employee Stock Purchase Plan, prior to each option period, to
have from 2% to 10% of their pay withheld and applied to the purchase of
shares at the end of the option period. The Employee Stock Purchase Plan
imposes a maximum of $10,000 on the amount that may be withheld from any
participant in any option period. A total of 200,000 shares of Common Stock
has been reserved for issuance under the Employee Stock Purchase Plan.

49
<PAGE>

CERTAIN TRANSACTIONS

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to October 27, 1997, the Company did not have a separate Compensation
Committee or other committee performing equivalent functions. As a result,
compensation decisions prior to that time were made by the Company's Board of
Directors consisting of Messrs. Serrao, Kelly, Mannion, Reeves and Dr.
Swenson. Messrs. Mannion and Reeves serve as the current members of the
Company's Compensation Committee. There are no interlocking relationships
between any executive officers of the Company and any entity whose directors
or executive officers serve on the Company's Board of Directors or
Compensation Committee.

The Company and a group of investors (collectively, the "Purchasers") were
parties to various agreements and transactions which were entered into in
connection with the initial capitalization of the Company. The Purchasers
included, among others, Mr. Serrao and certain limited partnerships which are
affiliated with Summit Partners. Mr. Mannion, a Director of the Company, is a
general partner of Summit Partners. Summit Partners and its affiliated limited
partnerships are hereinafter collectively referred to as "Summit Partners."

The Company and the Purchasers were parties to a Series A and Series B
Preferred Stock Purchase Agreement dated January 8, 1996, as amended (the
"Preferred Stock Purchase Agreement"), pursuant to which the Purchasers
purchased, in the aggregate, 400,000 shares of Series A Convertible Preferred
Stock at a price of $19.75 per share and 70,000 shares of Series B Redeemable
Preferred Stock at a price of $100 per share. In addition, in connection with
entering into the Preferred Stock Purchase Agreement, the Purchasers purchased
an aggregate of 300,000 shares of Common Stock at $0.33 per share. The
aggregate purchase price for all Preferred and Common Stock purchased by the
Purchasers was $15,000,000. The proceeds from the sale of such shares were
used by the Company for the acquisition of dental practices and for general
working capital purposes. The following table describes the number of shares
of Series A and Series B Preferred Stock and Common Stock purchased by Mr.
Serrao and Summit Partners:

<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------------------------------
SERIES A CONVERTIBLE SERIES B REDEEMABLE COMMON
PREFERRED STOCK PREFERRED STOCK STOCK
-------------------- ------------------- -------
<S> <C> <C> <C>
Gregory A. Serrao........... 2,933 513 2,200
Summit Partners............. 349,600 61,180 278,563
</TABLE>

The Series A Convertible Stock was converted into 17,600 and 2,097,599
shares of Common Stock for Mr. Serrao and Summit Partners, respectively, at
the completion of the IPO. Approximately $7.9 million of the proceeds of the
IPO were used to redeem all of the Series B Preferred Stock, including unpaid
dividends. In connection with such redemption, Mr. Serrao and Summit Partners
received $57,572 and $6,861,887, respectively. The Preferred Stock Purchase
Agreement also granted to the Purchasers preemptive rights with respect to the
Company's issuance of certain securities, which rights expired immediately
prior to the completion of the IPO.

The Company and Summit Partners were parties to a Subordinated Debenture
Purchase Agreement dated January 8, 1996, as amended, pursuant to which Summit
Partners committed to purchase up to $15,000,000 of 12% subordinated
debentures of the Company (the "Debentures") upon the Company's request. The
obligations of Summit Partners to purchase the Debentures automatically
terminated at the completion of the IPO.

The Company and the Purchasers are parties to a Registration Rights
Agreement dated January 8, 1996, as amended (the "Purchasers Registration
Rights Agreement"), pursuant to which the Purchasers have the right, subject
to certain restrictions, to cause the Company to effect a registration of
their shares of Common Stock under the Securities Act of 1933, as amended (the
"Securities Act"). The Purchasers also have certain "piggy back" registration
rights in the event the Company registers any of its securities for either
itself or for security holders exercising their registration rights. Such
registration rights do not apply to the Common Stock being offered hereby.

50
<PAGE>

The Company acquired Park pursuant to the terms of an Acquisition and
Exchange Agreement effective November 12, 1996 (the "Acquisition Agreement"),
among the Company, Park, and all of the shareholders of Park, including Dr.
Swenson. Under the Acquisition Agreement, the shareholders of Park received an
aggregate of $3.3 million in cash, $1.5 million principal amount of
Subordinated Notes of the Company and 1,260,000 shares of Common Stock in
consideration for the exchange of all of their Park shares. The consideration
received by Dr. Swenson for the exchange of his Park shares was on a pro rata
basis with all other shareholders of Park. The terms and conditions of the
acquisition of Park, including the consideration received for the exchange of
the Park shares, were based upon arms-length negotiations between
representatives of the Company and representatives of Park, including Dr.
Swenson. Dr. Swenson was elected as a member of the Company's Board of
Directors pursuant to the terms of the Acquisition Agreement.

The Company entered into a registration rights agreement with the former
shareholders of Park. This registration rights agreement contains provisions
which grant the former shareholders of Park piggy back registration rights in
the event the Company registers any of its securities for either itself or for
security holders exercising their registration rights. In addition, this
registration rights agreement contains a provision under which the former Park
shareholders may require registration of their shares of Common Stock (subject
to the other general applicable limitations on the Company's registration
obligations) on one occasion if and to the extent that they have not otherwise
had the opportunity to register their shares during the three-year period
following the completion of the IPO.

The Company entered into a service agreement with the professional
corporation formed by the former dentist shareholders of Park, including Dr.
Swenson. This service agreement is on substantially the same terms and
conditions as all of the Company's other service agreements. See "Business--
Affiliation Structure--Service Agreement."

INITIAL CAPITALIZATION ARRANGEMENTS

Mr. Serrao and Summit Partners, of which Mr. Mannion is a general partner,
were parties to various agreements and transactions which were entered into in
connection with the initial capitalization of the Company. In addition, Mr.
Levenson, the Company's Senior Vice President and Chief Financial Officer, was
a party to such agreements and transactions. Pursuant to the Preferred Stock
Purchase Agreement, Mr. Levenson purchased 5,600 shares of Series A
Convertible Preferred Stock at a price of $19.75 per share and 980 shares of
Series B Redeemable Preferred Stock at a price of $100 per share. In addition,
in connection with entering into the Preferred Stock Purchase Agreement, Mr.
Levenson purchased 4,199 shares of Common Stock at $0.33 per share. The Series
A Convertible Stock was converted into 33,600 shares of Common Stock at the
completion of the IPO. As part of the redemption of the Series B Redeemable
Preferred Stock with a portion of the proceeds of the IPO, Mr. Levenson
received $109,627. Mr. Levenson is also a party to the Purchasers Registration
Rights Agreement. See "--Compensation Committee Interlocks and Insider
Participation."

AFFILIATION WITH PARK DENTAL

Dr. Swenson was a party to various agreements and transactions which were
entered into in connection with the Company's affiliation with Park. In
addition to Dr. Swenson, Delta Associates, Ltd. ("DAL"), a greater than 5%
stockholder of the Company, was a stockholder of Park and received its pro
rata share of the consideration paid by the Company for the exchange of its
Park stock. DAL is also a party to the registration rights agreement with the
former shareholders of Park. See "--Compensation Committee Interlocks and
Insider Participation."

51
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of Common Stock as of November 16, 1998, by: (i) each person who is
known to the Company to own beneficially more than 5% of the outstanding
shares of Common Stock; (ii) each director; (iii) the Named Executive
Officers; and (iv) all directors and executive officers as a group. Under the
rules of the Securities and Exchange Commission, a person is deemed to be a
"beneficial owner" of a security if he or she has or shares the power to vote
or direct the voting of such security, has or shares the power to dispose of
or direct the disposition of such security, or has the right to acquire the
security within 60 days. Accordingly, more than one person may be deemed to be
the beneficial owner of the same security. All persons listed have sole voting
and investment power with respect to their shares unless otherwise indicated.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
---------------------------------
NUMBER PERCENTAGE
---------------- ----------------
<S> <C> <C>
Summit Ventures(2)........................... 2,376,162 32.0%
Martin J. Mannion(2)......................... 2,376,162 32.0%
Gregory A. Serrao(3)(6)...................... 656,877 8.5%
Delta Associates, Ltd.(4).................... 378,001 5.1%
Dr. Gregory T. Swenson(5)(6)................. 337,035 4.5%
Ronald M. Levenson(6)........................ 135,556 1.8%
George W. Robinson(6)........................ 40,590 *
Forrest M. Flint(6).......................... 27,240 *
William H. Bottlinger(6)..................... 7,213 *
Derril W. Reeves(6).......................... 5,475 *
James T. Kelly(6)............................ 2,475 *
All executive officers and directors as a
group (12 persons)(7)....................... 3,575,140 45.2%
</TABLE>
- --------
* less than 1%
(1) This table includes for each person or group of persons shares of Common
Stock that may be purchased by such person or group pursuant to options
which are currently exerciable or exercisable within 60 days of the date
of this Prospectus. As of such date, a total of 7,436,066 shares of Common
Stock were issued and outstanding and options for 620,783 shares were
exercisable.
(2) Represents 2,285,869 and 90,293 shares of Common Stock owned by Summit
Ventures IV, L.P. and Summit Investors II, L.P., respectively. Summit
Partners is affiliated with both limited partnerships. Mr. Mannion, a
Director of the Company, is a general partner of Summit Partners. The
address of Summit Partners is 600 Atlantic Avenue, Suite 2800, Boston,
Massachusetts 02110.
(3) Includes 30,000 shares owned by a family trust. The address for Mr. Serrao
is American Dental Partners, Inc., 301 Edgewater Place, Suite 320,
Wakefield, Massachusetts 01880.
(4) Represents shares received by Delta Associates, Ltd. in connection with
the Company's affiliation with PDHC, Ltd. The address of Delta Associates,
Ltd. is 7807 Creekridge Circle, Minneapolis, Minnesota 55439.
(5) Includes 96,000 shares owned by a family trust. The address for Dr.
Swenson is PDHC, Ltd., 6415 Brooklyn Blvd., Minneapolis, Minnesota 55429.
(6) Includes options for 327,877 shares for Mr. Serrao, 7,200 shares for Dr.
Swenson, 91,807 shares for Mr. Levenson, 40,590 shares for Mr. Robinson,
27,240 shares for Mr. Flint, 5,213 shares for Mr. Bottlinger, 2,475 shares
for Mr. Reeves and 2,475 shares for Mr. Kelly, respectively, which are
currently exercisable or exerciseable within 60 days of the date of this
Prospectus.
(7) Includes options for 472,578 shares for all executive officers and
directors as a group which are currently exercisable or exerciseable
within 60 days of the date of this Prospectus.

52
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The Company is authorized to issue 26,000,000 shares of capital stock,
consisting of 25,000,000 shares of Common Stock, $0.01 par value (the "Common
Stock"), and 1,000,000 shares of Preferred Stock, $0.01 par value (the
"Preferred Stock"). At the the closing of the IPO, the 400,000 shares of
Series A Convertible Preferred Stock (which were converted into 2,399,995
shares of Common Stock) and the 70,000 shares of Series B Redeemable Preferred
Stock (which were redeemed for cash) were restored to the status of
undesignated preferred stock available for issuance. As of November 16, 1998,
there were 7,436,066 shares of Common Stock and no shares of Preferred Stock
outstanding.

Common Stock

The holders of shares of Common Stock are entitled to one vote per share for
the election of directors and on all other matters submitted to a vote of
stockholders. Holders of shares of Common Stock are not entitled to preemptive
rights or to cumulative voting for the election of directors. Subject to any
senior rights of the Preferred Stock which may from time to time be
outstanding, holders of the Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." Upon dissolution and liquidation of
the Company, holders of the Common Stock are entitled to a ratable share of
the net assets of the Company remaining after payments to creditors of the
Company and to the holders of the Preferred Stock of the full preferential
amounts to which they may be entitled. All outstanding shares of Common Stock
are, and the shares of Common Stock offered hereby will be, validly issued,
fully paid and nonassessable.

Preferred Stock

The 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 the Preferred Stock, and to fix and
determine the variations among series of the Preferred Stock. If any Preferred
Stock is issued following this offering, such Preferred Stock would have
priority over the Common Stock with respect to dividends and to other
distributions, including the distribution of assets upon liquidation and
dissolution. The 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.

Certain Provisions of Certificate of Incorporation and By-laws

The Certificate of Incorporation and By-laws provide that directors may not
be removed from office by the stockholders except by the affirmative vote of
stockholders exercising at least two-thirds of the voting power in the
election of directors; provided that if two-thirds of the entire Board of
Directors recommend to the stockholders that a director be removed, then such
director may be removed by the stockholders exercising at least a majority of
the voting power in the election of directors. The Certificate of
Incorporation requires all actions by stockholders to be taken at annual or
special meetings. The By-laws divide the Board of Directors into three
classes, each with a term of three years, with the term of one class expiring
each year. No provision of the Certificate of Incorporation nor certain
provisions of the By-laws, including those relating to indemnification and
election and removal of directors, may be altered, amended or repealed nor may
any inconsistent provision be adopted except by the affirmative vote of
stockholders exercising at least two-thirds of the voting power of the
Company; provided that if any such action was previously approved by at least
two-thirds of the directors, then such action may be taken by the stockholders
exercising a majority of the voting power. The By-laws also provide than any
vacancy on the Board of Directors may be filled by a majority of the directors
than in office even though less than a quorum exits. The foregoing provisions
could have an anti-takeover effect by delaying, averting or preventing a
change in control or management of the Company.

53
<PAGE>

Statutory Business Combination Provision

The Company is subject to Section 203 of the DGCL which, with certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period
of three years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and officers
and (b) by employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer; or (iii) on or after such date, the
business combination is approved by the Board of Directors and authorized at
an annual or special meeting of stockholders by the affirmative vote of at
least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder. An "interested stockholder" is defined as any person
that is (a) the owner of 15% or more of the outstanding voting stock of the
corporation or (b) an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.

Transfer Agent and Registrar

BankBoston, N.A. serves as the Company's transfer agent and registrar for
its Common Stock.

54
<PAGE>

DESCRIPTION OF SUBORDINATED NOTES

Except as otherwise described below, all of the Subordinated Notes to be
issued in this Offering will be on substantially the same terms and conditions
as the currently outstanding Subordinated Notes of American Dental Partners,
Inc. ("ADP"). As of November 1, 1998, ADP had approximately $6,158,000
aggregate principal amount of Subordinated Notes issued and outstanding. All
of the outstanding Subordinated Notes bear interest at a rate of 7% per annum,
are payable in seven equal annual principal installments plus interest on the
declining unpaid principal balance due on the first seven anniversaries from
their date of issuance, are unsecured debt obligations of ADP and are subject
to subordination agreements which are substantially the same as the
subordination agreements described below.

The Subordinated Notes offered hereby will be issued on the following terms
and conditions:

Rates of Interest; Terms of Repayment

The rates of interest on the Subordinated Notes offered hereby will be
determined through negotiations with the securityholders or principal owners
of the businesses whose securities or assets are to be acquired in acquisition
and affiliation transactions. However, the rate of interest for any
Subordinated Note will not be less than a rate which is sufficient to avoid
imputed interest under any applicable section of the Internal Revenue Code as
of the date of issuance of such Subordinated Note. The Subordinated Notes will
be payable in seven equal annual principal installments plus interest on the
declining unpaid principal balance due on the first seven anniversaries from
their date of issuance. ADP will have the right to prepay all or part of the
principal balance of the Subordinated Notes at any time, without penalty.
Payments under the Subordinated Notes will be subject to certain
indemnification setoff rights in favor of ADP. ADP will have the right, to the
extent it is entitled to indemnification from the securityholders or principal
owners of the businesses whose securities or assets are to be acquired, to
setoff the amount of damages incurred by ADP as a result of an indemnifiable
claim against amounts due from ADP under the Subordinated Notes.

Subordination Arrangements

Each of the Subordinated Notes will be unsecured debt obligations of ADP. In
addition, each of the Subordinated Notes will be subject to subordination
agreements which will be executed by each securityholder or principal owners
of the businesses whose securities or assets are to be acquired in an
acquisition or affiliation transaction. Under the subordination agreements,
the payment of the Subordinated Notes will be subordinate and junior in right
of payment to the payment in full of all obligations of ADP for borrowed money
("Senior Indebtedness"), except as follows: (a) debt arising under instruments
delivered by ADP to an unaffiliated entity or owners of such entity in
connection with the acquisition of such entity; (b) any preferred stock or
other equity security of ADP; and (c) any indebtedness owed by ADP to an
affiliate (as defined in the subordination agreement). Pursuant to the
subordination agreements, the holders of the Subordinated Notes (the
"Holders") will not be permitted to accept or receive any payment on the
Subordinated Notes; provided that the Holders may accept mandatory scheduled
payments under the Subordinated Notes unless at the time of such payment there
exists a default on any payment for the Senior Indebtedness or there exists
any other default with respect to the Senior Indebtedness permitting the
holders of Senior Indebtedness to accelerate the maturity of such
indebtedness. If a payment default exists under the Subordinated Notes, the
Holders may give written notice of such default to the holders of the Senior
Indebtedness (the "Senior Debt Holders"). Thereafter, the Senior Debt Holders
will have 180 days to either declare a default under the Senior Indebtedness
or consent to ADP making scheduled payments under the Subordinated Notes (the
"Consent") until the Consent is terminated by the Senior Debt Holders. If the
Senior Debt Holders (i) fail to do one of the foregoing alternatives or (ii)
terminate the Consent and a payment default occurs under the Subordinated
Notes on either of the next two succeeding scheduled payments, then the
Holders will have the right to enforce their respective rights under the
Subordinated Notes.

55
<PAGE>

In the event of any dissolution, winding-up, liquidation, restructuring, or
other reorganization of ADP (a "Reorganization"), all Senior Indebtedness will
be paid in full before any payment is made on the Subordinated Notes. In
addition, the Holders will, pursuant to the Subordination Agreement,
irrevocably authorize ADP or the Senior Debt Holders to, upon the occurrence
of a Reorganization, (a) prove and enforce any claims with respect to the
Subordinated Notes in the name of the Senior Debt Holders or the Holders, (b)
vote claims arising under the Subordinated Indebtedness, and (c) accept and
receive any payment or distribution made under the Subordinated Notes and
apply such payment or distribution to the Senior Indebtedness. If any payment
or distribution is made to the Holders with respect to the Subordinated Notes
before all Senior Indebtedness had been paid in full and before the
obligations of the Senior Debt Holders to extend credit have been irrevocably
terminated, such payment or distribution will be held in trust by the Holders
and promptly paid over to the Senior Debt Holders for application to the
payment of all Senior Indebtedness. The Subordination Agreement also contains
material restrictions on the Holders' enforcement of remedies under the
Subordinated Notes.

As of November 1, 1998, the amount of outstanding Senior Indebtedness was
$4,735,000.

ADP conducts all of its operations through subsidiaries and expects that it
will continue to do so in the future. The Subordinated Notes represent
indebtedness of ADP only. Creditors and holders of indebtedness (including
preferred stock, if any) of each subsidiary, although not holders of Senior
Indebtedness, will have a claim on the assets of such subsidiary prior to the
claims of the Holders.

56
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

No predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts
of such shares in the public market, or the perception that such sales could
occur, could materially and adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through
an offering of its equity securities. See "Risk Factors--Shares Eligible for
Future Sale."

SALES OF RESTRICTED SHARES

As of November 16, 1998, the Company had a total of 7,436,066 shares of
Common Stock outstanding. Of these shares, the 2,587,500 shares of Common
Stock sold in the IPO (which includes the underwriters' over-allotment option)
are freely tradable without restriction or registration under the Securities
Act by persons other than "affiliates" of the Company, as defined in the
Securities Act, who are required to sell such shares under Rule 144 under the
Securities Act. Additionally 4,829,012 shares of Common Stock outstanding are
"restricted securities" as that term is defined by Rule 144 (the "Restricted
Shares"). The Restricted Shares were issued and sold by the Company in private
transactions in reliance upon exemptions from registration under the
Securities Act. Finally, 19,554 shares of Common Stock were issued to former
owners of dental groups that affiliated with the Company and are subject to
contractual restrictions on transfer without the consent of the Company, which
restrictions expire one year from the date of issuance.

Of the Restricted Shares, 4,794,212 Restricted Shares are eligible for sale
in the public market pursuant to Rule 144. In general, under Rule 144 as
currently in effect, a person (or persons whose shares are aggregated) who has
beneficially owned restricted securities for at least one year (including the
holding period of any prior owner except an affiliate), including persons who
may be deemed "affiliates" of the Company, would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of
(i) one percent of the number of shares of Common Stock then outstanding
(approximately 74,361 shares as of the date hereof) or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding
the filing of a Form 144 with respect to such sale. Sales under Rule 144 are
also subject to certain manner-of-sale provisions and notice requirements, and
to the availability of current public information about the Company. In
addition, a person who is not deemed to have been an affiliate of the Company
at the time during the 90 days preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years (including the
holding period of any prior owner except an affiliate), would be entitled to
sell such shares under Rule 144 (k) without regard to the requirements
described above. Rule 144 also provides that affiliates who are selling shares
that are not Restricted Shares must nonetheless comply with the same
restrictions applicable to Restricted Shares with the exception of the holding
period requirement.

STOCK OPTION AND PURCHASE PLANS

As of November 16, 1998, 1,503,606 shares of Common Stock were reserved for
issuance under the Company's stock plans, of which 1,215,429 shares were
issuable upon the exercise of outstanding stock options, and 200,000 shares of
Common Stock were reserved for issuance under the Employee Stock Purchase
Plan. See "Management--Stock Plans." The Company has filed registration
statements on Form S-8 under the Securities Act to register shares of Common
Stock issuable pursuant to certain of its stock option plans (the 1996 Plan,
TARSOP and Directors Plan) and its Employee Stock Purchase Plan. Shares
covered by these registration statements will thereupon be eligible for sale
in the public markets, subject to Rule 144 limitations applicable to
affiliates.

REGISTRATION RIGHTS

The holders of 4,259,982 shares of Common Stock have the right under certain
circumstances to require the Company to register their shares under the
Securities Act for resale to the public, and holders of approximately
4,794,212 shares have the right to include their shares in a registration
statement filed by the Company. See "Certain Transactions."

57
<PAGE>

SHELF REGISTRATION FOR FUTURE AFFILIATIONS

The 750,000 shares of Common Stock issuable pursuant to this Offering
generally will be eligible for resale after their issuance as follows: (i) for
non-affiliates of the businesses the Company acquires, without restriction;
and (ii) for affiliates of the businesses the Company acquires, subject to
compliance with the volume and manner-of-sale restrictions of Rule 145, unless
in each case the Company contractually restricts their resale. The Company
anticipates that the persons acquiring shares of Common Stock in business
combination transactions pursuant to this Offering will be contractually
required to hold all or some portion of the Common Stock for some period of
time. See "Shares Eligible for Future Sale."

58
<PAGE>

PLAN OF DISTRIBUTION

THE COMPANY

This Prospectus covers the offer and sale of up to 750,000 shares of Common
Stock and up to $25,000,000 aggregate principal amount of Subordinated Notes,
which the Company may issue from time to time in connection with the future
direct and indirect affiliations or acquisitions of other businesses,
properties, or securities in acquisition or affiliation transactions in
accordance with Rule 415(a)(1)(viii) of Regulation C under the Securities Act
or as otherwise permitted under the Securities Act.

The Company expects that the terms upon which it may issue the Common Stock
and/or the Subordinated Notes in acquisition or affiliation transactions will
be determined through negotiations with the securityholders or principal
owners of the businesses whose securities or assets are to be acquired,
including the rates of interest for the Subordinated Notes. The Company
expects that the Common Stock issued will be valued at prices reasonably
related to market prices for the Common Stock prevailing either at the time an
acquisition agreement is executed or at the time an acquisition is
consummated. The Subordinated Notes will be unsecured debt obligations of the
Company, subordinated to all Senior Indebtedness, payable over seven years and
on parity with all other Subordinated Notes (whether currently outstanding or
hereafter issued).

GENERAL

All expenses of this Offering will be paid by the Company. No underwriting
discounts or commissions will be paid in connection with the issuance of
shares of Common Stock and/or Subordinated Notes by the Company in acquisition
or affiliation transactions, although finder's fees may be paid with respect
to specific transactions. Any person receiving a finder's fee may be deemed to
be an Underwriter within the meaning of the Securities Act.

The shares of Common Stock offered hereunder will be tradeable on the Nasdaq
National Market, but such shares may be subject to certain contractual holding
period restrictions as described above. At present, there is no market for the
Subordinated Notes, and it is not anticipated that a market for the
Subordinated Notes will develop in the foreseeable future. In addition, the
acquisition agreements to be entered into in connection with the acquisition
or affiliation transactions will set forth restrictions with respect to the
transfer of the Subordinated Notes.

VALIDITY OF SECURITIES

The validity of the securities offered hereby will be passed upon for the
Company by Baker & Hostetler LLP, Columbus, Ohio. Gary A. Wadman, a partner of
Baker & Hostetler LLP, is the Secretary of the Company.

EXPERTS

The consolidated financial statements of American Dental Partners, Inc. as
of December 31, 1996 and 1997 and for the years then ended have been included
herein and in the registration statement in reliance upon the reports of KPMG
Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.

The combined financial statements of the Orthocare Companies as of December
31, 1996 and September 30, 1997 and for the year ended December 31, 1996 and
the nine months ended September 30, 1997 have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.

59
<PAGE>

AVAILABLE INFORMATION

The Company files reports and other information with the Commission pursuant
to the requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The reports and other information filed by the Company
primarily include Forms 10-K, 10-Q, and 8-K and proxy and information
statements.

The Company has filed with the Commission a Registration Statement (which
term shall encompass any and all amendments thereto) on Form S-4 (the
"Registration Statement") under the Securities Act with respect to the Common
Stock and the Subordinated Notes offered hereby. This Prospectus, which is
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contact, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is
hereby made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.

The public may read any materials filed by the Company with the Commission,
including the Registration Statement (and such exhibits and schedules filed as
a part thereof), reports, and proxy and information statements, at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
portion of the materials filed by the Company with the Commission may be
obtained from the Public Reference Room of the Commission, upon payment of the
prescribed fees. The public may obtain information on the operation of the
Public Reference Room by calling the Commission at 1-800-SEC-0330.

The Commission maintains a web site that contains reports, proxy materials
and other information regarding registrants, including the Company, that file
electronically with the Commission. The address of this web site is
(http://www.sec.gov). The Company also maintains a web site at
(http://www.amdpi.com).

The Common Stock is traded on the Nasdaq National Market. Periodic reports,
proxy materials and other information concerning the Company, when filed, may
be inspected at the offices of the Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.

60
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AMERICAN DENTAL PARTNERS, INC. AND SUBSIDIARIES--CONSOLIDATED FINANCIAL
STATEMENTS
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997............ F-3
Consolidated Statements of Operations for the Years Ended December 31,
1996 and 1997.......................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996 and 1997............................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996 and 1997.......................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
AMERICAN DENTAL PARTNERS, INC. AND SUBSIDIARIES--UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 1997 (audited) and September
30, 1998 (unaudited)................................................... F-22
Consolidated Statements of Earnings for the Three Months and Nine Months
Ended September 30, 1997 and 1998 (unaudited).......................... F-23
Consolidated Statement of Stockholders' Equity for the Nine Months Ended
September 30, 1998 (unaudited) ........................................ F-24
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1998 (unaudited)................................ F-25
Notes to Interim Consolidated Financial Statements ..................... F-26

ACQUISITIONS AND AFFILIATIONS--THE ORTHOCARE COMPANIES

The combined financial information presented for The Orthocare Companies
presents the financial position and results of operations of the dental group
practice that provides orthodontic services, an MSO and a related entity that
arranges for orthodontic services for insurance companies, all of which were
under common ownership prior to their affiliation with the Company. After
affiliation, the dentists formed a new PC which affiliated with the MSO and
the related entity became a wholly-owned subsidiary of the Company. These
financial statements are presented for information purposes only and are not
necessarily indicative of the results of operations or financial position that
would have been achieved by The Orthocare Companies pursuant to the service
agreement with the Company, had such service agreement been in place during
the periods presented. The information should be read in conjunction with "The
Company," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," Unaudited Pro forma Consolidated Financial Information
and the Consolidated Financial Statements of the Company.

Financial Information
Independent Auditors' Report............................................ F-29
Combined Balance Sheets as of December 31, 1996 and September 30, 1997.. F-30
Combined Statements of Operations for the Year Ended December 31, 1996
and the Nine Months Ended September 30, 1997........................... F-31
Combined Statements of Stockholders' Equity for the Year Ended December
31, 1996 and the Nine Months Ended September 30, 1997.................. F-32
Combined Statements of Cash Flows for the Year Ended December 31, 1996
and the Nine Months Ended September 30, 1997........................... F-33
Notes to Combined Financial Statements.................................. F-34
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
American Dental Partners, Inc.:

We have audited the accompanying consolidated balance sheets of American
Dental Partners, Inc. and subsidiaries (the "Company") as of December 31, 1996
and 1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Dental Partners, Inc. and subsidiaries as of December 31, 1996 and 1997, and
the results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Boston, Massachusetts
February 6, 1998

F-2
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 5,836 $ 4,675
Accounts receivable........................................ 996 101
Receivables due from affiliated practices.................. 1,595 3,207
Inventories................................................ 174 387
Prepaid expenses and other receivables..................... 1,405 1,631
------- -------
Total current assets..................................... 10,006 10,001
------- -------
Property and equipment, net.................................. 5,943 8,752
------- -------
Non-current assets:
Intangible assets, net..................................... 9,173 28,975
Other assets............................................... 172 231
------- -------
Total non-current assets................................. 9,345 29,206
------- -------
Total assets............................................. $25,294 $47,959
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 1,730 $ 2,618
Accrued compensation, benefits and taxes................... 2,154 3,001
Accrued expenses........................................... 2,396 2,666
Income taxes payable....................................... -- 183
Current maturities of debt................................. 537 774
------- -------
Total current liabilities................................ 6,817 9,242
------- -------
Non-current liabilities:
Long-term debt............................................. 3,063 21,253
Deferred income tax liability.............................. -- 231
Other liabilities.......................................... 145 27
------- -------
Total non-current liabilities............................ 3,208 21,511
------- -------
Total liabilities........................................ 10,025 30,753
------- -------
Series A convertible preferred stock, par value $0.01 per
share, 400,000 shares authorized, issued and outstanding.... 8,009 8,641
Series B redeemable preferred stock, par value $0.01 per
share, 70,000 shares authorized, issued and outstanding..... 7,096 7,656
Stockholders' equity:
Preferred stock, par value $0.01 per share, 530,000 shares
authorized, no shares issued or outstanding............... -- --
Common stock, par value $0.01 per share, 25,000,000 shares
authorized, 2,213,384 and 2,394,212 shares issued and
outstanding............................................... 22 24
Additional paid-in capital................................. 2,659 2,307
Unearned compensation...................................... (74) (49)
Accumulated deficit........................................ (2,443) (1,373)
------- -------
Total stockholders' equity............................... 164 909
------- -------
Commitments and contingencies
Total liabilities and stockholders' equity............... $25,294 $47,959
======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Net revenue.................................................. $ 3,933 $53,270
------- -------
Operating expenses:
Salaries and benefits...................................... 2,098 28,438
Lab fees and dental supplies............................... 534 6,435
Office occupancy........................................... 389 4,814
Other operating expenses................................... 773 6,264
General corporate expenses................................. 2,395 3,337
Depreciation............................................... 177 1,580
Amortization of intangible assets.......................... 48 645
------- -------
Total operating expenses................................. 6,414 51,513
------- -------
Earnings (loss) from operations.............................. (2,481) 1,757
Interest expense (income), net............................. (38) 563
------- -------
Earnings (loss) before income taxes.......................... (2,443) 1,194
Income taxes............................................... -- 124
------- -------
Net earnings (loss)........................................ $(2,443) $ 1,070
======= =======
Net loss per common share:
Basic...................................................... $ (3.45) $ (0.05)
Diluted.................................................... $ (3.45) $ (0.05)
Weighted average common shares outstanding:
Basic...................................................... 768 2,273
Diluted.................................................... 768 2,273
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------- PAID-IN UNEARNED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY
------ ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock for
acquisitions......... 1,613 16 2,673 -- -- 2,689
Sale of common stock.. 600 6 191 (97) -- 100
Amortization of
unearned
compensation......... -- -- -- 23 -- 23
Dividends on Series A
convertible preferred
stock................ -- -- (109) -- -- (109)
Dividends on Series B
redeemable preferred
stock................ -- -- (96) -- -- (96)
Net loss.............. -- -- -- -- (2,443) (2,443)
----- ----- ------ ----- ------- -------
Balance at December 31,
1996................... 2,213 22 2,659 (74) (2,443) 164
Issuance of common
stock for
acquisitions......... 181 2 840 -- -- 842
Amortization of
unearned
compensation......... -- -- -- 25 -- 25
Dividends on Series A
convertible preferred
stock................ -- -- (632) -- -- (632)
Dividends on Series B
redeemable preferred
stock................ -- -- (560) -- -- (560)
Net earnings.......... -- -- -- -- 1,070 1,070
----- ----- ------ ----- ------- -------
Balance at December 31,
1997................... 2,394 $ 24 $2,307 $ (49) $(1,373) $ 909
===== ===== ====== ===== ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)....................................... $ (2,443) $ 1,070
Adjustments to reconcile net earnings (loss) to net cash
provided by (used for) operating activities:
Depreciation............................................. 177 1,580
Amortization of intangible assets........................ 48 645
Other amortization....................................... 23 54
Changes in assets and liabilities, net of acquisitions
and affiliations:
Accounts receivable.................................... 1,417 1,871
Receivables due from affiliated practices.............. (1,707) (1,801)
Other current assets................................... 237 (37)
Accounts payable and accrued expenses.................. 941 (1,865)
Accrued compensation, benefits and taxes............... (232) 384
-------- --------
Net cash provided by (used for) operating
activities.......................................... (1,539) 1,901
-------- --------
Cash flows from investing activities:
Acquisitions and affiliations, net of cash acquired....... (6,632) (14,878)
Capital expenditures, net................................. (386) (3,212)
Other assets.............................................. 140 113
-------- --------
Net cash used for investing activities............... (6,878) (17,977)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of Series A convertible preferred
stock.................................................... 7,900 --
Proceeds from issuance of Series B redeemable preferred
stock.................................................... 7,000 --
Proceeds from issuance of common stock.................... 100 --
Borrowings under revolving line of credit, net............ -- 16,700
Repayment of borrowings................................... (747) (1,543)
Payment of debt issuance costs............................ -- (242)
-------- --------
Net cash provided by financing activities............ 14,253 14,915
-------- --------
Increase (decrease) in cash and cash equivalents........... 5,836 (1,161)
Cash and cash equivalents at beginning of year............. -- 5,836
-------- --------
Cash and cash equivalents at end of year................... $ 5,836 $ 4,675
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 3 $ 470
======== ========
Cash paid during the year for income taxes................ $ -- $ 344
======== ========
Acquisitions and Affiliations:
Assets acquired........................................... $ 20,099 $ 24,693
Liabilities assumed and issued............................ (10,063) (7,054)
Common stock issued....................................... (2,689) (842)
-------- --------
Cash paid................................................. 7,347 16,797
Less cash acquired........................................ (715) (1,919)
-------- --------
Net cash paid for acquisitions and affiliations...... $ 6,632 $ 14,878
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

(1) DESCRIPTION OF BUSINESS

American Dental Partners, Inc. (the "Company") was formed in December 1995
to provide management services to dental practices and commenced operations in
January 1996. The Company acquires substantially all the assets of the dental
practices with which it affiliates, except those required by law to be owned
or maintained by dentists (such as third party contracts, certain governmental
receivables and patient records), and enters into long-term service agreements
with these affiliated dental practices. The Company provides all services
necessary for the administration of the non-clinical aspects of the dental
operations. Services provided to the affiliated dental practices include
assistance with information systems, budgeting, financial reporting,
facilities management, third-party payor contracting, supplies and equipment
procurement, billing and collecting accounts receivable, marketing and
recruiting, hiring and training support staff.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared on the
accrual basis of accounting. The Company does not own any interests in or
control the activities of the affiliated dental practices. Accordingly, the
consolidated financial statements of the affiliated dental practices are not
consolidated with those of the Company.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany balances and transactions
have been eliminated in consolidation.

Use of Estimates

The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could
differ from those estimates.

Cash and Cash Equivalents

For purposes of the statement of cash flows, 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, receivables due from affiliated practices, 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 approximate rates at which similar types of
borrowing arrangements could be obtained by the Company.

Net Revenue

The Company's net revenue represents the aggregate amounts charged to
affiliated dental practices pursuant to the terms of the service agreements.
Under such agreements, the affiliated dental practices reimburse the Company
for expenses incurred on their behalf in connection with the operation and
administration of the dental facilities and pay fees to the Company for its
management services. The Company's service fees typically consist

F-7
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

of a fixed monthly fee and an additional variable fee. Additionally, the
Company's net revenue includes amounts from third party payors related to the
arrangement of the provision of care to patients. The Company records all
revenue monthly as earned.

Inventories

Inventories consist primarily of dental supplies and are stated at the lower
of cost or market.

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, 3-7 years for equipment
and 3-7 years for furniture and fixtures.

Property and equipment under capital leases are stated at the present value
of minimum lease payments at inception of the lease. Equipment held under
capital leases and leasehold improvements are amortized over the shorter of
the lease term or estimated useful life of the asset. Amortization of assets
subject to capital leases is included in depreciation expense.

Intangible Assets

Identifiable intangible assets result from management service agreements
with the affiliated dental groups and goodwill associated with the Company's
acquisition. The estimated fair value of the management service agreements is
the excess of the purchase price over the estimated fair value of the tangible
assets acquired and liabilities assumed of dental practices. Intangible assets
associated with management service agreements and goodwill are amortized over
25 years. In the event a management service agreement is terminated, the
related affiliated dental practice is required to purchase, at the Company's
option, the unamortized balance of intangible assets at the current book
value, as well as all related other assets associated with the affiliated
dental practice. Accumulated amortization amounted to $28,000 and $673,000 at
December 31, 1996 and 1997, respectively.

The Company reviews the carrying value of intangible assets on an entity by
entity basis to determine if facts and circumstances exist which would suggest
that the intangible assets may be impaired or that the amortization period
needs to be modified. Among the factors the Company considers in making the
evaluation are changes in the practices' market position, reputation,
profitability and geographical penetration. If conditions are present which
indicate impairment is probable, the Company will prepare a projection of the
undiscounted cash flows of the specific practice and determine if the
intangible assets are recoverable based on these undiscounted cash flows. If
impairment is indicated, then an adjustment will be made to reduce the
carrying amount of the intangible assets to their fair value.

Income Taxes

Deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. The effect on deferred taxes of
changes in the tax rate is recognized in operations in the period that
includes the enactment date.

Stock Option Plans

Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting
for Stock-Based Compensation, allows companies to recognize expense for the
fair value of stock-based awards or to continue to apply the provisions of APB
Opinion No. 25, Accounting for Stock Issued to Employees, and disclose the
effects of SFAS 123 as if the fair-value-based method defined in SFAS No. 123
had been applied. Under APB Opinion

F-8
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

No. 25, compensation expense is recognized only if on the measurement date the
fair value of the underlying stock exceeds the exercise price. The Company has
elected to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS 123.

Earnings Per Share

Earnings per share are computed based on Statement of Financial Accounting
Standards No. 128 "Earnings per Share" ("SFAS 128"). SFAS 128 requires
presentation of basic earnings per share ("Basic EPS") and diluted earnings
per share ("Diluted EPS") by all entities that have publicly traded common
stock or potential common stock (options, warrants, convertible securities or
contingent stock arrangements). SFAS 128 also requires presentation of
earnings per share by an entity that has made a filing or is in the process of
filing with a regulatory agency in preparation for the sale of those
securities in a public market. Basic EPS is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period. The computation of
Diluted EPS does not assume conversion, exercise or contingent exercise of
securities that would have an antidilutive effect on earnings.

EITF Issue No. 97-2

The Emerging Issues Task Force ("EITF") has issued EITF Issue No. 97-2 which
addresses certain matters relating to the physician practice management
industry, which include the criteria for the consolidation of professional
service corporation revenue and the accounting for business combinations. The
Company believes that this EITF issue will not have any material impact on the
Company's consolidated financial statements.

(3) ACCOUNTS RECEIVABLE AND NET REVENUE

Accounts Receivable

Accounts receivable represent amounts due from patients and third party
payors for dental services provided by affiliated dental practices that were
outstanding at the time the Company acquired the assets of the practice.

Receivables Due From Affiliated Dental Practices

Receivables due from affiliated practices represent amounts due pursuant to
the terms of the service agreements as described below.

The Company's service fees typically consist of a fixed monthly fee and an
additional variable fee. The additional fee is determined by a comparison of
the actual financial performance of the affiliated dental group practice in
relation to its budget.

Net Revenue

The Company's net revenue represents the aggregate fees charged to
affiliated dental practices pursuant to the terms of the service agreements.
Under such agreements, the affiliated dental practices reimburse the Company
for actual expenses incurred on their behalf in connection with the operation
and administration of the dental facilities and pay fees to the Company for
its management services. The Company's service fees typically consist of a
fixed monthly fee and an additional variable fee. The fixed monthly fee is
determined prior to each affiliation and annually thereafter by agreement of
the Company and the affiliated dental group in a formal budgeting process. To
the extent that there is operating income after payment of the fixed monthly
fee, reimbursement of expenses incurred in connection with the operation and
administration of the dental facilities and payment of provider expenses, an
additional variable fee is paid to the Company in the amount of such excess up
to budgeted

F-9
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

operating income and 50% of such excess over budgeted operating income. The
Company records this revenue monthly as earned. For the year ended December
31, 1997, the total amount of service fees earned under the Company's service
agreements ranged from approximately 9% of the adjusted gross revenue of one
PC to approximately 25% of the adjusted gross revenue of another PC. The
amount of the variable fee ranged from 0% of the adjusted gross revenue of one
PC to approximately 4% of the adjusted gross revenue of another PC.

For the years ended December 31, 1996 and 1997, net revenue consisted of the
following:

<TABLE>
<CAPTION>
1996 1997
------ -------
(IN THOUSANDS)
<S> <C> <C>
Reimbursement of expenses:
Rent expense.............................................. $ 267 $ 3,476
Other operating expenses.................................. 2,908 32,910
------ -------
Total reimbursement of expenses......................... 3,175 36,386
------ -------
Management service fees:
Monthly fee............................................... 720 10,724
Additional variable fee................................... -- 1,332
------ -------
Total management service fees........................... 720 12,056
------ -------
Net revenue earned by the company under service
agreements............................................. 3,895 48,442
Revenue related to the arrangement of the provision of care
to patients................................................ 38 4,828
------ -------
Total net revenue....................................... $3,933 $53,270
====== =======
</TABLE>

Revenue--Affiliated Dental Practices

The affiliated dental practices record revenue at established rates reduced
by contractual adjustments and allowances for doubtful accounts to arrive at
adjusted gross revenue. Contractual adjustments represent the difference
between gross billable charges at established rates and the portion of those
charges allowable by third party payors pursuant to certain reimbursement and
managed care contracts.

The Company does not consolidate the financial statements of its affiliated
dental practices with those of the Company. The adjusted gross revenue and
amounts retained by the affiliated dental practices are presented below for
illustrative purposes only:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1997
--------------------- ----------------------
PARK ALL AFFILIATED PARK ALL AFFILIATED
DENTAL PRACTICES DENTAL PRACTICES
------ -------------- ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Adjusted gross revenue--
affiliated dental practices.. $4,459 $4,920 $38,515 $64,492
Amounts retained by affiliated
dental practices............. 858 1,025 8,461 16,050
------ ------ ------- -------
Net revenue earned by the
Company under service
agreements................... $3,601 $3,895 $30,054 $48,442
====== ====== ======= =======
</TABLE>

(4) ACQUISITIONS AND AFFILIATIONS

During the year ended December 31, 1996, the Company acquired substantially
all the assets of three dental practices and simultaneously entered into 40-
year service agreements with the affiliated dental groups. The aggregate
purchase price paid in connection with these transactions (the "1996
Transactions") consisted of

F-10
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

approximately $7.3 million in cash, $2.2 million in subordinated promissory
notes and 1,613,400 shares of Common Stock.

During the year ended December 31, 1997, the Company acquired substantially
all the assets of six dental practices and a related entity associated with
one of these practices, Orthocare, Ltd., (now a wholly-owned subsidiary),
which contracts with third party payors and orthodontic providers to arrange
for the provision of orthodontic care to patients insured by such third party
payors. The Company simultaneously entered into 40-year service agreements
with four of the affiliated dental groups (two practices joined existing
affiliates). The aggregate purchase price paid in connection with these
transactions consisted of approximately $16.8 million in cash, $2.4 million in
subordinated promissory notes and 180,834 shares of Common Stock. All
transactions completed in 1997 are referred to as the "1997 Transactions."

The 1996 and 1997 Transactions are as follows:

<TABLE>
<CAPTION>
DATE AFFILIATED DENTAL GROUP LOCATION
---- ----------------------- --------
<S> <C> <C>
November 1996....................... Park Dental Minneapolis, MN
December 1996....................... Longhorn Dental Austin, TX
December 1996....................... Smileage Dental Care Milwaukee, WI
March 1997.......................... Malcolm R. Scott, D.D.S. San Marcos, TX
March 1997.......................... Lakeside Dental Care Metairie, LA
May 1997............................ Soster Dental Group Pittsburgh, PA
July 1997........................... Northpoint Dental Group Milwaukee, WI
October 1997........................ Wilkens Dental Group Milwaukee, WI
October 1997........................ Orthocare Group Minneapolis, MN
</TABLE>

The accompanying consolidated financial statements include the results of
operations under the service agreements from the date of acquisition. The
excess of the purchase price associated with all of the 1996 and 1997
Transactions over the estimated fair value of net assets acquired has been
recorded as intangible assets which are summarized as follows:

<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Fair value of total consideration paid...................... $32,249
Fair value of net tangible assets acquired and liabilities
assumed.................................................... 2,601
-------
Excess of fair value of the consideration paid over the fair
value of net tangible assets acquired...................... $29,648
=======
The excess of the fair value of the consideration paid over
the fair value of the net tangible assets acquired has been
allocated as follows:
Service agreements associated with affiliations............. $26,257
Goodwill associated with the acquisition.................... 3,391
-------
$29,648
=======
</TABLE>

If the acquisition of Orthocare, Ltd., which was accounted for as a
purchase, occurred on January 1, 1996, the Company's unaudited net revenue,
earnings (loss) before income taxes, net earnings (loss) and net loss per
share would have been $7,661,000, $(2,465,000), $(2,465,000) and $(3.24) per
share, respectively, for the year ended December 31, 1996 and $56,346,000,
$1,248,000, $1,118,000, and $(0.03) per share for the year ended December 31,
1997, respectively. Such pro forma financial information reflects certain
adjustments, including

F-11
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

amortization of intangibles, income tax effects and an increase in the
weighted average shares outstanding. This unaudited pro forma information does
not necessarily reflect the results of operations that would have occurred had
the acquisition taken place at the beginning of 1996 and is not necessarily
indicative of results that may be obtained in the future.

Subsequent to December 31, 1997, the Company acquired substantially all the
assets of a dental practice and simultaneously entered into a 40-year service
agreement with the affiliated dental group. The aggregate purchase price paid
in connection with this transaction consisted of approximately $2.6 million in
cash, $0.5 million in subordinated promissory notes and 34,800 shares of the
Company's Common Stock. This transaction is referred to as the "1998
Transaction."

(5) PROPERTY AND EQUIPMENT

Property and Equipment

Property and equipment consisted of the following at December 31:

<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land, buildings and leasehold improvements................. $ 3,938 $ 6,376
Equipment.................................................. 3,768 6,191
Furniture and fixtures..................................... 1,450 2,868
------- -------
Total property and equipment............................... 9,156 15,435
Less accumulated depreciation.............................. (3,213) (6,683)
------- -------
Property and equipment, net................................ $ 5,943 $ 8,752
======= =======
</TABLE>

Operating Leases

The Company is obligated under non-cancelable operating leases for premises
and equipment expiring in various years through the year 2009. Rent expense
for the years ended December 31, 1996 and 1997 amounted to $319,000 and
$3,926,000, respectively, of which $267,000 and $3,476,000 were reimbursed
under service agreements. The Company has several leases with stockholders
that were assumed in connection with its 1996 and 1997 Transactions. Such
amounts are generally reimbursed pursuant to the terms of the service
agreements.

Minimum future rental payments under non-cancelable operating leases and
amounts to be reimbursed under service agreements as of December 31, 1997 are
as follows:

<TABLE>
<CAPTION>
AMOUNT TO BE
TOTAL REIMBURSED
AMOUNT UNDER SERVICE NET
DUE AGREEMENTS AMOUNT
------- ------------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
1998............................................ $ 3,843 $ 3,622 $221
1999............................................ 3,283 3,134 149
2000............................................ 2,566 2,459 107
2001............................................ 1,913 1,805 108
2002............................................ 1,417 1,402 15
Thereafter...................................... 4,097 4,097 --
------- ------- ----
Total minimum lease payments.................. $17,119 $16,519 $600
======= ======= ====
</TABLE>

F-12
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

(6) INCOME TAXES

Income tax expense (benefit) attributable to income from continuing
operations for the years ended December 31 consists of the following:

<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal.................................................... $ -- $ 54
State...................................................... -- 102
------- ------
-- 156
------- ------
Deferred:
Federal.................................................... -- (32)
State...................................................... -- --
------- ------
-- (32)
------- ------
Total income taxes....................................... $ -- $ 124
======= ======
</TABLE>

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

<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Operating loss and other carryforwards.................. $ 1,446 $ 989
Property and equipment.................................. 366 566
Organization and start-up costs......................... 251 243
Accrued expenses and other liabilities.................. 831 730
Other................................................... 168 --
------- -------
Total gross deferred tax assets......................... 3,062 2,528
Valuation allowance..................................... (3,062) (2,454)
------- -------
Net deferred tax assets................................. -- 74
------- -------
Deferred tax liabilities..................................
Intangibles............................................. -- (16)
Other................................................... -- (289)
------- -------
Total gross deferred tax liabilities.................... -- (305)
------- -------
Net deferred tax assets (liabilities)..................... $ -- $ (231)
======= =======
</TABLE>

The valuation allowance for deferred tax assets was $3,062,000 and
$2,454,000 as of December 31, 1996 and 1997, respectively. The net change in
the total valuation allowance for the years ended December 31, 1996 and 1997
was an increase of $3,062,000 and a decrease of $608,000, respectively. The
valuation allowance has been established because, based on the limited
operating history of the Company and other available evidence, it is more
likely than not that the deferred tax asset will not be realized.

F-13
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

Subsequent recognized tax benefits relating to the valuation allowance for
deferred tax assets as of December 31 will be allocated as follows:

<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Income tax benefit to be reported in the consolidated
statement of operations................................ $ 1,549 $ 371
Intangibles............................................. 1,513 2,083
------- -------
$ 3,062 $ 2,454
======= =======
</TABLE>

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

<TABLE>
<CAPTION>
1996 1997
----------------------- -----------------------
FEDERAL STATE TOTAL FEDERAL STATE TOTAL
------- ----- ------- ------- ----- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Current.................... $ 240 $ 46 $ 286 $ 354 $ 95 $ 449
Non-current................ 2,320 456 2,776 1,457 622 2,079
Valuation allowance........ (2,560) (502) (3,062) (1,807) (647) (2,454)
------- ----- ------- ------- ----- -------
Net deferred tax assets.. -- -- -- 4 70 74
------- ----- ------- ------- ----- -------
Deferred tax liabilities:
Current.................... -- -- -- -- -- --
Non-current................ -- -- -- (203) (102) (305)
------- ----- ------- ------- ----- -------
Total gross deferred tax
liabilities............... -- -- -- (203) (102) (305)
------- ----- ------- ------- ----- -------
Net deferred tax assets
(liabilities)........... $ -- $ -- $ -- $ (199) $ (32) $ (231)
======= ===== ======= ======= ===== =======
</TABLE>

At December 31, 1997, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $2,092,000 which are available to
offset future Federal taxable income. The net operating loss carryforward
begins to expire in the year 2011 unless utilized.

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

<TABLE>
<CAPTION>
1996 1997
------ -----
<S> <C> <C>
Income taxes at Federal statutory rate...................... (34.0)% 34.0%
State taxes, net of Federal benefit......................... (6.0) 4.0
Valuation reserve and other changes......................... 33.0 (36.6)
Intangibles and other permanent differences................. 7.0 9.0
------ -----
Effective income tax rate................................... -- % 10.4%
====== =====
</TABLE>

F-14
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

(7) DEBT

Long-term debt and capital lease obligations consist of the following at
December 31:

<TABLE>
<CAPTION>
1996 1997
------ -------
(IN THOUSANDS)
<S> <C> <C>
Revolving line of credit advances, collateralized by substan-
tially all assets of the Company, all at a LIBOR based rate of
approximately 7.6%............................................. $ -- $16,700
Mortgages payable, secured, interest rates ranging from 8.6% to
8.8% payable in installments through 2015...................... 788 727
Note payable, unsecured, interest rate of 8.5% payable in in-
stallments, maturing in 2004................................... 524 45
Subordinated notes payable to stockholders and former owners,
bearing interest at 7%, maturing through 2003.................. 2,182 4,308
Capital lease obligations....................................... 106 247
------ -------
Total long-term debt and capital lease obligations.............. 3,600 22,027
Less current maturities......................................... 537 774
------ -------
Long-term debt and capital lease obligations, excluding current
maturities..................................................... $3,063 $21,253
====== =======
</TABLE>

Annual maturities of long-term debt and future minimum lease payments under
capital leases as of December 31, 1997 are as follows:

<TABLE>
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASES
--------- -------
(IN THOUSANDS)
<S> <C> <C>
1998..................................................... $ 692 $103
1999..................................................... 713 66
2000..................................................... 17,437 50
2001..................................................... 761 50
2002..................................................... 789 31
Thereafter............................................... 1,388 --
------- ----
Total payments......................................... $21,780 300
=======
Less amounts representing interest....................... 53
----
Total obligations under capital leases................... $247
====
</TABLE>

Revolving Line of Credit

In April 1997, the Company entered into a $30 million revolving line of
credit agreement with a bank. The credit facility is being used for general
corporate purposes including acquisitions. Borrowings under this line of
credit bear interest at either prime- or LIBOR-based rates, at the Company's
option, plus a margin based upon the Company's debt coverage ratio, which
ranges up to 0.50% for prime-based loans and up to 2.125% for LIBOR-based
loans. In addition, the Company pays a commitment fee of 0.25% of the average
daily balance of the unused line. Borrowings are limited to an availability
formula based on adjusted EBITDA. The credit facility is secured by a first
lien on substantially all of the Company's assets, including a pledge of the
stock of the Company's subsidiaries. The Company is also required to comply
with certain financial and other covenants. The line of credit matures in
April 2000.

F-15
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

Subordinated Debentures

The Company is a party to a Subordinated Debenture Purchase Agreement dated
January 8, 1996 pursuant to which it has received a commitment from a
principal stockholder for the purchase of up to $15,000,000 of 12%
subordinated debentures. The purchase of such debentures is contingent upon
the satisfaction of certain conditions. For each debenture issued, the Company
is also obligated to issue Common Stock at a purchase price equal to the $0.01
per share par value of the Company's Common Stock. The number of shares of
Common Stock to be issued is subject to a predetermined formula.

The principal amount of the debentures, if issued, will be payable in three
equal installments due in the years 2002, 2003 and 2004 or upon the occurrence
of a Liquidity Event, as defined. Any debentures outstanding are subordinated
to any indebtedness owed to any bank. The Company is not obligated to issue
any debentures and has not issued any debentures through December 31, 1997.
The obligation to purchase any debentures will automatically terminate upon
completion of an initial public offering.

(8) CONVERTIBLE AND REDEEMABLE PREFERRED STOCK

Series A Convertible Preferred Stock

The Company is authorized to issue up to 400,000 shares of Series A
convertible preferred stock, $0.01 par value, all of which were issued and
outstanding at December 31, 1996 and 1997.

Holders of Series A convertible preferred stock have the same number of
votes as the shares of Common Stock into which their Series A convertible
preferred stock could be converted. The Series A convertible preferred stock
is entitled to receive dividends at a cumulative rate of $1.58 per share,
compounded annually ($109,000 and $632,000 for the years ended December 31,
1996 and 1997, respectively) which have not been declared. Such dividends will
be paid when, as and if declared by the Board of Directors. In the event of
liquidation, dissolution, or winding up of the Company, holders of the Series
A convertible preferred stock will be entitled to receive, prior to any
distribution to holders of Common Stock, all accumulated unpaid dividends plus
$19.75 per share. However, if holders of the Series A convertible preferred
stock would receive a greater amount if their stock had been converted to
Common Stock immediately prior to such liquidation, dissolution, or winding
up, then they will be entitled to receive such greater amount. The Series A
convertible preferred stock is recorded at $8,009,000 and $8,641,000 at
December 31, 1996 and 1997, respectively, and includes accrued but unpaid
dividends.

The Series A convertible preferred stock may be converted into shares of
Common Stock at any time at the option of the holder. The 400,000 shares of
Series A convertible preferred stock will convert to 2,400,000 shares of
Common Stock upon completion of the Company's initial public offering and all
accrued dividends will be canceled. This same conversion ratio applies in the
event a holder of this preferred stock converts such shares into Common Stock
prior to the completion of this offering.

If not previously converted, the Series A convertible preferred stock will
be subject to redemption at the option of the Company or a majority of the
holders of the Series A convertible preferred stock in three equal
installments in the years 2002, 2003 and 2004.

Series B Redeemable Preferred Stock

The Company is authorized to issue 70,000 shares of Series B redeemable
preferred stock, par value $0.01 per share, all of which were issued and
outstanding at December 31, 1996 and 1997. Holders of Series B

F-16
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

redeemable preferred stock have no voting rights. The Series B redeemable
preferred stock is entitled to receive dividends at a cumulative rate of $8.00
per share, compounded annually ( $96,000 and $560,000 for the years ended
December 31, 1996 and 1997, respectively) which have not been declared. Such
dividends will be paid when, as and if declared by the Board of Directors. In
the event of liquidation, dissolution, or winding up of the Company, holders
of the Series B redeemable preferred stock will be entitled to receive, prior
to any distributions to holders of Common Stock, all accumulated unpaid
dividends plus $100 per share. The Series B redeemable preferred stock is
recorded at $7,096,000 and $7,656,000 at December 31, 1996 and 1997,
respectively and includes accrued but unpaid dividends.

The Series B redeemable preferred stock will be redeemed concurrently, or
within 90 days thereafter, of the consummation of the first sale of securities
by the Company pursuant to a registration statement filed under the Securities
Act of 1933, as amended. If not previously redeemed, the Series B redeemable
preferred stock will be subject to redemption at the option of the Company or
of holders of a majority of the Series B redeemable preferred stock in three
equal installments in the years 2002, 2003 and 2004.

Authorized Shares

Effective October 31, 1997, the Company increased its authorized shares of
Preferred Stock from 470,000 to 1,000,000 shares. The additional 530,000
shares are undesignated Preferred Stock which can be issued in one or more
series.

(9) STOCKHOLDERS' EQUITY

Common Stock

The Company is authorized to issue up to 25,000,000 shares of Common Stock,
$0.01 par value, of which 2,213,384 and 2,394,212 shares were issued and
outstanding at December 31, 1996 and 1997, respectively. In January and
February of 1996, the Company sold 300,000 shares of its Common Stock for
$100,000. Additionally, in January 1996, the Company sold 300,000 shares of
its Common Stock, which were subject to certain restrictions, for $500. In
connection with this transaction, the Company is recording compensation
expense ratably as the restrictions lapse. Compensation expense amounted to
$22,809 and $24,884 for the years ended December 31, 1996 and 1997,
respectively.

Initial Public Offering

Effective October 27, 1997, the Company authorized the filing of a
registration statement for an initial public offering of the Company's Common
Stock.

Stock Split and Authorized Shares

Effective October 31, 1997, the Company increased its authorized shares of
Common Stock from 2,500,000 to 25,000,000 shares. The increase in authorized
shares has been reflected retroactively in the accompanying consolidated
financial statements.

On November 7, 1997, the Company approved a 6-for-1 split of the Company's
Common Stock effected in the form of a stock dividend. All share and per share
amounts in the accompanying consolidated financial statements have been
retroactively restated to reflect this split.

F-17
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

Dividend Restriction

The Company has not paid any cash dividends on its Common Stock and does not
plan to pay any cash dividends on its Common Stock in the foreseeable future.
Also, no dividends may be paid on the Common Stock (other than dividends paid
solely in Common Stock) without the consent of at least 51% of the then
current holders of the Series A convertible and Series B redeemable preferred
stock. Additionally, the terms of the Company's revolving credit facility
prohibit it from paying dividends or making other payments with respect to its
Common Stock without the lenders' consent.

(10) STOCK OPTION PLANS

1996 Stock Option Plan

The Company's 1996 Stock Option Plan (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
expire ten years after the date of grant. At December 31, 1997, options for a
total of 873,246 shares were reserved for issuance and options for 648,420
shares were outstanding under this Plan.

1996 Time Accelerated Restricted Stock Option Plan

The Company's 1996 Time Accelerated Restricted Stock Option Plan ("TARSOP
Plan") provides for the grant of stock options to key employees. Only non-
qualified options may be granted pursuant to the TARSOP Plan. The exercise
price of such options is no less than the fair market value of the Common
Stock at the time of grant. These options vest at the end of the ninth year,
but are subject to accelerated vesting based on achievement of certain
performance measures. Options granted pursuant to the TARSOP Plan expire nine
and one-half years after the date of grant. At December 31, 1997, options for
a total of 360,360 shares were reserved for issuance under the TARSOP Plan,
all of which have been issued.

1996 Affiliate Stock Option Plan

The Company's 1996 Affiliate Stock Option Plan (the "Affiliate Plan")
provides for the grant of stock options to certain persons associated with the
affiliated dental practices. Only non-qualified options may be granted
pursuant to the Affiliate Plan. The exercise price of such options is no less
than the fair market value of the Common Stock at the time of grant. Options
granted pursuant to the Affiliate Plan expire ten years after the date of
grant. At December 31, 1997, options for a total of 210,000 shares were
reserved for issuance and options for 89,586 shares were outstanding under
this Plan.

1996 Directors Stock Option Plan

The Company's 1996 Directors Stock Option Plan (the "Directors Plan")
provides for the granting of options to outside directors. Only non-qualified
options may be granted pursuant to the Directors Plan. The exercise price of
such options is no less than the fair market value of the Common Stock at the
time of grant. Options granted pursuant to the Directors Plan expire ten years
after the date of grant. At December 31, 1997, options for a total of 60,000
shares were reserved for issuance and options for 19,800 shares were
outstanding under this Plan.

F-18
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

Stock Option Activity

A summary of stock option activity under all the Company's stock option
plans for the years ended December 31, 1996 and 1997 follows:

<TABLE>
<CAPTION>
EXERCISE PRICES
-----------------------
NUMBER OF WEIGHTED
OPTIONS RANGE AVERAGE
--------- -------------- --------
<S> <C> <C> <C>
Outstanding at January 1, 1996............ -- -- --
Granted................................... 571,170 $ 0.33-$ 12.50 $ 3.50
Cancelled................................. (4,500) 0.33 0.33
--------- -------------- ------
Outstanding at December 31, 1996.......... 566,670 $ 0.33-$12.50 $ 3.50
Granted................................... 552,096 12.50- 14.17 14.04
Cancelled................................. (600) 14.17 14.17
--------- -------------- ------
Outstanding at December 31, 1997.......... 1,118,166 $ 0.33-$14.17 $ 8.69
========= ============== ======
Options exercisable at:
December 31, 1996....................... 16,320
=========
December 31, 1997....................... 70,298
=========
</TABLE>

The Company has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for stock options
issued. In accordance with the provisions of SFAS 123, there would be no
compensation cost using the minimum value method with the following
assumptions: risk free interest rate of 6.7%, expected life of four years, no
volatility and no dividends.

The following table summarizes information about stock options outstanding
at December 31, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ----------------------------
WEIGHTED AVERAGE
REMAINING
RANGE OF NUMBER CONTRACTUAL LIFE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING (IN YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.33 352,770 7.3 $0.33 16,500 $ 0.33
$8.33 194,700 8.5 $8.33 49,448 $ 8.33
$12.50-$14.17 570,696 9.0-9.6 $12.50-$14.17 4,350 $12.50
--------- ------
1,118,166 70,298
========= ======
</TABLE>

(11) EMPLOYEE BENEFIT PLANS

1997 Employee Stock Purchase Plan

Effective December 1, 1997, the Company adopted the 1997 Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan"). The Employee Stock
Purchase Plan 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
will occur at the end of option periods, each of six months' duration, except
that the first such option period will begin concurrent with the commencement
of the Company's initial public offering and end on June 30, 1998. The
purchase price of Common Stock under the Employee Stock Purchase Plan will be
85% of the lesser of the value of the Common Stock at the beginning of an
option period and the value of the Common Stock at the end of the option
period.

F-19
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

Participants may elect under the Employee Stock Purchase Plan, prior to each
option period, to have from 2% to 10% of their pay withheld and applied to the
purchase of shares at the end of the option period. The Employee Stock
Purchase Plan imposes a maximum of $10,000 on the amount that may be withheld
from any participant in any option period. A total of 200,000 shares of Common
Stock has been reserved for issuance under the Employee Stock Purchase Plan.

Retirement 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, which provides for a match of up to 3% of an employee's compensation.
Additionally, at December 31, 1997, the Company had three other defined
contribution retirement plans. Total plan expense for the years ended December
31, 1996 and 1997 was $20,000 and $189,000, respectively.

(12) EARNINGS PER SHARE

Earnings per share are computed based on Statement of Financial Accounting
Standards No. 128 "Earnings per Share" ("SFAS 128"). SFAS 128 requires
presentation of basic earnings per share ("Basic EPS") and diluted earnings
per share ("Diluted EPS") by all entities that have publicly traded common
stock or potential common stock (options, warrants, convertible securities or
contingent stock arrangements). Basic EPS is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period. The computation of
Diluted EPS does not assume conversion, exercise or contingent exercise of
securities that would have an antidilutive effect on earnings. Accordingly,
the Series A Convertible Preferred Stock and the effect of stock options were
not included in the calculation of Diluted EPS for the years ended December
31, 1996 and 1997.

The following table provides a reconciliation of the numerators and
denominators of the basic and diluted loss per share computations for the
years ended December 31:

<TABLE>
<CAPTION>
1996 1997
----------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
BASIC LOSS PER SHARE
Net earnings (loss)................................. $ (2,443) $ 1,070
Less: Dividends on Series A Convertible Preferred
Stock.............................................. (109) (632)
Dividends on Series B Redeemable Preferred Stock.. (96) (560)
----------- ----------
Net loss available to common stockholders........... $ (2,648) $ (122)
=========== ==========
Weighted average common shares outstanding.......... 768 2,273
=========== ==========
Net loss per share.................................. $ (3.45) $ (0.05)
=========== ==========
DILUTED LOSS PER SHARE
Net earnings (loss)................................. $ (2,443) $ 1,070
Less: Dividends on Series A Convertible Preferred
Stock.............................................. (109) (632)
Dividends on Series B Redeemable Preferred Stock.. (96) (560)
----------- ----------
Net loss available to common stockholders........... $ (2,648) $ (122)
=========== ==========
Weighted average common shares outstanding.......... 768 2,273
=========== ==========
Net loss per share.................................. $ (3.45) $ (0.05)
=========== ==========
</TABLE>

F-20
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

UNAUDITED INTERIM

CONSOLIDATED FINANCIAL STATEMENTS

F-21
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 4,675 $ 3,134
Accounts receivable............................... 101 281
Receivables due from affiliated practices......... 3,207 3,984
Inventories....................................... 387 388
Prepaid expenses and other receivables............ 1,631 1,331
Deferred income taxes............................. -- 449
------- -------
Total current assets............................ 10,001 9,567
------- -------
Property and equipment, net......................... 8,752 11,562
------- -------
Non-current assets:
Intangible assets, net............................ 28,975 49,042
Deferred income taxes............................. -- 785
Other assets...................................... 231 496
------- -------
Total non-current assets........................ 29,206 50,323
------- -------
Total assets.................................... $47,959 $71,452
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 2,618 $ 3,031
Accrued compensation, benefits and taxes.......... 3,001 3,364
Accrued expenses.................................. 2,666 4,222
Income taxes payable.............................. 183 1,139
Current maturities of debt........................ 774 1,021
------- -------
Total current liabilities....................... 9,242 12,777
------- -------
Non-current liabilities:
Long-term debt.................................... 21,253 11,047
Deferred income taxes............................. 231 --
Other liabilities................................. 27 753
------- -------
Total non-current liabilities................... 21,511 11,800
------- -------
Total liabilities............................... 30,753 24,577
------- -------
Series A convertible preferred stock, par value
$0.01 per share, 400,000 shares authorized, issued
and outstanding as of December 31, 1997; no shares
authorized, issued or outstanding as of September
30, 1998........................................... 8,641 --
Series B redeemable preferred stock, par value $0.01
per share, 70,000 shares authorized, issued and
outstanding as of December 31, 1997; no shares
authorized, issued or outstanding as of September
30, 1998........................................... 7,656 --
Stockholders' equity:
Preferred stock, par value $0.01 per share,
530,000 and 1,000,000 shares authorized, no
shares issued or outstanding..................... -- --
Common stock, par value $0.01 per share,
25,000,000 shares authorized, 2,394,212 and
7,436,066 shares issued and outstanding.......... 24 74
Additional paid-in capital........................ 2,307 45,742
Unearned compensation............................. (49) (30)
Retained earnings (accumulated deficit)........... (1,373) 1,089
------- -------
Total stockholders' equity...................... 909 46,875
------- -------
Commitments and contingencies
Total liabilities and stockholders' equity...... $47,959 $71,452
======= =======
</TABLE>

See accompanying notes to interim consolidated financial statements.

F-22
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ----------------
1997 1998 1997 1998
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue.................................. $13,318 $22,334 $36,620 $60,722
------- ------- ------- -------
Operating expenses:
Salaries and benefits...................... 7,097 11,363 19,625 31,464
Lab fees and dental supplies............... 1,652 2,950 4,491 7,787
Office occupancy........................... 1,247 2,073 3,368 5,532
Other operating expenses................... 1,486 1,759 4,433 5,023
General corporate expenses................. 836 971 2,260 3,002
Depreciation............................... 395 641 1,154 1,803
Amortization of intangibles................ 135 491 349 1,237
------- ------- ------- -------
Total operating expenses................. 12,848 20,248 35,680 55,848
------- ------- ------- -------
Earnings from operations..................... 470 2,086 940 4,874
Interest expense, net...................... 115 193 195 838
------- ------- ------- -------
Earnings before income taxes................. 355 1,893 745 4,036
Income taxes............................... 74 738 81 1,574
------- ------- ------- -------
Net earnings............................... $ 281 $ 1,155 $ 664 $ 2,462
======= ======= ======= =======
Net earnings (loss) per common share:
Basic...................................... $ (0.01) $ 0.16 $ (0.10) $ 0.38
Diluted.................................... $ (0.01) $ 0.15 $ (0.10) $ 0.34
Weighted average common shares outstanding:
Basic...................................... 2,255 7,428 2,232 5,392
Diluted.................................... 2,255 7,660 2,232 6,593
</TABLE>

See accompanying notes to interim consolidated financial statements.

F-23
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------- PAID-IN UNEARNED RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS EQUITY
------ ------ ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997................... 2,394 $24 $ 2,307 $(49) $(1,373) $ 909
Issuance of common
stock for
acquisitions and
affiliations......... 54 -- 443 -- -- 443
Issuance of common
stock in initial
public offering,
net.................. 2,588 26 34,570 -- -- 34,596
Amortization of
unearned
compensation......... -- -- -- 19 -- 19
Dividends on Series A
convertible preferred
stock................ -- -- (200) -- -- (200)
Dividends on Series B
redeemable preferred
stock................ -- -- (195) -- -- (195)
Conversion of Series A
convertible preferred
stock to common
stock................ 2,400 24 8,817 -- -- 8,841
Net earnings.......... -- -- -- -- 2,462 2,462
----- --- ------- ---- ------- -------
Balance at September 30,
1998................... 7,436 $74 $45,742 $(30) $ 1,089 $46,875
===== === ======= ==== ======= =======
</TABLE>

See accompanying notes to interim consolidated financial statements.

F-24
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
----------------
1997 1998
------- -------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings................................................ $ 664 $ 2,462
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation............................................... 1,154 1,803
Amortization of intangibles................................ 349 1,237
Other amortization......................................... 39 80
Changes in assets and liabilities, net of acquisitions and
affiliations:
Accounts receivable....................................... 1,778 769
Receivables due from affiliated practices................. (1,820) (679)
Other current assets...................................... 137 (146)
Accounts payable and accrued expenses..................... (334) 317
Accrued compensation, benefits and taxes.................. (166) 200
Income taxes payable...................................... 110 1,332
------- -------
Net cash provided by operating activities................ 1,911 7,375
------- -------
Cash flows from investing activities:
Acquisitions and affiliations, net of cash acquired......... (3,337) (18,138)
Capital expenditures, net................................... (2,102) (3,142)
Other....................................................... (1,128) (1,381)
------- -------
Net cash used for investing activities................... (6,567) (22,661)
------- -------
Cash flows from financing activities:
Borrowings under (repayments of) revolving line of credit,
net........................................................ 2,300 (11,965)
Repayment of borrowings..................................... (708) (1,608)
Proceeds from issuance of common stock in initial public
offering, net of underwriting discounts and commissions.... -- 36,096
Redemption of Series B redeemable preferred stock........... -- (7,851)
Payment of initial public offering costs.................... (71) (927)
Payment of debt issuance costs.............................. (242) --
------- -------
Net cash provided by financing activities................ 1,279 13,745
------- -------
Decrease in cash and cash equivalents........................ (3,377) (1,541)
Cash and cash equivalents at beginning of period............. 8,681 4,675
------- -------
Cash and cash equivalents at end of period................... $ 5,304 $ 3,134
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net............... $ 33 $ 502
======= =======
Cash paid during the period for income taxes, net........... $ (29) $ 242
======= =======
Supplemental disclosure of non-cash information:
Conversion of Series A convertible preferred stock to common
stock....................................................... $ -- $ 8,841
======= =======
Acquisitions and affiliations:
Assets acquired............................................. $ 5,816 $26,686
Liabilities assumed and issued.............................. (2,061) (7,821)
Common stock issued......................................... (172) (443)
------- -------
Cash paid................................................... 3,583 18,422
Less cash acquired.......................................... (246) (284)
------- -------
Net cash paid for acquisitions and affiliations.......... $ 3,337 $18,138
======= =======
</TABLE>

See accompanying notes to interim consolidated financial statements.

F-25
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

The interim consolidated financial statements include the accounts of
American Dental Partners, Inc. and its wholly-owned subsidiaries (the
"Company"). All intercompany balances and transactions have been eliminated in
consolidation.

The Company does not own any interests in or control the activities of the
affiliated dental practices. Accordingly, the financial statements of the
affiliated dental practices are not consolidated with those of the Company.

The interim consolidated financial statements are unaudited, but in the
opinion of management include all adjustments, which consist only of normal
and recurring adjustments, necessary for a fair presentation of its financial
position and results of operations. Results of operations for the interim
periods are not necessarily indicative of the results to be expected for the
full year. These financial statements should be read in conjunction with the
consolidated financial statements of the Company as of and for the year ended
December 31, 1997 included in the Company's Prospectus dated April 15, 1998.

(2) INITIAL PUBLIC OFFERING

During the second quarter of 1998, the Company sold 2,587,500 shares of
Common Stock in an initial public offering at $15.00 per share. Net proceeds
to the Company after deducting underwriting discounts and commissions and
offering expenses totaled approximately $34,596,000. Such proceeds were used
to (i) redeem all the Series B Redeemable Preferred Stock, including unpaid
dividends, in the amount of $7,851,000, (ii) repay outstanding indebtedness
under the Company's revolving credit facility, including accrued interest, in
the amount of $20,651,000 and (iii) complete additional affiliation
transactions.

In connection with the offering, all 400,000 shares of Series A Convertible
Preferred Stock were converted to 2,399,995 shares of Common Stock.

(3) ACQUISITIONS AND AFFILIATIONS

During 1997, the Company acquired substantially all the assets of six dental
practices and Orthocare, Ltd., a related entity of one of these practices, and
simultaneously entered into 40-year service agreements with four of the
affiliated dental groups (two practices joined existing affiliates). The
aggregate purchase price paid in connection with these transactions consisted
of approximately $16.8 million in cash, $2.4 million in subordinated
promissory notes and 180,834 shares of Common Stock. All transactions
completed in 1997 are referred to as the "1997 Transactions."

From January 1, 1998 to September 30, 1998, the Company acquired
substantially all the assets of nine dental group practices and simultaneously
entered into 40-year service agreements with four of the affiliated dental
groups (five practices joined existing affiliates). The aggregate purchase
price paid in connection with these transactions consisted of approximately
$18.5 million in cash, $2.2 million in subordinated promissory notes, $1.0
million in deferred payments, 54,354 shares of Common Stock and future
contingent payments for one affiliation based on a multiple of service fees
received in excess of a predetermined threshold for each of the three years
ending May 31, 1999, 2000 and 2001. All transactions completed in 1998 are
referred to as the "1998 Transactions."

F-26
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The 1997 and 1998 Transactions completed through September 30, 1998 are as
follows:

<TABLE>
<CAPTION>
DATE AFFILIATED GROUP LOCATION
---- ---------------- --------
<S> <C> <C>
March 1997.............. Malcolm R. Scott, D.D.S. San Marcos, TX
March 1997.............. Lakeside Dental Care Metairie, LA
May 1997................ Soster Dental Group Pittsburgh, PA
July 1997............... Northpoint Dental Group Milwaukee, WI
October 1997............ Wilkens Dental Group Milwaukee, WI
October 1997............ Orthocare Group Minneapolis, MN
January 1998............ Associated Dental Care Phoenix and Tucson, AZ
April 1998.............. Family Care Dental Centers Janesville, Kenosha and Racine, WI
April 1998.............. John E. Carey, D.D.S. and Madison, WI
James J. Peterman, D.D.S.
April 1998.............. Leroy S. Crapanzano, D.D.S. Hammond, LA
June 1998............... Reston Dental Group Reston, VA
June 1998............... TSC Dental Centers Houston, TX
July 1998............... Indiana Dental Group Indiana, PA
September 1998.......... Mintz & Pincus Dental Group Oxon Hill and Waldorf, MD
September 1998.......... Westmore Dental Group Mt. Pleasant, PA
</TABLE>

The accompanying interim consolidated financial statements include the
results of operations under the service agreements from the date of
acquisition. The excess of the purchase price of all the 1997 and 1998
Transactions over the estimated fair value of the net assets acquired has been
recorded as intangible assets.

Effective November 1, 1998, the Company acquired substantially all the
assets of St. Croix Valley Orthodontics, Ltd. which joined the Company's
existing affiliate in Minneapolis, MN.

(4) EARNINGS PER SHARE

Earnings per share are computed based on Statement of Financial Accounting
Standard No. 128 "Earnings per Share" ("SFAS 128"). SFAS 128 requires
presentation of basic earnings per share ("Basic EPS") and diluted earnings
per share ("Diluted EPS") by all entities that have publicly traded common
stock or potential common stock (options, warrants, convertible securities or
contingent stock arrangements). Basic EPS is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period. The computation of
Diluted EPS does not assume conversion, exercise or contingent exercise of
securities that would have an antidilutive effect on earnings.

F-27
<PAGE>

AMERICAN DENTAL PARTNERS, INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table provides a reconciliation of the numerators and
denominators of the basic and diluted earnings (loss) per share computations
for the three months and nine months ended September 30:

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------
1997 1998 1997 1998
--------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE
Net earnings........................... $ 281 $ 1,155 $ 664 $ 2,462
Less:Dividends on Series A Convertible
Preferred Stock....................... (158) -- (474) (200)
Dividends on Series B Redeemable
Preferred Stock.................... (140) -- (420) (195)
--------- --------- -------- --------
Net earnings (loss) available to common
stockholders.......................... $ (17) $ 1,155 $ (230) $ 2,067
========= ========= ======== ========
Weighted average common shares
outstanding........................... 2,255 7,428 2,232 5,392
========= ========= ======== ========
Net earnings (loss) per share.......... $ (0.01) $ 0.16 $ (0.10) $ 0.38
========= ========= ======== ========
DILUTED EARNINGS (LOSS) PER SHARE
Net earnings........................... $ 281 $ 1,155 $ 664 $ 2,462
Less:Dividends on Series A Convertible
Preferred Stock....................... (158) -- (474) --
Dividends on Series B Redeemable
Preferred Stock.................... (140) -- (420) (195)
--------- --------- -------- --------
Net earnings (loss) available to common
stockholders.......................... $ (17) $ 1,155 $ (230) $ 2,267
========= ========= ======== ========
Weighted average common shares
outstanding........................... 2,255 7,428 2,232 5,392
Add:Dilutive effect of options(1)...... -- 232 -- 234
Assumed conversion of Series A
Convertible Preferred Stock(1)(2).. -- -- -- 967
--------- --------- -------- --------
Weighted average common shares as
adjusted.............................. 2,255 7,660 2,232 6,593
========= ========= ======== ========
Net earnings (loss) per share.......... $ (0.01) $ 0.15 $ (0.10) $ 0.34
========= ========= ======== ========
</TABLE>
- --------
(1) The assumed conversion of Series A Convertible Preferred Stock and the
dilutive effect of stock options were not included in the calculation of
Diluted EPS for the three months and nine months ended September 30, 1997,
as the inclusion of these items would have been antidilutive.
(2) In connection with the initial public offering, all 400,000 shares of
Series A Convertible Preferred Stock were converted into 2,399,995 shares
of Common Stock on April 21, 1998. The Diluted EPS calculation for the
nine months ended September 30, 1998 assumes conversion of the Series A
Convertible Preferred Stock to Common Stock as of January 1, 1998.

F-28
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
The Orthocare Companies:

We have audited the accompanying combined balance sheets of The Orthocare
Companies (the "Company") as of December 31, 1996 and September 30, 1997, and
the related combined statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1996 and the nine months ended September
30, 1997. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of The Orthocare
Companies as of December 31, 1996 and September 30, 1997, and the results of
their operations and their cash flows for the year ended December 31, 1996 and
the nine months ended September 30, 1997, in conformity with generally
accepted accounting principles.

KPMG Peat Marwick LLP

Boston, Massachusetts
December 29, 1997

F-29
<PAGE>

THE ORTHOCARE COMPANIES

COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $1,558 $2,101
Accounts receivable, net of allowance for
uncollectible billings of $50,000 in 1996 and
1997............................................. 1,001 852
Inventories....................................... 46 48
Prepaid expenses.................................. 26 43
------ ------
Total current assets............................ 2,631 3,044
------ ------
Property and equipment, net......................... 252 240
------ ------
Total assets.................................... $2,883 $3,284
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 48 $ 134
Accrued compensation, benefits and taxes.......... 195 456
Accrued and deferred income tax liability......... 96 226
Amounts payable to providers...................... 250 241
Deferred revenue.................................. 703 816
Notes payable to stockholders..................... 103 22
------ ------
Total current liabilities....................... 1,395 1,895
------ ------
Noncurrent liabilities:
Deferred income tax liability..................... 326 231
------ ------
Total liabilities............................... 1,721 2,126
------ ------
Stockholders' equity:
Common stock...................................... 181 181
Additional paid-in capital........................ 105 105
Retained earnings................................. 876 872
------ ------
Total stockholders' equity...................... 1,162 1,158
------ ------
Commitments and contingencies
Total liabilities and stockholders' equity...... $2,883 $3,284
====== ======
</TABLE>

See accompanying notes to combined financial statements.

F-30
<PAGE>

THE ORTHOCARE COMPANIES

COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Revenue.............................................. $8,868 $7,208
------ ------
Operating expenses:
Salaries and benefits.............................. 6,821 5,671
Lab fees and dental supplies....................... 404 326
Office occupancy................................... 599 460
Other operating expenses........................... 528 535
Depreciation....................................... 129 51
------ ------
Total operating expenses......................... 8,481 7,043
------ ------
Earnings from operations............................. 387 165
Interest (income), net............................... (35) (40)
------ ------
Earnings before income taxes......................... 422 205
------ ------
Income taxes......................................... 152 144
------ ------
Net earnings......................................... $ 270 $ 61
====== ======
</TABLE>

See accompanying notes to combined financial statements.

F-31
<PAGE>

THE ORTHOCARE COMPANIES

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995.......... $181 $105 $ 709 $ 995
Net earnings........................ -- -- 270 270
Dividends paid...................... -- -- (103) (103)
---- ---- ----- ------
Balance at December 31, 1996.......... 181 105 876 1,162
Net earnings........................ -- -- 61 61
Dividends paid...................... -- -- (65) (65)
---- ---- ----- ------
Balance at September 30, 1997......... $181 $105 $ 872 $1,158
==== ==== ===== ======
</TABLE>

See accompanying notes to combined financial statements.

F-32
<PAGE>

THE ORTHOCARE COMPANIES

COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings................................... $ 270 $ 61
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation................................. 129 51
Deferred income tax liability................ 82 (95)
Changes in assets and liabilities:
Accounts receivable......................... 12 149
Other current assets........................ 86 (19)
Accounts payable............................ 8 86
Accrued compensation, benefits and taxes.... 7 261
Accrued and deferred income tax liability... 19 130
Amounts payable to providers................ 1 (9)
Deferred revenue............................ 96 113
------ ------
Net cash provided by operating
activities............................... 710 728
------ ------
Cash flows from investing activities:
Capital expenditures, net...................... (245) (39)
------ ------
Net cash used for investing activities.... (245) (39)
------ ------
Cash flows from financing activities:
Proceeds (repayments) of notes payable to
stockholders, net............................. 59 (81)
Dividends paid................................. (103) (65)
------ ------
Net cash used for financing activities.... (44) (146)
------ ------
Increase in cash and cash equivalents........... 421 543
Cash and cash equivalents at beginning of
period......................................... 1,137 1,558
------ ------
Cash and cash equivalents at end of period...... $1,558 $2,101
====== ======
Supplemental disclosure of cash flow
information:
Cash paid during the period for income taxes... $ 51 $ 109
====== ======
Cash paid during the period for interest....... $ 2 $ 3
====== ======
</TABLE>

See accompanying notes to combined financial statements.

F-33
<PAGE>

THE ORTHOCARE COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS

(1) NATURE OF BUSINESS

The accompanying combined financial statements include Orthodontic Care
Specialists ("OCS"), Apple Park Associates, Inc. ("APA") and Orthocare Limited
("Orthocare"), collectively the ("Orthocare Companies", or the "Company"). The
Orthocare Companies provide orthodontic services to patients in the
Minneapolis/St. Paul, Minnesota area and arrange for the provision of
orthodontic services for insurance companies in Minnesota and Wisconsin.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying combined financial statements have been prepared on the
accrual basis of accounting. The operations of all entities described in Note
1 are combined for reporting purposes due to their common ownership.
Intercompany balances and transactions have been eliminated upon the
combination.

Use of Estimates

The preparation of these combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.

Revenue Recognition

Revenue is recognized in accordance with the proportional performance method
of accounting for service contracts. Under this method, revenue is recognized
as services are performed and the costs associated therewith are incurred,
under the terms of contractual agreements with each patient. A significant
portion, approximately 20% of the services are performed and revenue
recognized in the initial month of the contract. Billings under each contract,
which vary in duration from 12 to 30 months, are made throughout the term of
the contract. Patient prepayments represent collections from patients or their
insurance companies which are received in advance of the performance of the
related services.

Accounts receivable represent billed and unbilled amounts due from patients
and third party payors for orthodontic services provided.

Cash and Cash Equivalents

For purposes of the statements of cash flows, 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, accrued expenses, deferred revenue and
notes payable to stockholders approximate fair value because of the short-term
nature of these items.

Inventories

Inventories consist primarily of dental supplies and are stated at the lower
of FIFO cost or market.

F-34
<PAGE>

THE ORTHOCARE COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are
recorded using the straight-line method over the estimated useful lives of the
related assets which are 5 years for leasehold improvements, equipment and
furniture and fixtures.

Income Taxes

OCS and APA have elected to be treated as an "S Corporation" under Section
1362 of the Internal Revenue Code. As such, taxable income earned or taxable
losses incurred by these entities passes through to the shareholders and is
not subject to federal income tax at the corporate level. Accordingly, these
entities do not have a federal tax expense or benefit. Orthocare is a "C
Corporation" and is subject to federal and state income taxes.

Deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. The effect on the deferred taxes of
changes in the tax rate is recognized in operations in the period that
includes the enactment date.

(3) PROPERTY AND EQUIPMENT

Property and Equipment

Property and equipment consisted of the following at December 31, 1996 and
September 30, 1997:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Leasehold improvements............................ $ 337 $ 337
Equipment......................................... 337 376
Furniture and fixtures............................ 120 120
----- -----
Total property and equipment...................... 794 833
Less accumulated depreciation..................... (542) (593)
----- -----
Property and equipment, net....................... $ 252 $ 240
===== =====
</TABLE>

Operating Leases

The Company is obligated under non-cancelable operating leases for premises
and equipment expiring in various years through the year 2001. Rent expense
for the year ended December 31, 1996 and nine months ended September 30, 1997
amounted to $552,000 and $416,000, respectively (see Note 7).

Minimum future rental payments under non-cancelable operating leases as of
September 30, 1997 are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Quarter ending December 31, 1997............................ $ 101
Fiscal year ending:
1998...................................................... 415
1999...................................................... 317
2000...................................................... 260
2001...................................................... 200
------
Total minimum lease payments............................ $1,293
======
</TABLE>

F-35
<PAGE>

THE ORTHOCARE COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(4) INCOME TAXES

Income tax expense (benefit) attributable to earnings before income taxes
consists of:

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Year ended December 31, 1996:
Federal............................................. $ 54 $ 65 $119
State............................................... 16 17 33
---- ---- ----
$ 70 $ 82 $152
==== ==== ====
Nine months ended September 30, 1997:
Federal............................................. $188 $(75) $113
State............................................... 51 (20) 31
---- ---- ----
$239 $(95) $144
==== ==== ====
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of December
31, 1996 and September 30, 1997 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Property and equipment.......................... $ 4 $ 2
Total gross deferred tax assets................. 4 2
---- ----
Deferred tax liabilities:
Cash to accrual adjustments..................... 407 310
---- ----
Total gross deferred tax liabilities............ 407 310
---- ----
Net deferred tax liability........................ $403 $308
==== ====
</TABLE>

The following table reconciles the Federal statutory income tax rate and the
Company's effective income tax rate for the year ended December 31, 1996 and
nine months ended September 30, 1997:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Income taxes at Federal statutory rate............ 34% 34%
State taxes, net of Federal benefit............... 9 9
Effective S corporation losses.................... (7) 27
--- ---
Effective income tax rate......................... 36% 70%
=== ===
</TABLE>

(5) NOTES PAYABLE TO STOCKHOLDERS

Notes payable to stockholders consisted of the following at December 31,
1996 and September 30, 1997:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Notes payable, unsecured, interest rate 8%,
payable in installments, maturing in February
1998.......................................... $ 63 $ 22
Notes payable, unsecured, non-interest bearing,
payable on demand............................. 40 --
---- ----
$103 $ 22
==== ====
</TABLE>

F-36
<PAGE>

THE ORTHOCARE COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(6) STOCKHOLDERS' EQUITY

Common Stock

Common stock for each of the combined entity's consisted of the following at
December 31, 1996 and September 30, 1997:

<TABLE>
<CAPTION>
SHARES
PAR VALUE AUTHORIZED OUTSTANDING AMOUNT
--------- ---------- ----------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Orthocare............................ No Par 25,000 1,000 $ 1
OCS.................................. No Par 50,000 28,484 95
APA.................................. No Par 25,000 1,000 66
DSM.................................. No Par 25,000 600 19
------ ----
31,084 $181
====== ====
</TABLE>

(7) RELATED PARTY TRANSACTIONS

The Company has an Orthodontists Service Agreement with Midwest Dental Care
to provide orthodontic services to participants in Midwest Dental Plan.
Midwest Dental Plan, a Wisconsin corporation, is partially owned by Company
stockholders. The Company received capitated revenue of approximately $290,000
and $217,000 for the year ended December 31, 1996 and the nine months ended
September 30, 1997, respectively.

The Company leases space from Apple Park Partners, which is 100% owned by
the Company's majority stockholder. Payments made to Apple Park Partners under
the lease were approximately $178,000 and $157,000 for the year ended December
31, 1996 and the nine months ended September 30, 1997, respectively.

The Company has an informal agreement with College Park Lab, a Wisconsin
corporation, to contract labor for four administrative employees in its
Wisconsin office. Under the agreement, College Park Lab performs the hiring
and all payroll and benefit administration for the Company's administrative
staff. The Company reimburses College Park Lab for the cost of salaries and
benefits plus a 11% markup to cover administrative costs. Total amounts paid
to College Park Lab were approximately $99,000 and $91,000 for the year ended
December 31, 1996 and the nine months ended September 30, 1997, respectively.
College Park Lab is partially owned by a minority stockholder of the Company.

(8) SUBSEQUENT EVENTS

Effective October 1, 1997, substantially all the assets of the Company were
acquired by American Dental Partners, Inc. In connection with this transaction
Apple Park Associates, Inc. entered into a 40-year service agreement with
Orthodontic Care Specialists, Ltd.

F-37
<PAGE>

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NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PRO-
SPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATIONS THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.

----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
The Company.............................................................. 14
Dividend Policy.......................................................... 15
Price Range of Common Stock.............................................. 15
Capitalization........................................................... 16
Selected Historical Consolidated Financial Data.......................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 29
Management............................................................... 43
Certain Transactions..................................................... 50
Principal Stockholders................................................... 52
Description of Capital Stock............................................. 53
Description of Subordinated Notes........................................ 55
Shares Eligible for Future Sale.......................................... 57
Plan of Distribution..................................................... 59
Validity of Securities................................................... 59
Experts.................................................................. 59
Available Information.................................................... 60
Index to Financial Statements............................................ F-1
</TABLE>

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AMERICAN DENTAL PARTNERS, INC.

750,000 SHARES OF COMMON STOCK

AND

$25,000,000 AGGREGATE PRINCIPAL AMOUNT OF
SUBORDINATED PROMISSORY NOTES

----------------
PROSPECTUS
----------------

NOVEMBER 25, 1998

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