Agreement & Plan Of Merger And Reorganization

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION


AMONG


AMERICAN DENTAL PARTNERS, INC.,


AMERICAN DENTAL PARTNERS WISCONSIN, INC.,


SMILEAGE DENTAL CARE, INC.


AND


THE SHAREHOLDERS OF SMILEAGE DENTAL CARE, INC.


DECEMBER 23, 1996


TABLE OF CONTENTS


PAGE


AGREEMENT AND PLAN OF MERGER AND REORGANIZATION............................. 1


BACKGROUND INFORMATION...................................................... 1


ARTICLE I THE MERGER............................... 1


(S)1.1 The Merger..................................................... 1
(S)1.2 Closing; Effective Time........................................ 2
(S)1.3 Effects of the Merger.......................................... 2
(S)1.4 Certificate of Incorporation and Bylaws........................ 2
(S)1.5 Directors and Officers......................................... 2
(S)1.6 Tax Effect of the Merger....................................... 2


ARTICLE II CAPITAL STOCK............................. 2


(S)2.1 Capital Stock.................................................. 2


(a) Outstanding American Shares............................... 2
(b) Outstanding Smileage Shares............................... 3
(c) Smileage Treasury Shares.................................. 3


(S)2.2 Exchange of Certificates; Issuance of Shares................... 3
(a) Surrender of Smileage Share Certificates.................. 3
(b) Issuance of ADP Shares.................................... 3
(c) Distributions with Respect to Unexchanged Shares.......... 4


ARTICLE III REPRESENTATIONS AND WARRANTIES OF ADP........................ 4


(S)3.1 Organization and Standing...................................... 4
(S)3.2 Corporate Power and Authority.................................. 4
(S)3.3 Capitalization of ADP.......................................... 4


(a) ADP Shares................................................ 5
(b) Stock Ownership........................................... 5
(c) Due Authorization and Issuance............................ 5
(e) Compliance with Laws; No Liens............................ 5


(S)3.5 Litigation..................................................... 6
(S)3.6 Brokerage and Finder's Fees.................................... 6
(S)3.7 Subsidiaries................................................... 7
(S)3.8 Financial Statements........................................... 7
(S)3.9 Undisclosed Liabilities........................................ 7
(S)3.10 Absence of Certain Changes..................................... 8
(S)3.11 Complete Disclosure............................................ 8


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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
SMILEAGE SHAREHOLDERS..................................... 8


(S)4.1 Organization and Standing...................................... 8
(S)4.2 Capitalization and Security Holders............................ 9


(a) Smileage Shares........................................... 9
(b) Stock Ownership........................................... 9
(c) Due Authorization and Issuance............................ 9
(d) No Other Commitment....................................... 9
(e) Compliance with Laws; No Liens............................ 9


(S)4.3 Subsidiaries................................................... 10
(S)4.4 Business of Smileage........................................... 10
(S)4.5 Corporate Power and Authority.................................. 10
(S)4.6 Consents and Approvals......................................... 10
(S)4.7 Financial Statements........................................... 10
(S)4.8 Undisclosed Liabilities........................................ 11
(S)4.9 Absence of Certain Changes..................................... 12
(S)4.10 Taxes.......................................................... 13
(S)4.11 Compliance with Law............................................ 14
(S)4.12 Proprietary Rights............................................. 16
(S)4.13 Restrictive Documents or Laws.................................. 17
(S)4.14 Insurance...................................................... 17
(S)4.15 Bank Accounts, Depositories; Powers of Attorney................ 18
(S)4.16 Title to and Condition of Properties........................... 18
(S)4.17 Brokers, Finders............................................... 19
(S)4.18 Legal Proceedings, etc......................................... 19
(S)4.19 ERISA.......................................................... 20
(S)4.20 Contracts...................................................... 22
(S)4.21 Accounts Receivable............................................ 23
(S)4.22 No Conflict or Default......................................... 24
(S)4.23 Books of Account; Records...................................... 24
(S)4.24 Officers, Employees and Compensation........................... 25
(S)4.25 Labor Relations................................................ 25
(S)4.26 Suppliers and Third Party Payors............................... 26
(S)4.27 Medicare and Medicaid.......................................... 26
(S)4.28 Investment Intent.............................................. 26
(S)4.29 Disciplinary Actions........................................... 27
(S)4.30 Complete Disclosure............................................ 28


ARTICLE V COVENANTS OF THE PARTIES......................... 28


(S)5.1 Mutual Covenants............................................... 28


(a) General................................................... 28
(b) Governmental Matters...................................... 28
(c) Securities Law Compliance................................. 28
(d) Subordination Agreement................................... 28


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(S)5.2 Covenants of Smileage and the Smileage Shareholders............ 28


(a) Delivery of Smileage Interim Statements................... 29
(b) Conduct of Business....................................... 29
(c) Exclusive Rights.......................................... 30
(d) Access to Records and Other Due Diligence................. 31
(e) Disclosures............................................... 31
(f) Employee Retention........................................ 31
(g) Affiliate Indebtedness.................................... 32
(h) Dividends and Distributions............................... 32
(i) Agreements with Shareholders.............................. 32
(j) Restructuring of WDG...................................... 32
(k) Notices of Certain Events................................. 32
(l) Representations and Warranties............................ 33
(m) Noncompetition............................................ 33
(n) Injunctive Relief......................................... 34


(S)5.3 Covenants of ADP............................................... 34


(a) Representations and Warranties............................ 34
(b) Delivery of Interim Statements............................ 34


ARTICLE VI CONDITIONS..................................... 34


(S)6.1 Mutual Conditions.............................................. 34


(a) Legal Prohibition......................................... 34
(b) Service Agreement......................................... 35
(c) Governmental Approvals.................................... 35
(d) Deike Option.............................................. 35


(S)6.2 Conditions to Obligations of Smileage and the Smileage
Shareholders................................................. 35


(a) Representations and Warranties 35
(b) Performance of Agreement.................................. 35
(c) Certificate............................................... 35
(d) Opinion of Counsel........................................ 35
(e) Authority................................................. 35
(f) Restrictive Conditions.................................... 36
(g) Due Diligence............................................. 36
(h) Financial Statements...................................... 36
(i) Material Adverse Changes.................................. 36


(S)6.3 Conditions to Obligations of ADP and American.................. 36


(a) Representations and Warranties............................ 36
(b) Performance of Agreement.................................. 36
(c) Certificate............................................... 36
(d) Reorganization............................................ 36
(e) Restructure of WDG........................................ 36
(f) Authority................................................. 37


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(g) Professional Personnel.................................... 37
(h) Financial Statements...................................... 37
(i) Opinion of Counsel........................................ 37
(j) Existing Employment and Deferred Compensation Agreements.. 37
(k) Employment and Noncompetition Agreement with ADP.......... 37
(l) Employment and Noncompetition Agreements of WDG........... 37
(m) Third Party Consents...................................... 37
(n) Termination of Options.................................... 38
(o) Restrictive Conditions.................................... 38
(p) Defaults.................................................. 38
(q) Material Adverse Changes.................................. 38
(r) Books and Records......................................... 38
(s) Shareholders' Equity...................................... 38
(t) Capital Expenditures...................................... 39
(u) Agreement Between Smileage and GDP........................ 39
(v) Compliance with Laws...................................... 39
(w) Related Party Transactions................................ 39
(x) Contract with First Commonwealth.......................... 39
(y) Due Diligence............................................. 39


ARTICLE VII TERMINATION AND AMENDMENT....................... 40


(S)7.1 Termination.................................................... 40


(a) Termination by Smileage and the Smileage Shareholders..... 40
(b) Termination by ADP........................................ 40


(S)7.2 Amendment...................................................... 40
(S)7.3 Extension; Waiver.............................................. 41


ARTICLE VIII INDEMNIFICATION........................... 41


(S)8.1 Survival of Representations, Warranties and Agreements......... 41
(S)8.2 Indemnification................................................ 41
(S)8.3 Limitations on Indemnification................................. 42
(S)8.4 Procedure for Indemnification with Respect to Third Party
Claims........................................................ 44
(S)8.5 Procedure For Indemnification with Respect to Non-Third Party
Claims........................................................ 45
(S)8.6 Right of Setoff................................................ 45


ARTICLE IX MISCELLANEOUS............................. 46


(S)9.1 Attorney In Fact............................................... 46
(S)9.2 Notices........................................................ 46
(S)9.3 Non-Waiver..................................................... 47
(S)9.4 Genders and Numbers............................................ 47
(S)9.5 Headings....................................................... 48
(S)9.6 Counterparts................................................... 48


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(S)9.7 Entire Agreement............................................... 48
(S)9.8 No Third Party Beneficiaries................................... 48
(S)9.9 Governing Law.................................................. 48
(S)9.10 Binding Effect; Assignment..................................... 48
(S)9.11 Remedies....................................................... 48
(S)9.12 Expenses....................................................... 48
(S)9.13 Public Announcements........................................... 49
(S)9.14 Severability................................................... 49


INDEX OF ADP SCHEDULES...................................................... 51


INDEX OF SMILEAGE SCHEDULES................................................. 52


INDEX OF EXHIBITS........................................................... 53


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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
-----------------------------------------------


This Agreement and Plan of Merger and Reorganization (this "Agreement") is made effective December 23, 1996, among American Dental Partners, Inc., a Delaware corporation ("ADP"), American Dental Partners Wisconsin, Inc., a Wisconsin corporation which is a wholly-owned subsidiary of ADP ("American"), Smileage Dental Care, Inc., a Wisconsin corporation ("Smileage"), and the shareholders of Smileage, as identified on Exhibit A attached to this Agreement (the "Smileage Shareholders").


BACKGROUND INFORMATION
----------------------


A. ADP desires to acquire Smileage through the merger of Smileage with American (the "Merger"), pursuant to which all of the Smileage Shares (defined in (S)4.2, below) outstanding at the Effective Time (defined in (S)1.2, below) will be converted into the right to receive, in the aggregate, the following: (i) cash in the amount of $546,250 (the "Cash Consideration"), subject to adjustment under (S)6.3(s); (ii) subordinated promissory notes in the form attached to this Agreement as Exhibit B in the aggregate original principal amount of $247,500 (the "Notes"); and (iii) 50,700 shares of common stock, $.01 par value, of ADP ("ADP Shares"), subject to adjustment under (S)6.3(s). Smileage will be the surviving entity resulting from the Merger and will be a wholly-owned subsidiary of ADP.


B. The respective boards of directors of ADP, American, and Smileage have determined that the Merger and the other transactions described in this Agreement are desirable and in the best interests of their respective shareholders and have duly approved and adopted this Agreement. The shareholders of Smileage and American also have duly approved and adopted this Agreement.


STATEMENT OF AGREEMENT
----------------------


The parties to this Agreement (the "Parties") hereby acknowledge the above Background Information and agree as follows:


ARTICLE I
THE MERGER
----------


(S)1.1 The Merger. Upon the terms and subject to the conditions described
---------- in this Agreement, and in accordance with the provisions of Section 180.1101, Wisconsin Statutes (the "Wisconsin Statute"), Smileage shall be merged with American. The Merger shall be consummated by filing with the Secretary of State of Wisconsin (the "Secretary of State") a Certificate of Merger substantially in the form attached to this Agreement as Exhibit C (the "Certificate of Merger"). Following the Merger, the separate corporate existence of American shall cease and Smileage shall continue as the surviving corporation and shall continue its existence under the laws of the State of Wisconsin. Smileage, in


its capacity as the corporation surviving the Merger, is sometimes referred to in this Agreement hereafter as the "Surviving Corporation."


(S)1.2 Closing; Effective Time. The closing of the transactions
----------------------- contemplated by this Agreement (the "Closing") shall be held at the offices of Niebler & Muren, S.C., Suite 270, 450 North Sunnyslope Road, Brookfield, Wisconsin, 53008, commencing at 10:00 a.m. Eastern time on such date (the "Closing Date") as may be reasonably designated by ADP; provided that the Closing shall be held not later than 15 business days after satisfaction or waiver of all conditions set forth in Article VI of this Agreement. Promptly following the Closing, Smileage and American shall cause the Certificate of Merger to be filed with the Secretary of State, and the Merger shall become effective at the time specified in the Certificate of Merger (the "Effective Time").


(S)1.3 Effects of the Merger. The Merger shall have the effects set forth
--------------------- in the Wisconsin Statute.


(S)1.4 Certificate of Incorporation and Bylaws. As provided in the
--------------------------------------- Certificate of Merger, the certificate of incorporation of American in effect immediately prior to the Effective Time shall be amended by the filing of the Certificate of Merger to adopt the name of Smileage Dental Care, Inc., and as so amended shall be the certificate of incorporation of the Surviving Corporation after the Merger. The bylaws of American in effect immediately prior to the Effective Time shall be the bylaws of the Surviving Corporation after the Merger.


(S)1.5 Directors and Officers. After the Effective Time, the directors
---------------------- and officers of American shall be the directors and officers of the Surviving Corporation until their respective successors are duly elected and qualified.


(S)1.6 Tax Effect of the Merger. The Parties intend that the Merger
------------------------ constitute a "reorganization" within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder; provided that the Parties acknowledge and agree that the receipt by the Smileage Shareholders of the Cash Consideration and Notes will be a taxable event.


ARTICLE II
CAPITAL STOCK
-------------


(S)2.1 Capital Stock. At the Effective Time, by virtue of the Merger and
------------- without any further action on the part of ADP, American, or the Smileage Shareholders:


(a) Outstanding American Shares. Each common share, $.01 par
---------------------------
value, of American which is issued and outstanding


2


immediately prior to the Effective Time shall be unchanged and shall remain
issued and outstanding after the Effective Time, constituting one issued
and outstanding common share, $.01 par value, of the Surviving Corporation.


(b) Outstanding Smileage Shares. Each Smileage Share which is
---------------------------
issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive, subject to the provisions of (S)2.2,
below, (i) that number of ADP Shares which is equal to the result obtained
when the total number of ADP Shares to be issued as a result of the Merger
(as adjusted under (S)6.3(s), if applicable) is multiplied by a fraction
having one as its numerator and having as its denominator the total number
of Smileage Shares issued and outstanding immediately prior to the
Effective Time (the "Conversion Fraction"), (ii) a Note in a principal
amount equal to the result obtained when $247,500 is multiplied by the
Conversion Fraction, and (iii) cash in an amount equal to the result
obtained when the total Cash Consideration to be paid as a result of the
Merger (as adjusted under (S)6.3(s), if applicable) is multiplied by the
Conversion Fraction. For purposes of this Agreement, the 1,063 shares of
Smileage stock which are subject to the Deike Option (as defined in
(S)4.2(a), below) shall be deemed to be stock of Smileage which is issued
and outstanding, and prior to the Closing Date, the Deike Option shall be
exchanged for and converted into the Smileage Shares then subject to the
Deike Option.


(c) Smileage Treasury Shares. All Smileage Shares, if any, which
------------------------
are held in the treasury of Smileage shall be cancelled and retired, and no
payment shall be made in respect of such Smileage Shares.


(S)2.2 Exchange of Certificates; Issuance of Shares.
--------------------------------------------


(a) Surrender of Smileage Share Certificates. After the Effective
----------------------------------------
Time, the certificates representing the Smileage Shares (the "Smileage
Share Certificates") shall represent for all purposes only the right to
receive ADP Shares, Notes, and Cash Consideration pursuant to the
provisions of (S)2.1, above, and this (S)2.2. Promptly after the Effective
Time, each Smileage Shareholder shall surrender to ADP the Smileage Share
Certificates evidencing all of the Smileage Shares owned by that Smileage
Shareholder immediately prior to the Effective Time.


(b) Issuance of ADP Shares. In consideration of the surrender of
----------------------
the Smileage Share Certificates evidencing the Smileage Shares owned by the
Smileage Shareholders pursuant to (S)2.2(a), above, ADP shall, after the
Effective Time and upon surrender by a Smileage Shareholder of such
Shareholder's Smileage Share Certificates, issue to that Smileage


3


Shareholder that number of ADP Shares, deliver to that Smileage Shareholder
a Note having the principal amount, and pay to that Smileage Shareholder
Cash Consideration in the amount to which that Smileage Shareholder is
entitled following the conversion described in (S)2.1(b), above. For
purposes of applying the provisions of this Article, the number of ADP
Shares issuable to each Smileage Shareholder shall be rounded to the
nearest 1/10, and the principal amount of Note and the amount of the Cash
Consideration payable to each Smileage Shareholder shall be rounded to the
nearest cent.


(c) Distributions with Respect to Unexchanged Shares. No dividends or
------------------------------------------------
other distributions, if any, with respect to ADP Shares having a record
date after the Effective Time shall be paid or become payable to the holder
of any unsurrendered certificate for Smileage Shares until such holder
surrenders such certificate.


ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ADP
-------------------------------------


In order to induce Smileage and the Smileage Shareholders to enter into this Agreement, ADP hereby represents and warrants to Smileage and the Smileage Shareholders that the statements contained in this Article are true, correct and complete, except as disclosed in the Schedules specifically referred to in this Article and delivered by ADP to Smileage on or prior to the date of this Agreement (collectively, the "ADP Schedules"):


(S)3.1 Organization and Standing. Each of American and ADP is a
------------------------- corporation duly organized, validly existing and in good standing under the laws of its state of incorporation with full corporate power and authority to own, lease, use and operate its properties and to conduct its business as and where now owned, leased, used, operated and conducted. Copies of ADP's Articles of Incorporation and Bylaws which have been provided to Smileage and the Smileage Shareholders are true and correct copies thereof as of the date of this Agreement.


(S)3.2 Corporate Power and Authority. Each of American and ADP has all
----------------------------- requisite corporate power and authority to enter into this Agreement and to perform its obligations under this Agreement. This Agreement and the transactions contemplated by this Agreement have been duly and validly authorized by all necessary corporate action on the part of each of American and ADP. This Agreement has been duly executed and delivered by each of American and ADP and constitutes the legal, valid and binding obligation of each of American and ADP, enforceable against American and ADP in accordance with its terms.


(S)3.3 Capitalization of ADP.
---------------------


4


(a) ADP Shares. ADP's authorized capital stock consists solely of (i)
---------- 1,000,000 shares of common stock, $.01 par value, of which __________ are issued and outstanding; (ii) 400,000, $.01 par value, Series A Convertible Preferred Shares, of which _____________ are issued and outstanding; and (iii) 70,000, $.01 pa ...