Exhibit 10.2

 

AMERICAN DENTAL PARTNERS, INC.

 

2005 DIRECTORS STOCK OPTION PLAN

 

Amended as of July 13, 2005

 

Section 1. Purpose of Plan.

 

The purpose of this 2005 Directors Stock Option Plan (the “Plan”) of American
Dental Partners, Inc., a Delaware corporation (the “Company”), is to advance the
interests of the Company and its stockholders by providing Eligible Directors
(as defined in Section 3, below) with an opportunity to participate in the
Company’s future prosperity and growth and an incentive to increase the value of
the Company based on the Company’s performance, development, and financial
success. These objectives will be promoted by granting to Eligible Directors
options (the “Options”), which are not intended to qualify as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended (the
“Code”), to purchase shares of the Company’s common stock, $.01 par value (the
“Shares”).

 

Section 2. Administration of Plan.

 

The Plan shall be administered by a committee (the “Committee”) of one or more
directors. The member or members of the Committee shall serve at the pleasure of
the Company’s board of directors (the “Board”), which may remove members from
the Committee or appoint new members to the Committee from time to time, and
members of the Committee may resign by written notice to the Chairman of the
Board or the Secretary of the Company. The Committee shall have the power and
authority to: (a) approve the grant of Options to Eligible Directors (such
Eligible Directors, “Participants”); (b) approve the terms and conditions, not
inconsistent with the terms hereof, of any Option, including without limitation
time and performance restrictions, and approve the form of Stock Option
Agreement (as defined in Section 5, below); (c) adopt, alter, and repeal such
administrative rules, guidelines, and practices governing the Plan as it shall,
from time to time, deem advisable; (d) interpret the terms and provisions of the
Plan and any Option granted and any agreements relating thereto; and (e) take
any other actions the Committee considers appropriate in connection with, and
otherwise supervise the administration of, the Plan, all in a manner consistent
with the other provisions of the Plan. All decisions made by the Committee
pursuant to the provisions hereof shall be made in the Committee’s sole
discretion and shall be final and binding on all persons.

 

Section 3. Participants in Plan.

 

The persons eligible to receive Options under the Plan shall be those directors
of the Company who are not employees or officers of the Company or any
subsidiary of the Company (“Eligible Directors”).

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Section 4. Shares Subject to Plan.

 

The maximum aggregate number of Shares which may be issued under the Plan shall
be 150,000 Shares. The Shares that may be issued under the Plan may be
authorized but unissued Shares or issued Shares reacquired by the Company,
including without limitation Shares purchased on the open market, and held as
treasury shares.

 

If any Shares that have previously been the subject of an Option cease to be the
subject of an Option (other than by reason of exercise), or if any Shares
previously distributed under the Plan are returned to the Company in connection
with the exercise of an Option (including without limitation in payment of the
exercise price or tax withholding), such Shares shall again be available for
distribution in connection with future grants under the Plan.

 

Section 5. Grant of Options.

 

Each Option granted under the Plan shall be authorized by the Committee and
shall be evidenced by a written agreement (the “Stock Option Agreement”) in form
approved by the Committee from time to time, which shall be dated as of the date
on which the Option is granted, signed by an officer of the Company authorized
by the Committee, and signed by the Participant, and which shall describe the
Option and state that the Option is subject to all the terms and provisions of
the Plan and such other terms and provisions, not inconsistent with the Plan, as
the Committee may approve. The date on which the Committee approves the granting
of an Option shall be deemed to be the date on which the Option is granted for
all purposes, unless the Committee otherwise specifies in its approval. However,
the granting of an Option under the Plan shall be effective only if a written
Stock Option Agreement is duly executed and delivered by or on behalf of the
Company and the Participant.

 

In addition to the foregoing, all Stock Option Agreements shall include without
limitation the following provisions:

 

(a) Vesting.

 

Each Option shall be exercisable only with respect to the Shares which have
become vested pursuant to the terms of that Option. Each Option shall become
vested with respect to Shares subject to that Option on such date or dates and
on the basis of such other criteria, including without limitation performance of
the Company, as the Committee may determine, in its sole discretion, and shall
be specified in the applicable Stock Option Agreement. The Committee shall have
the authority, in its sole discretion, to accelerate the time at which an Option
shall be exercisable whenever it may determine that such action is appropriate
by reason of changes in applicable tax or other laws or other changes in
circumstances occurring after the grant of such Option.

 

(b) Exercise Price.

 

The exercise price per Share issuable upon exercise of an Option shall be
determined by the Committee at the time of grant and set forth in the applicable
Stock Option Agreement; provided that such exercise price shall not be less than

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the fair market value per Share on date the Option is granted. For purposes of
the Plan, the fair market value of the Shares shall mean, as of any given date,
the (i) last reported sale price on the New York Stock Exchange on the most
recent previous trading day, (ii) last reported sale price on the NASDAQ
National Market System on the most recent previous trading day, (iii) mean
between the high and low bid and ask prices, as reported by the National
Association of Securities Dealers, Inc. on the most recent previous trading day,
or (iv) last reported sale price on any other stock exchange on which the Shares
are listed on the most recent previous trading day, whichever is applicable;
provided that if none of the foregoing is applicable, then the fair market value
of the Shares shall be the value determined by the Committee, in its sole
discretion.

 

(c) Term.

 

No Option shall be exercisable after the expiration of 10 years from the date on
which that Option is granted.

 

(d) Method of Exercise.

 

An Option may be exercised, in whole or in part, by giving written notice to the
Company stating the number of Shares (which must be a whole number) to be
purchased. Upon receipt of payment of the full purchase price for such Shares,
plus applicable withholding taxes, by certified or bank cashier’s check or other
form of payment acceptable to the Company, or, if approved by the Committee, in
its sole discretion, by (i) delivery of unrestricted Shares having a fair market
value on the date of such delivery equal to the total exercise price, (ii)
surrender of Shares subject to the Option which have a fair market value equal
to the total exercise price at the time of exercise, or (iii) a combination of
the preceding methods, and subject to compliance with all other terms and
conditions of the Plan and the Stock Option Agreement relating to such Option,
the Company shall issue, as soon as reasonably practicable after receipt of such
payment, such Shares to the person entitled to receive such Shares, or such
person’s designated representative. Such Shares may be issued in the form of a
certificate, by book entry, or otherwise, in the Company’s sole discretion.

 

(e) Restrictions on Shares Subject to Options.

 

Shares issued upon the exercise of any Option may be made subject to such
transferability or other restrictions or conditions as the Committee may
determine, in its sole discretion, and as shall be set forth in the applicable
Stock Option Agreement.

 

(f) Transferability.

 

Options shall not be transferable. Any attempted transfer shall be null and
void. All Options shall be exercisable during a Participant’s lifetime only by
the Participant or the Participant’s legal representative. Notwithstanding the
foregoing to the contrary: (i) Options may be transferred by a Participant by
will

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or the laws of descent and distribution; and (ii) the Committee may, in its sole
discretion and in the manner established by the Committee, provide for the
irrevocable transfer, without payment of consideration, of any Option by a
Participant to such Participant’s spouse, children, grandchildren, nieces, or
nephews, to the trustee of any trust for the principal benefit of one or more
such persons, or to a partnership whose only partners are one or more such
persons. In the case of such a permitted transfer, the Option shall be
exercisable only by the transferee or such transferee’s legal representative.

 

(g) Termination of Status as an Eligible Director by Reason of Death or
Disability.

 

If a Participant’s status as an Eligible Director terminates by reason of the
Participant’s death or disability (as defined in Section 22(e)(3) of the Code,
or as may otherwise be defined by the Committee from time to time, in its sole
discretion, at or before grant and included in the applicable Stock Option
Agreement), then (i) unless otherwise determined by the Committee, in its sole
discretion, at or before grant (and set forth in the Stock Option Agreement), to
the extent an Option held by such Participant is not vested as of the date of
such termination, such Option shall automatically terminate on such date; and
(ii) to the extent an Option held by such Participant is vested as of the date
of such termination, such Option may thereafter be exercised by the Participant,
the legal representative of the Participant’s estate, the legatee of the
Participant under the will of the Participant, the distributee of the
Participant’s estate, or the Participant’s other successor in interest,
whichever is applicable, for a period of one year from the date of death or
disability, or, if sooner, until the expiration of the stated term of the
Option.

 

(h) Other Termination of Status as an Eligible Director.

 

If a Participant’s status as an Eligible Director terminates for any reason
other than death or disability, then (i) to the extent any Option held by such
Participant is not vested as of the date of termination, such Option shall
automatically terminate on such date; and (ii) unless otherwise determined by
the Committee, in its sole discretion, at or before grant (and set forth in the
Stock Option Agreement), to the extent any Option held by such Participant is
vested as of the date of such termination, such Option may thereafter be
exercised for a period of 90 days from the date of termination or, if sooner,
until the expiration of the stated term of the Option; provided that, if the
Participant’s status as an Eligible Director is terminated for Cause (as defined
by the Committee, in its sole discretion, from time to time, and included in the
applicable Stock Option Agreement), any and all unexercised Options held by such
Participant shall immediately lapse and be of no further force or effect. For
purposes of the Plan, whether termination of a Participant’s status as an
Eligible Director is for “Cause” shall be determined by the Committee, in its
sole discretion.

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(i) Effect of Termination of Participant’s Status as an Eligible Director on
Transferee.

 

No Option held by a transferee of a Participant pursuant to Section 5(f), above,
shall remain exercisable for any period of time longer than would otherwise be
permitted under Section 5(g) and 5(h).

 

Section 6. Restriction On Exercise After Termination.

 

Notwithstanding any provision of this Plan to the contrary, no unexercised right
created under this Plan (an “Unexercised Right”) shall be exercisable if, prior
to such exercise, the Participant violates any non-competition, confidentiality,
conflict of interest, or similar provision set forth in the Stock Option
Agreement pursuant to which such Unexercised Right was awarded or otherwise
conducts himself in a manner adversely affecting the Company or any subsidiary
of the Company, as determined by the Committee, in its sole discretion.

 

Section 7. Withholding Tax.

 

The Company, at its option, shall have the right to require the Participant or
any other person receiving Shares under the Plan to pay the Company the amount
of any taxes which the Company is required to withhold with respect to such
Shares or, in lieu of such payment, to retain or sell without notice a number of
such Shares sufficient to cover the amount required to be so withheld. The
Company, at its option, shall have the right to deduct from all dividends paid
with respect to Shares the amount of any taxes which the Company is required to
withhold with respect to such dividend payments. The obligations of the Company
under the Plan shall be conditional on such payment or other arrangements
acceptable to the Company.

 

Section 8. Securities Law Restrictions.

 

No right under the Plan shall be exercisable and no Share shall be delivered
under the Plan except in compliance with all applicable federal and state
securities laws and regulations. The Company shall not be required to deliver
any Shares or other securities under the Plan prior to such registration or
other qualification of such Shares or other securities under any state or
federal law, rule, or regulation as the Committee shall determine to be
necessary or advisable, in its sole discretion.

 

The Committee may require each person acquiring Shares under the Plan to make
such representations, warranties, and agreements with respect to the investment
intent of such person or persons as the Committee may reasonably request. Any
certificates for such Shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer.

 

All Shares or other securities delivered under the Plan shall be subject to such
stop-transfer orders and other restrictions as the Committee may deem advisable,
in its sole discretion, under the rules, regulations, and other requirements of
the Securities and Exchange Commission, any stock exchange upon which the Shares
are then listed, and

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any applicable federal or state securities law, and the Committee may cause a
legend or legends to be put on any certificates evidencing such Shares to make
appropriate reference to such restrictions.

 

Section 9. Change in Capital Structure.

 

In the event the Company changes its outstanding Shares by reason of stock
splits, stock dividends, or any other increase or reduction of the number of
outstanding Shares without receiving consideration in the form of money,
services, or property deemed appropriate by the Board, in its sole discretion,
the aggregate number of Shares subject to the Plan shall be proportionately
adjusted and the number of Shares and the exercise price for each Share subject
to the unexercised portion of any then-outstanding Option shall be
proportionately adjusted with the objective that the Participant’s proportionate
interest in the Company shall remain the same as before the change without any
change in the total exercise price applicable to the unexercised portion of any
then-outstanding Options, all as determined by the Committee, in its sole
discretion.

 

In the event of any other recapitalization or any merger, consolidation, or
other reorganization of the Company, the Committee shall make such adjustment,
if any, as it may deem appropriate to accurately reflect the number and kind of
Shares deliverable, and the exercise prices payable, upon subsequent exercise of
any then-outstanding Options, as determined by the Committee, in its sole
discretion.

 

The Committee’s determination of the adjustments appropriate to be made under
this Section 9 shall be conclusive upon all Participants under the Plan.

 

Section 10. Change in Control.

 

(a) Accelerated Vesting and Company Purchase Option.

 

Notwithstanding any provision of this Plan or any Stock Option Agreement to the
contrary (unless such Stock Option Agreement contains a provision referring
specifically to this Section 10 and stating that this Section 10 shall not be
applicable to the Option evidenced by such Stock Option Agreement), if a Change
in Control (as defined below) occurs, then:

 

  (i) Any and all Options theretofore granted and not fully vested shall
thereupon become vested and exercisable in full and shall remain so exercisable
in accordance with their terms; provided that no Option which has previously
been exercised or otherwise terminated shall become exercisable; and

 

  (ii) The Company may, at its option, terminate any or all unexercised Options
and portions thereof not more than 30 days after such Change in Control;
provided that the Company shall, upon such termination and with respect to each
Option so terminated, pay to the Participant (or such Participant’s transferee,
if applicable) theretofore holding such Option cash in an amount equal to the

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difference between the fair market value (as defined in Section 5(a), above) of
the Shares subject to the Option at the time the Company exercises its option
under this Section 10(a)(ii) and the exercise price of the Option, less
applicable withholding taxes; and provided further that if such fair market
value is less than such exercise price, then the Committee may, in its sole
discretion, terminate such Option without any payment.

 

(b) Definition of Change in Control.

 

For purposes of the Plan, a “Change in Control” means the happening of any of
the following:

 

  (i) The direct or indirect acquisition by any “person” as defined in §3(a)(9)
of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and as used
in §§13(d) and 14(d) thereof, including a “group” within the meaning of §13(d)
of the 1934 Act (hereinafter, simply a “Person”), of “beneficial ownership”
(within the meaning of Rule 13d-3 under the 1934 Act) of securities of the
Company representing more than 50% of the combined voting power of the Company’s
then outstanding voting securities entitled to vote generally in the election of
directors of the Company (the “Company Voting Securities”); provided that: (A)
for purposes of this subsection (i), the term “Person” shall not include the
Company, any subsidiary of the Company, or any employee benefit plan sponsored
or maintained by the Company or any subsidiary of the Company (including any
trustee of such plan acting as trustee); and (B) the provisions of this
subsection (i) shall not apply to (1) any acquisition of securities from the
Company or any of its subsidiaries, or (2) any acquisition of securities
pursuant to a Business Combination (as defined below) which satisfies clauses
(A) and (B) of subsection (iii) of this §10(b);

 

  (ii) When, during any period of 24 consecutive months during the existence of
the Plan, the individuals who, at the beginning of such period constitute the
Board (the “Incumbent Directors”) cease for any reason other than death to
constitute at least at least a majority of the Board; provided, however, that a
director who was not a director at the beginning of such 24-month period shall
be deemed to have satisfied such 24-month requirement (and be an Incumbent
Director) if such director was elected by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors either actually (because they were directors at the
beginning of such 24-month period) or by prior operation of this §10 (b)(ii); or

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  (iii) Approval by the stockholders of the Company of a reorganization, merger,
consolidation, or recapitalization of the Company, or a sale or other
disposition of all or substantially all of the assets of the Company, or the
acquisition of the assets of another corporation or other entity (any such
transaction, a “Business Combination”), or the consummation of a Business
Combination for which stockholder approval is not obtained, unless, in any such
case, following such Business Combination: (A) all or substantially all of the
individuals and entities who were the beneficial owners of the Company Voting
Securities outstanding immediately prior to such Business Combination
beneficially own, directly or indirectly, immediately following such Business
Combination, more than 50% of the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors (or
their equivalent) of the corporation or other entity resulting from such
Business Combination in substantially the same proportions as their ownership of
the Company Voting Securities immediately prior to such Business Combination,
and (B) at least a majority of the members of the board of directors (or its
equivalent) of the corporation or other entity resulting from such Business
Combination were Incumbent Directors at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or

 

  (iv) Approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company.

 

Section 11. Six-Month Holding Period.

 

If an exemption from Section 16(b) of the 1934 Act is not otherwise available
under 1934 Act Rule 16b-3(d)(1) or (2), then Shares purchased upon exercise of
an Option may not be sold before at least six months have elapsed from the date
the Option was granted.

 

Section 12. No Enlargement of Rights.

 

The adoption of this Plan and the grant of one or more Options to an Eligible
Director shall not confer any right to the Eligible Director to continue in the
status of Eligible Director and shall not restrict or interfere in any way with
the right of the Company to terminate such Eligible Director’s status as such at
any time, with or without cause.

 

Section 13. Rights as Stockholder.

 

No Participant or his executor or administrator or other transferee shall have
any rights of a stockholder in the Company with respect to the Shares covered by
an Option unless and until a certificate representing such Shares has been duly
issued and delivered to him under the Plan.

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Section 14. Acceleration of Rights.

 

The Committee shall have the authority, in its sole discretion, to accelerate
the time at which an Option shall be exercisable whenever it may determine that
such action is appropriate by reason of changes in applicable tax or other laws
or other changes in circumstances occurring after the award of such Option.

 

Section 15. Definition of Subsidiary.

 

The term “subsidiary,” when used in the Plan or any Stock Option Agreement made
pursuant to the Plan, shall mean (a) any subsidiary corporation of the Company
as defined in Section 424(f) of the Code and the Treasury Regulations
promulgated thereunder (the “Regulations”), (b) any limited liability company in
which the Company or any of its subsidiaries is the sole member, and (c) any
limited partnership (i) in which the Company or one of its subsidiaries owns 50
percent or more of the combined voting power of all classes of equity, and (ii)
which has elected to be taxed as a corporation for federal income tax purposes.

 

Section 16. Interpretation, Amendment or Termination of Plan.

 

The interpretation by the Committee of any provision of the Plan or of any Stock
Option Agreement executed pursuant to the grant of an Option under the Plan
shall be final and conclusive upon all Participants or transferees under the
Plan. The Board, without further action on the part of the stockholders of the
Company, may from time to time alter, amend, or suspend the Plan or may at any
time terminate the Plan; provided that: (a) no such action shall adversely
affect any Participant’s rights with respect to outstanding Options then held by
such Participant without such Participant’s consent; and (b) except for the
adjustments provided for in Section 9, above, no amendment may be made by Board
action without stockholder approval if the amendment would require stockholder
approval under applicable law or regulation, or if the amendment is a “material
amendment” as defined below. Subject to the above provisions, the Board shall
have authority to amend the Plan to take into account changes in applicable tax
and securities laws and accounting rules, stock exchange or market rules, as
well as other developments.

 

For the purposes of this Section 16, a “material amendment” to the Plan shall
mean:

 

(1) any material increase in the number of Shares to be issued under the Plan
(other than to reflect a reorganization, stock split, merger, spinoff or similar
transaction);

 

(2) any material increase in benefits to Participants, including any amendment
to: (a) permit a repricing (as defined below) of outstanding Stock Options, (b)
reduce the price at which Stock Options may be offered, or (c) extend the
duration of the Plan;

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(3) any material expansion of the class of Participants eligible to participate
in the Plan; and

 

(4) any expansion in the type of Options provided under the Plan.

 

The Committee may amend the terms of any Option theretofore granted,
prospectively or retroactively; provided, no such amendment shall impair the
rights of any Participant without the Participant’s consent, unless it is made
to cause the Plan or such Option to comply with applicable law, stock exchange
or market rules or accounting rules. Notwithstanding the foregoing, the
Committee may not adjust or amend the exercise price of Options previously
granted, whether through amendment, cancellation or replacement grants or any
other means (a “repricing”) unless the Company obtains stockholder approval for
such repricing.

 

Section 17. Protection of Board and Committee.

 

No member of the Board or the Committee shall have any liability for any
determination or other action made or taken in good faith with respect to the
Plan or any Option granted under the Plan.

 

Section 18. Government Regulations.

 

Notwithstanding any provision of the Plan or any Stock Option Agreement executed
pursuant to the Plan, the Company’s obligations under the Plan and such
Agreement shall be subject to all applicable laws, rules, and regulations and to
such approvals as may be required by any governmental or regulatory agencies,
including without limitation any stock exchange on which the Shares may then be
listed.

 

Section 19. Governing Law.

 

The Plan shall be construed and governed by the laws of the State of Delaware.

 

Section 20. Genders and Numbers.

 

When permitted by the context, each pronoun used in the Plan shall include the
same pronoun in other genders and numbers.

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Section 21. Captions.

 

The captions of the various sections of the Plan are not part of the context of
the Plan, but are only labels to assist in locating those sections, and shall be
ignored in construing the Plan.

 

Section 22. Effective Date.

 

The Plan shall be effective April 26, 2005 (the “Effective Date”); provided that
if the Plan is not approved by the Company’s stockholders at the annual meeting
of the stockholders to be held on the Effective Date, or at any adjournment of
that meeting, then the Plan shall automatically become null and void and have no
further force or effect.

 

Section 23. Term of Plan.

 

No Option shall be granted pursuant to the Plan on or after the 10th anniversary
of the Effective Date, but Options granted prior to such tenth anniversary may
extend beyond that date.

 

Section 24. Savings Clause.

 

In case any one or more of the provisions of this Plan shall be held invalid,
illegal, or unenforceable in any respect, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and the invalid, illegal, or unenforceable provision shall be
deemed null and void; however, to the extent permissible by law, any provision
which could be deemed null and void shall first be construed, interpreted, or
revised retroactively to permit this Plan to be construed so as to foster the
intent of this Plan. This Plan and all transactions pursuant to this Plan are
intended to comply in all respects with applicable law and regulation,
including, with respect to persons subject to Section 16 of the 1934 Act
(“Reporting Persons”), Rule 16b-3 under the 1934 Act. In case any one or more of
the provisions of this Plan or any transaction pursuant to this Plan shall be
held to violate or be unenforceable in any respect under Rule 16b-3, then, to
the extent permissible by law, any provision which could be deemed to violate or
be unenforceable under Rule 16b-3 shall first be construed, interpreted, or
revised retroactively to permit the Plan or transaction to be in compliance with
Rule 16b-3.