FINAL EXECUTION COPY ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

Asset Exchange Agreement

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NOVAMED INC | CENTER FOR OUTPATIENT SURGERY

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Title: FINAL EXECUTION COPY ASSET CONTRIBUTION AND EXCHANGE AGREEMENT
Governing Law: Illinois Date: 8/19/2005
Industry: Healthcare Facilities Law Firm: Epps & Yong, LLP Sector: Healthcare

Exhibit 10.40

FINAL EXECUTION COPY

ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

dated as of August 15, 2005

by and between

NOVAMED ACQUISITION COMPANY, INC.,

CENTER FOR OUTPATIENT SURGERY

and

DAVID MARSHBURN, D.O.,

NEAL SHINDEL, M.D.,

ABDUL ALAAMA, M.D.,

GARLAN LO, M.D.,

AND

WILLIAM MAY, M.D.

<PAGE>

ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

THIS ASSET CONTRIBUTION AND EXCHANGE AGREEMENT (this "Agreement") is

dated as of August 15, 2005 (the "Execution Date"), by and among NovaMed

Acquisition Company, Inc., a Delaware corporation ("NovaMed"), Center for

Outpatient Surgery, a California corporation ("Seller") and David Marshburn,

D.O., Neal Shindel, M.D., Abdul Alaama, M.D., Garlan Lo, M.D. and William

May, M.D. (individually a "Shareholder" and collective the "Shareholders").

Certain capitalized terms have the meanings provided in Section 13.1.

RECITALS

A. Seller is engaged in the business of owning and operating a licensed

ambulatory surgery center located at 15141 East Whittier Boulevard, Suite 130,

Whittier, California 90603 (the "Business").

B. Pursuant to the terms hereof, immediately prior to the Closing (as

defined herein), Seller will transfer substantially all of its assets, and

certain liabilities described herein, to a newly formed Delaware limited

liability company, NovaMed Surgery Center of Whittier, LLC (the "New LLC") in

exchange for one hundred percent (100%) of the membership interests in the New

LLC ("New LLC Interests").

C. As a condition precedent to Closing, Seller must satisfy certain

conditions as described in this Agreement.

D. Contemporaneous with the consummation of the transactions contemplated

herein, Seller desires to transfer to NovaMed, and NovaMed desires to acquire

from Seller, fifty-one percent (51%) of the total New LLC Interests in exchange

for the Purchase Price (as defined herein), all on the terms and conditions

hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants of the parties as

hereinafter set forth and other good and valuable consideration, the receipt and

sufficiency of which hereby are acknowledged, the parties hereto hereby agree as

follows:

ARTICLE I.

CONTRIBUTION OF ASSETS TO NEW LLC AND OTHER PRE-CLOSING COVENANTS

1.1. Formation of the New LLC. Prior to the Closing, the New LLC will be

formed pursuant to the Certificate of Formation in the form attached hereto as

Exhibit 1.1-1.

1.2. Transfer of Assets to New LLC. Immediately prior to the Closing, and

as a condition precedent to the transactions contemplated herein, Seller will

transfer (the "New LLC Asset Transfer") all of the Assets, free and clear of all

Liens, in exchange for one hundred percent (100%) of the New LLC Interests. As

of the Closing, the assets contributed into the New LLC as set forth herein will

consist of all of the assets and property necessary to conduct the Business (the

"Assets"), including, without limitation, the following (except to the extent

that any of the following are designated as Excluded Assets in Section 1.3

below):

<PAGE>

(a) all inventory and supplies with respect to the Business

(collectively, the "Inventory");

(b) all of the tangible and intangible personal property with

respect to the Business, including, without limitation, machinery, equipment,

fixtures, phone numbers, computer hardware and software that are listed on

Schedule 1.2(b) (collectively, the "Personal Property");

Schedule 1.2(c);

(d) all contract rights with respect to those Material Contracts

identified as Assumed Contracts on Schedule 4.8 (collectively, the "Assumed

Contracts"), purchase orders, licenses and leases pertaining to the Business,

including all leasehold improvements, rights under any restrictive covenants

accruing to the benefit of the Business and any provider agreements relating to

the operation of the Business;

(e) all names and tradenames of Seller and the Business, including,

without limitation, "Center for Outpatient Surgery" and all derivations thereof;

(f) all records, files and papers primarily pertaining to the

Business, including general business records, accounting records and Medical

Records;

(g) all Permits, licenses and certificates of need relating to the

operation of the Business;

(h) all causes of action, claims, warranties, guarantees, refunds,

rights of recovery and set-off of every kind and character, relating primarily

to the Assets or the Business;

(i) all casualty insurance and warranty proceeds of Seller received

after the Closing Date with respect to damage to, nonconformance of, or loss to,

the Assets;

(j) to the extent permitted by law, all accounts receivable or other

rights to receive payment owing to Seller (the "Accounts Receivable");

(k) all of the goodwill of and associated with the Business; and

(l) all rights to the security deposit being held by the landlord

relating to the Leased Real Property in accordance with the terms and conditions

of the underlying real property lease.

To the extent any personal property, inventory, supplies, equipment and

contracts owned by a Shareholder or any of Seller and a Shareholder's respective

Affiliates are primarily used in, or are necessary for the continued conduct of

the Business, and would otherwise be deemed Assets, then Seller or such

Shareholder will cause such party to contribute such assets and property to

Seller for contribution to the New LLC, free and clear of all Liens, prior to

the Closing Date.

1.3. Excluded Assets. Notwithstanding anything to the contrary contained

herein, the Assets do not include the following (collectively, the "Excluded

Assets"):

(a) Seller's rights under this Agreement, including the

consideration paid to Seller pursuant to this Agreement;

(b) the tax records relating to the Business;

<PAGE>

and any and all rights therein or in the assets thereof;

(d) all Material Contracts not identified as Assumed Contracts on

Schedule 4.8;

(e) all cash-on-hand and cash equivalents as of the Closing Date;

and

(g) all personal effects of Seller or any Shareholder not used in

connection with the operation of the Business as specified in Schedule 1.3(g),

including, without limitation, decorative photographs located in the Facility

that are owned by one of the Shareholders, David Marshburn.

1.4. Excluded Liabilities. Notwithstanding anything to the contrary

contained in this Agreement or in any Transaction Document, and regardless of

whether such liability is disclosed in this Agreement, in any of the Transaction

Documents or on any Schedule or Exhibit hereto or thereto, the New LLC will not

assume, agree to pay, perform and discharge or in any way be responsible for any

debts, liabilities or obligations of the Business, Seller, Shareholders or any

of their respective Affiliates of any kind or nature whatsoever, arising out of,

relating to, resulting from, or caused by any transaction, status, event,

condition, occurrence or situation relating to, arising out of or in connection

with the Business, the Assets, Seller or any Shareholder existing, arising or

occurring on or prior to the Closing Date, including, without limitation, any

liabilities or obligations relating to or arising from the Excluded Assets (the

"Excluded Liabilities"). Notwithstanding the foregoing, Seller will contribute

into New LLC, and New LLC will assume and thereafter pay and fully satisfy when

due, all liabilities and obligations: (a) which arose prior to the New LLC Asset

Transfer and represent normal and current trade payables incurred by Seller in

connection with the operation of the Business in the ordinary course of

business, consistent with past custom and practice, and are specifically set

forth on Schedule 1.4(a) ("Accounts Payable"); (b) the other accrued liabilities

of Seller which have been incurred in the ordinary course of business,

consistent with past custom and practice and which are specifically set forth on

Schedule 1.4(b) ("Accrued Liabilities"); and (c) first arising after the New LLC

Asset Transfer under any Assumed Contract (except for any liability or

obligation arising from any breach or failure to perform under any of the

foregoing prior to the Closing Date) (all such liabilities and obligations to be

so contributed into, and assumed by, the New LLC being collectively referred to

herein as the "New LLC Assumed Liabilities").

1.5. Satisfaction of Liabilities. Excluding the New LLC Assumed

Liabilities, Seller agrees to satisfy all liabilities of Seller relating to the

Business prior to the New LLC Asset Transfer or as soon as is reasonably

practicable thereafter, which liabilities include, without limitation:

(a) all payroll expense and other compensation due and owing

Seller's employees for the period preceding the Closing Date (excluding any paid

time off or other employee-related accruals to the extent they are included in

Accrued Liabilities); and

(b) all Taxes, including payroll taxes, sales taxes and income taxes

accrued up to the New LLC Asset Transfer (but excluding any such Taxes to the

extent they are included in Accrued Liabilities).

ARTICLE II.

SALE OF NEW LLC INTERESTS BY SELLER TO NOVAMED

In reliance upon the representations and warranties of NovaMed contained

herein, and on the terms and conditions hereinafter set forth, Seller hereby

agrees to sell, assign, transfer, convey and deliver to NovaMed (or its

designee) at the Closing, free and clear of all Liens, all of Seller's right,

<PAGE>

title and interest in and to fifty-one percent (51%) of the issued and

outstanding New LLC Interests. In reliance upon the representations and

warranties of Seller and Shareholders contained herein, and on the terms and

conditions hereinafter set forth, NovaMed hereby agrees to purchase such New LLC

Interests from Seller for the Purchase Price set forth in Article III hereof.

ARTICLE III.

CONSIDERATION AND MANNER OF PAYMENT

3.1. Purchase Price. The aggregate purchase price for fifty-one percent

(51%) of the issued and outstanding New LLC Interests shall be $8,100,000 (the

"Purchase Price").

3.2. Payment of Purchase Price. At the Closing, NovaMed will pay to

Seller, by wire transfer of immediately available funds to Seller's designated

bank account, an amount equal to the Purchase Price, according to the wire

transfer instructions attached as Exhibit 3.2.

ARTICLE IV.

SELLER'S AND SHAREHOLDERS' REPRESENTATIONS AND WARRANTIES

Each of Seller and Shareholders hereby represents and warrants, jointly

and severally, to NovaMed as of the Execution Date and the Closing Date, as

follows:

4.1. Seller's Organization, Good Standing and Authority. Seller is a

corporation duly organized, validly existing and in good standing under

California law. Each of Seller and Shareholders has full capacity, power, right

and authority to enter into and perform their respective obligations under this

Agreement and each of the Transaction Documents to which each of them is a

party. This Agreement and each of the Transaction Documents to which each is a

party have been duly executed and delivered by each of Seller and Shareholders,

and constitute the valid and binding obligations of Seller and Shareholders,

enforceable against them in accordance with their respective terms, except as

the same may be limited by applicable bankruptcy, insolvency, reorganization,

moratorium or other similar laws affecting the rights of creditors generally and

the availability of equitable remedies.

4.2. Assets. Seller has full power and authority to carry on the Business

as it is now being conducted and to own and hold under lease the properties and

assets it now owns or holds under lease. The Assets constitute all tangible or

intangible property, rights and assets necessary for the conduct by Seller of

the Business as conducted during the twelve months preceding the Closing Date

and, to the knowledge of Seller, there is no need to acquire or replace any

material assets. Seller has good and marketable title to the Assets, in each

case free and clear of any and all Liens. Upon consummation of the transactions

contemplated by this Agreement, Seller will have conveyed, and the New LLC will

be vested with, good and marketable title to the Assets, free and clear of all

Liens. All of the Assets that are personal property are in operable condition

and repair and none of such property requires any repair or replacement except

for maintenance in the ordinary course of business. Except as set forth on

Schedule 4.2, none of the Assets are held under any lease, security agreement,

conditional sales contract or other title retention or security agreement or is

located other than at the Facility. Certain of the Assets are subject to one or

more capitalized leases (the "Citicorp Leases") with Citicorp Vendor Finance,

Inc., its successors and their respective affiliates (collectively, "Citicorp").

The Citicorp Leases are Assumed Contracts. Seller has not been able to produce

any copies of the Citicorp Leases to Buyer and therefore is making

representations and warranties herein as to the terms and conditions of the

Citicorp Leases. Following the Closing, New LLC's only obligations under the

Citicorp Leases shall be scheduled monthly payments of $10,198.53, plus a $1.00

buyout, with the final monthly payment and $1.00 buyout due in October 2005.

Upon the payment of the final monthly payment plus $1.00 buyout in October 2005,

the New LLC shall be vested with good and marketable title to all of the Assets

<PAGE>

free and clear of all Liens except for those non-Citicorp liens listed on

Schedule 4.2. New LLC is not required to give any notice to Citicorp or any

other Person with respect to the exercise of the $1.00 buyout, but rather simply

can add the $1.00 buyout price to the final scheduled monthly payment in October

2005 in order to be vested with good and marketable title to all of the

Citicorp-related Assets.

4.3. Approvals. Except as set forth on Schedule 4.3, no consent, approval,

order or authorization of, or registration, declaration or filing with, any

national, state, provincial, local, governmental, judicial, public, quasi-public

or administrative authority or agency (collectively, "Governmental Authority")

or other Person is required to be made or obtained by Seller or Shareholders in

connection with the authorization, execution, delivery and performance of this

Agreement or any other Transaction Document, or the consummation of the

transactions contemplated hereby and thereby.

4.4. New LLC Interests. Immediately prior to the Closing Date, Seller will

be the only record and beneficial holder of the New LLC Interests. Seller has

good and marketable title to the New LLC Interests free and clear of all Liens,

and has full right, power and authority to transfer the New LLC Interests to

NovaMed as provided herein, without obtaining the consent of any third party

(other than the Manager of the New LLC (the "Manager") as set forth in the terms

and conditions of the Operating Agreement of the New LLC). Upon consummation of

the transactions contemplated herein, Seller shall have transferred good and

marketable title to the New LLC Interests free and clear of all Liens.

4.5. Financial Statements. Seller has previously delivered to NovaMed

unaudited financial statements of Seller, to the extent available for the years

ending December 31, 2002, December 31, 2003 and December 31, 2004, and interim

financial statements ending May 31, 2005, consisting of an income statement and

balance sheet ("Financial Statements"). Except as set forth on Schedule 4.5,

each of the Financial Statements (a) has been prepared in accordance with the

cash-basis method of accounting; (b) is true, complete and correct in all

material respects as of the respective dates and for the respective periods

above stated; (c) fairly presents in all material respects the financial

position of Seller at such dates and the results of its operations for the

periods ended on such dates; and (d) is consistent with Seller's books and

records.

4.6. Absence of Undisclosed Liabilities. Neither Seller nor any

Shareholder, with respect to the Business, has any material debts, liabilities

or obligations of any nature (whether accrued, absolute, contingent, direct,

indirect, perfected, inchoate, unliquidated or otherwise and whether due or to

become due) arising out of transactions entered into at or prior to the Closing,

or any transaction, series of transactions, action or inaction at or prior to

the Closing, or any state of facts or condition existing at or prior to the

Closing (regardless of when such liability or obligation is asserted), including

but not limited to guarantees, liabilities or obligations on account of Taxes or

governmental charges or penalties, interest or fines thereon or in respect

thereof, except (a) to the extent specifically reflected and accrued for or

reserved against in the Financial Statements, or (b) for liabilities

specifically delineated on Schedule 4.6.

4.7. Inventory. All of the Inventory is usable in the ordinary course of

business, is fully paid for and not subject to consignment or conditional sales

arrangements and no material portion of the Inventory is obsolete or damaged.

4.8. Taxes. Seller has filed all Tax Returns on a timely basis that it is

required to have filed in connection with the operation of the Business, and

such returns are true, complete and correct. Seller has paid all Taxes, interest

and penalties, if any, reflected on such Tax Returns or otherwise due and

payable by them. Any deficiencies proposed as a result of any governmental

audits of such Tax Returns have been paid or settled, and there are no present

disputes as to Taxes payable by Seller in connection with the operation of the

Business. With respect to all amounts of Taxes imposed on Seller for which

<PAGE>

Seller is or could be liable, whether to taxing authorities (as, for example,

under the law) or to other Persons, with respect to all taxable periods or

portions of periods ending on or before the Closing Date, all applicable Tax

laws and agreements have been fully complied with, and all such amounts required

to be paid by Seller to taxing authorities or others on or before the Closing

Date have been paid, or have been fully accrued for or fully reserved against on

the Financial Statements. No issues have been raised and are currently pending

by any taxing authority in connection with any of the Tax Returns. No waivers of

statutes of limitations with respect to the Tax Returns have been given by or

requested from the Shareholders or Seller. There are no Liens for Taxes (other

than current taxes not yet due and payable) upon any asset of Seller. Seller is

not a party to any Tax-indemnity, Tax-sharing, Tax allocation or other similar

agreements or arrangements.

4.9. Material Contracts. Schedule 4.9 is a correct and complete list of

every material written contract, agreement, relationship or commitment, every

material oral contract, commitment, agreement or relationship, to which Seller

or any Shareholder is a party or by which Seller or any Shareholder is bound, as

they relate to the Business (the "Material Contracts"), correct and complete

copies of which previously have been furnished to NovaMed. Except as set forth

on Schedule 4.9, neither Seller nor any Shareholder is in default, and no event

has occurred which with the giving of notice or the passage of time or both

would constitute a default by such party, under any Material Contract or any

other obligation owed by Seller or any Shareholder, and, to the knowledge of

Seller or any Shareholder, no event has occurred which with the giving of notice

or the passage of time or both would constitute such a default by any party to

any such Material Contract or obligation.

4.10. Real Property. As it relates to the Business, Seller does not own

any real property. Seller has a valid leasehold interest in the real property

which it holds under the lease described in Schedule 4.10 (collectively, the

"Leased Real Property"), free and clear of all Liens, except for Liens for

current property taxes not yet due and payable. The Leased Real Property

constitutes all real properties used or occupied by Seller in connection with

the Business or reflected on the Financial Statements. Upon execution of the

Lease Assignment (as hereinafter defined), the New LLC will have a valid

leasehold interest in the Leased Real Property, which leasehold interest will be

free and clear of all Liens, except for Liens created by the New LLC. With

respect to the Leased Real Property: (a) Seller has all easements and rights

necessary to conduct the Business; (b) no portion thereof is subject to any

pending or, to the knowledge of Seller or any Shareholder, threatened

condemnation proceeding or proceeding by any public authority; (c) the

buildings, plants and structures, including heating, ventilation and air

conditioning systems, roof, foundation and floors, are in good operating

condition and repair, subject only to ordinary wear and tear, and are not in

violation of any zoning or other Rules; (d) there are no leases, subleases,

licenses, concessions or other agreements, written or oral, granting to any

party or parties the right of use or occupancy of any portion of any parcel of

Leased Real Property; and (e) the Leased Real Property is supplied with

utilities and other services necessary for the operation of such facilities.

4.11. Litigation. Except as set forth on Schedule 4.11, there are no

claims, counterclaims, actions, suits, orders, proceedings (arbitration,

mediation or otherwise), investigations or judgments pending or, to the

knowledge of Seller or any Shareholder, threatened against or involving Seller,

the Business or, with respect to the Business, any Shareholder, or relating to

the transactions contemplated hereby, at law or in equity, in any court or

agency, or before or by any Governmental Authority, nor, to the knowledge of

Seller or any Shareholder, are there any facts, conditions or incidents that

could be reasonably expected to result in any such actions, suits, proceedings

(arbitration, mediation or otherwise) or investigations. Except as set forth on

Schedule 4.11, neither Seller nor any Shareholder is subject to any judgment,

order or decree of any court or Governmental Authority. None of the matters set

forth on Schedule 4.11 could result in any Material Adverse Effect on Seller,

the Assets, the Business or New LLC.

4.12. Compliance with Applicable Laws; Permits.

<PAGE>

(a) Each of Seller and Shareholders, in their conduct of the

Business, have complied, in all material respects, with applicable federal,

state and local laws and the rules and regulations of all Governmental

Authorities having authority over them, including, without limitation, agencies

concerned with occupational safety, environmental protection, employment

practices, Fraud and Abuse Laws and Medicare and Medicaid requirements

applicable to the Shareholders' and Seller's billing procedures (except denials

of claims in the ordinary course of business). Neither Seller nor any

Shareholder has received any notice of Seller's violation of any such rules or

regulations, whether corrected or not, within the last five (5) years. Seller is

eligible to receive payment under Titles XVIII and XIX of the Social Security

Act. Seller has timely and accurately filed all requisite reports, returns,

data, and other information required by all Governmental Authorities which

control, directly or indirectly, any of Seller's activities to be filed with any

commissions, boards, bureaus, and agencies and has paid all sums heretofore due

with respect to such reports and returns. No such report or return has been

inaccurate, incomplete or misleading. Seller has timely and accurately filed all

requisite reimbursable claims and other reports required to be filed or

otherwise filed in connection with all state and federal Medicare and Medicaid

programs in which Seller participates that are due on or before the Closing Date

or which relate to services provided on or before the Closing Date, and Seller

has not billed for any services that were not provided at the Facility. There

are no claims pending or, threatened or scheduled before any authority,

including without limitation any intermediary, carrier, or other state or

federal agency with respect to any Medicare and Medicaid claim filed by Seller

on or before the Closing Date, or program compliance matters. Except for

routinely scheduled Medicare and Medicaid program participation and

certification surveys pursuant to Seller's Medicare and Medicaid contracts and

filings, no valid program integrity review related to Seller has been conducted

by any authority in connection with the Medicare or Medicaid programs and no

such review is scheduled, pending, or to Seller's knowledge, threatened against

or affecting Seller, the Business, the Facility, or the consummation of the

transactions contemplated hereby.

(b) Seller holds all the permits, licenses, certificates of need and

other approvals of Governmental Authorities necessary or material for the

current conduct, ownership, use, occupancy and operation of the Business and the

Leased Real Property, including, without limitation, those identified on

Schedule 4.12(b) ("Permits"). Seller is in compliance in all material respects

with such Permits, all of which are in full force and effect, and Seller has not

received any notices (written or oral) to the contrary. All of the Permits are

in good standing, and to Seller's knowledge, no suspension, cancellation or

adverse action is threatened against the Permits, and there is no basis for

believing that any Permits will not be renewed upon expiration.

4.13. Transaction Not a Breach. The execution, delivery and performance by

Seller and Shareholders of this Agreement and the Transaction Documents will

not:

(a) Result in a breach of any of the terms or conditions of, or

constitute a default under, or in any manner release any party thereto from any

obligation under any mortgage, note, bond, indenture, contract, agreement,

license or other instrument or obligation of any kind or nature by which Seller

or Business may be bound or affected;

(b) violate or conflict with any order, writ or injunction of any

court, administrative agency or Governmental Authority to which Seller or any

Shareholder is subject;

any agreement or accelerate the maturity of any indebtedness or other

obligation;

(d) Violate any provision of the organizational documents of Seller;

(e) Result in the creation or imposition of any Lien upon any

property of Seller; or

<PAGE>

(f) Require any authorization, consent, approval, exemption or other

action by or notice to any court, Governmental Authority or any other Person.

4.14. Conduct of Business. Since the Review Date, Seller has conducted the

Business in the ordinary course of business, consistent with past custom and

practice, and has incurred no material liabilities other than in the ordinary

course of business, consistent with past custom and practice, and there has been

no Material Adverse Effect on the assets, financial condition, operating

results, employee or patient relations, business activities or business

prospects of Seller or the Business. Without limitation of the foregoing, since

the Review Date, Seller has not, except in the ordinary course of business,

consistent with past custom and practice, or as otherwise set forth on Schedule

4.14:

(a) Incurred any obligation or liability, absolute, accrued,

contingent or otherwise, whether due or to become due, whether individually or

in the aggregate, that has had or could be reasonably expected to result in a

Material Adverse Effect;

(b) Pledged or subjected any of its assets to any Lien or

restriction;

surrendered, leased or otherwise disposed of any of its assets material to the

operation of Seller;

(d) Canceled or compromised any material debt or claim, or waived or

released any right of substantial value;

(e) Received any notice of termination of any contract, lease or

other agreement, or suffered any damage, destruction or loss that, individually

or in the aggregate, has had or could be reasonably expected to result in a

Material Adverse Effect;

(f) Instituted, settled or agreed to settle any litigation, action,

proceeding or arbitration;

(g) Made a material purchase commitment other than in the ordinary

course of business, consistent with past custom and practice;

(h) Modified the timing, course of conduct or other cash management

activities with respect to the collection of accounts receivable of the

Business;

(i) Failed to pay any accounts or notes payable or any other

obligations consistent with past practices, except for bona fide disputes

arising in the ordinary course of business;

(j) Entered into any material transaction, contract or commitment

other than in the ordinary course of business, consistent with past custom and

practice, other than the transactions contemplated by the Transaction Documents;

(k) Suffered any event or events, whether individually or in the

aggregate, that has had or could be reasonably expected to result in a Material

Adverse Effect; or

(l) Issued any equity interests or entered into any agreement or

understanding to do so.

4.15. Health, Safety and Environment. Seller has never generated,

transported, treated, stored, disposed of or otherwise handled any Hazardous

Materials at any site, location or facility in connection with its business or

<PAGE>

any of its assets in violation of any applicable Environmental and Safety

Requirements (as hereinafter defined). Seller: (i) is in material compliance

with all applicable federal, state and local laws, rules, regulations,

ordinances and requirements relating to public health and safety, worker health

and safety and pollution and protection of the environment, all as amended or

hereafter amended ("Environmental and Safety Requirements"), and (ii) possesses

all required permits, licenses, certifications and approvals and has filed all

notices or applications required thereby or pertaining thereto. Seller has never

been subject to, or received any written notice of, any private, administrative

or judicial inquiry, investigation, order or action, or any written notice of

any intended or threatened private, administrative, or judicial inquiry,

investigation, order or action relating to the presence or alleged presence of

Hazardous Materials in, under or upon any property leased or owned by Seller,

nor is Seller aware of any such inquiry, investigation, order, action or notice.

There are no pending, or to the knowledge of Seller or any Shareholder,

threatened, investigations, actions, orders or proceedings (or written notices

of potential investigations, actions, orders or proceedings) from any

Governmental Authority or any other entity regarding any matter relating to

Environmental and Safety Requirements.

4.16. Employees. Schedule 4.16 is a true, complete and correct list

setting forth as of the Review Date the names and current compensation rate and

compensation of all individuals employed by Seller. There has been no material

increase, other than in the ordinary course of business, consistent with past

custom and practice, in the compensation or rate of compensation payable to any

employees of Seller since the Review Date, nor since that date has there been

any promise to any employee listed on Schedule 4.16, orally or in writing, of

any bonus or increase in compensation, except for increases in the ordinary

course of business consistent with Seller's past compensation practices and

listed on Schedule 4.16, and obligations incurred under existing bonus,

insurance, pension or other Employee Benefit Plans described on Schedule 4.19 or

Schedule 4.20. Except as set forth on Schedule 4.16, there has been no promise

to any employee listed on Schedule 4.16, orally or in writing, of any guaranty

of employment following the Closing Date.

4.17. Insurance. Seller has obtained and maintained in full force and

effect commercially reasonable amounts of insurance to protect it and the

Business against the types of liabilities, including medical malpractice,

customarily insured against by Persons operating a business of similar size and

nature to the Business, and all premiums due on such policies have been paid.

Such insureds have complied in all material respects with the provisions of all

such policies. Seller has previously delivered to NovaMed complete and correct

copies of all such policies, together with all riders and amendments thereto in

the possession of Seller. Except as set forth on Schedule 4.17, there are no

claims or asserted claims reported to insurers under such policies, including

all medical malpractice claims and similar types of claims, actions or

proceedings asserted against any of Seller and the Shareholders at any time

within the past five (5) years.

4.18. Affiliate Transactions. Excluding ordinary course distributions to

its equity holders, there are no transactions involving the transfer of any

cash, property or rights to or from Seller from, to or for the benefit of any

Affiliate or former Affiliate of Seller ("Affiliate Transactions") during the

period commencing January 1, 2003 through the date hereof or any existing

commitments of Seller to engage in the future in any Affiliate Transactions.

4.19. Employee Benefit Plans. Except as set forth in Schedule 4.19,

neither Seller nor any Plan Affiliate has maintained, sponsored, adopted, made

contributions to or obligated itself to make contributions to or to pay any

benefits or grant rights under or with respect to any "Employee Pension Benefit

Plan" (as defined in Section 3(2) of ERISA), "Employee Welfare Benefit Plan" (as

defined in Section 3(1) of ERISA), "multi-employer plan" (as defined in Section

3(37) of ERISA), any collective bargaining agreement, plan of deferred

compensation, medical plan, life insurance plan, long-term disability plan,

dental plan or other plan providing for the welfare of any of Seller's employees

<PAGE>

or former employees or beneficiaries thereof, personnel policy (including but

not limited to vacation time, holiday pay, bonus programs, moving expense

reimbursement programs and sick leave), material fringe benefit, excess benefit

plan, bonus or incentive plan (including but not limited to stock options,

restricted stock, stock bonus and deferred bonus plans), severance agreement,

salary reduction agreement, top hat plan or deferred compensation plan,

change-of-control agreement, employment agreement, consulting agreement or any

other benefit, program, policy, arrangement, agreement or contract

(collectively, "Employee Benefit Plans"), whether or not written or terminated,

which could give rise to or result in Seller or such Plan Affiliate having any

debt, liability, claim or obligation of any kind or nature, whether accrued,

absolute, contingent, direct, indirect, known or unknown, perfected or inchoate

or otherwise and whether or not due or to become due. Correct and complete

copies of all Employee Benefit Plans previously have been furnished to NovaMed.

The Employee Benefit Plans are in compliance in all material respects with

governing documents and agreements and with applicable laws. Seller acknowledges

that it will be solely responsible for administering and/or terminating its

Employee Benefit Plans following the Closing.

4.20. Personnel Agreements, Plans and Arrangements. Except as listed in

Schedule 4.20, neither Seller nor any Shareholder is a party to or obligated in

connection with the Business with respect to any outstanding contracts with

current or former employees, agents, consultants, or advisers.

4.21. Certain Payments. None of Seller, the Shareholders, any director,

officer, agent, or employee of Seller or any other Person associated with or

acting for or on behalf of Seller has, directly or indirectly, made any

contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other

payment to any Person, private or public, regardless of form, whether in money,

property, or services (i) for securing patients or referrals, (ii) for patients

or referrals secured, (iii) to obtain special concessions or for special

concessions already obtained, for or in respect of Seller, or (iv) in violation

of any law.

4.22. Workers Compensation. Schedule 4.22 sets forth all expenses,

obligations, duties and liabilities relating to any pending, threatened or

ongoing claims by employees and former employees (including dependents and

spouses) of Seller (or its predecessors), and the extent of any specific accrual

on or reserve therefor set forth on the Financial Statements, for costs,

expenses and other liabilities under any workers compensation laws, regulations,

requirements or programs. Except as set forth on Schedule 4.22, no claim,

injury, fact, event or condition exists which would give rise to a material

claim by any employees or former employees (including dependents and spouses) of

Seller under any workers compensation laws, regulations, requirements or

programs. Since the Review Date, there has been no material change, other than

in the ordinary course of business, in the information disclosed in Schedule

4.22.

4.23. Accounts Receivable/Accounts Payable.

(a) Accounts Receivable. Except as set forth on Schedule 4.23(a),

the Accounts Receivable are valid, binding

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