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.

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                  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):

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            (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");

            (c) all  prepaid  expenses  relating  to the  Business  set forth on
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;


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            (c) Employee Benefit Plans relating to the employees of the Business
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,


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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


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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


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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.


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            (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;

            (c)  Constitute  an event which would  permit any party to terminate
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


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            (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;

            (c)  Voluntarily  or  involuntarily  sold,  transferred,  abandoned,
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


                                       8
<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


                                       9
<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 and legally enforceable  obligations
and are owned by Seller free and clear of all Liens, and, except for contractual
allowances,  reserves for bad debts and other  adjustments  that are  consistent
with those adjustments made in preparing the Financial  Statements,  will not be
subject to any offset,  counterclaim or other adverse claim or defense,  and may
be  transferred  to the New LLC to the extent  permitted  by law.  The  Accounts
Receivable  arose in the  ordinary  and usual  course of the  business,  and the
Accounts  Receivable are set forth on the books and records of Seller.  Schedule
4.23(a)  contains a complete and accurate list of all Accounts  Receivable as of
the date listed  thereon,  which list represents the Accounts  Receivable  after
adjusting for contractual allowances and bad debt reserves. Seller does not know
of any reason why the Accounts Receivable would not be collectible  according to
approximately  the same ratios as  accounts  receivable  have been  historically
collectible.


                                       10
<PAGE>

            (b) Accounts  Payable and Accrued  Liabilities.  Schedule 1.4(a) and
Schedule  1.4(b) sets forth a complete and correct list of the Accounts  Payable
and Accrued  Liabilities.  Each of the Accounts Payable and Accrued  Liabilities
are  valid  and have been  incurred  in  connection  with the  operation  of the
Business in the  ordinary  course of business,  consistent  with  Seller's  past
custom and practice.

      4.24.  Brokers.  All  negotiations  relating  to  this  Agreement  and the
Transaction  Documents,  and the transactions  contemplated  hereby and thereby,
have been carried on without the  intervention of any Person acting on behalf of
any of Seller or any  Shareholder  in such a manner as to give rise to any valid
claim for any broker's or finder's fee or similar compensation against NovaMed.

      4.25. HIPAA. Seller and Shareholders represent and warrant that (a) all of
the Purchased  Assets being sold and/or provided by Seller to NovaMed under this
Agreement,  including without limitation, any computer hardware and/or software,
are in compliance with the Health Insurance  Portability and  Accountability Act
of 1996 (Public Law 104-91, 42 U.S.C. 1301 et. seq.) and regulations promulgated
thereunder  (collectively,  "HIPAA"),  and applicable  state laws having similar
subject  matter to HIPAA  ("State  HIPAA"),  and (b)  Seller has  conducted  its
business  and  activities,   including,  without  limitation,  its  billing  and
collection  activities,  its  medical  records  management  activities,  and its
general  business  operations,  in a manner that  complied  with HIPAA and State
HIPAA.

      4.26.  Rates and  Reimbursement  Policies.  Seller  does not have any rate
appeal currently pending before any Governmental  Authority or any administrator
of any  third-party  payor  program.  Seller has no knowledge of any  applicable
state or local law, which affects rates or  reimbursement  procedures  which has
been enacted,  promulgated  or issued within the eighteen (18) months  preceding
the Closing Date or any such legal requirement  proposed or currently pending in
the applicable state or at the federal level which has resulted or may result in
any reductions in rates and reimbursement.

      4.27.   Physicians.   None  of  the  physicians  who  utilize  the  center
(collectively,  the "Physicians") have threatened to discontinue or to terminate
his or her  relationship  with the Seller and the  provision  of services at the
Facility.  To the  knowledge of any of Seller and any  Shareholder,  none of the
Physicians  have expressed  plans to retire from the practice of medicine in the
next five (5) years nor to be  involved  in the  development  or  operations  of
another  ambulatory  surgery  center.  During the three (3) years  preceding the
Closing Date, each of the Physicians:

            (a) Has been duly licensed and  registered,  and is in good standing
by their  state to engage in the  practice  of  medicine,  and said  license and
registration have not been suspended, revoked or restricted in any manner; and

            (b) Has had  valid  professional  liability  insurance  in  place in
amounts not less than  commercially  reasonable levels and has not indicated any
intent to terminate or reduce his or her professional liability coverage.

      4.28. Certain Representations With Respect to the Facility.

            (a) The  Facility is  qualified  for  participation  in the Medicare
program.  Complete  and  accurate  copies of the  Facility's  existing  Medicare
contracts have been furnished to NovaMed. Seller is presently in compliance with
all of the terms, conditions and provisions of such contracts.

            (b) The  Facility is  qualified  for  participation  in the Medicaid
program.  Complete and accurate copies of Seller's existing  Medicaid  contracts
have been  furnished to NovaMed.  Seller is presently in compliance  with all of
the terms, conditions and provisions of such contracts.


                                       11
<PAGE>

      4.29. No Misrepresentation.  None of the representations and warranties of
Seller and Shareholders set forth in this Agreement, in any of the certificates,
schedules, lists, documents,  exhibits, or other instruments delivered, or to be
delivered,  to NovaMed as  contemplated by any provision  hereof  (including the
Transaction Documents),  contain any untrue statement of a material fact or omit
to state a material fact  necessary to make the statements  contained  herein or
therein not misleading. To the knowledge of Seller or any Shareholder, there are
no material facts which have not been disclosed to NovaMed which have a Material
Adverse Effect,  or could  reasonably be anticipated to have a Material  Adverse
Effect, on the Business or Seller's or any  Shareholder's  ability to consummate
the transactions contemplated hereby.

                                   ARTICLE V.
                    NOVAMED'S REPRESENTATIONS AND WARRANTIES

      NovaMed hereby  represents and warrants to Seller as of the Execution Date
and the Closing Date as follows:

      5.1. Organization. NovaMed is duly organized, validly existing and in good
standing under the laws of the State of Delaware.

      5.2.  Authorization.  NovaMed has full power, right and authority to enter
into  and  perform  its  obligations  under  this  Agreement  and  each  of  the
Transaction  Documents  to which  it is a party.  The  execution,  delivery  and
performance by NovaMed of this Agreement and each of the  Transaction  Documents
to which it is a party have been duly and properly  authorized  by all requisite
corporate   action  in  accordance   with  applicable  law  and  with  NovaMed's
Certificate  of  Incorporation.  This  Agreement  and  each  of the  Transaction
Documents to which  NovaMed is a party have been duly  executed and delivered by
NovaMed and are the valid and binding  obligation of NovaMed and are enforceable
against NovaMed 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.

      5.3. Transaction Not a Breach. The execution,  delivery and performance of
this  Agreement  and the  Transaction  Documents by NovaMed will not violate and
conflict  with,  or result in the  breach of any of the  terms,  conditions,  or
provisions  of  NovaMed's  Certificate  of  Incorporation  or of  any  contract,
agreement,  mortgage,  or other  instrument or obligation of any nature to which
NovaMed is a party or by which NovaMed is bound.

      5.4.  Acquisition of New LLC  Interests.  NovaMed is acquiring the New LLC
Interests for its own account and not with a view to the  distribution or resale
thereof.  NovaMed has no intention of selling the New LLC  Interests in a public
distribution  in violation of federal  securities  laws or any applicable  state
securities laws.

      5.5.  Broker.  All  negotiations   relating  to  this  Agreement  and  the
Transaction  Documents,  and the transactions  contemplated  hereby and thereby,
have been carried on without the  intervention of any Person acting on behalf of
NovaMed in such a manner as to give rise to any valid claim for any  broker's or
finder's fee or similar compensation against Seller.

      5.6. No  Misrepresentation.  None of the representations and warranties of
NovaMed set forth in this  Agreement or in any of the  certificates,  schedules,
lists, documents,  exhibits, or other instruments delivered, or to be delivered,
to Seller as  contemplated  by any provision  hereof  (including the Transaction
Documents),  contain any untrue  statement of a material fact or omit to state a
material fact necessary to make the statements  contained  herein or therein not
misleading.


                                       12
<PAGE>

                                  ARTICLE VI.
                              ADDITIONAL AGREEMENTS

      6.1.  Release  of Liens  and  Lien  Searches.  Seller  shall  procure  all
applicable  release of liens with  respect to those  Liens set forth on Schedule
4.2, prior to the New LLC Asset Transfer.  Seller shall provide NovaMed with all
information and other assistance required for the parties to file all applicable
UCC  termination  statements  (in form and  manner  required  by  NovaMed or its
lenders).  Following the filing of all such UCC  termination  statements,  there
shall be no  remaining  financing  statements,  judgments,  taxes or other Liens
outstanding against Seller or any of its assets as of the Closing Date.

      6.2. Employees; Labor Relations.

            (a) Leased  Employees.  Seller  currently  leases its employees from
Modern/Medical  Management  Consultants,  Inc. ("Staffing Agency") pursuant to a
Service Subscription Agreement dated April 4, 2003 (the "Leasing Agreement"). At
Closing,  the  Leasing  Agreement  shall be  assigned  to New LLC as an  Assumed
Contract.  Seller shall be solely responsible for all liabilities  arising under
the Leasing Agreement prior to Closing, as well as any employment-related claims
filed by any leased employees which relate to facts and  circumstances  existing
on and prior to the Closing  Date,  or arise from or relate to completion of the
transactions  contemplated  by  this  Agreement  or the  Transaction  Documents,
regardless of when filed.

            (b) COBRA Notice.  Seller  represents  that it has complied,  in all
material respects, with the applicable requirements of COBRA through the Closing
Date and shall be  responsible  for all  liabilities  arising  under  COBRA with
respect to any event occurring prior to and on the Closing Date.

            (c)   Noncompetition   Agreements.    Seller   hereby   waives   any
noncompetition provision that may apply to the Continuing Employees with respect
to New LLC's hiring of the Continuing Employees.

      6.3. Post-Closing Remittances;  New LLC's Appointment as Attorney-In-Fact.
If, after the Closing Date, Seller shall receive any remittance from any account
debtors  with  respect to the Accounts  Receivable,  Seller  shall  endorse such
remittance  to the order of the New LLC and  forward it to the New LLC  promptly
following receipt thereof.  Seller hereby  irrevocably  constitutes and appoints
New LLC  and any  officer  or  agent  of New LLC as  Seller's  true  and  lawful
attorney-in-fact,  with  full  power  and  authority,  in the place and stead of
Seller for the limited purposes of receiving, collecting, indorsing, negotiating
and cashing any and all cash, checks, drafts, payments,  accounts receivable and
other  instruments  (collectively  the "Items")  which are payable to Seller and
which  represent  Items  related to the Business or which  represent  payment on
Accounts  Receivable  related to the Business,  and which in accordance with the
terms of this Agreement,  have been sold,  conveyed,  assigned or transferred to
New LLC or are  otherwise  for the  account of New LLC  hereby.  Seller  further
agrees  to  execute  all  documents  and take such  other  action as New LLC may
reasonably  request to confirm the power granted to New LLC by this Section 6.3.
Notwithstanding  the  foregoing,  in no event  shall New LLC  receive,  collect,
indorse,  negotiate or cash such Items pursuant to the above  authority if to do
so would be to violate the laws,  regulations  or other written  guidance of any
state or federal health program. In such event, New LLC and Seller agree to take
such  actions as necessary to convey such  payments to New LLC  consistent  with
applicable laws and regulations.

      6.4.  Further  Assurances.  The parties  hereto shall execute such further
documents,  and perform such further  acts,  as may be  reasonably  necessary to
transfer  and  convey the Assets to the New LLC,  and the New LLC  Interests  to
NovaMed,  all on the terms contained  herein,  and to otherwise  comply with the
terms of this Agreement and consummate the transactions contemplated herein.


                                       13
<PAGE>

      6.5.  Professional   Liability  Tail  Coverage.  To  the  extent  Seller's
professional  liability  insurance  policy for the Facility is on a  claims-made
basis  (rather  than an  occurrence  basis),  Seller  shall  obtain an  extended
reporting  ("tail")  professional  liability  insurance policy covering acts and
omissions  occurring at the  Facility  prior to the Closing  Date,  in an amount
equal to the professional  liability  insurance carried immediately prior to the
Closing Date,  or such other amount,  and for such period of time, as determined
by mutual agreement of NovaMed and Seller. Upon NovaMed's request,  Seller shall
provide New LLC with proof of such tail  professional  liability  coverage.  The
cost and expense of such tail coverage shall be borne solely by Seller.

      6.6  Credentialing.  As of the Closing Date,  the  Shareholders  and other
physicians  credentialed by the Facility  immediately  prior to the Closing Date
shall  receive  provisional  privileges  to perform  surgical  procedures at the
Facility  that  will be owned  and  operated  by the New LLC from and  after the
Closing Date. As a condition to receiving these provisional privileges,  each of
the Shareholders  hereby agree,  and shall cause all of such other  credentialed
physicians to agree,  that following the Closing Date he or she will comply with
all of the New LLC's  credentialing  requests  (including,  without  limitation,
providing New LLC with any reasonably  requested  information and completing any
applicable   credentialing   forms)  so  that  the  New  LLC  may  complete  its
credentialing  review process for each  physician by the expiration  date of the
provisional privileges.

      6.7 Marshburn Photographs. One of the Shareholders, David Marshburn, D.O.,
owns  photographs  hanging on the walls of the Leased Real Property but that are
Excluded Assets. Dr. Marshburn hereby agrees to continue to allow New LLC to use
such photographs within the Leased Real Property, at no cost to the New LLC, for
a period of at least five years following the Closing Date.

      6.8  Medical  Records.  From and after  the  Closing,  New LLC shall  have
custody of the  Medical  Records  and shall  maintain  them in  accordance  with
applicable  state and federal  law.  For not less than seven (7) years after the
Closing Date or the time period  required by  applicable  state law, the New LLC
shall grant to Seller and its representatives,  at Seller's request,  access to,
and the right to make  copies  of, at  Seller's  sole  cost and  expense,  those
Medical  Records as may be necessary in connection with the business and affairs
of Seller  after the Closing  Date;  provided,  that Seller shall only have such
access to the extent necessary in connection with: (A) any government,  state or
federal  agency review of Seller or the operations of Seller and/or the Business
preceding the Closing Date (the "Pre-Closing Date Business"); (B) a request from
the  Department  of Health and Human  Services,  the  Centers for  Medicare  and
Medicaid  Services  or other  state or  federal  agency;  (C) a claim or lawsuit
against Seller or relating to the Pre-Closing Date Business;  (D) as required by
applicable  law; or (E)  otherwise  pursuant to proper  patient  consent  and/or
authorization, as applicable.  Notwithstanding anything in this Agreement to the
contrary, the New LLC shall only release and copy, destroy,  dispose of, sell or
transfer  Medical  Records to Seller or any person or entity upon proper patient
notice,  consent  and/or  authorization  (to the extent  required by  applicable
state, federal and local laws and regulations).

                                  ARTICLE VII.
                                     CLOSING

      7.1. Time and Place. The closing of the transactions  that are the subject
of this Agreement (the "Closing") shall occur via facsimile  effective as of the
third  business day following the  satisfaction  or waiver of all conditions set
forth in Articles VIII and IX of this Agreement (the "Closing  Date") or at such
other time or place as the parties  hereto shall mutually  agree,  with original
documents  to be  exchanged  by  nationally  recognized  overnight  courier  for
delivery on the next business day after the Closing Date.


                                       14
<PAGE>

      7.2.  Contribution  of Assets to New LLC. As a condition  precedent to the
consummation  of  the  transactions   contemplated  herein,  Seller  shall  have
consummated  the New LLC  Asset  Transfer  in  accordance  with  the  terms  and
conditions of Article I hereof.

      7.3.  Deliveries of Seller and  Shareholders.  At the Closing,  Seller and
Shareholders  will execute and deliver or cause to be executed and  delivered to
NovaMed:

            (a) a Contribution  Agreement to evidence the New LLC Asset Transfer
and to effectively  vest the New LLC with full,  complete and marketable  right,
title and interest in and to the Assets,  in substantially  the form of attached
Exhibit 7.3(a) (the "Contribution Agreement");

            (b) the Limited  Liability  Company Agreement of the New LLC, in the
form attached hereto as Exhibit 7.3(b) (the "Operating Agreement");

            (c) a  certificate  of the  Secretary  of Seller as to (i) copies of
resolutions  of  its  Board  of  Directors  and  Shareholders   authorizing  the
execution,  delivery  and  performance  of this  Agreement  and the  Transaction
Documents;  (ii) a Certificate of Good Standing issued by the Secretary of State
of California;  (iii) its By-Laws;  (iv) incumbency and specimen signatures with
respect to its officers executing this Agreement and any Transaction  Documents;
and (v) its Articles of  Incorporation  certified  by the  Secretary of State of
California.

            (d) any required third party  consents,  filings,  and  certificates
from Seller or any third party (including,  any Governmental Authority) relating
to the transfer of the Assets,  including without limitation,  all consents from
the State of  California  regarding  the  transfer of all  Permits and  licenses
relating to the  ownership  and  operation  of the  Facility,  and copies of all
written  consents  obtained in  connection  with the  transfer  of the  Material
Contracts;

            (e)  clearance  certificates  or similar  documents  required by any
state taxing authority in order to relieve NovaMed of any obligation to withhold
any portion of the Purchase Price;

            (f) the Assignment,  Acceptance and Consent to Assignment of New LLC
Interests, substantially in the form attached as Exhibit 7.3(f) (the "Assignment
of New LLC Interests"), duly executed by Seller;

            (g) duly executed Lease Assignment for the Facility and other Leased
Real Property listed on Schedule 4.10 (the "Lease  Assignment")  between Seller,
as assignor, and the New LLC, as assignee,  including the consent thereto by the
landlord;

            (h)  all  applicable   documentation   releasing   Liens   covering,
concerning  or  relating  to  the  Assets,  in  form  and  substance  reasonably
acceptable to NovaMed;

            (i)   Redemption   Agreement   pursuant  to  which  Seller   redeems
Shareholder's  ownership interests in Seller in exchange for Seller's membership
interests in the New LLC, effective immediately following the Closing Date;

            (j)  Certificate  of Seller  and  Shareholders  certifying  that all
representations  and  warranties  contained  in  this  Agreement  are  truthful,
accurate and complete as of the Closing Date, along with an update to any of the
Schedules  attached  hereto  in a  manner  acceptable  to  NovaMed  in its  sole
discretion;


                                       15
<PAGE>

            (k) a DEA Power of Attorney (the "Power of  Attorney"),  executed by
Dr. Marshburn;

            (l) Amendment to Articles of  Incorporation  of Seller  changing its
name to enable New LLC to make an assumed name filing for such name;

            (m) such other  documents and  instruments as NovaMed or its counsel
reasonably  shall deem  necessary to consummate  the  transactions  contemplated
hereby.

      All  documents  delivered  to  NovaMed  shall  be in  form  and  substance
reasonably satisfactory to counsel for NovaMed.

      7.4. Deliveries of NovaMed.  At the Closing,  NovaMed will deliver or will
cause the New LLC to deliver to Seller  simultaneously  with the delivery of the
items referred to in Section 7.3 above:

            (a) the payment of the Purchase Price;

            (b) the Operating Agreement;

            (c)  certificate  of the  Secretary  of  NovaMed as to (i) copies of
resolutions of its board of directors  authorizing  the execution,  delivery and
performance of this Agreement and the Transaction Documents; and (ii) incumbency
and specimen  signatures  with respect to its officers  executing this Agreement
and any Transaction Documents;

            (d) the Lease Assignment, duly executed by the New LLC;

            (e) the Assignment of New LLC Interests, duly executed by NovaMed;

            (f) Certificate of NovaMed certifying that all  representations  and
warranties contained in this Agreement are truthful, accurate and complete as of
the Closing Date;

            (g) the Power of Attorney, executed by the New LLC; and

            (h) such other  documents and  instruments  as Seller or its counsel
reasonably  shall deem  necessary to consummate  the  transactions  contemplated
hereby.

All  documents  delivered  to Seller shall be in form and  substance  reasonably
satisfactory to the counsel for Seller.

      7.5 Change of Ownership  Process.  Between the Execution  Date and Closing
Date, NovaMed and New LLC will continue with efforts to file applications and/or
notices for all reasonably necessary licensure and regulatory approvals required
in connection  with the New LLC's  ownership and operation of the Business,  the
receipt of which is a condition precedent to the Closing.  Seller,  Shareholders
and their respective agents and  representative  agree to cooperate with NovaMed
and  New  LLC in  connection  these  filings  and  applications,  and  will  use
commercially reasonable efforts to respond in a timely manner to any information
or signature requests  reasonably required in connection with these applications
and notices.


                                       16
<PAGE>

                                 ARTICLE VIII
                        NOVAMED'S CONDITION PRECEDENT

      Unless otherwise waived by NovaMed, the obligation of NovaMed to effect
the transactions contemplated hereby shall be subject to the fulfillment at or
prior to the Closing of the following additional conditions:

      8.1. Notification. Between the Execution Date and the Closing Date, each
of Seller and Shareholders will promptly notify NovaMed of the occurrence of any
breach of any covenant of Seller or any Shareholder in this Article VIII or of
the occurrence of any event that may make the satisfaction of the conditions in
this Agreement impossible or unlikely.

      8.2. Efforts. Between the Execution Date and the Closing Date, Seller and
Shareholders will use all commercially reasonable efforts to cause the
conditions in this Article VIII to be satisfied.

      8.3. Accuracy of Representations. Each of Seller and Shareholders'
representations and warranties in this Agreement must have been accurate as of
both the Execution Date and Closing Date, provided that Seller and Shareholders
may update any Schedule set forth in Article IV of this Agreement as of the
Closing Date in a manner acceptable to NovaMed, in its sole discretion, and
Seller and Shareholders shall each have delivered a certificate to NovaMed which
certifies the foregoing.

8.4. Change of Ownership Approvals. The New LLC shall have received all
necessary state licensure and Medicare approvals to commence the New LLC's
ownership and operation of the Business (with the understanding that upon
commencement of operations, there may be billing delays associated with
procuring third party payor provider numbers).

8.5. Satisfaction of Covenants. Each of the covenants and obligations that
Seller and Shareholders are required to perform or to comply with pursuant to
this Agreement at or prior to the Closing must have been duly performed and
complied with.

8.6. Deliveries. Seller and Shareholders must have delivered to NovaMed the
documents required to be delivered pursuant to Section 7.3.

8.7. No Material Adverse Effect. Between the Execution Date and Closing, except
for the conditions precedent set forth herein, there has not been any Material
Adverse Effect on the Business (excluding any Material Adverse Effect caused by
any actions or omissions of NovaMed).

8.8. Ordinary Course. Seller covenants and agrees that, from and after the
Execution Date through and including the Closing Date, Seller shall not: (a)
enter into any new, or modify any existing, material lease, material contract or
other material obligation with respect to the Business without the prior written
consent of NovaMed; (b) take any action which will or may adversely affect title
to the Assets; or (c) commit any act which will violate any term or provision of
the Assumed Contracts or any federal or state law, ordinance or regulation
applicable to the Business.

                                   ARTICLE IX.
                          SELLER'S CONDITION PRECEDENT

      Unless waived by Seller, the obligation of Seller and Shareholders to
effect the transactions contemplated hereby shall be subject to the fulfillment
at or prior to the Closing of the following additional conditions:


                                       17
<PAGE>

      9.1.  Notification.  Between  the  Execution  Date and the  Closing  Date,
NovaMed  will  promptly  notify  Seller of the  occurrence  of any breach of any
covenant of NovaMed in this  Article IX or of the  occurrence  of any event that
may make the  satisfaction  of the  conditions in this  Agreement  impossible or
unlikely.

      9.2.  Efforts.  Between the Execution  Date and the Closing Date,  NovaMed
will use all  commercially  reasonable  efforts to cause the  conditions in this
Article IX to be satisfied.

      9.3. Accuracy of Representations. NovaMed's representations and warranties
in this  Agreement  must have been  accurate as of both the  Execution  Date and
Closing Date.

      9.4.  Change of Ownership  Approvals.  The New LLC shall have received all
necessary  state  licensure  and  Medicare  approvals  to commence the New LLC's
ownership  and  operation  of the  Business  (with the  understanding  that upon
commencement  of  operations,  there  may  be  billing  delays  associated  with
procuring third party payor provider numbers).

      9.5. Satisfaction of Covenants. Each of the covenants and obligations that
NovaMed is required to perform or to comply with  pursuant to this  Agreement at
or prior to the Closing must have been duly performed and complied with.

      9.6. Deliveries. NovaMed must have delivered each of the items required to
be delivered by NovaMed pursuant to Section 7.4.

                                  ARTICLE X.
                                 TERMINATION

      10.1.  Termination  Events.  This  Agreement  may, by written notice given
prior to or at the Closing, be terminated:

            (a) by mutual consent of NovaMed and Seller;

            (b) by  either  NovaMed  or  Seller,  if a  material  breach  of any
provision of this Agreement has been committed by the other party,  upon 10 days
prior  written  notice  (during which the party in breach may cure such breach),
and such breach has not been waived;

            (c) by NovaMed  if any of the  conditions  in Article  VIII have not
been  satisfied as of the six (6) month  anniversary  of the Execution Date (the
"Termination  Date")  or if  satisfaction  of  such a  condition  is or  becomes
impossible  (other  than  through  the  failure of  NovaMed  to comply  with its
obligations  under this  Agreement) and NovaMed has not waived such condition on
or before the Termination Date; or

            (d) by Seller,  if any of the conditions in Article IX have not been
satisfied as of the  Termination  Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Seller and Shareholders
to comply with their respective obligations under this Agreement) and Seller has
not waived such condition on or before the Closing Date.

      10.2.  Effect of  Termination.  Each party's  right of  termination  under
Section 10.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies.  If this  Agreement is  terminated  pursuant to Section  10.1,  all
further  obligations  of  the  parties  under  this  Agreement  will  terminate;


                                       18
<PAGE>

provided,  however,  that if this  Agreement is terminated by a party because of
the breach of the  Agreement  by the other  party or because  one or more of the
conditions to the terminating  party's  obligations  under this Agreement is not
satisfied  as a  result  of  the  other  party's  failure  to  comply  with  its
obligations  under this Agreement,  the terminating  party's right to pursue all
legal remedies will survive such termination  unimpaired and such party shall be
entitled to be reimbursed  for its expenses  incurred  prior to the date of such
termination in connection with the Transactions.

                                 ARTICLE XI.
                            INTENTIONALLY OMITTED

                                 ARTICLE XII.
                            POST-CLOSING COVENANTS

      12.1.  Indemnification  by  Seller  and  Shareholders.  From and after the
Closing,  each of Seller  and  Shareholders  agrees  to  jointly  and  severally
indemnify,  defend and save NovaMed and its  respective  Affiliates  (including,
without limitation, the New LLC) and each of its respective officers, directors,
employees, agents and fiduciaries (each, a "NovaMed Indemnified Party"), forever
harmless  from  and  against,  and to  pay to a  NovaMed  Indemnified  Party  or
reimburse a NovaMed  Indemnified  Party for (in either case within ten  business
days of its receipt of notice in accordance  with the terms of this Article from
any NovaMed  Indemnified  Party), any and all liabilities  (whether  contingent,
fixed or  unfixed,  liquidated  or  unliquidated,  or  otherwise),  obligations,
deficiencies, demands, claims, suits, actions, or causes of action, assessments,
losses, costs, expenses,  interest, fines, penalties, actual or punitive damages
or costs or  expenses  of any and all  investigations,  proceedings,  judgments,
environmental  analyses,  remediations,  settlements and compromises  (including
reasonable  fees and  expenses  of  attorneys,  accountants  and other  experts)
(individually and collectively,  the "Losses") actually sustained or incurred by
any NovaMed  Indemnified  Party relating to,  resulting from,  arising out of or
otherwise by virtue of any of the following:

            (a) any  misrepresentation or breach of a representation or warranty
contained  in this  Agreement or in the  Transaction  Documents by Seller or any
Shareholder,  or  non-compliance  with or breach by Seller or any Shareholder of
any  of  the  covenants  or  agreements  contained  in  this  Agreement  or  the
Transaction  Documents to be performed by Seller,  Shareholders  or any of their
respective Affiliates;

            (b) the operation of the  Business,  including the use of the Assets
and the Excluded Assets, on or prior to the Closing Date;

            (c) any Tax liability of Seller or any Shareholder;

            (d) any violations of or obligations under  Environmental and Safety
Requirements  relating to acts,  omissions,  circumstances  or conditions to the
extent existing or arising on or prior to the Closing Date,  whether or not such
acts,  omissions,   circumstances  or  conditions  constituted  a  violation  of
Environmental and Safety Requirements as then in effect;

            (e) any liabilities relating to or arising from the provision of (or
failure to provide)  professional  medical  services,  including any liabilities
relating to the failure,  prior to the Closing Date, to adhere to or comply with
any Medicare and Medicaid requirements or Fraud and Abuse Laws;

            (f) any action, demand, proceeding, investigation or claim (whenever
made)  by any  third  party  (including  Governmental  Authorities)  against  or
affecting NovaMed or its Affiliates which, if successful,  would give rise to or
evidence the existence of or relate to a  misrepresentation  or breach of any of
the representations,  warranties or covenants contained in this Agreement or the
Transaction Documents of Seller;


                                       19
<PAGE>

            (g) the Excluded Assets or Excluded Liabilities; or

            (h) any claim for  payment of fees  and/or  expenses  as a broker or
finder in connection with the origin, negotiation,  execution or consummation of
this Agreement based upon any alleged  agreement between the claimant and Seller
or any Shareholder.

      12.2.  Indemnification  by NovaMed.  From and after the  Closing,  NovaMed
agrees to indemnify,  defend and save Seller,  Shareholders and their respective
Affiliates, and their respective employees,  trustees, agents,  representatives,
heirs and executors other than the New LLC (each, a "Seller  Indemnified Party")
forever harmless from and against,  and to pay to a Seller  Indemnified Party or
reimburse a Seller Indemnified Party for (in either case within 10 business days
of its receipt of notice in  accordance  to the terms of this  Article  from any
Seller Indemnified  Party), any and all Losses actually sustained or incurred by
any Seller  Indemnified  Party relating to,  resulting  from,  arising out of or
otherwise by virtue of any of the following:

            (a) any  misrepresentation or breach of a representation or warranty
contained in this  Agreement  or in the  Transaction  Documents  by NovaMed,  or
non-compliance  with or breach by NovaMed of any of the  covenants or agreements
contained in this Agreement or in the  Transaction  Documents to be performed by
NovaMed;

            (b) any action, demand, proceeding, investigation or claim (whenever
made)  by any  third  party  (including  Governmental  Authorities)  against  or
affecting  Seller,   Shareholders  or  their  respective  Affiliates  which,  if
successful,  would  give rise to or  evidence  the  existence  of or relate to a
misrepresentation  or  breach  of  any  of the  representations,  warranties  or
covenants  contained in this Agreement or the Transaction  Documents of NovaMed;
or

            (c) any claim for  payment of fees  and/or  expenses  as a broker or
finder in connection with the origin, negotiation,  execution or consummation of
this  Agreement  based upon any  alleged  agreement  between  the  claimant  and
NovaMed.

      12.3.  Indemnification Procedure for Third Party Claims. In the event that
subsequent  to the Closing any Person  entitled  to  indemnification  under this
Agreement  (an  "Indemnified  Party")  asserts  a claim for  indemnification  or
receives  notice of the  assertion  of any claim or of the  commencement  of any
action or proceeding  by any entity that is not a party to this  Agreement or an
Affiliate  of a party  to this  Agreement  (including,  but not  limited  to any
domestic or foreign court or Governmental Authority, federal, state or local) (a
"Third Party Claim") against such  Indemnified  Party,  against which a party to
this Agreement is required to provide  indemnification  under this Agreement (an
"Indemnifying  Party"), the Indemnified Party shall give written notice together
with a  statement  of any  available  information  regarding  such  claim to the
Indemnifying  Party within 60 days after  learning of such claim (or within such
shorter  time as may be necessary  to give the  Indemnifying  Party a reasonable
opportunity  to respond to such claim).  The  Indemnifying  Party shall have the
right,  upon written  notice to the  Indemnified  Party (the  "Defense  Notice")
within 30 days after receipt from the Indemnified Party of notice of such claim,
which notice by the Indemnifying Party shall specify the counsel it will appoint
to defend such claim ("Defense Counsel"),  to conduct at its expense the defense
against  such  claim  in its  own  name,  or if  necessary  in the  name  of the
Indemnified Party; provided,  however, that the Indemnified Party shall have the
right to approve the Defense  Counsel,  which approval shall not be unreasonably
withheld,  and in the event the  Indemnifying  Party and the  Indemnified  Party
cannot  agree  upon such  counsel  within 10 days  after the  Defense  Notice is
provided,  then the  Indemnifying  Party  shall  propose  an  alternate  Defense
Counsel,  which shall be subject again to the Indemnified  Party's approval.  If
the parties still fail to agree on Defense  Counsel,  then,  at such time,  they
shall  mutually  agree in good faith on a  procedure  to  determine  the Defense


                                       20
<PAGE>

Counsel. The delivery of a Defense Notice shall not constitute an admission with
respect to the claim for indemnification.

            (a) In the event that the Indemnifying  Party shall fail to give the
Defense Notice, it shall be deemed to have elected not to conduct the defense of
the subject claim, and in such event the Indemnified  Party shall have the right
to conduct  such  defense in good faith and to  compromise  and settle the claim
without prior consent of the Indemnifying  Party and the Indemnifying Party will
be liable for all costs,  expenses,  settlement  amounts or other Losses paid or
incurred in connection therewith.

            (b) In the event that the Indemnifying  Party does deliver a Defense
Notice and  thereby  elects to conduct the  defense of the  subject  claim,  the
Indemnified  Party will cooperate  with and make  available to the  Indemnifying
Party such  assistance  and materials as it may reasonably  request,  all at the
expense of the  Indemnifying  Party,  and the  Indemnified  Party shall have the
right at its expense to  participate  in the defense  assisted by counsel of its
own  choosing,  provided  that the  Indemnified  Party  shall  have the right to
compromise  and  settle  the claim  only with the prior  written  consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.

            (c) Without the prior written consent of the Indemnified  Party, the
Indemnifying  Party will not enter into any  settlement of any Third Party Claim
or cease to defend  against  such  claim,  if pursuant to or as a result of such
settlement  or cessation,  (i)  injunctive  or other  equitable  relief would be
imposed  against the  Indemnified  Party,  or (ii) such  settlement or cessation
would lead to liability or create any financial or other  obligation on the part
of the  Indemnified  Party for which the  Indemnified  Party is not  entitled to
indemnification hereunder.

            (d) The Indemnifying Party shall not be entitled to control, and the
Indemnified  Party shall be entitled to have sole control  over,  the defense or
settlement  of any claim to the extent that claim seeks an order,  injunction or
other equitable relief against the Indemnified Party which, if successful, could
materially interfere with the business, operations, assets, condition (financial
or  otherwise)  or  prospects  of the  Indemnified  Party  (and the cost of such
defense shall  constitute an amount for which the Indemnified  Party is entitled
to indemnification hereunder).

            (e) If a firm decision is made to settle a Third Party Claim,  which
offer the Indemnifying Party is permitted to settle under this Section 12.3, and
the  Indemnifying  Party  desires  to  accept  and  agree  to  such  offer,  the
Indemnifying  Party will give written  notice to the  Indemnified  Party to that
effect.  If the Indemnified  Party fails to consent to such firm offer within 15
calendar  days  after its  receipt of such  notice,  the  Indemnified  Party may
continue to contest or defend  such Third  Party  Claim and, in such event,  the
maximum  liability of the  Indemnifying  Party as to such Third Party Claim will
not exceed the amount of such settlement  offer, plus costs and expenses paid or
incurred by the Indemnified Party through the end of such 15-day period.

            (f) Any  judgment  entered or  settlement  agreed upon in the manner
provided  herein  shall  be  binding  upon the  Indemnifying  Party,  and  shall
conclusively be deemed to be an obligation with respect to which the Indemnified
Party is entitled to prompt indemnification hereunder.

      12.4.  Failure to Give Timely Notice. A failure by an Indemnified Party to
give  timely,  complete or accurate  notice as provided in Section 12.3 will not
affect the rights or obligations of any party  hereunder  except and only to the
extent that,  as a result of such  failure,  any party  entitled to receive such
notice was  deprived of its right to recover any  payment  under its  applicable
insurance  coverage or was otherwise directly and materially damaged as a result
of such failure to give timely notice.


                                       21
<PAGE>

      12.5. Survival. Notwithstanding anything contained to the contrary in this
Agreement, all representations and warranties of the parties hereto contained in
or arising out of the Transaction  Documents,  or in any schedule or certificate
given in connection herewith and therewith,  shall survive the Closing and shall
continue in effect until the 24-month anniversary of the Closing Date; provided,
however, that the representations and warranties set forth in Sections 4.2, 4.4,
4.6,  4.8,  4.12(b),  4.15 and 4.19 shall  survive  until the  expiration of all
applicable  statutes of  limitation.  Unless a specified  period is set forth in
this  Agreement  (in which  event  such  specified  period  will  control),  all
covenants and  indemnities  contained in this Agreement will survive the Closing
and remain in effect indefinitely.

      12.6.  Right of Offset.  If Seller or any Shareholder is the  Indemnifying
Party and fails to make any  payment as  contemplated  by this  Article  XII, or
shall  fail  to  make  any  payment  when  due  under  the  terms  of any of the
Transaction Documents,  then NovaMed may elect to offset such amount against any
amount due and owing by the New LLC to Seller or any Shareholder pursuant to the
terms  of  the  Operating  Agreement   (including,   without   limitation,   any
distributions payable to Seller or such Shareholder).

      12.7. Limitations on Indemnification.

            (a) Seller's Basket.  Notwithstanding  anything in this Agreement to
the  contrary,  the  NovaMed  Indemnified  Parties  shall  not  be  entitled  to
indemnification  under Section  12.1(a) and/or 12.1(f) until all Losses incurred
by the NovaMed Indemnified Parties exceed in the aggregate, One Hundred Thousand
and 00/100 Dollars ($100,000) (the "Seller's Basket"), in which case the NovaMed
Indemnified  Parties shall be entitled to indemnification  under Section 12.1(a)
and/or 12.1(f) only to the extent such Losses exceed the Seller's Basket.

            (b) NovaMed's Basket.  Notwithstanding anything in this Agreement to
the  contrary,   the  Seller  Indemnified  Parties  shall  not  be  entitled  to
indemnification  under Section  12.2(a) and/or 12.2(b) until all Losses incurred
by the Seller Indemnified Parties exceed in the aggregate,  One Hundred Thousand
and 00/100 Dollars ($100,000) (the "NovaMed  Basket"),  in which case the Seller
Indemnified  Parties shall be entitled to indemnification  under Section 12.2(a)
and/or 12.2(b) only to the extent such Losses exceed the NovaMed Basket.

            (c) Not  Applicable.  The limitations set forth in this Section 12.7
shall  not  apply in the event of fraud or  intentional  misrepresentation  by a
party hereto.

                                ARTICLE XIII.
                                MISCELLANEOUS

      13.1.  Definitions.  For purposes of this  Agreement,  the following terms
have the meaning set forth below:

            "Affiliate"  means an  affiliate  as  defined  in Rule 405 under the
Securities Act of 1933, as amended,  and includes any past and present Affiliate
of a Person; provided that with respect to determining any Affiliate of NovaMed,
such Affiliates shall include, without limitation,  NovaMed, Inc. and any of its
subsidiaries.

            "Code" means the Internal Revenue Code of 1986, as amended.

            "ERISA" means the Employee  Retirement  Income Security Act of 1974,
as amended.


                                       22
<PAGE>

             "Facility" means the Medicare-certified, state-licensed ambulatory
surgery center located at 15141 East Whittier Boulevard, Suite 130, Whittier,
California 90603.

            "Fraud and Abuse Laws" means all fraud and abuse laws promulgated
under Section 1128(b) of the Social Security Act, 42 U.S.C. Section 1320a-7(b)
and Section 1877 of the Social Security Act, 42 U.S.C. Section 1877, and all
rules and regulations promulgated thereunder; any other federal, state or local
law relating to the referral of patients to medical facilities owned by
providers of medical services; and all federal statutes (whether set forth in
Title XVIII of the Social Security Act or elsewhere) affecting the health
insurance program for the aged and disabled established by Title XVIII of the
Social Security Act and any statues succeeding thereto, together with all rules
and regulations promulgated thereunder.

            "Hazardous Materials" means (a) hazardous materials, hazardous
substances, extremely hazardous substances or hazardous wastes, as those terms
are defined by the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss.9601 et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. ss.6901 et seq., and any other Environmental and Safety
Requirements; (b) petroleum, including crude oil or any fraction thereof which
is liquid at standard conditions of temperature and pressure (60 degrees
Fahrenheit and 14.7 pounds per square inch absolute); (c) any radioactive
material, including any source, special nuclear, or by-product material as
defined in 42 U.S.C. ss.2011 et seq.; (d) asbestos in any form or condition; and
(e) any other material, substance or waste to which liability or standards of
conduct may be imposed under any Environmental and Safety Requirements.

            "Liens" means any claims, liens, charges, restrictions, options,
preemptive rights, mortgages, hypothecations, assessments, pledges, encumbrances
or security interests of any kind or nature whatsoever.

            "Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the business, prospects, financial condition or
results of operations of such Person or any of its subsidiaries, taken as a
whole.

            "Medical Records" shall mean all medical records of patients treated
at the Facility, including, without limitation, any and all medical charts,
files, notes, transcripts, x-ray files, lab reports, other diagnostic
information or materials, insurance information, billing and payment statements
or records of any kind, explanations of benefits, and other information of or
relating to any patient treated at the Facility, of any kind and in any form
whatsoever; provided that Medical Records shall be limited to the records of the
Facility and will not include records of the provider of professional medical
services.

            "Person" means any individual, sole proprietorship, partnership,
joint venture, trust, undertaking, unincorporated association, corporation,
entity, organization or Governmental Authority.

            "Review Date" means December 31, 2004.

            "Tax" means any federal, state, local or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profit, environmental, customs, duties,
real property, personal property, capital stock, social security, unemployment,
disability, payroll, license, employee or other withholding, or other tax, of
any kind whatsoever, including any interest, penalties or additions to tax or


                                       23
<PAGE>

additional amounts in respect of the foregoing; the foregoing shall include any
transferee or secondary liability for a Tax and any liability assumed by
agreement or arising as a result of being (or ceasing to be) a member of any
Affiliated Group, as defined in Section 1504 of the Code (or being included, or
required to be included, in any Tax Return relating thereto).

            "Tax Returns" means returns, declarations, reports, claims for
refund, information returns or other documents (including any related or
supporting Schedules, statements or information) filed or required to be filed
in connection with the determination, assessment or collection of any Taxes of
any party or the administration of any laws, regulations or administrative
requirements relating to any Taxes.

            "Transaction Documents" means this Agreement and all agreements and
instruments contemplated by and being delivered pursuant to or in connection
with this Agreement.

      13.2. Notices, Consents, etc. Any notices, consents or other communication
required to be sent or given hereunder by any of the parties shall in every case
be in writing and shall be deemed properly served if (a) delivered personally,
(b) sent by registered or certified mail, in all such cases with first class
postage prepaid, return receipt requested, (c) delivered by a nationally
recognized overnight courier service, or (d) sent by facsimile transmission to
the parties at the addresses as set forth below or at such other addresses as
may be furnished in writing.

            (i)   If to Seller and Shareholders:

                  NovaMed Surgery Center of Whittier, LLC
                  15141 East Whittier Boulevard, Suite 130
                  Whittier, California  90603
                  Attention:  Seller and/or Shareholders
                  Tel:  (562) 945-2832
                  Fax:  (562) 945-2174

                  with a copy to:

                  Epps & Yong, LLP
                  333 South Hope Street, 35th Floor
                  Los Angeles, California  90071
                  Attention:  Joseph Epps, Esq.
                  Tel:  (213) 613-2340
                  Fax:  (213) 613-2344

            (ii)  If to NovaMed:

                  NovaMed Acquisition Company, Inc.
                  980 North Michigan Avenue
                  Suite 1620
                  Chicago, Illinois  60611
                  Attention:  Scott T. Macomber
                              John W. Lawrence, Jr.

      Date of service of such notice shall be (A) the date such notice is
personally delivered, (B) three days after the date of mailing if sent by
certified or registered mail, (C) one day after date of delivery to the
overnight courier if sent by overnight courier or (D) the next succeeding
business day after transmission by facsimile.


                                       24
<PAGE>

      13.3. Certain Taxes.  Seller and Shareholders will (on a joint and several
basis) pay all transfer  taxes and other taxes and  charges,  if any (except for
any sales taxes and income tax of NovaMed and its Affiliates),  which may become
payable in connection with the transactions contemplated by this Agreement.

      13.4.  Remedies Not Exclusive.  No remedy conferred by any of the specific
provisions  of this  Agreement  or the  Transaction  Documents is intended to be
exclusive  of any other  remedy.  Each such remedy shall be  cumulative,  and in
addition to every other such  remedy or any other  remedy  existing at law or in
equity.

      13.5. Severability and Reformation.  The unenforceability or invalidity of
any provision of this Agreement shall not affect the  enforceability or validity
of any  other  provision.  If any of the  transactions  contemplated  herein  or
provisions  hereof violates any applicable law, then the parties hereto agree to
negotiate  in  good  faith  such  changes  to the  structure  and  terms  of the
transactions  provided for in this Agreement or the Transaction Documents as may
be  necessary  to  make  these  transactions,  as  restructured,   lawful  under
applicable laws and regulations, without materially disadvantaging either party.
The  parties to this  Agreement  shall  execute and  deliver  all  documents  or
instruments necessary to effect or evidence the provisions of this Section 13.5.

      13.6.  Amendment  and  Waiver.  This  Agreement  may  be  amended,  or any
provision of this  Agreement may be waived,  provided that any such amendment or
waiver will be binding on a party hereto only if such amendment or waiver is set
forth in a writing  executed by such party.  The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any other breach.

      13.7.  Counterparts.  This  Agreement may be executed  simultaneously  via
facsimile  or  otherwise  in two or more  counterparts,  each of which  shall be
deemed an original but all of which together  shall  constitute one and the same
agreement and shall become  effective  when one or more  counterparts  have been
signed by each of the parties hereto and delivered to the other.

      13.8. Expenses.  Except as otherwise specifically provided herein, each of
the parties  shall pay all costs and expenses  incurred or to be incurred by it,
him or her, as the case may be, in negotiating  and preparing this Agreement and
in closing and carrying out the transactions contemplated by this Agreement.

      13.9.  Construction.  This  Agreement  shall be construed  and enforced in
accordance  with,  and all  questions  concerning  the  construction,  validity,
interpretation  and performance of this Agreement shall be governed by, the laws
of the State of Illinois,  without giving effect to provisions thereof regarding
conflict of laws.

      13.10.  Headings.  The subject  headings of Articles  and Sections of this
Agreement are included for purposes of convenience only and shall not affect the
construction or interpretation of any of its provisions.

      13.11.  Assignment.  This  Agreement  may not be  assigned  by  Seller  or
Shareholders without the prior written consent of NovaMed.

      13.12.  Mediation and  Arbitration.  Except as expressly set forth herein,
the  parties  hereto  agree that any and all  controversies,  disputes or claims
arising  out of or in  connection  with  this  Agreement  shall  be  solely  and
exclusively  resolved in accordance with this Section 13.12 and not in any court
of law or equity. The parties hereto shall first try in good faith to settle the


                                       25
<PAGE>

dispute  by  mediation  under the  Commercial  Mediation  Rules of the  American
Arbitration  Association  ("AAA")  (such  mediation  session  to be  held in Los
Angeles,  California,  and  to  commence  within  thirty  (30)  days  after  the
appointment  of the mediator by the AAA). If the  controversy,  claim or dispute
cannot be settled by  mediation,  then by  arbitration  administered  by the AAA
under its  Commercial  Arbitration  Rules  (such  arbitration  to be held in Los
Angeles,  California before a single  arbitrator  mutually agreed upon by Seller
and NovaMed and to commence within thirty (30) days after the appointment of the
arbitrator by the AAA), and judgment on the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof.

      13.13.  Entire  Agreement.  This  Agreement,  the  Preamble  and  all  the
Schedules attached to this Agreement (all of which shall be deemed  incorporated
in the Agreement and made a part hereof) set forth the entire  understanding  of
the parties with respect to the subject matter hereof, and shall not be modified
or  affected  by any  offer,  proposal,  statement  or  representation,  oral or
written,  made by or for any party in  connection  with the  negotiation  of the
terms  hereof,  and may be  modified  only by  instruments  signed by all of the
parties hereto.

      13.14.  Third Parties.  Nothing herein expressed or implied is intended or
shall be construed to confer upon or give to any Person,  other than the parties
to this Agreement and their  respective  permitted  successors and assigns,  any
rights or remedies under or by reason of this Agreement.

      13.15. No Strict Construction. The language used in this Agreement will be
deemed to be the language  chosen by the parties  hereto to express their mutual
intent,  and no rule of strict  construction  will be applied  against any party
hereto.


                                      * * *


                                       26
<PAGE>

      IN WITNESS  WHEREOF,  the parties have executed  this  Agreement as of the
date first above written.

                                    SELLER:

                                    CENTER FOR OUTPATIENT SURGERY

                                    By:  /s/ Neal Shindel, M.D.
                                         ----------------------
                                    Its:  President


                                    NOVAMED:

                                    NOVAMED ACQUISITION COMPANY, INC.


                                    By:  /s/ Scott T. Macomber
                                         -------------------------------------
                                          Scott T.  Macomber,  Executive  Vice
                                          President
                                          and Chief Financial Officer

                                    SHAREHOLDERS:


                                    /s/ David Marshburn
                                    ---------------------
                                    David Marshburn, D.O.


                                    /s/ Neal Shindel
                                    ---------------------
                                    Neal Shindel, M.D.


                                    /s/ Abdul Alaama
                                    ---------------------
                                    Abdul Alaama, M.D.


                                    /s/ Garlan Lo
                                    ---------------------
                                    Garlan Lo, M.D.


                                    /s/ William May
                                    ---------------------
                                    William May, M.D.

<PAGE>

EXHIBITS

Exhibit 1.1-1           --     Certificate of Formation
Exhibit 1.1-2           --     Operating Agreement
Exhibit 3.2             --     Wire Transfer Instructions
Exhibit 7.3(a)          --     Contribution Agreement
Exhibit 7.3(b)          --     Operating Agreement
Exhibit 7.3(f)          --     Assignment of New LLC Interests

SCHEDULES*

Schedule 1.2(b)         --     Personal Property
Schedule 1.2(c)         --     Prepaid Business Expenses
Schedule 1.3(g)         --     Excluded Assets/Personal Effects
Schedule 1.4(a)         --     Accounts Payable
Schedule 1.4(b)         --     Accrued Liabilities
Schedule 4.1            --     Notifications and Approvals
Schedule 4.2            --     Liens and Encumbered Assets
Schedule 4.3            --     Approvals
Schedule 4.5            --     Financial Statements
Schedule 4.6            --     Liabilities
Schedule 4.9            --     Material Contracts/Assumed Contracts
Schedule 4.10           --     Leased Real Property
Schedule 4.11           --     Litigation
Schedule 4.12(b)        --     Licenses and Permits
Schedule 4.14           --     Conduct of Business
Schedule 4.16           --     Salaries
Schedule 4.17           --     Insurance
Schedule 4.19           --     Employee Benefit Plans
Schedule 4.20           --     Personnel Agreements
Schedule 4.22           --     Workers Compensation
Schedule 4.23(a)        --     Accounts Receivable
Schedule 6.2(a)         --     Continuing Employees


* NovaMed, Inc. agrees to furnish supplementally a copy of any omitted schedule
to the Securities and Exchange Commission upon request.