Document:

Exhibit 10.4

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of June     ,
2007, is made and entered into by and among Extra Space Storage Inc., a
Maryland corporation (the “Company”),
and certain persons listed on Schedule 1 hereto (such persons, in their
capacity as holders of Registrable Securities, the “Holders”
and each the “Holder”).

WITNESSETH:

WHEREAS, the operating partnership of the Company,
Extra Space Storage LP, a Delaware limited partnership (“ESS OP”),
AAAAA RENT-A-SPACE, ALAMEDA, LTD., LIMITED
PARTNERSHIP, a California limited partnership, and certain other
parties (AAAAA Rent-A-Space, Alameda, Ltd., Limited Partnership and such other
parties each being hereinafter referred to as a “Contributor”
and all being hereinafter collectively referred to as “Contributors”)
have entered into a Contribution Agreement, dated as of June 15, 2007 (the “Contribution Agreement”), pursuant
to which each Contributor contributed all of such Contributor’s right, title,
and interest in certain real property to ESS OP in exchange for “Series A Preferred Units” (the “Series A Units”), as defined in the Second
Amended and Restated Agreement of Limited Partnership for Extra Space (the “Partnership
Agreement”) exchangeable, under certain circumstances, into shares of
common stock, par value $0.01 per share, of the Company (the “Common Shares”); and

WHEREAS, pursuant to the Contribution Agreement, the
Series A Units were issued by ESS OP directly to the Holders; and

WHEREAS, the Company desires to enter into this
Agreement with the Holders in order to grant the Holders the registration
rights contained herein.

NOW, THEREFORE, in consideration of the premises and
the mutual promises and covenants contained in this Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:

1.                                       Definitions.  As used in this Agreement, the following
terms shall have the following meanings:

“Affiliate”
shall mean, when used with reference to a specified Person, (i) any Person that
directly or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the specified Person; (ii) any
Person who, from time to time, is a member of the Immediate Family of a
specified Person; (iii) any Person who, from time to time, is an officer or
director or manager of a specified Person; or (iv) any Person who, directly or
indirectly, is the beneficial owner of 50% or more of any class of equity
securities or other ownership interests of the specified Person, or of which
the specified Person is directly or indirectly the owner of 50% or more of any
class of equity securities or other ownership interests.

“Agreement”
shall mean this Registration Rights Agreement as originally executed and as
amended, supplemented or restated from time to time.

“Board”
shall mean the Board of Directors of the Company.

“Business Day”
shall mean each day other than a Saturday, a Sunday or any other day on which
banking institutions in the State of Utah are authorized or obligated by law or
executive order to be closed.

“Common Shares”
shall have the meaning set forth in the Recitals hereof.

“Series A Units”
shall have the meaning set forth in the Recitals hereof.

“Commission”
shall mean the Securities and Exchange Commission and any successor thereto.

“Company”
shall have the meaning set forth in the introductory paragraph hereof.

“Contribution Agreement”
shall have the meaning set forth in the Recitals hereof.

“Control”
(including the terms “Controlling,”
“Controlled by” and “under common Control with”) shall
mean the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person through the ownership of
Voting Power, by contract or otherwise.

“ESS OP”
shall have the meaning set forth in the Recitals hereof.

“Exchange Act”
shall mean the Securities Exchange Act of 1934, as amended (or any
corresponding provision of succeeding law) and the rules and regulations
thereunder.

“Holder”
shall have the meaning set forth in the introductory paragraph hereof.

“Person”
shall mean any individual, partnership, corporation, limited liability company,
joint venture, association, trust, unincorporated organization or other
governmental or legal entity.

“Registrable Securities”
shall mean the Common Shares that may be acquired by the Holders in connection
with the exercise by such Holders of the redemption rights associated with the
Series A Units; provided, however, such Registrable Securities
shall cease to be Registrable Securities when (i) a registration statement with
respect to the sale of such Registrable Securities shall have become effective
under the Securities Act and all such Registrable Securities shall have been
disposed of in accordance with such registration statement, (ii) such
Registrable Securities shall have been sold in accordance with Rule 144 (or any
successor provision) under the Securities Act, (iii) such Registrable
Securities become eligible to be publicly sold without limitation as to amount
or manner of sale pursuant to Rule 144 (or any successor provision) under the
Securities Act, or (iv) such Registrable Securities have ceased to be
outstanding.

“Registration Expenses”
shall mean (i) the fees and disbursements of counsel and independent public
accountants for the Company incurred in connection with the Company’s
performance of or compliance with this Agreement, including the expenses of any
special audits or “comfort” letters required by or incident to such performance
and compliance, and any premiums and other costs of policies of insurance
obtained by the Company against liabilities arising out of the sale of any
securities and (ii) all registration, filing and stock exchange fees, all fees
and expenses of complying with securities or “blue sky” laws, all fees and
expenses of custodians, transfer agents and registrars, and all printing
expenses, messenger and delivery expenses; provided, however, “Registration
Expenses” shall not include any out-of-pocket expenses of the Holders,
transfer taxes, underwriting or brokerage commissions or discounts associated
with effecting any sales of Registrable Securities that may be offered, which
expenses shall be borne by each Holder of Registrable Securities on a pro rata basis with respect to the Registrable Securities so
sold.

“Securities Act”
shall mean the Securities Act of 1933, as amended (or any successor
corresponding provision of succeeding law), and the rules and regulations
thereunder.

“Shelf Registration
Statement” shall have the meaning set forth in Section 2(a)
hereof.

“Stand-Off Period”
shall have the meaning set forth in Section 6 hereof.

“Voting Power”
shall mean voting securities or other voting interests ordinarily (and apart
from rights accruing under special circumstances) having the right to vote in
the election of board members or Persons performing substantially equivalent
tasks and responsibilities with respect to a particular entity.

2.                                       Shelf
Registrations.

(a)                                  Shelf Registration.  The Company agrees to use commercially
reasonable efforts to file with the Commission a registration statement under
the Securities Act for the offering on a continuous or delayed basis in the
future covering resales of the Registrable Securities (the “Shelf Registration Statement”),
such filing to be made (subject to Section 3) on or prior to the date
which is fourteen (14) days after the later of (i) the date on which the Series
A Units may be exchanged for Common Shares pursuant to the provisions of the
Contribution Agreement or (ii) such other date as may be required by the
Commission pursuant to its interpretation of applicable federal securities laws
and the rules and regulations promulgated thereunder.  The Company shall use commercially reasonable
efforts to cause such Shelf Registration Statement to be declared effective by
the Commission as soon as practicable thereafter.  The Shelf Registration Statement shall be on
an appropriate form and the registration statement and any form of prospectus
included therein (or prospectus supplement relating thereto) shall reflect the
plan of distribution or method of sale as the Holders may from time to time
notify the Company.

(b)                                 Effectiveness.  The Company shall use commercially reasonable
efforts to keep the Shelf Registration Statement continuously effective for the
period beginning on the date on which the Shelf Registration Statement is
declared effective and ending on the date that all of the Registrable
Securities registered under the Shelf Registration Statement cease to be
Registrable Securities.  During the
period that the Shelf Registration Statement is effective, the Company shall
supplement or make amendments to the Shelf Registration Statement, if required
by the Securities Act or if reasonably requested by the Holders (whether or not
required by the form on which the securities are being registered), including
to reflect any specific plan of distribution or method of sale, and shall use
commercially reasonable efforts to have such supplements and amendments
declared effective, if required, as soon as practicable after filing.

3.                                       Black-Out
Periods.

Notwithstanding anything herein to the contrary, the
Company shall have the right, exercisable from time to time by delivery of a
notice authorized by the Board, on not more than two (2) occasions in any
12-month period, to require the Holders not to sell pursuant to a registration
statement or similar document under the Securities Act filed pursuant to Section
2 or to suspend the effectiveness thereof if at the time of the delivery of
such notice, the Board has considered a plan to engage no later than sixty (60)
days following the date of such notice in a firm commitment underwritten public
offering or if the Board has reasonably and in good faith determined that such
registration and offering, continued effectiveness or sale would materially
interfere with any material transaction involving the Company; provided,
however, that in no event shall the black-out period extend for more
than sixty (60) days on any such occasion. 
The Company, as soon as practicable, shall (i) give the Holders prompt
written notice in the event that the Company has suspended sales of Registrable
Securities pursuant to this Section 3, (ii) give the Holders prompt
written notice of the completion of such offering or material transaction and
(iii) promptly file any amendment necessary for any registration statement or
prospectus of the Holders in connection with the completion of such event.

Each Holder agrees by acquisition of the Registrable
Securities that upon receipt of any notice from the Company of the happening of
any event of the kind described in this Section 3, such Holder will
forthwith discontinue its disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until such
Holder’s receipt of the notice of completion of such event.

4.                                       Registration
Procedures.

(a)                                  In connection
with the filing of any registration statement as provided in this Agreement,
the Company shall use commercially reasonable efforts to, as expeditiously as
reasonably practicable:

(1)                                  prepare and
file with the Commission the requisite registration statement (including a
prospectus therein and any supplement thereto) to effect such registration and
use commercially reasonable efforts to cause such registration statement to
become effective; provided, however, that before filing such
registration statement or any amendments or supplements thereto, the Company
will furnish copies of all such documents proposed to be filed to counsel for
the sellers of Registrable Securities covered by such registration statement
and provide reasonable time for such sellers and their counsel to comment upon
such documents if so requested by a Holder;

(2)                                  prepare and
file with the Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary
to maintain the effectiveness of such registration and to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during the period in which
such registration statement is required to be kept effective;

(3)                                  furnish to each
Holder of the securities being registered, without charge, such number of
conformed copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits other than those which
are being incorporated into such registration statement by reference), such
number of copies of the prospectus contained in such registration statements
(including each complete prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act in conformity with the
requirements of the Securities Act, and such other documents, as the Holders
may reasonably request;

(4)                                  register or
qualify all Registrable Securities under such other securities or “blue sky”
laws of such jurisdictions as the Holders and the underwriters of the securities
being registered, if any, shall reasonably request, to keep such registration
or qualification in effect for so long as such registration statement remains
in effect, and take any other action which may be reasonably necessary or
advisable to enable the Holders to consummate the disposition in such
jurisdiction of the securities owned by the Holders, except that the Company
shall not for any such purpose be required to qualify generally to do business
as a foreign company or to register as a broker or dealer in any jurisdiction
where it would not otherwise be required to qualify but for this Section
4(a)(4), or to consent to general service of process in any such
jurisdiction, or to be subject to any material tax obligation in any such
jurisdiction where it is not then so subject;

(5)                                  immediately
notify the Holders at any time when the Company becomes aware that a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances under which they were made, and, at the request of the Holders,
promptly prepare and furnish to the Holders a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made;

(6)                                  comply or
continue to comply in all material respects with the Securities Act and the
Exchange Act and with all applicable rules and regulations of the Commission
thereunder so as to enable any Holder to sell its Registrable Securities
pursuant to Rule 144 promulgated under the Securities Act, as further agreed to
in Section 7 hereof;

(7)                                  provide a
transfer agent and registrar for all Registrable Securities covered by such
registration statement not later than the effective date of such registration
statement;

(8)                                  cooperate with
the Holders to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any Securities
Act legend; and enable certificates for such Registrable Securities to be
issued for such number of shares and registered in such names as the Holders
may reasonably request in writing at least three (3) Business Days prior to any
sale of Registrable Securities;

(9)                                  list all
Registrable Securities covered by such registration statement on any securities
exchange or national quotation system on which any such class of securities is
then listed or quoted and cause to be satisfied all requirements and conditions
of such securities exchange or national quotation system to the listing or
quoting of such securities that are reasonably within the control of the
Company including, without limitation, registering the applicable class of
Registrable Securities under the Exchange Act, if appropriate, and using
commercially reasonable efforts to cause such registration to become effective
pursuant to the rules of the Commission;

(10)                            in connection
with any sale, transfer or other disposition by any Holder of any Registrable
Securities pursuant to Rule 144 promulgated under the Securities Act, cooperate
with such Holder to facilitate the timely preparation and delivery of
certificates representing the Registrable Securities to be sold and not bearing
any Securities Act legend, and enable certificates for such Registrable
Securities to be issued for such number of shares and registered in such names
as the Holders may reasonably request in writing at least three (3) Business
Days prior to any sale of Registrable Securities;

(11)                            notify each
Holder, promptly after it shall receive notice thereof, of the time when such
registration statement, or any post-effective amendments to the registration
statement, shall have become effective, or a supplement to any prospectus
forming part of such registration statement has been filed;

(12)                            notify each
Holder of any request by the Commission for the amendment or supplement of such
registration statement or prospectus for additional information; and

(13)                            advise each
Holder, promptly after it shall receive notice or obtain knowledge thereof, of
(A) the issuance of any stop order, injunction or other order or requirement by
the Commission suspending the effectiveness of such registration statement or
the initiation or threatening of any proceeding for such purpose and use
commercially reasonable efforts to prevent the issuance of any stop order,
injunction or other order or requirement or to obtain its withdrawal if such
stop order, injunction or other order or requirement should be issued, (B) the
suspension of the registration of the subject shares of the Registrable
Securities in any state jurisdiction and (C) the removal of any such stop
order, injunction or other order or requirement or proceeding or the lifting of
any such suspension.

(b)                                 In connection
with the filing of any registration statement covering Registrable Securities,
each Holder shall furnish in writing to the Company such information regarding
such Holder (and any of its Affiliates), the Registrable Securities to be sold,
the intended method of distribution of such Registrable Securities and such
other information requested by the Company as is necessary or advisable for
inclusion in the registration statement relating to such offering pursuant to
the Securities Act.  Such writing shall
expressly state that it is being furnished to the Company for use in the
preparation of a registration statement, preliminary prospectus, supplementary
prospectus, final prospectus or amendment or supplement thereto, as the case
may be.

Each Holder agrees by acquisition of the Registrable
Securities that (i) upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(a)(5), such
Holder will forthwith discontinue its disposition of Registrable Securities
pursuant to the registration statement relating to such Registrable Securities
until such Holder’s receipt of the copies of the supplemented or amended
prospectus contemplated by Section 4(a)(5); (ii) upon receipt of any
notice from the Company of the happening of any event of the kind described in
clause (A) of Section 4(a)(13), such Holder will discontinue its
disposition of Registrable Securities pursuant to such registration statement
until such Holder’s receipt of the notice described in clause (C) of Section
4(a)(13); and (iii) upon receipt of any notice from the Company of the
happening of any event of the kind described in clause (B) of Section
4(a)(13), such Holder will discontinue its disposition of Registrable
Securities pursuant to such registration statement in the applicable state
jurisdiction(s) until such Holder’s receipt of the notice described in clause
(C) of Section 4(b).

5.                                       Indemnification.

(a)                                  Indemnification
by the Company.  The Company
agrees to indemnify and hold harmless each Holder, its partners, officers,
directors, trustees, stockholders, employees, agents and investment advisers,
and each Person, if any, who controls such Holder within the meaning of the
Securities Act or the Exchange Act, together with the partners, officers,
directors, trustees, stockholders, employees, agents and investment advisers of
such controlling person, against any losses, claims, damages, and expenses
(including, without limitation, reasonable attorneys’ fees), joint or several,
to which the Holders or any such indemnitees may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities and expenses (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
registration statement under which such Registrable Securities were registered
and sold under the Securities Act, including any periodic or current reports or
other filings incorporated by reference

into such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or any violation of
the Securities Act or state securities laws or rules thereunder by the Company
relating to any action or inaction by the Company in connection with such
registration and the Company will reimburse each Holder for any reasonable
legal or any other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, liability, action or
proceedings; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an untrue statement or alleged statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by any Holder specifically stating that it is for use in the
preparation thereof; and provided, further, that the Company
shall not be liable to the Holders or any other Person who controls such Holder
within the meaning of the Securities Act or the Exchange Act in any such case
to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such Person’s failure
to send or give a copy of the final prospectus or supplement to the Persons
asserting an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus or supplement the filing date of which was
prior to the date of the sale of the Registrable Securities giving rise to the
Company’s indemnification obligation. 
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Holders or any such controlling
Person and shall survive the transfer of such securities by the Holders.

(b)                                 Indemnification
by the Holders.  Each Holder
agrees to indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 5(a)) the Company, each member of the
Board, each officer, employee, agent and investment adviser of the Company and
each other Person, if any, who controls any of the foregoing within the meaning
of the Securities Act or the Exchange Act, with respect to any untrue statement
or alleged untrue statement of a material fact in or omission or alleged
omission to state a material fact from such registration statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by
such Holder regarding such Holder giving such indemnification specifically
stating that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement, provided, however, that the Holder shall not be liable to
the Company or any other Person if such statement or omission was corrected in
such final prospectus or supplement the filing date of which was prior to the
date of the sale of the Registrable Securities giving rise to the Holder’s
indemnification obligation.  Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any such Board member, officer,
employee, agent, investment adviser or controlling Person and shall survive the
transfer of such securities by any Holder. 
The obligation of a Holder to indemnify will be several and not joint
among the Holders of Registrable Securities and the liability of each such
Holder of Registrable Securities will be in proportion to and limited in all
events to the net amount received by such Holder from the sale of Registrable
Securities pursuant to such registration statement.

(c)                                  Notices of
Claims, etc.  Promptly
after receipt by an indemnified party of notice of the commencement of any
action or proceeding involving a claim referred to in the preceding paragraphs
of this Section 5, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided, however,
that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under the preceding
paragraphs of this Section 5, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice.  In case any such action is brought against an
indemnified party, unless in such indemnified party’s reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may
exist in respect of such claim, the indemnifying party shall be entitled to
assume the defense thereof, for itself, if applicable, together with any other
indemnified party similarly notified, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to the indemnified party
for any legal or other expenses subsequently incurred by the latter in connection
with the defense thereof.

(d)                                 Indemnification
Payments.  To the
extent that the indemnifying party does not assume the defense of an action
brought against the indemnified party as provided in Section 5(c), the
indemnified party (or parties if there is more than one) shall be entitled to
the reasonable legal expenses of common counsel for the indemnified party (or
parties).  In such event, however, the
indemnifying party will not be liable for any settlement effected without the
written consent of such indemnifying party, which consent shall not be
unreasonably withheld.  The
indemnification required by this Section 5 shall be made by periodic
payments of the amount thereof during the course of an investigation or
defense, as and when bills are received or expense, loss, damage or liability
is incurred.  The indemnifying party
shall not settle any claim without the consent of the indemnified party, which
consent shall not be unreasonably withheld, unless such settlement involves a
complete release of such indemnified party without any admission of liability
by the indemnified party.

(e)                                  Contribution.  If, for any reason, the foregoing indemnity
is unavailable, or is insufficient to hold harmless an indemnified party, then
the indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of the expense, loss, damage or liability, (i) in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on the other
(determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission relates to information supplied
by the indemnifying party or the indemnified party and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission) or (ii) if the allocation provided by
subclause (i) above is not permitted by applicable law or provides a lesser sum
to the indemnified party than the amount hereinafter calculated, in the
proportion as is appropriate to reflect not only the relative fault of the
indemnifying party and the indemnified party, but also the relative benefits
received by the indemnifying party on the one hand and the indemnified party on
the other, as well as any other relevant equitable considerations.  No indemnified party guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any indemnifying party who was not
guilty of such fraudulent misrepresentation, and the liability for contribution
of each Holder of Registrable Securities will be in proportion to and limited
in all events to the net amount received by such Holder from the sale of Registrable
Securities pursuant to such registration statement.

6.                                       Market
Stand-Off Agreement.  Each Holder
hereby agrees that it shall not, to the extent requested by the Company or an
underwriter of securities of the Company, directly or indirectly sell, offer

to
sell (including without limitation any short sale), grant any option or
otherwise transfer or dispose of any Registrable Securities (other than to
donees or partners of the Holder who agree to be similarly bound) within seven
days prior to and for up to 90 days following the effective date of a
registration statement of the Company filed under the Securities Act or the
date of an underwriting agreement with respect to an underwritten public
offering of the Company’s securities (the “Stand-Off Period”);
provided, however, that:

(a)                                  with respect to
the Stand-Off Period, such agreement shall not be applicable to the Registrable
Securities to be sold on the Holder’s behalf to the public in an underwritten
offering pursuant to such registration statement;

(b)                                 all executive
officers and directors of the Company then holding Common Stock of the Company
shall enter into similar agreements;

(c)                                  the Company
shall use commercially reasonable efforts to obtain similar agreements from
each 5% or greater shareholder of the Company; and

(d)                                 the Holders
shall be allowed any concession or proportionate release allowed to any (i)
officer, (ii) director or (iii) other 5% or greater shareholder of the Company
that entered into similar agreements.

In order to enforce the foregoing covenant, the
Company shall have the right to place restrictive legends on the certificates
representing the Registrable Securities subject to this Section 6 and to
impose stop transfer instructions with respect to the Registrable Securities and
such other Common Shares of each Holder (and the Common Shares or securities of
every other Person subject to the foregoing restriction) until the end of such
period.

7.                                       Covenants
Relating To Rule 144.  At such
times as the Company becomes obligated to file reports in compliance with
either Section 13 or 15(d) of the Exchange Act, the Company covenants that it
will file any reports required to be filed by it under the Securities Act and
the Exchange Act and that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable
Holders to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act, as such rule may be amended from time to time or (b)
any similar rule or regulation hereafter adopted by the Commission.

8.                                       Miscellaneous.

(a)                                  Termination;
Survival.  The rights
of each Holder under this Agreement shall terminate upon the date that all of
the Registrable Securities held by such Holder may be sold during any
three-month period in a single transaction or series of transactions without
volume limitations under Rule 144 (or any successor provision) under the
Securities Act.  Notwithstanding the
foregoing, the obligations of the parties under Section 5 and paragraphs
(d), (e) and (g) of this Section 8 shall survive the termination of this
Agreement.

(b)                                 Expenses.  All Registration Expenses incurred in
connection with any Shelf Registration under Section 2 shall be borne by
the Company, whether or not any registration statement related thereto becomes
effective.

(c)                                  Counterparts.  This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one

or more such counterparts have been signed by each
of the parties and delivered to each of the other parties.

(d)                                 Applicable Law;
Jurisdiction.  This
Agreement shall be governed by and construed in accordance with the laws of the
State of Maryland.  The parties consent
to the exclusive jurisdiction of the United States District Court for the
District of Utah in connection with any civil action concerning any
controversy, dispute or claim arising out of or relating to this Agreement, or
any other agreement contemplated by, or otherwise with respect to, this
Agreement or the breach hereof, unless such court would not have subject matter
jurisdiction thereof, in which event the parties consent to the jurisdiction of
the State of Utah.  The parties hereby
waive and agree not to assert in any litigation concerning this Agreement the
doctrine of forum non conveniens.

(e)                                  Waiver Of Jury
Trial.  THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.

(f)                                    Prior
Agreement; Construction; Entire Agreement.  This Agreement, including the exhibits and
other documents referred to herein (which form a part hereof), constitutes the
entire agreement of the parties with respect to the subject matter hereof, and
supersedes all prior agreements and understandings between the parties, and all
such prior agreements and understandings are merged herein and shall not
survive the execution and delivery hereof.

(g)                                 Notices.  All notices or other communications required
or permitted to be given hereunder shall be in writing and shall be delivered
by hand or sent, postage prepaid, by registered, certified or express mail or
reputable overnight courier service or be telecopier and shall be deemed given
when so delivered by hand or, if mailed, three (3) Business Days after mailing
(one Business Day in the case of express mail or overnight courier service),
addressed as follows:

	
  If to the Holder:

  	
  To the address indicated for such Holder in Schedule
  1 hereto.

  
	
   

  	
   

  
	
  With a copy to:

  	
  Miller, Starr & Regalia

  Attn: Eugene Miller & Hans Lapping

  1331 N. California Blvd., 5th Flr.

  Walnut Creek, CA 94596

  Tel. (925) 935-9400

  Fax. (925) 933-4126

  Email. ehm@msandr.com & hl@msandr.com

  
	
   

  	
   

  
	
  And with a copy
  to:

  	
  Baker & McKenzie

  Attn: Richard M. Lipton

  One Prudential Plaza, Suite 3500

  130 East Randolph Drive

  Chicago, Illinois 60601

  Tel: 312-861-7590

  Fax: 312-698-2254

  Email: Richard.m.lipton@bakernet.com

  

 

 

	
  If to the Company:

  	
  Extra Space Storage Inc.

  2795 E. Cottonwood Parkway, #400

  Salt Lake City, Utah 84121

  Attention: Charles Allen, Esq.

  Facsimile: 801-562-5579

  
	
   

  	
   

  
	
  With a copy to:

  	
  Extra Space Storage LLC

  Attn: David L. Rasmussen

  2795 E. Cottonwood Parkway, #400

  Salt Lake City, UT 84121

  Tel. 801-365-4473

  Fax 801-365-4947

  Email: drasmussen@extraspace.com

  

 

(h)                                 Successors and
Assigns.  This Agreement shall inure to
the benefit of and be binding upon the successors and permitted assigns of each
of the parties and shall inure to the benefit of each Holder.  The Company may assign its rights or
obligations hereunder to any successor to the Company’s business or with the
prior written consent of Holders of a majority of the then outstanding
Registrable Securities.  Notwithstanding
the foregoing, no assignee of the Company shall have any of the rights granted
under this Agreement until such assignee shall acknowledge its rights and
obligations hereunder by a signed written agreement pursuant to which such
assignee accepts such rights and obligations.

(i)                                     Headings.  Headings are included solely for convenience
of reference and if there is any conflict between headings and the text of this
Agreement, the text shall control.

(j)                                     Amendments And
Waivers.  The provisions of this
Agreement may be amended or waived at any time only by the written agreement of
the Company and the Holders of a majority of the Registrable Securities, with,
for the purposes of this Section 8(j) the holders of Series A Units being
deemed to be the holders of that number of Registrable Securities that are
issuable upon the exchange of their Series A Units.; provided, however,
that the provisions of this Agreement may not be amended or waived without the consent
of the Holders of all the Registrable Securities that are outstanding or
issuable upon the exchange of Series A Units, which are adversely affected by
such amendment or waiver if such amendment or waiver adversely affects a
portion of the Registrable Securities that are outstanding or issuable upon the
exchange of Series A Units but does not so adversely affect all of the
Registrable Securities that are outstanding or issuable upon the exchange of
Series A Units; provided, further, that the provisions of the
preceding provision may not be amended or waived except in accordance with this
sentence.  Any waiver, permit, consent or
approval of any kind or character on the part of any such Holders of any
provision or condition of this Agreement must be made in writing and shall be
effective only to the extent specifically set forth in writing.  Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of Registrable
Securities and the Company.

(k)                                  Interpretation;
Absence Of Presumption.  For
the purposes hereof, (i) words in the singular shall be held to include the
plural and vice versa and words of one gender shall be held to include the
other gender as the context requires, (ii) the terms “hereof,” “herein,” and “herewith”
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Section, paragraph or other references are to the Sections,
paragraphs, or other references to this Agreement unless otherwise specified,
(iii) the word “including” and words of similar import

when used in this Agreement shall mean “including,
without limitation,” unless the context otherwise requires or unless otherwise
specified, (iv) the word “or” shall not be exclusive and (v) provisions shall
apply, when appropriate, to successive events and transactions.

This Agreement shall be construed without regard to
any presumption or rule requiring construction or interpretation against the
party drafting or causing any instruments to be drafted.

(l)                                     Severability.  If any provision of this Agreement shall be
or shall be held or deemed by a final order by a competent authority to be
invalid, inoperative or unenforceable, such circumstance shall not have the
effect of rendering any other provision or provisions herein contained invalid,
inoperative or unenforceable, but this Agreement shall be construed as if such
invalid, inoperative or unenforceable provision had never been contained herein
so as to give full force and effect to the remaining such terms and provisions.

(m)                               Specific
Performance; Other Rights.  The
parties recognize that various other rights rendered under this Agreement are
unique and, accordingly, the parties shall, in addition to such other remedies
as may be available to them at law or in equity, have the right to enforce the
rights under this Agreement by actions for injunctive relief and specific
performance.

(n)                                 Further
Assurances.  In
connection with this Agreement, as well as all transactions and covenants
contemplated by this Agreement, each party hereto agrees to execute and deliver
or cause to be executed and delivered such additional documents and instruments
and to perform or cause to be performed such additional acts as may be
necessary or appropriate to effectuate, carry out and perform all of the terms,
provisions and conditions of this Agreement and all such transactions and
covenants contemplated by this Agreement.

(o)                                 No Waiver.  The waiver of any breach of any term or
condition of this Agreement shall not operate as a waiver of any other breach
of such term or condition or of any other term or condition, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision
or of any other provision hereof.

[SIGNATURE PAGE FOLLOWS]

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

	
  

  	
  EXTRA SPACE STORAGE INC.,

  
	
   

  	
  a Maryland corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HOLDERS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  H.
  JAMES KNUPPE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BARBARA
  KNUPPE

  

 

Schedule 1

THE HOLDERS

List of holders of the Series A Units:

	
  Name of the
  Holder

  	
   

  	
  Number of

  Series A Units

  Held

  	
   

  	
  Address of the Holder

  
	
  H. James Knuppe
  and Barbara KnuppeExhibit
10.56

EXECUTION COPY

SECOND AMENDMENT TO
CREDIT AGREEMENT 

SECOND AMENDMENT TO CREDIT AGREEMENT (this “Agreement”), dated
as of June 20, 2007, among NOVAMED, INC., a Delaware corporation (“Borrower”),
NATIONAL CITY BANK (“Agent”) and the Lenders signatory hereto.  Terms not defined herein have the meanings
given to them in the Credit Agreement (as hereinafter defined).

BACKGROUND

A.            Borrower, the Lenders
signatory thereto and Agent are party to that certain Sixth Amended and
Restated Credit Agreement dated as of February 7, 2007 (as amended by that
certain First Amendment to Credit Agreement and Consent to Acquisition dated as
of May 31, 2007, the “Credit Agreement”).

B.            Borrower has requested that
Agent and Lenders amend the Credit Agreement.

C.            Agent and Lenders are
willing to enter into this Agreement to amend the Credit Agreement upon the
terms and conditions set forth below.

NOW THEREFORE, in
consideration of the matters set forth in the recitals and the covenants and
provisions herein set forth, and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

1.             Amendments
to Credit Agreement.

(a)           Section 1.1 of the Credit
Agreement is hereby amended by adding the following new definitions thereto:

“Call Option”
means the call options, purchase rights or similar rights with respect to the
common stock of the Borrower purchased by the Borrower on the issuance date of
the Convertible Notes in connection with such issuance (including any rights of
any counterparty to put any shares of common stock of the Borrower to the
Borrower thereunder or any similar rights thereunder) in each case on terms and
conditions substantially as set forth on Annex A hereto.

“Convertible Note Documents”
means the Convertible Notes, the related indenture, the Call Options, the
Warrants and all other definitive documents, instruments and agreements
relating thereto, in each case to be entered into on terms and conditions
substantially as set forth on Annex A hereto and as amended, modified,
supplemented, refinanced and replaced in accordance with the provisions hereof.

“Convertible Notes”
means the up to $75,000,000 in original principal amount of unsecured
convertible senior
subordinated notes due 2012 to be issued by the Borrower, as amended, modified,
supplemented, refinanced or replaced in accordance with the provisions hereof.

“Second Amendment”
means that certain Second Amendment to Credit Agreement dated as of June 20,
2007 among Borrower, Agent and Required Lenders.

“Second Amendment
Effective Date” has the meaning set forth in Section 4 of the Second
Amendment.

“Senior Leverage Ratio” means, as of
any date of determination, the ratio of (a) Total Funded Debt (other than
Indebtedness under the Convertible Notes, the Call Options and the Warrants) as
of such date to (b) EBITDA for the period of the four fiscal quarters most
recently ended.

“Warrants” means
any call options, warrants, purchase rights or similar rights with respect to
the common stock of the Borrower sold by the Borrower on the issuance date of
the Convertible Notes in connection with such issuance and on terms and
conditions substantially as set forth in Annex A.

(b)           Section 1.1 of the Credit
Agreement is hereby further amended by adding the following new language to the
definition of “Change of Control” immediately at the end thereof:

“or
(c) the occurrence of any “Fundamental Change” (or comparable term) under, as
defined in, the Convertible Notes Documents.”

(c)           Section 1.1 of the Credit
Agreement is hereby further amended by deleting the definition of “Fixed
Charges” therein and replacing it with the following new definition of “Fixed
Charges”

“Fixed Charges” means, with respect to the Borrower and
its Subsidiaries on a consolidated basis, as of any date of determination, (a)
Consolidated Interest Expenses (including any interest expense with respect to
the Convertible Notes Documents) for the period of four fiscal quarters ending
on the date of determination plus (b) scheduled principal payments on
Indebtedness required to be made in such period plus (c) rent expenses incurred
by the Borrower and its Subsidiaries plus (d) any principal payments with
respect to the Convertible Note Documents.

(d)           Section 1.1 of the Credit
Agreement is hereby further amended by adding the following proviso at the end
of clause (a) of the definition of “Indebtedness” therein:

“provided,
for purposes of clarification, all obligations of the Borrower under the
Convertible Notes Documents will be considered Indebtedness hereunder;”

(e)           Section 1.1 of the Credit
Agreement is hereby further amended by replacing each reference to “Total
Leverage Ratio” in the definition of “Permitted Acquisition” therein with a
reference to “Senior Leverage Ratio”.

(f)            Section 3.2.1 of the Credit
Agreement is hereby amended by deleting the text from the definition of “Applicable
Margin” therein through the definition of “Level VI” and by replacing it with
the following new text:

 2
 

“Applicable
Margin” means on
any date the applicable percentage set forth below based upon the Level as
shown in the certificate then most recently delivered to the Lenders pursuant
to Section 7.1.1(d):

	
  Level

  	
   

  	
  Base Rate

  	
   

  	
  LIBOR Rate

  	
   

  	
  Commitment Fee

  	
   

  
	
  I

  	
   

  	
  .50

  	
  %

  	
  2.50

  	
  %

  	
  .250

  	
  %

  
	
  II

  	
   

  	
  .50

  	
  %

  	
  2.25

  	
  %

  	
  .250

  	
  %

  
	
  III

  	
   

  	
  .50

  	
  %

  	
  2.00

  	
  %

  	
  .250

  	
  %

  
	
  IV

  	
   

  	
  .50

  	
  %

  	
  1.75

  	
  %

  	
  .250

  	
  %

  
	
  V

  	
   

  	
  0

  	
  %

  	
  1.25

  	
  %

  	
  .200

  	
  %

  

 

; provided, however that if the Borrower
shall have failed to deliver to the Lenders by the date required hereunder any
certificate pursuant to Section 7.1.1(d), then from the date such
certificate was required to be delivered until the date of such delivery the
Applicable Margin shall be deemed to be Level I.  Each change in the Applicable Margin shall
take effect with respect to all outstanding Loans on the third Business Day
immediately succeeding the day on which such certificate is received by the
Agent.  Notwithstanding the foregoing, no
reduction in the Applicable Margin shall be effected if a Default or an Event
of Default shall have occurred and be continuing on the date when such change
would otherwise occur, it being understood that on the third Business Day
immediately succeeding the day on which such Default or Event of Default is
either waived or cured (assuming no other Default or Event of Default shall be
then pending), the Applicable Margin shall be reduced (on a prospective basis)
in accordance with the then most recently delivered certificate.

“Level” means, and includes, Level I, Level II,
Level III, Level IV or Level V, whichever is in effect at the relevant time.

“Level I” shall exist at any time the Total
Leverage Ratio is equal to or greater than 5.00:1.0.

“Level II” shall exist at any time the Total
Leverage Ratio is less than 5.00:1.0 but equal to or greater than 3.50:1.0.

“Level III” shall exist at any time the Total
Leverage Ratio is less than 3.50:1.0 but equal to or greater than 3.00:1.0.

“Level IV” shall exist at any time the Total
Leverage Ratio is less than 3.00:1.0 but equal to or greater than 2.00:1.0.

“Level V” shall exist at any time the Total
Leverage Ratio is less than 2.00:1.0.”

(g)           Section 6.22 of the Credit Agreement is hereby deleted
in its entirety and replaced with the following new Section 6.22:

“Subordination Provisions. 
The (A) subordination provisions contained in all notes, debentures and
other instruments entered into or issued in respect of

 3
 

Subordinated Debt are enforceable against the
issuer of the respective security and the holders thereof in accordance with
their respective terms, and the Loans and all other Obligations are within the
definitions of “Senior Indebtedness”, or other comparable definition, included
in such provisions and (B) subordination provisions contained in the
Convertible Notes Documents are enforceable against the holders thereof and the
Loans and all other Obligations are “Senior Debt” (or other comparable
definition) as defined in the Convertible Notes Documents and there is no
Indebtedness other than the Loans and Obligations which is “Designated Senior
Indebtedness” (or other comparable definition) of the Borrower outstanding.”

(h)           Section 7.2.2 of the Credit Agreement is hereby
amended by deleting the “and” after clause (s) thereof, deleting the “.” at the
end of clause (t) thereof and replacing it with a “; and” and by adding the
following new clause (u) thereto:

“(u)
unsecured Indebtedness of Borrower evidenced by the Convertible Notes as in
effect on the date of their issuance or as permitted to be amended pursuant to
the terms hereof; provided, that: the aggregate principal amount
of all such Indebtedness evidenced by the Convertible Notes shall not exceed
$75,000,000 less the aggregate amount of all repayments or redemptions, whether
optional or mandatory, in respect thereof, plus interest thereon calculated in
the manner provided for in the Convertible Notes Documents as in effect on the
date of the issuance thereof; provided, further that no
Subsidiary of the Borrower or other Person in which the Borrower has any direct
or indirect equity interest shall have any Contingent Liability with respect to
or shall otherwise guarantee or pledge its assets to secure any Indebtedness
under the Convertible Notes.”

(i)            Section 7.2.4 of the Credit Agreement is hereby
amended by deleting clauses (a) and (b) thereof in their entirety and replacing
it with the following new clauses (a) and (b):

“(a)         Its Net Worth as of the
last day of each Fiscal Quarter to be less than 75% of the amount of its Net
Worth existing on September 30, 2006, plus 50% of Net Income (without
giving effect to any losses) for each Fiscal Quarter occurring after September
30, 2006, plus 50% of the net proceeds from any equity issuance by the
Borrower or any of its Subsidiaries occurring since September 30, 2006 other
than any equity issuance in connection with the Convertible Notes, plus
50% of any incremental additive equity associated with any Permitted
Acquisition; provided, however, in the event that the Borrower
determines that as a result of the issuance of the Convertible Notes, the Call
Option or the Warrants its Net Worth is reduced (a “Net Worth Adjustment”),
the minimum Net Worth required to be maintained by Borrower pursuant to this
clause (a) shall be reduced to reflect the impact of the Net Worth Adjustment
in an amount agreed to by Agent provided that such amount shall at no time be
less than $45,500,000, plus 50% of Net Income (without giving effect to
any losses) for each Fiscal Quarter occurring after March 31, 2007, plus
50% of the net proceeds from any equity issuance by the Borrower or any of its
Subsidiaries occurring since March 31, 2007 other than any

 4
 

equity issuance in
connection with the Convertible Notes, plus 50% of any incremental
additive equity associated with any Permitted Acquisition.

(b)           (x) the Total Leverage Ratio as of the end
of each Fiscal Quarter for the twelve month period preceding such date to be
greater than (i) for each Fiscal Quarter from and including June 30, 2007
through and including September 30, 2008, 5.75:1.00; and (ii) for the Fiscal
Quarter ended December 31, 2008 and for each Fiscal Quarter thereafter,
5.50:1.00 and (y) the Senior Leverage Ratio as of the end of each Fiscal
Quarter for the twelve month period preceding such date to be greater than (i)
for each Fiscal Quarter from and including June 30, 2007 through and including
September 30, 2008, 3.75:1.00; and (ii) for the Fiscal Quarter ended December
31, 2008 and for each Fiscal Quarter thereafter, 3.50:1.00.”

(j)            Section
7.2.5(k) of the Credit Agreement is hereby amended by deleting the reference to
“Total Leverage Ratio” and replacing it with a reference to “Senior Leverage
Ratio”.

(k)           Section
7.2.5. of the Credit Agreement is hereby amended by adding the following new
language immediately at the end thereof:

“Notwithstanding anything else herein to the contrary,
the Borrower may enter into the Call Option and issue the Warrants on the date
of the issuance of the Convertible Notes.”

(l)            Section
7.2.6 of the Credit Agreement is hereby amended by adding the following new
clause (f) thereto:

“(f) The Borrower will not and will not permit any
Subsidiary to directly or indirectly make any payment, prepayment, redemption,
conversion to cash, defeasance or acquisition for value of (including by way of
depositing money or securities with the trustee with respect thereto before due
for the purpose of paying when due), or refund, refinance or exchange of, any
Convertible Notes or Convertible Note Documents other than (A) fees and
expenses paid by Borrower on the date of issuance of the Convertible Notes; (B)
subject to the subordination provisions of the Convertible Notes, regularly
scheduled payments of interest and fees on the Convertible Notes at rates and
in amounts not to exceed the rates and amounts required by the Convertible
Notes Documents on the date hereof, (C) subject to the subordination provisions
of the Convertible Notes, payments of contingent interest or additional amounts
payable upon any default or event of default or similar event under the
Convertible Notes Documents and payments of principal in respect of the
Convertible Notes upon any conversion or required repurchase of the Convertible
Notes as required by the terms of the Convertible Notes Documents so long as,
in the case of any payment prior to February 6, 2012, (x) no Default or Event
of Default then exists or would result therefrom and (y) the Borrower shall
have delivered to the Agent a certificate demonstrating that after giving
effect to such conversion or payment (and the incurrence of any Indebtedness in
connection therewith) Borrower would have been in compliance with the financial
covenants in Section 7.2.4 for the most recent Fiscal Quarter for which
Borrower has delivered financial statements to the Agent on a pro forma basis
deeming such payments to have been made on the last day of such Fiscal Quarter
and (D) subject to the

 5
 

subordination provisions of the Convertible Notes payments of principal
in respect of the Convertible Notes upon their scheduled maturity (which
scheduled maturity shall not be prior to June 1, 2012).”

(m)          Section
7.2.6 of the Credit Agreement is hereby further amended by adding the following
language immediately at the end of such Section:

“Notwithstanding anything else in this Section 7.2.6
of the Credit Agreement, Borrower may issue its common stock (and pay cash in
lieu of issuing fractional shares) as required by the Convertible Notes
Documents including the Call Option and Warrants.”

(n)           Section
7.2.9(b). of the Credit Agreement is hereby amended by adding the following new
language immediately at the end thereof:

“Notwithstanding anything else herein to the contrary,
the Borrower may enter into the Call Option and issue the Warrants on the date
of the issuance of the Convertible Notes and Borrower may issue its common
stock (and pay cash in lieu of issuing fractional shares) as required by the
Convertible Notes Documents, the Call Option and Warrants.”

(o)           Section
7.2.10 of the Credit Agreement is hereby further amended by adding the
following new language immediately at the end of such Section:

“Borrower
shall not, directly or indirectly, amend, modify, alter or change in any
material respect any terms of any of the Convertible Notes Documents or any
related agreements, documents and instruments without the consent of the
Required Lenders, except that Borrower may, after prior written notice to
Agent, amend, modify, alter or change the terms thereof to extend the maturity
thereof or to reduce the interest rate or any fees in connection therewith.”

(p)           A new Section 8.1.13 is hereby added to
the Credit Agreement to read as follows:

“8.1.13 Subordination
Provisions of Convertible Notes.  (a)
Any of the Obligations shall fail to be “Senior Debt” (or any comparable term)
under and as defined in, the Convertible Notes Documents; (b) any Indebtedness,
other than the Obligations, shall constitute “Designated Senior Debt” (or any
comparable term) under, and as defined in, the Convertible Notes Documents; or
(c) the subordination provisions of the Convertible Notes Documents shall, in
whole or in part, terminate, cease to be effective or cease to be legally
valid, binding and enforceable against any holder of such Convertible Notes.”

2.             Consent.  The
Agent and Lenders hereby consent to the issuance by the Borrower of the
Convertible Notes and to the Borrower entering into the transactions
contemplated by the Convertible Notes Documents and to the terms and conditions
of the Convertible Notes Documents on the Second Amendment Effective Date
provided that the Net Available Proceeds after payment for the Call Option are
applied to reduce outstanding Obligations under the Credit

 6
 

Agreement as required by Section 2.2.2(c) of the
Credit Agreement without a permanent reduction in the Revolving Commitment.

3.             Representations
and Warranties.  To induce Agent and Lenders to enter into
this Agreement, Borrower represents and warrants to Agent and the Lenders that
the execution, delivery and performance by Borrower of this Agreement is within
its corporate powers, as applicable, has been duly authorized by all necessary
corporate action and does not and will not violate or conflict with any
provision of law applicable to Borrower, the Certificate of Incorporation or
Bylaws or other organizational document of Borrower, or any order, judgment or
decree of any court or other agency of government or any contractual obligation
binding upon Borrower; and the Credit Agreement as amended as of the date
hereof is the legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors’ rights generally and the effects of general principles of
equity.  Borrower hereby further
represents and warrants that, as of the Second Amendment Effective Date, the
Borrower and its Subsidiaries are Solvent on a consolidated basis and the
Borrower acknowledges that its warranties and representations contained in the
Credit Agreement and the other Loan Documents, are true and correct in all
material respects both before and after the Second Amendment Effective Date
(both before and after giving effect to the transactions contemplated hereby)
with the same effect as though made on such date (except to the extent stated
to relate to an earlier date, in which case such representations and warranties
were true and correct in all material respects as of such earlier date).

4.             Conditions.  The effectiveness of the consent and
amendments stated in this Agreement is subject to each of the following
conditions precedent (the date of consummation of which shall be the “Second
Amendment Effective Date”):

 (A)         Agreement.  Agent shall have received counterparts of
this Agreement duly executed by Borrower, Agent and the Required Lenders.

 (B)          No Default.  After giving effect to this Agreement, and
the waivers contained herein no Default or Event of Default under the Credit
Agreement shall have occurred and be continuing.

 (C)          Warranties and Representations.  The warranties and representations of the
Credit Parties contained in this Agreement, the Credit Agreement and the other
Loan Documents, shall each be true and correct in all material respects as of
the Second Amendment Effective Date hereof, with the same effect as though made
on such date (except to the extent stated to relate to an earlier date, in
which case such representations and warranties were true and correct in all
material respects as of such earlier date).

 (D)         Payment of Expenses.  Borrower shall have paid all reasonable out
of pocket expenses (including reasonable attorney’s fees) of Agent in connection
with this Agreement.

 (E)          Amendments to Collateral Documents.  Borrower and the Credit Parties shall have
delivered such amendments to the Collateral Documents (and shall have
reaffirmed all

 7
 

obligations
thereunder) as are reasonably requested by the Agent and the Agent shall have
filed any UCC amendments necessary to reflect such amendments.  

(F)           Issuance of Convertible
Notes.  The Convertible Notes shall
have been issued on the terms set forth in the Convertible Notes Documents.

 (G)          Additional Deliveries.  Borrower and the other Credit Parties shall
have executed and delivered such additional certificates, documents, amendments
to other Loan Documents and financing statements as Agent may require in
connection with the transactions contemplated by this Agreement.

5.             Condition Subsequent.

Within five days of the
Second Amendment Effective Date, Borrower shall pay to the Agent (i) the fees
for the benefit of Agent set forth in that certain Fee Letter dated as of June
14, 2007 and (ii) for the benefit of each Lender executing this amendment by
5:00 p.m. (New York time) on June 20, 2007 an amendment fee in an amount equal
to 5 bps multiplied by such Lender’s Revolving Commitment.

6.             Miscellaneous.

(A)          Captions.  Section captions used in this Agreement are
for convenience only, and shall not affect the construction of this Agreement.

(B)           Governing Law.  This Agreement shall be governed by and shall
be construed and enforced in accordance with the internal laws of the State of
Illinois, without regard to conflict of laws principles.

(C)           Counterparts.  This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
Agreement.  Delivery of an executed
signature page to this Agreement by telecopy shall be deemed to constitute
delivery of an originally executed signature page hereto.

(D)          Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.

(E)           References.  Any reference to the Credit Agreement
contained in any notice, request, certificate, or other document executed
concurrently with or after the execution and delivery of this Agreement shall
be deemed to include this Agreement unless the context shall otherwise require.

(F)           Effectiveness of Agreement.  The Agent and Required Lenders hereby
acknowledge and agree that upon the satisfaction of the conditions to
effectiveness in Section 4 of this Agreement (including the execution of this
Agreement by the Borrower, Agent and Required Lenders), this Agreement will be
effective to amend the Credit Agreement as set forth herein.

 8
 

(G)           Continued Effectiveness.  Notwithstanding anything contained herein,
the terms of this Agreement are not intended to and do not serve to effect a
novation as to the Credit Agreement.  The
parties hereto expressly do not intend to extinguish the Credit Agreement.  Instead, it is the express intention of the
parties hereto to reaffirm the indebtedness created under the Credit Agreement,
which is evidenced by the Notes and secured by the Collateral.  The Credit Agreement as amended hereby and
each of the other Loan Documents remains in full force and effect.

[Signature Pages Follow]

 9

Witness the due execution
hereof by the respective duly authorized officers of the undersigned as of the
date first above written.

	
  

  	
  NOVAMED, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Scott T. Macomber

  	
   

  
	
   

  	
  Name:

  	
  Scott T. Macomber

  	
   

  
	
   

  	
  Title:

  	
  Executive Vice President and

  	
   

  
	
   

  	
   

  	
  Chief Financial Officer

  	
   

  

 

 

	
  

  	
  NATIONAL CITY BANK,

  
	
   

  	
  Individually as a Lender, as Letter of Credit

  
	
   

  	
  Issuer and as Agent

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ James M. Kershner

  	
   

  
	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LASALLE BANK NATIONAL ASSOCIATION

  
	
   

  	
  Individually as a Lender

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Sam L. Dendrinos

  	
   

  
	
   

  	
  Title: Senior Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE NORTHERN TRUST COMPANY

  
	
   

  	
  Individually as a Lender

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Phillip N. McCaulay

  	
   

  
	
   

  	
  Title: Second Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ASSOCIATED BANK, N.A.

  
	
   

  	
  Individually as a Lender

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Title: 

  
	
   

  	
   

  
	
   

  	
  CHARTER ONE BANK

  
	
   

  	
  Individually as a Lender

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Richard H. Ault

  	
   

  
	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  JPMORGAN CHASE BANK, NATIONAL

  ASSOCIATION

  
	
   

  	
  Individually as a Lender

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Title: 

  
	
   

  	
   

  
	
   

  	
  BMO CAPITAL MARKETS FINANCING,

  INC.

  
	
   

  	
  Individually as a Lender

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Michael D. Pincus

  	
   

  
	
   

  	
  Title: Managing Director

  

 

ANNEX A TO SECOND AMENDMENT

PURCHASE OF
CONVERTIBLE NOTE HEDGE AND SALE OF WARRANTS

Concurrently with the
pricing of the notes, we have entered into a privately-negotiated convertible note hedge transaction with
respect to our common stock (the “purchased call options”) with Deutsche
Bank AG (the “counterparty”). The purchased call options will cover, subject to customary anti-dilution
adjustments substantially identical to those in the notes, approximately
11.8 million shares of our common stock. Separately and concurrently with entering into the purchased call options
transaction, we also intend to enter into a warrant transaction with the
counterparty with respect to our common stock, whereby we will sell to the
counterparty warrants to acquire, subject to customary anti-dilution
adjustments, approximately 11.8 million shares of our common stock (the “sold
warrants”). The exercise price of the sold warrants will be $8.31 per share. The
sold warrants expire after the purchased
call options. If the underwriter exercises its over-allotment option to
purchase additional notes, we may amend the purchased call options and the sold
warrants to increase the shares underlying each such transaction by an amount
equal to the number of shares initially issuable upon conversion of the
additional notes, subject to certain exceptions.

The purchased call options and the sold warrants are
separate transactions, each entered into by us with the counterparty,
are not part of the terms of the notes and will not affect the holders’ rights
under the notes. As a holder of the notes, you will not have any rights with
respect to the purchased call options
or the sold warrants.

The
purchased call options are expected to reduce the potential dilution to our
common stock upon any conversion of the notes in the event that the
market value per share of our common stock, as measured under the purchased
call options, at the time of exercise is greater than the strike price of the
purchased call options, which corresponds to the initial conversion price of
the notes and is similarly subject to certain customary adjustments. If,
however, the volume-weighted average price per share of our common stock
exceeds the strike price of the sold warrants when the sold warrants are
exercised, we will be required to issue shares of our common stock to the
counterparty, and those issuances will have a dilutive effect on our earnings
per share.

For a
discussion of hedging arrangements that may be entered into in connection with these
purchased call options and sold warrants, see “Risk Factors—Risks Related to
the Notes and Our Common Stock—The convertible note hedge and warrant
transactions may affect the value of the notes and the trading price of our
common stock.”

 1
 

DESCRIPTION OF THE
NOTES

We
will issue the notes under an indenture, to be dated as of the date we
consummate the offer, among us and LaSalle Bank National Association, as
trustee, as supplemented by a first supplemental indenture, also dated as of
the date we consummate the offer, among the same parties (together, the
“indenture”).

The
following summarizes some, but not all, of the provisions of the notes and the
indenture. We urge you to read the indenture and the form of certificate
evidencing the notes in their entirety, because they, and not this description,
define your rights as a holder of the notes. You may request a copy of these
documents at our address shown under “Where You Can Find More Information.”

In
this section entitled “Description of the Notes,” when we refer to “NovaMed,”
“we,” “our” or “us,” we are referring to NovaMed, Inc. and not any of its
subsidiaries.

General

We
will issue $75,000,000 (giving effect to the underwriter’s exercise in full of
its overallotment option) aggregate principal amount of notes. The notes will
be convertible into cash and common stock, if any, as described under “—Conversion
of Notes.” They will be issued only in denominations of $1,000 and in multiples
of $1,000. They will mature on June 15, 2012, unless earlier converted by
you or purchased by us at your option upon the occurrence of a fundamental
change (as defined below). The notes are not subject to redemption at our
option prior to maturity.

The
notes will be our general unsecured obligations. They will rank subordinate to
all senior indebtedness of the company, including debt outstanding under our
senior credit facility, and pari passu or senior to all other subordinated indebtedness
of the company. In addition, the notes will be structurally subordinated to all
present and future debt and other obligations of our subsidiaries. See “Risk
Factors—Risks Relating to the Notes and our Common Stock—Your right to receive
payments on the notes is junior to our existing senior indebtedness and all
additional senior indebtedness we incur.” 
Assuming that we
had completed the offering of these notes and applied the net proceeds as
described under “Use of Proceeds,” we would have had total senior indebtedness
of approximately $8.7 million as of March 31, 2007; we subsequently borrowed an
additional $24.6 million in conjunction with our acquisition of Surgery Center
of Kalamazoo, LLC. The indenture will not limit the amount of additional
indebtedness, including senior indebtedness, that we can create, incur, assume
or guarantee.

Neither
we nor our subsidiaries are restricted from paying dividends, incurring debt or
issuing or repurchasing our securities under the indenture. In addition, there
are no financial covenants in the indenture. You are not protected by the
indenture in the event of a highly leveraged transaction, a change in control
of NovaMed or a termination in the trading of our common stock, except to the
extent described under “—Purchase of Notes at Your Option Upon a Fundamental
Change” and “—Conversion of Notes—Conversion Upon Specified Corporate
Transactions.”

We
will pay interest on the notes at a rate of 1.0% per annum, payable
semi-annually in arrears on June 15 and December 15 of each year, or if any
such day is not a business day, the immediately following business day (each,
an “interest payment date”), commencing December 15, 2007 to holders of record
at the close of business on the record dates described below. Interest is
computed on the basis of a 360-day year comprised of twelve 30-day
months. In the event of the maturity, conversion, or purchase by us at the
option of the holder, interest ceases to accrue on the notes under the terms of
and subject to the conditions of the indenture.

For
so long as the notes are held in book-entry only form, interest is payable on
each payment date to the person in whose name a given note is registered at the
close of business on the business day before the 

 2
 

interest payment date. In the event that the notes do
not remain in book-entry only form or are not in the form of a global
certificate, the record dates will be June 1 and December 1 preceding the
applicable June 15 and December 15 interest payment date, respectively. A
“business day” is any day other than (x) a Saturday, (y) a Sunday or
(z) a day on which state or federally chartered banking institutions in
New York, New York or the state in which the corporate trust office is located
are not required to be open.

We
may, without the consent of the holders, reopen the notes and issue additional
notes under the indenture with the same terms and with the same CUSIP numbers
as the notes offered by this prospectus supplement in an unlimited aggregate
principal amount, provided that no such additional notes may be issued unless
they are fungible with the notes offered by this prospectus supplement for U.S.
federal income tax purposes. The notes offered by this prospectus supplement
and any such additional notes would be treated as a single class for all
purposes under the indenture and would vote together as one class on all
matters with respect to the notes. We may also from time to time repurchase the
notes in open market purchases or negotiated transactions without prior notice
to holders.

We
will maintain an office in the City of New York where the notes may be
presented for registration of transfer, exchange or conversion. This office
will initially be an office or agency of the trustee. Except under limited
circumstances described below, the notes will be issued only in
fully-registered book-entry form, without coupons, and will be represented by
one or more global notes. There will be no service charge for any registration of transfer or exchange of
notes. We may, however, require holders to pay a sum sufficient to cover any
tax or other governmental charge payable in connection with certain transfers or
exchanges.

Subordination

The
notes will be subordinated in right of payment to all of our existing and
future senior indebtedness on the terms set forth below. The indenture does not
restrict the amount of indebtedness, including senior indebtedness, that we or
any of our subsidiaries may incur. The notes will rank pari passu with all other existing and
future senior subordinated indebtedness of the company and will be senior in
right of payment to all of our future obligations that may be designated as subordinated
to the notes.

No payment on account of principal of, redemption of,
interest (including contingent interest and additional amounts, if any) on or
any other amounts due with respect to the notes, including, without limitation,
any payments of cash upon conversion, and no redemption, repurchase or other
acquisition of the notes may be made if:

·       default
in the payment of any “designated senior indebtedness” occurs and is continuing
beyond any applicable period of grace (a “payment default”); or

·       a
default other than a payment default occurs and is continuing that permits the
holders of designated senior indebtedness (or any agent acting on their behalf)
to accelerate its maturity, and the trustee receives a notice of such default
(a “payment blockage notice”) from any representative of such holders of the
designated senior indebtedness (a “non-payment default”).

As
used herein, “designated senior indebtedness” means our senior credit facility
and any other senior indebtedness of the company which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to lend
up to, at least $20.0 million and is specifically designated by the
company in the instrument evidencing or governing such senior indebtedness as
“designated senior indebtedness.”

We may resume payments and distributions on the notes:

·       in
case of a payment default, upon the date on which such default is cured or
waived or ceases to exist; and

 3
 

·       in
the case of a non-payment default, upon the earliest of (x) the date on
which such non-payment default is cured or waived or ceases to exist, in each
case as and to the extent permitted under the documentation for the designated
senior indebtedness, or (y) 179 days from the date the payment blockage
notice is received, unless the maturity of the designated senior indebtedness
has been accelerated, in which case the immediately preceding bullet point
shall become applicable.

Notwithstanding
the foregoing, not more than one payment blockage notice may be given in any
consecutive 365-day period, irrespective of the number of defaults with
respect to designated senior indebtedness during such period. No default which
existed or was continuing on the date of the delivery of any payment blockage
notice with respect to the designated senior indebtedness whose holders
delivered the payment blockage notice may be made the basis of a subsequent
payment blockage notice by the holders of such designated senior indebtedness,
whether or not within a period of 365 consecutive days, unless the default has
been cured or waived for a period of not less than 90 consecutive days.

Upon
any distribution of our assets in connection with any dissolution, winding-up,
liquidation or reorganization of us, all senior indebtedness must be paid in
full in cash or otherwise satisfactory to the holders of senior indebtedness
before the holders of the notes are entitled to any payments whatsoever (except
that the holders of notes may receive capital stock and debt obligations that
are subordinated to the senior indebtedness to substantially the same extent or
to a greater extent as the notes are so subordinated).

As
a result of these subordination provisions, in the event of our insolvency,
holders of the notes may recover ratably less than the holders of our senior
indebtedness. Assuming that we had completed the offering of these notes and
applied the net proceeds as described under “Use of Proceeds”, as of
March 31, 2007, the company would have had total senior indebtedness of
approximately $8.7 million; we subsequently borrowed an additional
$24.6 million in conjunction with our acquisition of Surgery Center of
Kalamazoo, LLC . The indenture will not limit the amount of additional indebtedness,
including senior indebtedness, that we can create, incur, assume or guarantee.

If
the payment of the notes is accelerated because of an event of default as
described under “—Events of Default; Notice and Waiver” below, we shall
promptly notify the holders of senior indebtedness or the trustee or other
representatives for the holders of the senior indebtedness of the acceleration.
We may not pay the notes until five business days after the holders or
trustee(s) or other representatives for the holders of senior indebtedness
receive notice of the acceleration and after which we may pay the notes only if
the subordination provisions of the indenture otherwise permit payment at that
time.

If
the trustee or any holder of notes receives any payment or distribution of our
assets of any kind in contravention of any of the subordination terms of the
indenture, whether in cash, property or securities, including, without
limitation by way of set-off or otherwise, in respect of the notes before all
senior indebtedness is paid in full in cash or as otherwise acceptable to
holders of the senior indebtedness, then the payment or distribution will be
held by the recipient in trust for the benefit of holders of senior
indebtedness, and will be immediately paid over or delivered to the holders of
senior indebtedness or their representative or representatives to the extent
necessary to make payment in full of all senior indebtedness remaining unpaid,
after giving effect to any concurrent payment or distribution, or provision
therefor, to or for the holders of senior indebtedness.

No Layering of
Indebtedness

We
will not incur, create, issue, assume, guarantee or otherwise become liable for
any indebtedness that is subordinate or junior in right of payment to any
senior indebtedness of the company and senior in right of payment to the notes.
For purposes of the foregoing, for the avoidance of doubt, no indebtedness
shall be deemed to be subordinated in right of payment to any other
indebtedness solely by virtue of being 

 4
 

unsecured or secured by a junior priority lien or by
virtue of the fact that the holders of such indebtedness have entered into
intercreditor agreements or other arrangements giving one or more of such
holders priority over the other holders in the collateral held by them or by
virtue of structural subordination.

Other than as set forth in the preceding paragraph,
the indenture does not limit the amount of additional indebtedness, including
senior indebtedness, which we can create, incur, assume or guarantee.

Conversion of Notes

General

Holders may surrender notes for conversion at any time
prior to the close of business on December 15, 2011  (six months prior to the maturity date),
and receive the consideration described below under “—Payment Upon Conversion,”
only if any of the following conditions is satisfied:

·       during
any calendar quarter commencing after the date of original issuance of the
notes, if the closing sale price of our common stock for at least 20 trading
days in the period of 30 consecutive trading days ending on the last trading
day of the calendar quarter preceding the quarter in which the conversion
occurs is more than 120% of the conversion price of the notes in effect on that
last trading day;

·       during
the ten consecutive trading-day period following any five consecutive
trading-day period in which the trading price for the notes for each such
trading day was less than 97% of the closing sale price of our common stock on
such date multiplied by the then current conversion rate; or

·       if
we make certain significant distributions to holders of our common stock, we
enter into specified corporate transactions or our common stock is not approved
for listing on NASDAQ and is not listed for trading on another
U.S. national securities exchange.

We describe each of these conditions in greater detail
below.

Notes
that are validly surrendered for conversion will be deemed to have been
converted immediately prior to the close of business on the conversion date and
the converting holder will be treated as a shareholder of record of NovaMed as
of that time.

However,
after December 15, 2011, holders may surrender their notes for conversion
at any time prior to the close of business on the business day immediately
preceding the maturity date regardless of whether any of the foregoing
conditions is satisfied.

Upon
conversion of a note, a holder will not receive any cash payment of interest
(unless such conversion occurs between a regular record date and the interest
payment date to which it relates) and we will not adjust the conversion rate to
account for accrued and unpaid interest, except that we will pay, on the
maturity date, accrued and unpaid interest on any notes surrendered on or prior
to the 55th scheduled trading day prior to the stated
maturity date to the converting holder notwithstanding such conversion. Our
delivery to the holder of cash and shares, if any, of our common stock into
which the note is convertible will be deemed to satisfy our obligation with
respect to such note. Accordingly, any accrued but unpaid interest will be
deemed to be paid in full upon conversion, rather than cancelled, extinguished
or forfeited.

Holders
of notes at the close of business on a regular record date will receive payment
of interest payable on the corresponding interest payment date notwithstanding
the conversion of such notes at any time after the close of business on the
applicable regular record date. Notes surrendered for conversion by a holder
after the close of business on any regular record date but prior to the next
interest payment date must be accompanied by payment of an amount equal to the
interest that the holder is to receive on the notes; provided, however, that no
such payment need be made (1) if we have specified a purchase date 

 5
 

following a fundamental change that is after a record
date and on or prior to the next interest payment date, (2) with respect
to any notes surrendered for conversion following the record date for the
payment of interest immediately preceding the stated maturity date or (3) only
to the extent of overdue interest, if any overdue interest exists at the time
of conversion with respect to such note.

Conversion Upon Satisfaction of Market Price Condition

Holders
may surrender notes for conversion during any calendar quarter commencing after
the date of original issuance of the notes if the closing sale price (as
defined below) of our common stock, for at least 20 trading days in the period
of 30 consecutive trading days ending on the last trading day of the calendar
quarter preceding the quarter in which the conversion occurs, is more than 120%
of the conversion price of the notes in effect on that last trading day.

The
“closing sale price” of our common stock on any date means the closing per
share sale price (or, if no closing sale price is reported, the average of the
bid and ask prices or, if more than one in either case, the average of the
average bid and the average ask prices) at 4:00 p.m. (New York City time)
on such date as reported in composite transactions for the principal
U.S. securities exchange on which our common stock is traded or, if our
common stock is not listed on a U.S. national securities exchange, as
reported by the National Quotation Bureau Incorporated.

A
“trading day” means a day on which (i) there is no market disruption event
(as defined below) and (ii) NASDAQ or, if our common stock is not listed
on NASDAQ, the principal other U.S. national securities exchange on which
our common stock is then listed is open for trading or, if our common stock is
not so listed, any business day. A “trading day” only includes those days that
have a scheduled closing time of 4:00 p.m. (New York City time) or the
then standard closing time for regular trading on the relevant exchange or
trading system.

A
“market disruption event” means the occurrence or existence for more than one
half hour period in the aggregate on any scheduled trading day for our common
stock of any suspension or limitation imposed on trading (by reason of
movements in price exceeding limits permitted by NASDAQ or otherwise) in our
common stock or in any options, contracts or future contracts relating to our
common stock, and such suspension or limitation occurs or exists at any time
before 1:00 p.m. (New York City time) on such day.

Conversion
Upon Trading Price of Notes Falling Below Conversion Value of the Notes

If
the trading price (as defined below) for the notes on each trading day during
any five consecutive trading-day period was less than 97% of the closing sale
price of our common stock on such date multiplied by the then current
conversion rate, as determined following a request in accordance with the
procedures described below, a holder may surrender notes for conversion at any
time during the following 10 trading days.

Upon
request, the conversion agent (which shall initially be the trustee) will, on
our behalf, determine if the notes are convertible and will notify us and the
trustee accordingly. The conversion agent shall have no obligation to determine
the trading price of the notes unless we have requested such determination in
writing, and we shall have no obligation to make such request unless the
trustee, acting at the request of one or more holders holding in the aggregate
at least $2,000,000 in principal amount of the notes, provides us with
reasonable evidence that the trading price of the notes on any trading day
would be less than 97% of the product of the then current conversion rate times
the closing sale price of our common stock on that date. At such time, we shall
instruct the conversion agent to determine the trading price of the notes
beginning on such trading day and on each successive four trading days.

“trading
price” means, on any date of determination, the average of the secondary bid
quotations per note obtained by the conversion agent for $1,000,000 principal
amount of the notes at approximately 

 6
 

3:30 p.m. (New York City time) on such
determination date from three independent nationally recognized securities
dealers we select; provided that, if at least three such bids cannot reasonably
be obtained, but two such bids can reasonably be obtained, then the average of
these two bids shall be used; provided, further, that, if at least two such
bids cannot reasonably be obtained, but one such bid can reasonably be
obtained, this one bid shall be used. If on any date of determination the
conversion agent cannot reasonably obtain at least one bid for $1,000,000
principal amount of the notes from an independent nationally recognized
securities dealer, then the trading price of the notes on such date of
determination will be deemed to be less than 97% of the conversion value.

Conversion Upon Specified Corporate Transactions

If we elect to distribute to all or substantially all
holders of our common stock:

·       specified
rights or warrants entitling them to subscribe for or purchase our common stock
at less than the current market price (as defined in the indenture) on the
record date for such issuance or

·       cash,
debt securities (or other evidence of indebtedness) or other assets (excluding
dividends or distributions described in clauses (1) or (3) of
the description below under “—Conversion Price Adjustments”), which
distribution, together with all other such distributions within the preceding
twelve months, has a per share value exceeding 10% of the current market price
of our common stock as of the trading day immediately preceding the declaration
date for such distribution,

we must notify the holders of the notes at least
20 days prior to the ex-dividend date for such distribution. Once we have
given such notice, holders may surrender their notes for conversion at any time
until the earlier of the close of business on the business day prior to the
ex-dividend date or our announcement that such distribution will not take
place.

In
addition, in the event of a fundamental change (as defined under “—Purchase of
Notes at Your Option Upon a Fundamental Change”), a holder may surrender notes
for conversion at any time from or after the date which is 40 days prior
to the anticipated effective time of the fundamental change until the close of
business on the second trading day immediately preceding the fundamental change
purchase date (as defined under “—Purchase of Notes at Your Option Upon a
Fundamental Change”). The holder may also require us to purchase all or a
portion of its notes upon the occurrence of a fundamental change as described
under “—Purchase of Notes at Your Option Upon a Fundamental Change.”  To the extent practicable, we will give
notice to holders of the anticipated effective date for a fundamental change
not more than 70 days nor less than 40 days prior to the anticipated
effective date.

Holders
will also have the right to surrender notes for conversion if we are a party to
a combination, merger, binding share exchange or sale or conveyance of all or
substantially all of our property and assets that does not also constitute a
fundamental change (a “transforming transaction”), in each case pursuant to
which our common stock would be converted into cash, securities or other
property. In such event, holders will have the right to surrender notes for
conversion at any time from or after the date which is 15 days prior to the
date that is the actual effective date of such transaction and ending on the
15th day following the effective date of such transaction. We will notify
holders at least 20 days prior to the anticipated effective date of such
transaction. If the transaction also constitutes a fundamental change, in lieu
of the conversion right described in this paragraph, holders will have the
conversion right described in the preceding paragraph and will have the right
to require us to purchase their notes as set forth below under “—Purchase of
Notes at Your Option Upon a Fundamental Change.”

Conversion after December 15, 2011

After
December 15, 2011  (six
months prior to the maturity date) and on or prior to the close of business on
the business day immediately prior to the stated maturity date, holders may
surrender their 

 7
 

notes for conversion regardless of whether any of the
conditions described in “—Conversion Upon Satisfaction of Market Price
Condition,” “—Conversion Upon Trading Price of Notes Falling Below
Conversion Value of the Notes,” or “—Conversion Upon Specified Corporate
Transactions” has been satisfied.

Payment Upon Conversion

Each
$1,000 principal amount of notes surrendered on or prior to the fifty-fifth
scheduled trading day prior to the stated maturity date will be converted into
cash and shares of our common stock, if any, based on an amount, which we refer
to as the “daily conversion value,” calculated for each of the 50 trading days
beginning on the third trading day immediately following the conversion date,
which we refer to as the “conversion period.” The daily conversion value for
each trading day during the conversion period for each $1,000 aggregate
principal amount of notes is equal to one-fiftieth of the product of the then
applicable conversion rate multiplied by the volume weighted average price (as
defined below) of our common stock on that day.

For each $1,000 aggregate principal amount of notes
surrendered for conversion prior to the close of business on the fifty-fifth
scheduled trading day prior to the stated maturity date, we will deliver for
each trading day during the conversion period:

(1)           if the daily conversion value for
such trading day for each $1,000 aggregate principal amount of notes exceeds
$20.00, (a) a cash payment of $20.00 and (b) the remaining daily
conversion value, which we refer to as the “daily net share settlement value,” in
shares of our common stock (subject to our right to deliver cash in lieu of all
or a portion of those shares as described below); or

(2)           if the daily conversion value for
such trading day for each $1,000 aggregate principal amount of notes is less
than or equal to $20.00, a cash payment equal to the daily conversion value.

We refer to the total of the daily net share
settlement values for the 50 trading days within the conversion period as the
“residual amount.”

The number of shares of common stock to be delivered under
clause 1(b) above will be determined by dividing the daily net share
settlement value by the volume weighted average price of our common stock for
that trading day.

We may elect to deliver cash (rather than shares of
common stock) in respect of some or all of the residual amount for any notes
that are converted by notice to the holders of the notes. This election,
however, will only apply to conversions with a conversion period beginning
after we have announced that we have elected cash settlement and specified the
percentage (the “cash percentage”) of the residual amount that we will settle
in cash. We must settle 100% of the residual amount for any other notes
converted with shares of our common stock. We will make any announcement of an
election to deliver cash by providing notice to the holders of the notes and
the trustee, issuing a press release containing the relevant information and
making this information available on our website.

If we do not elect cash settlement of some or all of
the residual amount, we will determine the number of shares of common stock to
be delivered in respect of the daily net share settlement value for each
trading day within the conversion period for any notes that are converted by
dividing the daily net share settlement value by the volume weighted average
price of our common stock for that trading day.

 8

Alternatively, if
we do elect cash settlement of some or all of the residual amount, we will
deliver in respect of each trading day in the applicable conversion period:

·                   cash
in an amount equal to the product of: (1) the cash percentage and
(2) the daily net share settlement value; and

·                   a
number of shares of our common stock equal to the product of (1) 100%
minus the cash percentage times (2) the daily net share settlement value
for the trading day divided by the daily “volume weighted average price” (as defined
below) of our common stock on such trading day.

If a holder
surrenders for conversion a note at any time after the fifty-fifth scheduled
trading day prior to the maturity date and on or prior to the close of business
on the business day immediately prior to the maturity date:

·                   the
holder will be deemed to have surrendered such note as of the business day
immediately prior to the maturity date;

·                   the
conversion period for such note will commence on the 51st scheduled trading day
immediately prior to the maturity date;

·                   in
lieu of receiving cash as provided for above, the holder shall receive, for
each $1,000 principal amount note surrendered, $1,000 on the maturity date; and

·                   we
will deliver shares (or cash, if we have so elected) representing the residual
amount calculated as described above on the third business day following the
last day of the conversion period.

The conversion rate with respect to a note is
initially approximately 156.9612 shares of our common stock. The conversion
rate of a note is equal to $1,000 divided by the then applicable conversion
price at the time of determination. The conversion price is subject to
adjustment as described under “—Conversion Price Adjustments.” Accordingly, an
adjustment to the conversion price will result in a corresponding (but inverse)
adjustment to the conversion rate. The initial conversion price for each $1,000
aggregate principal amount of notes is $6.371 per share of our common stock.

No fractional shares will be issued upon conversion;
in lieu thereof, a holder that would otherwise be entitled to fractional shares
of our common stock will receive a number of shares of our common stock equal
to the aggregate of the fractional shares otherwise deliverable for each
trading day during the conversion period (rounding down to the nearest whole
number) and cash equal to the remainder multiplied by the volume weighted
average price of our common stock on the last trading day of the conversion
period.

For purposes of this section, “—Payment Upon
Conversion,” “volume weighted average price” per share of our common stock (or
any security into which our common stock has been converted in connection with
a fundamental change or transforming transaction) on any trading day means the
volume weighted average price on the principal exchange or over-the-counter
market on which our common stock (or other security) is then listed or traded,
from 9:30 a.m. to 4:00 p.m. (New York City time) on that trading day
as displayed under the heading “Bloomberg VWAP” on Bloomberg Page NOVA Q
Equity AQR (or the Bloomberg Page for any security into which our common
stock has been converted in connection with a fundamental change), or if such
volume weighted average price is not available, our board of directors’
reasonable, good faith estimate of the volume weighted average price of the
shares of our common stock, or other security, on such trading day.

We will deliver
the cash and any shares of our common stock (including cash in lieu of
fractional shares) deliverable upon conversion of the notes three business days
after the last trading day in the applicable conversion period, through the
conversion agent. If a holder surrenders a note for conversion in connection
with a qualifying fundamental change (as described under “—Adjustment to Shares
Delivered Upon Conversion Upon a Qualifying Fundamental Change”), however, we
will deliver the portion of the 

 9
 

conversion
consideration that is payable on account of the increase in the conversion rate
on the third business day after the later of:

·                         the
date the holder surrenders the note for conversion;

·                         the
last trading day in the applicable conversion period; and

·                         the
effective date of the qualifying fundamental change.

As a result, holders
converting in connection with a qualifying fundamental change may receive
conversion consideration in two payments rather than one.

Generally, the conversion date will be the date on
which the notes and all of the items required for conversion shall have been
delivered as described under “—Conversion Procedures” below and the
requirements for conversion have been met, if all requirements for conversion
shall have been satisfied by 11:00 a.m. New York City time on such day,
and in all other cases, the conversion date shall be the next succeeding business
day. However, as described
above, if a holder surrenders for conversion a note at any time after the
fifty-fifth scheduled trading day prior to its stated maturity, the conversion
date will be deemed to be the business day immediately preceding the note’s stated
maturity date.

Payment Upon Conversion
Upon a Fundamental Change.   If a holder converts any of its notes at any time
beginning 40 days before the scheduled effective date of a fundamental
change and ending at the closing of business on the second trading day
immediately preceding the related fundamental change purchase date, the holder
will receive:

·                   if
the notes are surrendered for conversion at any time on or after the date of
payment of consideration in connection with a change in control, cash and, with
respect to the daily net share settlement value (if any), the kind of
securities and other assets or property received by holders of our common stock
in the change in control; or

·                   in
all other events, cash or a combination of cash and common stock, as described
above under ‘‘—Payment Upon Conversion”;

in each case, taking into
account any additional shares by which the conversion rate is increased as a
result of any qualifying change in control.

Conversion Price Adjustments

The conversion
price will be adjusted:

(1) upon the issuance of shares of our common stock as
a dividend or distribution on shares of our common stock;

(2) upon the subdivision or combination of our
outstanding common stock;

(3) upon the issuance to all or substantially all
holders of our common stock of rights or warrants entitling them for a period
of not more than 60 days to subscribe for or purchase shares of our common
stock, or securities convertible into our common stock, at a price per share or
a conversion price per share less than the current market price per share on
the trading day immediately preceding the “ex” date (as defined below) for the
issuance, provided that the conversion price will be readjusted to the extent
that the rights or warrants are not exercised prior to this expiration or are
not distributed;

(4) upon the distribution
to all or substantially all holders of our common stock of shares of our
capital stock, evidences of indebtedness or other non-cash assets, or rights or
warrants, excluding:

·                  dividends,
distributions and rights or warrants referred to in clause (1) or
(3) above;

 10
 

·                  dividends
or distributions exclusively in cash referred to in
clause (5) below; and

·                  distribution
of rights to all or substantially all holders of common stock pursuant to an adoption
of a shareholder rights plan;

(5) upon the
occurrence of any cash dividends or other cash distributions to all or
substantially all holders of our common stock (other than (x) payments
described in clause (6) below or (y) any dividend or distribution in
connection with our liquidation, dissolution or winding up), in which event the
conversion price shall be reduced so that it equals the price determined by
multiplying the conversion price in effect on the trading day immediately
preceding the “ex” date with respect to the cash distribution or dividend by a
fraction,

(a) the numerator of which will be the closing
sale price of a share of our common stock as of the trading day immediately
preceding the “ex” date with respect to the dividend or distribution less the
amount of the dividend or distribution, and

(b) the denominator of which will be the closing
sale price of a share of our common stock as of the trading day immediately
preceding the “ex” date with respect to the dividend or distribution;

(6) upon the
purchase of our common stock pursuant to a tender offer made by us or any of
our subsidiaries at a price per share in excess of the current market price for
one share of our common stock on the last date tenders may be made pursuant to
the tender offer, which we refer to as the “expiration date,” in which case,
immediately prior to the opening of business on the day after the expiration
date, the conversion price shall be reduced so that it equals the price
determined by multiplying the conversion price in effect immediately prior to
the close of business on the expiration date by a fraction,

(a) the numerator of which will be the product
of the number of shares of our common stock outstanding (including tendered
shares but excluding any shares held by us in treasury) immediately before the
last time tenders may be made pursuant to the tender offer, which we refer to
as the “expiration time,” multiplied by the current market price per share of
our common stock on the trading day next succeeding the expiration
date; and

(b) the denominator of which will be the sum of
(x) the aggregate consideration payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the tender offer) of
all shares validly tendered and not withdrawn as of the expiration date, which
we refer to as the “purchased shares,” and (y) the product of the number
of shares of our common stock outstanding (less any purchased shares and
excluding any shares held by us in treasury) immediately after the expiration
time and the current market price per share of our common stock on the trading
day next succeeding the expiration date; and 

(7) upon a payment
in respect of a purchase of our common stock by us (or one of our
subsidiaries), the consideration for which exceeds the then-prevailing market
price of our common stock (such amount, the “purchase premium”), which
purchase, together with any other purchases of our common stock by us (or one
of our subsidiaries) involving a purchase premium concluded within the
preceding 12 months not triggering a conversion price adjustment, results
in the payment by us of an aggregate consideration exceeding an amount equal to
10% of the market capitalization of our common stock, the conversion price
shall be reduced so that it equals the price determined by multiplying the
conversion price in effect immediately prior to the close of business on the
trading day of the purchase triggering the adjustment by a fraction,

(a) the numerator
of which will be (x) the subsequent market price of our common stock,
minus (y) the quotient of (i) the aggregate amount of all of the
purchase premiums paid in connection with such purchases and (ii) the
number of shares of common stock outstanding on 

 11
 

the day
following the date of the purchase triggering the adjustment, as determined by
our board of directors; and

(b) the denominator
of which will be the subsequent market price of our common stock;

provided that the
purchases of our common stock effected by us or our agent in conformity with
Rule 10b-18 under the Exchange Act (or any successor provision) will
not be included in any adjustment to the conversion rate made under this
clause (7).

For purposes of
this clause (7):

·                   the
“market capitalization” will be calculated by multiplying the subsequent market
price of our common stock by the number of shares of common stock then
outstanding on the date of the purchase triggering the adjustment immediately
prior to such purchase;

·                   the
“subsequent market price” will be the opening sale price on the trading day
following the date of the purchase triggering the adjustment; and

·                   in
determining the purchase premium, the “then-prevailing market price” of our
common stock will be the average of the closing sale prices of our common stock
for the five consecutive trading days ending on the relevant purchase date.

If a payment would cause an adjustment to the
conversion rate under both clause (6) and clause (7), the
provisions of clause (7) shall control.

“current market price” means, with respect to any date
of determination, the closing sale price of our common stock on the date of
determination. For purposes hereof, the term “ex” date, when used with respect
to any dividend or distribution, means the first date on which the common stock
trades, regular way, on the relevant exchange or in the relevant market from
which the sale price was obtained without the right to receive such dividend or
distribution.

“dividend adjustment amount” means the full amount of
the dividend or distribution to the extent payable in cash applicable to one
share of our common stock.

To the extent that we have a rights plan in effect
upon conversion of the notes into common stock, you will receive, in addition
to the common stock, the rights under the rights plan, whether or not the
rights have separated from the common stock at the time of conversion, subject
to certain limited exceptions.

The applicable
conversion rate will not be adjusted:

·                   upon
the issuance of any shares of our common stock pursuant to any present or
future plan providing for the reinvestment of dividends or interest payable on
our securities and the investment of additional optional amounts in shares of
our common stock under any plan;

·                   upon
the issuance of any share of our common stock or options or rights to purchase
those shares pursuant to any present or future employee, director or consultant
benefit plan or program of or assumed by us or any of our subsidiaries;

·                   upon
the issuance of any shares of our common stock pursuant to any option, warrant,
right or exercisable, exchangeable or convertible security not described in the
preceding bullet and outstanding as of the date the notes were first issued;

·                   for
a change in the par value of the common stock; or

·                   for
accrued and unpaid interest and additional interest, if any, on notes that are
converted.

In the event of:

·                   any
reclassification of our common stock;

 12
 

·                   a
consolidation, merger or combination involving NovaMed; or

·                   a
sale or conveyance to another person of the property and assets of NovaMed as
an entirety or substantially as an entirety,

in which holders of our
outstanding common stock would be entitled to receive stock, other securities,
other property, assets or cash for their common stock, holders of notes will
generally be entitled to convert their notes, subject to the conditions
described above, into cash and, with respect to the residual amount, the same
type of consideration received by common stock holders immediately following
one of these types of events (the “reference property”). Throughout this
section (“—Conversion of Notes”), if the common stock has been replaced by
reference property in connection with a fundamental change or transforming
transaction, references to the common stock are intended to refer to such
reference property.

In the event that holders of our common stock have the
opportunity to elect the form of consideration to be received in any
transaction described in the preceding paragraph, we will make adequate
provision so that the holders of the notes, treated as a single class, have the
timely opportunity to determine the composition of the consideration that will
replace any common stock that would otherwise be deliverable upon conversion of
the notes. This replacement consideration will be based on the blended,
weighted average of elections made by holders of the notes and will be subject
to any limitations applicable to all holders of our common stock (such as pro
rata reductions made to any portion of the consideration payable). The
determination of the replacement consideration will apply to all of the notes
and we will notify the trustee of the composition of the replacement
consideration promptly after it is determined.

We are permitted (subject to the rules of any
stock exchange on which the common stock is then listed) to reduce the
conversion price of the notes by any amount for a period of at least 20
business days if our Board of Directors determines that such reduction would be
in our best interest. We are required to give at least 15 days’ prior
notice of any reduction in the conversion price. We may also reduce the
conversion price to avoid or diminish income tax to holders of our common stock
in connection with a dividend or distribution of stock or similar event.

You may, in some circumstances, be deemed to have
received a distribution or dividend subject to U.S. federal income tax as
a result of an adjustment or the nonoccurrence of an adjustment to the
conversion price. See “Material U.S. Federal Income Tax Considerations”
below for a relevant discussion.

Notwithstanding anything in this section “—Conversion
Price Adjustments” to the contrary, we will not be required to adjust the
conversion price unless the adjustment would result in a change of at least 1%
of the conversion price. However, we will carry forward any adjustments that
are less than 1% of the conversion price and make such carried forward
adjustments, regardless of whether the aggregate adjustment is less than 1%,
within one year of the first such adjustment carried forward, upon required
purchases of the notes in connection with a fundamental change and five business
days prior to the stated maturity of the notes. Except as stated above, the
conversion price will not be adjusted for the issuance of our common stock or
any securities convertible into or exchangeable for our common stock or
carrying the right to purchase our common stock or any such security.

Conversion Procedures

Holders may convert their notes only in denominations
of $1,000 principal amount and integral multiples thereof. Delivery of our
common stock and cash upon conversion in accordance with the terms of the notes
will be deemed to satisfy our obligation to pay the principal amount of the
notes.

The right of conversion attaching to any note may be
exercised (a) if such note is represented by a global security, by
book-entry transfer to the conversion agent through the facilities of DTC or
(b) if such note is represented by a certificated security, by delivery of
such note at the specified office of the conversion agent, accompanied, in
either case, by a duly signed and completed notice of conversion and 

 13
 

appropriate endorsements
and transfer documents if required by the conversion agent. A holder delivering
a note for conversion will be required to pay any taxes or duties payable in
respect of the issue or delivery of our common stock upon conversion in a name
other than that of the holder.

We will not issue fractional shares of common stock
upon conversion of notes.

If the notes are subject to purchase by us at your
option following a fundamental change, your right to convert the notes so
subject to purchase will terminate at the close of business on the second
trading day prior to the fundamental change purchase date or such earlier date
as the notes are presented for purchase, unless we default in the payment of
the purchase price, in which case your conversion right will terminate at the
close of business on the date the default is cured and the notes are purchased.
If you have submitted your notes for purchase upon a fundamental change, you
may only convert your notes if you withdraw your purchase notice prior to the
fundamental change purchase date, as described below under “—Purchase of Notes
at Your Option Upon a Fundamental Change.” If your notes are submitted for
purchase following a fundamental change, your right to withdraw your purchase
notice and convert the notes that are subject to purchase will terminate at
5:00 p.m. (New York City time) on the business day before such purchase
date.

Adjustment to
Shares Delivered Upon Conversion Upon a Qualifying Fundamental Change

If a qualifying fundamental change occurs prior to
maturity, upon the conversion of the notes as described above under “—Conversion
of Notes—Conversion Upon Specified Corporate Transactions,” the conversion rate
will be increased by an additional number of shares of common stock (these
shares being referred to as the “additional shares”) as described below. We
will notify holders of the anticipated effective date of such qualifying
fundamental change and issue a press release as soon as practicable after we
first determine the anticipated effective date of such qualifying fundamental
change.

A “qualifying fundamental change” is (i) any
“change in control” included in the first or second bullet of the definition of
that term below under “—Purchase of Notes at Your Option Upon a Fundamental
Change” and (ii) any “termination of trading” as defined below under “—Purchase
of Notes at Your Option Upon a Fundamental Change.” A merger, consolidation,
conveyance, sale, transfer or lease otherwise constituting a change in control
will not constitute a qualifying fundamental change if at least 90% of the
consideration paid for our common stock in that transaction, excluding cash
payments for fractional shares and cash payments made pursuant to dissenters’
appraisal rights, consists of shares of common stock traded on NASDAQ or
another U.S. national securities exchange, or will be so traded immediately
following the merger or consolidation, and, as a result of the merger or
consolidation, the notes become convertible into such shares of such common
stock.

The number of additional shares by which the
conversion rate will be increased for conversions in connection with a
qualifying fundamental change will be determined by reference to the table
below, based on the date on which the qualifying fundamental change occurs or
becomes effective, which we refer to as the effective date, and (1) the
price paid per share of our common stock in the change in control, in the case
of a qualifying fundamental change described in the second bullet of the definition
of change in control, or (2) the average of the last reported sale prices
of our common stock over the five trading-day period ending on the trading day
preceding the effective date of such other qualifying fundamental change, which
we refer to as the stock price, in the case of any other qualifying fundamental
change. If holders of our common stock receive only cash in the case of a
qualifying fundamental change described in the second bullet under the
definition of change in control, the stock price shall be the cash amount paid
per share.

The stock prices set forth in the first row of the
table below (i.e., column headers) will be adjusted as of any date on which the
conversion price of the notes is adjusted as described under “—Conversion of
Notes—Conversion Price Adjustments.” The adjusted stock prices will equal the
stock prices applicable 

 14
 

immediately prior to such
adjustment, multiplied by a fraction, the numerator of which is the conversion
price as so adjusted and the denominator of which is the conversion price
immediately prior to the adjustment giving rise to the stock price adjustment.
The number of additional shares will be adjusted by the inverse of the
adjustment factor applied to the conversion price as set forth under—Conversion
of Notes—Conversion Price Adjustments” above.

The following table sets forth the increase in the
conversion rate, expressed as a number of additional shares to be received per
$1,000 principal amount of notes.

	
   

  	
   

  	
  Stock Price

  	
   

  
	
  Effective Date

  	
   

  	
  $5.54

  	
   

  	
  $6

  	
   

  	
  $7

  	
   

  	
  $8

  	
   

  	
  $9

  	
   

  	
  $10

  	
   

  	
  $11

  	
   

  	
  $12

  	
   

  	
  $13

  	
   

  	
  $14

  	
   

  	
  $15

  	
   

  	
  $20

  	
   

  	
  $25

  	
   

  	
  $30

  	
   

  	
  $35

  	
   

  
	
  June 27, 2007

  	
   

  	
  23.54

  	
   

  	
  23.54

  	
   

  	
  19.07

  	
   

  	
  13.89

  	
   

  	
  10.38

  	
   

  	
  7.92

  	
   

  	
  6.16

  	
   

  	
  4.85

  	
   

  	
  3.87

  	
   

  	
  3.12

  	
   

  	
  2.54

  	
   

  	
  0.97

  	
   

  	
  0.37

  	
   

  	
  0.12

  	
   

  	
  0.00

  	
   

  
	
  June 15, 2008

  	
   

  	
  23.54

  	
   

  	
  23.54

  	
   

  	
  18.70

  	
   

  	
  13.26

  	
   

  	
  9.66

  	
   

  	
  7.20

  	
   

  	
  5.47

  	
   

  	
  4.22

  	
   

  	
  3.30

  	
   

  	
  2.61

  	
   

  	
  2.08

  	
   

  	
  0.73

  	
   

  	
  0.26

  	
   

  	
  0.06

  	
   

  	
  0.00

  	
   

  
	
  June 15, 2009

  	
   

  	
  23.54

  	
   

  	
  23.54

  	
   

  	
  17.68

  	
   

  	
  12.03

  	
   

  	
  8.42

  	
   

  	
  6.03

  	
   

  	
  4.41

  	
   

  	
  3.29

  	
   

  	
  2.49

  	
   

  	
  1.91

  	
   

  	
  1.48

  	
   

  	
  0.46

  	
   

  	
  0.13

  	
   

  	
  0.01

  	
   

  	
  0.00

  	
   

  
	
  June 15, 2010

  	
   

  	
  23.54

  	
   

  	
  23.54

  	
   

  	
  15.61

  	
   

  	
  9.86

  	
   

  	
  6.41

  	
   

  	
  4.27

  	
   

  	
  2.92

  	
   

  	
  2.04

  	
   

  	
  1.46

  	
   

  	
  1.07

  	
   

  	
  0.79

  	
   

  	
  0.21

  	
   

  	
  0.04

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  
	
  June 15, 2011

  	
   

  	
  23.54

  	
   

  	
  21.92

  	
   

  	
  11.39

  	
   

  	
  5.96

  	
   

  	
  3.16

  	
   

  	
  1.72

  	
   

  	
  0.98

  	
   

  	
  0.58

  	
   

  	
  0.37

  	
   

  	
  0.24

  	
   

  	
  0.17

  	
   

  	
  0.04

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  
	
  June 15, 2012

  	
   

  	
  23.54

  	
   

  	
  9.71

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  

 

The stock prices and additional share amounts set
forth above are based upon a common share closing sale price of $5.54 on June 21,
2007, and an initial conversion price of $6.371.

Notwithstanding anything in the indenture to the
contrary, we may not increase the conversion rate by more than 23.54 shares
per $1,000 principal amount of notes pursuant to the events described in this
section, though we will adjust such number of shares for the same events for
which we must adjust the conversion price as described under “—Conversion of
Notes—Conversion Price Adjustments” above, by the inverse of the adjustment
factor applied to the conversion price under that section.

The exact stock
prices and effective dates may not be set forth in the table above, in which
case if the stock price is:

·                   between
two stock price amounts in the table or the effective date is between two
effective dates in the table, the number of additional shares will be
determined by a straight-line interpolation between the number of additional
shares set forth for the higher and lower stock price amounts and the two
dates, as applicable, based on a 365-day year;

·                   in
excess of $35.00 per share (subject to adjustment), no increase in the
conversion rate will be made; and

·                   less
than $5.54 per share (subject to adjustment), no increase in the conversion rate
will be made.

Because we cannot calculate and deliver the additional
conversion consideration due solely as a result of an increase in the
conversion rate resulting from a given qualifying fundamental change until
after the effective date of that qualifying fundamental change has occurred, we
will not deliver such additional conversion consideration until after the
effective date of the qualifying fundamental change it relates to even if the
settlement date in respect of other conversion consideration occurs earlier. As
a result, you may receive conversion consideration in two payments rather than
one.

If you surrender a note for conversion in connection
with a qualifying fundamental change we have announced, but the qualifying
fundamental change is not consummated, then you will not be entitled to the
increased conversion rate referred to above in connection with the conversion.

 15

Purchase of Notes
at Your Option Upon a Fundamental Change

If a fundamental change occurs, you will have the
option to require us to purchase for cash all or any part of your notes on the
day that is 30 business days after the occurrence of such fundamental change,
referred to as the “fundamental change purchase date,” at a purchase price
equal to 100% of the principal amount of the notes, plus accrued and unpaid
interest, payable in cash. Notes submitted for purchase must be in integral
multiples of $1,000 principal amount.

We will mail to
the trustee and to each holder a written notice of the fundamental change
within 10 business days after the occurrence of such fundamental change. This
notice shall state certain specified information, including:

·              information about,
and the terms and conditions of, the fundamental change, including the amount
of additional shares that are deliverable, if any;

·              information about
the holders’ right to convert the notes;

·              information about
the holders’ right to require us to purchase the notes;

·              the fundamental
change purchase date;

·              the procedures
required for exercise of the purchase option upon the fundamental
change; and

·              the name and address
of the paying and conversion agents.

You must deliver written notice of your exercise of
this purchase right to the paying agent during the period between the
fundamental change notice and the close of business on the second trading day
prior to the fundamental change purchase date. The written notice must specify
the notes for which the purchase right is being exercised. If you wish to
withdraw this election, you must provide a written notice of withdrawal to the
paying agent prior to the close of business on the second trading day prior to
the fundamental change purchase date.

“fundamental change” means the occurrence of a change
in control or a termination of trading.

A “change in
control” will be deemed to have occurred if any of the following occurs:

·              any “person” or “group”
is or becomes the “beneficial owner,” directly or indirectly, of shares of our
voting stock representing 50% or more of the total voting power of all
outstanding classes of our voting stock or has the power, directly or
indirectly, to elect a majority of the members of our board of directors;

·              we consolidate with,
or merge with or into, another person or we sell, assign, convey, transfer,
lease or otherwise dispose of all or substantially all of our assets, or any
person consolidates with, or merges with or into, us, in any such event other
than pursuant to a transaction in which the persons that “beneficially owned,”
directly or indirectly, the shares of our voting stock immediately prior to
such transaction “beneficially own,” directly or indirectly, shares of our
voting stock representing at least a majority of the total voting power of all
outstanding classes of voting stock of the surviving or transferee person;

·              a majority of the
members of our board of directors are not continuing directors; or

·              the holders of our
capital stock approve any plan or proposal for the liquidation or dissolution
of NovaMed (whether or not otherwise in compliance with the indenture).

However, notwithstanding the foregoing, holders of the
notes will not have the right to require us to purchase any notes as a result
of any transaction described in the second clause above, and we will not be
required to deliver the fundamental change notice incidental thereto, if at
least 90% of the consideration 

 16
 

paid for our common
stock, excluding cash payments for fractional shares and cash payments made
pursuant to dissenters’ appraisal rights, in a merger, consolidation,
conveyance, sale, transfer or lease otherwise constituting a change in control
consists of shares of common stock traded on NASDAQ or another
U.S. national securities exchange, or will be so traded immediately
following the merger or consolidation, and, as a result of the merger or
consolidation, the notes become convertible into such shares of such common
stock.

For purposes of
this change in control definition:

·              “person” or “group”
have the meanings given to them for purposes of Sections 13(d) and 14(d) of
the Exchange Act or any successor provisions, and the term “group” includes any
group acting for the purpose of acquiring, holding or disposing of securities
within the meaning of Rule 13d-5(b)(1) under the Exchange Act,
or any successor provision;

·              a “beneficial owner”
will be determined in accordance with Rule 13d-3 under the Exchange
Act, as in effect on the date of the indenture, except that the number of
shares of our voting stock will be deemed to include, in addition to all
outstanding shares of our voting stock and unissued shares deemed to be held by
the “person” or “group” or other person with respect to which the change in
control determination is being made, all unissued shares deemed to be held by
all other persons;

·              “continuing
directors” means, as of any date of determination, any member of our board of
directors who

·       was a member of such board
of directors on the date of the original issuance of the notes, or

·       was nominated for election
or elected to such board of directors with the approval of a majority of the
continuing directors who were members of such board at the time of such
nomination or election;

·              “beneficially own”
and “beneficially owned” have meanings correlative to that of beneficial owner;

·              “unissued shares”
means shares of voting stock not outstanding that are subject to options,
warrants, rights to purchase or conversion privileges exercisable within
60 days of the date of determination of a change in control; and

·              “voting stock” means
any class or classes of capital stock or other interests then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of the board of directors, managers or trustees.

The term “all or substantially all” as used in the
definition of change in control will likely be interpreted under applicable
state law and will be dependent upon particular facts and circumstances. There
may be a degree of uncertainty in interpreting this phrase. As a result, we
cannot assure you how a court would interpret this phrase under applicable law
if you elect to exercise your rights following the occurrence of a transaction
which you believe constitutes a transfer of “all or substantially all” of our
assets.

A “termination of trading” means that our common stock
or other securities into which the notes are convertible are not approved for
listing on NASDAQ and are not listed for trading on another U.S. national
securities exchange.

In connection with
any purchase of notes in the event of a fundamental change, we will in
accordance with the indenture:

·              comply with the
provisions of Rule 13e-4, Rule 14e-1 and any other tender
offer rules under the Exchange Act;

 17
 

·              file a Schedule TO
or any successor or similar schedule, if required, under the Exchange
Act; and

·              otherwise comply
with all federal and state securities laws in connection with any offer by us
to purchase the notes upon a fundamental change.

No notes may be purchased by us at the option of
holders upon a fundamental change if the principal amount of the notes has been
accelerated, and such acceleration has not been rescinded, on or prior to the
purchase date for such fundamental change.

This fundamental change purchase feature may make more
difficult or discourage a takeover of us and the removal of incumbent
management. We are not, however, aware of any specific effort to accumulate
shares of our common stock or to obtain control of us by means of a merger,
tender offer, solicitation or otherwise. In addition, the fundamental change
purchase feature is not part of a plan by management to adopt a series of
anti-takeover provisions. Instead, the fundamental change purchase feature is a
standard term contained in other similar convertible debt offerings.

We could, in the future, enter into certain
transactions, including recapitalizations, that would not constitute a
fundamental change but would increase the amount of debt, including senior or
secured indebtedness, outstanding, or otherwise adversely affect a holder.
Neither we nor our subsidiaries are prohibited from incurring debt, including
senior or secured indebtedness, under the indenture. The incurrence of
significant amounts of additional debt could adversely affect our ability to
service our debt, including the notes.

If a fundamental change were to occur, we may not have
sufficient funds to pay the fundamental change purchase price for the notes
tendered by holders. We may in the future incur debt that may contain provisions
prohibiting purchase of the notes under some circumstances or expressly
prohibit our purchase of the notes upon a fundamental change or may provide
that a fundamental change constitutes an event of default under that agreement.
If a fundamental change occurs at a time when we are prohibited from purchasing
notes, we could seek the consent of our lenders to purchase the notes or
attempt to refinance this debt. If we do not obtain any required consent, we
would not be permitted to purchase the notes. Our failure to purchase tendered
notes would constitute an event of default under the indenture, which could
constitute an event of default under our senior indebtedness then outstanding,
if any, and might constitute a default under the terms of our other
indebtedness then outstanding, if any.

Events of Default

Each of the
following will constitute an event of default under the indenture:

(1)           we
fail to pay principal on any note when due;

(2)           we
fail to pay the cash and shares of common stock (if any) owing upon conversion
of any note (including any additional shares) within the time period required
by the indenture;

(3)           we
fail to pay any interest amounts on any note when due, whether or not
prohibited by the provisions of the indenture described under “—Subordination”
above, if such failure continues for 30 days;

(4)           we
fail to perform any other covenant required of us in the indenture if such
failure continues for 60 days after notice is given in accordance with the
indenture;

(5)           we
fail to pay the purchase price of any note when due;

(6)           we
fail to provide timely notice of a fundamental change;

(7)           any
indebtedness for money borrowed by us or one of our significant subsidiaries in
an outstanding principal amount in excess of $5 million is not paid when
due or is accelerated and such 

 18
 

indebtedness is not
discharged, or such default in payment or acceleration is not cured or
rescinded, after the applicable grace period, if any, specified in the
agreement or instrument relating to such indebtedness;

(8)           we
fail or any of our significant subsidiaries fails to pay one or more final and
non-appealable judgments entered by a court or courts of competent
jurisdiction, the aggregate uninsured or unbonded portion of which is in excess
of $5 million, if the judgments are not paid, discharged or stayed within
60 days; and

(9)           certain
events of bankruptcy, insolvency or reorganization of us or any of our
significant subsidiaries.

If an event of default, other than an event of default
described in clause (9) above with respect to us, occurs and is
continuing, either the trustee or the holders of at least 25% in aggregate
principal amount of the outstanding notes may declare the principal amount of
the notes to be due and payable immediately. If an event of default described
in clause (9) above occurs with respect to us, the principal amount
of the notes will automatically become immediately due and payable.

After any such acceleration, but before a judgment or
decree based on acceleration, the holders of a majority in aggregate principal
amount of the notes may, under certain circumstances, rescind and annul such
acceleration if all events of default, other than the non-payment of
accelerated principal, have been cured or waived.

Notwithstanding the foregoing, the sole remedy under
the indenture for an event of default relating to the failure to comply with
our reporting obligations to the trustee and the SEC, as set forth in the
indenture, and for any failure to comply with the requirements of Section 314(a)(1) of
the Trust Indenture Act, will, for 180 days after the occurrence of such an
event of default, consist exclusively of the right to receive additional
interest on the notes, commencing on the 60th day following the occurrence of such an event
of default, at an annual rate equal to 0.50% of the aggregate principal amount
of the notes to, and including, the 180th day thereafter
(or, if applicable, the earlier date on which the event of default relating to
the reporting obligations is cured or waived). Any such additional interest
will be payable in the same manner and on the same dates as the stated interest
payable on the notes. If the event of default is continuing on the 180th day after an event of default relating to a
failure to comply with the reporting obligations described above first occurs,
the notes will be subject to acceleration as provided above. The provisions of
the indenture described in this paragraph will not affect the rights of holders
of notes in the event of the occurrence of any other events of default. References
to interest on the notes in this prospectus supplement are, except as otherwise
required by the context, intended to refer to any additional interest as well
as to regular interest.

Subject to the trustee’s duties in the case of an event
of default, the trustee will not be obligated to exercise any of its rights or
powers at the request of the holders unless the holders have offered to the
trustee reasonable indemnity. Subject to the indenture, applicable law and the
trustee’s indemnification, the holders of a majority in aggregate principal
amount of the outstanding notes will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the trustee
or exercising any trust or power conferred on the trustee with respect to the
notes.

No holder will
have any right to institute any proceeding under the indenture, or for the
appointment of a receiver or a trustee, or for any other remedy under the
indenture unless:

·              the holder has
previously given the trustee written notice of a continuing event of default;

·              the holders of at
least 25% in aggregate principal amount of the notes then outstanding have made
a written request and have offered reasonable indemnity to the trustee to
institute such proceeding as trustee; and

 19
 

·              the trustee has
failed to institute such proceeding within 60 days after such notice,
request and offer and has not received from the holders of a majority in
aggregate principal amount of the notes then outstanding a direction inconsistent
with such request within 60 days after such notice, request and offer.

However, the above limitations do not apply to a suit
instituted by a holder for the enforcement of payment of the principal of or
interest amounts on any note on or after the applicable due date or the right
to convert the note in accordance with the indenture.

Generally, the
holders of not less than a majority of the aggregate principal amount of
outstanding notes may waive any default or event of default unless:

·              we fail to pay
principal or any interest amounts on any note when due;

·              we fail to pay the
cash and shares of common stock (if any) owing upon conversion of any note
(including any additional shares) within the time period required by the
indenture; or

·              we fail to comply
with any of the provisions of the indenture that would require the consent of
the holder of each outstanding note affected.

We are required to furnish to the trustee, on an
annual basis, a statement by our officers as to whether or not NovaMed, to the
officers’ knowledge, is in default in the performance or observance of any of
the terms, provisions and conditions of the indenture, specifying any known
defaults.

Modification and
Waiver

We and the trustee
may amend or supplement the indenture with respect to the notes with the
consent of the holders of a majority in aggregate principal amount of the
outstanding notes. In addition, the holders of a majority in aggregate
principal amount of the outstanding notes may waive our compliance in any instance
with any provision of the indenture without notice to the other holders of
notes. However, no amendment, supplement or waiver may be made without the
consent of each holder of outstanding notes affected thereby if such amendment,
supplement or waiver would:

·              change the stated
maturity of the principal of, or any interest amounts on, the notes;

·              reduce the principal
amount of or interest amounts on the notes;

·              reduce the amount of
principal payable upon acceleration of the maturity of the notes;

·              change the currency
of payment of principal of or interest amounts on, the notes;

·              impair the right to
institute suit for the enforcement of any payment on, or with respect to, the
notes;

·              modify the
provisions with respect to the purchase rights of the holders as described
above under ‘‘—Purchase of Notes at Your Option Upon a Fundamental Change” in a
manner adverse to holders of notes;

·              adversely affect the
right of holders to convert notes;

·              reduce the
percentage in principal amount of outstanding notes required for modification
or amendment of the indenture;

·              modify any of the
subordination provisions of the indenture in a manner adverse to the holders of
notes;

·              reduce the
percentage in principal amount of outstanding notes necessary for waiver of
compliance with certain provisions of the indenture or for waiver of certain
defaults; or

 20
 

·              modify provisions
with respect to modification and waiver (including waiver of events of
default), except to increase the percentage required for modification or waiver
or to provide for consent of each affected holder of notes.

We and the trustee may amend or supplement the
indenture or the notes without notice to, or the consent of, the note holders
to, among other things, cure any ambiguity, defect or inconsistency or make any
other change that does not adversely affect the rights of any note holder;
provided that any amendment or supplement to cure any ambiguity or correct any
defective or inconsistent provision contained in the indenture or notes that is
made solely to conform the provisions of the indenture and notes to the
description of the indenture and the notes contained in this prospectus will be
deemed not to adversely affect the rights of any note holder.

Consolidation,
Merger and Sale of Assets

We may not consolidate
with or merge into any person in a transaction in which we are not the
surviving person or convey, transfer or lease our properties and assets
substantially as an entirety to any successor person, unless:

·              the successor
person, if any, is a corporation organized and existing under the laws of the
United States, any state thereof or the District of Columbia and assumes our
obligations on the notes and under the indenture;

·              immediately after
giving effect to the transaction, no default or event of default shall have
occurred and be continuing; and

·              other conditions
specified in the indenture are met.

Satisfaction and
Discharge

We may discharge certain of our obligations under the
indenture while notes remain outstanding if all outstanding notes have or will
become due and payable at their scheduled maturity within one year and we have
deposited with the trustee an amount sufficient to pay and discharge all such
outstanding notes on the date of their scheduled maturity; provided, however,
that the foregoing will not discharge our obligation to effect conversion,
registration of transfer or exchange of notes in accordance with the terms of
the indenture.

Transfer and
Exchange

We have initially
appointed the trustee as the security registrar, paying agent and conversion
agent, acting through its corporate trust office. We reserve the right to:

·              vary or terminate
the appointment of the security registrar, paying agent or conversion agent;

·              appoint additional
paying agents or conversion agents; or

·              approve any change
in the office through which any security registrar or any paying agent or
conversion agent acts.

Purchase and
Cancellation

All notes surrendered for payment, redemption,
registration of transfer or exchange or conversion shall, if surrendered to any
person other than the trustee, be delivered to the trustee. All notes delivered
to the trustee shall be cancelled promptly by the trustee. No notes shall be
authenticated in exchange for any notes cancelled as provided in the indenture.

 21

We may, to the extent permitted by law, purchase notes
in the open market or by tender offer at any price or by private agreement. Any
notes purchased by us may, to the extent permitted by law, be reissued or
resold or may, at our option, be surrendered to the trustee for cancellation.
Any notes surrendered for cancellation may not be reissued or resold and will
be promptly cancelled. Any notes held by us or one of our subsidiaries shall be
disregarded for voting purposes in connection with any notice, waiver, consent
or direction requiring the vote or concurrence of note holders.

Replacement of
Notes

We will replace mutilated, destroyed, stolen or lost
notes at your expense upon delivery to the trustee of the mutilated notes, or
evidence of the loss, theft or destruction of the notes satisfactory to us and
the trustee. In the case of a lost, stolen or destroyed note, indemnity
satisfactory to the trustee and us may be required at the expense of the holder
of such note before a replacement note will be issued.

Calculations in
Respect of the Notes

We will be responsible for making many of the
calculations called for under the notes. These calculations include, but are
not limited to, determination of the closing sale price of our common stock in
the absence of reported or quoted prices and adjustments to the conversion
rate. We will make all these calculations in good faith and, absent manifest
error, our calculations will be final and binding on the holders of notes. We
will provide a schedule of our calculations to the trustee, and the trustee is
entitled to rely conclusively on the accuracy of our calculations without
independent verification.

Governing Law

The indenture and the notes will be governed by, and
construed in accordance with, the laws of the State of New York.

Concerning the
Trustee

LaSalle Bank National Association has agreed to serve
as the trustee under the indenture.

The holders of a majority in principal amount of all
outstanding notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy or power available to the
trustee. However, any such direction may not conflict with any law or the
indenture, may not be unduly prejudicial to the rights of another holder or the
trustee and may not involve the trustee in personal liability.

Book-Entry,
Delivery and Form

We will initially issue the notes in the form of one
or more global securities. The global security will be deposited with the
trustee as custodian for The Depository Trust Company and registered in the
name of a nominee of DTC. Except as set forth below, the global security may be
transferred, in whole and not in part, only to DTC or another nominee of DTC.
You may hold your beneficial interests in the global security directly through
DTC if you have an account with DTC or indirectly through organizations that
have accounts with DTC. Notes in definitive, fully registered, certificated
form, referred to as “certificated securities,” will be issued only in certain
limited circumstances described below.

DTC has advised us
that it is:

·     a
limited purpose trust company organized under the laws of the State of New
York;

·     a
member of the Federal Reserve System;

·     a “clearing
corporation” within the meaning of the New York Uniform Commercial Code; and

 22
 

·     a “clearing
agency” registered pursuant to the provisions of Section 17A of the
Exchange Act.

DTC was created to hold securities of institutions
that have accounts with DTC, referred to as “participants,” and to facilitate
the clearance and settlement of securities transactions among its participants
in such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC’s participants include securities brokers and dealers, which
may include the underwriter, banks, trust companies, clearing corporations and
certain other organizations. Access to DTC’s book-entry system is also
available to others such as banks, brokers, dealers and trust companies,
referred to as the “indirect participants,” that clear through or maintain a
custodial relationship with a participant, whether directly or indirectly.

We expect that, pursuant to procedures established by
DTC upon the deposit of the global security with DTC, DTC will credit, on its
book-entry registration and transfer system, the principal amount of notes
represented by such global security to the accounts of participants. The
accounts to be credited shall be designated by the underwriter. Ownership of beneficial
interests in the global security will be limited to participants or persons
that may hold interests through participants. Ownership of beneficial interests
in the global security will be shown on, and the transfer of those beneficial
interests will be effected only through, records maintained by DTC (with
respect to participants’ interests), the participants and the indirect
participants. The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in
definitive form. These limits and laws may impair the ability to transfer or
pledge beneficial interests in the global security.

Owners of beneficial interests in global securities
who desire to convert their interests into common stock should contact their
brokers or other participants or indirect participants through whom they hold
such beneficial interests to obtain information on procedures, including proper
forms and cut-off times, for submitting requests for conversion.

So long as DTC, or its nominee, is the registered
owner or holder of a global security, DTC or its nominee, as the case may be,
will be considered the sole owner or holder of the notes represented by the
global security for all purposes under the indenture and the notes. In
addition, no owner of a beneficial interest in a global security will be able
to transfer that interest except in accordance with the applicable procedures
of DTC. Except as set forth below, as an owner of a beneficial interest in the
global security, you will not be entitled to have the notes represented by the
global security registered in your name, will not receive or be entitled to
receive physical delivery of certificated securities and will not be considered
to be the owner or holder of any notes under the global security. We understand
that under existing industry practice, if an owner of a beneficial interest in
the global security desires to take any action that DTC, as the holder of the
global security, is entitled to take, DTC would authorize the participants to
take such action, and the participants would authorize beneficial owners owning
through such participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them.

We will make payments of principal of and any interest
amounts on, the notes represented by the global security registered in the name
of and held by DTC or its nominee to DTC or its nominee, as the case may be, as
the registered owner and holder of the global security. Neither we, the trustee
nor any paying agent will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial interests
in the global security or for maintaining, supervising or reviewing any records
relating to such beneficial interests.

We expect that DTC or its nominee, upon receipt of any
payment of principal of, or any interest amounts on, the global security, will
credit participants’ accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the global security
as shown on the records of DTC or its nominee. We also expect that payments by
participants or indirect participants to owners of beneficial interests in the
global security held through such participants or indirect participants will be
governed by standing instructions and customary practices and will be the
responsibility of such 

 23
 

participants or indirect
participants. We will not have any responsibility or liability for any aspect of
the records relating to, or payments made on account of, beneficial interests
in the global security for any note or for maintaining, supervising or
reviewing any records relating to such beneficial interests or for any other
aspect of the relationship between DTC and its participants or indirect
participants or the relationship between such participants or indirect
participants and the owners of beneficial interests in the global security
owning through such participants.

Transfers between participants in DTC will be effected
in the ordinary way in accordance with DTC rules and will be settled in
same-day funds.

DTC has advised us that it will take any action
permitted to be taken by a holder of notes only at the direction of one or more
participants to whose account the DTC interests in the global security is
credited and only in respect of such portion of the aggregate principal amount
of notes as to which such participant or participants has or have given such
direction. However, if DTC notifies us that it is unwilling to be a depository
for the global security or ceases to be a clearing agency or there is an event
of default under the notes, DTC will exchange the global security for
certificated securities which it will distribute to its participants.

Although DTC is expected to follow the foregoing
procedures in order to facilitate transfers of interests in the global security
among participants of DTC, it is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither we nor the trustee will have any responsibility, or liability, for the
performance by DTC or the participants or indirect participants of their
respective obligations under the rules and procedures governing their
respective operations.

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FIRST
AMENDMENT TO BORROWER PLEDGE AGREEMENT

THIS FIRST AMENDMENT TO BORROWER PLEDGE AGREEMENT
(this “Amendment”), dated as of June 20, 2007, made by NOVAMED, INC., a
Delaware corporation (the “Pledgor”), in favor of NATIONAL CITY BANK, as
agent (in such capacity, the “Agent”) for each of the Lender Parties (as
defined below).

W  I  T  N  E
S  S  E  T  H:

WHEREAS, Pledgor and Agent are party to that certain
Borrower Pledge Agreement dated as of June 28, 2000 (as amended, restated or
otherwise modified, the “Pledge Agreement”); and

WHEREAS,  Pledgor and the Agent wish to amend the Pledge
Agreement on the terms and conditions set forth below.

AGREEMENT

In consideration of the matters set forth in the
recitals and the covenants and provisions herein set forth, and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:

(1)           Definitions.  Capitalized terms used but not defined herein
are used as defined in the Pledge Agreement.

(2)           Amendments
to Pledge Agreement.

(a)           The definitions of “General Intangibles”, “Pledged
Entity”, “Pledged Share Issuer” and “Pledged Shares”  where such terms are defined in the Pledge
Agreement shall be revised to read as follows:

“Credit Agreement” means that certain Sixth
Amended and Restated Credit Agreement dated as of February 7, 2007 by and among
Borrower, National City Bank, as Agent and the Lenders party thereto (as
amended, restated, or otherwise modified).

“Foreign Subsidiary” means any Subsidiary
organized under the laws of a jurisdiction other than the United States, any
State of the United States or the District of Columbia.

“General Intangibles” means
all “general intangibles” as such term is defined in Section 9-102 of the
UCC and, in any event, including with respect to Pledgor, all contracts,

agreements, instruments
and indentures in any form, and portions thereof, to which Pledgor is a party
or under which Pledgor has any right, title or interest or to which Pledgor or
any property of Pledgor is subject, as the same from time to time may be
amended, supplemented or otherwise modified, including, without limitation,
(a) all rights of Pledgor to receive moneys due and to become due to it
thereunder or in connection therewith, (b) all rights of Pledgor to damages
arising thereunder and (c) all rights of Pledgor to perform and to
exercise all remedies thereunder.

“Pledged Entity”
means each entity described in Part A of Schedule I to the Pledge
Agreement as such Schedule may be updated from time to time and shall include the
issuer of any Pledged Shares.

“Pledged Share
Issuer” means any Pledged Entity or other issuer of any Pledged Shares.

“Pledged Shares”
means the equity interests owned by Pledgor in each of its Subsidiaries,
together with any other equity interests, certificates, options or rights of
any nature whatsoever in respect of the equity interests of any Person that may
be issued or granted to, or held by, Pledgor while this Pledge Agreement is in
effect; provided that in no
event shall more than 65% of the total outstanding equity interests of any
Foreign Subsidiary constitute Pledged Equity.

(b)           Section 3.1.3. of the
Pledge Agreement is hereby amended by adding the following language immediately
at the end thereof “owned by Pledgor”.

(c)           Schedule II to the Pledge
Agreement is hereby deleted in its entirety and replaced with the Schedule II
attached hereto as Annex A to this Amendment.

3.             Representations
and Warranties.  To induce the Agent
to execute this Amendment, the Pledgor represents and warrants to the Agent as
follows:

(A)          The Pledgor is duly authorized to execute and
deliver this Amendment and is duly authorized to perform its obligations
hereunder.

(B)           The execution, delivery and performance by
the Pledgor of this Amendment do not and will not (i) require any consent
or approval of any governmental agency or authority (other than any consent or
approval which has been obtained and is in full force and effect),
(ii) conflict with (A) any provision of law, (B) the certificate
of incorporation, by-laws or other organizational documents of the Pledgor or
(C) any agreement, indenture, instrument or other document, or any
judgment, order or decree, which is binding upon the Pledgor or any of its
properties or (iii) require, or result in, the creation or imposition of
any Lien on any asset of the Pledgor (other than Liens in favor of the Agent).

(C)           This Amendment is the legal, valid and
binding obligation of the Pledgor, enforceable against the Pledgor in
accordance with its terms, subject to bankruptcy, insolvency

 2
 

and similar laws affecting enforceability of creditors’ rights
generally and to general principals of equity.

(D)          The representations and warranties in the
Loan Documents are true and correct in all material respects with the same
effect as though made on and as of the date of this Amendment (except to the
extent stated to relate to a specific earlier date, in which case such
representations and warranties were true and correct as of such earlier date).

(E)           After giving effect to this Amendment, no
Event of Default or Default has occurred and is continuing.

4.             Affirmation.  Except as expressly amended hereby, the
Pledge Agreement and the other Loan Documents are and shall continue in full
force and effect and the Pledgor hereby fully ratifies and affirms each Loan
Document to which it is a party. 
Reference in any of this Amendment, the Pledge Agreement or any other
Loan Document to the Pledge Agreement shall be a reference to the Pledge
Agreement as amended hereby and as further amended, modified, restated,
supplemented or extended from time to time. 
This Amendment shall constitute a Loan Document for purposes of the
Pledge Agreement and the other Loan Documents.

5.             Counterparts.  This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute one instrument. 
Delivery of an executed counterpart of this Amendment by facsimile shall
be effective as delivery of an original counterpart.

6.             Headings.  The headings and captions of this Amendment
are for the purposes of reference only and shall not affect the construction
of, or be taken into consideration in interpreting, this Amendment.

7.             Conditions to
Amendment.  This Amendment shall
become effective upon the satisfaction in full of all of the following
conditions precedent, each of which shall be satisfactory to the Agent:

(A)          Amendment.  The Pledgor shall have executed and delivered
to the Agent this Amendment.

(B)           Authorization.  The Pledgor shall have delivered to the Agent
such documents and instruments (including incumbency certificate and
resolutions for the Pledgor) as the Agent may require to demonstrate
authorization by the Pledgor to execute and deliver this Amendment.

 3
 

(C)           Other.  The Agent shall have received such other
documents as the Agent may reasonably request.

The date upon which such
events have occurred is the “Effective Date.”

8.             Further Assurances.  The Pledgor agrees to execute and deliver in
form and substance satisfactory to the Agent such further documents,
instruments, amendments, financing statements and to take such further action,
as may be necessary from time to time to perfect and maintain the liens and
security interests created by the Pledge Agreement and the other Loan
Documents, as amended hereby.

9.             APPLICABLE LAW.  THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS WITHOUT
GIVING EFFECT TO ILLINOIS CHOICE OF LAW DOCTRINE.

10.           Conflict with Credit
Agreement.  In the event of any conflict
between this Amendment and the terms of the Credit Agreement, the terms of the
Credit Agreement will be deemed to control.

[signature page follows]

 4

The parties hereto have caused this Amendment to be
executed by their duly authorized officers, all as of the day and year first
above written.

	
  

  	
  NOVAMED, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Scott T. Macomber

  
	
   

  	
  Its:

  	
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  NATIONAL CITY BANK, as Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James M. Kershner

  
	
   

  	
  Its:

  	
  Vice President

  

 

ANNEX A TO PLEDGE AGREEMENT AMENDMENT

SCHEDULE II

ACKNOWLEDGMENT OF SECURITY INTEREST

[NAME OF PLEDGED ENTITY] (the “Company”) hereby acknowledges
receipt of a copy of the assignment by NOVAMED, INC. (the “Pledgor”) of its
interest under the [TITLE OF AGREEMENT] (the “Agreement”) pursuant to the terms
of the Pledge Agreement, dated as of 
June 28, 2000 (as amended, restated or otherwise modified from time to
time the “Pledge Agreement”), among the Pledgor and National City Bank of
Michigan/Illinois,  as Agent.

The undersigned hereby further confirms the
registration of the Pledgor’s pledge of its interest in the Company to the
Agent on the Company’s books.

The Company agrees that at any time prior to the
Maturity Date (as defined in the Pledge Agreement), it will not take or approve
any action in furtherance of deeming the interests of the Company to be an
uncertificated  “security” within the
meaning of § 8-103(c) of the UCC (as defined in the Pledge
Agreement) and that its membership or partnership interest shall at all times
be general intangibles under the UCC.

	
  Dated:

  	
   

  	
   

  	
   

  	
  [NAME OF PLEDGED ENTITY]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
									

 

FIRST
AMENDMENT TO BORROWER SECURITY AGREEMENT

THIS FIRST AMENDMENT TO BORROWER SECURITY AGREEMENT (“Amendment”)
is made as of June 20, 2007 by and between NOVAMED, INC., a Delaware
corporation (the “Borrower” and “Grantor”) and NATIONAL CITY BANK
(the “Agent”).

RECITALS

A.            The Borrower and the Agent are parties to
that certain Security Agreement dated as of June 28, 2000 (as heretofore
amended, the “Security Agreement”); and

B.            The Borrower and the Agent wish to amend
the Security Agreement on the terms and conditions set forth below.

AGREEMENT

In consideration of the matters set forth in the
recitals and the covenants and provisions herein set forth, and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:

1.             Definitions.  Capitalized terms used but not defined herein
are used as defined in the Security Agreement.

2.             Amendments
to Security Agreement.

(a)           Section 1.1 of the Security Agreement is hereby
deleted and replaced with the following new Section 1.1:

“SECTION 1.1 Certain Terms.  The following terms (whether or not
underscord) when used in this Security Agreement, including its preamble and
recitals, shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof:

(a)           Unless otherwise
defined herein, terms defined in the Credit Agreement and used herein shall
have the meanings given to them in the Credit Agreement, and the following
terms are used herein as defined in the UCC: 
Accounts, Certificated Security, Chattel Paper, Commercial Tort Claims,
Deposit Accounts, Documents, Electronic Chattel Paper, Equipment, Farm
Products, Goods, Health-Care-Insurance Receivables, Instruments, Inventory,
Letter-of-Credit Rights and Supporting Obligations.

(b)           When used herein the
following terms shall have the following meanings:

Assigned Agreements means any purchase agreement or similar agreement
entered into by Grantor or any Wholly-Owned Subsidiary of Grantor in connection
with a Permitted Acquisition.

Credit Agreement means that certain Sixth Amended and Restated Credit Agreement dated
as of February 7, 2007 by and among Borrower, National City Bank, as Agent and
the Lenders party thereto (as amended, restated, or otherwise modified).

Collateral
means (a) all of the personal property now owned or at any time hereafter
acquired by Grantor or in which Grantor now has or at any time in the future
may acquire any right, title or interest, including all of Grantor’s Accounts,
Chattel Paper (including Electronic Chattel Paper), Deposit Accounts,
Documents, Equipment, Farm Products, Fixtures, General Intangibles, Goods,
Health-Care-Insurance Receivables, Instruments, Intellectual Property,
Inventory, Investment Property, Letter-of-Credit Rights, Supporting Obligations
and Identified Claims, (b) all books and records pertaining to any of the
foregoing, (c) all Proceeds and products of any of the foregoing and
(d) all collateral security and guarantees given by any Person with
respect to any of the foregoing; provided, that the Collateral shall not
include the Excluded Property.  Where the
context requires, terms relating to the Collateral or any part thereof, when
used in relation to Grantor, shall refer to Grantor’s Collateral or the
relevant part thereof.

Copyrights
and Copyright Collateral means all copyrights arising under the laws of
the United States, any other country or any political subdivision thereof,
whether registered or unregistered and whether published or unpublished, all
registrations and recordings thereof, and all applications in connection
therewith, including all registrations, recordings and applications in the
United States Copyright Office, and the right to obtain all renewals of any of
the foregoing.

Copyright Licenses means all written agreements naming Grantor as
licensor or licensee, granting any right under any Copyright, including the
grant of rights to manufacture, distribute, exploit and sell materials derived
from any Copyright.

Excluded Property means, with respect to Grantor, (a) ”intent-to-use”
Trademarks until such time as Grantor begins to use such Trademarks, and
(b) any item of General Intangibles that is now or hereafter held by
Grantor but only to the extent that such item of General Intangibles (or any
agreement evidencing such item of General Intangibles) contains a term or is
subject to a rule of law, statute or regulation (including Medicare Regulations
and Medicaid Regulations) that restricts, prohibits, or requires a consent
(that has not been obtained) of a Person (other than Grantor) to, the creation,
attachment or perfection of the security interest granted herein, and any such
restriction, prohibition and/or requirement of consent is effective and
enforceable under applicable law and is not rendered ineffective by applicable
law (including, without limitation, pursuant to Sections 9-406, 9-407,
9-408 or 9-409 of the UCC); provided, however, that
(x) Excluded Property shall not include, any Proceeds of any item of
General Intangibles, and (y) any item of General Intangibles that at any
time ceases to satisfy the criteria for Excluded Property (whether as a result
of the applicable Grantor obtaining any necessary consent, any change in any
rule of law, statute or regulation, or otherwise), shall no longer be Excluded
Property.

Fixtures
means all of the following, whether now owned or hereafter acquired by Grantor:
plant fixtures; business fixtures; other fixtures and storage facilities,
wherever located; and all additions and accessories thereto and replacements therefor.

 2
 

Foreign Subsidiary means any Subsidiary organized under the laws of a
jurisdiction other than the United States, any State of the United States or
the District of Columbia.

General Intangibles means all “general intangibles” as such term is defined
in Section 9-102 of the UCC and, in any event, including with respect to
Grantor, all contracts (including all Assigned Agreements and Seller
Undertakings), agreements, instruments and indentures in any form, and portions
thereof, to which Grantor is a party or under which Grantor has any right,
title or interest or to which Grantor or any property of Grantor is subject, as
the same from time to time may be amended, supplemented or otherwise modified,
including, without limitation, (a) all rights of Grantor to receive moneys
due and to become due to it thereunder or in connection therewith, (b) all
rights of Grantor to damages arising thereunder and (c) all rights of
Grantor to perform and to exercise all remedies thereunder.

Identified Claims means the Commercial Tort Claims described on Schedule 7 as
such schedule may be supplemented from time to time.

Intellectual Property and Intellectual Property Collateral means the
collective reference to all rights, priorities and privileges relating to
intellectual property, whether arising under United States, multinational or
foreign laws or otherwise, including the Copyrights, the Copyright Licenses,
the Patents, the Patent Licenses, the Trademarks and the Trademark Licenses,
and all rights to sue at law or in equity for any infringement or other
impairment thereof, including the right to receive all proceeds and damages
therefrom.

Intercompany Note means any promissory note evidencing loans made by Grantor to any
Subsidiary of Grantor or from any Subsidiary of Grantor to Grantor.

Investment Property means the collective reference to (a) all “investment
property” as such term is defined in Section 9-102 of the UCC (other than
the equity interest of any Foreign Subsidiary excluded from the definition of
Pledged Equity), (b) all “financial assets” as such term is defined in
Section 8-102(a)(9) of the UCC, and (c) whether or not constituting “investment
property” as so defined, all Pledged Notes and all Pledged Equity.

Issuers
means the collective reference to each issuer of any Investment Property.

Paid in Full
means (a) the payment in full in cash and performance of all Secured
Obligations, (b) the termination of all Commitments and (c) either
(i) the cancellation and return to Agent of all Letters of Credit or (ii) the
cash collateralization of all Letters of Credit in accordance with the Credit
Agreement.

Patents
and Patent Collateral means (a) all letters patent of the United
States, any other country or any political subdivision thereof, all reissues
and extensions thereof and all goodwill associated therewith,  (b) all applications for letters patent
of the United States or any other country and all divisions, continuations and
continuations-in-part thereof, and (c) all rights to obtain any reissues
or extensions of the foregoing.

Patent Licenses means all agreements, whether written or oral, providing for the grant
by or to Grantor of any right to manufacture, use or sell any invention covered
in whole or in part by a Patent.

 3
 

Pledged Equity means the equity interests owned by Grantor in each of its
Subsidiaries, together with any other equity interests, certificates, options
or rights of any nature whatsoever in respect of the equity interests of any
Person that may be issued or granted to, or held by, Grantor while this
Agreement is in effect; provided that in no event shall more than 65% of the total outstanding equity
interests of any Foreign Subsidiary constitute Pledged Equity.

Pledged Notes means all Intercompany Notes at any time issued to Grantor and all other
promissory notes issued to or held by Grantor.

Proceeds
means all “proceeds” as such term is defined in Section 9-102 of the UCC
and, in any event, shall include all dividends or other income from the
Investment Property, collections thereon or distributions or payments with
respect thereto.

Receivable
means any right to payment for goods sold or leased or for services rendered,
whether or not such right is evidenced by an Instrument or Chattel Paper and
whether or not it has been earned by performance (including any Accounts).

Secured Obligations means all Obligations as defined in the Credit
Agreement and shall include all Obligations of any other Loan Party under the
Loan Documents.

Security Agreement is defined in the
preamble.

Seller Undertakings means, collectively, all representations, warranties,
covenants and agreements in favor of Grantor, and all indemnifications for the
benefit of Grantor relating thereto, pursuant to the Assigned Agreements.

Trademarks
and Trademark Collateral means (a) all trademarks, trade names,
corporate names, company names, business names, fictitious business names,
trade styles, service marks, logos and other source or business identifiers,
and all goodwill associated therewith, now existing or hereafter adopted or acquired,
all registrations and recordings thereof, and all applications in connection
therewith, whether in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof, or otherwise, and all common-law
rights related thereto, and (b) the right to obtain all renewals thereof.

Trademark Licenses means, collectively, each agreement, whether written
or oral, providing for the grant by or to Grantor of any right to use any
Trademark.

U.C.C. or
UCC means the Uniform Commercial Code as in effect on the date hereof
and from time to time in the State of Illinois, provided that if by
reason of mandatory provisions of law, the perfection or the effect of
perfection or non-perfection of the security interests in any Collateral or the
availability of any remedy hereunder is governed by the Uniform Commercial Code
as in effect on or after the date hereof in any other jurisdiction, “UCC” means
the Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such perfection or effect of
perfection or non-perfection or availability of such remedy.

 4
 

(b)           Section 2.1 of the
Security Agreement is hereby amended by deleting such Section in its entirety
and replacing it with the following new Section 2.1

“SECTION 2.1 Grant of Security  Grantor hereby assigns and transfers to
Agent, and hereby grants to Agent, for the ratable benefit of Lenders and (to
the extent provided herein) their Affiliates, a security interest in all of its
Collateral, as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Secured Obligations.”

(c)           Section 2.2 of the
Security Agreement is hereby amended by deleting such Section in its entirety
and replacing it with the following new Section 2.2:

“SECTION 2.2       Security for Obligations.  This Security Agreement secures the payment
of all Secured Obligations of the Grantor now or hereafter existing under the
Credit Agreement, the Notes, the Letters of Credit  and each other Loan Document to which the
Grantor is or may become a party, whether for principal, interest, costs, fees,
expenses or otherwise, and all obligations of the Grantor now or hereafter
existing under this Security Agreement and each other Loan Document to which it
is or may become a party.”

(d)           A new Section 2.5 is
hereby added to the Security Agreement to read as follows:

“SECTION 2.5  Commercial Tort Claims.  If Grantor shall at any time acquire any
Commercial Tort Claim in excess of $50,000, Grantor shall promptly notify Agent
thereof in writing, therein providing a reasonable description and summary
thereof, and upon delivery thereof to Agent. 
Grantor shall be deemed to thereby grant to Agent (and Grantor hereby
grants to Agent) a security interest in such Commercial Tort Claim and all
proceeds thereof.”

3.             Representations
and Warranties.  To induce the Agent
to execute this Amendment, the Borrower represents and warrants to the Agent as
follows:

(a)           The Borrower is duly
authorized to execute and deliver this Amendment and is duly authorized to
perform its obligations hereunder.

(b)           The execution, delivery
and performance by the Borrower of this Amendment do not and will not
(i) require any consent or approval of any governmental agency or
authority (other than any consent or approval which has been obtained and is in
full force and effect), (ii) conflict with (A) any provision of law,
(B) the certificate of incorporation, by-laws or other organizational
documents of the Borrower or (C) any agreement, indenture, instrument or
other document, or any judgment, order or decree, which is binding upon the
Borrower or any of its properties or (iii) require, or result in, the
creation or imposition of any Lien on any asset of the Borrower (other than
Liens in favor of the Agent).

(c)           This Amendment is the
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms, subject to bankruptcy, insolvency and
similar laws affecting enforceability of creditors’ rights generally and to
general principals of equity.

 5
 

(d)           The representations and
warranties in the Loan Documents are true and correct in all material respects
with the same effect as though made on and as of the date of this Amendment
(except to the extent stated to relate to a specific earlier date, in which
case such representations and warranties were true and correct as of such
earlier date).

(e)           After giving effect to
this Amendment, no Event of Default or Default has occurred and is continuing.

4.             Affirmation.  Except as expressly amended hereby, the
Security Agreement and the other Loan Documents are and shall continue in full
force and effect and the Borrower hereby fully ratifies and affirms each Loan
Document to which it is a party. 
Reference in any of this Amendment, the Security Agreement or any other
Loan Document to the Security Agreement shall be a reference to the Security
Agreement as amended hereby and as further amended, modified, restated,
supplemented or extended from time to time. 
This Amendment shall constitute a Loan Document for purposes of the
Security Agreement and the other Loan Documents.

5.             Counterparts.  This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute one instrument. 
Delivery of an executed counterpart of this Amendment by facsimile shall
be effective as delivery of an original counterpart.

6.             Headings.  The headings and captions of this Amendment
are for the purposes of reference only and shall not affect the construction
of, or be taken into consideration in interpreting, this Amendment.

7.             Conditions to
Amendment.  This Amendment shall
become effective upon the satisfaction in full of all of the following
conditions precedent, each of which shall be satisfactory to the Agent:

(a)           Amendment.  The Borrower shall have executed and
delivered to the Agent this Amendment.

(b)           Authorization.  The Borrower shall have delivered to the
Agent such documents and instruments (including incumbency certificate and
resolutions for the Borrower) as the Agent may require to demonstrate
authorization by the Borrower to execute and deliver this Amendment.

(c)           Other.  The Agent shall have received such other
documents as the Agent may reasonably request.

The date upon which such
events have occurred is the “Effective Date.”

8.             Further Assurances.  The Borrower agrees to execute and deliver in
form and substance satisfactory to the Agent such further documents,
instruments, amendments, financing statements and to take such further action,
as may be necessary from time to time to perfect and maintain the liens and
security interests created by the Security Agreement and the other Loan
Documents, as amended hereby.

 6
 

9.             APPLICABLE LAW.  THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS WITHOUT
GIVING EFFECT TO ILLINOIS CHOICE OF LAW DOCTRINE.

10.           Conflict with Credit
Agreement.  In the event of any
conflict between this Amendment and the terms of the Credit Agreement, the
terms of the Credit Agreement will be deemed to control.

[signature page follows]

 7

The parties hereto have caused this Amendment to be
executed by their duly authorized officers, all as of the day and year first
above written.

	
  

  	
  NOVAMED, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ SCOTT
  T. MACOMBER

  
	
   

  	
  Its:

  	
  Executive Vice President and Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  NATIONAL CITY BANK, as Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JAMES
  M. KERSHNER

  
	
   

  	
  Its:

  	
  Vice President

  

 

FIRST
AMENDMENT TO GUARANTOR PLEDGE AGREEMENT

THIS FIRST AMENDMENT TO GUARANTOR PLEDGE AGREEMENT
(this “Amendment”), dated as of June 20, 2007, made by each of the
Pledgors signatory hereto (each a “Pledgor” and collectively, the “Pledgors”)
in favor of NATIONAL CITY BANK, as agent (in such capacity, the “Agent”)
for each of the Lender Parties (as defined below).

W  I  T  N  E
S  S  E  T  H:

WHEREAS, the Pledgors and Agent are party to that
certain Borrower Pledge Agreement dated as of June 28, 2000 (as amended, restated
or otherwise modified, the “Pledge Agreement”); and

WHEREAS, the Pledgors and the Agent wish to amend the
Pledge Agreement on the terms and conditions set forth below.

AGREEMENT

In consideration of the matters set forth in the
recitals and the covenants and provisions herein set forth, and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:

(1)           Definitions.  Capitalized terms used but not defined herein
are used as defined in the Pledge Agreement.

(2)           Amendments to Pledge Agreement.

(a)           The
definitions of “General Intangibles”, “Pledged Entity”, “Pledged Share Issuer”
and “Pledged Shares”  where such terms
are defined in the Pledge Agreement shall be revised to read as follows:

“Credit Agreement” means that certain Sixth
Amended and Restated Credit Agreement dated as of February 7, 2007 by and among
Borrower, National City Bank, as Agent and the Lenders party thereto (as
amended, restated, or otherwise modified).

“Foreign Subsidiary” means any Subsidiary
organized under the laws of a jurisdiction other than the United States, any
State of the United States or the District of Columbia.

“General Intangibles” means
all “general intangibles” as such term is defined in Section 9-102 of the
UCC and, in any event, including with respect to a Pledgor, all contracts,
agreements, instruments and indentures in any form, and portions thereof, to
which such Pledgor

 

is a party or under which
such Pledgor has any right, title or interest or to which such Pledgor or any
property of such Pledgor is subject, as the same from time to time may be
amended, supplemented or otherwise modified, including, without limitation,
(a) all rights of such Pledgor to receive moneys due and to become due to
it thereunder or in connection therewith, (b) all rights of such Pledgor
to damages arising thereunder and (c) all rights of such Pledgor to
perform and to exercise all remedies thereunder.

“Pledged Entity”
means each entity described in Part A of Schedule I to the Pledge
Agreement as such Schedule may be updated from time to time and shall include
the issuer of any Pledged Shares.

“Pledged Share
Issuer” means any Pledged Entity or other issuer of any Pledged Shares.

“Pledged Shares”
means the equity interests owned by a Pledgor in each of its Subsidiaries,
together with any other equity interests, certificates, options or rights of
any nature whatsoever in respect of the equity interests of any Person that may
be issued or granted to, or held by, such Pledgor while this Pledge Agreement
is in effect; provided that in no event shall more than 65% of the total outstanding equity
interests of any Foreign Subsidiary constitute Pledged Equity.

(b)           Section 3.1.3. of the Pledge
Agreement is hereby amended by adding the following language immediately at the
end thereof “owned by the relevant Pledgor”.

(c)           Schedule II to the Pledge Agreement
is hereby deleted in its entirety and replaced with the Schedule II attached
hereto as Annex A to this Amendment.

3.             Representations and Warranties.  To induce the Agent to execute this
Amendment, each Pledgor represents and warrants to the Agent as follows:

(A)          Such
Pledgor is duly authorized to execute and deliver this Amendment and is duly
authorized to perform its obligations hereunder.

(B)           The
execution, delivery and performance by such Pledgor of this Amendment do not
and will not (i) require any consent or approval of any governmental
agency or authority (other than any consent or approval which has been obtained
and is in full force and effect), (ii) conflict with (A) any
provision of law, (B) the certificate of incorporation, by-laws or other
organizational documents of such Pledgor or (C) any agreement, indenture,
instrument or other document, or any judgment, order or decree, which is
binding upon such Pledgor or any of its properties or (iii) require, or
result in, the creation or imposition of any Lien on any asset of such Pledgor
(other than Liens in favor of the Agent).

(C)           This
Amendment is the legal, valid and binding obligation of such Pledgor,
enforceable against such Pledgor in accordance with its terms, subject to
bankruptcy, insolvency

 2
 

 

and similar laws affecting enforceability of creditors’ rights
generally and to general principals of equity.

(D)          The
representations and warranties in the Loan Documents are true and correct in
all material respects with the same effect as though made on and as of the date
of this Amendment (except to the extent stated to relate to a specific earlier
date, in which case such representations and warranties were true and correct
as of such earlier date).

(E)           After
giving effect to this Amendment, no Event of Default or Default has occurred
and is continuing.

4.             Affirmation.  Except as expressly amended hereby, the
Pledge Agreement and the other Loan Documents are and shall continue in full
force and effect and each Pledgor hereby fully ratifies and affirms each Loan
Document to which it is a party. 
Reference in any of this Amendment, the Pledge Agreement or any other
Loan Document to the Pledge Agreement shall be a reference to the Pledge
Agreement as amended hereby and as further amended, modified, restated,
supplemented or extended from time to time. 
This Amendment shall constitute a Loan Document for purposes of the
Pledge Agreement and the other Loan Documents.

5.             Counterparts.  This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute one instrument. 
Delivery of an executed counterpart of this Amendment by facsimile shall
be effective as delivery of an original counterpart.

6.             Headings.  The headings and captions of this Amendment
are for the purposes of reference only and shall not affect the construction
of, or be taken into consideration in interpreting, this Amendment.

7.             Conditions to Amendment.  This Amendment shall become effective upon
the satisfaction in full of all of the following conditions precedent, each of
which shall be satisfactory to the Agent:

(A)          Amendment.  Each Pledgor shall have executed and
delivered to the Agent this Amendment.

(B)           Authorization.  Each Pledgor shall have delivered to the
Agent such documents and instruments (including incumbency certificate and
resolutions for such Pledgor) as the Agent may require to demonstrate
authorization by such Pledgor to execute and deliver this Amendment.

 

 3
 

 

(C)           Other.  The Agent shall have received such other
documents as the Agent may reasonably request.

The date upon which such
events have occurred is the “Effective Date.”

8.             Further Assurances.  Each Pledgor agrees to execute and deliver in
form and substance satisfactory to the Agent such further documents,
instruments, amendments, financing statements and to take such further action,
as may be necessary from time to time to perfect and maintain the liens and
security interests created by the Pledge Agreement and the other Loan
Documents, as amended hereby.

9.             APPLICABLE LAW.  THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS WITHOUT
GIVING EFFECT TO ILLINOIS CHOICE OF LAW DOCTRINE.

10.           Conflict with Credit Agreement.  In the event of any conflict between this
Amendment and the terms of the Credit Agreement, the terms of the Credit
Agreement will be deemed to control.

[signature page
follows]

 

 4

The parties hereto have caused this Amendment to be
executed by their duly authorized officers, all as of the day and year first
above written.

	
  

  	
  NOVAMED MANAGEMENT OF KANSAS CITY, INC.

  PATIENT EDUCATION CONCEPTS, INC.

  BLUE RIDGE NOVAMED, INC.

  NOVAMED EYE SURGERY AND LASER

  CENTER OF ST. JOSEPH,
  INC.

  NOVAMED MANAGEMENT SERVICES, LLC

  NOVAMED EYE SURGERY CENTER OF

  NORTH COUNTY, LLC

  NOVAMED EYECARE RESEARCH, INC.

  NMGK, INC.

  NOVAMED OF LOUISVILLE, INC.

  MIDWEST UNCUTS, INC.

  NMLO, INC.

  NMI, INC.

  NOVAMED EYE SURGERY CENTER OF

  CINCINNATI, L.L.C.

  NOVAMED ACQUISITION COMPANY, INC.

  NOVAMED OF TEXAS, INC.

  NOVAMED ALLIANCE, INC.

  NOVAMED OF WISCONSIN, INC.

  NOVAMED OF DALLAS, INC.

  NOVAMED OF SAN ANTONIO, INC.

  NOVAMED OF LAREDO, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ SCOTT
  T. MACOMBER

  	
   

  
	
   

  	
   

  	
  Title: Scott T. Macomber, Executive Vice

  
	
   

  	
   

  	
  President and Chief
  Financial Officer

  

 

 

	
  

  	
  NATIONAL CITY BANK, as Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JAMES
  M. KERSHNER

  	
   

  
	
   

  	
  Its:

  	
  Vice President

  	
   

  

 

ANNEX
A TO PLEDGE AGREEMENT AMENDMENT

SCHEDULE II

ACKNOWLEDGMENT OF SECURITY INTEREST

[NAME OF PLEDGED ENTITY] (the “Company”) hereby
acknowledges receipt of a copy of the assignment by                     
(the “Pledgor”) of its interest under the [TITLE OF AGREEMENT] (the “Agreement”)
pursuant to the terms of the Pledge Agreement, dated as of June 28, 2000 (as
amended, restated or otherwise modified from time to time the “Pledge Agreement”),
among the Pledgor, certain other persons and National City Bank of
Michigan/Illinois,  as Agent.

The undersigned hereby further confirms the
registration of the Pledgor’s pledge of its interest in the Company to the
Agent on the Company’s books.

The Company agrees that at any time prior to the
Maturity Date (as defined in the Pledge Agreement), it will not take or approve
any action in furtherance of deeming the interests of the Company to be an
uncertificated “security” within the meaning of § 8-103(c) of the
UCC (as defined in the Pledge Agreement) and that its membership or partnership
interest shall at all times be general intangibles under the UCC.

	
  Dated:

  	
   

  	
   

  	
  [NAME OF PLEDGED ENTITY]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  

 

FIRST
AMENDMENT TO GUARANTOR SECURITY AGREEMENT

THIS FIRST AMENDMENT TO GUARANTOR SECURITY AGREEMENT (“Amendment”)
is made as of June 20, 2007 by and between each of the Grantors listed on the
signature page hereto each a “Grantor” and, collectively, the “Grantors”)
and NATIONAL CITY BANK (the “Agent”).

RECITALS

A.            The Grantors and the Agent are parties to
that certain Guarantor Security Agreement dated as of June 28, 2000 (as
heretofore amended, the “Security Agreement”); and

B.            The Grantors and the Agent wish to amend
the Security Agreement on the terms and conditions set forth below.

AGREEMENT

In consideration of the matters set forth in the
recitals and the covenants and provisions herein set forth, and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:

1.             Definitions.  Capitalized terms used but not defined herein
are used as defined in the Security Agreement.

2.             Amendments
to Security Agreement.

(a)           Section 1.1 of the Security Agreement is hereby
deleted and replaced with the following new Section 1.1:

“SECTION 1.1 Certain Terms.  The following terms (whether or not
underscored) when used in this Security Agreement, including its preamble and
recitals, shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof:

(a)           Unless otherwise
defined herein, terms defined in the Credit Agreement and used herein shall
have the meanings given to them in the Credit Agreement, and the following
terms are used herein as defined in the UCC: 
Accounts, Certificated Security, Chattel Paper, Commercial Tort Claims,
Deposit Accounts, Documents, Electronic Chattel Paper, Equipment, Farm
Products, Goods, Health-Care-Insurance Receivables, Instruments, Inventory,
Letter-of-Credit Rights and Supporting Obligations.

(b)           When used herein the
following terms shall have the following meanings:

Assigned Agreements means any purchase agreement or similar agreement
entered into by any Grantor in connection with a Permitted Acquisition.

Credit Agreement means that certain Sixth Amended and Restated Credit Agreement dated
as of February 7, 2007 by and among Borrower, National City Bank, as Agent and
the Lenders party thereto (as amended, restated, or otherwise modified).

Collateral
means (a) all of the personal property now owned or at any time hereafter
acquired by a Grantor or in which a Grantor now has or at any time in the
future may acquire any right, title or interest, including all of Grantor’s
Accounts, Chattel Paper (including Electronic Chattel Paper), Deposit Accounts,
Documents, Equipment, Farm Products, Fixtures, General Intangibles, Goods,
Health-Care-Insurance Receivables, Instruments, Intellectual Property,
Inventory, Investment Property, Letter-of-Credit Rights, Supporting Obligations
and Identified Claims, (b) all books and records pertaining to any of the
foregoing, (c) all Proceeds and products of any of the foregoing and
(d) all collateral security and guarantees given by any Person with
respect to any of the foregoing; provided, that the Collateral shall not
include the Excluded Property.  Where the
context requires, terms relating to the Collateral or any part thereof, when
used in relation to a Grantor, shall refer to such Grantor’s Collateral or the
relevant part thereof.

Copyrights
and Copyright Collateral means all copyrights arising under the laws of
the United States, any other country or any political subdivision thereof,
whether registered or unregistered and whether published or unpublished, all
registrations and recordings thereof, and all applications in connection
therewith, including all registrations, recordings and applications in the
United States Copyright Office, and the right to obtain all renewals of any of
the foregoing.

Copyright Licenses means all written agreements naming a Grantor as
licensor or licensee, granting any right under any Copyright, including the
grant of rights to manufacture, distribute, exploit and sell materials derived
from any Copyright.

Excluded Property means, with respect to any Grantor, (a) ”intent-to-use”
Trademarks until such time as such Grantor begins to use such Trademarks, and
(b) any item of General Intangibles that is now or hereafter held by a
Grantor but only to the extent that such item of General Intangibles (or any
agreement evidencing such item of General Intangibles) contains a term or is
subject to a rule of law, statute or regulation (including Medicare Regulations
and Medicaid Regulations) that restricts, prohibits, or requires a consent
(that has not been obtained) of a Person (other than such Grantor) to, the
creation, attachment or perfection of the security interest granted herein, and
any such restriction, prohibition and/or requirement of consent is effective
and enforceable under applicable law and is not rendered ineffective by
applicable law (including, without limitation, pursuant to Sections 9-406,
9-407, 9-408 or 9-409 of the UCC); provided, however,
that (x) Excluded Property shall not include, any Proceeds of any item of
General Intangibles, and (y) any item of General Intangibles that at any
time ceases to satisfy the criteria for Excluded Property (whether as a result
of the applicable Grantor obtaining any necessary consent, any change in any
rule of law, statute or regulation, or otherwise), shall no longer be Excluded
Property.

Fixtures
means all of the following, whether now owned or hereafter acquired by a
Grantor: plant fixtures; business fixtures; other fixtures and storage
facilities, wherever located; and all additions and accessories thereto and
replacements therefor.

 2
 

Foreign Subsidiary means any Subsidiary organized under the laws of a
jurisdiction other than the United States, any State of the United States or
the District of Columbia.

General Intangibles means all “general intangibles” as such term is
defined in Section 9-102 of the UCC and, in any event, including with
respect to any Grantor, all contracts (including all Assigned Agreements and
Seller Undertakings), agreements, instruments and indentures in any form, and
portions thereof, to which such Grantor is a party or under which such Grantor
has any right, title or interest or to which such Grantor or any property of
such Grantor is subject, as the same from time to time may be amended,
supplemented or otherwise modified, including, without limitation, (a) all
rights of such Grantor to receive moneys due and to become due to it thereunder
or in connection therewith, (b) all rights of such Grantor to damages
arising thereunder and (c) all rights of such Grantor to perform and to
exercise all remedies thereunder.

Identified Claims means the Commercial Tort Claims disclosed by any Grantor to Agent
from time to time.

Intellectual Property and Intellectual Property Collateral means the
collective reference to all rights, priorities and privileges relating to
intellectual property, whether arising under United States, multinational or
foreign laws or otherwise, including the Copyrights, the Copyright Licenses,
the Patents, the Patent Licenses, the Trademarks and the Trademark Licenses,
and all rights to sue at law or in equity for any infringement or other
impairment thereof, including the right to receive all proceeds and damages
therefrom.

Intercompany Note means any promissory note evidencing loans made by a Grantor to any
Subsidiary of such Grantor or from any Subsidiary of Grantor to Grantor.

Investment Property means the collective reference to (a) all “investment
property” as such term is defined in Section 9-102 of the UCC (other than
the equity interest of any Foreign Subsidiary excluded from the definition of
Pledged Equity), (b) all “financial assets” as such term is defined in
Section 8-102(a)(9) of the UCC, and (c) whether or not constituting “investment
property” as so defined, all Pledged Notes and all Pledged Equity.

Issuers
means the collective reference to each issuer of any Investment Property.

Patents
and Patent Collateral means (a) all letters patent of the United
States, any other country or any political subdivision thereof, all reissues
and extensions thereof and all goodwill associated therewith,  (b) all applications for letters patent
of the United States or any other country and all divisions, continuations and
continuations-in-part thereof, and (c) all rights to obtain any reissues
or extensions of the foregoing.

Patent Licenses means all agreements, whether written or oral, providing for the grant
by or to a Grantor of any right to manufacture, use or sell any invention
covered in whole or in part by a Patent.

Pledged Equity means the equity interests owned by a Grantor in each of its
Subsidiaries, together with any other equity interests, certificates, options
or rights of any nature whatsoever in respect of the equity interests of any
Person that may be issued or granted to, or held by, such

 3
 

Grantor while this Agreement is in effect; provided that in no
event shall more than 65% of the total outstanding equity interests of any
Foreign Subsidiary constitute Pledged Equity.

Pledged Notes means all Intercompany Notes at any time issued to a Grantor and all
other promissory notes issued to or held by such Grantor.

Proceeds
means all “proceeds” as such term is defined in Section 9-102 of the UCC
and, in any event, shall include all dividends or other income from the
Investment Property, collections thereon or distributions or payments with
respect thereto.

Receivable
means any right to payment for goods sold or leased or for services rendered,
whether or not such right is evidenced by an Instrument or Chattel Paper and
whether or not it has been earned by performance (including any Accounts).

Secured Obligations means all Obligations as defined in the Credit
Agreement and shall include all Obligations of any other Loan Party under the
Loan Documents.

Security Agreement is defined in the
preamble.

Seller Undertakings means, collectively, all representations, warranties,
covenants and agreements in favor of a Grantor, and all indemnifications for
the benefit of a Grantor relating thereto, pursuant to the Assigned Agreements.

Trademarks
and Trademark Collateral means (a) all trademarks, trade names,
corporate names, company names, business names, fictitious business names,
trade styles, service marks, logos and other source or business identifiers,
and all goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, whether in the United States Patent and Trademark Office
or in any similar office or agency of the United States, any State thereof or any
other country or any political subdivision thereof, or otherwise, and all
common-law rights related thereto, and (b) the right to obtain all
renewals thereof.

Trademark Licenses means, collectively, each agreement, whether written
or oral, providing for the grant by or to Grantor of any right to use any
Trademark.

U.C.C. or
UCC means the Uniform Commercial Code as in effect on the date hereof
and from time to time in the State of Illinois, provided that if by
reason of mandatory provisions of law, the perfection or the effect of
perfection or non-perfection of the security interests in any Collateral or the
availability of any remedy hereunder is governed by the Uniform Commercial Code
as in effect on or after the date hereof in any other jurisdiction, “UCC” means
the Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such perfection or effect of
perfection or non-perfection or availability of such remedy.

(b)           Section 2.1 of the
Security Agreement is hereby amended by deleting such Section in its entirety
and replacing it with the following new Section 2.1:

 4
 

“SECTION 2.1 Grant
of Security Each Grantor hereby assigns and transfers to Agent, and hereby
grants to Agent, for the ratable benefit of Lenders and (to the extent provided
herein) their Affiliates, a security interest in all of its Collateral, as
collateral security for the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of the
Secured Obligations.”

(c)           Section 2.2 of the
Security Agreement is hereby amended by deleting such Section in its entirety
and replacing it with the following new Section 2.2:

“SECTION 2.2       Security for Obligations.  This Security Agreement secures the payment
of all Secured Obligations of each Grantor now or hereafter existing under the
Credit Agreement, the Notes, the Letters of Credit and each other Loan Document
to which such Grantor is or may become a party, whether for principal,
interest, costs, fees, expenses or otherwise, and all obligations of such
Grantor now or hereafter existing under this Security Agreement and each other
Loan Document to which it is or may become a party.”

(d)           A new Section 2.5 is
hereby added to the Security Agreement to read as follows:

“SECTION 2.5  Commercial Tort Claims.  If Grantor any shall at any time acquire any
Commercial Tort Claim in excess of $50,000, Grantor shall promptly notify Agent
thereof in writing, therein providing a reasonable description and summary thereof,
and upon delivery thereof to Agent.  Such
Grantor shall be deemed to thereby grant to Agent (and Grantor hereby grants to
Agent) a security interest in such Commercial Tort Claim and all proceeds
thereof.”

3.             Representations
and Warranties.  To induce the Agent
to execute this Amendment, each Grantor represents and warrants to the Agent as
follows:

(a)           Such Grantor is duly
authorized to execute and deliver this Amendment and is duly authorized to
perform its obligations hereunder.

(b)           The execution, delivery
and performance by such Grantor of this Amendment do not and will not
(i) require any consent or approval of any governmental agency or
authority (other than any consent or approval which has been obtained and is in
full force and effect), (ii) conflict with (A) any provision of law,
(B) the certificate of incorporation, by-laws or other organizational
documents of such Grantor or (C) any agreement, indenture, instrument or
other document, or any judgment, order or decree, which is binding upon such
Grantor or any of its properties or (iii) require, or result in, the
creation or imposition of any Lien on any asset of such Grantor (other than
Liens in favor of the Agent).

(c)           This Amendment is the
legal, valid and binding obligation of such Grantor, enforceable against such
Grantor in accordance with its terms, subject to bankruptcy, insolvency and
similar laws affecting enforceability of creditors’ rights generally and to
general principals of equity.

 5
 

(d)           The representations and
warranties in the Loan Documents are true and correct in all material respects
with the same effect as though made on and as of the date of this Amendment
(except to the extent stated to relate to a specific earlier date, in which
case such representations and warranties were true and correct as of such
earlier date).

(e)           After giving effect to
this Amendment, no Event of Default or Default has occurred and is continuing.

4.             Affirmation.  Except as expressly amended hereby, the
Security Agreement and the other Loan Documents are and shall continue in full
force and effect and each Grantor hereby fully ratifies and affirms each Loan
Document to which it is a party. 
Reference in any of this Amendment, the Security Agreement or any other Loan
Document to the Security Agreement shall be a reference to the Security
Agreement as amended hereby and as further amended, modified, restated,
supplemented or extended from time to time. 
This Amendment shall constitute a Loan Document for purposes of the
Security Agreement and the other Loan Documents.

5.             Counterparts.  This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute one instrument. 
Delivery of an executed counterpart of this Amendment by facsimile shall
be effective as delivery of an original counterpart.

6.             Headings.  The headings and captions of this Amendment
are for the purposes of reference only and shall not affect the construction
of, or be taken into consideration in interpreting, this Amendment.

7.             Conditions to
Amendment.  This Amendment shall
become effective upon the satisfaction in full of all of the following
conditions precedent, each of which shall be satisfactory to the Agent:

(a)           Amendment.  Each Grantor shall have executed and
delivered to the Agent this Amendment.

(b)           Authorization.  Each Grantor shall have delivered to the
Agent such documents and instruments (including incumbency certificate and
resolutions for such Grantor) as the Agent may require to demonstrate
authorization by such Grantor to execute and deliver this Amendment.

(c)           Other.  The Agent shall have received such other
documents as the Agent may reasonably request.

The date upon which such
events have occurred is the “Effective Date.”

8.             Further Assurances.  Each Grantor agrees to execute and deliver in
form and substance satisfactory to the Agent such further documents,
instruments, amendments, financing statements and to take such further action,
as may be necessary from time to time to perfect and maintain the liens and
security interests created by the Security Agreement and the other Loan
Documents, as amended hereby.

 6
 

9.             APPLICABLE LAW.  THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS WITHOUT
GIVING EFFECT TO ILLINOIS CHOICE OF LAW DOCTRINE.

10.           Conflict with Credit
Agreement.  In the event of any
conflict between this Amendment and the terms of the Credit Agreement, the
terms of the Credit Agreement will be deemed to control.

[signature page follows]

 7

The parties hereto have caused this Amendment to be
executed by their duly authorized officers, all as of the day and year first
above written.

	
  

  	
  NOVAMED MANAGEMENT OF KANSAS CITY, INC.

  PATIENT EDUCATION CONCEPTS, INC.

  BLUE RIDGE NOVAMED, INC.

  NOVAMED EYE SURGERY AND LASER

  CENTER OF ST. JOSEPH,
  INC.

  NOVAMED MANAGEMENT SERVICES, LLC

  NOVAMED EYE SURGERY CENTER OF

  NORTH COUNTY, LLC

  NOVAMED EYECARE RESEARCH, INC.

  NMGK, INC.

  NOVAMED OF LOUISVILLE, INC.

  MIDWEST UNCUTS, INC.

  NMLO, INC.

  NMI, INC.

  NOVAMED EYE SURGERY CENTER OF

  CINCINNATI, L.L.C.

  NOVAMED ACQUISITION COMPANY, INC.

  NOVAMED OF TEXAS, INC.

  NOVAMED ALLIANCE, INC.

  NOVAMED OF WISCONSIN, INC.

  NOVAMED OF DALLAS, INC.

  NOVAMED OF SAN ANTONIO, INC.

  NOVAMED OF LAREDO, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ SCOTT
  M. MACOMBER

  	
   

  
	
   

  	
   

  	
  Title: Scott T. Macomber, Executive Vice

  
	
   

  	
   

  	
  President and Chief
  Financial Officer

  

 

 

	
  

  	
  NATIONAL CITY BANK, as Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JAMES
  M. KERSHNER

  	
   

  
	
   

  	
  Its:

  	
  Vice President

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