UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(Rule 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934 Filed by the Registrant

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

þ  Preliminary Proxy Statement

o  Confidential, For Use By the Commission Only (as permitted by Rule 14a-6(e)(2))

o  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to Rule 14a-12

 

NovaMed, Inc.

(Name of Registrant as Specified in its Charter)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

Common stock, par value $0.01 per share, of NovaMed, Inc. (the “NovaMed’s common stock”)

 

 

7,955,379 shares of the NovaMed’s common stock and 514,429 options to purchase shares of the NovaMed’s common stock

 

 

The transaction value was determined based upon the sum of (a) $13.25 per share of 7,955,379 shares of the NovaMed’s common stock and (b) $13.25 minus the weighted average exercise price of $6.02 per share underlying options to purchase 514,429 shares of the NovaMed’s common stock, all with an exercise price of less than $13.25          

 

 

$109,128,093          

 

 

$12,670          

 

 

 

 

 

 

 

 

 

 

 

 

NOVAMED, INC.

333 West Wacker Drive, Suite 1010

Chicago, Illinois 60606

 

[ • ], 2011

 

Dear Stockholder:

 

You are cordially invited to attend a special meeting of the stockholders of NovaMed, Inc. to be held on [ • ], 2011, at [ • ] a.m. [Central time], at [ • ].

 

At the special meeting, you will be asked to consider and vote upon the adoption of the Agreement and Plan of Merger, dated January 20, 2011, by and among Surgery Center Holdings, Inc., which we refer to as Parent, Wildcat Merger Sub, Inc., which we refer to as Merger Sub, and NovaMed, and approve the merger described in the merger agreement. Pursuant to the merger agreement, Merger Sub will be merged with and into NovaMed, with NovaMed surviving as a wholly-owned subsidiary of Parent. Parent, Merger Sub and Holdings are each controlled by investment funds affiliated with H.I.G. Capital, L.L.C., a private equity firm.

 

Assuming the holders of a majority of our issued and outstanding shares of NovaMed common stock adopt the merger agreement and approve the merger, and the merger is completed, upon completion of the merger, you will be entitled to receive $13.25 in cash, without interest, for each share of NovaMed common stock that you own, unless you have sought and properly perfected your appraisal rights under Delaware law. After the merger, you will no longer have an equity interest in NovaMed and will not participate in any potential future earnings and growth of NovaMed. Certain of our officers are expected to exchange a portion of their shares of NovaMed common stock and, in certain instances, invest additional cash consideration, in exchange for equity interests in Surgery Center Holdings, LLC, the majority stockholder of Parent and who we refer to as Holdings, in connection with the merger.

 

Our Board of Directors, acting on the recommendation of a special committee consisting of C.A. Lance Piccolo, Robert J. Kelly and R. Judd Jessup, has adopted a resolution unanimously adopting the merger agreement and approving the merger. Each member of the special committee is an independent director. Our Board of Directors has unanimously determined that the merger agreement and the merger are advisable, fair to and in the best interest of NovaMed and our stockholders. Acting on the recommendation of the special committee, our Board of Directors unanimously recommends that you vote “FOR” the adoption of the merger agreement and approval of the merger. In arriving at their recommendation, our Board of Directors carefully considered a number of factors described in the accompanying Proxy Statement.

 

The merger agreement and the merger are described in the accompanying Proxy Statement. A copy of the merger agreement is attached as Appendix A to the accompanying Proxy Statement. We urge you to read carefully the accompanying Proxy Statement, including the appendices.

 

Your vote is important, and it is important that your shares be represented at the special meeting, regardless of the number of shares you hold. We urge you to submit your proxy card as soon as possible. Even if you plan to attend the special meeting, please sign and promptly return your proxy card in the enclosed postage-paid envelope. Even if you return a proxy card, if you attend the special meeting, you may revoke your proxy and vote in person.

 

If you have any questions or need assistance voting your shares of our common stock, please contact [ • ], our proxy solicitor, by calling [ • ] (toll-free) or [ • ] (collect), or [ • ].

 

Sincerely,

 

Thomas S. Hall

President, Chief Executive Officer
and Chairman of the Board of Directors

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE PROPOSED MERGER, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

NOVAMED, INC.

333 West Wacker Drive, Suite 1010

Chicago, Illinois 60606

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON [ • ], 2011

 

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of NovaMed, Inc. will be held at [ • ], on [ • ], 2011, at [ • ] a.m. [Central time], for the following purposes:

 

1. To consider and vote upon the adoption of the Agreement and Plan of Merger, dated as of January 20, 2011, by and among Surgery Center Holdings, Inc., Wildcat Merger Sub, Inc. and NovaMed, Inc. and the merger described in the merger agreement. Pursuant to the merger agreement, NovaMed will become a wholly-owned subsidiary of Surgery Center Holdings, Inc. and the holders of NovaMed common stock will be entitled to receive $13.25 in cash, without interest, per share of NovaMed common stock held by them at the effective time of the merger;

 

2. To approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies in support of Proposal 1 if there are insufficient votes at the time of the special meeting to adopt the merger agreement and approve the merger described in the merger agreement; and

 

3. To consider and vote upon any other matter that may properly come before the special meeting or any adjournment thereof.

 

You are entitled to receive notice of and to attend and vote at the special meeting and any postponements or adjournments if you owned shares of NovaMed common stock as of the close of business on [ • ], 2011. To ensure your representation at the special meeting, please complete, date and sign the enclosed proxy card and return it in the enclosed postage-prepaid envelope in time to be received by us prior to the special meeting. Returning your proxy card will not affect your right to revoke your proxy or to attend the special meeting and vote in person.

 

REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS VERY IMPORTANT. THE MERGER CANNOT BE COMPLETED UNLESS A MAJORITY OF THE OUTSTANDING SHARES OF NOVAMED COMMON STOCK ENTITLED TO VOTE ON THE MERGER ADOPT THE MERGER AGREEMENT AND APPROVE THE MERGER. EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.

 

By order of the Board of Directors,

 

John W. Lawrence, Jr.,

Secretary

 

Chicago, Illinois

[ • ], 2011

 

Please do not send your NovaMed common stock certificates to us at this time. If the merger is completed, we will send you instructions regarding the surrender of your certificates.

 

TABLE OF CONTENTS

 

NOVAMED, INC.

333 West Wacker Drive, Suite 1010

Chicago, Illinois 60606

 

PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON [ • ], 2011

 

We are providing these proxy materials to you in connection with the solicitation of proxies by the Board of Directors of NovaMed, Inc. for a special meeting of stockholders to be held on [ • ], 2011 and for any adjournment or postponement thereof. This Proxy Statement provides information that you should read before you vote on the proposals that will be presented to you at the special meeting. The special meeting will be held on [ • ], 2011 at [ • ] a.m. [Central time] at [ • ].

 

In this Proxy Statement, we refer to NovaMed, Inc. as “NovaMed,” the “Company,” “we” or “us.” We refer to H.I.G. Capital, L.L.C. as “H.I.G.,” Surgery Center Holdings, Inc. as “Parent,” Wildcat Merger Sub, Inc. as “Merger Sub” and Surgery Center Holdings, LLC, the majority stockholder of Parent, as “Holdings.” References in this Proxy Statement to our “unaffiliated stockholders” refer to holders of NovaMed common stock other than the rollover stockholders (as defined below).

 

This Proxy Statement and a proxy card are first being mailed on or about [ • ], 2011 to persons or entities who owned shares of NovaMed common stock as of the close of business on [ • ], 2011.

 

SUMMARY TERM SHEET

	•	NovaMed, Inc., or NovaMed, is a health care services company and an owner and operator of ambulatory surgery centers (“ASCs”).
	•	Surgery Center Holdings, Inc., or Parent, is a healthcare services company that acquires, develops and manages free-standing ASCs in partnership with leading physicians. Parent is affiliated with H.I.G. Capital, L.L.C., or H.I.G., a global private equity investment firm that specializes in providing capital to small and medium-sized companies. Upon completion of the merger, NovaMed will be a wholly-owned subsidiary of Parent.
	•	Wildcat Merger Sub, Inc., or Merger Sub, was formed by Parent solely for the purpose of acquiring NovaMed. Upon completion of the merger, Merger Sub will cease to exist.
	•	Surgery Center Holdings, LLC, or Holdings, is the majority stockholder of Parent and is affiliated with H.I.G.
	•	“Rollover Stockholders” refers collectively to Scott T. Macomber, Thomas J. Chirillo, John P. Hart and John W. Lawrence, Jr., each of whom is a NovaMed common stockholder and an officer of NovaMed. Each of the rollover stockholders has agreed to surrender a portion of their shares of NovaMed common stock to Holdings, which we refer to as the “rollover shares,” immediately prior to the effective time of the merger plus, in the case of Messrs. Macomber and Hart, invest additional cash consideration, in exchange for equity interests in Holdings. In addition, the rollover stockholders entered into executive securities agreements with Holdings pursuant to which they will be awarded incentive equity awards subject to the terms and conditions of such executive securities agreements. The rollover stockholders will receive cash in an amount equal to the merger consideration for their shares of Company common stock that are not surrendered to Holdings. As a result, immediately following the merger, the rollover stockholders will hold approximately 3.1% (on a fully diluted basis) of Holdings, and indirectly, the Company, after giving effect to the issuance and vesting of all incentive equity awards granted to the rollover stockholders.

	•	If the merger is completed, Merger Sub will be merged with and into NovaMed, with NovaMed continuing as the surviving corporation.
	•	If the merger is completed, the following will occur:

	•	your shares will be converted into the right to receive $13.25 in cash per share, without interest and less any applicable withholding tax;
	•	all of the equity interests in NovaMed will be owned directly by Parent;
	•	immediately following the merger, Parent will continue to be owned by Holdings, and the rollover stockholders will hold approximately 3.1% (on a fully diluted basis) of Holdings, and indirectly, the Company, after giving effect to the issuance and vesting of all incentive equity awards granted to the rollover stockholders;
	•	you will no longer have any interest in NovaMed’s future earnings or growth;

	•	NovaMed will no longer be a public company and NovaMed’s common stock will no longer be traded on the NASDAQ Global Select Market; and
	•	we will no longer be required to file periodic and other reports with the Securities and Exchange Commission.

	•	Common Stock.  At the effective time of the merger, each share of NovaMed common stock (including shares of vested restricted stock) issued and outstanding immediately prior to the effective time of the merger (other than the rollover shares held by the rollover stockholders and other than the shares of NovaMed common stock held by NovaMed or any subsidiary of NovaMed or Parent or Merger Sub and stockholders who have perfected and not withdrawn a demand for appraisal rights under Delaware law) will be automatically cancelled and converted into the right to receive $13.25 in cash, without interest.
	•	Stock Options.  At the effective time of the merger, each unexercised NovaMed common stock option, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger shall be cancelled at the effective time of the merger, with the holder of such NovaMed common stock option becoming entitled to receive, in full satisfaction of the rights of the holder of such NovaMed common stock option, an amount in cash equal to (A) the excess, if any, of (1) $13.25 over (2) the exercise price per share of NovaMed common stock subject to such NovaMed common stock option multiplied by (B) the number of shares of NovaMed common stock subject to such NovaMed common stock option. To clarify the treatment of each of the unexercised NovaMed common stock options, we will enter into an option cancellation agreement with each holder of a NovaMed common stock option prior to the effective time of the merger that will only become effective upon the consummation of the merger.
	•	Unvested Restricted Stock.  At the effective time of the merger, each unvested NovaMed restricted share of common stock that is outstanding immediately prior to the effective time of the merger shall be cancelled, with the holder of such unvested NovaMed restricted share of common stock becoming entitled to receive, in full satisfaction of the rights of such holder with respect thereto, an amount in cash equal to $13.25 multiplied by the maximum number of shares of NovaMed common stock subject to such restricted share of NovaMed common stock immediately prior to the effective time of the merger.
	•	Employee Stock Purchase Plan.  With respect to NovaMed’s Employee Stock Purchase Plan (the “Purchase Plan”), our Board of Directors adopted resolutions and took other actions to (A) limit participation to those employees who are participants on the date of the merger agreement; (B) provide that no Option Period (as defined in the Purchase Plan) shall be commenced after the date of the merger agreement; (C) provide that if, with respect to an Option Period in effect on the date of the merger agreement, the effective time of the merger occurs prior to the Exercise Date (as defined in the Purchase Plan) for such Option Period, upon the effective time of the merger, each purchase right under the Purchase Plan outstanding immediately prior to the effective time of the merger shall be exercised to purchase from NovaMed whole shares of NovaMed’s common stock (subject to the provisions of the Purchase Plan regarding the maximum number and value of shares purchasable per participant) at the applicable price determined under the terms of the Purchase Plan for the then outstanding Option Period using such date on which the effective time of the merger occurs as the final Exercise Date for such Option Period, and any remaining accumulated but unused payroll deductions shall be distributed to the relevant participants without interest as promptly as practicable following the Effective Time; and (D) terminate the Purchase Plan, effective upon the earlier of the Purchase Date (as defined in the Purchase Plan) for the Option Period in effect on the date of the merger agreement and the effective time of the merger.

	•	Our Board of Directors unanimously adopted the merger agreement and approved the merger and determined that it is advisable, fair to and in the best interest of NovaMed and its stockholders. Our Board of Directors unanimously recommends that you vote “FOR” adoption of the merger agreement and approval of the merger.

	•	After careful consideration of various factors described in the section entitled “The Merger — Reasons for Recommendation of our Board of Directors” beginning on page 23, including the recommendation of a special committee of our Board of Directors consisting of independent directors, our Board of Directors unanimously (A) approved and declared advisable the merger agreement, the merger and the other transactions contemplated by the merger agreement, (B) declared that it is in the best interests of the Company and the stockholders of the Company that the Company enter into the merger agreement and consummate the merger and the other transactions contemplated by the merger agreement, (C) declared that the terms of the merger are fair to the Company and the Company’s stockholders and (D) directed the merger agreement to be submitted to the Company’s stockholders and recommended that the Company’s stockholders adopt the merger agreement and approve the merger.
	•	In considering the recommendation of our Board of Directors with respect to the proposal to adopt the merger agreement and approve the merger, you should be aware that our directors and executive officers have interests in the merger that are different from, or in addition to, yours. Our Board of Directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger and in recommending that the merger agreement be adopted by the stockholders of the Company. See the section entitled “The Merger — Interests of Certain Persons in the Merger” beginning on page 37.

	•	In connection with the merger, our Board of Directors received the opinion of William Blair & Company, L.L.C., or William Blair, as to the fairness, from a financial point of view as of the date of the opinion, to NovaMed’s common stockholders (excluding the rollover stockholders, Parent, Merger Sub and their respective affiliates) of the merger consideration to be received by such holders. The full text of William Blair’s opinion is attached to this Proxy Statement as Appendix B. You are encouraged to read that opinion carefully for a description of the assumptions made, matters considered and limitations and qualifications on the review undertaken.

	•	Date, Time and Place (see page 15).  The special meeting of NovaMed common stockholders will be held on [ • ], 2011, at [ • ] a.m. [Central time], at [ • ].
	•	Matters to be Considered (see page 15).  At the special meeting, you will be asked to approve a proposal to adopt the merger agreement and approve the merger described in the merger agreement. You may also be asked to vote to adjourn the special meeting, if necessary, to solicit additional proxies in support of the proposal to adopt the merger agreement and approve the merger.
	•	Record Date, Outstanding Voting Securities, Voting Rights and Quorum (see page 15).  You are entitled to vote at the special meeting if you owned shares of NovaMed common stock at the close of business on [ • ], 2011, which NovaMed has set as the record date for the special meeting. As of the record date, there were [ • ] holders of record of NovaMed common stock and [ • ] shares of NovaMed common stock outstanding. The presence, in person or by proxy, of holders of record of a majority of the issued and outstanding shares of NovaMed common stock entitled to vote on the matters to be presented at the special meeting will constitute a quorum.
	•	Required Votes (see page 16).  Adoption of the merger agreement and approval of the merger requires the affirmative vote of a majority of the outstanding shares entitled to vote on the merger. Each outstanding share of NovaMed common stock entitles its owner to one vote. Our directors and executive officers entered into voting agreements with Parent pursuant to which they have agreed to vote their respective shares of

		NovaMed common stock, which represent in the aggregate approximately 10.5% of the outstanding shares of NovaMed common stock, in favor of the adoption of the merger agreement and approval of the merger and have granted Parent a proxy to vote such shares in the event such directors and officers fail to do so. The full text of the form of voting agreement is attached to this Proxy Statement as Appendix C.

	•	Voting (see page 16).  You may attend the special meeting and vote in person or you may complete, sign and date the enclosed proxy card and return it in the enclosed self-addressed postage pre-paid envelope. Returning your proxy card will not affect your right to attend the special meeting and vote in person or to revoke your proxy. If your shares are held in “street name” by a bank or brokerage firm, your bank or brokerage firm forwarded these proxy materials, as well as a voting instruction card, to you. Please follow the instructions on the voting instruction card to vote your shares.

	•	Directors and Officers.  Some of our directors and officers may have interests in the merger that are different from, or in addition to, the interests of our stockholders generally. These interests may include the “cash-out” of options, the removal of restrictions on restricted stock, the right to receive certain severance payments as a result of the merger and the right to continued indemnification and insurance coverage by NovaMed after the merger. In addition, it is expected that certain of the executive officers of NovaMed immediately prior to the merger will continue to serve as consultants of Parent following completion of the merger, and such officers will be entitled to receive a weekly consulting retainer. See the section entitled “Interests of Certain Persons in the Merger — Consulting Agreements” beginning on page 43. In addition, our directors and executive officers entered into voting agreements with Parent pursuant to which they have agreed to vote their respective shares of NovaMed common stock, which represents in the aggregate approximately 10.5% of the outstanding shares of NovaMed common stock, in favor of the adoption of the merger agreement and approval of the merger and have granted Parent a proxy to vote such shares in the event the directors and officers fail to do so. The full text of the form of voting agreement is attached to this Proxy Statement as Appendix C.
	•	Rollover Stockholders.  The rollover stockholders have agreed to surrender a portion of their shares of NovaMed common stock to Holdings immediately prior to the effective time of the merger plus, in the case of Messrs. Macomber and Hart, invest additional cash consideration, in exchange for equity interests in Holdings. In addition, the rollover stockholders entered into executive securities agreements with Holdings pursuant to which they will be awarded incentive equity awards subject to the terms and conditions of such executive securities agreements. The rollover stockholders will receive cash in an amount equal to the merger consideration for their shares of Company common stock that are not surrendered to Holdings. As a result, immediately following the merger, the rollover stockholders will hold approximately 3.1% (on a fully diluted basis) of Holdings, and indirectly, the Company, after giving effect to the issuance and vesting of all incentive equity awards granted to the rollover stockholders.

	•	NovaMed, Parent and Merger Sub have agreed to take certain actions between the date of the merger agreement and the effective time of the merger, including using reasonable best efforts to consummate the merger and using best efforts to obtain certain consents from, and give certain notices to, governmental authorities and third parties.

	•	We have also agreed to refrain from certain enumerated actions without Parent’s consent, including actions that are outside the ordinary course of our business.
	•	Parent has agreed to use its reasonable best efforts to maintain in effect its debt and equity commitment letters and consummate the financing contemplated by the debt and equity commitment letters. In addition, Parent has agreed, for a period of twelve months following the closing of the merger, to maintain the compensation (including base salary and incentive and bonus opportunities) of the NovaMed employees who continue to be employed by the surviving corporation and to maintain 401(k) and health and welfare benefits plans that are materially no less favorable in the aggregate than our current benefits and policies.

	•	NovaMed agreed that it shall not, and shall not permit its controlled affiliates or permit its or any of its controlled affiliates’ directors, officers, employees, investment bankers, attorneys, accountants or other advisors or representatives, whom we refer to collectively as “representatives,” to, directly or indirectly:

	•	solicit, initiate, propose or encourage, or take any other action to knowingly facilitate, any Takeover Proposal (as defined on page 60) or any inquiries or offers or the making of any proposal or any other efforts or attempt that could reasonably be expected to lead to a Takeover Proposal;
	•	enter into, continue or otherwise participate in any communications or negotiations regarding, or furnish to any person or entity (other than Parent, Merger Sub or any of their representatives) any information with respect to, or otherwise knowingly cooperate in any way with any person or entity (other than Parent, Merger Sub or any of their representatives) with respect to, any Takeover Proposal or any inquiries or offers or the making of any proposal or any other efforts or attempt that could reasonably be expected to lead to a Takeover Proposal;
	•	grant a waiver under Section 203 of the Delaware General Corporation Law, or the DGCL, or any other takeover law or enter into any contract with respect to or that may reasonably be expected to lead to any Takeover Proposal, or otherwise endorse, any Takeover Proposal; or
	•	resolve to do any of the foregoing.

	•	NovaMed also agreed that it shall, and shall cause its subsidiaries and direct its representatives to, immediately cease and terminate all existing activities, communications and negotiations with any person or entity conducted prior to the date of the merger agreement with respect to any Takeover Proposal (including, but not limited to, access to any electronic or other data room) and shall request the prompt return or destruction of all confidential information previously furnished in connection therewith. If we receive an unsolicited Takeover Proposal, then we must promptly notify Parent of the proposal’s material terms and conditions and the identity of the person or entity making such proposal.
	•	Notwithstanding the restrictions described above, if, at any time prior to the adoption of the merger agreement and approval of the merger by NovaMed’s common stockholders, we receive an unsolicited Takeover Proposal and our Board of Directors determines in good faith (after consultation with its outside legal counsel and a financial advisor of nationally recognized reputation) that such Takeover Proposal constitutes or is reasonably likely to lead to a Superior Proposal (as defined on page 60) and that failure to respond to such Takeover Proposal would be inconsistent with its fiduciary duties to our stockholders under applicable law, then we may, and may permit and authorize our affiliates and our and their respective representatives to, (i) furnish information with respect to NovaMed and its subsidiaries to a person or entity making such bona fide written Takeover Proposal (and its representatives) pursuant to a confidentiality agreement with standstill provisions identical in all substantive respects to, and which otherwise contains terms that are no less favorable to us than, those contained in its confidentiality agreement with Parent and (ii) participate in discussions or negotiations with the person making such Takeover Proposal (and its representatives) regarding such Takeover Proposal, so long as the Company complies with certain terms of the merger agreement.

	•	Completion of the merger depends upon the parties meeting or waiving a number of conditions, including the following:

	•	adoption of the merger agreement and approval of the merger described in the merger agreement at the special meeting by holders of a majority of the issued and outstanding shares of NovaMed common stock entitled to vote on the adoption and approval;
	•	the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and any other applicable antitrust law;
	•	the absence of any law or governmental order prohibiting the consummation of the merger or any pending claim, suit or proceeding by any governmental authority seeking to prohibit the consummation of the merger;
	•	the material accuracy of the parties’ representations and warranties and the parties’ compliance with the covenants and agreements set forth in the merger agreement;
	•	the absence of a material adverse effect on the Company, as that term is defined in the merger agreement;
	•	the exercise of appraisal rights and preservation of the right to seek appraisal by holders of not more than 7.5% of NovaMed’s outstanding common stock;
	•	the delivery by the Company to Parent of payoff and release letters from the holders of certain indebtedness for borrowed money of the Company and its subsidiaries outstanding as of the closing, and releases of all liens securing such indebtedness;

	•	the making by NovaMed of certain specified regulatory notices and the receipt by NovaMed of certain specified regulatory consents and approvals, except to the extent that the facilities for which all such notices have not been delivered or all such consents and approvals have not been obtained represented $1,500,000 or less of earnings before interest, taxes, depreciation and amortization (less minority interest expense) for the applicable facilities during the twelve-months ended November 30, 2010. Earnings before interest, taxes, depreciation and amortization (less minority interest expense) shall be calculated based on the Company’s consolidated financial statements for the period ending November 30, 2010 prepared in accordance with United States generally accepted accounting principles, calculated and applied consistent with the Company’s past practices; and

	•	other customary closing conditions.

	•	Under certain circumstances, the merger agreement may be terminated and the merger may be abandoned at any time prior to the effective time of the merger, whether before or after adoption of the merger agreement and approval of the merger by our stockholders. If the merger agreement is terminated, there will be no liability on the part of NovaMed, Merger Sub or Parent, except for the payment of the termination fees and expenses as described below and in the section entitled “The Merger Agreement — Termination Fees” beginning on page 69.

	•	Termination Fees Payable by the Company.  NovaMed is obligated to pay Parent’s designee a termination fee of $4,368,000 if any of the following occur:

	•	Parent or Merger Sub terminates the merger agreement because (i) an Adverse Recommendation Change (as defined on page 59) has occurred, (ii) we or any of our representatives have intentionally breached the no solicitation provisions of the merger agreement or (iii) for any reason we have failed to convene and complete the special meeting of the Company’s stockholders described in this Proxy Statement within

		45 days of the date that this Proxy Statement is cleared by the SEC unless the Company has entered in to an Acquisition Agreement (as defined on page 59) or an Adverse Recommendation Change has occurred;

	•	we terminate the merger agreement in order to accept a superior acquisition proposal; or

	•	(i) a person or entity makes or publicly proposes a Takeover Proposal (substituting 50% for the 15% thresholds set forth in the definition of Takeover Proposal) or publicly announces an intent (whether or not conditional) to make a Takeover Proposal, (ii) the merger agreement is terminated (A) by Parent or the Company prior to May 20, 2011 (the “Termination Date”) (or, June 20, 2011 if, prior to May 20, 2011, the Company has not delivered to Parent written evidence that the Company has delivered all of the notices to, and obtained all of the consents and approvals of, certain specified third parties, and Parent has elected to extend the termination date to June 20, 2011) or (B) by Parent or the Company if the holders of a majority of NovaMed’s outstanding common stock have not adopted the merger agreement and approved the merger at the special meeting of stockholders described in this Proxy Statement, or (C) by Parent if the Company has not satisfied the closing conditions regarding the accuracy of the Company’s representations, warranties or covenants, and (iii) within 12 months after termination of the merger agreement, NovaMed enters into any Acquisition Agreement or other definitive agreement or contract providing for, or shall have consummated or publicly approved or recommended to the stockholders of the Company, any Takeover Proposal (whether or not the Takeover Proposal was the same Takeover Proposal referred to in clause (i)).

	•	Pursuant to Section 262 of the DGCL, if you do not vote in favor of the adoption of the merger agreement and approval of the merger and you instead follow the appropriate procedures for demanding and perfecting appraisal rights as described on pages 72 through 75 and in Appendix D, you will receive a cash payment for the “fair value” of your shares of NovaMed common stock, as determined by a Delaware Court of Chancery, instead of the $13.25 per share merger consideration to be received by our stockholders pursuant to the

		merger agreement. The “fair value” of NovaMed common stock may be more than, less than or equal to the $13.25 merger consideration you would have received for each of your shares pursuant to the merger agreement if you had not exercised your appraisal rights.

	•	Generally, in order to exercise appraisal rights, among other things:

	•	you must NOT vote in favor of adoption of the merger agreement and approval of the merger; and
	•	you must make written demand for appraisal in compliance with Delaware law PRIOR to the vote of our stockholders to adopt the merger agreement and approve the merger.

	•	Merely abstaining or voting against the adoption of the merger agreement and approval of the merger will not preserve your appraisal rights under Delaware law. Appendix D to this Proxy Statement contains the Delaware statute relating to your appraisal rights. If you want to exercise your appraisal rights, please read and carefully follow the procedures described on pages 72 through 75 and in Appendix D. Failure to take all of the steps required under Delaware law may result in the loss of your appraisal rights.

	•	The receipt of $13.25 in cash by our stockholders for each outstanding share of NovaMed common stock will be a taxable transaction for U.S. federal income tax purposes. Each of our stockholders generally will recognize taxable gain or loss, measured by the difference, if any, between the stockholder’s amount realized in the merger of $13.25 per share and the tax basis of each share of NovaMed common stock owned by such stockholder.

	•	On January 27, 2011, a putative shareholder class action lawsuit was filed in the Court of Chancery of the State of Delaware, captioned Antony v. NovaMed, Inc., et al. (Case No. 6151-VCP) against the Company, the members of its board of directors, Parent and Merger Sub (the “Delaware Complaint”). The Delaware Complaint alleges that the members of our Board of Directors breached their fiduciary duties in connection with our Board of Directors’ recommendation to the Company’s stockholders that they approve the merger and authorizing the Company to enter into the merger agreement. The Delaware Complaint alleges that Parent and the Merger Sub aided and abetted our Board of Directors’ breach of fiduciary duties. We believe that the allegations in the Delaware Complaint are without merit and intend to defend vigorously the action.
	•	On January 31, 2011, a putative shareholder class action lawsuit was filed in the Circuit Court of Cook County, Illinois County Department, Chancery Division, captioned Caltabiano v. NovaMed, Inc., et al. against the Company, the members of its Board of Directors, Parent and Merger Sub (the “Illinois Complaint”). The Illinois Complaint alleges that the members of our Board of Directors breached their fiduciary duties in connection with our Board of Directors’ recommendation to the Company’s stockholders that they approve the merger and authorizing the Company to enter into the merger agreement. The Illinois Complaint alleges that Parent and the Merger Sub aided and abetted our Board of Directors’ breach of fiduciary duties. We believe that the allegations in the Illinois Complaint are without merit and intend to defend vigorously the action.

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

Q:		When and where is the special meeting?
A:		The special meeting is scheduled to take place on [ • ], 2011 at [ • ] a.m. [Central time], at [ • ].
Q:		What is the purpose of the special meeting?
A:		At the special meeting, our stockholders will be asked to vote on a proposal to adopt the Agreement and Plan of Merger, dated as of January 20, 2011, by and between NovaMed, Parent and Merger Sub, and approve the merger described in the merger agreement.
		Our stockholders may also be asked to vote to adjourn the special meeting to solicit additional proxies in support of the proposal to adopt the merger agreement and approve the merger, if there are not sufficient votes at the special meeting to adopt the merger agreement and approve the merger.
Q:		Why am I receiving this Proxy Statement and proxy card?
A:		You are receiving this Proxy Statement and proxy card because you own shares of NovaMed common stock. This Proxy Statement describes matters on which we urge you to vote at the special meeting and is intended to assist you in deciding how to vote your shares. If your shares are held by a bank or brokerage firm, you are considered the beneficial owner of shares held in “street name.” If your shares are held in street name, your bank or brokerage firm (the record holder of your shares) forwarded these proxy materials, along with a voting instruction card, to you.
Q:		What is a proxy?
A:		A proxy is your legal designation of another person, referred to as a “proxy,” to vote your shares of NovaMed common stock. The written document describing the matters to be considered and voted on at the special meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of NovaMed common stock is called a “proxy card.” Our Board of Directors has designated two of our officers, [ • ] and [ • ], as proxies for the special meeting.
Q:		How many shares must be present to hold the meeting?
A:		A quorum must be present at the special meeting for any business to be conducted. The presence, in person or by proxy, of holders of record of a majority of the issued and outstanding shares of NovaMed common stock entitled to vote at the special meeting will constitute a quorum. Proxy cards received by us but marked “AGAINST” or “ABSTAIN” will be included in the calculation of the number of shares considered to be present at the meeting and will have the effect of a vote against the merger agreement and the merger. If you hold your shares in street name and do not give instructions to your bank or brokerage firm on how to vote your shares, your bank or brokerage firm will not be permitted to vote your shares at the special meeting and your shares will not be counted for purposes of establishing a quorum. If a quorum is not present, a vote cannot occur, and a majority in interest of the stockholders entitled to vote at the meeting, present in person or by proxy, may adjourn the meeting until a quorum is present or represented. The time and place of the adjourned meeting will be announced at the time the adjournment is taken, and no other notice will be given.
Q:		What vote is required to adopt the merger agreement and approve the merger and approve the adjournment, if necessary?
A:		Adoption of the merger agreement and approval of the merger requires the affirmative vote of a majority of the outstanding shares of NovaMed common stock entitled to vote on the merger. Adjournment of the special meeting, if necessary, to solicit additional proxies, requires the approval of a majority of the votes cast. Our directors and executive officers entered into voting agreements with Parent pursuant to which they have agreed

		to vote their respective shares of NovaMed common stock, which represent in the aggregate approximately 10.5% of the outstanding shares of NovaMed common stock, “FOR” the adoption of the merger agreement and approval of the merger and “FOR” any adjournment of the special meeting, if necessary, to solicit additional proxies, and have granted Parent a proxy to vote such shares in the event the directors and officers fail to do so. The full text of the form of voting agreement is attached to this Proxy Statement as Appendix C.
Q:		Who is entitled to attend the special meeting?
A:		You are entitled to attend the special meeting if you owned shares of NovaMed common stock at the close of business on [ • ], 2011, which NovaMed has set as the record date for the special meeting. Stockholders must present a form of photo identification to be admitted to the special meeting. If you hold your shares in street name, you are invited to attend the special meeting, but you will also need to bring a copy of your bank or brokerage statement, evidencing your ownership as of the record date, to gain admittance.
Q:		Who is entitled to vote?
A:		You are entitled to vote on the proposals to be considered at the special meeting if you owned shares of NovaMed common stock at the close of business on [ • ], 2011, the record date for the special meeting. For each share of NovaMed common stock you owned at the close of business on the record date, you will have one vote on each proposal presented at the special meeting. On the record date, there were [ • ] shares of NovaMed common stock issued and outstanding and entitled to vote at the special meeting.
Q:		What happens if I sell my shares before the special meeting?
A:		The record date for the special meeting, [ • ], 2011, is earlier than the date of the special meeting. If you held your shares on the record date but transfer them prior to the effective time of the merger, you will retain your right to vote at the special meeting, but you will lose the right to receive the merger consideration for your shares. The right to receive such merger consideration will pass to the person who owns your shares when the merger becomes effective.
Q:		How do I vote?
A:		If you are a registered stockholder, meaning that you hold your shares in certificate form or through an account with NovaMed’s transfer agent, American Stock Transfer & Trust Company, you may submit a proxy prior to the special meeting or you may vote in person at the special meeting.
		To vote in person at the special meeting, you must attend the meeting and obtain and submit a ballot. Ballots for voting in person will be available at the special meeting. If you are a beneficial owner of shares held in “street name” by a bank or brokerage firm, you may not vote your shares in person at the special meeting unless you obtain a power of attorney or proxy form from the record holder of your shares.
		To submit a proxy to vote your shares of stock, you must complete and return the enclosed proxy card in time to be received by us prior to the special meeting, or you may deliver your proxy card in person at the special meeting. If a proxy card is properly executed, returned to us and not revoked, the shares represented by the proxy will be voted in accordance with the instructions set forth on the proxy card. We know of no other business that will be presented at the special meeting. However, if any other matter properly comes before the stockholders for vote at the special meeting, your shares will be voted in accordance with the best judgment of the proxy holders.
		If your shares are held in street name, your bank or brokerage firm forwarded these proxy materials, as well as a voting instruction card, to you. Please follow the instructions on the voting instruction card to vote your shares. If you are the beneficial owner of the shares, you have the right to direct your record holder how to vote your shares, and the record holder is required to vote your shares in accordance with your instructions.
Q:		What if I do not specify how my shares are to be voted?
A:		If you are a registered stockholder and you submit a proxy card but do not provide voting instructions, your shares will be voted:
		• “FOR” the adoption of the merger agreement and approval of the merger, and
		• “FOR” the approval of the adjournment of the special meeting to solicit additional proxies.

		If you hold your shares in street name and do not give instructions to your bank or brokerage firm, the bank or brokerage firm will not be permitted to vote your shares and your shares will not be considered present at the special meeting. As a result, not giving instructions to your bank or brokerage firm will have the same effect as a vote “AGAINST” the adoption of the merger agreement and approval of the merger, but it will have no effect on any vote with respect to the adjournment of the meeting to solicit additional proxies in support of the proposal to adopt the merger agreement and approve the merger.
Q:		How do I change my vote after I submit my proxy?
A:		If you decide to change your vote, you may revoke your proxy at any time before it is voted at the special meeting. You may revoke your proxy in one of three ways:
		1. You may notify the Secretary of NovaMed or NovaMed’s proxy solicitor, [ • ], in writing that you wish to revoke your proxy. Please contact NovaMed, Inc., 333 W. Wacker Drive, Suite 1010, Chicago, Illinois 60606, Attention: Secretary, or [ • ] by calling [ • ] (toll free) or [ • ] (collect), or [ • ]. We must receive your notice before the time of the special meeting.
		2. You may submit a properly executed proxy card with a later date than your original proxy card. We must receive your later-dated proxy card before the time of the special meeting.
		3. You may attend the special meeting and vote in person. Merely attending the special meeting will not by itself revoke a proxy; you must obtain a ballot and vote your shares at the special meeting to revoke the proxy.
Q:		Who will solicit and pay the cost of soliciting proxies?
A:		NovaMed is paying the cost of soliciting these proxies. Upon request, NovaMed will reimburse brokers and other nominees for their reasonable out-of-pocket expenses for forwarding these proxy materials to the beneficial owners of NovaMed shares. NovaMed’s directors, officers and employees may solicit proxies in person or by telephone, mail, facsimile, email or otherwise, but they will not receive additional compensation for their services. In addition, NovaMed will pay approximately $[ • ] (plus per call fees and reimbursement of out-of-pocket expenses) to [ • ], the Company’s proxy solicitor.
Q:		What will be the effect of the merger?
A:		After the effective time of the merger, you will no longer own any shares of NovaMed common stock. All of the capital stock of NovaMed following completion of the merger will be wholly owned by Parent.
Q:		If the merger is completed, what will I receive for the shares of NovaMed common stock I hold?
A:		If the merger is completed, each share of NovaMed common stock that you own at the effective time of the merger will be automatically cancelled and converted into the right to receive $13.25 in cash, without interest and subject to applicable tax withholding requirements. However, if you perfect your appraisal rights, you will not receive the $13.25 per share merger consideration and instead your shares will be subject to appraisal in accordance with Delaware law.
Q:		If the merger is completed, what will happen to outstanding options and restricted shares of common stock to acquire NovaMed common stock?
A:		At the effective time of the merger, each unexercised NovaMed common stock option, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger shall be cancelled at the effective time of the merger, with the holder of such NovaMed common stock option becoming entitled to receive, in full satisfaction of the rights of the holder of such NovaMed common stock option, an amount in cash equal to (A) the excess, if any, of (1) $13.25 over (2) the exercise price per share of NovaMed common stock subject to such NovaMed common stock option multiplied by (B) the number of shares of NovaMed common stock subject to such NovaMed common stock option. To clarify the treatment of each of the unexercised NovaMed common stock options, we will enter into an option cancellation agreement with each holder of a NovaMed common stock option prior to the effective time of the merger that will only become effective upon the consummation of the merger. At the effective time of the merger, each unvested NovaMed restricted share of common stock that is outstanding immediately prior to the effective time of the merger shall be cancelled, with

		the holder of such unvested NovaMed restricted share of common stock becoming entitled to receive, in full satisfaction of the rights of such holder with respect thereto, an amount in cash equal to $13.25 multiplied by the maximum number of shares of NovaMed common stock subject to such restricted share of NovaMed common stock immediately prior to the effective time of the merger.
Q:		What should I do now?
A:		After you read and consider carefully the information contained in this Proxy Statement, please return your proxy as soon as possible so that your shares may be represented at the special meeting. If your shares of NovaMed common stock are registered in your own name, you may submit your proxy by filling out and signing the proxy card and then mailing your signed proxy card in the enclosed pre-paid envelope. If your shares are held in “street name,” please follow the directions your broker or bank has provided.
Q:		Should I send in my stock certificates now?
A:		No. If the merger agreement is adopted and the merger is approved and other conditions to the merger are satisfied, shortly after the merger is completed you will receive a letter of transmittal with instructions informing you how to send in your stock certificates to the exchange agent appointed by Parent. YOU SHOULD NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY CARD.
Q:		When do you expect the merger to be completed?
A:		We are working towards completing the merger as soon as possible. Assuming timely satisfaction of necessary closing conditions, we expect the merger to be completed in the second quarter of 2011.
Q:		When will I receive the cash payment for my shares?
A:		Assuming that you do not elect to exercise your appraisal rights, shortly after the effective time of the merger, the exchange agent appointed by Merger Sub will send to you a letter of transmittal with instructions regarding the surrender of your share certificates in exchange for the merger consideration. Once you have delivered an executed copy of the letter of transmittal together with your share certificates to the exchange agent, it will promptly pay the merger consideration owing to you, without interest and less any applicable withholding taxes.
Q:		Where can I find more information about NovaMed?
A:		We file reports, proxy statements and other information with the Securities and Exchange Commission, referred to as the SEC, under the Securities Exchange Act of 1934, as amended, or the Exchange Act. You may read and copy this information at the SEC’s public reference facilities. You may call the SEC at 1-800-SEC-0330 for information about these facilities. This information is also available at the Internet site the SEC maintains at www.sec.gov. You can also request copies of these documents from us. See “Where You Can Find More Information” on page 79.
Q:		Who can help answer my other questions?
A:		If you have further questions about the merger, you should contact [ • ], our proxy solicitor, by calling [ • ] (toll-free) or [ • ] (collect), or [ • ].

 

Some of the statements made in this Proxy Statement contain forward-looking statements, which reflect our plans, beliefs and current views with respect to, among other things, future events and our financial performance. You are cautioned not to place undue reliance on such statements. We often identify these forward-looking statements by use of words such as “believe,” “expect,” “continue,” “may,” “will,” “could,” “would,” “potential,” “anticipate,” “intend” or similar forward-looking words.

 

The forward-looking statements included herein and any expectations based on such forward-looking statements are subject to risks and uncertainties and other important factors that could cause actual results to differ materially from the results contemplated by the forward-looking statements, including the satisfaction of the conditions to closing the merger and restrictions in the credit markets, as well as other risks and uncertainties discussed below and in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2009 are incorporated by reference into this Proxy Statement. Moreover, we operate in a continually changing business environment, and new risks and uncertainties emerge from time to time. We cannot predict these new risks or uncertainties, nor can we assess the impact, if any, that such risks or uncertainties may have on NovaMed’s business or the extent to which any factor, or combination of factors, may cause actual results to differ from those projected in any forward-looking statement.

 

Set forth below are various risks related to the proposed merger. The following is not intended to be an exhaustive list of the risks related to the merger and should be read in conjunction with the other information in this Proxy Statement. In addition, you should review the risks and uncertainties discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2009 which are incorporated by reference into this Proxy Statement, for a description of the risk factors associated with the continued operation of NovaMed’s business.

 

Completion of the merger is subject to various conditions, and the merger may not occur even if we obtain stockholder approval.

 

Completion of the merger is subject to various risks, including, but not limited to:

 

 

See “The Merger Agreement — Conditions to the Merger.” As a result of these risks, there can be no assurance that the merger will be completed even if we obtain stockholder approval. If our stockholders do not adopt the merger agreement and approve the merger or if the merger is not completed for any other reason, we expect that our current management, under the direction of our Board of Directors, will continue to manage NovaMed.

Failure to complete the merger could negatively impact the market price of NovaMed common stock.

 

If the merger is not completed for any reason, we will be subject to a number of material risks, including the following:

 

 

If the merger agreement is terminated and our Board of Directors seeks another merger or business combination, we cannot offer any assurance that we will be able to find an acquirer willing to pay an equivalent or better price than the price to be paid under the merger agreement.

 

We may lose key personnel as a result of uncertainties associated with the merger.

 

Our current and prospective employees and physicians may be uncertain about their future roles and relationships with NovaMed following completion of the merger. This uncertainty may adversely affect our ability to attract and retain physicians and key management, sales, marketing and operational personnel.

 

Parties Involved in the Merger

 

NovaMed, Inc.

 

NovaMed, Inc. is a Delaware corporation and is a health care services company and an owner and operator of ambulatory surgery centers (“ASCs”).

 

NovaMed’s principal executive offices are located at 333 West Wacker Drive, Suite 1010, Chicago, Illinois 60606, and its telephone number is (312) 664-4100.

 

Surgery Center Holdings, Inc.

 

Surgery Center Holdings, Inc., or Parent, is a Delaware corporation and is a healthcare services company that acquires, develops and manages free-standing ASCs in partnership with leading physicians. Parent is affiliated with H.I.G. Capital, L.L.C., a leading global private equity investment firm focused exclusively on the middle market with more than $8.5 billion of equity capital under management.

 

Parent’s principal executive offices are located at 1450 Brickell Avenue, 31st Floor, Miami, Florida 33131, and its telephone number is (305) 379-2322.

 

Wildcat Merger Sub, Inc.

 

Wildcat Merger Sub, Inc., or Merger Sub, is a Delaware corporation formed by Parent solely for purposes of entering into the merger agreement and consummating the transactions contemplated by the merger. Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, at the effective time of the merger, Merger Sub will merge with and into NovaMed, with NovaMed continuing as the surviving corporation. Merger Sub currently has de minimis assets and has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the merger agreement.

 

Merger Sub’s principal executive offices are located at 1450 Brickell Avenue, 31st Floor, Miami, Florida 33131, and its telephone number is (305) 379-2322.

Surgery Center Holdings, LLC

 

Surgery Center Holdings, LLC, or Holdings, is a Delaware limited liability company and is the majority stockholder of Parent. Holdings is affiliated with H.I.G. Capital, LLC.

 

Holdings’ principal executive offices are located at 1450 Brickell Avenue, 31st Floor, Miami, Florida 33131, and its telephone number is (305) 379-2322.

 

Rollover Stockholders

 

“Rollover Stockholders” refers collectively to Scott T. Macomber, Thomas J. Chirillo, John P. Hart and John W. Lawrence, Jr., each a NovaMed common stockholder and each of whom is an officer of NovaMed. Each of the rollover stockholders has agreed to surrender a portion of their shares of NovaMed common stock to Holdings immediately prior to the effective time of the merger plus, in the case of Messrs. Macomber and Hart, invest additional cash consideration, in exchange for equity interests in Holdings. In addition, the rollover stockholders entered into executive securities agreements with Holdings pursuant to which they will be awarded incentive equity awards subject to the terms and conditions of such executive securities agreements. The rollover stockholders will receive cash in an amount equal to the merger consideration for their shares of NovaMed common stock that are not surrendered to Holdings. As a result, immediately following the merger, the rollover stockholders will hold approximately 3.1% (on a fully diluted basis) of Holdings, and indirectly, the Company, after giving effect to the issuance and vesting of all incentive equity awards granted to the rollover stockholders.

 

This Proxy Statement is furnished in connection with the solicitation of proxies by our Board of Directors for a special meeting of the holders of NovaMed common stock to be held on [ • ], 2011 at [ • ] a.m. [Central time], at [ • ], or at any postponement or adjournment of the special meeting.

 

The purpose of the special meeting is to consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of January 20, 2011, by and between Parent, Merger Sub and NovaMed, pursuant to which NovaMed will become a direct wholly owned subsidiary of Parent, and approve the merger described in the merger agreement. If our stockholders adopt the merger agreement and approve the merger, the other closing conditions are satisfied or waived, and the merger is completed, the holders of NovaMed common stock will be entitled to receive $13.25 in cash, without interest, per share held by them at the effective time of the merger, except for holders who perfect their appraisal rights under Delaware law. If our stockholders fail to adopt the merger agreement and approve the merger, the merger will not occur. A copy of the merger agreement is attached to this Proxy Statement as Appendix A.

 

Our stockholders may also be asked to approve the adjournment of the special meeting, if necessary, to solicit additional proxies in favor of adoption of the merger agreement and approval of the merger.

 

NovaMed does not expect that a vote will be taken on any other matters at the special meeting. However, if any other matters are properly presented at the special meeting, the holders of the proxies will have discretion to vote on those matters in accordance with their best judgment.

 

Our Board of Directors has set the close of business on [ • ], 2011, as the record date for determining the stockholders of NovaMed entitled to notice of, and the right to vote at, the special meeting. As of the record date, there were [ • ] holders of record of NovaMed common stock and [ • ] shares of NovaMed common stock outstanding.

Each holder of NovaMed common stock at the close of business on the record date is entitled to attend and vote at the special meeting. Each outstanding share of NovaMed common stock entitles its holder to one vote on each matter properly presented at the special meeting.

 

A majority of the issued and outstanding shares of NovaMed common stock entitled to vote at the special meeting, whether represented in person or by proxy, will constitute a quorum. Proxy cards received by us but marked “AGAINST” or “ABSTAIN” will be counted for the purpose of establishing a quorum at the special meeting and will have the effect of a vote against the merger agreement and the merger. If you hold your shares in street name and do not give instructions to your bank or brokerage firm on how to vote your shares, the bank or brokerage firm will not be permitted to vote your shares at the special meeting and your shares will not be counted for purposes of establishing a quorum. If a quorum is not present at the special meeting, we currently expect that we will adjourn the special meeting to solicit additional proxies. The time and place of the adjourned meeting will be announced at the time the adjournment is taken, and no other notice will be given.

 

A list of holders of NovaMed common stock will be available for review at our executive offices during regular business hours beginning three days after the date of this Proxy Statement and through the date of the special meeting.

 

Adoption of the merger agreement and approval of the merger requires the affirmative vote of a majority of the outstanding shares of NovaMed common stock entitled to vote on the adoption of the merger agreement and approval of the merger. All votes will be tabulated by the inspector of election appointed for the special meeting, who will separately tabulate affirmative and negative votes and abstentions.

 

Adjournment of the special meeting, if necessary, to solicit additional proxies requires the approval of a majority of the votes cast.

 

Failure to vote your shares of NovaMed common stock will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement and approve the merger. Registered stockholders who submit a proxy card but do not provide voting instructions will be voted “FOR” the adoption of the merger agreement and approval of the merger and “FOR” the approval the adjournment of the special meeting to solicit additional proxies. If you hold your shares in street name and do not give instructions to your bank or brokerage firm, it will not be permitted to vote your shares and your shares will not be considered present at the special meeting. As a result, it will have the same effect as a vote “AGAINST” the adoption of the merger agreement and approval of the merger, but it will have no effect on any vote with respect to the adjournment of the meeting to solicit additional proxies in support of the proposal to adopt the merger agreement and approve the merger.

 

As of the record date for the special meeting, our directors and executive officers beneficially owned an aggregate of 837,652 shares of NovaMed common stock, representing an aggregate of approximately 10.5% of our outstanding common stock. In connection with the merger agreement, such directors and executive officers have entered into voting agreements with Parent obligating them to vote all of their shares of NovaMed common stock in favor of adoption of the merger agreement and approval of the merger and have informed us that they intend to vote all of their shares of NovaMed common stock “FOR” the adoption of the merger agreement and approval of the merger and “FOR” any adjournment of the special meeting, if necessary, to solicit additional proxies. The full text of the form of voting agreement is attached to this Proxy Statement as Appendix C.

 

Registered holders of NovaMed common stock may submit a proxy prior to the special meeting or may vote in person at the special meeting. If your shares are held in “street name” by a bank or brokerage firm, your bank or brokerage firm forwarded these proxy materials, as well as a voting instruction card, to you. Please follow the instructions on the voting instruction card to vote your shares.

 

To vote in person at the special meeting, a stockholder must attend the meeting and obtain and submit a ballot. Ballots for voting in person will be available at the special meeting. If you are a beneficial owner of shares held in

street name, you may not vote your shares in person at the special meeting unless you obtain a power of attorney or proxy form from the record holder of your shares.

 

To submit a proxy, stockholders must complete and return the enclosed proxy card in time to be received by us prior to the special meeting, or deliver a proxy card in person at the special meeting. If a proxy card is properly executed, returned to us and not revoked, the shares represented by the proxy will be voted in accordance with the instructions set forth on the proxy card. If you are the beneficial owner of the shares, you have the right to direct your record holder how to vote your shares, and the record holder is required to vote your shares in accordance with your instructions.

 

Registered stockholders who submit a proxy card but do not provide voting instructions will be voted “FOR” the adoption of the merger agreement and approval of the merger and “FOR” the approval the adjournment of the special meeting to solicit additional proxies. If you hold your shares in street name and do not give instructions to your bank or brokerage firm, it will not be permitted to vote your shares and your shares will not be considered present at the special meeting. As a result, it will have the same effect as a vote “AGAINST” the adoption of the merger agreement and approval of the merger, but it will have no effect on any vote with respect to the adjournment of the meeting to solicit additional proxies in support of the proposal to adopt the merger agreement and approve the merger.

 

If you have submitted a proxy, you may revoke it at any time before it is voted at the special meeting by:

 

 

NovaMed, Inc.
Attn: Secretary
333 W. Wacker Drive, Suite 1010
Chicago, Illinois 60606; or

[ • ]; or

 

 

If you choose either of these methods, your notice of revocation or your new proxy card must be received before the start of the special meeting. Attendance at the special meeting will not by itself constitute revocation of a proxy. To revoke a proxy in person at the special meeting, you must obtain a ballot and vote in person at the special meeting.

 

If you hold your shares in street name, please follow the directions received from your bank or broker to change your vote.

 

NovaMed will bear the expenses in connection with the solicitation of proxies. Upon request, we will reimburse brokers and other nominees for their reasonable out-of-pocket expenses for forwarding copies of these proxy materials to the beneficial owners of NovaMed shares. Solicitation of proxies will be made principally by mail. Proxies may also be solicited in person or by telephone, facsimile, or email by NovaMed’s directors, officers and employees. Such persons will receive no additional compensation for these services. We have engaged [ • ] as our proxy solicitor to assist in the dissemination of proxy materials and in obtaining proxies and to answer your questions. We will pay them a fee of $[ • ] plus a fee for each phone call made to our stockholders and reimburse them for their expenses. We expect the total fee due to [ • ] to be approximately $[ • ].

 

The following summary describes the material terms of the merger agreement but does not purport to describe all of the terms of the merger agreement. The following summary is qualified in its entirety by reference to the complete text of the merger agreement, which is attached as Appendix A to this Proxy Statement and incorporated herein by reference. We urge you to read the merger agreement in its entirety because it is the legal document that governs the merger.

 

The Company continually reviews the health care services industry and the ambulatory surgery center (ASC) industry to examine potential strategic business transactions that might be in the best interests of its stockholders and to enhance stockholder value. The Company’s management regularly spends time identifying potential ASC acquisitions of interest and regularly engages in discussions with companies and physician partners that appear to be appropriate candidates for acquisitions. As part of its ongoing evaluation of the Company’s business and its strategic planning, our Board of Directors periodically discusses and reviews the Company’s strategic goals and alternatives, performance and prospects. Our Board of Directors has in the past received updates from time to time from various investment bankers on the state of the Company’s industry and potential for acquisition activity. From time to time over the years, our Board of Directors has engaged various investment bankers to assist it in actively exploring strategic alternatives for the Company.

 

Beginning in February 2010, the Company was approached by an owner-operator of ASC’s about the possibility of completing a strategic transaction (“Party A”). The Company and Party A had several discussions about a potential transaction in March and April 2010. Following the discussions, Party A declined to pursue a strategic transaction with the Company.

 

On May 18, 2010, as part of a regularly scheduled meeting, our Board of Directors conducted a lengthy strategic planning session to consider the long-term direction and goals for the Company. Our Board of Directors heard presentations from members of the Company’s management as to business development, acquisition, finance and operational matters. As a result of the strategic planning process, during an executive session following the regularly scheduled Board meeting, our Board of Directors determined to retain a financial advisor to assist with the exploration of strategic alternatives.

 

On May 27, 2010, representatives of the Company met with representatives of William Blair to discuss William Blair’s capabilities as financial advisor.

 

On June 1, 2010, the Company effected a reverse stock split where each three shares of NovaMed’s common stock issued and outstanding were combined into one share of NovaMed’s common stock to make our stock more appealing to institutional buyers and increase analyst coverage. All share and per share amounts have been adjusted to reflect the reverse stock split.

 

On June 17, 2010, representatives of the Company and members of our Board of Directors met to discuss the potential engagement of William Blair as financial advisor and the terms of an engagement letter with William Blair.

 

On June 18, 2010, an affiliate of the Company completed the sale of the Company’s MDnetSolutions business, a call center and marketing solutions company serving primarily the bariatric market.

 

On June 24, 2010, representatives of the Company and representatives of William Blair held an organizational meeting to evaluate the Company’s strategic alternatives.

 

On June 25, 2010, based on William Blair’s experience, its reputation and its familiarity with the Company and its business, our Board of Directors selected William Blair to advise the Company with respect to evaluating its strategic alternatives. At that time, our Board of Directors authorized William Blair to begin contacting potentially interested parties on behalf of the Company in connection with an exploration of strategic alternatives. The Company executed an engagement letter with William Blair pursuant to which it engaged William Blair to serve as its exclusive financial advisor in connection with the Company’s evaluation of strategic alternatives and any potential sale transaction.

Beginning on June 25, 2010, the Company, William Blair and DLA Piper LLP (US) (“DLA Piper”), counsel to the Company, began preparing for the commencement of a process to contact potentially interested parties in connection with an exploration of strategic alternatives, including the preparation of a confidential description of the Company. The Company’s management and its financial and legal advisors also prepared a management brief, due diligence materials and draft transaction documents in preparation for contacting potentially interested parties.

 

On June 28, 2010, the Company’s common stock was removed from the Russell 2000 index.

 

On July 6, 2010, representatives of Parent contacted Mr. Hall, the Company’s chief executive officer, to discuss whether the Company would be interested in pursuing a strategic transaction.

 

On July 8, 2010, the Company and Parent executed a confidentiality agreement.

 

On July 20, 2010 and July 21, 2010, Mr. Hall met with representatives of Parent to discuss Parent’s interest in a potential transaction with the Company.

 

Beginning on July 27, 2010, William Blair began contacting a targeted list of 126 potential bidders from the Company’s industry that had been identified by the Company and William Blair (including Parent, Party A and Party B (as defined below)). Of the 126 potential bidders, 92 were financial bidders and 34 were strategic bidders. Of the 126 parties contacted, 52 interested parties (including 43 financial bidders and 9 strategic bidders) executed confidentiality agreements. Beginning on August 13, 2010, William Blair distributed a confidential information package, including projections, to each of these interested parties. Beginning on September 9, 2010, William Blair sent, on behalf of the Company, a bid process letter to each of the 52 interested parties, indicating to the parties that they should submit an indication of interest letter to William Blair no later than September 27, 2010.

 

On August 2, 2010, Parent submitted an unsolicited, preliminary indication of interest to acquire the Company at a price of $10.08 per share. This proposal was based on publicly available information about the Company. Parent asked for the Company to negotiate with it exclusively with respect to a potential transaction.

 

On August 4, 2010, our Board of Directors held a meeting to review the Company’s strategic alternatives. At a meeting of our Board of Directors, a representative from DLA Piper reviewed with our Board of Directors their fiduciary duties with respect to any potential sale transaction, and management provided input on the strategic alternatives available to the Company. Following the presentation and further questions and discussion, our Board of Directors determined to reject the unsolicited offer from Parent because the price was insufficient and determined to continue its exploration of strategic alternatives. At this meeting, our Board of Directors also formed an ad hoc special committee comprised of C.A. Lance Piccolo, Robert J. Kelly and R. Judd Jessup to review any strategic opportunities presented to the Company, including acquisitions, and to make a recommendation to the full Board as to any such opportunities. Each member of the special committee is an independent director of the Company. The Special Committee was established as an administrative convenience in order to permit the efficient review of potential transactions and to facilitate the involvement of members of our Board of Directors in any acquisition process, and not because of any actual or perceived conflict of interest involving any director. Following the meeting of our Board of Directors, Mr. Hall indicated to Parent that the Company would not negotiate exclusively with Parent and that our Board of Directors had determined to continue with its ongoing sale process.

 

On August 31, 2010 and September 14, 2010, the special committee held meetings to consider strategic alternatives for the Company and to discuss the status of the potential sale process. At the meetings, representatives of William Blair updated the special committee on the status of the sale process.

 

On September 27, 2010, William Blair, on behalf of the Company, received six preliminary indications of interest at prices ranging from $8.90 to $14.00 per share. Parent’s indication of interest was at a price of $11.00 to $11.50 per share. Party B did not submit an indication of interest. No other party submitted an indication of interest.

 

On September 28, 2010, a press report speculated as to the Company’s potential sale process and the Company’s retention of William Blair as its investment banker. Both the Company, consistent with its long-standing policy, and William Blair declined to comment on market rumors. Following the issuance of the press report, the Company noted an increase in its share price and trading volume.

On September 30, 2010, the special committee met with representatives of William Blair and DLA Piper to discuss the status of the sale process. Representatives of William Blair discussed with the special committee the six indications of interest that were received.

 

Beginning in October 2010 and continuing through December 2010, members of the Company’s management, with assistance from William Blair, conducted management presentations with the six interested parties and simultaneously facilitated a due diligence process with the six interested parties. The due diligence process included in-person presentations by members of the Company’s management, responses to various due diligence questions about the Company’s assets and operations, telephonic due diligence discussions between the Company’s and the interested parties’ outside financial, legal and accounting advisors and in-person due diligence review sessions. Each interested party was given an extensive, in-person presentation by members of the Company’s management, and was provided access to the Company’s on-line data room containing financial, operational, regulatory, intellectual property, human resource, legal and other information concerning the Company. As part of these due diligence activities, on October 26, 2010, representatives of Parent attended an in-person management presentation by members of the Company’s management and representatives of William Blair.

 

On October 29, 2010, the special committee met with representatives of William Blair and DLA Piper to discuss the status of the sale process. The special committee discussed with representatives of William Blair the possibility of bringing additional strategic bidders into the sale process, even though those strategic bidders had previously declined to submit an indication of interest. Following the meeting, William Blair contacted an owner/operator of ASC’s (“Party B”) that had previously declined to participate in the sale process to determine whether Party B would be interested in pursuing a potential transaction with the Company.

 

On November 3, 2010, Party B submitted an indication of interest with respect to a business combination with the Company.

 

On November 10, 2010, the special committee met with representatives of William Blair and DLA Piper to discuss the status of the sale process.

 

On November 16, 2010, representatives of the Company, William Blair and Parent attended an in-person management presentation by members of the Company’s and Parent’s management to lenders proposed to be used by Parent to provide debt financing for a potential transaction.

 

On November 17, 2010, representatives of Party B attended an in-person management presentation by members of the Company’s management and representatives of William Blair.

 

On November 19, 2010, William Blair asked the five remaining interested parties (including Parent and Party B) to update their views on price and to provide a detailed agenda and timeline for conducting any remaining due diligence no later than December 13, 2010. With the exception of these five remaining parties, all other previously interested parties had withdrawn from the sale process. On November 30, 2010, William Blair also made available to each of the interested parties a form of merger agreement that had been prepared by DLA Piper, with input from the Company and the special committee.

 

On December 13, 2010, William Blair received from Parent a revised offer with an indicated price of $13.00 per share. Parent’s revised indication of interest included a draft letter of intent requesting exclusivity together with a mark-up of the draft merger agreement and draft commitment letter’s from Parent’s lenders.

 

On December 13, 2010, Party B indicated verbally to William Blair its interest in a transaction pursuant to which the Company would acquire Party B in a stock transaction that would result in the owners of Party B owning more than 40% of the combined business. William Blair, on behalf of the Company, had multiple discussions with Party B and asked Party B to submit its proposal in writing.

 

On December 15, 2010, at a regularly scheduled meeting, our Board of Directors discussed Parent’s revised indication of interest. A representative from DLA Piper reviewed with our Board of Directors their fiduciary duties in light of the draft letter of intent. Our Board of Directors considered the fact that the draft letter of intent contained a limited exclusivity period and was non-binding. Representatives of William Blair discussed with our Board of Directors its financial analysis of Parent’s current proposal and the indication by Party B. Following extensive deliberation, our Board of Directors determined that it would be willing to entertain a transaction on the terms

proposed by Parent, but that it would first attempt to obtain a higher price. Our Board of Directors instructed William Blair to request that Parent raise their price to $13.25 per share. Our Board of Directors also instructed William Blair to seek a formal offer from Party B, but noted significant risks and uncertainities and the potential dilution associated with the indication from Party B.

 

On December 18, 2010, DLA Piper and McDermott Will & Emery, counsel to Parent (“MWE”), discussed certain issues with respect to the revised merger agreement included with Parent’s proposal. Among other things, they discussed the termination fee and reverse termination fee provisions and various conditions associated with Parent’s proposal.

 

On December 19, 2010, Parent submitted a best and final offer of $13.25 per share, together with a revised letter of intent requesting exclusivity.

 

On December 20, 2010, the special committee met to discuss the status of discussions with Parent and the indication by Party B. A representative from DLA Piper reviewed with our Board of Directors their fiduciary duties with respect to any potential sale transaction. Party B had declined to submit a formal proposal. Following extensive discussion, the special committee authorized the Company to enter into the letter of intent with Parent.

 

On December 21, 2010, DLA Piper sent a revised draft of the merger agreement to MWE. On December 22, 2010, DLA Piper and MWE discussed the revised draft of the merger agreement.

 

The Company and Parent executed the letter of intent on December 23, 2010. The letter of intent provided for exclusivity through January 7, 2011, but was otherwise non-binding.

 

Between December 23, 2010 and January 13, 2010, representatives from DLA Piper and representatives from MWE exchanged drafts of the merger agreement and disclosure schedules and had multiple discussions with respect to such documents. During this time, MWE sent DLA Piper proposed forms of a voting agreement and exchange agreement along with copies of draft commitment letters from debt financing sources (Jefferies and THL Capital) for the entire debt financing that would be necessary to consummate the transaction, a draft equity commitment letter from an affiliate of Parent for the equity capital needed to consummate the transaction and form of limited guarantee. DLA Piper and MWE held discussions and exchanged drafts regarding each of these documents. During this time, Parent continued its due diligence investigation of the Company, and representatives of William Blair and representatives of the Company had ongoing discussions with Parent in connection with outstanding due diligence inquiries.

 

On December 30, 2010, MWE delivered to DLA Piper a draft of the consulting agreement for Mr. Hall and Mr. Cherrington.

 

Beginning the week of January 3, 2011, representatives of Parent held meetings with the rollover stockholders to discuss management retention arrangements. The Company’s management engaged Winston & Strawn LLP (“Winston”) to represent it in these negotiations.

 

On January 7, 2011, the special committee met with representatives of William Blair and DLA Piper to discuss the status of the sale process. Given the status of the discussions, the special committee agreed to extend the exclusivity period of the letter of intent until January 14, 2011.

 

On January 11, 2011, the special committee met with representatives of William Blair and DLA Piper to discuss the status of the sale process.

 

On January 12, 2011, Parent had meetings with the rollover stockholders to discuss retention arrangements. On January 13, 2011, H.I.G. held meetings and discussions with the rollover stockholders to further discuss retention arrangements. During this time Winston and MWE had multiple discussions with respect to the proposed management retention arrangements.

 

On January 13, 2011, the Company objected to Parent’s proposed regulatory approval condition to be included in the merger agreement. The parties were unable to agree on the issue and both parties suspended work on the proposed merger.

On January 14, 2011, our Board of Directors met with representatives of DLA Piper and William Blair to discuss the regulatory approval closing condition and the status of the proposed transaction. Our Board of Directors noted that on January 15, 2011, the Company would be free to terminate the letter of intent and the exclusivity provision.

 

On January 17, 2011, representatives of DLA Piper and MWE had discussions as to certain issues raised by Parent’s comments to the draft merger agreement, including the proposed regulatory approval condition. The parties agreed on an exception to the regulatory approval condition for ASC’s representing in the aggregate EBITDA (less minority interest) of less than $1.5 million. Based on this compromise, the Company and Parent decided to move forward with negotiating the proposed transaction.

 

Between January 17, 2011 and January 20, 2011, DLA Piper and MWE had multiple discussions with respect to and exchanged multiple drafts of the draft merger agreement. The parties also exchanged multiple drafts of the disclosure schedules and the various ancillary documents. DLA Piper and MWE proceeded to negotiate and finalize drafts of the merger agreement, disclosure schedules and the various ancillary documents. During this time, Winston and MWE had multiple discussions with respect to and exchanged multiple drafts of the management retention agreements. On January 18, 2011, Winston sent to MWE a revised draft of the consulting agreement for Mr. Hall and Mr. Cherrington.

 

At the end of the day on January 20, 2011, the special committee convened to consider the terms of Parent’s revised merger agreement. Following the special committee meeting, the full Board convened. At these meetings, a representative of DLA Piper reviewed the status of the negotiations and the revised terms of the merger agreement and reviewed with our Board of Directors their fiduciary duties in the context of the transaction being considered. William Blair then reviewed its financial analysis of the proposed consideration and delivered to our Board of Directors its opinion, as of that date and based on and subject to the various assumptions, qualifications and limitations described in its opinion, regarding the fairness, from a financial point of view, to the holders of shares (other than the rollover stockholders, Parent, Merger Sub and their affiliates) of the consideration of $13.25 per share in cash to be received by such holders of shares of NovaMed common stock in the merger. Following questions by the members of our Board of Directors to representatives of William Blair and DLA Piper, and further discussion among the members of our Board of Directors, the special committee recommended that our Board of Directors accept the offer from Parent. Then our Board of Directors, by unanimous action of all members, determined that acceptance of Parent’s offer was in the best interests of the Company and the Company’s stockholders. Our Board of Directors approved and authorized the execution, delivery and performance of, and declared advisable, the merger agreement and the merger, and further resolved to recommend to the Company’s stockholders that they adopt the merger agreement and approve the merger.

 

After the adjournment of the meeting of our Board of Directors, representatives of William Blair telephoned representatives of Parent to inform Parent that our Board of Directors had accepted Parent’s offer. The merger agreement and the voting agreements were executed later in the evening on January 20, 2011. The Company announced the transaction in a press release before the opening of the U.S. stock markets on January 21, 2011.

 

Acting on the recommendation of a special committee of our Board of Directors consisting of independent directors, our Board of Directors has determined that the merger agreement and the merger are advisable, fair to and in the best interest of the Company and our unaffiliated stockholders. Our Board of Directors unanimously:

 

 

 

The merger agreement was unanimously approved by our full Board of Directors at a meeting called for that purpose. Furthermore, the merger agreement was unanimously approved by the disinterested directors of the Company. Our Board of Directors considered a number of factors in determining to recommend that our stockholders adopt the merger agreement and approve the merger, as more fully described above under “— Background of the Merger” and below under “— Reasons for the Recommendation of our Board of Directors,” including the recommendation of a special committee of independent directors. Our Board of Directors unanimously recommends that you vote “FOR” the adoption of the merger agreement and approval of the merger.

 

Our Board of Directors consulted with the Company’s senior management, the Company’s outside legal advisor, DLA Piper LLP (US) (“DLA Piper”), and the Company’s financial advisor, William Blair, in evaluating the merger agreement and the merger and in the course of reaching its determination to adopt the merger agreement and approve the merger and to recommend unanimously that the Company’s stockholders adopt the merger agreement and approve the merger. Our Board of Directors considered a number of factors, including the following material factors and benefits of the merger, each of which our Board of Directors believed supported its recommendation:

 

 

 

 

 

 

Our Board of Directors also considered a variety of uncertainties and risks in its deliberations concerning the merger agreement and the merger, including the following:

 

 

 

The foregoing discussion of information and factors considered by our Board of Directors is not intended to be exhaustive. In light of the variety of factors considered in connection with its evaluation of merger agreement and the merger, our Board of Directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determinations and recommendations. Rather, our Board of Directors viewed its determinations and recommendations as being based on the totality of information and factors presented to and considered by our Board of Directors. Moreover, each member of our Board of Directors applied his or her own personal business judgment to the process and may have given different weight to different factors.

 

Our Board of Directors unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement and approve the merger and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

Pursuant to an engagement letter dated June 25, 2010, William Blair was retained to act as a financial advisor to the NovaMed board of directors to render certain investment banking services in connection with a potential business combination of NovaMed with a to-be-determined party, a recapitalization of NovaMed or a restructuring. In particular, the NovaMed board of directors requested the opinion of William Blair as to the fairness, from a financial point of view, to the holders of the outstanding shares of NovaMed common stock (other than the rollover stockholders, Parent, Merger Sub and their affiliates) of the $13.25 per share in cash, referred to herein as the merger consideration, to be paid to such holders in the proposed merger pursuant to the merger agreement by and among Parent, Merger Sub, and NovaMed. On January 20, 2011, William Blair delivered its opinion to the NovaMed board of directors and subsequently confirmed in writing, dated January 20, 2011, as of that date and based upon and subject to the assumptions, qualifications and limitations stated in its opinion, as to the fairness, from a financial point of view, to the holders of NovaMed common stock (other than the rollover stockholders, Parent, Merger Sub or their affiliates) of the merger consideration to be paid to such holders in the proposed merger pursuant to the merger agreement. William Blair was not asked to consider, and its opinion does not address, the allocation of the merger consideration to be paid in the proposed merger among the holders of NovaMed common stock.

 

William Blair provided the opinion described above for the information and assistance of the NovaMed board of directors in connection with its consideration of the proposed merger. William Blair’s opinion was one of many factors taken into account by the NovaMed board of directors in making its determination to adopt the merger agreement and approve the merger. The terms of the merger agreement and the amount and form of the merger consideration, however, were determined through negotiations between NovaMed and Parent and were approved by the NovaMed board of directors. The opinion described above was reviewed and approved by William Blair’s fairness opinion committee. William Blair has consented to the inclusion in this Proxy Statement of its opinion and the description of its opinion appearing under this subheading “Opinion of William Blair, Financial Advisor to the NovaMed Board of Directors.”

 

The full text of William Blair’s opinion, dated January 20, 2011, is attached as Annex B to this Proxy Statement and incorporated into this Proxy Statement by reference. You are urged to read the opinion carefully and in its entirety to learn about the assumptions made, procedures followed, matters considered

and limits on the scope of the review undertaken by William Blair in rendering its opinion. William Blair’s opinion was directed to the NovaMed board of directors for its benefit and use in evaluating the fairness of the merger consideration to the holders of NovaMed common stock (other than the rollover stockholders, Parent, Merger Sub or their affiliates) and relates only to the fairness, as of the date of the opinion and from a financial point of view, of the consideration to be paid to such holders in the proposed merger pursuant to the merger agreement. The opinion does not address any other aspect of the proposed merger or any related transaction and does not constitute a recommendation to any stockholder as to how that stockholder should vote or act with respect to the merger agreement or the proposed merger. William Blair did not address the merits of the underlying decision by NovaMed to engage in the proposed merger. The following summary of William Blair’s opinion is qualified in its entirety by reference to the full text of the opinion.

 

In connection with William Blair’s review of the proposed merger and the preparation of William Blair’s opinion, William Blair, among other things, examined:

 

 

William Blair also held discussions with members of the senior management of NovaMed to discuss the foregoing, considered other matters which William Blair deemed relevant to its inquiry and took into account such accepted financial and investment banking procedures and considerations as William Blair deemed relevant. In connection with its engagement, William Blair was requested to approach, and William Blair held discussions with, third parties to solicit indications of interest in a possible acquisition of NovaMed.

 

In rendering its opinion, William Blair assumed and relied, without independent verification, upon the accuracy and completeness of all the information examined by or otherwise reviewed or discussed with William Blair for purposes of its opinion, including, without limitation, the forecasts provided by the senior management of NovaMed. See the section entitled “Certain Financial Forecasts and Other Information” beginning on page 32. William Blair did not make or obtain an independent valuation or appraisal of the assets, liabilities or solvency of NovaMed. William Blair was advised by the senior management of NovaMed that the forecasts had been reasonably prepared in good faith on bases reflecting the then currently best available estimates and judgments of the senior management of NovaMed. In that regard, William Blair assumed, with the consent of NovaMed, that: (i) the forecasts would be achieved in the amounts and at the times contemplated thereby and (ii) all material assets and liabilities (contingent or otherwise) of NovaMed were as set forth in NovaMed’s financial statements or other information made available to William Blair. William Blair expressed no opinion with respect to the forecasts or the estimates and judgments on which they were based. William Blair did not consider and expressed no opinion as to the amount or nature of the compensation to any of the officers, directors or employees (or any class of such persons) of NovaMed relative to the merger consideration to be paid for the NovaMed common stock. William Blair’s opinion did not address the relative merits of the proposed merger as compared to any alternative business strategies that might have existed for NovaMed or the effect of any other transaction in which NovaMed might have engaged. William Blair’s opinion was based upon economic, market, financial and other conditions existing on, and other information disclosed to William Blair as of, the date of its opinion. Although subsequent developments may

affect William Blair’s opinion, William Blair does not have any obligation to update, revise or reaffirm its opinion. William Blair relied as to all legal matters on advice of counsel to NovaMed and assumed that all such advice was correct. William Blair further assumed that the merger would be consummated on the terms described in the merger agreement, without any waiver, modification or amendment of any material terms or conditions by NovaMed. In addition, William Blair relied upon and assumed, without independent verification, that the final form of the merger agreement would not differ in any respect from the draft agreement.

 

William Blair’s investment banking services and its opinion were provided for the use and benefit of the NovaMed board of directors in connection with its consideration of the proposed merger. William Blair’s opinion was limited to the fairness, from a financial point of view, to the holders of NovaMed common stock (other than the rollover stockholders, Parent, Merger Sub or their affiliates) of the merger consideration to be paid to such holders in the proposed merger pursuant to the draft agreement and William Blair did not address the merits of the underlying decision by NovaMed to engage in the proposed merger and its opinion did not constitute a recommendation to the NovaMed board of directors, any stockholder or any other person as to how such person should vote or act with respect to the proposed merger. It is understood that William Blair’s opinion may not be disclosed or otherwise referred to without William Blair’s prior written consent, except that William Blair’s opinion may be included in its entirety in a proxy statement required by law to be filed with the Securities and Exchange Commission and mailed to the stockholders by NovaMed with respect to the proposed merger.

 

The following is a summary of the material financial analyses performed and material factors considered by William Blair to arrive at its opinion. William Blair performed certain procedures, including each of the financial analyses described below, and reviewed with our Board of Directors the assumptions upon which such analyses were based, as well as other factors. Although the summary does not purport to describe all of the analyses performed or factors considered by William Blair in this regard, it does set forth those considered by William Blair to be material in arriving at its opinion. The order of the summaries of analyses described does not represent the relative importance or weight given to those analyses by William Blair.

 

Analysis of NovaMed

 

Selected Public Company Analysis.  William Blair reviewed and compared certain financial information relating to NovaMed to corresponding financial information, ratios and public market multiples for certain publicly traded companies William Blair deemed relevant. The companies selected by William Blair were:

 

 

Among the information William Blair considered was NovaMed’s unaudited internal financial estimates of its earnings before interest, taxes, depreciation and amortization less non-controlling interests (referred to as EBITDA-MI), and net income, for the latest twelve months (commonly referred to as LTM) ended September 30, 2010 and NovaMed’s forecast earnings per share (commonly referred to as EPS) for the fiscal years ending December 31, 2010 and 2011.

 

For each selected public company, William Blair considered the enterprise value less any non-controlling interests, and defined enterprise value as the company’s market capitalization calculated on a fully-diluted basis as of January 19, 2011 plus preferred equity and total debt, less cash and cash equivalents, as a multiple of EBITDA-MI and equity value as a multiple of net income for each company for the LTM period for which results were publicly available and the stock price of common equity as a multiple of EPS for each company for the respective estimates for 2010 and 2011. The operating results and the corresponding derived multiples for each of the selected public companies were based on each company’s most recent available publicly disclosed financial information, closing share prices as of

January 19, 2011 and consensus Wall Street analysts’ EPS estimates for calendar years 2010 and 2011. William Blair similarly adjusted the historical results of the selected public companies, where appropriate and publicly disclosed, to eliminate the impact of non-recurring items included in their financial information. William Blair did not have access to internal forecasts for any of the selected public companies other than NovaMed.

 

William Blair then derived the multiples implied for NovaMed based on the terms of the proposed merger and compared these multiples to the range of trading multiples for the selected public companies. Information regarding the multiples from William Blair’s analysis of selected publicly traded companies is set forth in the following table.

 

 

Although William Blair compared the trading multiples of the selected public companies to those implied for NovaMed, none of the selected public companies is identical to NovaMed. Accordingly, any analysis of the selected publicly-traded companies necessarily would involve complex considerations and judgments concerning the differences in financial and operating characteristics and other factors that would necessarily affect the analysis of trading multiples of the selected publicly traded companies.

 

Selected M&A Transactions Analysis.  William Blair performed an analysis of 8 selected ambulatory surgery and hospital-based business combinations completed since 2006. William Blair’s analysis was based solely on publicly available information regarding such transactions. The selected transactions were not intended to be representative of the entire range of possible transactions in the ambulatory surgery and hospital-based industry. The transactions examined were (identified by target / acquirer and month and year of announcement):

 

 

William Blair reviewed the consideration paid in the selected transactions in terms of the enterprise value of the target in these transactions as a multiple of the EBITDA-MI of the target for the LTM prior to the announcement of the applicable transaction. William Blair compared the resulting range of transaction multiples of EBITDA-MI for the selected transactions to the implied transaction multiples for NovaMed derived using September 30, 2010 LTM EBITDA-MI based on the merger consideration in the proposed merger. William Blair similarly adjusted the historical results of the acquired companies, where appropriate and publicly disclosed, to eliminate the impact of

non-recurring items included in their financial information. Information regarding the multiples from William Blair’s analysis of the selected transactions is set forth in the following table:

 

 

Although William Blair analyzed the multiples implied by the selected transactions and compared them to the implied transaction multiples of NovaMed, none of these transactions or associated companies is identical to the merger or NovaMed. Accordingly, any analysis of the selected transactions necessarily would involve complex considerations and judgments concerning the differences in financial and operating characteristics, parties involved and terms of their transactions and other factors that would necessarily affect the implied value of NovaMed in the merger versus the values of the companies in the selected transactions.

 

Premiums Paid Analysis.  William Blair reviewed data from 252 acquisitions of publicly traded domestic companies announced since January 1, 2007 and with enterprise values between $100 million and $500 million in which 100% of the target’s equity was acquired. Specifically, William Blair analyzed the acquisition price per share as a premium to the closing share price one day, one week, one month, 60 days, 90 days and 180 days prior to the announcement of the transaction, for all 252 transactions. William Blair compared the range of resulting per share stock price premiums for the reviewed transactions to the premiums implied by the merger based on NovaMed’s common stock price one day, one week, one month, 60 days, 90 days and 180 days prior to an assumed announcement date of the merger of January 21, 2011. Information regarding the premiums from William Blair’s analysis of these selected transactions is set forth in the following table:

 

 

William Blair also reviewed data from 22 acquisitions of publicly traded healthcare services companies announced since January 1, 2005 in which 100% of the target’s equity was acquired. Specifically, William Blair analyzed the acquisition price per share as a premium to the closing share price one day, one week, one month, 60 days, 90 days and 180 days prior to the announcement of the transaction, for all 22 transactions. William Blair compared the range of resulting per share stock price premiums for the reviewed transactions to the premiums implied by the merger based on NovaMed’s common stock price one day, one week, one month, 60 days, 90 days and 180 days prior to an assumed announcement date of the merger of January 21, 2011. Information regarding the premiums from William Blair’s analysis of these selected transactions is set forth in the following table:

 

William Blair also noted that NovaMed’s stock price increased 37.9% since mergermarket published an article on September 28, 2010 stating that William Blair had been engaged “to run a sale process” from $9.44 to the closing price of $13.02 on January 19, 2011, the day prior to the announcement.

 

Discounted Cash Flow Analysis.  William Blair utilized information included in the forecasts to perform a discounted cash flow analysis of the projected future cash flows of NovaMed for the period commencing January 1, 2011 and ending December 31, 2015. Using discounted cash flow methodology, William Blair calculated the present values of the projected free cash flows for NovaMed. In this analysis, William Blair assumed discount rates ranging from 12% to 16% and calculated the terminal value for NovaMed using assumed 2015 EBITDA-MI exit multiples ranging from 7.0x to 8.0x. William Blair noted that the assumed terminal EBITDA-MI exit multiple range was based on the multiples implied by the proposed merger and the range of multiples from the selected public company trading analysis shown above. William Blair made its discount rate assumption based on the weighted average cost of capital analysis applying the capital asset pricing model. William Blair aggregated (i) the present value of the free cash flows over the applicable forecast period with (ii) the present value of the range of terminal values. The aggregate present value of these items represented the enterprise value range. William Blair then derived a range of fully-diluted equity values per share by subtracting the net debt of NovaMed from the resulting enterprise value range and dividing the resulting equity value by the total fully-diluted shares of NovaMed outstanding as of January 19, 2011, which was approximately 8.2 million shares.

 

Leverage Buyout Analysis.  Based on the forecasts provided by the senior management of the Company for fiscal years 2011 through 2015, William Blair performed a leveraged buyout analysis to determine the potential implied enterprise value that might be achieved in an acquisition in a leveraged buyout transaction assuming an exit from the business in five years. Estimated exit values were calculated by applying a range of exit value multiples from 7.0x to 8.0x 2015E EBITDA-MI, which exit value multiples were derived from the multiples implied by the proposed merger and the range of multiples from the selected public company trading analysis shown above. William Blair then derived a range of theoretical purchase prices based on assumed required internal rates of return for a buyer between 20% and 30%, which range of percentages was, in William Blair’s professional judgment, generally reflective of the range of required internal rates of return commonly assumed when performing a leveraged buyout analysis of this type.

 

General.  This summary is not a complete description of the analysis performed by William Blair but contains the material elements of the analysis. The preparation of an opinion regarding fairness is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances, and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. The preparation of an opinion regarding fairness does not involve a mathematical evaluation or weighing of the results of the individual analyses performed, but requires William Blair to exercise its professional judgment, based on its experience and expertise, in considering a wide variety of analyses taken as a whole. Each of the analyses conducted by William Blair was carried out in order to provide a different perspective on the financial terms of the proposed merger and add to the total mix of information available. The analyses were prepared solely for the purpose of William Blair providing its opinion and do not purport to be appraisals or necessarily reflect the prices at which securities actually may be sold. William Blair did not form a conclusion as to whether any individual analysis, considered in isolation, supported or failed to support an opinion about the fairness to the holders of NovaMed common stock (other than the rollover stockholders, Parent, Merger Sub or their affiliates) of the consideration to be paid by NovaMed in the proposed merger pursuant to the merger agreement. Rather, in reaching its conclusions, William Blair considered the results of the analyses in light of each other and ultimately reached its opinion based on the results of all analyses taken as a whole. William Blair did not place particular reliance or weight on any particular analysis, but instead concluded that its analyses, taken as a whole, supported its determination. Accordingly, notwithstanding the separate factors summarized above, William Blair believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, may create an incomplete view of the evaluation process underlying its opinion. No company or transaction used in the above analyses as a comparison is directly comparable to NovaMed or the proposed merger. In performing its analyses, William Blair made numerous assumptions with respect to industry performance, business and economic conditions and other matters. The

analyses performed by William Blair are not necessarily indicative of future actual values and future results, which may be significantly more or less favorable than suggested by such analyses.

 

William Blair has been engaged in the investment banking business since 1935. William Blair continually undertakes the valuation of investment securities in connection with public offerings, private placements, business combinations, estate and gift tax valuations and similar transactions. In the ordinary course of its business, William Blair may from time to time trade the publicly held securities of NovaMed for its own account and for the accounts of its customers, and accordingly may at any time hold a long or short position in such securities. William Blair was familiar with NovaMed, having provided certain investment banking services to NovaMed from time to time. William Blair acted as the investment banker to the NovaMed board of directors in connection with the proposed merger and the Company has agreed to pay William Blair for its services in connection with the merger retainer fees of $50,000, a $250,000 fee payable upon delivery of William Blair’s fairness opinion, and a fee equal to 1.30% of the transaction value (as defined in the engagement letter) (against which will be credited any amounts previously paid due to the retainer or paid upon delivery of William Blair’s opinion) contingent upon successful completion of the proposed merger. The Company also has agreed to reimburse William Blair for its expenses and to indemnify William Blair against certain liabilities arising out of its engagement. Furthermore, the majority owner of Parent is a private equity fund, H.I.G. From time to time, William Blair is engaged (and it was then currently engaged) to provide investment banking services to companies in which H.I.G. holds interests.

 

The Company does not as a matter of course make public projections as to future performance, earnings or other results beyond the current fiscal year, and is especially wary of making projections for extended periods due to the unpredictability of the underlying assumptions and estimates.

 

However, in connection with its engagement of William Blair to evaluate the Company’s strategic alternatives, the Company provided to William Blair non-public internal financial forecasts regarding the Company’s anticipated future operations for the balance of the fiscal year ended December 31, 2010 and the fiscal years ended December 31, 2011, 2012, 2013, 2014 and 2015, respectively. The forecasts identified above are referred to collectively as the “Internal Financial Forecasts.” Summaries of the Internal Financial Forecasts are set forth below.

 

The Internal Financial Forecasts were not prepared with a view toward public disclosure. Rather, the Internal Financial Forecasts were prepared by the Company’s management solely for internal management purposes, and William Blair’s use in connection with its opinion regarding the merger consideration. The Internal Financial Forecasts were not prepared with a view toward compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts, or generally accepted accounting principles, nor were they examined or reviewed by the Company’s independent public accounting firm or any other accounting firm, nor has any such firm expressed any opinion or other assurance with respect thereto. There is no guarantee that the Internal Financial Forecasts will be realized, or that the assumptions upon which they are based will prove to be correct. In addition, the Internal Financial Forecasts did not include certain potential downward revisions that may occur due to ongoing customer contract matters that were disclosed to William Blair. Further, the Internal Financial Forecasts do not take into account the effect of any failure to occur of the merger and should not be viewed as accurate or continuing in that context. The Company’s stockholders are cautioned not to place undue reliance on the Internal Financial Forecasts included in this proxy statement. The Internal Financial Forecasts are being included in this proxy statement not to influence your decision whether to vote in favor of the adoption of the merger agreement and approval of the merger, but rather because they were made available by the Company to William Blair.

 

The Internal Financial Forecasts were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of the Company’s management. Important factors that may affect actual results and result in the forecast results not being achieved include, but are not limited to, the risks and uncertainties identified in the reports filed by the Company with the SEC (including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009). Some of these specific risks, although not all, are: the current economic recession and disruption in the financial markets; our current and future debt levels; our ability to access capital on a cost-effective basis to continue to successfully implement our growth strategy; reduced prices and

reimbursement rates for surgical procedures; our ability to acquire, develop or manage a sufficient number of profitable surgical facilities; our ability to maintain successful relationships with the physicians who use our surgical facilities; our ability to grow and manage effectively our increasing number of surgical facilities; competition from other companies in the acquisition, development and operation of surgical facilities; and the application of existing or proposed government regulations, or the adoption of new laws and regulations, that could limit our business operations, require us to incur significant expenditures or limit our ability to relocate our facilities. The Internal Financial Forecasts also reflect assumptions as to certain business decisions that are subject to change. Because the Internal Financial Forecasts cover multiple years, such information by its nature becomes less reliable with each successive year. The Internal Financial Forecasts should be read together with the historical financial statements of the Company included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2010, June 30, 2010 and September 30, 2010.

 

Accordingly, there can be no assurance that the projections contained in the Internal Financial Forecasts will be realized, and actual results may vary materially from those shown. The inclusion of the Internal Financial Forecasts in this Proxy Statement should not be regarded as an indication that Parent or Merger Sub or their affiliates, advisors or representatives considered or consider the Internal Financial Forecasts to be a reliable prediction of future events, and the Internal Financial Forecasts should not be relied upon as such. None of the Company, Parent or Merger Sub or their respective affiliates, advisors or representatives can give you any assurance that actual results will not differ from the Internal Financial Forecasts, and none of them undertakes any obligation to update or otherwise revise or reconcile the Internal Financial Forecasts to reflect circumstances existing after the date the Internal Financial Forecasts were prepared or to reflect events, even in the event that any or all of the assumptions underlying the projections contained in the Internal Financial Forecasts are shown to be in error. The Company has made no representation to Parent or Merger Sub, in the merger agreement or otherwise, concerning the Internal Financial Forecasts. BDO USA, LLP has not compiled or examined the projections contained in the Internal Financial Forecasts and accordingly does not express an opinion or any other form of assurance on the prospective financial information provided herein.

 

The Internal Financial Forecasts include non-GAAP financial measures, including EBITDA. “GAAP” means generally accepted accounting principles in the United States. The Company believes that EBITDA provides important information about the operating trends of the Company. The Company uses EBITDA to evaluate performance of its business operations. These non-GAAP measures are not in accordance with, or an alternative for, measures prepared in accordance with GAAP and may be different from similarly titled measures used by other companies. EBITDA is not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP. These measures should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures.

 

 

If the merger is consummated, Merger Sub will be merged with and into NovaMed, with NovaMed continuing as the surviving corporation and a wholly-owned subsidiary of Parent. At the effective time of the merger, the following will occur:

 

 

 

If the merger is completed, all of the equity interests in NovaMed will be owned directly by Parent, which immediately following the effective time of the merger will continue to be owned by Holdings and the rollover stockholders will own a minority interest in Holdings, as more fully described below. The rollover stockholders have agreed to surrender a portion of their shares of NovaMed common stock to Holdings immediately prior to the effective time of the merger plus, in the case of Messrs. Macomber and Hart, invest additional cash consideration, in exchange for equity interests in Holdings. In addition, the rollover stockholders entered into executive securities agreements with Holdings pursuant to which they will be awarded incentive equity awards subject to the terms and conditions of such executive securities agreements. The rollover stockholders will receive cash in an amount equal to the merger consideration for their shares of NovaMed common stock that are not surrendered to Holdings. As a result, immediately following the merger, the rollover stockholders will hold approximately 3.1% (on a fully diluted basis) of Holdings, and indirectly, the Company, after giving effect to the issuance and vesting of all incentive equity awards granted to the rollover stockholders. Except for the rollover stockholders, no current stockholder of NovaMed will have any ownership interest in, nor be a stockholder of, NovaMed immediately following the completion of the merger. As a result, NovaMed’s common stockholders (other than the rollover stockholders) will no longer benefit from any increase in NovaMed’s value, nor will they bear the risk of any decrease in NovaMed’s value. Following the merger, the rollover stockholders will, by virtue of its ownership in Holdings, benefit from any increase in the value of NovaMed and Parent and also will bear the risk of any decrease in the value of NovaMed and Parent.

NovaMed’s common stock is currently registered under the Exchange Act and is listed on the NASDAQ Global Select Market under the symbol “NOVA.” As a result of the merger, NovaMed will become a privately held corporation without a public market for its common stock, NovaMed common stock will no longer be listed on any exchange, including NASDAQ, and price quotations for NovaMed common stock will no longer be available. In addition, the registration of NovaMed common stock under the Exchange Act will be terminated following the merger. Therefore, the provisions of the Exchange Act will no longer apply to NovaMed, including the requirement that NovaMed furnish a proxy or information statement to its stockholders in connection with meetings of its stockholders. NovaMed will also no longer be required to file periodic reports with the SEC.

 

At the effective time of the merger, the certificate of incorporation of NovaMed will be amended to be identical to the certificate of incorporation of Merger Sub in effect immediately prior to the effective time of the merger and will become the certificate of incorporation of NovaMed as the surviving corporation, and the bylaws of Merger Sub in effect immediately prior to the effective time of the merger will become the bylaws of NovaMed as the surviving corporation.

 

Upon the completion of the merger, the directors and officers of Merger Sub immediately prior to the merger will become the directors and officers of NovaMed as the surviving corporation.

 

Following the completion of the merger, Parent anticipates that NovaMed will continue its current operations substantially as they are currently being conducted, except that NovaMed will be a wholly-owned subsidiary of Parent rather than an independent public company. Following the completion of the merger, the registration of NovaMed’s common stock under the Exchange Act will be terminated, along with NovaMed’s reporting obligations under the Exchange Act. In addition, upon completion of the merger, NovaMed common stock will no longer be listed on any exchange, including NASDAQ, and price quotations will no longer be available for NovaMed common stock. NovaMed will no longer be subject to the obligations and constraints or the related direct and indirect costs associated with having publicly traded equity securities.

 

Parent has advised NovaMed that it does not have any specific plans or proposals that relate to or would result in an extraordinary corporate transaction following completion of the merger involving NovaMed’s corporate structure, business or management, such as a merger, reorganization, liquidation, relocation of any operations or purchase, sale or transfer of a material amount of assets. However, Parent expects to continuously evaluate and review NovaMed’s business and operations following the merger and may develop new plans and proposals that they consider appropriate to maximize the value of NovaMed. Parent expressly reserves the right to make any changes they deem appropriate in light of such evaluation and review or in light of future developments.

 

In the event that the merger agreement is not adopted and the merger is not approved by NovaMed’s common stockholders or if the merger is not completed for any other reason, NovaMed’s common stockholders will not receive any payment for their shares of NovaMed common stock. Instead, NovaMed will remain an independent public company, its common stock will continue to be listed and traded on NASDAQ, and our stockholders will continue to be subject to the same risks and opportunities as they currently face with respect to their ownership of NovaMed common stock. If the merger is not completed, NovaMed can offer no assurance as to the effect of these risks and opportunities on the future value of your shares of NovaMed common stock, including the risk that the market price of NovaMed common stock may decline due to the fact that the current market price of NovaMed common stock may reflect a market assumption that the merger will be completed. If the merger is not completed, our Board of Directors will evaluate and review the business operations, properties, dividend policy and capitalization of NovaMed from time to time, make such changes as they deem appropriate, and continue to seek to maximize stockholder value. If the merger agreement is not approved by our stockholders or if the merger is not consummated for any other reason, there can be no assurance that any other acceptable transaction will be available to the Company or that NovaMed’s business, prospects or results of operations will not be adversely impacted.

Pursuant to the merger agreement, under certain circumstances, NovaMed is permitted to terminate the merger agreement and approve an alternative transaction. See “The Merger Agreement — Termination” beginning on page 67.

 

To the extent NovaMed does so, it will be obligated to pay Parent’s designee a termination fee. See “The Merger Agreement — Termination Fees” beginning on page 69.

 

Equity Commitment Letter

 

Pursuant to an equity commitment letter from H.I.G. Bayside Debt & LBO Fund II, L.P. to Parent dated as of January 20, 2011, H.I.G. Bayside Debt & LBO Fund II, L.P. has agreed to make capital contributions of up to $20.0 million to Parent in exchange for equity interests of Parent, to enable Parent and Merger Sub to consummate the merger and the other transactions contemplated by the merger agreement. The amount of the equity contribution from H.I.G. Bayside Debt and LBO Fund II, L.P. will be reduced at closing to the amount, when coupled with the aggregate proceeds of the debt financing described below, that is necessary to consummate the merger and other transactions contemplated by the merger agreement.

 

These contributions are subject to:

 

 

Debt Commitment Letters

 

Parent will finance the merger and the transactions contemplated by the merger agreement using debt financing in an aggregate amount of up to $303.8 million obtained from the proceeds of a senior secured credit facility and the issuance or modification of unsecured senior subordinated notes. The proceeds of such debt financing shall be used, as applicable, for the purpose of funding a portion of the consideration payable in connection with the merger, refinancing certain existing indebtedness of Parent and of NovaMed (including the repayment of the convertible notes described below as and when payable), redeeming certain preferred stock of Parent, paying certain fees and expenses of the merger, and for general corporate purposes for the operation of the Parent and its subsidiaries, including NovaMed.

 

Pursuant to the commitment letter dated January 20, 2011 among Jefferies Finance LLC, or Jeffries, and Parent, (a) Jefferies agreed to act as the sole administrative agent and sole collateral agent for the lenders under the facilities described below and Jefferies agreed to act as sole book-runner, sole lead arranger and sole syndication agent for the lenders under the facilities described below in connection with (i) a senior secured term loan in the aggregate principal amount of up to $230.0 million, or term loan, and (ii) a senior secured revolving credit facility in the aggregate principal amount of $20.0 million, or revolving loan, the revolving loans and the terms loans collectively referred to as the facilities, and (b) Jefferies agreed to commit to provide the entire principal amount of the facilities, subject in the case of the foregoing, to the terms and conditions set forth in the commitment letter. Subject to certain flex provisions that become effective in connection with the syndication of the facilities, interest on the facilities will be payable at a rate of prime plus 4.25%, or, at Parent’s election, LIBOR plus 5.25%. The facilities will be secured by substantially all of the assets of Parent and its wholly-owned domestic subsidiaries; and will be guaranteed by Holdings and by all of the wholly-owned domestic subsidiaries of Parent. The revolving loan will mature 60 months following the closing date of the facilities, and the term loan will mature 69 months following the closing date of the facilities.

THL Credit Advisors LLC (together with its lending affiliate THL Credit, Inc., “THL”), and Partners Group AG on behalf of one or more entities managed and/or advised by it or one of its affiliates (such managed and/or advised entities collectively referred to as “Partners” and together with THL as the “purchasers”) provided a commitment letter dated January 20, 2011, to Parent, pursuant to which the purchasers, subject to the terms and conditions therein (a) agreed to modify senior subordinated notes previously issued by Parent and (b) committed to purchase, on a several basis, additional senior subordinated notes, which when taken together with the previously issued notes, result in a total principal amount of senior subordinated notes of up to $53.8 million in the aggregate, collectively referred to as the “notes.” Subject to certain flex provisions that become effective in connection with the flex of the facilities, the notes will bear interest at a rate of 15.00% per annum (3.00% of which may be either paid in cash or added to principal at the election of Parent), and will mature 75 months following the closing date. The notes will be unsecured and will not be senior in right in payment to the convertible notes described below. In addition, Partners will receive the right to participate in up to 0.59% of certain new class A-1 units being issued by Holdings in connection with the merger.

 

Repayment of Indebtedness

 

We intend to repay the indebtedness incurred to effect the merger through cash flow from operations. Although there can be no assurance, we believe that cash flow from operations should be sufficient to service our interest and principal repayment obligations under the indebtedness incurred to effect the merger for the foreseeable future. However, we believe that it is reasonably likely that we will need to refinance all or a portion of the facilities and/or notes prior to maturity with the proceeds of future financing activities. See “The Merger Agreement — Convertible Notes; Convertible Note Hedge Agreement and Warrant Agreement.”

 

Limited Guarantee

 

Pursuant to a limited guarantee, H.I.G. Bayside Debt & LBO Fund II, L.P. has agreed to guarantee the obligations of Parent and Merger Sub under the merger agreement with respect to any reverse termination fee payable by Parent, plus interest on any unpaid reverse termination fee at the prime rate of Citibank, N.A., on the date such payment is required to be paid. In addition, H.I.G. Bayside Debt & LBO Fund II, L.P. has agreed to guarantee, up to $10,920,000, the obligations of Parent to pay any losses or damages payable to NovaMed as a result of Parent’s or Merger Sub’s willful breach of the merger agreement and NovaMed’s expenses (including reasonable attorneys’ fees) incurred in connection with the enforcement of Parent’s obligations to pay any such reverse termination fee.

 

The guarantee will terminate upon the earlier of the effective time of the merger or the termination of the merger agreement in certain specified circumstances, unless prior to the date that is six months after the date of such termination the Company shall have commenced a legal proceeding alleging amounts payable by Parent, Merger Sub or H.I.G. Bayside Debt & LBO Fund II, L.P. under the terms of the merger agreement or the limited guarantee.

 

In considering the recommendation of our Board of Directors, our stockholders should be aware that some of NovaMed’s executive officers, members of our Board of Directors and other affiliates may have interests in the transaction that are different from, or in addition to, the interests of our stockholders generally. Our Board of Directors was aware of such interests and considered them, among other matters, in reaching their decisions to adopt the merger agreement and approve the merger and recommend that NovaMed’s common stockholders vote in favor of adopting the merger agreement and approving the merger.

 

Voting Agreements

 

Simultaneously with the execution of the merger agreement and as a condition to Parent and Merger Sub entering into the merger agreement, Parent entered into voting agreements with each of NovaMed’s directors and executive officers, including Robert J. Kelly, C.A. Lance Piccolo, Thomas S. Hall, R. Judd Jessup, Scott H. Kirk, M.D., Steven V. Napolitano, Scott T. Macomber and Graham B. Cherrington. Pursuant to the voting agreements, such directors and executive officers have agreed, among other things, to vote all of the shares of NovaMed common stock beneficially owned by such stockholders in favor of the adoption of the merger agreement and approval of the merger at any meeting of NovaMed’s common stockholders. As of the record date, such

stockholders collectively exercised voting control over approximately 10.5% of the outstanding shares of NovaMed common stock. Any additional shares of common stock acquired by such stockholders following the record date will automatically become subject to the voting agreements.

 

The voting agreements require these stockholders, to, among other things, vote their shares of NovaMed common stock at any meeting of NovaMed’s common stockholders (i) in favor of the adoption of the merger agreement and approval of the merger, (ii) against any third party acquisition proposal, or any action or agreement that would interfere with the merger or the Company’s performance of its obligations under the merger agreement, and (iii) against any amendment of the Company’s governing documents or other proposal or transaction that would interfere with the merger or nullify the merger agreement or change the voting rights of any class of the NovaMed common stock.

 

In addition, each of these stockholders granted Parent an irrevocable proxy to vote their shares of NovaMed common stock on their behalf in the event that such stockholder fails to act in accordance with his voting agreement.

 

Under the voting agreements, such stockholders have also agreed not to sell, sell short, transfer (with or without consideration), exchange, pledge or otherwise encumber, assign or otherwise dispose of, or enter into any contract with respect to their shares of NovaMed common stock, enter into any other voting arrangement or grant any other proxy with respect to such shares, or take any other action that would interfere with the transactions contemplated by the merger agreement or NovaMed’s performance of its obligations under the merger agreement. Further, such stockholders may not solicit proxies or become a participant in a solicitation with respect to a third party acquisition proposal.

 

The voting agreements terminate on the earlier of the effective time of the merger or the termination of the merger agreement.

 

The full text of the form of voting agreement is attached to this Proxy Statement as Appendix C.

 

Treatment of Stock Options and Restricted Stock

 

In connection with the merger, all of our equity compensation awards (including awards held by our directors and executive officers) will be subject to the following treatment:

 

 

See “The Merger Agreement — Treatment of Stock and Equity Awards” for a more complete description of the treatment of the relevant plans under which such common stock options and other stock-based awards were issued.

 

The following table reflects the consideration expected to be received by each of our directors and executive officers in connection with the merger:

 

 

 

 

For further information regarding the beneficial ownership of NovaMed common stock by the directors and executive officers of NovaMed, see “Security Ownership of Certain Beneficial Owners and Management.”

 

Severance Provisions

 

We provide the opportunity for our named executive officers and other executives to be protected under a change in control policy contained in their employment agreements. We provide this opportunity to attract and

retain an appropriate caliber of talent for the position, to recognize that similar change in control protections are commonly provided at other companies that we compete with for talent, and to ensure the impartiality and objectivity of our executives in the event of a change in control situation so that our stockholder interests are protected. We review this change in control protection periodically to ensure it remains fair to our executives and supportable to our stockholders. At its May 2009 meeting, our Compensation Committee reviewed the severance arrangements with our senior executives. In doing so, it approved modifications to Mr. Cherrington’s severance arrangements in order to conform them to the severance arrangements of the Company’s other Executive Vice President, Mr. Macomber. Our Board of Directors promoted Mr. Cherrington to Executive Vice President Operations in December 2008. For the last completed and current fiscal years, our change in control policy for the named executive officers is summarized below:

 

 

Employment Agreements

 

The Company has entered into employment agreements with its named executive officers. The agreements generally provide for the payment of an annual base salary, plus cash incentive compensation based upon the Company’s executive compensation plan. The employment agreements also provide for the right to participate in the Company’s common stock option and employee benefit programs. These programs include hospitalization, disability, life and health insurance. The employment agreements impose on each employee non-competition restrictions that survive termination of employment and post-termination confidentiality obligations.

 

The Company may terminate these employment agreements with or without cause or upon the named executive officer’s disability. If the Company terminates a named executive officer for disability or cause, the executive is not entitled to receive any salary or other severance after the date of termination. The Company may terminate a named executive officer for cause under the agreement if he: (i) materially breaches any term or condition of the agreement and fails to cure such breach within a reasonable time; (ii) fails to comply with any of the Company’s written guidelines that it has furnished to the executive and fails to cure such failure within a reasonable time; (iii) materially fails or willfully refuses to substantially perform his duties and fails to cure such failure or refusal within a reasonable time; or (iv) has committed an act constituting a felony or other act involving dishonesty, disloyalty or fraud against the Company, as reasonably determined by our Board of Directors.

 

Mr. Hall’s employment agreement with the Company automatically renews on a year-to-year basis, unless either party chooses to terminate the agreement. If the Company terminates Mr. Hall without cause, he would receive severance compensation in a fixed amount equal to his then-current base salary and pro rata cash incentive compensation for 18 months, plus health benefits for such period. This 18-month severance period was increased from 12 months by our Compensation Committee at a meeting in May 2009. The Compensation Committee elected to make this increase because Mr. Hall’s 12-month severance period was less than the comparable severance arrangements for the Executive Vice President position. If Mr. Hall’s employment is terminated following a change in control of the Company by Mr. Hall for good reason or by the Company without cause, he would receive an amount equal to two times the sum of his annual base salary and targeted incentive bonus plus health benefits for 24 months. If Mr. Hall terminates his employment during the 30-day period following the one-year anniversary of a

change in control, he would receive an amount equal to one times the sum of his annual base salary and incentive bonus plus health benefits for 12 months.

 

Each of Messrs. Macomber and Cherrington’s employment agreement automatically renews on a year-to-year basis, unless either party chooses to terminate the agreement. If the Company terminates Messrs. Macomber or Cherrington without cause, the executive receives severance compensation in a fixed amount equal to his then-current base salary for a period of 15 months, health benefits for such period, and his pro rata cash incentive compensation. If Mr. Macomber or Mr. Cherrington’s employment is terminated following a change in control of the Company by the executive for good reason or by the Company without cause, the executive would receive an amount equal to 150% of the sum of his annual base salary and targeted incentive bonus plus health benefits for 18 months. If Mr. Macomber or Mr. Cherrington terminates his employment after the one-year anniversary of a change in control, he would receive an amount equal to 75% of the sum of his annual base salary and targeted incentive bonus plus health benefits for 9 months. At a meeting in May 2009, our Compensation Committee modified Mr. Cherrington’s severance arrangements to conform to Mr. Macomber’s in light of Mr. Cherrington’s promotion to Executive Vice President in December 2008.

 

In May 2009, our Compensation Committee also approved conforming amendments to the employment agreements of Messrs. Hall, Cherrington and Macomber to modify their severance arrangements to reflect the increase in the target award percentages payable to each of them under the Bonus Plan that was approved by our Compensation Committee in February 2009. At its February 2009 meeting, our Compensation Committee increased Mr. Hall’s target award percentage under the Bonus Plan from 50% to 75%, and increased Messrs. Macomber and Cherrington’s target award percentages under the Bonus Plan from 35% to 50%. These targeted incentive bonus awards are relevant for each executive’s severance calculation in the event of a termination of employment following a change in control of the Company by the executive for good reason or by the Company without cause.

 

Termination without Cause

 

The following table shows the Company’s potential payment and benefit obligations to each of its named executive officers for termination by the Company without cause assuming such termination occurred on February 1, 2011, including the estimated present value of continuing coverage of medical, dental and other welfare benefits. The Company has no obligation to its named executive officers for termination by the Company for cause or due to death or permanent disability.

 

 

 

 

Termination following a Change in Control

 

The following table shows the Company’s potential payment and benefit obligations to each of its named executive officers assuming that a Change in Control of the Company had occurred and as a result the named executive officer’s employment was terminated by the Company without cause or by the executive for good reason

on February 1, 2011. Following a Change in Control of the Company, the Company has no obligation to its named executive officers for termination by the Company for cause or due to death or permanent disability.

 

 

 

 

The following table shows the Company’s potential payment and benefit obligations to each of its named executive officers assuming that they each terminated their employment during the 30-day period following the one-year anniversary of a Change in Control of the Company that is assumed to have occurred on February 1, 2011.

 

 

 

 

Indemnification and Insurance

 

Pursuant to the merger agreement, Parent agreed that all rights to exculpation, indemnification and advancement of expenses for each current and former director and officer of NovaMed and its subsidiaries, whom we refer to as the indemnified parties, against all liabilities for acts or omissions occurring at or prior to the effective time of the merger, as provided in NovaMed’s certificate of incorporation and bylaws and any indemnification or other agreements in effect on the date of the merger agreement (in each case, to the extent copies of which were made available to Parent prior to the date of the merger agreement) would survive the merger and continue in full force and effect in accordance with their terms without amendment, repeal or other modification for a period of six years following the effective time of the merger, provided that such obligations are subject to any limitation imposed from time to time under applicable law.

 

In addition, pursuant to the merger agreement, Parent agreed to maintain in effect the Company’s current directors’ and officers’ liability insurance covering each person currently covered by the Company’s directors’ and officers’ liability insurance policy for acts or omissions occurring prior to the effective time of the merger on terms with respect to such coverage and amounts no less favorable in the aggregate than those of such policy in effect on the date of the merger agreement. However, Parent may (i) substitute for the Company’s current directors’ and officers’ liability insurance policy policies of any reputable insurance company or (ii) satisfy this obligation by causing the Company to obtain, on or prior to the closing date of the merger, prepaid (or “tail”) directors’ and officers’ liability insurance policy at Parent’s expense, in each case, the material terms of which, including coverage and amount, are no less favorable in the aggregate to such directors and officers than the insurance coverage otherwise required under the merger agreement; provided however that Parent is not required to pay an annual premium for such insurance in excess of 300% of the annual premium currently paid by the Company for such insurance and if the annual premium of such insurance coverage exceeds such amount, Parent is obligated to obtain a policy with the greatest coverage available, with respect to matters occurring prior to the effective time of the merger, for a cost not exceeding such amount.

 

However, if the Company or the surviving corporation fails to obtain the “tail” policy, the surviving corporation must maintain NovaMed’s current directors’ and officers’ liability insurance policy for acts or omissions occurring prior to the effective time of the merger on terms and with respect to coverage and amount at least as favorable in the aggregate as NovaMed’s policy in effect on the date of the merger agreement. Parent and the surviving corporation are not required to pay premiums for such insurance of more than 300% the current annual premium paid by NovaMed for the insurance, although it must maintain the maximum amount of such insurance as possible for an annual cost of 300% the current annual premium paid by NovaMed.

 

Consulting Agreements

 

As part of the transactions contemplated by the merger agreement, Parent entered into a consulting agreement with each of Thomas S. Hall and Graham Cherrington. These consulting agreements become effective only upon the effective time of the merger, and each such person’s employment with the Company will be terminated without cause on the day after the effective time of the merger. These consulting agreements will not be effective and will have no force or effect in the event the merger agreement is terminated in accordance with its terms.

 

Each of their consulting agreements commences at the effective time of the merger and continues for an initial period of 30 days. Each of the consulting agreements may be terminated by either party on two weeks’ prior notice and in no circumstances is the term of either of the consulting agreements to exceed the date that is 26 weeks after the effective time of the merger. Each consultant is entitled to receive compensation in the form of a weekly consulting retainer fee in an amount equal to 110% of his current weekly base salary.

 

Rollover Stockholders

 

Each of Scott T. Macomber, Thomas J. Chirillo, John P. Hart and John W. Lawrence, Jr. have agreed to surrender a portion of their shares of NovaMed common stock to Holdings immediately prior to the effective time of the merger plus, in the case of Messrs. Macomber and Hart, invest additional cash consideration, in exchange for equity interests in Holdings. In addition, the rollover stockholders entered into executive securities agreements with Holdings pursuant to which they will be awarded incentive equity awards subject to the terms and conditions of such

executive securities agreements. The rollover stockholders will receive cash in an amount equal to the merger consideration for their shares of NovaMed common stock that are not surrendered to Holdings. As a result, immediately following the merger, the rollover stockholders will hold approximately 3.1% (on a fully diluted basis) of Holdings, and indirectly, the Company, after giving effect to the issuance and vesting of all incentive equity awards granted to the rollover stockholders. See “ — Exchange Agreements.”

 

• Employment with the Surviving Corporation Post-Merger

 

As part of the transactions contemplated by the merger agreement, Parent entered into new employment agreements with each of Messrs. Macomber, Chirillo, Hart and Lawrence. These employment agreements become effective only upon the effective time of the merger and will replace each of the current employment agreements between the Company and each such individual. These employment agreements will not be effective and will have no force or effect in the event the merger agreement is terminated in accordance with its terms.

 

Unless otherwise noted below for Messrs. Macomber, Chirillo, Hart or Lawrence, each of their employment agreements has the following similar terms:

 

 

 

Employment may be terminated by (a) Parent (i) upon employee’s death or mental or physical disability or incapacity, (ii) upon employee’s resignation, or (iii) with or without cause (as defined in the employment agreement), or (b) by employee for good reason (as defined in the employment agreement). If the employee’s employment with Parent is terminated by Parent with cause or upon employee’s death or mental or physical disability or incapacity or if the employee resigns for any reason other than good reason, then the employee will only be entitled to receive his base salary through the date of termination or resignation.

 

If the employee’s employment with Parent is terminated by Parent without cause or by the employee with good reason, and, in either case, employee executes a general release in favor of Parent and complies with his obligations that survive termination of his employment agreement (e.g., the non-competition provision described below), the employee will be entitled to receive (a) his base salary for a period of 12 months after the date of termination (the “severance period”), (b) a pro rata portion of his annual incentive bonus for the year in which the termination occurs, based on the number of days employee was employed by Parent during such fiscal year, and (c) continuation of his welfare benefits for the severance period.

The employment agreements contain a non-compete covenant applicable to any competitive activities with respect to businesses in which Holdings and its subsidiaries are engaged when the employee’s employment with Parent is terminated. The non-compete period applies during the term of employment and for one year thereafter. The non-compete provision applies upon any termination of the respective employee’s respective employment agreement.

 

• Executive Securities Agreements

 

As part of the transactions contemplated by the merger agreement and the employment agreements between Parent and each of the rollover stockholders, Holdings entered into an executive securities agreement with each of Messrs. Macomber, Chirillo, Hart and Lawrence. These executive securities agreements become effective only upon the effective time of the merger. These executive securities agreements will not be effective and will have no force or effect in the event the merger agreement is terminated in accordance with its terms.

 

Unless otherwise noted below for Messrs. Macomber, Chirillo, Hart or Lawrence, each of their executive securities agreements has the following similar terms:

 

 

• Exchange Agreements

 

As a condition and inducement to Parent and Merger Sub to enter into the merger agreement, Parent entered into exchange agreements with the rollover stockholders: Scott T. Macomber, Thomas J. Chirillo, John P. Hart and John W. Lawrence, Jr.

 

Pursuant to the exchange agreements, immediately prior to the effective time of the merger and conditioned upon the closing of the merger and the continued employment of such rollover stockholder by Merger Sub at the closing of the merger, each of the rollover stockholders will surrender a portion of their shares of NovaMed common stock to, and, in the case of Messrs. Macomber and Hart, invest additional cash consideration in, Holdings in exchange for class A-1 units in Holdings. The rollover stockholders will surrender an aggregate of 54,818 shares of NovaMed common stock, or less than 1.0% of the issued and outstanding shares of NovaMed common stock. Upon the completion of the merger and solely as a result of the transactions contemplated by the exchange agreements, the rollover stockholders will directly own class A-1 units of Holdings representing approximately 1.4% (on a fully diluted basis) of the outstanding membership interests of Holdings after giving effect to the issuance and vesting of all incentive equity awards granted to the rollover stockholders pursuant to the executive securities agreements described above.

The following table sets forth the number of shares and percentage of outstanding NovaMed common stock held by each rollover stockholder, including shares of unvested restricted stock which will vest upon completion of the merger, along with the number of class A-1 units and percentage of all membership interests of Holdings that each will own after the completion of the merger:

 

 

 

 

• Award Agreements

 

In consideration for our executives’ assistance in facilitating the merger, our Board of Directors approved the payment of $332,775, $223,438, $114,113 and $209,563 to each of Messrs. Macomber, Chirillo, Hart and Lawrence, respectively, upon the satisfaction of certain specified conditions, including (i) the closing of the merger, (ii) the recipient remains employed by the Company at the time of the closing of the merger and (iii) the Company receives proceeds sufficient to satisfy such payments from the repayment of an outstanding promissory note. To the extent that such promissory note proceeds received are insufficient to pay the full amount of such payments, each of Messrs. Macomber, Chirillo, Hart and Lawrence shall receive his pro rata portion of such proceeds received by NovaMed in full satisfaction of such payment to which such individual is entitled.

 

The following is a summary of the material United States federal income tax consequences of the merger to “U.S. holders” and “non-U.S. holders” (each, as defined below) who receive cash in the merger in exchange for shares of NovaMed common stock (excluding any rollover stockholders). The discussion does not purport to consider all aspects of United States federal income taxation that might be relevant to holders of NovaMed common stock. The discussion is based on the Internal Revenue Code of 1986, as amended, which we refer to as the Internal Revenue Code, applicable current and proposed United States Treasury regulations, judicial authority and administrative rulings and practice, all of which are subject to change, possibly with retroactive effect. Any change could alter the tax consequences of the merger to the holders of common stock.

 

This discussion applies only to holders who hold shares of NovaMed common stock as capital assets within the meaning of Section 1221 of the Internal Revenue Code. This discussion does not address all aspects of United States federal income taxation that may be relevant to holders of NovaMed common stock in light of their particular circumstances, or that may apply to holders that are subject to special treatment under United States federal income tax laws (including, for example, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, cooperatives, traders in securities who elect to mark their securities to market, mutual funds, real estate investment trusts, S corporations, holders subject to the alternative minimum tax, persons who validly exercise appraisal rights, partnerships or other pass-through entities and persons holding shares of NovaMed common stock through a partnership or other pass-through entity, persons who acquired shares of NovaMed common stock in

connection with the exercise of employee stock options or otherwise as compensation, United States expatriates, “passive foreign investment companies,” “controlled foreign corporations” and persons who hold shares of NovaMed common stock as part of a hedge, straddle, constructive sale or conversion transaction). This discussion does not address any aspect of state, local or foreign tax laws or United States federal tax laws other than United States federal income tax laws. This discussion also does not address any tax consequences to rollover stockholders as a result of the transaction (including, for example, the consequences of exchanging Rollover Shares for interests in Holdings, receiving cash in the merger, acquiring an equity interest in Parent or receiving any other consideration in connection with the merger).

 

The summary set forth below is not intended to constitute a complete description of all tax consequences relating to the merger. No rulings have been sought or will be sought from the United States Internal Revenue Service, or IRS, with respect to any of the United States federal income tax considerations discussed below. As a result, we cannot assure you that the IRS will agree with the tax characterizations and the tax consequences described below. Because individual circumstances may differ, each holder should consult its tax advisor regarding the applicability of the rules discussed below to the holder and the particular tax effects of the merger to the holder, including the application of state, local and foreign tax laws.

 

For purposes of this summary, a “U.S. holder” is a holder of shares of NovaMed common stock, who or that is, for United States federal income tax purposes:

 

 

A “non-U.S. holder” is a person (other than a partnership) that is not a U.S. holder.

 

If shares of NovaMed common stock are held by a partnership (including any other entity taxable as a partnership for United States federal income tax purposes), the United States federal income tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. Partnerships that hold shares of NovaMed common stock and partners in such partnerships are urged to consult their tax advisors regarding the tax consequences to them of the merger.

 

U.S. Holders.  The receipt of cash for shares of NovaMed common stock pursuant to the merger agreement will be a taxable transaction for United States federal income tax purposes. In general, a U.S. holder who surrenders shares of NovaMed common stock for cash in the merger will recognize capital gain or loss for United States federal income tax purposes equal to the difference, if any, between the amount of cash received in exchange for such shares and the U.S. holder’s adjusted tax basis in such shares. If a U.S. holder acquired different blocks of NovaMed common stock at different times or different prices, such holder must determine its tax basis and holding period separately with respect to each block of NovaMed common stock. Such gain or loss will be long-term capital gain or loss provided that a U.S. holder’s holding period for such shares is more than one year at the time of completion of the merger. Long-term capital gains recognized by U.S. holders that are individuals generally should be subject to a maximum United States federal income tax rate of 15%. There are limitations on the deductibility of capital losses.

 

Cash payments made pursuant to the merger agreement will be reported to holders of NovaMed common stock and the IRS to the extent required by the Internal Revenue Code and applicable regulations of the United States Treasury. Under the Internal Revenue Code, a U.S. holder of NovaMed common stock (other than a corporation or other exempt recipient) may be subject, under certain circumstances, to information reporting on the cash received pursuant to the merger agreement. A U.S. holder, who is not otherwise exempt, who fails to supply a correct taxpayer identification number, under-reports tax liability, or otherwise fails to comply with United States information

reporting or certification requirements, may be subject to backup withholding of tax at a rate of 28% with respect to the amount of cash received in the merger.

 

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a U.S. holder’s United States federal income tax liability provided that the required information is timely furnished to the IRS.

 

Non-U.S. Holders.  Any gain realized on the receipt of cash pursuant to the merger agreement by a non-U.S. holder generally will not be subject to United States federal income tax unless:

 

 

A non-U.S. holder whose gain is associated with a U.S. trade or business in a manner described in the first bullet point will be subject to tax on its net gain in the same manner as if it were a U.S. holder. In addition, such a non-U.S. holder that is a corporation may be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits (including such gain) or at such lower rate as may be specified by an applicable income tax treaty. An individual non-U.S. holder described in the second bullet point above will be subject to tax at a 30% flat rate on the gain recognized, which gain may be offset by certain losses. The amount of gain or loss will be equal to the difference, if any, between the amount of cash received in exchange for shares of NovaMed common stock and the non-U.S. holder’s adjusted tax basis in such shares.

 

Non-U.S. holders who sell their NovaMed common stock in the merger generally will not be subject to information reporting and backup withholding, provided that NovaMed does not have actual knowledge or reason to know that the non-U.S. holder is a United States person, as defined under the Internal Revenue Code, and the non-U.S. holder provides NovaMed a certification, under penalty of perjury, that it is not a United States person (such certification may be made on an IRS Form W-8BEN, or successor form, or by satisfying other certification requirements of applicable United States Treasury regulations). Backup withholding of tax (at a rate of 28%) for any non-U.S. holder who does not provide adequate certification may apply to cash received by a non-U.S. holder in the merger.

 

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s United States federal income tax liability provided that the required information is timely furnished to the IRS.

 

The following discussion summarizes the material regulatory requirements that we believe relate to the merger, although we may determine that additional consents from, or notifications to, governmental agencies are necessary or appropriate.

 

Under the HSR Act, we cannot complete the merger until we have submitted certain information to the Antitrust Division of the Department of Justice and the Federal Trade Commission and satisfied the statutory waiting period requirements. Both NovaMed and Parent made the necessary initial filings under the HSR Act on January 27 and 28, 2011, respectively.

 

Under the merger agreement, it is a condition to closing the merger that certain notices, approvals and consents agreed to by the parties shall have been made or obtained except to the extent facilities for which such notices, approvals and consents have not been made or obtained represented $1.5 million or less of EBITDA (less minority interest expense) for the twelve month period ended November 30, 2010. In addition, though not a condition to the consummation of the merger, federal and state laws and regulations may require that the Company or Parent obtain

other approvals or certificates of need from, file new license and/or permit applications with, and/or provide notice to, applicable governmental authorities in connection with the merger. The parties have agreed to use their best efforts to make or obtain all such notices, applications, approvals, consents or determination letters.

 

In the merger agreement, the parties have agreed to use reasonable best efforts to assist each other in making all filings with governmental authorities and obtaining all governmental approvals and consents necessary to consummate the merger, subject to certain exceptions and limitations. Except as noted above with respect to the required filings under the HSR Act, the health regulatory notices, consents and approvals, the third party consents and the filing of a certificate of merger in Delaware at or before the effective date of the merger, we are not aware of any material federal, state or foreign regulatory requirements or approvals required for the execution of the merger agreement or completion of the merger.

 

On January 27, 2011, a putative shareholder class action lawsuit was filed in the Court of Chancery of the State of Delaware, captioned Antony v. NovaMed, Inc., et al. (Case No. 6151-VCP) against the Company, the members of its board of directors, Parent and Merger Sub (the “Delaware Complaint”). The Delaware Complaint alleges that the members of our Board of Directors breached their fiduciary duties in connection with our Board of Directors’ recommendation to our stockholders that they approve the merger and authorizing the Company to enter into the merger agreement. The Delaware Complaint alleges that Parent and the Merger Sub aided and abetted our Board of Directors’ breach of fiduciary duties. We believe the allegations in the Delaware Complaint are without merit and intend to defend vigorously the action.

 

On January 31, 2011, a putative shareholder class action lawsuit was filed in the Circuit Court of Cook County, Illinois County Department, Chancery Division, captioned Caltabiano v. NovaMed, Inc., et al. against the Company, the members of our Board of Directors, Parent and Merger Sub (the “Illinois Complaint”). The Illinois Complaint alleges that the members of our Board of Directors breached their fiduciary duties in connection with our Board of Directors’ recommendation to the our stockholders that they approve the merger and authorizing the Company to enter into the merger agreement. The Illinois Complaint alleges that Parent and the Merger Sub aided and abetted our Board of Directors’ breach of fiduciary duties. We believe the allegations in the Illinois Complaint are without merit and intend to defend vigorously the action.

 

This section describes the material terms of the merger agreement. The description in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the merger agreement, a copy of which is attached as Annex A and is incorporated by reference into this proxy statement. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. Capitalized terms used herein and not otherwise defined have the meanings set forth in the merger agreement. We encourage you to read the merger agreement carefully and in its entirety. This section is not intended to provide you with any factual information about us. Such information can be found elsewhere in this proxy statement and in the public filings we make with the SEC, as described in the section entitled, “Where You Can Find More Information”, beginning on page 79.

 

The representations, warranties and covenants contained in the merger agreement were made only for purposes of the merger agreement and as of specified dates, were solely for the benefit of the parties to the merger agreement, and may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures exchanged between the parties in connection with the execution of the merger agreement. The representations and warranties may have been made for the purposes of allocating contractual risk between the parties to the merger agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. You should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of NovaMed, Parent or Merger Sub or any of their respective subsidiaries or affiliates. Further, information concerning the subject matter of the representations and warranties may change after the date of the merger agreement, which subsequent information may not be fully reflected in NovaMed’s public disclosures.

 

The merger agreement provides that, upon and subject to the terms and conditions of the merger agreement and in accordance with Delaware law, Merger Sub will be merged with and into NovaMed. At that time, Merger Sub’s separate corporate existence will cease and NovaMed will continue as the surviving corporation. The merger will become effective at the time the certificate of merger is duly filed with the Secretary of State of the State of Delaware or at such later time as is specified in the certificate of merger. The merger is expected to occur within two business days after all conditions to closing specified in the merger agreement have been satisfied or waived.

 

Following the merger, NovaMed will be a privately held corporation and a wholly-owned subsidiary of Parent. Our current stockholders, other than the rollover stockholders, will cease to have ownership interests in NovaMed or rights as stockholders of NovaMed and will not participate in our future earnings or growth. Instead, at the effective time of the merger, the shares of NovaMed common stock held by holders of NovaMed common stock, other than the rollover shares held by the rollover stockholders and other than certain shares held by NovaMed, or any subsidiary of NovaMed or Parent or Merger Sub or the rollover stockholders, will be cancelled and converted into the right to receive $13.25 per share in cash, without interest and less any applicable withholding taxes, as more fully described below.

 

At the effective time of the merger, the directors and officers of Merger Sub in office immediately prior to the merger will become the directors and officers, respectively, of the surviving corporation. Also at the effective time of the merger, NovaMed’s certificate of incorporation will be amended to be identical to the certificate of incorporation of Merger Sub, except to reflect that the name of the surviving corporation will remain as “NovaMed, Inc.,” and the bylaws of Merger Sub will be become the bylaws of the surviving corporation.

 

Our common stock is currently listed on the NASDAQ Global Select Market, or NASDAQ, under the symbol “NOVA.” After the merger, NovaMed common stock will cease to be listed on NASDAQ, and there will be no public market for NovaMed common stock. Our common stock is also registered with the SEC under the Exchange Act. Following the merger, we expect to deregister the NovaMed common stock and cease to be a public reporting company. Accordingly, we will no longer be required to file periodic and current reports with the SEC, such as annual, quarterly and current reports on Forms 10-K, 10-Q and 8-K.

 

Common Stock

 

At the effective time of the merger, each share of NovaMed common stock (including shares of vested restricted stock) issued and outstanding immediately prior to the effective time of the merger (other than shares held by NovaMed or any subsidiary of NovaMed or Parent or Merger Sub and stockholders who have perfected and not withdrawn a demand for appraisal rights under Delaware law) will be automatically cancelled and converted into the right to receive $13.25 in cash, without interest.

 

Stock Options

 

At the effective time of the merger, each unexercised NovaMed common stock option, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger shall be cancelled at the effective time of the merger, with the holder of such NovaMed common stock option becoming entitled to receive, in full satisfaction of the rights of the holder of such NovaMed common stock option, an amount in cash equal to (A) the excess, if any, of (1) $13.25 over (2) the exercise price per share of NovaMed common stock subject to such NovaMed common stock option multiplied by (B) the number of shares of NovaMed common stock subject to such NovaMed common stock option. To clarify the treatment of each of the unexercised NovaMed common stock options, we will enter into an option cancellation agreement with each holder of a NovaMed common stock option prior to the effective time of the merger that will only become effective upon the consummation of the merger.

 

Unvested Restricted Stock

 

At the effective time of the merger, each unvested NovaMed restricted share of common stock that is outstanding immediately prior to the effective time of the merger shall be cancelled, with the holder of such

unvested NovaMed restricted share of common stock becoming entitled to receive, in full satisfaction of the rights of such holder with respect thereto, an amount in cash equal to $13.25 multiplied by the maximum number of shares of NovaMed common stock subject to such restricted share of NovaMed common stock immediately prior to the effective time of the merger.

 

Employee Stock Purchase Plan

 

With respect to the Purchase Plan, our Board of Directors adopted resolutions and took other actions to (A) limit participation to those employees who are participants on the date of the merger agreement; (B) provide that no Option Period (as defined in the Purchase Plan) shall be commenced after the date of the merger agreement; (C) provide that if, with respect to an Option Period in effect on the date of the merger agreement, the effective time of the merger occurs prior to the Exercise Date (as defined in the Purchase Plan) for such Option Period, upon the effective time of the merger, each purchase right under the Purchase Plan outstanding immediately prior to the effective time of the merger shall be exercised to purchase from NovaMed whole shares of NovaMed’s common stock (subject to the provisions of the Purchase Plan regarding the maximum number and value of shares purchasable per participant) at the applicable price determined under the terms of the Purchase Plan for the then outstanding Option Period using such date on which the effective time of the merger occurs as the final Exercise Date for such Option Period, and any remaining accumulated but unused payroll deductions shall be distributed to the relevant participants without interest as promptly as practicable following the Effective Time; and (D) terminate the Purchase Plan, effective upon the earlier of the Purchase Date for the Option Period in effect on the date of the merger agreement and the effective time of the merger.

 

The merger agreement includes our representations and warranties relating to the following:

 

 

 

Some of the representations and warranties in the merger agreement made by the Company are qualified as to “materiality” or “Material Adverse Effect.” For purposes of the merger agreement, a “Material Adverse Effect” means any state of facts, condition, change, development or event with respect to the Company that, individually or in the aggregate, (i) results in or is reasonably likely to result in a material adverse effect on the business, assets, liabilities, properties, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, or (ii) prevents, materially impedes or materially delays the consummation of the merger to a date following the Termination Date (or any extension of the Termination Date). The definition of “Material Adverse Effect” excludes from clause (i) and (ii):

 

 

The merger agreement also contains representations and warranties that Parent and Merger Sub made to us, including representations and warranties relating to the following:

 

 

Some of the representations and warranties in the merger agreement made by Parent and Merger Sub are qualified by a “materiality” standard that requires, depending on the specific representation and warranty, the representation and warranty to which it applies to be true except in cases where the failure to be true would not either (i) be material or (ii) reasonably be expected to prevent, materially impede or materially delay the consummation of the merger or the other transactions contemplated by the merger agreement.

 

None of the representations and warranties contained in the merger agreement or in any instrument delivered pursuant to the merger agreement survive the effective time of the merger. This limit does not apply to any covenant or agreement of the parties which by its terms contemplates performance after the effective time of the merger.

 

Except as disclosed in writing by the Company to Parent and Merger Sub prior to execution of the merger agreement, or permitted by the terms of the merger agreement, or unless Parent has given its prior written consent (which consent shall not be unreasonably withheld), from the date of the merger agreement until the effective time of the merger or until the termination of the merger agreement, the Company will, and will cause its subsidiaries to:

 

 

In addition, except with the prior written consent of Parent, or as may be required by applicable law, as disclosed in writing by the Company to Parent and Merger Sub prior to execution of the merger agreement, from the date of the merger agreement until the effective time of the merger, the Company will not, and will not permit its subsidiaries to, among other things, directly or indirectly:

 

 

 

 

 

 

 

Tax and Accounting Matters.

 

The Company agreed that, during the period from the date of the merger agreement until the effective time of the merger, the Company and each of its subsidiaries will retain all books, documents and records reasonably necessary for the preparation of its tax returns. In addition, except as required by applicable tax law or with Parent’s prior written consent, the Company agreed that neither it nor any of its subsidiaries will, from the date of the merger agreement until the effective date of the merger:

 

 

 

No Solicitation of Takeover Proposals

 

The Company agreed that it shall not, and shall not permit its controlled affiliates or authorize or permit its or any of its controlled affiliates’ directors, officers, employees, investment bankers, attorneys, accountants or other advisors or representatives, whom we refer to collectively as “representatives,” to, directly or indirectly:

 

 

The Company also agreed that it shall, and shall cause its subsidiaries and representatives to, immediately cease and terminate all existing activities, communications and negotiations with any person or entity conducted prior to the date of the merger agreement with respect to any Takeover Proposal (including, but not limited to, access to any electronic or other data room) and shall request the prompt return or destruction of all confidential information previously furnished in connection therewith.

 

In addition to the other obligations of the Company set forth above, the Company agreed that it shall, as promptly as practicable and in any event within 24 hours after the receipt thereof, advise Parent orally and in writing of (i) any Takeover Proposal or any request for information or inquiry that expressly contemplates or could reasonably be expected to lead to a Takeover Proposal, (ii) the material terms and conditions of such Takeover Proposal, request or inquiry (including the identity of the bidder and any change to the financial terms, conditions or other material terms thereof) and (iii) the determination by our Board of Directors that a Takeover Proposal constitutes or is reasonably likely to lead to a Superior Proposal (as defined below). The Company agreed to (i) keep Parent reasonably informed of the status (including any change to the financial terms, conditions, or other material terms) of any such Takeover Proposal, request or inquiry on a reasonably current basis (and in any event at Parent’s request and otherwise no later than 24 hours after the occurrence of any material change, development, discussions or negotiations) and (ii) provide to Parent, as soon as practicable and in any event within 24 hours after receipt or delivery thereof, copies of all draft agreements (and any other written material to the extent such material contains any financial terms, conditions or other material terms relating to any Takeover Proposal), written inquiries or correspondence sent by or provided to the Company (or its representatives) in connection with any such Takeover Proposal. The Company shall not, and shall cause its subsidiaries not to, enter into any contract with any person subsequent to the date of the merger agreement, and neither the Company nor any of its subsidiaries is party to any contract, in each case that prohibits the Company from providing such information to Parent.

Notwithstanding the restrictions described above, at any time before the Company’s stockholders adopt the merger agreement and approve the merger, the Company may, and may permit and authorize its affiliates and its and their respective representatives to, subject to compliance with the provisions described in the immediately succeeding paragraph, (i) furnish information with respect to the Company and its subsidiaries to a person or entity making a bona fide written Takeover Proposal (and its representatives) pursuant to a confidentiality agreement with standstill provisions identical in all substantive respects to, and which otherwise contains terms that are no less favorable to the Company than, those contained in its confidentiality agreement between Parent and the Company and (ii) participate in discussions or negotiations with the person making such Takeover Proposal (and its representatives) regarding such Takeover Proposal, if:

 

 

The merger agreement provides that nothing contained in the merger agreement shall prohibit the Company from taking and disclosing to its stockholders a position contemplated by Rule 14d-9 and Rule 14e-2(a) under the Exchange Act or complying with Item 1012(a) of Regulation M-A under the Exchange Act or making any disclosure to its stockholders, in each case, if, in the good faith judgment of our Board of Directors (after consultation with outside legal counsel), such action is required by applicable law or necessary for our Board of Directors to comply with its fiduciary duties to the Company’s stockholders under applicable law; provided, however, that the taking of any such position or making of any such disclosure shall be subject to and only taken in compliance with the provisions of the merger agreement described below and that the Company shall, to the extent practicable, provide Parent with a reasonable opportunity to comment on and review any such disclosure and, provided further, that any disclosure other than (i) a factually accurate statement by the Company that only describes the Company’s receipt of a Takeover Proposal, the identity of the person or group making such proposal, the terms and conditions thereof and the operation of the merger agreement with respect thereto, that also contains a reaffirmation by our Board of Directors of its unanimous approval and recommendation of the merger agreement and the transactions contemplated by the merger agreement and its unanimous recommendations that the stockholders of the Company approve and adopt this agreement and the merger in such disclosure and a “stop, look and listen” communication of the type contemplated by Rule 14d-9(f) under the Exchange Act, (ii) an express rejection of any applicable Takeover Proposal or (iii) an express reaffirmation of the Company Recommendation (as defined below) shall be deemed to be an Adverse Recommendation Change (as defined below).

 

Recommendation of our Board of Directors

 

Subject to the provisions described below, our Board of Directors unanimously and duly adopted resolutions (i) approving and declaring the advisability of the merger agreement, the merger and the other transactions contemplated by the merger agreement, (ii) declaring that it is in the best interests of the Company and the stockholders of the Company that the Company enter into the merger agreement and consummate the merger and the other transactions contemplated by the merger agreement, (iii) declaring that the terms of the merger are fair to the Company and the Company’s stockholders and (iv) directing the merger agreement to be submitted to the Company’s stockholders and recommending that the Company’s stockholders adopt the merger agreement and approve the merger. This is referred to as the “Company Recommendation.” The merger agreement provides that, except as described below, neither our Board of Directors nor any committee thereof shall (i) withhold, withdraw (or not continue to make), change, qualify or modify in a manner adverse to Parent or Merger Sub, or propose publicly to withhold, withdraw (or not continue to make), change, qualify or modify in a manner adverse to Parent or Merger Sub, the Company Recommendation or any approval or recommendation by any such committee regarding the

merger agreement and the merger, or approve, recommend or declare advisable, or propose publicly to approve, recommend or declare advisable any Takeover Proposal, or resolve or agree to take any such action, (ii) fail to publicly recommend against any Takeover Proposal or fail to publicly reaffirm the Company Recommendation or any approval or recommendation by any such committee regarding the merger agreement or the merger within two business days after Parent so requests, (iii) fail to include the Company Recommendation in this Proxy Statement, (iv) approve or recommend, or propose publicly to approve, recommend or permit the Company or any of its affiliates to enter into, any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other agreement (each, an “Acquisition Agreement”) constituting or related to, or which is intended to or is reasonably likely to lead to, any Takeover Proposal (other than pursuant to a confidentiality agreement with standstill provisions identical in all substantive respects to, and which otherwise contains terms that are no less favorable to the Company than, those contained in its confidentiality agreement with Parent, as permitted under certain circumstances in the merger agreement), or (v) take (or fail to take) any other action or make any other public statement that is inconsistent with the Company Recommendation (any such action (or failure to act) or resolution or agreement to take such action in clauses (i) — (v) above being referred to herein as an “Adverse Recommendation Change”).

 

Before the Company’s stockholders adopt the merger agreement and approve the merger, our Board of Directors may effect an Adverse Recommendation Change in response to a Superior Proposal if:

 

 

The merger agreement provides that any changes to the financial terms or any change to other material terms of such Superior Proposal occurring prior to the Company’s effecting an Adverse Recommendation Change shall require the Company to provide to Parent a new notice of an Adverse Recommendation Change or notice of a Superior Proposal and a new notice period and to comply with the requirements of the merger agreement (including those described above) with respect to each such new written notice.

 

In all circumstances in which our Board of Directors is permitted to effect an Adverse Recommendation Change, it may also cause the Company to terminate the merger agreement to enter into a definitive acquisition

agreement that constitutes a Superior Proposal in accordance with the provisions applicable to an Adverse Recommendation Change, provided that the Company has paid the Company Termination Fee (as defined below) concurrently with such termination.

 

For purposes of the merger agreement:

 

 

 

 

Preparation of Proxy Statement; Stockholders Meeting

 

As promptly as practicable following the date of the merger agreement and in any event within eight business days after the date of the merger agreement, the Company shall prepare and file with the SEC this preliminary Proxy Statement. Each of the Company and Parent shall furnish all information concerning such person or entity to the

other as may be reasonably requested in connection with the preparation, filing and distribution of this Proxy Statement. The Company shall promptly notify Parent upon the receipt of any comments from the SEC or any request from the SEC or any other government official for amendments or supplements to this Proxy Statement and shall provide Parent with copies of all correspondence between it and its representatives, on the one hand, and the SEC or any other government official, on the other hand, with respect to this Proxy Statement. Each of the Company and Parent shall use reasonable best efforts to respond as promptly as practicable to any comments of the SEC with respect to this Proxy Statement. The Company shall use its reasonable best efforts to cause this Proxy Statement to be cleared by the SEC as promptly as possible. Notwithstanding the foregoing, prior to filing or mailing this Proxy Statement (or any amendment or supplement thereto) or responding to any comments of the SEC with respect thereto, the Company (i) shall provide Parent an opportunity to review and comment on such document or response (including the proposed final version of such document or response) and (ii) shall include in such document or response all comments reasonably proposed by Parent. If, at any time prior to the special stockholders meeting, any information relating to the Company, Parent or any of their respective affiliates, officers or directors should be discovered by the Company or Parent which should be set forth in an amendment or supplement to this Proxy Statement, so that this Proxy Statement does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, the party that discovers such information shall promptly notify the other parties hereto, and an appropriate amendment or supplement describing such information shall be filed with the SEC and, to the extent required by applicable law, disseminated to the stockholders of the Company.

 

For the purpose of obtaining the approval of the Company’s stockholders with respect to the adoption of the merger agreement and the approval of the merger, the Company shall use its reasonable best efforts and take all action reasonably necessary in accordance with applicable law and the Company’s organizational documents, to establish a record date for, duly call, give notice of and convene a special meeting of its stockholders as soon as reasonably practicable after the SEC confirms that it has no further comments to this Proxy Statement. The Company shall cause the definitive Proxy Statement to be mailed to the Company’s stockholders as promptly as reasonably practicable after such record date, but in no event later than three business days after this Proxy Statement is cleared by the SEC. The notice of such special stockholders meeting shall state that a resolution to adopt this merger agreement will be considered at the special stockholders meeting. Subject to the no solicitation provisions of the merger agreement, our Board of Directors shall recommend to our stockholders that they approve the merger agreement, and shall include the Company Recommendation in the Proxy Statement. The Company shall use its reasonable best efforts to solicit from its stockholders proxies in favor of the adoption of the merger agreement and shall take all action reasonably necessary in accordance with the DGCL and the Company’s organizational documents, and in any event within 40 days to duly convene and hold the special meeting of stockholders as promptly as reasonably practicable after the mailing of this Proxy Statement to our stockholders.

 

Access to Information

 

To the extent permitted under applicable law, the Company agreed to provide, and to cause its subsidiaries to provide, Parent and Parent’s representatives access upon reasonable advance notice and during normal business hours to their respective properties, assets, books, records, contracts, permits, documents, information, payors, providers, physician partners, directors, officers and employees, but only to the extent that such access does not unreasonably interfere with the business or operations of the Company and its subsidiaries, and the Company agreed to furnish, and to cause its subsidiaries to furnish, to Parent any information concerning its business as Parent may reasonably request.

 

Financing

 

Parent agreed to use its reasonable best efforts to fully satisfy, on a timely basis, all terms, conditions, representations and warranties set forth in the commitment letters and to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to arrange the financing on the terms and conditions described in the debt and equity commitment letters (or on other terms not imposing any new or additional conditions and otherwise not reasonably likely to cause any material delay in the consummation of the financing), including, using its reasonable best efforts to (i) negotiate and enter into definitive agreements with respect thereto

on the terms and conditions contained in the debt and equity commitment letters, (ii) satisfy on a timely basis all conditions applicable to Parent set forth therein that are within its control, and (iii) consummate the financing contemplated by the debt and equity commitment letters at the closing, including using its reasonable best efforts to cause the lenders and the other persons providing such financing to fund the financing required to consummate the merger and the other transactions contemplated by the merger agreement on the closing date. Upon the Company’s request, Parent agreed to inform the Company with respect to all material activity concerning the status of the financing contemplated by the debt and equity commitment letters and shall give the Company prompt notice of any material adverse change with respect to such financing. If the debt and equity commitment letters are terminated or modified in a manner materially adverse to Parent for any reason, Parent must use its reasonable best efforts to obtain, and, if obtained, will provide the Company with a copy of, a new financing commitment that provides for at least the same amount of financing as such debt and equity commitment letters as originally issued and on terms not materially less favorable then the debt and equity commitment letters to Parent.

 

Prior to the Closing, the Company agreed (and agreed to cause each of its subsidiaries to) provide, and agreed to cause their respective representatives to provide, all cooperation reasonably requested by Parent in connection with the arrangement of the financing. This does not require such cooperation to the extent it would interfere unreasonably with the business or operations of the Company or any of its subsidiaries. Neither the Company nor any of its subsidiaries is required to pay any commitment fee or similar fee or incur any liability with respect to the financing prior to the closing and Parent or Merger Sub shall bear all costs and reimburse the officers and directors of the Company and its subsidiaries for any out-of-pocket expenses they may incur in complying with these requirements, including expenses associated with attending meetings, presentations, road shows and due diligence presentations.

 

Reasonable Best Efforts

 

Each of the Company, Parent and Merger Sub has agreed to use their respective reasonable best efforts to take, or cause to be taken, and to assist and cooperate with the other parties in taking, all actions that are necessary, proper or advisable to consummate and make effective the merger and the other transactions contemplated by the merger agreement, including (i) the satisfaction of the conditions to the merger, (ii) taking all reasonable steps to provide any supplemental information requested by any governmental authority in the course of its review of the merger agreement, the merger or the transactions contemplated by the merger agreement, and (iii) the execution and delivery of any additional instruments necessary to consummate the merger and the other transactions contemplated by the merger agreement. Each of the parties agreed to use its best efforts to obtain, and to assist and cooperate with the other parties in obtaining, all necessary actions or nonactions, waivers, consents, approvals, clearances, orders and authorizations from, and to give any necessary notices to, governmental authorities and other persons (including the consents, approvals, orders, authorizations, actions, registrations, declarations and filings set forth on schedules delivered to Parent); provided, however, that neither the Company nor any of its subsidiaries are required to make any payment or commitment to a third party or modify the terms of any contract in connection with obtaining such actions, waivers, consents, approvals, clearances, orders or authorizations without the prior written consent of Parent (not to be unreasonably withheld). The Company and our Board of Directors each will use its reasonable best efforts to take all action necessary so that no takeover law is or becomes applicable to the merger agreement or any of the merger or any of the other transactions contemplated by the merger agreement and, if any takeover law is or becomes applicable to the merger agreement or any of the merger or the other transactions contemplated by the merger agreement, to take all action necessary to ensure that the merger and the other transactions contemplated by the merger agreement may be consummated as promptly as practicable on the terms contemplated thereby and otherwise to eliminate or minimize the effect of such statute or regulation on the merger agreement, the merger and the other transactions contemplated by the merger agreement. In the event a governmental authority objects to the merger, or any other transaction contemplated by the merger agreement, the Company, Parent and Merger Sub will cooperate with each other and use commercially reasonable efforts to resolve such objection.

 

Filings and Notice

 

The Company, Parent and Merger Sub each has filed all materials initially required to be filed under the HSR Act. To the extent permitted by applicable law, the parties will request expedited treatment and will work together as

may be necessary to make any such filing. The parties have also agreed to keep each other informed of any communications, inquiries or requests for additional information in connection with such filings, provide each other with a meaningful opportunity to review such communications, inquiries and requests, and to promptly comply with reasonable requests.

 

Except as prohibited by law, the Company will promptly notify Parent of (i) any written communication from any person alleging that its consent is required in connection with the merger or any other transaction contemplated by the merger agreement, (ii) its discovery of any fact or circumstance that would give rise to the failure of the Company to satisfy the closing condition with respect to the accuracy of its representations and warranties and the occurrence of a material adverse effect is incapable of being cured by the Company by the Termination Date (including any extension of the Termination Date) and any suits, actions or proceedings commenced or threatened that relate to the consummation of the merger agreement, the merger or any of the other transactions contemplated by the merger agreement; provided, however, that no such notification shall affect the representations, warranties, obligations, covenants or agreements of the parties (or remedies with respect thereto) or the conditions to the obligations of the parties under the merger agreement. Except as prohibited by applicable law, each of the parties will promptly notify the other parties of any representation or warranty made by such party in the merger agreement becoming untrue or of any failure by Parent or Merger Sub to perform any obligation, covenant or agreement under the merger agreement, if the matter to be disclosed would reasonably be expected to prevent, materially impede or materially delay consummation of the merger or the other transactions contemplated by the merger agreement; provided, however, that no such notification shall affect the representations, warranties, obligations, covenants or agreements of the parties (or remedies with respect thereto) or the conditions to the obligations of the parties under the merger agreement.

 

Stockholder Litigation

 

In the event of any litigation against the Company and/or its directors or officers relating to the merger or the other transactions contemplated by the merger agreement, the parties will cooperate with one another to the fullest extent possible in connection with such litigation. The Company will promptly advise Parent and cooperate fully with Parent in connection with such litigation, give consideration to Parent’s advice with respect to such litigation and will obtain the prior written consent of Parent prior to settling or satisfying any such claim, though the Company shall control such defense except to the extent that Parent or Merger Sub is a defendant in the litigation (and in that event solely as to the defense of Parent and Merger Sub).

 

Public Announcements

 

Parent and Merger Sub, on the one hand, and the Company, on the other, have agreed not to make any press release or other public statement regarding the merger and the other transactions contemplated by the merger agreement before, to the extent reasonably practicable, consulting with each other and giving each other a reasonable opportunity to review and comment on any press release or other public statement, except as required by applicable law, court process or any listing agreement with Nasdaq.

 

Employee Matters

 

From the closing date of the merger until the twelve-month anniversary of the closing date, the compensation and benefits for those actively employed at the Company immediately prior to the effective time of the merger and who remain in the employment of the Surviving Corporation or its subsidiaries on or after the effective time of the merger (“Continuing Employees”) shall be materially no less favorable in the aggregate than that provided to such employees immediately prior to the effective time of the merger or those generally in effect with respect to similarly situated employees of Parent and its subsidiaries. Continuing Employees will receive credit for their service at the Company prior to the effective time of the merger under Parent’s employee benefit plans that Parent makes available to such Continuing Employees for purposes of eligibility, vesting and benefit levels (but not actual accruals except with respect to vacation and paid time off accruals), unless such credit would result in duplication of benefits. In addition, with respect to Continuing Employees, for purposes of each Parent benefit plan, Parent agreed to use and agreed to cause its subsidiaries to use its commercially reasonable efforts to (i) waive any pre-existing condition, exclusion, actively-at-work requirement or waiting period shall be waived to the extent such condition, exclusion,

requirement or waiting period was satisfied or waived under the comparable benefit plan or agreement with the Company as of the effective time of the merger (or, if later, any applicable plan transition date) and (ii) provide full credit shall for any co-payments, deductibles or similar payments made or incurred prior to the effective time of the merger for the plan year in which the merger (or such transition date) became effective.

 

Parent shall cause the Surviving Corporation to honor all obligations of the benefits plans and agreements of the Company, including any rights or benefits arising from the transactions contemplated by the merger agreement; provided, however, that in no event shall Parent, the Company or any of their respective subsidiaries make, either before or after the closing of the merger, the payments to certain specified individuals in certain specified amounts unless (and to the extent that) certain specified conditions have been satisfied. Prior to the closing, the Company shall cause the agreements that entitle such individuals to receive such payments to be amended to reflect the terms of the proviso in the immediately preceding sentence.

 

Nothing in the merger agreement restricts the right of Parent or any of its affiliates (including the Surviving Corporation) to terminate or modify the terms of the employment of any Continuing Employee of the Company following the closing of the merger, subject to any applicable severance or change of control agreements. Parent may also terminate or modify any Company or Parent employee benefit plan or agreement, provided that, during the twelve month period following the closing of the merger, any such changes will not have an effect on those employed at the Company immediately prior to the effective time of the merger, to the extent such changes are materially less favorable in the aggregate to what such employees received before.

 

Indemnification and Insurance

 

The merger agreement provides for certain indemnification and insurance rights in favor of the Company’s current and former directors and officers, who we refer to as “indemnified persons.” Specifically, Parent and Merger Sub have agreed that all rights to indemnification, advancement of expenses and exculpation from liabilities for acts or omissions occurring at or prior to the effective time of the merger, shall be assumed by the Surviving Corporation and continue in full force and effect in accordance with their terms for a period of six years after the closing of the merger, even if the Surviving Corporation is consolidated or merged into another entity or dissolved by Parent.

 

For a period of six years after the completion of the merger, directors’ and officers’ liability insurance will be maintained for those persons currently covered by the Company’s existing insurance policy for acts or omissions occurring prior to the effective date of the merger on terms and in amounts no less favorable than those of the insurance policy in effect on the date of the merger agreement. Parent may fulfill its obligation to provide liability insurance, however, by causing the Company to purchase a non-cancellable extension of the directors’ and officers’ liability coverage of the Company’s existing directors’ and officers’ liability insurance policy, which are commonly referred to as “tail” policies. Furthermore, in no event will Parent be required to pay an annual premium for such insurance in excess of 300% of the annual premium currently paid by the Company for such insurance.

 

After the effective time of the merger, the indemnified persons are third party beneficiaries of, and entitled to rely upon, these provisions of the merger agreement.

 

Convertible Notes; Convertible Note Hedge Agreement and Warrant Agreement

 

The Company shall promptly take such actions as are reasonably requested in writing by Parent or as are otherwise required by the applicable instruments in respect of the (a) the Company’s 1.0% Convertible Senior Notes Due June 15, 2012 (the “Convertible Notes”), (b) the Warrant Confirmation dated June 21, 2007, issued by the Company to Deutsche Bank AG London, LLC and Deutsche Bank AG New York (the “DB Warrant”), and (c) the hedge transaction (the “DB Hedge Transaction”) entered into with Deutsche Bank AG London, LLC (“DB London”) and Deutsche Bank AG New York (“DB New York”) on June 21, 2007 relating to the Convertible Notes and the DB Warrant, in each case as directed by and in accordance with the terms and conditions specified in writing by Parent, and the Company shall consult with Parent before taking any action with respect to any of the foregoing; provided, however, that prior to the effective time of the merger, the Company shall not be obligated to take any action that (i) is not conditioned upon the occurrence of the effective time of the merger, (ii) except as otherwise provided in the following sentence, could potentially expose the Company to material liability or expense or (iii) could result in any representation or warranty of the Company in the merger agreement

being or becoming untrue or incorrect or that could result in the Company being in breach of any of its obligations under the merger agreement. Prior to February 18, 2011, the Company is required to enter into binding agreements, in form and substance satisfactory to Parent, with DB London and DB New York to settle the DB Hedge Transaction (which settlement shall result in a payment to the Company), using the Cancellation and Payment (Calculation Agent Determination) methodology, subject to the terms of the DB Hedge Transaction. All actions, notices, announcements and other documentation related to the foregoing shall be subject to the prior written approval of Parent (which shall not be unreasonably withheld, conditioned or delayed). Parent shall cooperate reasonably with the Company in connection with the Company’s performance of these obligations. Parent and Merger Sub agreed that, except for settlement of the DB Hedge Transaction, obtaining any particular outcome with respect to any of the these actions requested by the Parent shall not constitute, or be construed to constitute, a condition to the consummation of the transactions contemplated by the merger and the failure to obtain any particular outcome shall not constitute a breach of the merger agreement by the Company.

 

No Control of Other Party’s Business

 

Nothing contained in the merger agreement is intended to give Parent the right to control or direct the Company’s or its subsidiaries’ operations prior to the effective time of the merger, and nothing contained in the merger agreement is intended to give the Company, directly or indirectly, the right to control or direct Parent’s or its subsidiaries’ operations. Subject to the foregoing covenants, prior to the effective time of the merger, each of Parent and the Company shall exercise, consistent with the terms and conditions of the merger agreement, complete control and supervision over its and its subsidiaries’ respective operations.

 

Third Party Standstill Agreements

 

From the date of the merger agreement until the earlier of the termination of merger agreement or the effective time of the merger, the Company agreed to not release, terminate, amend or modify any material provision of any confidentiality or standstill agreement to which the Company is a party (other than involving Parent or its affiliates), unless our Board of Directors determines in good faith after consultation with its independent outside legal counsel, that such action is necessary for our Board of Directors to comply with its fiduciary duties to the Company’s stockholders under applicable law. During this time period, the Company agrees to use commercially reasonable efforts to enforce, to the fullest extent permitted under applicable law, the provisions of any such agreements, including, but not limited to, seeking injunctions to prevent any breaches of such agreements or to enforce specifically the terms and provisions thereof in a court in the United States or any state thereof having jurisdiction. To the extent Parent believes that there has been a breach of any such existing confidentiality agreement by the counterparty thereto, upon Parent’s request, the Company is required to use such commercially reasonable efforts to enforce such existing confidentiality agreement.

 

Fees and Expenses

 

Except as described below under “— Termination Fees,” all fees and expenses incurred in connection with the merger agreement, the merger, the financing and the other transactions contemplated by the merger agreement shall be paid by the party incurring such fees or expenses, whether or not the merger is consummated. Notwithstanding the foregoing, if the merger is consummated, the surviving corporation shall, within ten business days after Parent’s request for such reimbursement, reimburse Parent for all of Parent’s out-of-pocket fees and expenses (including all fees and expenses of counsel, accountants, financial advisors and investment bankers and all fees and expenses related to any financing , including any commitment fees) incurred by Parent or on its behalf in connection with or related to the authorization, preparation, negotiation, execution and performance of the merger agreement, the voting agreement, the filing of any required notices under regulations and any and all other matters related to the merger and the other transactions contemplated by the merger agreement, if such expenses were not reimbursed prior to the effective time of the merger.

 

Conditions of the Company, Parent and Merger Sub.  The obligations of each party to effect the merger are subject to the fulfillment or waiver, to the extent permitted by law, at or before the effective time of the merger of the following conditions:

 

 

Conditions of the Company.  The obligations of the Company to effect the merger are subject to the fulfillment or waiver, to the extent permitted by law, at or before the effective time of the merger of the following conditions:

 

 

Conditions of Parent and Merger Sub.  The obligations of Parent and Merger Sub to effect the merger are subject to the fulfillment or waiver, to the extent permitted by law, at or before the effective time of the merger of the following conditions:

 

 

 

The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after the Company’s stockholders adopt the merger agreement and approve the merger (except as otherwise noted below):

 

 

 

 

 

 

 

 

NovaMed is obligated to pay Parent’s designee a termination fee of $4,368,000 if any of the following occur:

 

 

Parent is obligated to pay us a reverse termination fee of $6,552,000 if Parent and Merger Sub fail to close the merger because of a failure to receive financing (other than if solely due to a failure by guarantor to fund its commitment pursuant to the equity commitment letter) that, together with the amount of equity financing committed pursuant to the equity commitment letter, is sufficient to fund the merger and the other transactions

contemplated by the merger agreement or because of their refusal to accept a new financing commitment that provides for at least the same amount of financing as the commitment letters and on terms that are not materially less favorable to Parent than the commitment letters and Parent and Merger Sub are not otherwise in material and willful breach of the merger agreement (a “Non-Breach Financing Failure”).

 

The amount of the reverse termination fee will be $10,920,000, however, if the Company terminates the merger agreement in circumstances not involving a Non-Breach Financing Failure and on or after the later of (i) the 75th day following the date of the merger agreement, (ii) the 30th day after the mailing of this Proxy Statement to the Company’s stockholders or (iii) the third business day after the Company has delivered to Parent written evidence that the Company has delivered all of specified notices to, and obtained all of specified consents and approvals of, certain specified third parties (provided, that, on and after May 19, 2011 (or June 19, 2011 in the event Parent has extended the Termination Date pursuant to the merger agreement), all such notices, consents and approvals shall be deemed to have been obtained and written evidence delivered for purposes of this clause (iii) (but not for purposes of determining whether all of the conditions to the obligations of Parent and Merger Sub to consummate the merger in Section 6.1 and Section 6.2 of the merger agreement (regarding compliance with representations, warranties and covenants) have been satisfied or waived)), if (x) all of the conditions to the obligations of Parent and Merger Sub to consummate the merger set forth in Section 6.1 and Section 6.2 of the merger agreement (regarding compliance with representations, warranties and covenants) have been satisfied or waived by Parent and Merger Sub in writing (other than those conditions that by their nature are to be satisfied at the Closing, provided the Company is then able to satisfy such conditions), and the Company has certified to Parent in writing that such conditions have been satisfied and the Company is prepared to satisfy those conditions at the Closing and (y) Parent and Merger Sub shall have breached their obligation to cause the merger to be consummated within ten business days after the date the closing is required to take place pursuant to the merger agreement.

 

Liability Caps

 

The merger agreement provides that the maximum aggregate liability of Parent and its affiliates and their stockholders (collectively, the “Parent Group”) (including any termination fee payable by Parent under the merger agreement) for any direct or indirect loss or damage suffered in connection with, or arising out of or under, the merger agreement, including, but not limited to, the negotiation, entry into, performance, or the terms of the merger agreement, any agreement or document contemplated hereby, the failure of the merger to be consummated or for a breach or claimed breach or failure or claimed failure to perform hereunder and including the benefit of the bargain lost by the Company’s stockholders (taking into consideration relevant matters, including any lost premium, other combination opportunities and the time value of money) (such damages, collectively, the “Company Damages”) or otherwise shall be limited to $10,920,000 plus any interest that may be payable pursuant to the merger agreement (the “Parent Liability Cap”). The Company nor its affiliates or their stockholders are entitled to seek or permit to be sought on behalf of the Company any damages or any other recovery, judgment or damages of any kind, including consequential, indirect, or punitive damages, from any member of the Parent Group other than seeking amounts payable by the guarantor pursuant to the limited guarantee but subject to the Parent Liability Cap. Recourse against Parent to the extent provided in the merger agreement and the guarantor to the extent provided in the limited guarantee (but in each case subject to the Parent Liability Cap) is the sole and exclusive remedy of the Company and its affiliates and their stockholders against any other member of the Parent Group in respect of any liabilities or obligations arising under, or in connection with, the merger agreement or the transactions contemplated by the merger agreement.

 

Subject to the provisions regarding specific enforcement, the maximum aggregate liability of the Company and its affiliates and their stockholders (including any termination fee payable by the Company under the merger agreement) for any direct or indirect loss or damage suffered in connection with, or arising out of or under, the merger agreement, including, but not limited to, the negotiation, entry into, performance, or the terms of the merger agreement, any agreement or document contemplated hereby, the failure of the merger to be consummated or for a breach or claimed breach or failure or claimed failure to perform hereunder (such damages, collectively, “Parent Damages”) or otherwise shall be limited to $10,920,000 plus any interest that may be payable pursuant to the merger agreement (the “Company Liability Cap”). In no event shall any member of the Parent Group seek or permit to be sought on behalf of any member of the Parent Group any damages or any other recovery, judgment or damages of

any kind, including consequential, indirect, or punitive damages, from the Company or any of its affiliates or any of their stockholders in connection with the merger agreement or the transactions contemplated by the merger agreement in excess of the Company Liability Cap; provided that nothing shall limit the rights of Parent and Merger Sub under the provisions of the merger agreement regarding specific enforcement. Parent and Merger Sub each acknowledges and agrees that it has no right of recovery against, and no personal liability shall attach to, in each case with respect to Parent Damages, any affiliate or stockholder of the Company, whether by or through attempted piercing of the corporate veil, by virtue of any statute, regulation or applicable Law, or otherwise.

 

Specific Performance

 

The parties agreed that irreparable damage would occur to Parent and Merger Sub in the event that any of the provisions of the merger agreement were breached and accordingly agreed that Parent and Merger Sub are entitled to an injunction or injunctions to prevent breaches of the merger agreement and to enforce specifically its terms and provisions in addition to any other remedy to which they are entitled at law or in equity. The Company is not entitled to seek an injunction or injunctions to prevent breaches of the merger agreement or to specifically enforce the terms and provisions of the merger agreement. The Company agreed that it will not oppose the granting of an injunction, specific performance or other equitable relief on the basis that Parent or Merger Sub has an adequate remedy at law or that any award of specific performance is not an appropriate remedy for any reason at law or equity. In the event that Parent or Merger Sub seeks an injunction or injunctions to prevent breaches of the merger agreement or to enforce specifically the terms and provisions of the merger agreement, such party shall not be required to provide any bond or other security in connection with any such injunction or other judgment.

 

The merger agreement may be amended by the parties thereto at any time, whether before or after the Company’s stockholders adopt the merger agreement and approve the merger; provided, however, that after the Company’s stockholders adopt the merger agreement and approve the merger, there shall be made no amendment that by law requires further approval by stockholders of the Company without obtaining such further approval. The merger agreement may not be amended except by an instrument in writing signed on behalf of each of the parties thereto.

 

Prior to the effective time of the merger, Parent and Merger Sub will appoint a bank or trust company to act as the exchange agent for purposes of making the cash payments contemplated by the merger agreement. At the effective time of the merger, Parent or Merger Sub will deposit with the exchange agent funds in amounts and at the times necessary for payment of the aggregate equal to the merger consideration to be paid to our stockholders under the terms of the merger agreement. The exchange agent will, pursuant to irrevocable instructions, deliver to you the merger consideration according to the procedure summarized below.

 

As soon as reasonably practicable after the effective time of the merger, the exchange agent will mail to you a letter of transmittal and instructions advising you of the effectiveness of the merger and the procedure for surrendering to the exchange agent your certificates in exchange for the merger consideration. Upon the surrender of your certificates or transfer of your uncertificated shares to the exchange agent, together with an executed letter of transmittal completed in accordance with its instructions and any other items specified by the letter of transmittal, the exchange agent will pay to you your merger consideration of $13.25 per share of NovaMed common stock represented by such certificates or uncertificated shares. No interest or dividends will be paid or accrued in respect of the merger consideration. Payments of the merger consideration also may be reduced by applicable withholding taxes.

 

Please do NOT forward your stock certificates to the exchange agent without a letter of transmittal, and please do NOT return your stock certificates with the enclosed proxy card.

 

At and after the effective time of the merger, you will cease to have any rights as our stockholder, except for the right to receive the merger consideration, or, if you exercise your appraisal rights, the right to seek appraisal of your

shares pursuant to Delaware law, and no transfer of shares of NovaMed common stock will be made on our stock transfer books.

 

Certificates presented to us after the effective time of the merger will be cancelled and exchanged for cash as described above.