<PAGE>
As filed with the Securities and Exchange Commission on May 25, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------
NOVAMED EYECARE, INC.
(Exact name of registrant as specified in its charter)
--------------
Delaware 8741 36-4116193
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code No.)
organization)
980 North Michigan Avenue, Suite 1620, Chicago, Illinois 60611, (312) 664-4100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
STEPHEN J. WINJUM
Chairman of the Board, President and Chief Executive Officer
980 North Michigan Avenue, Suite 1620, Chicago, Illinois 60611, (312) 664-4100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
STEVEN V. NAPOLITANO, ESQ. THOMAS J. MURPHY, ESQ.
JEFFREY R. PATT, ESQ. TIMOTHY R.M. BRYANT, ESQ.
Katten Muchin & Zavis McDermott, Will & Emery
525 West Monroe Street, Suite 1600 227 West Monroe Street, Suite 4400
Chicago, Illinois 60661 Chicago, Illinois 60606
(312) 902-5200 (312) 372-2000
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [_] .
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering: [_] .
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_] .
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_] .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_] .
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Proposed
maximum Amount of
Title of each class of aggregate registration
securities to be registered offering price (1)(2) fee
- ---------------------------------------------------------------------------------------------------
Common Stock, $.01 par value $100,000,000 $29,500
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Up to 15% of this amount represents an option granted to the underwriters
to purchase shares from NovaMed to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) of Regulation C under the Securities Act of 1933, as
amended.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities,and we are not soliciting an offer to buy +
+these securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preliminary Prospectus
Dated , 1999
Shares of Common Stock
- --------------------------------------------------------------------------------
NovaMed Eyecare, Inc.: The Offering:
. We are an eye care . We are offering
services company shares.
focused on laser Existing stockholders
vision correction. We are offering
operate in five shares.
regional U.S.
markets, where we own
and operate 10 eye
surgery and laser
centers. We operate
44 eye care clinics,
27 optical
dispensaries and an
eye-only research
organization. We also
own and operate three
wholesale optical
laboratories and an
optical products
purchasing
organization.
. The underwriters have
an option to purchase
up to an additional
shares from
us to cover over-
allotments.
. This is our initial
public offering and
no market currently
exists for our common
stock. We anticipate
the price range to be
between $ and
$ per share.
. NovaMed Eyecare, Inc. . We intend to use the
980 North Michigan proceeds of this
Avenue offering to repay all
Suite 1620 of our existing debt,
Chicago, Illinois 60611 for working capital
(312) 664-4100 and to pursue our
www.novamed.com laser vision
correction strategy
through new
affiliations,
acquisitions and
expansion in existing
and future markets.
We will not receive
any proceeds from the
shares sold by the
selling stockholders.
Nasdaq National Market Symbol:
NOVA
. Closing:
, 1999.
-------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
------------------------------------------------------------
<S> <C> <C>
Public offering price $ $
Underwriting fees
Proceeds to us
Proceeds to our selling stockholders
------------------------------------------------------------
</TABLE>
Investing in our common stock involves risks described in "Risk Factors,"
beginning on page 6.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette
Hambrecht & Quist
William Blair & Company
The undersigned is facilitating Internet distribution.
DLJdirect Inc.
<PAGE>
[Photo of Daniel S. Durrie, M.D. [Daniel S. Durrie, M.D., our
performing surgery on Stephen J. National Director of Refractive
Winjum] Surgery, performing a laser vision
correction procedure on Stephen J.
Winjum, our Chairman of the Board,
President and Chief Executive
Officer]
[NovaMed Eyecare, Inc. Logo]
[One of our 10 eye surgery and laser [Photo of Brodersen-Williams eye care
centers, located adjacent to one of clinic]
our affiliated eye care clinics in
the Chicago, Illinois metropolitan
area]
<PAGE>
Table of Contents
U.S. Laser Vision Correction Procedures 1996-2000
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 6
Company History and Acquisitions.... 13
Use of Proceeds..................... 14
Dividend Policy..................... 14
Capitalization...................... 15
Dilution............................ 16
Selected Consolidated Financial
Data............................... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 18
Business............................ 26
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Government Regulation............... 37
Management.......................... 42
Certain Transactions................ 48
Selling Stockholders................ 50
Principal Stockholders.............. 51
Description of Securities........... 53
Shares Eligible for Future Sale..... 57
Underwriting........................ 59
Legal Matters....................... 61
Experts............................. 61
Where You Can Find More Information. 61
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
----------------
You should rely only on the Until , 1999, all
information contained in this dealers selling shares of our common
prospectus. We have not authorized stock, whether or not participating
any other person to provide you with in this offering, may be required to
different information. The deliver a prospectus. This delivery
information in this prospectus may requirement is in addition to the
only be accurate as of the date on obligations of dealers to deliver a
the front cover of this prospectus. prospectus when acting as
Our business, financial condition, underwriters and with respect to
results of operations and prospects their unsold allotments or
may have changed since that date. subscriptions.
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from this document and does not
contain all of the information that is important to you. To understand the
risks involved in your investment decision, you should read carefully this
entire document and the documents to which we refer you.
Unless the context requires otherwise, you should understand all references
to "NovaMed," "we," "us" and "our" to include us and our consolidated
subsidiaries.
Unless otherwise indicated, all share amounts and financial information
presented in this prospectus:
. give effect to the conversion of our convertible preferred stock into our
common stock, which will occur automatically upon completion of this
offering
. give effect to the exchange of $ million of our subordinated
exchangeable promissory notes into our common stock at a ratio of $1.00
worth of our common stock (valued at the offering price) for each $0.80
worth of outstanding principal on the notes
. assume the underwriters' over-allotment option is not exercised
. give effect to our reincorporation as a Delaware corporation and the
adoption of our Rights Agreement, both of which will occur prior to the
completion of this offering
We are an eye care services company focused on laser vision correction. We
operate in the following metropolitan regions: Chicago, Illinois; Kansas City,
Missouri; Louisville, Kentucky; St. Louis, Missouri; and Richmond, Virginia.
Our revenue has grown at a compound annual rate of 100.5% from $15.9 million
in 1996, our first full year of operation, to $63.7 million in 1998. We became
profitable in 1997 and from 1997 to 1998 our net income increased from $105,000
to $1.7 million. We:
. own and operate 10 eye surgery and laser centers where laser vision
correction and other eye related surgical procedures are performed
. operate, pursuant to long-term service agreements, 44 eye care clinics
that provide a wide range of eye care services to patients including
laser vision correction, basic eye examinations and the diagnosis and
treatment of complex ophthalmic conditions
. operate, pursuant to a long-term service agreement, an eye-only research
organization that provides clinical research and site management services
to ophthalmic device, product and pharmaceutical manufacturers, with an
emphasis on laser vision correction
. operate, pursuant to long-term service agreements, 27 optical
dispensaries that sell eyeglasses, contact lenses and other optical
products and accessories to patient-consumers
. own and operate three wholesale optical laboratories that manufacture and
distribute corrective lenses and eyeglasses to affiliated and non-
affiliated eye care providers
. own and operate an optical products purchasing organization that sells
optical products and accessories, such as eyeglass frames and contact
lenses, to affiliated and non-affiliated eye care providers
Industry sources estimate that in 1997, 161 million people, representing
approximately 60% of the U.S. population, required eyeglasses or contact lenses
to correct vision conditions such as myopia (nearsightedness), hyperopia
(farsightedness) and astigmatism. Based on industry studies, total U.S. eye
care spending in 1998 approximated $55 billion. Patient-consumers and third
party payors in the U.S. spent approximately $38.4 billion during 1998 on
health care costs associated with eye and vision conditions and an additional
$16.3 billion on eyewear.
1
<PAGE>
A number of surgical procedures have been developed as alternative means of
correcting myopia, hyperopia and astigmatism. The popularity of vision
correction surgery has recently increased, primarily as a result of the 1996
introduction of the Laser In-Situ Keratomileusis, or LASIK, procedure. For the
12 months ended April 30, 1999, LASIK accounted for approximately 98% of the
laser vision correction procedures performed by our affiliated eye care
providers. We believe LASIK has gained greater popularity than other vision
correction surgical procedures because it offers:
. reduced patient pain and discomfort
. shorter recovery periods
. reduced complication rates
In 1998, eye care professionals performed approximately 450,000 laser vision
correction surgery procedures in the U.S., representing an increase of 97.4%
over the number of procedures performed in 1997. We believe that the long-term
market potential for vision correction surgery will continue to grow as a
result of continued high growth rates for LASIK and the emergence of new vision
correction technologies currently under development.
An estimated 950,000 and 1.4 million laser vision correction procedures are
projected to be performed in the U.S. in 1999 and 2000, respectively. Despite
this rapid growth, the estimated number of vision correction surgery patients
in 1998 represented less than 0.2% of the 161 million people with refractive
vision conditions in the U.S. Based on an average price per eye of $2,200 for a
LASIK procedure, if 1% of the estimated 161 million people that have refractive
vision conditions in the U.S. elected to have a laser vision correction
procedure on both eyes, the potential value of the laser vision correction
market would exceed $7 billion. Further, unlike other ophthalmic surgery
procedures, vision correction surgery is an elective procedure that patient-
consumers pay for out-of-pocket.
In order to pursue this market opportunity, we have focused on building
regional clusters of eye surgery and laser centers, affiliated eye care
providers and strategic business services. We build our regional clusters by
directly affiliating with leading ophthalmologists and optometrists in a manner
which achieves a hub and spoke configuration of affiliated eye care clinics and
eye surgery and laser centers. We provide a wide range of services designed for
both eye care providers and patients. We believe this approach, which we refer
to as our Full Partnership model, provides us with several advantages in
developing our laser vision correction and eye care services business. These
advantages include the ability to:
. establish and maintain long-term relationships with leading
ophthalmologists and optometrists through access to our eye surgery and
laser centers, our clinical research capability and our range of
strategic business services
. create regional market leadership in laser vision correction through our
clinical research, information technology and marketing know-how
. benefit from regional brand recognition and word-of-mouth referrals that
result from the combination of quality patient care and lifetime patient
relationships
. create multiple sources of revenue through the range of eye care services
and products offered by us and our affiliated eye care providers
. increase revenue per patient by establishing lifetime patient
relationships that generate recurring patient encounters
Our goal is to become the leading provider of laser vision correction in our
existing and future regional markets. Our strategy includes the following
specific components:
. continuing to expand our presence in existing regional markets
. selectively targeting and entering new regional markets
. providing patient-consumer directed marketing support to our affiliated
eye care providers
. capitalizing on and expanding our affiliated eye-only research
organization
. developing and implementing strategic business services to enhance laser
vision correction growth
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by us.... shares
Common stock offered by the shares
selling stockholders.........
Common stock to be outstanding shares
after the offering(1)........
Use of proceeds............... We intend to use the proceeds of this offering
to repay all of our existing debt, for working
capital and to pursue our laser vision
correction strategy through new affiliations,
acquisitions and expansion in our existing and
future markets. We will not receive any proceeds
from the shares sold by the selling
stockholders.
Proposed Nasdaq National NOVA
Market symbol................
Risk Factors.................. See "Risk Factors," beginning on page 6 for a
discussion of factors you should carefully
consider before deciding to buy our common stock
</TABLE>
- --------
(1) Does not include:
. up to 6,251,800 additional shares reserved for issuance pursuant to our
1996 stock incentive plan
. up to 400,000 additional shares reserved for issuance pursuant to our
1999 stock purchase plan
3
<PAGE>
Summary Consolidated Financial Data
You should read the following summary consolidated financial data together
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our consolidated financial statements and related notes
included in this prospectus.
The pro forma earnings per common share data exclude the effect of the
accretion of our convertible preferred stock and assume:
. the automatic conversion of our convertible preferred stock into shares of
our common stock, which will occur automatically upon the completion of this
offering
. the issuance of shares of our common stock upon the exchange of our
subordinated exchangeable promissory notes, and the elimination of the
related interest expense
The pro forma as adjusted earnings per common share data give further effect
to the sale of shares of common stock by us at an assumed initial
public offering price of $ per share, and the application of the net
proceeds from this offering as discussed in "Use of Proceeds."
The pro forma balance sheet data give effect to the automatic conversion of
our convertible preferred stock into our common stock, the issuance of
shares of common stock upon the exchange of our subordinated exchangeable
promissory notes, and the additional interest expense to be recorded by us
related to the discount on the exchange of the notes.
The as adjusted balance sheet data have been further adjusted to reflect the
sale of shares of common stock by us at an assumed initial public
offering price of $ per share and the application of the net proceeds
from this offering as discussed in "Use of Proceeds."
See Note 8 to our consolidated financial statements included in this
prospectus for details concerning the timing of the retirement of debt relating
to our outstanding subordinated exchangeable promissory notes.
<TABLE>
<CAPTION>
Three months
Years ended December ended
31, March 31,
------------------------ ----------------
1996 1997 1998 1998 1999
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenue........................ $15,850 $42,408 $63,729 $12,427 $21,026
Operating expenses................. 16,679 40,387 58,986 11,951 19,994
------- ------- ------- ------- -------
Income (loss) from operations...... (829) 2,021 4,743 476 1,032
Other (income) expense............. 83 1,710 1,373 285 508
------- ------- ------- ------- -------
Income (loss) before income taxes.. (912) 311 3,370 191 524
Provision for income taxes......... -- 206 1,664 94 235
------- ------- ------- ------- -------
Net income (loss).................. $ (912) $ 105 $ 1,706 $ 97 $ 289
Less--Accretion of Series C and
Series D convertible preferred
stock............................. -- -- (739) (84) (569)
------- ------- ------- ------- -------
Income (loss) available to Series A
and Series B convertible preferred
and common stock.................. $ (912) $ 105 $ 967 $ 13 $ (280)
======= ======= ======= ======= =======
Earnings (loss) per common share:
Basic............................. $ -- $ 0.01 $ 0.07 $ -- $ (0.02)
======= ======= ======= ======= =======
Diluted........................... $ (0.08) $ 0.01 $ 0.06 $ -- $ (0.02)
======= ======= ======= ======= =======
Weighted average common shares
outstanding:
Basic............................. -- 2,178 2,751 2,749 2,521
======= ======= ======= ======= =======
Diluted........................... 11,358 17,237 16,003 19,840 15,969
======= ======= ======= ======= =======
Pro forma earnings per common
share--diluted.................... $ $
======= =======
Pro forma weighted average number
of common shares outstanding--
diluted...........................
======= =======
Pro forma as adjusted earnings per
common share--diluted............. $ $
======= =======
Pro forma as adjusted weighted
average number of common shares
outstanding--diluted..............
======= =======
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Three months
ended
Years ended December 31, March 31,
------------------------------ -------------
1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
EBITDA* (in thousands)............ $ (23) $ 4,247 $8,076 $1,190 $2,128
Laser and surgery centers......... 6 10 10 10 10
Eye care clinics.................. 13 25 45 28 44
Optical dispensaries.............. 7 10 27 9 27
Procedures:
Laser vision correction.......... -- 1,676 5,083 775 2,432
Cataract......................... 5,308 12,308 15,904 3,000 3,813
Other surgery and laser center
procedures...................... 1,337 7,445 9,837 1,860 2,547
Employees......................... 184 524 744 517 860
<CAPTION>
As of March 31, 1999
------------------------------
Actual Pro Forma As Adjusted
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......... $ 1,098 $ 1,098 $
Total assets...................... 68,967 68,967
Long term debt, excluding current
portion.......................... 27,204
Redeemable Convertible Preferred
Stock............................ 16,999
Total stockholders' equity........ 16,146
</TABLE>
- --------
*EBITDA is defined as income (loss) from operations plus depreciation and
amortization. EBITDA is not a measure of performance under generally accepted
accounting principles, or GAAP. EBITDA should not be considered in isolation
or as a substitute for net income, cash flows from operating activities or
other cash flow statement data prepared in accordance with GAAP, or as a
measure of profitability or liquidity. EBITDA differs from net cash provided
by operating activities in that it excludes the effects of changes in working
capital or deferred income tax items. We are showing EBITDA here because it
is a widely accepted financial indicator of a company's ability to service
and/or incur indebtedness and because we believe it is a relevant measure of
our ability to generate cash. EBITDA is not necessarily comparable to
similarly titled measures for other companies. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for a
discussion of other measures of performance determined in accordance with
GAAP.
5
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information
contained in this prospectus before purchasing any of our common stock.
Risks Relating to Our Business
Our failure to grow, or to manage our growth, could reduce our ability to
continue to achieve or sustain profitability
Our growth strategy is focused on our existing and future regional markets
and involves:
. increasing demand for laser vision correction and other eye related
surgical procedures
. affiliating with additional ophthalmologists and optometrists
. establishing or acquiring additional eye surgery and laser centers
. assisting our affiliated providers in forming new eye care clinics
The addition of new eye surgery and laser centers, eye care clinics and
affiliated providers presents us with a variety of challenges. We may not
experience growth at our existing eye surgery and laser centers or eye care
clinics or successfully integrate and manage new centers and clinics we open or
acquire in existing or future markets. We may not be able to achieve the
economies of scale and patient base required to sustain profitability in our
existing or future centers or clinics.
If we are unable to successfully implement our growth strategy or manage our
growth effectively, our business, financial condition and results of operations
could be adversely affected.
Our limited operating history may make it difficult for you to evaluate our
prospects
There is limited financial data upon which you can evaluate our prospects.
Our prospects must be considered in light of the risks and difficulties
frequently encountered by companies early in their development, particularly
companies in new and rapidly growing markets, such as the laser vision
correction market. We may not be able to continue to achieve or sustain
profitability. Our ability to sustain profitability will depend in part on:
. continued market acceptance and growth of laser vision correction
. our ability to increase demand for our services and control costs
. our ability to enter new markets
. competitive factors
. regulatory developments
If laser vision correction and other refractive surgery procedures are not
broadly accepted, a significant source of our revenue and earnings growth will
be limited
Our profitability and growth will depend upon broad acceptance and growth of
laser vision correction and other refractive surgery procedures in the United
States.
The acceptance of laser vision correction surgery may be adversely affected
by:
. costs of procedures that, to date, have been paid directly by patients
. concerns about the safety and effectiveness of laser vision correction
surgical procedures including the possibility of:
--an increase in the light scattering properties of the cornea during
healing
--undesirable visual sensations produced by bright lights
--decreases in contrast sensitivity
--unintended over- or under-corrections
--decline in corrective effect
--disorders of corneal healing, corneal scars and corneal ulcers
--induced astigmatism
--other unknown side effects
. lack of sufficient long-term follow-up data
. adverse patient reactions or negative publicity involving patient
outcomes
6
<PAGE>
. availability of alternative methods for correcting vision conditions
Laser vision correction and other refractive surgery procedures may not
become widely accepted by ophthalmologists, optometrists or the general
population as an alternative to existing methods of treating vision
conditions. If laser vision correction and other refractive surgery procedures
are not widely accepted, our business, financial condition and results of
operations could be materially adversely affected.
Loss of the services of ophthalmologists or optometrists could impair our
sources of revenue and our ability to grow our business
Our success depends, in part, on the services of the ophthalmologists and
optometrists with whom we affiliate. Our inability to attract and retain eye
care providers could limit our sources of revenue, our ability to grow our
business and our ability to expand our research operations. Generally, our
affiliated ophthalmologists enter into five year employment agreements with
affiliated professional entities. These agreements generally contain non-
compete and non-solicitation covenants and often require the doctor to pay
liquidated damages in the event that he or she quits prior to the end of the
term. Our affiliated optometrists enter into employment contracts with
affiliated professional entities which also contain non-compete and non-
solicitation covenants. The restrictive covenants and damages provisions
applicable to our affiliated ophthalmologists and optometrists may not be
enforceable or may not effectively deter eye care providers from leaving our
affiliated eye care clinics.
Our failure to maintain or establish profitable affiliations with a
sufficient number of eye care providers could limit our profitability and
revenue growth
Our success depends upon our ability to enter into affiliations, on
mutually acceptable terms, with a number of eye care providers in our existing
and future markets. We may not be able to enter into affiliations with
ophthalmologists or optometrists on satisfactory terms, and such affiliations
may not be profitable. In addition, if vision correction technology becomes
available to ophthalmologists that is less expensive than the medical
equipment currently required for laser vision correction, the demand for our
services could be reduced. If we fail to establish or maintain profitable
affiliations with a sufficient number of qualified ophthalmologists and
optometrists, our business, financial condition and results of operations
could be materially adversely affected.
Medicare and private third-party payor cost containment efforts and
reductions in reimbursement rates could reduce our total revenue
We estimate that for the year ended December 31, 1998, approximately 49% of
our total revenue was derived from government sponsored health care programs.
This revenue does not include amounts derived from laser vision correction,
which is an elective procedure that patient-consumers pay for out-of-pocket.
The health care industry is experiencing a trend toward cost containment as
government and private third-party payors seek to impose lower reimbursement
and utilization rates and to negotiate reduced payment schedules with health
care providers. These trends may result in a reduction from historical levels
in per patient revenue received by our eye surgery and laser centers and
affiliated eye care clinics. Changes in Medicare payment rates have reduced
payments to ophthalmologists and optometrists. Private insurance payments
could also be affected to the extent that the payment methodologies used by
insurance companies are based on Medicare rates.
Reductions in payments to our eye surgery and laser centers and affiliated
eye care clinics or other changes in reimbursement for eye care services could
have a material adverse effect on our business, financial condition and
results of operations.
We may not compete effectively with other vision correction and eye care
services providers that have more resources and experience than us
Competitors with substantially greater financial, technical, managerial,
marketing and other resources and experience may compete more effectively than
us. We compete with other entities, including refractive laser center
companies, hospitals, individual ophthalmologists and optometrists, other
surgery and laser centers, eye care clinics and providers of retail optical
products in offering our
7
<PAGE>
services and products. Our wholesale optical laboratories and optical products
purchasing organization also face competition on national, regional and local
levels. Companies in other health care industry segments, such as managers of
other hospital-based medical specialties or large group medical practices, may
become competitors in providing surgery and laser centers as well as
competitive eye care related services. Competition for retaining the services
of highly qualified ophthalmologists and optometrists and medical, technical
and managerial personnel is significant, and we may not be able to help our
affiliated eye care clinics identify, hire, train, retain and affiliate with
such individuals in the future.
If we find it necessary to reduce prices in response to competition, we could
experience reductions in revenue growth and profitability
The market for providing laser vision correction and other refractive
surgery procedures is becoming increasingly competitive. Several eye care
companies feature these services as an increasingly important component of
their activities. As laser vision correction and other refractive surgery
becomes more prevalent, we expect a greater number of independent
ophthalmologists to develop laser vision correction and other refractive
surgery practices.
In the event our competitors offer laser vision correction or other
refractive surgery services at lower prices than we do, we may have to lower
the prices we charge. If we lower prices, our business, financial condition
and results of operations could be materially adversely affected.
Our quarterly operating results may fluctuate
Our results of operations have varied and may continue to fluctuate from
quarter to quarter. We have a high level of fixed operating costs, including
compensation costs. As a result, our profitability is highly dependent on the
volume of surgical procedures performed in, and on our ability to utilize the
capacity of, our eye surgery and laser centers and on the volume of patients
treated in our affiliated eye care clinics.
We experience some seasonality in our operating results, as our revenue is
generally lower during the first calendar quarter. The timing and degree of
fluctuations in our operating results will depend on several factors,
including:
. decreases in demand for non-emergency procedures due to severe weather
. availability or sudden loss of the services of our affiliated eye care
providers
. availability or shortages of laser and other vision correction surgery-
related products and equipment
. the timing and relative size of acquisitions and eye care provider
affiliations
Rapid technological advances may adversely affect our revenue growth and our
ability to continue to achieve and sustain profitability
Adoption of new technologies that may be comparable or superior to the
excimer laser could negatively affect our laser vision correction and
refractive surgery business and our revenue growth and our ability to continue
to achieve and sustain profitability. We may have to expend significant
capital resources to deploy new technology and related equipment to remain
competitive. Our inability to provide access to new and improving technology
may deter eye care professionals from affiliating with us or from using our
surgery and laser centers.
Loss of the services of key management personnel could adversely affect our
business or prospects
Our success depends, in part, on the services of key management personnel
including Stephen J. Winjum, our Chairman of the Board, President and Chief
Executive Officer; Ronald G. Eidell, our Executive Vice President and Chief
Financial Officer; and E. Michele Vickery, our Executive Vice President of
Operations. These individuals may not continue in their present capacities for
any particular period of time. The loss of the services of one or more of
these persons could have a material adverse effect on our business, financial
condition and results of operations.
The nature of our business and the form of our acquisitions and affiliations
could subject us to potential malpractice, product liability and other claims
The provision of eye care services entails the potentially significant risk
of physical injury to patients and an inherent risk of potential malpractice,
product liability and other similar
8
<PAGE>
claims. Our insurance may not be adequate to satisfy claims or protect us or
our affiliated providers and this coverage may not continue to be available at
acceptable costs.
In affiliating with eye care providers and acquiring businesses, we
acquired the stock of corporations. As a result of these transactions, we may
be subject to claims, suits or complaints relating to incidents occurring
prior to our acquisition of this stock that may not be recoverable under
indemnity obligations contained in the transaction documents.
A partially or completely uninsured claim against us could have a material
adverse effect on our business, financial condition and results of operations.
Lack of adequate financing could limit our growth
Successful implementation of our growth strategy will require continued
access to capital. If we do not have sufficient cash resources, our growth
could be limited unless we are able to obtain capital through additional
equity or debt financings. We intend to finance future acquisitions and our
other strategic initiatives by using a combination of cash, debt and capital
stock. However, if our stock does not maintain sufficient value, or is not
deemed to be an acceptable form of consideration, we may be required to use
more of our cash resources or obtain other financing. Capital may not be
available for acquisitions or other needs. Further, if financing is available,
it may not be on terms that are favorable to us or sufficient for our needs.
Year 2000 compliance issues may expose us to liability, interrupt our ability
to conduct business or delay payments on our accounts receivable
The year 2000 issue relates to computer programs that have time-sensitive
hardware and software unable to recognize or to interpret dates beyond the
year 1999. This could result in a system failure or miscalculations causing
disruptions of operations, including a temporary inability to process
transactions, bill and collect fees or engage in other business activities.
We have undertaken, but have not yet completed, an assessment of our state
of readiness and the potential impact of any year 2000 risks. Our efforts have
been designed to assess the year 2000 readiness of our significant third party
payors, product and equipment manufacturers and suppliers to determine whether
we are vulnerable to the failure of these parties to remediate their own year
2000 issues. To date, we have spent immaterial amounts to address year 2000
concerns, however:
. Our assessment that our actual year 2000 compliance costs will not be
material may prove inaccurate
. Future affiliated providers or acquired businesses may require
substantial year 2000 compliance expenditures
. Precautions that we have taken to protect our business from or minimize
the impact of the year 2000 issue may not be adequate
. The systems of other companies, on which our operations rely, may not
adequately address the year 2000 issue
Although not applicable to laser vision correction and other refractive
procedures, the patients of our eye surgery and laser centers and affiliated
eye care providers pay a portion of the charges for eye care services with
Medicare or third party payor reimbursements. Some private insurance companies
also provide partial or full coverage for elective procedures. In the event
Medicare or private insurance companies have difficulty processing and paying
claims because of year 2000 issues, this could cause our accounts receivable
to increase, which could have a material adverse effect on our business,
financial condition and results of operations.
If we write-off a significant portion of intangible assets, our results will
be materially adversely affected
Our combined total assets reflect substantial intangible assets in the form
of service agreements with our affiliated providers and goodwill. At March 31,
1999, intangible assets represented approximately 59.7% of total assets and
over times total pro forma stockholders' equity. The intangible asset
value represents the excess of cost over the fair value of the separately
identifiable net assets acquired in connection with rights we receive under
our service agreements. The value of these assets may not be realized. We
regularly evaluate
9
<PAGE>
whether events and circumstances occur that indicate all or a portion of the
carrying amount of the asset may no longer be recoverable, in which case an
additional charge to earnings may become necessary. If we determine that we are
required to write-off a significant portion of unamortized intangible assets,
this write-off would materially adversely affect our financial condition and
results of operations.
If changes in generally accepted accounting principles require us to alter our
accounting practices, our results of operations will be adversely affected
Recent initiatives by the Financial Accounting Standards Board have
addressed a number of issues relating to the accounting treatment afforded
intangible assets, including amortization of goodwill. One such initiative
includes the possibility of shortening the amortization period for goodwill. In
the event that changes in generally accepted accounting principles require us
to alter our accounting practices, including the acceleration of the
amortization of intangible assets such as goodwill, our results of operations
could be materially adversely affected.
Risks Relating to Our Industry
Changes in government regulation and supervision or proposed health care
reforms could impair our sources of revenue and our ability to grow our
business
We are subject to extensive government regulation and supervision,
including:
. Federal and State:
--anti-kickback statutes
--self-referral laws
--civil false claims acts
. State:
--corporate practice of medicine restrictions
--fee-splitting laws
--facility license requirements and certificates of need
--insurance provisions
. Food and Drug Administration regulation of medical devices, including
laser vision correction and other refractive surgery equipment, and
pharmaceuticals and related clinical trials
. Federal Trade Commission guidelines for marketing and promoting laser
vision correction and other refractive surgery procedures
Many of these laws and regulations are subject to varying interpretations,
and courts and regulatory authorities generally have provided little
clarification. Moreover, state and local laws and interpretations vary from
jurisdiction to jurisdiction. As a result, we may not always be able to
accurately predict interpretations of applicable law, and some of our
activities could be challenged. If any of our activities are challenged, we may
have to divert substantial time, attention and resources from running our
business to defend our activities against such challenges, regardless of their
merit. If we do not successfully defend such challenges, we and our affiliated
eye care providers may face a variety of adverse consequences such as service
agreements being terminated or rendered unenforceable, third party payor
agreements being terminated, affiliated providers losing their eligibility to
participate in Medicare or losing other contracting privileges and, in some
instances, civil or criminal fines. Any of these consequences could have a
material adverse effect on our business, financial condition and results of
operations.
The regulatory environment in which we and our affiliated eye care providers
operate may change significantly in the future. Numerous legislative proposals
have been introduced in Congress and in various state legislatures over the
past several years that could cause major reforms of the U.S. health care
system. In response to new or revised laws, regulations or interpretations, we
could be required to revise the structure of our legal arrangements or the
structure of our fees, incur substantial legal fees, fines or other costs, or
curtail our business activities, reducing the potential profit to us of some of
our legal arrangements, any of which may have a material adverse effect on our
business, financial condition and results of operations.
Shortages in supplies of lasers and other surgery-related products and
equipment could interfere with our ability to perform surgical vision
correction procedures
10
<PAGE>
There are a limited number of manufacturers of lasers, microkeratomes,
microkeratome blades, intrastromal corneal rings and other laser vision
correction and refractive surgery-related products and equipment. These
products and equipment may not be available in the quantities or time frames
we require. Any shortages in our supplies of these products could limit our
ability to perform or increase our volume of laser vision correction and other
refractive surgeries and could materially adversely affect our business,
financial condition and results of operations.
Litigation in the medical device industry could impair our ability to conduct
our business
The medical device industry, including the ophthalmic laser sector, has
experienced substantial litigation in the U.S. regarding patents and
proprietary rights. In the event that any such future litigation relates to
equipment we use at our eye surgery and laser centers, our ability to provide
access to such equipment may be impaired. If our ability to perform some types
of laser vision correction or other refractive surgery procedures, or to use
equipment at our eye surgery and laser centers, is impaired, our business,
financial condition and results of operations could be materially adversely
affected.
Risks Relating to this Offering
Future sales of our common stock by existing stockholders could adversely
affect our stock price
The market price of our stock could be adversely affected if our existing
stockholders sell large amounts of our stock in the public market following
this offering. The shares being sold in this offering will be freely
tradeable unless acquired by our affiliates, as that term is defined under the
rules and regulations of the Securities Act of 1933. Affiliates' shares will
be subject to the resale limitations of Rule 144 under the Securities Act.
When this offering is complete, our affiliates and our affiliated eye care
providers will own, in the aggregate, shares. In addition, some of our
existing stockholders have piggyback registration rights with respect to
shares covering future offerings by us.
The absence of a prior public market for our stock and possible volatility in
our stock price could impair your investment
There has been no public market for our common stock. We are applying to
list our common stock on the Nasdaq National Market. We do not know whether
investor interest will lead to the development of a trading market. If a
trading market develops, that market may not be liquid. We will determine the
initial offering price for our shares through negotiations with the
underwriters. You may not be able to sell your shares at or above this initial
offering price. The price at which our shares will trade will depend upon a
number of factors, including:
. our historical and anticipated operating results
. announcements by us or our competitors
. changes in financial estimates by securities analysts regarding us, our
industry, our suppliers or our competitors
. conditions and trends in the industries in which we or our competitors
compete
. general market and economic conditions
In addition, the stock market has, from time to time, experienced extreme
price and volume fluctuations. These broad market fluctuations may adversely
affect the market price of our common stock.
Our use of offering proceeds is not subject to a specific plan and may not
prove beneficial to stockholders
We describe our intended uses of the proceeds of this offering under "Use
of Proceeds." However, we have not determined exactly how proceeds will be
allocated among the specific uses we describe, other than with respect to the
repayment of all of our outstanding debt. Therefore, you must rely on the
judgment of our management with respect to the use of the proceeds from this
offering not used to repay our debt.
You will incur immediate and substantial dilution
If you purchase shares of our stock in the offering, you will experience
immediate dilution in the net tangible book value of your shares of
approximately $ per share. If we issue additional shares of common stock
in the future, you will suffer further dilution.
11
<PAGE>
Provisions of our charter and bylaws, Delaware law and our Rights Agreement
could deter takeover attempts
Provisions of our Restated Certificate of Incorporation, our Bylaws,
Delaware law and our Rights Agreement make acquiring control of us more
difficult for a third party, even if a change in control would be beneficial to
you.
Absence of dividends could reduce our attractiveness to investors
Some investors favor companies that pay dividends. We have never declared or
paid any dividends. We anticipate that for the foreseeable future we will
follow a policy of not declaring dividends and instead retaining earnings, if
any, for use in our business. If we do not pay dividends, your return on an
investment in our stock likely will depend on your ability to sell our stock at
a profit.
Our existing stockholders will have the ability to control our affairs and to
deter a change in control
After this offering, our "affiliates" and affiliated eye care providers will
own approximately % of the outstanding shares of our stock. As a result,
if these persons act together, they will have the ability to exercise
substantial control over our affairs and to elect a sufficient number of
directors to control our board of directors.
In addition, our affiliated eye care providers have agreed to not sell their
shares of our stock, subject to some exceptions, for a period of one year from
the date of this prospectus, without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation. They also have agreed to certain
volume limitations on sales of our stock during the year following the first
anniversary of the date of this prospectus. Consequently, the ownership
position of our "affiliates" and affiliated eye care providers, as well as the
contractual restrictions agreed to by our affiliated eye care providers, may
also have the effect of delaying, deterring or preventing a change in control,
even if a change in control would be beneficial to you.
Our actual results could differ materially from those mentioned in the
forward-looking statements contained in this prospectus
This prospectus contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995, as amended. All forward-
looking statements involve risk and uncertainty. Our actual results could
differ materially from those mentioned in the forward-looking statements
contained in this prospectus.
12
<PAGE>
COMPANY HISTORY AND ACQUISITIONS
Initial Formation
We were originally organized as a Delaware limited liability company in
March 1995. In September 1995, we began providing services to six Chicago
metropolitan and Northwest Indiana ophthalmology groups: Brodersen-Williams Eye
Institute, P.C., in Hammond, Indiana; Deschamps Eye Care, P.C., in
Merrillville, Indiana; Walter I. Fried, Ph.D., M.D., S.C., in Gurnee, Illinois;
Kirk Eye Center, S.C., in River Forest, Illinois; Northshore Eye Associates,
Ltd., in Chicago, Illinois; and Northwest Ophthalmology Associates, S.C., in
Arlington Heights, Illinois. On January 1, 1996, we purchased the nonmedical
assets of, and executed service agreements with, each of these founding
ophthalmology groups. We also acquired four eye surgery and laser centers in
these transactions. In connection with a capital infusion from venture capital
investors, in November 1996, we caused the formation of NovaMed Holdings Inc.,
an Illinois corporation, to serve as a holding company, responsible for overall
strategic planning. In May 1999, NovaMed Holdings Inc. reincorporated as a
Delaware corporation and we changed our name to NovaMed Eyecare, Inc.
Acquisitions and Affiliations
Since affiliating with our founding ophthalmology groups on January 1, 1996,
we have entered into transactions in which we have affiliated by way of long-
term service agreements with a number of providers in five markets and acquired
six additional eye surgery and laser centers. These transactions have included
the following ophthalmology groups:
St. Louis, Missouri--The Eye Center. Effective November 1, 1996, we acquired
substantially all of the nonmedical assets of an ophthalmology group located in
Florissant, Missouri. In connection with this transaction, we also acquired
substantially all of the assets of an eye surgery and laser center located in
Florissant.
St. Louis, Missouri--Illinois Eye Specialists. Effective November 27, 1996,
we acquired substantially all of the nonmedical assets of an ophthalmology
group with offices in Granite City and Maryville, Illinois. In connection with
this transaction, we also acquired substantially all of the assets of an eye
surgery and laser center located in Maryville.
Richmond, Virginia--Dominion Eye Associates. Effective January 1, 1997, we
acquired all of the issued and outstanding shares of the owner of substantially
all of the nonmedical assets relating to the operation of an ophthalmology
group and of the owner and operator of an eye surgery and laser center located
in Richmond.
Kansas City, Missouri--Hunkeler Eye Centers. Effective March 3, 1997, we
acquired all of the issued and outstanding shares of an entity engaged in the
management of Hunkeler Eye Centers, an ophthalmology group with offices
throughout the Kansas City, Missouri metropolitan area. We also acquired two
eye surgery and laser centers located in Overland Park, Kansas and Kansas City,
Missouri.
Louisville, Kentucky--American Eye Institute. Effective May 1, 1997, we
acquired substantially all of the nonmedical assets of an ophthalmology group
located in New Albany, Indiana. In connection with this transaction, we also
acquired substantially all of the assets of an eye surgery and laser center
located in New Albany.
Kansas City, Missouri--EyeCare Midwest. Effective July 25, 1998, we acquired
substantially all of the nonmedical assets of two ophthalmology groups located
in the Kansas City, Missouri metropolitan area. In connection with the
transaction, the two ophthalmology groups combined their operations into a
single entity.
13
<PAGE>
USE OF PROCEEDS
DIVIDEND POLICY
We estimate that our proceeds from this offering, after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us, will approximate $ million, or $ million if the underwriters
exercise their over-allotment option in full. We will use approximately $
million of the net proceeds to repay all of the outstanding principal and
interest on all of our existing bank debt.
Our credit agreement expires in July 2000. Interest is payable at an annual
rate equal to LIBOR plus a range from 1.5% to 2.0% (varying upon our ability to
meet financial covenants) or a base rate minus 0.50%, with a commitment fee of
0.375% for the unused portion during the commitment period. During the past
twelve months, we used approximately $15.4 million of bank borrowings to fund a
portion of the purchase price related to certain acquisitions and affiliations,
the purchase of property and equipment and the repurchase of shares of Series A
convertible preferred stock.
We intend to use the remainder of the net proceeds of this offering as
follows:
. For working capital
. To pursue our laser vision correction strategy through:
--New affiliations
--Acquisitions
--Expanding in existing and future markets
Though we continuously evaluate potential acquisitions, we have no current
agreement, commitment or understanding with respect to any acquisition.
The previous paragraphs describe our best estimate of our use of the net
proceeds from this offering based upon our current plans and estimates of
anticipated expenditures. Our actual expenditures may vary from this estimate,
and we may find it necessary or advisable to reallocate the net proceeds within
the uses outlined above or to use portions of the net proceeds for other
purposes. Pending their use, we plan to invest the net proceeds in short-term,
investment-grade, interest-bearing securities.
We have never paid a cash dividend on our common stock. We plan to retain
all future earnings to finance the development and growth of our business.
Therefore, we do not currently anticipate paying any cash dividends on our
common stock. Any future determination as to the payment of dividends will be
at our board of directors' discretion and will depend on our results of
operations, financial condition, capital requirements and other factors our
board of directors considers relevant.
14
<PAGE>
CAPITALIZATION
The table below shows our capitalization as of March 31, 1999. The Pro Forma
column gives effect to the conversion of our convertible preferred stock into
our common stock, which will occur automatically upon completion of this
offering, the issuance of shares of common stock upon exchange of our
subordinated exchangeable promissory notes and the additional interest expense
to be recorded by us related to the discount on the exchange of the notes. The
As Adjusted column gives further effect to our issuance and sale of
shares of common stock at an assumed initial public offering price of $
per share, after deducting underwriting discounts and commissions and estimated
offering expenses payable by us, and the application of our net proceeds from
this offering. In addition, the table does not reflect any of the 4,904,792
shares of common stock issuable upon exercise of outstanding options at May 21,
1999 at an average exercise price of $3.00.
<TABLE>
<CAPTION>
March 31, 1999
------------------------------
Actual Pro Forma As Adjusted
(In thousands)
<S> <C> <C> <C>
Cash and cash equivalents....................... $ 1,098 $ 1,098 $
======= ======= =======
Current maturities of long-term debt............ $ 202 $ 202 $
======= ======= =======
Long-term debt, less current maturities:
Subordinated exchangeable promissory notes.... $11,050 $ $
------- ------- -------
Bank debt and other........................... 16,154 16,154
------- ------- -------
Redeemable convertible preferred stock:
Series C convertible preferred stock, $.01 par
value, 2,400,000 shares authorized, 2,000,000
issued and outstanding actual, none pro forma
or as adjusted............................... 6,661 --
Series D convertible preferred stock, $.01 par
value, 3,000,000 shares authorized, 2,323,837
issued and outstanding actual, none pro forma
or as adjusted............................... 10,338 --
Stockholders' equity:
Series A convertible preferred stock, $.01 par
value, 13,112,000 shares authorized,
11,740,055 shares issued and 11,502,698
shares outstanding actual, none pro forma or
as adjusted.................................. 117 --
Series B convertible preferred stock, $.01 par
value, 455,000 shares authorized, 400,000
issued and outstanding actual, none pro forma
or as adjusted............................... 4 --
Common stock, $.01 par value, 26,000,000
shares authorized; 2,751,254 shares issued,
2,360,863 shares outstanding actual, pro
forma and as adjusted.................... 28
Additional paid-in-capital.................... 17,955
Retained earnings............................. 792
Treasury Stock, at cost, 237,357 shares of
Series A convertible preferred stock actual,
none pro forma or as adjusted; 390,391 shares
of common stock actual and 627,748 pro forma;
no shares of common stock, as adjusted....... (2,750) (2,750)
------- ------- -------
Total stockholders' equity.................. 16,146
------- ------- -------
Total capitalization........................ $60,551 $60,551 $
======= ======= =======
</TABLE>
15
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was approximately
$ , or $ per share. Pro forma net tangible book value per share
represents the amount of pro forma stockholders' equity, less intangible
assets, divided by the pro forma number of shares of common stock outstanding
as of March 31, 1999. Our as adjusted pro forma net tangible book value as of
March 31, 1999 would have been $ , or $ per share after giving
effect to the sale of shares of common stock offered by us at an
initial public offering price of $ per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us.
This represents an immediate increase in pro forma net tangible book value
of $ per share to existing stockholders and an immediate dilution in pro
forma net tangible book value of $ per share to investors purchasing our
common stock in this offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Initial public offering price per share............................ $
------
Pro forma net tangible book value per share before this offering.
-----
Increase per share attributable to new investors.................
-----
As adjusted pro forma net tangible book value per share after this
offering..........................................................
------
Dilution per share to new investors................................ $
======
</TABLE>
The table below summarizes, on a pro forma basis, the differences between
our existing stockholders and the new investors purchasing our common stock in
this offering with respect to the total number of shares purchased from us, the
total consideration paid and the average price per share paid (based upon an
initial public offering price of $ per share).
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration
--------------- --------------- Average Price
Number Percent Amount Percent Paid Per Share
<S> <C> <C> <C> <C> <C>
Existing stockholders............
New investors....................
------- --- ------- ---
Total........................ 100% 100%
======= === ======= === ===
</TABLE>
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
To aid you in your analysis, we are providing the following financial
information. We derived the selected consolidated financial data for the years
ended December 31, 1996, 1997 and 1998 from our audited consolidated financial
statements. The financial data for the year ended December 31, 1995 and for the
three month periods ended March 31, 1998 and 1999 are derived from unaudited
consolidated financial statements and include, in our opinion, all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the data for the periods presented. The following information is only a
summary, and you should read it in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
consolidated financial statements and related notes included in this
prospectus.
<TABLE>
<CAPTION>
Three months
Years ended December 31, ended March 31,
-------------------------------- ----------------
1995 1996 1997 1998 1998 1999
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenue................ $ 568 $15,850 $42,408 $63,729 $12,427 $21,026
------ ------- ------- ------- ------- -------
Operating expenses:
Salaries, wages and
benefits................. 446 8,259 18,123 25,266 5,117 8,231
Cost of sales and medical
supplies................. -- 2,570 8,723 15,762 3,072 5,738
Selling, general and
administrative........... 950 5,044 11,315 14,625 3,048 4,929
Depreciation and
amortization............. -- 806 2,226 3,333 714 1,096
------ ------- ------- ------- ------- -------
Total operating
expenses............... 1,396 16,679 40,387 58,986 11,951 19,994
------ ------- ------- ------- ------- -------
Income (loss) from
operations................ (828) (829) 2,021 4,743 476 1,032
Other (income) expense..... (21) 83 1,710 1,373 285 508
------ ------- ------- ------- ------- -------
Income (loss) before income
taxes..................... (809) (912) 311 3,370 191 524
Provision for income taxes. -- -- 206 1,664 94 235
------ ------- ------- ------- ------- -------
Net income (loss).......... $ (809) $ (912) $ 105 $ 1,706 $ 97 $ 289
Less--Accretion of Series C
and Series D convertible
preferred stock........... -- -- -- (739) (84) (569)
------ ------- ------- ------- ------- -------
Income (loss) available to
Series A and Series B
convertible preferred and
common stock.............. $ (809) $ (912) $ 105 $ 967 $ 13 $ (280)
====== ======= ======= ======= ======= =======
Earnings (loss) per common
share:
Basic..................... $ -- $ -- $ 0.01 $ 0.07 $ -- $ (0.02)
====== ======= ======= ======= ======= =======
Diluted................... $(0.46) $ (0.08) $ 0.01 $ 0.06 $ -- $ (0.02)
====== ======= ======= ======= ======= =======
Weighted average common
shares outstanding:
Basic..................... -- -- 2,178 2,751 2,749 2,521
====== ======= ======= ======= ======= =======
Diluted................... 1,747 11,358 17,237 16,003 19,840 15,969
====== ======= ======= ======= ======= =======
Pro forma earnings per
common share--diluted..... $ $
======= =======
Pro forma weighted average
number of common shares
outstanding--diluted......
======= =======
Pro forma as adjusted
earnings per common
share--diluted............ $ $
======= =======
Pro forma as adjusted
weighted average number of
common shares
outstanding--diluted......
======= =======
<CAPTION>
As of December 31, As of March 31,
-------------------------------- ----------------
1995 1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.. $ 642 $ 5,951 $ 4,009 $ 1,875 $ 671 $ 1,098
Total assets............... 2,034 27,694 52,734 62,679 51,912 68,967
Total debt, excluding
current portion........... -- 6,378 15,838 20,427 15,777 27,204
Redeemable convertible
preferred stock........... -- 5,794 12,680 16,430 12,764 16,999
Total stockholders' equity. 1,786 12,755 18,149 16,954 18,161 16,146
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion along with our consolidated
financial statements and related notes included in this prospectus. Our actual
results, performance and achievements in 1999 and beyond may differ materially
from those expressed in or implied by forward-looking statements contained in
this discussion. Such statements are subject to risks, uncertainties and
assumptions described above under the heading "Risk Factors."
Overview
We are an eye care services company focused on laser vision correction. We
operate in the following metropolitan regions: Chicago, Illinois; Kansas City,
Missouri; Louisville, Kentucky; St. Louis, Missouri; and Richmond, Virginia.
We:
. own and operate 10 eye surgery and laser centers where laser vision
correction and other eye-related surgical procedures are performed
. operate, pursuant to long-term service agreements, 44 eye care clinics
that provide a wide range of eye care services to patients including
laser vision correction, basic eye examinations and the diagnosis and
treatment of complex ophthalmic conditions
. operate, pursuant to a long-term service agreement, an eye-only research
organization that provides clinical research and site management services
to ophthalmic device, products and pharmaceutical manufacturers, with an
emphasis on laser vision correction
. operate, pursuant to long-term service agreements, 27 optical
dispensaries that sell eyeglasses, contact lenses and other optical
products and accessories to patient-consumers
. own and operate three wholesale optical laboratories that manufacture and
distribute corrective lenses and eyeglasses to affiliated and non-
affiliated eye care providers
. own and operate an optical products purchasing organization that sells
optical products and accessories, such as eyeglass frames and contact
lenses, to affiliated and non-affiliated eye care providers
Our revenue is earned from three sources:
. services and products revenue derived from eye care clinics, optical
dispensaries and research activities
. eye surgery and laser center facility fees
. the manufacture, distribution and sale of optical products such as
corrective lenses, eyeglass frames, contact lenses and other optical
products and accessories through our three optical laboratories and our
optical products purchasing organization
Services revenue represents the net billings of our affiliated eye care
providers, less the amounts retained by the affiliated eye care providers, and
is generated on a per patient encounter basis and is recognized at the time of
the encounter. Products revenue represents the sale of optical products, such
as eyeglasses and contact lenses, through optical dispensaries and is
recognized at the time of the sale. Eye surgery and laser center facility fee
revenue is generated on a per patient basis and is recognized at the time of
the encounter.
Because a portion of our eye surgery and laser center and services and
products revenue is received from Medicare and other third party payors, and
those amounts are often different from our established rates, we are required
to estimate the amount that we will ultimately receive. We provide estimates
during the period the services are rendered. Any difference between our
estimates and the amount ultimately received is recognized in the period that
final settlements are determined. To date, these differences generally have
been immaterial.
Approximately 49% of our revenue in 1998 was derived from government
sponsored health care programs, down from approximately 61% in 1997. We expect
this share of our revenue to continue to decline, primarily as a result of
continued growth in our laser vision correction surgery business.
The manufacture, distribution and sale of optical products is performed
through our Optical Services division, which includes our wholesale optical
laboratories and our optical products purchasing organization, the NovaMed
Alliance. Our
18
<PAGE>
wholesale optical laboratories revenue is generated on a per unit basis and is
recognized upon the shipment of the completed product. The NovaMed Alliance
negotiates volume buying discounts with optical products manufacturers.
Products are sold to both affiliated and non-affiliated ophthalmologists and
optometrists. Most of the products are shipped directly from the manufacturer
to the customers. We recognize revenue based on the amount billed to the
customer and recognize expense based on the cost of the products purchased from
the manufacturers.
Our operating expenses consist of salaries, wages and benefits; cost of
sales and medical supplies; selling, general and administrative expense; and
depreciation and amortization. Cost of sales expense relates to the sale of
optical products in our affiliated optical dispensaries, our wholesale optical
laboratories and through the NovaMed Alliance. Medical supplies expense
primarily relates to consumable items that are used during surgery. Selling,
general and administrative expense consists primarily of sales and marketing
expenses and corporate and eye care clinic overhead.
Our operating expenses have fixed, variable and semi-variable components.
Certain costs associated with operating our eye surgery and laser centers and
affiliated eye care clinics, such as rent, utilities and general office
overhead, are fixed and will not change as volumes increase. In contrast,
surgical supplies, cost of sales and pharmaceuticals are costs that will change
in direct proportion to procedure volumes.
Our salaries, wages and benefits contain both fixed and variable cost
components. Employees, such as corporate and regional personnel, practice
administrators and some practice staff are not directly affected by changes in
volume. On the other hand, the number of eye surgery and laser center and eye
care clinic nurses and technicians we employ generally increases or decreases
in proportion to changes in procedure volume. At the optical laboratories, the
labor component of cost of sales remains relatively fixed over certain
production volumes.
Product costs in our Optical Services division are mostly variable,
representing the per unit cost of the related materials.
Our revenue has increased significantly since inception, and from 1997 to
1998, we experienced 50.3% revenue growth. The majority of our revenue growth
was a result of higher procedure volumes in both our eye surgery and laser
centers and our affiliated eye care clinics and an increase in the number of
members utilizing the NovaMed Alliance. During 1998, we increased our emphasis
on laser vision correction by initiating full-scale marketing programs aimed at
vision correction patients, developing our affiliations with eye care providers
and increasing the capacity of our eye surgery and laser centers to provide
laser vision correction and other refractive surgery procedures. We plan to
continue our focus on laser vision correction and, as a result, anticipate that
we will continue to increase expenditures in sales and marketing, salaries and
surgical supplies.
The following chart shows the growth in the number of laser vision
correction procedures performed by our affiliated surgeons:
NovaMed Eyecare, Inc.
Quarterly Laser Vision Correction Procedures
When we affiliate with providers, we generally acquire nonmedical assets
and, in some cases, acquire eye surgery and laser centers. We also enter into
service agreements with affiliated professional entities that have an initial
term of 40 years. In addition, we have acquired other nonmedical businesses,
such as Midwest Uncuts, Inc., our wholly-owned subsidiary that owns and
operates two of our wholesale optical laboratories. We allocate the purchase
price paid in these affiliations and acquisitions to all of the identifiable
tangible and intangible assets acquired based upon their relative fair value,
with the remainder being ascribed to
19
<PAGE>
either goodwill, in the case of eye surgery and laser center and other
acquisitions, or to service agreements, in the case of affiliations with eye
care providers. We determine the appropriate useful life of the intangible
assets resulting from affiliations by considering such factors as the:
. number of physicians in each eye care clinic
. number of eye care clinics
. clinics' ability to recruit additional physicians
. clinics' relative market position
. length of time each eye care clinic has been in existence
. term of the service agreement
Effective January 1, 1998, we changed our estimate of the useful lives of
intangible assets related to our service agreements entered into, and goodwill
related to our acquisition of surgery and laser centers acquired, on or before
January 1, 1998, from 32 years to 25 years. We made this change to conform our
policy with policies adopted by other healthcare services companies during 1998
and to better represent the useful lives of the service agreements and
goodwill. We now expect to amortize all future intangible assets related to
affiliations with eye care providers and acquisitions of eye surgery and laser
centers over a 5 to 25 year period. Goodwill resulting from acquisitions of
surgery and laser centers and nonmedical businesses is amortized over a 25 to
40 year period.
The timing and degree of fluctuations in our quarterly operating results
will depend on several factors, including:
. decreases in demand for non-emergency procedures due to severe weather
. availability or sudden loss of the services of our affiliated eye care
providers
. availability or shortages of laser and other vision correction surgery-
related products
. the timing and relative size of acquisitions and eye care provider
affiliations
Effective Income Tax Rate
Our effective income tax rate reflects the impact of nondeductible
amortization expense. To the extent our pre-tax profitability continues to rise
as a result of growth in our operating earnings, we expect our effective tax
rate to continue to decline over time to a level of approximately 40%.
Effect of Transactions Relating to this Offering
In connection with the sale of our Series C and Series D convertible
preferred stock, the holders of such stock were granted the right, at their
option, to tender their stock for redemption in 2004 and 2005 at the greater of
the amount originally paid for the preferred stock or its fair market value.
Because the redemption right is outside of our control, generally accepted
accounting principles require that until the redemption date, we increase the
value of the preferred stock to its ultimate redemption value (an accounting
process known as accretion). This accretion is deducted from net income in our
accompanying consolidated financial statements to arrive at the amount
available for common stockholders. Although we have not had an independent
appraisal, we have estimated the potential future redemption value based upon
various transactions with third parties and through comparison to similar
public companies within our market. Based upon our estimates, we have recorded
accretion of $739,000 and $569,000 for the twelve months ended December 31,
1998 and the three months ended March 31, 1999, respectively. Completion of
this offering, however, will result in the automatic conversion of this Series
C and Series D convertible preferred stock into common stock and the
termination of the related redemption rights. We will continue to record the
accretion through the completion of this offering. The final charge for
accretion will be recorded in the three months ended , 1999.
$ of our subordinated exchangeable promissory notes will be
exchanged for our common stock in connection with this offering at an exchange
ratio of $1.00 worth of our common stock (valued at the offering price) for
each $0.80 worth of outstanding principal on the notes. Generally accepted
accounting principles require that we record the net difference between the
$1.00 worth of common stock and the $0.80 worth of outstanding principal on the
note as a non-recurring, non-cash expense. Accordingly, we will record in our
results of operations for the three months ended , 1999, additional
interest expense of $ related to the discount on the exchange of the
notes.
20
<PAGE>
Results of Operations
Three Months Ended March 31, 1999 Compared to the Three Months Ended March 31,
1998
Net Revenue. Net revenue increased 69.2% from $12.4 million to $21.0
million. Services and products revenue increased 66.0% from $7.1 million to
$11.9 million. The increase in services and products revenue was primarily a
result of new provider affiliations as well as overall increases in laser
vision correction, cataract and other ophthalmic surgery procedure volumes.
Surgery and laser center revenue increased 56.5% from $3.8 million to $5.9
million, primarily a result of a 209.2% increase in laser vision correction
procedures, compared to the first quarter of 1998. We also experienced a 33.0%
increase in the number of cataract and other ophthalmic surgery procedures,
compared to the first quarter of 1998. Optical services and products revenue
increased 115.0% from $1.5 million to $3.3 million, primarily as a result of
the acquisition of Midwest Uncuts, Inc.
Salaries, Wages and Benefits. Salaries, wages and benefits expense increased
60.9% from $5.1 million to $8.2 million. As a percentage of revenue, salaries,
wages and benefits expense decreased from 41.2% to 39.1%. The absolute increase
in salaries, wages and benefits expense primarily reflects the additional
payroll incurred as a result of new acquisitions and affiliations. The decrease
in salaries, wages and benefits expense as a percentage of revenue was a result
of better utilization of staff due primarily to the increased laser vision
correction, cataract and other ophthalmic procedure volumes.
Cost of Sales and Medical Supplies. Cost of sales and medical supplies
expense increased 86.8% from $3.1 million to $5.7 million. As a percentage of
revenue, cost of sales and medical supplies expense increased from 24.7% to
27.3%. The absolute increase in cost of sales and medical supplies expense is
primarily a result of the January 1, 1999 acquisition of Midwest Uncuts, Inc.
and of higher volumes at the NovaMed Alliance. The increase in laser vision
correction procedures and the related supply costs also contributed to the
absolute increase during the period. In general, our optical laboratories and
the NovaMed Alliance have higher cost of sales as a percentage of revenue than
our affiliated optical dispensaries.
Selling, General and Administrative. Selling, general and administrative
expense increased 61.7% from $3.0 million to $4.9 million. As a percentage of
revenue, selling, general and administrative expense decreased from 24.5% to
23.4%. The absolute increase in selling, general and administrative
expenditures related primarily to the expansion of sales and marketing efforts
in connection with our laser vision correction business. In addition, we
increased our information technology expenditures related to our enterprise-
wide information systems and other programs supporting our laser vision
correction business. Increases in laser vision correction procedure volumes led
to improvement in selling, general and administrative expense as a percentage
of revenue.
Depreciation and Amortization. Depreciation and amortization expense
increased 53.5% from $714,000 to $1.1 million. Acquisitions and affiliations
have increased overall amortization expense.
Other Expense. Other expense increased 78.2% from $285,000 to $508,000. The
increase in other expense was primarily related to higher interest expenses
resulting from additional borrowings, which were used primarily to fund
acquisitions and affiliations entered into after the first quarter of 1998.
Provision for Income Taxes. Our effective tax rate decreased to 44.8% from
49.2%.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
Net Revenue. Net revenue increased 50.3% from $42.4 million to $63.7
million. Services and products revenue increased 47.8% from $24.4 million to
$36.0 million. The increase in services and products revenue was primarily
related to new provider affiliations as well as overall increases in laser
vision correction, cataract and other ophthalmic surgery procedure volumes.
Affiliations with additional optical dispensaries also contributed to increases
in services and products revenue. Surgery and laser center revenue increased
39.0% from $14.5 million to $20.1 million, primarily related to better
utilization of our surgery and laser centers and a 503.5% increase in laser
vision correction procedures, compared to the year ended December 31, 1997. In
addition, we experienced a 24.1%
21
<PAGE>
increase in the number of cataract and other ophthalmic surgery procedures,
compared to the year ended December 31, 1997. Optical services revenue
increased 114.2% from $3.5 million to $7.5 million, primarily as a result of
higher volumes at the NovaMed Alliance.
Salaries, Wages and Benefits. Salaries, wages and benefits expense increased
39.4% from $18.1 million to $25.3 million. As a percentage of revenue,
salaries, wages and benefits expense decreased from 42.7% to 39.6%.
Approximately half of the absolute increase in salaries, wages and benefits
expense was a result of acquisitions. We also invested in additional personnel,
including sales and marketing personnel, in the second half of 1998 as part of
our growth strategy relating to our laser vision correction business. We expect
to continue our investment in personnel to further develop our laser vision
correction business.
Cost of Sales and Medical Supplies. Cost of sales and medical supplies
expense increased approximately 80.7% from $8.7 million to $15.8 million. As a
percentage of revenue, cost of sales and medical supplies expense increased
from 20.6% to 24.7%. The absolute increase in these expenses during 1998 was
primarily related to the increased volume of laser vision correction, cataract
and other ophthalmic surgery procedures performed in our surgery and laser
centers as well as the increased costs associated with increased sales at the
NovaMed Alliance. The increase in the cost of sales and medical supplies
expense as a percentage of revenue was primarily due to increased sales at the
NovaMed Alliance, which generally sells products with a relatively high cost of
sales percentage compared to our other sources of revenue. We expect cost of
sales and medical supplies expense, as a percentage of revenue, to decline as a
result of faster revenue growth from laser vision correction compared to our
other sources of revenue.
Selling, General and Administrative. Selling, general and administrative
expense increased approximately 29.3% from $11.3 million to $14.6 million. As a
percentage of revenue, selling, general and administrative expense decreased
from 26.7% to 22.9%. The absolute increase in selling, general and
administrative expenditures related primarily to investments in information
technology and marketing to support the growth of our laser vision correction
business. Our selling, general and administrative expense as a percentage of
revenue declined as a result of spreading fixed operating costs over an
increased revenue base. We expect to continue our information technology and
marketing expenditures to support the growth of our laser vision correction
business.
Depreciation and Amortization. Depreciation and amortization expense
increased 49.7% from $2.2 million to $3.3 million. Increased capital spending,
acquisitions and a change in the estimated useful life of intangible assets
caused this increase. Effective January 1, 1998, we decreased our useful life
of intangible assets related to service agreements entered into, and goodwill
related to our acquisition of surgery and laser centers acquired, on or before
January 1, 1998, from 32 to 25 years, which added $250,000 to amortization
expense in 1998.
Other Expense. Other expense decreased 19.7% from $1.7 million to $1.4
million. Other expense was primarily related to interest expense, resulting
from additional borrowings used primarily to fund acquisitions and capital
expenditures. In addition, in 1997 we recorded a one-time expense of $589,000
for the disposition of fixed assets.
Provision for Income Taxes. Our effective tax rate declined from 66.2% to
49.4%.
Years Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Net Revenue. Net revenue increased 167.6% from $15.9 million to $42.4
million. Services and products revenue increased 136.3% from $10.3 million to
$24.4 million. Surgery and laser center revenue increased 173.1% from $5.3
million to $14.5 million. The increase in services and products and surgery and
laser center revenue was primarily a result of new provider affiliations. In
addition, sales through the NovaMed Alliance, which began operations during the
fourth quarter of 1996, were $3.5 million.
Salaries, Wages and Benefits. Salaries, wages and benefits expense increased
approximately 119.4% from $8.3 million to $18.1 million. As a percentage of
revenue, salaries, wages and benefits expense decreased from 52.1% to 42.7%.
The absolute increase in salaries, wages and benefits expense reflected the
additional payroll incurred as a result of new acquisitions and affiliations.
The
22
<PAGE>
decrease in salaries, wages and benefits expense as a percentage of revenue was
primarily a result of increased revenue to support early investments in
corporate personnel to develop our business.
Cost of Sales and Medical Supplies. Cost of sales and medical supplies
expense increased approximately 239.4% from $2.6 million to $8.7 million. As a
percentage of revenue, cost of sales and medical supplies expense increased
from 16.2% to 20.6%. Our affiliated optical dispensaries comprised the majority
of the cost in 1996. The absolute increase in the cost of sales was primarily a
result of a higher volume of sales at the NovaMed Alliance. The increase in
cost of sales and medical supplies expense as a percentage of revenue was
caused by the NovaMed Alliance, which sells products at a higher cost of sales
than our affiliated optical dispensaries. The significant increase in medical
supplies expense was primarily related to new provider affiliations.
Selling, General and Administrative. Selling, general and administrative
expense increased approximately 124.3% from $5.0 million to $11.3 million. As a
percentage of revenue, selling, general and administrative expense decreased
from 31.8% to 26.7%. The absolute increase in selling, general and
administrative expense was primarily a result of new provider affiliations. The
remainder of the increase was a result of expenditures related to building our
corporate infrastructure.
Depreciation and Amortization. Depreciation and amortization expense
increased 176.2% from $806,000 to $2.2 million. Acquisitions and increased
capital spending caused this increase.
Other Expense. Other expense increased from $83,000 to $1.7 million. The
increase was primarily related to increased interest expense, which resulted
from the issuance of subordinated exchangeable promissory notes issued in
connection with provider affiliations. In addition, a one-time expense of
$589,000 was recorded in 1997 for a loss on the disposition of fixed assets.
Provision for Income Taxes. During a majority of 1996, we operated as a
limited liability company and, accordingly, any tax benefit or expense was
passed along to our members. We converted to a tax paying entity at the end of
1996 and incurred a taxable loss from the date of the conversion to the end of
the year. We did not, however, record any tax benefit, which would have
resulted from our net operating loss carry-forward. Instead, we recorded a
valuation allowance against the associated tax benefit. Moreover, on a pro
forma basis, had we been a tax paying entity for all of 1996, we would not have
recorded any tax benefit that would have resulted from the net operating loss
carry forward due to future uncertainties. In 1997, our effective tax rate was
66.2%.
Liquidity and Capital Resources
We generated cash from operating activities for the three months ended March
31, 1999 of $337,000. We used $7.7 million in our investing activities during
the three months ended March 31, 1999, which included two acquisitions and the
purchase of property and equipment. We used net bank borrowings of $7.7 million
and net cash from operating activities to fund our investing activities and to
reduce subordinated debt and other debt obligations. As of March 31, 1999, we
had cash and cash equivalents of approximately $1.1 million and working capital
of approximately $9.5 million. We had a $25 million revolving credit facility,
with $16.1 million outstanding as of March 31, 1999.
In May 1999, we increased our revolving credit facility to $35 million.
Advances under the credit facility are secured by substantially all of our
assets. The credit agreement expires in July 2000. Interest is payable at an
annual rate equal to LIBOR plus a range from 1.5% to 2.0% (varying upon our
ability to meet financial covenants) or a base rate minus .50%, with a
commitment fee of .375% for the unused portion during the commitment period.
The credit agreement contains covenants that include limitations on
indebtedness, liens, capital expenditures and ratios that define borrowing
availability.
During 1998, we repurchased 1,188,414 shares of our Series A convertible
preferred stock at a price of $4.38 per share. We repurchased these shares to
provide liquidity to some of the Series A stockholders.
Also during 1998, some holders of our Series C convertible preferred stock
exercised a warrant to acquire 684,932 shares of our Series D convertible
preferred stock at $4.38 per share.
We expect that the proceeds from this offering, our funds from operations
and our existing revolving credit facility will be sufficient to fund our
23
<PAGE>
operations and growth strategy for the foreseeable future. Our future capital
requirements and the adequacy of our available funds will depend on many
factors, including the timing of our acquisition activities, new provider
affiliations, capital requirements associated with our laser vision correction
program, expansions and the future cost of surgical equipment.
As of March 31, 1999, we had an outstanding note receivable of $400,000 from
an affiliated eye care provider. This loan was repaid in full in April 1999.
Historically, loans to affiliated providers have been made to cover various
costs associated with their initial affiliation with us, including general
working capital. The borrower signs a secured promissory note, bearing an
interest rate ranging from 8.5% to 9.5% per annum.
$ of our subordinated exchangeable promissory notes will be exchanged
for our common stock in connection with this offering. In connection with a
restructuring of the exchange procedures associated with these notes, we have
agreed to lend these noteholders on April 1, 2000 an aggregate amount equal to
the Federal and state income taxes payable as a result of the exchange of the
notes for our common stock, other than the portion attributable to shares sold
by noteholders in this offering. We estimate the aggregate amount of these tax
loans to be approximately $ , based upon an estimated average, blended
tax rate of 25%. The tax loans will not bear interest, will be non-recourse to
the holders and will be secured by a number of shares of our common stock held
by the payors having a value equal to two times the loan amount. The tax loans
will be payable on demand, and the payors will be required to repay the tax
loans out of a portion of the proceeds of any subsequent sales by them of our
common stock. We also have agreed to reimburse these holders for any Federal or
state taxes that they recognize as a result of imputed interest on the tax
loans on a grossed-up basis.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Committee issued AICPA Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1). This statement provides guidance on
accounting for the costs of computer software developed or obtained for
internal use and identifies characteristics of internal use software as well as
assists in determining when computer software is for internal use. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998, with earlier
application permitted. We adopted SOP 98-1 during 1998 and it did not have a
material effect on our financial statements.
In March 1998, the Accounting Standards Committee issued AICPA Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities" (SOP 98-5). This
statement provides guidance on the financial reporting of start-up costs and
organization costs. It requires that the cost of start-up activities and
organization costs be expensed as incurred. SOP 98-5 is effective for fiscal
years beginning after December 15, 1998, with earlier application permitted. We
do not expect the adoption of this SOP to have a material impact on our
financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
changes the previous accounting definition of derivative which focused on
freestanding contracts such as options and forwards (including futures and
swaps) expanding it to include embedded derivatives and many commodity
contracts. Under the statement, every derivative is recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
requires that changes in the derivatives fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. We do not anticipate
that the adoption of SFAS 133 will have a material impact on our financial
position or results of operations.
Year 2000 Readiness and Related Risks
The year 2000 issue relates to computer programs that have time-sensitive
hardware and software being unable to recognize or to interpret dates beyond
the year 1999. This could result in a system failure or miscalculations causing
disruptions of operations, including a temporary inability to process
transactions, bill and collect fees or engage in other business activities.
We have established a task force that includes operations, information
technology, accounting and legal personnel. Our task force has undertaken, but
24
<PAGE>
has not yet completed, an assessment of our state of readiness and the
potential impact of any year 2000 risks. To date, the task force has focused on
the following areas to assess as to year 2000 readiness:
. Core business systems
. Third party payors, product and equipment manufacturers and other
suppliers
. Physical facility systems
For each of these areas, the task force has been assessing systems
potentially susceptible to year 2000 compliance issues, and where appropriate,
we have been developing and implementing corrective actions and testing to
ensure compliance. We believe that we are devoting the necessary resources to
identify and resolve any significant year 2000 issues in a timely manner.
Core Business Systems. Our core business systems primarily consist of
management and financial accounting systems. We use our management systems to
schedule patients, to bill payors for services rendered and to obtain
operational productivity data. We use our financial accounting systems to pay
vendors, to record transactions and for financial reporting. In implementing
these systems, we received written confirmation from vendors that the
enterprise system software, hardware and network operating systems included in
our management and financial systems are year 2000 compliant.
All of our locations are currently using our financial accounting systems.
Most of our locations are currently using our management systems, with the
remaining locations expected to be incorporated into our management systems by
the end of 1999. Two of our locations in the St. Louis region currently use
management systems that are not year 2000 compliant. We expect to equip these
centers with our year 2000 compliant management systems by the end of
September. If we are not able to complete the integration of these locations
into our management systems as scheduled, our ability to seek reimbursement
from Medicare and other third party payors on a timely basis for these
locations may be adversely affected.
Third Party Payors, Product and Equipment Manufacturers and Other Suppliers.
Some surgery procedures, primarily cataract removal, performed at our surgery
and laser centers or eye care clinics are covered by governmental reimbursement
programs, such as Medicare, or third party payors, such as private insurance
companies. Medicare has publicly announced that it believes its systems are
year 2000 compliant. Medicare has also publicly announced that it has
established redundant systems certified by independent consultants as year 2000
compliant, which are intended to serve as "back up" systems in the event their
assessment of their primary systems proves inaccurate. Our task force is in the
process of reviewing the Internet web sites of third party payors that provide
a material portion of payments we receive for surgical and clinical procedures
to assess their year 2000 readiness. In the event we are unable to determine
the year 2000 readiness of these payors, or need to address year 2000 issues we
identify, we intend to contact such payors to request additional information
about their year 2000 readiness, in an attempt to mitigate the related
collection risks to us.
We rely on third party manufacturers and suppliers for lasers and laser
surgery-related products and equipment, utilities and other key supplies and
services, and we are in the process of reviewing the Internet web sites of a
number of our suppliers to assess their year 2000 readiness. Most of our
excimer lasers are manufactured by Summit Technology, Inc. Representatives from
Summit have informed us that its lasers utilize a system clock that recognizes
dates in a four digit format, and therefore its lasers will function without
any effect upon safety or efficiency upon a change of date to the year 2000. We
have not incurred, and do not believe we will incur, material costs related to
any inquiry as to the year 2000 readiness of our third party payors, product
and equipment manufacturers and other suppliers.
Physical Facility Systems. We are continuing to evaluate the year 2000
readiness of our physical facility systems, such as phone, power, security,
heating, ventilation and air conditioning systems. We have requested
information from the providers of our physical facility systems, and we intend
to make second requests relating to non-responses. Unsatisfactory responses or
non-responses from critical suppliers will be evaluated on a case by case basis
in an attempt to mitigate any risk to us. We expect to complete the assessment
phase of our physical facility systems during the third quarter of 1999, with
remedial action planned during the fourth quarter of 1999.
25
<PAGE>
BUSINESS
Our Business
We are an eye care services company focused on laser vision correction. We
operate in the following metropolitan regions: Chicago, Illinois; Kansas City,
Missouri; Louisville, Kentucky; St. Louis, Missouri; and Richmond, Virginia.
Our revenue has grown at a compound annual rate of 100.5% from $15.9 million in
1996, our first full year of operation, to $63.7 million in 1998. We became
profitable in 1997 and from 1997 to 1998 our net income increased from $105,000
to $1.7 million. We:
. own and operate 10 eye surgery and laser centers where laser vision
correction and other eye related surgical procedures are performed
. operate, pursuant to long-term service agreements, 44 eye care clinics
that provide a wide range of eye care services to patients including
laser vision correction, basic eye examinations and the diagnosis and
treatment of complex ophthalmic conditions
. operate, pursuant to a long-term service agreement, an eye-only research
organization that provides clinical research and site management services
to ophthalmic device, product and pharmaceutical manufacturers, with an
emphasis on laser vision correction
. operate, pursuant to long-term service agreements, 27 optical
dispensaries that sell eyeglasses, contact lenses and other optical
products and accessories to patient-consumers
. own and operate three wholesale optical laboratories that manufacture and
distribute corrective lenses and eyeglasses to affiliated and non-
affiliated eye care providers
. own and operate an optical products purchasing organization that sells
optical products and accessories, such as eyeglass frames and contact
lenses, to affiliated and non-affiliated eye care providers
Our Industry
The eye care market consists of a large, diverse group of services and
products. The eye care services market includes routine eye examinations as
well as diagnostic and surgical procedures that address complex ophthalmic
conditions. The most common conditions addressed by eye care providers are
refractive conditions such as myopia (nearsightedness), hyperopia
(farsightedness) and astigmatism. Other frequently treated conditions include
cataracts (a clouding of the lenses of the eye that interferes with focus),
glaucoma, macular degeneration and diabetic retinopathy. Ophthalmic conditions
are typically treated with surgery, pharmaceuticals, prescription glasses,
contact lenses or some combination of these treatments. Additional services
offered by eye care providers include research services for ophthalmic devices
or pharmaceuticals being developed or tested in clinical trials. The optical
products market consists of the manufacture, distribution and sale of optical
goods including corrective lenses, eyeglasses, frames, contact lenses and other
optical products and accessories.
In the U.S., eye care services and products have traditionally been
delivered through a well developed, but fragmented, system of local providers,
including individual or small groups of optometrists and ophthalmologists.
Optometrists complete four years of optometry school and are generally licensed
to perform routine eye examinations, determine visual acuity, prescribe
corrective eyewear and, in most states, prescribe certain ophthalmic
pharmaceuticals. Optometrists are not licensed to perform surgery, but often
provide pre- and post-operative care. Ophthalmologists must complete four years
of medical school and obtain an M.D. degree, and are licensed to perform
surgery as well as to prescribe pharmaceuticals and perform other diagnostic
eye care services. There are approximately 32,000 practicing optometrists and
22,000 practicing ophthalmologists in the U.S.
Eye examinations are typically performed in an office or clinic setting. For
surgical procedures, ophthalmologists frequently will schedule operating room
time in a hospital or ambulatory surgery center such as one of our eye surgery
and laser centers. Laser vision correction, cataract and other refractive
surgery procedures are frequently performed on an outpatient basis. As a
result, there are a number of ambulatory surgery centers focused on
ophthalmology.
26
<PAGE>
Eye care represents one of the largest health care service and product
markets in the U.S. According to industry sources, over 161 million people in
the U.S. require vision correction. Spending for health care costs associated
with eye and vision conditions is approximately $38.4 billion annually, while
annual spending on retail optical products is an additional $16.3 billion,
representing a total market of approximately $55 billion.
We expect the eye care market to continue to grow for the following reasons:
. Rapid Acceptance of New Technologies and Procedures and Increasing Demand
for Vision Correction Surgery. With the emergence of improved laser
vision correction technologies, the market for vision correction surgery
has been expanding rapidly.
. Continued Development of Improved Medical Technologies and
Pharmaceuticals. New medical technologies and pharmaceuticals have led to
earlier detection and improved treatment of many of the most common eye
conditions, with fewer complications or side effects. New technologies
are in development that are expected to expand the access to, and the
effectiveness of, treatments, particularly the treatment of refractive
and cataract conditions.
. Aging of the Population. The incidence of eye disease, including
refractive and cataract disorders, increases substantially with age.
Increases in average life expectancy, combined with the aging of the baby
boom population, are expected to lead to an increase in the number of
adults over the age of 55. According to industry sources, 19.5% of the
U.S. population in the year 2005 is forecasted to be between the ages of
55 and 74, with 94% of this age group forecasted to be suffering from
some type of refractive condition.
. Improved Patient Awareness. With the expansive amount of medical
information that has become available, patients have and continue to
become increasingly educated and aware of the different types of eye and
vision conditions and how they can be treated.
Vision Correction Surgery
Radial Keratotomy, or RK, introduced in the U.S in the 1970s, was the first
surgical technique approved for vision correction. RK procedures require a
delicate surgical technique and significant physician training, and the
procedure can result in the instability of the eye over a period of months to
years.
Recently, new surgical technologies and techniques have been introduced for
surgical correction of common vision problems. Use of an excimer laser to alter
the curvature of the cornea has become the most common method of surgical
vision correction. Although not approved in the U.S. for general use until
1996, Photorefractive Keratectomy, or PRK, was introduced abroad in 1988, as
the first vision correction surgery that used laser technology. PRK offers
several advantages over RK, including a shorter, simpler procedure, a less
substantial training requirement for ophthalmologists and fewer complications.
However, the procedure proved to be more painful and typically required three
to six weeks of recovery time before full visual acuity was restored, with the
potential that full benefit of the procedure would not be realized for up to
six months.
Laser In-Situ Keratomileusis, or LASIK, was introduced in 1996, leading to a
dramatic increase in the popularity of laser vision correction surgery. LASIK
offers the ease-of-use benefits to ophthalmologists afforded by PRK, while
providing significant reductions in patient pain or discomfort, patient
recovery times ranging from a few hours after the procedure to two weeks and
reduced complication rates.
LASIK involves using an automated microsurgical instrument to create a thin
corneal flap which remains hinged to the eye. This corneal flap is then laid
back and laser pulses are applied to the cornea to treat the eye to the
patient's prescription. After the flap is replaced, no bandages are required
and most patients experience virtually no discomfort. A LASIK procedure
typically takes 10 to 15 minutes from set-up to completion, with the length of
time of the actual laser treatment lasting 15 to 90 seconds, depending on the
degree of correction required. LASIK is performed in an outpatient setting,
with only topical anesthesia. Only ophthalmologists are licensed to perform
LASIK, although optometrists are actively involved in identifying appropriate
candidates for the procedure and in providing pre- and post-operative care.
27
<PAGE>
The market for vision correction procedures has expanded rapidly, primarily
as a result of the advantages of the LASIK procedure. Industry sources estimate
that 450,000 laser vision correction surgery procedures were performed in 1998,
representing a 97.4% increase over the number of procedures performed in 1997.
An estimated 950,000 and 1.4 million procedures are projected to be performed
in the U.S. in 1999 and 2000, respectively.
Despite this rapid growth, the estimated number of vision correction surgery
patients in 1998 represented less than 0.2% of the 161 million people with
refractive vision conditions in the U.S. Based on an average price per eye of
$2,200 for a LASIK procedure, if 1% of the estimated 161 million people that
have refractive vision conditions in the U.S. elected to have a laser vision
correction procedure on both eyes, the potential value of the laser vision
correction market would exceed $7 billion. Further, unlike other ophthalmic
surgery procedures, vision correction surgery is an elective procedure that
patient-consumers pay for out-of-pocket.
Several factors are expected to continue to expand the vision correction
surgery market for the next several years. Market penetration remains low, but
is expected to increase. We believe that high patient satisfaction with the
LASIK procedure has generated many word-of-mouth patient referrals. In
addition, improved laser technologies are in development or about to be
approved that address other ophthalmic conditions including hyperopia and
astigmatism. New technologies have also recently been introduced that provide
patients and physicians with even more treatment options and are expected to
expand the potential market. For example, the intrastromal corneal ring, or
Intacs(TM), which was commercially introduced in the U.S. in April 1999, is a
non-laser surgical technique approved to treat myopia.
Other Eye Care Services
Cataract Surgery. Cataract surgery is currently the most widely performed
surgical procedure in the U.S. A cataract occurs when the normally transparent
lens of the eye becomes cloudy as part of the aging process. In cataract
surgery, the ophthalmologist removes the clouded natural lens and replaces it
with a synthetic intraocular lens. Cataract surgery is typically performed on
an outpatient basis using local anesthesia, and the procedure time is typically
less than 30 minutes. Industry sources indicate that more than 60% of people
over the age of 60 have some degree of cataract formation. In 1997, over 2.3
million cataract procedures were performed in the U.S. Cataract procedures are
expected to continue to increase for the next several years, driven primarily
by the aging of the population and the introduction of improved technologies
and surgical techniques. With the preponderance of cataract surgery patients
being over the age of 65, the Medicare program has been the primary source of
reimbursement for cataract surgery providers.
Other Eye Disorders. The market for other common eye disorders includes
glaucoma, macular degeneration and diabetic retinopathy. Glaucoma is one of the
leading causes of preventable blindness in the U.S., and the single most common
cause of blindness among African-Americans. Approximately 3 million people in
the U.S. are believed to have glaucoma, while only 1 million have currently
been diagnosed with the disease. By 2030, industry sources project that the
number of glaucoma cases diagnosed will double, primarily as a result of the
aging of the general population and an increase in the average life span. Age-
related macular degeneration is the leading cause of visual impairment for
persons age 75 and older, and it is the most common cause of new cases of
visual impairment among those over age 65. Diabetic retinopathy is a leading
cause of vision loss and blindness. More than 40% of patients with diabetes for
15 years or more have some degree of blood vessel damage which may result in
diabetic retinopathy. Incidence of this disease is expected to increase
dramatically as a result of a growing number of patients diagnosed with
diabetes. Treatment of these ophthalmic conditions is generally reimbursed by
Medicare and other third party payors.
Optical Services and Products
While the number of patient options for vision correction has increased with
improved surgical vision correction technologies and techniques, the market for
basic optical goods such as corrective lenses, eyeglass frames, contact lenses
and other optical products and accessories, remains a
28
<PAGE>
significant market. According to industry sources, consumers spent
approximately $16.3 billion on eyewear in 1998 up 5.8% from approximately $15.4
billion in 1997. Eyeglass frames are typically sold through retail optical
dispensaries located in optometrist and ophthalmologist clinics, as well as
through retail stores.
Challenges Faced By Eye Care Providers
Recent advances in medical technology and surgical procedures for vision
correction have significantly increased consumer demand for laser vision
correction surgery. Ophthalmologists face a number of significant challenges in
meeting and capitalizing on this demand, including:
. maintaining their existing patient and procedure base while developing a
laser vision correction surgery practice
. developing marketing expertise in order to promote their services to
patient-consumers
. purchasing, or otherwise gaining access to, expensive laser vision
correction surgery equipment, including excimer laser systems that
industry sources report are priced in the range of $500,000
. adapting to the latest advances in laser vision correction technology and
procedures, as well as establishing and maintaining a level of expertise
with new technologies and procedures
. maintaining an efficient division of labor by partnering with, or
recruiting, additional ophthalmologists to perform surgery and
optometrists to provide pre- and post-operative care to laser surgery
patients
Our Strategy
Our goal is to become the leading provider of laser vision correction
surgery in our existing and future regional markets. We have tailored our
business model, which we refer to as our Full Partnership model, to focus on
establishing and maintaining long-term, full service affiliations with leading
ophthalmologists and optometrists in each of our regional markets.
Our Full Partnership Model
We have focused on building regional clusters of affiliated eye care
providers, eye surgery and laser centers and strategic business services. These
regional clusters are structured to achieve a hub and spoke configuration of
affiliated eye care clinics and eye surgery and laser centers within each
regional market. We believe our Full Partnership model, with its broad range of
services and products and its patient-consumer orientation, provides us with
several advantages in developing laser vision correction surgery in partnership
with our affiliated eye care providers. These advantages include the ability
to:
. establish and maintain long-term relationships with leading
ophthalmologists and optometrists through access to our eye surgery and
laser centers, our clinical research capability and range of strategic
business services
. create regional market leadership in laser vision correction through our
clinical research, information technology and marketing know-how
. benefit from regional brand recognition and word-of-mouth referrals that
result from the combination of quality patient care and lifetime patient
relationships
. create multiple sources of revenue through the range of eye care services
and products offered by us and our affiliated eye care providers
. increase revenue per patient through the establishment of lifetime
patient relationships that generate multiple patient encounters
We believe that our patient-consumer approach benefits not only the growth of
laser vision correction but all aspects of our continuum of eye care, ranging
from basic eye examinations to the treatment of complex ophthalmic conditions.
Our Full Partnership model has been implemented in each of our existing
regional markets and is built around the following key components:
29
<PAGE>
Long-term affiliations with leading providers. We believe the combination of
access to our eye surgery and laser centers, clinical research programs and the
full range of strategic business services that we offer enhances our ability to
attract and retain leading eye care providers in each of our markets. In
addition, we are working with our affiliated eye care providers within
particular markets to reorganize their existing medical practices into a single
legal and business entity. We believe the resulting entity permits an efficient
consolidation of fixed overhead and staff, implementation of a common
information technology system, effective division of labor among
ophthalmologists and optometrists, and establishment of a unified entity for
marketing and branding purposes.
Eye surgery and laser centers. We currently operate 10 eye surgery and laser
centers, each of which is a wholly-owned, licensed ambulatory surgical center.
Each of our eye surgery and laser centers is located adjacent to one of our
affiliated eye care clinics. These eye surgery and laser centers are
specifically designed to meet the demands of high volume ophthalmic surgeons,
including surgeons focusing on laser vision correction. We believe that access
to our fully licensed ambulatory surgical centers in each of our markets
provides our affiliated providers with a long-term competitive advantage since
they are equipped to efficiently accommodate a wide range of current and
emerging surgical vision correction procedures and avoid relying on any
particular technology or procedure.
Clinical research. Our affiliated eye-only research organization provides
clinical research and site management services to ophthalmic device, product
and pharmaceutical manufacturers, with an emphasis on laser vision correction
and other refractive technologies. We believe our clinical research capability
permits us and our affiliated providers to:
. attract and retain leading ophthalmologists and optometrists who seek the
professional challenge associated with participating in clinical research
activities
. preview emerging vision correction and other ophthalmic technologies and
adjust our business model and strategy accordingly
. become early adapters to the latest technologies and procedures, thus
enhancing patient care
. establish a quality brand name and regional market leadership in vision
correction surgery
Strategic business services. We have established strategic business services
which, we believe, have helped us to attract and retain leading
ophthalmologists and optometrists. We believe that our strategic business
services have helped generate significant growth in laser vision correction
surgery revenue. These services include information technology, provider and
patient-consumer directed marketing, administrative services, recruiting,
surgeon and staff training and optical products and services.
Our Growth Strategy
We are focused on the rapidly growing U.S. market for laser vision
correction surgery and our goal is to be the leading provider of laser vision
correction in each of our existing and future regional markets. Specifically,
we intend to:
Expand our presence in existing regional markets. We believe that there are
significant growth opportunities in our existing regional markets. We believe
that the following factors will drive this growth:
. increasing demand for, and consumer acceptance of, laser vision
correction surgery
. significant expansion of our marketing services, including patient-
consumer directed marketing designed to enhance patient awareness of our
laser vision correction expertise and the full range of eye care services
that we offer
. acquiring existing or establishing new eye surgery and laser centers
. long-term affiliations with, or recruitment of, additional
ophthalmologists and optometrists
. continued development and implementation of strategic business services
30
<PAGE>
Selectively target and enter future regional markets. We believe our
management team's experience in building and developing successful eye care
services businesses will enable us to effectively identify additional markets
in which to build regional clusters of eye surgery and laser centers and
affiliated eye care providers. Our expansion into new markets will focus on
regions where we believe we can implement our Full Partnership model. We intend
to enter new markets through multiple avenues, including acquiring existing or
establishing new eye surgery and laser centers, entering into long-term
affiliations with leading ophthalmologists and optometrists, and developing and
implementing our strategic business services, in each new region.
Provide patient-consumer directed marketing support to our affiliated eye
care providers. We believe our affiliated eye care providers have experienced
improved market share as a result of our patient-consumer directed marketing
support, and we intend to continue to invest in these programs. Our regional
marketing activities include direct to patient-consumer advertising, patient
seminars on laser vision correction and centralized toll free call centers, all
of which are designed to create consumer brand awareness for us and our
affiliated eye care providers. This marketing support allows our affiliated
surgeons to reach a broader range of new patients with the latest information
concerning laser vision correction, as well as traditional eye care services.
We also assist affiliated surgeons in establishing procedures for co-managing
patients with optometrists. This provides surgeons with an opportunity to focus
on surgery and better leverage their time, while also allowing patients to
elect to have their optometrist participate in their continuing care.
Capitalize on and expand our affiliated eye-only research organization. Our
research activities allow our affiliated eye care providers early access to,
and experience with, the latest vision correction technologies in advance of
many competing surgeons. We believe our research activities also provide us
with significant revenue growth opportunities. We further believe that these
research opportunities will expand as we continue to affiliate with leading
ophthalmologists and optometrists in both our existing and future markets. As
we grow, we plan to expand our clinical research activities to other regions
and more actively market our research-related services to ophthalmic device,
product and pharmaceutical companies.
Continue to develop and implement strategic business services to enhance
laser vision correction growth. We believe that our full complement of
strategic business services, including information technology, provider and
patient-consumer directed marketing, administrative services, recruiting,
surgeon and staff training and optical products and services, will continue to
provide us with an advantage in attracting, affiliating with and retaining
leading ophthalmologists and optometrists. We expect to build upon this
portfolio of services. In 1999, we plan to implement new information technology
offerings such as an intranet-based patient marketing and scheduling system,
patient outcomes tracking and an optical point-of-sale system. All of these
will be integrated into our new, enterprise wide e-community and data
warehouse.
Business Operations
Eye Surgery and Laser Centers
We operate 10 eye surgery and laser centers, each of which is a wholly-
owned, licensed ambulatory surgical center. These eye surgery and laser centers
are used for laser vision correction, cataract and other ophthalmic surgical
procedures. We currently have seven excimer lasers in service and an additional
three lasers dedicated to conducting clinical trials. We plan to deploy
additional excimer lasers in 1999.
We generally try to acquire or establish eye surgery and laser centers with
two suites. This allows for efficient use of the surgeon's time since operative
preparation can be performed in one suite while the surgeon is operating in the
adjacent suite. To date, each of our eye surgery and laser centers has been
located adjacent to one of our affiliated eye care clinics. This further
contributes to the time and cost efficiency of surgical operations and
facilitates our ability to coordinate pre- and post-operative patient visits
between our affiliated ophthalmologists and optometrists.
Today, most forms of laser vision correction surgery may be performed in a
clean room in a physician's office. As new vision correction technologies are
developed, however, we believe that medical standards will dictate that some
types of surgical vision correction procedures will need to be performed in a
licensed ambulatory surgery
31
<PAGE>
center or hospital. Examples of such technologies currently in clinical trials
include phakic intraocular lenses and implantable contact lenses.
Accordingly, we believe that the flexibility of our eye surgery and laser
centers to accommodate the full spectrum of existing and future vision
correction surgeries will provide us with an advantage over our competitors
whose facilities may not be able to accommodate these procedures. This
advantage is further enhanced in those states with rigorous certificate of need
requirements that make it difficult to construct a licensed facility.
Seven of our surgery and laser centers have been accredited by the American
Association of Ambulatory Healthcare (AAAHC), and we expect our three remaining
centers to be accredited by the end of 1999. We believe as managed care panels
shift to requiring accreditation by the AAAHC or the Joint Commission on
Accreditation of Healthcare Organizations as a condition to reimbursement, our
accreditation will provide us a competitive advantage with respect to
reimbursable procedures such as cataract surgery.
Services and Products
Long-Term Service Agreements. We have long-term service agreements in place
with affiliated professional entities covering 45 ophthalmologists and 31
optometrists, who provide eye care services in one or more of our 44 eye care
clinics. Generally, we seek to cluster eye care clinics within regional markets
that can support one or more eye surgery and laser centers. Our strategy
involves affiliating with leading eye care providers within a regional market
until we have achieved a cluster of affiliated eye care clinics and eye surgery
and laser centers in a hub and spoke configuration throughout each regional
market.
We believe that acquiring or building concentrated clusters of eye care
clinics around eye surgery and laser centers allows us to more effectively
utilize our eye surgery and laser center capacity. Our regional clusters have
dedicated management and uniform information technology. As a result, we can
more effectively assist affiliated providers in creating brand name recognition
within a particular market and integrating subspecialists in a manner that
effects a more efficient division of labor.
The services that we provide to our clusters are governed by service
agreements. Our service agreements run for initial terms of 40 years. Under
these agreements, we typically provide a range of services, including,
information technology, provider and patient-consumer direct marketing,
administrative services, recruiting, surgeon and staff training and optical
products and services, in exchange for a monthly fee. This fee is typically
based upon the operating income of the eye care clinic after deducting
operating expenses of the clinic. Our affiliated professional entities and
their respective ophthalmologists and optometrists retain control of all
aspects of the delivery of ophthalmic and optometry services. Subject to
Federal and state laws, we employ, and are responsible for hiring, training and
supervising all non-physician personnel in each regional market.
Generally, affiliations with our eye care providers have been the result of
acquisitions of their nonmedical assets, such as equipment and office leases,
for consideration consisting of a combination of stock, notes or cash. In
connection with these transactions, our affiliated professional entities enter
into employment agreements with ophthalmologists and optometrists that
generally have five year initial terms. Typically, these agreements contain
restrictions on the eye care provider's ability to compete with us, and on his
or her ability to recruit our employees or interfere with patient
relationships. These covenants usually survive termination of employment for up
to one year. During the initial terms, ophthalmologists who have an equity
interest in affiliated professional entities are required to pay liquidated
damages to the affiliated professional entity that employs them if they
terminate their employment.
Provider and Patient-Consumer Marketing Support. Our marketing professionals
perform detailed analyses for each of our regional markets. An awareness
program is developed for each market and includes advertising, public relations
and direct marketing programs. An important component of our marketing strategy
involves creating brand recognition. This applies equally to branding NovaMed
Eyecare to ophthalmologists and optometrists, as well as branding our regional
clusters of affiliated eye care providers to patient-consumers. A key aspect of
our patient-consumer marketing program is to utilize a single brand name
covering all of our eye care providers in each
32
<PAGE>
regional market. We believe this single regional brand strategy provides
stronger name recognition than would otherwise be possible, reinforces the
regional brand's reputation for laser vision correction and the broad eye care
expertise of our affiliated eye care providers, and provides cost efficiencies
through marketing economies of scale. We believe that a single regional brand
provides an important advantage in the highly-fragmented laser vision
correction market. This branding strategy supports our goal of market share
leadership of laser vision correction in each regional market we choose to
enter.
We provide our affiliated eye care clinics with uniform brochures and
marketing support and utilize targeted media penetration including local radio,
television and newspaper advertisements. We also develop specialized programs
targeting ophthalmologists and optometrists in order to help them educate
patient-consumers.
Our marketing programs encourage patient-consumers to contact one of our
toll free call centers, where we provide them with further information and
attempt to enroll them in a laser vision correction informational seminar or
schedule them directly for an in-office consultation with one of our affiliated
eye care providers. Our affiliated eye care providers plan to deliver more than
600 informational seminars across our five regional markets in 1999.
We provide personnel and assistance to affiliated providers in order to
facilitate a service-driven, pleasant experience for patients. Elements of this
assistance include management of schedules to foster on-time appointments and
laser vision correction counselors to help current and potential patients
understand the laser vision correction procedures and processes.
Our ten person marketing staff is decentralized, with a marketing director
in each region providing expertise in local market issues, supported by a staff
that coordinates key initiatives across markets.
Our affiliated eye care providers are encouraged to develop relationships
with optometrists and other primary care physicians in their region. In
addition, attendance and visibility at local professional society meetings,
presentations at education meetings and published research all help to promote
our affiliated eye care providers' professional standing within the
ophthalmology and optometry community.
Information Technology. Our information technology strategy is designed to
provide our locations with standardized information systems and business
processes which allow us to generate timely, accurate and consistent
information for our management team and affiliated eye care providers. We have
an in-house information technology group consisting of 21 people who are
responsible for the installation, training, support and operation of these
systems.
For our affiliated eye care clinics, we provide installation and operational
services to support our standard management and financial reporting information
systems. After we establish a new affiliation, our information technology
specialists complete an advanced deployment of our information technology
systems at the new providers' offices. This initial installation allows new
affiliated eye care providers to access our company-wide e-mail system,
providing quick and easy access to our corporate resources and to eye care
professionals at other regional eye surgery and laser centers and affiliated
eye care clinics. Generally, within 60 days of our advanced deployment, all
accounting functions are integrated with our corporate finance system. To date,
we have fully integrated all of our eye surgery and laser centers and
affiliated eye care clinics into the standard financial accounting systems and
most of our locations have been fully integrated into our management systems,
with the remaining locations expected to be incorporated into our management
systems by the end of 1999.
To further capitalize on our investment in information systems, we are
currently developing enhancements to our laser vision correction marketing
system and consolidated reporting capability to enable us to track and
coordinate the activities of our eye surgery and laser centers, affiliated eye
clinics and surgeons and co-managing optometrists. We are also developing
software enhancements for patient outcomes tracking, optical point-of-sale and
our Internet website. These enhancements will become part of our e-community,
which will also include projects under development,
33
<PAGE>
such as data warehousing and a new provider relationship management system.
Our data warehouse is designed to consolidate information, including
revenue, expense, patient demographics, procedures and clinical information,
across our eye surgery and laser centers and affiliated eye care clinics. This
data warehouse will enable us to improve decision support and reporting
capabilities at the corporate and affiliated eye care provider levels.
Our new provider relationship management system enables us to track and
coordinate the activities of eye surgery and laser centers, eye care clinics,
affiliated surgeons and co-managing optometrists. We believe that this new
system will allow us to significantly improve our ability to create contacts
with patients, improve relationships with our affiliated eye care providers and
provide new opportunities for our strategic business services. In addition,
this system will track patients through our call centers, eye surgery and laser
centers, eye care clinics and Internet website, allowing us to maintain contact
with, and promote the eye care services offered by our affiliated eye care
providers to, these patients.
Administrative Services. In addition to our other strategic business
services, we provide administrative services to our eye surgery and laser
centers and affiliated eye care providers. Specifically, we:
. recruit, train, and oversee a dedicated management team in each of our
regional markets to implement various operational and strategic
initiatives and to integrate our operations in each regional market
. evaluate and improve the clinical operations of our eye surgery and laser
centers and affiliated eye care clinics and optical dispensaries in order
to improve eye care provider and staff productivity and quality patient
care
. provide billing and collection, cash management and financial accounting
and reporting services
Recruiting. We have three full-time recruiting professionals on staff to
assist our affiliated providers in recruiting ophthalmologists, optometrists
and support staff. These recruiting services include identifying candidates,
negotiating employment agreements and structuring compensation and benefits
packages for eye care providers and support staff. Our internal recruiting
efforts allow our existing eye care providers to avoid diverting time and
attention from providing eye care services to patients. Our dedicated
recruiting staff also allows us to minimize the costs associated with retaining
recruiting firms.
Surgeon and Staff Training. We have several ophthalmologists who serve as
lead investigators in clinical trials of ophthalmic devices, products and
pharmaceuticals. As a result, some of our ophthalmic surgeons have established
clinical best practices in the field of vision correction. Our surgical
training incorporates these practices for the benefit of our affiliated eye
care providers. Our leading surgeons frequently meet with other affiliated eye
care providers, both individually and in all-doctor meetings, to educate them
on new technologies. Our involvement in clinical research also affords our
affiliated eye care providers early access to certification and training
programs for new technologies. All of our vision correction surgeons are
certified to use the excimer laser by third party certification programs. In
addition, most of our vision correction surgeons have been trained in the
recently FDA-approved Intacs(TM) non-laser refractive surgery procedure.
Co-Management. A vision correction procedure typically involves, in addition
to the surgical procedure itself, a pre-operative examination and up to six
post-operative examinations within a year of surgery. These post-operative
visits are necessary to monitor a patient's healing and vision improvement. A
patient often may elect to have the post-operative examinations performed by an
optometrist. This allows ophthalmologists to focus on performing laser vision
correction surgery procedures, while optometrists focus on pre- and post-
operative care. The coordination of this care and the communication between
ophthalmologists and optometrists are critical to achieving quality patient
care, maximizing patient satisfaction and achieving the optimal division of
labor. Our information technology system fosters this coordination and
communication between providers to ensure the co-management relationship is as
seamless as possible for the patient.
34
<PAGE>
Optical Dispensary Business. We operate, pursuant to long-term service
agreements, 27 optical dispensaries across our five regional markets. These
dispensaries sell eyeglasses, contact lenses and related optical products and
accessories to patient- consumers on a retail basis. We also provide a full
complement of optical business and administrative services to affiliated and
non-affiliated eye care providers, including optical inventory management and
optical product and service pricing.
Optical Services and Products
Optical Laboratory. We own and operate three full-service wholesale optical
laboratories that specialize in surfacing, finishing and distributing
corrective lenses and eyeglasses. These optical laboratories employ 65
individuals. Our laboratories have in excess of 325 active customers, including
affiliated and non-affiliated ophthalmologists, optometrists, opticians and
retail optical chains.
Optical Products Purchasing Organization. The NovaMed Alliance, our optical
products purchasing organization, allows affiliated and non-affiliated eye care
providers to purchase optical products through us at volume discounts. This
purchasing center operates out of a leased 5,000 square foot facility located
in Roseville, Illinois, and has 18 full-time employees. We have in excess of
500 customers that utilize our optical products purchasing organization. We
also provide monthly reports to our customers that allow them to identify
purchasing trends and manage their optical product inventories more
efficiently. We intend to expand the scope of services offered to our customers
by including ophthalmic and optometric equipment used in our affiliated and
non-affiliated providers' offices and optical laboratories.
Research
Our affiliated eye-only research center in Kansas City, Missouri, conducts
Phase II-IV clinical trials on ophthalmic devices and pharmaceuticals, with an
emphasis on laser vision correction-related items. We believe this research
center is the largest non-university affiliated ophthalmic research facility of
its kind in the U.S. The center has three excimer lasers that are dedicated for
use in clinical trials. The center also currently has 30 research sponsor
agreements, relating to over 500 subjects participating in clinical trials.
Clinical trials are supervised, managed and conducted by five participating
ophthalmologists and supported by eight full time research coordinators. The
staff at our affiliated research center has a combined 60 years of research
experience. To date, more than 100 studies have been completed at the Kansas
City research center. Currently, our affiliated eye care providers are involved
in research studies in all five of our regional markets. Some of these research
activities include treatments performed by our affiliated eye care providers in
the exercise of their professional judgment in connection with the practice of
medicine.
We believe the quality of the Kansas City research center's results is
demonstrated by the high rate of same-sponsor studies conducted at the center.
The center competes for research projects based on its ability to provide
appropriate patient candidates as well as accurate, prompt and reliable
clinical data to research sponsors. Research relates to both vision correction
surgery and pathology studies, with vision correction technology research
studies accounting for approximately two-thirds of the trials we conduct. Other
studies also involve device or pharmaceutical treatments for glaucoma,
cataracts, retinal and other eye diseases and disorders.
Our research capability is an essential component of our integrated eye care
services model. Revenue is derived from research center operations in the form
of clinical trial fees paid by the sponsors. We believe the center's reputation
for conducting quality research enhances our ability to recruit, establish and
maintain affiliations with leading eye care providers due to the prestige of
associating with a highly-regarded research program. We also believe our access
to new technology allows us to be an early adapter to shifts in science and
technology relative to our competitors.
Competition
The market for laser vision correction and other refractive surgery is
subject to intense competition. We compete with other entities, including
refractive laser center companies, hospitals, individual ophthalmologists,
other surgery and laser centers and manufacturers of excimer laser equipment,
in
35
<PAGE>
offering such services and access to related equipment. In addition, the laser
vision correction and other refractive surgery procedures provided at our eye
surgery and laser centers compete with more traditional non-surgical treatments
for refractive conditions including eyeglasses and contact lenses.
Eye care professionals interested in deploying excimer laser technology have
formed commercial enterprises in order to support the capital requirements for
acquiring the lasers and other necessary equipment. The industry today remains
highly fragmented, with most procedures performed by independent physician
groups. There are several laser vision correction companies developing national
operations. In addition, there are several eye care companies that feature
access to laser vision correction and other refractive surgery services as an
increasingly important component of their ophthalmic practice development
activities.
Our eye surgery and laser centers and affiliated eye care clinics compete on
the bases of quality of patient care, reputation and price. We compete in
fragmented geographic markets and do not face any single dominant U.S. national
competitor. Our principal corporate competitors in the market for laser vision
correction and other refractive surgery include TLC The Laser Center, Inc.,
Laser Vision Centers, Inc., ClearVision Laser Centers, Ltd., LCA-Vision Inc.
and ARIS Vision, Inc. In the market for providing business and other corporate
services to eye care clinics, we primarily compete with Omega Health Systems,
Inc. and Vision Twenty-One, Inc. The bases for competition in this market are
service, pricing, strength of delivery network, strength of operational
systems, the degree of cost efficiencies and surgeries, marketing strength,
information technology systems, managed care expertise, patient access and
quality assessment programs. Although there are competitors in some of our
markets who charge less than us for the services we provide, we believe that
our integrated eye care model and alliances with recognized industry leaders
afford us a competitive advantage. Furthermore, we believe that industry
experience to date suggests that price generally has not been the driving
factor in the patient decision process.
Suppliers of conventional vision correction (e.g., eyeglasses and contact
lenses), such as optometric chains, may also compete with us either by
marketing alternatives to laser vision correction or other refractive surgery
procedures or by purchasing excimer lasers and offering refractive surgery to
their customers.
We compete in the optical laboratory market on the bases of quality of
service, breadth of services, reputation and price. Our optical laboratory is a
national, full-service laboratory with three facilities facing a variety of
national, regional and local competitors. In the market for providing optical
group purchasing services we primarily compete with C&E Vision Group, the Block
Vision division of Vision Twenty-One, Inc., Vision West and Buyer's Edge.
Competition in this market is based upon service, price and strength of the
purchasing organization, including the ability to negotiate discounts. Although
there are competitors in some of our markets that charge less than us for
optical laboratory and optical products purchasing services, we believe that
our expertise in providing custom surfacing and finishing in our laboratory and
the purchasing services from our optical products purchasing organization
afford us a competitive advantage in each of these markets.
Employees
As of May 13, 1999, we had approximately 893 employees. Our affiliated
providers employ 45 ophthalmologists and 31 optometrists. We believe that our
relations with our employees are good. We are not a party to any collective
bargaining agreements.
Properties
We lease space for our corporate headquarters in Chicago; for our surgery
and laser centers, eye care clinics and regional offices; and for our optical
services manufacturing and warehouse operations. In some cases, these
facilities are leased from affiliated providers. See "Certain Transactions" and
notes 9 and 14 to our consolidated financial statements included in this
prospectus.
Legal Proceedings
There are no material lawsuits or administrative actions pending, or to our
knowledge, threatened, which may have a material adverse effect upon our
business, financial condition or results of operations.
36
<PAGE>
GOVERNMENT REGULATION
As a participant in the health care industry, our operations and the
operations of our affiliated opthalmologists and optometrists are subject to
extensive and increasing regulation by governmental entities at the Federal,
state and local levels. Many of these laws and regulations are subject to
varying interpretations, and we believe courts and regulatory authorities
generally have provided little clarification. Moreover, state and local laws
and interpretations vary from jurisdiction to jurisdiction. As a result, we may
not always be able to accurately predict interpretations of applicable law, and
some of our activities, or the activities of our affiliated providers, could be
challenged.
We believe that our business operations and arrangements with our affiliated
providers comply in all material respects with Federal, state and local laws.
Additionally, it is our understanding that our affiliated ophthalmologists and
optometrists comply in all material respects with Federal, state and local law,
although we cannot assure you of such compliance. However, we cannot assure you
that Federal or state regulatory authorities would not challenge any of these
relationships or arrangements. If any of our activities are challenged, we may
have to divert substantial time, attention and resources from running our
business to defend against these challenges regardless of their merit. If we do
not successfully defend these challenges, we and our affiliated providers may
face a variety of adverse consequences such as service agreements being
terminated or rendered unenforceable, third party payor agreements being
terminated, affiliated providers losing their eligibility to participate in
Medicare, Medicaid or other federal health care programs, or losing other
contracting privileges and, in some instances, civil or criminal fines. Under
certain circumstances, we may be able to redesign or reformulate our
relationships or arrangements to address these challenges. Any of these
consequences could have a material adverse effect on our business, financial
condition and results of operations.
The regulatory environment in which we and our affiliated providers operate
may change significantly in the future. Numerous legislative proposals have
been introduced in the U.S. Congress and in various state legislatures over the
past several years that could cause major reforms of the U.S. health care
system. In response to new or revised laws, regulations or interpretations, we
could be required to revise the structure of our legal arrangements or the
structure of our fees, incur substantial legal fees, fines or other costs, or
curtail our business activities, reducing the potential profit to us of some of
our legal arrangements, any of which may have a material adverse effect on our
business, financial condition and results of operations.
The following is a summary of some of the health care regulatory issues
affecting us, our affiliated eye care providers and our respective operations.
Federal Law
Anti-Kickback Statute. The U.S. Federal anti-kickback statute prohibits the
knowing and willful solicitation, receipt, offer or payment of any direct or
indirect remuneration in return for the referral of patients or the ordering or
purchasing of items or services payable under Medicare, Medicaid or other
federal health care programs. Violations of this statute may result in criminal
penalties, such as imprisonment or criminal fines of up to $25,000 per
violation, civil penalties of up to $50,000 per violation, and exclusion from
federal programs including Medicare or Medicaid.
The Federal anti-kickback statute contains a number of exceptions. In order
to address the problems created by the broad language of the statute, Congress
directed the Department of Health and Human Services to develop regulations,
known as safe harbors, to the Federal anti-kickback statute. However,
relationships for which there is no safe harbor protection and relationships
that do not meet the prescribed safe harbor standards do not necessarily
violate the statute.
We believe our operations comply in all material respects with the Federal
anti-kickback statute. However, certain aspects of our business, the business
of our affiliated providers, and our relationships with our affiliated
providers either do not meet the prescribed safe harbor standards, or relate to
practices for which no safe harbor standards have been proposed. These include:
. interests in us held by affiliated eye care providers through stock
ownership and promissory notes made by us
37
<PAGE>
. marketing and managed care services provided to our affiliated professional
entities, where our services revenue is based, in part, on the revenue or
profit that is generated from these entities
. if we are deemed a provider of health care services (for example, through
our ambulatory surgical centers), referrals of patients to us from our
affiliated eye care providers that own shares in us
. our role as an optical products purchasing organization
. compensation relationships between our affiliated ophthalmologists and
optometrists and their affiliated professional entities
. referrals between one of our affiliated professional entities and an entity
with which that professional entity has a financial relationship, such as
for the rental of office equipment or space
. referrals among our affiliated professional entities
. co-management relationships of our affiliated providers, which could be
interpreted as an agreement between ophthalmologists and optometrists to
refer patients to one another
The federal agency responsible for interpreting and enforcing this statute
has stated that if ophthalmologists and optometrists engage in agreements to
refer, they may be violating the anti-kickback statute. Vision correction
surgery is not reimbursable by Medicare, Medicaid or other federal programs,
and thus the Federal anti-kickback laws do not generally apply to our
activities, and the activities of our affiliated providers, in the areas of
vision correction surgery. However, this agency also has taken the position
that this statute applies to non-Medicare or Medicaid covered services, if the
arrangement has an impact on referral patterns for services covered by Medicare
or Medicaid. Further, we and our affiliated providers are subject to state
anti-kickback laws that are similar in nature.
No safe harbor currently exists to protect co-management relationships
between providers. We believe, however, that these arrangements comply in all
material respects with the Federal anti-kickback laws because our affiliated
eye care providers are paid solely for the services they perform and such
payments reflect the fair market value of the services each eye care provider
offers each patient. In addition, approximately six years ago, a safe harbor
was proposed for "referral agreements for specialty services." While we believe
that the co-management relationships of our affiliated eye care providers would
satisfy the requirements of this proposed safe harbor, we cannot predict when,
if ever, the final regulations will be published, whether they will differ from
the proposal or whether they will apply to the co-management relationships of
our affiliated ophthalmologists and optometrists.
Self-Referral Law. Subject to certain limited exceptions, the Federal self-
referral law, known as the "Stark Law," prohibits physicians and optometrists
from referring their Medicare or Medicaid patients for the provision of
"designated health services" to any entity with which they or their immediate
family members have a financial relationship. "Financial relationships" include
both compensation and ownership relationships. "Designated health services"
include clinical laboratory services, radiology and ultrasound services,
durable medical equipment and supplies, and prosthetics, orthotics and
prosthetic devices, as well as seven other categories of services. We do not
provide "designated health services." Our affiliated providers, however, do
provide certain limited categories of designated health services, specifically,
ultrasound services, such as A-scans and B-scans, and prosthetic devices, such
as eyeglasses and contact lenses furnished to patients following cataract
surgery.
Violating the Stark Law may result in denial of payment for the designated
health services performed, civil fines of up to $15,000 for each service
provided pursuant to a prohibited referral, a fine of up to $100,000 for
participation in a circumvention scheme, and exclusion from the Medicare,
Medicaid and other Federal health care programs. The Stark Law is a strict
liability statute. Any referral made where a financial relationship exists that
fails to meet an exception constitutes a violation of the law.
To the extent that our affiliated professional entities provide designated
health services to Medicare and Medicaid beneficiaries, or make or receive
Medicare or Medicaid referrals for such services, the Stark Law could be
implicated. We believe, however, that our operations are not subject
38
<PAGE>
to the Stark Law. Moreover, it is our understanding that our affiliated
providers have structured their operations and compensation arrangements to
comply with the Stark Law, although we cannot assure you of such compliance.
Specifically, with respect to referrals from our affiliated eye care providers
to us, such as to our eye surgery and laser centers, we believe that the Stark
Law is not implicated. The Stark Law's list of designated health services does
not include services rendered by ambulatory surgery centers, such as our eye
surgery and laser centers. We also believe that the ownership and operation of
our affiliated optical dispensaries have been structured to comply with the
Stark Law. Our affiliated professional entities own optical dispensaries, and
we provide services to the dispensaries pursuant to long-term service
agreements.
In January 1998, the government promulgated proposed rules interpreting
provisions of the Stark Law. Because the proposed rules leave many ambiguities,
it is likely that the final regulations will differ somewhat from the proposal.
We believe that our affiliated professional entities have structured their
arrangements in accordance with the proposed regulations. We do not intend to
expand our business to include the provision of designated health services, and
we believe that our affiliated professional entities do not intend to provide
designated health services unless an exception to the Stark Law applies.
Nevertheless, we cannot predict whether our affiliated professional entities
will be affected once final regulations pursuant to the Stark Law are
published.
Civil False Claims Act. The Federal Civil False Claims Act prohibits
knowingly presenting or causing to be presented any false or fraudulent claim
for payment by the government, or using any false or fraudulent record in order
to have a false or fraudulent claim paid. Violations of the law may result in
repayment of three times the damages suffered by the government and penalties
from $5,000 to $10,000 per false claim. Collateral consequences of a violation
of the False Claims Act include administrative penalties and possible exclusion
from participation in Medicare, Medicaid and other federal health care
programs.
State Law
Anti-Kickback Laws. In addition to the Federal anti-kickback law, a number
of states have enacted laws which prohibit the payment for referrals and other
types of anti-kickback arrangements. Such state laws typically apply to all
patients regardless of their source of payment. We believe that our operations
comply in all material respects with the anti-kickback laws of the states in
which we operate.
Self-Referral Laws. In addition to the Federal Stark Law, a number of states
have enacted laws which require disclosure of or prohibit referrals by health
care providers to entities in which the providers have an investment interest
or compensation relationship. In some states, these restrictions apply
regardless of the patient's source of payment. We believe that our operations
comply in all material respects with the self-referral laws of the states in
which we operate.
Corporate Practice of Medicine Laws. A number of states have enacted laws
which prohibit the corporate practice of medicine. These laws are designed to
prevent interference in the medical decision-making process from anyone who is
not a licensed physician. Many states have similar restrictions in connection
with the practice of optometry. Application of the corporate practice of
medicine prohibition varies from state-to-state. While some states may allow a
corporation to exercise significant management responsibilities over the day-
to-day operation of an ophthalmology or optometric practice, other states may
restrict or prohibit certain activities. We believe that we have structured our
relationships with ophthalmologists and optometrists in connection with the
operation of our eye surgery and laser centers and affiliated eye care clinics
so that they comply, in all material respects, with applicable corporate
practice of medicine restrictions.
Fee-Splitting Laws. The laws of some states prohibit providers from dividing
with anyone, other than providers who are part of the same group practice, any
fee, commission, rebate or other form of compensation for any services not
actually and personally rendered. Penalties for violating these fee-splitting
statutes or regulations may include revocation, suspension or probation of a
provider's license, or other disciplinary action. Alleged violations of the
fee-splitting laws also have been used successfully to declare a contract to be
void as against public policy.
39
<PAGE>
Several states, either through court or agency opinions, have interpreted
their fee-split laws in a restrictive manner. We are aware of on-going
litigation concerning the proper interpretation of some states' fee-split laws
and their applicability to service arrangements with professional entities.
These cases have focused on arrangements that include the provision of
marketing services and calculation of management fees based in part upon a
percentage of net revenue of the professional entity. Accordingly, our formula
for determining our service fee could be construed by a particular state or
judicial authority as being in violation of an applicable fee-splitting law.
Although we believe that our operations are conducted and structured in a
manner that complies in all material respects with applicable state health care
laws, rules and regulations, state regulatory agencies could take contrary
positions. In addition, if we expand into a state with different or more
restrictive laws, we may need to amend or restrict certain operations in order
to ensure compliance with applicable state laws, rules and regulations.
Facility Licensure and Certificate of Need. We may be required to obtain
licenses from the state departments of health in states where we open or
acquire eye surgery and laser centers. We believe that we have obtained the
necessary licenses in states where licenses are required. However, we believe
courts and state regulatory authorities generally have provided little
clarification as to some of the regulations governing licensure requirements.
It is possible that a state regulatory authority could challenge our position.
With respect to future expansion, we cannot assure you that we will be able to
obtain the required licenses. However, we have no reason to believe that, in
states requiring facility licenses, we will be not able to obtain such a
license without unreasonable expense or delay.
Some states require a Certificate of Need, or CON, prior to the construction
or modification of an ambulatory surgery center, such as our eye surgery and
laser centers, or the purchase of certain medical equipment in excess of an
amount set by the state. We believe that we have obtained the necessary CONs in
states where a CON is required. However, we believe courts and state regulatory
authorities generally have provided little clarification as to some of the
regulations governing the need for CONs. It is possible that a state regulatory
authority could challenge our determination. With respect to future expansion,
we cannot assure you that we will be able to acquire a CON in all states where
a CON is required.
Insurance Provisions. Many states also regulate the establishment of various
healthcare provider networks. These laws do not typically affect providers of
business and administrative services to professional entities. We are aware,
however, of some state insurance regulations requiring organizations involved
in certain types of contracting arrangements to register with the Department of
Insurance and purchase surety bonds. It also is possible that a state could
require our licensure as a provider network or organization, health maintenance
organization or insurer. We believe that we are not required to be licensed
under the insurance provisions of any states in which we currently operate.
However, we believe courts and state regulatory authorities generally have
provided little clarification as to some of the regulations governing the need
for licensure. It is possible that a state regulatory authority could challenge
our determination. We cannot assure you that we will be able to acquire an
insurance license in all states where licensure is required. However, we have
no reason to believe that in those states that require an insurance or other
license, we will not be able to obtain one.
Excimer Laser Regulation
Medical devices, such as the excimer lasers used in our eye surgery and
laser centers, are subject to regulation by the U.S. Food and Drug
Administration, referred to as the FDA. Medical devices may not be marketed for
commercial sale in the U.S. until the FDA grants pre-market approval for the
device.
The use of an excimer laser to treat both eyes on the same day, or bilateral
treatment, has not been approved by the FDA. The FDA has stated that it
considers the use of the excimer laser for bilateral treatment to be a practice
of medicine decision, which the FDA is not authorized to regulate.
Ophthalmologists, including our affiliated ophthalmologists, widely perform
bilateral treatment in an exercise of professional judgment in connection with
the practice of medicine.
40
<PAGE>
Failure to comply with applicable FDA requirements could subject us, our
affiliated providers or laser manufacturers to enforcement action, product
seizures, recalls, withdrawal of approvals and civil and criminal penalties.
Further, failure to comply with regulatory requirements, or any adverse
regulatory action, including a reversal of the FDA's current position that the
"off-label" use of excimer lasers by physicians outside the FDA approved
guidelines is a practice of medicine decision, which the FDA is not authorized
to regulate, could result in a limitation on or prohibition of our use of
excimer lasers.
Regulation of Laser Vision Correction Marketing
The marketing and promotion of laser vision correction and other vision
correction surgery procedures in the U.S. are subject to regulation by the FDA
and the Federal Trade Commission, referred to as the FTC. The FDA and FTC have
released a joint communique on the requirements for marketing these procedures
in compliance with the laws administered by both agencies. The FTC staff also
issued more detailed staff guidance on the marketing and promotion of these
procedures and has been monitoring marketing activities in this area through a
non-public inquiry to identify areas that may require further FTC attention.
Although the FDA does not regulate surgeons' use of excimer lasers, the FDA
actively enforces regulations prohibiting the marketing of products for non-
indicated uses and conducts periodic inspections of manufacturers to determine
compliance with good manufacturing practice regulations.
41
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table contains information with respect to our directors,
executive officers and key employees:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Stephen J.
Winjum 36 President, Chief Executive Officer and Chairman of the Board of Directors
Ronald G.
Eidell 55 Executive Vice President and Chief Financial Officer
E. Michele
Vickery 44 Executive Vice President Operations
J. Gary
Jordan 52 Senior Vice President Sales
Robert A.
Wallach 41 Senior Vice President Marketing
John D.
Hunkeler,
M.D. 57 Director
R. Judd
Jessup 50 Director
Scott H.
Kirk,
M.D. 46 Medical Director and Director
Steven V.
Napolitano 39 Director
James B.
Tananbaum 36 Director
Peter C.
Wendell 49 Director
Douglas P.
Williams,
M.D. 41 Director
</TABLE>
Stephen J. Winjum, our founder, has been our President and Chief Executive
Officer and a member of our board of directors since NovaMed's formation in
March 1995. In May 1998, the Board established the position of Chairman, and
Mr. Winjum has served in that capacity ever since. From 1991 through 1994, Mr.
Winjum was general counsel to Midwest Uncuts, Inc., a national, full-service,
wholesale optical laboratory. Prior to being general counsel for Midwest
Uncuts, Mr. Winjum co-founded Midwest Uncuts Chicago, an optical company
affiliated with Midwest Uncuts, and was its President and Chief Executive
Officer for approximately 18 months. Mr. Winjum earned his J.D., cum laude,
from the University of Notre Dame Law School in 1988, and his B.S.B.A., cum
laude, in Accounting from Creighton University in 1985.
Ronald G. Eidell has been our Executive Vice President and Chief Financial
Officer since July 1998. From January 1996 to May 1998, Mr. Eidell was Senior
Vice President and Chief Financial Officer of Metromail Corporation, a provider
of information and technology products and services to direct marketing firms.
From 1988 to 1995, Mr. Eidell worked at R.R. Donnelley & Sons Co., an
international commercial printing company, where he was that company's Senior
Vice President, Finance and Treasurer from 1991 to 1995, and a Vice President
from 1988 through 1990. Mr. Eidell earned his M.B.A. from the University of
Chicago in 1982 and his B.S. in Business Administration from Drexel University
in 1967.
E. Michele Vickery has been our Executive Vice President Operations since
March 1997. From 1990 to 1996, Ms. Vickery was employed by Surgical Care
Affiliates (SCA), a company specializing in the management of outpatient
surgery centers, as a Regional Vice President from 1990 until 1992, and as one
of two Senior Vice Presidents of Operations from 1992 to 1996. Upon the
acquisition of SCA by HealthSouth in 1996, Ms. Vickery continued as a Senior
Vice President of the Surgery Division of HealthSouth until joining us. Ms.
Vickery received her B.S.N. from Case Western Reserve University in 1978, and
her B.A. from Wittenberg University in 1976.
J. Gary Jordan joined us in April 1999 as our Senior Vice President Sales,
responsible for our sales organization and oversight of certain of our
development activities. Prior to joining us, Mr. Jordan was President of the
Cardiology Division of the Cordis Corporation, a subsidiary of Johnson &
Johnson, from January 1997 to August 1998. In that capacity, he managed U.S.
sales and marketing,
42
<PAGE>
worldwide finance, information technology, quality assurance and human
resources. From July 1996 to December 1996, he was Cordis Corporation's Vice
President Sales and Marketing. From 1990 to 1996, Mr. Jordan was Vice President
of worldwide sales and marketing for St. Jude Medical where he directed
marketing and sales for St. Jude's heart valve division. Mr. Jordan earned his
B.A. from the University of Georgia in 1970.
Robert A. Wallach joined us in April 1999 as our Senior Vice President
Marketing, responsible for the overall strategy and field execution of our
marketing programs. Prior to joining us, Mr. Wallach was vice president of
global marketing for Clean Shower, L.P., a consumer products company. From 1997
to 1998, Mr. Wallach was a vice president of marketing for Nabisco. From 1992
through 1997, Mr. Wallach was vice president of marketing for the Dannon
Company. Mr. Wallach has served on a number of industry association boards and
has recently been elected to the Board of Directors of the American Marketing
Association. Mr. Wallach earned his M.B.A. in marketing from Columbia
University in 1984, and his B.A., magna cum laude, from the State University of
New York at Albany in 1979.
John D. Hunkeler, M.D. has been a member of our Board of Directors since
January 1997. Dr. Hunkeler is the founder and Medical Director of the Hunkeler
Eye Centers (an affiliated provider) and has been practicing ophthalmology in
the Kansas City area since 1973. In October 1996, he was honored by the
Ophthalmology Times as one of the top 100 ophthalmologists in the nation. Dr.
Hunkeler serves as the Chairman of the University of Kansas Medical Center's
department of ophthalmology and on the boards of the American Board of Eye
Surgery, the Outpatient Ophthalmic Surgical Society and the Society for
Geriatric Ophthalmology. He is a member of the American Board of Ophthalmology
and is a past president of the American Society for Cataract & Refractive
Surgery. Dr. Hunkeler earned his M.D. from the University of Kansas in 1967,
served his internship at the Los Angeles County Hospital in Los Angeles,
California and completed his residency at the University of Kansas in 1973.
R. Judd Jessup has been a member of our Board of Directors since September
1998. Mr. Jessup is currently a private investor. From 1994 to 1996 he served
as President of the HMO Division of FHP International Corporation, a
diversified health care services company. From 1987 to 1994, Mr. Jessup served
as President of Take Care, Inc., a multi-state HMO which was acquired by FHP
International Corporation in 1994. Mr. Jessup earned his M.B.A. from the
University of Denver in 1971, and his B.A. from Knox College in 1969.
Scott H. Kirk, M.D. has been our Medical Director and a member of our Board
of Directors since August 1995. Dr. Kirk has practiced ophthalmology in the
Chicago area since 1982, and has been the Medical Director at Kirk Eye Center
(an affiliated provider) in River Forest, Illinois since 1987. Dr. Kirk is an
assistant clinical professor at the University of Illinois and is on the
medical staff at West Suburban Hospital, Oak Park Hospital and Gottleib
Memorial Hospital. Dr. Kirk has served as a site surveyor for the AAAHC since
1991 and is a current member of the AAAHC Board of Directors. Dr. Kirk is
certified by the American Board of Ophthalmology and is a Fellow of the
American Academy of Ophthalmology. Dr. Kirk is also a director of the
Outpatient Ophthalmology Surgical Society. Dr. Kirk earned his M.D. from
Washington University Medical School in 1978 and completed his residency there
in 1982.
Steven V. Napolitano has been a member of our Board of Directors since
January 1997. Mr. Napolitano is a senior partner in the law firm of Katten
Muchin & Zavis where he has practiced since 1995. He is a member of the firm's
Board of Directors and is also a co-chair of the firm's Private Equity and
Emerging Growth Company practice group. Mr. Napolitano practiced law in Chicago
with the firm of Dickinson, Wright, Moon, Van Dusen & Freeman from May 1991
through March 1995 and with Kirkland & Ellis from September 1985 through April
1991. He earned his J.D. from the Boston University School of Law, as a G.
Joseph Tauro Scholar, in 1985, and his B.A. in Economics from the University of
Notre Dame in 1981.
James B. Tananbaum has been a member of our Board of Directors since January
1997. Mr. Tananbaum has been President and Chief Executive Officer of Advanced
Medicine Inc., a private pharmaceutical research company since November 1996.
Mr. Tananbaum was a co-founder of GelTex Pharmaceuticals Inc., where he was a
director until January 1997. He has also served as a director of Intensiva
HealthCare Corporation and was a
43
<PAGE>
founding investor in Healtheon, Inc. From 1994 to 1996, he was a partner in
Sierra Ventures, a Menlo Park, California venture capital fund. Prior to
joining Sierra Ventures, Mr. Tananbaum was with Merck & Company, Inc., an
international pharmaceuticals company, where he served in a variety of line
operating management positions. Mr. Tananbaum earned his M.B.A. from Harvard
Business School in 1991, his M.D. from Harvard Medical School in 1989 and his
B.S.E.E. and B.S. degrees from Yale University in 1984.
Peter C. Wendell has been a member of our Board of Directors since March
1999. Mr. Wendell is the founder and a General Partner of Sierra Ventures, a
Menlo Park, California venture capital fund. He teaches at Stanford
University's Graduate School of Business, where he holds a faculty appointment.
In addition, Mr. Wendell is on the Board of Directors of the Princeton
University Investment Company which is responsible for the Princeton endowment.
He also serves as a director of Fatbrain.Com, Inc., an online retailer of
information resources, a position he has served in since September 1996.
Previously, Mr. Wendell has worked in a variety of executive management
positions for IBM and has worked for McKinsey & Company management consultants.
Mr. Wendell earned his M.B.A., with distinction, from Harvard Business School
in 1976, and his B.A., magna cum laude, from Princeton University in 1972.
Douglas P. Williams, M.D. has been a member of our Board of Directors since
August 1995. Dr. Williams has been practicing ophthalmology at the Brodersen-
Williams Eye Institute, P.C. (an affiliated provider) in Hammond, Indiana since
July 1987. He is certified by the American Board of Ophthalmology and is a
member of the American Society of Cataract and Refractive Surgery and the
American College of Eye Surgeons. Dr. Williams earned his M.D., A.O.A. from the
University of Chicago in 1983. He completed his residency at the University of
Illinois Eye and Ear Infirmary of Chicago in 1987.
Board of Directors
Our Board of Directors consists of eight directors. Following this offering,
the Board of Directors will be divided into three classes, with each class
serving for a term of three years. At each annual meeting of stockholders,
successors to those directors whose terms are expiring will be elected by our
stockholders. Directors whose terms will expire in 2000 are: Messrs. Winjum and
Wendell; directors whose terms will expire in 2001 are: Drs. Hunkeler and Kirk
and Mr. Tananbaum; directors whose terms will expire in 2002 are: Messrs.
Jessup and Napolitano and Dr. Williams.
Committees of the Board of Directors
Our audit committee recommends to our entire Board the independent public
accountants to be engaged by us, reviews the plan and scope of our annual audit
and reviews our internal controls and financial management policies with our
independent public accountants. The members of our audit committee are Messrs.
Jessup and Tananbaum.
Our compensation committee establishes guidelines and standards relating to
the determination of executive compensation, reviews executive compensation
policies and recommends to our entire Board compensation for our executive
officers. Our compensation committee also administers our stock option and
incentive award plans and determines the number of shares covered by, and terms
of, options to be granted to executive officers and key employees pursuant to
these plans. The members of our compensation committee are Messrs. Jessup and
Tananbaum.
Director Compensation
Except for grants of options to purchase our common stock granted upon the
initial election of certain directors to our Board, our directors do not
receive compensation for serving as directors.
Compensation Committee Interlocks and Insider Participation
Our compensation committee currently consists of Messrs. Jessup and
Tananbaum. Neither member of the compensation committee has been an officer or
employee of us at any time. None of our executive officers serves as a member
of the board of directors or compensation committee of any other company that
has one or more executive officers serving as a member of our board of
directors or compensation committee. Prior to the formation of the compensation
committee in May 1999, the board of directors as a whole made decisions
relating to compensation of our executive officers. Mr. Winjum participated in
all such discussions and decisions, except those regarding his own
compensation.
44
<PAGE>
Option Grants in 1998
Executive Compensation
The following table contains information with respect to all compensation
paid by us to our chief executive officer and our four other most highly
compensated executive officers in 1998.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
----------------------------- ------------------------------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Year Salary Bonus Compensation Award(s) Options/SARs Payout Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stephen J. Winjum....... 1998 $200,000 $75,000 $31,203 -- 50,000 -- --
Chairman of the Board,
President and Chief
Executive Officer
E. Michele Vickery...... 1998 $175,000 $40,000 $10,097 -- 24,000 -- --
Executive Vice
President Operations
Daniel O. Wagster....... 1998 $150,000 $25,000 $ 5,770 -- -- -- --
Senior Vice President
Operations
T. Trent Roark.......... 1998 $135,000 $25,000 $11,745 -- -- -- --
Vice President Clinical
Operations
Thomas J. Chirillo...... 1998 $120,000 $25,000 $10,528 -- 8,000 -- --
Vice President Sales
</TABLE>
The following table contains information concerning our grant of stock
options to our chief executive officer and our four other most highly
compensated executive officers during 1998. Potential realizable value is
presented net of the option exercise price, but before any Federal or state
income taxes associated with exercise, and is calculated assuming that the fair
market value on the date of the grant appreciates at the indicated annual
rates, compounded annually, for the term of the option. The 5% and 10% assumed
rates of appreciation are mandated by the rules of the SEC and do not represent
our estimate or projection of future increases in the price of our common
stock. Actual gains will be dependent on the future performance of our common
stock and the option holder's continued employment throughout the vesting
period. The amounts reflected in the following table may not be achieved.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Number of Percent of Price
Shares Total Options Appreciation for
Underlying Granted to Per Share Option Term
Options Employees in Exercise or Expiration -----------------
Name Granted Fiscal Year Base Price Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Stephen J. Winjum....... 50,000 6.1% $3.50 2/01/2008 $110,100 $278,900
E. Michele Vickery...... 24,000 2.9% $3.50 2/01/2008 $ 52,800 $133,900
Daniel O. Wagster....... -- -- -- -- -- --
T. Trent Roark.......... -- -- -- -- -- --
Thomas J. Chirillo...... 8,000 1.0% $3.50 2/01/2008 $ 17,600 $ 44,600
</TABLE>
45
<PAGE>
1998 Option Values
The following table contains information regarding unexercised options held
by our chief executive officer and four other most highly compensated executive
officers at December 31, 1998. None of these individuals exercised any options
during 1998. The value of "in-the-money" options represents the difference
between the exercise price of an option and the fair market value of our common
stock as of December 31, 1998, which, solely for purposes of this calculation,
we estimate to have been $4.38 per share.
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised
Options at December 31, In-The-Money Options at
1998 December 31, 1998
------------------------- -------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C>
Stephen J. Winjum........... 585,834/404,166 $1,598,909/$946,291
E. Michele Vickery.......... 92,500/131,500 $195,150/$261,970
Daniel O. Wagster........... 147,083/22,917 $454,333/$65,168
T. Trent Roark.............. 123,125/11,875 $378,350/$10,450
Thomas J. Chirillo.......... 81,563/31,437 $237,957/$69,383
</TABLE>
Employment Agreements
We have entered into employment agreements with Messrs. Winjum, Wagster,
Roark, Chirillo and Ms. Vickery that provide for current annual base salaries
of $250,000, $150,000, $150,000, $145,000, and $200,000, respectively. These
executives are eligible to receive an annual incentive compensation award based
upon our executive compensation plan approved by our Board, and the right to
participate in our stock option plan and employee benefit programs (including
hospitalization, disability, life and health insurance). These agreements have
initial terms that automatically renew on a year-to-year basis, unless either
of us chooses to terminate the agreement. These agreements impose on each
employee non-competition restrictions that survive termination of employment
for one year and post-termination confidentiality obligations.
Under these agreements, employment terminates automatically upon death, and
may be terminated by us for cause or upon executive's disability. If terminated
for death, disability or cause, the executive is not entitled to receive any
salary or other severance after the date of termination. In the event we
terminate an executive without cause, the executive receives severance
compensation in a fixed amount equal to the executive's then-current base
salary and pro rata bonus for a period ranging from six to 18 months.
Limitation of Liability and Indemnification Matters
Our Restated Certificate of Incorporation contains provisions that eliminate
the personal liability of our directors to us or our stockholders for monetary
damages for breach of their fiduciary duty as a director to the fullest extent
permitted by the Delaware General Corporation Law, except for liability for:
. any breach of their duty of loyalty to us or our stockholders
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law
. unlawful payments of dividends or unlawful stock repurchases or
redemptions
. any transaction from which the director derived an improper personal
benefit
Our Restated Certificate of Incorporation also contains provisions that
require us to indemnify our directors and that permit us to indemnify our
officers and employees to the fullest extent permitted by Delaware law,
including circumstances where indemnification would be discretionary. We are
not obligated to indemnify any such person:
. with respect to proceedings, claims or actions initiated or brought
voluntarily by any such person and not by way of defense
46
<PAGE>
. for any amounts paid in settlement of an action indemnified against by us
without our prior written consent
We have obtained directors' and officers' liability insurance and have
entered into indemnity agreements with each of our directors providing for this
indemnification. We believe that these measures are essential to attracting and
retaining qualified persons as directors and officers.
1996 Stock Incentive Plan
In December 1996, we adopted and our stockholders approved, the
establishment of our 1996 Stock Incentive Plan which is designed to promote our
overall financial objectives by motivating Board members, officers, employees
and other persons who are instrumental to our long-term growth.
The 1996 plan is administered by the Compensation Committee of our Board and
is a flexible program that provides the Committee with broad discretion to
fashion the terms of grants of options as the Committee deems appropriate. The
plan currently permits the issuance of both nonstatutory stock options and
incentive stock options for the purchase of up to 6,251,800 shares of common
stock. To date, we have not issued any incentive stock options.
The persons eligible to be selected by the Committee as participants in the
plan are those directors, officers, employees, independent contractors or
consultants who are in a position to make contributions to our growth,
management, protection and success. Subject to the terms of the specific option
agreement, each option to purchase common stock issued under our 1996 plan will
become exercisable in stages beginning six months after its grant date (when
1/8th of the participant's options will become exercisable); an additional
1/48th of each such option will become exercisable as of the last day of each
month thereafter (so that each option will be exercisable in full 48 months
after its grant date).
We have also issued options to purchase common stock under the 1996 plan to
certain affiliated providers. These options were purchased at their fair market
value based upon the Black-Scholes option-pricing model.
Retirement Plan
We have adopted a retirement savings plan covering most of our employees
provided they are 21 and have been working for us for the requisite length of
time. This retirement plan is intended to qualify under Section 401(k) of the
Internal Revenue Code.
Under terms of this plan, participants may elect to defer up to 15% of their
annual compensation, subject to limitations under the Internal Revenue Code,
that we contribute to the plan on their behalf. In addition, we match 50% of a
participant's contributions on the first 3% of salary contributed by a
participant to the plan.
These contributions are fully vested, except that our matching contributions
vest over time, fully vesting after five years of service. Benefits under this
plan are usually distributed through either a lump sum or installments
following the retirement, death, disability or other termination of employment.
Benefits are sometimes distributed prior to termination of employment in
limited circumstances such as hardship and attainment of age 59 1/2.
1999 Stock Purchase Plan
In May 1999, we intend to adopted an employee stock purchase plan under
which a total of 400,000 shares of our common stock will be reserved for
purchase by our employees. Our compensation committee will administer the stock
purchase plan. Employees are eligible to participate in the stock purchase plan
if they are employed by us and otherwise satisfy the terms of the plan. The
stock purchase plan will permit our eligible employees to purchase our common
stock through payroll deductions.
The stock purchase plan will operate on a calendar year basis. The stock
purchase plan will be implemented in a series of consecutive offering periods,
each approximately three months long, with the offering period expected to
commence on the first trading day after September 30, 1999. The purchase price
per share at which shares are sold in an offering under the stock purchase plan
is 85% of the lesser of the fair market value of our stock on the first day of
the offering period, or the last day of the offering period. Employees may end
or modify their participation in the stock purchase plan at any
47
<PAGE>
CERTAIN TRANSACTIONS
time during an offering period. Participation ends automatically upon
termination of employment. Payroll deductions may not exceed $10,000 for any
employee in any offering period.
No person will be able to purchase our common stock under the stock purchase
plan if such person or his or her family members, immediately after the
purchase, would own stock possessing 5% or more of the total combined voting
power or value of all outstanding shares of all classes of our stock.
Acquisition of Midwest Uncuts, Inc.
Effective January 1, 1999, we acquired all of the issued and outstanding
shares of Midwest Uncuts, Inc. in exchange for cash and stock. The stockholders
were Mr. and Mrs. John P. Winjum, the parents of our Chairman of the Board,
President and Chief Executive Officer. The terms and conditions of this
transaction were approved by a special committee appointed by our
Board,consisting of two independent, disinterested members of the Board. Prior
to this acquisition, we had retained Midwest Uncuts to finish and surface
lenses on a purchase order basis on market terms. Midwest
Uncuts is now our wholly-owned subsidiary. We entered into a lease agreement
with John P. Winjum relating to the real estate underlying the Indianola, Iowa
location of Midwest Uncuts. The lease is effective as of January 1, 1999 and is
for 9,500 square feet of space. The lease has a five year term and requires us
to pay $48,000 per year in base rent over the term of the lease.
Repurchase of Series A Convertible Preferred Stock
On June 24, 1998, we made an offer to the holders of our Series A
convertible preferred stock to purchase up to 1,200,000 shares of this stock at
a purchase price of $4.38 per share. This offer was designed to provide these
stockholders with liquidity. Pursuant to this offer, we purchased 1,188,414
shares of our Series A convertible preferred stock from some of the holders at
a purchase price of $4.38 per share. Douglas Williams Family Partnership, one
of our 5% stockholders and an affiliate of one of our directors, was among the
holders of Series A convertible preferred stock who participated in this offer.
Acquisition of TRI-OC Management, Inc.
Effective May 1, 1996, we acquired substantially all of the assets of TRI-OC
Management, Inc., a company specializing in the provision of optical dispensary
management services in exchange for 96,000 shares of our common stock. TRI-OC
is owned by three stockholders, each of whom was associated in some manner with
us prior to completion of this acquisition. TRI-OC's stockholders include John
P. Winjum, the father of our Chairman of the Board, President and Chief
Executive Officer, and Robert C. Goettling, an existing stockholder and our
Vice President Corporate Development. The disinterested members of the Board
unanimously approved this acquisition.
Physician Loans
We have also made the following loans which have been repaid:
We loaned $300,000 to Douglas P. Williams, M.D., a physician employed by,
and a stockholder of, Brodersen-Williams Eye Institute, P.C., an affiliated
professional entity located in Hammond, Indiana. Dr. Williams is also a member
of our Board. Dr. Williams signed a Secured Promissory Note payable upon our
demand and bearing an interest rate of 9% per annum.
We loaned $150,000 to Ann K. Williams, M.D., a physician employed by, and a
stockholder of, Brodersen-Williams Eye Institute, P.C. Dr. Williams signed a
Secured Promissory Note payable upon our demand and bearing an interest rate of
9% per annum.
Leases from Our Affiliated Physicians
Effective January 1, 1996, we entered into a lease agreement with Eldi E.
Deschamps, M.D. and his wife to lease approximately 10,000 square feet of
surgery and laser center and eye care clinic space located in Merrillville,
Indiana. The lease has a five year term and requires us to pay between $118,000
to $133,000 per year in base rent over the term of the lease. Dr. Deschamps is
the beneficial owner of more than 5% of our common stock.
48
<PAGE>
Effective January 1, 1996, we entered into a lease agreement with First
Colonial Trust Company, as trustee on behalf of Scott H. Kirk, M.D. to lease
10,098 square feet of surgery and laser center and eye care clinic space
located in River Forest, Illinois. The lease has a five year term and requires
us to pay between $165,000 to $186,000 per year in base rent over the term of
the lease. Dr. Kirk is one of our directors.
Effective January 1, 1996, we entered into a lease agreement with Mercantile
National Bank of Indiana, as trustee on behalf of Douglas P. Williams, M.D. to
lease 11,500 square feet of surgery and laser center and eye care clinic space
in Hammond, Indiana. The lease has a five year term and requires us to pay
between $173,000 to $194,000 per year in base rent over the term of the lease.
Dr. Williams is one of our directors.
49
<PAGE>
SELLING STOCKHOLDERS
Some of the shares being sold are presently owned by existing stockholders.
These shares were acquired through conversions of our preferred stock upon
completion of this offering or through private placements pursuant to Section
4(2) of the Securities Act.
The following table contains information regarding beneficial ownership of
our common stock as of the date of this prospectus and as adjusted to reflect
the sale of our common stock in this offering for each stockholder indicated.
The selling stockholders have furnished this information to us, and this
information is, to the best of our knowledge, accurate.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
of Common Stock of Common Stock
Prior to this Offering After this Offering
---------------------- ---------------------------------
Name Number
and of Shares
Address Number of Percent of Being Number of
(1) Shares Voting Power Offered Shares Percent of Voting Power
<S> <C> <C> <C> <C> <C>
</TABLE>
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table contains information regarding the beneficial ownership
of our common stock as of May 15, 1999, and as adjusted to reflect the sale of
our common stock in this offering, by:
. each person or group of affiliated persons known by us to beneficially
own more than 5% of the outstanding shares of our common stock
. each of our directors
. each of our chief executive officer and the four other most highly
compensated executive officers
. all of our directors and executive officers as a group
Unless otherwise indicated below the persons in this table have sole voting
and investment power with respect to all shares shown as beneficially owned by
them. Beneficial ownership is determined in accordance with the rules of the
SEC. The number of shares beneficially owned by a person and the percentage
ownership of that person include shares of our common stock subject to options
and warrants held by that person that are currently exercisable or exercisable
within 60 days from the date of this offering.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
of Common Stock of Common Stock
Prior to this Offering After this Offering
---------------------- ----------------------
Number of Percent of Number of Percent of
Name and Address (1) Shares Voting Power Shares Voting Power
<S> <C> <C> <C> <C>
Five Percent Stockholders:
Kirk Family Limited Partnership
(2)........................... 2,620,000 14.10%
Sierra Ventures V, L.P. (3).... 2,366,722 12.73% 2,366,722
Douglas Williams Family Limited
Partnership (4)............... 1,820,000 8.40%
Eldi E. Deschamps, M.D. (5).... 1,520,000 8.18%
Directors and Officers:
Stephen J. Winjum (6).......... 1,528,725 7.93% 1,528,625
Ronald G. Eidell (7)........... 119,578 * 119,578
E. Michele Vickery (8)......... 160,954 * 160,954
Daniel O. Wagster (9).......... 201,083 1.07% 201,083
T. Trent Roark (10)............ 129,313 *
Thomas J. Chirillo (11)........ 90,021 * 90,021
Scott H. Kirk, M.D. (12)....... 2,774,247 14.93%
John D. Hunkeler, M.D. (13).... 854,889 4.58%
R. Judd Jessup (14)............ 107,991 *
Steven V. Napolitano (15)...... 128,417 * 128,417
James B. Tananbaum (16)........ 60,417 *
Douglas P. Williams, M.D. (17). 1,888,000 10.16%
Peter C. Wendell (18).......... 2,366,722 12.73% 2,366,722
All Executive Officers and
Directors as a Group (12 people)
(19)............................ 9,989,940 50.84%
</TABLE>
- --------
* Less than 1%
(1) Unless otherwise indicated, the address of the beneficial owners is c/o
NovaMed Eyecare, Inc., 980 North Michigan Avenue, Suite 1620, Chicago,
Illinois 60611.
(2) The general partner of the Kirk Family Limited Partnership is Kirk Eye
Center, S.C. Scott H. Kirk, M.D., a member of our board of directors, and
his brother Kent A. Kirk, M.D., are the sole stockholders of Kirk Eye
Center, S.C. The address of the Kirk Family Limited Partnership is c/o
Kirk Eye Center, S.C., 7427 Lake Street, River Forest, Illinois 60305.
(3) The address of Sierra Ventures V, L.P. is c/o Peter Wendell, 3000 Sand
Hill Road, Building 4, Suite 210, Menlo Park, California 94025.
51
<PAGE>
(4) The general partner of the Douglas Williams Family Limited Partnership is
Brodersen-Williams Eye Institute, P.C. Douglas P. Williams, M.D., a member
of our board of directors, is the sole shareholder of Brodersen-Williams
Eye Institute, P.C. The address of the Douglas Williams Family Partnership
is c/o Brodersen-Williams Eye Institute, P.C., 6850 Holman Avenue,
Hammond, Indiana 46324.
(5) Includes 502,425 shares held by Eldi Deschamps as Trustee for the Eldi
Deschamps Grantor Annuity Trust u/a/d June 1, 1998 and 1,017,575 shares
held by Eldi Deschamps as Trustee for the Eldi Deschamps Revocable Trust
u/a/d June 1, 1998. The address for Dr. Deschamps and the related trusts
is 8510 Broadway Street, Merrillville, Indiana 46410.
(6) Includes options to purchase 680,625 shares which are exercisable within
60 days of the date hereof.
(7) Includes options to purchase 62,500 shares which are exercisable within 60
days of the date hereof.
(8) Includes options to purchase 121,000 shares which are exercisable within
60 days of the date hereof.
(9) Includes options to purchase 162,083 shares which are exercisable within
60 days of the date hereof.
(10) Includes options to purchase 125,313 shares which are exercisable within
60 days of the date hereof.
(11) Includes options to purchase 90,021 shares which are exercisable within 60
days of the date hereof.
(12) Includes 2,620,000 shares held by the Kirk Family Limited Partnership of
which Dr. Kirk is a partner.
(13) Includes options to purchase 60,417 shares which are exercisable within 60
days of the date hereof.
(14) Includes options to purchase 16,667 shares which are exercisable within 60
days of the date hereof. Also includes 91,324 shares which are held by R.
Judd Jessup and Charlene Lynne Jessup, as Trustees for the R. Judd Jessup
and Charlene Lynne Jessup Living Trust u/a/d May 6, 1991.
(15) Includes options to purchase 60,417 shares which are exercisable within 60
days of the date hereof and excludes 23,962 shares of our common stock
owned by Katten Muchin & Zavis, the law firm of which Mr. Napolitano is a
partner. See "Legal Matters".
(16) Includes options to purchase 60,417 shares which are exercisable within 60
days of the date hereof.
(17) Includes 1,820,000 shares held by the Douglas Williams Family Limited
Partnership of which Dr. Williams is a partner.
(18) Includes 2,366,722 shares held by Sierra Ventures V, L.P., of which Mr.
Wendell is a general partner. Mr. Wendell disclaims beneficial ownership
of these shares, except to the extent of his pecuniary interest therein.
(19) Includes options to purchase 1,062,043 shares which are exercisable within
60 days of the date hereof.
52
<PAGE>
DESCRIPTION OF SECURITIES
General
The following summary is subject to, and qualified by, applicable law and
the provisions of our Restated Certificate of Incorporation and By-laws. These
organizational documents are exhibits to the registration statement of which
this prospectus is a part.
Our Restated Certificate of Incorporation authorizes us to issue 100 million
shares of capital stock, of which 81,761,465 shares are designated common stock
and 18,238,535 shares are designated preferred stock. We currently have
outstanding 11,502,698 shares of Series A convertible preferred stock, 400,000
shares of Series B convertible preferred stock, 2,000,000 shares of Series C
convertible preferred stock and 2,323,837 shares of Series D convertible
preferred stock. Upon completion of this offering, all of this preferred stock
will automatically convert into an aggregate of 16,226,535 shares of our common
stock, and there will be no shares of preferred stock outstanding. Following
conversion of the outstanding preferred stock into common stock, the Series A,
B, C and D convertible preferred stock will be eliminated and these shares will
not be available for reissuance.
We currently have 2,360,863 shares of common stock outstanding. Of the
81,761,465 authorized shares of our common stock, 16,226,535 shares are
reserved for issuance upon conversion of the preferred stock, 6,251,800 shares
are reserved for issuance pursuant to our 1996 Stock Incentive Plan, and
400,000 shares are reserved for issuance pursuant to our 1999 Stock Purchase
Plan.
Common Stock
Our Board is classified into three classes as nearly equal in number as
possible, with the term of each class expiring on a staggered basis. The
classification of our Board may make it more difficult to change the
composition of the Board and thereby may discourage or make more difficult an
attempt by a person or group to obtain control of us. Cumulative voting for the
election of directors is not permitted, enabling holders of a majority of our
outstanding common stock to elect all members of the class of directors whose
terms are then expiring.
Voting Rights
Holders of our common stock are entitled to one vote per share. Subject to
any voting rights granted to holders of any preferred stock, a majority of the
votes entitled to be cast by all holders of our common stock will generally be
required to approve matters voted on by our stockholders. Amendments to our
Restated Certificate of Incorporation that would change and adversely affect
the powers, preferences or rights of a class or series of our stock also must
be approved by a majority of the votes entitled to be cast by the holders of
the adversely affected class or series, voting as a separate class or series.
Dividends
Subject to the rights of holders of any outstanding preferred stock, the
holders of outstanding shares of our common stock will share ratably on a per
share basis in any dividends declared from time to time by our Board.
Other Rights
Subject to the rights of holders of any outstanding preferred stock, upon
our liquidation, dissolution or winding up, we will distribute any assets
legally available for distribution to our stockholders, ratably among the
holders of our common stock outstanding at that time. All shares of our common
stock currently outstanding are, and all shares of our common stock when duly
issued and paid for will be, fully paid and nonassessable, not subject to
redemption and without preemptive rights.
Preferred Stock
Upon completion of this offering, all of our currently outstanding preferred
stock will automatically convert into shares of our common stock and there will
be no shares of preferred stock outstanding. Therefore, the following
information does not pertain to the currently outstanding preferred stock, but
rather the shares of preferred stock that we may issue in the future
pursuant to our Restated Certificate of Incorporation.
We may issue preferred stock in series from time to time with such
designations, relative rights, priorities, preferences, qualifications,
limitations and restrictions thereof, to the extent that those are not fixed in
our Restated Certificate of Incorporation, as
53
<PAGE>
our Board determines. The rights, preferences, limitations and restrictions of
different series of preferred stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions and other matters. Our Board may authorize
the issuance of preferred stock which ranks senior to our common stock with
respect to the payment of dividends and the distribution of assets on
liquidation. In addition, our Board is authorized to fix the limitations and
restrictions, if any, upon the payment of dividends on common stock to be
effective while any shares of preferred stock are outstanding. Our Board,
without stockholder approval, may issue preferred stock with voting and
conversion rights which could adversely affect the voting power of the holders
of common stock.
Our undesignated preferred stock allows the Board to render more difficult
or to discourage an attempt to obtain control of us by means of a tender offer,
proxy contest, merger or otherwise, and thereby to protect the continuity of
our management. The issuance of this preferred stock pursuant to the Board's
authority may adversely affect the rights of the holders of our common stock.
For example, preferred stock issued by us may rank prior to our common stock as
to dividend rights, liquidation preference or both, may have full or limited
voting rights and may be convertible into shares of our common stock.
Accordingly, the issuance of shares of preferred stock may discourage bids for
our common stock or may otherwise adversely affect the market price of our
common stock. Except as described in our Rights Agreement, we have no present
intention to issue shares of preferred stock.
Delaware Anti-Takeover Law and Charter and Bylaw Provisions
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, this section prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless each of the
following is satisfied:
. prior to the date at which the stockholder became an interested
stockholder, the board of directors approved either the business
combination or the transaction in which the person became an interested
stockholder
. the stockholder acquires more than 85% of the outstanding voting stock of
the corporation (excluding shares held by directors who are officers or
held in certain employee stock plans) upon consummation of the
transaction in which the stockholder becomes an interested stockholder
. the business combination is approved by the board of directors and by
two-thirds of the outstanding voting stock of the corporation (excluding
shares held by the interested stockholder) at a meeting of the
stockholders (and not by written consent) held on or subsequent to the
date of the business combination
An interested stockholder is a person who, together with affiliates and
associates, owns (or at any time within the prior three years did own) 15% or
more of the corporation's voting stock. A business combination includes,
without limitation, mergers, consolidations, stock sales and asset-based
transactions and other transactions resulting in a financial benefit to the
interested stockholder.
Our Restated Certificate of Incorporation and Bylaws contain a number of
provisions relating to corporate governance and to the rights of our
stockholders. These provisions may be deemed to have a potential anti-takeover
effect in that such provisions may delay, defer or prevent a change of control
of us. These provisions include:
. a requirement that, following this offering, stockholder action may be
taken only at stockholder meetings and not by written consent
. notice requirements relating to nominations to our Board and to the
raising of business matters at stockholder meetings
. a requirement that special meetings of stockholders can only be called by
our Chairman of the Board, President, Chief Executive Officer or a
majority of our Board
. the classification of our Board, following this offering, into three
classes, each serving for staggered three-year terms.
54
<PAGE>
Rights Agreement
On , 1999, our Board declared a dividend of one right for
each outstanding share of our common stock. The dividend is payable on ,
1999 to the stockholders of record on that date. Each right entitles the
registered holder to purchase from us one one-hundredth of a share of Series E
Junior Participating Preferred Stock, par value $.01 per share at a price of
$ per one one-hundredth of a share of Series E Junior Participating
Preferred Stock, subject to adjustment. The description and terms of the rights
are set forth in a Rights Agreement between us and The American Stock Transfer
Company, as Rights Agent.
The rights are not exercisable until the distribution date which occurs on
the earlier of:
. the close of business on the tenth day after the first public
announcement that a person or group of affiliated or associated persons
has become an acquiring person by acquiring beneficial ownership of 15%
or more of our outstanding common stock, or
. the close of business on the tenth day (or a later date as may be
determined by our board of directors prior to the time that any person
becomes an acquiring person) following the commencement of, or
announcement of an intention to make, a tender or exchange offer the
consummation of which would result in the beneficial ownership of such
person or group of 15% or more of the outstanding shares of our common
stock
Until the distribution date, the rights will be evidenced by our common
stock certificates and will be transferable only by the transfer of the shares
of common stock associated with the rights. Any transfer of the shares of our
common stock (including a transfer to us) will constitute a transfer of the
rights. As described below, after a person or group becomes an acquiring
person, the rights may not be redeemed or amended.
Until the distribution date (or earlier redemption or expiration of the
rights), new certificates for shares of our common stock issued after
, 1999, upon transfer or new issuance of shares of our common stock,
will contain a legend incorporating the rights agreement by reference. Until
the distribution date (or earlier redemption or expiration of the rights), the
surrender for transfer of any certificates for shares of our common stock
outstanding as of , 1999 will also constitute the transfer of the
rights associated with shares of our common stock represented by such
certificate. As soon as practicable following the distribution date, separate
certificates evidencing the rights will be mailed to holders of record of the
shares of our common stock as of the close of business on the distribution date
and such separate rights certificates alone will evidence the rights. Each
right is exercisable for one-one hundredth of a share of our Series E Junior
Participating Preferred Stock at any time after the distribution date.
The rights are not exercisable for shares of our common stock until a
person, entity or group becomes an acquiring person. The rights will expire on
, 2009, unless such date is extended or unless the rights are
redeemed earlier by us, in each case, as described below.
At any time after the distribution date, each holder of a right (other than
those described in the next sentence) will then have the right to receive, upon
exercise, shares of our common stock (or, in certain circumstances, cash,
property or other securities of us) having a value equal to two times the
purchase price of the right. All rights that are, or (under circumstances
specified in the rights agreement) were, beneficially owned by any acquiring
person will be void.
At any time after the first date of public announcement by us or an
acquiring person than an acquiring person has become an acquiring person, if:
. we are the surviving corporation in a merger with any other company or
entity,
. we are acquired in a merger or other business combination transaction,
. 50% or more of our consolidated assets or earning power are sold, or
. an acquiring person engages in certain self-dealing transactions with us,
each holder of a right (other than those whose rights have become void) will
thereafter have the right to receive, upon the exercise thereof at the then
current purchase price of the right, that number of shares of common stock of
the surviving or acquiring company which at the time of such transaction will
have a market value of two times the purchase price of such right.
55
<PAGE>
At any time after a person or group becomes an acquiring person and prior to
the acquisition by such person or group of 50% or more of the outstanding
shares of our common stock, our Board may exchange the rights (other than
rights owned by such person or group which have become void), in whole or in
part, without any additional payment, for shares of our common stock at an
exchange ratio of one share of our common stock (or of a share of a class or
series of our preferred shares having equivalent rights, preferences and
privileges), per right (subject to adjustment).
With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments require an adjustment of at least 1% in
such purchase price. No fractional shares of our Series E Junior Participating
Preferred Stock will be issued (other than fractions which are integral
multiples of one one-hundredth of a share, which may, at our election, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the shares of our Series E Junior
Participating Preferred Stock on the last trading day prior to the date of
exercise.
At any time prior to a person or group becoming an acquiring person, our
Board may redeem all, but not less than all, of the rights at a redemption
price of $.01 per right. The redemption of the rights may be made effective at
such time, on such basis and with such conditions as our Board in its sole
discretion may establish. Immediately upon any redemption of the rights, the
right to exercise the rights will terminate and the only right of the holders
of rights will be to receive the redemption price.
Any of the provisions of the rights may be amended by our Board in order to
cure any ambiguity or to make any other changes which our Board deems necessary
or desirable. However, after a person or group becomes an acquiring person, any
such amendment must not adversely affect the interests of holders of rights
(excluding the interests of any acquiring person).
A copy of the Rights Agreement has been filed as an exhibit to the
Registration Statement dated , 1999 of which this prospectus is a part.
A copy of the Rights Agreement is available free of charge from us. This
summary description of the rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement.
Registration Rights
Following is a description of the registration rights of our existing
stockholders:
Demand Rights. At any time at least six months after this offering, our
stockholders that held our Class C or D convertible preferred stock prior to
this offering are entitled to one demand registration upon initiation by at
least 51% of such holders. Thereafter, a second demand registration may be
initiated by not less than 25% of these holders. We are only required to effect
a registration if at least 20% of the common stock that was Class C or D
convertible preferred stock prior to this offering is to be sold in the demand
offering and the anticipated aggregate offering price of such demand
registration exceeds $5,000,000. These holders will be entitled to sell all of
the shares requested to be registered, subject to pro rata cutback in the
underwriters' discretion.
Piggyback Rights. Our stockholders that held our Class C or D convertible
preferred stock prior to this offering have waived their piggyback registration
rights with respect to this offering. In a secondary public offering effected
at our initiation, these holders are entitled to pro rata piggyback
registration rights with respect to 50% of the shares, other than shares to be
sold for our benefit, permitted by the underwriters to be sold in a secondary
offering.
Our stockholders that held our common stock and Class A or B convertible
preferred stock prior to this offering have also waived their piggyback
registration rights with respect to this offering. In a secondary offering
initiated by us, these holders are entitled to pro rata piggyback registration
rights with respect to 50% of the shares, other than shares to be sold for our
benefit, permitted by the underwriter to be sold. These holders also have
piggyback registration rights with respect to any registration effected
pursuant to the demand registration rights of our stockholders that held our
Class C or D convertible preferred stock prior to this offering; provided,
however, that any such registration rights are subordinate to the rights of our
former Class C or D convertible preferred holders and us to participate in the
offering and are subject to cutback in the underwriter's discretion.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Expenses. Expenses of the registrations described above are paid by us
(other than underwriting discounts and commissions and the fees of special
counsel for such selling stockholders).
Lock-up Provision. Upon request of the underwriter(s) in connection with an
underwritten public offering of equity securities, our stockholders entitled to
registration rights with respect to such offering shall not transfer any shares
of our common stock for the period determined by our Board upon advice of the
underwriter(s), so long as all persons holding in excess of 5% of our capital
stock on a fully diluted basis, and all of our executive officers and
directors, execute a similar agreement.
Transfer. Registration rights shall be transferable only with the transfer
of at least 500,000 shares of our common stock entitled to such rights or the
transfer of such common stock to a partner, stockholder or affiliate of the
transferor.
Termination. All registration rights shall terminate five years after this
offering. All piggyback registration rights terminate with respect to any
stockholder upon the availability to such stockholder of Rule 144(k).
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is The American Stock
Transfer Company.
There will be shares of our common stock outstanding
immediately after this offering. The shares being sold in this
offering are freely tradeable without restriction unless held by an "affiliate"
as that term is defined in Rule 144 under the Securities Act.
After this offering, holders of our common stock who did not purchase shares
in this offering will own shares of our common stock. These shares
have not been registered under the Securities Act and, therefore, may not be
sold unless registered under the Securities Act or sold pursuant to an
exemption from registration, such as the exemption provided by Rule 144.
Lock-Up Agreements
We and our existing stockholders (other than those who are affiliated
providers), including our executive officers and directors, have agreed that,
for a period of 180 days from the date of this prospectus, we and they will
not, subject to some exceptions, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfer all or a portion
of the economic consequences associated with the ownership of any common
stock (regardless of whether any of the transactions described in these
subparagraphs is to be settled by the delivery of common stock or other
securities, in cash or otherwise).
Our affiliated providers who are stockholders, including the selling
stockholders, have agreed to similar restrictions for a period of one year from
the date of this prospectus and to additional volume limitations during the
year following the first anniversary of the date of this prospectus.
As a result of these contractual restrictions, notwithstanding possible
earlier eligibility for sale under the provisions of Rules 144 and 701 of the
Securities Act discussed below, shares subject to these lock-up agreements will
not be salable until the agreements expire or unless prior written consent is
received from Donaldson, Lufkin & Jenrette Securities Corporation. Any early
waiver of the lock-up agreements by the underwriters, which, if granted, could
permit sales of a substantial number of shares and could adversely affect the
trading price of our shares, may not be accompanied by an advance public
announcement by us.
57
<PAGE>
Taking into account these lock-up agreements, shares will be
eligible for sale 180 days from the date of this prospectus and
shares will become eligible for sale one year from the date of this prospectus,
subject in some cases to volume and manner of sale limitations.
Rule 144
In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least one year, including a person
who may be deemed our affiliate, would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of our common stock then outstanding;
or
. the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a notice on Form 144 with respect
to such sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us. We
are unable to estimate accurately the number of restricted shares that will be
sold under Rule 144 because this will depend in part on the market price of our
common stock, the personal circumstances of the seller and other factors.
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale, and who has beneficially owned
for at least two years the shares proposed to be sold, would be entitled to
sell those shares under Rule 144(k) without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
Therefore, subject to the lock-up agreements, these shares may be sold upon
completion of this offering.
Rule 701
Beginning 90 days after the date of this prospectus, the shares of common
stock issuable upon exercise of the options granted by us prior to the
effective date of the registration statement will be eligible for sale in the
public market pursuant to Rule 701 under the Securities Act, subject to the
lock-up agreements. In general, Rule 701 permits resales of shares issued
pursuant to certain compensatory benefit plans and contracts commencing 90 days
after the issuer becomes subject to the reporting requirements of the
Securities Exchange Act in reliance upon Rule 144, but without compliance with
restrictions, including the holding period requirements, contained in Rule 144.
Registration Statements on Form S-8
Following this offering, we intend to file under the Securities Act one or
more registration statements on Form S-8 to register all of the shares of our
common stock:
. issuable upon exercise of outstanding options granted pursuant to our
1996 stock incentive plan
. reserved for future option grants pursuant to individual option
agreements or our 1996 stock incentive plan
. that we intend to offer for sale to our employees pursuant to our
employee stock purchase plan
These registration statements are expected to become effective upon filing and
shares covered by these registration statements will be subject to vesting
provisions and, in the case of affiliates only, to the restrictions of Rule
144, other than the holding period requirement, and subject to expiration of
the lock-up agreements.
58
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
dated , 1999, the underwriters identified below, who are represented
by Donaldson, Lufkin & Jenrette Securities Corporation, Hambrecht & Quist LLC
and William Blair & Company, L.L.C. have severally agreed to purchase from us
and the selling stockholders, the respective number of shares of our common
stock appearing opposite their names below:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..............
Hambrecht & Quist LLC............................................
William Blair & Company, L.L.C. ................................
DLJdirect Inc....................................................
---------
Total..........................................................
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered in this prospectus are subject to approval by their counsel of legal
matters and to other conditions. The underwriters are obligated to purchase and
accept delivery of all the shares of common stock offered in this prospectus
(other than those shares covered by the over-allotment option described below)
if any are purchased.
The underwriters propose to initially offer the shares of common stock in
part directly to the public at the public offering price set forth on the cover
page of this prospectus and in part to dealers (including the underwriters) at
such price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may re-allow, to other dealers a
concession not in excess of $ per share. After the initial offering of
the common stock, the public offering price and other selling terms may be
changed by the representatives of the underwriters at any time without notice.
The underwriters have informed us that they do not intend to confirm sales to
discretionary accounts.
The following table shows the underwriting fees to be paid to the
underwriters by us and the selling stockholders in connection with this
offering. The fees to be paid by us are shown assuming both no exercise and
full exercise of the underwriters' option to purchase additional shares of
common stock.
<TABLE>
<CAPTION>
Paid by Selling
Paid by Company Stockholders
----------------- ---------------
No
Exercise Full
-------- --------
<S> <C> <C> <C> <C>
Per share.................................. $ $ $ $
Total...................................... $
</TABLE>
We will pay the offering expenses, estimated to be $ .
We have granted the underwriters an option, exercisable for 30 days from the
date of the underwriting agreement, to purchase up to additional
shares at the public offering price less the underwriting discount. This option
may be exercised solely to cover over-allotments, if any, made in connection
with this offering. To the extent the underwriters exercise this option, each
underwriter will become obligated, subject to conditions, to purchase a number
of additional
59
<PAGE>
shares approximately proportionate to such underwriter's initial purchase
commitment.
We and the selling stockholders have agreed to indemnify the underwriters
against civil liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments that the underwriters may be required to
make in respect of any of those liabilities.
Prior to this offering, there was no established trading market for our
common stock. The initial public offering price of our common stock in this
offering will be determined by negotiations among us and the representatives.
Among the factors to be considered in determining the initial public offering
price are the history and the prospects for the industry in which we compete,
our past and present operations and our historical results of operations,
prospects for future earnings, the general condition of the securities markets
at the time of this offering and the recent market prices of securities of
generally comparable companies. We cannot assure you that an active trading
market will develop for our common stock or that it will trade at or above the
initial public offering price in the public market after this offering. We are
applying to have our common stock listed on the Nasdaq National Market under
the symbol "NOVA."
In connection with this offering, the representatives, on behalf of the
underwriters, may engage in over-allotment, stabilizing transactions, syndicate
covering transactions and penalty bids in accordance with Regulation M under
the Securities Exchange Act of 1934, as amended. Over-allotment involves sales
in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions involve bids to purchase our common stock in the open
market for the purpose of pegging, fixing or maintaining the price of our
common stock. Syndicate covering transactions involve purchases of our common
stock in the open market after the distribution has been completed in order to
cover short positions. Penalty bids permit the representatives to reclaim a
selling concession from a syndicate member when shares of our common stock
originally sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of our
common stock to be higher than it would otherwise be in the absence of such
transactions. Such activities, if commenced, may be discontinued at any time.
We and our existing stockholders (other than those who are affiliated
providers), including our executive officers and directors, have agreed that,
for a period of 180 days from the date of this prospectus, we and they will
not, subject to some exceptions, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfer all or a portion
of the economic consequences associated with the ownership of any common
stock (regardless of whether any of the transactions described in these
subparagraphs is to be settled by the delivery of common stock or other
securities, in cash or otherwise).
Our affiliated providers who are stockholders, including the selling
stockholders, have agreed to similar restrictions for a period of one year from
the date of this prospectus and to additional volume limitations during the
year following the first anniversary of the date of this prospectus.
In addition, for a 180 day period we have agreed not to file any
registration statement with respect to, and each of our executive officers,
directors and some of our stockholders (including the selling stockholders) has
agreed not to make any demand for, or exercise any right with respect to, the
registration of any shares of common stock or any securities convertible into
or exercisable for common stock without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation.
Other than in the United States, no action has been taken by us, the selling
stockholders or the underwriters that would permit a public offering of the
shares of common stock included in this offering in any jurisdiction where
action for that purpose is
60
<PAGE>
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
450 Fifth Street, N.W. Seven World Trade Center Citicorp Center
Judiciary Plaza Suite 1300 500 West Madison
Room 1024 New York, NY 10048 Street
Washington, D.C. 20549 Suite 1400
Chicago, IL 60661
required. The shares included in this offering may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisement in connection with the offer and sale of any of these shares
be distributed or published in any jurisdiction, except under circumstances
that will result in compliance with the applicable rules and regulations of
that jurisdiction. Persons who receive this prospectus are advised to inform
themselves about and to observe any restrictions relating to the offering of
the common stock and the distribution of this prospectus. This prospectus is
not an offer to sell or a solicitation of an offer to buy any shares of common
stock included in this offering in any jurisdiction where that would not be
permitted or legal.
Affiliates of Donaldson, Lufkin & Jenrette Securities Corporation, purchased
237,739 shares of our common stock in September 1998, for $4.38 per share.
Katten Muchin & Zavis, Chicago, Illinois will pass upon the validity of this
offering of our common stock and other matters for us. The firm owns 23,962
shares of our common stock, and some of the partners of the firm are beneficial
owners of an additional 193,571 shares of our common stock, including Steven V.
Napolitano, who serves as one of our directors and is the beneficial owner of
128,417 shares of our common stock. Certain legal matters will be passed upon
for the underwriters by McDermott, Will & Emery, Chicago, Illinois.
Our consolidated financial statements as of December 31, 1997 and 1998 and
for each of our three fiscal years in the period ended December 31, 1998,
included in this prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
This prospectus is part of a registration statement we filed with the SEC.
This prospectus does not contain all of the information contained in the
registration statement and all of its exhibits and schedules.
For further information about us, please see the complete registration
statement. Summaries of agreements or other documents in this prospectus are
not necessarily complete. Please refer to the exhibits to the registration
statement for complete copies of these documents.
You may read and copy our registration statement and all of its exhibits and
schedules at the following SEC public reference rooms:
You may obtain information on the operation of the SEC public reference room
in Washington, D.C. by calling the SEC at 1-800-SEC-0330. You may also inspect
and copy the complete registration statement and other information at the
offices of The Nasdaq Stock Market located at 1735 K Street, N.W., Washington,
D.C. 20006-1500. The registration statement is also available from the SEC's
Web site at http://www.sec.gov, which contains reports, proxy and information
statements and other information regarding issuers that file electronically.
61
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements of NovaMed Eyecare, Inc.:
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and March
31, 1999 (unaudited)................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998 and the three months ended March 31, 1998 and 1999
(unaudited)............................................................ F-5
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1997 and 1998 and the three months ended March 31,
1999 (unaudited)....................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and the three months ended March 31, 1998 and 1999
(unaudited)............................................................ F-7
Notes to Consolidated Financial Statements.............................. F-8
</TABLE>
F-1
<PAGE>
Upon completion of the migratory merger discussed in note 15 to NovaMed
Eyecare, Inc and Subsidiaries Consolidated Financial Statements, we expect to
be in a position to render the following audit report.
Arthur Andersen LLP
May 25, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of NovaMed Eyecare, Inc.:
We have audited the accompanying consolidated balance sheets of NOVAMED
EYECARE, INC. AND SUBSIDIARIES as of December 31, 1997 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years ended December 31, 1996, 1997 and 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NovaMed Eyecare, Inc. and
Subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years ended December 31,
1996, 1997 and 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 16, 1999, except for note 15, as to which date is May [ ], 1999
F-2
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
ASSETS --------------- March 31,
------ 1997 1998 1999
(unaudited)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents........................ $ 4,009 $ 1,875 $ 1,098
Accounts receivable, net of allowances of $6,994,
$10,347 and $10,017, respectively............... 6,980 11,278 11,576
Due (to) from affiliated providers, net.......... 755 110 (369)
Notes receivable from affiliated providers....... 2,035 393 422
Inventory........................................ 715 1,490 2,344
Other current assets............................. 940 1,240 1,212
------- ------- -------
Total current assets........................... 15,434 16,386 16,283
Property and equipment, net........................ 6,492 9,893 10,825
Note receivable from related party................. 400 400 400
Intangible assets, net............................. 30,127 35,660 41,154
Other assets, net.................................. 281 340 305
------- ------- -------
Total assets................................... $52,734 $62,679 $68,967
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, March 31,
---------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY Pro Forma
------------------------------------ 1997 1998 1999 1999
(unaudited)
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable........................ $ 1,692 $ 3,142 $ 3,934
Accrued expenses........................ 2,811 3,297 2,768
Income taxes payable.................... 35 427 (138)
Current maturities of long-term debt.... 444 300 202
------- ------- -------
Total current liabilities............. 4,982 7,166 6,766
------- ------- -------
Long-term debt, net of current maturities. 15,838 20,427 27,204
------- ------- ------- -------
Deferred income tax liabilities........... 629 1,702 1,852
------- ------- -------
Minority interests in equity of
consolidated entities.................... 456 -- --
------- ------- -------
Commitments and contingencies
Redeemable convertible preferred stock:
Series C convertible preferred stock,
$.01 par value, 2,400,000 shares
authorized, 2,000,000 issued and
outstanding at December 31, 1997 and
1998 and March 31, 1999 (none pro
forma), respectively................... 5,794 6,350 6,661 --
------- ------- ------- -------
Series D convertible preferred stock,
$.01 par value, 3,000,000 shares
authorized; 1,636,622, 2,323,837 and
2,323,837 issued and outstanding at
December 31, 1997 and 1998 and March
31, 1999 (none pro forma),
respectively........................... 6,886 10,080 10,338 --
------- ------- ------- -------
Stockholders' equity:
Series A convertible preferred stock,
$.01 par value, 13,112,000 shares
authorized, 11,733,166, 11,740,055 and
11,740,055 shares issued and
11,655,236, 11,072,698 and 11,502,698
shares outstanding at December 31, 1997
and 1998, and March 31, 1999 (none pro
forma), respectively; 160,000 shares
issuable at December 31, 1998.......... 117 117 117 --
Series B convertible preferred stock,
$.01 par value, 455,000 shares
authorized, 400,000 issued and
outstanding at December 31, 1997 and
1998, and March 31, 1999 (none pro
forma), respectively................... 4 4 4 --
Common stock, $.01 par value, 26,000,000
shares authorized; 2,748,503,
2,751,254, 2,751,254, and 19,215,146
shares issued and 2,748,503, 2,751,254,
2,360,863, and shares
outstanding as of December 31, 1997 and
1998, March 31, 1999 and pro forma,
respectively........................... 27 28 28
Additional paid-in capital................ 18,083 17,955 17,955
Retained earnings......................... 105 1,072 792
Treasury stock, at cost, consists of
77,930, 507,347 and 237,357 shares of
Series A convertible preferred stock at
December 31, 1997 and 1998, and March 31,
1999 (none pro forma) and 390,391 shares
of common stock as of March 31, 1999,
627,748 pro forma........................ (187) (2,222) (2,750)
------- ------- ------- -------
Total stockholders' equity............ 18,149 16,954 16,146
------- ------- ------- -------
Total liabilities and stockholders'
equity............................... $52,734 $62,679 $68,967
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December Three Months
31, Ended March 31,
------------------------ ----------------
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenue........................ $15,850 $42,408 $63,729 $12,427 $21,026
------- ------- ------- ------- -------
Operating expenses:
Salaries, wages and benefits..... 8,259 18,123 25,266 5,117 8,231
Cost of sales and medical
supplies........................ 2,570 8,723 15,762 3,072 5,738
Selling, general and
administrative.................. 5,044 11,315 14,625 3,048 4,929
Depreciation and amortization.... 806 2,226 3,333 714 1,096
------- ------- ------- ------- -------
Total operating expenses....... 16,679 40,387 58,986 11,951 19,994
------- ------- ------- ------- -------
Income (loss) from operations.. (829) 2,021 4,743 476 1,032
------- ------- ------- ------- -------
Other (income) expense:
Interest, net.................... 58 1,041 1,273 280 509
Minority interests in earnings of
consolidated entities........... 17 108 132 31 --
Other............................ 8 561 (32) (26) (1)
------- ------- ------- ------- -------
Total other expense............ 83 1,710 1,373 285 508
------- ------- ------- ------- -------
Income (loss) before income taxes.. (912) 311 3,370 191 524
Provision for income taxes......... -- 206 1,664 94 235
------- ------- ------- ------- -------
Net income (loss).................. $ (912) $ 105 $ 1,706 $ 97 $ 289
Less--Accretion of Series C and
Series D convertible preferred
stock............................. -- -- (739) (84) (569)
------- ------- ------- ------- -------
Income (loss) available to Series A
and Series B convertible preferred
and common stockholders........... $ (912) $ 105 $ 967 $ 13 $ (280)
======= ======= =======
Earnings (loss) per common share
(audited):
Basic............................ $ -- $ .01 $ .07 $ -- $ (.02)
======= ======= ======= ======= =======
Diluted.......................... $ (.08) $ .01 $ .06 $ -- $ (.02)
======= ======= ======= ======= =======
Weighted average common shares
outstanding (audited):
Basic............................ -- 2,178 2,751 2,749 2,521
======= ======= ======= ======= =======
Diluted.......................... 11,358 17,237 16,003 19,840 15,969
======= ======= ======= ======= =======
Pro forma (Note 2)(unaudited):
Accretion to redemption value
eliminated as a result of the
completion of initial public
offering.......................... 739 569
Interest expense eliminated due to
debt conversion, net of tax
benefit...........................
------- -------
Pro forma net income............... $ $
======= =======
Pro forma earnings per common
share--diluted (unaudited)........ $ $
======= =======
Pro forma weighted average number
of common shares outstanding--
diluted (unaudited)...............
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
Series A Series B
Preferred Preferred Common Stock Treasury Stock
------------- ------------ ------------ Additional Retained --------------- Total
Par Par Par Paid-in Earnings Stockholders'
Shares Value Shares Value Shares Value Capital (Deficit) Shares At Cost Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1995.................... 2,880 $ 29 -- $-- -- $-- $ 2,566 $(809) -- $ -- $ 1,786
Stock issued in
conjunction with
practice affiliations.. 8,400 84 -- -- -- -- 10,416 -- -- -- 10,500
Stock issued in
connection with
acquisitions........... 96 1 -- -- -- -- 119 -- -- -- 120
Redemption of shares... (272) (3) -- -- -- -- (337) -- -- -- (340)
Issuance of--
Series A preferred
stock.................. 480 5 -- -- -- -- 596 -- -- -- 601
Series B preferred
stock.................. -- -- 400 4 -- -- 996 -- -- -- 1,000
Net loss............... -- -- -- -- -- -- -- (912) -- -- (912)
Accumulated deficit at
date of incorporation.. -- -- -- -- -- -- (1,721) 1,721 -- -- --
------ ---- --- ---- ----- ---- ------- ----- ------ ------- -------
BALANCE, December 31,
1996.................... 11,584 116 400 4 -- -- 12,635 -- -- -- 12,755
Stock issued in
conjunction with
practice affiliations.. -- -- -- -- 2,748 27 5,265 -- -- -- 5,292
Redemption of shares... -- -- -- -- -- -- -- -- (78) (187) (187)
Stock options
exercised.............. 149 1 -- -- -- -- 183 -- -- -- 184
Net income............. -- -- -- -- -- -- -- 105 -- -- 105
------ ---- --- ---- ----- ---- ------- ----- ------ ------- -------
BALANCE, December 31,
1997.................... 11,733 117 400 4 2,748 27 18,083 105 (78) (187) 18,149
Stock options
exercised/sold......... 7 -- -- -- 3 1 32 -- -- -- 33
Redemption of Series A
preferred stock, net... -- -- -- -- -- -- (71) -- (1,228) (5,380) (5,451)
Issuance of Treasury
stock in conjunction
with practice
affiliations........... -- -- -- -- -- -- (89) -- 799 3,345 3,256
Accretion of Series C
and D preferred stock.. -- -- -- -- -- -- -- (739) -- (739)
Net income............. -- -- -- -- -- -- -- 1,706 -- -- 1,706
------ ---- --- ---- ----- ---- ------- ----- ------ ------- -------
BALANCE, December 31,
1998 ................... 11,740 117 400 4 2,751 28 17,955 1,072 (507) (2,222) 16,954
(Unaudited):
Issuance of Treasury
stock in conjunction
with practice
affiliations........... -- -- -- -- -- -- -- -- 270 1,182 1,182
Common stock reacquired
from affiliate......... -- -- -- -- -- -- -- -- (390) (1,710) (1,710)
Accretion of Series C
and D preferred stock.. -- -- -- -- -- -- -- (569) -- -- (569)
Net income............. -- -- -- -- -- -- -- 289 -- -- 289
------ ---- --- ---- ----- ---- ------- ----- ------ ------- -------
BALANCE, March 31, 1999
(unaudited)............. 11,740 $117 400 $ 4 2,751 $ 28 $17,955 $ 792 (627) $(2,750) $16,146
====== ==== === ==== ===== ==== ======= ===== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December Three Months Ended
31, March 31,
------------------------- --------------------
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)........... $ (912) $ 105 $ 1,706 $ 97 $ 289
Adjustments to reconcile net
income (loss) to net cash
provided (used) in
operating activities, net
of effects of purchase
transactions--
Depreciation and
amortization............. 806 2,226 3,333 714 1,096
Deferred taxes............ -- 171 1,237 -- --
Preferred stock issued for
services................. -- 125 -- -- --
Minority interests........ 5 41 (46) 31 --
Loss on disposition of
property and equipment... -- 589 -- -- --
Changes in non-cash
working capital items--
Accounts receivable and
due (to) from
affiliated providers,
net.................... (1,059) (3,015) (3,204) (1,517) 394
Inventory............... (55) (5) (374) (8) (195)
Other current assets.... (538) (374) (260) (107) 15
Other noncurrent assets. -- (180) (70) 13 111
Accounts payable,
accrued expenses and
income taxes payable... 1,055 (105) 65 (892) (1,373)
------- ------- ------- --------- ---------
Net cash provided
(used) in operating
activities........... (698) (422) 2,387 (1,669) 337
------- ------- ------- --------- ---------
Cash flows from investing
activities:
Purchases of property and
equipment.................. (1,302) (2,875) (4,466) (1,151) (1,342)
Acquisitions and
affiliations of entities... (110) (2,222) (3,649) (186) (6,337)
Receipt (issuance) of notes
receivable from affiliated
providers.................. (75) (1,918) 1,491 (250) (28)
------- ------- ------- --------- ---------
Net cash used in
investing activities. (1,487) (7,015) (6,624) (1,587) (7,707)
------- ------- ------- --------- ---------
Cash flows from financing
activities:
Borrowings under revolving
line of credit............. -- 3,000 14,735 -- 12,500
Payments under revolving
line of credit............. -- (3,000) (6,250) -- (4,850)
Payments of subordinated
debt....................... -- -- (3,700) -- (850)
Proceeds from the issuance
of preferred stock, net of
issuance costs............. 7,394 6,946 3,044 -- --
Payments for the redemption
of preferred stock, net of
transaction costs.......... (340) (187) (5,262) -- --
Other long-term debt and
capital lease obligations.. 440 (1,264) (464) (82) (207)
------- ------- ------- --------- ---------
Net cash provided
(used) by financing
activities........... 7,494 5,495 2,103 (82) 6,593
------- ------- ------- --------- ---------
Net increase (decrease) in
cash and cash equivalents.... 5,309 (1,942) (2,134) (3,338) (777)
Cash and cash equivalents,
beginning of year............ 642 5,951 4,009 4,009 1,875
------- ------- ------- --------- ---------
Cash and cash equivalents, end
of year...................... $ 5,951 $ 4,009 $ 1,875 $ 671 $ 1,098
======= ======= ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as of March 31, 1999 and for the three months ended March 31, 1998
and 1999 is unaudited
(Dollars in thousands, except per share data)
1. GENERAL INFORMATION
Description of the business
NovaMed Eyecare, Inc. (NovaMed) along with its wholly-owned subsidiaries
(collectively, the Company), is an eye care services company engaged in the
business of: (i) owning, operating and/or managing eye surgery and laser
centers, optical dispensaries, wholesale optical laboratories, and an optical
products purchasing organization; (ii) providing financial, administrative,
information technology, marketing and other business services to ophthalmic and
optometric providers; and (iii) providing research and site management services
to the eye care pharmaceutical and device industries. The Company operates
within the United States in regional markets including Chicago, Illinois; St.
Louis, Missouri; Kansas City, Missouri; Louisville, Kentucky and Richmond,
Virginia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Statement Presentation
The consolidated financial statements have been prepared on the accrual
basis of accounting and include the accounts of the Company and its wholly
owned subsidiaries. The Company acquires certain net operating assets and
assumes certain liabilities of physician groups (the Affiliated Professional
Entities). Affiliated Professional Entities enter into long-term service
agreements (SAs) with the Company. The Company accounts for its service
activities under the SAs but does not consolidate the operating results and
accounts of the Affiliated Professional Entities. All significant intercompany
accounts and transactions have been eliminated.
Interim Financial Information
The financial information as of March 31, 1999, and for the three months
ended March 31, 1998 and 1999 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the financial position at such date and
the operating results and cash flows for those periods. Results for the three
months ended March 31, 1999 are not necessarily indicative of the results to be
expected for the entire year.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid instruments with an
original maturity of three months or less from the date of purchase.
Due (To) From Affiliated Providers
Amounts due (to) from affiliated providers, which are unsecured, non-
interest-bearing and due on demand, include amounts owed to Affiliated
Professional Entities for services performed under SAs, receivables from
Affiliated Professional Entities and affiliated providers for expenses paid on
their behalf and certain other receivables.
Inventory
Inventory consists primarily of optical products such as spectacle frames
and lenses as well as surgical supplies used in connection with the operation
of the Company's Surgery and Laser Centers (SLCs). Inventory is valued at the
lower of cost or market, with cost determined using the first-in, first-out
(FIFO) method.
F-8
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated
useful lives of the related assets, generally three to seven years for
equipment, computer software, furniture and fixtures, and the lesser of the
lease term or 10 years for leasehold improvements. Routine maintenance and
repairs are charged to expense as incurred.
Intangible Assets
The Company's acquisitions and affiliations involve the purchase of tangible
and intangible assets and the assumption of certain liabilities. As part of the
purchase price allocation, the Company allocates the purchase price to the
tangible assets acquired and liabilities assumed, based on estimated fair
market values.
The Company enters into an SA for a term of 40 years with each Affiliated
Professional Entity. An SA cannot be terminated by either party without cause,
as defined. Because the Company does not practice medicine, maintain patient
relationships, hire physicians or enter into employment agreements with the
physicians, the intangible asset created in the affiliation is solely with the
SA for the Affiliated Professional Entity. In connection with the determination
of the appropriate life of the SAs' identifiable intangible assets, the Company
analyzes the nature of each Affiliated Professional Entity with which an SA is
entered into, including the number of physicians in each Affiliated
Professional Entity, number of service sites, ability to recruit additional
physicians, relative market position, the length of time each Affiliated
Professional Entity has been in existence, and the term of the SA.
Effective January 1, 1998, on a prospective basis the Company changed its
estimate of the maximum useful lives of intangible assets associated with SAs
and SLCs from 32 years to 25 years. This change was made to conform the
Company's policy with that adopted by other healthcare services companies
during 1998 and to better represent the useful lives of the SAs and goodwill.
Impairment of Long-Lived Assets
The Company reviews the carrying value of the long-lived assets and goodwill
at least quarterly on an entity by entity basis to determine if facts and
circumstances exist which would suggest that assets might be impaired or that
the amortization period needs to be modified. Among the factors the Company
considers in making the evaluation are changes in the Affiliated Professional
Entity or SLC's market position, reputation, profitability and geographical
penetration. If facts and circumstances are present which may indicate
impairment is probable, the Company will prepare a projection of the
undiscounted cash flows of the specific Affiliated Professional Entity/SLC and
determine if the long-lived assets and/or goodwill are recoverable based on
these undiscounted cash flows. If impairment is indicated, then an adjustment
will be made to reduce the carrying amount of these assets to their fair value.
To date, no such impairments have been incurred.
Income Taxes
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Statement Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes." Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Fair Value of Financial Instruments
The carrying value of all financial instruments such as accounts receivable,
amounts due (to) from affiliated providers, accounts payable and accrued
expenses are reasonable estimates of their fair value because
F-9
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of the short maturity of these items. The Company believes the carrying amounts
of the Company's note receivable from related parties, subordinated debt, line
of credit and obligations under capital leases approximate fair value because
the interest rates on these instruments are subject to change with, or
approximate, market interest rates.
Minority Interests
In November 1998, the Company purchased the remaining minority interests of
two SLCs held by certain persons associated with Affiliated Professional
Entities for 160,000 shares of the Company's Series A convertible preferred
stock. Accordingly, the Company now owns 100% of all 10 SLCs.
Revenue Recognition
Net revenue consists of the following:
<TABLE>
<CAPTION>
Years Ended December Three Months
31, Ended March 31,
----------------------- ---------------
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Services and products................ $10,326 $24,401 $36,053 $ 7,138 $11,852
Surgery and laser centers............ 5,303 14,484 20,131 3,760 5,886
Optical services and products........ 221 3,523 7,545 1,529 3,288
------- ------- ------- ------- -------
$15,850 $42,408 $63,729 $12,427 $21,026
======= ======= ======= ======= =======
</TABLE>
For the years ended December 31, 1997 and 1998, one Affiliated Professional
Entity accounted for 15.9% and 15.4% of total net revenue, respectively.
Services and Products Revenue
Services and products revenue is equal to the net revenue of the Affiliated
Professional Entities, less amounts retained by the Affiliated Professional
Entities. Net revenue is recorded by the Affiliated Professional Entities at
established rates reduced by a provision for contractual adjustments and
doubtful accounts. Contractual adjustments arise due to the terms of certain
reimbursement contracts. Such adjustments represent the difference between the
charges at established rates and estimated recoverable amounts and are
recognized in the period the services are rendered. Any differences between
estimated contractual adjustments and actual final settlements under
reimbursement contracts, which are immaterial, are recognized as contractual
adjustments in the period of final settlements.
For the years ended December 31, 1996, 1997 and 1998 and the three months
ended March 31, 1998 and 1999, services and products revenue was as follows:
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31,
-------------------------- ----------------
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenue of the Affiliated
Professional Entities........ $13,880 $32,263 $ 46,374 $ 8,681 $14,411
Less--amounts retained by
Affiliated Professional
Entities..................... (3,554) (7,862) (10,321) (1,543) (2,559)
------- ------- -------- ------- -------
$10,326 $24,401 $ 36,053 $ 7,138 $11,852
======= ======= ======== ======= =======
</TABLE>
F-10
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Surgery and Laser Centers Revenue
Revenue derived from SLCs is based on fees charged to patients, third-party
payors or others for use of the SLCs and relate primarily to cataract, laser
vision correction and other refractive surgery procedures. SLC revenue is net
of contractual adjustments and a provision for doubtful accounts. This revenue
is recognized by the Company and is not subject to SAs.
Optical Services and Products
Through 1998, optical services and products consisted solely of an optical
products purchasing organization (the Alliance). The NovaMed Alliance
negotiates volume buying discounts with optical products manufacturers.
Products are sold to both affiliated and non-affiliated ophthalmologists and
optometrists. Most of the products are shipped directly from the manufacturer
to the customer. Revenue is recognized based on the amount billed to the
customer. Beginning in January 1999, the Company acquired a wholesale optical
laboratory, Midwest Uncuts, Inc. which manufactures and distributes corrective
lenses and eyeglasses.
Cost of sales and medical supplies
Cost of sales and medical supplies includes the cost of optical products
such as frames, optical lenses, contact lenses and medical supplies.
Earnings (Loss) Per Common Share
Since the Series A and Series B Convertible Preferred Stock participate
along with the common stock in the Company's earnings, the Company uses the two
class method for calculation of earnings per share (EPS). Under the two class
method, earnings or loss is allocated to the Series A and Series B convertible
preferred stock as one class, and to common stock as a second class. For each
class of stock, Basic EPS is calculated by dividing allocated earnings (loss)
allocable to the class by the weighted average number of shares outstanding of
that class during the period. Diluted EPS is calculated by dividing net income
(loss) by the weighted average number of common shares, including the dilutive
effect of potential common shares outstanding during the period. Potential
common shares consist of outstanding options, warrants, convertible debt and
preferred stock. The dilutive effect of options and warrants are calculated
using the treasury stock method. The dilutive effect of the Series A and Series
B convertible preferred shares are calculated using the if converted method.
In 1996, there were no earnings for the period in which the common stock was
outstanding, and therefore, the entire loss was allocated to the class of
convertible preferred stock for Basic EPS. For 1997 and 1998, total earnings
were allocated to each class of stock based upon the weighted average shares
outstanding for each class as a percentage of total weighted average shares
outstanding.
F-11
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Earnings (loss) per common share is calculated as follows (amounts in
thousands, except per share data):
<TABLE>
<CAPTION>
Years Ended Three Months
December 31, Ended March 31,
------------------------ ---------------
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Income (loss) available to Series A
and B convertible preferred and
common stockholders................. $ (912) $ 105 $ 967 $ 13 $ (280)
Income allocated to preferred
stockholders........................ (912) 89 784 10 (231)
------- ------- ------- ------- -------
Income available to common
stockholders-basic.................. $ -- $ 16 $ 183 $ 3 $ (49)
======= ======= ======= ======= =======
Income available to common
stockholders-diluted................ $ (912) $ 105 $ 967 $ 13 $ (280)
======= ======= ======= ======= =======
Basic weighted average number of
common shares outstanding........... -- 2,178 2,751 2,749 2,521
Weighted average number of common
shares issuable upon the conversion
of dilutive preferred shares........ 11,358 14,624 11,780 15,697 11,873
Effect of dilutive securities--stock
options............................. -- 435 1,472 1,394 1,575
------- ------- ------- ------- -------
Diluted weighted average number of
shares outstanding.................. 11,358 17,237 16,003 19,840 15,969
======= ======= ======= ======= =======
Earnings (loss) per common share:
Basic.............................. $ -- $ 0.01 $ 0.07 $ -- $ (0.02)
======= ======= ======= ======= =======
Diluted............................ $ (0.08) $ 0.01 $ 0.06 $ -- $ (0.02)
======= ======= ======= ======= =======
</TABLE>
The effect of the subordinated exchangeable notes is anti-dilutive in all
periods presented and, accordingly, is excluded from diluted EPS.
Additionally, the effect of the conversion of the Series C and Series D
convertible preferred stock is anti-dilutive for the year ended December 31,
1998 and the three months ended March 31, 1999.
Stock Compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, "Accounting for Stock-Based Compensation", which allows entities
to measure compensation costs related to awards of stock based compensation
using either the fair value method or the intrinsic value method. The Company
has elected to account for stock-based compensation programs using the
intrinsic value method. See Note 12 for the pro forma disclosures of the
effect on net income (loss) and earnings (loss) per share.
Concentration of Credit Risk
For the years ended December 31, 1996, 1997 and 1998, approximately 67%,
61% and 49%, respectively, of the Company's net revenue was received from
Medicare and other governmental programs, which reimburse providers based on
fee schedules determined by the related governmental agency. In the ordinary
course of business, providers receiving reimbursement from Medicare and other
governmental programs are potentially subject to a review by regulatory
agencies concerning the accuracy of billings and sufficiency of supporting
documentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-12
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unaudited Pro Forma Information
The unaudited pro forma consolidated balance sheet presents the Company's
balance sheet assuming (i) the conversion of 11,740,055 issued shares of Series
A convertible preferred stock into common stock on a share for share basis;
(ii) the conversion of 400,000 issued shares of Series B convertible preferred
stock into common stock on a share for share basis; (iii) the conversion of
2,000,000 issued shares of Series C convertible preferred stock into common
stock on a share for share basis; (iv) the conversion of 2,323,837 issued
shares of Series D convertible preferred stock into common stock on a share for
share basis; (v) the issuance of shares of common stock upon the exchange
of the subordinated exchangeable promissory notes; and (vi) an additional
interest expense of $ related to the discount granted to the holders of the
subordinated exchangeable notes, which will occur automatically upon completion
of the Company's proposed initial public offering, as if the foregoing took
place on March 31, 1999.
The unaudited pro forma earnings (loss) per share for the 12 months ended
December 31, 1998 and the three months ended March 31, 1999, is presented
assuming: (i) the accretion of the Series C and Series D convertible preferred
stock is excluded, (ii) the automatic conversion of preferred stock into shares
of the Company's common stock; and (iii) the issuance of shares of the
Company's common stock upon exchange of the subordinated exchangeable
promissory notes, and the elimination of the additional interest expense to be
recorded by the Company related to the discount on the exchange of the notes.
3. AFFILIATIONS AND ACQUISITIONS
The Company acquires certain net assets of Affiliated Professional Entities
and the entire operations of the SLCs. In addition, the Company acquires the
right to provide services to Affiliated Professional Entities.
During 1997 and 1998, the Company acquired net operating assets of and/or
entered into SAs with eight and six physician and/or optical/optometric
practices, respectively. In addition, during 1997, the Company acquired four
SLCs. The aforementioned acquisition and affiliation activity consisted of
$17,000 and $7,000, respectively, of purchase price and resulted in $18,000 and
$7,000, respectively, in intangible assets.
In January 1999, the Company acquired a wholesale optical laboratory with
two manufacturing locations. In addition, the Company acquired the stock of,
and entered into an SA with, an optometric practice located in St. Louis,
Missouri.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Equipment.................................................. $ 4,953 $ 8,792
Equipment under capital lease obligations.................. 993 1,039
Computer software.......................................... 492 1,006
Furniture and fixtures..................................... 373 608
Leasehold improvements..................................... 1,300 1,996
------- -------
8,111 13,441
Less--Accumulated depreciation and amortization............ (1,619) (3,548)
------- -------
$ 6,492 $ 9,893
======= =======
</TABLE>
Depreciation and amortization expense for property and equipment in 1996,
1997 and 1998 was approximately $531, $1,363 and $1,946, respectively. In
addition, during 1997, the Company replaced its management software system and,
as a result, recorded an expense for the write-off of the net book value of
approximately $589, which is included in other expense on the accompanying
consolidated statements of operations.
F-13
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
SAs and goodwill........................................ $31,265 $38,185
Less--Accumulated amortization........................ (1,138) (2,525)
------- -------
$30,127 $35,660
======= =======
</TABLE>
Amortization expense for intangible assets in 1996, 1997 and 1998 was
approximately $275, $863 and $1,387, respectively. Effective January 1, 1998,
the Company reduced the maximum useful life of the costs associated with the
acquisitions of SAs and SLCs from 32 years to 25 years. This change was made to
conform the Company's policy with that adopted by other healthcare services
companies during 1998 and to better represent the useful lives of the SAs and
goodwill. The change in the estimated useful life was treated on a prospective
basis and increased 1998 amortization expense by $250.
6. ACCRUED EXPENSES
Accrued expenses consist of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Accrued payroll and related................................ $1,640 $1,988
Accrued interest........................................... 768 674
Accrued other.............................................. 403 635
------ ------
$2,811 $3,297
====== ======
</TABLE>
7. INCOME TAXES
The provision for income tax expenses consists of the following for the
years ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Current--
Federal................................................ $-- $ 31 $ 366
State.................................................. -- 4 61
---- ---- ------
-- 35 427
---- ---- ------
Deferred--
Federal................................................ -- 151 1,062
State.................................................. -- 20 175
---- ---- ------
-- 171 1,237
---- ---- ------
$-- $206 $1,664
==== ==== ======
</TABLE>
Prior to the Recapitalization discussed in Note 11, income for federal
income tax purposes was recognized by the members of NovaMed Eyecare
Management, LLC (NovaMed LLC) rather than the Company. Simultaneous with the
Recapitalization, the Company became a taxable entity. During the period from
the Recapitalization through December 31, 1996, the Company incurred a taxable
net loss and, accordingly, no provision for income taxes was recorded. As of
December 31, 1996, the Company recorded a valuation allowance equal to the
benefit related to the net operating loss carryforward.
F-14
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The reasons for the differences between the income tax expense and the
amounts calculated using the U.S. statutory rate of 34% were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Tax expense at U.S. statutory rate.................... $-- $ 106 $1,146
Intangible asset amortization......................... -- 192 283
State taxes, net...................................... -- 49 235
Reversal of valuation allowance related to operating
loss carryforward.................................... -- (141) --
---- ----- ------
Provision for income taxes.......................... $-- $ 206 $1,664
==== ===== ======
</TABLE>
Deferred tax assets (liabilities) are comprised of the following at December
31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Current deferred tax assets (liabilities)
Compensation accruals.................................. $ 231 $ 98
Receivable allowances.................................. 110 220
Other.................................................. (173) (130)
----- -------
168 188
----- -------
Long-term deferred tax assets (liabilities)
Depreciation and amortization.......................... (476) (1,168)
Disposal of property................................... 198 --
Acquisitions........................................... (143) (335)
Other.................................................. (208) (199)
----- -------
(629) (1,702)
----- -------
$(461) $(1,514)
===== =======
</TABLE>
The Company paid no amounts for income taxes in 1996 and 1997, and $594
during 1998.
8. LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Subordinated exchangeable promissory notes.............. $15,600 $11,900
Revolving line of credit................................ -- 8,485
Other................................................... 682 342
------- -------
16,282 20,727
Less: Current maturities of long-term debt.............. (444) (300)
------- -------
$15,838 $20,427
======= =======
</TABLE>
Subordinated Exchangeable Promissory Notes
The Company issued subordinated exchangeable promissory notes (the Notes) in
connection with the acquisition of certain net assets of Affiliated
Professional Entities and certain SLCs, and the right to provide services to
Affiliated Professional Entities. Each Note has a term of 15 years, with the
entire principal balance payable at the end of such term and bears interest at
a rate of 8.25% payable quarterly. The Notes originally contained certain
redemption features which allowed holders to require the Company to redeem the
face amount of the Notes, plus all accrued and unpaid interest, within a
prescribed time frame at the second
F-15
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
anniversary of the issuance of such Notes. The Company has renegotiated with
the Note holders whereby the holders have extended their redemption rights. The
holders can now redeem $3,100 in May 2000, $1,000 in June 2000, $1,550 in
November 2000 and $5,400 in January 2001. Each Note also contains the following
features, which are triggered upon an initial public offering (IPO) of the
Company or any affiliate (Public Company): (a) 25% of $6,200 face amount notes
and 90% of $4,100 face amount notes are automatically exchanged into common
stock of Public Company at a 20% discount to the IPO price; and (b) the holder
may elect to (i) exchange the remaining principal balance of the Note into
common stock of Public Company at the 20% discount to the IPO price, (ii)
require the Company to redeem the remaining principal balance of the Note, plus
all accrued and unpaid interest, (iii) maintain the Note or (iv) select a
combination of any or all of (i) through (iii). The Company, 90 days after an
IPO, may elect to redeem any outstanding balance plus accrued interest without
penalty. Upon exchange of the Notes, the company will incur a non-recurring
non-cash expense equal to the 20% discount to the IPO price. Such amount will
be recorded as additional interest expense. The Notes contain provisions
subordinating the holders' rights and priorities to the rights of any holders
of senior debt.
During 1996 and 1997, the Company issued Notes with aggregate principal
amounts of $6,100 and $9,500 respectively, in connection with the practice
affiliations and the acquisition of SLCs.
Revolving Credit Facility
The Company has entered into a $20 million credit agreement (the Credit
Facility) which provides for a revolving line of credit that expires in July
2000. Interest is payable at LIBOR, plus an applicable margin ranging from 1.5%
to 2.0%, depending on the Company's leverage ratios (as defined), or at the
prime rate minus .50%. As of December 31, 1998, the effective interest rate on
the Credit Facility was 7.16%. In addition, again depending on the Company's
leverage ratio, the Company must pay a commitment fee ranging from .25% to
.375% for the unused portion during the revolving commitment period. The Credit
Facility contains certain covenants, which include limitations on indebtedness,
liens, capital expenditures and certain ratios, which define borrowing
availability. In addition, the Company must maintain a minimum net worth (as
defined in the agreement) of $40 million. As of December 31, 1998, the Company
was in compliance (or has obtained waivers) with the covenants of the Credit
Facility.
In May 1999, the Company further amended its Credit Facility to increase the
total commitment to $35 million.
Interest Expense
The Company paid $20, $624 and $1,417 for interest and commitment fees
during 1996, 1997 and 1998, respectively.
9. OPERATING LEASES
The Company has commitments under long-term, non-terminable operating
leases, principally for facility and office space. Lease terms generally cover
one to ten years. Certain leases contain consecutive renewal options of five-
year periods. At December 31, 1998, minimum annual rental commitments under
operating leases with terms in excess of one year are as follows:
<TABLE>
<S> <C>
1999............................................................. $ 3,666
2000............................................................. 3,299
2001............................................................. 1,915
2002............................................................. 1,662
2003 and thereafter.............................................. 3,280
-------
Total minimum lease payments................................. $13,822
=======
</TABLE>
F-16
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rent expense related to operating leases amounted to approximately $1,060,
$2,911, and $3,627 during 1996, 1997 and 1998, respectively.
10. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is subject to various claims and legal actions that arise in the
ordinary course of business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
Company's financial position or results of operations.
Professional Liability Risk
The Company maintains third party professional liability insurance for its
SLC and business activities and procures insurance for its Affiliated
Professional Entities through a third-party insurer. Although the Company
believes that this insurance is adequate as to the amounts at risk, there can
be no assurance that any claim asserted against the Company will not exceed the
coverage limits of such insurance.
Insurance
The Company and the Affiliated Professional Entities are insured with
respect to medical malpractice risks on a claims-made basis. Management is not
aware of any claims against the Company or the Affiliated Professional Entities
that might have a material impact on the Company's financial position or
results of operations.
Purchase Commitment
During October 1998, the Company entered into an agreement with a vendor to
purchase approximately $3,400 in medical supplies over a term of 42 months. As
of December 31, 1998, the Company had $3,100 remaining on that commitment.
11. STOCKHOLDERS' EQUITY
NovaMed was incorporated in November 1996. In conjunction with a
recapitalization on December 20, 1996 (the Recapitalization), NovaMed issued
11,584,000 shares of Series A convertible preferred stock, par value $.01 per
share (Series A Stock), to replace previously granted 5,792 units of NovaMed
LLC. In addition, the Company issued options to purchase 1,528,000 shares of
Series A Stock in exchange for options to purchase 764 units of NovaMed LLC.
Contemporaneous with the Recapitalization, NovaMed issued 400,000 shares of
Series B convertible preferred stock, par value $.01 per share (Series B
Stock), for $2.50 per share; 2,000,000 shares of Series C convertible preferred
stock, par value $.01 per share (Series C Stock), for $3.00 per share; and
warrants to purchase an aggregate of 684,932 shares of Series D convertible
preferred stock, par value $.01 per share (Series D Stock), at $4.38 per share.
The Series B Stock, Series C Stock and the warrants to acquire Series D Stock
were issued under terms defined in a Securities Purchase Agreement (the
Securities Agreement), which provided for certain covenants and restrictions
including: (a) limitations on NovaMed's ability to issue additional shares
excluding shares issued in connection with a practice affiliation or SLC
acquisition and other prescribed exceptions; (b) subordination of Series A
Stock and Series B Stock to Series C Stock and Series D Stock (the Senior
Preferred Stock); (c) limitations on liens, guarantees and secured debt; and
(d) limitations on NovaMed's ability to enter into any practice affiliation or
acquisition involving the issuance of shares in excess
F-17
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of 20% of NovaMed's value. In addition holders of the Senior Preferred Stock
hold certain demand and piggyback registration rights. The Securities Agreement
provided that certain investors were obligated to acquire, and NovaMed was
obligated to issue, an additional 456,621 shares of Series D Stock at a price
of $4.38 per share upon the attainment of a defined threshold of earnings
before interest, taxes, depreciation and amortization (the Trigger Event).
NovaMed attained the Trigger Event in 1997 and issued 456,621 shares of Series
D Stock to the prescribed investors at $4.38 per share and issued an additional
1,180,001 shares of Series D Stock to certain other investors at $4.38 per
share. In addition, holders of Senior Preferred Stock received certain
registration rights in connection with the transaction. The holders of
preferred stock have the right to vote on a share-for-share basis.
In connection with the execution of the Securities Agreement, NovaMed
amended its articles of incorporation (the Amendment) to provide that holders
of at least two-thirds of the then outstanding Senior Preferred Stock may elect
to redeem for cash up to 50% of their respective shares each year after April
2004, and April 2005, at the greater of a prescribed liquidation preference
amount per share (the Carrying Value), or the fair value of such preferred
stock as established by independent appraisers. The Amendment provides for a
mandatory conversion of each share of convertible preferred stock to one share
of common stock in the event NovaMed undertakes a qualifying IPO.
Although the Company has not obtained an independent appraisal, it has
estimated the potential future redemption value based upon various transactions
with third parties and through comparison to comparable publicly traded
companies. Accordingly, the Company has recorded an accretion of $739 to
increase the carrying value of its Senior Preferred Stock as of December 31,
1998.
Series D Warrant Exercise
In April 1998, certain investors exercised warrants for $3,011 to acquire an
aggregate of 687,216 shares of Series D Stock issued under the Securities
Agreement.
Treasury Stock
On May 26, 1998, the Board of Directors authorized a repurchase of up to
1,200,000 shares of the Company's Series A convertible preferred stock. The
Company purchased a total of 1,188,414 shares at an aggregate cost of $5,262.
Throughout 1998, the Company reissued 798,987 shares of treasury stock in
connection with practice affiliations.
12. EMPLOYEE BENEFIT PLANS
Employee Benefits and Compensation
The Company maintains a voluntary savings plan (the Plan) for eligible
employees under section 401(k) of the Internal Revenue Code whereby
participants may contribute a percentage of up to 15% of their compensation.
During 1997, the Plan was amended to provide for the Company to match 50% of
the employee's contributions on the first 3% of salary contributed by each
employee. The Company's matching contributions approximated $16, $70 and $136
for 1996, 1997 and 1998, respectively.
Stock Option Plans
In August 1995, NovaMed LLC approved an employee stock option plan (the 1995
Plan) and reserved 1,000 limited liability company units for certain officers
and key employees of NovaMed LLC. Under the terms of the 1995 Plan, options
generally become exercisable over a three-year period with vesting beginning
six
F-18
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
months from the date of each grant and 1/36th of the total options granted
become exercisable each month thereafter.
In December 1996, the Company adopted the NovaMed Holdings Inc. Stock
Incentive Plan (the 1996 Plan). Under the 1996 Plan, NovaMed authorized
1,528,000 shares of $.01 par value Series A Stock to replace unit options
granted under the 1995 Plan. At such time, NovaMed also authorized 1,468,800
shares of its common stock, par value $.01 per share (Common Stock), to be
reserved for future grants. Authorized options for common stock under the 1996
Plan are exercisable over a four-year period with vesting beginning six months
from the date of each grant and 1/48th of the total options granted becoming
exercisable each month thereafter. The option period for Common Stock options
is 10 years from the date each option is granted. In March 1997, NovaMed
amended the 1996 Plan and authorized options for an additional 1,000,000 shares
of Common Stock and options for 55,000 shares of Series B Stock. In October
1998, NovaMed further amended the 1996 Plan and authorized options for an
additional 1,200,000 shares of Common Stock. All current outstanding options
are nonqualified stock options.
The Company grants stock options to employees and nonemployee members of the
Company's Board of Directors. Pursuant to Accounting Principles Board No. 25,
no compensation expense was recorded relating to these stock options. In
addition, the Company sells stock options to physicians employed by Affiliated
Professional Entities. Stock options are sold at their estimated fair market
value on the date of the grant as determined by the Black-Scholes option-
pricing model. Accordingly, no compensation expense is recorded.
The following table summarizes the activity in the stock option plan:
<TABLE>
<CAPTION>
Weighted
Average
Options Price Per Exercise
Outstanding Share Price
<S> <C> <C> <C>
December 31, 1995........................ 690,000 $ 1.25 $1.25
Granted and sold....................... 981,000 $1.25-$2.50 $1.35
Exercised.............................. -- -- --
Canceled............................... (155,000) $ 1.25 $1.25
---------
December 31, 1996........................ 1,516,000 $1.25-$2.50 $1.31
Granted and sold....................... 1,932,500 $1.88-$4.38 $2.05
Exercised.............................. (150,374) $1.25-$1.88 $1.26
Canceled............................... (234,626) $1.25-$2.50 $1.45
---------
December 31, 1997........................ 3,063,500 $1.80
Granted and sold....................... 1,061,000 $3.50-$6.00 $4.46
Exercised.............................. (7,388) $1.25-$2.50 $1.93
Canceled............................... (114,112) $1.25-$3.85 $2.04
---------
December 31, 1998........................ 4,003,000 $2.49
========= =====
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
-------------------------- ------------------
Exercise Average Average
Price Range Average Exercise Exercise
----------- Shares Life Price Shares Price
<S> <C> <C> <C> <C> <C>
$1.25 to $3.00................. 2,924,000 7.74 $1.77 1,871,065 $1.61
$3.01 to $6.00................. 1,079,000 9.48 4.46 81,519 3.73
--------- ---- ----- --------- -----
4,003,000 8.20 $2.49 1,952,584 $1.70
========= ==== ===== ========= =====
</TABLE>
F-19
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company believes the exercise price of these stock options approximated
or exceeded the fair value of the applicable class of stock at the date of
grant based on the pricing of transactions involving the preferred stock as
discussed in Note 11, and the Company's financial condition at the date of
grant.
The following summarizes the pro forma effect on net income (loss) if the
fair values of stock based compensation had been recognized in the year
presented as compensation expense on a straight-line basis over the vesting
period of the grant:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Net income (loss) available to common stockholders.... $(1,099) $ 14 $578
======= ==== ====
Earnings (loss) per common share:
Basic............................................... $ -- $-- $.04
======= ==== ====
Diluted............................................. $ (.10) $-- $.04
======= ==== ====
</TABLE>
The fair value of these options was estimated using the minimum value method
with the following assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Expected option life in years........................... 10 10 10
Risk-free interest rate................................. 6.50% 6.06% 4.85%
Dividend yield.......................................... -- -- --
</TABLE>
13. OPERATING SEGMENTS
During 1998, the Company adopted SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. The Company manages its business
segments by types of service provided. The Company's reportable segments are as
follows:
Services and Products. Services and products include medical services
provided to patients, the sale of optical products and research.
Surgery and Laser Centers. Surgery and laser centers include the results
of operations from owning, managing and operating surgery and laser
centers.
Optical Services and Products. Optical services and products include the
Alliance optical products purchasing organization, and beginning in 1999,
Midwest Uncuts, a wholesale optical laboratory and an optical products
purchasing organization.
The accounting policies of the various segments are the same as those
described in the "Summary of Significant Accounting Policies" in Note 2, except
for the services and products segment. Services and products revenue is
reported to management using the net revenue of the Affiliated Professional
Entities as the total revenue. The revenue for the services and products
segment on the accompanying Consolidated Statements of Operations is the net
revenue of the Affiliated Professional Entities reduced by amounts retained by
the Affiliated Professional Entities (See Note 2). Under either approach, the
earnings before income taxes (EBT) are identical.
The Company evaluates the performance of its segments based on EBT. Segment
EBT includes all revenues and expenses directly attributable to the segment
except amortization of intangible assets and excludes certain expenses that are
managed outside the reportable segment. Items excluded from the segment EBT
primarily consist of corporate expenses for salaries, wages and benefits and
general and administrative, interest on debt, and amortization of intangible
assets.
The Company excludes intercompany transfers for management reporting
purposes, as they have no effect on the EBT of the individual segments. Segment
identifiable assets include accounts receivable, inventory, other current
assets and long-lived assets of the segment. Corporate identifiable assets
represent all other assets
F-20
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of the Company including cash and cash equivalents, corporate other current
assets, and corporate long-lived assets, which include property and equipment,
notes receivable, intangible assets, and other long-term assets. Capital
expenditures for long-lived assets are not reported to management by segment
and are excluded, as presenting such information is not practical.
<TABLE>
<CAPTION>
Surgery Optical
Services and Services
and Laser and
Products Centers Products Corporate Eliminations Total
<S> <C> <C> <C> <C> <C> <C>
Three months ended March
31, 1999 (unaudited)--
Net revenue........... $14,411 $ 5,886 $3,288 $ -- $ (2,559) $21,026
EBT................... 1,375 2,138 391 (3,380) -- 524
Depreciation and
amortization......... 256 185 38 617 -- 1,096
Interest (income)
expense.............. (4) 1 (11) 523 -- 509
Identifiable assets... 12,227 7,187 3,656 45,627 -- 68,967
======= ======= ====== ======= ======== =======
Three months ended March
31, 1998 (unaudited)--
Net revenue........... $ 8,681 $ 3,760 $1,529 $ -- $ (1,543) $12,427
EBT................... 920 1,139 112 (1,980) -- 191
Depreciation and
amortization......... 190 116 1 407 -- 714
Interest (income)
expense.............. 2 -- (2) 280 -- 280
Identifiable assets... 8,752 4,870 762 37,528 -- 51,912
======= ======= ====== ======= ======== =======
1998--
Net revenue........... $46,285 $20,131 $7,545 $ -- $(10,232) $63,729
EBT................... 5,707 7,181 546 (10,064) -- 3,370
Depreciation and
amortization......... 874 563 5 1,891 -- 3,333
Interest (income)
expense.............. 3 1 (10) 1,279 -- 1,273
Identifiable assets... 12,120 7,236 1,301 42,022 -- 62,679
======= ======= ====== ======= ======== =======
1997--
Net revenue........... $32,253 $14,484 $3,523 $ -- $ (7,852) $42,408
EBT................... 4,192 5,349 173 (9,403) -- 311
Depreciation and
amortization......... 587 386 9 1,244 -- 2,226
Interest (income)
expense.............. -- 23 (3) 1,021 -- 1,041
Identifiable assets... 8,717 4,373 517 39,127 -- 52,734
======= ======= ====== ======= ======== =======
1996--
Net revenue........... $13,860 $ 5,303 $ 221 $ -- $ (3,534) $15,850
EBT................... 2,516 2,179 14 (5,621) -- (912)
Depreciation and
amortization......... 262 77 3 464 -- 806
Interest (income)
expense.............. -- -- -- 58 -- 58
Identifiable assets... 4,191 2,081 125 21,297 -- 27,694
======= ======= ====== ======= ======== =======
</TABLE>
The Company has no revenues attributed to customers outside of the United
States and no assets located in foreign countries.
14. RELATED-PARTY TRANSACTIONS
Facility Rent
The Company leases facility space from various partnerships, which include
affiliated providers as partners and trusts in which relatives of the
affiliated providers are named beneficiaries. Rent expense on related-party
operating leases amounted to approximately $816, $1,290 and $1,457 during 1996,
1997 and 1998, respectively.
F-21
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
Notes Receivable
The Company holds notes receivable for a total of $393 from physicians
affiliated with the Company. The loans bear interest rates between 9.0-9.5%,
are secured against future services, and are either payable upon demand of the
Company or within two years of issuance.
The Company presently holds a note receivable for a total of $400 from a
physician affiliated with the Company related to the purchase of a minority
interest in an SLC. The note bears interest at 6% and is payable annually. The
principal is due in 2001. The note is included in note receivable from related
party at December 31, 1997 and 1998, and was paid in full subsequent to March
31, 1999.
Other
The Company purchased optical supplies such as spectacle frames and lenses
from Midwest Uncuts, which was owned by individuals who are related to an
officer of the Company. Total payments for purchases of optical supplies from
Midwest Uncuts during 1996, 1997 and 1998 were approximately $520, $820, and
$982, respectively. The Company purchased Midwest Uncuts in January 1999 (see
Note 3).
The Company receives professional services from a firm that employs a
director of the Company. Total payments for services received during 1996, 1997
and 1998 were approximately $543, $516 and $422, respectively.
15. MIGRATORY MERGER
Effective May , 1999, the Company reincorporated in Delaware and changed
its name to NovaMed Eyecare, Inc.
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
Shares
Common Stock
-------------------
PROSPECTUS
-------------------
Donaldson, Lufkin & Jenrette
Hambrecht & Quist
William Blair & Company
------------------
DLJdirect Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
registrant in connection with the issuance and distribution of the common stock
pursuant to the prospectus contained in this registration statement. Registrant
will pay all of these expenses.
<TABLE>
<CAPTION>
Approximate
Amount
<S> <C>
Securities and Exchange Commission registration fee........... $29,500
NASD filing fee............................................... 10,500
Nasdaq National Market listing fee............................ *
Accountants' fees and expenses................................ *
Legal fees and expenses....................................... *
Transfer agent and registrar fees and expenses................ *
Printing and engraving expenses............................... *
Miscellaneous expenses........................................ *
-------
Total..................................................... $ *
=======
</TABLE>
- --------
*To be provided by amendment.
Item 14. Indemnification of Directors and Officers.
The registrant's Restated Certificate of Incorporation provides that the
registrant shall indemnify its directors to the full extent permitted by the
General Corporation Law of the State of Delaware and may indemnify its officers
and employees to such extent, except that the registrant shall not be obligated
to indemnify any such person (1) with respect to proceedings, claims or actions
initiated or brought voluntarily by any such person and not by way of defense,
or (2) for any amounts paid in settlement of an action indemnified against by
the registrant without the prior written consent of the registrant. Registrant
has entered into indemnity agreements with each of its directors. These
agreements may require the registrant, among other things, to indemnify such
directors against certain liabilities that may arise by reason of their status
or service as directors, to advance expenses to them as they are incurred,
provided that they undertake to repay the amount advanced if it is ultimately
determined by a court that they are not entitled to indemnification.
In addition, the registrant's Restated Certificate of Incorporation provides
that a director of the registrant shall not be personally liable to the
registrant or its stockholders for monetary damages for breach of his or her
fiduciary duty as a director, except for liability (1) for any breach of the
director's duty of loyalty to the registrant or its stockholders, (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) for willful or negligent conduct in paying
dividends or repurchasing stock out of other than lawfully available funds or
(4) for any transaction from which the director derives an improper personal
benefit.
Reference is made to Section 145 of the General Corporation Law of the State
of Delaware which provides for indemnification of directors and officers in
certain circumstances.
The registrant has purchased a directors' and officers' liability insurance
policy.
Under the terms of the underwriting agreement, the Underwriters have agreed
to indemnify, under certain conditions, the registrant, its directors, certain
of its officers and persons who control the registrant within the meaning of
the Securities Act of 1933, as amended.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
The following information reflects our recent sales of unregistered
securities:
On or about August 6, 1996, we issued 240 membership units in NovaMed
Eyecare Management, LLC to 20 investors consisting of individuals, joint
tenants and partnerships in exchange for cash in the aggregate amount of
$600,000.
On or about November 1, 1996, we issued two subordinated exchangeable
promissory notes having an aggregate face value of $3,700,000 to two
affiliated eye care providers in exchange for certain of the providers'
assets and 75% of the membership interests in a limited liability company.
On or about November 26, 1996, we issued 100 shares of common stock to
an an individual investor in exchange for cash in the aggregate amount of
$25.
On or about November 27, 1996, we issued two subordinated exchangeable
promissory notes having an aggregate face value of $2,000,000 to two
affiliated eye care providers in exchange for certain of the providers'
assets.
On or about December 20, 1996, we issued 11,584,000 shares of Series A
convertible preferred stock to all of the members of NovaMed Eyecare
Management, LLC in exchange for 5,792 units of membership in NovaMed
Eyecare Management, LLC.
On or about December 20, 1996, we issued 400,000 shares of Series B
convertible preferred stock to 19 investors consisting of individuals,
joint tenants and a partnership in exchange for cash in the aggregate
amount of $1,000,000.
On or about December 20, 1996, we issued 2,000,000 shares of Series C
convertible preferred stock and warrants to purchase 684,932 shares of
Series D convertible preferred stock to four investors consisting of
partnerships in exchange for cash in the aggregate amount of $6,010,000.
On or about January 1, 1997, we issued one subordinated exchangeable
promissory note having a face value of $5,400,000 to an affiliated eye care
provider in exchange for all of the provider's shares of the common stock
of a corporation.
On or about March 3, 1997, we issued 2,280,174 shares of common stock to
11 affiliated eye care providers and options to purchase 55,000 shares of
Series B convertible preferred stock to two affiliated eye care providers
in exchange for all of the capital stock of a corporation.
On or about April 15, 1997, we issued 390,391 shares of common stock to
an affiliated eye care provider in exchange for all of the provider's
capital stock of a corporation.
On or about April 21, 1997, we issued 76,630 shares of common stock and
warrants to purchase 3,378 shares of common stock to five investors
consisting of partnerships, a trust and an individual in exchange for
services rendered in connection with an acquisition.
On or about May 1, 1997, we issued one subordinated exchangeable
promissory note to an affiliated eye care provider having a face value of
$3,100,000 in exchange for certain of the provider's assets.
On or about June 1, 1997, we issued one subordinated exchangeable
promissory note to an affiliated eye care provider having a face value of
$1,000,000 in exchange for 100% of the membership interests in a limited
liability company.
Over the period from July 31, 1997 through January 1, 1998, we issued
1,638,905 shares of Series D convertible preferred stock to 67 investors
consisting of individuals, joint tenants, trusts, corporations and
partnerships in exchange for cash in the aggregate amount of $7,178,403.90.
On or about March 25, 1998, an individual investor, consisting of a
trust, exercised warrants to acquire 2,252 shares of common stock in
exchange for $9,863.76.
II-2
<PAGE>
In April 1998, four investors, consisting of partnerships, exercised
warrants to acquire 684,932 shares of Series D convertible preferred stock
in exchange for cash in the aggregate amount of $3,000,002.16.
On or about May 26, 1998, one investor, consisting of a trust, exercised
warrants to acquire 68,493 shares of Series D convertible preferred stock
in exchange for cash in the aggregate amount of $299,999.34.
On or about July 25, 1998, we issued 550,987 shares of Series A
convertible preferred stock to three affiliated eye care providers in
exchange for the providers' nonmedical assets.
On or about September 24, 1998, we issued 88,000 shares of Series A
convertible preferred stock to four affiliated eye care providers in
exchange for all of the investors' shares of the capital stock of a
corporation, all of the non-medical assets of a partnership and a 50%
partnership interest in another partnership.
On or about January 1, 1999, we issued 250,000 shares of Series A
convertible preferred stock to two individual investors in exchange for all
of the shares of the capital stock of a corporation.
On or about January 8, 1999, we issued 80,000 shares of Series A
convertible preferred stock to an affiliated eye care provider in exchange
for the remaining 25% of the membership interests of one of our limited
liability company subsidiaries.
On or about January 15, 1999, we issued 20,000 shares of Series A
convertible preferred stock to an affiliated eye care provider in exchange
for the provider's shares of the capital stock of a corporation.
On or about January 22, 1999, we issued 80,000 shares of Series A
convertible preferred stock to two affiliated eye care providers in
exchange for the remaining 25% of the membership interests of one of our
limited liability company subsidiaries.
No underwriters were involved in any of the transactions described above. We
issued all of the securities in the foregoing transactions in reliance upon the
exemption from registration available under Section 4(2) of the Securities Act,
including Regulation D promulgated thereunder, as transactions by an issuer not
involving any public offering and the transactions involved the issuance and
sale of our securities to financially sophisticated entities or individuals who
represented that they were aware of our activities and business and financial
condition, and who took these securities for investment purposes and understood
the ramifications of their actions. Each security holder represented that they
acquired such securities for investment for their own account and not for
distribution. All certificates representing the stock issued have a legend
imprinted on them stating that the shares have not been registered under the
Securities Act and cannot be transferred until properly registered under the
Securities Act or an exemption applies.
Over the period from November 1997 through January 1999 we issued options to
purchase 99,000 shares of Series A convertible preferred stock and options to
purchase 378,000 shares of common stock to 17 affiliated eye care providers in
exchange for cash in the aggregate amount of $38,400 and 15 promissory notes
having an aggregate face value of $450,400.
Over the period from January 1997 through July 1998 eleven former employees
exercised options to acquire 156,055 shares of Series A convertible preferred
stock and 1,707 shares of common stock in exchange for cash in the aggregate
amount of $202,878.21.
No underwriters were involved in any of the transactions relating to options
that are described above. We issued all of the securities in the foregoing
transactions in reliance upon the exemption from registration available under
Section 4(2) of the Securities Act, including Regulation E promulgated
thereunder, as transactions by an issuer not involving any public offering and
pursuant to a written compensatory benefit plan.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<C> <S>
1* Form of Underwriting Agreement
3.1 Form of Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Form of Bylaws of the Registrant
4.1* Specimen stock certificate representing Common Stock
4.2* Registrant's Rights Agreement
5* Opinion of Katten Muchin & Zavis as to the legality of the
securities being registered (including consent)
10.1 Registrant's 1996 Stock Incentive Plan, as amended
10.2 Form of Registrant's 1999 Stock Purchase Plan
10.3 Form of Indemnification Agreement
10.4 Registration Rights Agreement
10.5 Subordinated Registration Rights Agreement
10.6 Amended and Restated Employment Agreement for Stephen J. Winjum
10.7 Amended and Restated Employment Agreement for Ronald G. Eidell
10.8 Amended and Restated Employment Agreement for E. Michele Vickery
10.9 Employment Agreement for J. Gary Jordan
10.10 Employment Agreement for Robert A. Wallach
10.11* Employment Agreement for Daniel O. Wagster
10.12* Employment Agreement for T. Trent Roark
10.13* Employment Agreement for Thomas J. Chirillo
10.14* Summit Technology, Inc. Agreement
10.15* Form of Service Agreement
10.16* Second Amendment and Consent to the Amended and Restated Credit
Agreement
21* Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Katten Muchin & Zavis (contained in its opinion to be
filed as Exhibit 5 hereto)
24 Power of Attorney (see signature page)
27 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment
(b) Financial Statement Schedules.
II-4
<PAGE>
Upon completion of the migratory merger discussed in Note 15 to NovaMed
Eyecare, Inc. and Subsidiaries consolidated financial statements, we expect to
be in a position to render the following audit report.
ARTHUR ANDERSEN LLP
May 25, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
NovaMed Eyecare, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of NOVAMED EYECARE, INC. AND SUBSIDIARIES
included in this Form S-1 and issued our report thereon dated ,
1999. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Rule 12-09 Valuation Reserve
schedule is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not a part of the basic financial
statements. This schedule has been subject to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
, 1999
II-5
<PAGE>
NOVAMED EYECARE, INC.
RULE 12-09 VALUATION RESERVES
(in 000's)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning of costs and end of
Description period expenses Deductions period
- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996
Allowance for contractual
adjustments................... $ -- $14,486 $(12,056) $ 2,430
Allowance for bad debts........ -- 307 (216) 91
------ ------- -------- -------
$ -- $14,793 $(12,272) $ 2,521
====== ======= ======== =======
1997
Allowance for contractual
adjustments................... $2,430 $29,243 $(25,614) $ 6,059
Allowance for bad debts........ 91 1,170 (326) 935
------ ------- -------- -------
$2,521 $30,413 $(25,940) $ 6,994
====== ======= ======== =======
1998
Allowance for contractual
adjustments................... $6,059 $39,746 $(36,559) $ 9,246
Allowance for bad debts........ 935 901 (735) 1,101
------ ------- -------- -------
$6,994 $40,647 $(37,294) $10,347
====== ======= ======== =======
</TABLE>
II-6
<PAGE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
(2) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act, (i)
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective and (ii) each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, and State of
Illinois on the 24th day of May, 1999.
NovaMed Eyecare, Inc.
/s/ Stephen J. Winjum
By: _________________________________
Stephen J. Winjum
Chairman, Chief Executive Officer
and
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Stephen J. Winjum and Ronald G. Eidell his true and lawful attorneys-in-fact
and agents, with full power of substitution, to sign on his behalf,
individually and in each capacity stated below, all amendments and post-
effective amendments to this Registration Statement on Form S-1 (including any
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, and all amendments thereto) and to file the same, with all exhibits
thereto and any other documents in connection therewith, with the Securities
and Exchange Commission under the Securities Act of 1933, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as each might or could do in
person, hereby ratifying and confirming each act that said attorneys-in-fact
and agents may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on May 24, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Stephen J. Winjum Chairman of the Board, Chief Executive
___________________________________________ Officer and President (Principal
Stephen J. Winjum Executive Officer)
/s/ Ronald G. Eidell Executive Vice President and Chief
___________________________________________ Financial Officer (Principal Financial
Ronald G. Eidell Officer)
/s/ Martin A. Koehler Vice President Finance (Principal
___________________________________________ Accounting Officer)
Martin A. Koehler
/s/ John D. Hunkeler, M.D. Director
___________________________________________
John D. Hunkeler, M.D.
Director
___________________________________________
R. Judd Jessup
/s/ Scott H. Kirk, M.D. Director
___________________________________________
Scott H. Kirk, M.D.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Steven V. Napolitano Director
___________________________________________
Steven V. Napolitano
/s/ James B. Tannanbaum Director
___________________________________________
James B. Tannanbaum
/s/ Peter C. Wendell Director
___________________________________________
Peter C. Wendell
/s/ Douglas P. Williams. M.D. Director
___________________________________________
Douglas P. Williams, M.D.
</TABLE>
II-9
<PAGE>
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NOVAMED EYECARE, INC.
---------------------
ARTICLE I
---------
The name of the Corporation is NovaMed Eyecare, Inc.
ARTICLE II
----------
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801. The
name of the Corporation's registered agent at such address is The Corporation
Trust Company.
ARTICLE III
-----------
The nature of the business to be conducted or promoted by the Corporation
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware, as amended
(the "Act").
ARTICLE IV
----------
A. Authorized Stock. The Corporation shall have authority to issue the
following classes of stock, in the number of shares and at the par value as
indicated opposite the name of the class:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PAR VALUE
CLASS AUTHORIZED PER SHARE
--------------- ---------- ---------
<S> <C> <C>
Common Stock 81,761,465 $0.01
Preferred Stock 18,238,535 $0.01
</TABLE>
B. Dividends. Subject to the rights of the holders, if any, of Preferred
Stock, the holders of Common Stock shall be entitled to receive dividends at
such times and in such amounts as may be declared thereon by the Board of
Directors of the Corporation (the "Board of Directors") and shall share equally
on a per share basis in all such dividends.
<PAGE>
C. Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, after payment
or provision for payment of the debts and other liabilities of the Corporation
and the preferential amounts to which the holders of any outstanding shares of
Preferred Stock shall be entitled upon dissolution, liquidation or winding up,
the assets of the Corporation available for distribution to stockholders shall
be distributed ratably among the holders of the shares of Common Stock.
D. Voting Rights.
-------------
1. In General. Except as otherwise provided by the Act, the holders
of Common Stock shall vote on all matters submitted to a vote of the
stockholders of the Corporation. Each holder of Common Stock shall have one
vote per share of Common Stock held by such holder on the date as of which
the holders of Common Stock of record entitled to vote were determined.
2. Cumulative Voting. The right of a holder of shares of the
Corporation to cumulate its votes in elections of directors is hereby
denied.
E. Preferred Stock. Preferred Stock may be issued from time to time in
one or more series. Subject to the other provisions of this Certificate of
Incorporation and any limitations prescribed by law, the Board of Directors is
authorized to provide for the issuance of and issue shares of the Preferred
Stock in series and, by filing a certificate pursuant to the laws of the State
of Delaware, to establish from time to time the number of shares to be included
in each such series and to fix the designation, powers, preferences and rights
of the shares of each such series and any qualifications, limitations or
restrictions thereof. The number of authorized shares of Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock, without a vote of the holders of any Preferred Stock, or of any series
thereof, unless a vote of any such holders is required pursuant to the
certificate or certificates establishing such series of Preferred Stock.
ARTICLE V
---------
The business and affairs of the Corporation shall be managed by, or under
the direction of, a board of directors consisting of not less than three (3) nor
more than eleven (11) directors. The exact number shall be determined from time
to time by resolution adopted by the affirmative vote of a majority of the
directors in office at the time of adoption of such resolution. Initially, the
number of directors shall be eight (8) and shall consist of the following
persons: Stephen J. Winjum, Scott H. Kirk, M.D., John D. Hunkeler, M.D., R. Judd
Jessup, Steven V. Napolitano, James B. Tananbaum, Douglas P. Williams, M.D., and
Peter C. Wendell.
Upon the completion of the Corporation's initial public offering of its
equity securities registered under the Securities Act of 1933, as amended (a
"Public Offering"), the directors shall be divided into three classes, Class I,
Class II and Class III with each class having as equal a number of members as
reasonably possible. Class I shall initially consist of the following directors:
Messrs. Winjum and Wendell. Class II shall initially consist of the following
directors: Messrs. Williams, Tananbaum and Hunkeler. Class III shall initially
consist of the following
-2-
<PAGE>
directors: Messrs. Napolitano, Jessup and Kirk. The initial term of office of
the Class I, Class II and Class III directors shall expire at the first, second
and third annual meeting of stockholders following the Public Offering,
respectively. Beginning at the first annual meeting of stockholders following
the Public Offering, at each annual meeting of stockholders, successors to the
class of directors whose term expires at that annual meeting shall be elected
for a three-year term. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes by the Board of Directors so as
to maintain the number of directors in each class as nearly equal as is
reasonably possible, and any additional director of any class elected to fill a
vacancy resulting from an increase in such class shall hold office for a term
that shall coincide with the remaining term of that class. In no case will a
decrease in the number of directors shorten the term of any incumbent director,
even though such decrease may result in an inequality of the classes until the
expiration of such term. A director shall hold office until the annual meeting
of stockholders in the year in which his or her term expires and until his or
her successor shall be elected and qualified, subject, however, to prior death,
resignation, retirement or removal from office. Prior to the consummation of a
Public Offering, directors may be removed as provided in the Act. Following the
consummation of a Public Offering, directors may only be removed for cause,
except as otherwise provided by law, by the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the voting power of the shares entitled to vote
generally in the election of directors. Except as required by law or the
provisions of this Certificate of Incorporation, all vacancies on the Board of
Directors and newly-created directorships shall be filled by the Board of
Directors. Any director elected to fill a vacancy not resulting from an increase
in the number of directors shall have the same remaining term as that of his or
her predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation and any resolutions of the Board of
Directors applicable thereto, and such directors so elected shall not be divided
into classes pursuant to this Article V. Notwithstanding anything to the
contrary contained in this Certificate of Incorporation, the affirmative vote of
the holders of at least eighty percent (80%) of the voting power of the shares
entitled to vote generally in the election of directors shall be required to
amend, alter or repeal, or to adopt any provision inconsistent with, this
Article V.
ARTICLE VI
----------
A. Written Consent. Prior to the completion of an initial Public
Offering, any action required to be taken by the stockholders of the
Corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. In the event that the action which is consented
to is such as would have
-3-
<PAGE>
required the filing of a certificate with any governmental body, if such action
had been voted on by stockholders at a meeting thereof, the certificate filed
shall state, in lieu of any statement required by law concerning any vote of
stockholders, that written consent had been given in accordance with the
provisions of Section 228 of the Act, and that written notice has been given as
provided in such section. Following the consummation of an initial Public
Offering, any action required or permitted to be taken by the stockholders of
the Corporation shall be effected only at a duly called annual or special
meeting of stockholders of the Corporation and shall not be effected by consent
in writing by the holders of outstanding stock pursuant to Section 228 of the
Act or any other provision of the Act.
B. Special Meetings. Special meetings of stockholders of the Corporation
may be called upon not less than ten (10) nor more than sixty (60) days' written
notice only by (i) the Chairman of the Board of Directors, (ii) the President of
the Corporation, (iii) the Chief Executive Officer of the Corporation or (iv)
the Board of Directors pursuant to a resolution approved by a majority of the
Board of Directors.
C. Amendment. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
eighty percent (80%) of the voting power of the shares entitled to vote
generally in the election of directors shall be required to amend, alter or
repeal, or to adopt any provision inconsistent with, this Article VI.
ARTICLE VII
-----------
In furtherance and not in limitation of the power conferred by statute, the
Board of Directors is expressly authorized to make, alter, amend or repeal the
By-laws of the Corporation (the "By-laws"). The By-laws may be altered, amended,
or repealed, or new By-laws may be adopted, by the Board of Directors in
accordance with the preceding sentence or by the vote of the holders of at least
eighty percent (80%) of the voting power of the shares entitled to vote
generally in the election of directors at an annual or special meeting of
stockholders; provided that, if such alteration, amendment, repeal or adoption
of new By-laws is effected at a duly called special meeting, notice of such
alteration, amendment, repeal or adoption of new By-laws is contained in the
notice of such special meeting. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of holders of
at least eighty percent (80%) of the voting power of the shares entitled to vote
generally in the election of directors shall be required to amend, alter or
repeal, or to adopt any provision inconsistent with, this Article VII.
ARTICLE VIII
------------
A director of the Corporation shall not, in the absence of fraud, be
disqualified by his office from dealing or contracting with the Corporation
either as a vendor, purchaser or otherwise, nor, in the absence of fraud, shall
a director of the Corporation be liable to account to the Corporation for any
profit realized by him or her from or through any transaction or contract of the
Corporation by reason of the fact that such director, or any firm of which such
director is a member or any corporation of which such director is an officer,
director or stockholder, was interested in such transaction or contract if such
transaction or contract has been authorized, approved or ratified in
-4-
<PAGE>
a manner provided in the Act for authorization, approval or ratification of
transactions or contracts between the Corporation and one or more of its
directors or officers or between the Corporation and any other corporation,
partnership, association or other organization in which one or more of its
directors or officers are directors or officers or have a financial interest.
ARTICLE IX
----------
Meetings of stockholders may be held within or without the State of
Delaware as the By-laws may provide. The books of the Corporation may be kept
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the By-laws. Election of directors
need not be by written ballot unless the By-laws so provide.
ARTICLE X
---------
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
Section 291 of the Act or on the application of trustees in dissolution or of
any receiver or receivers appointed for the Corporation under the provisions of
Section 279 of the Act, order a meeting of the creditors or class of creditors
and/or the stockholders or class of stock of the Corporation, as the case may
be, to be summoned in such manner as said court directs. If a majority in number
representing three-fourths (3/4) of the value of the creditors or class of
creditors and/or the stockholders or class of stockholders of the Corporation,
as the case may be, agree to any compromise or arrangement or to any
reorganization of the Corporation as a consequence of such compromise or
arrangement, said compromise or arrangement of said reorganization shall, if
sanctioned by the court to which said application has been made, be binding on
all the creditors or class of creditors and/or on all the stockholders or class
of stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE XI
----------
The Board of Directors may adopt a resolution proposing to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute.
ARTICLE XII
-----------
A. Indemnification of Officers and Directors: Each person who is or was a
director or officer of the Corporation and each person who serves or served at
the request of the Corporation as a director, officer or partner of another
enterprise shall be indemnified by the Corporation in
-5-
<PAGE>
accordance with and to the fullest extent authorized by the Act as the same now
exists or may be hereafter amended. No amendment to or alteration or repeal of
this Article XII shall apply to or have any effect on the rights of any
individual referred to in this Article XII for or with respect to acts or
omissions of such individual occurring prior to such amendment, alteration or
repeal.
B. Elimination of Certain Liability of Directors: No director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Act, as the same exists or hereafter may be amended, or (iv)
for any transaction from which the director derived an improper personal
benefit. If the Act is amended to authorize the further elimination or
limitation of liability of directors, then the liability of a director of the
Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the amended Act. Any
repeal or modification of this Article XII by the stockholders of the
Corporation shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
* * *
-6-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation on ________________, 1999.
----------------------------------
Kristine L. Kramer
Sole Incorporator
-7-
<PAGE>
EXHIBIT 3.2
FORM OF
BY-LAWS
OF
NOVAMED EYECARE, INC.
ARTICLE I
---------
OFFICES
-------
Section 1.1. Registered Office. The registered office of NovaMed Eyecare,
----------- -----------------
Inc. (the "Corporation") shall be in the City of Wilmington, County of New
Castle, State of Delaware.
Section 1.2. Other Offices. The Corporation may also have offices at such
----------- -------------
other places both within and without the State of Delaware as the Board of
Directors of the Corporation (the "Board of Directors") may from time to time
determine or the business of the Corporation may require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 2.1. Place of Meeting. All meetings of the stockholders for the
----------- ----------------
election of directors shall be held at such place either within or without the
State of Delaware as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time and place, within or without the
State of Delaware, as shall be stated by the Chairman of the Board, President or
Chief Executive Officer in his, or the Board of Directors in its, notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2.2. Time of Annual Meeting. Annual meetings of stockholders
----------- ----------------------
shall be held on the first Thursday of May of each year, if not a legal holiday,
and if a legal holiday, then on the next secular day following, at 10:00 A.M.,
or at such other date and time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting, at which
stockholders shall elect directors to hold office for the term provided in
Article III, Section 3.2 of these By-laws and conduct such other business as
shall be considered.
<PAGE>
Section 2.3. Notice of Annual Meetings. Except as otherwise required by
----------- -------------------------
law, written notice of the annual meeting stating the place, date and hour of
the meeting shall be given to each stockholder entitled to vote at such meeting
not fewer than ten (10) nor more than sixty (60) days before the date of the
meeting.
Section 2.4. Annual Meeting. Nominations of persons for election to the
----------- --------------
Board of Directors and the proposal of business to be transacted by the
stockholders at an annual meeting of stockholders may be made (i) pursuant to
the Corporation's notice with respect to such meeting, (ii) by, or at the
direction of, the Board of Directors or (iii) by any stockholder of record of
the Corporation who was a stockholder of record at the time of the giving of the
notice provided for in the following paragraph, who is entitled to vote at the
meeting and who has complied with the notice procedures set forth in this
Article II, Section 2.4.
For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (iii) of the foregoing paragraph,
(a) the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation at the principal executive offices of the
Corporation, (b) such business must be a proper matter for stockholder action
under the General Corporation Law of the State of Delaware, (c) if the
stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the Corporation with a Solicitation Notice, as
that term is defined in this Article II, Section 2.4, such stockholder or
beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
Corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a proxy
statement and form of proxy to holders of a percentage of the Corporation's
voting shares reasonably believed by such stockholder or beneficial holder to be
sufficient to elect the nominee or nominees proposed to be nominated by such
stockholder (the number of voting shares required to carry the proposal or elect
the nominees being the "Required Number"), and must, in either case, have
included in such materials the Solicitation Notice and (d) if no Solicitation
Notice relating thereto has been timely provided pursuant to this Article II,
Section 2.4, the stockholder or beneficial owner proposing such business or
nomination must not have solicited proxies for a number of shares equal to or
greater than the Required Number. To be timely, a stockholder's notice shall be
delivered to the Secretary of the Corporation at the principal executive offices
of the Corporation not less than forty-five (45) or more than seventy-five (75)
days prior to the first anniversary (the "Anniversary") of the date on which the
Corporation first mailed its proxy materials for the preceding year's annual
meeting of stockholders; provided, however, that if the date of the annual
-------- -------
meeting is advanced more than thirty (30) days prior to, or delayed by more than
thirty (30) days after, the anniversary of the preceding year's annual meeting,
notice by the stockholder to be timely must be so delivered not later than the
close of business on the later of (i) the 90/th/ day prior to such annual
meeting or (ii) the 10/th/ day following the day on which public announcement of
the date of such annual meeting is first made. Such stockholder's notice shall
set forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director, all information relating to such person as
would be required to be disclosed in solicitations of proxies for the election
of such nominees as directors pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and such person's written
consent to serve as a director if elected; (b) as to any
-2-
<PAGE>
other business that the stockholder proposes to bring before the meeting, a
brief description of such business, the reasons for conducting such business at
the meeting and any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is made; and (c) as
to the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner, (ii) the class and number of shares of the Corporation that are owned
beneficially and of record by such stockholder and such beneficial owner, and
(iii) whether either such stockholder or beneficial owner intends to deliver a
proxy statement and form of proxy to holders of, in the case of a proposal, at
least the percentage of the Corporation's voting shares required under
applicable law to carry the proposal or, in the case of a nomination or
nominations, a sufficient number of holders of the Corporation's voting shares
to elect such nominee or nominees (an affirmative statement of such intent, a
"Solicitation Notice").
Notwithstanding anything in the second sentence of the second paragraph of
this Article II, Section 2.4 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least fifty-
five (55) days prior to the Anniversary, a stockholder's notice required by
these By-laws shall also be considered timely, but only with respect to nominees
for any new positions created by such increase, if it shall be delivered to the
Secretary of the Corporation at the principal executive offices of the
Corporation not later than the close of business on the 10/th/ day following the
day on which such public announcement is first made by the Corporation.
Only persons nominated in accordance with the procedures set forth in this
Article II, Section 2.4 shall be eligible to serve as directors, and only such
business shall be conducted at an annual meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Article II, Section 2.4. The chair of the meeting shall have the power and
the duty to determine whether a nomination or any business proposed to be
brought before the meeting has been made in accordance with the procedures set
forth in these By-laws and, if any proposed nomination or business is not in
compliance with these By-laws, to declare that such defective proposed business
or nomination shall not be presented for stockholder action at the meeting and
shall be disregarded.
For purposes of these By-laws, "public announcement" shall mean disclosure
in a press release reported by the Dow Jones News Service, Associated Press or a
comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
Section 2.5. Special Meeting. Only such business shall be conducted at a
----------- ---------------
special meeting of stockholders as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting. Nominations of persons for
election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the Corporation's
notice of meeting (i) by or at the direction of the Board of Directors or (ii)
by any stockholder of record of the Corporation who is a stockholder of record
at the time of giving notice provided for
-3-
<PAGE>
in this paragraph, who shall be entitled to vote at the meeting and who complies
with the notice procedures set forth in Article II, Section 2.4. Nominations by
stockholders of persons for election to the Board of Directors may be made at
such a special meeting of stockholders if the stockholder's notice required by
the second paragraph of Article II, Section 2.4 shall be delivered to the
Secretary of the Corporation at the principal executive offices of the
Corporation not later than the close of business on the later of the 90/th/ day
prior to such special meeting or the 10/th/ day following the day on which
public announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
Notwithstanding the foregoing provisions of Article II, Sections 2.4 and
2.5, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to matters
set forth in Article II, Sections 2.4 and 2.5. Nothing in Article II, Sections
2.4 and 2.5 shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
Section 2.6. Special Meetings of the Stockholders. Special meetings of
----------- ------------------------------------
the stockholders of the Corporation may be called only by (i) the Chairman of
the Board, (ii) the President, (iii) the Chief Executive Officer or (iv) the
Board of Directors pursuant to a resolution approved by a majority of the Board
of Directors. The business transacted at any special meeting of the
stockholders shall be limited to the purposes stated in the notice for the
meeting transmitted to stockholders.
Section 2.7. Notice of Special Meetings. Written notice of a special
----------- --------------------------
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given by the Secretary of the
Corporation, not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
Section 2.8. Fixing of Record Date. In order that the Corporation may
----------- ---------------------
determine the stockholders entitled to notice of, or to vote at, any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which shall not precede the date upon which the resolution fixing
the record date is adopted and which shall be (i) not more than sixty (60) nor
less than ten (10) days before the date of a meeting, and (ii) not more than
sixty (60) days prior to any other action. A determination of stockholders of
record entitled to notice of, or to vote at, a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
-------- -------
Directors may fix a new record date for any adjourned meeting.
Section 2.9. Voting Lists. The officer who has charge of the stock ledger
----------- ------------
of the Corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
-4-
<PAGE>
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present.
Section 2.10. Quorum and Adjournments. The holders of a majority of the
------------ -----------------------
voting power of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business, except as
otherwise provided by statute or by the Corporation's Certificate of
Incorporation. If, however, such quorum shall not be present or represented at
any such meeting of the stockholders, the holders of a majority of the voting
power of the stock entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented; provided that if the adjournment is for more than thirty (30) days,
or if after the adjournment a new record date is fixed by the directors for the
adjourned meeting, a new notice shall be transmitted to the stockholders of
record entitled to vote at the adjourned meeting. At such adjourned meeting at
which a quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally notified.
Section 2.11. Vote Required. When a quorum is present at any meeting of
------------ -------------
stockholders, the affirmative vote of the holders of a majority of the voting
power of the stock issued and outstanding and entitled to vote thereat, present
in person or represented by proxy, shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of statute
or of the Corporation's Certificate of Incorporation, a different vote is
required, in which case such express provision shall govern and control the
decision of such question; provided, however, all elections of directors shall
-------- -------
be determined by a plurality of the votes cast.
Section 2.12. Voting Rights. Unless otherwise provided in the
------------ -------------
Corporation's Certificate of Incorporation, each stockholder having voting power
shall at every meeting of the stockholders be entitled to one (1) vote in person
or by proxy for each share of the capital stock having voting power held by such
stockholder, but no proxy shall be voted on after three (3) years from its date,
unless the proxy provides for a longer period. At any meeting of the
stockholders, every stockholder entitled to vote may vote in person or by proxy
authorized by an instrument in writing or by a transmission permitted by law
filed in accordance with the procedure established for the meeting. Any copy,
facsimile telecommunication or other reliable reproduction of the writing or
transmission created pursuant to this paragraph may be substituted or used in
lieu of the original writing or transmission for any and all purposes for which
the original writing or transmission could be used; provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission. All voting,
including on the election of directors, may (except where otherwise required by
law) be by a voice vote; provided, however, that upon demand therefor by a
-------- -------
stockholder entitled to vote or by his or her proxy, a stock vote shall be
taken. Every stock vote shall be taken by ballots, each of which shall state
the name of the stockholder or proxy voting and such other information as may be
required
-5-
<PAGE>
under the procedure established for the meeting. The Corporation may, and to the
extent required by law shall, in advance of any meeting of stockholders, appoint
one or more inspectors to act at the meeting and make a written report thereof.
The Corporation may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able to
act at a meeting of stockholders, the person presiding at the meeting may, and
to the extent required by law shall, appoint one or more inspectors to act at
the meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath to faithfully execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. Every vote taken by ballots shall be counted by an inspector or
inspectors appointed by the chairman of the meeting.
Section 2.13. Presiding Over Meetings. The Chairman of the Board of
------------ -----------------------
Directors shall preside at all meetings of the stockholders. In the absence or
inability to act of the Chairman, the Vice Chairman, the President or a Vice
President (in that order) shall preside, and in their absence or inability to
act another person designated by one of them shall preside. The Secretary of
the Corporation shall act as secretary of each meeting of the stockholders. In
the event of his or her absence or inability to act, the chairman of the meeting
shall appoint a person who need not be a stockholder to act as secretary of the
meeting.
Section 2.14. Conducting Meetings. Meetings of the stockholders shall be
------------ -------------------
conducted in a fair manner but need not be governed by any prescribed rules of
order. The presiding officer of the meeting shall establish an agenda for the
meeting. The presiding officer's rulings on procedural matters shall be final.
The presiding officer is authorized to impose reasonable time limits on the
remarks of individual stockholders and may take such steps as such officer may
deem necessary or appropriate to assure that the business of the meeting is
conducted in a fair and orderly manner.
Section 2.15. Informal Action. Prior to the consummation of a public
------------ ---------------
offering of the Corporation's equity securities registered under the Securities
Act of 1933, as amended (a "Public Offering"), any action required or permitted
to be taken at any meeting of the stockholders may be taken without a meeting as
provided in Article VI, A. of the Corporation's Certificate of Incorporation.
ARTICLE III
-----------
DIRECTORS
---------
Section 3.1. General Powers. The business and affairs of the Corporation
----------- --------------
shall be under the direction of, and managed by, a board comprised of directors,
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not required by statute, by the Corporation's Certificate
of Incorporation or by these By-laws to be done by the stockholders. Directors
need not be residents of the State of Delaware or stockholders of the
Corporation. The number of directors shall be determined in the manner provided
in the Corporation's Certificate of Incorporation.
-6-
<PAGE>
Section 3.2. Election. Directors shall be elected by class for three (3)
----------- --------
year or other terms as specified in the Corporation's Certificate of
Incorporation, and each director elected shall hold office during the term for
which he or she is elected and until his or her successor is elected and
qualified, subject, however, to his or her prior death, resignation, retirement
or removal from office.
Section 3.3. Removal. Directors may only be removed as provided in the
----------- -------
Corporation's Certificate of Incorporation.
Section 3.4. Vacancies. Any vacancies occurring in the Board of Directors
----------- ---------
and newly created directorships shall be filled in the manner provided in the
Corporation's Certificate of Incorporation.
Section 3.5. Place of Meetings. The Board of Directors of the Corporation
----------- -----------------
may hold meetings, both regular and special, either within or without the State
of Delaware. The first meeting of each newly elected Board of Directors shall
be held immediately following the adjournment of the annual meeting of the
stockholders at the same place as such annual meeting and no notice of such
meeting shall be necessary to the newly elected directors in order to legally
constitute the meeting, provided a quorum shall be present. In the event such
meeting is not held at such time and place, the meeting may be held at such time
and place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 3.6 Participation by Conference Telephone. Unless otherwise
----------- -------------------------------------
restricted by the Corporation's Certificate of Incorporation or these By-laws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or committee,
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation by such means shall constitute presence in person at such meeting.
Section 3.7. Regular Meetings. Regular meetings of the Board of Directors
----------- ----------------
may be held, without notice, at such time and at such place as shall from time
to time be determined by the Board of Directors.
Section 3.8. Special Meetings. Special meetings of the Board of Directors
----------- ----------------
may be called by the Chairman of the Board, the Chief Executive Officer or the
President on at least one day's notice to each director, either personally, or
by courier, telephone, facsimile, e-mail or mail. Special meetings shall be
called by the Chairman, the Chief Executive Officer or the President in like
manner and on like notice at the written request of two or more of the directors
comprising the Board of Directors stating the purpose or purposes for which such
meeting is requested. Notice of any meeting of the Board of Directors for which
a notice is required may be waived in writing signed by the person or persons
entitled to such notice, whether before or after the time of such meeting, and
such waiver shall be equivalent to the giving of such notice. Attendance of a
director at any such meeting shall constitute a waiver of notice thereof, except
where a director attends a meeting for the express purpose of objecting to the
transaction of any business because
-7-
<PAGE>
such meeting is not lawfully convened. Neither the business to be transacted at,
nor the purpose of, any meeting of the Board of Directors for which a notice is
required need be specified in the notice, or waiver of notice, of such meeting.
The Chairman shall preside at all meetings of the Board of Directors. In the
absence or inability to act of the Chairman, then the Vice Chairman (if one
shall have been chosen by the Board), the Chief Executive Officer, the President
or the Chief Financial Officer (in that order) shall preside, and in their
absence or inability to act, another director designated by one of them shall
preside.
Section 3.9. Quorum; No Action on Certain Matters. At all meetings of the
----------- ------------------------------------
Board of Directors, a majority of the then duly elected directors shall
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute or by the Corporation's Certificate of Incorporation. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Section 3.10. Resignations. Any director of the Corporation may resign at
------------ ------------
any time by giving written notice to the Board of Directors, the Chairman or the
President. Such resignation shall take effect at the time specified therein
and, unless tendered to take effect upon acceptance thereof, the acceptance of
such resignation shall not be necessary to make it effective.
Section 3.11. Informal Action. Unless otherwise restricted by the
------------ ---------------
Corporation's Certificate of Incorporation or these By-laws, any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board of
Directors or committee consent thereto in writing and the writing or writings
are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 3.12. Presumption of Assent. A director of the Corporation who is
------------ ---------------------
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his or her dissent shall be entered in the minutes of the meeting
or unless he or she shall file his or her written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 3.13. Compensation of Directors. In the discretion of the Board
------------ -------------------------
of Directors, the directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors or a committee thereof, may be paid a
stated salary or a fixed sum for attendance at each meeting of the Board of
Directors or a committee thereof and may be awarded other compensation for their
service as directors. No such payment or award shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
-8-
<PAGE>
ARTICLE IV
----------
COMMITTEES OF DIRECTORS
-----------------------
Section 4.1. Appointment and Powers. The Board of Directors may
----------- ----------------------
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation; but no such committee shall have the power or
authority in reference to the following matters: (a) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law to be submitted to stockholders for approval or
(b) adopting, amending or repealing any of the By-laws.
Section 4.2. Committee Minutes. Each Committee shall keep regular minutes
----------- -----------------
of its meetings and shall file such minutes and all written consents executed by
its members with the Secretary of the Corporation. Each committee may determine
the procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings; a
majority of the members shall constitute a quorum unless the committee shall
consist of one or two members, in which event one member shall constitute a
quorum; and all matters shall be determined by a majority vote of the members
present. Action may be taken by any committee without a meeting if all members
thereof consent thereto in writing and the writing or writings are filed with
the minutes of the proceedings of such committee.
ARTICLE V
---------
NOTICES
-------
Section 5.1. Manner of Notice. Whenever, under applicable law or the
----------- ----------------
Corporation's Certificate of Incorporation or these By-laws, notice is required
to be given to any director or stockholder, unless otherwise provided in the
Corporation's Certificate of Incorporation or these By-laws, such notice may be
given in writing, by courier or mail, addressed to such director or stockholder,
at such director's or stockholder's address as it appears on the records of the
Corporation, with freight or postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall have been deposited with such
courier or in the United States mail. Notice may be given orally if such notice
is confirmed in writing in a manner provided therein. Notice to directors may
also be given by facsimile or e-mail.
-9-
<PAGE>
Section 5.2. Waiver. Whenever any notice is required to be given under
----------- ------
applicable law or the provisions of the Corporation's Certificate of
Incorporation or these By-laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VI
----------
OFFICERS
--------
Section 6.1. Number and Qualifications. The officers of the Corporation
----------- -------------------------
shall be chosen by the Board of Directors and shall be a Chairman of the Board,
a Chief Executive Officer, a President, a Chief Financial Officer, one or more
Vice Presidents and a Secretary. The Board of Directors may also choose a Vice
Chairman for the Board, a Treasurer, one or more Assistant Secretaries and
Assistant Treasurers and such additional officers as the Board of Directors may
deem necessary or appropriate from time to time. Membership on the Board of
Directors shall not be a prerequisite to the holding of any other office. Any
number of offices may be held by the same person, unless the Corporation's
Certificate of Incorporation or these By-laws otherwise provide.
Section 6.2. Election. The Board of Directors at its first meeting after
----------- --------
each annual meeting of stockholders shall elect a Chairman of the Board, a Chief
Executive Officer, a President, a Chief Financial Officer, one or more Vice
Presidents (including, at the discretion of the Board of Directors, an Executive
Vice President) and a Secretary, and may choose a Vice Chairman of the Board, a
Treasurer, one or more Assistant Secretaries and Assistant Treasurers and such
other officers as the Board of Directors shall deem desirable.
Section 6.3. Other Officers and Agents'. The Board of Directors may
----------- --------------------------
choose such other officers and agents as it shall deem necessary, which officers
and agents shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors.
Section 6.4. Salaries. The salaries or other compensation of the
----------- --------
officers and agents of the Corporation shall be fixed from time to time by the
Board of Directors, and no officer shall be prevented from receiving such salary
or other compensation by reason of the fact that such officer is also a director
of the Corporation.
Section 6.5. Term of Office. The officers of the Corporation shall hold
----------- --------------
office until their successors are chosen and qualified or until their earlier
resignation or removal. Any officer elected or appointed by the Board of
Directors may be removed at any time, either with or without cause, by the
affirmative vote of a majority of the directors then in office at any meeting of
the Board of Directors. If a vacancy shall exist in the office of the
Corporation, the Board of Directors may elect any person to fill such vacancy,
such person to hold office as provided in Article VI, Section 6.1.
-10-
<PAGE>
Section 6.6. The Chairman of the Board. The Chairman of the Board shall
----------- -------------------------
preside at all meetings of the stockholders and of the Board of Directors and
shall see that orders and resolutions of the Board of Directors are carried into
effect. The Chairman of the Board shall perform such duties as may be assigned
to him by the Board of Directors.
Section 6.7. The Chief Executive Officer. The Chief Executive Officer
----------- ---------------------------
shall be the principal executive officer of the Corporation and shall, in
general, supervise and control all of the business and affairs of the
Corporation, unless otherwise provided by the Board of Directors. In the absence
of the Chairman of the Board, the Chief Executive Officer shall preside at all
meetings of the stockholders and of the Board of Directors and shall see that
orders and resolutions of the Board of Directors are carried into effect. The
Chief Executive Officer may sign bonds, mortgages, certificates for shares and
all other contracts and documents, except in cases where the signing and
execution thereof shall be expressly delegated by law, by the Board of Directors
or by these By-laws to some other officer or agent of the Corporation. The
Chief Executive Officer shall have general powers of supervision and shall be
the final arbiter of all differences between officers of the Corporation, and
the Chief Executive Officer's decision as to any matter affecting the
Corporation shall be final and binding as between the officers of the
Corporation, subject only to its Board of Directors.
Section 6.8. The President. Unless another party has been designated as
----------- -------------
Chief Operating Officer, the President shall be the Chief Operating Officer of
the Corporation responsible for the day-to-day active management of the business
of the Corporation, under the general supervision of the Chief Executive
Officer. In the absence of the Chief Executive Officer, the President shall
perform the duties of the Chief Executive Officer, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the Chief
Executive Officer. The President shall have concurrent power with the Chief
Executive Officer to sign bonds, mortgages, certificates for shares and other
contracts and documents, except in cases where the signing and execution thereof
shall be expressly delegated by law, by the Board of Directors or by these By-
laws to some other officer or agent of the Corporation. In general, the
President shall perform all duties incident to the office of the President and
such other duties as the Chief Executive Officer or the Board of Directors may
from time to time prescribe.
Section 6.9. The Chief Financial Officer. The Chief Financial Officer
----------- ---------------------------
shall be the principal financial and accounting officer of the Corporation. The
Chief Financial Officer shall: (a) have charge of and be responsible for the
maintenance of adequate books of account for the Corporation; (b) have charge
and custody of all funds and securities of the Corporation, and be responsible
therefor and for the receipt and disbursement thereof; and (c) perform all the
duties incident to the office of the Chief Financial Officer and such other
duties as from time to time may be assigned to him by the President or by the
Board of Directors. If required by the Board of Directors, the Chief Financial
Officer shall give a bond for the faithful discharge of the Chief Financial
Officer's duties in such sum and with such surety or sureties as the Board of
Directors may determine.
Section 6.10. The Vice Presidents. In the absence of the President or in
------------ -------------------
the event of the President's inability or refusal to act, the Vice Presidents
(in the order designated, or in the
-11-
<PAGE>
absence of any designation, in the order of the Executive Vice President, if
any, and then the other Vice Presidents in the order of their election) shall
perform the duties of the President, and when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the President. The Vice
Presidents shall perform such other duties and have such other powers as the
Chief Executive Officer or the Board of Directors may from time to time
prescribe.
Section 6.11. The Secretary. The Secretary shall attend all meetings of
------------ -------------
the Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given notice of all meetings of the stockholders and special meetings of the
Board of Directors and shall perform such other duties as may be prescribed by
the Board of Directors or the Chief Executive Officer, under whose supervision
the Secretary shall be. The Secretary or an Assistant Secretary shall have
authority to attest, by signature, to any instrument requiring such attestation.
Section 6.12. The Treasurer. In the absence of the Chief Financial
------------ -------------
Officer or in the event of the Chief Financial Officer's inability or refusal to
act, the Treasurer shall perform the duties of the Chief Financial Officer, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Chief Financial Officer. The Treasurer shall perform such
other duties and have such other powers as the Chief Executive Officer or the
Board of Directors may from time to time prescribe.
Section 6.13. The Assistant Secretary. The Assistant Secretary, or if
------------ -----------------------
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as the Chief Executive Officer or the Board of Directors may from time to
time prescribe.
Section 6.14. The Assistant Treasurer. The Assistant Treasurer, or if
------------ -----------------------
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the event
of the Treasurer's inability or refusal to act, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties and have such
other powers as the Chief Executive Officer or the Board of Directors may from
time to time prescribe.
-12-
<PAGE>
ARTICLE VII
-----------
CERTIFICATES OF STOCK, TRANSFERS AND RECORD DATES
-------------------------------------------------
Section 7.1. Form of Certificates. Every holder of stock in the
----------- --------------------
Corporation shall be entitled to have a certificate signed by, or in the name
of, the Corporation by (a) the Chairman of the Board, the Vice-Chairman of the
Board or the President of the Corporation, and (b) the Secretary, the Treasurer,
an Assistant Secretary or an Assistant Treasurer of the Corporation, certifying
the number of shares owned by such holder in the Corporation. If the
Corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock; provided, however, that, except as otherwise provided
-------- -------
in Section 202 of the General Corporation Law of Delaware, in lieu of the
foregoing requirements, there may be set forth, on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Subject to the foregoing, certificates of stock of the
Corporation shall be in such form as the Board of Directors may from time to
time prescribe.
Section 7.2. Facsimile Signatures. Where a certificate is countersigned
----------- --------------------
(i) by a transfer agent other than the Corporation or its employee or (ii) by a
registrar other than the Corporation or its employee, any other signatures on
the certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been placed upon, a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue.
Section 7.3. Lost Certificates. The Board of Directors may direct a new
----------- -----------------
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or such owner's legal representative, to advertise the same in
such manner as the Corporation shall require and/or give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation or its transfer agent or registrar with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 7.4. Transfers of Stock. Upon surrender to the Corporation or
----------- ------------------
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence
-13-
<PAGE>
of succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 7.5. Registered Stockholders. The Corporation shall be entitled
----------- -----------------------
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends and to vote as such owner and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not the Corporation shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VIII
------------
CONFLICT OF INTERESTS
---------------------
Section 8.1. Contract or Relationship Not Void. No contract or
----------- ---------------------------------
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or officers or have a financial interest shall be void or
voidable solely for this reason, or solely because such director or officer is
present at, or participates in, the meeting of the Board of Director's or
committee thereof which authorizes the contract or transaction, or solely
because such director's or officer's vote is counted for such purpose, if:
(i) The material facts as to such director's or officer's relationship or
interest and as to the contract or transaction are disclosed or are
known to the Board of Directors or the committee, and the board or
committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or
(ii) The material facts as to such director's or officer's relationship or
interest and as to the contract or transaction are disclosed or are
known to the stockholders entitled to vote thereon, and the contract
or transaction is specifically approved in good faith by vote of the
stockholders; or
(iii) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of
Directors, a committee thereof, or the stockholders.
Section 8.2. Quorum. Common or interested directors may be counted in
----------- ------
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
-14-
<PAGE>
ARTICLE IX
----------
GENERAL PROVISIONS
------------------
Section 9.1. Dividends. Dividends upon the capital stock of the
----------- ---------
Corporation, subject to the provisions of the Corporation's Certificate of
Incorporation, if any, may be declared by the Board of Directors at any regular
or special meeting, pursuant to law. Dividends may be paid in cash, in property
or in shares of the capital stock or rights to acquire same, subject to the
provisions of the Corporation's Certificate of Incorporation. Before payment of
any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the directors shall
think conducive to the interest of the Corporation, and the directors may modify
or abolish any such reserve in the manner in which it was created.
Section 9.2. Checks. All checks or demands for money and notes of the
----------- ------
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 9.3. Fiscal Year. The fiscal year of the Corporation shall be
----------- -----------
fixed by resolution of the Board of Directors.
Section 9.4. Stock in Other Corporations. Shares of any other
----------- ---------------------------
corporation which may from time to time be held by this Corporation may be
represented and voted at any meeting of stockholders of such corporation by the
Chairman, the Chief Executive Officer, the President, the Chief Financial
Officer or a Vice President of the Corporation, or by any proxy appointed in
writing by the Chairman, the Chief Executive Officer, the President, the Chief
Financial Officer or a Vice President of the Corporation, or by any other person
or persons thereunto authorized by the Board of Directors. Shares represented
by certificates standing in the name of the Corporation may be endorsed for sale
or transfer in the name of the Corporation by the Chairman, the Chief Executive
Officer, the President, the Chief Financial Officer or any Vice President of the
Corporation or by any other officer or officers thereunto authorized by the
Board of Directors. Shares belonging to the Corporation need not stand in the
name of the Corporation, but may be held for the benefit of the Corporation in
the individual name of the Chief Financial Officer or of any other nominee
designated for the purpose of the Board of Directors.
-15-
<PAGE>
ARTICLE X
---------
AMENDMENTS
----------
These By-laws may be altered, amended or repealed or new by-laws may be
adopted only in the manner provided in the Corporation's Certificate of
Incorporation.
-16-
<PAGE>
- --------------------------------------------------------------------------------
Exhibit
10.1
NOVAMED HOLDINGS INC.
STOCK INCENTIVE PLAN
(as amended October 30, 1998)
- --------------------------------------------------------------------------------
<PAGE>
NOVAMED HOLDINGS, INC.
STOCK INCENTIVE PLAN
ARTICLE I
---------
ESTABLISHMENT
--------------
The NovaMed Holdings, Inc. Stock Incentive Plan ("Plan") is hereby
established by NovaMed Holdings, Inc. ("Company") (i) to replace and substitute
for, and assume certain options granted under, the NovaMed Eyecare Management,
LLC Equity Incentive Plan ("LLC Plan") and (ii) to authorize new stock options,
subject to the terms and conditions of this Plan and any Agreement. The purpose
of the Plan is to promote the overall financial objectives of the Company, its
shareholders and its Affiliates by motivating those persons selected to
participate in the Plan (which shall include those persons with outstanding
options under the LLC Plan) to achieve long-term growth in the shareholder
equity in the Company and by retaining the association of those individuals who
are instrumental in achieving this growth. This Plan is adopted effective as of
December 20, 1996.
ARTICLE II
----------
DEFINITIONS
-----------
For purposes of the Plan, the following terms are defined as set forth
below:
"Affiliate" means any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, unincorporated
association or other entity (other than the Company) that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, the Company, including, without limitation, any
shareholder of an affiliated group of which the Company is a common parent
corporation as provided in Section 1504 of the Code.
"Agreement" or "Option Agreement" means, individually or collectively, any
agreement entered into pursuant to the Plan pursuant to which an Option is
granted to a Participant.
"Beneficiary" means the person, persons, trust or trusts which have been
designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits specified under the
Plan upon such Participant's death or to which Options are transferred if and to
the extent permitted hereunder. If, upon a Participant's death, there is no
designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means person, persons, trust or trust entitled by will or the laws
of descent and distribution to receive such benefits.
<PAGE>
"Board of Directors" or "Board" means the Board of Directors of the
Company.
"Cause" means, for purposes of whether and when a Participant has incurred
a Termination of Employment for Cause, any act or omission which permits the
Company or an Affiliate to terminate the Participant's employment with the
Company or an Affiliate for "cause" as defined in such agreement or
arrangement, or in the event there is no such agreement or arrangement or the
agreement or arrangement does not define the term "cause" or a substantially
equivalent term, then Cause means, unless otherwise defined in the Option
Agreement with respect to the corresponding Option:
(a) any act or failure to act deemed to constitute cause under the
Company's or an Affiliate's established practices, policies or guidelines
applicable to the Participant;
(b) breach of a covenant made by the Participant in conjunction with
the grant of an Option or the transfer of Shares hereunder;.
(c) the Participant's gross negligence in the performance of his
duties or material failure or willful refusal to perform his duties;
(d) the determination by the Committee in the exercise of its
reasonable judgment that Participant has committed an act that (i) negatively
affects the Company's or Affiliate's business or reputation or (ii) indicates
alcohol or drug abuse by Participant that adversely affects his performance
hereunder; or
(e) the determination by the Committee in the exercise of its
reasonable judgment that Participant has committed an act or acts constituting
a felony or other act involving dishonesty, disloyalty or fraud against the
Company or an Affiliate.
"Change in Control" and "Change In Control Price" have the meanings set
forth in Sections 7.2 and 7.3, respectively.
"Code" or "Internal Revenue Code" means the Internal Revenue Code of 1986,
as amended, any Treasury Regulations (including proposed regulations) thereunder
and any subsequent Internal Revenue Code.
"Commission" means the Securities and Exchange Commission or any successor
agency.
"Committee" means the person or persons appointed to administer the Plan,
as further described herein.
"Common Stock" means the regular voting common stock, $0.01 par value per
share, of the Company, whether presently or hereafter issued, and any other
stock or security resulting from adjustment thereof as described hereinafter or
the equity of any successor to the Company which is designated for the purposes
of this Plan.
2
<PAGE>
"Company" means NovaMed Holdings, Inc., an Illinois corporation, and
includes any successor or assignee entity or entities into which the Company may
be merged, changed or consolidated; any entity for whose securities the
securities of the Company shall be exchanged; and any assignee of or successor
to substantially all of the assets of the Company.
"Covered Employee" means a Participant who is a "covered employee" within
the meaning of Section 162(m) of the Code.
"Disability" means a mental or physical illness that entitles the
Participant to receive benefits under the long term disability plan of the
Company or an Affiliate, or if the Participant is not covered by such a plan or
the Participant is not an employee of the Company or an Affiliate, a mental or
physical illness that renders a Participant totally and permanently incapable of
performing the Participant's duties for the Company or an Affiliate.
Notwithstanding the foregoing, a Disability will not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully self-
induced sickness; or (ii) an injury or disease contracted, suffered, or
incurred, while participating in a criminal offense. The determination of
Disability will be made by the Committee. The determination of Disability for
purposes of this Plan will not be construed to be an admission of disability for
any other purpose.
"Effective Date" means December 20, 1996.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Fair Market Value" means the fair market value of shares of Common Stock,
shares of Preferred Stock or other property, as determined by the Committee or
under procedures established by the Committee. After an Offering, unless
otherwise determined by the Committee, the Fair Market Value per share of Common
Stock as of any date shall be the closing sale price per share reported on a
consolidated basis for stock listed on the principal stock exchange or market on
which Common Stock is traded on the date as of which such value is being
determined or, if there is no sale on that date, then on the last previous day
on which a sale was reported.
"Grant Date" means the date as of which an Option is granted pursuant to
the Plan.
"Incentive Stock Option" means an Option to purchase shares of Common Stock
granted under this Plan which satisfies the requirements of Section 422 of the
Code.
"LLC Plan" means the NovaMed Eyecare Management, LLC Equity Incentive
Plan, which plan was terminated in connection with the establishment of this
Plan.
"Nasdaq" means the Nasdaq Stock Market, including the Nasdaq National
Market.
"Nonqualified Stock Option" means an Option to purchase Shares granted
under this Plan, the taxation of which is pursuant to Section 83 of the Code.
3
<PAGE>
"Offering" means the initial public offering of shares of Common Stock
under the Securities Act.
"Option" or "Stock Option" means an option or right granted to a
Participant (under Article VI hereof) to purchase Shares at a specified price
during specified time periods.
"Option Period" means the period during which an Option shall be
exercisable in accordance with the related Agreement and Article VI.
"Option Price" means the price at which Shares may be purchased under an
Option as provided in Section 6.3.
"Participant" means a person who satisfies the eligibility conditions of
Article V and to whom an Option has been granted by the Committee under this
Plan, and in the event a Representative is appointed for a Participant or
another person becomes a Representative, then the term "Participant" shall mean
such Representative. The term shall also include a trust for the benefit of the
Participant, a partnership the interest of which is held by or for the benefit
of the Participant, the Participant's parents, spouse or descendants, or a
custodian under a uniform gifts to minors act or similar statute for the benefit
of the Participant's descendants, to the extent permitted by the Committee and
not inconsistent with the Rule 16b-3 or the status of the Option as an Incentive
Stock Option, to the extent intended. Notwithstanding the foregoing, the term
"Termination of Employment" shall mean the Termination of Employment of the
person to whom the Option was originally granted.
"Plan" means the NovaMed Holdings, Inc. Stock Incentive Plan, as herein set
forth and as may be amended from time to time.
"Preferred Stock" means Series A Preferred Stock and/or Series B Preferred
Stock, as the context shall indicate.
"Representative" means (a) the person or entity acting as the executor or
administrator of a Participant's estate pursuant to the last will and testament
of a Participant or pursuant to the laws of the jurisdiction in which the
Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been transferred with the permission of the
Committee or by operation of law; provided that only one of the foregoing shall
be the Representative at any point in time as determined under applicable law
and recognized by the Committee. Any Representative shall be subject to all
terms and conditions applicable to the Participant.
"Retirement" means the Participant's Termination of Employment after
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if the Participant is covered
4
<PAGE>
by such plan, and if the Participant is not covered by such a plan, then age 65,
or age 55 with the accrual of 10 years of service.
"Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Series A Preferred Stock" means the Series A Convertible Preferred Stock,
$0.01 par value, of the Company, whether presently or hereafter issued, and any
other stock or security resulting from adjustment thereof as described
hereinafter or the equity of any successor to the Company which is designated
for the purposes of this Plan.
"Series B Preferred Stock" means the Series B Convertible Preferred Stock,
$0.01 par value, of the Company, whether presently or hereafter issued, and any
other stock or security resulting from adjustment thereof as described
hereinafter or the equity of any successor to the Company which is designated
for the purposes of this Plan.
"Shares" means shares of Common Stock or shares of Preferred Stock, as the
context shall indicate.
"Termination of Employment" means the occurrence of any act or event,
whether pursuant to an employment agreement or otherwise, that actually or
effectively causes or results in the person's ceasing, for whatever reason, to
be an officer, independent contractor, board member, consultant, director or
employee of the Company or of any Affiliate, or to be an officer, independent
contractor, board member, consultant, director or employee of any entity that
provides services to the Company or an Affiliate, including, without limitation,
death, Disability, dismissal, severance at the election of the Participant,
Retirement, or severance as a result of the discontinuance, liquidation, sale or
transfer by the Company or its Affiliates of all businesses owned or operated by
the Company or its Affiliates. With respect to any person who is not an employee
with respect to the Company or an Affiliate, the Agreement will establish what
act or event shall constitute a Termination of Employment for purposes of the
Plan. A transfer of employment from the Company to an Affiliate, or from an
Affiliate to the Company, shall not be a Termination of Employment, unless
expressly determined by the Committee. A Termination of Employment shall occur
for an employee who is employed by an Affiliate if the Affiliate shall cease to
be an Affiliate and the Participant does not immediately thereafter become an
employee of the Company or an Affiliate.
"Voluntary Termination of Employment" means a Termination of Employment at
the election of the Participant, including, with limitation, resignation by the
Participant, but excluding Retirement.
5
<PAGE>
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
-----------
ADMINISTRATION
--------------
3.1 Committee Structure and Authority. The Plan shall be administered by
---------------------------------
the Committee, which shall be composed of one or more persons. The Committee
shall be the Compensation Committee of the Board of Directors, unless such
committee does not exist or the Board establishes a committee whose purpose is
the administration of this Plan. In the absence of an appointment of a
Compensation Committee or another specific committee, the Board shall constitute
the Committee. A majority of the Committee shall constitute a quorum at any
meeting thereof (including by telephone conference) and the acts of a majority
of the members present, or acts approved in writing by a majority of the
entire Committee without a meeting, shall be the acts of the Committee for
purposes of this Plan. The Committee may authorize any one or more of its
shareholders or an officer of the Company to execute and deliver documents on
behalf of the Committee. After an Offering, the Committee shall be comprised of
such persons who are "non-employee directors" within the meanings of Rule 16b-3
and "outside directors" for purposes of the deduction of compensation under
Section 162(m) of the Code. A member of the Committee shall not exercise any
discretion respecting himself or herself under the Plan. In the event that the
Corporation Committee of the Board no longer is the Committee, the Board shall
have the authority to remove, replace or fill any vacancy of any member of the
Committee upon notice to the Committee and the affected member. Any member of
the Committee may resign upon notice to the Board. The Committee may allocate
among one or more of its members, or may delegate to one or more of its agents,
such duties and responsibilities as it determines.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan:
(a) to select those persons to whom Options may be granted from time
to time;
(b) to determine whether and to what extent Options are to be granted
hereunder;
(c) to determine the number of Shares to be covered by each Option
granted hereunder;
(d) to determine the terms and conditions of any Option granted
hereunder (including, but not limited to, 'the Option Price, the Option
Period, any exercise restriction or limitation and any exercise
acceleration, forfeiture or waiver regarding any Option and the Shares
relating thereto);
6
<PAGE>
(e) to adjust the terms and conditions, at any time or from time to
time, of any Option, subject to the limitations of Section 8.1;
(f) to determine under what circumstances an Option may be settled in
cash or Shares;
(g) to provide for the forms of Agreement to be utilized in
connection with the Plan;
(h) to determine whether a Participant has a Disability or a
Retirement;
(i) to determine whether and with what effect an individual has
incurred a Termination of Employment;
(j) to determine what securities law requirements are applicable to
the Plan, Options, and the issuance of Shares and to require of a
Participant that appropriate action be taken with respect to such
requirements;
(k) to cancel, with the consent of the Participant or as otherwise
provided in the Plan or an Agreement, outstanding Options;
(1) to interpret and make final determinations with respect to the
remaining number of Shares available under this Plan;
(m) to require as a condition of the exercise of an Option or the
issuance or transfer of a certificate for Shares, the withholding from a
Participant of the amount of any federal, state or local taxes as may be
required by law;
(n) to determine whether the Company or any other person has a right
or obligation to purchase Shares from a Participant and, if so, the terms
and conditions on which such Shares are to be purchased;
(o) to determine the restrictions or limitations on the transfer of
Shares;
(p) to determine whether an Option is to be adjusted, modified or
purchased, or is to become fully exercisable, under the Plan or the terms
of an Agreement;
(q) to determine the permissible methods of Option exercise and
payment, including cashless exercise arrangements;
(r) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan; and
(s) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
7
<PAGE>
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Option issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Options granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion, and in the case of any determination
relating to an Option, may be made at the time of the grant of the Option or,
unless in contravention of any express term of the Plan or an Agreement, at any
time thereafter. All decisions made by the Committee pursuant to the provisions
of the Plan shall be final and binding on all persons, including the Company
and Participants. No determination shall be subject to de novo review if
-- ----
challenged in court.
ARTICLE IV
----------
SHARES SUBJECT TO PLAN
----------------------
4.1 Number of Shares. Subject to the adjustment under Section 4.5, the
----------------
total number of Shares reserved and available for distribution pursuant to
Options under the Plan shall be: (i) 1,528,000 shares of Series A Preferred
Stock; (ii) 55,000 shares of Series B Preferred Stock; and (iii) 3,668,800
shares of Common Stock, as authorized for issuance on the Effective Date and
thereafter from time to time. Such Shares may consist, in whole or in part, of
authorized and unissued Shares or shares of treasury stock.
4.2 Release of Shares. If any Shares that are subject to an Option cease
-----------------
to be such, if any Shares that are subject to any Option are forfeited, if any
Option otherwise terminates without issuance of Shares being made to the
Participant, or if any Shares are received by the Company in connection with the
exercise of an Option or the satisfaction of a tax withholding obligation, such
Shares, in the discretion of the Committee, may again be available for
distribution in connection with Options under this Plan. If any Shares could not
again be available for Options to a particular Participant under any applicable
law, such Shares shall be available exclusively for Options to Participants who
are not subject to such limitations.
4.3 Restrictions on Shares. Shares issued upon exercise of an Option shall
----------------------
be subject to the terms and conditions specified herein and to such other
terms, conditions and restrictions as the Committee in its discretion may
determine or provide in an Option Agreement. The Company shall not be required
to issue or deliver any certificates for Shares, cash or other property prior
to: (i) the Participant executing any agreement that the Committee has required
the Participant to execute as a condition for the grant of shares; (ii) the
listing of such shares on any stock exchange or NASDAQ (or other public market)
on which the Shares may then be listed (or regularly traded), (iii) the
completion of any registration or qualification of such Shares under federal or
state law, or any ruling or regulation of any government body which the
Committee
8
<PAGE>
determines to be necessary or advisable, and (iv) the satisfaction of any
applicable withholding obligation in order for the Company or an Affiliate to
obtain a deduction with respect to the exercise of an Option. The Company may
cause any certificate for any Shares to be delivered to be properly marked with
a legend or other notation reflecting the limitations on transfer of such Shares
as provided in this Plan or as the Committee may otherwise require. The
Committee may require any person exercising an Option to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of the Shares in compliance with
applicable law or otherwise. Fractional shares shall not be delivered, but shall
be rounded to the next lower whole number of shares.
4.4 Shareholder Rights. No person shall have any rights of a shareholder
------------------
as to Shares subject to an Option until, after proper exercise of the Option or
other action required, such Shares have been recorded on the Company's official
shareholder records as having been issued and transferred. Upon exercise of the
Option or any portion thereof, the Company shall have thirty (30) days in which
to issue the Shares, and the Participant will not be treated as a shareholder
for any purpose whatsoever prior to such issuance. No adjustment shall be made
for cash dividends or other rights for which the record date is prior to the
date such Shares are recorded as issued and transferred in the Company's
official shareholder records, except as provided herein or in an Agreement.
4.5 Anti-Dilution. In the event of any Company stock dividend, stock
-------------
split, reverse stock split, combination or exchange of shares, recapitalization
or other change in the capital structure of the Company, corporate separation or
division of the Company (including, but not limited to, a split-up, spin-off,
split-off or distribution to Company shareholders other than a normal cash
than dividend), sale by the Company of all or a substantial portion of its
assets (measured either on a stand-alone or consolidated basis), reorganization,
rights offering, a partial or complete liquidation, or any other corporate
transaction or event involving the Company and having an effect similar to any
of the foregoing, then the Committee may adjust or substitute, as the case may
be, the number of Shares available for Options under the Plan, the number of
Shares covered by outstanding Options, the exercise price per Share of
outstanding Options, and any other characteristics or terms of the Options as
the Committee shall deem necessary or appropriate to reflect equitably the
effects of such changes to the Participants; provided, however, that the
Committee may limit any such adjustment so as to maintain the deductibility of
the Options under Section 162(m) of the Code, and that any fractional shares
resulting from such adjustment shall be eliminated by rounding to the next lower
whole number of shares with appropriate payment for such fractional share as
shall reasonably be determined by the Committee.
ARTICLE V
---------
ELIGIBILITY
-----------
5.1 Eligibility. Except as herein provided, the persons who shall be
-----------
eligible to participate in the Plan and be granted Options shall be
those persons who are directors, officers,
9
<PAGE>
employees, independent contractors or consultants with respect to the Company or
any Affiliate, who are in a position, in the opinion of the Committee, to make
contributions to the growth, management, protection and success of the Company
and its Affiliates. Of those persons described in the preceding sentence, the
Committee may, from time to time, select persons to be granted Options and shall
determine the terms and conditions with respect thereto. In making any such
selection and in determining the form of the Option, the Committee may give
consideration to the functions and responsibilities of the person's
contributions to the Company and its Affiliates, the value of the individual's
service to the Company and its Affiliates and such other factors deemed relevant
by the Committee. The Committee may designate as ineligible to participate in
the Plan any person who would otherwise be eligible to participate.
ARTICLE VI
----------
OPTIONS
-------
6.1 General. The Committee shall have authority to grant Options under the
-------
Plan at any time or from time to time. Options may be either Incentive Stock
Options or Nonqualified Stock Options. An Option shall entitle the Participant
to receive Shares upon the exercise of such Option, subject to the Participant's
satisfaction in full of any conditions, restrictions or limitations imposed in
accordance with the Plan or an Agreement (the terms and provisions of which may
differ from other Agreements) including without limitation, payment of the
Option Price. During any three-calendar-year period, Options for no more than
1,000,000 shares of Common Stock shall be granted to any Participant.
6.2 Grant. The grant of an Option shall occur as of the date the Committee
-----
determines. Each Option granted under this Plan shall be evidenced by an
Agreement, in a form approved by the Committee, which shall embody the terms and
conditions of such Option and which shall be subject to the express terms and
conditions set forth in the Plan. Such Agreement shall become effective upon
execution by the Company and the Participant. Only a person who is a common-law
employee of the Company, any parent corporation of the Company or a subsidiary
(as such terms are defined in Section 424 of the Code) on the date of grant
shall be eligible to be granted an Option which is intended to be and is an
Incentive Stock Option. To the extent that any Option is not designated as an
Incentive Stock Option or even if so designated does not qualify as an Incentive
Stock Option, it shall constitute a Nonqualified Stock Option.
6.3 Terms and Conditions. Except to the extent determined to be
--------------------
appropriate by the Committee and consented to by the Participant, an Option on
shares of Series A Preferred Stock shall reflect the terms and conditions of the
option granted to the Participant under the LLC Plan and assumed subject to the
terms and conditions of this Plan and an Agreement. Options on shares of Common
Stock and Series B Preferred Stock shall be subject to such terms and conditions
as shall be determined by the committee, including the following:
(a) Option Period. The Option Period of each Option will be fixed
--------------
by the Committee; provided that the Option Period of a Nonqualified Stock Option
shall not
10
<PAGE>
exceed ten (10) years from the date the Option is granted. In the case of an
Incentive Stock Option, the Option Period shall not exceed ten (10) years from
the date of grant or five (5) years in the case of an individual who owns more
than ten percent (10%) of the combined voting power of all classes of stock of
the Company, a corporation which is a parent corporation of the Company or any
subsidiary of the Company (each as defined in Section 424 of the Code). No
Option which is intended to be an Incentive Stock Option shall be granted more
than ten (10) years from the date this Plan is adopted by the Company or the
date this Plan is approved by the shareholders of the Company, whichever is
earlier.
(b) Option Price. The Option Price per share of Common Stock
------------
purchasable under an Option shall be determined by the Committee. If an Option
is intended to qualify as an Incentive Stock Option, the Option Price per share
of Common Stock shall be not less than the Fair Market Value per share of Common
Stock on the date the Option is granted, or where granted to an individual who
owns or who is deemed to own stock possessing more than ten percent (10%) of
the combined voting power of all classes of stock of the Company, a corporation
which is a parent corporation of the Company or any subsidiary of the Company
(each as defined in Section 424 of the Code), not less than one hundred ten
percent (110%) of such Fair Market Value per share.
(c) Exercisability. Subject to Section 7.1, Options shall be
--------------
exercisable at such time or times and subject to such terms and conditions as
shall be determined by the Committee. If the Committee provides that any Option
is exercisable only in installments, the Committee may at any time waive such
installment exercise provisions, in whole or in part. In addition, the Committee
may at any time accelerate the exercisability of any Option. If the Committee
intends that an Option be an Incentive Stock Option, the Committee may, in its
discretion, provide that the aggregate Fair Market Value (determined at the
Grant Date) of an Incentive Stock Option which is exercisable for the first time
during the calendar year shall not exceed $100,000.
(d) Method of Exercise. Subject to the provisions of this
------------------
Article VI, a Participant may exercise Options, in whole or in part, at any time
during the Option Period by the Participant's giving written notice of exercise
on a form provided by the Committee (if available) to the Company specifying the
number of Shares subject to the Option to be purchased. Such notice shall be
accompanied by payment in full of the purchase price by cash or check or such
other form of payment as the Company may accept. If approved by the Committee,
payment in full or in part may also be made (i) by delivering Shares already
owned by the Participant for a period of at least six (6) months prior to
payment having a total Fair Market Value on the date of such delivery equal to
the Option Price; (ii) by the execution and delivery of a note or other full
recourse evidence of indebtedness (and any security agreement thereunder)
satisfactory to the Committee; (iii) by the delivery of cash or the extension of
credit by a broker-dealer to whom the Participant has submitted a notice of
exercise or otherwise indicated an intent to exercise an Option (in accordance
with Part 220, Chapter II, Title 12 of the Code of Federal Regulations, so-
called "cashless" exercise); (iv) by certifying ownership of shares
11
<PAGE>
owned by the Participant to the satisfaction of the Committee for later delivery
to the Company as expected by the Committee and (v) by any combination of the
foregoing. No Shares will be issued until full payment therefor has been made
and the Participant has executed any and all agreements that the Company may
require the Participant to execute. A Participant will have all of the rights of
a shareholder of the Company holding the Shares that are subject to such Option
(including, if applicable, the right to vote the Shares and the right to receive
dividends), when the Participant has given written notice of exercise, has paid
in full for such Shares, executed all relevant agreements, and such Shares have
been recorded on the Company's official records as having been issued and
transferred.
(e) Non-transferability of Options. Except as provided herein or in
------------------------------
an Agreement, no Option or interest therein shall be transferable by the
Participant other than by will or by the laws of descent and distribution or by
a designation of Beneficiary effective upon the death of the Participant, and
all Options shall be exercisable during the Participant's lifetime only by the
Participant or the Participant's Representative. If and to the extent
transferability is permitted by the Committee as provided by an Agreement, the
Option shall be transferable only if such transfer does not result in liability
under Section 16 of the Exchange Act to the Participant or other Participants
and is consistent with registration of the Option and sale of Common Stock on
Form S-8 (or a successor form) or is consistent with the use of Form S-8 (or the
Committee's waiver of such condition) and consistent with an Option's intended
status as an Incentive Stock Option (if applicable).
6.4 Termination by Reason of Death. Unless otherwise provided in an
------------------------------
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Option held by such
Participant shall thereafter be fully exercisable for a period of one (1) year
following the date of the appointment of a Representative (or such other period
or no period as the Committee may specify) or until the expiration of the Option
Period, whichever period is the shorter.
6.5 Termination by Reason of Disability. Unless otherwise provided in an
-----------------------------------
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to a Disability, any unexpired and unexercised Option held by
such Participant shall thereafter be fully exercisable by the Participant for
the period of one (1) year (or such other period or no period as the Committee
may specify) immediately following the date of such Termination of Employment or
until the expiration of the Option Period, whichever period is shorter, and the
Participant's death at any time following such Termination of Employment due to
Disability will not affect the foregoing. In the event of Termination of
Employment by reason of Disability, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, such Option will thereafter be treated as a Nonqualified Stock
Option.
6.6 Other Termination. Unless otherwise provided in an Agreement or
-----------------
determined by the Committee, if a Participant incurs a Termination of Employment
due to Retirement, or the
12
<PAGE>
Termination of Employment is involuntary on the part of the Participant (but is
not due to death or Disability or for Cause), any Option held by such
Participant shall thereupon terminate, except that such Option, to the extent
then exercisable, may be exercised for the lesser of the ninety (90)-day period
commencing with the date of such Termination of Employment or until the
expiration of the Option Period, whichever period is shorter. If the Participant
incurs a Termination of Employment which is either (a) for Cause or (b) a
Voluntary Termination of Employment on the part of the Participant, the Option
will terminate immediately. The death or Disability of a Participant after a
Termination of Employment otherwise provided herein will not extend the time
permitted to exercise an Option.
6.7 Cashing-Out of Options. Unless otherwise provided in the Agreement, on
----------------------
receipt of written notice of exercise, the Committee may elect to cash-out all
or part of the portion of any Option to be exercised by paying the Participant
an amount, in cash or Shares, equal to the excess of (a) the Fair Market Value
of the Shares that are subject to the portion of the Option being cashed-out
over (b) the Option Price, such difference multiplied by (c) the number of
Shares subject to the portion of the Option being cashed out, all as of the
effective date of such cash-out.
ARTICLE VII
-----------
CHANGE IN CONTROL PROVISIONS
----------------------------
7.1 Impact of Event. An Agreement may provide that in the event of a
---------------
Change in Control (as defined in Section 7.2):
(a) Any Options outstanding as of the date of such Change in Control and
not then exercisable shall become fully exercisable to the full extent
of the original grant.
(b) Notwithstanding any other provision of the Plan, unless the Committee
shall provide otherwise in an Agreement, in the event of a Change in
Control, a Participant shall have the right, whether or not the Option
is fully exercisable or may be otherwise realized by the Participant,
by giving notice to the Company during the sixty (60)-day period from
and after a Change in Control, to elect to surrender all or part of
the Option to the Company and to receive cash, within thirty (30) days
of such notice, in an amount equal to the amount by which the "Change
in Control Price" (as defined in Section 7.3) per share of the Shares
on the date of such election shall exceed the amount which the
Participant must pay to exercise the Option per share of Shares under
the Option (the "Spread") multiplied by the number of Shares granted
under the Option. Notwithstanding the foregoing, if any right under
this Section would cause a transaction to be ineligible for pooling of
interest accounting that would but for the right hereunder be eligible
for such accounting treatment, the Committee may modify or adjust the
right so that pooling of interest accounting shall be available,
including the substitution of Shares having a Fair Market Value equal
to the cash otherwise payable hereunder for the right which caused the
transaction to be ineligible for pooling of interest accounting.
13
<PAGE>
7.2 Definition of Change in Control. For purposes of this Plan, unless
-------------------------------
otherwise specified in the Agreement with respect to the corresponding Option, a
"Change In Control" shall be deemed to have occurred if (a) any corporation,
person or other entity (other than the Company, a majority-owned subsidiary of
the Company or any of its subsidiaries, or an employee benefit plan (or related
trust) sponsored or maintained by the Company or an Affiliate), including a
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended, becomes the beneficial owner of Shares representing more than fifty
percent of the combined voting power of the Company's then outstanding
securities; (b)(i) the Company approves, in any transaction or series of related
transactions, a definitive agreement to merge or consolidate the Company with or
into another entity other than a majority-owned subsidiary of the Company, or
to sell or otherwise dispose of all or substantially all of the Company's
assets, and (ii) the persons who were the members of the Board of Directors
prior to such approval do not represent a majority of the Board of Directors of
the surviving, resulting or acquiring entity or the parent thereof; or (c) the
shareholders of the Company approve a plan of liquidation of the Company.
7.3 Change in Control Price. For purposes of the Plan, unless otherwise
-----------------------
specified in the Agreement with respect to the corresponding Option, "Change in
Control Price" means the higher of (a) the highest reported sales price of a
Share in any transaction reported on the principal exchange on which such Shares
are listed or on NASDAQ during the sixty (60)-day period prior to and including
the date of a Change in Control or (b) if the Change in Control is the result of
a tender or exchange offer, merger, consolidation, liquidation or sale of all or
substantially all of the assets of the Company (in each case a "Transaction"),
the highest price per Share paid in such Transaction. To the extent that the
consideration paid in any Transaction consists all or in part of securities or
other non-cash consideration, the value of such securities or other non-cash
consideration shall be determined in the sole discretion of the Committee.
ARTICLE VIII
------------
MISCELLANEOUS
-------------
8.1 Amendments and Termination. The Board may amend, alter or discontinue
----------------------------
the Plan at any time, but no amendment, alteration or discontinuation shall be
made which would impair the rights of a Participant under an Option theretofore
granted without the Participant's consent, except such an amendment (a) made to
avoid an expense charge to the Company or an Affiliate, (b) made to cause the
Plan to qualify for the exemption provided by Rule 16b-3 or (c) made to permit
the Company or an Affiliate a deduction under the Code. In addition, no such
amendment shall be made without the approval of the Company's shareholders to
the extent such approval is required by law or agreement.
The Committee may amend, alter or discontinue the Plan or an Option at any
time on the same conditions and limitations (and exceptions to limitations) as
apply to the Board's authority to amend the Plan and further subject to any
approval or limitations the Board may impose.
14
<PAGE>
Notwithstanding anything in the Plan to the contrary, if any right under
this Plan would cause a transaction to be ineligible for pooling of interest
accounting that would, but for the right hereunder, be eligible for such
accounting treatment, the Committee may modify or adjust the right so that
pooling of interest accounting shall be available, including the substitution of
equity interests having a Fair Market Value equal to the cash otherwise payable
hereunder for the right which caused the transaction to be ineligible for
pooling of interest accounting.
8.2 Unfunded Status of Plan. It is intended that the Plan be an "unfunded"
-----------------------
plan for incentive and deferred compensation. The Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Shares or make payments; provided, however, that, unless the
Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
8.3 Limits on Transferability. Unless otherwise provided in this Plan or
-------------------------
in an Agreement, no Option shall be subject to the claims of Participant's
creditors and no Option may be sold, transferred, assigned, alienated,
encumbered, hypothecated, gifted, conveyed, pledged or disposed of in any way
other than by will or the laws of descent and distribution or to a
Representative upon the death of the Participant.
8.4 Status of Options Under Code Section 162(m). It is the intent of the
-------------------------------------------
Company that Options granted to persons who are Covered Employees within the
meaning of Code Section 162(m) shall constitute "qualified performance-based
compensation" satisfying the requirements of Code Section 162(m). Accordingly,
the provisions of the Plan shall be interpreted in a manner consistent with Code
Section 162(m). If any provision of the Plan or any agreement relating to such
an Option does not comply or is inconsistent with the requirements of Code
Section 162(m), such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements.
8.5 General Provisions.
------------------
(a) Representation. The Committee may require each person purchasing
--------------
or receiving shares pursuant to an Option to represent to and agree with
the Company in writing that such person is acquiring the shares without a
view to the distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
(b) No Additional Obligation. Nothing contained in the Plan shall
------------------------
prevent the Company or an Affiliate from adopting other or additional
compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount first
-----------
becomes includable in the gross income of the Participant for income tax
purposes with respect to any Option, the Participant shall pay to the
Company (or other entity identified by the Committee), or make arrangements
satisfactory to the Company or other entity identified by the Committee
regarding the payment of, any Federal, state, local or foreign taxes of
15
<PAGE>
any kind required by law to be withheld with respect to such amount
required in order for the Company or an Affiliate to obtain a current
deduction. Unless otherwise determined by the Committee, withholding
obligations may be settled with Shares, including Shares that are part of
the Option that gives rise to the withholding requirement, provided that
any applicable requirements under Section 16 of the Exchange Act are
satisfied. The obligations of the Company under the Plan will be
conditional on such payment or arrangements, and the Company and its
Affiliates will, to the extent permitted by law, have the right to deduct
any such taxes from any payment otherwise due to the Participant. If the
Participant disposes of shares of Common Stock acquired pursuant to an
Incentive Stock Option in any transaction considered to be a disqualifying
transaction under the Code, the Participant must give written notice of
such transfer and the Company shall have the right to deduct any taxes
required by law to be withheld from any amounts otherwise payable to the
Participant. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements, and the Company and its
Affiliates shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment otherwise due to the Participant.
(d) Representative. The Committee shall establish such procedures
--------------
as it deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are to be
paid.
(e) Controlling Law. The Plan and all Options made and actions taken
---------------
thereunder will be governed by and construed in accordance with the laws of
the State of Illinois (other than its law respecting choice of law). The
Plan shall be construed to comply with all applicable law and to avoid
liability to the Company, an Affiliate or a Participant or loss of a
deduction, including, without limitation, liability under Section 16(b) of
the Exchange Act.
(f) Offset. Any amounts owed to the Company or an Affiliate by the
------
Participant of whatever nature may be offset by the Company from the value
of any Shares, cash or other thing of value under this Plan or an Agreement
to be transferred to the Participant, and no Shares, cash or other thing of
value under this Plan or an Agreement shall be transferred unless and until
all disputes between the Company and the Participant have been fully and
finally resolved and the Participant has waived all claims to such against
the Company or an Affiliate.
(g) No Rights with Respect to Continuance of Employment. Nothing
---------------------------------------------------
contained herein shall be deemed to alter the relationship between the
Company or an Affiliate and a Participant, or the contractual relationship
between a Participant and the Company or an Affiliate if there is a written
contract regarding such relationship. Nothing contained herein shall be
construed to constitute a contract of employment between the Company or an
Affiliate and a Participant. The Company or an Affiliate and each of the
Participants continue to have the right to terminate the employment or
service relationship at any time for any reason, except as provided in a
written contract. The Company or an Affiliate shall have no obligation to
retain the Participant in its employ or
16
<PAGE>
service as a result of this Plan. There shall be no inference as to the
length of employment or service hereby, and the Company or an Affiliate
reserves the same rights to terminate the Participant's employment or
service as existed prior to the individual's becoming a Participant in this
Plan.
(h) Fail-Safe. With respect to persons subject to Section 16 of the
---------
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3, as applicable. To the extent any
provision of the Plan or action by the Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee. Moreover, in the event the Plan does not
include a provision required by Rule 16b-3 to be stated herein, such
provision (other than one relating to eligibility requirements or the
price and amount of Options) shall be deemed to be incorporated by
reference into the Plan with respect to Participants subject to Section 16.
(i) Right to Capitalize. The grant of an Option shall in no way
-------------------
affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge,
consolidation, dissolve, liquidate or sell or transfer all or any part of
its business or assets.
8.6 Mitigation of Excise Tax. Subject to any agreement with a Participant,
------------------------
any payment or right accruing to a Participant under this Plan (without the
application of this Section 8.6), either alone or together with other payments
or rights accruing to the Participant from the Company or an Affiliate ("Total
Payments") would constitute a "parachute payment" (as defined in Section 280G of
the Code and regulations thereunder), such payment or right shall be reduced to
the largest amount or greatest right that will result in no portion of the
amount payable or right accruing under the Plan being subject to an excise tax
under Section 4999 of the Code or being disallowed as a deduction under Section
280G of the Code. The determination of whether any reduction in the rights or
payments under this Plan is to apply shall be made by the Committee in good
faith after consultation with the Participant, and such determination will be
conclusive and binding on the Participant. The Participant shall cooperate in
good faith with the Committee in making such determination and providing the
necessary information for this purpose. The provisions of this Section 8.6 shall
apply with respect to any Participant only if, after reduction for any
applicable federal excise tax imposed by Section 4999 of the Code and other
federal income tax imposed by the Code, the Total Payments accruing to such
Participant would be less than the amount of the Total Payments as reduced (i)
if applicable, pursuant to the provisions of this Section 8.6 to mitigate the
applicable federal excise tax, and (ii) by federal income taxes (other than
such excise tax).
8.7 Options in Substitution for Options Granted by Other Entities. Options
-------------------------------------------------------------
may be granted under the Plan from time to time in substitution for options held
by employees, directors or service providers of other entities who are about to
become officers, directors, shareholders or employees of the Company or an
Affiliate. The terms and conditions of the Options so granted may vary from the
terms and conditions set forth in this Plan at the time of such grant as the
17
<PAGE>
majority of the shareholders of the Committee may deem appropriate to conform,
in whole or in part, to the provisions of the Options in substitution for which
they are granted.
8.8 Procedure for Adoption. Any Affiliate of the Company may by resolution
----------------------
of such Affiliate's board of directors with the consent of the Board of
Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt the Plan for the benefit of its employees as of the date
specified in the resolution.
8.9 Procedure for Withdrawal. Any Affiliate which has adopted the Plan
------------------------
may, by resolution of the board of directors of such Affiliate, with the consent
of the Board of Directors and subject to such conditions as may be imposed by
the Board of Directors, terminate its adoption of the Plan.
8.10 Delay. If at the time a Participant incurs a Termination of Employment
-----
(other than due to Cause) or if at the time of a Change in Control, the
Participant is subject to "short swing" liability under Section 16 of the
Exchange Act, any time period provided for under the Plan or an Agreement to the
extent necessary to avoid the imposition of liability will be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six months and one day and not to exceed the Option Period.
The Company shall have the right to suspend or delay any time period described
in the Plan or an Agreement if the Committee shall determine that the action may
constitute a violation of any law or result in liability under any law to the
Company, an Affiliate or a shareholder in the Company until such time as the
action required or permitted will not constitute a violation of law or result in
liability to the Company, an Affiliate or a shareholder of the Company. The
Committee shall have the discretion to suspend the application of the provisions
of the Plan required solely to comply with Rule 16b-3 if the Committee
determines that Rule 16b-3 does not apply to the Plan.
8.11 Headings. The headings contained in this Plan are for reference
--------
purposes only and shall not affect the meaning or interpretation of this Plan.
8.12 Severability. If any provision of this Plan is for any reason held to
------------
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Plan, and this Plan will be construed as if
such invalid or unenforceable provision were omitted.
8.13 Successors and Assigns. This Plan shall inure to the benefit of and be
----------------------
binding upon each successor and assign of the Company. All obligations imposed
upon a Participant, and all rights granted to the Company hereunder, shall be
binding upon the Participant's heirs, legal representatives and successors.
8.14 Entire Agreement. This Plan and the Agreement constitute the entire
----------------
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of this Plan shall control.
18
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I ESTABLISHMENT............................................................. 2
- --------- -------------
ARTICLE II DEFINITIONS............................................................... 2
- ---------- -----------
ARTICLE III ADMINISTRATION............................................................ 6
- ----------- --------------
ARTICLE IV SHARES SUBJECT TO PLAN.................................................... 8
- ---------- ----------------------
4.1 Number of Shares..................................................... 8
----------------
4.2 Release of Shares.................................................... 8
-----------------
4.3 Restrictions on Shares............................................... 8
----------------------
4.4 Shareholder Rights................................................... 9
------------------
4.5 Anti-Dilution........................................................ 9
-------------
ARTICLE V ELIGIBILITY............................................................... 9
- --------- -----------
5.1 Eligibility.......................................................... 9
-----------
ARTICLE VI OPTIONS................................................................... 10
- ---------- -------
6.1 General.............................................................. 10
-------
6.2 Grant................................................................ 10
-----
6.3 Terms and Conditions................................................. 10
--------------------
6.4 Termination by Reason of Death....................................... 12
------------------------------
6.5 Termination by Reason of Disability.................................. 12
-----------------------------------
6.6 Other Termination.................................................... 12
-----------------
6.7 Cashing-Out of Options............................................... 13
----------------------
ARTICLE VII CHANGE IN CONTROL PROVISIONS.............................................. 13
- ----------- ----------------------------
7.1 Impact of Event...................................................... 13
---------------
7.2 Definition of Change in Control...................................... 14
-------------------------------
7.3 Change in Control Price.............................................. 14
-----------------------
ARTICLE VIII MISCELLANEOUS............................................................. 14
- ------------ -------------
8.1 Amendments and Termination........................................... 14
--------------------------
8.2 Unfunded Status of Plan.............................................. 15
-----------------------
8.3 Limits on Transferability............................................ 15
-------------------------
8.4 Status of Options Under Code Section 162(m).......................... 15
-------------------------------------------
8.5 General Provisions................................................... 15
------------------
8.6 Mitigation of Excise Tax............................................. 17
------------------------
8.7 Options in Substitution for Options Granted by Other Entities........ 17
-------------------------------------------------------------
8.8 Procedure for Adoption............................................... 18
----------------------
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
8.9 Procedure for Withdrawal.............................................. 18
------------------------
8.10 Delay................................................................. 18
-----
8.11 Headings.............................................................. 18
--------
8.12 Severability.......................................................... 18
------------
8.13 Successors and Assigns................................................ 18
----------------------
8.14 Entire Agreement...................................................... 18
----------------
</TABLE>
ii
<PAGE>
NOVAMED EYECARE, INC.
1999 STOCK PURCHASE PLAN
(ADOPTED EFFECTIVE _______________, 1999)
<PAGE>
NOVAMED EYECARE, INC.
1999 STOCK PURCHASE PLAN
(ADOPTED EFFECTIVE _______________, 1999)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
- ---------
ESTABLISHMENT AND PURPOSE................................................... - 1 -
-------------------------
1.1 Purpose................................................................ - 1 -
-------
ARTICLE II
DEFINITIONS................................................................. - 1 -
-----------
2.1 "Account............................................................... - 1 -
-------
2.2 "Agreement" or "Option Agreement....................................... - 1 -
--------- ----------------
2.3 "Board of Directors" or "Board......................................... - 1 -
------------------ -----
2.4 "Code" or "Internal Revenue Code....................................... - 2 -
---- ---------------------
2.5 "Committee............................................................. - 2 -
---------
2.6 "Common Stock.......................................................... - 2 -
------------
2.7 "Company............................................................... - 2 -
-------
2.8 "Continuous Service.................................................... - 2 -
------------------
2.9 "Contribution Rate..................................................... - 2 -
-----------------
2.10 "Disability............................................................ - 2 -
----------
2.11 "Eligible Employee..................................................... - 2 -
-----------------
2.12 "ERISA................................................................. - 3 -
-----
2.13 "Exercise Date......................................................... - 3 -
-------------
2.14 "Exchange Act.......................................................... - 3 -
------------
2.15 "Fair Market Value..................................................... - 3 -
-----------------
2.16 "Grant Date............................................................ - 3 -
----------
2.17 "Option................................................................ - 3 -
------
2.18 "Option Period......................................................... - 3 -
-------------
2.19 "Option Price.......................................................... - 4 -
------------
2.20 "Participant........................................................... - 4 -
-----------
2.21 "Plan.................................................................. - 4 -
----
2.22 "Plan Year............................................................. - 4 -
---------
2.23 "Representative........................................................ - 4 -
--------------
2.24 "Retirement............................................................ - 4 -
----------
2.25 "Securities Act........................................................ - 4 -
--------------
2.26 "Subsidiary............................................................ - 4 -
----------
2.27 "Termination of Employment............................................. - 4 -
-------------------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE III
ADMINISTRATION.............................................................. - 5 -
--------------
3.1 Committee Structure and Authority...................................... - 5 -
---------------------------------
ARTICLE IV
STOCK PROVISIONS............................................................ - 7 -
----------------
4.1 Number of Shares Subject to the Plan................................... - 7 -
------------------------------------
4.2 Release of Shares...................................................... - 7 -
-----------------
4.3 Restrictions on Shares................................................. - 8 -
----------------------
4.4 Stockholder Rights..................................................... - 8 -
------------------
4.5 Stock Valuation........................................................ - 8 -
---------------
4.6 Custodian.............................................................. - 9 -
---------
ARTICLE V
ELIGIBILITY; OPTION PROVISIONS.............................................. - 9 -
------------------------------
5.1 Eligibility............................................................ - 9 -
-----------
5.2 Grant of Options....................................................... - 9 -
----------------
5.3 Option Period.......................................................... - 10 -
-------------
5.4 Option Price........................................................... - 10 -
------------
5.5 Contribution Rate...................................................... - 10 -
-----------------
5.6 Purchase of Shares..................................................... - 11 -
------------------
5.7 Cancellation of Options................................................ - 11 -
-----------------------
5.8 Terminated Employees................................................... - 11 -
--------------------
5.9 Deceased Employees..................................................... - 12 -
------------------
5.10 Disabled or Retired Employees.......................................... - 12 -
-----------------------------
5.11 Limitations............................................................ - 12 -
-----------
5.12 Nonassignability....................................................... - 12 -
----------------
ARTICLE VI
GENERAL PROVISIONS APPLICABLE TO THE PLAN................................... - 13 -
6.1 Termination of Plan.................................................... - 13 -
-------------------
6.2 Investment Representation.............................................. - 13 -
-------------------------
6.3 Effect of Certain Changes.............................................. - 13 -
-------------------------
6.4 Withholding............................................................ - 16 -
-----------
6.5 No Company Obligation.................................................. - 17 -
---------------------
6.6 Committee Discretion................................................... - 17 -
--------------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII
MISCELLANEOUS............................................................. - 17 -
-------------
7.1 Indemnification of the Board and Committee........................... - 17 -
------------------------------------------
7.2 Mitigation of Excise Tax............................................. - 18 -
------------------------
7.3 Interpretation....................................................... - 18 -
--------------
7.4 Governing Law........................................................ - 18 -
-------------
7.5 Limitations on Liability............................................. - 18 -
------------------------
7.6 Validity............................................................. - 18 -
--------
7.7 Assignment........................................................... - 18 -
----------
7.8 Captions............................................................. - 18 -
--------
7.9 Amendments........................................................... - 19 -
----------
7.10 Entire Agreement..................................................... - 19 -
----------------
7.11 Rights with Respect to Continuance of Employment..................... - 19 -
------------------------------------------------
7.12 Options for Shares in Substitution for Stock Options Granted by Other
--------------------------------------------------------------------
Corporations......................................................... - 19 -
------------
7.13 Procedure for Adoption............................................... - 19 -
----------------------
7.14 Procedure for Withdrawal............................................. - 19 -
------------------------
7.15 Expenses............................................................. - 20 -
--------
</TABLE>
-iii-
<PAGE>
NOVAMED EYECARE, INC.
1999 STOCK PURCHASE PLAN
(Adopted Effective_______________, 1999)
ARTICLE I
---------
ESTABLISHMENT AND PURPOSE
-------------------------
1.1 Purpose. The NovaMed Eyecare, Inc. 1999 Stock Purchase Plan (the
-------
"Plan") is hereby established effective ______________, 1999 by NovaMed Eyecare,
Inc. The adoption of the Plan is expressly conditioned upon the Plan's approval
by the stockholders of NovaMed Eyecare, Inc. within twelve (12) months after the
date the Plan is adopted. The purpose of the Plan is to promote the overall
financial objectives of the Company and its stockholders by motivating
participants in the Plan to achieve long-term growth in stockholder equity in
the Company. The Plan is intended as an "employee stock purchase plan" within
the meaning of Section 423 of the Code, and Options granted hereunder are
intended to constitute options granted under such a plan, and the Plan document
and all actions taken in connection with the Plan shall be constructed
consistently with such intent.
ARTICLE II
-----------
DEFINITIONS
-----------
The following sections of this Article II provide basic definitions of
terms used throughout the Plan, and whenever used therein in the capitalized
form, except as otherwise expressly provided, the terms shall be deemed to have
the following meanings:
2.1 "Account" shall mean the bookkeeping account established on behalf of
-------
a Participant to which shall be credited all contributions paid for the purpose
of purchasing Common Stock under the Plan, and to which shall be charged all
purchases of Common Stock pursuant to the Plan. The Company shall have custody
of such Account.
2.2 "Agreement" or "Option Agreement" means, individually or collectively,
--------- ----------------
any enrollment and withholding agreement entered into pursuant to the Plan. An
Agreement shall be the right of the Company to withhold from payroll amounts to
be applied to purchase Common Stock.
2.3 "Board of Directors" or "Board" means the Board of Directors of the
------------------ -----
Company.
<PAGE>
2.4 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
---- ---------------------
1986, as amended, and any subsequent Internal Revenue Code. If there is a
subsequent Internal Revenue Code, any references herein to Internal Revenue Code
sections shall be deemed to refer to comparable sections of any subsequent
Internal Revenue Code.
2.5 "Committee" means the person or persons appointed by the Board of
---------
Directors to administer the Plan, as further described in the Plan.
2.6 "Common Stock" means the shares of the Common Stock of the Company,
------------
$1.00 par value per share, whether presently or hereafter issued, and any other
stock or security resulting from adjustment thereof as described in Section 6.3.
2.7 "Company" means NovaMed Eyecare, Inc. and includes any successor or
-------
assignee corporation or corporations into which the Company may be merged,
changed or consolidated; any corporation for whose securities the securities of
the Company shall be exchanged; and any assignee of or successor to
substantially all of the assets of the Company.
2.8 "Continuous Service" shall mean, subject to modification by the
------------------
Committee, an Eligible Employee's number of full years and completed months of
continuous employment with the Company or a Subsidiary from his last hiring date
to his date of Termination of Employment for any reason. The Committee may
provide rules from time to time regarding the calculation of Continuous Service
and the method for crediting such service.
2.9 "Contribution Rate" means the rate determined under Section 5.5
-----------------
2.10 "Disability" means a mental or physical illness that entitles the
----------
Participant to receive benefits under the long-term disability plan of the
Company or a Subsidiary, or if the Participant is not covered by such plan, a
mental or physical illness that renders a Participant permanently and totally
incapable of performing his duties as an employee of the Company or a
Subsidiary. Notwithstanding the foregoing, a Disability shall not qualify under
this Plan if it is the result of (a) a willfully self-inflicted injury or
willfully self-induced sickness; or (b) an injury or disease contracted,
suffered, or incurred, while participating in a criminal offense. The
determination of Disability shall be made by the Committee. The determination
of Disability for purposes of this Plan shall not be construed to be an
admission of disability for any other purpose.
2.11 "Eligible Employee" means each employee of the Company or a
-----------------
Subsidiary (if the Subsidiary has adopted the Plan) on a Grant Date except that
the Committee in its sole discretion may exclude:
(a) any employee who has accrued less than a minimum period of Continuous
Service established by the Committee (but not to exceed 2 years).
(b) any employee whose customary employment is 20 hours or less per week;
-2-
<PAGE>
(c) any employee whose customary employment is for not more than 5
months in any calendar year;
(d) any employee who would directly or indirectly own or hold (applying
the rules of Section 424(d) of the Code to determine stock ownership)
immediately following the grant of an Option hereunder an aggregate of five
percent (5%) or more of the total combined voting power or value of all
outstanding shares of all classes of stock of the Company or any Subsidiary; and
(e) any employee who is a highly compensated employee of the Company or
Subsidiary within the meaning of Section 414(q) of the Code.
Any period of service described in the preceding sentence may be decreased in
the discretion of the Committee.
2.12 "ERISA" means the Employee Retirement Income Security Act of 1974,
-----
as amended.
2.13 "Exercise Date" means such one or more dates determined by the
-------------
Committee on which the accumulated value of the Account shall be applied to
purchase Common Stock. The Committee may accelerate an Exercise Date in order
to satisfy the employment period requirement of Section 423(a)(2).
2.14 "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations promulgated thereunder.
2.15 "Fair Market Value" means the value determined on the basis of the
-----------------
good faith determination of the Committee pursuant to the applicable method
described in Section 4.5 and as adjusted, averaged or otherwise modified by the
Committee.
2.16 "Grant Date" means the date or dates established by the Committee
----------
on which one or more Options are granted pursuant to the Plan. The Committee
may determine for any Plan Year that there shall be no Grant Date, in which case
no Options shall be granted for that Plan Year. The terms and conditions of any
Option granted on a particular Grant Date shall be independent of and have no
effect on the terms and conditions of any Option granted on another Grant Date.
2.17 "Option" means the right to purchase Common Stock pursuant to the
------
Plan and any Agreement.
2.18 "Option Period" means the period beginning on the Grant Date and
-------------
expiring on the Exercise Date as determined by the Committee, subject to the
limitations of Section 5.3.
-3-
<PAGE>
2.19 "Option Price" means the price at which the Company's Common
------------
Stock granted as of a specific Grant Date may be purchased under an Option. The
price shall be subject to the limitation set forth in Section 5.4.
2.20 "Participant" means an Eligible Employee who satisfies the
-----------
eligibility conditions of the Plan and to whom an Option has been granted by the
Committee under the Plan, and in the event a Representative is appointed for a
Participant, then the term "Participant" shall mean such appointed
Representative, or successor Representative(s) appointed, as the case may be,
provided that "Termination of Employment" shall mean the Termination of
Employment of the Participant.
2.21 "Plan" means the NovaMed Eyecare, Inc. 1999 Stock Purchase Plan,
----
as herein set forth and as may be amended from time to time.
2.22 "Plan Year" means, for the first Plan Year, the period starting
---------
on the effective Date of the Plan, and ending on December 31, 1999; and for all
subsequent Plan Years, the twelve (12) consecutive month period starting on
January 1 and ending on the following December 31. The Committee may at any
time in its discretion designate another period as the Plan Year.
2.23 "Representative" means (a) the person or entity acting as the
--------------
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had his primary residence at the date of the Participant's
death; (b) the person or entity acting as the guardian or temporary guardian of
a Participant's estate; or (c) the person or entity which is the beneficiary of
the Participant upon or following the Participant's death. A Participant may
file a written designation of his Representative with the Committee. Such
designation of his Representative may be changed by the Participant at any time
by written notice given in accordance with rules and procedures established by
the Committee.
2.24 "Retirement" means the Participant's Termination of Employment
----------
after attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or a Subsidiary, if the Participant is covered by such plan, and if
the Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
2.25 "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, and the rules and regulations promulgated pursuant thereto.
2.26 "Subsidiary" means any corporation, as currently defined in
----------
Section 424(f) of the Code. Unless otherwise indicated the term "Company" shall
hereinafter be deemed to include all Subsidiaries of the Company which have
adopted the Plan.
2.27 "Termination of Employment" means the latest date on which a
-------------------------
person ceases, for whatever reason, to be an employee of the Company or a
Subsidiary. For determining whether
-4-
<PAGE>
and when a Participant has incurred a Termination of Employment for cause,
"cause" shall mean any act or omission which permits the Company or a Subsidiary
to terminate the employment agreement or arrangement between the Participant and
the Company or a Subsidiary for cause as defined in such agreement or
arrangement, or in the event there is no such employment agreement or
arrangement or the agreement or arrangement does not define the term "cause,"
then "cause" shall mean (a) any act or omission which the Company or a
Subsidiary believes is of a criminal nature, and the result of which the Company
or a Subsidiary believes is detrimental to the interests of the Company or a
Subsidiary; (b) the material breach of a fiduciary duty owing to the Company or
a Subsidiary, including without limitation, fraud and embezzlement; or (c)
conduct or the omission of conduct on the part of the Participant which
constitutes a material breach of any statutory or common-law duty of loyalty to
the Company or a Subsidiary.
ARTICLE III
-----------
ADMINISTRATION
--------------
3.1 Committee Structure and Authority. The Plan shall be administered by
---------------------------------
the Committee. The Committee shall be comprised of two or more disinterested
members of the Board of Directors selected by the Board. A majority of the
Committee shall constitute a quorum at any meeting thereof (including telephone
conference) and the acts of a majority of the members present, or acts
unanimously approved in writing by the entire Committee without a meeting, shall
be the acts of the Committee. A person shall be considered disinterested for
this purpose only if, at the time he exercises discretion in administering the
Plan, he is a "disinterested person" within the meaning of Rule 16b-3 under the
Exchange Act. The Board shall have the authority to remove, replace or fill any
vacancy of any member of the Committee upon notice to the Committee and the
affected member. Any member of the Committee may resign upon notice to the
President of the Company or to the Board. The Committee may allocate among one
or more of its members, or may delegate to one or more of its agents, such
duties and responsibilities as it determines. Subject to the provisions of this
Plan, the Committee shall have full and final authority in its discretion to:
(a) determine from time to time whether a person is an Eligible
Employee as of any Grant Date;
(b) determine the Option Price;
(c) determine the number of shares of Common Stock available as
of any Grant Date or subject to each Option;
(d) determine any Grant Date, Exercise Date and Option Period,
and provide for all aspects of payroll deduction, suspension or withdrawal;
-5-
<PAGE>
(e) determine, subject to the Plan, the time or times and the
manner when each Option shall be exercisable and the duration of the Option
Period;
(f) provide for the acceleration of the right to exercise an
Option (or portion thereof);
(g) prescribe additional terms, conditions and restrictions in
the Agreement and to provide for the forms of Agreement to be utilized in
connection with this Plan;
(h) determine whether a Participant has incurred a Disability;
(i) determine what securities laws requirements are applicable
to the Plan, Options, and the issuance of shares of Common Stock hereunder
and request of a Participant that appropriate action be taken;
(j) cancel, with the consent of the holder or as otherwise
provided in the Plan or an Agreement, outstanding Options;
(k) require as a condition of the exercise of an Option or the
issuance or transfer of a certificate of Common Stock, the withholding
from a Participant of the amount of any federal, state or local taxes as
may be necessary in order for the Company or Subsidiary to obtain a
deduction and as may be otherwise required by law;
(l) determine whether and for what reason an individual has
incurred a Termination of Employment or an authorized leave of absence;
(m) treat all or any portion of any period during which a
Participant is on an approved leave of absence as a period of employment
for purposes of accrual of his rights under an Option;
(n) determine whether the Company or any other person has a
right or obligation to purchase Common Stock from a Participant and, if so,
the terms and conditions on which such Common Stock is to be purchased;
(o) determine the restrictions or limitations on the transfer of
Common Stock issued upon exercise of an Option;
(p) determine whether an Option is to be adjusted, modified or
purchased, or become fully exercisable, under Section 6.3 of the Plan or
the terms of an Agreement;
-6-
<PAGE>
(q) adopt, amend and rescind such rules and regulations as, in
its opinion, may be advisable in the administration of this Plan;
(r) appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties;
(s) correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Agreement relating to an Option, in
such manner and to the extent the Committee shall determine in order to
carry out the purposes of the Plan; and
(t) construe and interpret this Plan, any Agreement, and take
all other actions, and make all other determinations and take all other
actions deemed necessary or advisable for the administration of this Plan.
In the absence of the appointment of a Committee, the two or more members
of the Board who have served the longest period of time as members of the Board
and who are disinterested persons within the meaning of Rule 16b-3 of the
Exchange Act shall be the Committee. No member of the Committee, while serving
as such, shall be eligible to receive any Option hereunder, although membership
on the Committee shall not affect or impair any such member's rights under any
Option granted to him at a time when he was not a member of the Committee. A
member of the Committee shall not exercise any discretion respecting himself
under the Plan.
ARTICLE IV
----------
STOCK PROVISIONS
----------------
4.1 Number of Shares Subject to the Plan. The stock subject to the
------------------------------------
Options granted under this Plan shall be the Company's Common Stock. Unless
otherwise amended by the Board and approved by the stockholders of the Company
to the extent required by law, a maximum number of [400,000] shares of Common
Stock of the Company (or such number as may result following any adjustment
pursuant to Section 6.3) shall be reserved and available for Options granted
under the Plan. The shares issued with respect to Options under the Plan may be
authorized and unissued shares, or shares issued and reacquired by the Company.
4.2 Release of Shares. If any shares of Common Stock available for
-----------------
subscription are unsubscribed, or if any Option granted hereunder shall be
canceled, forfeited, expire or terminate for any reason without having been
exercised or realized in full, any shares of Common Stock subject to
subscription or subject to such Option shall again be available and may
thereafter be granted or otherwise applied under this Plan.
-7-
<PAGE>
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise
----------------------
of an Option shall be subject to the terms and conditions specified herein and
to such other terms, conditions and restrictions as the Committee in its
discretion may determine or provide in the Agreement. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock prior
to (1) the listing of such shares on any stock exchange (or other public market)
on which the Common Stock may then be listed (or regularly traded), (2) the
completion of any registration or qualification of such shares under federal or
state law, or any ruling or regulation of any governmental body which the
Committee, in its sole discretion, determines to be necessary or advisable, and
(3) the tendering to the Company of such documents and/or payments as the
Committee may deem necessary, including documents the Committee deems necessary
to satisfy any applicable withholding obligation in order for the Company or
another entity to obtain a deduction on its federal, state or local tax return
with respect to the exercise of an Option. The Company may cause any
certificate for any share of Common Stock to be delivered to be properly marked
with a legend or other notation reflecting the limitations on transfer of such
Common Stock as provided in this Plan or as the Committee may otherwise require.
The Company has no obligation to register shares of Common Stock issued pursuant
to the Plan. Fractional shares shall not be delivered, but shall be rounded to
the next lower whole number of shares.
4.4 Stockholder Rights. No person shall have any rights of a stockholder
------------------
as to shares of Common Stock subject to an Option until, after proper exercise
of the Option or other action required, such shares shall have been recorded on
the Company's official stockholder records as having been issued or transferred.
No adjustment shall be made for cash dividends or other rights for which the
record date is prior to the date such shares are recorded as issued or
transferred in the Company's official stockholder records, except as provided in
Section 6.3.
4.5 Stock Valuation. If and when the value of Common Stock shall be
---------------
required to be determined, it shall be determined in accordance with the
following provisions by the Committee, as applicable:
(a) if the Common Stock is listed on a national securities exchange
or on the Nasdaq National Market ("NNM") the closing price of the Common
Stock on the relevant date, as reported on the composite tape or by NNM, as
the case may be;
(b) if the Common Stock is not listed on a national securities
exchange or quoted on NNM, but is traded in the over-the-counter market,
the average of the closing bid and asked prices for the Common Stock on the
relevant date, or the most recent preceding day for which such quotations
are reported by [NNM]; and
(c) if, on the relevant date, the Common Stock is not publicly
traded or reported as described in (i) or (ii), on the basis of the good
faith determination of the Committee.
-8-
<PAGE>
4.6 Custodian. Shares of Common Stock purchased pursuant to the Plan may
---------
be delivered to and held in the custody of such investment or financial firm as
shall be appointed by the Committee. The custodian may hold in nominee or
street name certificates for shares purchased pursuant to the Plan, and may
commingle shares in its custody pursuant to the Plan in a single account without
identification as to individual Participants. By appropriate instructions to
the custodian on forms to be provided for the purpose, a Participant may from
time to time obtain (a) transfer into the Participant's own name or into the
name of the Participant and another individual as joint tenants with the right
of survivorship of all or part of the whole shares held by the custodian for the
Participant's account and delivery of such shares to the Participant; (b)
transfer of all or part of the whole shares held for the Participant's account
by the custodian to a regular individual brokerage account in the Participant's
own name or in the name of the Participant and another individual as joint
tenants with the right of survivorship, either with the firm then acting as
custodian or with another firm, or (c) sale of all or part of the whole shares
held by the custodian for the Participant's account at the market price at the
time the order is executed and remittance of the net proceeds of the sale to the
Participant. Upon termination of participation in the Plan, and upon receipt of
instructions from the Participant, the shares held by the custodian for the
account of the Participant will be transferred and delivered to the Participant
in accordance with (a) above, transferred to a brokerage account in accordance
with (b), or sold in accordance with (c), above.
ARTICLE V
---------
ELIGIBILITY; OPTION PROVISIONS
------------------------------
5.1 Eligibility. Except as herein provided, the persons who shall be
------------
eligible to participate in the Plan as of any Grant Date shall be those persons
(and only those persons) who are Eligible Employees of the Company (including a
Subsidiary that has adopted the Plan) on a Grant Date. Employees of any entity
related to the Company other than a corporation shall not be eligible to
participate in the Plan.
5.2 Grant of Options. The Committee shall have authority to grant
----------------
Options under the Plan at any time or from time to time to all Eligible
Employees as of a Grant Date. (To the extent an Option is granted to any
Eligible Employee of an entity on a relevant date, all Eligible Employees of the
entity shall be granted an Option to the extent required by law.) An Option
shall entitle the Participant to receive shares of Common Stock at the
conclusion of the Option Period, subject to the Participant's satisfaction in
full of any conditions, restrictions or limitations imposed in accordance with
the Plan or an Agreement, including without limitation, payment of the Option
Price. Each Option granted under this Plan shall be evidenced by an Agreement,
in a form approved by the Committee, which shall embody the terms and conditions
of such Option and which shall be subject to the express terms and conditions
set forth in this Plan and to such other terms and conditions as the Committee
may deem appropriate. The grant and exercise of Options hereunder shall be
subject to all applicable federal, state and local laws, rules and
-9-
<PAGE>
regulations and to such approvals by any governmental or regulatory agency as
may be required. As of any Grant Date, each Eligible Employee shall be granted
Options with the same rights and privileges as any other Eligible Employee on
that Grant Date, except the amount of the Common Stock which may be purchased by
any Participant under any Option may bear a uniform relationship to the total
compensation, or the basic or regular rate of compensation, (as determined by
the Committee) of all Eligible Employees on that Grant Date, and the Option may
establish a maximum amount of Common Stock which may be purchased.
5.3 Option Period. Each Agreement shall specify the period for which the
-------------
Option thereunder is granted, which shall be determined by the Committee. In no
event shall the Option Period extend beyond the period permitted under Section
423(b)(7) of the Code.
5.4 Option Price. Subject to the limits stated herein, the Option Price
------------
per share at which shares of Common Stock may be acquired upon exercise of an
Option shall be determined by the Committee. Unless otherwise specified by the
Committee, with respect to any Exercise Date, the Option Price shall not be less
than the lesser of eighty-five percent (85%) of the Fair Market Value of a share
of Common Stock (averaged over such period as the Committee may determine and as
permitted by law) on the applicable Grant Date and eighty-five percent (85%) of
the Fair Market Value of a share of Common Stock (averaged over such period as
the Committee may determine and as permitted by law) on the applicable Exercise
Date. The Committee reserves the right to increase the Option Price by the
value of any accretion to the amounts credited to an Account if the Participant
is credited with such accretion regardless of the method of accounting for such
accretion.
5.5 Contribution Rate. If an Eligible Employee elects to participate,
-----------------
the Participant shall file an Agreement with the Committee within the time
period designated by the Committee. The Committee may provide that the Agreement
shall specify a dollar amount determined by the Participant to be deducted each
pay period, or the Committee may permit only a specified amount. Such amount
when deducted shall be credited to the Account and shall be the Participant's
Contribution Rate. Such deductions shall begin as of the first regularly
scheduled payroll date on or after the later of the Grant Date and the date
specified by the Committee. The Committee may establish minimum and maximum
amounts to be contributed and a date by when such Agreement must be filed with
the Committee. Notwithstanding the foregoing, in no event may more than
$[10,000] be deducted from the Participant's compensation (as defined by the
Committee) for each Option Period and the maximum number of shares which can be
purchased by a Participant during the Option Period shall not exceed such amount
divided by eighty-five percent of the Fair Market Value of a share of Common
Stock on the applicable Grant Date or Exercise Date (as determined under Section
5.4). Such contributions will be held in the general funds of the Company, and
no interest shall accrue on any amounts held under this Plan, unless expressly
determined by the Committee. If payroll deductions are made by a Subsidiary,
that corporation will promptly remit the amount of the deduction to the Company.
A Participant's Contribution Rate, once established, shall remain in effect
during the Option Period unless the Committee decides, in its sole discretion,
to allow Participants to modify their Contribution Rate; provided, however, that
-10-
<PAGE>
contributions shall be suspended or fully discontinued in order to comply with
Section 401(k) of the Code or for such other reasons as the Committee in its
sole discretion may determine, or if the Participant shall request suspension or
discontinuance. If a Participant requests to suspend payroll deductions, the
Participant may do so at such times and in such manner as the Committee may
permit, and previously deducted amounts shall be retained until the earlier of
the Exercise Date and the date the Participant totally discontinues payroll
deductions and requests a distribution of the Account. A Participant who has
suspended contributions may recommence payroll deductions at such time, if at
all, as determined by the Committee. If a Participant requests to totally
discontinue payroll deductions, the Participant may do so by providing written
notice to the Committee. There shall be paid to the Participant the value of
the Participant's Account as soon as administratively possible and the
Participant shall not receive any shares as of the Exercise Date.
5.6 Purchase of Shares. Subject to Sections 5.7, 5.8, 5.9, 5.10 and 5.11
------------------
on each Exercise Date, a Participant who has previously executed an Agreement
with respect to a specific Grant Date and made one or more payments described in
Section 5.5 shall be deemed to have exercised the Option to the extent of the
value of the Account, subject to the $[10,000] limit set forth in Section 5.5
with respect to the Option being exercised, and shall be deemed to have
purchased such number of full shares of Common Stock as set forth below, subject
to the limits of Sections 423(b)(3) and 423(b)(8) of the Code. The number of
shares of Common Stock to be purchased as of any Exercise Date shall be
determined by dividing the Account value by the Option Price per share of the
Common Stock and the value of the shares so purchased shall be charged to the
Account. If the total number of shares to be purchased as of any Exercise Date
by all Participants exceeds the number of shares authorized under this Plan or
made available by the Committee as to any Exercise Date, a pro rata allocation
of the available shares will be made among all Participants authorizing such
payroll deductions based on their Account Value on the Exercise Date. The
Company shall not be required to issue any fractional share hereunder. Any
value remaining in an Account of the Participant shall be returned to the
Participant and not applied to purchase Common Stock. Certificates of Common
Stock purchased hereunder may be held by the custodian as provided in Section
4.6. Any Common Stock issued to the Participant who is subject to reporting
under Section 16 of the Exchange Act must be held for six (6) months to the
extent required by law to avoid liability under the Exchange Act. The Committee
may amend the Plan or any Agreement or provide in operation for Participants to
dispose of shares of Common Stock received upon the Exercise Date on or
immediately thereafter (which time may include any period during which the
Option is held) to the extent such change would not result in liability under
Section 16 of the Exchange Act.
5.7 Cancellation of Options. Except as otherwise provided in an
-----------------------
Agreement, an Option shall cease to be exercisable and shall be canceled on or
after the expiration of the Option Period.
5.8 Terminated Employees. Except as otherwise provided by the Committee
--------------------
or in an Agreement, any Participant who incurs a Termination of Employment for
any reason, except death, Disability or Retirement, during the Option Period
shall cease to be a Participant, the
-11-
<PAGE>
Option shall be null and void on the date of the Termination of Employment
without notice to the Participant and the balance of the Account of the
Participant shall be distributed to him as soon as administratively possible.
5.9 Deceased Employees. If a Participant shall die during an Option
------------------
Period while an Eligible Employee, no further contributions by deduction from
regularly scheduled payments on behalf of the deceased Participant shall be
made, except that the Representative may make a single sum payment with respect
to the Option at any time on or before the Exercise Date equal to the amount the
Participant would have contributed as determined by the Committee for the
payroll periods remaining to the Exercise Date. The Representative may at any
time prior to the Exercise Date request a distribution of the Account. If the
Representative does not request a distribution, the balance accumulated in the
deceased Participant's Account shall be used to purchase shares of the Common
Stock on the previously mentioned Exercise Date.
5.10 Disabled or Retired Employees. If a Participant incurs a Termination
-----------------------------
of Employment due to Disability, or if a Participant incurs a Termination of
Employment due to Retirement, during an Option Period, no further contributions
by deduction from regularly scheduled payments on behalf of the disabled or
retired Participant shall be made, except that the Participant may make a single
sum payment with respect to the Option at any time on or before the Exercise
Date equal to the amount the Participant would have contributed as determined by
the Committee for the payroll periods remaining to the Exercise Date. The
Participant may at any time prior to the Exercise Date request a distribution of
the Account. If the Participant does not request a distribution of the Account,
the balance accumulated in the disabled or retired Participant's Account shall
be used to purchase shares of the Common Stock on the previously mentioned
Exercise Date.
5.11 Limitations. Notwithstanding any other provision of this Plan, in no
-----------
event may a Participant (i) purchase under the Plan during a calendar year
Common Stock having a fair market value (determined at Grant Date) of more than
$25,000 or (ii) receive any rights to purchase stock hereunder if he or she
beneficially owns, immediately after such receipt, five percent (5%) or more of
the total voting power or value of all classes of stock of the Company.
5.12 Nonassignability. Neither the Option nor the Account shall be
----------------
assigned, transferred (except as herein provided), pledged, or hypothecated in
any way (whether by operation of law or otherwise), other than by will or the
laws of descent and distribution or pursuant to a domestic relations order which
would be a qualified domestic relations order as defined in the Code or ERISA
(if the Plan were described in the relevant Sections) but only to the extent
consistent with Section 423 of the Code. Except as provided herein, the Option
is exercisable during a Participant's lifetime only by the Participant or the
appointed guardian or legal representative of the Participant, and neither the
Option nor the Account shall be subject to execution, attachment, or similar
process. Any attempted assignment, transfer, pledge, hypothecation, or other
disposition contrary to the provisions hereof, and the levy of any attachment or
similar process upon the Option or the Account shall be null and void and
without effect. The Company shall
-12-
<PAGE>
have the right to terminate the Option or the Account in the event of any such
assignment, transfer, pledge, hypothecation, other disposition of the Option or
the Account, or levy of attachment or similar process, by notice to that effect
to the person then entitled to exercise the Option; provided, however, that
termination of the Option hereunder shall not prejudice any rights or remedies
which the Company may have under an Agreement or otherwise.
ARTICLE VI
-----------
GENERAL PROVISIONS APPLICABLE TO THE PLAN
-----------------------------------------
6.1 Termination of Plan. To the extent required by law, this Plan shall
-------------------
terminate on the last day of the ten (10) year period commencing with the
effective date or at such earlier time as the Board may determine, and no
Options shall be granted under the Plan after that date. Any Options
outstanding under the Plan at the time of its termination shall remain in effect
until they shall have been exercised, expired or otherwise canceled, settled or
terminated as provided herein or in an Agreement, and such outstanding Options
shall not be affected by such termination of the Plan. The provisions of the
Plan in respect to the full and final authority of the Committee under the Plan,
other than the authority to grant Options, and in respect of a Participant's
obligations respecting shares of Common Stock received pursuant to the exercise
of an Option shall continue notwithstanding the termination of the Plan.
6.2 Investment Representation. In the event the disposition of Common
-------------------------
Stock acquired upon the exercise of any Option is not covered by a then current
registration statement under the Securities Act and is not otherwise exempt from
such registration, the Common Stock so acquired shall be restricted against
transfer to the extent required by the Securities Act or regulations thereunder,
and each Agreement shall contain a requirement that, upon demand by the Company
for such representation, the individual exercising an Option shall state in
writing, as a condition precedent to each exercise of the Option, in whole or in
part, that the Common Stock acquired by such exercise is acquired for
investment purposes only and not for resale or with a view to distribution. The
Committee may set forth in an Agreement such other terms and conditions relating
to the registration or qualification of the Common Stock under federal or state
securities laws as it desires, including, in its discretion, the imposition of
an obligation on the Company to cause the Common Stock issued to a Participant
to be registered under the Securities Act.
6.3 Effect of Certain Changes.
-------------------------
(a) Anti-Dilution. In the event of any Company stock dividend, stock
-------------
split, combination or exchange of shares, recapitalization or other change
in the capital structure of the Company, corporate separation or division
of the Company (including, but not limited to, a split-up, spin-off, split-
off or distribution to Company stockholders other than a normal cash
dividend), sale by the Company of all or a substantial portion of its
assets (as measured on either a stand-alone or consolidated basis),
reorganization, rights offering,
-13-
<PAGE>
partial or complete liquidation, or any other corporate transaction or
event involving the Company and having an effect similar to any of the
foregoing, then the Committee may adjust or substitute, as the case may be,
the number of shares of Common Stock available for Options under the Plan,
the number of shares of Common Stock covered by outstanding Options, the
exercise price per share of outstanding Options, and any other
characteristics or terms of the Options as the Committee shall deem
necessary or appropriate to reflect equitably the effects of such changes
to the Participants; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated by rounding to the next
lower whole number of shares with appropriate payment for such fractional
share as shall reasonably be determined by the Committee.
(b) Change in Control. If there is a Change in Control of the Company
-----------------
(as defined herein) or the Committee reasonably anticipates that a Change
in Control is likely to occur, then (1) the Committee may cause each Option
to be immediately exercised; (2) the Committee may provide that any Option
exercisable on the date of any such Change in Control may be purchased by
the Company in an amount equal to the excess, if any, of the aggregate fair
market value per share of Common Stock subject to the Option (or portion
thereof) over the aggregate Option Price of the shares subject to the
Option (or portion thereof) which the Committee determines to purchase; or
(3) the Company may provide for any combination of (1) and (2) above. For
purposes of this Section 6.3(b), the aggregate fair market value per share
of Common Stock subject to the Option that the Committee determines to
purchase shall be determined by the Committee by reference to the cash or
fair market value, determined by the Committee, of the securities,
property or other consideration receivable pursuant to the Change in
Control described in this Section 6.3(b). The aggregate Option Price of
the Common Stock shall be determined by multiplying the number of such
shares by the Option Price. If the event of a Change in Control described
in Section 6(c)(iii), and if the Option is unexercised and the Committee
does not exercise its discretion hereunder to purchase the Option, then the
Option shall be regarded as the right to receive the securities, property,
cash or other consideration receivable by stockholders of the Company
immediately prior to the Change in Control described in Section 6(c)(iii).
The provisions of this Section 6.3(b) shall be construed consistently with
the terms or conditions of any regulation or ruling respecting the status
of Options under Section 423 of the Code and the receipt of cash or other
consideration coincident with the cancellation of such Options, and in
order to provide the Participant the economic benefit of the Option without
incurring liability under Section 16(b) of the Exchange Act.
(c) "Change in Control" shall be deemed to have occurred on the first
-----------------
to occur of any of the following events:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the
-14-
<PAGE>
Exchange Act) of fifty percent (50%) or more of either (A) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that the following
-------- -------
acquisitions shall not constitute a Change in Control of the Company:
(1) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege unless
such convertible securities were acquired directly from the Company),
(2) any acquisition by the Company, (3) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company, or (4) any
acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (A) and (B) of
subsection (iii) of this Section are satisfied; or
(ii) Individuals who, as of the effective date of this Plan,
constitute the Board of Directors of the Company (the "Incumbent Board
of the Company") cease for any reason to constitute at least a
majority of the Board of Directors of the Company; provided, however,
-------- -------
that any individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
stockholders, was recommended or approved by a vote of at least a
majority of the directors then comprising the Incumbent Board of the
Company shall be considered as though such individual were a member of
the Incumbent Board of the Company, but excluding, for this purpose,
any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as
contemplated by Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board of Directors
of the Company; or
(iii) The consummation by the Company of a reorganization, merger
or consolidation, in each case, unless, following such reorganization,
merger or consolidation, (A) more than fifty percent (50%) of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be,
-15-
<PAGE>
and (B) at least a majority of the members of the board of directors
of the corporation resulting from such reorganization, merger or
consolidation were members of the Board of Directors of the Company at
the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(iv) The consummation by the Company of the sale or other
disposition of all or substantially all of the assets of the Company,
other than to a corporation with respect to which, following such sale
or other disposition, (A) more than fifty percent (50%) of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case
may be, and (B) at least a majority of the members of the board of
directors of such corporation were members of the Board of Directors
of the Company at the time of the execution of the initial agreement
or action of the Board providing for such sale or other disposition of
assets of the Company.
(d) The Committee may, in its discretion, grant to the Participant,
in exchange for the surrender and cancellation of the Option, a new Option
on such terms and conditions as may be determined by the Committee in
accordance with the Plan.
6.4 Withholding. Notwithstanding any other provision hereof, as a
-----------
condition of delivery or transfer of shares of Common Stock, the Committee in
its sole discretion may require the Participant to pay to the Company, or the
Committee may at its election withhold from any wages, salary, or stock to be
issued to a Participant pursuant to the exercise of an Option, or other payment
due to the Participant, an amount sufficient to satisfy all present or estimated
future federal, state and local withholding tax requirements related thereto.
The Participant may satisfy any requirement under the Plan or an Agreement with
respect to the Company's federal, state or local tax withholding obligation by
requesting that the Committee withhold and not transfer or issue shares of
Common Stock with a Fair Market Value equal to such withholding obligation,
otherwise issuable or transferable to him pursuant to the exercise of that
portion of the Option. An Agreement may provide for shares of Common Stock to be
delivered or withheld having a Fair Market Value in excess of the minimum amount
required to be withheld, but not in excess of the amount determined by applying
the Participant's maximum marginal tax rate. Any right or election of the
Participant under this Section 6.4 shall be subject to the approval of the
Committee and shall be in compliance with Section 16 of the Exchange Act. The
amount of required withholding shall, at the election of the Participant, be at
a specified rate not less than the statutory
-16-
<PAGE>
minimum federal and state withholding rate and not greater than the maximum
federal, state and local marginal tax rate applicable to the Participant and to
the particular option exercise transaction.
6.5 No Company Obligation. The Company shall have no duty or obligation
---------------------
to affirmatively disclose to a record or beneficial holder of an Option, and
such holder shall have no right to be advised of, any material information
regarding the Company at any time prior to, upon or in connection with the
exercise of an Option.
6.6 Committee Discretion. The Committee may in its sole discretion
--------------------
include in any Agreement an obligation that the Company purchase a Participant's
shares of Common Stock received upon the exercise of an Option (including the
repurchase of any unexercised Options which have not expired), or may obligate a
Participant to sell shares of Common Stock to the Company upon such terms and
conditions as the Committee may determine and set forth in an Agreement. The
provisions of this Article VI shall be construed by the Committee in its sole
discretion, and shall be subject to such other terms and conditions as the
Committee may from time to time determine.
ARTICLE VII
-----------
MISCELLANEOUS
-------------
7.1 Indemnification of the Board and Committee. In addition to such other
------------------------------------------
rights of indemnification as they may have and to the extent permitted by law,
the Company shall indemnify, defend and hold harmless the Board, the Committee,
the members of the Committee, the officers of the Company, and any agent or
representative selected by the Board or Committee (collectively "indemnified
party") against the reasonable expenses, including, without limitation,
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or any threat thereof, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any act or omission in connection with the Plan or any Option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by legal counsel selected by the Company)
or paid by them in satisfaction of a judgment in any action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such action,
suit or proceeding that such indemnified party is liable for gross negligence or
gross misconduct in the performance of his duties; provided that within sixty
(60) days after institution of any such action, suit or proceeding the
indemnified party may in writing elect to defend the same at its sole expense,
and if such election is made, the Company shall have no further liability or
obligations to the indemnified party under this Section. The provisions of this
Section 7.1 shall in no way limit any other obligation or arrangements the
Company may have with regard to indemnifying an indemnified party.
-17-
<PAGE>
7.2 Mitigation of Excise Tax. Subject to any agreement with a
------------------------
Participant, any payment or right accruing to a Participant under this Plan
(without the application of this Section 8.6), either alone or together with
other payments or rights accruing to the Participant from the Company or an
Affiliate ("TOTAL PAYMENTS") would constitute a "PARACHUTE PAYMENT" (as defined
in Section 280G of the Code and regulations thereunder), such payment or right
shall be reduced to the largest amount or greatest right that will result in no
portion of the amount payable or right accruing under the Plan being subject to
an excise tax under Section 4999 of the Code or being disallowed as a deduction
under Section 280G of the Code. The determination of whether any reduction in
the rights or payments under this Plan is to apply shall be made by the
Committee in good faith after consultation with the Participant, and such
determination will be conclusive and binding on the Participant. The
Participant shall cooperate in good faith with the Committee in making such
determination and providing the necessary information for this purpose.
7.3 Interpretation. Whenever necessary or appropriate in this Plan and
--------------
where the context so requires, the singular term and the related pronouns shall
include the plural and the masculine and feminine gender.
7.4 Governing Law. The Plan and any Agreement shall be governed by the
-------------
laws of the State of Delaware (other than its laws respecting choice of law).
7.5 Limitations on Liability. No liability whatever shall attach to or be
------------------------
incurred by any past, present or future stockholders, officers or directors,
merely as such, of the Company under or by reason of any of the terms,
conditions or agreements contained in this Plan, in an Agreement or implied from
either thereof, and any and all liabilities of, and any and all rights and
claims against the Company, or any shareholder, officer or director, merely as
such, whether arising at common law or in equity or created by statute or
constitution or otherwise, pertaining to this Plan or to an Agreement, are
hereby expressly waived and released by every Participant as a part of the
consideration for any benefits provided by the Company under this Plan. A
person who shall claim a right or benefit under this Plan shall be entitled only
to claim against the Company for such benefit.
7.6 Validity. If any provision of this Plan shall for any reason be held
--------
to be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision hereof, and this Plan shall be construed as if such
invalid or unenforceable provision were omitted.
7.7 Assignment. This Plan shall inure to the benefit of and be binding
----------
upon the parties hereof and their respective successors and permitted assigns.
7.8 Captions. The captions and headings to this Plan are for convenience
--------
of reference only and in no way define, limit or describe the scope or the
intent of this Plan or any part hereof, nor in any way affect this Plan or any
part hereof.
-18-
<PAGE>
7.9 Amendments. The Board of Directors may at any time amend, waive,
----------
discharge or terminate the Plan even with prejudice to a Participant. The Board
or the Committee may amend, waive, discharge, terminate, modify, extend, replace
or renew an outstanding Option Agreement even with prejudice to a Participant;
provided such a change does not cause the Plan to fail to be a plan as described
in Section 423 of the Code.
7.10 Entire Agreement. This Plan and the Agreement constitute the entire
----------------
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of this Plan shall control.
7.11 Rights with Respect to Continuance of Employment. Nothing contained
------------------------------------------------
herein or in an Agreement shall be deemed to alter the at-will employment
relationship between the Company or a Subsidiary and a Participant. Nothing
contained herein or in an Agreement shall be construed to constitute a contract
of employment between the Company or a Subsidiary and a Participant. The Company
or, as applicable, the Subsidiary and the Participant each continue to have the
right to terminate the employment relationship at any time for any reason. The
company or Subsidiary shall have no obligation to retain the Participant in its
employ as a result of this Plan. There shall be no inference as to the length of
employment hereby, and the Company or Subsidiary reserves the same rights to
terminate the Participant's employment as existed prior to the individual
becoming a Participant in this Plan.
7.12 Options for Shares in Substitution for Stock Options Granted by
---------------------------------------------------------------
Other Corporations. Options may be granted under the Plan from time to time in
- ------------------
substitution for stock options or stock appreciation rights held by employees,
directors or service providers of other corporations who are about to become
employees of the Company or a Subsidiary as the result of a merger or
consolidation of the employing corporation with the Company or a Subsidiary, or
the acquisition by the Company or a Subsidiary of the assets of the employing
corporation, or the acquisition by the Company or a Subsidiary of the stock of
the employing corporation, as the result of which it becomes a designated
employer under the Plan. The terms and conditions of the Options so granted may
vary from the terms and conditions set forth in this Plan at the time of such
grant as the majority of the members of the Committee may deem appropriate to
conform, in whole or in part, to the provisions of the Options in substitution
for which they are granted.
7.13 Procedure for Adoption. Any Subsidiary of the Company may by
----------------------
resolution of such Subsidiary's board of directors, with the consent of the
Board of Directors and subject to such conditions as may be imposed by the Board
of Directors, adopt the Plan for the benefit of its employees as of the date
specified in the board resolution. The Board shall have the power to make such
designation before or after the Plan is approved by stockholders.
7.14 Procedure for Withdrawal. Any Subsidiary which has adopted the Plan
------------------------
may, by resolution of the board of directors of such Subsidiary, with the
consent of the Board of Directors and subject to such conditions as may be
imposed by the Board of Directors, terminate its adoption
-19-
<PAGE>
of the Plan; provided such termination of adoption does not cause the Plan to
fail to be a plan described in Section 423 of the Code.
7.15 Expenses. Expenses of the Plan, including the fees or expenses
--------
incurred by the transfer agent in connection with the transfer of Common Stock
and brokerage fees or expenses incurred in connection with the acquisition of
Common Stock in connection with the Plan or transfer to the Participant, shall
be paid by the Company. Any expense or fee associated with the Common Stock,
including, for example, fees or commissions in connection with the disposition
of shares or the withdrawal of such shares from the custodian, shall be borne by
the Participant.
Executed and effective as of the _____ day of ____________, 1999.
NOVAMED EYECARE, INC.
By: ___________________________________________
Title: ___________________________________________
-20-
<PAGE>
EXHIBIT 10.3
Prepared by:
KATTEN MUCHIN & ZAVIS
Privileged & Confidential
FORM OF
-------
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is entered into as of this
___ day of _______________, 1999, by and between NovaMed Eyecare, Inc., a
Delaware corporation (the "Corporation"), and _________________ ("Indemnitee").
RECITALS
--------
a. The Corporation is aware that because of the increased exposure
to litigation costs and risks resulting from service to corporations,
talented and experienced persons are increasingly reluctant to serve
or continue serving as directors or executive officers of corporations
unless they are protected by comprehensive liability insurance and
indemnification;
b. Plaintiffs often seek damages in such large amounts, and the
costs of litigation may be so great (whether or not the case is
meritorious), that the defense and/or settlement of such litigation is
usually beyond the personal resources of directors and executive
officers;
c. Based upon their experience as business managers, the Board of
Directors of the Corporation (the "Board") has concluded that, to
retain and attract talented and experienced individuals to serve as
directors and executive officers of the Corporation, it is appropriate
for the Corporation to contractually indemnify its directors and
certain of its executive officers, and to assume for itself liability
for expenses and damages in connection with claims against such
directors and executive officers in connection with their service to
the Corporation; and
d. The Corporation believes that it is fair and proper to protect
its directors and certain executive officers of the Corporation from
the risk of judgments, settlements and other expenses which may occur
as a result of their service to the Corporation.
NOW, THEREFORE, the parties, intending to be legally bound, for good and
valuable consideration, hereby agree as follows:
<PAGE>
1. Definitions.
-----------
(a) Agent. "Agent" means a director or executive officer of the
-----
Corporation or a director or executive officer of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise
serving at the request, for the convenience, or to represent the interests
of the Corporation.
(b) Corporation. "Corporation" means NovaMed Eyecare, Inc., a
-----------
Delaware corporation, its successors or assigns, or any Subsidiary of the
Corporation. "Subsidiary" means, and "Subsidiaries" include, (i) any
company of which more than fifty percent (50%) of the outstanding voting
securities are owned directly or indirectly by the Corporation, or which is
otherwise controlled by the Corporation, and (ii) any partnership, joint
venture, trust or other entity of which more than fifty percent (50%) of
the equity interest is owned directly or indirectly by the Corporation, or
which is otherwise controlled by the Corporation.
(c) Liabilities. "Liabilities" means losses, claims, damages,
-----------
liabilities, obligations, penalties, judgments, fines, settlement payments,
awards, costs, expenses and disbursements (and any and all costs, expenses
or disbursements in giving testimony or furnishing documents in response to
a subpoena or otherwise), including, without limitation, all reasonable
attorneys' fees, costs, expenses and disbursements, as and when incurred.
(d) Proceeding. "Proceeding" means any threatened, pending, or
----------
completed action, suit or other proceeding, whether civil, criminal,
administrative, investigative or any other type whatsoever.
(e) Control. "Control" means, with respect to any person or entity,
-------
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of such person or entity, whether
through the ownership of voting securities, by contract or otherwise.
2. Maintenance of Liability Insurance.
----------------------------------
The Corporation hereby covenants and agrees to and with Indemnitee
that, so long as Indemnitee shall continue to serve as an Agent and
thereafter so long as Indemnitee shall be subject to any claim or
Proceeding by reason of the fact that Indemnitee was an Agent or in
connection with Indemnitee's acts as such an Agent, the Corporation,
subject to Section 2(b), shall obtain and maintain in full force and effect
directors' and officers' liability insurance ("D&O Insurance") in
reasonable amounts from established and reputable insurers. In all
policies of D&O Insurance, Indemnitee shall be named as an insured.
3. Indemnification of Agent.
------------------------
-2-
<PAGE>
(a) Third Party Actions. If Indemnitee is a person who was or is a
-------------------
party or is threatened to be made a party to any Proceeding (other than an
action by or in the right of the Corporation) by reason of the fact that
Indemnitee is or was an Agent of the Corporation, or by reason of anything
done or not done by Indemnitee in any such capacity or otherwise at the
request of the Corporation or of its officers, directors or stockholders,
the Corporation shall indemnify, defend and hold harmless Indemnitee
against any and all Liabilities actually and reasonably incurred by
Indemnitee in connection with the investigation, defense, settlement or
appeal of such Proceeding, so long as Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in, or not opposed to, the
best interests of the Corporation, and, with respect to any criminal action
or Proceeding, if Indemnitee had no reasonable cause to believe his conduct
was unlawful.
(b) Derivative Actions. If Indemnitee is a person who was or is a
------------------
party, or is threatened to be made a party, to any Proceeding by or in the
right of the Corporation to procure a judgment in its favor by reason of
the fact that Indemnitee is or was an Agent of the Corporation, or by
reason of anything done or not done by Indemnitee in any such capacity or
otherwise at the request of the Corporation or of its officers, directors
or stockholders, the Corporation shall indemnify, defend and hold harmless
Indemnitee against all Liabilities actually and reasonably incurred by such
person in connection with the investigation, defense, settlement or appeal
of such Proceeding, if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best
interests of the Corporation; provided, however, that no indemnification
under this Section 3(b) shall be made in respect of any claim, issue or
matter for which such person is adjudged to be liable for gross negligence
or willful misconduct in the performance of Indemnitee's duties to the
Corporation, unless, and only to the extent that, the court in which such
Proceeding was brought shall determine upon application that, despite the
adjudication of liability, but in view of all the circumstances of the
case, Indemnitee is fairly and reasonably entitled to indemnity for such
Liabilities as the court shall deem proper.
(c) Actions Where Indemnitee Is Deceased. If Indemnitee is a person
------------------------------------
who was or is a party or is threatened to be made a party to any Proceeding
by reason of the fact that he is or was an Agent of the Corporation, or by
reason of anything done or not done by Indemnitee in any such capacity, and
prior to, during the pendency of, or after completion of, such Proceeding,
Indemnitee shall die, then the Corporation shall indemnify, defend and hold
harmless the estate, heirs and legatees of Indemnitee against any and all
Liabilities incurred by such estate, heirs or legatees in connection with
the investigation, defense, settlement or appeal of such Proceeding on the
same basis as provided for Indemnitee in Sections 3(a) and 3(b) above.
(d) Reduction of Liabilities. The Liabilities covered hereby shall
------------------------
be net of any payments to or on behalf of Indemnitee by D&O Insurance
carriers or others with respect to the subject Proceeding.
-3-
<PAGE>
4. Indemnification as Witness.
--------------------------
Notwithstanding any other provision of this Agreement, to the extent
Indemnitee is, by reason of the fact that Indemnitee is or was an Agent of
the Corporation, involved in any investigative Proceeding, including, but
not limited to, testifying as a witness or furnishing documents in response
to a subpoena or otherwise, Indemnitee shall be indemnified against any and
all Liabilities actually and reasonably incurred by or for Indemnitee in
connection therewith.
5. Advancement Of Liabilities.
--------------------------
Subject to the provisions of Section 6(c), until a determination that
Indemnitee is not entitled to be indemnified by the Corporation under the
terms hereof, and unless the provisions of Section 9 apply, the Corporation
shall reimburse Indemnitee for Liabilities previously paid by Indemnitee
and may advance Liabilities which the Corporation reasonably determines
will be due and payable by Indemnitee within a reasonable time after a
request for advancement is made by Indemnitee. The execution and delivery
of this Agreement by the Corporation evidences the specific approval by the
Board of the reimbursement and advancement of Liabilities as provided for
in this Section 5. As a condition to such reimbursement and/or advancement,
Indemnitee shall, at the request of the Corporation, undertake in a manner
satisfactory to the Corporation to repay such amounts reimbursed and/or
advanced, without interest, if it shall ultimately be determined pursuant
to Section 7 or 9 below that Indemnitee is not entitled to be indemnified
by the Corporation under the terms of this Agreement. Subject to the
foregoing, the reimbursement and/or advances to be made hereunder shall be
paid by the Corporation to Indemnitee within twenty (20) business days
following delivery of a written request by Indemnitee to the Corporation,
which request shall be accompanied by vouchers, invoices and similar
evidence documenting the amounts incurred or to be incurred by Indemnitee.
6. Indemnification Procedures.
--------------------------
(a) Notice by Indemnitee. Promptly after receipt by Indemnitee of
--------------------
notice of the commencement or threat of commencement of any Proceeding,
Indemnitee shall, if Indemnitee believes that indemnification with respect
thereto may be sought from the Corporation under this Agreement, notify the
Corporation of the commencement or threat of commencement thereof, provided
that any failure to so notify the Corporation shall not relieve the
Corporation of its obligations hereunder, except to the extent that such
failure or delay increases the liability of the Corporation hereunder.
(b) D & O Insurance. If, at the time of receipt of a notice pursuant
---------------
to Section 6(a) above, the Corporation has D&O Insurance in effect, the
Corporation shall give prompt notice of the Proceeding or claim to its
insurers in accordance with the procedures set forth in the applicable
policies. The Corporation shall thereafter take all necessary or desirable
action to cause such insurers to pay all amounts payable as a result of
such Proceeding in accordance with the terms of such policies, and
Indemnitee shall not take
-4-
<PAGE>
any action (by waiver, settlement or otherwise) which would adversely
affect the ability of the Corporation to obtain payment from its insurers.
(c) Assumption of Defense. In the event the Corporation shall be
---------------------
obligated under this Agreement to pay the Liabilities of Indemnitee, the
Corporation shall be entitled to assume the defense (with counsel
reasonably acceptable to Indemnitee, approval thereof not to be
unreasonably withheld) of the Proceeding to which the Liabilities relate.
The Corporation agrees to promptly notify Indemnitee upon its election to
assume such defense. Once the Corporation (i) provides Indemnitee with
notice of its election to assume such defense and (ii) obtains approval
from Indemnitee of the counsel retained, the Corporation will not be liable
to Indemnitee under this Agreement for any attorney's fees or other
Liabilities subsequently incurred by Indemnitee with respect to such
Proceeding, unless (x) the Liabilities incurred by Indemnitee were
previously authorized by the Corporation or (y) counsel for Indemnitee
shall have provided the Corporation with an opinion of counsel stating that
there is a likelihood that a conflict of interest exists between the
Corporation and Indemnitee in the conduct of any such defense.
7. Determination of Right to Indemnification.
-----------------------------------------
(a) Successful Proceeding. To the extent Indemnitee has been
---------------------
successful, on the merits or otherwise, in the defense of any Proceeding
referred to in Sections 3(a) or 3(b) above, the Corporation shall indemnify
Indemnitee against all Liabilities incurred by him in connection therewith.
If Indemnitee is not wholly successful in such Proceeding, but is
successful, on the merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding, then the Corporation shall
indemnify Indemnitee against all Liabilities actually or reasonably
incurred by or for him in connection with each successfully resolved claim,
issue or matter. For purposes of this Section 7(a), and without
limitation, the termination of any Proceeding, or any claim, issue or
matter in such a Proceeding, by dismissal, with or without prejudice, shall
be deemed to be a successful result as to such Proceeding, claim, issue or
matter, so long as there has been no finding (either adjudicated or
pursuant to Section 7(c) below) that Indemnitee (i) did not act in good
faith, (ii) did not act in a manner reasonably believed to be in, or not
opposed to, the best interests of the Corporation, or (iii) with respect to
any criminal proceeding, had reasonable grounds to believe his conduct was
unlawful.
(b) Other Proceedings. In the event that Section 7(a) above is
-----------------
inapplicable, the Corporation shall nevertheless indemnify Indemnitee,
unless and only to the extent that the forum listed in Section 7(c) below
determines that Indemnitee has not met the applicable standard of conduct
set forth in Sections 3(a) or 3(b) above required to entitle Indemnitee to
such indemnification.
(c) Forum in Event of Dispute. The determination that indemnification
-------------------------
of Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct set forth in Sections 3(a) or 3(b) shall be
made (i) by the Board, by a majority vote of the directors who are not
parties to such Proceeding, even though less
-5-
<PAGE>
than a quorum or (ii) by a committee of such disinterested directors
designated by a majority of such disinterested directors, even though less
than a quorum, or (iii) if there are no such disinterested directors, or if
such disinterested directors shall so direct, by independent legal counsel
in a written opinion, or (iv) by the stockholders of the Corporation. The
choice of which forum shall make the determination shall be made by the
Board. The forum shall act in the utmost good faith to assure Indemnitee a
complete opportunity to present to the forum Indemnitee's case that
Indemnitee has met the applicable standard of conduct.
(d) Appeal to Court. Notwithstanding a determination by any forum
---------------
listed in Section 7(c) above that Indemnitee is not entitled to
indemnification with respect to a specific Proceeding, Indemnitee shall
have the right to apply to the court in which that Proceeding is or was
pending or any other court of competent jurisdiction for the purpose of
enforcing Indemnitee's right to indemnification pursuant to this Agreement.
(e) Indemnity for Liabilities in Enforcement of Agreement.
-----------------------------------------------------
Notwithstanding any other provision in this Agreement to the contrary, the
Corporation shall indemnify Indemnitee against all Liabilities incurred by
Indemnitee in connection with any other Proceeding between the Corporation
and Indemnitee involving the interpretation or enforcement of the rights of
Indemnitee under this Agreement, unless a court of competent jurisdiction
finds that the material claims and/or defenses of Indemnitee in any such
Proceeding were frivolous or made in bad faith.
8. Contribution.
------------
If and to the extent that a final adjudication shall specify that the
Corporation is not obligated to indemnify Indemnitee under this Agreement
for any reason (including but not limited to the exclusion set forth in
Section 9 hereof), then in respect of any Proceeding in which the
Corporation is jointly liable with Indemnitee (or would be so liable if
joined in such action, suit or proceeding), the Corporation shall
contribute to the amount of Liabilities reasonably incurred and paid or
payable by Indemnitee in connection with such Proceeding in such proportion
as is appropriate to reflect (i) the relative benefits received by the
Corporation, on the one hand, and Indemnitee, on the other hand, from the
transaction with respect to which such Proceeding arose, and (ii) the
relative fault of the Corporation, on the one hand, and Indemnitee, on the
other hand in connection with the circumstances which resulted in such
Liabilities, as well as any other relevant equitable considerations. The
relative fault of the Corporation, on the one hand, and Indemnitee, on the
other hand, shall be determined by reference to, among other things, the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent the circumstances resulting in such Liabilities. The
Corporation agrees that it would not be just and equitable if contribution
pursuant to this Section 8 were determined by pro rata allocation or any
other method of allocation which does not take account of the foregoing
equitable considerations.
-6-
<PAGE>
9. Exceptions.
----------
(a) Claims Initiated by Indemnitee. Notwithstanding any other
------------------------------
provision herein to the contrary, the Corporation shall not be obligated
pursuant to the terms of this Agreement to indemnify or advance Liabilities
to Indemnitee with respect to Proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
Proceedings brought to establish or enforce a right to indemnification
under this Agreement, but such indemnification or advancement of expenses
may be provided by the Corporation in specific cases if the Board finds it
to be appropriate.
(b) Unauthorized Settlements. Notwithstanding any other provision
------------------------
herein to the contrary, the Corporation shall not be obligated pursuant to
the terms of this Agreement to indemnify Indemnitee under this Agreement
for any amount paid in settlement of a Proceeding without the prior written
consent of the Corporation to such settlement.
(c) No Duplicative Payment. The Corporation shall not be liable under
----------------------
this Agreement to make any payment of amounts otherwise indemnifiable
hereunder if and to the extent that Indemnitee has otherwise actually
received such payment under any insurance policy, contract, agreement or
otherwise.
10. Certificate of Incorporation and By-laws.
----------------------------------------
The Corporation agrees that the Certificate of Incorporation and By-
laws of the Corporation in effect on the date hereof shall not be amended
to reduce, limit, hinder or delay (a) the rights of Indemnitee granted
hereby, or (b) the ability of the Corporation to indemnify Indemnitee as
required hereby. The Corporation further agrees that it shall exercise the
powers granted to it under its Certificate of Incorporation and By-laws and
by applicable law to indemnify any Indemnitee to the fullest extent
possible as required hereby.
11. Non-exclusivity.
---------------
The provisions for indemnification and advancement of Liabilities set
forth in this Agreement shall not be deemed exclusive of any other rights
which Indemnitee may have under any provision of law, the Corporation's
Certificate of Incorporation or By-laws, the vote of the Corporation's
stockholders or disinterested directors, other agreements or otherwise.
12. Interpretation of Agreement.
---------------------------
It is understood that the parties hereto intend this Agreement to be
interpreted and enforced so as to provide indemnification to Indemnitee to
the fullest extent now or hereafter permitted by law.
-7-
<PAGE>
13. Severability.
------------
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever, (a) the
validity, legality and enforceability of the remaining provisions of the
Agreement (including, without limitation, all portions of any paragraphs of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable) shall not in any way be effected or impaired thereby, and
(b) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, all portions of any paragraph of this
Agreement containing any such provision held to be invalid, illegal, or
unenforceable that are not themselves invalid, illegal, or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable and to give effect to
Section 12 hereof.
14. Modification and Waiver.
-----------------------
No supplement, modification or amendment to this Agreement shall be
binding unless executed in writing by both of the parties hereto. No
waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provisions hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver.
15. Subrogation.
-----------
In the event that the Corporation makes any payment under this
Agreement, the Corporation shall be subrogated to the extent of such
payment to all of the rights of recovery of Indemnitee, who shall execute
all papers and do all things that may be necessary to secure such rights,
including but not limited to the execution of such documents as shall be
necessary to enable the Corporation effectively to bring suit to enforce
such rights.
16. Survival, Successors, and Assigns.
---------------------------------
Indemnitee's rights under this Agreement shall continue after
Indemnitee has ceased acting as an Agent of the Corporation. The terms of
this Agreement shall be binding on and inure to the benefit of the
Corporation and its successors and assigns and shall be binding on and
inure to the benefit of Indemnitee and Indemnitee's heirs, executors and
administrators.
17. Notices.
-------
All notices, demands, consents, requests, approvals and other
communications between the parties pursuant to this Agreement must be in
writing and will be deemed given when delivered in person, one (1) business
day after being dispatched by a nationally recognized overnight courier
service, three (3) business days after being deposited in the U.S. Mail,
registered or certified mail, return receipt requested, or one (1) business
after
-8-
<PAGE>
being sent by facsimile (with receipt acknowledged), to the Corporation at
the address of its principal office in Chicago, Illinois and to Indemnitee
at Indemnitee's address as shown on the Corporation's records. Indemnitee
may change Indemnitee's address for notice purposes by delivering notice to
the Corporation in accordance with this Section 17. All notices sent to the
Corporation shall also be delivered to Katten Muchin & Zavis, 525 West
Monroe Street, Suite 1600, Chicago, Illinois 60661-3693, Attention: Steven
V. Napolitano, Esq., Facsimile No. (312-902-1061).
18. Governing Law.
-------------
This Agreement shall be governed exclusively by and construed
according to the laws of the State of [Delaware], without regard to its
principles of conflicts of laws.
19. Counterparts.
------------
This agreement may be executed in counterparts, each of which when so
executed and delivered shall be deemed an original, and such counterparts
together shall constitute one instrument.
-9-
<PAGE>
The parties hereto have entered into this Indemnification Agreement
effective as of the date first above written.
NOVAMED EYECARE, INC.
By:________________________________
Its:_______________________________
INDEMNITEE:
___________________________________
___________________________________
___________________________________
(Print Address)
-10-
<PAGE>
LIST OF DIRECTORS AND EXECUTIVE OFFICERS
----------------------------------------
TO RECEIVE INDEMNIFICATION AGREEMENTS
-------------------------------------
1
2
3
4
5
6
7
8
-11-
<PAGE>
Exhibit 10.4
------------
Execution Copy
--------------
REGISTRATION RIGHTS AGREEMENT
December 20, 1996
To each of the Investors listed on Schedule I hereto
Dear Sirs:
This will confirm that in consideration of the agreement by you (the
"Investors") on the date hereof to purchase shares of the Series C Convertible
---------
Preferred Stock (the "Series C Shares") of NovaMed Holdings Inc. (the
---------------
"Company"), and warrants (the "Warrants") to purchase shares of the Company's
------- --------
Series D Convertible Preferred Stock pursuant to the Securities Purchase
Agreement of even date herewith (the "Purchase Agreement") between the Company
------------------
and certain of you and as an inducement to you to consummate the transactions
contemplated by the Purchase Agreement, the Company covenants and agrees with
each of you as follows:
1 Certain Definitions. All capitalized words or terms used herein
-------------------
without specific definition shall have the meaning set forth in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following respective meanings:
"Affiliate" shall mean a person that directly or indirectly through
---------
one or more intermediaries, controls or is controlled by, or is under common
control with, the person specified. Solely for the purposes of Section 8(a)
hereof, Sierra Ventures V, L.P., CGJR Health Care Services Private Equities,
L.P., CGJR II, L.P., and CGJR/MF III, L.P. shall be Affiliates of each other.
"Commission" shall mean the Securities and Exchange Commission, or any
----------
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $.01 par value, of the
------------
Company, as constituted as of the date of this Agreement.
"Conversion Shares" shall mean shares of Common Stock issued upon
-----------------
conversion of the Preferred Shares.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Preferred Shares" shall mean the Series C Shares and the Series D
----------------
Shares.
<PAGE>
"Registration Expenses" shall mean the expenses so described in
---------------------
Section 7.
"Restricted Stock" shall mean the Conversion Shares, excluding
-----------------
Conversion Shares which have been (a) registered under the Securities Act
pursuant to an effective registration statement filed thereunder and disposed of
in accordance with the registration statement covering them or (b) publicly sold
pursuant to Rule 144 under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 7.
----------------
"Series D Shares" shall mean the shares of Series D Convertible
---------------
Preferred Stock issued or issuable at the Series D Closing under the Purchase
Agreement and upon exercise of the Warrants.
2. Restrictive Legend. Each Warrant and each certificate representing
------------------
Preferred Shares or Restricted Stock shall, except as otherwise provided in this
Section 2 or in Section 3, be stamped or otherwise imprinted with a legend
substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND ALL SUCH APPLICABLE
LAWS OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE."
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company (it being agreed that Testa, Hurwitz & Thibeault,
LLP shall be satisfactory) the securities represented thereby may be publicly
sold without registration under the Securities Act and any applicable state
securities laws.
3. Notice of Proposed Transfer. Subject to the restrictions set forth
---------------------------
in the Stockholders' Agreement of even date herewith between the Company and the
other parties thereto, prior to any proposed transfer of any Warrant or any
Preferred Shares or Restricted Stock (other than under the circumstances
described in Sections 4 or 5), the holder thereof shall give written notice to
the Company of its intention to effect such transfer. Each such notice shall
describe the manner of the proposed transfer and, if requested by the Company,
shall be accompanied by an opinion of counsel satisfactory to the Company (it
being agreed that Testa, Hurwitz & Thibeault, LLP shall be satisfactory) to the
effect that the proposed transfer may be effected without registration under the
Securities Act and any applicable state securities laws, whereupon the holder of
such stock shall be entitled to transfer such stock in accordance with the terms
of its notice; provided, however, that no such opinion of counsel shall be
--------- -------
required for a transfer to one or more partners of the transferor (in the case
of a transferor that is a partnership)
-2-
<PAGE>
or to an affiliated corporation (in the case of a transferor that is a
corporation). Each Warrant and each certificate for Preferred Shares or
Restricted Stock transferred as above provided shall bear the legend set forth
in Section 2, except that such certificate shall not bear such legend if (i)
such transfer is in accordance with the provisions of Rule 144 (or any other
rule permitting public sale without registration under the Securities Act) or
(ii) the opinion of counsel referred to above is to the further effect that the
transferee and any subsequent transferee (other than an Affiliate of the
Company) would be entitled to transfer such securities in a public sale without
registration under the Securities Act. The restrictions provided for in this
Section 3 shall not apply to securities which are not required to bear the
legend prescribed by Section 2 in accordance with the provisions of that
Section.
4. Required Registration. (a) At any time after the earlier of (i)
---------------------
six months after any registration statement covering a public offering of
securities of the Company under the Securities Act shall have become effective
and (ii) January 1, 2002, the holders of Restricted Stock constituting at least
51% of the total shares of Restricted Stock then outstanding may request the
Company to register under the Securities Act all or any portion of the shares of
Restricted Stock held by such requesting holder or holders for sale in the
manner specified in such notice, provided that the shares of Restricted Stock
--------
for which registration has been requested shall constitute at least 20% of the
total shares of Restricted Stock originally issued if such holder or holders
shall request the registration of less than all shares of Restricted Stock then
held by such holder or holders and the reasonably anticipated aggregate price to
the public of such public offering is in excess of $5,000,000. For purposes of
this Section 4 and Section 5, the term "Restricted Stock" shall be deemed to
include the number of shares of Restricted Stock which would be issuable to a
holder of Preferred Shares upon the exercise of all Warrants and the conversion
of all Preferred Shares held by such holder (assuming such exercise) at such
time, and for purposes of Section 12(d), the term "Restricted Stock" shall be
deemed to include the number of shares of Restricted Stock which would be
issuable to a holder of Preferred Shares or Warrants upon exercise of all
Warrants and conversion of all Preferred Shares held by such holder (assuming
such exercise) at such time, provided, however, that the only securities which
-------- -------
the Company shall be required to register pursuant hereto shall be shares of
Common Stock, and provided, further, however, that, in any underwritten public
-------- ------- -------
offering contemplated by this Section 4 or Section 5, the holders of Preferred
Shares shall be entitled to sell such Preferred Shares or Warrant Shares to the
underwriters for conversion and sale of the shares of Common Stock issued upon
conversion thereof. Notwithstanding anything to the contrary contained herein,
no request may be made under this Section 4 within 90 days after the effective
date of a registration statement filed by the Company covering a firm commitment
underwritten public offering in which the holders of Restricted Stock shall have
been entitled to join pursuant to Section 5 and in which there shall have been
effectively registered all shares of Restricted Stock as to which registration
shall have been requested.
(b) Following receipt of any notice under this Section 4, the Company
shall immediately notify all holders of Preferred Shares, Restricted Stock and
Warrants from whom notice has not been received and shall use its best efforts
to register under the Securities Act, for public sale in accordance with the
method of disposition specified in such notice from requesting holders, the
number of shares of Restricted Stock specified in such notice (and in all
notices
-3-
<PAGE>
received by the Company from other holders within 30 days after the giving of
such notice by the Company). If such method of disposition shall be an
underwritten public offering, the holders of a majority of the shares of
Restricted Stock to be sold in such offering may designate the managing
underwriter of such offering, subject to the approval of the Company, which
approval shall not be unreasonably withheld or delayed. The Company shall be
obligated to register Restricted Stock pursuant to this Section 4 on two
occasions only, provided, however, that such obligation shall be deemed
-------- -------
satisfied only when a registration statement covering at least 60% of the shares
of Restricted Stock specified in notices received as aforesaid, for sale in
accordance with the method of disposition specified by the requesting holders,
shall have become effective and, if such method of disposition is a firm
commitment underwritten public offering, all such shares shall have been sold
pursuant thereto, and provided further that after the first occasion, holders of
----------------
Restricted Stock constituting at least 25% of the Restricted Stock then
outstanding may require the Company to register Restricted Stock pursuant to
this Section 4.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the method
of disposition specified by the requesting holders, shares of Common Stock to be
sold by the Company for its own account, except as and to the extent that, in
the opinion of the managing underwriter (if such method of disposition shall be
an underwritten public offering), such inclusion would adversely affect the
marketing of the Restricted Stock to be sold. Except for registration statements
on Form S-4, S-8 or any successor thereto, the Company will not file with the
Commission any other registration statement with respect to its Common Stock,
whether for its own account or that of other stockholders, from the date of
receipt of a notice from requesting holders pursuant to this Section 4 until the
completion of the period of distribution of the registration contemplated
thereby.
5. Incidental Registration. If the Company at any time (other than
-----------------------
pursuant to Section 4) proposes to register any of its securities under the
Securities Act for sale to the public, whether for its own account or for the
account of other security holders or both (except with respect to registration
statements on Forms S-4, S-8 or another form not available for registering the
Restricted Stock for sale to the public), each such time it will give written
notice to all holders of outstanding Restricted Stock, Preferred Shares and
Warrants of its intention so to do. Upon the written request of any such holder,
received by the Company within 30 days after the giving of any such notice by
the Company, to register any of its Restricted Stock, the Company will use its
best efforts to cause the Restricted Stock as to which registration shall have
been so requested to be included in the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
requisite to permit the sale or other disposition by the holder of such
Restricted Stock so registered. In the event that any registration pursuant to
this Section 5 shall be, in whole or in part, an underwritten public offering of
Common Stock, the number of shares of Restricted Stock to be included in such an
underwriting may be reduced (pro rata among the requesting holders based upon
the number of shares of Restricted Stock owned by such holders) if and to the
extent that the managing underwriter shall be of the opinion that such inclusion
would adversely affect the marketing of the securities to be sold by the Company
therein, provided, however, that (i) in the case of the Company's initial public
-------- -------
offering such number of shares of Restricted Stock shall not be reduced if any
shares are to be included in such
-4-
<PAGE>
underwriting for the account of any person other than the Company or requesting
holders of Restricted Stock, and (ii) in the case of subsequent offerings in no
event may less than one-half of the total number of shares of Common Stock to be
included in such underwriting for the account of persons other than the Company
be made available for shares of Restricted Stock. Notwithstanding the foregoing
provisions, the Company may withdraw any registration statement referred to in
this Section 5 without thereby incurring any liability to the holders of
Restricted Stock. The rights provided under this Section 5 terminate with
respect to a holder of Restricted Stock as soon as such holder is able to sell
its Restricted Stock pursuant to Rule 144(k).
6. Registration Procedures. If and whenever the Company is required
-----------------------
by the provisions of Sections 4 or 5 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section 4,
shall be on Form S-I or other form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in paragraph (a) above and comply with the provisions of
the Securities Act with respect to the disposition of all Restricted Stock
covered by such registration statement in accordance with the sellers' intended
method of disposition set forth in such registration statement for such period;
(c) furnish to each seller of Restricted Stock and to each underwriter
such number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or other disposition of the
Restricted Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as the sellers of Restricted Stock or, in the case of an
underwritten public offering, the managing underwriter reasonably shall request,
provided, however, that the Company shall not for any such purpose be required
- -------- -------
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) use its best efforts to list the Restricted Stock covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be
-5-
<PAGE>
delivered under the Securities Act, of the happening of any event of which the
Company has knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) if the offering is underwritten and at the request of any seller
of Restricted Stock, use its best efforts to furnish on the date that Restricted
Stock is delivered to the underwriters for sale pursuant to such registration:
(i) an opinion dated such date of counsel representing the Company for the
purposes of such registration, addressed to the underwriters and to such seller,
stating that such registration statement has become effective under the
Securities Act and that (A) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for
that purpose have been instituted or are pending or contemplated under the
Securities Act, (B) the registration statement, the related prospectus and each
amendment or supplement thereof comply as to form in all material respects with
the requirements of the securities act (except that such counsel need not
express any opinion as to financial statements contained therein) and (C) to
such other effects as reasonably may be requested by counsel for the
underwriters or by such seller or its counsel and (ii) a letter dated such date
from the independent public accountants retained by the Company, addressed to
the underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to such registration as such underwriters reasonably may request;
and
(h) make available for inspection by each seller of Restricted Stock,
any underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
For purposes of section 6(a) and 6(b) and of section 4(c), the period
of distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted Stock covered thereby and 120 days
after the effective date thereof.
In connection with each registration hereunder, the sellers of
Restricted Stock will furnish to the Company in writing such information with
respect to themselves and the proposed
-6-
<PAGE>
distribution by them as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
In connection with each registration pursuant to Sections 4 or 5
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
7. Expenses. All expenses incurred by the Company in complying with
--------
Sections 4 or 5, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars, costs of insurance, but excluding any
Selling Expenses, are called "Registration Expenses". All underwriting
---------------------
discounts, selling commissions and fees and disbursements of counsel for any
seller of Restricted Stock applicable to the sale of Restricted Stock are called
"Selling Expenses".
----------------
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 4 or 5. All Selling Expenses in connection
with each registration statement under Sections 4 or 5 shall be borne by the
participating sellers in proportion to the number of shares sold by each, or by
such participating sellers other than the Company (except to the extent the
Company shall be a seller) as they may agree.
8. Indemnification and Contribution. (a) In the event of a
--------------------------------
registration of any of the Restricted Stock under the Securities Act pursuant to
Sections 4 or 5, the Company will indemnify and hold harmless each seller of
such Restricted Stock thereunder, each underwriter of such Restricted Stock
thereunder and each other person, if any, who controls such seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Restricted Stock was registered under the Securities Act
pursuant to Sections 4 or 5, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each such seller, each such underwriter and each
such controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Company will not be liable in
-------- -------
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by any such seller, or an Affiliate of such seller which is
-7-
<PAGE>
also a seller, any such underwriter or any such controlling person in writing
specifically for use in such registration statement or prospectus.
(b) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Sections 4 or 5, each seller of such
Restricted Stock thereunder, severally and not jointly, except that liability
shall be joint hereunder with respect to each Affiliate of a seller which is
also a seller, will indemnify and hold harmless the Company, each person, if
any, who controls the Company within the meaning of the Securities Act, each
officer of the Company who signs the registration statement, each director of
the Company, each underwriter and each person who controls any underwriter
within the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Restricted Stock was registered under the Securities Act
pursuant to Sections 4 or 5, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and each such officer, director,
underwriter and controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, however, that such seller will be
-------- -------
liable hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such seller, as such, furnished
in writing to the Company by such seller or an Affiliate of such seller which is
also a seller specifically for use in such registration statement or prospectus,
and provided, further, however, that the liability of each seller hereunder
-------- ------- -------
shall be limited to the net proceeds received by such seller and Affiliates of
such seller from the sale of Restricted Stock covered by such registration
statement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 8 and shall only relieve it
from any liability which it may have to such indemnified party under this
Section 8 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 8 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof, provided, however,
-------- -------
that, if the defendants in any such action include both the indemnified party
and the indemnifying party and
-8-
<PAGE>
the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional to
those available to the indemnifying party or if the interests of the indemnified
party reasonably may be deemed to conflict with the interests of the
indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other reasonable expenses related to such participation to
be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Restricted Stock exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 8 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling holder or any such controlling
person in circumstances for which indemnification is provided under this Section
8; then, and in each such case, the Company and such holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such holder
is responsible for the portion represented by the percentage that the public
offering price of its and its Affiliates' Restricted Stock offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Company is responsible for the
remaining portion; provided, however, that, in any such case, (A) no such holder
-------- -------
will be required to contribute any amount in excess of the public offering price
of all such Restricted Stock offered by it pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
9. Changes in Common Stock or Preferred Stock. If, and as often as,
------------------------------------------
there is any change in the Common Stock or the Preferred Stock by way of a stock
split, stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock or
the Preferred Stock as so changed.
10. Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Stock to the public without registration, at all
times after 90 days after any registration statement covering a public offering
of securities of the Company under the Securities Act shall have become
effective, the company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
-9-
<PAGE>
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith upon request
a written statement by the Company as to its compliance with the reporting
requirements of such Rule 144 and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as such holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any Restricted Stock without
registration.
11. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the Charter or By-laws of the Company or any provision of any
indenture, agreement or other instrument to which it or any or its properties or
assets is bound, conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument or result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Company.
(b) This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
12. Miscellaneous.
-------------
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto (including without
limitation transferees of any Preferred Shares, Warrants, or Restricted Stock),
whether so expressed or not, provided, however, that registration rights
-------- -------
conferred herein on the holders of Preferred Shares, Warrants or Restricted
Stock shall only inure to the benefit of a transferee of Preferred Shares,
Warrants or Restricted Stock if (i) there is transferred to such transferee
securities representing or convertible into or exercisable for at least 500,000
Conversion Shares, or (ii) such transferee is a partner, shareholder or
affiliate of a party hereto.
(b) All notices, requests, consents and other communications hereunder
shall be in writing and shall be delivered in person, mailed by certified or
registered mail, return receipt requested, or sent by telecopier or telex,
addressed as follows:
if to the Company or any other party hereto, at the address of such
party set forth on Schedule I hereto;
-10-
<PAGE>
if to any subsequent holder of Preferred Shares, Warrants or
Restricted Stock, to it at such address as may have been furnished to the
Company in writing by such holder;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a holder of Preferred Shares, Warrants
or Restricted Stock) or to the holders of Preferred Shares, Warrants or
Restricted Stock (in the case of the Company) in accordance with the provisions
of this paragraph.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois.
(d) This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and the holders
of at least two-thirds of the outstanding shares of Restricted Stock.
(e) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) The obligations of the Company to register shares of Restricted
Stock under Sections 4 or 5 shall terminate on the fifth anniversary of the date
of the Company's initial public offering of shares of Common Stock at a per
share price of at least $7.50, and for aggregate offering proceeds (net of
underwriting commissions and offering expenses) of not less than $20,000,000 (a
"Qualified IPO").
-------------
(g) If requested in writing by the underwriters for the initial
underwritten public offering of securities of the Company, each holder of
Restricted Stock who is a party to this Agreement shall agree not to sell
publicly any shares of Restricted Stock or any other shares of Common Stock
(other than shares of Restricted Stock or other shares of Common Stock being
registered in such offering), without the consent of such underwriters, for such
period as may be determined by the Company and such underwriters; provided,
--------
however, that all persons entitled to registration rights with respect to shares
- -------
of Common Stock who are not parties to this Agreement, all other persons selling
shares of Common Stock in such offering, all persons holding in excess of 5% of
the capital stock of the Company on a fully diluted basis and all executive
officers and directors of the Company shall also have agreed not to sell
publicly their Common Stock under the circumstances and pursuant to the terms
set forth in this Section 12(g).
(h) The Company shall not grant to any third party any registration
rights more favorable than or inconsistent with any of those contained herein,
so long as any of the registration rights under this Agreement remains in
effect. It is agreed that the Investors are "Senior Parties" for the purposes of
(i) that certain Registration Rights Agreement by and between NovaMed Eyecare
Management, LLC, The Eye Center, Inc. and Cataract Surgery Center of St. Louis,
Inc. dated as of November 1, 1996 and (ii) that certain Registration Rights
Agreement by and between NovaMed Eyecare Management, LLC, Illinois Eye
Specialists, Ltd.
-11-
<PAGE>
and Eyes of Illinois Surgery Center, S.C. ((i) and (ii) collectively referred to
as the "Junior Agreements"), and that the rights provided under the Junior
Agreements are expressly subordinate to the rights provided under this
Agreement.
(i) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
-12-
<PAGE>
- Registration Rights Agreement -
Please indicate your acceptance of the foregoing by signing and
returning the enclosed counterpart of this letter, whereupon this Agreement
shall be a binding agreement between the Company and you.
Very truly yours,
NOVAMED HOLDINGS, INC.
By: /s/ Stephen J. Winjum
----------------------------
Title:
_________________________
AGREED TO AND ACCEPTED as of
the date first above written.
Investors named in Schedule I
hereto:
SIERRA VENTURES V, L.P.,
a California Limited Partnership
By: SV Associates V, L.P.
a California Limited Partnership,
its General Partner
By: /s/ James B. Tananbaum
------------------------------
James B. Tananbaum
General Partner
CGJR HEALTH CARE SERVICES PRIVATE EQUITIES, L.P.
By: CGJR Capital Management, Inc.,
as General Partner
By:______________________________
PRESIDENT
<PAGE>
- Registration Rights Agreement -
Please indicate your acceptance of the foregoing by signing and
returning the enclosed counterpart of this letter, whereupon this Agreement
shall be a binding agreement between the Company and you.
Very truly yours,
NOVAMED HOLDINGS, INC.
By:_____________________
Title:__________________
AGREED TO AND ACCEPTED as of
the date first above written.
Investors named in Schedule I
hereto:
SIERRA VENTURES V, L.P.,
a California Limited Partnership
By: SV Associates V, L.P.
a California Limited Partnership,
its General Partner
By:_____________________________
James B. Tananbaum
General Partner
CGJR HEALTH CARE SERVICES PRIVATE EQUITIES, L.P.
By: CGJR Capital Management, Inc.,
as General Partner
By: /s/ Chris Grant
----------------------------
President
<PAGE>
- Registration Rights Agreement -
CGJR II, L.P.
By: CGJR Capital Management, Inc.,
as General Partner
By: /s/ Chris Grant
-------------------------------
President
CGJR/MF, L.P.
By: CGJR Capital Management, Inc.,
as General Partner
By: /s/ Chris Grant
-------------------------------
President
<PAGE>
Schedule I
----------
Investors
---------
Sierra Ventures
3000 Sand Hill Road
Building Four - Suite 210
Menlo Park, California 94025
CGJR Health Care Services Private Equities, L.P.
104 Woodmont Blvd, Suite 410
Nashville, TN 37205
CGJR II, L.P.
104 Woodmont Blvd, Suite 410
Nashville, TN 37205
CGJR/MF III, L.P.
104 Woodmont Blvd, Suite 410
Nashville, TN 37205
<PAGE>
Schedule II
-----------
INSTRUMENT OF ACCESSION
-----------------------
The undersigned, ___________________, as a condition precedent to becoming
the owner or holder of record of ________ (_______) shares of the __________
Stock, par value $.01 per share, of NovaMed Holdings Inc., an Illinois
corporation (the "Company"), hereby agrees to become a party to and bound by
that certain Registration Rights Agreement, dated as of December ___, 1996, by
and among the Company and certain shareholders of the Company. This Instrument
of Accession shall take effect and shall become an integral part of the said
Registration Rights Agreement immediately upon execution and delivery to the
Company of this Instrument.
IN WITNESS WHEREOF, this INSTRUMENT OF ACCESSION has been duly executed by
or on behalf of the undersigned, as a sealed instrument under the laws of the
State of Illinois, as of the date below written.
Signature:
--------------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Date:
-------------------------------------
Accepted:
By:
------------------------
Date:
-----------------------
<PAGE>
EXHIBIT 10.5
SUBORDINATED REGISTRATION RIGHTS AGREEMENT
------------------------------------------
AGREEMENT made this 20 day of December, 1996 by and among NovaMed Holdings
Inc. (the "Company"), those persons whose names are set forth on Schedule I
------- ----------
hereto and each of the persons who shall, after the date hereof, acquire or
receive the right to acquire shares of Series A or Series B Convertible
Preferred Stock or Common Stock of the Company (other than through conversion of
Preferred Stock (as defined below)) and join in and become a party to this
Agreement by executing and delivering to the Company an Instrument of Accession
in the form of Schedule II hereto (each of such aforementioned persons being
-----------
hereinafter referred to collectively as the "Holders" and singularly as a
-------
"Holder").
- -------
WHEREAS, the Holders are acquiring simultaneously herewith shares of the
Common Stock, $.01 par value (the "Common Stock") of the Company, shares of the
------------
Series A Convertible Preferred Stock, $.01 par value (the "Series A Shares") of
---------------
the Company and/or shares of the Series B Convertible Preferred Stock, $.01 par
value (the "Series B Shares") of the Company;
---------------
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Company and the Holders hereby agree:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Affiliate" shall mean a person that directly or indirectly through one or
---------
more intermediaries, controls or is controlled by, or is under common control
with the person specified.
"Commission" shall mean the Securities and Exchange Commission, or any
----------
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $.01 par value, of the Company,
------------
as constituted as of the date of this Agreement.
"Conversion Shares" shall mean shares of Common Stock issued upon
-----------------
conversion of the Junior Preferred Shares.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
------------
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Junior Preferred Shares" shall mean the Series A Shares and the Series B
-----------------------
Shares.
<PAGE>
"Preferred Stock" shall mean the Series A Convertible Preferred Stock, the
---------------
Series B Convertible Stock, Series C Convertible Preferred Stock and the Series
D Convertible Preferred Stock.
"Prior Registration Rights Agreement" means any agreement, promise,
-----------------------------------
covenant or understanding by and between the Company or any of its subsidiaries,
including NovaMed Eyecare Management, LLC, a Delaware limited liability company,
and any Holder, which agreement, promise, covenant or understanding grants such
Holder any right to demand or request registration of Common Stock, Junior
Preferred Shares or Conversion Shares, grants such Holder the right to sell any
shares or otherwise participate in any registration of Common Stock or
Conversion Shares, or otherwise conflicts with the transactions contemplated
herein or in the Senior Registration Rights Agreement.
"Registration Expenses" shall mean the expenses so described in Section 7.
---------------------
"Restricted Stock" shall mean the Common Stock held by Holders and the
----------------
Conversion Shares, excluding Common Stock and Conversion Shares which have been
(a) registered under the Securities Act pursuant to an effective registration
statement filed thereunder and disposed of in accordance with the registration
statement covering them or (b) publicly sold pursuant to Rule 144 under the
Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
--------------
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 7.
----------------
"Senior Requesting Holders" shall mean the holders of shares of Senior
-------------------------
Restricted Stock requesting registration pursuant to the Senior Registration
Rights Agreement.
"Senior Registration Rights Agreement" shall mean the Registration Rights
------------------------------------
Agreement of even date herewith between the Company and the holders of Series C
Shares and warrants to purchase Series D Shares.
"Senior Registration Demand" shall mean a registration of securities by the
--------------------------
Company effected pursuant to Section 4 of the Senior Registration Rights
Agreement.
"Series C Shares" shall mean shares of the Series C preferred stock, par
---------------
value $.01 per share, of the Company.
"Series D Shares" shall mean shares of the Series D preferred stock, par
---------------
value $.01 per share, of the Company.
2
<PAGE>
2. Restrictive Legend. Each certificate representing Junior Preferred
------------------
Shares or Restricted Stock shall, except as otherwise provided in this Section 2
or in Section 3, be stamped or otherwise imprinted with a legend substantially
in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED
OF UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND ALL SUCH APPLICABLE
LAWS OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE."
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company the securities represented thereby may be publicly
sold without registration under the Securities Act and any applicable state
securities laws.
3. Notice of Proposed Transfer. Prior to any proposed transfer of any
---------------------------
Junior Preferred Shares or Restricted Stock (other than under the circumstances
described in Section 5), the holder thereof shall give written notice to the
Company of its intention to effect such transfer. Each such notice shall
describe the manner of the proposed transfer and, if requested by the Company,
shall be accompanied by an opinion of counsel satisfactory to the Company to the
effect that the proposed transfer may be effected without registration under the
Securities Act and any applicable state securities laws, whereupon the holder of
such stock shall be entitled to transfer such stock in accordance with the terms
of its notice; provided, however, that no such opinion of counsel shall be
-------- -------
required for a transfer to one or more partners of the transferor (in the case
of a transferor that is a partnership) or to an affiliated corporation (in the
case of a transferor that is a corporation). Each certificate for Junior
Preferred Shares or Restricted Stock transferred as above provided shall bear
the legend set forth in Section 2, except that such certificate shall not bear
such legend if (i) such transfer is in accordance with the provisions of Rule
144 (or any other rule permitting public sale without registration under the
Securities Act) or (ii) the opinion of counsel referred to above is to the
further effect that the transferee and any subsequent transferee (other than an
Affiliate of the Company) would be entitled to transfer such securities in a
public sale without registration under the Securities Act. The restrictions
provided for in this Section 3 shall not apply to securities which are not
required to bear the legend prescribed by Section 2 in accordance with the
provisions of that Section.
4. Termination of Prior Registration Rights Agreements. The Company and
---------------------------------------------------
each Holder hereby terminate any and all Prior Registration Rights Agreements
and such Prior Registration Rights Agreements shall be null and void and of no
further force or effect.
5. Registration of Restricted Stock.
--------------------------------
(a) If the Company at any time proposes to register any of its
securities under the Securities Act for sale to the public whether for its
own account or for the account of other security holders or both (except
with respect to registration statements on Forms S-4,
3
<PAGE>
S-8 or another form not available for registering the Restricted Stock for
sale to the public), each such time it will give written notice to all
holders of outstanding Restricted Stock and Junior Preferred Shares of its
intention so to do. Upon the written request of any such holder, received
by the Company within 30 days after the giving of any such notice by the
Company, to register any of its Restricted Stock, the Company will use its
best efforts to cause the Restricted Stock as to which registration shall
have been so requested to be included in the securities to be covered by
the registration statement proposed to be filed by the Company, all to the
extent requisite to permit the sale or other disposition by the holder of
such Restricted Stock so registered. In the event that any registration
pursuant to this Section 5(a) shall be, in whole or in part, an
underwritten public offering of Common Stock, the number of shares of
Restricted Stock to be included in such an underwriting may be reduced (pro
rata among the requesting Holders based upon the number of shares of
Restricted Stock owned by such Holders) if and to the extent that the
managing underwriter shall be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that (i) if the registration is not a Senior
-------- -------
Registration Demand and is not an initial public offering (an "IPO"), in no
event may less than one-half of the total number of shares of Common Stock
to be included in such underwriting for the account of persons other than
the Company be made available for shares of Restricted Stock, and (ii) if
the registration of securities is a Senior Registration Demand or an IPO,
then the number of shares of Restricted Stock to be included in such a
registration may be reduced (pro rata among the requesting Holders based
upon the number of shares of Restricted Stock owned by such Holders) if and
to the extent the managing underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold
by the Senior Requesting Holders.
(b) General Terms. Notwithstanding the foregoing provisions, the
-------------
Company may withdraw any registration statement referred to in this Section
5 without thereby incurring any liability to the holders of Restricted
Stock. The rights provided under this Section 5 terminate with respect to
a holder of Restricted Stock as soon as such holder is able to sell its
Restricted Stock pursuant to Rule 144(k). For purposes of this Section 5,
the term "Restricted Stock" shall be deemed to include the number of shares
----------------
of Restricted Stock which would be issuable to a holder of Junior Preferred
Shares upon the conversion of all Junior Preferred Shares held by such
holder at such time, provided, however, that the only securities which the
-------- -------
Company shall be required to register pursuant hereto shall be shares of
Common Stock, and provided, further, however, that, in any underwritten
-------- ------- -------
public offering contemplated by this Section 5, the holders of Junior
Preferred Shares shall be entitled to sell such Junior Preferred Shares to
the underwriters for conversion and sale of the shares of Common Stock
issued upon conversion thereof.
6. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of Section 5 to use its best efforts to effect the registration
of any shares of Restricted Stock under the Securities Act, the Company will, as
expeditiously as possible:
4
<PAGE>
(a) prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for the period specified in paragraph (a) above and
comply with the provisions of the Securities Act with respect to the
disposition of all Restricted Stock covered by such registration statement
in accordance with the sellers' intended method of disposition set forth in
such registration statement for such period;
(c) furnish to each seller of Restricted Stock and to each underwriter
such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or "blue sky"
laws of such jurisdictions as the sellers of Restricted Stock or, in the
case of an underwritten public offering, the managing underwriter
reasonably shall request, provided, however, that the Company shall not for
-------- -------
any such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) use its best efforts to list the Restricted Stock covered by such
registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event of which the Company has
knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances then existing;
(g) if the offering is underwritten and at the request of any seller
of Restricted Stock, use its best efforts to furnish on the date that
Restricted Stock is delivered to the underwriters for sale pursuant to such
registration: (i) an opinion dated such date of counsel representing the
Company for the purposes of such registration, addressed to the
5
<PAGE>
underwriters and to such seller, stating that such registration statement
has become effective under the Securities Act and that (A) to the best
knowledge of such counsel, no stop order suspending the effectiveness
thereof has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Securities Act, (B) the
registration statement, the related prospectus and each amendment or
supplement thereof comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need not
express any opinion as to financial statements contained therein) and (C)
to such other effects as reasonably may be requested by counsel for the
underwriters or by such seller or its counsel and (ii) a letter dated such
date from the independent public accountants retained by the Company,
addressed to the underwriters and to such seller, stating that they are
independent public accountants within the meaning of the Securities Act and
that, in the opinion of such accountants, the financial statements of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material respects
with the applicable accounting requirements of the Securities Act, and such
letter shall additionally cover such other financial matters (including
information as to the period ending no more than five business days prior
to the date of such letter) with respect to such registration as such
underwriters reasonably may request; and
(h) make available for inspection by each seller of Restricted Stock,
any underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent
retained by such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant
or agent in connection with such registration statement.
For purposes of Section 6(a) and 6(b), the period of distribution of
Restricted Stock in a firm commitment underwritten public offering shall be
deemed to extend until each underwriter has completed the distribution of
all securities purchased by it, and the period of distribution of
Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted Stock covered thereby and 120
days after the effective date thereof.
In connection with each registration hereunder, the sellers of
Restricted Stock will furnish to the Company in writing such information
with respect to themselves and the proposed distribution by them as
reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws.
In connection with each registration pursuant to Section 5 covering an
underwritten public offering, the Company and each seller agree to enter
into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an
6
<PAGE>
arrangement between such underwriter and companies of the Company's size
and investment stature.
7. Expenses. All expenses incurred by the Company in complying with
--------
Section 5, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including counsel fees) incurred
in connection with complying with state securities or "blue sky" laws, fees of
the National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of insurance, but excluding any Selling
Expenses, are called "Registration Expenses". All underwriting discounts,
---------------------
selling commissions and fees and disbursements of counsel for any seller of
Restricted Stock applicable to the sale of Restricted Stock are called "Selling
-------
Expenses".
- --------
The Company will pay all Registration Expenses in connection with each
registration statement under Section 5. All Selling Expenses in connection with
each registration statement under Section 5 shall be borne by the participating
sellers in proportion to the number of shares sold by each, or by such
participating sellers other than the Company (except to the extent the Company
shall be a seller) as they may agree.
8. Indemnification and Contribution.
--------------------------------
(a) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Section 5, the Company will indemnify
and hold harmless each seller of such Restricted Stock thereunder, each
underwriter of such Restricted Stock thereunder and each other person, if
any, who controls such seller or underwriter within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint
or several, to which such seller, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement
under which such Restricted Stock was registered under the Securities Act
pursuant to Section 5, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of
or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each such seller,
each such underwriter and each such controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action, provided,
--------
however, that the Company will not be liable in any such case if and to the
-------
extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by any
such seller, or an Affiliate of such seller which is also a seller, any
such underwriter or any such controlling person in writing specifically for
use in such registration statement or prospectus.
7
<PAGE>
(b) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Section 5, each seller of such
Restricted Stock thereunder, severally and not jointly, except that
liability shall be joint hereunder with respect to each Affiliate of a
seller who is also a seller, will indemnify and hold harmless the Company,
each person, if any, who controls the Company within the meaning of the
Securities Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person
who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to
which the Company or such officer, director, underwriter or controlling
person may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
under which such Restricted Stock was registered under the Securities Act
pursuant to Section 5, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of
or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each
such officer, director, underwriter and controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action, provided,
--------
however, that such seller will be liable hereunder in any such case if and
-------
only to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
information pertaining to such seller, as such, furnished in writing to the
Company by such seller or an Affiliate of such seller which is also a
seller specifically for use in such registration statement or prospectus,
and provided, further, however, that the liability of each seller hereunder
-------- ------- -------
shall be limited to the net proceeds received by such seller and Affiliates
of such seller from the sale of Restricted Stock covered by such
registration statement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim
in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to
notify the indemnifying party shall not relieve it from any liability which
it may have to such indemnified party other than under this Section 8 and
shall only relieve it from any liability which it may have to such
indemnified party under this Section 8 if and to the extent the
indemnifying party is prejudiced by such omission. In case any such action
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in and, to the extent it shall wish, to
assume and undertake the defense thereof with counsel satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such
8
<PAGE>
indemnified party under this Section 8 for any legal expenses subsequently
incurred by such indemnified party in connection with the defense thereof,
provided, however, that, if the defendants in any such action include
-------- -------
both the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that there may be reasonable defenses
available to it which are different from or additional to those available
to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified party shall have the right to select a separate
counsel and to assume such legal defenses and otherwise to participate in
the defense of such action, with the reasonable expenses and fees of such
separate counsel and other reasonable expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any
holder of Restricted Stock exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 8 but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding
the fact that this Section 8 provides for indemnification in such case, or
(ii) contribution under the Securities Act may be required on the part of
any such selling holder or any such controlling person in circumstances for
which indemnification is provided under this Section 8; then, and in each
such case, the Company and such holder will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that such holder is
responsible for the portion represented by the percentage that the public
offering price of its and its Affiliates' Restricted Stock offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Company is responsible for
the remaining portion; provided, however, that, in any such case, (A) no
-------- -------
such holder will be required to contribute any amount in excess of the
public offering price of all such Restricted Stock offered by it pursuant
to such registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.
9. Changes in Common Stock or Preferred Stock. If, and as often as,
------------------------------------------
there is any change in the Common Stock or the Preferred Stock by way of a stock
split, stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock or
the Preferred Stock as so changed.
9
<PAGE>
10. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Stock to the public without registration, at all times
after 90 days after any registration statement covering a public offering of
securities of the Company under the Securities Act shall have become effective,
the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith upon request
a written statement by the Company as to its compliance with the reporting
requirements of such Rule 144 and of the Securities Act and the Exchange
Act, a copy of the most recent annual or quarterly report of the Company,
and such other reports and documents so filed by the Company as such holder
may reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any Restricted Stock without
registration.
11. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and
will not violate any provision of law, any order of any court or other
agency of government, the Charter or By-laws of the Company or any
provision of any indenture, agreement or other instrument to which it or
any or its properties or assets is bound, conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default under
any such indenture, agreement or other instrument or result in the creation
or imposition of any lien, charge or encumbrance of any nature whatsoever
upon any of the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
12. Miscellaneous.
-------------
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto (including
without limitation transferees of any Junior
10
<PAGE>
Preferred Shares or Restricted Stock), whether so expressed or not,
provided, however, that registration rights conferred herein on the Holders
-------- -------
shall only inure to the benefit of a transferee of Junior Preferred Shares
or Restricted Stock if (i) there is transferred to such transferee
securities representing or convertible into or exercisable for at least
500,000 Conversion Shares, or (ii) such transferee is a partner,
shareholder or affiliate of a party hereto.
(b) All notices, requests, consents and other communications hereunder
shall be in writing and shall be delivered in person, mailed by certified
or registered mail, return receipt requested, or sent by telecopier or
telex, addressed as follows:
if to the Company or any other party hereto, at the address of
such party set forth on Schedule I hereto;
----------
if to any subsequent holder of Junior Preferred Shares or
Restricted Stock, to it at such address as may have been furnished to
the Company in writing by such holder;
or, in any case, at such other address or addresses as shall have
been furnished in writing to the Company (in the case of a holder of
Junior Preferred Shares or Restricted Stock) or to the holders of
Junior Preferred Shares or Restricted Stock (in the case of the
Company) in accordance with the provisions of this paragraph.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois.
(d) This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and the
holders of at least two-thirds of the outstanding shares of Restricted
Stock; provided, however, that for purposes of this Section 12(d), the term
-------- -------
"Restricted Stock" shall be deemed to include the number of shares of
----------------
Restricted Stock which would be issuable to a holder of Junior Preferred
Shares upon conversion of all Junior Preferred Shares held by such holder
at such time.
(e) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) The obligations of the Company to register shares of Restricted
Stock under Section 5 shall terminate on the fifth anniversary of the date
of the Company's initial public offering of shares of Common Stock at a per
share price of at least $7.50, and for
11
<PAGE>
aggregate offering proceeds (net of underwriting commissions and offering
expenses) of not less than $20,000,000 (a "Qualified IPO").
-------------
(g) Except for rights granted pursuant to the Senior Registration
Rights Agreement, either on or subsequent to the date hereof, the Company
shall not grant to any third party any registration rights more favorable
than or inconsistent with any of those contained herein, so long as any of
the registration rights under this Agreement remains in effect. The
parties hereto agree, however, that the Company may, in its sole
discretion, execute the Instrument of Accession attached as Schedule II
-----------
hereto with any person who shall, after the date hereof, acquire or receive
the right to acquire shares of the capital stock of the Company (other than
through the conversion of Preferred Stock).
(h) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability
shall attach only to such provision and shall not in any manner affect or
render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
12
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this document as of the
date first written above.
_________________________________
Stephen J. Winjum
_________________________________
Daniel O. Wagster
_________________________________
John W. McCarty
_________________________________
Eldi E. Deschamps
_________________________________
Melvyn A. Gerstein
Kathleen M. Scarpulla and Richard
Scarpulla, as joint tenants with
right of survivorship
_________________________________
Kathleen M. Scarpulla
_________________________________
Richard Scarpulla
_________________________________
Kathleen M. Scarpulla
_________________________________
Patricia Groenewold
<PAGE>
_________________________________
Alan M. Berry
_________________________________
Michael Lutz
_________________________________
Marti McElroy
_________________________________
Steven V. Napolitano
_________________________________
Russell N. Pallesen
_________________________________
John P. Winjum
Gail L. Rudo Revocable Trust
By:_____________________________
Name:____________________________
_________________________________
Vincent A.F. Sergi
David R. Shevitz and Suzanne R.
Shevitz, as joint tenants with
right of survivorship
_____________________________
David R. Shevitz
<PAGE>
____________________________
Suzanne R. Shevitz
<PAGE>
_________________________________
Gregory Winjum
_________________________________
Joseph Winjum
Deschamps Eye Care P.C.
By:_______________________________
Name:_____________________________
Title:____________________________
Northshore Eye Surgicenter, Ltd.
By:_______________________________
Name:_____________________________
Title:____________________________
TRI-OC Management, Inc.
By:_______________________________
Name:_____________________________
Title:____________________________
Kirk Family Limited Partnership
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
Douglas Williams Family
Limited Partnership
By: Brodersen-Williams Eye Institute, P.C.,
its general partner
By:____________________________
Douglas P. Williams,
an authorized signatory
Wolin Family Limited Partnership
By:____________________________
Lawrence D. Wolin, an authorized signatory
Vile Family Limited Partnership
By:____________________________
Steven Vile, one of its general partners
Lawrence D. Wolin Limited Partnership
By: Wolin Family Limited Partnership,
its general partner
By:____________________________
Lawrence D. Wolin,
an authorized signatory
Stephen Vile Limited Partnership
By:____________________________
Stephen Vile, one of its general partners
<PAGE>
Walter S. Fried and Gail S. Fried
Family Limited Partnership
By:____________________________
Name:__________________________
Title:_________________________
_______________________________
Robert C. Goettling
_______________________________
John W. Lawrence, Jr.
_______________________________
Kenneth G. Groenewold
_______________________________
William J.L. Kennedy
_______________________________
Anthony C. Belli
_______________________________
Stephen M. McConnell
_______________________________
T. Trent Roark
James A. Brocato and Brenda Brocato,
as joint tenants with right of survivorship
_______________________________
James A. Brocato
_______________________________
Brenda Brocato
<PAGE>
_______________________________
Jon C. Thomas
_______________________________
Christopher G. Werfel
_______________________________
Daniel Flavin
_______________________________
Scott H. Kirk
_______________________________
Kent A. Kirk
_______________________________
Robert Wojcik
_______________________________
Marie Allen
<PAGE>
NOVAMED HOLDINGS INC.
By:_______________________________
Its:______________________________
<PAGE>
Schedule I
----------
Holders
-------
Douglas Williams Family Partnership
Deschamps Eye Care, P.C.
Eldi E. Deschamps
Kirk Family Limited Partnership
Scott H. Kirk
Kent A. Kirk
Northshore Eye Surgicenter, Ltd.
Melvyn A. Gerstein
Kathleen M. Scarpulla and Richard Scarpulla, as joint tenants
Kathleen M. Scarpulla
Stephen Vile Limited Partnership
Vile Family Limited Partnership
Lawrence D. Wolin Limited Partnership
Wolin Family Limited Partnership
Walter S. Fried and Gail S. Fried Family Limited Partnership
James A. Brocato and Brenda Brocato, as joint tenants
Kenneth G. Groenewold
Patricia Groenewold
Robert C. Goettling
T. Trent Roark
Jon C. Thomas
Stephen J. Winjum
John W. Lawrence Jr.
Christopher G. Werfel
Anthony C. Belli
John W. McCarty
Daniel O. Wagster
William J.L. Kennedy
Daniel Flavin
Michael J. Lutz
Stephen M. McConnell
Alan M. Berry
Marti McElroy
Steven V. Napolitano
Russell N. Pallesen
Gail L. Rudo Revocable Trust
Vincent A. F. Sergi
David R. Shevitz and Suzanne R. Shevitz, as joint tenants
Gregory Winjum
TRI-OC Management, Inc.
John P. Winjum
Joseph Winjum
<PAGE>
Schedule II
-----------
Instrument of Accession
-----------------------
The undersigned, __________, in connection with becoming the owner or
holder of record of ________ (_______) shares of the Common Stock, par value
$.01 per share, of NovaMed Holdings Inc., an Illinois corporation (the
"Company"), hereby agrees to become a Holder, party to and bound by that certain
Subordinated Registration Rights Agreement, dated as of December __, 1996, by
and among the Company and certain shareholders of the Company. This Instrument
of Accession shall take effect and shall become an integral part of said
Subordinated Registration Rights Agreement immediately upon execution and
delivery to the Company of this Instrument.
IN WITNESS WHEREOF, this Instrument of Accession has been duly executed by
or on behalf of the undersigned, under the laws of the State of Illinois, as of
the date written below.
NOVAMED HOLDINGS INC.
By:_______________________________
Title:____________________________
HOLDER:
Signature:_________________________
Address: ________________________
________________________
________________________
Date: ________________________
<PAGE>
Exhibit 10.6
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), dated as
of February 17, 1999, by and between NovaMed Eyecare Management, LLC, a
Delaware limited liability company (the "Company"), and Stephen J. Winjum
("Employee").
PRELIMINARY RECITALS
A. The Company is an eye care services company engaged in the business
of: (i) providing comprehensive eye care services to eye care providers and
businesses ancillary thereto, including, without limitation, providing
financial, administrative, information technology, marketing and managed care
services to ophthalmic and optometric providers; (ii) owning, operating and/or
managing ambulatory surgery centers, refractive centers, excimer lasers,
optical dispensaries, wholesale optical laboratories, and an optical supplies
and equipment purchasing organization; and (iii) providing clinical research
and site management services to the eye care pharmaceutical and device
industries (collectively, the "Business").
B. The Company and Employee entered into an Employment Agreement dated
August 21, 1995 (the "Original Agreement").
C. In consideration for the continued employment of Employee, and the
Company's grant to Employee of options to acquire shares of common stock of
NovaMed Holdings Inc., the parent company of the Company of even date herewith,
the parties hereto desire to amend the terms and conditions of the Original
Agreement, all on the terms and conditions set forth herein.
D. The Company desires to continue to employ Employee, and Employee
desires to continue to be employed by the Company, as Chairman, President and
Chief Executive Officer of the Company on the terms and conditions contained
herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
ARTICLE I
Employment
1.1 Engagement of Employee. The Company agrees to continue to employ
----------------------
Employee, and Employee accepts such continued employment by the Company, for
the period beginning February 17, 1999 (the "Effective Date") and ending on
February 16, 2002 (the "Initial Employment Period"). The Initial Employment
Period and any Renewal Period (as hereinafter
-1-
<PAGE>
defined) shall automatically be renewed and extended on the same terms and
conditions contained herein for consecutive one-year periods (the "Renewal
Periods"), unless not later than sixty (60) days prior to the end of the Initial
Employment Period or any Renewal Period, either party shall give written notice
to such other party electing to terminate this Agreement. The Initial Employment
Period and the Renewal Periods are hereinafter referred to as the "Employment
Period." For purposes of this Agreement, any notice of termination electing not
to renew this Agreement pursuant to this Section 1.1 shall be deemed: (i) a
termination without cause if such notice is delivered by the Company; or (ii) a
voluntary termination of employment if such notice is delivered by Employee;
provided, however, that if the Employment Period is terminated pursuant to this
Section 1.1 by Employee, then notwithstanding Section 3.3, the Company shall
have no further obligations hereunder or otherwise with respect to Employee's
employment from and after the expiration of the Employment Period (except
payment of Employee's Base Salary, Benefits and Special Benefits accrued through
the expiration of the Employment Period). Notwithstanding anything to the
contrary contained herein, the Employment Period is subject to termination
pursuant to Article III below.
1.2 Duties and Powers. During the Employment Period, Employee will have
-----------------
such responsibilities, duties and authorities, and will render such services or
act in such other capacity for the Company and its affiliates as the Board of
Directors (the "BOARD") of NovaMed Holdings Inc. ("Holdings"), the manager and
parent of the Company (or any designated officer of Holdings or the Company),
may from time to time direct. Employee will devote his best efforts, energies
and abilities and his full business time, skill and attention (except for
permitted vacation periods and reasonable periods of illness or other
incapacity) to the business and affairs of the Company, and shall perform the
duties and carry out the responsibilities assigned to him, to the best of his
ability, in a diligent, trustworthy, businesslike and efficient manner for the
purpose of advancing the Company. Employee acknowledges that his duties and
responsibilities will require his full-time business efforts and agrees that
during the Employment Period he will not engage in any other business activity
or have any business pursuits or interests except activities or interests which
do not conflict with the business of the Company, Holdings and any of their
affiliated entities or interfere with the performance of Employee's duties
hereunder.
1.3 No Violation. Employee represents and warrants that the execution of
------------
this Agreement by Employee and the performance by Employee of his duties as an
employee of the Company will not violate, conflict with or result in a breach or
default under any agreements, arrangements or understandings to which Employee
is or was a party, or by which he is or was bound, nor will the performance of
Employee's duties as an employee of the Company be limited, restricted or
impaired in any manner as a result of any agreements, arrangements or
understandings to which Employee is or was a party.
-2-
<PAGE>
ARTICLE II
Compensation
2.1 Base Salary. During the Employment Period, the Company will pay
-----------
Employee a base salary at the rate of $250,000 per annum (the "Base Salary"),
payable in regular installments in accordance with the Company's general payroll
practices for salaried employees. If the Employment Period is terminated
pursuant to SECTION 3 (subject to any severance provisions in Section 3.3),
Employee's Base Salary for any partial year will be prorated based upon the
number of days elapsed in such year during which services were actually
performed by Employee. The Board or any designated officer shall perform an
annual review of Employee's Base Salary based on Employee's Performance of his
duties and the Company's other compensation policies; provided that any increase
in the Base Salary shall require approval of the Board.
2.2 Discretionary Bonus. Following the end of each fiscal year, the Board,
-------------------
in its sole discretion, may elect to cause the Company to award to Employee a
bonus for such year, in an amount to be determined by the Board, based on such
performance targets as shall be established, and adjusted from time to time, by
the Board's compensation committee.
2.3 Benefits. In addition to the Base Salary payable to Employee
--------
hereunder, Employee will be entitled to the following benefits during the
Employment Period, unless otherwise altered by the Board with respect to all
management employees of the Company (collectively, the "Benefits"):
(a) hospitalization, disability, life and health insurance, to the
extent offered by the Company, and in amounts consistent with Company policy,
for all management employees, as reasonably determined by the Board;
(b) paid vacation each year with salary, consistent with Company
policy for all management employees;
(c) reimbursement for reasonable out-of-pocket business expenses
incurred by Employee in the ordinary course of his duties, subject to the
Company's policies in effect from time to time with respect to travel,
entertainment and other expenses, including without limitation, requirements
with respect to reporting and documentation of such expenses;
(d) other benefit arrangements, including a 401 (K) or similar tax
deferral plan, to the extent made generally available by the Company to its
management employees; and
(e) participation in Holdings' Stock Incentive Plan such that Employee
is granted options to purchase an amount of the common equity interest in
Holdings consistent with the determination of the Board or its Compensation
Committee pursuant to such plan.
-3-
<PAGE>
2.4 Special Benefits. In addition to the Base Salary payable to Employee
----------------
hereunder and the Benefits Employee is entitled to hereunder, Employee will be
entitled to a $750 per month automobile allowance during the Employment Period
(the "Special Benefits").
2.5 Taxes, etc. All compensation payable to Employee hereunder is stated
----------
in gross amount and shall be subject to all applicable withholding taxes, other
normal payroll and any other amounts required by law to be withheld.
ARTICLE III
Termination
3.1 Termination By Employee or the Company. The Employment Period (i)
---------------------------------------
shall automatically terminate immediately upon Employee's resignation or
death, or (ii) may be terminated by the Company as set forth herein for Cause
or without Cause, or by reason of Employee's Permanent Disability.
"Cause" as used herein means the occurrence of any of the following
events:
(a) a material breach by Employee of any of the terms and conditions
of this Agreement;
(b) Employee's gross negligence in the performance of his duties or
material failure or willful refusal to perform his duties;
(c) Employee's failure, as notified by the Company in writing, to
comply with any of the Company's written guidelines or procedures promulgated by
the Company and furnished to Employee, including, without limitation, any
guidelines or procedures relating to marketing or community relations; provided
that Employee shall have a reasonable period of time during which to cure such
failure following the date on which Employee receives the Company's written
notice of such failure;
(d) the determination by the Board in the exercise of its reasonable
judgment that Employee has committed an act that materially negatively affects
the Company's business or reputation; or
(e) the determination by the Board in the exercise of its reasonable
judgment that Employee has committed an act or acts constituting a felony or
other act involving dishonesty, disloyalty or fraud against the Company.
"Permanent Disability" as used herein shall mean that Employee is unable
to perform, with or without reasonable accommodation, by reason of physical or
mental incapacity, the essential functions of his or her position. The Board
shall determine, according to the facts then available, whether and when a
Permanent Disability has occurred. Such determination shall not be arbitrary or
unreasonable, and shall be final and binding on the parties hereto.
-4-
<PAGE>
3.2 Termination by Employee. Employee has the right to terminate his
-----------------------
employment under this Agreement at any time, for any or no reason, upon ninety
(90) days written notice to the Company.
3.3 Compensation After Termination.
------------------------------
(a) If the Employment Period is terminated (i) by the Company for
Cause or due to the death or Permanent Disability of Employee, (ii) by Employee
(including a termination resulting from Employee's election not to renew this
Agreement under Section 1.1 hereof), then the Company shall have no further
obligations hereunder or otherwise with respect to Employee's employment from
and after the termination or expiration date (except payment of Employee's Base
Salary accrued through the date of termination or expiration), and the Company
shall continue to have all other rights available hereunder (including, without
limitation, all rights under Article IV hereof) at law or in equity;
(b) If the Employment Period is terminated by the Company without
Cause (including a termination resulting from the Company's election not to
renew this Agreement under Section 1.1 hereof), the Employee shall be entitled
to receive Severance Pay (as hereinafter defined) for a period of eighteen (18)
months, payable in regular installments in accordance with the Company's general
payroll practices for salaried employees. Receipt of Severance Pay is contingent
upon Employee executing and adhering to a release of all employment claims in a
form acceptable to the Company. The Company shall have no further obligations
hereunder or otherwise with respect to Employee's employment from and after the
termination date, and the Company shall continue to have all other rights
available hereunder (including without limitation, all rights under Article IV
hereof) at law or in equity.
(c) For purposes of this Agreement, "Severance Pay" shall include (i)
Employee's Base Salary hereunder, (ii) the bonus that Employee would have
received under SECTION 2.2 hereof at the end of the year during which
termination without cause occurs had such termination not occurred, which bonus
shall be prorated to cover the severance period set forth in Section 3.3(b)
hereof, and (iii) continuation of the Benefits for the severance period set
forth in Section 3.3(b) hereof.
ARTICLE IV
Restrictive Covenants
4.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(a) the Company is and will be engaged in the Business during the
Employment Period and thereafter;
(b) Employee is one of a limited number of persons who will be
developing the Business;
-5-
<PAGE>
(c) Employee will occupy a position of trust and confidence with the
Company after the date of this Agreement, and during such period and Employee's
employment under this Agreement, Employee will become familiar with the
Company's trade secrets and with other proprietary and confidential information
concerning the Company and the Business;
(d) the agreements and covenants contained in this Article IV are
essential to protect the Company and the goodwill of the Business and are a
condition precedent to the Company entering into this Agreement;
(e) Employee's employment with the Company has special, unique and
extraordinary value to the Company and the Company would be irreparably damaged
if Employee were to provide services to any person or entity in violation of the
provisions of this Agreement;
(f) Employee has means to support himself and his dependents other
than by engaging in the Business, or a business similar to the Business, and the
provisions of this Article IV will not impair such ability; and
(g) for purposes of this Article IV, the term "Company" shall include
the Company, Holdings and any of their respective subsidiaries and affiliates.
4.2 Non-Compete. Employee hereby agrees that for a period commencing on
-----------
the date hereof and ending on the date of termination or expiration of his
employment with the Company for any reason (the "TERMINATION DATE"), and
thereafter, through the period ending on the first anniversary of the
Termination Date (collectively, the "Restrictive Period"), he shall not,
directly or indirectly, as employee, agent, consultant, stockholder, director,
co-partner or in any other individual or representative capacity, own, operate,
manage, control, engage in, invest in or participate in any manner in, act as a
consultant or advisor to, render services for (alone or in association with any
person, firm, corporation or entity), or otherwise assist any person or entity
(other than the Company) that engages in or owns, invests in, operates, manages
or controls any venture or enterprise that directly or indirectly engages or
proposes to engage in any element of the Business anywhere within a 100-mile
radius of the Chicago metropolitan area or within a 100-mile radius of any area
(or in the event such area is a major city, the metropolitan area relating to
such city) in which the Company on the Termination Date engages in any element
of the Business (the "Territory"); provided, however, that nothing contained
herein shall be construed to prevent Employee from investing in the stock of any
competing corporation listed on a national securities exchange or traded in the
over-the-counter market, but only if Employee is not involved in the business of
said corporation and if Employee and his associates (as such term is defined in
Regulation 14(A) promulgated under the Securities Exchange Act of 1934, as in
effect on the date hereof), collectively, do not own more than an aggregate of
3% of the stock of such corporation. With respect to the Territory, Employee
specifically acknowledges that the Company intends to expand the Business into
and throughout the United States.
-6-
<PAGE>
4.3 Interference with Relationships. Without limiting the generality of the
-------------------------------
provisions of Section 4.2 hereof, Employee hereby agrees that, during the
Restrictive Period, he will not, directly or indirectly, solicit or encourage,
or participate as employee, agent, consultant, stockholder, director, partner or
in any other individual or representative capacity, in any business which
solicits or encourages (a) any person, firm, corporation or other entity which
has executed, or proposes to execute, a management services agreement with the
Company at any time during the term of this Agreement, or from any successor in
interest to any such person, firm, corporation or other entity, for the purpose
of securing business or contracts related to any element of the Business, or (b)
any present or future customer or patient of the Company or any of its
affiliated practices to terminate or otherwise alter his, her or its
relationship with the Company or such affiliated practice; provided, however,
that nothing contained herein shall be construed to prohibit or restrict
Employee from soliciting business from any such parties on behalf of the Company
in performance of his duties as an employee of the Company required under and as
specifically contemplated by Section 1.2 above.
4.4 Nonsolicitation. Other than in the performance of his duties hereunder,
---------------
during the Restrictive Period, Employee shall not, directly or indirectly, as
employee, agent, consultant, stockholder, director, co-partner or in any other
individual or representative capacity, employ or engage, recruit or solicit for
employment or engagement, any person who is or becomes employed or engaged by
the Company or any of its affiliated practices during the Restrictive Period, or
otherwise seek to influence or alter any such person's relationship with the
Company.
4.5 Confidential Information. Other than in the performance of his duties
------------------------
hereunder, during the Restrictive Period and thereafter, Employee shall keep
secret and retain in strictest confidence, and shall not, without the prior
written consent of the Company, furnish, make available or disclose to any third
party or use for the benefit of himself or any third party, any Confidential
Information. As used in this Agreement, "Confidential Information" shall mean
any information relating to the business or affairs of the Company or the
Business, including but not limited to any technical or non-technical data,
formulae, compilations, programs, devices, methods, techniques, designs,
processes, procedures, improvements, models, manuals, financial data,
acquisition strategies and information, information relating to operating
procedures and marketing strategies, and any other proprietary information used
by the Company in connection with the Business, irrespective of its form;
provided, however, that Confidential Information shall not include any
information which is in the public domain or becomes known in the industry
through no wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary to
the Company.
4.6 Inventions and Discoveries.
--------------------------
(a) Employee understands and agrees that all inventions, discoveries,
ideas, improvements, whether patentable, copyrightable or not, pertaining to the
Business of the Company or relating to the Company's actual or demonstrably
anticipated research, development or inventions (collectively, "Inventions and
Discoveries") that result from any work performed by Employee solely or jointly
with others for the Company which Employee, solely or jointly with
-7-
<PAGE>
others, conceives, develops, or reduces to practice during the course of
Employee's employment with the Company, are the sole and exclusive property of
the Company. Employee will promptly disclose all such matters to the Company and
will assist the Company in obtaining legal protection for Inventions and
Discoveries. Employee hereby agrees on behalf of himself, his executors, legal
representatives and assignees that he will assign, transfer and convey to the
Company, its successors and assigns the Inventions and Discoveries.
(b) THE COMPANY AND EMPLOYEE ACKNOWLEDGE AND AGREE THAT SECTION 4.6(a)
SHALL NOT APPLY TO AN INVENTION OF EMPLOYEE FOR WHICH NO EQUIPMENT, SUPPLIES,
FACILITY OR TRADE SECRET INFORMATION OF THE COMPANY WAS USED AND WHICH WAS
DEVELOPED ENTIRELY ON EMPLOYEE'S OWN TIME, UNLESS (A) THE INVENTION RELATED (I)
TO THE BUSINESS OF THE COMPANY OR (II) TO THE COMPANY'S ACTUAL OR DEMONSTRABLY
ANTICIPATED RESEARCH OR DEVELOPMENT, OR (B) THE INVENTION RESULTS FROM ANY WORK
PERFORMED BY EMPLOYEE FOR THE COMPANY. EMPLOYEE AND THE COMPANY FURTHER
ACKNOWLEDGE AND AGREE THAT SECTION 4.6(a) SHALL NOT APPLY TO ANY INVENTIONS OR
WORK PRODUCT DEVELOPED OR VESTED BY EMPLOYEE PRIOR TO THE EFFECTIVE DATE.
(c) EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS SECTION 4.6 AND FULLY
UNDERSTANDS THE LIMITATIONS WHICH IT IMPOSES UPON HIM AND HAS RECEIVED A
DUPLICATE COPY OF THIS AGREEMENT FOR HIS RECORDS.
4.7 Blue-Pencil. If any court of competent jurisdiction shall at any time
-----------
deem the term of this Agreement or any particular Restrictive Covenant (as
defined) too lengthy or the Territory too extensive, the other provisions of
this Section 4 shall nevertheless stand, the Restrictive Period herein shall be
deemed to be the longest period permissible by law under the circumstances and
the Territory herein shall be deemed to comprise the largest territory
permissible by law under the circumstances. The court in each case shall reduce
the time period and/or Territory to permiissible duration or size.
4.8 Remedies. Employee acknowledges and agrees that the covenants set
--------
forth in this Section 4 (collectively, the "Restrictive Covenants") are
reasonable and necessary for the protection of the Company's business interests,
that irreparable injury will result to the Company if Employee breaches any of
the terms of said Restrictive Covenants, and that in the event of Employee's
actual or threatened breach of any such Restrictive Covenants, the Company will
have no adequate remedy at law. Employee accordingly agrees that in the event of
any actual or threatened breach by him of any of the Restrictive Covenants, the
Company shall be entitled to immediate temporary injunctive and other equitable
relief, without bond and without the necessity of showing actual monetary
damages, subject to hearing as soon thereafter as possible. Nothing contained
herein shall be construed as prohibiting the Company from pursuing any other
remedies
-8-
<PAGE>
available to it for such breach or threatened breach, including the recovery of
any damages which it is able to prove.
ARTICLE V
Miscellaneous
5.1 Notices. Any notice provided for in this Agreement must be in writing
-------
and must be either (i) personally delivered, (ii) mailed by registered or
certified first class mail, prepaid with return receipt requested or (iii) sent
by a recognized overnight courier service, to the recipient at the address below
indicated:
To the Company:
NovaMed Eyecare Management, LLC
980 N. Michigan Avenue
Suite 1620
Chicago, IL 60611
Attention: Stephen J. Winjum
John W. Lawrence, Jr.
with a copy to:
Katten Muchin & Zavis
525 W. Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Attention: Steven V. Napolitano, Esq.
To Employee:
Stephen J. Winjum
____________________________________
____________________________________
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given (a) on the date
such notice is personally delivered, (b) three (3) days after the date of
mailing if sent by certified or registered mail, or (c) one (1) day after the
date such notice is delivered to the overnight courier service if sent by
overnight courier.
5.2 Severability. Whenever possible, each provision of this Agreement will
--------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed,
-9-
<PAGE>
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
5.3 Entire Agreement. This Agreement, those documents expressly referred
----------------
to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
5.4 Counterparts. This Agreement may be executed on separate
------------
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
5.5 Successors and Assigns. This Agreement is intended to bind and inure
----------------------
to the benefit of and be enforceable by Employee and the Company and their
respective successors and permitted assigns. Employee may not assign any of his
rights or obligations hereunder without the written consent of the Company.
5.6 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party
hereto.
5.7 Amendments and Waivers. Any provision of this Agreement may be
----------------------
amended or waived only with the prior written consent of the Company and
Employee.
5.8 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the laws
of the State of Illinois, without giving effect to provisions thereof regarding
conflict of laws.
5.9 Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under this Agreement as
ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as ordinary income for
income tax purposes, and should he report such amounts as other than ordinary
income for income tax purposes, he will indemnify and hold the Company harmless
from and against any and all taxes, penalties, interest, costs and expenses,
including reasonable attorneys' and accounting fees and costs, which are
incurred by Company directly or indirectly as a result thereof.
5.10 CONSENT TO JURISDICTION. THE COMPANY AND EMPLOYEE HEREBY CONSENT TO
-----------------------
THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF
COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREE THAT SUBJECT TO THE COMPANY'S
ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT
-10-
<PAGE>
SHALL BE LITIGATED IN SUCH COURTS. EMPLOYEE ACCEPTS FOR HIMSELF AND IN
CONNECTION WITH HIS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH THIS AGREEMENT.
5.11 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE THEIR
--------------------
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS TRANSACTION AND THE RELATIONSHIP THAT IS BEING
ESTABLISHED. THE PARTIES HERETO ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON
SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE OTHER PARTY. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
AGREEMENT, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF
DUTY CLAIMS, DISCRIMINATION CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS. THE PARTIES HERETO ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT
TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON
THE WAIVER IN THEIR RELATED FUTURE DEALINGS. THE COMPANY AND EMPLOYEE FURTHER
WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH THEIR RESPECTIVE
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES THEIR RESPECTIVE
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement on
the day and year first above written.
COMPANY:
-------
NovaMed Eyecare Management, LLC, a Delaware limited
liability company
By: /s/ Ronald G. Eidell
---------------------
Ronald G. Eidell
Executive Vice President and
Chief Financial Officer
EMPLOYEE:
---------
/s/ Stephen J. Winjum
_____________________
Stephen J. Winjum
-12-
<PAGE>
EXHIBIT 10.7
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), dated as
of February 17, 1999, by and between NovaMed Eyecare Management, LLC, a Delaware
limited liability company (the "Company"), and Ronald G. Eidell ("Employee").
PRELIMINARY RECITALS
A. The Company is an eye care services company engaged in the business of:
(i) providing comprehensive eye care services to eye care providers and
businesses ancillary thereto, including, without limitation, providing
financial, administrative, information technology, marketing and managed care
services to ophthalmic and optometric providers; (ii) owning, operating and/or
managing ambulatory surgery centers, refractive centers, excimer lasers, optical
dispensaries, wholesale optical laboratories, and an optical supplies and
equipment purchasing organization; and (iii) providing clinical research and
site management services to the eye care pharmaceutical and device industries
(collectively, the "Business")
B. The Company and Employee entered into an Employment Agreement dated
July 7, 1998 (the "Original Agreement").
C. In consideration for the continued employment of Employee, and the
Company's grant to Employee of options to acquire shares of common stock of
NovaMed Holdings Inc., the parent company of the Company of even date herewith,
the parties hereto desire to amend the terms and conditions of the Original
Agreement, all on the terms and conditions set forth herein.
D. The Company desires to continue to employ Employee, and Employee
desires to continue to be employed by the Company, as Executive Vice President
and Chief Financial Officer of the Company on the terms and conditions contained
herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Engagement of Employee. The Company agrees to continue to employ
----------------------
Employee, and Employee accepts such continued employment by the Company, for the
period beginning February 17, 1999 (the "Effective Date") and ending on February
16, 2002 (the "Initial Employment Period"). The Initial Employment Period and
any Renewal Period (as hereinafter defined) shall automatically be renewed and
extended on the same terms and conditions contained herein for consecutive one-
year periods (the "Renewal Periods"), unless not
-1-
<PAGE>
later than sixty (60) days prior to the end of the initial Employment Period or
any Renewal Period, either party shall give written notice to such other party
electing to terminate this Agreement. The Initial Employment Period and the
Renewal Periods are hereinafter referred to as the "Employment Period." For
purposes of this Agreement, any notice of termination electing not to renew this
Agreement pursuant to this Section 1.1 shall be deemed: (i) a termination
without cause if such notice is delivered by the Company; or (ii) a voluntary
termination of employment if such notice is delivered by Employee; provided,
however, that if the Employment Period is terminated pursuant to this Section
1.1 by Employee, then notwithstanding Section 3.3, the Company shall have no
further obligations hereunder or otherwise with respect to Employee's employment
from and after the expiration of the Employment Period (except payment of
Employee's Base Salary and Benefits accrued through the expiration of the
Employment Period). Notwithstanding anything to the contrary contained herein,
the Employment Period is subject to termination pursuant to Article III below.
1.2 Duties and Powers. During the Employment Period, Employee will have
-----------------
such responsibilities, duties and authorities, and will render such services or
act in such other capacity for the Company and its affiliates as the Board of
Directors (the "Board") of NovaMed Holdings Inc. ("Holdings"), the manager and
parent of the Company (or any designated officer of Holdings or the Company),
may from time to time direct. Employee will devote his best efforts, energies
and abilities and his full business time, skill and attention (except for
permitted vacation periods and reasonable periods of illness or other
incapacity) to the business and affairs of the Company, and shall perform the
duties and carry out the responsibilities assigned to him, to the best of his
ability, in a diligent, trustworthy, businesslike and efficient manner for the
purpose of advancing the Company. Employee acknowledges that his duties and
responsibilities will require his full-time business efforts and agrees that
during the Employment Period he will not engage in any other business activity
or have any business pursuits or interests except activities or interests which
do not conflict with the business of the Company, Holdings and any of their
affiliated entities or interfere with the performance of Employee's duties
hereunder.
1.3 No Violation. Employee represents and warrants that the execution of
------------
this Agreement by Employee and the performance by Employee of his duties as an
employee of the Company will not violate, conflict with or result in a breach or
default under any agreements, arrangements or understandings to which Employee
is or was a party, or by which he is or was bound, nor will the performance of
Employee's duties as an employee of the Company be limited, restricted or
impaired in any manner as a result of any agreements, arrangements or
understandings to which Employee is or was a party.
-2-
<PAGE>
ARTICLE II
Compensation
2.1 Base Salary. During the Employment Period, the Company will pay
-----------
Employee a base salary at the rate of $200,000 per annum (the "Base Salary"),
payable in regular installments in accordance with the Company's general payroll
practices for salaried employees. If the Employment Period is terminated
pursuant to Section 3 (subject to any severance provisions in Section 3.3),
Employee's Base Salary for any partial year will be prorated based upon the
number of days elapsed in such year during which services were actually
performed by Employee. The Board or any designated officer shall perform an
annual review of Employee's Base Salary based on Employee's performance of his
duties and the Company's other compensation policies; provided that any increase
in the Base Salary shall require approval of the Board.
2.2 Discretionary Bonus. Following the end of each fiscal year, the Board,
-------------------
in its sole discretion, may elect to cause the Company to award to Employee a
bonus for such year, in an amount to be determined by the Board, based on such
performance targets as shall be established, and adjusted from time to time, by
the Board's compensation committee.
2.3 Benefits. In addition to the Base Salary payable to Employee
--------
hereunder, Employee will be entitled to the following benefits during the
Employment Period, unless otherwise altered by the Board with respect to all
management employees of the Company (collectively, the "Benefits"):
(a) hospitalization, disability, life and health insurance, to the
extent offered by the Company, and in amounts consistent with Company policy,
for all management employees, as reasonably determined by the Board;
(b) paid vacation each year with salary, consistent with Company
policy for all management employees;
(c) reimbursement for reasonable out-of-pocket business expenses
incurred by Employee in the ordinary course of his duties, subject to the
Company's policies in effect from time to time with respect to travel,
entertainment and other expenses, including without limitation, requirements
with respect to reporting and documentation of such expenses;
(d) other benefit arrangements, including a 401(K) or similar tax
deferral plan, to the extent made generally available by the Company to its
management employees; and
(e) participation in Holdings' Stock Incentive Plan such that Employee
is granted options to purchase an amount of the common equity interest in
Holdings consistent with the determination of the Board or its Compensation
Committee pursuant to such plan.
2.4 Taxes. etc. All compensation payable to Employee hereunder is stated
----------
in gross amount and shall be subject to all applicable withholding taxes, other
normal payroll and any other amounts required by law to be withheld.
-3-
<PAGE>
ARTICLE III
Termination
3.1 Termination By Employee or the Company. The Employment Period (i)
--------------------------------------
shall automatically terminate immediately upon Employee's resignation or death,
or (ii) may be terminated by the Company as set forth herein for Cause or
without Cause, or by reason of Employee's Permanent Disability.
"Cause" as used herein means the occurrence of any of the following events:
(a) a material breach by Employee of any of the terms and conditions
of this Agreement;
(b) Employee's gross negligence in the performance of his duties or
material failure or willful refusal to perform his duties;
(c) Employee's failure, as notified by the Company in writing, to
comply with any of the Company's written guidelines or procedures promulgated by
the Company and furnished to Employee, including, without limitation, any
guidelines or procedures relating to marketing or community relations; provided
that Employee shall have a reasonable period of time during which to cure such
failure following the date on which Employee receives the Company's written
notice of such failure;
(d) the determination by the Board in the exercise of its reasonable
judgment that Employee has committed an act that materially negatively affects
the Company's business or reputation; or
(e) the determination by the Board in the exercise of its reasonable
judgment that Employee has committed an act or acts constituting a felony or
other act involving dishonesty, disloyalty or fraud against the Company.
"Permanent Disability" as used herein shall mean that Employee is unable to
perform, with or without reasonable accommodation, by reason of physical or
mental incapacity, the essential functions of his or her position. The Board
shall determine, according to the facts then available, whether and when a
Permanent Disability has occurred. Such determination shall not be arbitrary or
unreasonable, and shall be final and binding on the parties hereto.
3.2 Termination by Employee. Employee has the right to terminate his
-----------------------
employment under this Agreement at any time, for any or no reason, upon ninety
(90) days written notice to the Company.
-4-
<PAGE>
3.3 Compensation After Termination.
------------------------------
(a) If the Employment Period is terminated (i) by the Company for
Cause or due to the death or Permanent Disability of Employee, (ii) by Employee
(including a termination resulting from Employee's election not to renew this
Agreement under Section 1.1 hereof), then the Company shall have no further
obligations hereunder or otherwise with respect to Employee's employment from
and after the termination or expiration date (except payment of Employee's Base
Salary accrued through the date of termination or expiration), and the Company
shall continue to have all other rights available hereunder (including, without
limitation, all rights under Article IV hereof) at law or in equity;
(b) If the Employment Period is terminated by the Company without
Cause (including a termination resulting from the Company's election not to
renew this Agreement under Section 1.1 hereof), the Employee shall be entitled
to receive Severance Pay (as hereinafter defined) for a period of nine (9)
months, payable in regular installments in accordance with the Company's general
payroll practices for salaried employees. Receipt of Severance Pay is contingent
upon Employee executing and adhering to a release of all employment claims in a
form acceptable to the Company. The Company shall have no further obligations
hereunder or otherwise with respect to Employee's employment from and after the
termination date, and the Company shall continue to have all other rights
available hereunder (including without limitation, all rights under Article IV
hereof) at law or in equity.
(c) For purposes of this Agreement, "Severance Pay" shall include (i)
Employee's Base Salary hereunder, (ii) the bonus that Employee would have
received under Section 2.2 hereof at the end of the year during which
termination without cause occurs had such termination not occurred, which bonus
shall be prorated to cover the severance period set forth in Section 3.3(b)
hereof, and (iii) continuation of the Benefits for the severance period set
forth in Section 3.3(b) hereof.
ARTICLE IV
Restrictive Covenants
4.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(a) the Company is and will be engaged in the Business during the
Employment Period and thereafter;
(b) Employee is one of a limited number of persons who will be
developing the Business;
(c) Employee will occupy a position of trust and confidence with the
Company after the date of this Agreement, and during such period and Employee's
employment under this Agreement, Employee will become familiar with the
Company's trade secrets and with other proprietary and confidential information
concerning the Company and the Business;
-5-
<PAGE>
(d) the agreements and covenants contained in this Article IV are
essential to protect the Company and the goodwill of the Business and are a
condition precedent to the Company entering into this Agreement;
(e) Employee's employment with the Company has special, unique and
extraordinary value to the Company and the Company would be irreparably damaged
if Employee were to provide services to any person or entity in violation of the
provisions of this Agreement;
(f) Employee has means to support himself and his dependents other
than by engaging in the Business, or a business similar to the Business, and the
provisions of this Article IV will not impair such ability; and
(g) for purposes of this Article IV, the term "Company" shall include
the Company, Holdings and any of their respective subsidiaries and affiliates.
4.2 Non-Compete. Employee hereby agrees that for a period commencing on
-----------
the date hereof and ending on the date of termination or expiration of his
employment with the Company for any reason (the "Termination Date"), and
thereafter, through the period ending on the first anniversary of the
Termination Date (collectively, the "Restrictive Period"), he shall not,
directly or indirectly, as employee, agent, consultant, stockholder, director,
co-partner or in any other individual or representative capacity, own, operate,
manage, control, engage in, invest in or participate in any manner in, act as a
consultant or advisor to, render services for (alone or in association with any
person, firm, corporation or entity), or otherwise assist any person or entity
(other than the Company) that engages in or owns, invests in, operates, manages
or controls any venture or enterprise that directly or indirectly engages or
proposes to engage in any element of the Business anywhere within a 100-mile
radius of the Chicago metropolitan area or within a 100-mile radius of any area
(or in the event such area is a major city, the metropolitan area relating to
such city) in which the Company on the Termination Date engages in any element
of the Business (the "Territory"); provided, however, that nothing contained
herein shall be construed to prevent Employee from investing in the stock of any
competing corporation listed on a national securities exchange or traded in the
over-the-counter market, but only if Employee is not involved in the business of
said corporation and if Employee and his associates (as such term is defined in
Regulation 14(A) promulgated under the Securities Exchange Act of 1934, as in
effect on the date hereof), collectively, do not own more than an aggregate of
3% of the stock of such corporation. With respect to the Territory, Employee
specifically acknowledges that the Company intends to expand the Business into
and throughout the United States.
4.3 Interference with Relationships. Without limiting the generality of
-------------------------------
the provisions of Section 4.2 hereof, Employee hereby agrees that, during the
Restrictive Period, he will not, directly or indirectly, solicit or encourage,
or participate as employee, agent, consultant, stockholder, director, partner or
in any other individual or representative capacity, in any business which
solicits or encourages (a) any person, firm, corporation or other entity which
has executed, or proposes to execute, a management services agreement with the
Company at any time during the term of this Agreement, or from any successor in
interest to any such person, firm, corporation or other entity, for the purpose
of securing business or contracts related to any
-6-
<PAGE>
element of the Business, or (b) any present or future customer or patient of the
Company or any of its affiliated practices to terminate or otherwise alter his,
her or its relationship with the Company or such affiliated practice; provided,
however, that nothing contained herein shall be construed to prohibit or
restrict Employee from soliciting business from any such parties on behalf of
the Company in performance of his duties as an employee of the Company required
under and as specifically contemplated by Section 1.2 above.
4.4 Nonsolicitation. Other than in the performance of his duties
---------------
hereunder, during the Restrictive Period, Employee shall not, directly or
indirectly, as employee, agent, consultant, stockholder, director, co-partner or
in any other individual or representative capacity, employ or engage, recruit or
solicit for employment or engagement, any person who is or becomes employed or
engaged by the Company or any of its affiliated practices during the Restrictive
Period, or otherwise seek to influence or alter any such person's relationship
with the Company.
4.5 Confidential Information. Other than in the performance of his duties
------------------------
hereunder, during the Restrictive Period and thereafter, Employee shall keep
secret and retain in strictest confidence, and shall not, without the prior
written consent of the Company, furnish, make available or disclose to any third
party or use for the benefit of himself or any third party, any Confidential
Information. As used in this Agreement, "Confidential Information" shall mean
any information relating to the business or affairs of the Company or the
Business, including but not limited to any technical or non-technical data,
formulae, compilations, programs, devices, methods, techniques, designs,
processes, procedures, improvements, models, manuals, financial data,
acquisition strategies and information, information relating to operating
procedures and marketing strategies, and any other proprietary information used
by the Company in connection with the Business, irrespective of its form;
provided, however, that Confidential Information shall not include any
information which is in the public domain or becomes known in the industry
through no wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary to
the Company.
4.6 Inventions and Discoveries.
--------------------------
(a) Employee understands and agrees that all inventions, discoveries,
ideas, improvements, whether patentable, copyrightable or not, pertaining to the
Business of the Company or relating to the Company's actual or demonstrably
anticipated research, development or inventions (collectively, "Inventions and
Discoveries ") that result from any work performed by Employee solely or jointly
with others for the Company which Employee, solely or jointly with others,
conceives, develops, or reduces to practice during the course of Employee's
employment with the Company, are the sole and exclusive property of the Company.
Employee will promptly disclose all such matters to the Company and will assist
the Company in obtaining legal protection for Inventions and Discoveries.
Employee hereby agrees on behalf of himself, his executors, legal
representatives and assignees that he will assign, transfer and convey to the
Company, its successors and assigns the Inventions and Discoveries.
(b) THE COMPANY AND EMPLOYEE ACKNOWLEDGE AND AGREE THAT SECTION 4.6(a)
SHALL NOT APPLY TO AN INVENTION OF EMPLOYEE FOR WHICH NO EQUIPMENT, SUPPLIES,
FACILITY OR TRADE SECRET INFORMATION
-7-
<PAGE>
OF THE COMPANY WAS USED AND WHICH WAS DEVELOPED ENTIRELY ON EMPLOYEE'S OWN TIME,
UNLESS (A) THE INVENTION RELATED (I) TO THE BUSINESS OF THE COMPANY OR (II) TO
THE COMPANY'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR (B)
THE INVENTION RESULTS FROM ANY WORK PERFORMED BY EMPLOYEE FOR THE COMPANY.
EMPLOYEE AND THE COMPANY FURTHER ACKNOWLEDGE AND AGREE THAT SECTION 4.6(a) SHALL
NOT APPLY TO ANY INVENTIONS OR WORK PRODUCT DEVELOPED OR VESTED BY EMPLOYEE
PRIOR TO THE EFFECTIVE DATE.
(c) EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS SECTION 4.6 AND FULLY
UNDERSTANDS THE LIMITATIONS WHICH IT IMPOSES UPON HIM AND HAS RECEIVED A
DUPLICATE COPY OF THIS AGREEMENT FOR HIS RECORDS.
4.7 Blue-Pencil. If any court of competent jurisdiction shall at any time
-----------
deem the term of this Agreement or any particular Restrictive Covenant (as
defined) too lengthy or the Territory too extensive, the other provisions of
this Section 4 shall nevertheless stand, the Restrictive Period herein shall be
deemed to be the longest period permissible by law under the circumstances and
the Territory herein shall be deemed to comprise the largest territory
permissible by law under the circumstances. The court in each case shall reduce
the time period and/or Territory to permissible duration or size.
4.8 Remedies. Employee acknowledges and agrees that the covenants set
--------
forth in this Section 4 (collectively, the "Restrictive Covenants") are
reasonable and necessary for the protection of the Company's business interests,
that irreparable injury will result to the Company if Employee breaches any of
the terms of said Restrictive Covenants, and that in the event of Employee's
actual or threatened breach of any such Restrictive Covenants, the Company will
have no adequate remedy at law. Employee accordingly agrees that in the event of
any actual or threatened breach by him of any of the Restrictive Covenants, the
Company shall be entitled to immediate temporary injunctive and other equitable
relief, without bond and without the necessity of showing actual monetary
damages, subject to hearing as soon thereafter as possible. Nothing contained
herein shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of any damages which it is able to prove.
ARTICLE V
Miscellaneous
5.1 Notices. Any notice provided for in this Agreement must be in writing
-------
and must be either (i) personally delivered, (ii) mailed by registered or
certified first class mail, prepaid with return receipt requested or (iii) sent
by a recognized overnight courier service, to the recipient at the address below
indicated:
-8-
<PAGE>
To the Company
NovaMed Eyecare Management, LLC
980 N. Michigan Avenue
Suite 1620
Chicago, IL 60611
Attention: Stephen J. Winjum
John W. Lawrence, Jr.
with a copy to:
Katten Muchin & Zavis
525 W. Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Attention: Steven V. Napolitano, Esq.
To Employee:
Ronald G. Eidell
_________________________________
_________________________________
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given (a) on the date
such notice is personally delivered, (b) three (3) days after the date of
mailing if sent by certified or registered mail, or (c) one (1) day after the
date such notice is delivered to the overnight courier service if sent by
overnight courier.
5.2 Severability. Whenever possible, each provision of this Agreement will
------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
5.3 Entire Agreement. This Agreement, those documents expressly referred
----------------
to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
5.4 Counterparts. This Agreement may be executed on separate counterparts,
------------
each of which is deemed to be an original and all of which taken together
constitute one and the same agreement.
-9-
<PAGE>
5.5 Successors and Assigns. This Agreement is intended to bind and inure
----------------------
to the benefit of and be enforceable by Employee and the Company and their
respective successors and permitted assigns. Employee may not assign any of his
rights or obligations hereunder without the written consent of the Company.
5.6 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party
hereto.
5.7 Amendments and Waivers. Any provision of this Agreement may be amended
----------------------
or waived only with the prior written consent of the Company and Employee.
5.8 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the laws
of the State of Illinois, without giving effect to provisions thereof regarding
conflict of laws.
5.9 Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under this Agreement as
ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as ordinary income for
income tax purposes, and should he report such amounts as other than ordinary
income for income tax purposes, he will indemnify and hold the Company harmless
from and against any and all taxes, penalties, interest, costs and expenses,
including reasonable attorneys' and accounting fees and costs, which are
incurred by Company directly or indirectly as a result thereof.
5.10 CONSENT TO JURISDICTION. THE COMPANY AND EMPLOYEE HEREBY CONSENT TO
-----------------------
THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF
COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREE THAT SUBJECT TO THE COMPANY'S
ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. EMPLOYEE ACCEPTS FOR HIMSELF AND IN
CONNECTION WITH HIS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH THIS AGREEMENT.
-10-
<PAGE>
5.11 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE THEIR
--------------------
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS TRANSACTION AND THE RELATIONSHIP THAT IS BEING
ESTABLISHED. THE PARTIES HERETO ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON
SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE OTHER PARTY. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
AGREEMENT, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF
DUTY CLAIMS, DISCRIMINATION CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS. THE PARTIES HERETO ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT
TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON
THE WAIVER IN THEIR RELATED FUTURE DEALINGS. THE COMPANY AND EMPLOYEE FURTHER
WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH THEIR RESPECTIVE
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES THEIR RESPECTIVE
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement on
the day and year first above written.
COMPANY:
-------
NovaMed Eyecare Management, LLC, a Delaware
limited liability company
By: /s/ Stephen J. Winjum
--------------------------------------------
Stephen J. Winjum
President and Chief Executive Officer
EMPLOYEE:
--------
/s/ Ronald G. Eidell
--------------------------------------------
Ronald G. Eidell
-12-
<PAGE>
EXHIBIT 10.8
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), dated as
of February 17, 1999, by and between NovaMed Eyecare Management, LLC, a Delaware
limited liability company (the "Company"), and E. Michele Vickery ("Employee").
PRELIMINARY RECITALS
A. The Company is an eye care services company engaged in the business
of: (i) providing comprehensive eye care services to eye care providers and
businesses ancillary thereto, including, without limitation, providing
financial, administrative, information technology, marketing and managed care
services to ophthalmic and optometric providers; (ii) owning, operating and/or
managing ambulatory surgery centers, refractive centers, excimer lasers, optical
dispensaries, wholesale optical laboratories, and an optical supplies and
equipment purchasing organization; and (iii) providing clinical research and
site management services to the eye care pharmaceutical and device industries
(collectively, the "Business").
B. The Company and Employee entered into an Employment Agreement dated
March 31, 1997 (the "Original Agreement").
C. In consideration for the continued employment of Employee, and the
Company's grant to Employee of options to acquire shares of common stock of
NovaMed Holdings Inc., the parent company of the Company of even date herewith,
the parties hereto desire to amend the terms and conditions of the Original
Agreement, all on the terms and conditions set forth herein.
D. The Company desires to continue to employ Employee, and Employee
desires to continue to be employed by the Company, as Executive Vice President
Operations of the Company on the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
Employment
1.1 Engagement of Employee. The Company agrees to continue to employ
----------------------
Employee, and Employee accepts such continued employment by the Company, for the
period beginning February 17, 1999 (the "Effective Date") and ending on February
16, 2002 (the "Initial Employment Period"). The Initial Employment Period and
any Renewal Period (as hereinafter
-1-
<PAGE>
defined) shall automatically be renewed and extended on the same terms and
conditions contained herein for consecutive one-year periods (the "Renewal
Periods"), unless not later than sixty (60) days prior to the end of the
Initial Employment Period or any Renewal Period, either party shall give written
notice to such other party electing to terminate this Agreement. The Initial
Employment Period and the Renewal Periods are hereinafter referred to as the
"Employment Period." For purposes of this Agreement, any notice of termination
electing not to renew this Agreement pursuant to this Section 1.1 shall be
deemed: (i) a termination without cause if such notice is delivered by the
Company; or (ii) a voluntary termination of employment if such notice is
delivered by Employee; provided, however, that if the Employment Period is
terminated pursuant to this Section 1.1 by Employee, then notwithstanding
Section 3.3, the Company shall have no further obligations hereunder or
otherwise with respect to Employee's employment from and after the expiration of
the Employment Period (except payment of Employee's Base Salary and Benefits
accrued through the expiration of the Employment Period). Notwithstanding
anything to the contrary contained herein, the Employment Period is subject to
termination pursuant to Article III below.
1.2 Duties and Powers. During the Employment Period, Employee will have
-----------------
such responsibilities, duties and authorities, and will render such services or
act in such other capacity for the Company and its affiliates as the Board of
Directors (the "Board") of NovaMed Holdings Inc. ("Holdings"), the manager and
parent of the Company (or any designated officer of Holdings or the Company),
may from time to time direct. Employee will devote his best efforts, energies
and abilities and his full business time, skill and attention (except for
permitted vacation periods and reasonable periods of illness or other
incapacity) to the business and affairs of the Company, and shall perform the
duties and carry out the responsibilities assigned to him, to the best of his
ability, in a diligent, trustworthy, businesslike and efficient manner for the
purpose of advancing the Company. Employee acknowledges that his duties and
responsibilities will require his full-time business efforts and agrees that
during the Employment Period he will not engage in any other business activity
or have any business pursuits or interests except activities or interests which
do not conflict with the business of the Company, Holdings and any of their
affiliated entities or interfere with the performance of Employee's duties
hereunder.
1.3 No Violation. Employee represents and warrants that the execution of
------------
this Agreement by Employee and the performance by Employee of his duties as an
employee of the Company will not violate, conflict with or result in a breach or
default under any agreements, arrangements or understandings to which Employee
is or was a party, or by which he is or was bound, nor will the performance of
Employee's duties as an employee of the Company be limited, restricted or
impaired in any manner as a result of any agreements, arrangements or
understandings to which Employee is or was a party.
-2-
<PAGE>
ARTICLE II
Compensation
2.1 Base Salary. During the Employment Period, the Company will pay
-----------
Employee a base salary at the rate of $200,000 per annum (the "Base Salary"),
payable in regular installments in accordance with the Company's general payroll
practices for salaried employees. If the Employment Period is terminated
pursuant to Section 3 (subject to any severance provisions in Section 3.3),
Employee's Base Salary for any partial year will be prorated based upon the
number of days elapsed in such year during which services were actually
performed by Employee. The Board or any designated officer shall perform an
annual review of Employee's Base Salary based on Employee's performance of his
duties and the Company's other compensation policies; provided that any increase
in the Base Salary shall require approval of the Board.
2.2 Discretionary Bonus. Following the end of each fiscal year, the Board,
-------------------
in its sole discretion, may elect to cause the Company to award to Employee a
bonus for such year, in an amount to be determined by the Board, based on such
performance targets as shall be established, and adjusted from time to time, by
the Board's compensation committee.
2.3 Benefits. In addition to the Base Salary payable to Employee
--------
hereunder, Employee will be entitled to the following benefits during the
Employment Period, unless otherwise altered by the Board with respect to all
management employees of the Company (collectively, the "Benefits"):
(a) hospitalization, disability, life and health insurance, to the
extent offered by the Company, and in amounts consistent with Company policy,
for all management employees, as reasonably determined by the Board;
(b) paid vacation each year with salary, consistent with Company
policy for all management employees;
(c) reimbursement for reasonable out-of-pocket business expenses
incurred by Employee in the ordinary course of his duties, subject to the
Company's policies in effect from time to time with respect to travel,
entertainment and other expenses, including without limitation, requirements
with respect to reporting and documentation of such expenses;
(d) other benefit arrangements, including a 401(K) or similar tax
deferral plan, to the extent made generally available by the Company to its
management employees; and
(e) participation in Holdings' Stock Incentive Plan such that
Employee is granted options to purchase an amount of the common equity interest
in Holdings consistent with the determination of the Board or its Compensation
Committee pursuant to such plan.
-3-
<PAGE>
2.4 Taxes, etc. All compensation payable to Employee hereunder is stated
----------
in gross amount and shall be subject to all applicable withholding taxes, other
normal payroll and any other amounts required by law to be withheld.
ARTICLE III
Termination
3.1 Termination By Employee or the Company. The Employment Period (i)
--------------------------------------
shall automatically terminate immediately upon Employee's resignation or death,
or (ii) may be terminated by the Company as set forth herein for Cause or
without Cause, or by reason of Employee's Permanent Disability.
"Cause" as used herein means the occurrence of any of the following events:
(a) a material breach by Employee of any of the terms and conditions
of this Agreement;
(b) Employee's gross negligence in the performance of his duties or
material failure or willful refusal to perform his duties;
(c) Employee's failure, as notified by the Company in writing, to
comply with any of the Company's written guidelines or procedures promulgated by
the Company and furnished to Employee, including, without limitation, any
guidelines or procedures relating to marketing or community relations; provided
that Employee shall have a reasonable period of time during which to cure such
failure following the date on which Employee receives the Company's written
notice of such failure;
(d) the determination by the Board in the exercise of its reasonable
judgment that Employee has committed an act that materially negatively affects
the Company's business or reputation; or
(e) the determination by the Board in the exercise of its reasonable
judgment that Employee has committed an act or acts constituting a felony or
other act involving dishonesty, disloyalty or fraud against the Company.
"Permanent Disability" as used herein shall mean that Employee is unable to
perform, with or without reasonable accommodation, by reason of physical or
mental incapacity, the essential functions of his or her position. The Board
shall determine, according to the facts then available, whether and when a
Permanent Disability has occurred. Such determination shall not be arbitrary or
unreasonable, and shall be final and binding on the parties hereto.
3.2 Termination by Employee. Employee has the right to terminate his
-----------------------
employment under this Agreement at any time, for any or no reason, upon ninety
(90) days written notice to the Company.
-4-
<PAGE>
3.3 Compensation After Termination.
------------------------------
(a) If the Employment Period is terminated (i) by the Company for
Cause or due to the death or Permanent Disability of Employee, (ii) by Employee
(including a termination resulting from Employee's election not to renew this
Agreement under Section 1.1 hereof), then the Company shall have no further
obligations hereunder or otherwise with respect to Employee's employment from
and after the termination or expiration date (except payment of Employee's Base
Salary accrued through the date of termination or expiration), and the Company
shall continue to have all other rights available hereunder (including, without
limitation, all rights under Article IV hereof) at law or in equity;
(b) If the Employment Period is terminated by the Company without
Cause (including a termination resulting from the Company's election not to
renew this Agreement under Section 1.1 hereof), the Employee shall be entitled
to receive Severance Pay (as hereinafter defined) for a period of nine (9)
months, payable in regular installments in accordance with the Company's general
payroll practices for salaried employees. Receipt of Severance Pay is contingent
upon Employee executing and adhering to a release of all employment claims in a
form acceptable to the Company. The Company shall have no further obligations
hereunder or otherwise with respect to Employee's employment from and after the
termination date, and the Company shall continue to have all other rights
available hereunder (including without limitation, all rights under Article IV
hereof) at law or in equity.
(c) For purposes of this Agreement, "Severance Pay" shall include (i)
Employee's Base Salary hereunder, (ii) the bonus that Employee would have
received under Section 2.2 hereof at the end of the year during which
termination without cause occurs had such termination not occurred, which bonus
shall be prorated to cover the severance period set forth in Section 3.3(b)
hereof, and (iii) continuation of the Benefits for the severance period set
forth in Section 3.3(b) hereof.
ARTICLE IV
Restrictive Covenants
4.1 Employee's Acknowledge. Employee acknowledges that:
----------------------
(a) the Company is and will be engaged in the Business during the
Employment Period and thereafter;
(b) Employee is one of a limited number of persons who will be
developing the Business;
(c) Employee will occupy a position of trust and confidence with the
Company after the date of this Agreement, and during such period and Employee's
employment under this
-5-
<PAGE>
Agreement, Employee will become familiar with the Company's trade secrets and
with other proprietary and confidential information concerning the Company and
the Business;
(d) the agreements and covenants contained in this Article IV are
essential to protect the Company and the goodwill of the Business and are a
condition precedent to the Company entering into this Agreement;
(e) Employee's employment with the Company has special, unique and
extraordinary value to the Company and the Company would be irreparably damaged
if Employee were to provide services to any person or entity in violation of the
provisions of this Agreement;
(f) Employee has means to support himself and his dependents other
than by engaging in the Business, or a business similar to the Business, and the
provisions of this Article IV will not impair such ability; and
(g) for purposes of this Article IV, the term "Company" shall include
the Company, Holdings and any of their respective subsidiaries and affiliates.
4.2 Non-Compete. Employee hereby agrees that for a period commencing on
-----------
the date hereof and ending on the date of termination or expiration of his
employment with the Company for any reason (the "Termination Date"), and
thereafter, through the period ending on the first anniversary of the
Termination Date (collectively, the "Restrictive Period"), he shall not,
directly or indirectly, as employee, agent, consultant, stockholder, director,
co-partner or in any other individual or representative capacity, own, operate,
manage, control, engage in, invest in or participate in any manner in, act as a
consultant or advisor to, render services for (alone or in association with any
person, firm, corporation or entity), or otherwise assist any person or entity
(other than the Company) that engages in or owns, invests in, operates, manages
or controls any venture or enterprise that directly or indirectly engages or
proposes to engage in any element of the Business anywhere within a 100-mile
radius of the Chicago metropolitan area or within a 100-mile radius of any area
(or in the event such area is a major city, the metropolitan area relating to
such city) in which the Company on the Termination Date engages in any element
of the Business (the "Territory"); provided, however, that nothing contained
herein shall be construed to prevent Employee from investing in the stock of any
competing corporation listed on a national securities exchange or traded in the
over-the-counter market, but only if Employee is not involved in the business of
said corporation and if Employee and his associates (as such term is defined in
Regulation 14(A) promulgated under the Securities Exchange Act of 1934, as in
effect on the date hereof), collectively, do not own more than an aggregate of
3% of the stock of such corporation. With respect to the Territory, Employee
specifically acknowledges that the Company intends to expand the Business into
and throughout the United States.
4.3 Interference with Relationships. Without limiting the generality of
-------------------------------
the provisions of Section 4.2 hereof, Employee hereby agrees that, during the
Restrictive Period, he will not, directly or indirectly, solicit or encourage,
or participate as employee, agent, consultant, stockholder, director, partner or
in any other individual or representative capacity, in any business
-6-
<PAGE>
which solicits or encourages (a) any person, firm, corporation or other entity
which has executed, or proposes to execute, a management services agreement with
the Company at any time during the term of this Agreement, or from any successor
in interest to any such person, firm, corporation or other entity, for the
purpose of securing business or contracts related to any element of the
Business, or (b) any present or future customer or patient of the Company or any
of its affiliated practices to terminate or otherwise alter his, her or its
relationship with the Company or such affiliated practice; provided, however,
that nothing contained herein shall be construed to prohibit or restrict
Employee from soliciting business from any such parties on behalf of the Company
in performance of his duties as an employee of the Company required under and as
specifically contemplated by Section 1.2 above.
4.4 Nonsolicitation. Other than in the performance of his duties
---------------
hereunder, during the Restrictive Period, Employee shall not, directly or
indirectly, as employee, agent, consultant, stockholder, director, co-partner or
in any other ' individual or representative capacity, employ or engage, recruit
or solicit for employment or engagement, any person who is or becomes employed
or engaged by the Company or any of its affiliated practices during the
Restrictive Period, or otherwise seek to influence or alter any such person's
relationship with the Company.
4.5 Confidential Information. Other than in the performance of his duties
------------------------
hereunder, during the Restrictive Period and thereafter, Employee shall keep
secret and retain in strictest confidence, and shall not, without the prior
written consent of the Company, furnish, make available or disclose to any third
party or use for the benefit of himself or any third party, any Confidential
Information. As used in this Agreement, "Confidential Information" shall mean
any information relating to the business or affairs of the Company or the
Business, including but not limited to any technical or non-technical data,
formulae, compilations, programs, devices, methods, techniques, designs,
processes, procedures, improvements, models, manuals, financial data,
acquisition strategies and information, information relating to operating
procedures and marketing strategies, and any other proprietary information used
by the Company in connection with the Business, irrespective of its form;
provided, however, that Confidential Information shall not include any
information which is in the public domain or becomes known in the industry
through no wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary to
the Company.
4.6 Inventions and Discoveries.
--------------------------
(a) Employee understands and agrees that all inventions, discoveries,
ideas, improvements, whether patentable, copyrightable or not, pertaining to the
Business of the Company or relating to the Company's actual or demonstrably
anticipated research, development or inventions (collectively, "Inventions and
Discoveries") that result from any work performed by Employee solely or jointly
with others for the Company which Employee, solely or jointly with others,
conceives, develops, or reduces to practice during the course of Employee's
employment with the Company, are the sole and exclusive property of the Company.
Employee will promptly disclose all such matters to the Company and will assist
the Company in obtaining legal protection for Inventions and Discoveries.
Employee hereby agrees on behalf of himself, his executors,
-7-
<PAGE>
legal representatives and assignees that he will assign, transfer and convey to
the Company, its successors and assigns the Inventions and Discoveries.
(b) THE COMPANY AND EMPLOYEE ACKNOWLEDGE AND AGREE THAT SECTION
4.6(a) SHALL NOT APPLY TO AN INVENTION OF EMPLOYEE FOR WHICH NO EQUIPMENT,
SUPPLIES, FACILITY OR TRADE SECRET INFORMATION OF THE COMPANY WAS USED AND WHICH
WAS DEVELOPED ENTIRELY ON EMPLOYEE'S OWN TIME, UNLESS (A) THE INVENTION RELATED
(I) TO THE BUSINESS OF THE COMPANY OR (II) TO THE COMPANY'S ACTUAL OR
DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR (B) THE INVENTION RESULTS
FROM ANY WORK PERFORMED BY EMPLOYEE FOR THE COMPANY. EMPLOYEE AND THE COMPANY
FURTHER ACKNOWLEDGE AND AGREE THAT SECTION 4.6(a) SHALL NOT APPLY TO ANY
INVENTIONS OR WORK PRODUCT DEVELOPED OR VESTED BY EMPLOYEE PRIOR TO THE
EFFECTIVE DATE.
(c) EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS SECTION 4.6 AND FULLY
UNDERSTANDS THE LIMITATIONS WHICH IT IMPOSES UPON HIM AND HAS RECEIVED A
DUPLICATE COPY OF THIS AGREEMENT FOR HIS RECORDS.
4.7 Blue-Pencil. If any court of competent jurisdiction shall at any time
-----------
deem the term of this Agreement or any particular Restrictive Covenant (as
defined) too lengthy or the Territory too extensive, the other provisions of
this Section 4 shall nevertheless stand, the Restrictive Period herein shall be
deemed to be the longest period permissible by law under the circumstances and
the Territory herein shall be deemed to comprise the largest territory
permissible by law under the circumstances. The court in each case shall reduce
the time period and/or Territory to permissible duration or size.
4.8 Remedies. Employee acknowledges and agrees that the covenants set
--------
forth in this Section 4 (collectively, the "Restrictive Covenants") are
reasonable and necessary for the protection of the Company's business interests,
that irreparable injury will result to the Company if Employee breaches any of
the terms of said Restrictive Covenants, and that in the event of Employee's
actual or threatened breach of any such Restrictive Covenants, the Company will
have no adequate remedy at law. Employee accordingly agrees that in the event of
any actual or threatened breach by him of any of the Restrictive Covenants, the
Company shall be entitled to immediate temporary injunctive and other equitable
relief, without bond and without the necessity of showing actual monetary
damages, subject to hearing as soon thereafter as possible. Nothing contained
herein shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of any damages which it is able to prove.
-8-
<PAGE>
ARTICLE V
Miscellaneous
5.1 Notices. Any notice provided for in this Agreement must be in writing
-------
and must be either (i) personally delivered, (ii) mailed by registered or
certified first class mail, prepaid with return receipt requested or (iii) sent
by a recognized overnight courier service, to the recipient at the address below
indicated:
To the Company:
NovaMed Eyecare Management, LLC
980 N. Michigan Avenue
Suite 1620
Chicago, IL 60611
Attention: Stephen J. Winjum
John W. Lawrence, Jr.
with a copy to:
Katten Muchin & Zavis
525 W. Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Attention: Steven V. Napolitano, Esq.
To Employee:
E. Michele Vickery
_____________________________
_____________________________
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given (a) on the date
such notice is personally delivered, (b) three (3) days after the date of
mailing if sent by certified or registered mail, or (c) one (1) day after the
date such notice is delivered to the overnight courier service if sent by
overnight courier.
5.2 Severability. Whenever possible, each provision of this Agreement will
------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
-9-
<PAGE>
5.3 Entire Agreement. This Agreement, those documents expressly referred
----------------
to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
5.4 Counterparts. This Agreement may be executed on separate counterparts,
-------------
each of which is deemed to be an original and all of which taken together
constitute one and the same agreement.
5.5 Successors and Assigns. This Agreement is intended to bind and inure
----------------------
to the benefit of and be enforceable by Employee and the Company and their
respective successors and permitted assigns. Employee may not assign any of his
rights or obligations hereunder without the written consent of the Company.
5.6 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party
hereto.
5.7 Amendments and Waivers. Any provision of this Agreement may be amended
----------------------
or waived only with the prior written consent of the Company and Employee.
5.8 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the laws
of the State of Illinois, without giving effect to provisions thereof regarding
conflict of laws.
5.9 Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under this Agreement as
ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as ordinary income for
income tax purposes, and should he report such amounts as other than ordinary
income for income tax purposes, he will indemnify and hold the Company harmless
from and against any and all taxes, penalties, interest, costs and expenses,
including reasonable attorneys' and accounting fees and costs, which are
incurred by Company directly or indirectly as a result thereof.
5.10 CONSENT TO JURISDICTION. THE COMPANY AND EMPLOYEE HEREBY CONSENT TO
-----------------------
THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF
COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREE THAT SUBJECT TO THE COMPANY'S
ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. EMPLOYEE ACCEPTS FOR HIMSELF AND IN
CONNECTION WITH HIS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES
-10-
<PAGE>
ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
5.11 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE THEIR RESPECTIVE
--------------------
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF
THIS TRANSACTION AND THE RELATIONSHIP THAT IS BEING ESTABLISHED. THE PARTIES
HERETO ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT
FOR THIS WAIVER, BE REQUIRED OF THE OTHER PARTY. THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY
COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, DISCRIMINATION
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE PARTIES HERETO
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. THE COMPANY AND EMPLOYEE FURTHER WARRANT AND REPRESENT THAT
EACH HAS REVIEWED THIS WAIVER WITH THEIR RESPECTIVE LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES THEIR RESPECTIVE JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED
HEREBY. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement on
the day and year first above written.
COMPANY:
--------
NovaMed Eyecare Management, LLC, a Delaware
limited liability company
By: /s/ Stephen J. Winjum
-----------------------------------------
Stephen J. Winjum
President and Chief Executive Officer
EMPLOYEE:
---------
/s/ E. Michele Vickery
---------------------------------------------
E. Michele Vickery
-12-
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), dated as of April 12, 1999, by and
between NovaMed Eyecare Management, LLC, a Delaware limited liability company
(the "Company"), and J. Gary Jordan ("Employee").
PRELIMINARY RECITALS
A. The Company is an eye care services company engaged in the business
of: (i) providing comprehensive eye care services to eye care providers and
businesses ancillary thereto, including, without limitation, providing
financial, administrative, information technology, marketing and managed care
services to ophthalmic and optometric providers; (ii) owning, operating and/or
managing ambulatory surgery centers, refractive centers, excimer lasers, optical
dispensaries, wholesale optical laboratories, and an optical supplies and
equipment purchasing organization; and (iii) providing clinical research and
site management services to the eye care pharmaceutical and device industries
(collectively, the "Business").
B. The Company desires to employ Employee and Employee desires to be
employed by the Company as Senior Vice President Sales of the Company on the
terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
Employment
1.1 Engagement of Employee. The Company agrees to employ Employee, and
Employee accepts such employment by the Company, for the period beginning April
12, 1999 (the "Effective Date") and ending on April 11, 2001 (the "Initial
Employment Period"). The Initial Employment Period and any Renewal Period (as
hereinafter defined) shall automatically be renewed and extended on the same
terms and conditions contained herein for consecutive one-year periods (the
"Renewal Periods"), unless not later than sixty (60) days prior to the end of
the Initial Employment Period or any Renewal Period, either party shall give
written notice to such other party electing to terminate this Agreement. The
Initial Employment Period and the Renewal Periods are hereinafter referred to as
the "Employment Period." For purposes of this Agreement, any notice of
termination electing not to renew this Agreement pursuant to this Section 1.1
shall be deemed: (i) a termination without cause if such notice is delivered by
the Company; or (ii) a voluntary termination of employment if such notice is
delivered by Employee; provided, however, that if the Employment Period is
terminated pursuant to this Section 1.1 by Employee, then notwithstanding
Section 3.3, the Company shall have no further obligations hereunder or
otherwise with respect to Employee's employment from and after the expiration of
<PAGE>
the Employment Period (except payment of Employee's Base Salary and Benefits
accrued through the expiration of the Employment Period). Notwithstanding
anything to the contrary contained herein, the Employment Period is subject to
termination pursuant to Article III below.
1.2 Duties and Powers. During the Employment Period, Employee will have
such responsibilities, duties and authorities, and will render such services or
act in such other capacity for the Company and its affiliates as the Board of
Directors (the "Board") of NovaMed Holdings Inc. ("Holdings"), the manager and
parent of the Company (or any designated officer of Holdings or the Company),
may from time to time direct. Employee will devote his best efforts, energies
and abilities and his full business time, skill and attention (except for
permitted vacation periods and reasonable periods of illness or other
incapacity) to the business and affairs of the Company, and shall perform the
duties and carry out the responsibilities assigned to him, to the best of his
ability, in a diligent, trustworthy, businesslike and efficient manner for the
purpose of advancing the Company. Employee acknowledges that his duties and
responsibilities will require his full-time business efforts and agrees that
during the Employment Period he will not engage in any other business activity
or have any business pursuits or interests except activities or interests which
do not conflict with the business of the Company, Holdings and any of their
affiliated entities or interfere with the performance of Employee's duties
hereunder.
1.3 No Violation. Employee represents and warrants that the execution of
this Agreement by Employee and the performance by Employee of his duties as an
employee of the Company will not violate, conflict with or result in a breach or
default under any agreements, arrangements or understandings to which Employee
is or was a party, or by which he is or was bound, nor will the performance of
Employee's duties as an employee of the Company be limited, restricted or
impaired in any manner as a result of any agreements, arrangements or
understandings to which Employee is or was a party.
ARTICLE II
Compensation
2.1 Base Salary. During the Employment Period, the Company will pay
Employee a base salary at the rate of $175,000 per annum (the "Base Salary"),
payable in regular installments in accordance with the Company's general payroll
practices for salaried employees. If the Employment Period is terminated
pursuant to Section 3 (subject to any severance provisions in Section 3.3),
Employee's Base Salary for any partial year will be prorated based upon the
number of days elapsed in such year during which services were actually
performed by Employee. The Board or any designated officer shall perform an
annual review of Employee's Base Salary based on Employee's performance of his
duties and the Company's other compensation policies; provided that any increase
in the Base Salary shall require approval of the Board.
2.2 Discretionary Bonus. Following the end of each fiscal year, the Board,
in its sole discretion, may elect to cause the Company to award to Employee a
bonus for such year, in an amount to be determined by the Board, based on such
performance targets as shall be established, and adjusted from time to time, by
the Board's compensation committee.
<PAGE>
2.3 Benefits. In addition to the Base Salary payable to Employee
hereunder, Employee will be entitled to the following benefits during the
Employment Period, unless otherwise altered by the Board with respect to all
management employees of the Company (collectively, the "Benefits"):
(a) hospitalization, disability, life and health insurance, to the
extent offered by the Company, and in amounts consistent with Company policy,
for all management employees, as reasonably determined by the Board;
(b) paid vacation each year with salary, consistent with Company
policy for all management employees;
(c) reimbursement for reasonable out-of-pocket business expenses
incurred by Employee in the ordinary course of his duties, subject to the
Company's policies in effect from time to time with respect to travel,
entertainment and other expenses, including without limitation, requirements
with respect to reporting and documentation of such expenses;
(d) other benefit arrangements, including a 401(K) or similar tax
deferral plan, to the extent made generally available by the Company to its
management employees; and
(e) participation in Holdings' Stock Incentive Plan such that
Employee is granted options to purchase an amount of the common equity interest
in Holdings consistent with the determination of the Board or its Compensation
Committee pursuant to such plan.
2.4 Taxes, etc. All compensation payable to Employee hereunder is stated
in gross amount and shall be subject to all applicable withholding taxes, other
normal payroll and any other amounts required by law to be withheld.
ARTICLE III
Termination
3.1 Termination By Employee or the Company. The Employment Period (i)
shall automatically terminate immediately upon Employee's resignation or death,
or (ii) may be terminated by the Company as set forth herein for Cause or
without Cause, or by reason of Employee's Permanent Disability.
"Cause" as used herein means the occurrence of any of the following events:
(a) a material breach by Employee of any of the terms and conditions of
this Agreement;
(b) Employee's gross negligence in the performance of his duties or
material failure or willful refusal to perform his duties;
<PAGE>
(c) Employee's failure, as notified by the Company in writing, to
comply with any of the Company's written guidelines or procedures promulgated by
the Company and furnished to Employee, including, without limitation, any
guidelines or procedures relating to marketing or community relations; provided
that Employee shall have a reasonable period of time during which to cure such
failure following the date on which Employee receives the Company's written
notice of such failure;
(d) the determination by the Board in the exercise of its reasonable
judgment that Employee has committed an act that materially negatively affects
the Company's business or reputation; or
(e) the determination by the Board in the exercise of its reasonable
judgment that Employee has committed an act or acts constituting a felony or
other act involving dishonesty, disloyalty or fraud against the Company.
"Permanent Disability" as used herein shall mean that Employee is unable to
perform, with or without reasonable accommodation, by reason of physical or
mental incapacity, the essential functions of his or her position. The Board
shall determine, according to the facts then available, whether and when a
Permanent Disability has occurred. Such determination shall not be arbitrary or
unreasonable, and shall be final and binding on the parties hereto.
3.2 Termination by Employee. Employee has the right to terminate his
employment under this Agreement at any time, for any or no reason, upon ninety
(90) days written notice to the Company.
3.3 Compensation After Termination.
(a) If the Employment Period is terminated (i) by the Company for
Cause or due to the death or Permanent Disability of Employee, (ii) by Employee
(including a termination resulting from Employee's election not to renew this
Agreement under Section 1.1 hereof), then the Company shall have no further
obligations hereunder or otherwise with respect to Employee's employment from
and after the termination or expiration date (except payment of Employee's Base
Salary accrued through the date of termination or expiration), and the Company
shall continue to have all other rights available hereunder (including, without
limitation, all rights under Article IV hereof) at law or in equity;
(b) If the Employment Period is terminated by the Company without
Cause (including a termination resulting from the Company's election not to
renew this Agreement under Section 1.1 hereof), the Employee shall be entitled
to receive Severance Pay (as hereinafter defined) for a period of six (6)
months, payable in regular installments in accordance with the Company's general
payroll practices for salaried employees. Receipt of Severance Pay is contingent
upon Employee executing and adhering to a release of all employment claims in a
form acceptable to the Company. The Company shall have no further obligations
hereunder or otherwise with respect to Employee's employment from and after the
termination date, and the
<PAGE>
Company shall continue to have all other rights available hereunder (including
without limitation, all rights under Article IV hereof) at law or in equity.
(c) For purposes of this Agreement, "Severance Pay" shall include (i)
Employee's Base Salary hereunder, (ii) the bonus that Employee would have
received under Section 2.2 hereof at the end of the year during which
termination without cause occurs had such termination not occurred, which bonus
shall be prorated to cover the severance period set forth in Section 3.3(b)
hereof, and (iii) continuation of the Benefits for the severance period set
forth in Section 3.3(b) hereof.
ARTICLE IV
Restrictive Covenants
4.1 Employee's Acknowledgment. Employee acknowledges that:
(a) the Company is and will be engaged in the Business during the
Employment Period and thereafter;
(b) Employee is one of a limited number of persons who will be
developing the Business;
(c) Employee will occupy a position of trust and confidence with the
Company after the date of this Agreement, and during such period and Employee's
employment under this Agreement, Employee will become familiar with the
Company's trade secrets and with other proprietary and confidential information
concerning the Company and the Business;
(d) the agreements and covenants contained in this Article IV are
essential to protect the Company and the goodwill of the Business and are a
condition precedent to the Company entering into this Agreement;
(e) Employee's employment with the Company has special, unique and
extraordinary value to the Company and the Company would be irreparably damaged
if Employee were to provide services to any person or entity in violation of the
provisions of this Agreement;
(f) Employee has means to support himself and his dependents other
than by engaging in the Business, or a business similar to the Business, and the
provisions of this Article IV will not impair such ability; and
(g) for purposes of this Article IV, the term "Company" shall include
the Company, Holdings and any of their respective subsidiaries and affiliates.
4.2 Non-Compete. Employee hereby agrees that for a period commencing on
the date hereof and ending on the date of termination or expiration of his
employment with the Company for any reason (the "Termination Date"), and
thereafter, through the period ending on the first anniversary of the
Termination Date (collectively, the "Restrictive Period"), he shall not,
directly
<PAGE>
or indirectly, as employee, agent, consultant, stockholder, director, co-partner
or in any other individual or representative capacity, own, operate, manage,
control, engage in, invest in or participate in any manner in, act as a
consultant or advisor to, render services for (alone or in association with any
person, firm, corporation or entity), or otherwise assist any person or entity
(other than the Company) that engages in or owns, invests in, operates, manages
or controls any venture or enterprise that directly or indirectly engages or
proposes to engage in any element of the Business anywhere within a 100-mile
radius of the Chicago metropolitan area or within a 100-mile radius of any area
(or in the event such area is a major city, the metropolitan area relating to
such city) in which the Company on the Termination Date engages in any element
of the Business (the "Territory"); provided, however, that nothing contained
herein shall be construed to prevent Employee from investing in the stock of any
competing corporation listed on a national securities exchange or traded in the
over-the-counter market, but only if Employee is not involved in the business of
said corporation and if Employee and his associates (as such term is defined in
Regulation 14(A) promulgated under the Securities Exchange Act of 1934, as in
effect on the date hereof), collectively, do not own more than an aggregate of
3% of the stock of such corporation. With respect to the Territory, Employee
specifically acknowledges that the Company intends to expand the Business into
and throughout the United States.
4.3 Interference with Relationships. Without limiting the generality of
the provisions of Section 4.2 hereof, Employee hereby agrees that, during the
Restrictive Period, he will not, directly or indirectly, solicit or encourage,
or participate as employee, agent, consultant, stockholder, director, partner or
in any other individual or representative capacity, in any business which
solicits or encourages (a) any person, firm, corporation or other entity which
has executed, or proposes to execute, a management services agreement with the
Company at any time during the term of this Agreement, or from any successor in
interest to any such person, firm, corporation or other entity, for the purpose
of securing business or contracts related to any element of the Business, or (b)
any present or future customer or patient of the Company or any of its
affiliated practices to terminate or otherwise alter his, her or its
relationship with the Company or such affiliated practice; provided, however,
that nothing contained herein shall be construed to prohibit or restrict
Employee from soliciting business from any such parties on behalf of the Company
in performance of his duties as an employee of the Company required under and as
specifically contemplated by Section 1.2 above.
4.4 Nonsolicitation. Other than in the performance of his duties
hereunder, during the Restrictive Period, Employee shall not, directly or
indirectly, as employee, agent, consultant, stockholder, director, co-partner or
in any other individual or representative capacity, employ or engage, recruit or
solicit for employment or engagement, any person who is or becomes employed or
engaged by the Company or any of its affiliated practices during the Restrictive
Period, or otherwise seek to influence or alter any such person's relationship
with the Company.
4.5 Confidential Information. Other than in the performance of his duties
hereunder, during the Restrictive Period and thereafter, Employee shall keep
secret and retain in strictest confidence, and shall not, without the prior
written consent of the Company, furnish, make available or disclose to any third
party or use for the benefit of himself or any third party, any Confidential
Information. As used in this Agreement, "Confidential Information" shall mean
<PAGE>
any information relating to the business or affairs of the Company or the
Business, including but not limited to any technical or non-technical data,
formulae, compilations, programs, devices, methods, techniques, designs,
processes, procedures, improvements, models, manuals, financial data,
acquisition strategies and information, information relating to operating
procedures and marketing strategies, and any other proprietary information used
by the Company in connection with the Business, irrespective of its form;
provided, however, that Confidential Information shall not include any
information which is in the public domain or becomes known in the industry
through no wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary to
the Company.
4.6 Inventions and Discoveries.
--------------------------
(a) Employee understands and agrees that all inventions, discoveries,
ideas, improvements, whether patentable, copyrightable or not, pertaining to the
Business of the Company or relating to the Company's actual or demonstrably
anticipated research, development or inventions (collectively, "Inventions and
Discoveries") that result from any work performed by Employee solely or jointly
with others for the Company which Employee, solely or jointly with others,
conceives, develops, or reduces to practice during the course of Employee's
employment with the Company, are the sole and exclusive property of the Company.
Employee will promptly disclose all such matters to the Company and will assist
the Company in obtaining legal protection for Inventions and Discoveries.
Employee hereby agrees on behalf of himself, his executors, legal
representatives and assignees that he will assign, transfer and convey to the
Company, its successors and assigns the Inventions and Discoveries.
(b) THE COMPANY AND EMPLOYEE ACKNOWLEDGE AND AGREE THAT SECTION
4.6(a) SHALL NOT APPLY TO AN INVENTION OF EMPLOYEE FOR WHICH NO EQUIPMENT,
SUPPLIES, FACILITY OR TRADE SECRET INFORMATION OF THE COMPANY WAS USED AND WHICH
WAS DEVELOPED ENTIRELY ON EMPLOYEE'S OWN TIME, UNLESS (A) THE INVENTION RELATED
(I) TO THE BUSINESS OF THE COMPANY OR (II) TO THE COMPANY'S ACTUAL OR
DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR (B) THE INVENTION RESULTS
FROM ANY WORK PERFORMED BY EMPLOYEE FOR THE COMPANY. EMPLOYEE AND THE COMPANY
FURTHER ACKNOWLEDGE AND AGREE THAT SECTION 4.6(a) SHALL NOT APPLY TO ANY
INVENTIONS OR WORK PRODUCT DEVELOPED OR VESTED BY EMPLOYEE PRIOR TO THE
EFFECTIVE DATE.
(c) EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS SECTION 4.6 AND FULLY
UNDERSTANDS THE LIMITATIONS WHICH IT IMPOSES UPON HIM AND HAS RECEIVED A
DUPLICATE COPY OF THIS AGREEMENT FOR HIS RECORDS.
4.7 Blue-Pencil. If any court of competent jurisdiction shall at any time
deem the term of this Agreement or any particular Restrictive Covenant (as
defined) too lengthy or the Territory too extensive, the other provisions of
this Section 4 shall nevertheless stand, the Restrictive
<PAGE>
Period herein shall be deemed to be the longest period permissible by law under
the circumstances and the Territory herein shall be deemed to comprise the
largest territory permissible by law under the circumstances. The court in each
case shall reduce the time period and/or Territory to permissible duration or
size.
4.8 Remedies. Employee acknowledges and agrees that the covenants set
forth in this Section 4 (collectively, the "Restrictive Covenants") are
reasonable and necessary for the protection of the Company's business interests,
that irreparable injury will result to the Company if Employee breaches any of
the terms of said Restrictive Covenants, and that in the event of Employee's
actual or threatened breach of any such Restrictive Covenants, the Company will
have no adequate remedy at law. Employee accordingly agrees that in the event of
any actual or threatened breach by him of any of the Restrictive Covenants, the
Company shall be entitled to immediate temporary injunctive and other equitable
relief, without bond and without the necessity of showing actual monetary
damages, subject to hearing as soon thereafter as possible. Nothing contained
herein shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of any damages which it is able to prove.
ARTICLE V
Miscellaneous
5.1 Notices. Any notice provided for in this Agreement must be in writing
and must be either (i) personally delivered, (ii) mailed by registered or
certified first class mail, prepaid with return receipt requested or (iii) sent
by a recognized overnight courier service, to the recipient at the address below
indicated:
To the Company:
NovaMed Eyecare Management, LLC
980 N. Michigan Avenue
Suite 1620
Chicago, IL 60611
Attention: Stephen J. Winjum
John W. Lawrence, Jr.
with a copy to:
Katten Muchin & Zavis
525 W. Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Attention: Steven V. Napolitano, Esq.
<PAGE>
To Employee:
J. Gary Jordan
____________________________
____________________________
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given (a) on the date
such notice is personally delivered, (b) three (3) days after the date of
mailing if sent by certified or registered mail, or (c) one (1) day after the
date such notice is delivered to the overnight courier service if sent by
overnight courier.
5.2 Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
5.3 Entire Agreement. This Agreement, those documents expressly referred
to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
5.4 Counterparts. This Agreement may be executed on separate counterparts,
each of which is deemed to be an original and all of which taken together
constitute one and the same agreement.
5.5 Successors and Assigns. This Agreement is intended to bind and inure
to the benefit of and be enforceable by Employee and the Company and their
respective successors and permitted assigns. Employee may not assign any of his
rights or obligations hereunder without the written consent of the Company.
5.6 No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party
hereto.
5.7 Amendments and Waivers. Any provision of this Agreement may be amended
or waived only with the prior written consent of the Company and Employee.
5.8 Governing Law. This Agreement shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of
<PAGE>
this Agreement shall be governed by, the laws of the State of Illinois, without
giving effect to provisions thereof regarding conflict of laws.
5.9 Income Tax Treatment. Employee and the Company acknowledge that it is
the intention of the Company to deduct all amounts paid under this Agreement as
ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as ordinary income for
income tax purposes, and should he report such amounts as other than ordinary
income for income tax purposes, he will indemnify and hold the Company harmless
from and against any and all taxes, penalties, interest, costs and expenses,
including reasonable attorneys' and accounting fees and costs, which are
incurred by Company directly or indirectly as a result thereof.
5.10 CONSENT TO JURISDICTION. THE COMPANY AND EMPLOYEE HEREBY CONSENT TO
THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF
COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREE THAT SUBJECT TO THE COMPANY'S
ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. EMPLOYEE ACCEPTS FOR HIMSELF AND IN
CONNECTION WITH HIS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH THIS AGREEMENT.
<PAGE>
5.11 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF
THIS TRANSACTION AND THE RELATIONSHIP THAT IS BEING ESTABLISHED. THE PARTIES
HERETO ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT
FOR THIS WAIVER, BE REQUIRED OF THE OTHER PARTY. THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY
COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, DISCRIMINATION
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE PARTIES HERETO
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. THE COMPANY AND EMPLOYEE FURTHER WARRANT AND REPRESENT THAT
EACH HAS REVIEWED THIS WAIVER WITH THEIR RESPECTIVE LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES THEIR RESPECTIVE JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED
HEREBY. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement on the
day and year first above written.
COMPANY:
-------
NovaMed Eyecare Management, LLC, a Delaware limited
liability company
By: /s/ Stephen J. Winjum
---------------------------------------
Stephen J. Winjum
President and Chief Executive Officer
EMPLOYEE:
--------
/s/ J. Gary Jordan
------------------------------------------
J. Gary Jordan
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), dated as of April 19, 1999, by and
between NovaMed Eyecare Management, LLC, a Delaware limited liability company
(the "Company"), and Robert A. Wallach ("Employee").
PRELIMINARY RECITALS
A. The Company is an eye care services company engaged in the business of:
(i) providing comprehensive eye care services to eye care providers and
businesses ancillary thereto, including, without limitation, providing
financial, administrative, information technology, marketing and managed care
services to ophthalmic and optometric providers; (ii) owning, operating and/or
managing ambulatory surgery centers, refractive centers, excimer lasers, optical
dispensaries, wholesale optical laboratories, and an optical supplies and
equipment purchasing organization; and (iii) providing clinical research and
site management services to the eye care pharmaceutical and device industries
(collectively, the "Business").
B. The Company desires to employ Employee and Employee desires to be
employed by the Company as Senior Vice President Marketing of the Company on the
terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
Employment
1.1 Engagement of Employee. The Company agrees to employ Employee, and
Employee accepts such employment by the Company, for the period beginning April
19, 1999 (the "Effective Date") and ending on April 18, 2001 (the "Initial
Employment Period"). The Initial Employment Period and any Renewal Period (as
hereinafter defined) shall automatically be renewed and extended on the same
terms and conditions contained herein for consecutive one-year periods (the
"Renewal Periods"), unless not later than sixty (60) days prior to the end of
the Initial Employment Period or any Renewal Period, either party shall give
written notice to such other party electing to terminate this Agreement. The
Initial Employment Period and the Renewal Periods are hereinafter referred to as
the "Employment Period." For purposes of this Agreement, any notice of
termination electing not to renew this Agreement pursuant to this Section 1.1
shall be deemed: (i) a termination without cause if such notice is delivered by
the Company; or (ii) a voluntary termination of employment if such notice is
delivered by Employee; provided, however, that if the Employment Period is
terminated pursuant to this Section 1.1 by Employee, then notwithstanding
Section 3.3, the Company shall have no further obligations hereunder or
otherwise with respect to Employee's employment from and after the expiration of
<PAGE>
the Employment Period (except payment of Employee's Base Salary and Benefits
accrued through the expiration of the Employment Period). Notwithstanding
anything to the contrary contained herein, the Employment Period is subject to
termination pursuant to Article III below.
1.2 Duties and Powers. During the Employment Period, Employee will have
such responsibilities, duties and authorities, and will render such services or
act in such other capacity for the Company and its affiliates as the Board of
Directors (the "Board") of NovaMed Holdings Inc. ("Holdings"), the manager and
parent of the Company (or any designated officer of Holdings or the Company),
may from time to time direct. Employee will devote his best efforts, energies
and abilities and his full business time, skill and attention (except for
permitted vacation periods and reasonable periods of illness or other
incapacity) to the business and affairs of the Company, and shall perform the
duties and carry out the responsibilities assigned to him, to the best of his
ability, in a diligent, trustworthy, businesslike and efficient manner for the
purpose of advancing the Company. Employee acknowledges that his duties and
responsibilities will require his full-time business efforts and agrees that
during the Employment Period he will not engage in any other business activity
or have any business pursuits or interests except activities or interests which
do not conflict with the business of the Company, Holdings and any of their
affiliated entities or interfere with the performance of Employee's duties
hereunder.
1.3 No Violation. Employee represents and warrants that the execution of
this Agreement by Employee and the performance by Employee of his duties as an
employee of the Company will not violate, conflict with or result in a breach or
default under any agreements, arrangements or understandings to which Employee
is or was a party, or by which he is or was bound, nor will the performance of
Employee's duties as an employee of the Company be limited, restricted or
impaired in any manner as a result of any agreements, arrangements or
understandings to which Employee is or was a party.
ARTICLE II
Compensation
2.1 Base Salary. During the Employment Period, the Company will pay
Employee a base salary at the rate of $175,000 per annum (the "Base Salary"),
payable in regular installments in accordance with the Company's general payroll
practices for salaried employees. If the Employment Period is terminated
pursuant to Section 3 (subject to any severance provisions in Section 3.3),
Employee's Base Salary for any partial year will be prorated based upon the
number of days elapsed in such year during which services were actually
performed by Employee. The Board or any designated officer shall perform an
annual review of Employee's Base Salary based on Employee's performance of his
duties and the Company's other compensation policies; provided that any increase
in the Base Salary shall require approval of the Board.
2.2 Discretionary Bonus. Following the end of each fiscal year, the
Board, in its sole discretion, may elect to cause the Company to award to
Employee a bonus for such year, in an amount to be determined by the Board,
based on such performance targets as shall be established, and adjusted from
time to time, by the Board's compensation committee.
<PAGE>
2.3 Benefits. In addition to the Base Salary payable to Employee
hereunder, Employee will be entitled to the following benefits during the
Employment Period, unless otherwise altered by the Board with respect to all
management employees of the Company (collectively, the "Benefits"):
(a) hospitalization, disability, life and health insurance, to the
extent offered by the Company, and in amounts consistent with Company policy,
for all management employees, as reasonably determined by the Board;
(b) paid vacation each year with salary, consistent with Company
policy for all management employees;
(c) reimbursement for reasonable out-of-pocket business expenses
incurred by Employee in the ordinary course of his duties, subject to the
Company's policies in effect from time to time with respect to travel,
entertainment and other expenses, including without limitation, requirements
with respect to reporting and documentation of such expenses;
(d) other benefit arrangements, including a 401(K) or similar tax
deferral plan, to the extent made generally available by the Company to its
management employees; and
(e) participation in Holdings' Stock Incentive Plan such that
Employee is granted options to purchase an amount of the common equity interest
in Holdings consistent with the determination of the Board or its Compensation
Committee pursuant to such plan.
2.4 Taxes, etc. All compensation payable to Employee hereunder is stated
in gross amount and shall be subject to all applicable withholding taxes, other
normal payroll and any other amounts required by law to be withheld.
ARTICLE III
Termination
3.1 Termination By Employee or the Company. The Employment Period (i)
shall automatically terminate immediately upon Employee's resignation or death,
or (ii) may be terminated by the Company as set forth herein for Cause or
without Cause, or by reason of Employee's Permanent Disability.
"Cause" as used herein means the occurrence of any of the following events:
(a) a material breach by Employee of any of the terms and conditions
of this Agreement; provided, however, that with respect to any material breach
of Section 1.2 hereof, Employee shall have a reasonable period of time to cure
such material breach following the date on which Employee receives written
notice from the Company setting forth such material breach;
(b) Employee's gross negligence in the performance of his duties or
material failure or willful refusal to perform his duties;
<PAGE>
(c) Employee's failure, as notified by the Company in writing, to
comply with any of the Company's written guidelines or procedures promulgated by
the Company and furnished to Employee, including, without limitation, any
guidelines or procedures relating to marketing or community relations; provided
that Employee shall have a reasonable period of time during which to cure such
failure following the date on which Employee receives the Company's written
notice of such failure;
(d) the determination by the Board in the exercise of its reasonable
judgment that Employee has committed an act that materially negatively affects
the Company's business or reputation; or
(e) the determination by the Board in the exercise of its reasonable
judgment that Employee has committed an act or acts constituting a felony or
other act involving dishonesty, disloyalty or fraud against the Company.
"Permanent Disability" as used herein shall mean that Employee is unable to
perform, with or without reasonable accommodation, by reason of physical or
mental incapacity, the essential functions of his or her position. The Board
shall determine, according to the facts then available, whether and when a
Permanent Disability has occurred. Such determination shall not be arbitrary or
unreasonable, and shall be final and binding on the parties hereto.
3.2 Termination by Employee. Employee has the right to terminate his
employment under this Agreement at any time, for any or no reason, upon ninety
(90) days written notice to the Company.
3.3 Compensation After Termination.
------------------------------
(a) If the Employment Period is terminated (i) by the Company for
Cause or due to the death or Permanent Disability of Employee, (ii) by Employee
(including a termination resulting from Employee's election not to renew this
Agreement under Section 1.1 hereof), then the Company shall have no further
obligations hereunder or otherwise with respect to Employee's employment from
and after the termination or expiration date (except payment of Employee's Base
Salary accrued through the date of termination or expiration), and the Company
shall continue to have all other rights available hereunder (including, without
limitation, all rights under Article IV hereof) at law or in equity;
(b) If the Employment Period is terminated by the Company without
Cause (including a termination resulting from the Company's election not to
renew this Agreement under Section 1.1 hereof), the Employee shall be entitled
to receive Severance Pay (as hereinafter defined) for a period of six (6)
months, payable in regular installments in accordance with the Company's general
payroll practices for salaried employees. Receipt of Severance Pay is contingent
upon Employee executing and adhering to a release of all employment claims in a
form acceptable to the Company. The Company shall have no further obligations
hereunder or otherwise with respect to Employee's employment from and after the
termination date, and the
<PAGE>
Company shall continue to have all other rights available hereunder (including
without limitation, all rights under Article IV hereof) at law or in equity.
(c) For purposes of this Agreement, "Severance Pay" shall include (i)
Employee's Base Salary hereunder, (ii) the bonus that Employee would have
received under Section 2.2 hereof at the end of the year during which
termination without cause occurs had such termination not occurred, which bonus
shall be prorated to cover the severance period set forth in Section 3.3(b)
hereof, and (iii) continuation of the Benefits for the severance period set
forth in Section 3.3(b) hereof.
ARTICLE IV
Restrictive Covenants
4.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(a) the Company is and will be engaged in the Business during the
Employment Period and thereafter;
(b) Employee is one of a limited number of persons who will be
developing the Business;
(c) Employee will occupy a position of trust and confidence with the
Company after the date of this Agreement, and during such period and Employee's
employment under this Agreement, Employee will become familiar with the
Company's trade secrets and with other proprietary and confidential information
concerning the Company and the Business;
(d) the agreements and covenants contained in this Article IV are
essential to protect the Company and the goodwill of the Business and are a
condition precedent to the Company entering into this Agreement;
(e) Employee's employment with the Company has special, unique and
extraordinary value to the Company and the Company would be irreparably damaged
if Employee were to provide services to any person or entity in violation of the
provisions of this Agreement;
(f) Employee has means to support himself and his dependents other
than by engaging in the Business, or a business similar to the Business, and the
provisions of this Article IV will not impair such ability; and
(g) for purposes of this Article IV, the term "Company" shall include
the Company, Holdings and any of their respective subsidiaries and affiliates.
4.2 Non-Compete. Employee hereby agrees that for a period commencing on
the date hereof and ending on the date of termination or expiration of his
employment with the Company for any reason (the "Termination Date"), and
thereafter, through the period ending on the first anniversary of the
Termination Date (collectively, the "Restrictive Period"), he shall not,
directly
<PAGE>
or indirectly, as employee, agent, consultant, stockholder, director, co-partner
or in any other individual or representative capacity, own, operate, manage,
control, engage in, invest in or participate in any manner in, act as a
consultant or advisor to, render services for (alone or in association with any
person, firm, corporation or entity), or otherwise assist any person or entity
(other than the Company) that engages in or owns, invests in, operates, manages
or controls any venture or enterprise that directly or indirectly engages or
proposes to engage in any element of the Business anywhere within a 100-mile
radius of the Chicago metropolitan area or within a 100-mile radius of any area
(or in the event such area is a major city, the metropolitan area relating to
such city) in which the Company on the Termination Date engages in any element
of the Business (the "Territory"); provided, however, that nothing contained
herein shall be construed to prevent Employee from investing in the stock of any
competing corporation listed on a national securities exchange or traded in the
over-the-counter market, but only if Employee is not involved in the business of
said corporation and if Employee and his associates (as such term is defined in
Regulation 14(A) promulgated under the Securities Exchange Act of 1934, as in
effect on the date hereof), collectively, do not own more than an aggregate of
3% of the stock of such corporation. With respect to the Territory, Employee
specifically acknowledges that the Company intends to expand the Business into
and throughout the United States.
4.3 Interference with Relationships. Without limiting the generality of
the provisions of Section 4.2 hereof, Employee hereby agrees that, during the
Restrictive Period, he will not, directly or indirectly, solicit or encourage,
or participate as employee, agent, consultant, stockholder, director, partner or
in any other individual or representative capacity, in any business which
solicits or encourages (a) any person, firm, corporation or other entity which
has executed, or proposes to execute, a management services agreement with the
Company at any time during the term of this Agreement, or from any successor in
interest to any such person, firm, corporation or other entity, for the purpose
of securing business or contracts related to any element of the Business, or (b)
any present or future customer or patient of the Company or any of its
affiliated practices to terminate or otherwise alter his, her or its
relationship with the Company or such affiliated practice; provided, however,
that nothing contained herein shall be construed to prohibit or restrict
Employee from soliciting business from any such parties on behalf of the Company
in performance of his duties as an employee of the Company required under and as
specifically contemplated by Section 1.2 above.
4.4 Nonsolicitation. Other than in the performance of his duties
hereunder, during the Restrictive Period, Employee shall not, directly or
indirectly, as employee, agent, consultant, stockholder, director, co-partner or
in any other individual or representative capacity, employ or engage, recruit or
solicit for employment or engagement, any person who is or becomes employed or
engaged by the Company or any of its affiliated practices during the Restrictive
Period, or otherwise seek to influence or alter any such person's relationship
with the Company.
4.5 Confidential Information. Other than in the performance of his duties
hereunder, during the Restrictive Period and thereafter, Employee shall keep
secret and retain in strictest confidence, and shall not, without the prior
written consent of the Company, furnish, make available or disclose to any third
party or use for the benefit of himself or any third party, any Confidential
Information. As used in this Agreement, "Confidential Information" shall mean
<PAGE>
any information relating to the business or affairs of the Company or the
Business, including but not limited to any technical or non-technical data,
formulae, compilations, programs, devices, methods, techniques, designs,
processes, procedures, improvements, models, manuals, financial data,
acquisition strategies and information, information relating to operating
procedures and marketing strategies, and any other proprietary information used
by the Company in connection with the Business, irrespective of its form;
provided, however, that Confidential Information shall not include any
information which is in the public domain or becomes known in the industry
through no wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary to
the Company.
4.6 Inventions and Discoveries.
--------------------------
(a) Employee understands and agrees that all inventions, discoveries,
ideas, improvements, whether patentable, copyrightable or not, pertaining to the
Business of the Company or relating to the Company's actual or demonstrably
anticipated research, development or inventions (collectively, "Inventions and
Discoveries") that result from any work performed by Employee solely or jointly
with others for the Company which Employee, solely or jointly with others,
conceives, develops, or reduces to practice during the course of Employee's
employment with the Company, are the sole and exclusive property of the Company.
Employee will promptly disclose all such matters to the Company and will assist
the Company in obtaining legal protection for Inventions and Discoveries.
Employee hereby agrees on behalf of himself, his executors, legal
representatives and assignees that he will assign, transfer and convey to the
Company, its successors and assigns the Inventions and Discoveries.
(b) THE COMPANY AND EMPLOYEE ACKNOWLEDGE AND AGREE THAT SECTION
4.6(a) SHALL NOT APPLY TO AN INVENTION OF EMPLOYEE FOR WHICH NO EQUIPMENT,
SUPPLIES, FACILITY OR TRADE SECRET INFORMATION OF THE COMPANY WAS USED AND WHICH
WAS DEVELOPED ENTIRELY ON EMPLOYEE'S OWN TIME, UNLESS (A) THE INVENTION RELATED
(I) TO THE BUSINESS OF THE COMPANY OR (II) TO THE COMPANY'S ACTUAL OR
DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR (B) THE INVENTION RESULTS
FROM ANY WORK PERFORMED BY EMPLOYEE FOR THE COMPANY. EMPLOYEE AND THE COMPANY
FURTHER ACKNOWLEDGE AND AGREE THAT SECTION 4.6(a) SHALL NOT APPLY TO ANY
INVENTIONS OR WORK PRODUCT DEVELOPED OR VESTED BY EMPLOYEE PRIOR TO THE
EFFECTIVE DATE.
(c) EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS SECTION 4.6 AND FULLY
UNDERSTANDS THE LIMITATIONS WHICH IT IMPOSES UPON HIM AND HAS RECEIVED A
DUPLICATE COPY OF THIS AGREEMENT FOR HIS RECORDS.
4.7 Blue-Pencil. If any court of competent jurisdiction shall at any time
deem the term of this Agreement or any particular Restrictive Covenant (as
defined) too lengthy or the Territory too extensive, the other provisions of
this Section 4 shall nevertheless stand, the Restrictive
<PAGE>
Period herein shall be deemed to be the longest period permissible by law under
the circumstances and the Territory herein shall be deemed to comprise the
largest territory permissible by law under the circumstances. The court in each
case shall reduce the time period and/or Territory to permissible duration or
size.
4.8 Remedies. Employee acknowledges and agrees that the covenants set
forth in this Section 4 (collectively, the "Restrictive Covenants") are
reasonable and necessary for the protection of the Company's business interests,
that irreparable injury will result to the Company if Employee breaches any of
the terms of said Restrictive Covenants, and that in the event of Employee's
actual or threatened breach of any such Restrictive Covenants, the Company will
have no adequate remedy at law. Employee accordingly agrees that in the event of
any actual or threatened breach by him of any of the Restrictive Covenants, the
Company shall be entitled to immediate temporary injunctive and other equitable
relief, without bond and without the necessity of showing actual monetary
damages, subject to hearing as soon thereafter as possible. Nothing contained
herein shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of any damages which it is able to prove.
ARTICLE V
Miscellaneous
5.1 Notices. Any notice provided for in this Agreement must be in writing
and must be either (i) personally delivered, (ii) mailed by registered or
certified first class mail, prepaid with return receipt requested or (iii) sent
by a recognized overnight courier service, to the recipient at the address below
indicated:
To the Company:
NovaMed Eyecare Management, LLC
980 N. Michigan Avenue
Suite 1620
Chicago, IL 60611
Attention: Stephen J. Winjum
John W. Lawrence, Jr.
with a copy to:
Katten Muchin & Zavis
525 W. Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Attention: Steven V. Napolitano, Esq.
<PAGE>
To Employee:
Robert A. Wallach
-------------------------------
-------------------------------
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given (a) on the date
such notice is personally delivered, (b) three (3) days after the date of
mailing if sent by certified or registered mail, or (c) one (1) day after the
date such notice is delivered to the overnight courier service if sent by
overnight courier.
5.2 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
5.3 Entire Agreement. This Agreement, those documents expressly referred
to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
5.4 Counterparts. This Agreement may be executed on separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
5.5 Successors and Assigns. This Agreement is intended to bind and inure
to the benefit of and be enforceable by Employee and the Company and their
respective successors and permitted assigns. Employee may not assign any of his
rights or obligations hereunder without the written consent of the Company.
5.6 No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party
hereto.
5.7 Amendments and Waivers. Any provision of this Agreement may be
amended or waived only with the prior written consent of the Company and
Employee.
5.8 Governing Law. This Agreement shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of
<PAGE>
this Agreement shall be governed by, the laws of the State of Illinois, without
giving effect to provisions thereof regarding conflict of laws.
5.9 Income Tax Treatment. Employee and the Company acknowledge that it is
the intention of the Company to deduct all amounts paid under this Agreement as
ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as ordinary income for
income tax purposes, and should he report such amounts as other than ordinary
income for income tax purposes, he will indemnify and hold the Company harmless
from and against any and all taxes, penalties, interest, costs and expenses,
including reasonable attorneys' and accounting fees and costs, which are
incurred by Company directly or indirectly as a result thereof.
5.10 CONSENT TO JURISDICTION. THE COMPANY AND EMPLOYEE HEREBY CONSENT TO
THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF
COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREE THAT SUBJECT TO THE COMPANY'S
ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. EMPLOYEE ACCEPTS FOR HIMSELF AND IN
CONNECTION WITH HIS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH THIS AGREEMENT.
<PAGE>
5.11 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS TRANSACTION AND THE RELATIONSHIP THAT IS BEING
ESTABLISHED. THE PARTIES HERETO ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON
SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE OTHER PARTY. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
AGREEMENT, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF
DUTY CLAIMS, DISCRIMINATION CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS. THE PARTIES HERETO ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT
TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON
THE WAIVER IN THEIR RELATED FUTURE DEALINGS. THE COMPANY AND EMPLOYEE FURTHER
WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH THEIR RESPECTIVE
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES THEIR RESPECTIVE
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement on
the day and year first above written.
COMPANY:
-------
NovaMed Eyecare Management, LLC, a Delaware
limited liability company
By:
-------------------------------------
Stephen J. Winjum
President and Chief Executive Officer
EMPLOYEE:
--------
-----------------------------------------
Robert A. Wallach
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
May 24, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 1,875 1,098
<SECURITIES> 0 0
<RECEIVABLES> 22,128 21,646
<ALLOWANCES> 10,347 10,017
<INVENTORY> 1,490 2,344
<CURRENT-ASSETS> 16,386 16,283
<PP&E> 13,441 14,995
<DEPRECIATION> 3,548 4,171
<TOTAL-ASSETS> 62,679 68,967
<CURRENT-LIABILITIES> 7,166 6,766
<BONDS> 0 0
16,551 17,120
0 0
<COMMON> 28 28
<OTHER-SE> 16,805 15,997
<TOTAL-LIABILITY-AND-EQUITY> 62,679 68,967
<SALES> 13,000 5,753
<TOTAL-REVENUES> 63,729 21,026
<CGS> 9,547 3,879
<TOTAL-COSTS> 58,986 19,994
<OTHER-EXPENSES> 1,373 508
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,273 509
<INCOME-PRETAX> 3,370 524
<INCOME-TAX> 1,664 235
<INCOME-CONTINUING> 1,706 289
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,706 289
<EPS-BASIC> .07 (.02)
<EPS-DILUTED> .06 (.02)
</TABLE>
