NATIONAL SURGERY CENTERS INC \DE\, 8-K/A, 1996-07-19

NATIONAL SURGERY CENTERS INC \DE\
8-K/A, 1996-07-19
OFFICES & CLINICS OF DOCTORS OF MEDICINE

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<PAGE>

===============================================================================

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________

AMENDMENT NO. 1

FORM 8-K

Current Report Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 13, 1996

____________________

NATIONAL SURGERY CENTERS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE 0-27162 36-3549627
(State or other jurisdiction of (Commission File (IRS Employer
incorporation or organization) Number) Identification No.)

35 EAST WACKER DRIVE, SUITE 2800

CHICAGO, ILLINOIS 60601
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (312) 553-4200

____________________

Page 1 of 64 -- Exhibit Index appears on Page 23

===============================================================================
<PAGE>

ITEM 2. ACQUISITION OF ASSETS

On February 21, 1996, the Registrant, National Surgery Centers, Inc., a
Delaware corporation ("NSC"); Coram Healthcare Corporation, a Nevada corporation
("Coram"); T2 Medical, Inc., a Delaware corporation ("T2"); Surgex, Inc., a
Nevada corporation ("Surgex"); and Ronald E. Moore ("Moore") entered into a
purchase agreement (the "Purchase Agreement") for the acquisition by the
Registrant (a) from the Seller, of all of the capital stock of each of (i)
Surgex-Miami, Inc., a Florida corporation; (ii) Surgex-Atlanta, Inc., a Delaware
corporation; and (iii) Surgex-Sarasota, Inc., a Delaware corporation
(collectively, the "Subsidiaries"); all debt owed by such Subsidiaries to each
other or to Surgex and all accrued interest thereon; and all management fees
owed by certain limited partnerships managed by the Subsidiaries to Surgex and
(b) from T2, of indebtedness receivable in the amount of $828,000 and all
accrued interest thereon in consideration of the payment by the Registrant to
Coram of $4,300,000 (the items purchased by Registrant as referred to in (a) and
(b), collectively, the "Purchased Surgex Assets"). On May 13, 1996, pursuant to
the Purchase Agreement, Coram received $4,147,000 for the Purchased Surgex
Assets, which amount adjusts for changes in working capital as set forth in the
Purchase Agreement.

On April 30, 1996, NSC; Westside Surgery Center, Ltd., a Texas limited
partnership ("Westside"); NSC Houston, Inc., a Texas corporation and wholly-
owned subsidiary of NSC ("NSCH"); Healthfirst Medical Westside Corporation, a
Texas corporation ("HMWC"); and certain limited partners of Westside entered
into an Agreement to Purchase Partnership Interests (the "Agreement to
Purchase") which provided for the acquisition by NSCH, effective May 1, 1996, of
the following: (i) all of the general partnership interests in Westside from
HMWC, (ii) a portion of the limited partnership interests in Westside (the
"Limited Partnership Interests") from those limited partners of Westside who had
agreed to sell such Limited Partnership Interests (the "Limited Partners") and
(iii) a management agreement from HMWC, in consideration of the payment by NSCH
to such parties of an aggregate of $4,235,000 (the "Purchase Price") in cash
(the items purchased by Registrant as referred to in (a)-(c), collectively, the
"Purchased Westside Assets"). On May 17, 1996, pursuant to the Agreement to
Purchase, NSCH paid the Purchase Price to HMWC and the Limited Partners for the
Purchased Westside Assets.

The terms of each of the acquisitions, including the amount of cash paid as
consideration, were determined through arm's-length negotiations, based on past
and projected levels of revenue and profitability of the entities acquired and
the value of the assets acquired. Each of the acquisitions was accounted for
using the purchase method of accounting. The foregoing descriptions are
qualified in their entirety by reference to the form of the Purchase Agreement
and of the Agreement to Purchase, which are attached hereto and are incorporated
herein by reference as Exhibits 2.1 and 2.2, respectively.

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial statements of businesses acquired

SURGEX-ATLANTA, INC.; SURGEX-MIAMI, INC.; AND SURGEX-SARASOTA, INC. AND THEIR
SUBSIDIARIES
Independent Auditors' Report............................................ 3
Combined and Consolidated Balance Sheet as of December 31, 1995......... 4
Combined and Consolidated Statement of Income for the year ended
December 31, 1995..................................................... 5
Combined and Consolidated Statement of Changes in Shareholders'
Equity for the year ended December 31, 1995........................... 6
Combined and Consolidated Statements of Cash Flows for the year ended
December 31, 1995..................................................... 7
Notes to Combined and Consolidated Financial Statements................. 8

WESTSIDE SURGERY CENTER, LTD.
Report of Independent Auditors.......................................... 12
Balance Sheet as of December 31, 1995................................... 13
Statement of Income for the year ended December 31, 1995................ 14
Statement of Changes in Partners' Equity for the year ended
December 31, 1995..................................................... 15
Statement of Cash Flows for the year ended December 31, 1995............ 16
Notes to Financial Statements........................................... 17

2
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Surgex-Atlanta, Inc.; Surgex-Miami, Inc.; and
Surgex-Sarasota, Inc.

We have audited the accompanying combined and consolidated balance sheet of
SURGEX-ATLANTA, INC. (a Delaware Corporation); SURGEX-MIAMI, INC. (a Florida
Corporation); AND SURGEX-SARASOTA, INC. (a Delaware Corporation) AND EACH OF
THEIR SUBSIDIARIES as of December 31, 1995, and the related combined and
consolidated statements of income, stockholders' equity, and cash flows for
the year then ended. These combined and consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined and consolidated financial statements
based on our audit.

We conducted our audit 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 audit provides a reasonable basis
for our opinion.

In our opinion, the combined and consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
SURGEX-ATLANTA, INC.; SURGEX-MIAMI, INC.; AND SURGEX-SARASOTA, INC. AND EACH
OF THEIR SUBSIDIARIES as of December 31, 1995, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

Habif, Arogeti & Wynne, P.C.

Atlanta, Georgia
June 28, 1996

3
<PAGE>

SURGEX-ATLANTA, INC.; SURGEX-MIAMI, INC.; AND
SURGEX-SARASOTA, INC. AND EACH OF THEIR SUBSIDIARIES

COMBINED AND CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995

<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current assets
Cash............................................................. $ 279,791
Accounts receivable, net of allowance for contractual adjustment
and doubtful accounts of $395,855............................... 852,568
Accounts receivable--other....................................... 53,125
Inventory........................................................ 60,214
Prepaid expenses................................................. 45,721
----------
Total current assets........................................... 1,291,419
----------
Property and equipment
Medical equipment................................................ 888,270
Leasehold improvements........................................... 1,193,775
Furniture and fixtures........................................... 42,361
----------
2,124,406
Accumulated depreciation......................................... (627,768)
----------
1,496,638
----------
Other assets
Goodwill, net of accumulated amortization of $98,026............. 1,522,024
Due from parent.................................................. 1,448,938
Deposits......................................................... 21,618
----------
2,992,580
----------
$5,780,637
==========
</TABLE>

<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
Current liabilities
Accounts payable................................................. $ 65,725
Accrued expenses--other.......................................... 581,585
Accrued distributions............................................ 807,299
Current portion of capital lease obligations..................... 66,732
Current portion of notes payable................................. 1,991,013
----------
Total current liabilities...................................... 3,512,354
----------
Long-term liabilities
Notes payable, net of current portion............................ 1,203,431
Capital lease obligation, net of current portion................. 210,991
Deferred taxes................................................... 23,369
----------
1,437,791
----------
Minority interests................................................. 430,583
----------
Stockholders' equity
Common stock..................................................... 15
Retained earnings................................................ 399,894
----------
399,909
----------
$5,780,637
==========
</TABLE>
See auditors' report and accompanying notes.

4
<PAGE>

SURGEX-ATLANTA, INC.; SURGEX-MIAMI, INC.; AND
SURGEX-SARASOTA, INC. AND EACH OF THEIR SUBSIDIARIES

COMBINED AND CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<S> <C>
Net revenue......................................................... $4,765,718
Operating expenses................................................ 3,109,154
Depreciation and amortization expense............................. 307,363
----------
Operating income.................................................... 1,349,201
----------
Other income and (expense)
Minority interest in earnings..................................... (752,928)
Interest expense.................................................. (220,873)
Miscellaneous income.............................................. 143,513
----------
(830,288)
----------
Income before income tax expense.................................... 518,913
Income tax expense.................................................. (305,065)
----------
Net income...................................................... $ 213,848
==========
</TABLE>

See auditors' report and accompanying notes.

5
<PAGE>

SURGEX-ATLANTA, INC.; SURGEX-MIAMI, INC.; AND
SURGEX-SARASOTA, INC. AND EACH OF THEIR SUBSIDIARIES

COMBINED AND CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR DECEMBER 31, 1995

COMMON STOCK
------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ -------- --------
<S> <C> <C> <C> <C>
Balances, December 31, 1994................... 2,000 $15 $186,046 $186,061
Net income.................................... - -- 213,848 213,848
----- --- -------- --------
Balances, December 31, 1995................... 2,000 $15 $399,894 $399,909
===== === ======== ========
</TABLE>

See auditors' report and accompanying notes.

6
<PAGE>

SURGEX-ATLANTA, INC.; SURGEX-MIAMI, INC.; AND
SURGEX-SARASOTA, INC. AND EACH OF THEIR SUBSIDIARIES

COMBINED AND CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995

INCREASE (DECREASE) IN CASH

<TABLE>
<S> <C>
Cash flows from operating activities
Net income...................................................... $ 213,848
-----------
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization................................. 307,363
Minority interest in earnings of subsidiary................... 752,928
Changes in assets and liabilities
Increase in accounts receivable............................. (219,615)
Increase in accounts receivable--other...................... (47,525)
Increase in inventory....................................... (6,284)
Decrease in prepaid expense................................. 9,874
Increase in accounts payable................................ 15,696
Increase in accrued expenses--other......................... 231,150
Increase in accrued distributions........................... 807,299
Increase in deferred taxes.................................. 42,733
-----------
Total adjustments......................................... 1,893,619
-----------
Net cash provided by operating activities............... 2,107,467
-----------
Cash flows from investing activities
Acquisition of property and equipment........................... (60,141)
-----------
Cash flows from financing activities
Proceeds from notes payable..................................... 125,000
Payments on notes payable....................................... (1,371,463)
Payments on capital lease obligations........................... (28,573)
Distributions paid.............................................. (859,407)
-----------
Net cash used by financing activities......................... (2,134,443)
-----------
Net decrease in cash................................... (87,117)
-----------
Cash, beginning of year........................................... 366,908
-----------
Cash, end of year....................................... $ 279,791
===========
Supplementary Disclosures of Cash Flow Information
Cash paid during year for
Interest........................................................ $ 63,025
Income taxes.................................................... -0-
</TABLE>

See auditors' report and accompanying notes.

7
<PAGE>

SURGEX-ATLANTA, INC.; SURGEX-MIAMI, INC.; AND
SURGEX-SARASOTA, INC. AND EACH OF THEIR SUBSIDIARIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

General:

The Companies are investment companies that hold investment interests in
general partnerships that operate surgical centers. The respective ownerships
are as follows:

<TABLE>
<CAPTION>
PERCENTAGE OF OWNERSHIP
COMPANY PARTNERSHIP AND TYPE OF INTEREST
------- ------------------------ -------------------------------
<S> <C> <C>
Surgex-Atlanta, Inc..... North Atlanta Endoscopy, 66% General Partnership
Center, L.P. interest
Surgex-Miami, Inc....... Ambulatory Surgical 60% General Partnership
Centre of Miami, L.P. interest
Surgex-Sarasota, Inc. .. Surgex-Sarasota 1% General Partnership
Endoscopy Center, L.P. interest and 59% Limited
Partnership interest
</TABLE>

The Companies listed above are wholly owned subsidiaries of Surgex, Inc.

Principles of Consolidation:

The consolidated and combined financial statements include the Companies'
accounts and their majority owned subsidiaries listed above. All significant
intercompany transactions and balances have been eliminated in consolidation.

Accounts Receivable and Net Revenue:

The Companies bill for the services rendered. If any of the accounts were
deemed uncollectible, the accounting loss suffered would be the value of the
account balance.

Net revenue consists of charges by the Companies' centers at established
billing rates for services. Net revenue is net of provision for contractual
adjustments and doubtful accounts.

Patient service revenue is reported at the estimated net realizable
amounts from patients, third party payors, and others for services rendered.

Inventories:

Inventories consist of medical supplies and are stated at the lower-of-cost
or market, with cost determined by the FIFO (first-in, first-out) method.

Property and Equipment:

Property and equipment are carried at cost. Equipment under capital leases
is recorded at the lower of the present value of lease payments or fair market
value. Expenditures for maintenance and repairs will be expensed currently,
while renewals and betterments that materially extend the life of an asset will
be capitalized. The cost of assets sold, retired, or otherwise disposed of, and
the related allowance for depreciation, will be eliminated from the accounts,
and any resulting gain or loss will be recognized.

Depreciation will be provided using the straight-line method over the
estimated useful lives of the assets, which are as follows:

<TABLE>
<CAPTION>
<S> <C>
Medical equipment....................................... 5-7 years
Leasehold improvements.................................. 9-20 years
Office furniture and fixtures........................... 7 years

</TABLE>

8
<PAGE>

SURGEX-ATLANTA, INC.; SURGEX-MIAMI, INC.; AND
SURGEX-SARASOTA, INC. AND EACH OF THEIR SUBSIDIARIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995

Other Assets:

Goodwill is being amortized by the straight-line method over 40 years.

Use of Estimates:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.

Financial Instruments:

The Companies estimate that the fair value of all financial instruments at
December 31, 1995 does not differ materially from the aggregate carrying value
of its financial instruments recorded in the accompanying balance sheet. The
estimated fair value amounts have been determined by the Companies using
available market information and appropriate valuation methodologies.
Considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair values, and accordingly, the estimates are not
necessarily indicative of the amounts that the Companies could realize in a
current market exchange.

B. CASH--CONCENTRATION OF CREDIT RISK:

Surgex-Miami, Inc. maintained deposits in a financial institution which
exceeded the Federal Deposit Insurance Corporation limit in the amount of
$80,893.

C. COMMITMENTS:

The Companies have management agreements with Surgex, Inc., sole owner of
the Companies at December 31, 1995. Compensation for these management services
is 6% of net revenue for Surgex-Atlanta, Inc. and 5% of net revenues for Surgex-
Miami, Inc. and Surgex-Sarasota, Inc. On February 1, 1996, Surgex, Inc. assigned
these rights to National Surgery Centers, Inc. Termination of the agreement will
occur only upon mutual, written consent of all parties.

The amounts accrued at December 31, 1995 and paid during 1995 in
accordance with these agreements are as follows:

<TABLE>
<CAPTION>
SURGEX- SURGEX- SURGEX-
ATLANTA, MIAMI, SARASOTA,
INC. INC. INC. TOTAL
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Management fees accrued................... $ -0- $ 77,000 $54,994 $131,994
Management fees paid...................... 91,716 123,944 25,464 241,124
</TABLE>

The balance of the accrual is included in accrued expenses--other.

Surgex-Atlanta, Inc. entered into an agreement with Finova Capital
Corporation to pay monthly interest installments of $1,239 expiring November 1,
1996. The agreement is a continuation of a previously settled capital lease
obligation. Interest payments related to these agreements totaled $4,651.

9
<PAGE>

SURGEX-ATLANTA, INC.; SURGEX-MIAMI, INC.; AND
SURGEX-SARASOTA, INC. AND EACH OF THEIR SUBSIDIARIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995

The Companies lease their office space. Minimum rental commitments, under
non-cancelable leases with terms of one year or more, are as follows:

<TABLE>
<S> <C>
1996.................................................... $ 376,648
1997.................................................... 386,781
1998.................................................... 397,319
1999.................................................... 408,278
2000.................................................... 413,156
Thereafter.............................................. 1,617,520
----------
$3,599,702
==========
</TABLE>

Rental expense totaled $405,164 during the year.

D. COMMON STOCK:

Common stock consists of the following:
<TABLE>
<S> <C>
Surgex-Atlanta, Inc.
$.01 par value, 500 shares authorized, issued and outstanding.. $ 5
Surgex-Miami, Inc.
No par value, 1,000 shares authorized, issued and outstanding.. 5
Surgex-Sarasota, Inc.
$.01 par value, 500 shares authorized, issued and outstanding.. 5
---
$15
===
</TABLE>

E. CAPITAL LEASE:

Surgex-Sarasota, Inc. acquired machinery and equipment under the provisions
of two long-term capital leases. The assets under capital leases are included in
property and equipment and are depreciated over their estimated useful lives.

As of December 31, 1995, minimum future lease payments under capital leases
are as follows:

<TABLE>
<S> <C>
1996...................................................... $100,276
1997...................................................... 100,276
1998...................................................... 100,276
1999...................................................... 50,701
--------
Total minimum lease payments.............................. 351,529
Less: Amounts representing interest....................... 73,806
--------
Net minimum lease payments................................ $277,723
========
</TABLE>

F. RELATED PARTY TRANSACTIONS:

Distributions of cash are paid out in the sole discretion of the general
partners and available cash is distributed as follows:

<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS
-------- --------
<S> <C> <C>
Surgex-Atlanta, Inc................................. 66% 34%
Surgex-Miami, Inc................................... 60% 40%
Surgex-Sarasota, Inc................................ 1% 99%
</TABLE>

10
<PAGE>

SURGEX-ATLANTA, INC.; SURGEX-MIAMI, INC.; AND
SURGEX-SARASOTA, INC. AND EACH OF THEIR SUBSIDIARIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995

A portion of the fourth quarter 1995 distribution were not paid out until
1996. An accrual at December 31, 1995 consisted of:

<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- -------- --------
<S> <C> <C> <C>
Surgex-Atlanta, Inc.................... $ -0- $ 35,001 $ 35,001
Surgex-Miami, Inc...................... 306,031 119,900 425,931
Surgex-Sarasota, Inc................... 4,904 341,463 346,367
-------- -------- --------
$310,935 $496,364 $807,299
======== ======== ========
</TABLE>

Related parties have made advances or issued notes to the Companies. Coram
Healthcare Corporation ("Coram") and Surgex, Inc. ("Surgex"), an affiliate and
parent of the Companies, respectively, have loaned money to the Companies. Coram
and Surgex exercise management responsibilities over the Companies. The balances
for these debts and the related accounts at December 31, 1995 are as follows:

<TABLE>
<CAPTION>
SURGEX-ATLANTA, SURGEX-MIAMI, SURGEX-SARASOTA,
INC. INC. INC. TOTAL
--------------- ------------- ---------------- ----------
<S> <C> <C> <C> <C>

Receivables from Surgex.. $ -0- $1,229,609 $219,329 $1,448,938
========= ========== ======== ==========

Notes payable--Surgex.... $1,100,931 $1,163,013 $ -0- $2,263,944
Notes payable--Coram..... -0- 828,000 -0- 828,000
Notes from Limited
Partners (interest
free)................... -0- 93,500 -0- 93,500
Note from Limited
Partner (interest
bearing)................ -0- 9,000 -0- 9,000
---------- ---------- -------- ----------
Total................ $1,100,931 $2,093,513 $ -0- $3,194,444
========== ========== ======== ==========
Interest payable--
Surgex (7%)............ $ 11,149 $ 138,939 $ 32,555 $ 182,643
Interest payable--Coram
(7%)................... -0- 115,920 -0- 115,920
Interest payable--
Limited Partner (10%).. -0- 3,975 -0- 3,975
---------- ---------- -------- ----------
$ 11,149 $ 258,834 $ 32,555 $ 302,538
========== ========== ======== ==========
</TABLE>

All advances and notes are due on demand. The balance of the interest
payable is included in accrued expenses--other.

G. INCOME TAXES:

Earnings differ for financial statement and income tax reporting purposes
primarily as a result of timing differences in the recognition of depreciation
expense and the amortization of intangibles.

Provision has been made for income taxes on earnings reported on the tax
returns and includes a portion related to items recognized differently for
financial statement and income tax reporting.

The elements of income taxes are as follows:

<TABLE>
<S> <C>
Current:
State..................................................... $ 38,746
Federal................................................... 223,586
--------
262,332
--------
Deferred:
State..................................................... 5,995
Federal................................................... 36,738
--------
42,733
--------
$305,065
========
</TABLE>

H. SUBSEQUENT EVENT:

On February 21, 1996, National Surgery Centers, Inc. entered into an
agreement to purchase a 100% interest of Surgex-Atlanta, Inc.; Surgex-Miami,
Inc.; and Surgex-Sarasota, Inc.; all debt and accrued interest owed by the
Companies to each other or Surgex, Inc.; and all management fees. The
transaction was consummated on May 13, 1996 by National Surgery Centers, Inc.

11
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Partners
Westside Surgery Center, Ltd.

We have audited the accompanying balance sheet of Westside Surgery Center,
Ltd. (the Partnership), as of December 31, 1995, and the related statements of
income, changes in partners' equity, and cash flows for the year ended. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Westside Surgery Center,
Ltd., at December 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.

Ernst & Young LLP

Houston, Texas
June 26, 1996

12
<PAGE>

WESTSIDE SURGERY CENTER, LTD.

BALANCE SHEET
DECEMBER 31, 1995

<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current assets:
Cash and cash equivalents......................................... $ 196,126
Accounts receivable (less allowance for uncollectible accounts of
$165,680)........................................................ 632,000
Accounts receivable--related party (Note 5)....................... 60,431
Prepaid expenses.................................................. 2,699
----------
Total current assets............................................ 891,256
Property and equipment (Note 2)..................................... 996,069
Less accumulated depreciation and amortization...................... (423,668)
----------
572,401
Other assets:
Security deposits................................................. 69,448
Organization costs (less accumulated amortization of $28,500)..... 28,500
----------
Total assets.................................................... $1,561,605
==========
<CAPTION>
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
<S> <C>
Current liabilities:
Current installments, capital leases.............................. $ 84,217
Current installments, long-term debt.............................. 71,188
Accounts payable.................................................. 199,897
Accrued expenses.................................................. 41,587
----------
Total current liabilities....................................... 396,889
Capital leases (Note 4)............................................. 236,079
Long-term debt (Note 3)............................................. 232,977
Partners' equity.................................................... 695,660
----------
Total liabilities and partners' equity.......................... $1,561,605
==========
</TABLE>

The Notes to Financial Statements are an integral part of these statements.

13
<PAGE>

WESTSIDE SURGERY CENTER, LTD.

STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995

<TABLE>
<S> <C>
Net revenue......................................................... $3,314,460
Expenses:
Operating expenses................................................ 2,012,405
Depreciation and amortization expense............................. 211,708
----------
Operating income.................................................... 1,090,347
Interest expense.................................................... (81,718)
Interest income..................................................... 3,755
----------
Net income.......................................................... $1,012,384
==========
</TABLE>

The Notes to Financial Statements are an integral part of these statements.

14
<PAGE>

WESTSIDE SURGERY CENTER, LTD.

STATEMENT OF CHANGES IN PARTNERS' EQUITY

<TABLE>
<CAPTION>
20% 80%
GENERAL LIMITED
TOTAL PARTNER PARTNERS
----------- --------- ---------
<S> <C> <C> <C>
Partners' equity at January 1, 1995.......... $ 653,044 $ 130,608 $ 522,436
Capital contributions...................... 71,250 14,250 57,000
Net income................................. 1,012,384 202,476 809,908
Distributions.............................. (1,041,018) (208,204) (832,814)
----------- --------- ---------
Partners' equity at December 31, 1995........ $ 695,660 $ 139,130 $ 556,530
=========== ========= =========
</TABLE>

The Notes to Financial Statements are an integral part of these statements.

15
<PAGE>

WESTSIDE SURGERY CENTER, LTD.

STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995

<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income........................................................ $1,012,384
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 211,708
Provision for uncollectible accounts............................ 8,814
Changes in assets and liabilities:
Increase in accounts receivable................................. (33,351)
Increase in accounts receivable--related party.................. (40,487)
Increase in prepaid expenses.................................... (2,699)
Increase in security deposits................................... (12,440)
Decrease in accounts payable.................................... (22,327)
Increase in accrued expenses.................................... 41,587
----------
Net cash provided by operating activities..................... 1,163,189
----------
INVESTING ACTIVITIES
Purchases of property and equipment............................... (7,790)
----------
Net cash used in investing activities......................... (7,790)
----------
FINANCING ACTIVITIES
Proceeds from long-term debt...................................... 75,000
Payments on capital leases and long-term debt..................... (148,420)
Contributed capital............................................... 71,250
Partners' distributions........................................... (1,041,018)
----------
Net cash used in financing activities......................... (1,043,188)
----------
Net increase in cash and cash equivalents......................... 112,211
Cash and cash equivalents at beginning of year.................... 83,915
----------
Cash and cash equivalents at end of year.......................... $ 196,126
==========
Interest paid during the year..................................... $ 79,670
==========
</TABLE>

The Notes to Financial Statements are an integral part of these statements.

16
<PAGE>

WESTSIDE SURGERY CENTER, LTD.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Westside Surgery Center, Ltd., a Texas limited partnership (the
Partnership), was organized on June 3, 1993 for the purpose of providing an
ambulatory surgery center to the surrounding community.

The General Partner of the Partnership is HealthFirst Medical Westside
Corporation (HFMW). The Limited Partners are primarily members of the medical
staff and several executives of HFMW.

Significant accounting policies of the Partnership are presented below:

Cash and cash equivalents

The Partnership considers all investments in highly liquid investments with
maturities of three months or less to be cash equivalents.

Property and Equipment

Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.

Organization Costs

Organization costs are amortized using the straight-line method over five
years.

Net Patient Revenue

Net patient revenue consists of charges by the Partnership's center at
established billing rates for services which generally include all fees for
operating room, recovery room, supplies, and medications. Net patient revenue
is net of provisions for contractual adjustments.

Off-Balance-Sheet Risk and Concentrations of Credit Risk

Financial instruments which potentially subject the Partnership to
concentrations of credit risk consist principally of cash, cash equivalents,
and patient receivables. The Partnership places its cash and cash equivalents
with high credit quality financial institutions.

Concentrations of credit risk with respect to patient receivables is limited
due to the large number of customers comprising the Partnership's customer
base and their dispersion across many different insurance companies, health
maintenance and preferred provider organizations, and individuals.

The Partnership had no significant concentrations of credit risk or
financial instruments with off-balance-sheet risk.

Accounting Estimates

Accounting estimates are an integral part of the financial statements
prepared by management and are based on management's current judgments. These
judgments are based on knowledge and experience about past and current events
and on assumptions about future events. Management will accrue estimated
liabilities when the financial impact is probable and estimable.

17
<PAGE>

WESTSIDE SURGERY CENTER, LTD.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Liability Insurance

The Company carries professional malpractice and general liability
insurance, whereby the Company pays premiums based on the number of patient
cases, which covers all potential losses up to certain limits.

The Company has procedures in place to monitor incidents of significance.
The Company does not have any malpractice claims or other litigation in which
the ultimate resolution could have a material financial impact.

Income Taxes

No provision for income taxes is made in the financial statements of the
Partnership because, as a partnership, the tax effect of its activities
accrues to the partners.

Allocation of Income (Loss) and Cash Distributions

In accordance with the Partnership agreement, operating income, gains,
losses, and cash distributions are allocated 80% to the Limited Partners and
20% to the General Partner. The allocation is made to each Limited Partner
based on the number of units owned by the Limited Partner divided by the total
number of units owned by the Limited Partners.

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
December 31,
1995
------------
<S> <C>
Medical and surgical equipment............................... $940,238
Leasehold improvements....................................... 16,302
Office equipment............................................. 27,592
Vehicle...................................................... 11,937
--------
$996,069
========
</TABLE>

Estimated useful lives for depreciation are:

<TABLE>
<S> <C>
Equipment and leasehold improvements............................ 3-5 years
Vehicle......................................................... 3 years
</TABLE>

3. LONG-TERM DEBT

The Partnership's debt represents an agreement with a financing company for
medical equipment acquired. The agreement requires monthly payments of $8,854
through March, 1999 with a balloon payment due at maturity in April, 1999. The
interest rate is 13.4%.

Annual maturities of long-term debt through 1999 are as follows:

The debt agreement is secured by medical equipment with a net book value of
$180,834 at December 31, 1995.

18
<PAGE>

WESTSIDE SURGERY CENTER, LTD.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

4. LEASES

The Partnership has entered into several lease agreements for medical
equipment and office equipment which are accounted for as capital leases.

At December 31, 1995, future minimum lease payments for capital leases are
as follows:

<TABLE>
<S> <C>
1996..................................... $115,421
1997..................................... 115,421
1998..................................... 103,216
1999..................................... 56,042
--------
Total minimum lease payments......... $390,100

Less: Amount representing interest....... 69,804
--------
Present value of capital leases........ 320,296
Less: Current installments............... 84,217
--------
Capital lease obligations.............. $236,079
========
</TABLE>

The net book value of the equipment under capital leases is $285,455 at
December 31, 1995.

The Partnership leases its surgery center under an operating lease. Total
rental expense for the year ended December 31, 1995 was $146,714. Future
minimum lease payments under the operating lease are as follows:

5. TRANSACTIONS WITH PARTNERS AND AFFILIATES

In accordance with the Certificate and Agreement of Limited Partnership,
HFMW receives an annual fee of five percent of net revenues for managing the
Partnership. This fee was $164,306 for the year ended December 31, 1995.

The Partnership performs certain administrative services for an affiliate
company of HFMW and charges the affiliated company for the costs incurred. At
December 31, 1995, there was an outstanding receivable for these services with
a balance of $60,431. The total fees charged for 1995 for these services were
$113,518.

The Partnership pays certain physicians, who are limited partners, director
fees for their services provided for serving as directors of certain
departments of the Partnership. During 1995, the fees paid to these limited
partners were $41,500.

6. SUBSEQUENT EVENT

Effective May 1, 1996, National Surgery Centers, Inc. (National), purchased
100% of the General Partner's interest and 51% of the Limited Partners'
interests. As a result of this transaction, National owns 61% of the
Partnership interest and the Limited Partners own the remaining 39%.

19
<PAGE>

(b) Pro forma financial information

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following Unaudited Pro Forma Consolidated Statements of Operations for
the year ended December 31, 1995, and Consolidated Balance Sheets at December
31, 1995, are based on the audited historical consolidated financial statements
of National Surgery Centers, Inc. and Endoscopy Center Affiliate as reported in
the unaudited Pro Forma Consolidated Financial Statements as reported on
Amendment No. 2 to Form 8-K dated July 15, 1996 (collectively "NSC" or the
"Company"); Surgex-Atlanta, Inc., Surgex-Miami-Inc., and Surgex-Sarasota, Inc.
and their Subsidiaries (collectively, "Surgex"); and Westside Surgery Center,
Ltd ("Westside")(Surgex and Westside being sometimes referred to herein
collectively as the "Recent Acquisitions"). The Unaudited Pro Forma Consolidated
Statements of Operations are adjusted as if the following events occurred on
January 1, 1995 while the Unaudited Pro Forma Consolidated Balance Sheets are
adjusted as if the Recent Acquisitions had occurred at December 31, 1995. The
Unaudited Pro Forma Consolidated Statements of Operations combine the historical
operations of the Company with the historical operations of the Recent
Acquisitions prior to the dates the Company made such acquisitions, using the
purchase method of accounting. These Pro Forma Consolidated Financial Statements
are not necessarily indicative of the operating results that would have been
achieved had the aforementioned transactions occurred at the beginning of each
period presented nor do they purport to indicate the results of future
operations.

These Unaudited Pro Forma Consolidated Financial Statements are based on the
assumptions set forth in the notes to such statements and should be read in
conjunction with the related consolidated financial statements and notes
thereto.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------
NSC ADJUST- PRO FORMA
HISTORICAL SURGEX(1) WESTSIDE(1) MENTS AS ADJUSTED
----------- ---------- ---------- ----- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Net revenue............................................ $58,006 $4,766 $3,314 $ -- $66,086
Cost and expenses:
Operating expenses................................... 40,316 3,110 2,012 (334)(2) 45,104
General and administrative expenses.................. 2,715 -- -- -- 2,715
Depreciation and amortization expense................ 4,959 307 212 132(3) 5,610
------- ------ ------ ------- -------
Total costs and expenses............................. 47,990 3,417 2,224 (202) 53,429
------- ------ ------ ------- -------
Operating income..................................... 10,016 1,349 1,090 202 12,657
------- ------ ------ ------- -------
Other (income) expense:
Interest expense..................................... 4,730 221 82 423(4)(5) 5,456
Interest income...................................... (278) -- (4) -- (282)
Minority interests................................... 1,283 753 -- 397(6) 2,433
Other, net........................................... (737) (144) -- -- (881)
------- ------ ------ ------- -------
Total other (income) expense......................... 4,998 830 78 820 6,726
------- ------ ------ ------- -------
Income (loss) before taxes and extraordinary item...... 5,018 519 1,012 (618) 5,931
Provision for income taxes............................. 1,957 305 -- 60(7) 2,322
------- ------ ------ ------- -------
Income (loss) before extraordinary item................ 3,061 214 1,012 (678) 3,609
Early extinguishment of debt, net...................... (253) -- -- -- (253)
------- ------ ------ ------- -------
Net Income (loss)...................................... $ 2,808 $ 214 $1,012 $ (678) $ 3,356
======= ====== ====== ======= =======
Income (loss) per common shares (8):
Primary:
Before extraordinary item......................... $ 0.56 $ -- $ -- $ -- $ .66
Extraordinary item................................ (0.05) -- -- -- (.05)
------- ------ ------ ------- -------
Net income (loss)................................. $ 0.51 $ -- $ -- $ -- $ .61
======= ====== ====== ======= =======
Fully Diluted:
Before extraordinary item......................... $ 0.54 $ -- $ -- $ -- $ .63
Extraordinary item................................ (0.05) -- -- -- (.04)
------- ------ ------ ------- -------
Net income (loss)................................. $ 0.49 $ -- $ -- $ -- $ .59
======= ====== ====== ======= =======
Weighted average number of common and
common equivalent shares outstanding (8):
Primary.............................................. 5,457 -- -- -- 5,457
Fully diluted........................................ 5,711 -- -- -- 5,711
</TABLE>

The accompanying notes on the following page are an integral part of the
Unaudited Pro Forma Consolidated Financial Statements.

20
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------------
NSC ADJUST- PRO FORMA
HISTORICAL SURGEX(9) WESTSIDE(9) MENTS AS ADJUSTED
---------- --------- ----------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEETS:
ASSETS
Current Assets:
Cash and cash equivalents.......................... $ 16,154 $ 280 $ 196 $ -- $ 16,630
Short-term, investments............................ 8,190 -- -- -- 8,190
Accounts receivable, net........................... 10,013 853 632 -- 11,498
Other current assets............................... 3,636 158 63 -- 3,857
-------- ------ ------ ------- --------
Total current assets.......................... 37,993 1,291 891 -- 40,175
-------- ------ ------ ------- --------
Property and equipment, net............................ 30,936 1,497 572 -- 33,005
Excess of purchase price over net assets
acquired, net....................................... 17,173 1,522 -- 5,391 (10) 24,086
Other assets........................................... 7,117 1,471 98 (1,449)(11) 7,237
-------- ------ ------ ------- --------
$ 93,219 $5,781 $1,561 $ 3,942 $104,503
======== ====== ====== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt............. $ 8,333 $2,058 $ 155 $(1,991)(11) $ 8,555
Accounts payablend accrued expenses................ 6,309 1,478 242 (435)(11) 7,594
-------- ------ ------ ------- --------
Total current liabilities..................... 14,642 3,536 397 (2,426) 16,149
-------- ------ ------ ------- --------

Long-term debt, less current installments.............. 23,338 1,414 469 7,179(11)(12) 32,400
Other long-term liabilities............................ 449 -- -- -- 449
Minority Interests..................................... 4,776 431 -- 284(13) 5,491
Shareholders' Equity:
Preferred stock..................................... -- -- -- -- --
Non-voting common stock............................. 6 -- -- -- 6
Common stock........................................ 50 -- -- -- 50
Additional paid-in capital.......................... 87,814 -- 695 (695)(14) 87,814
Accumulated deficit................................. (37,856) 400 -- (400)(14) (37,856)
-------- ------ ------ ------- --------
Total shareholders' equity.................... 50,014 400 695 (1,095) 50,014
-------- ------ ------ ------- --------
$ 93,219 $5,781 $1,561 $ 3,942 $104,503
======== ====== ====== ======= ========
- --------------
</TABLE>

(1) Reflects the historical net revenue and operating expenses of the Recent
Acquisitions on a consolidated basis as if the Recent Acquisitions had
occurred on January 1, 1995.
(2) Reflects management fee expense eliminated as a result of the Recent
Acquisitions.
(3) Reflects incremental amortization of goodwill as a result of the Recent
Acquisitions.
(4) Reflects reduction of interest expense attributable to debt acquired by NSC
as a direct result of the Recent Acquisitions.
(5) Reflects additional interest expenses attributable to debt issued, at an
interest rate of 7%, as a direct result of the Recent Acquisitions.
(6) Reflects minority interest expense attributable to limited partners
associated with the Recent Acquisitions.
(7) Represents an adjustment to reflect income tax expense at an assumed
effective tax rate of 40.0% for Recent Acquisitions.
(8) Reflects the 3-for-2 stock split in the form of a stock dividend of the
Company's common stock effected in May 1996.
(9) Reflects the historical balance sheet for the acquisition of the Recent
Acquisitions as if the Recent Acquisitions had occurred on December 31,
1995.
(10) Reflects excess purchase price over net assets acquired as a result of the
Recent Acquisitions.
(11) Reflects accrued management fees, accrued interest, demand notes and
long-term debt acquired by NSC and thus eliminated in consolidation as a
result of the Recent Acquisitions.
(12) Reflects debt assumed to be issued by NSC to purchase related assets,
liabilities, and common stock of Recent Acquisitions.
(13) Reflects minority interests for limited partners share of net assets of the
Recent Acquisitions.
(14) Reflects capital accounts eliminated as a result of consolidation of the
Recent Acquisitions.
Acquisitions.

The Exhibits to this Report are listed in the Exhibit Index set forth
elsewhere herein.

21
<PAGE>

SIGNATURES
----------

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

NATIONAL SURGERY CENTERS, INC.

By:/s/ Bryan S. Fisher
-----------------------------------
Bryan S. Fisher
Chief Financial Officer

DATE: JULY 19, 1996

22
<PAGE>

NATIONAL SURGERY CENTERS, INC.
EXHIBIT INDEX

<TABLE>
<CAPTION>
Sequential*
Number and Description of Exhibit Page Number
<C> <S> <C>
2.1** Form of Purchase Agreement dated February 21, 1996 by and among
the following parties: Coram Healthcare Corporation, a Nevada
corporation; T2 Medical, Inc., a Delaware corporation; Surgex,
Inc., a Nevada corporation; Ronald E. Moore; and National Surgery
Centers, Inc., a Delaware corporation.

2.2 Form of Agreement to Purchase Partnership Interests relating to
Westside Surgery Center, Ltd. Among National Surgery Centers, Inc.,
NSC Houston, Inc., and Healthfirst Medical Westside Corporation and
The Limited Partners of Westside Surgery Center, Ltd. Who Agree to
Sell a Portion of Their Limited Partnership Interests to NSC Houston, Inc.
</TABLE>
- --------------------
* Included only in the manually signed copy.
** Previously filed.

<PAGE>

Exhibit 2.2

AGREEMENT TO PURCHASE PARTNERSHIP INTERESTS

relating to

WESTSIDE SURGERY CENTER, LTD.

Among

NATIONAL SURGERY CENTERS, INC.
NSC HOUSTON, INC.
HEALTHFIRST MEDICAL WESTSIDE CORPORATION

and

The Limited Partners of Westside Surgery Center,
Ltd. Who Agree to Sell a Portion of Their
Limited Partnership Interests to NSC Houston, Inc.

April 30, 1996

<PAGE>

TABLE OF CONTENTS

PAGE
----
1. Purchase and Sale of Units .......................................... 1
2. Purchase Price and Payment .......................................... 2
3. The Closing and the Effective Date .................................. 3
4. Representations and Warranties by the General Partner ............... 3
5. Representations and Warranties by Buyer ............................. 17
6. Pre-Closing Covenants ............................................... 19
7. Conditions Precedent to Obligations of Buyer ........................ 23
8. Conditions Precedent to Obligations of Sellers ...................... 26
9. Indemnification ..................................................... 27
10. Post-Closing Covenants .............................................. 31
11. Termination ......................................................... 35
12. Confidentiality ..................................................... 35
13. Publicity ........................................................... 36
14. Notices ............................................................. 36
15. Governing Law; Interpretation; Section Headings ..................... 37
16. General ............................................................. 37
17. Further Assurances .................................................. 39
18. Power of Attorney ................................................... 39
19. Counterparts ........................................................ 39
20. Attorneys' Fees ..................................................... 39
21. Interpretation of Agreement ......................................... 40

EXHIBITS
--------

Exhibit A Letter Agreement
Exhibit B Convertible Subordinated Note
Exhibit C Matters to be Covered by Legal Opinion of Sellers' Counsel
Exhibit D Amendment of Partnership Agreement
Exhibit E Management Agreement

SCHEDULES
---------

Schedule 1 Partners' Interests in the Partnership
Schedule 2 Exceptions to Representations and Warranties
Schedule 3 Balance Sheet
Schedule 4 Material Contracts
Schedule 5 Bank Accounts
Schedule 6 Litigation and Proceedings
Schedule 7 Compensation and Benefits of Employees
Schedule 8 Required Consents and Notices
Schedule 9 Permits
Schedule 10 Insurance Policies

-i-

<PAGE>

AGREEMENT TO PURCHASE

PARTNERSHIP INTERESTS

This Agreement is entered into as of the 30th day of April, 1996, by and
among NSC Houston, Inc., a Texas corporation ("Buyer"), National Surgery
Centers, Inc., a Delaware corporation ("Buyer's Parent"), HealthFirst Medical
Westside Corporation, a Texas corporation (the "General Partner") and those
Limited Partners of Westside Surgery Center, Ltd., a Texas limited partnership
(the "Partnership"), who sign and deliver to Buyer a letter agreement in the
form attached hereto as Exhibit A (the "Letter Agreement") as provided herein.
(The General Partner and the Limited Partners of the Partnership are sometimes
hereinafter collectively referred to as the "Partners"). This Agreement is made
with reference to the following facts:

R E C I T A L S

A. Each Partner owns the percentage interest (collectively, the "Units")
in the partnership as set forth in Schedule 1 attached hereto under the
heading "Percentage Ownership."

B. The Partnership operates an outpatient surgery center known as
"Westside Surgery Center" located at 16100 Cairnway, Houston, Texas 77084 (the
"Surgery Center").

C. Buyer has agreed to purchase, and the General Partner has agreed to
sell, all of the General Partner's interest in the Partnership, whereupon Buyer
shall become the general partner of the Partnership. In addition, Buyer has
agreed to purchase, and each Limited Partner who executes a Letter Agreement as
provided herein has agreed to sell, up to one-half of such Limited Partner's
interest in the Partnership.

THEREFORE, the parties hereto agree as follows:

AGREEMENT

1. Purchase and Sale of Units. Subject to the terms and conditions of this
Agreement, Buyer hereby agrees to purchase, and the General Partner agrees to
sell, all of the General Partner's interest in the Partnership, whereupon Buyer

-1-
<PAGE>

shall become the general partner of the Partnership. In addition, subject to the
terms and conditions set forth herein, Buyer has agreed to purchase, and each
Limited Partner who executes and delivers to Buyer a Letter Agreement agrees to
sell, the number of Units set forth opposite such Limited Partner's name in the
column titled "Units to be Sold" in Schedule 1 attached hereto, which number of
Units shall not exceed 50% of the Units held by such Limited Partner unless
otherwise agreed by Buyer. Buyer will accept for purchase hereunder said Units
of Limited Partners who duly submit Letter Agreements and all other necessary
documents to Buyer at least three business days prior to the Closing Date (or
such later date as may be approved by Buyer in its sole discretion). The Units
to be sold to Buyer pursuant hereto (including the General Partner's interest in
the Partnership) are sometimes hereinafter collectively referred to as the
"Transferred Units" and the General Partner and those Limited Partners who
execute and deliver Letter Agreements as provided herein are sometimes
hereinafter collectively referred to as the "Sellers."

2. Purchase Price and Payment. Subject to the terms and conditions of this
Agreement, and in full consideration for the assignment, transfer and delivery
to Buyer of the Transferred Units, Buyer shall pay to each Seller a purchase
price determined by multiplying $6,400,000 by the percentage interest in the
Partnership represented by the Transferred Units being purchased from such
Seller and reducing such amount by such Seller's pro rata share of the insurance
expense referred to in Section 7(j). Such purchase price shall be payable to
each Seller at the Closing (a) by Buyer's check or, if any Seller provides the
necessary written instructions at least three business days prior to the Closing
Date, by wire transfer to such Seller's bank account, (b) at such Seller's
election, by a Convertible Subordinated Note in the form attached hereto as
Exhibit B (a "Convertible Note"), issued by Buyer's Parent, which shall provide
for a conversion price equal to 125% of the closing sales price for Buyer's
Parent's common stock on the Nasdaq National Market Systemm on the third trading
day prior to the Closing Date, or (c) at such Seller's election, by a
combination of cash and such Convertible Note. The General Partner elects to
receive cash for its Transferred Units. Each other Seller's election regarding
the type of consideration to be received for his Transferred Units shall be set
forth in such Seller's executed Letter Agreement and, in the event no such
election is set forth

-2-
<PAGE>

in such Letter Agreement, such Seller shall be deemed to have elected to receive
all cash pursuant to subsection (a).

3. The Closing and the Effective Date. The closing referred to in
Section 1 hereof (the "Closing") will take place at the offices of Sellers'
counsel at 10:00 a.m., local time, on May 9, 1996, or at such other place or at
such other date and time as Buyer and the General Partner shall agree. Such
time and date are referred to herein as the "Closing Date". Regardless of when
the Closing occurs, it shall be effective as of 12:01 a.m. on May 1, 1996 (the
"Effective Date"), and Buyer and Sellers agree to acknowledge and use said
Effective Date for all purposes, including for accounting and federal and state
tax reporting purposes. In the event the Closing Date occurs no later than May
17, 1996, all income, losses and cash flow attributable to the Transferred Units
during the period from the Effective Date to the Closing Date shall be allocated
to Buyer. In the event the Closing Date occurs later than May 17, 1996, the
Closing Date shall be May 31, 1996 and the Effective Date shall be deemed
automatically amended to be June 1, 1996. Except as provided in Section 11
hereof, failure to consummate the Closing on the date and time and at the place
selected pursuant to this Section 3 shall not result in any termination of this
Agreement and shall not relieve any party to this Agreement of any obligation
hereunder.

4. Representations and Warranties by the General Partner. Except as
specifically set forth in Schedule 2 attached hereto, the General Partner hereby
represents and warrants to Buyer as follows:

(a) Organization, Standing, etc. The "pre-sale" information
relating to the Partnership and the Partners set forth in Schedule 1 is accurate
and complete with respect to the matters purported to be covered thereby. The
Partnership is a duly and validly organized and existing limited partnership in
good standing under the laws of the State of Texas, with full power and
authority to carry on its business as presently conducted. The Partnership does
not have any direct or indirect interest of any kind in any other partnership,
corporation, association or business. The Partnership does not have any
facilities or employees outside of the State of Texas.

-3-
<PAGE>

(b) Compliance with Instruments and Agreements. The execution of
this Agreement and the consummation of the transactions contemplated hereby will
not result in any breach or violation of any of the terms or provisions of, or
constitute a default under, (i) the Agreement of Limited Partnership, dated as
of May 1, 1993, of the Partnership (the "Partnership Agreement"), (ii) the
articles of incorporation or bylaws of the General Partner, (iii) any statute,
order, rule or regulation of any court or governmental agency or body having
jurisdiction over any Seller or the Partnership or (iv) assuming that the
required consents referred to in Schedule 8 attached hereto are obtained at or
prior to the Closing Date, any agreement, instrument or commitment to which any
Seller or the Partnership is a party, by which any of them is bound or to which
any of their property is subject.

(i) Capitalization and Distributions. The General Partner is
the sole general partner of the Partnership. The interest of the General Partner
in the Partnership and the Units reflected in Schedule 1 constitute all of the
issued and outstanding equity interests in the Partnership. The General Partner
has delivered to Buyer a true and complete copy of the fully executed
Partnership Agreement. Since December 31, 1995, the Partnership has not (A) made
or paid any cash distribution to any Partner except as disclosed in Schedule 2,
(B) made any other distribution on or with respect to, or redeemed or otherwise
acquired, any Units or other equity interest in the Partnership or (C) made or
permitted any change in the authorized or issued Units.

(ii) Indebtedness for Borrowed Moneys. The Partnership does
not have any outstanding indebtedness for borrowed moneys except as reflected in
the Balance Sheet included in Schedule 3 pursuant to subsection (f) below. True
and complete copies of every instrument, agreement and other document relating
to any such indebtedness have been delivered to Buyer. Except as reflected in
such loan documents, immediately following the Closing, the Partnership will not
be indebted to or have any obligation to any Partner, any of their respective
relatives or any corporation, partnership, trust or other entity in which any

-4-
<PAGE>

Partner or any relative of any Partner (collectively, "Sellers' Affiliates") has
any interest.

(iii) OPTIONS OR RIGHTS. There are no outstanding agreements, rights,
subscriptions, options, warrants, convertible securities, commitments,
arrangements or understandings of any character under which the Partnership is
or may be obligated to issue or purchase any interest in the Partnership or
under which any Partner is or may be obligated to sell or transfer any Units or
other interest in the Partnership, other than the repurchase rights contained in
the Partnership Agreement.

(d) PAYMENTS. To the best of the General Partner's actual knowledge,
the Partnership has not paid or delivered or agreed to pay or deliver any fee,
commission or other consideration, however characterized, to any person,
governmental official or other party which is illegal under any federal, state
or local law.

(e) ASSETS OF THE PARTNERSHIP. The Partnership has good and
marketable title to all of the properties and assets used in its business
(including leasehold interests as to such assets that are leased), subject to no
mortgage, pledge, lien, security interest, encumbrance or other charge, other
than (i) the interests of equipment lessors with respect to leased equipment,
(ii) liens in favor of lenders with respect to the loans reflected on the
Balance Sheet, (iii) liens for taxes not yet due and (iv) any landlord lease
rights under any lease of real property to which the Partnership is a party.
The assets owned or leased by the Partnership constitute all of the assets
currently in existence which are being used in connection with the business of
the Surgery Center.

(f) FINANCIAL STATEMENTS; CLOSING DATE WORKING CAPITAL. Attached
hereto as SCHEDULE 3 is a true and complete copy of the unaudited balance sheet
(the "Balance Sheet") of the Partnership as of March 31, 1996 (the "Balance
Sheet Date"). The General Partner has also caused the Partnership to provide to
buyer unaudited statements of operations of the Partnership for the fiscal years
ended December 31, 1994 and 1995 and the two month period ended on the Balance
Sheet Date. The Balance Sheet and such statements of operations (i) are in
accordance with the books and records of the Partnership, (ii) fairly present
the

-5-
<PAGE>

financial condition of the Partnership at the Balance Sheet Date and the
results of its operations for the periods therein specified and (iii) except as
stated in the notes to such financial statements, have been prepared in
accordance with generally accepted accounting principles consistently applied
("GAAP"). On and as of the Effective Date, the net working capital of the
Partnership (i.e., the current assets less the current liabilities of the
Partnership, determined in accordance with GAAP) will be not less than $520,000
(which is the amount of the Partnership's net working capital as of February 29,
1996), including at least $40,000 of cash.

(g) Liabilities of the Partnership. Except for the liabilities
reflected in the Balance Sheet or the documents described in Schedule 4, and all
other obligations incurred in the ordinary course of business since the Balance
Sheet Date, the Partnership does not have and is not subject to any liability of
any nature, whether accrued, absolute, contingent or otherwise. The Partnership
is and as of the Closing Date will be current in all payment obligations to
which it is subject.

(h) Noncompetition Covenants. The Partnership is not subject to any
noncompetition covenant or other similar agreement restricting its ability to
engage in competitive businesses and, following the Closing, Buyer and its
affiliates will not be subject to any such noncompetition covenant or
restrictive agreement by virtue of Buyer's acquisition of the Transferred Units
or becoming the general partner of the Partnership.

(i) Accounts Receivable. A true and complete list of all outstanding
accounts receivable of the Partnership as of the Balance Sheet Date has been
delivered to Buyer. To the best of the General Partner's actual knowledge, all
of the accounts receivable held by the Partnership are valid and enforceable
claims and are not subject to any defenses, offsets, claims or counterclaims.
Although the General Partner does not know of any reason why such accounts will
not be collected on a timely basis, no representation is made hereby that such
accounts will be collected and, notwithstanding any of the provisions of this
Agreement, Sellers do not guaranty collection of any such accounts receivable.
The allowances for doubtful accounts and contractual adjustments reflected in
the Balance Sheet are based upon historic collection activities of the
Partnership.

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<PAGE>

(j) Real Property Lease. The General Partner has delivered to Buyer
a true and complete copy of that certain Lease Agreement dated as of February 2,
1993, as amended by the First, Second and Third Modifications and Ratifications
of Lease dated June 2, 1993, June 23, 1994 and October 13, 1994, respectively
(collectively, the "Lease"), between the Partnership and NMF of Texas, Inc. (the
"Landlord") pursuant to which the Partnership leases the office space and
related leasehold improvements owned by the Landlord (collectively, the "Real
Property"). No Seller or Sellers' Affiliate has any ownership interest in or
other relationship with the Landlord or any of its equity owners. The
Partnership has not assigned, subleased or conveyed any interest in the Lease or
any of the premises covered thereby. The Lease has been duly and validly
executed by the parties thereto and is in full force and effect and constitutes
the valid and binding agreement of the parties thereto. Neither the Partnership
nor (to the best of the General Partner's knowledge) any other party is in
default under the Lease and no event or condition has occurred or exists which,
with the passage of time, the giving of notice or both, would cause either the
Partnership or (to the best of the General Partner's knowledge) any other party
to the Lease to be in default thereunder. No lease or other document has been
executed, or other obligation or commitment incurred, by the Partnership with
respect to any other real property.

(k) Material Contracts. The General Partner has delivered to Buyer
an accurate list (attached hereto as Schedule 4) of all material contracts,
leases and instruments to which the Partnership is a party or by which it or any
of its assets are bound as of the date hereof. For purposes hereof, the term
"material contracts" shall mean the following: (i) all equipment leases and
rental arrangements where either the aggregate rent required to be paid on or
after the Effective Date under the terms of such lease is at least $5,000 or
where the Partnership is entitled to acquire title to the leased equipment at
the end of the lease term; (ii) all executory purchase agreements relating to
the purchase of equipment, supplies or other goods where the amount that is
payable after the Effective Date is at least $5,000; (iii) all agreements with
any Partner or any of Sellers' Affiliates, and Schedule 4 sets forth the
relationship (if any) of any party to any agreement, lease or other document
listed in Schedule 4 with any Partner or Sellers' Affiliate; (iv) all agreements
with any physician; (v) all employment and consulting agreements; (vi) all
agreements with hospitals,

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employers, health maintenance organizations, insurance companies, preferred
provider organizations and other managed care entities, or other contracts
whereunder the Partnership is committed to provide Surgery Center services;
(vii) all agreements with sales or marketing representatives; (viii) all
documents and instruments relating to any indebtedness reflected on the Balance
Sheet (except any such indebtedness that pursuant to the terms of this Agreement
is to be discharged at or prior to the Closing); (ix) all powers of attorney and
agency agreements with third parties; and (x) all other agreements and
commitments in which the financial obligation of the Partnership as of the
Effective Date is at least $5,000. The General Partner has delivered to Buyer or
its counsel true and complete copies of the documents and instruments described
in Schedule 4.

(l) Bank Accounts. Set forth on Schedule 5 attached hereto is an
accurate and complete list showing the name and address of each bank in which
the Partnership has an account or safe deposit box, the number of any such
account or safe deposit box and the names of all persons authorized to draw
thereon or to have access thereto.

(m) Tax Returns and Audits. The Partnership has accurately prepared
and filed all federal, state and local income, employment and property tax
returns and all information statements required to be filed prior to the date of
this Agreement. The Partnership has withheld proper and accurate amounts from
its employees' compensation in full and complete compliance with all withholding
and similar provisions of all state and federal tax laws, including without
limitation employee withholding and social security taxes. True and complete
copies of each of the most recent of any such material return or statement have
been provided to Buyer. Any federal, state and local taxes required to be paid
or withheld with respect to the periods covered by such returns and statements
have been paid or withheld. The liability for unpaid taxes shown on the Balance
Sheet is and will be sufficient to pay all taxes not reported on and paid with
returns filed by the Partnership prior to the Effective Date. The Partnership
has not been delinquent in the payment of any tax, assessment or governmental
charge or in the filing of any tax return or information statement. The
Partnership has never had any tax deficiency proposed or assessed against it and
has not executed any waiver of any statute of limitations on the assessment or
collection of any tax. Neither

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<PAGE>

the federal information returns nor the state income or franchise tax returns
(if any) of the Partnership have ever been audited by any governmental
authority.

(n) Litigation and Proceedings. Except as described in Schedule 6,
there are no legal claims, actions, suits, medical staff disputes, arbitrations
or other legal, administrative or governmental proceedings pending or, to the
actual knowledge of the General Partner, threatened against the Partnership or
any properties, assets or business of the Partnership and, to the actual
knowledge of the General Partner, no facts exist which have been or should be
reported under any professional liability insurance policy covering the Surgery
Center. Neither the Partnership nor the General Partner is in default with
respect to any judgment, order or decree of any court, governmental agency or
instrumentality. Schedule 6 contains a complete and accurate description of the
status of any matter covered thereby and the Partnership carries insurance that
will cover the costs, expenses and damages of each of the matters described
therein that include allegations of medical malpractice. Except for normal
collection efforts relating to accounts receivable, the Partnership is not
engaged in any legal action to recover money due to or damages sustained by the
Partnership.

(o) Compensation and Benefits. Although all employees of the
Partnership are leased pursuant to an employee leasing arrangement disclosed in
Schedule 4, attached hereto as Schedule 7 is an accurate and complete list
setting forth the names, dates of hire, salaries or other remuneration, bonuses
and employee benefits of all current persons utilized by the Partnership
(including but not limited to vacation time and pay, severance pay, incentive
compensation programs, sick time and pay and group insurance and other benefit
plans, policies and arrangements), whether such benefits are provided pursuant
to contract, policy, custom or informal understanding. The General Partner has
delivered to Buyer copies of the Partnership's written employee policies and
practices (including, for example, any employee handbook). The Partnership does
not have any collective bargaining agreement with any labor union and is not
currently negotiating with a labor union. Except as shown on Schedule 6, no
employee of the Partnership has ever petitioned for a representation election.
No current or former employee of the Partnership has filed or threatened to file
with any

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<PAGE>

governmental authority any claim asserting sexual harassment, age or racial
discrimination or violation of OSHA by the Partnership, any Partner or any
officer, director, employee or agent of the Partnership or the General Partner.

(p) Compliance with Law and Instruments. The business and operations
of the Partnership have been and are being conducted in material compliance with
all applicable laws, ordinances, codes, rules, regulations and licensing
requirements of all authorities (collectively, "Laws"), including but not
limited to Laws relating to occupational safety, health care, zoning or
environmental matters. Except as shown on Schedule 6, neither the General
Partner nor the Partnership has received notice from any governmental unit or
administrative or regulatory agency claiming any violation of any Law. The
Partnership has complied in all material respects with all applicable federal
and state securities Laws in connection with the sale or resale of the Units and
any other equity interest in the Partnership. The Surgery Center meets in all
material respects the conditions for participation in the Medicare and Medicaid
programs. Any certificates of need required for the construction or operation of
the Surgery Center were duly obtained by the Partnership and such certificates
of need, if any, will remain in full force and effect after the consummation of
the transactions provided for herein. No certificate of need, governmental
consent, review or other process (other than as described in Schedule 8) is
required in connection with the sale of the Transferred Units provided for
herein or in order for the Surgery Center to continue its business following the
consummation of the transactions contemplated hereby. The Partnership is
authorized to receive (and has received) payments for procedures covered by the
Medicare and Medicaid programs. Neither the U.S. Department of Health and Human
Services nor any state agency has conducted or has given the General Partner or
the Partnership any notice that it intends to conduct any audit or other review
of the Partnership's participation in the Medicare or Medicaid programs, and no
such audit or review would result in any material liability by the Partnership
for any reimbursement, penalty or interest with respect to payments received by
the Partnership thereunder. The General Partner does not know of any reason why
the Partnership will not or may not be able to continue its business, as
presently conducted, following the Closing.

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<PAGE>

(q) No Consent Required. Except for the consents and notice
requirements described in Schedule 8, the execution and delivery of this
Agreement and the consummation of the transactions provided herein will not
require any governmental consent, review or other process or the consent of any
party to any lease (including the Lease), contract, agreement or instrument to
which the Partnership is a party or by which any of its assets is subject;
provided, however, that with respect to the participation of the Limited
Partners as Sellers herein, this Section 4(q) is limited to the best knowledge
of the General Partner.

(r) Permits. Schedule 9 attached hereto lists all of the material
permits, approvals and authorizations that the Partnership holds in connection
with its business. No other permit, approval or authorization of any
governmental unit or administrative or regulatory agency is necessary for the
lawful conduct of the Partnership's businesses, except where the failure to
obtain any such permit could not have a material adverse affect on the
Partnership. The General Partner has delivered to Buyer copies of all permits,
approvals and authorizations listed on Schedule 9.

(s) Absence of Specified Changes. Except for the transactions and
agreements provided for or referred to herein, since the Balance Sheet Date
there has not been: (i) any transaction by the Partnership except in the
ordinary course of business; (ii) any capital expenditure by the Partnership
exceeding $5,000; (iii) any material adverse change in the working capital,
financial condition, business, markets, properties, assets, results of operation
or prospects of the Surgery Center; (iv) any event which has materially affected
or may materially and adversely affect the Surgery Center, including without
limitation any material reduction in the Surgery Center's charge or fee
schedule; (v) any material destruction, damage to or loss of any material asset
of the Surgery Center, whether or not covered by insurance; (vi) any
indebtedness for borrowed money incurred or the creation or imposition of any
mortgage, pledge or other encumbrance on any asset of the Partnership, other
than purchase money liens on newly acquired assets; (vii) any increase in
salaries or benefits to employees or independent contractors of the Partnership,
other than annual increases implemented in the ordinary course of business and
accordance with the past practices of the Partnership; (viii) any material

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<PAGE>

amendment to the Lease or any material contract or lease listed in Schedule 4,
other than in the ordinary course of business of the Partnership; (ix) any sale,
transfer or disposition of any equipment that is material to the Partnership,
other than dispositions in the ordinary course of business where the equipment
disposed of is replaced by equipment of at least equal value and utility; or (x)
any agreement by the Partnership to do any of the things described in this
subsection (s).

(t) Insurance Policies. The General Partner has provided to Buyer
complete and accurate copies of all insurance policies or certificates of
insurance under which the Partnership is insured, including the coverage limits
and deductibles applicable thereto. The Partnership's medical malpractice
insurance coverage has coverage limits of at least $5,000,000 for each and every
occurrence. Attached hereto as Schedule 10 is a listing of all of the insurance
policies covering the Partnership or its assets, which Schedule 10 reflects the
policy numbers, terms, identity of insurers and amounts of coverage. All of such
policies are now and will be until Closing in full force and effect on a claims
made basis with no premium arrearages. The Partnership is not in default with
respect to any provision contained in any such policy and has not failed to give
any notice or present any claim under any such policy in a due and timely
fashion.

(u) Retirement Plans. The Partnership does not presently maintain or
otherwise participate in any pension, profit sharing or other retirement plan,
nor does it participate in, nor has it ever participated in, any multi-employer
plan as defined in Section 400(a)(3) of the Employee Retirement Income Security
Act of 1974, as amended. Neither Buyer nor the Partnership will incur any
obligation or liability under or relating to any such plan as a result of the
transactions contemplated by this Agreement, or otherwise.

(v) No Brokers or Finders. As a result of any act or failure to act
by any Partner, Sellers' Affiliate or the Partnership, no person or entity has,
or as a result of the transactions contemplated hereby will have, any right,
interest or valid claim against or upon Buyer, Buyer's Parent or the Partnership
for any commission, fee or other compensation as a broker, finder or any similar
capacity.

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<PAGE>

(W) Use of Names. The only name under which the Partnership currently
conducts business is as set forth in Recital B hereof. The Partnership owns the
entire right, title and interest in and to such name, together with any
derivatives thereof, and no third party has ever notified the Partnership or the
General Partner that the use of any such name is in violation of the rights of
such third party.

(X) The Real Property.
------------------

(i) Neither the General Partner nor the Partnership has
received written notice of a material violation of any applicable ordinance or
other law, order, regulation or requirement, and has not received notice of any
condemnation, lien, assessment or the like, relating to any part of the Real
Property or the operation thereof and, to the best of the General Partner's
actual knowledge, there is not presently contemplated or proposed any
condemnation or similar action or zoning action or proceeding with respect to
any Real Property or the operation thereof;

(ii) The Real Property and the Surgery Center are in
compliance with all applicable zoning ordinances (including without limitation
parking requirements), and the consummation of the transactions contemplated
herein will not result in a violation of any applicable zoning ordinance or the
termination of any applicable zoning variance now existing;

(iii) The Real Property and all buildings, improvements and
fixtures thereon or therein, and all parts thereof and appurtenances thereto,
including without limitation the plumbing, electrical, mechanical, heating,
ventilation and air conditioning systems, are in good operating condition and in
a reasonable state of maintenance and repair, normal wear and tear excepted;

(iv) The Surgery Center has adequate parking available to
satisfy its current needs; and

(v) The General Partner has provided Buyer with complete and
accurate copies of all property tax statements, as and to the extent provided to
the Partnership by the Landlord, for the current and the preceding year, and no
seller has any knowledge of any proposed increase in the assessed value of any
Real Property for property tax purposes.

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<PAGE>

(y) Equipment. Each material item of equipment owned or leased by the
Partnership will be in good operating condition, normal wear and tear excepted,
as of the Closing Date.

(z) Supplies. All of the inventory and supplies carried on the Balance
Sheet and which are still held by the Partnership on the date hereof are of a
quality and quantity usable in the ordinary course of business of the Surgery
Center.

(aa) Environmental Matters.
----------------------

(i) To the best of the General Partner's actual knowledge, the
Partnership is currently in compliance with all Environmental Laws (as defined
below), which compliance includes, without limitation, the possession by the
Partnership of all permits and other governmental authorizations required under
applicable Environmental Laws to operate the Surgery Center as currently
operated, and the Partnership is in compliance in all material respects with the
terms and conditions thereof;

(ii) No Hazardous Substances (as defined below) have been generated or
stored on, at or adjacent to the Real Property by the Partnership, except in
compliance with applicable Environmental Laws;

(iii) No Hazardous Substances have been disposed of or released on,
from or adjacent to the Real Property by the Partnership, except in compliance
with applicable Environmental Laws;

(iv) The Partnership has not received any written communication,
whether from a governmental authority, citizen's group, employee, consultant or
otherwise, that alleges that the Partnership or the Real Property is not in full
compliance with Environmental Laws, and there is no Environmental Claim (as
defined below) pending or, to the best of the General Partner's actual
knowledge, threatened against the Partnership or any owner or lessor of the Real
Property; and

(v) To the best of each Seller's knowledge, the Real Property does
not contain asbestos in any form.

"Environmental Claim" means any claim, action, cause of action,
investigation or notice by any person or entity alleging

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<PAGE>

potential liability (including without limitation potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or penalties) arising out
of, based on or resulting from (A) the presence, or release on or from the Real
Property or the Surgery Center, of Hazardous Substances or (B) circumstances
forming the basis of any violation, or alleged violation, of any Environmental
law.

"Environmental Laws" means the federal, state, regional, county or
local environmental, health or safety laws (including the Medical Waste Tracking
Act of 1988, 42 U.S.C. (S)6992, et seq.), regulations, ordinances, rules and
policies and common law in effect on the date hereof and the Closing Date
relating to the use, refinement, handling, treatment, removal, storage,
production, manufacture, transportation or disposal, emissions, discharges,
releases or threatened releases of Hazardous Substances, or otherwise relating
to protection of human health or the environment (including without limitation
ambient air, surface water, ground water, land surface or subsurface strata), as
the same may be amended or modified to the date hereof and the Closing Date.

"Hazardous Substances" means any toxic or hazardous waste, pollutants
or substances, including without limitation medical wastes, asbestos containing
materials or substances, any substance defined or listed as a "hazardous
substance," "toxic substance," "toxic pollutant" or similarly identified
substances or mixture, in or pursuant to any Environmental Law and medical or
infectious wastes.

(bb) Medical Staff Matters. The General Partner has delivered to
Buyer true and complete copies of the bylaws and rules and regulations of the
medical staff of the Surgery Center. With regard to the medical staff of the
Surgery Center, there are no pending or, to the best of the General Partner's
actual knowledge, threatened disputes with applicants, staff members or health
professional affiliates, and all appeal periods in respect of any medical staff
member or applicant against whom an adverse action has been taken have expired.
The General Partner has provided Buyer with a written description of all adverse
actions taken against medical staff members or applicants within the past two
years.

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<PAGE>

(cc) Special Funds. The Partnership has never received any
restricted or conditioned grants or donations, including without limitation
monies received under the Public Health Services act, 42 U.S.C. (s)291, et seq.

(dd) Full Disclosure. To the best of the General Partner's actual
knowledge, none of the representations, warranties or disclosures made to Buyer
by the Partnership or any Seller herein, or in any exhibit, schedule, list,
certificate or memorandum furnished or to be furnished to Buyer by the
Partnership or any Seller in connection herewith, contains or will contain any
untrue statement of a material fact or omits or will omit any material fact, the
omission of which would tend to make the statements made herein or therein
misleading in any material respect.

4A. Representations and Warranties by the Sellers. Each Seller hereby
represents and warrants to buyer as follows:

(a) Title to Units. Each Seller, for himself or itself, has good
and marketable title to all of the Units set forth opposite such Seller's name
in Schedule 1, free and clear of all liens, claims, encumbrances and
restrictions, legal or equitable, of every kind, except for restrictions on
transfer imposed by federal or state securities laws or as provided for in the
Partnership Agreement. Each Seller, for himself or itself, has full and
unrestricted legal right, power and authority to sell, assign and transfer the
Transferred Units without obtaining the consent or approval of any other person,
entity or governmental authority (other than the consents described in Schedule
8), and the delivery of the Transferred Units to Buyer pursuant to this
Agreement will transfer valid title thereto, free and clear of all liens,
encumbrances, claims and restrictions of every kind, except for restrictions on
transferability imposed by federal and state securities laws or provided for in
the Partnership Agreement.

(b) Investment Representations. Each Seller who elects to
receive any portion of the purchase price payable to such Seller pursuant hereto
in the form of a Convertible Note represents, warrants and acknowledges that (i)
such Seller is aware that such Convertible Note will be issued pursuant to
applicable exemptions from registration under the federal Securities Act of
1933, as amended (the "1933 Act"), and

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<PAGE>

applicable state securities laws, and the rules and regulations promulgated
thereunder; (ii) such Convertible Note and the common stock of Buyer's Parent
issuable upon conversion has not been registered under the 1933 Act or any such
state securities laws and, accordingly, may not be sold (except pursuant to
available exemptions as described below) despite the fact that other shares of
such common stock are publicly tradable on the Nasdaq National Market System or
other public market; (iii) such Seller has such knowledge, sophistication and
experience in financial and business matters as to be capable of evaluating the
merits and risks of receiving a Convertible Note pursuant to this Agreement;
(iv) such Seller is an "accredited investor" as that term is defined in
Regulation D under the 1933 Act; and (v) such Seller is acquiring the
Convertible Note pursuant to this Agreement for his own account, not for the
account of others and not with a view to the resale or distribution of such
Convertible Note or the common stock of Buyer's Parent issuable upon conversion,
except for sales made by such Seller pursuant to an applicable exemption under
the 1933 act and any applicable state securities laws.

(c) No Consent Required. Except for the consents and notice
requirements described in Schedule 8, the execution and delivery of this
Agreement and the consummation of the transactions provided herein by each
Seller will not require such Seller to obtain any governmental consent, review
or other process or the consent of any party to any agreement or instrument to
which such Seller is a party or to which any of such Seller's assets is subject.

5. Representations and Warranties by Buyer. Buyer and Buyer's Parent
hereby jointly and severally represent and warrant to Sellers as follows:

(a) Organization and Good Standing. Buyer and Buyer's Parent are
duly organized and validly existing corporations in good standing under the laws
of the States of Texas and Delaware, with full power and authority to carry on
their respective businesses as presently conducted.

(b) Due Authorization. The execution, delivery and performance
of this Agreement by Buyer and Buyer's Parent have been duly authorized by all
requisite action of the boards of directors of Buyer and Buyer's Parent and no
further action is

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necessary to make this Agreement valid and binding upon Buyer and Buyer's Parent
in accordance with its terms.

(c) Compliance with Instruments and Agreements. The execution of
this Agreement and the consummation of the transactions contemplated hereby will
not result in any breach or violation of any of the terms or provisions of, or
constitute a default under, the articles of incorporation or bylaws of either
Buyer or Buyer's Parent, any statute, order, rule or regulation of any court or
governmental agency or body having jurisdiction over Buyer or Buyer's Parent, or
any agreement, instrument or commitment to which Buyer or Buyer's Parent is a
party or by which it is bound or to which any of its property is subject.

(d) No Consent Required. Except for Buyer's Parent obtaining the
consent of its lender as described in Section 7(o) and the consents and
approvals listed in Schedule 8, no authorization or consent of any federal or
state administrative or regulatory agency or other third party is required for
the execution, delivery and performance of this Agreement by Buyer and Buyer's
Parent.

(e) No Finders or Brokers. As a result of any act or failure to
act by Buyer, Buyer's Parent or any of their affiliates, no person or entity
has, or as a result of the transactions contemplated hereby will have, any
right, interest or valid claim upon any Seller or the Partnership for any
commission, fee or other compensation as a finder, broker or in any similar
capacity.

(f) Investment Intent. Buyer acknowledges that the Transferred
Units have been offered and will be sold to Buyer pursuant to an exemption from
registration under the 1933 Act and all applicable state securities laws. Buyer
is purchasing the Transferred Units for investment purposes and has no present
intent to distribute, resell, pledge or otherwise dispose of any of the
Transferred Units in violation of the 1933 Act or any such state securities
laws.

(g) SEC Filings. Buyer has previously furnished to the General
Partner a true and complete copy of the 1995 Annual Report on Form 10-K filed by
Buyer's Parent with the Securities and Exchange Commission ("SEC") pursuant to
the Securities Exchange Act of 1934, as amended (the "1934 Act").

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<PAGE>

The balance sheets included in said Form 10-K (including any related notes and
schedules) fairly present the consolidated financial position of Buyer's Parent
as of their dates, and the other financial statements included therein
(including any related notes and schedules) fairly present in all material
respects the consolidated results of operations or other information included
therein of Buyer's Parent for the periods or as of the dates therein set forth,
in each case in accordance with GAAP.

(h) Forms 8-K. Buyer's Parent has previously furnished to the
General Partner a true and complete copy of any Current Report on Form 8-K,
including exhibits, filed by Buyer's Parent with the SEC pursuant to the 1934
Act.

(i) 1934 Act Reports. Buyer's Parent has filed all reports with
the SEC required to be filed with the SEC under the 1934 Act and the rules and
regulations thereunder, and each such report complied in all material respects
with such rules and regulations applicable thereto. All such reports required to
be filed with the SEC during the 12 months preceding the date hereof have been
filed by Buyer's Parent on a timely basis.

(j) Status of Common Stock. Each share of the common stock of
Buyer's Parent issuable pursuant to any properly effected conversion of a
Convertible Note will be, when so issued in accordance with the terms of such
Convertible Note, duly authorized, validly issued, fully paid and nonassessable.

(k) Full Disclosure. None of the representations, warranties or
disclosures made to Sellers by Buyer or Buyer's Partner herein, or in any
exhibit, schedule, list, certificate or memorandum furnished or to be furnished
to the General Partner by Buyer in connection herewith, contains or will contain
any untrue statement of a material fact or omits or will omit any material fact,
the omission of which would tend to make the statements made herein or therein
misleading in any material respect.

6. Pre-Closing Covenants. The parties agree that from the date
hereof until the Closing Date or the termination of this Agreement:

(a) Due Diligence. The Partnership and Sellers will afford
officers and authorized representatives of Buyer with

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<PAGE>

reasonable access to the financial, operational and statistical books and
records of the Partnership and shall permit Buyer to conduct physical
inspections of the Real Property and the Surgery Center at such time or times as
will not disrupt customary delivery of care to patients. Each Seller and their
respective advisers shall be entitled to request, and Buyer shall provide, any
and all information relating to Buyer and Buyer's Parent that is in their
possession or can be acquired without unreasonable effort or expense that such
Seller deems relevant or necessary to evaluate the opportunity to acquire a
Convertible Note pursuant to this Agreement.

(b) Continuation of Business. Sellers shall cause the
Partnership to: (i) except as required or permitted by this Agreement, conduct
its business only in the usual and ordinary course as it has previously been
conducted, including without limitation its policies and practices relating to
the collection of accounts receivable and the payment of trade payables and
other liabilities, and not introduce any new methods of management, operations
or accounting, without Buyer's prior written consent (which shall not be
unreasonably withheld); (ii) maintain its working capital at or above the
working capital shown on the Balance Sheet; (iii) maintain the assets of the
Surgery Center in as good working order and condition as at present, ordinary
wear and tear excepted; (iv) perform all material obligations under material
agreements and leases relating to or affecting the Surgery Center; (v) keep in
full force and effect present insurance policies; and (vi) maintain and preserve
the business organization of the Surgery Center intact, retain its present
employees and maintain its relationships with medical staff, employees,
suppliers, patients, payors and others having business relations with the
Partnership.

(c) Actions Requiring Consent. From the date hereof until the
Closing Date, without Buyer's prior written consent (which shall not be
unreasonably withheld), except as required or permitted by this Agreement,
Sellers shall not permit the Partnership to: (i) prepay any debt in excess of
$5,000 prior to its stated maturity (except pursuant to an existing amortization
payment schedule) or enter into any contract or commitment or incur or agree to
incur any debt or make any capital expenditure requiring the payment of amounts
in excess of $5,000; (ii) create or assume any mortgage, pledge or other lien or
encumbrance upon any of its assets, whether now owned or

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hereafter acquired; (iii) make any loan; (iv) incur any debt or other monetary
obligation, other than normal trade payables; (v) amend the Lease, the
Partnership Agreement or any material contract listed in Schedule 4, except
changes made in the ordinary course of business, enter into any new material
contract or change any employee compensation (except normal annual salary
increases implemented in accordance with past practices); (vi) make any
commitment to fix or otherwise limit Surgery Center fees or rates or to purchase
supplies, equipment or services, unless such commitment is cancellable upon no
more than 60 days notice; (vii) fail to pay any obligation in a timely manner
prior to delinquency; or (viii) except for a cash distribution of pre-Effective
Date earnings to be made at or prior to the Closing Date (in an amount to be
agreed upon by Buyer and the General Partner), declare, set aside or pay any
distribution to the partners, or directly or indirectly purchase, redeem or
otherwise acquire any units or any other outstanding equity interest in the
Partnership. The parties agree that the Partnership shall retain $75,000 of cash
(the "Withheld Distributions") that would otherwise be distributed to the
Partners as pre-Effective Date earnings pursuant to clause (viii) above, which
Withheld Distributions shall be retained by the Partnership and/or distributed
to the Partners as described in section 10(e).

(d) Performance Covenant. Each of the parties hereto covenants
and agrees that it will take all action reasonably within its power and
authority to duly and timely carry out all of its obligations hereunder, to
perform and comply with all of the covenants, agreements, representations and
warranties hereunder applicable to it and, as and to the extent such party has
the power and authority to do so, to cause all conditions to the obligations of
the other party to close the purchase and sale of the Transferred Units pursuant
hereto to be satisfied as promptly as possible. Anything in the Partnership
Agreement or any other agreement to the contrary notwithstanding, each Seller
hereby consents to the sale of the Transferred Units to Buyer pursuant hereto
without such Units being first offered to the Partnership or any Partner.

(e) Costs of Agreement. Buyer and Sellers agree to bear all of
their own expenses incurred in preparing or complying with this Agreement,
including without limitation all legal and accounting expenses and fees. None of
such expenses shall be charged to or paid by the Partnership.

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(f) Governmental Approvals. The Partnership and Sellers shall
assist and cooperate with Buyer and Buyer's representatives and counsel in
obtaining all governmental consents, approvals and licenses which Buyer deems
necessary or appropriate, and in the preparation of any document or other
materials which may be required by any governmental agency, in connection with
the transactions contemplated herein.

(g) No-Shop Clause. Neither the Partnership nor any Partner
will, without the prior written consent of Buyer (which may be withheld by Buyer
in its sole discretion), (a) offer for sale any of the Units or any equity
interest or assets of the Partnership (or any material portion thereof), (b)
solicit offers to buy any of the Units or any equity interest or assets of the
Partnership (or any material portion thereof), (c) hold discussions with any
party (other than Buyer) looking toward such an offer or solicitation or looking
toward a merger or consolidation of the Partnership, or (d) enter into any
letter of intent or agreement with any party (other than Buyer) with respect to
the sale or other disposition of any of the Units or any equity interest or
assets of the Partnership (or any material portion thereof) or with respect to
any merger, consolidation or similar transaction involving any Seller or the
Partnership.

(h) [intentionally omitted]

(i) Audit of Partnership's Financial Statements. Sellers
acknowledge and agree that Buyer's Parent, through its independent accountants,
may conduct an audit of the Partnership's Financial statements for years 1993-
1995 for purposes of Buyer complying with its public reporting obligations under
the securities laws. Sellers agree to cooperate and assist, and to cause the
Partnership and its employees to cooperate and assist, in such audit in all
respects reasonably requested by Buyer and its independent accountants,
including without limitation making themselves and the employees of the
Partnership available to provide any information necessary or appropriate for
such audits and signing standard management representation letters to such
independent accountants.

(j) Interim Operating Reporting. During the period from the date
of this Agreement to the Closing, Sellers shall cause the management personnel
of the Surgery Center (i) to confer on a regular and frequent basis with one or
more

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representatives of Buyer to report material operational matters relating to the
Surgery Center and to report the general status of on-going operations, (ii) to
notify Buyer in writing of any material adverse change in the financial position
or earnings of the Surgery Center after the Balance Sheet Date, any unexpected
emergency or other unanticipated change in the business of the Surgery Center,
any governmental complaints, investigations or hearings or adjudicatory
proceedings (or communications indicating that the same may be contemplated) or
any litigation, arbitration or other such matter that has been filed or
threatened against the Partnership and (iii) to keep Buyer fully informed of
such events and permit its representatives to participate in all discussions
relating thereto. Within 10 business days following any month-end which occurs
on or after the date of execution of this agreement and prior to the Closing
Date, the General Partner shall provide Buyer with an unaudited balance sheet
and income statement of the Partnership which reflects the operations of the
Surgery Center for such month, which interim financial statements shall be
prepared in a manner consistent with the policies and practices used in the
preparation of the Balance Sheet.

(l) Insurance Ratings. Sellers shall cause the Partnership to take
all action reasonably requested by Buyer to enable Buyer to succeed to the
workers' compensation and unemployment insurance ratings, deposits and other
interests of the Surgery Center and other ratings for insurance or other
purposes established by the Partnership for the Surgery Center. Buyer shall not
be obligated to succeed to any such rating, insurance policy, deposit or other
interest, except as it may elect to do so.

(m) Funding of Buyer. Buyer's Parent hereby agrees to provide to
Buyer the funds necessary for Buyer to make the cash payments required pursuant
to Section 2 hereof. Buyer's Parent reserves the right to provide such funds
pursuant to capital contributions, loans or in any other form deemed appropriate
by Buyer's Parent. In addition, Buyer's Parent agrees to execute and deliver
Convertible Notes to the extent required pursuant to Section 2 hereof and to
comply with its obligations under such Convertible Notes.

7. Conditions Precedent to Obligations of Buyer. The obligations of Buyer
hereunder are subject to the satisfaction,

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on or prior to the Closing Date, of the following conditions (unless waived by
Buyer):

(a) Accuracy of Representations and Warranties of Sellers. The
representations and warranties of Sellers contained in this Agreement shall be
true in all material respects on and as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date. All of the agreements of Sellers to be performed on or before the Closing
Date pursuant to the terms hereof shall have been performed in all material
respects .

(b) Action Restraining or Affecting Transaction. No action or
proceeding before a court or any other governmental agency or body shall have
been instituted or threatened to restrain or prohibit the transfer of any of the
Transferred Units, or which in the reasonable opinion of Buyer may otherwise
materially and adversely affect the Partnership, and no third party or
governmental agency or body shall have taken or threatened any action with
respect this Agreement or the Surgery Center as a result of which Buyer deems it
inadvisable to proceed with the transactions contemplated herein.

(c) Material Changes. The Surgery Center shall not have suffered any
change, loss or damage since the Balance Sheet Date which materially and
adversely affects or impairs the financial condition (including without
limitation the working capital) of the Partnership or the operations or
prospects of the Surgery Center. The case load and revenue levels of the Surgery
Center shall not have materially deteriorated from the average levels achieved
during the 12 month period ended on the Balance Sheet Date.

(d) Governmental Permits. Buyer shall have obtained all licenses,
certificates, permits and rulings of, and made all notices to, all governmental
authorities that may be required in connection with the acquisition of the
Transferred Units and the continuation of the operation of the business of the
Surgery Center by the Partnership following the Closing, including without
limitation compliance with any applicable licensure, notification and approval
procedures of the state agencies that regulate the Surgery Center.

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(e) Consents, Approvals and Authorizations. Sellers shall have
obtained all consents, approvals and authorizations and given all notices
required in connection with the transactions provided for herein, including the
consent of the Landlord required pursuant to the Lease, the consent of Copelco
Capital, Inc. and all other consents and notices described in Schedule 8.

(f) Legal Opinion. Sellers shall have delivered to Buyer an
opinion of O'Donnell, Ferebee & McGonigal & Stone, counsel to the Partnership,
dated the Closing Date, covering the matters set forth in Exhibit C attached
hereto and, otherwise, in form and substance satisfactory to Buyer and its
counsel. In rendering such opinion, such counsel may rely as to factual matters
upon certificates of public officials and upon certificates of officers of the
General Partner.

(g) Amendment of Partnership Agreement and Certificate of Limited
Partnership. The Amendment of Partnership Agreement in the form attached hereto
as Exhibit D shall have been duly adopted and approved by the requisite vote of
the Partners, and all actions necessary to substitute Buyer as the General
Partner of the Partnership shall have been duly taken, including without
limitation the preparation and execution (in recordable form) of an appropriate
amendment to the Partnership's Certificate of Limited Partnership.

(h) Minimum Number of Transferred Units. Each Partner shall have
executed a Letter Agreement and become a Seller in accordance with the terms and
conditions of this Agreement. The Transferred Units shall represent at least 45%
of the issued and outstanding Units held by the Limited Partners of the
Partnership.

(i) [Intentionally Omitted]

(j) Tail Insurance. Buyer's Parent shall have obtained
"retroactive" malpractice insurance coverage for any potential claims for pre-
Closing Date business conducted by the Partnership under the master insurance
policy maintained by Buyer's Parent for its affiliated surgery centers. The cost
of such retroactive coverage shall be $25,000, one-half of which ($12,000) shall
be borne by the Sellers (pursuant to a purchase price reduction as set forth in
Section 2) pro rata according to

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<PAGE>

the number of Transferred Units to be sold by each Seller as compared to the
total number of Transferred Units.

(k) Certificate. Buyer shall have received a certificate, signed
by the General Partner and dated as of the Closing Date, certifying that (i) the
representations and warranties of Sellers set forth herein are true and correct
as of the Closing Date and (ii) each Seller has performed all of their
respective obligations under this Agreement that were required to be performed
prior to or at the Closing (except as performance may have been waived by Buyer
prior to or at the Closing).

(l) Management Agreement. The Partnership shall have executed and
delivered a Management Agreement substantially in the form of Exhibit E attached
hereto, and the General Partner shall have executed and performed all
obligations pursuant to an Acquisition of Management Agreement, which shall be
in form and substance satisfactory to Buyer.

(m) Legal Matters. All actions, proceedings, instruments and
documents required or incidental to carrying out this Agreement and all other
related legal matters shall have been approved by counsel for Buyer, which
approval shall not be unreasonably withheld.

(n) Lender Consent. Buyer's Parent shall have obtained the
consent of its principal lender, Bank of America, Illinois, to the transactions
provided for herein.

(o) Lease Amendment. The Landlord and the Partnership shall have
executed an amendment to the Lease extending the term of the Lease or granting
the Partnership renewal options, which amendment shall be in form and substance
reasonably satisfactory to Buyer.

8. Conditions Precedent to Obligations of Sellers. The obligations
of Sellers hereunder are subject to the satisfaction, on or prior to the Closing
Date, of the following conditions (unless waived by the General Partner, which
is designated as the duly authorized representative of Sellers for this
purpose):

(a) Accuracy of Representations and Warranties of Buyer;
Officer's Certificate. The representations and warranties of Buyer and Buyer's
Parent contained in this Agreement shall be

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<PAGE>

true in all material respects as of the Closing Date as though such
representations and warranties had been made at and as of that time. All of the
agreements of Buyer and Buyer's Parent to be performed by Buyer or Buyer's
Parent on or before the Closing Date shall have been duly performed in all
material respects. Buyer shall deliver to Sellers' counsel certified copies of
all resolutions of the boards of directors of Buyer and Buyer's Parent approving
or otherwise relating to this Agreement and the transactions contemplated
hereby. Buyer and Buyer's Parent shall have delivered to Sellers' counsel an
officer's certificate attesting to compliance with this Section 8(a).

(b) Action Restraining or Affecting Transaction. No action or
proceeding before a court or any other governmental agency or body shall have
been instituted or threatened to restrain or prohibit the transfer of the
Transferred Units, or which in the reasonable opinion of the General Partner may
otherwise materially and adversely affect Sellers, and no third party or
governmental agency or body shall have taken or threatened any action with
respect to this Agreement as a result of which the General Partner deem it
inadvisable to proceed with the transactions contemplated herein.

(c) Receipt of Consideration. Buyer and Buyer's Parent shall have
delivered to Sellers the purchase price for the Transferred Units in accordance
with Section 2.

(d) Legal Matters. All actions, proceedings, instruments and documents
required or incidental to carrying out this Agreement and all other related
legal matters shall have been approved by Seller's counsel, which approval shall
not be unreasonably withheld.

9. Indemnification.

(a) Indemnification by Buyer. Buyer and Buyer's Parent jointly and
severally covenant and agree to indemnify and hold Sellers and their successors
and assigns at all times harmless from and against any loss, liability, damage
and expense (including reasonable attorneys' fees and other costs of defense)
caused by or arising out of any misrepresentation, breach of warranty or
nonfulfillment of any agreement on the part of Buyer or Buyer's Parent under
this Agreement.

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<PAGE>

(b) Indemnification by Sellers. Subject to the limitations set
forth in Section 9(c), each Seller covenants and agrees that such Seller will
indemnify and hold buyer, Buyer's Parent and the Partnership and their
successors and assigns and their respective officers, directors, employees,
stockholders and agents at all times harmless from and against any loss,
liability, damage or expense (including reasonable attorneys' fees and other
costs of defense) caused by or arising out of or in connection with (i) any
misrepresentation, breach of warranty or nonfulfillment of any agreement on the
part of such Seller under this Agreement and (ii) any occurrence happening prior
to the Closing Date (other than the contractual obligations referred to in
Schedule 4) which may be asserted as a claim against the Partnership by a third
party (a "Third Party Claim"), including without limitation (A) any claim made
by any employee of the Partnership that relates to his or her employment by such
Partnership prior to the Closing Date, other than accrued and non-delinquent
salary and employee benefits; (B) any malpractice or professional liability
claims arising out of the pre-Closing Date activities of the Surgery Center or
any medical practitioner who is associated with the Surgery Center or who
provides services to any Surgery Center patient; (C) any litigation arising out
of the pre-Closing Date business or activities of the Partnership or any of its
officers, directors, employees or agents (including without limitation the
matters disclosed in Schedule 6 attached hereto); (D) any claims (other than
refund claims covered by clause (E) below) regarding any possible liabilities
under the Medicare and Medicaid programs (including but not limited to
overpayments) for goods delivered or services rendered prior to the Closing
Date; and (E) any liability which in the aggregate exceeds $40,000 for refunds
attributable to duplicate payments received by the Partnership for goods
delivered or services rendered prior to the Effective Date (other than accrued
refund obligations included in, and net of any underpayments that are not
included as current assets on, the Effective Date balance sheet to be prepared
pursuant to Section 10(e) below); provided, however, that (x) with respect to
any liability that arises pursuant to subsection (i) above, each Seller shall
only be liable with respect to such Seller's own misrepresentations, breaches of
warranties or nonfulfillment of any agreement and (y) only the General Partner
shall have any liability with respect to the matters referred to in clause (ii)
above.

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<PAGE>

(c) Limitations. Any claim asserted against any Seller pursuant
to Section 9(b) ("Claims") shall be subject to the following limitations:

(i) The liability of each Seller under Section 9(b) shall be
limited to the consideration received by such Seller for such Seller's
Transferred Units pursuant to this Agreement; provided, however, that this
subsection (i) shall not apply to the General Partner.

(ii) The liability of the General Partner under Section 9(b)
shall be limited to the total of the consideration received by the General
Partner for its Transferred Units.

(iii) Neither Buyer nor the Partnership shall be entitled to
make any Claim against any Seller with respect to any breach of such Seller's
representations and warranties set forth herein at any time after May 31, 1998,
except for (A) Claims asserted in writing pursuant to section 9(b) on or before
May 31, 1998 and (B) claims made against any Seller with respect to any breach
of section 4A.

(d) Undisputed Claims. A party (the "Indemnified Party") may
assert a Claim that it is entitled to, or may become entitled to,
indemnification under this Agreement by giving notice of its Claim to the party
or parties that are, or may become, required to indemnify the Indemnified Party
(the "Indemnifying Party," whether one or more), providing reasonable details of
the facts giving rise to the Claim and a statement of the Indemnified Party's
loss, damage or expense (including attorneys' fees and costs) incurred, suffered
or paid (collectively, the "Loss") in connection with the Claim or an estimate
of the amount of the Loss that it reasonably anticipates that it will incur or
suffer. If no Indemnifying Party objects to the Claim during the 15 day period
following the date of delivery of the Indemnified Party's notice of its Claim
(the "Objection Period"), the Claim shall be considered undisputed and the
Indemnified Party shall be entitled to recover the amount of its Loss. The fact
that a Claim is not disputed by any Indemnifying Party shall not constitute an
admission or create any inference that the asserted Claim is valid for any
purpose other than the indemnity obligation of the Indemnifying Parties as to
such Claim pursuant to this Section 9.

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<PAGE>

(e) Disputed Claims. If any Indemnifying Party gives notice to
the Indemnified Party within the Objection Period that such Indemnifying Party
objects to the Claim, then (i) the parties shall attempt in good faith to
resolve their differences during the 15 day period following the date of
delivery of the Indemnifying Party's notice of its objection (the "Resolution
Period") and (ii) if the parties fail to resolve their disagreement during the
Resolution Period, either party may unilaterally submit the disputed Claim for
binding arbitration in Houston, Texas in accordance with the American
Arbitration Association's rules for commercial arbitration in effect at the
time. The award of the arbitrator or panel of arbitrators shall include
reasonable attorneys' fees to the prevailing party and may be entered in any
appropriate court.

(f) Third Party Suits. In the case of any Third Party Claim, the
Indemnified Party shall control the defense of the Third Party Claim and the
Indemnifying Party may, at its own expense, participate in (but not control) the
defense and employ counsel separate from the counsel employed by the Indemnified
Party; provided, however, that the Indemnifying Party may assume control of the
defense of the Third Party Claim at any time during the course of the suit if
the Indemnifying Party confirms in writing to the Indemnified Party that the
Indemnified Party is entitled to indemnification under this Agreement with
respect to the Third Party Claim. If the Indemnifying Party assumes control of
the defense of a Third Party Claim, (i) the Indemnifying Party shall consult
with the Indemnified Party with respect to the Third Party Claim upon the
Indemnified Party's Reasonable request for consultation and (ii) the Indemnified
Party may, at its expense, participate in (but not control) the defense and
employ counsel separate from the counsel employed by the Indemnifying Party.
Regardless of whether the Indemnifying Party assumes the defense of the Third
Party Claim, all parties shall cooperate in its defense.

(g) Settlement or Compromise. The Indemnified Party shall give
the Indemnifying Party at least 15 days prior written notice of any proposed
settlement or compromise of a Third Party Claim, during which time the
Indemnifying Party may assume the defense of the Third Party Claim and, if it
does so (or if the Indemnifying Party has already assumed control of such Third
Party Claim), the proposed settlement or compromise may not be made without the
Indemnifying Party's consent, which shall not

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<PAGE>

be unreasonably withheld. Any settlement or compromise of any Third Party Claim
by the Indemnified Party entered into in compliance with the foregoing
requirements shall also be binding on the Indemnifying Party in the same manner
as if a final judgment or decree had been entered by a court of competent
jurisdiction in the amount of the settlement or compromise.

(h) [Intentionally Omitted.]

(i) Insured Claims. In case any event shall occur which would
otherwise entitle either party to assert a Claim for indemnification hereunder,
no Loss shall be deemed to have been sustained by the Indemnified Party to the
extent of any proceeds received by the Indemnified Party from any insurance
policies with respect thereto; provided, however that with respect to a Pre-
Closing Date occurrence which is covered under the new professional liability
insurance policy referred to in Section 7(j), or the new insurance coverage
referred to in Section 10(g), the Indemnifying Party's liability for the
uninsured portion of such claim shall not exceed the portion that would have
been uninsured under the Partnership's insurance policies that were in effect
immediately prior to the Effective Date.

(j) Offset of Future Distributions on Retained Units. Each Seller
that is selling less then all of such Seller's Units acknowledges that such
Seller has retained certain of the Units (the "Retained Units") following the
consummation of the sale of the Transferred Units to Buyer pursuant hereto. In
order to secure any valid claim that Buyer or the Partnership may have against
any such Seller pursuant to Section 9(b)(i), such Seller hereby grants to Buyer
the right to offset against and retain any distributions made by the Partnership
on such Seller's Retained Units in order to satisfy such claim. Sellers shall
retain all voting rights and, except as expressly provided herein, the right to
receive all distributions on the Retained Units.

10. Post-Closing Covenants

(a) Adoption of Amendment of Partnership Agreement. Buyer and
each Seller hereby adopt, approve and agree to be bound by the Amendment of
Partnership Agreement in the form attached to this Agreement as Exhibit D. Each
Seller
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<PAGE>

acknowledges and agrees that Buyer and/or the General Partner may execute such
Amendment of Partnership Agreement on behalf of such Seller pursuant to the
powers of attorney set forth in Article X of the Partnership Agreement and
Section 18 of this Agreement.

(b) Release by Sellers and Sellers' Affiliates. Except for
liabilities and obligations to any Partner or Sellers' Affiliates expressly
described in Schedule 4, each Seller, on behalf of itself and all Sellers'
Affiliates, as of the Closing Date, hereby releases, discharges and acquits the
Partnership of and from any and all debts, liabilities and obligations of the
Partnership to Seller or any Sellers' Affiliate, including without limitation
all management or consulting fees, cost reimbursement obligations and any
guarantee of any obligation of or to such Seller or Sellers' Affiliate;
provided, however, that this section 10(b) shall not apply to any obligation of
Buyer or the Partnership expressly provided for in this Agreement. Each Seller
hereby agrees that the matters released hereby are not limited to matters which
are known or disclosed, and hereby waives any and all rights and benefits that
Seller or any Sellers' Affiliate now has or in the future may have conferred
upon Seller or any Sellers' Affiliate.

(c) Noncompetition Covenant. Each Seller, for himself or itself,
agrees that, within five years of the Closing Date (the "Non-Compete Period"),
such Seller will not directly or indirectly (including without limitation
through any directly or indirectly owned or controlled affiliated entity, any
entity that directly or indirectly controls or is under common control with such
Seller or through any financial interest held by immediate family members of
such Seller or in trust for the benefit of such Seller's immediate family
members) engage in the business of, or have any interest in any outpatient
surgery center, hospital with surgical facilities, endoscopy clinic or other
surgery facility (including doctors' offices or any other facility where
surgical procedures customarily performed in hospitals or outpatient surgical
centers are performed), or in any person, firm, corporation or other business
(whether as a management employee, officer, director, agent, security holder
(except for the ownership of shares of a publicly held corporation purchased
through a broker on a national stock exchange or the Nasdaq System at an initial
purchase price of not more than $100,000), creditor, consultant or otherwise)
that engages in, any activity within a 10 mile radius of the Surgery Center that
is the same

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as, similar to or competitive with any activity engaged in by the Partnership or
which the Partnership is permitted to engage in; provided, however, that this
Section 10(c) is not intended to prevent any such person from (i) applying for,
obtaining and maintaining medical staff privileges and performing surgery at
another facility or otherwise practicing medicine in a private practice which
may utilize such competing facilities from time to time, (ii) continuing to own
an interest in Memorial Village Surgery Center, Ltd. to the extent such
ownership interest was acquired prior to December 1, 1995 and is disclosed in
such Seller's Letter Agreement or (iii) participating on any health care
facility's medical staff, committee, office or board so long as no compensation
(other than customary fees for membership on general oversight or quality
assurance committees) is paid to such person for services directly related to
any such health care facility's outpatient surgery facility or program. In
addition, during the Non-Compete Period, no Seller shall recruit, solicit or
otherwise seek to induce any employee of the Partnership (or any employee of any
management company employing personnel on behalf of the Partnership) to
terminate his or her employment or independent contractor relationship with the
Partnership. If, in any judicial proceeding, this covenant not to compete is
declared unenforceable for being of too long a duration or covering too large an
area, then this covenant not to compete shall still be enforceable for such
maximum period of time and within the largest geographic area as will make the
covenant enforceable. Sellers acknowledge that the rights and privileges granted
to Buyer herein are of special and unique character, which gives them a peculiar
value, the loss of which may not be reasonably or adequately compensated for by
damages in an action at law, and that the breach by any Seller of this Agreement
will cause Buyer great and irreparable injury and damage. Accordingly, each
Seller agrees that Buyer, together with its affiliates or any of them, shall be
entitled to seek the remedies of injunction, specific performance or other
equitable relief to prevent a breach of this Agreement, without limiting the
availability of any other remedy (including monetary damages).

(d) Books and Records; Personnel. For a period of three years
after the Closing Date:

(i) Buyer shall not dispose of or destroy any of the
material books and records of the Partnership relating to periods prior to the
Effective Date ("Books and

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<PAGE>

Records") without first offering to turn over possession thereof to the General
Partner by written notice to the General Partner at least 30 days prior to the
proposed date of such disposition or destruction.

(ii) Buyer shall allow the General Partner and its agents access to
all Books and Records during normal working hours at the Partnership's principal
place of business or at any location where any Books and Records are stored, and
the General Partner shall have the right, at its expense, to make copies of any
Books and Records; provided, however, that any such access or copying shall be
had or done in such a manner so as not to unreasonably interfere with the normal
conduct of the Partnership's businesses.

(iii) Buyer shall make available to the General Partner upon written
notice (A) copies of any Books and Records, (B) the Partnership's personnel to
assist the General Partner in locating and obtaining any Books and Records, and
(C) any of the Partnership's personnel whose assistance or participation is
reasonably required by Sellers or any of their affiliates in anticipation of, or
preparation for, any litigation, tax filing or other matters in which any Seller
is involved; provided, however, that any such copying or assistance shall be had
or done in such a manner so as not to unreasonably interfere with the normal
conduct of the Partnership's business. Sellers shall reimburse the Partnership
for the reasonable direct out-of-pocket expenses incurred by Buyer or the
Partnership in performing the covenants contained in this subsection (d).

(e) Post-Closing Accounting and Payment of Withheld Distributions.
Within 45 days after the Closing Date, Buyer shall prepare an unaudited
Effective Date balance sheet and all other appropriate statements necessary to
establish the net working capital of the Partnership as of the Effective Date.
If such statements indicate that the net working capital of the Partnership as
of the Effective Date was less than the amount required pursuant to Section
4(f), Buyer shall be entitled to retain all or a portion of the Withheld
Distributions (to the extent needed to increase the working capital to the
required amount); provided, however, that Buyer may not make any claim for
refund of any shortfall in excess of the Withheld Distributions. Any portion of
the Withheld Distributions not so retained shall be promptly paid to the
Partners according to their respective

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ownership interests in the Partnership immediately prior to the Closing.

(f) 1995 Tax Returns. The General Partner acknowledges and agrees
that, notwithstanding the completion of the transactions provided for herein and
the substitution of Buyer as the General Partner of the Partnership, the General
Partner shall be responsible for the preparation and filing of all federal
information returns and state franchise and income tax returns of the
Partnership relating to any periods ended prior to the Effective Date, including
without limitation the Partnership's federal information return for 1995 and (if
applicable) for the short tax year of the Partnership ending on the day prior to
the Effective Date. Buyer shall make the Books and Records available to the
General Partner to the extent needed by the General Partner for the preparation
and filing of such returns.

(g) Insurance. Buyer agrees to cause the Partnership to become
covered by and, for at least two years following the Closing, to remain covered
under the master insurance policies maintained by Buyer's Parent for its
affiliated surgery centers (or other equivalent or better insurance coverage).

11. Termination.
-----------

(a) By Mutual Consent. This Agreement may be terminated without
further obligation of the parties at any time prior to Closing by mutual consent
of the parties hereto.

(b) Damages. No party shall be liable in damages to any other party
as a result of the failure to consummate the transactions contemplated by this
Agreement unless such failure is caused by the material breach of such party of
any of the terms of this Agreement.

(c) Unilateral Termination. If, through no fault of or breach by a
party hereto, the Closing is not consummated on or before April 30, 1996, this
Agreement may be unilaterally terminated by written notice given by such party
to the other parties.

12. Confidentiality. Subject to Section 13, prior to the Closing, the
parties hereto shall keep confidential all

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information relating to the others that it obtains pursuant to this Agreement
and shall use such information only for the purposes contemplated by this
Agreement. In the event that this Agreement is terminated pursuant to Section
11, or otherwise, or the Closing does not occur by reason of failure of one of
the conditions to the Closing, the parties hereto agree (a) to return to the
transmitting party all documents, financial statements and other information
furnished or copied in connection with the transactions contemplated by this
Agreement and (b) not to disclose without the prior written consent of the
transmitting party any information obtained with respect to the business or
operations of the transmitting party or any affiliate of such party.

13. Publicity. Prior to Closing, no public announcement or other
publicity regarding the transactions contemplated by this Agreement shall be
made by any party without the prior written approval of Buyer and the General
Partner as to form, timing and manner of distribution or publication. Buyer and
the General Partner shall agree on the form and content of any joint press
release or other public announcement (other than notices to the Partnership's
employees, customers and suppliers) which is to be released at or immediately
following Closing. Nothing in this Section 13 or in Section 12 shall be
considered to prohibit any party from making any disclosure required by any law
or any court order.

14. Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given when received if delivered personally, given by
prepaid telegram, mailed first class, postage prepaid, registered or certified
mail, delivered by Federal Express or other courier service, or sent by
facsimile or other online transmission system, as follows:

If to Buyer or Buyer's Parent:

c/o National Surgery Centers, Inc.
35 East Wacker Drive, Suite 2800
Chicago, Illinois 60601
Attention: Chief Executive Officer
FAX No. (312) 553-4205

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With a copy to:

Robert D. Mosher
Nossaman, Guthner, Knox & Elliott
445 South Figueroa Street, 31st Floor
Los Angeles, California 90071-1602
FAX No. (213) 612-7801

If to the Partnership or any Seller:

c/o HealthFirst Medical Westside Corporation
16100 Cairnway
Houston, Texas 77084
Attention: Arthur Minquez, Jr.
President
FAX No. (713) 550-7888

With a copy to:

J. Michael O'Donnell
O'Donnell, Ferebee, McGonigal & Stone
450 Gears, 6th Floor
Houston, Texas 77067-4584
FAX No. (713) 875-4962

and

Larry E. Jacobs
Norton, Jacobs, Kuhn & McTopy, L.L.P.
Texaco Heritage Plaza
1111 Bagby, Suite 2450
Houston, Texas 77002
FAX No. (713) 659-7341

15. Governing Law; Interpretation; Section Headings. This Agreement
shall be governed by and construed and enforced in accordance with the internal
laws of the State of Texas. The section headings contained herein are for
purposes of convenience only and shall not be deemed to constitute a part of
this Agreement or to affect the meaning or interpretation of this Agreement in
any way.

16. General. This Agreement (including the Schedules and Exhibits
referred to herein) sets forth the entire agreement and understanding of the
parties with respect to the transactions

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contemplated hereby and supersedes all prior agreements, arrangements and
understandings related to the subject matter hereof, including without
limitation the letter of intent, dated as of December 19, 1995, between
National Surgery Centers, Inc. and the Partnership. No representation,
promise, inducement or statement of intention has been made by any party
hereto which is not embodied in this Agreement, or in the Exhibits hereto or
the written statements, certificates or other documents delivered pursuant
hereto. All the terms, provisions, covenants, representations, warranties and
conditions of this Agreement shall survive the Closing and shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors and assigns. This Agreement may be amended,
modified, superseded or canceled, and any of the terms, provisions, covenants,
representations, warranties or conditions hereof may be waived, only by a
written instrument executed by all parties hereto, or, in the case of a waiver,
by the party waiving compliance. The failure of any party at any time or
times to require performance of any provision hereof shall in no manner affect
the right to enforce the same. No waiver by any party of any condition, or of
the breach of any term, provision, covenant, representation or warranty
contained in this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be or construed as a further or continuing
waiver of any such condition or breach or a waiver of any other condition or
of the breach of any other term, provision, covenant, representation or
warranty. In the event that any one or more of the provisions of this
Agreement shall be held or otherwise found to be invalid, illegal or
unenforceable, all other provisions hereof shall be given effect separately
therefrom and shall not be affected thereby. None of the parties hereto shall
assign any of its rights or obligations hereunder without the prior written
consent of the other parties hereto; provided, however, and notwithstanding
the foregoing, Buyer may (a) prior to or at the Closing assign all or any
portion of Buyer's rights and obligations pursuant to this Agreement to Buyer's
Parent or any wholly owned subsidiary or affiliate of Buyer's Parent, and (b)
after the Closing, assign any or all of its rights hereunder without any
consent or approval of any other party to this Agreement. This Agreement is
for the sole benefit of the undersigned parties hereto and is not for the
benefit of any third party.

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17. Further Assurances. Sellers shall execute and deliver such other
documents and instruments, and take such other actions, as Buyer may reasonably
request in order more fully to vest and perfect in Buyer all right, title and
interest in and to the Transferred Units.

18. Power of Attorney. Each Seller hereby appoints the General
Partner, acting through any authorized agent designated by the General Partner
for this purpose, as such Seller's true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for such Seller and in his
or her name, place and stead in any and all capacities, to negotiate and sign
all amendments to this Agreement, all other documents in connection with the
transactions contemplated by this Agreement, including all waivers, consents,
instructions, authorizations and other actions called for, contemplated or which
may otherwise be necessary or appropriate in connection with this Agreement,
granting unto each such attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
to the same extent as such Seller could do in person, hereby ratifying and
confirming all that each such attorney-in-fact and agent may lawfully do or
cause to be done by virtue hereof, including without limitation the power and
authority to receive and give receipt for all consideration due such Seller
pursuant to this Agreement; provided, however, that this power of attorney shall
not authorize said attorney-in-fact to agree to any substantive waiver or
amendment of the provisions of this Agreement that has not been approved in
writing by the Seller for whom such attorney-in-fact is proposing to act
pursuant hereto. Each Seller agrees and acknowledges that said power or attorney
is coupled with an interest and is irrevocable.

19. Counterparts. Separate copies of this Agreement may be signed by
the parties hereto, with the same effect as though all of the parties had signed
one copy of this Agreement. Signatures transmitted by facsimile shall be
accepted as original signatures.

20. Attorneys' Fees. In any action at law or equity to enforce any of
the provisions or rights under this Agreement, the unsuccessful party to such
litigation, as determined by the court in any final judgment or decree, shall
pay the successful party or parties all costs, expenses and reasonable
attorneys'

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fees incurred therein by such party or parties (including without limitation
such costs, expenses and fees on any appeal or in connection with any bankruptcy
proceeding), and if the successful party recovers judgment in any such action or
proceeding, such costs, expenses and attorney's fees shall be included in and as
a part of such judgment.

21. Interpretation of Agreement. The parties hereto acknowledge and
agree that this Agreement has been negotiated at arm's length and between
parties equally sophisticated and knowledgeable in the matters dealt with in
this Agreement. Accordingly, any rule of law or legal decision that would
require interpretation of any ambiguities in this Agreement against the party
that has drafted it is not applicable and is waived. The provisions of this
Agreement shall be interpreted in a reasonable manner to effect the intent of
the parties as set forth in this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement as of the day and year first above written.

BUYER: NSC HOUSTON, INC.

By_______________________________________
Richard D. Pence, Vice President

BUYER'S PARENT: NATIONAL SURGERY CENTERS, INC.

By ______________________________________
Richard D. Pence, Vice President

GENERAL PARTNER: HEALTHFIRST MEDICAL WESTSIDE CORPORATION

By________________________________________
Name______________________________________
Title_____________________________________

OTHER SELLERS: Each other Seller executes and agrees to be
bound by this Agreement by signing a Letter
Agreement in the form attached hereto as
Exhibit A.

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