NATIONAL SURGERY CENTERS INC \DE\, PRE 14A, 1997-03-25

NATIONAL SURGERY CENTERS INC \DE\
PRE 14A, 1997-03-25
OFFICES & CLINICS OF DOCTORS OF MEDICINE

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SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>

National Surgery Centers, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

[ ] Fee paid previously with preliminary materials:

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:
<PAGE> 2
April 14, 1997

Dear Stockholder:

It is my pleasure to invite you to the 1997 Annual Meeting of Stockholders of
National Surgery Centers. The meeting will be held on May 21, 1997, at 10:00
a.m. Central Daylight Time, at the Union League Club, 65 West Jackson Blvd.,
Chicago, Illinois.

The attached Notice of Annual Meeting of Stockholders and Proxy Statement
cover the formal business of the meeting, which includes the election of two
directors. Following the meeting, management will discuss other corporate
matters that may be of interest to you as a stockholder.

It is important that your shares be represented at this meeting, whether or
not you attend the meeting in person and regardless of the number of shares
you own. To be sure your shares are represented, we urge you to complete and
mail the enclosed proxy card as soon as possible. If you attend the meeting
and wish to vote in person, the ballot you submit at the meeting will
supersede your proxy.

Sincerely,

/s/ E. Timothy Geary
---------------------
E. Timothy Geary
Chairman and Chief Executive Officer

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[NATIONAL SURGERY CENTERS, INC. LOGO]

30 SOUTH WACKER DRIVE, SUITE 2302, CHICAGO, ILLINOIS 60606

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

MAY 21, 1997

You are cordially invited to attend the annual meeting of stockholders of
National Surgery Centers, Inc. which will be held at 10:00 a.m. Central Daylight
Time, on May 21, 1997, in the Union League Club, 65 West Jackson Blvd., Chicago,
Illinois, for the following purposes:

1. To elect directors;

2. To consider and vote upon a proposal to amend the Certificate of
Incorporation of National Surgery Centers, Inc. to increase the number
of authorized shares of Common Stock, $.01 par value per share, of the
Company from 20 million to 40 million (the "Company Charter
Amendment"). A copy of the Certificate of Amendment to the Certificate
of Incorporation effecting the Company Charter Amendment is included
as Appendix A to the accompanying Proxy Statement;

3. To consider and vote upon a proposal to amend the Company's Amended
and Restated 1992 Stock Option Plan (the "Option Plan") to increase
the number of underlying shares of Common Stock issuable pursuant to
the Option Plan from 1,500,000 to 2,000,000. A copy of the amendment
to the Option Plan is included as Appendix B to the accompanying Proxy
Statement;

4. To consider and vote upon a proposal to approve the National Surgery
Centers, Inc. 1997 Non-Employee Directors Stock Option Plan (the
"Non-Employee Director Plan"). A copy of the Non-Employee Director
Plan is included as Appendix C to the accompanying Proxy Statement;
and

5. To transact such other business as may properly come before the
meeting.

Only stockholders of record at the close of business on March 29, 1997 are
entitled to vote at the meeting. A list of such stockholders will be available
for examination by any stockholder for any purpose germane to the meeting,
during normal business hours, at 30 South Wacker Drive, Suite 2302, Chicago,
Illinois, for a period of ten days prior to the meeting.

It is important that your shares be represented at the meeting regardless
of the size of your holdings. Whether or not you intend to be present at the
meeting in person, we urge you to mark, date, and sign the enclosed proxy and
return it in the envelope provided for that purpose, which does not require
postage if mailed in the United States. If you attend the meeting, you may, if
you wish, withdraw your proxy and vote in person.

John G. Rex-Waller
Executive Vice President, Treasurer and Secretary

Chicago, Illinois
April 14, 1997

YOU ARE URGED TO MARK, DATE AND SIGN THE ENCLOSED
PROXY AND RETURN IT PROMPTLY. THE PROXY IS
REVOCABLE AT ANY TIME PRIOR TO ITS USE.

<PAGE> 4

NATIONAL SURGERY CENTERS, INC.

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS

MAY 21, 1997

This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of National Surgery Centers, Inc. (the "Company") of
proxies for use at the annual meeting of stockholders of the Company to be held
at 10:00 a.m. Central Daylight Time, on May 21, 1997, in the Union League Club,
65 West Jackson Blvd., Chicago, Illinois, and at any postponement or adjournment
thereof. Proxies properly executed and returned in a timely manner will be voted
at the meeting in accordance with the directions noted thereon. If no direction
is indicated, they will be voted (i) for the election of the nominees named
herein as directors; (ii) for approval of the Company Charter Amendment; (iii)
for approval of the amendment to the Company's Option Plan; (iv) for approval of
the Non-Employee Director Plan; and (v) on other matters presented for a vote in
accordance with the judgment of the persons acting under the proxies. Any
stockholder giving a proxy has the power to revoke it at any time before it is
voted, either in person at the meeting, by written notice to the Secretary of
the Company, or by delivery of a later-dated proxy.

The Company's principal executive offices are located at 30 South Wacker
Drive, Suite 2302, Chicago, Illinois 60606 (telephone 312/655-1400). It is
expected that proxy materials will be mailed to stockholders beginning on or
about April 11, 1997.

SHARES OUTSTANDING AND VOTING RIGHTS

Only stockholders of record at the close of business on March 29, 1997 are
entitled to vote at the annual meeting of stockholders. The common stock, $.01
par value per share (the "Common Stock") of the Company is the only voting stock
of the Company outstanding, of which 11,698,250 shares were outstanding as of
the close of business on March 13, 1997. Each share of Common Stock is entitled
to one vote.

Election of each director requires the affirmative vote of the holders of a
plurality of the shares of the Company's Common Stock present in person or
represented by proxy and entitled to vote at the meeting. Approval of the
Company Charter Amendment, amendment to the Option Plan, the Non-Employee
Director Plan, and approval of any other matter submitted to the stockholders
for their consideration requires the affirmative vote of the holders of a
majority of the shares of the Common Stock present in person or by proxy and
entitled to vote at the meeting. An automated system administered by the
Company's transfer agent is used to tabulate the votes. Abstentions, directions
to withhold authority, and broker non-votes are counted as shares present in the
determination of whether the shares of stock represented at the meeting
constitute a quorum. A broker non-vote occurs when a nominee holding shares for
a beneficial owner does not vote on a particular proposal because the nominee
does not have discretionary voting power with respect to that item under
consideration and has not received instructions from the beneficial owner.
Broker non-votes, directions to withhold authority, and abstentions are not
counted in tabulations of the votes cast on proposals presented to stockholders
nor are they counted for purposes of determining whether a proposal has been
approved, and therefore have no effect.

ELECTION OF CLASS II DIRECTORS

Two directors are to be elected at the meeting. The Company's Charter
divides the Company's Board of Directors into three classes. The members of each
class of Directors serve for staggered three-year terms. The two persons named
below are Class II Directors and have been designated by the Board of Directors
as nominees for election as directors for a term expiring at the annual meeting
of stockholders in 2000. Both of the nominees are currently serving as directors
as of the date of this Proxy Statement.

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Unless otherwise instructed, properly executed proxies that are returned in a
timely manner will be voted for election of the two nominees. If, however, any
of such nominees should be unable or should fail to act as a nominee by virtue
of an unexpected occurrence, the proxies will be voted for such other person as
will be determined by the holders of the proxies in their discretion, or the
Board of Directors may make an appropriate reduction in the number of directors
to be elected.

John K. Carlyle, age 42, has served as a director of the Company since
1991. Mr. Carlyle has served as the President from 1990 to 1996, as Chief
Executive Officer and as director since 1992 and as Chairman of the Board since
1997 of OccuSystems, Inc. ("OccuSystems"), a physician practice management
company. Prior to joining OccuSystems, Mr. Carlyle was a Senior Vice President
and the Chief Financial Officer of Medical Care.

Rocco A. Ortenzio, age 64, has served as a director of the Company since
1991. Mr. Ortenzio is Chairman and Chief Executive Officer of Select Medical
Corporation, a medical rehabilitation company. Mr. Ortenzio was the Chairman of
the Board and Chief Executive Officer of Continental Medical Systems, Inc. prior
to its merger with Horizon Healthcare Corporation in July 1995. He has also
served as a consultant to Horizon/CMS HealthCare Corporation since July 1995.
Mr. Ortenzio serves on the Board of Directors of Quorum Health Group, Inc. and
served as a director to AMSCO International until its merger in May 1996 with
STERIS Corporation.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR.

CLASS I AND CLASS III DIRECTORS

E. Timothy Geary, age 46, has been the Company's Chief Executive Officer,
President and Chairman of the Board since its founding in 1987. Mr. Geary served
as a Vice President of Operations and Development, respectively, with Medical
Care International, Inc. ("Medical Care"), the nation's largest owner and
operator of freestanding ambulatory surgery centers, from 1983 to 1987. Mr.
Geary is a graduate of the College at the University of Chicago and the
University of Chicago Graduate School of Business. Mr. Geary is on the Board of
Directors of the Federated Ambulatory Surgery Association ("FASA"), an industry
association.

Russell L. Carson, age 53, has served as a director of the Company since
1991. Mr. Carson is a general partner in certain investment partnerships that
specialize in the health care industry. Mr. Carson has served as the Chairman of
the Board of Quorum Health Group, Inc. ("Quorum"), an owner and operator of
acute-care hospitals, since 1989. Mr. Carson also serves on the Board of
Directors of American Oncology Resources, Inc. ("AOR"), a provider of outpatient
cancer treatment services; Health Management Systems, Inc., a provider of
accounts receivable management services to hospitals; and STERIS Corporation, a
manufacturer of health care capital equipment

John T. Henley, Jr., M.D., age 49, has served as a director of the Company
since 1991. Dr. Henley has served as the Medical Director and Administrator of
Fayetteville Ambulatory Surgery Center Limited Partnership, an affiliate of the
Company, since 1982 and 1985, respectively. Dr. Henley is a past president, and
currently serves on the Board of Directors of FASA and is a practicing surgeon.

Donald E. Linder, M.D., age 48, has served as a director of the Company
since 1992. Dr. Linder was the founder of the Surgical Center of Greensboro, an
affiliate of the Company, from 1983 to 1994. Dr. Linder is the President, and
serves on the Board of Directors, of FASA.

John G. Rex-Waller, age 44, has served as a director of the Company and as
the Company's Secretary and Treasurer since 1991. Mr. Rex-Waller also served as
the Company's Chief Financial Officer prior to being named Executive Vice
President of the Company in February 1996. Mr. Rex-Waller was a Senior Vice
President-Corporate Finance with Dean Witter Reynolds Inc. from 1984 to 1991.
Mr. Rex-Waller is a graduate of the University of Chicago Graduate School of
Business; attended Hertford College, Oxford as a Rhodes Scholar; and has an
undergraduate degree in Civil Engineering from the University of Cape Town.

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MEETINGS AND COMMITTEES OF THE BOARD

The two standing committees of the Board of Directors of the Company are
the Audit Committee and the Compensation Committee, the functions and membership
of which are described below. The Board of Directors does not have a standing
nominating committee. The Board of Directors held an aggregate of seven regular
and special meetings in 1996.

The Audit Committee's functions include making recommendations to the Board
of Directors on the selection of the Company's auditors, reviewing the
arrangements for, and scope of, the independent auditors' examination, meeting
with the independent auditors, the Board of Directors, and certain officers of
the Company to review the adequacy of internal controls and reporting, and
performing any other duties or functions deemed appropriate by the Board of
Directors. Dr. Linder and Mr. Carlyle are currently members of the Audit
Committee.

The Compensation Committee is responsible for establishing and making
recommendations to the Board of Directors regarding salaries to be paid to
officers of the Company and for administration of, and the granting of options
under, the Company's Amended and Restated 1992 Stock Option Plan (the "Option
Plan") and Amended and Restated Employee Stock Purchase Plan. Dr. Henley and
Messrs. Carlyle and Carson are currently members of the Compensation Committee.

Nominations for election of directors are made by the Board of Directors
and, pursuant to the Company's bylaws, may be made by any stockholder entitled
to vote in the election of directors. See "Submission of Stockholder Proposals
for the 1997 Annual Meeting" for procedures with respect to nominations by
stockholders.

During fiscal 1996, the Compensation Committee met two times, and the Audit
Committee met once. In fiscal 1996, during the time each director served in such
capacity, no director attended less than 75% of the aggregate of all meetings of
the Board of Directors and all meetings held by committees of the Board of
Directors on which such director served.

APPROVAL OF COMPANY CHARTER AMENDMENT

The Company's certificate of incorporation (the "Charter") currently
authorizes the issuance of a total of 20 million shares of the Common Stock, 10
million shares of non-voting common stock, $.01 par value per share , of the
Company (the "Non-Voting Common Stock"), and 10 million shares of preferred
stock, $.01 par value per share, of the Company (the "Preferred Stock"). Of such
20 million presently authorized shares of the Common Stock, 11,698,250 were
issued and outstanding as of March 13, 1997 and of such 10 million presently
authorized shares of the Non-Voting Common Stock, 254,313 were issued and
outstanding as of March 13, 1997. No shares of the Preferred Stock are issued
and outstanding. As of March 13, 1997, additional shares of the Common Stock had
been reserved for issuance as follows: (i) an aggregate of approximately
2,198,295 shares in connection with options granted or to be granted under the
Company's stock option plans (including 1,948,295 shares under the Option Plan
and 250,000 under the Non-Employee Director Plan); (ii) approximately 683,016
shares to be issued under the Company's employee stock purchase plan; and (iii)
approximately 105,588 shares in connection with warrants or convertible
subordinated debt of the Company.

The Board of Directors of the Company has adopted and approved, and
recommends that the Company stockholders adopt and approve, an amendment to
Article FOURTH of the Charter which would increase the number of authorized
shares of the Common Stock from 20 million to 40 million (the "the Company
Charter Amendment"). The Company Charter Amendment will not increase or
otherwise affect the number of authorized shares of the Company Non-Voting
Common Stock nor Preferred Stock which may be issued by the Company. The
provisions of Article FOURTH of the Company Charter, as proposed to be amended,
are set forth in Appendix A to this Proxy Statement.

The Board of Directors of the Company believes that it is in the Company's
best interests to increase the number of authorized shares of the Common Stock
in order to have additional authorized but unissued shares available for
issuance to meet the Company's needs as they arise. The Board of Directors of
the Company believes that the availability of such additional shares will
provide the Company with the flexibility to issue shares of the Common Stock for
possible future

<PAGE> 7

financings; stock splits, dividends, or distributions; acquisitions of
businesses or properties or securities of other businesses; stock option plans;
or other proper corporate purposes which may be identified in the future by the
Company Board of Directors, without the possible expense and delay of a special
stockholder meeting.

The authorized shares of the Common Stock in excess of those issued will be
available for issuance at such times and for such corporate purposes as the
Company Board of Directors may deem advisable, without further action by the
Company's stockholders, except as may be required by applicable law or by the
rules of The Nasdaq Stock Market, as determined by the National Association of
Securities Dealers, Inc., or any other stock exchange or national securities
association trading system on which the Company Common Stock may be listed or
traded. Upon issuance, such shares will have the same rights as the outstanding
shares of the Common Stock. Holders of shares of the Common Stock have no
preemptive rights.

The Company has no arrangements, agreements, understandings, or plans at
the present time for the issuance or use of the additional shares of the Common
Stock proposed to be authorized. However, the Board of Directors of the Company
believes that the current number of authorized unreserved shares of the Common
Stock will be insufficient to meet the Company's future needs. The Board of
Directors of the Company intends to issue the Common Stock only on terms which
the Board deems to be in the best interests of the Company and its then existing
stockholders. Any future issuance of the Common Stock will be subject to the
rights of holders of outstanding shares of any of the Company Preferred Stock
which the Company may issue in the future.

The Company Charter and bylaws include certain provisions that may have the
effect of discouraging, delaying, or preventing a change in control of the
Company (even though such change in control could be beneficial to the Company's
stockholders generally), including procedural requirements with respect to
stockholder action. The issuance of additional shares of the Company's capital
stock, including shares authorized pursuant to the Company Charter Amendment,
could in certain circumstances also have the effect of similarly discouraging,
delaying, or preventing a change in control of the Company. However, the Company
is not aware of any efforts by another party to acquire a controlling interest
or to seek representation on the Board of Directors of the Company, nor is this
proposal being submitted to frustrate any such efforts. In addition, the Company
Charter Amendment is not part of any plan by the Company's management to adopt a
series of amendments to the Company Charter or bylaws so as to render the
takeover of the Company more difficult.

The issuance of additional shares of the Common Stock may have a dilutive
effect on earnings per share and on the equity and voting power of existing
holders of the Common Stock. It may also adversely effect the market price of
the Common Stock. However, in the event additional shares are issued in
transactions which result in favorable business opportunities or that provide
working capital sufficient to allow the Company to pursue its business plans,
the dilutive effect on earnings per share may be offset and this may cause the
market price of the Common Stock to increase.

The affirmative vote of the holders of a majority of the outstanding shares
of the Common Stock is necessary to approve the Company Charter Amendment.
Unless otherwise instructed, properly executed proxies which are returned in a
timely manner will be voted in favor of adoption of the Company Charter
Amendment.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
APPROVAL OF THE COMPANY CHARTER AMENDMENT.

APPROVAL OF AMENDMENT TO
AMENDED AND RESTATED 1992 STOCK OPTION PLAN

General. The Company's Board of Directors adopted, and the stockholders of
the Company approved, the National Surgery Centers, Inc. Amended and Restated
1992 Stock Option Plan (the "Option Plan") which became effective on February
13, 1992 and has been amended and restated twice, with such amendments becoming
effective January 1, 1995 and April 18, 1996, respectively. On February 11,
1997, the Company's Board of Directors adopted and approved, subject to
stockholder approval, an amendment to the Company's Option Plan, pursuant to
which the number of shares of Common Stock available

<PAGE> 8

for issuance under the Option Plan would be increased from 1,500,000 to
2,000,000. A copy of the above-described amendment to the Option Plan submitted
for shareholder approval is attached as Exhibit B to this Proxy Statement. If
approved by stockholders, the amendment to the Option Plan will be effective as
of February 11, 1997.

Summary of the Amended Option Plan. The Option Plan's purpose is to benefit
the Company and its subsidiaries through the maintenance and development of
management by offering certain present and future executives and key personnel a
favorable opportunity to become holders, over a period of years, of the
Company's Common Stock, thereby giving them a permanent stake in the Company's
growth and prosperity and encouraging the continuance of their services with the
Company or its subsidiaries.

The Compensation Committee (the "Committee") of the Company's Board of
Directors administers the Option Plan. The Committee consists of no fewer than
two disinterested outside directors of the Company. Committee members are
appointed pursuant to resolution adopted by the Board of Directors and continue
to serve until the appointment and election of their successors or until the
earlier of their death, resignation, removal or retirement. The current members
of the Committee are Dr. Henley and Messrs. Carson and Carlyle.

The Committee is responsible for the Option Plan's administration, and its
interpretations and decisions regarding the Option Plan are final. The Committee
has authority to determine the persons to be granted options under the Option
Plan, the number of shares subject to each option, the time or times at which
options will be granted, the option price of the shares subject to each option
(which price shall not be less than the fair market value of the shares at the
date of grant), the time or times when each option becomes exercisable and the
duration of the exercise period, and whether or not an option is intended to be
granted as an incentive stock option (an "ISO") as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") or intended to be granted
as a nonqualified option (i.e., an option that is not an ISO).

Options may be granted under the Option Plan to the Company's and its
subsidiaries' executives and key employees (other than Committee members). If
the amendment to the Option Plan is adopted, Options may be granted with respect
to a total of not more than 2,000,000 shares of Common Stock under the Option
Plan, and this limitation is subject to anti-dilution and other adjustment
provisions. No options may be granted under the Option Plan after December 31,
2004. If an option expires or is terminated or canceled unexercised as to any
shares, such released shares may again be optioned (including a grant in
substitution for a canceled option).

The aggregate fair market value (determined at the time of grant of the
option) of the shares of common stock with respect to which ISOs are exercisable
for the first time during any calendar year by an employee granted ISOs under
this Option Plan or any other plan of the Company or its parent or any
subsidiary shall not exceed $100,000; provided however, that this limit shall
not apply to those options which are not intended to be treated as ISOs.

Each option is for such term of not more than ten years as the Committee
shall determine at the date of the grant, provided, however, that no option
granted to an employee who, at the time the option is granted, is a 10% Holder,
shall have a term of more than five years. Each option shall become exercisable
with respect to one-quarter of the total number of shares subject to the option
twelve months after the date of its grant and with respect to an additional
one-quarter at the end of each twelve-month period thereafter during the
succeeding three years. The Committee may accelerate the exercisability of any
option or, at any time before a previously granted option's expiration or
termination, extend such option's terms for such additional period as the
Committee, in its discretion, shall determine, except that the aggregate
option period with respect to any option, including the original term of the
option and any extensions thereof, shall never exceed ten years (or five years,
in the case of an option granted to any employee who, at the time the option is
granted, is a 10% Holder).

<PAGE> 9

an irrevocable written notice instructing the Company to deliver the shares of
Common Stock being purchased to a broker selected by the Company subject to the
broker's written guarantee to deliver cash to the Company equal to the full
consideration of the exercise price for the shares being purchased. For these
purposes, the per share value of the Company's Common Stock shall be the fair
market value at the close of business on the date preceding the date of exercise
(or, if that date is not a trading day, on the trading day next preceding the
date of exercise of the option).

The shares of Common Stock purchased upon exercise of an option are
purchased from the Company, not in the open market. No fees, commissions, or
other charges are assessed against participating employees' in connection with
such purchases.

The shares of Common Stock purchased upon exercise of an option may be
ineligible for resale unless they are registered under the federal and state
securities laws or unless an exemption from registration is available.

In the event the employment of an optionee with the Company or any of its
subsidiaries is terminated for any reason other than death, permanent disability
or a change in control, such optionee's option shall expire and all rights to
purchase shares pursuant thereto shall terminate three months after such
termination. In the event of termination of employment because of disability (as
that term is defined in Section 22(e)(3) of the Code, as now in effect or as
shall be subsequently amended), the option may be exercised in full, without
regard to any installments established at the time of grant, by his heirs,
legatees, or legal representative, as the case may be, during its specified term
prior to one year after the date of termination. In the event of termination of
employment because of death the option may be exercised in full, without regard
to any installments established at the time of grant, by his heirs, legatees, or
legal representative, as the case may be, during its specified term prior to one
year after the date of termination.

An optionee may not transfer any option otherwise than by will or the laws
of descent and distribution, and each option shall be exercisable during an
optionee's lifetime only by him.

The Board of Directors or the Compensation Committee may amend or
discontinue the Option Plan at any time. However, no such amendment or
discontinuation shall (a) change or impair any previously granted option without
the optionee's consent, (b) increase the maximum aggregate number of shares
which optionees may purchase, (c) change the minimum purchase price, (d) change
the limitations on the option period or increase the time limitations on the
grant of options, or (e) permit the granting of options to Committee members.

The Option Plan is not subject to the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA").

Federal Income Tax Consequences. The following is intended only as a brief
summary of the federal income tax rules relevant to stock options under the
Option Plan. These rules are highly technical and subject to change in the
future.

The Company understands that an optionee will not recognize a gain or loss
upon the grant of an option under the Option Plan, or upon the exercise of an
option that is an ISO. However, upon the exercise of a nonqualified option the
optionee will recognize ordinary compensation income equal to the excess of the
fair market value of the shares of Common Stock acquired over the option price.
(In some cases, recognition of the ordinary income may be deferred while the
employee is subject to potential liability under Section 16(b) of the Exchange
Act if he were to sell the Common Stock, in which event the amount of ordinary
income recognized would be based on the fair market value of the Common Stock
when Section 16(b) is no longer applicable.) The amount of ordinary income
recognized upon the employee's exercise of the option will be added to the
employee's tax basis in his shares of Common Stock purchased, and any gain or
loss subsequently realized upon a sale of the Common Stock will generally be
capital gain or loss.

As noted above, an employee will generally not be required to recognize any
ordinary income upon the exercise of an option that is an ISO, and any gain or
loss subsequently recognized upon the sale of the Common Stock will generally be
capital gain or loss, except as provided in the following sentence. If the
employee disposes of Common Stock purchased upon

6
<PAGE> 10

exercise of an ISO either within one year after having purchased the Common
Stock or within two years after having been granted the ISO (a "disqualifying
disposition"), the employee would be required to realize ordinary compensation
income equal to the excess of the fair market value of the Common Stock at the
time of exercise over the exercise price paid. However, if the disqualifying
disposition is a taxable sale of the Common Stock to a third party, the amount
of ordinary compensation recognized is limited to the gain actually realized on
the sale. Transfers of the Common Stock to the employee's estate or heirs at
death, and certain types of tax-free exchanges, are not considered disqualifying
dispositions even if they occur within the time limits described above.

The Company will be entitled to a deduction equal to the amount of ordinary
income which the optionee recognizes either upon the exercise of a nonqualified
option or a disqualifying disposition of Common Stock acquired by exercise of an
ISO, subject to general limitations on the deductibility of compensation expense
and provided that the Company properly reports the income, or is able to
demonstrate that the employee properly reported it, for tax purposes. The
compensation income realized by the employee upon exercise of a nonqualified
option is subject to income tax withholding and Social Security taxes. The
compensation income realized upon a disqualifying disposition of Common Stock
purchased upon exercise of an ISO is currently not subject to income tax
withholding or Social Security taxes, although the IRS has announced that it is
reconsidering its rulings in this area. In either case, an optionee's basis in
shares acquired upon the exercise of an option will be equal to the option price
plus the amount of ordinary income which the optionee recognizes, and the
optionee's holding period begins on the date on which the option is exercised.

The Option Plan is not qualified under Section 401(a) of the Code.

The affirmative vote of the holders of a majority of the shares of the
Common Stock having voting power present in person or represented by proxy and
voting thereon is necessary to approve the amendment to the Option Plan. Unless
otherwise instructed, properly executed proxies which are returned in a timely
manner will be voted in favor of adoption of the amendment to the Option Plan.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
APPROVAL OF THE AMENDMENT TO THE OPTION PLAN.

APPROVAL OF
1997 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN

General. The Company's Board of Directors adopted and approved, subject to
stockholder approval, the National Surgery Centers, Inc. 1997 Non-Employee
Directors Stock Option Plan (the "Non-Employee Director Plan"), on February 11,
1997. Options granted under the Non-Employee Director Plan are not intended to
qualify as "Incentive Stock Options" as defined in the Code. A copy of the
above-described Non-Employee Director Plan submitted for stockholder approval is
attached as Exhibit C to this Proxy Statement. If approved by stockholders, the
Non-Employee Director Plan will be effective as of February 11, 1997.

Summary of the Non-Employee Director Plan. The Non-Employee Director Plan's
purpose is to benefit the Company and its subsidiaries through the maintenance
and development of directors by offering certain present and future directors
who are not employees or officers of the Company a favorable opportunity to
become holders, over a period of years, of the Company's Common Stock, thereby
giving them a permanent stake in the Company's growth and prosperity and
encouraging the continuance of their services with the Company or its
subsidiaries.

The Company's Board of Directors will administer the Non-Employee Director
Plan. The Board of Directors is responsible for the Non-Employee Director Plan's
administration, and its interpretations and decisions regarding the Non-Employee
Director Plan are final.

Options may be granted under the Non-Employee Director Plan to the
Company's and its subsidiaries' directors who are not employees or officers of
the Company (an "Eligible Director"). Options may be granted with respect to a
total of not

<PAGE> 11

more than 250,000 shares of Common Stock under the Non-Employee
Director Plan, and this limitation is subject to anti-dilution and other
adjustment provisions. No options may be granted under the Non-Employee Director
Plan after February 11, 2007. If an option expires or is terminated or canceled
unexercised as to any shares, such released shares may again be optioned
(including a grant in substitution for a canceled option).

The initial grant of options under the Non-Employee Director Plan is as set
forth in the following table:

<TABLE>
<CAPTION>
Year in Which Term Expires Number and Vesting of Shares
-------------------------- ----------------------------------------------------------------
<S> <C>
Class II Eligible Directors 5,000 shares, all fully vested
Class III Eligible Directors 7,500 shares, of which 5,000 are fully vested and 2,500 vest on
the date of the 1997 annual meeting of stockholders
Class I Eligible Director 10,000 shares, of which 5,000 are fully vested, 2,500 vest on the
date of the 1997 annual meeting of stockholders, and 2,500 vest
on the date of the 1998 annual meeting of stockholders
</TABLE>

Thereafter, each Eligible Director shall automatically receive a grant of
option shares upon his or her election or re-election as an Eligible Director,
commencing with the Eligible Directors who are elected or reelected at the
annual meeting of shareholders held in 1997. Each such option shall be for 7,500
shares if the Eligible Director is elected to a full three year term, of which
2,500 shall be fully vested, 2,500 shall vest on the first anniversary of the
grant and 2,500 shall vest on the second anniversary. If the Eligible Director
is elected to fill a term of less than three years, the number of shares shall
be equal to 2,500 for each full year of his or her term.

Each option is for a term of ten years. The Board of Directors may
accelerate the exercisability of any option or, at any time before a previously
granted option's expiration or termination, extend such option's terms for such
additional period as the Board of Directors, in its discretion, shall determine,
except that the aggregate option period with respect to any option, including
the original term of the option and any extensions thereof, shall never exceed
ten years.

Upon exercising an option, the optionee must provide the Company with the
full aggregate exercise price of the shares to be purchased in cash or by check.
However, with the approval of the Board of Directors, the optionee may exercise
his or her option by (i) tendering to the Company shares of Common Stock owned
by him or her and with the certificates therefor registered in his or her name,
having a fair market value equal to the cash exercise price of the shares being
purchased; or (ii) delivering an irrevocable written notice instructing the
Company to deliver the shares of Common Stock being purchased to a broker
selected by the Company subject to the broker's written guarantee to deliver
cash to the Company equal to the full consideration of the exercise price for
the shares being purchased. For these purposes, the per share value of the
Company's Common Stock shall be the fair market value at the close of business
on the date preceding the date of exercise (or, if that date is not a trading
day, on the trading day next preceding the date of exercise of the option).

In the event the optionee ceases to be a director of the Company or any of
its subsidiaries for any reason other than death, permanent disability or a
change in control, such optionee's option shall expire and all rights to
purchase shares pursuant thereto shall terminate three months after such
termination. In the event the optionee ceases to be a director because of
disability (as that term is defined in Section 22(e)(3) of the Code, as now in
effect or as shall be subsequently amended), the option may be exercised in
full, without regard to any installments established at the time of grant, by
his heirs, legatees, or legal representative, as the case may be, during its
specified term prior to one year after the date of termination. In the event

<PAGE> 12

the optionee ceases to be a director because of death the option may be
exercised in full, without regard to any installments established at the time of
grant, by his heirs, legatees, or legal representative, as the case may be,
during its specified term prior to one year after the date of termination.

An optionee may not transfer any option otherwise than (i) to his or her
spouse, descendants or their spouses (including descendants by adoption), or a
trust for any of the foregoing.

The Board of Directors may amend or discontinue the Non-Employee Director
Plan at any time. However, no such amendment or discontinuation shall change or
impair any options previously granted without the consent of the optionee.

The Non-Employee Director Plan is not subject to the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA").

Federal Income Tax Consequences. The following is intended only as a brief
summary of the federal income tax rules relevant to stock options under the
Non-Employee Director Plan. These rules are highly technical and subject to
change in the future.

The Company understands that upon the exercise of an option the optionee
will recognize ordinary compensation income equal to the excess of the fair
market value of the shares of Common Stock acquired over the option price. (In
some cases, recognition of the ordinary income may be deferred while the
employee is subject to potential liability under Section 16(b) of the Exchange
Act if he were to sell the Common Stock, in which event the amount of ordinary
income recognized would be based on the fair market value of the Common Stock
when Section 16(b) is no longer applicable.) The amount of ordinary income
recognized upon the employee's exercise of the option will be added to the
employee's tax basis in his shares of Common Stock purchased, and any gain or
loss subsequently realized upon a sale of the Common Stock will generally be
capital gain or loss.

The Company will be entitled to a deduction equal to the amount of ordinary
income which the optionee recognizes either upon the exercise of an option,
subject to general limitations on the deductibility of compensation expense and
provided that the Company properly reports the income, or is able to demonstrate
that the employee properly reported it, for tax purposes. The compensation
income realized by the employee upon exercise of an option is subject to income
tax withholding and Social Security taxes. An optionee's basis in shares
acquired upon the exercise of an option will be equal to the option price plus
the amount of ordinary income which the optionee recognizes, and the optionee's
holding period begins on the date on which the option is exercised.

The Non-Employee Director Plan is not qualified under Section 401(a) of the
Code.

The affirmative vote of the holders of a majority of the shares of the
Common Stock having voting power present in person or represented by proxy and
voting thereon is necessary to approve the adoption of the Non-Employee
Director Plan. Unless otherwise instructed, properly executed proxies which are
returned in a timely manner will be voted in favor of the adoption of the
Non-Employee Director Plan.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
APPROVAL OF THE NON-EMPLOYEE DIRECTOR PLAN.

OPTIONS GRANTED UNDER THE PLANS

As of March 13, 1997, the Company had options outstanding for an aggregate
of 1,264,326 shares of Common Stock at a weighted average price of $20.49 per
share pursuant to the Option Plan. As of March 13, 1997, the Company had options
outstanding for an aggregate of 35,000 shares of Common Stock at a weighted
average price of $29.375 per share pursuant to the Non-Employee Director Plan.
The exercise price of each option granted under the Option Plan has been at
least equal to the fair market value of the Common Stock on the date of the
grant as determined in good faith by the Committee. The

<PAGE> 13
exercise price of each option granted under the Non-Employee Director Plan has
been at least equal to the fair market value of the Common Stock on the date of
the grant as determined in good faith by the Board of Directors. The following
table sets forth certain information with respect to options granted under the
Option Plan and the Non-Employee Director Plan from January 1, 1992 through
March 13, 1997.

NEW PLAN BENEFITS
<TABLE>
<CAPTION>
NON-EMPLOYEE
OPTION PLAN DIRECTOR PLAN
NUMBER OF NUMBER OF
NAME AND POSITION SHARES SHARES
- ----------------- ----------- -------------
<S> <C> <C>
E. Timothy Geary
Chairman of the Board, President and Chief Executive Officer........... 252,500 --
John G. Rex-Waller
Executive Vice President, Treasurer and Secretary...................... 182,500 --
Dennis D. Solheim
Vice President of Development.......................................... 120,000 --
Richard D. Pence
Vice President of Operations........................................... 130,000 --
Dennis J. Zamojski
Vice President of Operations........................................... 165,000 --
John K. Carlyle
Class II Director...................................................... -- 5,000
Rocco A. Ortenzio
Class II Director...................................................... -- 5,000
Donald E. Linder, M.D.
Class III Director..................................................... -- 7,500
Russell L. Carson
Class III Director..................................................... -- 7,500
John T. Henley, Jr.
Class I Director....................................................... -- 10,000
Executive Group (6 persons)................................................. 1,023,001 --
Non-Executive Director Group (5 persons).................................... -- 35,000
Non-Executive Officer Employee Group (96 persons)........................... 241,325 --
</TABLE>

OTHER MATTERS

Management knows of no other matters to be brought before the Annual
Meeting other than those described above. If any other business should come
before the meeting, it is intended that the persons named in the enclosed proxy
will vote the shares in accordance with their best judgment on any such matter.

PRINCIPAL STOCKHOLDERS AND SECURITIES OWNERSHIP OF MANAGEMENT

STOCK OWNERSHIP. The following table sets forth certain information
regarding the beneficial ownership of Common Stock as of March 3, 1997 by: (i)
each stockholder known by the Company to be the beneficial owner of more than 5%
of the outstanding Common Stock; (ii) each director and nominee for director;
(iii) each executive officer named in the Summary Compensation Table below; and
(iv) all directors and executive officers as a group. The Company believes that
each person or entity named below has sole voting and investment power with
respect to all shares shown as beneficially owned by such person or entity
subject to community property laws where applicable and the information set
forth in the footnotes to the table below. The beneficial ownership reflected in
the following table is calculated in accordance with Section 13(d) of the
Exchange Act.

NUMBER OF SHARES PERCENT OF COMMON
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) STOCK BENEFICIALLY OWNED
- ------------------------ ------------------ ------------------------
<S> <C> <C>
Essex Investment Management Company
125 High Street, South Boston, MA 02110....................... 1,056,102 9.0
Pilgrim Baxter & Associates, Ltd.
1255 Drummers Lane, Suite 300, Wayne, PA 10987-1590........... 949,800 8.1
Putnam Investments, Inc.
One Post Office Square, Boston, MA 02109...................... 938,783 8.0
Donald E. Linder, M.D. (2)
5500 Old Brandt Trace, Greensboro, NC 07405.................. 725,123 6.2
E. Timothy Geary (3)............................................... 270,128 2.3
John G. Rex-Waller (4)............................................. 107,563 *
Dennis D. Solheim.................................................. 80,576 *
Richard D. Pence................................................... 64,043 *
Dennis J. Zamojski................................................. 46,526 *
John K. Carlyle.................................................... 5,000 *
Russell L. Carson.................................................. 92,049 *
John T. Henley, Jr., M.D........................................... 29,478 *
Rocco A. Ortenzio.................................................. 7,500 *
All directors and executive officers as a group (11 persons)....... 1,465,298 12.2
*Less than 1%.
</TABLE>
- -----------------------

(1) Includes shares directly owned and, in the case of individuals and all
directors and officers as a group, includes shares of Common Stock subject
to options which were exercisable within 60 days of March 13, 1997 as
follows: Mr. Geary, 38,125, Mr. Rex- Waller, 30,625, Mr. Solheim, 21,250,
Mr. Pence, 21,250, Mr. Zamojski, 38,125; Mr. Carlyle, 5,000; Mr. Carson,
5,000; Dr. Henley, 5,000; Mr. Ortenzio, 5,000; and Dr. Linder, 5,000; and
all executive officers and directors as a group (including such
individuals) 202,626. Such shares are deemed to be outstanding for the
purposes of computing the percentage ownership of the individual holding
such shares, but are not deemed outstanding for purposes of computing the
percentage of any other person shown on the table.

(2) Includes 50,000 shares held in trust. Dr. Linder disclaims beneficial
ownership of such shares.

(3) Includes 4,797 shares held in trust for the children and 17,518 held by the
spouse of Mr. Geary. Mr. Geary disclaims beneficial ownership of such
shares.

(4) Includes 4,750 shares held in trust for the children of Mr. Rex-Waller. Mr.
Rex-Waller disclaims beneficial ownership of such shares.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than 10% of the Common Stock, to file
reports of ownership with the Securities and Exchange Commission. Such persons
also are required to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on its review of copies of such forms received by it,
the Company notes that as a result of a transaction during fiscal year 1996, Mr.
Henley filed one untimely report. The Company believes that all other filing
requirements applicable to its executive officers, directors and greater than
10% stockholders were complied with.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth compensation received by the Company's Chief
Executive Officer and its four most highly compensated executive officers (the
"named executive officers") for each of the three fiscal years ended December
31, 1996, December 31, 1995 and December 31, 1994. The Company does not have a
restricted stock award program or a long-term incentive plan.

<PAGE> 15

OTHER RESTRICTED
ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION GRANT (2) OPTIONS COMPENSATION
- --------------------------- ---- ------ -------- ------------ --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
E. Timothy Geary..................... 1996 $225,000 $130,000 $ 0 $ 0 130,000 $ 0
Chairman of the Board, President 1995 190,000 55,000 0 0 112,500 0
and Chief Executive Officer 1994 169,950 28,839 0 0 0 0
John G. Rex-Waller................... 1996 180,000 104,400 0 0 90,000 0
Executive Vice President, 1995 150,000 45,000 0 0 82,500 0
Secretary and Treasurer......... 1994 135,950 21,629 0 0 0 0
Dennis D. Solheim.................... 1996 130,000 75,400 0 0 65,000 0
Vice President of Development 1995 110,000 42,209 0 0 45,000 0
1994 100,000 10,210 0 0 0 0
Richard D. Pence..................... 1996 130,000 75,400 0 0 75,000 0
Vice President of Operations 1995 110,000 35,000 0 0 45,000 0
1994 103,000 13,822 0 0 0 0
Dennis J. Zamojski................... 1996 130,000 75,400 0 0 65,000 0
Vice President of Operations 1995 110,000 35,000 0 0 82,500 0
1994 92,700 21,629 0 63,750 7,500 0
</TABLE>
- -----------------
(1) The entire amount of the bonuses set forth were for the fiscal year ended
but paid in subsequent fiscal year, except for $3,000 and $7,209 paid to
Dennis D. Solheim during 1994 and 1995, respectively.

(2) At December 31, 1996, there were 15,000 shares of Common Stock worth
$127,500 in the aggregate of restricted stock held by the executive
officers of the Company. Regarding the restricted stock grant reported for
Mr. Zamojski, above, the total number of shares of Common Stock awarded was
7,500, of which half vested on January 31, 1997, and the other half will
vest on January 31, 1998; provided, however that the shares will vest prior
to the vesting dates set forth above upon the occurrence of a change in
control of the Company, or upon the termination of employment, death or
permanent disability, of Mr. Zamojski. Dividends will be paid on the
restricted stock.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth individual grants of stock options made to
the named executive officers during the fiscal year ended December 31, 1996.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENTAGE OF TOTAL ANNUAL RATES OF
OPTIONS GRANTED EXERCISE STOCK PRICE APPRECIATION
DATE OF OPTIONS TO EMPLOYEES OR BASE EXPIRATION FOR OPTION TERM (1)
NAME GRANT GRANTED IN FISCAL YEAR PRICE DATE 5% 10%
---- ----- ------- ------------------- ------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
E. Timothy Geary.......... 06/21/96 130,000 22.3% $27.50 06/21/2001 $987,707 $2,182,573
John G. Rex-Waller........ 06/21/96 90,000 15.4 27.50 06/21/2001 683,797 1,511,012
Dennis D. Solheim......... 06/21/96 65,000 11.1 27.50 06/21/2001 493,853 1,091,287
Richard D. Pence.......... 06/21/96 75,000 12.8 27.50 06/21/2001 569,831 1,259,177
Dennis J. Zamojski........ 06/21/96 65,000 11.1 27.50 06/21/2001 493,853 1,091,287
</TABLE>

- -----------------------

(1) These amounts represent certain assumed annual rates of appreciation
calculated from the exercise price, as required by the rules of the
Securities and Exchange Commission. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the future performance
of the Common Stock. There can be no assurance that the amounts reflected
in this table will be achieved.

<PAGE> 16

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table sets forth for the named executive officers aggregated
information concerning each exercise of stock options during the fiscal year
ended December 31, 1996 and the fiscal year-end value of unexercised options.

<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END (#) FISCAL YEAR-END ($)
ACQUIRED VALUE ------------------- -------------------
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
---- --- --- ------------- -------------
<S> <C> <C> <C> <C>
E. Timothy Geary................. 0 0 35,622/216,878 $927,103/$3,586,661

John G. Rex-Waller............... 0 0 28,122/154,378 735,853/ 2,592,911

Dennis D. Solheim................ 0 0 18,747/101,253 496,791/ 1,613,223

Richard D. Pence................. 0 0 18,747/111,253 496,791/ 1,718,223

Dennis J. Zamojski............... 0 0 34,998/130,002 928,381/ 2,347,882
</TABLE>

EMPLOYMENT AGREEMENTS. The Company has entered into employment agreements
with each of Messrs. Geary, Rex-Waller, Solheim, Pence and Zamojski. The
employment agreements provide for a term of employment of one year, and are
automatically extended for an additional year if the Company has not given the
employee notice at least sixty days prior to the end of the term of the
Company's wish to terminate such agreement. In the event that the Company
terminates any such employment agreement prior to the end of its term because of
the disability of the employee or the employee dies, the Company is obligated to
pay the employee the remaining salary that would have been payable to the
employee had the agreement continued for the balance of the term. In addition,
if the Company terminates an employee without "cause" or if the employee elects
to terminate his employment with the Company because of material changes to the
employee's employment or there is a change in control, as defined in the
employment agreement, of the Company, the employee will receive a lump sum
payment in an amount equal to the sum of (i) the employee's annual base salary
and (ii) the annual bonus paid to the employee for the last full fiscal year,
exclusive of any tax imposed pursuant to Section 4999 of the Internal Revenue
Code, as amended.

DIRECTOR COMPENSATION

Directors of the Company receive $2,500 for each quarter they serve on the
Company's Board of Directors and are reimbursed for their expenses for attending
meetings of the Board. In addition, if the Non-Employee Directors Plan is
adopted at the Annual Meeting, the Non-Employee Directors will receive stock
option in accordance with such plan, as more fully described above in "Approval
of 1997 Non-Employee Director Stock Option Plan."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The following persons served as members of the Compensation Committee of
the Board of Directors during the year ended December 31, 1996: John K. Carlyle;
John T. Henley, Jr., MD.; and Andrew M. Paul.

Dr. John T. Henley, Jr., a director of the Company, is a practicing
physician in Fayetteville, North Carolina and has been an affiliate of the
Company since November 1991. Dr. Henley is a 50% shareholder of Physicians
Ambulatory Management Corporation ("PAM") which, pursuant to a management
agreement, co-manages the day-to-day operations of Fayetteville Ambulatory
Surgery Center Limited Partnership ("FASCLP"). In 1991, at the time of the
Company's acquisition of FASCLP, in order to facilitate the acquisition of the
center, PAM agreed to restructure its then existing management agreement on
essentially the same economic terms, the Company (i) paid cash equal to $550,000
to PAM; (ii) issued to PAM a $275,000 principal amount convertible subordinated
note of the Company; (iii) issued to Dr. Henley 5,729 shares of the Company's
Common Stock (which were subsequently repurchased in December 1994 for cash of
$68,752 and convertible notes of $68,752); and (iv) subsequently paid to PAM
$310,000 in cash, based upon the financial performance of FASCLP for the year
ending December 31, 1992. During 1996, the Company paid $186,137 to PAM pursuant
to the management agreement.

<PAGE> 17

No executive officer of the Company served as a member of the compensation
committee or as a director of any other entity, one of whose executive officers
serves on the Compensation Committee or is a director of the Company.

In accordance with rules promulgated by the Securities and Exchange
Commission, the information included under the captions "Report of the
Compensation Committee" and "Performance Graph" will not be deemed to be filed
or to be proxy soliciting material or incorporated by reference in any prior or
future filings by the Company under the Securities Act of 1933, as amended, or
the Exchange Act.

REPORT OF THE COMPENSATION COMMITTEE

The compensation of the Company's executive officers is generally
determined by the Compensation Committee of the Board of Directors. In addition,
the Compensation Committee, comprised of three disinterested directors who are
not officers or employees of the Company, grants stock options to executive
officers. The following report with respect to certain compensation paid or
awarded to the Company's executive officers during 1996 is furnished by the
directors who then comprised the Compensation Committee.

GENERAL POLICIES

The Company's executive compensation program is intended to enable the
Company to motivate, reward and retain the senior management and to align senior
management interests with the interests of stockholders by encouraging stock
ownership and to base a significant portion of the executive officers'
compensation on the financial performance of the Company. It is the Company's
policy to provide incentives to its senior management to achieve both short-term
and long-term objectives. To attain these objectives, the Company's executive
compensation program is composed of a base salary, bonus and stock option
grants. Accordingly, a substantial portion of the executive compensation package
is at risk since bonuses and stock option grants are closely tied to the
Company's financial performance and growth.

Section 162(m) of the Code limits the deduction for federal income tax
purposes of certain compensation paid by any publicly held corporation to its
chief executive officer and its four other highest compensated officers to $1
million per each such executive (the "$1 million cap"). The $1 million cap does
not apply to "performance-based" compensation plans as defined under Section
162(m) of the Code. The Company believes that its plans qualify as
"performance-based" plans that are not subject to the $1 million cap. The other
compensation currently paid to the Company's executive officers is not expected
to exceed the $1 million cap. See "Base Salary" and "Bonuses".

BASE SALARY

Base salaries for executive officers are determined by a subjective
assessment of the executive officer's responsibilities and position within the
Company, and the performance of the executive officer. Base salaries are
reviewed annually and from time to time by the Compensation Committee and
adjusted appropriately.

BONUSES

Bonuses for executive officers are awarded taking into account the
Company's actual financial performance during the fiscal year in excess of the
board approved budget. Bonuses include a base of 15% for achieving budget with
an additional 2% increase in bonus for each percentage that actual performance
exceeds budget.

STOCK OPTIONS

Options may be granted to executive officers, as well as other key
employees of the Company, upon joining the Company and each year thereafter
under the Option Plan. Options are granted to executive officers taking into
account factors including salary, position, responsibilities, and overall
Company performance. The number of options previously granted to

<PAGE> 18

executive officers was a factor considered by the Compensation Committee in
determining the number of options granted in fiscal 1996.

CHIEF EXECUTIVE OFFICER COMPENSATION

E. Timothy Geary has been the Chairman, President and Chief Executive
Officer of the Company since its founding in 1987. The Compensation Committee
believes that Mr. Geary's entrepreneurial drive, dedication, commitment and
knowledge have been of vital importance to the successful and ongoing growth of
the administration and operations of the Company. Mr. Geary's compensation
consists of base salary, bonus and stock options.

In determining Mr. Geary's base salary, the Compensation Committee
evaluated Mr. Geary's personal performance, the performance of the Company, and
Mr. Geary's long-term commitment to the success of the Company. With respect to
Mr. Geary's bonus and annual stock option grant, the Compensation Committee
considered the same factors that were used to determine bonuses and stock option
grants to all executive officers.

COMPENSATION COMMITTEE
John K. Carlyle
John T. Henley, Jr., M.D.

PERFORMANCE GRAPH

The following graph compares the percentage change in the cumulative total
returns on the Company's Common Stock, the Nasdaq Health Services Stocks Index
and the Nasdaq U.S. Companies Index (assuming dividend reinvestment, except in
the case of the Company, which has never paid cash dividends on the Common
Stock) for the period beginning on November 10, 1995 and ending on December 31,
1996, the last date on which the shares of Common Stock traded on the Nasdaq
National Market.

COMPARISON OF CUMULATIVE RETURN
VS. NASDAQ HEALTH SERVICES STOCKS INDEX AND NASDAQ U.S. COMPANIES INDEX(1)

[GRAPHIC OMITTED]

<TABLE>
<CAPTION>
COMPANY/INDEX NAME 11/10/95 12/31/95 12/31/96
------------------ -------- -------- --------
<S> <C> <C> <C>
National Surgery Centers, Inc............. $100.00 $120.96 $299.88
Nasdaq U.S. Companies Index............... 100.00 99.03 121.81
Nasdaq Health Services Stocks............. 100.00 114.81 114.92
</TABLE>

- -----------------

(1) Assumes $100 invested on November 10, 1995 in Common Stock, the Nasdaq
Health Services Stocks Index and the Nasdaq U.S. Companies Index.
Historical results are not necessarily indicative of future performance.

<PAGE> 19

CERTAIN TRANSACTIONS

Management Agreement. Dr. John T. Henley, Jr., a director of the Company,
has received various amounts from the Company in a restructuring and received
fees in 1996 under a management agreement. See "Compensation Committee
Interlocks and Insider Participation."

Subordinated Notes. As part of the consideration for the acquisition of the
Greensboro Surgical Center in 1992, the Company issued to Dr. Donald E. Linder,
the owner of the center and currently a member of the Company's Board of
Directors, a $6 million subordinated note with an interest rate of 7.5% as
partial consideration in the acquisition of the center. The note is payable in
equal annual installments through June 24, 1997. During 1996, Dr. Linder
received principal and interest payments of $1.4 million. On January 2, 1997,
the remaining outstanding principal amount together with accrued interest
totaling $1.2 million was prepaid in full.

In June, October and December 1992, the Company issued $20.0 million 10.5%
Senior Subordinated Notes, in the amounts of $10.0 million, $5.5 million and
$4.5 million, respectively, and maturing ten years from date of issuance to WCAS
Capital Partners II, L.P. of which Messrs. Paul and Carson, directors of the
Company, are general partners. In November 1995, the Company fully extinguished
the Senior Subordinated Notes pursuant to net proceeds received by the Company
in its initial public offering.

Effective October 15, 1996, Dr. John T. Henley, Jr., a director of the
Company, and two affiliated companies, converted convertible subordinated notes
of the Company into shares of common stock at a conversion price of $10.50 per
share. Dr. Henley received 27,479 shares of common stock as a result of these
conversions.

As part of a transaction in February 1996, in which the Company purchased a
24% ownership interest in Endoscopy Center Affiliates, Inc. ("ECA"), the Company
received a $10.0 million floating rate convertible subordinated debenture due
1997 (the "Debenture"), and four demand notes in the aggregate principal amount
of $5.7 million (the "Notes"). The interest on the Debenture is calculated as
the rate of interest then most recently announced by The First National Bank of
Chicago (the "Bank") as its corporate base rate plus 2.50%. The interest on the
Notes is calculated at the rate of interest then most recently announced by the
Bank as the prime rate plus 2.50%. Dennis D. Solheim, the Company's Vice
President of Development, and Bryan S. Fisher, the Company's Chief Financial
Officer, Vice President and Controller, are the President and Chief Executive
Officer, and Vice President and Secretary, respectively, of ECA. On March 31,
1996, the Company elected to convert the entire principal amount of the
Debenture into 4,500,000 shares of ECA common stock (the "Conversion"). Since
February 1996, the largest amount of indebtedness outstanding was $18,570,061.
As of March 31, 1996, after the Conversion, the outstanding principal amount,
together with accrued interest was $8,570,061.

Exercise of Warrants. On June 25, 1996, Welsh, Carson, Anderson, Stowe V,
L.P. and WCAS Capital Partners II, L.P. exercised warrants to purchase
non-voting common stock in the amount of 325,546 shares. Messrs. Carson and
Paul, both of whom are directors of the Company, are general partners of these
entities, which entities were stockholders of the Company prior to distribution
of the common stock to their partners following the exercise.

Lease. The Company leases one of its centers from Surgical Center
Investors, Ltd., a partnership controlled by Dr. Linder. The lease provides for
annual base rental payments of $292,000 through January 31, 1999 and $348,000
from February 1, 1999 through January 31, 2004. In addition to the minimum
annual rental payments, the lease provides for a percentage rental based on
gross receipts subject to certain minimum exclusions. In 1996, the Company paid
an aggregate of $979,000 in rental payments to Surgical Center Investors, Ltd.

<PAGE> 20

Unsecured Note to Executive Officers. In March 1992, the Company received
an unsecured promissory note from Mr. Dennis D. Solheim, the Vice President of
Development of the Company, bearing interest at the prime rate, for an original
principal amount of $49,500, maturing three years from date of issuance.
Pursuant to the provisions of the note, any unpaid interest is added to the
principal amount. In March 1995, the Company extended the promissory note for an
additional two-year period. Additionally, in May 1995 the Company received an
additional unsecured promissory note from Mr. Solheim bearing interest at the
prime rate, for an original amount of $31,875, maturing two years from the date
of issuance. In May 1996, Mr. Solheim repaid all indebtedness and accrued
interest to the Company owed under such promissory notes.

Sale of Common Stock and Non-Voting Common Stock. On August 18, 1994, the
Company entered into a Stock Purchase Agreement with J.P. Morgan Capital
Corporation ("JPMCC") pursuant to which it sold to JPMCC 200,000 shares of
Common Stock and 976,470 shares of Non-Voting Common Stock at a price of $8.50
per share. The Company also agreed in a Registration Rights Agreement to provide
JPMCC and certain other stockholders with certain rights with respect to
registration of the shares purchased under the Securities Act. JPMCC, a
stockholder of the Company, is an indirect wholly owned subsidiary of J.P.
Morgan & Co. Incorporated, which indirectly owns 100% of the capital stock of
J.P. Morgan Securities Inc., which has acted as an underwriter for the Company.
J.P. Morgan Securities Inc. has received customary compensation for its services
as an underwriter. J.P. Morgan Securities Inc. was a co-managing underwriter of
the Company's initial public offering of 3,450,000 shares of Common Stock in
November 1995 and in a follow-on public offering in October 1996. In these
public offerings, J.P. Morgan Securities Inc. received underwriting and related
fees to J.P. Morgan Securities Inc. in the amount of $1,240,289.

APPOINTMENT OF AUDITORS

The Board of Directors has selected the accounting firm of Ernst & Young
LLP to serve as the independent auditors of the Company for its current fiscal
year ending December 31, 1997. Ernst & Young LLP has served as the Company's
independent auditors since 1991. Representatives of Ernst & Young LLP are
expected to be present at the Annual Meeting and they will have an opportunity
to make a statement if they so desire and will be available to respond to
appropriate questions from stockholders.

SOLICITATION OF PROXIES

Proxies will be solicited by the Board of Directors through the use of the
mail. Proxies may also be solicited by directors, officers, and a small number
of other employees of the Company personally or by mail, telephone, facsimile,
or otherwise, but such persons will not be compensated for such services.
Brokerage firms, banks, fiduciaries, voting trustees, or other nominees will be
requested to forward the soliciting material to the beneficial owners of stock
held of record by them, and the Company has appointed Corporate Communications,
Inc., a corporation which assists the Company with investor relations and other
stockholder communication issues, to coordinate the solicitation of proxies by
and through such holders as part of its services to the Company. The entire cost
of the Board of Directors' solicitation will be borne by the Company.

SUBMISSION OF STOCKHOLDER PROPOSALS
FOR THE 1998 ANNUAL MEETING

In accordance with rules promulgated by the Securities and Exchange
Commission, any stockholder who wishes to submit a proposal for inclusion in the
proxy material to be distributed by the Company in connection with the 1998
Annual Meeting must do so no later than December 15, 1997. Any such proposal
should be submitted in writing to the Secretary of the Company at its principal
executive offices. In addition, the Company's Charter requires that in order for
any business to be properly brought before any meeting of stockholders, a
stockholder must provide written notice delivered to the Company's Secretary not
less than 60 days nor more than 120 days prior to the meeting date; provided,
however, that if less than 65 days' notice or prior public disclosure of the
date of the meeting is given to stockholders, the stockholder notice, in order
to be timely, must be received by the Company's Secretary not later than the
close of business on the seventh day following the day on which notice of the
date of the meeting was mailed or public disclosure was made. The stockholder
notice must include the stockholder's name and address as it appears on the
Company's records and the class and number of shares of the

<PAGE> 21

Company's capital stock beneficially owned by such stockholder on the record
date for the meeting. In addition, (i) for proposals other than nominations for
the election of directors, such notice must include a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting, and any material interest of the stockholder in
such business, and (ii) for proposals relating to stockholder nominations for
election of directors, such notice must also include, (a) the name, age,
principal occupation or employment, business address and, if known, residence
address of each nominee; (b) the class and number of shares of stock of the
Company which are beneficially owned by each nominee and by the nominating
stockholder; (c) any other information concerning the nominee that must be
disclosed of nominees in a proxy solicitation pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended; and (d) the executed consent of
each nominee to being named in the proxy statement for such proxy solicitation
as a nominee, and to serve as a director of the Company, if elected.

GENERAL

It is important that proxies be returned promptly. If you are unable to
attend the meeting, you are urged, regardless of the number of shares owned, to
date, sign, and return without delay your proxy card in the enclosed addressed
envelope.

By Order of the Board of Directors
John G. Rex-Waller
Executive Vice President, Treasurer and Secretary

<PAGE> 22

EXHIBIT A

AMENDMENT TO THE NATIONAL SURGERY CENTERS, INC.
CERTIFICATE OF INCORPORATION

Subject to stockholder approval, the National Surgery Centers, Inc.
Certificate of Incorporation (the "Charter") would be amended by changing the
first paragraph of Article FOURTH so that, as amended, the first paragraph of
Article FOURTH of the Charter would read in its entirety as follows:

"FOURTH: The total number of shares of all classes of stock which the
Company shall have authority to issue is sixty million (60,000,000), of which
forty million (40,000,000) shares, $.01 par value, are to be of a class
designated Common Stock (hereinafter called the "Common Stock"), ten million
(10,000,000) shares, $.01 par value, are to be of a class designated Non-Voting
Common Stock (hereinafter called the "Non-Voting Common Stock"), and ten million
(10,000,000) shares, $.01 par value, are to be of a class designated Preferred
Stock (hereinafter called the "Preferred Stock"). The designations and the
powers, preferences and rights and the qualifications, limitations or
restrictions thereof of the shares of each class of capital stock of the Company
are as follows:"

<PAGE> 23

EXHIBIT B

AMENDMENT TO THE NATIONAL SURGERY CENTERS, INC.
AMENDED AND RESTATED 1992 STOCK OPTION PLAN

Subject to stockholder approval, the National Surgery Centers, Inc. Amended
and Restated 1992 Stock Option Plan (the "Option Plan") would be amended by
changing the first sentence of Paragraph 4 thereof so that, as amended, the
first sentence of Paragraph 4 of the Option Plan of the Company would read in
its entirety as follows:

"4. Granting of Options. The Committee may grant options under which a
total of not in excess of 2,000,000 shares of the common stock of the
Company may be purchased from the Company, subject to adjustment as
provided in Paragraph 11."

<PAGE> 24

EXHIBIT C

NATIONAL SURGERY CENTERS, INC.
1997 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN

1. STATEMENT OF PURPOSE. The purpose of this 1997 Non-Employee Directors'
Stock Option Plan (the "Plan") is to benefit National Surgery Centers, Inc. (the
"Company") through offering its directors who are not employees or officers of
the Company or its subsidiaries, if any, a favorable opportunity to become
holders of the common stock of the Company ("Common Stock"), thereby giving them
a long term stake in the growth and prosperity of the Company, in order to
enable them to represent the viewpoint of other stockholders of the Company more
effectively and to encourage them to continue serving as directors of the
Company.

2. ELIGIBILITY. Options shall be granted under this Plan only to members of
the Board of Directors who are not employees or officers of the Company or its
subsidiaries, if any, ("Eligible Directors").

3. GRANT AND VESTING OF OPTIONS. An option shall automatically be granted
to each Eligible Direct on the date on which this Plan is approved, based upon
the year in which his or her term expires, as follows:

<TABLE>
<CAPTION>
Year in Which Term Expires Number and Vesting of Shares
-------------------------- ----------------------------------------------------------------
<S> <C>
1997 5,000 shares, all fully vested
1998 7,500 shares, of which 5,000 are fully vested and 2,500 vest on
the date of the 1997 annual meeting of shareholders
1999 10,000 shares, of which 5,000 are fully vested, 2,500 vest on the
date of the 1997 annual meeting of shareholders, and 2,500 vest
on the date of the 1998 annual meeting of shareholders
</TABLE>

In addition, the entire Board of Directors of the Company may grant
additional options under which a total of not in excess of 25,000 shares of the
common stock of the Company may be purchased from the Company, subject to
adjustment as provided in Paragraph 9. The aggregate number of shares which
shall be available for such options under this Plan shall be 250,000 shares.
Such number of shares, and the number of shares subject to options outstanding
under the Plan, shall be subject in all cases to adjustment as provided in
Paragraph 9. No option shall be granted under the Plan subsequent to February
11, 2007. Options granted under the Plan are intended not to be treated as
incentive stock options as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").

Notwithstanding any of the foregoing to the contrary, in the event an
option expires unexercised as to any shares, such shares may again be optioned.
Shares subject to options may be made available from unissued or reacquired
shares of Common Stock.

Nothing contained in the Plan or in any option granted pursuant thereto
shall in itself confer upon any optionee any right to continue serving as a
director of the Company or interfere in any way with any right of the Board of
Directors or stockholders of the Company pursuant to the certificate of
incorporation or by-laws of the Company or applicable law to remove such
director.

4. OPTION PRICE. Subject to adjustment under Paragraph 9, the option price
shall be the fair market value at the time the option is granted of the shares
of Common Stock subject to the option.

<PAGE> 25

5. DURATION OF OPTIONS, INCREMENTS AND EXTENSIONS. Subject to the
provisions of Paragraph 7, each option shall be for a term of ten years and
shall become exercisable at the end of six months after the option is granted
(or, if later, the date on which such option vests).

6. EXERCISE OF OPTION. An option may be exercised by giving written notice
to the Company, attention of the Secretary, specifying the number of shares to
be purchased, accompanied by the full purchase price for the shares to be
purchased in cash or by check, provided, however, that in lieu of cash an
optionee may, with the approval of the Board of Directors, exercise his or her
option by (i) tendering to the Company shares of Common Stock owned by him or
her and with the certificates therefor registered in his or her name, having a
fair market value equal to the cash exercise price of the shares being
purchased; or (ii) instructing the Company to withhold from the shares of Common
Stock otherwise issuable upon the exercise of the option that number of shares
having a fair market value equal to the cash exercise price of the shares being
purchased; provided, however, that an election pursuant to clause (ii) must be
made by the optionee during the period beginning on the third business day
following the date of release for publication of the Company's quarterly or
annual financial summary of its results of operations and ending on the twelfth
business day following such date. For these purposes, the per share value of the
Company's common stock shall be the fair market value at the close of business
on the date preceding the date of exercise (or, if that date is not a trading
day, on the trading day next preceding the date of exercise of the option).

At the time of any exercise of any option, the Company may, if it shall
determine it necessary or desirable for any reason, require the optionee (or his
heirs, legatees, or legal representative, as the case may be) as a condition
upon the exercise thereof, to deliver to the Company a written representation of
present intention to purchase the shares for investment and not for distribution
or resale. In the event such representation is required to be delivered, an
appropriate legend may be placed upon each certificate delivered to the optionee
upon his exercise of part or all of the option and a stop transfer order may be
placed with the transfer agent. Each option shall also be subject to the
requirements that, if at any time the Company determines, in its discretion,
that the listing, registration or qualification of the shares subject to the
option upon any securities exchange or under any state or Federal law, or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the issue or purchase of
shares thereunder, the option may not be exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.

If the Company shall determine it necessary or desirable for any reason, an
option shall provide that it is contemplated that the shares acquired through
the exercise of the option will not be registered under applicable federal and
state securities laws and that such shares cannot be resold unless they are
registered under such laws or unless an exemption from registration is
available, and the certificate for any such shares issued upon the exercise of
the option shall bear a legend making appropriate reference to such provisions
and a stop transfer order may be placed with the transfer agent.

7. TERMINATION -- EXERCISE THEREAFTER. In the event an optionee ceases to
be a director of the Company for any reason other than death, permanent
disability or resignation, such optionee's option shall expire and all rights to
purchase shares pursuant thereto shall terminate, except that any then
exercisable option shall be exercisable for a period of 15 days after the date
of such termination (or until the scheduled termination of the option, if
earlier).

In the event of death or permanent disability (as that term is defined in
Section 22(e)(3) of the Code, as now in effect or as it shall be subsequently
amended), an exercisable option may be exercised in full by the optionee or, if
he is not living, by his or her heirs, legatees, or legal representative, as the
case may be, during its specified term prior to one year after the date of death
or permanent disability. In the event of resignation, an exercisable option may
be exercised, to the extent vested at the time of resignation, by the optionee
(or, if he or she dies within three months after such termination, by his or her
heirs, legatees, or legal representative, as the case may be), at any time
during its specified term prior to three months after the date of such
resignation.

<PAGE> 26

8. NON-TRANSFERABILITY OF OPTIONS. An Eligible Director may transfer
options granted under this Plan to his spouse, his descendants or their spouses
(including descendants by adoption), or a trust for any of the foregoing. Any
such transfer shall be made by written assignment, shall not be effective until
written notice thereof is actually received by the Company, and shall be subject
to such conditions as the Board of Directors may require. If any option is so
transferred, the transferee shall have the right to exercise the option and to
purchase the Common Stock, but all other provisions of this Plan shall be
applied as if the optionee still owned the option. Except as otherwise
specifically provided in this Section 8, an option granted under the Plan shall
be exercisable during the life of the optionee only by the optionee, and shall
not be transferable by the optionee (or any transferee) other than by will or
the laws of descend and distribution.

9. ADJUSTMENT. The number of shares subject to the Plan and to options
granted under the Plan shall be adjusted as follows: (a) in the event that the
Company's outstanding common stock is changed by any stock dividend, stock split
or combination of shares, the number of shares subject to the Plan and to
options granted thereunder shall be proportionately adjusted; (b) in the event
of any merger, consolidation or reorganization of the Company with any other
corporation or corporations, there shall be substituted, on an equitable basis
as determined by the Board of Directors, for each share of common stock then
subject to the Plan, whether or not at the time subject to outstanding options,
the number and kind of shares of stock or other securities to which the holders
of common stock of the Company will be entitled pursuant to the transaction; (c)
in the event of any other relevant change in the capitalization of the Company,
the Board of Directors shall provide for an equitable adjustment in the number
of shares of common stock then subject to the Plan, whether or not then subject
to outstanding options; and (d) in the event of any such adjustment the purchase
price per share shall be proportionately adjusted..

10. CHANGE IN CONTROL. Any option previously granted under the Plan to an
optionee who is an Eligible Director on the date of a "Change in Control" shall
be immediately exercisable in full on such date, without regard to any times of
exercise established under Paragraph 6 hereof. The term "Change in Control"
shall mean the occurrence, at any time during the specified term of an option
granted under the Plan, of any of the following events:

(a) The Company is merged or consolidated or reorganized into or with
or shares of stock of the Company are exchanged for stock or
securities of, another corporation or other legal person and as a
result of such, merger, consolidation, reorganization or exchange
less than 51% of the outstanding voting securities or other
capital interests of the surviving, resulting or acquiring
corporation or other legal person are owned in the aggregate by
the stockholders of the Company immediately prior to such merger,
consolidation, reorganization or exchange;

(b) The Company sells all or substantially all of its business and/or
assets to any other corporation or other legal person, less than
51% of the outstanding voting securities or other capital
interests of which are owned in the aggregate by the stockholders
of the Company, directly or indirectly, immediately prior to or
after such sale;

(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), as promulgated pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), disclosing that any person or group (as the terms "person"
and "group" are used in Section 13(d)(3) or Section 14(d)(2) of
the Exchange Act and the rules and regulations promulgated
thereunder) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor
rule or regulation promulgated under the Exchange Act) of 20% or
more of the issued and outstanding shares of voting securities of
the Company; or

(d) During any period of two consecutive years, individuals who at
the beginning of any such period constitute the directors of the
Company cease for any reason to constitute at least a majority
thereof unless the election, or nomination for election by the
Company's stockholders of each new director of the Company was
approved by a vote of at least two-thirds of such directors of
the Company then still in office who were directors of the
Company at the beginning of any such period.

<PAGE> 27

Notwithstanding any other provisions in the Plan, during the period of 30
days after any Change in Control, each optionee (or other person entitled to
exercise an option granted under the Plan) (in either case, the "Optionholder")
shall have the right to require the Company to purchase from him any option
granted under the Plan at a purchase price equal to (1) the excess of the fair
market value per share (as defined in Section 5) over the option price (2)
multiplied by the number of option shares specified by the Optionholder for
purchase in a written notice to the Company, attention of the Secretary. The
amount payable to each Optionholder by the Company shall be in cash or by
certified check and shall be reduced by any taxes required to be withheld.

11. AMENDMENT OF PLAN. The Board of Directors may amend or discontinue the
Plan at any time; provided, however, that no amendment or discontinuance shall
change or impair any options previously granted without the consent of the
optionee.

12. EFFECTIVE DATE. The Board of Directors adopted and approved the Plan on
February 11, 1997.

13. MISCELLANEOUS.

(a) No shares of Common Stock shall be issued hereunder with respect to
any option unless counsel for the Company shall be satisfied that such issuance
will be in compliance with applicable federal, state, local and foreign legal,
securities exchange and other applicable requirements.

(b) It is the intent of the Company that the Plan comply in all
respects with Rule 16b-3 under the Exchange Act, that any ambiguities or
inconsistencies in construction of the Plan be interpreted to give effect to
such intention and that if any provision of the Plan is found not to be in
compliance with Rule 16b-3, such provision shall be deemed null and void to the
extent required to permit the Plan to comply with Rule 16b-3.

(c) The Company shall have the right to deduct from any payment made
under the Plan any federal, state, local or foreign income or other taxes
required by law to be withheld with respect to such payment. It shall be a
condition to the obligation of the Company to issue Common Stock, other
securities or property, or other forms of payment, or any combination thereof,
upon exercise, settlement or payment of any option under the Plan, that the
participant (or any beneficiary or person entitled to act) pay to the Company,
upon its demand, such amount as may be required by the Company for the purpose
of satisfying any liability to withhold federal, state, local or foreign income
or other taxes. If the amount requested is not paid, the Company may refuse to
issue Common Stock, other securities or property, or other forms of payment, or
any combination thereof. Notwithstanding anything in the Plan to the contrary,
the Board of Directors may, in its discretion, permit an eligible participant
(or any beneficiary or person entitled to act) to elect to pay a portion or all
of the amount requested by the Company for such taxes with respect to such
option, at such time and in such manner as the Board of Directors shall deem to
be appropriate (including, but not limited to, by authorizing the Company to
withhold, or agreeing to surrender to the Company on or about the date such tax
liability is determinable, Common Stock, other securities or property, or other
forms of payment, or any combination thereof, owned by such person or a portion
of such forms of payment that would otherwise be distributed, or have been
distributed, as the case may be, pursuant to such option to such person, having
a fair market value equal to the amount of such taxes).

(d) The expense of the Plan shall be borne by the Company.

4
<PAGE> 28
Appendix A
REVOCABLE REVOCABLE
PROXY NATIONAL SURGERY CENTERS, INC. PROXY

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS MAY 21, 1997 -- 10:00 A.M.

The undersigned hereby appoints E. Timothy Geary and Bryan S. Fisher, or
either one of them, each with full power of substitution, to act as proxies for
the undersigned, and to vote all shares of Common Stock of National Surgery
Centers, Inc. (the "Company") which the undersigned would be entitled to vote
if personally present at the Annual Meeting of Stockholders of the Company to
be held on May 21, 1997, at 10:00 a.m., Central Daylight Time, in the Union
League Club, 65 West Jackson Blvd., Chicago, Illinois, and at any and all
postponements and adjournments thereof, as follows:

This proxy is revocable and will be voted as directed, but if no
instructions are specified, this proxy will be voted (i) FOR each of the
Nominees listed, (ii) FOR the proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock
from 20 million to 40 million, (iii) FOR the proposal to amend the Company's
Amended and Restated 1992 Stock Option Plan to increase the number of
underlying shares issuable pursuant to the Plan from 1.5 million to 2.0
million, and (iv) FOR the proposal to approve the Company's 1997 Non-Employee
Directors Stock Option Plan. If any other business is presented at the Annual
Meeting, this proxy will be voted by those named in this proxy in their best
judgment. At the present time, the Board of Directors knows of no other
business to be presented at the Annual Meeting.

[ ] Check here if you plan to attend the Annual Meeting.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSALS LISTED.
1. Election of Directors--
Nominees: John K. Carlyle and Rocco A. Ortenzio

_______________________________________________
(Except nominee(s) written above)

FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
[ ] [ ] [ ]

2. Proposal to amend the Company's Certificate of Incorporation to increase the
number of authorized shares of Common Stock, $.01 par value per share, from
20 million to 40 million.

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

3. Proposal to amend the Company's Amended and Restated 1992 Stock Option Plan
(the "Plan") to increase the number of underlying shares issuable pursuant
to the Plan from 1.5 million to 2.0 million.

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

4. Proposal to approve the Company's 1997 Non-Employee Directors Stock Option
Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]

5. In their discretion, on such other business as may properly come before the
meeting.

THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATIONS MADE. IF NO
CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR ITEMS 1, 2, 3 AND 4. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES LISTED, FOR THE
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES, FOR THE PROPOSAL TO AMEND THE COMPANY'S AMENDED
AND RESTATED 1992 STOCK OPTION PLAN, AND FOR THE PROPOSAL TO APPROVE THE
COMPANY'S 1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN.

The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Annual Meeting of Stockholders, a Proxy
Statement dated April 14, 1997, and the Annual Report to Stockholders.

Dated: ___________________________, 1997

Signature(s) _____________________________________

__________________________________________________
Please sign exactly as name appears on this card.
When signing as attorney, executor, administrator,
trustee, guardian, corporate officer, or general
partner, please give your full title. If shares are
held jointly, each holder may sign but only one
signature is required.

YOUR VOTE IS IMPORTANT!

PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.