NATIONAL QUALITY CARE INC, DEF 14A, 1998-06-04

NATIONAL QUALITY CARE INC
DEF 14A, 1998-06-04
GROCERIES & RELATED PRODUCTS

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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:

[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

NATIONAL QUALITY CARE, INC.
--------------------------------------------------
(Name of Registrant as Specified In Its Charter)

VICTOR GURA, M.D., CHIEF EXECUTIVE OFFICER
--------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

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

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

2) Aggregate number of securities to which transaction applies:

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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>

NATIONAL QUALITY CARE, INC.
A DELAWARE CORPORATION

EXECUTIVE OFFICES
1835 SOUTH LA CIENEGA BOULEVARD
SUITE 235
LOS ANGELES, CALIFORNIA 90035
(310) 280-2758

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 7, 1998
________________________

TO THE STOCKHOLDERS OF NATIONAL QUALITY CARE, INC.:

The Annual Meeting of Stockholders (the "Meeting") of National Quality
Care, Inc., a Delaware corporation (the "Company"), will be held at The Nikko
Hotel, 465 South La Cienega Boulevard, Westwood Room, Los Angeles, California
90048, on July 7, 1998, at 10:00 a.m., local time, to consider and vote on
the following proposals:

PURPOSE OF MEETING

(1) To elect to the Board of Directors four (4) directors, to serve until
the next Annual Meeting of Stockholders of the Company or until their
successors are elected and qualify, subject to their prior death,
resignation or removal.

(2) To adopt the Company's 1998 Stock Option Plan (the "1998 Stock Option
Plan") and to reserve up to 1,000,000 shares of the Company's Common
Stock for issuance under the 1998 Stock Option Plan.

(3) To approve the form of indemnification agreements between the Company
and the members of the Company's Board of Directors.

(4) To ratify the appointment of KMPG Peat Marwick LLP, as independent
public accountants for the Company for the year ending December 31,
1998.

(5) To transact such other business as may properly come before the
Meeting and any adjournments thereof.

<PAGE>

ONLY STOCKHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON JUNE 3, 1998 (THE
"RECORD DATE") ARE ENTITLED TO NOTICE OF AND TO VOTE AT THE MEETING.

PLEASE FILL IN, SIGN, DATE, AND RETURN THE ENCLOSED PROXY TO AMERICAN
SECURITIES TRANSFER, INC., 938 QUAIL STREET, SUITE 101, LAKEWOOD, COLORADO
80215-5513, ATTN: PROXY DEPARTMENT, WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING. A RETURN ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.

BY ORDER OF THE BOARD OF DIRECTORS

NATIONAL QUALITY CARE, INC.

BY: /S/ VICTOR GURA, M.D.
-------------------------------------
VICTOR GURA, M.D.
CHIEF EXECUTIVE OFFICER

LOS ANGELES, CALIFORNIA
DATED: JUNE 3, 1998

<PAGE>

NATIONAL QUALITY CARE, INC.
A DELAWARE CORPORATION

EXECUTIVE OFFICES
1835 SOUTH LA CIENEGA BOULEVARD
SUITE 235
LOS ANGELES, CALIFORNIA 90035
(310) 280-2758
_______________________

PROXY STATEMENT
_________________________

This proxy statement is furnished to the stockholders of National Quality
Care, Inc., a Delaware corporation (the "Company"), in connection with the
Annual Meeting of Stockholders (the "Meeting") to be held at The Nikko
Hotel, 465 South La Cienega Boulevard, Westwood Room, Los Angeles, California
90048, on July 7, 1998 at 10:00 a.m., local time.

The Meeting will be held to consider and vote on the following proposals:

PURPOSE OF MEETING

(2) To adopt the Company's 1998 Stock Option Plan (the "1998 Stock Option
Plan") and to reserve up to 1,000,000 shares of the Company's Common
Stock for issuance under the 1998 Stock Option Plan.

(3) To approve the form of indemnification agreements between the Company
and the members of the Company's Board of Directors.

(4) To ratify the appointment of KMPG Peat Marwick LLP, as independent
public accountants for the Company for the year ending December 31,
1998.

(5) To transact such other business as may properly come before the
Meeting and any adjournments thereof.

The list of all stockholders of record on June 3, 1998, will be
available at the Meeting and at the offices of the Company at 1835 South La
Cienega Boulevard, Suite 235, Los Angeles, California 90035, (310) 280-2758 for
the ten (10) days preceding the Meeting.

Upon written request, the Company will provide, without charge: (i) a copy
of the exhibits to this Proxy Statement, and (ii) a copy of its Annual Report on
Form 10-KSB, for the year ended December 31, 1997, to any stockholder of record
or any stockholder who owned Common Stock listed in the name of a bank or
broker, as nominee, at the close of business on June 3, 1998.

Requests should be addressed to the Company, to the attention of National
Quality Care, Inc., Ron Berkowitz, Chief Financial Officer, 1835 South La
Cienega Boulevard, Suite 235, Los Angeles, California 90035, (310) 280-2758.

<PAGE>

INCORPORATION BY REFERENCE

National Quality Care, Inc., a Delaware corporation (the "Company") is
currently subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and, in accordance therewith,
files reports, proxy and information statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information may be inspected and
copied at the public reference facilities of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549; at its New
York Regional Office, 7 World Trade Center, Suite 1300, New York, New York
10048; and at its Chicago Regional Office, 500 West Madison Street, Suite
1400, Chicago Illinois 60661-2511, and copies of such materials can be
obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington D.C. 20549 at prescribed rates. In addition, such
materials may be accessed electronically at the Commission's site on the
World Wide Web, located at http:/www.sec.gov. The Company intends to furnish
its stockholders with annual reports containing audited financial statements
and such other periodic reports as the Company may determine to be
appropriate or as may be required by law.

Portions of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997, are incorporated by reference in this Proxy
Statement.

As part of this Proxy Statement, the Company also incorporates by
reference a copy of the following documents filed herewith as exhibits to
this Proxy Statement:

1. Appendix A - 1998 Stock Option Plan
2. Appendix B - Indemnification Agreement

INFORMATION CONCERNING SOLICITATION AND VOTING

The following information is provided to stockholders to explain the use
of this Proxy Statement for this Meeting:

RECORD DATE

Only stockholders of record at the close of business on June 3, 1998 are
entitled to vote at the Meeting. The Company's Common Stock is its only
class of voting securities. On June 3, 1998, the record date (the "Record
Date") fixed by the Board of Directors, the Company had issued and
outstanding 9,801,023 shares of Common Stock of record.

2
<PAGE>

REVOCABILITY OF PROXIES

A PROXY FOR USE AT THE MEETING IS ENCLOSED. ANY STOCKHOLDER WHO EXECUTES
AND DELIVERS A PROXY HAS THE RIGHT TO REVOKE IT AT ANY TIME BEFORE ITS EXERCISE
BY FILING WITH THE SECRETARY OF THE COMPANY AN INSTRUMENT REVOKING IT OR A DULY
EXECUTED PROXY BEARING A LATER DATE. IN ADDITION, A STOCKHOLDER MAY REVOKE A
PROXY PREVIOUSLY EXECUTED BY HIM BY ATTENDING THE MEETING AND ELECTING TO VOTE
IN PERSON.

VOTING AND SOLICITATION

Proxies are being solicited by the Board of Directors of the Company.
The cost of this solicitation will be borne by the Company. Solicitation will
be primarily by mail, but may also be made by telephone, fax transmission or
personal contact by certain officers and directors of the Company, who will
not receive any compensation therefor. Shares of Common Stock represented by
properly executed proxies will, unless such proxies have been previously
revoked, be voted in accordance with the instructions indicated thereon. IN
THE ABSENCE OF SPECIFIC INSTRUCTIONS TO THE CONTRARY, PROPERLY EXECUTED
PROXIES WILL BE VOTED FOR EACH OF THE PROPOSALS DESCRIBED ABOVE. No business
other than that set forth in the accompanying Notice of Annual Meeting of
Stockholders is expected to come before the Meeting. Should any other matter
requiring a vote of stockholders properly arise, the persons named in the
enclosed form of proxy will vote such proxy in accordance with the
recommendation of the Board of Directors.

Each share of Common Stock is entitled to one vote for each share held
as of record, and there are no preemptive rights. The Company's current
Certificate of Incorporation (the "Certificate of Incorporation") and Bylaws
do not provide for cumulative voting for the election of directors or any
other purpose.

QUORUM; ABSTENTIONS; BROKER NON-VOTES

Shares representing 50% of the voting power of the 9,801,023 shares of
Common Stock outstanding on the Record Date, which have voting rights, must
be represented at the Meeting to constitute a quorum for conducting business.
In the absence of a quorum, the stockholders present in person or by proxy,
by majority vote and without further notice, may adjourn the meeting from
time to time until a quorum is attained. At any reconvened meeting following
such adjournment at which a quorum shall be present, any business may be
transacted which might have been transacted at the Meeting as originally
notified.

The required quorum for the transaction of business at the Meeting is a
majority of the votes eligible to be cast by holders of shares of Common Stock
issued and outstanding on the Record Date. Shares that are voted "FOR" or
"AGAINST" a matter are treated as being present at the Meeting for purposes of
establishing a quorum and are also treated as shares entitled to vote at the
Meeting (the "Votes Cast") with respect to such matter.

The Company will count abstentions for purposes of determining both: (i)
the presence or absence of a quorum for the transaction of business, and (ii)
the total number of Votes Cast with respect to a proposal (other than the
election of directors). Accordingly, abstentions will have the same effect
as a vote against the proposal.

Further, the Company intends to count broker non-votes for the purpose
of determining the presence or absence of a quorum for the transaction of
business, although broker non-votes will not be counted for purposes of
determining the number of Votes Cast with respect to the particular proposal
on which the broker has expressly not voted. Thus, a broker non-vote will
not affect the outcome of the voting on a proposal.

3
<PAGE>

DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS

Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's next Annual Meeting of Stockholders for
the fiscal year ending December 31, 1998 must be received by the Company no
later than September 30, 1998, in order to be considered for inclusion in the
proxy statement and form of proxy relating to that meeting.

DIRECTORS AND EXECUTIVE OFFICERS

The directors of the Company currently have terms which will end at the
next annual meeting of the stockholders of the Company or until their successors
are elected and qualify, subject to their prior death, resignation or removal.
Officers serve at the discretion of the Board of Directors. There are no family
relationships among any of the Company's directors and executive officers.

The following sets forth certain biographical information concerning the
persons who have been nominated by the Board of Directors to be directors of the
Company in connection with Proposal 1 of this Proxy Statement and the current
executive officers of the Company:
<TABLE>
<CAPTION>

NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Victor Gura, M.D. Director, President and 55
Chief Executive Officer

Ronald P. Lang, M.D. Director and Secretary 48

Ron Berkowitz Chief Operating Officer
and Chief Financial Officer 45

Jose Spiwak, M.D. Director 53

Melinda McIntyre-Kolpin Director 41
</TABLE>

VICTOR GURA, M.D. has been a director and the President and Chief Executive
Officer of the Company since May 11, 1996. Dr. Gura is a medical doctor who is
board certified in internal medicine/nephrology. He has been a director of
Medipace Medical Group, Inc., a medical group in Los Angeles, California, since
1980. He has been an attending physician at Cedars-Sinai Medical Center since
1984 and the medical director of Midway Dialysis Center since 1985. Dr. Gura
also serves as a Clinical Assistant Professor at UCLA School of Medicine. Dr.
Gura graduated from the School of Medicine, Buenos Aires University in 1966,
completed his residency in internal medicine and nephrology in Israel, and was a
fellow at the nephrology departments at Tel Aviv University Medical School and
USC Medical Center.

RONALD P. LANG, M.D. has been a director and the Secretary of the Company
since May 11, 1996. Dr. Lang is a medical doctor who is board certified in
internal medicine/nephrology. He has been a physician with Medipace Medical
Group, Inc. since 1983. Dr. Lang graduated from the Ohio State University
College of Medicine in 1973, completed his residency at St. Luke's Medical
Center in Chicago, Illinois, and was a fellow in the nephrology department at
UCLA-Center for the Health Sciences/Wadsworth Veterans Hospital. Dr. Lang also
serves as a Clinical Assistant Professor of Medicine at UCLA School of Medicine.
Dr. Lang also received M.A. and M.Ph. degrees in economics from Yale University
and was an Economist - Program Analyst for the U.S. Department of Health,
Education and Welfare (office of the Assistant Secretary for Planning and
Education) from 1973 to 1974.

4
<PAGE>

RON BERKOWITZ was appointed as the Company's Chief Financial Officer on
July 8, 1996 and as the Chief Operating Officer on March 18, 1997. He
previously served as Vice President in the lending division of Bank Leumi
Le-Israel and Bank Leumi Trust Company from 1990 until July, 1996 and was the
head of the Asset Liability Management Section from 1988 to 1990, where he
developed investment strategies for Bank Leumi. Mr. Berkowitz served on Bank
Leumi's Credit Committee and Asset Liability Committee. From 1985 to 1987, he
worked for another financial institution as a senior analyst where he was
responsible for asset liability management analysis. Mr. Berkowitz is a
Chartered Financial Analyst. Mr. Berkowitz received his undergraduate degree in
economics from Hebrew University (Israel) in 1976 and a Master's of Business
Administration (finance/management) from Indiana University in 1978.

JOSE SPIWAK, M.D. has been a director of the Company since March 11, 1998.
Dr. Spiwak is a board certified thoracic and cardiovascular surgeon, and serves
as Chairman of the Cardiovascular Thoracic Section of St. Francis Medical Center
and Presbyterian Intercommunity Hospital in Los Angeles, California. He served
as Vice-Chairman of American Health, Inc., a managing company of primary care
physicians and comprehensive healthcare delivery networks, which was sold to FPA
Medical Management, Inc. in April, 1997. Dr. Spiwak graduated from the
Universidad Javeriana Medical School (Bogota, Columbia) in 1968 and performed
his residency in Israel and the United States. Dr. Spiwak is a member of the
Board of Directors of the American Career Society.

MELINDA MCINTYRE-KOLPIN has been a director of the Company since March 18,
1998. She is currently the chief executive officer of Network Health Financial
Services, Inc., a financial services company providing a variety of services to
healthcare clients. She is also interim chief executive officer and president
of First Professional Bank, N.A., a subsidiary of Professional Bancorp, based in
Santa Monica, California, a full-service bank providing banking, financial
consulting and general business strategies for the medical community. Prior to
joining First Professional Bank, Ms. McIntyre-Kolpin was a commercial banking
officer with Bank of California. She is a board member of numerous
organizations in Southern California, including the Executive Council-Adaptive
Business Leaders; director, Synergistic Systems, Medical Billing; advisory
board, University of Southern California School of Accounting; director, Pacific
Eyenet; National Health Foundation, board of trustees; City of Hope, board of
trustees. Ms. McIntyre-Kolpin received her Bachelor of Science degree in
business administration from the University of Southern California in 1978.

As of January 15, 1997, Avraham Uncyk, M.D. resigned as a director of the
Company, and Judith Gordon, who is the wife of Dr. Uncyk, was appointed as a
director of the Company. Ms. Gordon resigned as a director of the Company on
March 18, 1998.

<PAGE>

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE. The following table sets forth certain
information concerning compensation of certain of the Company's executive
officers (the "Named Executives"), including the Company's Chief Executive
Officer and all executive officers whose total annual salary and bonus exceeded
$100,000, for the fiscal years ended December 31, 1997 and 1996:

LONG TERM COMPENSATION
------------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ---------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
NAME AND OTHER ANNUAL OTHER RESTRICTED LTIP ALL OTHER
PRINCIPAL SALARY BONUS COMPEN- AWARDS OPTIONS/ PAYOUTS COMPEN-
POSITION YEAR ($) ($) SATION ($) SARS(#) ($) SATION ($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Victor Gura, M.D.(1) 1997 $142,500 0 0 0 80,000 0 0
1996 $80,000 0 0 0 0 0 0

A. Vern Tharp(2) 1996 $14,233 0 0 0 125,000 0 0

Ron Berkowitz (3) 1997 $114,230 $13,000 $8,777 0 50,000 0 0
1996 $40,846 $15,600 0 $6,189 50,000 0 0
</TABLE>
_______________________________

1. Dr. Gura was appointed as the Company's Chief Executive Officer on May 11,
1996. Dr. Gura's annualized base compensation during the fiscal years
ended December 31, 1996 and 1997 were $120,000 and $150,000, respectively.
The amounts set forth in this chart reflect compensation paid to Dr. Gura
for the fiscal year ended December 31, 1996, commencing on his appointment
as Chief Executive Officer. See "Execution Compensation - Employment
Agreements."

2. Mr. Tharp was appointed as the Company's Chief Executive Officer on August
28, 1995 and resigned in such capacity on May 11, 1996. Mr. Tharp's
annualized base compensation during the fiscal year ended December 31, 1996
was $40,000.

3. Mr. Berkowitz was appointed as the Company's Chief Financial Officer on
July 8, 1996. Mr. Berkowitz' annualized base compensation during the
fiscal years ended December 31, 1996 and 1997 were $90,000 and $120,000,
respectively. The amounts set forth in this chart reflect compensation
paid to Mr. Berkowitz for the fiscal years ended December 31, 1996,
commencing on his appointment as Chief Financial Officer. See "Executive
Compensation - Employment Agreements."

6
<PAGE>

OPTION/SAR GRANTS TABLE DURING LAST FISCAL YEAR. The following table sets
forth certain information concerning grants of stock options to certain of the
Named Executives, for the fiscal year ended December 31, 1997:

POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
- ----------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
NUMBER OF % OF
SECURITIES TOTAL
UNDERLYING OPTIONS/
OPTIONS/SARS EXERCISE
SARS GRANTED TO OR BASE
GRANTED EMPLOYEES PRICE EXPIRATION
NAME (#) IN FISCAL YEAR ($/SHARE) DATE (1) 5% ($) 10%($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Victor
Gura, M.D. (2) 80,000 43.24% $0.81 1/14/07 $59,306 $123,836

Ron Berkowitz (3) 50,000 27.03% $0.81 1/14/07 $37,066 $77,397
</TABLE>

__________________

(1) This chart assumes a market price of $1.00 for the Common Stock, the
average of the bid and asked prices for the Company's Common Stock in the
over-the-counter market as of April 9, 1998, as the assumed market price for the
Common Stock with respect to determining the "potential realizable value" of the
shares of Common Stock underlying the options described in the chart, as reduced
by any lesser exercise price for such options. Each of the options reflected in
the chart was granted at exercise prices which the Company believes to have been
determined at the fair market value as of the date of grant. Further, the chart
assumes the annual compounding of such assumed market price over the relevant
periods, without giving effect to commissions or other costs or expenses
relating to potential sales of such securities. The Company's Common Stock has
a very limited trading history. These values are not intended to forecast the
possible future appreciation, if any, of the price or value of the Common Stock.
The Board of Directors will not determine an expiration date for these options
until such time as such options have vested. However, these options will have a
term no longer than ten (10) years following January 15, 1999, the grant date of
such options. The referenced amounts reflect an assumed expiration date of
January 14, 2007.

(2) Dr. Gura was granted an option to purchase up to 80,000 shares of
Common Stock at an exercise price of $0.81 per share. These options will only
vest in the event that the Company's stockholders approve the 1996 Stock Option
Plan pursuant to which these options have been granted. See "Executive
Compensation - Stock Option Plans."

(3) Mr. Berkowitz was granted an option to purchase up to 50,000 shares of
Common Stock at an exercise price of $0.81 per share. These options will only
vest in the event that the Company's stockholders approve the 1996 Stock Option
Plan pursuant to which these options have been granted. See "Executive
Compensation - Stock Option Plans."

<PAGE>

OPTION EXERCISES AND YEAR-END VALUES. The following table sets forth
information with respect to the exercised and unexercised options to purchase
shares of Common Stock for certain of the Named Executives held by them at
December 31, 1997:

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN THE MONEY
ACQUIRED VALUE OPTIONS AT OPTIONS AT
ON EXERCISE REALIZED(1) DECEMBER 31, 1997 DECEMBER 31, 1997(2)
----------- ---------- --------------------- -----------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Victor
Gura, M.D. 0 0 0 80,000 0 $23,200

Ron Berkowitz 12,500 $875 12,500 50,000 $8,250 $14,500
</TABLE>
_________________

(1) Represents an amount equal to the number of options multiplied by the
difference between the average of the closing bid and asked prices for the
Common Stock in the over-the-counter market on the date of exercise, July
2, 1997 ($ 0.56 per share) and any lesser exercise price.

(2) Represents an amount equal to the number of options multiplied by the
difference between the average of the closing bid and asked prices for the
Common Stock in the over-the counter market on December 31, 1997 ($1.10 per
share) and any lesser exercise price.

EMPLOYMENT AGREEMENTS. The Company has entered into employment agreements
with two (2) of its executive officers, Victor Gura, M.D. and Ron Berkowitz.

The Company entered into a three (3) year employment agreement, dated as of
April 12, 1996, with Victor Gura, M.D., pursuant to which Dr. Gura agreed to
serve as the Company's Chief Executive Officer, President and Medical Director.
The employment agreement currently provides for an annual base salary of
$150,000, plus other benefits. The Company also granted options to Dr. Gura to
purchase up to 80,000 shares of Common Stock, which may vest subject to certain
events.

Mr. Berkowitz entered into a five (5) year employment agreement with the
Company, effective July 8, 1996, pursuant to which Mr. Berkowitz agreed to serve
as the Company's Chief Financial Officer. The employment agreement currently
provides for an annual base salary of $120,000, plus other benefits. The
Company also granted options to Mr. Berkowitz to purchase up to 50,000 shares of
Common Stock pursuant to the Company's 1996 Stock Option Plan (37,500 of which
have been exercised), and an additional 50,000 options, which may vest subject
to certain events.

These employees will also be entitled to participate in stock option and
bonus plans which may be adopted by the Company for officers and directors of
the Company and its subsidiaries. In the event of their involuntary termination
other than for cause or certain other circumstances, they will be entitled to
receive the unpaid balance of their salary for the remaining term of the
agreement.

STOCK OPTION PLANS

The Company has adopted two (2) stock option plans for the benefit of
officers, directors, employees, independent contractors and consultants of the
Company and its subsidiaries. These plans include: (i) the 1996 Stock Option
Plan, and (ii) the 1996 Employee Compensatory Stock Option Plan.

<PAGE>

1996 STOCK OPTION PLAN. As of May 12, 1996, the Company's Board of
Directors and stockholders approved the Company's 1996 Stock Option Plan (the
"1996 Stock Option Plan").

The Company has reserved for issuance thereunder an aggregate of 1,000,000
shares of Common Stock. The Company has granted options to purchase up to
994,739 shares of Common Stock under the 1996 Stock Option Plan. Of the 994,379
options granted as of the date of this Proxy Statement, 981,879 options have
been exercised and all options have vested. The Board of Directors has
approved a provision in the 1996 Stock Option Plan which will place a 300,000
share limit on the number of options that may be granted under the 1996 Stock
Option Plan to an employee in each fiscal year.

A description of each of the 1996 Stock Option Plan is set forth below.
The description is intended to be a summary of the material provisions of the
1996 Stock Option Plan and does not purport to be complete.

ADMINISTRATION OF AND ELIGIBILITY UNDER 1996 STOCK OPTION PLAN. The 1996
Stock Option Plan, as adopted, provides for the issuance of options to purchase
shares of Common Stock to officers, directors, employees, independent
contractors and consultants of the Company and its subsidiaries as an incentive
to remain in the employ of or to provide services to the Company and its
subsidiaries. The 1996 Stock Option Plan authorizes the issuance of incentive
stock options ("ISOs"), non-qualified stock options ("NSOs") and stock
appreciation rights ("SARs") to be granted by a committee (the "Committee") to
be established by the Board of Directors to administer the 1996 Stock Option
Plan.

Subject to the terms and conditions of the 1996 Stock Option Plan, the
Committee will have the sole authority to determine: (a)the persons
("optionees") to whom options to purchase shares of Common Stock and SARs will
be granted, (b) the number of options and SARs to be granted to each such
optionee, (c) the price to be paid for each share of Common Stock upon the
exercise of each option, (d) the period within which each option and SAR will be
exercised and any extensions thereof, and (e) the terms and conditions of each
such stock option agreement and SAR agreement which may be entered into between
the Company and any such optionee.

All officers, directors and employees of the Company and its subsidiaries
and certain consultants and other persons providing significant services to the
Company and its subsidiaries will be eligible to receive grants of options and
SARs under the 1996 Stock Option Plan. However, only employees of the Company
and its subsidiaries are eligible to be granted ISOs.

STOCK OPTION AGREEMENTS. All options granted under the 1996 Stock Option
Plan will be evidenced by an option agreement or SAR agreement between the
Company and the optionee receiving such option or SAR. Provisions of such
agreements entered into under the 1996 Stock Option Plan need not be identical
and may include any term or condition which is not inconsistent with the 1996
Stock Option Plan and which the Committee deems appropriate for inclusion.

INCENTIVE STOCK OPTIONS. Except for ISOs granted to stockholders
possessing more than ten percent (10%) of the total combined voting power of all
classes of the securities of the Company or its subsidiaries to whom such
ownership is attributed on the date of grant ("Ten Percent Stockholders"), the
exercise price of each ISO must be at least 100% of the fair market value of the
Company's Common Stock as determined on the date of grant. ISOs granted to Ten
Percent Stockholders must be at an exercise price of not less than 110% of such
fair market value.

Each ISO must be exercised, if at all, within ten (10) years from the date
of grant, but, within five (5) years of the date of grant in the case of ISO's
granted to Ten Percent Stockholders.

9
<PAGE>

An optionee of an ISO may not exercise an ISO granted under the 1996 Stock
Option Plan so long as such person holds a previously granted and unexercised
ISO.

The aggregate fair market value (determined as of time of the grant of the
ISO) of the Common Stock with respect to which the ISOs are exercisable for the
first time by the optionee during any calendar year shall not exceed $100,000.

As of the date of this Proxy Statement, ISOs have been granted under the
1996 Stock Option Plan to purchase up to 25,000 shares of Common Stock at an
exercise price of $0.49 per share. Of these options, 12,500 options have been
exercised and all have vested.

NON-QUALIFIED STOCK OPTIONS. The exercise price of each NSO will be
determined by the Committee on the date of grant. However, the exercise price
for the NSOs under the 1996 Stock Option Plan will in no event be less than 85%
of the fair market value of the Common Stock on the date the option is granted,
or not less than 110% of the fair market value of the Common Stock on the date
such option is granted in the case of an option granted to a Ten Percent
Stockholder.

The exercise period for each NSO will be determined by the Committee at the
time such option is granted, but in no event will such exercise period exceed
ten (10) years from the date of grant.

As of the date of this Proxy Statement, NSOs have been granted under the
1996 Stock Option Plan to purchase up to 969,739 shares of Common Stock, all of
which have been exercised. These options had the following per share exercise
prices: 174,739 shares ($1.00), 700,000 shares ($0.50), 25,000 shares ($0.38)
and 70,000 shares ($0.25).

STOCK APPRECIATION RIGHTS. Each SAR granted under the 1996 Stock Option
Plan will entitle the holder thereof, upon the exercise of the SAR, to receive
from the Company, in exchange therefor, an amount equal in value to the excess
of the fair market value of the Common Stock on the date of exercise of one
share of Common Stock over its fair market value on the date of exercise of one
share of Common Stock over its fair market value on the date of grant (or in the
case of an SAR granted in connection with an option, the excess of the fair
market of one share of Common Stock at the time of exercise over the option
exercise price per share under the option to which the SAR relates), multiplied
by the number of shares of Common Stock covered by the SAR or the option, or
portion thereof, that is surrendered.

SARs will be exercisable only at the time or times established by the
Committee. If an SAR is granted in connection with an option, the SAR will be
exercisable only to the extent and on the same conditions that the related
option could be exercised. The Committee may withdraw any SAR granted under the
1996 Stock Option Plan at any time and may impose any conditions upon the
exercise of an SAR or adopt rules and regulations from time to time affecting
the rights of holders of SARs.

As of the date of this Proxy Statement, no SARs have been granted under the
1996 Stock Option Plan.

TERMINATION OF OPTION AND TRANSFERABILITY. In general, any unexpired
options and SARs granted under the 1996 Stock Option Plan will terminate: (a) in
the event of death or disability, pursuant to the terms of the option agreement
or SAR agreement, but not less than six (6) months or more than twelve (12)
months after the applicable date of such event, (b) in the event of retirement,
pursuant to the terms of the option agreement or SAR agreement, but no less that
thirty (30) days or more than three (3) months after such retirement date, or
(c) in the event of termination of such person other than for death, disability
or retirement, until thirty (30) days after the date of such termination.
However, the Committee may in its sole discretion accelerate the exercisability
of any or all options or SARs upon termination of employment or cessation of
services.

The options and SARs granted under the 1996 Stock Option Plan generally
will be non-transferable, except by will or the laws of descent and
distribution.

10
<PAGE>

ADJUSTMENTS RESULTING FROM CHANGES IN CAPITALIZATION. The number of shares
of Common Stock reserved under the 1996 Stock Option Plan and the number and
price of shares of Common Stock covered by each outstanding option or SAR under
the 1996 Stock Option Plan will be proportionately adjusted by the Committee for
any increase or decrease in the number of issued and outstanding shares of
Common Stock resulting from any stock dividends, split-ups, consolidations,
recapitalizations, reorganizations or like event.

AMENDMENT OR DISCONTINUANCE OF STOCK OPTION PLAN. The Board of Directors
has the right to amend, suspend or terminate the Stock Option Plans at any time.
Unless sooner terminated by the Board of Directors, the 1996 Stock Option Plan
will terminate on May 11, 2006, the tenth (10th) anniversary date of the
effectiveness of 1996 Stock Option Plan.

1996 EMPLOYEE COMPENSATORY STOCK OPTION PLAN. As of February 7, 1996, the
Company's Board of Directors adopted the 1996 Employee Compensatory Stock Option
Plan (the "Employee Stock Option Plan"). The Company has reserved for issuance
thereunder an aggregate of 500,000 shares of Common Stock. The Company has
issued non-qualified options to purchase up to 500,000 shares of Common Stock
under the Employee Stock Option Plan at an exercise price of $0.18 per share,
423,000 of which have been exercised. The optionees are currently not employees
or affiliates of the Company. The remaining 77,000 options expire on or about
February 6, 2001, the termination date of the Employee Stock Option Plan.

OTHER OPTIONS. The Company has granted options to purchase up to an
aggregate of 160,000 shares of Common Stock, at an exercise price of $0.81 per
share, to certain directors and employees. Some of these options may vest,
subject to the approval of a stock option plan by the Company's Board of
Directors and stockholders. The Company also has granted currently outstanding
options and warrants to purchase up to 1,450,928 shares of Common Stock
(including the 89,500 options which may be exercised in connection with the
Company's existing stock option plans) to certain consultants and employees of
the Company, of which 454,440 are currently exercisable.

COMPENSATION OF DIRECTORS

The Company does not currently compensate directors for services rendered
as directors.

DIRECTORS AND OFFICERS LIABILITY INSURANCE

The Company has obtained directors' and officers' liability insurance with
an aggregate limit of liability for the policy year, inclusive of costs of
defense, in the amount of $2,000,000. The insurance policy expires on March 23,
1999.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Company's Certificate of Incorporation and Bylaws designate the
relative duties and responsibilities of the Company's officers, establish
procedures for actions by directors and stockholders and other items. The
Company's Certificate of Incorporation and Bylaws also contain extensive
indemnification provisions which will permit the Company to indemnify its
officers and directors to the maximum extent provided by Delaware law.

TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS

Except as set forth in employment agreements of certain employees of the
Company and its subsidiaries, the Company has no compensatory plans or
arrangements which relate to the resignation, retirement or any other
termination of an executive officer or key employee with the Company or a change
in control of the

11
<PAGE>

Company or a change in such executive officer's or key employee's
responsibilities following a change in control.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board has a Compensation Committee and an Audit Committee comprised of
the following members of the Board of Directors: Dr. Jose Spiwak and Melinda
McIntyre-Kolpin, each of whom may be deemed to be outside/non-employee director.
The Board has no standing committee on nominations or any other committees
performing equivalent functions.

The Compensation Committee reviews and approves the annual salary and bonus
for each executive officer (consistent with the terms of any applicable
employment agreement), reviews, approves and recommends terms and conditions for
all employee benefit plans (and changes thereto) and administers the Company's
stock option plans and such other employee benefit plans as may be adopted by
the Company from time to time.

The Audit Committee reports to the Board regarding the appointment of the
independent public accountants of the Company, the scope and fees of the
prospective annual audit and the results thereof, compliance with the Company's
accounting and financial policies and management's procedures and policies
relative to the adequacy of the Company's system of internal accounting
controls.

COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934. Section
16(a) of the Exchange Act requires the Company's directors and executive
officers and beneficial holders of more than 10% of the Company's Common Stock
to file with the Securities and Exchange Commission (the "Commission") initial
reports of ownership and reports of changes in ownership of such equity
securities of the Company. Based solely upon a review of such forms, or on
written representations form certain reporting persons that no other reports
were required for such persons, the Company believes that all reports required
pursuant to Section 16(a) with respect to its executive officers, directors and
10% beneficial stockholders for the fiscal year ended December 31, 1997 were
timely filed.

<PAGE>

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

As of April 9, 1998, the Company had issued and outstanding 9,688,523
shares of Common Stock. The following table reflects, as of April 9, 1998, the
beneficial Common Stock ownership of: (a) each director of the Company, (b)
each current executive officer named in the Summary Compensation Table in this
Proxy Statement, (c) each person known by the Company to be a beneficial owner
of five percent (5%) or more of its Common Stock, and (d) all executive officers
and directors of the Company as a group:

NAME AND ADDRESS NO. OF
OF BENEFICIAL OWNER SHARES# PERCENT
- ------------------- ------- -------
<S> <C> <C>
Medipace Medical Group, Inc.(1) 800,000 8.26%

Victor Gura, M.D.(1,2) 2,772,511 28.62%

Ronald P. Lang, M.D.(1,3) 1,317,154 13.59%

Jose Spiwak, M.D.(4) 40,000 *

Melinda McIntyre-Kolpin(5) 0 *

Isaac Flombaum(6) 570,206 5.89%

Ron Berkowitz(1,7) 52,000 *

Avraham H. Uncyk, M.D.(1,8) 969,463 10.00%

All executive officers
and directors as a group
(5 persons)(9) 3,381,665 34.86%
</TABLE>

_____________________________
(Footnotes on following page)

# Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person shown in the
table.

* Less than 1%

<PAGE>

______________________________
(Footnotes from previous page)

1. The address for Drs. Victor Gura, Ronald P. Lang and Avraham H. Uncyk and
Ron Berkowitz is 1835 South La Cienega Boulevard, Suite 235, Los Angeles,
California 90035. Medipace is a corporation owned by Drs. Gura, Lang and
Uncyk on a proportionate ownership interest of 67.5%, 22.5% and 10%,
respectively. The address for Medipace is 5901 West Olympic Boulevard,
Suite 300, Los Angeles, California 90036. Medipace is the registered owner
of 800,000 shares of Common Stock, and each of Drs. Gura, Lang and Uncyk
are deemed to be the beneficial owners of such 800,000 shares. See
"Certain Relationships and Related Transactions."

2. Dr. Gura is the registered owner of 1,972,511 shares. Does not include
warrants to purchase up to 337,500 shares of Common Stock which may vest
and 2,842,185 shares of Common Stock which may be issued subject to certain
performance levels by the Company, and options to purchase up to 80,000
shares of Common Stock, which may vest subject to certain events. See
"Certain Relationships and Related Transactions."

3. Dr. Lang is the registered owner of 517,154 shares. Does not include
warrants to purchase up to 112,500 shares of Common Stock which may vest
and 947,395 shares of Common Stock which may be issued subject to certain
performance levels by the Company, and options to purchase up to 15,000
shares of Common Stock, which may vest subject to certain events. See
"Certain Relationships and Related Transactions."

4. The address for Dr. Jose Spiwak is 3628 East Imperial Highway, Suite 402,
Lynwood, California 90262. Dr. Spiwak is the registered owner of 40,000
shares of Common Stock. Does not include options to purchase up to 150,000
shares of Common Stock which may vest subject to certain schedules.

5. The address for Ms. McIntyre-Kolpin is 606 Broadway, Santa Monica,
California 90401. Does not include options to purchase up 150,000 shares
of Common Stock which may vest subject to certain schedules.

6. The address for Mr. Flombaum is Doblas 82, 2nd Piso, Buenos Aires,
Argentina. The 570,206 shares have been pledged as security for certain
obligations owing to the Company. See "Certain Relationships and Related
Transactions."

7. Mr. Berkowitz is the registered owner of 39,500 shares of Common Stock and
options to purchase up to 12,500 shares of Common Stock. Does not include
options to purchase up to 50,000 shares of Common Stock, which may vest
subject to certain events.

8. Dr. Uncyk is the registered owner of 159,463 shares. Dr. Uncyk's wife,
Judith Gordon, a former director of the Company, is the registered owner of
options to purchase up to 5,000 shares of Common Stock. Does not include
warrants to purchase up to 50,000 shares of Common Stock which may vest and
421,064 shares of Common Stock which may be issued subject to certain
performance levels by the Company. See "Certain Relationships and Related
Transactions."

9. Includes 3,369,165 shares of Common Stock and options to purchase up to
12,500 shares of Common Stock. Does not include warrants to purchase up to
500,000 shares of Common Stock which may vest and 4,210,644 shares of
Common Stock which may be issued subject to certain performance levels by
the Company, and options to purchase up to 445,000 shares of Common Stock
which may vest subject to certain events and schedules. See "Certain
Relationships and Related Transactions."

<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

SHARE EXCHANGE AGREEMENT. On May 11, 1996, the Company, Los Angeles
Community Dialysis, Inc. ("LACD"), Victor Gura, M.D., Avraham H. Uncyk, M.D.
and Ronald P. Lang, M.D. completed the transactions contemplated by an
Agreement for Exchange of Stock (the "Share Exchange Agreement"). In
connection with the Share Exchange Agreement, the Company issued an aggregate
of 4,234,128 shares of Common Stock to Drs. Gura, Uncyk and Lang in exchange
for 100% of the issued and outstanding shares of common stock of LACD, as
follows: (i) Dr. Gura (2,183,036 shares), (ii) Dr. Lang (727,679 shares),
(iii) Dr. Uncyk (323,413 shares), and (iv) Medipace Medical Group, Inc.
("Medipace"), a corporation owned by Drs. Gura, Lang and Uncyk (1,000,000
shares). The 1,000,000 shares issued to Medipace were originally issued to
Drs. Gura, Lang and Uncyk in their proportionate ownership interests in
Medipace (67.5%, 22.5% and 10%, respectively), and subsequently transferred
to Medipace. In November and December, 1997, Medipace and Drs. Gura, Lang
and Uncyk sold an aggregate of 785,000 shares of Common Stock in connection
the settlement of certain claims of an unaffiliated third party, as follows:
(i) Medipace (200,000 shares), (ii) Dr. Gura (210,525 shares), (iii) Dr. Lang
(210,525 shares), and (iv) Dr. Uncyk (163,950 shares). The 800,000 shares
currently issued to Medipace have certain registration rights with respect to
claims which may be asserted by creditors of Medipace.

CONDITIONAL ISSUANCE OF SHARES AND WARRANTS. Up to an additional 4,210,644
shares of Common Stock and warrants to purchase up to 500,000 shares of Common
Stock, at an exercise price of $3.50 per share, may be issued in the aggregate
to Drs. Gura, Uncyk and Lang in the event that the Company meets certain
financial conditions based on the results of operations of the Company during
the fiscal years ending from December 31, 1996 to 2001, on the following basis:
(i) Dr. Gura (2,842,185 shares and 337,500 warrants), (ii) Dr. Lang (947,395
shares and 112,500 warrants), and (iii) Dr. Uncyk (421,064 shares and 50,000
warrants), which reflects the percentage distribution ratio for the initial
issuance of the shares of Common Stock in connection with the Share Exchange
Agreement to Drs. Gura, Lang and Uncyk, respectively. The Company did not meet
the required results of operations for the fiscal year ended December 31, 1997.
The 4,210,644 shares may be issued and the 500,000 warrants may be exercisable
in the event that the annual pre-tax earnings from operations of the Company
during any of the years ending from December 31, 1998 to 2001 shall equal or
exceed $2,000,000. The warrants will expire 36 months from the initial date of
exercisability of the warrants.

LOANS TO AFFILIATES. Medipace has executed a demand promissory note in
favor of the Company in the principal amount of $121,151, dated September 17,
1997, which bears interest at the rate of 8% per annum. As of December 31, 1997,
the principal amount of the promissory note remaining payable was $116,622.

SALE OF WAREHOUSE ASSETS. As of October 18, 1996, the Company completed
the sale (the "Warehouse Sale") of certain real estate and other assets, related
to the Company's prior business operation of a potato warehouse (the "Warehouse
Assets") in Monte Vista, Colorado, to certain former affiliates of the Company
for the purchase price of approximately $1,415,000. The purchase price was paid
in the form of $550,000 in cash and two (2) promissory notes in the aggregate
amount of approximately $865,000 (subject to certain adjustments), and secured
by a pledge of 648,206 shares of Common Stock. As of April 15, 1997, the
obligors on the promissory notes assigned 630,206 of the shares of Common Stock
to Issaac Flombaum, making him a principal stockholder of the Company. Mr.
Flombaum executed a promissory note payable to the Company in the principal
amount of approximately $865,000, bearing interest at the rate of 8% per annum,
and due and payable on or before February 23, 1998. The Company extended the
promissory note for an additional year upon receipt of a payment in November,
1997. The promissory notes executed by the initial obligors were cancelled.
Further, Mr. Flombaum has agreed to pay the additional sum of approximately
$135,000 to the Company on the due date of the $865,000 promissory note as
additional consideration for the Company's agreement to consent to the
assignment of the 630,206 shares. The obligations owing to the Company by Mr.
Flombaum are secured by the 570,206 shares of Common Stock, which currently are
held in escrow. Through December 31, 1997, the Company received payment of
$76,800 of accrued interest on the promissory note

15
<PAGE>

through the liquidation of 60,000 of the pledged shares. See "Voting
Securities and Principal Holders Thereof."

LEASED PREMISES. From May 11, 1996 to November, 1997, the Company leased
offices located at 5901 West Olympic Boulevard, Suite 109, Los Angeles,
California 90036, at a monthly rent of approximately $6,760, pursuant to a
sublease agreement with Medipace. The premises included a portion of premises
leased by Medipace, an affiliate of Drs. Gura, Lang and Uncyk, who are
affiliates of the Company, from a non-affiliate master lessor pursuant to a
master lease agreement. The Company made rental payments directly to the master
lessor, with the consent of the master lessor, with respect to the portion of
the premises which were the subject of the sublease. The Company currently
leases the office space directly from the master lessor at the monthly rent of
approximately $6,760.

MATTERS FOR CONSIDERATION BY STOCKHOLDERS

PROPOSAL 1. ELECTION OF DIRECTORS.

Four (4) directors will be elected at the Annual Meeting, each to hold
office until the next Annual Meeting of the Stockholders of the Company or until
their successors are elected and qualify, subject to their prior death,
resignation or removal. Officers serve at the discretion of the Board of
Directors. There are no family relationships among any of the Company's
directors and executive officers. In the absence of instructions to the
contrary, shares of Common Stock represented by properly executed proxies will
be voted for the four (4) nominees listed hereinbelow, all of whom are
recommended by management of the Company and who have consented to be named and
to serve if elected.

In the event that any management nominee is unable or declines to serve as
a director at the time of the Meeting, the proxies will be voted for any nominee
who is designated by the present Board of Directors to fill the vacancy. It is
not expected that any nominee will be unable or will decline to serve as a
director.

The Board of Directors met or adopted actions by unanimous written
consent approximately ten (10) times during the year ended December 31, 1997.
All directors standing for reelection attended 100% of the meetings of the
Board. The Board did not have any standing committee on nominations,
compensation or audit, or other Board committees performing equivalent
functions during the year ended December 31, 1997.

The Board knows of no reason why any of the nominees will be unavailable
or decline to serve as a director. The information presented below is as of
June 3, 1998 and is based in part on information furnished by the nominees
and, in part, from the records of the Company.

The affirmative vote of a plurality of the combined Votes Cast at the
Meeting is required to elect the directors nominated below.

16
<PAGE>

THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE ELECTION OF THE NOMINEES
LISTED BELOW.

NOMINEES FOR ELECTION AS DIRECTOR
---------------------------------

The following persons have been recommended by management of the Company
and have consented to be named and to serve as members of the Company's Board of
Directors if elected. Victor Gura, M.D. has been nominated to be the Chairman
of the Board of Directors. Biographies of such persons may be reviewed in the
section of this Proxy Statement entitled "Directors and Executive Officers."

<TABLE>
<CAPTION>
NAME DIRECTOR SINCE:
---- ---------------
<S> <C>
Victor Gura, M.D. May, 1996
Ronald P. Lang, M.D. May, 1996
Jose Spiwak, M.D. March, 1998
Melinda McIntyre-Kolpin March, 1998
</TABLE>

PROPOSAL 2. APPROVAL OF THE COMPANY'S 1998 STOCK OPTION PLAN

GENERAL

The 1998 Stock Option Plan (the "1998 Stock Option Plan") was adopted by
the Board of Directors on April 9, 1998. The Company has reserved for
issuance thereunder an aggregate of 1,000,000 shares of Common Stock. The
1998 Stock Option Plan provides for the grant to employees of the Company of
incentive stock options within the meaning of Section 422 of the Code, and
for the grant to employees and consultants of nonstatutory stock options.

The success of the Company depends upon its ability to attract and retain
highly qualified and competent employees. The 1998 Stock Option Plan enhances
that ability and provides additional incentive to such personnel to advance the
interests of the Company and its stockholders. Management of the Company
believes that the reservation of 1,000,000 shares of Common Stock for issuance
under the 1998 Stock Option Plan, would provide an adequate reserve of shares
for issuance under the 1998 Stock Option Plan in order to enable the Company to
compete with other companies to attract and retain valuable employees.

A description of the 1998 Stock Option Plan is set forth below. The
description is intended to be a summary of the material provisions of the 1998
Stock Option Plan and does not purport to be complete. The following discussion
summarizes certain aspects of the 1998 Stock Option Plan, but is qualified in
its entirety by reference to the 1998 Stock Option Plan which is attached hereto
as "Exhibit A."

1998 STOCK OPTION PLAN

The general purposes of the 1998 Stock Option Plan are to attract and
retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to employees and consultants of the Company and
to promote the success of the Company's business. It is intended that these
purposes will be effected through the granting of stock options, which may be
either "incentive stock options" as defined in Section 422 of the Code, or
nonstatutory stock options.

The 1998 Stock Option Plan provides that options may be granted to the
employees (including officers and directors who are employees) and consultants
of the Company, or of any parent or subsidiary of the Company. Incentive stock
options may be granted only to employees. An employee or consultant who has
been granted an option may, if otherwise eligible, be granted additional
options.

17
<PAGE>

As of April 9, 1998, the Company's Board of Directors approved the
Company's 1998 Stock Option Plan, subject to the ratification of the
Company's stockholders.

The Company has reserved for issuance up to 1,000,000 shares of Common
Stock under the 1998 Stock Option Plan. No options have been granted under the
1998 Stock Option Plan as of the date of this Proxy Statement.

ADMINISTRATION OF AND ELIGIBILITY UNDER 1998 STOCK OPTION PLAN. The 1998
Stock Option Plan, as adopted, provides for the issuance of options to purchase
shares of Common Stock to officers, directors, employees, independent
contractors and consultants of the Company and its subsidiaries as an incentive
to remain in the employ of or to provide services to the Company and its
subsidiaries. The 1998 Stock Option Plan authorizes the issuance of incentive
stock options ("ISOs"), non-qualified stock options ("NSOs") and stock
appreciation rights ("SARs") to be granted by a committee (the "Committee") to
be established by the Board of Directors to administer the 1998 Stock Option
Plan, which will consist of at least two outside directors of the Company.

Subject to the terms and conditions of the 1998 Stock Option Plan, the
Committee will have the sole authority to determine: (a)the persons
("optionees") to whom options to purchase shares of Common Stock and SARs will
be granted, (b) the number of options and SARs to be granted to each such
optionee, (c) the price to be paid for each share of Common Stock upon the
exercise of each option, (d) the period within which each option and SAR will be
exercised and any extensions thereof, and (e) the terms and conditions of each
such stock option agreement and SAR agreement which may be entered into between
the Company and any such optionee.

All officers, directors and employees of the Company and its subsidiaries
and certain consultants and other persons providing significant services to the
Company and its subsidiaries will be eligible to receive grants of options and
SARs under the 1998 Stock Option Plan. However, only employees of the Company
and its subsidiaries are eligible to be granted ISOs.

STOCK OPTION AGREEMENTS. All options granted under the 1998 Stock Option
Plan will be evidenced by an option agreement or SAR agreement between the
Company and the optionee receiving such option or SAR. Provisions of such
agreements entered into under the 1998 Stock Option Plan need not be identical
and may include any term or condition which is not inconsistent with the 1998
Stock Option Plan and which the Committee deems appropriate for inclusion.

Each ISO must be exercised, if at all, within ten (10) years from the date
of grant, but, within five (5) years of the date of grant in the case of ISO's
granted to Ten Percent Stockholders.

An optionee of an ISO may not exercise an ISO granted under the 1998 Stock
Option Plan so long as such person holds a previously granted and unexercised
ISO.

18
<PAGE>

NON-QUALIFIED STOCK OPTIONS. The exercise price of each NSO will be
determined by the Committee on the date of grant. The Company hereby undertakes
not to grant any non-qualified stock options under the 1998 Stock Option Plan at
an exercise price less than 85% of the fair market value of the Common Stock on
the date of grant of any non-qualified stock option under the 1998 Stock Option
Plan.

The exercise period for each NSO will be determined by the Committee at the
time such option is granted, but in no event will such exercise period exceed
ten (10) years from the date of grant.

STOCK APPRECIATION RIGHTS. Each SAR granted under the 1998 Stock Option
Plan will entitle the holder thereof, upon the exercise of the SAR, to receive
from the Company, in exchange therefor, an amount equal in value to the excess
of the fair market value of the Common Stock on the date of exercise of one
share of Common Stock over its fair market value on the date of exercise of one
share of Common Stock over its fair market value on the date of grant (or in the
case of an SAR granted in connection with an option, the excess of the fair
market of one share of Common Stock at the time of exercise over the option
exercise price per share under the option to which the SAR relates), multiplied
by the number of shares of Common Stock covered by the SAR or the option, or
portion thereof, that is surrendered.

SARs will be exercisable only at the time or times established by the
Committee. If an SAR is granted in connection with an option, the SAR will be
exercisable only to the extent and on the same conditions that the related
option could be exercised. The Committee may withdraw any SAR granted under the
1998 Stock Option Plan at any time and may impose any conditions upon the
exercise of an SAR or adopt rules and regulations from time to time affecting
the rights of holders of SARs.

LIMIT TO OPTIONS GRANTED UNDER THE 1998 STOCK OPTION PLAN. Under Section
162(m) of the Code, which was enacted in 1993, the deductibility for federal
income tax purposes of compensation paid to the Company's Chief Executive
Officer and the four other most highly compensated executive officers who
receive salary and bonus in excess of $100,000 in a particular year is limited
to $1,000,000 per year per individual. For purposes of this legislation,
compensation expense attributable to stock options and SARs would be subject to
this limitation unless, among other things, the option plan under which the
options and SARs is granted includes a limit on the number of shares with
respect to which awards may be made to any one employee in a fiscal year. Such
a potential compensation expense deduction could arise, for example, upon the
exercise by one of these executive of a nonstatutory option, i.e., an option
that is not an incentive stock option qualifying for favorable tax treatment, or
upon a disqualifying disposition of stock received upon exercise of an incentive
stock option.

In order to exclude compensation resulting from options granted under the
Company's 1998 Stock Option Plan from the $1,000,000 limit on deductibility, the
Board of Directors has approved a provision in the 1998 Stock Option Plan which
will place a 150,000 share limit on the number of options that may be granted
under the 1998 Stock Option Plan to an employee in any fiscal year. This limit
is subject to appropriate adjustment in the case of stock splits, reverse stock
splits and the like. The purpose of this provision, which is intended to comply
with Section 162(m) of the Code and the regulations thereunder, is to preserve
the Company's ability to deduct in full any compensation expense related to
stock options.

TERMINATION OF OPTION AND TRANSFERABILITY. In general, any unexpired
options and SARs granted under the 1998 Stock Option Plan will terminate: (a) in
the event of death or disability, pursuant to the terms of the option agreement
or SAR agreement, but not less than six (6) months or more than twelve (12)
months after the applicable date of such event, (b) in the event of retirement,
pursuant to the terms of the option agreement or SAR agreement, but no less that
thirty (30) days or more than three (3) months after such retirement date, or
(c) in the event of termination of such person other than for death, disability
or retirement, until thirty (30) days after the date of such termination.
However, the Committee may in its sole discretion accelerate the exercisability
of any or all options or SARs upon termination of employment or cessation of
services.

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<PAGE>

The options and SARs granted under the 1998 Stock Option Plan generally
will be non-transferable, except by will or the laws of descent and
distribution.

ADJUSTMENTS RESULTING FROM CHANGES IN CAPITALIZATION. The number of shares
of Common Stock reserved under the 1998 Stock Option Plan and the number and
price of shares of Common Stock covered by each outstanding option or SAR under
the 1998 Stock Option Plan will be proportionately adjusted by the Committee for
any increase or decrease in the number of issued and outstanding shares of
Common Stock resulting from any stock dividends, split-ups, consolidations,
recapitalizations, reorganizations or like event.

AMENDMENT OR DISCONTINUANCE OF STOCK OPTION PLAN. The Board of
Directors has the right to amend, suspend or terminate the 1998 Stock Option
Plan at any time. Unless sooner terminated by the Board of Directors, the
1998 Stock Option Plan will terminate on April 8, 2008, the tenth (10th)
anniversary date of the effectiveness of the 1998 Stock Option Plan.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

Options granted under the 1998 Stock Option Plan may be either "incentive
stock options," as defined in Section 422 of the Code, or nonstatutory options.

An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of:
(i) the fair market value of the shares at the date of the option exercise, or
(ii) the sale price of the shares. A different rule for measuring ordinary
income upon such a premature disposition may apply if the optionee is also an
officer, director or Ten Percent Stockholder of the Company. Generally, the
Company will be entitled to a deduction in the same amount as the ordinary
income recognized by the optionee. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as ordinary
income will be characterized as long-term or short-term capital gain or loss,
depending on the holding period.

All other options that do not qualify as incentive options are referred to
as nonstatutory options. An optionee will not recognize any taxable income at
the time he or she is granted a non-statutory option. However, upon its
exercise, the optionee will recognize taxable income generally measured as the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by
an option who is also an employee of the Company will be subject to tax
withholding by the Company. Upon the resale of such shares by the optionee, any
difference between the sale price and the optionee's purchase price, to the
extent not recognized as taxable income as described above, will be treated as
long-term capital gain or loss, depending on the holding period.

Generally, the Company will be entitled to a tax deduction in the same
amount as the ordinary income recognized by the optionee with respect to shares
acquired upon exercise of a nonstatutory option.

The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the 1998 Stock Option Plan, does not purport to be complete, and
does not discuss the tax consequences of the optionee's death or the income tax
laws of any municipality, state or foreign country in which an optionee may
reside.

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VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS

Approval of the 1998 Stock Option Plan requires the affirmative vote of a
majority of the combined Votes Cast.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL

PROPOSAL 3. APPROVAL OF FORM OF INDEMNIFICATION AGREEMENT

GENERAL

The stockholders are being asked at the Meeting to approve proposed
agreements (the "Indemnification Agreements") to be entered into between the
Company and its directors and officers, in substantially the form attached
hereto as "Exhibit B."

The Board of Directors believes that the Indemnification Agreements are a
response to: (i) the increasing hazard and related expense of unfounded
litigation directed against directors and executive officers; (ii) the general
unavailability of directors' and officers' liability insurance or significant
limitations in amounts and breadth of coverage; (iii) dramatic increases in
premiums for such coverage; and (iv) the potential inability of the Company to
continue to attract and retain qualified directors and executive officers in
light of these circumstances.

The Company has obtained directors' and officers' liability insurance with
an aggregate $2,000,000 limit of liability for the policy year, including costs
of defense. The policy period expires on March 23, 1999. The Company intends
to renew such policy or obtain comparable coverage after the expiration of such
policy. However, there can be no assurances to this effect.

The Board of Directors believes that the Indemnification Agreements will
serve the best interests of the Company and its stockholders by strengthening
the Company's ability to attract and retain the services of knowledgeable and
experienced persons as directors and officers who, through their efforts and
expertise, can make a significant contribution to the success of the Company.
The Indemnification Agreements are intended to complement the indemnity and
protection available under Delaware law, the Company's Certificate of
Incorporation and Bylaws and any policies of insurance which may hereafter be
maintained by the Company and to provide for indemnification of certain of its
agents to the fullest extend permitted by applicable law.

The following discussion summarizes certain aspects of the Indemnification
Agreement, but is qualified in its entirety by reference to the form of
Indemnification Agreement which is attached as "Exhibit B" hereto.

INDEMNIFICATION OF DIRECTORS AND OFFICERS UNDER DELAWARE LAW

In general, Delaware law empowers a corporation to indemnify any person who
was or is a party or who is threatened to be made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, except in the case of an action by or in the
right of the corporation, by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or other enterprise. Depending on the character of the
proceeding, a corporation may indemnify against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding if the person
indemnified acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation, and with respect
to any criminal action or proceedings, had no reasonable cause to believe his or
her conduct was unlawful.

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<PAGE>

A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or other
enterprise, against expenses, including amounts paid in settlement and
attorney's fees actually and reasonably incurred by him or her in connection
with the defense or settlement of the action or suit if he or she acted in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the corporation. Indemnification may not be
made for any claim, issue or matter as to which such a person has been adjudged
by a court of competent jurisdiction, after exhaustion of all appeals therefrom,
to be liable to the corporation or for amounts paid in settlement to the
corporation unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.

To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to above, or in defense of any claim, issue or matter
therein, he or she must be indemnified by the corporation against expenses,
including attorney's fees, actually and reasonably incurred by him in connection
with the defense. Any indemnification under this section, unless ordered by a
court or advanced pursuant to this section, must be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances. The
determination must be made: (a) by the stockholders; (b) by the board of
directors by majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding; (c) if a majority vote of a quorum
consisting of directors who were not parties to the action, suit or proceeding
so orders, by independent legal counsel in a written opinion; or (d) if a quorum
consisting of directors who were not parties to the action, suit or proceeding
cannot be obtained, by independent legal counsel in a written opinion.

The certificate of incorporation, the bylaws or an agreement made by the
corporation may provide that the expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he or she is not entitled to be indemnified
by the corporation. The provisions of this section do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.

The indemnification and advancement of expenses authorized in or ordered by
a court: (a) does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the certificate
of incorporation or any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his or her official capacity or
an action in another capacity while holding his or her office, except that
indemnification, unless ordered by a court pursuant to this section or for the
advancement of any director or officer if a final adjudication establishes that
his or her acts or omissions involved intentional misconduct, fraud or a knowing
violation of the law and was material to the cause of action; and (b) continues
for a person who has ceased to be a director, officer, employee or agent and
inures to the benefit of the heirs, executors and administrators of such a
person.

Delaware law provides that a director shall not be held personally liable
for monetary damages for breach of fiduciary duty as a director, provided (as
specified in the Delaware law) that such limitation of liability shall not act
to limit liability for the following conduct: (a) breaches of the director's
duty of loyalty to the corporation or its stockholders; (b) acts or omissions
not in good faith or which involve intentional misconduct or knowing violation
of law; (c) the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or (d) any transaction from which the director derived an improper
personal benefit.

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<PAGE>

INDEMNIFICATION AGREEMENTS

The Indemnification Agreements provide the Indemnitee with the maximum
indemnification allowed under applicable law. Since the Delaware statutes are
non-exclusive, it is possible that certain claims beyond the scope of the
statute may be indemnifiable. The Indemnification Agreements provide a scheme
of indemnification which may be broader than that specifically provided by
Delaware law. It has not yet been determined, however, to what extent the
indemnification expressly permitted by Delaware law may be expanded, and
therefore the scope of indemnification provided by the Indemnification
Agreements may be subject to future judicial interpretation.

The Indemnification Agreements provide that the Company shall indemnify an
Indemnitee who is or was a party or becomes a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding whether
civil, criminal, administrative or investigative by reason of the fact that the
Indemnitee is or was a director, officer, key employee or agent of the Company
or any subsidiary of the Company. The Company shall advance all expenses,
judgments, fines, penalties and amounts paid in settlement (including taxes
imposed on Indemnitee on account of receipt of such payouts) incurred by the
Indemnitee in connection with the investigation, defense, settlement or appeal
of any civil or criminal action or proceeding as described above. The
Indemnitee shall repay such amounts advanced only if it shall be ultimately
determined that he or she is not entitled to be indemnified by the Company. The
advances paid to the Indemnitee by the Company shall be delivered within 20 days
following a written request by the Indemnitee. Any award of indemnification to
an Indemnitee, if not covered by insurance, would come directly from the assets
of the Company, thereby affecting a stockholder's investment.

The Indemnification Agreements set forth a number of procedural and
substantive matters which are not addressed or are addressed in less detail in
Delaware law, including the following:

First, in the event an action is instituted by the Indemnitee under the
Indemnification Agreements to enforce or interpret any of the terms therein,
Indemnitee shall be entitled to be paid all costs and expenses, including
reasonable attorneys' fees, incurred by the Indemnitee with respect to such
action, unless as a part or such action, a court of competent jurisdiction
determines that each of the material assertions made by the Indemnitee were not
made in good faith or were frivolous. In the event of an action instituted by
or in the name of the Company under the Indemnification Agreements or to enforce
or interpret any of the terms therein, the Indemnitee shall be entitled to be
paid all costs and expenses, including reasonable attorneys' fees, incurred by
the Indemnitee in the defense of such action, unless as a part of such action
the court determines that each of the Indemnitee's material defenses to such
action were made in bad faith or were frivolous. Delaware law does not set
forth any procedure for contesting a corporation's determination of a party's
right to indemnification.

Second, the Indemnification Agreements explicitly provide for partial
indemnification of costs and expenses in the event that an Indemnitee is not
entitled to full indemnification under the terms of the Indemnification
Agreement. Delaware law does not specifically address this issue. Delaware law
does, however, provide that to the extent that an Indemnitee has been successful
on the merits, he or she shall be entitled to such indemnification.

Third, in the event the Company shall be obligated to pay the expenses of
any proceeding against the Indemnitee, the Company shall be entitled to assume
the defense of such proceeding, with counsel approved by the indemnified party,
which approval shall not be unreasonably withheld, upon the delivery to the
Indemnitee of written notice of its election to do so. The Company shall have
the right to conduct such defense as it sees fit in its sole discretion,
including the right to settle any claim against Indemnitee without the consent
of the Indemnitee.

23
<PAGE>

Fourth, indemnification provided by the Indemnification Agreements is not
exclusive of any rights to which the Indemnitee may be entitled under the
Company's Certificate or Certificate of Incorporation, its Bylaws, any
agreement, any vote of stockholders or disinterested directors, Delaware law, or
otherwise. The indemnification provided under the Indemnification Agreements
continues for any action taken or not taken while serving in an indemnified
capacity even though the Indemnitee may have ceased to serve in such capacity at
the time of the action, suit or other covered proceeding.

Finally, the Indemnification Agreements provide for certain exceptions to
indemnification which include the following: (a) indemnification for liabilities
where the law prohibits indemnification; (b) indemnification or advancement of
expenses with respect to proceedings or claims initiated or brought voluntarily
by an Indemnitee and not by way of defense, except with respect to proceedings
brought to establish or enforce a right to indemnification under the
Indemnification Agreements or any statute or law or otherwise as required under
Delaware law; and (c) indemnification for expenses in the payment of profits
arising from the purchase and sale by the Indemnitee of securities in violation
of Section 16(b) of the Exchange Act or any similar or successor statute.

The proposed Indemnification Agreements, together with the limitations on
the directors' liability provided by the Company's Certificate of Incorporation
and the Company's Bylaws, reduce significantly the number of instances in which
directors might be held liable to the Company for monetary damages for breach of
their fiduciary duties. Therefore, it should be noted that the current
directors of the Company have a direct personal interest in the approval of the
Indemnification Agreements.

At present, there is no pending litigation or proceeding involving an
Indemnitee where indemnification would be required or permitted under the
Indemnification Agreements.

INDEMNIFICATION OF LIABILITIES UNDER THE SECURITIES ACT OF 1933

The Commission has expressed its opinion that indemnification of directors,
officers and controlling persons of the Company against liabilities arising
under the Securities Act of 1933, as amended (the "1933 Act"), is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by an Indemnitee of the
Company in the successful defense of any such act or proceeding) is asserted by
such Indemnitee in connection with securities which have been registered by the
Company, the Company will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.

Delaware law generally provides that no contract or transaction between a
corporation and one or more of its directors or officers shall be void or
voidable solely for this reason, or solely because the director or officer is
present or participates in the meeting of the board or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (a) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
board of directors or the committee, and the board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum, (b) the material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders, or (c) the contract or
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified, by the board, a committee thereof, or the stockholders.

24
<PAGE>

Since the Company intends to enter into these Indemnification Agreements
with each of its directors, the Indemnification Agreements must either be fair
to the Company or be approved by the requisite vote of stockholders. Although
the Company believes that the form of Indemnification Agreement is fair to the
Company, and that stockholder approval may not therefore be required to validate
the Indemnification Agreements, the Company believes that it is appropriate to
submit the Indemnification Agreements to the stockholders for their
consideration. If the Indemnification Agreements are not approved by the
stockholders, the invalidity of such agreements could hereafter be asserted by
the stockholders. In such an instance, the person asserting the validity of the
Indemnification Agreements will bear the burden of proving that they were fair
to the Company at the time they were authorized.

VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS

Approval of the Indemnification Agreements will require the affirmative
vote of a majority of the votes present or represented and entitled to vote on
this subject matter at the meeting and held by disinterested stockholders.
Since each director is an interested party with respect to this matter, shares
owned directly or indirectly by any director may not be voted on this proposal
although they will be counted for purposes of determining whether a quorum is
present. An abstention is not an affirmative vote and, therefor, will have the
same effect as a vote against the proposal. A broker non-vote will not be
treated as entitled to vote on this subject matter at the meeting. See
"Information Concerning Solicitation and Voting - Quorum; Abstentions; Broker
Non-Votes."

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL

PROPOSAL 3. RATIFICATION OF APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANT.

The Board of Directors of the Company has appointed the firm of KPMG Peat
Marwick LLP as independent certified public accountants for the Company for the
year ending December 31, 1998, subject to stockholder approval. The Company has
been advised by KPMG Peat Marwick LLP that neither that firm nor any of its
partners has any material relationship with the Company or any affiliate of the
Company.

A representative of KPMG Peat Marwick LLP is expected to be present at the
Meeting to make a statement, if he or she desires to do so, and to be available
to respond to appropriate questions at the Meeting. In the event that the
stockholders disapprove the appointment of KPMG Peat Marwick LLP as independent
public accountants for the Company, the Board of Directors will review its
selection.

VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS

Approval of the appointment of KPMG Peat Marwick LLP as independent
certified public accountants for the Company for the year ending December 31,
1998 requires the affirmative vote of a majority of the combined Votes Cast.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1998.

25
<PAGE>

OTHER MATTERS

The Company knows of no other matters to be submitted at the Meeting. If
any other matters properly come before the Meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board of Directors may recommend.

BY ORDER OF THE BOARD OF DIRECTORS OF

NATIONAL QUALITY CARE, INC.

BY: /S/ VICTOR GURA, M.D.
------------------------------------
VICTOR GURA, M.D.
CHIEF EXECUTIVE OFFICER

LOS ANGELES, CALIFORNIA
JUNE 3, 1998

26
<PAGE>
NATIONAL QUALITY CARE, INC.
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS
FOR AN ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 7, 1998

The undersigned stockholder appoints Victor Gura, M.D. and Ron Berkowitz, or
either of them, as proxy with full power of substitution, to vote the shares of
voting securities of National Quality Care, Inc. (the "Company") which the
undersigned is entitled to vote at the Annual Meeting of Stockholders to be held
at The Nikko Hotel, 465 South La Cienega Boulevard, Westwood Room, Los Angeles,
California 90048, on July 7, 1998, at 10:00 a.m., local time, and at any
adjournments thereof, upon matters properly coming before the meeting, as set
forth in the Notice of Annual Meeting and Proxy Statement, both of which have
been received by the undersigned. Without otherwise limiting the general
authorization given hereby, such proxy is instructed to vote as follows:

THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE PROPOSALS INDICATED ON THIS CARD AND AS SUCH
PROXIES DEEM ADVISABLE WITH DISCRETIONARY AUTHORITY ON SUCH OTHER BUSINESS AS
MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENT OR ADJOURNMENTS
THEREOF.

1. ELECTION OF DIRECTORS FOR all nominees listed below WITHHOLD AUTHORITY
(EXCEPT AS MARKED TO THE TO VOTE FOR ALL
CONTRARY BELOW) / / NOMINEES LISTED
BELOW / /

(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME LISTED BELOW)

Victor Gura, M.D., Ronald P. Lang, M.D., Jose Spiwak, M.D., Melinda
McIntyre-Kolpin

2. To adopt the Company's 1998 Stock Option Plan (the "1998 Stock Option Plan")
and to reserve up to 1,000,000 shares of the Company's Common Stock for issuance
under the 1998 Stock Option Plan.

/ / FOR / / AGAINST / / ABSTAIN

3. To approve the form of indemnification agreements between the Company and
the members of the Company's Board of Directors.

/ / FOR / / AGAINST / / ABSTAIN

4. To ratify the appointment of KPMG Peat Marwick LLP, as independent certified
public accountants for the Company for the year ending December 31, 1998.

/ / FOR / / AGAINST / / ABSTAIN

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

(CONTINUED ON REVERSE SIDE)
<PAGE>
IN HIS DISCRETION, THE PROXY IS AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING.
DATED _______________________, 1998
___________________________________
Signature
___________________________________
Signature (if held jointly)
___________________________________
Print Names

(Please sign exactly as your name
appears hereon. When signing as
attorney, executor, administrator,
trustee or guardian, please give
your full title. If shares are
jointly held, each holder must
sign. If a corporation, please sign
in full corporate name by President
or other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.)

PLEASE CHECK THE BOXES ABOVE, SIGN, DATE AND RETURN THIS PROXY TO AMERICAN
SECURITIES TRANSFER, INC., 938 QUAIL STREET, SUITE 101, LAKEWOOD, COLORADO
80215-5513, ATTN: PROXY DEPARTMENT, IN THE SELF-ADDRESSED ENVELOPE PROVIDED.