IGI INC, DEF 14A, 1997-04-17

IGI INC
DEF 14A, 1997-04-17
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

Previous: NORTH EAST INSURANCE CO, PRE 14A, 1997-04-17

Next: NORTH VALLEY BANCORP, DEF 14A, 1997-04-17

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

IGI, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required.
/_/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

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

_____________________________________________________________________________

2) Aggregate number of securities to which transaction applies:

_____________________________________________________________________________

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

_____________________________________________________________________________

4) Proposed maximum aggregate value of transaction:

_____________________________________________________________________________

5) Total fee paid:
_____________________________________________________________________________

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

1) Amount previously paid: _________________________________________________

2) Form, Schedule or Registration No: ______________________________________

3) Filing Party: ___________________________________________________________

4) Date Filed: _____________________________________________________________

<PAGE>

IGI, INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 1997

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of IGI,
Inc., a Delaware corporation (the "Company"), will be held on Tuesday, May 13,
1997 at 10:00 a.m. at the offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts (the "Meeting") for the purpose of considering and voting upon the
following matters:

1. To elect eight directors to serve until the next Annual Meeting of
Stockholders.

2. To approve an amendment to the Company's 1991 Stock Option Plan
(the "Plan") increasing the number of shares of Common Stock
authorized for issuance from 1,900,000 to 2,600,000 and providing
for the grant of additional options to non-employee directors.

3. To ratify the appointment of Coopers & Lybrand L.L.P. as
independent auditors of the Company for the current fiscal year.

4. To transact such other business as may properly come before the
Meeting or any adjournment thereof.

The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.

The Board of Directors has fixed the close of business on Friday, March 28,
1997 as the record date for the determination of stockholders entitled to notice
of and to vote at the Meeting and at any adjournments thereof.

A copy of the Company's Annual Report to Stockholders for the year ended
December 31, 1996, which contains financial statements and other information of
interest to stockholders, accompanies this Notice and the enclosed Proxy
Statement.

By Order of the Board of Directors,

DONALD J. MACPHEE,
Secretary

April 16, 1997

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. NO POSTAGE NEED
BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.

<PAGE>

IGI, INC.

WHEAT ROAD AND LINCOLN AVENUE
BUENA, NEW JERSEY 08310

------------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 1997
------------------------------

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of IGI, Inc. (the "Company") for use at the
Annual Meeting of Stockholders to be held on Tuesday, May 13, 1997 at 10:00 a.m.
at the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts, and
at any adjournments thereof (the "Meeting").

All proxies will be voted in accordance with the instructions of the
stockholder. If no choice is specified, the proxies will be voted in favor of
the proposals set forth in the accompanying Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before its exercise by delivery of a
written revocation to the Secretary of the Company. Attendance at the Meeting
will not itself be deemed to revoke a Proxy unless the stockholder gives
affirmative notice at the Meeting that the stockholder intends to revoke the
Proxy and vote in person.

Only the record holders of shares of common stock, $.01 par value per
share, of the Company (the "Common Stock") at the close of business on March 28,
1997 may vote at the Meeting. Each share entitles the record holder to one vote
on each of the matters to be voted upon at the Meeting. On March 28, 1997, there
were 9,433,599 shares of Common Stock outstanding.

The Notice of Meeting, this Proxy Statement, the enclosed Proxy and the
Company's Annual Report for the year ended December 31, 1996 are being mailed to
stockholders on or about April 16, 1997.

BENEFICIAL OWNERSHIP OF COMMON STOCK

The following table sets forth information as of March 15, 1997 with
respect to the beneficial ownership of shares of Common Stock by (i) each person
known to the Company to own beneficially more than 5% of the outstanding shares
of Common Stock, (ii) the directors of the Company, (iii) the Chief Executive
Officer and the four executive officers of the Company listed in the "Summary
Compensation Table" below (collectively, the "Named Executive Officers") and
(iv) the directors and executive officers of the Company as a group. Unless
otherwise noted, the persons named in the table have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned by
them.

NUMBER PERCENT
BENEFICIAL OWNER OF SHARES OF CLASS
- ---------------- --------- --------
Charles B. Ganz ................................ 1,721,700(1) 18.3%
2875 N.E. 191st Street
Penthouse I
North Miami Beach, FL 33180

Edward B. Hager, M.D. .......................... 1,016,550(2) 10.3%
Pinnacle Mountain Farms
Lyndeboro, NH 03082

John P. Gallo .................................. 613,397(3) 6.3%
Country Club Lane
Buena, NJ 08310

<PAGE>

NUMBER PERCENT
BENEFICIAL OWNER OF SHARES OF CLASS
- ---------------- --------- ---------
Stephen J. Morris .............................. 559,435(4) 5.9%
66 Navesink Avenue
Rumson, New Jersey

Jane E. Hager .................................. 545,000(5) 5.7%
Pinnacle Mountain Farms
Lyndeboro, NH 03082

David G. Pinosky, M.D........................... 284,900(6) 3.0%
Terrence O'Donnell.............................. 50,000(7) *
Constantine L. Hampers, M.D..................... 43,000(8) *
Terrence D. Daniels............................. 20,000(9) *
Paul D. Paganucci............................... 20,000(9) *
Stephen G. Hoch................................. 37,750(10) *
Lawrence N. Zitto............................... 57,500(11) *
Donald J. MacPhee............................... 44,500(12) *
All executive officers and directors,
as a group (13 Persons)....................... 2,790,347(13) 26.2%

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

* Less than 1% of the Common Stock outstanding.

(1) The information reported is based on a Schedule 13G, dated December 31,
1996, filed with the Securities and Exchange Commission (the "Commission")
by Charles B. Ganz ("Ganz"), Ganz Capital Management, Inc. ("GCM"), The
Probitas Fund, L.P. ("Fund"), Probitas Advisors, Inc. ("Advisors") and The
Probitas Offshore Fund, L.P. ("Offshore Fund"). Ganz is President of each
of GCM and Advisors, which are registered investment advisers that invest
and manage funds on behalf of their clients. Advisors acts as General
Partner for Fund and as Investment General Partner for Offshore Fund. Ganz,
through his affiliations with GCM, Fund, Advisors and Offshore Fund, has
voting and investment power with respect to an aggregate of 1,721,700
shares of Common Stock. GCM disclaims beneficial ownership with respect to
the shares of Common Stock held by Advisors, Fund and Offshore Fund, and
Advisors, Fund and Offshore Fund disclaim beneficial ownership with respect
to the shares held by GCM.

(2) Includes 395,000 shares which Dr. Hager may acquire pursuant to stock
options exercisable within 60 days after March 15, 1997, but does not
include any of the shares (listed below) beneficially owned by Dr. Hager's
wife, Jane E. Hager, as to which Dr. Hager disclaims beneficial ownership.

(3) Includes 295,000 shares which Mr. Gallo may acquire pursuant to stock
options exercisable within 60 days after March 15, 1997.

(4) The information reported is based on a Schedule 13D dated June 13, 1994 and
filed with the Commission by Stephen J. Morris. Mr. Morris has sole voting
power with respect to 549,400 shares, shared voting power with respect to
10,035 shares and sole investment power with respect to 559,435 shares.

(5) Does not include any of the shares (listed above) beneficially owned by Dr.
Hager, as to which Mrs. Hager disclaims beneficial ownership. Includes
120,000 shares which may be acquired pursuant to stock options exercisable
within 60 days after March 15, 1997.

(6) Includes 120,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1997.

(7) Consists of 50,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1997.

<PAGE>

(8) Includes 40,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1997.

(9) Consists of 20,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1997.

(10) Consists of 37,750 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1997.

(11) Includes 42,500 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1997.

(12) Consists of 44,500 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1997.

(13) Includes 1,229,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1997.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock ("Reporting Persons") to
file with the Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Based
solely on its review of copies of reports filed by Reporting Persons furnished
to the Company, the Company believes that during 1996 its officers, directors
and holders of more than 10% of the Company's Common Stock complied with all
Section 16(a) filing requirements.

VOTES REQUIRED

The holders of a majority of the shares of Common Stock outstanding shall
constitute a quorum for the transaction of business at the Meeting. Shares of
Common Stock present in person or represented by proxy (including shares which
abstain or do not vote with respect to one or more of the matters presented for
stockholder approval) will be counted for purposes of determining whether a
quorum exists at the Meeting.

The affirmative vote of the holders of a plurality of the shares of Common
Stock voted at the Meeting is required for the election of directors. The
affirmative vote of the holders of a majority of the shares of Common Stock
voted at the Meeting is required to approve the amendment to the 1991 Stock
Option Plan and to ratify the appointment of Coopers & Lybrand L.L.P. as
independent auditors of the Company.

Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes cast in favor of such matter, and also will
not be counted as shares voting on such matter. Accordingly, abstentions and
"broker non-votes" will have no effect on the voting on a matter that requires
the affirmative vote of the holders of a certain percentage of the shares of
Common Stock voting on a matter.

PROPOSAL 1 -- ELECTION OF DIRECTORS

NOMINEES FOR ELECTION AS DIRECTORS

The persons named as proxies in the accompanying Proxy intend (unless
authority to vote therefor is specifically withheld) to vote for the election of
the eight persons named below as directors to hold office until the next Annual
Meeting of Stockholders and until their respective successors are elected and
qualified. Each nominee is presently serving as a director of the Company and
has consented to being named in this Proxy Statement and to serve if elected. If
any of the nominees becomes unavailable to serve as a director, the persons
named as proxies in the accompanying Proxy may vote the Proxy for substitute
nominees. The Board of Directors has no reason to believe that any of the
nominees will be unable to serve if elected.

<PAGE>

The following table sets forth certain information with respect to the
nominees:

<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION, OTHER BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS AND OTHER DIRECTORSHIPS
- ---- --- -------- -----------------------------------------------
<S> <C> <C> <C>
Edward B. Hager, M.D. ................... 65 1977 Chairman of the Board of Directors and Chief Executive
Officer of IGI, Inc. since 1977; Chairman of the Board
of Directors and Chief Executive Officer of Novavax,
Inc. from 1987 to June 1996; Chairman of the Board of
Directors of Novavax, Inc. since February 1997; Dr.
Hager is the husband of Jane E. Hager.

John P. Gallo............................ 54 1985 President and Chief Operating Officer of IGI, Inc. since
1985; Chief Operating Officer and Treasurer of
Novavax, Inc. from September 1995 to June 30, 1996 and
September 1995 to May 1996, respectively; President of
Novavax, Inc. from January through September 1995;
Vice President of IGI, Inc. from 1983 to 1984; Vice
President of Vineland Laboratories, Inc. and Evsco
Pharmaceutical Corp. from 1973 to 1983; Director and
Executive Committee member of Board of Directors of
Novavax, Inc.

Jane E. Hager............................ 51 1977 President of Prescott Investment Corp. (real estate
development), Lyndeboro, NH since 1991; former
Treasurer and Secretary of IGI, Inc.; Director of
Fleet Bank-NH, Nashua, NH since 1986; Treasurer and
Trustee of the University System of New Hampshire;
Overseer of Dartmouth Mary Hitchcock Hospital;
Incorporator of New Hampshire Charitable Fund,
Concord, NH; Director of Novavax, Inc.; Mrs. Hager is
the wife of Edward B. Hager.

David G. Pinosky, M.D. .................. 67 1980 Member of the faculty of the University of Miami School
of Medicine since 1963; Medical Director, Psychiatric
Unit, Palmetto General Hospital, Hialeah, FL since
1986; President, Miami Psychiatric Associates since
1971; Medical Director of Highland Park General
Hospital, Miami, FL from 1971 to 1986.

Terrence O'Donnell....................... 53 1993 Member of law firm of Williams & Connolly, Washington,
D.C. since March 1992 and from March 1977 to October
1989; General Counsel of Department of Defense from
October 1989 to March 1992; Special Assistant to
President Ford from August 1974 to January 1977;
Deputy Special Assistant to President Nixon from May
1972 to August 1974; Director of MLC Holdings.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION, OTHER BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS AND OTHER DIRECTORSHIPS
- ---- --- -------- -----------------------------------------------
<S> <C> <C> <C>
Constantine L. Hampers, M.D. ............ 64 1994 Chief Executive Officer of MDL Consulting Associates
since 1996; Chairman of the Board of Directors and
Chief Executive Officer of National Medical Care,
Inc., a provider of in-center and home kidney dialysis
services and products, from 1968 to 1996; Executive
Vice President and Director of W. R. Grace & Co. ("W.
R. Grace") from 1991 to 1996; Director of Artificial
Kidney Services at Peter Bent Brigham Hospital and
Assistant Professor of Medicine at Harvard University
School of Medicine prior to 1968 and for several years
thereafter.

Paul D. Paganucci........................ 66 1996 Chairman of the Board of Directors of Ledyard National
Bank since 1991; Chairman of the Executive Committee
of Board of Directors of W.R. Grace from 1989 to 1991;
Vice Chairman of W.R. Grace from 1986 to 1989;
Executive Vice President of W.R. Grace from January
1986 to November 1986; Director of HRE Properties,
Inc., Filene's Basement, Inc. and Allmerica Securities
Trust.

Terrence D. Daniels...................... 54 1996 President of Quad-C (a structured investment firm) since
1990; Vice Chairman of W.R. Grace & Co. from 1986 to
1989; Director of DSG International Ltd., Eskimo Pie
Corporation and Stimsonite Corporation.
</TABLE>

For information relating to shares of the Company owned by each of the
directors, see "Beneficial Ownership of Common Stock."

BOARD AND COMMITTEE MEETINGS

The Board of Directors met four times during 1996. Each of the current
directors attended at least 75% of the meetings of the Board of Directors and
the committees on which he or she served. The Board of Directors has an
Executive Committee, an Audit Committee, an Independent Committee of Outside
Directors, a Financial Affairs Committee and a Compensation and Stock Option
Committee.

The Executive Committee, whose members are Drs. Hager and Hampers, Mr.
Gallo and Mrs. Hager, has the authority to exercise the powers of the Board of
Directors between Board meetings. The Audit Committee, whose members are Dr.
Pinosky, Messrs. O'Donnell (Chairman) and Paganucci and Mrs. Hager, reviews the
audit of the Company's accounts, monitors the effectiveness of the audit and
evaluates the scope of the audit. The Independent Committee of Outside
Directors, whose members are Drs. Hampers and Pinosky and Messrs. O'Donnell,
Daniels and Paganucci, reviews and approves transactions between Novavax and the
Company and transactions between management and the Company. The Financial
Affairs Committee, whose members are Dr. Hampers, Mr. O'Donnell and Mrs. Hager
(Chairman), advises management with respect to the investment of the Company's
liquid assets. The Compensation and Stock Option Committee, whose members are
Drs. Hampers and Pinosky and Messrs. Daniels and O'Donnell, reviews and
recommends salaries and other compensatory benefits for the principal officers
of the Company and grants stock options to key employees of the Company and its
subsidiaries. John O. Marsh, Jr., a former director of the Company, was Chairman
of the Compensation and Stock Option Committee and a member of the Audit
Committee, Independent Committee of Outside Directors and Financial Affairs
Committee until his resignation from the Board of Directors in October 1996.
During 1996, neither the Executive

<PAGE>

Committee, the Financial Affairs Committee nor the Independent Committee of
Outside Directors met, and the Compensation and Stock Option Committee and the
Audit Committee each met three times. The Company has no nominating committee of
the Board of Directors.

DIRECTOR COMPENSATION AND STOCK OPTIONS

Each director not employed by the Company receives $2,000 for each meeting
of the Board of Directors he or she attends.

Pursuant to the Company's 1991 Stock Option Plan (the "1991 Plan"), each
director who is not an employee of the Company (an "Eligible Director") is
granted a stock option for the purchase of 20,000 shares of Common Stock sixty
days after his or her initial election as a director. In addition, the 1991 Plan
provides that each Eligible Director will be granted a stock option to purchase
10,000 shares of Common Stock on the last business day of each of the calendar
years through 1996. Each Eligible Director elected on or after March 13, 1991
received an option for the initial grant of 20,000 shares, and each Eligible
Director then serving as a director received additional options for 10,000
shares in each of 1992, 1993, 1994, 1995 and 1996. Options granted to Eligible
Directors are exercisable in full beginning on the date which is six months
after the date of grant and terminate ten years after the date of grant. Such
options cease to be exercisable at the earlier of their expiration or three
years after an Eligible Director ceases to be a director for any reason. In the
event that an Eligible Director ceases to be a director on account of his death,
his outstanding options (whether exercisable or not on the date of death) may be
exercised within three years after such date (subject to the condition that no
such option may be exercised after the expiration of ten years from its date of
grant). See "PROPOSAL 2 -- PROPOSED INCREASE IN SHARES AUTHORIZED UNDER THE 1991
STOCK OPTION PLAN AND GRANT OF ADDITIONAL OPTIONS TO NON-EMPLOYEE DIRECTORS."

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In December 1995, the Company spun off the biotechnology business conducted
by its then majority-owned subsidiary, Novavax, Inc. ("Novavax"), through a
distribution (the "Distribution") to the Company's stockholders of all of the
Common Stock of Novavax ("Novavax Company Stock") held by the Company. The
Distribution was made on December 12, 1995 (the "Distribution Date") to holders
of record of the Company's Common Stock on November 28, 1995 on the basis of one
share of Novavax Common Stock for each share of the Company's Common Stock held
by the Company's stockholders. Dr. Edward B. Hager and Mr. John P. Gallo,
directors of the Company, Mrs. Jane E. Hager and Mr. John O. Marsh, Jr., a
former director of the Company, serve on the ten-member Board of Directors of
Novavax. Dr. Hager served as the unpaid Chairman of the Board and Chief
Executive Officer. Mr. Gallo served as Treasurer of Novavax until May 1996 and
as Chief Operating Officer of Novavax until June 1996. Dr. Denis M. O'Donnell, a
Vice President of the Company from 1991 to 1996, is currently President of
Novavax. Dr. Hager, Mr. Gallo and Mrs. Hager beneficially owned approximately
10.8%, 6.5% and 5.3% of the outstanding shares of Novavax Common Stock
immediately following the Distribution. Currently, Dr. Hager, Mr. Gallo and Mrs.
Hager own approximately 9.6%, 6.1% and 4.7% of the outstanding shares of Novavax
Common Stock, respectively.

To facilitate the spinoff of Novavax, the Company and Novavax entered into
a Transition Services Agreement (the "Transition Services Agreement"). Through
June 30, 1996, the Company provided certain administrative services to Novavax
pursuant to the Transition Services Agreement, including services relating to
human resources, purchasing and accounting, data processing and payroll
services. Novavax paid the Company a fee for all services provided by Company
employees, based on the standard hourly rate of such Company employee, as well
as all out-of-pocket expenses reasonably incurred by the Company. The Company
had the right to increase the fees it charged Novavax for the scheduled
services, but only to the extent that the Company's cost of providing such
services to Novavax increased. Novavax employees were eligible to participate in
certain of the Company's benefit programs. Novavax reimbursed the Company for
the costs and expenses associated with the provisions of the foregoing services.

<PAGE>

In addition to the services described in the Transition Services Agreement,
Edward B. Hager served as Chairman of the Board and Chief Executive Officer and
John P. Gallo served as Chief Operating Officer and Treasurer of Novavax no
later than June 30, 1996 (the "Transition Termination Date"). Prior to the
Transition Termination Date, Dr. Hager continued to devote the majority of his
time to the Company and received no compensation for his services as an officer
of Novavax. Mr. Gallo devoted approximately one half of his business time
through the Transition Termination Date to Novavax and its business, and the
Company and Novavax each paid Mr. Gallo one half of his annual compensation. In
February 1997, Dr. Hager became Chairman of the Board of Directors of Novavax.
See "Employment Agreements."

During 1996, Novavax paid the Company an aggregate of $230,474 in
connection with the foregoing arrangements.

In November 1990, the Company advanced $70,000 to Mr. Gallo, the
President of the Company, for educational expenses of his children. Mr. Gallo
issued to the Company a note bearing interest at the Company's bank borrowing
rate plus 1/4% per annum and secured by 10,000 shares of Common Stock. As of
February 28, 1997, the amount of indebtedness outstanding was $116,696, which is
the largest amount of indebtedness outstanding under the note since January 1,
1996.

During 1996, Dr. Hager and other Company personnel traveled on Company
business on an airplane owned by a company which is wholly-owned by Jane E.
Hager, his wife and a director of the Company. Total charges billed to the
Company for its use of the airplane in 1996 were $57,054. The Board of Directors
authorized use of the aircraft for business travel, provided that (i) the air
travel rate billed to the Company for use of the airplane be at least as
favorable as the rate charged by private aircraft owners unaffiliated with the
Company, and (ii) use of the airplane be limited to 100 hours at $1,350 per
hour.

The Company has a $12,000,000 revolving credit facility and a $10,000,000
working capital line of credit with Fleet Bank -- NH and Mellon Bank, N.A. Mrs.
Hager, a director of the Company, has been a director of Fleet Bank -- NH since
1986.

<PAGE>

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and the four most highly compensated executive officers
of the Company who received compensation in excess of $100,000 during 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
AWARDS
ANNUAL COMPENSATION -------------
--------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION(1) OPTIONS(2) COMPENSATION(3)
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
------------------ ---- -------- ------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Edward B. Hager ................ 1996 $345,455 -- -- 50,000 $12,864
Chief Executive Officer 1995 314,050 $55,000 -- 50,000 12,062
1994 285,500 55,000 $ 1,475 50,000 9,643

John P. Gallo (4) .............. 1996 345,455 -- 44,860 50,000 12,772
President and Chief 1995 314,050 50,000 41,777 50,000 12,062
Operating Officer 1994 285,500 50,000 38,668 50,000 9,643

Stephen G. Hoch ................ 1996 200,293 10,000 7,200 5,000 9,128
Vice President 1995 186,886 5,000 7,200 5,000 9,609
1994 177,021 5,000 7,200 8,000 9,528

Lawrence N. Zitto .............. 1996 155,138 10,000 7,200 10,000 11,562
Vice President 1995 140,196 10,000 7,200 10,000 11,727
1994 128,999 7,000 7,200 10,000 9,189

Donald J. MacPhee .............. 1996 142,104 10,000 7,200 10,000 11,488
Vice President 1995 129,605 10,000 7,200 10,000 11,514
1994 120,364 7,500 7,200 10,000 9,120
</TABLE>

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

(1) The amounts shown in this column represent automobile allowances, medical
expense reimbursement, housing allowances and compensation for unused
vacation time. Mr. Gallo received $38,653, $36,237 and $32,943 in 1996,
1995 and 1994, respectively, as compensation for unused vacation time.

(2) The Company has never granted any stock appreciation rights.

(3) The amounts shown in this column represent premiums for group life
insurance and medical insurance paid by the Company and the Company's
contributions under its 401(k) plan. The group life insurance premiums paid
by the Company for each of Dr. Hager and Messrs. Gallo, Hoch, Zitto and
MacPhee for the last fiscal year were $1,258. The medical insurance
premiums paid by the Company for each of Dr. Hager and Messrs. Gallo, Hoch,
Zitto and MacPhee were $9,023, $9,023, $5,359, $7,761 and $7,761,
respectively. The Company's matching contributions under its 401(k) savings
plan to each of Dr. Hager and Messrs. Gallo, Hoch, Zitto and MacPhee for
the last fiscal year were $2,583, $2,491, $2,511, $2,543 and $2,469,
respectively.

(4) In connection with the December 1995 spinoff of Novavax, a formerly
majority-owned subsidiary of the Company, Mr. Gallo also served as Chief
Operating Officer and Treasurer of Novavax from January 1996 to June 30,
1996. Pursuant to a Transition Services Agreement entered into by the
Company and Novavax to facilitate the spinoff, Novavax agreed to pay half
of Mr. Gallo's salary during this time. See "Certain Relationships and
Related Transactions."

<PAGE>

STOCK OPTIONS

The following tables summarize option grants and exercises during 1996 to
or by the Named Executive Officers, and the value of the options held by such
persons at the end of 1996. No SARs were granted or exercised during 1996.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
--------------------------------------------------------- ASSUMED ANNUAL RATES OF
NUMBER OF STOCK
SECURITIES PRICE APPRECIATION FOR
UNDERLYING % OF TOTAL OPTION TERM (3)
OPTIONS OPTIONS GRANTED EXERCISE OR ------------------------
GRANTED TO EMPLOYEES BASE PRICE EXPIRATION 5% 10%
NAME (#) IN FISCAL YEAR ($/SHARE) DATE $ $
- ------------------------------- ------------- ----------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Edward B. Hager(1) ............ 50,000 22.2% $5.75 12/10/06 $181,125 $457,125
John P. Gallo(1) .............. 50,000 22.2 5.75 12/10/06 181,125 457,125
Stephen G. Hoch(2) ............ 5,000 2.2 5.75 12/10/06 18,113 45,713
Lawrence N. Zitto(2) .......... 10,000 4.4 5.75 12/10/06 36,225 91,425
Donald J. MacPhee(2) .......... 10,000 4.4 5.75 12/10/06 36,225 91,425
</TABLE>

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

(1) Options are exercisable in full six months after the date of grant.

(2) Options are exercisable one year after the date of grant, with 25% of the
shares covered thereby becoming exercisable at that time and with an
additional 25% of the shares becoming exercisable on each successive
anniversary date, with full vesting occurring on the fourth anniversary
date.

(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the dates the respective options were granted to
their expiration dates.

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

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE AT FISCAL YEAR-END AT FISCAL YEAR-END
EXERCISE REALIZED (#) ($)
NAME (#) ($) (1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)
- ---------------------------------- ----------- ----------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Edward B. Hager .................. -- -- 395,000/50,000 $344,700/$50,000
John P. Gallo .................... 50,000 $199,750 295,000/50,000 169,700/50,000
Stephen G. Hoch .................. 12,500 52,750 37,750/12,750 14,925/5,450
Lawrence N. Zitto ................ -- -- 42,500/25,000 33,465/11,175
Donald J. MacPhee ................ -- -- 44,500/25,000 42,200/11,175
</TABLE>

- ------------------
(1) Represents the difference between the exercise price and the last sales
price of the Common Stock on the date of exercise.

(2) Value based on market value of the Company's Common Stock at the end of
fiscal 1996 ($6.75 per share) minus the exercise price.

EMPLOYMENT AGREEMENTS

Pursuant to employment agreements between the Company and each of Dr. Hager
and Mr. Gallo, the terms of which agreements were extended by the Board of
Directors in December 1994, each of them will be entitled to a 10% increase in
salary for each year through 1999. In addition, each of these officers is
entitled to continuation of his salary until December 31, 1999 if terminated
without cause prior to that date. Pursuant to the terms of the Transition
Services Agreement between the Company and Novavax, Mr. Gallo devoted
approximately one half of his business time through June 30, 1996 to

<PAGE>

Novavax and its business, and the Company and Novavax each paid Mr. Gallo one
half of his annual compensation. See "Certain Relationships and Related
Transactions."

Each of Dr. Hager and Mr. Gallo is bound by certain non-compete and
non-solicitation obligations for five years after termination of employment or
such longer period during which he receives severance payments under the
employment agreement.

REPORT OF THE COMPENSATION COMMITTEE

Overview and Philosophy

The Compensation and Stock Option Committee of the Board of Directors (the
"Committee") is composed of four non-employee directors and is responsible for
the development and administration of the Company's executive compensation
policies and programs, subject to the review and approval by the full Board. The
Committee reviews and recommends to the Board for its approval the salaries and
incentive compensation for the executive officers of the Company and grants
stock options to executives and other key employees of the Company and its
subsidiaries.

The objectives of the Company's executive compensation program are to:

o Support the achievement of strategic goals and objectives of the Company.

o Attract and retain key executives critical to the long-term success of
the Company.

o Align the executive officers' interests with the success of the Company.

Compensation Program

The Company's executive compensation program consists of three principal
elements -- base salary, annual cash incentive compensation and long-term
incentive compensation in the form of stock options.

The base salaries of Dr. Hager and Mr. Gallo have been established
pursuant to the terms of employment agreements between each of them and the
Company. See "Employment Agreements." Base salary levels for the Company's
executive officers are generally established based on a review of compensation
for competitive positions in the market, the executives' job skills and
experience and judgments as to past and future contributions of the executives
to the Company's success. Because the Company is engaged in the animal health
products and skin care products businesses, it is difficult to make meaningful
comparisons with similar companies. The Committee seeks to set the annual base
salaries of its executives at levels competitive with those paid to executives
in these businesses. It seeks, however, to provide its executives with
opportunities for substantially higher compensation through annual incentive
awards and stock options.

The annual cash incentive compensation is designed to tie annual awards to
Company and individual executive performance. Accordingly, the Committee
considered a number of factors in determining whether annual incentive awards
should be paid, including (i) achievement by the Company and/or specific
business units of approved budgets, new product introductions, progress in
development of new products and operating income and cash flow goals and
(ii) achievement by the executives of their assigned objectives. In considering
individual performance, as contrasted to Company performance, the Committee
relies more on subjective evaluations of executive performance than on
quantitative data or objective criteria.

Long-term incentives for executive officers and key managers are provided
through stock options. The objectives of this program are to align executive and
stockholder long-term interests by creating a strong and direct link between
executive compensation and stockholder return, and to enable executives to
develop and maintain a significant, long-term stock ownership position in the
Company's Common Stock.

Stock options are granted at an option price equal to the fair market value
of the Company's Common Stock on the date of grant and will only have value if
the Company's stock price increases. In selecting executives eligible to receive
option grants and determining the amount of such grants, the

<PAGE>

Committee evaluates a variety of factors including (i) the job level of the
executive, (ii) option grants awarded by competitors to executives at a
comparable job level, and (iii) past, current and prospective service to the
Company rendered, or to be rendered, by the executive. It has been the Company's
practice to fix the exercise price of option grants at 100% of the fair market
value per share on the date of grant.

Chief Executive Officer's 1996 Compensation

Dr. Edward B. Hager, Chairman of the Board and Chief Executive Officer of
the Company, is eligible to participate in the same executive compensation plans
available to the other Company executives. The Committee has set Dr. Hager's
total annual compensation, including annual incentive awards and potential
additional compensation derived from the Company's stock option program, at a
level it believes is competitive with other comparable companies.

Dr. Hager's annual compensation is governed in large part by the terms of
his employment agreement with the Company. In December 1994, the Company
extended the term of Dr. Hager's agreement through December 31, 1999. This
agreement provides that Dr. Hager will be entitled to a 10% increase in his base
salary each year. For 1996, Dr. Hager's salary was $345,455, an increase of
$31,405 (10%) over his salary for 1995.

In determining Dr. Hager's stock option award, the Committee considered not
only the value added to the Company by Dr. Hager's extensive medical expertise
but also the diverse nature and competing demands of the business conducted by
the Company. The Committee granted him stock options in 1996 for the purchase of
50,000 shares of Common Stock of the Company. Dr. Hager was not paid a bonus in
1996.

Tax Considerations

Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation over one million
dollars paid to its chief executive officer and its other Named Executive
Officers. Qualifying performance-based compensation will not be subject to the
deduction limit if certain requirements are met. Based on the compensation
received by Dr. Hager and the other Named Executive Officers, it does not appear
that the Section 162(m) limitation will have a significant impact on the Company
in the near term. While the Committee does not currently intend to qualify its
annual cash incentive compensation as a performance-based plan, it will continue
to monitor the impact of Section 162(m) on the Company.

Compensation and Stock Option Committee

Constantine L. Hampers, M.D., Chairman
Terrence D. Daniels
Terrence O'Donnell
David G. Pinosky, M.D.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Drs. Pinosky and Hampers and Mr. O'Donnell served on the Company's
Compensation and Stock Option Committee during 1996. John O. Marsh, Jr., who
resigned from the Board of Directors in October 1996, was Chairman of the
Compensation Committee until his resignation. Mr. Daniels was appointed to the
Board of Directors to replace Mr. Marsh.

<PAGE>

COMPARATIVE STOCK PERFORMANCE

The graph below compares the cumulative total stockholder return on the
Common Stock of the Company for the last five fiscal years with the cumulative
total return on the AMEX Composite Index and a peer group over the same period
(assuming the investment of $100 in the Company's Common Stock, the AMEX
Composite Index and the peer group on December 31, 1991, and reinvestment of all
dividends). The peer group consists of the Company, The Liposome Company, Inc.,
Sequus Pharmaceuticals (formerly Liposome Technology, Inc.), Nexstar
Pharmaceuticals (formerly Vestar, Inc.) and Advanced Polymer Systems, Inc.

160

140

120

100

12-31/91 12-31-92 12-31-93 12-31-94 12-31-95 12-31-96

--x-- IGI --o-- PEER GROUP --z-- AMEX COMPOSITE

<TABLE>
<CAPTION>
12-31-91 12-31-92 12-31-93 12-31-94 12-31-95 12-31-96
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
IGI....................... $100 $ 70 $ 61 $ 83 $ 87 $ 71
Peer Group................ $100 $ 70 $ 50 $ 51 $107 $107
AMEX Composite............ $100 $101 $121 $110 $139 $146
</TABLE>

PROPOSAL 2 -- PROPOSED INCREASE IN SHARES AUTHORIZED
UNDER THE 1991 STOCK OPTION PLAN AND GRANT OF
ADDITIONAL OPTIONS TO NON-EMPLOYEE DIRECTORS

On March 19, 1997, the Company's Board of Directors adopted, subject to
stockholder approval, an amendment to the Company's 1991 Stock Option Plan (the
"1991 Plan") increasing the number of shares of Common Stock authorized for
issuance under the 1991 Plan from 1,900,000 to 2,600,000 and providing that each
Eligible Director (as defined below) then serving as a director shall be granted
a nonstatutory option to purchase 10,000 shares of Common Stock on each of the
last business days of 1997, 1998 and 1999. The Board of Directors believes that
stock options have been, and will continue

<PAGE>

to be, an important element in attracting and maintaining key employees and
directors. The Company does not believe that the current number of shares
authorized under the 1991 Plan is adequate for the Company's needs. As of March
19, 1997, 155,000 shares of Common Stock remained available for future grants of
stock options under the 1991 Plan.

Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), enacted in 1993, generally disallows a tax deduction to public
companies for compensation over $1 million paid to the corporation's Chief
Executive Officer and four other most highly compensated executive officers.
Qualifying performance-based compensation is not subject to the deduction limit
if certain requirements are met. In particular, income recognized upon the
exercise of a stock option is not subject to the deduction limit if the option
was issued under a plan approved by stockholders that provides a limit to the
number of shares that may be issued under the plan to any individual.

ADMINISTRATION AND ELIGIBILITY

The 1991 Plan and the grant of options thereunder is administered by the
Compensation and Stock Option Committee of the Company's Board of Directors. The
Compensation and Stock Option Committee has the power to determine which key
employees of the Company will be granted options under the 1991 Plan, whether
such options will be incentive stock options (ISOs) or nonstatutory stock
options (NSOs), the number of shares of Common Stock covered by, and the
duration of, each option so granted under the 1991 Plan, and other terms and
conditions applicable to each option so granted under the 1991 Plan. All
executive officers and other key employees of the Company and its subsidiaries
are eligible to participate in the 1991 Plan. Consultants and advisors to the
Company and its subsidiaries are eligible to receive NSOs under the 1991 Plan.
At March 19, 1997, the Company and its subsidiaries had approximately 209
full-time employees. The last sale price of the Company's Common Stock reported
by the American Stock Exchange on March 19, 1997 was $5.69 per share.

PURCHASE PRICE AND OPTION TERMS

The price at which shares of Common Stock may be purchased upon the
exercise of options granted under the 1991 Plan is determined by the
Compensation and Stock Option Committee at the time the option is granted. In
the case of ISOs granted to employees and options which the Company intends to
qualify as performance-based compensation under Section 162(m) of the Code, the
exercise price may not be less than the fair market value of a share of Common
Stock on the date the option is granted. In the case of ISOs granted to an
employee who owns more than 10% of the Common Stock at the time of grant, the
exercise price per share may not be less than 110% of such fair market value.
The exercise price per share for NSOs granted to key employees may not be less
than 50% of the fair market value of a share of Common Stock on the date of
grant. The maximum number of shares for which options may be granted in any one
calendar year to any one person is 100,000. In the case of NSOs granted to
Eligible Directors, the exercise price per share shall be the fair market value
of a share on the date of grant. No ISO granted under the 1991 Plan may be
exercised more than ten years after the date of grant, and no ISO granted to a
person who owns more than 10% of the Common Stock at the time of grant may be
exercised more than five years following the date of grant. The 1991 Plan
expires in 2001.

While the Company may grant options which become exercisable at different
times or within different periods, the Company has generally granted options
which are exercisable on a cumulative basis in annual installments of 25% each
during the first, second, third and fourth years after the date of grant. In
1996, the Company granted options to Dr. Hager and Mr. Gallo, the Chief
Executive Officer and President of the Company, respectively, which are
exercisable in full six months after the date of grant.

Except as the Compensation and Stock Option Committee may otherwise
determine or provide in an option grant, options granted under the 1991 Plan
cannot be sold, assigned, transferred, pledged or otherwise encumbered by the
optionee, either voluntarily or by operation of law, except by will or the laws
of descent and distribution. All options granted under the 1991 Plan to key
employees will terminate no later than three months after the severance of the
employment relationship between the Company and the optionee for any reason, for
cause or without cause, other than death. In the event

<PAGE>

that an employee dies before the date of expiration of an option, such option
will terminate one year following the date of death (subject to the condition
that no option is exercisable after the expiration of ten years from its date of
grant).

Optionees who exercise options to purchase securities under the 1991 Plan
may pay cash in the amount of the option exercise price and/or deliver other
shares of Common Stock owned by the optionee with a fair market value equal to
the exercise price of the option shares to be purchased.

In the event of a dissolution, liquidation, merger, consolidation or
reorganization of the Company (an "Event"), the Board may decide to terminate
each outstanding option. If the Board so decides, such option shall terminate as
of the effective date of the Event, but the Board shall provide optionees a
reasonable notice period during which options which are then exercisable may be
exercised.

DIRECTOR OPTIONS

Sixty days after initial election as a non-employee director ("Eligible
Director") by either the Board of Directors or the Company's stockholders, each
Eligible Director is granted NSOs for 20,000 shares of Common Stock. In
addition, each Eligible Director who was a director on the last business day of
each of 1992, 1993, 1994, 1995 and 1996 was granted a nonstatutory option to
purchase 10,000 shares of Common Stock and, if the proposed amendment to the
1991 Plan is approved by the stockholders, each Eligible Director then serving
as a director on the last business day of each of 1997, 1998 and 1999 will be
granted a nonstatutory option to purchase 10,000 shares of Common Stock. The
exercise price per share is the fair market value on the date of grant. Options
granted to Eligible Directors are exercisable in full beginning six months after
the date of grant and terminate ten years after the date of grant. Such options
cease to be exercisable at the earlier of their expiration or three years after
an Eligible Director ceases to be a director for any reason. In the event that
an Eligible Director ceases to be a director on account of his death, his
outstanding options (whether exercisable or not on the date of death) may be
exercised within three years after such date (subject to the condition that no
such option may be exercised after the expiration of ten years from its date of
grant).

FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the United States federal income tax
consequences that generally will arise with respect to options granted under the
1991 Plan and with respect to the sale of Common Stock acquired under the 1991
Plan.

Incentive Stock Options

In general, a participant will not recognize taxable income upon the grant
or exercise of an incentive stock option. Instead, a participant will recognize
taxable income with respect to an incentive stock option only upon the sale of
Common Stock acquired through the exercise of the option ("ISO Stock"). The
exercise of an incentive stock option may, however, subject the participant to
the alternative minimum tax.

Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.

If the participant sells ISO Stock for more than the exercise price prior
to having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of the
gain recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Stock for more than
one year prior to the date of sale.

If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital

<PAGE>

loss will be a long-term capital loss if the participant has held the ISO Stock
for more than one year prior to the date of sale.

Nonstatutory Stock Options

As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a nonstatutory stock option. Unlike
the case of an incentive stock option, however, a participant who exercises a
nonstatutory stock option generally will recognize ordinary compensation income
in an amount equal to the excess of the fair market value of the Common Stock
acquired through the exercise of the option ("NSO Stock") on the Exercise Date
over the exercise price.

With respect to any NSO Stock, a participant will have a tax basis equal
to the exercise price plus any income recognized upon the exercise of the
option. Upon selling NSO Stock, a participant generally will recognize capital
gain or loss in an amount equal to the excess of the sale price of the NSO Stock
over the participant's tax basis in the NSO Stock. This capital gain or loss
will be a long-term gain or loss if the participant has held the NSO Stock for
more than one year prior to the date of the sale.

Tax Consequences to the Company

The grant of an option under the 1991 Plan will have no tax consequences to
the Company. Moreover, in general, neither the exercise of an incentive stock
option nor the sale of any Common Stock acquired under the 1991 Plan will have
any tax consequences to the Company. The Company generally will be entitled to a
business-expense deduction, however, with respect to any ordinary compensation
income recognized by a participant under the 1991 Plan, including as a result of
the exercise of a nonstatutory stock option or a Disqualifying Disposition. Any
such deduction will be subject to the limitations of Section 162(m) of the Code.
The Company will have a withholding obligation with respect to ordinary
compensation income recognized by participants with respect to NSOs under the
1991 Plan who are employees or otherwise subject to withholding.

BOARD RECOMMENDATION

The Board of Directors believes that the amendment to the 1991 Plan
increasing the number of shares of Common Stock authorized for issuance from
1,900,000 to 2,600,000 shares and providing for the grant of additional options
to non-employee directors is in the best interests of the Company and its
stockholders and recommends that the stockholders vote FOR the amendment.

PROPOSAL 3 -- RATIFICATION OF THE APPOINTMENT OF AUDITORS

The Board of Directors has selected Coopers & Lybrand L.L.P. as auditors of
the Company for the fiscal year ending December 31, 1997, subject to
ratification by stockholders at the Meeting. If this proposal is not approved at
the Meeting, the Board of Directors will reconsider this selection. A
representative of Coopers & Lybrand L.L.P., which served as auditors for the
fiscal year ended December 31, 1996, is expected to be present at the Meeting to
respond to appropriate questions, and to make a statement if he or she so
desires.

STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING

Any proposal that a stockholder intends to present at the 1998 Annual
Meeting of Stockholders must be submitted to the Secretary of the Company at its
offices, Wheat Road and Lincoln Avenue, Buena, New Jersey 08310, no later than
December 17, 1997 in order to be considered for inclusion in the Proxy Statement
relating to that meeting.

<PAGE>

OTHER MATTERS

The Board of Directors knows of no other business which will be presented
for consideration at the Meeting other than that described above. However, if
any other business should come before the Meeting, it is the intention of the
persons named in the enclosed Proxy to vote, or otherwise act, in accordance
with their best judgment on such matters.

The Company will bear the costs of soliciting proxies. In addition to
solicitations by mail, the Company's directors, officers and regular employees
may, without additional remuneration, solicit proxies by telephone, telegraph,
facsimile and personal interviews. The Company will also request brokerage
houses, custodians, nominees and fiduciaries to forward copies of the proxy
material to those persons for whom they hold shares and request instructions for
voting the Proxies. The Company will reimburse such brokerage houses and other
persons for their reasonable expenses in connection with this distribution.

THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION IS
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.

By Order of the Board of Directors,

DONALD J. MACPHEE,
Secretary

April 16, 1997

<PAGE>

APPENDIX A

IGI, INC.
1991 STOCK OPTION PLAN

1. Purpose of Plan

The purpose of this plan (the "Plan") is to encourage key employees,
including officers, of IGI, Inc., a Delaware corporation, ("IGI") and any
present or future subsidiary and parent of IGI (hereinafter collectively
referred to as the "Company") to acquire shares of common stock of IGI, $.01 par
value per share, (the "Common Stock") and thereby increase their proprietary
interest in the Company's success and provide an added incentive to remain in
the employ of the Company. It is also the purpose of the Plan to grant options
to purchase Common Stock to Eligible Directors of IGI (as defined in Section 4
of the Plan) in order to enhance the Company's ability to attract and retain the
services of such persons, to provide additional incentive to them and to
encourage the highest level of performance by them by offering them a
proprietary interest in the Company's success. The words parent and subsidiary
shall be interpreted in accordance with Section 422A and Section 425 of the
Internal Revenue Code of 1986, as from time to time amended (the "Code"). It is
intended that options granted under the Plan shall constitute either "incentive
stock options" within the meaning of Section 422A of the Code, or "non-qualified
options," as determined by the Committee named in Section 3 of the Plan in its
sole discretion and indicated on each form of option grant (the "Option Grant"),
and the terms of the Plan and Option Grants shall be construed accordingly,
provided, however, that Eligible Directors shall be granted only non-qualified
options.

2. Shares Reserved under the Plan

Subject to the adjustment provided in Section 9, the aggregate number of
shares of Common Stock of IGI which may be issued and sold pursuant to options
granted under the Plan shall not exceed 500,000 shares of Common Stock, which
may be either authorized but unissued shares or treasury shares. If any options
granted under the Plan shall terminate or expire without being fully exercised,
the shares which have not been purchased will again become available for
purposes of the Plan.

3. Administration

The Plan shall be administered solely by a committee (the "Committee")
consisting of not less than three (3) members of the Board of Directors of IGI
(the "Board"). None of the members of the Committee shall be, or shall have been
at any time within one year prior to the date of his appointment to the
Committee, a person who in the opinion of counsel to the Company is not a

A-1

<PAGE>

"disinterested person" as such term is used in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Act"). The Committee shall be
appointed by, and shall serve at the pleasure of, the Board of Directors. A
majority of the members present at any meeting at which a quorum is present, and
any acts approved in writing by all of the members of the Committee without a
meeting, shall constitute the acts of the Committee. The Committee shall have
the powers granted to it in Sections 3, 4, 5, 7, and 8 of this Plan. The
Committee is authorized to interpret the Plan and, subject to the provisions of
the Plan, to prescribe, amend, and rescind rules and regulations relating
thereto. The Committee is further authorized, subject to the express provisions
of the Plan, to alter or amend the form of Option Grant attached hereto and to
make all other determinations necessary or advisable in the administration of
the Plan. The interpretation and administration by the Committee of any
provisions of the Plan and the Option Grant shall be final and conclusive on all
persons having any interest therein.

No member of the Committee or the Board shall be held liable for any action
or determination made in good faith with respect to the Plan or any option
granted thereunder.

4. Option Grants

Options to purchase shares of Common Stock under the Plan may be granted to
key employees (including officers and directors who are employees) of the
Company. In selecting the employees to whom options will be granted and in
deciding how many shares of Common Stock will be subject to each option, the
Committee shall give consideration to the importance of an employee's duties, to
his experience with the Company, to his future value to the Company, to his
present and potential contribution to the success of the Company, and to such
other factors as the Committee may deem relevant. Subject to the express
provisions of the Plan and the form of Option Grant incorporated herein by
reference as from time to time altered or amended, the Committee shall have
authority to determine with respect to each Option Grant executed and delivered
to a key employee the number of installments, the number of shares of Common
Stock in each installment, and the exercise dates, and, to the extent not
inconsistent with the applicable provisions of the Code, if any, may specify
additional restrictions and conditions for any Option Grant executed and
delivered to a key employee. Each incentive stock option shall expire not later
than ten years from the date of the grant of such option.

Except as provided in Section 7 below, no incentive stock option may be
granted to any employee who, at the time such option is granted, owns stock
possessing more than 10 percent of the

A-2

<PAGE>

total combined voting power of all classes of stock of the Company within the
meaning of Section 422A of the Code.

The date of grant of an option to a key employee under the Plan shall be
the date the Committee votes to grant the option, but no optionee who is a key
employee shall have the right to exercise his option until the Company has
executed and delivered the Option Grant to such optionee. Each option granted
under the Plan to a key employee shall be evidenced by and subject to the terms
and conditions of the Option Grant which is incorporated into the Plan by
reference as from time to time altered or amended.

No stock option may be transferred by the optionee, other than by will or
the laws of descent and distribution or a distribution pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act or the rules thereunder. A stock option can be
exercised during the optionee's life only by him, or by any person to whom such
option may have been transferred as described in this paragraph.

"Eligible Directors" shall mean directors who are directors on the date of
grant (and, if applicable, on the date of amendment of a grant), who are not
employees of the Company and who are not eligible to participate under any other
Company stock related plan unless in the opinion of counsel to the Company such
participation would not impair the status of such Eligible Director as a
"disinterested person" within the meaning of Rule 16b-3 promulgated under the
Act.

Sixty days after his or her initial election as a director by either the
Board of Directors or the Company's shareholders, each Eligible Director shall
be granted a non-qualified option to purchase 20,000 shares of Common Stock, and
each Eligible Director who is a director on the last business day of calendar
1992 shall on such day be granted a non-qualified option to purchase 10,000
shares of Common Stock, and each Eligible Director who is a director on the last
business day of calendar 1993 shall on such day be granted a non-qualified
option to purchase 10,000 shares of Common Stock.

The date of grant of an option to an Eligible Director under the Plan shall
be the applicable day referred to immediately above.

5. Option Plan

The price per share at which each option granted under the Plan to a key
employee may be exercised shall be determined by the

A-3

<PAGE>

Committee subject to the provisions of this Section 5. In the case of an
incentive stock option, the exercise price shall not be less than the fair
market value per share on the date of grant, as determined by the Committee in
accordance with applicable provisions of the Code then in effect with respect to
incentive stock options. In the case of a non-qualified option, the exercise
price shall not be less that 50% of the fair market value per share on the date
of grant, as so determined. The purchase price per share of Common Stock under
each non-qualified option granted to an Eligible Director shall be the fair
market value of such Common Stock as determined by the closing sales price of
such Common Stock on the principal exchange on which such Common Stock is traded
on the date of grant, or if there are no sales on such date, on the trading day
next preceding the date of grant on which a sale took place, or, if the Common
Stock is not so traded, then as determined by a principal market maker for such
Common Stock selected by the Committee. In no event shall the option price per
share for any option under the Plan be less than the par value per share.

6. Limitation on Amount

The aggregate fair market value (determined at the time the option is
granted) of the stock with respect to which incentive stock options are
exercisable for the first time by an individual during any calendar year under
all plans of the Company shall not exceed $100,000.

7. Special Rule for 10 Percent Shareholders

The Committee may grant incentive stock options under this Plan to persons
who own more than 10 percent of the combined voting stock of the Company if (i)
at the time of the Option Grant the price per share at which the option may be
exercised is at least 110 percent of the fair market value of the stock subject
to the option and (ii) such option is not exercisable after the expiration of
five years from the date such option is granted.

8. Non-Qualified Options

Notwithstanding the provisions of Sections 4, 5, 6 and 7 of this Plan, the
Committee may grant options which in one or more respects do not meet the
requirements for incentive stock options established by Section 422A of the
Code. The Committee shall indicate on each Option Grant whether an incentive
stock option within the meaning of Section 422A of the Code or a non-qualified
option is thereby granted, provided, however, that Eligible Directors shall be
granted only non-qualified options.

A-4

<PAGE>

Except as otherwise provided in this Plan, the Committee, in its sole
discretion, shall establish the terms and conditions for each non-qualified
option which it grants. Such terms and conditions may, but need not, include
some or all of the provisions of Section 4, 5, 6 and 7 of this Plan with respect
to incentive stock options. If the Committee grants an option which in all
respects meets the requirements for incentive stock options it may nonetheless
designate such option a non-qualified option on the Option Grant, in which case
it shall be deemed not to be an incentive stock option.

Each option granted under the Plan to an Eligible Director shall be
evidenced by and subject to the terms and conditions of an Option Grant.
Notwithstanding the provisions of the second paragraph of this Section 8, each
Option Grant executed and delivered to an Eligible Director shall contain the
following terms and conditions. Each non-qualified option granted to an Eligible
Director shall expire ten years from the date of grant of such option, and shall
be exercisable in full beginning on the date which is six months after the date
of grant thereof and not before. Each Eligible Director to whom an option is
granted may exercise such option from time to time, in whole or in part, during
the period that it is exercisable, by payment of the option price of each share
purchased, in cash or by delivery of other shares of the Company's Common Stock
owned by the Eligible Director with a fair market value equal to the exercise
price of the optioned shares purchased, or in any combination of the two forms
of payment. Options granted to an Eligible Director shall cease to be
exercisable at the earlier of their expiration or three years after the date
such Director ceases to be a director for any reason. If an Eligible Director
ceases to be a director on account of his death, any non-qualified option
previously granted to him, whether or not exercisable at the date of death, may
be exercised by his executor, administrator or the person or persons to whom his
rights under the option shall pass by will or the applicable laws of descent and
distribution, at any time within three years after the date of death, but in no
event after the expiration of the option. In the event of an exercise of an
option granted to an Eligible Director, the shares of Common Stock subject
thereto will be acquired for investment and not with a view to distribution
thereof unless there shall be an effective registration statement under the
Securities Act of 1933, as amended (the "1933 Act"), with respect thereto. In
the event that the Company, upon the advice of counsel, deems it necessary to
list upon official notice of issuance shares to be issued pursuant to the Plan
on a national securities exchange or to register under the 1933 Act or other
applicable federal or state statute any shares to be issued pursuant to the
Plan, or to qualify any such shares for exemption from the registration
requirements of the 1933 Act under the Rules and Regulations of the Securities
and

A-5

<PAGE>

Exchange Commission or for similar exemption under state law, then the Company
shall notify each Eligible Director to that effect and no shares of Common Stock
subject to an option shall be issued until such registration, listing or
exemption has been obtained. The Company shall make prompt application for any
such registration, listing or exemption pursuant to federal or state law or
rules of such securities exchange which it deems necessary and shall make
reasonable efforts to cause such registration, listing or exemption to become
and remain effective. Nothing in this Plan or in the Option Grant will confer
upon any Eligible Director the right to continue as a director of IGI. The
shares of Common Stock issued on exercise of the option shall be subject to any
restrictions on transfer then in effect pursuant to the Certificate of
Incorporation or By-laws of the Company.

9. Adjustment of Shares Reserved Under the Plan

The aggregate number and kind of shares reserved under the Plan, the
maximum number of shares as to which options may be granted to any individual
and the option price per share shall be appropriately adjusted by the Board in
the event of any recapitalization of the Company, but no adjustment in the
option price shall be made which would reduce the option price per share to less
than the par value per share.

10. Dissolution or Reorganization

Prior to a dissolution, liquidation, merger, consolidation, or
reorganization of the Company (the "Event"), the Board may decide to terminate
each outstanding option. If the Board so decides, such option shall terminate as
of the effective date of the Event, but the Board shall suspend the exercise of
all outstanding options a reasonable time prior to the Event, giving each
optionee not less than fourteen days' written notice of the date of suspension,
prior to which an optionee may purchase in whole or in part the shares available
to him as of the date of receipt of the notice. If the Event is not consummated,
the suspension shall be removed and all options shall continue in full force and
effect.

11. Amendment and Termination of Plan

The Board may amend, suspend, or terminate the Plan, including the form of
Option Grant incorporated herein by reference. No such action, however, may,
without approval or ratification by the shareholders, increase the maximum
number of shares reserved under the Plan except as provided in Section 9, alter
the class or classes of employees eligible for options, change the number of
shares of Common Stock subject to options to be granted to Eligible Directors or
the exercise price thereof

A-6

<PAGE>

(other than pursuant to Section 9 of this Plan), or the date of grant or the
terms and conditions expressly set forth in Section 8 of this Plan, with respect
to options granted to Eligible Directors, or make any other change which,
pursuant to the Code or regulations thereunder or Section 16(b) of the Act and
regulations promulgated thereunder, requires action' by the shareholders. No
such action may, without the consent of the holder of the option, alter or
impair any option previously granted. The provisions of the Plan which relate to
the grant of options to Eligible Directors shall not be amended more than once
every six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act, or the rules thereunder.

In any event, the Plan shall terminate 10 years from the date of adoption
by the Board of Directors, or if earlier, from the date of approval by the
shareholders. Any shares remaining under the Plan at the time of termination
which are not subject to outstanding options and any shares which thereafter
become available because of the expiration or termination of an option shall
cease to be reserved for purposes of the Plan.

12. Right to Terminate Employment

Nothing contained herein or in any Option Grant executed pursuant hereto
shall restrict the right of the Company to terminate the employment of any
optionee at any time.

13. Date of Adoption

The date of adoption of this Plan by the Board and the Plan's effective
date is March 13, 1991.

14. Date of Approval

The date of approval of this Plan by the shareholders is May 9, 1991.

IGI, INC.
KEY EMPLOYEE OPTION GRANT

This incentive stock option/non-qualified option, granted as of ,
19 (the "Option") is granted by IGI, Inc. ("IGI") to (the
"Optionee"), an employee of IGI or a parent or subsidiary of IGI (hereinafter
collectively referred to as the "Company").

A-7

<PAGE>

1. Shares Subject to Option

Pursuant to the provisions of the IGI, Inc. 1991 Stock Option Plan, as
amended from time to time (the "Plan"), IGI hereby grants to the Optionee an
option to purchase shares of its Common Stock ($.01 par value) (the
"Optioned Shares") at a price of $ per share, in accordance with and
subject to all the terms and conditions of the Plan and subject to the terms and
conditions hereinafter set forth. The Plan and any amendments are hereby
incorporated by reference and made a part hereof.

2. Term and Exercise of Option

Except as otherwise provided in the Plan, or in this Option, the Option
shall terminate at the close of business years from the date of grant and may
be exercised only by the Optionee or, to the extent provided in Section 3(b)
hereof, by his legal representative.

While the Option is effective and the Optionee continues to be employed by
the Company, the Optioned Shares shall become available for purchase by the
Optionee in installments on the following dates:

Date Number of Shares

Unpurchased portions of available installments may be accumulated and
subsequently purchased by the Optionee. The option price of each share purchased
shall be paid in cash or by delivery of other shares of the Company's Common
Stock owned by the Optionee with a fair market value equal to the exercise price
of the Optioned Shares to be purchased, or in any combination of the two forms
of payment.

If the Option is not an incentive stock option within the meaning of
Section 422A of the Internal Revenue Code of 1986, as from time to time amended,
then in addition to payment of the option price for each share purchased, the
Optionee shall pay the amount of federal and state withholding taxes determined
by the Committee named in Section 3 of the Plan (or by the Committee's
designate) to be owing with respect to the compensation income that the Optionee
will realize upon each share purchased.

The Company, upon fulfillment of the requirements for exercise, including
receipt of the payment of the purchase price

A-8

<PAGE>

and all applicable withholding taxes, shall deliver the shares purchased
hereunder to the Optionee.

3. Terms and Conditions of Exercise

Each exercise and purchase of shares pursuant to the Option shall be
subject to the following terms and conditions:

(a) The Optionee shall have remained in the continuous employ of the
Company from the date of the Option Grant until the date of exercise,
provided that, if the Optionee's employment terminates for any cause other
than death, the Optionee may purchase in whole or in part within three
months after termination of employment the shares available to him on his
termination date provided that the expiration date of the Option as to such
shares shall not have occurred.

(b) If the Optionee dies, then his legal representative or the person
or persons to whom his rights under the Option shall pass by will or by the
applicable laws of descent and distribution shall be entitled, subject to
the condition that no Option shall be exercisable after the expiration of
ten years from the date it was granted, within twelve months after the date
of his death, to exercise the Option to the extent that the Optionee would
have been entitled to exercise the Option on the date of his death.

(c) The Optionee shall hold the Optioned Shares for investment and not
with a view to, or for resale in connection with, any public distribution
of such shares, and if requested, shall deliver to the Company appropriate
certificates to that effect. This restriction shall terminate upon the
registration of such shares under federal and state securities laws.

(d) In the event that the Company, upon the advice of counsel, deems
it necessary to list upon official notice of issuance any shares to be
issued pursuant to the Plan on a national securities exchange or to
register under the Securities Act of 1933 or other applicable federal or
state statute any shares to be issued pursuant to the Plan, or to qualify
any such shares for exemption from the registration requirements of the
Securities Act of 1933 under the Rules and Regulations of the Securities
and Exchange Commission or for similar exemption under state law, then the
Company shall notify the Optionee to that effect and no Optioned Shares
shall be issued until such registration, listing or exemption has been
obtained. The Company shall make prompt application for any such
registration, listing or exemption pursuant to federal or state law or
rules of such securities exchange

A-9

<PAGE>

which it deems necessary and shall make reasonable efforts to cause such
registration, listing or exemption to become and remain effective.

4. Option Non-Transferable

The Option may not be transferred by the Optionee or by operation of law
other than by will or by the laws of descent and distribution, or by a
distribution pursuant to a qualified domestic relations order as defined by the
Code or Title I of the Employee Retirement Income Security Act or the rules
thereunder. It may be exercised during the lifetime of the Optionee only by him
or by any person to whom the Option may have been transferred as described in
this paragraph.

5. Right to Terminate

Nothing contained in the Option Grant shall restrict the right of the
Company to terminate the employment of the Optionee at any time.

6. Dissolution or Reorganization

Prior to dissolution, liquidation, merger, consolidation, or reorganization
of the Company (the "Event"), the Board may decide to terminate each outstanding
option. If the Board so decides, each option shall terminate as of the effective
date of the Event, but the Board shall suspend the exercise of all outstanding
options a reasonable time prior to the Event, giving each Optionee not less than
fourteen days' written notice of the date of suspension, prior to which an
Optionee may purchase in whole or in part the Optioned Shares available to him
as of the date of receipt of the notice. If the Event is not consummated, the
suspension shall be removed and all options shall continue in full force and
effect.

7. Restrictions on Transfer of Stock

The shares of stock issued on exercise of the Option shall be subject to
any restrictions on transfer then in effect pursuant to the Certificate of
Incorporation or By-laws of the Company and to any other restrictions or
provisions attached hereto and made a part hereof or set forth in any contract
or agreement binding on the Optionee.

8. Notice Concerning Disposition of Shares

If the Option granted hereby is an incentive stock option, any disposition
by the Optionee of Optioned Shares

A-10

<PAGE>

purchased under the Option within two years from the date of grant or within one
year after their transfer to the Optionee will deprive the Optionee of certain
tax benefits with respect to the Option which might otherwise be available.
Optionees are urged to review the Prospectus for the offering under which the
Option is granted for a more detailed discussion of the federal tax consequences
of such a disposition under current law.

IGI, INC.

(Corporate Seal)

By:___________________________
JOHN P. GALLO, President

Attest:_______________________
Secretary

A-11

<PAGE>

IGI, INC.

AMENDMENT NO. 1

IGI, INC. 1991 STOCK OPTION PLAN

The IGI, Inc. 1991 Stock Option Plan (the "Plan") is hereby amended as set
forth below:

1. Increase in Authorized Shares

Section 2 of the Plan is hereby amended by deleting the first sentence
thereof and substituting the following therefor:

2. Eligible Director Shares

The penultimate paragraph of Section 4 of the Plan is hereby amended by
adding the following sentence to the end thereof:

"In addition to the foregoing, each Eligible Director who is
a director on the last business day of calendar 1994 shall on such
day be granted a non-qualified option to purchase 10,000 shares of
Common Stock, each Eligible Director who is a director on the last
business day of calendar 1995 shall on such day be granted a
non-qualified option to purchase 10,000 shares of Common Stock,
and each Eligible Director who is a director on the last business
day of calendar 1996 shall on such day be granted a non-qualified
option to purchase 10,000 shares of Common Stock."

3. Transferability of Shares

The first sentence of the paragraph in Section 4 of the Plan immediately
preceding the paragraph defining "Eligible Directors" is hereby deleted and the
following shall be substituted in lieu thereof:

"No stock option may be transferred by the optionee, other
than by will or the laws of descent and distribution or, in the
case of non-qualified options, a distribution pursuant to a
qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act or the rules
thereunder."

A-12

<PAGE>

4. In all other respects, the Plan shall remain in full force and effect.

Adopted by the Board of
Directors on March 11, 1993

Adopted by the Stockholders on
May 12, 1993

A-13

<PAGE>

IGI, INC.

AMENDMENT NO. 2

IGI, INC. 1991 STOCK OPTION PLAN

The IGI, Inc. 1991 Stock Option Plan, as amended (the "Plan"), is hereby
amended as set forth below:

1. Section 1 of the Plan is hereby deleted in its entirety and replaced by the
following:

"The purpose of this plan (the "Plan") is to encourage key
employees, including officers, of IGI, Inc., a Delaware
corporation ("IGI"), and any present or future subsidiary and
parent of IGI (hereinafter collectively referred to as the
"Company") to acquire shares of common stock of IGI, $.01 par
value per share (the "Common Stock"), and thereby increase their
proprietary interest in the Company's success and provide an added
incentive to remain in the employ of the Company. It is also the
purpose of the Plan to grant options to purchase Common Stock to
Eligible Directors of IGI (as defined in Section 4 of the Plan)
and consultants and advisors to the Company in order to enhance
the Company's ability to attract and retain the services of such
persons, to provide additional incentive to them and to encourage
the highest level of performance by them by offering them a
proprietary interest in the Company's success. The words parent
and subsidiary shall be interpreted in accordance with Section
422A and Section 425 of the Internal Revenue Code of 1986, as from
time to time amended (the "Code"). It is intended that options
granted under the Plan shall constitute either "incentive stock
options" within the meaning of Section 422A of the Code, or
"non-qualified options," as determined by the Committee named in
Section 3 of the Plan in its sole discretion and indicated on each
form of option grant (the "Option Grant"), and the terms of the
Plan and Option Grants shall be construed accordingly, provided,
however, that Eligible Directors and consultants and advisors to
the Company shall be granted only non-qualified options."

A-14

<PAGE>

2. Section 2 of the Plan is hereby deleted in its entirety and replaced by the
following:

"Subject to the adjustment provided in Section 9, the
aggregate number of shares of Common Stock of IGI which may be
issued and sold pursuant to options granted under the Plan shall
not exceed 1,900,000 shares of Common Stock, which may be either
authorized but unissued shares or treasury shares. Subject to the
adjustment provided in Section 9, the maximum number of shares
with respect to which options may be granted to any person under
the Plan shall not exceed 100,000 shares of Common Stock during
any calendar year during the term of the Plan. For the purpose of
calculating such maximum number, (a) an option shall continue to
be treated as outstanding notwithstanding its repricing,
cancellation or expiration and (b) the repricing of an outstanding
option or the issuance of a new option in substitution for a
cancelled option shall be deemed to constitute the grant of a new
additional option, separate from the original grant that is
repriced or cancelled. If any options granted under the Plan shall
terminate or expire without being fully exercised, the shares
which have not been purchased will again become available for
purposes of the Plan."

3. The first paragraph of Section 4 of the Plan is hereby deleted in its
entirety and replaced by the following:

"Options to purchase shares of Common Stock under the Plan may be
granted to key employees (including officers and directors who are
employees) of the Company and consultants and advisors to the
Company. In selecting the individuals to whom options will be
granted and in deciding how many shares of Common Stock will be
subject to each option, the Committee shall give consideration to
the importance of an optionee's duties and responsibilities, to
his experience with the Company, to his future value to the
Company, to his present and potential contribution to the success
of the Company, and to such other factors as the Committee may
deem relevant. Subject to the express provisions of the Plan and
the form of Option Grant incorporated herein by reference as from
time to time altered or amended, the Committee shall have
authority to determine with respect to each Option Grant executed
and delivered to an optionee the number of installments, the
number of shares of Common Stock in each installment, and the
exercise dates, and, to the extent not inconsistent with the
applicable provisions of the Code, if any, may specify additional
restrictions and conditions for any Option Grant executed and
delivered to an optionee. Each incentive stock option shall expire
not later than ten years from the date of the grant of such
option."

A-15

<PAGE>

4. The third paragraph of Section 4 of the Plan is hereby deleted in its
entirety and replaced by the following:

"The date of grant of an option to an optionee under the Plan
(other than an Eligible Director) shall be the date the Committee
votes to grant the option, but no such optionee shall have the
right to exercise his option until the Company has executed and
delivered the Option Grant to such optionee. Each option granted
under the Plan to an optionee (other than an Eligible Director)
shall be evidenced by and subject to the terms and conditions of
the Option Grant which is incorporated into the Plan by reference
as from time to time altered or amended."

5. The first sentence of Section 5 of the Plan is hereby deleted in its entirety
and replaced by the following:

"The price per share at which each option granted under the Plan
to an optionee (other than an Eligible Director) may be exercised
shall be determined by the Committee subject to the provisions of
this Section 5."

6. The last sentence of the first paragraph of Section 8 of the Plan is
hereby deleted in its entirety and replaced by the following:

"The Committee shall indicate on each Option Grant whether an
incentive stock option within the meaning of Section 422A of the
Code or a non-qualified option is thereby granted, provided,
however, that Eligible Directors and consultants and advisors to
the Company shall be granted only non-qualified options."

7. In all other respects, the Plan shall remain in full force and effect.

Adopted by the
Board of Directors
on March 22, 1995

Adopted by the
stockholders on
May 9, 1995

A-16

<PAGE>

IGI, INC.

AMENDMENT NO. 3

IGI, INC. 1991 STOCK OPTION PLAN

The IGI, Inc. 1991 Stock Option Plan, as amended (the "Plan"), is hereby
amended as set forth below:

1. Section 2 of the Plan is hereby amended by deleting the first sentence
thereof and substituting the following therefor:

2. Section 3 of the Plan is hereby amended by deleting the second sentence
thereof.

3. The first paragraph of Section 4 of the Plan is hereby amended by deleting
the first sentence thereof and substituting the following therefor:

"Options to purchase shares of Common Stock under the Plan
may be granted to key employees (including officers and directors
who are employees) of the Company and consultants and advisors to
the Company and, in accordance with the formula provisions set
forth in Section 4 of the Plan, shall be granted to Eligible
Directors (as defined below)."

4. The fourth paragraph of Section 4 of the Plan is hereby amended by
deleting the first sentence thereof and substituting the following
therefor:

"Except as the Committee may otherwise determine or provide
in an Option Grant, options shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the optionee,
either voluntarily or by operation of law, except by will or the
laws of descent and distribution."

5. The fifth paragraph of Section 4 of the Plan is hereby deleted in its
entirety and replaced by the following:

"'Eligible Directors' shall mean directors who are not employees
of the Company on the date of grant."

A-17

<PAGE>

6. The last sentence of the penultimate paragraph of Section 4 of the
Plan is hereby deleted in its entirety and replaced by the following:

"In addition to the foregoing, each Eligible Director shall
be granted a non-qualified option to purchase 10,000 shares of
Common Stock on the last business day of each of calendar 1994,
1995, 1996, 1997, 1998 and 1999; provided, however, that he or she
is then an Eligible Director on such date."

7. The word "Act" in the second sentence of Section 11 of the Plan is hereby
amended to read "Securities Exchange Act of 1934, as amended,".

8. In all other respects, the Plan shall remain in full force and effect.

Adopted by the
Board of Directors
on March 19, 1997

A-18

<PAGE>

IGI, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 1997

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY

The undersigned, having received notice of the meeting and management's
proxy statement therefor, and revoking all prior proxies, hereby appoint(s) John
P. Gallo, Edward B. Hager and Paul P. Brountas, and each of them singly,
attorneys or attorney of the undersigned (with full power of substitution in
them and each of them) for and in the name(s) of the undersigned to attend the
Annual Meeting of Stockholders of IGI, Inc. (the "Company") to be held on
Tuesday, May 13, 1997 at 10:00 a.m. at the offices of Hale and Dorr LLP, 60
State Street, Boston, Massachusetts, and at any adjourned sessions thereof, and
there to vote and act upon the following matters in respect of all shares of
stock of the Company which the undersigned will be entitled to vote or act upon,
with all the powers the undersigned would possess if personally present.

THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY PROPOSAL, THIS PROXY
WILL BE VOTED FOR SUCH PROPOSAL.

PLEASE VOTE, DATE, AND SIGN ON REVERSE SIDE AND
RETURN PROMPTLY IN ENCLOSED ENVELOPE.

Please sign this proxy exactly as your name appears on the books of the Company.
Joint owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.

HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?

|_| PLEASE MARK VOTES AS IN THIS EXAMPLE

(1) Election of Directors

|_| For

|_| Withhold

|_| For all Except

Edward B. Hager, M.D., John P. Gallo, Jane E. Hager, David G. Pinosky, M.D.,
Constantine L. Hampers, M.D., Paul D. Paganucci, Terrence O'Donnell and Terrence
D. Daniels

If you do not wish your shares voted "For" a particular nominee, mark the "For
All Except" box and strike a line through the nominee's name. Your shares voted
will be voted for the remaining nominee(s).

(2) To approve an amendment to the Company's 1991 Stock Option Plan increasing
the number of shares of Common Stock authorized for issuance from 1,900,000
to 2,600,000 and providing for the grant of additional options to
non-employee directors.

For |_| Against |_| Abstain |_|

(3) To ratify the appointment of Coopers & Lybrand L.L.P. as the Company's
independent auditors for the current fiscal year.

For |_| Against |_| Abstain |_|

(4) IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT
THEREOF.

Please be sure to sign and date this Proxy. Date: ____________________

______________________ _______________________
Stockholder sign here Co-owner sign here