CENTOCOR INC, DEF 14A, 1995-04-11

CENTOCOR INC
DEF 14A, 1995-04-11
IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES

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SCHEDULE 14A INFORMATION

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

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[X] Definitive Proxy Statement RULE 14C-5(D)(2))

[X] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12

Centocor, 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] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.

[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

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

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

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

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

[_] Fee paid previously with preliminary materials.

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

(1) Amount Previously Paid:

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

(3) Filing Party:

(4) Date Filed:

<PAGE>

CENTOCOR, INC.

MALVERN, PENNSYLVANIA 19355

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

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

MAY 17, 1995

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

TO THE SHAREHOLDERS:

The annual meeting of shareholders of Centocor, Inc. will be held at the
Company's principal office, 200 Great Valley Parkway, Great Valley Corporate
Center, Malvern, Pennsylvania, on Wednesday, May 17, 1995, at 10:00 A.M. for
the following purposes:

1. To elect nine members of the Board of Directors, each to serve until
the next annual meeting.

2. To consider and take action upon a proposal to amend the Company's
1989 Non-Employee Directors' Non-Qualified Stock Option Plan to increase by
400,000 the number of shares for which options may be granted pursuant to
the Plan.

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

The Board of Directors has fixed March 17, 1995 as the record date for
determining the holders of Common Stock entitled to notice of and to vote at
the meeting. Consequently, only holders of Common Stock of record of the
Company at the close of business on March 17, 1995 will be entitled to notice
of and to vote at the meeting.

Please complete, date and sign the enclosed proxy and return it promptly. If
you attend the meeting, you may vote in person.

George D. Hobbs
Secretary

April 10, 1995
<PAGE>

CENTOCOR, INC.

PROXY STATEMENT

INTRODUCTION

The accompanying proxy is solicited by the Board of Directors of Centocor,
Inc., 200 Great Valley Parkway, Great Valley Corporate Center, Malvern,
Pennsylvania 19355. Copies of this Proxy Statement and the accompanying proxy
are being mailed on or after April 10, 1995 to the holders of record of Common
Stock on March 17, 1995. A proxy may be revoked by a shareholder at any time
prior to its use by giving written notice of such revocation to the Secretary
of the Company, by appearing at the meeting and voting in person, or by
returning a later dated proxy. The expense of this solicitation will be paid by
the Company. Some of the officers and employees of the Company may solicit
proxies personally and by telephone. The Company may use the services of D. F.
King & Co., Inc. to aid in the solicitation of proxies at an anticipated fee of
$5,500 plus reasonable expenses.

Holders of Common Stock of record at the close of business on March 17, 1995
will be entitled to vote at the meeting. On that date, the Company had
58,074,424 shares of Common Stock outstanding. Each shareholder is entitled to
cast on a matter one vote per share on all items of business properly presented
at the meeting, except that shareholders have cumulative voting rights with
respect to the election of directors, as described below. Under Pennsylvania
law and the by-laws of the Company, the presence of a quorum is required to
transact business at the meeting. The presence at the meeting, in person or by
proxy, of shareholders entitled to cast at least a majority of the votes that
all shareholders are entitled to cast shall constitute a quorum. Proxies
received with votes withheld or abstentions will be counted in determining the
presence of a quorum but will not be voted. Broker non-votes will not be
counted in determining the presence of a quorum and will not be voted. As a
result, votes withheld, abstentions and broker non-votes will have no impact on
any matter submitted to the shareholders for a vote, assuming a quorum is
present for such matter, except as set forth under "Amendment to the 1989 Non-
Employee Directors' Non-Qualified Stock Option Plan."

Shareholders have cumulative voting rights with respect to the election of
directors. Each shareholder is entitled to cast the number of votes in the
election of directors that is equal to the number of shares of Common Stock
held by such shareholder on the record date, multiplied by the number of
directors to be elected. A shareholder may cast all such votes for a single
nominee or may distribute votes among nominees as the shareholder sees fit. The
nine nominees for director receiving the highest number of votes cast by
shareholders entitled to vote thereon will be elected to serve on the Board of
Directors.

ELECTION OF DIRECTORS

Nine directors are to be elected at the annual meeting of shareholders to
serve one-year terms until the 1996 annual meeting of shareholders and until
their respective successors are elected and shall qualify. The persons named in
the accompanying proxy intend to vote for the election of Anthony B. Evnin,
William F. Hamilton, David P. Holveck, Antonie T. Knoppers, Ronald A.
Matricaria, Hubert J.P. Schoemaker, Richard D. Spizzirri, Lawrence Steinman and
Jean C. Tempel, unless authority to vote for one or more of such nominees is
specifically withheld in the proxy. All of the nominees are currently directors
of the Company. The persons named in the proxy will have the right to vote
cumulatively and to distribute their votes among such nominees as they consider
advisable. All the nominees have informed the Board of Directors that they are
willing to serve as directors, but if any of them should decline to serve or
become unavailable for election as a director
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at the meeting, an event which the Board of Directors does not anticipate, the
persons named in the proxy will vote for such nominee or nominees as may be
designated by the Board of Directors, unless the Board of Directors reduces the
number of directors accordingly.

The following table sets forth, as of March 17, 1995, information as to the
nominees, including their recent employment, positions with the Company, if
any, other directorships and age.

<TABLE>
<CAPTION>
YEAR FIRST
NAME, AGE, PRINCIPAL OCCUPATIONS AND BUSINESSES ELECTED
DURING LAST FIVE YEARS AND OTHER CURRENT DIRECTORSHIPS DIRECTOR
------------------------------------------------------ ----------
<S> <C>
Anthony B. Evnin, 54............................................... 1980
General Partner of Venrock Associates, a venture capital limited
partnership. Director, AgriDyne Technologies Inc., Arris Pharma-
ceutical Corporation, Athena Neurosciences, Inc., Genetics Insti-
tute, Inc., IDEXX Laboratories, Inc., Intelligent Surgical Lasers,
Inc., Kopin Corporation, Opta Food Ingredients, Inc. and Sugen,
Inc.
William F. Hamilton, 55............................................ 1985
Landau Professor of Management and Technology at the Wharton
School of the University of Pennsylvania. Director, Hunt Manufac-
turing Co., Marlton Technologies, Inc. and Neose Pharmaceuticals,
Inc...............................................................
David P. Holveck, 49............................................... 1994
President and Chief Executive Officer of the Company since Novem-
ber 1992; President and Chief Operating Officer from April 1992 to
October 1992; and Executive Vice President and President--Diagnos-
tics Division from December 1988 to April 1992.
Antonie T. Knoppers, 80............................................ 1986
Self-employed business consultant. Former President, Chief Operat-
ing Officer and Vice Chairman, Merck & Co., Inc., a research-based
health products company. Trustee, The Salk Institute. Director,
Agouron Pharmaceuticals, Inc.
Ronald A. Matricaria, 52........................................... 1994(1)
President and Chief Executive Officer of St. Jude Medical, Inc., a
medical device company, since April 1993 and Chairman of the Board
since 1995. From 1970 to 1993, Mr. Matricaria was employed by Eli
Lilly and Company, Inc., a research-based pharmaceutical company,
where he served in a variety of capacities, including President of
the Medical Devices and Diagnostics Division and Executive Vice
President of the Pharmaceutical Division and President of its
North American operations. Director, St. Jude Medical, Inc.,
Diametrics Medical, Inc., InControl, Inc. and the Health Industry
Manufacturers Association.
Hubert J.P. Schoemaker, 44......................................... 1983
Chairman of the Board since November 1987; Chief Executive Officer
of the Company from November 1987 to October 1992; President of
the Company from 1983 to 1987. Director, Apollon, Inc., Applied
Technology Genetics Corporation, Myco Pharmaceuticals, Inc. and
Safeguard Scientifics Inc.
Richard D. Spizzirri, 62........................................... 1994(2)
Senior Counsel to the law firm of Davis Polk & Wardwell since Jan-
uary 1995; Partner, Davis Polk & Wardwell from 1967 to 1994. Di-
rector, Broadcast Partners, Inc. and Sugen, Inc.
Lawrence Steinman, 47.............................................. 1991
Professor of Immunology, Weizmann Institute of Science, Rehovot,
Israel since 1994; Professor of Neurology and Neurological Sci-
ences and Pediatrics, Stanford University School of Medicine since
1991 and Associate Professor of Neurology, Pediatrics and Genet-
ics, Stanford University School of Medicine from 1985 to 1991.
</TABLE>

2
<PAGE>

COMMITTEES OF THE BOARD OF DIRECTORS

The standing committees of the Board of Directors are the Audit Committee and
the Compensation Committee. The Audit Committee, consisting of Dr. Evnin, Dr.
Hamilton and Ms. Tempel, met two times during 1994. No member of the Audit
Committee is a member of the Company's management. The Audit Committee is
responsible for determining the adequacy of the Company's internal accounting
and financial controls. The Compensation Committee, consisting of Dr. Evnin,
Dr. Hamilton, Dr. Knoppers and Mr. Matricaria, met one time during 1994. The
Compensation Committee is responsible for reviewing matters pertaining to the
compensation of the executive officers of the Company.

BOARD MEETINGS AND ATTENDANCE OF DIRECTORS

The Board of Directors held six meetings during 1994. Each of the directors
attended at least 75% of the aggregate of all meetings of the Board held while
he or she was a Board member and of all committees of which he or she was a
member during 1994.

COMPENSATION OF DIRECTORS

Each director who was not an employee of the Company was compensated in the
amount of $2,000 for each of six Board of Directors' meetings attended at the
Company's Malvern, Pennsylvania offices during 1994. Each director who was not
an employee of the Company was also granted options to purchase 15,000 shares
of the Company's Common Stock during 1994. In addition, upon joining the Board
of Directors in 1994, Mr. Matricaria and Mr. Spizzirri were granted additional
options to purchase 12,500 shares and 5,000 shares of the Company's Common
Stock, respectively. Options are granted to the Company's directors with an
exercise price equal to the closing price of the Company's Common Stock on the
date of grant.

AMENDMENT TO THE 1989 NON-EMPLOYEE
DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN

At the annual meeting, a proposal will be presented for the shareholders to
approve an amendment to the 1989 Non-Employee Directors' Non-Qualified Stock
Option Plan ("1989 Directors' Plan"), to increase from 400,000 to 800,000 the
number of shares of Common Stock for which options may be granted to directors
of the Company who are not otherwise employees of the Company and

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<PAGE>

who have not been employees of the Company for a period of at least one year
prior to the date of grant of an option under the 1989 Directors' Plan
("Eligible Directors").

The purpose of the 1989 Directors' Plan is to assist the Company in
attracting and retaining experienced and knowledgeable independent directors
and to further promote the identification of such directors' interests with
those of the Company's shareholders.

Each person who first becomes an Eligible Director after August 16, 1989, the
date on which the 1989 Directors' Plan was initially approved by the Board of
Directors (except any such person who is first elected a director at an annual
meeting of shareholders), is automatically granted an option to purchase that
number of shares determined by multiplying 15,000 by a fraction, the numerator
of which is the number of whole months from the date of such election as a
director until the date of the next annual meeting of shareholders of the
Company and the denominator of which is 12. Five business days after the date
of each annual meeting of shareholders of the Company, an option to purchase
15,000 shares is granted to each Eligible Director elected at such meeting.

There are currently seven Eligible Directors, all of whom hold options
granted pursuant to the 1989 Directors' Plan. Currently, Dr. Evnin holds 75,000
options, Drs. Hamilton and Knoppers each hold 90,000 options, Mr. Matricaria
holds 12,500 options, Mr. Spizzirri holds 5,000 options, Dr. Steinman holds
55,000 options and Ms. Tempel holds 28,850 options under the 1989 Directors'
Plan. Each of these seven directors has an interest in the approval of the
proposed amendment to the 1989 Directors' Plan and will benefit as the
recipient of options to be granted thereunder if the proposed amendment is
approved by the shareholders. As a result of the previous granting of options
to acquire an aggregate of 388,750 shares of the Company's Common Stock under
the 1989 Directors' Plan and the provision therein requiring the grant of an
option to purchase 15,000 shares to each Eligible Director elected at an annual
meeting of shareholders, the election at the 1995 annual meeting of the seven
nominees who, if so elected, will be Eligible Directors would result in the
requirement to issue options covering more shares of the Company's Common Stock
than are currently authorized under the 1989 Directors' Plan.

The Board of Directors, having considered and approved the proposed amendment
to the 1989 Directors' Plan on February 15, 1995, recommends that you vote FOR
the proposed amendment in order to continue the annual granting of options to
Eligible Directors under the 1989 Directors' Plan.

The proposed amendment to the 1989 Directors' Plan will become effective if
it receives the affirmative vote of the holders of a majority of the
outstanding shares of the Company's Common Stock present in person or by proxy
at the meeting. With respect to this proposal, abstentions and broker non-votes
will have the effect of a negative vote. On April 4, 1995, the closing price
per share of the Company's Common Stock on the Nasdaq National Market was
$15.875.

Under the terms of the 1989 Directors' Plan, the option exercise price may
not be less than the closing price per share of the Company's Common Stock on
the date the option is granted and the option expires upon the earlier of a
director ceasing to be a director (subject to extension in the case of death or
removal for any reason other than for cause) or ten years from the date of
grant.

Under the terms of the 1989 Directors' Plan, the price payable upon exercise
of options may be paid in cash, or, in the discretion of the Board of
Directors, obligations, services performed whether or not contracted for,
contracts for services to be performed or any other tangible or intangible
property, including shares of the Company's Common Stock which have been owned
by the optionee for at least six months and have a fair market value on the
date of exercise equal to the option price, or any combination thereof.

Subject to the provisions of the 1989 Directors' Plan regarding expiration or
termination of options, on the first day of the first month after the date of
grant of an option, the option shall become

4
<PAGE>

exercisable as to two percent of the shares subject thereto, and on each
monthly anniversary of such date, the option shall become exercisable as to an
additional two percent of the shares subject thereto.

Upon the occurrence of certain events constituting a change in control of the
Company, all outstanding options granted under the 1989 Directors' Plan will
automatically become fully exercisable. Simultaneously with the grant of an
option pursuant to the 1989 Directors' Plan, a limited stock appreciation right
("LSAR") with respect to all of the shares covered by such option shall
automatically be granted. Each LSAR provides that in the event of any
acceleration of the exercisability of the option which occurs more than six
months after the date of grant of the LSAR, the optionee shall have the right,
for a period commencing on acceleration of the exercisability of the option and
terminating thirty days thereafter, to exercise the LSAR. For each share for
which an LSAR is exercised, the optionee will receive an amount in cash equal
to the difference between (1) the exercise price per share of the option to
which the LSAR relates and (2) the fair market value per share of the Common
Stock issuable upon exercise of the option on the date the LSAR is exercised.

A charge to the Company's earnings will be required if, under the facts and
circumstances, it is likely that the LSARs will become exercisable and that
optionees will exercise such rights. The charge would be measured by the
difference between the then current value of the Common Stock and the exercise
price of the option. The charge so accrued may be required to be adjusted based
on changes in the current value of the Common Stock during any period in which
the LSARs are exercisable.

Because LSARs, if exercised, will result in cash demands on the Company,
LSARs may be considered to have an adverse effect on attempts to acquire
control of the Company. To the extent that the issuance of LSARs impedes such
an acquisition, the 1989 Directors' Plan may serve to perpetuate the existing
management of the Company.

The Board of Directors of the Company may make any amendments to the 1989
Directors' Plan which it deems necessary or advisable, provided that the Board
may seek shareholder approval of an amendment if determined to be required by
or advisable under regulations of the Securities and Exchange Commission or the
Internal Revenue Service, under the rules of any stock exchange or system on
which the Company's Common Stock is listed, or other applicable law or
regulation.

Federal Income Tax Consequences. The grant by the Company of an option or an
option with an LSAR is not a taxable event to the optionee. Generally, an
optionee recognizes ordinary income upon the exercise of the option in an
amount equal to the "spread" or the excess of the fair market value of the
shares on that date over the exercise price of the option. Any subsequent gain
or loss on disposition of the shares will be capital gain or loss if the shares
are held by the optionee for investment. If the disposition of the shares could
subject the optionee to suit under Section 16(b) of the Securities Exchange Act
of 1934, the receipt of shares upon exercise of a non-qualified stock option is
not taxable until the earlier of the expiration of the six-month period
referred to in Section 16(b) or the first day on which the sale of such shares
will not subject the optionee to suit under Section 16(b), at which time the
optionee recognizes ordinary income in an amount equal to the "spread", if any,
on the date of such expiration. Alternatively, the optionee may elect under
Internal Revenue Code Section 83(b) to include the "spread" in his income at
the time the option is exercised. Upon exercise of an LSAR, the amount of cash
received is taxable to the optionee as ordinary income.

The Company generally will be entitled to deduct any amount the optionee is
required to include in ordinary income at the time such amount is so
includable, provided that such amount is not deemed to be an "excess parachute
payment" (i.e., a payment due upon a change of control of the Company that is
in excess of reasonable compensation).

5
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

To the best of the Company's knowledge, the following entities were the only
beneficial owners of more than five percent of the Company's Common Stock as of
March 17, 1995:

<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES OF PERCENT OF
BENEFICIAL OWNER COMMON STOCK CLASS
------------------- ------------------- ----------
<S> <C> <C>
Amerindo Investment
Advisors Inc. ................................... 3,271,219(1) 5.6%
One Embarcadero
Suite 2300
San Francisco, CA 94111
Ardsley Advisory Partners........................ 3,790,200(2) 6.5%
646 Steamboat Road
Greenwich, CT 06830
</TABLE>
- - --------
(1) Based on a copy of Schedule 13G furnished to the Company under the
Securities Exchange Act of 1934 (the "Exchange Act"), Amerindo Investment
Advisors Inc. exercises the sole power to vote or direct the vote of such
shares and the sole power to dispose or direct the disposition of such
shares.
(2) Based on a copy of Schedule 13G furnished to the Company under the Exchange
Act, Ardsley Advisory Partners shares the power to vote or direct the vote
of such shares and the power to dispose or direct the disposition of such
shares with various of its clients for whom the shares were purchased.

SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth, as of March 17, 1995, the number of shares
and percentage of the Company's Common Stock beneficially owned by each
director, each executive officer named in the Summary Compensation Table in
this Proxy Statement, and all directors and executive officers as a group.

<TABLE>
<CAPTION>
PERCENTAGE OF COMMON
NUMBER OF SHARES STOCK OUTSTANDING IF
NAME BENEFICIALLY OWNED(1) GREATER THAN 1%
---- --------------------- --------------------
<S> <C> <C>
Anthony B. Evnin.................... 148,652
William F. Hamilton................. 116,274
David P. Holveck.................... 412,539
Antonie T. Knoppers................. 87,132
Ronald A. Matricaria................ 2,500
Hubert J.P. Schoemaker.............. 916,687 1.5%
Richard D. Spizzirri................ 90,544
Lawrence Steinman................... 29,600
Jean C. Tempel...................... 10,200
Bobba Venkatadri.................... 97,941
Martin R. Page...................... 137,664
James N. Woody...................... 97,941
All directors and executive officers
as a group......................... 2,235,934 3.7%
</TABLE>
- - --------
(1) Includes shares which the individual named in the table has the right to
acquire, on or before May 17, 1995, through the exercise of warrants to
purchase the Company's Common Stock, the vesting of awards under the
Company's 1983 Restricted Common Stock Award Plan, or the

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<PAGE>

exercise of stock options pursuant to individual agreements, the Company's
1987 Non-Qualified Stock Option Plan or 1989 Non-Employee Directors' Non-
Qualified Stock Option Plan, as follows: Anthony B. Evnin--90,700; William
F. Hamilton--105,100; David P. Holveck--349,165; Antonie T. Knoppers--
85,100; Ronald A. Matricaria--2,500; Hubert J.P. Schoemaker--671,865;
Richard D. Spizzirri--500; Lawrence Steinman--29,600; Jean C. Tempel--7,800;
Bobba Venkatadri--95,833; Martin R. Page--121,900; James N. Woody--178,333;
all directors and executive officers as a group--1,740,396.

EXECUTIVE OFFICERS OF THE COMPANY

The executive officers of the Company, who are elected to serve at the
discretion of the Board of Directors, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David P. Holveck................... 49 President and Chief Executive Officer
Bobba Venkatadri................... 51 Executive Vice President--Pharmaceutical
Division
Timothy P. Cost.................... 35 Senior Vice President--Investor
Relations and Strategic Operations
Martin R. Page..................... 50 Senior Vice President--Regulatory
Affairs and Quality Assurance
James N. Woody..................... 52 Senior Vice President--Research and
Development and Chief Scientific
Officer
</TABLE>

Mr. Holveck has been associated with Centocor since June 1983, as President
and Chief Executive Officer since November 1992, as President and Chief
Operating Officer from April 1992 to October 1992, and as Executive Vice
President and President--Diagnostics Division from December 1988 to April 1992.

Mr. Venkatadri has been associated with Centocor since March 1992, as
Executive Vice President--Pharmaceutical Division since August 1992, and as
Vice President--Pharmaceutical Manufacturing from March 1992 to August 1992.
Previously, Mr. Venkatadri was Senior Director of Pharmaceutical Operations for
Warner-Lambert Puerto Rico, Inc., a division of Warner-Lambert Company, from
October 1990 to February 1992, and President and Director of P. T. Warner-
Lambert Indonesia, an affiliate of Warner-Lambert Company, from March 1988 to
October 1990.

Mr. Cost has been associated with Centocor since January 1994, as Senior Vice
President--Investor Relations and Strategic Operations. Previously, Mr. Cost
was Director of Investor Relations for Eastman Kodak Company from October 1991
to December 1993, and Director of Strategic Planning for Worldwide
Manufacturing for Eastman Kodak Company from June 1989 to October 1991.

Mr. Page has been associated with Centocor since September 1987, as Senior
Vice President--Regulatory Affairs and Quality Assurance since March 1994, as
Senior Vice President--Worldwide Regulatory Affairs from August 1992 to March
1994, as Vice President--Worldwide Regulatory Affairs from June 1990 to August
1992, and as Vice President--International Regulatory Affairs from September
1987 to June 1990.

Dr. Woody has been associated with Centocor since August 1991, as Chief
Scientific Officer since August 1992, and as Senior Vice President--Research
and Development since August 1991. Previously, Dr. Woody served as Commanding
Officer of the U.S. Navy Medical Research and Development Command from 1988 to
1991.

7
<PAGE>

EXECUTIVE COMPENSATION AND OTHER INFORMATION

REPORT OF BOARD OF DIRECTORS' COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors, consisting entirely of
non-employee directors, is responsible for establishing and reviewing the
compensation of the Company's executive officers.

EXECUTIVE COMPENSATION POLICIES

The Company's executive compensation programs are designed to attract and
retain experienced and well-qualified executive officers who will enhance the
performance of the Company and build shareholders' equity. The Company's
executive compensation packages generally include four components: base salary;
a discretionary annual cash bonus; stock options and restricted stock awards;
and executive benefits.

In setting the compensation level for executive officers, the Committee is
guided by the following considerations:

--compensation levels should be competitive with compensation generally
being paid to executives in the pharmaceutical and biotechnology industries
to ensure the Company's ability to attract and retain superior executives;

--a significant portion of executive officer compensation should be paid
in the form of equity-based incentives to link closely shareholder and
executive interests and to encourage stock ownership by executive officers;
and

--each individual executive officer's compensation should reflect the
performance of the Company as a whole, the performance of the officer's
business unit, if applicable, and the performance of the executive officer.

BASE SALARY

An executive officer's base salary is determined by the Company's overall
performance, the responsibility of the particular position, and an assessment
of his performance against his individual responsibilities and objectives,
including, where appropriate, the impact of such performance on the business
results of the Company. The Committee also may consider non-financial
indicators including, but not limited to, strategic developments for which an
executive officer has responsibility and intangible elements of managerial
performance. Executive officer salaries are generally reviewed annually and
adjusted on a calendar year basis based upon these considerations.

ANNUAL CASH BONUS

The Committee may make cash awards to executive officers based on certain
financial and non-financial indicators of corporate performance. An individual
executive officer's annual bonus is a percentage of his base salary determined
by the executive's job level and scope of responsibility.

Based on the Company's performance in 1994, the Committee elected not to
award cash bonuses to its executive officers with respect to such year.

STOCK OPTIONS AND RESTRICTED STOCK AWARDS

The Committee may grant stock options and/or restricted stock awards to
executive officers. The Committee sets guidelines for the number of stock
options granted or shares awarded, based on the

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<PAGE>

Company's performance and the targeted value of each executive's overall
compensation package. In setting such guidelines, the Committee evaluates the
long-term incentive packages offered to the Company's executives in relation to
the long-term incentive packages other biotechnology companies which the
Committee considers to be in the Company's peer group offer their executives.
The Committee considers the Company's peer group to be Amgen Inc., Biogen,
Inc., Genentech Inc., Genzyme Corporation and Chiron Corporation.

The Committee granted all executive officers stock options in 1994 as an
incentive for future performance, but elected not to grant any restricted stock
awards.

EXECUTIVE BENEFITS

In order to provide an attractive package for executive officers, thereby
enabling the Company to attract and retain necessary executive talent, the
Company often supplements the standard benefits package offered to all
employees with special executive benefits.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

Mr. Holveck's 1994 compensation consisted of base salary, stock options, and
executive benefits.

In view of Mr. Holveck's responsibility and seniority, the Committee set his
1994 base salary at $300,000, to be competitive with base salaries paid to
other executives in the biotechnology industry with similar responsibilities
and seniority. Based on his achievement of certain objectives, the Committee
granted Mr. Holveck options to purchase 120,000 shares of Common Stock in 1994.
These option grants, together with prior option grants and restricted stock
awards, reflect the Committee's policy of encouraging long-term performance and
promoting executive retention while further aligning management's and
shareholders' interest in the performance of the Company's Common Stock.

COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)

Section 162(m) of the Internal Revenue Code, applicable in tax years
beginning on or after January 1, 1994, generally disallows a tax deduction to
publicly-held companies for annual compensation in excess of $1 million earned
by the chief executive officer or any of the other four highest compensated
officers. The deduction limit does not apply, however, to performance-based
compensation that satisfies certain requirements. Although the Committee has
not yet determined a policy with respect to Section 162(m) and no officer of
the Company is expected to earn compensation in excess of $1 million in 1995
that would not qualify as performance-based compensation, the Committee intends
to review the implications of Section 162(m) with respect to the Company's
executive compensation policies.

The Compensation Committee

Dr. Anthony B. Evnin
Dr. William F. Hamilton
Dr. Antonie T. Knoppers
Mr. Ronald A. Matricaria

9
<PAGE>

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table sets forth, for the fiscal years ended December 31, 1994,
1993 and 1992, the cash compensation paid by the Company, as well as certain
other compensation paid with respect to those years, to the chief executive
officer and each of the four other most highly compensated policy-making
principals of the Company in all capacities in which they served. Cash bonuses
are stated in the year for which they are awarded, whether paid or accrued.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION AWARDS
------------------------- ---------------------
(A) (B) (C) (D) (F) (G) (I)
SECURITIES
RESTRICTED UNDERLYING
NAME AND STOCK OPTIONS/ ALL OTHER
PRINCIPAL AWARD(S) SARS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) ($)(1) (#)(2) ($)(3)
--------- ---- ---------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
David P. Holveck........................ 1994 $300,000 -- -- 120,000 $6,463
President and Chief 1993 $279,000 $50,000 $ 80,000 174,000 $6,146
Executive Officer 1992 $238,000 -- $220,000 50,000 $5,829

Hubert J.P. Schoemaker.................. 1994 $360,000 -- -- 125,000 $6,724
Chairman of the Board 1993 $340,000 $55,000 $ 80,000 210,000 $7,411
1992 $352,000 -- -- -- $7,123

Bobba Venkatadri(4)..................... 1994 $239,000 -- -- 60,000 $5,619
Executive Vice President 1993 $200,000 $30,000 $ 40,000 60,000 $4,832
Pharmaceutical Division 1992 $135,000 $10,000 $ 65,000 70,000(5) $4,553

Martin R. Page.......................... 1994 $198,000 -- -- 40,000 $5,013
Senior Vice President, 1993 $183,000 $12,500 $ 40,000 40,000 $4,660
Regulatory Affairs and 1992 $178,000 -- -- 25,200(5) $4,682
Quality Assurance

James N. Woody.......................... 1994 $265,000 -- -- 60,000 $5,861
Senior Vice President--Research and 1993 $241,000 $20,000 $ 80,000 110,000 $5,657
Development, Chief Scientific Officer 1992 $213,000 -- $165,000 20,000 $5,148

</TABLE>
- - --------
(1) The 26,000 shares awarded to Mr. Holveck under the Company's 1983
Restricted Common Stock Award Plan (the "1983 Award Plan") during the three
fiscal years ended December 31, 1994 vest 20% each year for five
consecutive years after the award. At December 31, 1994, Mr. Holveck held
unvested awards under the 1983 Award Plan for an aggregate of 23,600 shares
with a market value of $383,500.

The 10,000 shares awarded to Dr. Schoemaker under the 1983 Award Plan
during the three fiscal years ended December 31, 1994 vest 20% each year
for five consecutive years after the award. At December 31, 1994, Dr.
Schoemaker held unvested awards under the 1983 Award Plan for an aggregate
of 23,000 shares with a market value of $373,750.

The 10,000 shares awarded to Mr. Venkatadri under the 1983 Award Plan
during the three fiscal years ended December 31, 1994 vest 20% each year
for five consecutive years after the award. At December 31, 1994, Mr.
Venkatadri held unvested awards under the 1983 Award Plan for an aggregate
of 7,000 shares with a market value of $113,750.

The 5,000 shares awarded to Mr. Page under the 1983 Award Plan during the
three fiscal years ended December 31, 1994 vest 20% each year for five
consecutive years after the award. At December 31, 1994, Mr. Page held
unvested awards under the 1983 Award Plan for an aggregate of 8,200 shares
with a market value of $133,250.

10
<PAGE>

The 22,000 shares awarded to Dr. Woody under the 1983 Award Plan during the
three fiscal years ended December 31, 1994 vest 20% each year for five
consecutive years after the award. At December 31, 1994, Dr. Woody held
unvested awards under the 1983 Award Plan for an aggregate of 19,200 shares
with a market value of $312,000.

The vesting of all of the foregoing unvested shares may be accelerated
under certain events constituting a change in control of the Company.

With respect to restricted stock awards, shares of Common Stock are not
issued prior to the vesting of an award. The holder of unvested restricted
stock awards has no rights as a shareholder of the Company, including the
right to receive dividends. The Company has not paid any dividends on its
Common Stock and does not expect to pay any dividends in the foreseeable
future.

(2) All of the options granted to Mr. Holveck, Dr. Schoemaker and Dr. Woody in
the three fiscal years ended December 31, 1994, the 120,000 options granted
to Mr. Venkatadri in 1993 and 1994, and the 80,000 options granted to Mr.
Page in 1993 and 1994, were granted in tandem with an equal number of
limited stock appreciation rights ("LSARs"). LSARs may be exercised only
upon the occurrence of certain events constituting a change in control of
the Company, only during the 30-day period following shareholder approval
of any such event (but may not in any event be exercised for six months
after the date of grant of the LSAR), and will be exercisable only if and
to the extent that the options to which they relate are exercisable. For
each share for which an LSAR is exercised, the optionee will receive an
amount in cash equal to the difference between (1) the exercise price per
share of the option to which the LSAR relates and (2) the fair market value
per share of the Common Stock issuable upon exercise of the option on the
date the LSAR is exercised.

(3) All of such amounts constitute contributions made by the Company to the
Company's Qualified Savings and Retirement Plan for the accounts of the
named principals.

(4) Mr. Venkatadri joined the Company on March 2, 1992.

(5) Although Mr. Venkatadri was granted an aggregate of 110,000 options during
1992, 30,000 of such options were granted in exchange for 40,000 options at
a higher exercise price which were surrendered pursuant to an Option
Exchange Program (the "1992 Exchange Program"). The 40,000 options
surrendered pursuant to the 1992 Exchange Program were granted to
Mr. Venkatadri in 1992. While such 1992 Exchange Program was not offered to
executive officers of the Company, Mr. Venkatadri was permitted to
participate since he was not an executive officer at the time such 1992
Exchange Program was offered.

Although Mr. Page was granted an aggregate of 33,200 options during 1992,
5,200 of such options were granted in exchange for 8,000 options at a
higher exercise price which were surrendered pursuant to the 1992 Exchange
Program. The 8,000 options surrendered pursuant to the 1992 Exchange
Program were granted to Mr. Page in 1992. While such 1992 Exchange Program
was not offered to executive officers of the Company, Mr. Page was
permitted to participate since he was not an executive officer at the time
such 1992 Exchange Program was offered.

11
<PAGE>

STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

The following table sets forth information concerning the grant of stock
options and LSARs under the Company's 1987 Non-Qualified Stock Option Plan to
the principals named in the Summary Compensation Table during the fiscal year
ended December 31, 1994:
<TABLE>
<CAPTION>

OPTION/LSAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- - ------------------------------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE
UNDERLYING OPTIONS/LSARS APPRECIATION FOR
OPTIONS/LSARS GRANTED EXPIRA- OPTION TERM
GRANTED TO EMPLOYEES EXERCISE TION ---------------------
NAME (#)(1)(4) IN FISCAL YEAR PRICE ($/SH)(2) DATE (3) 5% ($) 10% ($)
---- ------------- -------------- --------------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
David P. Holveck........ 40,000(5) 5.5% $11.875 1/27/04 $ 298,700 $ 757,000
80,000(6) 11.0% $10.125 5/4/04 $ 509,400 $ 1,290,900

Hubert J.P. Schoemaker.. 45,000(5) 6.2% $11.875 1/27/04 $ 336,000 $ 851,700
80,000(6) 11.0% $10.125 5/4/04 $ 509,400 $ 1,290,900

Bobba Venkatadri........ 20,000(5) 2.7% $11.875 1/27/04 $ 149,400 $ 378,500
40,000(6) 5.5% $10.125 5/4/04 $ 254,700 $ 645,500

Martin R. Page.......... 10,000(5) 1.4% $11.875 1/27/04 $ 74,700 $ 189,300
30,000(6) 4.1% $10.125 5/4/04 $ 191,000 $ 484,100

James N. Woody.......... 20,000(5) 2.7% $11.875 1/27/04 $ 149,400 $ 378,500
40,000(6) 5.5% $10.125 5/4/04 $ 254,700 $ 645,500
</TABLE>

- - --------
(1) The exercisability of all of the options will accelerate upon the
occurrence of certain events constituting a change in control of the
Company.

(2) The price payable upon exercise of options may be paid in cash, property,
services rendered, or, under certain circumstances, in shares of the
Company's Common Stock having a fair market value equal on the date of
exercise to the exercise price, or any combination thereof.

(3) Each of the options generally expires upon the earlier of six months after
the employee's termination of employment or the expiration date noted
above.

(4) All of the options were granted in tandem with LSARs.

(5) Such options first become exercisable as to one-half of the option shares
on January 27, 1996, one-quarter of the option shares on January 27, 1997,
and one-quarter of the option shares on January 27, 1998.

(6) One-third of such options became exercisable in December 1994 upon the
achievement by the Company of a certain milestone. The balance of such
options first become exercisable as to one-sixth of the option shares on
May 4, 1996, one-quarter of the option shares on May 4, 1997, and one-
quarter of the option shares on May 4, 1998.

12
<PAGE>

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

None of the principals named in the Summary Compensation Table exercised any
options during the fiscal year ended December 31, 1994. The following table
sets forth information with respect to the unexercised options and LSARs held
by each of those principals as of the end of such fiscal year:

AGGREGATED FY-END OPTION/LSAR VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/LSARS OPTIONS/LSARS AT FY-
AT FY-END (#) END ($)
-------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David P. Holveck........... 264,165(1) 279,835(1) $1,230,400 $2,075,700
Hubert J.P. Schoemaker..... 565,665(1) 333,335(1) $2,378,200 $2,429,300
Bobba Venkatadri........... 58,333(2) 131,667(3) $ 283,600 $ 885,700
Martin R. Page............. 100,600(4) 72,600(5) $ 644,100 $ 538,600
James N. Woody............. 123,333(1) 186,667(1) $ 194,600 $1,259,800
</TABLE>
- - --------
(1) All of such options were granted in tandem with LSARs.
(2) 13,333 of such options were granted in tandem with LSARs.
(3) 106,667 of such options were granted in tandem with LSARs.
(4) 10,000 of such options were granted in tandem with LSARs.
(5) 70,000 of such options were granted in tandem with LSARs.

13
<PAGE>

PERFORMANCE GRAPH

The following graph compares the yearly percentage change in the cumulative
total shareholder return on the Company's Common Stock during the five fiscal
years ended December 31, 1994 with the cumulative total return on the Nasdaq
Stock Market Index (U.S. and Foreign Companies) and the Hambrecht & Quist
Biotechnology Index. The comparison assumes $100 was invested on December 31,
1989 in the Company's Common Stock and in each of the foregoing indices and
further assumes reinvestment of dividends. The Company did not declare or pay
any dividends during the comparison period.

(ART)

[GRAPH APPEARS HERE]

<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG CENTOCOR, NASDAQ STOCK MARKET INDEX, AND
HAMBRECHT & QUIST BIOTECHNOLOGY INDEX

Nasdaq Stock
Market Index
(U.S. and Foreign Hambrecht & Quist
Calendar Year Ended Companies) Biotechnology Index Centocor
- - --------------------- ----------------- ------------------- --------
<S> <C> <C> <C>
FYE 1989 $100.00 $100.00 $100.00
FYE 1990 $ 85.02 $158.51 $178.00
FYE 1991 $135.71 $374.07 $428.00
FYE 1992 $157.36 $332.42 $130.00
FYE 1993 $181.15 $286.56 $ 95.00
FYE 1994 $175.25 $272.22 $130.00

</TABLE>

TRANSACTIONS INVOLVING DIRECTORS AND MANAGEMENT

At various times in 1994, various executive officers vested in shares awarded
pursuant to the 1983 Award Plan and were granted options pursuant to the 1987
Non-Qualified Stock Option Plan.

The Company has arrangements with all executive officers other than Mr.
Holveck pursuant to which each will receive severance payments of twelve months
compensation in certain cases in the event of termination of his employment by
the Company. The Company has an arrangement with Mr. Holveck pursuant to which
he will receive a lump-sum payment of twelve months compensation in certain
cases in the event of termination of his employment by the Company.

The terms of currently unexercisable options for an aggregate of 1,201,204
shares and currently unvested restricted stock awards for an aggregate of
115,892 shares granted to all executive officers and certain other employees of
the Company provide for the acceleration of the exercisability of such options
and the vesting of such common stock awards upon the occurrence of certain
events constituting a change in control of the Company.

14
<PAGE>

In 1994, the Company made a research grant of approximately $72,400 to Dr.
Steinman's laboratory at Stanford University to support research of Dr.
Steinman and others. Dr. Steinman also provides scientific consulting services
to the Company under a consulting agreement. The Company pays Dr. Steinman
$60,000 per year for services rendered under such agreement.

Davis Polk & Wardwell, in which Mr. Spizzirri was a partner in 1994, provided
legal services to the Company in 1994.

OTHER BUSINESS

The Board of Directors knows of no business that will be presented at the
meeting other than (1) the election of directors and (2) the proposal to amend
the 1989 Directors' Plan. If any other matter is properly presented to the
meeting, the persons named in the accompanying proxy will have discretionary
authority to vote proxies with respect to such matter in accordance with their
best judgment.

ADDITIONAL INFORMATION

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

KPMG Peat Marwick, independent certified public accountants, audited the
consolidated financial statements of the Company for the year ended December
31, 1994. Representatives of KPMG Peat Marwick are expected to attend the 1995
annual meeting of shareholders, will have the opportunity to make a statement
if they desire to do so and are expected to be available to answer appropriate
questions. The Board of Directors has selected KPMG Peat Marwick as the
independent public accountants to audit the Company's consolidated financial
statements for the year ending December 31, 1995.

DEADLINE FOR SHAREHOLDERS' PROPOSALS

The Company must receive any proposal which a shareholder wishes to submit to
the 1996 annual meeting of shareholders before December 11, 1995, if the
proposal is to be considered by the Board of Directors for inclusion in the
proxy material for that meeting.

George D. Hobbs
Secretary

April 10, 1995

15
<PAGE>

CENTOCOR, INC.

MALVERN, PA

Proxy Solicited on Behalf of the Board of Directors of the Company
for the Annual Meeting of Shareholders to be held May 17, 1995

The undersigned hereby appoints David P. Holveck and George D. Hobbs, and
each of them, attorneys and proxies, with power of substitution in each of them,
to vote and act for and on behalf of the undersigned at the annual meeting of
shareholders of Centocor, Inc. to be held on Wednesday, May 17, 1995, and at all
adjournments thereof, according to the number of shares which the undersigned
would be entitled to vote if then personally present, as indicated hereon, and
in their discretion upon such other business as may arise during the meeting,
all as set forth in the notice of the meeting and in the proxy statement
furnished herewith, copies of which have been received by the undersigned; and
hereby ratifies and confirms all that said attorneys and proxies may do or cause
to be done by virtue hereof.

It is agreed that unless otherwise marked on the reverse side, said
attorneys and proxies are appointed with authority to vote FOR the election of
directors and that as to the other proposal which is described in the proxy
statement said attorneys and proxies shall vote as directed, or in the absence
of such direction, FOR such proposal.

(PLEASE FILL IN, SIGN AND DATE THIS PROXY CARD ON
THE REVERSE SIDE AND RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE.)
SEE REVERSE
SIDE
<PAGE>

Please mark
X votes as in
this example.

1. ELECTION OF DIRECTORS

NOMINEES: Anthony B. Evnin, William F.
Hamilton, David P. Holveck, Antonie T.
Knoppers, Ronald A. Matricaria, Hubert
J. P. Schoemaker, Richard D. Spizzirri,
Lawrence Steinman, and Jean C. Tempel.

FOR (except WITHHELD (for all
as indi- nominees)
cated
below)

For, except vote withheld from the following nominee(s):

_____________________________

FOR AGAINST ABSTAIN

2. Proposal to amend the Company's 1989
Non-Employee Directors' Non-Qualified
Stock Option Plan

MARK MARK HERE IF YOU
HERE FOR PLAN TO ATTEND
ADDRESS THE MEETING ON
CHANGE MAY 17, 1995

Signature should be the same as the name printed hereon:
Executors, administrators, trustees, guardians, attorneys
and officers of corporations should add their title when
signing.

Signature:_________________________Date:_____________

<PAGE>

Exhibit 10

CENTOCOR, INC.

1989 NON-EMPLOYEE DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN
(as proposed to be amended and restated)

1. Objectives
----------

The objectives of this Plan are to assist Centocor, Inc. (the
"Company") in attracting and retaining experienced and knowledgeable independent
Directors and to further promote the identification of such Directors' interests
with those of the Company's shareholders.

2. Definitions
-----------

"Board" shall mean the Board of Directors of the Company.

"Date of Grant" in relation to an option granted under the Plan shall
mean the date as of which such option is granted pursuant to Section 5 of the
Plan.

"Director" shall mean a member of the Board who is not otherwise an
employee of the Company or a Subsidiary, who has not been an employee of the
Company or a Subsidiary for a period of at least one year prior to the date of
grant of an option under the Plan and who is not an FMC Director.

"Exercise" in respect of an option shall mean the delivery by the
Optionee to the Company of (a) written notice of exercise of the option as to a
specified number of Shares; and (b) payment of the option price for such Shares.

"FMC" shall mean FMC Corporation, a Delaware corporation.

"FMC Agreement" shall mean the Compromise and Settlement Agreement,
dated October 31, 1986, between FMC and the Company.

"FMC Director" shall mean a member of the Board who is not an employee
of the Company or a Subsidiary, who has not been an employee of the Company or a
Subsidiary for a period of at least one year prior to the date of grant of an
option under the Plan and who has been proposed by FMC for nomination for
election to the Board pursuant to the terms of the FMC Agreement; provided that
John R. Furrer shall not be deemed to be an FMC Director.

"Initial Exercise Date" shall mean the first day of the first month
after the Date of Grant of an option.

<PAGE>

"Optionee" shall mean a person or entity (including FMC) holding an
option granted under the Plan which has not been exercised or surrendered and
has not expired or terminated.

"Plan" means this 1989 Non-Employee Directors' Non-Qualified Stock
Option Plan, as it may be amended from time to time.

"Shares" shall mean shares of common stock, par value $.01 per
share, of the Company.

"Subsidiary" shall mean a corporation at least 50% of the outstanding
voting stock of which, at the time in question, is owned, directly or
indirectly, by the Company.

3. Maximum Number of Shares to be Optioned
and Adjustments in Optioned Shares
---------------------------------------

The maximum number of Shares for which options may be granted
hereunder is 800,000. Notwithstanding any other provisions of the Plan to the
contrary, the number of Shares subject to option, the number of Shares
previously optioned and not theretofore delivered and the option price per
Share shall be appropriately adjusted if the number of outstanding Shares of the
Company is increased or reduced by split-up, reclassification, stock dividend or
the like. Shares for which options have expired or terminated or have been
surrendered or cancelled may again be optioned pursant to the Plan.

4. Administration and Interpretation
---------------------------------

The Plan shall be administered by the Board. Subject to the express
provisions of the Plan, the Board may make such rules and establish such
procedures as it deems appropriate for the administration of the Plan. In the
event of any disagreement as to the interpretation of the Plan or any rule or
procedure thereunder, the decision of the Board shall be final and binding upon
all persons in interest.

5. Granting of Options
-------------------

Each Director shall automatically be granted an option to purchase
15,000 Shares (subject to adjustment as provided in Section 3 above) immediately
following approval of the Plan by the Board. Each person who is elected a
Director after the approval of the Plan by the Board (except any such person who
is elected a Director at an annual meeting of Shareholders) shall automatically
upon such election as a Director be granted an option to purchase a fixed number
of Shares, such fixed number to be determined by multiplying 15,000 by a
fraction, the numerator of such fraction to be number of whole months from the
date

2
<PAGE>

of such election as a Director until the date of the next annual meeting of
shareholders of the Company and the denominator of such fraction to be 12,
provided that if such fixed number includes fractional Shares, then such fixed
number shall be rounded down to the nearest whole number of Shares. Following
the initial grant, five business days after the date of each annual meeting of
shareholders of the Company, an option to purchase 15,000 Shares (subject to
adjustment as provided in Section 3 above) shall automatically be granted to
each Director elected at such meeting and to FMC in the event of the election of
an FMC Director at such meeting. Notwithstanding any other provisions of the
Plan to the contrary, no option shall be granted later than ten years after the
date the Plan is adopted by the Board.

6. Option Terms
------------

Subject to the limitation prescribed in Section 5 above, the options
granted under the Plan shall be on the terms stated in Subsections 6(a) through
(h) below. The Board may specify additional terms not inconsistent with the Plan
by rules of general application or by specific direction in connection with a
particular option or group of options.

(a) The option price shall be 100% of the fair market value of
the underlying Shares on the Date of Grant. The fair market value of Shares
shall be the closing price per share of the Shares on the principal national
securities exchange on which the Shares are listed or admitted to trading, or,
if not listed or traded on any such exchange, on the National Market System of
the National Association of Securities Dealers Automated Quotation System
("NASDAQ"), or if not listed or traded on any such exchange or system, the fair
market value as reasonably determined by the Board, which determination shall be
conclusive.

(b) Subject to the provisions herein regarding expiration or
termination of options, on the Initial Exercise Date of each option, the option
shall become exercisable as to 2% of the Shares subject thereto, and on each
monthly anniversary of the applicable Initial Exercise Date, the option shall
become exercisable as to an additional 2% of the Shares subject thereto;
provided however, that no option shall become exercisable prior to the approval
of the Plan by the holders of a majority of the outstanding Shares entitled to
vote thereon present in person or by proxy at a duly held meeting of
shareholders ("Shareholder Approval"). All options which would otherwise be
exercisable prior to the date of Shareholder Approval shall become exercisable
on the first monthly anniversary of the Initial Exercise Date after Shareholder
Approval. No partial exercise of
3
<PAGE>

the option may be for less than 10 full Shares. In no event shall the Company be
required to issue fractional Shares.

(c) The option price shall be payable in money, obligations,
services performed whether or not contracted for, contracts for services to be
performed or any other tangible or intangible property (which, if shares of
stock of the Company, shall have been owned by the Optionee for at least six
months and shall have a fair market value on the date of exercise equal to the
option price), or any combination thereof, to the extent permitted by
Pennsylvania law. If the option price shall be payable other than in cash and/or
Shares, the Board shall approve such consideration prior to exercise and
reasonably determine the value of such consideration, which determination shall
be conclusive.

(d) Options granted to Directors shall not be transferable
otherwise than by will or the laws of descent and distribution and shall be
exercisable, during the Optionee's lifetime, only by him; provided, however,
that options granted to John R. Furrer may be assigned to FMC.

(e) Options granted to FMC or held by FMC upon assignment from
John R. Furrer shall be transferable only to successors of FMC or to purchasers
of the business and substantially all the assets, including, but not limited to,
FMC's rights under the FMC Agreement, of FMC and shall be exercisable only by
FMC, its successors or such purchasers.

(f) The option shall expire ten years after the Date of Grant.

(g) In the event that the Company is succeeded by another
corporation in a reorganization, merger, consolidation, acquisition of property
or stock, separation or liquidation, the surviving or resulting corporation
shall assume the outstanding options granted under the Plan or shall substitute
new options for them, which shall provide that the Optionee, at the same
aggregate cost, shall be entitled upon the exercise of such option to receive
such securities of the surviving or resulting corporation as the Board of
Directors of such corporation shall determine to be equivalent, as nearly as
practicable, to the nearest whole number and class of securities to which the
Optionee would have been entitled under the terms of the agreement governing the
reorganization, merger, consolidation, acquisition of property or stock,
separation or liquidation as if, immediately prior to such event, the Optionee
had been the holder of record of the number of Shares which were then subject to
such option.

4
<PAGE>

(h) If (i) the Company enters into an agreement of
reorganization, merger or consolidation pursuant to which it is not the
surviving corporation, (ii) the Company sells substantially all of its assets or
(iii) in excess of 51% of the issued and outstanding Shares are acquired by a
single purchaser or group of related purchasers, in any case other than in a
transaction in which the surviving corporation or the purchaser is the Company
or a Subsidiary, then upon shareholder approval of any such reorganization,
merger, consolidation or sale of assets or consummation of any such acquisition
of Shares, all outstanding options granted under the Plan will automatically
become fully exercisable, subject to the proviso to the first sentence of
Subsection 6(b) above related to Shareholder Approval.

7. Limited Stock Appreciation Rights
---------------------------------

Simultaneously with the grant of an option hereunder, a limited stock
appreciation right ("LSAR") with respect to all of the Shares covered by such
option shall automatically be granted. Each LSAR shall provide that in the event
of any acceleration of the exercisability of the option pursuant to Subsection
6(h) of the Plan which occurs more than six months after the date of grant of
the LSAR, the Optionee shall have the right, for a period commencing on
acceleration of the options and terminating thirty (30) days thereafter, to
exercise the LSAR and upon such exercise shall receive from the Company, for
each Share for which a LSAR is exercised, an amount in cash equal to the
difference between the exercise price per Share of the option to which the LSAR
relates and the fair market value of the Shares issuable upon exercise of such
option on the date the LSAR is exercised. When a LSAR is exercised, the option
to which it relates will cease to be exercisable to the extent of the number of
Shares with respect to which the LSAR is exercised, but will be deemed to have
been exercised for purposes of determining the number of Shares for which
options may be granted hereunder.

8. Exercise Rights upon Ceasing to be a Director
---------------------------------------------

All options held by an Optionee who is a Director shall terminate and
may not be exercised if the Optionee ceases to be a Director of the Company,
except that (i) if the Optionee dies while a Director of the Company, his
options may be exercised at any time within twelve (12) months following his
death (subject to the limitation prescribed in Subsection 6(f) above and to the
proviso to the first sentence of Subsection 6(b) above) by the person or persons
to whom his rights under the options shall pass by will or by the laws of
descent or distribution, but only to the extent that the options were
exercisable by the Optionee on the date of his death without regard to the
proviso to the first sentence of Subsection 6(b) above and (ii) if the Optionee
ceases

5
<PAGE>

to be a Director for any reason other than death or removal for cause, subject
to the terms and conditions hereof, the Optionee may exercise any options
granted hereunder for a period not to exceed six (6) months after the date on
which he ceases to be a Director (subject to the limitation prescribed in
Subsection 6(f) above and to the proviso to the first sentence of Subsection
6(b) above), but only to the extent that the options were exercisable by the
Optionee on the date on which he ceased to be a Director without regard to the
proviso to the first sentence to Subsection 6(b) above. To the extent options
are not exercised during such twelve-month or six-month period (as the case may
be), they shall expire at the end of such period.

9. Exercise Rights of Options held by FMC
--------------------------------------

All options granted to FMC or held by FMC upon assignment from John R.
Furrer shall terminate and may not be exercised if FMC no longer has, or with
respect to any annual meeting of shareholders of the Company fails to exercise,
the right to propose a person for nomination for election to the Board pursuant
to the FMC Agreement, except that options held by FMC may be exercised by FMC at
any time within six (6) months following the date on which FMC ceases to have
such right or the date of the annual meeting with respect to which FMC fails to
exercise such right (subject to the limitation prescribed in Subsection 6(f)
above and to the proviso to the first sentence to Subsection 6(b) above) but
only to the extent that the options were exercisable by FMC on such date without
regard to the proviso to the first sentence of Subsection 6(b) above, provided
that if an FMC Director ceases to be an FMC Director as a result of his removal
for cause, any options held by FMC, which were granted during the period when
such FMC Director was a member of the Board, shall immediately expire upon such
removal. To the extent options are not exercised during such six-month period,
they shall expire at the end of such period.

10. Additional Requirements
-----------------------

Upon the exercise of an option granted hereunder the Board may require
the Optionee or such other person exercising the Option to deliver the
following:

(a) A written statement that the Optionee (or such other person)
is purchasing the Shares for investment and not with a view toward their
distribution or sale and will not sell or transfer any Shares received upon the
exercise of the option except in accordance with the Securities Act of 1933, as
amended, and applicable state securities laws;

(b) Evidence reasonably satisfactory to the Company that, at the
time of exercise, the Optionee (or such

<PAGE>
other person) meets such other requirements as the Board may determine; and

(c) Evidence reasonably satisfactory to the Company that, at the
time of exercise, the exercise of the option by the Optionee (or such other
person) and the delivery of Shares upon exercise by the Company comply with all
applicable Federal and state securities laws.

11. Common Stock Subject to Option
------------------------------

The Shares issuable upon exercise of options granted hereunder may be
unissued shares or treasury shares, including shares bought on the open market.
The Company at all times during the term of the Plan shall reserve for issuance
the number of Shares issuable upon exercise of options granted hereunder.

12. Compliance with Governmental and Other Regulations
--------------------------------------------------

The Company will not be obligated to issue and sell the Shares issued
pursuant to options granted hereunder if, in the opinion of its counsel, such
issuance and sale would violate any applicable Federal or state securities laws.
The Company will seek to obtain from each regulatory commission or agency having
jurisdiction such authority as may be required to issue and sell Shares issuable
upon exercise of any option granted hereunder. Inability of the Company to
obtain from any such regulatory commission or agency authority which counsel for
the Company deems necessary for the lawful issuance and sale of Shares upon
exercise of an option granted hereunder shall relieve the Company from any
liability for failure to issue and sell such Shares until the time when such
authority is obtained or is obtainable.

13. Nonassignment of Options
------------------------

Except as otherwise provided in Subsections 6(d) and 6(e) hereof, any
option granted hereunder and the rights and privileges conferred hereby shall
not be transferred, assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise) and shall not be subject to execution, attachment
or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any option, rights or privileges contrary to the provisions
hereof, or upon the levy of any attachment or similar process upon such option,
right or privilege, such option and the rights and privileges conferred hereby
shall immediately terminate.

14. Rights of Optionee in Stock
---------------------------

Neither any Optionee nor the legal representatives, heirs, legatees,
distributees, successors or permitted assigns of

7
<PAGE>

any Optionee, shall be deemed to be the holder of, or to have any of the rights
of a holder with respect to, any Shares issuable upon exercise of an option
granted hereunder unless and until such Shares are issued to it, him or them and
such entity, person or persons have received a certificate or certificates
therefor.

15. Delivery of Shares Issued Pursuant to Option
--------------------------------------------

Subject to the other terms and conditions of the Plan, upon the
exercise of an option granted hereunder, the Company shall sell to the Optionee
the Shares with respect to which the option has been exercised.

16. Withholding of Applicable Taxes
-------------------------------

The Company shall have the right to reduce the number of Shares
otherwise required to be issued upon exercise of an option granted hereunder by
an amount which would have a fair market value on the date of such exercise
equal to all Federal, state, city or other taxes as shall be required to be
withheld by the Company pursuant to any statute or other governmental regulation
or ruling. In connection with such withholding, the Company may make any such
arrangements as are consistent with the Plan as it may deem appropriate.

17. Plan and Options Not to Affect Directorship
-------------------------------------------

Neither the Plan nor any option granted hereunder shall confer upon
any individual any right to continue as a Director or an FMC Director.

18. Amendment of Plan
-----------------

The Board may make any amendments to the Plan which it deems necessary
or advisable, provided that the Board may seek shareholder approval of an
amendment if determined to be required by or advisable under regulations of the
Securities and Exchange Commission or the Internal Revenue Service, the rules of
any stock exchange or system on which the Company's stock is listed or other
applicable law or regulation.

19. Notices
-------

Any notice required or permitted hereunder shall be sufficiently given
only if sent by registered or certified mail, postage prepaid, addressed to the
Company, 244 Great Valley Parkway, Malvern, Pennsylvania 19355, and to the
Optionee at the address on file with the Company at the time of grant hereunder,
or to such other address as either party may hereafter designate in writing by
notice similarly given by one party to the other.

<PAGE>

20. Successors
----------

The Plan shall be binding upon and inure to the benefit of any
successor or successors of the Company.

21. Severability
------------

If any part of the Plan shall be determined to be invalid or void in
any respect, such determination shall not affect, impair, invalidate or nullify
the remaining provisions of the Plan which shall continue in full force and
effect.

22. Termination of the Plan
-----------------------

The Board may terminate the Plan at any time; otherwise the Plan shall
terminate ten years after it is approved by the Board. Termination of the Plan
shall not deprive Optionees of their rights under previously granted options.

23. Effective Date of Plan
----------------------

The Plan shall become effective when it is approved by the Board, but
the grant of any option hereunder is subject to the express condition that
within 12 months after the date on which the Plan is approved by the Board, the
holders of a majority of the outstanding Shares present, or represented, and
entitled to vote thereon shall have approved the Plan at a duly held meeting of
the shareholders of the Company.