CHOICE DRUG SYSTEMS INC, PRER14A, 1995-07-28

CHOICE DRUG SYSTEMS INC
PRER14A, 1995-07-28
DRUGS, PROPRIETARIES & DRUGGISTS' SUNDRIES

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<PAGE> 1

SCHEDULE 14A INFORMATION

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

Filed by the Registrant /X/

Filed by a Party other than the Registrant / /

Check the appropriate box:

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

CHOICE DRUGS SYSTEMS, 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):

/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 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:

/X/ 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: $125.00

(2) Form, Schedule or Registration Statement No.: PRE 14A

(3) Filing Party: Choice Drug Systems, Inc.

(4) Date Filed: July 12, 1995

<PAGE> 2

CHOICE DRUG SYSTEMS, INC.
2930 WASHINGTON BLVD.
BALTIMORE, MARYLAND 21230
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 23, 1995

TO THE SHAREHOLDERS OF CHOICE DRUG SYSTEMS, INC.:

The Annual Meeting of Shareholders of CHOICE DRUG SYSTEMS, INC. (the
"Company") will be held at the Hotel Intercontinental, 111 East 48th Street,
New York, New York, 10017 on August 28, 1995, at 1:00 p.m. Eastern Daylight
Time, for the purposes of considering and voting upon the following matters:

1. To elect new Directors to serve for one-year terms and until their
successors are duly elected and qualified;

2. To approve adoption of the Company's 1995 Nonqualified Stock Option
Plan for Directors, under which 200,000 shares of Common Stock will be
reserved for issuance;

3. To approve adoption of the Company's 1995 Nonqualified Stock Option
Plan for Key Employees and Directors, under which 550,000 shares of
Common Stock will be reserved for issuance;

4. To approve an amendment to the Company's 1992 Stock Option Plan that
will give the Board of Directors the discretion to extend the
expiration date of previously granted options for retiring directors;

5. To approve adoption of the Company's Employee Stock Purchase Plan,
under which 200,000 shares of Common Stock are reserved for issuance;

6. To approve the issuance of up to 3,500,000 shares of Common Stock in
connection with a private placement of the Company's common stock.

7. To approve an increase in the number of authorized shares of the
Company's Common Stock from 15,000,000 to 30,000,000;

8. To approve the reincorporation of the Company as a Delaware
corporation; and

9. In their discretion, on such other matters as may properly come before
the Annual Meeting.

Shareholders of record at the close of business on July 14, 1995, will
be entitled to vote at the Annual Meeting of Shareholders.

The Company's Board of Directors urges all Shareholders of record to
exercise their right to vote at the Annual Meeting of Shareholders personally
or by proxy. Accordingly, we are sending you the accompanying Proxy Statement
and the enclosed proxy card.

Your attention is directed to the Proxy Statement accompanying this
notice for a statement regarding matters to be acted upon at the Annual Meeting
of Shareholders.

By Order of the Board of Directors,

Don H. Thompson, Secretary

Baltimore, Maryland
July ____, 1995

YOUR REPRESENTATION AT THE ANNUAL MEETING OF SHAREHOLDERS IS
IMPORTANT. TO ENSURE YOUR REPRESENTATION, WHETHER OR NOT YOU PLAN TO ATTEND
THE ANNUAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY
CARD. SHOULD YOU DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE
IT IS VOTED IN THE MANNER PROVIDED IN THE ACCOMPANYING PROXY STATEMENT.
<PAGE> 3

CHOICE DRUG SYSTEMS, INC.
2930 WASHINGTON BLVD.
BALTIMORE, MARYLAND 21230

PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 28, 1995

This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of CHOICE DRUG SYSTEMS, INC. (the
"Company") to be used at the Annual Meeting of Shareholders to be held on
August 23, 1995, and at any adjournment thereof, for the purposes set forth in
the accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting
of Shareholders will be held at the Hotel Intercontinental, 111 East 48th
Street, New York, New York, 10017 on August 23, 1995, at 1:00 p.m. Eastern
Daylight Time. This Proxy Statement and the accompanying form of proxy are
being mailed to shareholders on or about July 31, 1995.

A shareholder who executes and returns the accompanying form of proxy
may revoke it at any time before it is voted by giving written notice of
revocation to the Secretary of the Company, by executing a proxy bearing a
later date, or by attending the Annual Meeting of Shareholders and voting in
person. Proxies will be voted in accordance with instructions noted on the
proxies. Unless otherwise specifically instructed in the proxies, it is the
intention of the persons named in the proxy to vote all proxies received by
them FOR THE ELECTION OF ALL OF THE NOMINEES NAMED HEREIN WHO ARE STANDING FOR
ELECTION AS DIRECTORS, FOR THE ADOPTION OF THE 1995 NONQUALIFIED STOCK OPTION
PLAN FOR DIRECTORS ("1995 DIRECTORS OPTION PLAN"), FOR THE ADOPTION OF THE
COMPANY'S 1995 NONQUALIFIED STOCK OPTION PLAN FOR KEY EMPLOYEES AND DIRECTORS
("1995 KEY EMPLOYEES AND DIRECTORS OPTION PLAN"), FOR APPROVAL OF AN AMENDMENT
TO THE COMPANY'S 1992 STOCK OPTION PLAN THAT WILL GIVE THE BOARD OF DIRECTORS
THE DISCRETION TO EXTEND THE EXPIRATION DATE OF PREVIOUSLY GRANTED OPTIONS FOR
RETIRING DIRECTORS ("1992 PLAN AMENDMENT"); FOR THE ADOPTION OF THE COMPANY'S
EMPLOYEE STOCK PURCHASE PLAN ("EMPLOYEE STOCK PURCHASE PLAN"); FOR APPROVAL OF
THE ISSUANCE OF UP TO 3,500,000 SHARES OF COMMON STOCK IN CONNECTION WITH A
PRIVATE PLACEMENT OF THE COMPANY'S COMMON STOCK; FOR APPROVAL OF THE INCREASE
IN THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK FROM 15,000,000 TO
30,000,000, AND FOR APPROVAL OF THE REINCORPORATION OF THE COMPANY AS A
DELAWARE CORPORATION. Management does not know of any other matters which will
be presented for action at the Annual Meeting of Shareholders. If any other
matter does come before the Annual Meeting of Shareholders, however, the
persons appointed in the proxy will vote in accordance with their best judgment
on such matter.

The cost of this proxy solicitation will be borne by the Company. It
is contemplated that proxies will be solicited solely by mail. Banks, brokers
and other custodians will be requested to forward proxy soliciting materials to
their customers where appropriate, and the Company will reimburse such banks,
brokers, and custodians for their reasonable out-of-pocket expenses in sending
the proxy materials to beneficial owners of the Company's shares.

1
<PAGE> 4

SUMMARY OF MATTERS TO BE CONSIDERED

At the Annual Meeting of Shareholders, the shareholders of the Company
will be asked to vote on the following matters: (1) the election of ten
nominees to serve as directors for one-year terms and until their successors
are duly elected and qualified (See Proposal 1: "Election of Directors"); (2)
adoption of the Company's 1995 Directors Stock Option Plan under which 200,000
shares of Common Stock are reserved for issuance (See Proposal 2: "Adoption of
1995 Nonqualified Stock Option Plan for Directors"); (3) adoption of the
Company's 1995 Key Employees and Directors Option Plan under which 550,000
shares of Common Stock are reserved for issuance (See Proposal 3: "Adoption of
1995 Nonqualified Stock Option Plan for Key Employees and Directors"); (4)
approval of an amendment to the Company's 1992 Stock Option Plan that will give
the Board of Directors the discretion to extend the expiration date of
previously granted options for retiring directors (See Proposal 4: "Amendment
of 1992 Stock Option Plan"); (5) adoption of the Company's Employee Stock
Purchase Plan, under which 200,000 shares of Common Stock are reserved for
issuance (See Proposal 5: "Adoption of Employee Stock Purchase Plan"); (6)
approval of the issuance of up to 3,500,000 shares in connection with a private
placement of the Company's common stock (See Proposal 6: "Private Placement");
(7) approval of the increase in the number of authorized shares of Common Stock
from 15,000,000 to 30,000,000 (See Proposal 7: "Increase in Authorized
Shares"); (8) approval of the reincorporation of the Company as a Delaware
corporation (See Proposal 8: "Reincorporation"); and (9) on such other matters
as may properly come before the Annual Meeting of Shareholders.

VOTING

Shareholders of record as of July 14, 1995, will be entitled to vote
at the Annual Meeting of Shareholders. At the close of business on that day,
there were outstanding ____________________ shares of the Company's Common
Stock, par value $.01 per share (the "Common Stock"). See "Stock Ownership of
Directors, Executive Officers and Principal Holders." Each share of Common
Stock is entitled to one vote, which may be given in person or by proxy
authorized in writing. The Company has no other classes of voting stock
issued. The Company has the authority to issue shares of preferred stock in one
or more series, although no series of preferred stock has been designated or
issued.

To vote by proxy, a shareholder should complete, sign, date and return
the enclosed proxy to the Secretary of the Company. The Board of Directors
urges you to so complete the proxy card whether or not you plan to attend the
Annual Meeting of Shareholders. If you attend the Annual Meeting of
Shareholders in person, you may, if you wish, vote in person on all matters
brought before the Annual Meeting of Shareholders even if you have previously
delivered your proxy. Any shareholder who has given a proxy may revoke it any
time prior to exercise by filing an instrument revoking it with the Secretary
of the Company, by duly executing a proxy bearing a later date, or by attending
the Annual Meeting of Shareholders and voting in person. The mere presence at
the Annual Meeting of a shareholder who has appointed a proxy will not revoke
the appointment.

The director nominees will be elected by a plurality of the votes of
the shares of Common Stock present or represented and entitled to vote at the
Annual Meeting of Shareholders. The approval of the reincorporation of the
Company as a Delaware corporation will be approved by the affirmative vote of
two-thirds (2/3) of all outstanding shares entitled to vote thereon. The
approval of the increase in the authorized shares of Common Stock will be
approved by the affirmative vote of a majority of all outstanding shares
entitled to vote thereon. All other matters submitted to the shareholders will
be approved by the affirmative vote of a majority of shares for which votes are
cast at the Annual Meeting of Shareholders. Abstentions and broker non-votes
will not be counted as affirmative votes, but will be counted for purposes of
determining the presence or absence of a quorum. On matters requiring majority
or two-thirds vote of all outstanding shares for approval, abstentions have the
effect of negative votes. Abstentions and broker non-votes have no legal
effect on any other proposal.

2
<PAGE> 5

STOCK OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND PRINCIPAL HOLDERS

The following table sets forth, as of July 1, 1995, the number and
percentage of shares of the Company's Common Stock owned by (i) all persons
known to the Company to be holders of 5% or more of such securities, (ii) each
director and nominee, (iii) each of the executive officers named in the Summary
Compensation Table appearing elsewhere herein, and (iv) all directors and
executive officers of the Company, as of July 1, 1995, as a group. Unless
otherwise indicated, all holdings are of record and beneficial.

<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE
BENEFICIALLY OF TOTAL
NAME OWNED(1) OUTSTANDING(2)
- ---- ------------- --------------
<S> <C> <C>
Counsel Corporation(3) . . . . . . . . . . 4,933,088 40.6%
Exchange Tower
Two First Canadian Place, Suite 1300
Toronto, Ontario, Canada M5X 1E3
Frank Mandelbaum(4). . . . . . . . . . . . 724,950 7.2%
363 Daisy Farms Drive
Scarsdale, New York 10583
Marvin Sirota(5) . . . . . . . . . . . . .
91 Station Road
Great Neck, New York 11023
R. Dirk Allison(6) . . . . . . . . . . . . 57,646 *
Don H. Thompson(7) . . . . . . . . . . . . 15,618 *
Allan C. Silber(8) . . . . . . . . . . . . 95,000 1.0
Morris A. Perlis(8) . . . . . . . . . . . 95,000 1.0
Hazel W. Johnson-Brown(9) . . . . . . . . 15,000 *
Joseph L. Falkson, Ph.D.(10) . . . . . . . 32,564 *
Joseph F. Furlong, III(6) 57,000 *
Eugene A. Gasbarro(9). . . . . . . . . . . 15,000 *
John Haronian (8),(10) . . . . . . . . . . 125,000 1.3
Edward Sonshine, Q.C.(6) . . . . . . . . . 57,000 *
Ronald M. Stone(9) . . . . . . . . . . . . 15,000 *
Gail Wilensky, Ph.D. . . Albert Reichmann -0- *
Brendan Ryan . . . . . . . . . . . . . . . -0- *
-0- *
John Zuccotti11. . . . . . . . . . . . . . 9,500 *

All directors and executive officers 577,264 5.7
as a group(12) 11 persons . . . . . . . .
- -----------------
</TABLE>

* Indicates less than 1%

(1) Unless otherwise indicated, the persons or entities identified in this table
have sole voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws, where
applicable.

(2) The percentages shown are based on 9,803,810 shares of Common Stock
outstanding on July 1, 1995, plus, as to each individual and group listed, the
number of shares of Common Stock deemed to be owned by such holder pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934 (the "Exchange Act"),
which includes shares subject to stock options and warrants held by such holder
which are exercisable within sixty (60) days of July 1, 1995.

(3) Includes 1,298,181 and 1,038,545 shares purchasable upon exercise of
warrants at $4.50 and $5.50 respectively. Counsel Corporation ("Counsel") is
a publicly traded Ontario, Canada corporation primarily engaged in health care
and real estate asset management. Directors Silber, Sonshine and Perlis are
directors of Counsel and director Silber beneficially owns or controls
approximately 25% of the common stock of Counsel, a majority of which is
pledged to a lender. Directors Sonshine and Perlis own in the aggregate less
than 5% of Counsel's common stock. All of the directors listed in this
footnote (3) disclaim beneficial ownership of shares of Common Stock in their
capacity as directors of Counsel, and Mr. Silber disclaims beneficial ownership
of shares of Common Stock in his capacity as a significant shareholder of
Counsel.

(4) Includes 100,000, 100,000, 25,000, 25,000 and 50,000 shares purchasable up
on exercise of options at $3.875, $6.00, $2.85, $3.50 and $2.71 per share,
respectively issued under certain of the Company's Option Plans.

(5) Includes 50,000 shares purchasable upon exercise of options at $3.71 per
share, issued under the 1992 Option Plan.

(6) Includes 15,000 and 12,000 shares purchasable upon exercise of warrants
at $4.50 and $5.50, respectively.

(7) Includes 4,110 and 3,288 shares purchasable upon exercise of warrants at
$4.50 and $5.50 , respectively.

(8) Includes 25,000 and 20,000 shares purchasable upon exercise of warrants at
$4.50 and $5.50, respectively.

(9) Includes 15,000 shares purchasable upon exercise of options at $3.50 per
share, issued under the 1992 Option Plan.

(10) Includes 15,000 and 15,000 shares purchasable upon exercise of options at
$2.85 and $3.50 per shares, respectively issued under the 1992 Option Plan.

(11) Includes 2,500 and 2,000 shares purchasable upon exercise of warrants at
$4.50 and $5.50, respectively.

(12) Includes 328,398 shares issuable under the Company's Option Plans and upon
exercise of warrants.

3
<PAGE> 6

COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC") (and, if such security is registered
on a national securities exchange, also with the exchange). Such executive
officers, directors and greater than 10% shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.

Based solely upon representations submitted by the Company's directors
and executive officers and the Company's review of filings on Forms 3, 4 and 5,
including amendments thereto, the Company has concluded that all such forms
were timely filed, except that each of Directors Haronian, Stone, Gasbarro and
Johnson-Brown became subject to the reporting requirements of Section 16(a) of
the Exchange Act in 1994 and each filed an initial statement of beneficial
ownership of securities on Form 3 after the date upon which it was due. The
Company has been informed by each individual that such failure to timely file
such Form 3 was inadvertent.

EXECUTIVE OFFICERS

The Company's executive officers are as follows:

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION;
NAME OF OFFICER AGE OFFICER SINCE OCCUPATION LAST FIVE YEARS
- --------------- --- ------------- --------------------------
<S> <C> <C> <C>
R. Dirk Allison 39 May 1995 President and Chief Executive Officer of the Company since May 1995;
President and Chief Executive Officer of Premier Pharmacy, Inc.
("Premier") from July 1993 to May 1995; President and Chief Executive
Officer of Allied Pharmacy Management, Inc. from February 1988 to June
1993.

Don H. Thompson 35 May 1995 Chief Financial Officer and Secretary of the Company since May, 1995;
Vice President of Finance, Chief Financial Officer and Secretary of
Premier from July 1993 to May 1995; Vice President of Finance, Chief
Financial Officer and Secretary of Allied Pharmacy Management, Inc. from
February 1988 to September 1993.
</TABLE>

{* 1 moved from here; text not shown}

4
<PAGE> 7

EXECUTIVE COMPENSATION

The following table sets forth the compensation for the services in
all capacities to the Company for the fiscal years ended February 28, 1993,
1994 and 1995 of those persons who were, during the most recent fiscal year,
the Company's chief executive officer and, at February 28, 1995, the Company's
other executive officers:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------ ---------------------- -----------
SECURITIES
RESTRICTED UNDERLYING LONG-TERM
NAME AND PRINCIPAL OTHER ANNUAL STOCK OPTIONS/ INCENTIVE ALL OTHER
POSITION (1) YEAR(S) SALARY($) BONUS ($) COMPENSATION (2)($) AWARD(S)($) SARS (#) PAYOUTS ($) COMPENSATION($)
- ------------------ ------ --------- --------- ------------------- ----------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. Dirk Allison . . 1995 * * * * * * *
President and 1994 * * * * * * *
CEO (3) 1993 * * * * * * *

Don H. Thompson . . 1995 * * * * * * *
Senior Vice 1994 * * * * * * *
President 1993 * * * * * * *
and Chief
Operating
Officer (3)
Morris A. Perlis. . 1995 -0- -0- -0- -0- -0- -0- -0-
Former Interim 1994 * * * * * * *
CEO (4) 1993 * * * * * * *

Frank Mandelbaum. . 1995 172,006 -0- -0- -0- 100,000 -0- -0-
Former President 1994 189,200 -0- -0- -0- --- -0- -0-
and 1993 172,000 -0- -0- -0- 100,000 -0- -0-
CEO (5)
Marvin Sirota . . . 1995 105,121 -0- -0- -0- 50,000 -0- -0-
Former Chief 1994 189,200 -0-
Executive 1993 172,000 100,000
Officer (6)

</TABLE>

------------
* Indicates periods prior to employment with the Company.

(1) Principal position given in table is as of June 1, 1995.
(2) Perquisites for each executive officer are in amounts which do not
require disclosure.
(3) Messrs. Allison and Thompson joined the Company on May 22, 1995,
upon completion of the Premier Acquisition. The base salaries for
Messrs. Allison and Thompson for the current fiscal year are
$210,000 and $117,500, respectively.
(4) Mr. Perlis served as interim Chief Executive Officer following the
resignation of Mr. Mandelbaum and until completion of the Premier
Acquisition in May 1995, for which he received no compensation. Mr.
Perlis currently serves as Vice Chairman of the Company.
(5) Mr. Mandelbaum resigned as Chief Executive Officer in December 1994
and resigned from the Board of Directors in January 1995, at which
time he was retained by the Company as a consultant.

(6) Mr. Sirota resigned as Chief Executive Officer in July 1994.

OPTION GRANTS

The table below provides information on grants of stock
options pursuant to the Company's Option Plans (the "Option Plans") during the
fiscal year ended February 28, 1995, to the officers named in the Summary

5
<PAGE> 8

Compensation Table. Additional grants have been made to certain officers and
other employees since February 28, 1995. See "Stock Ownership of Directors,
Executive Officers and Principal Holders." The Company grants no stock
appreciation rights.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS
-------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS/SAR S AT ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE OR STOCK PRICE APPRECIATION FOR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION OPTION TERM (1)
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5.0% ($) 10.0% ($)
- ---- ----------- ------------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
R. Dirk Allison -0- -0- -0- -- -0- -0-
Don H. Thompson -0- -0- -0- -- -0- -0-
Morris A. Perlis -0- -0- -0- -- -0- -0-
Frank 25,000 10.4 2.85 03/30/04 44,809 113,554
Mandelbaum(2) 25,000 10.4 3.50 10/28/04 55,028 139,452
50,000 20.9 3.71 01/21/00

Marvin Sirota(3) 50,000 20.9 3.71 01/15/00
</TABLE>

(1) The dollar amounts under these columns are the result of calculations
at the 5% and 10% rates set by the Securities and Exchange Commission
and, therefore, are not intended to forecast possible future
appreciation, if any, of the Company's Common Stock price.
(2) Mr. Mandelbaum resigned as Chief Executive Officer in December 1994
and resigned from the Board of Directors in January 1995, at which
time he was retained by the Company as a consultant.

(3) Mr. Sirota resigned as Chief Executive Officer in July 1994.

6
<PAGE> 9

OPTION EXERCISES AND VALUES

The table below provides information as to exercises of
options by the executive officers named in the Summary Compensation Table
during the fiscal year ended February 28, 1995 under the Company's option plans
and the year-end value of unexercised options and/or stock appreciation rights
held by such officers. The Company grants no stock appreciation rights.

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

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT 1995 FISCAL AT 1995 FISCAL
YEAR- END YEAR-END ($) (1)
SHARES --------------- -----------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------ ---------------- --------------
<S> <C> <C> <C> <C>
R. Dirk Allison . . . . . -0- -0- -0-/-0- -0-/-0-

Don H. Thompson . . . . . -0- -0- -0-/-0- -0-/-0-

Morris A. Perlis . . . . -0- -0- -0-/-0- -0-/-0-

Frank Mandelbaum . . . . -0- -0- 300,000/-0- $171,000/-0-

Marvin Sirota . . . . . . -0- -0- 50,000/-0- -0-/-0-

- --------------------------------------
</TABLE>

(1) Options are classified as "in-the-money" if the fair market value of
the underlying Common Stock exceeds the exercise price of the option.
The per share value of such in-the-money options is the difference
between the option exercise price and $3.438, the per share fair
market value of the underlying Common Stock as of February 28, 1995.
Such amounts may not necessarily be realized. Actual values which may
be realized, if any, upon the exercise of the options will be based on
the per share market price of the Common Stock at the time of exercise
and are thus dependent upon future performance of the Common Stock.

7
<PAGE> 10

COMPENSATION COMMITTEE REPORT

The following Compensation Committee Report is not deemed to
be part of a document filed with the SEC pursuant to the Securities Act of 1933
(the "Securities Act") or the Exchange Act and is not to be deemed incorporated
by reference in any documents filed under the Securities Act or the Exchange
Act without the express written consent of the persons named below.

Decisions on compensation of the Company's senior executives,
except for decisions related to awards under the Company's Option Plans, are
made by the Compensation Committee of the Company's Board of Directors. It is
the task of the Compensation Committee to establish executive compensation
guidelines for the Company which are reasonable and appropriate, meet their
stated purpose and effectively serve the needs of the Company and its
shareholders.

The current members of the Compensation Committee did not set
the compensation for any former executive officer of the Company, including
former chief executive officers Mandelbaum and Sirota. Former interim chief
executive officer Morris Perlis received no compensation for his interim
services. The current members of the Compensation Committee have met with the
entire Board of Directors in setting the compensation for the current executive
officers and have set forth policies to govern such compensation currently and
in the future. The Compensation Committee is unable to determine the extent to
which any such policies were relevant, if at all, to salaries for the prior
fiscal year. The Committee is in the process of reviewing all management
compensation in light of these policies.

Compensation Philosophy and Policies for Executive Officers

The Company's primary business goal is to provide high quality
service while maximizing shareholder value. The Company believes it can best
achieve this goal by achieving leadership in the provision of relevant and high
quality health services, expanding its operations primarily through
acquisitions and internal growth without imperiling the achievement of other
strategic objectives, and establishing a reputation as a desirable employer and
responsible corporate citizen. The Compensation Committee seeks to forge a
strong link between the Company's business goal and its compensation program by
aligning the interests of its shareholders and management personnel, including
executive officers. The Company's executive compensation program is intended
to be consistent with this overall philosophy for compensation at all
management levels. The Company believes that by aligning management
compensation with the Company's business goal, the likelihood of the Company's
success on both a short-term and long-term basis is increased. As an example,
the Company has created and requested shareholder approval of the 1995 Key
Employees and Directors Option Plan and the Employee Stock Purchase Plan.

The Company's current executive compensation program supports
the Company's strategy and objective of creating shareholder value by:

- Emphasizing pay for performance by linking a significant portion
of executive compensation to the performance of both the Company
and the individual executive officer.

- Directly aligning the interest of executives with the long-term
interest of shareholders by awarding stock options at current
market prices which have value to the executives through long-term
stock appreciation.

8
<PAGE> 11

- Providing compensation opportunities that attract and retain
talented and committed executives on a long-term basis.

- Appropriately balancing the Company's short-term and long-term
business, financial and strategic goals.

Currently, the Company's executive compensation program is
comprised of three principal components: base salary, annual cash incentive
(bonus) and long-term incentive opportunity through stock options. The annual
executive pay targets (base salary plus incentive) are intended to be
competitive with executive compensation of other U.S. public health care
companies, particularly institutional pharmacy companies, when the Company
meets or exceeds its annual operating goals.

The Company attempts to compare its executive pay targets with the
annual pay of other public companies, particularly institutional pharmacy
companies, subject to available information. These other companies include
companies from the Peer Group reflected in the Stock Performance Graph found
elsewhere in this Proxy Statement. Since the Peer Group is small, however, the
Compensation Committee retains the discretion to compare the Company's
executive pay targets with those of companies outside of this group. The
performance of these other companies is not currently considered in setting
executive compensation, largely because the Company's historical operations
were significantly worse, requiring special efforts and talents from the
current executives. The Company's compensation is lower than that of most
comparable companies, particularly because no bonuses were granted for the last
fiscal year. The Compensation Committee expects compensation for the current
fiscal year to be below, but closer to, the median if incentive targets are
reached.

Base Salary

All management salaries, including those of the executives, are
evaluated on a regular basis. In making its decision on salary levels, the
Company does not use a predetermined formula. In determining the salaries of
the Company's new executive team, the Company considered past earnings of such
individuals as officers of Premier and their potential to contribute to the
Company's future. In evaluating appropriate pay levels and salary increases
for Company executives, the Compensation Committee, without assigning
particular weight to any, intends to consider the following factors: level of
responsibility of the executive, individual job performance, internal salary
structure, pay practices of other companies, and achievement of the Company's
strategic goals. In that past, salary ranges have been based primarily on
individual job performances and past earnings.

Annual Cash Incentives

Annual cash incentive awards are designed to focus management
attention on key operational goals for the current fiscal year. The key
operational goals are specific to each executive's area of responsibility.
Specific weighting is assigned for identified financial, strategic and
management practices goals. At least 50% of the available bonus percentage for
each named executive officer is now tied to Company profitability, generally
defined by achievement of the annual budget as approved by the Board of
Directors. The remaining percentages are based on such goals as quality of
care, revenue growth, accounts receivable management and control of expenses.
The nature of the operational goals and the weighting assigned to each is
subject to change annually.

9
<PAGE> 12

Company executives may earn a bonus of between 20% and 50% of
their annual base salaries based upon achievement of their specific operational
goals and achievement by the Company or business unit of its financial targets.
At the end of the year, performance in light of these goals is determined on an
arithmetic scale with the pre-established weighting. Discretionary adjustments
by the Compensation Committee are possible if the Committee believes the
circumstances so warrant. No bonuses were awarded by the Compensation
Committee during the last fiscal year, and the current bonus system was not in
place then.

Long-Term Incentives

The Company's long-term incentive compensation program consists of
nonqualified stock options which are related to improvement in long-term
shareholder value. Stock option grants are designed to focus an executive's
attention on managing the Company from the perspective of long-term owner with
an equity stake in the business. Stock options are granted under the Option
Plans by the Disinterested Stock Option Plan Committee.

The option grants to executive officers offer the right to
purchase shares of Common Stock at their fair market value on the date of the
grant. These options will have value only if the Company's stock price
increases. The number of shares covered by each grant is selected based on the
executive's level of responsibility and past and anticipated contributions to
the Company. The Compensation Committee believes that grants of 50,000 and
100,000 options to former chief executive officers Sirota and Mandelbaum were
for past contributions and without regard to prior grants.

10
<PAGE> 13

Chief Executive Officer Compensation

Mr. Allison is the Company's current Chief Executive Officer. Mr.
Perlis served as the Company's interim Chief Executive Officer from December
1994 to May 1995, at which time he resigned in connection with the acquisition
of Premier and the related hiring of Mr. Allison. Frank Mandelbaum and Marvin
Sirota also served as Chief Executive Officers during the fiscal year, but the
current Compensation Committee did not set such persons' compensation.

Generally, the Chief Executive Officer is eligible to participate
in the same executive compensation plans available to the Company's other
senior executive officers. The Compensation Committee's general approach in
setting the Chief Executive Officer's annual compensation is derived from the
same considerations described above, that is to be competitive with other U.S.
public health care corporations, but also to have a significant portion of
annual incentive compensation based upon specific corporate-wide operating
performance criteria.

Mr. Mandelbaum and Mr. Sirota, former chief executive officers of
the Company received $172,006 and $105,212, respectively in the last fiscal
year. The Compensation Committee, as currently formulated, did not have any
input on such compensation but granted no bonus to such individuals.

In May 1995, the Compensation Committee approved a $210,000 base
salary for Mr. Allison for the current fiscal year and established his range of
incentive bonus at between 35-50% of this base salary, or a maximum of
$105,000. Mr. Allison's compensation package was developed primarily based
upon his historical compensation elsewhere, experience in the industry and with
turn-around situations. According to market data, such base salary and annual
incentive target were below the median of the comparison companies mentioned
above and appropriately within the Company's overall internal pay practices.
No bonus has been paid to any person acting as Chief Executive Officer since
the beginning of the last fiscal year. In May 1995, Stock options to acquire
50,000 shares of Common Stock were granted to Mr. Allison.

New Tax Regulations

Section 162(m) of the Internal Revenue Code of 1986, as amended,
generally disallows a tax deduction to public companies for executive
compensation in excess of $1 million. It is not anticipated that the Company
will pay any of its executive officers compensation in excess of $1 million in
the current fiscal year and, accordingly, to date the Company has not adopted a
policy in this regard.

THE FOREGOING REPORT IS SUBMITTED BY ALL OF THE CURRENT MEMBERS OF
THE COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS, WHOSE MEMBERS
ARE AS FOLLOWS: HAZEL W. JOHNSON-BROWN, EUGENE A. GASBARRO AND JOSEPH L.
FALKSON.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is currently composed of Directors
Gasbarro, Falkson and Johnson-Brown. Director Haronian and former director
Gross served on the Compensation Committee during a portion of the last fiscal
year.

11
<PAGE> 14

CERTAIN TRANSACTIONS

CERTAIN SERVICES BY NON-EMPLOYEE DIRECTORS

Since his election to the Board of Directors in December 1994, Mr.
Silber has provided various services to the Company in connection with
improving the balance sheet and capital structure of the Company. These have
included his service as Vice Chairman and Chairman of the Board of Directors,
direction of the negotiation of the acquisition of PremierPharmacy, Inc.,
direction of the completion of a private placement and direction of the
replacement of the Company's bank line of credit. See "Certain Transactions."
Mr. Silber has received no compensation for his services to date, other than
the reimbursement of expenses and the Company's standard fees for director
meeting attendance. Since his election to the Board of Directors in December
1994, Mr. Perlis has provided various services to the Company in connection
with the Company's long term strategy and decisions concerning the retention or
disposition of the Company's lines of business. These have included his
service as Vice Chairman of the Board of Directors and interim Chief Executive
Officer, direction of the negotiation of modifications to material contracts
and indebtedness of the Company, direction of personnel and operational
matters, and direction of the Company's regulatory compliance program. Mr.
Perlis has received no compensation for his services to date, other than the
reimbursement of expenses and the Company's standard fees for director meeting
attendance.

Set forth below is a summary of various transactions involving the
Company and certain directors, officers, shareholders or other affiliates. It
is the policy of the Company to notify the Board of Directors and seek the
approval of a majority of the members of the Board or an appropriate committee
who are not related to an interested party in connection with transactions
between the Company and a related party.

PRIVATE OFFERINGS BY THE COMPANY

On December 22, 1994, Counsel Corporation, a Toronto, Ontario,
Canada corporation ("Counsel"), purchased from the Company in a private
placement transaction (the "Counsel Investment"), 2,000,000 shares of Company
Common Stock at a price of $3.65 per share for an aggregate amount of
$7,300,000, along with warrants for the purchase of an additional 1,800,000
shares exercisable at any time over a three-year period. Following the Counsel
Investment, Counsel's beneficial ownership of the Company's Common Stock was
approximately 38.4%. 1,000,000 warrants are exercisable at $4.50 per share and
800,000 are exercisable at $5.50 per share. On the date of this transaction,
the closing price of the Company's Common Stock as reported on the Nasdaq Stock
Market National Market was $4.00. The Company simultaneously granted Counsel
certain demand and piggyback registration rights. In connection with the
Counsel Investment, the Company increased the size of its Board of Directors
from seven to eleven, filling the vacancies with four additional nominees
designated by Counsel. The Company elected Allan C. Silber, Chairman of the
Board and Chief Executive Officer of Counsel, as Co-Chairman of the Company,
and Morris A. Perlis, a director and President of Counsel, as the interim Chief
Executive Officer of the Company. In conjunction with the Premier Acquisition
(as defined below), Mr. Silber and Mr. Perlis became Chairman and Vice
Chairman of the Company, respectively. Pursuant to the Counsel Investment, the
Company has agreed to use its good faith efforts to have elected as directors
up to four Counsel nominees, subject

12
<PAGE> 15

to certain conditions. The Board of Directors received an opinion from an
independent investment banking firm to the effect that the transaction was fair
from a financial point of view to the Company's shareholders.

On May 22, 1995, the Company completed a private offering
("Private Placement") of 1,600,000 units (the "Units"). Each Unit consisted of
one share of Common Stock, a three-year warrant to acquire 0.5 shares of Common
Stock at the exercise price of $4.50 per share, and a three-year warrant to
acquire 0.4 share of Common Stock at the exercise price of $5.50 per share.
Investors were granted registration rights with respect to both the Common
Stock included in the Units and the Common Stock underlying the related
warrants. The offering of Units raised $5,840,000 at a price of $3.65 per
Unit. On the date of this transaction, the closing price of the Company's
Common Stock as reported on the Nasdaq Stock Market National Market was $4.50.
Counsel acquired 596,362 Units, representing approximately 37.3% of the Units
sold. Counsel's acquisition of Units increased its beneficial ownership of the
Company's Common Stock from approximately 38.4% to 40.9%. In addition, Curt
Johnson, who is employed by a Counsel subsidiary as general counsel and who
provides legal services to the Company pursuant to an agreement between the
Company and the subsidiary, acquired 27,400 Units, representing approximately
1.7% of the Units sold. J.E. Duffy, a consultant to the Company who also
provides consulting services to affiliates of Counsel, acquired 6,850 Units,
representing less than 1.0% of the Units sold.

Certain directors and officers of the Company also participated in
the Private Placement as noted in the table below:

<TABLE>
<CAPTION>
Number of Units % of
Participant Acquired Units
----------- -------- ------
<S> <C> <C>
Joseph F. Furlong III (1) 30,000 1.88

John Haronian 50,000 3.13
Morris A. Perlis (2) 50,000 3.13

Allan C. Silber (2) 50,000 3.13

Edward Sonshine, Q.C. (2) 30,000 1.88

R. Dirk Allison 30,340 1.90

Don H. Thompson 8,220 *

Carl A. Pannuti 13,700 *

Joe McLellan 2,740 *

Individuals cited above as a 265,000 16.56
group (9) persons(3)
</TABLE>

* Indicates less than 1%

(1) Consultant to certain affiliates of Counsel.
(2) Affiliate of Counsel.
(3) Director nominee Zuccotti purchased 5,000 Units, representing less
than 1% in the Private Placement.

The securities sold in the Private Placement are unregistered and
are thus subject to typical restrictions on resale or transfer. In connection
with the Private Placement, Counsel agreed to abandon the demand and piggyback
registration rights granted by the Company in December 1994 in exchange for
comparable registration rights granted jointly to all investors in the Private
Placement.

13
<PAGE> 16

At the time of the Private Placement, the Company loaned each of
Mr. Silber and Mr. Perlis $182,500 to fund their respective acquisitions of
Units. The loans were evidenced by interest-bearing five year notes in favor
of the Company, each secured by the shares of common stock acquired by Mr.
Silber and Mr. Perlis in the Private Placement. The loans have been rescinded
and all funds loaned by the Company with respect to the loans have been
refunded.

Counsel Corporation beneficially owns approximately 40.9% of the
outstanding Common Stock of the Company and, as such, is the Company's largest
shareholder. Counsel has approximately 35.1% of the voting power. Assuming
completion of the proposed private placement (See "Proposal 6: Private
Placement"), Counsel is expected to beneficially own less than 30% of such
stock, and has approximately 20% of the voting power. As a result of the
Counsel Investment, the Company has agreed to use its best efforts to cause
four Counsel nominees to serve on the Company's Board of Directors. As a
result of the foregoing, Counsel has a significant influence on matters brought
before the shareholders on the Board of Directors, although it cannot control
the outcome of any vote.

PREMIER ACQUISITION

On May 22, 1995, the Company acquired Premier Pharmacy, Inc.
("Premier"), another institutional pharmacy, for a purchase price of $4.25
million (the "Premier Acquisition"). Premier's operations generate annualized
revenues of approximately $30 million, primarily from pharmacy services
provided to long-term care facilities and hospitals. In connection with such
transactions, R. Dirk Allison, Chief Executive Officer of Premier, and Don H.
Thompson, Chief Financial Officer of Premier, have been elected as Chief
Executive Officer and Chief Financial Officer of the Company, respectively.

CONSULTING SERVICES

Curt Johnson, the general counsel of DCAmerica, Inc., a Counsel
subsidiary, and J. E. Duffy, a consultant to certain affiliates of Counsel,
have provided legal services and consulting services, respectively, to the
Company since April 1995 pursuant to an agreement between the Company and
DCAmerica providing for reimbursement of DCAmerica's allocable costs related to
such services. As of June 1, 1995, the Company had not reimbursed DCAmerica
for Mr. Johnson's or Mr. Duffy's services to the Company.

Marvin Sirota, a former officer and director of the Company, has
been providing consulting services to the Company pursuant to a Severance and
Consulting Agreement dated January 15, 1995. Under the Severance and
Consulting Agreement, Marvin Sirota agreed to assist the Company by
investigating new business opportunities. He will provide services at the
Company's request for up to twenty hours of work a week.

Frank Mandelbaum, a former officer and director of the Company, is
providing consulting services pursuant to a Severance and Consulting Agreement
dated January 15, 1995. Under the Severance and Consulting Agreement, Mr.
Mandelbaum will receive $11,607.00, per month through May 30, 1997, plus
expenses spent in Company work.

14
<PAGE> 17

STOCK PERFORMANCE GRAPH

The Stock performance graph depicted below is not deemed to be part of
a document filed with the Securities and Exchange Commission pursuant to the
Securities Act or the Exchange Act and is not to be deemed incorporated by
reference in any documents filed under the Securities Act or the Exchange Act
without the express written consent of the Company.

The following graph compares the cumulative total returns of the
Company with those of the Nasdaq Market Index and a peer group index.
Cumulative return assumes $100 invested in the Company or respective index on
February 28, 1990, with dividend reinvestment through February 28, 1995. The
Company has selected a peer group known as the DOSE Group (SIC Number ____), as
compiled by Research Data Group. This peer group index is comprised of
approximately 7 companies, excluding the Company.

To date, the Company has not directly tied executive compensation
to stock performance. The future impact of stock performance on executive
compensation will be determined by the Compensation Committee.

15
<PAGE> 18

PROPOSAL 1:

ELECTION OF DIRECTORS

The Board of Directors of the Company currently consists of nine
members and is being increased to ten members. Directors are elected to hold
office for one-year terms and then until their successors have been duly
elected and qualified.

The Board of Directors proposes that the nominees indicated below
be elected as directors to serve for a one-year term and until their successors
are duly elected and qualified. Should any nominee for the office of director
become unable to accept nomination or election, which is not anticipated, it is
the intention of the persons named in the proxy, unless otherwise specifically
instructed in the proxy, to vote for the election of such other person as the
Board of Directors may recommend.

NOMINEES FOR ELECTION AS DIRECTORS

<TABLE>
<CAPTION>
Director Current Principal Occupation;
Name of Nominee Age Since Occupation Last Five Years
- --------------- --- ---------- --------------------------
<S> <C> <C> <C>
R. Dirk Allison 39 Nominee Mr. Allison has served as President and Chief Executive Officer of the
Company since May 1995. He served as President and Chief Executive
Officer of Premier from July 1993 to May 1995. Mr. Allison served as
President and Chief Executive Officer of Allied Pharmacy Management,
Inc. from February 1988 to June 1993.

Albert Reichmann 66 Nominee Mr. Reichmann served as Chairman and a Director of Olympia & York
Developments, Limited, a privately held Canadian real estate company,
for at least five years perior to February, 1993. Mr. Reichmann
currently participates in major philanthropic activities in addition
to serving on the boards of several major hospitals in Canada.

Brendan Ryan 52 Nominee Mr. Ryan has served as President and Chief Executive officer of
FCB/Leber Katz Partners and FCB Direct in New York, and FCB/Tierney in
Philadelphia, a diversified advertising firm, since 1991. Prior to that,
he was Executive Vice President of Ogilvy & Mather, an advertising firm,
from 1977 to 1991 and a director and department head of OMW from 1986 to
1991. Mr. Ryan has served as a member of the Citizens Crime Commission
of New York City, since 1985.

John Zuccotti 58 Nominee Mr. Zuccotti has served as President and Chief Executive Officer of
Olympia & York Companies (U.S.A.), a real estate company, counsel to the
law firm of Brown & Companies (U.S.A.), and a director of Catellus
Development Corporation since January 1990. He has served as a director
of Dreyfus Strategic Municipal Bond Fund, Inc. since November 1989. Mr.
Zuccotti was a partner in the law firm of Brown & Wood from January 1986
to December 1989.

Gail Wilensky, Ph.D. 52 Nominee Dr. Wilensky has served as Chair, Physician Payment Review Commission,
Senior Fellow since May 1995, and as John M. Olin Senior Fellow, Project
HOPE since January 1993. Dr. Wilensky served as Deputy Assistant to the
President for Policy Development from March 1992 to January 1993. She
was Administrator of the Health Care Financing Administration of the
Department of Health and Human Services from January 1990 to March
1992.
</TABLE>

16
<PAGE> 19

<TABLE>
<S> <C> <C> <C>
Allan C. Silber 46 December 1994 Mr. Silber has served as a director of the Company since
December 1994. Mr. Silber has been Chairman, Chief Executive
Officer and a director of Counsel since August 1979. He served
as President of Counsel from August 1979 until January 1994. Mr.
Silber has served as a director of Advocat Inc., a nursing home
operator ("Advocat"), since January 1994 and as a director of
American HomePatient, Inc., a home healthcare provider
("American HomePatient"), since September 1991. Mr. Silber
served as chairman of American HomePatient from September 1991
to May 1994.

Morris A. Perlis 46 December 1994 Mr. Perlis has been Vice Chairman of the Company since May 1995
and a director since December 1994. Mr. Perlis served as
interim chief executive officer of the Company from December
1994 to May 1995. He has served as a director of and consultant
to Counsel since September 1992, and as President of Counsel
since January 1994. Mr. Perlis has served as a director of
American HomePatient since March 1993, and as its Chairman since
May 1994. He has served as a director of NOMA, Inc., a
manufacturer of consumer wire and cable, since September 1993.
Mr. Perlis was President of Morris A. Perlis & Assoc., an
executive management consulting firm, from September 1992 until
January 1994 and President of American Express Canada, Inc. from
September 1988 until September 1992.

Joseph F. Furlong, III 46 December 1994 Mr. Furlong has served as Director of the Company since December
1994. Mr. Furlong has been a partner of Colman Furlong & Co., a
merchant banking firm, since February 1991. Prior to that he
was a partner of Robertson Stephens & Company, an investment
banking firm, from November 1984 to January 1991. Mr. Furlong
has served as a director of American HomePatient since June
1994.

John Haronian(1)(2) 62 January 1994 Mr. Haronian has served as a director of the Company since
January 1994. Mr. Haronian has served as Chairman of Vision
World, Inc. and President of Tri-State Leasing, Inc. since
April 1991. Mr. Haronian has served as President of Peoples
Liquor, Inc. since November 1991. From May 1965 until November
1990 Mr. Haronian served as President of Douglas Drug, Inc.

Edward Sonshine, Q.C.(1) 48 December 1994 Mr. Sonshine has served as a director of the Company since
December 1994. Mr. Sonshine has served as a director of
American HomePatient since September 1991. Mr. Sonshine has
served as Vice Chairman of Counsel since January 1994, as a
director of Counsel since August 1979, and as Chairman,
President and Chief Executive Officer of Counsel Management
Services, Inc. since October 1993. Mr. Sonshine served as
Executive Vice President of Counsel from February 1987 until
January 1994. Mr. Sonshine served as President and Chief
Executive Officer of Icarus Realty Corp. from February 1987
until September 1993. Mr. Sonshine has been a director of
Advocat since May 1995.
</TABLE>

_________________________
(1) Member of Audit Committee.
(2) Member of Stock Option Committee.

Directors who are not officers, employees or consultants of the
Company (currently all Directors) receive a fee of $500 for each meeting of the
Board of Directors or a Committee of the Board attended by telephone and a fee
of $1,000 for each such meeting attended in person. All directors are
reimbursed for actual expenses incurred in connection with attendance at
meetings of the Board of Directors or Committees of the Board.

The Board of Directors currently has standing Audit, Compensation and
Disinterested Stock Option Plan Committees.

17
<PAGE> 20

The Executive Committee was dissolved on June 28, 1995. Previously,
the Committee was composed of Directors Falkson, Perlis, Silber and Haronian.
Messrs. Perlis and Silber joined the Committee simultaneously with Counsel's
investment in the Company in December 1994. Former directors Mandelbaum,
Gross, Kroll, Levy and McGuire served on the Executive Committee for a portion
of the last fiscal year. The New York General Corporate Law and the Company's
Bylaws provide that the Board may designate such a committee from their number
to carry out the functions of the Board as permitted by law. Between meetings
of the Board, an executive committee may exercise all powers of the Board
except for those prohibited by New York corporate law. During the last fiscal
year, the Executive Committee held 12 meetings and adopted no written consent
actions.

The Audit Committee presently is composed of Directors Haronian, Stone
and Sonshine. Director Falkson and former director Gross served on the Audit
Committee for a portion of the last fiscal year. Responsibilities of this
Committee include engagement of independent auditors, review of audit fees,
supervision of matters relating to audit functions, and review and setting of
internal polices and procedures regarding audits, accounts and other financial
controls. During the last fiscal year, the Audit Committee held one meeting
and adopted no written consent actions.

The Compensation Committee presently is composed of Directors
Gasbarro, Falkson and Johnson-Brown. Responsibilities of this Committee
include approval of remuneration arrangements for executive officers of the
Company, review of compensation plans relating to executive officers and
directors, including benefits under the Company's compensation plans, and
general review of the Company's employee compensation policies. Director
Haronian and former director Gross served on the Compensation Committee for a
portion of the last fiscal year. Prior to the creation of the Disinterested
Stock Option Plan Committee, the Compensation Committee also had the authority
to grant options under the Company's option plans. During the last fiscal
year, the Compensation Committee held two meetings and adopted no written
consent actions.

The Disinterested Stock Option Plan Committee presently is composed of
Directors Johnson-Brown, Gasbarro and Haronian. The Disinterested Stock Option
Plan Committee was created June 28, 1995, and is authorized to grant options to
directors and employees of the Company under the Company's Option Plans.

During the Company's fiscal year ended February 28, 1995, its Board of
Directors held 11 meetings and adopted no written consent actions. Each
current director who was serving on the Board of Directors during the last
fiscal year attended at least 75% of the Board meetings and Committee meetings
held or taken during the period in which such person served as a director of
the Company and committee member during the last fiscal year.

LEGAL PROCEEDINGS AFFECTING NOMINEES

O&Y Developments, Ltd. ("O&Y"), a privately held Canadian real estate
company, entered into a Canadian reorganization proceeding on May 14, 1992
under the Companies Creditors Arrangement Act. This proceeding related to
various real estate projects located in Canada and elsewhere. On February 5,
1993, a plan of reorganization was sanctioned by the court in such proceeding.
At the time of the institution of such proceeding, Director Nominee Reichmann
served as a director and president of O&Y.

18
<PAGE> 21

A plurality of the votes of the shares of Common Stock present or
represented by proxy at the Annual Meeting of Shareholders and entitled to vote
is required to elect the nominees as directors of the Company. Counsel has
expressed its intention to vote all its shares in favor of the election of the
nominees. THE BOARD OF DIRECTORS RECOMMENDS THAT ALL SHAREHOLDERS VOTE IN
FAVOR OF THE ELECTION OF THE NOMINEES AS DIRECTORS.

19
<PAGE> 22

PROPOSAL 2:

ADOPTION OF 1995 NONQUALIFIED
STOCK OPTION PLAN FOR DIRECTORS

On June 28, 1995, the Board of Directors approved the adoption of the
Company's 1995 Nonqualified Stock Option Plan for Directors ("1995 Director
Option Plan"), under which nonqualified options to purchase shares of the
Company's Common Stock will be available for grant to eligible directors of the
Company. Upon the plan's adoption by the shareholders, 10 directors will be
eligible to participate in the 1995 Director Option Plan.

The 1995 Director Option Plan will allow for the issuance of options
to purchase up to 200,000 shares of Common Stock. Information regarding
certain benefits to current officers and directors is set forth in "New Plan
Benefits," following Proposal 3.

The 1995 Director Option Plan is a formula plan under which options to
acquire 15,000 shares of Common Stock are to be granted to each director of the
Company elected at the Annual Meeting of Shareholders to be held August 23,
1995, and to any future director upon the date of his or her initial election
to the Board of Directors. Additionally, a director who serves on the board on
the last day of each fiscal year of the Company and who has served in such
capacity for at least six (6) months during such calendar year will be entitled
to receive annual grants of options to acquire 2,500 shares of Common Stock.
If the Company's fiscal year changes, directors will be eligible to receive an
annual option to acquire 2,500 shares of the interim fiscal period so long as
such interim period is at least six months long.

The term of options granted under the 1995 Director Option Plan is 10
years. Options are to be fully vested upon grant unless otherwise specified.
Shares subject to options granted under the plan which expire, terminate or are
canceled without having been exercised in full will become available again for
grants.

An option's exercise price per share will be equal to the closing
price of the Common Stock as reported on the trading day prior to the date of
grant. Payment for shares of Common Stock to be issued upon exercise of an
option may be made in either cash, Common Stock or any combination thereof, at
the discretion of the option holder. Options are nontransferable, other than
by will, laws of decent distribution or pursuant to certain domestic relations
orders.

In the event the option holder's services as a director are
terminated by reason of disability or death, the holder or his or her
representative may exercise an option for a period of 12 months following such
termination. If the service of the option holder is terminated as a director
for "cause," as defined in the 1995 Director Option Plan, an unexercised option
will expire. In the event the service of the option holder as a director is
terminated for any other reason, the holder may exercise his or her options for
a period of three (3) months following termination, unless extended by the
Board of Directors or an appropriate committee in its sole discretion for a
period of up to five (5) years following termination.

In the event of the dissolution or sale of substantially all the
assets of the Company, or a merger or consolidation in which the Company is not
the surviving corporation, each outstanding option will terminate, unless there
is an express assumption of the option by the surviving corporation. However,
as to any option which is to so terminate, each holder will have the right
immediately prior to the dissolution, sale, merger or consolidation to exercise
his or her option, in whole or in part.

20
<PAGE> 23

A copy of the proposed 1995 Director Option Plan is attached hereto as
Exhibit A.

A majority of the shares of Common Stock present or represented by
proxy at the Annual Meeting of Shareholders and entitled to vote is required to
adopt the 1995 Director Option Plan. Counsel has expressed its intention to
vote all of its shares in favor of the plan. THE BOARD OF DIRECTORS HAS
APPROVED THE ADOPTION THE 1995 DIRECTOR OPTION PLAN AND RECOMMENDS THAT ALL
SHAREHOLDERS VOTE IN FAVOR OF ADOPTION OF THE PLAN.

21
<PAGE> 24
PROPOSAL 3:

ADOPTION OF 1995 NONQUALIFIED
STOCK OPTION PLAN FOR KEY EMPLOYEES AND DIRECTORS

On June 28, 1995, the Board of Directors approved the adoption of the
Company's 1995 Nonqualified Stock Option Plan for Key Employees and Directors
("1995 Key Employees and Directors Option Plan"), under which nonqualified
options to purchase shares of the Company's Common Stock will be available for
grant to eligible key employees, consultants and directors of the Company.
Upon the plan's adoption by the shareholders, 10 directors and approximately 40
key employees and consultants will be eligible to participate in the 1995 Key
Employees and Directors Option Plan.

The 1995 Key Employees and Directors Option Plan will allow for the
issuance of options to purchase up to 550,000 shares of Common Stock.
Information regarding certain benefits to current officers and directors is set
forth in "New Plan Benefits," following Proposal 3.

The term of options granted under the 1995 Key Employees and Directors
Option Plan is 10 years. Options are to be fully vested upon grant unless
otherwise specified. Shares subject to options granted under the plan which
expire, terminate or are canceled without having been exercised in full will
become available again for grants.

In the event the option holder's services as an employee or director
are terminated by reason of disability or death, the holder or his or her
representative may exercise an option for a period of 12 months following such
termination. If the service of the option holder as an employee or director is
terminated for "cause," as defined in the 1995 Key Employees and Directors
Option Plan, an unexercised option will expire. In the event the service of
the option holder is terminated for any other reason, the holder may exercise
his or her options for a period of three (3) months following termination,
unless extended by the Board of Directors or an appropriate committee in its
sole discretion for a period of up to five (5) years following termination.

Current directors Stone and Falkson have been granted 10,000 and
27,000 options under the Plan, respectively, at an exercise price of $5.25 per
share under the Plan, subject to shareholder approval.

A copy of the proposed 1995 Key Employees and Directors Option Plan is
attached hereto as Exhibit B.

NEW PLAN BENEFITS

The following table lists options that will be granted under the 1995
Director Option Plan, subject to approval by the shareholders of Proposal 2.

22
<PAGE> 25

NEW PLAN BENEFITS

<TABLE>
<CAPTION>
1995 Key Employees and
1995 Director Option Plan Directors Plan
------------------------- --------------
Name and Position Dollar Value($)(1) Number of Units(2) Dollar Value($)(1) Number of Units(2)
- ----------------- ---------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
R. Dirk Allison -0- 15,000 -0- -0-
President and CEO

Don H. Thompson -0- -0- -0- -0-
Chief Financial Officer
and Secretary

All current Executive Offices as a -0- 15,000 -0- -0-
group (2 persons)

All current Directors who are not (3) 75,000 -0- (4) 37,000
executive officers as a group
(9 person)

All Employees including Officers who are -0- -0- -0- -0-
not Executive Officers as a group (448
persons)
------------------
</TABLE>

1 The dollar value of all Options not yet granted is undeterminable.

2 Number of Units references the number of shares of Common Stock
underlying options which will be granted under the plan.

3 Includes 75,000 units for which the dollar value is undeterminable.

4 Includes 37,000 units with no current value.

A majority of the votes cast for shares of Common Stock present or
represented by proxy at the Annual Meeting of Shareholders and entitled to vote
is required to adopt the 1995 Key Employees and Directors Option Plan. Counsel
has expressed its intention to vote all of its shares in favor of the plan.
THE BOARD OF DIRECTORS HAS APPROVED THE ADOPTION THE 1995 KEY EMPLOYEES AND
DIRECTORS OPTION PLAN AND RECOMMENDS THAT ALL SHAREHOLDERS VOTE IN FAVOR OF
ADOPTION OF THE PLAN.

<PAGE> 26
PROPOSAL 4:

EXTENSION OF PERIOD IN WHICH RETIRING
DIRECTORS MAY EXERCISE OPTIONS

On July 5, 1995, the Board of Directors approved an amendment to the
Company's 1992 Stock Option Plan to give the Board of Directors or an
appropriate committee the discretion to extend the exercise period for options
previously granted to outgoing directors, such extension not to exceed five (5)
years from the date such director leaves service. Currently, options granted
to directors under such plan expire one year after service as a director is
completed. The Board of Directors has adopted the amendment in part to
increase the likelihood of potential directors serving on the Company's Board
of Directors and to more adequately compensate directors on a case by case
basis.

A copy of the amendment to the 1992 Stock Option Plan is attached
hereto as Exhibit C.

A majority of the votes cast for shares of Common Stock present or
represented by proxy at the Annual Meeting of shareholders and entitled to vote
is required to approve the amendment of the 1992 Stock Option Plan. Counsel
has expressed its intention to vote all of its shares in favor of the
amendment. THE BOARD OF DIRECTORS HAS APPROVED THE AMENDMENT AND RECOMMENDS
THAT SHAREHOLDERS VOTE IN FAVOR OF THE PROPOSED AMENDMENT.

PROPOSAL 5:

ADOPTION OF EMPLOYEE
STOCK PURCHASE PLAN

On June 28, 1995 the Board of Directors approved the Company's
Employee Stock Purchase Plan (the "Employee Purchase Plan"). The Employee
Purchase Plan allows employees of the Company or any of its subsidiaries who,
as of January 1 of each "Plan Year" (as defined below), are employed at least
20 hours a week and more than five months in a calendar year, an annual
election to participate in the plan. Participants may contribute up to 10% of
their monthly wages to a custodial account for purchase of the Company's Common
Stock. A participating employee may discontinue his or her contributions at
any time by notifying the Company. Eligible employees are all employees,
including all executive officers of the Company and those directors who are
employed by the Company or a subsidiary. Approximately 650 employees are
currently eligible to participate.

A total of 200,000 shares of Common Stock are reserved for issuance
under the Employee Purchase Plan. The "Plan Year" of the Employee Purchase
Plan will begin January 1 and end December 31, 1996 at which time the first
purchase of Common Stock under this plan may be made. Each Plan Year
thereafter will commence January 1 and end December 31.

Common Stock is purchased pursuant to the Employee Purchase Plan
annually at a price per share equal to the lesser of 85% of the closing market
price of the Common Stock on either the first or the last business day of the
Plan Year on which the Common Stock is publicly traded (the "Exercise Price").

Employees may not be granted a right under the Employee Purchase Plan
to purchase Common Stock, during a calendar year, in excess of a total fair
market value of $25,000, or be granted a right to purchase Common Stock if,
following such grant, the employee would beneficially own 5% or more of the
total voting power or value of all classes of the Company's Stock. Rights
acquired under the Employee Purchase Plan are not transferable.

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<PAGE> 27

The Employee Purchase Plan is administered by the Board of Directors.
The authority to administer the Employee Purchase Plan includes the authority
(i) to interpret the Employee Purchase Plan and decide any matters arising
thereunder, and (ii) to adopt such rules and regulations, not inconsistent with
the provisions of the Employee Purchase Plan, as the Board may deem advisable
to carry out the purpose of the plan. The Employee Purchase Plan is to
continue from year to year, however, the Board of Directors may discontinue it
at any time.

Upon termination of employment, other than by death, retirement or
long-term disability, an employee immediately ceases participation in the
Employee Purchase Plan and the Company will pay to the employee the balance of
any contributions made to the plan on behalf of the employee. Upon termination
of employment due to death, retirement or long-term disability, the employee or
his estate may elect to be paid the balance of any contributions made to the
Employee Purchase Plan on behalf of the employee. If no such election is made,
such balance will be used to purchase Common Stock on behalf of the employee or
his estate in the normal course under the plan.

A copy of the Employee Purchase Plan is attached hereto as Exhibit D.

A majority of the votes cast for shares of Common Stock present or
represented by proxy at the Annual Meeting of shareholders is required to adopt
the Employee Purchase Plan. Counsel has expressed its intention to vote all of
its shares in favor of the plan. THE BOARD OF DIRECTORS HAS APPROVED AND
ADOPTED THE EMPLOYEE PURCHASE PLAN AND RECOMMENDS THAT ALL SHAREHOLDERS VOTE IN
FAVOR OF ITS ADOPTION.

25
<PAGE> 28

PROPOSAL 6:

PRIVATE PLACEMENT

On July 25, 1995, the Board of Directors approved the issuance of up
to 3,500,000 shares of Common Stock in the proposed private placement. The
Company does not intend to sell any of such shares for a discount off the
market price of more than 5%. Thus, any financial dilutive effect of the
private placement on the Company's current shareholders will not be material.
The Board of Directors has approved the offering in part to increase the
Company's tangible net assets to a level that will allow the Company's Common
Stock to continue to meet the requirements for inclusion on the Nasdaq Stock
Market National Market.

Section 5 (a)(3) of Part III of Schedule D to the NASD By-Laws a
Nasdaq National Market issuer is required to have net tangible assets (total
assets minus liabilities and goodwill) of at least:

a) $1,000,000; or
b) $2,000,000 if the issuer has sustained losses from continuing
operations and or net losses in two of its three most recent
fiscal years; or
c) $4,000,000 if the issuer has sustained losses from continuing
operations and or net losses in three of its four most recent
fiscal years.

As a result of continued operating losses for the third successive
year and a negative tangible net worth for the year ended February 28, 1995 the
Company failed to meet the $4,000,000 requirement. These continued operating
losses were the result of a difficult acquisition which occurred in fiscal year
1992 and significant legal and operating costs associated with a shareholder
suit, proxy contest, and an investigation by the U.S. Attorney for Medicare
fraud and abuse in fiscal 1995. The Company has since settled the shareholder
suit, reorganized its management, and settled with the U.S. Attorney.

The Nasdaq Stock Market has granted the Company a temporary exemption
from the net tangible assets criteria, expiring August 31, to regain
compliance. After consummation of the private placement and notice thereof to
the SEC and Nasdaq Stock Market, the Company will comply with the continuing
listing criteria.

The Nasdaq Stock Market requires shareholder approval of any issuance
of greater than 20% of a company's outstanding securities at a price below fair
market value. Shareholder approval may not be necessary for consummation of
such private placement depending on the final terms and conditions of the
private placement. If the private placement results in the issuance of shares
(i) which exceed 20% of the number of shares outstanding immediately prior to
the offering and (ii) at a price less than the fair market value immediately
prior to the offering, then the rules of the Nasdaq Stock Market National
Market require shareholder approval. In the event that the shareholders do not
approve the issuance of shares in the proposed private placement, the Company
may take such other steps as it deems necessary or advisable to allow continued
inclusion on the Nasdaq Stock Market National Market. The Company anticipates
that the price of the shares issued in the private placement will be discounted
up to 5% off the market price. The private placement, if approved, is expected
to be closed by August 31, 1995.

26
<PAGE> 29

In the event shareholders approve this Proposal 6, they must also approve
either Proposal 7 or Proposal 8 in order for the Company to possess a
sufficient number of shares for issuance in the private placement.

A majority of the shares of common stock present or represented by
proxy at the Annual Meeting of Shareholders and entitled to vote is required to
approve the issuance of shares in the proposed private placement. Counsel has
expressed its intention to vote all of its shares in favor of the proposed
private placement. THE BOARD OF DIRECTORS HAS APPROVED THE PRIVATE PLACEMENT
AND RECOMMENDS THAT ALL SHAREHOLDERS VOTE IN FAVOR OF THE PROPOSED PRIVATE
PLACEMENT.

27
<PAGE> 30

PROPOSAL 7:

INCREASE IN AUTHORIZED SHARES

On June 28, 1995, the Board of Directors approved an increase in the
number of authorized shares of Common Stock from 15,000,000 to 30,000,0000.

At the close of business on July 14, 1995, there were outstanding ____
shares of the Company's Common Stock. In addition, the Company has reserved
605,250 shares for issuance in connection with outstanding stock options and
3,240,000 shares for issuance in connection with outstanding warrants. As a
result, the Company has available for issuance 1,418,940 shares of Common
Stock, which is insufficient to reserve the necessary shares for issuance under
the 1995 Directors Option Plan, the 1995 Key Employees and Directors Option
Plan, and the Employee Purchase Plan. See "Proposal 2: Adoption of 1995
Non-Qualified Stock Option Plan for Directors," "Proposal 3: Adoption of 1995
Non-Qualified Stock Option Plan for Key Employees and Directors," and "Proposal
5: Adoption of Employee's Stock Purchase Plan." The Company also plans to
issue up to 3,500,000 shares of Common Stock in connection with a private
placement in order to meet certain Nasdaq National Market listing criteria.
See "Proposal 6: Private Placement."

The proposed increase in the number of authorized shares of Common
Stock has been recommended by the Board of Directors to assure that an adequate
supply of authorized but unissued shares is available for the purposes set
forth herein. Although the Board of Directors has no present intention of
issuing additional shares of Common Stock other than in connection with the
proposed private placement, such additional shares could be issued in public or
private sales, mergers or similar transactions, increasing the number of
outstanding shares and thereby diluting the equity interest and voting power of
current shareholders.

Approval of the increase in authorized shares will be deemed to be an
approval of the amendment of Section 4 of the Company's Certificate of
Incorporation to effectuate such change. A copy of the amendment is attached
hereto as Exhibit E. Approval of either this Proposal 7 or Proposal 8 is
required in order for the Company to complete the proposed private placement
described in Proposal 6. If Proposal 8 is approved, this Proposal 7 will be
moot because the New Certificate (as defined in Proposal 8) authorizes an
adequate number of shares.

A majority of all outstanding shares of Common Stock entitled to vote
at the Annual Meeting of Shareholders is required to approve the increase in
the number of authorized shares of Common Stock. Counsel has expressed its
intention to vote all of its shares in favor of the proposed increase. THE
BOARD OF DIRECTORS HAS APPROVED THE INCREASE AND RECOMMENDS THAT ALL
SHAREHOLDERS VOTE IN FAVOR OF THE PROPOSED INCREASED.

PROPOSAL 8:

REINCORPORATION

On June 28, 1995, the Board of Directors approved the reincorporation
of the Company as a Delaware corporation. At the Annual Meeting of
Shareholders, the shareholders of the Company will be asked to approve a
proposal (the "Reincorporation Proposal") to change the Company's state of
incorporation from New York to Delaware pursuant to an Agreement and Plan of
Merger (the "Merger Agreement") providing for the merger (the "Merger") of the
Company, a New York corporation, with and into Choice Drug Systems, Inc., a
newly formed Delaware corporation that is a wholly-owned subsidiary of the
Company ("CDSI").

28
<PAGE> 31

If the shareholders approve the Reincorporation Proposal, CDSI will be
the surviving corporation (the "Surviving Corporation") in the Merger. The
principal effect of the Reincorporation Proposal will be to change the law
applicable to the Company's corporate affairs from the New York Business
Corporation Law (the "New York Law") to the Delaware General Corporation
General law (the "Delaware Law"). There are certain material differences
between the New York Law and the Delaware Law, including certain differences in
shareholders' rights. See "Comparison of New York Law and Delaware Law" and
"Certain Charter Document Provisions."

THE APPROVAL OF THE REINCORPORATION PROPOSAL WILL NOT RESULT IN ANY
CHANGE IN THE NAME, SHAREHOLDERS, BUSINESS, MANAGEMENT, PRINCIPAL EXECUTIVE
OFFICES, ASSETS, LIABILITIES OR NET WORTH OF THE COMPANY.

Approval of either this Proposal 8 or Proposal 7 is required in order
for the Company to complete the proposed private placement described in
Proposal 6.

The following discussion summarizes certain aspects of the
Reincorporation Proposal, including certain material differences between the
New York Law and the Delaware Law. This summary does not purport to be a
complete description of the Reincorporation Proposal or the differences between
shareholders' rights under the New York law and the Delaware Law and is
qualified by reference to (1) the Merger Agreement, dated as of July 14, 1995,
between the Company and CDSI attached hereto as Exhibit F (2) the Certificate
of Incorporation of CDSI (the "New Certificate") attached hereto as Exhibit G,
and (3) the Bylaws of CDSI (the "New Bylaws") attached hereto as Exhibit H.
Copies of the Company's current Articles of Incorporation, as amended (the
"Present Articles"), and current Amended Bylaws (the "Present Bylaws") are
available for inspection at the Company's executive office, and copies will be
sent to shareholders, without charge, upon request.

Approval of the Reincorporation Proposal by the Company's shareholders
will also constitute approval of the Merger, the Merger Agreement, the New
Certificate and the New Bylaws, as well as other matters included in the
Reincorporation Proposal described in this Proxy Statement. In accordance with
the terms of the Merger Agreement, the New Certificate and the New Bylaws will
replace the Present Articles and Present Bylaws as the charter documents
affecting corporate governance and shareholders' rights. For a description of
certain differences between the Present Articles and Present Bylaws and the New
Certificate and New Bylaws, see "Comparison of New York Law and Delaware Law"
and "Certain Charter Document Provisions."

The approval of the Reincorporation Proposal will affect certain
rights of shareholders. Accordingly, shareholders are urged to read carefully
this Proxy Statement and the Exhibits hereto. Shareholders of the Company
whose shares are not voted in favor of the Reincorporation Proposal will not be
eligible to obtain statutory dissenter's or appraisal rights.

BACKGROUND OF AND PRINCIPAL REASONS FOR THE REINCORPORATION PROPOSAL

During 1995 the Company moved its principal executive offices from New
York to Baltimore, Maryland. In addition, the Company significantly expanded
its geographical scope in the Premier Acquisition. As a result the Board of
Directors believes that the proposed reincorporation of the Company in Delaware
will be in the best interests of the Company and its Shareholders. For many
years Delaware has followed a policy of encouraging incorporation in that state
and in furtherance of that policy has adopted comprehensive, modern and
flexible corporation laws that are periodically updated and revised to meet
changing business needs. As a result of Delaware's attractive legal
environment, many major corporations have initially chosen Delaware for their
domicile or have subsequently reincorporated in Delaware. The courts of
Delaware have developed considerable expertise in dealing with corporate issues
and a substantial body of case law has developed construing Delaware Law and
establishing public policies with respect to Delaware corporations. The Board
of Directors believes that reincorporation in Delaware will provide the Company
with greater flexibility and more predictability with respect to its corporate
legal affairs.

The Company also expects that its reincorporation in Delaware will
result in savings in certain state income taxes as well as savings in certain
legal, accounting and operating costs.

29
<PAGE> 32

PRINCIPAL FEATURES OF THE REINCORPORATION PROPOSAL

Pursuant to the Merger Agreement, it is contemplated that the Company
will be merged into CDSI effective upon the filing of certificates of merger
with the Secretary of State of Delaware and the Secretary of State of New York,
which is expected to take place promptly after the securing of the approval of
the shareholders of the Company at the Annual Meeting of Shareholders (the
"Effective Time").

Exchange Ratio in the Merger. Unlike a Merger between independent
parties, the Merger constitutes the Merger of the Company into CDSI, a
wholly-owned subsidiary of the Company, for the sole purpose of reincorporating
the Company in Delaware. Accordingly, after giving effect to the Merger, each
shareholder of this Surviving Corporation will have the same proportionate
interest in CDSI that such shareholder previously had in the Company.
Therefore, the Merger Agreement provides for a one-for-one exchange ratio.

Terms of the Merger. The description of certain terms and conditions
of the Merger Agreement herein does not purport to be complete and is qualified
in its entirety by reference to the Merger Agreement, which is attached as
Exhibit F and incorporated by reference herein.

Conversion of Shares. At the Effective Time, each outstanding share of
the Company Common Stock (other than shares of the Company Common Stock held in
the treasury of the Company, which will be canceled) will be converted into one
share of CDSI Common Stock.

Exchange of Stock Certificates. If the proposed Merger is
consummated, it will not be necessary for the Company's shareholders to
surrender their present certificates for the Company Common Stock for
certificates representing CDSI Common Stock. Instead, upon consummation of the
Merger, each certificate for shares of the Company Common Stock will be deemed
to represent a certificate for an equal number of share of CDSI Common Stock.

Certificates for the Company Common Stock presented for transfer
following the Effective Time will be replaced with certificates for the
appropriate number of shares of CDSI Common Stock.

Listing on Nasdaq. The Company Common Stock currently is listed on
the Nasdaq Stock Market. At the Effective Time, the Common Stock of CDSI will
be listed on the Nasdaq Stock Market. See "Proposal 6: Private Placement."

Directors and Officers of the Surviving Corporation. Following the
Merger, the officers of the Surviving Corporation will be the same individuals
as the officers of the Company, and each such person will hold the same
position or positions with the Surviving Corporation as he or she held with the
Company. Should all of the Company's nominees for director be elected, then
following the Merger the members of the Board of Directors of the Surviving
Corporation will be the same individuals as the members of the Board of
Directors of the Company.

Employee Benefit Plans. All of the employee benefit plans maintained
by the Company immediately prior to the reincorporation in Delaware shall
continue to be maintained by CDSI.

Options and Warrants. Each stock option and warrant to purchase
shares of Company Common Stock which has been granted and is outstanding shall
on the Effective Date automatically become an option or warrant to purchase an
equal number of shares of CDSI Common Stock upon the same terms and conditions.

Conditions to the Merger; Amendment; Waiver; Termination. The
respective obligation of each party to effect the Merger are subject to the
following conditions:

30
<PAGE> 33

(i) the approval of the Merger Agreement by shareholders
of the Company holding two-thirds of the outstanding shares of the Company
Common Stock;

(ii) the receipt of an opinion of counsel to the Company,
satisfactory in form and substance to the Company, to the effect that for
United States federal income tax purposes, no gain or loss will be recognized
by the Company, CDSI, or any United Sates shareholders of the Company, by
reason of the consummation of the Merger; and

(iii) the absence of any material pending or threatened
litigation concerning the Merger or any other transaction contemplated by the
Merger Agreement (unless such condition shall be waived by the Board of
Directors of the Company).

The Merger Agreement may be amended and any of its provisions,
including any conditions precedent, may be waived by the corporation which is,
or whose shareholders are, entitled to the benefits thereof, at any time prior
to the Effective Time, if, in the sole judgment of the board of directors of
the corporation, such amendment will not materially and adversely affect the
rights and interest of the Company's shareholders.

Notwithstanding approval thereof by the shareholders of the Company,
the Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time by the Board of Directors of the Company, if the
Board of Directors of the Company shall determine for any reason that the
consummation of the transaction contemplated by the Merger Agreement would be
inadvisable or not in the best interests of the Company and its shareholders.

31
<PAGE> 34

COMPARISON OF NEW YORK LAW AND DELAWARE LAW

It is impractical to summarize all of the difference between New York
and Delaware corporate law in this Proxy Statement, but significant differences
not elsewhere discussed between the corporation laws of New York and Delaware
that could materially affect the rights of shareholder of the Company include
the following:

Classification of the Board of Directors. New York Law permits but
does not require the adoption of a classified board with as many as four
classes but forbids fewer than three directors in any class.

Delaware Law permits but does not require the adoption of a classified
board of directors pursuant to which the directors can be divided into as many
as three classes, with staggered terms of office and with only one class of
directors coming up for election each year. Unless otherwise provided for in
the certificate of incorporation, Delaware Law provides that directors who
serve on a classified board can only be removed for cause.

Shareholder Vote for Merger; Anti-takeover Provisions. Delaware Law
relating to mergers and other corporate reorganizations differs from New York
Law in a number of respects.

New York Law requires that a plan of merger or disposition of all or
substantially all assets not in the usual or regular course of business be
approved by the holders of two-thirds of all outstanding shares entitled to
vote. Under Delaware law, holders of a majority of all outstanding shares
entitled to vote must approve a merger or disposition of all or substantially
all assets. Furthermore, Delaware Law does not require a shareholder vote of
the surviving corporation in a merger if (a) the merger agreement does not
amend the existing certificate of incorporation, (b) each outstanding share of
the surviving corporation before the merger is unchanged, and (c) the number of
additional shares to be issued by the surviving corporation in the merger does
not exceed 20% of the shares outstanding immediately prior to the merger.
Thus, certain mergers and sales of assets may be accomplished under Delaware
law with the approval of fewer shareholders.

New York Law contains certain anti-takeover provisions that prohibit
any "business combination" between a "domestic corporation" and an "interested
shareholder" for five years after the date that the interested shareholder
became an interested shareholder unless prior to that date the board of
directors of the domestic corporation approved the business combination or the
transaction that resulted in the interested shareholder becoming an interested
shareholder. After five years, such a business combination is permitted only
if (i) it is approved by a majority of the shares not owned by, or by an
affiliate of, the interested shareholder or (ii) certain statutory fair price
requirements are met. New York Law defines "domestic corporation" as any
corporation that (x) is incorporated in New York, and (y) has its principal
executive offices and significant business operations in New York or has at
least 250 or 25% of its employees in New York (including employees of its 80%
subsidiaries), and (z) has at least 10% of its stock beneficially owned by New
York residents.

Delaware Law contains certain anti-takeover provisions that prohibit
any "business combination" between a Delaware corporation and an "interested
shareholder" for three years following the date that the interested shareholder
became an interested shareholder unless (i) prior to the date the board
approved the business combination or the transaction that resulted in the
interested shareholder becoming an interested shareholder, (ii) upon
consummation of the transaction that resulted in the interested shareholder
becoming an interested shareholder the interested shareholder held at least 85%
of the outstanding voting stock of the corporation (not counting shares owned
by officers and directors), or (iii) on or subsequent to such date the business
combination is approved by the board and at least two-thirds of the outstanding
shares of voting stock not owned by the interested shareholder. Delaware law
defines "interested shareholder" as any person who beneficially owns, directly
or indirectly, 15% or more of the outstanding voting stock of the corporation.

32
<PAGE> 35

Delaware does not require that the corporation's principal executive offices or
significant operations or employees be located in Delaware in order to enjoy
the protection of the law.

Number of Directors. Under New York Law, the number of directors may
be fixed by the bylaws or by action of the shareholders or of the board under
specific provisions of the bylaws adopted by the shareholders, provided that
the number of directors be not less than three. Under Delaware Law, the board
of directors may, subject to the certificate of incorporation, fix or change
the authorized number of directors pursuant to a provision of the bylaws.

Shareholder Action by Written Consent. New York Law permits
shareholder action in lieu of an annual meeting only if all the shareholders
who would have been entitled to vote upon a given action if an annual meeting
were held on such action consent in writing to such action. Shareholder
consents can be easier to obtain under Delaware Law, which permits shareholder
action in lieu of an annual meeting upon the consent of holders of the minimum
number of votes that would be necessary to take an action, unless otherwise
prohibited by the certificate of incorporation.

Approval of Transactions with Interested Directors. New York Law
provides several methods for establishing the validity of transactions between
a corporation and interested directors. One method requires a vote which would
be sufficient for such purpose without counting the vote of such interested
director, or, if the votes of the disinterested directors are insufficient to
constitute an act of the board, by unanimous vote of the disinterested
directors. The comparable provision of Delaware Law requires only the
affirmative vote of a majority of the disinterested directors, without
requiring that such vote be sufficient alone to be the act of the board or
committee. Thus, it may be easier for the Company to approve transactions with
interested directors under Delaware law.

Inspection of Shareholders List. New York Law provides a right of
inspection of shareholders lists to any person who shall have been a
shareholder for at least 6 months immediately preceding his or her demand or
any person holding at least 5% of a class of outstanding shares on at least 5
days written demand. The corporation has certain rights enabling it to assure
itself that the demand for inspection is not for a purpose or interest other
than that of the corporation. Delaware Law permits any shareholder to inspect
the shareholders list for a purpose reasonably related to such person's
interest as a shareholder and, during the 10 days preceding the shareholder's
meeting, for any purpose germane to that meeting.

Payment of Dividends. Under New York Law dividends may be declared
and distributions may be made out of surplus only, so that the net assets of
the corporation remaining after such declaration, payment or distribution shall
at least equal the amount of its stated capital. When any dividend is paid or
any other distribution is made, in whole or in part, from sources other than
earned surplus, it shall be accompanied by a written notice (1) disclosing the
amounts by which such dividend or distribution affects stated capital, capital
surplus and earned surplus, or (2) if such amounts are not determinable at the
time of such notice, disclosing the approximate effect of such dividend or
distributions upon stated capital, capital surplus and earned surplus and
stating that such amounts are not yet determinable.

Delaware Law permits the payment of dividends out of surplus or, if
there is no surplus, out of net profits for the current and preceding fiscal
years (provided that the amount of capital of the corporation is not less than
the aggregate amount of the capital represented by the issued and outstanding
stock of all classes having a preference upon a distribution of assets). In
addition, Delaware Law generally provides that a corporation may redeem or
repurchase its shares only if such redemption or repurchase would not impair
the capital of the corporation.

CERTAIN CHARTER DOCUMENT PROVISIONS

As with the comparison of New York and Delaware Law, it is impractical
to summarize all of the differences between the Company's New York Certificate
of Incorporation and Bylaws ("New York

33
<PAGE> 36

Corporate Documents") and the Company's Delaware Certificate of Incorporation
and Bylaws ("Delaware Corporate Documents"). The primary differences, however,
are:

Size of the Board of Directors. Under the New York Corporate
Documents, the Board consists of nine members. Under the Delaware Corporate
Documents, the Board consists of three to fifteen members, to be determined by
the Board, provided that the number may increase to reflect the rights of
preferred stockholders.

Authorized Shares of Common Stock. Under the New York
Corporate Documents, assuming approval of Proposal 7 to increase the number of
authorized shares of common stock, thirty million (30,000,000) shares of common
stock are authorized to be issued. If Proposal 7 fails, the Company will have
fifteen million (15,000,000) shares authorized under the New York Corporate
Documents. Under the Delaware Corporate Documents, thirty million (30,000,000)
shares of common stock are authorized.

Removal of Directors for Cause. Under the New York Corporate
Documents, members of the Board of Directors may be removed at any time by the
shareholders without cause and by the Board of Directors at any time with
cause. Under the Delaware Documents, members of the Board of Directors may
only be removed, at a time other than a regular shareholders meeting, by a vote
of two-thirds (2/3) of the shareholders for cause. Thus, it may be more
difficult for shareholders to remove a director under the Delaware Corporate
Documents.

Indemnification of Directors. Under the New York Corporate
Documents, the members of the Board of Directors are indemnified to the fullest
extent of New York Law. Under the Delaware Documents, the members of the Board
of Directors are indemnified to the fullest extent of Delaware Law. Under
Delaware Law, such indemnification extends to directors of any constituent
corporation absorbed in a consolidation or merger if the corporation would have
had power and authority to indemnity had its separate existence continued.

Amendment of the Certificate of Incorporation or Bylaws.
Under the New York Corporate Documents, a majority of the Board of Directors
and a majority of shareholders is required to amend the Certificate of
Incorporation. The Bylaws may be amended by a majority of the Board of
Directors or a majority of the shareholders. Under the Delaware Corporate
Documents, a majority of the shareholders and a majority of the Board of
Directors are required to amend the Certificate of Incorporation, except that
two-thirds (2/3) of the shareholders and two-thirds (2/3) of the Board of
Directors is required to amend certain provisions of the Certificate of
Incorporation, primarily those concerned with indemnification and other matters
affecting individual members of the Board. Under the Delaware Corporate
Documents, a majority of the shareholders or a majority of the Board of
Directors is required to amend the Bylaws.

Shareholder Written Consent. Under the New York Corporate
Documents, the Company's shareholders may take action by written consent.
Under the Delaware Corporate Documents, the Company's shareholders may not take
action by written consent.

Special Meetings Called by Shareholders. Under the New York
Corporate Documents, the Company's shareholders may call a special meeting only
by action of a majority of the shares outstanding. Under the Delaware
Corporate Documents, the Company's shareholders may call a special meeting if
one-tenth (1/10) of the shares outstanding request a special meeting.

The affirmative vote of two-thirds of the shares of Common Stock
outstanding and entitled to vote is required to approve the reincorporation.
Counsel has expressed its intention to vote all of its shares in favor of the
reincorporation. THE BOARD OF DIRECTORS HAS APPROVED THE

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<PAGE> 37

REINCORPORATION IN DELAWARE AND RECOMMENDS THAT ALL SHAREHOLDERS VOTE IN FAVOR
OF THE REINCORPORATION.

INDEPENDENT PUBLIC ACCOUNTANTS

The accounting firm of Arthur Andersen LLP was appointed by the Board
of Directors to serve as the Company's Independent Public Accountants for the
fiscal year ended February 28, 1996. A representative of that firm will be
present at the Annual Meeting of Shareholders and will have the opportunity to
make a statement if he so desires and to respond to questions.

35
<PAGE> 38

DEADLINE FOR SUBMITTING
SHAREHOLDER PROPOSALS

Proposals of shareholders intended for consideration at the Company's
1996 Annual Meeting of Shareholders must be received by the Company's executive
offices at 2930 Washington Blvd., Baltimore, Maryland 21230, no later than
March 25, 1996, if any such proposal is to be eligible for inclusion in the
Company's proxy materials for that Annual Meeting of Shareholders.

OTHER MATTERS

The management of the Company knows of no other matters to be brought
before the Annual Meeting of Shareholders. If any other matter is duly
presented for action, it is the intention of the persons named in the enclosed
proxy to vote on such matter in accordance with their best judgment.

A copy of the Company's Annual Report on Form 10-K/A2 is being mailed
to each shareholder of record together with this Proxy Statement.

EACH SHAREHOLDER IS URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY
PROMPTLY. IN THE EVENT A SHAREHOLDER DECIDES TO ATTEND THE ANNUAL MEETING, THE
PROXY MAY, IF SUCH SHAREHOLDER WISHES, BE REVOKED AND SUCH SHAREHOLDER MAY VOTE
THE SHARES IN PERSON. IN ADDITION, A PROXY MAY BE REVOKED BY A SHAREHOLDER AT
ANY TIME BEFORE SUCH PROXY IS VOTED.

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<PAGE> 39

EXHIBIT A

CHOICE DRUG SYSTEMS, INC.
1995 NONQUALIFIED
STOCK OPTION PLAN FOR
DIRECTORS

1. The Purpose of the Plan. This Plan is intended to provide
an opportunity for individuals serving as directors of the Corporation to
acquire shares of the Corporation's Common Stock, providing an equity interest
in the Corporation and additional compensation based on appreciation of the
value of such stock. The Plan provides for the grant of stock options
which are not incentive stock options as defined in Section 422 of the Code
as an incentive to service or continued service to the Corporation in order to
aid the Corporation in obtaining and retaining directors of outstanding
ability.

2. Definitions. For purposes of this Plan, the following terms
will be defined as indicated:

(a) "Board" means the Board of Directors of the
Corporation or such committee as it may constitute in accordance with
Rule 16b-3.

(b) "Cause" means habitual drug use or drunkenness,
embezzlement of Corporation funds, conduct which is injurious to the
Corporation, or conviction of a felony, all as determined in good faith by the
Board

(d) "Common Stock" means the common stock of the
Corporation, $.01 par value.

(e) "Corporation" means Choice Drug Systems, Inc., a New
York corporation.

(f) "Disinterested" has the meaning prescribed by Rule
16b-3 from time to time.

(g) "ERISA" means the Employees Retirement Income
Security Act, as amended from time to time, or any successor statute.

(h) "Fair Market Value" means the closing price of the
Common Stock, as reported by the Nasdaq Stock Market or by any national
securities exchange upon which the Common Stock is traded. In the event
the Common Stock is not listed on an exchange or traded in
<PAGE> 40

the over-the-counter market, then the Board will determine Fair Market Value,
which determination will be made in good faith and will be binding.

(i) "Option" means a non-qualified option granted
pursuant to the Plan.

(j) "Plan" means the Corporation's 1995 nonqualified
stock option plan for directors described herein.

(k) "Rule 16b-3" means Rule 16b-3 as promulgated under
the Securities Exchange Act of 1934, as amended, as the rule may be amended
from time to time, or any successor rule or other comparable regulatory
requirements.

(l) "Subsidiary" means any person or entity which is
controlled by the Corporation.

3. Stock Subject to the Plan. There will be reserved for
issuance upon the exercise of Options 200,000 shares of Common Stock, which
will be authorized and unissued Common Stock. If an Option expires or
terminates for any reason without being exercised in full, the shares subject
thereto which have not been purchased will again be available for purposes of
the Plan. The number of shares as to which Options may be granted under the
Plan will be proportionately adjusted, to the nearest whole share, in the
event of any stock dividend, stock split, share combination or similar
recapitalization involving the Common Stock, any merger, consolidation or
reorganization, or any spin-off, spin-out or other significant distribution
of assets of stockholders for which the Corporation receives no consideration.
In the event that there is an insufficient number of authorized shares of
Common Stock available to allow exercise of the Options on the date of any
grant hereunder, such Options will not be exercisable until there are
sufficient shares of Common Stock authorized for issuance.

4. Option Agreement. Each grant of an Option will be evidenced
by an Option agreement, executed by the holder of the Option and the
Corporation, which Option Agreement will (i) comply with and include
expressly or by reference the terms and conditions set forth in this
Plan, and (ii) may include other provisions not inconsistent with the
provisions of this Plan, including provisions granting the holder the right
to receive property at the time of exercise of the Option (provided that
Section 83 of the Code applies to any such property other than cash). The
granting of any Option under the Plan will not be deemed either to entitle
the holder of the Option to, or to disqualify such holder from,
participation in any other grant of Options under the Plan.

5. Eligibility. Subject to the other terms of this Plan,
Options may be granted to directors of the Corporation, whether or not they
receive other remuneration from the Corporation or its subsidiaries as
executive officers, as consultants, or in any other capacity.

<PAGE> 41

6. Terms and Conditions of Options. All Options will be
granted as provided below and will be subject to the following terms and
conditions:

(a) Grant of Options. An Option to acquire 15,000
shares will be granted (i) to each director of the Corporation on the
date the Company's shareholders approve this Plan, and (ii) to persons who
thereafter become directors upon the date of their initial election to the
Board. Additionally, each individual serving on the Board on the last
day of the Corporation's fiscal year who has served on the Board for at
least six (6) months during such fiscal year will be granted an Option to
acquire 2,500 shares on the last day of such calendar year.

If the Corporation's fiscal year is changed, individuals will be
eligible to receive an annual Option to acquire 2,500 shares for the
Corporation's interim fiscal period, so long as such interim period is at
least six (6) months long and the individual satisfies the service
requirements set forth immediately above.

(b) Option Price. Except in the case of Substitute
Options, the Option price per share will be equal to the Fair Market Value
of the Common Stock on the trading day next preceding the date the Option is
granted.

(c) Option Term. No Option will be exercisable after the
expiration of ten (10) years from the date the Option is granted.

(d) Payment and Withholding. Payment for all shares
purchased pursuant to exercise of an Option will be made in cash, by delivery
of unrestricted shares of Common Stock at Fair Market Value on the date of
exercise, or a combination thereof. The payment will be made at the time the
Option or any part thereof is exercised, and no shares will be issued until
full payment therefor has been made. Payment in currency or by check, bank
draft, cashier's check or postal money order will be considered payment in
cash. In addition to the Option price, the Corporation will have the right,
if applicable, to require the holder of an Option to remit to the Corporation
an amount sufficient to satisfy any federal, state or local withholding tax
liability prior to the delivery of any certificate or certificates for shares
issuable upon exercise of the Option.

(e) Conditions to Exercise of an Option. No Option may
be exercised to any extent until the holder will have served as a director of
the Corporation continuously for at least three (3) months from the date of
grant. Except as provided in subparagraph (g) below, an Option may not be
exercised by the holder unless he is then, and continuously after the grant
of the Option has been, a director of the Corporation. No Option may be
exercised by a holder with respect to fractional shares.

(f) Nontransferability of Options. An Option will not
be transferable or assignable except by will, by the laws of descent and
distribution, or pursuant to a qualified domestic

3
<PAGE> 42

relations order as defined by the Code, Title I of ERISA or the rules
thereunder, and an Option will be exercisable, during the holder's lifetime,
only by him. Notwithstanding the limitations of this subparagraph (g), the
Board may, in its sole discretion, allow transfer of an Option to an immediate
member of the Option holder's family or to a family partnership or trust.

(g) Termination of Service as Director or Death. In the
event that a holder ceases to serve as a director of the Corporation for any
reason other than his death, disability or termination for Cause, such
holder will have the right to exercise the Option under the Plan at any time
within three (3) months after his termination of service to the extent his
right to exercise the Option has accrued pursuant to the grant and had not
previously been exercised at the date of termination. In the event of
termination of service of the holder by reason of disability, the holder may
not exercise an Option later than twelve (12) months after the date of such
termination. If the holder of an Option dies while he is serving as a
director of the Corporation, his Option may be exercised (to the extent that
the holder will have been entitled to do so at the date of his death) by a
legatee or legatees of the holder under his last will, or by his personal
representatives or distributee, at any time during the twelve (12) month
period following his death. In the event of termination of service of the
holder for Cause, any and all Options of the holder shall automatically
expire upon such termination. Notwithstanding anything in this
subparagraph (g), no Option may be exercised more than ten (10) years after
the date on which such Option was granted. For purposes of this subparagraph
(g), service as a director of a holder will not be deemed terminated so long
as the holder is a director of the Corporation or another entity which has
assumed this Option in a transaction to which Section 424(a) of the Code is
applicable.

(h) Changes in Capitalization; Merger; Liquidation.
The number of shares of Common Stock covered by each outstanding Option
will be proportionately adjusted, to the nearest whole share (i) for any
increase or decrease in the number of issued shares of Common Stock resulting
from a subdivision or combination of shares or the payment of a stock
dividend (but only on the Common Stock) or any other increase or decrease in
the number of such shares effected without receipt of consideration by the
Corporation, or (ii) for any spin-off or spin-out of assets to the
Corporation's stockholders or any other significant distribution of assets by
the Corporation to its stockholders without receipt of consideration by the
Corporation. Any such adjustment to an outstanding Option will be made
without changing the total price applicable to the unexercised portion of
the Option, but with a corresponding adjustment in the price for each share
covered by the Option. If the Corporation is the surviving corporation in any
merger or consolidation, each outstanding Option will pertain to and apply
to the securities to which a holder of the number of shares of Common Stock
subject to the Option would have been entitled to receive in such merger or
consolidation. A dissolution or liquidation of the Corporation or a merger
or consolidation in which the Corporation is not the surviving corporation
will cause each outstanding Option to terminate, except for Options as to
which another entity assumes or substitutes another option in a transaction
to which Section 424(a) of the Code is applicable; provided, however, that,
as to any Options which so terminate, each holder will have the right
immediately prior to such dissolution, liquidation, merger or consolidation,
to exercise his Option in whole or in part, including with

4
<PAGE> 43

respect to shares as to which such Option would not otherwise be exercisable
by reason of an insufficient lapse of time, without regard to any provisions
deferring exercise contained herein. Except as expressly provided in this
subparagraph (h), the holder of an Option will have no rights by reason of
any subdivision or combination of shares of stock of any class, or the
payment of any stock dividend or any other increase or decrease in the number
of shares of stock of any class, or by reason of any spin-off, spin-out or
comparable distribution of assets to the Corporation's stockholders, or by
reason of any dissolution, liquidation, merger or consolidation or
distribution to the Corporation's stockholders of assets or securities of
another entity; and any issue by the Corporation of shares of stock of any
class, or securities convertible into shares of stock of any class, will not
affect, and no adjustment by reason thereof will be made with respect to, the
number or price of shares of Common Stock subject to the Option. The
existence of the Plan and the Options granted pursuant to the Plan will not
affect in any way the right or power of the Corporation to make or authorize
any adjustment, reclassification, reorganization or other change in its
capital or business structure, any merger or consolidation of the
Corporation, any issue of debt or equity securities having preferences or
priorities as to the Common Stock or the rights thereof, the dissolution or
liquidation of the Corporation, any sale or transfer of all or any part of
the Corporation's business or assets, or any other corporate act or proceeding.

(i) Each Option will be subject to the requirement that
if at any time the Board determines that the listing, registration or
qualification of the shares subject to the Options upon any securities
exchange or under any state or federal securities or other law or
regulation, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition to or in connection with the granting of
the Option or the issue or purchase of Common Stock thereunder, the Option may
not be exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval will have been effected or obtained free of
any conditions not acceptable to the Board. The holder of the Option will
supply the Corporation with such certificates, representations, opinions of
counsel and information as the Corporation may request, including, without
limitation, an investment letter certifying that all shares being purchased
under an Option are being acquired for investment and not for the purpose
of resale or distribution, and will otherwise cooperate with the
Corporation in obtaining such listing, registration, qualification, consent
or approval.

(j) Notwithstanding any other plan provision, no Option
granted pursuant to the Plan will terminate when a director is on
military, maternity, sick leave or other bona fide leave of absence so
long as his service as a director is continuing pursuant to statute or
contract.

7. Termination and Amendment of the Plan. The Plan shall
terminate at midnight on ____________________, 2005, ten (10) years after
the date of its initial adoption by the Board. No Option will be granted
under the Plan after that date, but Options granted before termination of
the Plan will remain exercisable thereafter until they expire or lapse
according to their terms. The Plan may be terminated, modified or amended by
the Corporation's stockholders or Board, so long as such modification or
amendment does not result in the Plan no longer being in compliance with Rule
16b-3. Those provisions set forth in paragraph 6 of the Plan, as well as any
Plan amendments providing

5
<PAGE> 44

for formula or like grants of Options, shall not be amended more than once
every six (6) months, other than to comport with changes in the Code, ERISA,
or the rules thereunder. The Corporation will use its best efforts to
maintain this Plan and to assure that Options are granted and exercised
under this Plan in accordance with Rule 16b-3, including, without limitation,
the seeking of any appropriate modifications or amendments to this Plan and
all requisite approvals and consents of the same.

8. Holding Period. The grant of an Option under the Plan will
be exempt from Section 16(b) of the Securities Exchange Act of 1934, as
amended, so long as at least six (6) months elapse from the date of grant
of the Option until the date of its disposition (other than upon exercise or
conversion) or the disposition of the underlying Common Stock.

9. No Rights as Stockholder. A holder of an Option will have
no rights as a stockholder with respect to any Common Stock covered by his
Option until the date of issuance of a stock certificate to him by the
Corporation following exercise, in whole or in part, of the Option.

10. Indemnification of Board. In addition to other rights of
indemnification as they may have as members of the Board, each member of the
Board will be indemnified by the Corporation against all costs and
expenses reasonably incurred by him in connection with any action, suit or
proceeding to which he may be party by reason of any action taken or failure
to act under or in connection with the Plan, or any Option granted thereunder,
and against all amounts paid by him in settlement thereof (provided the
settlement is approved by legal counsel selected by the Corporation) or
paid by him in satisfaction of a judgment in any such action, suit or
proceeding, except a judgment based upon a finding of a breach of the duty
of loyalty or acts or omissions either not in good faith or which involve
intentional misconduct or a knowing violation of law. Upon the institution
of any such action, suit or proceeding, each Board member affected will
notify the Corporation in writing of the same, giving the Corporation an
opportunity, at its own expense, to defend the same before the member
undertakes to defend it on his own behalf.

11. Stockholder Approval. This Plan, as amended, is subject
to the approval of the holders of a majority of the outstanding shares of
Common Stock of the Corporation, which approval was obtained on
______________________, 1995.

6
<PAGE> 45
EXHIBIT B

CHOICE DRUG SYSTEMS, INC.
1995 INCENTIVE AND NONQUALIFIED
STOCK OPTION PLAN FOR
KEY PERSONNEL AND DIRECTORS

1. The Purpose of the Plan. This Plan is intended to provide an
opportunity for key persons and directors performing services to the
Corporation and its Subsidiaries to acquire shares of the Corporation's Common
Stock, providing an equity interest in the Corporation and additional
compensation based on appreciation of the value of such stock. The Plan
provides for the grant of stock options intended to constitute incentive stock
options, as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, and nonqualified stock options, (a) as an incentive to service or
continued service to the Corporation in order to aid the Corporation in
obtaining and retaining key personnel and directors of outstanding ability, and
(b) in substitution for stock options of entities which may be acquired by the
Corporation.

2. Definitions. For purposes of this Plan, the following terms will be
defined as indicated:

(a) "Board" means the Board of Directors of the Corporation.

(b) "Cause" means habitual drug use or drunkenness, embezzlement of
Corporation funds, conduct which is injurious to the Corporation, or conviction
of a felony, all as determined in good faith by the Board or Committee.

(d) "Committee" has the meaning prescribed in paragraph 4.

(e) "Common Stock" means the common stock of the Corporation, $.01
par value.

(f) "Corporation" means Choice Drug Systems, Inc., a New York
corporation.

(g) "Disinterested" has the meaning prescribed by Rule 16b-3 from
time to time.
<PAGE> 46

(h) "Fair Market Value" means the closing price of the Common Stock,
as reported by the NASDAQ Stock Market, Inc. or by any national securities
exchange upon which the Common Stock is traded. In the event the Common Stock
is not listed on an exchange or traded in the over-the-counter market, then the
Board or Committee will determine Fair Market Value, which determination will
be made in good faith and will be binding.

(i) "ISO" means in incentive stock option as defined in Section 422
of the Internal Revenue Code of 1986, as amended from time to time.

(j) "Key Person or Director" means a consultant, advisor, director or
full-time salaried employee of either the Corporation or any present or future
subsidiary who, in the judgment of the Board or Committee, is instrumental to
the success of the Corporation or one of its Subsidiaries; including officers.

(k) "NQSO" means a non-qualified stock option.

(l) "Option" means an option granted pursuant to the Plan, whether an
ISO or an NQSO.

(m) "Plan" means the Corporation's 1995 qualified stock option plan
described herein.

(n) "Rule 16b-3" means Rule 16b-3 as promulgated under the Securities
Exchange Act of 1934, as amended, as the rule may be amended from time to time,
or any successor rule or other comparable regulatory requirements.

(o) "Subsidiary" means any person or entity which is controlled by
the Corporation.

(p) "Substitute Option" means an Option granted in substitution for
options to purchase equity securities of an equity acquired by the Corporation.

3. Stock Subject to the Plan. There will be reserved for issuance upon the
exercise of Options 460,000 shares of Common Stock, which will be authorized
and unissued Common Stock. If an Option expires or terminates for any reason
without being exercised in full, the shares subject thereto which have not been
purchased will again be available for purposes of the Plan. The number of
shares as to which Options may be granted under the Plan will be
proportionately adjusted, to the nearest whole share, in the event of any stock
dividend, stock split, reorganization, merger, consolidation, share combination
or similar recapitalization involving the Common Stock or any spin-off,
spin-out or other significant distribution of assets of stockholders for which
the Corporation receives

2
<PAGE> 47

no consideration. In the event that there is an insufficient number of
authorized shares of Common Stock available to allow exercise of the Options on
the date of any grant hereunder, such Options will not be exercisable until
there are sufficient shares of Common Stock authorized for issuance.

4. Administration of the Plan.

(a) Granting of Options in General. The Board may administer this Plan
itself or may appoint a Committee of the Board to administer the Plan. The
Committee will be so constituted as to permit the Plan to comply with Rule
16b-3. Subject to the provisions of the Plan, the Committee will have full
authority and discretion to determine the Key Persons and Directors of the
Corporation and its Subsidiaries to whom Options will be granted, the number of
shares to be subject to each Option, the Option prices, and the exercise period
for the Options. In making such determinations, the Committee may take into
account the nature of the services rendered or to be rendered by such persons,
their past, present or potential contributions to the Corporation, and any
other factors which the Committee deems relevant. Subject to the provisions of
the Plan, the Committee will have full and conclusive authority to interpret
the Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of the respective Option agreements
(which need not be identical); and to make all other determinations necessary
or advisable for the proper administration of the Plan. The Board may at any
time remove members from or add members to the Committee, or may abolish the
Committee and revest in the Board the administration of the Plan. Vacancies on
the Committee, howsoever caused, will be filled by the Board.

(b) Granting of Options to Directors and Officers. Administration
discretion regarding the selection of any director of the Corporation to whom
Option's may be granted pursuant to this Plan, or the determination of the
number of shares of Common Stock which may be allocated under such Options,
will be exercised by a Committee of two or more directors, all of whom are
Disinterested. Administrative discretion regarding the selection of any
officer of the Corporation (who is not a director) to whom Options may be
granted pursuant to this Plan, or the determination of the number of shares of
Common Stock which may be allocated under such Options, will be exercised by
(i) the Board, if each of its members is Disinterested, or (ii) a Committee of
two or more directors, all of whom are Disinterested.

5. Option Agreement. Each grant of an Option will be evidenced by an
Option agreement, executed by the holder of the Option and the Corporation, and
such other instruments in such form as the Board or Committee approves from
time to time, which instruments will (i) comply with and include expressly or
by reference the terms and conditions set forth in this Plan, and (ii) may
include such other provisions not inconsistent with the provisions of this Plan
as the Board or Committee deems advisable, including

3
<PAGE> 48

provisions granting the holder the right to receive property at the time of
exercise of the Option (provided that Section 83 of the Code applies to any
such property other than cash). The terms and conditions of the Option
agreements need not contain similar provisions. The granting of any Option
under the Plan will not be deemed either to entitle the holder of the Option
to, or to disqualify such holder from, participation in any other grant of
Options under the Plan.

6. Eligibility. Options may be granted to Key Persons or Directors of the
Corporation and its present or future Subsidiaries, provided, however, that
Options granted to directors and officers of the Corporation will comply with
the applicable provisions of paragraph 4(b) of this Plan. Substitute Options
may be granted to Key Persons or Directors of any entity acquired by the
Corporation (or any subsidiary of such acquired entity).

7. Terms and Conditions of Options. Subject to the following provisions,
all Options will be in such form and upon such terms and conditions as the
Board or Committee, in its discretion, may from time to time determine.

(a) Option Price. Except in the case of Substitute Options, the
Option price per share will be an amount determined by the Committee or the
Board at the time the Option is granted, taking into account the market price
of the Common Stock on such date, the value of services provided or to be
provided by the recipient of the Options, and the overall value of the
compensation of the recipient by the Corporation and its Subsidiaries. The
Option price per share will in no event be less than the Fair Market Value of
the Common Stock on the trading day next preceding the date the Option is
granted. Further, in the case of ISOs granted to a Key Person or Director who
beneficially owns more than ten percent (10%) of the then outstanding Common
Stock, the Option price per share will in no event be less than 110% the Fair
Market Value of the Common Stock on the trading day next preceding the date of
grant. In the case of Substitute Options, the Option price per share will be
determined by multiplying the market price of the Common Stock immediately
prior to acquisition by the exchange ratio applicable to the class of equity
securities of the acquired entity subject to the acquired entity's options
immediately prior to acquisition, if any, or, if no such exchange ratio is
applicable, by a factor determined by the Board. The Corporation will not be
required to issue Options or Substitute Options for fractional shares, but may,
in the discretion of the Board or Committee, round to the nearest whole share.

(b) Option Term. No Option will be exercisable after the expiration
of ten (10) years from the date the Option is granted. Further, in the case of
ISOs granted to a Key Person who beneficially owns more than ten percent (10%)
of the then outstanding Common Stock, the term of the Option will not exceed
five (5) years from the date of grant. The date of grant will be the date on
which the Board or Committee has approved the

4
<PAGE> 49

terms and conditions of the Option agreement evidencing the Option, has
determined the recipient of the Option, the number of shares covered by the
Option and the Option price per share, and has taken all other action necessary
to complete the grant of the Option.

(d) Maximum Grants. Any Key Person or Director will be entitled to
receive, at any time over the life of this Plan, Options with respect to such
number of shares of Common Stock as set by the Board or Committee, up to the
total number of shares reserved for issuance upon exercise of Options as set
forth in paragraph 3; provided, however, that ISOs granted in any calendar year
to a Key Person or Director and exercisable for the first time by such Key
Person or Director during any calendar year may not have an aggregate Fair
Market Value in excess of $100,000.

(e) Payment and Withholding. Payment for all shares purchased
pursuant to exercise of an Option will be made in cash, by delivery of
unrestricted shares of Common Stock at Fair Market Value on the date of
exercise, or a combination thereof. The payment will be made at the time the
Option or any part thereof is exercised, and no shares will be issued until
full payment therefor has been made. Payment in currency or by check, bank
draft, cashier's check or postal money order will be considered payment in
cash. In addition to the Option price, the Corporation will have the right, if
applicable, to require the holder of an Option to remit to the Corporation an
amount sufficient to satisfy any federal, state or local withholding tax
liability prior to the delivery of any certificate or certificates for shares
issuable upon exercise of the Option.

(f) Conditions to Exercise of an Option. Except in the case of a
Substitute Option, no Option may be exercised to any extent until the holder
will have been employed by the Corporation or one of its Subsidiaries
continuously for at least three (3) months from the date of grant. Except as
provided in subparagraph (h) below, an Option may not be exercised by the
holder unless he is then a Key Person or Director of the Corporation or one of
its Subsidiaries. No Option may be exercised by a holder with respect to
fractional shares unless approved by the Board or Committee.

(g) Nontransferability of Options. An Option will not be
transferable or assignable except by will, by the laws of descent and
distribution, or, in the case of NQSOs, pursuant to a qualified domestic
relations order as defined by the Code, Title I of the Employee Retirement
Income Security Act or the rules thereunder, and an Option will be exercisable,
during the holder's lifetime, only by him. Notwithstanding the limitations of
this subparagraph (g), the Board or Committee may, in its sole discretion,
allow transfer of an Option to an immediate member of the Optionholder's family
or to a family partnership or trust.

5
<PAGE> 50

(h) Termination of Employment or Death. In the event that a holder
ceases to be employed by the Corporation or any of its Subsidiaries for any
reason other than his death, disability or termination for Cause and will no
longer be employed by any of them, such holder will have the right to exercise
the Option under the Plan at any time within three (3) months after his
termination of employment to the extent his right to exercise the Option has
accrued pursuant to the grant and had not previously been exercised at the date
of termination. In the event of termination of employment of the holder by
reason of disability, the holder may not exercise an Option later than twelve
(12) months after the date of such termination. If the holder of an Option
dies while he is employed by the Corporation or one of its Subsidiaries, his
Option may be exercised (to the extent that the holder will have been entitled
to do so at the date of his death) by a legatee or legatees of the holder under
his last will, or by his personal representatives or distributees, at any time
during the twelve-month period following his death. In all of the cases cited
above, the Corporation's Board of Directors or the Committee may, in its
discretion, extend the exercise period of the Option in question; provided,
however, that notwithstanding this subparagraph (h), no Option may be exercised
more than ten (10) years after the date on which such Option was granted. For
purposes of this subparagraph (h), employment of a holder will not be deemed
terminated so long as the holder is employed by the Corporation, a Subsidiary
or another entity (or an affiliate of another entity) which has assumed this
Option in a transaction to which Section 424(a) of the Code is applicable.

(i) Changes in Capitalization; Merger; Liquidation. The number of
shares of Common Stock covered by each outstanding Option will be
proportionately adjusted, to the nearest whole share (i) for any increase or
decrease in the number of issued shares of Common Stock resulting from a
subdivision or combination of shares or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
such shares effected without receipt of consideration by the Corporation, or
(ii) for any spin-off or spin-out of assets to the Corporation's stockholders
or any other significant distribution of assets by the Corporation to its
stockholders without receipt of consideration by the Corporation. Any such
adjustment to an outstanding Option will be made without changing the total
price applicable to the unexercised portion of the Option, but with a
corresponding adjustment in the price for each share covered by the Option. If
the Corporation is the surviving corporation in any merger or

6
<PAGE> 51

consolidation, each outstanding Option will pertain to and apply to the
securities to which a holder of the number of shares of Common Stock subject to
the Option would have been entitled to receive in such merger or consolidation.
A dissolution or liquidation of the Corporation or a merger or consolidation in
which the Corporation is not the surviving corporation will cause each
outstanding Option to terminate, except for Options as to which another entity
assumes or substitutes another option in a transaction to which Section 424(a)
of the Code is applicable; provided, however, that, as to any Options which so
terminate, each holder will have the right immediately prior to such
dissolution, liquidation, merger or consolidation, to exercise his Option in
whole or in part, including with respect to shares as to which such Option
would not otherwise be exercisable by reason of an insufficient lapse of time,
without regard to any provisions deferring exercise contained herein. To the
extent that the foregoing adjustments relate to stock or securities of the
Corporation, the adjustments will be made by the Board or Committee, whose
determination will be conclusive. Except as expressly provided in this
subparagraph (i), the holder of an Option will have no rights by reason of any
subdivision or combination of shares of stock of any class, or the payment of
any stock dividend or any other increase or decrease in the number of shares of
stock of any class, or by reason of any spin-off, spin-out or comparable
distribution of assets to the Corporation's stockholders, or by reason of any
dissolution, liquidation, merger or consolidation or distribution to the
Corporation's stockholders of assets or securities of another entity; and any
issue by the Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, will not affect, and no
adjustment by reason thereof will be made with respect to, the number or price
of shares of Common Stock subject to the Option. The existence of the Plan and
the Options granted pursuant to the Plan will not affect in any way the right
or power of the Corporation to make or authorize any adjustment,
reclassification, reorganization or other change in its capital or business
structure, any merger or consolidation of the Corporation, any issue of debt or
equity securities having preferences or priorities as to the Common Stock or
the rights thereof, the dissolution or liquidation of the Corporation, any sale
or transfer of all or any part of the Corporation's business or assets, or any
other corporate act or proceeding.

(j) Each Option will be subject to the requirement that if at any
time the Board or Committee determines that the listing, registration or
qualification of the shares subject to the Options upon any securities exchange
or under any state or federal securities or other law or regulation, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition to or in connection with the granting of the Option or
the issue or purchase of Common Stock thereunder, the Option may not be
exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval will have been effected or obtained free of
any conditions not acceptable to the Board or Committee. The holder of the
Option will supply the Corporation with such certificates, representations,
opinions of counsel and information as the Corporation may request, including,
without limitation, an investment letter certifying that all shares being
purchased under an Option are being acquired for investment and not for the
purpose of resale or distribution, and will otherwise cooperate with the
Corporation in obtaining such listing, registration, qualification, consent or
approval.

(k) Notwithstanding any other plan provision, no Option granted
pursuant to the Plan will terminate when an employee is on military, maternity,
sick leave or other bona fide leave of absence so long as his right to
reemployment is guaranteed either by statute or contract.

7
<PAGE> 52

8. Termination and Amendment of the Plan. The Plan shall terminate at
midnight on ___________________, 2005, ten (10) years after the date of its
initial adoption by the Board. No Option will be granted under the Plan after
that date, but Options granted before termination of the Plan will remain
exercisable thereafter until they expire or lapse according to their terms.
The Plan may be terminated, modified or amended by the Corporation's
stockholders or Board, so long as such modification or amendment does not
result in the Plan no longer being in compliance with Rule 16b-3. The
Corporation will use its best efforts to maintain this Plan and to assure that
Options are granted and exercised under this Plan in accordance with Rule
16b-3, including, without limitation, the seeking of any appropriate
modifications or amendments to this Plan and all requisite approvals and
consents of the same.

9. Holding Period. The grant of an Option under the Plan will be exempt
from Section 16(b) of the Securities Exchange Act of 1934, as amended, so long
as at least six (6) months elapse from the date of grant of the Option until
the date of its disposition (other than upon exercise or conversion) or the
disposition of the underlying Common Stock.

10. No Rights as Stockholder. A holder of an Option will have no rights
as a stockholder with respect to any Common Stock covered by his Option until
the date of issuance of a stock certificate to him by the Corporation following
exercise, in whole or in part, of the Option.

11. Indemnification of Board or Committee. In addition to other rights of
indemnification as they may have as members of the Board, each member of the
Board or Committee will be indemnified by the Corporation against all costs and
expenses reasonably incurred by him in connection with any action, suit or
proceeding to which he may be party by reason of any action taken or failure to
act under or in connection with the Plan, or any Option granted thereunder, and
against all amounts paid by him in settlement thereof (provided the settlement
is approved by legal counsel selected by the Corporation) or paid by him in
satisfaction of a judgment in any such action, suit or proceeding, except a
judgment based upon a finding of a breach of the duty of loyalty or acts or
omissions either not in good faith or which involve intentional misconduct or a
knowing violation of law. Upon the institution of any such action, suit or
proceeding, each Board or Committee member affected will notify the Corporation
in writing of the same, giving the Corporation an opportunity, at its own
expense, to defend the same before the member undertakes to defend it on his
own behalf.

12. Stockholder Approval. This Plan, as amended, is subject to the
approval of the holders of a majority of the outstanding shares of Common Stock
of the Corporation, which approval was obtained on ______________, 1995.

8
<PAGE> 53

EXHIBIT C

AMENDMENT TO
CHOICE DRUG SYSTEMS, INC.
1992 STOCK OPTION PLAN

Amendment to 1992 Stock Option Plan (the "Plan") of Choice Drug Systems,
Inc. (the "Corporation") as approved by the Board of Directors of the
Corporation on July 5, 1995 and by the Shareholders of the Corporation on
_____________, 1995.

The Plan shall be amended by deleting number 7(d) thereof and replacing it
with a new number 7(d) so that, as amended, said number 7(d) shall be and read
as follows:

(d) In the event a Non-Employee Director ceases to serve as a
member of the Board of Directors of the Company at any time for any
reason, his option and all rights thereunder shall be exercisable by
the Non-Employee Director at any time either: (1) within one (1) year
thereafter; or (2) within an extended time period granted at the
discretion of the Board of Directors or appropriate committee, such
extension not to exceed five (5) years thereafter. In no event,
however, shall the Non-Employee Director's option be exercisable at any
time later than the termination date of such option.

-End of Amendment-

<PAGE> 54
EXHIBIT D

CHOICE DRUG SYSTEMS, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN

ARTICLE I

TITLE, PURPOSE AND TERM

Section 1.01. This plan shall be known as the Choice Drug Systems,
Inc. 1996 Employee Stock Purchase Plan (hereinafter referred to as the "Plan").

Section 1.02. The purpose of the Plan is to provide the Employees
of the Sponsoring Employer with a convenient way to become shareholders of the
Sponsoring Employer. It is believed that further Employee participation in the
ownership of the business will help to achieve the unity of purpose essential
to the continued growth of the Sponsoring Employer and the mutual benefit of
its employees and shareholders. This Plan is intended to be effective as an
employee stock purchase plan, as defined in Section 423 of the Internal Revenue
Code of 1986, as amended, and shall be interpreted and construed in accordance
with such purpose.

Section 1.03. The Plan will be effective on the Effective Date.
However, if the Effective Date does not occur on or prior to January 1, 1997,
then the Plan shall terminate. The plan will be continued from year to year
but, subject to Section 5.03, may be modified or discontinued by the Sponsoring
Employer at any time.

ARTICLE II

DEFINITIONS

As used herein, the following words and phrases shall have the
meanings specified below, unless a different meaning is plainly required by the
context:

Section 2.01. The term "Anniversary Date" shall mean each January 1
on and after the Effective Date.

Section 2.02. The term "Board of Directors" shall mean the Board of
Directors of the Sponsoring Employer.

Section 2.03. The term "Closing Market Price" shall mean the
closing price of the Sponsoring Employer's common stock as reported in The Wall
Street Journal for the date of determination, provided, however, that if no
such closing price is reported but a "bid" and an "asked" price are reported by
The Wall Street Journal, then the term "Closing Market Price" shall mean the
"bid" price for the date of determination.
<PAGE> 55

Section 2.04. The term "Continuous Service" shall mean the number
of full years and completed months of continuous employment with the Employer
from his last hiring date to his date of severance of employment for any
reason. Continuous Service shall not be broken and shall be credited for
absences due to vacation, temporary sickness or injury or military leave.

Section 2.05. The term "Contribution Account" shall mean the
account established on behalf of a Member to which shall be credited the amount
of the Member's contribution, pursuant to Article IV.

Section 2.06. The term "Effective Date" shall mean January 1, 1996.

Section 2.07. The term "Employee" shall mean each current or future
employee of an Employer whose customary employment is at least twenty (20)
hours a week and more than five months in a calendar year.

Section 2.08. The term "Employer" shall mean the Sponsoring
Employer and its successors by merger or consolidation and any direct or
indirect subsidiary of the Sponsoring Employer, provided, however, that the
Board of Directors may deny participation in this Plan to any such subsidiary.

Section 2.09. The term "Exercise Date" shall mean the last business
day of the Plan Year on which the Sponsoring Employer's common stock publicly
trades.

Section 2.10. The term "Grant Date" shall mean the first day of the
Plan Year during which the Sponsoring Employer's common stock publicly trades.

Section 2.11. The "Issue Price" shall mean the price of the stock
to be charged to participating Members at the "Exercise Date". The "Issue
Price" shall be determined as outlined in Article IV.

Section 2.12. The term "Member" shall mean any Employee of an
Employer who has met the conditions and provisions for becoming a member as
provided in Article III hereof.

Section 2.13. The term "Member's Contribution Rate" shall be an
exact number of dollars elected by the Member to contribute by regular payroll
deductions to his Contribution Account as outlined in Section 4.02 and the term
"Member's Contribution" shall be the aggregate dollars actually so contributed.

Section 2.14. The term "Normal Monthly Pay" shall be computed with
respect to Employees who are paid on an hourly basis by annualizing such
Employee's hourly base pay and his or her regular scheduled hours of work as of
January 1, 1996 and dividing by twelve. For salaried employees the "Normal
Monthly Pay" shall be their regular monthly base pay as of January 1, 1996.

2.
<PAGE> 56

Section 2.15. The term "Plan Year" shall mean a twelve (12) month
period beginning on the first day of January and ending on the last day of
December.

Section 2.16. The term "Sponsoring Employer" shall mean Choice Drug
Systems, Inc., a _______ corporation with principal offices located at
__________________________, the Plan sponsor for all purposes.

Section 2.17. The term "Sponsoring Employer Stock" shall mean those
shares of Sponsoring Employer's Common Stock, par value $____ per share, which
pursuant to Section 4.01 are reserved for issuance upon the exercise of the
options granted under this Plan.

Section 2.18. Any words herein used in the masculine shall read and
be construed in the feminine where they would so apply. Words in the singular
shall be read and construed as though in the plural in all cases where they
would so apply.

ARTICLE III

MEMBERSHIP IN PLAN

Section 3.01. Each Employee shall become eligible to be a Member of
the Plan and may participate therein as of an Anniversary Date if he is an
Employee on the immediately preceding ______ 1 and remains an Employee on the
Anniversary Date.

Section 3.02. All eligible Employees who become Members of the Plan
shall have the same rights and privileges, except for the 10% deduction limit
set forth in Section 4.02 and the $21,250 aggregate purchase and 5% stock
ownership limits set forth in Section 4.06. Upon becoming a Member, said
Member shall be bound by the terms of this Plan, including any amendments
hereto.

Section 3.03. Each Employee who becomes eligible to be a Member and
participate in the Plan shall be furnished a summary of the Plan and a Request
for Participation. If such Employee elects to participate hereunder, he or she
must complete such form and file it with his or her Employer no later than 15
days prior to the next Anniversary Date. The completed Request for
Participation shall indicate the amount of Employee contribution authorized by
the Member. The Employee shall confirm his or her decision to participate by
completing a Confirmation of Participation. The Employee's election to
participate shall remain in effect unless otherwise revoked or modified by the
Employee in any future year. If any Employee does not elect to participate in
any given Plan Year, he or she may elect to participate on any future
Anniversary Date so long as he continues to meet the eligibility requirements.

ARTICLE IV

3.
<PAGE> 57

ISSUANCE OF STOCK OPTIONS

Section 4.01. The aggregate number of shares of the Sponsoring
Employer Stock which may be issued to Members under the Plan upon the exercise
of the options granted hereunder shall be, and the Sponsoring Employer shall
reserve, ______ shares of Sponsoring Employer Stock. These shares may be
either authorized and unissued shares, issued shares held in or acquired for
the treasury of the Sponsoring Employer, or shares of common stock reacquired
by the Sponsoring Employer upon purchase in the open market otherwise.

Section 4.02. In order to participate in this Plan, and be granted
options hereunder, an Employee must authorize his Employer to deduct through a
payroll deduction an exact number of dollars per month, but not less than
$10.00 per month. The maximum deduction shall be 10% of such Employee's normal
monthly pay from his Employer as of _______1 prior to the beginning of the
Plan Year. Such authorization shall be in writing and on such forms as
provided by the Sponsoring Employer. Such deductions shall begin as of the
first pay period on or after the first day of the Plan Year. For all purposes
of this Plan, such contributions shall be deemed a part of the Member's
Contribution. Employee contributions will not be permitted to begin at any
time other than the beginning of a Plan Year. No interest shall accrue to
Members on any amounts withheld under this Plan.

The Member's Contribution Rate, once established, shall remain in
effect for all Plan Years unless changed by the Member in writing on such forms
as provided by the Sponsoring Employer and filed with the Sponsoring Employer
at least fifteen (15) days prior to the next Anniversary Date.

At any time during the Plan Year, a Member may notify the Sponsoring
Employer he wishes to discontinue his contributions. This notice shall be in
writing and on such forms as provided by the Sponsoring Employer and shall
become effective as of a date not more than thirty (30) days following its
receipt by the Sponsoring Employer.

Members may elect to withdraw their contributions at any time during
the Plan Year. However, if contributions are withdrawn during the Plan Year,
no further contributions will be permitted during that Plan Year by such
withdrawing Member.

Section 4.03. If the total number of shares to be purchased under
option by all Members exceeds the number of shares authorized under this Plan,
a pro-rata allocation of the available shares will be made among all Members
authorizing such payroll deductions based on the amount of their respective
payroll deductions up to the Exercise Date.

Section 4.04. The Issue Price of the Sponsoring Employer Stock
under this Plan will be the lesser of (i) 85% of the Closing Market Price on
the first business day of the Plan Year on which such stock publicly trades and
(ii) 85% of the Closing Market Price on the last business day of the Plan Year
on which such stock publicly trades.

4.
<PAGE> 58

Section 4.05. On each Exercise Date the Member's Contribution
Account shall be used to purchase the maximum number of whose shares of
Sponsoring Employer Stock determined by dividing the Issue Price into the
Member's Contribution Account. Any money remaining in a Member's Contribution
Account may be returned to the Employee if requested. If such return is not
requested, the balance (representing amounts which would purchase only
fractional shares) will remain in the Contribution Account to be used in the
next Plan Year along with new contributions in the new Plan Year. Options
granted under this Plan shall be subject to such amendment or modification as
the Sponsoring Employer shall deem necessary to comply with any applicable law
or regulation, and shall contain such other provisions as the Sponsoring
Employer shall from time to time approve and deem necessary.

Section 4.06. In no event may a Member (i) receive an option or
options granted under this Plan during a calendar year to purchase Sponsoring
Employer Stock having a fair market value (determined at the Grant date) of
more than twenty-one thousand two hundred-fifty dollars ($21,250), (ii) receive
an option if such Member beneficially owns, immediately after the option is
granted, five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Sponsoring Employer or of its direct or indirect
subsidiary corporations, or (iii) transfer or otherwise alienate any option
granted under this Plan.

Section 4.07. Actual stock certificates for share purchased under
this Plan shall be issued to a Member within 60 days after the Exercise Date,
accompanied by an annual statement regarding any balance in the Member's
Contribution Account.

Section 4.08. Any Employee whose employment with the Employer is
terminated for any reason (except death, retirement or long-term disability in
accordance with the Employer's long-term disability plan) during the Plan Year
shall cease being a Member immediately. The balance of the Member's
Contribution Account shall be paid to such Member, or his legal representative,
as soon as practical after his termination. Any options granted to such Member
shall be deemed null and void.

Section 4.09. If a Member shall die during a Plan Year, no further
contributions on behalf of the deceased Member shall be made. The Executor or
Administrator of the deceased Member may elect to withdraw the balance in said
Member's Contribution Account by notifying the Employer in writing prior to the
last day of the Plan Year. In the event no election to withdraw has been made,
the balance accumulated in the deceased Member's Contribution Account shall be
used to purchase shares of the Sponsoring Employer Stock in accordance with
Section 4.05 hereof.

Section 4.10. If a Member shall retire or shall become long-term
disabled and terminate employment (in accordance with the Employer's long-term
disability plan) during a Plan Year, no further contributions on behalf of the
retired or disabled Member shall be made. The Member may elect to withdraw the
balance in his or her Contribution Account by notifying the Employer in writing
prior to the last day of the Plan Year. In the event no election to withdraw
has been made, the

5.
<PAGE> 59

balance accumulated in the retired or disabled Member's Contribution Account
shall be used to purchase shares of the Sponsoring Employer's Stock in
accordance with Section 4.05 hereof.

Section 4.11. If a Member or former Member disposes of a share of
Sponsoring Employer Stock obtained under this Plan (i) prior to two (2) years
after the Grant Date of such share, or (ii) prior to one (1) year after the
Exercise Date of such share, then that Member or former Member must notify the
Sponsoring Employer immediately of such disposition in writing.

ARTICLE V

MISCELLANEOUS

Section 5.01. The Sponsoring Employer or an individual delegated
such authority by the Sponsoring Employer shall administer the Plan and keep
record of individual member benefits. the Sponsoring Employer shall interpret
the Plan and shall determine all questions arising in the administration,
interpretation and application of the Plan, and all such determinations by the
Sponsoring Employer shall be conclusive and binding on all persons.

Section 5.02. Each Member, former Member, or any other person who
shall claim the right or benefit under this Plan, shall be entitled only to
look to the Employer for such benefit.

Section 5.03. The Board of Directors may at any time or from time
to time, amend the Plan in any respect, except that, without approval of the
Sponsoring Employer's stockholders, no amendment may (i) increase the number of
shares reserved under the Plan other than as provided in Section 5.13 hereof,
(ii) reduce the Issue Price per share as defined herein, (iii) make the Plan
available to any person who is not an eligible "Employee", (iv) materially
increase the benefits accruing to Members, or (v) modify the requirements as to
eligibility for participation in this Plan. Notwithstanding anything to the
contrary set forth herein, if any provision herein shall be determined at any
time to be in violation of Rule 16b-3 under the Securities Exchange Act of
1934, as amended, (or any successor regulation), or to create any unintended
tax result, such provision shall, upon such determination, automatically be
deemed inoperative, void and of no force and effect as if never set forth
herein and may be deleted from this Plan or amended by the Board of Directors
or said Committee at any time with prospective or retroactive effect.

Section 5.04. The Employer will pay all expenses of administering
this Plan that may arise in connection with the Plan.

Section 5.05. Any rules, regulations, or procedures that may be
necessary for the proper administration or functioning of this Plan that are
not covered in this Plan shall be promulgated and adopted by the Board of
Directors of the Sponsoring Employer or the Committee of the Board of
Directors.

6.
<PAGE> 60

Section 5.06. Any headings or subheadings in this Plan are inserted
for convenience of reference only and are to be ignored in the construction of
any provisions hereof.

Section 5.07. This Plan shall be construed in accordance with the
laws of the State of Delaware.

Section 5.08. A misstatement in the age, length of Continuous
Service, date of employment or any other such matter, shall be corrected when
it becomes known that any such misstatement of fact has occurred.

Section 5.09. The options granted hereunder are not assignable or
transferable by the Members, other than at the time of the death of the Member
and by will or the laws of descent and distribution. If a Member attempts any
prohibited assignment, transfer or alienation, his or her Employer shall
disregard that action. During the lifetime of each Member, the options granted
hereunder are only exercisable by such Member.

Section 5.10. Any interpretations of this Plan shall be made solely
by the Sponsoring Employer in order to insure that the options granted
hereunder shall not be taxable to a Member until he actually disposes of those
shares obtained through the exercise of those options.

Section 5.11. This Plan will not be deemed to constitute a contract
between an Employer and any Member or to be a consideration of an inducement
for the employment of any Member or Employee. Nothing contained in this Plan
shall be deemed to give any Member or Employee the right to be detained in the
service of an Employer or to interfere with the right of an Employer to
discharge any member or Employee at any time regardless of the effect which
such discharge shall have upon him as a Member of the Plan.

Section 5.12. No liability whatever shall attach to or be incurred
by any past, present or future stockholders, officers, or directors, as such,
of the employer, under or by reason of any of the terms, conditions or
agreements contained in this Plan or implied therefrom, and any and all
liabilities of and any and all rights and claims against the Employer, or any
stockholder, officer or director as such, whether arising at common law or in
equity or created by statute or constitution or otherwise, pertaining to this
Plan, are hereby expressly waived and released by every Member, as a part of
the consideration for any benefits under this Plan. No member of the Board of
Directors and no employee of Employer involved in the administration of this
Plan shall be personally liable for any mistake of judgment made in good faith,
and the Sponsoring Employer shall indemnify and hold harmless such person
against any cost or expense (including counsel fees) or liability (including
any sum paid in settlement of a claim with the consent of the Employer) arising
out of any act or omission to act in connection with this Plan unless arising
out of such person's own fraud or bad faith.

Section 5.13. The aggregate number of shares of Sponsoring Employer
Stock reserved for purchase under the Plan as provided in Section 4.01 hereof
and the calculation of the Issue Price,

7.
<PAGE> 61
Minimum Issue Price and Maximum Issue Price per share as provided in Section
4.04 hereof shall be appropriately adjusted to reflect any increases or
decreases in the number of issued shares of Sponsoring Employer Stock resulting
from a subdivision or consolidation or combination of shares or other capital
adjustments, or payment of a stock dividend, stock split, stock rights
offering, special dividend, or other change or exchange for other securities by
reclassification or otherwise, or other such increase or decrease in such
shares of Sponsoring Employer Stock.

Section 5.14. The Sponsoring Employer's obligation to sell and
deliver stock under the Plan is at all times subject to all approvals of, or
filings with, any governmental authorities required in connection with the
authorization, issuance, sale or delivery of such stock.

Section 5.15. A Member who is a person subject to Section 16 of the
Securities Exchange Act of 1934, as amended, (i) is not allowed to sell the
shares of Sponsoring Employer Stock purchased hereunder until six months after
the Exercise Date related to such shares and (ii) if such Member ceases
participation in the Plan, such Member may not participate again for at least
six months.

Section 5.16. Notwithstanding any other provision of this Plan, in
order for this Plan to be effective as a Section 423 Plan it must be approved
by the Stockholders of the Sponsoring Employer within 12 months before or after
the Plan is adopted by the Sponsoring Employer's Board of Directors.

8.
<PAGE> 62

EXHIBIT E

CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

CHOICE DRUG SYSTEMS, INC.

Under Section 805 of the Business Corporation Law

The undersigned, Allan C. Silber, and Don H. Thompson, being
respectively the Chairman of the Board and Secretary of CHOICE DRUG SYSTEMS,
INC. (the "Corporation") do hereby certify as follows:

1. The name of the Corporation is CHOICE DRUG SYSTEMS,
INC. The Corporation was originally formed under the name Far Rockaway
Prescription Center, Inc.

2. The Certificate of Incorporation of the Corporation
was filed with the Department of State on May 18, 1973.

3. The Certificate of Incorporation of the Corporation
is hereby amended to increase the number of authorized shares from 15,000,000
Common Shares, $.01 par value per share and 500,000 Preferred Shares, $.01 par
value per share to 30,000,000 Common Shares, $.01 par value per share and
500,000 Preferred Shares, $.01 par value per share.

4. To effect the increase described in Item 3 above, the
first paragraph only of Section 4 of the Certificate of Incorporation relating
to the aggregate number of Common shares which the Corporation shall have
authority to issue is hereby amended to read as follows:

"(4) The aggregate number of Shares which the Corporation
shall have the authority to issue is Thirty Million Five
Hundred Thousand (30,500,000) shares which are divided into
Thirty Million (30,000,000) Common Shares, $.01 par value, and
Five Hundred Thousand (500,000) Preferred Shares, $.01 par
value."

<PAGE> 63

5. The foregoing Certificate of Amendment of the
Certificate of Incorporation was authorized by the Board of Directors, followed
by a vote of the holders of a majority of the total outstanding shares of the
Corporation.

IN WITNESS WHEREOF, we have hereunto signed our names and
affirmed that the statements made herein are true, under penalties of perjury,
this ____ day of ________, 1995.

___________________________
Allan C. Silber, Chairman

___________________________
Don H. Thompson, Secretary
<PAGE> 64
EXHIBIT F

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement") dated as
of July 14, 1995, by and between Choice Drug Systems, Inc., a New York
corporation ("Choice"), and Choice Drug Systems, Inc., a Delaware corporation
and a wholly-owned subsidiary of CDSI ("CDSI").

W I T N E S S E T H:

WHEREAS, Choice has an authorized capitalization of (a) 15,000,000
shares of common stock, par value $.01 per share ("Choice Common"), of which
(i) _____________ shares are issued and outstanding on the date hereof, (ii) no
shares are issued and held in treasury, (iii) _____________ shares are issuable
and (b) 500,000 shares of Preferred Stock, none of which is issued or
outstanding on the date hereof.

WHEREAS, CDSI has an authorized capitalization of (a) 30,000,000
shares of Common Stock, par value $.10 per share ("CDSI Common"), of which 100
shares are issued and outstanding as of the date hereof and all of such shares
are held by Choice, and (b) 500,000 shares of Preferred Stock, par value $_____
per share, none of which is issued or outstanding on the date hereof;

WHEREAS, the respective Boards of Directors of Choice and CDSI deem it
advisable and in the best interest of each such corporation and its
stockholders that Choice reincorporate in Delaware by means of a merger of
Choice into CDSI in the manner contemplated herein (the "Merger") ;

NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, the parties hereby agree as follows:

1. MERGER OF CHOICE AND CDSI

1.1 Merger. On the Effective Date (as defined below) hereof,
pursuant to the provisions of the Delaware General Corporation Law (the
"Delaware Law") and the New York Business Corporation Law (the "New York Law"),
Choice and CDSI shall be merged into a single corporation by Choice merging
into CDSI, with CDSI surviving as the surviving corporation (hereinafter
sometimes referred to as the "Surviving Corporation"). Upon consummation of
the Merger, the separate corporate existence of Choice shall cease and the
Surviving Corporation shall become the owner, without transfer, of all rights,
powers, assets, qualifications and property of Choice, and the Surviving
Corporation shall become subject to all debts and liabilities of Choice in the
same manner as if the Surviving Corporation had itself incurred them.

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1.2 Effective Date. The Merger shall be deemed effective upon the
date and time of the later filing of a Certificate of Merger in New York and in
Delaware, such date being herein referred to as the Effective date.

1.3 Name of Surviving Corporation. The name of the surviving
corporation shall be "Choice Drug Systems, Inc." The purposes, county where
the principal office for the transaction of business shall be located, number
and classification of directors, and capital stock of the surviving corporation
shall be as appears in the Certificate of Incorporation of Choice Drug Systems,
Inc. and as hereinafter set forth.

1.4 Directors and Officers of CDSI. (a) The number of directors
of Choice immediately prior to the Effective Date shall be the number of
directors in each class of directors of the Surviving Corporation, and the
directors of Choice immediately prior to the Effective Date shall be the
directors of the Surviving Corporation, to hold office, in accordance with the
Bylaws of the Surviving Corporation, until their respective successors are duly
appointed or elected and qualified, or their prior death, resignation or
removal; provided that if any Choice director nominated for election at
Choice's 1995 Annual Meeting of Shareholders shall not be elected at such
meeting, then that individual shall not serve as a director of the Surviving
Corporation and any vacancy caused thereby shall be filled in accordance with
the Bylaws of the Surviving Corporation.

(b) The officers of Choice immediately prior to the Effective Date
shall be the officers of the Surviving Corporation until their respective
successors are duly elected and qualified, or their prior resignation, removal
or death.

2. EXCHANGE AND ISSUANCE OF STOCK

The manner of effecting the Merger, including the conversion of the
shares of Choice Common issued and outstanding immediately prior to the
Effective Date into shares of CDSI Common, shall be as follows:

(1) At the Effective Date each of the following transactions shall
be deemed to occur simultaneously:

(a) Each share of Choice Common issued and outstanding
immediately prior to the Effective Date shall, by virtue of the Merger and
without any action on the part of the holder thereof, automatically be
cancelled and converted into and shall be one fully paid and non-assessable
share of CDSI Common.

(b) All shares of Choice Common which shall then be held
in Choice's treasury shall cease to exist, and all certificates representing
such shares shall be cancelled by virtue of the Merger.

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(c) Each share of CDSI Common Stock issued and
outstanding immediately prior to the Effective Date shall, by virtue of the
Merger and without any action on the part of the holder thereof automatically
be cancelled.

(d) Each stock option to purchase shares of Choice Common
which has been granted and is then outstanding pursuant to any Choice option
plan shall on the Effective Date automatically become an option to purchase,
upon the same terms and conditions, an equal number of shares of CDSI Common
which the optionee would have been entitled to receive in Choice Common had he
or she exercised his or her option in full immediately prior to the Effective
Date (whether or not such option was then exercisable).

(e) Each warrant to purchase shares of Choice Common
which has been granted and is then outstanding pursuant to shall on the
Effective Date automatically become an warrant to purchase, upon the same terms
and conditions, an equal number of shares of CDSI Common which the optionee
would have been entitled to receive in Choice Common had he or she exercised
his or her warrant in full immediately prior to the Effective Date (whether or
not such warrant was then exercisable).

(2) After the Effective Date:

(a) Each holder of a certificate or certificates
representing issued and outstanding shares of Choice Common (a "Former
Holder"), may, but is not required to, surrender the same to _____________, or
such other agent or agents as may be appointed by CDSI (the "Exchange Agent")
for cancellation or transfer, and each such holder or transferee will be
entitled to receive a certificate or certificates representing an equal number
of shares of CDSI Common as the shares of Choice Common previously represented
by the stock certificates surrendered. Until so surrendered or presented for
transfer, each certificate which, prior to the Effective Date, represented
issued and outstanding shares of Choice Common, shall be deemed and treated for
all corporate purposes to represent the ownership of the same number of shares
of CDSI Common as though such surrender or transfer and exchange had taken
place. The stock transfer books for Choice Common Stock shall be deemed to be
closed at the Effective Date with respect to each such share of Choice Common,
and no transfer of such shares shall thereafter be made on such books.

(b) If any certificate for CDSI Common is to be issued in
a name other than that in which the certificate for Choice Common surrendered
for exchange is registered, it shall be a condition of such exchange that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange shall pay to the
Exchange Agent any transfer or other taxes required by reason of the issuance
of such CDSI Common in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable.

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3. STOCKHOLDER APPROVAL

3.1 Approval by Stockholders of Choice. Choice shall duly convene
the 1995 Annual Meeting of Shareholders of Choice (the "Annual Meeting") in
connection with which, among other things, Choice shall solicit the approval by
such shareholders of this Merger Agreement, and the transactions contemplated
hereby. Choice shall use its reasonable best efforts to obtain such approval.

3.2 Approval by Stockholders of CDSI. Choice, as sole stockholder
of CDSI, shall consent in writing to the execution of this Merger Agreement
promptly after the date of this Merger Agreement.

4. EMPLOYEE BENEFIT PLANS

All of the employee benefit plans maintained by Choice immediately
prior to the Merger shall continue to be maintained by CDSI without change,
provided that all such plans shall be governed by Delaware law rather than New
York law.

5. CLOSING CONDITIONS; CLOSING

5.1 Closing Conditions. The consummation of the Merger and the
transactions set forth in this Merger Agreement are subject to the satisfaction
on or prior to the Effective Date of the following conditions:

(a) The transactions contemplated by this Merger
Agreement shall have received the approval by affirmative vote of the holders
of two-thirds of the shares of Choice Common outstanding at the record date of
the Annual Meeting.

(b) There shall have been obtained an opinion of counsel
satisfactory to the Board of Directors of Choice, to the effect that for United
States Federal income tax purposes no gain or loss will be recognized by
Choice, CDSI or any United States holder of Choice Common, other than
stockholders who exercise statutory dissenters' rights, on the exchange of such
stock for CDSI Common on the basis of one share of CDSI Common for each shares
of Choice Common.

(c) The absence of any material pending or threatened
litigation concerning the Merger or any other transaction contemplated by the
Merger Agreement (unless such condition shall be waived by the Board of
Directors of Choice);

5.2 Closing. The closing under this Merger Agreement
shall occur on the Effective Date at a place mutually convenient to all the
parties hereto.

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6. TERMINATION OR ABANDONMENT OF MERGER

At any time prior to the Effective Date, the parties hereto may by
written agreement amend, modify or supplement any provision of this Merger
Agreement, provided that no such amendment, modification or supplement may be
made, if in the sole judgment of the Board of Directors of Choice, it will
materially and adversely affect the rights and interests of Choice's
shareholders.

7. AMENDMENTS

At any time prior to the Effective Date, the parties hereto may by
written agreement amend, modify or supplement any provision of this Merger
Agreement, provided that no such amendment, modification or supplement may be
made if, in the sole judgment of the Board of Directors of Choice, it will
materially and adversely affect the rights and interests of Choice
stockholders.

8. GOVERNING LAW

This Merger Agreement shall be construed under and in accordance with
the laws of the State of Delaware.

9. HEADINGS

The headings set forth herein are for convenience only and shall not
be used in interpreting the text of the section in which they appear.

10. SUCCESSORS AND ASSIGNS

This Merger Agreement may not be assigned by either party without the
written consent of the other party hereto, and this Merger Agreement shall be
binding upon and inure to the benefit of the respective successors and assigns
of the parties hereto.

11. COUNTERPARTS

For the convenience of the parties hereto, this Merger Agreement may
be executed in separate counterparts, each of which, when so executed, shall be
deemed to be an original, and such counterparts when taken together shall
constitute but one and the same instrument.

12. EXTENSIONS OF TIME; WAIVERS

Any time prior to the Effective Date the parties hereto may, by
written agreement (a) extend time for the performance of any of the obligations
or other acts of the parties hereto, (b) waive any breach or inaccuracy in the
representations and warranties contained in this Merger Agreement or in any
document delivered pursuant hereto, or (c) waive compliance with any of the
covenants,

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conditions or agreements contained in this Merger Agreement, except as set
forth in Section 5.1(a) hereof.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day and year first above written.

CHOICE DRUG SYSTEMS, INC.
(a New York corporation)

By: _______________________________

Its: _______________________________

Choice Drug Systems, Inc.
(a Delaware corporation)

By: _______________________________

Its: _______________________________

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<PAGE> 70
EXHIBIT G

CERTIFICATE OF INCORPORATION

CHOICE DRUG SYSTEMS, INC.

The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified, and
referred to as the "Delaware General Corporation Law"), hereby certifies that:

FIRST: The name of the Corporation (hereinafter called the
"Corporation") is Choice Drug Systems, Inc.

SECOND: The address, including street, number, city, and county, of
the registered office of the Corporation in the State of Delaware is 32
Loockerman Square, Suite L-100, Dover, Delaware 19901, County of Kent; and the
name of the registered agent of the Corporation in the State of Delaware at
such address is The Prentice-Hall Corporation System, Inc.

THIRD: The nature of the business or purposes of the Corporation is
to engage in any lawful act or activity for which corporations may be organized
under the Delaware General Corporation Law.

FOURTH:

1. The maximum number of shares of stock which the Corporation
shall have the authority to issue is thirty million (30,000,000) shares of
Common Stock having a par value of $0.01 per share, which shares shall not be
subject to any preemptive rights, and five hundred thousand (500,000) shares of
preferred stock having a par value of $.01 per share.

2. Pursuant to Section 151 of the General Corporation Law of the
State of Delaware, a statement of the designations, powers, preferences and
rights, and the qualifications and restrictions thereof, in respect of each
class of capital stock is as follows:

A. PREFERRED STOCK

The Board of Directors is hereby expressly authorized at any time, and
from time to time, to provide for the issuance of shares of preferred stock in
one or more series, with such voting powers, full or limited, or no voting
powers, and with such designations, preferences and relative, participating,
optional or other rights, and qualifications or restrictions thereof, as shall
be stated and expressed in the resolution or resolutions providing for the
issue thereof adopted by a majority of the

<PAGE> 71

Board of Directors then in office and the certificate of designations filed
under the General Corporation Law of the State of Delaware setting forth such
resolution or resolutions, including (without limiting the generality thereof)
the following as to each such series:

(I) the designation of such series;

(ii) the dividends, if any, payable with respect to such series, the rates
or basis for determining such dividends, any conditions and dates upon
which such dividends shall be payable, the preferences, if any, of
such dividends over, or the relation of such dividends to, the
dividends payable on the Common Stock or any other series of preferred
stock, whether such dividends shall be noncumulative or cumulative,
and, if cumulative, the date or dates from which such dividends shall
be cumulative;

(iii) whether shares of such series shall be redeemable at the option of the
Board of Directors or the holder, or both, upon the happening of a
specified event and, if redeemable, whether for cash, property or
rights, including securities of the Corporation, the time, prices or
rates and any adjustment and other terms and conditions of such
redemption;

(iv) the terms and amount of any sinking, retirement or purchase fund
provided for the purchase or redemption of shares of such series;

(v) whether shares of such series shall be convertible into or
exchangeable for shares of Common Stock or any other series of
preferred stock, at the option of the Corporation or of the holder, or
both, or upon the happening of a specified event and, if provision be
made for such conversion or exchange, the terms, prices, rates,
adjustments and any other terms and conditions thereof;

(vi) the extent, if any, to which the holders of shares of such series
shall be entitled to vote with respect to the election of directors or
otherwise, including, without limitation, the extent, if any, to which
such holders shall be entitled, voting as a series or as a part of a
class, to elect one or more directors upon the happening of a
specified event or otherwise;

(vii) the restrictions, if any, on the issue or reissue of shares of such
series or any other series;

(viii) the extent, if any, to which the holders of shares of such series
shall be entitled to preemptive rights; and

(ix) the rights of the holders of shares of such series upon the
liquidation of the Corporation or any distribution of its assets.

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B. COMMON STOCK

(I) Dividends and Distributions. No payment of dividends or distributions
shall be made to the holders of shares of Common Stock unless and
until the holders of shares of preferred stock receive any
preferential amounts to which they are entitled under this ARTICLE
FOURTH or in the resolution or resolutions providing for the issue of
shares of preferred stock. Subject to the limitation set forth in the
preceding sentence of this Paragraph (I) and except as otherwise
provided by this Certificate of Incorporation or in the resolution or
resolutions providing for the issue of shares of preferred stock, the
holders of shares of Common Stock shall be entitled to receive such
dividends and distributions as may be declared upon such shares of
Common Stock, from time to time by a resolution or resolutions adopted
by the Board of Directors.

(ii) Voting Rights. All holders of Common Stock shall be entitled to
notice of any stockholders' meeting. Subject to the provisions of any
applicable law and except as otherwise provided in this Certificate of
Incorporation or by the resolution or resolutions providing for the
issue of shares of preferred stock, all voting rights shall be vested
solely in the Common Stock. The holders of shares of Common Stock
shall be entitled to vote upon the election of directors and upon any
other matter submitted to the stockholders for a vote. Each share of
Common Stock issued and outstanding shall be entitled to one
noncumulative vote. A fraction of a share of Common Stock shall not
be entitled to any voting rights whatsoever.

(iii) Liquidation, Dissolution or Winding Up. Except as otherwise provided
in this Certificate of Incorporation and subject to the rights of
holders, if any, of preferred stock to receive preferential
liquidation distributions to which they are entitled under this
ARTICLE FOURTH or under the resolution or resolutions providing for
the issue of shares of preferred stock, in the event of any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, after payment or provision for payment of
the debts and liabilities of the Corporation, all assets of the
Corporation shall be shared pro rata among the holders of the Common
Stock.

3. Except as otherwise provided in this Certificate of
Incorporation or by applicable law, the Corporation's capital stock, regardless
of class, may be issued for such consideration and for such corporate purposes
as the Board of Directors may from time to time determine by a resolution or
resolutions adopted by a majority of the Board of Directors then in office.

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FIFTH: The name and the mailing address of the incorporator are as
follows:

NAME MAILING ADDRESS
---- ---------------

David Cox Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238

The powers of the incorporator shall terminate upon the filing of this
Certificate of Incorporation.

SIXTH: The name and the mailing address of the Board of Directors are
as follows:

NAME MAILING ADDRESS
---- ---------------

Allan C. Silber Counsel Corporation
2 First Canadian Place, Suite 1300
Toronto, Ontario M5X 1E3

Morris A. Perlis Counsel Corporation
2 First Canadian Place, Suite 1300
Toronto, Ontario M5X 1E3

SEVENTH: The Corporation shall have perpetual existence.

EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors, or any class of them, and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation, or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code, or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of Title 8
of the Delaware Code, order a meeting of the creditors or class of creditors
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the court directs. If a majority
and number representing three-fourths (3/4) in value of the creditors or class
of creditors and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which said application has been made, be
binding on all the creditors or class of creditors and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.

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NINTH:

1. The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors.

2. The Board of Directors shall consist of not less than three
(3) nor more than fifteen (15) persons, the exact numbers to be fixed from
time to time by the Board of Directors pursuant to a resolution adopted by a
majority of directors then in office; provided, however, that such maximum
number may be increased from time to time to reflect the rights of holders of
preferred stock to elect directors in accordance with the terms of this
Certificate of Incorporation or of the resolution or resolutions adopted by a
majority of the Board of Directors then in office providing for the issue of
shares of preferred stock.

3. Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws of the Corporation, and not withstanding the fact
that some lesser percentage may be specified by law, one or more directors or
the entire Board of Directors of the Corporation may be removed at any time for
cause by the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class). "Cause" for
purposes of this paragraph shall mean: (I) any fraudulent or dishonest act or
activity by the director; or (ii) behavior materially detrimental to the
business of the Corporation.

4. Whenever the Corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever the
Corporation shall be authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied voting power under the
provisions of this Certificate of Incorporation shall entitle the holder
thereof to the right to vote at any meeting of stockholders except as otherwise
provided by applicable law; provided, that no share of any such class which is
otherwise denied voting power shall entitle the holder thereof to vote upon the
increase or decrease in the number of authorized shares of said class.

TENTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of clause
(b) of Section 102 of the Delaware General Corporation Law, as the same may be
amended or supplemented. The provisions of this Article Tenth are not intended
to, and shall not, limit, supersede or modify any other defense available to a
director under applicable law. Any repeal or modification of this Article
Tenth by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.

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ELEVENTH:

1. The Corporation shall, to the fullest extent permitted by Section
145 of the Delaware General Corporation Law, as the same may be amended or
supplemented (but in the case of any such amendment or supplement, only to the
extent that such amendment or supplement permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment or supplement), indemnify any and all directors
and officers whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to
in or covered by said section, and the indemnification provided for herein
shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such
person. The Corporation may, in its sole discretion and to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, as the same
may be amended or supplemented, indemnify any and all employees and agents whom
it shall have power to indemnify under said section from and against any and
all of the expenses, liabilities, or other matters referred to in or covered by
said section, and the indemnification provided for herein shall continue as to
a person who has ceased to be an employee or agent and shall inure to the
benefit of the heirs, executors, and administrators of such person.

2. The Corporation shall pay the expenses incurred in defending any
proceeding against a director or officer which is or may be subject to
indemnification pursuant to this Article Eleventh in advance of final
disposition of such proceeding; provided, however, that the payment of such
expenses incurred by a director or officer shall be made only upon receipt of
an undertaking by the director or officer to repay all amounts advanced if it
should be ultimately determined that the director or officer is not entitled to
be indemnified under this Article Eleventh or otherwise. The Corporation may,
in its sole discretion, advance expenses incurred by its employees or agents to
the same extent as expenses may be advanced to its directors and officers
hereunder.

3. The rights conferred on any person by this Article Eleventh shall
be deemed contract rights and shall not be exclusive of any other rights which
such person may have or hereafter acquire under any statute, provision of this
Certificate of Incorporation or the Corporation's Bylaws, agreement, or vote of
stockholders or disinterested directors or otherwise.

4. The Corporation may purchase and maintain insurance to protect
itself and any other director, officer, employee or agent of the Corporation or
any corporation, partnership, joint venture, trust or other enterprise against
any liability, whether or not the Corporation would have the power to indemnify
such person under the Delaware General Corporation Law.

TWELFTH:

1. From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed in accordance with the laws
of the State of Delaware at the time in force; provided, however, that the
affirmative vote of the holders of at least 66-2/3% of the outstanding shares
of the Corporation's capital stock entitled to vote thereon and 66-2/3% of the

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members of the Board of Directors then holding office is required to amend
those provisions of this Certificate of Incorporation set forth in Articles
Ninth, Tenth, Eleventh, Twelfth or Thirteenth.

2. The Corporation's Bylaws may be amended, added to or repealed
by an affirmative vote of at least 66-2/3% of either (I) the shares of the
Corporation's capital stock entitled to vote thereon, or (ii) the Board of
Directors.

THIRTEENTH: Any action required or permitted to be taken by the
holders of the issued and outstanding capital stock of the Corporation may be
effected solely at an annual or special meeting of stockholders duly called and
held in accordance with law and this Certificate of Incorporation, and not by
the consent in writing of such stockholders or any of them; provided, however,
that any holder of shares of preferred stock may exercise the special voting
rights, if any, of such shares to elect directors upon the occurrence of
certain events specified in this Certificate of Incorporation or in the
resolution or resolutions adopted by a majority of the Board of Directors then
in office providing for the issuance of such shares of preferred stock, in any
manner now or hereafter permitted by this Certificate of Incorporation or
applicable law.

The undersigned, being the incorporator, for the purpose of forming a
Corporation under the laws of the State of Delaware does make, file and record
this Certificate of Incorporation, does certify that the facts herein stated
are true, and, accordingly, has here to set my hand and seal this 10th day of
July 1995.

__________________________________
David Cox, Incorporator

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EXHIBIT H

BYLAWS

CHOICE DRUG SYSTEMS, INC.

1.1 Annual Meeting. The annual meeting of the shareholders shall
be held, at such place within or without the state of incorporation as may be
designated by the Board of Directors, on such date and at such time as shall be
designated each year by the Board of Directors and stated in the notice of the
meeting. At the annual meeting the shareholders shall elect a Board of
Directors by a plurality vote and transact such other business as may properly
be brought before the meeting.

1.2 Special Meetings. Special meetings of the shareholders may be
called by the president, a majority of the board of directors, or by the
holders of not less than one-tenth (1/10) of all the shares entitled to vote at
such meeting. The place of said meetings shall be designated by the directors.
The business transacted at special meetings of the shareholders of the
corporation shall be confined to the business stated in the notice given to the
shareholders.

1.3 Notice of Shareholder Meetings. Written or printed notice
stating the place, day, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called and the person
or persons calling the meeting; notice may be communicated in person; by
telephone, telegraph, teletype or other form of wire or wireless communication;
or by mail or private carrier by or at the direction of the president,
secretary, officer, or person calling the meeting to each shareholder entitled
to vote at the meeting. Such notice shall be delivered not less than ten (10)
nor more than two months before the date of the meeting, and shall be deemed to
be delivered when deposited in the United States mail addressed to the
shareholder at his last known address as it appears on the stock transfer books
of the corporation, with postage thereon prepaid, or by confirmed telex;
provided, however, that any such notice may be waived in writing, either prior
to or subsequent to such meeting.

1.4 Quorum Requirements. A majority of the shares entitled to
vote present, in person or represented by proxy, shall constitute a quorum for
the transactions of business. A meeting may be adjourned despite the absence
of a quorum, and notice of an adjourned meeting need not be given if the time
and place to which the meeting is adjourned are announced at the meeting at
which the adjournment is taken. When a quorum is present at any meeting, a
majority in interest of the stock there represented shall decide any question
brought before such meeting, unless the question is one upon which, by express
provision of this corporation's Certificate of Incorporation or Bylaws, or by
the laws of Delaware, a larger or different vote is required, in which case
such express provision shall govern the decision of such question.

1.5 Voting and Proxies. Every shareholder entitled to vote at a
meeting may do so either in person or by proxy appointment made by an
instrument in writing subscribed by such shareholder

<PAGE> 78

which proxy shall be filed with the secretary of the meeting before being
voted. Such proxy shall entitle the holders thereof to vote at any adjournment
of such meeting, but shall not be valid after the final adjournment thereof.
No proxy shall be valid after the expiration of eleven (11) months from the
date of its execution, unless the said instrument expressly provides for a
longer period.

ARTICLE II

BOARD OF DIRECTORS

2.1 Qualification and Election. Directors need not be
shareholders or residents of this State, but must be of legal age. They shall
be elected by a plurality of the votes cast at the annual meetings of the
shareholders or at a special meeting of the shareholders called for that
purpose. Each director shall hold office until the expiration of the term for
which he is elected, and thereafter until his successor has been elected and
qualified.

2.2 Number. The number of directors that shall constitute the
entire Board of Directors shall be not less than three (3) nor more than
fifteen (15), the exact number of directors to be determined by resolution of
the Board of Directors from time to time.

2.3 Meetings. The annual meeting of the board of directors shall
be held immediately after the adjournment of the annual meeting of the
shareholders, at which time the officers of the corporation shall be elected.
The board may also designate more frequent intervals for regular meetings.
Special meetings may be called at any time by the chairman of the board,
president, or any two directors.

2.4 Notice of Directors' Meetings. The annual and all regular
board meetings may be held without notice of the date, time, place or purpose
of the meeting. Special meetings shall be held upon notice sent by any usual
means of communication not less than two (2) days before the meeting noting the
date, time and place of the meeting. The notice need not describe the purposes
of the special meeting. Attendance by a director at a meeting or subsequent
execution or approval by a director of the minutes of a meeting or a consent
action shall constitute a waiver of any defects in notice of such meeting
and/or consent action.

2.5 Quorum and Vote. The presence of a majority of the directors
shall constitute a quorum for the transaction of business. A meeting may be
adjourned despite the absence of a quorum, and notice of an adjourned meeting
need not be given if the time and place to which the meeting is adjourned are
fixed at the meeting at which the adjournment is taken, and if the period of
adjournment does not exceed thirty days in any one adjournment. The vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the board, unless the vote of a greater number is required
by the certificate of incorporation, these bylaws, or by the laws of the state
of incorporation.

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2.6 Executive and Other Committees. The board of directors, by a
resolution adopted by a majority of its members, may designate an executive
committee, consisting of two or more directors, and other committees,
consisting of two or more persons, who may or may not be directors, and may
delegate to such committee or committees any and all such authority as it deems
desirable, including the right to delegate to an executive committee the power
to exercise all the authority of the board of directors in the management of
the affairs and property of the corporation.

ARTICLE III

OFFICERS

3.1 Number. The corporation shall have a President, a Secretary,
and such other officers as the Board of Directors shall from time to time deem
necessary. Any two or more offices may be held by the same person, except the
offices of President and Secretary.

3.2 Election and Term. The officers shall be elected by the board.

3.3 Duties. All officers shall have such authority and perform
such duties in the management of the corporation as are normally incident to
their offices and as the board of directors may from time to time provide.

ARTICLE IV

RESIGNATIONS, REMOVALS AND VACANCIES

4.1 Resignations. Any officer or director may resign at any time
by giving written notice to the chairman of the board, the president, or the
secretary. Any such resignation shall take effect at the time specified
therein, or, if no time is specified, then upon its acceptance by the board of
directors.

4.2 Removal of Officers. Any officer or agent may be removed at
any time with or without cause by the board whenever in its judgment the best
interests of the corporation will be served thereby.

4.3 Removal of Directors. Any or all of the directors may be
removed either with or without cause by a proper vote of the shareholders; and
may be removed with cause by a majority vote of the entire board.

4.4 Vacancies. Newly created directorships resulting from an
increase in the number of directors, and vacancies occurring in any office or
directorship for any reason, including removal of an officer or director, may
be filled by the vote of a majority of the directors remaining in office, even
if less than a quorum exists.

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ARTICLE V

CAPITAL STOCK

5.1 Stock Certificates. Every shareholder shall be entitled to a
certificate or certificates of capital stock of the corporation in such form as
may be prescribed by the board of directors. Unless otherwise decided by the
board, such certificates shall be signed by the president and the secretary of
the corporation.

5.2 Transfer of Shares. Shares of stock may be transferred on
the books of the corporation by delivery and surrender of the properly assigned
certificate, but subject to any restrictions on transfer imposed by either the
applicable securities laws or any shareholder agreement.

5.3 Loss of Certificates. In the case of the loss, mutilation,
or destruction of a certificate of stock, a duplicate certificate may be issued
upon such terms as the board of directors shall prescribe.

ARTICLE VI

ACTION BY CONSENT

6.1 Actions by Board of Directors. Whenever the directors are
required or permitted to take any action by vote, such action may be taken
without a meeting on written consent, setting forth the action so taken, signed
by all the persons or entities entitled to vote thereon, and such action shall
be as valid and effective as any action taken at a regular or special meeting
of the directors.

ARTICLE VII

AMENDMENT OF BYLAWS

These bylaws may be amended, added to, or repealed either by: (1) a
majority vote of the shares represented at any duly constituted shareholders'
meeting; or (2) by a majority vote of the Board of Directors.

ARTICLE VIII

FISCAL YEAR

The fiscal year for the corporation shall be determined by the
Corporation's Board of Directors.

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CERTIFICATION

I certify that these Bylaws were adopted by unanimous written consent
of the shareholders of the corporation on the _____ day of July 1995.

___________________________________
Secretary

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<PAGE> 82
EXHIBIT I

PROXY CHOICE DRUG SYSTEMS, INC. PROXY

ANNUAL MEETING OF SHAREHOLDERS, AUGUST 23, 1995
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

The undersigned hereby appoints R. Dirk Allison and Don H. Thompson, or either
of them, as proxies, with power of substitution, to vote all shares of the
undersigned at the Annual Meeting of the Shareholders of CHOICE DRUG SYSTEMS,
INC., to be held on August 28, 1995, at 1:00 p.m. Eastern Daylight Time, at the
Hotel Intercontinental, 111 East 48th Street, New York, New York, 10017, and at
any adjournments or postponements thereof, in accordance with the following
instructions:

<TABLE>
<S> <C>
(1) To Elect New Directors.
|__| FOR all nominees listed below |__| WITHHOLD AUTHORITY to vote
(except as marked to the contrary below) for all nominees listed below

(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE CHECK THE BOX TO VOTE "FOR" ALL NOMINEES AND STRIKE A LINE
THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)

R. Dirk Allison Joseph F. Furlong III John Haronian Morris A. Perlis
Albert Reichmann Brendan Ryan Allan C. Silber Edward Sonshine, Q.C.
Gail Wilensky, Ph.D. John Zuccotti

(2) To approve adoption of the Company's 1995 Nonqualified Stock Option Plan for Directors, under which 200,000 shares of Common
Stock will be reserved for issuance.
|__| FOR |__| AGAINST |__| ABSTAIN
(3) To approve adoption of the Company's 1995 Nonqualified Stock Option Plan for Key Employees and Directors, under which 550,000
shares of Common Stock will be reserved for issuance.
|__| FOR |__| AGAINST |__| ABSTAIN
(4) To approve an amendment to the Company's 1992 Stock Option Plan that will give the Board of Directors the discretion to
extend the expiration date of previously granted options for retiring directors.
|__| FOR |__| AGAINST |__| ABSTAIN
(5) To approve adoption of the Company's Employee Stock Purchase Plan, under which 200,000 shares of Common Stock will be
reserved for issuance.
|__| FOR |__| AGAINST |__| ABSTAIN
(6) To approve the issuance of up to 3,500,000 shares of Common Stock in connection with a private placement of the Company's
common stock.
|__| FOR |__| AGAINST |__| ABSTAIN
(7) To approve an increase in the number of authorized shares of Common Stock from 15,000,000 to 30,000,000.
|__| FOR |__| AGAINST |__| ABSTAIN
(8) To approve the reincorporation of the Company as a Delaware Corporation.
|__| FOR |__| AGAINST |__| ABSTAIN
(9) In their discretion, on such other matters as may properly come before the Annual Meeting.
|__| FOR |__| AGAINST |__| ABSTAIN
</TABLE>

(CONTINUED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
(CONTINUED FROM OTHER SIDE)

THE SHARES REPRESENTED HEREBY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION
IS MADE, THE SHARES WILL BE VOTED FOR ALL NOMINEES IN THE ELECTION OF
DIRECTORS, FOR THE ADOPTION OF THE 1995 NONQUALIFIED STOCK OPTION PLAN FOR
DIRECTORS, FOR THE ADOPTION OF THE 1995 NONQUALIFIED STOCK OPTION PLAN FOR KEY
EMPLOYEES AND DIRECTORS, FOR THE ADOPTION OF AN AMENDMENT TO THE COMPANY'S 1992
STOCK OPTION PLAN, FOR THE ADOPTION OF THE EMPLOYEE STOCK PURCHASE PLAN, FOR
APPROVAL OF THE PRIVATE PLACEMENT, FOR AN INCREASE IN THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK FROM 15,000,000 TO 30,000,000, FOR REINCORPORATION OF THE
COMPANY AS A DELAWARE CORPORATION, AND, IN THE DISCRETION OF THE PROXIES, ON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OF
SHAREHOLDERS.

PLEASE SIGN AND DATE BELOW AND RETURN PROMPTLY.

Dated:__________________, 1995 _____________________________________

Signatures of shareholder(s) should correspond exactly with the name
printed hereon. Joint owners should each sign personally.
Executors, administrators, trustees, etc., should
give full title and authority.