INKINE PHARMACEUTICAL CO INC, DEF 14A, 2000-10-02

INKINE PHARMACEUTICAL CO INC
DEF 14A, 2000-10-02
PHARMACEUTICAL PREPARATIONS

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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:

/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Under Rule 14a-12

INKINE PHARMACEUTICAL COMPANY, INC.
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(Name of Registrant as Specified in Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

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

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

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2) Aggregate number of securities to which transaction applies:

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

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4) Proposed maximum aggregate value of transaction:

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5) Total fee paid:

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

1) Amount Previously Paid:

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

___________________________________________________________________________
3) Filing Party:

___________________________________________________________________________
4) Date Filed:

___________________________________________________________________________

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INKINE PHARMACEUTICAL COMPANY, INC.
Sentry Park East
1720 Walton Road, Suite 200
Blue Bell, PA 19422

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NOTICE OF 2000 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
NOVEMBER 6, 2000

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TO THE SHAREHOLDERS OF
INKINE PHARMACEUTICAL COMPANY, INC.:

Notice is hereby given that the 2000 annual meeting of shareholders
(the "Annual Meeting") of INKINE PHARMACEUTICAL COMPANY, INC. (the "Company" or
"InKine") will be held at the DoubleTree Guest Suites Hotel, 640 West Germantown
Pike, Plymouth Meeting, Pennsylvania 19462 on November 6, 2000, at 10:00 a.m.,
local time, for the following purposes:

1. To elect six directors;
2. To approve an amendment to the InKine Pharmaceutical Company,
Inc. 1999 Equity Compensation Plan (the "Plan") increasing the
maximum number of shares of Common Stock of the Company available
for distribution under the Plan from 1,000,000 shares to
2,500,000 shares;
3. To ratify the selection of KPMG LLP as independent auditors of
the Company for the transition period ending December 31, 2000
and the fiscal year ending December 31, 2001; and
4. To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.

Only shareholders of record as of the close of business on September
12, 2000 will be entitled to notice of the Annual Meeting and to vote at the
Annual Meeting and any adjournments thereof. A list of shareholders of the
Company as of the close of business on September 12, 2000 will be available for
inspection during normal business hours for ten days prior to the Annual Meeting
at the Company's executive offices at Sentry Park East, 1720 Walton Road, Suite
200, Blue Bell, Pennsylvania 19422.

By order of the Board of Directors,

Robert F. Apple
Secretary

Blue Bell, Pennsylvania
October 9, 2000

EACH SHAREHOLDER IS URGED TO COMPLETE, SIGN AND RETURN
THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES. IF A SHAREHOLDER
DECIDES TO ATTEND THE MEETING, HE OR SHE MAY, IF SO DESIRED,
REVOKE THE PROXY AND VOTE THE SHARES IN PERSON.

<PAGE>

INKINE PHARMACEUTICAL COMPANY, INC.
Sentry Park East
1720 Walton Road, Suite 200
Blue Bell, PA 19422

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PROXY STATEMENT
FOR
2000 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
NOVEMBER 6, 2000

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This proxy statement and the accompanying form of proxy are being
mailed on or about October 9, 2000, to the shareholders of InKine Pharmaceutical
Company, Inc. (the "Company" or "InKine"). These materials are being furnished
in connection with the solicitation by the Board of Directors of the Company of
proxies to be voted at the 2000 Annual Meeting of Shareholders (the "Annual
Meeting") to be held at the DoubleTree Guest Suites Hotel, 640 West Germantown
Pike, Plymouth Meeting, Pennsylvania 19462 on November 6, 2000, at 10:00 a.m.,
local time, and at any adjournments thereof.

At the Annual Meeting, shareholders of the Company will be asked to
vote upon (i) the election of six directors, (ii) the approval of an amendment
to the InKine Pharmaceutical Company, Inc. 1999 Equity Compensation Plan (the
"1999 Equity Compensation Plan") to increase the number of shares of Common
Stock available for distribution thereunder from 1,000,000 shares to 2,500,000
shares; and (iii) the ratification of the selection of KPMG LLP as independent
auditors of the Company. If other matters properly come before the Annual
Meeting, however, the persons named in the accompanying proxy intend to vote
thereon in accordance with their judgment.

The cost of solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by telephone by
certain officers and directors of the Company who will not be specially
compensated for such services. The Company has also retained the services of
Corporate Investor Communications, Inc. as the Company's proxy solicitation
agent for the Annual Meeting, at a cost of approximately $7,500, which will be
borne by the Company. The Company also will request banks and brokers to solicit
proxies from their customers, where appropriate, and will reimburse such persons
for reasonable expenses incurred in that regard.

The Company's Annual Report to Shareholders on Form 10-K, for the year
ended June 30, 2000, including financial statements, is being mailed to
shareholders with this proxy statement but does not constitute a part of this
proxy statement.

VOTING AT THE MEETING

Only holders of record of shares of the Company's Common Stock, par
value $.0001 per share ("Common Stock"), at the close of business on September
12, 2000, the record date, are entitled to vote at the Annual Meeting. As of
that date, there were 33,293,027 shares of Common Stock outstanding. Each
shareholder entitled to vote shall have the right to one vote for each share of
Common Stock outstanding in such shareholder's name.

Shares cannot be voted at the Annual Meeting unless the holder of
record is present in person or by proxy. The enclosed form of proxy is a means
by which a shareholder may authorize the voting of his, her or its shares at the
Annual Meeting.

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The Company presently has no other class of stock outstanding and
entitled to be voted at the Annual Meeting. The presence in person or by proxy
of shareholders entitled to cast a majority of all votes entitled to be cast at
the Annual Meeting will constitute a quorum. If a broker that is a record holder
of Common Stock does not return a signed proxy, the shares of Common Stock
represented by such proxy will not be considered present at the Annual Meeting
and will not be counted toward establishing a quorum. If a broker that is a
record holder of Common Stock does return a signed proxy, but is not authorized
to vote on one or more matters (each such matter, a "broker non-vote"), the
shares of Common Stock represented by such proxy will be considered present at
the Annual Meeting for purposes of determining the presence of a quorum.

Assuming a quorum is present,

(i) the members of the Board of Directors of the Company
will be elected by a plurality of the votes cast by
shareholders present, in person or by proxy, and
entitled to vote for the election of directors at the
Annual Meeting. Abstentions and broker non-votes will
have no effect on the outcome of the election of
directors.

(ii) the affirmative vote of a majority of the votes cast
by shareholders present, in person or by proxy, and
entitled to vote at the Annual Meeting will be
required to approve the amendment to the 1999 Equity
Compensation Plan. Abstentions and broker non-votes
will have no effect on the outcome of the vote to
consider the approval of the amendment to the 1999
Equity Compensation Plan.

(iii) the affirmative vote of a majority of the votes cast
by shareholders present, in person or by proxy, and
entitled to vote at the Annual Meeting will be
required for the ratification of the appointment of
the auditors for the transition period and next
fiscal year following the transition period.
Abstentions and broker non-votes will have no effect
on the outcome of the vote to consider the
ratification of the appointment of the auditors.

Shareholders are urged to specify their choices by marking the
appropriate boxes on the enclosed proxy card. The shares of Common Stock
represented by each properly executed proxy will be voted at the Annual Meeting
in accordance with each shareholder's directions. If no choice has been
specified and the enclosed proxy card is properly executed and returned, the
shares will be voted "FOR" the nominees for election as directors named under
the caption "Election of Directors;" "FOR" the approval of the amendment to the
1999 Equity Compensation Plan; and "FOR" the ratification of the appointment of
KPMG LLP as the Company's auditors for the transition period ending December 31,
2000 and the year ending December 31, 2001. If any other matters are properly
presented at the Annual Meeting for action, the proxy holders will vote the
proxies (which confer discretionary authority to vote on such matters) in
accordance with their judgment.

Execution of the accompanying proxy will not affect a shareholder's
right to attend the Annual Meeting and vote in person. Any shareholder giving a
proxy has the right to revoke it by giving written or oral notice of revocation
to the Secretary of the Company, or by delivering a subsequently executed proxy,
at any time before the proxy is voted.

Your proxy vote is important. Accordingly, you are asked to complete,
sign and return the accompanying proxy card whether or not you plan to attend
the Annual Meeting. If you plan to attend the Annual Meeting to vote in person
and your shares are registered with the Company's transfer agent in the name of
a broker or bank, you must secure a proxy from your broker or bank assigning
voting rights to you for your shares of Common Stock.

<PAGE>

PROPOSAL NO. 1

ELECTION OF DIRECTORS

The Board of Directors of the Company consists of such number of
directors (no less than three) as is fixed from time to time by resolutions
adopted by the Board of Directors. At the Annual Meeting, six directors are to
be elected. The term of office for each director will expire at the next annual
meeting of shareholders, and each director will hold office until the election
and qualification of the director's successor or until the director's earlier
death, removal or resignation.

The Board of Directors, upon the recommendation of the Nominating
Committee, has nominated for election as directors of the Company Leonard S.
Jacob, M.D., Ph.D., J.R. LeShufy, Steven B. Ratoff, Thomas P. Stagnaro, Robert
A. Vukovich, Ph.D. and Jerry A. Weisbach, Ph.D. All nominees are presently
directors of the Company whose terms expire at the Annual Meeting.

All nominees have consented to be named and to serve if elected. Unless
otherwise instructed by the shareholders, the persons named in the proxies will
vote the shares represented thereby for the election of such nominees. The Board
of Directors believes all nominees will be able to serve as directors; if this
should not be the case, however, the proxies may be voted for one or more
substitute nominees to be designated by the Board of Directors or the Board of
Directors may decide to reduce the number of directors. The Board of Directors
unanimously recommends a vote "FOR" each of the nominees named below.

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NOMINEES FOR ELECTION

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Year First Became Director, Principal Occupations During
Name of Director Age Past Five Years and Certain Directorships
---------------- --- --------------------------------------------------------

<S> <C> <C>
Leonard S. Jacob, M.D., Ph.D. 51 Dr. Jacob has served as Chairman of the Board of Directors and Chief Executive
Officer of the Company since November 1997. Prior to joining the Company, Dr.
Jacob served as the President and Chief Executive Officer of Sangen
Pharmaceutical Company and as a consultant to various biotechnology companies
from June 1996. From 1989 to 1996, Dr. Jacob, as a co-founder of Magainin
Pharmaceuticals Inc., served as Chief Operating Officer. From 1980 to 1988, Dr.
Jacob was employed by SmithKline and French Laboratories where he served as
Worldwide Vice President and a member of SmithKline Beecham's Corporate
Management Committee. Dr. Jacob serves as a director of the Jacob Internet Fund
(a public mutual fund), Macromed Inc. (a private drug delivery company),
Carelift International (a non-profit medical relief organization) and Recording
for the Blind and Dyslexic (a non-profit service organization for the visual and
learning disabled).

J.R. LeShufy 77 Mr. LeShufy has served as a director of the Company since December 1995. Mr.
LeShufy served as the Vice President of Investor Relations of the Company from
September 1994 to November 1997. He currently serves as President and Chairman
of the Board of Trilenium Corporation, a technology company. In addition, Mr.
LeShufy currently serves on the board of directors of Teleservices International
Group.com. He has been an independent investor and a business consultant for
more than five years.
</TABLE>

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Year First Became Director, Principal Occupations During
Name of Director Age Past Five Years and Certain Directorships
---------------- --- --------------------------------------------------------
<S> <C> <C>

Steven B. Ratoff 58 Mr. Ratoff has been a director of the Company since February 1998. He has been
serving as Executive Vice President and Chief Financial Officer of Brown-Forman
Corporation, a diversified producer and manufacturer of fine quality consumer
products, since December 1994. From February 1992 to November 1994, Mr. Ratoff
was an investor in a number of small privately-held companies. He was Senior
Vice President and Chief Financial Officer of the Pharmaceutical Group of
Bristol-Myers Squibb from January 1990 to January 1992 and held various other
positions at Bristol-Myers Squibb from 1975. Mr. Ratoff currently serves as a
director of Cima Labs, Inc.

Thomas P. Stagnaro 57 Mr. Stagnaro has served as a director of the Company since November 1997. Mr.
Stagnaro has been serving as President and Chief Executive Officer of Levotech,
Inc. since September 2000. In addition, Mr. Stagnaro is a consultant to various
pharmaceutical and biotechnology companies including the Company and Rock Hill
Ventures, both since September 1998. He served as President and Chief Executive
Officer of 3-Dimensional Pharmaceuticals from May 1996 to August 1998, and
Executive Vice President of North American Biologicals Inc. ("NABI") from
November 1995 to May 1996. Mr. Stagnaro served as President and Chief Executive
Officer of Univax Biologics ("Univax") from October 1989 to November 1995 when
Univax merged into NABI.

Robert A. Vukovich, Ph.D. 57 Dr. Vukovich has served as a director of the Company since August 1998. Dr.
Vukovich has been serving as Chief Executive Officer, President and Chairman of
the Board of Wellspring Pharmaceutical Corp. since April 1999. In 1983, Dr.
Vukovich founded Roberts Pharmaceutical Corporation ("RPC") where he served as
President and Chief Executive Officer and Executive Chairman until December
1999. Prior thereto, he was the Director of the Division of Developmental
Therapeutics for Revlon HealthCare Group from 1979 to 1983. Dr. Vukovich
currently serves as a director of Biotransplant, Inc.

Jerry A. Weisbach, Ph.D. 66 Dr. Weisbach has served as a director of the Company since November 1997. Dr.
Weisbach has been a consultant to pharmaceutical and biotechnology companies
including the Company since July 1994. From 1988 to July 1994 he was Director of
Technology Transfer and adjunct professor at the Rockefeller University. Dr.
Weisbach served as Vice President of Warner Lambert Company from 1981 to 1987
and President of its Pharmaceutical Research Division from 1979 to 1987. He was
responsible for all pharmaceutical research and development activities of Warner
Lambert. Prior to joining Warner Lambert in 1979, Dr. Weisbach was employed at
SmithKline and French Laboratories where he was Vice President, Research. Dr.
Weisbach has served as a director of Neose Technologies Inc. (a biotechnology
company) since 1992.
</TABLE>

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General Information Concerning the Board of Directors and its Committees

The Board of Directors of the Company met on five occasions during
fiscal year 2000. The New York Business Corporation Law provides that the Board
of Directors, by resolution adopted by a majority of the entire Board of
Directors, may designate one or more committees, each of which shall consist of
one or more directors. The Board of Directors elects from its members an Audit
Committee, Compensation Committee, Executive Committee and Nominating Committee.
Each director attended at least 75% of the aggregate of the meetings of the
Board of Directors held during the period for which he was a director and the
meetings of the committee or committees on which he served during such period.

Audit Committee. The Audit Committee is responsible for providing
general oversight with respect to the accounting principles employed in the
Company's financial reporting. The Audit Committee meets at least annually with
the Company's principal financial and accounting officer and independent public
accountants to review the scope of auditing procedures, the Company's policies
relating to internal auditing and accounting procedures and controls, and to
discuss results of the annual audit of the Company's financial statements. The
Audit Committee met once during fiscal year 2000. The Audit Committee is
currently composed of three non-employee directors: Mr. LeShufy, Mr. Ratoff and
Mr. Stagnaro.

Compensation Committee. The Compensation Committee has general
supervisory power over, and the power to grant options under, the Company's
equity compensation plans. In addition, the Compensation Committee recommends to
the Board of Directors the compensation of the Company's Chief Executive
Officer, reviews and takes action on the recommendations of the Chief Executive
Officer as to the compensation of the Company's other officers and key
personnel, approves the grants of any bonuses to officers, and reviews other
compensation matters generally. The Compensation Committee met four times during
fiscal year 2000. The current members of the Compensation Committee are Mr.
LeShufy and Dr. Weisbach.

Executive Committee. The Executive Committee may exercise, with certain
exceptions, all of the authority of the Board of Directors in the management of
the business and affairs of the Company. The Executive Committee is intended to
serve in the event that action must be taken by the Board of Directors at a time
when convening a meeting of the entire Board of Directors is not feasible. The
Executive Committee met twice during fiscal year 2000. The current members of
the Executive Committee are Drs. Jacob and Weisbach and Mr. Stagnaro.

Nominating Committee. The Nominating Committee is authorized to
consider candidates for directors of the Company. The Nominating Committee met
once during fiscal year 2000. It is the policy of the Nominating Committee to
consider director nominees recommended by shareholders. Any such recommendation,
together with the nominee's qualifications and consent to being considered as a
nominee, should be sent in writing to the Nominating Committee in care of the
Secretary of the Company. The Nominating Committee is currently composed of Dr.
Jacob, Mr. Ratoff and Mr. Stagnaro.

<PAGE>

PROPOSAL NO. 2

PROPOSAL TO APPROVE AN AMENDMENT TO THE
INKINE PHARMACEUTICAL COMPANY INC. 1999 EQUITY COMPENSATION PLAN

Description of the Amendment

The Board of Directors has approved an amendment to the InKine
Pharmaceutical Company Inc. 1999 Equity Compensation Plan (the "Plan") subject
to shareholder approval. Specifically, the proposal is to increase the maximum
number of shares of Common Stock for which options and restricted stock awards
may be granted under the Plan from 1,000,000 shares to 2,500,000 shares (the
"Plan Amendment").

The Board of Directors approved the Plan Amendment in order to ensure
that the Company is able to continue to retain and attract existing and future
directors, officers and key employees through grants of stock options or
restricted stock awards. Pursuant to the current terms of the Plan, only
1,000,000 shares are authorized to be issued pursuant to options or restricted
stock awards under the Plan. Presently, the Company has issued or reserved for
issuance pursuant to options or restricted stock awards a total of 978,000
shares under the Plan. Approval of the Plan Amendment would permit the Company
to grant stock options or restricted stock awards for up to an additional
1,500,000 shares.

Recommendation of the Board of Directors

The Board of Directors recommends that the shareholders vote "FOR" the
approval of the amendment to the InKine Pharmaceutical Company Inc. 1999 Equity
Compensation Plan as described in this proxy statement.

Description of the 1999 Equity Compensation Plan

The 1999 Equity Compensation Plan provides for grants of stock options
and restricted stock to selected employees (including employees who are also
directors) of the Company or its subsidiaries, and non-employee directors of the
Company. Grants of stock options and restricted stock are referred to
collectively as "Grants."

General. Subject to adjustment in certain circumstances as discussed
below, the 1999 Equity Compensation Plan authorizes up to 1,000,000 shares of
Common Stock for issuance pursuant to the terms of the 1999 Equity Compensation
Plan. The Plan Amendment would increase this amount to 2,500,000 shares. The
maximum number of shares of Common Stock that may be issued or transferred as
restricted stock shall not exceed twenty-five percent (25%) of the maximum
number of shares of Common Stock authorized for issuance under the 1999 Equity
Compensation Plan. If and to the extent Grants under the 1999 Equity
Compensation Plan expire, or are canceled, forfeited, exchanged, surrendered, or
terminated for any reason without being exercised, or the shares subject to any
Grant are forfeited, the shares of Common Stock subject to such Grant again will
be available for grant under the 1999 Equity Compensation Plan.

Administration of the 1999 Equity Compensation Plan. The 1999 Equity
Compensation Plan is administered and interpreted by a committee (the
"Committee") of the Board of Directors consisting of not less than two persons
appointed by the Board of Directors from among its members, each of whom shall
be an "outside director" as defined by Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code") and may be a "non-employee" director as
defined in Rule 16b-3 under the Exchange Act. The Committee has the authority to
determine (i) the persons to whom Grants may be made under the 1999 Equity
Compensation Plan, (ii) the type, size and other terms and conditions of each
Grant, (iii) the time when the Grants will be made and the duration of any
applicable exercise or restriction period, including the criteria for vesting
and the acceleration of vesting, and (iv) the resolution of any other matters
arising under the 1999 Equity Compensation Plan. The Committee has full power
and authority to administer and interpret the 1999 Equity Compensation Plan, to
make factual determinations and to adopt or amend such rules, regulations,
agreements and instruments for implementing the 1999 Equity Compensation Plan
and for conduct of its business as it deems necessary or advisable, in its sole
discretion. The members of the Compensation Committee currently serve as this
Committee. See "Proposal No. 1 - Election of Directors - General Information
Concerning the Board of Directors and Committees." Notwithstanding the
foregoing, the Board of Directors may ratify or approve (and, in the case of
Grants to members of the Committee, shall approve) Grants, in which case
references to the "Committee" shall be deemed to include the Board of Directors.

<PAGE>

Grants. Grants under the 1999 Equity Compensation Plan may consist of
(i) options intended to qualify as incentive stock options ("ISOs") within the
meaning of Section 422 of the Code, (ii) nonqualified stock options that are not
intended to qualify ("NQSOs"), or (iii) restricted stock.

Eligibility for Participation. Grants may be made to any employees
(including officers and directors), and to non-employee directors of the
Company. As of the date hereof, all employees (approximately 18 persons) and all
directors (including 5 non-employee directors) were eligible for Grants under
the 1999 Equity Compensation Plan. During any calendar year, no participant may
receive Grants under the 1999 Equity Compensation Plan for more than 250,000
shares of Common Stock.

Options. The exercise price of any ISO or NQSO granted under the 1999
Equity Compensation Plan will not be less than the fair market value of the
underlying shares of Common Stock on the date of grant, except that the exercise
price of an ISO granted to an employee who owns more than 10% of the total
combined voting power of all classes of the stock of the Company or its
subsidiaries may not be less than 110% of the fair market value of the
underlying shares of Common Stock on the date of grant. In no event will the
exercise price of a previously granted option be decreased to an amount below
the fair market value of the option as of the date on which such option was
granted. Nor will any option be exchanged or substituted for an option at an
exercise price that is below fair market value of the exchanged or substituted
option as of the date on which the exchanged or substituted option was granted.
The Committee will determine the term of each option; provided, however, that
the exercise period may not exceed ten years from the date of grant, and the
exercise period of an ISO granted to an employee who owns more than 10% of the
total voting power of all outstanding stock of the Company or its subsidiaries
may not exceed five years from the date of grant. A participant may pay the
exercise price (i) in cash, (ii) with the approval of the Committee, by
delivering shares of Common Stock owned by the participant and having a fair
market value on the date of exercise equal to the exercise price or (iii) by any
other method approved by the Committee. The Committee may permit a participant
to instruct the Company to deliver the shares of Common Stock due upon the
exercise to a designated broker instead of to the participant.

Restricted Stock. The Committee may issue restricted shares of Common
Stock to participants pursuant to the 1999 Equity Compensation Plan. Shares may
be issued for cash consideration or for no cash consideration, as the Committee
determines. The number of shares of Common Stock granted to each participant
shall be determined by the Committee, subject to the maximum limit described
above. Grants of restricted stock will be made subject to such performance
requirements, vesting provisions, transfer restrictions or other restrictions
and conditions as the Committee may determine.

Section 162(m). Under Section 162(m) of the Code, the Company may be
precluded from claiming a federal income tax deduction for total remuneration in
excess of $1,000,000 paid to the chief executive officer or to any of the other
four most highly compensated officers in any one year. Total remuneration
includes amounts received upon the exercise of stock options granted under the
1999 Equity Compensation Plan and the value of shares received when the shares
of restricted stock became transferable (or such other time when income is
recognized). An exception exists, however, for "qualified performance-based
compensation." The 1999 Equity Compensation Plan is intended to allow Grants to
meet the requirements of "qualified performance-based compensation."

Stock options should generally meet the requirements of "qualified
performance-based compensation" if the exercise price is at least equal to the
fair market value of the Common Stock on the date of grant. The Committee may
grant restricted stock that is intended to be "qualified performance-based
compensation" under Section 162(m) of the Code. In that event, the Committee
shall establish in writing the objective performance goals that must be met and
other conditions of the award before the beginning of the performance period or
during a period permitted by Section 162(m) of the Code. The performance goals
may relate to the employee's business unit or the performance of the Company and
its subsidiaries as a whole, or any combination of the two. The Committee shall
use objectively determinable performance goals based on one or more of the
following criteria: stock price, earnings per share, net earnings, operating
earnings, return on assets, shareholder return, return on equity, growth in
assets, unit volume, sales, market share, or strategic business criteria
consisting of one or more objectives based on meeting specified revenue goals,
market penetration goals, geographic business expansion goals, cost targets,
goals relating to acquisitions or divestitures, or goals relating to product
development objectives. The Committee shall not have discretion to increase the
amount of compensation that is payable upon achievement of performance goals.

7
<PAGE>

Transferability. Grants are generally not transferable by the
participant, except in the event of death. However, the Committee may grant
NQSOs that allow the participant to transfer the NQSOs to, or for the benefit
of, family members on such terms, as the Committee deems appropriate.

Amendment and Termination of the 1999 Equity Compensation Plan. The
Board of Directors may amend or terminate the 1999 Equity Compensation Plan at
any time; provided, however, that the Board of Directors may not, without
shareholder approval, make any amendment that requires shareholder approval
pursuant to Section 422 or Section 162(m) of the Code. The 1999 Equity
Compensation Plan will terminate on the date immediately preceding the tenth
anniversary of its effective date, unless terminated earlier by the Board of
Directors or extended by the Board of Directors with approval of the
shareholders.

Adjustment Provisions. In the event of certain corporate transactions
identified in the 1999 Equity Compensation Plan, the Committee may appropriately
adjust: (i) the maximum number of shares of Common Stock available for Grants
and the individual share limits, (ii) the number of shares covered by
outstanding Grants, (iii) the kind of shares issued under the 1999 Equity
Compensation Plan and (iv) the price per share or market value of Grants, and
such adjustments shall be effective and binding for all purposes of the 1999
Equity Compensation Plan.

Change of Control of the Company. In the event of a change of control,
unless the Committee determines otherwise, all options and restricted stock will
become fully vested.

A change of control shall occur if: (i) any "person" (as such term is
used in Sections 13 (d) and 14 (d) of the Securities Exchange Act of 1934 (the
"Exchange Act")) is or becomes a "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 40% or more of the voting power of the then outstanding securities
of the Company; (ii) during any period of two consecutive calendar years there
is a change of 33 1/3% or more in the composition of the Board of the Company in
office at the beginning of the period except for changes approved by at least
one-half of the directors then in office who were directors at the beginning of
the period; (iii) the shareholders of the Company approve an agreement providing
for (A) the merger or consolidation of the Company with another corporation
where the shareholders of the Company, immediately prior to the merger or
consolidation, will not beneficially own, immediately after the merger or
consolidation, shares entitling such shareholders to 50% or more of all votes
(without consideration of the rights of any class of stock to elect directors by
a separate class vote) to which all shareholders of the corporation issuing cash
or securities in the merger or consolidation would be entitled in the election
of directors, or where the members of the Board, immediately prior to the merger
or consolidation, would not, immediately after the merger or consolidation,
constitute a majority of the board of directors of the corporation issuing cash
or securities in the merger or consolidation, or (B) the sale or other
disposition of all or substantially all the assets of the Company, or a
liquidation, dissolution or statutory exchange of the Company; or (iv) any
person has commenced, or announced an intention to commence, a tender offer or
exchange offer for 40% or more of the voting power of the then outstanding
securities of the Company.

Federal Income Tax Consequences. The current federal income tax
treatment of Grants under the 1999 Equity Compensation Plan is generally
described below. Local and state tax authorities may also tax incentive
compensation awarded under the 1999 Equity Compensation Plan, and tax laws are
subject to change. Participants are urged to consult with their personal tax
advisors concerning the application of the general principles discussed below to
their own situations and the application of state and local tax laws.

8
<PAGE>

A participant who is granted an ISO will not recognize taxable income
for purposes of the regular income tax, upon either the grant or exercise of the
ISO. However, for purposes of the alternative minimum tax imposed under the
Code, in the year in which an ISO is exercised, the amount by which the fair
market value of the shares acquired upon exercise exceeds the exercise price
will be treated as an item of adjustment and included in the computation of the
recipient's alternative minimum taxable income in the year of exercise. A
participant who disposes of the shares acquired upon exercise of an ISO after
two years from the date the ISO was granted and after one year from the date
such shares were transferred to him or her upon exercise of the ISO will
recognize capital gain or loss in the amount of the difference between the
amount realized on the sale and the exercise price (or the participant's other
tax basis in the shares) and the Company will not be entitled to any tax
deduction by reason of the grant or exercise of the ISO. As a general rule, if a
participant disposes of the shares acquired upon exercise of an ISO before
satisfying both holding period requirements (a "disqualifying disposition"), his
or her gain recognized on such a disposition will be taxed as ordinary income to
the extent of the difference between the fair market value of such shares on the
date of exercise and the exercise price and the Company will be entitled to a
deduction in that amount. However, the amount of ordinary income cannot be more
than the total amount of gain realized on the sale (amount received on the
disqualifying disposition less the exercise price). A participant will have a
capital gain or loss in an amount equal to the difference between the amount
realized upon the sale and the participant's adjusted tax basis in the shares
(the exercise price plus the amount of ordinary income recognized by the
participant).

There are no federal income tax consequences to a participant or to the
Company upon the grant of an NQSO under the 1999 Equity Compensation Plan. Upon
the exercise of an NQSO, a participant will recognize ordinary compensation
income in an amount equal to the excess of the fair market value of the shares
at the time of exercise over the exercise price of the NQSO, and the Company
generally will be entitled to a corresponding federal income tax deduction. Upon
the sale of shares acquired by the exercise of an NQSO, a participant will have
a capital gain or loss in an amount equal to the difference between the amount
realized upon the sale and the participant's adjusted tax basis in the shares
(the exercise price plus the amount of ordinary income recognized by the
participant at the time of exercise of the NQSO).

Pursuant to Section 83 of the Code and the regulations promulgated
thereunder, a participant normally will not recognize taxable income upon
receiving restricted stock, and the Company will not be entitled to a deduction,
until such stock is transferable by the participant or no longer subject to a
substantial risk of forfeiture for federal tax purposes, which ever occurs
earlier. When the stock is either transferable or is no longer subject to a
substantial risk of forfeiture, the participant will recognize ordinary
compensation income in an amount equal to the fair market value of the shares
(less any amounts paid for such shares) at that time, and the Company will be
entitled to a deduction in the same amount. A participant may, however, elect to
recognize ordinary compensation income in the year the restricted stock is
awarded in an amount equal to the fair market value of the shares subject to the
restricted stock Grant (less any amounts paid for such shares) at that time,
determined without regard to the restrictions. In such event, the Company
generally will be entitled to a corresponding deduction in the same year. A
participant will have a capital gain or loss upon subsequent disposition of the
shares in an amount equal to the difference between the amount realized upon the
sale and the participant's adjusted tax basis in the shares (the amount paid for
the restricted stock, if any, plus the amount of ordinary income recognized by
the participant). A participant who elects to recognize ordinary compensation
income in the year the restricted stock is granted will not be entitled to a
corresponding tax deduction if such shares are subsequently forfeited (except
with respect to any amounts paid for such shares).

The rate at which a participant's capital gain will be taxed generally
depends on how long the stock is held by the participant.

The Company's income tax deduction in any of the foregoing cases may be
limited by the $1,000,000 limit of Section 162(m) of the Code if the Grant does
not qualify as "qualified performance-based compensation" under Section 162 (m)
above.

<PAGE>

Tax Withholding. The Company has the right to deduct from all Grants
paid in cash or from other wages paid to an employee of the Company, any
federal, state or local taxes required by law to be withheld with respect to
Grants, and the participant or other person receiving shares under the 1999
Equity Compensation Plan will be required to pay to the Company the amount of
any such taxes which the Company is required to withhold with respect to such
shares. If the Committee so permits, a participant may elect to satisfy the
Company's income tax withholding obligation by withholding shares received from
the exercise of a stock option or a restricted stock Grant.

Plan Benefits. Because Grants will be made from time to time by the
Committee to those persons whom the Committee determines in its discretion
should receive Grants, the benefits and amounts that may be received in the
future by persons eligible to participate in the 1999 Equity Compensation Plan
are not presently determinable. As of September 12, 2000, the last reported
sales price of the Company's Common Stock as reported on the NASDAQ SmallCap
Market was $8.063.

PROPOSAL NO. 3

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

Description of Proposal

The Board of Directors has selected KPMG LLP ("KPMG") as the Company's
independent auditors for the transition period ending December 31, 2000 and the
fiscal year ending December 31, 2001, and has further directed that management
of the Company submit the selection of independent auditors for ratification by
the shareholders at the Annual Meeting. KPMG has audited the Company's financial
statements since 1998. Representatives of KPMG are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.

Shareholder ratification of the selection of KPMG as the Company's
independent auditors is not required by the Company's By-laws or otherwise. The
Board is submitting the selection of KPMG to the shareholders for ratification,
however, as a matter of good corporate practice. If the shareholders fail to
ratify the selection, the Audit Committee and the Board of Directors will
reconsider whether or not to retain KPMG. Even if the selection is ratified, the
Audit Committee and the Board, in their discretion, may direct the appointment
of different independent auditors at any time if they determine that such a
change would be in the best interests of the Company and its shareholders.

Recommendation of the Board of Directors

The Board of Directors unanimously recommends a vote "FOR" ratification
of the selection of KPMG as the Company's independent auditors for the
transition period ending December 31, 2000 and the fiscal year ending December
31, 2001.

<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of September 12,
2000 regarding the ownership of Common Stock (i) by each person known by the
Company to be the beneficial owner of more than five percent of the outstanding
Common Stock, (ii) by each director of the Company, (iii) by each executive
officer of the Company named in the Summary Compensation Table, included
elsewhere in this proxy statement, and (iv) by all current executive officers
and directors of the Company as a group.

Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership(1) of Class (2)
---------------- ----------------------- ------------
<S> <C> <C> <C>
Leonard S. Jacob, M.D., Ph.D. (3) 2,216,223(4) 6.25%
Robert F. Apple 183,250(5) *
James L. Bergey, Ph.D. --- ---
Martin Rose, M.D., J.D. 400,000(6) 1.19%
J. R. LeShufy 58,500(7) *
Steven B. Ratoff 268,500(8) *
Thomas P. Stagnaro 60,500(7) *
Robert A. Vukovich, Ph.D. 73,500(8) *
Jerry A. Weisbach, Ph.D. 153,834(9) *
All current executive officers and directors as a group 3,414,307 9.36%
(9 persons)
</TABLE>

--------------------------------------
* Less than one percent.
(1) The number of shares indicated includes (i) shares issuable upon the
exercise of outstanding stock options and warrants held by each individual
or group to the extent such options and warrants are exercisable within
sixty days of September 12, 2000 and (ii) shares of restricted stock which
vest within sixty days of September 12, 2000.
(2) The percentage for each individual or group is based on the aggregate of
the shares outstanding as of September 12, 2000 (33,293,027 shares) and all
shares which the listed beneficial owner has the right to acquire within
sixty days of September 12, 2000, from the exercise of options and warrants
and the vesting of restricted stock.
(3) The address for this shareholder is Sentry Park East, 1720 Walton Road,
Blue Bell, PA 19422.
(4) Includes 32,500 shares of restricted stock and 2,118,023 shares of Common
Stock issuable upon exercise of options. Of these shares issuable upon
exercise of options, 2,056,773 shares were originally subject to the
Company's right to repurchase at a nominal price, which right expires
ratably over a 36-month period that commenced on November 9, 1997. As of
September 12, 2000, 114,265 shares were subject to that right. In addition,
includes 27,250 shares of Common Stock issuable upon the exercise of
options granted to Dr. Jacob's spouse, with respect to which Dr. Jacob
disclaims beneficial ownership.
(5) Includes 24,000 shares of restricted stock and 155,750 shares of Common
Stock issuable upon exercise of options.
(6) Consists entirely of shares of Common Stock issuable upon exercise of
options
(7) Includes 12,500 shares of restricted stock and 46,000 shares of Common
Stock issuable upon exercise of options.
(8) Includes 12,500 shares of restricted stock and 56,000 shares of Common
Stock issuable upon exercise of options.
(9) Includes 12,500 shares of restricted stock and 141,334 shares of Common
Stock issuable upon exercise of options.

<PAGE>

EXECUTIVE OFFICERS OF THE COMPANY

The current executive officers of the Company are as follows:

Name Age Position
---- --- --------

<S> <C> <C>
Leonard S. Jacob, M.D., Ph.D. 51 Chairman of the Board and Chief Executive Officer

Robert F. Apple 34 Senior Vice President and Chief Financial
Officer

James L. Bergey, Ph.D. 55 Senior Vice President, Business Development

Martin Rose, M.D., J.D. 53 Senior Vice President, Clinical Research and
Regulatory Affairs
</TABLE>

Leonard S. Jacob, M.D., Ph.D. See "Election of Directors."

Robert F. Apple has served as Senior Vice President and Chief Financial
Officer of the Company since November 1998. From December 1997 to October 1998,
Mr. Apple served as Vice President of Finance and Administration of the Company.
Prior to joining the Company, Mr. Apple was employed by Magainin
Pharmaceuticals, Inc. from July 1995 where he held the position of Corporate
Controller and was responsible for managing financial and administrative
functions. From May 1994 until July 1995, Mr. Apple was employed by Liberty
Technologies, Inc. (a technology company) as Corporate Controller. From August
1988 until May 1994, Mr. Apple was employed by Arthur Andersen and Company LLP
where he held various positions of increasing responsibility.

James L. Bergey, Ph.D. has served as Senior Vice President, Business
Development, of the Company since June 2000. Prior to joining the Company, Dr.
Bergey was employed by Bristol-Myers Squibb from November 1982, where he held
various executive licensing positions. Dr. Bergey's most recent position at
Bristol-Myers Squibb was Vice President, Commercial Development for Japan. Prior
to that, Dr. Bergey held various senior research positions at Squibb Institute
for Medical Research, Ciba-Geigy Corporation and Wyeth Laboratories.

Martin Rose, M.D., J.D. has served as Senior Vice President, Clinical
Research and Regulatory Affairs, of the Company since March 1999. Prior to
joining the Company, Dr. Rose was employed by Sparta Pharmaceuticals Inc. from
September 1997 where he held the position of Vice President of Clinical Research
and Regulatory Affairs. From November 1994 until September 1997, Dr. Rose was
employed by BRI International (a pharmaceutical consulting firm) as Senior
Consultant. Prior to that, Dr. Rose also held various positions at Alpha I
Biomedicals Inc., Genetech Inc. and The United States Food and Drug
Administration.

Officers are elected or appointed by the Board of Directors to serve
until the appointment or election and qualification of their successors or their
earlier termination or resignation.

<PAGE>

COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

Summary of Compensation

The following table sets forth for the fiscal years ended June 30,
2000, 1999 and 1998 a summary of all compensation paid by the Company to its
Chief Executive Officer and the other executive officers of the Company whose
cash compensation exceeded $100,000 for the fiscal year ended June 30, 2000.

<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
-------------------------------------------------- --------------------------
Name and Other Annual Stock Option Restricted All Other
Principal Position Fiscal Year Salary Bonus Compensation(1) Grants Stock Awards Compensation(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Leonard S. Jacob, M.D., Ph.D. 2000 $ 285,000 $ 80,000 $ 35,600(3) 210,000 $ 315,670(4) $ 3,200
Chairman and Chief 1999 260,333 75,000 32,800(3) 135,000 --- 3,200
Executive Officer 1998 150,000(5) --- --- 2,356,773 --- 1,695

Robert F. Apple 2000 161,667 48,000 8,400 98,000 185,024(6) 3,200
Senior Vice President, 1999 144,709 25,000 5,950 150,000 --- 2,890
Chief Financial Officer 1998 72,917(7) 12,500 --- 50,000 --- 843

James L. Bergey, Ph.D. 2000 14,583(8) --- --- 100,000 --- 142
Senior Vice President, 1999 --- --- --- --- --- ---
Business Development 1998 --- --- --- --- --- ---

Martin Rose, M.D., J.D. 2000 215,000 13,000 13,007(9) 20,000 15,315(10) 3,200
Senior Vice President, Clinical 1999 72,667(11) 35,000(12) --- 400,000 --- 933
Research & Regulatory Affairs 1998 --- --- --- --- --- ---
</TABLE>

----------------------------
(1) The amounts listed in this column represent car allowances provided by the
Company to the named executive officers unless otherwise noted.
(2) The amounts listed in this column represent contributions by the Company to
the named executive officers' accounts established under the Company's
401(k) plan.
(3) This amount includes a $26,000 contribution to unreimbursed medical health
plan.
(4) During fiscal year 2000, the Company granted Dr. Jacob 90,000 shares of
restricted stock. With respect to these shares, 25,000 shares will vest
upon the achievement of certain performance based goals, while the other
shares will vest over time as follows: 7,500 shares on October 13, 2000,
25,000 shares on January 13, 2001, 7,500 shares on October 13, 2001, and
the remaining 25,000 shares on January 13, 2002. Dr. Jacob does not have
the right to receive dividends upon these shares of restricted stock until
such shares have vested. At June 30, 2000, Dr. Jacob's restricted stock
holdings had an aggregate value of $438,750.
(5) Dr. Jacob became employed by the Company in November 1997.
(6) During fiscal year 2000, the Company granted Mr. Apple 48,000 shares of
restricted stock. With respect to these shares, 20,000 shares will vest
upon the achievement of certain performance based goals, while the other
shares will vest over time as follows: 4,000 shares on October 13, 2000,
10,000 shares on January 13, 2001, 4,000 shares on October 13, 2001, and
the remaining 10,000 shares on January 13, 2002. Mr. Apple does not have
the right to receive dividends upon these shares of restricted stock until
such shares have vested. At June 30, 2000, Mr. Apple's restricted stock
holdings had an aggregate value of $234,000.
(7) Mr. Apple became employed by the Company in December 1997.
(8) Dr. Bergey became employed by the Company in June 2000.
(9) Entire amount represents reimbursement payments for apartment and commuting
expenses.
(10) During fiscal year 2000, the Company granted Dr. Rose 5,000 shares of
restricted stock. With respect to these shares, 2,500 shares will vest on
January 13, 2001, and 2,500 shares on January 13, 2002. Dr. Rose does not
have the right to receive dividends upon these shares of restricted stock
until such shares have vested. At June 30, 2000, Dr. Rose's restricted
stock holding had an aggregate value of $24,375.
(11) Dr. Rose became employed by the Company in March 1999.
(12) Represents a signing bonus paid upon joining the Company.

13
<PAGE>

Stock Option Grants

The following table summarizes stock options granted during the fiscal
year ended June 30, 2000 to the persons named in the Summary Compensation Table.

Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Potential Realizable Value
Individual Grants (1) At Assumed Rates of Stock
--------------------- Price Appreciation For
Option Term(2)
-------------------------------------------------------------------------------------
Percent of
Total
Options
Number of Granted
Securities to Employees Exercise
Name Underlying in Price
---- Options Fiscal Year Per Share Expiration
Granted 2000 $/Sh Date 5% 10%
------------------------------- -------------- --------------- ------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leonard S. Jacob, M.D., Ph.D. . 15,000 2% 1.563 10/14/09 14,744 37,365
150,000 19% 3.063 01/14/10 288,946 732,245
45,000 6% 5.563 05/03/10 157,434 398,970
------------------------------- -------------- --------------- ------------- ----------- -------------- -------------
Robert F. Apple ............... 8,000 1% 1.563 10/14/09 7,864 19,928
55,000 6% 3.063 01/14/10 105,947 268,490
35,000 4% 5.563 05/03/10 122,449 310,310
------------------------------- -------------- --------------- ------------- ----------- -------------- -------------
James L. Bergey, Ph.D. ........ 100,000 13% 5.125 06/01/10 322,308 816,793
------------------------------- -------------- --------------- ------------- ----------- -------------- -------------
Martin Rose, M.D., J.D. ....... 20,000 3% 3.063 01/14/10 38,526 97,633
---------------------------------------------------------------------------------------------------------------------
</TABLE>

------------------------------
(1) Options are incentive stock options, performance based stock options
and non-qualified stock options to acquire shares of Common Stock with
a stated term of ten years, vesting immediately, monthly, in four
annual installments beginning after the date of grant, or based on
achievement of certain performance milestones. If a "change in control"
(as defined in the Stock Option Plan) were to occur, these options
would become immediately exercisable in full.

(2) Potential Realizable Values are based on an assumption that the stock
price of the Common Stock starts equal to the exercise price shown for
each particular option grant and appreciates at the annual rate shown
(compounded annually) from the date of grant until the end of the term
of the option. These amounts are reported net of the option exercise
price, but before any taxes associated with exercise or subsequent sale
of the underlying stock. The actual value, if any, an optionholder may
realize will be a function of the extent to which the stock price
exceeds the exercise price on the date the option is exercised and also
will depend on the optionholder's continued employment through the
vesting period. The actual value to be realized by the optionholder may
be greater or less than the values estimated in this table.

14
<PAGE>

The following table summarizes option exercises during the fiscal year
ended June 30, 2000 and the value of vested and unvested options for the persons
named in the Summary Compensation Table at June 30, 2000. Year-end values are
based upon a price of $4.875 per share, which was the closing sales price of a
share of the Company's Common Stock on June 30, 2000.

Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values

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

Number of Unexercised Value of Unexercised
Options In-the-Money Options at
Shares at June 30, 2000 June 30, 2000
Name Acquired ------------------------------------------------------------
on Value
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------------------------------- ---------- ---------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Leonard S. Jacob, M.D., Ph.D. .. - - 2,469,273(1) 247,500 $9,996,120 $ 452,730
----------------------------------- ---------- ---------- -------------- -------------- --------------- --------------
Robert F. Apple ................ - - 100,000 198,000 $ 366,789 $ 507,772
----------------------------------- ---------- ---------- -------------- -------------- --------------- --------------
James L. Bergey, Ph..D.......... - - - 100,000 - -
----------------------------------- ---------- ---------- -------------- -------------- --------------- --------------
Martin Rose, M.D., J.D.......... - - - 420,000 - $1,386,240
----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) 2,056,773 of the underlying shares originally were subject to the
Company's right to repurchase at a nominal price, which right expires
ratably over a 36-month period that commenced on November 7, 1997. As
of June 30, 2000, 285,663 shares were subject to this right.

The Company also grants restricted stock as long-term incentives, along
with stock options, to its executives or other employees. The Company does not
sponsor any defined benefit or actuarial plans at this time.

Employment Agreements

In November 1999, the Company entered into an amended three-year
employment agreement with Dr. Jacob, Chairman and Chief Executive Officer of the
Company. The term of Dr. Jacob's employment agreement was extended by the Board
until November 2002. Under the agreement, Dr. Jacob is entitled to a base annual
salary of $290,000, which may be increased at the discretion of the Board of
Directors. In addition, Dr. Jacob is eligible for an annual bonus as the Board
or the Compensation Committee may determine. The agreement provides that Dr.
Jacob will be entitled to other customary fringe benefits generally available to
executive employees of the Company. The agreement also provides that Dr. Jacob
will receive severance benefits in the event the Company terminates his
employment other than for cause. In the event of such termination, the Company
will pay him an amount equal to 200% of his base annual salary. In addition, all
of Dr. Jacob's stock options become immediately exercisable upon his termination
if it is other than for cause.

In November 1998, the Company entered into a one-year automatically
renewable employment agreement with Mr. Apple, Senior Vice President and Chief
Financial Officer of the Company. Under the agreement, Mr. Apple is entitled to
a base annual salary of $167,500, which may be increased at the discretion of
the Board of Directors. In addition, Mr. Apple is eligible for an annual bonus
as the Board or the Compensation Committee may determine. The agreement provides
that Mr. Apple will be entitled to other customary fringe benefits generally
available to executive employees of the Company. This agreement also provides
that Mr. Apple will receive severance benefits in the event the Company
terminates his employment, other than for cause. If such termination occurs, the
Company will pay him an amount equal to 100% of his base salary. In addition,
all of Mr. Apple's stock options become immediately exercisable upon his
termination if it is other than for cause.

15
<PAGE>

On November 3, 1999, Dr. Taffy Williams resigned as President, Chief
Operating Officer and a Director of the Company. In connection with such
resignation, Dr. Williams and the Company entered into a severance agreement
pursuant to which the Company agreed to pay Dr. Williams an aggregate of
$276,397 in satisfaction of obligations due to Dr. Williams pursuant to his
employment agreement, and as consideration for Dr. Williams' agreement to be
bound by certain covenants and waivers. In addition, all of Dr. Williams'
outstanding options were amended so that each such option became immediately
exercisable, but expired on June 30, 2003.

Compensation of Directors

All non-employee directors receive a fee of $2,000 per Board of
Director's meeting for their services to the Company as directors, and are
reimbursed for expenses incurred in connection with attending these meetings.

Each non-employee director receives options to purchase 37,500 shares
of Common Stock upon first becoming a member of the Board of Directors. In
addition, on the date of each annual meeting of shareholders, each non-employee
director reelected at such annual meeting receives options to purchase 10,000
shares of Common Stock. In addition, non-employee directors electing not to take
the cash compensation would instead receive options to purchase additional
shares of Common Stock

In January 2000, Dr. Weisbach entered into a Consulting Agreement with
the Company to provide business development and strategic planning services. The
agreement provides for Dr. Weisbach to receive a quarterly fee of $6,250. The
term of this Agreement is for one year, renewable upon mutual agreement of both
parties.

In August 1999, Mr. Stagnaro entered into a Consulting Agreement with
the Company to provide business development services. The agreement provides for
Mr. Stagnaro to receive hourly fees for services. The term of this Agreement is
for one year, renewable upon mutual agreement of both parties. In August 2000,
the Company renewed this agreement for a one-year term. The Company paid Mr.
Stagnaro $6,000 under this agreement in fiscal year 2000.

<PAGE>

The following Compensation Committee Report and the Comparative Stock
Performance Graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under
the Securities Act of 1933, as amended, or under the Securities Exchange Act of
1934, as amended, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.

COMPENSATION COMMITTEE REPORT

Compensation Philosophy

The Compensation Committee of the Board of Directors (the "Compensation
Committee") believes that a well designed compensation program should align the
goals of the executives of the Company with the goals of the shareholders, and
that a significant portion of the executives' compensation, over the long term,
should be dependent upon the value created for the shareholders. However, the
Compensation Committee recognizes that, in the short-term, the value of the
Company will be affected by many factors, some transient in nature and beyond
the control of the Company's executives. This is especially true in the
biotechnology industry which is characterized by a large number of small
companies, long product lead times, highly volatile stock prices and few
commercial products. In order to attract and retain qualified executives in such
an environment, the Compensation Committee attempts to create a balanced
compensation package by combining components based upon the achievement of
long-term value for shareholders with components based upon the achievement of
shorter-term strategic goals. These goals generally include the progress of
clinical programs, adherence to budgets, strengthening of the Company's
financial position and success in entering into appropriate business
collaborations. The Compensation Committee expects that the achievement of these
shorter-term goals will contribute to the long-term success of the Company. In
light of the Company's need to develop its technology into viable products,
progress toward achievement of research and development objectives is the most
significant individual factor considered in determining compensation levels.

The Company competes against both biotechnology companies and
pharmaceutical companies in the hiring and retention of qualified personnel.
Particularly as compared to the pharmaceutical industry, the cash compensation
of the Company's executives is below those levels available to executives of
similar background and experience. Likewise, the Company does not offer the type
of retirement benefits often available at such other entities. The Company must
therefore place greater emphasis on long-term compensation, principally
including the grant of stock options.

The Company's compensation program for executive officers comprises
base salary, performance bonuses, longer-term incentive compensation in the form
of stock options and restricted stock, and benefits available generally to all
of the Company's employees. The process utilized by the Committee in determining
executive officer compensation levels for each of these components is based on
the Committee's subjective judgment, and the other factors noted herein.

Compensation Components

Base Salary. Base salary levels for the Company's executive officers
are reviewed on an annual basis by the Compensation Committee. In conducting
this review, the Compensation Committee considers the various items noted above,
including competitive factors and industry trends, as well as performance within
the Company, and changes in job responsibility. The Committee also reviews
certain compensation information publicly available and gathered informally, and
considers salary history at the Company. In fiscal year 2000 Dr. Jacob's base
salary was increased by 5% to $290,000 from $275,000. Certain other executive
officers received increases in base salary of up to 12%, in recognition of
promotions and increases in job responsibility.

Performance Bonus Compensation. The Compensation Committee annually
considers awards of cash bonuses to executives in order to provide a direct
financial incentive to achieve Company and individual objectives, generally
related to the goals described above. Specific objectives are determined yearly
as part of the Company's annual operating plan and budget. The granting of any
such bonus is totally discretionary and is determined based upon the
Compensation Committee's evaluation of each executive's performance in attaining
such corporate and individual goals and objectives.

17
<PAGE>

In determining to award cash bonuses to the Company's executive
officers in fiscal year 2000, the compensation committee noted the Company's
achievement of several objectives and milestones including:

1. Submission of an New Drug Application for Visicol(TM);
2. Stock price appreciation greater than 200%;
3. The advancement of CBP-1011 in Phase II trials for inflammatory
bowel disease; and
4. The increase of company visibility and maintenance of a strong
financial position.

Dr. Jacob was awarded a cash bonus of $80,000 in fiscal year 2000
reflecting the successful achievement of the above milestones.

Stock Option Grants. The Stock Option Plan is the Company's long-term
equity incentive plan for executive officers and other selected employees. The
objective of the plan is to align the long-term financial interests of the
option holder with the financial interests of the Company's shareholders. Stock
option exercise prices are set at prevailing market price at the time of grant,
and stock options will only have value if the Company's stock price increases.
The Company, as with all development-stage biopharmaceutical companies, relies
heavily upon its long-term equity incentive plan. Without such incentives, it
would not be possible to attract and retain qualified managers or other
employees. The Compensation Committee generally considers additional stock
option grants on an annual basis as a means to continue to incentivise the
Company's senior managers to work toward increasing shareholder value, however,
the granting of any such options is totally discretionary.

Options to purchase an aggregate of 428,000 shares of the Company's
Common Stock were awarded in fiscal year 2000 to the Company's executive
officers, including grants of 210,000 shares to Dr. Jacob. Of these options,
45,000 vest pursuant to certain performance based milestones while the balance
of the grant vest equally over four (4) years. The exercise price of the options
was the fair market value of the Company's Common Stock on the date of grant. In
awarding such options to Dr. Jacob, the Compensation Committee considered the
various factors noted above, as well as the fact that the majority of Dr.
Jacob's existing options are vested, and that additional awards will serve the
purpose of continuing to incentivise Dr. Jacob to build value within the Company
over an extended period. In determining the amount of the annual option award,
in order to assess competitive factors, the Committee also analyzes data
relating to option grants being awarded to executives of other biopharmaceutical
companies.

Restricted Stock Awards. Similar to the Company's stock option program,
restricted Common Stock is awarded to executives in order to align the long-term
financial interests of the Company's executives with the financial interests of
its shareholders. In fiscal year 2000, 153,000 shares of restricted Common Stock
were awarded to certain employees and officers of the Company. Dr. Jacob
received 90,000 of these shares, 25,000 of which vest pursuant to the attainment
of certain performance based milestones with the balance of the grants vesting
over time.

Payments during fiscal year 2000 to the Company's executives under the
various programs discussed above were made with regard to the provisions of
Section 162(m) of the Code which became effective on January 1, 1994. Section
162(m) limits the deduction that may be claimed by a "public company" for
compensation paid to certain individuals to $1 million, except to the extent
that any excess compensation is "performance-based compensation." In accordance
with current regulations, the Company believes the amounts received upon the
exercise of stock options under the Stock Option Plan will qualify as
"performance-based compensation."

COMPENSATION COMMITTEE
J. R. LeShufy
Jerry A. Weisbach, Ph.D.
August 7, 2000

18
<PAGE>

COMPARATIVE STOCK PERFORMANCE GRAPH

The graph below compares the cumulative total shareholder return on the
Company's Common Stock for the five year period beginning on June 30, 1995
through June 30, 2000 with the cumulative total shareholder return of (i) the
Nasdaq Stock Market (U.S.) Index (the "Nasdaq Index"), and (ii) the Index of
Nasdaq Pharmaceutical Stocks (the "Pharmaceutical Index") for the same period.
The comparison assumes an investment of $100 on June 30, 1995 in each of the
Common Stock of the Company, the stocks comprising the Nasdaq Index and the
stocks comprising the Pharmaceutical Index and further assumes reinvestment of
dividends.

[GRAPHIC OMITTED]

<TABLE>
<CAPTION>
Cumulative Total Return
--------------------------------------------------------------
6/95 6/96 6/97 6/98 6/99 6/00

<S> <C> <C> <C> <C> <C> <C>
INKINE PHARMACEUTICAL COMPANY, INC. 100.00 62.50 117.86 73.21 92.86 278.57

NASDAQ STOCK MARKET (U.S.) 100.00 128.39 156.14 205.58 296.03 437.27

NASDAQ PHARMACEUTICAL 100.00 147.23 149.81 153.44 214.02 480.75
</TABLE>

<PAGE>

INFORMATION CONCERNING INDEPENDENT ACCOUNTANTS

KPMG LLP has served as the Company's independent accountants since
February 1998. The Company has requested that a representative of KPMG LLP
attend the Annual Meeting. Such representative will have an opportunity to make
a statement, if he or she desires, and will be available to respond to
appropriate questions of shareholders.

OTHER MATTERS

The Board of Directors is not aware of any matters not set forth herein
that may come before the meeting. If, however, further business properly comes
before the meeting, the persons named in the proxies will vote the shares
represented thereby in accordance with their judgment.

SECTION 16(a) REPORTS

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Such persons are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on its review of the copies of such reports received by the
Company, the Company believes that during the year ended June 30, 2000 all
filing requirements applicable to its officers, directors and 10% shareholders
were satisfied, except with respect to the Form 5 filings were filed late.
Specifically, (i) with respect to one transaction a Form 5 was filed late by Dr.
Bergey; (ii) with respect to two transactions, a Form 5 was filed late by Dr.
Rose; (iii) with respect to four transactions, a Form 5 was filed late by
Messrs. LeShufy and Stagnaro and Dr. Weisbach; (iv) with respect to five
transactions, a Form 5 was filed late by Mr. Ratoff and Dr. Vukovich; and (v)
with respect to seven transactions, a Form 5 was filed late by Mr. Apple and Dr.
Jacob.

SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING

Shareholders intending to submit proposals to be included in the
Company's next Proxy Statement must send their proposal to the Secretary of the
Company at Sentry Park East, 1720 Walton Road, Suite 200, Blue Bell,
Pennsylvania 19422 not later than July 8, 2001. Such proposals must relate to
matters appropriate for shareholder action and be consistent with regulations of
the Securities and Exchange Commission.

Shareholders intending to present proposals at the next annual meeting
of the Company, and not intending to have such proposals included in the
Company's next Proxy Statement must send their proposal to the Secretary of the
Company at Sentry Park East, 1720 Walton Road, Suite 200, Blue Bell,
Pennsylvania 19422 not later than September 21, 2001. If notification of a
shareholder proposal is not received by the above date, the Company may vote, in
its discretion, any and all of the proxies received in its solicitation against
such proposal.

ANNUAL REPORT ON FORM 10-K

The Company has furnished without charge to each person whose proxy is
being solicited, a copy of the Company's annual report on Form 10-K, for the
year ended June 30, 2000, including the financial statements, but excluding
exhibits. Requests for additional copies of such report should be directed to
the Company, Attention: Investor Relations, InKine Pharmaceutical Company, Inc.,
Sentry Park East, 1720 Walton Road, Suite 200, Blue Bell, Pennsylvania 19422

By order of the Board of Directors,

Robert F. Apple,
Secretary
October 9, 2000

20
<PAGE>

APPENDIX A

INKINE PHARMACEUTICAL COMPANY, INC.
1999 EQUITY COMPENSATION PLAN

The purpose of the InKine Pharmaceutical Company, Inc. 1999 Equity
Compensation Plan (the "Plan") is to provide (i) designated officers (including
officers who are also directors) and other employees of InKine Pharmaceutical
Company, Inc. (the "Company") and its subsidiaries, and (ii) non-employee
members of the board of directors of the Company (the "Board") with the
opportunity to receive grants of incentive stock options, nonqualified stock
options or restricted stock. The Company believes that the Plan will encourage
the participants to contribute materially to the growth of the Company, thereby
benefiting the Company's shareholders, and will align the economic interests of
the participants with those of the shareholders. For purposes of the Plan, the
term subsidiary shall refer to any company (whether a corporation, partnership,
joint venture or other entity) in which the Company owns, directly or
indirectly, a majority of the shares of capital stock or other equity interest.

1. ADMINISTRATION.

a. Committee. The Plan shall be administered and interpreted
by a committee (the "Committee"), which shall consist of two or more persons
appointed by the Board, all of whom shall be "outside directors" as defined
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") and related Treasury regulations and non-employee directors as defined
under Rule 16b-3 under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"). Notwithstanding the foregoing, the Board may ratify or approve
(and, in the case of Grants to the members of the Committee, shall approve)
Grants, in which case references to the Committee shall be deemed to include the
Board.

b. Committee Authority. The Committee shall have the sole
authority to (i) determine the individuals to whom grants shall be made under
the Plan, (ii) determine the type, size and terms of the grants to be made to
each such individual, (iii) determine the time when the grants will be made and
the duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability, and (iv)
deal with any other matters arising under the Plan.

c. Committee Determinations. The Committee shall have full
power and authority to administer and interpret the Plan, make factual
determinations and adopt or amend such rules, regulations, agreements and
instruments for implementing the Plan and for the conduct of its business as it
deems necessary or advisable, in its sole discretion. The Committee's
interpretations of the Plan and all determinations made by the Committee
pursuant to the powers vested in it hereunder shall be conclusive and binding on
all persons having any interest in the Plan or in any awards granted hereunder.
All powers of the Committee shall be executed in its sole discretion, in the
best interest of the Company, not as a fiduciary, and in keeping with the
objectives of the Plan and need not be uniform as to similarly situated
individuals.

<PAGE>

2. GRANTS.

Awards under the Plan may consist of grants of stock options
as described in Section 5 ("Options") or restricted stock as described in
Section 6 ("Restricted Stock") or a combination of both (hereinafter
individually or collectively referred to as "Grants"). All Grants shall be
subject to the terms and conditions set forth herein and to those other terms
and conditions consistent with this Plan as the Committee deems appropriate and
as are specified in writing by the Committee to the individual in a grant
instrument or an amendment to the grant instrument (the "Grant Instrument"). The
Committee shall approve the form and provisions of each Grant Instrument. Grants
under a particular Section of the Plan need not be uniform as among the
grantees.

3. SHARES SUBJECT TO THE PLAN.

a. Shares Authorized. Subject to the adjustment specified
below, the aggregate number of shares of common stock of the Company (the
"Company Stock") that may be issued or transferred under the Plan is 1,000,000
shares. The maximum number of shares of Company Stock that may be issued or
transferred as Restricted Stock shall not exceed twenty five percent (25%) of
the aggregate number of shares of Company Stock that may be issued or
transferred under the Plan. Notwithstanding anything in the Plan to the
contrary, the maximum aggregate number of shares of Company Stock that shall be
subject to Grants made under the Plan to any one individual during any calendar
year shall be 250,000 shares. The shares may be authorized but unissued shares
of Company Stock or reacquired shares of Company Stock, including shares
purchased by the Company on the open market for purposes of the Plan. If and to
the extent Options granted under the Plan terminate, expire, or are canceled,
forfeited, exchanged or surrendered without having been exercised or if any
shares of Restricted Stock are forfeited, the shares subject to such Grants
shall again be available for purposes of the Plan. Notwithstanding anything in
the Plan to the contrary, the Committee shall not amend any Grant Instrument to
decrease the Exercise Price of an Option below the Fair Market Value of the
Option as of the date on which such Option was granted, and the Committee shall
not exchange or substitute any Option for an Option at an Exercise Price that is
below the Fair Market Value of the exchanged or substituted Option as of the
date on which the exchanged or substituted Option was granted.

b. Adjustments. If there is any change in the number or kind
of shares of Company Stock outstanding (i) by reason of a stock dividend,
spinoff, recapitalization, stock split, or combination or exchange of shares,
(ii) by reason of a merger, reorganization or consolidation in which the Company
is the surviving corporation, (iii) by reason of a reclassification or change in
par value, or (iv) by reason of any other extraordinary or unusual event
affecting the outstanding Company Stock as a class without the Company's receipt
of consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in a year, the number of
shares covered by outstanding Grants, the kind of shares issued under the Plan,
and the price per share or the applicable market value of such Grants may be
appropriately adjusted by the Committee to reflect any increase or decrease in
the number of, or change in the kind or value of, issued shares of Company Stock
to preclude, to the extent practicable, the enlargement or dilution of rights
and benefits under such Grants; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated. Any adjustments determined
by the Committee shall be final, binding and conclusive.

<PAGE>

4. ELIGIBILITY FOR PARTICIPATION.

a. Eligible Persons. All employees of the Company and its
subsidiaries ("Employees"), including Employees who are officers or members of
the Board, and members of the Board who are not Employees ("Non-Employee
Directors") shall be eligible to participate in the Plan.

b. Selection of Grantees. The Committee shall select the
Employees and Non-Employee Directors to receive Grants and determine the number
of shares of Company Stock subject to a particular Grant in such manner as the
Committee determines. Employees and Non-Employee Directors who receive Grants
under this Plan shall hereinafter be referred to as "Grantees."

5. OPTION GRANTS.

a. Number of Shares. The Committee, in its sole discretion,
shall determine the number of shares of Company Stock that will be subject to
each Grant of Options to any Employee or Non-Employee Director.

b. Type of Option and Price.

i. The Committee may grant Options that are
intended to qualify as "incentive stock options" within the meaning of Section
422 of the Code ("Incentive Stock Options") or Options which are not intended to
so qualify ("Nonqualified Stock Options") or any combination of Incentive Stock
Options and Nonqualified Stock Options, all in accordance with the terms and
conditions set forth herein.

ii. The purchase price (the "Exercise Price") of
Company Stock subject to an Option shall be determined by the Committee and
shall not be less than the Fair Market Value (as defined below) of a share of
such Stock on the date the Option is granted; provided, however, that an
Incentive Stock Option may not be granted to an Employee who, at the time of
grant, owns stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company or any "parent corporation" or
"subsidiary corporation" of the Company (within the meaning of Sections 424(e)
and 424(f) of the Code, respectively), unless the Exercise Price per share is
not less than 110% of the Fair Market Value of Company Stock on the date of
grant.

<PAGE>

iii. If the Company Stock is publicly traded,
then the Fair Market Value per share shall be determined as follows: (1) if the
principal trading market for the Company Stock is a national securities exchange
or the Nasdaq National Market, the last reported sale price thereof on the
relevant date or (if there were no trades on that date) the latest preceding
date upon which a sale was reported, or (2) if the Company Stock is not
principally traded on such exchange or market, the mean between the last
reported "bid" and "asked" prices of Company Stock on the relevant date, as
reported on Nasdaq or, if not so reported, as reported by the National Daily
Quotation Bureau, Inc. or as reported in a customary financial reporting
service, as applicable and as the Committee determines. If the Company Stock is
not publicly traded or, if publicly traded, is not subject to reported
transactions or "bid" or "asked" quotations as set forth above, the Fair Market
Value per share shall be as determined by the Committee.

c. Option Term. The Committee shall determine the term of each
Option. The term of any Option shall not exceed ten years from the date of
grant. However, an Incentive Stock Option that is granted to an Employee who, at
the time of grant, owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company, or any parent or
subsidiary of the Company, may not have a term that exceeds five years from the
date of grant.

d. Exercisability of Options. Options shall become exercisable
in accordance with such terms and conditions, consistent with the Plan, as may
be determined by the Committee, in its sole discretion, and specified in the
Grant Instrument. The Committee, in its sole discretion, may accelerate the
exercisability of any or all outstanding Options at any time for any reason.

e. Termination of Employment or Service.

i. Except as provided below, an Option may only
be exercised while the Grantee is employed by, or providing service to, the
Company as an Employee or Non-Employee Director. In the event that a Grantee
ceases to be employed by, or provide service to, the Company for any reason, any
Option which is otherwise exercisable by the Grantee shall terminate unless
exercised within such time period after the date on which the Grantee ceases to
be employed by, or provide service to, the Company as determined by the
Committee, but in any event no later than the date of expiration of the Option
term (Post-Termination Exercise Period). The Committee may specify the
Post-Termination Exercise Period applicable to a Grantee in the Grant Instrument
or at any time thereafter; provided, however, that the Post-Termination Exercise
Period shall extend for at least 30 days after the date on which the Grantee is
notified of the Post-Termination Exercise Period. Except as otherwise provided
by the Committee, any of the Grantee's Options that are not otherwise
exercisable as of the date on which the Grantee ceases to be employed by, or
provide service to, the Company shall terminate as of such date.

<PAGE>

ii. Notwithstanding the foregoing, in the event
the Grantee ceases to be employed by, or provide service to, the Company on
account of termination for Cause (as hereinafter defined) by the Company, any
Option held by the Grantee shall terminate as of the date the Grantee ceases to
be employed by, or provide service to, the Company, and the Grantee shall
automatically forfeit all shares underlying any exercised portion of an Option
for which the Company has not yet delivered the share certificates, upon refund
by the Company of the Exercise Price paid by the Grantee for such shares.

iii. For purposes of this Section 5(e) and
Section 6: (A) the term "Company" shall refer to the Company and its
subsidiaries; (B) "Employed by", or "provide service to", the Company shall mean
employment or service as an Employee or Non-Employee Director (so that, for
purposes of exercising Options and satisfying conditions with respect to
Restricted Stock, a Grantee shall not be considered to have terminated
employment or service until the Grantee ceases to be an Employee and/or a
Non-Employee Director), unless the Committee determines otherwise; (C) "Cause"
shall mean (i) the Grantee's willful misconduct with respect to the business and
affairs of the Company or any subsidiary or affiliate thereof; (ii) the
Grantee's gross neglect of duties or failure to act which materially and
adversely affects the business or affairs of the Company or any subsidiary or
affiliate thereof; (iii) the Grantee's commission of an act involving
embezzlement or fraud or conviction for any felony; or (iv) the Grantee's breach
of an employment agreement with the Company or any subsidiary or affiliate
thereof.

f. Exercise of Options. A Grantee may exercise an Option that
has become exercisable, in whole or in part, by delivering a notice of exercise
to the Committee with payment of the Exercise Price. The Grantee shall pay the
Exercise Price specified in the Grant Instrument (i) in cash, (ii) with the
approval of the Committee, by delivering shares of Company Stock owned by the
Grantee (including Company Stock acquired in connection with the exercise of an
Option, subject to such restrictions as the Committee deems appropriate) and
having a Fair Market Value on the date of exercise equal to the Exercise Price,
or (iii) by such other method as the Committee may approve, including payment
through a broker in accordance with procedures permitted by Regulation T of the
Federal Reserve Board. Such notice may instruct the Company to deliver shares of
Company Stock due upon the exercise of the Option to any registered broker or
dealer designated by the Committee ("Designated Broker") in lieu of delivery to
the Grantee. Such instructions must designate the account into which the shares
are to be deposited. The Grantee may tender a notice of exercise, which has been
properly executed by the Grantee, and the aforementioned delivery instructions
to any Designated Broker. Shares of Company Stock used to exercise an Option
shall have been held by the Grantee for the requisite period of time to avoid
adverse accounting consequences to the Company with respect to the Option. The
Grantee shall pay the Exercise Price and the amount of any withholding tax due
at the time of exercise.

g. Limits on Incentive Stock Options. Each Incentive Stock
Option shall provide that, if the aggregate Fair Market Value of the Company
Stock on the date of the grant with respect to which Incentive Stock Options are
exercisable for the first time by a Grantee during any calendar year, under the
Plan or any other stock option plan of the Company or subsidiary, exceeds
$100,000, then such Option, as to the excess, shall be treated as a Nonqualified
Stock Option. An Incentive Stock Option shall not be granted to any person who
is not an Employee of the Company or a parent corporation or a subsidiary
corporation (within the meaning of Sections 424(e) and 424(f) of the Code,
respectively).

<PAGE>

6. RESTRICTED STOCK GRANTS.

The Committee may issue or transfer shares of Company Stock to
any Employee or Non-Employee Director under a Grant of Restricted Stock, upon
such terms as the Committee deems appropriate. The following provisions are
applicable to Restricted Stock:

i. General Requirements. Shares of Company
Stock issued or transferred pursuant to Restricted Stock Grants may be issued or
transferred for cash consideration or for no cash consideration, at the sole
discretion of the Committee. The Committee may establish conditions under which
restrictions on shares of Restricted Stock shall lapse over a period of time or
according to such other criteria as the Committee deems appropriate. The period
of time during which the Restricted Stock will remain subject to restrictions
will be designated in the Grant Instrument as the "Restriction Period."

ii. Number of Shares. The Committee shall
determine the number of shares of Company Stock to be issued or transferred
pursuant to a Restricted Stock Grant and the restrictions applicable to such
shares.

iii. Requirement of Employment or Service. If the
Grantee ceases to be employed by, or provide service to, the Company during a
period designated in the Grant Instrument as the Restriction Period, or if other
specified conditions are not met, the Restricted Stock Grant shall terminate as
to all shares covered by the Grant as to which the restrictions have not lapsed,
and those shares of Company Stock must be immediately returned to the Company.
The Committee may, however, provide for complete or partial exceptions to this
requirement as it deems appropriate.

iv. Restrictions on Transfer and Legend on Stock
Certificate. During the Restriction Period, a Grantee may not sell, assign,
transfer, pledge or otherwise dispose of the shares of Restricted Stock except
to a Successor Grantee under Section 8(a). Each certificate for a share of
Restricted Stock shall contain a legend giving appropriate notice of the
restrictions in the Grant. The Grantee shall be entitled to receive a stock
certificate or certificates, or have the legend removed from the stock
certificate or certificates covering any of the shares subject to restrictions,
as applicable, when all restrictions on such shares have lapsed. The Committee,
in its sole discretion, may determine that the Company will not issue
certificates for shares of Restricted Stock, or that the Company retain
possession of certificates for any shares issued pursuant to a Restricted Stock
Grant, until all restrictions on such shares have lapsed.

<PAGE>

v. Right to Vote and to Receive Cash Dividends.
Unless the Committee determines otherwise, during the Restriction Period, the
Grantee shall have the right to vote any shares of Restricted Stock which have
been issued or transferred to the Grantee on the stock transfer records of the
Company and to receive any dividends or other distributions paid on such shares,
subject to any restrictions deemed appropriate by the Committee.

vi. Lapse of Restrictions. All restrictions
imposed on Restricted Stock shall lapse upon the expiration of the applicable
Restriction Period and the satisfaction of all conditions imposed by the
Committee. The Committee may determine, as to any or all Restricted Stock
Grants, that all the restrictions shall lapse without regard to any Restriction
Period.

7. WITHHOLDING OF TAXES.

a. Required Withholding. All Grants under the Plan shall be
subject to applicable federal (including FICA), state and local tax withholding
requirements. The Company may require the Grantee or other person receiving
shares to pay to the Company the amount of any such taxes that the Company is
required to withhold with respect to such Grants, or the Company may deduct from
the amount payable under a Grant or from other wages paid by the Company the
amount of any withholding taxes due with respect to such Grants.

b. Election to Withhold Shares. If the Committee so permits, a
Grantee may elect to satisfy the Company's income tax withholding obligation
with respect to an Option or Restricted Stock by having shares withheld up to an
amount that does not exceed the applicable withholding tax for federal
(including FICA), state and local tax liabilities. The election must be in the
form and manner prescribed by the Committee and is subject to the prior approval
of the Committee.

8. TRANSFERABILITY OF GRANTS.

a. Nontransferability of Grants. Except as provided below,
only the Grantee may exercise rights under a Grant during the Grantees lifetime.
The Grantee may not transfer those rights except by will or by the laws of
descent and distribution or, with respect to Grants other than Incentive Stock
Options, if permitted in any specific case by the Committee in its sole
discretion, pursuant to a qualified domestic relations order (as defined under
the Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended or the regulations thereunder). When a Grantee dies, the personal
representative or other person entitled to succeed to the rights of the Grantee
("Successor Grantee") may exercise such rights. A Successor Grantee must furnish
proof satisfactory to the Company of his or her right to receive the Grant under
the Grantee's will or under the applicable laws of descent and distribution.

<PAGE>

b. Transfer of Nonqualified Stock Options. Notwithstanding the
foregoing, the Committee may provide, in a Grant Instrument, that a Grantee may
transfer Nonqualified Stock Options to family members, one or more trusts for
the benefit of family members, or one or more partnerships of which family
members are the only partners, or other persons or entities according to such
terms as the Committee may determine; provided that the Grantee receives no
consideration for the transfer of an Option and the transferred Option shall
continue to be subject to the same terms and conditions as were applicable to
the Option immediately before the transfer.

9. CHANGE OF CONTROL OF THE COMPANY.

As used herein, a "Change of Control" shall mean the
occurrence of any of the following:

i. Any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes a "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 40% or more of the voting power of the
then outstanding securities of the Company;

ii. During any period of two consecutive
calendar years there is a change of 33 1/3% or more in the composition of the
Board of the Company in office at the beginning of the period except for changes
approved by at least one-half of the Directors then in office who were Directors
at the beginning of the period;

iii. The shareholders of the Company approve an
agreement providing for (A) the merger or consolidation of the Company with
another corporation where the shareholders of the Company, immediately prior to
the merger or consolidation, will not beneficially own, immediately after the
merger or consolidation, shares entitling such shareholders to 50% or more of
all votes (without consideration of the rights of any class of stock to elect
Directors by a separate class vote) to which all shareholders of the corporation
issuing cash or securities in the merger or consolidation would be entitled in
the election of directors, or where the members of the Board, immediately prior
to the merger or consolidation, would not, immediately after the merger or
consolidation, constitute a majority of the board of directors of the
corporation issuing cash or securities in the merger or consolidation, or (B)
the sale or other disposition of all or substantially all the assets of the
Company, or a liquidation, dissolution or statutory exchange of the Company; or

iv. Any person has commenced, or announced an
intention to commence, a tender offer or exchange offer for 40% or more of the
voting power of the then-outstanding securities of the Company.

10. CONSEQUENCES OF A CHANGE OF CONTROL.

a. Notice and Acceleration. Upon a Change of Control, unless
the Committee determines otherwise, (i) the Company shall provide each Grantee
with outstanding Grants written notice of such Change of Control, (ii) all
outstanding Options shall automatically accelerate and become fully exercisable,
and (iii) the restrictions and conditions on all outstanding Restricted Stock
shall immediately lapse.

<PAGE>

b. Assumption of Grants. Upon a Change of Control where the
Company is not the surviving corporation (or survives only as a subsidiary of
another corporation), unless the Committee determines otherwise, all outstanding
Options that are not exercised shall be assumed by, or replaced with comparable
options by, the surviving corporation.

c. Other Alternatives. Notwithstanding the foregoing, subject
to Subsection (d) below, in the event of a Change of Control, the Committee may
take one or both of the following actions: the Committee may (i) require that
Grantees surrender their outstanding Options in exchange for a payment by the
Company, in cash or Company Stock as determined by the Committee, in an amount
equal to the amount by which the then Fair Market Value of the shares of Company
Stock subject to the Grantee's unexercised Options exceeds the Exercise Price of
the Options or (ii) after giving Grantees an opportunity to exercise their
outstanding Options, terminate any or all unexercised Options at such time as
the Committee deems appropriate. Such surrender or termination shall take place
as of the date of the Change of Control or such other date as the Committee may
specify.

d. Limitations. Notwithstanding anything in the Plan to the
contrary, in the event of a Change of Control, the Committee shall not have the
right to take any actions described in the Plan (including without limitation
actions described in Subsection (c) above) that would make the Change of Control
ineligible for pooling of interest accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right, the Change of Control would qualify for such treatment and the
Company intends to use such treatment with respect to the Change of Control.

11. REQUIREMENTS FOR ISSUANCE OR TRANSFER OF SHARES.

No Company Stock shall be issued or transferred in connection
with any Grant hereunder unless and until all legal requirements applicable to
the issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Grant made to any Grantee hereunder on such Grantee's undertaking in writing
to comply with such restrictions on his or her subsequent disposition of such
shares of Company Stock as the Committee shall deem necessary or advisable as a
result of any applicable law, regulation or official interpretation thereof, and
certificates representing such shares may be legended to reflect any such
restrictions. Certificates representing shares of Company Stock issued or
transferred under the Plan will be subject to such stop-transfer orders and
other restrictions as may be required by applicable laws, regulations and
interpretations, including any requirement that a legend be placed thereon.

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12. AMENDMENT AND TERMINATION OF THE PLAN.

a. Amendment. The Board may amend or terminate the Plan at any
time; provided, however, that the Committee shall not amend the Plan without
shareholder approval if such approval is required by Section 422 of the Code or
Section 162(m) of the Code.

b. Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date, unless the
Plan is terminated earlier by the Board or unless extended by the Board with the
approval of the shareholders.

c. Termination and Amendment of Outstanding Grants. A
termination or amendment of the Plan that occurs after a Grant is made shall not
materially impair the rights of a Grantee unless the Grantee consents or unless
the Committee acts under Section 18(b) hereof. The termination of the Plan shall
not impair the power and authority of the Committee with respect to an
outstanding Grant. Whether or not the Plan has terminated, an outstanding Grant
may be terminated or amended under Section 18(b) hereof or may be amended by
agreement of the Company and the Grantee consistent with the Plan.

d. Governing Document. The Plan shall be the controlling
document. No other statements, representations, explanatory materials or
examples, oral or written, may amend the Plan in any manner. The Plan shall be
binding upon and enforceable against the Company and its successors and assigns.

13. FUNDING OF THE PLAN.

This Plan shall be unfunded. The Company shall not be required
to establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.

14. RIGHTS OF PARTICIPANTS.

Nothing in this Plan shall entitle any Employee, Non-Employee
Director or other person to any claim or right to be granted a Grant under this
Plan. Neither this Plan nor any action taken hereunder shall be construed as
giving any individual any rights to be retained by or in the employ of the
Company or any other employment rights.

15. NO FRACTIONAL SHARES.

No fractional shares of Company Stock shall be issued or
delivered pursuant to the Plan or any Grant. The Committee shall determine
whether cash, other awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.

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16. HEADINGS.

Section headings are for reference only. In the event of a
conflict between a title and the content of a Section, the content of the
Section shall control.

17. EFFECTIVE DATE OF THE PLAN.

Subject to the approval of the Company's shareholders, this
Plan shall be effective on August 3, 1999.

18. MISCELLANEOUS.

a. Grants in Connection with Corporate Transactions and
Otherwise. Nothing contained in this Plan shall be construed to (i) limit the
right of the Committee to make Grants under this Plan in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including Grants to
employees thereof who become Employees of the Company, or for other proper
corporate purposes, or (ii) limit the right of the Company to grant stock
options or make other awards outside of this Plan. Without limiting the
foregoing, the Committee may make a Grant to an employee of another corporation
who becomes an Employee by reason of a corporate merger, consolidation,
acquisition of stock or property, reorganization or liquidation involving the
Company or any of its subsidiaries in substitution for a stock option or
restricted stock grant made by such corporation. The terms and conditions of the
substitute grants may vary from the terms and conditions required by the Plan
and from those of the substituted stock incentives. The Committee shall
prescribe the provisions of the substitute grants.

b. Compliance with Law. The Plan, the exercise of Options and
the obligations of the Company to issue or transfer shares of Company Stock
under Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to Section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. In addition,
it is the intent of the Company that the Plan and applicable grants under the
Plan comply with the applicable provisions of Sections 162(m) and 422 of the
Code. To the extent that any legal requirement of Section 16 of the Exchange Act
or Sections 162(m) or 422 of the Code as set forth in the Plan ceases to be
required under Section 16 of the Exchange Act or Sections 162(m) or 422 of the
Code, that provision shall cease to apply. The Committee may revoke any Grant if
it is contrary to law or modify a Grant to bring it into compliance with any
valid and mandatory government regulation. The Committee may, in its sole
discretion, agree to limit its authority under this Section.

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c. No Shareholder Rights. Except as otherwise provided by the
Committee, a Grantee or Successor Grantee shall have no rights as a shareholder
with respect to any shares of Company Stock covered by a Grant until the shares
are issued or transferred to the Grantee or Successor Grantee on the stock
transfer records of the Company.

d. Governing Law. The validity, construction, interpretation
and effect of the Plan and Grant Instruments issued under the Plan shall
exclusively be governed by and determined in accordance with the law of the
Commonwealth of Pennsylvania.