Edgar Filing: SCOLR INC

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934

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SCOLR, INC.

(Name of Registrant as Specified In Its Charter)

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

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[LOGO]

May __, 2004

Dear Stockholder:

This year's annual meeting of stockholders will be held on June 25, 2004, at
3:00 p.m. local time at The Yale Club, 50 Vanderbilt Avenue, New York, New York
10016. You are cordially invited to attend.

The Notice of Annual Meeting of Stockholders and a Proxy Statement, which
describe the formal business to be conducted at the meeting, follow this letter.

It is important that you use this opportunity to take part in the affairs of
SCOLR by voting on the business to come before this meeting. After reading the
Proxy Statement, please promptly mark, sign, date and return the enclosed proxy
card in the prepaid envelope to assure that your shares will be represented.
Regardless of the number of shares you own, your careful consideration of, and
vote on, the matters before our stockholders is important.

A copy of SCOLR's Annual Report to Stockholders is also enclosed for your
information. At the annual meeting we will review SCOLR's activities over the
past year and our plans for the future. The Board of Directors and management
look forward to seeing you at the annual meeting.

Sincerely yours,

DANIEL O. WILDS

President and
Chief Executive Officer

SCOLR, INC.

3625 132ND AVENUE SE, SUITE 300
BELLEVUE, WASHINGTON 98006

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JUNE 25, 2004

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TO THE STOCKHOLDERS:

Notice is hereby given that the annual meeting of the stockholders of
SCOLR, Inc., a Delaware corporation, will be held on June 25, 2004, at 3:00 p.m.
local time at The Yale Club located at 50 Vanderbilt Avenue, New York, New York
10016, for the following purposes:

1. To elect six directors to hold office until the next annual meeting
of stockholders and until their respective successors are elected and qualified.

2. To consider an amendment to our Certificate of Incorporation to
increase the number of authorized shares of Common Stock from 50,000,000 to
100,000,000.

3. To consider an amendment to our Certificate of Incorporation to
change our name to "SCOLR Pharma, Inc."

4. To consider adoption of the 2004 Equity Incentive Plan.

5. To approve any adjournments of the meeting to another time or place,
if necessary in the judgment of the proxy holders, for the purpose of soliciting
additional proxies in favor of any of the foregoing proposals.

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

Stockholders of record at the close of business on May 7, 2004 are
entitled to notice of, and to vote at, this meeting and any adjournment or
postponement.

By order of the Board of Directors,

Daniel O. Wilds
President and Chief Executive Officer

Bellevue, Washington
May __, 2004

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IMPORTANT: Please fill in, date, sign and promptly mail the enclosed proxy card
in the accompanying postage-paid envelope to assure that your shares are
represented at the meeting. If you attend the meeting, you may choose to vote in
person even if you have previously sent in your proxy card.
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PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS

The accompanying proxy is solicited by the Board of Directors of SCOLR,
Inc., a Delaware corporation, for use at its annual meeting of stockholders to
be held on June 25, 2004, or any adjournment or postponement thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
This proxy statement and the enclosed proxy are being mailed to stockholders on
or about May 25, 2004.

SOLICITATION AND VOTING

Voting Securities. Only stockholders of record as of the close of
business on May 7, 2004 will be entitled to vote at the meeting and any
adjournment thereof. As of that time, we had ____________ shares of Common Stock
outstanding, all of which are entitled to vote with respect to all matters to be
acted upon at the annual meeting. Each stockholder of record as of that date is
entitled to one vote for each share of Common Stock held by him or her. Our
Bylaws provide that a majority of all of the shares of the stock entitled to
vote, whether present in person or represented by proxy, shall constitute a
quorum for the transaction of business at the meeting. Except as noted below,
votes for and against, abstentions and "broker non-votes" will each be counted
as present for purposes of determining the presence of a quorum.

Broker Non-Votes. A broker non-vote occurs when a broker submits a proxy
card with respect to shares held in a fiduciary capacity (typically referred to
as being held in "street name") but declines to vote on a particular matter
because the broker has not received voting instructions from the beneficial
owner. Under the rules that govern brokers who are voting with respect to shares
held in street name, brokers have the discretion to vote such shares on routine
matters, but not on non-routine matters. Routine matters include the election of
directors, increases in authorized common stock for general corporate purposes
and ratification of auditors. Non-routine matters include adoption of stock
plans.

Solicitation of Proxies. We will bear the cost of soliciting proxies. In
addition to soliciting stockholders by mail through our employees, we will
request banks, brokers and other custodians, nominees and fiduciaries to solicit
customers for whom they hold our stock and will reimburse them for their
reasonable, out-of-pocket costs. We may use the services of our officers,
directors and others to solicit proxies, personally or by telephone, without
additional compensation. In addition, we have retained MacKenzie Partners, Inc.,
a proxy solicitation firm, for assistance in connection with the annual meeting
at a cost of approximately $6,000 plus reasonable out-of-pocket expenses.

Voting of Proxies. All valid proxies received before the meeting will be
exercised. All shares represented by a proxy will be voted, and where a proxy
specifies a stockholder's choice with respect to any matter to be acted upon,
the shares will be voted in accordance with that specification. If no choice is
indicated on the proxy, the shares will be voted in favor of the proposal. A
stockholder giving a proxy has the power to revoke his or her proxy at any time
before it is exercised by delivering to the Secretary of SCOLR a written
instrument revoking the proxy or a duly executed proxy with a later date, or by
attending the meeting and voting in person.

PROPOSAL NO. 1

ELECTION OF DIRECTORS

On April 14, 2004, our Board of Directors amended Section 3.2 of our
Bylaws to eliminate the staggered Board of Directors. Section 3.2 divided the
Board into three classes and provided that the directors in each class would
serve staggered three-year terms. As amended, Section 3.2 of our Bylaws provides
that the Board of Directors shall consist of between 4 and 12 members, with the
specific number to be established by resolution of the Board. The Board of
Directors has established the number of directors to be nine, which is the
current number of directors. The Board of Directors eliminated the staggered
board provision in order to provide stockholders with the ability to elect the
full Board on an annual stockholder democracy.

Notwithstanding the foregoing Bylaw amendment, because three of the
current directors were elected to three-year terms at a time when the Board was
divided into three staggered classes, the terms of only six directors will
expire at this year's annual meeting of stockholders. Under Delaware law, the
term of the other three directors will continue for the remainder of the full
three-year term for which they were elected. Randall L-W. Caudill, D. Phil. has
been appointed for a term that expires in 2005, and David T. Howard and Herbert
L. Lucas have been appointed for a term that expires in 2006.

Management's nominees for election by the stockholders to the six Board
positions are the following current members of the Board of Directors: Daniel O.
Wilds, Reza Fassihi, Ph.D., Wayne L. Pines, Robert C. Schroeder, Michael Sorell,
M.D. and Michael N. Taglich. If elected, the nominees will serve as directors
until our annual meeting of stockholders in 2005 and until their respective
successors are elected and qualified. If the nominees decline to serve or become
unavailable for any reason, or if a vacancy occurs before the election (although
we know of no reason to anticipate that this will occur), the proxies may be
voted for such substitute nominees as we may designate.

If a quorum is present and voting, the nominees for directors receiving
the highest number of votes will be elected as the directors. Abstentions and
broker non-votes have no effect on the vote.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES NAMED ABOVE.

The following table sets forth, for our current directors, information
with respect to their ages and background.

Director
Name Position with SCOLR Age Since
---- ------------------- --- --------

Daniel O. Wilds President and Chief Executive 55 2003
Officer, Director
David T. Howard Chairman of the Board, Director 54 2000
Herbert L. Lucas Director 77 1995
Randall L-W. Caudill, Director 56 2002
D. Phil.
Reza Fassihi, Ph.D. Director 52 2003
Wayne L. Pines Director 61 2004
Robert C. Schroeder Director 37 2003
Michael Sorell, M.D. Director 57 2004
Michael N. Taglich Director 39 2003

Daniel O. Wilds was appointed our President and CEO and a Director in
August 2003. From 1998 to July 2003, Mr. Wilds served as Chairman, President and
CEO of Northwest Biotherapeutics, Inc. Prior to that position, he was President
and CEO of Shiloov Biotechnologies (USA), Inc. from 1997 to 1998. From 1992 to
1996, Mr. Wilds was President and CEO of Adeza Biomedical Corporation, prior to
which he served as the President and CEO of Medisense, Inc. and President of
Baxter's Chemotherapy Service. Mr. Wilds has also served as President and COO of
Travenol-Genentech, Inc., a joint venture between Baxter International and
Genentech, Inc., and has held other domestic and international senior management
positions in the biomedical and biopharmaceutical fields. Mr. Wilds currently
serves on the board of Helix BioMedix, Inc. and is a member of the Leadership
Council for the Albert B. Sabine Vaccine Institute's Cancer Vaccine Consortium.
Mr. Wilds holds a BA from California State University , Los Angeles and an MBA
from Northwestern University.

David T. Howard served as our President from May 2000 to August 2003 and
has provided advisory services to us since August 2003. He has served on the
Board since May 2000, and was appointed Chairman in September 2003. From 1997 to
2000, Mr. Howard served as President and COO of Novopharm International and
Novopharm USA. Prior to that position, he was President of Granutec, Inc. (1995
- 1999) and President of Stanley Pharmaceuticals (1990 - 1999). Mr. Howard is
Chairman of the Board of Directors of Angiotech Pharmaceuticals, Inc. and serves
on the boards of MDS Ventures Pacific, and Delex Therapeutics Inc..

Herbert L. Lucas has been a Director since 1991. He served as President
from 1972 to 1981 of Carnation International in Los Angeles and as a director of
the Carnation Company. Since 1982, Mr. Lucas has managed his family investment
business. He has served on the boards of various financial and business
institutions including Wellington Trust Company, Arctic Alaska Fisheries, Inc.,
and Sunworld International Airways, Inc. Mr. Lucas has served as Trustee of The
J. Paul Getty Trust, the Los Angeles County Museum of Art, The Morgan Library,
and Winrock International Institute for Agricultural Research and Development.
He was formerly a member of the Board of Trustees of Princeton University. Mr.
Lucas received a BA degree in History in 1950 from Princeton University and an
MBA degree in 1952 from Harvard University Graduate School of Business
Administration.

Randall Caudill, D. Phil. has served as a member of the Board since
2002. Dr. Caudill is currently President of Dunsford Hill Capital Partners, a
financial consulting firm serving early-stage healthcare and technology
companies. From 1987 to 1997, while at Prudential Securities, Dr. Caudill
established and headed the firm's San Francisco investment banking practice and
served as head of the Mergers and Acquisitions Department and co-head of
Prudential's investment banking division. Dr. Caudill also served as executive
director and co-head of mergers and acquisitions at Morgan Grenfell Inc. and
vice president in the Mergers and Acquisitions Department of The First Boston
Corporation. Dr. Caudill currently serves on the boards of VaxGen, Inc., SBE
Inc., RamGen Inc., Northwest Biotherapeutics Inc. and Helix BioMedix Inc. Dr.
Caudill received a master's degree in Public and Private Management from Yale
University and earned a doctorate of philosophy while a Rhodes Scholar at Oxford
University.

Michael N. Taglich was appointed to the Board in August 2003. Mr.
Taglich has served as the President and co-founder of Taglich Brothers, Inc., a
NASD broker-dealer focused on public and private micro cap companies since 1992.
From 1987 - 1992, Mr. Taglich was Vice President at Weatherly Securities and
currently serves as the Chairman of the Board of Telenetics, Inc. Mr. Taglich
earned a BS from New York University.

Reza Fassihi, Ph.D. joined the Board in November 2003. Dr. Fassihi is
the co-inventor and patent holder of three patents in SCOLR's CDT(R) platform
and is a consultant to the Company. He is currently Professor of
Biopharmaceutics and Industrial Pharmacy at Temple University , School of
Pharmacy. Dr. Fassihi joined Temple University in 1992 where he has served as
professor, director of graduate programs, has chaired various committees and is
Co-Chair of PPF (Philadelphia Pharmaceutical Forum). Dr. Fassihi is widely
published in more than 100 peer-reviewed professional papers, numerous chapters
in books and is credited with more than 300 abstracts. Currently he has ongoing
projects in collaboration with various pharmaceutical laboratories. He acts as a
consultant to a number of pharmaceutical and nutritional manufacturers,
government agencies, and has served as an expert witness on issues related to
pharmaceutical products.

Robert C. Schroeder joined the Board in November 2003. Mr. Schroeder is
Vice President, Investment Banking of Taglich Brothers, Inc., and specializes in
advisory services and capital raising for small, publicly traded companies.
Since joining Taglich Brothers (a NASD broker-dealer focused on public and
private micro cap companies) in 1993, Mr. Schroeder has performed securities
analysis involving many companies across a wide range of industries. Prior to
that, Mr. Schroeder served in various positions in the brokerage and public
accounting industry. Mr. Schroeder also serves on the Board of Directors of
Telenetics, Inc. and is a member of its audit committee. He is a Chartered
Financial Analyst and a member of the Association for Investment Management and
Research and a member of the New York Society of Security Analysts. He earned
his BS degree in Accounting and Economics from New York University.

Wayne L. Pines joined the Board in April 2004. Mr. Pines is an
international consultant on FDA-related regulatory and media issues and on
corporate crisis management. Since 1993, he has been President of Regulatory
Services and Healthcare at APCO Worldwide, a public affairs firm in Washington,
D.C. Prior to that, Mr. Pines was Executive Vice President of Burson-Martseller,
an international public relations agency. Mr. Pines served for ten years at the
FDA, as Chief of Consumer Education and Information, Chief of Press Relations
and Associate Commissioner of Public Affairs. He is a director of Northwest
Biotherapeutics, Inc. and a member of its audit committee and a director of
other private biotech companies. A frequent lecturer at educational conferences,
he has authored or edited six books on FDA-related issues, medical advertising
regulation and crisis management. He is a graduate of Rutgers University.

Michael Sorell, M.D. joined the Board in April 2004. Dr. Sorell has been
a Managing Member of MS Capital Advisors, an investment advisory service firm,
for more than five years. From July 1986 to February 1992, Dr. Sorell was
associated with Morgan Stanley & Co., an investment banking firm, in various
capacities, the last being Principal. From March 1992 to July 1994, Dr. Sorell
was a partner in a joint venture with Essex Investment Management of Boston, an
investment management firm. In August 1994, Dr. Sorell rejoined Morgan Stanley
as the emerging growth strategist where he served until February 1996. Prior to
March 1992, Dr. Sorell was on the staff of Memorial Sloan-Kettering Cancer
Center and worked in clinical development of Schering Plough.

In connection with the issuance of convertible notes in June 2003, we
agreed to use our best efforts for three years to nominate and secure the
election of a designee of Taglich Brothers, Inc. to serve as a director on our
Board of Directors, or at Taglich Brothers' discretion, permit a designee to
attend Board meetings as a non voting observer. Mr. Michael Taglich is currently
serving as the director designated by Taglish Brothers.

The Board of Directors has determined that each of Randall L-W. Caudill,
Herbert L. Lucas, Wayne L. Pines and Michael Sorell, M.D. is an independent
director for purposes of the American Stock Exchange rules as currently
applicable to us. We currently do not have a majority of independent members on
our Board of Directors. Pursuant to the rules of the American Stock Exchange for
Small Business issuers, we plan to be in compliance with this requirement
following our 2005 annual meeting of stockholders.

BOARD MEETINGS AND COMMITTEES

The Board of Directors held sixteen meetings during the fiscal year
ended December 31, 2003. The Board of Directors has an Audit Committee, a
Compensation Committee and a Nominating and Corporate Governance Committee.
During the last fiscal year, no director attended fewer than 75% of the total
number of meetings of the Board and all of the committees of the Board on which
such director served held during that period.

AUDIT COMMITTEE. The members of the Audit Committee during fiscal 2003
were Mr. Lucas (Chairman), and Dr. Caudill. The Board of Directors has
determined that both members of the Audit Committee satisfy the current
independence and experience requirements of the American Stock Exchange and the
Securities and Exchange Commission that are effective as to small business
issuers such as us. In addition, the Board of Directors has determined that at
least one of the Audit Committee members, Dr. Caudill, is an "audit committee
financial expert" as defined in the rules of the Securities and Exchange
Commission. The functions of the Audit Committee include retaining our
independent auditors, reviewing their independence, reviewing and approving any
fee arrangements with our auditors, overseeing their audit work, reviewing and
pre-approving any non-audit services that may be performed by them, reviewing
the adequacy of accounting and financial controls, reviewing our critical
accounting policies and reviewing and approving any related party transactions.
The Audit Committee held three meetings during the fiscal year ended December
31, 2003. For additional information concerning the Audit

Committee, see "REPORT OF THE AUDIT COMMITTEE" below and the "CHARTER OF
THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS" annexed to this proxy statement.

COMPENSATION COMMITTEE. The members of the Compensation Committee during
fiscal 2003 were Mr. Lucas, Dr. Caudill and Mr. Taglich. The Board of Directors
has determined that Messrs. Lucas and Caudill satisfy the current independence
and experience requirements of the American Stock Exchange and the Securities
and Exchange Commission that are effective as to small business issuers such as
us. The Compensation Committee sets the salary and bonus earned by the Chief
Executive Officer, reviews and approves salary and bonus levels for other
executive officers (with compensation in excess of $100,00 per year) and
approves stock option grants to executive officers. The Compensation Committee
did not meet during the fiscal year ended December 31, 2003 as decisions
relating to executive compensation were made by the full Board of Directors.

NOMINATING AND CORPORATE GOVERNANCE COMMITTEE. The Company did not have
a Nominating Committee during the fiscal year ended December 31, 2003. The
Nominating and Corporate Governance Committee, comprised of Messrs. Caudill,
Lucas and Taglich, was appointed by the Board of Directors in March 2004. The
Board of Directors has determined that Messrs. Lucas and Caudill satisfy the
current independence requirements of the American Stock Exchange as currently
applicable to us. Mr. Taglich is not considered independent as a result of
placement agent fees paid to Taglich Brothers, Inc. during 2003. Mr. Taglich's
service on this Committee was approved by the Board to be required by the best
interests of the Company and its stockholders. Mr. Taglich is not a current
officer or employee or an immediate family member of any such person. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" below.

The functions of the Nominating and Corporate Governance Committee
include identifying individuals qualified to become members of the Board of
Directors, selecting or recommending to the Board of Directors director nominees
for each election of directors, developing and recommending to the Board
criteria for selecting qualified director candidates, considering committee
member qualifications, appointment and removal, and providing oversight in the
evaluation of the Board and each committee. The nominees for election as
Directors were selected by the Committee and approved by the Board of Directors.
The nomination and corporate governance committee met twice in March 2004 to,
among other matters, consider new directors and the nominees for the annual
meeting.

When considering the nomination of director for election to the Board,
the Nominating and Corporate Governance Committee will review the results of an
evaluation performed by the board of directors and each committee and the needs
of the board of directors for various skills, background, experience and
expected contribution and qualifications of the candidate. In this regard, the
committee concerns itself with the composition of the Board with respect to
depth of experience, balance of professional interests, required expertise and
other factors. The Committee evaluates perspective nominees on its own
initiative or referred to it by other Board members, management, stockholders or
external sources. The Committee uses the same criteria for evaluating candidates
nominated by stockholders as it does for these proposed by other Board members,
management and search companies.

The Nominating and Corporate Governance Committee will also consider
candidates for director recommended by a stockholder, provided that any such
recommendation is sent in writing to the Corporate Secretary, 3625-132nd Avenue,
S.E., Bellevue, WA 98006 at least 120 days prior to the anniversary of the date
proxy statements were mailed to stockholders in connection with the prior year's
annual meeting of stockholders and contains the following information:(i) the
candidate's name, age, contact information and present principal occupation or
employment; and(ii) a description of the candidate's qualifications, skills,
background and business experience during, at a minimum, the last five years,
including his or her principal occupation.

Stockholders may also nominate directors for election at an annual
meeting, provided the advance notice requirement set forth in the Company's
Bylaws have been met.

COMMUNICATIONS WITH DIRECTORS

Any stockholder wishing to communicate with any of our directors
regarding SCOLR may write to the director, c/o Corporate Secretary, 3625 132nd
Avenue SE, Suite 300, Bellevue, Washington 98006. The Secretary will forward
these communications directly to the director(s). The independent directors of
the Board review and approve the stockholder's communication process
periodically to ensure effective communication with stockholders.

DIRECTOR ATTENDANCE AT ANNUAL MEETINGS

Although the Company has no policy with regard to Board members'
attendance at its annual meetings, it is customary for all Board members to
attend. Two of our the four Board members then serving attended the 2003 annual
meeting of stockholders.

COMMITTEE CHARTERS AND OTHER CORPORATE GOVERNANCE MATERIALS

The Board has adopted a charter for each of the committees described
above. The Board has also adopted a Code of Business Conduct that applies to all
of our employees, officers and directors. Links to these materials are available
on our website at www.scolr.com.

PROPOSAL NO. 2

APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK

BACKGROUND

Under Delaware law, we may only issue shares of Common Stock to the
extent such shares have been authorized for issuance under our Certificate of
Incorporation. The Certificate of Incorporation currently authorizes the
issuance of up to 50,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock. However, as of May 7, 2004, _________ shares of Common Stock
were issues and outstanding and _________ unissued shares were reserved for
issuance under our equity compensation plans and the exercise of outstanding
warrants, leaving __________ shares of Common Stock unissued and unreserved. If
stockholders approve Proposal 4 regarding an increase in the maximum number of
shares issuable under the Option Plan, only ________ shares of Common Stock will
remain unissued and unreserved. In order to ensure sufficient shares of Common
Stock will be available for issuance by SCOLR, the Board of Directors has
approved, subject to stockholder approval, an amendment to SCOLR's Certificate
of Incorporation to increase the number of shares of such Common Stock
authorized for issuance from 50,000,000 to 100,000,000.

PURPOSE AND EFFECT OF THE AMENDMENT

The principal purpose of the proposed amendment to the Certificate of
Incorporation is to authorize additional shares of Common Stock which will be
available in the event the Board of Directors determines that it is necessary or
appropriate to permit future stock dividends, to raise additional capital
through the sale of equity securities, to acquire another company or its assets,
to establish strategic relationships with corporate partners, to provide equity
incentives to employees and officers or for other corporate purposes. The
availability of additional shares of Common Stock is particularly important in
the event that the Board of Directors needs to undertake any of the foregoing
actions on an expedited basis and thus to avoid the time and expense of seeking
stockholder approval in connection with the contemplated issuance of Common
Stock. If the amendment is approved by the stockholders, the Board does not
intend to solicit further stockholder approval prior to the issuance of any
additional shares of Common Stock, except as may be required by applicable law
or the rules of the American Stock Exchange.

The increase in authorized Common Stock will not have any immediate
effect on the rights of existing stockholders. However, the Board will have the
authority to issue authorized Common Stock without requiring future stockholder
approval of such issuances, except as may be required by applicable law. To the
extent that additional authorized shares are issued in the future, they may
decrease the existing stockholders' percentage equity ownership and, depending
on the price at which they are issued, could be dilutive to the existing
stockholders. The holders of Common Stock have no preemptive rights and the
Board of Directors has no plans to grant such rights with respect to any such
shares.

The increase in the authorized number of shares of Common Stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of SCOLR without further action by the
stockholders. Shares of authorized and unissued Common Stock could, within the
limits imposed by applicable law, be issued in one or more transactions which
would make a change in control of SCOLR more difficult, and therefore less
likely. Any such issuance of additional stock could have the effect of diluting
the earnings per share and book value per share of outstanding shares of Common
Stock and such additional shares could be used to dilute the stock ownership or
voting rights of a person seeking to obtain control of SCOLR.

The Board of Directors is not currently aware of any attempt to take
over or acquire SCOLR. While it may be deemed to have potential anti-takeover
effects, the proposed amendment to increase the authorized Common Stock is not
prompted by any specific effort or takeover threat currently perceived by
management.

If the proposed amendment is approved by the stockholders, Article
FOURTH of our Certificate of Incorporation will be amended to read as follows:

A. Capitalization. The total number of shares of all classes of
stock which the Corporation will have authority to issue is One Hundred
Five Million (105,000,000) consisting of

1. Five Million (5,000,000) shares of Preferred Stock, par value
$.01 per share (the "Preferred Stock"); and

2. One Hundred Million (100,000,000) shares of Common Stock, par
value $.001 per share (the "Common Stock").

The additional shares of Common Stock to be authorized pursuant to the
proposed amendment will have a par value of $.001 per share and be of the same
class of Common Stock as is currently authorized under the Certificate. We do
not have any current intentions, plans, arrangements, commitments or
understandings to issue any shares of its capital stock except in connection
with its existing stock option and purchase plans and as stock dividends to
holders of outstanding stock.

VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION

Approval of this proposal requires the affirmative vote of a majority of
the issued and outstanding shares of Common Stock. Abstentions and broker
non-votes will be counted as present for purposes of determining if a quorum is
present but will have the same effect as a negative vote on this proposal.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 50,000,000 TO 100,000,000
SHARES.

PROPOSAL NO. 3:

AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY

The Board of Directors of the Company proposes that the stockholders'
approve an amendment to the Company's Certificate of Incorporation to change
the: name of the Company to SCOLR Pharma, Inc. The Board of Directors believes
that the ` proposed new name better reflects the Company's shift in focus from
its nutraceutical business to developing its drug delivery technology. SCOLR is
an acronym for Self Correcting Oral Linear Release, which describes the
technology behind the Company's CDT drug delivery platform. If Proposal No. 3 is
approved, the Company will promptly file an Amendment to the Company's
Certificate of Incorporation with the State of Delaware and file any other
documents necessary to effect the Company's name change from SCOLR, Inc. to
SCOLR, Pharma Inc. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO CHANGE THE
COMPANY'S NAME.

As amended, Article One would read as follows:

FIRST: The name of the Corporation is SCOLR Pharma, Inc.

VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION

Approval of this proposal requires the affirmative vote of a majority of
the shares present or represented by proxy and entitled to vote on this
proposal. Abstentions will have the same effect as votes against the proposal.
Broker non-votes will have no effect on the outcome of this vote.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO CHANGE THE
COMPANY'S NAME TO "SCOLR PHARMA, INC."

PROPOSAL NO. 4

APPROVAL OF THE SCOLR, INC.
2004 EQUITY INCENTIVE PLAN

At the annual meeting, the stockholders will be asked to approve the
SCOLR, INC. 2004 Equity Incentive Plan (the "Plan"). The Board of Directors
adopted the Plan on April 14, 2004, subject to its approval by stockholders. The
Plan is intended to replace our 1995 Stock Option Plan, which will expire in
2005.

The Board of Directors believes that the Company must offer a
competitive equity incentive program if it is to continue to successfully
attract and retain the best possible candidates for positions of responsibility
within the Company. The Board expects that the Plan will be an important factor
in attracting and retaining the high caliber employees and directors essential
to our success and in motivating these individuals to strive to enhance our
growth and profitability.

The Plan is also designed to preserve our ability to deduct in full, for
federal income tax purposes, the compensation recognized by certain executive
officers in connection with options and performance awards granted under the
Plan. Section 162(m) of the Internal Revenue Code generally denies a corporate
tax deduction for annual compensation exceeding $1 million paid by a publicly
held company to its chief executive officer or to any of its four other most
highly compensated officers. However, compensation that is deemed to be
"performance-based" under Section 162(m) is generally excluded from this limit.
To enable compensation received in connection with stock options, performance
shares and performance units awarded under the Plan to qualify as
performance-based, the Plan limits the size of awards that can be made under the
Plan, as further described below. These limits are referred to herein as the
"Grant Limits." While the Company believes that compensation in connection with
such awards under the Plan generally will be deductible by the Company for
federal income tax purposes, under certain circumstances, compensation paid in
settlement of performance share or performance unit awards may not qualify as
performance-based.

By approving the Plan, the stockholders will be approving, among other
things, eligibility requirements for participation in the Plan, financial
performance measures upon which specific performance goals applicable to certain
awards would be based, limits on the numbers of shares or compensation that
could be made subject to certain awards, the size of the Grant Limits and the
other material terms of awards described below.

The full text of the Plan appears as Appendix A to this Proxy Statement,
to which reference is made for a full statement of its terms and provisions the
following is a summary of the principal features of the Plan and should be read
together with the full text of the Plan.

SUMMARY OF THE PLAN

GENERAL. Under the Plan, employees, consultants, officers and directors
of the Company may be granted equity-based incentive awards in the form of stock
options, stock appreciation rights, stock awards, and performance awards, and
directors may receive director fee awards and outside directors will be entitled
to automatic grants of stock options.

AUTHORIZED SHARES. The Plan authorizes the issuance of up to 2,000,000
shares of common stock, plus 350,104 shares which were previously reserved for
issuance under the 1995 Stock Option Plan but not subject to outstanding
options, and 2,057,753 shares of common stock subject to outstanding options
under the 1995 Stock Option Plan to the extent shares of common stock are not
issued pursuant to such options. If any award expires, lapses or otherwise
terminates for any reason without having been exercised or settled in full, or
if shares subject to forfeiture or repurchase are forfeited or repurchased by
the Company, any such shares that are reacquired or subject to a terminated
award will again become available for issuance under the Plan. Appropriate
adjustments will be made to the number of shares reserved under the Plan, the
share limits affecting incentive stock options, the Grant Limits and the terms
of any outstanding awards in the event of any stock dividend, stock split,
reverse stock split, recapitalization or similar change in our capital
structure.

ADMINISTRATION. The Plan will be administered by the Compensation
Committee of the Board of Directors or another committee of the Board of
Directors appointed to administer the Plan, or, in the absence of such
committee, by the Board. In the case of awards intended to qualify for the
performance-based compensation exemption under Section 162(m) of the Internal
Revenue Code, administration must be by a committee comprised solely of two or
more "outside directors" within the meaning of Section 162(m). (For purposes of
this summary, the term "Committee" refers to either such committee or the Board
of Directors.) Subject to the provisions of the Plan, the Committee will
determine in its discretion the persons to whom and the times at which awards
are granted, the types and sizes of awards, and all of their terms and
conditions. The Committee may, subject under some circumstances to certain
limitations on the exercise of its discretion required by Section 162(m), amend
or cancel any award, waive any restrictions or conditions applicable to any
award, and accelerate, extend or defer the vesting of any award. The Committee
will have the authority to interpret the Plan and awards granted thereunder, and
any such interpretation by the Committee will be binding.

ELIGIBILITY. Awards may be granted to employees, officers, consultants
and directors of the Company or any parent or subsidiary of the Company. In
addition, awards may be granted to prospective service providers in connection
with written employment offers, provided that no shares subject to any such
award may be acquired prior to such person's commencement of service. Incentive
stock options may be granted only to employees, and director fee awards and
outside director grants may be granted only to members of the Board of Directors
who, as of the time of grant, are not employees of the Company or any parent or
subsidiary of the Company. As of May 7, 2004, the Company had approximately 10
employees, including 3 executive officers, 3 consultants and 8 nonemployee
directors who would be eligible to receive awards under the Plan.

STOCK OPTIONS. The Committee may grant incentive stock options within
the meaning of Section 422 of the Internal Revenue Code, nonstatutory stock
options or any combination thereof. Each option granted under the Plan must be
evidenced by a written agreement between the Company and the optionee specifying
the number of shares subject to the option and the other terms and conditions of
the option, consistent with the requirements of the Plan. Incentive stock
options must have an exercise price that is not less than the fair market value
of a share of our Common Stock on the date of grant, while nonstatutory stock
options may have an exercise price that is less than fair market value. However,
any incentive stock option granted to a person who at the time of grant owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any parent or subsidiary of the Company (a "10%
Stockholder") must have an exercise price equal to at least 110% of the fair
market value of a share of Common Stock on the date of grant. The closing price
of our Common Stock as reported on the American Stock Exchange on May ___, 2004
was $_____ per share.

The Plan provides that the option exercise price may be paid in cash, by
check, by the assignment of the proceeds of a sale or loan with respect to some
or all of the shares being acquired upon the exercise of the option, by tender,
to the extent legally permitted, of shares of Common Stock owned by the optionee
having a fair market value not less than the exercise price, or by such other
lawful consideration as may be approved by the Committee. No option may be
exercised unless the optionee has made adequate provision for federal, state,
local and foreign taxes, if any, relating to the exercise of the option,
including, if permitted by the Company, through the optionee's surrender of a
portion of the option shares to the Company.

Options will become vested and exercisable at such times or upon such
events and subject to such terms, conditions, performance criteria or
restrictions as may be specified by the Committee. The maximum term of an option
granted under the Plan is ten (10) years, provided that an incentive stock
option granted to a 10% Stockholder must have a term not exceeding five (5)
years. An option generally will remain exercisable for three months following
the optionee's termination of service, unless such termination results from the
optionee's death or disability, in which case the option generally will remain
exercisable for 12 months following termination, provided that in no case may an
option be exercised after its expiration date.

Incentive stock options are not transferable by the optionee other than
by will or by the laws of descent and distribution, and are exercisable during
the optionee's lifetime only by the optionee. Nonstatutory stock options granted
under the Plan may be assigned or transferred to the extent permitted by the
Committee and set forth in the option agreement.

STOCK APPRECIATION RIGHTS. A Stock Appreciation Right ("SAR") entitles
the holder thereof to receive, for each share as to which the award is granted
payment of an amount, in cash, shares of Common Stock, or a combination thereof,
as determined by the Committee, equal in value to the excess of the fair market
value of a share of Common Stock on the date of exercise over an exercise price
as determined by the Committee. SARs may be granted in tandem with an option or
on a stand-alone basis. SARs are exercisable at such times, and subject to such
conditions, as the Committee may prescribe at the time of granting such award,
provided that a SAR granted in tandem with a stock option can only be exercised
to the extent that the related option is itself exercisable. The grant shall
specify the number of shares of Common Stock as to which the SAR is granted.

The Committee shall determine and set forth in the participant's award
agreement, evidencing the SAR, the effect of the termination of the
participant's service on the SAR. SARs may not be assigned or transferred other
than by will or the laws of descent and distribution.

STOCK AWARDS. Awards of restricted stock may be granted by the Committee
subject to such vesting restrictions for such periods as may be determined by
the Committee and set forth in a written agreement between the Company and the
participant. Restricted stock may not be sold or otherwise transferred or
pledged until the restrictions lapse or are terminated. Restrictions may lapse
in full or in installments on the basis of the participant's continued service
or other factors, such as performance criteria established by the Committee.
Participants holding restricted stock will have the right to vote the shares and
to receive all dividends and other distributions, except that any dividends or
other distributions paid in shares will be subject to the same restrictions as
the original award. Unless otherwise provided by the Committee, upon a
participant's termination of service, the participant will forfeit any shares of
restricted stock as to which the restrictions have not lapsed.

PERFORMANCE AWARDS. The Committee may grant performance awards subject
to such conditions and the attainment of such performance goals over such
periods as may be determined by the Committee and set forth in a written
agreement between the Company and the participant. These awards may be
designated as performance shares or performance units. Performance shares and
performance units are unfunded bookkeeping entries generally having initial
values equal to the fair market value of a share of Common Stock determined on
the grant date, in the case of performance shares, and $100 per unit, in the
case of performance units. Performance awards will specify a predetermined
amount of performance shares or performance units that may be earned by the
participant to the extent that one or more predetermined performance goals are
attained within a predetermined performance period. To the extent earned,
performance awards may be settled in cash, shares of Common Stock (including
shares of restricted stock) or any combination thereof.

The Committee will establish one or more performance goals applicable to
the award. Performance goals will be based on the attainment of specified target
levels with respect to one or more measures of business or financial performance
of the Company or such division or business unit of the Company as may be
selected by the Committee. The Committee, in its discretion, may base
performance goals on one or more of the following measures: revenue, operating
income, pre-tax profit, net income, gross margin, operating margin, earnings per
share, return on stockholder equity, return on capital, return on net assets,
economic value added and cash flow. The target levels with respect to these
performance measures may be expressed on an absolute basis or relative to a
standard specified by the Committee. The degree of attainment of performance
measures will, according to criteria established by the Committee, be computed
before the effect of changes in accounting standards, restructuring charges and
similar extraordinary items occurring after the establishment of the performance
goals applicable to a performance award.

Following completion of the applicable performance period, the Committee
will certify in writing the extent to which the applicable performance goals
have been attained and the resulting value to be paid to the participant. In the
event the Company pays cash dividends on its Common Stock, the Committee may
provide for the payment of dividend equivalents to a participant awarded
performance shares. Performance award payments may be made in lump sum or in
installments. If any payment is to be made on a deferred basis, the Committee
may provide for the payment of dividend equivalents or interest during the
deferral period.

The Committee will determine, in its sole discretion, and include in the
applicable award agreement, the effect of a participant's termination of service
prior to completion of the applicable performance period. No

performance award may be sold or transferred other than by will or the laws of
descent and distribution prior to the end of the applicable performance period.

DIRECTOR FEE AWARDS. The Plan provides that commencing with the start of
the first full calendar quarter following stockholder approval of the Plan, each
nonemployee director may elect to receive the value of all compensation for
services as a director in the form of a stock-based director fee award, which
will consist of either stock options or stock units, as elected by the director
on an annual basis. A nonemployee director may elect to receive up to 100% of
director compensation in the form of a director fee award. Director fee awards
will be granted automatically on the last day of each calendar quarter for the
portion of a director's compensation earned during the quarter for which the
director elected to receive a director fee award (the "Elected Quarterly
Compensation"). Director compensation not paid in the form of a director fee
award will be paid in cash in accordance with our normal payment procedures.

A director electing to receive stock options will be granted
automatically, on the last day of each calendar quarter, a nonstatutory stock
option (a "Director Option") for a number of shares of Common Stock equal to the
amount of the Elected Quarterly Compensation divided by an amount equal to 50%
of the average closing price of a share of our Common Stock as quoted on the
American Stock Exchange on the 10 trading days preceding the date of grant and
having an exercise price per share equal to 50% of such average.

Each Director Option must be evidenced by a written agreement between
the Company and the director specifying the number of shares subject to the
option and the other terms and conditions of the option, consistent with the
requirements of the Plan. The exercise price may be paid in cash, by check, by
the assignment of the proceeds or a sale or loan with respect to some or all of
shares being acquired upon exercise of the option, and, to the extent legally
permitted, by tender of shares of Common Stock owned by the director having a
fair market value not less than the exercise price. Each Director Option will be
fully vested and will have a term of 10 years. Subject to such term, a Director
Option will remain exercisable for 36 months following the director's
termination of service. A Director Option may be assigned or transferred to the
extent permitted by the Committee and set forth in the option agreement.

A director electing to receive stock units will be granted
automatically, on the last day of each calendar quarter, an award (a "Stock
Units Award") for a number of stock units equal to the amount of the Elected
Quarterly Compensation divided by an amount equal to the average closing price
of a share of our Common Stock as quoted on the American Stock Exchange on the
10 trading days preceding the date of grant. A stock unit is an unfunded
bookkeeping entry representing a right to receive one share of our Common Stock
in accordance with the terms and conditions of the Stock Units Award.
Nonemployee directors are not required to pay any additional cash consideration
in connection with the settlement of a Stock Units Award.

Each Stock Units Award must be evidenced by a written agreement between
the Company and the nonemployee director specifying the number of stock units
subject to the award and the other terms and conditions of the Stock Units
Award, consistent with the requirements of the Plan. Stock Unit Awards are fully
vested upon grant and will be settled by distribution to the nonemployee
director of a number of whole shares of Common Stock equal to the number of
stock units subject to the award within 30 days following the earlier of (i) the
date on which the participant's service as a director terminates or (ii) an
early settlement date elected by the nonemployee director in accordance with the
terms of the Plan at the time of his or her election to receive the Stock Units
Payment. A holder of stock units has no voting rights or other rights as a
stockholder until shares of Common Stock are issued to the participant in
settlement of the stock units. However, nonemployee directors holding stock
units will be entitled to receive dividend equivalents with respect to any
payment of cash dividends on an equivalent number of shares of Common Stock.
Such dividend equivalents will be credited in the form of additional whole and
fractional stock units determined by the fair market value of a share of Common
Stock on the dividend payment date. Prior to settlement, no Stock Units Award
may be assigned or transferred other than by will or the laws of descent and
distribution.

AUTOMATIC OUTSIDE DIRECTOR OPTIONS. Under the Plan, each outside director is
granted automatically and without further action by the Committee, effective on
October 1st of each year, an option to purchase 30,000 shares of Common Stock;
provided that the first time a person is elected to serve as an outside
director, they are granted an option to purchase 2,500 shares of Common Stock
for each full month of service before October 1st. The exercise

price for outside director options is the fair market value of the Common Stock
on the date the option is granted. Each outside director option terminates and
ceases to be exercisable five (5) years after the date of grant. Each outside
director option becomes fully vested and exercisable on the day before October
1st following the year in which the option was granted.

GRANT LIMITS. Under the Grant Limits, no employee may be granted under
the Plan, during any fiscal year, (a) options to purchase more than one million
shares of Common Stock, (b) 300,000 shares of restricted stock on which the
restrictions are based on performance goals, as described under "Performance
Awards" above, (c) performance shares that could result in the employee
receiving more than 300,000 shares of Common stock or (d) performance units that
could result in the employee receiving more than $2,500,000. The Grant Limits
are intended to permit compensation received by certain executive officers in
connection with certain awards granted under the Plan to qualify as
performance-based compensation under section 162(m) of the Internal Revenue
Code. Performance-based compensation is not counted toward the limit on the
amount of executive compensation that public companies are permitted to deduct
for federal income tax purposes under Section 162(m).

CHANGE IN CONTROL. The Plan defines a "Change in Control" of the Company
as any of the following events upon which the stockholders of the Company
immediately before the event do not retain immediately after the event, in
substantially the same proportions as their ownership of shares of the Company's
voting stock immediately before the event, direct or indirect beneficial
ownership of a majority of the total combined voting power of the voting
securities of the Company, its successor or the corporation to which the assets
of the Company were transferred: (i) a sale or exchange by the stockholders in a
single or series of related transactions of more than 50% of the Company's
voting stock; (ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange or transfer of all or substantially all of the assets
of the Company; or (iv) a liquidation or dissolution of the Company. In the
event of a Change in Control, the surviving, continuing, successor or purchasing
corporation or other business entity or parent thereof may either assume all
outstanding awards or substitute new awards having an equivalent value. Any
options which are neither assumed nor substituted nor exercised as of the Change
in Control terminate; provided that the Committee may provide otherwise in an
award agreement. Any option not assumed, replaced or exercised prior to the
Change in Control will terminate upon the Change in Control. The Plan authorizes
the Committee, in its discretion, to provide in any award agreement that if,
within a period following a Change in Control specified by the Committee, the
participant's service is involuntarily terminated without cause (as defined in
the Plan) or the participant resigns for certain reasons as specified in the
Plan, then the exercisability, vesting and payment of such participant's
outstanding awards will be accelerated to such extent as specified by the
Committee and, if the outstanding award is an option, will remain exercisable
for six months (or such other period specified by the Committee) following the
date of the participant's termination of service (but not beyond the expiration
of the option's term).

TERMINATION OR AMENDMENT. The Committee may terminate or amend the Plan
at any time. However, subject to changes in applicable law, regulations or rules
that would permit otherwise, without the approval of the Company's stockholders,
the Committee may not (i) increase the maximum aggregate number of shares of
Common Stock that may be issued under the (except in the case of stock splits,
etc.), (ii) change the class of persons eligible to receive incentive stock
options, or (iii) make any other amendment that would require the approval of
the Company's stockholders under applicable law, regulation or rule. No
termination or amendment of the Plan will affect any then outstanding award
unless expressly provided by the Committee, unless such termination or amendment
is required to enable an option designated an incentive stock option to qualify
as an incentive stock option or is necessary to comply with any applicable law,
regulation or rule.

The Plan will continue in effect until the earlier of its termination by
the Committee or the date on which all shares of Common Stock available for
issuance under the Plan have been issued and all restrictions on such shares
under the terms of the Plan and the agreements evidencing awards granted under
the Plan have lapsed.

SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES

The following summary is intended only as a general guide to the U.S.
federal income tax consequences of participation in the Plan and does not
attempt to describe all possible federal or other tax consequences of such
participation or tax consequences based on particular circumstances.

INCENTIVE STOCK OPTIONS. A participant recognizes no taxable income for
regular income tax purposes as a result of the grant or exercise of an incentive
stock option. Participants who neither dispose of their shares within two years
following the date the option was granted nor within one year following the
exercise of the option will normally recognize a capital gain or loss equal to
the difference, if any, between the sale price and the purchase price of the
shares. In such event, the Company will not be entitled to any corresponding
deduction for federal income tax purposes. In the event of the participant's
disposition of shares before both of these holding periods have been satisfied
(a "disqualifying disposition"), the participant will recognize ordinary income
equal to the spread between the option exercise price and the fair market value
of the shares on the date of exercise, but in most cases not to exceed the gain
realized on the sale, if lower. Any gain in excess of that amount will be a
capital gain. If a loss is recognized, there will be no ordinary income, and
such loss will be a capital loss. Any ordinary income recognized by the
participant upon the disqualifying disposition of the shares generally should be
deductible by the Company for federal income tax purposes, except to the extent
such deduction is limited by applicable provisions of the Internal Revenue Code.

In general, the difference between the option exercise price and the
fair market value of the shares on the date when an incentive stock option is
exercised, or at such later time as the shares vest, is treated as an adjustment
in computing income that may be subject to the alternative minimum tax, which is
paid if such tax exceeds the regular tax for the year. Special rules may apply
with respect to certain subsequent sales of the shares in a disqualifying
disposition, certain basis adjustments for purposes of computing the alternative
minimum taxable income on a subsequent sale of the shares and certain tax
credits which may arise with respect to optionees subject to the alternative
minimum tax.

NONSTATUTORY STOCK OPTIONS. Options not designated or qualifying as
incentive stock options are nonstatutory stock options having no special tax
status. A participant generally recognizes no taxable income upon receipt of
such an option. Upon exercising a nonstatutory stock option, the participant
normally recognizes ordinary income equal to the difference between the exercise
price paid and the fair market value of the shares on the date when the option
is exercised or such later date as the shares become vested and free of any
restrictions on transfer (the later of such dates being referred to as the
"determination date"). If the participant is an employee, such ordinary income
generally is subject to withholding of income and employment taxes. If the
determination date is after the exercise date, the participant may elect,
pursuant to Section 83(b) of the Internal Revenue Code, to treat the exercise
date as the determination date by filing an election with the Internal Revenue
Service no later than 30 days after the exercise date. Upon the sale of stock
acquired by the exercise of a nonstatutory stock option, any gain or loss, based
on the difference between the sale price and the fair market value of the shares
on the determination date, will be taxed as capital gain or loss. The Company
generally should be entitled to a tax deduction equal to the amount of ordinary
income recognized by the participant as a result of the exercise of a
nonstatutory stock option, except to the extent such deduction is limited by
applicable provisions of the Internal Revenue Code.

STOCK APPRECIATION RIGHTS. A participant generally will not recognize
taxable income upon receipt of an SAR, but the amount of cash and/or the fair
market value of vested shares received upon exercise of an SAR will be taxable
as ordinary income to a participant. If the participant is an employee or former
employee, that ordinary income is treated as wages subject to income and
employment tax withholding. The subsequent sale of shares received upon exercise
of an SAR is a taxable event. At the time of the sale, the participant
recognizes capital gain or loss realized in the disposition. That gain or loss
is determined by the difference between the amount realized on the sale of the
shares and their adjusted basis. The adjusted basis of the shares is generally
the amount of ordinary income recognized when the shares were transferred to the
participant. The tax consequences of disposing of the shares will vary depending
on how long the participant has held the shares. The capital gain or loss will
be long-term if the participant held the shares for more than one year and short
term if the participant held the shares for one year or less. The Company is
generally entitled to a tax deduction equal to the ordinary income that
participants recognize under the rules discussed above, except to the extent
such deduction is limited by applicable provisions of the Internal Revenue Code
or the regulations thereunder.

STOCK AWARDS. Acquisitions of restricted stock receive tax treatment that is
similar to that of exercises of nonstatutory stock options. A participant
acquiring restricted stock normally recognizes ordinary income equal to the
difference between the amount, if any, the participant paid for the restricted
stock and the fair market value of the shares on the determination date. If the
participant is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. The participant may elect, pursuant
to Section 83(b) of the Internal

Revenue Code, to treat the acquisition date as the determination date by
filing an election with the Internal Revenue Service. Upon the sale of
restricted stock, any gain or loss, based on the difference between the sale
price and the fair market value of the shares on the determination date, will be
taxed as capital gain or loss. The Company generally should be entitled to a tax
deduction equal to the amount of ordinary income recognized by the participant
as a result of the acquisition of restricted stock, except to the extent such
deduction is limited by applicable provisions of the Internal Revenue Code.

PERFORMANCE AWARDS. A participant generally will recognize no income
upon the grant of a performance share, performance units or stock units award.
Upon the settlement of such awards, participants normally will recognize
ordinary income in the year of settlement in an amount equal to the cash
received and the fair market value of any unrestricted shares received. If the
participant is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. If the participant receives shares
of restricted stock, the participant generally will be taxed in the same manner
as described above under "Restricted Stock." Upon the sale of any shares
received, any gain or loss, based on the difference between the sale price and
the fair market value on the determination date (as defined above under
"Nonstatutory Stock Options"), will be taxed as capital gain or loss. The
Company generally should be entitled to a deduction equal to the amount of
ordinary income recognized by the participant on the determination date, except
to the extent such deduction is limited by applicable provisions of the Internal
Revenue Code.

DIRECTOR FEE AWARDS. Fee awards granted as nonemployee director options
will be nonstatutory options; that is, not incentive stock options within the
meaning of Section 422 of the Internal Revenue Code. In general, the grant of an
option to a director will not have any tax consequences to either the director
or the Company. Upon exercise of the option, the director will be required to
report, on his or her federal income tax return for the year in which the
exercise occurs, additional self-employment income equal to the difference
between the fair market value of the stock at the time of exercise and the
exercise price at which the stock was acquired. At the same time, the Company
will generally be entitled to a tax deduction equal to the amount included in
income by the director. For a summary of the United States federal income tax
consequences of Director Fee Awards, see the discussion of treatment of
nonstatutory stock options above.

A nonemployee director who elects to receive director fees in stock
units will generally recognize no income upon the grant of the stock units. Upon
the settlement of such awards, nonemployee directors normally will recognize
ordinary income in the year of settlement in an amount equal to the cash
received and the fair market value of any unrestricted shares received. Upon
settlement, the director will be required to report, on his or her federal
income tax return for the year in which the exercise occurs, additional
self-employment income equal to the fair market value of the stock at the time
of settlement. Upon the sale of any shares received, any gain or loss, based on
the difference between the sale price and the fair market value on the
determination date (as defined above under "Nonstatutory Stock Options"), will
be taxed as capital gain or loss. The Company generally should be entitled to a
deduction equal to the amount of ordinary income recognized by the participant
on the determination date, except to the extent such deduction is limited by
applicable provisions of the Internal Revenue Code.

OUTSIDE DIRECTOR OPTIONS. All options granted to outside directors under
the Plan will be nonstatutory options; that is, not incentive stock options
within the meaning of Section 422 of the Internal Revenue Code. In general, the
grant of an option to a director will not have any tax consequences to either
the director or the Company. Upon exercise of the option, the director will be
required to report, on his or her federal income tax return for the year in
which the exercise occurs, additional self-employment income equal to the
difference between the fair market value of the stock at the time of exercise
and the exercise price at which the stock was acquired. At the same time, the
Company will generally be entitled to a tax deduction equal to the amount
included in income by the director. For a summary of the United States federal
income tax consequences of Outside Director Options, see the discussion of
treatment of nonstatutory stock options above.

NEW PLAN BENEFITS

No awards will be granted under the Plan prior to its approval by the
stockholders of the Company. With the exception of the minimum director fee
awards that will be granted automatically to nonemployee directors and outside
director grants, awards under the Plan will be granted at the discretion of the
Committee, and, accordingly, are not yet determinable. In addition, benefits
under the Plan, including director fee awards and performance awards, will
depend on a number of factors, including the fair market value of the Company's
Common Stock on future dates, actual Company performance against performance
goals and decisions made by the participants. Consequently, other than outside
director grants it is not possible to determine the benefits that might be
received by participants under the Plan.

OPTIONS TO BE GRANTED TO CERTAIN PERSONS

The table below sets forth the grants of stock options that will be
received under the Plan during the fiscal year ending December 31, 2004, by
non-employee directors. This table is furnished pursuant to the rules of the
Securities and Exchange Commission. Other awards under the Plan are not included
because the Company cannot determine them.

NEW PLAN BENEFITS

NAME AND POSITION SHARES
----------------- ------

David T. Howard, Director 30,000
Herbert L. Lucas, Director 30,000
Randall Caudill, D. Phil., Director 30,000
Michael N. Taglich, Director 30,000
Reza Fassihi, Ph.D., Director 30,000
Wayne L. Pines 30,000
Michael Sorell, M.D. 30,000
Robert C. Schroeder, Director 30,000

REQUIRED VOTE AND BOARD OF DIRECTORS RECOMMENDATION

The Board believes that the adoption of the Plan is in the best
interests of the Company and its stockholders for the reasons stated above.
THEREFORE, THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE PLAN.

PROPOSAL NO. 5

ADJOURNMENT OF THE MEETING, IF NECESSARY, TO SOLICIT ADDITIONAL PROXIES

Under our Bylaws, any meeting of stockholders, whether or not a quorum
is present or has been established, may be adjourned by the affirmative vote of
more shares of stock entitled to vote who are present, in person or by proxy,
than are voted against the adjournment. No new notice need be given of the date,
time or place of the adjourned meeting if such date, time or place is announced
at the meeting before adjournment, unless the meeting is adjourned to a date
more than 120 days after the date fixed for the original meeting. If we
determine that an adjournment of the meeting is appropriate for the purpose of
soliciting additional proxies in favor of any proposal being submitted by SCOLR
at the meeting, such adjournment will be submitted for a shareholder vote under
Item __ of the attached Notice of Meeting. We will also use the discretionary
authority conferred on our proxy holders by duly executed proxy cards to vote
for any other matter as we determine to be appropriate.

VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION

Approval of this proposal would require the affirmative vote of a
majority of the votes cast affirmatively or negatively on the proposal at the
annual meeting of stockholders, as well as the presence of a quorum representing
a majority of all outstanding shares of Common Stock of SCOLR, either in person
or by proxy. Abstentions and broker non-votes would be counted for purposes of
determining the presence of a quorum but otherwise would not have any effect on
the outcome of the proposal.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ADJOURNMENT
OF THE MEETING, IF NECESSARY IN THE JUDGMENT OF THE PROXY HOLDERS, TO SOLICIT
ADDITIONAL PROXIES IN FAVOR OF SCOLR'S PROPOSALS IN THIS PROXY STATEMENT.

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of April 15, 2004, certain
information with respect to the beneficial ownership of our common stock by (i)
each stockholder known by us to be the beneficial owner of more than 5% of our
common stock, (ii) each director (iii) each executive officer named in the
Summary Compensation Table, and (iv) all of our directors and executive officers
as a group.

NUMBER OF SHARES PERCENT OF
BENEFICIALLY COMMON
NAME OF BENEFICIAL OWNER OWNED(1) STOCK(1)
------------------------ ---------------- ----------

Archer-Daniels-Midland Company(2)................ 1,920,000 5.87%
4666 Faries Parkway
Decatur, IL 62526

Daniel O. Wilds.................................. 236,364 *

Randall L-W. Caudill............................. 92,500 *

David T. Howard.................................. 480,000 *

Herbert L. Lucas................................. 887,396 2.86%

Dr. Reza Fassihi................................. 200,000

Robert C. Schroeder.............................. 103,207

Wayne L. Pines................................... 0 *

Michael Sorell, M.D.............................. 0 *

Michael N. Taglich(3)............................ 341,396 1.12%

Stephen J. Turner................................ 105,000 *

Gail T. Vitulli.................................. 40,833 *

All directors and executive officers as a group
(11 persons)..................................... 2,630,576 8.04%

----------
* Less than 1%.

(1) Except as otherwise indicated, the persons named in this table have sole
voting and investment power with respect to all shares of common stock
shown as beneficially owned by them, subject to community property law,
where applicable, and to the information contained in the footnotes to
this table. The number of shares of common stock shown as beneficially
owned by the persons named in this table includes all shares of common
stock underlying options and warrants exercisable within 60 days of
April 15, 2004. The percentage of common stock outstanding is calculated
on the basis of 30,094,860 shares of common stock outstanding as of
April 15, 2004, except that shares of common stock subject to options or
warrants currently exercisable, or exercisable within 60 days of April
15, 2004, are deemed outstanding for computing the percentage ownership
of the person holding the options but are not deemed outstanding for
computing the percentage ownership of any other person.

(2) Information regarding Archer-Daniels-Midland is based solely on a
Schedule 13G filed with the SEC on February 14, 2000.

(3) Michael Taglich is the General Partner of a partnership that
beneficially owns 50,000 shares of common stock. Mr. Taglich disclaims
beneficial ownership of the common stock owned by such partnership
except to the extent of his pecuniary interest therein.

EXECUTIVE COMPENSATION AND OTHER MATTERS

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation
earned during the fiscal years ended December 31, 2001, 2002 and 2003 by our
chief executive officer, and our other most highly compensated executive
officers whose salary and bonus for the last fixcal year exceeded $100,000:

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION LONG-TERM
----------------------------------- COMPENSATION
AWARDS
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
------------------ ---- ------ ----- ------------ ------------

Daniel O. Wilds 2003 95,538(1) -- -- 250,000
President and CEO 2002 -- --
2001 -- --

David T. Howard 2003 134,615(2) 100,000 12,251(3) 2,500(2)
President and CEO 2002 210,000(2) -- 10,800(3) --
2001 210,000(2) -- 10,800(3) --

Steven H. Moger 2003 200,000(4) -- -- 120,000
Chief Financial Officer 2002 150,000(4) -- -- 60,000
and Vice President of 2001 139,583(4) -- -- 110,000
Operations

----------

(1) Mr. Wilds commenced employment with the Company on August 8, 2003. He
received an annual base salary of $240,000 until December 31, 2003. On
January 1, 2004, his annual salary was increased to $300,000 with an
additional car allowance of $6,000.

(2) Mr. Howard's resigned as an executive officer on August 7, 2003 at which
time he became a consultant to the Company. The options were granted as
part of his director compensation.

(3) Other compensation paid to Mr. Howard in 2003, consisted of the
following: $5,951 for Director's compensation and $6,300 auto allowance.

(4) Mr. Moger received an annual base salary of $110,000 until February
2001. From March 2001 to May 2001, his annual salary was $135,000. In
June 2001, his annual salary was increased to $150,000. Effective
January 1, 2003 his annual base salary was increased to $200,000. Mr.
Moger's employment with the Company terminated as of December 31, 2003.

STOCK OPTIONS GRANTED IN FISCAL 2003

The following table provides the specified information concerning grants
of options to purchase our Common Stock made during the fiscal year ended
December 31, 2003 to the persons named in the Summary Compensation Table:

OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS
--------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS
SHARES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES IN PRICE
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE
------------------------- --------------- ------------ ---------

Daniel O. Wilds 250,000 46% $2.10
David T. Howard 2,500(1) N/A $2.28
Steven H. Moger 100,000 19% $1.05
20,000 4% $1.20

(1) Mr. Howard was granted 2,500 options on October 1, 2003 in
accordance with the Directors compensation plan described below.

OPTION EXERCISES AND FISCAL 2003 YEAR-END VALUES

The following table provides the specified information concerning
exercises of options to purchase our common stock in the fiscal year ended
December 31, 2003, and unexercised options held as of December 31, 2003, by the
persons named in the Summary Compensation Table above.

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

NUMBER OF SHARES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT FISCAL YEAR END FISCAL YEAR END(1)
ON VALUE ---------------------------------- -------------------------------
NAME EXERCISE REALIZED EXERCISABLE(2) UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE
---- -------- -------- -------------- ------------- -------------- -------------

Daniel O. Wilds -- -- 154,545 95,455 $6,181 $3,819
David T. Howard -- -- 482,500 -- $724,450 --
Steven H. Moger 2,500 $1,775 400,000(1) -- $520,600 --

----------

(1) Mr. Moger's employment terminated effective December 31, 2003 in
connection with the sale of our probiotics business unit. A separation
agreement with Mr. Moger was executed as part of the sale. See
"Employment Contracts and Termination of Employment and
Change-in-Control Arrangements."

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

We entered into a Consulting Agreement with Dr. Fassihi dated December
22, 2000, which has been amended and supplemented by Additional Services
Agreements. Under the Consulting Agreement, we agreed to pay Dr. Fassihi a
monthly retainer of $4,000 and an hourly fee of $100 (which is credited against
the retainer) until December 31, 2006, subject to termination under certain
circumstances. In addition, we are obligated to pay Dr. Fassihi royalties for
sales of products relating to certain intellectual property assigned to us by
Dr. Fassihi. Dr. Fassihi devotes approximately one day per week plus ongoing
supervision of projects as necessary to provide services to the Company. Under
the terms of his Consulting Agreement, we shall own any and all intellectual
property relating to the services provided under the agreements. During 2003, we
paid Dr. Fassihi $48,000 in consulting fees and granted Dr. Fassihi a fully
exercisable nonqualified stock option for 100,000 shares of the our common stock
at an exercise price of $1.05 per share on April 7, 2003.

On August 7, 2003, Mr. Howard entered into Separation and Advisory
Agreements pursuant to which he resigned as an officer and agreed to provide
consulting and advisory services to the Company. In connection with these
agreements, Mr. Howard received a bonus of $100,000 and we confirmed the vesting
of 480,000 of the 800,000 options previously granted to Mr. Howard. Under the
terms of the Advisory Agreement, Mr. Howard assists us with the development and
commercialization of our drug delivery technology and provides assistance with
respect to licenses, strategic alliances and product development. The Advisory
Agreement provided for compensation of $20,000 per month and was scheduled to
terminate on February 6, 2004. By letter dated December 30, 2003, Mr. Howard's
Advisory Agreement was extended until July 6, 2004, subject to automatic
extension until terminated by either party on 60 days notice. In addition,
subsequent to February 6, 2004, Mr. Howard's compensation was reduced to $10,000
per month.

Mr. Wilds was appointed to the Board of Directors and Chief Executive
Officer and President of the Company in August 2003. At that time, we approved a
termination package that would provide payment equal to six months salary in the
event his employment was terminated by the Company without cause.

We have an Employment Agreement with Stephen Turner which provides for
an annual salary of at least $85,000 (subsequently increased to $140,000 per
year) and includes provisions for bonus, salary increases and stock options as
determined by the Board. In accordance with the terms of the agreement, Mr.
Turner's employment is "at will" and he may be terminated at any time with or
without cause. However, in the event Mr. Turner's employment is terminated
"without cause" (as defined), or by Mr. Turner for "good reason" (as defined),
we shall continue to pay his then current base salary for six months following
the date of termination.

We entered a Consulting Agreement with Daniel Ward, a former director,
commencing upon his resignation as director on November 11, 2003 and terminates
on December 31, 2004. In accordance with his Consulting Agreement, Mr. Ward
receives $3,750 per calendar quarter.

COMPENSATION OF DIRECTORS

We pay no additional remuneration to our employees who serve as
directors. All directors are entitled to reimbursement for expenses incurred in
traveling to and from meetings of the Board of Directors. The Board of Directors
has adopted the following compensation plan for non-employee directors
("Eligible Directors"): (a) on October 1 of each year each Eligible Director is
granted an option exercisable for 30,000 shares of the Company's common stock at
an exercise price equal to the closing price of the Company's common stock on
the date of grant, which option shall be fully vested as of the date of grant,
(b) on October 1 of the first year of service, each new Eligible Director is
granted an option for 2,500 shares for each whole month of service prior to
October 1, (c) in the event an Eligible Director resigns prior to October 1 in
any year, such eligible Director is granted an option on October 1 of the year
of resignation for 2,500 shares for each whole month of service completed prior
to the date of designation, and (d) each Eligible Director receives a quarterly
cash retainer paid in arrears in the amount of $3,750 for services as a
Director.

In accordance with this compensation policy, on October 1, 2003, Mr. Lucas, Dr.
Caudill (together with another non-employee director who is no longer serving)
were each granted nonqualified stock options exercisable

for 30,000 shares and Mr. Howard and Mr. Taglich were each granted 2,500 shares
of the Company's common stock at an exercise price of $2.28 per share.

EQUITY COMPENSATION PLAN INFORMATION

We currently maintains a stock incentive plan known as the 1995 Stock
Option Plan adopted in 1995, approved by stockholders, that provides for the
issuance of options to purchase our common stock to officers and other
employees, directors and consultants. The following table sets forth information
regarding outstanding options and shares reserved for future issuance under the
foregoing plans as of December 31, 2003:

(c)
Number of
shares
remaining
(a) available for
Number of (b) future issuance
shares to be Weighted-average under equity
issued upon exercise compensation
exercise of price of plans
outstanding outstanding (excluding
options, options, shares
warrants and warrants and reflected in
Plan Category rights rights column (a)
------------- ------------ ---------------- --------------

Equity compensation plans approved by
stockholders 2,502,337 $ .95 587,604

MATERIAL FEATURES OF THE 1995 STOCK OPTION PLAN

The 1995 Stock Option Plan was adopted by our Board of Directors and
stockholders in March 1995. We are authorized to issue up to 4,000,000 shares of
common stock under this plan. The plan allows grants of incentive stock options
within the meaning of Section 422 of the Code, to employees, including officers
and employee directors. In addition, it allows grants of nonstatutory options to
employees, non-employee directors and consultants. The exercise price of
incentive stock options granted under the 1995 Stock Option Plan must not be
less than the fair market value of a share of the common stock on the date of
grant In the case of nonstatutory stock options, the exercise price must not be
less than 85% of the fair market value of the common stock on the date of grant.
The plan expires in 2005, but no additional options will be granted if the 2004
Equity Incentive Plan is approved by stockholders at the annual meeting of
stockholders. As of April 30, 2004, 350,104 options were available for future
issuance.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On January 15, 2004, we completed the sale of our probiotics development
and manufacturing division to an entity formed and owned by Steven H. Moger, our
former Vice President of Operations, Chief Financial Officer and General Manager
of the probiotics division. Mr. Moger resigned his positions with the Company in
connection with the sale. The assets sold comprise substantially all of the
assets and properties used in connection with the our probiotics division,
including equipment, inventory and intellectual property rights. The division
engaged in the business of formulating and manufacturing probiotics-based health
and dietary supplements for the animal and human nutrition markets. We also
granted the buyer the right to manufacture and sell certain products utilizing
SCOLR's patented CDT technology pursuant to a License, Manufacture, and
Distribution Agreement also dated as of December 31, 2003. We received $722,756
in cash at closing and the Asset Purchase Agreement provides for deferred
payments of at least $2 million. The deferred payments are tied to the buyer's
achievement of certain sales levels and royalties. The consideration for the
sale was determined pursuant to arm's-length negotiations after extensive
negotiations with a number of third parties (including industry buyers) and took
into account various factors concerning the valuation of the probiotics
business, including valuations of comparable companies, the operating results,
financial condition and prospects of the division and the opinion of the
financial advisor retained by our Board of Directors. In connection with Mr.
Moger's resignation, he entered into a Separation Agreement which provided for
the vesting of all options previously granted to Mr. Moger and extended the time
for him to exercise such options until December 31, 2006.

Dr. Fassihi assigned us all of his right, title and interest in and to
the technology known as "oral extended release dosage form based on the
principle of controlled hydration "pursuant to an Intellectual Property
Assignment and Assumption Agreement dated May 24, 2001. We paid a fee to Dr.
Fassihi in connection with execution of this Agreement and an additional fee
upon issuance of Patent No. 6,517,868 (CDT Patent No. 3). Dr. Fassihi assigned
all of his right, title and interest in the technology known as "multiple
compressed asymmetric composite delivery system for release-rate modulation of
bioactives" to us pursuant to an Intellectual Property Assignment and Assumption
Agreement dated August 1, 2002. We paid Dr. Fassihi a fee upon execution of the
Agreement and agreed to pay an additional fee upon issuance of the first patent.
We are obligated to pay Dr. Fassihi an annual license maintenance fee, share in
upfront payments from customers and pay royalties based on product sales with
respect to the intellectual property assigned to us under each agreement.

Between April 30, 2003 and May 6, 2003 we issued $550,000 of
subordinated notes to a group of accredited investors, including Herbert L.
Lucas, a director, who purchased $75,000 of such subordinated notes. In
connection with the sale of these notes, we granted warrants to purchase 235,722
shares of our common stock (including 32,144 warrants granted to Mr. Lucas) at
$1.11 per share exercisable for three years. The notes were paid in full on June
25, 2003. For placement services associated with the financing, we paid Taglich
Brothers, Inc. a fee of $23,750 and issued warrants to purchase 20,357 shares of
common stock at $1.11 per share exercisable for three years. Michael N. Taglich
and Robert Schroeder, directors of the Company, are affiliates of Taglich
Brothers, Inc.

On June 25, 2003, we completed a private placement of $5.3 million of
notes due June 25, 2006. Of the $5.3 million of notes issued, $75,000 were
issued to Herbert L. Lucas. The principal balance was converted into shares of
our common stock at $1.05 per share in December 2003. In consideration of
certain placement services, we paid Taglich Brothers, Inc. a cash fee of
approximately $200,000, issued $300,000 of convertible notes and issued warrants
to purchase up to 476,191 shares at $1.155 per share.

In February 2004, we completed the private placement of 3,206,538 shares
of our common stock for $3.25 per share. The purchasers also received five year
warrants to purchase 801,636 shares of commons tock at an exercise price of
$4.75 per share. Rodman & Renshaw acted as the lead placement agent for the
transaction and Taglich Brothers, Inc. assisted in the financing. The placement
agents received a cash commission of $729,487 and warrants to purchase 224,458
shares, of which Taglich Brothers, Inc. received $174,965 and warrants to
purchase 53,846 shares. In addition, Mr. Taglich purchased 49,631 shares of
common stock and warrants to purchase 12,408 shares as part of the private
placement.

During March 2002, we entered an exclusive patent license agreement with
Arthur-Daniels-Midland ("ADM"), the owner of approximately 6% of our common
stock, which granted ADM an exclusive license and right of first refusal to
develop and market certain dietary supplement and nutraceutical products using
our CDT

Technology. During 2002, we received $50,000 for reimbursement of research and
development costs associated with one product. We will receive royalties based
on a percentage of net sales of the licensed products sold by ADM each quarter.

We engaged Dunsford Hill Capital Partners ("Dunsford Hill") in March
2003 to provide strategic and financial advice and to assist organizing and
preparing us for a private equity financing. Dr. Randall Caudill, a director, is
the owner of Dunsford Hill. Under the terms of the engagement, we agreed to pay
Dunsford Hill $75,000 over the six month term of the engagement and granted
Dunsford Hill a five-year warrant to purchase 100,000 shares of common stock at
a price of $1.00 per share. In April 2003, Dunsford Hill agreed to reduce its
cash payment to $25,000 and the amount of the warrant to 50,000 shares.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers, directors and persons who beneficially own more than 10% of
our common stock to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission. Such persons are required
by SEC regulations to furnish us with copies of all Section 16(a) forms they
file.

Based solely on our review of the copies of such reports furnished to us
and written representations by certain reporting persons regarding their
compliance with the applicable reporting requirements under Section 16(a) of the
Exchange Act, we believe that, with respect to our fiscal year ended December
31, 2003, all filing requirements applicable to our executive officers,
directors and greater-than-10% stockholders were complied with except that Form
4 reports were not timely filed by Messrs. Caudill, Lucas, Ward and Wilds with
respect to one transaction each as a result of inadvertent administrative
delays.

REPORT OF THE AUDIT COMMITTEE

The Audit Committee oversees SCOLR's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process, including internal control
systems. Our independent auditors, Grant Thornton is responsible for expressing
an opinion as to the conformity of our audited financial statements with
generally accepted accounting principles.

The Audit Committee consists of two directors each of whom, in the
judgment of the Board, is an "independent director" as defined in the listing
standards for The American Stock Exchange currently applicable to us. The Audit
Committee acts pursuant to a written charter that has been adopted by the Board
of Directors. A copy of this charter is attached to this Proxy Statement as
Appendix B.

The Committee has discussed and reviewed with the auditors all matters
required to be discussed Statement on Auditing Standards No. 61 (Communication
with Audit Committees). The Committee has met with Grant Thornton, with and
without management present, to discuss the overall scope of Grant Thornton's
audit, the results of its examinations, its evaluations of our internal controls
and the overall quality of our financial reporting.

The Audit Committee has received from the auditors a formal written
statement describing all relationships between the auditors and us that might
bear on the auditors' independence consistent with Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), discussed with
the auditors any relationships that may impact their objectivity and
independence, and satisfied itself as to the auditors' independence.

Based on the review and discussions referred to above, the committee
recommended to the Board of Directors that SCOLR's audited financial statements
be included in SCOLR's Annual Report on Form 10-K for the fiscal year ended
December 31, 2003.

AUDIT COMMITTEE

HERBERT L. LUCAS, CHAIRMAN

RANDALL L-W. CAUDILL, D.PHIL.

INFORMATION REGARDING THE INDEPENDENT AUDITORS

Set forth below is certain information concerning aggregate fees billed
for professional services rendered during fiscal year 2002 and 2003 by Grant
Thornton LLP, the Company's auditors for those respective years. A
representative of Grant Thornton is expected to be present at the annual
meeting, with the opportunity to make a statement if the representative desires
to do so, and is expected to be available to respond to appropriate questions.

Fiscal 2002 Fiscal 2003
----------- -----------
(in thousands of U.S. dollars)

Audit Fees (1)............................... $72,595 $98,680
Audit-Related Fees (2)....................... -- --
Tax Fees (3)................................. -- $15,157
All Other Fees (4)........................... $9,795 $35,355

----------

(1) Audit fees represent amounts billed for each of the years presented
for professional services rendered in connection with (i) the audit of our
annual financial statements, (ii) the review of our quarterly financial
statements or (iii) those services normally provided in connection with
statutory and regulatory filings or engagements including comfort letters,
consents and other services related to SEC matters. This information is
presented as of the latest practicable date for this proxy statement.

(2) Audit-related fees represent amounts we were billed in each of the
years presented for assurance and related services that are reasonably related
to the performance of the annual audit or quarterly reviews. This category
primarily includes services relating to internal control assessments and
accounting-related consulting. Grant Thornton LLP rendered no such services
during the last two years.

(3) Tax fees represent amounts we were billed in each of the years
presented for professional services rendered in connection with tax compliance,
tax advice, and tax planning.

(4) All other fees represent amounts we were billed in each of the years
presented for services not classifiable under the other categories listed in the
table above.

The Audit Committee's policy is to pre-approve all audit and permissible
non-audit services provided by our independent auditors. These services may
include audit services, audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year and any pre-approval is
detailed as to the particular service or category of services. The independent
auditor and management are required to periodically report to the Audit
Committee regarding the extent of services provided by the independent auditor
in accordance with this pre-approval.

STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING

Stockholder proposals may be included in our proxy materials for an
annual meeting so long as they are provided to us on a timely basis and satisfy
the other conditions set forth in applicable SEC rules. For a stockholder
proposal to be included our proxy materials for the 2005 annual meeting, the
proposal must be received at our principal executive offices, addressed to the
Secretary, not later than [date 90 days prior to anniversary of this YEAR'S
mailing date]. Stockholder business that is not intended for inclusion in our
proxy materials may be brought before

the annual meeting so long as we receive notice of the proposal as specified by
our Bylaws, addressed to the Secretary at our principal executive offices, not
later than [ ].

TRANSACTION OF OTHER BUSINESS

At the date of this Proxy Statement, the Board of Directors knows of no
other business that will be conducted at the 2004 annual meeting other than as
described in this Proxy Statement. If any other matter or matters are properly
brought before the meeting, or any adjournment or postponement of the meeting,
it is the intention of the persons named in the accompanying form of proxy to
vote the proxy on such matters in accordance with their best judgment.

By order of the Board of Directors

/s/ DANIEL O. WILDS

Daniel O. Wilds
President and Chief Executive Officer

May __, 2004

APPENDIX A

2004 EQUITY INCENTIVE PLAN

TABLE OF CONTENTS

Page
----

1. Establishment, Purpose and Term of Plan........................................... 2
2. Definitions and Construction...................................................... 2
3. Administration.................................................................... 7
4. Shares Subject to Plan............................................................ 10
5. Eligibility and Award Limitations................................................. 11
6. Terms and Conditions of Options................................................... 12
7. Terms and Conditions of Stock Appreciation Rights................................. 14
8. Terms and Conditions of Stock Awards.............................................. 15
9. Terms and Conditions of Performance Awards........................................ 17
10. Director Fee Awards............................................................... 21
11. Terms and Conditions of Outside Director Options.................................. 26
12. Standard Forms of Award Agreement................................................. 27
13. Change in Control................................................................. 28
14. Compliance with Securities Law.................................................... 29
15. Tax Withholding................................................................... 30
16. Termination or Amendment of Plan.................................................. 30
17. Stockholder Approval.............................................................. 31
18. Miscellaneous Provisions.......................................................... 31

2004 EQUITY INCENTIVE PLAN

1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.

1.1 ESTABLISHMENT. SCOLR, Inc., a Delaware corporation, hereby
establishes the SCOLR, Inc. 2004 Equity Incentive Plan (the "PLAN") effective as
of June ____, 2004, the date of its approval by the stockholders of the Company
(the "EFFECTIVE DATE").

1.2 PURPOSE. The purpose of the Plan is to advance the interests of
the Participating Company Group and its stockholders by providing an incentive
to attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group. The Plan seeks to achieve this
purpose by providing for Awards in the form of Options, Stock Appreciation
Rights, Stock Awards, Performance Awards, Outside Director Options, and Director
Fee Awards.

1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Awards granted under the Plan have lapsed. However, all Incentive
Stock Options shall be granted, if at all, within ten (10) years from the
earlier of the date the Plan is adopted by the Board or the date the Plan is
duly approved by the stockholders of the Company.

2. DEFINITIONS AND CONSTRUCTION.

2.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:

(a) "AFFILIATE" means (i) an entity, other than a Parent
Corporation, that directly, or indirectly through one or more intermediary
entities, controls the Company or (ii) an entity, other than a Subsidiary
Corporation, that is controlled by the Company directly, or indirectly through
one or more intermediary entities. For this purpose, the term "CONTROL"
(including the term "CONTROLLED BY") means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
the relevant entity, whether through the ownership of voting securities, by
contract or otherwise; or shall have such other meaning assigned such term for
the purposes of registration on Form S-8 under the Securities Act.

(b) "AWARD" means any Option, SAR, Stock Award, Performance
Award, Outside Director Option, or Director Fee Award granted under the Plan.

(c) "AWARD AGREEMENT" means a written agreement between the
Company and a Participant setting forth the terms, conditions and restrictions
of the Award granted to the Participant. An Award Agreement may be an "OPTION
AGREEMENT," an "SAR AGREEMENT," a "STOCK PURCHASE AGREEMENT," a "STOCK BONUS
AGREEMENT," a "PERFORMANCE

SHARE AGREEMENT," a "PERFORMANCE UNIT AGREEMENT," a "NONEMPLOYEE DIRECTOR OPTION
AGREEMENT," or "STOCK UNITS AGREEMENT," or an "OUTSIDE DIRECTOR OPTION
AGREEMENT."

(d) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"BOARD" also means such Committee(s).

(e) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.

(f) "COMMITTEE" shall mean the Board or the Compensation
Committee or other committee of the Board duly appointed to administer the Plan
and having such powers as shall be specified by the Board. Unless the powers of
the Committee have been specifically limited, the Committee shall have all of
the powers of the Board granted herein, including, without limitation, the power
to amend or terminate the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law.

(g) "COMPANY" means SCOLR, Inc., a Delaware corporation, or
any successor corporation thereto.

(h) "CONSULTANT" means a person engaged to provide consulting
or advisory services (other than as an Employee or a Director) to a
Participating Company, provided that the identity of such person, the nature of
such services or the entity to which such services are provided would not
preclude the Company from offering or selling securities to such person pursuant
to the Plan in reliance on registration on a Form S-8 Registration Statement
under the Securities Act.

(i) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.

(j) "DIRECTOR FEE AWARD" means any Nonemployee Director Option
or Stock Unit granted pursuant to Section 10.

(k) "DISABILITY" means the inability of the Optionee, in the
opinion of a qualified physician acceptable to the Company, to perform the major
duties of the Optionee's position with the Participating Company Group because
of the sickness or injury of the Optionee.

(l) "DIVIDEND EQUIVALENT" means a credit, made at the
discretion of the Committee or as otherwise provided by the Plan, to the account
of a Participant in an amount equal to the cash dividends paid on one share of
Stock for each share of Stock represented by an Award held by such Participant.

(m) "EMPLOYEE" means any person treated as an employee
(including an Officer or a Director who is also treated as an employee) in the
records of a Participating Company and, with respect to any Incentive Stock
Option granted to such person, who is an employee for purposes of Section 422 of
the Code; provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes

of the Plan. The Company shall determine in good faith and in the exercise of
its discretion whether an individual has become or has ceased to be an Employee
and the effective date of such individual's employment or termination of
employment, as the case may be. For purposes of an individual's rights, if any,
under the Plan as of the time of the Company's determination, all such
determinations by the Company shall be final, binding and conclusive,
notwithstanding that the Company or any court of law or governmental agency
subsequently makes a contrary determination;

(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.

(o) "FAIR MARKET VALUE" means, as of any date, the value of a
share of Stock or other property as determined by the Board, in its discretion,
or by the Company, in its discretion, if such determination is expressly
allocated to the Company herein, subject to the following:

(i) If, on such date, the Stock is listed on a national
or regional securities exchange or market system, the Fair Market Value of a
share of Stock shall be the closing price of a share of Stock (or the mean of
the closing bid and asked prices of a share of Stock if the Stock is so quoted
instead) as quoted on the American Stock Exchange or such other national or
regional securities exchange or market system constituting the primary market
for the Stock, as reported in The Wall Street Journal or such other source as
the Company deems reliable. If the relevant date does not fall on a day on which
the Stock has traded on such securities exchange or market system, the date on
which the Fair Market Value shall be established shall be the last day on which
the Stock was so traded prior to the relevant date, or such other appropriate
day as shall be determined by the Board, in its discretion.

(ii) If, on such date, the Stock is not listed on a
national or regional securities exchange or market system, the Fair Market Value
of a share of Stock shall be as determined by the Board in good faith without
regard to any restriction other than a restriction which, by its terms, will
never lapse.

(p) "INCENTIVE STOCK OPTION" means an Option intended to be
(as set forth in the Award Agreement) and which qualifies as an incentive stock
option within the meaning of Section 422(b) of the Code.

(q) "INSIDER" means an Officer, Director of the Company, or
other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.

(r) "NONEMPLOYEE DIRECTOR" means a Director who is not an
Employee.

(s) "NONEMPLOYEE DIRECTOR OPTION" means a Director Fee Award
in the form of Nonstatutory Stock Option granted pursuant to the terms and
conditions of Section 10.

(t) "NONSTATUTORY STOCK OPTION" means an Option not intended
to be (as set forth in the Award Agreement) or which does not qualify as an
Incentive Stock Option within the meaning of Section 422(b) of the Code.

(u) "OFFICER" means any person designated by the Board as an
officer of the Company.

(v) "OPTION" means the right to purchase Stock at a stated
price for a specified period of time granted to a Participant pursuant to the
terms and conditions of the Plan, including an Outside Director Option. An
Option may be either an Incentive Stock Option or a Nonstatutory Stock Option.

(w) "OUTSIDE DIRECTOR" means a Director of the Company who is
not an Employee.

(x) "OUTSIDE DIRECTOR OPTION" means an Option granted to an
Outside Director pursuant to Section 11 below. Outside Director Options shall be
Nonstatutory Stock Options.

(y) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.

(z) "PARTICIPANT" means any eligible person who has been
granted one or more Awards.

(aa) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation, Subsidiary Corporation or Affiliate.

(bb) "PARTICIPATING COMPANY GROUP" means, at any point in
time, all corporations collectively which are then Participating Companies.

(cc) "PERFORMANCE AWARD" means an Award of Performance Shares
or Performance Units.

(dd) "PERFORMANCE AWARD FORMULA" means, for any Performance
Award, a formula or table established by the Committee pursuant to Section 9.3
of the Plan which provides the basis for computing the value of a Performance
Award at one or more threshold levels of attainment of the applicable
Performance Goal(s) measured as of the end of the applicable Performance Period.

(ee) "PERFORMANCE GOAL" means a performance goal established
by the Committee pursuant to Section 9.3 of the Plan.

(ff) "PERFORMANCE PERIOD" means a period established by the
Committee pursuant to Section 9.3 of the Plan at the end of which one or more
Performance Goals are to be measured.

(gg) "PERFORMANCE SHARE" means a bookkeeping entry
representing a right granted to a Participant pursuant to Section 9 of the Plan
to receive a payment equal to the value of a Performance Share, as determined by
the Committee, based on performance.

(hh) "PERFORMANCE UNIT" means a bookkeeping entry representing
a right granted to a Participant pursuant to Section 9 of the Plan to receive a
payment equal to the value of a Performance Unit, as determined by the
Committee, based upon performance.

(ii) "PRIOR PLAN OPTION" means any option granted pursuant to
the Company's 1995 Stock Option Plan, as amended, which is outstanding on or
after the Effective Date.

(jj) "RESTRICTION PERIOD" means the period established in
accordance with Section 8.5 of the Plan during which shares subject to a Stock
Award are subject to Vesting Conditions.

(kk) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.

(ll) "SAR" or "STOCK APPRECIATION RIGHT" means a bookkeeping
entry representing, for each share of Stock subject to such SAR, a right granted
to a Participant pursuant to Section 7 of the Plan to receive payment of an
amount equal to the excess, if any, of the Fair Market Value of a share of Stock
on the date of exercise of the SAR over the exercise price.

(mm) "SECTION 162(m)" means Section 162(m) of the Code.

(nn) "SECURITIES ACT" means the Securities Act of 1933, as
amended.

(oo) "SERVICE" means a Participant's employment or service
with the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. Unless otherwise determined by the Board, a
Participant's Service shall not be deemed to have terminated merely because of a
change in the capacity in which the Participant renders Service to the
Participating Company Group or a change in the Participating Company for which
the Participant renders such Service, provided that there is no interruption or
termination of the Participant's Service. Furthermore, a Participant's Service
with the Participating Company Group shall not be deemed to have terminated if
the Participant takes any military leave, sick leave, or other bona fide leave
of absence approved by the Company; provided, however, that if any such leave
exceeds ninety (90) days, on the ninety-first (91st) day of such leave the
Participant's Service shall be deemed to have terminated unless the
Participant's right to return to Service with the Participating Company Group is
guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company or required by law, a leave of absence shall
not be treated as Service for purposes of determining vesting under the
Participant's Award Agreement. A Participant's Service shall be deemed to have
terminated either upon an actual termination of Service or upon the corporation
for which the Participant performs Service ceasing to be a Participating
Company. Subject to the foregoing, the Company, in its discretion, shall
determine whether the Participant's Service has terminated and the effective
date of such termination.

(pp) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 4.2.

(qq) "STOCK AWARD" means an Award of a Stock Bonus or a Stock
Purchase Right.

(rr) "STOCK BONUS" means Stock granted to a Participant
pursuant to Section 8 of the Plan.

(ss) "STOCK PURCHASE RIGHT" means a right to purchase Stock
granted to a Participant pursuant to Section 8 of the Plan.

(tt) "STOCK UNIT" means a Director Fee Award in the form of a
bookkeeping entry representing a right granted to a Participant pursuant to the
terms and conditions of Section 10 to receive payment of one (1) share of Stock.

(uu) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.

(vv) "TEN PERCENT OWNER" means a Participant who, at the time
an Option is granted to the Participant, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of a
Participating Company (other than an Affiliate) within the meaning of Section
422(b)(6) of the Code.

(ww) "VESTING CONDITIONS" mean those conditions established in
accordance with Section 8.5 of the Plan prior to the satisfaction of which
shares subject to a Stock Award remain subject to forfeiture or a repurchase
option in favor of the Company.

2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.

3. ADMINISTRATION.

3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by
the Board. All questions of interpretation of the Plan or of any Award shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan or such Award.

3.2 AUTHORITY OF OFFICERS. Any Officer shall have the authority to
act on behalf of the Company with respect to any matter, right, obligation,
determination or election which is the responsibility of or which is allocated
to the Company herein, provided the Officer has apparent authority with respect
to such matter, right, obligation, determination or election. The Board may, in
its discretion, delegate to a committee comprised of one or more Officers the
authority to grant one or more Options, SARs or Stock Awards without further
approval of the Board or the Committee, to any person eligible pursuant to
Section 5, other than a person who, at

the time of such grant, is an Insider; provided, however, that (i) such Awards
shall not be granted for shares in excess of the maximum aggregate number of
shares of Stock authorized for issuance pursuant to Section 4.1, (ii) the
exercise price per share of each Option, SAR or Stock Purchase Right shall be
equal to the Fair Market Value per share of the Stock on the effective date of
grant (or, if the Stock has not traded on such date, on the last day preceding
the effective date of grant on which the Stock was traded), and (iii) each such
Award shall be subject to the terms and conditions of the appropriate standard
form of Award Agreement approved by the Board or the Committee and shall conform
to the provisions of the Plan and such other guidelines as shall be established
from time to time by the Board or the Committee.

3.3 POWERS OF THE BOARD. In addition to any other powers set forth
in the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its discretion:

(a) to determine the persons to whom, and the time or times at
which, Awards shall be granted and the number of shares of Stock or units to be
subject to each Award;

(b) to determine the type of Award granted and to designate
Options as Incentive Stock Options or Nonstatutory Stock Options;

(d) to determine the terms, conditions and restrictions
applicable to each Award (which need not be identical) and any shares acquired
pursuant thereto, including, without limitation, (i) the exercise or purchase
price of shares purchased pursuant to any Award, (ii) the method of payment for
shares purchased upon the exercise or purchase of shares purchased pursuant to
any Award, (iii) the method for satisfaction of any tax withholding obligation
arising in connection with any Award, including by the withholding or delivery
of shares of Stock, (iv) the timing, terms and conditions of the exercisability
or vesting of any Award or any shares acquired pursuant thereto, (v) the
Performance Award Formula and Performance Goals applicable to any Award and the
extent to which such Performance Goals have been attained, (vi) the time of the
expiration of any Award, (vii) the effect of the Participant's termination of
Service on any of the foregoing, and (viii) all other terms, conditions and
restrictions applicable to any Award or shares acquired pursuant thereto not
inconsistent with the terms of the Plan;

(e) to determine whether an Award of SARs, Performance Shares
or Performance Units will be settled in shares of Stock, cash, or in any
combination thereof;

(f) to approve one or more forms of Award Agreement;

(g) to amend, modify, extend, cancel or renew any Award or to
waive any restrictions or conditions applicable to any Award or any shares
acquired pursuant thereto;

(h) to accelerate, continue, extend or defer the
exercisability or the vesting of any Award or any shares acquired pursuant
thereto, including with respect to the period following a Participant's
termination of Service with the Participating Company Group;

(i) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted Awards;
and

(j) to correct any defect, supply any omission or reconcile
any inconsistency in the Plan or any Award Agreement and to make all other
determinations and take such other actions with respect to the Plan or any Award
as the Board may deem advisable to the extent not inconsistent with the
provisions of the Plan or applicable law.

3.4 COMPLIANCE WITH SECTION 162(m). If a Participating Company is a
"publicly held corporation" within the meaning of Section 162(m), the Board may
establish a Committee of "outside directors" within the meaning of Section
162(m) to approve the grant of any Award which might reasonably be anticipated
to result in the payment of employee remuneration that would otherwise exceed
the limit on employee remuneration deductible for income tax purposes pursuant
to Section 162(m).

3.5 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.

3.6 OPTION REPRICING. Without the affirmative vote of holders of a
majority of the shares of Stock cast in person or by proxy at a meeting of the
stockholders of the Company at which a quorum representing a majority of all
outstanding shares of Stock is present or represented by proxy, the Board shall
not approve a program providing for either (a) the cancellation of outstanding
Options and the grant in substitution therefore of new Options having a lower
exercise price or (b) the amendment of outstanding Options to reduce the
exercise price thereof. This paragraph shall not be construed to apply to (a)
"issuing or assuming a stock option in a transaction to which section 424(a)
applies," within the meaning of Section 424 of the Code or (b) the cancellation
of Prior Plan Options and the grant in substitution therefore of new Options
having a lower exercise price under this Plan.

3.7 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or officers or
employees of the Participating Company Group, members of the Board and any
officers or employees of the Participating Company Group to whom authority to
act for the Board or the Company is delegated shall be indemnified by the
Company against all reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any right granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct in duties; provided, however, that within sixty

(60) days after the institution of such action, suit or proceeding, such person
shall offer to the Company, in writing, the opportunity at its own expense to
handle and defend the same.

4. SHARES SUBJECT TO PLAN.

4.1 MAXIMUM NUMBER OF SHARES ISSUABLE.

GENERAL. Subject to adjustment as provided in Section 4.2, the
maximum aggregate number of shares of Stock that may be issued under the Plan
shall be 2,000,000 shares, plus 350,104 shares which were previously reserved
for issuance under the Prior Plan but not subject to outstanding options, and
2,057,753 shares subject to outstanding option, under the Prior Plan, to the
extent shares of Stock are not issued pursuant to such options. If an
outstanding Award for any reason expires or is terminated or canceled without
having been exercised or settled in full, or if shares of Stock are acquired
pursuant to an Award subject to forfeiture or repurchase are forfeited or
repurchased by the Company at the Participant's purchase price, the shares of
Stock allocable to the terminated portion of such Award or such forfeited or
repurchased shares of Stock shall again be available for issuance under the
Plan. However, except as adjusted pursuant to Section 4.2, in no event shall
more than Four Million Four Hundred Seven Thousand Eight Hundred Fifty-Seven
(4,407,857) shares of Stock be available for issuance pursuant to the exercise
of Incentive Stock Options (the "ISO SHARE ISSUANCE LIMIT"). Shares of Stock
shall not be deemed to have been issued pursuant to the Plan (i) with respect to
any portion of an Award that is settled in cash or (ii) to the extent such
shares are withheld in satisfaction of tax withholding obligations pursuant to
Section 15.2. Upon payment in shares of Stock pursuant to the exercise of an
SAR, the number of shares available for issuance under the Plan shall be reduced
only by the number of shares actually issued in such payment. If the exercise
price of an Option is paid by tender to the Company, or attestation to the
ownership, of shares of Stock owned by the Participant, the number of shares
available for issuance under the Plan shall be reduced by the gross number of
shares for which the Option is exercised.

4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any change in the Stock through merger, consolidation, reorganization,
reincorporation, recapitalization, reclassification, stock dividend, stock
split, reverse stock split, split-up, split-off, spin-off, combination, exchange
of shares or similar change in the capital structure of the Company or in the
event of payment of a dividend or distribution to the stockholders of the
Company in a form other than Stock (except normal cash dividends) that has a
material effect on the Fair Market Value of shares of Stock, appropriate
adjustments shall be made in the number and class of shares subject to the Plan,
in the ISO Share Issuance Limit set forth in Section 4.1, in the Award Limits
set forth in Section 5.4 and to any outstanding Awards, and in the exercise or
purchase price per share under any outstanding Award. Notwithstanding the
foregoing, any fractional share resulting from an adjustment pursuant to this
Section 4.2 shall be rounded down to the nearest whole number, and in no event
may the exercise or purchase price under any Award be decreased to an amount
less than the par value, if any, of the stock subject to such Award. The
adjustments determined by the Board pursuant to this Section 4.2 shall be final,
binding and conclusive.

5. ELIGIBILITY AND AWARD LIMITATIONS.

5.1 PERSONS ELIGIBLE FOR AWARDS. Awards may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"EMPLOYEES," "CONSULTANTS" and "DIRECTORS" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Awards are granted in
connection with written offers of an employment or other service relationship
with the Participating Company Group; provided, however, that no Stock subject
to any Award shall vest, become exercisable or be issued prior to the date on
which such person commences Service. Awards are granted solely at the discretion
of the Board. Eligible persons may be granted more than one (1) Award. However,
eligibility in accordance with this Section shall not entitle any person to be
granted an Award, or, having been granted an Award, to be granted an additional
Award. A Director Fee Award and Outside Director Options may be granted only to
a person who, at the time of the grant, is a Nonemployee Director. Eligible
persons may be granted more than one (1) Award.

5.2 OPTION GRANT RESTRICTIONS. Any person who is not an Employee on
the effective date of the grant of an Option to such person may be granted only
a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective
Employee upon the condition that such person become an Employee shall be deemed
granted effective on the date such person commences Service with a Participating
Company, with an exercise price determined as of such date in accordance with
Section 6.1.

5.3 FAIR MARKET VALUE LIMITATION. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by a
Participant for the first time during any calendar year for stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portion
of such options which exceeds such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of stock shall be determined as of the time the option
with respect to such stock is granted. If the Code is amended to provide for a
different limitation from that set forth in this Section 5.3, such different
limitation shall be deemed incorporated herein effective as of the date and with
respect to such Options as required or permitted by such amendment to the Code.
If an Option is treated as an Incentive Stock Option in part and as a
Nonstatutory Stock Option in part by reason of the limitation set forth in this
Section 5.3, the Participant may designate which portion of such Option the
Participant is exercising. In the absence of such designation, the Participant
shall be deemed to have exercised the Incentive Stock Option portion of the
Option first. Separate certificates representing each such portion shall be
issued upon the exercise of the Option.

5.4 AWARD LIMITS.

(a) AGGREGATE LIMIT ON STOCK AWARDS AND PERFORMANCE AWARDS.
Subject to adjustment as provided in Section 4.2, in no event shall more than
One Million (1,000,000) shares in the aggregate be issued under the Plan
pursuant to the exercise or settlement of Stock Awards and Performance Awards.

(b) SECTION 162(m) AWARD LIMITS. The following limits shall
apply to the grant of any Award if, at the time of grant, the Company is a
"publicly held corporation" within the meaning of Section 162(m).

(i) OPTIONS AND SARs. Subject to adjustment as provided
in Section 4.2, no Employee shall be granted within any fiscal year of the
Company one or more Options or Freestanding SARs which in the aggregate are for
more than One Million (1,000,000) shares of Stock. An Option which is canceled
(or a Freestanding SAR as to which the exercise price is reduced to reflect a
reduction in the Fair Market Value of the Stock) in the same fiscal year of the
Company in which it was granted shall continue to be counted against such limit
for such fiscal year.

(ii) STOCK AWARDS. Subject to adjustment as provided in
Section 4.2, no Employee shall be granted within any fiscal year of the Company
one or more Stock Awards, subject to Vesting Conditions based on the attainment
of Performance Goals, for more than three hundred thousand (300,000) shares of
Stock.

(iii) PERFORMANCE AWARDS. Subject to adjustment as
provided in Section 4.2, no Employee shall be granted (A) Performance Shares
which could result in such Employee receiving more than three hundred thousand
(300,000) shares of Stock for each full fiscal year of the Company contained in
the Performance Period for such Award, or (B) Performance Units which could
result in such Employee receiving more than two million five hundred thousand
dollars ($2,500,000) for each full fiscal year of the Company contained in the
Performance Period for such Award. No Participant may be granted more than one
Performance Award for the same Performance Period.

6. TERMS AND CONDITIONS OF OPTIONS.

Options shall be evidenced by Award Agreements specifying the number of
shares of Stock covered thereby, in such form as the Board shall from time to
time establish. No Option or purported Option shall be a valid and binding
obligation of the Company unless evidenced by a fully executed Award Agreement.
Award Agreements evidencing Options may incorporate all or any of the terms of
the Plan by reference and shall comply with and be subject to the following
terms and conditions:

6.1 EXERCISE PRICE. The exercise price for each Option shall be
established in the discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option and (b) no Incentive Stock Option granted to a Ten Percent Owner shall
have an exercise price per share less than one hundred ten percent (110%) of the
Fair Market Value of a share of Stock on the effective date of grant of the
Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock
Option or a Nonstatutory Stock Option) may be granted with an exercise price
lower than the minimum exercise price set forth above if such Option is granted
pursuant to an assumption or substitution for another option in a manner
qualifying under the provisions of Section 424(a) of the Code.

6.2 EXERCISABILITY AND TERM OF OPTIONS. Options shall be exercisable
at such time or times, or upon such event or events, and subject to such terms,
conditions, performance criteria and restrictions as shall be determined by the
Board and set forth in the Award Agreement evidencing such Option; provided,
however, that (a) no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years after the effective date of grant of such Option,
(b) no Incentive Stock Option granted to a Ten Percent Owner shall be
exercisable after the expiration of five (5) years after the effective date of
grant of such Option, and (c) no Option granted to a prospective Employee,
prospective Consultant or prospective Director may become exercisable prior to
the date on which such person commences Service with a Participating Company.
Subject to the foregoing, unless otherwise specified by the Board in the grant
of an Option, any Option granted hereunder shall terminate ten (10) years after
the effective date of grant of the Option, unless earlier terminated in
accordance with its provisions.

6.3 PAYMENT OF EXERCISE PRICE.

(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check or
cash equivalent, (ii) by tender to the Company, or attestation to the ownership,
of shares of Stock owned by the Participant having a Fair Market Value not less
than the exercise price, (iii) by delivery of a properly executed notice of
exercise together with irrevocable instructions to a broker providing for the
assignment to the Company of the proceeds of a sale or loan with respect to some
or all of the shares being acquired upon the exercise of the Option (including,
without limitation, through an exercise complying with the provisions of
Regulation T as promulgated from time to time by the Board of Governors of the
Federal Reserve System) (a "CASHLESS EXERCISE"), (iv) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (v) by any combination thereof. The Board may at
any time or from time to time, by approval of or by amendment to the standard
forms of Option Agreement described in Section 12, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.

(b) LIMITATIONS ON FORMS OF CONSIDERATION.

(i) TENDER OF STOCK. Notwithstanding the foregoing, an
Option may not be exercised by tender to the Company, or attestation to the
ownership, of shares of Stock to the extent such tender or attestation would
constitute a violation of the provisions of any law, regulation or agreement
restricting the redemption of the Company's stock. Unless otherwise provided by
the Board, an Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock unless such shares either have
been owned by the Participant for more than six (6) months (and not used for
another Option exercise by attestation during such period). The Company
reserves, at any and all times, the right, in the Company's sole and absolute
discretion, to refuse to allow the exercise by tender to the Company, or
attestation to the ownership, of shares of Stock.

(ii) CASHLESS EXERCISE. The Company reserves, at any and
all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or

terminate any program or procedures for the exercise of Options by means of a
Cashless Exercise. Cashless exercise shall not be permitted if the exercise by
means of a Cashless Exercise would be a violation of any law, including
Sarbanes-Oxley Act of 2002, which prohibits public companies from making
personal loans to any director or executive officer.

6.4 TRANSFERABILITY OF OPTIONS. During the lifetime of the
Participant, an Option shall be exercisable only by the Participant or the
Participant's guardian or legal representative. No Option shall be assignable or
transferable by the Participant, except by will or by the laws of descent and
distribution. Notwithstanding the foregoing, to the extent permitted by the
Board, in its discretion, and set forth in the Award Agreement evidencing such
Option, an Option shall be assignable or transferable subject to the applicable
limitations, if any, described in the General Instructions to Form S-8
Registration Statement under the Securities Act.

7. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS.

SARs shall be evidenced by Award Agreements specifying the number of
shares of Stock subject to the Award, in such form as the Committee shall from
time to time establish. No SAR or purported SAR shall be a valid and binding
obligation of the Company unless evidenced by a fully executed Award Agreement.
Award Agreements evidencing SARs may incorporate all or any of the terms of the
Plan by reference and shall comply with and be subject to the following terms
and conditions:

7.1 TYPES OF SARS AUTHORIZED. SARs may be granted in tandem with all
or any portion of a related Option (a "TANDEM SAR") or may be granted
independently of any Option (a "FREESTANDING SAR"). A Tandem SAR may be granted
either concurrently with the grant of the related Option or at any time
thereafter prior to the complete exercise, termination, expiration or
cancellation of such related Option.

7.2 EXERCISE PRICE. The exercise price for each SAR shall be
established in the discretion of the Committee; provided, however, that the
exercise price per share subject to a Tandem SAR shall be the exercise price per
share under the related Option.

7.3 EXERCISABILITY AND TERM OF SARs.

(a) TANDEM SARs. Tandem SARs shall be exercisable only at the
time and to the extent, and only to the extent, that the related Option is
exercisable, subject to such provisions as the Committee may specify where the
Tandem SAR is granted with respect to less than the full number of shares of
Stock subject to the related Option. The Committee may, in its discretion,
provide in any Award Agreement evidencing a Tandem SAR that such SAR may not be
exercised without the advance approval of the Company and, if such approval is
not given, then the Option shall nevertheless remain exercisable in accordance
with its terms. A Tandem SAR shall terminate and cease to be exercisable no
later than the date on which the related Option expires or is terminated or
canceled. Upon the exercise of a Tandem SAR with respect to some or all of the
shares subject to such SAR, the related Option shall be canceled automatically
as to the number of shares with respect to which the Tandem SAR was exercised.
Upon the exercise of an Option related to a Tandem SAR as to some or all of the
shares subject

to such Option, the related Tandem SAR shall be canceled automatically as to the
number of shares with respect to which the related Option was exercised.

(b) FREESTANDING SARs. Freestanding SARs shall be exercisable
at such time or times, or upon such event or events, and subject to such terms,
conditions, performance criteria and restrictions as shall be determined by the
Committee and set forth in the Award Agreement evidencing such SAR; provided,
however, that no Freestanding SAR shall be exercisable after the expiration of
eight (8) years after the effective date of grant of such SAR.

7.4 EXERCISE OF SARs. Upon the exercise (or deemed exercise pursuant
to Section 7.5) of an SAR, the Participant (or the Participant's legal
representative or other person who acquired the right to exercise the SAR by
reason of the Participant's death) shall be entitled to receive payment of an
amount for each share with respect to which the SAR is exercised equal to the
excess, if any, of the Fair Market Value of a share of Stock on the date of
exercise of the SAR over the exercise price. Payment of such amount shall be
made in cash, shares of Stock, or any combination thereof as determined by the
Committee. Unless otherwise provided in the Award Agreement evidencing such SAR,
payment shall be made in a lump sum as soon as practicable following the date of
exercise of the SAR. The Award Agreement evidencing any SAR may provide for
deferred payment in a lump sum or in installments. When payment is to be made in
shares of Stock, the number of shares to be issued shall be determined on the
basis of the Fair Market Value of a share of Stock on the date of exercise of
the SAR. For purposes of Section 7, an SAR shall be deemed exercised on the date
on which the Company receives notice of exercise from the Participant.

7.5 DEEMED EXERCISE OF SARs. If, on the date on which an SAR would
otherwise terminate or expire, the SAR by its terms remains exercisable
immediately prior to such termination or expiration and, if so exercised, would
result in a payment to the holder of such SAR, then any portion of such SAR
which has not previously been exercised shall automatically be deemed to be
exercised as of such date with respect to such portion.

7.6 EFFECT OF TERMINATION OF SERVICE. An SAR shall be exercisable
after a Participant's termination of Service to such extent and during such
period as determined by the Committee, in its discretion, and set forth in the
Award Agreement evidencing such SAR.

7.7 NONTRANSFERABILITY OF SARs. SARs may not be assigned or
transferred in any manner except by will or the laws of descent and
distribution, and, during the lifetime of the Participant, shall be exercisable
only by the Participant.

8. TERMS AND CONDITIONS OF STOCK AWARDS.

Stock Awards shall be evidenced by Award Agreements specifying whether the
Award is a Stock Bonus or a Stock Purchase Right and the number of shares of
Stock subject to the Award, in such form as the Committee shall from time to
time establish. No Stock Award or purported Stock Award shall be a valid and
binding obligation of the Company unless evidenced by a fully executed Award
Agreement. Award Agreements evidencing Stock Awards may incorporate all or any
of the terms of the Plan by reference and shall comply with and be subject to
the following terms and conditions:

8.1 TYPES OF STOCK AWARDS AUTHORIZED. Stock Awards may be in the
form of either a Stock Bonus or a Stock Purchase Right. Stock Awards may be
granted upon such conditions as the Committee shall determine, including,
without limitation, upon the attainment of one or more Performance Goals
described in Section 9.4. If either the grant of a Stock Award or the lapsing of
the Restriction Period is to be contingent upon the attainment of one or more
Performance Goals, the Committee shall follow procedures substantially
equivalent to those set forth in Sections 9.3 through 9.5(a).

8.2 PURCHASE PRICE. The purchase price for shares of Stock issuable
under each Stock Purchase Right shall be established by the Committee in its
discretion. No monetary payment (other than applicable tax withholding) shall be
required as a condition of receiving shares of Stock pursuant to a Stock Bonus,
the consideration for which shall be services actually rendered to a
Participating Company or for its benefit. Notwithstanding the foregoing, the
Participant shall furnish consideration in the form of cash or past services
rendered to a Participating Company or for its benefit having a value not less
than the par value of the shares of Stock subject to such Stock Award.

8.3 PURCHASE PERIOD. A Stock Purchase Right shall be exercisable
within a period established by the Committee, which shall in no event exceed
thirty (30) days from the effective date of the grant of the Stock Purchase
Right; provided, however, that no Stock Purchase Right granted to a prospective
Employee, prospective Director or prospective Consultant may become exercisable
prior to the date on which such person commences Service.

8.4 PAYMENT OF PURCHASE PRICE. Except as otherwise provided below,
payment of the purchase price for the number of shares of Stock being purchased
pursuant to any Stock Purchase Right shall be made (i) in cash, by check, or
cash equivalent, (ii) by such other consideration as may be approved by the
Committee from time to time to the extent permitted by applicable law, or (iii)
by any combination thereof. The Committee may at any time or from time to time
grant Stock Purchase Rights which do not permit all of the foregoing forms of
consideration to be used in payment of the purchase price or which otherwise
restrict one or more forms of consideration. Stock Bonuses shall be issued in
consideration for past services actually rendered to a Participating Company or
for its benefit.

8.5 VESTING AND RESTRICTIONS ON TRANSFER. Shares issued pursuant to
any Stock Award may or may not be made subject to vesting conditioned upon the
satisfaction of such Service requirements, conditions, restrictions or
performance criteria, including, without limitation, Performance Goals as
described in Section 9.4 (the "VESTING CONDITIONS"), as shall be established by
the Committee and set forth in the Award Agreement evidencing such Award. During
any period (the "RESTRICTION PERIOD") in which shares acquired pursuant to a
Stock Award remain subject to Vesting Conditions, such shares may not be sold,
exchanged, transferred, pledged, assigned or otherwise disposed of other than
pursuant to an Ownership Change Event, as defined in Section 13.1, or as
provided in Section 8.8. Upon request by the Company, each Participant shall
execute any agreement evidencing such transfer restrictions prior to the receipt
of shares of Stock hereunder and shall promptly present to the Company any and
all certificates representing shares of Stock acquired hereunder for the
placement on such certificates of appropriate legends evidencing any such
transfer restrictions.

8.6 VOTING RIGHTS; DIVIDENDS AND DISTRIBUTIONS. Except as provided
in this Section and Section 8.5, during the Restriction Period applicable to
shares subject to a Stock Award, the Participant shall have all of the rights of
a stockholder of the Company holding shares of Stock, including the right to
vote such shares and to receive all dividends and other distributions paid with
respect to such shares. However, in the event of a dividend or distribution paid
in shares of Stock or any other adjustment made upon a change in the capital
structure of the Company as described in Section 4.2, then any and all new,
substituted or additional securities or other property (other than normal cash
dividends) to which the Participant is entitled by reason of the Participant's
Stock Award shall be immediately subject to the same Vesting Conditions as the
shares subject to the Stock Award with respect to which such dividends or
distributions were paid or adjustments were made.

8.7 EFFECT OF TERMINATION OF SERVICE. Unless otherwise provided by
the Committee in the grant of a Stock Award and set forth in the Award
Agreement, if a Participant's Service terminates for any reason, whether
voluntary or involuntary (including the Participant's death or disability), then
(i) the Company shall have the option to repurchase for the purchase price paid
by the Participant any shares acquired by the Participant pursuant to a Stock
Purchase Right which remain subject to Vesting Conditions as of the date of the
Participant's termination of Service and (ii) the Participant shall forfeit to
the Company any shares acquired by the Participant pursuant to a Stock Bonus
which remain subject to Vesting Conditions as of the date of the Participant's
termination of Service. The Company shall have the right to assign at any time
any repurchase right it may have, whether or not such right is then exercisable,
to one or more persons as may be selected by the Company.

8.8 NONTRANSFERABILITY OF STOCK AWARD RIGHTS. Rights to acquire
shares of Stock pursuant to a Stock Award may not be subject in any manner to
anticipation, alienation, sale, exchange, transfer, assignment, pledge,
encumbrance or garnishment by creditors of the Participant or the Participant's
beneficiary, except by will or the laws of descent and distribution, and, during
the lifetime of the Participant, shall be exercisable only by the Participant.

9. TERMS AND CONDITIONS OF PERFORMANCE AWARDS.

Performance Awards shall be evidenced by Award Agreements in such form as
the Committee shall from time to time establish. No Performance Award or
purported Performance Award shall be a valid and binding obligation of the
Company unless evidenced by a fully executed Award Agreement. Award Agreements
evidencing Performance Awards may incorporate all or any of the terms of the
Plan by reference and shall comply with and be subject to the following terms
and conditions:

9.1 TYPES OF PERFORMANCE AWARDS AUTHORIZED. Performance Awards may
be in the form of either Performance Shares or Performance Units. Each Award
Agreement evidencing a Performance Award shall specify the number of Performance
Shares or Performance Units subject thereto, the Performance Award Formula, the
Performance Goal(s) and Performance Period applicable to the Award, and the
other terms, conditions and restrictions of the Award.

9.2 INITIAL VALUE OF PERFORMANCE SHARES AND PERFORMANCE UNITS.
Unless otherwise provided by the Committee in granting a Performance Award, each
Performance Share shall have an initial value equal to the Fair Market Value of
one (1) share of Stock, subject to adjustment as provided in Section 4.2, on the
effective date of grant of the Performance Share, and each Performance Unit
shall have an initial value of one hundred dollars ($100). The final value
payable to the Participant in settlement of a Performance Award determined on
the basis of the applicable Performance Award Formula will depend on the extent
to which Performance Goals established by the Committee are attained within the
applicable Performance Period established by the Committee.

9.3 ESTABLISHMENT OF PERFORMANCE PERIOD, PERFORMANCE GOALS AND
PERFORMANCE AWARD FORMULA. In granting each Performance Award, the Committee
shall establish in writing the applicable Performance Period, Performance Award
Formula and one or more Performance Goals which, when measured at the end of the
Performance Period, shall determine on the basis of the Performance Award
Formula the final value of the Performance Award to be paid to the Participant.
Unless otherwise permitted in compliance with the requirements under Section
162(m) with respect to "performance-based compensation," the Committee shall
establish the Performance Goal(s) and Performance Award Formula applicable to
each Performance Award no later than the earlier of (a) the date ninety (90)
days after the commencement of the applicable Performance Period or (b) the date
on which 25% of the Performance Period has elapsed, and, in any event, at a time
when the outcome of the Performance Goals remains substantially uncertain. Once
established, the Performance Goals and Performance Award Formula shall not be
changed during the Performance Period. The Company shall notify each Participant
granted a Performance Award of the terms of such Award, including the
Performance Period, Performance Goal(s) and Performance Award Formula.

9.4 MEASUREMENT OF PERFORMANCE GOALS. Performance Goals shall be
established by the Committee on the basis of targets to be attained
("PERFORMANCE TARGETS") with respect one or more measures of business or
financial performance (each, a "PERFORMANCE MEASURE"), subject to the following:

(a) PERFORMANCE MEASURES. Performance Measures shall have the
same meanings as used in the Company's financial statements, or, if such terms
are not used in the Company's financial statements, they shall have the meaning
applied pursuant to generally accepted accounting principles, or as used
generally in the Company's industry. Performance Measures shall be calculated
with respect to the Company and each Subsidiary Corporation consolidated
therewith for financial reporting purposes or such division or other business
unit as may be selected by the Committee. For purposes of the Plan, the
Performance Measures applicable to a Performance Award shall be calculated in
accordance with generally accepted accounting principles, but prior to the
accrual or payment of any Performance Award for the same Performance Period and
excluding the effect (whether positive or negative) of any change in accounting
standards or any extraordinary, unusual or nonrecurring item, as determined by
the Committee, occurring after the establishment of the Performance Goals
applicable to the Performance Award. Performance Measures may be one or more of
the following, as determined by the Committee:

(i) growth in revenue;

(ii) operating margin;

(iii) total return on shares of Stock relative to the
increase in an appropriate index as may be selected by the Committee;

(iv) earnings per share;

(v) return on stockholder equity;

(vi) return on net assets; and

(vii) cash flow, as indicated by book earnings before
interest, taxes, depreciation and amortization.

(b) PERFORMANCE TARGETS. Performance Targets may include a
minimum, maximum, target level and intermediate levels of performance, with the
final value of a Performance Award determined under the applicable Performance
Award Formula by the level attained during the applicable Performance Period. A
Performance Target may be stated as an absolute value or as a value determined
relative to a standard selected by the Committee.

9.5 SETTLEMENT OF PERFORMANCE AWARDS.

(a) DETERMINATION OF FINAL VALUE. As soon as practicable
following the completion of the Performance Period applicable to a Performance
Award, the Committee shall certify in writing the extent to which the applicable
Performance Goals have been attained and the resulting final value of the Award
earned by the Participant and to be paid upon its settlement in accordance with
the applicable Performance Award Formula.

(b) DISCRETIONARY ADJUSTMENT OF AWARD FORMULA. In its
discretion, the Committee may, either at the time it grants a Performance Award
or at any time thereafter, provide for the positive or negative adjustment of
the Performance Award Formula applicable to a Performance Award granted to any
Participant who is not a "covered employee" within the meaning of Section 162(m)
(a "COVERED EMPLOYEE") to reflect such Participant's individual performance in
his or her position with the Company or such other factors as the Committee may
determine. If permitted under a Covered Employee's Award Agreement, the
Committee shall have the discretion, on the basis of such criteria as may be
established by the Committee, to reduce some or all of the value of the
Performance Award that would otherwise be paid to the Covered Employee upon its
settlement notwithstanding the attainment of any Performance Goal and the
resulting value of the Performance Award determined in accordance with the
Performance Award Formula. No such reduction may result in an increase in the
amount payable upon settlement of another Participant's Performance Award.

(c) EFFECT OF LEAVES OF ABSENCE. Unless otherwise required by
law, payment of the final value, if any, of a Performance Award held by a
Participant who has taken in excess of thirty (30) days of leaves of absence
during a Performance Period shall be prorated

on the basis of the number of days of the Participant's Service during the
Performance Period during which the Participant was not on a leave of absence.

(d) NOTICE TO PARTICIPANTS. As soon as practicable following
the Committee's determination and certification in accordance with Sections
9.5(a) and (b), the Company shall notify each Participant of the determination
of the Committee.

(e) PAYMENT IN SETTLEMENT OF PERFORMANCE AWARDS. As soon as
practicable following the Committee's determination and certification in
accordance with Sections 9.5(a) and (b), payment shall be made to each eligible
Participant of the final value of the Participant's Performance Award. Payment
of such amount shall be made in cash, shares of Stock, or a combination thereof
as determined by the Committee. Unless otherwise provided in the Award Agreement
evidencing a Performance Award, payment shall be made in a lump sum. An Award
Agreement may provide for deferred payment in a lump sum or in installments. If
any payment is to be made on a deferred basis, the Committee may, but shall not
be obligated to, provide for the payment during the deferral period of Dividend
Equivalents or interest.

(f) PROVISIONS APPLICABLE TO PAYMENT IN SHARES. If payment is
to be made in shares of Stock, the number of such shares shall be determined by
dividing the final value of the Performance Award by the value of a share of
Stock determined by the method specified in the Award Agreement. Such methods
may include, without limitation, the closing market price on a specified date
(such as the settlement date) or an average of market prices over a series of
trading days. Shares of Stock issued in payment of any Performance Award may be
fully vested and freely transferable shares or may be shares of Stock subject to
Vesting Conditions as provided in Section 8.5. Any shares subject to Vesting
Conditions shall be evidenced by an appropriate Award Agreement and shall be
subject to the provisions of Sections 8.5 through 8.8 above.

9.6 DIVIDEND EQUIVALENTS. In its discretion, the Committee may
provide in the Award Agreement evidencing any Performance Share Award that the
Participant shall be entitled to receive Dividend Equivalents with respect to
the payment of cash dividends on Stock having a record date prior to the date on
which the Performance Shares are settled or forfeited. Dividend Equivalents may
be paid currently or may be accumulated and paid to the extent that Performance
Shares become nonforfeitable, as determined by the Committee. Settlement of
Dividend Equivalents may be made in cash, shares of Stock, or a combination
thereof as determined by the Committee, and may be paid on the same basis as
settlement of the related Performance Share as provided in Section 9.5. Dividend
Equivalents shall not be paid with respect to Performance Units.

9.7 EFFECT OF TERMINATION OF SERVICE. The effect of a Participant's
termination of Service on the Participant's Performance Award shall be as
determined by the Committee, in its discretion, and set forth in the Award
Agreement evidencing such Performance Award.

9.8 NONTRANSFERABILITY OF PERFORMANCE AWARDS. Prior to settlement in
accordance with the provisions of the Plan, no Performance Award may be subject
in any manner to anticipation, alienation, sale, exchange, transfer, assignment,
pledge, encumbrance, or

garnishment by creditors of the Participant or the Participant's beneficiary,
except by will or by the laws of descent and distribution. All rights with
respect to a Performance Award granted to a Participant hereunder shall be
exercisable during his or her lifetime only by such Participant.

10. DIRECTOR FEE AWARDS

10.1 EFFECTIVE DATE AND DURATION OF THIS SECTION. This Section 10
shall become effective on the first day (the "SECTION 10 EFFECTIVE DATE") of the
first calendar quarter beginning after the Effective Date, provided that
elections with respect to the Initial Plan Year pursuant to Section 10.2 may be
made prior to the Section 10 Effective Date. This Section 10 shall continue in
effect for the remainder of the calendar year commencing on the Section 10
Effective Date (the "INITIAL PLAN YEAR") and for each subsequent calendar year
commencing during the term (as provided in Section 1.3) of the Plan (a "PLAN
YEAR"). Notwithstanding any Participant's prior election pursuant to Section
10.2, no Director Fee Award shall be granted after termination of the Plan, and
all Director Fees (as defined below) with respect to which Director Fee Awards
have not been granted prior to termination of the Plan shall thereafter be paid
in cash in accordance with the Company's normal Director Fee payment procedures.
However, subject to compliance with applicable law as provided in Section 14,
all Director Fee Awards granted prior to termination of the Plan shall continue
to be governed by and may be exercised or settled in accordance with the terms
of the Plan and the Award Agreement evidencing such Director Fee Award.

10.2 MANDATORY AND ELECTIVE DIRECTOR FEE AWARDS. Each Nonemployee
Director may elect to receive one or more Director Fee Awards in lieu of payment
in cash of all or any portion of such Participant's annual retainer fee, meeting
fees and other compensation payable with respect to such Participant's service
as a Director ("DIRECTOR FEES") for the Initial Plan Year and each subsequent
Plan Year or applicable portion thereof. A Participant shall be entitled to
elect one (but not both) of the following alternative forms of payment of the
value of the Participant's Director Fees:

(a) OPTION PAYMENT. A Nonemployee Director may elect to
receive up to a maximum of one hundred percent (100%) of the Participant's
Director Fees to be paid in the form of a Nonemployee Director Option (an
"OPTION PAYMENT") and the balance, if any, to be paid in cash in accordance with
the Company's normal Director Fee payment procedures.

(b) STOCK UNITS PAYMENT. A Nonemployee Director may elect to
receive up to a maximum of one hundred percent (100%) of the Participant's
Director Fees to be paid in the form of Stock Units (a "STOCK UNITS PAYMENT")
and the balance, if any, to be paid in cash in accordance with the Company's
normal Director Fee payment procedures. In connection with an election to
receive a Stock Units Payment, the Participant may elect an "EARLY SETTLEMENT
DATE" (as defined below) upon which the Stock Units will be settled in
accordance with Section 10.6(d); provided, however, that upon termination of the
Participant's Service as a Director prior to the Early Settlement Date,
settlement shall be made as provided in Section 10.6(d). Any "EARLY SETTLEMENT
DATE" elected by the Participant shall become irrevocable as provided in Section
10.3(b) and shall be December 1 of the third Plan Year following the Plan Year
of the Stock Units Payment or December 1 of any subsequent Plan Year.

10.3 TIME AND MANNER OF ELECTION.

(a) TIME OF ELECTION. Each Nonemployee Director shall make an
election pursuant to Section 10.2:

(i) for the Initial Plan Year: prior to the earlier of
(1) the date thirty (30) days following the Effective Date or (2) the Section 10
Effective Date;

(ii) for each subsequent Plan Year: prior to the first
day of such Plan Year; and

(iii) in the case of a newly appointed or elected
Nonemployee Director: on the date of such appointment or election for the
remainder of the Initial Plan Year or subsequent Plan Year of appointment or
election, as the case may be.

(b) ELECTION IRREVOCABLE. An election pursuant to Section 10.2
shall become irrevocable as of the commencement of the Plan Year or portion
thereof to which it applies.

(c) FAILURE TO TIMELY ELECT. Any Nonemployee Director who
fails to make an election in accordance with this Section for any Plan Year (or
the Initial Plan Year, as the case may be) shall be deemed to have elected
pursuant to Section 10.2 to receive Option Payments for zero percent (0%) of the
value of such Participant's Director Fees earned during such Plan Year (or
Initial Plan Year) and to receive all of such Participant's Director Fees in
cash in accordance with the Company's normal Director Fee payment procedures.

(d) MANNER OF ELECTION. Each election in accordance with this
Section shall be made on a form prescribed by the Company for this purpose and
filed with the Chief Financial Officer of the Company.

10.4 AUTOMATIC GRANT OF DIRECTOR FEE AWARDS. Subject to the
provisions of Sections 1.3, 4 and 5, effective as of the last day of each
quarter during any Plan Year (or the Initial Plan Year, as the case may be),
each Nonemployee Director shall be granted automatically and without further
action of the Committee a Director Fee Award in lieu of that portion of the
Director Fees earned by the Participant during such quarter and specified by the
Participant's election under Section 10.2 for such Plan Year (or Initial Plan
Year) and any fractional share amount carried over from the prior quarter as
provided in Section 10.7 (the "QUARTERLY DIRECTOR FEES"). In accordance with the
Participant's election under Section 10.2 for the Plan Year (or Initial Plan
Year), the Director Fee Award shall be either in the form of an Option Payment
pursuant to Section 10.5 or a Stock Units Payment pursuant to Section 10.6.

10.5 OPTION PAYMENT. Each Option Payment shall be in the form of a
Nonemployee Director Option and shall be evidenced by an Award Agreement that
shall specify the exercise price, the duration of the Nonemployee Director
Option, the number of shares of Stock to which the Nonemployee Director Option
pertains, and such other provisions as the Committee shall determine. No such
Nonemployee Director Option or purported Nonemployee Director Option shall be a
valid and binding obligation of the Company unless evidenced by a fully executed
Award Agreement. Such Award Agreements may incorporate all or any of the

terms of the Plan by reference and shall comply with and be subject to the terms
and conditions of Section 6 to the extent not inconsistent with this Section and
the terms and conditions set forth in Sections 10.5(a) through 10.5(d) below:

(a) EXERCISE PRICE. The exercise price per share for each
Nonemployee Director Option shall be fifty percent (50%) of the average of the
Fair Market Values of a share of Stock for the ten (10) trading days preceding
the effective date of grant of the Nonemployee Director Option.

(b) NUMBER OF SHARES SUBJECT TO NONEMPLOYEE DIRECTOR OPTION.
The number of shares of Stock subject to a Nonemployee Director Option shall be
determined by the following formula (with any resulting fractional share being
disregarded):

X = A / (B x 50%)

where,

"X" is the number of shares subject to the Nonemployee
Director Option;

"A" is the amount of Quarterly Director Fees in lieu
of which the Option Payment is made; and

"B" is the average of the Fair Market Values of a
share of Stock for the ten (10) trading days
preceding the effective date of grant of the
Nonemployee Director Option.

(c) EXERCISE PERIOD. Each Nonemployee Director Option shall be
vested and exercisable on and after the date of grant of the Nonemployee
Director Option and shall terminate and cease to be exercisable on the date ten
(10) years after the date of grant of the Nonemployee Director Option, unless
earlier terminated pursuant to the terms of the Plan or the Award Agreement.

(d) EFFECT OF TERMINATION OF SERVICE.

(i) NONEMPLOYEE DIRECTOR OPTION GRANT. No Participant
shall be granted a Nonemployee Director Option following the date on which such
Participant's Service as a Director terminates for any reason. All of such
Participant's Director Fees with respect to which Director Fee Awards have not
been granted prior to the Participant's termination of Service as a Director
shall be paid in cash in accordance with the Company's normal Director Fee
payment procedures.

(ii) NONEMPLOYEE DIRECTOR OPTION EXERCISABILITY. Subject
to earlier termination as otherwise provided herein, a Nonemployee Director
Option shall remain exercisable after a Participant's termination of Service at
any time prior to the expiration of thirty-six (36) months after the date on
which the Participant's Service terminated, but in any event no later than the
Option Expiration Date.

(iii) EXTENSION IF EXERCISE PREVENTED BY LAW.
Notwithstanding the foregoing, if the exercise of a Nonemployee Director Option
within the applicable time period set forth in Section 10.5(d)(ii) is prevented
by the provisions of Section 14 below, the Nonemployee Director Option shall
remain exercisable until thirty (30) days after the date the Participant is
notified by the Company that the Nonemployee Director Option is exercisable, but
in any event no later than the Option Expiration Date.

(iv) EXTENSION IF PARTICIPANT SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time period set
forth in Section 10.5(d)(ii) of shares acquired upon the exercise of the
Nonemployee Director Option would subject the Participant to suit under Section
16(b) of the Exchange Act, the Option shall remain exercisable until the
earliest to occur of (i) the tenth (10th) day following the date on which a sale
of such shares by the Participant would no longer be subject to such suit, (ii)
the one hundred and ninetieth (190th) day after the Participant's termination of
Service, or (iii) the Option Expiration Date.

10.6 STOCK UNITS PAYMENT. Each Stock Units Payment shall be
evidenced by an Award Agreement that shall specify the number of Stock Units to
which such agreement pertains, the form and time of settlement of such Stock
Units and such other provisions as the Committee shall determine. No such Stock
Units Award or purported Stock Units Award shall be a valid and binding
obligation of the Company unless evidenced by a fully executed Award Agreement.
Such Award Agreements may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the terms and conditions set
forth in Sections 10.6(a) through 10.6(f) below:

(a) PAYMENT. No additional cash consideration shall be
required upon settlement of a Stock Units Award.

(b) NUMBER OF STOCK UNITS SUBJECT TO STOCK UNITS AWARD. The
number of Stock Units subject to a Stock Units Award shall be determined by the
following formula (with any resulting fractional Stock Unit being disregarded):

X = A / B

where,

"X" is the number of Stock Units subject to the Stock
Units Award;

"A" is the amount of Quarterly Director Fees in lieu
of which the Stock Units Payment is made; and

"B" is the average of the Fair Market Values of a
share of Stock for the ten (10) trading days
preceding the effective date of grant of the Stock
Units Award.

(c) VOTING AND DIVIDEND EQUIVALENT RIGHTS. Participants shall
have no voting rights with respect to shares of Stock represented by Stock Units
until the date of the issuance of a certificate for such shares (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company). Prior to settlement of a Stock Units Award, such
Award shall include the right to Dividend Equivalents, pursuant to which the
Participant shall be credited with additional whole and/or fractional Stock
Units as of the record date of any payment of cash dividends with respect to the
Stock occurring prior to such settlement date. Such additional Stock Units shall
be subject to the same terms and conditions and shall be settled in the same
manner and at the same time as the Stock Units originally subject to the Stock
Units Award. The number of such whole and/or fractional Stock Units to be
credited with respect to any Stock Units Award on the record date of any cash
dividend paid on the Stock shall be determined by the following formula:

X = (A x B) / C

where,

"X" is the number of whole and/or fractional Stock
Units to be credited with respect to the Stock
Units Award;

"A" is the amount of cash dividends paid on one share
of Stock;

"B" is the number of whole and fractional Stock Units
subject to the Stock Units Award as of the cash
dividend record date; and

"C" is the Fair Market Value of a share of Stock on
the cash dividend record date.

(d) SETTLEMENT OF STOCK UNITS. Subject to the provisions of
Section 14 below, the Company shall issue to the Participant, within thirty (30)
days following the earlier of (i) the Early Settlement Date elected by the
Participant with respect to the Stock Units Award or (ii) the date of
termination of the Participant's Service as a Director, a number of whole shares
of Stock equal to the number of whole Stock Units subject to the Stock Units
Award. Such shares of Stock shall not be subject to any restriction on transfer
other than any such restriction as may be required pursuant to Section 14 or any
applicable law, rule or regulation. On the same settlement date, the Company
shall pay to the Participant cash in lieu of any fractional Stock Unit subject
to the Stock Units Award in an amount equal to the Fair Market Value on the
settlement date of such fractional share of Stock.

(e) EFFECT OF TERMINATION OF SERVICE. No Participant shall be
granted a Stock Units Award following the date on which such Participant's
Service as a Director terminates for any reason. All of such Participant's
Director Fees with respect to which Director Fee Awards have not been granted
prior to the Participant's termination of Service as a Director shall be paid in
cash in accordance with the Company's normal Director Fee payment procedures.

(f) NONTRANSFERABILITY OF STOCK UNITS. Prior to their
settlement pursuant to Section 10.6(d), no Stock Units granted to a Participant
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or garnishment by creditors of the Participant
or the Participant's beneficiary, except by will or by the laws of descent and
distribution.

10.7 FRACTIONAL SHARES. No fractional shares of Stock shall be
issued upon the exercise of any Nonemployee Director Option or settlement of any
Stock Units. Any portion of a Participant's Quarterly Director Fees subject to
the Participant's election under Section 10.2 representing a fractional share
amount that would otherwise be paid in the form of an Option Payment or a Stock
Units Payment shall instead be carried over and combined with the Quarterly
Director Fees for the following quarter of the Plan Year (or Initial Plan year,
as the case may be) or the subsequent Plan Year. Any such fractional share
amount remaining upon termination of a Participant's Service as a Director shall
be paid to the Participant in cash, without interest.

11. TERMS AND CONDITIONS OF OUTSIDE DIRECTOR OPTIONS.

Outside Director Options shall be evidenced by Option Agreements
specifying the number of shares of Stock covered thereby, in such form as the
Board shall from time to time establish. Such Option Agreements may incorporate
all or any of the terms of the Plan by reference and shall comply with and be
subject to the following terms and conditions:

11.1 AUTOMATIC GRANT. Outside Director Options shall be granted
automatically and without further action of the Board, as follows:

(a) ANNUAL OPTION GRANT. Effective on October 1st of each
calendar year on or after the Effective Date, each person who is the serving as
an Outside Director shall be granted an Option to purchase Thirty Thousand
shares of Stock, subject to adjustment as provided in Section 4.2; provided,
however, that for the first calendar year in which a person serves as an Outside
Director, they shall be granted, instead of the foregoing Option grant, an
Option to purchase that number of shares equal to _____________________ (______)
shares of Stock for each full month of Service before the first October 1st
during such Director's tenure, subject to adjustment as provided in Section 4.2.

(b) RIGHT TO DECLINE OUTSIDE DIRECTOR OPTION. Notwithstanding
the foregoing, any person may elect not to receive an Outside Director Option by
delivering written notice of such election to the Board no later than the day
prior to the date such Outside Director Option would otherwise be granted. A
person so declining an Outside Director Option shall receive no payment or other
consideration in lieu of such declined Outside Director Option. A person who has
declined an Outside Director Option may revoke such election by delivering
written notice of such revocation to the Board no later than the day prior to
the date such Outside Director Option would be granted pursuant to this Section
11.1.

11.2 EXERCISE PRICE. The exercise price per share of Stock subject
to an Outside Director Option shall be the Fair Market Value of a share of Stock
on the date the Outside Director Option is granted.

11.3 EXERCISE PERIOD. Each Outside Director Option shall terminate
and cease to be exercisable on the date five (5) years after the date of grant
of the Outside Director Option unless earlier terminated pursuant to the terms
of the Plan or the Option Agreement.

11.4 RIGHT TO EXERCISE OUTSIDE DIRECTOR OPTIONS. Except as otherwise
provided in the Plan or in the Option Agreement, each Outside Director Option
shall become fully vested and exercisable, provided the Optionee's Service has
not terminated prior to such date, on the day before October 1st of the calendar
year following the calendar year after which such Option was granted pursuant to
Section 11.1(a).

11.5 EFFECT OF TERMINATION OF SERVICE ON OUTSIDE DIRECTOR OPTIONS.

(a) OPTION EXERCISABILITY. Subject to earlier termination of
the Outside Director Option as otherwise provided herein, if the Optionee's
Service with the Participating Company Group terminates for any reason,
including the Disability or death of the Optionee, the Outside Director Option,
to the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee (or the Optionee's
guardian, legal representative or other person who acquired the right to
exercise the Outside Director Option by reason of the Optionee's death) at any
time prior to the expiration of two (2) years after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date.

(b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, if the exercise of an Outside Director Option within the
applicable time periods set forth in Section 11.5(a) is prevented by the
provisions of Section 14 below, the Outside Director Option shall remain
exercisable until three (3) months after the date the Optionee is notified by
the Company that the Outside Director Option is exercisable, but in any event no
later than the Option Expiration Date.

11.6 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
11.5(a) of shares acquired upon the exercise of the Outside Director Option
would subject the Optionee to suit under Section 16(b) of the Exchange Act, the
Outside Director Option shall remain exercisable until the earliest to occur of
(i) the tenth (10th) day following the date on which a sale of such shares by
the Optionee would no longer be subject to such suit, (ii) the one hundred and
ninetieth (190th) day after the Optionee's termination of Service, or (iii) the
Option Expiration Date.

12. STANDARD FORMS OF AWARD AGREEMENT.

12.1 AWARD AGREEMENTS. Each Award shall comply with and be subject
to the terms and conditions set forth in the appropriate form of Award Agreement
approved by the Committee and as amended from time to time. Any Award Agreement
may consist of an appropriate form of Notice of Grant and a form of Agreement
incorporated therein by reference, or such other form or forms as the Committee
may approve from time to time.

12.2 AUTHORITY TO VARY TERMS. The Committee shall have the authority
from time to time to vary the terms of any standard form of Award Agreement
described in this Section 12 either in connection with the grant or amendment of
an individual Award or in

connection with the authorization of a new standard form or forms; provided,
however, that the terms and conditions of any such new, revised or amended
standard form or forms of Award Agreement are not inconsistent with the terms of
the Plan.

13. CHANGE IN CONTROL.

13.1 DEFINITIONS.

(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company: (i) the
direct or indirect sale or exchange in a single or series of related
transactions by the stockholders of the Company of more than fifty percent (50%)
of the voting stock of the Company; (ii) a merger or consolidation in which the
Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company (other than a sale, exchange or
transfer to one or more subsidiaries of the Company); or (iv) a liquidation or
dissolution of the Company.

(b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, a "TRANSACTION")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction direct or indirect beneficial
ownership of more than fifty percent (50%) of the total combined voting power of
the outstanding voting securities of the Company or, in the case of a an
Ownership Change Event described in Section 13.1(a)(iii), the corporation or
other business entity to which the assets of the Company were transferred (the
"TRANSFEREE"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting securities of one or more corporations or
other business entities which own the Company or the Transferee, as the case may
be, either directly or through one or more subsidiary corporations or other
business entities. The Board shall have the right to determine whether multiple
sales or exchanges of the voting securities of the Company or multiple Ownership
Change Events are related, and its determination shall be final, binding and
conclusive.

13.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS AND SARs. In the event
of a Change in Control, the surviving, continuing, successor, or purchasing
entity or other business entity or parent thereof, as the case may be (the
"ACQUIROR"), may, without the consent of any Participant, either assume the
Company's rights and obligations under outstanding Options and SARs or
substitute for outstanding Options and SARs substantially equivalent options and
SARs (as the case may be) for the Acquiror's stock. Any Options or SARs which
are neither assumed or substituted for by the Acquiror in connection with the
Change in Control nor exercised as of the date of the Change in Control shall
terminate and cease to be outstanding effective as of the date of the Change in
Control, provided, that, the Board may, in its discretion, provide in any Award
Agreement that, in the event of a Change in Control, the exercisability and
vesting of the outstanding Option and any shares acquired upon the exercise
thereof or any SAR shall accelerate upon such circumstances and to such extent
as specified in such Award Agreement. Notwithstanding the foregoing, shares
acquired upon exercise of an Option prior to the Change in Control and any
consideration received pursuant to the Change in Control with respect to such
shares shall continue to be subject to all applicable provisions of the Option
Agreement evidencing such Option except as otherwise provided in such Option
Agreement. Furthermore,

notwithstanding the foregoing, if the corporation the stock of which is subject
to the outstanding Options immediately prior to an Ownership Change Event
described in Section 13.1(a)(i) constituting a Change in Control is the
surviving or continuing corporation and immediately after such Ownership Change
Event less than fifty percent (50%) of the total combined voting power of its
voting stock is held by another corporation or by other corporations that are
members of an affiliated group within the meaning of Section 1504(a) of the Code
without regard to the provisions of Section 1504(b) of the Code, the outstanding
Options shall not terminate unless the Board otherwise provides in its
discretion.

13.3 EFFECT OF CHANGE IN CONTROL ON STOCK AWARDS. The Committee may,
in its discretion, provide in any Award Agreement evidencing a Stock Award that,
in the event of a Change in Control, the lapsing of the Restriction Period
applicable to the shares subject to the Stock Award held by a Participant whose
Service has not terminated prior to such date shall be accelerated effective as
of the date of the Change in Control to such extent as specified in such Award
Agreement. Any acceleration of the lapsing of the Restriction Period that was
permissible solely by reason of this Section 13.3 and the provisions of such
Award Agreement shall be conditioned upon the consummation of the Change in
Control.

13.4 EFFECT OF CHANGE IN CONTROL ON PERFORMANCE AWARDS. The
Committee may, in its discretion, provide in any Award Agreement evidencing a
Performance Award that, in the event of a Change in Control, the Performance
Award held by a Participant whose Service has not terminated prior to such date
shall become payable effective as of the date of the Change in Control to such
extent as specified in such Award Agreement.

13.5 EFFECT OF CHANGE IN CONTROL ON DIRECTORS FEE AWARDS. Any
Directors Fees with respect to which the Company has not made either an Option
Payment or a Stock Units Payment pursuant to Section 11 prior to the effective
date of the Change in Control shall be paid in cash immediately prior to such
effective date.

13.6 EFFECT OF CHANGE IN OUTSIDE DIRECTOR OPTIONS. Notwithstanding
any other provision of this Plan to the contrary, in the event of a change in
control, any unexercised portion of any such Option shall be immediately
exercisable and vested in full as of the date ten (10) days prior to the date of
the Change in Control. Any exercise of the Option that was permissible solely by
reason of this Section 13.6 shall be conditioned upon the consummation of the
Change in Control. The Option shall terminate and cease to be outstanding
effective as of the date of the Change in Control to the extent that the Option
is neither assumed or substituted for by the Acquiror in connection with the
Change in Control nor exercised as of the date of the Change in Control.

14. COMPLIANCE WITH SECURITIES LAW.

The grant of Awards and the issuance of shares of Stock pursuant to any
Award shall be subject to compliance with all applicable requirements of
federal, state and foreign law with respect to such securities and the
requirements of any stock exchange or market system upon which the Stock may
then be listed. In addition, no Award may be exercised or shares issued pursuant
to an Award unless (a) a registration statement under the Securities Act shall
at the time of such exercise or issuance be in effect with respect to the shares
issuable pursuant to the Award

or (b) in the opinion of legal counsel to the Company, the shares issuable
pursuant to the Award may be issued in accordance with the terms of an
applicable exemption from the registration requirements of the Securities Act.
The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares hereunder shall relieve
the Company of any liability in respect of the failure to issue or sell such
shares as to which such requisite authority shall not have been obtained. As a
condition to the issuance of any Stock, the Company may require the Participant
to satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.

15. TAX WITHHOLDING.

15.1 TAX WITHHOLDING IN GENERAL. The Company shall have the right to
deduct from any and all payments made under the Plan, or to require the
Participant, through payroll withholding, cash payment or otherwise, including
by means of a Cashless Exercise of an Option, to make adequate provision for,
the federal, state, local and foreign taxes, if any, required by law to be
withheld by the Participating Company Group with respect to an Award or the
shares acquired pursuant thereto. The Company shall have no obligation to
deliver shares of Stock, to release shares of Stock from an escrow established
pursuant to an Award Agreement, or to make any payment in cash under the Plan
until the Participating Company Group's tax withholding obligations have been
satisfied by the Participant.

15.2 WITHHOLDING IN SHARES. The Company shall have the right, but
not the obligation, to deduct from the shares of Stock issuable to a Participant
upon the exercise or settlement of an Award, or to accept from the Participant
the tender of, a number of whole shares of Stock having a Fair Market Value, as
determined by the Company, equal to all or any part of the tax withholding
obligations of the Participating Company Group. The Fair Market Value of any
shares of Stock withheld or tendered to satisfy any such tax withholding
obligations shall not exceed the amount determined by the applicable minimum
statutory withholding rates.

16. TERMINATION OR AMENDMENT OF PLAN.

The Board may terminate or amend the Plan at any time. However, subject to
changes in applicable law, regulations or rules that would permit otherwise,
without the approval of the Company's stockholders, there shall be (a) no
increase in the maximum aggregate number of shares of Stock that may be issued
under the Plan (except by operation of the provisions of Section 4.2), (b) no
change in the class of persons eligible to receive Incentive Stock Options, and
(c) no other amendment of the Plan that would require approval of the Company's
stockholders under any applicable law, regulation or rule. No termination or
amendment of the Plan shall affect any then outstanding Award unless expressly
provided by the Board. In any event, no termination or amendment of the Plan may
adversely affect any then outstanding Award without the consent of the
Participant, unless such termination or amendment is required to enable an
Option designated as an Incentive Stock Option to qualify as an Incentive Stock
Option or is necessary to comply with any applicable law, regulation or rule.

17. STOCKHOLDER APPROVAL.

The Plan or any increase in the maximum aggregate number of shares of
Stock issuable thereunder as provided in Section 4.1 (the "AUTHORIZED SHARES")
shall be approved by the stockholders of the Company within twelve (12) months
of the date of adoption thereof by the Board. Options granted prior to
stockholder approval of the Plan or in excess of the Authorized Shares
previously approved by the stockholders shall become exercisable no earlier than
the date of stockholder approval of the Plan or such increase in the Authorized
Shares, as the case may be.

18. MISCELLANEOUS PROVISIONS.

18.1 REPURCHASE RIGHTS. Shares issued under the Plan may be subject
to one or more repurchase options, or other conditions and restrictions as
determined by the Committee in its discretion at the time the Award is granted.
The Company shall have the right to assign at any time any repurchase right it
may have, whether or not such right is then exercisable, to one or more persons
as may be selected by the Company. Upon request by the Company, each Participant
shall execute any agreement evidencing such transfer restrictions prior to the
receipt of shares of Stock hereunder and shall promptly present to the Company
any and all certificates representing shares of Stock acquired hereunder for the
placement on such certificates of appropriate legends evidencing any such
transfer restrictions.

18.2 RIGHTS AS EMPLOYEE, DIRECTOR OR CONSULTANT. No person, even
though eligible pursuant to Section 5, shall have a right to be selected as a
Participant, or, having been so selected, to be selected again as a Participant.
Nothing in the Plan or any Award granted under the Plan shall confer on any
Participant a right to remain an Employee, Director or Consultant, or interfere
with or limit in any way any right of a Participating Company to terminate the
Participant's Service at any time.

18.3 RIGHTS AS A STOCKHOLDER. A Participant shall have no rights as
a stockholder with respect to any shares covered by an Award until the date of
the issuance of such shares (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such shares are issued, except as provided
in Section 4.2 or another provision of the Plan.

18.4 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise or settlement of any Award.

18.5 BENEFICIARY DESIGNATION. Each Participant may file with the
Company a written designation of a beneficiary who is to receive any benefit
under the Plan to which the Participant is entitled in the event of such
Participant's death before he or she receives any or all of such benefit. Each
designation will revoke all prior designations by the same Participant, shall be
in a form prescribed by the Company, and will be effective only when filed by
the Participant in writing with the Company during the Participant's lifetime.
If a married Participant designates a beneficiary other than the Participant's
spouse, the effectiveness of such designation shall be subject to the consent of
the Participant's spouse. If a Participant dies

without an effective designation of a beneficiary who is living at the time of
the Participant's death, the Company will pay any remaining unpaid benefits to
the Participant's legal representative.

18.6 UNFUNDED OBLIGATION. Participants shall have the status of
general unsecured creditors of the Company. Any amounts payable to Participants
pursuant to the Plan shall be unfunded and unsecured obligations for all
purposes, including, without limitation, Title I of the Employee Retirement
Income Security Act of 1974. No Participating Company shall be required to
segregate any monies from its general funds, or to create any trusts, or
establish any special accounts with respect to such obligations. The Company
shall retain at all times beneficial ownership of any investments, including
trust investments, which the Company may make to fulfill its payment obligations
hereunder. Any investments or the creation or maintenance of any trust or any
Participant account shall not create or constitute a trust or fiduciary
relationship between the Committee or any Participating Company and a
Participant, or otherwise create any vested or beneficial interest in any
Participant or the Participant's creditors in any assets of any Participating
Company. The Participants shall have no claim against any Participating Company
for any changes in the value of any assets which may be invested or reinvested
by the Company with respect to the Plan.

IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing sets forth the SCOLR, Inc. 2004 Equity Incentive Plan as duly
adopted by the Board on April 14, 2004.

____________________________________
Secretary

PLAN HISTORY

April 14, 2004 Board adopts Plan, with an initial reserve
of _________ shares.

____________, 2004 Stockholders approve Plan, with an initial reserve
of _________ shares.

APPENDIX B

SCOLR, INC.

CHARTER OF THE AUDIT COMMITTEE

OF THE BOARD OF DIRECTORS

I. STATEMENT OF POLICY

This Charter specifies the scope of the responsibilities of the Audit
Committee (the "COMMITTEE") of the Board of Directors (the "BOARD") of SCOLR,
Inc. (the "COMPANY") and the manner in which those responsibilities shall be
performed, including its structure, processes and membership requirements.

The primary purpose of the Committee is to oversee the accounting and
financial reporting processes of the Company and the audits of the Company's
financial statements, and otherwise assist the Board in fulfilling its oversight
responsibilities by reviewing and reporting to the Board on the integrity of the
financial reports and other financial information provided by the Company to any
governmental body or to the public. The Committee will also review the
qualifications, independence and performance, and approve the terms of
engagement, of the Company's independent auditor, and prepare any reports
required of the Committee under applicable law, the rules and regulations of the
Securities and Exchange Commission ("SEC") or the listing requirements of the
American Stock Exchange (collectively, "APPLICABLE LAW"). Further, the Committee
will recommend codes of conduct and ethics applicable to the Company and will
oversee the performance of the Company's internal audit function.

The Company will provide appropriate funding, as determined by the
Committee, to permit the Committee to perform its duties under this Charter, to
compensate its advisors and to compensate any registered public accounting firm
engaged for the purpose of rendering or issuing an audit report or related work
or performing other audit, review or attest services for the Company. The
Committee, at its discretion, has the authority to initiate special
investigations and hire special legal, accounting or other outside advisors or
experts to assist the Committee, as it deems necessary, in fulfilling its duties
under this Charter. The Committee may also perform such other activities
consistent with this Charter, the Company's Bylaws and Applicable Law, as the
Committee or the Board deems necessary or appropriate.

II. ORGANIZATION AND MEMBERSHIP REQUIREMENTS

The Committee will be comprised of two or more directors, each of whom
will satisfy the independence, experience and financial literacy requirements of
any Applicable Law.

Each member of the Committee must be able to read and understand
fundamental financial statements, including a balance sheet, income statement
and cash flow statement. In

addition, at least one member shall have past employment experience in finance
or accounting, professional certification in accounting, or other comparable
experience or background resulting in the individual being financially
sophisticated, which may include being or having been a chief executive, chief
financial or other senior officer with financial oversight responsibilities.

If deemed necessary or appropriate from time to time by the Board, at
least one member will be an audit committee financial expert as determined by
the Board in accordance with the rules and regulations of the SEC.

The members of the Committee will be appointed by the Board and will serve
until their successors are duly elected and qualified or their earlier
resignation or removal. Any member of the Committee may be removed or replaced
by the Board. Unless a chairman is elected by the full Board, the members of the
Committee may designate a chairman by majority vote of the full Committee
membership.

III. MEETINGS

The Committee will meet as often as it determines, but not less frequently
than quarterly or as required by Applicable Law. The Committee may form and
delegate authority to subcommittees, or to one or more members of the Committee,
when appropriate. The Committee will meet with management and the independent
auditor in separate executive sessions, in each case as appropriate. The
Committee will meet with the independent auditor and management on a quarterly
basis to review the Company's financial statements and financial reports. The
Committee will maintain written minutes of its meetings, which minutes will be
filed with the minutes of the meetings of the Board.

A majority of the members (or both if there are only two members) will
represent a quorum of the Committee, and, if a quorum is present, any action
approved by a majority of the members present will represent the valid action of
the Committee.

IV. COMMITTEE AUTHORITY AND RESPONSIBILITIES

To fulfill its responsibilities and duties, the Committee will, in each
case to the extent required by Applicable Law or otherwise deemed advisable by
the Committee:

A. OVERSIGHT OF THE COMPANY'S INDEPENDENT AUDITOR

1. Be directly and solely responsible for the appointment,
compensation, retention and oversight of any independent auditor (including
resolution of disagreements between management and the independent auditor
regarding financial reporting) engaged by the Company for the purpose of
preparing or issuing an audit report or related work, with each such auditor
reporting directly to the Committee.

2. Periodically review and discuss with the independent auditor the
matters required to be discussed by Statement on Auditing Standards No. 61, as
amended.

3. Annually review and discuss any formal written statements
received from the independent auditor consistent with and in satisfaction of
Independence Standards Board

Standard No. 1, as amended, including without limitation, descriptions of (x)
all relationships between the auditor and the Company, (y) any disclosed
relationships or services that may impact the independent auditor's objectivity
and independence, and (z) whether any of the Company's senior finance personnel
were recently employed by the independent auditor.

4. Approve in advance the engagement of the independent auditor for
all audit services and non-audit services, based on independence, qualifications
and, if applicable, performance, and approve the fees and other terms of any
such engagement; provided, however, that, except as otherwise required by
Applicable Law, (i) the Committee may establish pre-approval policies and
procedures for any engagement to render such services, provided that such
policies and procedures (x) are detailed as to particular services, (y) do not
involve delegation to management of the Committee's responsibilities hereunder,
and (z) provide that, at its next scheduled meeting, the Committee is informed
as to each such service for which the independent auditor is engaged pursuant to
such policies and procedures, and (ii) the Committee may delegate to one or more
members of the Committee the authority to grant pre-approvals for such services,
provided that (a) the decisions of such member(s) to grant any such
pre-approvals shall be presented to the Committee at its next scheduled meeting,
and (b) the Committee has established policies and procedures for such
pre-approval of services consistent with the requirements of subsections (x) and
(y) above.

5. Meet with the independent auditor prior to the audit to discuss
the planning of the audit.

6. Approve as necessary the termination of the engagement of the
independent auditor.

7. Review with the independent auditor any significant difficulties
encountered during the course of the audit or otherwise, as appropriate, any
restrictions on the scope of work or access to required information and any
significant disagreement among management and the independent auditor in
connection with the preparation of the financial statements, in each case as
reported by the independent auditor. Receive from and review with the
independent auditor any accounting adjustments that were noted or proposed by
the auditor but that were "passed" (as immaterial or otherwise), any
"management" or "internal control" letter or schedule of unadjusted differences
issued, or proposed to be issued, by the auditor to the Company, or any other
material written communication provided by the auditor to the Company's
management.

8. Review with the independent auditor the critical accounting
policies and practices used by the Company, all alternative treatments of
financial information within generally accepted accounting principles ("GAAP")
that the independent auditor has discussed with management, and the
ramifications of the use of such alternative disclosures and treatments, and the
treatment preferred by the independent auditor.

B. REVIEW OF FINANCIAL REPORTING, POLICIES AND PROCESSES

1. Review and, to the extent deemed appropriate by the Committee,
discuss with management and the independent auditor the Company's annual audited
financial statements and any certification, report, opinion or review rendered
by the independent auditor.

2. Review and, to the extent deemed appropriate by the Committee,
discuss with management and the independent auditor the Company's quarterly
financial statements.

3. Review and, to the extent deemed appropriate by the Committee,
discuss earnings press releases and other information provided to securities
analysts and rating agencies.

4. Periodically meet separately with management and with the
independent auditor, as deemed appropriate by the Committee.

5. Review with management on a quarterly basis its assessment of the
effectiveness and adequacy of the Company's internal control structure and
procedures for financial reporting ("INTERNAL CONTROLS"), review annually with
the independent auditor any attestation to and report on the assessment made by
management, and consider with management and the independent auditor whether any
changes to the Internal Controls are appropriate in light of management's
assessment or any such independent auditor's attestation.

6. Receive reports from the independent auditor concerning, and
review with management to the extent deemed appropriate by the Committee, the
effect of regulatory and accounting initiatives on, the financial statements of
the Company. Consider and approve, if deemed appropriate by the Committee,
changes to the Company's auditing and accounting principles and practices as
suggested by the independent auditor or management.

C. RISK MANAGEMENT, RELATED PARTY TRANSACTIONS, LEGAL COMPLIANCE,
CORPORATE GOVERNANCE AND ETHICS

1. Review with the chief executive officer and principal financial
officer of the Company any report on significant deficiencies in the design or
operation of the Internal Controls that could adversely affect the Company's
ability to record, process, summarize or report financial data, any material
weaknesses in Internal Controls identified to the auditors, and any fraud,
whether or not material, that involves management or other employees who have a
significant role in the Company's Internal Controls.

2. As requested by the Board review and approve any related-party
transactions.

3. Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters, and the confidential, anonymous submission by
employees of the Company of concerns regarding questionable accounting or
auditing matters. Adopt, as necessary, appropriate remedial measures or actions
with respect to such complaints or concerns.

4. Receive from and discuss with management and the independent
auditor any correspondence with regulators or governmental agencies that raises
material issues regarding the Company's financial statements or accounting
policies.

5. Adopt a Code of Conduct and Ethics for the Company's employees,
officers and directors, which Code of Conduct and Ethics will meet the
requirements of Section 406 of the Sarbanes-Oxley Act and the rules and
regulations of the SEC promulgated thereunder, and

provide for the prompt review and public disclosure of any change in, or waiver
of, such Code of Conduct and Ethics to the extent required by Applicable Law.

6. Review such Code of Conduct and Ethics periodically and recommend
such changes to such Code of Conduct and Ethics as the Committee deems
appropriate.

7. Review and investigate conduct alleged by the Board, the
Company's Compliance Officer, or otherwise, to be in violation of the Company's
Code of Conduct and Ethics, and adopt, as necessary or appropriate, remedial,
disciplinary, or other measures with respect to such conduct.

8. Adopt procedures for monitoring and enforcing compliance with the
Code of Conduct and Ethics.

9. As deemed appropriate by the Committee, review with the Company's
legal counsel and report to the Board on material litigation, government
investigations and compliance with applicable legal requirements.

10. Prepare the audit committee report required by the rules of the
SEC to be included in the Company's annual proxy statement.

11. Develop, in connection with the Nominating and Corporate
Governance Committee orientation materials for new directors and corporate
governance-related continuing education for all Board members.

12. Report to the Board on the Committee's activities,
recommendations and conclusions, as deemed appropriate by the Committee.

13. Review and reassess the Audit Committee Charter's adequacy as
deemed appropriate by the Committee and recommend any proposed changes to the
Board for approval.

SCOLR, INC.

PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS

The undersigned, revoking all prior proxies, hereby appoints Daniel O.
Wilds and Gail Vitulli, or either of them, with full power of substitution, as
proxies to represent and vote as designated in this proxy any and all of the
shares of stock of SCOLR, Inc., held or owned by or standing in the name of the
undersigned on the company's books on May 7, 2004 at the Annual Meeting of
Stockholders of the company to be held at the Yale Club, 50 Vanderbilt Avenue,
New York, New York at 3:00p.m. on June 25, 2004, and any continuation or
adjournment thereof, with all powers the undersigned would possess if personally
present at the meeting.

The undersigned hereby directs and authorizes said proxies, and each of
them, or their substitute or substitutes, to vote as specified with respect to
the proposals listed on the reverse side, or, if no specification is made, to
vote in favor thereof.

The undersigned hereby further confers upon said proxies, and each of
them, or their substitute or substitutes, discretionary authority to vote with
respect to all other matters, which may properly come before the meeting or any
continuation or adjournment thereof.

The undersigned hereby acknowledges receipt of: (a) Notice of Annual
Meeting of Stockholders of the Company, (b) accompanying Proxy Statement, and
(c) Annual Report to Stockholders for the fiscal year ending December 31, 2003.

(TO BE SIGNED ON REVERSE SIDE)

PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED

A [X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR
AND FOR PROPOSALS 2, 3, 4 AND 5.

1. To elect the following six (6) persons as directors to hold office until
the next annual meeting of stockholders and until their successors are
elected and qualified:

Nominee: Daniel O. Wilds

[ ] FOR [ ] WITHHELD

Nominee: Reza Fassihi, Ph.D.

[ ] FOR [ ] WITHHELD

Nominee: Wayne L. Pines

[ ] FOR [ ] WITHHELD

Nominee: Robert C. Schroeder

[ ] FOR [ ] WITHHELD

Nominee: Michael Sorell, M.D.

[ ] FOR [ ] WITHHELD

Nominee: Michael N. Taglich

[ ] FOR [ ] WITHHELD

2. To consider an amendment to our Certificate of Incorporation to increase
the number of authorized shares of Common Stock from 50,000,000 to
100,000,000.

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

3. To consider an amendment to our Certificate of Incorporation to change
our name to "SCOLR Pharma, Inc."

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

4. To consider adoption of the 2004 Equity Incentive Plan.

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

5. To approve any adjournments of the meeting to another time and place, if
necessary in the judgment of the proxy holders, for the purpose of
soliciting additional proxies in favor of any of the foregoing
proposals.

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN
AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK MAY BE
REPRESENTED AT THE MEETING.

MARK HERE FOR ADDRESS [ ]
CHANGE AND NOTE AT LEFT

Signature: Date:
--------------------------------- ----------------------

Note: Sign exactly as your name(s) appears on your stock certificate. If
shares of stock are held in the name of two or more persons or in the
name of husband and wife, either as joint tenants or otherwise, both or
all of such persons should sign the above Proxy. If shares of stock are
held by a corporation, the Proxy should be executed by the President or
Vice President and the Secretary or Assistant Secretary. Executors or
administrators or other fiduciaries who execute the above Proxy for a
deceased stockholder should give their full title. Please date the
Proxy.