PHARMACEUTICAL RESOURCES INC, PRE 14A, 1995-06-30

PHARMACEUTICAL RESOURCES INC
PRE 14A, 1995-06-30

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SCHEDULE 14A INFORMATION

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

Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]

Check the appropriate box:

[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or 240.14a-12

PHARMACEUTICAL RESOURCES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)

Payment of Filing Fee (Check appropriate box):

[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(3) and 0-11.

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

_____________________________________

2) Aggregate number of securities to which transaction applies:

_____________________________________

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

_____________________________________

4) Proposed maximum aggregate value of transaction:

_____________________________________

[_] Fee paid previously with preliminary materials.

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

1) Amount Previously Paid:

_____________________________________

2) Form, Schedule or Registration Statement No.:

_____________________________________

3) Filing Party:

_____________________________________

4) Date Filed:

_____________________________________

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PRELIMINARY COPY

PHARMACEUTICAL RESOURCES, INC.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON AUGUST 22, 1995

To the Shareholders:

The 1995 Annual Meeting of Shareholders of Pharmaceutical Resources, Inc.
(the "Company") will be held on August 22, 1995, at 10:00 A.M., local time, at
the Holiday Inn-Suffern, Three Executive Boulevard, Suffern, New York, for the
following purposes:

I. To elect two members of the Company's Board of Directors, which
consists of seven members, to serve for a three-year term and until their
successors are duly elected and qualified;

II. To approve the grant and issuance to Clal Pharmaceutical Industries
Ltd. of a warrant to purchase shares of the Company's Common Stock as
further described in the accompanying Proxy Statement;

III. To approve an amendment to the Company's 1990 Stock Incentive Plan
to increase the number of shares of the Company's Common Stock for which
options may be granted thereunder;

IV. To approve and adopt the Company's 1995 Directors' Stock Option Plan;
and

V. To transact such other business as may properly come before the
meeting and any adjournment(s) thereof.

The Board of Directors has fixed the close of business on July 10, 1995 as
the record date for the determination of shareholders entitled to notice of,
and to vote at, the Annual Meeting of Shareholders (the "Meeting"). Only
shareholders of record at the close of business on such date will be entitled
to notice of, and to vote at, the Meeting and any adjournment(s) thereof.

By Order of the Board of Directors

Robert I. Edinger
Secretary

July , 1995

YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE POSTAGE PREPAID ENVELOPE WHICH HAS BEEN PROVIDED, WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. THE PROXY MAY BE REVOKED BY YOU
AT ANY TIME PRIOR TO EXERCISE, AND IF YOU ARE PRESENT AT THE MEETING YOU MAY,
IF YOU WISH, REVOKE YOUR PROXY AT THAT TIME AND EXERCISE YOUR RIGHT TO VOTE
YOUR SHARES PERSONALLY.
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PRELIMINARY COPY

PROXY STATEMENT

PHARMACEUTICAL RESOURCES, INC.
ONE RAM RIDGE ROAD
SPRING VALLEY, NEW YORK 10977

ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON AUGUST 22, 1995

GENERAL INFORMATION

This Proxy Statement is furnished to shareholders of Pharmaceutical
Resources, Inc. (the "Company"), a New Jersey corporation, in connection with
the solicitation by the Company's Board of Directors (the "Board") of proxies
to be voted at the 1995 Annual Meeting of Shareholders (the "Meeting"), and at
any adjournment(s) thereof, for the purposes set forth in the accompanying
Notice of Annual Meeting of Shareholders. The Meeting is to be held on August
22, 1995, at the Holiday Inn-Suffern, Three Executive Boulevard, Suffern, New
York, at 10:00 A.M., local time.

The principal executive offices of the Company are located at One Ram Ridge
Road, Spring Valley, New York 10977, and its telephone number is (914) 425-
7100. The enclosed proxy and this proxy statement are being transmitted to
shareholders of the Company on or about July [ ], 1995.

SOLICITATION AND REVOCATION

The accompanying proxy in the form enclosed is being solicited by and on
behalf of the Board. The solicitation of proxies will be made principally by
mail and, in addition, may be made by directors, officers and employees of the
Company personally, or by telephone or telegraph, without extra compensation.
The Company has also retained Georgeson & Company Inc. to assist it in the
solicitation of proxies. Brokers, nominees and fiduciaries will be reimbursed
for their out-of-pocket and clerical expenses in transmitting proxies and
related material to beneficial owners. The costs of soliciting proxies will be
borne by the Company. It is estimated that such costs will be approximately
$8,000.

The presence at the Meeting, in person or by proxy, of the holders of a
majority of the outstanding shares of common stock, $.01 par value, of the
Company (the "Common Stock") entitled to vote shall constitute a quorum. The
accompanying proxy card is intended to permit a shareholder of record on July
10, 1995 to vote at the Meeting on the proposals described in this Proxy
Statement, whether or not the shareholder attends the Meeting. Persons who
acquire shares of record after the close of business on July 10, 1995 will not
be entitled to vote such shares at the Meeting by proxy or by voting at the
Meeting in person. The persons named in the proxy have been designated as
proxies by the Board. Shares represented by properly executed proxies received
by the Company will be voted at the Meeting in the manner specified therein
or, if no specification is made, will be voted (i) "FOR" the election of the
two nominees for director named herein, (ii) "FOR" the grant and issuance to
Clal Pharmaceutical Industries Ltd., a corporation formed under the laws of
the State of Israel ("Clal"), of a warrant to purchase shares of the Company's
Common Stock as further described in this Proxy Statement (the "Proposed
Warrant"), (iii) "FOR" an amendment to the 1990 Stock Incentive Plan, (iv)
"FOR" the approval and adoption of the 1995 Directors' Stock Option Plan, and
(v) at the discretion of the proxy holders in respect of such other business,
if any, as may properly be brought before the Meeting and which the Board did
not know would be presented at the Meeting.

Abstentions and shares of record held by a broker or nominee ("Broker
Shares") that are voted on any matter will be included in determining the
existence of a quorum. Broker Shares that are not voted on any matter will not
be included in determining the existence of a quorum. Abstentions and Broker
Shares that are not voted will not be counted in tabulations of the votes cast
on proposals. Thus, neither abstentions nor non-voted Broker Shares will have
an effect on the outcome of the election of the two nominees for directors,
which requires only

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that a plurality of the votes cast be in favor of each nominee, or the
approval of the grant and issuance of the Proposed Warrant or of the amendment
to the 1990 Stock Incentive Plan and the adoption of the 1995 Directors' Stock
Option Plan, each of which requires a majority of the votes cast in favor of
such amendment. Non-voted Broker Shares will also have no effect on the
outcome of any other proposals to the Company's shareholders. Any proxy given
to the Company by a shareholder pursuant to this solicitation may be revoked
by the shareholder at any time before it is exercised by written notification
delivered to the Secretary of the Company, by voting in person at the Meeting,
or by executing and delivering another proxy bearing a later date. Attendance
by a shareholder at the Meeting does not alone serve to revoke the proxy.

VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS

OUTSTANDING SHARES

The Board has fixed the close of business on July 10, 1995 as the record
date (the "Record Date") for the determination of shareholders of the Company
who are entitled to receive notice of, and to vote at, the Meeting. An
aggregate of 17,084,638 shares of Common Stock were outstanding at the close
of business on June 23, 1995. Each share of Common Stock outstanding on the
Record Date is entitled to one vote on each matter to be voted upon at the
Meeting, and the Company's shareholders do not have cumulative voting rights.
The Company has no other class of voting securities entitled to vote at the
Meeting.

OWNERSHIP OF VOTING SECURITIES

The following table sets forth, as of the close of business on June 23,
1995, the beneficial ownership of the Common Stock by (i) each person known
(based solely on a review of Schedules 13D) to the Company to be the
beneficial owner of more than 5% of the Common Stock, (ii) each director and
nominee for election as a director of the Company, (iii) the Named Executives,
as defined in the "Executive Compensation" section of this Proxy Statement,
and (iv) all directors and current executive officers of the Company and Par
Pharmaceutical, Inc., the Company's principal operating subsidiary ("Par"), as
a group (based upon information furnished by such persons). Under the rules of
the Securities and Exchange Commission, a person is deemed to be a beneficial
owner of a security if such person has or shares the power to vote or direct
the voting of such security or the power to dispose of or to direct the
disposition of such security. In general, a person is also deemed to be a
beneficial owner of any securities of which that person has the right to
acquire beneficial ownership within 60 days. Accordingly, more than one person
may be deemed to be a beneficial owner of the same securities.

<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT OF PERCENTAGE OF
OF COMMON COMMON
BENEFICIAL OWNER STOCK STOCK
---------------- --------- -------------
<S> <C> <C>
Clal Pharmaceutical Industries Ltd.(1).............. 2,963,554 17.4
Kenneth I. Sawyer(2)(3)(4).......................... 1,005,505 5.6
Diana L. Sloane(2)(5)............................... 136,330 *
Melvin H. Van Woert, M.D.(2)(3)..................... 69,990 *
Andrew Maguire, Ph.D.(2)(3)......................... 36,000 *
H. Spencer Matthews(2)(3)........................... 36,000 *
Mark Auerbach(2)(3)................................. 47,000 *
Mony Ben-Dor(1)(6).................................. 0 *
Robin O. Motz, M.D., Ph.D.(2)(3).................... 42,000 *
Robert I. Edinger(2)................................ 40,000 *
Robert M. Fisher, Jr.(2)............................ 5,870 *
Stuart A. Rose, Ph.D.(2)............................ 27,000 *
All directors and executive officers (as of 6/23/95)
as a group (10 persons)(2)(4)(5)................... 1,309,365 7.1
</TABLE>
- --------
* Less than 1%.

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- --------
(1) The address of Clal and Mr. Ben-Dor is Clal House, 5 Dryuanov Street, Tel
Aviv 63143, Israel. Of the 2,963,554 shares of Common Stock shown as
beneficially owned by Clal, 2,027,272 shares are issued and outstanding
and 936,282 shares are issuable upon exercise of an issued and outstanding
warrant owned by Clal. Does not take into account shares of Common Stock
which may be acquired by Clal upon the exercise of the Proposed Warrant if
approved by the shareholders at the Meeting.
(2) The business address of each of these individuals, for the purposes
hereof, is in care of Pharmaceutical Resources, Inc., One Ram Ridge Road,
Spring Valley, New York 10977. Includes shares of Common Stock which may
be acquired upon the exercise of options which are exercisable on or prior
to August 22, 1995, under the Company's stock option plans as follows: Mr.
Sawyer, 1,000,000 shares; Ms. Sloane, 130,000; Dr. Van Woert, 69,000
shares; Mr. Maguire, 36,000 shares; Mr. Matthews, 36,000 shares; Mr.
Auerbach, 47,000 shares; Dr. Motz, 42,000 shares; Mr. Edinger, 40,000
shares; Mr. Fisher, 5,000 shares; and Mr. Rose, 25,000 shares.
(3) A director of the Company.
(4) Includes 355 shares of Common Stock as to which Mr. Sawyer shares
beneficial ownership with one former shareholder of Quad Pharmaceuticals,
Inc. ("Quad"), a subsidiary of the Company, pursuant to an agreement dated
May 29, 1990. See "--Voting Arrangements."
(5) Ms. Sloane was an executive officer and director of the Company until
April 1, 1995.
(6) See "--Voting Arrangements" and "Election of Directors--Directors."

VOTING ARRANGEMENTS

On May 29, 1990, Mr. Sawyer was granted proxies by three former shareholders
of Quad (the "Additional Proxies") to vote any shares of Common Stock owned by
them (which amounted to 355 shares on the Record Date) on all matters that
might come before a meeting of the Company's shareholders, including the
election of directors. The Additional Proxies terminate upon the earlier of
May 29, 2000, or the date on which the shareholder granting the proxy no
longer owns any shares of voting stock of the Company. The foregoing proxies
were granted to help assure certain governmental agencies that were involved
in the investigation and review of the generic drug industry that the
Company's shareholders are supportive of the new management established by the
Company since September 1989.

The Company and Clal entered into a Stock Purchase Agreement, dated March
25, 1995 (the "Stock Purchase Agreement"), pursuant to which Clal, on May 1,
1995, purchased 2,027,272 shares of Common Stock and the Company issued to
Clal a warrant to purchase 936,282 shares of Common Stock (the "Outstanding
Warrant"). See "Proposal II--Approval of the Grant and Issuance to Clal of a
Warrant to Purchase Common Stock." Under the Stock Purchase Agreement, Clal
agreed to vote all of the shares of Common Stock held by it in favor of
certain business combination transactions of the Company and certain sales of
assets or securities of the Company. Such obligation will terminate at such
time as (i) Clal sells or disposes of more than 2% of the issued and
outstanding Common Stock or (ii) Clal no longer owns, or has the right to
acquire under warrants issued to it, 14% (or, upon the issuance of the
Proposed Warrant, 16%) of the issued and outstanding Common Stock, but no
later than May 1, 2000. Clal has no obligation to vote its shares of Common
Stock in favor of such a transaction if (i) Clal exercises its right of first
refusal with respect to such transaction, (ii) less than 75% of the members of
the Board (excluding member(s) of the Board nominated by Clal) vote in favor
of such transaction or (iii) any member of the Board (excluding member(s) of
the Board nominated by Clal) vote against the transaction. In the event that
Clal has an obligation to vote its shares in favor of such a transaction, Clal
also agreed to take such other actions reasonably required or appropriate to
facilitate the consummation of such transaction. Clal has no obligation to
vote its shares in favor of, or take other actions to facilitate, any such
transaction if Clal notifies the Company that, in Clal's opinion, the
consummation of such a transaction would be detrimental to the Company and/or
its shareholders except if the Company, in response to such a notice, delivers
to Clal a fairness opinion from a nationally recognized investment banking
firm with respect to the fairness of the transaction. In addition, Clal has
certain rights under the Stock Purchase Agreement to nominate directors to the
Company's Board and committees thereof. See "Election of Directors--
Directors."

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ELECTION OF DIRECTORS

DIRECTORS

The Company's Certificate of Incorporation provides that the Board shall be
divided into three classes, with the term of office of one class expiring each
year. The Class I and Class III directors of the Company have terms which
expire in 1997 and 1996, respectively. The terms of office of Class II
directors expire this year. Andrew Maguire, Ph.D. and Melvin H. Van Woert,
M.D. are each nominated to be elected at the Meeting as Class II directors to
hold office for a three-year term until the 1998 Annual Meeting of
Shareholders and until their successors have been duly elected and qualified.
The maximum number of directors is set by the By-laws at fifteen and the
number of directors is presently set, by resolution, at seven.

Proxies in the accompanying form will be voted at the Meeting in favor of
the election of each of the nominees listed on the accompanying form of proxy,
unless authority to do so is withheld as to an individual nominee or nominees
or all nominees as a group. Proxies cannot be voted for a greater number of
persons than the number of nominees named. It is expected that each of the
nominees will be able to serve, but if before the election it develops that
any one or more of the nominees will be unable to serve or for good cause will
not serve, the proxies reserve discretion to vote or refrain from voting for a
substitute nominee or nominees. Each of the nominees has consented to serve as
a director of the Company and to be named herein. Drs. Maguire and Van Woert
are currently members of the Board. Directors will be elected by a plurality
of the votes cast by the holders of shares entitled to vote thereon who are
present at the Meeting in person or by proxy.

In June 1995, Mony Ben-Dor was elected by the Board to fill a vacancy on the
Board as a Class I director in accordance with the terms of the Stock Purchase
Agreement. Under such Agreement, Clal has the right to designate one-seventh
of the members of the Board as long as Clal owns 8% of the issued and
outstanding Common Stock, and a total of two-sevenths of the members of the
Board if Clal owns at least 14% (or, upon issuance of the Proposed Warrant,
16%) of the issued and outstanding Common Stock. The Company has the right to
reject a designee of Clal if such person is not reasonably acceptable to the
Company. The Company also agreed to elect Clal's designee to the Audit
Committee, Compensation and Stock Option Committee and Executive Committee of
the Board. In the event that Clal does not nominate directors to the Board or
its committees or if Clal's designees are not elected to the Board or its
committees, Clal is permitted, under the Stock Purchase Agreement, to
designate representatives who may attend meetings of the Board and its
committees. Additionally, if Clal's appointment of a director to the Audit
Committee is prohibited by the rules and regulations of the New York Stock
Exchange, Inc., the Company will provide Clal materials which are provided to
committee members, the appointment of the Company's auditors will be approved
by the entire Board, the Company will consult with directors nominated by Clal
with respect to Audit Committee actions and the directors nominated by Clal
will have the right to consent to certain changes in the Company's accounting
principles.

Clal designated Mr. Ben-Dor, a director of Clal and a vice president of Clal
Industries Ltd., as its representative to serve on the Board. Clal Industries
Ltd. owns all of Clal's stock. Mr. Ben-Dor has not been elected to any
committees of the Board at this time.

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<PAGE>

The following table sets forth certain information with respect to each
nominee for election as a Class II director of the Company at the Meeting and
the year each was first elected as a director:

<TABLE>
<CAPTION>
YEAR
OF FIRST
NAME AGE ELECTION
---- --- --------
<S> <C> <C>
CLASS II
Andrew Maguire, Ph.D. (1)(3).................................. 56 1990
Since January 1990, President and Chief Executive Officer
of Appropriate Technology International, a not-for-profit
development assistance corporation and, since January 1989,
a Senior Vice President of Washington Financial Group, an
investment banking firm. From June 1987 to January 1989,
Executive Vice President of the North American Securities
Administrators Association.
Melvin H. Van Woert, M.D. (1)(3)(4)........................... 65 1990
Since 1974, Physician and Professor of Neurology and
Pharmacology and Doctoral Faculty, Mount Sinai Medical
Center, New York.
The following table sets forth certain information with respect to each of
the Class I directors (terms expire in 1997) and Class III directors (terms
expire in 1996) and the year each was first elected as a director:

<CAPTION>
YEAR
OF FIRST
NAME AGE ELECTION
---- --- --------
<S> <C> <C>
CLASS I
Mark Auerbach (1)(2).......................................... 56 1990
Since June 1993, the Senior Vice President and Chief
Financial Officer of Central Lewmar L.P., a distributor of
fine papers. From August 1992 to June 1993, a partner of
Marron Capital L.P., an investment banking firm. From July
1990 to August 1992, President, Chief Executive Officer and
Director of Implant Technology Inc., a manufacturer of
artificial hips and knees. From February 1989 to August
1990, Managing Director--Corporate Finance of F.N. Wolf &
Co., Inc., an investment banking firm.
H. Spencer Matthews (2)....................................... 74 1990
Since 1986, President and Chief Executive Officer of
Dispense-All South Coast, Inc., and Dispense-All of Central
Florida, Inc., two companies which are wholesalers of juice
concentrates. Rear Admiral, United States Navy (Retired).
Mony Ben-Dor.................................................. 49 1995
Since August 1993, Vice President, New Business Development
of Clal Industries Ltd., a holding company based in Israel
which owns all of the stock of Clal. From 1988 to August
1993, Mr. Ben-Dor was an executive with Eisenberg Group of
Companies, a holding company based in Israel.
</TABLE>

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<TABLE>
<CAPTION>
YEAR
OF FIRST
NAME AGE ELECTION
---- --- --------
<S> <C> <C>
CLASS III
Kenneth I. Sawyer (3)(4)....................................... 49 1989
Since October 1990, Chairman of the Board of the Company.
Since October 1989, President and Chief Executive Officer of
the Company. From September 1989 to October 1989, Interim
President and Chief Executive Officer of the Company. From
August 1989 to September 1989, counsel to the Company. From
May 1989 to August 1989, an attorney in private practice.
From prior to 1987 to May 1989, Vice President and General
Counsel of Orlove Enterprises, Inc., a company engaged in
the manufacture and distribution of pharmaceutical and other
products. Director of Acorn Venture Capital Corporation, a
closed-end investment company.
Robin O. Motz, M.D., Ph.D. (2)(3).............................. 56 1992
Since July 1978, Assistant Professor of Clinical Medicine,
Columbia University College of Physicians and Surgeons.
Physician engaged in a private practice of internal
medicine.
</TABLE>
- --------
(1) A member of the Audit Committee of the Board of the Company.
(2) A member of the Compensation and Stock Option Committee of the Board of
the Company.
(3) A member of the Nominating Committee of the Board of the Company.
(4) A member of the Executive Committee of the Board of the Company.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
---
THE TWO NOMINEES NAMED ABOVE AS DIRECTORS OF THE COMPANY.

BOARD AND COMMITTEE MEETINGS

The Board met seven times during fiscal 1994 which ended October 1, 1994.
During fiscal 1994, no incumbent director attended fewer than 75% of the total
number of meetings of the Board and of the committees of the Board on which he
or she served. The Audit Committee met three times during fiscal 1994. The
primary function of the Audit Committee is to review the Company's financial
statements with its auditors. See "--Directors." The Compensation and Stock
Option Committee held eight meetings during fiscal 1994. The functions of the
Compensation and Stock Option Committee are to set and approve salary and
bonus levels of corporate officers and to administer the Company's 1986 Stock
Option Plan and 1990 Stock Incentive Plan, including primary responsibility
for the granting of options and other awards thereunder. The Nominating
Committee met one time during fiscal 1994. The primary function of the
Nominating Committee is to make recommendations to the Board concerning the
selection of nominees for election as directors. The Nominating Committee will
consider candidates suggested by directors or shareholders. Nominations for
shareholders, properly submitted in writing to the Secretary of the Company,
will be referred to the Nominating Committee for consideration. The Executive
Committee did not meet during fiscal 1994. The function of the Executive
Committee is to exercise the powers of the Board in the management of the
business and affairs of the Company, subject to limits imposed by applicable
law.

COMPENSATION OF DIRECTORS

For service on the Board in fiscal year 1994, directors received an annual
retainer of $10,000, a fee of $1,000 for each meeting of the Board attended,
and a fee of $1,000 for each committee meeting attended. Directors who are not
eligible to receive options under any other plan of the Company also are
granted options to purchase 6,000 shares of Common Stock per year, or 18,000
shares of Common Stock per year if the director waives the annual retainer,
pursuant to the 1989 Directors' Stock Option Plan. Commencing in fiscal year
1995, directors receive an annual retainer of $12,000. Directors also receive
a fee of $1,000 for each meeting of the

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<PAGE>

Board attended, and a fee of $750 for each committee meeting attended, subject
to a maximum of $1,750 per day. Commencing in fiscal year 1995, chairmen of
committees receive an additional annual retainer of $5,000 per committee.

Directors who are employees of the Company or any of its subsidiaries or who
are designated by Clal receive no additional remuneration for serving as
directors or as members of committees of the Board. All directors are entitled
to reimbursement for out-of-pocket expenses incurred in connection with their
attendance at Board and committee meetings.

In fiscal 1994, Admiral H. Spencer Matthews received an additional $5,497 in
compensation from the Company for providing his expertise in connection with
ongoing potential sales of pharmaceutical products to the Russian Republic.
Dr. Melvin H. Van Woert received an additional $13,550 in compensation from
the Company for providing his expertise in connection with a drug to be
developed by the Company.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In July 1993, the Company purchased a condominium for $415,000. Beginning on
September 15, 1993, the Company leased the condominium to Kenneth I. Sawyer,
the President, Chief Executive Officer and Chairman of the Board, for a period
equal to the term of his employment agreement at $2,600 per month, which
represented the fair market value as determined by a disinterested third
party. The Company sold the condominium on April 22, 1994, for $415,000 with
the express consent of Mr. Sawyer and, as a result, the lease terminated. In
February 1995, the Company purchased a condominium for $192,500. The Company
leases the condominium to Mr. Sawyer for a period equal to the term of his
employment agreement at $1,800 per month, which represents the fair market
value as determined by a disinterested third party. See "Executive
Compensation--Employment Agreements and Termination Arrangements."

On May 1, 1995, the Company consummated a strategic alliance with Clal
consisting primarily of (i) the sale by the Company of 2,027,272 shares of the
Company's Common Stock for $20,000,000, or $9.87 per share, (ii) the issuance
by the Company of the Outstanding Warrant and (iii) the formation of a joint
venture, named Clal Pharmaceutical Resources (1995) L.P., to research and
develop generic pharmaceutical products (the "Joint Venture"). For a
description of the sale of shares and the issuance of the Outstanding Warrant,
see "Voting Securities and Principal Shareholders--Voting Arrangements" and
"Proposal II--Approval of the Grant and Issuance to Clal of a Warrant to
Purchase Common Stock." Clal agreed to use its best efforts to cause Fine-Tech
Ltd., a corporation formed under the laws of the State of Israel ("Fine-
Tech"), to sell 10% of the shares of Fine-Tech to the Company for $1,000,000
and to grant to the Company distribution rights for products developed by
Fine-Tech. Clal and/or its affiliates own shares of Fine-Tech. In connection
with the Stock Purchase Agreement, Clal obtained certain rights to designate a
director or directors to be nominated to the Company's Board and committees
thereof. Mony Ben-Dor, a director of the Company, is a director of Clal and a
director of Fine-Tech. See "--Directors."

The Joint Venture, funded through an initial investment of $4,000,000, is
owned 51% by Clal and 49% by the Company and is primarily located in Israel.
Over the next two years, Clal and the Company plan to invest an additional
$11,000,000 in the Joint Venture, of which $5,390,000 is to be funded by the
Company. Both Clal and the Company have certain manufacturing, sales and
distribution rights with respect to products developed by the Joint Venture
and by each other. Prior to the closing of the Stock Purchase Agreement, Clal
owned no shares of the Common Stock.

The Company believes that all of the above transactions were on terms that
were fair and reasonable to the Company.

EXECUTIVE OFFICERS

The executive officers of the Company consist of Mr. Sawyer as President,
Chief Executive Officer and Chairman of the Board, and Robert I. Edinger as
Vice President, Finance, Chief Financial Officer and Secretary. The executive
officers of Par consist of Mr. Sawyer and Mr. Edinger, as well as Stuart A.
Rose, Executive Vice President, Operations of Par, and Robert M. Fisher, Jr.,
Executive Vice President, Corporate Development, Sales and Marketing of Par.

7
<PAGE>

The following table sets forth certain information with respect to the
executive officers of the Company and Par who are not directors or nominees
for election as a director:

<TABLE>
<CAPTION>
NAME AGE
---- ---
<S> <C>
Robert I. Edinger.......................................................... 54
Since June 1993, Vice President, Chief Financial Officer and Secretary
of the Company and Par. In January 1995, Mr. Edinger was also appointed
Executive Vice President, Finance of Par. From 1990 to June 1993, Mr.
Edinger served as Executive Vice President of Bonjour Group, Ltd., a
licensing company. From 1986 to 1990, President and Chief Financial
Officer of OCP America, a wholesale drug distribution company.
Stuart A. Rose, Ph.D....................................................... 52
Since January 1995, Executive Vice President, Operations of Par. From
1990 to 1994, Vice President, Manufacturing and Materials Supply,
Lederle International Division of American Cyanamid Company, a company
engaged in the manufacture of generic pharmaceuticals. From 1984 to
1990, President and General Manager, Lederle Parenterals, Inc., a
company engaged in the manufacture of generic pharmaceuticals.
Robert M. Fisher, Jr. ..................................................... 47
Since June 1995, Executive Vice President, Corporate Development, Sales
and Marketing of Par, and since October 1993, Vice President, Corporate
Development, Sales and Marketing of Par. From March 1993 to October
1993, Vice President, Corporate Development of F.H. Faulding USA, a
company engaged in the manufacture of pharmaceuticals. From 1992 to
1993, Vice President, Business Development, PUREPAC Pharmaceutical
Company, a company engaged in the manufacture of generic
pharmaceuticals, and from 1989 to 1992, Vice President and General
Manager of Rondex Laboratories at PUREPAC.
</TABLE>

EXECUTIVE COMPENSATION

The following table sets forth compensation earned by or paid, during fiscal
years 1992 through 1994, to the Chief Executive Officer of the Company and the
three additional most highly compensated executive officers (over $100,000)
serving as executive officers of the Company and/or Par during fiscal 1994
(the "Named Executives"). The Company awarded or paid such compensation to all
such persons for services rendered in all capacities during the applicable
fiscal years.

SUMMARY COMPENSATION TABLE

8
<PAGE>

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------- -----------------------
RESTRICTED SECURITIES
NAME AND STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS($)(1) OPTIONS(#) COMPENSATION ($)(2)
- ------------------ ---- --------- -------- ------------ ---------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Robert I. Edinger 1994 180,000 50,000 -- -- 795
Vice President, 1993 58,846 25,000 -- 40,000 76
Chief Financial
Officer and Secretary
Robert M. Fisher, Jr. 1994 122,359 26,500 -- 10,000 474
Vice President,
Corporate Development,
Sales & Marketing, Par
</TABLE>
- --------
(1) The Company believes that at the end of fiscal 1994, the Named Executives
did not hold any shares of restricted stock.
(2) For fiscal year 1994, includes insurance premiums paid by the Company for
term life insurance for the benefit of the Named Executives as follows:
Mr. Sawyer--$2,438; Ms. Sloan--$528; Mr. Edinger--$795; and Mr. Fisher--
$474. Also includes $20,111 contributed by the Company for the benefit of
each of Mr. Sawyer and Ms. Sloane under the Par Pharmaceutical Retirement
Plan, and $4,854 contributed by the Company on behalf of Ms. Sloane to the
Company 401(k) Plan. The amount for Mr. Sawyer also includes $36,610,
representing the maximum potential estimated dollar value of the Company's
portion of insurance premium payments from a split-dollar life insurance
policy as if 1994 premiums were advanced to the executive without interest
until the earliest time the premium may be refunded by Mr. Sawyer to the
Company.

Stuart A. Rose, Ph.D. was hired as Executive Vice President, Operations of
Par beginning January 1995. As a result, Dr. Rose received no compensation
from the Company or Par during fiscal year 1994. Diana L. Sloane served as an
executive officer of the Company until April 1, 1995. Ms. Sloane acts as a
consultant to Par.

STOCK OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED ANNUAL
SHARES OPTIONS RATES OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ------------------------------
NAME GRANTED (#) FISCAL YEAR PRICE ($) DATE 0% ($) 5% ($) 10% ($)
- ---- ----------- ------------ --------- ---------- ------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert M. Fisher, Jr.(1) 10,000 13.5% 13.875 10/21/98 0 177,084 223,458
</TABLE>
- --------
(1) Represents options granted pursuant to the Company's 1990 Incentive Option
Plan on October 22, 1993, of which 5,000 became exercisable on October 22,
1994 and 5,000 will become exercisable on October 22, 1995.

The following table sets forth the stock options exercised by the Named
Executives during fiscal 1994 and the value, as of October 1, 1994, of
unexercised stock options held by the Named Executives.

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

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE -------------------------------------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------ ------------ ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth I. Sawyer 0 0 1,000,000 0 2,445,000 0
Diana L. Sloane 20,000 309,875 162,480 27,520 191,250 0
Robert I. Edinger 0 0 26,660 13,340 0 0
Robert M. Fisher, Jr. 0 0 0 10,000 0 0
</TABLE>

9
<PAGE>

EMPLOYMENT AGREEMENTS AND TERMINATION ARRANGEMENTS

The Company has entered into employment agreements with Mr. Sawyer, Mr.
Edinger, Mr. Fisher and Dr. Rose. Each of the employment agreements with Mr.
Sawyer and Mr. Edinger provides for the officer's employment in his current
position through the dates set forth below, subject to earlier termination by
the Company for Cause (as such term is defined in the respective agreements).
Mr. Sawyer's term of employment expires on October 4, 1995, but will be
automatically extended each year for an additional one-year period unless
either party provides written notice by July 4 of such year that he or it
desires to terminate the agreement. Mr. Edinger's and Mr. Fisher's terms of
employment expire on October 13, 1995. Dr. Rose's term of employment expires
on January 16, 1996. Each such employment agreement provides that the officer
will receive specified salary, bonuses, stock options, stock awards and other
employee benefits, as the case may be. Under the agreement with Mr. Sawyer,
the Company is required to use its best efforts to cause him to be elected and
re-elected to the Board during his term of employment. Mr. Sawyer, pursuant to
the terms of his employment agreement, is and will be required to serve, if so
elected, on the Board of Directors of the Company and any subsidiary, as well
as any committees thereof.

Each of the foregoing employment agreements provides for certain payments
upon termination of the officer's employment as a result of a material breach
by the Company of his employment agreement following a change of control of
the Company. A material breach by the Company of the employment agreements
includes, but is not limited to, termination without cause and a change of the
officer's responsibilities. In the case of Mr. Sawyer, he is entitled to
receive, if such a termination occurs within two years following a change of
control of the Company, a lump sum payment equal to the lesser of three times
the sum of his annual base salary and most recent bonus or the maximum amount
permitted without the imposition of an excise tax on Mr. Sawyer or the loss of
a deduction to the Company under the Internal Revenue Code of 1986, as amended
(the "Code"), plus reimbursement of certain legal and relocation expenses
incurred by Mr. Sawyer as a result of the termination of his employment and
maintenance of insurance, medical and other benefits for 24 months or until
Mr. Sawyer is covered by another employer for such benefits. In the case of
Messrs. Edinger and Fisher and Dr. Rose, each is entitled to receive severance
compensation amounting to 12 months continuation of his base salary payable in
12 monthly installments plus maintenance of medical and other benefits for 12
months or until such employee is covered by another employer for such benefits
if earlier.

In addition, Mr. Sawyer's employment agreement provides for the Company to
purchase a residence within the vicinity of the Company's principal offices
for Mr. Sawyer to occupy for the duration of his term of employment. In this
connection, the Company purchased a condominium for the price of $415,000,
which Mr. Sawyer leased from the Company from September 15, 1993, until April
22, 1994, when the Company sold the residence for $415,000 with the express
approval of Mr. Sawyer. In February 1995, the Company purchased a condominium
unit for $192,500. Mr. Sawyer leases the unit for $1,800 per month. See
"Election of Directors--Certain Relationships and Related Transactions." The
employment agreement with Mr. Sawyer grants him an option to purchase the
residence in certain circumstances.

PENSION PLAN

The Company maintains a defined benefit plan (the "Pension Plan") intended
to qualify under Section 401(a) of the Code. Effective October 1, 1989, the
Company ceased benefit accruals under the Pension Plan with respect to service
after such date. The Company intends that distributions will be made, in
accordance with the terms of the Plan, to participants as of such date and/or
their beneficiaries. The Company will continue to make contributions to the
Pension Plan to fund its past service obligations. Generally, all employees of
the Company or a participating subsidiary who completed at least one year of
continuous service and attained 21 years of age were eligible to participate
in the Pension Plan. For benefit and vesting purposes, the Pension Plan's
"Normal Retirement Date" is the date on which a participant attains age 65 or,
if later, the date of completion of 10 years of service. Service is measured
from date of employment. The retirement income formula is 45% of the highest
consecutive five-year average basic earnings during the last 10 years of
employment, less 83 1/3% of the participant's Social Security benefit, reduced
proportionately for years of service less than 10 at retirement. The

10
<PAGE>

normal form of benefit is a life annuity, or for married persons, a joint and
survivor annuity. None of the Named Executives have any years of credited
service under the Pension Plan.

COMPENSATION AND STOCK OPTION COMMITTEE REPORT

The Compensation and Stock Option Committee of the Board of Directors (the
"Compensation Committee"), consisting entirely of non-employee directors,
approves all of the policies and programs pursuant to which compensation is
paid or awarded to the Company's executive officers and key employees. The
Compensation Committee held eight meetings in fiscal 1994. In reviewing
overall compensation for fiscal 1994, the Compensation Committee focused on
the Company's objectives to attract and retain executives of the highest
caliber, to encourage the highest level of performance from such executives
and to align the financial interests of the Company's management with that of
its shareholders by offering awards that can result in the ownership of Common
Stock. The Company did not utilize specific formulae or guidelines in
reviewing and approving executive compensation.

ELEMENTS OF EXECUTIVE COMPENSATION PROGRAM. The key elements of the
Company's executive compensation program consist of base salary, annual bonus,
stock options through participation in the Company's 1986 Stock Option Plan
and stock options and other incentive awards through participation in the
Company's 1990 Stock Incentive Plan. In awarding or approving compensation to
executives in fiscal 1994, the Compensation Committee reviewed the performance
and profitability of the Company, the present and potential contribution of
the executive to the Company and the ability of the Company to attract and
retain qualified executives in light of the Company's prior regulatory review
of its operations, lawsuits asserted against it and its financial condition.

BASE SALARY. Base salaries for executives were determined primarily by
reference to individual performance, the principal job duties and
responsibilities undertaken by such persons, industry norms and other relevant
criteria. In order to attract and retain certain key executives, the Company
has offered these executives long-term employment contracts which provide for
specified base salaries.

ANNUAL BONUS. The Compensation Committee determined the annual bonus to be
paid to its executives for fiscal 1994 performance. The amount of each
individual bonus was determined based upon an assessment of the general
financial performance of the Company during the fiscal year and the
individual's contribution to such performance, as opposed to determination by
reference to a formal, goal-based plan. The Compensation Committee adopted
this approach owing, in part, to uncertainties caused by previous regulatory
review of its operations and various lawsuits asserted against the Company
arising out of the acts of its prior management. Given the lack of
predictability of such regulatory review and the litigation and the effects
thereof, the Compensation Committee believed it was more effective to assess
performance achievements on a historical basis rather than setting benchmarks,
the achievement of which was largely out of the control of the Company and may
not have reflected the executives' efforts.

STOCK OPTIONS AND OTHER AWARDS. The Company's 1986 Stock Option Plan
provides for stock option awards and the Company's 1990 Stock Incentive Plan
provides for stock option and other equity-based awards. Under all such Plans,
the size of each award and the persons to whom such awards are granted is
determined by the Compensation Committee based upon the nature of services
rendered by the executive, the present and potential contribution of the
grantee to the Company and the overall performance of the Company. The
Compensation Committee believes that grants of stock options will enable the
Company to attract and retain the best available talent and encourage the
highest level of performance in order to continue to serve the best interests
of the Company and its shareholders. Stock options and other equity-based
awards provide executives with the opportunity to acquire equity interests in
the Company and to participate in the creation of shareholder value and to
benefit correspondingly with increases in the price of the Company's Common
Stock.

COMPENSATION COMMITTEE'S ACTIONS FOR 1994. In determining the amount and
form of executive compensation to be paid or awarded for fiscal 1994, the
Compensation Committee considered both the

11
<PAGE>

Company's overall financial performance during the fiscal year and its future
objectives and challenges. The Compensation Committee approved awards of
annual bonuses for certain executives, reflecting both the Company's financial
performance for fiscal 1994 and the individual's contribution to such
performance. The Compensation Committee also awarded stock options (including
options to one Named Executive), extended the period in which such options are
exercisable for certain former key employees and accelerated the vesting dates
of previously awarded options for certain key employees.

In reviewing and awarding compensation to executive officers for fiscal
1994, the Compensation Committee considered the performance and other criteria
discussed earlier in this report. In addition, the Compensation Committee took
into account the following specific factors:

(i) the removal of the Company from the U.S. Food and Drug
Administration's Application Integrity Assessment Program;

(ii) the settlement of several significant litigations against the
Company; and

(iii) the efforts of executive officers in negotiating and implementing
the distribution agreements with Genpharm, Inc. and The Generics Group B.V.

The Compensation Committee will continue to consider these and other factors
in reviewing and awarding compensation to the Company's executive officers in
the future.

CHIEF EXECUTIVE OFFICER COMPENSATION. The Compensation Committee approved an
employment agreement in October 1992 for Mr. Sawyer with the Company. In
approving such employment agreement, the Compensation Committee authorized a
base salary of $358,238 for Mr. Sawyer in fiscal year 1994. In addition to his
base salary, Mr. Sawyer was awarded by the Compensation Committee a bonus of
$100,000 for fiscal year 1994 performance and a cost of living allowance of
$50,000.

In reviewing and setting Mr. Sawyer's compensation, the Compensation
Committee recognized his substantial role in (i) settling three significant
lawsuits against the Company, (ii) negotiating and implementing several joint
venture agreements for the Company, (iii) improving the manufacturing
capacities of the Company, (iv) working to explore strategic alternatives for
the Company and (v) diversifying the Company's customer base.

Recently enacted Internal Revenue Code Section 162(m) limits deductions for
federal income tax purposes for certain executive compensation in excess of $1
million. Certain types of compensation are deductible only if performance
criteria are specified in detail and payments are contingent upon shareholder
approval of the compensation arrangement. The level of salaries and bonus to
the Named Executives paid by the Company do not exceed this limit at this
time.

COMPENSATION AND STOCK OPTION COMMITTEE

Mark Auerbach
H. Spencer Matthews
Robin O. Motz

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee conducted deliberations concerning executive
compensation during the last completed fiscal year. None of the Compensation
Committee members are executive officers of the Company. None of the executive
officers of the Company has served on the board of directors or on the
compensation committee of any other entity, any of whose officers served on
the Board of the Company.

12
<PAGE>

PERFORMANCE GRAPH

The graph below compares the cumulative total return of the Company's Common
Stock with the cumulative total return of the New York Stock Exchange
Composite Index and the S&P(R) Health Care Drugs Index for the annual periods
from September 30, 1989 to September 30, 1994. The graph assumes $100 was
invested on September 30, 1989 in the Company's Common Stock and $100 was
invested at that time in each of the Indexes. The comparison assumes that all
dividends are reinvested.

[GRAPH APPEARS HERE]

COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG PHARMACEUTICAL RESOURCES, INC., NYSE COMPOSITE INDEX
AND S&P HEALTH CARE DRUGS INDEX
<TABLE>
<CAPTION>

PHARMACEUTICAL NYSE S&P HEALTH
Measurement period RESOURCES, COMPOSITE CARE DRUGS
(Fiscal Year Covered) INC. INDEX INDEX
- --------------------- -------------- --------- ----------
<S> <C> <C> <C>
Measurement PT -
09/30/89 $ 100.00 $ 100.00 $ 100.00

FYE 09/30/90 $ 83.00 $ 90.00 $ 108.00
FYE 09/30/91 $ 70.00 $ 119.00 $ 166.00
FYE 09/30/92 $ 113.00 $ 132.00 $ 161.00
FYE 09/30/93 $ 215.00 $ 151.00 $ 130.00
FYE 09/30/94 $ 149.00 $ 157.00 $ 157.00
</TABLE>

PROPOSAL II:
APPROVAL OF THE GRANT AND ISSUANCE TO CLAL OF A
WARRANT TO PURCHASE COMMON STOCK

GENERAL

At the Meeting, the holders of Common Stock will be asked to approve the
grant and issuance to Clal of the Proposed Warrant. The intent of the Stock
Purchase Agreement was to allow Clal, through the purchase of Common Stock and
the exercise of warrants, to own 19.99% of the issued and outstanding Common
Stock after giving effect to the sale of such stock and the exercise of such
warrants. Under the rules of the New York Stock Exchange, Inc. (the "NYSE"),
the Company is required to obtain the consent of the Company's shareholders
prior to issuing securities (including, for this purpose, warrants to purchase
Common Stock) representing 20% or more of its Common Stock outstanding before
the issuance of such securities. The issuance of Common Stock and warrants to
Clal amounting to 19.99% of the issued and outstanding Common Stock
immediately after

13
<PAGE>

the issuance of such securities would have required prior consent of
shareholders under the NYSE rules. As a result, the Company issued to Clal on
May 1, 1995, shares of Common Stock and the Outstanding Warrants which
represented 19.99% of the Company's issued and outstanding Common Stock
immediately prior to the closing of the Stock Purchase Agreement (including
for this purpose, the shares covered by the Outstanding Warrant) and the
Company agreed, under the Stock Purchase Agreement, to request consent from
the Company's shareholders to issue the Proposed Warrant. The Proposed
Warrant, together with the shares of Common Stock issued to Clal and the
Outstanding Warrant, would allow Clal to own shares of Common Stock
representing 19.99% of the issued and outstanding Common Stock as of the date
of issuance of the Proposed Warrant after giving effect to the exercise of the
Outstanding Warrant and the Proposed Warrant.

If the shareholders approve the Proposed Warrant, the exercise price of the
Outstanding Warrant will be increased by $1.00 per share to $11.00 per share
for the first year of such Warrant and $12.00 thereafter. In addition, certain
stock thresholds in the Stock Purchase Agreement respecting Clal's ownership
of the Company's Common Stock applicable to Clal's exercise of rights will
increase.

THE BOARD RECOMMENDS APPROVAL OF THE PROPOSED WARRANT BY THE HOLDERS OF
COMMON STOCK.

THE PROPOSED WARRANT

The following is a summary of the terms of the Proposed Warrant. The
Proposed Warrant is substantially similar to the Outstanding Warrant
previously issued to Clal at the closing of the Stock Purchase Agreement. The
form of the Outstanding Warrant is an exhibit to the Company's Form 8-K filed
with the Securities and Exchange Commission on May 12, 1995.

The Proposed Warrant will be titled the "Warrant to Purchase Common Stock."
The Proposed Warrant is intended to allow Clal to purchase an additional
number of shares of Common Stock (approximately 740,000 shares) which, when
added to the shares of Common Stock owned by Clal and issuable upon exercise
of the Outstanding Warrant, would represent 19.99% of the issued and
outstanding Common Stock as of the date of issuance of the Proposed Warrant
(including, for this purpose, the shares of Common Stock covered by the
Outstanding Warrant and the Proposed Warrant). Accordingly, the number of
shares of Common Stock issuable upon exercise of the Proposed Warrant cannot
be determined until immediately before the Proposed Warrant is issued. The
Proposed Warrant will provide for an exercise price of $11.00 per share for
the first year and $12.00 per share for the two years thereafter. The Proposed
Warrant will be exercisable at any time until May 1, 1998, subject to earlier
termination or redemption in certain circumstances.

The Company may redeem the Proposed Warrant, in whole or in part, at any
time after December 1, 1995, at a redemption price of $.01 per share if the
average of the closing sale prices per share of the Common Stock equals or
exceeds $17.00 per share until May 1, 1996 and $18.00 per share thereafter. In
addition, the Company has the right to redeem the Proposed Warrant, in whole
or in part, at any time after Clal holds less than 8% of the issued and
outstanding shares of Common Stock. The Proposed Warrant will expire on May 1,
1997 if the Company's net income for the fiscal year ending September 28,
1996, exceeds $5,000,000, subject to certain adjustments.

The Proposed Warrant will provide that the number of shares of Common Stock
issuable upon its exercise will be reduced by the number of shares of Common
Stock, or securities exercisable or exchangeable for or convertible into,
shares of Common Stock acquired by Clal in open market transactions. Any such
reduction will be first applied against the Outstanding Warrant and then
against the Proposed Warrant if there remain no further shares issuable upon
exercise of the Outstanding Warrant.

Neither the Proposed Warrant nor the shares of Common Stock issuable upon
exercise of the Proposed Warrant will be registered or publicly traded, except
for those shares of Common Stock to be registered pursuant to the exercise of
Clal's registration rights. Clal has certain demand and piggy-back
registration rights respecting shares issued upon exercise of the Proposed
Warrants.

14
<PAGE>

The Proposed Warrant will contain provisions that will protect the holder
thereof against dilution by adjustment of the exercise price and the number of
shares issuable upon its exercise in certain events, such as stock dividends,
stock splits, mergers, sale of all or substantially all of the Company's
assets. The holder of the Proposed Warrant will not have any rights as a
shareholder of the Company unless and until the Proposed Warrant is exercised.
The issuance of the Proposed Warrant is not expected to have any significant
effect upon the rights of existing securityholders.

The terms of the Proposed Warrant, including the exercise prices, were
determined through arm's length negotiation of the Company and Clal. The
Company expects to use the proceeds received from the exercise of the Proposed
Warrant for working capital purposes. In connection with the Stock Purchase
Agreement, the Company and Clal have also formed the Joint Venture. See
"Election of Directors--Certain Relationships and Related Transactions."

The Company believes the grant and issuance of the Proposed Warrant is in
the best interests of the Company and its shareholders. The affirmative vote
of a majority of the votes cast by the holders of shares entitled to vote
thereon who are present at the Meeting in person or by proxy is required for
approval of the grant and issuance of the Proposed Warrant.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF
---
PROPOSAL II.

PROPOSAL III:
APPROVAL AND ADOPTION OF AN AMENDMENT TO THE
1990 STOCK INCENTIVE PLAN

GENERAL

At the Meeting, the holders of Common Stock will be asked to vote upon a
proposal to approve an amendment to the Company's 1990 Stock Incentive Plan
(the "1990 Plan") to increase by 500,000 the number of shares of Common Stock
for which incentive awards may be granted thereunder. Under the 1990 Plan as
currently in effect, incentive awards for 1,700,000 shares of Common Stock may
be granted, of which, prior to June 23, 1995, 90,538 shares remained available
for grant. On June 16, 1995, the Board approved the amendment and authorized
the granting of incentive awards for an additional 500,000 shares, subject to
approval of the amendment by the shareholders. The Board has determined that
it is advisable to continue to provide stock-based incentive compensation to
the Company's officers and key employees, thereby continuing to align the
interests of such employees with those of shareholders, and that awards under
the 1990 Plan are an effective means of providing such compensation. In order
to continue to grant stock-based incentive compensation in the future, it is
necessary to increase the number of shares available for grant under the 1990
Plan. The Board recommends approval of thereof by the holders of Common Stock.

SUMMARY OF 1990 PLAN AND AMENDMENT

The following is a summary of the 1990 Plan and the proposed amendment to
it. This summary does not purport to be complete, and is qualified in its
entirety by reference to the text of the 1990 Plan. A copy of the 1990 Plan is
available upon written request from the Company's Secretary.

The purpose of the 1990 Plan is to attract and retain personnel of the
highest caliber, provide increased incentive for officers and key employees
and continue to promote the well-being of the Company. The 1990 Plan
authorizes the granting of incentive awards for up to 1,700,000 shares of
Common Stock, and if the amendment is approved, up to an additional 500,000
shares of Common Stock, subject to adjustment in the event of stock splits,
stock dividends, recapitalizations, mergers, reorganizations, exchanges of
shares and other similar changes affecting the Company's issued Common Stock.
Incentive awards may be in the form of stock options, restricted stock awards,
deferred stock awards, stock appreciation rights and other stock-based awards
as described below. Unless sooner terminated, the 1990 Plan expires on March
22, 2000. Officers, key employees

15
<PAGE>

and other independent contractors who perform services for the Company or any
of its subsidiaries are eligible to receive incentive awards. The 1990 Plan is
administered by the Compensation Committee, which determines the persons to
whom awards will be granted, the number of awards to be granted and the
specific terms of each grant, subject to the provisions of the 1990 Plan.
Members of the Compensation Committee and directors of the Company who are not
also employees of the Company or any of its subsidiaries are not eligible to
receive incentive awards under the 1990 Plan. There are approximately 450
persons eligible to receive incentive awards under the 1990 Plan (excluding
consultants and advisors).

INCENTIVE AND NONQUALIFIED OPTIONS. The 1990 Plan currently provides both
for "incentive stock options" as defined in Section 422 of the Code and for
options not qualifying as incentive options (collectively, "Options"), both of
which may be granted with other stock-based awards available under the 1990
Plan. The Compensation Committee determines the persons to whom Options may be
granted and the exercise price for each share issued in connection with an
Option, but the exercise price of an incentive Option may not be less than
100% of the fair market value of Common Stock on the date of grant (in the
case of an optionee owning more than 10% of the outstanding Common Stock, not
less than 110% of such fair market value). The Compensation Committee also
determines when Options may be exercised, which in no event may be more than
ten years from the date of grant (in the case of an incentive Option granted
to an optionee owning more than 10% of the outstanding Common Stock, not more
than five years from the date of grant), and the manner in which each Option
will become exercisable. The aggregate fair market value of the Common Stock
with respect to which incentive Options are exercisable for the first time by
any employee during any calendar year (under all incentive stock option plans
of the Company and its subsidiaries) may not exceed $100,000.

STOCK APPRECIATION RIGHTS. The Compensation Committee may grant stock
appreciation rights ("SARs") in conjunction with all or part of any Option
granted under the 1990 Plan. An SAR entitles the holder to surrender to the
Company all or a portion of an Option in exchange for an amount (payable in
cash and/or Common Stock) equal to the excess of the Fair Market Value (as
defined in that 1990 Plan) of one share of Common Stock over the exercise
price per share specified in a related Option granted to the holder multiplied
by the number of shares subject to the SAR.

RESTRICTED STOCK AWARDS. The Compensation Committee may award shares of
restricted stock ("Restricted Stock"). Shares of Restricted Stock may be
issued either alone or in addition to other awards granted under the 1990 Plan
or other plans of the Company. The Compensation Committee determines the
eligible persons to whom and the time or times at which, grants of Restricted
Stock will be made, the number of shares to be awarded, the price (if any) to
be paid by the recipient, the time or times within which such awards may be
subject to forfeiture, the vesting schedule and rights to acceleration
thereof, and all other terms and conditions of the awards.

DEFERRED STOCK AWARDS. The Compensation Committee may award shares of
deferred stock ("Deferred Stock"). Shares of Deferred Stock may be awarded
either alone or in addition to other awards granted under the 1990 Plan or
other plans of the Company. The Compensation Committee determines the eligible
persons to whom and the time or times at which Deferred Stock may be awarded,
the number of shares of Deferred Stock to be awarded to any person, the
duration of the period during which, and the conditions under which, receipt
of the stock will be deferred, and all the other terms and conditions of the
awards.

OTHER STOCK-BASED AWARDS. The Compensation Committee may grant performance
shares valued with reference to the performance of the Company or any
subsidiary, either alone or in addition to or in tandem with Options, SARs,
Restricted Stock or Deferred Stock (collectively, "Other Stock-Based Awards").
Subject to the terms of the 1990 Plan, the Compensation Committee has complete
discretion to determine the terms and conditions applicable to Other Stock-
Based Awards. Such terms and conditions may require, among other things,
continued employment and/or the attainment of specified performance
objectives.

16
<PAGE>

The 1990 Plan imposes restrictions on the sale, transfer, pledge, assignment
or other encumbrance on shares of stock subject to Restricted Stock awards,
Defaulted Stock awards and Other Stock-Based Awards. Upon a change in control
of the Company, all Options and SARs become exercisable in full and all
restrictions and deferrals contained in Restricted Stock awards, Deferred
Stock awards, and Other Stock-Based Awards lapse or become accelerated.

The amended, 1990 Plan will not provide additional benefits to the Named
Executives as compared to the current 1990 Plan in effect. Rather, the amended
1990 Plan will provide for an increase in the number of shares of Common Stock
which may be granted thereunder.

CERTAIN FEDERAL TAX CONSEQUENCES OF THE 1990 PLAN

The following is a brief summary of certain Federal income tax aspects of
options to be granted under the 1990 Plan based upon the Code and other
statutes, regulations and interpretations in effect on the date of this Proxy
Statement. The summary is not intended to be exhaustive and does not describe
any state, local or foreign income or other tax consequences.

INCENTIVE OPTIONS. A participant will recognize no taxable income upon the
grant or exercise of an Option constituting an "incentive stock option" as
defined under Section 422 of the Code ("Incentive Options"). Upon a
disposition of the shares of Common Stock after the later of two years from
the date of grant and one year after the transfer of the shares to the
participant, (i) the participant will recognize the difference, if any,
between the amount realized and the exercise price as long-term capital gain
or long-term capital loss (as the case may be) if the shares are capital
assets; and (ii) the Company will not qualify for any deduction in connection
with the grant or exercise of the options.

If shares of Common Stock acquired upon the exercise of an Incentive Option
are disposed of prior to the expiration of the holding periods described
above, (i) the participant will recognize ordinary compensation income in the
taxable year of disposition in an amount equal to the excess, if any, of the
lesser of the fair market value of the shares on the date of exercise or the
amount realized on the disposition of the shares, over the exercise price paid
for such shares; and (ii) the Company will qualify for a deduction equal to
any such amount recognized, subject to the limitation that the compensation be
reasonable. The participant will recognize the excess, if any, of the amount
realized over the fair market value of the shares on the date of exercise, if
the shares are capital assets, as capital gain and the Company will not
qualify for a deduction with respect to such excess.

NONQUALIFIED STOCK OPTIONS. Except as noted below, (i) upon grant of the
nonqualified Option, a plan participant will recognize no income; (ii) upon
exercise of the option (if the shares of Common Stock are not subject to a
substantial risk of forfeiture and nontransferable), the participant will
recognize ordinary compensation income in an amount equal to the excess, if
any, of the fair market value of the shares on the date of exercise over the
exercise price, and the Company will qualify for a deduction in the same
amount, subject to the requirement that the compensation be reasonable; and
(iii) on a sale of the shares, the participant will recognize gain or loss
equal to the difference, if any, between the amount realized and the sum of
the exercise price and the ordinary compensation income recognized. Such gain
or loss will be treated as capital gain or loss if the shares are capital
assets in the hands of the participant.

If the shares of Common Stock acquired upon exercise of a nonqualified
Option are subject to a substantial risk of forfeiture and are
nontransferable, the participant's and the Company's Federal income tax
consequences of the exercise and disposition of the shares will be determined
under rules similar to those set forth below under "Restricted Stock."

STOCK APPRECIATION RIGHTS. A participant who receives a SAR will recognize
no income on the grant of such SAR, but he will recognize ordinary
compensation income equal to the cash received and/or the fair market

17
<PAGE>

value on the date of transfer of any Common Stock received, and the Company
will qualify for a deduction of an equal amount, subject to the limitation
that compensation be reasonable.

RESTRICTED STOCK. A participant who receives Restricted Stock will recognize
ordinary compensation income in an amount equal to the excess, if any, of the
fair market value of the Restricted Stock at the time the Restricted Stock is
no longer subject to a substantial risk of forfeiture or is transferable, over
the consideration paid for the Restricted Stock. However, a participant may
elect, under Section 83(b) of the Code, within thirty days of the transfer of
the Restricted Stock, to recognize ordinary compensation income on the date of
transfer in an amount equal to the excess, if any, of the fair market value on
the date of such transfer of the shares of Restricted Stock (determined
without regard to the restrictions) over the consideration paid for the
Restricted Stock.

Whether or not the participant makes an election under Section 83(b), the
Company generally will qualify for a deduction (subject to the reasonable)
equal to the amount that is taxable as ordinary income to the participant, in
its taxable year in which or with which ends the taxable year of the
participant in which such income is included as gross income. In addition, if
the Restricted Stock was granted pursuant to an agreement entered into after
February 17, 1993 (or an agreement entered into on or before February 17,
1993, which was materially modified after such date), the Company's ability to
claim a compensation deduction may be limited by Section 162(m) of the Code
which limits the amount a corporation can deduct as compensation with respect
to certain key executives to $1 million per year.

DEFERRED STOCK. A participant who receives an award of Deferred Stock will
recognize no income on the grant of such award. However, he will recognize
ordinary compensation income and the Company will be able to claim a
corresponding deduction (subject to the limitation that compensation be
reasonable and Section 162(m) described above) on the transfer of the Deferred
Stock (or the later lapse of a substantial risk of forfeiture to which the
Deferred Stock is subject, if the participant does not make a Section 83(b)
election), in accordance with the same rules as discussed above under
"Restricted Stock".

OTHER STOCK-BASED AWARD. The Federal income tax treatment of Other Stock-
Based Awards will depend upon the nature of any such award and the
restrictions applicable to such award. Such an award may, depending on the
nature of and conditions applicable to the award, be taxable as a stock option
or an award of Restricted Stock.

The Company believes the amendment to the 1990 Plan is in the best interests
of the Company and its shareholders. The affirmative vote of a majority of the
votes cast by the holders of shares entitled to vote thereon who are present
at the Meeting in person or by proxy is required for approval of the amendment
to the 1990 Plan.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF
---
PROPOSAL III.

PROPOSAL IV:
APPROVAL AND ADOPTION OF THE PHARMACEUTICAL RESOURCES, INC.
1995 DIRECTORS' STOCK OPTION PLAN

GENERAL

At the Meeting, the holders of Common Stock will be asked to vote upon a
proposal to approve and adopt the Company's 1995 Directors' Stock Option Plan
(the "Directors' Plan"). On June 16, 1995, the Board approved the Directors'
Plan effective June 16, 1995, subject to the approval and adoption of the
Directors' Plan by the shareholders of the Company not later than June 19,
1996. The purpose of the Directors' Plan is to advance the interests of the
Company by affording eligible directors an opportunity to acquire or increase
their proprietary interests in the Company and, thus, the Directors' Plan
encourages continued service and provides additional incentive to achieve the
Company's growth objectives. The Directors' Plan will award options to non-

18
<PAGE>

employee directors who may be elected in the future. Current directors will
obtain no future awards under the Directors' Plan if adopted by the Company's
shareholders. The approval of the Directors' Plan will have no effect upon the
Company's 1989 Directors' Stock Option Plan. The Board recommends approval
thereof by the holders of Common Stock.

SUMMARY OF DIRECTORS' PLAN

The following is a summary of the Directors' Plan. This summary does not
purport to be complete, and is qualified in its entirety by reference to the
text of the Directors' Plan. A copy of the Directors' Plan is available upon
written request from the Company's Secretary at no charge.

The Company has reserved for issuance under the Directors' Plan 100,000
shares of Common Stock. Options granted under the Directors' Plan may only be
granted to directors of the Company who are not employees of the Company or
otherwise eligible to receive options under any other plan adopted by the
company or who are not directors of the Company on June 19, 1995 (each, an
"Eligible Director"). There are no Eligible Directors currently. Such options
do not qualify as incentive stock options within the meaning of Section 422 of
the Code.

If an unexercised option expires or terminates (in whole or in part) for any
reason, the shares allocable to the unexercised portion of the option will be
available for future grants of options under the Directors' Plan. The
aggregate number of shares of Common Stock as to which options may be granted,
the number of shares covered by each option and the option exercise price will
be adjusted in the event of stock splits, stock dividends or other capital
adjustments. The closing price of a share of Common Stock on the New York
Stock Exchange on June 23, 1995 was $10.125.

Directors are granted options on the date an Eligible Director is initially
elected to the Board. One-third of the options granted under the Directors'
Plan will become exercisable on each of the first three anniversaries of the
date of grant, provided that the Eligible Director owns 1,500 shares of Common
Stock immediately after the exercise of the option if the option is exercised
prior to the second anniversary of its date of grant, 3,000 shares of Common
Stock immediately after the exercise of the option if the option is exercised
on or after the second anniversary of its date of grant but before the third
anniversary, and 4,500 shares of Common Stock immediately after the exercise
of the option if the option is exercised on or after the third anniversary of
the date of grant. All options which have not become exercisable on the date
an Eligible Director ceases to serve on the Board for any reason will
terminate. To the extent options granted under the Directors' Plan become
exercisable, such options remain exercisable until the tenth anniversary of
the date of grant and remain exercisable regardless of whether the Eligible
Director continues to serve as a member of the Board.

Pursuant to its terms, the Directors' Plan is scheduled to terminate on June
16, 2005, and no options will be granted after that date. The provisions of
the Directors' Plan, however, will continue thereafter to govern all options
previously granted, until the exercise, expiration or cancellation thereof.
The Board may, however, terminate the Directors' Plan at an earlier date and
may modify or amend the Directors' Plan from time to time, except that,
without the approval of the shareholders of the Company, no such modification
or amendment may increase the maximum number of shares of Common Stock with
respect to which options may be granted under the Directors' Plan, change the
exercise price at which options may be granted, or change the eligibility
provisions of the Directors' Plan. No termination of or modification or
amendment to the Directors' Plan will adversely affect the rights of any
person holding an option previously granted under the Directors' Plan without
the consent of such person.

No option is transferable other than by will or the laws of descent and
distribution or by a qualified domestic relations order as defined under the
Code and no option may be exercised by anyone other than the optionee, except
that if the optionee dies or becomes incapacitated, the option may be
exercised by the optionee's estate, legal representative or beneficiary,
subject to all the other terms of the Directors' Plan.

19
<PAGE>

There are no present directors of the Company who are eligible to receive
options under the Directors' Plan. The benefits to be received by future
directors who will be Eligible Directors cannot be determined at this time.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following is a brief summary of certain Federal income tax aspects of
stock options to be granted under the Directors' Plan based upon the Code and
other statutes, regulations and interpretations in effect on the date of this
Proxy Statement. The summary is not intended to be exhaustive and does not
include state, local or foreign income or other tax consequences.

Any option granted under the Directors' Plan is not intended to qualify as
an "incentive stock option", as that term is defined in Section 422 of the
Code. Neither the option holder nor the Company will incur any Federal income
tax consequences upon the grant of an option under the Directors' Plan.
Generally, the option holder will recognize, on the date of exercise, ordinary
compensation income in an amount equal to the excess, if any, of the fair
market value of the shares of Common Stock on the date of exercise over the
exercise price thereof.

On a subsequent sale of any shares obtained upon the exercise of an option,
the participant will recognize capital gain or loss equal to the difference,
if any, between the amount realized and his or her tax basis in the shares.
Such capital gain or loss will be a long-term capital gain or loss if the sale
occurs more than one year after the date of exercise and a short-term capital
gain or loss if the sale occurs one year or less after the date of exercise.
The tax basis of the shares, for purposes of computing taxable gain or loss,
will be the sum of the exercise price and the amount of ordinary income
recognized on the date of exercise.

For Federal income tax purposes, the Company is generally entitled to a
deduction in an amount equal to the ordinary compensation income recognized by
the option holder, to the extent that such income is considered reasonable
compensation under the Code. Generally, the Company will be entitled to claim
such deduction in the fiscal year containing the last day of the calendar year
in which the option is exercised.

The Company believes the amendment to the Directors' Plan is in the best
interests of the Company and its shareholders. The affirmative vote of a
majority of the votes cast by the holders of shares entitled to vote thereon
who are present at the Meeting in person or by proxy is required for approval
of the amendment to the Directors' Plan.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF
---
PROPOSAL IV.

INDEPENDENT AUDITORS

The Board has selected the firm of Richard A. Eisner & Company, LLP,
independent certified public accountants, to act as independent public
accountants for the Company for the 1995 fiscal year. Richard A. Eisner &
Company, LLP has acted in such capacity for each of the Company's and Par's
fiscal years since the fiscal year ended September 30, 1981. A representative
of Richard A. Eisner & Company, LLP is expected to be present at the Meeting,
such representative will have the opportunity to make a statement if he or she
so desires and is expected to be available to respond to appropriate
questions.

OTHER MATTERS

At the date of this proxy statement, the Board has no knowledge of any
business which will be presented for consideration at the Meeting, other than
as described above. If any other matter or matters are properly brought before
the Meeting or any adjournment(s) thereof, it is the intention of the persons
named in the accompanying form of proxy to vote proxies on such matters in
accordance with their best judgment.

20
<PAGE>

SUBMISSION OF SHAREHOLDER PROPOSALS

Any proposal which is intended to be presented by any shareholder for action
at the 1996 Annual Meeting of Shareholders must be received in writing by the
Secretary of the Company, at One Ram Ridge Road, Spring Valley, New York
10977, not later than October 3, 1995 in order for such proposal to be
considered for inclusion in the proxy statement and form of proxy relating to
the 1996 Annual Meeting of Shareholders.

By Order of the Board of Directors

Robert I. Edinger
Secretary

Dated: July [ ], 1995

21
<PAGE>

1990 STOCK INCENTIVE PLAN

PHARMACEUTICAL RESOURCES, INC.

Section 1. Purpose; Definitions.

The purpose of the Pharmaceutical Resources, Inc. 1990 Stock Incentive Plan
(the "Plan") is to enable Pharmaceutical Resources, Inc. (the "Company") to
offer to officers, other employees and independent agents, consultants and
attorneys of the Company and its subsidiaries, long-term performance-based stock
and/or other equity interests in the Company thereby enhancing their ability to
attract, retain and reward such individuals. The various types of long-term
incentive awards which may be provided under the Plan will enable Pharmaceutical
Resources, Inc. to respond to changes in compensation practices, tax laws,
accounting regulations and the size and diversity of its businesses.

For purposes of the Plan, the following terms shall be defined as set forth
below:

(a) "Agents" means those persons who are not employees of the Company or
any subsidiary, including independent agents, consultants and attorneys for the
Company.

(b) "Board" means the Board of Directors of Pharmaceutical Resources, Inc.

(d) "Committee" means the Stock Option Committee of the Board or any other
committee of the Board which the Board may designate.

(e) "Company" means Pharmaceutical Resources, Inc., a corporation organized
under the laws of the State of New Jersey.

(f) "Deferred Stock" means Stock to be received, under an award made
pursuant to Section 8 below, at the end of a specified deferral period.

(g) "Disability" means disability as determined under procedures
established by the Committee for purposes of the Plan.

(h) "Early Retirement" means retirement, with the approval of the Committee
for purposes of one or more award(s) hereunder, from active employment with the
Company or any Subsidiary prior to age 65.

(i) "Fair Market Value", unless otherwise required by any applicable
provision of the Code or any regulations issued thereunder, means, as of any
given date: (i) if the Stock is listed on a national securities exchange or
quoted on the NASDAQ National Market System, the closing price of the Stock on
the last preceding day on which the Stock was traded, as reported on the
composite tape or by NASDAQ/NMS System Statistics, as
<PAGE>

the case may be; (ii) if the Stock is not listed on a national securities
exchange or quoted on the NASDAQ National Market System, but is traded in the
over-the-counter market, the average of the closing bid and asked prices for the
Stock on the last preceding day for which such quotations are reported by
NASDAQ; and (iii) if the Fair Market Value of the Stock cannot be determined
pursuant to clause (i) or (ii) above, such price as the Committee shall
determine.

(j) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.

(k) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.

(l) "Normal Retirement" means retirement from active employment with the
Company or any Subsidiary on or after age 65.

(m) "Other Stock-Based Award" means an award under Section 9 below that is
valued in whole or in part by reference to, or is otherwise based upon, Stock.

(n) "Plan" means this Pharmaceutical Resources, Inc. 1990 Stock Incentive
Plan, as hereinafter amended from time to time.

(o) "Qualified Domestic Relations Order" shall have the meaning assigned to
such term under the Code.

(p) "Restricted Stock" means Stock, received under an award made pursuant
to Section 7 below, that is subject to restrictions under said Section 7.

(q) "Retirement" means Normal Retirement or Early Retirement.

(r) "SAR Value" means the value of the excess of the Fair Market Value of
one share of Stock over the option price per share specified in a related Stock
Option multiplied by the number of shares in respect of which the Stock
Appreciation Right shall be exercised, on the date of exercise.

(s) "Stock" means the Common Stock of the Company, par value $.01 per
share.

(t) "Stock Appreciation Right" means the right, pursuant to an award
granted under Section 6 below, to surrender to the Company all (or a portion) of
a Stock Option in exchange for an amount equal to the SAR Value.

(u) "Stock Option" or "Option" means any option to purchase shares of Stock
which is granted pursuant to the Plan.

2
<PAGE>

(v) "Subsidiary" means any present or future subsidiary corporation of the
Company, as such term is defined in Section 424(f) of the Code, or any successor
thereto.

Section 2. Administration.

The Plan shall be administered by the Committee, the membership of which
shall be at all times constituted so as to not adversely affect the compliance
of the Plan with the requirements of Rule 16b-3 under the Securities Exchange
Act of 1934 (the "Exchange Act"), as in effect from time to time, or with the
requirements of any other applicable law, rule or regulation.

The Committee shall have full authority to grant, pursuant to the terms of
the Plan, to officers, other employees and Agents under Section 4 below: (i)
Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv)
Deferred Stock, and/or (v) Other Stock-Based Awards.

For purposes of illustration and not of limitation, the Committee shall
have the authority (subject to the express provisions of this Plan):

(i) to select the officers, other employees and Agents of the Company
or any Subsidiary to whom Stock Options, Stock Appreciation Rights, Restricted
Stock, Deferred Stock and/or Other Stock-Based Awards may from time to time be
granted hereunder;

(ii) to determine the Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Restricted Stock, Deferred Stock and/or
Other Stock-Based Awards, or any combination thereof, if any, to be granted
hereunder to one or more officers, other employees and Agents;

(iii) to determine the number of shares to be covered by each award
granted hereunder;

(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not limited
to, share price, any restrictions or limitations, and any vesting, acceleration
or forfeiture provisions, as the Committee shall determine);

(v) to determine the terms and conditions under which awards granted
hereunder are to operate on a tandem basis and/or in conjunction with or apart
from other awards made by the Company or any Subsidiary outside of this Plan;

(vi) to determine the extent and circumstances under which Stock and
other amounts payable with respect to an award hereunder shall be deferred,
which may be either automatic or at the election of the participant; and

3
<PAGE>

(vii) to substitute (A) new Stock Options for previously granted Stock
Options, which previously granted Stock Options have higher option exercise
prices and/or contain other less favorable terms, and (B) new awards of any
other type for previously granted awards of the same type, which previously
granted awards are upon less favorable terms.

Subject to Section 11 hereof, the Committee shall have the authority to
adopt, alter and repeal such administrative rules, guidelines and practices
governing the Plan as it shall, from time to time, deem advisable, to interpret
the terms and provisions of the Plan and any award issued under the Plan (and to
determine the form and substance of all agreements relating thereto), and to
otherwise supervise the administration of the Plan.

Subject to Section 11 hereof, all decisions made by the Committee
pursuant to the provisions of the Plan shall be made in the Committee's sole
discretion and shall be final and binding upon all persons, including the
Company, its Subsidiaries and Plan participants.

Section 3. Stock Subject to Plan.

The total number of shares of Stock reserved and available for
distribution under the Plan shall be 2,200,000 shares. Such shares may consist,
in whole or in part, of authorized and unissued shares or treasury shares.

If any shares of Stock that have been optioned cease to be subject to a
Stock Option, or if any shares of Stock that are subject to any Stock
Appreciation Right, Restricted Stock, Deferred Stock award or Other Stock-Based
Award granted hereunder are forfeited or any such award otherwise terminates
without a payment being made to the participant in the form of cash and/or
Stock, such shares shall again be available for distribution in connection with
future grants and awards under the Plan.

In the event of any merger, reorganization, consolidation,
recapitalization, dividend (other than a dividend or its equivalent which is
credited to a Plan participant or a regular cash dividend), Stock split, or
other change in corporate structure affecting the Stock, such substitution or
adjustment shall be made in the aggregate number of shares reserved for issuance
under the Plan, in the number and option price of shares subject to outstanding
Options granted under the Plan, and in the number of shares subject to other
outstanding awards (including but not limited to awards of Restricted Stock,
Deferred Stock and Other Stock-Based Awards) granted under the Plan as may be
determined to be appropriate by the Committee in order to prevent dilution or
enlargement of rights, provided that the number of shares subject to any award
shall always be a whole number. Such adjusted option price shall also be used to
determine the amount payable by the Company upon the exercise of any Stock
Appreciation Right associated with any Stock Option.

4
<PAGE>

Section 4. Eligibility.

Officers and other employees of the Company or any Subsidiary (but
excluding members of the Committee and any person who serves only as a director)
who are at the time of the grant of an award under this Plan regularly employed
by the Company or any Subsidiary on a full-time basis and who are responsible
for or contribute to the management, growth and/or profitability of the business
of the Company or any Subsidiary, are eligible to be granted Options and awards
under the Plan. Eligibility under the Plan for such officers and other
employees, and Agents, shall be determined by the Committee.

Section 5. Stock Options.

(a) Grant and Exercise. Stock Options granted under the Plan may be of
two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options. Any
Stock Option granted under the Plan shall contain such terms as the Committee
may from time to time approve. The Committee shall have the authority to grant
to any optionee Incentive Stock Options, Non-Qualified Stock Options, or both
types of Stock Options (in each case with or without Stock Appreciation Rights),
which may be granted alone or in addition to other awards granted by the
Company. To the extent that any Stock Option does not qualify as an Incentive
Stock Option, it shall constitute a separate Non-Qualified Stock Option.

Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options or any agreement providing for Incentive
Stock Options shall be interpreted, amended or altered, nor shall any discretion
or authority granted under the Plan be so exercised, so as to disqualify the
Plan under Section 422 of the Code, or, without the consent of the optionee(s)
affected, to disqualify any Incentive Stock Option under such Section 422.

(b) Terms and Conditions. Stock Options granted under the Plan shall
be subject to the following terms and conditions:

(i) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the time of grant
but shall be not less than 100% of the Fair Market Value at the time of grant
(110%, in the case of an Incentive Stock Option granted to an optionee ("10%
Stockholder") 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 its
parent (if any) or subsidiary corporations, as those terms are defined in
Sections 424(e) and (f) of the Code).

(ii) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years (five years, in the case of an Incentive Stock Option granted to a 10%
Stockholder) after the date

5
<PAGE>

on which the Option is granted, and no Non-Qualified Stock Option shall be
exercisable more than ten years and one day after the date on which the Option
is granted.

(iii) Exercisability. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by the
Committee. If the Committee provides, in its discretion, that any Stock Option
is exercisable only in installments, the Committee may waive such installment
exercise provisions at any time at or after the time of grant in whole or in
part, based upon such factors as the Committee shall determine.

(iv) Method of Exercise. Subject to whatever installment, exercise and
waiting period provisions are applicable in a particular case, Stock Options may
be exercised in whole or in part at any time during the option period, by giving
written notice of exercise to the Company specifying the number of shares of
Stock to be purchased. Such notice shall be accompanied by payment in full of
the purchase price, which shall be in cash or, unless otherwise provided in the
Stock Option agreement referred to in Section 5(b)(xii) below, in whole shares
of Stock which are already owned by the holder of the Option or, unless
otherwise provided in the Stock Option agreement referred to in Section
5(b)(xii) below, partly in cash and partly in such Stock. Cash payments shall
be made by wire transfer, certified or bank check or personal check, in each
case payable to the order of the Company; provided, however, that the Company
shall not be required to deliver certificates for shares of Stock with respect
to which an Option is exercised until the Company has confirmed the receipt of
good and available funds in payment of the purchase price thereof. Payments in
the form of Stock (which shall be valued at the Fair Market Value of a share of
Stock on the date of exercise) shall be made by delivery of stock certificates
in negotiable form which are effective to transfer good and valid title thereto
to the Company, free of any liens or encumbrances. The holder of an Option
shall have none of the rights of a stockholder with respect to the shares
subject to the Option until such shares shall be transferred to the holder upon
the exercise of the Option. At the discretion of the Board or the Committee, as
the case may be, an Option may be exercised with respect to a specified number
of shares of Stock by written notice of exercise to the Company stating that (i)
the option price for the shares and any withholding tax due thereon will be paid
to the Company directly by a broker-dealer designated by the optionee and
irrevocable instructions to such effect have been furnished by the optionee to
such broker-dealer; and (ii) an advice from the broker-dealer confirming payment
to the Company will be promptly delivered to the Company. The exercise of any
such option shall be irrevocable at the time of notice to the Company; provided,
however, that the Company shall not be required to deliver certificates for
shares of Stock with respect to the exercise of the option until the Company has
confirmed the receipt of good and sufficient funds in payment of the purchase
price thereof.

(v) Transferability; Exercisability. No Stock Option shall be
transferable by the optionee otherwise than by will, by the laws of descent and
distribution or by a Qualified Domestic Relations Order, and all Stock Options
shall be exercisable, during the optionee's

6
<PAGE>

lifetime, only by the optionee or by his spouse to whom the Option has been
transferred pursuant to the terms of a Qualified Domestic Relations Order.

(vi) Termination by Reason of Death. Subject to Section 5(b)(x) below,
in the event of the death of an optionee, any Stock Option held by such
optionee, unless otherwise determined by the Committee, shall be exercisable by
the legal representative of the estate or by the legatee of the optionee under
the will of the optionee, for a period of one year (or such other period as the
Committee may specify) from the date of such death or until the expiration of
the stated term of such Stock Option, whichever period is the shorter, to the
extent such Stock Option was exercisable at the time of death.

(vii) Termination by Reason of Disability of Employee Optionee. Subject
to Section 5(b)(x) below, any Stock Options held by an optionee who is an
officer or employee and whose employment by the Company or any Subsidiary
terminates by reason of Disability, unless otherwise determined by the
Committee, shall be exercisable by the optionee for a period of one year (or
such other period as the Committee may specify) from the date of such
termination of employment or until the expiration of the stated term of such
Stock Option, whichever period is the shorter, to the extent such Stock Option
was exercisable at the time of such disability; provided, however, that if the
optionee dies within such one-year period (or such other period as the Committee
shall specify), any unexercised Stock Option held by such optionee shall
thereafter be exercisable to the extent to which it was exercisable at the time
of death for a period of one year from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.

(viii) Termination by Reason of Retirement of Employee Optionee.
Subject to Section 5(b)(x) below, any Stock Options held by an optionee who is
an officer or employee and whose employment by the Company or a Subsidiary
terminates by reason of Normal Retirement, unless otherwise determined by the
Committee, shall be exercisable by the optionee for a period of one year (or
such other period as the Committee may specify) from the date of such
termination of employment or the expiration of the stated term of such Stock
Option, whichever period is the shorter, to the extent such Stock Option was
exercisable at the time of such Normal Retirement; provided, however, that if
the optionee dies within such one-year period, any unexercised Stock Option held
by such optionee shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of one year from the date of such
death or until the expiration of the stated term of such Stock Option, whichever
period is the shorter. If an optionee's employment with the Company or any
Subsidiary terminates by reason of Early Retirement, the Stock Option shall
thereupon terminate, provided if the Committee so approves at the time of Early
Retirement, any Stock Option held by the optionee shall be fully vested and may
thereafter be exercised by the optionee as provided above in connection with
termination of employment by reason of Normal Retirement.

7
<PAGE>

(ix) Other Termination of Employment of Employee Optionee. Subject to
the provisions of Section 13(g) below and unless otherwise determined by the
Committee, if an optionee who is an officer or employee whose employment by the
Company or any Subsidiary terminates for any reason other than death, Disability
or Retirement, any Stock Options held by him shall thereupon automatically
terminate, except that if the optionee's employment is involuntarily terminated
by the Company or a Subsidiary, without cause, such Stock Option may be
exercised for the lesser of three months after termination of employment or the
balance of such Stock Option's term.

(x) Additional Incentive Stock Option Limitation. In the case of an
Incentive Stock Option, the amount of Stock (determined at the time of grant of
the Option using the Fair Market Value of the Stock as of such date) with
respect to which Incentive Stock Options are exercisable for the first time by
an optionee during any calendar year (under all such plans of optionee's
employer corporation and its parent and subsidiary corporations, as defined in
Sections 424(e) and (f) of the Code) shall not exceed $100,000.

(xi) Buy out and Settlement Provisions. The Committee may at any time
offer to buy out a Stock Option previously granted, based upon such terms and
conditions as the Committee shall establish and communicate to the optionee at
the time that such offer is made.

(xii) Stock Option Agreement. Each grant of a Stock Option shall be
confirmed by, and shall be subject to the terms of, an agreement executed by the
Company and the participant.

Section 6. Stock Appreciation Rights.

(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted by the Company. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Non-Qualified Stock Option. In the case of
an Incentive Stock Option, such rights may be granted only at the time of the
grant of such Incentive Stock Option.

A Stock Appreciation Right which is granted with respect to a given Stock
Option shall terminate and shall no longer be exercisable upon the termination
or exercise of the related Stock Option, except that, unless otherwise
determined by the Committee at the time of grant, a Stock Appreciation Right
granted with respect to less than the full number of shares covered by a related
Stock Option shall not be reduced until after the number of shares remaining
under the related Stock Option equals the number of shares covered by the Stock
Appreciation Right.

A Stock Appreciation Right may be exercised by an optionee, in accordance
with Section 6(b) below, by surrendering the applicable portion of the related
Stock Option. Upon such exercise and surrender, the optionee shall be entitled
to receive an amount (and

8
<PAGE>

in the form) determined in the manner prescribed in Section 6(b) below. Stock
Options which have been so surrendered, in whole or in part, shall no longer be
exercisable to the extent the related Stock Appreciation Rights have been
exercised.

(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
the following terms and conditions:

(i) Stock Appreciation Rights shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate shall be
exercisable in accordance with the provisions of Section 5 above and this
Section 6 of the Plan; provided, however, that any Stock Appreciation Right
granted subsequent to the grant of the related Stock Option shall not be
exercisable during the first six months of the term of such Stock Appreciation
Right, except that this special limitation shall not apply in the event of
Disability or Termination of an employee optionee or death of an optionee prior
to the expiration of the six-month period.

(ii) Upon the exercise of a Stock Appreciation Right, an optionee shall
be entitled to receive up to, but not more than, an amount in cash and/or shares
of Stock equal to the SAR Value with the Committee having the right to determine
the form of payment, subject to Section 6(b)(v) below. For purposes of this
paragraph, the shares of Stock will be valued at their Fair Market Value at the
date of exercise of the Stock Appreciation Right.

(iii) Stock Appreciation Rights shall be transferable and exercisable
only when and to the extent that the underlying Stock Option would be
transferable and exercisable under Section 5(b)(v) of this Plan.

(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option or
part thereof to which such Stock Appreciation Right is related shall be deemed
to have been exercised for the purpose of the limitation set forth in Section 3
of the Plan on the number of shares of Stock to be issued under the Plan, but
only to the extent of the number of shares issued under the Stock Appreciation
Right at the time of exercise based upon the SAR Value.

(v) The Committee may grant "Limited Stock Appreciation Rights", i.e.,
Stock Appreciation Rights that become exercisable only in the event of a Change
in Control as defined in Section 10 below, subject to such terms and conditions
as the Committee may specify at the time of grant. Said Limited Stock
Appreciation Rights shall be settled solely in cash, in an amount equal to the
SAR Value.

Each grant of Stock Appreciation Rights shall be confirmed by, and shall be
subject to the terms of, an agreement, executed by the Company and the
participant.

9
<PAGE>

Section 7. Restricted Stock.

(a) Grant and Exercise. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted by the Company. The Committee
shall determine the eligible persons to whom, and the time or times at which,
grants of Restricted Stock will be made, the number of shares to be awarded, the
price (if any) to be paid by the recipient, the time or times within which such
awards may be subject to forfeiture (the "Restriction Period"), the vesting
schedule and rights to acceleration thereof, and all other terms and conditions
of the awards.

The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals or such other factors as the Committee
may determine.

(b) Terms and Conditions. Each Restricted Stock award shall be subject
to the following terms and conditions:

(i) Restricted Stock, when issued, will be represented by a stock
certificate or certificates registered in the name of the holder to whom such
Restricted Stock shall have been awarded. During the Restriction Period,
certificates representing the Restricted Stock and any securities constituting
Retained Distributions (as defined below) shall bear a restrictive legend to the
effect that ownership of the Restricted Stock (and such Retained Distributions),
and the enjoyment of all rights appurtenant thereto, are subject to the
restrictions, terms and conditions provided in the Plan and the applicable
Restricted Stock agreement. Such certificates shall be deposited by the holder
with the Company, together with stock powers or other instruments of assignment,
each endorsed in blank, which will permit transfer to the Company of all or any
portion of the Restricted Stock and any securities constituting Retained
Distributions that shall be forfeited or that shall not become vested in
accordance with the Plan and the applicable Restricted Stock agreement.

(ii) Restricted Stock shall constitute issued and outstanding shares of
Common Stock for all corporate purposes. The holder will have the right to vote
such Restricted Stock, to receive and retain all regular cash dividends and
other cash equivalent distributions as the Board may in its sole discretion
designate, pay or distribute on such Restricted Stock and to exercise all other
rights, powers and privileges of a holder of Common Stock with respect to such
Restricted Stock, with the exceptions that (A) the holder will not be entitled
to delivery of the stock certificate or certificates representing such
Restricted Stock until the Restriction Period shall have expired and unless all
other vesting requirements with respect thereto shall have been fulfilled; (B)
the Company will retain custody of the stock certificate or certificates
representing the Restricted Stock during the Restriction Period; (C) other than
regular cash dividends and other cash equivalent distributions as the Board may
in its sole discretion designate, pay or distribute, the Company will retain
custody of all distributions ("Retained Distributions") made or declared with
respect to the Restricted Stock (and such Retained Distributions will be subject
to the same restrictions, terms and conditions as are applicable to the
Restricted Stock) until such

10
<PAGE>

time, if ever, as the Restricted Stock with respect to which such Retained
Distributions shall have been made, paid or declared shall have become vested
and with respect to which the Restriction Period shall have expired; (D) the
holder may not sell, assign, transfer, pledge, exchange, encumber or dispose of
the Restricted Shares or any Retained Distributions during the Restriction
Period; and (E) a breach by the holder of any of the restrictions, terms or
conditions contained in this Plan or the Restricted Stock agreement referred to
in the following clause (iv) or otherwise established by the Committee with
respect to any Restricted Stock or Retained Distributions will cause a
forfeiture of such Restricted Stock and any Retained Distributions with respect
thereto.

(iii) Upon the expiration of the Restriction Period with respect to each
award of Restricted Stock and the satisfaction of any other applicable
restrictions, terms and conditions (A) all or part of such Restricted Stock
shall become vested in accordance with the terms of the Restricted Stock
agreement referred to in the following clause (iv), and (B) any Retained
Distributions with respect to such Restricted Stock shall become vested to the
extent that the Restricted Stock related thereto shall have become vested. Any
such Restricted Stock and Retained Distributions that do not vest shall be
forfeited to the Company and the holder shall not thereafter have any rights
with respect to such Restricted Stock and Retained Distributions that shall have
been so forfeited.

(iv) Each Restricted Stock award shall be confirmed by, and shall be
subject to the terms of, an agreement executed by the Company and the
participant.

Section 8. Deferred Stock.

(a) Grant and Exercise. Deferred Stock may be awarded either alone or
in addition to other awards granted by the Company. The Committee shall
determine the eligible persons to whom and the time or times at which Deferred
Stock shall be awarded, the number of shares of Deferred Stock to be awarded to
any person, the duration of the period (the "Deferral Period") during which, and
the conditions under which, receipt of the Stock will be deferred, and all the
other terms and conditions of the awards.

The Committee may condition the grant of Deferred Stock upon the attainment
of specified performance goals or such other factors or criteria as the
Committee shall determine.

(b) Terms and Conditions. Each Deferred Stock award shall be subject to
the following terms and conditions:

(i) Subject to the provisions of this Plan and the award agreement
referred to in Section 8(b)(vii) below, Deferred Stock awards may not be sold,
assigned, transferred, pledged or otherwise encumbered during the Deferral
Period. At the expiration of the Deferral Period (or the Additional Deferral
Period referred to in Section 8(b)(vi) below,

11
<PAGE>

where applicable), share certificates shall be delivered to the participant, or
his legal representative, in a number equal to the shares covered by the
Deferred Stock award.

(ii) As determined by the Committee at the time of award, amounts equal
to any dividends declared during the Deferral Period (or the Additional Deferral
Period referred to in Section 8(b)(vi) below, where applicable) with respect to
the number of shares covered by a Deferred Stock award may be paid to the
participant currently or deferred and deemed to be reinvested in additional
Deferred Stock.

(iii) Subject to the provisions of the award agreement and this Section
8 and Section 13(g) below, upon termination of a participant who is an officer
or employee whose employment with the Company or any Subsidiary is terminated
for any reason during the Deferral Period (or the Additional Deferral Period
referred to in Section 8(b)(vi) below, where applicable) for a given award, the
Deferred Stock in question will vest or be forfeited in accordance with the
terms and conditions established by the Committee at the time of grant.

(iv) The Committee may, after grant, accelerate the vesting of all or any
part of any Deferred Stock award and/or waive the deferral limitations for all
or any part of a Deferred Stock award.

(v) In the event of hardship or other special circumstances of an Agent
or a participant who is an officer or employee whose employment with the Company
or any Subsidiary is involuntarily terminated (other than for cause), the
Committee may waive in whole or in part any or all of the remaining deferral
limitations imposed hereunder or pursuant to the award agreement referred to in
Section 8(b)(vii) below with respect to any or all of the participant's Deferred
Stock.

(vi) A participant may request to, and the Committee may at any time,
defer the receipt of an award (or an installment of an award) for an additional
specified period or until a specified event (the "Additional Deferral Period").
Subject to any exceptions adopted by the Committee, such request must generally
be made at least one year prior to expiration of the Deferral Period for such
Deferred Stock award (or such installment).

(vii) Each Deferred Stock award shall be confirmed by, and shall be
subject to the terms of, an agreement executed by the Company and the
participant.

Section 9. Other Stock-Based Awards.

(a) Grant and Exercise. Other Stock-Based Awards which may include
performance shares, and shares valued by reference to the performance of the
Company or any Subsidiary, may be granted either alone or in addition to or in
tandem with Stock Options, Stock Appreciation Rights, Restricted Stock or
Deferred Stock under this or any other plan.

12
<PAGE>

The Committee shall determine the eligible persons to whom, and the time or
times at which, such awards shall be made, the number of shares of Stock to be
awarded pursuant to such awards, and all other terms and conditions of the
awards. The Committee may also provide for the grant of Stock under such awards
upon the completion of a specified performance period.

(b) Terms and Conditions. Each Other Stock-Based Award shall be subject
to the following terms and conditions:

(i) Shares of Stock subject to an Other Stock-Based Award may not be
sold, assigned, transferred, pledged or otherwise encumbered prior to the date
on which the shares are issued, or, if later, the date on which any applicable
restriction, performance or deferral period lapses.

(ii) The recipient of an Other Stock-Based Award shall be entitled to
receive, currently or on a deferred basis, dividends or dividend equivalents
with respect to the number of shares covered by the award, as determined by the
Committee at the time of the award. The Committee may provide that such amounts
(if any) shall be deemed to have been reinvested in additional Stock.

(iii) Any Other Stock-Based Award and any Stock covered by any Other
Stock-Based Award shall vest or be forfeited to the extent so provided in the
award agreement, as determined by the Committee.

(iv) In the event of Retirement, Disability or death of a participant who
is an officer or employee of the Company or any Subsidiary, or in cases of
special circumstances of any participant, the Committee may waive in whole or in
part any or all of the limitations imposed hereunder (if any) with respect to
any or all of an Other Stock-Based Award.

(v) Each Other Stock-Based Award shall be confirmed by, and shall be
subject to the terms of, an agreement executed by the Company and by the
participant.

Section 10. Change in Control Provisions.

(a) A "Change of Control" shall be deemed to have occurred on the tenth
day after:

(i) any individual, firm, corporation or other entity, or any group (as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934) (the "Act")
becomes, directly or indirectly, the beneficial owner (as defined in the General
Rules and Regulations of the Securities and Exchange Commission with respect to
Sections 13(d) and 13(g) of the Act) of more than 20% of the then outstanding
shares of the Company's capital stock entitled to vote generally in the election
of directors of the Company; or

13
<PAGE>

(i) the commencement of, or the first public announcement of the
intention of any individual, firm, corporation or other entity or of any group
(as defined in Section 13(d)(3) of the Act) to commence, a tender or exchange
offer subject to Section 14(d)(1) of the Act for any class of the Company's
capital stock; or

(ii) the stockholders of the Company approve (A) a definitive agreement
for the merger or other business combination of the Company with or into another
corporation pursuant to which the stockholders of the Company do not own,
immediately after the transaction, more than 50% of the voting power of the
corporation that survives and is a publicly owned corporation and not a
subsidiary of another corporation, or (B) a definitive agreement for the sale,
exchange or other disposition of all or substantially all of the assets of the
Company, or (C) any plan or proposal for the liquidation or dissolution of the
Company;

provided, however, that a "Change of Control" shall not be deemed to have
taken place if beneficial ownership is acquired by, or a tender or exchange
offer is commenced or announced by, the Company, any profit-sharing, employee
ownership or other employee benefit plan of the Company, any trustee of or
fiduciary with respect to any such plan when acting in such capacity, or any
group comprised solely of such entities.

(b) In the event of a "Change of Control" as defined in Subsection (a)
above, awards granted under the Plan will be subject to the following
provisions, unless the provisions of this Section 10 are suspended or terminated
by an affirmative vote of a majority of the Board prior to the occurrence of
such a "Change of Control":

(i) all outstanding Stock Options, and all Stock Appreciation Rights
(including Limited Stock Appreciation Rights) shall become exercisable in full,
whether or not otherwise exercisable at such time, and any such Stock Option or
Stock Appreciation Right shall remain exercisable in full thereafter until it
expires pursuant to its terms; and

(ii) all restrictions and deferral limitations contained in Restricted
Stock awards, Deferred Stock awards and Other Stock-Based Awards granted under
the Plan shall lapse.

Section 11. Amendments and Termination.

The Board may at any time, and from time to time, amend any of the
provisions of the Plan, and may at any time suspend or terminate the Plan;
provided, however, that no such amendment shall be effective unless and until it
has been duly approved by the holders of the outstanding shares of Stock if (a)
it increases the aggregate number of shares of Stock which are issued pursuant
to the Plan, (except as provided in Section 3 above) or (b) the failure to
obtain such approval would adversely affect the compliance of the Plan with the
requirements of Rule 16b-3 under the Act, as in effect from time to time, or
with the requirements of any other applicable law, rule or regulation. The
Committee may amend the terms of any award theretofore granted under the Plan;
provided, however, that

14
<PAGE>

subject to Section 3 above, no such amendment may be made by the Committee which
in any material respect impairs the rights of the participant without the
participant's consent.

Section 12. Unfunded Status of Plan.

The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company.

Section 13. General Provisions.

(a) Investment Representations. The Committee may require each person
acquiring shares of Stock pursuant to a Stock Option or other award under the
Plan to represent to and agree with the Company in writing that the optionee or
participant is acquiring the shares for investment without a view to
distribution thereof.

All certificates for shares of Stock delivered under the Plan shall be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed, any applicable Federal or state securities law, and any applicable
corporate law, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.

(b) Additional Incentive Arrangements. Nothing contained in the Plan
shall prevent the Board from adopting such other or additional incentive
arrangements as it may deem desirable, including, but not limited to, the
granting of stock options and the awarding of stock and cash otherwise than
under the Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.

(c) Continued Employment. Nothing contained in the Plan or in any award
hereunder shall be deemed to confer upon any officer, employee or Agent of the
Company or any Subsidiary any right to continued employment with the Company or
any Subsidiary, nor shall it interfere in any way with the right of the Company
or any Subsidiary to terminate the employment of any of its officers, employees
or Agents at any time.

(d) Withholding. Not later than the date as of which an amount first
becomes includable in the gross income of the participant for Federal income tax
purposes with respect to any award under the Plan, the participant shall pay to
the Company, or make arrangements satisfactory to the Committee regarding the
payment of, any Federal, state and local taxes of any kind required by law to be
withheld or paid with respect to such amount. If permitted by the Committee,
tax withholding or payment obligations may be settled with Stock, including
Stock that is part of the award that gives rise to the withholding requirement.
The obligations of the Company under the Plan shall be conditional upon

15
<PAGE>

such payment or arrangements and the Company or the participant's employer (if
not the Company) shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the participant
from the Company or any Subsidiary.

(e) Governing Law. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of New York (without regard to choice of law provisions).

(f) Other Benefit Plans. Any Stock Option granted or other award made
under the Plan shall not be deemed compensation for purposes of computing
benefits under any retirement plan of the Company or any Subsidiary and shall
not affect any benefits under any other benefit plan now or subsequently in
effect under which the availability or amount of benefits is related to the
level of compensation (unless required by specific reference in any such other
plan to awards under this Plan).

(g) Employee Status. A leave of absence, unless otherwise determined by
the Committee prior to the commencement thereof, shall not be considered a
termination of employment. Any Stock Option granted or awards made under the
Plan to officers and employees of the Company or any Subsidiary shall not be
affected by any change of employment, so long as the holder continues to be an
employee of the Company or any Subsidiary.

(h) Non-Transferability. Except as otherwise expressly provided in the
Plan, no right or benefit under the Plan may be alienated, sold, assigned,
hypothecated, pledged, exchanged, transferred, encumbered or charged, otherwise
than by will, by the laws of decent and distribution or by a Qualified Domestic
Relations Order, and any attempt otherwise to alienate, sell, assign,
hypothecate, pledge, exchange, transfer, encumber or charge the same shall be
void. No right or benefit hereunder shall in any manner be liable for or
subject to the debts, contracts, liabilities or torts of the person entitled to
such benefit.

(i) Applicable Laws. The obligations of the Company with respect to all
Stock Options and awards under the Plan shall be subject to (i) all applicable
laws, rules and regulations and such approvals by any governmental agencies as
may be required, including, without limitation, the effectiveness of a
registration statement under the Securities Act of 1933, and (ii) the rules and
regulations of any securities exchange on which the Stock may be listed.

(j) Conflicts. If any of the terms or provisions of the Plan conflict
with the requirements of Rule 16b-3 under the Act, as in effect from time to
time, or with the requirements of any other applicable law, rule or regulation,
and/or with respect to Incentive Stock Options, Section 422 of the Code, then
such terms or provisions shall be deemed inoperative to the extent they so
conflict with the requirements of said Rule 16b-3,

16
<PAGE>

and/or with respect to Incentive Stock Options, Section 422 of the Code. With
respect to Incentive Stock Options, if this Plan does not contain any provision
required to be included herein under Section 422 of the Code, such provision
shall be deemed to be incorporated herein, with the same force and effect as if
such provision had been set out at length herein.

(k) Written Agreements. The Committee may terminate any Stock Option or
other award made under the Plan if a written agreement relating thereto is not
executed and returned to the Company within 30 days after such agreement has
been delivered to the participant for his or her execution.

(l) Consideration for Stock. The Committee may not grant any awards
under the Plan pursuant to which the Company will be required to issue any
shares of Stock unless the Company will receive consideration for the shares of
Stock sufficient under the laws of the State of New Jersey so that such shares
of Stock will be fully paid and nonassessable when issued.

Section 14. Effective Date of Plan.

The Plan was deemed adopted on the date it was approved by the stockholders
of Par and became effective as to Par as of March 23, 1990. The Plan was
adopted as to the Company on the date of adoption and assumption by the Board,
and the Plan became effective as to the Company on the effective date of the
merger of Par Merging Corp., a subsidiary of the Company, with and into Par.

Section 15. Term of Plan.

No Stock Option, Stock Appreciation Rights Restricted Stock award, Deferred
Stock award or Other Stock-Based Award shall be granted pursuant to the Plan on
or after March 23, 2000, but awards granted prior to such date may extend beyond
that date.

As of June 1995

17
<PAGE>

PHARMACEUTICAL RESOURCES, INC.

1995 DIRECTORS' STOCK OPTION PLAN

ARTICLE I

DEFINITIONS

As used herein, the following terms have the meanings hereinafter set forth
unless the context clearly indicates to the contrary:

(a) "Board" shall mean the Board of Directors of the Company.

(b) "Company" shall mean Pharmaceutical Resources, Inc.

(d) "Eligible Director" shall mean any director of the Company other
than (i) any director of the Company on the Effective Date of this Plan, or (ii)
any person who, at the time of his election to the Board, is an employee of the
Company or any of its subsidiaries.

(e) "Fair Market Value" shall mean, with respect to any share of stock
on any day: (i) if the principal market for the Stock is The New York Stock
Exchange, any other national securities exchange or the NASDAQ National Market,
the closing sales price of the Stock on such day as reported by such exchange or
market system, or on a consolidated tape reflecting transactions on such
exchange or market system, or (ii) if the principal market for the Stock is not
a national securities exchange or the NASDAQ National Market and the Stock is
quoted on the National Association of Securities Dealers Automated Quotations
System, the mean between the closing bid and the closing asked prices for the
Stock on such day as quoted on such System, or (iii) if the principal market for
the Stock is not quoted on the National Association of Securities Dealers
Automated Quotations System, the mean between the highest bid and lowest asked
prices for the Stock on such day as reported by the National Quotation Bureau,
Inc.; provided that if clauses (i), (ii) and (iii) of this paragraph are all
inapplicable, or if no trades have been made or no quotes are available for such
day, the Fair Market Value of the Stock shall be determined by the Company by
any method which it deems to be appropriate. The determination of the Company
shall be conclusive as to the Fair Market Value of the Stock.

(f) "Option" shall mean an Eligible Director's stock option to
purchase Stock granted pursuant to the provisions of Article V hereof.

(g) "Option Price" shall mean the price at which an Optionee may
purchase a share of Stock under a Stock Option Agreement.
<PAGE>

(h) "Optionee" shall mean an Eligible Director to whom an Option has
been granted hereunder.

(i) "Plan" shall mean the Pharmaceutical Resources, Inc. 1995
Directors' Stock Option Plan, the terms of which are set forth herein, as
amended form time to time.

(j) "Qualified Domestic Relations Order" shall have the meaning
assigned to such term under the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.

(k) "Stock" shall mean the common stock, par value $.01 per share, of
the Company or, in the event that the outstanding shares of Stock are hereafter
changed into or exchanged for different stock or securities of the Company or
some other corporation, such other stock or securities.

(l) "Stock Option Agreement" shall mean an agreement between the
Company and the Optionee under which the Optionee may purchase Stock in
accordance with the Plan.

(m) "Stockholders" shall mean the holders of outstanding shares of
Stock of the Company.

ARTICLE II

THE PLAN

2.1 Name. This Plan shall be known as the "Pharmaceutical Resources,
----
Inc. 1995 Directors' Stock Option Plan".

2.2 Purpose. The purpose of the Plan is to advance the interests of
-------
the Company and its Stockholders by affording Eligible Directors of the Company
an opportunity to acquire or increase their proprietary interests in the
Company, and thereby to encourage their continued service as directors and to
provide them additional incentives to achieve the growth objectives of the
Company.

2.3 Effective Date. The Plan shall become effective on the date of
--------------
its adoption by the Board of Directors of the Company, subject to the approval
of the Plan by the Stockholders within one year after the effective date. Any
Options granted under the Plan prior to such approval shall be effective when
made, but shall be conditioned upon, and subject to, such approval of the Plan
by the Stockholders (and no Options shall be exercisable prior to such
approval).

2
<PAGE>

2.4 Termination Date. The Plan shall terminate and no further Options
----------------
shall be granted hereunder on or after May 31, 2005.

ARTICLE III

PARTICIPANTS

Each Eligible Director shall participate in the Plan as of the date
that he is elected as a member of the Board.

ARTICLE IV

SHARES OF STOCK SUBJECT TO PLAN

4.1 Limitations. Subject to any antidilution adjustment pursuant to
-----------
Section 4.2 hereof, the maximum number of shares of Stock which may be issued
and sold hereunder shall not exceed 100,000 shares of Stock in the aggregate,
and 15,000 shares of Stock for any individual. Shares of Stock subject to an
Option may be either authorized and unissued shares or shares issued and later
acquired by the Company; provided, however, the shares of Stock with respect to
which an Option has been exercised shall not again be available for grant
hereunder. If outstanding Options granted hereunder shall terminate or expire
for any reason without being wholly exercised prior to the termination of the
Plan pursuant to Section 2.4 hereof, new Options may be granted hereunder
covering such unexercised shares.

4.2 Antidilution. In the event that the outstanding shares of Stock
------------
are changed into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation by reason of merger,
consolidation, reorganization, recapitalization, reclassification, combination
of shares, stock split or stock dividend:

(a) The aggregate number and kind of shares of Stock for which
Options may be granted hereunder shall be adjusted appropriately;

(b) The rights under outstanding Options granted hereunder, both as
to the number of subject shares and the Option price, shall be adjusted
appropriately; and

(c) Where dissolution or liquidation of the Company or any merger or
combination in which the Company is not a surviving corporation is
involved, each outstanding Option granted hereunder shall terminate, but
the Optionee shall have the right, immediately prior to such dissolution,
liquidation, merger or combination, to exercise his Option, in whole or in
part, to the extent that it shall not have been exercised, without regard
to the date on which such Option would otherwise have

3
<PAGE>

become exercisable pursuant to Section 5.4(a) hereof or any limitation on
such exercise pursuant to Section 5.4(b) hereof.

The foregoing adjustments and the manner of application thereof shall
be determined solely by the Board, and any such adjustment may provide for the
elimination of fractional share interests. The adjustments required under this
Article shall apply to any successor or successors of the Company and shall be
made regardless of the number or type of successive events requiring adjustments
hereunder.

ARTICLE V

OPTIONS

5.1 Option Grant, Number of Shares and Agreement. On the Date of
--------------------------------------------
Grant, each Eligible Director shall automatically be granted the right and
option to purchase all or any part of an aggregate of 15,000 shares of Stock.
Such Option shall be evidenced by a written Stock Option Agreement, dated as of
the Date of Grant and executed by the Company and the Optionee, stating the
Option's duration, time of exercise, and exercise price. The terms and
conditions of the Option shall be consistent with the Plan.

5.2 Option Price. The Option Price of the Stock subject to each
------------
Option shall be the Fair Market Value of the Stock on its Date of Grant.

5.3 Exercise Period. The period for the exercise of each Option (the
---------------
"Exercise Period") shall expire on the tenth anniversary of the Date of Grant.

5.4 Option Exercise.
---------------

(a) Subject to Section 5.4(b) hereof, one-third of the Options
granted under the Plan to an Eligible Director shall become exercisable
("vest") on each of the first three anniversaries of the Date of Grant;
provided, however, that if, prior to any date on which an Option is
-------- -------
scheduled to vest under this Section 5.4(a), an Eligible Director shall
have ceased to serve as a member of the Board for any reason, the Options
scheduled to vest on such date and all remaining unvested Options shall
immediately terminate. An Option which shall have vested pursuant to this
Section 5.4(a) shall remain exercisable, subject to Section 5.4(b) hereof,
at all times during the remainder of the Exercise Period regardless of
whether the Optionee thereafter continues to serve as a member of the
Board.

(b) In addition to the conditions set forth in Section 5.4(a)
hereof, each Eligible Director shall only be entitled to exercise Options
which shall have vested under such Section 5.4(a):

4
<PAGE>

(i) if such exercise shall occur prior to the second
anniversary of the Date of Grant, the Optionee would own at least 1,500
shares of Stock immediately after such exercise;

(ii) if such exercise shall occur on or after the second
anniversary of the Date of Grant, but prior to the third anniversary
thereof, the Optionee would own at least 3,000 shares of Stock immediately
after such exercise; and

(iii) if such exercise shall occur on or after the third
anniversary of the Date of Grant, the Optionee would own at least 4,500
shares of Stock immediately after such exercise.

(c) An Option may be exercised at any time or from time to time
during the term of the Option as to any or all full shares which have
become exercisable in accordance with this Section, but not as to less than
100 shares of Stock unless the remaining shares of Stock that are so
exercisable are less than 100 shares of Stock. The Option price is to be
paid in full in cash upon the exercise of the Option. The holder of an
Option shall not have any of the rights of a Stockholder with respect to
the shares of Stock subject to the Option until such shares of Stock have
been issued or transferred to him upon the exercise of his Option.

(d) An Option shall be exercised by written notice of exercise of
the Option, with respect to a specified number of shares of Stock,
delivered to the Company at its principal office, and by cash payment to
the Company as said office of the full amount of the Option price for such
number of shares. In addition to, and prior to the issuance of a
certificate for shares pursuant to any Option exercise, the Optionee shall
pay to the Company in cash the full amount of any federal and state
withholding or other employment taxes applicable to the taxable income of
such Optionee resulting from such exercise.

(e) At the discretion of the Board, the Stock Option Agreement
may provide that an Option granted under the Plan may be exercised with
respect to a specified number of shares of Stock by written notice of
exercise to the Company stating that (i) the option price for the shares
and any withholding tax due thereon will be paid to the Company directly by
a broker-dealer designated by the optionee and irrevocable instructions to
such effect have been furnished by the optionee to such broker-dealer; and
(ii) an advice from the broker-dealer confirming payment to the Company
will be promptly delivered to the Company. The exercise of any such option
shall be irrevocable at the time of notice to the Company; provided,
however, that the Company shall not be required to deliver certificates for
shares of Stock with respect to the exercise of the option until the
Company has confirmed the receipt of good and sufficient funds in payment
of the purchase price thereof.

5
<PAGE>

5.5 Non-transferability of Option. Options may not be transferred by
-----------------------------
an Optionee otherwise than by will, the laws of descent and distribution, or by
a Qualified Domestic Relations Order. During the lifetime of an Optionee, his
Option may be exercised only by him (or by his guardian or legal representative,
should one be appointed) or by his spouse to whom the Option has been
transferred pursuant to the terms of a Qualified Domestic Relations Order. In
the event of the death of an Optionee, any Option held by him may be exercised
by his legatee(s) or other distributee(s) or by his personal representative.

ARTICLE VI

STOCK CERTIFICATES

The Company shall not be required to issue or deliver any certificate
for shares of Stock purchased upon the exercise of any Option granted hereunder
or any portion thereof unless, in the opinion of counsel to the Company, there
has been compliance with all applicable legal requirements. An Option granted
under the Plan may provide that the Company's obligation to deliver shares of
Stock upon the exercise thereof may be conditioned upon the receipt by the
Company of a representation as to the investment intention of the holder thereof
in such form as the Company shall determine to be necessary or advisable solely
to comply with the provisions of the Securities Act of 1933, or any other
federal, state or local securities laws.

ARTICLE VII

TERMINATION, AMENDMENT AND MODIFICATION OF PLAN

The Board may, at any time, terminate the Plan, and may, at any time
and from time to time and in any respect, amend or modify the Plan; provided,
however, that this Plan shall not be amended more than once every six months,
other than to comport with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act, or the rules thereunder.

ARTICLE VIII

RELATIONSHIP TO OTHER COMPENSATION PLANS

The adoption of the Plan shall neither affect any other stock option,
incentive or other compensation plans in effect for the Company or any of its
subsidiaries, nor shall the adoption of the Plan preclude the Company from
establishing any other forms of incentive or other compensation plan for
directors of the Company.

6
<PAGE>

ARTICLE IX

MISCELLANEOUS

9.1 Plan Binding on Successors. The Plan shall be binding upon the
--------------------------
successors and assigns of the Company.

9.2 Singular, Plural; Gender. Whenever used herein, nouns in the
------------------------
singular shall include the plural, and the masculine pronoun shall refer also to
the feminine pronoun.

9.3 Headings etc.. Headings of articles and paragraphs hereof are
-------------
inserted for convenience and reference, and do not constitute a part of the
Plan.

7
<PAGE>

PRELIMINARY COPY

PHARMACEUTICAL RESOURCES, INC.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

P PROXY FOR ANNUAL MEETING TO BE HELD ON AUGUST 22, 1995
R
O Know All Men By These Presents: That the undersigned shareholder(s) of
X Pharmaceutical Resources, Inc., a New Jersey corporation (the "Company"),
Y hereby constitute(s) and appoint(s) Kenneth I. Sawyer and Robert I.
Edinger with full power of substitution in each, as the agents, attorneys
and proxies of the undersigned, for and in the name, place and stead of
the undersigned, to vote, at the Annual Meeting of Shareholders of the
Company to be held at the Holiday Inn-Suffern, Three Executive Boulevard,
Suffern, New York, on August 22, 1995, at 10:00 A.M. (local time) and at
all adjournments thereof, the shares of stock which the undersigned would
be entitled to vote if then personally present in the transaction of such
business as may properly come before the meeting. The undersigned would
direct my (our) proxies to vote for me (us) as specified by a cross (X)
in the appropriate spaces, upon the following proposals:

THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN BELOW. IF
NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR THE ELECTION OF TWO
MEMBERS OF THE BOARD OF DIRECTORS, FOR THE APPROVAL OF THE GRANT AND ISSUANCE
TO CLAL PHARMACEUTICAL INDUSTRIES LTD. OF A WARRANT TO PURCHASE SHARES OF THE
COMPANY'S COMMON STOCK, FOR THE APPROVAL AND ADOPTION OF AN AMENDMENT TO THE
1990 STOCK INCENTIVE PLAN AND FOR THE APPROVAL AND ADOPTION OF THE 1995
DIRECTORS' STOCK OPTION PLAN.
<PAGE>

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

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL LISTED
NOMINEES.

- --------------------------------------------------------------------------------
Election of Directors. Nominees: Andrew Maguire, Ph.D., Melvin Van Woert, M.D.

WITHHOLD AUTHORITY TO VOTE
1. Election of FOR ALL FOR ALL NOMINEES LISTED
Directors [ ] [ ]

(INSTRUCTION: To withhold authority to vote for any individual nominee write
the nominee's name in the space below.)

2. Approve the grant and issuance to FOR AGAINST ABSTAIN
Clal Pharmaceutical Industries Ltd. [ ] [ ] [ ]
of a warrant to purchase shares of
the Company's Common Stock as further
described in the Proxy Statement

3. Approve and adopt an amendment to FOR AGAINST ABSTAIN
the 1990 Stock Incentive Plan [ ] [ ] [ ]

4. Approve and adopt the 1995 Directors' FOR AGAINST ABSTAIN
Stock Option Plan [ ] [ ] [ ]

5. In their discretion, the proxies are FOR AGAINST ABSTAIN
authorized to vote upon such other [ ] [ ] [ ]
business as may properly come before
the meeting or any adjournment thereof.
- --------------------------------------------------------------------------------

[_] I plan on attending the Annual Meeting.

PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY.

__________________________________________________________________________, 1995
SIGNATURE DATE

__________________________________________________________________________, 1995
SIGNATURE if held jointly DATE

PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY THE PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AN AUTHORIZED PERSON.