PHARMACEUTICAL RESOURCES INC, DEF 14A, 1995-08-08

PHARMACEUTICAL RESOURCES INC
DEF 14A, 1995-08-08

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SCHEDULE 14A INFORMATION

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

(Amendment No. 2)

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

Check the appropriate box:

[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))

[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material 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):

[_] $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:
_____________________________________

[X] Fee paid previously with preliminary materials.

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

1) Amount Previously Paid:
_____________________________________

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

3) Filing Party:
_____________________________________

4) Date Filed:
_____________________________________

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PHARMACEUTICAL RESOURCES, INC.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON SEPTEMBER 21, 1995

To the Shareholders:

The 1995 Annual Meeting of Shareholders of Pharmaceutical Resources, Inc.
(the "Company") will be held on September 21, 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 August 8, 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

August 8, 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.
<PAGE>

PROXY STATEMENT

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

ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON SEPTEMBER 21, 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
September 21, 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 August 8, 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
August 8, 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 August 8, 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

1
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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 August 8, 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 18,171,841 shares of Common Stock were outstanding at the close
of business on August 4, 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 August 4,
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)........... 2,963,554 15.5
Kenneth I. Sawyer(3)(4)............................. 1,006,150 5.2
Diana L. Sloane(3)(5)............................... 136,330 *
Melvin H. Van Woert, M.D.(3)(4)..................... 70,050 *
Andrew Maguire, Ph.D.(3)(4)......................... 36,000 *
H. Spencer Matthews(3)(4)........................... 36,000 *
Mark Auerbach(3)(4)................................. 47,000 *
Mony Ben-Dor(1)(2).................................. 0 *
Robin O. Motz, M.D., Ph.D.(3)(4).................... 42,000 *
Robert I. Edinger(3)................................ 40,000 *
Robert M. Fisher, Jr.(3)............................ 5,870 *
Stuart A. Rose, Ph.D.(3)(6)......................... 27,000 *
All directors and executive officers (as of 8/4/95)
as a group (10 persons)(3)(5)...................... 1,310,070 6.7
</TABLE>
--------
* Less than 1%.

2
<PAGE>

--------
(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) See "--Voting Arrangements" and "Election of Directors--Directors."
(3) 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.
(4) A director of the Company.
(5) Ms. Sloane was an executive officer and director of the Company until
April 1, 1995.
(6) Includes 2,000 shares of Common Stock owned of record by Dr. Rose's
spouse.

VOTING ARRANGEMENTS

The Company and Clal entered into a Stock Purchase Agreement, dated March
25, 1995, as amended on May 1, 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"). 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. See "Proposal II--Approval of the Grant
and Issuance to Clal of a Warrant to Purchase Common Stock--Background." 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."

Clal has indicated to the Company that it intends to vote all shares of
Common Stock owned by it for the election of the two named nominees as
directors of the Company and for the approval of each of the other proposals
described in this Proxy Statement. Clal is not required, however, to vote its
shares of Common Stock for such proposals pursuant to the Stock Purchase
Agreement.

3
<PAGE>

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. Mr. Maguire and Dr. 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. See "Proposal II--Approval of the Grant and Issuance to Clal of a
Warrant to Purchase Common Stock--Background." 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 Strategic Planning 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.

4
<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)(2)(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)(2)(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)(3)(5)....................................... 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 (5)....................................... 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, and since December
1995, a director 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>

5
<PAGE>

<TABLE>
<CAPTION>
YEAR
OF FIRST
NAME AGE ELECTION
---- --- --------
<S> <C> <C>
CLASS III
Kenneth I. Sawyer (2)(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)(5).............................. 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 Nominating Committee of the Board of the Company.

(3) A member of the Strategic Planning Committee of the Board of the Company.

(4) A member of the Executive Committee of the Board of the Company.

(5) A member of the Compensation and Stock Option 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. The Strategic Planning Committee was formed in November 1994. The
function of the Strategic Planning Committee is to review potential material
transactions involving the Company and to communicate with and make
recommendations to the Board in respect of such transactions.

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

6
<PAGE>

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 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.

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 Limited Partnership, to research
and develop generic pharmaceutical products (the "Joint Venture"). For a
description of the sale of shares, the issuance of the Outstanding Warrant and
the terms of the Joint Venture, 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--Background." Mony Ben-
Dor, a director of the Company, is also a director of Clal. See "--Directors."
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, Ph.D., 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

<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>
Kenneth I. Sawyer 1994 408,238 100,000 -- -- 59,752
President, Chief 1993 413,215 200,000 -- 500,000 70,851
Executive Officer 1992 331,170 250,000 -- 120,000 32,152
and Chairman
Diana L. Sloane 1994 208,097 22,500 -- -- 26,086
Vice President-- 1993 179,423 40,000 -- 130,000 22,953
Regulatory and 1992 140,496 115,000 -- 45,000 22,372
Scientific Affairs
</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 23,500 -- 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 $20,704 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 executives of the highest caliber from
larger, well-established pharmaceutical manufacturers, to retain the Company's
executives, 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 considered 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 regulatory reviews of
the Company's operations, lawsuits asserted against it and its financial
condition.

BASE SALARY AND ANNUAL BONUS. Base salary and annual bonus for executive
officers are determined by reference to Company-wide and individual
performances for the previous fiscal year based upon financial and non-
financial criteria. The financial measures for 1994 were operating income
(before adjustments for legal settlements and other non-operational items),
sales and research and development expenditures. Non-financial measures
included both strategic and operational factors, such as successful removal of
the Company from the U.S. Food and Drug Administration's ("FDA") Application
Integrity Assessment Program, efforts in responding to other regulatory
matters, efforts in exploration of strategic alternatives for the Company,
research and development expenditures, review and implementation of updated
systems and operational procedures as a foundation for future growth and
realignment of the Company's internal sales and marketing organization. The
Compensation Committee placed the greatest weight on financial factors. In
addition to Company-wide measures of performance, the Compensation Committee
considers those performance factors particular to each executive officer,
including the performance of the area for which such officer had management
responsibility and individual accomplishments.

Base salaries for executives were determined primarily by reference to
industry norms, the principal job duties and responsibilities undertaken by
such persons, individual performance and other relevant criteria. Base salary
comparisons for most executives are made to a group of pharmaceutical
manufacturers in the United States. Such group is selected by the Company
based upon several factors including, but not limited to, the duties and
responsibilities of the executive used in the comparison, size and complexity
of operations, reputation and number of employees of other companies. With
respect to Mr. Sawyer, Chief Executive Officer, a comparison was made by an
independent consulting firm, prior to the signing of his employment agreement
in 1992, to generic pharmaceutical companies and turnaround situations
selected by the consulting firm. In keeping with its goal of recruiting
executives from larger, well-established pharmaceutical manufacturers, the
Compensation Committee considers the performance of the companies used in the
comparisons, as measured by their quality and regulatory profile, as well as
competitive necessity in determining base salaries. The Compensation Committee
considered it appropriate and in the best interest of the Company and its
shareholders to set the levels of base salary for the Company's Chief
Executive Officer and other executives at the median of comparable companies
in order to attract and retain the highest caliber of managers for the Company
so as to position the Company for future growth and improved performance. In
order to attract and retain certain key executives, the Company offers its
executives long-term employment contracts which provide for specified base
salaries.

11
<PAGE>

The Compensation Committee, in determining the annual bonuses to be paid to
its executives for fiscal 1994, considered the 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 financial performance measures used by the Compensation Committee in
determining annual bonuses were operating income (before adjustments for legal
settlements on other non-operational items) and sales. Bonuses were also based
upon assessments of each executive's participation and contribution to the
non-financial measures described above. The non-financial measures varied
among executives depending upon the operations under their management and
direction. Based upon the Company's regulatory and other concerns arising out
of the acts of its prior management, the Compensation Committee utilized the
award of bonuses, without necessarily referring to specific benchmarks, to
attract and retain high quality executives for the Company.

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 Company's overall financial
performance during the fiscal year and other criteria discussed above in this
report. In light of the reductions in operating income and sales in fiscal
1994 from fiscal 1993, the Compensation Committee significantly reduced the
annual bonuses of the Named Executives, including the Chief Executive Officer,
from the prior fiscal year. However, the Compensation Committee also took into
account the following strategic and operational factors, among others
described above, in awarding bonuses:

(i) the removal of the Company from the FDA's Application Integrity
Assessment Program and efforts in responding to a warning letter from the
FDA;

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

(iii) positioning of the Company to explore strategic alternatives; and

(iv) the negotiation and implementation of the distribution agreements
with Genpharm, Inc. and The Generics Group B.V.

In fiscal 1994, the Compensation Committee also awarded stock options to
executives (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. The Compensation Committee granted stock options to Mr. Fisher, a
Named Executive, as part of the compensation package offered to attract him to
accept a position and remain with the Company.

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

12
<PAGE>

several joint venture agreements for the Company, (iii) improving the
manufacturing capacities of the Company, (iv) working to explore strategic
alternatives for the Company, (v) diversifying the Company's customer base and
(vi) successfully recruiting a new and expanded management team.

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.

13
<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.

[INSERT GRAPH]

CUMULATIVE TOTAL RETURN
Based on reinvestment of $100 beginning September 30, 1989

<TABLE>
<CAPTION>
Measurement period Pharmaceutical NYSE Composite S&P(R) Health Care Drugs
(Fiscal year Covered) Resources, Inc. Index Index
--------------------- --------------- -------------- ------------------------
<S> <C> <C> <C>
Measurement PT-
Sept. 89 $ 100 $ 100 $ 100
Sept. 90 83 90 108
Sept. 91 70 119 166
Sept. 92 113 132 161
Sept. 93 215 151 130
Sept. 94 149 157 157
</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 Proposed Warrant is
intended to allow Clal to purchase an additional number of shares of Common
Stock (approximately 1,070,000 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).

14
<PAGE>

The sole purpose of Proposal II is to satisfy the rules of New York Stock
Exchange, Inc. (the "NYSE"). Such rules require the Company to obtain prior
shareholder approval of the issuance of securities (including, for this
purpose, warrants to purchase Common Stock) representing 20% or more of the
Common Stock issued and outstanding before the issuance of such securities.
For purposes of the NYSE rules, the Proposed Warrant, if issued at the time of
the issuance to Clal of 2,027,272 shares of Common Stock and the Outstanding
Warrant, would have represented more than 20% of the Common Stock then
outstanding. The Company is not seeking approval or ratification of the
issuance of the 2,027,272 shares of Common Stock and the Outstanding Warrant
or the other terms of the Stock Purchase Agreement and the related agreements
of which the Proposed Warrant may be deemed a part.

The purpose 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 immediately after giving effect to the
issuance of such Common Stock and the exercise of such warrants. As a result
of the requirements of the NYSE rules described above, the Company issued to
Clal on May 1, 1995, under the Stock Purchase Agreement (the "Closing Date"),
shares of Common Stock and the Outstanding Warrants which represented the
maximum amount of securities issuable under the NYSE rules without shareholder
consent and the Company agreed 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.

The Company's rights and obligations under the agreements described in "--
Background" will not be adversely affected if Proposal II is not approved by
the Company's shareholders. However, if the issuance of the Proposed Warrant
is approved, the exercise price of the Outstanding Warrant will be increased
by $1.00 per share to $11.00 per share for the first year and $12.00 per share
thereafter. In addition, certain stock ownership thresholds in the Stock
Purchase Agreement applicable to Clal's exercise of rights will be increased.
If the Proposed Warrant is issued and exercised, the voting agreement
described below would apply to the shares issued upon its exercise.

The Board believes that the transaction with Clal, including the issuance of
the Proposed Warrant, is beneficial to the Company as well as its
shareholders. The issuance of the Common Stock, the Outstanding Warrant and,
subject to approval of the shareholders, the Proposed Warrant to Clal were
necessary elements to obtain Clal's alliance with the Company. It is, in the
view of the Board, beneficial to have Clal make a major investment in the
Company.

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

BACKGROUND

Prior to completing the agreements with Clal, the Company investigated
several strategic alternatives to strengthen the Company's finances,
operations, product line and distribution capabilities. The investigation
culminated with the closing on May 1, 1995, of the strategic alliance with
Clal, consisting primarily of the sale of 2,027,272 shares of Common Stock,
the issuance by the Company of the Outstanding Warrant and the formation of a
joint venture, named Clal Pharmaceutical Resources Limited Partnership, to
research and develop generic pharmaceutical products. Clal is a pharmaceutical
company located in Israel and a subsidiary of Clal Industries, Ltd., an
Israeli industrial company.

Stock Purchase Agreement. On the Closing Date, the Company sold to Clal
2,027,272 shares of Common Stock for $20,000,000 or $9.87 per share pursuant
to the Stock Purchase Agreement. The Stock Purchase Agreement also included
terms of the Company's and Clal's business relationship including the
obligation to issue the Outstanding Warrant, rights to nominate board members,
rights of first refusal, voting agreements, rights to invest in others,
standstill agreements and agreements relating to the issuance of the
Outstanding Warrant and the agreement to seek shareholder approval for the
Proposed Warrant.

15
<PAGE>

Board Representation. Clal obtained the right to designate one-seventh of
the members of the Company's Board of Directors 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. In
addition, Clal has the right under the Stock Purchase Agreement to designate a
member of the Company's management. The Company agreed to elect Clal's
designee to the Audit Committee, Compensation and Stock Option Committee and
Strategic Planning Committee of the Board, except in certain circumstances.
See "Election of Directors--Directors."

Right of First Refusal and Voting Agreements. Clal has a right of first
refusal with respect to certain business combination transactions of the
Company and certain sales of the assets or securities of the Company. Such
right extends for a period of five years from the Closing Date, provided that
Clal, when exercising such right (i) has not sold or disposed of shares of
Common Stock representing more than 337,045 shares of Common Stock and (ii)
owns or has the right to acquire under the Outstanding Warrant 14% (or, upon
issuance of the Proposed Warrant, 16%) of the Common Stock (the "Restricted
Period"). If Clal does not exercise its first refusal rights with respect to
any of the above-mentioned transactions, Clal will, subject to certain
exceptions, be required to vote its shares of Common Stock in favor of such
transactions. Such obligation will terminate upon the expiration of the
Restricted Period. 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) votes against
the 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
has agreed to take such other actions reasonably required or appropriate to
facilitate the consummation of the 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.

Participation in Business Opportunities. Under the Stock Purchase Agreement,
the Company obtained the right to participate with Clal and certain of its
affiliates in connection with pharmaceutical acquisitions and transactions. In
connection therewith, Clal has agreed to use reasonable efforts to cause Fine-
Tech Ltd., an Israeli pharmaceutical research and development company in which
Clal owns an interest, to sell 10% of its shares to the Company for
$1,000,000, to grant the Company the right to nominate one member to the board
of directors of Fine-Tech Ltd. and to grant the Company distribution rights
for products sold by Fine-Tech Ltd. Mony Ben-Dor, a director of the Company,
is also a director of Fine-Tech Ltd. See "Election of Directors--Directors."

Limits on Stock Acquisitions and Sales. Clal has agreed to limit
acquisitions, including acquisitions under the Outstanding Warrant and the
Proposed Warrant, of the Company's securities to 19.99% of the issued and
outstanding Common Stock prior to the third anniversary of the Closing Date.
In addition, Clal has agreed to limit such acquisitions to 25% of the issued
and outstanding Common Stock after the third anniversary of the Closing Date.
Clal has the right to tender for or purchase no less than 70% of the issued
and outstanding Common Stock after the fifth anniversary of the Closing Date.
These limitations expire six months following the expiration of the Restricted
Period (the "Consent Period"). Clal also has the right to acquire up to 20% of
any equity securities issued by the Company in an underwritten public offering
so long as Clal, at the time, owns 10% of the issued and outstanding common
Stock (assuming, for this purpose, the full exercise of the Outstanding
Warrant and the Proposed Warrant). Clal has also agreed to not sell or
otherwise dispose of Common Stock or other securities convertible into Common
Stock during the Consent Period unless such securities are registered or may
be sold without registration under Rule 144 promulgated under the Securities
Act of 1933 or are sold in certain business combination transactions, or
unless the sale is approved by the Board (excluding member(s) of the Board
nominated by Clal). Clal will limit, during the Consent Period, sales of
Common Stock to any one person, entity or group to no more than 3% of the
issued and outstanding Common Stock, except as otherwise permitted under the
Stock Purchase Agreement.

16
<PAGE>

Outstanding Warrant. In consideration of the rights and benefits obtained by
the Company under the Stock Purchase Agreement, the Company issued to Clal the
Outstanding Warrant on the Closing Date. The Outstanding Warrant entitles Clal
to purchase up to 936,282 shares of Common Stock at an exercise price of
$10.00 per share for the first year and $11.00 per share for the next two
years. The exercise prices for the Outstanding Warrant were greater than the
purchase price for the shares of Common Stock purchased at the Closing and the
then market price for shares of Common Stock.

The Outstanding Warrant is exercisable at any time until May 1, 1998,
subject to earlier termination or redemption in certain circumstances. The
Company may redeem the Outstanding 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 Outstanding Warrant, in
whole or in part, at anytime after Clal holds less than 8% of the Common
Stock. The Outstanding Warrant expires 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 Outstanding Warrant provides 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 issued, should there remain no further shares
issuable upon exercise of the Outstanding Warrant.

The Outstanding Warrant contains provisions that protect the holder 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 Outstanding Warrant does not have any rights as a shareholder of the
Company unless and until the Outstanding Warrant is exercised.

Registration Rights Agreement. In consideration of the rights and benefits
obtained by the Company under the Stock Purchase Agreement, the Company
granted to Clal certain registration rights under the Registration Rights
Agreement, dated the Closing Date (the "Registration Rights Agreement"). In
general, Clal will not be able to freely sell the shares of Common Stock
purchased by Clal or the shares of Common Stock issuable upon exercise of the
Outstanding Warrant or the Proposed Warrant without registration under
applicable securities laws or unless an exemption from registration is
available. The intent of the Registration Rights Agreement was to grant rights
to Clal for the registration of its shares of Common Stock so that it may
freely dispose of such shares.

Clal is entitled to two demand registrations of shares of Common Stock owned
by Clal and one additional demand registration if the Outstanding Warrant or
the Proposed Warrant is exercised. In addition, the Company granted to Clal
the right to register shares of Common Stock owned by Clal on each occasion
that the Company registers shares of Common Stock, subject to certain
limitations and exceptions.

Clal has agreed under the Registration Rights Agreement to limit, during the
Consent Period, any sales of Common Stock registered under such Agreement to
any one person, entity or group to no more than 3% of the issued and
outstanding Common Stock. Clal also agreed to not sell publicly, make any
short sale or grant any option for the purchase or otherwise publicly dispose
of shares of Common Stock in the same period during which directors and
executive officers of the Company are similarly limited in selling the
Company's securities up to 180 days after the effective date of the
registration statement.

Limited Partnership Agreements. As part of the alliance formed by the
Company and Clal on the Closing Date, the Company and Clal formed Clal
Pharmaceutical Resources Limited Partnership, a limited partnership formed
under the laws of the State of Israel (the "Limited Partnership"), to research
and develop generic pharmaceutical products. Under the Agreement of Limited
Partnership of Clal Pharmaceutical Resources (1995)

17
<PAGE>

L.P. and other related agreements (collectively, the "Limited Partnership
Agreements"), the Company and Clal, through their affiliates, funded the
Limited Partnership in the amount of $1,960,000 and $2,040,000, respectively.
The Limited Partnership is owned 49% by the Company and 51% by Clal and is
located primarily in Israel. Over the next two years, the Company and Clal
plan to invest an additional $11,000,000 in the Limited Partnership, 49% of
which ($5,390,000) is to be funded by the Company. The Limited Partnership is
managed by its sole general partner which is owned 49% by the Company and 51%
by Clal. The general partner has a board of six directors, half of which were
appointed by each of the Company and Clal. Under the Limited Partnership
Agreements, the Company and Clal have granted the other certain manufacturing
and distribution rights for products developed by each other and for products
developed by the Limited Partnership.

The foregoing descriptions of certain terms of the Stock Purchase Agreement,
the Outstanding Warrant, the Registration Rights Agreement and the Limited
Partnership Agreements do not purport to be complete and are qualified in
their entirety by reference to such documents, copies of which were filed as
exhibits to the Form 8-K filed by the Company with the Securities and Exchange
Commission on May 12, 1995.

TERMS OF 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 described
above.

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. See "--Background--Registration Rights Agreement."

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

18
<PAGE>

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 does not believe that the issuance of the Proposed Warrant, together
with the prior issuance of the shares of Common Stock to Clal and the
Outstanding Warrant (including the issuance of shares of Common Stock upon
exercise of such Warrant), will be deemed to be a change in control in respect
of the Company. The Company expects to use the proceeds received from the
exercise of the Proposed Warrant for working capital purposes.

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 August 4, 1995, 5,538 shares remained available
for grant. On June 16, 1995, the Board approved the amendment and authorized
the granting of incentive awards for an additional 350,000 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 350,000
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,

19
<PAGE>

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 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.

20
<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

21
<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-

22
<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 August 4, 1995 was $10.00.

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.

23
<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.

24
<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: August 8, 1995

25
<PAGE>

PHARMACEUTICAL RESOURCES, INC.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P PROXY FOR ANNUAL MEETING TO BE HELD ON SEPTEMBER 21, 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 September 21, 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>

9140
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.

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

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

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

2. Approve the grant and FOR AGAINST ABSTAIN
issuance to 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 FOR AGAINST ABSTAIN
amendment to the 1990
Stock Incentive Plan [_] [_] [_]

4. Approve and adopt the
1995 Directors' Stock
Option Plan [_] [_] [_]

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

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.

[_] I plan on attending the Annual Meeting.