Par Pharmaceutical Companies, Inc. – ‘DEF 14A’ for 5/26/04

On:  Tuesday, 4/13/04, at 5:17pm ET   ·   Effective:  4/13/04   ·   For:  5/26/04   ·   Accession #:  898432-4-346   ·   File #:  1-10827

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Definitive Proxy Solicitation Material   —   Schedule 14A
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Document/Exhibit                   Description                      Pages   Size 

 1: DEF 14A     Definitive Proxy Solicitation Material                89    415K 

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DEF 14A
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PHARMACEUTICAL RESOURCES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 26, 2004

TO OUR STOCKHOLDERS:                                                            

     The 2004 Annual Meeting of Stockholders  (the "Meeting") of  Pharmaceutical
Resources,  Inc. (the  "Company") will be held on May 26, 2004 at the Park Ridge
Marriott, 300 Brae Boulevard, Park Ridge, New Jersey, at 10:00 a.m., local time,
for the following purposes:                                                     

     1.   To  elect  the  three  Class  II  members  of the  Company's  Board of
Directors  (the  "Board") to serve until the  Company's  2007 Annual  Meeting of
Stockholders and their successors have been duly elected and qualified;         

     2.   To consider and act upon a proposal to amend the Company's Certificate
of  Incorporation to change the Company's name from  "Pharmaceutical  Resources,
Inc." to "Par Pharmaceutical Companies, Inc.";                                  

     3.   To consider and act upon a proposal to approve and adopt the Company's
2004 Performance Equity Plan;                                                   

     4.   To consider and act upon a proposal to amend and restate the Company's
1997 Directors' Stock Option Plan to institute annual grants of restricted units
and permit directors to defer their annual retainer fees in the form of deferred
units,  which  shall  convert  into  shares of Common  Stock  upon a  director's
retirement from the Board;                                                      

     5.   To consider and act upon a proposal to approve and adopt the Company's
2004 Annual Executive Incentive Plan; and                                       

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

     The Board has fixed the close of  business  on April 8, 2004 as the  record
date for the determination of stockholders who are entitled to notice of, and to
vote at, the Meeting.  Only  stockholders  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

                        Thomas Haughey
                   SECRETARY

April 13, 2004                                                                  

YOU ARE URGED TO COMPLETE,  DATE AND SIGN THE ENCLOSED  PROXY CARD AND RETURN IT
PROMPTLY IN THE POSTAGE PREPAID ENVELOPE THAT 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 ITS  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 IN PERSON.                                                               

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 PROXY STATEMENT
PHARMACEUTICAL RESOURCES, INC.

ONE RAM RIDGE ROAD
 SPRING VALLEY, NEW YORK 10977

ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 26, 2004

 GENERAL INFORMATION

      This  Proxy   Statement  is  being   furnished  to  the   stockholders  of
Pharmaceutical  Resources,  Inc. (the  "Company"),  a Delaware  corporation,  in
connection  with the  solicitation  by the  Company's  Board of  Directors  (the
"Board")  of  proxies  to be voted  at the  Company's  2004  Annual  Meeting  of
Stockholders  (the  "Meeting"),  and  at any  adjournment(s)  thereof,  for  the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
The Meeting  will be held on May 26, 2004 at the Park Ridge  Marriott,  300 Brae
Boulevard, Park Ridge, New Jersey, 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 at such address is
(845) 425-7100.  The accompanying  proxy card and this Proxy Statement are being
sent to the Company's stockholders on or about April 13, 2004.                  

SOLICITATION AND REVOCATION; QUORUM AND REQUIRED VOTES                          

     The  accompanying  proxy card is being  solicited by, and on behalf of, the
Board.  The  costs of  soliciting  proxies  will be borne  by the  Company.  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 and/or by
telephone,  facsimile or other means of communication.  Such directors, officers
and employees will not receive any additional compensation from the Company, but
may be reimbursed  for  reasonable  out-of-pocket  expenses  incurred by them in
connection  with  such  solicitations.   The  Company  will  reimburse  brokers,
custodians,  nominees  and  fiduciaries  for their  out-of-pocket  and  clerical
expenses in transmitting proxies and related materials to beneficial owners. The
Company has retained Innisfree M&A Incorporated to assist it in the distribution
and  solicitation  of  proxies.  The  Company  estimates  that the total cost of
distributing and soliciting proxies will not be material to the Company.        

     Any proxy given by a stockholder  of record  pursuant to this  solicitation
may be revoked by such stockholder at any time before it is exercised by written
notification  timely  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 stockholder  at the Meeting will not alone serve to
revoke a proxy.                                                                 

     Under  the  General  Corporation  Law of the State of  Delaware  ("Delaware
Law"),  the presence at the Meeting,  in person or by proxy, of the holders of a
majority of the outstanding shares of the Company's common stock, $.01 par value
(the "Common Stock"),  will constitute a quorum.  The accompanying proxy card is
intended  to  permit a  stockholder  of  record  on April 8, 2004 to vote at the
Meeting on the proposals described in this Proxy Statement,  whether or not such
stockholder  attends the Meeting in person.  Any person who  acquires  shares of
Common  Stock after the close of  business on April 8, 2004,  and is entitled to
obtain a proxy  from the record  holder of such  shares on such date in order to
vote such  shares  at the  Meeting,  may not be able to vote such  shares at the
Meeting if the record  holder fails to take such steps as are  necessary  (E.G.,
granting a proxy) to transfer the voting rights in the shares to such person.   

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     The two persons named in the  accompanying  proxy card have been designated
as proxies by the Board. Shares of Common Stock represented by properly executed
proxies  timely  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 three Class II nominees for  director  named  herein,
(ii) "FOR" the  proposal  to change  the name of the  Company,  (iii)  "FOR" the
proposal to approve and adopt the Company's  2004  Performance  Equity Plan (the
"2004 Plan"),  (iv) "FOR" the proposal to amend and restate the  Company's  1997
Directors' Stock Option Plan (the "Directors'  Plan") and (v) "FOR" the proposal
to approve and adopt the Company's  2004 Annual  Executive  Incentive  Plan (the
"Incentive Plan"). In the event that any other matters are properly presented at
the  Meeting  for  action,  the  persons  named in the proxy  card will vote the
proxies  (which grant them  authority to vote on any such matters) in accordance
with their  judgment.  Directors  will be elected by the  affirmative  vote of a
plurality  of the  shares of Common  Stock  present in person or by proxy at the
Meeting;  the proposal to amend the Company's  Certificate of  Incorporation  to
change the name of the  Company  will be adopted if the holders of a majority of
the  outstanding  shares of Common  Stock  vote in favor of the  amendment;  the
proposals to approve and adopt the 2004 Plan,  and to the  Incentive  Plan,  and
amend and  restate  the  Directors'  Plan,  will be adopted if  approved  by the
affirmative vote of the holders of a majority of the shares present in person or
by proxy at the Meeting; and approval of any other proposal at the Meeting will,
subject to  Delaware  Law,  require  the  affirmative  vote of the  holders of a
majority of the shares present in person or by proxy at the Meeting.            

     Abstentions  will be treated as shares  present  and  entitled  to vote for
purposes of determining the presence of a quorum at the Meeting. With respect to
all matters other than the election of directors,  abstentions with respect to a
proposal will be treated as "no" votes and, therefore, may affect the outcome of
the vote on any matter presented at the Meeting.  Under Delaware Law,  directors
are elected by plurality,  rather than a majority. As a result, abstentions will
be excluded  from,  and have no effect on, the vote required for the election of
directors.                                                                      

     Brokers  who hold shares for the  accounts  of their  clients may vote such
shares  either  as  directed  by their  clients  or in their own  discretion  if
permitted by the applicable  stock exchange or other  organization of which they
are members.  Members of the New York Stock  Exchange (the "NYSE") are permitted
to vote their  clients'  shares in their own  discretion  as to the  election of
directors  and certain  other  "routine"  matters if the clients have not timely
furnished voting  instructions  prior to the Meeting.  The proposed amendment to
the Company's  Certificate of Incorporation to change the name of the Company is
a "routine" matter under the NYSE rules. The proposed  adoption of the 2004 Plan
and the Incentive Plan, and the amendment and restatement of the Directors' Plan
are,  however,  "non-routine"  matters  under the NYSE  rules,  which means that
brokers that have not received  voting  instructions  from their clients may not
vote on these matters in their discretion. When a broker votes a client's shares
on some  but not all of the  proposals  at a  meeting,  the  omitted  votes  are
referred  to as  "broker  non-votes."  Broker  non-votes  will  be  included  in
determining  the  presence  of a quorum at the  Meeting.  With  respect  to most
matters other than the election of directors (e.g., the proposed adoption of the
2004 Plan and the  Incentive  Plan,  and the amendment  and  restatement  of the
Directors'  Plan),  broker  non-votes  are  excluded  from the  number of shares
present and entitled to vote on the subject matter and, accordingly, will reduce
the absolute  number,  but not the  percentage  (i.e.,  over 50% of those shares
entitled to vote),  of affirmative  votes needed to approve a proposal.  For the
reasons  discussed above,  however,  broker non-votes will be excluded from, and
will have no effect on, the vote required for the election of  directors.  As to
matters where other  provisions of Delaware Law require the affirmative  vote of
the  outstanding  shares of Common Stock (such as the amendment to the Company's
Certificate  of  Incorporation  to  change  the  name  of the  Company),  broker
non-votes will be treated as "no" votes.                                        

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RECORD DATE; OUTSTANDING SHARES                                                 

     The Board has fixed the close of  business  on April 8, 2004 as the  record
date (the  "Record  Date")  for the  determination  of the  stockholders  of the
Company who are entitled to receive  notice of, and to vote at, the Meeting.  An
aggregate of 34,498,022  shares of Common Stock were  outstanding  on the Record
Date.  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.  The  Company  has no
other class of voting  securities  and the  Company's  stockholders  do not have
cumulative voting rights.                                                       

ANNUAL REPORT                                                                   

     The  Company's  Annual  Report to  Stockholders  for the fiscal  year ended
December 31, 2003, which contains the Company's audited financial statements for
fiscal year 2003,  is being mailed with this Proxy  Statement to all persons who
were stockholders as of the Record Date.                                        

SECURITY OWNERSHIP

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS                                 

     The following table sets forth certain information,  as of the Record Date,
regarding the stockholders that are known by us to beneficially own more than 5%
of the  Common  Stock  (based  solely  upon  filings  by said  holders  with the
Securities  and Exchange  Commission  (the "SEC") on Schedule  13G,  pursuant to
Section 13(g) of the Securities  Exchange Act of 1934, as amended (the "Exchange
Act")):                                                                         

--------------------------------------------------------------------------------
Name and Address                Number of Shares          Percent of      
of Beneficial Owner             Beneficially Owned(1)      Common Stock       
--------------------------------------------------------------------------------
FMR Corp.(2)                        2,017,788(2)                5.80%           
Edward C. Johnson III(2)                                                        
Abigail P. Johnson(2)                                                           
--------------------------------------------------------------------------------

(1)  Beneficial  ownership has been  determined  in  accordance  with Rule 13d-3
under the Exchange Act.                                               

(2)  The  business  address of FMR Corp.,  Edward C.  Johnson III and Abigail P.
     Johnson is 82 Devonshire Street,  Boston, MA 02109. Fidelity Management and
     Research Company ("Fidelity"),  a wholly-owned  subsidiary of FMR Corp., is
     an investment adviser registered under the Investment Advisers Act of 1940,
     as amended,  and is the beneficial  owner of 1,218,257  shares or 3.50%, of
     the Common Stock  (including  176,797 shares of Common Stock resulting from
     the assumed  conversion of  $15,693,000  principal  amount of the Company's
     2.875% 144A  Convertible  Notes due  September  30, 2010 (11.266  shares of
     Common Stock for each $1,000 principal amount of Note)).  Edward C. Johnson
     III, Chairman of FMR Corp., and FMR Corp.,  through its control of Fidelity
     and their investment funds (the "Funds"), each has sole power to dispose of
     the 1,218,257  shares owned by the Funds.  Neither FMR Corp.  nor Edward C.
     Johnson III has the power to vote or direct the voting of the shares  owned
     directly  by the Funds,  which  power  resides  with the  Funds'  Boards of
     Trustees.   Fidelity  carries  out  the  voting  of  shares  under  written
     guidelines   established  by  the  Funds'  Boards  of  Trustees.   Fidelity
     Management  Trust  Company,   located  at  82  Devonshire  Street,  Boston,
     Massachusetts  02109, a wholly-owned  subsidiary of FMR Corp. and a bank as
     defined under the Exchange Act, is the beneficial  owner of 409,973 shares,
     or 1.20%,  of the Common Stock, as a result of its serving as an investment
     manager of  certain  institutional  account(s)  (includes  8,573  shares of
     Common Stock  resulting from the assumed  conversion of $761,000  principal
     amount of the  Company's  2.875% 144A  Convertible  Notes due September 30,
     2010  (11.266  shares of Common Stock for each $1,000  principal  amount of
     Note)).  Edward C.  Johnson  III and FMR  Corp.,  through  its  control  of
     Fidelity  Management Trust Company,  each has sole  dispositive  power over
     409,973  and sole power to vote or to direct the voting of 409,973  shares.
     Members of the Edward C. Johnson III family are the  predominant  owners of
     Class B shares of common stock of FMR Corp., representing approximately 49%
     of the  voting  power of FMR Corp.  Mr.  Johnson  III owns 12% and  Abigail
     Johnson  owns  24.50% of the  outstanding  voting  stock of FMR  Corp.  Mr.
     Johnson III is Chairman of FMR Corp.  and Abigail P.  Johnson is a director
     of FMR Corp.  The Johnson  family group and all other Class B  shareholders
     have entered into a shareholders'  voting agreement under which all Class B
     shares  will be  voted in  accordance  with  the  majority  vote of Class B
     shares.  Accordingly,  through  their  ownership of voting common stock and
     execution of the  shareholders'  voting  agreement,  members of the Johnson
     family may be deemed under the Investment  Company Act of 1940, as amended,
     to  form  a   controlling   group  with  respect  to  FMR  Corp.   Fidelity
     International Limited, Pembroke Hall, 42 Crowlane,  Hamilton,  Bermuda, and
     various   foreign-based   subsidiaries   provide  investment  advisory  and

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     management  services  to a number  of  non-U.S.  investment  companies  and
     certain  institutional  investors.  Fidelity  International  Limited is the
beneficial owner of 389,558 shares or 1.10%, of the Common Stock.     

OWNERSHIP BY MANAGEMENT                                                         

     The  following  table sets forth,  as of the Record  Date,  the  beneficial
ownership of the Common Stock by (i) each current director,  including the three
nominees,  of  the  Company,  (ii)  the  Named  Executives,  as  defined  in the
"Executive  Compensation"  section (in Proposal I) of this Proxy Statement,  and
(iii) all  directors  and current  executive  officers of the Company as a group
(based  solely in  respect  of each of clauses  (i),  (ii) and (iii)  above upon
information  furnished  to the  Company  by such  persons).  Pursuant  to  rules
promulgated  under the Exchange Act, a person is deemed to be a beneficial owner
of an equity  security  if such  person  has or  shares  the power to vote or to
direct  the  voting of such  security  and/or  to  dispose  of or to direct  the
disposition of such security. Accordingly, more than one person may be deemed to
be a beneficial owner of the same security.  In general, a person is also deemed
to be a beneficial owner of any equity  securities that the person has the right
to acquire within 60 days of a determination date.                              

SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT

                                             SHARES OF        % OF
                                                 COMMON         COMMON
NAME OF BENEFICIAL OWNER                              STOCK          STOCK      
------------------------                            ---------        ------     

Mark Auerbach(1)(2)...........................        38,500            *       

Scott L. Tarriff(1)(2)(3).....................       130,500            *       

Dr. Arie Gutman(1)(2).........................        75,000            *       

John D. Abernathy(1)(2).......................        31,000            *       

Dennis J. O'Connor(2).........................        26,369            *       

Peter S. Knight(1)(2).........................        25,000            *       

Ronald M. Nordmann(1)(2)......................        25,000            *       

Peter W. Williams(1)..........................           100            *       

Thomas Haughey ...............................           -0-            *       

All directors and current executive                                             
officers as a group (nine persons)(2)(3)(4)...       351,469            *       

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

(1)  A current director of the Company.                                         

(2)  Includes the following shares of Common Stock that may be acquired upon the
     exercise of options that are or will be vested and exercisable on or before
     June 8, 2004 under the Company's stock option plans: Mr. Auerbach - 28,500;
     Mr.  Tarriff - 29,000;  Dr. Gutman - 75,000;  Mr.  Abernathy - 28,500;  Mr.
     O'Connor - 24,750;  Mr. Knight - 25,000; and Mr. Nordmann - 25,000; and all
directors and current executive officers as a group - 235,750.        

(3)  Includes  85,000 shares of Common Stock subject to a forward sales contract
     entered into by Mr.  Tarriff on December 2, 2003 and 1,500 shares of Common
Stock held by Mr. Tarriff's spouse.                                   

(4)  Kenneth  I.  Sawyer is a former  Chief  Executive  Officer,  President  and
     Chairman of the Board,  serving as Chief Executive Officer and President of
     the Company from October  1989 to July 2003,  when he retired;  he resigned
     from the Board effective  September  2003. Mr. Sawyer did not  beneficially
own any shares of Common Stock as of the Record Date.                 

     For the  purposes of the  foregoing  table,  the  business  address of each
director  and Named  Executive of the Company is c/o  Pharmaceutical  Resources,
Inc., One Ram Ridge Road, Spring Valley, NY 10977.                              

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PROPOSAL I

 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 Company's Bylaws  prescribe that the number of directors  constituting
the Board shall not be less than three nor more than 13, with the actual  number
to be set from time to time by resolution  of the Board.  The Board has set such
number at seven.  Peter W. Williams,  Mark Auerbach and John D.  Abernathy,  the
present  Class II  directors,  have  terms  that  expire in 2004,  and have been
selected as nominees  for  election as Class II  directors  at the  Meeting.  If
Messrs.  Williams,  Auerbach  and  Abernathy  are  elected  to the  Board at the
Meeting,  their terms will expire in 2007.  The Class III  directors  have terms
that expire in 2005 and the Class I directors have terms that expire in 2006.   

     Proxies in the  accompanying  form will be voted at the Meeting in favor of
the  election of the three Class II nominees  listed in the  accompanying  proxy
card,  unless  authority  to do so is  withheld  as to a  specified  nominee(s).
Proxies  may not be voted for a greater  number of  persons  than the  number of
nominees  (I.E.,  three) named  herein.  Each of the three Class II nominees has
consented to serve as a director of the Company, if elected,  and to be named in
this Proxy Statement. In the unexpected event that any of the nominees is unable
to or will not serve as a director,  it is intended  that  proxies will be voted
for the election of a substitute  nominee(s).  Directors  will be elected by the
plurality vote of the shares of Common Stock present at the Meeting.            

     The following table sets forth certain  information  regarding each nominee
(provided  by such  nominee)  for election as a Class II director of the Company
and the year in which he was first elected as a director of the Company:        

CLASS II                                                                        

NAME AND                                   AGE                                  
PRINCIPAL OCCUPATION(S)               (AS OF 4/8/04)    YEAR OF FIRST ELECTION  
-----------------------               -------------     ----------------------  

PETER W. WILLIAMS (2)(3)                    67                  2003            

Since December 2003, Senior                                                     
Counsel with the law firm of                                                    
Winston & Strawn LLP. For more                                                  
than five years until April 2003,                                               
a partner with the law firm of                                                  
Rogers & Wells, LLP (and its                                                    
successor in the merger, Clifford                                               
Chance Rogers & Wells LLP);                                                     
consultant to Clifford Chance                                                   
Rogers & Wells LLP from May 2002                                                
until November 2003. Mr. Williams                                               
is a director of Special                                                        
Situations Funds and                                                            
International Advisory Committee                                                
of RWE/Thames Water.                                                            

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NAME AND                                   AGE                                  
PRINCIPAL OCCUPATION(S)               (AS OF 4/8/04)    YEAR OF FIRST ELECTION  
-----------------------               -------------     ----------------------  

MARK AUERBACH                               65                  1990            

Since September 2003, Executive                                                 
Chairman of the Board. Since June                                               
1993, Senior Vice President and                                                 
Chief Financial Officer of                                                      
Central Lewmar L.P., a                                                          
distributor of fine papers.                                                     

JOHN D. ABERNATHY(1)(2)(3)                  66                  2001            

Since January 1995, Chief                                                       
Operating Officer of Patton Boggs                                               
LLP, a law firm. Mr. Abernathy is                                               
a director of Sterling                                                          
Construction Company, Inc., a                                                   
civil construction company.                                                     

     The  following  table sets forth  certain  information  (provided  by them)
regarding the Class III  directors  (whose terms expire in 2005) and the Class I
directors  (whose  terms  expire in 2006)  and the year in which  each was first
elected as a director of the Company:                                           

CLASS III                                                                       

NAME AND                                   AGE                                  
PRINCIPAL OCCUPATION(S)               (AS OF 4/8/04)    YEAR OF FIRST ELECTION  
-----------------------               -------------     ----------------------  

RONALD M. NORDMANN(1)(3)                    62                  2001            

Since October 2000, Co-President                                                
of Global Health Associates, LLC,                                               
a provider of consulting services                                               
to the pharmaceutical and                                                       
financial services industries.                                                  
From September 1994 to December                                                 
1999, a partner and portfolio                                                   
manager at Deerfield Management                                                 
Company, a health care hedge                                                    
fund. From December 1999 to                                                     
October 2000, Mr. Nordmann was a                                                
private investor. Mr. Nordmann is                                               
a director of Neurochem, Inc.,                                                  
Guilford Pharmaceuticals Inc. and                                               
Shire Pharmaceuticals Group plc                                                 
and a trustee of The Johns                                                      
Hopkins University.                                                             

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NAME AND                                   AGE                                  
PRINCIPAL OCCUPATION(S)               (AS OF 4/8/04)    YEAR OF FIRST ELECTION  
-----------------------               -------------     ----------------------  

DR. ARIE GUTMAN                             50                  2002            

Since June 1991, President and                                                  
Chief Executive Officer of                                                      
FineTech Laboratories, Ltd.                                                     
(formerly known as ISP FineTech                                                 
Ltd.), an Israeli company that,                                                 
as of April 19, 2002, became a                                                  
wholly-owned subsidiary of the                                                  
Company. FineTech Laboratories,                                                 
Ltd. develops synthetic chemical                                                
processes utilized in the                                                       
pharmaceutical industry.                                                        

CLASS I                                                                         

NAME AND                                   AGE                                  
PRINCIPAL OCCUPATION(S)               (AS OF 4/8/04)    YEAR OF FIRST ELECTION  
-----------------------               -------------     ----------------------  

PETER S. KNIGHT(1)(2)                       53                  2001            

From January 2004 to the present,                                               
and from January 2000 to October                                                
2001, President of Sage Venture                                                 
Partners, an investment firm.                                                   
From November 2001 until December                                               
2003, a managing director of                                                    
MetWest Financial, a Los                                                        
Angeles-based asset management                                                  
holding company. From 1990 to                                                   
1999, a partner in Wunder,                                                      
Knight, Forscey & DeVierno, PLLC,                                               
a law firm. Mr. Knight is a                                                     
director of Medicis                                                             
Pharmaceutical Corporation and                                                  
EntreMed, Inc.                                                                  

SCOTT L. TARRIFF                            44                  2001            

Since September 2003, President                                                 
and Chief Executive Officer of                                                  
the Company. Since September                                                    
2001, President and Chief                                                       
Executive Officer of Par                                                        
Pharmaceutical, Inc., the                                                       
Company's wholly-owned and                                                      
principal operating subsidiary                                                  
("Par"). From January 1998 to                                                   
September 2003, Executive Vice                                                  
President of the Company and from                                               
January 1998 to September 2001,                                                 
Executive Vice President of Par.                                                
From 1995 to 1997, Senior                                                       
Director, Marketing, Business                                                   
Development and Strategic                                                       
Planning, of the Apothecon                                                      
division of Bristol-Myers Squibb                                                
Company.                                                                        

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

(1)  A member of the Compensation and Stock Option Committee of the Board.      

(2)  A member of the Audit Committee of the Board.                              

(3)  A member of the Nominating-Corporate Governance Committee of the Board.    

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     THE BOARD  UNANIMOUSLY  RECOMMENDS  A VOTE "FOR" THE  ELECTION OF THE THREE
CLASS II NOMINEES NAMED ABOVE AS DIRECTORS OF THE COMPANY.                      

BOARD AND COMMITTEES                                                            

     The Board met 11 times during the Company's  fiscal year ended December 31,
2003.  During fiscal year 2003, no current  director  attended fewer than 75% of
the aggregate  meetings of the Board and any of its committees of which he was a
member. The Company encourages all incumbent  directors and director nominees to
attend  each  annual  meeting  of  the  Company's  stockholders.  All  incumbent
directors  attended the Company's  last annual meeting of  stockholders  held on
June 19, 2003.                                                                  

     The  non-management  directors will designate a lead director (rotated on a
yearly  basis) who shall  preside at all  executive  sessions of  non-management
directors,  with such directors to meet at least twice a year with no members of
management present.                                                             

     To promote the effective  functioning of the Board and its committees,  and
the  interests  of the  Company's  stockholders,  and to ensure a common  set of
expectations  as to how the Board,  its  committees,  individual  directors  and
management should perform their functions,  the Board adopted the Pharmaceutical
Resources,  Inc.  Corporate  Governance  Guidelines  on October  10,  2003.  The
Corporate   Governance   Guidelines   address,   among   other   things,   Board
responsibilities,  committees of the Board,  executive  sessions of  independent
directors,  selection of nominees for directors of the Company, expectations for
directors  and  annual  self-evaluations  of the Board and its  committees.  The
Corporate  Governance   Guidelines  are  posted  on  the  Company's  website  at
www.parpharm.com.                                                               

     The Board has established three standing  committees an Audit Committee,  a
Compensation  and Stock Option  Committee (the  "Compensation  Committee") and a
Nominating-Corporate  Governance  Committee (the  "Nominating  Committee").  The
principal functions of these committees are described below:                    

     The Audit Committee is composed of Messrs. Abernathy (Chairman), Knight and
Williams.  The Audit  Committee,  which met six times  during  fiscal year 2003,
reviews the Company's financial statements;  the Company's compliance with legal
and  regulatory   requirements;   and  the   qualifications,   independence  and
performance of the Company's independent auditors.  The Audit Committee also (i)
reviews  the  results of the  annual  audit with  management  and the  Company's
independent  auditors,  (ii) reviews with financial management and the Company's
independent auditors significant  financial reporting issues and practices,  and
any changes in accounting principles and disclosure practices, (iii) reviews the
proposed  scope of the annual  audit and  approves  the audit fees to be paid in
connection with the annual audit, (iv) reviews the adequacy and effectiveness of
the  accounting  and  internal  and  financial  controls of the Company with the
independent  auditors and the Company's  financial  and  accounting  staff,  (v)
inquires of management and the Company's  independent auditors about significant
risks or exposures and assesses the steps that  management has taken to minimize
such risks to the Company and (vi)  reviews  annually  the adequacy of the Audit
Committee Charter and the functions and independence of the Audit Committee. The
Company's  Audit  Committee  Charter,  a copy of which is attached to this Proxy
Statement   as   Appendix  A  and  is  posted  on  the   Company's   website  at
www.parpharm.com,  governs the Audit  Committee.  The Board has determined  that
each of the Audit Committee members meet the current independence and experience
requirements  of the NYSE and the applicable  rules and  regulations of the SEC.
The Board has determined that Mr.  Abernathy  satisfies the  requirements for an
"audit committee financial expert" and has designated him as the Company's audit
committee  financial expert. None of the Company's Audit Committee members serve
on more than three audit committees of public companies.                        

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     The  Compensation  Committee  is  composed  of Messrs.  Knight  (Chairman),
Abernathy  and  Nordmann,  all  of  whom  the  Board  has  determined  meet  the
independence requirements of the NYSE. The Compensation Committee,  which met 11
times during fiscal year 2003, sets and approves salary and bonus levels for the
Company's  executive officers and administers the Company's 1990 Stock Incentive
Plan,  the  2000  Performance  Equity  Plan  (the  "2000  Plan")  and  the  2001
Performance  Equity  Plan (the  "2001  Plan").  Subject to the  approval  of the
stockholders at the Meeting, the Compensation Committee will administer and have
the sole  responsibility  for the granting of stock options  and/or other awards
under the 2004 Plan and the Incentive Plan. It also has sole  responsibility for
the  granting of options and other  awards  under such plans.  The  Compensation
Committee is governed by the  Pharmaceutical  Resources,  Inc.  Compensation and
Stock  Option  Committee  Charter,  a copy of which is posted  on the  Company's
website at www.parpharm.com.                                                    

     The Nominating Committee consists of Messrs. Nordmann (Chairman), Abernathy
and  Williams,  all of whom the  Board  has  determined  meet  the  independence
requirements  of the NYSE.  The  Nominating  Committee  recommends  nominees for
annual  election to the Board and to fill vacancies on the Board.  In June 2003,
the functions of the Nominating  Committee  were expanded to address  matters of
corporate  governance,  including  those required by the NYSE. In addition,  the
Nominating  Committee considers  recommendations made by Company stockholders of
candidates to be nominated as directors. The members of the Nominating Committee
met once in fiscal year 2003. The  Nominating  Committee  recommended  the three
nominees for the Class II  directors  named herein at a meeting held in February
2004.                                                                           

     Upon the advice and recommendation of the Nominating  Committee,  the Board
adopted  the  Pharmaceutical  Resources,  Inc.  Nominating-Corporate  Governance
Committee Charter on August 7, 2003. This Charter  addresses various  governance
issues and principles,  including  recommendations of nominees to fill the Board
and its committees and  independence  standards for members of the Board and its
committees   that   meet  the   requirements   of  the   NYSE.   The   Company's
Nominating-Corporate  Governance  Committee  Charter is posted on the  Company's
website at www.parpharm.com.                                                    

     The Nominating Committee is responsible for identifying and recommending to
the Board  qualified  candidates for Board  membership,  based  primarily on the
following criteria:                                                             

     o    judgment,  character,  expertise,  skills,  experience  and  knowledge
useful to the oversight of the Company's business;          
     o    diversity   of   viewpoints,   backgrounds,   experiences   and  other
demographic factors;                                        
o    business or other relevant experience; and                       
     o    the  extent  to which  the  interplay  of the  candidate's  expertise,
          skills, experience and knowledge with that of other Board members will
          build a Board that is more effective,  collegial and responsive to the
needs of the Company.                                       

     When  considering  candidates  for  election to the Board,  the  Nominating
Committee considers the entirety of a candidate's  credentials and does not have
any specific minimum  qualifications that must be met by a Nominating  Committee
recommended  nominee.  However,  the Nominating  Committee does believe that all
members  of the  Board  should  have the  highest  character  and  integrity,  a
reputation for working constructively with others,  sufficient time to devote to
Board  matters and no  conflicts  of interest  that would  interfere  with their
performance as a director.                                                      

     The Nominating  Committee  will consider  candidates for the Board from any
reasonable  source,  including  stockholder   recommendations.   The  Nominating
Committee  has the  authority,  under  its  charter,  to  hire  and pay a fee to
consultants  or  search  firms to  assist  in the  process  of  identifying  and
evaluating  candidates.  No such  consultants  or search firms have been used in
connection  with this year's  election  and,  accordingly,  no fees were paid to
consultant or search firms in the past fiscal year.                             

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     The procedures for  stockholders to nominate  persons to serve as directors
are  set  forth  in  the  Company's  Bylaws.   Stockholders  wishing  to  submit
nominations  should  notify the  Company  at its  principal  executive  offices,
located  at One Ram  Ridge  Road,  Spring  Valley,  NY  10977.  In  order  to be
considered  by the  Nominating  Committee,  nominations  must be in writing  and
addressed to the Secretary of the Company and must be received by the Company on
or before the deadline for the receipt of stockholder proposals. See "Submission
of Stockholder  Proposals." The Nominating  Committee  evaluates each candidate,
including  incumbents,  based on the same criteria.  Once the candidate has been
contacted and accepts being  considered as a nominee,  the Nominating  Committee
will  review  the  candidate's  resume and other  credentials  and  analyze  the
expertise and experience  that the candidate  would provide to the Board and the
Company.                                                                        

STOCKHOLDER COMMUNICATIONS WITH THE BOARD                                       

     The  Company  does not  have a formal  policy  by  which  stockholders  may
communicate  directly with  directors,  but any  stockholder  who wishes to send
communications to the Board should deliver such  communications to the Secretary
of the Company at the principal  executive offices of the Company located at One
Ram Ridge Road,  Spring  Valley,  NY 10977.  The  Secretary is  responsible  for
determining,  in consultation with other officers of the Company and advisers as
appropriate,  which (and the manner  that)  stockholder  communications  will be
relayed to the Board.                                                           

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION                     

     None of the  Compensation  Committee  members is, or was ever, an executive
officer or employee of the  Company.  During the last fiscal  year,  none of the
executive  officers of the Company  served on the board of  directors  or on the
compensation  committee of any other  entity,  any of whose  executive  officers
served on the Board.                                                            

COMPENSATION OF DIRECTORS                                                       

     Effective July 1, 2003,  directors who are not employees of the Company (or
any of its subsidiaries) and who are deemed to be independent under the rules of
the NYSE are entitled to receive an annual retainer of $30,000 for their service
on the Board.  Prior  thereto,  such  directors  received an annual  retainer of
$24,000  for  serving  on the  Board.  Subject to  stockholder  approval  at the
Meeting,  effective July 1, 2004, such directors will be entitled to defer up to
100% of their annual retainer fees into deferred units,  which will be converted
into shares of Common Stock and  distributed  to the  directors  within 180 days
after their retirement from the Board.                                          

     Each member who serves as a chairman  of a committee  (other than the Audit
Committee)  receives an additional  annual retainer of $5,000 per  chairmanship;
effective  July 1, 2004,  such retainer will be increased from $5,000 to $7,000.
Any  member  who  serves as the  chairman  of the Audit  Committee  receives  an
additional  annual  retainer of $10,000.  Each  director  who serves as a member
(excluding  the  chairman)  of a committee  receives an  additional  retainer of
$2,000 for each committee membership;  effective July 1, 2004, the retainer will
be increased from $2,000 to $3,500 and from $2,000 to $5,000 for Audit Committee
members.  The  increases  in  payment  provided  to the  committee  members  and
chairpersons  referenced  above  is being  made in  response  to the  additional
responsibilities and heightened accountability associated with such positions.  

     In  addition,  directors  are  entitled to receive  $2,000 per day for each
in-person  Board  meeting  attended,  $1,000 for each  telephonic  Board meeting
attended,  $1,000 per day for each in-person committee meeting attended and $500
for each telephonic committee meeting attended.  However, the maximum fee that a

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director may receive for  attendance at Board and committee  meetings in any one
day is $2,000 and the maximum fee that a director may receive for  attendance at
telephonic Board and committee meetings in any one day is $1,000. In addition to
receiving  the  annual  retainers,   under  the  Directors'  Plan,  non-employee
directors  are granted  options  each year to purchase  10,000  shares of Common
Stock  on the  earliest  to  occur  of:  (x) the  date on  which  the  Company's
stockholders  elect  directors  at an  annual  meeting  of  stockholders  or any
adjournment  thereof,  (y) the date in  January  of each year on which the first
meeting of the  Compensation  Committee  occurs or (z) the last  business day of
January of such fiscal  year.  Subject to  stockholder  approval at the Meeting,
effective  January  1,  2005,  non-employee  directors  will  be  granted  2,500
restricted  units  each  year and the  number of  options  granted  annually  to
directors  to purchase an  equivalent  number of shares of Common  Stock will be
reduced from 10,000 to 5,000.                                                   

     In 2003,  stock options covering 40,000 shares of Common Stock were granted
to the  non-employee  directors  of  the  Company  under  the  Directors'  Plan.
Directors who are employees of the Company (or any of its subsidiaries)  receive
no additional  remuneration  if they were to serve as directors or as members of
committees  of the Board.  All  directors  are  entitled  to  reimbursement  for
out-of-pocket  expenses  incurred by them in connection with their attendance at
Board and committee meetings.                                                   

NEWLY CREATED SEAT ON THE BOARD OF DIRECTORS                                    

     Effective  April 15, 2004, the number of members of the Company's  Board of
Directors  will  increase  from seven to eight.  The new Board  member will be a
Class I director with a term that expires in 2006.  L. William  Seidman has been
selected by the Board to serve as the new Class I director. Mr. Seidman, age 82,
for more than the past five years,  has been the Chief  Commentator for CNBC-TV,
Publisher  of  Bank  Director  magazine  and an  independent  consultant  in the
financial services industry.  He is presently a director of Clark, Inc., Fiserv,
Inc.,  InteliData  Technologies  Corporation and LML Payment  Systems,  Inc. Mr.
Seidman served as Chairman of the Federal  Deposit  Insurance  Corporation  from
October 1985 to October 1991 and Chairman of the  Resolution  Trust Company from
1989 to October 1991.  From 1982 to 1985, he was Dean of the College of Business
at Arizona  State  University,  Tempe,  Arizona.  From 1977 to 1982, he was Vice
Chairman and Chief Financial  Officer of Phelps Dodge  Corporation.  Mr. Seidman
served as President  Gerald Ford's  Assistant for Economic  Affairs from 1974 to
1977. From 1968 to 1974, he was managing partner of Seidman & Seidman, Certified
Public  Accountants.  He was  Chairman of (in 1970) and  Director of the Detroit
Branch of the Federal  Reserve  Bank of Chicago from 1966 to 1970.  Mr.  Seidman
also served as Special  Assistant  for  Financial  Affairs to Michigan  Governor
George Romney from 1963 to 1966.                                                

EXECUTIVE OFFICERS                                                              

     The executive  officers of the Company consist of Mr. Auerbach as Executive
Chairman of the Board, Mr. Tarriff as Chief Executive Officer and President, Mr.
O'Connor as Vice President and Chief  Financial  Officer and Mr. Haughey as Vice
President,  General Counsel and Secretary.  Mr. Auerbach,  age 65, has served as
Executive  Chairman of the Board since September 2003 and has been a director of
the Company since 1990. Mr.  Tarriff,  age 44, has served as President and Chief
Executive Officer of the Company since September 2003. Since September 2003, Mr.
Tarriff  has  served  as  President  and Chief  Executive  Officer  of Par.  Mr.
O'Connor,  age 52, has served as Vice President and Chief  Financial  Officer of
the Company since October 1996. From October 1996 to December 2003, Mr. O'Connor
served as Secretary of the Company. From June 1995 to October 1996, he served as
Controller of Par. Prior to joining the Company in November  2003, Mr.  Haughey,
age 40, served for more than the five years prior  thereto as Legal  Director of
Licensing in the Law Department of Schering-Plough Corporation.                 

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     The executive officers of Par consist of Mr. Tarriff as President and Chief
Executive  Officer,  Mr. O'Connor as Vice President and Chief Financial  Officer
and Mr. Haughey as Vice President,  General Counsel and Secretary. The executive
officers of FineTech  Laboratories,  Ltd.  ("FineTech") consist of Dr. Gutman as
President and Chief Executive Officer and Mr. O'Connor as Vice President,  Chief
Financial Officer and Secretary.                                                

     Kenneth I. Sawyer, the Company's former Chief Executive Officer,  President
and Chairman of the Board,  served as the Chief Executive  Officer and President
of the Company from October 1989 to July 2003, when he retired; he resigned as a
director  effective  September 2003. A charge of $3,712,000  associated with Mr.
Sawyer's  retirement package was recorded by the Company in 2003. The retirement
package consists of expenses for accelerated stock options,  a severance payment
and the remainder of his 2003 salary and benefits.  For fiscal years 2003,  2002
and 2001,  Mr.  Sawyer  received  $207,362,  $403,468  and  $397,088  in salary,
respectively;  $0,  $220,000  and  $305,000  in  bonus  payments,  respectively;
$5,178,480,  $7,432,990 and $7,396,364 in stock option exercises,  respectively;
and $62,685, $44,094 and $186,231 in additional benefits, respectively.         

EXECUTIVE COMPENSATION

     The  following  table sets forth  compensation  earned for the fiscal years
ended  December  31,  2003,  December  31,  2002 and  December  31,  2001 by the
Company's Chief  Executive  Officer,  the three other executive  officers of the
Company  who earned over  $100,000  in annual  salary and bonus from the Company
during fiscal year 2003 and Thomas Haughey,  an executive officer of the Company
hired as of November 24, 2003 (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.                                  

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SUMMARY COMPENSATION TABLE                                                      

                                                        [Enlarge/Download Table]

                                            ANNUAL                              LONG-TERM COMPENSATION                        
                                         COMPENSATION                           ----------------------                        
                                         ------------                          RESTRICTED     SECURITIES                      
NAME AND                 FISCAL                                 OTHER ANNUAL      STOCK       UNDERLYING        ALL OTHER     
PRINCIPAL POSITION(S)     YEAR     SALARY($)         BONUS($)  COMPENSATION($) AWARDS($)(1)   OPTIONS(#)(2)   COMPENSATION($) 
---------------------     ----     ---------         --------  --------------- ------------   -------------   --------------- 
                                                                                                                              
Mark Auerbach            2003       $64,629(3)       $225,000       $2,423           -           85,000           $ 448(4)    
EXECUTIVE CHAIRMAN OF    2002            -                  -            -           -                -                  -    
THE BOARD OF DIRECTORS   2001            -                  -            -           -                -                  -    

Scott L. Tarriff         2003      $401,538          $450,000      $12,600           -          150,000         $28,156(5)    
CHIEF EXECUTIVE          2002      $300,000          $200,000      $12,600           -          200,000         $60,191(5)    
OFFICER AND PRESIDENT    2001      $220,510          $200,000      $12,288           -          295,000         $11,620(5)    

Dennis J. O'Connor       2003      $233,884          $225,000      $12,600           -           65,000         $25,380(6)    
VICE PRESIDENT AND       2002      $186,197          $100,000      $12,600           -           25,000         $25,314(6)    
CHIEF FINANCIAL OFFICER  2001      $158,077          $150,000      $12,288           -          165,000         $11,597(6)    

Dr. Arie Gutman          2003      $303,231(7)       $150,000      $11,631           -                -         $15,596(8)    
CHIEF EXECUTIVE          2002      $167,308           $50,000           -            -          300,000          $1,697(8)    
OFFICER AND PRESIDENT    2001            -                  -           -            -                -                  -    
OF FINETECH                                                                                                                   

Thomas Haughey           2003      $ 17,692(9)        $ 5,223        $ 969           -           35,000                  -    
VICE PRESIDENT,          2002            -                  -           -            -                -                  -    
GENERAL COUNSEL AND      2001            -                  -           -            -                -                  -    
SECRETARY                                                                                                                     

----------                                                                                                                    

(1)  None of the Named Executives holds any shares of restricted stock.                                                       

(2)  Reflects options granted to Messrs. Auerbach, Tarriff,  O'Connor, Haughey and  Dr. Gutman under the Company's stock      
     option plans.                                                                                                            

(3)  Pursuant to his  employment  agreement with the Company,  executed on September 16, 2003, Mr.  Auerbach is entitled to an
     annual base salary of $300,000,  subject to certain  increases set forth  therein.  Mr.  Auerbach was not employed by the
     Company in fiscal year 2002 or 2001.                                                                                     

(4)  Represents $448 of insurance  premiums paid by the Company for term life and disability  insurance for the benefit of Mr.
     Auerbach for fiscal year 2003.                                                                                           

(5)  Represents $8,638, $7,855 and $82,  respectively,  of insurance premiums paid by the Company for term life and disability
     insurance for the benefit of Mr. Tarriff for fiscal years 2003, 2002 and 2001, $6,000,  $5,500 and $5,250,  respectively,
     in  contributions  to the Company's  401(k) Plan for fiscal years 2003,  2002 and 2001, and $13,518,  $14,949 and $6,288,
     respectively,  for fiscal years 2003, 2002 and 2001 in contributions  made by the Company to the Retirement  Savings Plan
     for the benefit of Mr. Tarriff. Also includes $31,887 for the reimbursement of financial planning expenses in fiscal year
     2002.                                                                                                                    

(6)  Represents $5,862, $4,865 and $58,  respectively,  of insurance premiums paid by the Company for term life and disability
     insurance for the benefit of Mr. O'Connor for fiscal years 2003, 2002 and 2001, $6,000, $5,500 and $5,250,  respectively,
     in  contributions  to the Company's  401(k) Plan for fiscal years 2003,  2002 and 2001, and $13,518,  $14,949 and $6,288,
     respectively,  for fiscal years 2003, 2002 and 2001 in contributions  made by the Company to the Retirement  Savings Plan
     for the benefit of Mr. O'Connor.                                                                                         

(7)  Pursuant to his  employment  agreement  with the  Company,  Dr.  Gutman is entitled to an annual base salary of $300,000,
     subject to certain increases set forth therein. Dr. Gutman was not employed by the Company in fiscal year 2001.          

(8)  Represents  $2,078 and $1,697,  respectively,  of  insurance  premiums  paid by the Company for term life and  disability
     insurance for the benefit of Dr. Gutman for fiscal years 2003 and 2002, and $13,518 for fiscal year 2003 in contributions
     made by the Company to the Retirement Savings Plan for the benefit of Dr. Gutman.  See also "Certain Relationships and   
     Related Transactions."                                                                                                   

(9)  Pursuant to his  employment  agreement  with the Company,  executed on November 24, 2003,  Mr.  Haughey is entitled to an
     annual base salary of $230,000,  subject to certain  increases  set forth  therein.  Mr.  Haughey was not employed by the
     Company in fiscal year 2002 or 2001.                                                                                     

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STOCK OPTION GRANTS IN LAST FISCAL YEAR                                         

     The  following  table  sets  forth  stock  options  granted  to  the  Named
Executives during fiscal year 2003:                                             

                                                        [Enlarge/Download Table]

                                              INDIVIDUAL GRANTS                    POTENTIAL REALIZABLE VALUE($) AT 
                                 --------------------------------------------    ASSUMED ANNUAL RATES OF STOCK PRICE
                        SHARES    % OF TOTAL OPTIONS                              APPRECIATION FOR OPTION TERM(%)(5)
                      UNDERLYING      GRANTED TO                                  ----------------------------------
                       OPTIONS       EMPLOYEES IN     EXERCISE   EXPIRATION                                         
     NAME             GRANTED(#)    FISCAL YEAR(1)    PRICE($)      DATE             5%($)            10%($)        
     ----             ----------    --------------    --------      ----             -----            ------        
                                                                                                                    
Mark Auerbach         10,000(2)        0.94%           $31.70      1/13/13         $  199,360       $  505,216      
                      50,000(3)        4.69%           $48.75      6/19/13         $1,532,931       $3,884,747      
                      25,000(4)        2.34%           $70.45      10/9/10         $  717,006       $1,670,928      

Scott L. Tarriff     100,000           9.37%           $31.50      1/23/10         $1,282,366       $2,988,459      
                      50,000           4.69%           $70.45      10/9/10         $1,434,011       $3,341,856      

Dennis J. O'Connor    25,000           2.34%           $31.70      1/13/10         $  322,627       $  751,858      
                      25,000           2.34%           $31.50      1/23/10         $  320,592       $  747,115      
                      15,000           1.41%           $70.45      10/9/10         $  430,203       $1,002,557      

Dr. Arie Gutman           -             -                 -            -                 -                -         

Thomas Haughey        35,000           3.28%           $69.38     11/23/10         $ 988,562        $2,303,770      

----------                                                                                                          

(1)  Represents the percentage of total options granted to all employees of the Company during fiscal year 2003.    

(2)  Reflects  options  granted to Mr. Auerbach under the Directors' Plan in his capacity as a director of the      
     Company.                                                                                                       

(3)  Reflects a one-time  grant of options to Mr.  Auerbach  under the 2001 Plan for his special efforts as a       
     director during fiscal year 2003.                                                                              

(4)  Reflects  options  granted  to Mr.  Auerbach  under  the  2001  Plan in his capacity  as an  employee of       
     the  Company.  The  Company  entered  into an employment agreement with Mr. Auerbach as of September 16, 2003. 

(5)  The  potential  realizable  value at assumed  annual  rates of stock  price appreciation  was calculated by    
     using the respective  exercise price of the shares of Common Stock granted to each Named Executive.            

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

     The  following  table sets forth  certain  information  with respect to the
number of shares of Common Stock  acquired upon the exercise of stock options by
the Named  Executives  during fiscal year 2003 and, as of December 31, 2003, the
number of shares of Common Stock  underlying  unexercised  stock options and the
value of the in-the-money options held by the Named Executives:                 

                                                        [Enlarge/Download Table]

                                                            NUMBER OF SECURITIES              VALUE OF UNEXERCISED     
                                                            UNDERLYING UNEXERCISED            IN-THE-MONEY OPTIONS     
                                                            OPTIONS AT FY-END(#)                 AT FY-END($)(1)       
                            SHARES                        --------------------------      ---------------------------- 
                          ACQUIRED ON      VALUE                                                                       
      NAME               EXERCISE (#)   REALIZED($)       EXERCISABLE  UNEXERCISABLE      EXERCISABLE     UNEXERCISABLE
      ----               ------------   -----------       -----------  -------------      -----------     -------------
                                                                                                                       
Mark Auerbach                -0-           -0-              18,500        85,000            $272,700       $ 1,154,500 
Scott L. Tarriff         245,500(2)    $9,181,736             -0-        449,500               -0-         $14,707,800 
Dennis J. O'Connor       109,500       $4,411,954            9,250       173,750            $425,388       $ 5,886,313 
Dr. Arie Gutman           75,000       $1,680,002             -0-        150,000               -0-         $ 6,525,000 
Thomas Haughey               -0-           -0-                -0-         35,000               -0-              -0-    

----------                                                                                                             

(1)  Based upon the NYSE closing price of the Common Stock on December 31, 2003 of $65.15.                             

(2)  85,000 of his shares of Common Stock are subject to a forward sales contract entered into on December 2, 2003.    

EQUITY COMPENSATION PLAN INFORMATION                                            

     The  following  table sets forth  certain  information,  as of December 31,
2003,  regarding the shares of Common Stock  authorized  for issuance  under the
four equity compensation plans of the Company.                                  

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                                                        [Enlarge/Download Table]

                                                                        WEIGHTED AVERAGE                             
                                         NUMBER OF SHARES OF COMMON     EXERCISE PRICE OF      NUMBER OF SHARES OF   
                                        STOCK ISSUABLE UPON EXERCISE       OUTSTANDING        COMMON STOCK REMAINING 
                                           OF OUTSTANDING OPTIONS,      OPTIONS, WARRANTS          AVAILABLE FOR     
                 PLAN                   WARRANTS AND OTHER RIGHTS (#)    AND OTHER RIGHTS       FUTURE ISSUANCE (#)  
                 ----                   -----------------------------   -----------------     ---------------------- 
                                                                                                                     
EQUITY COMPENSATION PLANS APPROVED BY                                                                                
THE COMPANY'S STOCKHOLDERS:                                                                                          
2001 Performance Equity Plan                     2,796,468                  $32.45                 1,636,744         
1997 Directors' Stock Option Plan                  138,834                   25.98                   187,000         
1990 Stock Incentive Plan                            2,000                    4.13                     0             

EQUITY COMPENSATION PLAN NOT APPROVED                                                                                
BY STOCKHOLDERS:                                                                                                     
2000 Performance Equity Plan(1)                    438,456                  $ 6.81                    87,674         
                                                 ---------                  ------                 ---------         

TOTAL:                                           3,375,758                  $28.83                 1,911,418         

----------                                                                                                           

(1)  In fiscal year 2000,  the  Company's  Board of  Directors  adopted the 2000  Performance  Equity Plan (the "2000
     Plan"),  which  plan was  subsequently  amended,  making it a  non-qualified,  broad-based  plan not  subject to
     stockholder  approval.  The 2000 Plan provides for the granting of incentive and non-qualified  stock options to
     employees of the Company and to others.  The 2000 Plan became  effective  March 23, 2000 and will continue until
     March 22, 2010 unless  terminated  sooner.  The Company  reserved  1,025,000 shares of Common Stock for issuance
     under the 2000 Plan. Vesting and other option terms are determined in each case by the Compensation Committee of
     the Board.  The maximum term of an option under the 2000 Plan is ten years. The maximum term is five years if an
     incentive  stock option is granted to a holder of more than 10% of the voting power of the capital  stock of the
     Company.                                                                                                        

EMPLOYMENT AGREEMENTS                                                           

     The Company entered into an employment  agreement with Mr. Auerbach,  dated
as of September 16, 2003.  Pursuant to his employment  agreement,  Mr.  Auerbach
holds the position of Executive  Chairman of the Board for an initial three-year
term, with automatic renewals for successive one-year terms thereafter (unless a
notice of non-renewal of any subsequent employment period is provided in advance
by the  Company  or Mr.  Auerbach),  for which he is to be paid an  annual  base
salary of  $300,000,  subject  to  review  and  increase  by the  Board,  in its
discretion, and annual adjustments to reflect increases in the CPI. In addition,
Mr. Auerbach is eligible for annual bonuses based on performance  criteria to be
determined  by the Board,  including his  performance  and the  performance  and
financial condition of the Company. In the event that Mr. Auerbach's  employment
is  terminated  by the  Company  without  Cause (as such term is  defined in the
agreement) or by Mr. Auerbach upon a material breach of his employment agreement
by the Company, or if the Company elects not to renew his employment  agreement,
Mr.  Auerbach is entitled to receive a severance  payment equal to two times his
annual base salary.  If Mr.  Auerbach's  employment is terminated other than for
Cause within 12 months following a Change of Control,  then Mr. Auerbach (or his
estate)  will have 24 months from the date of such  termination  to exercise his
stock  options,  so long as the  applicable  stock option plan  underlying  such
options is still in effect and such stock  options  have not expired at the time
of the exercise.  In connection with his employment by the Company, Mr. Auerbach
was granted,  in October 2003, options to purchase 25,000 shares of Common Stock
at an exercise  price of $70.45 per share.  One quarter of these options  become
exercisable  on each  anniversary  date of the grant  over the  succeeding  four
years.                                                                          

     The Company entered into an employment agreement with Mr. Tarriff, dated as
of February 9, 2004, to replace a prior employment  agreement originally entered
into as of February 6, 2003. Pursuant to his employment  agreement,  Mr. Tarriff
holds the positions of President and Chief Executive  Officer of the Company and
of Par for an initial  three-year  term, with automatic  renewals for successive
one-year  terms  thereafter  (unless a notice of  non-renewal  of any subsequent
employment  period is provided in advance by the  Company or Mr.  Tarriff),  for
which he is to be paid an initial  annual  base salary of  $600,000,  subject to
review and increase by the Board, in its discretion,  and annual  adjustments to
reflect  increases in the Consumer  Price Index (the  "CPI").  In addition,  Mr.

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Tarriff is  eligible  for annual  bonuses  based on  performance  criteria to be
determined  by the Board,  including his  performance  and the  performance  and
financial condition of the Company.  In the event that Mr. Tarriff's  employment
is  terminated  by the  Company  without  Cause (as such term is  defined in the
agreement) or by Mr. Tarriff upon a material breach of his employment  agreement
by the Company, or if the Company elects not to renew his employment  agreement,
Mr.  Tarriff is entitled to receive a severance  payment  equal to two times his
annual base salary.  In addition,  while Mr. Tarriff is employed by the Company,
the Company is obligated to pay the premiums on a $3,000,000 term life insurance
policy for the benefit of Mr.  Tarriff and his estate.  In  connection  with his
employment  by the Company and Par, Mr.  Tarriff was granted,  in January  2003,
options to  purchase  100,000  shares of Common  Stock at an  exercise  price of
$31.50 per share and, in October  2003,  additional  options to purchase  50,000
shares of Common Stock at an exercise price of $70.45 per share.  One quarter of
each of these sets of options become exercisable on each anniversary date of the
grant over the succeeding four years.                                           

     The Company entered into an employment  agreement with Mr. O'Connor,  dated
as of February 6, 2003,  and as amended as of February  20,  2004,  to replace a
prior  severance  agreement  entered into on October 23,  1996.  Pursuant to his
employment  agreement,  Mr.  O'Connor  holds the positions of Vice President and
Chief  Financial  Officer  of each  of the  Company  and of Par  for an  initial
three-year  term,  with  automatic   renewals  for  successive   one-year  terms
thereafter  (unless a notice of non-renewal of any subsequent  employment period
is provided in advance by the  Company or Mr.  O'Connor),  for which he is to be
paid an annual base salary of  $300,000,  subject to review and  increase by the
Board, in its  discretion,  and annual  adjustments to reflect  increases in the
CPI.  In  addition,  Mr.  O'Connor  is  eligible  for  annual  bonuses  based on
performance  criteria to be determined by the Board,  including his  performance
and the  performance and financial  condition of the Company.  In the event that
Mr.  O'Connor's  employment is terminated by the Company  without Cause (as such
term is defined in the agreement) or by Mr.  O'Connor upon a material  breach of
his employment  agreement by the Company,  or if the Company elects not to renew
his  employment  agreement,  Mr.  O'Connor  is  entitled  to receive a severance
payment  equal to two times his  annual  base  salary.  In  addition,  while Mr.
O'Connor  is  employed  by the  Company,  the  Company is  obligated  to pay the
premiums  on a  $1,000,000  term life  insurance  policy for the  benefit of Mr.
O'Connor and his estate. If Mr.  O'Connor's  employment is terminated other than
for Cause within 12 months following a Change of Control,  then Mr. O'Connor (or
his estate)  will have 24 months from the date of such  termination  to exercise
his stock options,  so long as the applicable  stock option plan underlying such
options is still in effect and such stock  options  have not expired at the time
of the exercise.  In connection  with his employment by the Company and Par, Mr.
O'Connor was granted,  in January  2003,  options to purchase  25,000  shares of
Common  Stock at an exercise  price of $31.50 per share and 25,000  shares at an
exercise  price of $31.70 per share,  and in October  2003  options to  purchase
15,000 shares at an exercise  price of $70.45 per share.  One quarter of each of
these sets of options will become  exercisable on each  anniversary  date of the
grant over the succeeding four years.                                           

     In connection with its acquisition of FineTech, the Company entered into an
employment agreement with Dr. Gutman, dated as of December 18, 2002. Pursuant to
his  employment  agreement,  Dr. Gutman holds the  positions of Chief  Executive
Officer and President of FineTech for an initial  five-year term, with automatic
renewals  for  successive   one-year  terms  thereafter   (unless  a  notice  of
non-renewal  of any subsequent  employment  period is provided in advance by the
Company  or Dr.  Gutman),  for which he is to be paid an annual  base  salary of
$300,000,  subject to review and increase by the Board, in its  discretion,  and
annual  adjustments to reflect increases in the CPI. In addition,  Dr. Gutman is
eligible for an annual bonus based on  performance  criteria to be determined by
the  Board,  including  his  individual  performance  and  the  performance  and
financial  condition of the Company and/or  FineTech.  Dr. Gutman is entitled to
receive a  severance  payment  equal to 150% of his  annual  base  salary if his
employment is terminated by the Company or FineTech  without Cause (as such term
is defined in the  agreement)  or by Dr.  Gutman  upon a material  breach by the
Company and/or FineTech,  or if his employment  agreement is  not renewed by the

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Company after the initial  five-year term or if he terminates his employment for
any reason after the initial  five-year  term. In addition,  while Dr. Gutman is
employed by the  Company,  the  Company is  obligated  to pay the  premiums on a
$1,000,000  term life  insurance  policy for the  benefit of Dr.  Gutman and his
estate. If Dr. Gutman's  employment is terminated other than for Cause within 12
months following a Change of Control (as such term is defined in the agreement),
then Dr.  Gutman  (or his  estate)  will  have 24  months  from the date of such
termination  to exercise  his stock  options,  so long as the  applicable  stock
option plan  underlying  such options is still in effect and such stock  options
have not expired at the time of the exercise.  In connection with his employment
by the Company and FineTech,  Dr. Gutman was granted options,  in April 2002, to
purchase  300,000  shares of Common  Stock at an  exercise  price of $21.65  per
share. One quarter of these options become  exercisable on each anniversary date
of the grant over the succeeding four years.                                    

     The Company entered into an employment agreement with Mr. Haughey, dated as
of November 24, 2003.  Pursuant to his employment  agreement,  Mr. Haughey holds
the positions of Vice  President,  General  Counsel and Secretary of the Company
and of Par for an initial one-year term, with automatic  renewals for successive
one-year  terms  thereafter  (unless a notice of  non-renewal  of any subsequent
employment  period is provided in advance by the  Company or Mr.  Haughey),  for
which he is to be paid an annual base salary of $230,000,  subject to review and
increase by the Board, in its discretion.  In addition,  Mr. Haughey is eligible
for annual bonuses based on performance  criteria to be determined by the Board,
including his performance  and the  performance  and financial  condition of the
Company;  provided,  that  upon the expiration of his initial  one-year term, so
long as his  employment is not  terminated for Cause (as such term is defined in
the agreement) by the Company,  or for any reason by Mr. Haughey, he is entitled
to  receive  an  annual  bonus in an  amount  equal to at least  25% of his base
salary. In addition, Mr. Haughey received a $50,000 signing bonus on the date of
the  execution  of his  employment  agreement.  In the event that Mr.  Haughey's
employment is terminated by the Company  without Cause or by Mr.  Haughey upon a
material  breach of his  employment  agreement  by the Company,  Mr.  Haughey is
entitled  to receive a  severance  payment  equal to his annual  base  salary in
effect at the applicable time. In connection with his employment by the Company,
Mr. Haughey was granted options,  in November 2003, to purchase 35,000 shares of
Common Stock at an exercise price of $69.38 per share.                          

     Under the Company's stock option agreements with Messrs. Auerbach, Tarriff,
O'Connor,  and  Haughey  and Dr.  Gutman,  any  unvested  portion of the options
becomes  immediately  exercisable  in the event of a Change of Control  (as such
term is defined in their respective stock option agreements).                   

PENSION PLAN                                                                    

     The Company  maintains a defined benefit plan (the "Pension Plan") intended
to qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended
(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
Pension 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 had  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 his/her
completion  of ten  years  of  service.  Service  is  measured  from the date of
employment.  The  retirement  income  formula is 45% of the highest  consecutive
five-year  average basic earnings during the last ten years of employment,  less
83?% of the participant's Social Security benefit,  reduced  proportionately for
years of service  less than ten at  retirement.  The normal form of benefit is a
life annuity,  or for married  persons,  a joint survivor  annuity.  None of the
Named Executives has any years of credited service under the Pension Plan.      

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     The Company  maintains a Retirement  Savings Plan (the "Retirement  Savings
Plan") whereby eligible employees, including the Named Executives, are permitted
to contribute  from 1% to 25% of their  compensation  to the Retirement  Savings
Plan. The Company contributes an amount equal to 50% of up to 6% of compensation
contributed by the employee.  Participants of the Retirement Savings Plan become
vested with respect to 20% of the Company's  contributions for each full year of
employment  with the Company and thus become fully vested after five full years.
The  Company  also may  contribute  additional  funds  each  fiscal  year to the
Retirement Savings Plan, the amount of which, if any, is determined by the Board
in its sole  discretion.  In February 2004,  the Company made a contribution  of
$2,000,000 to the Retirement Savings Plan for fiscal year 2003.                 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTION WITH MANAGEMENT                                                     

     In April 1999,  the Company  entered into an agreement  with  FineTech Ltd.
(the  predecessor  of Finetech,  which is now a  wholly-owned  subsidiary of the
Company)  for the  right to use a process  for the  pharmaceutical  bulk  active
latanoprost.  Pursuant to this  agreement,  the Company  paid  FineTech  Ltd. an
aggregate of  approximately  $2,000,000 in fiscal years 2000 and 2001, which has
been included in intangible assets on the Company's consolidated balance sheets,
for a  completed  process  together  with its  technology  transfer  package and
patent.  The Company  subsequently  purchased the capital stock of FineTech and,
pursuant  to the  aforementioned  agreement,  the  Company is  obligated  to pay
royalties  on gross  profits  from sales of all  products  developed  under this
agreement to the President of FineTech,  Dr. Gutman, who is currently a director
of the Company.  In addition,  Dr.  Gutman is entitled to royalties on the gross
profits  generated  from  any  sales  of  several  other  products  pursuant  to
agreements made with FineTech prior to the Company's acquisition. In fiscal year
2003, Mr. Gutman received $499,969 in royalties from the Company.               

COMPENSATION AND STOCK OPTION COMMITTEE REPORT
 ON EXECUTIVE COMPENSATION

     The Compensation  Committee  approves the policies and programs pursuant to
which  compensation is paid or awarded to the Company's  executive  officers and
other key employees. In reviewing overall compensation for fiscal year 2003, the
Compensation  Committee focused on the Company's objectives to attract executive
officers  of  high   caliber  from   larger,   well-established   pharmaceutical
manufacturers,  to retain the  Company's  executive  officers,  to encourage the
highest  level of  performance  from such  executive  officers  and to align the
financial interests of the Company's management with that of its stockholders by
offering  awards that can result in the ownership of Common  Stock.  The Company
did not utilize any specific  formulae or  guidelines in reviewing and approving
executive compensation.                                                         

     COMPENSATION  POLICY.  The  Compensation  Committee  follows a compensation
policy under which the principal  determinants of compensation are the financial
performance  of  the  Company,   the  achievement  of  non-financial   corporate
objectives and individual performance.  The Compensation Committee believes that
this  approach  provides  incentives  to the Chief  Executive  Officer and other
executive  officers and  management  personnel to focus on meeting key strategic
objectives, such as enhancing returns and sustaining profitable growth. Focusing
on these key objectives will, in turn, enhance stockholder value.               

     The  Compensation  Committee  believes that it continues to be important to
use  compensation  in order to  attract,  motivate  and  reward  executives  who
contribute  to  the  Company's  long-term  success  by  demonstrated,  sustained
performance.  To this end,  the  Company  relies on salary,  annual  bonuses and
long-term, equity-based incentives as follows:                                  

           o  Salary and bonus:  the Company pays  salaries that are designed to
              attract and retain high caliber executive officers and pays annual
bonuses to reward outstanding performance;          

           o  Stock  options:  the  Company  awards  stock  options  to  provide
              incentives for superior long-term performance,  to align executive
              officers' and stockholders' long-term interests and to retain high
              caliber  executive  officers because any unvested portions of such
              awards are  forfeited if an  executive  officer  leaves  before an
              award  becomes  fully  exercisable  four  years  after the date of
grant; and                                          

           o  Restricted units: if the 2004 Plan is approved (see Proposal III),
              the Company intends to grant restricted units,  which convert into
              shares of Common Stock if certain  conditions  are  satisfied,  in
              lieu of a portion of our executive  officers'  annual stock option
              awards.  Restricted  units  would  more  closely  align  executive
              officers' and stockholders'  long-term  interests,  and would help
              the Company  retain high caliber  executive  officers  because the
              awards  would be paid out only to  executive  officers  who remain
with the Company for extended periods.              

     2003  COMPANY  PERFORMANCE.  Because  financial  performance  is a critical
determinant of executive compensation, the following is an overview of this past
year's performance.  Fiscal year 2003 was an extraordinary year for the Company,
in which record results were achieved:                                          

           o  Total  revenues  grew to $661.7  million,  an increase of 73% over
fiscal year 2002;                                   

           o  Net income reached $122.5 million,  advancing 54% over fiscal year
2002; and                                           

           o  Diluted  earnings per share reached $3.54, an increase of 48% over
fiscal year 2002.                                   

     Fiscal year 2003 represented the third consecutive  record year of revenues
and  earnings  growth,  and the Company is now the sixth  largest  generic  drug
company in the United  States based on  revenues.  These  results were  achieved
through the leadership of the Chief  Executive  Officer and the other  executive
officers, and through the diligent work of our dedicated employees.             

     KEY ELEMENTS OF EXECUTIVE OFFICER COMPENSATION PROGRAM. The key elements of
the Company's  executive officer  compensation  program are base salary,  annual
bonus,  stock option grants and other incentive awards through  participation in
the Company's various incentive plans. In awarding or approving  compensation to
executive  officers in fiscal year 2003, the Compensation  Committee  considered
the recent and potential contributions of the executive officers to the Company,
the ability of the Company to attract and retain qualified executive officers in
light of the competitive environment of the Company's industry and the Company's
financial condition and results of operations.                                  

     BASE  SALARY  AND ANNUAL  BONUS.  Base  salaries  and  annual  bonuses  for
executive  officers are determined by reference to  Company-wide  and individual
performance  for  the  previous  fiscal  year.  The  factors  considered  by the
Compensation  Committee include both strategic and operational factors,  such as
efforts  in  responding  to  regulatory   challenges,   in  exploring  strategic
alternatives for the Company, in research and development,  and in reviewing and

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implementing  updated  systems  and  operational  procedures,  as  well  as  the
Company's  financial  performance.  In  addition  to  Company-wide  measures  of
performance, the Compensation Committee considers performance factors particular
to each executive  officer,  including the  performance of the area(s) for which
such officer had management responsibility and the individual accomplishments of
such officer.                                                                   

     Base  salaries  for  executive  officers  of the  Company  were  determined
primarily  by  reference  to  industry  norms,  the  principal  job  duties  and
responsibilities  undertaken by such persons,  individual  performance and other
relevant criteria.  The Compensation Committee annually re-evaluates whether any
adjustments  are necessary to reflect  compensation  for  executive  officers of
similar entities.  The Compensation  Committee  considered it appropriate and in
the best interests of the Company and its  stockholders to set the base salaries
for its executive  officers at competitive levels in order to attract and retain
high  caliber  managers  for the Company and  thereby  position  the Company for
future growth and improved performance.                                         

     The Compensation Committee, in determining the annual bonuses to be paid to
the  Company's  executive  officers  for  fiscal  year  2003,   considered  each
individual's contribution to the Company's performance, as well as the Company's
financial performance, and assessments of each executive officer's participation
and contributions as described above. The non-financial considerations that were
applied  varied  among  the  executive  officers  depending  upon  the  business
operations under their management and direction.                                

     In prior years,  compensation  paid to the covered  officers  generally has
been tax  deductible  primarily  because the sum of base salary and annual bonus
has been  less  than $1  million.  However,  depending  on the  extent  to which
performance  goals are  achieved,  it is possible for the sum of base salary and
annual  bonus to exceed  this  amount  for  certain of the  Company's  executive
officers.  If this occurs, the Company believes that it is important that annual
bonus  payments to such executive  officers be qualified as  "performance-based"
compensation  under  Section  162(m)  of the  Code in order  to  retain  the tax
deductibility of the payments. Thus, in order to allow the Company to so qualify
for such deduction,  the Company is seeking  approval of the Incentive Plan. See
Proposal V regarding  the proposal to provide for annual  incentive  payments to
certain key executives based upon the annual performance of the Company.        

     LONG-TERM,  EQUITY-BASED INCENTIVES. The 2000 Plan, as amended by the Board
to constitute a non-qualified, broad-based option plan not requiring stockholder
approval  under NYSE rules,  provides  for stock option  awards.  The 2001 Plan,
which was approved by the  Company's  stockholders  initially  at the  Company's
annual  meeting held on July 12, 2001,  also  provides for stock option  awards.
Under  these  Plans,  the size of each award and the persons to whom such awards
are  granted  are  determined  by the  Compensation  Committee,  which bases its
decisions upon the nature of the services rendered by the executive officer, the
recent and potential  contributions of the executive  officer to the Company and
the overall performance of the Company. The Compensation Committee believes that
grants of stock  options  will help  enable the  Company  to attract  and retain
high-level  talent  and to  encourage  a high level of  performance  in order to
continue to serve the best interests of the Company and its stockholders.  Stock
options  and other  equity-based  awards  provide  executive  officers  with the
opportunity to acquire equity interests in the Company and to participate in the
creation of stockholder  value and benefit,  correspondingly,  with increases in
the price of the Common Stock. Generally,  the Company grants stock options that
are exercisable in four equal annual installments beginning one year after their
date of grant.                                                                  

     In  anticipation  of the proposed  change in the accounting for share-based
payments in 2005,  the  Compensation  Committee  believes  that it is prudent to
ensure that the Company has a variety of equity-based incentives at its disposal
in  order  to  more  effectively  balance  executive  officers'  alignment  with
stockholders'  long-term interests,  stockholder dilution and the likely cost of
such  equity-based  incentives  to the  Company.  Consequently,  the Company has
proposed that its stockholders approve the 2004 Plan. See Proposal III regarding
the  proposal  to  expand  the  types  of  awards  that  may be  granted  by the
Compensation  Committee under the proposed 2004 Plan, including SARs, restricted
shares of Common Stock,  restricted units,  performance  shares of Common Stock,
performance  units,  cash-based  awards and other equity  awards valued or based
upon the Common  Stock.  Thus,  the 2004 Plan will  enable the  Company to award
executive  officers  with  certain  equity-based  incentives  that are more cost
effective and less dilutive than may currently be granted under the 2001 Plan.  

     COMPENSATION  COMMITTEE'S  ACTIONS FOR FISCAL YEAR 2003. In determining the
amount and form of  executive  officer  compensation  to be paid or awarded  for
fiscal year 2003, the Compensation  Committee  considered the criteria discussed
above. Based upon the Compensation  Committee's review of such officers' and the
Company's performances following the conclusion of fiscal year 2003, the Company
granted cash bonuses to Messrs. Tarriff, Auerbach,  O'Connor and Haughey and Dr.
Gutman, the Named Executives,  in the amounts of $450,000,  $225,000,  $225,000,
$5,223 and  $150,000,  respectively.  In addition,  Messrs.  Tarriff,  Auerbach,
O'Connor and Haughey and Dr.  Gutman were granted,  in January 2004,  options to
purchase shares of Common Stock in the amounts of 65,000,  32,500, 32,500, 2,500
and 45,000, respectively.                                                       

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     CHIEF  EXECUTIVE  OFFICERS  COMPENSATION.  During 2003, the Company had two
Chief  Executive  Officers.  Mr.  Kenneth I.  Sawyer  served as Chief  Executive
Officer from January 1, 2003 through July 1, 2003, when he retired. Mr. Scott L.
Tarriff  was  selected  to serve as  President  and Chief  Executive  Officer on
September 16, 2003.                                                             

     The Compensation Committee approved an amended employment agreement for Mr.
Sawyer on January 4, 2002.  Under the employment  agreement,  Mr.  Sawyer's base
salary for fiscal year 2003 was $414,362.  Mr. Sawyer was granted 50,000 options
to  purchase  shares of Common  Stock in fiscal  year 2003.  Mr.  Sawyer did not
receive an annual bonus for fiscal year 2003. Upon his  retirement,  the Company
accelerated  the vesting of all of Mr. Sawyer's 80,000 unvested stock options in
2003,  which he  exercised.  In  addition,  Mr.  Sawyer  received  a $1  million
severance  payment,  $207,000 for the remainder of his base salary in 2003,  the
cash  surrender  value of his life  insurance  policy in the amount of $328,000,
$77,000 to cover taxes on option  income and $12,000 in medical  benefits  for a
total severance package of $3,712,000.                                          

     The Compensation  Committee approved an employment agreement for Mr. Tariff
as of February 9, 2004 that  replaces a prior  employment  agreement  originally
entered into as of February 6, 2003. Under the employment agreement, Mr. Tarriff
holds the positions of President and Chief Executive Officer and his annual base
salary is set at $600,000 for 2004.  During 2003, Mr. Tarriff  received a salary
of $400,000 for his service as President and Chief Executive Officer. Due to the
Company's strong  performance and Mr. Tarriff's  individual  performance  during
2003,  the  Compensation  Committee  awarded Mr. Tarriff an annual cash bonus of
$450,000 for fiscal year 2003. Mr. Tarriff also was granted 50,000 stock options
in October  2003,  at an  exercise  price of $70.45  per  share,  as part of his
promotion to Chief Executive Officer.                                           

     EXECUTIVE  STOCK  OWNERSHIP  GUIDELINES.  Effective  January 1,  2004,  the
Compensation  Committee established stock ownership guidelines for the executive
officers of the Company that set forth certain  specified stock ownership levels
to be attained by such officers, expressed as a multiple of their base salaries,
within a five-year period, with interim stock ownership levels that are expected
to be attained  after one and three years,  respectively.  The  executive  stock
ownership  requirements,  expressed as a multiple of an executive officer's base
salary, are as follows:                                                         

 -----------------------------------------------------------------------
Position                            Multiple       Time to Attain     
 -----------------------------------------------------------------------
Chief Executive Officer             7 x            5 years            
Other Named Executive Officers      4 x            5 years            
Executive Vice Presidents           4 x            5 years            
Vice Presidents                     2.5 x          5 years            
 -----------------------------------------------------------------------

     The number of shares of the  Company's  Common  Stock that must be owned is
determined by  multiplying  the  executive  officer's  then current  annual base
salary rate by the  applicable  multiple  shown above and dividing the result by
the average closing price of our Common Stock during the  immediately  preceding
12 months.  The number of shares to be owned will  change  only if an  executive
officer is promoted.                                                            

     POLICY WITH REGARD TO SECTION 162(M) OF THE CODE. The Company's  ability to
deduct  compensation paid to individual covered officers is generally limited by
Section 162(m) of the Code to $1 million annually. However, this limitation does
not  apply  to  "performance-based"  compensation,  if  certain  conditions  are
satisfied.  In prior years,  compensation paid to the covered officers generally
has been  deductible  primarily  because the sum of base salary and annual bonus
has been  less  than $1  million.  However,  depending  on the  extent  to which
performance  goals are  achieved,  it is possible for the sum of base salary and
annual  bonus to exceed  this limit.  Thus,  the Company has adopted a policy of
seeking to preserve the federal income tax deductibility of compensation it pays
to its executive  officers.  Accordingly,  the Compensation  Committee has taken
appropriate actions, to the extent it believes feasible,  including the adoption
of incentive compensation plans (including those being submitted to stockholders
for approval as part of this proxy statement,  see Proposals III and V) that are
designed  to qualify  under  Section  162(m) for the grant of  performance-based
compensation,  to preserve  the  deductibility  of annual  incentive,  long-term
performance,  restricted  stock and stock option  awards.  Notwithstanding  this
general policy,  the Compensation  Committee  retains the authority to authorize
payments  that are not tax  deductible  if it believes that they are in the best
interests of both the Company and its stockholders.                             

 COMPENSATION COMMITTEE:

    Peter S. Knight (Chairman)
John D. Abernathy     
Ronald M. Nordmann    

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE                         

     As a public company, the Company's directors and executive officers and the
more than 10%  beneficial  owners of its Common  Stock are subject to  reporting
requirements  under  Section  16(a) of the  Exchange  Act and  required  to file
certain  reports with the  Commission  in respect of their  ownership of Company
equity  securities.  The Company believes that during fiscal year 2003, all such
required reports were filed on a timely basis.                                  

AUDIT COMMITTEE REPORT

     The Company's management is responsible for the Company's internal controls
and the financial  reporting  process.  The Company's  independent  auditors are
responsible  for performing an independent  audit of the Company's  consolidated
financial statements in accordance with auditing standards generally accepted in
the United  States.  The Audit  Committee's  responsibility  is to  monitor  and
oversee these  processes.  In this  context,  the Audit  Committee  reviewed and
discussed the audited  financial  statements with both the Company's  management
and Deloitte & Touche LLP, the  Company's  independent  auditors for fiscal year
2003.  Specifically,  the Audit Committee reviewed and discussed with Deloitte &
Touche  LLP  matters  required  to be  discussed  by  SAS  61  (Codification  of
Statements on Auditing Standards, AU Section 380).                              

     The  Audit  Committee  received  from  Deloitte  & Touche  LLP the  written
disclosures and the letter required by Independence Standards Board Standard No.
1 (Independence Discussions with Audit Committees),  reviewed and discussed with
Deloitte & Touche LLP the issue of its independence from the Company.           

     Based on the Audit  Committee's  review of the Company's  audited financial
statements and its discussions with both the Company's management and Deloitte &
Touche LLP noted above,  the Audit  Committee  recommended to the Board that the
Company's audited consolidated financial statements be included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2003.         

AUDIT COMMITTEE:        

    John D. Abernathy (Chairman)
Peter S. Knight         
Peter W. Williams       

PERFORMANCE GRAPH                                                               

     The graph below  compares the  cumulative  total return of the Common Stock
with the  cumulative  total returns of the NYSE  Composite  Index and the S&P(R)
Health Care  (Pharmaceuticals)  Index for the period from  December  31, 1998 to
December 31, 2003.  The graph  assumes $100 was invested on December 31, 1998 in

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the Common Stock and $100 was invested on such date in each of the Indexes.  The
comparison assumes that any dividends paid were reinvested.                     

                                                        [Enlarge/Download Table]

                                CUMULATIVE TOTAL RETURN                                              

                                [CHART GRAPHIC OMITTED]                                              

-----------------------------------------------------------------------------------------------------
                                                                                                     
COMPANY / INDEX                        12/31/98   12/31/99   12/31/00   12/31/01   12/31/02  12/31/03
-----------------------------------------------------------------------------------------------------
PHARMACEUTICAL RESOURCES, INC.           $100       $104       $146       $712        $627    $1,372 
-----------------------------------------------------------------------------------------------------
NYSE COMPOSITE INDEX                     $100       $109       $110        $99         $79      $102 
-----------------------------------------------------------------------------------------------------
S&P(R)HEALTH CARE--PHARMACEUTICALS                                                                   
INDEX                                    $100        $88       $120       $103         $82       $89 
-----------------------------------------------------------------------------------------------------


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 PROPOSAL II

APPROVAL OF AN AMENDMENT
TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO CHANGE THE NAME OF 
THE COMPANY FROM "PHARMACEUTICAL RESOURCES, INC." TO "PAR 
 PHARMACEUTICAL COMPANIES, INC."

GENERAL                                                                         

     In February 2004, the Board adopted, subject to stockholder approval at the
Meeting,  a resolution  approving an amendment to the Company's  Certificate  of
Incorporation  to  change  the  name  of  the  Company  to  "Par  Pharmaceutical
Companies,  Inc." The name  change  will  become  effective  when the  Company's
amended  Certificate of Incorporation (the "Amended  Certificate") is filed with
the  Secretary  of State of the State of  Delaware.  The  Company  will file the
Amended  Certificate  promptly after (and if) its stockholders  approve the name
change.  A copy of the Company's  Certificate of Incorporation is available from
the  Company,  at no charge,  upon  written  request,  and a copy of the Amended
Certificate is attached to this Proxy Statement as Appendix B.                  

PRINCIPAL REASONS FOR THE AMENDMENT                                             

     The Board  believes  that the name change is in the best  interests  of the
Company because it will more accurately  reflect its business model as a holding
company with diversified interests throughout the pharmaceutical  industry.  The
proposed amendment will not have any material effect on the Company's  business,
operations, assets or reporting requirements.  Stockholders will not be required
to  have  new  stock   certificates   reflecting  the  name  change.  New  stock
certificates  will be issued in due course as old  certificates  are tendered to
the Company's transfer agent.                                                   

     The Common Stock will continue to trade under the stock symbol "PRX" on the
NYSE.                                                                           

APPROVAL                                                                        

     The Board has approved the Amended Certificate and has adopted a resolution
to change the name of the  Company to PAR  PHARMACEUTICAL  COMPANIES,  INC.  The
proposal to amend the Company's  Certificate of Incorporation will be adopted if
holders of a majority of the outstanding shares of Common Stock vote in favor of
it.                                                                             

THE BOARD  UNANIMOUSLY  RECOMMENDS  A VOTE "FOR" THE  APPROVAL  AND  ADOPTION OF
PROPOSAL II.                                                                    

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PROPOSAL III

 APPROVAL AND ADOPTION
OF THE
2004 PERFORMANCE EQUITY PLAN

GENERAL                                                                         

     In April 2004,  the Board adopted,  subject to stockholder  approval at the
Meeting,  the 2004 Plan,  which will reserve up to a maximum of 5,501,973 shares
of Common Stock for issuance under the 2004 Plan and provide for grants of stock
options  and other  awards  such as SARs,  restricted  shares  of  Common  Stock
("restricted  stock"),  restricted  units,  performance  shares of Common  Stock
("performance  shares"),  performance units,  cash-based awards and other equity
awards valued or based upon the Common Stock ("other stock-based awards").      

     Currently, the Compensation Committee may authorize grants of stock options
under the 2001 Plan.  However,  the 2001 Plan does not provide the  Compensation
Committee  with the  authority  to grant  other  types of  awards  such as SARs,
restricted stock,  restricted units,  performance shares,  performance units and
other stock-based or cash-based incentive awards. The 2004 Plan will replace the
2001 Plan and thus, will broaden the array of equity  alternatives  available to
the Compensation Committee when designing compensation incentives.              

     The Board  believes that it is in the best interests of the Company and its
stockholders  to provide  employees  and third party  service  providers  of the
Company and its  subsidiaries,  through the  granting  of stock  options,  SARs,
restricted  stock,  restricted units,  performance  shares,  performance  units,
cash-based awards and other stock-based  awards,  the opportunity to participate
in the value and/or  appreciation  of the Common Stock.  The 2004 Plan will also
enhance the Company's ability to attract,  retain and reward employees and third
party service providers of the Company and its subsidiaries, and to increase the
mutuality of interests  between those  individuals  and the  stockholders of the
Company.                                                                        

     Stock options have long been an integral and essential  part of competitive
compensation  packages  for  companies  in our  industry.  However,  anticipated
changes in accounting policies that would require expensing of stock options are
likely to precipitate a change in compensation  packages in favor of alternative
forms of equity  interests.  The Board is proposing the above 2004 Plan in order
to provide the Company with the  flexibility  needed to design  stock  incentive
compensation   awards  that  will  be   competitive   with  current  and  future
compensation  trends  and  to  respond  to any  changes,  both  anticipated  and
unanticipated,  in accounting policies. In addition, stockholder approval of the
2004 Plan is sought to ensure the continued tax  deductibility by the Company of
awards under the 2004 Plan for purposes of Section 162(m) of the Code.          

     The following is a summary of the material  features of the 2004 Plan.  The
summary of the 2004 Plan does not purport to be complete  and is subject to, and
qualified in its entirety by, the full text of the 2004 Plan,  which is attached
hereto as Appendix C.                                                           

SUMMARY OF THE PLAN                                                             

     The maximum number of shares of Common Stock ("shares")  issuable under the
2004 Plan is 5,501,973.  This includes 1,200,000 new shares,  583,200   shares  
that  remain  available  under  the 2001  Plan  and any  shares  subject  to the
3,718,773    outstanding  awards as of the Record  Date under the 2001 Plan that
cease for any  reason to be  subject  to such  awards  (other  than by reason of
exercise or  settlement  of the awards to the extent they are  exercised  for or
settled in vested and  non-forfeitable  shares). No more than 350,000 shares may
be issued  pursuant to full value awards (i.e.,  awards other than stock options

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or SARs  that are  settled  by the  issuance  of  shares).  If the 2004  Plan is
approved by the  stockholders,  no additional awards will be made after the date
of such approval under the 2001 Plan, and the 2001 Plan will terminate when  all
awards granted under such Plan are no longer outstanding.                       

     Shares are counted against the  authorization  only to the extent that they
are actually  issued.  Thus,  shares which terminate by expiration,  forfeiture,
cancellation,  or otherwise, are settled in cash in lieu of shares, or exchanged
for awards not involving  shares,  shall again be available  for future  grants.
Also,  if the  option  price or tax  withholding  requirements  of any award are
satisfied by tendering  shares to the Company,  or if an SAR is exercised,  only
the number of shares issued,  net of the shares tendered,  will be deemed issued
under the 2004 Plan.                                                            

     The 2004 Plan also imposes annual  per-participant  award limits,  starting
with  calendar year 2004.  The maximum  number of shares for which stock options
may be granted to any person in any calendar year is 300,000. The maximum number
of shares subject to SARs granted to any person in any calendar year is 300,000.
The maximum  aggregate  grant to any person in any calendar  year of  restricted
stock or restricted units is 100,000 shares.  The maximum aggregate grant to any
person in any calendar year of performance  shares or  performance  units is the
value of 100,000  shares  determined  as of the date of  vesting  or payout,  as
applicable.  The maximum  aggregate  grant to any person in any calendar year of
cash-based awards is the value of $1,000,000. The maximum aggregate grant to any
person in any calendar year of other stock-based awards is 100,000 shares.      

     The  number and kind of shares  that may be issued,  the number and kind of
shares subject to outstanding awards, the option price or grant price applicable
to outstanding awards, the annual  per-participant award limits, and other value
determinations  are  subject to  adjustment  by the  Compensation  Committee  to
reflect stock  dividends,  stock splits,  reverse stock splits and other similar
corporate events or transactions, including without limitation, distributions of
stock or property other than normal cash dividends.  The Compensation  Committee
may also make adjustments to reflect unusual or nonrecurring events.            

     Pursuant to its terms, the 2004 Plan will terminate ten years from the date
of its approval by the Company's stockholders and no awards may be granted under
the 2004 Plan after that date.                                                  

     On the Record Date,  the closing  price of the Common Stock on the NYSE was
$55.25.                                                                         

ADMINISTRATION                                                                  

     The Compensation  Committee is responsible for  administering the 2004 Plan
and has the  discretionary  power to interpret  the terms and intent of the 2004
Plan and any 2004  Plan-related  documentation,  to  determine  eligibility  for
awards and the terms and  conditions of awards and to adopt rules,  regulations,
policies,  instruments  and  guidelines.   Determinations  of  the  Compensation
Committee  made  under the 2004 Plan are final  and  binding.  The  Compensation
Committee  may delegate  administrative  duties and powers to one or more of its
members  or to one or more  officers,  agents,  or  advisors.  The  Compensation
Committee  may also delegate to one or more officers of the Company the power to
designate  other  employees  (other than  officers  subject to Section 16 of the
Exchange Act ). The Compensation  Committee also may grant awards under the 2004
Plan as an  alternative  to,  or as the form of  payment  for,  grants or rights
earned or due under other compensation plans or arrangements of the Company.    

TYPES OF AWARDS                                                                 

     Awards  under  the  2004  Plan may  include  non-qualified  stock  options,
incentive stock options, SARs, restricted stock,  restricted units,  performance
shares, performance units and other stock-based or cash-based incentive awards. 

     STOCK OPTIONS.  The  Compensation  Committee may grant both incentive stock
options  ("ISOs")  and   non-qualified   stock  options  under  the  2004  Plan.
Eligibility   for  ISOs  is  limited  to   employees  of  the  Company  and  its
subsidiaries.                                                                   

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     The  exercise  price for options may not be less than the fair market value
of the Common Stock on the date of grant;  however,  options can be granted with
an exercise price that is greater than the fair market value of the Common Stock
on the date of grant or that is indexed to the fair market value of the stock on
the date of grant,  except  in the case of an ISO,  in which  case the  exercise
price may not be less than 100% of the fair market  value of the Common Stock on
the date of grant  (110% if the  recipient  is a holder  of more than 10% of the
voting power of the capital  stock of the Company.  The latest  expiration  date
cannot be later then the tenth (10th)  anniversary  of the date of grant (for an
ISO,  the fifth (5th)  anniversary  of the date of grant if the  recipient  is a
holder of more than 10% of the voting power of the capital stock of the Company.
Fair market value under the 2004 Plan may be  determined  by reference to market
prices on a  particular  trading  day or on an  average  of  trading  days.  The
exercise price may be paid with cash or its equivalent, with previously acquired
shares,  or by other means approved by the Compensation  Committee,  including a
broker-assisted  exercise.  The  Compensation  Committee may substitute SARs for
outstanding   stock  options  if  the  Company  ceases  to  account  for  equity
compensation  under APB  Opinion No. 25 and begins to  recognize a  compensation
expense for such compensation under FAS 123 or a successor standard.            

     STOCK  APPRECIATION  RIGHTS.  The  Compensation  Committee  may grant stock
appreciation  rights ("SARs") under the 2004 Plan either alone or in tandem with
stock  options.  The grant  price of a SAR  cannot be less than the fair  market
value of the  Common  Stock at the time of grant;  however,  SARs can be granted
with a grant  price that is  greater  than the fair  market  value of the Common
Stock on the date of grant or that is  indexed to the fair  market  value of the
stock on the date of grant.  The grant  price of a SAR  granted in tandem with a
stock option will be the same as the option price of the option.  SARs cannot be
exercised later then the tenth (10th) anniversary of the date of grant.         

     Freestanding  SARs  may be  exercised  on such  terms  as the  Compensation
Committee  determines  and tandem SARs may be  exercised  by  relinquishing  the
related  portion of the tandem  option.  Upon exercise of a SAR, the holder will
receive from the Company  cash,  shares or a  combination,  as determined by the
Compensation Committee, equal in value to the difference between the fair market
value of the Common Stock subject to the SAR, determined as described above, and
the grant price.                                                                

     RESTRICTED STOCK AND UNITS. The Compensation Committee may award restricted
stock and restricted  units.  Restricted stock awards consist of shares that are
transferred  to the  participant  subject  to  restrictions  that may  result in
forfeiture if specified  conditions  are not  satisfied.  A holder of restricted
stock is treated as a current stockholder and is entitled to dividend and voting
rights.                                                                         

     By contrast, restricted unit awards result in the transfer of shares to the
participant  only after  specified  conditions are satisfied.  As a result,  the
holder of a restricted  unit award is treated as a  stockholder  with respect to
the award only when the shares are  delivered  in the future.  The  Compensation
Committee will  determine the  restrictions  and  conditions  applicable to each
award of restricted  stock or  restricted  units.  However,  subject to possible
acceleration of vesting under certain conditions, the minimum vesting period for
performance-based awards will be one year and for time- or service-based awards,
will be in  substantially  equal  installments  over a period of at least  three
years.                                                                          

     PERFORMANCE  SHARE AND UNIT AWARDS.  Performance share and performance unit
awards  may be  granted  under the 2004 Plan.  Performance  shares  will have an
initial  value that is based on the fair market value of the Common Stock on the
date of grant.  Performance  unit  awards  will have an  initial  value  that is
determined  by the  Compensation  Committee.  Such awards will be earned only if
performance goals over performance periods established by or under the direction
of the  Compensation  Committee  are met.  The  performance  goals may vary from
participant to participant, group to group and period to period. The performance
goals for  performance  share and  performance  unit awards and any other awards
granted  under  the  2004  Plan  that  are  intended  to  constitute  "qualified
performance-based compensation" will be based upon one or more of the  following

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(any one of which may be measured with respect to the Company or any one or more
of its  subsidiaries  and either in  absolute  terms or as  compared  to another
company or  companies):  Net  earnings  or net income  (before or after  taxes);
earnings per share; net sales or revenue growth;  net operating  profit;  return
measures  (including return on assets,  capital,  invested  capital,  equity, or
sales or revenue);  cash flow (including operating cash flow, free cash flow and
cash  flow  return  on  equity);  earnings  before  or  after  taxes,  interest,
depreciation,  and/or  amortization;  gross or  operating  margins;  share price
(including  growth  measures and total  stockholder  return);  expense  targets;
market share; customer  satisfaction;  working capital targets; and research and
development expenditures.                                                       

     The Compensation  Committee will determine whether the performance  targets
or goals that have been chosen for a particular  performance award have been met
and may provide in an award that any  evaluation of  performance  may include or
exclude any of the following that are  objectively  determinable  and that occur
during the performance period to which the award is subject:  asset write-downs,
litigation, claims, judgments or settlements; the effect of changes in tax laws,
accounting  principles or other laws or provisions  affecting reporting results;
any reorganization and restructuring programs;  extraordinary nonrecurring items
as  described  in  Accounting   Principles   Board  Opinion  No.  30  and/or  in
management's  discussion  of  financial  condition  and  results  of  operations
appearing in the Company's  annual  report to  stockholders  for the  applicable
year; acquisitions or divestitures; and foreign exchange gains and losses.      

     Awards that are designed to qualify as  performance-based  compensation may
not be adjusted upward.  However, the Compensation  Committee has the discretion
to adjust these awards downward. In addition, the Compensation Committee has the
discretion to make awards that do not qualify as performance-based compensation.
Awards  may be paid in the  form of  cash,  shares,  or in any  combination,  as
determined by the Compensation Committee.                                       

     CASH-BASED AWARDS.  The Compensation  Committee may grant cash-based awards
under the 2004 Plan that specify the amount of cash to which the award pertains,
the conditions  under which the award will be vested and exercisable or payable,
and such other conditions as the  Compensation  Committee may determine that are
not inconsistent with the terms of the 2004 Plan. Cash-based awards may be paid,
in the Compensation Committee's discretion, either in cash or by the delivery of
shares of Common Stock.                                                         

     OTHER STOCK-BASED AWARDS. The Compensation Committee may grant equity-based
or equity-related awards,  referred to as "other stock-based awards", other than
options,  SARs,  restricted  stock,  restricted  units,  performance  shares  or
performance  units.  The terms and  conditions of each other  stock-based  award
shall be  determined  by the  Compensation  Committee.  Payment  under any other
stock-based  awards  will  be made in  shares  or  cash,  as  determined  by the
Compensation Committee.                                                         

     DIVIDEND  EQUIVALENTS.  The  Compensation  Committee  may  provide  for the
payment of dividend  equivalents  with respect to any shares subject to an award
that have not actually been issued under the award.                             

     DEFERRALS.  The Compensation  Committee may require or permit a participant
to defer the  receipt of cash or shares  pursuant  to any awards  under the 2004
Plan.                                                                           

OTHER TERMS AND CONDITIONS                                                      

     AGREEMENTS;  TRANSFERABILITY.  Awards  granted  under the 2004 Plan will be
evidenced  by  agreements  consistent  with  the 2004  Plan in such  form as the
Compensation  Committee  may  prescribe.  Neither  the 2004 Plan nor  agreements
thereunder  confer any right to continued  employment  upon any  recipient of an
award.  Unless provided  otherwise in an award agreement or in the discretion of
the Compensation Committee,  awards may not be transferred other than by will or
by the  laws of  descent  and  distribution.  Similarly,  during  a  recipient's

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lifetime,  options and other awards requiring  exercise may be exercised only by
the  recipient,  unless  provided  otherwise  in an  award  agreement  or in the
discretion of the Compensation Committee.                                       

     FORFEITURE FOLLOWING TERMINATION OF EMPLOYMENT.  The Compensation Committee
generally will determine how each award will be treated following termination of
the  holder's  employment  with  or  service  for  the  Company  or  any  of its
subsidiaries,  including the extent to which unvested portions of the award will
be forfeited  and the extent to which  options,  SARs or other awards  requiring
exercise will remain exercisable.                                               

     CERTAIN RESTRICTIONS.  If provided in the award agreement,  a participant's
rights to an award may be  subject  to the  participant's  agreement  (i) not to
compete  with the Company or any of its  subsidiaries,  (ii) not to solicit away
the  Company's  business or  employees  and (iii) not to  disclose  confidential
information regarding the Company or to disparage the Company. A breach of these
restrictions may result in cancellation of awards or the recovery by the Company
of gain realized under an award.                                                

     CHANGE OF  CONTROL.  If there is a change of  control of the  Company,  all
outstanding options will vest immediately and become exercisable. Under the 2004
Plan,  a change in control may be triggered  if (i) there is an  acquisition  of
more  than 20% of the  outstanding  shares  entitled  to vote  generally  in the
election of directors,  (ii) a tender or exchange offer for the Company's  stock
is  commenced  or  publicly  announced,  (iii)  stockholders  approve  a merger,
consolidation  or sale of the Company or a disposition  of all or  substantially
all of the Company's assets,  unless such stockholders continue to own more than
50% of the  outstanding  voting  securities or (iv) the  Company's  stockholders
approve any plan or proposal for the liquidation or dissolution of the Company. 

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

     AWARDS FOR NON-U.S.  EMPLOYEES.  To comply with the laws in other countries
in  which  the  Company  or its  subsidiaries  operate  or may  operate  or have
employees or third party  service  providers,  the  Compensation  Committee  may
establish  subplans  under the 2004 Plan and modify the terms of the awards made
to such employees and service providers.                                        

ELIGIBILITY                                                                     

     Employees  and  third  party  service  providers  of the  Company  and  its
subsidiaries  who are  selected by the  Compensation  Committee  are eligible to
participate  in the 2004 Plan. As of the Record Date,  there were  approximately
550 eligible employees and two eligible third-party service providers.          

AMENDMENT AND TERMINATION                                                       

     The Compensation Committee may at any time alter, amend, modify, suspend or
terminate  the 2004  Plan or any  outstanding  award  in  whole  or in part.  No
amendment  of the  2004  Plan  will  be made  without  stockholder  approval  if
stockholder  approval is required by law. No amendment may adversely  affect the
rights of any participant without his or her consent under an outstanding award,
unless specifically provided for in the 2004 Plan.                              

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NEW PLAN BENEFITS                                                               

     The future  benefits or amounts that would be received  under the 2004 Plan
by  executive  officers,   employees  and  third  party  service  providers  are
discretionary and are therefore not determinable at this time. In addition,  the
benefits  or amounts  that  would have been  received  by or  allocated  to such
persons for the last  completed  fiscal year if the 2004 Plan had been in effect
cannot be determined.                                                           

FEDERAL INCOME TAX CONSEQUENCES                                                 

     The federal  income tax  consequences  of the issuance  and/or  exercise of
awards under the 2004 Plan are described  below.  The following  information  is
only a summary of the tax  consequences  of the awards,  and  recipients  should
consult  with  their  own tax  advisors  with  respect  to the tax  consequences
inherent in the  ownership  and/or  exercise of the awards and the ownership and
disposition of any underlying securities.                                       

     INCENTIVE  STOCK  OPTIONS.  The 2004 Plan  qualifies as an incentive  stock
option plan within the  meaning of Section 422 of the Code.  A recipient  who is
granted an incentive  stock  option will not  recognize  any taxable  income for
federal  income tax  purposes  either on the grant or exercise of the  incentive
stock option. If the recipient  disposes of the shares purchased pursuant to the
incentive stock option more than two years after the date of grant and more than
one year  after the  transfer  of the  shares  to the  recipient  (the  required
statutory "holding period"),  (a) the recipient will recognize long-term capital
gain or loss,  as the case may be, equal to the  difference  between the selling
price and the  exercise  price;  and (b) the  Company  will not be entitled to a
deduction  with respect to the shares of stock so issued.  If the holding period
requirements  are not met, any gain realized upon  disposition  will be taxed as
ordinary  income to the  extent of the excess of the lesser of (i) the excess of
the fair market  value of the shares at the time of exercise  over the  exercise
price and (ii) the gain on the sale. The Company will be entitled to a deduction
in the year of disposition in an amount equal to the ordinary income  recognized
by the recipient.  Any additional  gain will be taxed as short-term or long-term
capital gain  depending  upon the holding  period for the stock. A sale for less
than the option price results in a capital loss.                                

     The excess of the fair  market  value of the shares on the date of exercise
over the exercise price is,  however,  includable in the option  holder's income
for alternative minimum tax purposes.                                           

     NON-QUALIFIED STOCK OPTIONS.  The recipient of a non-qualified stock option
under the 2004  Plan will not  recognize  any  income  for  federal  income  tax
purposes on the grant of the option.  Generally,  on the exercise of the option,
the recipient will recognize  taxable ordinary income equal to the excess of the
fair market value of the shares on the exercise date over the exercise price for
the shares. The Company generally will be entitled to a deduction on the date of
exercise in an amount equal to the ordinary income  recognized by the recipient.
Upon  disposition  of the shares  purchased  pursuant to the stock  option,  the
recipient  will recognize  long-term or short-term  capital gain or loss, as the
case may be,  depending on the length of time that the recipient held the shares
(with  the  holding  period  beginning  on the date of  exercise),  equal to the
difference  between the amount  realized on such  disposition  and the basis for
such  shares,  which basis  includes  the amount  previously  recognized  by the
recipient as ordinary income.                                                   

     STOCK  APPRECIATION  RIGHTS. A recipient who is granted stock  appreciation
rights will not  recognize any taxable  income on the receipt of the SARs.  Upon
the exercise of a SAR, (a) the recipient will recognize ordinary income equal to
the amount  received  (the  increase in the fair market  value of a share of the
Common Stock from the date of grant of the SAR to the date of exercise); and (b)

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the Company will be entitled to a deduction on the date of exercise in an amount
equal to the ordinary income recognized by the recipient.                       

     RESTRICTED  STOCK. A recipient will not be taxed at the date of an award of
restricted  stock, but will be taxed at ordinary income rates on the fair market
value of the restricted stock as of the date that the restrictions lapse, unless
the  recipient,  within 30 days after transfer of such  restricted  stock to the
recipient,  elects under Section 83(b) of the Code to include in ordinary income
the fair market value of the  restricted  stock as of the date of such transfer.
The Company will be entitled to a  corresponding  deduction.  Any disposition of
shares after  restrictions  lapse will be subject to the regular rules governing
long-term  and  short-term  capital  gains and losses  (with the holding  period
beginning  on the  date  that  restrictions  lapse  or the  date of grant if the
recipient  elects  to be taxed  under  Section  83(b)),  with the basis for this
purpose  equal  to the  fair  market  value  of  the  shares  at the  end of the
restricted  period (or on the date of the transfer of the restricted  stock,  if
the employee  elects to be taxed on the fair market  value upon such  transfer).
Dividends  received by a recipient during the restricted  period will be taxable
to the  recipient  at ordinary  income tax rates and will be  deductible  by the
Company unless the recipient has elected to be taxed on the fair market value of
the  restricted  shares upon  transfer,  in which case they will  thereafter  be
taxable to the employee as dividends and will not be deductible by the Company. 

     RESTRICTED  UNITS.  A participant  will  ordinarily  not recognize  taxable
income upon an award of restricted units and the Company will not be entitled to
a deduction  until the lapse of the applicable  restrictions.  Upon the lapse of
the  restrictions  and the issuance of the earned shares,  the participant  will
recognize ordinary taxable income in an amount equal to the fair market value of
the Common Stock received and the Company will be entitled to a deduction of the
same amount.                                                                    

     PERFORMANCE  AND OTHER  STOCK-BASED  AWARDS  AND  SHORT-TERM  CASH  AWARDS.
Normally,  a  participant  will not recognize  taxable  income upon the grant of
performance   awards  and  other  stock-based   awards  and  cash-based  awards.
Subsequently,  when the  conditions  and  requirements  for the grants have been
satisfied  and the payment  determined,  any cash  received  and the fair market
value of any  Common  Stock  received  will  constitute  ordinary  income to the
participant.  The  Company  will then be  entitled  to a  deduction  of the same
amount.                                                                         

     In general, under Section l62(m) of the Code, compensation paid by a public
corporation  to its chief  executive  officer or any of its other top four named
executive  officers,  ranked by pay, is not  deductible to the extent it exceeds
$1,000,000 for any year. Taxable payments or benefits under the 2004 Plan may be
subject to this  deduction  limit.  However,  under Section  l62(m) of the Code,
qualifying performance-based  compensation,  including income from stock options
and other  performance-based  awards  that are made under  stockholder  approved
plans and that meet certain  other  requirements,  is exempt from the  deduction
limitation.  The 2004 Plan has been designed so that the Compensation  Committee
in its discretion may grant qualifying exempt performance-based awards under the
2004 Plan.                                                                      

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     Under  the  so-called  "golden  parachute"  provisions  of  the  Code,  the
accelerated  vesting of stock  options and  benefits  paid under other awards in
connection  with a change of  control of a  corporation  may be  required  to be
valued and taken into account in determining whether  participants have received
compensatory payments, contingent on the change of control, in excess of certain
limits.  If these limits are exceeded,  a portion of the amounts  payable to the
participant  may  be  subject  to an  additional  20%  federal  tax  and  may be
nondeductible to the corporation.                                               

EFFECTIVE DATE                                                                  

     The 2004 Plan shall be  effective  immediately  on the date of (and subject
to) its approval by the Company's stockholders.  In the event that the Company's
stockholders  do not approve this  amendment and  restatement  of the Plan,  the
existing 2001 Plan shall remain in full force and effect in accordance  with its
terms.                                                                          

APPROVAL                                                                        

     Assuming a quorum is present at the  Meeting,  the  proposal to approve the
2004 Plan will be adopted upon the affirmative vote of the holders of a majority
of the shares of Common Stock present, in person or by proxy, at the Meeting.   

     THE BOARD UNANIMOUSLY  RECOMMENDS A VOTE "FOR" THE APPROVAL AND ADOPTION OF
PROPOSAL III.                                                                   

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 PROPOSAL IV

 APPROVAL OF THE AMENDMENT AND RESTATEMENT
 OF THE 1997 DIRECTORS' STOCK OPTION PLAN TO PROVIDE FOR AWARDS OF
SHARES OF RESTRICTED STOCK AND DEFERRAL OF DIRECTORS' FEES
 INTO DEFERRED UNITS

GENERAL                                                                         

     In March 2004,  the Board adopted,  subject to stockholder  approval at the
Meeting,  an amendment and a restatement of the Directors' Plan  principally (i)
to  institute  annual  awards of  restricted  units and to  permit  deferral  of
directors'  annual  retainer fees in the form of deferred  units.  In connection
with providing for the automatic  grant of restricted  units the Directors' Plan
will also be amended to reduce the number of stock options  granted  annually to
non-employee  directors  under the Plan from  10,000 to 5,000.  The  amended and
restated  Directors'  Plan  will be  known  as the  Amended  and  Restated  1997
Directors' Stock and Deferred Fee Plan (the "Amended Directors' Plan").         

     The Board  believes  that it is important to provide  awards of  restricted
units and the opportunity to defer fees into deferred units under the Directors'
Plan in order to advance the interests of the Company by affording  directors an
opportunity to acquire,  maintain and increase their ownership  interests in the
Company,  thereby encouraging continued  directorship service to the Company and
helping to achieve its strategic  objectives.  Presently,  the  Directors'  Plan
provides  solely for an annual grant of stock  options.  Stock options have long
been an integral and essential  part of  competitive  compensation  packages for
pharmaceutical  companies.  However,  anticipated changes in accounting policies
that would require the  expensing of stock  options are likely to  precipitate a
change  in  compensation  packages  in favor  of  alternative  forms  of  equity
interests.  The Board is proposing  the above  amendment in order to provide the
Company  with the  flexibility  needed to design  stock  incentive  compensation
awards that will be competitive with current and future  compensation trends and
to respond to anticipated changes in accounting policies. The Amended Directors'
Plan will be administered by the full Board.                                    

     Other than the changes to the Directors' Plan outlined above,  the terms of
the  Amended  Directors'  Plan  are  substantially  identical  to  the  existing
Directors' Plan. The following  summary of the Amended  Directors' Plan does not
purport to be  complete,  and is subject to and  qualified  in its  entirety  by
reference  to the text of the  Amended  Directors'  Plan  attached to this Proxy
Statement as Appendix D.                                                        

SUMMARY OF THE PLAN                                                             

     The Amended  Directors'  Plan  authorizes  the  granting of stock  options,
restricted  units and deferred units covering up to an aggregate  650,000 shares
of Common Stock. Options,  restricted units and deferred units under the Amended
Directors'  Plan may be granted  only to  directors  of the  Company who are not
employees  of  the  Company  or  any of its  subsidiaries  (each,  an  "Eligible
Director").  Options granted under the Amended Directors' Plan do not qualify as
incentive  stock  options  within the  meaning of Section  422 of the Code.  The
Amended  Directors'  Plan provides for the  automatic  grant of stock options to
purchase up to 5,000 shares of Common Stock and 2,500 shares of restricted units
to each Eligible Director on the date of such director's initial election to the
Board and on the  earlier  to occur of the  following:  (i) the date (if any) in
January of each year on which the first  meeting of the  Compensation  Committee

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occurs or (ii) the last  business  day of January of such fiscal year (the "Date
of  Grant").  The  restricted  units  grant  will be  credited  to the  Eligible
Director's  Stock  Account  (as  defined in the  Amended  Directors'  Plan).  In
addition,  each  Eligible  Director  may elect to defer up to 100% of his or her
annual retainer fees,  which are converted into deferred units based on the fair
market value (as defined in the Amended  Directors' Plan) of the Common Stock on
the date such fees are  payable.  The  deferred  units are then  credited to the
Eligible  Director's  Stock  Account.  The  restricted  units and deferred units
credited to an Eligible  Director's  Stock  Account are not issued or  otherwise
distributed as actual shares to the Eligible Director until he or she terminates
service with the Board.  Upon such  termination of services from the Board,  the
Company has 180 days to issue or otherwise distribute such shares.              

       The exercise price of any option granted under the Amended Directors'
Plan may not be less than 100% of the fair market value of the Common Stock on  
the Date of Grant. Any option granted under the Amended Directors' Plan will    
become exercisable in full on the first anniversary of the applicable Date of   
Grant so long as the Eligible Director has not been removed for "cause" as a    
member of the Board. An award of restricted units will vest as to 25% of the    
Common Stock subject to the award on the first anniversary date of the          
applicable Date of Grant, and as to an additional 25% on each succeeding        
anniversary date, so as to be 100% vested on the fourth anniversary thereof, so 
long as the Eligible Director has not been removed for "cause" as a member of   
the Board. The deferred units are not subject to any vesting requirements. To   
the extent that options granted under the Amended Directors' Plan become        
exercisable, such options will remain exercisable until the tenth anniversary of
the Date of Grant, regardless of whether the Eligible Director continues to     
serve as a member of the Board. The restricted units and deferred units credited
to an Eligible Director's Stock Account are considered unsecured obligations of 
the Company to deliver the actual shares of Common Stock when they become due   
following a termination of the Eligible Director's service.                     

     Pursuant  to its terms,  the  Amended  Directors'  Plan will  terminate  on
October 28, 2013, and no awards may be granted under the Amended Directors' Plan
after that date. The provisions of the Amended  Directors'  Plan will,  however,
continue to govern all awards previously granted until their exercise,  payment,
expiration or cancellation.                                                     

CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE AMENDED DIRECTORS' PLAN          

     The  following  is a brief  summary of the  Federal  income tax  aspects of
awards to be made under the  Amended  Directors'  Plan based upon the Code,  and
other statutes,  regulations and  interpretations  in effect on the date hereof.
The summary is not intended to be  exhaustive,  and does not  describe  state or
local tax consequences.                                                         

     STOCK OPTIONS.  No option granted under the Amended Directors' Plan will be
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
Amended 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 of the option.                                 

     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. 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. Such gain or loss will be treated as a capital gain or loss if
the shares are capital  assets and as a short-term or long-term  capital gain or
loss, depending upon the length of time that the participant held the shares.   

     For federal  income tax  purposes,  the Company is generally  entitled to a
deduction  in an amount  equal to the ordinary  compensation  recognized  by the
option holder.  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.                                                            

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     RESTRICTED  UNITS. A participant will normally not recognize taxable income
upon an award of restricted  units that is credited to his or her Stock Account,
and the  Company  will not be  entitled  to a  deduction  until the lapse of the
applicable  restrictions or deferral period.  Upon the lapse of the restrictions
or deferral period and the issuance of the actual shares (or the payment of cash
in lieu of actual  shares),  the  participant  will recognize  ordinary  taxable
income in an amount equal to the fair market value of the Common Stock  received
and the Company will be entitled to a deduction in the same amount.             

     DEFERRED FEES. If an Eligible Director makes a valid and timely election to
defer his or her annual retainer fees and have them credited to a Stock Account,
he or she will not recognize  income at the time of the  deferral.  The Eligible
Director will not recognize  income for federal  income tax purposes until he or
she actually receives cash or shares of Common Stock, at which time the director
will  recognize  ordinary  income  (and  the  Company  will  be  entitled  to  a
corresponding  deduction)  equal to the amount of the cash  distribution  or the
fair market value of the Common Stock distribution.                             

APPROVAL                                                                        

     Assuming a quorum is present at the  Meeting,  the  proposal to approve the
Amended Directors' Plan will be adopted upon the affirmative vote of the holders
of a majority of the shares of Common Stock present,  in person or by proxy,  at
the Meeting.                                                                    

     THE BOARD UNANIMOUSLY  RECOMMENDS A VOTE "FOR" THE APPROVAL AND ADOPTION OF
PROPOSAL IV.                                                                    

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PROPOSAL V

 APPROVAL AND ADOPTION
OF
THE COMPANY'S 2004 ANNUAL EXECUTIVE INCENTIVE PLAN

GENERAL                                                                         

     The Incentive  Plan provides for annual  incentive  payments to certain key
executives of the Company based upon the Company's and individual's performance.
As the Compensation  Committee Report on Executive Compensation  discusses,  the
Company's  compensation  programs  are  based  on a  strong  pay-for-performance
philosophy.  A central element of this philosophy has been to link a significant
portion of annual cash  compensation  to the attainment of the Company's  annual
strategic and financial  objectives.  The Incentive Plan is intended to continue
this direct linkage between Company performance and compensation.  The Board has
recommended that the Incentive Plan be approved by the  stockholders.  A copy of
the  Incentive  Plan is included in this Proxy  Statement  as Appendix E and the
following  description is subject, and qualified in its entirety by reference to
the Incentive Plan.                                                             

     Section  162(m)(4)(C) to the Code generally  disallows a federal income tax
deduction to any  publicly-held  corporation for compensation  paid in excess of
$1,000,000 in any taxable year to the chief executive officer or any of the four
other  most  highly   compensated   executive   officers  (i.e.,   the  "Covered
Employees"),  unless  the  compensation  in excess of  $1,000,000  qualifies  as
"performance-based" compensation. In prior years, incentives paid to the Covered
Employees  generally  have been  deductible  primarily  because  the sum of base
salary and annual bonus has been less than $1,000,000. However, depending on the
extent to which  performance  goals are achieved,  it is possible for the sum of
base salary and annual bonus to exceed this limit.  If this  happens,  the Board
believes it is  important  that annual  incentive  compensation  payments to the
Covered Employees be qualified as  "performance-based"  compensation in order to
retain the  corporate  tax  deductibility  of the  payments.  Thus, to allow the
Company to so qualify for such deduction, the Company is seeking approval of the
Incentive  Plan and the material terms of  performance  goals  applicable to the
Incentive Plan.                                                                 

     Under the  Incentive  Plan,  the Company will  contribute  2% of its annual
operating  income  each  year  into an  annual  incentive  pool.  If there is no
operating  income,  no  payments  may be made  under  the  Incentive  Plan.  The
Compensation  Committee will  designate the  percentage of the annual  incentive
pool each  Covered  Employee  will be  entitled to  receive,  provided,  that no
Covered Employee may receive more than 50% of the annual incentive pool.        

ADMINISTRATION                                                                  

     The Incentive  Plan will be  administered  by the  Compensation  Committee,
which is  composed  entirely  of  directors  who meet the  criteria  of "outside
director"  under Section 162(m) of the Code. The  Compensation  Committee  shall
select the  individuals  or class of  individuals of the Company who may receive
awards  under the  Incentive  Plan within the first ninety (90) days of the year
(or within the first 25% of the  performance  period if such period is less than
one year) and their respective  percentages of the incentive pool. At the end of
the year, the Compensation Committee will certify the level of attainment of the
Company's  performance pursuant to the formula described above. The Compensation
Committee  retains the discretion to decrease the amount of the award determined
pursuant to the formula,  including to zero,  using  whatever  criteria it deems
appropriate  (including  financial  measures and  achievement  of strategic  and
individual  objectives).  The  Compensation  Committee's  discretion  may not be
exercised to increase the award  payable to any  participant  subject to Section
162(m) of the Code. In addition,  the exercise of the  Compensation  Committee's
discretion to reduce the award payable to any  participant  may not increase the
award payable to any other                                                      

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participant  subject  to  Section  162(m)  of the Code.  Approximately  five key
executives are eligible to receive awards under the Incentive Plan.             

     An  award  will be paid  for a plan  year  only  to a  participant  who was
actively  employed by the Company  (or on  approved  vacation or other  approved
leave of absence) throughout the plan year and who is employed by the Company on
the date the award is paid. To the extent  consistent with the  deductibility of
awards under  Section  162(m) of the Code and the  regulations  thereunder,  the
Compensation  Committee may, in its sole discretion grant an incentive award for
a plan year to a  participant  who is first  employed  or who is  promoted  to a
position  eligible to become a participant  under the Incentive  Plan during the
applicable  year, or whose  employment is terminated  during the year because of
the participant's  death,  disability,  retirement or termination by the Company
without "cause" (as determined by the Compensation  Committee in good faith). In
such cases of partial  active  employment,  a pro rata bonus may be paid for the
year.                                                                           

TERM AND AMENDMENT OF THE INCENTIVE PLAN                                        

     The Incentive Plan, if approved by the stockholders,  will be effective for
all fiscal years beginning with 2004 by action of the Board.  The Incentive Plan
may be amended or discontinued by the Board at any time.  However,  no amendment
may increase the total  payments  which may be made under the Incentive  Plan in
any fiscal year or the maximum  payment  which may be made to any  individual in
any fiscal  year above the award  limits  outlined  above and  specified  in the
Incentive Plan.                                                                 

FUTURE INCENTIVE PLAN AWARDS                                                    

     Since future awards under the Incentive  Plan will be based upon the future
performance of the Company and the Compensation  Committee's ability to exercise
negative  discretion,  actual  payments  cannot  be  determined  at  this  time.
Additionally,  the amounts that would have been received for the last  completed
fiscal  year if the  Incentive  Plan had been in  effect  cannot  be  determined
because the Compensation  Committee  retains the discretion to adjust the awards
determined pursuant to the formula downward.                                    

     The Board believes that the  continuation of annual  incentive awards based
upon Company  performance and the Compensation  Committee's  assessment of other
factors that allow it to adjust awards  downward,  and the  qualification of the
compensation paid to Covered Employees as "performance-based" compensation under
Section  162(m)  of the Code is in the best  interests  of the  Company  and its
stockholders.                                                                   

APPROVAL                                                                        

     Assuming a quorum is present at the  Meeting,  the  proposal to approve the
Incentive  Plan will be adopted  upon the  affirmative  vote of the holders of a
majority  of the shares of Common  Stock  present,  in person or by proxy at the
Meeting.                                                                        

     THE BOARD UNANIMOUSLY  RECOMMENDS A VOTE "FOR" THE APPROVAL AND ADOPTION OF
PROPOSAL V.                                                                     

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INDEPENDENT AUDITORS

     The  Company  retained  the  firm  of  Deloitte  &  Touche  LLP  to  act as
independent  auditors  for the Company for the fiscal year ending  December  31,
2003.                                                                           

     The Company first retained Deloitte & Touche LLP, effective May 1, 2002, to
act as independent  auditors for the Company for the fiscal year ending December
31, 2002. The Audit Committee considered, among other matters, Deloitte & Touche
LLP's  independence with respect to the services to be performed and its general
reputation for adherence to professional auditing standards.  Representatives of
Deloitte & Touche LLP (the Company's  independent  auditor for fiscal years 2002
and 2003) are expected to be present at the Meeting,  to have the opportunity to
make a  statement,  if  they  so  desire,  and to be  available  to  respond  to
appropriate questions.                                                          

     Arthur  Andersen LLP, which had been retained as the Company's  independent
auditors  prior to fiscal year 2002 and for the fiscal  quarter  ended March 31,
2002, was dismissed,  upon the recommendation of the Audit Committee,  on May 1,
2002. Representatives of Arthur Andersen LLP will not be present at the Meeting.

     For the fiscal years ended December 31, 2000 and December 31, 2001,  Arthur
Andersen  LLP's  reports on the  financial  statements  of the  Company  did not
contain an adverse  opinion or  disclaimer  of opinion and were not qualified or
modified as to uncertainty,  audit scope or accounting principles. In connection
with the audits of the Company's financial statements for the fiscal years ended
December  31, 2000 and  December  31,  2001,  and its review  through the fiscal
quarter ended March 31, 2002, there were no  disagreements  with Arthur Andersen
LLP on any matters of accounting  principles or practices,  financial  statement
disclosure  or  audit  scope  or  procedures   that,  if  not  resolved  to  the
satisfaction  of Arthur  Andersen LLP, would have caused Arthur  Andersen LLP to
make reference to the matter in its reports.                                    

     During the fiscal years ended  December 31, 2000 and December 31, 2001 (and
through the fiscal  quarter ended March 31,  2002),  with respect to the Board's
decision to dismiss Arthur Andersen LLP, the Company did not consult  Deloitte &
Touche LLP regarding the  application  of accounting  principles for a specified
transaction,  completed or proposed,  or the type of audit opinion that might be
reflected in the Company's financial statements or on any similar matter.       

     Fees for  services  provided  by  Deloitte & Touche LLP to the  Company for
fiscal years 2003 and 2002 were separately  approved by the Audit Committee,  in
accordance with the Sarbanes-Oxley Act of 2002 (the  "Sarbanes-Oxley  Act"), and
were as follows:                                                                

                                        2002              2003
                                        ----              ----
                Audit Fees (1)          $332,497         $ 668,894
                Audit-Related Fees(2)     20,432            20,000
                Tax Fees (3)              85,000           544,300
                All Other Fees (4)             -            60,000
                                        --------         ---------

                Total Fees              $437,929        $1,293,194

----------                                                                      

(1)  Represents fees for professional services rendered by Deloitte & Touche LLP
     with respect to the audit of the Company's  annual  consolidated  financial
     statements and the review of the consolidated financial statements included
     in the Company's  quarterly reports on Form 10-Q as well as the issuance of
     comfort  letters and consents,  and its  assistance in reviewing  documents
     filed with the SEC. Also includes fees for professional  services  rendered
by Arthur Andersen LLP in the first quarter of fiscal year 2002.      

(2)  Represents fees for audits of an employee benefit plan.                    

(3)  Represents fees for professional services rendered by Deloitte & Touche LLP
for tax compliance, tax advice and tax planning.                      

(4)  Represents  fees for other  services  rendered  by Deloitte & Touche LLP in
connection  with financial due diligence matters.                     

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     The Audit Committee has adopted a policy that requires  advance approval of
all audit,  audit-related,  tax and other services  performed by the independent
auditors.  The  policy  provides  for  pre-approval  by the Audit  Committee  of
specifically  defined audit and non-audit services.  Unless the specific service
has been previously  pre-approved with respect to that year, the Audit Committee
must approve the permitted service before the independent  auditor is engaged to
perform  it. The Audit  Committee  has  delegated  to the  Chairman of the Audit
Committee  authority to approve  permitted  services  provided that the Chairman
reports any  decisions to the Audit  Committee at its next  regularly  scheduled
meeting.                                                                        

     The Audit Committee approved, in advance, all audit, audit-related, tax and
other services  provided by Deloitte & Touche LLP for a fee in fiscal years 2002
and  2003.  The Audit  Committee  will  continue  to  pre-approve  all audit and
non-audit  services  provided by the Company's  auditor in  compliance  with the
Sarbanes-Oxley Act.                                                             

     The Audit Committee  considered whether the provision of non-audit services
by Deloitte and Touche LLP was compatible with  maintaining its independence and
determined  that the nature and  substance  of the  non-audit  services  did not
impair  the status of  Deloitte  and  Touche  LLP as the  Company's  independent
auditors.                                                                       

 OTHER MATTERS

     On the date of this  Proxy  Statement,  the Board has no  knowledge  of any
business that will be presented for consideration at the Meeting,  other than as
described herein. 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  proxy card to vote the proxies that they receive in respect
of such matters in accordance with their judgment.                              

 SUBMISSION OF STOCKHOLDER PROPOSALS

     In  accordance  with the Company's  Bylaws and Rules  14a-4(c) and 14a-5(e)
promulgated under the Exchange Act, the Company hereby notifies its stockholders
that it had not received by March 26, 2004 notice of any other  proposed  matter
to be submitted for stockholder vote at the Meeting, and, therefore, any proxies
received  in  respect  of the  Meeting  will be voted in the  discretion  of the
Company's  management on any other  matter(s)  that may properly come before the
Meeting.                                                                        

     Any proposal that is intended to be presented by any stockholder for action
at the 2005 Annual  Meeting of  Stockholders  must be received in writing by the
Secretary of the Company,  at One Ram Ridge Road,  Spring Valley,  NY 10977, not
later than  January 11, 2005 in order for such  proposal  to be  considered  for
inclusion in the proxy  statement and form of proxy  relating to the 2005 Annual
Meeting of  Stockholders.  Advance  notice of  stockholder  nominations  for the
election of  directors  must be delivered  personally  to, or been mailed to and
received by, the Secretary of the Company at the address listed above,  not less
than 20 nor more than 60 days prior to the meeting  date;  provided  that in the
event that less than 30 days' prior notice or public  disclosure  of the date of
the meeting is given or made to the stockholders,  notice by the stockholder, to
be timely,  must be  received  not later than the close of business on the tenth
day following the day on which such notice of the date of the meeting was mailed
or such public disclosure was made.                                             

     The Company further notifies its stockholders  that if the Company does not
receive  written  notice by March 29, 2005 of a proposed  matter to be submitted
for  stockholders'  vote at the 2005  Annual  Meeting of  Stockholders,  proxies
received by members of the Company's  management  for such meeting may be voted,

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at the  discretion of such  management  members,  on any matter(s) that properly
come before such meeting,  without any discussion of such proposed matter in the
proxy statement to be distributed in respect of such Meeting.                   

                                    By Order of the Board of Directors

                Thomas Haughey
           SECRETARY

Dated:  April 13, 2004                                                          

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PHARMACEUTICAL RESOURCES, INC.

 PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 26, 2004

 THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

     The  undersigned   stockholder(s)  of  PHARMACEUTICAL  RESOURCES,  INC.,  a
Delaware corporation (the "Company"),  hereby constitute(s) and appoint(s) Scott
L. Tarriff and Thomas Haughey, and each of them, 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 2004 Annual Meeting of
Stockholders  of the  Company  (the  "Meeting")  to be  held at the  Park  Ridge
Marriott, 300 Brae Blvd., Park Ridge, New Jersey, on May 26, 2004, at 10:00 A.M.
(local time), and any adjournment(s)  thereof, all of the shares of common stock
of the Company that the undersigned would be entitled to vote if then personally
present at such Meeting in the manner specified herein and on any other business
as may properly come before the Meeting.                                        

     THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE  INSTRUCTIONS  GIVEN ON THE
REVERSE SIDE. IF NO INSTRUCTIONS  ARE GIVEN,  THIS PROXY WILL BE VOTED FOR ITEMS
1, 2, 3, 4 AND 5 AND, IN THE PROXIES' DISCRETION,  UPON ANY OTHER MATTER(S) THAT
MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENT(S) THEREOF.            

(Continued and to be signed and dated on the reverse side.)                     

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1.   ELECTION OF CLASS II DIRECTORS                                             

FOR ALL NOMINEES  [ ]     WITHHOLD AUTHORITY  [ ]     EXCEPTIONS*  [ ]
listed below              to vote for ALL                             
nominees listed   
below             

Nominees:  Class II:    Peter W. Williams    Mark Auerbach     John D. Abernathy

*(Instruction: To withhold authority to vote for any individual nominee(s), mark
the  "Exceptions"  box above and write  that  nominee  name(s) on the blank line
below.)                                                                         

EXCEPTIONS                                                                      
           ---------------------------------------------------------------------

2.   Proposal to amend the Company's  Certificate of Incorporation to change the
     Company's name from "Pharmaceutical Resources, Inc." to "Par Pharmaceutical
Companies, Inc."                                                      

FOR  [ ]                    AGAINST  [ ]                 ABSTAIN  [ ] 

3.   Proposal to approve and adopt the Company's 2004 Performance Equity Plan.  

FOR  [ ]                    AGAINST  [ ]                 ABSTAIN  [ ] 

4.   Proposal  to  approve  and  adopt  the  amendment  and  restatement  of the
Company's 1997 Directors' Stock Option Plan.                          

FOR  [ ]                    AGAINST  [ ]                 ABSTAIN  [ ] 

5.   Proposal to approve and adopt the Company's 2004 Annual Executive Incentive
Plan.                                                                 

FOR  [ ]                    AGAINST  [ ]                 ABSTAIN  [ ] 

6.   In their  discretion,  the proxies are  authorized  to vote upon such other
     business as may  properly  come  before the meeting and any  adjournment(s)
     thereof and as set forth in Rule 14a-4(c) of the Securities Exchange Act of
1934, as amended.                                                     

                                      PLEASE MARK, SIGN, DATE AND RETURN THE
                                      PROXY CARD PROMPTLY USING THE ENCLOSED
                         POSTAGE PREPAID ENVELOPE.

                                        Dated                             , 2004
                                        ----------------------------

                                        ----------------------------------------
                                       Signature

                                        ----------------------------------------
                                       Signature if held jointly

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 PRESIDENT  OR OTHER  AUTHORIZED  OFFICER.  IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.              

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                                                                      APPENDIX A

PHARMACEUTICAL RESOURCES, INC.

 AUDIT COMMITTEE CHARTER

APRIL 2004                                                                      
--------------------------------------------------------------------------------

PURPOSE                                                                         

The purpose of the Audit Committee is to assist the Board of Directors (the     
"Board") in its oversight and evaluation of:                                    

o  the integrity of the Company's financial statements;             

o  the Company's compliance with legal and regulatory requirements; 

o  the qualifications, independence and performance of the Company's
independent auditors; and                                     

o  the performance of the Company's internal audit function.        

In addition, the Audit Committee is charged with preparing an audit committee   
report as required by the Securities and Exchange Commission (the "SEC") to be  
included in the Company's annual proxy statement.                               

While certain duties and responsibilities of the Audit Committee are more       
specifically set forth below, the general function of the Audit Committee is    
oversight. Management of the Company is responsible for the preparation,        
presentation and integrity of the Company's financial statements. In addition,  
management is responsible for maintaining appropriate accounting and financial  
reporting principles and policies and internal controls and procedures designed 
to assure compliance with accounting standards and applicable laws and          
regulations.                                                                    

Each member of the Audit Committee may rely, to the extent reasonable, on the   
information, opinions, reports and statements of the Company's management,      
independent auditors and other advisors.                                        

The independent auditors for the Company are ultimately accountable to the Board
and the Audit Committee. The independent auditors shall submit to the Audit     
Committee and the Company annually a formal written statement delineating all   
relationships between the independent auditors and the Company ("Statement as to
Independence"), addressing at least the matters set forth in Independence       
Standard No. 1 adopted by the Independence Standards Board.                     

ORGANIZATION                                                                    

The Audit Committee shall consist of at least three directors, all of whom shall
have no material relationship to the Company and shall otherwise satisfy the    
applicable membership and independence requirements under Section 303A of the   
Listed Company Rules of the New York Stock Exchange, Inc. ("NYSE") and          

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applicable law, including but not limited to Rule 10A-3 promulgated under the   
Securities Exchange Act of 1934 and related SEC guidance. All members of the    
Committee shall be financially literate in the business judgment of the Board,  
and at least one member shall have, in the business judgment of the Board,      
accounting or financial management expertise.                                   

APPOINTMENT AND REMOVAL                                                         

The members of the Audit Committee shall be appointed at least annually by the  
Board on the recommendation of the Nominating-Corporate Governance Committee of 
the Board. In each case, on the recommendation of the Nominating-Corporate      
Governance Committee, the Board may from time to time remove members of the     
Audit Committee and fill any resulting vacancy.                                 

MEETINGS                                                                        

The Audit Committee shall hold at least four meetings per year and such         
additional meetings as the Audit Committee or its Chairman shall determine.     

In addition, the Audit Committee periodically should meet separately with       
representatives of the Company's management, the director of the Company's      
internal audit department (or other person, persons or outside firm responsible 
for the Company's internal audit function) and the Company's independent        
auditors to review and discuss the annual and quarterly reporting process and   
such other appropriate matters and to discuss any matters that the Audit        
Committee or any of those persons or firms believes should be discussed         
privately.                                                                      

The Audit Committee may request any officer or employee of the Company or the   
Company's outside counsel or independent auditors to attend a meeting of the    
Audit Committee or to meet with any members of, or consultants to, the Audit    
Committee.                                                                      

DUTIES AND RESPONSIBILITIES                                                     

The Audit Committee shall have the following duties and responsibilities:       

INDEPENDENT AUDITOR. The Audit Committee shall be directly responsible for the  
appointment, compensation, retention and oversight of the work of any registered
public accounting firm engaged by the Company for the purpose of preparing or   
issuing an audit report or performing other audit review or attest services for 
the Company, including resolution of disagreements between the Company's        
management and the auditor regarding financial reporting. Each such accounting  
firm must report directly to the Audit Committee. In this oversight role, the   
Audit Committee shall:                                                          

o  pre-approve all audit engagement fees and terms and non-audit    
engagements by the Company's independent auditors;            

 o  ensure that the Company's independent auditors prepare and deliver
         annually the Statement as to Independence (it being understood that the
        independent auditors are responsible for the accuracy and completeness
of this Statement);                                           

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    o  actively engage the Company's independent auditors in a dialogue with
      respect to any relationships or services disclosed in this Statement
      that may impact the objectivity and independence of the auditors and
take appropriate action (or recommend that the full Board take
      appropriate action) to satisfy itself of the auditors' independence;

  o  at least annually, obtain, review and report to the full Board with
       respect to a report by the Company's independent auditors describing:

       o  a summary of the internal quality control procedures
            maintained by the outside auditing firm serving as the
Company's independent auditor;            

         o  any material issues raised by the most recent internal
           quality-control review or peer review of such outside
          auditing firm, or by any inquiry or investigation by
          governmental or professional authorities, within the
               preceding year, respecting one or more independent audits
              carried out by such outside auditing firm, and any steps
taken to deal with any such issues; and   

               o  all relationships between such outside auditing firm and the
     Company (to assess the auditor's independence).

    o  maintain a clear understanding with management and the internal audit
      department (or other person, persons or outside firm responsible for
  the Company's internal audit function), on the one hand, and the
      Company's independent auditors, on the other, regarding the ultimate
accountability of the independent auditors;                   

   o  meet with the Company's independent auditors to discuss the planning
       and staffing of the annual audit and the results of their examination
      and their evaluation of internal controls and the overall quality of
financial reporting;                                          

o  evaluate, and discuss with the lead partner of the independent   
   auditors, the qualifications, performance and independence of the
      Company's independent auditors, and determine whether the summary of
      the auditors' quality controls appears adequate, in each case taking
into account the opinions of management;                      

 o  discuss the regular rotation of the independent auditors' lead and
     concurring audit partners serving on the Company's audit engagement
     team, as well as the rotation of any other persons on the Company's
audit engagement team who fall within the definition of "audit
    partner," as defined by applicable SEC regulation, in each case as
required by applicable law;                                   

    o  consider whether, in order to assure continuing auditor independence,
it is appropriate to adopt a policy of rotating the Company's 
independent auditing firm itself on a regular basis;          

    o  recommend to the Board policies for the Company's hiring of employees
    or former employees of the Company's independent auditors who were
       engaged on the Company's account, consistent with any restrictions on

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such employment imposed by applicable SEC regulation or other 
applicable law;                                               

     o  review the Company's policies with respect to risk assessment and risk
management; and                                               

      o  present its conclusions with respect to the independent auditors to the
full Board.                                                   

INTERNAL AUDIT FUNCTION. With respect to the Company's internal audit function, 
the Audit Committee shall:                                                      

o  review the appointment and/or replacement of the director of the 
     internal audit department (or other person, persons or outside firm
   responsible for the Company's internal audit function) or, at the
         discretion of the Board, select and contract with an outside accounting
  firm to serve as the Company's internal auditors and perform the
Company's internal audit function;                            

     o  advise the director of the internal audit department (or other person,
      persons or outside firm responsible for the Company's internal audit
        function) that he or she is expected to provide to the Audit Committee
         summaries of and, as appropriate, the significant reports to management
        prepared by the internal audit department (or other person, persons or
         outside firm responsible for the Company's internal audit function) and
management's responses thereto and review such reports; and   

      o  discuss with the Company's independent auditors responsibilities of the
     internal audit department (or such other person, persons or outside
         firm responsible for the Company's internal audit function), the budget
        and staffing relative to the Company's internal audit function and any
    recommended changes in the planned scope of the Company's internal
audit.                                                        

FINANCIAL AND DISCLOSURE MATTERS. As a general matter, while the fundamental    
responsibility for the Company's financial statements and disclosures rests with
management and the Company's independent auditors, the Audit Committee must     
review:                                                                         

   o  major issues regarding accounting principles and financial statement
   presentations, including any significant changes in the Company's
selection or application of accounting principles;            

     o  any major issues as to the adequacy of the Company's internal controls
       and any special audit steps adopted in light of control deficiencies;

o  analyses prepared by management and/or the Company's independent 
   auditors setting forth significant financial reporting issues and
    judgments made in connection with the preparation of the Company's
        financial statements, including analyses of the effects of alternative
GAAP methods on the financial statements;                     

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o  the effect of regulatory and accounting initiatives, as well as  
  off-balance sheet structures, on the financial statements of the
Company;                                                      

      o  the type and presentation of information to be included in the earnings
press releases of the Company; and                            

   o  any financial information and earnings guidance provided to analysts
and rating agencies.                                          

The Audit Committee shall meet with the Company's independent auditors, with and
(where deemed necessary) without representatives of management and the internal 
audit department (or other person, persons or outside firm responsible for the  
Company's internal audit function) present, to:                                 

o  discuss the scope of the annual audit;                           

o  review with the independent auditor any problems or difficulties 
encountered by the auditor in the course of the audit work and
management's response, including with respect to:             

             o  any restrictions on the scope of the independent auditor's
    activities or access to requested information;

 o  any significant disagreements with management;

                o  any accounting adjustments that were noted or proposed by the
auditor but were "passed"; and            

           o  any "management" or "internal controls" letter issued or
proposed to be issued.                    

   o  review and discuss the Company's annual audited financial statements
       and the Company's disclosures in Management's Discussion and Analysis
of Financial Condition and Results of Operations ("MD and A");

    o  review and discuss the Company's quarterly financial statements prior
to the filing of its Form 10-Q, including the results of the  
         independent auditors' review of the quarterly financial statements, and
the Company's disclosures in MD and A;                        

     o  review any disclosure relating to non-audit services performed for the
       Company by the Company's independent auditors required to be included
in the Company's periodic reports;                            

 o  review and discuss any reports or communications (and management's
      and/or the internal audit department's responses, or the response of
         any other person, persons or outside firm responsible for the Company's
       internal audit function, thereto) submitted to the Audit Committee by
         the Company's independent auditors required by or referred to in SAS 61
         (as codified by AU Section 380) as the same may be modified or amended;

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     o  discuss any other significant matters arising from any audit or report
    or communication, whether raised by management, the internal audit
      department (or other person, persons or outside firm responsible for
     the Company's internal audit function) or the Company's independent
auditors, relating to the Company's financial statements;     

 o  determine whether any accounting restatement results from material
non-compliance with SEC financial reporting requirements;     

  o  discuss significant changes to the Company's accounting principles,
       policies, controls, procedures and practices proposed or contemplated
         by the Company's independent auditors, the internal audit department or
management; and                                               

   o  inquire about significant risks and exposures, if any, and the steps
taken to monitor and minimize such risks;                     

    o  review the form of opinion the Company's independent auditors propose
to render to the Board and the Company's stockholders; and    

  o  review the form of attestation report on management's assessment of
     internal control over financial reporting to the extent required by
  applicable SEC regulation to be included in the Company's annual
report.                                                       

In addition, the Audit Committee shall discuss with the Company's management    
including, as appropriate, the director of its internal audit department (or    
such other person, persons or outside firm responsible for the Company's        
internal audit function):                                                       

    o  the results of management's quarterly evaluation of the effectiveness
    of the Company's disclosure controls and procedures, including any
        weaknesses in such controls and procedures identified by the Company's
         management and proposed responses by management to any such weaknesses,
 and management's disclosure regarding the effectiveness of such
  controls and procedures to the extent required by applicable SEC
         regulation to be included in the Company's quarterly or annual reports;

    o  the results of management's annual evaluation of the effectiveness of
         the Company's internal controls over financial reporting, including any
        weaknesses in such controls identified by the Company's management and
proposed responses by management to any such weaknesses;      

   o  the form and content of management's report on internal control over
 financial reporting and any other disclosure regarding internal
    controls to the extent required by applicable SEC regulation to be
included in the Company's annual report; and                  

o  the results of management's quarterly evaluation of the Company's
     internal controls over financial reporting, including the extent to
    which any such changes have materially affected, or are reasonably
  likely to materially effect, the Company's internal control over
financial reporting, and any related disclosure.              

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Finally, the Audit Committee also shall discuss with the Company's counsel any  
significant legal matters that may have a material effect on the financial      
statements, the Company's compliance policies, including material notices to or 
inquiries received from governmental agencies, and any other significant legal  
matters the Committee or counsel deems relevant.                                

The Audit Committee shall recommend to the Board whether the audited financial  
statements should be included in the Company's Form 10-K.                       

COMPLIANCE OVERSIGHT. In addition to the foregoing responsibilities, to help    
ensure the Company's compliance with applicable SEC and other rules and         
regulations, the Audit Committee shall:                                         

      o  obtain from the Company's independent auditors assurance that the audit
         was conducted in a manner consistent with Section 10A of the Securities
Exchange Act of 1934, as amended;                             

      o  obtain reports from management, the Company's senior auditing executive
and the Company's independent auditor that the Company and its
 affiliated entities are in conformity with the applicable legal
    requirements of the Company's Code of Business Conduct and Ethics;

     o  review any reports and disclosures from management, the internal audit
      department and internal auditors of any insider and affiliated party
transactions; and                                             

    o  generally advise the Board with respect to the Company's policies and
      procedures regarding compliance with applicable laws and regulations
and with the Company's Code of Business Conduct and Ethics.   

COMPLAINTS. In accordance with Rule 10A-3 of the Exchange Act, the Audit        
Committee shall establish and maintain procedures for:                          

 o  the receipt, retention and treatment of complaints received by the
      Company regarding accounting, internal controls or auditing matters;
and                                                           

    o  the confidential, anonymous submission by employees of the Company of
 concerns regarding questionable accounting or auditing matters.

INVESTIGATIONS. The Audit Committee shall have the authority, in its discretion,
to conduct any investigation appropriate to fulfilling its responsibilities,    
including with respect to any matter brought to its attention with respect to   
compliance with the Company's Code of Business Conduct and Ethics or Code of    
Ethics for senior financial officers, through the complaint procedures described
above.                                                                          

AUDIT COMMITTEE CHARTER. The Audit Committee shall review and reassess the      
adequacy of this charter annually and recommend any proposed changes to the     
Board for approval. The charter will be made available on the Company's website 
at www.parpharm.com.                                                            

SELF-EVALUATION. The Audit Committee shall conduct an annual self-performance   
evaluation.                                                                     

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AUTHORITY TO ENGAGE OUTSIDE ADVISORS. The Audit Committee shall have the        
authority to engage independent counsel and other advisors, as it deems         
necessary to carry out its duties.                                              

OTHER DUTIES. The Audit Committee also shall perform such additional duties and 
have such additional responsibilities and functions as the Board from time to   
time may determine.                                                             

FUNDING                                                                         

The Company shall provide for appropriate funding, as determined by the Audit   
Committee, in its capacity as a committee of the Board, for payment of:         

    o  compensation to any registered public accounting firm engaged for the
     purpose of preparing or issuing an audit report or performing other
audit, review or attest services for the Company;             

o  compensation to any outside firm engaged to perform the Company's
internal audit function;                                      

     o  compensation of any advisors employed by the Audit Committee to assist
the Audit Committee in carrying out its duties; and           

o  ordinary administrative expenses of the Audit Committee that are 
necessary or appropriate in carrying out its duties.          

REPORTS OF THE COMMITTEE                                                        

At each regular meeting of the Board, the Audit Committee shall report the      
substance of all actions taken by the Audit Committee since the date of its last
report to the Board. Each report shall be filed with the minutes of the Board to
which it is presented, as a part of the corporate records.                      

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                                                                      APPENDIX B

CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF INCORPORATION

OF

PHARMACEUTICAL RESOURCES, INC.

It is hereby certified that:                              

           1. The name of the corporation (hereinafter called the "Corporation")
is PHARMACEUTICAL RESOURCES, INC.                                               

           2. The Certificate of Incorporation of the Corporation was filed with
the Secretary of State of the State of Delaware on May 9, 2003.                 

           3. The  Certificate  of  Incorporation  of the  Corporation is hereby
amended by striking out Article FIRST in its entirety and  substituting  in lieu
thereof the following:                                                          

           "FIRST: The name of the Corporation is Par Pharmaceutical  Companies,
Inc."                                                                           

           4.  The  amendment  of  the  Certificate  of   Incorporation  of  the
Corporation  herein  certified was duly adopted,  pursuant to the  provisions of
Sections 228 and 242 of the General Corporation Law of the State of Delaware.   

Signed on May   , 2004                                                          

                                        ----------------------------------------
     Name:

      Title:

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                                                                      APPENDIX C

PHARMACEUTICAL RESOURCES, INC.

2004 PERFORMANCE EQUITY PLAN

EFFECTIVE MAY 26, 2004

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Pharmaceutical Resources, Inc.
2004 Performance Equity Plan

ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION                                 

     1.1 ESTABLISHMENT.  Pharmaceutical Resources,  Inc., a Delaware corporation
(the "Company"),  establishes an incentive  compensation plan to be known as the
2004 Performance Equity Plan (the "Plan"), as set forth in this document.       

     The  Plan  permits  the  grant of  Cash-Based  Awards,  Nonqualified  Stock
Options,  Incentive Stock Options, Stock Appreciation Rights,  Restricted Stock,
Restricted  Stock  Units,  Performance  Shares,  Performance  Units,  and  Other
Stock-Based Awards.                                                             

     The Plan shall become  effective upon its approval by the  stockholders  of
the Company  (the  "Effective  Date") and shall  remain in effect as provided in
Section 1.3 hereof.                                                             

     1.2  PURPOSE OF THE PLAN.  The purpose of the Plan is to enable the Company
to offer  Awards  to  Employees  and  Third  Party  Service  Providers,  thereby
enhancing the Company's ability to attract,  retain and reward such individuals,
and to increase the  mutuality of interests  between those  individuals  and the
stockholders of the Company.                                                    

     1.3 DURATION OF THE PLAN. Unless sooner terminated as provided herein,  the
Plan  shall  terminate  ten years  from the  Effective  Date.  After the Plan is
terminated,  no Awards may be granted but Awards previously granted shall remain
outstanding  in accordance  with their  applicable  terms and conditions and the
Plan's terms and conditions.  Notwithstanding the foregoing,  no Incentive Stock
Options may be granted  more than ten years after the earlier of (a) adoption of
the Plan by the Board, and (b) the Effective Date.                              

ARTICLE 2. DEFINITIONS                                                          

     Whenever used in the Plan, the following  terms shall have the meanings set
forth below,  and when the meaning is intended,  the initial  letter of the word
shall be capitalized.                                                           

     2.1    "AFFILIATE"  shall have the  meaning  ascribed  to such term in Rule
       12b-2 of the General Rules and Regulations of the Exchange Act.

     2.2    "ANNUAL  AWARD LIMIT" or "ANNUAL  AWARD LIMITS" have the meaning set
forth in Section 3.3.                                   

     2.3    "AWARD" means, individually or collectively, a grant under this Plan
            of Cash-Based Awards,  Nonqualified  Stock Options,  Incentive Stock
            Options, SARs, Restricted Stock, Restricted Stock Units, Performance
            Shares, Performance Units, or Other Stock-Based Awards, in each case
subject to the terms of this Plan.                      

     2.4    "AWARD  AGREEMENT" means either (i) a written agreement entered into
            by the  Company  and a  Participant  setting  forth  the  terms  and
            provisions applicable to an Award granted under this Plan, or (ii) a

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            written  statement issued by the Company to a Participant describing
the terms and provisions of such Award.                 

     2.5    "BENEFICIAL OWNER" or "BENEFICIAL  OWNERSHIP" shall have the meaning
            ascribed  to such  term in  Rule  13d-3  of the  General  Rules  and
Regulations under the Exchange Act.                     

     2.6    "BOARD" or "BOARD OF DIRECTORS"  means the Board of Directors of the
Company.                                                

     2.7    "CASH-BASED  AWARD"  means  an Award  granted  to a  Participant  as
described in Article 10.                                

     2.8    "CHANGE  OF  CONTROL"  means  any of the  following  events,  unless
otherwise defined in an Award Agreement:                

            (a)  Any individual, firm, corporation or other entity, or any group
                 (as defined in Section  13(d)(3) of the Exchange  Act) becomes,
                 directly or indirectly, the beneficial owner (as defined in the
                 General Rules and  Regulations  of the  Securities and Exchange
                 Commission  with  respect  to  Sections  13(d) and 13(g) of the
                 Exchange  Act) of more than  twenty  percent  (20%) of the then
                 outstanding  Shares  entitled to vote generally in the election
of Directors of the Company;                  

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

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

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

     2.9    "CODE" means the U.S. Internal Revenue Code of 1986, as amended from
time to time.                                           

     2.10   "COMMITTEE"  means the  compensation  committee of the Board, or any
            other committee designated by the Board to administer this Plan. The
            members of the Committee shall be appointed from time to time by and
shall serve at the discretion of the Board.             

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     2.11   "COMPANY"   means   Pharmaceutical   Resources,   Inc.,  a  Delaware
            corporation,  and any  successor  thereto as  provided in Article 19
herein.                                                 

     2.12   "COVERED EMPLOYEE" means a Participant who is a "covered  employee,"
            as defined in Code Section  162(m) and the  regulations  promulgated
under Code Section 162(m), or any successor statute.    

     2.13   "DIRECTOR"  means  any  individual  who is a member  of the Board of
Directors of the Company.                               

2.14   "EFFECTIVE DATE" has the meaning set forth in Section 1.1.     

     2.15   "EMPLOYEE" means any employee of the Company, its Affiliates, and/or
Subsidiaries.                                           

     2.16   "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.        

     2.17   "FAIR  MARKET  VALUE"  or "FMV"  means a price  that is based on the
            opening,  closing, actual, high, low, or average selling prices of a
            Share  reported  on the New York Stock  Exchange  ("NYSE")  or other
            established  stock exchange (or  exchanges) on the applicable  date,
            the preceding  trading day, the next  succeeding  trading day, or an
            average of trading  days,  as  determined  by the  Committee  in its
            discretion. Unless the Committee determines otherwise, if the Shares
            are traded over the counter at the time a determination  of its Fair
            Market Value is required to be made hereunder, its Fair Market Value
            shall be deemed to be equal to the average between the reported high
            and low or  closing  bid and  asked  prices  of a Share  on the most
            recent  date on which  Shares  were  publicly  traded.  In the event
            Shares are not publicly tracked at the time a determination of their
            value is required to be made hereunder,  the  determination of their
            Fair Market  Value shall be made by the  Committee in such manner as
            it deems  appropriate.  Such definition(s) of FMV shall be specified
            in each Award  Agreement and may differ  depending on whether FMV is
            in reference to the grant, exercise, vesting,  settlement, or payout
of an Award.                                            

     2.18   "FULL VALUE  AWARD" means an Award other than in the form of an ISO,
     NQSO, or SAR, and which is settled by the issuance of Shares.

     2.19   "FREESTANDING SAR" means an SAR that is granted independently of any
Options, as described in Article 7.                     

     2.20   "GRANT PRICE" means the price  established at the time of grant of a
            SAR  pursuant to Article 7, used to determine  whether  there is any
payment due upon exercise of the SAR.                   

     2.21   "INCENTIVE STOCK OPTION" or "ISO" means an Option to purchase Shares
            granted  under Article 6 to an Employee and that is designated as an
            Incentive Stock Option and that is intended to meet the requirements
of Code Section 422, or any successor provision.        

     2.22   "INSIDER"  shall mean an individual who is, on the relevant date, an
            officer,  Director,  or more than ten percent (10%) Beneficial Owner
            of  any class  of the Company's equity securities that is registered

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            pursuant to Section 12 of the  Exchange  Act, as  determined  by the
Board in accordance with Section 16 of the Exchange Act.

     2.23   "NONQUALIFIED  STOCK  OPTION" or "NQSO"  means an Option that is not
            intended  to meet the  requirements  of Code  Section  422,  or that
otherwise does not meet such requirements.              

     2.24   "OPTION"  means an Incentive  Stock Option or a  Nonqualified  Stock
Option, as described in Article 6.                      

     2.25   "OPTION  PRICE" means the price at which a Share may be purchased by
a Participant pursuant to an Option.                    

     2.26   "OTHER  STOCK-BASED  AWARD" means an equity-based or  equity-related
            Award not  otherwise  described  by the terms of this Plan,  granted
pursuant to Article 10.                                 

     2.27   "PARTICIPANT" means any eligible person as set forth in Article 5 to
whom an Award is granted.                               

     2.28   "PERFORMANCE-BASED  COMPENSATION"  means compensation under an Award
            that satisfies the requirements of Section  162(m)(4)(C) of the Code
    for deductibility of remuneration paid to Covered Employees.

     2.29   "PERFORMANCE  MEASURES" means measures as described in Article 11 on
            which the performance  goals are based and which are approved by the
            Company's  stockholders  pursuant  to this Plan in order to  qualify
Awards as Performance-Based Compensation.               

     2.30   "PERFORMANCE  PERIOD"  means  the  period of time  during  which the
            performance  goals must be met in order to  determine  the degree of
payout and/or vesting with respect to an Award.         

     2.31   "PERFORMANCE  SHARE"  means an Award  granted to a  Participant,  as
described in Article 9.                                 

     2.32   "PERFORMANCE  UNIT"  means an Award  granted  to a  Participant,  as
described in Article 9.                                 

     2.33   "PERIOD OF RESTRICTION"  means the period when  Restricted  Stock or
            Restricted  Stock  Units  are  subject  to  a  substantial  risk  of
            forfeiture  (based  on the  passage  of  time,  the  achievement  of
            performance  goals,  or upon  the  occurrence  of  other  events  as
            determined  by the  Committee,  in its  discretion),  as provided in
Article 8.                                              

     2.34   "PLAN" means the  Pharmaceutical  Resources,  Inc. 2004  Performance
Equity Plan, as it may be amended from time to time.    

2.35   "PLAN YEAR" means the calendar year.                           

2.36   "PRIOR PLAN" means the Company's 2001 Performance Equity Plan. 

     2.37   "RESTRICTED STOCK" means an Award granted to a Participant  pursuant
to Article 8.                                           

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     2.38   "RESTRICTED  STOCK  UNIT"  means an Award  granted to a  Participant
            pursuant to Article 8, except no Shares are actually  awarded to the
Participant on the date of grant.                       

     2.39   "SHARE" means a share of common stock of the Company, $.01 par value
per share.                                              

     2.40   "STOCK APPRECIATION RIGHT" or "SAR" means an Award,  designated as a
SAR, pursuant to the terms of Article 7 herein.         

     2.41   "SUBSIDIARY" means any corporation or other entity, whether domestic
            or  foreign,  in which  the  Company  has or  obtains,  directly  or
            indirectly,  a proprietary interest of more than fifty percent (50%)
by reason of stock ownership or otherwise.              

     2.42   "TANDEM  SAR"  means an SAR that is  granted  in  connection  with a
            related Option  pursuant to Article 7 herein,  the exercise of which
            shall require  forfeiture of the right to purchase a Share under the
            related Option (and when a Share is purchased under the Option,  the
Tandem SAR shall similarly be canceled).                

     2.43   "THIRD PARTY SERVICE PROVIDER" means any consultant, agent, advisor,
            or  independent  contractor who renders  services to the Company,  a
            Subsidiary,  or an Affiliate that (a) are not in connection with the
            offer and sale of the  Company's  securities  in a  capital  raising
            transaction,  and  (b) do not  directly  or  indirectly  promote  or
maintain a market for the Company's securities.         

ARTICLE 3. ADMINISTRATION                                                       

     3.1 GENERAL. The Committee shall be responsible for administering the Plan,
subject to this Article 3 and the other  provisions  of the Plan.  The Committee
may employ attorneys,  consultants,  accountants, agents, and other persons, any
of whom may be an Employee, and the Committee, the Company, and its officers and
Directors shall be entitled to rely upon the advice,  opinions, or valuations of
any such persons.  All actions taken and all  interpretations and determinations
made by the  Committee  shall be final and binding  upon the  Participants,  the
Company, and all other interested persons.                                      

     3.2 AUTHORITY OF THE COMMITTEE. The Committee shall have full and exclusive
discretionary  power to  interpret  the terms and the intent of the Plan and any
Award  Agreement or other  agreement or document  ancillary to or in  connection
with the Plan,  to  determine  eligibility  for Awards and to adopt such  rules,
regulations,  forms,  instruments,  and guidelines for administering the Plan as
the Committee may deem necessary or proper.  Such authority  shall include,  but
not be limited to, selecting Award recipients,  establishing all Award terms and
conditions,  including the terms and conditions  set forth in Award  Agreements,
and, subject to Article 17, adopting modifications and amendments to the Plan or
any Award Agreement,  including  without  limitation,  any that are necessary to
comply  with the laws of the  countries  and  other  jurisdictions  in which the
Company,  its Affiliates,  and/or its  Subsidiaries  operate.  In addition,  the
Committee  shall have the authority to grant Awards as an alternative  to, or as
the form of payment for, grants or rights earned or due under other compensation
plans or arrangements of the Company.                                           

     3.3 DELEGATION. The Committee may delegate to one or more of its members or
to one or more officers of the Company,  and/or its  Subsidiaries and Affiliates
or to one or more agents or advisors such administrative  duties or powers as it
may deem  advisable,  and the  Committee or any person to whom it has  delegated
duties or powers as aforesaid  may employ one or more  persons to render  advice

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with respect to any  responsibility  the Committee or such person may have under
the Plan. The Committee  may, by  resolution,  authorize one or more officers of
the  Company  to do one or both of the  following  on the same  basis as can the
Committee: (a) designate Employees to be recipients of Awards; and (b) determine
the size of any such Awards;  provided,  however,  (i) the  Committee  shall not
delegate  such  responsibilities  to any such  officer for Awards  granted to an
Employee  that  is  considered  an  Insider  or a  Covered  Employee;  (ii)  the
resolution  providing such  authorization  sets forth the total number of Awards
such officer(s) may grant; and (iii) the officer(s) shall report periodically to
the Committee  regarding the nature and scope of the Awards granted  pursuant to
the authority delegated.                                                        

ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS                        

4.1 NUMBER OF SHARES AVAILABLE FOR AWARDS.                            

     (a)   Subject to adjustment as provided in Section 4.4 herein,  the maximum
           number of Shares  available  for issuance to  Participants  under the
Plan (the "Share Authorization") shall be:                

    (i)  One million two hundred thousand (1,200,000) Shares, plus

           (ii) (A) 583,200  Shares  not issued or subject to outstanding awards
                under the Company's  Prior Plan as of the Effective Date and (B)
                any Shares subject  to  the 3,718,773  outstanding  awards as of
                the  Effective  Date  under the Prior  Plan that on or after the
                Effective Date cease for any reason to be subject to such awards
                (other than by reason of exercise or settlement of the awards to
                the  extent  they are  exercised  for or  settled  in vested and
                nonforfeitable   Shares),   up  to  an   aggregate   maximum  of
4,301,973 Shares.                               

     (b)   Of the Shares reserved for issuance under Section 4.1(a) of the Plan,
           no more than 350,000  of the reserved  Shares  may be issued pursuant
to Full Value Awards.                                     

     (c)   Subject  to the limit set forth in  Section  4.1(a) on the  number of
           Shares  that may be issued  in the  aggregate  under  the  Plan,  the
           maximum  number of Shares  that may be  issued  pursuant  to ISOs and
NQSOs shall be:                                           

           (i)  5,501,973  Shares  that  may be issued pursuant to Awards in the
form of ISOs; and                               

           (ii) 5,501,973  Shares  that  may be issued pursuant to Awards in the
form of NQSOs.                                  

     (d)   Except with  respect to a maximum of five  percent (5%) of the Shares
           authorized in Section 4.1(a), any Full Value Awards which vest on the
           basis of the Participant's  continued employment with or provision of
           service to the Company  shall not  provide  for vesting  which is any
           more rapid than annual pro rata  vesting over a three (3) year period
           and  any  Full  Value  Awards  which  vest  upon  the  attainment  of
           performance goals shall provide for a performance  period of at least
twelve (12) months.                                       

     4.2 SHARE USAGE.  Shares  covered by an Award shall only be counted as used
to the extent  they are  actually  issued.  Any Shares  related to Awards  which
terminate by  expiration,  forfeiture,  cancellation,  or otherwise  without the

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issuance of such Shares, are settled in cash in lieu of Shares, or are exchanged
with the Committee's permission, prior to the issuance of Shares, for Awards not
involving Shares,  shall be available again for grant under the Plan.  Moreover,
if the Option Price of any Option granted under the Plan or the tax  withholding
requirements  with respect to any Award  granted under the Plan are satisfied by
tendering  Shares to the Company (by either actual delivery or by  attestation),
or if an SAR is exercised,  only the number of Shares issued,  net of the Shares
tendered,  if any,  will be deemed  delivered  for purposes of  determining  the
maximum  number of Shares  available  for  delivery  under the Plan.  The Shares
available for issuance under the Plan may be authorized  and unissued  Shares or
treasury Shares.                                                                

     4.3 ANNUAL AWARD LIMITS.  Unless and until the Committee determines that an
Award  to  a  Covered   Employee   shall  not  be   designed   to   qualify   as
Performance-Based  Compensation,  the  following  limits (each an "Annual  Award
Limit" and,  collectively,  "Annual Award Limits") shall apply to grants of such
Awards under the Plan:                                                          

           (a)  OPTIONS:  The  maximum  aggregate  number of Shares  subject  to
                Options  granted  in any one  Plan  Year to any one  Participant
shall be three hundred thousand (300,000).      

           (b)  SARS: The maximum number of Shares subject to Stock Appreciation
                Rights granted in any one Plan Year to any one Participant shall
be three hundred thousand (300,000).            

           (c)  RESTRICTED   STOCK  OR  RESTRICTED   STOCK  UNITS:  The  maximum
                aggregate  grant with respect to Awards of  Restricted  Stock or
                Restricted  Stock  Units  in  any  one  Plan  Year  to  any  one
    Participant shall be one hundred thousand (100,000).

           (d)  PERFORMANCE UNITS OR PERFORMANCE  SHARES:  The maximum aggregate
                Award  of  Performance  Units  or  Performance   Shares  that  a
                Participant  may  receive  in any one  Plan  Year  shall  be one
                hundred thousand  (100,000) Shares, or equal to the value of one
                hundred thousand  (100,000) Shares  determined as of the date of
vesting or payout, as applicable.               

           (e)  CASH-BASED  AWARDS:  The  maximum  aggregate  amount  awarded or
                credited   with  respect  to   Cash-Based   Awards  to  any  one
                Participant  in any one Plan  Year may not  exceed  one  million
($1,000,000) dollars.                           

           (f)  OTHER  STOCK-BASED  AWARDS.  The  maximum  aggregate  grant with
                respect to other Stock-Based  Awards pursuant to Section 10.2 in
                any one Plan Year to any one  Participant  shall be one  hundred
thousand (100,000).                             

     4.4 ADJUSTMENTS IN AUTHORIZED  SHARES.  In the event of any corporate event
or  transaction  (including,  but not  limited to, a change in the Shares of the
Company or the  capitalization of the Company) such as a merger,  consolidation,
reorganization,  recapitalization,  separation,  stock  dividend,  stock  split,
reverse  stock split,  split up,  spin-off,  or other  distribution  of stock or
property of the Company,  combination of Shares, exchange of Shares, dividend in
kind,  or other like change in capital  structure  or  distribution  (other than
normal cash dividends) to stockholders of the Company,  or any similar corporate
event or transaction, the Committee, in its sole discretion, in order to prevent

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dilution or enlargement of Participants' rights under the Plan, shall substitute
or adjust, as applicable, the number and kind of Shares that may be issued under
the Plan or under  particular  forms of  Awards,  the  number and kind of Shares
subject to  outstanding  Awards,  the Option Price or Grant Price  applicable to
outstanding  Awards,  the Annual Award  Limits,  and other value  determinations
applicable to outstanding Awards.                                               

     The  Committee,   in  its  sole  discretion,   may  also  make  appropriate
adjustments  in the terms of any Awards  under the Plan to reflect or related to
such  changes  or  distributions  and to modify any other  terms of  outstanding
Awards,  including  modifications of performance goals and changes in the length
of Performance  Periods.  The determination of the Committee as to the foregoing
adjustments,  if any, shall be conclusive and binding on Participants  under the
Plan.                                                                           

     Subject to the  provisions of Article 17,  without  affecting the number of
Shares reserved or available hereunder, the Committee may authorize the issuance
or  assumption  of  benefits  under  this Plan in  connection  with any  merger,
consolidation,  acquisition of property or stock,  or  reorganization  upon such
terms and conditions as it may deem appropriate,  subject to compliance with the
ISO rules under Section 422 of the Code, where applicable.                      

ARTICLE 5. ELIGIBILITY AND PARTICIPATION                                        

     5.1 ELIGIBILITY.  Individuals  eligible to participate in this Plan include
all Employees and Third Party Service Providers.                                

     5.2  ACTUAL  PARTICIPATION.  Subject  to the  provisions  of the Plan,  the
Committee may, from time to time, select from all eligible individuals, those to
whom Awards shall be granted and shall determine,  in its sole  discretion,  the
nature of, any and all terms permissible by law, and the amount of each Award.  

ARTICLE 6. STOCK OPTIONS                                                        

     6.1 GRANT OF  OPTIONS.  Subject  to the terms and  provisions  of the Plan,
Options may be granted to Participants in such number,  and upon such terms, and
at any time and from time to time as shall be  determined by the  Committee,  in
its  sole  discretion;  provided  that  ISOs  may be  granted  only to  eligible
Employees  of the  Company  or of  any  parent  or  subsidiary  corporation  (as
permitted by Section 422 of the Code and the regulations thereunder).           

     6.2 AWARD  AGREEMENT.  Each  Option  grant shall be  evidenced  by an Award
Agreement  that shall  specify the Option  Price,  the  maximum  duration of the
Option,  the number of Shares to which the Option pertains,  the conditions upon
which an Option shall become vested and  exercisable,  and such other provisions
as the Committee shall determine  which are not  inconsistent  with the terms of
the Plan. The Award  Agreement also shall specify whether the Option is intended
to be an ISO or a NQSO.                                                         

     6.3 OPTION  PRICE.  The Option Price for each grant of an Option under this
Plan shall be as determined by the Committee and shall be specified in the Award
Agreement. The Option Price shall be: (i) based on one hundred percent (100%) of
the FMV of the Shares on the date of grant,  (ii) set at a premium to the FMV of
the  Shares on the date of grant,  or (iii)  indexed to the FMV of the Shares on

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the  date  of  grant,  with  the  index  determined  by  the  Committee,  in its
discretion;  provided, however, the Option Price on the date of grant must be at
least equal to one hundred  percent  (100%) of the FMV of the Shares on the date
of grant.                                                                       

     6.4 DURATION OF OPTIONS.  Each Option granted to a Participant shall expire
at such time as the Committee  shall  determine at the time of grant;  provided,
however,  no Option shall be exercisable later than the tenth (10th) anniversary
date of its  grant.  Notwithstanding  the  foregoing,  for  Options  granted  to
Participants outside the United States, the Committee has the authority to grant
Options that have a term greater than ten (10) years.                           

     6.5  EXERCISE OF OPTIONS.  Options  granted  under this  Article 6 shall be
exercisable at such times and be subject to such  restrictions and conditions as
the Committee shall in each instance approve,  which terms and restrictions need
not be the same for each grant or for each Participant.                         

     6.6 PAYMENT. Options granted under this Article 6 shall be exercised by the
delivery of a notice of exercise  to the Company or an agent  designated  by the
Company in a form specified or accepted by the  Committee,  or by complying with
any  alternative  procedures  which may be authorized by the Committee,  setting
forth the number of Shares with respect to which the Option is to be  exercised,
accompanied by full payment for the Shares.                                     

     A condition  of the  issuance of the Shares as to which an Option  shall be
exercised  shall be the  payment of the Option  Price.  The Option  Price of any
Option  shall be  payable  to the  Company  in full  either:  (a) in cash or its
equivalent;  (b)  by  tendering  (either  by  actual  delivery  or  attestation)
previously  acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the Option Price (provided that except as otherwise determined
by the  Committee,  the  Shares  that are  tendered  must  have been held by the
Participant  for at least six (6) months  prior to their  tender to satisfy  the
Option Price or have been purchased on the open market); (c) by a combination of
(a) and (b); or (d) any other  method  approved or accepted by the  Committee in
its  sole  discretion,  including,  without  limitation,  if  the  Committee  so
determines, a cashless (broker-assisted) exercise.                              

     Subject to any governing rules or regulations, as soon as practicable after
receipt  of  written  notification  of  exercise  and  full  payment  (including
satisfaction  of any applicable tax  withholding),  the Company shall deliver to
the  Participant  evidence  of book  entry  Shares,  or upon  the  Participant's
request,  Share  certificates in an appropriate  amount based upon the number of
Shares purchased under the Option(s).                                           

     Unless otherwise determined by the Committee, all payments under all of the
methods indicated above shall be paid in United States dollars.                 

     6.7  RESTRICTIONS ON SHARE  TRANSFERABILITY.  The Committee may impose such
restrictions  on any  Shares  acquired  pursuant  to the  exercise  of an Option
granted  under  this  Article  6 as it may deem  advisable,  including,  without
limitation,  minimum holding period requirements,  restrictions under applicable
federal  securities laws, under the requirements of any stock exchange or market
upon which such Shares are then listed and/or  traded,  or under any blue sky or
state securities laws applicable to such Shares.                                

     6.8 TERMINATION OF EMPLOYMENT. Each Participant's Award Agreement shall set
forth the extent to which the  Participant  shall have the right to exercise the
Option  following  termination of the  Participant's  employment or provision of

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services to the Company,  its Affiliates,  and/or its Subsidiaries,  as the case
may be,  subject to the  limitations  set forth in Section 6.4. Such  provisions
shall be determined in the sole  discretion of the Committee,  shall be included
in the Award Agreement entered into with each  Participant,  need not be uniform
among  all  Options  issued   pursuant  to  this  Article  6,  and  may  reflect
distinctions based on the reasons for termination.                              

6.9 TRANSFERABILITY OF OPTIONS.                                       

           (a)  INCENTIVE  STOCK  OPTIONS.  No ISO granted under the Plan may be
                sold, transferred,  pledged, assigned, or otherwise alienated or
                hypothecated,  other than by will or by the laws of descent  and
                distribution.  Further,  all ISOs granted to a Participant under
                this Article 6 shall be  exercisable  during his or her lifetime
only by such Participant.                       

           (b)  NONQUALIFIED  STOCK OPTIONS.  Except as otherwise  provided in a
                Participant's  Award  Agreement or otherwise  determined  at any
                time by the Committee,  no NQSO granted under this Article 6 may
                be sold, transferred,  pledged, assigned, or otherwise alienated
                or  hypothecated,  other  than by will or by the laws of descent
                and  distribution;  provided  that the  Board or  Committee  may
                permit  further  transferability,  on a  general  or a  specific
                basis,  and  may  impose   conditions  and  limitations  on  any
                permitted transferability. Further, except as otherwise provided
                in a Participant's  Award  Agreement or otherwise  determined at
                any time by the  Committee,  or unless  the  Board or  Committee
                decides to permit further transferability,  all NQSOs granted to
                a Participant  under this Article 6 shall be exercisable  during
                his or her lifetime  only by such  Participant.  With respect to
                those NQSOs,  if any,  that are permitted to be  transferred  to
                another person, references in the Plan to exercise or payment of
                the Option Price by the Participant  shall be deemed to include,
                as  determined by the  Committee,  the  Participant's  permitted
transferee.                                     

     6.10  NOTIFICATION OF DISQUALIFYING  DISPOSITION.  If any Participant shall
make any  disposition of Shares issued  pursuant to the exercise of an ISO under
the  circumstances  described in Section 421(b) of the Code (relating to certain
disqualifying  dispositions),  such Participant shall notify the Company of such
disposition within ten (10) days thereof.                                       

     6.11.  SUBSTITUTING  SARS.  Only in the event the Company is not accounting
for equity  compensation  under APB Opinion No. 25, the Committee shall have the
ability to substitute,  without  Participant's  consent, SARs paid only in Stock
(or SARs paid in Stock or cash at the  Committee's  discretion)  for outstanding
Options;  provided,  the terms of the substituted Stock SARs are the same as the
terms for the Options and the aggregate difference between the Fair Market Value
of the  underlying  Shares and the Grant Price of the SARs is  equivalent to the
aggregate  difference between the Fair Market Value of the underlying Shares and
the Option Price of the Options.  If, in the opinion of the Company's  auditors,
this provision creates adverse accounting consequences for the Company, it shall
be considered null and void.                                                    

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ARTICLE 7. STOCK APPRECIATION RIGHTS                                            

     7.1 GRANT OF SARS.  Subject to the terms and  conditions of the Plan,  SARs
may be  granted  to  Participants  at any time and from time to time as shall be
determined by the Committee.  The Committee may grant  Freestanding SARs, Tandem
SARs, or any combination of these forms of SARs.                                

     Subject to the terms and conditions of the Plan,  the Committee  shall have
complete   discretion  in  determining  the  number  of  SARs  granted  to  each
Participant and,  consistent with the provisions of the Plan, in determining the
terms and conditions pertaining to such SARs.                                   

     The Grant Price for each grant of a Freestanding SAR shall be determined by
the Committee and shall be specified in the Award Agreement. Except with respect
to Stock SARs substituted for Options in accordance with Section 6.11, the Grant
Price shall be: (i) based on one hundred percent (100%) of the FMV of the Shares
on the date of grant, (ii) set at a premium to the FMV of the Shares on the date
of grant,  or (iii) indexed to the FMV of the Shares on the date of grant,  with
the index determined by the Committee, in its discretion; provided, however, the
Grant Price on the date of grant must be at least  equal to one hundred  percent
(100%) of the FMV of the Shares on the date of grant.  The Grant Price of Tandem
SARs shall be equal to the Option Price of the related Option.                  

     7.2 SAR AGREEMENT.  Each SAR Award shall be evidenced by an Award Agreement
that  shall  specify  the  Grant  Price,  the  term of the SAR,  and such  other
provisions as the Committee shall determine.                                    

     7.3  TERM OF SAR.  The  term of an SAR  granted  under  the  Plan  shall be
determined by the Committee,  in its sole  discretion,  and except as determined
otherwise by the  Committee  and  specified in the SAR Award  Agreement,  no SAR
shall be exercisable later than the tenth (10th)  anniversary date of its grant.
Notwithstanding  the  foregoing,  for SARs granted to  Participants  outside the
United  States,  the  Committee has the authority to grant SARs that have a term
greater than ten (10) years.                                                    

     7.4 EXERCISE OF FREESTANDING SARS.  Freestanding SARs may be exercised upon
whatever terms and conditions the Committee, in its sole discretion, imposes.   

     7.5.  EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or part
of the Shares  subject to the related  Option upon the surrender of the right to
exercise  the  equivalent  portion of the  related  Option.  A Tandem SAR may be
exercised  only with respect to the Shares for which its related  Option is then
exercisable.                                                                    

     Notwithstanding  any other  provision  of this Plan to the  contrary,  with
respect to a Tandem SAR granted in  connection  with an ISO:  (a) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (b) the value of
the payout  with  respect to the Tandem SAR may be for no more than one  hundred
percent  (100%) of the excess of the Fair Market Value of the Shares  subject to
the underlying ISO at the time the Tandem SAR is exercised over the Option Price
of the  underlying  ISO; and (c) the Tandem SAR may be  exercised  only when the
Fair Market  Value of the Shares  subject to the ISO exceeds the Option Price of
the ISO.                                                                        

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     7.6 PAYMENT OF SAR AMOUNT. Upon the exercise of an SAR, a Participant shall
be  entitled to receive  payment  from the  Company in an amount  determined  by
multiplying:                                                                    

           (a)  The  excess of the Fair  Market  Value of a Share on the date of
exercise over the Grant Price; by               

           (b)  The number of Shares with respect to which the SAR is exercised.

     At the discretion of the Committee, the payment upon SAR exercise may be in
cash, Shares, or any combination thereof, or in any other manner approved by the
Committee in its sole discretion.  The Committee's  determination  regarding the
form of SAR payout shall be set forth in the Award  Agreement  pertaining to the
grant of the SAR.                                                               

     7.7  TERMINATION OF EMPLOYMENT.  Each Award  Agreement  shall set forth the
extent  to which  the  Participant  shall  have the  right to  exercise  the SAR
following  termination  of the  Participant's  employment  with or  provision of
services to the Company,  its Affiliates,  and/or its Subsidiaries,  as the case
may be,  subject to the  limitations  set forth in Section 7.3. Such  provisions
shall be determined in the sole  discretion of the Committee,  shall be included
in the Award Agreement entered into with Participants, need not be uniform among
all SARs issued pursuant to the Plan, and may reflect  distinctions based on the
reasons for termination.                                                        

     7.8   NONTRANSFERABILITY  OF  SARS.  Except  as  otherwise  provided  in  a
Participant's  Award  Agreement  or  otherwise  determined  at any  time  by the
Committee,  no SAR  granted  under the Plan may be sold,  transferred,  pledged,
assigned,  or otherwise alienated or hypothecated,  other than by will or by the
laws of descent and  distribution.  Further,  except as otherwise  provided in a
Participant's  Award  Agreement  or  otherwise  determined  at any  time  by the
Committee, all SARs granted to a Participant under the Plan shall be exercisable
during his or her lifetime only by such Participant. With respect to those SARs,
if any, that are permitted to be  transferred to another  person,  references in
the Plan to exercise of the SAR by the  Participant  or payment of any amount to
the Participant shall be deemed to include, as determined by the Committee,  the
Participant's permitted transferee.                                             

     7.9 OTHER  RESTRICTIONS.  The Committee shall impose such other  conditions
and/or  restrictions  on any Shares  received  upon  exercise  of a SAR  granted
pursuant to the Plan as it may deem advisable or desirable.  These  restrictions
may include,  but shall not be limited to, a  requirement  that the  Participant
hold the Shares received upon exercise of a SAR for a specified period of time. 

ARTICLE 8. RESTRICTED STOCK AND RESTRICTED STOCK UNITS                          

     8.1 GRANT OF  RESTRICTED  STOCK OR RESTRICTED  STOCK UNITS.  Subject to the
terms and provisions of the Plan,  the  Committee,  at any time and from time to
time,  may grant Shares of  Restricted  Stock and/or  Restricted  Stock Units to
Participants in such amounts as the Committee shall determine.  Restricted Stock
Units  represent  the right to  receive  Shares of  Common  Stock in the  future
subject to the  achievement  of one or more goals  relating to the completion of
service  by the  Participant  and/or the  achievement  of  performance  or other
objectives.                                                                     

     8.2 RESTRICTED  STOCK OR RESTRICTED  STOCK UNIT AGREEMENT.  Each Restricted
Stock  and/or  Restricted  Stock  Unit  grant  shall  be  evidenced  by an Award
Agreement that shall specify the Period(s) of Restriction,  the number of Shares

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of Restricted  Stock or the number of Restricted  Stock Units granted,  and such
other provisions as the Committee shall determine.                              

     8.3 TRANSFERABILITY. Except as provided in this Plan or an Award Agreement,
the Shares of Restricted Stock and/or  Restricted Stock Units granted herein may
not  be  sold,  transferred,   pledged,  assigned,  or  otherwise  alienated  or
hypothecated  until the end of the applicable Period of Restriction  established
by the  Committee  and  specified  in the  Award  Agreement  (and in the case of
Restricted  Stock Units until the date of  delivery or other  payment),  or upon
earlier satisfaction of any other conditions,  as specified by the Committee, in
its sole  discretion,  and set forth in the Award  Agreement or otherwise at any
time by the Committee,  provided,  however,  that the minimum vesting period for
(a)  performance-based  Awards of Restricted Stock and/or Restricted Stock Units
shall be one (1) year, and (b) time- or service-based Awards of Restricted Stock
and/or Restricted Stock Units shall be in substantially  equal installments over
a period of at least three (3) years.  All rights with respect to the Restricted
Stock and/or  Restricted  Stock Units  granted to a  Participant  under the Plan
shall be available during his or her lifetime only to such  Participant,  except
as otherwise provided in an Award Agreement or at any time by the Committee.    

     8.4 OTHER  RESTRICTIONS.  The Committee shall impose such other  conditions
and/or  restrictions on any Shares of Restricted Stock or Restricted Stock Units
granted  pursuant  to the  Plan  as it may  deem  advisable  including,  without
limitation,  a requirement that Participants pay a stipulated purchase price for
each Share of Restricted Stock or each Restricted Stock Unit, restrictions based
upon the achievement of specific performance goals,  time-based  restrictions on
vesting   following  the  attainment  of  the  performance   goals,   time-based
restrictions,   and/or   restrictions   under   applicable  laws  or  under  the
requirements  of any stock  exchange or market upon which such Shares are listed
or traded, or holding  requirements or sale restrictions placed on the Shares by
the Company upon vesting of such Restricted Stock or Restricted Stock Units.    

     To the extent deemed  appropriate by the Committee,  the Company may retain
the  certificates  representing  Shares  of  Restricted  Stock in the  Company's
possession until such time as all conditions and/or  restrictions  applicable to
such Shares have been satisfied or lapse.                                       

     Except as  otherwise  provided in this Article 8 or under  applicable  law,
Shares of Restricted  Stock covered by each Restricted  Stock Award shall become
freely  transferable  by the Participant  after all conditions and  restrictions
applicable to such Shares have been satisfied or lapse  (including  satisfaction
of any applicable tax withholding obligations), and Restricted Stock Units shall
be paid in cash,  Shares,  or a combination of cash and Shares as the Committee,
in its sole discretion shall determine.                                         

     8.5 CERTIFICATE  LEGEND.  In addition to any legends placed on certificates
pursuant to Section 8.4,  each  certificate  representing  Shares of  Restricted
Stock granted pursuant to the Plan may bear a legend such as the following or as
otherwise determined by the Committee in its sole discretion:                   

     The sale or transfer of Shares of stock  represented  by this  certificate,
whether  voluntary,  involuntary,  or by operation of law, is subject to certain
restrictions on transfer as set forth in the Pharmaceutical Resources, Inc. 2004
Performance  Equity Plan, and in the associated Award  Agreement.  A copy of the
Plan and such Award  Agreement  may be obtained from  Pharmaceutical  Resources,
Inc.                                                                            

     8.6 RIGHTS AS A STOCKHOLDER. Upon the acceptance by Participant of an Award
of Restricted  Stock,  such Participant  shall,  subject to the restrictions set
forth in the Award Agreement,  have all the rights of a stockholder with respect

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to such shares of Restricted Stock, including,  but not limited to, the right to
vote such shares of Restricted  Stock and the right to receive all dividends and
other distributions paid thereon.  Certificates, if any, representing Restricted
Stock shall bear a legend  referring to the  restrictions  set forth in the Plan
and Participant's  Award Agreement.  Such certificates may be held in custody by
the Company until the lapse of the  restrictions on the Restricted  Stock.  With
respect to Restricted  Stock Unit Awards,  until the achievement of the goals or
the lapse or release of all  restrictions  applicable  to an Award of Restricted
Stock Units, no Shares of Common Stock shall be issued in respect of such Awards
and no  Participant  shall have any rights as a stockholder  of the Company with
respect to the shares of Common  Stock  covered  by such  Restricted  Stock Unit
Award.  Upon the  achievement of the stated goals or the lapse or release of all
restrictions with respect to a Restricted Stock Unit Award or at a later date if
distribution has been deferred,  one or more share  certificates,  registered in
the name of the Participant,  for an appropriate  number of shares,  free of any
restrictions  set forth in the Plan and the  related  Award  Agreement  shall be
delivered to the Participant.                                                   

     8.7  TERMINATION OF EMPLOYMENT.  Each Award  Agreement  shall set forth the
extent to which the Participant  shall have the right to retain Restricted Stock
and/or  Restricted  Stock  Units  following  termination  of  the  Participant's
employment with or provision of services to the Company, its Affiliates,  and/or
its Subsidiaries, as the case may be. Such provisions shall be determined in the
sole  discretion  of the  Committee,  shall be included  in the Award  Agreement
entered  into with each  Participant,  need not be  uniform  among all Shares of
Restricted  Stock or Restricted Stock Units issued pursuant to the Plan, and may
reflect distinctions based on the reasons for termination.                      

     8.8 SECTION 83(B) ELECTION. The Committee may provide in an Award Agreement
that the Award of Restricted Stock is conditioned upon the Participant making or
refraining from making an election with respect to the Award under Section 83(b)
of the Code. If a Participant makes an election pursuant to Section 83(b) of the
Code concerning a Restricted Stock Award,  the Participant  shall be required to
file promptly a copy of such election with the Company.                         

ARTICLE 9. PERFORMANCE UNITS/PERFORMANCE SHARES                                 

     9.1 GRANT OF PERFORMANCE UNITS/PERFORMANCE SHARES. Subject to the terms and
provisions of the Plan,  the  Committee,  at any time and from time to time, may
grant  Performance  Units  and/or  Performance  Shares to  Participants  in such
amounts and upon such terms as the Committee shall determine.                   

     9.2 VALUE OF PERFORMANCE  UNITS/PERFORMANCE  SHARES.  Each Performance Unit
shall have an initial value that is  established by the Committee at the time of
grant.  Each  Performance  Share  shall have an initial  value equal to the Fair
Market  Value  of a  Share  on the  date  of  grant.  The  Committee  shall  set
performance goals in its discretion which, depending on the extent to which they
are met, will determine the value and/or number of Performance Units/Performance
Shares that will be paid out to the Participant.                                

     9.3 EARNING OF PERFORMANCE  UNITS/PERFORMANCE  SHARES. Subject to the terms
of this Plan, after the applicable  Performance  Period has ended, the holder of
Performance  Units/Performance Shares shall be entitled to receive payout on the
value  and  number  of  Performance   Units/Performance  Shares  earned  by  the

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Participant over the Performance  Period,  to be determined as a function of the
extent to which the corresponding performance goals have been achieved.         

     9.4 FORM AND  TIMING OF PAYMENT OF  PERFORMANCE  UNITS/PERFORMANCE  SHARES.
Payment of earned Performance Units/Performance Shares shall be as determined by
the Committee and as evidenced in the Award  Agreement.  Subject to the terms of
the Plan,  the Committee,  in its sole  discretion,  may pay earned  Performance
Units/Performance  Shares in the form of cash or in Shares (or in a  combination
thereof) equal to the value of the earned Performance  Units/Performance  Shares
at the close of the  applicable  Performance  Period,  or as soon as practicable
after the end of the  Performance  Period.  Any Shares may be granted subject to
any restrictions  deemed appropriate by the Committee.  The determination of the
Committee  with  respect to the form of payout of such Awards shall be set forth
in the Award Agreement pertaining to the grant of the Award.                    

     9.5  TERMINATION OF EMPLOYMENT.  Each Award  Agreement  shall set forth the
extent to which the Participant shall have the right to retain Performance Units
and/or Performance Shares following termination of the Participant's  employment
with or  provision  of  services  to the  Company,  its  Affiliates,  and/or its
Subsidiaries,  as the case may be. Such  provisions  shall be  determined in the
sole  discretion  of the  Committee,  shall be included  in the Award  Agreement
entered  into with each  Participant,  need not be  uniform  among all Awards of
Performance  Units or  Performance  Shares issued  pursuant to the Plan, and may
reflect distinctions based on the reasons for termination.                      

     9.6  NONTRANSFERABILITY.  Except as otherwise  provided in a  Participant's
Award  Agreement  or  otherwise   determined  at  any  time  by  the  Committee,
Performance  Units/Performance  Shares  may not be sold,  transferred,  pledged,
assigned,  or otherwise alienated or hypothecated,  other than by will or by the
laws of descent and  distribution.  Further,  except as otherwise  provided in a
Participant's  Award  Agreement  or  otherwise  determined  at any  time  by the
Committee, a Participant's rights under the Plan shall be exercisable during his
or her lifetime only by such Participant.                                       

ARTICLE 10. CASH-BASED AWARDS AND OTHER STOCK-BASED AWARDS                      

     10.1 GRANT OF CASH-BASED AWARDS. Subject to the terms and provisions of the
Plan,  the Committee,  at any time and from time to time,  may grant  Cash-Based
Awards to  Participants  in such  amounts  and upon such  terms,  including  the
achievement of specific performance goals, as the Committee may determine.      

     10.2 OTHER  STOCK-BASED  AWARDS.  The  Committee  may grant  other types of
equity-based or  equity-related  Awards not otherwise  described by the terms of
this Plan (including the grant or offer for sale of unrestricted Shares) in such
amounts  and  subject  to such  terms and  conditions,  as the  Committee  shall
determine.   Such  Awards  may  involve  the   transfer  of  actual   Shares  to
Participants,  or payment in cash or otherwise of amounts  based on the value of
Shares and may include,  without  limitation,  Awards designed to comply with or
take  advantage of the  applicable  local laws of  jurisdictions  other than the
United States.                                                                  

     10.3 VALUE OF CASH-BASED  AND OTHER  STOCK-BASED  AWARDS.  Each  Cash-Based
Award  shall  specify a payment  amount or payment  range as  determined  by the
Committee. Each Other Stock-Based Award shall be expressed in terms of Shares or
units  based on Shares,  as  determined  by the  Committee.  The  Committee  may
establish  performance goals in its discretion.  If the Committee  exercises its
discretion to establish performance goals, the number and/or value of Cash-Based

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Awards or Other Stock-Based Awards that will be paid out to the Participant will
depend on the extent to which the performance goals are met.                    

     10.4 PAYMENT OF CASH-BASED AWARDS AND OTHER STOCK-BASED AWARDS. Payment, if
any, with respect to a Cash-Based Award or an Other  Stock-Based  Award shall be
made in  accordance  with  the  terms of the  Award,  in cash or  Shares  as the
Committee determines in its discretion.                                         

     10.5 TERMINATION OF EMPLOYMENT. The Committee shall determine the extent to
which the Participant shall have the right to receive Cash-Based Awards or Other
Stock-Based Awards following termination of the Participant's employment with or
provision of services to the Company,  its Affiliates,  and/or its Subsidiaries,
as the case may be. Such  provisions  shall be determined in the sole discretion
of the Committee,  such provisions may be included in an agreement  entered into
with each  Participant,  but need not be uniform  among all Awards of Cash-Based
Awards or Other Stock-Based  Awards issued pursuant to the Plan, and may reflect
distinctions based on the reasons for termination.                              

     10.6  NONTRANSFERABILITY.  Except as otherwise determined by the Committee,
neither Cash-Based Awards nor Other Stock-Based Awards may be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution.  Further,  except as otherwise provided
by the Committee,  a Participant's rights under the Plan, if exercisable,  shall
be exercisable during his or her lifetime only by such Participant. With respect
to  those  Cash-Based  Awards  or Other  Stock-Based  Awards,  if any,  that are
permitted  to be  transferred  to  another  person,  references  in the  Plan to
exercise or payment of such Awards by or to the  Participant  shall be deemed to
include, as determined by the Committee, the Participant's permitted transferee.

ARTICLE 11. PERFORMANCE MEASURES                                                

     11.1  PERFORMANCE  MEASURES.  Unless and until the  Committee  proposes for
stockholder  vote  and  the  stockholders   approve  a  change  in  the  general
Performance  Measures set forth in this Article 11, the  performance  goals upon
which the payment or vesting of an Award to a Covered  Employee that is intended
to qualify as  Performance-Based  Compensation shall be limited to the following
Performance Measures:                                                           

(a)   Net earnings or net income (before or after taxes);             
(b)   Earnings per share;                                             
(c)   Net sales or revenue growth;                                    
(d)   Net operating profit;                                           
     (e)   Return  measures  (including,  but not limited to,  return on assets,
capital, invested capital, equity, sales, or revenue);    
     (f)   Cash flow  (including,  but not limited to, operating cash flow, free
cash flow, and cash flow return on equity);               
     (g)   Earnings  before  or  after  taxes,  interest,  depreciation,  and/or
amortization;                                             
(h)   Gross or operating margins;                                     
     (i)   Share price (including, but not limited to, growth measures and total
stockholder return);                                      
(j)   Expense targets;                                                
(k)   Market share;                                                   
(l)   Customer satisfaction;                                          

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(m)   Working capital targets; and                                    
(n)   Research and development expenditures.                          

     Any  Performance  Measure(s) may be used to measure the  performance of the
Company,  Subsidiary,  and/or  Affiliate as a whole or any business  unit of the
Company,  Subsidiary,  and/or  Affiliate  or  any  combination  thereof,  as the
Committee  may deem  appropriate,  or any of the above  Performance  Measures as
compared to the performance of a group of comparator companies,  or published or
special index that the Committee, in its sole discretion,  deems appropriate, or
the  Company  may select  Performance  Measure  (i) above as compared to various
stock  market  indices.  The  Committee  also has the  authority  to provide for
accelerated  vesting of any Award based on the achievement of performance  goals
pursuant to the Performance Measures specified in this Article 11.              

     11.2 EVALUATION OF PERFORMANCE. The Committee may provide in any such Award
that any evaluation of  performance  may include or exclude any of the following
events that occurs  during a  Performance  Period:  (a) asset  write-downs,  (b)
litigation or claim judgments or  settlements,  (c) the effect of changes in tax
laws,  accounting  principles,  or other laws or provisions  affecting  reported
results,  (d) any reorganization and restructuring  programs,  (e) extraordinary
nonrecurring  items as described in Accounting  Principles  Board Opinion No. 30
and/or in  management's  discussion  and  analysis of  financial  condition  and
results of operations  appearing in the Company's  annual report to stockholders
for the  applicable  year, (f)  acquisitions  or  divestitures,  and (g) foreign
exchange gains and losses.  To the extent such  inclusions or exclusions  affect
Awards to Covered  Employees,  they shall be prescribed in a form that meets the
requirements of Code Section 162(m) for deductibility.                          

     11.3 ADJUSTMENT OF PERFORMANCE-BASED COMPENSATION. Awards that are designed
to  qualify  as  Performance-Based  Compensation,  and that are held by  Covered
Employees, may not be adjusted upward. The Committee shall retain the discretion
to adjust such Awards downward,  either on a formula or  discretionary  basis or
any combination, as the Committee determines.                                   

     11.4  COMMITTEE  DISCRETION.  In  the  event  that  applicable  tax  and/or
securities  laws change to permit  Committee  discretion  to alter the governing
Performance Measures without obtaining stockholder approval of such changes, the
Committee  shall have sole  discretion  to make such changes  without  obtaining
stockholder  approval.  In addition,  in the event that the Committee determines
that it is advisable to grant Awards that shall not qualify as Performance-Based
Compensation,  the  Committee  may  make  such  grants  without  satisfying  the
requirements  of Code Section  162(m) and base vesting on  Performance  Measures
other than those set forth in Section 11.1.                                     

ARTICLE 12. DIVIDEND EQUIVALENTS                                                

     Any  Participant   selected  by  the  Committee  may  be  granted  dividend
equivalents  based on the  dividends  declared on Shares that are subject to any
Award,  to be credited as of dividend  payment dates,  during the period between
the date the  Award is  granted  and the date the Award is  exercised,  vests or
expires,  as determined by the  Committee.  Such dividend  equivalents  shall be
converted  to cash or  additional  Shares by such  formula  and at such time and
subject to such limitations as may be determined by the Committee.              

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ARTICLE 13. BENEFICIARY DESIGNATION                                             

     Each  Participant  under  the  Plan  may,  from  time  to  time,  name  any
beneficiary or beneficiaries  (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she  receives  any or all of such  benefit.  Each such  designation  shall
revoke  all  prior  designations  by the  same  Participant,  shall be in a form
prescribed  by the  Committee,  and will be  effective  only  when  filed by the
Participant in writing with the Company during the  Participant's  lifetime.  In
the  absence  of  any  such  designation,   benefits  remaining  unpaid  at  the
Participant's death shall be paid to the Participant's estate.                  

ARTICLE 14. DEFERRALS                                                           

     The  Committee   may  permit  or  require  a  Participant   to  defer  such
Participant's  receipt of the  payment of cash or the  delivery  of Shares  that
would  otherwise  be due to such  Participant  by virtue of the  exercise  of an
Option or SAR, the lapse or waiver of  restrictions  with respect to  Restricted
Stock or Restricted  Stock Units,  or the  satisfaction  of any  requirements or
performance  goals  with  respect  to  Performance  Shares,  Performance  Units,
Cash-Based Awards or Other Stock-Based  Awards. If any such deferral election is
required or permitted,  the Committee shall, in its sole  discretion,  establish
rules and procedures for such payment deferrals.                                

ARTICLE 15. RIGHTS OF PARTICIPANTS                                              

     15.1 EMPLOYMENT.  Nothing in the Plan or an Award Agreement shall interfere
with or limit in any way the right of the Company,  its  Affiliates,  and/or its
Subsidiaries,  to  terminate  any  Participant's  employment  or  service to the
Company at any time or for any reason not prohibited by law, nor confer upon any
Participant  any right to continue his or her  employment  or service as a Third
Party Service Provider for any specified period of time.                        

     Neither an Award nor any benefits  arising under this Plan shall constitute
an employment contract with the Company, its Affiliates, and/or its Subsidiaries
and,  accordingly,  subject  to  Articles 3 and 17,  this Plan and the  benefits
hereunder may be terminated at any time in the sole and exclusive  discretion of
the Committee  without  giving rise to any liability on the part of the Company,
its Affiliates, and/or its Subsidiaries.                                        

     15.2  PARTICIPATION.  No individual  shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected to
receive a future Award.                                                         

     15.3  RIGHTS AS A  STOCKHOLDER.  Except as  otherwise  provided  herein,  a
Participant  shall  have none of the  rights of a  stockholder  with  respect to
Shares covered by any Award until the  Participant  becomes the record holder of
such Shares.                                                                    

ARTICLE 16. CHANGE OF CONTROL                                                   

     16.1 CHANGE OF CONTROL OF THE COMPANY.  Unless an Award Agreement  provides
otherwise or unless a Participant  waives the  application  of this Section 16.1
prior  to a Change  of  Control,  in the  event of a  Change  of  Control,  each
outstanding  Option granted under the Plan shall immediately  become exercisable
in full  notwithstanding  the vesting or exercise  provisions  contained  in the
Award  Agreement.  In the event of a Change of  Control  as  defined  in Section
2.8(a), all outstanding Options shall become exercisable in full, whether or not

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otherwise exercisable at such time, and any such Option shall remain exercisable
in full thereafter until it expires pursuant to its terms, unless the provisions
of this Section 16.1 are  suspended or terminated  by an  affirmative  vote of a
majority of the Board.                                                          

     16.2  CERTAIN  MERGERS.  If in  connection  with a merger,  reorganization,
consolidation,  share exchange,  transfer of assets or other transaction  having
similar effect involving the Company  ("Merger") in which the Company is not the
surviving corporation or pursuant to which a majority of the Shares which are of
the same  class as the  Shares  that are  subject  to  outstanding  Options  are
exchanged  for,  or  converted  into,  or  otherwise  become  shares of  another
corporation, the surviving,  continuing, successor or purchasing corporation, as
the case may be (the  "Acquiring  Corporation"),  does not assume the  Company's
rights and obligations  under  outstanding Award Agreements or substitute awards
in respect of the Acquiring  Corporation's  stock for  outstanding  Awards,  the
Board shall provide prior to the Merger that any  unexercisable  and/or unvested
portion of the outstanding Awards shall be immediately exercisable and vested as
of the last date prior to such Merger, as the Board so determines.  The exercise
and/or  vesting  of any  Award  that was  permissible  solely  by reason of this
Section  16.2 shall be  conditioned  upon the  consummation  of the Merger.  Any
Awards which are neither  assumed by the Acquiring  Corporation nor exercised as
of the date of the Merger shall terminate  effective as of the effective date of
the Merger.                                                                     

ARTICLE 17. AMENDMENT, MODIFICATION, SUSPENSION, AND TERMINATION                

     17.1  AMENDMENT,  MODIFICATION,  SUSPENSION,  AND  TERMINATION.  Subject to
Section  17.3,  the  Committee  may,  at any time and from time to time,  alter,
amend,  modify,  suspend, or terminate the Plan and any Award Agreement in whole
or in part; provided, however, that, without the prior approval of the Company's
stockholders  and except as provided in Sections  4.4 and 6.11,  Options or SARs
issued  under the Plan will not be  repriced,  replaced,  or  regranted  through
cancellation,  or by lowering the Option Price of a previously granted Option or
the Grant Price of a previously  granted SAR, and no amendment of the Plan shall
be made without stockholder approval if stockholder approval is required by law,
regulation, or stock exchange rule.                                             

     17.2  ADJUSTMENT  OF AWARDS  UPON THE  OCCURRENCE  OF  CERTAIN  UNUSUAL  OR
NONRECURRING  EVENTS.  The  Committee  may make  adjustments  in the  terms  and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring  events  (including,  without  limitation,  the events described in
Section 4.4 hereof)  affecting  the Company or the  financial  statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are appropriate in order
to prevent  unintended  dilution or  enlargement  of the  benefits or  potential
benefits  intended to be made available under the Plan. The determination of the
Committee as to the  foregoing  adjustments,  if any,  shall be  conclusive  and
binding on Participants under the Plan.                                         

     17.3 AWARDS PREVIOUSLY GRANTED.  Notwithstanding any other provision of the
Plan to the contrary, no termination,  amendment, suspension, or modification of
the Plan or an Award Agreement  shall  adversely  affect in any material way any
Award  previously  granted  under the Plan,  without the written  consent of the
Participant holding such Award.                                                 

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ARTICLE 18. WITHHOLDING                                                         

     18.1 TAX  WITHHOLDING.  The  Company  shall have the power and the right to
deduct or  withhold,  or  require a  Participant  to remit to the  Company,  the
minimum statutory amount to satisfy federal, state, and local taxes, domestic or
foreign,  required  by law or  regulation  to be  withheld  with  respect to any
taxable event arising as a result of this Plan.                                 

     18.2 SHARE  WITHHOLDING.  With  respect to  withholding  required  upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted  Stock
and Restricted Stock Units, or upon the achievement of performance goals related
to  Performance  Shares,  or any other  taxable  event arising as a result of an
Award granted hereunder,  Participants may elect, subject to the approval of the
Committee,  to satisfy  the  withholding  requirement,  in whole or in part,  by
having the Company  withhold Shares having a Fair Market Value on the date as of
which  the  tax  is to be  determined  equal  to  the  minimum  statutory  total
withholding  tax that could be imposed on the  transaction.  All such  elections
shall be irrevocable,  made in writing, and signed by the Participant, and shall
be subject to any  restrictions or limitations  that the Committee,  in its sole
discretion, deems appropriate.                                                  

ARTICLE 19. SUCCESSORS                                                          

     All  obligations  of the  Company  under  the Plan with  respect  to Awards
granted hereunder shall be binding on any successor to the Company,  whether the
existence  of such  successor  is the result of a direct or  indirect  purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.                                                   

ARTICLE 20. GENERAL PROVISIONS                                                  

20.1 FORFEITURE EVENTS.                                               

           (a)  The  Committee  may  specify  in an  Award  Agreement  that  the
                Participant's rights,  payments, and benefits with respect to an
                Award shall be subject to reduction,  cancellation,  forfeiture,
                or recoupment upon the occurrence of certain  specified  events,
                in addition to any otherwise  applicable  vesting or performance
                conditions of an Award.  Such events may include,  but shall not
                be limited to, termination of employment for cause,  termination
                of the  Participant's  provision  of  services  to the  Company,
                Affiliate,  and/or  Subsidiary,  violation of material  Company,
                Affiliate, and/or Subsidiary policies, breach of noncompetition,
                confidentiality,  or other restrictive  covenants that may apply
                to the Participant,  or other conduct by the Participant that is
                detrimental  to the business or reputation  of the Company,  its
Affiliates, and/or its Subsidiaries.            

           (b)  Any  amounts  payable to  Participants  under this Plan shall be
                subject to forfeiture  as and to the extent  provided in Section
              304 of the Sarbanes-Oxley Act of 2002 or other applicable law.

     20.2 LEGEND.  The  certificates for Shares may include any legend which the
Committee  deems  appropriate  to reflect any  restrictions  on transfer of such
Shares.                                                                         

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     20.3 GENDER AND NUMBER.  Except where  otherwise  indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.                

     20.4  SEVERABILITY.  In the event any  provision  of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.                      

     20.5 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws,  rules, and regulations,
and to such  approvals  by any  governmental  agencies  or  national  securities
exchanges as may be required.                                                   

     20.6  DELIVERY OF TITLE.  The Company  shall have no obligation to issue or
deliver evidence of title for Shares issued under the Plan prior to:            

           (a)  Obtaining  any  approvals  from  governmental  agencies that the
  Company determines are necessary or advisable; and

           (b)  Completion of any  registration  or other  qualification  of the
                Shares under any applicable national or foreign law or ruling of
                any  governmental  body  that  the  Company   determines  to  be
necessary or advisable.                         

     20.7 INABILITY TO OBTAIN AUTHORITY.  The inability of the Company to obtain
authority  from any  regulatory  body having  jurisdiction,  which  authority is
deemed by the Company's  counsel to be necessary to the lawful issuance and sale
of any Shares  hereunder,  shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.                                                   

     20.8  INVESTMENT  REPRESENTATIONS.  The  Committee  may  require any person
receiving  Shares  pursuant to an Award under this Plan to represent and warrant
in writing that the person is acquiring  the Shares for  investment  and without
any present intention to sell or distribute such Shares.                        

     20.9  EMPLOYEES  BASED OUTSIDE OF THE UNITED  STATES.  Notwithstanding  any
provision of the Plan to the contrary, in order to comply with the laws in other
countries in which the Company, its Affiliates,  and/or its Subsidiaries operate
or have Employees or Third Party Service Providers,  the Committee,  in its sole
discretion, shall have the power and authority to:                              

           (a)  Determine which Affiliates and Subsidiaries  shall be covered by
the Plan;                                       

           (b)  Determine  which  Employees  or Third  Party  Service  Providers
                outside the United  States are  eligible to  participate  in the
Plan;                                           

           (c)  Modify  the  terms  and  conditions  of  any  Award  granted  to
                Employees or Third Party  Service  Providers  outside the United
States to comply with applicable foreign laws;  

           (d)  Establish  subplans  and modify  exercise  procedures  and other
                terms  and  procedures,  to  the  extent  such  actions  may  be
                necessary or advisable.  Any subplans and  modifications to Plan

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                terms and procedures  established under this Section 20.9 by the
                Committee shall be attached to this Plan document as appendices;
and                                             

           (e)  Take any action, before or after an Award is made, that it deems
                advisable to obtain  approval or comply with any necessary local
government regulatory exemptions or approvals.  

     Notwithstanding   the  above,  the  Committee  may  not  take  any  actions
hereunder, and no Awards shall be granted, that would violate applicable law.   

     20.10  UNCERTIFICATED  SHARES.  To the extent  that the Plan  provides  for
issuance of certificates to reflect the transfer of Shares, the transfer of such
Shares may be effected on a noncertificated  basis, to the extent not prohibited
by applicable law or the rules of any stock exchange.                           

     20.11 UNFUNDED PLAN.  Participants shall have no right,  title, or interest
whatsoever in or to any investments that the Company,  and/or its  Subsidiaries,
and/or  Affiliates may make to aid it in meeting its obligations under the Plan.
Nothing  contained in the Plan, and no action taken pursuant to its  provisions,
shall  create or be  construed  to create a trust of any  kind,  or a  fiduciary
relationship  between  the  Company  and  any  Participant,  beneficiary,  legal
representative,  or any other person.  To the extent that any person  acquires a
right to receive  payments  from the Company,  and/or its  Subsidiaries,  and/or
Affiliates  under the Plan,  such right shall be no greater than the right of an
unsecured general creditor of the Company, a Subsidiary, or an Affiliate, as the
case may be. All  payments to be made  hereunder  shall be paid from the general
funds of the Company, a Subsidiary,  or an Affiliate,  as the case may be and no
special or separate fund shall be established and no segregation of assets shall
be made to assure  payment of such amounts  except as expressly set forth in the
Plan.                                                                           

     20.12 NO  FRACTIONAL  SHARES.  No  fractional  Shares  shall be  issued  or
delivered  pursuant  to the Plan or any Award.  The  Committee  shall  determine
whether  cash,  Awards,  or other  property  shall be  issued or paid in lieu of
fractional  Shares or whether such fractional Shares or any rights thereto shall
be forfeited or otherwise eliminated.                                           

     20.13 RETIREMENT AND WELFARE PLANS.  Neither Awards made under the Plan nor
Shares or cash paid pursuant to such Awards,  may be included as  "compensation"
for purposes of  computing  the benefits  payable to any  Participant  under the
Company's or any  Subsidiary's or Affiliate's  retirement  plans (both qualified
and  non-qualified)  or welfare  benefit plans unless such other plan  expressly
provides  that such  compensation  shall be taken into  account in  computing  a
participant's benefit.                                                          

     20.14  NONEXCLUSIVITY  OF THE PLAN.  The adoption of this Plan shall not be
construed as creating any  limitations on the power of the Board or Committee to
adopt such other  compensation  arrangements  as it may deem  desirable  for any
Participant.                                                                    

     20.15 NO  CONSTRAINT  ON  CORPORATE  ACTION.  Nothing in this Plan shall be
construed  to:  (i) limit,  impair,  or  otherwise  affect  the  Company's  or a
Subsidiary's   or  an   Affiliate's   right  or   power  to  make   adjustments,
reclassifications,  reorganizations,  or  changes  of its  capital  or  business
structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer
all or any part of its business or assets;  or, (ii) limit the right or power of

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the Company or a Subsidiary or an Affiliate to take any action which such entity
deems to be necessary or appropriate.                                           

     20.16 GOVERNING LAW. The Plan and each Award Agreement shall be governed by
the laws of the State of Delaware, excluding any conflicts or choice of law rule
or principle that might otherwise refer  construction or  interpretation  of the
Plan to the substantive law of another  jurisdiction.  Unless otherwise provided
in the Award  Agreement,  recipients  of an Award  under the Plan are  deemed to
submit to the exclusive jurisdiction and venue of the federal or state courts of
Delaware,  to resolve  any and all issues that may arise out of or relate to the
Plan or any related Award Agreement.                                            

     20.17  INDEMNIFICATION.  Each  person who is or shall have been a member of
the Board,  or a Committee  appointed by the Board, or an officer of the company
to  whom  authority  was  delegated  in  accordance  with  Article  3  shall  be
indemnified  and held harmless by the Company  against and from any loss,  cost,
liability,  or expense that may be imposed upon or reasonably incurred by him or
her in connection with or resulting from any claim,  action, suit, or proceeding
to  which he or she may be a party  or in  which  he or she may be  involved  by
reason of any action  take or failure to act under the Plan and against and from
any and all amounts paid by him or her in settlement thereof, with the Company's
approval,  or paid by him or her in  satisfaction  of any  judgment  in any such
action,  suit, or proceeding  against him or her,  provided he or she shall give
the Company an  opportunity,  at its own expense,  to handle and defend the same
before he or she  undertakes  to handle and defend it on his or her own  behalf,
unless  such  loss,  cost,  liability,  or expense is a result of his or her own
willful misconduct or except as expressly provided by statute.                  

     The foregoing right of indemnification  shall not be exclusive of any other
rights of  indemnification  to which  such  persons  may be  entitled  under the
Company's  Certificate  of  Incorporation  of  Bylaws,  as a matter  of law,  or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.                                                                       

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                                                                      APPENDIX D

PHARMACEUTICAL RESOURCES, INC.
AMENDED AND RESTATED
 1997 DIRECTORS' STOCK AND DEFERRED FEE PLAN

 ARTICLE I

THE PLAN

           1.1. RESTATEMENT.  Pharmaceutical  Resources,  Inc. hereby amends and
restates the Pharmaceutical  Resources,  Inc. 1997 Directors' Stock and Deferred
Fee Plan (the "Plan"),  which was initially  adopted effective October 28, 1997.
The Plan applies to those directors of the Company who are neither  officers nor
employees of the Company or any of its  subsidiaries.  The Plan provides (i) for
the annual grant of awards in the form of Stock Options and Restricted  Units to
Eligible  Directors  and (ii) the  opportunity  for Eligible  Directors to defer
receipt  of all or a part of their  cash  compensation  in the form of  Deferred
Units.                                                                          

           1.2. PURPOSE.  The purposes of the Plan are to align the interests of
directors more closely with the interests of other  stockholders of the Company,
to  encourage  the  highest  level of  director  performance  by  providing  the
directors  with a direct  interest in the Company's  attainment of its financial
goals,  and to provide a financial  incentive  that will help attract and retain
the most qualified directors.                                                   

           1.3.  EFFECTIVE  DATE. This amendment and restatement of the Plan was
adopted by the Board in April,  2004 and will be effective  upon approval of the
Company's  stockholders (the "Effective  Date"). In the event that the Company's
stockholders do not approve this amendment and restatement of the Plan, the Plan
as in effect prior to this amendment and restatement  shall remain in full force
and effect in accordance with its terms.                                        

           1.4.  TERMINATION  DATE. The Plan shall terminate on October 28, 2013
and no further Awards shall be granted hereunder following such date.           

ARTICLE II

 DEFINITIONS

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

     (a) "Award"  shall mean  an award to an  Eligible  Director  of (i) Options
under Article V, (ii) Restricted Units under Article VI, or (iii) Deferred Units
under Article VI of the Plan.                                                   

     (b) "Award  Agreement" shall mean a written  agreement  between the Company
and an  Eligible  Director  or a written  acknowledgment  from the Company to an
Eligible  Director  specifically  setting  forth the terms and  conditions of an
Award granted under the Plan.                                                   

(c) "Board" shall mean the board of directors of the Company.         

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     (d) "Code"  shall mean the Internal  Revenue Code of 1986,  as amended from
time to time.                                                                   

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

     (f) "Date of Grant" shall mean, with respect to any Eligible Director,  the
date such Eligible Director was initially elected to the Board and for each year
thereafter,  the earliest to occur of the  following:  (i) the date on which the
stockholders  of the  Company  shall  elect  directors  at an annual  meeting of
stockholders or any adjournment  thereof,  (ii) the date in January of each year
on which the first meeting of the  compensation  committee of the Company occurs
or (iii) the last business day of January of each fiscal year.                  

     (g) "Deferred  Unit  Award"  means an award of Stock  Units  granted to  an
Eligible Director pursuant to Sections 6.2 and 6.4 of the Plan.                 

     (h) "Effective  Date" for  the Plan  shall  have the  meaning  set forth in
Section 1.3.                                                                    

     (i) "Eligible  Director"  shall mean any director of the Company who is not
an employee of the Company or any of its subsidiaries.                          

     (j) "Fair Market Value" on any day shall mean (i) if the  principal  market
for the Stock is The New York  Stock  Exchange,  any other  national  securities
exchange or The NASDAQ  Stock  Market,  the closing  sales price of the Stock on
such day as  reported  by such  exchange or market,  or on a  consolidated  tape
reflecting transactions on such exchange or market, (ii) if the principal market
for the Stock is not a national  securities exchange and if there are no closing
prices reported on The NASDAQ Stock Market, the mean between the closing bid and
the closing  asked  prices for the Stock on such day as quoted on such market or
(iii) if there are no such prices quoted on The NASDAQ Stock  Market,  the price
furnished  by any New York Stock  Exchange  member  selected by the Company from
time to time for such purpose; PROVIDED, THAT, if clauses (i), (ii) and (iii) of
this paragraph are all inapplicable, or if no trades have been made or no quotes
are  available  for such  day,  the Fair  Market  Value  of the  Stock  shall be
determined  by the Board by any  method  which it deems,  in good  faith,  to be
appropriate.  The  determination of the Board shall be conclusive as to the Fair
Market Value of the Stock.                                                      

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

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

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

     (n) "Plan"  shall  mean the  Pharmaceutical  Resources,  Inc.  Amended  and
Restated 1997 Directors' Stock and Deferred Fee Plan, the terms of which are set
forth herein, as amended from time to time.                                     

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

     (p) "Restricted Unit Award" shall mean an award of Stock Units,  subject to
certain  forfeiture  provisions,  granted to an  Eligible  Director  pursuant to
Section 6.1 of the Plan.                                                        

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     (q) "Sale"  shall  mean   any  single  transaction  or  series  of  related
transactions,  upon the consummation of the following  events:  (i) a definitive
agreement for the merger or other  business  combination of the Company with and
into another  corporation  pursuant to which the  stockholders of the Company do
not own,  immediately  after  such  transaction(s),  more than 50% of the voting
power  of  the  corporation  that  survives  and  such  other  corporation  is a
publicly-owned  corporation  that is not a subsidiary of another  corporation or
(ii) a definitive  agreement for the sale,  exchange or other disposition of all
or  substantially  all  of  the  assets  of  the  Company  (other  than  to  any
wholly-owned  subsidiary  of the  Company);  provided,  that a Sale shall not be
deemed to have occurred if there shall be an  affirmative  vote of a majority of
the Board to suspend the  provisions  of Section 4.3 of the Plan with respect to
any such event.                                                                 

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

     (s) "Stock  Account"  means  the  bookkeeping  account  established  by the
Company in respect to each  director  pursuant to Section 6.4 and to which shall
be credited Stock Units representing the director's  respective  Restricted Unit
Awards and Deferred Unit Awards pursuant to the Plan.                           

     (t) "Stock Unit" shall mean a hypothetical  share of Stock which shall have
a value on any date equal to the Fair Market Value of one share of Stock on that
date.                                                                           

 ARTICLE III

PARTICIPANTS

           Each Eligible Director shall  participate in the Plan,  provided that
he or she is or was  elected  as a member of the Board at an annual  meeting  of
stockholders,  or at  any  adjournment  thereof,  or  was  elected  by  Eligible
Directors who were elected as members of the Board at an annual  meeting,  or at
any adjournment thereof, of stockholders to fill a vacancy on the Board.        

ARTICLE IV

 SHARES OF STOCK SUBJECT TO THE PLAN

           4.1. LIMITATIONS. Subject to any anti-dilution adjustment pursuant to
the provisions of Section 4.2 hereof, the maximum number of shares of Stock that
may be issued  hereunder  shall not exceed  650,000  shares of Stock.  Shares of
Stock subject to an Option, a Restricted Unit Award or a Deferred Unit Award may
be either  authorized and unissued shares or shares issued and later acquired by
the Company;  PROVIDED,  HOWEVER, that the shares of Stock with respect to which
an Option has been exercised shall not again be available in connection with the
grant of an Option hereunder. If any outstanding Options granted hereunder shall
terminate,  expire or be forfeited for any reason prior to the end of the period
during  which  Options  may be granted  hereunder,  new  Options  may be granted
covering such unused shares.  Furthermore,  any shares of Stock that are subject
to a  Restricted  Unit Award or  Deferred  Unit Award and for any reason are not
issued to a director shall  automatically  become  available again for use under
the Plan.                                                                       

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           4.2.  ANTI-DILUTION.  If the event of any  change in the Stock of the
Company, through merger, consolidation, reorganization,  recapitalization, stock
dividend,  stock split,  spinoff,  split up, dividend in kind or other change in
the  corporate  structure  or  distribution  to  the  stockholders,  appropriate
adjustments  shall be made in the aggregate number and kind of shares subject to
the Plan,  and the number and kind of shares which may be issued under the Plan.
In addition,  the rights under outstanding  Options,  Restricted Unit Awards and
Deferred Unit Awards granted hereunder,  both as to the number of subject shares
and, with respect to Options, the Option Price, shall be adjusted appropriately.

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

4.3. SALE OF COMPANY.                                     

           (a) TREATMENT OF OPTIONS.  Each Option Award  Agreement shall provide
that,  upon a Sale,  the Board may elect either to (i) continue the  outstanding
Options  without  any  payment  or (ii)  cause to be paid to the  Optionee  upon
consummation  of the Sale,  a payment  equal to the excess,  if any, of the sale
consideration  receivable  by the holders of shares of Stock in such a Sale (the
"Sale Consideration") over the Option Price. If the Board elects to continue the
Option, then the Company shall cause effective provisions to be made so that the
Optionee shall have the right,  by exercising the Option prior to its expiration
date, to purchase or otherwise obtain the kind and amount of shares of Stock and
other  securities  and  property  receivable  upon  such Sale by a holder of the
number of shares of Stock that might have been  purchased  upon  exercise of the
Option  immediately  prior to the  Sale.  The  value  of the Sale  Consideration
receivable  by the  holder of a share of Stock,  if it shall be other than cash,
shall be determined,  in good faith, by the Board.  Upon payment to the Optionee
of the  Sale  Consideration,  the  Optionee  shall  have no  further  rights  in
connection  with  the  Option  granted,  the  Option  shall  be  terminated  and
surrendered for cancellation and the Option shall be null and void.             

           (b)  TREATMENT OF STOCK  ACCOUNTS.  Notwithstanding  any provision of
this Plan to the contrary, in the event a Sale of the Company occurs, within ten
(10)  days of the date of such  Sale,  each  director  shall  receive a lump sum
distribution  in cash  equal to the value of all Stock  Units  credited  to such
director's Stock Account as of distribution (based upon the Sale Consideration).

 ARTICLE V

 OPTIONS

5.1. OPTION GRANT; NUMBER OF SHARES; AND AGREEMENT.       

           (a) ANNUAL GRANT OF OPTIONS.  Subject to the provisions hereof,  each
     Eligible  Director  shall be granted an Option to  purchase  Five  Thousand
     (5,000)  shares  of Stock on the Date of Grant  (the  "Annual  Grant").  No
     Eligible  Director  may receive  more than one Annual Grant in any calendar
year.                                                                 

           (b) AGREEMENT.  Each Option so granted shall be evidenced by an Award
     Agreement,  dated as of the Date of Grant,  and executed by the Company and
     the Optionee,  stating the Option's duration,  exercise period and exercise
     price.  The terms and conditions of the Option shall be consistent with the
Plan.                                                                 

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           5.2.  OPTION  PRICE.  The Option  Price of the Stock  subject to each
Option  shall  be the  Fair  Market  Value  of the  Stock  on  the  trading  day
immediately preceding its Date of Grant.                                        

           5.3.  OPTION  EXPIRATION.  Each  Option  shall  expire  on the  tenth
anniversary of such Option's Date of Grant (the "Expiration Date").             

5.4.  OPTION EXERCISE.                                    

           (a) Any Option granted under the Plan may not be exercised,  in whole
     or in part,  until the first  anniversary of the Date of Grant,  subject to
     Section 4.3 hereof and any additional  conditions  imposed by the Board and
     set forth in an Award Agreement.  If an Eligible  Director shall be removed
     "for  cause" as a member of the Board on or prior to the first  anniversary
     of the Date of Grant of any Option,  such  Option  shall  terminate  and be
     forfeited.  Subject to the  provisions  of this Section  5.4(a),  an Option
     shall remain exercisable at all times until the Expiration Date, regardless
     of whether the  Optionee  thereafter  continues to serve as a member of the
Board.                                                                

           (b) An  Option  may be  exercised  at any  time or from  time to time
     during the term of the Option as to any or all full shares that have become
     exercisable  in accordance  with this Section,  but not as to less than one
     hundred (100) shares of Stock unless the remaining shares of Stock that are
so exercisable are less than one hundred (100) shares of Stock.       

           (c) An Option shall be exercised by written notice of exercise of the
     Option, with respect to a specified number of shares of Stock, delivered to
     the Company at its principal office,  and by cash payment to the Company at
     said  office of the full  amount  of the  Option  Price for such  number of
     shares.  In addition  to, and prior to the  issuance of a  certificate  for
     shares  pursuant  to any Option  exercise,  the  Optionee  shall pay to the
     Company in cash,  the full amount of any federal,  state or local income or
     employment taxes required to be withheld by the Company as a result of such
exercise.                                                             

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

           5.5.  NONTRANSFERABILITY  OF OPTION. Unless otherwise provided in the
relevant  Award  Agreement,  Options  may  not  be  transferred  by an  Optionee
otherwise than by will or the laws of descent and distribution or by a Qualified
Domestic  Relations  Order.  Unless  otherwise  provided in the  relevant  Award
Agreement,  during  the  lifetime  of an  Optionee,  his  or her  Option  may be
exercised only by him or her (or by his or her guardian or legal representative,
should  one be  appointed)  or by his or her  spouse to whom the Option has been
transferred  pursuant to a Qualified  Domestic  Relations Order. In the event of

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the death of an Optionee,  any Option held by him or her may be exercised by his
or  her  legatee(s)  or  other   distributee(s)   or  by  his  or  her  personal
representative(s).                                                              

           5.6. NO REPRICING.  Notwithstanding  Article IX hereof, no Option may
be repriced or otherwise adjusted to effect, directly or indirectly, a repricing
of such Option.                                                                 

ARTICLE VI

 RESTRICTED UNITS AND DEFERRAL OF FEES

           6.1. ANNUAL GRANTS OF RESTRICTED  UNITS. Each Eligible Director shall
be granted a Restricted  Unit Award equal to Two Thousand  Five Hundred  (2,500)
shares of Stock on the Date of Grant (the "Annual  Restricted  Unit Grant").  No
Eligible  Director may receive more than one Annual Restricted Unit Grant in any
calendar year. The Restricted Unit Award shall be credited as Stock Units to the
director's Stock Account. Each Restricted Unit Award shall vest as to 25% of the
Common Stock subject to the Restricted Unit Award on the first  anniversary date
of the applicable Date of Grant,  and as to an additional 25% on each succeeding
anniversary  date,  so as to be 100% vested on the fourth  anniversary  thereof,
subject to Section 4.3 hereof and any additional conditions imposed by the Board
and set forth in an Award  Agreement.  If an Eligible  Director shall be removed
"for  cause" as a member of the Board on or prior to the fourth  anniversary  of
the Date of Grant of any  Restricted  Unit Award,  any unvested  portion of such
Award shall  terminate  and be  forfeited  in its  entirety  and any Stock Units
relating to the  unvested  portion of such Award shall be  subtracted  from such
director's Stock Account.                                                       

           6.2.  DEFERRAL  ELECTIONS.  An Eligible  Director  may elect to defer
receipt of all or a  specified  portion of the annual  retainer  fees  otherwise
payable  in cash to the  Eligible  Director  for  serving  on the  Board  or any
committee  thereof.  An  Eligible  Director  may  make the  elections  permitted
hereunder  by giving  written  notice to the  Company in a form  approved by the
Board.  The notice shall include:  (a) the percentage of annual retainer fees to
be  deferred,  and (b) the time as of which  deferral  is to  commence.  Amounts
deferred by a director  pursuant to this  Section  6.2 shall be  converted  into
Stock Units in accordance with Section 6.4.                                     

           6.3 TIME FOR ELECTING  DEFERRAL.  A deferral election with respect to
any annual  retainer  fees earned for a calendar  year must be made prior to the
beginning  of that  calendar  year;  provided,  that (a) for fees  earned  by an
Eligible Director after June 30, 2004 and through December 31, 2004, an election
must be made no later than June 1,  2004,  and (b) if an  individual  becomes an
Eligible  Director after the first day of a calendar  year, a deferral  election
must be made  within  thirty  (30) days of the date such  individual  becomes an
Eligible Director. Directors shall not be eligible to defer fees earned prior to
July 1, 2004. A deferral  election  shall  continue in effect until the Eligible
Director  terminates  service  with the  Board,  unless  the  Eligible  Director
provides the Board with a  subsequent  election to (x) alter the portion of such
amounts  deferred  or (y)  revoke  an  election  to defer  such  amounts,  which
subsequent  election shall not be effective  until at least six (6) months after
the date such election is submitted to the Company.                             

           6.4 STOCK  ACCOUNTS.  A Stock Account shall be  established  for each
Eligible  Director.  Annual  Restricted  Unit Grants  shall be credited as Stock
Units directly to the Stock Account. Fees deferred by an Eligible Director shall
be converted into a Deferred Unit Award,  which shall be credited as Stock Units
to the Eligible  Director's Stock Account as of the date such amounts would have
otherwise  been paid in cash to the Eligible  Director.  The  conversion  of the
director's  fees into a Deferred  Unit Award  shall be based on the Fair  Market
Value of the Stock as of the date of conversion.  An Eligible  Director's  Stock
Account shall also be credited with dividends and other  distributions  pursuant
to Section  6.5. No interest  shall be credited on fees  deferred by an Eligible

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Director.  Fractional  shares  shall be credited to a director's  Stock  Account
cumulatively  but the  balance of shares of Stock  Units in a  director's  Stock
Account shall be rounded to the next highest whole share for any payment to such
director pursuant to Section 6.7.                                               

           6.5  DIVIDENDS  EQUIVALENTS  ON  STOCK  UNITS.  Dividends  and  other
distributions  on Stock Units credited to an Eligible  Director's  Stock Account
shall be deemed to have been paid as if such Stock Units were  actual  shares of
Stock issued and outstanding as of the respective record or distribution  dates.
No interest shall be credited on such amounts.  Such dividends and distributions
shall be  converted  into Stock Units and  credited to the  Eligible  Director's
Stock Account as of the respective record or distribution  dates. The conversion
of such dividends and distributions  into Stock Units shall be based on the Fair
Market Value of the Stock as of the date of conversion.  Fractional shares shall
be credited to a director's Stock Account cumulatively but the balance of shares
of Stock  Units in a  director's  Stock  Account  shall be  rounded  to the next
highest whole share for any payment to such director pursuant to Section 6.7.   

           6.6 STATEMENT OF ACCOUNTS.  A statement will be sent to each Eligible
Director  as to the  balance  of his or her  Stock  Account  at least  once each
calendar year.                                                                  

           6.7  PAYMENT  OF  ACCOUNTS.  An  Eligible  Director  shall  receive a
distribution  of his or her Stock Account  within 180 days  following his or her
termination of services as a director.  Such  distribution  shall consist of one
share of Stock for each Stock Unit credited to such director's  Stock Account as
of the date of  distribution.  If at any time the  Board  shall  determine  that
payment  of  shares  of  Stock  to an  Eligible  Director  or the  ownership  or
subsequent  disposition  of such Stock by such  director may violate or conflict
with any applicable law or regulation, the Board may, in its discretion, pay all
or a portion of the  director's  Stock Account in cash. In this case, the amount
of cash shall be determined with reference to the Fair Market Value of the Stock
for the trading day immediately preceding the payment date.                     

           6.8  DESIGNATION OF  BENEFICIARY;  PAYMENTS TO A DECEASED  DIRECTOR'S
ESTATE.  An Eligible  Director may designate a beneficiary on a form approved by
the Board.  In the event of a director's  death before the balance of his or her
Stock  Account is fully  paid to the  director,  payment  of the  balance of the
director's Stock Account shall then be made to his or her designated beneficiary
or, if no valid  designation has been made, to his or her estate in the time and
manner selected by the Board. The Board may take into account the application of
any duly appointed  administrator or executor of an Eligible  Director's  estate
and direct that the balance of the  director's  Stock  Account be paid to his or
her estate in the manner requested by such application.                         

 ARTICLE VII

[RESERVED]

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ARTICLE VIII

 TERMINATION, AMENDMENT AND MODIFICATION OF THE PLAN

           The Board,  in its sole  discretion,  may at any time  terminate  the
Plan, and may, at any time, and from time to time and in any respect, subject to
Section 5.6 hereof,  amend or modify the Plan. The Board may, subject to Section
5.6 hereof,  amend the terms of any award  theretofore  granted  under the Plan;
provided,  however, that subject to Section 4.1 hereof, no such amendment may be
made by the  Board  that,  in any  material  respect,  impairs  the  rights of a
participant without the participant's consent.                                  

ARTICLE IX

RELATIONSHIP TO OTHER COMPENSATION PLANS

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

 ARTICLE X

 MISCELLANEOUS

           10.1. PLAN BINDING ON SUCCESSORS.  The Plan shall be binding upon the
successors and assigns of the Company.                                          

           10.2.  ISSUANCE OF SHARES. The Company shall not be required to issue
or deliver any  certificates for shares of Stock (a) purchased upon the exercise
of any Option granted  hereunder or any portion  thereof,  (b) upon the lapse of
any  restrictions  applicable to a Restricted Unit Award, or (c) upon expiration
of the deferral period applicable to any Stock Units,  unless, in the opinion of
counsel to the Company,  there has been  compliance  with all  applicable  legal
requirements.  The Company's  obligation to deliver shares of Stock with respect
to any award under this Plan may be conditioned  upon the receipt by the Company
of a representation as to the investment intention of the recipient in such form
as the Company  shall  determine to be  necessary or advisable  solely to comply
with the  provisions of the  Securities  Act of 1933,  as amended,  or any other
federal,  state or local  securities  laws. All certificates for shares of Stock
delivered under the Plan shall be subject to such stop transfer orders and other
restrictions as the Company may deem advisable under the rules, regulations, and
other requirements of the Securities and Exchange Commission, any stock exchange
upon which the Stock is then listed, any federal, state or local securities laws
and  applicable  corporate law, and the Company may cause a legend or legends to
be  put  on  any  such  certificates  to  make  appropriate  reference  to  such
restrictions.                                                                   

           10.3. DIRECTOR'S RIGHTS UNSECURED. The Plan is unfunded. The right of
any Eligible  Director to receive payments of cash or Stock under the provisions
of the Plan  shall be an  unsecured  claim  against  the  general  assets of the
Company.                                                                        

           10.4.  WITHHOLDING.  The Company  shall have the right to deduct from
all  payments  hereunder  any taxes  required  by law to be  withheld  from such
payments.  The  recipients of such payments shall bear all taxes on amounts paid

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under the Plan to the extent that no taxes are withheld thereon, irrespective of
whether withholding is required.                                                

           10.5.  GOVERNING  LAW.  The Plan and each  Award  Agreement  shall be
governed by the laws of the State of Delaware, excluding any conflicts or choice
of  law  rule  or  principle  that  might   otherwise   refer   construction  or
interpretation  of the  Plan to the  substantive  law of  another  jurisdiction.
Unless otherwise  provided in the Award Agreement,  recipients of an Award under
the Plan are  deemed to submit to the  exclusive  jurisdiction  and venue of the
federal or state  courts of  Delaware,  to resolve  any and all issues  that may
arise out of or relate to the Plan or any related Award Agreement.              

           10.6. INDEMNIFICATION. Each person who is or shall have been a member
of the  Board,  or a  Committee  appointed  by the  Board,  or an officer of the
company to whom authority was delegated in accordance  with Article III shall be
indemnified  and held harmless by the Company  against and from any loss,  cost,
liability,  or expense that may be imposed upon or reasonably incurred by him or
her in connection with or resulting from any claim,  action, suit, or proceeding
to  which he or she may be a party  or in  which  he or she may be  involved  by
reason of any action  take or failure to act under the Plan and against and from
any and all amounts paid by him or her in settlement thereof, with the Company's
approval,  or paid by him or her in  satisfaction  of any  judgment  in any such
action,  suit, or proceeding  against him or her,  provided he or she shall give
the Company an  opportunity,  at its own expense,  to handle and defend the same
before he or she  undertakes  to handle and defend it on his or her own  behalf,
unless  such  loss,  cost,  liability,  or expense is a result of his or her own
willful misconduct or except as expressly provided by statute.                  

           The foregoing right of indemnification  shall not be exclusive of any
other rights of  indemnification to which such persons may be entitled under the
Company's  Certificate  of  Incorporation  of  Bylaws,  as a matter  of law,  or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.                                                                       

           10.7. SINGULAR,  PLURAL;  GENDER.  Whenever used herein, nouns in the
singular shall include the plural,  and the masculine  pronoun shall include the
feminine gender.                                                                

           10.8. HEADINGS. Headings of Articles and Sections hereof are inserted
for convenience and reference, and do not constitute a part of the Plan.        

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                                                                      APPENDIX E

PHARMACEUTICAL RESOURCES, INC.

 ANNUAL EXECUTIVE INCENTIVE PLAN

 EFFECTIVE JANUARY 1, 2004

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PHARMACEUTICAL RESOURCES, INC.
 ANNUAL EXECUTIVE INCENTIVE PLAN

ARTICLE 1. NAME.                                                                

     This plan  shall be known as the  "Pharmaceutical  Resources,  Inc.  Annual
Executive Incentive Plan, as amended from time to time (the "Plan").            

ARTICLE 2. PURPOSE AND INTENT.                                                  

     Pharmaceutical  Resources,  Inc. established this Plan effective January 1,
2004 for the purpose of providing certain of its senior executive  officers with
annual  incentive  compensation  based on the annual  performance of the Company
measured by an objective corporate financial  performance measure. The intent of
the Plan is to provide  "performance-based  compensation"  within the meaning of
Section  162(m)(4)(C) of the Code. The provisions of the Plan shall be construed
and interpreted to effectuate such intent.                                      

ARTICLE 3. DEFINITIONS.                                                         

     For  purposes of the Plan,  the  following  terms shall have the  following
meanings:                                                                       

     3.1    "AFFILIATE"  shall have the  meaning  ascribed  to such term in Rule
            12b-2  of the  General  Rules  and  Regulations  of  the  Securities
Exchange Act of 1934, as amended.                       

     3.2    "BOARD" OR "BOARD OF DIRECTORS"  means the Board of Directors of the
Company.                                                

     3.3    "CODE" means the Internal Revenue Code of 1986, as amended from time
            to time,  and  references  thereto shall include the valid  Treasury
regulations thereunder.                                 

     3.4    "COMMITTEE"  means all of the members of the  Compensation and Stock
            Option  Committee of the Board, or any other committee  delegated by
            the Board to handle compensation matters, who are Outside Directors.

     3.5    "COMPANY"   means   Pharmaceutical   Resources,   Inc.,  a  Delaware
corporation, and any successor thereto.                 

     3.6    "COVERED EMPLOYEE" for a Plan Year means any Employee of the Company
            who is a "Covered  Employee,"  as  defined in Section  162(m) of the
            Code and who is  designated,  either as an  individual  Employee  or
            class of  Employees,  by the  Committee  within  the  shorter of (i)
            ninety  (90) days  after the  beginning  of the Plan  Year,  or (ii)
            twenty-five  percent  (25%)  of the  period  of  service  which  has
           elapsed, as a "Covered Employee" under the Plan for such Plan Year.

     3.7    "EMPLOYEE" means any employee of the Company, its Affiliates, and/or
its Subsidiaries.                                       

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     3.8    "OPERATING  INCOME" means,  with respect to a Plan Year,  "operating
            income" of the  Company  determined  in  accordance  with  generally
            accepted  accounting  principles  that  would  be  reported  in  the
   Company's Annual Report to Stockholders for such Plan Year.

     3.9    "OUTSIDE DIRECTOR" means an "outside director" within the meaning of
Section 162(m)(4)(C)(i) of the Code.                    

     3.10   "PLAN  YEAR" means the shorter of the (i) fiscal year of the Company
            beginning  January 1 and ending  December  31, or (ii) the period of
service.                                                

     3.11   "SUBSIDIARY" means any corporation or other entity, whether domestic
            or  foreign,  in which  the  Company  has or  obtains,  directly  or
            indirectly,  a proprietary interest of more than fifty percent (50%)
by reason of stock ownership or otherwise.              

ARTICLE 4. ADMINISTRATION.                                                      

     The  Committee  shall  be  responsible  for  administering  the  Plan.  The
Committee shall have all of the powers  necessary to enable it to properly carry
out its duties under the Plan. Not in limitation of the foregoing, the Committee
shall have the power to construe and  interpret  the Plan and to  determine  all
questions that shall arise  thereunder.  The Committee shall have such other and
further specified duties, powers,  authority, and discretion as are elsewhere in
the Plan either  expressly or by necessary  implication  conferred  upon it. The
Committee may appoint such agents, who need not be members of the Committee,  as
it may deem  necessary  for the  effective  performance  of its duties,  and may
delegate  to such  agents  such  powers  and  duties as the  Committee  may deem
expedient or appropriate that are not inconsistent  with the intent of the Plan.
The  decision of the  Committee  upon all matters  within its scope of authority
shall be final and  conclusive  on all persons,  except to the extent  otherwise
provided by law.                                                                

ARTICLE 5. COVERED EMPLOYEE ANNUAL INCENTIVE AWARD                              

     5.1  ESTABLISHMENT  OF INCENTIVE POOL. No later than ninety (90) days after
the  beginning  of  each  Plan  Year  (or  otherwise  in  accordance   with  the
requirements   of  Section   162(m)(4)(C)  of  the  Code,  and  the  regulations
thereunder),  the Committee may designate  Covered Employees who are eligible to
receive  a  monetary  payment  in any  Plan  Year  based on a  percentage  of an
incentive pool equal to two percent (2%) of the Company's  Operating  Income for
the Plan Year. The Committee shall allocate an incentive pool percentage to each
designated  Covered  Employee  for  each  Plan  Year.  In no  event  may (i) the
incentive  pool  percentage  for any one Covered  Employee  exceed fifty percent
(50%) of the total pool, and (ii) the sum of the incentive pool  percentages for
all Covered  Employees  cannot  exceed one hundred  percent  (100%) of the total
pool.                                                                           

     5.2 DETERMINATION OF COVERED EMPLOYEES' PORTIONS. As soon as possible after
the  determination  of the incentive pool for a Plan Year,  the Committee  shall
calculate each Covered  Employee's  allocated portion of the incentive pool (the
"Incentive  Pool  Allocation")  based  upon the  percentage  established  at the
beginning of the Plan Year. Each Covered  Employee's  incentive award then shall
be determined by the Committee  based on the Covered  Employee's  Incentive Pool
Allocation  subject  to  adjustment  in the  sole  discretion  of the  Committee
pursuant  to Section  5.3.  In no event may the  portion of the  incentive  pool

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allocated to a Covered  Employee be increased in any way,  including as a result
of the reduction of any other Covered Employee's allocated portion.             

     5.3 ADJUSTMENT OF INCENTIVE POOL ALLOCATION.  The Incentive Pool Allocation
to a Covered Employee  pursuant to Section 5.2 may not be adjusted  upward.  The
Committee  shall retain the discretion to adjust such Incentive Pool  Allocation
downward  (including a reduction to zero),  either on a formula or discretionary
basis or any combination, as the Committee determines.                          

     5.4 FORM AND TIMING OF PAYMENT. The Incentive Pool Allocation,  as adjusted
pursuant to Section  5.3,  shall be paid in cash within two and  one-half  (2.5)
months  after the end of the Plan Year,  subject to Committee  certification  in
writing the amount of  Operating  Income for such Plan Year in  accordance  with
Section  162(m)(4)(C)(iii)  of the Code.  However,  the  Committee may permit or
require a Covered  Employee  to defer  receipt of the payment of cash that would
otherwise be payable to the Covered  Employee.  If any such deferral election is
required or permitted, the Committee,  shall, in its sole discretion,  establish
rules and procedures for such payment deferrals.                                

     5.5 TAX  WITHHOLDING.  The  Company  shall  have the power and the right to
deduct or withhold, or require the Covered Employee to remit to the Company, the
minimum statutory amount to satisfy federal, state, and local taxes, required by
law or  regulation to be withheld with respect to any taxable event arising as a
result of this Plan.                                                            

ARTICLE 6. TERMINATION OF EMPLOYMENT.                                           

     Except as provided  below, an award shall be paid for a Plan Year only to a
Covered  Employee  who is  actively  employed  by the  Company  (or on  approved
vacation or other approved leave of absence) throughout the Plan Year and who is
employed by the Company on the date the Incentive Pool Allocation award is paid.
To the extent  consistent with the  deductibility of awards under Section 162(m)
of the  Code  and the  regulations  thereunder,  the  Committee  may in its sole
discretion  grant an  Incentive  Pool  Allocation  award  for the Plan Year to a
Participant  who is first employed or who is promoted to a position  eligible to
become a Participant  under this Plan during the applicable  Plan Year, or whose
employment  is  terminated  during the Plan Year  because  of the  Participant's
death,  disability (as defined in Section 22(e)(3) of the Code),  retirement (as
determined by the Committee),  or termination by the Company without "cause" (as
determined by the Committee).  In such cases of active  employment for part of a
Plan Year, a pro rata Incentive Pool  Allocation  award may be paid for the Plan
Year.                                                                           

ARTICLE 7. BENEFICIARY DESIGNATION.                                             

     Each  Covered  Employee  under  the Plan may,  from time to time,  name any
beneficiary or beneficiaries  (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she  receives  any or all of such  benefit.  Each such  designation  shall
revoke all prior  designations by the same Covered Employee,  shall be in a form
prescribed  by the  Committee,  and will be  effective  only  when  filed by the
Covered  Employee  in writing  with the Company  during the  Covered  Employee's
lifetime.  In the absence of any such designation,  benefits remaining unpaid at
the Covered Employee's death shall be paid to the Covered Employee's estate.    

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ARTICLE 8. STOCKHOLDER APPROVAL.                                                

     The  effectiveness  of the Plan is subject to its approval and ratification
by  the   stockholders  of  the  Company  to  the  extent  required  by  Section
162(m)(4)(C)(ii) of the Code.                                                   

ARTICLE 9. AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN.                

     The Board may amend,  modify,  or terminate the Plan at any time,  provided
that no amendment,  modification,  or  termination  of the Plan shall reduce the
amount  payable  to a  Covered  Employee  under  the Plan as of the date of such
amendment, modification, or termination.                                        

ARTICLE 10. APPLICABLE LAW.                                                     

     The  Plan  shall  be  governed  by the  laws of the  State  of New  Jersey,
excluding any conflicts or choice of law rule or principle that might  otherwise
refer  construction  or  interpretation  of the Plan to the  substantive  law of
another  jurisdiction.  Participants  under the Plan are deemed to submit to the
exclusive  jurisdiction  and venue of the federal or state courts of New Jersey,
to resolve any and all issues that may arise out of or relate to the Plan or any
related award under the Plan.                                                   

ARTICLE 11. MISCELLANEOUS.                                                      

           (a) ASSIGNMENT.  A Covered  Employee's rights and interests under the
Plan may not be assigned or transferred by the Covered Employee.                

           (b)  UNFUNDED  PLAN.  Participants  shall  have no right,  title,  or
interest  whatsoever  in or to any  investments  that the  Company,  and/or  its
Subsidiaries,  and/or  Affiliates may make to aid it in meeting its  obligations
under the Plan.  Nothing  contained in the Plan, and no action taken pursuant to
its provisions, shall create or be construed to create a trust of any kind, or a
fiduciary  relationship  between the Company and any  Participant,  beneficiary,
legal  representative,  or any  other  person.  To the  extent  that any  person
acquires a right to receive payments from the Company,  and/or its Subsidiaries,
and/or  Affiliates under the Plan, such right shall be no greater than the right
of an unsecured general creditor of the Company, a Subsidiary,  or an Affiliate,
as the case may be. All  payments  to be made  hereunder  shall be paid from the
general funds of the Company, a Subsidiary,  or an Affiliate, as the case may be
and no special or  separate  fund shall be  established  and no  segregation  of
assets shall be made to assure  payment of such amounts  except as expressly set
forth in the Plan.                                                              

           (c) NO GUARANTEE OF EMPLOYMENT.  Designation as a Covered Employee in
the Plan  shall  not  entitle  or be deemed to  entitle  a Covered  Employee  to
continued employment with the Company.                                          

           (d) TAX  WITHHOLDING.  The Company shall have the power and the right
to deduct or withhold,  or require a  Participant  to remit to the Company,  the
minimum statutory amount to satisfy federal, state, and local taxes, domestic or
foreign,  required  by law or  regulation  to be  withheld  with  respect to any
taxable event arising as a result of this Plan.                                 

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           (e)  SEVERABILITY.  In the event any  provision  of the Plan shall be
held illegal or invalid for any reason,  the illegality or invalidity  shall not
affect the  remaining  parts of the Plan,  and the Plan shall be  construed  and
enforced as if the illegal or invalid provision had not been included.          

           (f) RETIREMENT AND WELFARE PLANS.  Neither awards made under the Plan
nor cash paid  pursuant to such awards,  may be included as  "compensation"  for
purposes  of  computing  the  benefits  payable  to any  Participant  under  the
Company's or any  Subsidiary's or Affiliate's  retirement  plans (both qualified
and  non-qualified)  or welfare  benefit plans unless such other plan  expressly
provides  that such  compensation  shall be taken into  account in  computing  a
Participant's benefit.                                                          

           (g)  NONEXCLUSIVITY  OF THE PLAN. The adoption of this Plan shall not
be construed as creating any  limitations on the power of the Board or Committee
to adopt such other  compensation  arrangements as it may deem desirable for any
Participant.                                                                    

           (h)  INDEMNIFICATION.  Each person who is or shall have been a member
of the  Board,  or a  Committee  appointed  by the  Board,  or an officer of the
company to whom  authority was  delegated in accordance  with this Plan shall be
indemnified  and held harmless by the Company  against and from any loss,  cost,
liability,  or expense that may be imposed upon or reasonably incurred by him or
her in connection with or resulting from any claim,  action, suit, or proceeding
to  which he or she may be a party  or in  which  he or she may be  involved  by
reason of any action  take or failure to act under the Plan and against and from
any and all amounts paid by him or her in settlement thereof, with the Company's
approval,  or paid by him or her in  satisfaction  of any  judgment  in any such
action,  suit, or proceeding  against him or her,  provided he or she shall give
the Company an  opportunity,  at its own expense,  to handle and defend the same
before he or she  undertakes  to handle and defend it on his or her own  behalf,
unless  such  loss,  cost,  liability,  or expense is a result of his or her own
willful  misconduct  or except as expressly  provided by statute.  The foregoing
right  of  indemnification  shall  not be  exclusive  of  any  other  rights  of
indemnification  to which  such  persons  may be  entitled  under the  Company's
Certificate of Incorporation of Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.        

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Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘DEF 14A’ Filing		Date		First		Last			Other Filings
		10/28/13		33		75
		9/30/10		4					10-Q
		3/22/10		16					4
		3/29/05		38
		1/11/05		38
		1/1/05		12
		12/31/04		80					10-K
		7/1/04		11		80
		6/30/04		80
		6/8/04		5
		6/1/04		80
For Period End:		5/26/04		1		51			3,  4,  4/A,  PRE 14A
		4/15/04		12					3
Filed on / Effective on:		4/13/04		1		39			8-K
		4/8/04		1		4
		3/26/04		38
		2/20/04		17
		2/9/04		16		21
		1/1/04		21		85
		12/31/03		4		37			10-K
		12/2/03		5		15			4
		11/24/03		13		18
		10/10/03		9					4
		9/16/03		14		21
		8/7/03		10
		7/1/03		11		21			4,  S-8
		6/19/03		9					8-K,  DEF 14A
		5/9/03		50
		2/6/03		16		21
		1/1/03		21
		12/31/02		13		37			10-K,  4
		12/18/02		17
		5/1/02		37					8-K,  8-K/A
		4/19/02		8
		3/31/02		37					10-Q
		1/4/02		21
		12/31/01		13		37			10-K
		7/12/01		20					DEF 14A
		12/31/00		37					10-K405
		3/23/00		16
		12/31/98		21					10-Q
		10/28/97		75					DEF 14A
		10/23/96		17					DEF 14A
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