FAULDING INC, DEF 14A, 1997-01-17

FAULDING INC
DEF 14A, 1997-01-17
PHARMACEUTICAL PREPARATIONS

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Section 240.14a-101 Schedule 14A.
Information required in proxy statement.
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12

FAULDING INC.
.................................................................
(Name of Registrant as Specified In Its Charter)

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

Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11

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

............................................................

(2) Aggregate number of securities to which transaction
applies:

.......................................................

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

.......................................................

(4) Proposed maximum aggregate value of transaction:

.......................................................

(5) Total fee paid:

.......................................................

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

(1) Amount Previously Paid:

.......................................................

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

.......................................................

(3) Filing Party:

.......................................................

(4) Date Filed:

.......................................................

[LOGO]
200 Elmora Avenue
Elizabeth, New Jersey 07207

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NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 12, 1997

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To the Stockholders:

The Annual Meeting of Stockholders of Faulding Inc., a Delaware
corporation (the "Company"), will be held on Wednesday, February 12, 1997 at
10:00 A.M. at the Newark Airport Marriott, Newark International Airport, Newark,
New Jersey, for the following purposes:

1. To elect six directors for the ensuing year;

2. To approve the adoption of the Faulding Inc. 1997 Stock Option
Plan;

3. To approve the amendment of the Faulding Inc. 1994 Stock
Option Plan;

4. To approve the selection of Deloitte & Touche LLP as the
Company's independent auditors for its fiscal year ending June
30, 1997; and

5. To transact such other business incidental to the Annual
Meeting as may properly come before the Annual Meeting or any
adjournment or postponement thereof.

Only stockholders of record at the close of business on January 10,
1997 are entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof.

William R. Griffith
Secretary

Elizabeth, New Jersey
January 15, 1997

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN THE
ENCLOSED PROXY WHICH IS SOLICITED BY THE COMPANY'S BOARD OF DIRECTORS AND RETURN
IT IN THE PRE-ADDRESSED ENVELOPE WHICH HAS BEEN PROVIDED. ANY STOCKHOLDER MAY
REVOKE HIS PROXY AT ANY TIME BEFORE THE MEETING BY WRITTEN NOTICE TO SUCH
EFFECT, BY SUBMITTING A SUBSEQUENTLY DATED PROXY OR BY ATTENDING THE MEETING AND
VOTING IN PERSON.

FAULDING INC.
200 Elmora Avenue
Elizabeth, New Jersey 07207

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PROXY STATEMENT

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This Proxy Statement is provided to the Faulding Inc. stockholders in
connection with the Annual Meeting. The Annual Meeting will be held on the date,
at the time and in the location, and will be held to consider the matters, set
forth under "The Annual Meeting." The Company's Board of Directors is soliciting
proxies hereby for use at the Annual Meeting. A form of proxy is being provided
to the stockholders with this Proxy Statement. Information with respect to the
execution and revocation of proxies is provided under the "The Annual Meeting -
Voting Rights." This Proxy Statement and the enclosed form of proxy are first
being mailed to stockholders on or about January 15, 1997.

The costs of solicitation of stockholder proxies will be borne by the
Company. The Company will reimburse brokers, fiduciaries, custodians and other
nominees for reasonable out-of-pocket expenses incurred in sending this Proxy
Statement and other proxy materials to, and obtaining instructions relating to
such materials from, the beneficial owners of the Company's Common Stock.
Proxies may be solicited by directors, executive officers or regular employees
of the Company, in person, by letter or by telephone.

THE ANNUAL MEETING

Purposes of Meeting

At the Annual Meeting, stockholders eligible to vote thereat will be
asked to consider and vote upon (i) the election of six directors for the
ensuing year, (ii) the approval of the adoption of the Faulding Inc. 1997 Stock
Option Plan, (iii) the approval of the amendment of the Faulding Inc. 1994 Stock
Option Plan; and (iv) ratification of the Board's selection of Deloitte & Touche
LLP as the Company's independent auditors for the Company's fiscal year ending
June 30, 1997.

The Board has unanimously approved the adoption of the Faulding Inc.
1997 Stock Option Plan and the amendment of the 1994 Stock Option Plan and
recommends that the Company's stockholders vote "FOR" each of these proposals.
The Board has also unanimously approved the nomination of each of the six
persons named elsewhere herein as nominees for election as directors of the
Company for the ensuing year, as well as the selection of Deloitte & Touche LLP
as the Company's independent auditors and recommends that stockholders vote
"FOR" each of such nominees and "FOR" the ratification of the Board's selection
of such auditors.

Date, Time and Place; Record Date

The Annual Meeting is scheduled to be held at 10:00 A.M., on Wednesday,
February 12, 1997, at the Newark Airport Marriott, Newark International Airport,
Newark, New Jersey. The Board has fixed the close of business on January 10,
1997 as the record date (the "Record Date") for the determination of holders of
Common Stock entitled to notice of and to vote at the Annual Meeting. On January
10, 1997, there were 15,068,060 shares of Common Stock (held by approximately
472 persons of record) outstanding and entitled to vote. Each share of Common
Stock is entitled to one vote. A majority of the shares of Common Stock issued
and outstanding and entitled to vote must be present at the Annual Meeting in
person or by proxy in order to constitute a quorum for the transaction of
business.

Required Vote

The affirmative vote of the holders of a majority of the shares of
Common Stock present and voting, in person or by proxy, at the Annual Meeting is
required to approve each of the matters to be presented at the Annual Meeting.

F.H. Faulding & Co. Limited ("F.H. Faulding"), through its wholly-owned
subsidiary Faulding Holdings Inc. ("Faulding Holdings"), owns a majority of the
Company's outstanding Common Stock. As a result, F.H. Faulding will have the
ability to determine the outcome of all of the proposals to be considered at the
Annual Meeting. F.H. Faulding has orally indicated to the Company its intention
to vote its shares in favor of the proposals to be considered and voted upon by
the stockholders at the Annual Meeting, and in favor of each of the nominees for
election as a director. Consequently, it is a virtual certainty that all of the
proposals will be approved, and each nominee will be elected as a director.

The Board is soliciting proxies so that each stockholder on the Record
Date has the opportunity to vote on the proposals to be considered at the Annual
Meeting. When a proxy card is returned properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a stockholder does not return a signed proxy card, his or her
shares will not be voted.

A broker who holds shares in street name will not be entitled to vote
on the proposals to approve the adoption of the 1997 Stock Option Plan and the
amendment of the 1994 Stock Option Plan without instructions from the beneficial
owner. This inability to vote is referred to as a broker non-vote. Stockholder
abstentions and broker non-votes will be counted for purposes of determining the
existence of a quorum at the Annual Meeting. Stockholders are urged to mark the
boxes on the proxy card to indicate how their shares will be voted. If a
stockholder (other than a broker which holds shares in street name for its
customers) returns a signed proxy card, but does not indicate how his or her
shares are to be voted, the shares represented by the proxy card will be voted
"FOR" the

proposals to approve the adoption of the 1997 Stock Option Plan and the
amendment of the 1994 Stock Option Plan, "FOR", each of the nominees for
election of directors and "FOR" ratification of the Board's selection of
independent auditors.

The proxy card also confers discretionary authority on the individuals
appointed by the Board and named on the proxy card to vote the shares
represented thereby on any other matter incidental to the Annual Meeting that is
properly presented for action at the Annual Meeting or any adjournment or
postponement thereof.

Any stockholder may revoke his proxy at any time before the Annual
Meeting by written notice to such effect received by the Company at 200 Elmora
Avenue, Elizabeth, New Jersey 07207, Attention: Corporate Secretary, by delivery
of a subsequently dated proxy, or by attending the Annual Meeting and voting in
person.

A list of stockholders entitled to vote at the Annual Meeting will be
available for examination by any stockholder at the Company's offices for a
period of ten days prior to the Annual Meeting and at the Annual Meeting itself.

ELECTION OF DIRECTORS

Information Concerning Nominees

Pursuant to a resolution adopted by the Board of Directors in
accordance with the Company's Bylaws, the number of directors to be elected at
the Annual Meeting has been fixed at six. The shares represented by the proxies
will be voted in favor of the election as directors of the persons named below
unless authority to do so is withheld. The directors elected will hold office
for a term of one year or until their respective successors are duly elected and
qualify. If any nominee is not a candidate for election at the Annual Meeting,
an event which the Faulding Board does not anticipate, the proxies will be voted
for a substitute nominee as well as for the other persons named below. Each of
the nominees, other than Mr. Griffith, currently serves as a Director of the
Company.

<TABLE>
<CAPTION>
Faulding Stock
Beneficially
Director Owned as of
Name Office(s) Since Age Jan. 10, 1997
---- --------- ---------- --- -------------
<S> <C> <C> <C> <C>
Edward D. Tweddell Director/Chairman 1990 56 -0-(1)
Richard F. Moldin President, Chief 1995 49 40,000(2)
Executive Officer, Director
Alan G. McGregor Director 1988 60 -0-(1)
Joseph C. Minio(3) Director 1997 53 -0-
Bruce C. Tully Director 1989 47 -0-
William R. Griffith Secretary - 48 -0-
</TABLE>

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(1) Mr. McGregor and Dr. Tweddell are Directors of F.H. Faulding, the
parent of Faulding Holdings Inc., the principal stockholder of the
Company. See "Principal Stockholders of the Company" and "Compensation
Committee Interlocks and Insider Participation".

(2) Includes 30,000 shares which may be acquired upon the exercise of
currently exercisable stock options. Excludes 170,000 shares issuable
upon the exercise of stock option awards, not presently exercisable,
that have been made to Mr. Moldin under the Company's 1994 Stock Option
Plan. See "Compensation of Executive Officers".

(3) Mr. Minio was appointed to the Board on January 3, 1997 to replace
David Beretta, who died in September 1996.

Edward D. Tweddell, M.D., was elected a Director in November 1990 and
was subsequently elected Chairman of the Board. He joined F.H. Faulding as
Managing Director of its Faulding Pharmaceuticals Division in September 1988. He
was elected to the Board of Directors of F.H. Faulding in March 1989 and served
as Executive Director of the Faulding Pharma Group from 1990 to November 1993
when he was appointed Group Managing Director and Chief Executive Officer of
F.H. Faulding. From July 1987, until joining F.H. Faulding, he held the position
of Chairman and Chief Executive Officer of Pharmol Pacific Ltd., an Australian
biotechnology company. Prior thereto and from April 1986, he was President and
Chief Executive Officer of Homecare Japan, LTD. Dr. Tweddell, who holds a
Bachelor of Science degree in addition to an honors degree in Medicine, spent
his early career in medical practice and, in 1976, joined the multinational
pharmaceutical company, Pfizer International Inc., where he held a number of
senior management positions.

Richard F. Moldin has been President and Chief Executive Officer of the
Company and President of Purepac Pharmaceutical Co., and a Director of such
companies since July 1995. Since March 1996, Mr. Moldin has also served as Chief
Executive Officer of Faulding Medical Device Co. and President of Faulding
Puerto Rico, Inc. Since July 1996, Mr. Moldin has also served as President of
Faulding Pharmaceutical Co. Prior to joining the Company and from October 1994
he served as Managing Director, Australia & New Zealand for Wellcome Australia
Limited. From May 1993 until his appointment as Managing Director, he was
Divisional Manager, Primary Manufacturing, for Wellcome Foundation Limited, U.K.
Prior thereto and from September 1979, he served in various executive positions
at Burroughs Wellcome Co., U.S.A., including from October 1991 to February 1993
as Vice President, Logistics & Primary Manufacturing.

Alan G. McGregor, a Director of the Company since June 1988, is
Chairman of F.H. Faulding. Mr. McGregor is also the Chairman of James Hardie
Industries Ltd. and a Director of Burns, Philp & Co. Ltd. and other companies.
He has served as a partner in two major Adelaide, South Australia law firms and
was a Crown Prosecutor with the South Australian Crown Solicitor's Office.

Joseph C. Minio has served as Director of the Company since January 3,
1997. He has been President and Chief Executive Officer and a Director of Belle
Haven Management, Ltd. in Greenwich, Connecticut since 1986. Belle Haven is
engaged in the business of acquiring controlling positions in, and assuming
management control over, small and medium-sized under-performing companies. He
also served as President and Chief Executive Officer and a Director of
Interstate Distribution, Inc. a wholesale distributor of Health and Beauty Aids,
Fragrances and Pharmaceuticals from 1990 to 1991. In addition, he served as
President and Chief Executive Officer and a Director of Intelligent Business
Communications Corporation ("IBC") from 1986 to 1989. IBC was engaged in the
design, development, manufacture and marketing of advanced satellite data
control equipment, as well as vertical circuit switches and T-1 multiplexers for
both data and voice communications. From 1981 until 1986, Mr. Minio was
President and Chief Executive Officer and a Director of Publicker Industries,
Inc. of Greenwich, Connecticut, which was a manufacturer of alcohol and related
products. Since 1983, he has served as a Director of Alba-Waldensian, Inc. and
since 1993 he has served as a Director of Wellco Enterprises, Inc.

Bruce Tully, a Director of the Company since April 1989, has been a
Senior Managing Director of BT Securities Corporation, a subsidiary of Bankers
Trust New York Corporation in New York, New York, since October 1996, having
been a Managing Director since September 1989.

William R. Griffith has served as Secretary of the Company since
October 1993. Mr. Griffith is a member of Parker Duryee Rosoff & Haft, counsel
to the Company. Mr. Griffith has been a practicing attorney for more than ten
years. Parker Duryee Rosoff & Haft also acts as United States counsel to F.H.
Faulding.

Information Concerning the Board of Directors

During the Company's fiscal year ended June 30, 1996, the Board of
Directors held four meetings. All directors attended at least 75% of such
meetings.

The Board's Audit Committee is charged with the review of the
activities of the Company's independent auditors, including, but not limited to,
the review of fees, services and scope of audit. During the fiscal year ended
June 30, 1996, David Beretta and Bruce Tully served as the members of the Audit
Committee, with Mr. Tully serving as its Chairman. In January 1997, Joseph Minio
was appointed to serve on the Audit Committee in place of Mr. Beretta. The Audit
Committee met one time during the fiscal year ended June 30, 1996, with all
members in attendance.

The Compensation Committee of the Board is responsible for
establishing, approving and administering the policies which govern annual
executive salary levels and increases, incentive payments, the award of stock
grants under the Company's 1991 Restricted Stock Incentive Plan and the award of
stock options under its 1994 Stock Option Plan. During the fiscal year ended
June 30, 1996, Messrs. Beretta, Tweddell and McGregor served as members of the
Compensation Committee, with Mr. Beretta serving as its Chairman. In November
1996, Bruce Tully was appointed to serve on the Compensation Committee in place
of Mr. Beretta and Dr. Tweddell was appointed Chairman. The Compensation
Committee held no formal meetings during the fiscal year ended June 30, 1996,
but took action by written consent following informal meetings.

The Company does not have a nominating committee charged with the
search for, and recommendation to the Board, of potential candidates for Board
membership. This function is performed by the Board as a whole.

David Beretta and Bruce Tully each received $15,000 during the fiscal
year ended June 30, 1996 for his services as a Director of the Company. It is
expected that Messrs. Tully and Minio will receive a like amount for services as
a Director for the fiscal year ended June 30, 1997. None of the other Directors
receives any cash compensation for his services as such.

Section 16(a) Reporting Delinquencies

Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership ("Reports") with the Commission. Officers, directors and greater than
10% stockholders are required by the Commission's regulations to furnish the
Company with copies of all such reports.

Based solely on its review of the copies of such reports received by
it, or written representations from certain reporting persons that no reports
were required for those persons, the Company believes that, during the fiscal
year ended June 30, 1996 all filing requirements applicable to its officers,
directors and greater than 10% stockholders were complied with.

PROPOSAL TO APPROVE 1997 STOCK OPTION PLAN

The Company's Board of Directors adopted the Company's 1997 Stock
Option Plan (the "1997 Plan") on January 7, 1997, subject to stockholder
approval within one year thereafter. The following summary of the provisions of
the 1997 Plan is qualified in its entirety by express reference to the text of
the 1997 Plan attached as Exhibit 1 hereto.

Purpose

The purpose of the 1997 Plan is to advance the interests of the Company
by inducing persons of outstanding ability and potential to join and remain with
the Company, by encouraging and enabling employees, directors and consultants to
acquire proprietary interests in the Company and by providing the participating
employees, directors and consultants with additional incentive to promote the
success of the Company.

Administration

The 1997 Plan provides for its administration by the Board of Directors
or by a committee consisting of at least two persons chosen by the Board of
Directors (the "Committee"). The Committee has discretionary authority (subject
to certain restrictions) to determine the individuals to whom, the times at
which and the exercise price for which options will be granted. The Committee
also interprets the 1997 Plan and prescribes rules, regulations and forms
relating to its administration. The receipt of options by directors shall not
preclude their vote on any matters in connection with the administration or
interpretation of the 1997 Plan.

Shares Subject to the 1997 Plan

A total of 1,000,000 shares of Common Stock of the Company has been
reserved for issuance under the 1997 Plan. The 1997 Plan provides for
appropriate adjustments in the event of stock dividends, stock splits,
recapitalizations and other changes in the Company's capital structure. No
options have been granted under the 1997 Plan as of the date hereof.

Nature of Options

The Committee may grant options under the 1997 Plan ("Incentive Stock
Options") which are intended to meet the requirements of Section 422A of the
Internal Revenue Code of 1986, as amended ("the Code"). In addition, the
Committee may grant options under the 1997 Plan which are not intended to meet
the requirements of Section 422A of the Code ("Nonstatutory Stock Options"). The
Federal income tax consequences of both Incentive Stock Options and Nonstatutory
Stock Options are described below under "Federal Income Tax Consequences".

Eligibility

Subject to certain limitations as set forth in the 1997 Plan, options
to purchase shares may be granted thereunder to persons, including Committee
members, who, in the case of Incentive Stock Options, are full time employees
(including officers and directors) of either the Company or any subsidiary of
the Company, or, in the case of Nonstatutory Stock Options, are employees of or
non-employee directors of, or consultants to, the Company or any subsidiary of
the Company.

Option Price

The option price of the shares of Common Stock subject to an Incentive
Stock Option under the 1997 Plan may not be less than the fair market value of
the shares on the date upon which such option is granted. In addition, in the
case of an option holder of an Incentive Stock Option who owns, at the time the
option is granted, more than 10% of the total combined voting power of all
classes of stock of the Company or of a subsidiary of the Company (a "10%
Shareholder"), the purchase price of the shares may not be less than 110% of the
fair market value of the shares on the date upon which such option is granted.

Under the 1997 Plan, the option price may be paid for in full by the
surrender of shares of Common Stock of the Company. In such case, the fair
market value of the surrendered shares shall be determined by the Committee as
of the date of exercise in the same manner as the value is determined upon the
grant of an Incentive Stock Option.

The option price of the shares of Common Stock subject to Nonstatutory
Stock Options shall be determined by the Committee in its sole discretion.

Non-Transferability

Options granted under the 1997 Plan are not transferable other than by
will or the laws of descent and distribution and such options are exercisable,
during a holder's lifetime, only by such holder.

Restrictions on Exercise

No Incentive Stock Option granted under the 1997 Plan shall be
exercisable after the expiration of ten years from the date of its grant.
However, if an Incentive Stock Option is granted to a 10% Shareholder, such
option shall not be exercisable after the expiration of five years from the date
of its grant.

In no case may an option be exercised as to less than 100 shares at any
one time (or the remaining shares covered by the option if less than one
hundred).

Death, Disability or Termination of Employment

If the employment of an option holder under the 1997 Plan shall be
terminated voluntarily by the employee or if such termination shall be made for
cause, or if the services of a non-employee director shall be terminated
voluntarily by the director or for cause, all options shall become void as of
such date of termination. In the event of termination of the employment of an
option holder or the services of a non-employee director for any other reason,
such option may be exercised at any time within three months after such
termination (but in no event after the expiration of the option). For the
purposes of the 1997 Plan, the retirement of an individual either pursuant to a
pension or retirement plan adopted by the Company or at the normal retirement
date prescribed from time to time by the Company shall be deemed to be a
termination of such individual's employment other than voluntarily by the
employee or for cause.

If an option holder under the 1997 Plan (i) dies or becomes permanently
or totally disabled while employed by the Company or while serving as a
non-employee director of the Company or (ii) dies within three months after the
termination of his employment of service other than voluntarily or for cause,
then such options may be exercised by the option holder or his legatee,
legatees, his personal representatives or distributees at any time within one
year after his death or termination of employment due to disability.

Effect of Changes in the Capitalization of the Company

In the event of any merger, reorganization or other recapitalization of
the Company, an option holder under the 1997 Plan would be entitled to receive,
upon the exercise of his Option, the same consideration that he would have been
entitled to receive upon the happening of such corporate event, as if the option
holder had been, immediately prior to the event, the holder of the total number
of shares underlying his Option.

In the event that F.H. Faulding, either directly or indirectly through
a wholly owned subsidiary, ceases to beneficially own, or exercise voting or
dispositive control over, at least fifty (50%) percent of the Common Stock of
the Company on a fully diluted basis, then all Options then outstanding under
the 1997 Plan shall become immediately exercisable in full.

Notwithstanding the foregoing, if the Company's Common Stock should
cease to be publicly traded at any time in the future, an option holder under
the 1997 Plan who exercises his option at any time thereafter would be entitled
to receive only such number of shares or other consideration to the extent that
his option had vested on the date of the cessation of such public trading.

Amendment and Termination

The 1997 Plan (but not options previously granted thereunder) shall
terminate on January 6, 2007. Subject to certain limitations, the 1997 Plan may
be amended or terminated at an earlier date by the Company's Board of Directors
or by a majority of the outstanding shares entitled to vote thereon.

Federal Income Tax Consequences

The following material summarizes the principal anticipated federal
income tax consequences of grants under the 1997 Plan to participants and the
Company.

Consequences to Participants

Incentive stock options. No income results to the holder of an
Incentive Stock Option upon the grant of the option or issuance of shares. The
amount realized on the sale or taxable exchange of such shares in excess of the
option price will be considered a capital gain, except that, if a disposition
occurs within one year after exercise of the option or two years after the grant
of the option, the option holder will realize compensation, for federal income
tax purposes, on the amount by which the lesser of (i) the fair market value on
the date of exercise or (ii) the amount realized on the sale of the shares,
exceeds the option price. For the purpose of determining alternative minimum
taxable income, an Incentive Stock Option is treated as a non-qualified option.
The fair market value of shares for which an option holder may be granted
Incentive Stock Options which are exercisable for the first time during any year
may not exceed $100,000.

Non-statutory options. In connection with the exercise of a
non-statutory option, an option holder will generally realize compensation, for
federal income tax purposes, on the difference between the option price and the
fair market value of the shares acquired.

Payment of option price in shares. If an option is exercised and
payment is made by means of previously held shares, there is no gain or loss
recognized to the option holder on the previously held shares. In the case of a
non-statutory option, the option holder's basis and holding period of the
previously held shares will be carried over to an equivalent number of shares
received upon exercise of the option. Any additional shares received under the
option will have a basis equal to the compensation realized by the option holder
for federal income tax purposes plus the amount of any additional cash paid.

Exercising a non-statutory option with shares which were originally
acquired on the exercise of an Incentive Stock Option will not constitute a
"disqualifying disposition" of such previously held shares. If, however, the new
shares are not held for the balance of the required holding period, there will
be a disqualifying disposition for federal income tax purposes, resulting in
recognition of compensation to the option holder in an amount equal to the
excess of the fair market value over the option price at the time such incentive
shares were originally acquired (but not in excess of the option holder's gain).
However, exercising an Incentive Stock Option with shares acquired on the
exercise of an Incentive Stock Option will constitute a disqualifying
disposition of such previously held shares if the one-and-two-year holding
periods described above have not been met before such exercise.

Tax withholding rights. Upon delivery to the Company of previously-held
shares to satisfy withholding or other tax obligations of a participant pursuant
to tax withholding rights, the difference

between the fair market value of, and the participant's basis for, such shares
would be a capital gain or loss to the participant for federal income tax
purposes.

Consequences to the Company

To the extent individual option holders qualify for capital gains tax
treatment, neither the Company nor its affiliates will generally be entitled to
a deduction for federal income tax purposes. In other cases, the Company or its
affiliates will generally receive a federal income tax deduction at the same
time as and in the same amount as the amount which is taxable to the employee as
compensation, except as provided below.

Board Recommendation

The affirmative vote of the holders of a majority of the shares of
Common Stock of the Company present and voting in person or by proxy at the
Meeting is required for approval of this proposal. The Board recommends a vote
FOR such proposal.

PROPOSAL TO AMEND 1994 STOCK OPTION PLAN

On October 18, 1994 the stockholders of the Company approved the
Company's 1994 Stock Option Plan (the "1994 Plan"). In all respects except one,
the provisions of the 1994 Plan are identical to those of the 1997 Stock Option
Plan as described above (See "PROPOSAL TO APPROVE 1997 STOCK OPTION PLAN"). The
sole distinction is that the 1994 Plan does not specifically address the
consequences to Option holders in the event that the beneficial stockholding of
F.H. Faulding falls below 50% of the outstanding Common Stock of the Company on
a fully diluted basis, as does the 1997 Plan.

The proposed amendment to the 1994 Plan would replicate the specific
provision of the proposed 1997 Plan relating to such a circumstance so as to
provide Option holders under the 1994 Plan with the same benefit as under the
1997 Plan. Amended Section 12 of the 1994 Plan would provide that in the event
that F.H. Faulding, either directly or indirectly through a wholly owned
subsidiary, ceases to benefiically own, or exercise voting or dispositive
control over, at least fifty (50%) percent of the outstanding Common Stock of
the Company on a fully diluted basis, then all Options then outstanding under
the 1994 Plan would become immediately exercisable in full.

The foregoing summary of the 1994 Plan, as amended, is qualified in its
entirety by express reference to the text of Section 12 of the 1994 Plan
attached as Exhibit 2 hereto.

Board Recommendation

The affirmative vote of the holders of a majority of the shares of
Common Stock of the Company present and voting in person or by proxy at the
Meeting is required for approval of this

proposal. The Board recommends a vote FOR such proposal.

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

Unless otherwise instructed, the persons named in the enclosed proxy
intend to vote the same in favor of the approval of the selection by the Board
of Directors of Deloitte & Touche LLP to serve as the Company's independent
auditors for the fiscal year ending June 30, 1997. That firm, an affiliate of
which is also F.H. Faulding's principal independent auditor, has reported to the
Company that none of its members has any direct financial interest or material
indirect financial interest in the Company or any of its subsidiaries, nor has
any member of such firm had any such connection during the past three years.

Deloitte & Touche LLP served as the Company's principal independent
auditor for the fiscal year ended June 30, 1996. A representative from Deloitte
& Touche LLP is expected to attend the Annual Meeting and will be afforded the
opportunity to make a statement or respond to appropriate questions from
stockholders or both.

PRICE RANGES OF FAULDING COMMON STOCK

The Company's Common Stock is traded on The Nasdaq National Market
under the trading symbol FAUL. The following table sets forth the range of high
and low closing sales prices of the Common Stock on The Nasdaq National Market.

For the quarter ended: High Low
---------------------- ---- ---

Fiscal 1995

September 30, 1994 $14.250 $ 8.000
December 31, 1994 16.250 10.125
March 31, 1995 11.625 8.750
June 30, 1995 11.375 8.375

Fiscal 1996

September 30, 1995 $10.875 $ 7.750
December 31, 1995 8.750 4.625
March 31, 1996 7.750 5.000
June 30, 1996 7.125 4.125

On January 10, 1997, the last reported closing bid price of the
Company's Common Stock was $6.875 per share.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On February 29, 1996, the Company acquired all of the outstanding
capital stock of each of Faulding Medical Device Co. ("FMD"), Faulding Puerto
Rico, Inc. ("FPR"), and Faulding Pharmaceutical Co. ("FPC") (collectively, the
"Acquired Companies") from Faulding Holdings, a wholly-owned subsidiary of F.H.
Faulding, in exchange for 2,438,712 shares of the Company's Common Stock. As
part of the acquisition, the Company created a Class B Preferred Stock with
150,000 authorized shares, all of which were issued to Faulding Holdings for a
cash purchase price of $100 per share, resulting in net proceeds to the Company
of $15 million.

During the years ended June 30, 1996, 1995 and 1994, the Company paid
F.H. Faulding $4,057,000 $2,289,000 and $3,789,000, respectively, for
merchandise purchases (pursuant to agreements to market injectable and oral
products, both described herein), $287,000, $918,000 and $1,007,000,
respectively, for research and development services and $603,000, $326,000 and
$123,,000, respectively, for interest expense on loan advances associated with
the Acquired Companies prior to the acquisition by the Company. In addition, the
Company paid Faulding Services Inc. ("Faulding Services") $296,000, $266,000 and
$186,000, respectively, for business development services (pursuant to an
agreement with Faulding Services which terminated on December 31, 1995 and
described herein). Faulding Services is a 100% owned subsidiary of Faulding
Holdings.

During the years ended June 30, 1996, 1995, and 1994, the Company was
reimbursed $466,000, $1,919,000 and $486,000, respectively, by F.H. Faulding for
materials and services related to research and development projects and $200,000
during the year ended June 30, 1994 for the sale to F.H. Faulding of the
Company's Poroplastic'r' technology.

Additionally, during the year ended June 30, 1996, the Company invoiced
$1,018,000 to Faulding Services for contract manufacturing of KADIAN'tm'
(pursuant to an agreement with Faulding Services, described herein).

During the year ended June 30, 1994, the Company paid Faulding Services
$623,000 for engineering and consulting services related to the construction of
a manufacturing suite to accommodate the modified-release technology.

Included in other assets at June 30, 1996 and 1995 is $2,903,000 paid
by the Company to F.H. Faulding in June 1992 to acquire the proprietary
technology, including the scientific information and expertise, processes and
procedures, for the manufacture and sale of the generic version of certain
modified-release pharmaceutical products. The acquired technology is restricted
to use, on an exclusive basis, in the United States of America and its
territories. Amortization of this technology will commence in fiscal 1997.

Amounts due from (due to) affiliated companies are payable on demand
and were (in thousands) as follows as of:

June 30, 1996 June 30, 1995
------------- -------------

F.H. Faulding $ (1,881) $ 1,843
Faulding Holdings --- 10
Faulding Services 1,034 (37)
------------ ------------
$ (847) $ 1,816
============ ============

The Company entered into an agreement with F.H. Faulding as of December
5, 1992, pursuant to which the Company agreed to provide services to F.H.
Faulding for the tableting of pellets and micro pellets on a time and materials
basis. During the year ended June 30, 1996, no related services were provided by
the Company to F.H. Faulding.

In addition, the Company and F.H. Faulding entered into a three-year
agreement, also dated as of December 5, 1992, which is automatically renewable
for successive two-year periods, pursuant to which F.H. Faulding granted the
Company a non-exclusive license to import, distribute and market an erythromycin
oral product in the United States.

On January 1, 1993, the Company and Faulding Services entered into a
consulting agreement, which terminated on December 31, 1995, pursuant to which
the Company retained Faulding Services to serve as a business development
consultant and advisor on a non-exclusive basis.

On August 1, 1993, the Company entered into a ten-year agreement with
Faulding Services to manufacture KADIAN'tm' utilizing F.H. Faulding technology,
processes and manufacturing methods licensed to Faulding Services. Faulding
Services, at its sole cost, has sought all necessary approvals and/or
registrations from the appropriate regulatory authority to enable the sale of
the product, which was approved by the FDA on July 3, 1996. Under that
agreement, the Company had commenced the manufacturing of KADIAN'tm' based on
orders received from Faulding Services and the initial income from this contract
was recorded in the quarter ending June 30, 1996. The parties amended this
agreement in December 1994 to resolve certain inconsistencies between this
agreement and an agreement with an unrelated third party, to distribute the
product manufactured by the Company. On June 27, 1995 the Company and Faulding
Services entered into a Services Agreement pursuant to which the Company agreed
to provide certain services on Faulding Services' behalf that Faulding Services
had agreed to provide under the agreement with the third party.

On March 15, 1995, the Company and F.H. Faulding entered into a
three-year non-exclusive license agreement for the Company to import and
distribute doxycycline, a delayed-release product, in the United States in
exchange for certain payments to F.H. Faulding for its supply of the product to
the Company.

The Company and F.H. Faulding entered into two agreements as of June
26, 1995 for two products that had been under ongoing development review for
several years. One is a licensing agreement pursuant to which F. H. Faulding
granted to the Company an exclusive ten-year license

to utilize certain technology to complete the development of a modified-release
product and manufacture and sell the product in the United States. Relating to
the product development, the Company paid to F.H. Faulding most of the
technology licensing fees prior to June 30, 1994 with the balance paid during
the year ended June 30, 1996, all expensed as research and development costs. In
addition, the Company will be obligated to pay royalties related to net sales of
the product. As of June 30, 1996, development activity regarding this agreement
has not continued.

The second agreement is a ten-year Co-development, Supply and Licensing
Agreement whereby F.H. Faulding will develop and deliver a certain component
pellet of a modified-release product for the Company's use in developing,
manufacturing and distributing such product in the United States. F.H. Faulding
will supply the Company with pellets at a price set forth in the agreement. If
the parties later concur that the Company will manufacture the pellets, F.H.
Faulding will grant the Company an exclusive license to the pellet technology
for the remainder of the term of the agreement in consideration of a technology
transfer fee of $250,000 and ongoing royalty payments. As of June 30, 1996,
development activity regarding this agreement has not continued.

On January 23, 1996, FPC and F.H. Faulding entered into a Supply
Agreement for injectable products developed and manufactured by F.H. Faulding
for sale in the United States. Supply of six anti-cancer products, under this
agreement, commenced in January 1996. ANDA submissions for additional products
covered by this agreement have been filed with the FDA. Additional products are
under development by F.H. Faulding.

On January 23, 1996, a Licensing and Supply Agreement was signed
between FMD and F.H. Faulding for the medical device products developed by FMD
for sale and distribution outside of the United States. Though such products
have not yet been launched in the United States, products utilizing these
technologies have received regulatory approval in some other markets.

The Company believes that the terms of the foregoing agreements are at
least as favorable as those it could have obtained in comparable nonaffiliated
third party transactions.

William R. Griffith, Secretary of the Company and a nominee for
election as a Director, is a member of Parker Duryee Rosoff & Haft P.C., a law
firm which has acted as legal counsel to the Company and its subsidiaries since
1989. During the fiscal year ended June 30, 1996, the Company and its
subsidiaries paid legal fees aggregating approximately $610,000 to such firm. In
addition, such firm has acted as primary United States counsel to F.H. Faulding,
Faulding Services and Faulding Holdings since 1987.

PERFORMANCE GRAPH

Set forth below is a line graph comparing the cumulative stockholder
return on the Company's Common Stock against the cumulative total return of the
NASDAQ Industrial Index and the NASDAQ Pharmaceutical Index for the Company's
fiscal years ended June 30, 1996, June 30, 1995, June 30, 1994, June 30, 1993
and June 30, 1992, respectively.

Comparison of Five Year Cumulative Return*
Among Faulding Inc.
The NASDAQ United States Index and the NASDAQ
Pharmaceutical Index

6/91 6/92 6/93 6/94 6/95 6/96
---- ---- ---- ---- ---- ----
Faulding Inc. 100 256 174 151 188 82
NASDAQ United States 100 120 151 153 204 261
NASDAQ Pharmaceutical 100 125 108 91 120 177

- --------
*$100 Invested on June 30, 1991 in Stock or Index

EXECUTIVE OFFICERS OF THE COMPANY

Set forth below is certain information with respect to the Company's
executive officers.

Richard F. Moldin, age 49, was appointed President and Chief Executive
Officer of the Company on July 17, 1995 and was appointed to serve as a Director
and acting Chief Operating Officer of the Company on July 24, 1995. See
"Election of Directors -Information Concerning Nominees" for additional
biographical information with respect to Mr. Moldin.

Lee H. Craker, age 41, was appointed Chief Financial Officer of the
Company on May 26, 1995. Mr. Craker has held various positions with F. H.
Faulding, or certain of its affiliates, dating from his initial employment by
F.H. Faulding in 1973. From May 1985 to May 1990 he served as Finance and
Administration Manager of David Bull Laboratories Pty. Ltd., a wholly owned
subsidiary of F.H. Faulding. From May 1990 to June 1994, he was Finance and
Administration Manager of the Faulding Pharma Group and from July 1994 until
joining the Company in May 1995, he was Finance and Administration Manager of
Faulding Services.

Compensation of Executive Officers

Summary Compensation

Set forth below is the aggregate compensation for services rendered in
all capacities to the Company during its fiscal years ended June 30, 1996, 1995
and 1994 by each of its executive officers who served as an executive officer on
June 30, 1996 and whose compensation exceeded $100,000 during its fiscal year
ended June 30, 1996:

Summary Compensation Table

<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------------------
(in thousands)
Name and Fiscal Other Annual
Principal Position Year Salary Bonus Compensation
------------------ ---- ------ ----- -------------
<S> <C> <C> <C> <C>
Richard F. Moldin 1996 $285 $105 (1)
Chief Executive Officer, 1995 --- --- ---
President and Chief Operating 1994 --- --- ---
Officer

Lee H. Craker 1996 $158 $ 38 (1)
Chief Financial Officer and 1995 78(2) --- ---
Treasurer 1994 --- --- ---
</TABLE>

(1) Such amounts for each of the named executive officers listed in the Summary
Compensation Table are less than 10% of the total annual salary and bonus
reported for each such executive officer.
(2) Mr. Craker became an employee of the Company on January 1, 1996.

Stock Options and Bonus Plans

The Company's 1994 Stock Option Plan (the "1994 Plan") was adopted by
the Board of Directors on August 16, 1994 and by a majority in interest of the
stockholders of the Company on October 18, 1994. The 1994 Plan provides for the
granting of up to 1,000,000 options which are intended to qualify either as
incentive stock options ("Incentive Stock Options") within the meaning of
Section 422 of the Internal Revenue Code of 1986 or as options which are not
intended to meet the requirements of such section ("Nonstatutory Stock
Options"). The total number of shares of Common Stock reserved for issuance
under the 1994 Plan is 1,000,000. Options to purchase shares may be granted
under the 1994 Plan to persons who, in the case of Incentive Stock Options, are
employees (including officers) of the Company, or, in the case of Nonstatutory
Stock Options, are employees (including officers) or non-employee directors of
the Company.

The 1994 Plan is administered by a committee appointed by the Board of
Directors, which has discretionary authority, subject to certain restrictions,
to determine the number of shares issued pursuant to Incentive Stock Options and
Nonstatutory Stock Options and the individuals to whom, the time at which, and
the exercise price for which options will be granted.

The exercise price of all Incentive Stock Options granted under the
1994 Plan must be at least equal to the fair market value of such shares on the
date of the grant or, in the case of Incentive Stock Options granted to the
holder of more than ten percent of the Company's Common Stock, at least 110% of
the fair market value of such shares on the date of the grant. The maximum
exercise period for which Incentive Stock Options may be granted is ten years
from the date of grant (five years in the case of an individual owning more than
10% of the Company's Common Stock). The aggregated fair market value (determined
at the date of the option grant) of shares with respect to which Incentive Stock
Options are exercisable for the first time by the holder of the options during
any calendar year shall not exceed $100,000.

The following table sets forth certain information concerning grants
of stock options to the executive officers of the Company under the 1994 Plan
during the fiscal year ended June 30, 1996.

Option Grants in Last Fiscal Year

<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
% of Total Options Stock Price
Granted to Appreciation for
Number of Employees in Option Term
Options Fiscal Year Ended ----------------
Name Granted June 30, 1996 Exercise Price Expiration Date 5%($) 10%($)
- ---- ----------- ------------------- -------------- --------------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Richard F. Moldin 150,000 25% $ 10.125 7/16/2005 6.555 17.285
Chief Executive
Officer, President and 50,000 8.3% $ 6.25 4/21/2006 4.040 10.670
Chief Operating Officer
</TABLE>

The following table sets forth certain information with respect to options
granted to the officers, directors and employees of the Company and its
subsidiaries under the 1994 Plan during the fiscal year ended June 30, 1996. The
dollar value set forth below reflects the difference between the aggregate
exercise price of the options and the estimated value of the Company's Common
Stock at June 30, 1996.

Fiscal Year End Option Values

<TABLE>
<CAPTION>
Value of
Number of Unexercised Options at Unexercised Options
June 30, 1996 at June 30, 1996
--------------------------------------------- ----------------
Exercisable Unexercisable
----------- -------------
<S> <C> <C> <C>
Richard F. Moldin -0- 200,000 $ -0-
Chief Executive Officer,
President and Chief
Operating Officer

All Non-Executive -0- 400,000 $ -0-
Employees as a Group
</TABLE>

1991 Restricted Stock Incentive Plan

The Company's 1991 Restricted Stock Incentive Plan (the "1991 Plan")
was adopted by the Board of Directors on November 25, 1991 and ratified by a
majority in interest of the stockholders of the Company on October 21, 1992. The
stated intent of the 1991 Plan is to induce persons of outstanding ability and
potential to join and remain with the Company and to enable key employees, who
make substantial contribution to the Company, to acquire proprietary equity
interests in the Company.

The Board of Directors chooses the Committee, whose members are
ineligible to receive stock awards under the 1991 Plan, to administer the Plan.
The Committee determines the employees to whom awards of Common Stock will be
granted and the amount, size and terms of each such award.

A total of 465,000 shares of Common Stock of the Company were reserved
for issuance under the 1991 Plan, of which aggregate grants of 275,000 and
50,000 were awarded in November 1991 and March 1993, respectively, at the
respective values of $8.125 and $13.8125, being the respective market value
thereof on the date of the grant. During the year ended June 30, 1994, due to
two resignations, grants totaling 27,500 shares were terminated and 82,250
shares were issued. During the year ended June 30, 1995, due to two
resignations, grants totaling 10,500 shares were terminated and 71,125 shares
were issued. During the year ended June 30, 1996, due to eight terminations,
grants totaling 47,000 shares were terminated and 44,625 shares were issued.

Pension Plan

The Company maintains a defined benefit pension plan, fully paid for by
the Company, for the benefit of eligible employees. All non-union employees
become eligible for participation in the pension plan on January 1 or July 1, as
applicable, following completion of one year of service. 161 persons were
participants in the pension plan as of June 30, 1996.

A participant in the Company's pension plan will receive retirement
income based on .91% of his final average annual compensation, defined in the
pension plan as including salary, bonuses, overtime and commissions, plus .52%
of his final average annual compensation in excess of Social Security covered
compensation, multiplied by years of credited service up to 35 years. Years of
service for benefit accrual purposes are only after January 1, 1976. Final
average compensation is defined in the pension plan as the average of a
participant's total compensation received during the highest paid five
consecutive plan years during the last 10 consecutive plan years immediately
prior to retirement. A participant is 100% vested in his accrued pension benefit
after five years of service as defined in the plan. The vested benefit of many
participants employed prior to October 31, 1989, are provided through both the
Purepac pension plan and the Solvay Group Pension Plan, the predecessor
Company's plan.

The following table indicates the estimated annual plan benefits
payable upon retirement as of June 30, 1996 at age sixty-five after fifteen,
twenty, twenty-five, thirty and thirty-five years of credited service to the
Company:

PENSION PLAN TABLE
(Dollars in thousands)

<TABLE>
<CAPTION>
Average
Compensation Annual Benefit Based on Years of Service
------------ --------------------------------------------------------------------------
15 20 25 30 35
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
$125,000 ........ $25 $33 $41 $50 $58
150,000 ........ 30 40 50 60 70
175,000 ........ 30 40 50 60 70
200,000 ........ 30 40 50 60 70
225,000 ........ 30 40 50 60 70
250,000 ........ 30 40 50 60 70
300,000 ........ 30 40 50 60 70
350,000 ........ 30 40 50 60 70
400,000 ........ 30 40 50 60 70
450,000 ........ 30 40 50 60 70
500,000 ........ 30 40 50 60 70
</TABLE>

At June 30, 1996, the credited years of service under the pension plan
for Mr. Moldin was one. Mr. Craker is not a participant in the pension plan.

Savings Plan

The Company has a savings plan, implemented as of January 1, 1990,
covering all non-union employees of the Company and its subsidiaries. Under the
savings plan, employees may defer up to 15% of their salary, to a maximum of
$9,000 per annum. The Company makes an annual matching contribution equal to 50%
of an employee's contribution, not exceeding 6% of the employee's salary.
Matching contributions are vested at the rate of 20% per annum commencing upon
one year's participation in the savings plan. All vested amounts in a
participant's account, including earnings, may be distributed only following
hardship, retirement, death, permanent or total disability or termination of
employment.

For the three year period ended June 30, 1996, the Company had
contributed an aggregate of $650,000 to the savings plan (net of forfeitures of
non-vested amounts), for the respective accounts of 193 participants. None of
such $650,000 has been credited to the accounts of any current executive
officers.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

General Compensation Policies

The Company's Compensation Committee (the "Committee") is responsible
for establishing, approving and administering the policies which govern annual
executive salary levels, increases/adjustments, incentive payments, the award
of stock grants under the Company's 1991 Restrictive Stock Incentive Plan and
the award of stock options under the Company's 1994 Stock Option Plan. During
the year ended June 30, 1996 and until the death of David Beretta on September
16, 1996, the Committee was composed of three members, all of whom were
non-employee directors. See "Compensation Committee Interlocks and Insider
Participation". It is anticipated that the Board of Directors will appoint a
replacement member for Mr. Beretta in the near future.

In setting salary levels, providing incentives and granting stock and
option incentives, the objectives of the Committee are to encourage profitable
growth of the Company in a mutuality of interest between the Company's
executives and stockholders and to balance competitive pay with the Company's
overall performance. Specifically, the Committee attempts to provide levels of
compensation to the President/CEO and the Company's other executive officers
which reflect the contribution of such executives to the Company's growth in
sales, earnings and market share, the development of stockholder value as
reflected in the increase in the Company's stock price and the implementation of
corporate strategies consistent with the growth of the Company.

Growth in earnings is a significant factor in determining compensation.
In addition, contribution to the development of new product opportunities, the
progress of bioavailability and other studies and of development activities
required to bring products to market and the successful marketing of the
Company's primary products are evaluated in setting compensation policy. As
well, to assure the Company's ability to attract, motivate and retain talented
executives, the Committee attempts to keep the Company's levels of executive
compensation competitive with that of other health care companies of comparable
size and performance.

President/CEO and Executive Officers Compensation

The Company's executive compensation program consists of three key
components: base salary, a cash incentive scheme and long term incentives
through the awards of restricted stock grants and stock options. The incentive
payments have two performance components, each with a 50% weighting: (a) a
financial budget achievement target based on net profit before taxes and (b)
achievement of specific job-related objectives. The underlying principle for the
design and implementation of the Company's incentive scheme is based on the
concept that the Company commit in advance to predetermined annual levels of
performance. Actual results achieved are measured against that commitment.

The Company's long term incentives to date have been in the form of
restricted stock and stock option grants. The object of these programs has been
to advance the longer term interest of the Company and its stockholders. Equity
compensation is an important element of the perfor-

mance-based compensation of the executive officers and helps to ensure that
management's interests remain closely aligned with those of the Company's
stockholders. The Committee is of the view that Restricted stock awards and
stock options grants provide the Company's key employees an opportunity for
increased equity ownership and help to create an incentive to remain with the
Company for the long term, since the grants vest over a four to six year period.

During the approximate five month period from January to July 17, 1995
Michael R.D. Ashton held the position of President and Chief Executive Officer
of the Company. His yearly salary as President of Faulding Services Inc. had
already been established, was not altered upon his acceptance of additional
responsibilities as President and CEO of the Company and was paid by Faulding
Services.

On July 17, 1995, the Company appointed Richard F. Moldin as its
President and Chief Executive Officer. Mr. Moldin's initial compensation package
reflected the Company's determination to recruit experienced executive officers
who had considerable experience in the pharmaceutical industry by offering them
compensation competitive with that of health care companies of comparable size
and performance. He received an initial base salary of $ 285,000 and a grant of
150,000 stock options under the 1994 Stock Option Plan.

Mr. Moldin received an additional grant of 50,000 stock options in
April 1996 and a cash incentive award of $105,000 in September, 1996. His
additional compensation reflected the Committee's assessment of Mr. Moldin's
leadership in strengthening the position of the Company, his efforts in
broadening the Company's base of operations to include the generic injectable
and medical device businesses and his leadership contribution in implementing
the Company's programs during the fiscal year ended June 30, 1996.

$1,000,000 Limit On Tax Deductible Compensation

As part of the Omnibus Budget Reconciliation Act passed by Congress in
1993, a new limit has been created for the deductibility of compensation paid to
certain officers. These officers are the Chief Executive Officer and the next
four most highly compensated officers in office at the end of the year.
Compensation paid to these officers in excess of $1,000,000, that is not
performance-based, cannot be claimed by the Company as a tax deduction.

It is the Committee's intention to continue to utilize
performance-based compensation. Accordingly, these regulations should not impact
the compensation paid by the Company to its officers.

Alan G. McGregor ) Members of the
Edward D. Tweddell ) Compensation Committee
September 23, 1996

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Dr. Tweddell is Group Managing Director and Chief Executive Officer and
a Director of F. H. Faulding. He is also a Director of Faulding Holdings, which
owns approximately 61.6% of the Company's Common Stock, plus preferred stock
convertible into additional shares of the Company's Common Stock. Alan McGregor
is Chairman of the Board and a Director of F.H. Faulding. See "Principal
Stockholders" and "Certain Relationships and Related Transactions."

PRINCIPAL STOCKHOLDERS OF THE COMPANY

The following table sets forth certain information regarding shares of
the Company's outstanding Common Stock beneficially owned on January 10, 1997
(i) by each person who is known by the Company to beneficially own or exercise
voting or dispositive control over more than 5% of the Company's Common Stock,
and (ii) by each of the Company's Directors, and (iii) by all executive officers
and Directors of the Company as a group:

Name of Number of Shares Percentage
Beneficial Owner Beneficially Owned of Class
- ---------------- ------------------ --------

Faulding Holdings Inc. 15,848,770(1) 73.3%(1)
529 Fifth Avenue
8th Floor
New York, New York 10017

All executive officers 40,000(2) *
and directors as a group
(9 persons)

(1) Includes 5,005,128 shares issuable upon conversion of 834,188 shares
of the Company's Class A Preferred Stock and 1,564,950 shares issuable
under conversion of 150,000 shares of the Company's Class B Preferred
Stock.

(2) Mr. McGregor is Chairman and a Director, and Dr. Tweddell is Group
Managing Director, Chief Executive Officer and a Director,
respectively, of F.H. Faulding, the sole stockholder of Faulding
Holdings. Dr. Tweddell is also a Director of Faulding Holdings. Each
of Dr. Tweddell and Mr. McGregor, however, disclaims any beneficial
interest in or voting or dispositive control over the shares of the
Company's Common Stock owned by Faulding Holdings. Excludes 170,000
shares issuable to, but not presently exercisable by, Mr. Moldin under
the 1994 Plan. Includes 30,000 shares which may be acquired upon the
exercise of currently exercisable options granted under the 1994 Plan.

* Equals a percentage less than 1% of the outstanding shares of the
Company's stock.

STOCKHOLDER PROPOSALS

Stockholders' proposals intended to be presented at the Company's 1997
Annual Meeting of Stockholders pursuant to the provisions of Rule 14a-8,
promulgated under the Exchange Act, must be received at the Company's offices
not later than September 1, 1997 for inclusion in the Company's Proxy Statement
and form of proxy relating to that meeting.

EXHIBIT I

FAULDING INC.

1997 STOCK OPTION PLAN

1. PURPOSE OF THE 1997 PLAN. The Faulding Inc. 1997 Stock Option Plan
(the "1997 Plan") is intended to advance the interests of Faulding Inc., a
Delaware corporation (the "Company"), by inducing persons of outstanding ability
and potential to join and remain with the Company, by encouraging and enabling
employees to acquire proprietary interests in the Company, and by providing the
participating employees with an additional incentive to promote the success of
the Company. This is accomplished by providing for the granting of "Options"
(which term as used herein includes both "Incentive Stock Options" and
"Nonstatutory Stock Options," as later defined) to qualified employees and
non-employee Directors and consultants.

2. ADMINISTRATION. The 1997 Plan shall be administered by the Board of
Directors of the Company (the "Board of Directors") or by a committee (the
"Committee") consisting of at least two persons chosen by the Board of
Directors. Except as herein specifically provided, the interpretation and
construction by the Board of Directors or the Committee of any provision of the
1997 Plan or of any Option granted under it shall be final and conclusive. The
receipt of Options by Directors, or any members of the Committee, shall not
preclude their vote on any matters in connection with the administration or
interpretation of the 1997 Plan, except as otherwise provided by law.

3. SHARES SUBJECT TO THE 1997 PLAN. The stock subject to grant under the
1997 Plan shall be shares of the Company's common stock, $.01 par value (the
"Common Stock"), whether authorized but unissued or held in the Company's
treasury or shares purchased from shareholders expressly for use under the 1997
Plan. The maximum number of shares of Common Stock which may be issued pursuant
to Options granted under the 1997 Plan shall not exceed one million (1,000,000)
shares, subject to adjustment in accordance with the provisions of Section 12
hereof. The Company shall at all times while the 1997 Plan is in force reserve
such number of shares of Common Stock as will be sufficient to satisfy the
requirements of all outstanding Options granted under the 1997 Plan. In the
event any Option granted under the 1997 Plan shall expire or terminate for any
reason without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, the unpurchased shares subject thereto shall
again be available for Options under the 1997 Plan.

4. PARTICIPATION. The class of persons which shall be eligible to
receive Options under the 1997 Plan shall be (i) with respect to Incentive Stock
Options described in Section 6 hereof, all key employees (including officers) of
either the Company or any subsidiary corporation of the Company, and (ii) with
respect to Nonstatutory Stock Options described in Section 7 hereof, any key
employee (including any officer) of, any non-employee Director of, or any
non-employee consultant to, either the Company or any subsidiary corporation of
the Company. The Board of Directors or the Committee, in its sole discretion,
but subject to the provisions of the 1997 Plan, shall determine the employees
and non-employee Directors and non-employee consultants to the Company or any
subsidiary corporation of the Company to whom Options shall be granted and the
number of shares to be covered by each Option taking into account the nature of
the employment or services rendered by the individuals being considered, their
annual compensation, their present and potential contributions to the success of
the Company and such other factors as the Board of Directors or the Committee
may deem relevant.

5. STOCK OPTION AGREEMENT. Each Option granted under the 1997 Plan shall
be authorized by the Board of Directors or the Committee and shall be evidenced
by a Stock Option Agreement which shall be executed by the Company and by the
person to whom such Option is granted. The Stock Option Agreement shall specify
the number

of shares of Common Stock as to which any Option is granted, the period during
which the Option is exercisable and the option price per share thereof.

6. INCENTIVE STOCK OPTIONS. The Board of Directors or the Committee may
grant Options under the 1997 Plan which are intended to meet the requirements of
Section 422A of the Internal Revenue Code of 1986 (the "Code") (such an Option
referred to herein as an "Incentive Stock Option"), and which are subject to the
following terms and conditions and any other terms and conditions as may at any
time be required by Section 422A of the Code:

(a) No Incentive Stock Option shall be granted to individuals other than
key employees of the Company or of a subsidiary corporation of the
Company.

(b) Each Incentive Stock Option under the 1997 Plan must be granted
prior to January 7 , 2007, which is within ten years from the date the
1997 Plan was adopted by the Board of Directors.

(c) The option price of the shares subject to any Incentive Stock Option
shall not be less than the fair market value of the Common Stock at the
time such Incentive Stock Option is granted; provided, however, if an
Incentive Stock Option is granted to an individual who owns, at the time
the Incentive Stock Option is granted, more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company
or of a subsidiary corporation of the Company, the option price of the
shares subject to the Incentive Stock Option shall be at least one
hundred ten percent (110%) of the fair market value of the Common Stock
at the time the Incentive Stock Option is granted.

(d) No Incentive Stock Option granted under the 1997 Plan shall be
exercisable after the expiration of ten (10) years from the date of its
grant. However, if an Incentive Stock Option is granted to an individual
who owns, at the time the Incentive Stock Option is granted, more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of a subsidiary corporation of the Company, such
Incentive Stock Option shall not be exercisable after the expiration of
five years from the date of its grant. Every Incentive Stock Option
granted under the 1997 Plan shall be subject to earlier termination as
expressly provided in Sections 10 and 12(d) hereof.

(e) For purposes of determining stock ownership under this Section 6,
the attribution rules of Section 425(d) of the Code shall apply.

(f) For purposes of the 1997 Plan, fair market value shall be determined
by the Board of Directors or the Committee and, unless another
reasonable method for determining fair market value is specified by the
Committee, the closing market price of a share of Common Stock as
reported by NASDAQ for the trading date next preceding the date in
question.

7. NONSTATUTORY STOCK OPTIONS. The Board of Directors or the Committee
may grant Options under the 1997 Plan which are not intended to meet the
requirements of Section 422A of the Code, as well as Options which are intended
to meet the requirements of Section 422A of the Code, but the terms of which
provide that they will not be treated as Incentive Stock Options (referred to
herein as a "Nonstatutory Stock Option"). Nonstatutory Stock Options which are
not intended to meet these requirements shall be subject to the following terms
and conditions:

(a) A Nonstatutory Stock Option may be granted to any person eligible to
receive an Option under the 1997 Plan pursuant to Section 4(ii) hereof,
except that no such Option may be granted to any person who owns stock
possessing more than 10% of the total combined voting power or value of
all classes of stock of the Company or the parent corporation or any
subsidiary corporation of the Company.

(b) The option price of the shares subject to a Nonstatutory Stock
Option shall be determined by the Board of Directors or the Committee,
in its absolute discretion, at the time of the grant of the Nonstatutory
Stock Option.

(c) A Nonstatutory Stock Option granted under the 1997 Plan may be of
such duration as shall be determined by the Board of Directors or the
Committee (not to exceed 10 years), and shall be subject to earlier
termination as expressly provided in Sections 10 and 12(d) hereof.

8. RIGHTS OF OPTION HOLDERS. The holder of any Option granted under the
1997 Plan shall have none of the rights of a stockholder with respect to the
shares covered by his Option until such shares shall be issued to him upon the
exercise of his Option.

9. TRANSFERABILITY. No Option granted under the 1997 Plan shall be
transferable by the individual to whom it was granted otherwise than by Will or
the laws of descent and distribution, and, during the lifetime of such
individual, shall not be exercisable by any other person, but only by him.

10. TERMINATION OF EMPLOYMENT OR DEATH.

(a) If the employment of an employee by, or the services of either a
non-employee Director of or a non-employee consultant to the Company or
a subsidiary corporation of the Company shall be terminated voluntarily
by the employee, the non-employee Director or the non-employee
consultant or for cause, then his Option shall expire forthwith. Except
as provided in subsections (b) and (c) of this Section 10, if such
employment or services shall terminate for any other reason, then such
Option may be exercised at any time within three months after such
termination, subject to the provisions of subparagraph (d) of this
Section 10. For purposes of the 1997 Plan, the retirement of an
individual either pursuant to a pension or retirement plan adopted by
the Company or at the normal retirement date prescribed from time to
time by the Company shall be deemed to be termination of such
individual's employment other than voluntarily or for cause. For
purposes of this subparagraph, an employee who leaves the employ of the
Company to become an employee of (i) a subsidiary corporation of the
Company or (ii) of a corporation (or its parent or subsidiary) that has
assumed the Option of the Company as a result of a corporate
reorganization, etc., shall not be considered to have terminated his
employment.

(b) If the holder of an Option under the 1997 Plan dies (i) while
employed by, or while serving as either a non-employee Director of or a
non-employee consultant to, the Company or a subsidiary corporation of
the Company, or (ii) within three months after the termination of his
employment or his services other than voluntarily or for cause, then
such Option may, subject to the provisions of subparagraph (d) of this
Section 10, be exercised by the estate of the employee, the non-employee
Director or the non-employee consultant or by a person who acquired the
right to exercise such Option by bequest or inheritance or by reason of
the death of such employee, non-employee Director or non-employee
consultant at any time within one year after such death.

(c) If the holder of an Option under the 1997 Plan ceases employment
because of permanent and total disability (within the meaning of Section
22(e)(3) of the Code) while employed by, or while serving as a
non-employee Director of or a non-employee consultant to, the Company or
a subsidiary corporation of the Company, then such Option may, subject
to the provisions of subparagraph (d) of this Section 10, be exercised
at any time within one year after his termination of employment or
termination of services due to the disability.

(d) An Option may not be exercised pursuant to this Section 10 except to
the extent that the holder was entitled to exercise the Option at the
time of termination of employment, termination of services, or death,
and in any event may not be exercised after the expiration of the
Option.

(e) For purposes of this Section 10, the employment relationship of an
employee of the Company or of a subsidiary corporation of the Company
will be treated as continuing intact while he is on military or sick
leave or other bona fide leave of absence (such as temporary employment
by the Government) if such leave does not exceed ninety days, or, if
longer, so long as his right to reemployment is guaranteed either by
statute or by contract.

11. EXERCISE OF OPTIONS.

(a) Unless otherwise provided in the Stock Option Agreement, any Option
granted under the 1997 Plan shall be exercisable in whole at any time,
or in part from time to time, prior to expiration. The Board of
Directors or the Committee, in its absolute discretion, may provide in
any Stock Option Agreement that the exercise of any Option granted under
the 1997 Plan shall be subject (i) to such condition or conditions as it
may impose, including, but not limited to, a condition that the holder
thereof remain in the employ or service of the Company or a subsidiary
corporation of the Company for such period or periods of time from the
date of grant of the Option, as the Board of Directors or the Committee,
in its absolute discretion, shall determine; and (ii) to such
limitations as it may impose, including, but not limited to, a
limitation that the aggregate fair market value of the Common Stock with
respect to which Incentive Stock Options are exercisable for the first
time by any employee during any calendar year (under all plans of the
Company and its parent and subsidiary corporations) shall not exceed One
Hundred Thousand Dollars ($100,000). In addition, in the event that
under any Stock Option Agreement the aggregate fair market value of the
Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by any employee during any calendar year
(under all plans of the Company and its parent and subsidiary
corporations) exceeds One Hundred Thousand Dollars ($100,000), the Board
of Directors or the Committee may, when shares are transferred upon
exercise of such Options, designate those shares which shall be treated
as transferred upon exercise of an Incentive Stock Option and those
shares which shall be treated as transferred upon exercise of a
Nonstatutory Stock Option.

(b) An Option granted under the 1997 Plan shall be exercised by the
delivery by the holder thereof to the Company at its principal office
(attention of the Secretary) of written notice of the number of shares
with respect to which the Option is being exercised. Such notice shall
be accompanied by payment of the full option price of such shares, and
payment of such option price shall be made by the holder's delivery of
his check payable to the order of the Company; provided, however, that
notwithstanding the foregoing provisions of this Section 11 or any other
terms, provisions or conditions of the 1997 Plan, at the written request
of the optionee and upon approval by the Board of Directors or the
Committee, shares acquired pursuant to the exercise of any Option may be
paid for in full at the time of exercise by the surrender of shares of
Common Stock of the Company held by or for the account of the optionee
at the time of exercise to the extent permitted by subsection (c)(5) of
Section 422A of the Code and, with respect to any person who is subject
to the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934, to the extent permitted by Section 16(b) of that
Act and the Rules of the Securities and Exchange Commission, without
liability to the Company. In such case, the fair market value of the
surrendered shares shall be determined by the Board of Directors or the
Committee as of the date of exercise in the same manner as such value is
determined upon the grant of an Incentive Stock Option.

12. ADJUSTMENT UPON CHANGE IN CAPITALIZATION.

(a) In the event that the outstanding Common Stock is hereafter changed
by reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, stock dividends
or the like, an appropriate adjustment shall be made by the Board of
Directors or the Committee in the aggregate number of shares available
under the 1997 Plan and in the number of shares and option price per
share subject to outstanding Options. Any adjustment in the number of
shares shall apply proportionately to only the unexercised portion of
the Option granted hereunder. If fractions of a share would result from
any such adjustment, the adjustment shall be revised to the next lower
whole number of shares.

(b) Subject to the provisions of Subsection (c) of this Section 12, if
the Company shall be reorganized, consolidated or merged with another
corporation, or if all or substantially all of the assets of the Company
shall be sold or exchanged, the holder of an Option shall be entitled to
receive upon the exercise of his Option (the timing of which, as set
forth in Section 11, is in the discretion of the Board of Directors or
the Committee) the same number and kind of shares of stock or the same
amount of property, cash or securities as he would have been entitled to
receive upon the happening of any such corporate event as if he had
been, immediately prior to such event, the holder of the number of
shares covered by his Option; provided, however, that in such event the
Board of Directors or the Committee shall have the discretionary power
to take any action necessary or appropriate to prevent any Incentive
Stock Option granted hereunder from being disqualified as an "incentive
stock option" under the then existing provisions of the Code or any law
amendatory thereof or supplemental thereto.

(c) In the event of a "Change of Control" (as hereinafter defined), all
Options then outstanding under the Plan shall become immediately
exercisable in full. Any amendment to this subsection which diminishes
the rights of Optionees shall not be effective with respect to Options
outstanding at the time of adoption of such amendment, whether or not
such outstanding Options are then exercisable. A "Change of Control"
shall be deemed to have occurred upon date that F.H. Faulding & Co.
Limited, either directly or indirectly through a wholly owned
subsidiary, ceases to beneficially own, or exercise voting or
dispositive control over, at least fifty (50%) percent of the
outstanding Common Stock of the Company on a fully diluted basis (i.e.,
calculated on a basis as if all of the issued and outstanding Class A
Preferred Stock of the Company and any other class of Preferred Stock,
which is convertible into Common Stock of the Company, shall have been
converted into Common Stock in accordance with their respective terms.)

(d) Notwithstanding the provisions of subsections (b) and (c) of this
Section 12, if the Common Stock of the Company shall cease to be
publicly traded at any time prior to January 7, 2007, then upon the
occurrence of such event, any Options theretofore granted under the Plan
that shall have not as yet vested shall thereupon automatically lapse in
their totality.

13. FURTHER CONDITIONS OF EXERCISE.

(a) Unless prior to the exercise of the Option the shares issuable upon
such exercise have been registered with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, the
notice of exercise shall be accompanied by a representation or agreement
of the individual exercising the Option to the Company to the effect
that such shares are being acquired for investment and not with a view
to the resale or distribution thereof or such other documentation as may
be required by the Company unless in the opinion of counsel to the
Company such representation, agreement or documentation is not necessary
to comply with such Act.

(b) The Company shall not be obligated to deliver any Common Stock until
it has been listed on each securities exchange on which the Common Stock
may then be listed or until there has been qualification under or
compliance with such state or federal laws, rules or regulations as the
Company may deem applicable. The Company shall use reasonable efforts to
obtain such listing, qualifications and compliance.

14. EFFECTIVENESS OF THE 1997 PLAN. The 1997 Plan was originally adopted
by the Board of Directors on January 7 , 1997. The 1997 Plan shall be subject to
approval by the affirmative vote of a majority of the outstanding shares of
capital stock of the Company present in person or by proxy at a meeting of
stockholders of the Company convened for such purpose prior to January 7 , 1998,
which is within one year of adoption of the 1997 Plan by the Board of Directors.
In the event such stockholder approval is withheld or otherwise not received on
or before the latter date, the 1997 Plan and all Options which may have been
granted thereunder shall become null and void.

15. TERMINATION, MODIFICATION AND AMENDMENT.

(a) The 1997 Plan (but not Options previously granted under the 1997
Plan) shall terminate on January 6, 2007, which is within ten years of
the date of its adoption by the Board of Directors, or sooner as
hereinafter provided, and no Option shall be granted after the
termination of the 1997 Plan.

(b) The 1997 Plan may from time to time be terminated, modified or
amended by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company present in person or
by proxy at a meeting of stockholders of the Company convened for such
purpose.

(c) The Board of Directors may at any time, on or before the termination
date referred to in Section 15(a) hereof, terminate the 1997 Plan, or
from time to time make such modifications or amendments to the 1997 Plan
as it may deem advisable; provided, however, that the Board of Directors
shall not, without approval by the affirmative vote of the holders of a
majority of the outstanding shares of capital stock of the Company
present in person or by proxy at a meeting of stockholders of the
Company convened for such purpose, increase (except as provided by
Section 12 hereof) the maximum number of shares as to which Incentive
Stock Options may be granted, or change the designation of the employees
or class of employees eligible to receive Options or make any other
change which would prevent any Incentive Stock Option granted hereunder
which is intended to be an "incentive stock option" from disqualifying
as such under the then existing provisions of the Code or any law
amendatory thereof or supplemental thereto.

(d) No termination, modification or amendment of the 1997 Plan may,
without the consent of the individual to whom an Option shall have been
previously granted, adversely affect the rights conferred by such
Option.

16. NOT A CONTRACT OF EMPLOYMENT. Nothing contained in the 1997 Plan or
in any Stock Option Agreement executed pursuant hereto shall be deemed to confer
upon any individual to whom an Option is or may be granted hereunder any right
to remain in the employ or service of the Company or a subsidiary corporation of
the Company.

17. USE OF PROCEEDS. The proceeds from the sale of shares pursuant to
Options granted under the 1997 Plan shall constitute general funds of the
Company.

18. INDEMNIFICATION OF BOARD OF DIRECTORS OR COMMITTEE. In addition to
such other rights of indemnification

as they may have, the members of the Board of Directors or the Committee, as the
case may be, shall be indemnified by the Company to the extent permitted under
applicable law against all costs and expenses reasonably incurred by them in
connection with any action, suit or proceeding to which they or any of them may
be a party by reason of any action taken or failure to act under or in
connection with the 1997 Plan or any rights granted thereunder and against all
amounts paid by them in settlement thereof or paid by them in satisfaction of a
judgment of any such action, suit or proceeding, except a judgment based upon a
finding of bad faith. Upon the institution of any such action, suit or
proceeding, the member or members of the Board of Directors or the Committee, as
the case may be, shall notify the Company in writing, giving the Company an
opportunity at its own cost to defend the same before such member or members
undertake to defend the same on their own behalf.

19. DEFINITIONS. For purposes of the 1997 Plan, the terms "parent
corporation" and "subsidiary corporation" shall have the same meanings as set
forth in Sections 425(e) and 425(f) of the Code, respectively, and the masculine
shall include the feminine and the neuter as the context requires.

20. GOVERNING LAW. The 1997 Plan shall be governed by, and all questions
arising hereunder shall be determined in accordance with, the laws of the State
of New Jersey.

<PAGE>
<PAGE>
EXHIBIT II

12. ADJUSTMENT UPON CHANGE IN CAPITALIZATION.

(a) In the event that the outstanding Common Stock is hereafter changed
by reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, stock dividends
or the like, an appropriate adjustment shall be made by the Board of
Directors or the Committee in the aggregate number of shares available
under the Plan and in the number of shares and option price per share
subject to outstanding Options. Any adjustment in the number of shares
shall apply proportionately to only the unexercised portion of the
Option granted hereunder. If fractions of a share would result from any
such adjustment, the adjustment shall be revised to the next lower whole
number of shares.

(d) Notwithstanding the provisions of subsections (b) and (c) of this
Section 12, if the Common Stock of the Company shall cease to be
publicly traded at any time prior to August 15, 2004, then upon the
occurrence of such event, any Options theretofore granted under the Plan
that shall have not as yet vested shall thereupon automatically lapse in
their totality.

APPENDIX 1
PROXY CARD
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF FAULDING INC.

The undersigned Stockholder of Faulding Inc., a Delaware corporation, hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy
Statement each dated January 15, 1997, and hereby appoints Lee Craker and Norman
Bierfriend, and each of them, proxies and attorneys-in-fact with full power to
each of them of substitution, on behalf and in the name of the undersigned, to
represent the undersigned at the Annual Meeting of Stockholders of Faulding
Inc., to be held on February 12, 1997 at 10:00 a.m., local time, at the Newark
Airport Marriott, Newark International Airport, Newark, New Jersey, and at any
adjournment or adjournments thereof, and to vote all shares of Common Stock
which the undersigned would be entitled to vote if then and there personally
present, on the matters set forth below:

1. Election of Directors:

[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
nominees listed below

If you wish to withhold authority to vote for any individual nominee, strike
a line through that nominee's name in the list below:

Edward D. Tweddell, Alan G. McGregor, Joseph C. Minio, Bruce C. Tully, Richard
F. Moldin, William R. Griffith

2. Proposal to approve the 1997 Stock Option Plan:

[ ] FOR [ ] AGAINST [ ] ABSTAIN

3. Proposal to amend the Company's 1994 Stock Option Plan:

[ ] FOR [ ] AGAINST [ ] ABSTAIN

4. Proposal to approve the appointment of Deloitte & Touche LLP as the
independent auditors for the Company's fiscal year ending June 30, 1997:
[ ] FOR [ ] AGAINST [ ] ABSTAIN

and upon such other matter or matters which may properly come before the meeting
or any adjournment or adjournments thereof.

(to be signed on reverse side)

<PAGE>
<PAGE>
(continued from other side)

THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR EACH OF THE NOMINEES FOR THE ELECTION OF DIRECTORS,
IN FAVOR OF EACH OF THE PROPOSALS SET FORTH ABOVE, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.

A majority of such attorneys or substitutes as shall be present and shall
act at said meeting or any adjournment or adjournments thereof (or if only one
shall be present and act, then that one) shall have and may exercise all of the
powers of said attorneys-in-fact hereunder.

DATED: ................... , 1997
.................................
SIGNATURE
.................................
SIGNATURE

(THIS PROXY SHOULD BE MARKED,
DATED, AND SIGNED BY THE
STOCKHOLDER(S) EXACTLY AS HIS NAME
APPEARS HEREON, AND RETURNED
PROMPTLY IN THE ENCLOSED ENVELOPE.
PERSONS SIGNING IN A FIDUCIARY
CAPACITY SHOULD SO INDICATE. IF
SHARES ARE HELD BY JOINT TENANTS
OR AS COMMUNITY PROPERTY, BOTH
SHOULD SIGN.)

STATEMENT OF DIFFERENCES

The trademark symbol shall be expressed as................................ 'tm'
The registered trademark symbol shall be expressed as...................... 'r'