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                                                                  EXHIBIT 10.63

                      WATSON GUARANTORS SECURITY AGREEMENT

         THIS WATSON GUARANTORS SECURITY AGREEMENT ("Security Agreement") is
made and entered into as of March 29, 2000, by HALSEY PHARMACEUTICALS, INC., a
Delaware corporation ("HP, Inc.," and a "Guarantor") and HOUBA, INC., an Indiana
corporation (individually, a "Guarantor," and together with HP, Inc., the
"Guarantors"); and WATSON PHARMACEUTICALS, INC., a Nevada corporation
("Lender").

                               W I T N E S S E T H

         WHEREAS, Halsey Drug Co., Inc., a New York corporation (the "Borrower")
and Lender have entered into a Loan Agreement dated as of the date hereof (as
the same may be amended, modified, supplemented or restated from time to time,
the "Loan Agreement"; terms which are capitalized herein and not otherwise
defined shall have the meanings ascribed to them in the Loan Agreement);

         WHEREAS, Each of the Guarantors has executed and delivered to Lender
the Watson Guaranty dated the date hereof (the "Watson Guaranty") of Borrower's
Obligations; and

         WHEREAS, Lender requires, as a condition precedent to the effectiveness
of the Loan Agreement, that the Guarantors (i) grant to Lender a security
interest in and to the Collateral (as defined in Section II below) and (ii)
execute and deliver this Security Agreement in order to secure the payment and
performance by such Guarantor of the Guaranty.

         NOW, THEREFORE, in consideration of the premises and in order to induce
Lender to enter into and perform the Loan Agreement, each Guarantor hereby
agrees as follows:

                                    SECTION I

                          CREATION OF SECURITY INTEREST

         Each Guarantor hereby pledges, assigns and grants to Lender a
continuing perfected lien on and security interest in all of such Guarantor's
right, title and interest in and to the Collateral (as defined in Section II
below) in order to secure the payment and performance of all Obligations owing
by such Guarantor.

                                   SECTION II

                                   COLLATERAL

         For purposes of this Security Agreement, the term "Collateral" shall
mean, with respect to each Guarantor, all of the kinds and types of real and
personal property described in subsections A through F hereof, whether now owned
or hereafter at any time arising, acquired or created by such Guarantor and
wherever located, and includes all replacements, additions, accessions,
substitutions, repairs, proceeds and products relating thereto or therefrom, and
all documents, ledger sheets and files of such Guarantor relating thereto.
"Proceeds" hereunder include (i) whatever is now or hereafter received by such
Guarantor upon the sale, exchange, collection or other disposition of any item
of Collateral, whether such proceeds constitute inventory, accounts, accounts
receivable, general intangibles, instruments, securities (including, without
limitation, United States of America Treasury



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Bills), credits, claims, demands, documents, letters of credit and letter of
credit proceeds, chattel paper, documents of title, certificates of title,
certificates of deposit, warehouse receipts, bills of lading, leases, deposit
accounts, money, tax refund claims, contract rights, goods or equipment and (ii)
any such items which are now or hereafter acquired by such Guarantor with any
proceeds of Collateral hereunder:

       A.   Accounts. All of such Guarantor's accounts, whether now existing or
existing in the future, including without limitation (i) all accounts receivable
(whether or not specifically listed on schedules furnished to Lender),
including, without limitation, all accounts created by or arising from all of
such Guarantor's sales of goods or rendition of services made under any of such
Guarantor's trade names, or through any of its divisions, (ii) all unpaid
seller's rights (including rescission, replevin, reclamation and stoppage in
transit) relating to the foregoing or arising therefrom, (iii) all rights to any
goods represented by any of the foregoing, including returned or repossessed
goods, (iv) all reserves and credit balances held by such Guarantor with respect
to any such accounts receivable or account debtors and (v) all guarantees or
collateral for any of the foregoing (all of the foregoing property and similar
property being hereinafter referred to as "Accounts");

       B.   Inventory. All of such Guarantor's inventory, including without
limitation (i) all raw materials, work in process, parts, components,
assemblies, supplies and materials used or consumed in such Guarantor's
businesses, wherever located and whether in the possession of such Guarantor or
any other Person (for the purposes of this Company Security Agreement, the term
"Person" means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, institution,
entity, party or government, including any division, agency or department
thereof); (ii) all goods, wares and merchandise, finished or unfinished, held
for sale or lease or leased or furnished or to be furnished under contracts of
service, wherever located and whether in the possession of such Guarantor or any
other person or entity; and (iii) all goods returned to or repossessed by such
Guarantor (all of the foregoing property being hereinafter referred to as
"Inventory");

       C.   Equipment. All of the equipment owned or leased by such Guarantor,
including, without limitation, machinery, equipment, office equipment and
supplies, computers and related equipment, furniture, furnishings, tools,
tooling, jigs, dies, fixtures, manufacturing implements, fork lifts, trucks,
trailers, motor vehicles, and other equipment (all of the foregoing property
being hereinafter referred to as "Equipment");

       D.   Intangibles. All of such Guarantor's general intangibles,
instruments, securities (including without limitation United States of America
Treasury Bills), credits, claims, demands, documents, letters of credit and
letter of credit proceeds, chattel paper, documents of title, certificates of
title, certificates of deposit, warehouse receipts, bills of lading, leases
which are permitted to be assigned or pledged, deposit accounts, money, tax
refund claims, contract rights which are permitted to be assigned or pledged
(all of the foregoing property being hereinafter referred to as "Intangibles");
and

       E.   Intellectual Property. All of each Guarantor's intellectual
property, including, without limitation, New Drug Applications, Investigatory
New Drug Applications, Abbreviated New Drug Applications, Alternative New Drug
Applications, registrations and quotas as issued by the Drug Enforcement
Administration and/or the Attorney General of the United States pursuant to the
Controlled Substances Act, certifications, permits and approvals of federal and
state governmental agencies, patents, patent applications, trademarks, trademark
applications, service marks, service


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mark applications, trade names, technical knowledge and processes, formal or
informal licensing arrangements which are permitted to be assigned or pledged,
blueprints, technical specifications, computer software, copyrights, copyright
applications and other trade secrets, and all embodiments thereof, and rights
thereto, including, without limitation, all of such Guarantor' rights to use the
patents, trademarks, copyrights, service marks, or other property of the
aforesaid nature of other Persons now or hereafter licensed to such Guarantor,
together with the goodwill of the business symbolized by or connected with such
Guarantor's trademarks, copyrights, service marks, licenses and the other rights
included in this section II(E).

       F.   Real Property. All right, title and interest of the Guarantors in
any real property, including without limitation that certain real property
located in Culver, Indiana, commonly known as 16235 State Road 17, Culver,
Indiana.

                                   SECTION III

                 THE GUARANTORS' REPRESENTATIONS AND WARRANTIES

       Each Guarantor severally represents and warrants as follows:

       A.   Places of Business. Such Guarantor has no places of business, or
warehouses in which it leases space, other than those set forth on Section III
A. of Schedule A, a copy of which is attached hereto and made a part hereof
("Schedule A").

       B.   Location of Collateral. Except for the movement of Collateral from
time to time from one place of business or warehouse listed on Section III A. of
Schedule A to another place of business or warehouse listed on Section III A. of
such Schedule A, the Collateral is located at such Guarantor's chief executive
offices or other places of business or warehouses listed on such Section III A.
of Schedule A, and not at any other location.

       C.   Restrictions on Collateral Disposition. Except as otherwise provided
in the Loan Agreement, none of the Collateral is subject to contractual
obligations that may restrict or inhibit Lender's rights or ability to sell or
dispose of the Collateral or any part thereof after the occurrence of an Event
of Default.

       D.   Status of Accounts. Each Account is based on an actual and bona fide
rendition of services to customers, made by such Guarantor in the ordinary
course of its business; the Accounts created are its exclusive property and are
not and shall not be subject to any lien, consignment arrangement, encumbrance,
security interest or financing statement whatsoever, except as otherwise
provided in Section III D. of Schedule A, and to the best knowledge of such
Guarantor, such Guarantor's customers have accepted the services, and owe and
are obligated to pay the full amounts stated in the invoices according to their
terms, without any dispute, offset, defense or counterclaim.

                                   SECTION IV

                           COVENANTS OF THE GUARANTORS

        Each Guarantor agrees (which agreements shall be several as to each
Guarantor except as otherwise provided) as follows:

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       A.   Defend Against Claims. Such Guarantor will defend the Collateral
against all claims and demands of all persons at any time claiming the same or
any interest therein unless both Lender and such Guarantor determine that the
claim or demand is not material and that, consequently, such defense would not
be consistent with good business judgment. Such Guarantor will permit any lien
notices with respect to the Collateral or any portion thereof to exist or be on
file in any public office except for those in favor of Lender and those
permitted under the terms of the Loan Agreement.

       B.   Change in Collateral Location. Such Guarantor will not (i) change
its corporate name, (ii) change the location of its chief executive office or
establish any place of business other than those specified in Section III A. of
Schedule A, or (iii) move or permit movement of the Collateral from the
locations specified thereon except from one such location to another such
location, unless in each case such Guarantor shall have given Lender at least
thirty (30) days prior written notice thereof, and shall have, in advance,
executed and caused to be filed and/or delivered to Lender any financing
statements or other documents required by Lender to perfect the security
interest of Lender in the Collateral in accordance with Section IV C. hereof,
all in form and substance satisfactory to Lender.

       C.   Additional Financing Statements. Promptly upon the reasonable
request of Lender, such Guarantor will execute and deliver or use its reasonable
efforts to procure any document, give any notices, execute and file any
financing statements, mortgages or other documents, all in form and substance
satisfactory to Lender, mark any chattel paper, deliver any chattel paper or
instruments to Lender and take any other actions that are necessary or, in the
opinion of Lender, desirable to perfect or continue the perfection and the first
priority of Lender's security interest in the Collateral, to protect the
Collateral against the rights, claims, or interests of third persons, or to
effect the purposes of this Security Agreement. Such Guarantor will pay the
costs incurred in connection with any of the foregoing.

       D.   Additional Liens; Transfers. Without the prior written consent of
Lender, such Guarantor will not, in any way, hypothecate or create or permit to
exist any lien, security interest, charge or encumbrance on or other interest in
the Collateral, other than those permitted under the terms of the Loan
Agreement, and such Guarantor will not sell, transfer, assign, pledge,
collaterally assign, exchange or otherwise dispose of the Collateral, other than
the sale of Inventory in the ordinary course of business and the sale of
obsolete or worn out Equipment. Notwithstanding the foregoing, if the proceeds
of any such sale consist of notes, instruments, documents of title, letters of
credit or chattel paper, such proceeds shall be promptly delivered to Lender to
be held as Collateral hereunder. If the Collateral, or any part thereof, is
sold, transferred, assigned, exchanged, or otherwise disposed of in violation of
these provisions, the security interest of Lender shall continue in such
Collateral or part thereof notwithstanding such sale, transfer, assignment,
exchange or other disposition, and such Guarantor will hold the proceeds thereof
for the benefit of Lender, and promptly transfer such proceeds to Lender in
kind.

       E.   Contractual Obligations. Such Guarantor will not enter into any
contractual obligations which may restrict or inhibit Lender's rights or ability
to sell or otherwise dispose of the Collateral or any part thereof after the
occurrence or during the continuance of an Event of Default.

       F.   Lender's Right to Protect Collateral. Upon the occurrence or
continuance of an Event of Default, Lender shall have the right at any time to
make any payments and do any other acts Lender may deem necessary to protect the
security interests of Lender in the Collateral, including, without limitation,
the rights to pay, purchase, contest or compromise any encumbrance, charge or


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lien which, in the reasonable judgment of Lender, appears to be prior to or
superior to the security interests granted hereunder, and appear in and defend
any action or proceeding purporting to affect its security interests in, and/or
the value of, the Collateral. The Guarantors hereby jointly and severally agree
to reimburse Lender for all payments made and expenses incurred under this
Security Agreement including reasonable fees, expenses and disbursements of
attorneys and paralegals acting for Lender, including any of the foregoing
payments under, or acts taken to protect its security interests in, the
Collateral, which amounts shall be secured under this Security Agreement, and
agree they shall be bound by any payment made or act taken by Lender hereunder
absent Lender's gross negligence or willful misconduct. Lender shall have no
obligation to make any of the foregoing payments or perform any of the foregoing
acts.

       G.   Further Obligations With Respect to Accounts. In furtherance of the
continuing assignment and security interest in the Accounts of such Guarantor
granted pursuant to this Security Agreement, upon the creation of Accounts, upon
Lender's request, such Guarantor will execute and deliver to Lender in such form
and manner as Lender may require, solely for its convenience in maintaining
records of Collateral, such confirmatory schedules of Accounts, and other
appropriate reports designating, identifying and describing the Accounts as
Lender may reasonably require. In addition, upon Lender's request, such
Guarantor shall provide Lender with copies of agreements with, or purchase
orders from, the customers of such Guarantor and copies of invoices to
customers, proof of shipment or delivery and such other documentation and
information relating to said Accounts and other Collateral as Lender may
reasonably require. Furthermore, upon Lender's request, such Guarantor shall
deliver to Lender any documents or certificates of title issued with respect to
any property included in the Collateral, and any promissory notes, letters of
credit or instruments related to or otherwise in connection with any property
included in the Collateral, which in any such case came into the possession of
such Guarantor, or shall cause the issuer thereof to deliver any of the same
directly to Lender, in each case with any necessary endorsements in favor of
Lender. Failure to provide Lender with any of the foregoing shall in no way
affect, diminish, modify or otherwise limit the security interests granted
herein. Each Guarantor hereby authorizes Lender to regard such Guarantor's
printed name or rubber stamp signature on assignment schedules or invoices as
the equivalent of a manual signature by such Guarantor's authorized officers or
agents.

       H.   Insurance. Such Guarantor agrees to maintain public liability
insurance, third party property damage insurance and replacement value insurance
on the Collateral under such policies of insurance, with such insurance
companies, in such amounts and covering such risks as are at all times
satisfactory to Lender in its commercially reasonable judgment. All policies
covering the Collateral are to name Lender as an additional insured and the loss
payee in case of loss, and are to contain such other provisions as Lender may
reasonably require to fully protect Lender's interest in the Collateral and to
any payments to be made under such policies.

       I.   Taxes. Such Guarantor agrees to pay, when due, all taxes lawfully
levied or assessed against such Guarantor or any of the Collateral before any
penalty or interest accrues thereon; provided, however, that, unless such taxes
have become a Federal tax or Employment Retirement Security Income Act lien on
any of the assets of such Guarantor, no such tax need be paid if the same is
being contested, in good faith, by appropriate proceedings promptly instituted
and diligently conducted and if an adequate reserve or other appropriate
provision shall have been made therefor as required in order to be in conformity
with generally accepted accounting principles and procedures in effect in the
United States of America.

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       J.   Compliance with Laws. Such Guarantor agrees to comply in all
material respects with all requirements of law applicable to the Collateral or
any part thereof, or to the operation of its business or its assets generally,
unless such Guarantor contests any such requirements of law in a reasonable
manner and in good faith. Such Guarantor agrees to maintain in full force and
effect, its respective licenses and permits granted by any governmental
authority as may be necessary or advisable for such Guarantor to conduct its
business in all material respects.

       K.   Maintenance of Property. Such Guarantor agrees to keep all property
useful and necessary to its business in good working order and condition
(ordinary wear and tear excepted) and not to commit or suffer any waste with
respect to any of their properties.

       L.   Environmental and Other Matters. Such Guarantor will conduct its
business so as to comply in all material respects with all environmental, land
use, occupational, safety or health laws, regulations, directions, ordinances,
criteria and guidelines in all jurisdictions in which it is or may at any time
be doing business, except to the extent that such Guarantor is contesting, in
good faith by appropriate legal, administrative or other proceedings, any such
law, regulation, direction, ordinance, criteria, guideline, or interpretation
thereof or application thereof; provided, further, that such Guarantor shall
comply with the order of any court or other governmental authority relating to
such laws unless such Guarantor shall currently be prosecuting an appeal,
proceedings for review or administrative proceedings and shall have secured a
stay of enforcement or execution or other arrangement postponing enforcement or
execution pending such appeal, proceedings for review or administrative
proceedings.

       M.   Further Assurances. Such Guarantor shall take all such further
actions and execute all such further documents and instruments (including, but
not limited to, collateral assignments of Intellectual Property and Intangibles
or any portion thereof) as Lender may at any time reasonably determine in its
sole discretion to be necessary or desirable to further carry out and consummate
the transactions contemplated by the Loan Agreement and the documentation
relating thereto, including this Security Agreement, and to perfect or protect
the liens (and the priority status thereof) of Lender in the Collateral.

                                    SECTION V

                                    REMEDIES

       A.   Obtaining the Collateral Upon Default. If any Event of Default shall
have occurred and be continuing, then and in every such case, subject to any
mandatory requirements of applicable law then in effect, Lender, in addition to
any rights now or hereafter existing under applicable law, shall have all rights
as a secured creditor under the Uniform Commercial Code in all relevant
jurisdictions and may:

            (a)     personally, or by agents or attorneys, immediately retake
       possession of the Collateral or any part thereof, from any Guarantor or
       any other Person who then has possession of any part thereof, with or
       without notice or process of law, and for that purpose may enter upon
       such Guarantor's premises where any of the Collateral is located and
       remove the same and use in connection with such removal any and all
       services, supplies, aids and other facilities of such Guarantor;

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            (b)     instruct the obligor or obligors on any agreement,
       instrument or other obligation (including, without limitation, the
       Accounts) constituting the Collateral to make any payment required by
       the terms of such instrument or agreement directly to Lender;

            (c)     withdraw all monies, securities and instruments held
       pursuant to any pledge arrangement for application to the Obligations;

            (d)     sell, assign or otherwise liquidate, or direct any
       Guarantor to sell, assign or otherwise liquidate, any or all of the
       Collateral or any part thereof, and take possession of the proceeds of
       any such sale or liquidation;

            (e)     take possession of the Collateral or any part thereof, by
       directing any Guarantor in writing to deliver the same to Lender at any
       place or places designated by Lender, in which event such Guarantor
       shall at its own expense:

                    (i)   forthwith cause the same to be moved to the place or
            places so designated by Lender and there delivered to Lender,

                    (ii)  store and keep any Collateral so delivered to Lender
            at such place or places pending further action by Lender as provided
            in Section V B., and

                    (iii) while the Collateral shall be so stored and kept,
            provide such guards and maintenance services as shall be necessary
            to protect the same and to preserve and maintain the Collateral in
            good condition; it being understood that any Guarantor's
            obligation to so deliver the Collateral is of the essence of this
            Security Agreement and that, accordingly, upon application to a
            court of equity having jurisdiction, Lender shall be entitled to a
            decree requiring specific performance by such Guarantor of said
            obligation.

       B.   Disposition of the Collateral. Any collateral repossessed by Lender
under or pursuant to Section V A. and any other Collateral whether or not so
repossessed by Lender, may be sold, assigned, leased or otherwise disposed of
under one or more contracts or as an entirety, and without the necessity of
gathering at the place of sale the property to be sold, and in general in such
manner, at such time or times, at such place or places and on such terms as
Lender may, in compliance with any mandatory requirements of applicable law,
determine to be commercially reasonable. Any of the Collateral may be sold,
leased or otherwise disposed of, in the condition in which the same existed when
taken by Lender or after any overhaul or repair which Lender shall determine to
be commercially reasonable. Any such disposition which shall be a private sale
or other private proceedings permitted by such requirements shall be made upon
not less than ten (10) days' written notice to such Guarantor specifying the
time at which such disposition is to be made and the intended sale price or
other consideration therefor, and shall be subject, for the ten (10) days after
the giving of such notice, to the right of such Guarantor or any nominee of such
Guarantor to acquire the Collateral involved at a price or for such other
consideration at least equal to the intended sale price or other consideration
so specified. Any such disposition which shall be a public sale permitted by
such requirements shall be made upon not less than ten (10) days' written notice
to such Guarantor specifying the time and place of such sale and, in the absence
of applicable requirements of law, shall be by public auction (which may, at the
option of Lender, be subject to reserve), after publication of notice of such
auction not less than ten (10) days prior thereto in two (2) newspapers in
general circulation in the City of New York, as Lender may determine. To the
extent permitted by any such

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requirement of law, Lender may bid for and become the purchaser of the
Collateral or any item thereof, offered for sale in accordance with this Section
without accountability to such Guarantor (except to the extent of surplus money
received). If, under mandatory requirements of applicable law, Lender shall be
required to make disposition of the Collateral within a period of time which
does not permit the giving of notice to such Guarantor as hereinabove specified,
Lender need give such Guarantor only such notice of disposition as shall be
reasonably practicable in view of such mandatory requirements of applicable law.

       C.   Power of Attorney. Each Guarantor hereby irrevocably authorizes and
appoints Lender, or any Person that Lender may designate, as such Guarantor's
attorney-in-fact, at such Guarantor's cost and expense, to exercise all of the
following powers upon and at any time after the occurrence and during the
continuance of an Event of Default, which powers, being coupled with an
interest, shall be irrevocable until all of the Obligations owing by such
Guarantor shall have been paid and satisfied in full:

            (a)     accelerate or extend the time of payment, compromise,
issue credits, bring suit or administer and otherwise collect Accounts or
proceeds of any Collateral;

            (b)     receive, open and dispose of all mail addressed to such
Guarantor and notify postal authorities to change the address for delivery
thereof to such address as Lender may designate;

            (c)     give customers indebted on Accounts notice of Lender's
interest therein, and/or to instruct such customers to make payment directly to
Lender for such Guarantor's account;

            (d)     convey any item of Collateral to any purchaser thereof;

            (e)     give any notices or record any liens under Section IV C.
hereof; and

            (f)     make any payments or take any acts under Section IV F.
hereof.

Lender's authority under this Section V C. shall include, without limitation,
the authority to execute and give receipt for any certificate of ownership or
any document, transfer title to any item of Collateral, sign such Guarantor's
name on all financing statements or any other documents deemed necessary or
appropriate to preserve, protect or perfect the security interest in the
Collateral and to file the same, prepare, file and sign such Guarantor's name on
any notice of lien, assignment or satisfaction of lien or similar document in
connection with any Account and prepare, file and sign such Guarantor's name on
a proof of claim in bankruptcy or similar document against any customer of such
Guarantor, and to take any other actions arising from or incident to the rights,
powers and remedies granted to Lender in this Security Agreement. This power of
attorney is coupled with an interest and is irrevocable by such Guarantor.

       D.   Waiver of Claims. Except as otherwise provided in this Security
Agreement, EACH GUARANTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH LENDER'S TAKING POSSESSION
OF OR DISPOSING OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND
ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH
RIGHT WHICH ANY GUARANTOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY
STATUTE OF THE UNITED



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STATES OR OF ANY STATE, and each Guarantor hereby further waives, to the extent
permitted by law:

            (a)     all damages occasioned by such taking of possession except
any damages which are the direct result of Lender's gross negligence or willful
misconduct;

            (b)     all other requirements as to the time, place and terms of
sale or other requirements with respect to the enforcement of Lender's rights
hereunder, except as expressly provided herein; and

            (c)     all rights of redemption, appraisement, valuation, stay,
extension or moratorium now or hereafter in force under any applicable law in
order to prevent or delay the enforcement of this Security Agreement or the
absolute sale of the Collateral or any portion thereof, and such Guarantor, for
itself and all who may claim under it, insofar as it or they now or hereafter
lawfully may, hereby waives the benefit of all such laws.

Any sale of, or the grant of options to purchase, or any other realization upon
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of such Guarantor therein and thereto, and
shall be a perpetual bar both at law and in equity against such Guarantor and
against any and all persons claiming or attempting to claim the Collateral so
sold, optioned or realized upon, or any part thereof, from, through and under
such Guarantor.

       E.   Remedies Cumulative. Each and every right, power and remedy hereby
specifically given to Lender shall be in addition to every other right, power
and remedy specifically given under this Security Agreement, under the Loan
Agreement or under other documentation relating thereto or now or hereafter
existing at law or in equity, or by statute, and each and every right, power and
remedy whether specifically herein given or otherwise existing may be exercised
from time to time or simultaneously and as often and in such order as may be
deemed expedient by Lender. All such rights, powers and remedies shall be
cumulative and the exercise or the beginning of exercise of one shall not be
deemed a waiver of the right to exercise of any other or others. No delay or
omission of Lender in the exercise of any such right, power or remedy and no
renewal or extension of any of the Obligations shall impair any such right,
power or remedy or shall be construed to be a waiver of any Default or Event of
Default or any acquiescence therein.

                                   SECTION VI

                            MISCELLANEOUS PROVISIONS

       A.   Notices. All notices, approvals, consents or other communications
required or desired to be given hereunder shall be delivered in person, by
facsimile transmission followed promptly by first class mail or by overnight
mail, and delivered if to any Guarantor, then to the attention of Mr. Michael
Reicher, c/o Halsey Drug. Co., Inc., 695 No. Perryville Road, Rockford,
Illinois, 61107, fax no. (815) 399-9710, with a copy to John P. Reilly, Esq.,
c/o St. John & Wayne, L.L.P., 2 Penn Plaza East, Newark, New Jersey 07105, fax
no. (973) 491-3407, and if to Lender, then to the attention of Chief Financial
Officer, c/o Watson Pharmaceuticals, Inc., 311 Bonnie Circle, Corona, CA 92880,
fax no. (909) 279-8094 (courtesy copy to Robert Funsten, Esq., General Counsel)
with a copy to Lawrence B. Cohn, c/o Stradling Yocca, Carlson & Rauth, 660
Newport Center Drive, Suite 1600, Newport Beach, CA 92660, fax no. (212)
986-0604.

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       B.   Headings. The headings in this Security Agreement are for purposes
of reference only and shall not affect the meaning or construction of any
provision of this Security Agreement.

       C.   Severability. The provisions of this Security Agreement are
severable, and if any clause or provision shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect, in that jurisdiction only, such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Security Agreement in any jurisdiction.

       D.   Amendments, Waivers and Consents. Any amendment or waiver of any
provision of this Security Agreement and any consent to any departure by any
Guarantor from any provision of this Security Agreement shall be effective only
if made or given in writing signed by Lender.

       E.   Interpretation of Agreement. Time is of the essence in each
provision of this Security Agreement of which time is an element. All terms not
defined herein shall have the meaning set forth in the applicable Uniform
Commercial Code. Acceptance of or acquiescence in a course of performance
rendered under this Security Agreement shall not be relevant in determining the
meaning of this Security Agreement even though the accepting or acquiescing
party had knowledge of the nature of the performance and opportunity for
objection.

       F.   Continuing Security Interest. This Company Security Agreement shall
create a continuing security interest in the Collateral and shall (i) remain in
full force and effect until indefeasible payment in full of the Obligations
owing by the Guarantors, (ii) be binding upon each Guarantor, and its successors
and assigns and (iii) inure to the benefit of Lender and its successors and
assigns.

       G.   Reinstatement. To the extent permitted by law, this Security
Agreement shall continue to be effective or be reinstated if at any time any
amount received by Lender in respect of the Obligations owing by the Guarantors
is rescinded or must otherwise be restored or returned by Lender upon the
occurrence or during the pendency of any Event of Default, all as though such
payments had not been made.

       H.   Survival of Provisions. All representations, warranties and
covenants of the Guarantors contained herein shall survive the execution and
delivery of this Security Agreement, and shall terminate only upon the full and
final indefeasible payment and performance by the Guarantors of the Obligations
secured hereby.

       I.   Setoff.  Lender shall have all rights of setoff available at law or
in equity.

       J.   Power of Attorney. In addition to the powers granted to Lender under
Section V C., each Guarantor hereby irrevocably authorizes and appoints Lender,
or any Person the Lender may designate, as such Guarantor's attorney-in-fact, at
such Guarantor's cost and expense, to exercise all of the following powers,
which being coupled with an interest, shall be irrevocable until all of the
Obligations shall have been indefeasibly paid and satisfied in full:

            (a) after the occurrence of an Event of Default, to receive,
take, endorse, sign, assign and deliver, all in the name of Lender or such
Guarantor, any and all checks, notes, drafts, and other documents or instruments
relating to the Collateral; and

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            (b)     to request, at any time from customers indebted on
Accounts, verification of information concerning the Accounts and the amounts
owing thereon.

       K.   Indemnification; Authority of Lender. Neither Lender nor any
director, officer, employee, attorney or agent of Lender shall be liable to any
Guarantor for any action taken or omitted to be taken by it or them hereunder,
except for its or their own gross negligence or willful misconduct, nor shall
Lender be responsible for the validity, effectiveness or sufficiency of this
Security Agreement or of any document or security furnished pursuant hereto.
Lender and its directors, officers, employees, attorneys and agents shall be
entitled to rely on any communication, instrument or document reasonably
believed by it or them to be genuine and correct and to have been signed or sent
by the proper person or persons. Each Guarantor agrees to indemnify and hold
harmless Lender and any other person from and against any and all costs,
expenses (including reasonable fees, expenses and disbursements of attorneys and
paralegals (including, without duplication, reasonable charges of inside
counsel)), claims or liability incurred by Lender or such person hereunder,
unless such claim or liability shall be due to willful misconduct or gross
negligence on the part of Lender or such person.

       L.   Release; Termination of Agreement. Subject to the provisions of
Section VI G. hereof, this Security Agreement shall terminate upon full and
final indefeasible payment and performance of all the Obligations owing by each
Guarantor. At such time, Lender shall, at the request of any Guarantor, reassign
and redeliver to such Guarantor all of the Collateral hereunder which has not
been sold, disposed of, retained or applied by Lender in accordance with the
terms hereof. Such reassignment and redelivery shall be without warranty by or
recourse to Lender, except as to the absence of any prior assignments by Lender
of its interest in the Collateral, and shall be at the expense of such
Guarantor.

       M.   Counterparts. This Security Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement.

       N.   GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
SECURITY AGREEMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS
SECURITY AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE,
SHALL BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS
PROVISIONS) AND DECISIONS OF THE STATE OF CALIFORNIA.

       O.   SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN ANY GUARANTOR AND
LENDER, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE
RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED IN ORANGE COUNTY, CALIFORNIA,
AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER,
THAT LENDER SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO
PROCEED AGAINST ANY GUARANTOR OR ITS PROPERTY IN ANY LOCATION REASONABLY
SELECTED BY LENDER IN GOOD FAITH TO ENABLE LENDER TO REALIZE ON SUCH PROPERTY,
OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER. EACH GUARANTOR
AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR
CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY LENDER. EACH GUARANTOR WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE



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LOCATION OF THE COURT IN WHICH LENDER HAS COMMENCED A PROCEEDING, INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON
CONVENIENS.

       P.   SERVICE OF PROCESS. EACH GUARANTOR HEREBY IRREVOCABLY AGREES THAT
SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
SECURITY AGREEMENT MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH GUARANTOR AT ITS ADDRESS SET FORTH IN
SECTION VI A. HEREOF.

       Q.   JURY TRIAL.  EACH GUARANTOR AND LENDER EACH HEREBY WAIVE ANY RIGHT
TO A TRIAL BY JURY.

       R.   LIMITATION OF LIABILITY. LENDER SHALL NOT HAVE ANY LIABILITY TO ANY
GUARANTOR (WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED
BY ANY GUARANTOR IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO
THE TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS SECURITY AGREEMENT, OR
ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS
DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OR COURT ORDER BINDING ON
LENDER, THAT THE LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.

       S.   Delays; Partial Exercise of Remedies. No delay or omission of Lender
to exercise any right or remedy hereunder, whether before or after the happening
of any Event of Default, shall impair any such right or shall operate as a
waiver thereof or as a waiver of any such Event of Default. No single or partial
exercise by Lender of any right or remedy shall preclude any other or further
exercise thereof, or preclude any other right or remedy.


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         IN WITNESS WHEREOF, each Guarantor has caused this Security Agreement
to be duly executed and delivered as of the day and year first above written.


                             HOUBA, INC.,
                             an Indiana corporation


                             By: /s/ Michael Reicher
                             Name:
                             Title: Chief Executive Officer



                             HALSEY PHARMACEUTICAL, INC.



                             By: /s/ Michael Reicher
                             Name:
                             Title: Chief Executive Officer

By its acceptance hereof, as of the day and year first above written, Lender
agrees to be bound by the provisions hereof applicable to it.


                             WATSON PHARMACEUTICALS, INC.,
                             a Nevada corporation

                             By: /s/ Robert C. Funsten
                                 Name:
                                 Title: Senior Vice President


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                                  SCHEDULE A

III A.   Locations of Collateral

         1.       Halsey Drug Co., Inc., 695 No. Perryville Road,
                  Rockford, Illinois, 61107

         2.       Halsey Pharmaceutical, Inc., 695 No. Perryville Road,
                  Rockford, Illinois, 61107

         3.       Houba, Inc. - 16235 State Road 17, Culver, IN

III D.   Liens

         1.       All Guarantors:  Schedulre 8.3 to the Schedule of Exceptions
                  to the Loan Agreement is hereby incorporated by reference.

         2.       Houba, Inc.: Mortgage lien and security interest in favor of
                  the Existing Holders covering the real property in Culver,
                  Indiana.




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