<PAGE>   1

                                                                  EXHIBIT 10.61

                          WATSON STOCK PLEDGE AGREEMENT

         THIS WATSON STOCK PLEDGE AGREEMENT (this "Agreement") dated as of March
29, 2000, is executed by HALSEY DRUG CO., INC., a New York corporation (the
"Pledgor"), in favor of WATSON PHARMACEUTICALS, INC., a Nevada corporation (the
"Pledgee").

         WHEREAS, Pledgor and Pledgee have entered into that certain 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); and

         WHEREAS, it is a condition precedent to the effectiveness of the Loan
Agreement that Pledgor shall have executed this Agreement and made the pledges
referred to herein in favor of Pledgee.

         NOW, THEREFORE, to induce Pledgee to enter into and perform the Loan
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Pledgor hereby agrees with Pledgee
as follows:

         1.   Definitions. Unless the context otherwise requires, all terms used
but not expressly defined herein shall have the meanings given to them in the
Loan Agreement, or, if they are not defined in the Loan Agreement, but are
defined in the California Uniform Commercial Code (the "Code"), they shall have
the same meaning herein as in the Code.

         2.   Pledge of the Pledged Stock; Power of Attorney.

              (a) As security for the prompt payment and performance when
due of the Obligations, Pledgor hereby pledges and grants to Pledgee a lien on
and security interest in the following (collectively the "Pledged Collateral"):
(i) all of the issued and outstanding shares of common stock of each of Halsey
Pharmaceuticals, Inc. ("HP, Inc." or a "Subsidiary"), Houba, Inc. ("Houba" or a
"Subsidiary," and together with HP, Inc., the "Subsidiaries") which shares are
more particularly described on Schedule A hereto (the "Pledged Stock"), (ii) all
additional shares of common stock at any time issued to Pledgee by any of HP,
Inc., and Houba, (iii) the certificates evidencing all such shares and
securities, (iv) subject to Section 6 hereof, all dividends, cash, instruments
and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged Stock and
such shares and securities and (v) all proceeds of any of the foregoing
(including, without limitation, proceeds constituting any property of the types
described above). Pledgor shall deliver to Pledgee original stock certificates
for all of the Pledged Stock, each accompanied by an undated stock power
executed in blank by Pledgor.

              (b) Pledgee shall have no obligation with respect to the Pledged
Collateral or any other property held or received by it hereunder except
to use reasonable care in the custody thereof to the extent required by law.
Pledgee may hold the Pledged Collateral in the form in which it is received by
it.

              (c) Pledgor, to the full extent permitted by law, hereby
constitutes and irrevocably appoints Pledgee (and any officer or agent of
Pledgee, with full power of substitution and revocation) as Pledgor's true and
lawful attorney-in-fact, in Pledgor's stead and in the name of Pledgor or in
the name of Pledgee, to transfer, upon the occurrence and during the
continuance of an






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Event of Default (as hereinafter defined) or at any time Pledgee, based on all
the facts and circumstances then existing, and in the exercise of its
commercially reasonable credit judgment, reasonably believes in good faith, and
has so notified Pledgor in writing, that, in connection with the Loan Agreement
and the agreements, documents and instruments delivered by Pledgor pursuant
thereto or in connection therewith, fraud has occurred with respect to Pledgor
or any other Person (for the purposes of this 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),
controlling, controlled by, or under common control with Pledgor which has a
material adverse effect on the operations or condition (financial or otherwise)
of Pledgor and its subsidiaries, taken as a whole (a "Fraud"), the Pledged
Collateral on the books of HP, Inc. and Houba, as applicable, in whole or in
part, to the name of Pledgee or such other Person or Persons as Pledgee may
designate and, upon the occurrence and during the continuance of an Event of
Default or at any time Pledgee, based on all the facts and circumstances then
existing, and in the exercise of its commercially reasonable credit judgment,
reasonably believes in good faith, and has so notified Pledgor in writing, that
Fraud has occurred, to take all such other and further actions as Pledgor could
have taken with respect to the Pledged Collateral which Pledgee in its
reasonable judgment determines to be necessary or appropriate to accomplish the
purposes of this Agreement.

            (d)     The powers of attorney granted pursuant to this Agreement
and all authority hereby conferred are granted and conferred solely to protect
Pledgee's interests in the Pledged Collateral and shall not impose any duty upon
the attorney-in-fact to exercise such powers. Such powers of attorney shall be
irrevocable prior to the payment in full of the Obligations, and, shall not be
terminated prior thereto or affected by any act of Pledgor or other Persons or
by operation of law.

            (e)     Except to the extent that Pledgee releases its pledge of
any of the Pledged Collateral, each Person who shall be a transferee of the
beneficial ownership of any of Pledged Collateral shall be deemed to have
irrevocably appointed Pledgee, with full power of substitution and revocation,
as such Person's true and lawful attorney-in-fact in such Person's name and
otherwise to do any and all acts herein permitted and to exercise any and all
powers herein conferred; provided, however, no Person shall exercise any such
power of attorney unless an Event of Default shall have occurred and be
continuing.

       3.   Rights of Pledgor; Voting.

            (a)     During the term of this Agreement, and so long as no Voting
Notice (as defined below) is received from Pledgee following the occurrence and
during the continuance of an Event of Default as hereinafter provided in this
Section 3, Pledgor shall have the right to vote any of the Pledged Collateral in
all corporate matters except those which would contravene this Agreement, the
Loan Agreement or the agreements, documents and instruments delivered by Pledgor
and each Subsidiary pursuant thereto unless Pledgee consents thereto.

            (b)     Upon the occurrence and during the continuance of an Event
of Default or from and after such time as Pledgee has notified Pledgor in
writing that based on all the facts and circumstances than existing, and in the
exercise of its commercially reasonable judgment, Pledgee reasonably believes in
good faith that Fraud has occurred, Pledgor shall give Pledgee at least five (5)
days' prior notice of (i) any meeting of stockholders of any of the Subsidiaries
or any meeting of directors convened for any purpose and (ii) any written
consent which Pledgor proposes to execute as the stockholder of any of the
Subsidiaries or which any of the representatives of Pledgor proposes to


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execute as a director of any of the Subsidiaries. During the continuance of an
Event of Default, Pledgor hereby authorizes Pledgee to send its agents and
representatives to any such meeting of shareholders or directors of any of one
of the Subsidiaries that Pledgee wishes to attend, and agrees to take such
steps as may be necessary to confirm and effectuate such authority, including,
without limitation, causing such Subsidiary to give reasonable prior written
notice to Pledgee of the time and place of any such meeting and the principal
actions to be taken thereat.

            (c)     Notwithstanding the occurrence of an Event of Default,
Pledgor may continue to exercise the voting rights of Pledgor as herein
described (and subject to the limitations herein) except to the extent that
Pledgee may elect to exercise voting power (as determined by it in its sole
discretion) by a written notice given to Pledgor at any time during the
continuance of an Event of Default (a "Voting Notice"), whereupon Pledgee shall
have the exclusive right during the continuance of an Event of Default to
exercise such rights to the extent specified in such Voting Notice, and Pledgor
shall take all such steps as may be necessary to effectuate such rights until
Pledgee notifies Pledgor of the release of such rights. Once any such Event of
Default has been cured or waived, any relevant Voting Notice shall be deemed to
be rescinded.

       4.   No Restrictions on Transfer. Pledgor warrants and represents that
there are no restrictions on the transfer of the Pledged Stock except for such
restrictions imposed by operation of law, that there are no options, warrants or
rights pertaining thereto, and that Pledgor has the right to transfer Pledged
Stock free of any encumbrances and without the consent of the creditors of
Pledgor or the consent of any of the Subsidiaries or any other Person or any
governmental agency whatsoever.

       5.   No Transfer or Liens; Additional Securities. Pledgor agrees that it
will not sell, transfer or convey any interest in, or suffer or permit any lien
or encumbrance to be created upon or with respect to, any of the Pledged
Collateral during the term of this Agreement, except to or in favor of Pledgee,
or as agreed to in advance by Pledgee in accordance with the terms of the Loan
Agreement. Pledgor shall not cause, suffer or permit any Subsidiary to issue any
common or preferred stock, or any other equity security, to any Person, unless
Pledgee otherwise consents in writing (which consent may be withheld in
Pledgee's reasonable credit judgment).

       6.   Adjustments of Capital Stock; Payment and Application of Dividends.
In the event that during the term of this Agreement any stock dividend,
reclassification, readjustment or other change is declared or made in the
capital structure of any Subsidiary or if any other or additional shares of
stock of any Subsidiary are issued to Pledgor, all new, substituted and
additional shares or other securities issued by reason of any such change or
acquisition shall immediately be delivered by Pledgor to Pledgee and shall be
deemed to be part of the "Pledged Collateral" under the terms of this Agreement
in the same manner as the shares of stock originally pledged hereunder. Upon the
occurrence and during the continuance of an Event of Default, all cash dividends
received by or payable to Pledgor in respect of the Pledged Collateral,
including any additional shares of stock received by Pledgor as a result of
Pledgor's record ownership of the Pledged Stock, shall immediately be delivered
by Pledgor to Pledgee, to be held by Pledgee as Pledged Collateral hereunder or
to be applied by Pledgee against the Obligations. Upon the occurrence and during
the continuance of an Event of Default, Pledgor will not demand and will not be
entitled to receive, any cash dividends or other income, interest or property in
or with respect to the Pledged Collateral, and if Pledgor receives any of the
same, Pledgor shall immediately deliver it to Pledgee to be held by it and
applied as provided in the preceding sentence.

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       7.   Warrants and Options. In the event that during the term of this
Agreement subscription warrants or other rights or options shall be issued to
Pledgor in connection with the Pledged Collateral, all such stock warrants,
rights and options shall forthwith be assigned to Pledgee by Pledgor, and said
stock warrants, rights and options shall be, and, if exercised by Pledgor, all
new stock issued pursuant thereto shall be, pledged by Pledgor to Pledgee to be
held as, and shall be deemed to be part of, the Pledged Collateral under the
terms of this Agreement in the same manner as the shares of capital stock
originally pledged hereunder.

       8.   Return of Pledged Collateral Upon Termination. Upon the release,
satisfaction, discharge or termination of all of the Obligations and the
termination of the Loan Agreement, Pledgee shall cause to be transferred or
returned to Pledgor all of the stock pledged by Pledgor herein and any money,
property and rights received by Pledgee pursuant hereto, to the extent Pledgee
has not taken, sold or otherwise realized upon the same as permitted hereunder,
together with all other documents reasonably required by Pledgor to evidence
termination of the pledge contemplated hereby.

       9.   Events of Default; Remedies.

            (a)     Upon the occurrence and during the continuance of any Event
of Default (as defined below), Pledgee shall have and at any time may exercise
with respect to the Pledged Collateral, the proceeds thereof, and any other
property or money held by Pledgee hereunder, all rights and remedies available
to it under law, including, without limitation, those given, allowed or
permitted to a secured party by or under the Code, and all rights and remedies
provided for herein. "Event of Default" shall mean the occurrence of an Event of
Default as defined in the Loan Agreement.

            (b)     Without limiting the foregoing, in the event that Pledgee
elects to sell the Pledged Stock (such term including, for purposes of this
Section 9, the Pledged Stock and all other shares of stock or securities at any
time forming part of the Pledged Collateral), Pledgee shall have the power and
right in connection with any such sale, exercisable at its option and in its
absolute discretion, to sell, assign, and deliver the whole or any part of the
Pledged Stock or any additions thereto at a private or public sale for cash, on
credit or for future delivery and at such price as Pledgee deems to be
satisfactory. Notice of any public sale shall be sufficient if it describes the
Pledged Collateral to be sold in general terms, and is published at least once
in the New York Times not less than ten (10) days prior to the date of sale. If
the New York Times is not then being published, publication may be made in lieu
thereof in any newspaper then being circulated in the City of New York, New
York, as Pledgee may elect. All requirements of reasonable notice under this
Section 9 shall be met if such notice is mailed, postage prepaid at least ten
(10) days before the time of such sale or disposition, to Pledgor at its address
set forth in Section 16 hereto or such other address as Pledgor may have, in
writing, provided to Pledgee. Pledgee may, if it deems it reasonable, postpone
or adjourn any sale of any collateral from time to time by an announcement at
the time and place of the sale to be so postponed or adjourned without being
required to give a new notice of sale.

            (c)     Because federal and state securities laws may restrict the
methods of disposition of the Pledged Stock which are readily available to
Pledgee, and specifically because a public sale thereof may be impossible or
impracticable by reason of certain restrictions under the Securities Act of
1933, as amended, or under applicable Blue Sky or other state securities laws as
now or hereafter in effect, Pledgor agrees that Pledgee may from time to time
attempt to sell the Pledged Stock by means of a private placement restricting
the offering or sale to a limited number of



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prospective purchasers who meet suitability standards Pledgee deems appropriate
and who agree that they are purchasing for their own accounts for investment and
not with a view to distribution, and Pledgee's acceptance of the highest offer
obtained therefrom shall be deemed to be a commercially reasonable disposition
of the Pledged Stock. To the extent permitted by law, Pledgee or its assigns may
purchase all or any part of the Pledged Stock and any purchaser thereof shall
thereafter hold the same absolutely free from any right or claim of any kind. To
the fullest extent permitted by law, Pledgee shall not be obligated to make any
such sale pursuant to notice and may, without notice or publication, adjourn any
public or private sale by announcement at the time and place fixed for the sale,
and such sale may be held at any time or place to which the same may be
adjourned. If any of the Pledged Stock is sold by Pledgee upon credit or for
future delivery, Pledgee shall not be liable for the failure of the purchaser to
pay for same and, in such event, Pledgee may resell such Pledged Stock and
Pledgor shall continue to be liable to Pledgee for the full amount of the
Obligations to the extent Pledgee does not receive full and final payment in
cash therefor.

            (d)     Except as otherwise provided in the Loan Agreement or by
applicable law, Pledgee shall have the sole right to determine the order in
which Obligations shall be deemed discharged by the application of the proceeds
of Pledged Stock or any other property or money held hereunder or any amount
realized thereon.

       10.   Certain Representations and Warranties. Pledgor represents and
warrants to Pledgee that: (a) All shares of Pledged Stock are fully paid, duly
and properly issued, nonassessable and owned by Pledgor free and clear of any
lien or encumbrance of any kind whatsoever, excepting those herein granted to
Pledgee and to the Existing Holders (as described in the Loan Agreement), and
Pledged Stock constitutes all of the outstanding securities of any class or kind
of all of the Subsidiaries.

            (a)     No effective financing statement or other instrument similar
in effect covering all or any part of the Pledged Collateral is on file in any
recording office.

            (b)     The pledge of the Pledged Collateral pursuant to this
Agreement creates a valid and perfected security interest in the Pledged
Collateral, securing the payment of the Obligations, and all filing and other
actions necessary or desirable to perfect and protect such security interest
having been duly made or taken.

            (c)     Except as contemplated by the Loan Agreement or the
Subordination Agreement, no authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for (i) the pledge by Pledgor of the Pledged Collateral pursuant to
this Agreement, the grant by Pledgor of the assignment or security interest
granted hereby or the execution, delivery or performance of this Agreement by
Pledgor, (ii) the perfection of or exercise by Pledgee of its rights and
remedies provided for in this Agreement, or (iii) the exercise by Pledgee of the
voting or other rights provided for in this Agreement or the remedies in respect
of the Pledged Collateral pursuant to this Agreement (except as may be required
in connection with a judicial foreclosure, if applicable, or the disposition of
the Pledged Stock by laws affecting the offering and sale of securities
generally).

            (d)     Pledgor has full right, power and authority to enter into
this Agreement and to grant the security interest in the Pledged Collateral made
hereby, and this Agreement constitutes the legal, valid and binding obligation
of Pledgor enforceable against Pledgor in accordance with its terms, except as
the enforceability thereof may be (i) limited by bankruptcy, insolvency,


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reorganization, moratorium or similar laws affecting the enforceability of
creditors' rights generally, and (ii) subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).

       11.  Indemnity and Expenses.

            (a)     Pledgor agrees to and hereby indemnifies Pledgee from and
against any and all claims, damages, losses, liabilities and expenses arising
out of, or in connection with, or resulting from this Agreement (including,
without limitation, enforcement of this Agreement) unless resulting from or
arising out of the negligence, willful misconduct or bad faith of Pledgee.

            (b)     Pledgor agrees promptly upon Pledgee's demand to pay or
reimburse Pledgee for all reasonable expenses (including, without limitation,
reasonable fees and disbursements of counsel) incurred by Pledgee in connection
with (i) any modification or amendment to or waiver of any provision of this
Agreement requested by Pledgor, (ii) the custody or preservation of the Pledged
Collateral, (iii) any actual or attempted sale or exchange of, or any
enforcement, collection, compromise or settlement respecting, the Pledged
Collateral or any other property or money held hereunder or any other action
taken by Pledgee hereunder reasonably necessary to enforce its rights, whether
directly or as attorney-in-fact pursuant to the power of attorney herein
conferred, or (iv) the failure by Pledgor to perform or observe any of the
provisions hereof. All such expenses shall be deemed a part of the Obligations
for all purposes of this Agreement and Pledgee may apply the Pledged Collateral
or any other property or money held hereunder to payment of or reimbursement for
such expenses after notice and demand to Pledgor.

       12.  Pledgee May Perform. If Pledgor fails to perform any agreement
contained herein, Pledgee may, but shall not be obligated to, perform, or cause
performance of, such agreement, and the reasonable, out-of-pocket expenses of
Pledgee incurred in connection therewith shall be payable by Pledgor.

       13.  Waivers and Amendment. The rights and remedies given hereby are in
addition to all others however arising, but it is not intended that any right or
remedy be exercised in any jurisdiction in which such exercise would be
prohibited by law. No action, failure to act or knowledge of Pledgee shall be
deemed to constitute a waiver of any power, right or remedy hereunder, nor shall
any single or partial exercise thereof preclude any further exercise thereof or
the exercise of any other power, right or remedy. Any right or power of Pledgee
hereunder in respect of the Pledged Collateral and any other property or money
held hereunder may at the option of Pledgee be exercised as to all or any part
of the same and the term the "Pledged Collateral" wherever used herein, unless
the context clearly requires otherwise, shall be deemed to mean (and shall be
read as) "the Pledged Collateral and any other property or money held hereunder
or any part thereof." This Agreement shall not be amended nor shall any right
hereunder be deemed waived except by a written agreement expressly setting forth
the amendment or waiver and signed by Pledgor.

       14.  Continuing Security Interest; Assignments of Secured Debt. This
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (i) remain in full force and effect until released in accordance
herewith, (ii) be binding upon Pledgor, and Pledgor's successors and assigns,
and upon each of the Subsidiaries, and its successors and assigns, and (iii)
inure, together with the rights and remedies of Pledgee hereunder, to the
benefit of Pledgee, its successors and permitted assigns. Without limiting the
generality of the foregoing clause (iii), Pledgee may assign or otherwise
transfer all or any portion of its rights and obligations under this Agreement
to




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any other person or entity, to the extent and in the manner provided in the
Loan Agreement and such other person or entity shall thereupon become vested
with all the benefits in respect hereof granted to Pledgee herein; Pledgee
shall, however, retain all of its rights and powers with respect to any part of
the Pledged Collateral not transferred. Any agent or nominee of Pledgee shall
have the benefit of this Agreement as if named herein and may exercise all the
rights and powers given to Pledgee hereunder.

       15.  GOVERNING LAW; SUITS. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF PLEDGOR AND PLEDGEE HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, NOTWITHSTANDING ITS
CONFLICTS OF LAW PRINCIPLES. THE PLEDGOR HEREBY IRREVOCABLY (I) CONSENTS THAT
ANY SUIT, ACTION OR LEGAL PROCEEDING ARISING OUT OF OR RELATED IN ANY WAY TO
THIS AGREEMENT SHALL, IF PLEDGEE SO ELECTS, BE BROUGHT AND ENFORCED IN STATE OR
FEDERAL COURTS HAVING SITUS WITHIN THE COUNTY OF ORANGE, STATE OF CALIFORNIA AND
(II) WAIVES ANY OBJECTION TO JURISDICTION OR VENUE IN ANY SUCH SUIT, ACTION OR
PROCEEDING COMMENCED IN ANY SUCH COURT AND ANY CLAIM THAT SUCH SUIT, ACTION OR
PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. PLEDGOR AGREES THAT
SERVICE OF PROCESS IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR
ANY SUBSTANTIALLY SIMILAR FORM OF MAIL) POSTAGE PREPAID, TO PLEDGOR AT ITS
ADDRESS SET FORTH IN SECTION 16 HEREOF.

       16.  Notices. All notices hereunder shall be in writing (except only as
otherwise provided in Section 13) and shall be conclusively deemed to have been
received and shall be effective (a) on the day on which delivered if delivered
personally (including delivery by courier providing evidence of delivery), or
transmitted by telex or telegram or telecopier with transmission confirmed, or
(b) five (5) days after the date on which the same is deposited in the United
States mail (certified or registered if required under Section 15), with postage
prepaid and properly addressed, and any notice mailed shall be addressed:

            (a)      in the case of Pledgor, to:

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

                     with copies to:

                     St. John & Wayne, L.L.C.
                     2 Penn Plaza East
                     Newark, New Jersey 07105
                     Attention:  John P. Reilly, Esq.
                     Telecopier No. (973) 491-3555

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<PAGE>   8

            (b)      in the case of Pledgee, to:

                     Chief Financial Officer
                     Watson Pharmaceuticals, Inc.
                     311 Bonnie Circle
                     Corona, California  92880
                     Fax no. (909) 279-8094
                     cc:      Robert Funsten, Esq.
                              General Counsel

                     with a copy to:

                     Stradling, Yocca, Carlson & Rauth
                     660 Newport Center Drive, Suite 1600
                     Newport Beach, CA  92660
                     Attention:  Lawrence B. Cohn
                     Telecopier No. (949) 725-4100


or at such other address as the party giving such notice shall have been advised
of in writing for such purpose by the party to whom or to which the same is
directed.

       17.  WAIVERS OF JURY TRIAL AND CONSEQUENTIAL DAMAGES. THE PLEDGOR AND,
BY ITS ACCEPTANCE HEREOF, PLEDGEE HEREBY WAIVE TRIAL BY JURY IN ANY LITIGATION
IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS
AGREEMENT, THE PLEDGED COLLATERAL, OR ANY INSTRUMENT OR DOCUMENT DELIVERED
PURSUANT HERETO. NEITHER PLEDGOR OR PLEDGEE, NOR ANY EMPLOYEE, AGENT OR ATTORNEY
OF EITHER OF THEM, SHALL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL DAMAGES
ARISING FROM ANY BREACH OF CONTRACT, TORT OR OTHER WRONG RELATING TO THIS
AGREEMENT OR THE ESTABLISHMENT, ADMINISTRATION OR COLLECTION OF THE OBLIGATIONS,
EXCEPT FOR BAD FAITH.

       18.  Severability: Entire Agreement.

            (a)     If any provision of this Agreement shall be invalid,
illegal, or unenforceable in any jurisdiction, the validity, legality or
enforceability of any such provision in any other jurisdiction shall not be
affected or impaired, and to the extent any provision is held invalid, illegal
or unenforceable, then such provision shall be deemed severable from, and shall
in no way affect the validity or enforceability of the remaining provisions of
this Agreement.

            (b)     This Agreement constitutes the entire agreement of Pledgor
and replaces any other or prior agreements or undertakings, with respect to the
subject matter hereof, and there are no other agreements or undertakings, oral
or written, respecting such subject matter which are intended to have any force
or effect after the execution hereof.

       19.   Miscellaneous. This Agreement shall be binding upon and shall inure
to the benefit of Pledgor and Pledgee and their respective successors and
permitted assigns. Section headings used herein are for convenience only and
shall not affect the meaning or construction of any of the provisions hereof.

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<PAGE>   9

         IN WITNESS WHEREOF, Pledgor has caused this Agreement to be executed by
its duly authorized officer as of the day and year first above written.

                             HALSEY DRUG CO., INC.

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

ACCEPTED AND AGREED TO
AS OF MARCH 29, 2000

WATSON PHARMACEUTICALS, INC.,
a Nevada corporation

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




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<PAGE>   10

Each of the undersigned hereby agrees to recognize all of the rights granted to
Pledgee under the foregoing Agreement and to take all actions necessary to
effectuate said rights and the purposes of the Agreement including, without
limitation, performance of any acts requested by Pledgee pursuant to the terms
thereof.

Date:  as of March 29, 2000

                             HALSEY PHARMACEUTICAL, INC.

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

                             HOUBA, INC.

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




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<PAGE>   11

                                   SCHEDULE A

                            Designation and Number of
                    shares of capital stock owned by Pledgor

<TABLE>
<CAPTION>

       Name of Issuer Shares          Certificate No.                Designation
<S>                                  <C>                <C>
Halsey Pharmaceutical, Inc.                  _           Common Stock, $.01 par value
Houba, Inc.                                  _           Common Stock, $.01 par value
</TABLE>




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