<PAGE>   1
                                                                   Ex. 10.67

                           PRODUCT PURCHASE AGREEMENT
                                 [(__________)]

     This Product Purchase Agreement (the "Agreement") is dated as of March 29,
2000, between Watson Pharmaceuticals, Inc., a Nevada corporation, ("Watson")
and Halsey Drug Co., Inc., a New York corporation, ("Halsey").

                                    RECITALS

     1.   Halsey exclusively owns the Product Assets (as defined below).

     2.   Watson desires to acquire, and Halsey is willing to transfer, the
Product Assets as provided herein.

     3.   Halsey desires to manufacture for Watson the Product (as defined
below) and [________________________] active ingredient and Watson desires to
purchase such materials from Halsey.

     4.   To facilitate the completion of certain facility improvements to
enable Halsey to supply Product and [______________________] to Watson and for
other general corporate purposes, including, without limitation, working
capital, Halsey desires to borrow from Watson $17,500,000 pursuant to a secured
Note and Watson desires to loan such amount to Halsey.

     5.   Halsey has or may acquire, rights to manufacture other pharmaceutical
compounds and desire to provide Watson the opportunity to negotiate supply
arrangements for such other compounds.

     6.   In consideration of the foregoing premises and of the mutual
covenants and obligations set forth herein, the parties hereto agree as
follows:

                                   ARTICLE 1

                                  DEFINITIONS

     1.1  "AFFILIATES" shall mean, with respect to any party, any person or
entity which, directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such party. A
person or entity shall be deemed to control a corporation (or other entity) if
such person or entity possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such corporation (or
other entity) whether through the ownership of voting securities, by contract
or otherwise.

     1.2  "ANDA" shall mean an Abbreviated New Drug Application filed with the
FDA.

     1.3  "API" shall mean the active pharmaceutical ingredient
[_____________________].

     1.4  "ASSIGNED CONTRACTS" shall mean those contracts set forth in the
Disclosure Letter.


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     1.5  "DISCLOSURE LETTER" shall mean that certain Disclosure Letter dated
the date hereof from Halsey to Watson.

     1.6  "DRUG MASTER FILE" shall mean Halsey's Drug Master File for
manufacturing the API, filed with the FDA, and the equivalent filing with the
governing health authority of any other country, as same may be amended from
time to time.

     1.7  "EXCLUSIVE INTELLECTUAL PROPERTY" shall mean Intellectual Property
exclusively relating to the research, development, manufacture, use and
registration of the Product throughout the world, including, without
limitation, the Intellectual Property as set forth in the Disclosure Letter.

     1.8  "FDA" shall mean the United States Food and Drug Administration, and
any successor agency thereto.

     1.9  "INTELLECTUAL PROPERTY" shall mean all of Halsey's and its
Affiliates' rights, existing as of the date hereof or as may be developed or
acquired hereafter through the date that Watson receives notice from the FDA
that the ANDA for the Product has been approved as set forth in Section 3.1.1
below, in and to all confidential or proprietary information, trade secrets,
trade names, trademarks, copyrights, patent rights, research and results
thereof, technology, know-how, discoveries, records of inventions (whether or
not patentable), developments, improvements, techniques, data, methods,
processes, instructions, formulae, recipes, drawings and specifications
relating to the research, development, manufacture, use and registration of the
Product and the API throughout the world, including without limitation, such
information and data relating to specifications for materials and equipment
necessary for manufacture, methods of production and formulation, the chemical
and physical properties, preclinical and clinical studies, including safety and
efficacy data, and procedures of testing and validation and requirements of
quality control; provided, however, that notwithstanding the foregoing,
Intellectual Property shall not include the Drug Master File.

     1.9  "LICENSED INTELLECTUAL PROPERTY" shall mean Intellectual Property
which is not Exclusive Intellectual Property.

     1.10 "OTHER PRODUCT ASSETS" shall mean those other tangible and intangible
assets related to the Product as set forth in the Disclosure Letter.

     1.11 "PRODUCT" shall mean all formulations of [___________________] in
capsule, tablet or other form for oral administration, including without
limitation the formulation described in the Product ANDA.

     1.12 "PRODUCT ASSETS" shall mean the Exclusive Intellectual Property, the
Regulatory Dossiers, the Assigned Contracts and the Other Product Assets.

     1.13 "PRODUCT ANDA" shall mean the ANDA No. [____] for formulations of
[_____________________] for oral administration.

     1.14 "REGULATORY DOSSIERS" shall mean all registrations, permits,
licenses, authorizations, approvals, presentations, notifications or filings
(together with all applications therefor), which are

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filed with or granted by the FDA or other governing health authority of any
country, and which are required to develop, make, use, sell, import or export
the Product or the API, including without limitation, the Product ANDA and
those set forth in the Disclosure Letter, and any supporting data, studies or
documents thereto; provided, however, that notwithstanding the foregoing
Regulatory Dossiers shall not include the Drug Master File.

                                   ARTICLE 2

                           TRANSFER OF PRODUCT ASSETS

     2.1  TRANSFER OF PRODUCT ASSETS. Halsey, on behalf of itself and each of
its Affiliates, does hereby sell, convey, transfer, assign and deliver to
Watson all of Halsey's and its Affiliates' right, title and interest in and to
the Product Assets throughout the world, free and clear of all claims, liens,
pledges, encumbrances, mortgages, taxes, and equities of any kind whatsoever.
In order to further perfect and evidence Watson's interest in the Product
Assets (including without limitation the Exclusive Intellectual Property),
Halsey shall execute and deliver patent, trademark or other assignments or
bills of sale or other documents as may be reasonably requested by Watson.

     2.2  LICENSE OF LICENSED INTELLECTUAL PROPERTY. Halsey hereby grants to
Watson a non-exclusive, perpetual, irrevocable, royalty-free license to use and
practice the Licensed Intellectual Property for any and all purposes,
including, without limitation, the research, development manufacture, use,
registration, marketing, promotion, advertising or sale of the Product and the
API throughout the world.

     2.3  ASSIGNMENT OF CONTRACTS. Halsey, on behalf of itself, and for each of
its Affiliates, does hereby assign to Watson all of Halsey's and its
Affiliates' right, title and interest in and to the Assigned Contracts, free
and clear of all claims, liens, pledges, encumbrances, mortgages, taxes and
equities of any kind whatsoever. In order to further protect and evidence
Watson's interest in the Assigned Contracts, Halsey shall execute and deliver
any additional assignments or documents as may be reasonably requested by
Watson.

     2.4  DELIVERY OF KNOW-HOW. After execution of this Agreement, Halsey shall
promptly furnish to Watson copies of documents in the possession or control of
Halsey or its Affiliates that embody the Intellectual Property and that are
reasonably necessary or useful to enable Watson to utilize and commercially
exploit, the Intellectual Property. Halsey shall make available its personnel
to facilitate the transfer of the Intellectual Property and to enable Watson to
utilize the Intellectual Property.

     2.5  DELIVERY OF REGULATORY DOSSIERS. After execution of this Agreement,
Halsey shall promptly furnish to Watson originals of all Regulatory Dossiers,
and all files, records and data (including all those in electronic or digital
form) related thereto or necessary in the preparation or production thereof, in
the possession or control of Halsey or its Affiliates that relate to the
Product and/or the API. At Watson's request, Halsey shall provide to the FDA or
other regulatory agencies any assignments, consents or other documents
necessary to transfer the ownership of the Regulatory Dossiers to Watson.

     2.6  OTHER PRODUCT ASSETS. After execution of this Agreement, Halsey shall
promptly deliver to the possession of Watson the Other Product Assets.

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     2.7  ASSIGNMENT, LICENSE, SUBLICENSE. Watson may sell, assign, transfer,
license, sublicense or otherwise convey to any person or entity all or part of
the rights (but not its obligations) granted to Watson under this Article 2
without Halsey' consent. Watson's obligations under this Agreement shall not be
reduced by virtue of any such transfer, and Watson shall be primarily liable
for all of its obligations hereunder, including, without limitation, the
payment obligations provided in Section 3.1.

     2.8  FURTHER ASSURANCES. Halsey shall, and shall cause its Affiliates to,
execute and deliver all other documents and instruments of conveyance, transfer
or assignment and take all other actions reasonably requested by Watson to
effect the sale and transfer to Watson of the Product Assets in accordance with
this Agreement.

                                   ARTICLE 3

                           PAYMENTS, OTHER AGREEMENTS

     3.1  PURCHASE PRICE. As consideration for the license of the Licensed
Intellectual Property and the assignment of the Exclusive Intellectual
Property, Regulatory Dossiers, the Assigned Contracts and Other Product Assets
and the other obligations of Halsey, Watson shall pay to Halsey, up to an
aggregate of Thirteen Million Five Hundred Thousand Dollars ($13,500,000) as
follows:

          3.1.1  [___________________________] within thirty (30) days after
Watson  receives [____________________________________________________________]
is obtained by December 31, 2000.

          3.1.2  [_______________________________] within thirty (30) days after
Halsey receives  [_____________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________],provided such conditions are met by May 1,
2001. [________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
____________________________________________________].

          3.1.3  [__________________________________________] within ten (10)
days after Watson receives [_____________________________________________]of the
API for the Product and all of Watson's currently marketed pharmaceutical
products containing the API (as set forth in the letter to Halsey dated the date
hereof) and any modifications thereof that would be subject to a supplement or
annual report, provided such FDA notice is received by July 1, 2001.

          3.1.4  In the event the conditions set forth in Section 3.1.1 are not
met, the obligation of Watson to make payments under Sections 3.1.2 and 3.1.3
shall terminate. In addition, in the event the conditions set forth in Sections
3.1.1, 3.1.2 and 3.1.3 are not met by the respective

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dates set forth therein, the obligation of Watson to make such corresponding
payments shall terminate

     3.2  SUPPLY AGREEMENTS. Concurrently herewith, Watson and Halsey shall
enter into a Finished Goods Supply Agreement in the form of Exhibit A hereto
and a Active Ingredient Supply Agreement in the form of Exhibit B hereto.

     3.3  LOAN. Concurrently herewith, Watson is loaning Seventeen Million Five
Hundred Thousand Dollars ($17,500,000) pursuant to a Loan Agreement of even
date herewith.

     3.4  LEGAL OPINION. Concurrently herewith, Watson shall receive an opinion
of St. John & Wayne, L.L.C., counsel to Halsey, dated as of the date hereof in
the form of Exhibit C hereto.

                                   ARTICLE 4

                                  DEVELOPMENT

     4.1  REGULATORY MATTERS. Pursuant to Section 2.1, upon execution of this
Agreement, the ownership of the Product ANDA shall be transferred to Watson.
Halsey shall be responsible for, and shall have the right to conduct, subject
to this Agreement, the prosecution of the Product ANDA in the name of Watson
and agrees to use commercially reasonable efforts and diligence to obtain FDA
approval of the Product ANDA in accordance with its business, legal, medical
and scientific judgment, such commercially reasonable efforts to be in
accordance with the efforts and resources Halsey would use for a product owned
by it or to which it has rights, which is of similar market potential at a
similar stage in its product life, taking into account the competitiveness of
the marketplace, the proprietary position of the Product, the regulatory
structure involved, the profitability of the Product and other relevant
factors. Each party shall pay their own expenses in connection with the FDA
approval of the Product ANDA.

     4.2  CONSULTATION. In carrying out the registration of the Product, Halsey
shall consult with Watson and Watson shall cooperate and provide, at no fee or
other charge, such services as Halsey reasonably requests. Halsey shall
promptly provide to Watson copies of all correspondence received from, and
written summaries of telephone conversations with, the FDA relating to the
prosecution of the Product ANDA. No filings with or correspondence to the FDA
shall be made by Halsey in the absence of obtaining Watson's written consent to
such filings or correspondence, which consent shall not be unreasonably
withheld or delayed. Halsey shall give Watson reasonable advance notice of any
meetings or telephone conferences with representatives of the FDA relating to
the prosecution of the Product ANDA in order to allow Watson an opportunity to
attend any such meeting or participate in any telephone conference with the
FDA. In prosecuting the Product ANDA and communicating with the FDA, the
parties shall operate on a consensual basis. Any nonconcurrence between the
parties shall be elevated to the Chief Operating Officer or his designee of
each of the respective parties for resolution. In the event of any continuing
nonconcurrence, the decision of the President or Chief Operating Officer of
Watson shall be final and controlling.

     4.3  COOPERATION. Halsey shall, upon request and at the expense of Watson,
cooperate with Watson in connection with any matter pertaining to the
protection of the Exclusive Intellectual Property whether in the courts,
administrative or quasi-judicial agencies, or otherwise.

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     4.4  OBLIGATIONS RELATING TO API. Halsey agrees to use commercially
reasonable efforts and diligence to obtain FDA approval to relocate its
manufacturing site as described in Section 3.1.2 above and to assist Watson in
obtaining FDA approval of Halsey as an approved source of the API as described
in Section 3.1.3 above, in accordance with the standard provided in Section 4.1
above. Watson agrees to use commercially reasonable efforts and diligence to
obtain FDA approval of Halsey as an approved source of the API, in accordance
with the standard provided in Section 4.1 above, including, without limitation,
the timely preparation and submission of stability studies and such other
information and data as may be required or otherwise requested by the FDA.

                                   ARTICLE 5

                   REPRESENTATIONS, WARRANTIES AND COVENANTS

     5.1  HALSEY REPRESENTATIONS AND WARRANTIES. Halsey represents and warrants
as of the date hereof, and, with respect to Sections 5.1.7 and 5.1.8, on each
date that Halsey is entitled to payment hereunder, as follows:

          5.1.1 CORPORATE AUTHORITY. Halsey is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York.
Halsey has the power and authority to own and transfer the Product Assets as
provided herein. Halsey has the power and authority to execute and deliver this
Agreement, any the instruments to be executed and delivered by it pursuant
hereto and to consummate the transactions contemplated hereby. All acts
required to be taken by or on the part of Halsey (corporate or otherwise) to
authorize the execution, delivery and performance of this Agreement have been
duly and properly taken and this Agreement has been duly and promptly executed
and delivered by Halsey and constitutes a legal, valid and binding obligation
of Halsey, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization and moratorium laws and other laws of general
application affecting enforcement of creditors' rights generally.

          5.1.2 OWNERSHIP, TITLE. Halsey is the sole and exclusive owner of the
entire right, title and interest in and to each of the Product Assets
throughout the world and has the right to transfer and assign each of the
Product Assets to Watson under this Agreement. Halsey has good and marketable
title to each of the Product Assets, subject to the receipt of executed copies
of the UCC-3 Termination Statements attached as Exhibit E and the filing of
same in the jurisdictions indicated thereon, free from any liens or
encumbrances, and upon consummation of the transactions contemplated hereby,
good and marketable title to each of the Product Assets shall be vested in
Watson. All employees, consultants, advisors or contractors who have developed
or assisted, in the development, or will develop or assist in the development,
of the Intellectual Property, have executed valid assignments of their rights
to Halsey and Halsey has supplied copies of all such assignments to Watson.

          5.1.3 ASSIGNED CONTRACTS. Halsey has provided to Watson true and
correct copies of each of the Assigned Contracts. Each of the Assigned
Contracts is in full force and effect and no party to such Assigned Contracts
is in breach thereof, nor is there any event or circumstance, which with the
passage of time or the giving of notice, would give rise to any breach thereof.
Halsey has not received any notice, nor does it have reason to believe, that
any party to the Assigned Contracts intends to terminate or modify such
Assigned Contracts.

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          5.1.4 NO CONFLICT. The execution, delivery and performance of this
Agreement by Halsey will not result in the creation of any lien or encumbrance
on any of the Product Assets, or violate, conflict with or result in a breach
of or constitute a default (or an event with which the giving of notice, lapse
of time or both, would become a default), under any order or decree of any
court, administrative agency or governmental authority, the charter documents
of Halsey or any agreement, contract (including, without limitation, the
Assigned Contracts) or any other instrument to which Halsey or any other
Affiliate is a party or to which its or their assets or property may be bound
or affected. Except (i) as contemplated herein, (ii) as contemplated by the
UCC-3 Termination Statements attached as Exhibit D hereto, (iii) for the
consent of Galen Partners III L.P., as Agent under that certain Debenture and
Warrant Purchase Agreement dated March 10, 1998 between Halsey, Galen Partners
III, L.P. and each of the other signatories thereto, and (iv) for the consent
of Oracle Strategic Partners, L.P. pursuant to that certain Debenture and
Warrant Purchase Agreement dated May 26, 1999 between Halsey, Oracle Strategic
Partners, L.P. and the other signatories thereto (all of which have been
obtained and provided to Watson), no approval, authorization, consent or other
order or action of or filing with or providing notice to any court,
administrative agency, governmental authority or any other third party is
required for the execution, delivery or performance of Halsey under this
Agreement.

          5.1.5 LITIGATION. There is no pending, or to its knowledge
threatened, litigation that would reasonably be expected to affect adversely
its right and ability to perform its obligations under this Agreement or the
right of Watson to utilize the Product Assets or the Licensed Intellectual
Property.

          5.1.6 INFRINGEMENT. There is no pending, or to its knowledge
threatened, claim, and Halsey has no knowledge of any basis for any claim that
the use of the Intellectual Property or the manufacture and sale of the Product
or the API would infringe or violate any patent, trademark, trade name, service
mark, copyright, trade secret or other intellectual property right owned or
claimed by another person or entity.

          5.1.7 PRODUCT FORMULATION. To Halsey's knowledge, there are no
defects in design or formulation of the Product which would adversely affect
performance or create an unusual risk of injury to persons or property.

          5.1.8 REGULATORY MATTERS. To the best of Halsey's knowledge, all of
the Regulatory Dossiers, and the Drug Master File are free of any
misrepresentations or omissions on the part of Halsey, its Affiliates,
predecessors-in-interest or agents, that all steps taken by Halsey, its
Affiliates, predecessors-in-interest or agents in the collection, assembly and
presentation of the data in such Regulatory Dossiers were legitimate and
reasonable when viewed within the standards of the industry, and that all
responses of Halsey, its Affiliates, predecessors-in-interest or agents on
behalf of itself or on behalf of Watson to any inquires of the FDA were made in
good faith.

     5.2  WATSON REPRESENTATIONS AND WARRANTIES.  Watson represents and
warrants as of the date hereof as follows:

          5.2.1 CORPORATE AUTHORITY. Watson is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada.
Watson has the power and authority to own and use the Product Assets as
provided herein. Watson has the power and authority to execute and deliver this
Agreement, any the instruments to be executed and delivered by it pursuant
hereto and to consummate the transactions contemplated hereby. All acts
required to be

<PAGE>   8

taken by or on the part of Watson (corporate or otherwise) to authorize the
execution, delivery and performance of this Agreement have been duly and
properly taken and this Agreement has been duly and promptly executed and
delivered by Watson and constitutes a legal, valid and binding obligation of
Watson, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization and moratorium laws and other laws of general
application affecting enforcement of creditors' rights generally.

          5.2.2 NO CONFLICT. The execution, delivery and performance of this
Agreement by Watson will not violate, conflict with or result in a breach of or
constitute a default (or event with which the giving of notice, lapse of time
or both, would become a default), under any order or decree of any court,
administrative agency or governmental authority, the charter documents of
Watson or any agreement, contract or any other instrument to which Watson or
any other Affiliate is a party or to which its or their assets or property may
be bound or affected. No approval, authorization, consent or other order or
action of or filing with or providing notice to any court, administrative
agency, governmental authority or any other third party is required for the
execution, delivery or performance of Watson under this Agreement.

          5.2.3 LITIGATION. There is no pending, or to its knowledge
threatened, litigation that would reasonably be expected to affect adversely
its right and ability to perform its obligations under this Agreement.

                                   ARTICLE 6

                                CONFIDENTIALITY

     6.1  PROTECTION OF CONFIDENTIAL INFORMATION. Watson and Halsey shall:

          (a)  not disclose any confidential and proprietary information of the
other to third parties except to: (i) government authorities; or (ii) such
party's Affiliates, consultants or actual or potential contract manufacturers,
licensees, distributors, purchasers, joint ventures, clinical investigators or
other persons having bona fide business relations with such party, in each case
pursuant to a non-disclosure commitment; and

          (b)  take such precautions as it normally takes with its own
confidential and proprietary information to prevent disclosure to third parties
of any confidential and proprietary information (except as contemplated above).

     6.2  EXCEPTIONS. No party shall be obligated to maintain confidentiality
under this Article with respect to any information that:

          (a) at the time of disclosure is or thereafter becomes available to
the general public other than by breach of this Article by such party;

          (b) is obtained by such party from a third-party source who is not
breaching a commitment of confidentiality to the other party to this Agreement
by disclosing such information to such first party; or

          (c) is required to be disclosed pursuant to law to protect such
party's interest or in connection with any litigation, investigation or
regulatory proceeding, or as otherwise required by law.

<PAGE>   9

                                   ARTICLE 7

                                   INDEMNITY

     7.1  INDEMNITY OBLIGATIONS. Each party shall defend, indemnify and hold
harmless the other party hereto and its Affiliates, successors and permitted
assigns (and the respective officers, directors, stockholders, partners and
employees of each) from and against any and all losses, liabilities, claims,
actions, proceedings, damages and expenses arising out of any breach of this
Agreement by such party.

     7.2  INDEMNIFICATION. If a party intends to claim indemnification under
this Article 7 (the "Indemnified Party"), it shall notify the party against
whom indemnification is sought (the "Indemnifying Party") promptly in writing
of any action, claim or liability in respect of which the Indemnified Party
believes it is entitled to claim indemnification, provided that the failure to
give such timely notice shall not release the Indemnifying Party from any
liability to the Indemnified Party except to the extent the Indemnifying Party
is prejudiced thereby. The Indemnifying Party shall have the right, by notice
to the Indemnified Party, to assume the defense of any third party action or
claim which may give rise to indemnification hereunder. If the Indemnifying
Party so assumes such defense, the Indemnified Party may participate therein
through counsel of its choice, but at the sole cost of the Indemnified Party.

     7.3  RIGHT OF OFFSET. Watson shall have the right to set off and retain
any amounts, otherwise payable to Halsey hereunder to satisfy any
indemnification claim Watson may have hereunder.

     7.4  EXCLUSION OF WARRANTIES. Except as expressly provided in this
Agreement, neither party makes any representation or warranty to the other,
whether expressed or implied, either in fact or by operation of law, by
statute, or otherwise, and both parties specifically disclaim any and all
implied or statutory warranties including, without limitation, any warranty of
merchantability or warranty of fitness for a particular purpose.

     7.5  DISCLAIMER. Neither party shall be liable to the other for any
consequential, incidental or indirect damages or expenses, including damages
for lost profits, loss of opportunity or use or any kind, suffered by the other
party, whether in contract, tort or otherwise.

                                   ARTICLE 8

                                 MISCELLANEOUS

     8.1  INDEPENDENT CONTRACTORS. This Agreement does not constitute Watson as
the agent or legal representative of Halsey, nor does it constitute Halsey as
the agent or legal representative of Watson. Neither Watson nor Halsey shall
have any right or authority to assume or create any obligation or
responsibility or vicarious liability, express or implied, on behalf of or in
the name of the other, or to bind the other in any manner.

     8.2  NOTICES. All notices or other communications given pursuant hereto by
one party hereto to the other party shall be in writing and deemed given (a)
when delivered by messenger, (b) when sent by telecopier, (with receipt
confirmed), (c) when received by the addressee, if sent by Express Mail,
Federal Express or other express delivery service (receipt requested), or (d)
five days

<PAGE>   10

after being mailed in the U.S., first-class postage prepaid, registered or
certified, in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
designate as to itself by notice to the other party):

     If to Watson, to it at:

     Watson Pharmaceuticals, Inc.
     311 Bonnie Circle
     Corona, CA  92880
     Attention: General Counsel
     Telecopier No.: (909) 279-8094

     If to Halsey, to it at:

     Halsey Drug Company, Inc.
     695 N. Perryville Road
     Rockford, Illinois 61107
     Attention: Chief Executive Officer
     Telecopier No.:  (805) 399-9710

     8.3  FORCE MAJEURE. Neither party shall be responsible or liable to the
other hereunder for failure or delay in performance of this Agreement due to
any war, fire, accident or other casualty, or any labor disturbance, or act of
God or the public enemy, or governmental action or any other contingency beyond
such party's reasonable control. In the event of the applicability of this
Section, the party affected by such force majeure shall use reasonable efforts,
consistent with good business judgment, to eliminate, cure and overcome any of
such causes and resume performance of its obligations.

     8.4  SUCCESSORS AND ASSIGNS. Halsey may not assign this Agreement or
assign or delegate its duties hereunder without the prior written consent of
Watson. All of the terms and provisions of this Agreement shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns.

     8.5  AMENDMENT. This Agreement may be amended only by written agreement of
the parties hereto.

     8.6  WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver of that
or any other term hereof or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
Any waiver must be in writing and be signed by the party against whom the
waiver is asserted.

     8.7  FURTHER ACTIONS. Each party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
reasonably necessary or appropriate in order to carry out the purpose and
intent of this Agreement.

     8.8  GOVERNING LAW, DISPUTE RESOLUTION, ARBITRATION.. This Agreement shall
be governed by, and construed in accordance with, the laws of the State of
California and the United

<PAGE>   11

States, as though made and to be fully performed therein without regard to
conflicts of laws principles thereof.

     The parties shall initially attempt in good faith to resolve any
significant controversy, claim, allegation of breach or dispute arising out of
or relating to this Agreement (hereinafter collectively referred to as a
"Dispute") through negotiations between senior executives of Watson and Halsey.
If the Dispute is not resolved within thirty (30) days (or such other period of
time mutually agreed upon by the parties) of notice of the Dispute (the
"Executive Resolution Period"), then the parties agree to submit the Dispute to
arbitration as provided herein. Unless otherwise mutually agreed by the
parties, only if the Dispute is not resolved through negotiations as set forth
herein, may a party resort to arbitration.

     All Disputes relating in any way to this Agreement shall be resolved
exclusively through arbitration conducted in accordance with the Commercial
Arbitration Rule of the American Arbitration Association as then in effect. In
the event either party demands arbitration, it shall do so within thirty (30)
days after the expiration of the Executive Resolution Period (or any mutually
agreed extension) and shall include a request that such arbitration be held
within thirty (30) days of such demand. The arbitration hearing shall be held
as soon as practicable. The arbitration hearing shall be held in Orange County,
California and shall be before a single arbitrator selected by the parties in
accordance with the Commercial Arbitration Rule of the American Arbitration
Association pursuant to its rules on selection of arbitrators. The arbitrator
shall render a formal, binding non-appealable resolution and award on each
issue as expeditiously as possible but not more than ten (10) business days
after the hearing. In any arbitration, the prevailing party shall be entitled
to reimbursement of its reasonable attorneys fees and the parties shall use all
reasonable efforts to keep arbitration costs to a minimum

     8.9  ATTORNEYS' FEES. Each party shall bear its own legal fees incurred in
connection with the transaction that is contemplated hereby, provided, however,
that if either party to this Agreement seeks to enforce its rights under this
Agreement by legal proceedings or otherwise, the non-prevailing party shall pay
all costs and expenses incurred by the prevailing party, including, without
limitation, reasonable attorneys' fees.

     8.10 SEVERABILITY. To the extent permitted by applicable law, any term or
provision of this Agreement which is invalid or unenforceable will be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining rights of the Person intended
to be benefited by such term or provision or any other provisions of this
Agreement.

     8.11 ENTIRE AGREEMENT. This Agreement, and all other agreements,
certificates, documents and instruments contemplated hereby or thereby (in each
case including any Exhibits or Schedules attached hereto or thereto), contains
the sole and entire agreement and understanding of the parties hereto and their
respective Affiliates and representatives related to the subject matter hereof
and supersedes all oral or written agreements concerning the subject matter
made prior to the date of this Agreement. There are no agreements, covenants or
undertakings with respect to the subject matter of this Agreement or the other
agreements, documents, certificates or instruments referred to in this Section
8.11 other than those expressly set forth or referred to herein or therein and
no representations or warranties of any kind or nature whatsoever, express or
implied, are made or shall be deemed to be made herein by the parties hereto
except those expressly made in this Agreement and such other agreements,
documents, certificates and instruments.

<PAGE>   12

     8.12 PUBLIC ANNOUNCEMENTS. Except to the extent disclosure may be required
by applicable law or the rules or regulations of any stock exchange on which
such party's stock is traded, neither party shall issue or make any public
announcement or press release, or otherwise make any public statement, with
respect to this Agreement without obtaining the other party's approval, which
approval shall not be unreasonably withheld or delayed. In the event a party
determines that applicable law or the rules or regulations of any stock exchange
on which such party's stock is listed requires such a disclosure, it shall
provide the other party a copy of the intended disclosure and provide such party
a reasonable opportunity to comment on such disclosure. Attached as Exhibit E is
a form of joint press release describing the material terms of the transactions
contemplated by this Agreement. Halsey and Watson intend to release the form of
press release attached as Exhibit E on or about the date of execution of this
Agreement.

<PAGE>   13


     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the day and year first indicated
above.

                              WATSON PHARMACEUTICALS, INC.

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

                              HALSEY DRUG CO., INC.

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