<PAGE>   1
                                                                   EXHIBIT 10.71


                         FINISHED GOODS SUPPLY AGREEMENT

                                ("CORE PRODUCTS")


     This Finished Goods Supply Agreement (the "Agreement") dated this 29th day
of March, 2000, between Watson Pharmaceuticals, Inc., a Nevada corporation,
("Watson") and Halsey Drug Co., Inc., a New York corporation ("Halsey").

                                    RECITALS

     A.   Watson and Halsey desire to establish a relationship, pursuant to
which Halsey (or its Affiliates) will supply, and Watson (or its Affiliates)
will purchase, the Commercial Products as defined herein, commencing on the
Effective Date.

     In consideration of the foregoing premises, and the mutual covenants and
obligations set forth herein, Halsey and Watson hereby agree as follows:

                                   ARTICLE 1
                                   DEFINITIONS

     1.1. "AFFILIATE" 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 each Abbreviated New Drug Application listed on
Schedule 1 filed with the FDA by Halsey and any supplements thereto.

     1.3. "COMMERCIAL PRODUCTS" shall mean those products listed on Schedule 1,
packaged, labeled and finished to meet the relevant Commercial Product
Specifications, and includes samples and trade packaging.

     1.4. "COMMERCIAL PRODUCT SPECIFICATIONS" shall mean the specifications for
the relevant Commercial Product set forth in Exhibit A attached hereto,
including (as applicable) statements of pharmaceutical manufacturing, Labeling,
filling, Packaging, storage and quality control procedures, and labeling and
packaging specifications (as such may be revised from time to time in accordance
with the terms of this Agreement by written agreement executed by the parties).

     1.5. "CONFIDENTIAL INFORMATION" shall mean, with respect to a party, all
information of any kind whatsoever (including without limitation, data,
compilations, formulae, models, patent disclosures, procedures, processes,
projections, protocols, results of experimentation and testing, specifications,
strategies and techniques), and all tangible and intangible embodiments thereof
of any kind whatsoever (including without limitation, apparatus, compositions,
documents, drawings, machinery, patent applications, records and reports), which
is disclosed by
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such party to the other party and is marked, identified as or otherwise
acknowledged to be confidential at the time of disclosure to the other party.
Notwithstanding the foregoing, Confidential Information of a party shall not
include information which the other party can establish by written documentation
(a) to have been publicly known prior to disclosure of such information by the
disclosing party to the other party, (b) to have become publicly known, without
fault on the part of the other party, subsequent to disclosure of such
information by the disclosing party to the other party, (c) to have been
received by the other party at any time from a source, other than the disclosing
party, rightfully having possession of and the right to disclose such
information, (d) to have been otherwise known by the other party prior to
disclosure of such information by the disclosing party to the other party, or
(e) to have been independently developed by employees or agents of the other
party without the use of such information disclosed by the disclosing party to
the other party.

     1.6. "EFFECTIVE DATE" shall mean April 1, 2000.

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

     1.8. "GMP" shall mean current Good Manufacturing Practices promulgated by
the FDA, and their equivalent promulgated by the governing health authority of
any other country in which the Commercial Products are manufactured by Halsey
under this Agreement.

     1.9. "INTELLECTUAL PROPERTY" shall mean Halsey's rights existing as of the
date hereof and as may be developed hereafter in and to all confidential or
proprietary information, trade secrets, patent rights, technology, know-how,
developments, improvements, techniques, data, methods, processes, instructions,
formulae, recipes, drawings and specifications necessary to manufacture and
supply the Commercial Products hereunder.

    1.10. "LABEL", "LABELED" OR "LABELING" shall mean all labels and other
written, printed or graphic matter upon (i) the Commercial Products or any
container or wrapper utilized with the Commercial Product, or (ii) any written
material accompanying the Commercial Products, including, without limitation,
package inserts.

    1.11. "LIMITED WARRANTY" shall have the meaning defined in Section 2.5(c)
hereof.

    1.12. "PACKAGING" shall mean all primary containers, including blisters,
cartons, shipping cases or any other like matter used in packaging or
accompanying the Commercial Products.

    1.13. "PERSON" shall mean an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, pool, syndicate, sole proprietorship, unincorporated
organization, governmental authority or any other form of entity not
specifically listed herein.

    1.14. "RAW MATERIAL COST" shall mean the cost of raw materials used to
manufacture the Commercial Products, determined in accordance with generally
accepted accounting principles and consistent with Halsey's accounting practices
for other products manufactured.
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    1.15. "REGULATORY DOSSIERS" shall mean all registrations, permits,
licenses, authorizations, approvals, presentations, notifications or filings
(together with all applications therefor), which are filed with or granted by
the governing health authority of any country, and which are required to
develop, make, use, sell, import or export the Commercial Products.

    1.16. "TERRITORY" shall mean worldwide.

    1.17. "TRADEMARKS" shall mean the marks set forth on Schedule 1.

                                   ARTICLE 2
                        MANUFACTURE, SUPPLY AND PURCHASE

     2.1. SUPPLY AND PURCHASE OBLIGATIONS. During the applicable term of this
Agreement, and so long as and during the period that Watson satisfies the
quarterly minimum obligations set forth in Section 2.5, Halsey shall not
manufacture or supply pharmaceutical products containing the active ingredients
in the Commercial Products for the indications for which the Commercial Products
are approved, for or to any third party. Except as provided in Section 2.6
below, Watson shall have no obligation to purchase Commercial Products under
this Agreement, except to the extent Watson provides to Halsey purchase orders
pursuant to Section 2.4(c) below.

     2.2. MANUFACTURING PRACTICES.

          (a)  Commercial Product Specifications. Halsey shall manufacture,
fill, package, label and warehouse the Commercial Products in conformity with
the Commercial Product Specifications and in accordance with all applicable laws
and regulations.

          (b)  GMP. Halsey shall manufacture the Commercial Products in
accordance with GMP and the respective Regulatory Dossiers. Halsey shall advise
Watson of any proposed process changes outside the respective Regulatory
Dossiers prior to their implementation by Halsey. Watson shall have the right,
at its sole expense, to audit Halsey for compliance with GMP on reasonable
notice during normal business hours at least once in each calendar year, and
more often in Watson's reasonable discretion.

          (c)  Active Pharmaceutical Ingredient. Halsey shall use as the active
pharmaceutical ingredients as instructed by Watson and may be either such
ingredient manufactured by Halsey or supplied by a third party.

          (d)  Certificates of Analysis. Halsey shall provide Watson with a
certificate of analysis for each shipment of the Commercial Products
manufactured and supplied hereunder based upon a reference standard established
by Halsey and reasonably acceptable to Watson.

          (e)  Quality Control Information. Upon the reasonable request of
Watson, Halsey shall provide Watson with such information, including analytical
and manufacturing documentation, requested by Watson regarding quality control
of the Commercial Products supplied hereunder.
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          (f)  Packaging Control. In addition to its obligations pursuant to
Sections 2.3(d) and (e), Halsey will evaluate and inspect each batch of
Commercial Products in accordance with Packaging guidelines set forth in the
Commercial Product Specifications and will provide Watson with a Commercial
Product lot release.

          (g)  Inspection. Watson, or its designee, may, at its own expense,
with prior reasonable notice and during regular business hours, visit the
facilities used by Halsey to manufacture Commercial Products to review the
Commercial Product related records and the facilities.

          (h)  Technical Requirements. In addition Halsey shall comply with the
technical requirements set forth on Exhibit B.

     2.3. LABELING AND PACKAGING.

(a) Labeling. Each Commercial Product and all Labeling, advertising and
promotional material used in connection therewith, shall include the Trademark,
in the manner and to the extent specified in the relevant Commercial Product
Specifications. Watson shall be responsible for ensuring the accuracy of all
information contained on all Labels and Labeling for the Commercial Products and
for the compliance of all such Labels and Labeling with applicable law. Should
Watson desire or be required to make any change in any such Label or Labeling,
Watson shall be responsible for the updating of all artwork and text associated
with such change and providing such changes to Halsey or its Affiliates. Halsey
shall make all necessary arrangements for such changed Labels or Labeling to be
printed and shall provide to Watson printer's proofs for Watson's review. Watson
shall promptly either provide Halsey any necessary corrections thereto or notify
Halsey of its approval of such proofs. Watson shall reimburse Halsey for the
cost of preparing the proofs of such new Labels or Labeling, as well as all
other costs associated with such new Labels or Labeling.

          (b)  Packaging. Halsey shall supply all Packaging and Labels for the
Commercial Products under this Agreement and such Packaging and Labels shall be
in accordance with the relevant Commercial Product Specifications.

     2.4. FORECASTS AND ORDERS.

          (a)  Forecasts. Not less than forty-five (45) days prior to the first
day of each calendar quarter, Watson shall prepare and provide Halsey with a
written forecast of the estimated Commercial Products requirements of Watson and
its Affiliates for each of the following four (4) calendar quarters. Such
forecast shall be binding only with respect to the first quarter thereof and
shall be non-binding for the balance.

          (b)  Supply Obligation. Each calendar quarter, Halsey shall be
required to manufacture, supply and deliver to Watson such quantities of
Commercial Products as Watson orders pursuant to Section 2.4(c) below, up to one
hundred and twenty-five percent (125%) of the quantity forecasted for such
calendar quarter in the most recent forecast under Section 2.4(a) above. Halsey
shall use its commercially reasonable efforts to manufacture, supply and deliver
to Watson any quantities of Commercial Products as Watson orders pursuant to
Section 2.4(c) below, in excess of one hundred and twenty five percent (125%) of
the quantity forecasted for
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such calendar quarter in the most recent forecast under Section 2.4(a) above. If
Halsey becomes aware of any circumstances that may cause Halsey to default in
its obligation above to deliver such quantities of conforming Commercial
Products as Watson orders for any calendar quarter, Halsey shall give Watson
prompt written notice describing such circumstances, together with a proposed
course of action to remedy such failure.

          (c)  Orders. Watson shall make all purchases hereunder by submitting
firm purchase orders to Halsey. Each such purchase order shall be in writing in
a form reasonably acceptable to Halsey, and shall specify the description of the
Commercial Product(s) ordered by NDC#, the quantity ordered, the price therefor
under Section 3.1 below, the place of delivery and the required delivery date
therefor, which shall not be less than sixty (60) days after the date of such
purchase order. In the event of a conflict between the terms and conditions of
any purchase order and this Agreement, the terms and conditions of this
Agreement shall prevail.

     1.5. DELIVERY AND ACCEPTANCE.

          (a)  Delivery. All Commercial Products supplied under this Agreement
shall be shipped F.O.B. Halsey's place of manufacture to such location as
designated by Watson in the applicable purchase order. Watson shall pay all
freight, insurance charges, taxes, import and export duties, inspection fees and
other charges applicable to the sale and transport of Commercial Products
purchased by Watson hereunder. Title and risk of loss and damages to Commercial
Products purchased by Watson hereunder shall pass to Watson upon delivery to
Watson's designated carrier.

(b) Rejection and Cure. If a shipment of Commercial Products or any portion
thereof fails to conform to the applicable Commercial Product Specifications,
then Watson shall have the right to reject such nonconforming shipment of
Commercial Products or the nonconforming portion thereof, as the case may be.
Watson shall give written notice to Halsey of its rejection hereunder, within
forty five (45) days after Watson's receipt of such shipment, specifying the
grounds for such rejection. The nonconforming shipment of Commercial Products,
or the nonconforming portion thereof, shall be held for Halsey's disposition, or
shall be returned to Halsey, in each case at Halsey's expense, as directed by
Halsey. Halsey shall use its commercially reasonable efforts to replace each
nonconforming shipment of Commercial Products, or the nonconforming portion
thereof, with conforming Commercial Products as soon as reasonably practicable
after receipt of notice of rejection thereof, and in any event shall do so
within forty five (45) days after receipt of notice of rejection thereof.

          (c)  Warranty. Halsey warrants that (a) Commercial Products
manufactured hereunder shall conform with the Commercial Product Specifications;
(b) Commercial Products shall be manufactured hereunder in accordance with all
applicable laws and regulations, GMP and the relevant Regulatory Dossier and (c)
the manufacture and sale of Commercial Products by Halsey hereunder, and the use
thereof by Watson and its Affiliates contemplated hereby, shall not infringe the
patent rights of any Person or constitute a misappropriation of the trade
secrets or other intellectual property rights of any Person, (collectively,
parts (a), (b) and (c) above comprise the "Limited Warranty"). HALSEY MAKES NO
OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE COMMERCIAL PRODUCTS
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INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE.

          (d)  Cover. If Halsey fails to timely deliver to Watson the quantity
of conforming Commercial Products that Watson orders under any purchase order
pursuant to Section 2.4(c) above (subject to the provisions of Section 2.4(b)
above), after providing written notice to Halsey, Watson shall have the right to
purchase substitute Commercial Products from a third party in substitution for
the quantity of conforming Commercial Products which Halsey failed to deliver
hereunder. Halsey shall reimburse Watson on demand for the difference between
the cost of obtaining such substitute Commercial Products (plus any commercially
reasonable charges, expenses or commissions incurred by Watson in connection
with effecting cover, and any other reasonable expenses incident to such
failure), less the price which would have been due to Halsey for the like
quantity of Commercial Products if supplied by Halsey hereunder.

     2.6. QUARTERLY MINIMUM OBLIGATIONS. Provided that Halsey is supplying
Commercial Products in accordance with Watson's orders, for a period of eighteen
(18) months from the Effective Date, Watson shall purchase an aggregate of
Eighteen Million, Three Hundred Sixty Three Thousand Three Hundred Eighty-Six
dollars ($18,363,386) of Commercial Products. If during any quarter (for
purposes of this paragraph, quarters shall end on June 30, September 30,
December 31 and March 31) Watson fails to purchase and pay for at least Three
Million, Sixty Thousand, Five Hundred Sixty-Four dollars ($3,060,564) of
Commercial Products (the "Minimum Obligation"), it shall, within forty-five (45)
days of the end of such quarter, purchase and pay for Commercial Products equal
to such shortfall. To the extent that Watson has purchased and paid for
Commercial Product in excess of aggregate Minimum Obligations to date, it may
credit any such excess against any shortfall. During the first six (6) quarters
during the term of this Agreement, Watson must satisfy the Minimum Obligations.
Thereafter, if Watson fails to satisfy the Minimum Obligations, Halsey's sole
remedy shall be the termination of the exclusive supply obligation set forth in
Section 2.1 above.


                                   ARTICLE 3
                             PRICE AND PAYMENT TERMS

     3.1. PRICE. Watson shall purchase from Halsey all Commercial Products which
are accepted pursuant to Section 2.5 above at the prices on Schedule 1. On each
anniversary of the date hereof, Halsey may increase such prices to reflect any
increase in the Raw Material Cost during the preceding year. Such new price
shall be effective for all orders received by Halsey thirty (30) days after
written notice of such increase by Halsey to Watson, such notice, showing in
reasonably specific detail the calculation of such increase.

     3.2. INVOICING. Upon shipment of Commercial Products to Watson, Halsey
shall submit invoices therefor to Watson. Watson shall pay each invoice in full
within forty five (45) days after the date of invoice. All payment shall be made
in U.S. Dollars.

     3.3. SALES AND USE TAXES. Watson shall be solely responsible for the
payment of all federal, state, or local sales, use or value-added tax, excise or
similar charge, or other tax
<PAGE>   7

assessment (other than that assessed against income), assessed or charged on the
sale of Commercial Products sold pursuant to this Agreement.

     3.4. AUDIT RIGHTS. Upon the written request of Watson and not more than
once in each calendar year, Halsey shall permit an independent certified public
accounting firm, selected by Watson and reasonably acceptable to Halsey to have
access during normal business hours to such of the records of Halsey as may be
reasonably necessary to verify the accuracy of Halsey's calculation of any price
increase hereunder for any period ending not more than twenty-four (24) months
prior to the date of such request. The accounting firm shall disclose to Watson
only whether the calculations are correct or not and the specific details
concerning any discrepancies. If such accounting firm concludes that the price
increases was overstated during the audited period, Halsey shall reimburse
Watson for the amount overpaid by Watson hereunder for such period within thirty
(30) days of the date Watson delivers to Halsey such accounting firm's written
report so concluding. The fees and expenses charged by such accounting firm
shall be paid by Watson; provided, however, if the audit discloses that the
price increase was overstated during the audited period by more than five
percent (5%), then Halsey shall pay the reasonable fees and expenses charged by
such accounting firm.

                                   ARTICLE 4
                       FURTHER OBLIGATIONS OF THE PARTIES

     4.1. REGULATORY DOSSIERS. Halsey has filed and shall be solely responsible
for maintaining all Regulatory Dossiers to permit the sale of Commercial
Products by Watson.

     4.2. FACILITY QUALIFICATION. Halsey shall, at no cost to Watson, take all
such actions to qualify (and thereafter to maintain qualification of) the
facility (or facilities) at which Halsey manufactures Commercial Products
hereunder, as required under applicable law in the United States and each other
country in which Watson has informed Halsey that Watson intends to sell
Commercial Products, to enable Halsey to obtain and maintain all applicable
Regulatory Dossiers for the Commercial Products.

     4.3. RECALL. In the event either party believes it may be necessary to
conduct a recall, field correction, market withdrawal, stock recovery, or other
similar action with respect to any Commercial Products which were sold by Halsey
or its Affiliates to Watson or its Affiliates under this Agreement (a "Recall"),
Halsey and Watson shall consult with each other as to how best to proceed, it
being understood and agreed that the final decision as to any Recall of any
Commercial Products shall be made by Watson; provided, however, that Halsey
shall not be prohibited hereunder from taking any action that it is required to
take by applicable law. Halsey shall bear all costs in connection with any such
Recall unless such Recall is attributable to any breach by Watson hereof, to any
item for which Watson is required to indemnify Halsey under Section 6.2 hereof
or the gross negligence or willful misconduct of Watson.

     4.4. FURTHER OBLIGATIONS OF HALSEY. During the term of this Agreement,
Halsey shall:

          (i)  at its own expense, promptly respond to all reasonable inquiries
     from Watson pertaining to the supply of Commercial Products;
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         (ii)  without limiting the other provisions of this Agreement, use its
     commercially reasonable efforts at all times to minimize Commercial Product
     delivery time;

        (iii)  furnish to Watson current copies of all issued master batch
     records, procedures, specifications and methods and standard operating
     procedures related to each Commercial Product and submit to Watson for
     written approval prior to implementation any and all proposed changes to
     the same;

         (iv)  obtain Watson's written approval prior to implementing any
     proposed change in the suppliers of raw material used in the Commercial
     Products, containers, Packaging, Labeling, Commercial Product
     Specifications, manufacturing process, testing or the facilities which are
     related to the manufacturing of Commercial Products;

          (v)  promptly notify Watson of any comments, responses or notices
     received from the FDA, or other applicable regulatory authorities, which
     relate to or may impact the Commercial Products or the manufacture of the
     Commercial Products. At its own cost, obtain and maintain any and all
     Federal and state regulations and/or licenses with respect to the
     manufacture, by Halsey, of the Commercial Products;

         (vi)  provide ongoing technical product and process support with
     respect to the Commercial Products; and

        (vii)  perform stability studies on at least one commercial batch of
     each Commercial Product per year and provide copies of such stability
     reports to Watson.

     4.5. FURTHER OBLIGATIONS OF WATSON. During the term of this Agreement,
Watson shall:

          (i)  at its own expense, promptly respond to all reasonable inquiries
     from Halsey pertaining to the supply of Commercial Products; and

         (ii)  promptly notify Halsey of any comments, responses or notices
     received from the FDA, or other applicable regulatory authorities, which
     relate to or impact the Commercial Products or the manufacture of the
     Commercial Products.

     4.6. REBATES, REIMBURSEMENTS. Any government mandated rebates or
reimbursements with respect to sales of Commercial Products prior to the date
hereof shall be for the account of Halsey. Any government mandated rebates or
reimbursements with respect to sales of Commercial Products after the date
hereof shall be for the account of Watson. The parties shall from time to time,
but at least quarterly, remit to the other party any funds necessary to
effectuate the foregoing.
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                                   ARTICLE 5
                         REPRESENTATIONS AND WARRANTIES

     5.1. REPRESENTATIONS AND WARRANTIES. Each party hereby represents and
warrants to the other party as follows:

          (a)  Corporate Existence. Such party is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated.

          (b)  Authorization and Enforcement of Obligations. Such party (a) has
the corporate power and authority and the legal right to enter into this
Agreement and to perform its obligations hereunder, and (b) has taken all
necessary corporate action on its part to authorize the execution and delivery
of this Agreement and the performance of its obligations hereunder. This
Agreement has been duly executed and delivered on behalf of such party, and
constitutes a legal, valid, binding obligation, enforceable against such party
in accordance with its terms.

          (c)  Consents. All necessary consents, approvals and authorizations of
all governmental authorities and other Persons required to be obtained by such
party in connection with its performance of this Agreement have been obtained.

          (d)  No Conflict. The execution and delivery of this Agreement and the
performance of such party's obligations hereunder (a) do not conflict with or
violate any requirement of applicable laws or regulations, and (b) do not
conflict with, or constitute a default under, any material contractual
obligation of such party.

     5.2. INSURANCE. Halsey and Watson shall maintain comprehensive general
liability insurance, including product liability insurance against claims
regarding the manufacture of Commercial Products under this Agreement, in such
amounts as it customarily maintains for similar products and activities. Each
party shall maintain such insurance during the term of this Agreement and
thereafter for so long as it customarily maintains insurance for itself for
similar products and activities. Each party shall cause the other party to be
named as an additional insured under such insurance and shall provide the other
party proof of such insurance upon request. Each party shall give the other
party at least thirty (30) days notice of any cancellation, termination or
change in such insurance. Either party may substitute a self insurance program
on notice to the other party with information demonstrating the adequacy of such
program.

                                   ARTICLE 6
                                 INDEMNIFICATION

     6.1. HALSEY'S INDEMNITY OBLIGATIONS. Halsey shall defend, indemnify and
hold harmless Watson, its Affiliates and their respective 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 (including
without limitation reasonable attorneys' fees and expenses) (herein "Damages")
relating to or arising (a) from the manufacture of the Commercial Product, (b)
any breach by Halsey or its Affiliates of this Agreement, including without
limitation, the failure of the Commercial Products to meet the Limited Warranty
or (c) any claims, infringement or misappropriation relating to the Commercial
Product.
<PAGE>   10

     6.2. WATSON'S INDEMNITY OBLIGATIONS. Watson shall defend, indemnify and
hold harmless Halsey and its Affiliates, and their respective successors and
permitted assigns (and the respective officers, directors, stockholders,
partners and employees of each) from and against any and all Damages arising out
of the handling, possession, use, marketing, distribution or sale of any
Commercial Products by Watson or its Affiliates or any of their distributors or
agents following Halsey's or its Affiliate's delivery of the Commercial Products
to Watson at Halsey's shipping point, except to the extent such Damages give
rise to an indemnification claim of Watson under Section 6.1 above.

     6.3. INDEMNIFICATION. A party (the "indemnitee") that intends to claim
indemnification under this Article 6 shall notify the other party (the
"indemnitor") promptly in writing of any action, claim or liability in respect
of which the indemnitee believes it is entitled to claim indemnification,
provided that the failure to give timely notice to the indemnitor shall not
release the indemnitor from any liability to the indemnitee except to the extent
the indemnitor is prejudiced thereby. The indemnitor shall have the right, by
notice to the indemnitee, to assume the defense of any such action or claim
within the fifteen (15) day period after the indemnitor's receipt of notice of
any action or claim with counsel of the indemnitor's choice and at the sole cost
of the indemnitor. If the indemnitor so assumes such defense, the indemnitee may
participate therein through counsel of its choice, but at the sole cost of the
indemnitee. The party not assuming the defense of any such claim shall render
all reasonable assistance to the party assuming such defense, and all reasonable
out-of-pocket costs of such assistance shall be for the account of the
indemnitor. No such claim shall be settled other than by the party defending the
same, and then only with the consent of the other party which shall not be
unreasonably withheld; provided that the indemnitee shall have no obligation to
consent to any settlement of any such action or claim which imposes on the
indemnitee any liability or obligation which cannot be assumed and performed in
full by the indemnitor, and the indemnitee shall have no right to withhold its
consent to any settlement of any such action or claim if the settlement involves
only the payment of money by the indemnitor or its insurer.

     6.4. LIMITATIONS ON INDEMNIFICATION. Notwithstanding any contrary provision
herein:

          (i)  no party shall be entitled to indemnification with respect to any
     claim or suit to the extent such claim or suit results from (a) its own
     negligence or willful misconduct, or (b) any action to which it has
     consented in writing; and

          (ii) neither party shall be liable to the other for any consequential,
     incidental or indirect damages, including damages for lost profits, loss of
     opportunity or use of any kind, suffered by the other party, whether in
     contract, tort or otherwise.

                  ARTICLE 7 RELATIONSHIP BETWEEN THE PARTIES

     7.1. INDEPENDENT CONTRACTOR. The relationship between Halsey and Watson is
solely that of buyer and seller, it being understood that each party is acting
as an independent contractor for its own account and this Agreement does not
establish a joint venture, agency, partnership or employer/employee relationship
between the parties. Neither party shall have authority to
<PAGE>   11

conclude contracts or otherwise to act for or bind the other party in any
manner, whatsoever, as agent or otherwise. Any and all contracts and agreements
entered into by either party shall be for that party's sole account and risk and
shall not bind the other party in any respect.

                                   ARTICLE 8
                      CONFIDENTIALITY AND PUBLIC DISCLOSURE

     8.1. CONFIDENTIALITY. Except for literature and information intended for
disclosure to customers, and except as may be required to obtain government
approval to manufacture, sell or use the Commercial Products, each party will
treat as confidential the Confidential Information, and will take all necessary
precautions to assure the confidentiality of such information. Each party agrees
to return to the other party upon the expiration or termination of this
Agreement all Confidential Information acquired from such other party, except as
to such information it may be required to retain under applicable law or
regulation, and except for one copy of such information to be retained by such
party's legal department. Neither party shall, during the period of this
Agreement or for three (3) years thereafter, without the other party's express
prior written consent use or disclose any such Confidential Information for any
purpose other than to carry out its obligations hereunder. Each party, prior to
disclosure of such Confidential Information to any employee, consultant or
advisor shall ensure that such person is bound in writing to observe the
confidentiality provisions of this agreement. The obligations of confidentiality
shall not apply to information that the receiving party is required by law or
regulation to disclose, provided however that the receiving party shall so
notify the disclosing party of its intent and cooperate with the disclosing
party on reasonable measures to protect the confidentiality of the information.

     8.2. PUBLIC DISCLOSURE. Except for such disclosure as is deemed necessary,
in the reasonable judgment of a party, to comply with applicable laws, no
announcement, news release, public statement, publication, or presentation
relating to the existence of this Agreement, the subject matter hereof, or
either party's performance hereunder will be made without the other party's
prior written approval, which approval shall not be unreasonably withheld or
delayed. The parties agree that they will use reasonable efforts to coordinate
the initial announcement or press release relating to the existence of this
Agreement so that such initial announcement or press release by each is made
contemporaneously.

                                   ARTICLE 9
                              TERM AND TERMINATION

     9.1. TERM. Unless terminated earlier pursuant to Section 9.2 below, the
initial term of this Agreement shall expire on the date ten (10) years after the
date hereof; provided, however, that the term of this Agreement shall be
automatically extended for up to two (2) successive additional terms of five (5)
years each thereafter unless either party gives to the other not less than one
(1) year's written notice of termination prior to the expiration of the initial
term, or any additional term, of this Agreement.

     9.2. TERMINATION.
<PAGE>   12

          (a)  By Either Party. A party shall have the right to terminate this
Agreement, upon or after the breach of any material provision of this Agreement
by the other party if the other party has not cured such breach within sixty
(60) days after receipt of written notice thereof from the non-breaching party.

          (b)  By Watson. Watson shall have the right to terminate this
Agreement, on a product-by-product basis, on sixty (60) days written notice to
Halsey, if Halsey fails to deliver to Watson such quantities of conforming
Commercial Products as Watson orders pursuant to Section 2.4(c) above (subject
to the provisions of Section 2.5(b) above) for any four (4) out of eight (8)
consecutive calendar quarters.

          (c)  Effect of Expiration and Termination. Expiration or termination
of this Agreement shall not relieve the parties of any obligation accruing prior
to such expiration or termination. The provisions of Sections 4.3 and 5.2 and
Articles 6 and 8 shall survive any expiration or termination of this Agreement.
Upon termination or expiration, each party shall immediately deliver to the
other (and cause any of its employees, agents or representatives to so deliver),
at such party's expense, all Confidential Information of the other party,
including without limitation any and all copies, duplications, summaries and/or
notes thereof or derived therefrom, regardless of the format.

                                   ARTICLE 10
                                  MISCELLANEOUS

    10.1. 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
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: Chief Operating Officer
    Telecopier: (909) 270-1429


    with a copy to:


    Watson Pharmaceuticals, Inc.
    311 Bonnie Circle
    Corona, CA  92880
    Attention: General Counsel
    Telecopier No.: (909) 279-8094
<PAGE>   13


    If to Halsey, to it at:


    Halsey Drug Company, Inc.
    695 N. Perryville Road
    Rockford, Illinois  61107
    Attention: Chief Executive Officer
    Telecopier No.: (815) 399-9710


    10.2. ASSIGNMENT. Neither party shall, without the prior written consent
(not to be unreasonably withheld or delayed) of the other party having been
obtained, assign or transfer this Agreement to any person or entity, in whole or
in part, provided that, each party may assign or transfer this Agreement to any
Affiliate or to any successor by merger of such party or its pharmaceutical
business, or upon a sale of all or substantially all of such parties assets, or
the assets of its pharmaceutical business, without the prior written consent of
the other party hereto. 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.

    10.3. SEVERABILITY. If any portion of this Agreement is held invalid by a
court of competent jurisdiction, such portion shall be deemed to be of no force
and effect and the Agreement shall be construed as if such portion had not been
included herein, provided however, if the deletion of such provision materially
impairs the commercial value of this Agreement to either party, the parties
shall attempt to renegotiate such provision in good faith.

    10.4. ENTIRE AGREEMENT. This Agreement and all Exhibits attached hereto
contain the sole and entire agreement and understanding of the parties hereto
and their respective Affiliates and representatives related to the subject
matter hereof and supersede all oral or written agreements concerning the
subject matter made prior to the date of this Agreement.

    10.5. AMENDMENT; WAIVER. This Agreement cannot be amended, changed,
modified or supplemented orally, and no amendment, change, modification or
supplement of this Agreement shall be recognized nor have any effect, unless the
writing in which it is set forth is signed by Halsey and Watson, nor shall any
waiver of any of the provisions of this Agreement be effective unless in writing
and signed by the party to be charged therewith. The failure of either party to
enforce, at any time, or for any period of time, any provision hereof or the
failure of either party to exercise any option herein shall not be construed as
a waiver of such provision or option and shall in no way affect that party's
right to enforce such provision or exercise such option. No waiver of any
provision hereof shall be deemed to be, or shall constitute, a waiver of any
other provision, or with respect to any succeeding breach of the same provision.

    10.6. 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 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
<PAGE>   14

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.

    10.7. SINGULAR AND PLURAL FORMS. The use herein of the singular form shall
also denote the plural form, and the use herein of the plural form shall denote
the singular form, as in each case the context may require.

    10.8. HEADINGS. The headings contained in this Agreement are for
convenience of reference only and shall not constitute a part hereof or define,
limit or otherwise affect the meaning of any of the terms or provisions hereof.

    10.9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which, when
taken together, shall constitute one and the same instrument.


<PAGE>   15


     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers as of the date first above written.



                                                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







<PAGE>   16








                                   SCHEDULE 1


                               Commercial Products
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