**EXHIBIT 10.2**

 

**WATSON PHARMACEUTICALS, INC.**

 

**KEY EMPLOYEE AGREEMENT**

 

 

This KeyEmployee Agreement (“Agreement”) is entered into as of June 16, 2003 (the“Effective Date”), by and between Ian McInnes (“Executive”) and WatsonPharmaceuticals, Inc., a Nevada corporation (the “Company”).

 

**WHEREAS,** the Company desires to employ Executive toprovide personal services to the Company, and wishes to provide Executive withcertain compensation and benefits in return for****his services; and

 

**WHEREAS,** Executive wishes to be employed by theCompany and provide personal services to the Company in return for certaincompensation and benefits, including the benefits provided under thisAgreement;

 

**NOW,THEREFORE**, inconsideration of the mutual promises and covenants contained herein, it ishereby agreed by and between the parties hereto as follows:

 

**1.****                                     ****EMPLOYMENT BY THE****COMPANY.**  Subject to terms set forth herein, theCompany agrees to employ Executive in the position of Executive Vice President,Supply Chain, and Executive hereby accepts employment effective as of theEffective Date.  In this position,Executive shall perform such duties as are assigned from time to time by theChief Executive Officer (“CEO”) of the Company or such other officer of theCompany or one of its subsidiaries that the CEO in his discretion may from timeto time designate (the “Designated Officer”), consistent with the Bylaws of theCompany and as may be required by the Company’s Board of Directors (the“Board”).  During his employment withthe Company, Executive will devote his best efforts and substantially all ofhis business time and attention (except for vacation periods as set forthherein and reasonable periods of illness or other incapacity permitted by theCompany’s general employment policies) to the business of the Company.  Executive shall abide by the generalemployment policies and procedures of the Company, except that wherever theterms of this Agreement may differ from or**arein conflict with the Company’s general employment policies or procedures, thisAgreement shall control.

 

**2.****                                     ****COMPENSATION.**

 

**2.1****                              ****Salary.**  Forservices to be rendered hereunder, Executive shall receive a base salary as setforth in Section 1 of the Compensation and Severance Terms Schedule, attachedhereto as Exhibit A.  Executive will beconsidered annually for increases in base salary in accordance with Companypolicy and subject to review and approval by the CEO, Designated Officer, orthe Compensation Committee of the Board, as appropriate.

 

**2.2****                              ****Bonus.** Executive shall be eligible to participate in the Company’s bonus planat the executive level throughout the duration of Executive’s employment withthe Company.  The Company shall have thesole discretion to determine whether Executive is entitled to any such bonus andto determine the amount of the bonus. The amount of Executive’s bonus may be determined in part based onExecutive’s performance with respect to certain goals

 

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established by the Company and attainment bythe Company of its planned financial objectives for the bonus period.  Notwithstanding the foregoing, no bonus isguaranteed to Executive.  Any bonus issubject to the approval of the CEO, Designated Officer, or the CompensationCommittee of the Board, as appropriate. The Company retains the authority to review, grant, deny or revise anybonus in its sole discretion.  To beeligible to receive a bonus, Executive must remain in employment with theCompany throughout the entire fiscal year or as otherwise set forth in theapplicable bonus plan.  The target levelof such bonus is set forth in Section 2 of Exhibit A attached hereto.

 

**2.3****                               StockOptions. **Subject to approval of theBoard or the Compensation Committee of the Board, as appropriate, Executive willreceive the stock option grants (if any) set forth in Section 3 of Exhibit A,and such additional grants of stock options as may from time to time begranted, pursuant to the terms and conditions set forth in the applicable stockoption agreement and plan documents, copies of which will be made availableupon Executive’s request.  For thepurposes of this Agreement, all stock options granted to Executive by theCompany hereunder, or granted in the future, shall be referred to hereinafteras the “Options.”

 

**2.4****                               PaidTime Off. **Executive shall beeligible to accrue paid time off (“PTO”) during the term of this Agreement, inaccordance with the Company’s standard policy regarding PTO and in an amountcommensurate with other employees at a level similar to that of the Executive.

 

**2.5****                               StandardCompany Benefits. **Executive shallbe entitled to all rights and benefits for which he is eligible under the termsand conditions of the standard Company benefits plans (e.g., health anddisability insurance, 401(k) retirement plan, etc.) and other benefits andincentives which may be in effect from time to time and provided by the Companyto employees at levels similar to the Executive.

 

**3.**                                      **PROPRIETARY INFORMATION ANDINVENTIONS.**

 

Executiveagrees to execute and abide by the Employee Proprietary Information andInventions Agreement attached hereto as Exhibit C and made a part hereof bythis reference.

 

**4.****                                      OUTSIDEACTIVITIES.**

 

**4.1****                               Activities.**  Except with the prior written consent of theCEO or the Board, as appropriate, Executive will not during his employment withthe Company undertake or engage in any other employment, occupation or businessenterprise, other than ones in which Executive is a passive investor.  Executive may engage in civic andnot-for-profit activities so long as such activities do not materiallyinterfere with the performance of his duties hereunder.  Executive will not during his employmentwith the Company publicly or privately disparage the Company or any of itssubsidiaries, or their respective past or present products, officers,directors, employees or agents.

 

**4.2****                               Investmentsand Interests.**  During hisemployment by the Company, Executive agrees not to acquire, assume orparticipate in, directly or indirectly, any position, investment or interest knownby him to be adverse to or in conflict with the interest of the Company, itsbusiness or prospects, financial or otherwise. By way of clarification, nothing

 

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contained in this Agreement shall preventExecutive from holding, for investment purposes only, no more than one percent(1%) of the capital stock of any publicly traded company.

 

**4.3****                               Non-Competition.**  During his employment by the Company, excepton behalf of the Company, Executive will not directly or indirectly, whether asan officer, director, stockholder, partner, proprietor, associate,representative, consultant, or in any capacity whatsoever engage in, becomefinancially interested in, be employed by or have any business connection withany other person, corporation, firm, partnership or other entity whatsoeverknown by him to compete directly with the Company, anywhere in the world, inany line of business engaged in (or planned to be engaged in) by the Company.

 

**5.**                                      **Other Agreements.**

 

Executiverepresents and warrants that his employment by the Company will not conflictwith and will not be constrained by any prior agreement or relationship withany third party.  Executive representsand warrants that he will not disclose to the Company or use on behalf of theCompany any confidential information governed by any agreement with any thirdparty except in accordance with an agreement between the Company and any suchthird party.  During Executive’s employmentby the Company, Executive may use, in the performance of his duties, allinformation generally known and used by persons with training and experiencecomparable to his own and all information which is common knowledge in theindustry or otherwise legally in the public domain.

 

**6.****                                      TERMINATIONOF EMPLOYMENT.**

 

**6.1****                               At-WillEmployment.**  Executive’srelationship with the Company is at-will. The Company shall have the right to terminate Executive’s employmentwith the Company at any time with or without Cause and with or without notice.

 

**6.2****                               Terminationby Company for Cause.**  If theCompany terminates Executive’s employment at any time for Cause, Executive’ssalary shall cease on the date of termination; and Executive will not beentitled to severance pay, pay in lieu of notice or any other such compensation.

 

**(a)****                        Definitionof “Cause.”**  For purposes of thisAgreement, “Cause” shall mean (i) Executive’s conviction of any felony; or,(ii) Executive’s gross misconduct, material violation of Company policy, ormaterial breach of Executive’s duties to the Company, which Executive fails tocorrect within thirty (30) days after Executive is given written notice by theCEO or the Board, as appropriate.

 

**6.3****                               Terminationby Company Without Cause.**  If theCompany terminates Executive’s employment at any time without Cause, Executiveshall be entitled to severance benefits as set forth in Section 4.1 of theCompensation and Severance Terms Schedule, attached hereto as Exhibit A.

 

**6.4****                               Executive’sVoluntary Resignation.**  Executivemay terminate his employment with the Company at any time, with or without GoodReason, and with or without notice.  Inthe event Executive voluntarily terminates his employment other than for Good

 

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Reason, he will not be entitled to severance pay, pay in lieu of noticeor any other such compensation.

 

**6.5****                              ****Executive’s Resignation forGood Reason.**  Executive may resign his employment for GoodReason so long as Executive tenders his resignation to the Company within sixty(60) days after the occurrence of the event which forms the basis for histermination for Good Reason.  IfExecutive terminates his employment for Good Reason, Executive shall beeligible for severance benefits as set forth in Section 4.2 of Exhibit A,attached hereto.

 

**(b)****                       ****Definition of “Good Reason.”**  Forpurposes of this Agreement, “Good Reason” shall mean any one of the followingevents which occurs on or after the Effective Date:**(i) after a Change of Control, any material reduction ofthe Executive’s then existing annual base salary, except to the extent theannual base salary of all other executive officers of the Company is similarlyreduced (provided such reduction does not exceed fifteen percent (15%) ofExecutive’s then existing annual base salary); (ii) after a Change of Control,any material reduction in the package of benefits and incentives, taken as awhole, provided to the Executive (except that employee contributions may beraised to the extent of any cost increases imposed by third parties) or anyaction by the Company which would materially and adversely affect theExecutive’s participation or reduce the Executive’s benefits under any suchplans, except to the extent that such benefits and incentives of all otherexecutive officers of the Company are similarly reduced; (iii) after a Changeof Control, any material diminution of the Executive’s duties andresponsibilities, taken as a whole, excluding for this purpose an isolated,insubstantial or inadvertent action not taken in bad faith which is remedied bythe Company immediately after notice thereof is given by the Executive; (iv)any material breach by the Company of its obligations under this Agreement; (v)any failure by the Company to obtain the assumption of this Agreement by anysuccessor or assign of the Company; or (vi) any requirement that the Executiverelocate to a work site that would increase the Executive’s one-way commutedistance by more than thirty-five (35) miles from his then principal residence,unless the Executive accepts such relocation opportunity.

 

**6.6****                              ****Termination for Death orDisability.**  Executive’s employment with the Company willbe terminated in the event of Executive’s death, or any illness, disability orother incapacity in such a manner that Executive is physically rendered unableregularly to perform his duties hereunder for a period in excess of one hundredeighty (180) consecutive days or more than one hundred eighty (180) days in anyconsecutive twelve (12) month period. The determination regarding whether Executive is physically unableregularly to perform his duties shall be made by the Board.  Executive’s inability to be physicallypresent on the Company’s premises shall not constitute a presumption thatExecutive is unable to perform such duties. In the event that Executive’s employment with the Company is terminatedfor death or disability as described in this Section 6.6, Executive orExecutive’s heirs, successors, and assigns shall not receive any compensationor benefits other than payment of accrued salary and PTO and such otherbenefits as expressly required in such event by applicable law or the terms ofapplicable benefit plans.

 

**6.7****                              ****Cessation.**  IfExecutive violates any provision of Section 8 of this Agreement or the EmployeeProprietary Information and Inventions Agreement and Executive fails to correctsuch violation within ten (10) days after Executive is given written notice bythe

 

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CEO or the Board, as appropriate, then anyseverance payments or other benefits being provided to Executive will ceaseimmediately, and Executive will not be entitled to any further compensationfrom the Company.

 

**7.****                                      CHANGEOF CONTROL.**

 

**7.1****                              ****Definition.**  Forpurposes of this Agreement, Change of Control means the****occurrence of any of the following:

 

**(a)**                        a sale of assets representingfifty percent (50%) or more of the net book value and of the fair market valueof the Company’s consolidated assets (in a single transaction or in a series ofrelated transactions);

 

**(b)**                        a liquidation or dissolution ofthe Company;

 

**(c)**                        a merger or consolidationinvolving the Company or any subsidiary of the Company after the completion ofwhich: (i) in the case of a merger (other than a triangular merger) or aconsolidation involving the Company, the shareholders of the Companyimmediately prior to the completion of such merger or consolidationbeneficially own (within the meaning of Rule 13d-3 promulgated under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), or comparablesuccessor rules), directly or indirectly, outstanding voting securitiesrepresenting less than fifty percent (50%) of the combined voting power of thesurviving entity in such merger or consolidation, and (ii) in the case of atriangular merger involving the Company or a subsidiary of the Company, theshareholders of the Company immediately prior to the completion of such mergerbeneficially own (within the meaning of Rule 13d-3 promulgated under theExchange Act, or comparable successor rules), directly or indirectly,outstanding voting securities representing less than fifty percent (50%) of thecombined voting power of the surviving entity in such merger and less thanfifty percent (50%) of the combined voting power of the parent of the survivingentity in such merger;

 

**(d)**                        an acquisition by any person,entity or “group” (within the meaning of Section 13(d) or 14(d) of the ExchangeAct or any comparable successor provisions), other than any employee benefitplan, or related trust, sponsored or maintained by the Company or an affiliateof the Company and other than in a merger or consolidation of the type referredto in clause “(c)” of thissentence, of beneficial ownership (within the meaning of Rule 13d-3 promulgatedunder the Exchange Act, or comparable successor rules) of outstanding votingsecurities of the Company representing more than fifty percent (50%) of thecombined voting power of the Company (in a single transaction or series ofrelated transactions); or

 

**(e)**                        in the event that theindividuals who, as of the Effective Date, are members of the Board (the“Incumbent Board”), cease for any reason to constitute at least fifty percent(50%) of the Board.  (If the election,or nomination for election by the Company’s shareholders, of any new member ofthe Board is approved by a vote of at least fifty percent (50%) of theIncumbent Board, such new member of the Board shall be considered as a memberof the Incumbent Board.)

 

**7.2****                               TerminationAfter a Change of Control.**  In theevent Executive’s employment with the Company is terminated without Cause, orExecutive resigns for Good

 

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Reason, within ninety (90)days prior to or twenty-four (24) months following a Change of Control (a“Change of Control Termination”), then Executive shall be eligible forseverance benefits as set forth in Section 4.3 of Exhibit A, attached hereto.

 

**7.3****                              ****Parachute****Payments.**  In the event that it shall be determinedunder this Section 7.3 that any payment or benefit to Executive or for the benefitof Executive or on Executive’s behalf (whether paid or payable or distributedor distributable) pursuant to the terms of this Agreement or any otheragreement, arrangement or plan with the Company or any Affiliate (as definedbelow) (including, without limitation, the severance benefits as set forth inSection 4.3 of Exhibit A, attached hereto) (individually, a “Payment” andcollectively, the “Payments”) would be subject to the excise tax imposed bySection 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), orany successor provision thereto (the “Excise Tax”), then Executive shall beentitled to receive from the Company one or more additional payments(individually, a “Gross-Up Payment” and collectively, the “Gross-Up Payments”)in an aggregate amount such that the net amount of the Payments and theGross-Up Payments retained by Executive after the payment of all Excise Taxes(and any interest and penalties imposed with respect to such Excise Taxes) onthe Payments and all federal, state and local income tax, employment taxes andExcise Taxes (including any interest and penalties imposed with respect to suchtaxes and Excise Taxes) on the Gross-Up Payments provided for in this Section7.3, and taking into account any lost or reduced tax deductions on account ofthe Gross-Up Payments, shall be equal to the Payments.  For purposes of this Section 7.3, an“Affiliate” shall mean any successor to all or substantially all of thebusiness and/or assets of the Company, any person acquiring ownership oreffective control of the Company or ownership of a substantial portion of theassets of the Company’s assets, or any other person whose relationship to theCompany, such successor or such person acquiring ownership or control is suchas to require attribution between the parties under Section 3l8(a) of the Code.

 

**(a)****                                 **All determinations required to be made underthis Section 7.3, including whether and when any Gross-Up Payment is requiredand the amount of such Gross-Up Payment, and the assumptions to be utilized inarriving at such determinations, shall be made by the Accountants (as definedbelow), which shall provide Executive and the Company with detailed supportingcalculations with respect to such Gross-Up Payment within thirty (30) days ofthe receipt of notice from Executive or the Company that Executive has receivedor will receive a Payment.  For thepurposes of this Section 7.3, the “Accountants” shall mean the Company’sindependent certified public accounting firm serving immediately prior to theChange of Control (or other change in ownership or effective control, or changein ownership of a substantial portion of the assets, of a corporation, asdefined in Section 280G of the Code) with respect to which such determinationis being made.  In the event that theAccountants are also serving as the accountants, auditors or consultants forthe individual, entity or group effecting the Change of Control (or otherchange in ownership or effective control, or change in ownership of asubstantial portion of the assets, of a corporation, as defined in Section 280Gof the Code), the Company shall appoint another nationally recognizedindependent certified public accounting firm, reasonably acceptable toExecutive, to make the determinations required hereunder (which accounting firmshall then be referred to as the “Accountants” hereunder).  All fees and expenses of the Accountantsshall be borne solely by the Company.

 

**(b)**                                  For the purposes of determining whether anyof the Payments will be subject to the Excise Tax and the amount of such ExciseTax, such Payments will be treated as “parachute payments” within the meaningof section 280G of the Code, and all “parachute

 

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payments” in excess of the “base amount” (as defined under Section280G(b)(3) of the Code) of Executive shall be treated as subject to the ExciseTax, unless and except to the extent that, in the opinion of the Accountants,such Payments (in whole or in part) either do not constitute “parachutepayments” or represent reasonable compensation for services actually rendered(within the meaning of section 280G(b)(4) of the Code) in excess of the “baseamount,” or such “parachute payments” are otherwise not subject to such ExciseTax.

 

**(c)**                                  For purposes of determining the amount of theGross-Up Payment, Executive shall be deemed to pay federal income taxes at thehighest applicable marginal rate of federal income taxation for the calendaryear in which the Gross-Up Payment is to be made and to pay any applicablestate and local income taxes at the highest applicable marginal rate oftaxation for the calendar year in which the Gross-Up Payment is to be made, netof the maximum reduction in federal income taxes which could be obtained fromthe deduction of such state or local taxes if paid in such year (determinedwithout regard to limitations on deductions based upon the amount ofExecutive’s adjusted gross income);  andto have otherwise allowable deductions for federal, state and local income taxpurposes at least equal to those disallowed because of the inclusion of theGross-Up Payment in Executive’s adjusted gross income.

 

**(d)**                                  Any determination by the Accountants shall bebinding upon the Company and Executive. As a result of uncertainty in the application of Section 4999 of theCode at the time of the initial determination by the Accountants hereunder, itis possible that the Gross-Up Payment made will have been an amount less thanthe Company should have paid pursuant to this Section 7.3 (the “Underpayment”).  In the event that the Company exhausts itsremedies pursuant to Section 7.3(f) and Executive is required to make a paymentof any Excise Tax, the Underpayment shall be promptly paid by the Company to orfor Executive’s benefit.

 

**(e)**                                  Executive shall notify the Company in writingof any claim by the Internal Revenue Service or other taxing authority that, ifsuccessful, would require the payment by the Company of a Gross-UpPayment.  Such notification shall begiven as soon as practicable after Executive is informed in writing of suchclaim and shall apprise the Company of the nature of such claim and the date onwhich such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-dayperiod following the date on which Executive gives such notice to the Company(or such shorter period ending on the date that any payment of taxes, interestand/or penalties with respect to such claim is due).  If the Company notifies Executive in writing prior to the expirationof such period that the Company desires to contest such claim, Executiveshall:  (i) give the Company anyinformation reasonably requested by the Company relating to such claim; (ii)take such action in connection with contesting such claim as the Company shallreasonably request in writing from time to time, including, without limitation,engaging legal representation with respect to such claim by an attorneyselected by the Company and reasonably acceptable to Executive; (iii) cooperatewith the Company in good faith in order to effectively contest such claim; and(iv) permit the Company to participate in any proceedings relating to suchclaims;*provided, however,* thatthe Company shall bear and pay directly all costs and expenses, includingattorneys’ fees (including additional interest and penalties) incurred inconnection with such contest and shall indemnify Executive for and holdExecutive harmless from, on an after-tax basis, any Excise Tax or income,employment or other taxes (including

 

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interest and penalties with respect thereto) imposed as a result ofsuch representation and payment of all related costs and expenses.

 

**(f)**                                    Without limiting the foregoing provisions ofthis Section 7.3, the Company shall control all proceedings taken in connectionwith such contest and, at the Company’s sole option, may pursue or forgo anyand all administrative appeals, proceedings, hearings and conferences with theInternal Revenue Service or other taxing authority in respect of such claim andmay, at the Company’s sole option, either direct Executive to pay the amountclaimed and sue for a refund or contest the claim in any permissible manner,and Executive agrees to prosecute such contest to a determination before anyadministrative tribunal, in a court of initial jurisdiction and in one or moreappellate courts, as the Company shall determine;  *provided, however,*that if the Company directs Executive to pay such claim and sue for a refund,the Company shall advance the amount of such payment to Executive, on aninterest-free basis, and shall indemnify Executive for and hold Executiveharmless from, on an after-tax basis, any Excise Tax or income, employment orother taxes (including interest or penalties with respect thereto) imposed withrespect to such advance or with respect to any imputed income with respect tosuch advance (including as a result of any forgiveness by the Company of suchadvance);*provided, further,* thatany extension of the statute of limitations relating to the payment of taxes,interest and penalties for the taxable year of Executive with respect to whichsuch contested amount is claimed to be due shall be limited solely to suchcontested amount.  Furthermore, theCompany’s control of the contest shall be limited to issues with respect towhich a Gross-Up Payment would be payable hereunder and Executive shall beentitled to settle or contest, as the case may be, any other issue raised bythe Internal Revenue Service or any other taxing authority.

 

**(g)**                                 The Gross-Up Payments provided for in thisSection 7.3 shall be paid to Executive not later than the date upon which theseverance benefits payable to Executive under Section 4.3 of Exhibit A,attached hereto, are due;*provided, however,*that if the amounts of such Gross-Up Payments cannot be finally determined bythe Accountants on or before such day, the Company shall pay to Executive onsuch day an estimate, as determined in good faith by the Company, of theminimum amount of such Gross-Up Payments and shall pay the remainder of suchGross-Up Payments (together with interest at the rate provided in Section1274(b)(2)(B) of the Code) not later than 30 days after the amount thereof canbe determined by the Accountants.  Inthe event that the amount of the estimated payments exceeds the amountsubsequently determined by the Accountants to have been due to the Executive,such excess shall constitute a loan by the Company to Executive, payable notlater than 30 days after such determination and demand by the Company (togetherwith interest at the rate provided in Section 1274(b)(2)(B) of the Code).

 

**8.****                                     ****NONSOLICITATION.** While employed by the Company, and for one (1) year following thetermination of Executive’s employment with the Company, Executive agrees not tosolicit, attempt to solicit, induce, or otherwise cause any employee orindependent contractor of the Company to terminate his or her employment orcontractual relationship in order to become an employee or independentcontractor to or for Executive or any other person or entity.

 

**9.**                                      **RELEASE.**  Inexchange for the severance compensation and benefits provided under thisAgreement to which Executive would not otherwise be entitled, Executive shallenter

 

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into and execute a release substantially inthe form attached hereto as Exhibit B (the “Release”) upon Executive’stermination of employment.  Unless theRelease is executed by Executive and delivered to the Company within twenty-one(21) days (forty-five (45) days in the event of a group termination) after thetermination of Executive’s employment with the Company, Executive shall notreceive any severance benefits provided under this Agreement, acceleration, ifany, of Executive’s Options as provided in this Agreement shall not apply andExecutive’s Options in such event may be exercised following the date ofExecutive’s termination only to the extent provided under their original termsin accordance with the applicable stock option plan and option agreements.

 

**10.**                               **GENERAL PROVISIONS.**

 

**10.1****                        Notices.**  Any notices provided hereunder must be inwriting and shall be deemed effective upon personal delivery (including,personal delivery by facsimile transmission) or the third day after mailing byfirst class mail, to the Company at its primary office location and toExecutive at his address as listed on the Company payroll (which address may bechanged by written notice).

 

**10.2**                        **Severability.**  Wheneverpossible, each provision of this Agreement will be interpreted in such manneras to be effective and valid under applicable law, but if any provision of thisAgreement is held to be invalid or unenforceable in any respect under anyapplicable law or rule in any jurisdiction, such invalidity or unenforceabilitywill not affect any other provision or any other jurisdiction, and such invalidor unenforceable provision shall be reformed, construed and enforced in suchjurisdiction so as to render it valid and enforceable consistent with theintent of the parties insofar as possible.

 

**10.3**                        **Waiver.**  If eitherparty should waive any breach of any provisions of this Agreement, he or itshall not thereby be deemed to have waived any preceding or succeeding breachof the same or any other provision of this Agreement.

 

**10.4**                        **Entire Agreement.**  ThisAgreement, together with the Employee Proprietary Information and InventionsAgreement, constitute the final, complete, and exclusive embodiment of theentire agreement between Executive and the Company regarding the subject matterhereof and supersede any prior agreement, promise, representation, orstatement, written or otherwise, between Executive and the Company with regardto this subject matter.  This Agreementis entered into without reliance on any promise, representation, statement oragreement other than those expressly contained or incorporated herein, and itcannot be modified or amended except in a writing signed by Executive and aduly authorized officer of the Company.

 

**10.5**                        **Counterparts.**  ThisAgreement may be executed in separate counterparts, any one of which need notcontain signatures of more than one party, but all of which taken together willconstitute one and the same Agreement.

 

**10.6**                        **Headings.**  The headingsof the sections hereof are inserted for convenience only and shall not bedeemed to constitute a part hereof nor to affect the meaning thereof.

 

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**10.7****                       ****Successors and Assigns.**  ThisAgreement is intended to bind and inure to the benefit of and be enforceable byExecutive, the Company and their respective successors, assigns, heirs,executors and administrators, except that Executive may not assign any of hisduties hereunder and he may not assign any of his rights hereunder without thewritten consent of the Company, which shall not be withheld unreasonably.

 

**10.8****                       ****Attorneys’ Fees.**  If either party hereto bringsany action to enforce his or its rights hereunder, the prevailing party in anysuch action shall be entitled to recover his or its reasonable attorneys’ fees and costs incurred in connectionwith such action.

 

**10.9****                        Arbitration.**  Toprovide a mechanism for rapid and economical dispute resolution, Executive andthe Company agree that any and all disputes, claims, or causes of action, inlaw or equity, arising from or relating to this Agreement (including theRelease) or its enforcement, performance, breach, or interpretation, will beresolved, to the fullest extent permitted by law, by final, binding, andconfidential arbitration held in Orange County, California and conducted byJudicial Arbitration & Mediation Services/Endispute (“JAMS”), under itsthen-existing Rules and Procedures. Nothing in this Section 10.9 or in this Agreement is intended to preventeither Executive or the Company from obtaining injunctive relief in court toprevent irreparable harm pending the conclusion of any such arbitration.

 

**10.10****                ****Remedies.**  Executive’s duties under Section 8 and the EmployeeProprietary Information and Inventions Agreement shall survive termination of Executive’semployment with the Company.  Executiveacknowledges that a remedy at law for any breach or threatened breach byExecutive of the provisions of these sections and the Employee ProprietaryInformation and Inventions Agreement would be inadequate, and that such abreach would cause irreparable harm to the Company; and Executive thereforeagrees that the Company shall be entitled to injunctive relief in case of anysuch breach or threatened breach.

 

**10.11****                ****Governing Law.**  Allquestions concerning the construction, validity and interpretation of thisAgreement will be governed by the law of the State of California as applied tocontracts made and to be performed entirely within California.

 

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**IN WITNESSWHEREOF,** the partieshave executed this Agreement effective as of the Effective Date above written.

 
| **WATSON  PHARMACEUTICALS, INC.** |
|-----------------------------------|
|                              |
|                              |
| **By:**                           | /s/ Susan K. Skara |   |
|                              | Name: | Susan K. Skara |   |
|                              | Title: | SVP, Human Resources |   |
|                              |
|                              |
| **EXECUTIVE:**                    |
|                              |
|                              |
| /s/ Ian A. T. McInnes             |   |
| Name:                             |

 

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**EXHIBIT A**

 

**COMPENSATION AND SEVERANCE TERMS SCHEDULE**

 

**1.**                                  **BASE SALARY**

 

For services to be renderedunder this Agreement, Executive shall receive an initial base salary at anannualized rate of $450,000, payable in accordance with the Company’s standardpayroll practices, and subject to increases as set forth in the Agreement.

 

**2.**                                 **BONUS**

 

Executive’s annual bonus, ifgranted, shall be at a target level of 40% of the Executive’s then current basesalary.

 

**3.**                                  **STOCK OPTIONS**

 

Within thirty days of theEffective Date, Executive shall receive an Option grant of 75,000 shares ofCompany common stock.  Such Option grantshall be subject to the terms and conditions of the Company’s 2001 IncentiveAward Plan.

 

**4.**                                  **SEVERANCE BENEFITS**

 

**4.1**                            **Termination By Companywithout****Cause.** If the Company terminates Executive’s employment at any time withoutCause, the Company shall provide to Executive, within thirty (30) days afterthe Effective Date of the Release attached hereto as Exhibit B (as “EffectiveDate” is defined in the Release), as the only severance compensation andbenefits all of the following:

 

(a)                             A lump sum severance payment, subject tostandard withholdings or deductions, in an amount equal to the sum of: (i)twenty-four (24) months of Executive’s then base salary; (ii) two timesExecutive’s target bonus to be earned for the year in which termination occursor two times the bonus amount paid to the Executive in the prior year,whichever is greater; and (iii) Executive’s prorated bonus for the year inwhich the termination occurs, at the Company’s discretion.

 

(b)                                Continued group health insurance benefits(e.g., medical, dental, vision, etc.) for Executive and Executive’s eligibledependents for a period of up to eighteen (18) months under COBRA, and ifExecutive is not covered under the Company’s group health insurance plan at theend of eighteen (18) months, the Company shall use its best efforts to provideExecutive and Executive’s eligible dependents with comparable health insurancecoverage for an additional period of up six (6) months, but the Company shallnot be obligated to pay more than one hundred fifty percent (150%) of the costof COBRA coverage for such comparable coverage; provided, however, that in anyevent the Company’s obligation to provide any health benefits pursuant to thissentence ends when Executive becomes eligible for health insurance with a new

 

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employer (and Executive agrees to promptly notify the Company inwriting of any such event of eligibility).

 

(c)                           Outplacement services for one year with anationally recognized service selected by the Company.

 

**4.2**                         **Executive’s Resignation forGood Reason.**  If Executive terminates his employment withthe Company for Good Reason, the Company shall provide to Executive, withinthirty (30) days after the Effective Date of the Release attached hereto asExhibit B (as “Effective Date” is defined in the Release), as the onlyseverance compensation and benefits, the same severance compensation andbenefits provided in Section 4.1 hereof.

 

**4.3**                         **Change of ControlTermination.**  In the event of a Change of ControlTermination, the Company shall provide to Executive, within thirty (30) daysafter the Effective Date of the Release attached hereto as Exhibit B (as“Effective Date” is defined in the Release), as the only severance compensationand benefits, (a) the same severance compensation and benefits provided inSection 4.1 hereof and, (b) any unvested Options held by Executive shall havetheir vesting accelerated in full so as to become one hundred percent (100%)vested and immediately exercisable in full as of the date of such termination.

 

**5.**                                   **Sign-On Bonus.** Executive shall receive a sign-on bonus of fifty thousand dollars($50,000.00), less appropriate withholding of taxes, payable in installments asfollows:  $25,000 within thirty (30)days of the Effective Date; $25,000 on the first regularly scheduled payrollday at least six (6) months after the Effective Date.  Executive’s eligibility to receive the sign-on bonus iscontingent on Executive’s execution of a reimbursement agreement in a formacceptable to the Company.

 

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**EXHIBIT B**

 

**RELEASE AGREEMENT**

 

Iunderstand that my position with Watson Pharmaceuticals, Inc. (the “Company”)terminated effective                          (the “Separation Date”).  The Companyhas agreed that if I choose to sign this Release, the Company will, withinthirty (30) days after the Effective Date of this Release, pay me certainseverance benefits (minus the standard withholdings and deductions) pursuant tothe terms of the Key Employee Agreement (the “Agreement”) entered into as of                                     , between myself and the Company, and any agreements incorporated therein byreference.  I understand that I am notentitled to such severance benefits unless I sign this Release.  I further understand that, regardless ofwhether I sign this Release, the Company will pay me all of my accrued salaryand paid time off through the Separation Date, to which I am entitled by law.

 

In consideration**for the severance benefits I am receivingunder the Agreement, I hereby release the Company and its officers, directors,agents, attorneys, employees, shareholders, parents, subsidiaries, andaffiliates (“Releasees”) from any and all claims, liabilities, demands, causesof action, attorneys’ fees, damages, or obligations of every kind and nature,whether they are now known or unknown, arising at any time prior to the date Isign this Release.  This general releaseincludes, but is not limited to:  allfederal and state statutory and common law claims, claims related to myemployment or the termination of my employment or related to breach ofcontract, tort, wrongful termination, discrimination, harassment, defamation,fraud, wages or benefits, or claims for any form of equity orcompensation.  Notwithstanding therelease in the preceding sentence, I am not releasing any right ofindemnification I may have for any liabilities and costs of defense (includingwithout limitation reasonable attorneys’ fees) arising from my actions withinthe course and scope of my employment with the Company.

 

In releasing claims unknownto me at present, I am waiving all rights and benefits under Section 1542 ofthe California Civil Code, and any law or legal principle of similar effect inany jurisdiction: **“A general release does notextend to claims which the creditor does not know or suspect to exist in hisfavor at the time of executing the release, which if known by him must havematerially affected his settlement with the debtor.”**

 

If I am forty (40) years ofage or older as of the Separation Date,**Iacknowledge that I am knowingly and voluntarily waiving and releasing anyrights I may have under the federal Age Discrimination in Employment Act of1967, as amended (“ADEA”).  I alsoacknowledge that the consideration given for the waiver in the above paragraphis in addition to anything of value to which I was already entitled.  I have been advised by this writing, asrequired by the ADEA that: (a) my waiver and release do not apply to any claimsthat may arise after my signing of this Release; (b) I should consult with anattorney prior to executing this Release; (c) I have twenty-one (21) days(forty-five (45) days in the event of a group termination) within which toconsider this Release (although I may choose to voluntarily execute thisRelease earlier); (d) I have seven (7) days following the execution of thisrelease to revoke the Release: and (e) this Release will not be effective untilthe eighth day after this Release has been signed both by me and by the Company(“Effective Date”).

 

Iacknowledge that I remain bound by the Invention Assignment and ConfidentialNondisclosure Agreement which I signed in connection with my employment(“Invention Agreement”) and that the provisions of the Invention Agreementshall remain in full force and effect.  Inaccordance with my existing and continuing obligations under the InventionAgreement, I have returned to the Company all materials required to be returnedpursuant to the Invention Agreement, as well as any other Company property inmy possession.  In consideration for theseverance benefits I am receiving hereunder, I agree that I will reasonablycooperate with the Company for ninety (90) days after the Separation Date toassure the smooth transition of pending matters and to answer questions whichmay arise from

 

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time to time regarding myformer duties and responsibilities. Effective as of the Separation Date, I resign any and all offices anddirectorships with the Company and any of its affiliates, and will execute alldocuments reasonably requested by the Company or its affiliates to effectuatesuch resignations.  Further, I agreethat I will****not hereafterdisparage the Company or any of the Releasees, either orally or****in writing, to any person or entity.  The Company agrees that its officers anddirectors will not disparage me, either orally or in writing, to any person orentity.

 
| Agreed: |                          |
|---------|-------------------------------|
|    |                          |
|    |                          |
|    |                          |   |
| Date    | **[Employee]**                |
|    |                          |
|    |                          |   |
| Date    | WATSON PHARMACEUTICALS,  INC. |

 

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**EXHIBIT C**

 

**EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT**

 

 

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