**Exhibit 10.1**

 

**WATSON PHARMACEUTICALS, INC.**

 

**KEY EMPLOYEE AGREEMENT**

 

This Key Employee Agreement (“Agreement”) is enteredinto as of August 16, 2004 (the “Effective Date”), by and between JamesNash (“Executive”) and Watson Pharmaceuticals, Inc., a Nevada corporation (the “Company”).

 

**WHEREAS**, the Company desires toemploy Executive to provide personal services to the Company, and wishes toprovide Executive with certain compensation and benefits in return for hisservices; and

 

**WHEREAS**, Executive wishes to beemployed by the Company and provide personal services to the Company in returnfor certain compensation and benefits, including the benefits provided underthis Agreement;

 

**NOW, THEREFORE**, in considerationof the mutual promises and covenants contained herein, it is hereby agreed byand between the parties hereto as follows:

 

**1.****                                      EMPLOYMENTBY THE COMPANY.**Subject to terms set forth herein, the Company agrees toemploy Executive in the position of Executive Vice President, Supply Chain, andExecutive hereby accepts employment effective as of the Effective Date.  In this position, Executive shall performsuch duties as are assigned from time to time by the Chief Executive Officer (“CEO”)of the Company or such other officer of the Company or one of its subsidiariesthat the CEO in his discretion may from time to time designate (the “DesignatedOfficer”), consistent with the Bylaws of the Company and as may be required bythe Company’s Board of Directors (the “Board”). During his employment with the Company, Executive will devote his bestefforts and substantially all of his business time and attention (except forvacation periods as set forth herein and reasonable periods of illness or otherincapacity permitted by the Company’s general employment policies) to thebusiness of the Company.  Executive shallabide by the general employment policies and procedures of the Company, exceptthat wherever the terms of this Agreement may differ from or are in conflictwith the Company’s general employment policies or procedures, this Agreementshall control.

 

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

 

**2.1****                               Salary.** For services to be rendered hereunder,Executive shall receive a base salary as set forth in Section 1 of theCompensation and Severance Terms Schedule, attached hereto as Exhibit A.  Executive will be considered annually forincreases in base salary in accordance with Company policy and subject toreview and approval by the CEO, Designated Officer, or the CompensationCommittee of the Board, as appropriate.

 

**2.2****                               Bonus.** Executive shall be eligible toparticipate in the Company’s bonus plan at the executive level throughout theduration of Executive’s employment with the Company.  The Company shall have the sole discretion todetermine whether Executive is entitled to any such bonus and to determine theamount of the bonus.  The amount ofExecutive’s bonus may be determined in part based on Executive’s performancewith respect to certain goals

 

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established by theCompany and attainment by the Company of its planned financial objectives forthe bonus period.  Notwithstanding theforegoing, no bonus is guaranteed to Executive. Any bonus is subject to the approval of the CEO, Designated Officer, orthe Compensation Committee of the Board, as appropriate.  The Company retains the authority to review,grant, deny or revise any bonus in its sole discretion.  To be eligible to receive a bonus, Executivemust remain in employment with the Company throughout the entire fiscal year oras otherwise set forth in the applicable bonus plan.  The target level of such bonus is set forthin Section 2 of Exhibit A attached hereto.

 

**2.3****                               StockOptions. **Subject to approval of theBoard or the Compensation Committee of the Board, as appropriate, Executivewill receive the stock option grants (if any) set forth in Section 3 ofExhibit A, and such additional grants of stock options as may from time to timebe granted, pursuant to the terms and conditions set forth in the applicablestock option agreement and plan documents, copies of which will be madeavailable upon Executive’s request.  Forthe purposes 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 shall beentitled 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.****                                      PROPRIETARYINFORMATION AND INVENTIONS.**

 

Executive agrees to execute and abide by the EmployeeProprietary Information and Inventions Agreement attached hereto as Exhibit Cand made a part hereof by this reference.

 

**4.**                                      **OUTSIDE ACTIVITIES.**

 

**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 notduring his employment with the Company publicly or privately disparage theCompany or any of its subsidiaries, or their respective past or presentproducts, officers, directors, employees or agents.

 

**4.2****                               Investmentsand Interests**. During his employment by the Company, Executive agrees notto acquire, assume or participate in, directly or indirectly, any position,investment or interest known by him to be adverse to or in conflict with theinterest of the Company, its business or prospects, financial or otherwise. Byway of clarification, nothing

 

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contained in thisAgreement shall prevent Executive from holding, for investment purposes only,no more than one percent (1%) of the capital stock of anypublicly 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.****                                      OtherAgreements.**

 

Executive representsand warrants that his employment by the Company will not conflict with and willnot be constrained by any prior agreement or relationship with any thirdparty.  Executive represents and warrantsthat he will not disclose to the Company or use on behalf of the Company anyconfidential information governed by any agreement with any third party exceptin accordance with an agreement between the Company and any such thirdparty.  During Executive’s employment bythe 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’s relationshipwith the Company is at-will.  The Companyshall have the right to terminate Executive’s employment with the Company atany time with or without Cause and with or without notice.

 

**6.2****                               Terminationby Company for Cause.** If the Companyterminates Executive’s employment at any time for Cause, Executive’s salaryshall cease on the date of termination; and Executive will not be entitled toseverance 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 Companypolicy, or material breach of Executive’s duties to the Company, whichExecutive fails to correct within thirty (30) days after Executive is givenwritten notice by the CEO 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. **Executive mayterminate 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 beentitled to severance pay, pay in lieu of notice or any other suchcompensation.

 

**6.5****                               Executive’sResignation for Good Reason. **Executivemay resign his employment for Good Reason so long as Executive tenders hisresignation to the Company within sixty (60) days after the occurrence of theevent which forms the basis for his termination for Good Reason.  If Executive terminates his employment forGood Reason, Executive shall be eligible for severance benefits as set forth inSection 4.2 of Exhibit A, attached hereto.

 

**(b)****                                  Definitionof “Good Reason.”**  For purposes ofthis Agreement, “Good Reason” shall mean any one of the following events whichoccurs on or after the Effective Date: (i) after a Change of Control, any material reduction of the Executive’sthen existing annual base salary, except to the extent the annual base salaryof all other executive officers of the Company is similarly reduced (providedsuch reduction does not exceed fifteen percent (15%) of Executive’s thenexisting annual base salary); (ii) after a Change of Control, any materialreduction in the package of benefits and incentives, taken as a whole, providedto the Executive (except that employee contributions may be raised to theextent of any cost increases imposed by third parties) or any action by the Companywhich would materially and adversely affect the Executive’s participation orreduce the Executive’s benefits under any such plans, except to the extent thatsuch benefits and incentives of all other executive officers of the Company aresimilarly reduced; (iii) after a Change of Control, any material diminution ofthe Executive’s duties and responsibilities, taken as a whole, excluding forthis purpose an isolated, insubstantial or inadvertent action not taken in badfaith which is remedied by the Company immediately after notice thereof isgiven by the Executive; (iv) any material breach by the Company of itsobligations under this Agreement; (v) any failure by the Company to obtain theassumption of this Agreement by any successor or assign of the Company; or (vi)any requirement that the Executive relocate to a work site that would increasethe Executive’s one-way commute distance by more than thirty-five (35) milesfrom his then principal residence, unless the Executive accepts such relocationopportunity.

 

**6.6****                               Terminationfor Death or Disability**.  Executive’semployment with the Company will be terminated in the event of Executive’sdeath, or any illness, disability or other incapacity in such a manner thatExecutive is physically rendered unable regularly to perform his dutieshereunder for a period in excess of one hundred eighty (180) consecutive daysor more than one hundred eighty (180) days in any consecutive twelve (12) monthperiod.  The determination regardingwhether Executive is physically unable regularly to perform his duties shall bemade by the Board.  Executive’s inabilityto be physically present on the Company’s premises shall not constitute apresumption that Executive is unable to perform such duties.  In the event that Executive’s employment withthe Company is terminated for death or disability as described in this Section 6.6,Executive or Executive’s heirs, successors, and assigns shall not receive anycompensation or 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.**  If Executive violates any provision of Section 8of this Agreement or the Employee Proprietary Information and Inventions Agreementand Executive fails to correct such violation within ten (10) days afterExecutive is given written notice by the

 

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CEO or the Board, asappropriate, then any severance payments or other benefits being provided toExecutive will cease immediately, and Executive will not be entitled to anyfurther compensation from the Company.

 

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

 

**7.1****                               Definition. **For purposes of this Agreement, Change ofControl means the occurrence of any of the following:

 

**(a)****                                 **asale of assets representing fifty percent (50%) or more of the net book valueand of the fair market value of the Company’s consolidated assets (in a singletransaction or in a series of related transactions);

 

**(b)****                                 **aliquidation or dissolution of the Company;

 

**(c)****                                 **amerger or consolidation involving the Company or any subsidiary of the Companyafter the completion of which: (i) in the case of a merger (other than atriangular merger) or a consolidation involving the Company, the shareholders ofthe Company immediately 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, outstandingvoting securities representing less than fifty percent (50%) of the combinedvoting power of the surviving entity in such merger and less than fifty percent(50%) of the combined voting power of the parent of the surviving entity insuch merger;

 

**(d)****                                 **anacquisition by any person, entity or “group” (within the meaning of Section 13(d)or 14(d) of the Exchange Act or any comparable successor provisions), otherthan any employee benefit plan, or related trust, sponsored or maintained bythe Company or an affiliate of the Company and other than in a merger orconsolidation of the type referred to in clause “(c)” of this sentence, ofbeneficial ownership (within the meaning of Rule 13d-3 promulgated under theExchange Act, or comparable successor rules) of outstanding voting securitiesof the Company representing more than fifty percent (50%) of the combinedvoting power of the Company (in a single transaction or series of relatedtransactions); or

 

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

 

**7.2****                               TerminationAfter a Change of Control.**In the event Executive’s employment with theCompany is terminated without Cause, or Executive 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 “Changeof Control Termination”), then Executive shall be eligible for severancebenefits as set forth in Section 4.3 of Exhibit A, attached hereto.

 

**7.3****                               ParachutePayments.**In the event that it shall be determined under this Section 7.3that any payment or benefit to Executive or for the benefit of Executive or onExecutive’s behalf (whether paid or payable or distributed or distributable)pursuant to the terms of this Agreement or any other agreement, arrangement orplan with the Company or any Affiliate (as defined below) (including, withoutlimitation, the severance benefits as set forth in Section 4.3 of ExhibitA, attached hereto) (individually, a “Payment” and collectively, the “Payments”)would be subject to the excise tax imposed by Section 4999 of the InternalRevenue Code of 1986, as amended (the “Code”), or any successor provisionthereto (the “Excise Tax”), then Executive shall be entitled to receive fromthe Company one or more additional payments (individually, a “Gross-Up Payment”and collectively, the “Gross-Up Payments”) in an aggregate amount such that thenet amount of the Payments and the Gross-Up Payments retained by Executiveafter the payment of all Excise Taxes (and any interest and penalties imposedwith respect to such Excise Taxes) on the Payments and all federal, state andlocal income tax, employment taxes and Excise Taxes (including any interest andpenalties imposed with respect to such taxes and Excise Taxes) on the Gross-UpPayments provided for in this Section 7.3, and taking into account anylost or reduced tax deductions on account of the Gross-Up Payments, shall beequal to the Payments.  For purposes ofthis Section 7.3, an “Affiliate” shall mean any successor to all orsubstantially all of the business and/or assets of the Company, any personacquiring ownership or effective control of the Company or ownership of asubstantial portion of the assets of the Company’s assets, or any other personwhose relationship to the Company, such successor or such person acquiringownership or control is such as to require attribution between the partiesunder Section 318(a) of the Code.

 

**(a)**                                  All determinationsrequired to be made under this Section 7.3, including whether and when anyGross-Up Payment is required and the amount of such Gross-Up Payment, and theassumptions to be utilized in arriving at such determinations, shall be made bythe Accountants (as defined below), which shall provide Executive and theCompany with detailed supporting calculations with respect to such Gross-UpPayment within thirty (30) days of the receipt of notice from Executive or theCompany that Executive has received or will receive a Payment.  For the purposes of this Section 7.3,the “Accountants” shall mean the Company’s independent certified publicaccounting firm serving immediately prior to 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) with respect to which such determination is being made.  In the event that the Accountants are alsoserving as the accountants, auditors or consultants for the individual, entityor group effecting the Change of Control (or other change in ownership oreffective control, or change in ownership of a substantial portion of the assets,of a corporation, as defined in Section 280G of the Code), the Companyshall appoint another nationally recognized independent certified publicaccounting firm, reasonably acceptable to Executive, to make the determinationsrequired hereunder (which accounting firm shall then be referred to as the “Accountants”hereunder).  All fees and expenses of theAccountants shall be borne solely by the Company.

 

**(b)**                                  For the purposes ofdetermining whether any of the Payments will be subject to the Excise Tax andthe amount of such Excise Tax, such Payments will be treated as “parachutepayments” within the meaning of section 280G of the Code, and all “parachute

 

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payments” in excess of the “base amount” (as defined under Section 280G(b)(3)of the Code) of Executive shall be treated as subject to the Excise Tax, unlessand except to the extent that, in the opinion of the Accountants, such Payments(in whole or in part) either do not constitute “parachute payments” orrepresent reasonable compensation for services actually rendered (within themeaning of section 280G(b)(4) of the Code) in excess of the “base amount,”or such “parachute payments” are otherwise not subject to such Excise Tax.

 

**(c)**                                  For purposes of determiningthe amount of the Gross-Up Payment, Executive shall be deemed to pay federalincome taxes at the highest applicable marginal rate of federal income taxationfor the calendar year in which the Gross-Up Payment is to be made and to payany applicable state and local income taxes at the highest applicable marginalrate of taxation for the calendar year in which the Gross-Up Payment is to bemade, net of the maximum reduction in federal income taxes which could beobtained from the deduction of such state or local taxes if paid in such year(determined without regard to limitations on deductions based upon the amountof Executive’s adjusted gross income); and to have otherwise allowabledeductions for federal, state and local income tax purposes at least equal tothose disallowed because of the inclusion of the Gross-Up Payment in Executive’sadjusted gross income.

 

**(d)**                                  Any determination bythe Accountants shall be binding upon the Company and Executive.  As a result of uncertainty in the applicationof Section 4999 of the Code at the time of the initial determination bythe Accountants hereunder, it is possible that the Gross-Up Payment made willhave been an amount less than the Company should have paid pursuant to this Section 7.3(the “Underpayment”).  In the event thatthe Company exhausts its remedies pursuant to Section 7.3(f) and Executiveis required to make a payment of any Excise Tax, the Underpayment shall bepromptly paid by the Company to or for Executive’s benefit.

 

**(e)**                                  Executive shallnotify the Company in writing of any claim by the Internal Revenue Service orother taxing authority that, if successful, would require the payment by theCompany of a Gross-Up Payment.  Suchnotification shall be given as soon as practicable after Executive is informedin writing of such claim and shall apprise the Company of the nature of suchclaim and the date on which such claim is requested to be paid.  Executive shall not pay such claim prior tothe expiration of the 30-day period following the date on which Executive givessuch notice to the Company (or such shorter period ending on the date that anypayment of taxes, interest and/or penalties with respect to such claim isdue).  If the Company notifies Executivein writing prior to the expiration of such period that the Company desires tocontest such claim, Executive shall:  (i)give the Company any information reasonably requested by the Company relatingto such claim; (ii) take such action in connection with contesting such claimas the Company shall reasonably request in writing from time to time,including, without limitation, engaging legal representation with respect tosuch claim by an attorney selected by the Company and reasonably acceptable toExecutive; (iii) cooperate with the Company in good faith in order toeffectively contest such claim; and (iv) permit the Company to participate inany proceedings relating to such claims; *provided, however*,that the 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 limitingthe foregoing provisions of this Section 7.3, the Company shall controlall proceedings taken in connection with such contest and, at the Company’ssole option, may pursue or forgo any and all administrative appeals,proceedings, hearings and conferences with the Internal Revenue Service orother taxing authority in respect of such claim and may, at the Company’s soleoption, either direct Executive to pay the amount claimed and sue for a refundor contest the claim in any permissible manner, and Executive agrees toprosecute such contest to a determination before any administrative tribunal,in a court of initial jurisdiction and in one or more appellate courts, as theCompany 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*, that any extension ofthe statute of limitations relating to the payment of taxes, interest andpenalties for the taxable year of Executive with respect to which suchcontested amount is claimed to be due shall be limited solely to such contestedamount.  Furthermore, the Company’scontrol of the contest shall be limited to issues with respect to which aGross-Up Payment would be payable hereunder and Executive shall be entitled tosettle or contest, as the case may be, any other issue raised by the InternalRevenue Service or any other taxing authority.

 

**(g)**                                 The Gross-Up Paymentsprovided for in this Section 7.3 shall be paid to Executive not later thanthe date upon which the severance benefits payable to Executive under Section 4.3of 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 Section 1274(b)(2)(B)of the Code) not later than 30 days after the amount thereof can be determinedby the Accountants.  In the event thatthe amount of the estimated payments exceeds the amount subsequently determinedby the Accountants to have been due to the Executive, such excess shallconstitute a loan by the Company to Executive, payable not later than 30 daysafter such determination and demand by the Company (together with interest atthe rate provided in Section 1274(b)(2)(B) of the Code).

 

**8.****                                      NONSOLICITATION. **While employed by the Company, and forone (1) year following the termination of Executive’s employment with theCompany, Executive agrees not to solicit, attempt to solicit, induce, orotherwise cause any employee or independent contractor of the Company toterminate his or her employment or contractual relationship in order to becomean employee or independent contractor to or for Executive or any other personor entity.

 

**9.****                                      RELEASE. **In exchange for the severancecompensation and benefits provided under this Agreement to which Executivewould not otherwise be entitled, Executive shall enter

 

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into and execute arelease substantially in the form attached hereto as Exhibit B (the “Release”)upon Executive’s termination of employment. Unless the Release is executed by Executive and delivered to the Companywithin twenty-one (21) days (forty-five (45) days in the event of a grouptermination) after the termination of Executive’s employment with the Company,Executive shall not receive any severance benefits provided under thisAgreement, acceleration, if any, of Executive’s Options as provided in this Agreementshall not apply and Executive’s Options in such event may be exercisedfollowing the date of Executive’s termination only to the extent provided undertheir original terms in accordance with the applicable stock option plan andoption agreements.

 

**10.****                               GENERALPROVISIONS.**

 

**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.**  Whenever possible, each provision of thisAgreement will be interpreted in such manner as to be effective and valid underapplicable law, but if any provision of this Agreement is held to be invalid orunenforceable in any respect under any applicable law or rule in anyjurisdiction, such invalidity or unenforceability will not affect any otherprovision or any other jurisdiction, and such invalid or unenforceableprovision shall be reformed, construed and enforced in such jurisdiction so asto render it valid and enforceable consistent with the intent of the partiesinsofar as possible.

 

**10.3****                        Waiver.**  If either party should waive any breach ofany provisions of this Agreement, he or it shall not thereby be deemed to havewaived any preceding or succeeding breach of the same or any other provision ofthis Agreement.

 

**10.4****                        EntireAgreement.**  This Agreement, togetherwith the Employee Proprietary Information and Inventions Agreement, constitutethe final, complete, and exclusive embodiment of the entire agreement betweenExecutive and the Company regarding the subject matter hereof and supersede anyprior agreement, promise, representation, or statement, written or otherwise,between Executive and the Company with regard to this subject matter. ThisAgreement is entered into without reliance on any promise, representation,statement or agreement other than those expressly contained or incorporatedherein, and it cannot be modified or amended except in a writing signed byExecutive and a duly authorized officer of the Company.

 

**10.5****                        Counterparts.**  This Agreement may be executed in separate counterparts,any one of which need not contain signatures of more than one party, but all ofwhich taken together will constitute one and the same Agreement.

 

**10.6****                        Headings.**  The headings of the sections hereof areinserted for convenience only and shall not be deemed to constitute a parthereof nor to affect the meaning thereof.

 

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**10.7****                        Successorsand Assigns.**  This Agreement isintended to bind and inure to the benefit of and be enforceable by Executive, theCompany and their respective successors, assigns, heirs, executors andadministrators, except that Executive may not assign any of his dutieshereunder and he may not assign any of his rights hereunder without the writtenconsent 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’ feesand costs incurred in connection with such action.

 

**10.9****                        Arbitration.**To provide a mechanism for rapid and economical dispute resolution,Executive and the Company agree that any and all disputes, claims, or causes ofaction, in law or equity, arising from or relating to this Agreement (includingthe Release) or its enforcement, performance, breach, or interpretation, willbe resolved, 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 toprevent either Executive or the Company from obtaining injunctive relief incourt to prevent irreparable harm pending the conclusion of any sucharbitration.

 

**10.10****                 Remedies. **Executive’s duties under Section 8and the Employee Proprietary Information and Inventions Agreement shall survivetermination of Executive’s employment with the Company.  Executive acknowledges that a remedy at lawfor any breach or threatened breach by Executive of the provisions of thesesections and the Employee Proprietary Information and Inventions Agreement wouldbe inadequate, and that such a breach would cause irreparable harm to theCompany; and Executive therefore agrees that the Company shall be entitled toinjunctive relief in case of any such breach or threatened breach.

 

**10.11****                 GoverningLaw.**  All questions concerning theconstruction, validity and interpretation of this Agreement will be governed bythe law of the State of California as applied to contracts made and to beperformed entirely within California.

 

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**IN WITNESS WHEREOF**,the parties have executed this Agreement effective as of the Effective Dateabove written.

 
| **WATSON PHARMACEUTICALS, INC.** | ** **                   | ** ** |
|----------------------------------|------------------------------|------------|
|                             |                         |       |
|                             |
| By:                              | **/s/ Susan K. Skara**       | ** ** |
|                             | Name: Susan K. Skara         |       |
|                             | Title: SVP, Human  Resources | ** ** |
| ** **                       | ** **                   |
| ** **                       | ** **                   |
| **EXECUTIVE:**                   |
|                             |
|                             |
| By:                              | **/s/ James Nash**           | ** ** |
|                             | James Nash                   |
|                                  |                              |            |  |  |

 

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**EXHIBIT A**

 

**COMPENSATION AND SEVERANCE TERMSSCHEDULE**

 

**1.****                                      BASESALARY**

 

For services to be rendered under this Agreement,Executive shall receive an initial base salary at an annualized rate of $360,000,payable in accordance with the Company’s standard payroll practices, andsubject to increases as set forth in the Agreement.

 

**2.**                                      **BONUS**

 

Executive’s annual bonus, if granted, shall be at atarget level of 40% of the Executive’s then current base salary.

 

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

 

Within thirty days of the Effective Date, Executiveshall receive an Option grant of 40,000 shares of Company common stock.  Such Option grant shall be subject to theterms and conditions of the Company’s 2001 Incentive Award Plan.

 

**4.****                                      SEVERANCEBENEFITS**

 

**4.1****                               TerminationBy Company without Cause.**  If theCompany terminates Executive’s employment at any time without Cause, theCompany shall provide to Executive, within thirty (30) days after the EffectiveDate of the Release attached hereto as Exhibit B (as “Effective Date” isdefined in the Release), as the only severance compensation and benefits all ofthe following:

 

(a)                                  Alump sum severance payment, subject to standard withholdings or deductions, inan amount equal to the sum of: (i) twenty-four (24) months of Executive’s thenbase salary; (ii) two times Executive’s target bonus to be earned for the yearin which termination occurs or two times the bonus amount paid to the Executivein the prior year, whichever is greater; and (iii) Executive’s prorated bonusfor the year in which the termination occurs, at the Company’s discretion.

 

(b)                                 Continuedgroup health insurance benefits (e.g., medical, dental, vision, etc.) forExecutive and Executive’s eligible dependents for a period of up to eighteen(18) months under COBRA, and if Executive is not covered under the Company’sgroup health insurance plan at the end of eighteen (18) months, the Companyshall use its best efforts to provide Executive and Executive’s eligibledependents with comparable health insurance coverage for an additional periodof up six (6) months, but the Company shall not be obligated to pay more thanone hundred fifty percent (150%) of the cost of COBRA coverage for suchcomparable coverage; provided, however, that in any event the Company’sobligation to provide any health benefits pursuant to this sentence ends whenExecutive becomes eligible for health insurance with a new

 

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employer (and Executive agrees to promptly notify theCompany in writing of any such event of eligibility).

 

(c)                                  Outplacementservices for one year with a nationally recognized service selected by theCompany.

 

**4.2****                               Executive’sResignation for Good Reason.**  IfExecutive terminates his employment with the Company for Good Reason, theCompany shall provide to Executive, within thirty (30) days after the EffectiveDate of the Release attached hereto as Exhibit B (as “Effective Date” isdefined in the Release), as the only severance compensation and benefits, thesame severance compensation and benefits provided in Section 4.1 hereof.

 

**4.3****                               Changeof Control Termination.**  In the eventof a Change of Control Termination, the Company shall provide to Executive,within thirty (30) days after the Effective Date of the Release attached heretoas Exhibit B (as “Effective Date” is defined in the Release), as the onlyseverance compensation and benefits, (a) the same severance compensation andbenefits provided in Section 4.1 hereof and, (b) any unvested Options heldby Executive shall have their vesting accelerated in full so as to become onehundred percent (100%) vested and immediately exercisable in full as of thedate of such termination.

 

**5.****                                      Sign-OnPayment.  **Executive shall receive asign-on payment of seventy-five thousand dollars ($75,000.00), less appropriatewithholding of taxes, payable in installments as follows:  $30,000 on the first regularly scheduledpayroll date after the Effective Date; $45,000 within ninety (90) days of the EffectiveDate.  Executive’s eligibility to receivethe sign-on payment is contingent on Executive’s execution of a reimbursementagreement in a form acceptable to the Company.

 

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**EXHIBIT B**

 

**RELEASE AGREEMENT**

 

I understand that my position with Watson Pharmaceuticals, Inc. (the “Company”)terminated effective                     (the “Separation Date”).  The Company hasagreed that if I choose to sign this Release, the Company will, within thirty(30) days after the Effective Date of this Release,  pay me certain severance benefits (minus thestandard withholdings and deductions) pursuant to the terms of the Key EmployeeAgreement (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 of whetherI sign this Release, the Company will pay me all of my accrued salary and paidtime off through the Separation Date, to which I am entitled by law.

 

In consideration for the severance benefits I am receiving under theAgreement, I hereby release the Company and its officers, directors, agents,attorneys, employees, shareholders, parents, subsidiaries, and affiliates (“Releasees”)from any and all claims, liabilities, demands, causes of action, attorneys’fees, damages, or obligations of every kind and nature, whether they are nowknown or unknown, arising at any time prior to the date I sign thisRelease.  This general release includes,but is not limited to:  all federal andstate statutory and common law claims, claims related to my employment or thetermination of my employment or related to breach of contract, tort, wrongfultermination, discrimination, harassment, defamation, fraud, wages or benefits,or claims for any form of equity or compensation.  Notwithstanding the release in the precedingsentence, I am not releasing any right of indemnification I may have for anyliabilities and costs of defense (including without limitation reasonableattorneys’ fees) arising from my actions within the course and scope of myemployment with the Company.

 

In releasing claims unknown to me at present, I am waiving all rightsand benefits under Section 1542 of the California Civil Code, and any lawor legal principle of similar effect in any 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 of age 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 waiverand release do not apply to any claims that may arise after my signing of thisRelease; (b) I should consult with an attorney prior to executing this Release;(c) I have twenty-one (21) days (forty-five (45) days in the event of a grouptermination) within which to consider this Release (although I may choose tovoluntarily execute this Release earlier); (d) I have seven (7) days followingthe execution of this release to revoke the Release; and (e) this Release willnot be effective until the eighth day after this Release has been signed bothby me and by the Company (“Effective Date”).

 

I acknowledge that I remain bound by the Invention Assignment andConfidential Nondisclosure Agreement which I signed in connection with myemployment (“Invention Agreement”) and that the provisions of the InventionAgreement shall remain in full force and effect. In accordance with my existingand continuing obligations under the Invention Agreement, I have returned tothe Company all materials required to be returned pursuant to the InventionAgreement, as well as any other Company property in my possession.  In consideration for the severance benefits Iam receiving hereunder, I agree that I will reasonably cooperate with theCompany for ninety (90) days after the Separation Date to assure the smoothtransition of pending matters and to answer questions which may arise from

 

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time to time regarding my former duties and responsibilities.  Effective as of the Separation Date, I resignany and all offices and directorships with the Company and any of itsaffiliates, and will execute all documents reasonably requested by the Companyor its affiliates to effectuate such resignations.  Further, I agree that I will not hereafterdisparage the Company or any of the Releasees, either orally or in writing, toany person or entity.  The Company agreesthat its officers and directors will not disparage me, either orally or inwriting, to any person or entity.

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

 

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**EXHIBIT C**

 

**EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONSAGREEMENT**

 

 

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