Document:

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                                                                   EXHIBIT 10.64

                             SUBORDINATION AGREEMENT

                           Dated as of March 29, 2000

                                      Among

                          WATSON PHARMACEUTICALS, INC.,

                             HALSEY DRUG CO., INC.,

                              The Existing Holders
                               (as defined herein)

                                       and

                    THE GRANTORS AND GUARANTORS NAMED HEREIN

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                                TABLE OF CONTENTS

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ARTICLE I                  DEFINITIONS........................................................................................2

      SECTION 1.1.                  Definitions of Certain Terms..............................................................2
      SECTION 1.2.                  Terms Generally...........................................................................3

ARTICLE II                 STANDBY AND SUBORDINATION..........................................................................4

ARTICLE III                PAYMENTS...........................................................................................4

ARTICLE IV                 SECURITY INTEREST SUBORDINATION....................................................................5

ARTICLE V                  DISPOSITION OF COLLATERAL..........................................................................5

ARTICLE VI                 SENIOR DEBT........................................................................................5

ARTICLE VII                DEFAULT............................................................................................6

ARTICLE VIII               NO COMMITMENT......................................................................................6

ARTICLE IX                 NO CONTEST.........................................................................................6

ARTICLE X                  FINANCIAL CONDITION OF BORROWER....................................................................6

ARTICLE XI                 REVIVOR............................................................................................6

ARTICLE XII                REPRESENTATIONS AND WARRANTIES.....................................................................7

      SECTION 12.1.                 Representations and Warranties of the Existing Holders....................................7
      SECTION 12.2.                 Representations and Warranties of Each Party..............................................7

ARTICLE XIII               EXISTING INTERCREDITOR AGREEMENT...................................................................7

ARTICLE XIV                MISCELLANEOUS......................................................................................7

      SECTION 14.1.                 No Individual Action......................................................................7
      SECTION 14.2.                 Successors and Assigns....................................................................7
      SECTION 14.3.                 Notices...................................................................................7
      SECTION 14.4.                 Termination...............................................................................8
      SECTION 14.5.                 Applicable Law............................................................................8
      SECTION 14.6.                 Amendments and Waivers of Agreement and Support Documents.................................8
      SECTION 14.7.                 Waiver of Rights..........................................................................8
      SECTION 14.8.                 Severability..............................................................................8

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     <S>                                <C>                                                                                   <C>

      SECTION 14.9.                 Waiver of Jury Trial.......................................................................9
      SECTION 14.10.                Counterparts; Effectiveness................................................................9
      SECTION 14.11.                Section Headings...........................................................................9
      SECTION 14.12.                Complete Agreement.........................................................................9

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                             SUBORDINATION AGREEMENT

        This SUBORDINATION AGREEMENT (the "Agreement") is dated as of March 29,
2000 and is entered into by and among (i) WATSON PHARMACEUTICALS, INC., a
Nevada corporation ("Watson"), (ii) HALSEY DRUG CO., INC., a New York
corporation (the "Company"), (iii) the holders of the 5% Convertible Senior
Secured Debentures issued by the Company pursuant to the Debenture and Warrant
Purchase Agreement, dated March 10, 1998 (the "Galen Debenture Agreement"), by
and among the Company, Galen Partners III, L.P. and the other signatories
thereto, listed on Schedule 4 attached hereto (such holders, the "GALEN INVESTOR
GROUP"), (iv) the holders of the 5% Convertible Senior Secured Debentures issued
by the Company pursuant to the Debenture and Warrant Purchase Agreement, dated
May 26, 1999 (the "Oracle Debenture Agreement"), by and among the Company,
Oracle Strategic Partners, L.P. and the other signatories thereto, listed on
Schedule 4 attached hereto (such holders, the "ORACLE INVESTOR GROUP"), and (v)
the Grantors and Guarantors listed on the signature pages hereof. Certain
capitalized terms used herein have the meanings ascribed thereto in Section
1.1.

                                    RECITALS

        A.      Watson and the Company have entered into that certain Loan
Agreement, dated as of March 29, 2000 (the "Loan Agreement"), pursuant to which
Watson agreed to loan the Company the principal amount of Seventeen Million Five
Hundred Thousand Dollars ($17,500,000) (the "Loan").

        B.      The Company has issued its 5% Convertible Senior Secured
Debentures Due March 15, 2003 to the Galen Investor Group pursuant to the Galen
Debenture Agreement (such debentures, the "Galen Debentures") and to the Oracle
Investor Group pursuant to the Oracle Debenture Agreement (such debentures, the
"Oracle Debentures," and collectively with the Galen Debentures, the "Existing
Debentures"). The holders of the Existing Debentures as of a given date are
sometimes referred to herein as the "Existing Holders", and the Existing Holders
and Watson are sometimes referred to herein collectively as the "Secured
Creditors".

        C.      The Company and certain of its affiliates have entered into the
Existing Security Documents and Existing Guaranty Agreements pursuant to which
the Company and such affiliates secured the Company's obligations under the
Existing Debentures and guarantied the payment and performance of such
obligations.

        D.      In connection with the execution of the Loan Agreement, the
Company and Watson will be entering into new security documents (the "Watson
Security Documents").

        E.      As an inducement to make the Loan, the Galen Investor Group and
the Oracle Investor Group agree that (i) as among the Secured Creditors,
Watson's security interest in the Collateral shall rank first in priority among
the Secured Creditors; and (ii) proceeds received from enforcement of the Watson
Security Documents and the Existing Security Documents will be applied first to
the payment of the Company's obligations in respect of the Loan, and second, to
the extent of any remaining proceeds, to the payment of the Company's
obligations in respect of the Existing Debentures. The Company's and its
affiliates' obligations under the Loan and the Existing Debentures are sometimes
referred to collectively herein as the "Secured Obligations".

        F.      The parties hereto desire to set forth their agreement regarding
the priority of Watson's security interest and the application to the Secured
Obligations of cash received by the

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Secured Creditors from dispositions of Collateral and the enforcement of the
Existing Security Documents and the Watson Security Documents and the agreement
of Watson, the Galen Investor Group and the Oracle Investor Group as to the
decisions relating to the exercise of remedies under this Agreement and the
Existing Security Documents and the Watson Security Documents.

            G. It is a condition precedent to the effectiveness of the Loan
Agreement that Watson, the Galen Investor Group, the Oracle Investor Group, the
Company and its affiliates shall have entered into this Agreement.

            In consideration of the above recitals and the mutual covenants
contained herein, Watson, the Galen Investor Group, the Oracle Investor Group,
the Company and the Grantors and Guarantors hereby agree as follows:

                                  ARTICLE I

                                 DEFINITIONS

            SECTION 1.1.            DEFINITIONS OF CERTAIN TERMS.  As used
herein, the  following terms have the meanings set forth below:

                        "Agreement" is defined in the Preamble hereto.

                        "Business Day" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks are authorized or required to be
closed in New York.

                        "Closing Date" means the date on which this Agreement
becomes effective in accordance with Section 14.10.

                        "Collateral" means all the properties and assets of
whatever nature, tangible or intangible, now owned or existing or hereafter
acquired or arising, of any of the Grantors on or in which the Secured Creditors
have been granted a lien or security interest pursuant to any of the Existing
Security Documents or Watson Security Documents or this Agreement.

                        "Event of Default" means any Event of Default under and
as defined in the Loan Agreement or Watson Security Documents.

                        "Existing Guaranty Agreements" means the guaranties and
agreements identified on Schedule 1 hereto.

                        "Existing Holders" is defined in the Recitals hereto.

                        "Existing Intercreditor Agreement" means that certain
Intercreditor Agreement, effective May 26, 1999, by and among Galen Partners
III, L.P., Galen Partners International III, L.P., Galen Employee Fund III,
L.P., and Oracle Strategic Partners, L.P.

                        "Existing Security Documents" means the guaranties,
mortgages, deeds of trust and security agreements identified on Schedule 1 and
Schedule 2 hereto.

                                       2
<PAGE>   6

                        "Grantors" means the Company, Halsey Pharmaceutical,
Inc., a Delaware corporation and Houba Inc., an Indiana corporation, and each
other subsidiary or affiliate of the Company that is or becomes a party to any
Security Document.

                        "Guarantors" means Halsey Pharmaceutical, Inc., a
Delaware corporation and Houba Inc., an Indiana corporation, and each other
person that is or becomes a party to any Guaranty Agreement.

                        "Loan" is defined in the Recitals hereto.

                        "Loan Agreement" is defined in the Recitals hereto.

                        "Note" means that certain Secured Promissory Note, dated
March __, 2000, executed by the Company in favor of Watson in the principal
amount of $17,500,000.

                        "Notice of Default" means a notice delivered by any
Secured Creditor stating that an Event of Default has been declared and setting
forth in reasonable detail the date and nature of such Event of Default.

                        "Secured Creditors" is defined in the Recitals hereto.

                        "Secured Obligations" is defined in the Recitals hereto.

                        "Senior Debt" means, at any time, the sum (without
duplication) of the following:

                        (i)     the aggregate principal amount of the Loan
outstanding at such time and the aggregate amount of accrued unpaid interest
thereon at such time; and

                        (ii)    the reasonable costs and expenses of
enforcement by Watson of its rights and collection with respect to the Loan.

                        "Subordinated Debt" means, at any time, the sum
(without duplication) of the following:

                        (i) the aggregate principal amount of the Existing
Debentures outstanding at such time and the aggregate amount of accrued unpaid
interest thereon at such time;

                        (ii) the aggregate amount of accrued and unpaid fees
payable to the Existing Holders, or any of them, under or in connection with the
Existing Debentures; and

                        (iii) the aggregate amount of all other monetary
obligations of the Company, the Guarantors and the Grantors that are accrued
and owing at such time to the Existing Holders, or any of them, under the
Existing Debentures (including all security, guaranty and other documents issued
or executed in connection with and on the same date as the Existing Debentures)
and the Existing Security Documents, including indemnification and expense
reimbursement obligations thereunder.

                        "Watson Security Documents" means the guaranties,
mortgages, deeds of trust and security agreements identified on Schedule 5.

        SECTION 1.2. TERMS GENERALLY. The definitions in Section 1.1 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun

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shall include the corresponding masculine, feminine and neuter forms. The words
"include," "includes" and "including" shall be deemed to be followed by the
phrase "without limitation." All references herein to Articles and Sections
shall be deemed references to Articles and Sections of this Agreement unless
the context shall otherwise require.

                                   ARTICLE II

                            STANDBY AND SUBORDINATION

        Except as set forth in Article 3 of this Agreement, the Existing
Holders shall not accept or receive, by setoff or in any other manner, as
against the Company or the Guarantors, the whole or any part of the Subordinated
Debt owing to the Existing Holders from the Company or the Guarantors, or any of
their respective predecessors, successors or assigns, including, without
limitation, a receiver, trustee or debtor in possession under the Existing
Debentures or any note, guaranty or other instrument or agreement executed by
the Company or the Guarantors in favor of the Existing Holders, or otherwise,
whether the sums represent principal, interest, costs, attorneys' fees or
charges, or other obligations due or not due, whether incurred directly or
indirectly, and whether absolute or contingent unless and until the Senior Debt
has been fully paid and satisfied.

                                  ARTICLE III

                                    PAYMENTS

        So long as no Event of Default shall have occurred and be continuing
under the Loan Agreement, the Company may pay to the Existing Holders, and the
Existing Holders may accept or receive regularly scheduled payments in respect
of the Subordinate Debt; provided, however, that the aggregate amount of
payments (in any form) which may be made to and accepted by the Existing Holders
shall not exceed the sum of Six Hundred and Twenty-Five Thousand Dollars
($625,000) on any Interest Payment Date (as such term is defined in the Existing
Debentures) and any arrearages thereon, and provided, further, however, that
certain holders of the Existing Debentures designated on Schedule 4 attached
hereto have agreed that, on each Interest Payment Date while any of the Senior
Debt is outstanding , such holders shall receive such payments in the capital
stock and/or like debenture instruments of Borrower and not in cash or cash
equivalents. Watson shall provide notice to Oracle Strategic Partners, L.P.,
Galen Partners III, L.P., Galen Employee Fund III, L.P., and Galen Partners
International III, L.P. of any Event of Default prior to its enforcement of its
remedies hereunder, provided however, that nothing herein shall impair Watson's
ability to act immediately after transmitting such notice. Except as to payments
which the Existing Holders are permitted to accept or receive pursuant to this
Article 3, the Existing Holders shall receive and hold all other payments or
distributions received prior to the satisfaction of the Senior Debt in trust for
the benefit of Watson and shall forthwith deliver the same to Watson in the same
form received (except for the endorsement or assignment in favor of Watson where
necessary) for application to the Senior Debt and, until so delivered, shall not
be commingled with other funds or property of the Existing Holders. Upon any
Event of Default under the Existing Debentures or the Support Documents, any
Existing Holder may file, prosecute and obtain a judgment in a lawsuit against
the Company or the Guarantors; provided, however, that the Existing Holders
shall not commence foreclosure on any judgment lien obtained in connection
therewith or otherwise exercise any remedy with respect thereto, including,
without limitation, filing any petition in bankruptcy with respect to the
Company or the Guarantors, unless and until all Senior Debt has been fully paid
and satisfied.

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                                   ARTICLE IV

                         SECURITY INTEREST SUBORDINATION

        All security interests acquired by Watson through the Watson Security
Documents, to the extent securing the Senior Debt, in the Collateral
shall at all times be prior and superior to any lien, ownership interest,
security interest or other interest or claim now held or hereafter acquired by
the Existing Holders in the Collateral (the "Subordinate Interest"). Said
priority shall be applicable irrespective of the time or order of attachment or
perfection of any security interest or the time or order of filing of any
financing statements or other documents, or any statutes, rules of law, or court
decisions to the contrary. Upon any disposition of any of the Collateral by
Watson, the Existing Holders agree, if requested by Watson, to execute and
immediately deliver any and all releases or other documents or agreements which
Watson deems necessary to accomplish a disposition thereof free of the
Subordinate Interest.

                                   ARTICLE V

                            DISPOSITION OF COLLATERAL

        The Existing Holders agree that, until Watson has received payment in
full of all Senior Debt, Watson may dispose of, and exercise any other rights
with respect to, any or all of the Collateral, free of the Subordinate Interest;
provided, that the Existing Holders retain any rights they may have as a junior
secured creditor with respect to the surplus, if any, arising from any such
disposition or enforcement. The Existing Holders agree that any funds of the
Company or the Guarantors which it obtains through the exercise of any right of
setoff or other similar right constitute Collateral, and the Existing Holders
shall immediately pay such funds to Watson to be applied to the outstanding
Senior Debt.

                                   ARTICLE VI

                                   SENIOR DEBT

        Until Watson has received payment in full of all Senior Debt, the
Existing Holders agree that, in addition to any other rights that Watson may
have, at law or in equity, Watson may at any time, and from time to time,
without the Existing Holders' consent and without notice to the Existing
Holders, renew or extend, but not increase, any of the Senior Debt or that of
any other person at any time directly or indirectly liable for the payment of
any Senior Debt, accept partial payments of the Senior Debt, settle, release (by
operation of law or otherwise), compound, compromise, collect or liquidate any
of the Senior Debt, change, alter or vary the interest charge on, or any other
terms or provisions of the Senior Debt or any present or future instrument,
document or agreement between the Senior Lender and the Company or the
Guarantors, and take any other action or omit to take any other action with
respect to the Senior Debt or the Collateral as Watson may deem necessary or
advisable in its sole discretion. The Existing Holders waive any right to
require Watson to marshal any assets in favor of the Existing Holders or against
or in payment of any or all of the Senior Debt. The Existing Holders further
waive any defense arising by reason of any claim or defense based upon an
election of remedies by Watson which in any manner impairs, affects, reduces,
releases, destroys and/or extinguishes any of the Existing Holders' subrogation
rights, rights to proceed against the Company or the Guarantors for
reimbursement, and/or any other rights of any of the Existing Holders.

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                                  ARTICLE VII

                                     DEFAULT

         The Existing Holders shall promptly give Watson written notice of any
Event of Default by the Company or the Guarantors on any obligation secured
by the Subordinate Interest.

                                  ARTICLE VIII

                                  NO COMMITMENT

        It is understood and agreed that this Agreement shall in no way be
construed as a commitment or agreement by Watson to continue financing
arrangements with the Company or the Guarantors.

                                   ARTICLE IX

                                   NO CONTEST

        The Existing Holders shall not contest the validity, perfection,
priority or enforceability of any lien or security interest granted to Watson to
secure the Senior Debt pursuant to the Watson Security Documents.

                                   ARTICLE X

                         FINANCIAL CONDITION OF BORROWER

        The Existing Holders are presently informed of the financial condition
of the Company and of all other circumstances which a diligent inquiry
would reveal and which bear upon the risk of non-payment of the Senior Debt and
the Subordinated Debt. The Existing Holders acknowledge that they are each
entitled to keep themselves informed under the terms of the Existing Debentures
and the Existing Security Documents as to the Company's financial condition and
all other circumstances which bear upon the risk of non-payment of the Senior
Debt and the Subordinated Debt or the Existing Holders' compliance with their
obligations hereunder. Except as otherwise specifically provided herein, the
Existing Holders waive any right to require Watson to disclose to them any
information which Watson may now or hereafter acquire concerning the Company or
the Guarantors.

                                   ARTICLE XI

                                     REVIVOR

        If any payment made on any of the Senior Debt shall for any reason be
required to be returned by Watson, whether on the ground that such payment
constituted a preference or for any other reason, then for purposes of this
Agreement, such payment on the Senior Debt shall be treated as not having been
made, and this Agreement shall in all respects be effective with respect to such
Senior Debt as though such payment had not been made.

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                                  ARTICLE XII

                         REPRESENTATIONS AND WARRANTIES

        SECTION 12.1. REPRESENTATIONS AND WARRANTIES OF THE EXISTING HOLDERS.
The Existing Holders represent and warrant that they have not heretofore
transferred or assigned the Subordinate Interest or any financing statement
naming any Grantor as debtor and any Existing Holder as secured party, and that
they will not do so without first delivering a copy of this Agreement to the
proposed transferee or assignee.

        SECTION 12.2. REPRESENTATIONS AND WARRANTIES OF EACH PARTY. Each party
hereto represents and warrants to the other parties hereto that (a) the
execution, delivery and performance of this Agreement (i) have been duly
authorized by all requisite corporate action on its part and (ii) will not
contravene any provision of its charter or by-laws or any order of any court or
other governmental authority having applicability to it or any applicable law,
and (b) this Agreement has been duly executed and delivered by it and
constitutes its legal, valid and binding obligation.

                                  ARTICLE XIII

                        EXISTING INTERCREDITOR AGREEMENT

            The parties hereto acknowledge the existence of the Existing
Intercreditor Agreement. Nothing herein shall be deemed to rescind any portion
of the Existing Intercreditor Agreement and such agreement shall remain in full
force except as modified by the terms of this Agreement.

                                  ARTICLE XIV

                                  MISCELLANEOUS

        SECTION 14.1. NO INDIVIDUAL ACTION. No Secured Creditor may require any
other Secured Creditor to take or refrain from taking any action
hereunder or under any of the Support Documents or with respect to any of the
Collateral except as and to the extent expressly set forth in this Agreement.

        SECTION 14.2. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
on and inure to the benefit of each of the Secured Creditors and their
respective successors and permitted assigns; provided, however, that, except as
provided in the next sentence, no Existing Holder may assign its rights or
obligations hereunder. The rights and obligations of any Existing Holder under
this Agreement may be assigned, and the term "Existing Holder" as used in this
Agreement shall include, any assignee, transferee or successor of such Existing
Holder under the Existing Debentures by the execution of a Joinder Agreement by
such assignee, transferee or successor, and any such assignee, transferee or
successor shall thereupon become an Existing Holder under and a party to this
Agreement. This Agreement is not intended to confer any benefit on, or create
any obligation of any Secured Creditor to, the Company or any third party,
including the Guarantors and other Grantors.

        SECTION 14.3. NOTICES.  Notices and other communications provided for
herein or in any Watson Security Document shall be in writing and shall
be delivered by hand or overnight courier service, mailed or sent by telex or
telecopy, as follows:

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                        (a) if to any Existing Holder, to it as set forth
opposite its signature on the signature pages hereto;

                        (b) if to Watson, to 311 Bonnie Circle, Corona,
California, 91720, fax no. (909) 270-1096, to the attention of Mr. Robert
Funsten, General Counsel; and

                        (c) if to the Company, to 695 No. Perryville Road,
Rockford, Illinois 61107, fax no. (815) 399-9710, to the attention of Mr.
Michael Reicher, Chief Executive Officer any Grantor, or any Guarantor, to it as
specified in the Support Document to which it is a party.

                        (d) if to the other Grantors and Guarantors,
as applicable to: (i) Houba, Inc., 16235 State Road, #17, Culver, Indiana
46511, fax no: ____________, to the attention of Mr. Michael Reicher, Chief
Executive Officer; or (ii) Halsey Pharmaceutical, Inc., 695 No. Perryville
Road, Rockford, Illinois 61107, fax no. (815) 399-9710, to the attention of Mr.
Michael Reicher, Chief Executive Officer. All notices and other communications
given to any party hereto in accordance with the provisions of this Agreement
shall be deemed to have been given on the date of receipt if delivered by hand
or overnight courier service or sent by telex or telecopy, or on the date five
Business Days after dispatch by certified or registered mail if mailed, in each
case delivered, sent or mailed (properly addressed) to such party as provided
in this Section 14.3 or in accordance with the latest unrevoked direction from
such party given in accordance with this Section 14.3.

        SECTION 14.4. TERMINATION. This Agreement shall terminate automatically
upon the indefeasible payment in full of the Senior Debt.

        SECTION 14.5. APPLICABLE LAW.  THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
REFERENCE TO ITS CHOICE OF LAW RULES.

        SECTION 14.6. AMENDMENTS AND WAIVERS OF AGREEMENT AND SUPPORT DOCUMENTS.
No amendment or waiver of any provision of this Agreement or any Support
Document shall in any event be effective unless the same shall be in writing and
signed by the Secured Creditors; provided, however, that no such amendment or
waiver which materially affects the duties of the Company shall be effective
without the prior written consent of the Company. No waiver of any provision of
this Agreement and no consent to any departure by any party hereto from the
provisions hereof shall be effective unless such waiver or consent shall be set
forth in a written instrument executed by the party against which it is sought
to be enforced, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to or demand on
any party hereto in any case shall entitle such party to any other or further
notice or demand in the same, similar or other circumstances.

        SECTION 14.7. WAIVER OF RIGHTS. Neither any failure nor any delay on the
part of any party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, and a single or partial exercise
thereof shall not preclude any other or further exercise or the exercise of any
other right, power or privilege.

        SECTION 14.8. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable
in any respect, the validity, legality and

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<PAGE>   12

enforceability of the remaining provisions contained herein shall not in
any way be affected or impaired thereby. The parties shall endeavor in good
faith negotiations to replace the invalid, illegal or unenforceable provisions
with valid provisions the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provision.

        SECTION 14.9. WAIVER OF JURY TRIAL. NEITHER THE COMPANY, THE SECURED
CREDITORS OR ANY GRANTOR OR GUARANTOR, NOR ANY ASSIGNEE, SUCCESSOR, HEIR
OR PERSONAL REPRESENTATIVE OF THE COMPANY, ANY SECURED CREDITOR, OR ANY GRANTOR
OR GUARANTOR SHALL SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR
ANY OTHER LITIGATION PROCEDURE BASED UPON OR ARISING OUT OF OR OTHERWISE
RELATING TO THIS AGREEMENT, THE SUPPORT DOCUMENTS, ANY RELATED INSTRUMENT OR
AGREEMENT, ANY COLLATERAL FOR ALL OR ANY PART OF THE LOAN AGREEMENT OBLIGATIONS
OR EXISTING DEBENTURE OBLIGATIONS, OR THE DEALINGS OR THE RELATIONSHIP BETWEEN
OR AMONG SUCH PERSONS. THE COMPANY, EACH SECURED CREDITOR AND EACH GRANTOR AND
GUARANTOR HEREBY WAIVE ANY AND ALL RIGHT TO ANY SUCH JURY TRIAL. NEITHER THE
COMPANY, ANY SECURED CREDITOR NOR ANY GRANTOR OR GUARANTOR SHALL SEEK TO
CONSOLIDATE ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER
ACTION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. THE PROVISIONS OF
THIS SECTION HAVE BEEN FULLY DISCUSSED BY THE PARTIES HERETO, AND THE PROVISIONS
OF THIS AGREEMENT SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN ANY WAY
AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS
SECTION WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.

        SECTION 14.10. COUNTERPARTS; EFFECTIVENESS. This Agreement may be
executed in two or more counterparts, each of which shall constitute an
original, but all of which, when taken together, shall constitute but one
instrument. This Agreement shall become effective on the date (the "Closing
Date") this Agreement shall have been executed and delivered by each party
identified in the introductory paragraph hereto.

        SECTION 14.11. SECTION HEADINGS. The Article and Section headings used
herein are for convenience of reference only and are not to affect the
construction of or be taken into consideration in interpreting this Agreement.

        SECTION 14.12. COMPLETE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior representations, negotiations, writings, memoranda and
agreements. To the extent any provision of this Agreement conflicts with any of
the documents referenced herein, the provisions of this Agreement shall be
controlling.

                           [signature pages to follow]

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

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<S>                                                                            <C>

"WATSON"                                                                        "THE COMPANY"

WATSON PHARMACEUTICAL, INC.,                                                    HALSEY DRUG CO., INC.,
a Nevada corporation                                                            a New York corporation

/s/  Robert C. Funsten                                                          /s/ Michael Reicher
----------------------                                                          ----------------------
By:                                                                             By:
Its:  Senior Vice President                                                     Its:  Chief Executive Officer

"GRANTOR/GUARANTOR"                                                             "GRANTOR/GUARANTOR"

HOUBA, INC.,                                                                    HALSEY PHARMACEUTICAL, INC.,
an Indiana corporation                                                          a Delaware corporation

/s/ Michael Reicher                                                             /s/ Michael Reicher
----------------------                                                          ----------------------
By:                                                                             By:
Its:  Chief Executive Officer                                                   Its:  Chief Executive Officer

ORACLE STRATEGIC PARTNERS, L.P.                                                 GALEN PARTNERS III, L.P.
By: Oracle Strategic Capital L.L.C.,                                            By: Claudius, L.L.C., General Partner
 General Partner                                                                610 Fifth Avenue, 5th Fl.
712 Fifth Avenue                                                                New York, New York  10019
New York, New York  10019

/s/ Larry Feinberg                                                              /s/ Shrini Conjeevaram
----------------------                                                          ----------------------
By:                                                                             By:
Its:  Managing Member                                                           Its:  General Partner

GALEN EMPLOYEE FUND III, L.P.
By: Wesson Enterprises, Inc.                                                    GALEN PARTNERS INTERNATIONAL, III, L.P.
610 Fifth Avenue, 5th Floor                                                     By: Claudius, L.L.C., General Partner
New York, New York 10020                                                        610 Fifth Avenue, 5th Floor
                                                                                New York, New York  10020

/s/ Bruce F. Wesson                                                             /s/ Shrini Conjeevaram
----------------------                                                          ----------------------
By:                                                                             By:
Its:  General Partner                                                           Its:  General Partner

</TABLE>

                                       10
<PAGE>   14

<TABLE>
<CAPTION>

<S>                                                                            <C>

ALAN SMITH                                                                      PATRICK COYNE
21 Bedlow Avenue                                                                477 Margo Lane
Newport, Rhode Island  02840                                                    Berwyn, Pennsylvania  19312

/s/ Alan Smith                                                                  /s/ Patrick Coyne
----------------------------                                                    ----------------------------

MICHAEL WEISBROT                                                                SUSAN WEISBROT
1136 Rock Creek Road                                                            1136 Rock Creek Road
Gladwyne, Pennsylvania  19035                                                   Gladwyne, Pennsylvania  19035

/s/ Michael Weisbrot                                                            /s/ Susan Weisbrot
----------------------------                                                    ----------------------------

GREG WOOD                                                                       DENNIS ADAMS
c/o D.R. International                                                          120 Kynlyn Road
7474 No. Figueroa Street                                                        Radnor, Pennsylvania  19312
Los Angeles, California  90041

/s/ Greg Wood                                                                   /s/ Dennis Adams
----------------------------                                                    ----------------------------

BERNARD SELZ                                                                    ROBERT W. BAIRD & CO., INC., TTEE
c/o Furman Selz                                                                 FBO Michael K. Reicher IRA
230 Park Avenue                                                                 c/o Halsey Drug Co., Inc.
New York, New York  10069                                                       695 North Perryville Rd.
                                                                                Crimson Building #2
                                                                                Rockford, Ill.  61107

/s/ Bernard Selz                                                                /s/ Michael K. Reicher
----------------------------                                                    ----------------------------
                                                                                By:
                                                                                Its:  Trustee

MICHAEL REICHER                                                                 PETER CLEMENS
c/o Halsey Drug Co., Inc.                                                       c/o Halsey Drug Co., Inc.
695 North Perryville Rd.                                                        695 North Perryville Rd.
Crimson Building #2                                                             Crimson Building #2
Rockford, Ill.  61107                                                           Rockford, Ill.  61107

/s/ Michael K. Reicher                                                          /s/ Peter Clemens
----------------------------                                                    ----------------------------
</TABLE>

                                       11
<PAGE>   15

<TABLE>
<CAPTION>

<S>                                                                            <C>

CONNIE REICHER TRUST
c/o Halsey Drug Co., Inc.                                                       STEFANIE HEITMEYER
695 North Perryville Rd.                                                        c/o Halsey Drug Co., Inc.
Crimson Building #2                                                             695 North Perryville Rd.
Rockford, Ill.  61107                                                           Crimson Building #2
                                                                                Rockford, Ill.  61107

/s/ Connie Reicher                                                              /s/ Stefanie Heitmeyer
----------------------------                                                    ----------------------------
By:
Its:  Trustee

DAN HILL                                                                        HEMANT K. SHAH
6725 Lynch Avenue                                                               29 Chrissy Drive
Riverbank, California  95367                                                    Warren, New Jersey  07059

/s/ Dan Hill                                                                    /s/ Hemant K. Shah
----------------------------                                                    ----------------------------

VARSHA H. SHAH                                                                  VARSHA H. SHAH AS CUSTODIAN
29 Chrissy Drive                                                                FOR SUMEET H. SHAH
Warren, New Jersey  07059                                                       29 Chrissy Drive
                                                                                Warren, New Jersey  07059

/s/ Varshah H. Shah                                                             /s/ Varshah H. Shah
----------------------------                                                    ----------------------------
                                                                                By:
                                                                                Its:  Custodian

VARSHA H. SHAH AS CUSTODIAN                                                     ILENE RAINISCH
FOR SACHIN H. SHAH                                                              c/o Alvin Rainisch
29 Chrissy Drive                                                                315 Devon Place
Warren, New Jersey  07059                                                       Morganville, New Jersey  07751

/s/ Varshah H. Shah                                                             /s/ Ilene Rainisch
----------------------------                                                    ----------------------------
By:
Its:  Custodian

MICHAEL RAINISCH                                                                KENNETH GIMBEL
c/o Alvin Rainisch                                                              2455 Montgomery Avenue
315 Devon Place                                                                 Highland Park, Ill.  60035
Morganville, New Jersey  07751

/s/ Michael Rainisch                                                            /s/ Kenneth Gimbel
----------------------------                                                    ----------------------------
</TABLE>

                                       12
<PAGE>   16

<TABLE>
<CAPTION>

<S>                                                                            <C>
KENNETH GIMBEL, IRA ACCOUNT
FBO KENNETH GIMBEL
2455 Montgomery Avenue
Highland Park, Ill.  60035

----------------------------
By:
Its:

</TABLE>

                                       13
<PAGE>   17

                                   SCHEDULE 1

                      LIST OF EXISTING GUARANTY AGREEMENTS

1.      Continuing Unconditional Secured Guaranty by Houba, Inc. dated
        March 10, 1998.

2.      Continuing Unconditional Secured Guaranty by Halsey Pharmaceutical, Inc.
        dated March 10, 1998.

3.      Continuing Unconditional Secured Guaranty by Houba, Inc. dated May 26,
        1999.

4.      Continuing Unconditional Secured Guaranty by Halsey Pharmaceutical, Inc.
        dated May 26, 1999.

                                   SCHEDULE 1
<PAGE>   18

                                   SCHEDULE 2

                       LIST OF EXISTING SECURITY DOCUMENTS

1.      Company General Security Agreement, dated March 10, 1998, between
        Halsey Drug Co., Inc. and Galen Partners III, L.P., as agent.

2.      Guarantors General Security Agreement, dated March 10, 1998, by and
        among Cenci Powder Products, Inc., Halsey Pharmaceutical, Inc., H.R.
        Cenci Laboratories, Inc., Houba, Inc., Indiana Fine Chemicals, Inc.
        and Galen Partners III, L.P., as agent.

3.      Stock Pledge Agreement, dated March 10, 1998, between Halsey Drug Co.,
        Inc. and Galen Partners III, L.P., as agent.

4.      Company General Security Agreement, dated March 26, 1999, between
        Halsey Drug Co., Inc. and Oracle Strategic Partners, L.P., as agent.

5.      Guarantors General Security Agreement dated, May 26, 1999, by and among
        Houba, Inc., Halsey Pharmaceutical, Inc. and Oracle Strategic Partners,
        L.P., as agent.

6.      Stock Pledge Agreement, dated May 26, 1999, between Halsey Drug Co.,
        Inc. and Oracle Strategic Partners, L.P., as agent.

                                   SCEHDULE 2
<PAGE>   19

                                   SCHEDULE 3

                      EXISTING MORTGAGES AND DEEDS OF TRUST

1.      Real estate mortgage, dated May 10, 1998, between Houba, Inc. and Galen
        Partners III, L.P., as agent, covering the property located at 16235
        State Road 17, Culver, Indiana 46511.

2.      Real estate mortgage, dated May 26, 1999, between Houba, Inc. and
        Oracle Strategic Partners, L.P., as agent, covering the property
        located at 16235 State Road 17, Culver, Indiana 46511.

                                       SCHEDULE 3
<PAGE>   20

                                   SCHEDULE 4

                                EXISTING HOLDERS

GALEN DEBENTURES

<TABLE>
<CAPTION>

                                                              Principal Amount of              $1.50               $2.375
Name and Address of Purchaser                                 Debenture Purchased             Warrants            Warrants
-----------------------------                                 -------------------             --------            --------

<S>                                                          <C>                             <C>                 <C>
Galen Partners III, L.P.*                                     $          15,423,195            1,557,898            1,557,898
610 Fifth Avenue, 5th Floor
New York, New York 10020

Galen Partners International III, L.P.*                       $           1,709,167              172,643              172,643
610 Fifth Avenue, 5th Floor
New York, New York 10020

Galen Employee Fund III, L.P.*                                $              67,638                6,833                6,833
610 Fifth Avenue, 5th Floor
New York, New York 10020

Michael Reicher*                                              $             300,000               30,303               30,303
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233

Peter Clemens*                                                $             100,000               10,101               10,101
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233

Stefanie Heitmeyer                                            $              20,000                2,020                2,020
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233

Dan Hill                                                      $              10,000                1,010                1,010
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233

</TABLE>

<TABLE>
<CAPTION>

                                                                        Purchase
Name and Address of Purchaser                                            Price
-----------------------------                                      ------------------

<S>                                                           <C>

Galen Partners III, L.P.*                                     $       15,423,195
610 Fifth Avenue, 5th Floor
New York, New York 10020

Galen Partners International III, L.P.*                       $        1,709,167
610 Fifth Avenue, 5th Floor
New York, New York 10020

Galen Employee Fund III, L.P.*                                $           67,638
610 Fifth Avenue, 5th Floor
New York, New York 10020

Michael Reicher*                                              $          300,000
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233

Peter Clemens*                                                $          100,000
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233

Stefanie Heitmeyer                                            $           20,000
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233

Dan Hill                                                      $           10,000
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233

</TABLE>

*Agrees to receive interest in capital stock or like kind debentures.

                                   SCHEDULE 4
<PAGE>   21

<TABLE>
<CAPTION>

                                                              Principal Amount of              $1.50               $2.375
Name and Address of Purchaser                                 Debenture Purchased             Warrants            Warrants
-----------------------------                                 -------------------             --------            --------

<S>                                                          <C>                             <C>                 <C>
Alan Smith                                                    $              10,000                1,010                1,010
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233

Dennis Adams                                                  $           1,170,000              118,182              118,182
120 Kynlyn Road
Radnor, Pennsylvania 19087

Patrick Coyne                                                 $              50,000                5,051                5,051
477 Margo Lane
Berwyn, Pennsylvania 19312

Michael Weisbrot and Susan Weisbrot                           $             300,000               30,303               30,303
1136 Rock Creek Road
Gladwyne, Pennsylvania 19035

Greg Wood                                                     $             100,000               10,101               10,101
1263 East Calaveras Street
Altadena, California 91001

Hemant K. Shah and Varsha H. Shah                             $             950,000               95,960               95,960
29 Christy Drive
Warren, New Jersey 07059

Varsha H. Shah as Custodian for                               $              20,000                2,020                2,020
Sumeet H. Shah
29 Christy Drive
Warren, New Jersey 07059

Varsha H. Shah as Custodian for                               $              20,000                2,020                2,020
Sachin H. Shah
29 Christy Drive
Warren, New Jersey 07059

Bernard Selz                                                  $             400,000               40,404               40,404
121 East 73rd Street
New York, New York 10021

</TABLE>

<TABLE>
<CAPTION>

Name and Address of Purchaser                                      Purchase
                                                                    Price
-----------------------------                                 ------------------

<S>                                                          <C>
Alan Smith                                                    $           10,000
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233

Dennis Adams                                                  $        1,170,000
120 Kynlyn Road
Radnor, Pennsylvania 19087

Patrick Coyne                                                 $           50,000
477 Margo Lane
Berwyn, Pennsylvania 19312

Michael Weisbrot and Susan Weisbrot                           $          300,000
1136 Rock Creek Road
Gladwyne, Pennsylvania 19035

Greg Wood                                                     $          100,000
1263 East Calaveras Street
Altadena, California 91001

Hemant K. Shah and Varsha H. Shah                             $          950,000
29 Christy Drive
Warren, New Jersey 07059

Varsha H. Shah as Custodian for                               $           20,000
Sumeet H. Shah
29 Christy Drive
Warren, New Jersey 07059

Varsha H. Shah as Custodian for                               $           20,000
Sachin H. Shah
29 Christy Drive
Warren, New Jersey 07059

Bernard Selz                                                  $          400,000
121 East 73rd Street
New York, New York 10021

</TABLE>

*Agrees to receive interest in capital stock or like kind debentures.

                                  SCHEDULE 4

<PAGE>   22

<TABLE>
<CAPTION>

                                                              Principal Amount of              $1.50               $2.375
Name and Address of Purchaser                                 Debenture Purchased             Warrants            Warrants
-----------------------------                                 -------------------             --------            --------

<S>                                                          <C>                             <C>                 <C>
Ilene Rainisch                                                $              25,000                2,525                2,525
315 Devon Place
Morganville, New Jersey 07751

Michael Rainisch                                              $              25,000                2,525                2,525
48 Radford Street
Staten Island, New York 10314

Ken Gimbel                                                    $             100,000               10,101               10,101
876 Kimball Road
Highland Park, Illinois 60035

                                                                     Purchase
Name and Address of Purchaser                                          Price
-----------------------------                                    ------------------

<S>                                                           <C>
Ilene Rainisch                                                 $           25,000
315 Devon Place
Morganville, New Jersey 07751

Michael Rainisch                                               $           25,000
48 Radford Street
Staten Island, New York 10314

Ken Gimbel                                                     $          100,000
876 Kimball Road
Highland Park, Illinois 60035

</TABLE>

*Agrees to receive interest in capital stock or like kind debentures.

                                   SCHEDULE 4
<PAGE>   23

<TABLE>
<CAPTION>

                                                      Debenture Number
                                                      and Corresponding         $1.50               $2.375         Purchase
Name and Address of Purchaser                         Principal Amount         Warrants            Warrants          Price
-----------------------------                         ----------------         --------            --------        ---------
<S>                                                 <C>                       <C>                 <C>               <C>

Galen Partners III, L.P.*                              No. N-19A
610 Fifth Avenue, 5th Floor                            $681,105                  68,798              68,798          $    681,105
New York, New York 10020

Galen Partners International III, L.P.*                No. N-38
610 Fifth Avenue, 5th Floor                            $3,073,704               310,476             310,476          $  3,073,704
New York, New York 10020

Galen Employee Fund III,                               No. N-20
L.P.*                                                  $65,913                    6,658               6,658          $    65,913
610 Fifth Avenue, 5th Floor
New York, New York 10020                               No. N-39
                                                       $297,456                  30,044              30,044          $   297,456

                                                       No. N-21
                                                       $2,982                       301                 301          $     2,982

                                                       No. N-40
                                                       $13,456                    1,361               1,361          $    13,456

Michael Reicher*                                       No. N-22
c/o Halsey Drug Co., Inc.                              $50,000                    5,026               5,026          $    50,000
1827 Pacific Street
Brooklyn, New York 11233

Robert W. Baird & Co., Inc. TTEE,                      No. N-22A
FBO Michael K. Reicher IRA,                            $22,115                    2,258               2,258         $    22,115
Account Number 7026-6907
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233

Peter Clemens*                                          No. N-23
c/o Halsey Drug Co., Inc.                               $24,038                   2,428               2,428          $  24,038
1827 Pacific Street
Brooklyn, New York 11233

</TABLE>

*Agrees to receive interest in capital stock or like kind debentures.

                                   SCHEDULE 4

<PAGE>   24

<TABLE>
<CAPTION>

                                                Debenture Number
                                                and Corresponding               $1.50               $2.375             Purchase
Name and Address of Purchaser                   Principal Amount               Warrants            Warrants              Price
-----------------------------                   ----------------               --------            --------           -----------

<S>                                               <C>                       <C>                  <C>         <C>
Stefanie Heitmeyer                                 No. N-24
c/o Halsey Drug Co., Inc.                          $4,808                    486                  486         $            4,808
1827 Pacific Street
Brooklyn, New York 11233

Dan Hill                                           No. N-25
c/o Halsey Drug Co., Inc.                          $2,404                    243                  243         $            2,404
1827 Pacific Street
Brooklyn, New York 11233

Alan Smith                                         No. N-29
c/o Halsey Drug Co., Inc.                          $2,404                    243                  243         $            2,404
1827 Pacific Street
Brooklyn, New York 11233

Dennis Adams                                       No. N-31
120 Kynlyn Road                                    $281,250               28,409               28,409         $          281,250
Radnor, Pennsylvania 19087

Patrick Coyne                                      No. N-32
477 Margo Lane                                     $12,019                 1,214                1,214         $           12,019
Berwyn, Pennsylvania 19312

Michael Weisbrot and Susan Weisbrot                No. N-33
1136 Rock Creek Road                               $72,115                 7,284                7,284         $           72,115
Gladwyne, Pennsylvania 19035

Greg Wood
1263 East Calaveras Street                         No. N-26
Altadena, California 91001                         $24,038                 2,428                2,428         $           24,038

Hemant K. Shah and Varsha H. Shah                  No. N-34
29 Christy Drive                                   $228,365               23,067               23,067         $          228,365
Warren, New Jersey 07059

Varsha H. Shah as Custodian for Sumeet H. Shah     No. N-35
29 Christy Drive                                   $4,808                    486                  486         $            4,808
Warren, New Jersey 07059

*Agrees to receive interest in capital stock or like kind debentures.

</TABLE>

                                   SCHEDULE 4
<PAGE>   25

<TABLE>
<CAPTION>
                                                Debenture Number
                                                and Corresponding               $1.50               $2.375             Purchase
Name and Address of Purchaser                   Principal Amount               Warrants            Warrants              Price
-----------------------------                   ----------------               --------            --------           -----------

<S>                                                      <C>                    <C>                 <C>               <C>
Varsha H. Shah as Custodian for Sachin H. Shah            No. N-36
29 Christy Drive                                          $4,808                    486                486       $       4,808
Warren, New Jersey 07059

Bernard Selz                                              No. N-37
121 East 73rd Street                                      $96,154                 9,712              9,712              96,154
New York, New York 10021
                                                                                                                 $
Ilene Rainisch                                            No. N-27
315 Devon Place                                           $6,010                    607                607               6,010
Morganville, New Jersey 07751
                                                                                                                 $
Michael Rainisch                                          No. N-28
48 Radford Street                                         $6,010                    607                607               6,010
Staten Island, New York 10314

Ken Gimbel                                                 No. N-30
876 Kimball Road                                           $24,038                2,428              2,428       $        24,038
Highland Park, Illinois 60035

*Agrees to receive interest in capital stock or like kind debentures.

                                   SCHEDULE 4

</TABLE>

<PAGE>   26

                                EXISTING HOLDERS

ORACLE DEBENTURES

<TABLE>
<CAPTION>
--------------------------------------------------------- ------------------------------ ----------------------- -------------------
                                                                    Principal
                   Oracle Debentures                           Amount of Debenture               $1.404                  $2.285
             Name and Address of Purchaser                          Purchased                   Warrants                Warrants
             -----------------------------                          ---------                   --------                --------
--------------------------------------------------------- ------------------------------ ----------------------- -------------------
<S>                                                        <C>                               <C>                     <C>
1.    Oracle Strategic Partners, L.P.*                      $     5,000,000.00                  505,050                  505,050
--------------------------------------------------------- ------------------------------ ----------------------- -------------------
2.    Oracle Strategic Partners, L.P.*                      $    5,000,000.00(1)              1,010,100                1,010,100
--------------------------------------------------------- ------------------------------ ----------------------- -------------------
3.    Galen Partners III, L.P.*                             $    5,964,583.09(2)                602,483                  602,483
--------------------------------------------------------- ------------------------------ ----------------------- -------------------
4.    Galen Partners International III, L.P.*               $      539,900.40(3)                 54,535                   54,535
--------------------------------------------------------- ------------------------------ ----------------------- -------------------
5.    Galen Employee Fund III, L.P.*                        $       24,424.10(4)                  2,467                    2,467
--------------------------------------------------------- ------------------------------ ----------------------- -------------------
6.    Patrick Coyne                                         $       51,178.08(5)                  5,169                    5,169
--------------------------------------------------------- ------------------------------ ----------------------- -------------------
7.    Alan Smith                                            $       13,358.08(6)                  1,349                    1,349
--------------------------------------------------------- ------------------------------ ----------------------- -------------------
8.    Michael and Susan Weisbrot                            $      564,446.96(7)                 57,015                   57,015
--------------------------------------------------------- ------------------------------ ----------------------- -------------------
9.    Greg Wood                                             $      204,712.33(8)                 20,678                   20,678
--------------------------------------------------------- ------------------------------ ----------------------- -------------------
10.   Dennis Adams                                          $       300,000.00                   30,303                   30,303
--------------------------------------------------------- ------------------------------ ----------------------- -------------------
11.   Bernard Selz                                          $       200,000.00                   20,202                   20,202
--------------------------------------------------------- ------------------------------ ----------------------- -------------------
                        Total                               $    17,862,603.04             2,309,351.00             2,309,351.00
--------------------------------------------------------- ------------------------------ ----------------------- -------------------

                   Oracle Debentures
             Name and Address of Purchaser                           Purchase Price
             -----------------------------                           --------------
------------------------------------------------------------- -----------------------------
<S>                                                            <C>
1.    Oracle Strategic Partners, L.P.*                          $     5,000,000.00
------------------------------------------------------------- -----------------------------
2.    Oracle Strategic Partners, L.P.*                          $     5,000,000.00
------------------------------------------------------------- -----------------------------
3.    Galen Partners III, L.P.*                                 $     5,964,583.09
------------------------------------------------------------- -----------------------------
4.    Galen Partners International III, L.P.*                   $       539,900.40
------------------------------------------------------------- -----------------------------
5.    Galen Employee Fund III, L.P.*                            $        24,424.10
------------------------------------------------------------- -----------------------------
6.    Patrick Coyne                                             $        51,178.08
------------------------------------------------------------- -----------------------------
7.    Alan Smith                                                $        13,358.08
------------------------------------------------------------- -----------------------------
8.    Michael and Susan Weisbrot                                $       564,446.96
------------------------------------------------------------- -----------------------------
9.    Greg Wood                                                 $       204,712.33
------------------------------------------------------------- -----------------------------
10.   Dennis Adams                                              $       300,000.00
------------------------------------------------------------- -----------------------------
11.   Bernard Selz                                              $       200,000.00
------------------------------------------------------------- -----------------------------
                        Total                                   $    17,862,603.04
------------------------------------------------------------- -----------------------------

</TABLE>

--------------------

1     Intentionally omitted.

2     Consists of the surrender of convertible bridge notes in the principal
      amount of $5,590,917 plus accrued and unpaid interest of $373,666.09.

3     Consists of the surrender of convertible bridge notes in the principal
      amount of $506,077 plus accrued and unpaid interest of $33,823.40.

4     Consists of the surrender of convertible bridge notes in the principal
      amount of $22,894 plus accrued and unpaid interest of $1,530.10.

5     Consists of (i) the surrender of convertible bridge notes in the
      principal amount of $25,000 plus accrued and unpaid interest of $1,178.08
      and (ii) an additional investment of $25,000.

6     Consists of the surrender of convertible bridge notes in the principal
      amount of $13,000 plus accrued and unpaid interest of $358.08.

7     Consists of (i) the surrender of convertible bridge notes in the
      principal amount of $351,222 plus accrued and unpaid interest of
      $13,224.96 and (ii) an additional investment of $200,000.

8     Consists of (i) the surrender of convertible bridge notes in the
      principal amount of $100,000 plus accrued and unpaid interest of
      $4,712.33 and (ii) an additional investment of $100,000.

*Agrees to receive interest in capital stock or like kind debentures.

                                   SCHEDULE 4

<PAGE>   27

                                    EXHIBIT A

                                     FORM OF

                                JOINDER AGREEMENT

        Reference is made to that certain Subordination Agreement, dated as of
March __, 2000 (the "Subordination Agreement"), by and among Watson
Pharmaceuticals, Inc., a Nevada corporation, Halsey Drug Co., Inc., a New York
corporation ("Halsey"), Galen Partners III, L.P., as Agent of the holders of the
Galen Debentures, the Oracle Investor Group and the Grantors and Guarantors
listed on the signature pages thereof. All capitalized terms used but not
defined herein have the respective meanings ascribed thereto in the
Subordination Agreement. This agreement is a Joinder Agreement referred to in
Section 14.2 of the Subordination Agreement.

        The undersigned hereby agrees that it is a party to the Subordination
Agreement and is therefore bound by, and subject to, the terms of the
Subordination Agreement, and that it is an "Existing Holder" under, and as
defined, therein.

        The undersigned certifies that on or about the date hereof it is the
holder of the following obligations of the Company outstanding under the
Existing Debentures, as applicable.

                             [describe obligations]

        The address for notices to the undersigned pursuant to the
Subordination  Agreement is as follows:
                         [set forth address for notices]

                                Very truly yours,

                                [CREDITOR]

                                By
                                   ------------------------------------------
                                Name:
                                Title:

                                   EXHIBIT A
<PAGE>   28

                                   SCHEDULE 5

                            WATSON SECURITY DOCUMENTS

Watson Security Agreement

Watson Stock Pledge Agreement

Watson Guaranty

Watson Guarantors Security Agreement

Deed of Trust on Culver, Indiana Property

Deed of Trust Subordination

                                   EXHIBIT A<PAGE>   1
                                                                   EXHIBIT 10.65

YOURS TRULY,_____ STATE OF INDIANA ____________________ SPACE ABOVE THIS LINE
FOR RECORDING DATA

                              REAL ESTATE MORTGAGE
                          (With Future Advance Clause)

        1. DATE AND PARTIES. The date of this Real Estate Mortgage ("Security
Instrument") is March 29, 2000 and the parties, their addresses and tax
identification numbers, if required, are as follows:

                        MORTGAGOR:  Houba, Inc.
                                    16235 State Road 17
                                    Culver, Indiana 46511
                                    Tax ID#: 35-1356439

            [ ] If checked, refer to the attached Addendum incorporated herein,
                for additional Mortgagors, their signatures and acknowledgments.

                LENDER:                 Watson Pharmaceuticals, Inc.
                                        311 Bonnie Circle
                                        Corona, California  91720

        2. CONVEYANCE. For good and valuable consideration, the receipt and
sufficiency of which is acknowledged, and to secure the Secured Debt
(defined below) and Mortgagor's performance under this Security Instrument,
Mortgagor grants, bargains, conveys, mortgages and warrants to Lender the
following described property:

                         See Exhibit A attached hereto.

        The property is located in Marshall County at 16235 State Road 17,
Culver, Indiana 46511, together with all rights, easements, appurtenances,
royalties, mineral rights, oil and gas rights, crops, timber, all diversion
payments or third party payments made to crop producers, all water and riparian
rights, wells, ditches, reservoirs, and water stock and all existing and future
improvements, structures, fixtures, and replacements that may now, or at any
time in the future, be part of the real estate described above (all referred to
as the "Property").

        3. MAXIMUM OBLIGATION LIMIT. The total principal amount secured by this
Security Instrument at any one time shall not exceed $17,500,000.00. This
limitation of amount does not include interest and other fees and charges
validly made pursuant to this Security Instrument. Also, this limitation does
not apply to advances made under the terms of this Security Instrument to
protect Lender's security and to perform any of the covenants contained in this
Security Instrument.

        4. SECURED DEBT AND FUTURE ADVANCES. The term "Secured Debt" is defined
as follows:

<PAGE>   2

                    A.  Debt incurred under the terms of all
                        promissory note(s), contract(s), guaranty(s)
                        or other evidence of debt described below
                        and all their extensions, renewals,
                        modifications or substitutions. (When
                        referencing the debts below it is suggested
                        that you include items such as borrowers'
                        names, note amounts, interest rates,
                        maturity dates, etc.)

                        See Exhibit B attached hereto.

                    B.  All future advances from Lender to Mortgagor or other
                        future obligations of Mortgagor to Lender under any
                        promissory note, contract, guaranty or other evidence of
                        debt existing now or executed after this Security
                        Instrument whether or not this Security Instrument is
                        specifically referenced.  If more than one person signs
                        this Security Instrument, each Mortgagor agrees that
                        this Security Instrument will secure all future advances
                        and future obligations that are given to or incurred by
                        any one or more Mortgagor, or any one or more
                        Mortgagor and others.  All future advances and other
                        future obligations are secured by this Security
                        Instrument even though all or part may not yet be
                        advanced.  All future advances and other future
                        obligations are secured as if made on the date of this
                        Security Instrument.  Nothing in this Security
                        Instrument shall constitute a commitment to make
                        additional or future loans or advances in any amount.
                        Any such commitment must be agreed to in a separate
                        writing.

                    C.  All obligations that Mortgagor owes to Lender, which
                        now exist or may later, arise, to the extent not
                        prohibited by law, including, but not limited to,
                        liabilities for overdrafts relating to any deposit
                        account agreement between Mortgagor and Lender.

                    D.  All additional sums advanced and expenses incurred by
                        Lender for insuring, preserving or otherwise protecting
                        the Property and its value and any other sums advanced
                        and expenses incurred by Lender under the terms of this
                        Security Instrument.

        This Security Instrument will not secure any other debt if Lender fails
to give any required notice of the right of rescission.

        5. PAYMENTS. Mortgagor agrees that all payments under the Secured Debt
will be paid when due and in accordance with the terms of the Secured Debt and
this Security Instrument.

        6. WARRANTY OF TITLE. Mortgagor warrants that Mortgagor is or will be
lawfully seized of the estate conveyed by this Security Instrument and has the
right to grant, bargain, convey, sell, mortgage and warrant the Property.
Mortgagor also warrants that the Property is unencumbered, except for
encumbrances of record.

        7. OTHER SECURITY INTERESTS. With regard to any other mortgage, deed of
trust, security agreement or other lien document that created a prior or
subsequent security interest or encumbrance on the Property, Mortgagor agrees:

                    A. To make all payments when due and to perform or  comply
                       with all covenants.

                                       2
<PAGE>   3

              B. To promptly deliver to Lender any notices that Mortgagor
                 receives from the holder.

              C. Not to allow any modification or extension of, nor to request
                 any future advances under any note or agreement secured by the
                 lien document without Lender's prior written consent.

        8. CLAIMS AGAINST TITLE. Mortgagor will pay all taxes, assessments,
liens, encumbrances, lease payments, ground rents, utilities, and other
charges relating to the Property when due. Lender may require Mortgagor to
provide to Lender copies of all notices that such amounts are due and the
receipts evidencing Mortgagor's payment. Mortgagor will defend title to the
Property against any claims that would impair the lien of this Security
Instrument. Mortgagor agrees to assign to Lender, as requested by Lender, any
rights, claims or defenses that Mortgagor may have against parties who supply
labor or materials to maintain or improve the Property.

        9. DUE ON SALE OR ENCUMBRANCE. Lender may, at its option, declare the
entire balance of the Secured Debt to be immediately due and payable upon
the creation of, or contract for the creation of, any lien, encumbrance,
transfer or sale of the Property. This right is subject to the restrictions
imposed by federal law (12 C.F.R. 591), as applicable. This covenant shall run
with the Property and shall remain in effect until the Secured Debt is paid in
full and this Security Instrument is released.

        10. TRANSFER OF AN INTEREST IN THE MORTGAGOR. If Mortgagor is an entity
other than a natural person (such as a corporation or other organization),
Lender may demand immediate payment if:

              A. A beneficial interest in Mortgagor is sold or transferred.

              B. There is a change in either the identity or number of  members
                 of a partnership or similar entity.

              C. There is a change in ownership of more than twenty-five
                 percent (25%) of the voting stock of a corporation or similar
                 entity.

        However, Lender may not demand payment in the above  situations if it
is prohibited by law as of the date of this Security Instrument.

        11. ENTITY WARRANTIES AND REPRESENTATIONS. If Mortgagor is an entity
other than a natural person (such as a corporation or other organization),
Mortgagor makes to Lender the following warranties and representations which
shall continue as long as the Secured Debt remains outstanding:

              A. Mortgagor is duly organized and validly existing in
                 Mortgagor's state of  incorporation or organization. Mortgagor
                 is in good standing in all states in which  Mortgagor transacts
                 business.  Mortgagor has the power and authority to own the
                 Property and to carry on its business as now being conducted
                 and, as  applicable, is qualified to do so in each state in
                 which Mortgagor operates.

              B. The execution, delivery and performance of this Security
                 Instrument by Mortgagor and the obligations evidenced by the
                 Secured Debt are within the

                                       3
<PAGE>   4

                 power of Mortgagor, have been duly authorized, have received
                 all necessary governmental approval, and will not violate any
                 provision of law, or order of court or governmental agency.

              C. Other than previously disclosed in writing to Lender,
                 Mortgagor  has not changed its name within the last ten (10)
                 years  and has not used any other trade or fictitious name.
                 Without Lender's prior written consent, Mortgagor does not and
                 will not use any other name and will preserve its existing
                 name, trade names and franchises until the Secured Debt is
                 satisfied.

        12. PROPERTY CONDITION, ALTERATIONS AND INSPECTION. Mortgagor will
keep the Property in good condition and make all repairs that are reasonably
necessary. Mortgagor shall not commit or allow any  waste, impairment, or
deterioration of the Property. Mortgagor will keep the Property free of noxious
weeds and grasses.  Mortgagor agrees that the nature of the occupancy and use
will not substantially change without Lender's prior written consent. Mortgagor
will not permit any change in any license, restrictive covenant or easement
without Lender's prior written consent.  Mortgagor will notify Lender of all
demands, proceeds, claims, and actions against Mortgagor, and of any loss or
damage to the 0Property.

        No portion of the Property will be removed, demolished or materially
altered without Lender's prior written consent except that Mortgagor has the
right to remove items of personal property comprising a part of the Property
that become worn or obsolete, provided that such personal property is replaced
with other personal property at least equal in value and quality to the replaced
personal property, free from any title retention device, security agreement or
other encumbrance. Such replacement to personal property will be deemed subject
to the security interest created by this Security Instrument. Mortgagor shall
not partition or subdivide the Property without Lender's prior written consent.

        Lender or Lender's agents may, at Lender's option, enter the
Property at any reasonable time for the purpose of inspecting the Property.
Lender shall give Mortgagor notice at the time of or before an inspection
specifying a reasonable purpose for the inspection. Any inspection of the
Property shall be entirely for Lender's benefit and Mortgagor will in no way
rely on Lender's inspection.

        13. AUTHORITY TO PERFORM. If Mortgagor fails to perform any duty or any
of the covenants contained in this Security Instrument, Lender may,
without notice, or obligation to do so, perform or cause them to be performed.
Mortgagor appoints Lender as attorney-in-fact to sign Mortgagor's name or pay
any amount necessary for performance. Lender's right to perform for Mortgagor
shall not create an obligation to perform, and Lender's failure to perform will
not preclude Lender from exercising any of Lender's other rights under the law
or this Security Instrument. If any construction on the Property is discontinued
or not carried on in a reasonable manner, Lender may take all steps necessary to
protect Lender's security interest in the Property, including completion of the
construction.

        14. ASSIGNMENT OF LEASES AND RENTS. Mortgagor grants, bargains, conveys
and warrants to Lender, as additional security, all right, title and interest
in and to any and all:

             A.  Existing or future leases, subleases, licenses, guaranties
                 and any  other written or verbal agreements for the use and
                 occupancy of any portion of the

                                       4
<PAGE>   5

                 Property, including any extensions, renewals, modifications or
                 substitutions of  such agreements (all referred to as
                 "Leases").

             B.  Rents, issues and profits (all referred to as "Rents"),
                 including, but not limited to, security deposits, minimum
                 rent, percentage rent, additional rent, common area
                 maintenance charges, parking charges, real estate taxes,
                 ther applicable taxes, insurance premium contributions,
                 liquidated damages following default, cancellation premiums,
                 "loss of rents" insurance, guest receipts, revenues,
                 royalties, proceeds, bonuses, accounts, contract rights,
                 general intangibles, and all rights and claims which
                 Mortgagor may have that in any way pertain to or are on
                 account of the use or occupancy of the whole or any part of
                 the Property.

        In the event any item listed as Leases or Rents is determined to be
personal property, this Security Instrument will also be regarded as a security
agreement.

        Mortgagor will promptly provide Lender with true and correct copies
of all existing and future Leases.

        Mortgagor may collect, receive, enjoy and use the Rents so long as
Mortgagor is not in default.

        Mortgagor will not collect any Rents due in future lease periods,
unless Mortgagor first obtains Lender's written consent. Upon default, Mortgagor
will receive any Rents in trust for Lender and Mortgagor will not commingle the
Rents with any other funds. Any amounts collected shall be applied at Lender's
discretion to payments on the Secured Debt as therein provided, to costs of
managing the Property, including, but not limited to, all taxes, assessments,
insurance premiums, repairs, and commissions to rental agents, and to any other
necessary related expenses including Lender's attorneys' fees and costs.

        Mortgagor acknowledges that this assignment is immediately effective
between the parties to this assignment and effective as to third parties on the
recording of this Security Instrument. Mortgagor agrees that Lender is entitled
to notify Mortgagor or Mortgagor's tenants to make payments of Rents due or to
become due directly to Lender after such recording, however Lender agrees not to
notify Mortgagor's tenants until Mortgagor defaults and Lender notifies
Mortgagor of the default and demands that Mortgagor and Mortgagor's tenants pay
all Rents due or to become due directly to Lender. Immediately after Lender
gives Mortgagor the notice of default, Mortgagor agrees that either Lender or
Mortgagor may immediately notify the tenants and demand that all future Rents be
paid directly to Lender. On receiving the notice of default, Mortgagor will
endorse and deliver to Lender any payments of Rents. If Mortgagor becomes
subject to a voluntary or involuntary bankruptcy, then Mortgagor agrees that
Lender is entitled to receive relief from the automatic stay in bankruptcy for
the purpose of making this assignment effective and enforceable under state and
federal law and within Mortgagor's bankruptcy proceedings.

        Mortgagor warrants that no default exists under the Leases or any
applicable law. Mortgagor also agrees to maintain, and to require the tenants to
comply with, the Leases and any applicable law. Mortgagor will promptly notify
Lender of any noncompliance. If Mortgagor neglects or refuses to enforce
compliance with the terms of the Leases, then Lender may, at Lender's option,
enforce compliance. Mortgagor will obtain Lender's written authorization before
Mortgagor consents to

                                       5
<PAGE>   6

sublet, modify, cancel, or otherwise alter the Leases, to accept the
surrender of the Property covered by such Leases (unless the Leases so require),
or to assign, compromise or encumber the Leases or any future Rents. If Lender
acts to manage, protect and preserve the Property, Lender does not assume or
become liable for its maintenance, depreciation, or other losses or damages,
except those due to Lender's gross negligence or intentional torts. Otherwise,
Mortgagor will hold Lender harmless and indemnify Lender for any and all
liability, loss or damage that Lender may incur as a consequence of the
assignment under this section.

        15. LEASEHOLDS; CONDOMINIUMS; PLANNED UNIT DEVELOPMENTS. Mortgagor
agrees to comply with the provisions of any lease if this Security Instrument
is on a leasehold. If the Property includes a unit in a condominium or a
planned unit development, Mortgagor will perform all of Mortgagor's duties
under the covenants, by-laws, or regulations of the condominium or planned unit
development.

        16. DEFAULT.  Mortgagor will be in default if any of the following
                     shall occur:

            A. Any party obligated on the Secured Debt fails to make payment
               when due;

            B. A breach of any term or covenant in this Security Instrument or
               any other document executed for the purpose of creating,
               securing or  guarantying the Secured Debt;

            C. The making or furnishing of any verbal or written
               representation, statement or warranty to Lender that is false or
               incorrect in any material respect by Mortgagor or any person or
               entity obligated on the Secured Debt;

            D. The death, dissolution, or insolvency of, appointment of a
               receiver for, or application of any debtor relief law to,
               Mortgagor or any other person or entity obligated on the Secured
               Debt;

            E. Any loan proceeds are used for a purpose that will contribute to
               excessive erosion of highly erodible land or to the conversion
               of wetlands to produce an agricultural commodity, as further
               explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.

        17. REMEDIES ON DEFAULT. In some instances, federal and state law will
require Lender to provide Mortgagor with notice of the right to cure or
other notices and may establish time schedules for foreclosure actions. Subject
to these limitations, if any, Lender may accelerate the Secured Debt and
foreclose this Security Instrument in a manner provided by law if Mortgagor is
in default.

        At the option of Lender, all or any part of the agreed fees and
charges, accrued interest and principal shall become immediately due and
payable after giving notice if required by law upon the occurrence of a default
or anytime thereafter. In addition, Lender shall be entitled to all of the
remedies provided by law, the terms of the Secured Debt, this Security
Instrument and any related documents. All remedies are distinct, cumulative and
not exclusive, and Lender is entitled to all remedies provided at law or in
equity whether or not expressly set forth. The acceptance by Lender of any sum
in payment or partial payment on the Secured Debt after the balance is due or is
accelerated or after foreclosure proceedings are filed shall not constitute a
waiver of Lender's right to

                                       6
<PAGE>   7

require complete cure of any existing default. By not exercising any
remedy on Mortgagor's default, Lender does not waive Lender's right to consider
the event a default at a later time.

        18. EXPENSES; ADVANCES ON COVENANTS; ATTORNEYS' FEES; COLLECTION COSTS.
Except when prohibited by law, Mortgagor agrees to pay all of Lender's
expenses if Mortgagor breaches any covenant in this Security Instrument.
Mortgagor will also pay on demand any amount incurred by Lender for insuring,
inspecting, preserving or otherwise protecting the Property and Lender's
security interest. These expenses will bear interest from the date of the
payment until paid in full at the highest interest rate in effect as provided in
the terms of the Secured Debt. Mortgagor agrees to pay all costs and expenses
incurred by Lender in collecting, enforcing or protecting Lender's rights and
remedies under this Security Instrument. This amount may include, but is not
limited to, attorneys' fees, court costs, and other legal expenses. This
Security Instrument shall remain in effect until released. Mortgagor agrees to
pay for any recordation costs of such release.

        19. ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES. As used in this
section, (1) Environmental Law means, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA, 42 U.S.C. 9601
et seq.), all other federal, state and local laws, regulations, ordinances,
court orders, attorney general opinions or interpretive letters concerning the
public health, safety, welfare, environment or a hazardous substance; and (2)
Hazardous Substance means any toxic, radioactive or hazardous material, waste,
pollutant or contaminant which has characteristics which render the substance
dangerous or potentially dangerous to the public health, safety, welfare or
environment. The term includes, without limitation, any substances defined as
"hazardous material," "toxic substances," "hazardous waste," "hazardous
substance," or "regulated substance" under any Environmental Law.

Mortgagor represents, warrants and agrees that:

            A.   Except as previously disclosed and acknowledged in writing to
                 Lender, no Hazardous Substance has been, is, or will be
                 located, transported, manufactured, treated, refined, or
                 handled by any person on, under or about the Property, except
                 in the ordinary course of business and in strict compliance
                 with all applicable Environmental Law.

            B.   Except as previously disclosed and acknowledged in writing to
                 Lender, Mortgagor has not and will not cause, contribute to,
                 or permit the release of any Hazardous Substance on the
                 Property.

            C.   Mortgagor will immediately notify Lender if (1) a release or
                 threatened release of Hazardous Substance occurs on, under or
                 about the Property or migrates or threatens to migrate from
                 nearby property; or (2) there is a violation of any
                 Environmental Law concerning the Property. In such an event,
                 Mortgagor will take all necessary remedial action in
                 accordance  with Environmental Law.

            D.   Except as previously disclosed and acknowledged in writing to
                 Lender, Mortgagor has no knowledge of, or reason to believe
                 there is, any pending or threatened investigation, claim, or
                 proceeding of any kind relating to (1) any Hazardous
                 Substance located on, under or about the Property;  or (2)
                 any

                                       7
<PAGE>   8

               violation by Mortgagor or any tenant of any Environmental
               Law. Mortgagor will immediately notify Lender in writing as
               soon as Mortgagor has reason to believe there is any such
               pending or threatened investigation, claim, or proceeding. In
               such an event, Lender has the right, but not the obligation,
               to participate in any such proceeding, including the right
               to receive copies of any documents relating to such
               proceedings.

            E. Except as previously disclosed and acknowledged in writing to
               Lender, Mortgagor and every tenant have been, are and shall
               remain in full compliance with any applicable Environmental
               Law.

            F. Except as previously disclosed and acknowledged in writing to
               Lender, there are no underground storage tanks, private dumps
               or open wells located on or under the Property and no such
               tank, dump or well will be added unless Lender first consents
               in writing.

            G. Mortgagor will regularly inspect the Property, monitor the
               activities and operations  on the Property, and confirm that all
               permits, licenses or approvals required by any applicable
               Environmental Law are obtained and complied with.

            H. Mortgagor will permit, or  cause any tenant to permit, Lender or
               Lender's agent to enter and inspect the Property and review all
               records at any reasonable time to determine (1) the
               existence, location and nature of any Hazardous Substance on,
               under or about the Property; (2) the existence, location, nature,
               and magnitude of any Hazardous Substance that has been released
               on, under or about the Property; or (3) whether or not Mortgagor
               and any tenant are in compliance with applicable Environmental
               Law.

            I. Upon Lender's request and at any time, Mortgagor agrees,
               at Mortgagor's expense, to engage a qualified environmental
               engineer to prepare an environmental audit of the Property and
               to submit the results of such audit to Lender. The choice
               of the environmental engineer who will perform such audit is
               subject to Lender's approval.

            J. Lender has the right, but not the obligation, to perform any of
               Mortgagor's obligations under this section at Mortgagor's
               expense.

            K. As a consequence of any breach of any representation,
               warranty or promise made in this section, (1) Mortgagor
               will indemnify and hold Lender and Lender's successors or assigns
               harmless from and against all losses, claims, demands,
               liabilities, damages, cleanup, response and remediation, costs,
               penalties and expenses, including without limitation all costs of
               litigation and attorneys' fees, which Lender and Lender's
               successors or assigns may sustain; (2) at Lender's discretion,
               Lender may release this Security Instrument and in return
               Mortgagor will provide Lender with collateral of at least equal
               value to the Property secured by this Security Instrument without
               prejudice to any of Lender's rights under this Security
               Instrument; and/or (3) at Lender's option, Lender may elect not
               to foreclose this Security Instrument, but instead,

                                       8
<PAGE>   9

              Lender may bring an independent action or lawsuit to
              enforce the indemnification provisions regarding Hazardous
              Substances against Mortgagor. If Lender elects to seek the
              remedies provided for in item (3) above, Lender shall be entitled
              to all legal and equitable remedies, including, without
              limitation, those relating to damages for breach of contract, and
              Mortgagor acknowledges that, notwithstanding any other provision
              of this Security Instrument to the contrary, the obligation of
              Mortgagor under this Security Instrument are unlimited personal
              obligations of Mortgagor. No action for the enforcement of or
              recovery of damages under this Security Instrument shall
              constitute a deficiency judgment within the meaning of any
              anti-deficiency or one-action laws. Mortgagor acknowledges that
              Lender is unwilling to accept any consequences resulting from any
              violation of Environmental Law and that Lender would not make the
              loan but for the personal unsecured liability undertaken by
              Mortgagor as provided herein. The rights of Lender herein shall be
              cumulative and in addition to any other rights and remedies of
              Lender under any other document or instrument or at law or in
              equity.

           L. Notwithstanding any of the language contained in this
              Security Instrument to the contrary, the terms of this section
              shall survive any foreclosure or satisfaction of this Security
              Instrument regardless of any passage of title to Lender or any
              disposition by Lender of any or all of the Property. Any claims
              and defenses to the contrary are hereby waived.

        20. CONDEMNATION. Mortgagor will give Lender prompt notice of any
            pending or threatened action, by private or public entities to
            purchase or take any or all of the Property through condemnation,
            eminent domain, or any other means. Mortgagor authorizes Lender to
            intervene in Mortgagor's name in any of the above described actions
            or claims. Mortgagor assigns to Lender the proceeds of any award or
            claim for damages connected with a condemnation or other taking of
            all or any part of the Property. Such proceeds shall be considered
            payments and will be applied as provided in this Security
            Instrument. This assignment of proceeds is subject to the terms of
            any prior mortgage, deed of trust, security agreement or other lien
            document.

        21. INSURANCE.  Mortgagor agrees to maintain insurance as follows:

            A. Mortgagor shall keep the Property insured against loss
               by fire, flood, theft and other hazards and risks reasonably
               associated with the Property due to its type and location. This
               insurance shall be maintained in the amounts and for the periods
               that Lender requires. The insurance carrier providing the
               insurance shall be chosen by Mortgagor subject to Lender's
               approval, which shall not be unreasonably withheld. If Mortgagor
               fails to maintain the coverage described above, Lender may, at
               Lender's option, obtain coverage to protect Lender's rights in
               the Property according to the terms of this Security Instrument.

              All insurance policies and renewals shall be acceptable to
              Lender and shall include a standard "mortgage clause" and, where
              applicable, "loss payee clause." Mortgagor shall immediately
              notify Lender of cancellation or termination of the insurance.
              Lender shall have the right to hold the policies

                                       9
<PAGE>   10

              and renewals. If Lender requires, Mortgagor shall
              immediately give to Lender all receipts of paid premiums and
              renewal notices. Upon loss, Mortgagor shall give immediate notice
              to the insurance carrier and Lender. Lender may make proof of loss
              not made immediately by Mortgagor.

              Unless otherwise agreed in writing, all insurance proceeds
              shall be applied to restoration or repair of the Property or to
              the Secured Debt, whether or not then due, at Lender's option. Any
              application of proceeds to principal shall not extend or postpone
              the due date of scheduled payment nor change the amount of any
              payment. Any excess will be paid to the Mortgagor. If the property
              is acquired by Lender, Mortgagor's right to any insurance policies
              and proceeds resulting from damage to the Property before the
              acquisition shall pass to Lender to the extent of the Secured Debt
              immediately before the acquisition.

        B.    Mortgagor agrees to maintain comprehensive general liability
              insurance naming Lender as an additional insured in an
              amount acceptable to Lender, insuring against claims arising from
              any accident or occurrence in or on the Property.

        C.    Mortgagor agrees to maintain rental loss or business interruption
              insurance, as required by Lender, in an amount equal to at
              least coverage of one year's debt service, and required escrow
              account deposits (if agreed to separately in writing), under a
              form of policy acceptable to Lender.

        22. ESCROW FOR TAXES AND INSURANCE. Unless otherwise provided in a
separate agreement, Mortgagor will not be required to pay to Lender funds for
taxes and insurance in escrow.

        23. FINANCIAL REPORTS AND ADDITIONAL DOCUMENTS. Mortgagor will provide
to Lender upon request, any financial statement or information Lender may deem
reasonably necessary. Mortgagor agrees to sign, deliver, and file any additional
documents or certifications that Lender may consider necessary to perfect,
continue, and preserve Mortgagor's obligations under this Security Instrument
and Lender's lien status on the Property.

        24. JOINT AND INDIVIDUAL LIABILITY; CO-SIGNERS; SUCCESSORS AND ASSIGNS
BOUND. All duties under this Security Instrument are joint and
individual. If Mortgagor signs this Security Instrument but does not sign an
evidence of debt, Mortgagor does so only to mortgage Mortgagor's interest in the
Property to secure payment of the Secured Debt and Mortgagor does not agree to
be personally liable on the Secured Debt. If this Security Instrument secures a
guaranty between Lender and Mortgagor, Mortgagor agrees to waive any rights that
may prevent Lender from bringing any action or claim against Mortgagor or any
party indebted under the obligation. These rights may include, but are not
limited to, any anti-deficiency or one-action laws. Mortgagor agrees that Lender
and any party to this Security Instrument may extend, modify or make any change
in the terms of this Security Instrument or any evidence of debt without
Mortgagor's consent. Such a change will not release Mortgagor from the terms of
this Security Instrument. The duties and benefit of this Security Instrument
shall bind and benefit the successors and assigns of Mortgagor and Lender.

                                       10
<PAGE>   11

        25. APPLICABLE LAW, SEVERABILITY, INTERPRETATION. This Security
Instrument is governed by the laws of the jurisdiction in which Lender
is located, except to the extent otherwise required by the laws of the
jurisdiction where the Property is located. This Security Instrument is complete
and fully integrated. This Security Instrument may not be amended or modified by
oral agreement. Any section in this Security Instrument, attachments, or any
agreement related to the Secured Debt that conflicts with applicable law will
not be effective, unless that law expressly or impliedly permits the variations
by written agreement. If any section of this Security Instrument cannot be
enforced according to its terms, that section will be severed and will not
affect the enforceability of the remainder of this Security Instrument. Whenever
used, the singular shall include the plural and the plural the singular. The
captions and headings of the sections of this Security Instrument are for
convenience only and are not to be used to interpret or define the terms of this
Security Instrument. Time is of the essence in this Security Instrument.

        26. NOTICE. Unless otherwise required by law, any notice shall be given
by delivering it or by mailing it by first class mail to the appropriate
party's address on page 1 of this Security Instrument, or to any other address
designated in writing. Notice to one mortgagor will be deemed to be notice to
all mortgagors.

        27. WAIVERS. Except to the extent prohibited by law, Mortgagor
waives and releases any and all rights and remedies that Mortgagor may now have
or acquire in the future relating to redemption, reinstatement, and the
marshalling of liens and assets. Mortgagor waives all rights of valuation and
appraisement.

        28. U.C.C. PROVISIONS. If checked, the following are applicable
to, but do not limit, this Security Instrument:

            [ ]         CONSTRUCTION LOAN.  This Security Instrument secures an
                        obligation incurred for the construction of an
                        improvement on the Property.

            [X]         FIXTURE FILING. Mortgagor grants to Lender a security
                        interest in all goods that Mortgagor owns now or in the
                        future and that are or will become fixtures related to
                        the Property.

            [ ]         CROPS; TIMBER, MINERALS; RENTS, ISSUES, AND PROFITS.
                        Mortgagor grants to Lender a security interest in all
                        crops, timber and minerals located on the Property as
                        well as all rents, issues, and profits of them
                        including, but not limited to, all Conservation Reserve
                        Program (CRP) and Payment in Kind (PIK) payments and
                        similar governmental programs (all of which shall also
                        be included in the term "Property"). Lender may file a
                        financing statement signed by Lender instead of
                        Mortgagor with appropriate public officials.

            [X]         PERSONAL PROPERTY. Mortgagor grants to Lender a security
                        interest in all personal property located on or
                        connected with the Property, including all farm
                        products, inventory, equipment, accounts, documents,
                        instruments, chattel paper, general intangibles, and all
                        other items of personal property that Mortgagor owns now
                        or in the future and that are used or useful in the
                        construction, ownership, operation, management, or
                        maintenance of the Property (all of which shall also be
                        included in the term "Property"). The term "personal
                        property" specifically excludes that property described
                        as "household goods" secured in connection with a
                        "consumer"

                                       11
<PAGE>   12

                        loan as those terms are defined in applicable
                        federal regulations governing unfair and deceptive
                        credit practices. Lender may file a financing statement
                        signed by Lender instead of Mortgagor with appropriate
                        public officials.

            [X]         FILING AS FINANCING STATEMENT. Mortgagor agrees and
                        acknowledges that this Security Instrument also suffices
                        as a financing statement and any carbon, photographic or
                        other reproduction may be filed of record for purposes
                        of Article 9 of the Uniform Commercial Code.

                        29. OTHER TERMS.  If checked, the following are
applicable to this Security Instrument:

            [ ]         LINE OF CREDIT. Secured Debt includes a revolving line
                        of credit provision. Although the Secured Debt may be
                        reduced to a zero balance, this Security Instrument will
                        remain in effect until released.

            [ ]         ADDITIONAL TERMS.

            SIGNATURES: By signing below, Mortgagor agrees to the terms and
covenants contained in this Security Instrument and in any attachments.
Mortgagor also acknowledges receipt of a copy of this Security Instrument on the
date stated on page 1.

Entity Name:  Houba, Inc.                 Entity Name:_________________________

By: /s/ Michael Reicher         3/29/00    ____________________________________
_______________________________________

Its:  Chief Executive Officer

(Signature)                     (Date)   (Signature)                      (Date)
_________________________
_________________________
(Signature)                     (Date)   (Signature)                      (Date)

ACKNOWLEDGMENT:

STATE OF ________________________, COUNTY OF ____________________ ) ss.
(Individual) Before me, __________________________, a Notary Public this ______
day of ___________________, ___________________________ acknowledged the
execution of the annexed mortgage.

My commission expires:

            (Seal)            (Notary Public)__________________________________

                              (Notary's County)________________________________

STATE OF ________________________, COUNTY OF ____________________ ) ss.
Before me, _________________________, a Notary Public this ___ day of _______
_________________________________________________________(Titles)
of ____________________________________________________(Name of Business Entity)
a ________________________________ acknowledged the execution of the annexed
mortgage of the business or entity.

My commission expires:

                                       12
<PAGE>   13

            (Seal)            (Notary Public)__________________________________

                             (Notary's County)_________________________________

This instrument was prepared by _____________________________

_______________________________________________________

                                       13
<PAGE>   14

LEGAL DESCRIPTION

                                    EXHIBIT A

A part of the Northwest Quarter of Section 9, Township 32 North, Range 1 East,
Union Township, Marshall County, Indiana, described as follows:

PARCEL "A"

       Commencing at the Northeast corner of said Northwest Quarters thence
       South 0 degrees00'06" West along the East line of said Northwest
       Quarter a distance of 691.20 feet (691.30 feet record) to the point of
       beginning; thence South 89 degrees08'35" West a distance of 1313.44 feet
       to the West line of the East half of said Northwest Quarter Chance South
       1 degrees09'25" East along said West line a distance of 1011.80 feet
       thence South 89 degrees39'37" East a distance of 334.41 feet thence North
       0 degrees00'00" East a distance of 307.73 feet thence North 90 degrees
       00'00" East a distance of 428.47 feet thence North 0 degrees00'00" East a
       distance of 110.00 feet thence North 90 degrees 00'00" East a distance of
       80.00 feet; thence North 0 degrees 00'00" East a distance 55.00 feet;
       thence North 90 degrees 00'00" East a distance of 50.00 feet thence North
       0 degrees 00'00" East a distance of 10.00 feet; thence North 90 degrees
       00'00" East a distance 208.00 feet to the East line of said Northwest
       Quarter; thence North 0 degrees00'00" East along said North line a
       distance of 531.88 feet to the point of beginning containing 24.077 acres
       more or less.

       Subject to legal highways and segments of record.

The address of such real estate is commonly known as 16235 State Road 17,
Culver, Indiana 46511.

PARCEL "B"

A part of the Northwest Quarter (NW 1/4) of Section 9, Township 32 North, Range
I East, Union Township, Marshall County, Indiana, described as follows:

       Commencing at the Northeast corner of said Northwest Quarter (NW
       1/4); thence South 0 degrees00'00" West along the East line of said
       Northwest Quarter (NW 1/4) a distance of 1382.37 feet to the point of
       beginning; thence South 89 degrees52'41" West a distance of 200.00 feet;
       thence South 0 degrees00'00" West a distance of 346.00 feet; thence North
       89 degrees39'37" West a distance of 558.48 feet; thence North 0
       degrees00'00" East a distance of 307.73 feet; thence North 90
       degrees00'00" East a distance of 428.47 feet; thence North 0
       degrees00'00" East a distance of 110.00 feet; thence North 90
       degrees00'00" East a distance of 80.00 feet; thence North 0 degrees00'00"
       East a distance of 55.00 feet; thence North 90 degrees00'00" East a
       distance of 50.00 feet; thence North 0 degrees00'00" East a distance of
       10.00 feet; thence North 90 degrees00'00" East a distance of 200.00 feet
       to said East line; thence South 0 degrees00'00" West along said East line
       a distance of 139.62 feet to the point of beginning, containing 5.00
       acres, more or less.

The address of such real estate is commonly known as 16235 State Road 17,
Culver, Indiana 46511.

<PAGE>   15
                                    EXHIBIT B

            Loan Agreement dated March 29, 2000, by and between Lender and
Mortgagor pursuant to which Lender agreed to lend, and Mortgagor agreed to
borrow, the principal amount of Seventeen Million Five Hundred Thousand Dollars
($17,500,000.00).

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00007-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00007-of-00352.parquet"}]]