<PAGE>

                                                                    Exhibit 10.1

================================================================================

                               WARRANT AGREEMENT

                                by and between

                      ENDO PHARMACEUTICALS HOLDINGS INC.

                                      and

                   UNITED STATES TRUST COMPANY OF NEW YORK,

                                      as

                                 Warrant Agent

                            ______________________

                           Dated as of July 17, 2000

================================================================================
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                       Page
                                                                                       ----
<S>                                                                                    <C>
Section 1.   Appointment of Warrant Agent..........................................      1
Section 2.   Warrant Certificates..................................................      1
Section 3.   Execution of Warrant Certificates.....................................      2
Section 4.   Registration and Countersignature.....................................      2
Section 5.   Transfer and Exchange of Warrants.....................................      3
Section 6.   Registration of Transfers and Exchanges...............................      4
Section 7.   Terms of Warrants; Exercise of Warrants...............................      7
Section 8.   Payment of Taxes......................................................     10
Section 9.   Mutilated or Missing Warrant Certificates.............................     10
Section 10.  Reservation of Warrant Shares.........................................     11
Section 11.  Obtaining Stock Exchange Listings.....................................     11
Section 12.  Adjustment of Exercise Price and Number of Warrant Shares Issuable....     11
Section 13.  Fractional Interests..................................................     19
Section 14.  Notices to Warrant Holders; Reservation of Dividends..................     19
Section 15.  Notices to the Company and Warrant Agent..............................     21
Section 16.  Supplements and Amendments............................................     22
Section 17.  Concerning the Warrant Agent..........................................     21
Section 18.  Change of Warrant Agent...............................................     25
Section 19.  Successors............................................................     26
Section 20.  Termination...........................................................     26
Section 21.  GOVERNING LAW.........................................................     26
Section 22.  Benefits of This Agreement............................................     26
Section 23.  Counterparts..........................................................     27
Section 24.  Headings..............................................................     27

Exhibit A.   Form of Warrant Certificate...........................................    A-1
Exhibit B.   Certificate to be Delivered Upon Transfer.............................    B-1
</TABLE>

                                       i
<PAGE>

                            INDEX OF DEFINED TERMS
                            ----------------------

<TABLE>
<S>                                                              <C>
Agreement......................................................   1
Algos..........................................................   1
Business Day...................................................   8
Cashless Exercise..............................................   9
closing bid price..............................................  15
Common Stock...................................................   1
Company........................................................   1
Current Market Value...........................................  14
Definitive Warrants............................................   2
Exchange Act...................................................  14
Exercisability Date............................................   8
Exercise Price.................................................   8
Exercise Rate..................................................  11
Expiration Date................................................   7
FDA............................................................   8
Fully Diluted Shares...........................................  13
Global Warrants................................................   1
Holders........................................................   3
Independent Financial Expert...................................  15
Legal Holiday..................................................   8
Merger Agreement...............................................   1
Ordinary Cash Distribution.....................................  15
Reorganizations................................................  17
Sub............................................................   1
Time of Determination..........................................  12
Transfer Agent.................................................  10
Warrant Agent..................................................   1
Warrant Certificates...........................................   1
Warrant Register...............................................   2
Warrant Shares.................................................   1
Warrants.......................................................   1
</TABLE>

                                      ii
<PAGE>

          WARRANT AGREEMENT (the "Agreement"), dated as of July 17, 2000, by and
                                  ---------
between Endo Pharmaceuticals Holdings Inc., a Delaware corporation (together
with any successors and assigns, the "Company"), and United States Trust Company
                                      -------
of New York, as Warrant Agent (the "Warrant Agent").
                                    -------------

          WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated
as of November 26, 1999 (as may be amended and restated from time to time, the

"Merger Agreement"), by and among the Company, Endo Inc., a Delaware corporation
 ----------------
and wholly owned subsidiary of the Company ("Sub"), and Algos Pharmaceutical
                                             ---
Corporation, a Delaware corporation ("Algos"), the Company proposes to issue
                                      -----
warrants (each a "Warrant," and collectively, the "Warrants") for the purchase
                                                   --------
of an aggregate of 29,720,177 shares of common stock, par value $.01 per share,
of the Company (the "Common Stock," and the shares of Common Stock issuable upon
                     ------------
exercise of the Warrants being referred to herein as the "Warrant Shares");
                                                          --------------

          WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company and the Warrant Agent is willing to act in connection with the issuance,
transfer, exchange and exercise of Warrants as provided herein; and

          NOW, THEREFORE, in consideration of the premises and mutual agreements
herein, the Company and the Warrant Agent hereby agree as follows:

          Section 1.  Appointment of Warrant Agent. The Company hereby appoints
                      ----------------------------
the Warrant Agent to act as agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.

          Section 2.  Warrant Certificates. The Warrants will initially be
                      --------------------
issued in global form (the "Global Warrants"), substantially in the form of
                            ---------------
Exhibit A hereto. Any certificates evidencing the Global Warrants to be
delivered pursuant to this Agreement (the "Warrant Certificates") shall be
                                           --------------------
substantially in the form set forth in Exhibit A hereto. Such Global Warrants
shall represent such of the outstanding Warrants as shall be specified therein
and each shall provide that it shall represent the aggregate amount of
outstanding Warrants from time to time endorsed thereon and that the aggregate
amount of outstanding Warrants represented thereby may from time to time be
reduced or increased, as appropriate. Any endorsement of Global Warrant to
reflect the amount of any increase or decrease in the amount of outstanding
Warrants represented thereby shall be made by the Warrant Agent and
<PAGE>

the Depositary (as defined below) in accordance with instructions given by the
holder thereof. The Depository Trust Company shall act as the Depositary with
respect to the Global Warrants until a successor shall be appointed by the
Company. Upon written request, a Warrant holder who holds Warrants may receive
from the Depositary and Warrant Agent Warrants in registered form as definitive
Warrant Certificates (the "Definitive Warrants") as set forth in Section 6
                           -------------------
below.

          Section 3.  Execution of Warrant Certificates. Warrant Certificates
                      ---------------------------------
shall be signed on behalf of the Company by its Chairman of the Board, its
President, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer or Treasurer or a Vice President and by its Secretary or an Assistant
Secretary. Each such signature upon the Warrant Certificates may be in the form
of a facsimile signature of the present or any future Chairman of the Board,
President, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer, Treasurer, Vice President, Secretary or Assistant Secretary and may be
imprinted or otherwise reproduced on the Warrant Certificates and for that
purpose the Company may adopt and use the facsimile signature of any person who
shall have been Chairman of the Board, President, Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer, Treasurer, a Vice President,
Secretary or an Assistant Secretary, notwithstanding the fact that at the time
the Warrant Certificates shall be countersigned and delivered or disposed of
such person shall have ceased to hold such office. In case any officer of the
Company who shall have signed any of the Warrant Certificates shall cease to be
such officer before the Warrant Certificates so signed shall have been
countersigned by the Warrant Agent, or disposed of by the Company, such Warrant
Certificates nevertheless may be countersigned and delivered or disposed of as
though such person had not ceased to be such officer of the Company; and any
Warrant Certificate may be signed on behalf of the Company by any person who, at
the actual date of the execution of such Warrant Certificate, shall be a proper
officer of the Company to sign such Warrant Certificate, although at the date of
the execution of this Warrant Agreement any such person was not such
officer.Warrant Certificates shall be dated the date of countersignature by the
Warrant Agent.

          Section 4.  Registration and Countersignature. The Warrants shall be
                      ---------------------------------
numbered and shall be registered on the books of the Company maintained at the
principal office of the Warrant Agent in located at 114 West 47th Street,
25th Floor, New York, New York 10036, Attention: Corporate Trust Division (the
"Warrant Register") as they are issued.
 ----------------

                                       2
<PAGE>

          Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned.The Warrant
Agent shall, upon written instructions of the Chairman of the Board,the
President, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer, Treasurer, a Vice President, the Secretary or an Assistant Secretary of
the Company, initially countersign and deliver Warrants entitling the holders
thereof to purchase not more than the number of Warrant Shares referred to above
in the first recital hereof and shall thereafter countersign and deliver
Warrants as otherwise provided in this Agreement. The Company and the Warrant
Agent may deem and treat the registered holders (the "Holders") of the Warrant
                                                      -------
Certificates as the absolute  owners thereof (notwithstanding any notation of
ownership or other writing thereon made by anyone) for all purposes, and neither
the Company nor the Warrant Agent shall be affected by any notice to the
contrary.

          Section 5.  Transfer and Exchange of Warrants. The Warrant Agent
                      ---------------------------------
shall from time to time, subject to the limitations of Section 6 hereof,
register the transfer of any outstanding Warrants upon the records to be
maintained by it for that purpose, upon surrender thereof duly endorsed or
accompanied (if so required by it) by a written instrument or instruments of
transfer in form satisfactory to the Warrant Agent, duly executed by the
registered Holder or Holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney. Subject to the terms of
this Agreement, each Warrant Certificate may be exchanged for another
certificate or certificates entitling the Holder thereof to purchase a like
aggregate number of Warrant Shares as the certificate or certificates
surrendered then entitle each Holder to purchase. Any Holder desiring to
exchange a Warrant Certificate or Certificates shall make such request in
writing delivered to the Warrant Agent, and shall surrender, duly endorsed or
accompanied (if so required by the Warrant Agent) by a written instrument or
instruments of transfer in form satisfactory to the Warrant Agent, the Warrant
Certificate or Certificates to be so exchanged.

          Upon registration of transfer, the Warrant Agent shall countersign and
deliver by certified or first class mail a new Warrant Certificate or
Certificates to the persons entitled thereto. The Warrant Certificates may be
exchanged at the option of the Holder thereof, when surrendered at the office or
agency of the Company maintained for such purpose, which initially will be the
corporate trust office of the Warrant Agent located at 30 Broad Street, 14th
Floor, New York, New York 10004-2304, Attention: Corporate Trust Services, for
another Warrant Certificate, or other Warrant Certificates of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares.

                                       3
<PAGE>

          No service charge shall be made for any exchange or registration of
transfer of Warrant Certificates, but the Company may require payment of a sum
sufficient to cover any stamp or other tax or other governmental charge that is
imposed in connection with any such exchange or registration of transfer.

          Section 6.  Registration of Transfers and Exchanges.
                      ---------------------------------------

                (a)   Transfer and Exchange of Definitive Warrants. When
Definitive Warrants are presented to the Warrant Agent with a request:

                      (i)  to register the transfer of the Definitive Warrants;
          or

                      (ii) to exchange such Definitive Warrants for an equal
          number of Definitive Warrants of other authorized denominations, the
          Warrant Agent shall register the transfer or make the exchange as
          requested if its requirements under this Agreement are met; provided,
          however, that the Definitive Warrants presented or surrendered for
          registration of transfer or exchange shall be duly endorsed or
          accompanied by a written instruction of transfer in form satisfactory
          to the Warrant Agent, duly executed by the Holder thereof or by such
          Holder's attorney, duly authorized in writing.

                (b)   Restrictions on Transfer of a Definitive Warrant for a
                      ------------------------------------------------------
Beneficial Interest in a Global Warrant. The Warrant Agent may exchange a
---------------------------------------
Definitive Warrant for a beneficial interest in a Global Warrant only if the
Warrant Agent has received such Definitive Warrant, duly endorsed or accompanied
by appropriate instruments of transfer, in form satisfactory to the Warrant
Agent, together with written instructions directing the Warrant Agent to make,
or to direct the Depositary to make, an endorsement on the Global Warrant to
reflect an increase in the aggregate amount of the Warrants represented by the
Global Warrant. If such conditions have been satisfied, the Warrant Agent shall
cancel such Definitive Warrant and cause, or direct the Depositary to cause, in
accordance with the standing instructions and procedures existing between the
Depositary and the Warrant Agent, the number of Warrant Shares represented by
the Global Warrant to be increased accordingly. If no Global Warrant is then
outstanding, the Company shall issue and the Warrant Agent shall countersign a
new Global Warrant in the appropriate amount.

                                       4
<PAGE>

               (c)  Transfer and Exchange of Global Warrants. The transfer and
                    ----------------------------------------
exchange of Global Warrants or beneficial interests therein shall be effected
through the Depositary, in accordance with this Warrant Agreement (including the
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor.

               (d)  Transfer of a Beneficial Interest in a Global Warrant for a
                    -----------------------------------------------------------
Definitive Warrant.
------------------

                    (i)  Any person having a beneficial interest in a
     Global Warrant may upon his, her or its request exchange such
     beneficial interest for a Definitive Warrant. Upon receipt by the
     Warrant Agent of written instructions (or such other form of
     instructions as is customary for the Depositary) from the
     Depositary or its nominee on behalf of any person having a
     beneficial interest in a Global Warrant and upon receipt by the
     Warrant Agent of a written order or such other form of
     instructions as is customary for the Depositary or the person
     designated by the Depositary as having such a beneficial interest
     containing registration instructions, then the Warrant Agent will
     cause, in according dance with the standing instructions and
     procedures existing between the Depositary and the Warrant Agent,
     the aggregate amount of the Global Warrant to be reduced and,
     following such reduction, the Company will execute and, upon
     receipt of a countersignature, the Warrant Agent will countersign
     and deliver to the transferee a Definitive Warrant.

                    (ii) Definitive Warrants issued in exchange for a
     beneficial interest in a Global Warrant pursuant to this Section
     6(d) shall be registered in such names and in such authorized
     denominations as the Depositary, pursuant to instructions from its
     direct or indirect participants or otherwise, shall instruct the
     Warrant Agent in writing, provided such designation is in
     accordance with this Section 6(d). The Warrant Agent shall deliver
     such Definitive Warrants to the persons in whose names such
     Definitive Warrants are registered.

               (e)  Restrictions on Transfer and Exchange of Global Warrants.
                    --------------------------------------------------------
Notwithstanding any other provisions of this Warrant Agreement (other than the
provisions set forth in subsection (f) of this Section 6), a Global Warrant may
not be transferred as a whole except by the Depositary to a nominee of the

                                       5
<PAGE>

Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.

               (f)  Authentication of Definitive Warrants in Absence of
                    ---------------------------------------------------
Depositary. If at any time:
----------

                    (i)  the Depositary for the Global Warrants
          notifies the Company that the Depositary is unwilling or
          unable to continue as Depositary for the Global Warrant and a
          successor Depositary for the Global Warrant is not appointed
          by the Company within 90 days after delivery of such notice;
          or

                    (ii) the Company, at its sole discretion, notifies
          the Warrant Agent in writing that it elects to cause the
          issuance of Definitive Warrants under this Warrant Agreement,
          then the Company will execute, and the Warrant Agent, upon
          receipt of an officers' certificate, signed by the President,
          Chief Executive Officer, Chief Operating Officer, Chief
          Financial Officer or a Vice President of the Company,
          requesting the counter signature and delivery of Definitive
          Warrants, will countersign and deliver Definitive Warrants,
          in an aggregate number equal to the aggregate number of
          Warrants represented by the Global Warrant, in exchange for
          such Global Warrant.

               (g)  Cancellation and/or Adjustment of a Global Warrant. At
                    --------------------------------------------------
such time as all beneficial interests in a Global Warrant have either been
exchanged for Definitive Warrants, redeemed, repurchased or cancelled, such
Global Warrant shall be returned to or retained and cancelled by the Warrant
Agent. At any time prior to such cancellation, if any beneficial interest in a
Global Warrant is exchanged for Definitive Warrants, redeemed, repurchased or
cancelled, the number of Warrants represented by such Global Warrant shall be
reduced and an endorsement shall be made on such Global Warrant, by the Warrant
Agent to reflect such reduction.

                                  6
<PAGE>

                    (h)  Obligations with Respect to Transfers and Exchanges of
                         ------------------------------------------------------
Definitive Warrants.
-------------------

                         (1)  To permit registrations of transfers and
     exchanges in accordance with the terms of this Agreement, the
     Company shall execute, and the Warrant Agent shall countersign
     Definitive Warrants and Global Warrants.

                         (2)  All Definitive Warrants and Global
     Warrants issued upon any registration, transfer or exchange of
     Definitive Warrants or Global War rants shall be the valid
     obligations of the Company, entitled to the same benefits under
     this Warrant Agreement as the Definitive War rants or Global
     Warrants surrendered upon the registration of transfer or
     exchange.

                         (3)  Prior to due presentment for registration
     of transfer of any Warrant, the Warrant Agent and the Company may
     deem and treat the person in whose name any Warrant is registered
     as the absolute owner of such Warrant, and neither the Warrant
     Agent nor the Company shall be affected by notice to the contrary.

               Section 7.  Terms of Warrants; Exercise of Warrants. Subject to
                           ---------------------------------------
the terms of this Agreement, the Warrant Holders shall have the right, which may
be exercised commencing on or after the Exercisability Date (as defined below)
and until 5:00 p.m., New York City time, on July 7, 2003 (the six month
anniversary of the Exercisability Date) (the "Expiration Date"), to receive from
                                              ---------------
the Company (on exercise of such Warrants and payment of the Exercise Price then
in effect for such Warrant Shares) (together, if applicable, with cash payable
as provided in Section 13 hereof and any dividends or distributions payable as
provided in Section 14 hereof) (a) 29,720,177 Warrant Shares (in the aggregate)
(with each Warrant being exercise able for 0.416667 Warrant Shares) in the event
the Adjustment Event has not occurred prior to such time or (b) 17,832,106
Warrant Shares (in the aggregate) (with each Warrant being exercisable for
0.250000 Warrant Shares) in the event the Adjustment Event has occurred prior to
such time. Each Warrant not exercised prior to the Expiration Date shall become
void and all rights thereunder and all rights in respect thereof under this
Agreement shall cease as of the Expiration Date. If applicable, dividends and
other distributions will be made upon exercise of the Warrants as set forth in
Section 14 hereof.

                                       7
<PAGE>

          "Exercisability Date" shall mean the fifth (5th) Business Day (as
           -------------------
defined below) following December 31, 2002 if the Company (or any of its
subsidiaries) has not received approval from the U.S. Food and Drug
Administration (the "FDA") with respect to its New Drug Application for
                     ---
MorphiDex(R) for the treatment of any pain prior to December 31, 2002.

          In addition to the notices required by Section 14 hereof, the Company
shall give prompt written notice to the Warrant Agent that the Exercisability
Date has occurred and shall cause the Warrant Agent, on behalf of and at the
expense of the Company, within 5 Business Days after such notification is
received by the Warrant Agent, to mail by first class mail, postage prepaid, to
each Holder a notice specifying that the Exercisability Date has occurred and
that the Warrant has become exercisable pursuant to its terms and that the
Warrant will expire at 5:00 p.m., New York City time, on the Expiration Date. In
addition, the Company shall post appropriate notices of the Exercisability Date
on its web pages and issue press releases to wire services. A "Business Day" is
                                                               ------------
a day that is not a Legal Holiday. A "Legal Holiday" is a Saturday, a Sunday, a
                                      -------------
federally recognized holiday or a day on which banking institutions are not
required to be open in the State of New York.

          The initial price per share at which Warrant Shares shall be
purchasable upon exercise of Warrants (the "Exercise Price") shall equal $0.01.
                                            --------------
A Warrant may be exercised upon surrender at the office or agency of the Company
maintained for such purpose, which initially will be the corporate trust office
of the Warrant Agent or its agents located at 114 West 47th Street, 25th Floor,
New York, New York 10036, Attention: Corporate Trust Division, of the Warrant
Certificate(s) evidencing the Warrants to be exercised with the form of election
to purchase on the reverse thereof duly filled in and signed, which signature
shall be guaranteed by a participant in a recognized Signature Guarantee
Medallion Program, and upon payment to the Warrant Agent for the account of the
Company of the Exercise Price, as adjusted as herein provided, for the number of
Warrant Shares together, if applicable, with cash payable as provided in Section
13 hereof and any dividends or distributions as provided in Section 14 hereof in
respect of which such Warrants are then exercised. Payment of the Exercise Price
may be made (a) in the form of cash or by certified or official bank check
payable to the order of the Company in New York Clearing House Funds, (b) by
delivering to the Company a written notice accompanying the surrender of a
Warrant to, at the time of exercise, apply to the payment of the Exercise Price
such number of Warrant Shares as shall be specified in such notice, in which
case an amount equal to the excess of the Current Market Value (as defined in
Section 12(d) hereof) of such Warrant Shares on the date of

                                       8
<PAGE>

exercise over the Exercise Price required for such exercise shall be deemed to
have been paid to the Company and the number of Warrant Shares issuable upon
such exercise shall be reduced by such specified number (a "Cashless Exercise")
                                                            -----------------
or (c) any combination of (a) and (b) above.

          Subject to the provisions of Section 6 hereof, upon such surrender of
Warrants and payment of the Exercise Price, the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
Holder and in such name or names as the Warrant Holder may designate a
certificate or certificates for the number of full Warrant Shares issuable upon
the exercise of such Warrants together with cash as provided in Section 13
hereof. Such certificate or certificates shall be deemed to have been issued and
any person so named therein shall be deemed to have become a holder of record of
such Warrant Shares as of the date of the surrender of such Warrants and payment
of the Exercise Price.

          On or after the Exercisability Date, the Warrants shall be
exercisable, at the election of the Holders thereof, either in full or from time
to time in part and, in the event that a certificate evidencing Warrants is
exercised in respect of fewer than all of the Warrant Shares issuable on such
exercise at any time prior to the Expiration Date, a new certificate evidencing
the remaining Warrant or Warrants will be issued, and the Warrant Agent is
hereby irrevocably authorized to countersign and to deliver the required new
Warrant Certificate or Certificates pursuant to the provisions of this Section 7
and of Section 3 hereof, and the Company, whenever required by the Warrant
Agent, will promptly supply the Warrant Agent with Warrant Certificates duly
executed on behalf of the Company for such purpose.

          All Warrant Certificates surrendered upon exercise of Warrants shall
be cancelled by the Warrant Agent. Such cancelled Warrant Certificates shall
then be either delivered to the Company or disposed of by the Warrant Agent in a
manner consistent with the Warrant Agent=s customary procedure for such disposal
and in a manner reasonably satisfactory to the Company. The Warrant Agent shall
account promptly to the Company with respect to Warrants exercised and
concurrently pay to the Company all monies received by the Warrant Agent for the
purchase of the Warrant Shares through the exercise of such Warrants.

          The Warrant Agent shall keep copies of this Agreement available for
inspection by the Holders during normal business hours at its office. The
Company shall supply the Warrant Agent from time to time with such numbers of
copies of this Agreement as the Warrant Agent may request.

                                       9
<PAGE>

          Section 8.  Payment of Taxes. The Company will pay all documentary
                      ----------------
stamp taxes attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants; provided, however, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue of any Warrant Certificates or any certificates for Warrant Shares
in a name other than that of the registered Holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.

          Section 9.  Mutilated or Missing Warrant Certificates. In case any of
                      -----------------------------------------
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company may in its discretion issue and the Warrant Agent may countersign, in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence satisfactory to
the Company and the Warrant Agent of such loss, theft or destruction of such
Warrant Certificate and indemnity, if requested, also satisfactory to them.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company or the Warrant Agent may prescribe.

          Section 10. Reservation of Warrant Shares. The Company will at all
                      -----------------------------
times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of Common Stock which may then be deliverable upon the
exercise of all outstanding Warrants.

          The Company will keep a copy of this Agreement on file with the
transfer agent for the Common Stock (the "Transfer Agent") and with every
                                          --------------
subsequent transfer agent for any shares of the Company's capital stock issuable
upon the exercise of the rights of purchase represented by the Warrants. The
Warrant Agent is hereby irrevocably authorized to requisition from time to time
from such Transfer Agent the stock certificates required to honor outstanding
warrants upon exercise thereof in accordance with the terms of this Agreement.
The Company will supply such Transfer Agent with duly executed certificates for
such purposes and will

                                 10
<PAGE>

provide or otherwise make available any cash which may be payable as provided in
Section 13 hereof. The Company will furnish such Transfer Agent a copy of all
notices of adjustments and certificates related thereto transmitted to each
Holder pursuant to Section 14 hereof.

          The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon payment of the Exercise Price therefor and
issue, be validly authorized and issued, fully paid, nonassessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
with respect to the issuance thereof. The Company will use its reasonable best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Agreement.

          Section 11.  Obtaining Stock Exchange Listings. The Company will from
                       ---------------------------------
time to time take all action which may be necessary so that the Warrants and,
immediately upon their issuance upon exercise of the Warrants, the Warrant
Shares will be listed on the principal securities exchanges and markets within
the United States of America, if any, on which other shares of Common Stock are
then listed.

          Section 12.  Adjustment of Exercise Price and Number of Warrant Shares
                       ---------------------------------------------------------
Issuable.
--------

               (a)  If the Company:

                    (i)    pays a dividend or makes a distribution on
     its Common Stock in shares of its Common Stock or other capital
     stock of the Company; or

                    (ii)   subdivides, splits, combines or reclassifies
     its outstanding shares of Common Stock into a different number of
     securities of the same class, then the number of shares of Common
     Stock issuable upon the exercise of each Warrant (the "Exercise
                                                            --------
     Rate") in effect immediately prior to such action shall be
     ----
     proportionately adjusted so that the Holder of any Warrant
     thereafter exercised may receive the aggregate number and kind of
     shares of capital stock of the Company which such Holder would
     have owned immediately following such action if such Warrant had
     been exercised immediately prior to such action and the Exercise
     Price in effect immediately

                                 11
<PAGE>

     prior to such action shall be adjusted to a price determined by
     multiplying the Exercise Price in effect immediately prior to
     such action by a fraction, the numerator of which shall be the
     number of shares of Common Stock outstanding before giving effect
     to such action and the denominator of which shall be the number
     of shares of Common Stock and/or such other capital stock
     outstanding referred to in the foregoing clause (a)(1) after
     giving effect to such action.

          An adjustment pursuant to this Section 12(a) shall become effective
immediately after the record date in the case of a dividend or distribution and
immediately after the effective date in the case of a subdivision, combination
or reclassification.

          If, after an adjustment pursuant to this Section 12(a), a Holder of a
Warrant upon exercise of it may receive shares of two or more classes of capital
stock of the Company, the board of directors of the Company shall determine the
allocation of the adjusted Exercise Price between the classes of capital stock.
After such allocation, the exercise privilege and the Exercise Price of each
class of capital stock shall thereafter be subject to adjustment on terms
comparable to those applicable to Common Stock in this Section 12.

          Such adjustment shall be made successively whenever any event listed
above shall occur.

               (b)  Adjustment for Certain Issuances of Common Stock. If the
                    ------------------------------------------------
Company issues or sells to any Affiliate (as defined in Section 12(d) hereof) of
the Company (other than KIA V, L.P. and KEP V, L.P.) shares of its Common Stock
or distributes to any Affiliate of the Company (other than KIA V, L.P. and KEP
V, L.P.) any rights, options or warrants entitling them to purchase shares of
Common Stock, or securities convertible into or exchangeable for Common Stock,
in each case, at a price per share less than the Current Market Value on the
record date for determining entitlements of such Affiliates to participate in
such issuance, sale or distribution (the "Time of Determination") and prior to
                                          ---------------------
such issuance, sale or distribution the Company did not first offer to issue,
sell or distribute such shares of its Common Stock or such rights, options or
warrants or such securities convertible into or exchangeable for Common Stock to
all holders of Common Stock on the same economic terms and on a pro rata basis
with the issuance, sale or distribution to such Affiliates of the Company, then
the Exercise Rate shall be adjusted in accordance with the formula:

                                      12
<PAGE>

                                 E = E x O + N
                                  ___________
                                   O + N x P

                                       M

and the Exercise Price shall be adjusted in accordance with the following
formula:



                                 EP' = EP x E

                                          E'

where:

          E  =      the adjusted Exercise Rate.
          E  =      the Exercise Rate immediately prior to the Time of
                    Determination for any such issuance, sale or distribution.
          EP =      the Adjusted Exercise Price.
          EP =      the Exercise Price immediately prior to the Time of
                    Determination for any such issuance, sale or distribution.
          O  =      the number of Fully Diluted Shares (as defined below)
                    outstanding immediately prior to the Time of Determination
                    for any such issuance, sale or distribution.
          N  =      the number of additional shares of Common Stock issued, sold
                    or issuable upon exercise of such rights, options or
                    warrants.
          P  =      the per share price received and receivable by the Company
                    in the case of any issuance or sale of Common Stock or
                    rights, options or warrants as to which such adjustment is
                    being made, inclusive of the exercise price per share of
                    Common Stock payable upon exercise of such rights, options
                    or warrants.
          M  =      the Current Market Value per share of Common Stock on the
                    Time of Determination for any such issuance, sale or
                    distribution.

          For purposes of this Section 12(b), the term "Fully Diluted Shares"
                                                        --------------------
shall mean (i) the shares of Common Stock outstanding as of a specified date,
and

                                      13
<PAGE>

(ii) the shares of Common Stock into or for which rights, options, warrants or
other securities of the Company outstanding as of such date are exercisable or
convertible (other than the Warrants).

          Any adjustments shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
relevant Time of Determination. Notwithstanding the foregoing, the Exercise Rate
and the Exercise Price shall not be subject to adjustment in connection with (i)
the issuance of any shares of Common Stock upon exercise of any such rights,
options or warrants which have previously been the subject of an adjustment
under this Agreement for which the required adjustment has been made and (ii)
any exercise of the Warrants. If at the end of the period during which any such
rights, options or warrants are exercisable, not all rights, options or warrants
shall have been exercised, the Warrant shall be immediately readjusted to what
it would have been if "N" in each of the above formulas had been the number of
shares actually issued.

               (c)  When De Minimis Adjustment May Be Deferred. No adjustment in
                    ------------------------------------------
the Exercise Rate need be made unless the adjustment would require an increase
or decrease of at least 1% in the Exercise Rate. Notwithstanding the foregoing,
any adjustments that are not made shall be carried forward and taken into
account in any subsequent adjustment, provided that no such adjustment shall be
                                      -------- ----
deferred beyond the date on which a Warrant is exercised.

          All calculations under this Section 12 shall be made to the nearest
cent or to the nearest 1/100th of a share, as the case may be.

               (d)  Certain Definitions. "Current Market Value" per share of
                    -------------------   --------------------
Common Stock or of any other security (herein collectively referred to as a
"Security") at any date shall be:
 --------

                    (1)  if the Security is not registered under the
     Securities Exchange Act of 1934, as amended (the "Exchange Act"),
                                                       ------------
     (i) the value of the Security determined in good faith by the
     board of directors of the Company and certified in a board
     resolution, based on the most recently completed arm'slength
     transaction between the Company and a person other than an
     Affiliate of the Company and the closing of which occurs on such
     date or shall have occurred within the six months preceding such
     date or (ii) if no such

                                      14
<PAGE>

     transaction shall have occurred on such date or within such
     six month period, the value of the Security determined as of a
     date within 30 days preceding such date by an Independent
     Financial Expert (as defined below), or

                    (2)  if the Security is registered under the
     Exchange Act, the average of the daily closing bid prices of such
     Security for 30 consecutive Business Days selected by the Company
     from the period of 45 Business Days preceding such date, but only
     if such Security shall have been listed on a national securities
     exchange or the Nasdaq National Market or traded through an
     automated quotation system during such entire 45Business Day
     period.

          The "closing bid price" for any Security on each Business Day means
               -----------------
the closing price, regular way, on such day on the principal exchange on which
such Security is traded, or if no sale takes place on such day, the average of
the closing bid and asked prices on such day.

          "Independent Financial Expert" shall mean any nationally recognized
           ----------------------------
investment banking firm that is not an Affiliate of the Company. Any such person
may receive customary compensation and indemnification by the Company for
opinions or services it provides as an Independent Financial Expert.

          "Affiliate" of any specified person means any other person which
           ---------
directly or indirectly through one or more intermediaries controls or is
controlled by, or is under common control with, such specified person. For the
purposes of this definition, "control" (including with correlative meanings, the
terms "controlling," "controlled by" and "under common control with") as used
with respect to any person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
person, whether through the ownership of voting securities, by agreement or
otherwise.

          "Ordinary Cash Distribution" means any quarterly cash dividend on the
           --------------------------
Common Stock to the extent that the aggregate cash dividend per share of Common
Stock in any calendar quarter does not exceed the greater of (x) the amount per
share of Common Stock of the next preceding quarterly cash dividend on the
Common Stock (as adjusted to reflect subdivisions or combinations of the Common
Stock) and (y) 3.0% of the average of the last reported sales prices of the
Common

                                 15
<PAGE>

Stock during the ten trading days immediately prior to the date of declaration
of such dividend.

               (e)  When No Adjustment Required. If an adjustment is made upon
                    ---------------------------
the establishment of a record date for an issuance, sale or distribution subject
to subsection (a) or (b) hereof and such issuance, sale or distribution is
subsequently cancelled or is not otherwise made, the Exercise Rate and Exercise
Price then in effect shall be readjusted, effective as of the date when the
board of directors of the Company determines to cancel such issuance, sale or
distribution or when it is otherwise evident that such issuance, sale or
distribution will not be so made, to that which would have been in effect if
such record date had not been fixed. If an adjustment would be required under
both subsections (a) and (b) above, such adjustments will be determined without
duplication.

          To the extent the Warrants become convertible into cash, no adjustment
need be made thereafter as to the amount of cash into which such Warrants are
exercisable. Interest will not accrue on the cash.

               (f)  Notice of Adjustment. Whenever the Exercise Rate or
                    --------------------
Exercise Price is adjusted, the Company shall provide the notices required by
Section 14 hereof.

               (g)  Voluntary Reduction. The Company from time to time may
                    -------------------
increase the Exercise Rate or reduce the Exercise Price by any amount for any
period of time (including, without limitation, permanently) if the period is at
least 20 Business Days and the Company has given notice of such increase or
reduction in accordance with Section 14 hereof. An increase of the Exercise Rate
or reduction in the Exercise Price under this subsection (g) (other than a
permanent increase) does not change or adjust the Exercise Rate otherwise in
effect for purposes of subsection (a) and (b) of this Section 12.

               (h)  When Issuance or Payment May Be Deferred. In any case in
                    ----------------------------------------
which this Section 12 shall require that an adjustment in the Exercise Rate or
Exercise Price be made effective as of a record date for a specified event, the
Company may elect to defer until the occurrence of such event (i) issuing to the
Holder of any Warrant exercised after such record date the Warrant Shares and
other capital stock of the Company, if any, issuable upon such exercise over and
above the Warrant Shares and other capital stock of the Company, if any,
issuable upon such exercise on the basis of the Exercise Rate prior to such
adjustment, and (ii) paying to

                                      16
<PAGE>

such Holder any amount in cash in lieu of a fractional share pursuant to Section
13 hereof; provided, however, that the Company shall deliver to the Warrant
Agent and shall cause the Warrant Agent, on behalf of and at the expense of the
Company, to deliver to such Holder a due bill or other appropriate instrument
evidencing such Holder's right to receive such additional Warrant Shares, other
capital stock and cash upon the occurrence of the event requiring such
adjustment.

               (i)  Reorganizations. In case of (i) any capital reorganization,
                    ---------------
other than in the cases referred to in Section 12(a) and (b) hereof and other
than any capital reorganization that does not result in any reclassification of
the outstanding shares of Common Stock into shares of other stock or other
securities or property, or (ii) the consolidation or merger of the Company with
or into another corporation (other than a merger or consolidation in which the
Company is the continuing corporation and which does not result in any
reclassification of the outstanding shares of Common Stock into shares of other
stock or other securities or property), or (iii) the sale of all or
substantially all of the assets of the Company (collectively such actions being
hereinafter referred to as "Reorganizations"), there shall thereafter be
                            ---------------
deliverable upon exercise of any Warrant in accordance with the terms hereof (in
lieu of the number of shares of Common Stock theretofore deliverable) the number
of shares of stock or other securities or property to which a holder of the
number of shares of Common Stock that would otherwise have been deliverable upon
the exercise of such Warrant would have been entitled upon such Reorganization
if the Exercisability Date had occurred and such Warrant had been exercised in
full immediately prior to such Reorganization. In case of any Reorganization,
appropriate adjustment, as determined in good faith by the board of directors of
the Company, whose determination shall be described in a duly adopted resolution
certified by the Company's Secretary or Assistant Secretary, shall be made in
the application of the provisions herein set forth with respect to the rights
and interests of Holders so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any such shares
or other securities or property thereafter deliverable upon exercise of
Warrants.

          The Company shall not effect any such Reorganization unless prior to
or simultaneously with the consummation thereof the successor corporation (if
other than the Company) resulting from such Reorganization or the corporation or
other entity purchasing such assets shall expressly assume, by a supplemental
warrant agreement or other acknowledgment executed and delivered to the Warrant
Agent, the obligation to deliver to the Warrant Agent and to cause the Warrant
Agent to deliver to each such Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Holder may be entitled to
purchase in accordance

                                      17
<PAGE>

with the terms hereof upon the occurrence of the Exercisability Date, and the
due and punctual performance and observance of each and every covenant,
condition, obligation and liability under this Agreement to be performed and
observed by the Company in the manner prescribed herein.

          The foregoing provisions of this Section 12(i) shall apply to
successive Reorganization transactions.

               (j)  Form of Warrants. Irrespective of any adjustments in the
                    ----------------
number or kind of shares purchasable upon the exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.

               (k)  Warrant Agent's Disclaimer. The Warrant Agent has no duty
                    --------------------------
to determine when an adjustment under this Section 12 should be made, how it
should be made or what it should be. The Warrant Agent has no duty to determine
whether any provisions of a supplemental warrant agreement under subsection (i)
of this Section 12 are correct. The Warrant Agent makes no representation as to
the validity or value of any securities or assets issued upon exercise of
Warrants. The Warrant Agent shall not be responsible for the Company's failure
to comply with this Section 12.

               (l)  Miscellaneous. For purpose of this Section 12 the term
                    -------------
"shares of Common Stock" shall mean (i) shares of the class of stock designated
as the Common Stock, par value $.01 per share, of the Company as of the date of
this Agreement, and (ii) shares of any other class of stock resulting from
successive changes or reclassification of such shares consisting solely of
changes in par value, or from par value to no par value, or from no par value to
par value. In the event that at any time, as a result of an adjustment made
pursuant to this Section 12, the Holders of Warrants shall become entitled to
purchase any securities of the Company other than, or in addition to, shares of
Common Stock, thereafter the number or amount of such other securities so
purchasable upon exercise of each Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Warrant Shares contained in subsections (a)
through (l) of this Section 12, inclusive, and the provisions of Sections 7, 8,
10 and 13 with respect to the Warrant Shares or the Common Stock shall apply on
like terms to any such other securities.

                                      18
<PAGE>

          Section 13.  Fractional Interests. The Company shall not be required
                       --------------------
to issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
Holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 13,
be issuable on the exercise of any Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the excess of the Current Market
Value of a Warrant Share over the Exercise Price on the day immediately
preceding the date the Warrant is presented for exercise, multiplied by such
fraction.

          Section 14.  Notices to Warrant Holders; Reservation of Dividends.
                       ----------------------------------------------------
Upon any adjustment pursuant to Section 12 hereof, the Company shall give prompt
written notice of such adjustment to the Warrant Agent and shall cause the
Warrant Agent, on behalf of and at the expense of the Company, within 10 days
after notification is received by the Warrant Agent of such adjustment, to mail
by first class mail, postage prepaid, to each Holder a notice of such
adjustment(s) and shall deliver to the Warrant Agent a certificate of the Chief
Financial Officer of the Company, setting forth in reasonable detail (i) the
number of Warrant Shares purchasable upon the exercise of each Warrant and the
Exercise Price of such Warrant after such adjustment(s), (ii) a brief statement
of the facts requiring such adjustment(s) and (iii) the computation by which
such adjustment(s) was made. Where appropriate, such notice may be given in
advance and included as a part of the notice required under the other provisions
of this Section 14.

          In case the Exercisability Date has occurred and:

               (a)  the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
or

               (b)  the Company shall authorize the distribution to all holders
of shares of Common Stock of evidences of its indebtedness or assets or cash; or

                                      19
<PAGE>

               (c)  of any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is required, or
of the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of Common
Stock issuable upon exercise of the Warrants (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or a tender offer or exchange offer for
shares of Common Stock; or

               (d)  of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or

               (e)  the Company proposes to take any action that would require
an adjustment to the Exercise Rate pursuant to Section 12 hereof; then the
Company shall give prompt written notice to the Warrant Agent and shall cause
the Warrant Agent, on behalf of and at the expense of the Company to give to
each of the registered holders of the Warrant Certificates at his, her or its
address appearing on the Warrant Register, at least 30 days (or 20 days in any
case specified specified, or the date of the event in the case of events for
which there is no record date, by firstclass mail, postage prepaid, a written
notice stating (i) the date as of which the holders of record of shares of
Common Stock to be entitled to receive any such rights, options, warrants or
distribution are to be determined, or (ii) the initial expiration date set forth
in any tender offer or exchange offer for shares of Common Stock, or (iii) the
date on which any such consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up is expected to become effective or consummated, and
the date as of which it is expected that holders of record of shares of Common
Stock shall be entitled to exchange such shares for securities or other
property, if any, deliverable upon such reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up. The failure by the
Company or the Warrant Agent to give such notice or any defect therein shall not
affect the legality or validity of any distribution, right, option, warrant,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up, or the vote upon any action.

          The Company shall give prompt written notice to the Warrant Agent and
shall cause the Warrant Agent, on behalf of and at the expense of the Company to
give to each Holder written notice of any determination to make a distribution
or dividend to the holders of its Common Stock of any assets (including cash
(other than any Ordinary Cash Distribution)), debt securities, preferred stock,
or any rights or warrants to purchase debt securities, preferred stock, assets
or other securities

                                      20
<PAGE>

(other than Common Stock, or rights, options, or warrants to purchase Common
Stock) of the Company, which notice shall state the nature and amount of such
planned dividend or distribution and the record date therefor, and shall be
given by the Company at least 20 days prior to such record date therefor.

          At any time prior to the date that is 30 Business Days after the
Exercisability Date, with respect to any distribution or dividend made by the
Company to all of the holders of its Common Stock for which notice to the
Holders of the Warrants under this Section 14 would be required had such
dividend or distribution occurred after the Exercisability Date and except for
such distributions or dividends as are provided for in Section 12 hereof, the
Company shall hold in reserve the amount of any such dividend or distribution
that would have been payable to the Holders in respect of their Warrant Shares
had the Holders exercised their Warrants immediately prior to such dividend or
distribution. The Company shall release to each Holder of Warrants his, her or
its pro rata share of such reserved dividends or distributions upon the exercise
of such Holder's Warrants pursuant to Section 7 hereof. Any notice delivered to
the Holders by the Company pursuant to this Section 14 shall state the nature
and amount of such dividend or distribution that shall be held in reserve.

          Nothing contained in this Agreement or in any Warrant Certificate
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as stockholders in respect of the meetings of
stockholders or the election of directors of the Company or any other matter, or
any rights whatsoever as stockholders of the Company.

          Section 15.  Notices to the Company and Warrant Agent. Any notice or
                       ----------------------------------------
demand authorized by this Agreement to be given or made by the Warrant Agent or
by any Holder to or on the Company shall be sufficiently given or made when
received at the office of the Company expressly designated by the Company as its
office for purposes of this Agreement (until the Warrant Agent is otherwise
notified in accordance with this Section 15 by the Company), as follows:

                                      21
<PAGE>

               Endo Pharmaceuticals Holdings Inc.
               c/o Kelso & Company
               320 Park Avenue
               24th Floor
               New York, New York 10022
               Attention: Managing Director
                          with a copy to General Counsel

               with a copy to:

               Skadden, Arps, Slate, Meagher & Flom LLP
               Four Times Square
               New York, New York 10036-6522
               Attention: Eileen T. Nugent, Esq.

          Any notice pursuant to this Agreement to be given by the Company or by
any Holder(s) to the Warrant Agent shall be sufficiently given when received by
the Warrant Agent at the address appearing below (until the Company is otherwise
notified in accordance with this Section by the Warrant Agent). United States
Trust Company of New York 114 West 47th Street, 25th Floor New York, New York
10036 Attention: Corporate Trust Division

          Section 16.  Supplements and Amendments. The Company and the Warrant
                       --------------------------
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Warrants in order to cure any ambiguity or to correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not in any way
adversely affect the rights of any holder of Warrants hereunder. Any amendment
or supplement to this Agreement that has a material adverse effect on the rights
of holders hereunder shall require the written consent of registered holders of
a majority of the then outstanding Warrants, which consent shall then be
effective against all the Holders of Warrants hereunder. The consent of each
holder of a Warrant affected shall be required for any amendment pursuant to
which the Exercise Price would be increased or the number of Warrant Shares
purchasable upon exercise of Warrants would be decreased (not including
adjustments contemplated hereunder). The Warrant Agent shall be entitled to
receive and shall be fully protected in relying upon an officers'  certificate
and opinion of counsel as conclusive evidence that any such amendment

                                      22
<PAGE>

or supplement is authorized or permitted hereunder, that it is not inconsistent
herewith, and that it will be valid and binding upon the Company in accordance
with its terms.

          Section 17.  Concerning the Warrant Agent. The Warrant Agent
                       ----------------------------
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the Holders, by
their acceptance of Warrants, shall be bound:

               (a)  The statements contained herein and in the Warrant
Certificate shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or any action taken by it. The Warrant Agent assumes
no responsibility with respect to the distribution of the Warrants except as
herein otherwise provided.

               (b)  The Warrant Agent shall not be responsible for any failure
of the Company to comply with the covenants contained in this Agreement or in
the Warrants to be complied with by the Company.

               (c)  The Warrant Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either itself
(through its employees) or by or through its attorneys or agents (which shall
not include its employees) and shall not be responsible for the misconduct of
any agent appointed with due care.

               (d)  The Warrant Agent may consult at any time with legal counsel
satisfactory to it (who may be counsel for the Company), and the Warrant Agent
shall incur no liability or responsibility to the Company or to any Holder in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in accordance with the opinion or the advice of such counsel.

               (e)  Whenever in the performance of its duties under this
Agreement the Warrant Agent shall deem it necessary or desirable that any fact
or matter be proved or established by the Company prior to taking or suffering
any action hereunder, such fact or matter (unless such evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by the Chairman of the Board, the
President, Chief Financial Officer, one of the Vice Presidents, the Treasurer or
the Secretary of the

                                      23
<PAGE>

     Company and delivered to the Warrant Agent; and such certificate shall be
     full authorization to the Warrant Agent for any action taken or suffered in
     good faith by it under the provisions of this Agreement in reliance upon
     such certificate.

                    (f)  The Company agrees to pay the Warrant Agent reasonable
     compensation for all services rendered by the Warrant Agent in the
     performance of its duties under this Agreement, to reimburse the Warrant
     Agent for all expenses, taxes and governmental charges and other charges of
     any kind and nature incurred by the Warrant Agent (including reasonable
     fees and expenses of the Warrant Agent's counsel and agents) in the
     performance of its duties under this Agreement, and to indemnify the
     Warrant Agent and save it harmless against any and all liabilities,
     including judgments, costs and counsel fees, for anything done or omitted
     by the Warrant Agent in the performance of its duties under this Agreement,
     except as a result of the Warrant Agent's negligence or bad faith.

                    (g)  The Warrant Agent shall be under no obligation to
     institute any action, suit or legal proceeding or to take any other action
     likely to involve expense unless the Company or one or more Holders shall
     furnish the Warrant Agent with reasonable security and indemnity
     satisfactory to the Warrant Agent for any costs and expenses which may be
     incurred, but this provision shall not affect the power of the Warrant
     Agent to take such action as the Warrant Agent may consider proper, whether
     with or without any such security or indemnity. All rights of action under
     this Agreement or under any of the Warrants may be enforced by the Warrant
     Agent without the possession of any of the Warrants or the production
     thereof at any trial or other proceeding relative thereto, and any such
     action, suit or proceeding instituted by the Warrant Agent shall be brought
     in its name as Warrant Agent, and any recovery of judgment shall be for the
     ratable benefit of the Holders, as their respective rights or interests may
     appear.

                    (h)  The Warrant Agent and any stockholder, director,
     officer or employee of the Warrant Agent may buy, sell or deal in any of
     the Warrants or other securities of the Company or become pecuniarily
     interested in any transactions in which the Company may be interested, or
     contract with or lend money to the Company or otherwise act as fully and
     freely as though it were not Warrant Agent under this Agreement or such
     director, officer or employee. Nothing herein shall preclude the Warrant
     Agent from acting in any other capacity for the Company or for any other
     legal entity including, without limitation, acting as Transfer Agent or as
     a lender to the Company or an Affiliate thereof.

                                      24
<PAGE>

               (i)  The Warrant Agent shall act hereunder solely as agent, and
its duties shall be determined solely by the provisions hereof. The Warrant
Agent shall not be liable for anything which it may do or refrain from doing in
connection with this Agreement except for its own negligence or bad faith.

               (j)  The Warrant Agent will not incur any liability or
responsibility to the Company or to any Holder for any action taken in reliance
on any notice, resolution, waiver, consent, order, certificate, or other paper,
document or instrument reasonably believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties.

               (k)  The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Warrant Agent) or in respect of the
validity or execution of any Warrant (except its countersignature thereof); nor
shall the Warrant Agent by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any Warrant
Shares (or other stock) to be issued pursuant to this Agreement or any Warrant,
or as to whether any Warrant Shares (or other stock) will, when issued, be
validly issued, fully paid and nonassessable, or as to the Exercise Price or the
number or amount of Warrant Shares or other securities or other property
issuable upon exercise of any Warrant.

               (l)  The Warrant Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the President, any Vice President or the Secretary of
the Company, and to apply to such officers for advice or instructions in
connection with its duties, and shall not be liable for any action taken or
suffered to be taken by it in good faith and without negligence in accordance
with instructions of any such officer or officers.

               Section 18. Change of Warrant Agent. The Warrant Agent may resign
                           -----------------------
at any time and be discharged from its duties under this Agreement by giving to
the Company 30days' notice in writing. The Warrant Agent may be removed by like
notice to the Warrant Agent from the Company. If the Warrant Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Warrant Agent. If the Company shall fail to make such
appointment within a period of 30 days after such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by any Holder (who shall with such notice submit
his, her or its

                                      25
<PAGE>

Warrant for inspection by the Company), then any Holder may apply to any court
of competent jurisdiction for the appointment of a successor to the Warrant
Agent. Pending appointment of a successor warrant agent, either by the Company
or by such court, the duties of the Warrant Agent shall be carried out by the
Company. Any successor warrant agent, whether appointed by the Company or such a
court, shall be a bank or trust company in good standing, incorporated under the
laws of the United States of America or any State thereof or the District of
Columbia and having at the time of its appointment as warrant agent a combined
capital and surplus of at least $10,000,000. After appointment, the successor
warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed; but the former Warrant Agent shall deliver and transfer to
the successor warrant agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
such purpose. Failure to file any notice provided for in this Section 18,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Warrant Agent or the appointment of the successor
warrant agent, as the case may be. In the event of such resignation or removal,
the Company or the successor warrant agent shall mail by first class mail,
postage prepaid, to each Holder, written notice of such removal or resignation
and the name and address of such successor warrant agent.

               Section 19.  Successors. All the covenants and provisions of this
                            ----------
Agreement by or for the benefit of the Company, the Warrant Agent or any holder
of Warrants shall bind and inure to the benefit of their respective successors
and assigns hereunder.

               Section 20.  Termination.  This Agreement shall terminate at 5:00
                            -----------
p.m., New York City time, on the Expiration Date. Notwithstanding the foregoing,
this Agreement will terminate on any earlier date if all Warrants have been
exercised pursuant to this Agreement.

               Section 21.  GOVERNING LAW. THIS AGREEMENT AND EACH WARRANT
                            -------------
CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE
LAWS OF THE STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT REGARD TO THE CONFLICT OF LAW
RULES THEREOF.

                                      26
<PAGE>

               Section 22.  Benefits of This Agreement. Nothing in this
                            --------------------------
Agreement shall be construed to give to any person or corporation other than the
Company, the Warrant Agent and the registered Holders of the Warrant
Certificates any legal or equitable right, remedy or claim under this Agreement;
but this Agreement shall be for the sole and exclusive benefit of the Company,
the Warrant Agent and the registered Holders of the Warrant Certificates.

               Section 23.  Counterparts. This Agreement may be executed in any
                            ------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.

               Section 24.  Headings. The headings in this Agreement are for
                            --------
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

                                      27
<PAGE>

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




                         ENDO PHARMACEUTICALS HOLDINGS INC.


                         By: /s/ Carol A. Ammon
                             ------------------------------------
                             Name:  Carol A. Ammon
                             Title: President & Chief Executive Officer


                         UNITED STATES TRUST COMPANY OF NEW YORK,
                         as Warrant Agent

                         By: /s/ Sirojni Dindial
                             ---------------------------------------
                             Name:  Sirojni Dindial
                             Title: Assistant Vice President
<PAGE>

                                                                       EXHIBIT A

                         [Form of Warrant Certificate]
                                    [Face]

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR THE APPLICABLE STATE SECURITIES
OR "BLUE SKY" LAWS (SUCH FEDERAL AND STATE LAWS, THE "SECURITIES LAWS").  THE
SECURITIES REPRESENTED BY THIS WARRANT ARE SUBJECT TO RESTRICTIONS ON TRANSFER
AND CERTAIN OTHER CONDITIONS, AS SPECIFIED IN THE WARRANT AGREEMENT (THE
"WARRANT AGREEMENT"), DATED AS OF JULY 17, 2000 (COPIES OF WHICH ARE ON FILE
WITH THE SECRETARY OF ENDO PHARMACEUTICALS HOLDINGS INC. (TOGETHER WITH ITS
SUCCESSORS, THE "COMPANY") AND WHICH WILL BE MAILED TO A HOLDER HEREOF WITHOUT
CHARGE WITHIN FIVE DAYS AFTER RECEIPT BY THE COMPANY OF A WRITTEN REQUEST
THEREFOR FROM SUCH HOLDER).  THE HOLDER HEREOF, BY ACCEPTANCE OF THIS WARRANT,
AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH WARRANT AGREEMENT.

NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
SECURITIES REPRESENTED BY THIS WARRANT MAY BE MADE EXCEPT PURSUANT TO THE
PROVISIONS OF SUCH WARRANT AGREEMENT AND, EXCEPT AS OTHERWISE PROVIDED IN SUCH
AGREEMENT, (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND THE
SECURITIES LAWS OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF
COUNSEL FOR THE HOLDER, WHICH OPINION AND COUNSEL SHALL BE REASONABLY
SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH TRANSFER, SALE, ASSIGNMENT,
PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF THE
SECURITIES LAWS.

                                      A-1
<PAGE>

                EXERCISABLE ON OR AFTER THE EXERCISABILITY DATE
                         AND ON OR BEFORE JULY 7, 2003

No. __________                                              __________ Warrants
                              Warrant Certificate

                      ENDO PHARMACEUTICALS HOLDINGS INC.

               This Warrant Certificate certifies that _______, or registered
assigns, is the registered holder of Warrants expiring on or before July 7, 2003
(the "Warrants") to purchase shares of Common Stock, par value $.01 per share
(the "Common Stock"), of Endo Pharmaceuticals Holdings Inc., a Delaware
corporation (the "Company"). Each Warrant entitles the holder upon exercise to
receive from the Company on or after the Exercisability Date and on or before
5:00 p.m. New York City Time on July 7, 2003 (the sixmonth anniversary of the
Exercisability Date), (a) 0.416667 fully paid and nonassessable shares of Common
Stock (each such share, a "Warrant Share") in the event the Adjustment Event (as
defined in that certain Agreement and Plan of Merger, dated as of November 26,
1999, as may be amended and restated from time to time, by and among the
Company, Endo Inc., a Delaware corporation and wholly owned subsidiary of the
Company, and Algos Pharmaceutical Corporation, a Delaware corporation) has not
occurred prior to such time or (b) 0.250000 Warrant Shares in the event the
Adjustment Event has occurred prior to such time, in either case, at the initial
exercise price (the "Exercise Price") equal to $0.01 per share payable upon
surrender of this Warrant Certificate and payment of the Exercise Price in the
manner set forth in the Warrant Agreement, subject only to the conditions set
forth herein and in the Warrant Agreement referred to on the reverse hereof. The
Exercise Price and number of Warrant Shares issuable upon exercise of the
Warrants are subject to adjustment upon the occurrence of certain events as set
forth in the Warrant Agreement.

               No Warrant may be exercised before the Exercisability Date or
after 5:00 p.m., New York City Time, on July 7, 2003 and to the extent not
exercised by such time such Warrants shall become void.

               This Warrant Certificate shall not be valid unless countersigned
by the Warrant Agent, as such term is used in the Warrant Agreement.

               THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

                                      A-2
<PAGE>

          IN WITNESS WHEREOF, Endo Pharmaceuticals Holdings Inc. has caused this
Warrant Certificate to be signed by an officer and by its Secretary, each by a
facsimile of his or her signature, and has caused a facsimile of its corporate
seal to be affixed hereunto or imprinted hereon.

Dated: , ____

                    ENDO PHARMACEUTICALS HOLDINGS INC.


                    By:  __________________________
                         Name:
                         Title:


                    By:  __________________________
                         Name:
                         Title: Secretary


Countersigned:

UNITED STATES TRUST COMPANY
OF NEW YORK,
as Warrant Agent


By:   ____________________________
      Name:
      Title:

                                      A-3
<PAGE>

                         [Form of Warrant Certificate]
                                   [Reverse]


          The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring July 7, 2003, entitling the holder on
exercise to receive shares of Common Stock, par value $.01 per share, of the
Company (the "Common Stock"), and are issued or to be issued pursuant to a
Warrant Agreement dated as of July 17, 2000 (the "Warrant Agreement"), duly
executed and delivered by the Company to United States Trust Company of New
York, as warrant agent (the "Warrant Agent"), which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Warrant Agent, the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants. A copy of the Warrant Agreement may be
obtained by the holder hereof upon written request to the Company.

          Warrants may be exercised at any time on or after the "Exercisability
Date" and on or before July 7, 2003. The holder of Warrants evidenced by this
Warrant Certificate may exercise them by surrendering this Warrant Certificate,
with the form of election to purchase set forth hereon properly completed and
executed, together with payment in the manner provided for in the Warrant
Agreement at the office of the Warrant Agent. In the event that upon any
exercise of Warrants evidenced hereby, the number of Warrants exercised shall be
less than the total number of Warrants evidenced hereby, there shall be issued
to the holder hereof or his, her or its assignee a new Warrant Certificate
evidencing the number of Warrants not exercised.

          The Warrant Agreement provides that upon the occurrence of certain
events the number of Warrants set forth on the face hereof and the Exercise
Price may, subject to certain conditions, be adjusted. No fractions of a share
of Common Stock will be issued upon the exercise of any Warrant, but the Company
will pay the cash value thereof determined as provided in the Warrant Agreement.

          Warrant Certificates, when surrendered at the office of the Warrant
Agent by the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any

                                      A-4
<PAGE>

service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.

          Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.

          The Company and the Warrant Agent may deem and treat the registered
holder(s) thereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any holder hereof to any rights
of a stockholder of the Company.

                                      A-5
<PAGE>

                        [Form of Election to Purchase]
                   (To Be Executed upon Exercise of Warrant)


          The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive _________shares of Common
Stock and herewith tenders payment for such shares to the order of Endo
Pharmaceuticals Holdings Inc. in the amount of $______ payable in (select one or
more: (i) cash and/or (ii) pursuant to a Cashless Exercise) in accordance with
the terms hereof and of the Warrant Agreement. The undersigned requests that a
certificate for such shares be registered in the name of ___________________,
whose address is _____________ and that such shares be delivered to
_______________ whose address is ______________________. If said number of
shares is less than all of the shares of Common Stock purchasable hereunder, the
undersigned requests that a new Warrant Certificate representing the remaining
balance of such shares be registered in the name of __________________________,
whose address is ____________________________, and that such Warrant Certificate
be delivered to ___________________________, whose address is
________________________.

                        Signature:

Date:

                        Signature Guaranteed:

                                      A-6
<PAGE>

               SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS

               The following exchanges of a part of this Global Warrant for
certificated Warrants have been made:

<TABLE>
<CAPTION>

                                                             Number of
                                                             Warrants of
                  Amount of            Amount of             this Global
                  decrease in          increase in           Warrant            Signature of
                  Number of            Number of             following          authorized
 Date of          Warrants of this     Warrants of this      such decrease      officer of
 Exchange         Global Warrant       Global Warrant        or increase        Warrant Agent
 --------         --------------       --------------        -----------        -------------
<S>               <C>                  <C>                   <C>                <C>
</TABLE>

                                      A-7
<PAGE>

                                                                 EXHIBIT B

                   CERTIFICATE TO BE DELIVERED UPON EXCHANGE
                    OR REGISTRATION OF TRANSFER OF WARRANTS

Re:  Warrants to Purchase Common Stock (the "Warrants") of Endo
     Pharmaceuticals Holdings Inc.

          This Certificate relates to Warrants held in* ___book-entry or * ____
certificated form by ____________ (the "Transferor").

The Transferor:*

          [ ] has requested the Warrant Agent by written order to deliver in
exchange for its beneficial interest in the Global Warrant held by the
depository a Warrant or Warrants in definitive, registered form equal to its
beneficial interest in Warrants represented by such Global Warrant (or the
portion thereof indicated above); or

          [ ] has requested the Warrant Agent by written order to exchange or
register the transfer of a Warrant or Warrants.

                             ---------------------
                             [INSERT NAME OF TRANSFEROR]


                             By: _______________________

Date: ____________________
       *Check applicable box.

                                      B-1