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                              [Schein Letterhead]

August 1, 1999

Mr. Javier Cayado
30 Sail Harbor
New Fairfield, CT 06470

Dear Jay:

In connection with your transition from full-time employee to part-time
employee, we are confirming all of our agreements as follows:

1.    Notwithstanding anything to the contrary contained in the employment
      agreement (the "Employment Agreement") dated November 22, 1993 between you
      and Schein Pharmaceutical, Inc. (the "Company"), the status of your
      employment with the Company will change from full-time employee to
      part-time employee effective August 1, 1999 (such date hereinafter
      referred to as the "Transition Date").

2.    Effective upon the Transition Date, the Employment Agreement will be
      superceded by this Agreement, and the Employment Agreement will no longer
      be of any force or effect.

3.    The term of this Agreement shall be the two-year period commencing on the
      Transition Date and ending on July 31, 2001, subject to earlier
      termination or extension as provided herein (the "Term"). The Term may be
      extended at the election of the Company for successive one-year periods
      unless at least 90 days prior to end of then Term you notify the Company
      in writing that the Term shall terminate at the end of the then Term. You
      may terminate the Term upon 90 days' written notice to the Company. In
      addition, the Term shall terminate upon your death and may be terminated
      by the Company at any time for Cause. For purposes of this Agreement,
      "Cause" means (i) your wilful and continued failure substantially to
      perform your duties with the Company, (ii) fraud, misappropriation or
      intentional material damage to the property or business of the Company or
      (iii) commission of a felony.

4.    During the Term, the Company will employ you, and you agree to be so
      employed, as Senior Vice President on a part-time basis on the following
      terms:

            (a)         You will be paid base compensation ("Base Compensation")
                        of $150,000 per year during the period beginning on the
                        Transition Date through the end of the Term, payable in
                        equal quarterly installments of $37,500 on the first day
                        of each quarter (the "Quarterly Installment"), and
                        otherwise in accordance with the normal payroll
                        practices of the Company.

            (b)         You will be paid fees ("Assignment Fees") for
                        assignments that may be offered to you from time to time
                        by the Company in its sole discretion at a rate of
                        $3,000 per day, plus reasonable expenses. Each Quarterly
                        Installment will be credited

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                        against any Assignment Fees earned for such quarter. You
                        will not be required to repay any Quarterly Installment,
                        or any part thereof, if the Assignment Fees earned for
                        such quarter are less than the Quarterly Installment.

            (c)         You will be available to the Company during the Term, as
                        reasonably requested by the Company, to, among other
                        things, assist the Company in connection with its
                        manufacturing and technical operations, and generally
                        assist in such other matters as the Company may
                        reasonably request. You will be available to meet in
                        person with Company executives and others and to travel
                        as reasonably requested by the Company. The Company will
                        endeavor to give you reasonable prior notice of any
                        occasion for which your presence is required and of any
                        travel which may be so requested. You will be reimbursed
                        by the Company for all expenses reasonably incurred by
                        you in connection with any such travel in accordance
                        with the Company's usual practices.

            (d)         You will continue to be an employee of the Company and
                        not an independent contractor.

5.    From and after the Transition Date, the Company and you each will pay its
      respective portion of the premiums to continue health, dental, vision and
      life insurance coverage for you, your spouse and dependents, in each
      instance with such coverage as is in effect from time to time under the
      applicable Company program, through the Term.

6.    From and after the Transition Date through the Term, you will continue to
      be eligible to contribute, but will not be eligible for any additional
      contribution or matching contribution by the Company, to your account
      under the Retirement Plan of Schein Pharmaceutical, Inc. and Affiliates
      (the "Plan") for any calendar year unless you work more than 1,000 hours
      in such year. The balance in your account will continue to be invested at
      your direction in accordance with the terms and conditions of the Plan,
      and will reflect your investment results.

7.    Each of your option agreements (the "Option Agreements") with the Company
      shall remain in effect in accordance with their terms and all Options (as
      defined in the Option Agreements) shall continue to vest in accordance
      with the terms of the Option Agreements. If this Agreement terminates
      other than for Cause prior to July 31, 2001, all unvested Options shall be
      fully vested as of the date of such termination, and each Option not
      previously exercised shall be exercisable immediately in full and shall
      remain exercisable thereunder until the earlier of the first anniversary
      of the date of such termination and the tenth anniversary of the date of
      grant of such Option.

8.    Your Deferred Compensation Agreement with the Company dated November 22,
      1993 (the "Deferred Compensation Agreement") is hereby amended, effective
      as of the Transition Date, to provide that if this Agreement terminates
      other than for Cause prior to September 30, 2000, you will be paid
      promptly after such termination any remaining unpaid Deferred Compensation
      Amount (as defined in the Deferred Compensation Agreement), whether or not
      then due under the Deferred Compensation


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      Agreement. Except as amended hereby, the Deferred Compensation Agreement
      shall remain in full force and effect, without modification.

9.    Your employee confidentiality and non-disclosure undertaking with the
      Company dated December 27, 1993 (the "Confidentiality and Non-Disclosure
      Undertaking") shall remain in full force and effect, without modification.

10.   In addition to the programs specifically referenced in this Agreement, you
      may participate in other benefit plans maintained by the Company from time
      to time in which part-time employees are eligible to participate, in
      accordance with the terms and conditions of such plans.

11.   You will not, at any time during your employment by the Company and for
      one year thereafter (the "Restrictive Period"), directly or indirectly,
      any place within the United States, engage in or become interested in (as
      owner, stockholder, partner, director, officer, employee, consultant,
      agent or otherwise) any business competitive with the business conducted
      by the Company. You acknowledge that this provision is necessary for the
      Company's protection and is reasonable, since you are able to obtain
      employment with companies whose businesses are not competitive with those
      of the Company and with companies in other areas. If, however, any
      provision of this paragraph is held to be unenforceable because of the
      duration, geographical area or scope of the restriction, the court making
      that determination shall modify that provision to the extent necessary to
      make it valid. Ownership of less than 5% of any class of securities
      registered under Section 12(b) or 12(g) of the Securities Exchange Act of
      1934 shall not be considered a violation of the provisions of this
      paragraph.

      You will not, during the Restrictive Period, directly or indirectly employ
      or retain, solicit the employment or retention of, or be associated with
      any entity that employs or retains or solicits the employment or retention
      of, any person who was an employee of the Company at any time during the
      twelve months preceding the termination of your employment or during the
      Restrictive Period.

      Any discovery, design or improvement that you develop during your
      employment or during the Restrictive Period (whether or not during your
      regular working hours or on the Company's premises) and that is related to
      the Company's business or research activities as then conducted or
      contemplated, shall belong to the Company and shall be promptly disclosed
      to the Company. During your employment and thereafter you shall, without
      additional compensation, execute and deliver to the Company any
      instruments of transfer and take any other action that the Company may
      request to carry out the provisions of this paragraph.

      Since a breach by you of the provisions of this paragraph 11 or the
      Confidentiality and Non-Disclosure Undertaking would injure the Company in
      a way that could not be adequately compensated for by damages, in addition
      to any other remedies available to


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      the Company it may obtain an injunction restraining any such breach,
      without the necessity of showing actual damage and without any bond or
      other security being required.

12.   You acknowledge and agree that the payments referred to in paragraph 4
      above exceed any payments to which you are or might otherwise be entitled
      to under any policy, plan, practice, procedure or prior agreement or
      contract. In consideration of the Company entering into this Agreement,
      you hereby release the Company, its subsidiaries, directors, officers,
      agents and employees and any of its successors, assigns or affiliates and
      their heirs, successors and assigns, from any and all liabilities, claims
      and causes of action, known or unknown, now existing or which may
      hereafter accrue, which relate to or arise out of your employment through
      the Transition Date, including, but not limited to, claims under the
      Employment Agreement, Title VII of the Civil Rights Act of 1964, as
      amended in 1991, the Equal Pay Act, the Rehabilitation Act of 1973, the
      Americans with Disabilities Act, the Fair Labor Standards Act, the Family
      and Medical Leave Act, the Age Discrimination In Employment Act, ERISA and
      any other federal, state and local law or any common law. You are not,
      however, releasing any claims relating to the Company's failure to perform
      it obligations under this Agreement.

      You understand that by releasing the Company, it is not intended to imply
      that the Company has done anything unlawful or wrong and the acceptance of
      this release and the payments made and benefits allowed to you pursuant to
      this Agreement do not constitute an admission of any liability by either
      party. In consideration of the Company entering into this Agreement, you
      also promise never to file a lawsuit asserting any claims that are
      released in the preceding paragraph. You agree that under no circumstances
      will you induce, encourage, solicit or assist any person or entity to file
      or pursue any claim or proceeding of any kind against any person or entity
      released by you in this Agreement.

13.   Both you and the Company acknowledge that this Agreement, the Deferred
      Compensation Agreement, the Option Agreements and the Confidentiality and
      Nondisclosure Undertaking constitute the entire agreement of the parties
      hereto with respect to the subject matter hereof and that there are no
      other agreements or understandings, oral or written, between the parties
      with respect to the subject matter hereof. You agree that you will keep
      the terms and existence of this Agreement strictly confidential; provided,
      however, that you may discuss this Agreement and its terms with your
      professional advisors and members of your immediate family who will not
      disclose the terms or existence of this Agreement. But for this Agreement,
      you would not be entitled to the benefits provided herein under the
      Company's policies or procedures.

      You understand and acknowledge that your representations and commitments
      contained in this Agreement are essential, material and indispensable
      conditions of this Agreement and that the Company would not be entering
      into the agreements hereunder, except for these representations and
      commitments. It is agreed that in the event you take any action or engage
      in any conduct in violation of this Agreement or you seek to challenge the
      enforceability of any provision of this Agreement, or such action or
      conduct is taken on


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      your behalf, the Company may, at its option, void this entire Agreement
      and cease to pay or provide any benefits provided to you pursuant to this
      Agreement and recover from you as liquidated damages the amounts paid to
      you under the terms of the agreements hereunder.

      You will be given a period of 21 days to review and consider this
      Agreement. You may use as much of this 21 day period as you wish prior to
      signing this Agreement. You may revoke this Agreement within 7 days of
      signing it. Revocation can be made by delivering a written notice of
      revocation to Oliver N. Esman, Senior Vice President, Corporate Human
      Resources and Information Systems. For this revocation to be effective,
      written notice must be received no later than the close of business on the
      eighth day after you sign this Agreement. If you revoke this Agreement, it
      shall not be effective or enforceable.

      You are strongly encouraged to consult with your attorney before signing
      this Agreement. It is your decision whether or not to do so. By signing
      this Agreement, you acknowledge that (a) you have carefully reviewed and
      understand the contents of this Agreement, (b) you have been given
      sufficient time to review it with any person of your choosing in order to
      determine whether or not to enter into this Agreement and (c) you
      acknowledge that you are voluntarily entering into this Agreement.

14.   This Agreement shall be binding upon and inure to the benefit of you and
      your legal representatives and the Company and any assignee or successor
      (whether direct or indirect, by purchase, merger, consolidation or
      otherwise) to all or substantially all of the business or assets of the
      Company.

15.   This Agreement is enforceable under the laws of the State of New Jersey.


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If you wish to accept this offer under the terms outlined above, please sign
below, date your signature and return the signed document to me.

Sincerely,

SCHEIN PHARMACEUTICAL, INC.


By: /s/ Oliver N. Esman
      -----------------------------------
      Oliver N. Esman, Senior Vice
      President,
      Corporate Human Resources
      and Information Systems


ACCEPTED AND AGREED AS OF THE
DATE FIRST SET FORTH ABOVE:

      /s/ Javier Cayado
      ------------------------------------
      Javier Cayado


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