<PAGE>

                                                                     Exhibit 4.2

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



                         FORM OF AMENDED AND RESTATED


                        EMPLOYEE STOCKHOLDERS AGREEMENT


                       ENDO PHARMACEUTICALS HOLDINGS INC.



                         Dated as of ________ __, 2000



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

<TABLE>
<CAPTION>
                                                         TABLE OF CONTENTS

                                                                                                         Page
                                                                                                         ----

                                                             ARTICLE I
<S>                                                                                                     <C>
RESTRICTIONS ON TRANSFER OF COMMON STOCK...................................................................2
                1.1  General Restriction on Transfer by Em-
                     ployee Stockholders...................................................................2
                1.2  Permitted Transferees.................................................................3

                                                            ARTICLE II

PURCHASES BY THE COMPANY...................................................................................4
                2.1  Right to Purchase Shares from Employee
                     Stockholders..........................................................................4
                2.2  Notice................................................................................5
                2.3  Payment...............................................................................5
                2.4  Postponement, etc.....................................................................6

                                                            ARTICLE III

PURCHASE PRICE.............................................................................................6
                3.1  Fair Market Value.....................................................................6
                3.2  Carrying Value........................................................................7
                3.3  Certain Defined Terms.................................................................7

                                                            ARTICLE IV

PROHIBITION ON PURCHASES...................................................................................9
                4.1  Prohibited Purchases..................................................................9

                                                             ARTICLE V

SALES TO THIRD PARTIES....................................................................................11
                5.1  General..............................................................................11
                5.2  Right of First Refusal...............................................................11
                5.3  Agreements to Be Bound...............................................................12
                5.4  Assignment...........................................................................13
                5.5  Involuntary Transfers................................................................13
                5.6  Tag- and Drag-Along Rights...........................................................14

                                                            ARTICLE VI

TERMINATION...............................................................................................17

                6.1  Sale of the Company..................................................................17
                6.2  Cessation of Ownership of Stock......................................................18
</TABLE>

                                       i
<PAGE>

<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        ----

<S>                                                                                                     <C>
                6.3  Other Termination Events.............................................................18

                                                            ARTICLE VII

MISCELLANEOUS PROVISIONS..................................................................................18
                7.1  Stock Certificate Legend.............................................................18
                7.2  Option Plans.........................................................................19
                7.3  New Employee Stockholders............................................................19
                7.4  No Other Arrangements or Agreements..................................................19
                7.5  Amendment and Modification...........................................................20
                7.6  Assignment...........................................................................20
                7.7  Recapitalizations, Exchanges, etc. Affect-
                     ing the Common Stock.................................................................21
                7.8  Transfer of Common Stock.............................................................21
                7.9  Further Assurances...................................................................22
                7.10 Governing Law........................................................................22
                7.11 Invalidity of Provision..............................................................22
                7.12 Notices..............................................................................22
                7.13 Headings; Execution in Counterparts..................................................23
                7.14 Entire Agreement; Effect on Certain
                     Other Agreements.....................................................................23
                7.15 Injunctive Relief....................................................................24
                7.16 Attorneys' Fees......................................................................24
</TABLE>

                                      ii
<PAGE>

              AMENDED AND RESTATED EMPLOYEE STOCKHOLDERS AGREEMENT
              ----------------------------------------------------


          AMENDED AND RESTATED EMPLOYEE STOCKHOLDERS AGREEMENT, dated as of
________ __, 2000 (this "Agreement"), by and among Endo Pharmaceuticals
                         ---------
Holdings Inc., a Delaware corporation (the "Company"), Kelso Investment
                                            -------
Associates V, L.P., a Delaware limited partnership (together with Kelso Equity
Partners V, L.P., a Delaware limited partnership, ("Kelso"), Endo Pharma LLC, a
                                                    -----
Delaware limited liability company (together with its designee, "Endo LLC"),
                                                                 --------
each of the employees of the Company listed on the signature page of this
Agreement and the employees of the Company or its subsidiaries who become
parties to this Agreement pursuant to Sections 8.2 and 8.3 of this Agreement and
each of their respective Permitted Transferees (the "Employee Stockholders").
                                                     ---------------------

          WHEREAS, the Company and the Employee Stock holders are parties to
that certain Employee Stockholders Agreement, dated as of December 1, 1997 (the
"1997 Employee Stockholders Agreement");
 -------------------------------------

          WHEREAS, the Company has entered into an agreement and plan of
merger, dated as of March 3, 2000 (as may be amended and restated from time to
time, the "Merger Agreement"), by and among the Company, Endo Inc. and Algos
           ----------------
Pharmaceutical Corporation ("Algos") whereby Algos will merge with and into Endo
                             -----
Inc., a wholly owned subsidiary of the Company (the "Merger");
                                                     ------

          WHEREAS, the Company and Endo LLC have granted, and may grant
additional, options to purchase shares of common stock, par value $.01 per
share, of the Company (together with shares of class A common stock, par value
$.01 of the Company, the "Common Stock") to employees of the Company and its
                          ------------
subsidiaries pursuant to the Endo 1997 Employee Stock Option Plan, the Endo
Pharma Amended and Restated 1997 Employee Stock Option Plan and the Endo Pharma
2000 Supplemental Employee Stock Option Plan (collectively, and together with
any similar such plan the Company may in the future adopt, the "Employee Option
                                                                ---------------
Plans") and, upon exercise of the options such shares of Common Stock will be
-----
subject to this Agreement and to the extent such employees are not already
parties to this Agreement, such employees will become parties to this Agreement
pursuant to Section 8.2 hereof;
<PAGE>

          WHEREAS, the Company may offer additional shares of Common Stock after
the date of this Agreement to employees of the Company and its subsidiaries and
such shares of Common Stock will be subject to this Agreement and to the extent
such employees are not already parties to this Agreement, such employees will
become parties to this Agreement pursuant to Section 10.3 hereof; and

          WHEREAS, the Company, Endo LLC and the Employee Stockholders believe
it to be in their respective best interests and in the best interests of the
Company that they enter into this Agreement providing for certain rights and
restrictions with respect to the shares of Common Stock owned by the Employee
Stockholders or their Permitted Transferees.

          NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the parties hereto agree that the 1997
Employee Stockholders Agreement is hereby amended and restated in its entirety
and agree as follows:


                                   ARTICLE I

                    RESTRICTIONS ON TRANSFER OF COMMON STOCK
                    ----------------------------------------

          1.1  General Restriction on Transfer by Employee Stockholders.  No
               --------------------------------------------------------
shares of Common Stock owned by any Employee Stockholder or any interest therein
may, directly or indirectly, be sold, assigned, transferred or otherwise
disposed of or transferred by such Employee Stockholder (collectively,
"Transferred" and any such transaction, a "Transfer"), except for (i) Transfers
------------                               --------
to a transferee pursuant to Section 1.2 hereof (a "Permitted Transferee"), (ii)
                                                   --------------------
Transfers of shares of Common Stock to the Company, Endo LLC, Kelso or any
designated affiliate or other designee of Kelso, including pursuant to Article
II hereof, or (iii) Transfers of shares of Common Stock pursuant to, or as
otherwise permitted under, Article V hereof; provided that in the event the
                                             -------- ----
employment of an Employee Stockholder with the Company or any of its
Subsidiaries is terminated for any reason, such Employee Stockholder may pledge,
hypothecate, mortgage or encumber his or her shares of Common Stock; provided
                                                                     --------
further that the terms of any such pledge, hypothecation, mortgage or
------- ----
encumbrance shall be approved by Endo LLC in its discre-

                                       2
<PAGE>

tion taking into account the financial situation of Endo LLC at the time.

           1.2  Permitted Transferees.
                ---------------------

          (a)  Subject to paragraph (b) of this Section 1.2, any Employee
Stockholder may Transfer any shares of Common Stock or any interest therein or
his or her rights to subscribe for the same, if any, (i) with the prior written
consent of Endo LLC's Board of Managers (the "LLC Board"), which consent shall
                                              ---------
not be unreasonably withheld (provided that reasonable grounds to withhold
                              -------- ----
consent shall include, but not be limited to, the risk of subjecting the
Company to registration or reporting requirements under federal securities
laws), to a trust or corporation the beneficiaries or stockholders of which are
such Employee Stockholder, as the case may be, his or her spouse, parents or any
other family members, or (ii) in case of his or her death, by will or by the
laws of intestate succession to executors, administrators, testamentary
trustees, legatees or beneficiaries.  In addition to the foregoing, any
transferee of an Employee Stock holder described above may Transfer shares of
Common Stock back to such Employee Stockholder or to another Permitted
Transferee of such Employee Stockholder.

          (b)  Any Transfer of shares of Common Stock made pursuant to paragraph
(a) of this Section 1.2 to a Permitted Transferee shall be permitted and shall
be effective only if such Permitted Transferee shall agree in writing to be
bound by the terms and conditions of this Agreement pursuant to an instrument of
assumption reasonably satisfactory in form and substance to Endo LLC.

          (c)  An "affiliate" of, or a person "affiliated" with, a specified
person, is a person that directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified (in the case of Kelso, including, without limitation, any
partner of such entity or any director or officer of Kelso & Company, any
individual retirement account of any such partner, director or officer, any
family member of any such partner, director or officer, or any trust or family
partnership for the benefit of any such partner, director or officer or family
member thereof).

                                       3
<PAGE>

                                  ARTICLE II

                            PURCHASES BY THE COMPANY

           2.1  Right to Purchase Shares from Employee Stockholders.
                ---------------------------------------------------

          (a)  Subject to all of the provisions of this Article II and Article
IV hereof, Endo LLC shall have the right to purchase from an Employee
Stockholder, and such Employee Stockholder shall have the obligation to sell to
Endo LLC, all, but not less than all, of the shares of Common Stock owned by
such Employee Stockholder:

               (i) at the Fair Market Value of such shares, if such Employee
     Stockholder's employment with the Company or any of its subsidiaries is
     terminated as a result of (v) the termination by the Company or one of its
     subsidiaries of such employment without Cause, (w) the resignation of such
     Employee Stockholder for Good Reason, (x) the resignation of such
     Management Stockholder without Good Reason, (y) the Retirement of such
     Employee Stockholder, or (z) the death or Disability of such Employee
     Stockholder; and

               (ii) at the lesser of the Fair Market Value and the Carrying
     Value (as defined in Section 3.2 hereof) of such shares, if such Employee
     Stockholder's employment with the Company or any of its subsidiaries is
     terminated by the Company or one of its subsidiaries with Cause.

          (b)  In the event that Endo LLC does not exercise such right to
purchase the shares of Common Stock from an Employee Stockholder by giving
notice within the 30-day period referred to in Section 2.2 hereof, Kelso, or a
party designated by Kelso, shall have the right to purchase, at its option, the
shares of Common Stock referred to in Section 2.1(a) hereof from such Employee
Stockholder, by giving notice not later than the end of the succeeding 10-day
period.

          2.2  Notice. If Endo LLC desires to purchase shares of Common Stock
               ------
from an Employee Stockholder pursuant to Section 2.1 hereof, it shall notify
such

                                       4
<PAGE>

Employee Stockholder not more than 30 days after the occurrence of the event
giving rise to Endo LLC's right to acquire such Employee Stockholder's shares of
Common Stock (or in the case of the Employee Stockholder's death, it shall
notify such Employee Stockholder's estate within 30 days of notice to Endo LLC
of the Employee Stockholder's death). If Endo LLC does not deliver such notice
within such 30-day period and Kelso (or its designee) desires to purchase such
shares, then Kelso (or its designee) shall notify such Employee Stockholder not
later than the end of the succeeding 10-day period.

           2.3 Payment.
               -------

          (a)  Subject to Article IV and Section 2.4 hereof, payment for shares
of Common Stock purchased pursuant to Section 2.1(a) and (b) hereof shall be
made on the date that is (i) in any case in which the price to be paid for such
shares may only be the Carrying Value thereof, the 30th business day following
the date on which notice is given pursuant to Section 2.2 hereof, or (ii) in all
other cases, the 15th business day following the date of the determination of
Fair Market Value pursuant to Section 3.1 hereof.

          (b)  If the termination of employment of such Employee Stockholder is
as a result of his or her resignation without Good Reason, and:

               (i) if the date of termination of employment occurs prior to
         December 1, 2002, then the purchase price of the purchased shares shall
         be paid within 15 days following the surrender of the certificates
         representing the purchased shares, and

              (ii) if the date of termination of employment occurs on or after
          December 1, 2002, then the portion of the purchase price of the
          purchased shares equal to the Carrying Value of such shares on the
          date of termination of employment shall be paid by the 15th day
          following the surrender of the certificates representing the
          purchased shares and the remainder shall be paid on the last day of
          the 18th month following the date of termination of employment.

                                       5
<PAGE>

          (c)  Any payments based on Fair Market Value required to be made by
Endo LLC under this Section 2.3 shall accrue interest at 6% simple interest per
annum on the amounts not paid from the date of termination of employment (or the
date of deemed termination) to the date Endo LLC makes such payments.

           2.4  Postponement, etc.
                ------------------

          (a)  No party shall be required to consummate any purchase and sale
under this Article II until such time as such transaction would not violate
applicable law, other than violations which would not have a direct or indirect
material adverse effect on such party.

          (b)  Notwithstanding anything to the contrary in this Article II, in
no event shall any sale of Common Stock that was received by an Employee
Stockholder upon the exercise of an employee stock option occur prior to the
six-month anniversary of such exercise.


                                  ARTICLE III

                                 PURCHASE PRICE

           3.1 Fair Market Value.
               -----------------

          (a) Fair Market Value.  For the purposes of this Agreement, the "Fair
              -----------------
Market Value" of any share of Common Stock being purchased by or sold to Endo
LLC or Kelso (or its designees) pursuant to this Agreement shall be the average
for the ten consecutive trading days prior to such transaction of the last sales
price for a share of Common Stock on the principal securities exchange on which
the Common Stock is then listed or, if the Common Stock is not so listed, on the
National Association of Securities Dealers Automated Quotation System or, if not
so quoted, on the principal market on which the Common Stock is then traded.

          (b) Notice to Employee Stockholders.  After notice has been given
              -------------------------------
pursuant to Section 2.2 or 5.5 hereof, Endo LLC shall promptly deliver a letter
setting forth the Fair Market Value to Kelso and to each Employee Stockholder
whose Common Stock is to be purchased pursuant to Section 2.1 or 5.5 hereof.

                                       6
<PAGE>

          (c)  Withdrawal of Exercise Following Appraisal.  Any party to this
               ------------------------------------------
Agreement who has exercised its option to purchase shares of Common Stock
pursuant to Section 2.1 hereof may withdraw its notice to purchase such shares
within 10 business days following the receipt of the letter referred to in
Section 3.1(b) hereof.

          3.2  Carrying Value.  For the purposes of Sections 2.1 and 5.5
               --------------
hereof, "Carrying Value" of any share of Common Stock being purchased by Endo
         --------------
LLC shall be equal to the price paid by the selling Employee Stock holder for
any such share.

          3.3  Certain Defined Terms.  As used in this Agreement, the following
               ---------------------
terms shall have the meanings ascribed to them below, except with respect to
such Employee Stockholders as determined, from time to time, by resolution of
the LLC Board, with employment agreements with the Company which define such
terms differently, in which case such terms shall have the meanings ascribed
to them in such employment agreements of such Employee Stockholders as
determined, from time to time, by resolution of the LLC Board:

          (a) Cause.  The term "Cause" used in connection with a termination of
              -----
employment of an Employee Stockholder shall mean a termination of such Employee
Stockholder's employment by the Company or any of its subsidiaries due to (i)
the continued failure, after written notice, by such Employee Stockholder
substantially to perform his or her duties with the Company or any of its
subsidiaries (other than any such failure resulting from incapacity due to
reasonably documented physical illness or injury or mental illness), (ii) the
engagement by such Employee Stockholder in serious misconduct that causes, or
in the good faith judgment of the Board may cause, harm (financial or otherwise)
to the Company or any of its subsidiaries including, without limitation, (A) the
disclosure of material secret or confidential information of the Company or any
of its subsidiaries, (B) the potential debarment of the Company or any of its
subsidiaries by the U.S. Food and Drug Administration or any successor agency
(the "FDA"), or (C) the possibility that the registration of the Company or any
      ---
of its subsidiaries with the U.S. Drug Enforcement Administration or any
successor agency (the "DEA") could be revoked or an application with the DEA
could be denied, (iii) the potential debarment of such Employee

                                       7
<PAGE>

Stockholder by the FDA, or (iv) the material breach by the Employee Stockholder
of this Agreement or any other agreement between such Employee Stockholder, on
the one hand, and the Company or Kelso, on the other hand.

          (b) Good Reason.  A termination of an Employee Stockholder's
              -----------
employment with the Company or any of its subsidiaries shall be for "Good
                                                                     ----
Reason" if such Employee Stockholder voluntarily terminates his or her
employment with the Company or any of its subsidiaries as a result of any of the
following:

               (i) without the Employee Stockholder's prior written consent, a
     material reduction by the Company or any of its subsidiaries in his or her
     current salary, other than any such reduction which is part of a general
     salary reduction or other concessionary arrangement affecting all employees
     or affecting the group of employees of which the Employee Stockholder is a
     member; or

               (ii) the taking of any action by the Company or any of its
     subsidiaries that would substantially diminish the aggregate value of the
     benefits provided him or her under the Company's or any such subsidiary's
     medical, health, accident, disability, life insurance, thrift and
     retirement plans in which he or she was participating on the date of his or
     her execution of this Agreement, other than any such reduction that is (A)
     required by law, (B) implemented in connection with a general concessionary
     arrangement affecting all employees or affecting the group of employees of
     which the Employee Stockholder is a member or (C) generally applicable to
     all beneficiaries of such plans; or

          (c) Disability.  The termination of the employment of any Employee
              ----------
Stockholder by the Company or any of its subsidiaries shall be deemed to be by
reason of a "Disability" if, as a result of such Employee Stockholder's
             ----------
incapacity due to reasonably documented physical illness or injury or mental
illness, such Employee Stock holder shall have been unable for more than six
months within any 12-month period to perform his or her duties with the Company
or any of its subsidiaries on a full time basis and within 30 days after written
notice of termination has been given to such Employee Stockholder, such Employee
Stockholder shall not have

                                       8
<PAGE>

returned to the full time performance of his or her duties. The date of
termination in the case of a termination for "Disability" shall be the last day
of the aforementioned 30-day period.


                                  ARTICLE IV

                            PROHIBITION ON PURCHASES

          4.1  Prohibited Purchases.  Notwithstanding anything to the contrary
               --------------------
herein, Endo LLC shall not be permitted to purchase any shares of Common Stock
from an Employee Stockholder (or make any payment for any purchased shares of
Common Stock) pursuant to Section 2.1 hereof to the extent (i) Endo LLC or the
Company (if the Company were to be the sole source of the funds necessary to
make any such payment or purchase) is prohibited from purchasing such shares (or
incurring debt to finance the purchase of such shares or making payment for such
purchased shares) by any debt instruments or other agreements (the
"Agreements") entered into by Endo LLC, the Company or any of their respective
 ----------
subsidiaries, or by applicable law, (ii) an event of default under any Agreement
has occurred and is continuing or a condition exists which would, with notice or
lapse of time or both, result in an event of default under any Agreement or
(iii) the purchase of such shares by Endo LLC or the Company (if the Company
were to be the sole source of the funds necessary to make any such payment or
purchase)(including the incurrence of any debt which in the judgment of the LLC
Board is necessary to finance such purchase or the payment for such purchased
shares) (A) could, in the judgment of the LLC Board, result in the occurrence of
an event of default under any Agreement or create a condition which would or
might, with notice or lapse of time or both, result in an event of default under
any Agreement, (B) would, in the judgment of the LLC Board, be imprudent in view
of the financial condition (present or projected) of Endo LLC and its
subsidiaries, if any, taken as a whole, or the Company and its subsidiaries,
taken as a whole, or the anticipated impact of the purchase of (or payment for)
such shares on Endo LLC's, the Company's (if the Company were to be the sole
source of the funds necessary to make any such payment or purchase) or any of
their respective subsidiaries' ability to meet their respective obligations,
including under any Agreement or (C) could, in the judgment of the LLC Board,

                                       9
<PAGE>

constitute a fraudulent conveyance or transfer or render Endo LLC or the Company
(if the Company were to be the sole source of the funds necessary to make any
such payment or purchase) insolvent under applicable law or violate limitations
in the Delaware General Corporation Law on repurchases of stock. If shares of
Common Stock which Endo LLC has the right to purchase (or make payment for) on
any date exceed the total amount permitted to be purchased on such date pursuant
to the preceding sentence, Endo LLC shall purchase (or pay for) on such date
only up to that number of shares of Common Stock in the manner that the LLC
Board determines in its sole discretion.

          Subject to Section 2.1(c) hereof, notwithstanding anything to the
contrary contained in this Agreement, if Endo LLC is unable to purchase any
Employee Stock holder's shares pursuant to Section 2.1 of this Agreement by
reason of this Article IV (or make any payment for any purchased shares), Endo
LLC may nonetheless in the case of Section 2.1 hereof exercise its option to
purchase such shares and shall purchase (or make payment for) such shares at the
earliest practicable date permitted under this Article IV and any payment
therefor shall accrue simple interest (or if such payment is accruing interest
at such time, shall continue to accrue interest) at 6% per annum from the date
such payment would have been made but for this Article IV to the date such
payment is actually made.  All payments of interest accrued hereunder shall be
paid only at the date of payment by Endo LLC for the shares of Common Stock
being purchased.  Any shares as to which Endo LLC has exercised its right to
purchase pursuant to Section 2.1 hereof may not otherwise be sold by the
Employee Stockholder notwithstanding non-payment therefor pursuant to this
Article IV.


                                   ARTICLE V

                             SALES TO THIRD PARTIES

          5.1  General.  Prior to the end of the Restricted Period (as defined
               -------
below), no Employee Stock holder shall sell any of his or her shares of Common
Stock to a third party.  Except as otherwise permitted under Section 5.6 hereof,
after the termination of the Restricted Period, Employee Stockholders may sell
their

                                       10
<PAGE>

shares of Common Stock they then own to a third party only in compliance
with the provisions of Sections 5.2 and 5.3 hereof.  The foregoing provisions of
this Section 5.1 do not apply to any sale or other transaction described in
clause (i) or (ii) of Section 1.1 hereof or to any sale pursuant to a
Registration under the Act, subject to Article VI hereof.  The period of time
from the date of this Agreement until December 1, 2002 shall hereinafter be
referred to as the "Restricted Period."
                    -----------------

           5.2 Right of First Refusal.
               ----------------------

          (a)  Subject to Section 5.1 hereof, if an Employee Stockholder shall
have received a bona fide offer or offers from a third party or parties to
purchase for cash any shares of Common Stock whether now or hereafter owned by
such Employee Stockholder, then prior to selling such shares of Common Stock to
such third party or parties, the Employee Stockholder shall deliver to Endo LLC
a letter signed by such Employee Stockholder setting forth:

               (i)   the name or names of the third party or parties;

               (ii)  the prospective purchase price per share of Common Stock;

               (iii)  all material terms and conditions contained in the offer
     of the third party or parties;

               (iv  the Employee Stockholder's offer (which shall be irrevocable
     by its terms for 30 days following receipt) to sell to Endo LLC all, but
     not less than all, of the shares of Common Stock covered by the offer of
     the third party or parties, for a purchase price per share of Common Stock,
     and on other terms and conditions, not less favorable to Endo LLC than
     those contained in the offer of the third party or parties (an "Offer");
                                                                     -----
     and

               (v)  closing arrangements and a closing date (not less than 45
     nor more than 60 days following the date of such letter) for any purchase
     and sale that may be effected by Endo LLC or any of its assignees pursuant
     to this Section 5.

                                       11
<PAGE>

Endo LLC shall, within 10 days following receipt of such letter, have the right
to elect to purchase such shares of Common Stock or the obligation to assign its
right to purchase such shares to Kelso, in the event Kelso elects to exercise
its right to require Endo LLC to assign its right to Kelso prior to 5 days after
the expiration of such 10-day period pursuant to Section 5.4 hereof.  If Endo
LLC shall be required to assign such right to purchase such shares of Common
Stock to Kelso, pursuant to Section 5.4 hereof, it shall deliver written notice
of such assignment, on the first day following the end of such 10-day period, to
Kelso.  Within 15 days after receipt of such notice from Endo LLC, Kelso shall
have the right to exercise its right of first refusal.

          (b)  If, upon the expiration of 30 days following receipt by Endo LLC
of the letter described in Section 5.2(a) hereof, neither Endo LLC nor Kelso
shall have accepted the Offer in full, the Employee Stockholder may sell only to
such third party or parties all (but not less than all) of the shares of Common
Stock covered by the Offer, for the purchase price and on the other terms and
conditions contained in the Offer.  If Endo LLC or its assignee or assignees
shall accept such Offer, the closing of the purchase and sale pursuant to such
acceptance shall take place as set forth in the letter of such Employee
Stockholder to Endo LLC pursuant to subparagraph (v) of Section 5.2(a) hereof.

          5.3    Agreements to Be Bound.  Notwithstanding anything contained in
                 ----------------------
this Article 5, any sale to a third party or any Involuntary Transfer (as
defined in Section 5.5 hereof) to an Involuntary Transferee (as defined in
Section 5.5 hereof) shall be permitted under the terms of this Agreement only if
such third party or Involuntary Transferee, as the case may be, shall agree in
writing to be bound by the terms and conditions of this Agreement pursuant to an
instrument of assumption reasonably satisfactory in form and substance to Endo
LLC.

          5.4    Assignment.  Kelso shall have the right to require Endo LLC to
                 ----------
assign to Kelso (or any affiliates or designees of Kelso) Endo LLC's right of
first refusal with respect to an Offer in accordance with Section 5.2(a) hereof.

          5.5    Involuntary Transfers.  In the case of any transfer of title or
                 ---------------------
beneficial ownership of shares

                                       12
<PAGE>

of Common Stock upon default, foreclosure, forfeit, divorce, court order, or
otherwise than by a voluntary decision on the part of an Employee Stockholder
(an "Involuntary Transfer"), Endo LLC shall have the right to purchase such
     --------------------
shares pursuant to this Section 5.5. Upon the Involuntary Transfer of any shares
of Common Stock, such Employee Stockholder shall promptly (but in no event later
than two days after such Involuntary Transfer) furnish written notice (the
"Notice") to Endo LLC indicating that the Involuntary Transfer has occurred,
 ------
specifying the name of the person to whom such shares have been transferred (the
"Involuntary Transferee") and giving a detailed description of the circumstances
 ----------------------
giving rise to, and stating the legal basis for, the Involuntary Transfer. Upon
the receipt of the Notice, and for 30 days thereafter, Endo LLC shall have the
right to purchase, and the Involuntary Transferee shall have the obligation to
sell, all, but not less than all, of the shares of Common Stock acquired by the
Involuntary Transferee for a purchase price equal to the lesser of (i) the Fair
Market Value of such shares of Common Stock on the date of transfer to the
Involuntary Transferee and (ii) the amount of the indebtedness or other
liability that gave rise to the Involuntary Transfer plus the excess, if any, of
the Carrying Value of such shares of Common Stock over the amount of such
indebtedness or other liability that gave rise to the Involuntary Transfer.

          Notwithstanding the foregoing, the LLC Board may, for good cause shown
by the Employee Stockholder who made the Involuntary Transfer, determine that
payment of a purchase price equal to the Fair Market Value of such shares of
Common Stock on the date of transfer to the Involuntary Transferee would be
appropriate under the circumstances, and direct that payment be made in such
amount.

          Endo LLC's right to purchase pursuant to this Section 5.5 shall be
assignable in accordance with Section 5.4 as if such right to purchase were a
"right of first refusal".

           5.6  Tag- and Drag-Along Rights.
                --------------------------

          (a)  Tag-Along Rights. Endo LLC shall not, in any one transaction or
               ----------------
any series of similar transactions not effected through a broker or over a
national securities exchange, Transfer more than 25% of the shares of

                                       13
<PAGE>

Common Stock it owns as of the date of the Merger, except pursuant to Section
5.6(b) hereof, to any third party or parties unaffiliated with Endo LLC (a
"Third Party") unless the Employee Stockholders (collectively, the "Offerees"),
                                                                    --------
are offered the right, at the option of each Offeree, to include in such
Transfer to the Third Party such number of shares of Common Stock then owned by
each such Offeree, as determined in accordance with this Section 5.6(a). If
Endo LLC receives from a Third Party a bona fide offer or offers to Transfer
which it intends to accept, or proposes to Transfer to a Third Party, shares of
its Common Stock, Endo LLC shall provide written notice (the "Tag-Along Notice")
                                                              ----------------
to each of the Offerees, setting forth the consideration per share to be paid by
such Third Party and the other material terms and conditions of such
transaction. The Tag-Along Notice shall offer the Offerees the opportunity to
participate in the proposed Transfer of shares to the Third Party according to
the terms and conditions of this Section 5.6(a) and for the same type of
consideration and for an amount of consideration per share not less than that
offered to Endo LLC by the Third Party. At any time within 20 days after its
receipt of the Tag-Along Notice, each of the Offerees may irrevocably accept the
offer included in the Tag-Along Notice for up to such number of shares of Common
Stock as is determined in accordance with the provisions of this Section 5.6(a)
by furnishing written notice of such acceptance to Endo LLC. Promptly following
such acceptance by an Offeree, each such Offeree shall deliver to Endo LLC the
certificate or certificates representing the shares of Common Stock to be
Transferred pursuant to such offer by such Offeree, together with a limited
power-of-attorney authorizing Endo LLC to sell or otherwise dispose of such
shares of Common Stock pursuant to the proposed Transfer to the Third Party.

          Each Offeree shall have the right to participate in the proposed
Transfer to the Third Party by Transferring in connection therewith shares of
Common Stock equal to the product of (x) the total number of shares to be
acquired by the Third Party, times (y) a fraction, the numerator of which shall
be the total number of shares of Common Stock then owned by such Offeree, and
the denominator of which shall be the number of shares of Common Stock then
owned by Endo LLC plus the total number of shares of Common Stock then owned by
the Offerees (plus offerees of tag-along rights under that

                                       14
<PAGE>

certain Amended and Restated Stockholders Agreement, dated as of ________ __,
2000 (the "Principal Stockholders Agreement"), among the Company, Endo LLC
           --------------------------------
and certain other stockholders of the Company with respect to the Common Stock),
subject to the allocations under the Principal Stockholders Agreement. The
maximum number of shares of Common Stock that may be Transferred by each Offeree
to the Third Party in accordance with this Section 5.6(a) hereof shall be the
total number of shares of Common Stock then owned by such Offeree.

          If within 20 days after the receipt of the Tag-Along Notice, any
Offeree has not accepted the offer contained in the Tag-Along Notice, such
Offeree will be deemed to have waived any and all rights with respect to, or to
participate in, the Transfer of Common Stock described in the Tag-Along Notice
and Endo LLC shall have 45 days in which to Transfer not more than the amount of
Common Stock described in the Tag-Along Notice, for an amount and type of
consideration per share not materially more favorable to Endo LLC than was set
forth in the Tag-Along Notice.  If, at the end of 65 days following the receipt
of the Tag-Along Notice, Endo LLC has not completed the Transfer of Common
Stock of Endo LLC and Common Stock of any Offeree, Endo LLC shall return to such
Offeree all certificates representing shares of Common Stock which such Offeree
delivered for Transfer pursuant to this Section 5.6(a), and all the restrictions
on sale or other disposition contained in this Agreement with respect to Common
Stock then or thereafter owned by the Offeree shall again be in effect.

          As promptly as practicable (but in no event later than 5 days) after
the consummation of the Transfer of Common Stock of Endo LLC and Common Stock of
the Offerees to the Third Party in accordance with this Section 5.6(a), Endo LLC
shall notify the Offerees thereof, shall remit to each of the Offerees the total
consideration in respect of the shares of Common Stock of such Offeree which
were so Transferred, and shall furnish such other evidence of the completion and
time of completion of such Transfer and the terms thereof as may be reasonably
requested by the Offerees.

          (b)  Drag-Along Rights.  If Endo LLC shall propose to Transfer at
               -----------------
least 60% of all shares of Common Stock then owned by Endo LLC to a Third Party,
then (in addition to the rights of the Employee Stockholders to

                                       15
<PAGE>

participate in such Transfer pursuant to Section 5.6(a) hereof) Endo LLC may, at
its option, require the Employee Stockholders (collectively, the "Remaining
Holders") to include in such Transfer to the Third Party such number of shares
of Common Stock then owned by such Remaining Holder, as determined in accordance
with this Section 5.6.

          Endo LLC shall send written notice (the "Drag-Along Notice") of the
                                                   -----------------
exercise of their rights pursuant to this Section 5.6(b) to each of the
Remaining Holders, setting forth the consideration per share to be paid by the
Third Party and the other material terms and conditions of such transaction.
The Drag-Along Notice shall state that the Remaining Holders shall be required
to participate in the proposed Transfer of shares of Common Stock to the Third
Party according to the terms and conditions of this Section 5.6(b) and for the
same type of consideration and for an amount of consideration per share not less
than that offered to Endo LLC by the Third Party.  Within 15 days following the
receipt of the Drag-Along Notice, each of the Remaining Holders shall deliver to
a representative of Endo LLC designated in the Drag-Along Notice certificates
representing all shares of Common Stock held by such Remaining Holder, duly
endorsed, together with all other documents required to be executed in
connection with such transaction. In the event that any Remaining Holder should
fail to deliver such certificates to Endo LLC, the Company shall cause the books
and records of the Company to show that such shares are bound by the provisions
of this Section 5.6(b) and that such shares may be Transferred only to the Third
Party.

          Each Remaining Holder shall be required to participate in the
proposed Transfer to the Third Party by Transferring in connection therewith
shares of Common Stock equal to the product of (x) the total number of shares to
be acquired by the Third Party, times (y) a fraction, the numerator of which
shall be the total number of shares of Common Stock then owned by such Remaining
Holder, and the denominator of which shall be the total number of shares of
Common Stock then owned by Endo LLC plus the total number of shares of Common
Stock then owned by the Remaining Holders.  The maximum number of shares of
Common Stock that may be Transferred by each Remaining Holder to the Third Party
in accordance with

                                       16
<PAGE>

this Section 5.6(b) shall be the total number of shares of Common Stock then
owned by such Remaining Holder.

          If, within 120 days after Endo LLC gave the Drag-Along Notice, it
shall not have completed the Transfer of all the shares of Common Stock of the
Remaining Holders in accordance with this Section 5.6(b), Endo LLC shall return
to each of the Remaining Holders all certificates representing shares of Common
Stock that such Remaining Holder delivered for Transfer pursuant hereto and that
were not purchased pursuant to this Section 5.6(b).

          Promptly (but in no event later than 5 days) after the consummation of
the Transfer of Common Stock of Endo LLC and Remaining Holders pursuant to this
Section 5.6(b), Endo LLC shall give notice thereof to the Remaining Holders,
shall remit to each of the Remaining Holders the total consideration in respect
of the shares of Common Stock of such Remaining Holder which were so
transferred, and shall furnish such other evidence of the completion and time of
completion of such Transfer and the terms thereof as may be reasonably requested
by such Remaining Holders.

                                  ARTICLE VI

                                  TERMINATION

          6.1  Sale of the Company.  This Agreement shall terminate (a) in the
               -------------------
event of a sale of the Company or all or substantially all of its assets to a
party (whether by merger, stock sale or otherwise) other than Endo LLC or one
of its affiliates, or (b) in the event that all parties to this Agreement cease
to own any shares of Common Stock or any interest therein.  In the event that
Endo LLC shall come to own less than five percent of the outstanding Common
Stock, this Agreement shall also terminate, except with respect to Article VI
hereof which shall survive such termination indefinitely.

          6.2  Cessation of Ownership of Stock.  Any party to, or person or
               -------------------------------
entity who is subject to, this Agreement (other than the Company and Kelso)
which ceases to own shares of Common Stock or any interest therein shall cease
to be a party to, or person or entity who is subject to, this Agreement and
thereafter shall have no rights or obligations hereunder.

                                       17
<PAGE>

           6.3  Other Termination Events.
                ------------------------

          (a)  This Agreement may be terminated by the affirmative vote of the
members of Endo LLC owning a majority of the issued and outstanding membership
interests in Endo LLC.

          (b)  Notwithstanding anything to the contrary contained herein, every
provision of this Agreement, other than the provisions contained in Section 5.5
and Article VI hereof, shall terminate on the fifteenth anniversary of this
Agreement.


                                  ARTICLE VII

                            MISCELLANEOUS PROVISIONS

          7.1  Stock Certificate Legend.  A copy of this Agreement shall be
               ------------------------
filed with the Secretary of the Company and kept with the records of the
Company.  Each certificate representing shares of Common Stock owned by the
Employee Stockholders shall bear upon its face the following legend:

     "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
     AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"),
     AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
     DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE
     STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL TO THE HOLDER,
     WHICH COUNSEL MUST BE, AND THE FORM AND SUBSTANCE OF WHICH OPINION ARE,
     SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, ASSIGNMENT, PLEDGE,
     HYPOTHECATION, TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION OR
     IS OTHERWISE IN COMPLIANCE WITH THE ACT, SUCH LAWS AND THE AMENDED AND
     RESTATED EMPLOYEE STOCK HOLDERS AGREEMENT, DATED AS OF ________ __, 2000."

          All Employee Stockholders shall be bound by the requirements of such
legends to the extent that such legends are applicable.  Upon a registration
under the Act of any shares of Common Stock, the certificate representing such
shares shall be replaced, at the

                                       18
<PAGE>

expense of the Company, with certificates not bearing the legend required by
this Section 8.1.

          7.2  Option Plans.  Pursuant to the Option Plans, the Company has
               ------------
required that participants thereunder must become parties to this Agreement
upon exercise of the of options and that they will be "Employee Stock holders"
hereunder with respect to such shares.  In addition, Endo LLC, notwithstanding
any requirement set forth in Section 8.5 hereof, can determine that any options
granted pursuant to the Option Plans and outstanding and vested as of the
option holder's termination of employment with the Company and its subsidiaries
shall be deemed to be Common Stock for purposes of Section 2 hereof; provided,
                                                                     --------
however, that appropriate adjustments shall be made to reflect the existence of
-------
an exercise price for such options.

          7.3  New Employee Stockholders.  Each of the Employee Stockholders
               -------------------------
hereby agrees that the Company may require that any employee of the Company or
any of its subsidiaries who after the date of this Agreement is offered shares
of Common Stock shall, as a condition precedent to the acquisition of such
shares of Common Stock, become a party to this Agreement by executing the same
and delivering it to the Company at its address specified in Section 8.12
hereof.  Upon such execution and delivery, such employee shall be an "Employee
Stock holder" for all purposes of this Agreement.

          7.4  No Other Arrangements or Agreements.  Each Employee Stockholder
               -----------------------------------
hereby represents, warrants  and covenants to Endo LLC and to each other
Employee Stock holder that, except for, if applicable, the exchange agreement
entered into on December 1, 1997, by and between the Company and each Employee
Stockholder (collectively, the "Exchange Agreements") and the exchange
                                -------------------
agreement entered into as of the date of this Agreement, by and between Endo LLC
and each Employee Stockholder (collectively, the "LLC Exchange Agreements"), he
                                                  -----------------------
or she has not entered into or agreed to be bound by, and will not enter into or
agree to be bound by, any other arrangements or agreements of any kind with any
other party with respect to the shares of Common Stock, including, but not
limited to, arrangements or agreements with respect to the acquisition,
disposition or voting of shares of Common Stock (whether or not such agreements
and arrangements are with the Company, other

                                       19
<PAGE>

Employee Stockholders or holders of Common Stock that are not parties to this
Agreement).

          7.5  Amendment and Modification.  This Agreement may be amended,
               --------------------------
modified or supplemented only with the written consent of (i) Kelso and (ii)
Employee Stockholders owning a majority of the outstanding Common Stock then
owned by all Employee Stockholders.  Promptly after any amendment, modification
or supplement shall take effect, Endo LLC shall notify all Employee Stockholders
of such amendment, modifications or supplement; provided that Endo LLC may, at
                                                -------- ----
any time and from time to time, in its sole discretion, release all or a portion
of any Employee Stockholder's shares of Common Stock from this Agreement.

          7.6  Assignment.  The provisions of this Agreement shall be binding
               ----------
upon and inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns; provided, however, that none of
                                               --------  -------
Endo LLC, the Company and any Employee Stockholder shall assign any of its
rights or obligations pursuant to this Agreement without the prior written
consent of Kelso.  Endo LLC, with the prior written consent of Kelso, shall have
the right, but not the obligation, to assign any of its rights, and delegate
any of its obligations, to purchase any shares of Common Stock of any Employee
Stockholder pursuant to Section 2 hereof to any affiliate of Endo LLC, any one
or more persons or entities who are or become parties to this Agreement or any
employee stock ownership plan that the Company may have (or any combination of
the foregoing).  In the case of Permitted Transferees, third parties and
Involuntary Transferees, such Permitted Transferees, third parties or
Involuntary Transferees, as the case may be, shall be deemed the Employee
Stockholder hereunder for purposes of obtaining the benefits or enforcing the
rights of such Employee Stockholder hereunder; provided, however, that no
                                               --------  -------
Permitted Transferee, third party or Involuntary Transferee, as the case may be,
shall derive any rights under this Agreement unless and until such Permitted
Transferee, third party or Involuntary Transferee, as the case may be, has
delivered to Endo LLC a valid undertaking to become, and becomes, bound by the
terms of this Agreement to which the transferring Employee Stockholder is
subject.

                                       20
<PAGE>

          7.7  Recapitalizations, Exchanges, etc. Affecting the Common Stock.
               -------------------------------------------------------------
Except as otherwise provided herein, the provisions of this Agreement shall
apply to the full extent set forth herein with respect to (i) the shares of
Common Stock and (ii) any and all shares of capital stock of the Company or any
successor or assign of the Company (whether by merger, consolidation, exchange,
sale of assets or otherwise), which may be issued in respect of, in exchange
for, or in substitution for the shares of Common Stock, by reason of any stock
dividend, split, reverse split, combination, recapitalization,
reclassification, merger, consolidation or otherwise.  References to the
"Company" set forth herein shall be deemed to refer to any such successor or
assign and such entity shall execute an appropriate instrument of assumption
agreeing to be bound by the terms hereof. Except as otherwise provided herein,
this Agreement is not intended to confer upon any person, except for the parties
hereto, any rights or remedies hereunder.

          7.8  Transfer of Common Stock.  If at any time Endo LLC purchases any
               ------------------------
shares of Common Stock pursuant to this Agreement, Endo LLC may pay the purchase
price determined under this Agreement for the shares of Common Stock it
purchases by wire transfer of funds or Endo LLC check in the amount of the
purchase price, and upon receipt of payment of such purchase price or, pursuant
to Section 2.3 or Article IV hereof, any portion thereof, the selling Employee
Stockholder shall deliver to Endo LLC the certificates representing the number
of shares of Common Stock being purchased in a form suitable for transfer, duly
endorsed in blank, and free and clear of any lien, claim or encumbrance.  In the
event that any Employee Stockholder refuses or otherwise fails to deliver, in
accordance with the preceding sentence, certificates representing the number of
shares of Common Stock being purchased, the shares of Common Stock purchased
from such Employee Stockholder shall (notwithstanding such refusal or failure)
be deemed, upon receipt by such Employee Stockholder of the purchase price
therefor, to not be outstanding for any purposes.  Notwithstanding anything in
this Agreement to the contrary, Endo LLC shall not be required to make any
payment for shares of Common Stock purchased hereunder until delivery to it of
the certificates representing such shares.  If Endo LLC is purchasing less than
all the shares of Common Stock represented by a single certificate, Endo LLC,
after making such purchase, shall deliver to the selling

                                       21
<PAGE>

Employee Stockholder a certificate for any unpurchased shares of Common Stock.

          7.9  Further Assurances.  Each party hereto or person or entity
               ------------------
subject hereto shall do and perform or cause to be done and performed all such
further acts and things and shall execute and deliver all such other agreements,
certificates, instruments and documents as any other party hereto or person or
entity subject hereto may reasonably request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

          7.10  Governing Law.  This Agreement and the rights and obligations of
                -------------
the parties hereunder and the persons subject hereto shall be governed by, and
construed and interpreted in accordance with, the law of the State of Delaware,
without giving effect to the choice of law principles thereof.

          7.11  Invalidity of Provision.  The invalidity or unenforceability of
                -----------------------
any provision of this Agreement in any jurisdiction shall not affect the
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of this Agreement, including that
provision, in any other jurisdiction.

          7.12  Notices.  All notices and other communications hereunder shall
                -------
be in writing and, unless otherwise provided herein, shall be deemed duly given
if delivered personally, telecopied (which is confirmed) or sent by registered
or certified mail (postage prepaid, return receipt requested) or by Fedex or
other similar courier service to the parties at the following addresses (or at
such other address as the person or entity to whom notice is given may have
previously furnished to the others in writing as set forth in this Section 8.12
(provided that any change of address shall be effective only upon receipt
thereof)):

               (a)  If to the Company, to it at:

                    Endo Pharmaceuticals Holdings Inc.
                    223 Wilmington-West Chester Pike
                    Chadds Ford, Pennsylvania  19317
                    Attn: Carol A. Ammon

                                       22
<PAGE>

                    with a copy to:

                    Kelso & Company
                    320 Park Avenue, 24th Floor
                    New York, New York  10022
                    Attention:  James J. Connors, II
                    Telecopy No.:  (212) 223-2379

               (b) if to an Employee Stockholder, as listed on the signature
          page hereto, or, if not so listed, to it at his or her address as
          reflected in the stock records of the Company, or as such Employee
          Stockholder shall designate to the Company in writing, with a copy to
          Endo LLC at its address indicated below (provided that any such
          designation shall be effective only upon receipt thereof).

               (c)  If to Endo LLC, to it at:

                    Endo Pharma LLC
                    c/o Kelso & Company
                    320 Park Avenue, 24th Floor
                    New York, New York  10022
                    Attention:  James J. Connors, II
                    Telecopy No.:  (212) 223-2379

          7.13  Headings; Execution in Counterparts.  The headings and captions
                -----------------------------------
contained herein are for convenience and shall not control or affect the
meaning or construction of any provision hereof.  This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original
and which together shall constitute one and the same instrument.

          7.14  Entire Agreement; Effect on Certain Other Agreements.  This
                ----------------------------------------------------
Agreement, the Exchange Agreements and the LLC Exchange Agreements embody the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein.  There are no restrictions, promises,
representations, warranties, covenants or undertakings relating to the shares of
Common Stock, other than those expressly set forth or referred to herein or in
the Exchange Agreements or the LLC Exchange Agreements.  This Agreement, the
Exchange Agreements and the LLC Exchange Agreements supersede all prior
agree-

                                       23
<PAGE>

ments and understandings among the parties with respect to such subject matter.

          7.15  Injunctive Relief.  The Company, Endo LLC and the Employee
                -----------------
Stockholders hereby acknowledge that they each shall be irreparably damaged in
the event this Agreement is not specifically enforced.  Each of the parties
therefore agrees that in the event of a breach of any provision of this
Agreement, the aggrieved party may elect to institute and prosecute proceedings
in any court of competent jurisdiction to enforce specific performance or to
enjoin the continuing breach of this Agreement. Such remedies shall, however, be
cumulative and not exclusive, and shall be in addition to any other remedy which
the Company, Endo LLC or the Employee Stockholders may have.  Each Employee
Stockholder hereby irrevocably submits to the non-exclusive jurisdiction of the
state and federal courts in New York and Delaware for the purposes of any suit,
action or other proceeding arising out of or based upon this Agreement or the
subject matter hereof.  Each Employee Stockholder hereby consents to service of
process by mail made in accordance with Section 8.12 hereof.

          7.16  Attorneys' Fees.  If any legal action or any arbitration or
                ---------------
other proceeding is brought for the enforcement of this Agreement, or because of
an alleged dispute, breach, default or misrepresentation in connection with any
of the provisions of this Agreement, the successful or prevailing party or
parties shall be entitled to recover such reasonable attorneys' fees and other
costs incurred in that action or proceeding, in addition to any other relief to
which it or they may be entitled, as may be ordered in connection with such
proceeding.

                                       24
<PAGE>

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


                    ENDO PHARMACEUTICALS HOLDINGS INC.


                    By:
                        -------------------------------------------
                    Name:   Carol A. Ammon
                    Title:  President and
                            Chief Executive Officer


                    KELSO INVESTMENT ASSOCIATES V, L.P.

                    By:  Kelso Partners V, L.P.,
                         General Partner



                    By:
                        -------------------------------------------
                        General Partner


                     ENDO PHARMA LLC


                    By:
                        -------------------------------------------
                        Name:   Carol A. Ammon
                        Title:  Chief Executive Officer

                                       25
<PAGE>

          The undersigned, by its signature below hereby becomes a party to the
Amended and Restated Employee Stockholders Agreement, dated as of ________ __,
2000, by and among Endo Pharmaceuticals Holdings Inc. and certain of its
stockholders (the "Employee Stockholders Agreement") pursuant to Section 8.3
thereof and agrees to be bound by the terms of the Employee Stockholders
Agreement and, for all purposes thereof, to be an "Employee Stockholder".

          IN WITNESS WHEREOF, the undersigned has executed this instrument as
of the ____ day of __________, 20__.



                              ---------------------------
                                        Signature


                              ---------------------------
                                       Print Name


                              Address (please print)

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

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

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

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

                                       26