ADMINISTRATIVE AGREEMENT
                                     BETWEEN
                          THE DEFENSE LOGISTICS AGENCY
                                       AND
                           COPLEY PHARMACEUTICAL, INC.



This  Agreement  dated  the  1st  day of  May,  1998,  is  made  between  Copley
Pharmaceutical,  Inc.  ("Copley") and the Defense  Logistics Agency ("DLA").  As
used herein,  "Copley"  means Copley  Pharmaceutical  Inc. and all its operating
sectors, groups, divisions, units and wholly-owned subsidiaries, including those
acquired  or  established  during the term of this  Agreement.  As used  herein,
"Government" means the United States Government.


                                    PREAMBLE


1. Copley is a corporation  engaged in the development,  manufacture,  sale, and
distribution  of generic drugs and other  products,  with its principal place of
business in Canton, MA.

2. On May 28,  1997,  Copley was charged by Criminal  Information  in the United
States  District  Court  for the  District  of  Massachusetts  with one count of
conspiracy to defraud the United  States in violation of 18 U.S.C.  ss. 371. The
Information  alleged  that,  from in or about May 1988  through in or about July
1994,  Copley conspired to manufacture  drugs approved by the U.S. Food and Drug
Administration  ("FDA") using methods  different  from those approved by FDA, to
falsify  manufacturing  batch records for  FDA-approved  drugs,  to submit false
annual reports to FDA for approved drugs, and to fail to seek prior FDA approval
for certain  manufacturing  changes. On June 19, 1997, in accordance with a plea
agreement  dated  May  27,  1997,  Copley  pled  guilty  to the  charges  in the
Information.  Copies of the Plea Agreement and the  Information  are attached to
this Agreement as Exhibits 1 and 2, respectively.

3.  Judgment of  conviction  and sentence with respect to Copley were entered on
June 19, 1997.  Copley was sentenced to "pay a fine in the amount of Ten Million
Six  Hundred  Fifty  Thousand  Dollars  ($10,650,000)"  and to  "pay  a  Special
Assessment in the amount of Four Hundred Dollars ($400).  The fine is to be paid
over a three-year period."

4. On October 24,  1997,  DLA  proposed  Copley for  debarment  from  Government
contracting and  Government-approved  subcontracting  pursuant to the procedures
contained  in the  Federal  Acquisition  Regulation  (FAR)  Subpart  9.4 and the
Department  of Defense  FAR  Supplement  (DFARS)  Subpart  209.4.  The  proposed
debarment action was based upon Copley's criminal conviction.


<PAGE>



5. By written and oral  presentations  beginning  on  December  3, 1997,  Copley
presented to DLA information in opposition to the debarment. Copley outlined the
present Copley Business  Conduct Policy and Corporate  Compliance  Program;  its
agreement with FDA; its quality  accomplishments  since August 1994; its current
standard  operating  procedures;  its education and training program;  and other
changes in policy since the conduct to which Copley pled guilty. Copley also has
acknowledged  improper conduct of its employees and has taken responsibility for
the circumstances of wrongdoing.

6. Copley has expressed an interest in  demonstrating  to the Defense  Logistics
Agency  that,  notwithstanding  the conduct for which  Copley was  proposed  for
debarment,  Copley  can  be  trusted  to  deal  fairly  and  honestly  with  the
Government,  and that debarring  Copley from future  Government  procurement and
non-procurement programs is not a necessary protection in this case.

7. Copley has agreed to keep in place and to  incorporate  in this Agreement the
measures constituting Copley's Business Conduct Policy voluntarily adopted prior
to the date of this  Agreement.  In addition,  Copley has taken other actions as
specified herein to assure against the recurrence of the conditions  giving rise
to the criminal conviction referred to above and to assure that Copley possesses
the high  degree of  business  honesty and  integrity  required of a  Government
contractor.

8. Copley  represents that none of the individuals  known to Copley to have been
involved in the wrongdoing that was the subject of Copley's plea is now employed
by the  company  in a  position  that has  responsibility  (a)  relating  to the
manufacture  of any product that might be sold to the  Government or (b) for any
function subject to the jurisdiction of FDA. Copley further represents that none
of the  individuals  who were officers or directors of Copley at the time of the
criminal actions is presently employed by Copley, with the following exceptions:

         Individual                         Current Position

         Kenneth Larsen             Director, Chairman of the Board
         Agnes Varis                Director
         Jane C. I. Hirsh           Director, President - International Business

9.  DLA  has  determined  that,  under  the  authority  of  Federal  Acquisition
Regulation (FAR) 9.406,  cause exists to debar Copley based upon its conviction.
DLA has  further  determined,  however,  that the terms and  conditions  of this
Agreement  provide  adequate  assurance that Copley's  future  dealings with the
Government,  if any,  will be  conducted  with the high  degree of  honesty  and
integrity required of a Government contractor,  and that suspension or debarment
is not  necessary  at this  time to  protect  the  Government's  interests.  The
parties, therefore, agree to the following terms and conditions.



<PAGE>


ARTICLES

1. The period of this  Administrative  Agreement  shall be three  years from the
date of execution of this Agreement by DLA,  except that,  should Copley fail to
be in full compliance  with any term or condition of this Agreement,  the period
shall be three years from the time that Copley reestablishes full compliance.

2. Copley has entered into a plea agreement  with the United  States.  A copy of
the plea  agreement  is attached  hereto as Exhibit 1, and the terms of the plea
agreement are incorporated herein by reference. Copley agrees, as a term of this
Agreement, to comply with the terms of the plea agreement.

3. Copley shall maintain complete records,  including original documents, of all
purchases, sales, receipts,  shipments, or testing of any material or product in
any way related to government contracts or subcontracts.  These records shall be
sufficient to provide  complete  evidence of all  transactions  related to items
furnished directly or indirectly by Copley to the Government upon any government
procurement.  These  records  shall be  maintained  for not less than four years
after final payment of any affected contract.

4. In  addition  to any other  right  DLA may have by  statute,  regulation,  or
contract, DLA or its duly authorized  representative may examine Copley's books,
records  (including  test  data  records),   and  other  company  documents  and
supporting  materials for the purpose of verifying and evaluating:  (a) Copley's
compliance with the terms of this Agreement;  (b) Copley's  business  conduct in
its dealings with all of its customers,  including the Government;  (c) Copley's
compliance with Federal  procurement  policies and accepted business  practices;
and (d) Copley's  compliance with the  requirements  of Government  contracts or
subcontracts. The materials described above shall be made available by Copley at
all reasonable  times for  inspection,  audit,  or  reproduction.  Further,  for
purposes of this provision,  DLA or its authorized  representative may interview
any Copley  employee who consents to be interviewed  at the employee's  place of
business  during normal business hours or at such other place and time as may be
mutually  agreed  between  the  employee  and  DLA.  Employees  may  elect to be
interviewed with or without a representative of Copley present.

5.  Copley has  implemented  and agrees to  maintain a Business  Ethics  Program
involving all company employees. The Business Ethics Program consists of (a) the
Business  Conduct  Policy,  (b)  the  Corporate   Compliance  Program,  (c)  the
statements  of  policy in  Exhibits  11 and 12 to this  Agreement,  and (d) such
additional documents as the Audit Committee of Copley's Board of Directors ("the
Audit Committee") may approve as parts of the Business Ethics Program. The Audit
Committee  shall be responsible  for overseeing the  implementation  by Copley's
management of the Business Ethics Program.  The Business Ethics Program shall be
maintained  so as to ensure that Copley and each of its officers  and  employees
maintains  the  business   honesty  and  integrity   required  of  a  Government
contractor,  and that Copley's  performance  of each  Government  contract is in
strict  compliance with all applicable laws,  regulations,  and the terms of the
contract. The Business Ethics Program shall include, at a minimum, the following
components:

         a.  The  written  Business  Conduct  Policy  and  Corporate  Compliance
Program, both adopted on January 30, 1998 by the Copley Board of Directors.  The
Policy  and  Program,  as  implemented,  include  (i) a  statement  of  Copley's
commitment to comply with all applicable  laws and regulations in the conduct of
its business;  (ii) guidelines for Copley  employees to follow in their business
dealings on behalf of Copley; (iii) a notice that,  consistent with Article 7 of
this  Agreement,  Copley  shall  immediately  discipline,  up to  and  including
dismissal,  any employee,  officer, or director of Copley whose conduct relating
to Copley's business violates  applicable laws,  regulations,  Copley's Business
Conduct Policy, the terms of this Agreement, or basic tenets of business honesty
and integrity;  (iv) a requirement that employees report to Copley's  Compliance
Coordinator  any  impropriety  relating to Copley's  business of which they have
knowledge whether  committed by an employee of Copley, or of the Government,  or
any other  person,  and whether the  impropriety  relates to  violations of law,
regulation,  contract,  Copley's  Business  Conduct  Policy,  the  terms of this
Agreement,  basic  tenets  of  business  honesty  and  integrity,  or any  other
requirement;  (v) a notice that employees may report improprieties  anonymously;
and (vi) a notice that employees may report  improprieties  relating to Copley's
business directly to appropriate Government officials.  Copies of the Policy and
Program are Exhibit 3 and 4, respectively, to this Agreement.

         b. The Business  Conduct Policy has been circulated to each employee of
Copley.  After  reading the Code each current  employee has signed in a register
(which may be  individual  forms kept in a loose-leaf  book) to be maintained by
Copley and open to inspection by the Government,  that the employee has read and
understood the import of the document. At least once in each calendar year, each
then-current  employee  shall  repeat the  procedure  of reading  the Policy and
signing  the  register.  Copley  shall  submit,  as a part of each report to DLA
pursuant to Article 9, a statement  by the  Chairman of the Board that the Board
of Directors has verified that the register is being  maintained,  and that each
employee  has signed the  register as required by this  provision.  The register
shall be maintained  and available  for DLA's review and  inspection  during the
life of this Agreement.  Within thirty days of starting  employment with Copley,
new  employees  shall read the Policy and sign the  register.  Within the thirty
days, the new employee's  immediate  supervisor or other management person shall
discuss the content and requirements of the Code with the new employee.

         c.  Copley  has  instituted  and  shall  maintain  an  information  and
education  program  designed  to  assure  that all  employees  are  aware of all
applicable laws,  regulations,  and standards of business conduct that employees
are  expected to follow,  and the  consequences  both to the employee and to the
company that will ensue from any  violation of such  measures.  Each employee of
Copley has received at least one hour of initial training in the Copley Business
Conduct Policy.  Each employee shall receive  annually not less than one hour of
training in Copley's Business Ethics Program.

         d. Copley also has installed a toll-free telephone number for reporting
suspected misconduct directly to an independent telephone monitor, who, will, as
appropriate,  report  suspected  misconduct to the Compliance  Coordinator,  the
General Counsel, or the Audit Committee.  This telephone number is listed in the
Canton,  MA telephone  directory.  In  addition,  Copley has posted in prominent
places  accessible,  in the  aggregate,  to  each  of its  employees,  a  notice
detailing  the  company's  commitment  to comply  with all  applicable  laws and
regulations in the conduct of its business. The notice designates the Compliance
Coordinator to receive any reports of misconduct  relating to Copley's  business
of which any employee may have  knowledge,  whether  committed by an employee of
Copley,  an employee of the Government,  or other individual or business entity;
provides the toll-free telephone number for the Compliance  Coordinator;  states
that any report may be anonymous;  and designates the Compliance  Coordinator to
be available for  consultation on any questions the employee may have concerning
Copley's  business  practices.  A copy  of  the  notice  is  Exhibit  6 to  this
Agreement.  Every  six  months,  starting  six  months  from  the  date  of this
agreement,  Copley, as a part of the report required by Article 9, shall provide
DLA with a report identifying all calls made to the company Hotline  (regardless
of the subject  matter),  and all instances of  misconduct  relating to Copley's
business that were reported to the Compliance Coordinator,  or otherwise brought
to the attention of  management,  during the preceding six months.  Such reports
shall state the nature of the  reported  conduct,  the  results of the  internal
investigation,  and the corrective  action,  if any,  taken by Copley.  A matter
pending resolution at the time of a six-month reporting period shall be reported
each six months  until  final  resolution  of the matter is  reported.  Negative
reports are required.

         e. All written  materials and training  related to the Business Conduct
Policy will be provided in English and in any other language necessary to assure
that each employee understands all elements of any written or oral presentation.

6. The principal  members of Copley  management on the date of execution of this
Agreement by DLA are

         We-wei Chang, Ph.D. Executive Vice President - Scientific and 
                             Technical Affairs

         Gene Bauer          Executive Vice President, General Counsel,
                             Secretary

         Ken Starkweather    Vice President, Chief Financial Officer, and 
                             Treasurer; Compliance Coordinator

         Julie Trendowicz    Vice President - Sales/Marketing

         Barbara Morse       Vice President - Administration/Corporate
                             Communications

         Michael Moorshead   Vice President - Operations

         Jane C. I. Hirsh    President, Copley Pharmaceutical International

         Michael Bogda       Vice President - Technical Services and Engineering

Copley  agrees to notify DLA promptly if any of these  principals  leaves his or
her current position and to report the name of a successor to DLA promptly after
appointment.

7.  Promotion  of the  Copley  Business  Ethics  Program  is an  element of each
manager's and  supervisor's  performance  standards.  Copley has implemented and
will  maintain an annual  certification  requirement  that all managers at every
level in the company  attest that they  personally  have (a) discussed with each
employee  under their  direct  supervision  the content and  application  of the
company's  Business Ethics Program;  (b) informed each such employee that strict
compliance with the Program is a condition of employment;  and (c) informed each
such employee that Copley will take disciplinary action,  including termination,
for violation,  in connection with the company's business, of the principles and
practices set forth in the Program,  applicable  laws or  regulations,  or basic
tenets of business  honesty and  integrity.  A copy of the  certificate  used to
fulfill this  requirement  is attached as Exhibit 7. In  addition,  promotion of
Copley's  Business  Ethics  Program  will be an  element of each  manager's  and
supervisor's own performance  standards.  Copley will submit,  as a part of each
report to DLA  pursuant to Article 9, a statement  by the  Chairman of the Board
that the Board of  Directors  has  verified  that the  certifications  are being
maintained  and that each  manager has provided a  certification  as required by
this  provision.  The  certificates  shall be maintained and available for DLA's
review and inspection during the life of this agreement.

8. The Audit  Committee of the Board of Directors of Copley shall be responsible
for  seeing to it that  management  implements  the  company's  Business  Ethics
Program,  including maintenance and updating of the Business Conduct Policy, and
auditing of Copley's  compliance with this Agreement.  The Audit Committee shall
oversee all of Copley's compliance  programs,  consult with whatever advisors it
deems  appropriate in matters  relating to these  programs,  receive  reports in
person or in writing not less than  quarterly  from the  Compliance  Coordinator
(and from the General Counsel if  appropriate)  concerning  Copley's  compliance
with the Program,  and take whatever  actions are  appropriate  and necessary to
ensure that Copley conducts its activities in compliance  with the  requirements
of the law and sound  business  ethics.  Copley  shall  provide to DLA copies of
written  reports  and minutes of the Audit  Committee  meetings  reflecting  the
reports made to the Committee on the Business Ethics Program and the Committee's
decisions or directions to management  concerning any matters in any way related
to Copley's compliance  programs or this Agreement.  The names of the members of
the Committee are listed at Exhibit 8. If any member of the Committee leaves the
Committee,  Copley shall promptly  notify DLA of the change and shall report the
name of each new member to DLA promptly after election or appointment.

9. The Board of Directors of Copley shall submit periodic written reports to DLA
describing the measures taken by Copley to implement,  and to ensure  compliance
with,  this  Agreement.  The reports must be submitted in time to be received at
DLA within three months of the effective  date of this  Agreement,  on or before
the  six-month  anniversary  of  the  effective  date  of  this  Agreement,  and
thereafter  on or before  each  six-month  anniversary  during  the term of this
Agreement.  The final report is to be received not later than one month prior to
the final day of this  Agreement.  A schedule of reporting  dates is attached as
Exhibit 9. The reporting  dates and time frames set forth in this  Agreement are
deadlines for receipt of the reports at DLA  Headquarters.  Copley's  failure to
meet these  requirements  on or before the dates  agreed to shall  constitute  a
breach of this Agreement.
The reports shall include:

         o Standards of  conduct/ethics/compliance  training  conducted  and the
number of persons who attended.

         o Informal notifications or initiatives relating to the Business Ethics
Program.

         o  Description  of each  Hotline  call or other  report  of  misconduct
received and disposition of each. (It is understood that  "misconduct"  does not
include  "minor  violations"  within the meaning of ss. 309 of the Federal Food,
Drug,  and Cosmetic Act, 21 U.S.C.  ss. 336,  except that such term does include
any violation of the statutes or regulations administered by FDA that results in
a recall, seizure,  injunction,  field alert, issuance of FDA Form # 483 (report
of inspectional observations) or Warning Letter.)

         o  Information required by Articles 12 and 24.

         o The  status of any  ongoing  investigation  of, or legal  proceedings
involving,  Copley brought by any Governmental entity;  including times, places,
and subject matter of search warrants,  subpoenas, criminal charges, criminal or
civil agreements, etc.

10. Copley represents to DLA that, to the best of Copley's knowledge,  Copley is
not now under criminal or civil  investigation  by any Governmental  entity.  In
addition to the periodic  written reports required under Article 9, Copley shall
notify  DLA  within  two  working  days of the  time  Copley  learns  of (a) the
initiation of any criminal or civil  investigation of Copley by any Governmental
entity,  (b) service of  subpoenas  on Copley by any  Governmental  entity,  (c)
service of search warrants and/or searches  carried out in any Copley  facility,
(d)  initiation  of legal action by any entity that alleges facts that, if true,
would impact upon the business responsibility of Copley. Copley shall provide to
DLA as much information as necessary to allow DLA to determine the impact of the
investigative  or legal activity upon the present  responsibility  of Copley for
Government contracting.

11.  Between five and seven months after the effective  date of this  Agreement,
the Chairman of the Board of Directors or chief Executive  Officer of Copley and
the Compliance  Coordinator or General  Counsel shall offer to meet with the DLA
Special   Assistant  for   Contracting   Integrity  or  a  designee  to  discuss
implementation  of this  Agreement.  Each  six  months  during  the term of this
Agreement the Compliance Coordinator or General Counsel shall offer to meet with
representatives  of the Special  Assistant for Contracting  Integrity to discuss
implementation of this Agreement.



<PAGE>


12. As a manufacturer for and supplier to prime contractors,  Copley is required
by its  customers to submit to outside  audits and/or  surveys  conducted by the
customer or on its behalf by third parties.  The written reports  resulting from
all such  audits or  surveys  will be  included  with  reports  filed  under the
provisions of Article 9.

13.   Copley  has  advised  DLA  that,   as  a  part  of  Copley's   program  of
self-governance, Copley has a written policy of voluntarily disclosing suspected
misconduct  (as  described  in  Article  9)  involving  or  affecting   Copley's
Government  business to an appropriate  Government  official within fifteen days
after such misconduct is discovered by, known to, or disclosed to any management
official of the company.  The misconduct to be reported  includes  misconduct by
any person,  including, but not limited to, those associated with Copley or with
the Government, and shall include misconduct disclosed to Copley management from
any source.  Copley's program provides that Copley  immediately will investigate
any  report of  misconduct  that  comes to its  attention  and will  notify  the
Government  of any  potential  or  actual  impact  on  any  aspect  of  Copley's
Government   business  and  will  take  corrective   action,   including  prompt
restitution for any harm to the  Government.  During the term of this Agreement,
Copley  will  provide  to DLA  copies of all such  disclosures  or notice to any
Government  official,  within ten working days of the disclosure.  The fact that
this Agreement  incorporates  Copley's policy of voluntary  disclosure shall not
render a disclosure made pursuant to the policy  involuntary for purposes of any
agency Voluntary Disclosure program.

14.  Copley has  distributed  to every  supplier and  subcontractor  to Copley a
letter  from  Kenneth  Larsen,  Chairman  of the Board of  Directors  of Copley,
emphasizing  Copley  commitment to procurement  integrity,  asking suppliers and
subcontractors  not to offer or give anything of value to Copley employees,  and
asking  suppliers  and  subcontractors  to report to Mr.  Larsen any improper or
illegal activity by Copley employees, and informing them of the telephone number
for the Copley Hotline.  A copy of the letter is at Exhibit 10. A similar letter
will be sent to all Copley suppliers and  subcontractors  each year in the month
of November. A copy of the letter shall be furnished to DLA.

15.  Copley  has a written  internal  operating  policy  that  Copley  shall not
knowingly employ,  with or without pay, an individual who is listed by a Federal
Agency as debarred,  suspended,  or otherwise ineligible for Federal programs. A
copy of the policy is  attached as Exhibit 11. In order to carry out the policy,
Copley shall make reasonable  inquiry into the status of any potential  employee
or consultant.  Such reasonable inquiry shall include,  at a minimum,  review of
the General  Services  Administration's  List of Parties  Excluded  from Federal
Procurement  Programs.  Copley  policy does not require  Copley to terminate the
employment  of  individuals  who become  suspended or are proposed for debarment
during their employment with Copley. Copley, however, will remove such employees
from responsibility for or involvement with Copley's government-related business
affairs  until the  resolution  of such  suspension  or proposed  debarment.  In
addition,  if any employee of Copley is charged with a criminal offense relating
to Copley's  business (other than a traffic or parking  violation or a similarly
minor   violation),   Copley  will  remove  that   employee   immediately   from
responsibility  for  or  involvement  with  Copley's  business  affairs.  If the
employee is convicted or debarred, Copley policy requires that the employee will
be terminated from employment with Copley.  Copley shall notify DLA of each such
personnel action taken, and the reasons therefor,  within 15 days of the action.
The salary of any officer,  employee,  or  consultant  removed  from  government
contracting  in accordance  with the Copley  policy set forth in this  paragraph
shall be  unallowable  for  government  contracting  purposes  and  shall not be
charged either directly or indirectly to any government contract.  Copley agrees
to account separately for such costs.

16.  Copley  has a written  internal  operating  policy  that  Copley  shall not
knowingly  form a  contract  (other  than a  contract  for the  sale of goods by
Copley)  with,  make a purchase  from,  or enter into any business  relationship
(other than a contract for the sale of goods by Copley) with any  individual  or
business  entity that is listed by a Federal Agency as debarred,  suspended,  or
proposed for debarment, where such contract,  purchase, or business relationship
involves more than $10,000, unless there is a compelling reason to do so. A copy
of the policy is  attached as Exhibit  12. If Copley  concludes  that there is a
compelling  reason,  Copley will  provide  notice to the  cognizant  Contracting
Officer,  if any, and to DLA prior to entering such a business  relationship (a)
of Copley's intent to do so, (b) the identity of the proposed  business partner,
(c) a written  determination  by the senior Copley  executive  that a compelling
reason justifies the relationship, and (d) the procedures Copley has established
to protect the Government's interest.  Reasonable inquiry shall be made into the
status of any  potential  participant  with Copley in a  transaction  within the
scope of this paragraph.  Such reasonable  inquiry shall include,  at a minimum,
review of the General  Services  Administration's  List of Parties Excluded from
Federal Procurement Programs.

17. Copley  voluntarily  has severed all business  relations with Michael Riley,
Mark  Riley,  Robert  Duncan,  and  Martha  Duncan  (the  "Severed  Employees"),
including, but not limited to, the following  relationships:  employer-employee,
creditor-debtor,  and owner-business entity (including shareholder-corporation).
Copley shall not re-employ in any capacity or resume business relations with any
individuals  identified to DLA as involved in or responsible  for the misconduct
at issue here.  Because Copley's  securities are publicly traded,  Copley has no
control over who  purchases  its  securities.  The fact of any Severed  Employee
being a holder of Copley  securities shall not be considered a violation of this
Agreement.

18. Copley has and shall continuously enforce the following policy:

         a.  The Severed Employees shall not share any office or storage space,
             any building, or any computer system with Copley;

         b. The Severed  Employees  shall not be permitted to enter the premises
            of Copley.

19.  Copley  shall  notify  DLA  of any  proposed  changes  in  the  directives,
instructions,  or procedures  implemented in  furtherance  of Copley's  Business
Ethics  Program and  compliance  with this  Agreement.  DLA,  or its  authorized
representative,  retains the right to verify,  approve,  or disapprove  any such
changes.   Copley  may  implement  a  proposed  change  (subject  to  subsequent
disapproval  by DLA) if Copley has submitted  such change to DLA and DLA has not
disapproved the change within 30 days.

20.  Copley  has paid to DLA $  10,000  to cover  DLA's  costs of  independently
reviewing this matter and administering this Agreement.

21. Copley shall not seek reimbursement from the Government,  either directly or
indirectly,  for legal or related costs expended or to be expended arising from,
related to, or in connection with, the Government's  criminal  investigation and
Copley's  defense  and  settlement  thereof,  or in  connection  with the  Civil
Settlement  Agreement  entered  into by Copley and the United  States,  or DLA's
independent  administrative  review,  or the negotiation and preparation of this
Agreement, or the performance or administration of this Agreement.  Copley shall
treat  these  costs as  unallowable  costs for  Government  contract  accounting
purposes.  Included in these  unallowable  costs are any legal or related  costs
expended  on behalf of any Copley  employee.  Nothing in this  Article  shall be
interpreted as relating to the tax treatment of any costs incurred by Copley, or
as relating to Copley's accounting for tax purposes.

22.  Copley  agrees to waive as to the  United  States  Government  all  claims,
demands,  or requests  for monies of any kind or of whatever  nature that Copley
may have or may develop in the future arising from, related to, or in connection
with,  any  investigation,   or  as  a  result  of  administrative  or  judicial
proceedings,  or request  for any other  relief in law or in  equity,  or in any
other  forum be it  judicial  or  administrative  in  nature  arising  out of or
relating to the facts that gave rise to the proposed debarment.

23. Copley hereby releases the United States, its instrumentalities, agents, and
employees in their official and personal capacities, of any and all liability or
claims arising out of the investigation, criminal prosecution, at issue here, or
the suspension  (proposed  debarment or debarment) of Copley or the  discussions
leading to this Agreement.

24.  Copley agrees to provide with the reports made pursuant to Article 9 a list
of all internal  audit  reports  generated by or for Copley within the preceding
six  months  and to make  available  to DLA  copies  of any such  audit  reports
requested by DLA.

25. This agreement shall inure to the benefit of and be binding upon the parties
and their respective  successors and assigns.  In the event that Copley sells or
in any way  transfers  ownership  of any part of the  assets of Copley  that are
subject to this Agreement,  Copley shall notify DLA in advance and shall require
by the terms of the transfer that the new owner, in addition to Copley, shall be
bound by the terms and conditions of this Agreement,  including, but not limited
to, all reporting requirements, with respect to the assets transferred by Copley
to such new owner.  If a new owner acquires a controlling  interest in Copley or
one or more of Copley's  facilities,  this Agreement  shall continue to apply to
Copley or to the  transferred  facilities,  as  applicable;  but nothing in this
Article  shall be  interpreted  as  extending  this  Agreement to any of the new
owner's  other  facilities  or  operations  that were not  previously  under the
ownership or control of Copley.

26. In the event that Copley  purchases or establishes  new business units after
the effective  date of this  Agreement,  Copley shall  implement with respect to
such new business units all provisions


<PAGE>


of this Agreement,  including any training or education requirements,  within 60
days following such purchase or establishment.

27. When  requested,  Copley shall  cooperate  fully with any  investigation  of
suspected  irregularities  involving Copley's operations or activities and shall
encourage  present  and past  employees  of  Copley  to make a full  and  candid
disclosure of their  personal  knowledge of the facts and  circumstances  of any
such suspected  irregularities.  Nothing in this Article shall be interpreted as
requiring Copley to waive any attorney-client privilege or the protection of the
attorney work product doctrine.

28.  Provided  that the terms and  conditions of this  Agreement are  faithfully
fulfilled,  DLA will  not  suspend  or  debar  Copley  based  on the  facts  and
circumstances  set  forth  in the  Information  (Exhibit  2)  referenced  in the
Preamble herein. DLA's decision not to suspend or debar Copley upon the facts at
issue here shall not  restrict DLA or any other  agency of the  Government  from
instituting administrative actions, including, without limitation, suspension or
debarment,  should  information  indicating the propriety of such action come to
the attention of DLA or such other agency.

29.  Copley's  compliance  with the terms and conditions of this Agreement shall
constitute  an  element  of  Copley's  present   responsibility  for  Government
contracting.  Copley's  failure to meet any of its  obligations  pursuant to the
terms and conditions of this Agreement constitutes a cause for suspension and/or
debarment.

30. Copley represents that all written materials and other information  supplied
to DLA by its authorized  representative  during the course of discussions  with
DLA preceding this Agreement are true and accurate,  to the best information and
belief of the Copley signatory to this Agreement.  Copley  understands that this
Agreement  is executed on behalf of DLA in reliance  upon the truth and accuracy
of all such representations.

31. This  Agreement  constitutes  the entire  agreement  between the parties and
supersedes  all prior  agreements and  understandings,  whether oral or written,
relating to the subject matter hereof.

32. The  provisions of this Agreement in no way alter or diminish the rights and
responsibilities  of the United States to carry out its lawful  functions in any
proper manner.

33. Gene Bauer, as Executive Vice President,  General Counsel,  and Secretary of
Copley,  is fully  authorized to execute this Agreement,  and represents that he
has authority to bind Copley.

34.  In the  event  that  any one or more of the  provisions  contained  in this
Agreement shall for any reason be held to be invalid,  illegal, or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
other provisions of this Agreement.



<PAGE>


35. Any  notices  or  information  required  hereunder  shall be in writing  and
delivered or mailed by registered or certified mail, postage prepaid as follows:


If to Copley, to:     Gene Bauer
                      Executive Vice President and General Counsel
                      Copley Pharmaceutical Inc.
                      25 John Road
                      Canton, MA 02021


If to DLA, to:        Roberta T. Eaton
                      ATTN:  Special Assistant for  Contracting Integrity (GC)
                      Defense Logistics Agency
                      8725 John J. Kingman Road, Ste 2533
                      Ft Belvoir, VA  22060-6221


or such other address as any party shall have designated by notice in writing to
the other party.

36. This Agreement,  including all attachments, is a public document, and may be
distributed  by DLA  throughout  the  Government  as  appropriate  and to  other
interested  persons upon request,  including requests filed under the Freedom of
Information Act.

37. This Agreement may be amended or modified only by a written  document signed
by both parties.






__________________                     _____________________________       
Date                                   for the Defense Logistics Agency


------------------                     -----------------------------
Date                                   for Copley Pharmaceutical, Inc.





<PAGE>



                                LIST OF EXHIBITS


EXHIBIT  1    Plea Agreement

EXHIBIT  2    Information

EXHIBIT  3    Business Conduct Policy

EXHIBIT  4    Corporate Compliance Program

EXHIBIT  5    Poster

EXHIBIT  6    Certification Form

EXHIBIT  7    List of Members of Audit Committee

EXHIBIT  8    Dates for Reports

EXHIBIT  9    Form of Letter to Suppliers

EXHIBIT 10    Policy re Debarred Individuals

EXHIBIT 11    Policy re Debarred Contracting Parties



<PAGE>







                                    EXHIBIT 6

                             FORM FOR CERTIFICATION

                                   BY MANAGERS


                  I,              ___________________(print               name),
_________________________(title),  hereby certify that,  within the last year, I
have personally (check each of the following that is applicable):

                  _____  (a)  discussed  with  each  employee  under  my  direct
supervision the content and application of Copley's Business Ethics Program;

                  _____    (b) informed each such employee that strict 
compliance with the Program is a condition of employment; and

                  _____ (c) informed  each such  employee  that Copley will take
disciplinary action,  including termination,  for violation,  in connection with
the  company's  business,  of the  principles  and  practices  set  forth in the
Program, applicable laws or regulations, or basic tenets of business honesty and
integrity.




----------------                            ---------------------------
     Date                                    Signature





<PAGE>



                                    EXHIBIT 7

                       CURRENT MEMBERS OF AUDIT COMMITTEE




Judith W. Fensterer

Jane C.I. Hirsh

William Hoskins



<PAGE>



                                    EXHIBIT 8

                          ARTICLE 9 REPORTING SCHEDULE



First report due:     August 1, 1998

Second report due:    November 1, 1998


Reports due every six months thereafter:

     May 1, 1999

     November 1, 1999

     May 1, 2000

     November 1, 2000


Final report due:  April 1, 2001 (note that this date is one month before the
Agreement expires)




<PAGE>



                                    EXHIBIT 9

                            FORM LETTER TO SUPPLIERS



Dear Sir/Madam:

We are proud of our relationship with the many suppliers who have served Copley
Pharmaceutical Inc. through the years.

Our  business  associations  arose  and will  continue  to stand on the basis of
mutual respect. We value your goodwill, your service, and your ability to supply
us with quality  materials and supplies at fair prices. We trust you respect our
integrity  and  independence,  which are  unencumbered  by special  interest and
favoritism.

In furtherance of our obligations as a supplier of  pharmaceuticals  to the U.S.
Government,  we  request  that you and  your  employees  not  send any  gifts or
gratuities  of any kind (even  those  having only  nominal  value) to any Copley
employee.

Copley has established a helpline (800-711-6441) to enable employees,  suppliers
and/or  subcontractors to provide management with information about any possible
improper or illegal activity.  Although we encourage anyone making such a report
to  identify  himself  or  herself  so that we may  make  appropriate  follow-up
inquiries, persons reporting such activity need not identify themselves.

Please convey this policy reminder to your colleagues who call on Copley.

                                            Very truly yours,

                                            Copley Pharmaceutical, Inc.



                                            Kenneth Larsen
                                            Chairman



<PAGE>



                                   EXHIBIT 10

                               STATEMENT OF POLICY

                                 WITH RESPECT TO

                              DEBARRED INDIVIDUALS


                  1. Copley shall not knowingly employ,  with or without pay, an
individual  who is  listed  by a  Federal  Agency  as  debarred,  suspended,  or
otherwise ineligible for Federal programs.

                  2. To carry out this  policy,  Copley  shall  make  reasonable
inquiry into the status of any potential  employee or  consultant.  Such inquiry
shall include,  at a minimum,  review of the General  Services  Administration's
List of Parties Excluded from Federal Procurement Programs.

                  3.  Copley  policy does not require  Copley to  terminate  the
employment  of  individuals  who become  suspended or are proposed for debarment
during their employment with Copley. Copley, however, will remove such employees
from responsibility for or involvement with Copley's government-related business
affairs  until the  resolution  of such  suspension  or proposed  debarment.  In
addition,  if any employee of Copley is charged with a criminal offense relating
to Copley's  business (other than a traffic or parking  violation or a similarly
minor   violation),   Copley  will  remove  that   employee   immediately   from
responsibility  for  or  involvement  with  Copley's  business  affairs.  If the
employee  is  convicted  or  debarred,  the  employee  will be  terminated  from
employment with Copley.




<PAGE>



                                   EXHIBIT 11

                               STATEMENT OF POLICY

                                 WITH RESPECT TO

                              DEBARRED CONTRACTORS



                  1. Copley shall not  knowingly  form a contract  (other than a
contract for the sale of goods by Copley) with,  make a purchase  from, or enter
into any business  relationship  (other than a contract for the sale of goods by
Copley) with any individual  independent  contractor or business  entity that is
listed by a Federal  Agency as debarred,  suspended,  or proposed for debarment,
where such  contract,  purchase,  or business  relationship  involves  more than
$10,000, unless there is a compelling reason to do so.

                  2. Copley shall make reasonable inquiry into the status of any
potential  participant  with  Copley in a  transaction  within the scope of this
policy.  Such  reasonable  inquiry shall  include,  at a minimum,  review of the
General  Services   Administration's  List  of  Parties  Excluded  from  Federal
Procurement Programs.