Document:

EMPLOYMENT AGREEMENT

(As Amended and Restated Effective as of November 1, 2004)

         THIS EMPLOYMENT AGREEMENT (As Amended and Restated Effective as of
November 1, 2004) (the "Agreement") is made and entered into as of this 1st day of
November, 2004, by and between MB Financial Bank, N.A., (the "Bank") and Ronald Santo
(the "Employee").

         A.         The Bank and the Employee previously entered into an Employment Agreement
effective as of November 6, 2001 (the "Employment Agreement").

         B.         The Bank desires that the Employee continue to provide services for the benefit of
the Bank and its affiliates and the Employee desires to continue such employment with the Bank.

         C.         The Employee will continue to serve as Chairman and Group President of the
Bank.

         D.         The Bank and the Employee acknowledge that the Employee is a member of the
senior management team of the Bank and, as such, will continue to participate in implementing
the Bank's business plan.

         E.         In the course of employment with the Bank and MB Financial, Inc. (the "Holding
Company"), the Employee has had and will continue to have access to certain confidential
information that relates to or will relate to the business of the Bank and its affiliates and the Bank
desires that any such information not be disclosed to other parties or otherwise used for
unauthorized purposes.

         NOW THEREFORE, in consideration of the foregoing and of the respective covenants
and agreements of the parties herein, it is AGREED that the Employment Agreement is hereby
amended and restated to read as follows:

         1.         Definitions.

                  (a)         The term "Change in Control" means an event of a nature that (1) results
in a change in control of the Holding Company or the Bank within the meaning of the Bank
Holding Company Act of 1956, as amended and 12 C.F.R. Part 225 (or any successor statute or
regulation) or (ii) requires the filing of a notice with the Federal Deposit Insurance Corporation
under 12 U.S.C.  1817 (j) and 12 C.F.R. Part 303 (or any successor statute or regulation); (2) an
event that would be required to be reported in response to item 1 of the current report on Form 8-K, as in effect on the Effective Date, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 ("the Exchange Act"), other than an event at the completion of which the
stockholders of the Holding Company hold more than 40% of the outstanding stock  of the
resulting entity; (3) any person( as the term is used in Sections 13(d) and 14 (d) of the Exchange
Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act)
directly or indirectly of securities of the Holding Company or the Bank representing 25% or more
of the combined voting power of the Holding Company's or the Bank's outstanding securities;
(4) individuals who, as of the Effective Date, constitute the Board of Directors (the "Incumbent
Directors") cease for any reason to constitute at least thirty-five percent (35%) of 

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the Board of Directors; provided that any individual who becomes a director after the Effective Date whose
election, or nomination for election by the Bank's stockholders, was approved by a vote or
written consent of at least two-thirds of the directors then comprising the Incumbent Directors
shall be considered an Incumbent Director, but excluding, for this purpose, any such individual
whose initial assumption of office is in connection with an actual or threatened election contest
relating to the election of the directors of the Bank (as such terms are used in Rule 14a-11 of the
SEC under the Act); or (5) consummation of a plan of reorganization, merger, consolidation, sale
of all or substantially all of the assets of the Holding Company or a similar transaction in which
the Holding Company is not the resulting entity, other than an event at the completion of which
the stockholders of the Holding Company hold more than 40% of the outstanding stock of the
resulting entity; provided that the term "Change in Control" shall not include an acquisition of
securities by an employee benefit plan of the Bank or the Holding Company or the merger of
Coal City Corporation into Avondale Financial Corporation (the former name of the Holding
Company). 

                  (b)         The term "Date of Termination" means the date upon which the
Employee's employment with the Bank ceases, as specified in a notice of termination pursuant to
Section 8 of this Agreement.

                  (c)         The term "Effective Date" means November 1, 2004.

                  (d)         The term "Involuntary Termination" means the termination of the
employment of Employee (i) by the Bank without his express written consent; or (ii) by the
Employee by reason of any of the following actions unless consented to in writing by the
Employee: (i) the occurrence of a ten percent (10%) or greater reduction in the aggregate value of
the Employee's annual Base Salary, bonus opportunity, long term incentive opportunity, and
benefits, excluding any profit sharing; (ii) the assignment to the Employee of any duties
inconsistent with, and commonly (in the banking industry) considered beneath the Employee's
position, or a change in the Employee's status, offices, titles and reporting relationships,
authority, duties or responsibilities, or any other action by the Bank, in each case if the
assignment, change or action results in a significant diminution in the Employee's position,
authority, duties or responsibilities; or (iii) a required relocation of the Employee to a location
more than thirty-five (35) miles from the Employee's then existing job location to which the
Employee does not consent to in writing.  In determining whether an assignment, change or
action described in clause (ii) above constitutes Involuntary Termination, due consideration will
be given to the size of the organization and other facts and circumstances surrounding the
Employee's situation before and after the assignment, change or action.  For example, if the
Employee is moved to a position that carries a title generally considered to be of a lower degree,
but he is working in a larger division or company than before the change, has more employees
reporting to him, or has authority for projects controlling more dollars, or if other circumstances
exist that suggest the Employee's new position is not a demotion, then an Involuntary
Termination will not be deemed to have occurred. The term Involuntary Termination excludes
the decision not to renew this Agreement.

                  (e)         The terms "Termination for Cause" and "Terminated For Cause" mean
termination of the employment of the Employee with the Bank because of the Employee's willful
and malicious conduct which is substantially injurious to the Bank, including theft,

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embezzlement, the conviction of a criminal act involving dishonesty or fraud, disclosure of trade secrets, or a gross dereliction of duty.  No act or failure to act by the Employee shall be
considered willful unless the Employee acted or failed to act in bad faith and without a
reasonable belief that his action or failure to act was in the best interest of the Bank.  The
Employee shall not be deemed to have been Terminated for Cause unless and until there shall
have been delivered to the Employee a copy of a resolution, duly adopted by the affirmative vote
of not less than a majority of the entire membership of the Holding Company Board of Directors
at a meeting of the Board duly called and held for such purpose (after reasonable notice to the
Employee and an opportunity for the Employee, together with the Employee's counsel, to be
heard before the Board), stating that in the good faith opinion of the Holding Company Board of
Directors the Employee has engaged in conduct described in the preceding sentence and
specifying the particulars thereof in detail.

                  (f)         The term "Voluntary Termination" shall mean termination of employment
by the Employee voluntarily as set forth in Section 6(e) of this Agreement.

                  (g)         The term "Voting Securities" shall mean those securities of a corporation
that are entitled to vote generally in the election of directors of such corporation.

         2.         Term.  The term of this Agreement shall be a period of three years commencing
on the Effective Date, subject to earlier termination as provided herein (the "Term").  Beginning
on the first anniversary of the Effective Date, and on each anniversary thereafter, the Term shall
automatically be extended for a period of one year in addition to the then-remaining Term,
provided that the Bank has not given the Employee 90 days prior written notice that future
extensions will cease.

         3.         Employment.  The Employee is employed as the Group President and Chairman
of the Bank.  As such, the Employee shall render such management services as are specified by
the Board of Directors of the Bank (the "Board of Directors") and Chief Executive Officer of MB
Financial, Inc. and are customarily performed by persons situated in similar executive capacities
consistent with the Employee's duties as of the date of this Agreement.  The Employee shall also
render services to any subsidiary or subsidiaries of the Bank as requested by the Board of
Directors from time to time.  The Employee shall devote his best efforts and reasonable time and
attention to the business and affairs of the Bank to the extent necessary to discharge his
responsibilities hereunder.  The Employee may (i) serve on charitable boards or committees at
the Employee's discretion without consent of the Board of Directors and, in addition, on such
corporate boards as are approved in a resolution adopted by a majority of the Board of Directors,
and (ii) manage personal investments, so long as such activities do not interfere materially with
performance of his responsibilities hereunder.

         4.         Compensation.

                  (a)         Salary.  Beginning as of the Effective Date, the Bank shall pay the
Employee an annual base salary of not less than $300,000.00 (the "Base Salary"), payable in
substantially equal installments in accordance with the Bank's payroll policy from time to time in
effect.  The amount of Base Salary may, in the sole discretion of the Bank, be increased from
time to time

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but shall not be decreased.  The Employee's salaryand other compensation hereunder shall be subject to any payroll or other deductions as may be required to be made
pursuant to law, government order, or by agreement with, or consent of, the Employee.  

                  (b)         Bonus.  The Employee shall be eligible to participate in an equitable
manner with other executives of the Bank in such bonus programs, if any, as may be established
and awarded by the Board of Directors in its sole discretion for such executive officers.

                  (c)         Options.  The Employee shall be eligible to participate in and receive
option grants under the MB Financial, Inc. 1997 Omnibus Incentive Plan or any successor plan
thereto to the extent the Board of Directors, in its sole discretion, authorizes such option grants
for any executive officer of the Bank in a given year.  

         (d)         Other Benefits.  During the Term of this Agreement, the Bank shall:

                           (i)         permit the Employee to participate to the same
extent as other executive officers of the
Bank in all life insurance, disability
insurance, medical, dental or health
insurance, vacation, savings, pension and
retirement plans and other benefit plans or
programs maintained by the Bank for the
benefit of its employees;

                           (ii)         pay the cost of the Employee's membership
dues and service charges at the Ruth Lake
Country Club;

                           (iii)         permit the Employee to participate in the
Bank's automobile leasing program on terms
comparable to those provided to other
executive officers of the Bank;

                           (iv)         pay the premiums on Principal Financial
Group supplemental life insurance policy
number 3461356 with a face value of
$265,322 which is attached hereto as
Exhibit A (the "Principal Policy"), or such
other similar supplemental life insurance
policy as may be maintained by the Bank for
the benefit of the Employee;

                           (v)         pay the premiums on the existing Principal
Financial Group Key Man Adjustable Life
Policy number 3491360, which is attached
as Exhibit B hereto (the "Key Man Policy")
or, if the Bank elects to cease paying such
premiums at anytime, permit the Employee
to purchase the Key Man Policy for its then
current cash surrender value; and

                           (vi)         continue to permit the Employee to pay the
premiums on the Met Life Policy number
0056368170 (the "Met Life Policy") through
a deduction from his profit sharing, or
through such other method as mutually
agreed to by the Bank and the Employee.

                  (e)         The Employee shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Employee in performing services under this Agreement in
accordance with the policies and procedures applicable to the executive officers of the Bank,
provided that the Employee accounts for such expenses as required under such policies and
procedures.

         5.         Vacations; Leave.  The Employee shall be entitled to (a) annual paid vacation of
at least four weeks, in accordance with the policies established by the Board of Directors for

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executive officers, and (b) voluntary leaves of absence, with or without pay, from time to time at
such times and upon such conditions as the Board of Directors may determine in its discretion.

         6.         Termination of Employment.

                  (a)         Involuntary Termination.  If the Employee experiences an Involuntary
Termination, such termination of employment shall be subject to the Bank's obligations under
this Section 6.  In the event of Involuntary Termination, then, subject to Section 6(b) of this
Agreement, the Bank shall, as liquidated damages (i) during the remaining Term of this
Agreement, pay to the Employee monthly one-twelfth of the Base Salary at the annual rate in
effect immediately prior to the Date of Termination and one-twelfth of the average annual
amount of cash bonus of the Employee, based on the average amounts of cash bonus earned by
the Employee for the two full fiscal years preceding the Date of Termination (provided that the
actual cash bonus earned in each of the calendar years 2002, 2003 and 2004 shall be increased by
$100,000); (ii) provide the benefits set forth in Section 6(f) of this Agreement on the terms set
forth therein provided that during the remaining Term of this Agreement, the Bank shall pay the
same portion of the cost of benefits under Section 6(f) as it would have paid if no termination of
employment had occurred; (iii) provide that, notwithstanding the provisions of any other
agreements or documents, stock options granted to the Employee as described in Section 4(c)
shall be deemed to be fully vested and exercisable at the date of such Involuntary Termination
and shall remain exercisable for not less than one year after the date of such Involuntary
Termination (or until the expiration of the stock options, if earlier); (iv) if the Employee is not
fully vested under any other benefit plan or arrangement in which he is a participant as of the
Date of Termination (except for any tax-qualified "employee pension plan" as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended, including any
"multiemployer plan" as defined in Section 3(37) of such Act but excluding any supplemental
executive retirement plan), deem the Employee to be fully vested therein and the Bank shall
guarantee that he shall receive benefits thereunder accordingly; (v) provide the Employee the
opportunity to purchase the Key Man Policy for its then cash surrender value and transfer
ownership of the Principal Policy to the Employee at no cost to him (i.e., with no obligation to
pay the cash surrender value); and (vi) during the remaining Term of this Agreement, continue
the group term life insurance (or, if the Bank is unable to provide such group term life insurance,
the Employee shall be permitted to convert such coverage to an individual insurance policy)
provided by the Bank at the same premium cost to the Employee and at the same coverage level
as in effect immediately prior to the Involuntary Termination.

                  (b)         Release.  The Employee agrees that his right to receive the liquidated
damages described in Paragraph 6(a) shall be conditioned upon his execution of an agreement
substantially in the form of Exhibit C which is attached hereto that (i) waives any rights the
Employee may otherwise have against the Bank and (ii) releases the Bank from actions, suits,
claims, proceedings and demands related to the period of employment and/or the termination of
employment.

                  (c)         Change in Control.  Upon a Change of Control of the Bank and the
occurrence of any of the Qualifying Events described in Section 6(c)(i), the Employee shall, in
lieu of any salary and benefits described in Section 6(a) and in lieu of any other severance pay or
benefits to which the Employee may be entitled under any severance or termination plan,
program, practice or arrangement of the Bank, be entitled to receive the salary and benefits

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described in Section 6(c)(ii) (the "Severance Benefits") on the terms as set forth herein.  The
Employee will not be entitled to any benefits described under this Section 6(c) if his employment
terminates for the reasons specified in Sections 6(d), 6(e), 6(g), 6(h) or 6(i) of this Agreement:

                           (i)         Qualifying Events.  Upon the occurrence of any one of the
following events within twenty four (24) calendar months after a Change of Control of the Bank
(a "Qualifying Event"), the Employee shall be entitled to the Severance Benefits as described in
Section 6(c)(ii):

                                    (A)         an Involuntary Termination;

                                    (B)         the failure or refusal of a successor company (including, but
not limited to, an individual, corporation, association, or partnership) to assume the Bank's
obligations under this Agreement; or

                                    (C)         a material breach by the Bank or any successor of any of the
provisions of this Agreement, which continues following written notice of such breach from the
Employee and a reasonable opportunity of at least fifteen (15) business days to cure.

         In addition to the foregoing Qualifying Events, a termination of the Employee's
employment by the Bank pursuant to Section 6(a) will trigger the payment of the Severance
Benefits under this Agreement if the Employee's employment is terminated by the Bank during
the Term pursuant to Section (a) within six months prior to a Change of Control of the Bank and
either (i) the termination was at the request or direction of any person or entity who has entered
into an agreement with the Bank the consummation of which agreement would constitute a
Change of Control, or (ii) the Employee reasonably demonstrates that the termination is
otherwise in connection with or in anticipation of the Change of Control.  Further, if a Change of
Control of the Bank occurs prior to the expiration of the Term, the provisions of this Section 6(c)
shall continue in effect until the later of (i) the expiration of the Term or (ii) a period of
twenty-four (24) months following the Change of Control.

                           (ii)         Severance Benefits.  Upon the occurrence of a Qualifying Event
described in Section 6(c)(i), the Employee shall be entitled to receive the following Severance
Benefits:

                                    (A)         an amount equal to the Employee's annual Base Salary,
pro-rated for unpaid vacation taken in the prior calendar year, multiplied by 2.99;

                                    (B)         an amount equal to the Employee's Average Annual Bonus
multiplied by 2.99.  For purposes of this Section 6(c), "Average Annual Bonus" shall mean the
Employee's actual average bonus earned over the three complete fiscal years immediately prior
to a Qualifying Event, provided, however, that the actual bonus earned in each of the calendar
years 2002, 2003 and 2004 shall be increased by $100,000;

                                    (C)         Employee stock options granted as described in Section
4(c) will be treated in accordance with the terms and conditions of the 1997 Omnibus Incentive
Plan.

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                                    (D)         immediate vesting and payment of the Employee's other
benefits, if any, under any and all non-qualified retirement plans of the Bank (or their affiliates)
in which the Employee participates, if allowed under the applicable  plan document;

                                    (E)         continuation of the group term life insurance (or, if the
Bank is unable to provide such group term life insurance, the Employee shall be permitted to
convert such coverage to an individual insurance policy) provided by the Bank at the same
premium cost to the Employee and at the same coverage level as in effect immediately prior to
the Qualifying Event until the third anniversary of the Qualifying Event, without regard to the
federal income tax consequences of that continuation;

                                    (F)         the health and long term care benefits on the terms as
specified in Section 6(f); and

                                    (G)         the opportunity to purchase the Key Man Policy for its then
cash surrender value and the transfer by the Bank of ownership of the Principal Policy to the
Employee at no cost (i.e., with no obligation to pay the cash surrender value).

                           (iii)         Payment of Severance Benefits.  The Severance Benefits described
in Sections 6(c)(ii)(A) and (B) will be paid in cash to the Employee in a single lump sum as soon
as practicable following the Qualifying Event, but in no event more than thirty (30) days after the
Qualifying Event, provided, however, that the Employee executes the agreement described in
Paragraph 6(b).

                           (iv)         Excise Tax.  If a Change of Control of the Bank occurs and the
Bank determines pursuant to Sections 280G and 4999 of the Code that a golden parachute excise
tax is due upon payment of the benefits described in 6(c) (ii), the Employee's Severance Benefits
under this Section 6(c) will be reduced to such amount as is necessary to avoid the excise tax.  To
achieve such reduction, the Employee shall, subject to the Bank's approval, which approval shall
not be unreasonably withheld, determine what amounts constituting the parachute payments shall
be reduced, eliminated, or postponed.  If the Internal Revenue Service (the "Service") adjusts the
computation made by the Bank pursuant to the preceding sentence, and that adjustment either is
acceptable to the Bank or is finally determined to be correct, so that the Employee is liable for the
payment of an excise tax under Sections 280G and 4999 of the Code, or so that the Employee
does not receive the full benefit he would have received in the absence of such adjustment, the
Bank will reimburse the Employee for the full amount necessary to make the Employee whole,
including the value of Severance Benefits that were erroneously limited, the value of the excise
tax, all corresponding interest and penalties due to the Service, and the Employee's Federal, State
and local income tax due on these reimbursement payments.

                  (d)         Termination for Cause.  In the event of Termination for Cause, the Bank
shall have no further obligation to the Employee under this Agreement after the Date of
Termination.

                  (e)         Voluntary Termination.  The Employee may terminate his employment
voluntarily (including his voluntary retirement or due to disability) at any time by a notice
pursuant to Section 7 of this Agreement.  In the event that the Employee voluntarily terminates

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his employment other than by reason of any of the actions that constitute InvoluntaryTermination under Section 6(a) of this Agreement ("Voluntary Termination"), the Bank shall be
obligated to the Employee for the amount of his Base Salary and benefits only through the Date
of Termination, at the time such payments are due (accrued vacation shall be payable within
seven days after the Date of Termination), and the Bank shall have no further obligation to the
Employee under this Agreement except for (i) the health and long term care benefits described in
Section 6(f) and (ii) a final annual bonus in an amount consistent with the Bank's year-end bonus
practices, provided that the Board of Directors shall determine the amount of such bonus in good
faith at the time of the Employee's termination, which bonus shall be pro-rated taking into
consideration the portion of the year elapsed prior to termination, and the Bank shall pay such
bonus in cash on the Date of Termination, and in no event shall such pro-rata bonus amount be
less than the pro-rata amount of the minimum bonus described in Section 4(b).  In addition, the
Employee shall be provided the option of purchasing the Principal Policy and the Key Man
Policy for each of their respective cash surrender values.  If the Employee's employment with the
Bank ends due to Voluntary Termination, the Employee will not be entitled to receive Severance
Benefits under this Agreement, except for the health and long term care benefits provided in
Section 6(f). 

                  (f)         Health and Long Term Care Benefits.  Notwithstanding any other
provision of this Agreement: 

                           (i)         Upon cessation of the Employee's service as an employee of the
Bank (or any successor) or any of its affiliates for any reason except Cause, the Bank (or any
successor, directly or through its affiliates) shall provide or make available to the Employee
thereafter until his sixty-fifth birthday or the current Medicare eligibility age, the same health
insurance, hospitalization, medical, dental, prescription drug and other health benefits as he
would have been eligible for if he had continued to serve as an executive officer of the Bank (or
any successor), for the benefit of himself and his dependents and beneficiaries who would have
been eligible for such benefits if the Employee had continued to serve as an executive officer of
the Bank (or any successor), on terms as favorable to the Employee as to other executive officers
of the Bank (or any successor) from time to time, including amounts of coverage and deductibles,
provided that the Employee shall pay during the Term of this Agreement the same portion of the
cost of such benefits and insurance as he would pay if employed by the Bank (or a successor)
during the Term of this Agreement (even if his employment is terminated during the Term) and
the Employee shall pay the full cost of such benefits and insurance after the Term of this
Agreement ends; provided further that the Bank's obligations under this Section 6(f) shall be
reduced to the extent that, and so long as, the Employee receives such benefits on no less
favorable terms from another employer.  If, during the Term of this Agreement, or while the
Employee is covered by the Bank's health benefits pursuant to this Section 6(f), the Employee
dies or the Employee attains his sixty-fifth birthday or the then current Medicare eligibility age,
the Employee's spouse shall be entitled to continue such benefits until her sixty-fifth birthday or
the then current Medicare eligibility age, provided she pay the same portion of premiums that the
Employee would have paid for single coverage had he continued such benefits.

                           (ii)         During the Term of the Agreement, and upon cessation of the
Employee's service as an employee of the Bank (or any successor) or any of its affiliates for any
reason except Cause, the Bank shall continue to pay the premiums on the long term care
insurance policies owned by, and covering each of, the Employee and his spouse.

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                           (iii)         Commencing on the Employee's sixty-fifth birthday or the then
current Medicare eligibility age, and the Employee's eligibility for Medicare Parts A and B, the
Bank will provide the Employee and his spouse with coverage under a Medicare Supplemental
Insurance plan obtained by the Bank for the Employee and his spouse.

                           (iv)         The Bank's obligation to pay the premiums on the long term care
policies described in Section 6(f) (ii) and the Medicare Supplemental Insurance plan described in
Section 6(f) (iii) (i) shall not exceed an aggregate annual cost of $25,000, or, upon the death of
the first to occur of the Employee or his spouse, $12,500, and (ii) shall cease upon the death of
both the Employee and his spouse.

                           (v)         The Bank's obligations under this Section 6(f) shall survive the
Term of this Agreement.

                  (g)         Death.  In the event of the death of Employee during the Term of this
Agreement and prior to any termination of employment, the Bank shall pay to the Employee's
estate, or such person as the Employee may have previously designated in writing, the Base
Salary which was not previously paid to the Employee and which he would have earned if he had
continued to be employed under this Agreement through the last day of the calendar month in
which the Employee died, and a bonus (prorated in accordance with the portion of the fiscal year
expired as of the date of his death) in an amount consistent with the Bank's year-end bonus
practices as determined by the Board of Directors in good faith, which bonus shall be paid within
90 days after the death of the Employee, and in no event shall such pro-rata bonus amount be less
than the pro-rata amount of the minimum bonus described in Section 4(b).

                  (h)         Disability.  If the Employee becomes entitled to benefits under the terms
of the then-current disability plan, if any, of the Bank (a "Disability Plan"), he shall be entitled to
receive such group and other disability benefits, if any, as are then provided by the Bank for
executive officers.  In the event of such disability, this Agreement shall not be suspended, except
that (i) the Bank's obligation to pay the Base Salary to the Employee shall be reduced in
accordance with the amount of disability income benefits received by the Employee, if any,
pursuant to this Section 6(h) or the policies described in Section 4(e)(i) such that on an after-tax
basis, the Employee shall realize from the sum of disability income benefits and a portion of the
Base Salary (if any) the same amount as he would realize on an after-tax basis from the Base
Salary if the Bank's obligation to pay salary were not reduced pursuant to this Section 6(h); and
(ii) upon a resolution adopted by a majority of the disinterested members of the Board of
Directors, the Bank may discontinue payment of the Base Salary beginning six months following
a determination that the Employee has become entitled to benefits under a Disability Plan or
otherwise unable to fulfill his duties under this Agreement.

                  (i)         Regulatory Action.  Notwithstanding any other provisions of this
Agreement, if the Employee is removed and/or permanently prohibited from participating in the
conduct of the Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal
Deposit Insurance Act, 12 U.S. C. Section 1818(e)(4) and (g)(1), all obligations of the Bank
under this Agreement shall terminate as of the effective date of the order, but vested rights of the
parties shall not be affected.

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         7.         Notice of Termination.  Subject to the provisions of Section 1(e) of this
Agreement, in the event that the Bank desires to terminate the employment of the Employee
during the Term of this Agreement, the Bank shall deliver to the Employee a written notice of
termination, stating whether such termination constitutes Termination for Cause or Involuntary
Termination, setting forth in reasonable detail the facts and circumstances that are the basis for
the termination, and specifying the date upon which employment shall terminate, which date
shall be at least 30 days after the date upon which the notice is delivered, except in the case of
Termination for Cause.  In the event that the Employee determines in good faith that he has
experienced an Involuntary Termination of his employment, he shall send a written notice to the
Bank stating the circumstances that constitute such Involuntary Termination and the date upon
which his employment shall have ceased due to such Involuntary Termination.  In the event that
the Employee desires to effect a Voluntary Termination, he shall deliver a written notice to the
Bank, stating the date upon which employment shall terminate, which date shall be at least 90
days after the date upon which the notice is delivered, unless the parties agree to a date sooner.

         8.         Covenant Not to Compete.  The Employee agrees that his services are special and
unique, and of an unusual and extraordinary character which gives them peculiar value for which
monetary damages cannot provide adequate compensation.  In consideration of the Bank's
entering into this Agreement, the Employee hereby agrees that during the Non-Compete Period
(as defined below), he shall not without the prior written consent of the Bank:

                  (a)         serve as a director, officer, or employee of, or directly or indirectly, as a
consultant, independent contractor or otherwise, provide any personal services to any institution
insured by the Federal Deposit Insurance Corporation or any affiliate of such an institution which
institution or affiliate has an office in Cook County, Illinois or adjacent counties in Illinois; or

                  (b)         solicit, or directly or indirectly cause to be solicited, any employee of the
Bank to leave his or her employment; or

                  (c)         solicit, or directly or indirectly cause to be solicited, customers of the Bank
for the purpose of offering loans or other financing services to such customers.

         The term "Non-Compete Period" shall mean (i) in the event of Termination for Cause,
the period of three years following the Date of Termination, (ii) in the event of Involuntary
Termination not following a Change in Control, the period of the remaining Term of this
Agreement, (iii) in the event of Involuntary Termination following a Change in Control which
occurs during the Term of this Agreement, the period of the lesser of one year or the remaining
Term of this Agreement, (iv) in the event of Voluntary Termination not following a Change in
Control, the period of 18 months, and (v) in the event of Voluntary Termination following a
Change in Control which occurs during the Term of this Agreement, the period of one year
following the Date of Termination.  The provisions of this Section 8 shall survive expiration of
the Term of this Agreement. 

         If any provision of this Section 8, as applied to any party or to any circumstances, is
adjudged by a court to be invalid or unenforceable, the same shall in no way affect any other
provision of this Section 8 or any other part of this Agreement, the application of such provision
in any other circumstances or the validity or enforceability of this Agreement.  If any such
provision, or any part thereof, is held to be unenforceable because

10
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of the duration of such
provision or the area covered thereby, the parties agree that the court making such determination
shall have the power to reduce the duration and/or area of such provision, and/or to delete
specific words or phrases, and in its reduced form such provision shall then be enforceable and
shall be enforced.  Upon breach of any provision of this Section 8, the Bank shall be entitled to
injunctive relief, since the remedy at law would be inadequate and insufficient.  In addition, the
Bank shall be entitled to such damages as it can show it has sustained by reason of such breach.

         9.         Attorneys' Fees. The Bank shall pay all legal fees and related expenses (including
the costs of experts, evidence and counsel) incurred by the Employee as a result of (a) the
Employee's contesting or disputing any termination of employment, or (b) the Employee's
seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan
or arrangement maintained by the Bank (or any successor) or an affiliate under which the
Employee is or may be entitled to receive benefits; provided that the Bank's obligation to pay
such fees and expenses is subject to the Employee's prevailing with respect to the matters in
dispute in any proceeding initiated by the Employee or the Employee's having been determined
to have acted reasonably and in good faith with respect to any proceeding initiated by the Bank.

         10.         No Assignments Except by Operation of Law in Certain Mergers.

                  (a)         This Agreement is personal to each of the parties hereto, and neither may
assign or delegate any of its rights or obligations hereunder without first obtaining the written
consent of the other party except that, by operation of law in a merger in which the Bank is a
party but not the resulting entity, the Bank's obligations may be assigned to and assumed by the
resulting entity of such a merger; provided, however, that the Bank shall require any successor or
assign (other than by operation of law in a merger in which the Bank is a party but not the
resulting entity) by an assumption agreement in form and substance satisfactory to the Employee,
to expressly assume and agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform it if no such succession or assignment had
taken place.  Failure of the Bank to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a breach of this Agreement and shall
entitle the Employee to compensation and benefits from the Bank in the same amount and on the
same terms as the compensation pursuant to Section 6(a), Section 6(c) and Section 6(f) hereof.
For purposes of implementing the provisions of this Section 10, the date on which any such
succession becomes effective shall be deemed the Date of Termination.

                  (b)         This Agreement and all rights of the Employee hereunder shall inure to the
benefit of and be enforceable by the Employee's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.

         11.         Notice.  For the purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested, postage prepaid, to
the Bank at its home office, to the attention of the Board of Directors with a copy to the Secretary
of the Bank, or, if to the Employee, to such home or other address as the Employee has most
recently provided in writing to the Bank.

11
Next Page

         12.         Amendments.  No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties.

         13.         Headings.  The headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the interpretation of this
Agreement.

         14.         Severability.  The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provisions shall not affect the validity or enforceability of
the other provisions hereof.

         15.         Governing Law.  This Agreement shall be governed by the laws of the State of
Illinois.

         16.         Attorneys' Fees.  The Bank shall be solely responsible for payment of any and all
legal fees incurred by Employee in the preparation, negotiation and execution of this Agreement. 

         17.         Successors to Code Sections.  All provisions of this Agreement referring to
sections of the U.S.C. (United State Code) or to the Internal Revenue Code shall be deemed to
refer to successor code sections in the event of renumbering of code sections.

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.

	Attest:	MB Financial Bank, N.A.

	/s/ Doria L. Koros
	/s/ Jeffrey Husserl

	Secretary	By:	Jeffrey Husserl

		Its:	Executive Vice President

	 
	 
		EMPLOYEE:

		/s/ Ronald Santo

Ronald Santo

12
End<PAGE>

                                                                     Exhibit 4.1

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

                         FORM OF AMENDED AND RESTATED

                             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 STOCK.....................................................2
         1.1  General Restriction on Transfer by Management
                  Stockholders........................................................2
         1.2  Permitted Transferees...................................................3

ARTICLE II
PURCHASES BY ENDO LLC.................................................................4
         2.1  Right to Purchase Shares from Management Stockholders...................4
         2.2  Notice..................................................................5
         2.3  Payment.................................................................5
         2.4  Postponement, etc.......................................................7

ARTICLE III
PURCHASE PRICE........................................................................8
         3.1  Fair Market Value.......................................................8
         3.2  Carrying Value..........................................................8
         3.3  Certain Defined Terms...................................................8

ARTICLE IV
PROHIBITION ON PURCHASES.............................................................10
         4.1  Prohibited Purchases...................................................10

ARTICLE V
SALES TO THIRD PARTIES...............................................................13
         5.1  General................................................................13
         5.2  Agreements to Be Bound.................................................13
         5.3  Involuntary Transfers..................................................14
         5.4  Tag- and Drag-Along Rights.............................................15

ARTICLE VI
REGISTRATION RIGHTS..................................................................18
         6.1  Incidental Registration................................................18
         6.2  Expenses...............................................................20
         6.3  Holdback and Other Agreements..........................................20
         6.4  Indemnification........................................................21

ARTICLE VII
CHARTER DOCUMENTS....................................................................22
         7.1  Charter Documents......................................................22

ARTICLE VIII
TERMINATION..........................................................................23
         8.1  Sale of the Company....................................................23
         8.2  Cessation of Ownership of Stock........................................23

</TABLE>
                                       i
<PAGE>

<TABLE>
<CAPTION>

<S>      <C>                                                                        <C>
         8.3  Other Termination Events...............................................23

ARTICLE IX
MISCELLANEOUS PROVISIONS.............................................................24
         9.1  Stock Certificate Legend...............................................24
         9.2  Option Plans...........................................................24
         9.3  New Management Stockholders............................................25
         9.4  No Other Arrangements or Agreements....................................25
         9.5  Amendment and Modification.............................................25
         9.6  Assignment.............................................................26
         9.7  Recapitalizations, Exchanges, etc. Affecting the
                  Common Stock.......................................................26
         9.8  Transfer of Common Stock...............................................27
         9.9  Further Assurances.....................................................27
         9.10 Governing Law..........................................................28
         9.11 Invalidity of Provision................................................28
         9.12 Notices................................................................28
         9.13 Headings; Execution in Counterparts....................................29
         9.14 Entire Agreement; Effect on Certain Other Agreements...................29
         9.15 Injunctive Relief......................................................29
         9.16 Attorneys' Fees........................................................30

</TABLE>

                                       ii
<PAGE>

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

          AMENDED AND RESTATED 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"), Carol A. Ammon,
                                                --------
Jeffrey R. Black and Mariann T. MacDonald (collectively, together with their
Permitted Transferees, the "Initial Management Stockholders"), David A.H. Lee
                            -------------------------------
and the Carol A. Ammon Trustee, Revocable Trust U/A, Dated 6/13/97 as Permitted
Transferee of Carol A. Ammon (the Initial Management Stockholders, together with
David A.H. Lee and any other persons who become par ties to this Agreement
pursuant to Sections 10.2 and 10.3 of this Agreement and each of their
respective Permitted Transferees, the "Management Stockholders").
                                       -----------------------

          WHEREAS, the Company, Kelso and the Management Stockholders are
parties to that certain Stockholders Agreement, dated as of December 1, 1997
(the "1997 Stock holders 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 (the "Common Stock") to the current Management
                            ------------
Stockholders and certain 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, the Endo Pharma Amended and Restated
1997 Executive Stock Option Plan, the Endo Pharma 2000 Supplemental Employee
Stock Option Plan and the Endo Pharma 2000 Supplemental Executive Stock Option
Plan (collectively, and together with any similar such plan the Company may in
the future adopt, the "Option Plans") and, upon exercise of the options such
shares of Common Stock will be subject to this Agreement and to the
<PAGE>

extent such employees are not already parties to this Agreement, such employees
will become parties to this Agreement pursuant to Section 10.3 hereof;

          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 Management 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 Management
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
Stockholders Agreement is hereby amended and restated in its entirety and agree
as follows:

                                   ARTICLE I

                       RESTRICTIONS ON TRANSFER OF STOCK

          1.1  General Restriction on Transfer by Management Stockholders.  No
               -----------------------------------------------------------
shares of Common Stock owned by any Management Stockholder or any interest
therein may, directly or indirectly, be sold, assigned, transferred or otherwise
disposed of or transferred by such Management 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, Kelso, Endo LLC or
Management Stockholders, including pursuant to Article II or III hereof, or
(iii) Transfers of shares of Common Stock pursuant to, or as otherwise permitted
under, Article VI hereof; provided that in the event the employment of a
                          -------- ----
Management Stock holder with the Company or any of its Subsidiaries is
terminated for any reason, such Management Stockholder may pledge, hypothecate,

                                       2
<PAGE>

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 discretion 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 Management
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 with hold
                              -------- ----
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
Management Stockholder, as the case may be, his or her spouse, parents, any
other family members, (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, or (iii) with the prior written consent of the LLC
Board, to any transferee, including, without limitation, to one or more
Management Stockholders or to any employee who is, in the opinion of the LLC
Board, a current member of management of the Company or any of its subsidiaries,
if any.  In addition to the foregoing, any transferee of a Management
Stockholder described above may Transfer shares of Common Stock back to such
Stockholder or to another Permitted Transferee of such 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,

                                       3
<PAGE>

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).

                                   ARTICLE II

                             PURCHASES BY ENDO LLC

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

          (a)  Subject to all provisions of this Article III and Article V
hereof, Endo LLC shall have the right to purchase from a Management Stockholder,
and such Management 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
Management Stockholder:

               (i) at the fair market value of such shares, as determined
     pursuant to Section 4.1 hereof ("Fair Market Value"), if such Management
                                      -----------------
     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
     Management Stockholder for Good Reason, (x) the resignation of such
     Management Stockholder without Good Reason, (y) the retirement of such
     Management Stockholder upon or after reaching the age of 65 or, if
     different, the Company's normal retirement age ("Retirement"), or (z) the
                                                      ----------
     death or Disability (as defined in Section 4.3 hereof) of such Management
     Stockholder; and

               (ii) at the lesser of the Fair Market Value and the Carrying
     Value (as defined in Section 4.2 hereof) of such shares, if such Management
     Stockholder's employment with the Company or any of its subsidiaries is
     terminated by the Company or one of its subsidiaries with Cause.

                                       4
<PAGE>

          (b) In the event that Endo LLC does not exercise such right to
purchase the shares of Common Stock from a Management Stockholder by giving
notice within the 30-day period referred to in Section 3.2 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 3.1(a) hereof from such
Management Stockholder, by giving notice not later than the end of the
succeeding 10-day period.

          (c) In the event that the purchase of, or the payment for, some or all
of the shares of Common Stock referred to in Section 3.1(a) hereof by Endo LLC
is prohibited under Article V hereof, subject to Section 3.1(b) hereof, an
Initial Management Stockholder may elect, at his or her option, to purchase some
or all of such shares of Common Stock, within 20 days of the determination by
Endo LLC that its purchase of, or its payment for, such shares would be
prohibited by Article V hereof.

          2.2  Notice.  If Endo LLC desires to purchase shares of Common Stock
               ------
from a Management Stockholder pursuant to Section 3.1 hereof, it shall notify
such Management Stockholder not more than 30 days after the occurrence of the
event giving rise to Endo LLC's right to acquire such Management Stockholder's
shares of Common Stock (or in the case of the Management Stockholder's death, it
shall notify such Management Stockholder's estate within 30 days of notice to
Endo LLC of the Management 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 Management
Stockholder not later than the end of the succeeding 10-day period.

           2.3 Payment.
               -------

          (a)  Subject to Article V and Section 3.4 hereof, payment for shares
of Common Stock purchased pursuant to Section 3.1(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 30/th/ business day following
the date on which notice is given pursuant to Section 3.2 hereof, or (ii) in all
other cases, the 15/th/ business day following the date of the determination of
Fair Market Value pursuant to Section 4.1 hereof.

                                       5
<PAGE>

          (b)  If the termination of employment of such Management 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 15/th/ day
          following the surrender of the certificates representing the purchased
          shares and the remainder shall be paid on the last day of the 18/th/
          month following the date of termination of employment.

          (c)  Notwithstanding the foregoing, in the event that the termination
of employment of a Management Stockholder giving rise to Endo LLC's right to
acquire such Management Stockholder's shares of Common Stock results from the
death or Disability of such Management Stockholder prior to December 1, 2002,
then such Management Stockholder shall have the right to elect (which election
shall be irrevocable), within 90 days of the receipt of the notice specified in
Section 3.2 hereof, to defer the effectiveness of Endo LLC's purchase right with
respect to all or any portion of such Management Stock holder's shares of Common
Stock until December 1, 2002. Notwithstanding the foregoing, no such election
may be made by such Management Stockholder with respect to a portion of such
Management Stockholder's shares of Common Stock unless such election is made
with respect to at least one-third of the shares of Common Stock owned by such
Management Stockholder at the time of such termination of employment.  If a
Management Stockholder shall fail to make an election with respect to when Endo
LLC's purchase right shall be effective, such Management Stock holder shall be
deemed to have elected to have Endo LLC's purchase right be effective
immediately with respect to all of such Management Stockholder's shares of
Common Stock.

                                       6
<PAGE>

          In the event Endo LLC's purchase right with respect to all or any
portion of any shares of Common Stock is not effective until December 1, 2002 by
reason of the election made by a Management Stockholder under this Section
3.3(c), December 1, 2002 shall be deemed to be the date of termination for
purposes of determining the purchase price to be paid for the shares of Common
Stock to be purchased after December 1, 2002.  Endo LLC shall, subject to
Article V hereof, pay to such Management Stockholder whose employment so
terminates the Fair Market Value of such shares by the 15/th/ day following the
date of determination of Fair Market Value with respect to such deemed
termination date.

          (d)  Any payments based on Fair Market Value required to be made by
Endo LLC under this Section 3.3 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, including with respect to the election made pursuant
to Section 3.3(c) hereof) to the date Endo LLC makes such payments.

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

          (a)  The date of payment and closing of any purchase and sale under
this Article III may be postponed to the extent necessary to permit such
purchase and sale under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the regulations promulgated there under, if applicable to
such sale.  No party shall be required to consummate any purchase and sale under
this Article III 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 III, in
no event shall any sale of Common Stock that was received by a Management
Stockholder upon the exercise of an employee stock option occur prior to the
six-month anniversary of such exercise.

                                       7
<PAGE>

                                  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 Stockholders.  After notice has been given pursuant to
              ----------------------
Section 2.2, 3.2 or 6.3 hereof, Endo LLC shall promptly deliver a letter setting
forth the Fair Market Value to Kelso and to each Management Stockholder whose
Common Stock is to be purchased pursuant to Section 2.1, 3.1 or 6.3 hereof.

          3.2  Carrying Value.  For the purposes of Sections 3.1 and 6.5
               --------------
hereof, "Carrying Value" of any share of Common Stock being purchased by Endo
         --------------
LLC shall be equal to the price paid by the selling Management 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
Initial Management Stockholders (and such other Management Stock holders 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 Initial Management
Stockholder's respective employment agreement (or the employment agreements of
such other Management 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 a Management Stockholder shall mean a termination of such
Management Stockholder's employment by the Company or any of its subsidiaries
due to (i) the continued failure, after written notice, by such Management

                                       8
<PAGE>

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

          (b) Good Reason.  A termination of a Management Stockholder's
              -----------
employment with the Company or any of its subsidiaries shall be for "Good
                                                                     ----
Reason" if such Management 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 Management Stock holder'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 Management
     Stockholder is a member;

               (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

                                       9
<PAGE>

     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 Management Stockholder is a member or (C) generally applicable to
     all beneficiaries of such plans; or

               (iii)  the assignment to the Management Stockholder of duties
     inconsistent with his or her status within the Company, or a substantial
     adverse alteration in the nature or status of his or her responsibilities
     from those in effect on the date hereof.

          (c) Disability.  The termination of the employment of any Management
              ----------
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 Management Stockholder's
             ----------
incapacity due to reasonably documented physical illness or injury or mental
illness, such Management Stockholder 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 Management Stock holder, such
Management Stockholder shall not have re turned 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 or obligated to purchase any shares of
Common Stock from a Management Stockholder (or make any payment for any
purchased shares of Common Stock) pursuant to Section 2.1 or Section 3.1 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

                                       10
<PAGE>

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, 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 or obligation 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 (the "Maximum Amount"), Endo LLC shall purchase (or pay for)
                         --------------
on such date only that number of shares of Common Stock up to the Maximum Amount
(and shall not be required to purchase more than the Maximum Amount) in such
amounts as the LLC Board shall in good faith determine, applying the following
order of priority:

          (a)  first, the shares of Common Stock of all Management Stockholders
whose shares of Common Stock are being (or were) purchased by Endo LLC by reason
of termination

                                       11
<PAGE>

of employment due to death or Disability up to the Maximum Amount and, to the
extent that the number of shares of Common Stock that Endo LLC is obligated or
has the right to purchase (or pay for) from such Management Stockholders exceeds
the Maximum Amount, such shares of Common Stock pro rata among such Management
Stockholders on the basis of the number of shares of Common Stock held by each
of such Management Stockholders that Endo LLC is obligated or has the right to
purchase (or pay for), and

          (b) second, to the extent that the Maximum Amount is in excess of the
amount Endo LLC purchases (or pays for) pursuant to clause (a) above, the shares
of Common Stock of all Management Stockholders whose shares of Common Stock are
being (or were) purchased (or paid for) by Endo LLC by reason of termination of
employment without Cause or due to Retirement or resignation for Good Reason up
to the Maximum Amount and, to the extent that the number of shares of Common
Stock that Endo LLC is obligated or has the right to purchase from such
Management Stockholders exceeds the Maximum Amount, such shares of Common Stock
pro rata among such Management Stockholders on the basis of the number of shares
of Common Stock held by each of such Management Stockholders that Endo LLC is
obligated or has the right to purchase (or pay for), and

          (c) third, to the extent the Maximum Amount is in excess of the
amounts Endo LLC purchases (or pays for) pursuant to clauses (a) and (b) above,
the shares of Common Stock of all Management Stockholders whose shares of Common
Stock are being (or were) purchased (or paid for) by Endo LLC for any other
reason up to the Maximum Amount and, to the extent that the number of shares of
Common Stock that Endo LLC is obligated or has the right to purchase (or pay
for) from such Management Stockholders exceeds the Maximum Amount, the shares
of Common Stock of such Management Stockholders in such order of priority and in
such amounts as the LLC Board in its sole discretion shall in good faith
determine to be appropriate under the circumstances.

          Subject to Sections 2.1(c)and 3.1(c) hereof, notwithstanding anything
to the contrary contained in this Agreement, if Endo LLC is unable to purchase
any Management Stockholder's shares pursuant to Section 2.1 or 3.1 of this
Agreement by reason of this Article V (or make any payment for any purchased
shares), Endo LLC may

                                       12
<PAGE>

nonetheless in the case of Section 3.1 hereof exercise its option to purchase
such shares and in the case of purchases pursuant to Sections 2.1 or 3.1 hereof
shall purchase (or make payment for) such shares at the earliest practicable
date permitted under this Article V 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 V 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 3.1
hereof may not otherwise be sold by the Management Stockholder notwithstanding
non-payment there for pursuant to this Article V.

                                   ARTICLE V

                             SALES TO THIRD PARTIES

          5.1  General. No Management Stockholders shall sell any of his or her
               -------
shares of Common Stock to a third party for the term of this Agreement; provided
                                                                        --------
that such restriction shall not apply to any sale or other trans action
----
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 VII hereof.  Endo LLC may not
sell the shares of Common Stock it owns to a third party at any time after the
date of this Agreement unless Endo LLC as transferor first complies with Section
6.4 hereof.

          5.2    Agreements to Be Bound.  Notwithstanding anything contained in
                 ----------------------
this Article VI, any sale to a third party or any Involuntary Transfer (as
defined in Section 6.3 hereof) to an Involuntary Transferee (as defined in
Section 6.3 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.

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

                                       13
<PAGE>

of Common Stock upon default, foreclosure, forfeit, divorce, court order, or
otherwise than by a voluntary decision on the part of a Management Stockholder
(an "Involuntary Transfer"), Endo LLC shall have the right to purchase such
     --------------------
shares pursuant to this Section 6.3. Upon the Involuntary Transfer of any shares
of Common Stock, such Management 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 Management 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.

          Kelso shall have the right to require Endo LLC to assign to Kelso (or
a designee of Kelso) Endo LLC's right to purchase pursuant to this Section 6.3.

                                       14
<PAGE>

           5.4  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 Common
Stock it owns as of the date of the Merger, except pursuant to Section 6.4(b)
hereof, to any third party or parties unaffiliated with Endo LLC (a "Third
                                                                     -----
Party") unless the Management 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 6.4(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 6.4(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 6.4(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

                                       15
<PAGE>

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. The maximum number of shares
of Common Stock that may be Transferred by each Offeree to the Third Party in
accordance with this Section 6.4(a) 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 6.4(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 6.4(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.

                                       16
<PAGE>

          (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 Management Stockholders to participate in
such Transfer pursuant to Section 6.4(a) hereof) Endo LLC may, at its option,
require the Management 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 6.4(b).

          Endo LLC shall send written notice (the "Drag-Along Notice") of the
                                                   -----------------
exercise of their rights pursuant to this Section 6.4(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 6.4(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 6.4(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

                                       17
<PAGE>

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 this Section 6.4(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 6.4(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 6.4(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 6.4(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

                              REGISTRATION RIGHTS

          6.1  Incidental Registration.  If Endo LLC, pursuant to that certain
               -----------------------
registration rights agreement, dated as of ______ __, 2000, by and between the
Company and Endo LLC (the "Endo LLC Registration Rights Agreement"), demands
                           ---------------------------------------
that the Company register any of its shares of Common Stock or any other of its
common equity securities (collectively, "Other Securities") under the Act for
                                         ----------------
sale for cash to the public under the Act, then Endo LLC will at such time give
prompt written notice to each any Management Stockholder or any of their
respective Permitted Transferees (each, a "Holder") of its intention to do so
                                           ------
and of the rights of such Holder under this Section 7.1, at least 20 days prior
to the Company's anticipated filing date of the registration statement relating
to such demand registration. Such

                                       18
<PAGE>

notice shall offer each such Holder the opportunity to include in such
registration statement such number of shares of Common Stock as such Holder may
request, in accordance with this Section 7.1. Upon the written request of a
Holder made within 10 days after the receipt of the Endo LLC's notice (which
request shall specify the number of shares of Common Stock intended to be
disposed of and the intended method of disposition thereof), Endo LLC will use
its best efforts to cause the Company to effect, in connection with the
registration of the Other Securities, the registration under the Act of all
shares of Common Stock which the Company has been so requested to register, to
the extent required to permit the disposition (in accordance with such intended
methods of disposition) of such shares of Common Stock so requested to be
registered, provided that:
            -------- ----

          (a)  if, at any time after Endo LLC has given such written notice of
the Company's intention to register any Other Securities pursuant to a demand
by Endo LLC and prior to the effective date of the registration statement filed
in connection with such demand registration, Endo LLC shall determine for any
reason not to demand such registration, Endo LLC shall give written notice of
such determination to the Holders, and thereup on the Company shall be relieved
of its obligation to register the shares of Common Stock requested to be
registered in connection with the demand registration of such Other Securities;

          (b)  if the registration referred to in the first sentence of Section
7.1(a) hereof is to be an underwritten registration on behalf of the Company,
and the managing underwriter(s) advises the Company in writing that, in such
firm's opinion, such offering would be materially and adversely affected by the
inclusion there in of any of the Common Stock requested to be included therein,
the Company shall include in such registration: (i) first, all securities for
which Endo LLC has demanded registration ("Endo LLC Securities"), (ii) second,
                                           -------------------
up to the full number of shares of Common Stock requested to be included in such
registration by the Management Stock holders, which, in the good faith opinion
of such firm, can be so sold without so materially and adversely affecting such
offering (and, if less than the full number of such shares of Common Stock,
allocated pro rata among the Management Stockholders on the basis of the number
of shares of Common Stock

                                       19
<PAGE>

requested to be included therein by the Management Stockholders); provided,
                                                                  --------
however, that with respect to the Management Stockholders, if the underwriter in
-------
connection with such registration deter mines that such offering would be
materially and adversely affected by the inclusion of Common Stock owned by the
Management Stockholders for reasons including, but not limited to, the status of
the owners of such securities as Management Stockholders such underwriter may in
its sole discretion exclude all or, in such manner as either in its sole
discretion deems appropriate, the Common Stock owned by Management Stockholders
from such offering, and (iii) third, an amount of other securities, if any,
requested to be included therein in excess of the number or dollar amount of
Company Securities and Common Stock of the Holders which, in the opinion of such
firm, can be so sold without materially and adversely affecting such offering
(allocated among the holders of such other securities in such proportions as
such holders and the Company may agree); and

          (c)  no registration of Common Stock effected under this Section 7.1
shall relieve the Company of its obligation to effect a registration of shares
of Common Stock pursuant to the Endo LLC Registration Rights Agreement.

          6.2  Expenses.  The Company will pay all expenses in connection with
               --------
any registration pursuant to this Article VII (including any registration not
consummated as contemplated by Section 7.1(a) hereof) and any other actions
that may be taken in connection with any such registration as contemplated by
this Article VII; provided, however, that the Company will not be obligated to
                  --------  -------
pay underwriting discounts or commissions or transfer taxes, if any, relating to
the sale or disposition of shares sold pursuant to any such registration.

           6.3  Holdback and Other Agreements.
                -----------------------------

          (a)  If and whenever the Company proposes to register any of its
equity securities under the Securities Act for its own account (other than on
Form S-4 or S-8 or any successor form) or is required to use its best efforts to
effect the registration of any shares of Common Stock under the Securities Act
pursuant to Section 7.1 hereof, each Holder agrees by acquisition of such shares
of Common Stock not to effect any sale or distribution,

                                       20
<PAGE>

including any sale pursuant to Rule 144 under the Securities Act, or to request
registration under Section 7.1 hereof of any shares of Common Stock within seven
days prior to and 90 days (unless advised by the managing underwriter that a
longer period, not to exceed 180 days, is required, or such shorter period as
the managing underwriter for any underwritten offering may agree) after the
effective date of the registration statement relating to such registration,
except as part of such registration or unless, in the case of a private sale of
distribution, the transferee agrees in writing to be subject to this Section
7.3. If requested by such managing underwriter, each holder of shares of Common
Stock agrees to execute a holdback agreement, in customary form, consistent with
the terms of this Section 7.3(a).

          (b) The Company agrees not to effect any public sale or distribution
of its equity securities or securities convertible into or exchangeable or
exercisable for any of such securities within seven days prior to and 90 days
(unless advised in writing by the managing underwriter that a longer period, not
to exceed 180 days, is required, or such shorter period as the managing
underwriter for any underwritten offering may agree) after the effective date of
any registration statement filed pursuant to Section 7.1 hereof (except (i) as
                                                                         -
part of such registration, (ii) as permitted by the related underwriting, (iii)
                            --                                             ---
pursuant to an employee equity compensation plan, (iv) pursuant to an
                                                    --
acquisition or strategic relationship, bank or equipment financing or similar
transaction or (v) pursuant to a registration on Form S-4 or S-8 or any
                -
successor form).  In addition, upon the request of the managing underwriter, the
Company shall use its best efforts to cause each holder of its equity securities
or any securities convertible into or exchangeable or exercisable for any of
such securities, whether outstanding on the date of this Agreement or issued at
any time after the date of this Agreement (other than any such securities
acquired in a public offering), to agree not to effect any such public sale or
distribution of such securities during such period, except as part of any such
registration if permitted, and to cause each such holder to enter into a similar
agreement to such effect with the Company.

                                       21
<PAGE>

          6.4  Indemnification.  The Company may require as a condition to
               ---------------
including any Common Stock in any registration statement filed pursuant to
Section 7.1 hereof that the Company shall have received an undertaking from the
prospective seller of Common Stock to indemnify directors, officers and other
persons, if any, who may control the Company within the meaning of the Act with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, prospectus contained therein, or any amendment
or supplement thereto, if such statement or alleged statement or such omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by
such prospective seller of Common Stock specifically stating that it is for use
in the preparation of such registration statement, prospectus contained therein,
or amendment or supplement thereto.  The parties hereto hereby acknowledge and
agree that, unless other wise expressly agreed to in writing by such prospective
seller to the contrary, for all purposes of this agreement the only information
furnished or to be furnished by such prospective seller, in its capacity as
such, to the Company for use in any registration statement, prospectus contained
therein, or any amendment or supplement thereto are statements specifically
relating to (i) transactions between the prospective seller and its affiliates,
on the one hand, and the Company, on the other hand, (ii) the beneficial
ownership of shares of Common Stock by the prospective seller and its affiliates
and (iii) the name and address of the prospective seller and its affiliates.

                                  ARTICLE VII

                               CHARTER DOCUMENTS

          7.1  Charter Documents.  The Company has previously furnished to the
               -----------------
Management Stockholders copies of its Certificate of Incorporation and By-Laws,
each as shall be in effect on the date of the closing of the Merger (the

"Charter Documents").  From and after the date of this Agreement, each
------------------
Management Stockholder shall vote its shares of voting stock of the Company, at
any regular or special meeting of stockholders of the Company or in any written
consent executed in lieu of such a meeting of stockholders, and shall take all
actions necessary, to ensure that the Charter Documents do not,

                                       22
<PAGE>

at any time, conflict with the provisions of this Agreement.

                                  ARTICLE VII

                                  TERMINATION

           8.1  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 VII
hereof which shall survive such termination indefinitely.

           8.2  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.

           8.3  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 6.5
and Article VII hereof, shall terminate upon the fifteenth anniversary of this
Agreement.

                                       23
<PAGE>

                                   ARTICLE IX

                            MISCELLANEOUS PROVISIONS

          9.1  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
Management 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 STOCKHOLDERS AGREEMENT, DATED AS OF _______ __, 2000."

          All Management 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 expense of the Company, with certificates not
bearing the legend required by this Section 10.1.

          9.2  Option Plans.  Pursuant to the Option Plans, the Company has
               ------------
required that participants there under must become parties to this Agreement
upon exercise of the options and that they will be "Management Stock holders"
hereunder with respect to such shares.  In addition, Endo LLC, notwithstanding
any requirement set forth in Section 10.4 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 Sections 2 and

                                       24
<PAGE>

3 hereof; provided, however, that appropriate adjustments shall be made to
          --------  -------
reflect the existence of an exercise price for such options.

          9.3  New Management Stockholders.  Each of the Management Stockholders
               ---------------------------
hereby agrees that the Company may require that any executive 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 10.11 hereof.  Upon such execution and delivery, such executive employee
shall be a "Management Stockholder" for all purposes of this Agreement.

          9.4  No Other Arrangements or Agreements.  Each Management Stockholder
               -----------------------------------
hereby represents, warrants  and covenants to Endo LLC and to each other
Management Stock holder that, except for, if applicable, the exchange agreement
entered into on December 1, 1997, by and between the Company and each
Management 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 Management 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 Management
Stockholders or holders of Common Stock that are not parties to this Agreement).
Each Management Stockholder represents, warrants and covenants to Endo LLC and
to each other Management Stockholder that it has not entered into or agreed to
be bound by, and will not enter into or agree to be bound by, any voting
agreements with respect to its shares of Common Stock.

          9.5  Amendment and Modification. This Agreement may be amended,
               --------------------------
modified or supplemented only with the written consent of (i) Kelso and (ii) the
Management Stockholders owning a majority of the outstanding Common Stock then
owned by all Management Stockholders;

                                       25
<PAGE>

provided that Endo LLC may, at any time and from time to time, in its sole
-------- ----
discretion, release all or a portion of any Management Stockholder's shares of
Common Stock from this Agreement.

          9.6  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 Management 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 Management
Stockholder pursuant to Sections 2 and 3 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 Management
Stockholder hereunder for purposes of obtaining the benefits or enforcing the
rights of such Management 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 Management Stockholder is
subject.

          9.7  Recapitalizations, Exchanges, etc. Affecting the Common Stock.
               --------------------------------------------------------------
Except as otherwise provided here in, 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, ex change,
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

                                       26
<PAGE>

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.

          9.8  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, Section 3.3 or Article V hereof, any portion thereof, the
selling Management 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 Management 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 Management Stockholder shall
(not withstanding such refusal or failure) be deemed, upon receipt by such
Management Stockholder of the purchase price therefor, to not be outstanding for
any purposes.  Not withstanding 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, the Company, after Endo LLC makes such
purchase, shall deliver to the selling Management Stockholder a certificate for
any unpurchased shares of Common Stock.

          9.9  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.

                                       27
<PAGE>

          9.10 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.

          9.11 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.

          9.12 Notices.  All notices and other communications hereunder shall
               -------
be in writing and, unless other wise 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 10.12
(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

                    with a copy to:

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

               (b)  if to a Management Stockholder, as listed on the signature
                    page hereto, or, if not so listed, to it at its address as
                    reflected in the stock records of the Company, or as such
                    Management Stockholder

                                       28
<PAGE>

                    shall designate to the Company in writing, with a copy to
                    Kelso 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, 24/th/ Floor
                    New York, New York  10022
                    Attention:  James J. Connors, II
                    Telecopy No.:  (212) 223-2379

          9.13 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.

          9.14 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 sub
ject matter contained herein.  There are no restrictions, promises,
representations, warranties, covenants or under takings 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
agreements and understandings among the parties with respect to such subject
matter.

          9.15 Injunctive Relief.  The Company, Endo LLC and the Management
               -----------------
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 Management Stockholders may have.  Each
Management Stockholder hereby irrevocably submits to

                                       29
<PAGE>

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 Management
Stockholder hereby consents to service of process by mail made in accordance
with Section 10.12 hereof.

          9.16 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.

                                       30
<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

                    By: _______________________________________
                        Carol A. Ammon

                    By: _______________________________________
                        Jeffrey R. Black

                                       31
<PAGE>

                    By: _______________________________________
                        Mariann T. MacDonald

                    By: _______________________________________
                        David A.H. Lee

                    CAROL A. AMMON, TRUSTEE REVOCABLE
                      TRUST U/A, DATED 6/13/97

                    By: _______________________________________
                        Carol A. Ammon

                                       32
<PAGE>

          The undersigned, by its signature below hereby becomes a party to the
Amended and Restated Stockholders Agreement, dated as of ______ __, 2000, among
Endo Pharmaceuticals Holdings Inc. and certain of its stockholders (the
"Stockholders Agreement") pursuant to Section 10.3 thereof and agrees to be
-----------------------
bound by the terms of the Stock holders Agreement and, for all purposes thereof,
to be a "Management Stockholder".
         ----------------------

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

                              ___________________________
                                       Signature

                              ___________________________
                              Print Name

                                       33

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